Ohio Valley Banc Corp. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; unaudited consolidated results. Unless stated otherwise, dollar amounts are in thousands.
Business context and reporting period
Ohio Valley Banc Corp. is a community banking and consumer finance company serving southeastern Ohio and western West Virginia. Banking generated 94.4% of consolidated revenue in Q2 2023. In February 2023, the company began winding down Race Day Mortgage, citing low loan demand, staffing retention issues, and lack of profitability; a closing date remained subject to termination of contractual service agreements.
Financial performance and condition
| Metric | Q2 / June 30, 2023 | Comparable period / prior date |
|---|---|---|
| Net income | $3,249; EPS $0.68 | Q2 2022: $1,999; EPS $0.42 |
| Six-month net income | $7,157; EPS $1.50 | Six months 2022: $6,124; EPS $1.29 |
| Net interest income | Q2: $11,614; six months: $23,336 | Q2 2022: $10,553; six months 2022: $20,543 |
| Net interest margin | Q2: 4.03%; six months: 4.12% | Q2 2022: 3.64%; six months 2022: 3.58% |
| Total assets | $1,274,230 | December 31, 2022: $1,210,787 |
| Gross loans / deposits | $949,952 / $1,076,572 | December 31, 2022: $885,049 / $1,027,655 |
| Cash and cash equivalents | $56,795 | December 31, 2022: $45,990 |
| Loan allowance for credit losses | $7,571, or 0.80% of loans | December 31, 2022: $5,269, or 0.60% |
| Other borrowed funds / subordinated debentures | $26,904 / $8,500 | December 31, 2022: $17,945 / $8,500 |
| Shareholders’ equity | $138,072 | December 31, 2022: $135,028 |
Q2 provision for credit losses was $24 versus $813 in Q2 2022; the six-month provision was $513 versus a $313 recovery in the first half of 2022. Noninterest income was $2,713 in Q2 and $6,480 for six months. Noninterest expense was $10,415 and $20,687, respectively. The efficiency ratio improved to 71.9% for Q2 and 68.7% for six months, from 75.3% and 73.0% in the corresponding 2022 periods.
For the six months, operating activities provided $8,176 of cash; investing activities used $52,478 and financing activities provided $55,107. Cash and cash equivalents increased $10,805. The Bank reported a Community Bank Leverage Ratio of 11.13%, above the 9.0% qualifying threshold.
Material changes versus comparable periods
- Higher loan yields and a greater share of earning assets in loans lifted net interest income and margin. Q2 net interest margin nevertheless declined from 4.21% in Q1 2023 and 4.38% in Q4 2022.
- Rising funding costs partly offset asset-yield gains. Q2 interest expense was $3,403 versus $668 a year earlier; management reported interest-bearing deposit costs of 1.37% at June 30, 2023 versus 0.29% a year earlier.
- Loans grew 7.3% from year-end, with growth across all segments. Consumer loans rose 14.1%; this included a purchased pool of unsecured loans with a $13,124 carrying amount at June 30.
- Deposits rose 4.8% from year-end, but noninterest-bearing balances declined 4.4%. Time deposits increased 73.7%, including brokered deposits of $62,648 versus $3,999 at year-end 2022.
- The adoption of CECL on January 1, 2023 increased the loan allowance by $2,162 and established reserves for unfunded commitments and held-to-maturity securities of $631 and $3. The net $2,209 transition charge reduced retained earnings; it did not affect earnings at adoption.
- Accumulated other comprehensive loss improved to $14,073 from $14,813 at year-end. Available-for-sale securities had $17,815 of gross unrealized losses at June 30; management attributed them to noncredit factors and reported no related allowance.
Outlook, commentary, and risks
- The filing provides no specific full-year earnings or revenue guidance. Management said it would emphasize retaining core deposits and investing funds in higher-yielding assets, particularly loans, as opportunities arise.
- Management cited increased deposit competition and liquidity pressure in the elevated-rate environment. The company reported $106,932 of additional FHLB borrowing capacity, including a $100,000 cash-management line, and $60,804 available through a Federal Reserve borrowing line. It stated that available liquidity and funding sources were sufficient for anticipated needs.
- Management cautioned that continued margin improvement depends partly on loan growth and warned of pressure if loans do not expand or remain a larger share of earning assets. Deposit competition and higher-cost wholesale funding were already weighing on the linked-quarter margin.
- Credit quality indicators improved from year-end: nonperforming loans were 0.29% of loans versus 0.43%, and nonperforming assets were 0.22% of assets versus 0.31%. Total past-due loans were $5,166, compared with $7,872 at year-end. The allowance remains judgment-sensitive, and management noted that adverse borrower or economic developments could require additional provision.
- Risk disclosures include interest-rate and securities valuation exposure, deposit volatility following recent bank failures, possible regulatory changes or FDIC assessments, and potential effects of U.S. government credit-rating downgrades or default. The company reported no material legal proceedings outside the ordinary course.
Important facts for investors to verify
- Whether deposit competition, brokered funding, and deposit repricing continue to reduce net interest margin and liquidity.
- Loan growth and performance, especially the purchased unsecured consumer-loan pool, commercial real estate and construction exposures, and charge-offs.
- Whether the $7,571 loan allowance and $565 off-balance-sheet allowance remain adequate as CECL forecasts and credit conditions change.
- The scale and duration of unrealized securities losses, and whether liquidity needs could require securities sales before recovery.
- Progress and costs in closing Race Day Mortgage, including the timing of remaining contractual terminations.