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Ohio Valley Banc Corp. Reports Operating Results (10-Q)

August 09, 2012 | About:
10qk

10qk

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Ohio Valley Banc Corp. (OVBC) filed Quarterly Report for the period ended 2012-06-30.

Ohio Valley Banc Corp. has a market cap of $77.4 million; its shares were traded at around $19.38 with a P/E ratio of 11.7 and P/S ratio of 1.5. The dividend yield of Ohio Valley Banc Corp. stocks is 4.4%.

Highlight of Business Operations:

The portion of impaired loans at June 30, 2012 with specific allocations of the allowance for loan losses had a carrying amount of $4,661 and was measured for impairment using the income and comparable sales approach. This measurement resulted in a valuation allowance of $1,845 at June 30, 2012, which contributed to an increase of $1,946 in provision for loan loss expense during the six months ended June 30, 2012. This increase was larger than the increase of $1,306 in provision for loan loss expense from impaired loans during the six months ended June 30, 2011. The portion of impaired loans at December 31, 2011 with specific allocations of the allowance for loan losses had a carrying amount of $3,491. The loans were measured for impairment using the income approach. This measurement resulted in a valuation allowance of $655 at December 31, 2011.

The consolidated total assets of the Company decreased $2,805, or 0.3%, during the first half of 2012 as compared to year-end 2011, to finish at $801,372. This change in assets was due to a decrease in the Company s earning assets of $3,525 from year-end 2011, mostly from lower loans partially offset by increases in both interest-bearing deposits with banks and investment securities. The first half of 2012 saw the Company s loan portfolio decrease $34,234, or 5.7%, from year-end 2011. This change in loan balances came primarily from the commercial real estate loan portfolio, which decreased $23,546, or 11.4%, from year-end 2011, largely due to increases in loan payoffs as well as additional charge-offs recorded during

Generating residential real estate loans remains a significant focus of the Company s lending efforts. Residential real estate loan balances comprise the largest portion of the Company s loan portfolio and consist primarily of one- to four-family residential mortgages and carry many of the same customer and industry risks as the commercial loan portfolio. During the first half of 2012, total residential real estate loan balances decreased $5,360, or 2.2%, from year-end 2011. The decrease was mostly from the Company s 15-, 20- and 30-year fixed-rate loans, which declined $10,914, or 6.6%, from year-end 2011. Long-term interest rates continue to remain at historic low levels and have prompted periods of increased refinancing demand for long-term, fixed-rate real estate loans in recent years. Management has determined that originating 100% of the demand for long-term fixed-rate real estate loans at such low rates would present an unacceptable level of interest rate risk. Therefore, to help manage interest rate risk while also satisfying the demand for long-term, fixed-rate real estate loans, the Company has strategically chosen to originate and sell most of its fixed-rate mortgage loans to the secondary market, which allowed its customers to take advantage of low rates and reduce their monthly costs. The Company maintains its relationship with the customer by servicing the loan. The Company has experienced an increase in refinancing volume, which has led to higher secondary market sales in 2012 versus 2011. During the first six months of 2012, a total of 87 loans totaling $11,155 were sold, compared to 34 loans sold totaling $3,572 during the first six months of 2011. This trend of secondary market emphasis also contributed to a lower balance of one-year adjustable-rate mortgages, which were down $1,012 or 4.7%, from year-end 2011. The remaining real estate loan portfolio balances increased $6,566, or 12.5%, primarily from the Company s other variable-rate products. The Company believes it has limited its interest rate risk exposure due to its practice of promoting and selling residential mortgage loans to the secondary market. The Company will continue to follow this secondary market strategy until long-term interest rates increase back to a range that falls within an acceptable level of interest rate risk.

Total interest and fee income earned on the Company s earning assets decreased $1,160, or 10.7%, during the second quarter of 2012, and decreased $2,520, or 11.0%, during the first half of 2012, as compared to the same periods in 2011. This drop in earnings was largely due to lower consumer fees and an overall decrease in average loan balances, which decreased $58,274, or 9.1%, when comparing average loan balances during the first half of 2012 to the first half of 2011. The consumer loan portfolio contributed most to the decline in interest and fee income, which decreased $332, or 13.4%, during the second quarter of 2012, and $1,078, or 18.8%, during the first half of 2012, as compared to the same periods in 2011. Contributing to this was lower consumer loan average balances during 2012, primarily from auto loan balances, where competition for loan demand continues to be challenged by other financial institutions and captive finance companies. Also contributing to the decrease in consumer interest and fee revenue was a decrease in tax refund anticipation loan fees during the first half of 2012. The Company s participation with a third-party tax software provider had given the Bank the opportunity to make RALs during the tax refund loan season, typically from January through March. During the first half of 2011, the Company recognized $561 in RAL fees. In response to the FDIC's expressions of concern about RALs, the Bank determined to discontinue offering RALs after April 19, 2011. As a result, the Bank did not originate RAL loans during the first half of 2012. The FDIC's concern and recommendation does not affect the Bank's offering of other tax refund products, such as ERC s and ERD s. Furthermore, the FDIC s recommendation does not affect the offerings of RALs by Loan Central.

Provision expense largely impacted the Company s earnings during the second quarter and first half of 2012, decreasing $235 and $1,863, respectively, as compared to the same periods in 2011. Provision expense decreased in large part due to decreases in both net charge-offs and general allocations when comparing the first half of 2012 to the same period in 2011. These changes were largely the result of commercial loan adjustments that occurred during the previous year s first quarter. During the first half of 2012, the Company s net charge-offs totaled $1,657, a decrease from the $6,610 in net charge-offs recognized during the first half of 2011. This was largely due to the partial charge-offs of various commercial and residential real estate loans classified as impaired and TDRs. Management believed these charge-offs of collateral dependent loans were necessary given the status of the economy and the customers continued financial weakness. The largest of these charge-offs occurred during the first quarter of 2011, when the Company partially charged off $3,839 on two commercial loans classified as TDRs from one relationship due to a continued deterioration in collateral values. Of this partially charged-off amount, a specific allocation of approximately $2,906 already had been reserved in the allowance for loan losses from prior impairment analysis. A current analysis of the loans collateral values at that time revealed a $933 impairment that required a corresponding increase to provision expense that was used to absorb part of the $3,839 write-down during the first quarter of 2011.

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