Ohio Valley Banc Corp. President and CEO, Larry Miller stated, “While our results for 2023 didn’t quite match the record year we celebrated in 2022, I want to commend our team of dedicated bankers who worked hard to produce these solid results. Our lending team turned in a particularly strong performance with double-digit average loan growth while our deposit gathering staff did their part to fund this strong growth despite challenging market dynamics. Even though the cost of doing business and funding our balance sheet increased substantially in 2023, our employees and your company continued to invest time and resources in support of our Community First Mission.”
For the three months ended December 31, 2023, net interest income decreased $1,075,000 from the same period last year. The decrease was largely related to the decrease in the net interest margin, which was partially offset by growth in average earning assets of $92 million, led by strong growth in the loan portfolio. For the fourth quarter of 2023, the net interest margin was 3.71%, a decrease from the 4.38% for the fourth quarter of 2022. During 2022, the Company experienced an increasing trend in the net interest margin in relation to the significant increase in market interest rates based on actions taken by the Federal Reserve, which contributed to the yield on earning assets increasing more than the cost of interest-bearing liabilities. The net interest margin improvement peaked during the fourth quarter of 2022. During 2023, the net interest margin has experienced a decreasing trend because the Company has been increasing rates on deposit accounts to attract deposits as market competition increased and the deposit composition has trended toward higher cost certificates of deposit. Furthermore, the higher utilization of wholesale funding sources to fund loan growth contributed to a higher cost of funds. For the year ended December 31, 2023, net interest income increased $1,249,000 from the same period last year. Contributing to the increase was the higher year-to-date net interest margin and the higher relative balances maintained in loans, as opposed to the Federal Reserve or securities, which generally yield less than loans. For the year ended December 31, 2023, the net interest margin was 3.94%, compared to 3.89% for the same period the prior year. For the year ended December 31, 2023, average loans increased $91 million, average balances maintained at the Federal Reserve decreased $51 million and average securities decreased $19 million from the same period last year.
For the three months ended December 31, 2023, the provision for credit losses was $689,000, an increase of $30,000 from the same period last year. The provision for credit loss expense for the fourth quarter of 2023 was primarily related to higher expected loss rates in relation to a worsened unemployment and gross domestic product forecast along with higher reserves related to an extension in the expected life of loans due to slower expected prepayments on loans. Furthermore, additional provision for credit loss expense was related to quarter-to-date net charge-offs of $45,000 and the $11 million quarterly increase in loan balances. For the year ended December 31, 2023, the provision for credit losses was $2,090,000, an increase of $2,122,000 from the same period last year. The year-to-date provision for credit loss expense was primarily associated with net charge-offs of $694,000, loan growth of $87 million and additional reserves associated with certain qualitative risk factors incorporating the national trend of higher loan delinquencies and charge offs, particularly within commercial real estate and construction loans. Comparatively, 2023 had a larger provision for credit losses than the same period in 2022 because there was negative provision for loan loss expense experienced during 2022 due to a decrease in certain economic risk factors, such as the level of classified and criticized loans and the partial release of the COVID reserve. The allowance for credit losses was .90% of total loans at December 31, 2023, compared to .60% at December 31, 2022. The increase in the allowance for credit losses at December 31, 2023, as compared to December 31, 2022, was partly related to the Company adopting the new accounting guidance for measuring the credit losses on financial instruments on January 1, 2023. Under this guidance, the Company established a Current Expected Credit Losses (CECL) model to estimate future credit losses, which replaced the former incurred loss methodology. Upon adoption of CECL, the Company increased the allowance for credit losses by $2,162,000. The ratio of nonperforming loans to total loans improved to .26% at December 31, 2023, compared to .43% at December 31, 2022.
For the three months ended December 31, 2023, noninterest income totaled $3,581,000, an increase of $2,390,000 from the same period last year. For the year ended December 31, 2023, noninterest income totaled $12,629,000, an increase of $2,467,000 from the same period last year. The increase for both the quarter and the year-to-date periods was primarily due to a $1,514,000 decrease in the loss on the sale of securities from the same period the prior year. During the fourth quarter of 2022, the Company sold $12.5 million in securities at a loss of $1,537,000. The proceeds were reinvested into higher-yielding securities to increase future interest income. In addition, the revenue recognized during the fourth quarter of 2023, as part of our settlement agreement with a tax refund processor, increased $726,000 from the same period the prior year. The increase was related to the impact of the higher interest rate environment on the revenue earned per the agreement. These increases were partially offset by a $522,000 year-to-date decrease in mortgage banking income from selling loans to the secondary market. The decrease was related to the closing of Race Day Mortgage and to elevated mortgage rates, which contributed to mortgage customers selecting in-house variable rate mortgage products instead of long-term fixed rate products that are sold to the secondary market.
For the three months ended December 31, 2023, noninterest expense totaled $10,302,000, an increase of $1,420,000 from the same period last year. For the year ended December 31, 2023, noninterest expense totaled $41,368,000, an increase of $2,328,000 from the same period last year. The Company’s largest noninterest expense, salaries and employee benefits, increased $1,262,000 as compared to the fourth quarter of 2022, and $1,776,000 as compared to the year ended December 31, 2022. The increase was primarily related to annual merit increases and nonqualified benefit plan expense. During the fourth quarter of 2022, the nonqualified benefit plan liabilities were evaluated and based on higher market interest rates, the benefit plan liabilities were reduced, leading to a lump sum decrease in expense. A comparable adjustment was not required in 2023. As a result, the 2023 expense associated with the nonqualified benefit plans increased $1,162,000 for the fourth quarter and $1,099,000 for the year-to-date period when compared to the same respective periods the prior year. However, the growth in salary and employee benefit expense was reduced due to the elimination of staffing for Race Day Mortgage by April 2023. As a result, a savings in salary and employee benefit expense was realized totaling $199,000 for the fourth quarter of 2023 and $699,000 for the year ended December 31, 2023, when compared to the same periods last year.
Further contributing to higher noninterest expense were software expense and FDIC insurance premiums. Software expense increased $301,000 during the fourth quarter of 2023 and increased $452,000 during the year ended December 31, 2023, as compared to the same periods in 2022. The increase was related to investments in loan processing platforms to enhance efficiency and to termination fees for software agreements for Race Day Mortgage. For the three months and year ended December 31, 2023, FDIC insurance premiums increased $63,000 and $234,000, respectively, from the same periods last year. The increase was related to higher assessment rates on all insured depository institutions. Partially offsetting the increase in noninterest expense was marketing expense. The decrease in marketing expense was primarily related to select donations made during the fourth quarter of 2022 to support the communities that we serve and reflective of our Community First mission. Marketing expense decreased $423,000 and $418,000 during the three and twelve months ended December 31, 2023, compared to the same periods in 2022, respectively.
The Company’s total assets at December 31, 2023 were $1.352 billion, an increase of $141 million, or 11.7%, from December 31, 2022. Since December 31, 2022, loan balances increased $87 million and interest-bearing deposits with banks increased $82 million due to higher balances being maintained at the Federal Reserve. These increases were primarily funded by a $99 million increase in deposits, a $27 million increase in borrowed funds and a $23 million decrease in securities. The growth in deposits was supplemented by the utilization of wholesale deposit funding sources. At December 31, 2023, shareholders’ equity increased $9 million from year end 2022. The growth in shareholders’ equity was impacted by the adoption of CECL, which required a $2.2 million charge to retained earnings. In addition, the decrease in the fair value of securities classified as available-for-sale limited the growth in shareholders’ equity. Based on the increase in market rates during 2023, the fair value of securities decreased $3.4 million on an after-tax basis.
Ohio Valley Banc Corp. common stock is traded on the NASDAQ Global Market under the symbol OVBC. The holding company owns The Ohio Valley Bank Company with 17 offices in Ohio and West Virginia, and Loan Central, Inc. with six consumer finance offices in Ohio. Learn more about Ohio Valley Banc Corp. here.
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; (vii) regulatory changes; and (viii) other factors that may be described in the Company’s Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q as filed with the Securities and Exchange Commission from time to time. 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.
