Ohio Valley Banc Corp. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unaudited consolidated results; dollars are in thousands except per-share data. Ohio Valley is a community banking and consumer finance company serving southeastern Ohio and western West Virginia.
Financial performance
- Third quarter: Net interest income was $10,359, up 2.7% year over year; net income was $3,036 versus $2,294, and earnings per share were $0.63 versus $0.48.
- Nine months: Net interest income was $30,622, up 2.5%; net income was $9,428 versus $5,559, and earnings per share were $1.97 versus $1.16.
- Third-quarter and nine-month net interest margin was 3.57% and 3.62%, respectively, down from 3.88% and 4.04% in 2020. Management attributed the contraction chiefly to lower market rates and the mix of low-yielding PPP loans and Federal Reserve balances.
- Provision for loan losses was a benefit of $93 in Q3 and $118 for the nine-month period, compared with a $2 provision benefit and $3,451 expense, respectively, in 2020. Noninterest expense fell 4.3% for Q3 and 3.7% for nine months.
- Noninterest income rose 7.3% in Q3 to $2,612, but fell 7.3% year to date to $8,457. The 2020 period included a $2,000 litigation settlement; 2021 included $675 of electronic refund processing income related to that settlement arrangement. Lower mortgage banking income also weighed on 2021 results.
- Management reported annualized return on assets of 1.03% and return on equity of 9.13% at September 30, compared with 0.69% and 5.70% a year earlier. Efficiency ratios improved to 72.3% for Q3 and 70.9% year to date.
Financial position, cash flow and liquidity
- Total assets were $1.245 billion, up $58.4 million from December 31, 2020. Available-for-sale and held-to-maturity securities totaled $183.2 million, up $60.9 million; gross loans were $845.7 million, down $2.9 million.
- Deposits increased $57.9 million to $1.052 billion, largely from stimulus-related balances and customer liquidity. Cash and cash equivalents were $135.1 million, down $3.2 million from year-end.
- Shareholders’ equity was $140.9 million, up $4.6 million. Other borrowed funds declined $4.6 million to $23.3 million; subordinated debentures remained $8.5 million. The company paid $0.63 per share in dividends during the first nine months and repurchased 16,569 shares for $458.
- For the first nine months, operating cash flow was $8.1 million, investing cash outflow was $61.2 million, and financing cash inflow was $49.9 million. Cash declined $3.2 million to $135.1 million.
- Management reported liquid resources of $309.6 million, or 24.9% of assets, and additional FHLB borrowing availability of $109.4 million; a Federal Reserve line had $58.1 million available. The Bank and company reported Community Bank Leverage Ratios of 10.32% and 11.35%, respectively, above the then-applicable 8.5% threshold.
Credit quality, outlook and risks
- The allowance for loan losses was $6.7 million, or 0.79% of loans, compared with $7.2 million, or 0.84%, at year-end 2020. Nonperforming loans were 0.72% of loans versus 0.82% at year-end; nonaccrual loans totaled $5.9 million. Management considered the allowance adequate but noted future economic and borrower developments could require adjustments.
- At September 30, 674 COVID-related modified loans totaling $130.4 million were not classified as TDRs; 18 loans totaling $156,000 remained under deferral terms. The filing identifies ongoing pandemic effects, local economic conditions, interest-rate changes, credit performance and competitive funding costs as risks.
- Management expects to emphasize commercial lending, core deposit relationships and investment of excess liquidity into higher-yielding assets, but gives no quantified earnings or balance-sheet guidance. It cautions that margin improvement depends partly on loan growth and asset mix.
- CECL adoption was scheduled for fiscal years beginning after December 15, 2022 for the company. Management expected a one-time cumulative adjustment and a material increase in the allowance; its model and data evaluation were ongoing.
- The Board authorized a share repurchase program of up to $5.0 million through August 31, 2022. At September 30, $4.542 million remained available. The filing reports no material legal proceedings or material changes to the prior annual report’s risk factors.
Key facts for investors to verify
- Whether lower provisions remain supportable as pandemic-related uncertainty and deferred loan payments resolve.
- Loan growth, commercial real estate and consumer credit trends, and changes in nonperforming loans and criticized/classified assets.
- Net interest margin sensitivity to rates, deposit mix and deployment of excess liquidity.
- Timing and financial effect of CECL adoption, including the eventual allowance increase.
- Execution and remaining capacity of the repurchase program, alongside dividends and capital levels.