OHIO VALLEY BANC CORP (OVBC) stock intrinsic value fair value estimate & owner earnings analysis

Ohio Valley Banc is the holding company for Ohio Valley Bank, a community bank with eighteen offices in southeastern Ohio and western West Virginia. It also owns Loan Central, a consumer lender and tax preparer with six offices in southeastern Ohio, and a small insurance agency. The bank takes deposits ($1.41 billion at June 30, 2026), lends them out ($1.25 billion of loans) and invests the rest in government and agency securities. Earnings depend on the spread between what it earns on loans and securities and what it pays depositors, and on how many of its loans go bad. How we measure earnings. We start from the cash the business produces from operations. We strip out working-capital timing swings and deduct the spending needed to keep branches and systems running. For a bank, operating cash flow adds back the loan-loss provision because it is a non-cash reserve. Loans that actually default are a real cost, though, so we deduct a normal year's actual net charge-offs: about $1.1 million a year on average over 2020-2025, or roughly $0.19 per share after tax. Over 2021-2025 that measure ran $2.46, $2.80, $2.53, $2.25 and $3.12 per share. The 2025 figure leaves out a one-time $3.7 million loss the bank took on selling securities to reinvest at higher yields. We use the median of those years, which covers both the low-rate period and the rate hikes of 2022-2023. That gives a normal earning power of about $2.34 per share after credit losses. Earlier years are left out of the median: 2019 was distorted by a large one-time building outlay, and 2016-2018 come from a smaller bank. Because the bank's borrowings are part of its funding, we value its earnings after interest and subtract no debt. What changed recently. In 2025 the net interest margin rose from 3.71% to 4.07%, average earning assets grew 7.7% and loans grew 7.3%. Reported earnings rose to $15.6 million from $11.0 million. The first half of 2026 was weaker: net income fell to $7.2 million from $8.6 million a year earlier, even though net interest income rose 9%. The bank added $5.4 million to its loan-loss provision against only about $0.4 million of net charge-offs, which lifted the reserve from $11.5 million to $16.6 million in six months. A reserve build that large with so few actual losses suggests the bank sees trouble in specific loans. We cannot yet see whether that trouble turns into real losses, so we take it as a warning in the cases rather than as a new earnings level. Base case. Earning power starts at $2.36 per share and grows about 2% a year, to $2.82 by year ten, with no fade after that. The 2% matches what this business has actually done per share: about $1.92 in 2016 to $2.25 in 2024, on a nearly unchanged share count. The bank's core deposits and loan book renew themselves continuously, which is why we do not fade the far years. We credit no margin expansion, no new markets and no acquisitions. That is worth about $45.05 per share, or about $212 million for the business, with no debt to subtract. Bear case. This case runs one full credit cycle of the kind banks went through in 2008-2010. We assume net charge-offs of about 1.5% of loans a year for two and a half years. That costs roughly $3.13 per share a year after tax, or about $37 million in total. Earnings come out at about -$1.07 per share in each of the first two years and +$0.50 in year three. After the cycle, earning power settles at $2.06 per share: the 2024 level, when deposit costs squeezed the margin, less normal credit losses. It stays there with no growth. Shareholders' equity of $173 million would absorb the losses without new shares being issued, though the dividend would likely be cut. That is worth about $27.29 per share, or $128.5 million, which is below the bank's tangible book value of about $35 per share. Bull case. The 2025 margin and asset growth hold. Earning power starts from the 2025 level excluding the securities loss ($3.12 less normal credit costs, or $2.93), reaching $3.02 in year one and growing 3% a year to $3.94 by year ten, a pace below the roughly 5-6% a year at which deposits grew from 2017 to 2025. That is worth about $61.78 per share, or $291 million. Previous estimate. Our earlier figures are not directly comparable. The main change since then in the business itself is the sharp first-half 2026 reserve build. It hits the near-term years and makes a real credit downturn more plausible. What would make this wrong. First, the 2026 reserve build may be the leading edge of a larger loss rather than a one-off. Second, deposit costs could stay high if rates fall, pushing the margin back toward 2024 levels. Third, the bank operates in slow-growing rural markets, which could keep growth below even 2%. Margin-of-safety price. We are fairly confident in the earnings level: five years of results through very different rate conditions fall in a band of about $2.25-$3.12. The worst plausible outcome is a regional credit downturn concentrated in the bank's home counties, made worse by Loan Central's higher-risk borrowers. The bank's capital and conservative securities book should carry it through without dilution. If the reserve build turns into real losses, value sits near the bear figure of about $27. If margins also slip, the shares are worth somewhere in the mid-$30s, around tangible book. From $22, with roughly $1 a year in dividends, the base case implies about 23% a year over four years, and the bear case implies about 18% a year over three years. The margin-of-safety price is $22, and the price assumes a three-to-five-year holding period with dividends paid along the way.