Ohio Valley Banc Corp. — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a quarterly filing. Ohio Valley is a community banking holding company operating primarily in southeastern Ohio and western West Virginia through its bank and consumer-finance subsidiaries.
Financial highlights
- Assets and equity: Consolidated assets were approximately $1.030 billion and shareholders’ equity approximately $117.874 million at year-end.
- Loans: Total loans rose $7.733 million, or about 1.0%, to $777.052 million from $769.319 million. Commercial loans increased $9.068 million and consumer loans increased $3.749 million; residential real estate loans declined $5.084 million.
- Loan mix: Residential real estate $304.079 million; commercial real estate $216.360 million; commercial and industrial $113.243 million; consumer $143.370 million.
- Credit quality and allowance: The allowance for loan losses was $6.728 million, down from $7.499 million. Net charge-offs were $1.810 million versus $2.764 million in 2017; net charge-offs equaled 0.23% of average loans versus 0.37%. The allowance covered 66.13% of nonperforming assets, compared with 62.39% a year earlier.
- Reported earnings detail: The filing text states 2018 net income was $11.9 million. It does not provide a clear value for total revenue, net interest margin, operating cash flow, or other detailed income-statement and cash-flow measures; those statements are incorporated by reference to the shareholder annual report.
- Revenue concentration: Banking generated 92.9% of consolidated revenue. Loan interest and fee revenue represented 76.31% of consolidated revenue; securities interest and dividends represented 5.48%.
- Tax-refund activities: ERC/ERD fees were $1.579 million and interest income on temporarily held tax refunds was $894,000 in 2018.
- Funding and debt: Funding sources include core deposits, wholesale deposits, Federal Home Loan Bank advances, and $8.5 million of trust-preferred securities supported by subordinated debentures. The supplied text does not give a clear year-end total for deposits, borrowings, or cash-flow liquidity.
Material changes versus the prior comparable period
- Loan growth was modest overall, led by commercial and consumer lending, while residential real estate balances contracted.
- The allowance declined by $771,000 and net charge-offs decreased from 2017, although the allowance-to-nonperforming-assets ratio improved.
- The tax-refund service provider stopped using the Bank’s services at the end of 2018. The Bank expects no replacement for the 2019 tax season, putting the related fees and temporary-funds interest income at risk.
- Ohio Valley filed a breach-of-contract lawsuit against the provider. The timing and amount of any recovery are uncertain, and litigation costs may adversely affect earnings and liquidity.
Outlook, risks, and unusual items
- Management said the Bank meets regulatory ratio requirements to be considered well capitalized. The holding company qualified under the Federal Reserve’s Small Bank Holding Company Policy Statement and was not required to meet consolidated capital requirements at the holding-company level.
- Ohio’s HB 123 imposes tighter restrictions on certain nonbank consumer loans originated after April 26, 2019. The Bank is exempt, but Loan Central is not. Management expected limited 2019 impact because most of its lending occurs before the law takes effect; the law could materially constrain Loan Central’s tax-refund-related lending in later seasons.
- The CFPB proposed delaying and rescinding portions of its Payday Rule in February 2019. The filing estimates minimal impact on the Bank, but notes potentially greater effects on Loan Central under the rule as originally issued.
- CECL was expected to become effective for the Company in the first quarter of 2020. Adoption could increase credit-loss allowances and reduce retained earnings and regulatory capital; the filing does not quantify the expected impact.
- Key risks include concentration in local Ohio and West Virginia economies, commercial and commercial real estate credit exposure, rising funding costs and interest-rate sensitivity, LIBOR transition uncertainty, competition, cybersecurity and third-party service-provider risks, and regulatory constraints on dividends.
- No specific earnings or revenue guidance is provided in the supplied filing text.
Important facts for investors to verify
- Review the incorporated 2018 Annual Report for complete income statements, cash flows, net interest margin, deposits, borrowings, liquidity, capital ratios, and detailed asset-quality disclosures.
- Assess how much recurring earnings and liquidity depended on ERC/ERD activity, and the effect of its termination and related litigation.
- Confirm Loan Central’s exposure to HB 123 and the expected effect on its 2020 tax-season lending and contribution to earnings.
- Review loan delinquencies, nonperforming assets, collateral quality, and allowance assumptions, including preparations for CECL.
- Check regulatory capital and dividend capacity at both the Bank and holding-company levels, and the maturity and terms of trust-preferred funding.