Ohio Valley Banc Corp. Reports Third Quarter Earnings

October 26, 2023

GALLIPOLIS, Ohio — Ohio Valley Banc Corp. [Nasdaq: OVBC] (the “Company”) reported consolidated net income for the quarter ended September 30, 2023, of $2,251,000, a decrease of $1,439,000 from the same period the prior year. Earnings per share for the third quarter of 2023 were $.47 compared to $.77 for the prior year third quarter. For the nine months ended September 30, 2023, net income totaled $9,408,000, a decrease of $406,000 from the same period the prior year. Earnings per share were $1.97 for the first nine months of 2023 versus $2.06 for the first nine months of 2022. Return on average assets and return on average equity were 1.00% and 9.21%, respectively, for the first nine months of 2023, compared to 1.03% and 9.56%, respectively, for the same period in the prior year. 

Ohio Valley Banc Corp. President and CEO, Larry Miller said, “Given the historic rise in interest rates resulting from the Federal Reserve’s action to reduce inflation, we have been pleased with the resilience of our loan demand. However, the competition for deposits to fund this growth has been challenging, putting pressure on our margins, and we expect that to be the case for some time. Even though there is much uncertainty in the world right now, your Company is well positioned with a dedicated team of community bankers and a strong balance sheet to navigate these challenges.”

For the three months ended September 30, 2023, net interest income decreased $469,000 from the same period last year. The decrease was largely related to the decrease in the net interest margin. For the third quarter of 2023, the net interest margin was 3.85%, a decrease from the 4.03% for the third 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. 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 nine months ended September 30, 2023, net interest income increased $2,324,000 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, which generally yields less than loans. For the nine months ended September 30, 2023, the net interest margin was 4.03%, compared to 3.73% for the same period the prior year. For the nine months ended September 30, 2023, average loans increased $88 million and average balances maintained at the Federal Reserve decreased $74 million from the first nine months of last year.

For the three months ended September 30, 2023, the provision for credit loss expense totaled $888,000, an increase of $1,266,000 from the same period last year. The quarterly provision for credit loss expense was primarily related to the additional reserves associated with certain qualitative risk factors incorporating the national trend of higher loan delinquencies and charge offs. Furthermore, additional provision for credit loss expense was related to quarter-to-date net charge-offs of $210,000 and the $11 million quarterly increase in loan balances. Partially offsetting these increases was lower expected loss rates in relation to an improved unemployment and gross domestic product forecast. For the nine months ended September 30, 2023, the provision for credit losses was $1,401,000, an increase of $2,092,000 from the same period last year. The year-to-date provision for credit loss expense was primarily associated with net charge-offs of $649,000, loan growth of $76 million and additional reserves for the change in qualitative risk factors mentioned above. These increases were partially offset by lower expected loss rates in relation to improved economic forecasts. Comparatively, the first nine months of 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 the first nine months of 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 .85% of total loans at September 30, 2023, compared to .60% at December 31, 2022, and .56% at September 30, 2022. The increase in the allowance for credit losses at September 30, 2023, as compared to December 31, 2022, was primarily 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 .28% at September 30, 2023, compared to .43% at December 31, 2022, and .46% at September 30, 2022.

For the three months ended September 30, 2023, noninterest income totaled $2,568,000, a decrease of $47,000 from the same period last year. The decrease was related to lower mortgage banking income. For the nine months ended September 30, 2023, noninterest income totaled $9,048,000, an increase of $77,000 from the same period last year. The increase was largely due to higher service charges on deposit accounts, interchange income on debit and credit cards, and commissions earned by Race Day Mortgage for mortgage application referrals. As part of winding down Race Day Mortgage, the commissions earned on mortgage application referrals ended in April 2023. These increases were partially offset by a decrease in mortgage banking income from selling loans to the secondary market. With elevated mortgage rates, mortgage customers are 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 September 30, 2023, noninterest expense totaled $10,379,000, an increase of $32,000 from the same period last year. For the nine months ended September 30, 2023, noninterest expense totaled $31,066,000, an increase of $908,000 from the same period last year. The Company’s largest noninterest expense, salaries and employee benefits, increased $42,000 as compared to the third quarter of 2022 and increased $514,000 as compared to the first nine months of 2022. The increase was primarily related to annual merit increases. However, the growth in salary and employee benefit expense was offset 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 $253,000 for the third quarter of 2023 and $500,000 for the first nine months of 2023, when compared to the same periods last year. Further contributing to higher noninterest expense were FDIC insurance premiums and software expense. For the three months and nine months ended September 30, 2023, FDIC insurance premiums increased $61,000 and $171,000, respectively, from the same periods last year. The increase was related to higher assessment rates on all insured depository institutions. Software expense increased $60,000 during the third quarter of 2023 and increased $151,000 during the first nine months of 2023, as compared to the same periods in 2022. The increase was related to investments in loan processing platforms to enhance efficiency.

The Company’s total assets at September 30, 2023 were $1.314 billion, an increase of $103 million, or 8.5%, from December 31, 2022. Since December 31, 2022, loan balances increased $76 million and interest-bearing deposits with banks increased $44 million due to higher balances being maintained at the Federal Reserve. These increases were primarily funded by a $68 million increase in deposits and a $28 million increase in borrowed funds. The growth in deposits was impacted by the utilization of wholesale deposit funding sources. At September 30, 2023, shareholders’ equity increased $1.8 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 $1.7 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.