October 25, 2018 - For immediate release
Contact: Scott Shockey, CFO (740) 446-2631
Ohio Valley Banc Corp. Reports 3rd Quarter Earnings
GALLIPOLIS, Ohio - Ohio Valley Banc Corp. [Nasdaq: OVBC] (the "Company") reported consolidated net income for the quarter ended September 30, 2018, of $1,746,000, an increase of 5.6 percent from the $1,653,000 earned for the third quarter of 2017. Earnings per share for the third quarter of 2018 were $.37 compared to $.35 for the prior year third quarter, a 5.7 percent increase. For the nine months ended September 30, 2018, net income totaled $8,088,000, a 22.3 percent increase from net income of $6,611,000 for the nine months ended September 30, 2017. Earnings per share were $1.71 for the first nine months of 2018 versus $1.41 for the first nine months of 2017. Return on average assets and return on average equity were 1.01 percent and 9.67 percent, respectively, for the first nine months of 2018, compared to .87 percent and 8.24 percent, respectively, for the same period in the prior year.
Tom Wiseman, president and CEO of Ohio Valley Banc Corp., commented, "Change, is the one word I would use to describe the first three quarters of 2018. These changes yield both opportunities and challenges for this company. We're experiencing a rising rate environment for the first time in over 10 years; a new accounting standard to become effective in 2020 has kept our credit team busy establishing and testing new methodologies for calculating our loan loss reserves; more and more customers are banking via device rather than visiting the bank; and two construction projects are underway. Your company is well positioned to not only meet these changes, but embrace them, as proven by the continued growth we have experienced over these past months."
For the third quarter of 2018, net interest income increased $495,000, and for the nine months ended September 30, 2018, net interest income increased $1,709,000, from the same respective periods last year. Positively impacting net interest income was the growth in earning assets. For the nine months ended September 30, 2018, average earning assets increased $64 million from the same period the prior year. The growth in average earning assets was primarily attributable to an increase in balances being maintained at the Federal Reserve and from the loan portfolio. The $37 million increase in average balances being maintained at the Federal Reserve was related to the growth in average deposits exceeding the growth in average loans, partially due to an increase in seasonal deposit balances associated with clearing tax refunds. This increase in average balance, when coupled with the 100 basis point increase in short-term interest rates since September 30, 2017, generated an additional $858,000 in year-to-date interest income. For the nine months ended September 30, 2018, average loans increased $27 million from the same period last year, led by growth within the commercial loan segment. For the nine months ended September 30, 2018, interest and fees on loans increased $1,724,000 from the same period last year. For the nine months ended September 30, 2018, the net interest margin was 4.41 percent, compared to 4.50 percent for the same period the prior year. The decrease in net interest margin was related to the higher balances maintained at the Federal Reserve, which diluted the net interest margin due to the yield on those balances being less than other earning assets, such as loans and securities.
For the three months ended September 30, 2018, the provision for loan losses decreased $639,000, and for the nine months ended September 30, 2018, the provision for loan losses decreased $226,000, from the same respective periods in 2017. For the three months ended September 30, 2018, the provision for loan loss expense of $962,000 was primarily related to the establishment of a specific allocation of $409,000 on a collateral dependent impaired loan and quarterly net loan charge-offs of $287,000. For the nine months ended September 30, 2018, the provision for loan losses incurred of $1,695,000 was primarily related to year-to-date net loan charge-offs of $879,000 and the $409,000 specific allocation previously mentioned. The ratio of nonperforming loans to total loans was 1.36 percent at September 30, 2018 compared to 1.36 percent at December 31, 2017 and 1.19 percent at September 30, 2017. The allowance for loan losses was 1.06 percent of total loans at September 30, 2018, compared to .97 percent at December 31, 2017 and .94 percent at September 30, 2017.
For the three months ended September 30, 2018, noninterest income totaled $1,927,000, a decrease of $355,000 from the same period last year. Noninterest income totaled $7,541,000 for the nine months ended September 30, 2018, an increase of $34,000 from the same period last year. Contributing to the decrease for the quarter and limiting the year-to-date increase was income on bank owned life insurance. In conjunction with various benefit plans for directors and key employees, the Company maintains an investment in bank owned life insurance. During the third quarter of 2017, the Company received life insurance proceeds of $399,000, which contributed to the income decrease on bank owned life insurance for 2018. For the first nine months of 2018, interchange income earned from debit and credit transactions increased $230,000 and gain on sale of other real estate owned increased $169,000, respectively, from the same period last year. Partially offsetting the increases above was a decrease in tax refund processing fees. For the first nine months of 2018, tax refund processing fees totaled $1,566,000, a decrease of $101,000 from the same period the prior year. The decrease was related to the lower per item fee received by the Company under the contract with the third-party tax refund product provider.
For the three months ended September 30, 2018, noninterest expense totaled $9,761,000, an increase of $539,000 from the same period last year. For the nine months ended September 30, 2018, noninterest expense totaled $29,243,000, an increase of $770,000 from the same period last year. The Company's largest noninterest expense, salaries and employee benefits, increased $518,000 as compared to the third quarter of 2017 and increased $1,252,000 as compared to the first nine months of 2017. The increase was primarily related to annual merit increases and higher health insurance expense. Also adding to higher noninterest expense was data processing and professional fees, which increased $195,000 and $80,000, respectively, from the three months ended September 30, 2017 and increased $528,000 and $199,000, respectively, from the nine months ended September 30, 2017. Partially offsetting the increases above was the decrease in fraud expense. During the second quarter of 2017, the Company incurred $830,000 in fraud expense in relation to fraudulent wire transfers. The fraud expense was recouped via existing insurance policies in the fourth quarter of 2017; however, as of September 30, 2017, noninterest expense reflected the increase in expense. Also helping to limit noninterest expense growth was the decrease in foreclosure expense, which for the three months ended September 30, 2018 decreased $104,000 and for the nine months ended September 30, 2018 decreased $261,000 from the same periods last year.
For the nine months ended September 30, 2018, income tax expense totaled $1,428,000, a decrease of $278,000 from the same period last year. The primary contributor to the lower tax expense was the lower federal income tax rate applicable in 2018. As part of the Tax Cuts and Jobs Act that was enacted on December 22, 2017, the Company's statutory federal income tax rate was reduced from 34 percent to 21 percent.
Ohio Valley Banc Corp. common stock is traded on the NASDAQ Global Market under the symbol OVBC. The holding company owns Ohio Valley Bank, with 19 offices in Ohio and West Virginia, and Loan Central, with six consumer finance offices in Ohio. Learn more about Ohio Valley Banc Corp. at www.ovbc.com.
Caution Regarding Forward-Looking Information
Certain statements contained in this earnings release that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "believes," "anticipates," "expects," "appears," "intends," "targeted" and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying those statements. Forward-looking statements involve risks and uncertainties. Actual results may differ materially from those predicted by the forward-looking statements because of various factors and possible events, including: (i) changes in political, economic or other factors, such as inflation rates, recessionary or expansive trends, taxes, the effects of implementation of federal legislation with respect to taxes and government spending and the continuing economic uncertainty in various parts of the world; (ii) competitive pressures; (iii) fluctuations in interest rates; (iv) the level of defaults and prepayment on loans made by the Company; (v) unanticipated litigation, claims, or assessments; (vi) fluctuations in the cost of obtaining funds to make loans; and (vii) regulatory changes. Forward-looking statements speak only as of the date on which they are made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made to reflect unanticipated events. See Item 1.A. "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and Part II. Item 1.A. "Risk Factors" in the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018, for further discussion of the risks affecting the business of the Company and the value of an investment in its shares.
