Business Overview and History
Ohio Valley Banc Corp. (OVBC) is a financial holding company headquartered in Gallipolis, Ohio, that has weathered the economic turbulence of recent years with remarkable resilience. The company's roots date back to 1872, when it was founded as The Ohio Valley Bank Company, and it has since grown to become a prominent player in the regional banking landscape, serving customers across southeastern Ohio and western West Virginia.
Ohio Valley Banc Corp. was founded in 1981 as a bank holding company, operating primarily through its wholly-owned subsidiary, The Ohio Valley Bank Company. The Ohio Valley Bank Company, established in 1872, has grown to become one of the largest community banks in the region. The company provides a comprehensive suite of commercial and retail banking services, including deposit accounts, loans, credit cards, and wealth management. Ohio Valley Banc Corp. also owns Loan Central, Inc., a consumer finance company, and Ohio Valley Financial Services Agency, LLC, an insurance agency.
The company's banking services include the acceptance of deposits in checking, savings, time and money market accounts; the making and servicing of personal, commercial, floor plan and student loans; the making of construction and real estate loans; and credit card services. The Bank also offers individual retirement accounts, safe deposit boxes, wire transfers and other standard banking products and services. Additionally, the Bank provides Tax Refund Advance Loans to Loan Central tax customers.
Over the years, the company has expanded its footprint through strategic branch openings and acquisitions, allowing it to serve customers across a wide geographic area. This expansion has solidified its position as a trusted financial institution in its local markets. In 2014, the company formed a wholly-owned subsidiary called OVBC Captive, Inc. to operate as a captive insurance company. This move was aimed at diversifying the company's revenue streams and taking advantage of favorable tax treatment for small captive insurance companies.
In 2021, Ohio Valley Banc Corp. acquired Race Day Mortgage, Inc., a mortgage lender, as a wholly-owned subsidiary of the bank. This acquisition was part of the company's strategy to expand its residential lending business. However, both Race Day Mortgage and OVBC Captive faced challenges in recent years. In 2023, the company ceased operating OVBC Captive, Inc. in response to proposed IRS regulations that adversely impacted the taxation of small captives and limited the Captive's ability to operate. Similarly, Race Day Mortgage struggled with low loan demand, poor employee retention, and lack of profitability, leading to its closure in December 2023.
Throughout its history, Ohio Valley Banc Corp. has demonstrated its ability to adapt to various economic conditions and industry changes. The company has maintained a focus on serving its local communities, offering a range of commercial and retail banking services, and diversifying its revenue streams. Despite the recent challenges faced with its captive insurance and mortgage lending subsidiaries, the company remains a well-capitalized and well-respected community bank in its region.
Financial Performance
Despite the challenges of the past year, Ohio Valley Banc Corp. has maintained a strong financial position. As of September 30, 2024, the company reported total assets of $1.49 billion, an increase of 10.5% from the previous year-end. This growth was primarily driven by a 7.9% increase in the loan portfolio, led by growth in the commercial real estate, residential real estate, and commercial and industrial segments.
The company's net interest income for the nine months ended September 30, 2024, was $35.73 million, a 2.9% increase compared to the same period in 2023. This improvement was due to growth in average earning assets, which increased by $135.74 million, or 9.7%, during the first nine months of 2024. However, the company's net interest margin decreased by 32 basis points to 3.71% during this period, as the cost of funding sources increased more than the yield on earning assets.
Ohio Valley Banc Corp.'s provision for credit losses expense increased by $451,000, or 32.2%, during the first nine months of 2024 compared to the same period in 2023. This increase was primarily due to a specific reserve established on a collateral-dependent impaired loan, a higher historical loss factor, and an increase in net charge-offs, partially offset by decreases in select qualitative risk factors.
In the third quarter of 2024, OVBC reported revenue of $19.01 million, representing a 3.9% increase compared to the same period in 2023. Net income for the quarter was $2.72 million, a significant 20.8% increase year-over-year. The increase in revenue was primarily driven by growth in net interest income, service charges on deposit accounts, and trust fees. The increase in net income was due to the higher revenue, partially offset by increases in provision for credit losses and noninterest expenses.
Business Segments
Ohio Valley Banc Corp. operates in two primary business segments: Banking and Consumer Finance.
The Banking segment represents the majority of OVBC's operations, accounting for 96% of total consolidated revenues in the third quarter of 2024. This segment includes the Bank's core lending and deposit-taking activities. The Bank offers a variety of commercial and retail banking products and services, including:
1. Commercial Lending: The commercial lending portfolio consists of several sub-segments, including commercial real estate, commercial and industrial, and commercial construction loans. Commercial real estate loans are further divided into owner-occupied and non-owner-occupied properties. These loans are made to small and mid-sized businesses for working capital, equipment purchases, real estate acquisition and development, and other commercial purposes.
2. Residential Real Estate Lending: The residential real estate loan portfolio includes loans to individuals for the purchase of 1-4 family primary residences. This portfolio represents the second largest segment of OVBC's total loan portfolio at 34.3% as of September 30, 2024.
3. Consumer Lending: The consumer loan portfolio includes automobile loans, home equity loans and lines of credit, and other consumer purpose loans, both secured and unsecured.
4. Deposit Products: The Bank offers a full suite of deposit products, including checking, savings, money market, and time deposit accounts to retail and commercial customers.
The Banking segment has been the primary driver of OVBC's growth, with net interest income increasing 10.6% and 2.9% during the third quarter and first nine months of 2024, respectively, compared to the same periods in 2023. This was largely due to growth in average earning assets, particularly loans, which increased 9.1% and 8.8% during those respective periods.
The Consumer Finance segment represents OVBC's Loan Central subsidiary, which provides consumer installment loans, tax refund advance loans, and other consumer-oriented financial services. This segment contributed approximately 4-5% of the company's total revenues in 2024. The Consumer Finance segment generated relatively stable net interest income of around $1.6-1.7 million in the first nine months of 2024. However, provision for credit losses in this segment increased from $50,000 to $68,000 year-over-year, reflecting the higher-risk nature of the consumer lending portfolio.
Liquidity
In terms of liquidity, the company maintains a diversified funding base, with total deposits of $1.26 billion as of September 30, 2024, an increase of 11.9% from the previous year-end. The company's cash and cash equivalents, HTM securities maturing within one year, and AFS securities totaled $354.57 million, representing 23.7% of total assets at the end of the third quarter of 2024.
As of September 30, 2024, OVBC reported cash and cash equivalents of $82.20 million. The company has established multiple sources of funding, including committed borrowing lines with the FHLB and the Federal Reserve Bank, as well as access to wholesale funding sources, to further enhance its liquidity position. Specifically, OVBC has a cash management line of credit enabling it to borrow up to $100 million from the Federal Home Loan Bank, subject to collateral limitations. As of September 30, 2024, OVBC had $72.34 million available on this line of credit.
The company's debt-to-equity ratio stands at 0.33, indicating a conservative approach to leverage. The current ratio and quick ratio are both 276.00, reflecting strong short-term liquidity and the ability to meet short-term obligations.
Regulatory Capital and Shareholder Dividends
Ohio Valley Banc Corp. maintains a strong capital position, with a Community Bank Leverage Ratio (CBLR) of 10.25% as of September 30, 2024, well above the regulatory minimum of 9.0%. This ratio reflects the company's commitment to prudent risk management and financial stability.
The company has also demonstrated a consistent track record of returning capital to its shareholders through regular cash dividends. During the first nine months of 2024, the company paid cash dividends of $0.66 per share, totaling $3.14 million. This commitment to shareholder value is a testament to the company's financial strength and confidence in its long-term growth prospects.
Challenges and Outlook
While Ohio Valley Banc Corp. has navigated the challenges of the past year with commendable resilience, the company faces several risks and uncertainties going forward. The continued economic volatility and geopolitical tensions could impact the company's lending and deposit activities, as well as its overall financial performance.
Additionally, the company's reliance on its regional markets may expose it to localized economic shocks, and the highly competitive banking landscape in its service areas could put pressure on its net interest margin and profitability. The company's successful integration of any future acquisitions and its ability to effectively manage its risk profile will also be crucial to its long-term success.
Nevertheless, Ohio Valley Banc Corp. remains well-positioned to capitalize on the opportunities that may arise in the coming years. The company's experienced management team, diversified product offerings, and strong capital and liquidity positions provide a solid foundation for continued growth and shareholder value creation.
Conclusion
Ohio Valley Banc Corp. has demonstrated its resilience and adaptability in the face of challenging market conditions. The company's commitment to prudent risk management, focus on its core banking operations, and consistent shareholder returns have earned it a reputation as a reliable and trusted financial institution in its regional markets. As the company navigates the evolving banking landscape, its strong financial position and experienced leadership team position it well to weather any storms and continue delivering value to its shareholders.