Ohio Valley Banc Corp. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Unaudited consolidated results include the bank, consumer finance, insurance agency and captive insurance subsidiaries. Unless stated otherwise, dollar amounts are in thousands.
Business context and financial results
The company provides commercial and retail banking services mainly in southeastern Ohio and western West Virginia, alongside consumer finance operations. Net income was $3,531, or $0.74 per share, compared with $1,002, or $0.21 per share, in Q1 2020. Management attributed the improvement primarily to substantially lower loan-loss provision expense and lower operating costs.
| Metric | Q1 2021 / March 31, 2021 | Comparable period / prior date |
|---|---|---|
| Net interest income | $10,048 | $10,004 in Q1 2020 |
| Provision for loan losses | $(52), a net reversal | $3,846 expense in Q1 2020 |
| Noninterest income | $3,339 | $4,442 in Q1 2020 |
| Noninterest expense | $9,187 | $9,519 in Q1 2020 |
| Net interest margin, fully tax-equivalent | 3.73% | 4.34% in Q1 2020 |
| Efficiency ratio | 68.0% | 65.4% in Q1 2020 |
| Return on assets / return on equity, annualized | 1.20% / 10.47% | 0.40% / 3.14% in Q1 2020 |
Financial position, liquidity and cash flow
- Total assets were $1.225 billion, up $38.3 million from year-end 2020. Cash and cash equivalents were $176.4 million; available-for-sale securities were $126.4 million.
- Total loans were $831.1 million, down $17.6 million from year-end; net loans were $824.2 million. The allowance for loan losses was $6.9 million, or 0.83% of loans, versus $7.2 million, or 0.84%, at year-end.
- Deposits totaled $1.033 billion, up $38.9 million, or 3.9%, since year-end. Total liabilities were $1.087 billion and shareholders’ equity was $137.7 million.
- Other borrowed funds were $26.7 million and subordinated debentures were $8.5 million. The company reported $92.2 million of additional FHLB borrowing availability and $57.4 million available on its Federal Reserve borrowing line.
- Cash, qualifying securities and short-term held-to-maturity securities totaled $305.2 million, or 24.9% of assets. Q1 cash flows were $0.7 million provided by operations, $0.7 million provided by investing activities and $36.7 million provided by financing activities; cash and cash equivalents increased $38.1 million to $176.4 million.
- The Bank’s Community Bank Leverage Ratio was 10.65% and the Company’s was 11.64%; management said regulatory capital ratios remained above applicable “well capitalized” minimums. The Q1 dividend was $0.21 per share.
Material changes and management commentary
- Net interest income was nearly flat year over year: growth in average earning assets was offset by margin compression. Management cited lower market rates and the larger share of low-yielding PPP loans and Federal Reserve balances; loan yield fell to 5.18% from 5.78%.
- Noninterest income declined $1.1 million, largely because the prior-year quarter included a $2.0 million litigation settlement payment. In Q1 2021, the related processing agreement generated $540 thousand of electronic refund check/deposit income.
- The $3.9 million year-over-year reduction in provision expense reflected the prior-year COVID-related reserve build and lower net charge-offs. Management reduced general allowance allocations in Q1 2021 but cautioned that economic uncertainty could require future adjustments.
- Deposits and cash rose amid government stimulus receipts, PPP activity and customers’ preference to retain liquidity. Management intends to deploy excess funds into higher-yielding assets, particularly loans, as opportunities arise, and to emphasize core deposit growth and commercial lending.
- Asset quality improved on certain measures: nonperforming loans were 0.74% of loans versus 0.82% at year-end; nonperforming assets were 0.50% of assets versus 0.59%. Nonaccrual loans were $6.0 million. Criticized and classified commercial loans totaled $15.0 million, compared with $16.4 million at year-end.
Outlook, risks and contingencies
- No specific earnings or financial guidance was provided. Management said results for the quarter are not necessarily indicative of full-year results.
- COVID-19 remains a principal uncertainty, including potential borrower distress, higher defaults or charge-offs, allowance needs, asset valuation effects and impacts on local economic conditions. The company continued PPP lending; PPP loans outstanding were $25.8 million and are SBA-guaranteed.
- At March 31, 2021, 56 COVID-related modified loans with $2.4 million outstanding remained in active deferral and were not classified as TDRs. Total COVID-related modified loans not reported as TDRs were 783, with $148.0 million outstanding.
- The company expects adoption of the CECL credit-loss standard, effective for it in fiscal years beginning after December 15, 2022, to produce a material increase in the allowance for loan losses.
- Off-balance-sheet commitments and standby letters of credit totaled approximately $86.9 million; actual funding needs may be lower because many commitments expire undrawn. The filing reports no material legal proceedings and no material changes to the prior-year risk factors.
- Disclosure controls were assessed as effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether loan performance, criticized/classified exposures and COVID-related deferrals continue to improve, and whether the allowance remains adequate as economic conditions evolve.
- How the company manages excess deposits and liquidity while addressing net interest margin pressure and weak loan growth.
- Whether the lower provision and stronger earnings are sustainable absent the unusually high prior-year provision expense and settlement-related comparisons.
- The timing and financial impact of PPP forgiveness, CECL adoption and the remaining tax-processing obligations under the litigation settlement.
- Capital and liquidity capacity under stress, including the availability and terms of contingent borrowing facilities.