Ohio Valley Banc Corp. Reports Higher 3rd Quarter Earnings

GALLIPOLIS, Ohio—Ohio Valley Banc Corp. [Nasdaq: OVBC] (the “Company”) reported consolidated net income for the quarter ended September 30, 2014, of $2,742,000, an increase of $1,681,000 from the third quarter of 2013. Earnings per share for the third quarter of 2014 were $.67 compared to $.26 for the prior year third quarter. For the nine months ended September 30, 2014, net income totaled $7,650,000, a 22.9 percent increase from net income of $6,226,000 for the nine months ended September 30, 2013. Earnings per share were $1.87 for the first nine months of 2014 versus $1.53 for the first nine months of 2013. Return on average assets and return on average equity were 1.27 percent and 12.30 percent, respectively, for the first nine months of 2014, compared to 1.05 percent and 10.72 percent, respectively, for the same period in the prior year.

“Though quarterly earnings increased largely due to the sale of ProAlliance and the reduction in loan loss reserves, it is important to note that we have seen our bankers also increase loan production, reduce overhead, and bring new life to our Community First mission,” stated Thomas E. Wiseman, President and CEO. “Once you peel back the significant contribution from the sale of ProAlliance, it’s comforting to know that we are growing the bank through traditional means as well. Our OVBC family enters into the final quarter of the year with a driving focus on maintaining and growing your company.”

For the third quarter of 2014, net interest income increased $278,000, or 3.5 percent, from the same period last year. For the nine months ended September 30, 2014, net interest income increased $985,000, or 4.1 percent, from the same period last year. Contributing to the higher net interest income was the increase in both average loan balances and net interest margin. For the nine months ended September 30, 2014, average loans increased $26 million from the same period last year. The increase in loan balances occurred primarily within commercial and municipality related financings. The Company’s net interest margin remains strong, and for the nine months ended September 30, 2014, the net interest margin increased to 4.53 percent, from 4.43 percent for the same period the prior year. One major contributor to the net interest margin improvement was lower funding costs related to the 2013 redemption of $5 million in trust preferred securities that had an interest cost of 10.60%. Another major contributor to the margin improvement was an increase in the yield on mortgage-backed securities. When our mortgage-backed securities are prepaid, we must amortize part of the bond premium we paid for the securities, which reduces the net yield on the securities. With fewer mortgages being refinanced recently, prepayments on our mortgage-backed securities and the premium we have had to amortize have decreased.

For the three months ended September 30, 2014, the provision for loan losses decreased $1,515,000, and for the nine months ended September 30, 2014, the provision for loan losses increased $523,000 from the same respective periods in 2013. The negative provision for loan loss expense for the third quarter of 2014 was primarily related to the decrease in specific loan loss reserves. During the third quarter, management reevaluated the overall relationship for a current impaired loan. Based upon improvements in the credit position with the loan, management decreased the specific allocation related to the loan by $524,000. The year-to-date increase in provision for losses was primarily related to an increase in the balance of classified loans, which are loans demonstrating financial weakness. Due to the higher balance of classified assets contributing to a higher risk profile of the loan portfolio, the calculation of the allowance for loan losses required additional general reserves. For the nine months ended September 30, 2014, net charge-offs totaled $389,000, an increase of $76,000 from the same period in 2013. The ratio of nonperforming loans to total loans was .81 percent at September 30, 2014 compared to .84 percent at September 30, 2013. Based on the evaluation of the adequacy of the allowance for loan losses, management believes that the allowance for loan losses at September 30, 2014 was adequate and reflects probable incurred losses in the portfolio. The allowance for loan losses was 1.19 percent of total loans at September 30, 2014, compared to 1.31 percent at September 30, 2013.

For the three months ended September 30, 2014, noninterest income totaled $2,106,000, an increase of $532,000 from 2013’s third quarter. Noninterest income totaled $8,136,000 for the nine months ended September 30, 2014, as compared to $7,479,000 for the same period last year, an increase of $657,000, or 8.8 percent. The primary contributor to the higher quarter-to-date and year-to-date noninterest income was the sale of the Company’s nine percent ownership interest in ProAlliance, a specialty property and casualty insurance company. During the third quarter of 2014, the Company recorded a $675,000 gain from the sale of ProAlliance. The combination of the gain on sale with the $135,000 fee received during the first quarter of 2014, which gave the buyers an option to purchase the outstanding shares of ProAlliance, generated a total gain on sale of $810,000. Also adding to higher year-to-date noninterest income was the growth in tax processing fees. For the nine months ended September 30, 2014, tax processing fees totaled $3,073,000, an increase of $541,000 from the same period the prior year due to an increase in the number of tax refund items processed. Partially offsetting the growth in noninterest income was the decrease in earnings on bank owned life insurance of $480,000, which was related to the receipt of life insurance proceeds of $452,000 in 2013.

For the three months ended September 30, 2014, noninterest expense totaled $7,244,000, a decrease of $76,000 from the same period last year. For the nine months ended September 30, 2014, noninterest expense totaled $21,536,000, a decrease of $1,049,000, or 4.6 percent, from the same period last year. The Company’s largest noninterest expense, salaries and employee benefits, decreased $113,000 from the third quarter of 2013 and decreased $307,000 from the first nine months of 2013. The decrease was primarily related to lower retirement benefit costs. As a result of the new Ohio state tax methodology for financial institutions, the Company’s tax expense decreased $115,000 for the third quarter of 2014 and $314,000 for the first nine months of 2014, as compared to the same periods in 2013. This lower tax expense is anticipated to continue for the rest of 2014. For the first nine months of 2014, foreclosure costs decreased $260,000 from the same period the prior year. The decrease was related to expenses incurred last year in association with the liquidation of real estate in process of foreclosure. As previously mentioned, the Company redeemed trust preferred securities prior to maturity during the first nine months of 2013. The trust preferred securities were redeemed at a premium. The redemption expense of $212,000 was not repeated in the first nine months of 2014.

Since 2006, The Ohio Valley Bank Company (the “Bank”) has facilitated the payment of tax refunds through a third-party tax refund product provider. Through September 30, 2014, with almost all of the fee income already recorded for 2014, the Bank has recorded $3,073,000 in fee income related to this arrangement thus far in 2014. On October 21, 2014, the Bank entered into a new agreement with the third-party tax refund product provider. The new agreement generally provides for a different fee structure, including different fees depending upon the tax refund product selected, and fees that generally will be lower for each refund facilitated, with a reduction in per transaction fees in future years. It is impossible to predict the number of refunds that will be facilitated, the products chosen and therefore the fees that will be received by the Bank. Nevertheless, the Bank anticipates that without an increase in the number of refunds facilitated by the Bank, the fees received by the Bank from this arrangement will be significantly reduced in future years. If the number of refunds facilitated in 2015 under this agreement is the same as the number facilitated in 2014, and if the mix of tax refund products chosen remains the same, the fees from this arrangement would decrease in 2015 by approximately $790,000. An increase or decrease in the number of refunds facilitated or a change in the mix of tax refund products chosen could cause the fees from this arrangement to be substantially different.

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 14 offices in Ohio and West Virginia, and Loan Central, with seven consumer finance offices in Ohio. Learn more about Ohio Valley Banc Corp. at www.ovbc.com.

Forward-Looking Information

Certain statements contained in this earnings release which 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, 2013, for further discussion of the risks affecting the business of the Company and the value of an investment in its shares.