Ohio Valley Banc Corp. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet figures are as of March 31, 2024. Financial statement amounts are in thousands of dollars except per-share data. The unaudited consolidated company is primarily a commercial and retail bank serving southeastern Ohio and western West Virginia, with a consumer finance business and insurance agency. In December 2023, it ceased operating Race Day Mortgage and OVBC Captive.
Financial results and key metrics
| Metric | Q1 2024 | Q1 2023 or comparison |
|---|---|---|
| Net interest income | $11.190 million | $11.722 million; down 4.5% |
| Net interest margin | 3.61% | 4.21%; down 60 basis points |
| Provision for credit losses | $751,000 | $489,000 |
| Noninterest income | $3.696 million | $3.767 million; down 1.9% |
| Noninterest expense | $10.741 million | $10.272 million; up 4.6% |
| Net income | $2.793 million | $3.908 million; down $1.115 million |
| Diluted/basic earnings per share | $0.58 | $0.82 |
| Return on assets / return on equity | 0.83% / 7.77% | 1.28% / 11.85% |
| Efficiency ratio | 71.5% | 65.7%; deterioration |
| Operating cash flow | $928,000 provided | $4.225 million provided |
Interest and dividend income rose 28.2%, led by loan income and interest on bank deposits, but interest expense increased $4.422 million as deposit and wholesale funding costs rose. Average earning assets increased 10.5%, supported by loan growth, but funding costs rose faster than asset yields. The effective tax provision was $601,000, versus $820,000 a year earlier.
Balance sheet and funding: Total assets were $1.373 billion, up $20.464 million from year-end 2023. Total loans were $989.862 million, up $17.962 million; deposits were $1.149 billion, up $21.648 million. Cash and cash equivalents were $129.060 million. Shareholders’ equity was $145.782 million. Other borrowed funds were $43.261 million, including $40.813 million of FHLB advances and $2.448 million of promissory notes; subordinated debentures were $8.5 million. The Bank reported a 10.65% Community Bank Leverage Ratio, above the 9% framework threshold.
Liquid assets cited by management—cash, HTM securities maturing within one year and AFS securities—totaled $292.142 million, or 21.3% of assets. The Bank reported $81.930 million of additional FHLB borrowing availability and $61.511 million available through its FRB line. Uninsured deposits were estimated at $389.826 million, or 33.9% of deposits. The filing states that current on-balance-sheet liquidity and available wholesale funding exceeded uninsured deposits.
Material changes and credit trends
- Loan growth was concentrated in commercial real estate, up 4.0% from year-end, and commercial and industrial loans, up 2.0%; residential real estate loans rose 1.6%. Consumer loans declined 2.0%.
- Deposit growth came mainly from interest-bearing deposits, including time deposits and NOW accounts. Noninterest-bearing deposits fell 4.9% from year-end. Brokered deposits were $64.901 million, essentially unchanged from year-end.
- The loan allowance for credit losses rose to $9.229 million from $8.767 million, equal to 0.93% of loans versus 0.90% at year-end. Loan provision expense was $857,000, partly offset by a $106,000 recovery on off-balance-sheet commitments, producing total provision expense of $751,000.
- Nonperforming loans increased to 0.37% of loans from 0.26% at year-end; nonperforming assets rose to 0.27% of assets from 0.19%. Management attributed the increase primarily to a $927,000 residential real estate loan placed on nonaccrual. Total nonaccrual loans were $3.481 million, and loans at least 90 days past due and still accruing were $197,000.
- Net charge-offs were $395,000, compared with $289,000 in Q1 2023. No new loan modifications for borrowers experiencing financial difficulty were reported in either period.
- AFS securities had $15.261 million of gross unrealized losses at quarter-end, versus $14.661 million at year-end; the quarter included a $468,000 after-tax OCI loss. Management attributed the unrealized losses to noncredit factors, principally interest rates, and reported no AFS securities allowance.
- Net cash used in investing activities was $19.260 million, primarily reflecting $18.315 million of net loan growth and $9.554 million of securities purchases. Financing activities provided $19.266 million, primarily from deposit growth. Cash and cash equivalents increased $934,000.
Outlook, commentary and risks
The filing gives no specific earnings or financial guidance. Management says it intends to emphasize core deposit growth and retention, invest funds in higher-yielding assets—particularly loans—and maintain underwriting quality. It cautions that margin improvement remains pressured by deposit competition, higher-cost CDs and wholesale funding, and that net interest income may remain under pressure if loans do not continue to grow as a larger share of earning assets.
Management identifies elevated interest rates, deposit competition and higher funding costs as liquidity and profitability risks. Other disclosed sensitivities include credit deterioration, defaults and prepayments, changing economic conditions, inflation, competition, regulation, litigation and the judgment involved in estimating expected credit losses. Commercial real estate makes up 33.9% of loans; real estate rental and leasing represents 46.35% of commercial real estate loans. The filing notes borrower risks from higher debt service, weaker occupancy or rents, and local economic conditions. Management considers the allowance adequate but says adverse borrower or economic developments could require future increases.
Management reported effective disclosure controls as of March 31, 2024, and no material change in internal control over financial reporting during the quarter. No material legal proceedings outside the ordinary course or material changes to the prior Form 10-K risk factors were reported.
Important facts for investors to verify
- Whether deposit repricing, funding mix and competition continue to compress net interest margin and earnings.
- Trends in nonperforming loans, delinquencies, charge-offs and allowance coverage, especially the residential real estate exposure and commercial real estate portfolio.
- Liquidity and funding resilience, including uninsured deposits, brokered deposits, collateral availability and access to FHLB and FRB borrowing.
- Potential effects of interest-rate movements on the substantial unrealized losses in AFS securities and on future funding costs and asset yields.
- Whether loan growth, expense increases and the discontinued Race Day Mortgage operations materially affect future revenues, efficiency and profitability.