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What You Should Know About Ohio Valley Banc Corp.’s (NASDAQ:OVBC) Risks

Ingrid Hart

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Post-GFC recovery has led to improving credit quality and a strong growth environment for the banking sector. Ohio Valley Banc Corp. (NASDAQ:OVBC) is a small-cap bank with a market capitalisation of US$183m. Its profit and value are directly impacted by its borrowers’ ability to pay which is driven by the level of economic growth. This is because growth determines the stability of a borrower’s salary as well as the level of interest rates. Risk associated with repayment is measured by bad debt which is written off as an expense, impacting Ohio Valley Banc’s bottom line. Today I will take you through some bad debt and liability measures to analyse the level of risky assets held by the bank. Looking through a risk-lens is a useful way to assess the attractiveness of Ohio Valley Banc’s a stock investment.

View our latest analysis for Ohio Valley Banc

NASDAQGM:OVBC Historical Debt February 19th 19

How Good Is Ohio Valley Banc At Forecasting Its Risks?

The ability for Ohio Valley Banc to forecast and provision for its bad loans accurately serves as an indication for the bank’s understanding of its own level of risk. The bank has poorly anticipated the factors contributing to higher bad loan levels if it writes off more than 100% of the bad debt it provisioned for. This begs the question – does Ohio Valley Banc understand the risks it has taken on? Ohio Valley Banc’s low bad loan to bad debt ratio of 78.2% means the bank has under-provisioned by -21.8%, indicating either an unexpected one-off occurence with defaults or poor bad debt provisioning.

How Much Risk Is Too Much?

By nature, Ohio Valley Banc is exposed to risky assets by lending to borrowers who may not be able to repay their loans. Total loans should generally be made up of less than 3% of loans that are considered unrecoverable, also known as bad debt. Bad debt is written off as expenses when loans are not repaid which directly impacts Ohio Valley Banc’s bottom line. Since bad loans make up a relatively small 1.36% of total assets, the bank exhibits strict bad debt management and faces low risk of default.

Is There Enough Safe Form Of Borrowing?

Handing Money Transparent

Ohio Valley Banc makes money by lending out its various forms of borrowings. Deposits from customers tend to bear the lowest risk given the relatively stable amount available and interest rate. As a rule, a bank is considered less risky if it holds a higher level of deposits. Since Ohio Valley Banc’s total deposit to total liabilities is very high at 93% which is well-above the prudent level of 50% for banks, Ohio Valley Banc may be too cautious with its level of deposits and has plenty of headroom to take on risker forms of liability.

Next Steps:

How will OVBC’s recent acquisition impact the business going forward? Should you be concerned about the future of OVBC and the sustainability of its financial health? The list below is my go-to checks for OVBC. I use Simply Wall St’s platform to keep informed about any changes in the company and market sentiment, and also use their data as the basis for my articles.

  1. Future Outlook: What are well-informed industry analysts predicting for OVBC’s future growth? Take a look at our free research report of analyst consensus for OVBC’s outlook.
  2. Valuation: What is OVBC worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether OVBC is currently mispriced by the market.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. On rare occasion, data errors may occur. Thank you for reading.