OHIO VALLEY BANC CORP

Previous wording

FINANCIAL RESULTS OVERVIEW: Net income totaled $2,793 during the first quarter of 2024, a decrease of $1,115 from the same period of 2023. Earnings per share for the first quarter of 2024 finished at $.58 per share, compared to $.82 per share during the first quarter of 2023. Lower quarterly earnings were largely the result of decreases in both net interest and noninterest income combined with increases in both provision for credit losses and noninterest expense. The impact of lower net earnings during the first quarter of 2024 also had a direct impact to the Company’s annualized net income to average asset ratio, or return on assets, which decreased to 0.83% for the three months ended March 31, 2024, compared to 1.28% for the three months ended March 31, 2023. In addition, the Company’s net income to average equity ratio, or return on equity, decreased to 7.77% for the three months ended March 31, 2024, compared to 11.85% for the three months ended March 31, 2023.

Current wording

FINANCIAL RESULTS OVERVIEW: Net income totaled $2,972 during the second quarter of 2024, a decrease of $277 from the same period of 2023. Earnings per share for the second quarter of 2024 finished at $.63 per share, compared to $.68 per share during the second quarter of 2023. Net income totaled $5,765 during the six months ended June 30, 2024, a decrease of $1,392 from the same period of 2023. Earnings per share during the first six months of 2024 finished at $1.21 per share, compared to $1.50 per share during the first six months of 2023. During both the quarterly and year-to-date periods, earnings were negatively impacted by higher provision for credit losses and noninterest expense, which were up collectively by $605 and $1,336 over the same periods in 2023, respectively. During the second quarter of 2024, earnings were positively impacted by a $349 increase in net interest income, while net interest income decreased $183 during the first half of 2024, compared to the same periods in 2023, respectively. The Company’s noninterest income had a minimal impact to the change in net earnings during both the quarterly and year-to-date periods of 2024 compared to 2023. The impact of lower net earnings during 2024 also had a direct impact to the Company’s annualized net income to average asset ratio, or return on assets, which decreased to 0.84% for the six months ended June 30, 2024, compared to 1.16% for the six months ended June 30, 2023. In addition, the Company’s net income to average equity ratio, or return on equity, decreased to 8.01% for the six months ended June 30, 2024, compared to 10.63% for the six months ended June 30, 2023.

Previous wording

During the three months ended March 31, 2024, net interest income decreased $532, or 4.5%, from the same period in 2023. The decrease was largely related to the decrease in the net interest margin, which was partially offset by growth in average earning assets, led by strong growth in the loan portfolio. The net interest margin decreased 60 basis points from 4.21% during the quarter ended March 31, 2023, to 3.61% during the quarter ended March 31, 2024. The margin decrease was largely related to the cost of funding sources increasing more than the yield on earning assets. This increase in the cost of funding was partially linked to the Company’s decision to increase rates on deposit accounts to attract deposits amidst heightened market competition for such funds. In addition, the composition of funding sources trended toward certificates of deposit (“CDs”), and wholesale funding sources, which generally cost more than other funding sources, such as checking, NOW, savings and money market deposit products. The effects from a lower margin were partially offset by a 10.5% increase in average earning assets, primarily from average loans, which were up $78,997 during the first quarter of 2024 compared to the same period in 2023, led by the commercial and residential real estate loan segments. For the same period, the average balance maintained at the Federal Reserve increased $60,307 and average securities decreased $16,983, as maturities were deployed into higher yielding loans.

Current wording

During the three months ended June 30, 2024, net interest income increased $349, or 3.0%, over the same period in 2023. During the six months ended June 30, 2024, net interest income decreased $183, or 0.8%, from the same period in 2023. The quarterly improvement to net interest income was mostly impacted by a $128,928 increase in average earning assets. This was partially offset by a decrease in the net interest margin of 29 basis points. The year-to-date decrease to net interest income was mostly impacted by a decrease in the net interest margin of 44 basis points, which more than offset a $124,072 increase in average earning assets. The growth in average earning assets during both the quarterly and year-to-date periods came primarily from loans and interest-bearing deposits with banks, partially offset by lower securities. Loan increases were led by the commercial and residential real estate loan segments, while interest-bearing deposits with banks consisted mostly of average balances maintained at the Federal Reserve. Average securities decreased as maturities were deployed into higher yielding loans. Decreases to the net interest margin during both the quarterly and year-to-date periods were largely related to the cost of funding sources increasing more than the yield on earning assets. This increase in the cost of funding was partially linked to the Company’s decision to increase rates on deposit accounts to attract deposits amidst heightened market competition for such funds. In addition, the composition of funding sources trended toward certificates of deposit (“CDs”), and wholesale funding sources, which generally cost more than other funding sources, such as checking, NOW, savings and money market deposit products.

Previous wording

The Company’s provision for credit loss expense increased $262, or 53.6%, during the first quarter of 2024 compared to the same period in 2023. The increase was primarily related toa $106 increase in net charge-offs, higher general reserves associated with the growth in loans, and an increase in select qualitative risk factors.

Current wording

During the three and six months ended June 30, 2024, the Company’s provision for credit loss expense increased $157 and $419, when compared to the same periods in 2023, respectively. The increases during both the quarterly and year-to-date periods came primarily from a higher historical loss factor and increases in general reserves associated with the growth in loans, partially offset by decreases in both net charge-offs and select qualitative risk factors.

Previous wording

During the three months ended March 31, 2024, noninterest income decreased $71, or 1.9%, from the same period in 2023. This decrease was largely due to the closure of Race Day at the end of 2023. Due to the closure, there was no mortgage application referral income earned in 2024 compared to $231 in commissions earned during the first quarter of 2023. This decrease was partially offset by a $114 increase in service charges on deposit accounts.

Current wording

During the three and six months ended June 30, 2024, noninterest income decreased $12, or 0.4%, and $83, or 1.3%, from the same periods in 2023. The decreases were largely due to the closure of Race Day at the end of 2023. Due to the closure, there was no mortgage application referral income earned in 2024 compared to $16 and $247 in commissions earned during the second quarter and first half of 2023, respectively. Other decreases came from losses related to both other real estate owned (“OREO”) and the pending sale of premises, which collectively reduced noninterest income by $92 during both the second quarter and first half of 2024 compared to the same periods in 2023. These decreases were partially offset by a $78 and $192 increase in service charges on deposit accounts during both the quarterly and year-to-date periods.

Previous wording

During the three months ended March 31, 2024, noninterest expense increased $469, or 4.6%, over the same period in 2023. The increase was primarily related to a $283 increase in salaries and employee benefit costs, impacted by higher annual merit increases and higher health insurance premiums. The Company also experienced increases in both data processing and software expense, which were up $246 during the first quarter of 2024 compared to the same period in 2023.

Current wording

During the three and six months ended June 30, 2024, noninterest expense increased $448, or 4.3%, and $917, or 4.4%, over the same periods in 2023. The increases were primarily related to a $345 and $628 increase in salaries and employee benefit costs during both the second quarter and first half of 2024, impacted by higher annual merit increases and higher health insurance premiums. The Company also experienced increases in both data processing and professional fee expense, which were collectively up $136 and $276 during the second quarter and first half of 2024 compared to the same periods in 2023.

Previous wording

The Company’s provision for income taxes decreased $219 during the three months ended March 31, 2024, compared to the same period in 2023. This was largely due to the changes in taxable income affected by the factors mentioned above.

Current wording

The changes in the Company’s provision for income taxes during the three and six months ended June 30, 2024, compared to the same periods in 2023, were largely due to the changes in taxable income affected by the factors mentioned above.

Previous wording

At March 31, 2024, total assets were $1,372,599, an increase of $20,464 from year-end 2023. Higher assets were primarily impacted by an increase in loans, which were up $17,962, or 1.8%, from year-end 2023. Growth in loans came from increases in the commercial real estate loan segment (+4.0%), commercial and industrial loan segment (+2.0%), and residential real estate loan segment (+1.6%), partially offset by a decrease in the consumer loan segment (-2.0%).

Current wording

At June 30, 2024, total assets were $1,403,317, an increase of $51,182 from year-end 2023. Higher assets were primarily impacted by an increase in loans, which were up $68,384, or 7.0%, from year-end 2023. Growth in loans came from increases in the residential real estate loan segment (+12.5%), commercial real estate loan segment (+8.9%), and commercial and industrial loan segment (+3.6%), partially offset by a decrease in the consumer loan segment (-3.4%).

Previous wording

At March 31, 2024, total shareholders' equity was $145,782, up $1,775 from December 31, 2023. This increase came primarily from quarterly net income, partially offset by quarterly cash dividends paid and an increase in net unrealized losses on available for sale securities. Regulatory capital ratios of the Company remained higher than the "well capitalized" minimums.

Current wording

At June 30, 2024, total shareholders' equity was $145,757, up $1,750 from December 31, 2023. This increase came primarily from year-to-date net income, partially offset by quarterly cash dividends paid and the purchase of treasury shares under the Company’s treasury repurchase program. Regulatory capital ratios of the Company remained higher than the "well capitalized" minimums.

Previous wording

At March 31, 2024, cash and cash equivalents were $129,060, an increase of $934, or 0.7%, from December 31, 2023. The increase came primarily from cash and noninterest-bearing deposits with banks, which were up $1,170, or 8.2%, from year-end 2023, primarily from higher cash on hand. Over 88% of cash and cash equivalents is comprised of the Company’s interest-bearing Federal Reserve Bank clearing account, which contributed most to the $236, or 0.2%, decrease in interest-bearing deposits with banks. The Company utilizes its interest-bearing Federal Reserve Bank clearing account to manage excess funds, as well as to assist in funding earning asset growth. During the first quarter of 2024, the Company experienced increases in funds primarily from interest-bearing deposits, which were used to reinvest in higher-yielding loans, and to also help cover deposit runoff in noninterest-bearing demand deposit balances. The interest rate paid on both the required and excess reserve balances of the Federal Reserve Bank account is based on the targeted federal funds rate established by the Federal Open Market Committee. During the first three months of 2024, the rate associated with the Company’s Federal Reserve Bank clearing account remained at the target federal funds rate range of 5.25% to 5.50%. The interest-bearing deposit balances in the Federal Reserve Bank account are 100% secured by the U.S. Government.

Current wording

At June 30, 2024, cash and cash equivalents were $107,679, a decrease of $20,447, or 16.0%, from December 31, 2023. The decrease came primarily from interest-bearing deposits with banks, which were down $21,057, or 18.5%, from year-end 2023. Over 85% of cash and cash equivalents is comprised of the Company’s interest-bearing Federal Reserve Bank clearing account, which contributed most to the decrease in interest-bearing deposits with banks. The Company utilizes its interest-bearing Federal Reserve Bank clearing account to manage excess funds, as well as to assist in funding earning asset growth. During the first half of 2024, the Company utilized a portion of its clearing account balances to reinvest in higher-yielding loans, which helped to reduce the negative effects from net interest margin compression. The interest rate paid on both the required and excess reserve balances of the Federal Reserve Bank account is based on the targeted federal funds rate established by the Federal Open Market Committee. During the first half of 2024, the rate associated with the Company’s Federal Reserve Bank clearing account remained at the target federal funds rate range of 5.25% to 5.50%. The interest-bearing deposit balances in the Federal Reserve Bank account are 100% secured by the U.S. Government.

Previous wording

Total securities of $170,154 at March 31, 2024 were relatively stable when compared to $170,244 at year-end 2023, decreasing just $90, or 0.1%. The Company’s U.S. Government securities portfolio increased $4,583, or 9.1%, from year-end 2023. This increase in U.S. Government securities came primarily from $9,554 in purchases partially offset by $5,000 in maturities. Completely offsetting the increase in U.S. Government securities was a decrease in U.S. Government agency (“Agency”) mortgage-backed securities, which were down $4,595, or 4.3%, from year-end 2023. The Company’s investment securities portfolio is made up mostly of Agency mortgage-backed securities, which represented 59.6% of total investments at March 31, 2024. During the first quarter of 2024, the Company received proceeds from principal repayments of $4,119. The monthly repayment of principal has been the primary advantage of Agency mortgage-backed securities as compared to other types of investment securities, which deliver proceeds upon maturity or call date.

Current wording

Total securities of $170,679 at June 30, 2024 were relatively stable when compared to $170,244 at year-end 2023, increasing $435, or 0.3%. The Company’s U.S. Government securities portfolio increased $9,712, or 19.3%, from year-end 2023. This increase in U.S. Government securities came primarily from $19,357 in purchases partially offset by $10,000 in maturities. Partially offsetting the increase in U.S. Government securities was a decrease in U.S. Government agency (“Agency”) mortgage-backed securities, which were down $9,194, or 8.7%, from year-end 2023. The Company’s investment securities portfolio is made up mostly of Agency mortgage-backed securities, which represented 56.8% of total investments at June 30, 2024. During the first half of 2024, the Company received proceeds from principal repayments of $8,489. The monthly repayment of principal has been the primary advantage of Agency mortgage-backed securities as compared to other types of investment securities, which deliver proceeds upon maturity or call date.

Previous wording

Included in the decreasing factors mentioned above were changes in net unrealized losses associated with available for sale securities. During 2024, long-term reinvestment rates increased, which led to a $600 decrease in the fair value of the Company’s available for sale securities. The fair value of an investment security moves inversely to interest rates, so as rates increased, the unrealized loss in the portfolio was increased causing the fair value to decrease. These changes in rates are typical and do not impact earnings of the Company as long as the securities are held to full maturity.

Current wording

Included in the decreasing factors mentioned above were changes in net unrealized losses associated with available for sale securities. During 2024, long-term reinvestment rates increased, which led to a $615 decrease in the fair value of the Company’s available for sale securities. The fair value of an investment security moves inversely to interest rates, so as rates increased, the unrealized loss in the portfolio was increased causing the fair value to decrease. These changes in rates are typical and do not impact earnings of the Company as long as the securities are held to full maturity.

Previous wording

Commercial real estate consists of owner-occupied, nonowner-occupied and construction loans. Owner-occupied loans consist of nonfarm, nonresidential properties. A commercial owner-occupied loan is a borrower purchased building or space for which the repayment of principal is dependent upon cash flows from the ongoing operations conducted by the party, or an affiliate of the party, who owns the property. Owner-occupied loans of the Company include loans secured by hospitals, churches, and hardware and convenience stores. Nonowner-occupied loans are property loans for which the repayment of principal is dependent upon rental income associated with the property or the subsequent sale of the property, such as apartment buildings, condominiums, hotels, and motels. These loans are primarily impacted by the level of interest rates associated with the debt and to local economic conditions, which dictate occupancy rates and the amount of rent charged. The increase in debt service due to higher interest rates may not be able to be passed on to tenants. As part of the origination process, loan interest rates and occupancy rates are stressed to determine the impact on the borrower’s ability to maintain adequate debt service under different economic conditions. Furthermore, the Company monitors the concentration in any one industry and has established limits relative to capital. In addition, credit quality trends are monitored by industry to determine if a change in the risk exposure to a certain industry may warrant a change in our underwriting standards. Table I has been provided to illustrate the industry composition of the commercial real estate portfolio. Commercial construction loans are extended to individuals as well as corporations for the construction of an individual property or multiple properties and are secured by raw land and the subsequent improvements. Commercial real estate also includes loan participations with other banks outside the Company’s primary market area.

Current wording

Commercial real estate consists of owner-occupied, nonowner-occupied and construction loans. Owner-occupied loans consist of nonfarm, nonresidential properties. A commercial owner-occupied loan is a borrower purchased building or space for which the repayment of principal is dependent upon cash flows from the ongoing operations conducted by the party, or an affiliate of the party, who owns the property. Owner-occupied loans of the Company include loans secured by hospitals, churches, and hardware and convenience stores. Nonowner-occupied loans are property loans for which the repayment of principal is dependent upon rental income associated with the property or the subsequent sale of the property, such as apartment buildings, condominiums, hotels, and motels. These loans are primarily impacted by the level of interest rates associated with the debt and to local economic conditions, which dictate occupancy rates and the amount of rent charged. The increase in debt service due to higher interest rates may not be able to be passed on to tenants. As part of the origination process, loan interest rates and occupancy rates are stressed to determine the impact on the borrower’s ability to maintain adequate debt service under different economic conditions. Furthermore, the Company monitors the concentration in any one industry and has established limits relative to capital. In addition, credit quality trends are monitored by industry to determine if a change in the risk exposure to a certain industry may warrant a change in our underwriting standards. Table I has been provided to illustrate the industry composition of the commercial real estate portfolio. Commercial construction loans are extended to individuals as well as corporations for the construction of an individual property or multiple properties and are secured by raw land and the subsequent improvements. Commercial real estate also includes loan participations with other banks outside the Company’s primary market area. Although the Company is not actively seeking to participate in loans originated outside its primary market area, it has taken advantage of the relationships it has with certain lenders in those areas where the Company believes it can profitably participate with an acceptable level of risk.

Previous wording

The Company’s loan balances increased to $989,862 at March 31, 2024, representing an increase of $17,962, or 1.8%, as compared to $971,900 at December 31, 2023. The increase in loans came primarily from the commercial and residential real estate loan portfolios, partially offset by a decrease in the consumer portfolio from year-end 2023.

Current wording

The Company’s loan balances increased to $1,040,284 at June 30, 2024, representing an increase of $68,384, or 7.0%, as compared to $971,900 at December 31, 2023. The increase in loans came primarily from the residential and commercial real estate loan portfolios, partially offset by a decrease in the consumer portfolio from year-end 2023.

Previous wording

Further increases in loans came from the Company’s residential real estate loan portfolio, which increased $5,234, or 1.6%, from year-end 2023. Residential real estate loans represent the second largest segment of the Company’s total loan portfolio at 32.8%. During 2024, mortgage rates continued to increase as a result of an elevated interest rate environment, which provided the Company with less opportunities to sell long-term fixed rate loans to the secondary market. With elevated mortgage rates, mortgage customers were selecting more in-house variable rate mortgage products instead of long-term fixed rate mortgage products. This had a direct impact on lowering loan volume within the long-term fixed rate loan portfolio (down $1,527) and contributed to a shift into more short-term variable rate mortgages (up $8,646) at March 31, 2024.

Current wording

The Company’s residential real estate loan portfolio increased $39,844, or 12.5%, from year-end 2023. At June 30, 2024, residential real estate loans represented the largest segment of the Company’s total loan portfolio at 34.5%. During 2024, mortgage rates continued to increase as a result of an elevated interest rate environment, which provided the Company with less opportunities to sell long-term fixed rate loans to the secondary market. With elevated mortgage rates, mortgage customers were selecting more in-house variable rate mortgage products instead of long-term fixed rate mortgage products. This had a direct impact on lowering loan volume within the long-term fixed rate loan portfolio (down $3,734) and contributed to a shift into more short-term variable rate mortgages (up $19,864) at June 30, 2024. Also contributing to the increase in residential real estate loans was the funding of a warehouse line of credit by the Bank for a mortgage lender. The warehouse lending line is used by the mortgage lender to make loans for the purchase of one- to four-family residential real estate properties. The mortgage lender eventually sells the loan and repays the Bank. From year-end 2023, warehouse lending balances increased $18,291 during the first half of 2024.

Previous wording

The Company’s commercial loan portfolio increased $16,178, or 3.4%, from year-end 2023. Contributing most to this increase were higher loan balances within the commercial real estate portfolio, which increased $13,003, or 4.0%, from year-end 2023. The commercial real estate segment comprised the largest portion of the Company’s total loan portfolio at March 31, 2024, at 33.9%. The increase from year-end 2023 came primarily from new originations within the construction and nonowner-occupied loan segments, which offset the decrease from larger payoffs within owner-occupied loans from year-end 2023.

Current wording

Further increases in loans came from the Company’s commercial loan portfolio, which increased $34,476, or 7.2%, from year-end 2023. Contributing most to this increase were higher loan balances within the commercial real estate portfolio, which increased $28,890, or 8.9%, from year-end 2023. Commercial real estate loans represent the second largest segment of the Company’s total loan portfolio at June 30, 2024, at 33.8%. The increase from year-end 2023 came primarily from new originations within the nonowner-occupied and construction loan segments.

Previous wording

Commercial loans were also positively impacted by an increase in the commercial and industrial portfolio, which was up $3,175, or 2.0%, from year-end 2023. The growth was impacted by an increase in larger loan originations during the year.

Current wording

Commercial loans were also positively impacted by an increase in the commercial and industrial portfolio, which was up $5,589, or 3.6%, from year-end 2023. The growth was impacted by an increase in larger loan originations during the year.

Previous wording

The increases in the Company’s loan balances at March 31, 2024 were partially offset by a decrease in the consumer loan portfolio, which decreased $3,450, or 2.0%, from year-end 2023. This change was impacted by a $3,171, or 4.2%, decrease in other consumer loans, impacted by principal repayments and payoffs. Decreases in consumer loans also came from a $2,820, or 4.6%, decrease in automobile loans from year-end 2023. This was directly impacted by management’s strategy to place more emphasis on higher yielding loan portfolios (i.e. commercial, and to a smaller extent, residential real estate). Indirect automobile loans bear additional costs from dealers that partially offset interest revenue and lower the rate of return. Decreases in consumer loans were partially offset by a $2,541, or 7.1%, increase in home equity lines of credit.

Current wording

The increases in the Company’s loan balances at June 30, 2024 were partially offset by a decrease in the consumer loan portfolio, which was down $5,936, or 3.4%, from year-end 2023. This change was impacted by a $5,474, or 7.3%, decrease in other consumer loans, impacted by principal repayments and payoffs. Decreases in consumer loans also came from a $4,746, or 7.7%, decrease in automobile loans from year-end 2023. This was directly impacted by management’s strategy to place more emphasis on higher yielding loan portfolios (i.e. commercial, and to a smaller extent, residential real estate). Indirect automobile loans bear additional costs from dealers that partially offset interest revenue and lower the rate of return. Decreases in consumer loans were partially offset by a $4,284, or 11.9%, increase in home equity lines of credit.

Previous wording

For AFS debt securities, the Company evaluates the securities at each measurement date to determine whether the decline in the fair value below the amortized costs basis is due to credit-related factors or noncredit-related factors. As of March 31, 2024, the Company determined that all AFS securities that experienced a decline in fair value below the amortized cost basis from year-end 2023 were due to non-credit related factors. Furthermore, the Company does not have the intent to sell any of these securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. Therefore, no ACL was recorded, and no provision expense was recognized during the three months ended March 31, 2024.

Current wording

For AFS debt securities, the Company evaluates the securities at each measurement date to determine whether the decline in the fair value below the amortized costs basis is due to credit-related factors or noncredit-related factors. As of June 30, 2024, the Company determined that all AFS securities that experienced a decline in fair value below the amortized cost basis from year-end 2023 were due to non-credit related factors. Furthermore, the Company does not have the intent to sell any of these securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. Therefore, no ACL was recorded, and no provision expense was recognized during the three and six months ended June 30, 2024.

Previous wording

For HTM debt securities, the Company evaluates the securities collectively by major security type at each measurement date to determine expected credit losses based on issuer’s bond rating, historical loss, financial condition, and timely principal and interest payments. At March 31, 2024, a $2 ACL was recognized based on a .02% cumulative default rate taken from the S&P and Moody’s bond rating index. The $2 ACL for HTM debt securities was unchanged from December 31, 2023, resulting in no provision expense during the three months ended March 31, 2024.

Current wording

For HTM debt securities, the Company evaluates the securities collectively by major security type at each measurement date to determine expected credit losses based on issuer’s bond rating, historical loss, financial condition, and timely principal and interest payments. At June 30, 2024, a $2 ACL was recognized based on a .02% cumulative default rate taken from the S&P and Moody’s bond rating index. The $2 ACL for HTM debt securities was unchanged from December 31, 2023, resulting in no provision expense during the three and six months ended June 30, 2024.

Previous wording

As of March 31, 2024, the ACL for loans totaled $9,229, or 0.93%, of total loans. As of December 31, 2023, the ACL for loans totaled $8,767, or 0.90%, of total loans. The increase in the ACL of $462, or 5.3%, was all from loans collectively evaluated. The increase was impacted by additional reserves from a higher historical loss rate within the residential real estate loan segment, and a qualitative risk adjustment that increased reserves within the commercial real estate segment. Higher ACL reserves were also impacted by an $18,037 increase in collectively evaluated loan balances during the first quarter of 2024, primarily from the commercial real estate loan segment.

Current wording

As of June 30, 2024, the ACL for loans totaled $9,431, or 0.91%, of total loans. As of December 31, 2023, the ACL for loans totaled $8,767, or 0.90%, of total loans. The increase in the ACL of $664, or 7.6%, was all from loans collectively evaluated. The increase was impacted by additional reserves from a $68,721 increase in collectively evaluated loan balances during the first half of 2024, primarily from the residential and commercial real estate loan segments. Higher ACL reserves were also impacted by a higher historical loss rate within the commercial and residential real estate loan segments, partially offset by a lower qualitative risk adjustment that decreased reserves within the commercial real estate segment.

Previous wording

The Company experienced higher delinquency levels from year-end 2023. Nonperforming loans to total loans increased to 0.37% at March 31, 2024, compared to 0.26% at December 31, 2023, and nonperforming assets to total assets increased to 0.27% at March 31, 2024, compared to 0.19% at December 31, 2023. The increase in both delinquency calculations resulted from an increase in nonaccrual loans, primarily as a result of one residential real estate loan totaling $927 that was placed into nonaccrual status during the first quarter of 2024.

Current wording

The Company experienced higher delinquency levels from year-end 2023. Nonperforming loans to total loans increased to 0.50% at June 30, 2024, compared to 0.26% at December 31, 2023, and nonperforming assets to total assets increased to 0.38% at June 30, 2024, compared to 0.19% at December 31, 2023. The increase in both delinquency calculations resulted from a $2,230 increase in nonaccrual loans, primarily as a result of one single loan relationship secured primarily by residential real estate property that was placed into nonaccrual status during the first half of 2024.

Previous wording

During the first quarter of 2024, the Company individually evaluated several loans associated with three borrower relationships for expected credit loss. The fair value of the loans’ collateral was measured to the loans’ recorded investment and no expected losses were identified as part of the review. As a result, there were no specific reserves recorded during the three months ended March 31, 2024.

Current wording

During the first half of 2024, the Company individually evaluated several loans associated with three borrower relationships for expected credit loss. The fair value of the loans’ collateral was measured to the loans’ recorded investment and no expected losses were identified as part of the review. As a result, there were no specific reserves recorded during the three and six months ended June 30, 2024.

Previous wording

Deposits are used as part of the Company’s liquidity management strategy to meet obligations for depositor withdrawals, fund the borrowing needs of loan customers, and fund ongoing operations. Deposits continue to be the most significant source of funds used by the Company to support earning assets. Total deposits at March 31, 2024 increased $21,648, or 1.9%, from year-end 2023. This change in deposits came primarily from interest-bearing deposit balances, which were up by $37,296, or 4.6%, from year-end 2023, while noninterest-bearing deposits decreased $15,648, or 4.9%, from year-end 2023.

Current wording

Deposits are used as part of the Company’s liquidity management strategy to meet obligations for depositor withdrawals, fund the borrowing needs of loan customers, and fund ongoing operations. Deposits continue to be the most significant source of funds used by the Company to support earning assets. Total deposits at June 30, 2024 increased $51,292, or 4.6%, from year-end 2023. This change in deposits came primarily from interest-bearing deposit balances, which were up by $30,305, or 3.8%, from year-end 2023, while noninterest-bearing deposits also increased $20,987, or 6.5%, from year-end 2023.

Previous wording

Further increases in interest-bearing deposits came from savings and money market account balances, which increased $5,913, or 2.3%, from year-end 2023. The increase came from money market accounts, particularly the Company’s tiered money market product (Money Fund) that was introduced in 2023 and offers a higher rate on tiered deposit balances. The Company’s savings account balances were down from year-end 2023.

Current wording

The increase in interest-bearing deposits came primarily from savings and money market account balances, which increased $14,412, or 5.6%, from year-end 2023. The increase came from money market accounts, particularly the Company’s tiered money market product (Money Fund) that was introduced in 2023 and offers a higher rate on tiered deposit balances. The Company’s savings account balances were down from year-end 2023.

Previous wording

Also impacting deposit balance growth were higher interest-bearing NOW account balances, which increased $14,049, or 8.2%, from year-end 2023. This increase was largely driven by higher municipal NOW product balances, particularly within the Gallia County, Ohio, and Mason County, West Virginia, market areas.

Current wording

Also impacting deposit balance growth were higher interest-bearing NOW account balances, which increased $10,198, or 6.0%, from year-end 2023. This increase was largely driven by higher municipal NOW product balances, particularly within the Gallia County, Ohio, and Mason County, West Virginia, market areas.

Previous wording

The increase in interest-bearing deposits came primarily from time deposit balances, which increased $17,334, or 4.6%, from year-end 2023. The increase came from retail time deposits, which increased $17,831 from year-end 2023. As deposit competition increased in 2023 due to the elevated market rate environment, prices on the Company’s retail CDs adjusted upward and influenced a consumer shift away from both noninterest-bearing deposits and lower-cost savings products, and into a greater number of higher-cost time deposit products, such as CDs. Wholesale time deposit issuances decreased $498, or 0.6%, from year-end 2023.

Current wording

Further increases in interest-bearing deposits came from time deposit balances, which increased $5,695, or 1.5%, from year-end 2023. The increase came from retail time deposits, which increased $23,481 from year-end 2023. As deposit competition increased in 2023 due to the elevated market rate environment, prices on the Company’s retail CDs adjusted upward and influenced a consumer shift away from lower-cost savings products, and into a greater number of higher-cost time deposit products, such as CDs. During the second quarter of 2024, the Company experienced $16,546 in brokered CD maturities, which contributed to a $17,787, or 22.9%, decrease in wholesale time deposit balances from year-end 2023.

Previous wording

The decrease in noninterest-bearing demand deposits came primarily from the Company’s business and incentive-based checking account balances.

Current wording

The increase in noninterest-bearing demand deposits came primarily from the Company’s incentive-based checking account balances.

Previous wording

Other borrowed funds were $43,261 at March 31, 2024, a decrease of $1,332, or 3.0%, from year-end 2023. The decrease was related to the ongoing monthly principal repayments of FHLB advances. While deposits continue to be the primary source of funding for growth in earning assets, management will continue to utilize FHLB advances and promissory notes to help manage interest rate sensitivity and liquidity.

Current wording

Other borrowed funds were $42,056 at June 30, 2024, a decrease of $2,537, or 5.7%, from year-end 2023. The decrease was related to the ongoing monthly principal repayments of FHLB advances. While deposits continue to be the primary source of funding for growth in earning assets, management will continue to utilize FHLB advances and promissory notes to help manage interest rate sensitivity and liquidity.

Previous wording

The following discussion focuses, in more detail, on the consolidated results of operations of the Company for the three months ended March 31, 2024, compared to the same period in 2023. This discussion should be read in conjunction with the interim consolidated financial statements and the footnotes included in this Form 10‑Q.

Current wording

The following discussion focuses, in more detail, on the consolidated results of operations of the Company for the three and six months ended June 30, 2024, compared to the same period in 2023. This discussion should be read in conjunction with the interim consolidated financial statements and the footnotes included in this Form 10‑Q.

Previous wording

The most significant portion of the Company's revenue, net interest income, results from properly managing the spread between interest income on earning assets and interest expense incurred on interest-bearing liabilities. During the three months ended March 31, 2024, net interest income decreased $532, or 4.5%, compared to the same period in 2023. The decrease was largely related to the negative impact of higher average costs paid on deposits and borrowings completely offsetting higher earning asset yields, which contributed to a 60 basis point decrease in the net interest margin. These negative effects were partially offset by a composition shift into higher-yielding loans.

Current wording

The most significant portion of the Company's revenue, net interest income, results from properly managing the spread between interest income on earning assets and interest expense incurred on interest-bearing liabilities. During the three months ended June 30, 2024, net interest income increased $349, or 3.0%, compared to the same period in 2023. Conversely, net interest income decreased $183, or 0.8%, during the six months ended June 30, 2024, compared to the same period in 2023. The quarterly improvement was mostly impacted by a composition shift into higher-yielding loans, which increased earning asset yields that completely offset the negative effects of higher average costs paid on deposits and borrowings. The year-to-date decrease was largely related to the negative impact of higher average costs paid on deposits and borrowings completely offsetting higher earning asset yields, which contributed to a 44 basis point decrease in the net interest margin. These negative effects were partially offset by a composition shift into higher-yielding loans during the first half of 2024.

Previous wording

Total interest and fee income recognized on the Company’s earning assets increased $3,890, or 28.2%, during the first quarter of 2024, compared to the same period in 2023. The earnings growth was impacted by interest on loans, which increased $2,912, or 25.2%. This improvement was largely related to average loan yield increases impacted by the aggressive actions taken by the Federal Reserve to increase rates by 425 basis points during 2022 and another 100 basis points during 2023. This has contributed to the repricing of a portion of the Company’s loan portfolio. As a result, the average interest rate yield on loans increased 72 basis points to 6.34% during the first quarter of 2024, compared to 5.62% during the first quarter of 2023. Average loans increased $78,996 during the first quarter of 2024, compared to the first quarter of 2023. The quarter-to-date increase was largely impacted by growth in average commercial and residential real estate loans.

Current wording

Total interest and fee income recognized on the Company’s earning assets increased $3,635, or 24.2%, during the second quarter of 2024, and $7,525, or 26.1%, during the first half of 2024, compared to the same periods in 2023. The earnings growth was impacted by interest on loans, which increased $2,858, or 22.6%, and $5,770, or 23.8%, during the three and six months ended June 30, 2024, compared to the same periods in 2023, respectively. This improvement was impacted by increases in both loan yields and average loan balances. Particularly in the second quarter of 2024, the Company experienced a 9.2% increase in higher-yielding loans, with average loan balances increasing from $928,418 during the three months ended June 30, 2023 to $1,013,845 during the three months ended June 30, 2024. This large composition shift to higher-yielding loans contributed to most of the loan interest and fee revenue improvement during the second quarter of 2024. Overall, average loans have increased $85,427 and $82,124 during the three and six months ended June 30, 2024, compared to the same periods in 2023. The increases during both periods came primarily from loans secured by residential and commercial real estate properties, including average balance increases in the Bank’s warehouse line of credit for a mortgage lender. Loan revenue improvement also came from average loan yield increases impacted by the aggressive actions taken by the Federal Reserve to increase rates by 425 basis points during 2022 and another 100 basis points during 2023. This has contributed to the repricing of a portion of the Company’s loan portfolio. As a result, the average interest rate yield on loans increased 64 basis points to 6.46% during the second quarter of 2024 and increased 69 basis points to 6.40% during the first half of 2024, compared to the same periods in 2023.

Previous wording

Total interest income from interest-bearing deposits with banks increased $991 during the first quarter of 2024, compared to the same period in 2023. The increase was largely from a $60,308 increase in average balances associated with the Company’s interest-bearing Federal Reserve Bank clearing account during the first quarter of 2024, compared to the first quarter of 2023. Increases in Federal Reserve Bank clearing balances were impacted by the growth in interest-bearing Bank deposits, influenced by product rate increases during 2023 and 2024. Excess funds also came from the maturities and paydowns on investment securities, as well as new FHLB advances. The Company utilized a portion of these proceeds to fund the growth in loans. Further impacting interest income from interest-bearing deposits with banks were rate increases associated with the Federal Reserve Bank clearing account. As previously mentioned, the Federal Reserve took action during 2022 and 2023 to increase short-term rates due to rising inflationary concerns. Since the end of March 2023, the target federal funds rate increased by another 50 basis points, which had a corresponding effect to the interest rate tied to the Federal Reserve clearing account.

Current wording

Total interest income from interest-bearing deposits with banks increased $775 during the second quarter of 2024, and $1,766 during the first half of 2024, compared to the same periods in 2023. This was largely from average balance increases with the Company’s interest-bearing Federal Reserve Bank clearing account, which grew $58,747 and $59,518 during the three and six months ended June 30, 2024, compared to the same periods in 2023, respectively. Increases in Federal Reserve Bank clearing balances were impacted by the growth in interest-bearing Bank deposits, influenced by product rate increases during 2023 and 2024. Excess funds also came from the maturities and paydowns on investment securities, as well as new FHLB advances. The Company utilized a portion of these proceeds to fund the growth in loans. Further impacting interest income from interest-bearing deposits with banks were rate increases associated with the Federal Reserve Bank clearing account. As previously mentioned, the Federal Reserve took action during 2022 and 2023 to increase short-term rates due to rising inflationary concerns. Since the end of June 2023, the target federal funds rate increased by another 25 basis points, which had a corresponding effect to the interest rate tied to the Federal Reserve clearing account.

Previous wording

Total interest on securities decreased $81, or 8.1%, during the first quarter of 2024, compared to the same period in 2023, impacted mostly by a $16,983 decrease in average security balances. During 2023, the Company placed more emphasis on growing its higher-yielding loan portfolio and utilized proceeds from various maturities and repayments of securities to help fund this growth. The negative impact from lower average balances was partially offset by a 7 basis point increase in the average yield on securities, which grew to 1.98% during the first quarter of 2024 compared to 1.91% during the first quarter of 2023. The average yield increase was positively impacted by the elevated market rate environment during both 2023 and 2024.

Current wording

Total interest on securities increased $6, or 0.6%, during the second quarter of 2024, but decreased $75, or 3.8%, during the first half of 2024, compared to the same periods in 2023. The minimal to declining impact to security earnings during 2024 was largely from decreases in average security balances, which were down $12,831 and $14,907 during the three and six months ended June 30, 2024, compared to the same periods in 2023, respectively. During 2023 and 2024, the Company placed more emphasis on growing its higher-yielding loan portfolio and utilized proceeds from various maturities and repayments of securities to help fund loan growth. Earnings from securities were positively impacted by increases in the average yield on securities as a result of the elevated market rate environment during both 2023 and 2024. Average security yields increased 19 basis points to 2.10% during the second quarter of 2024, which completely offset the negative impact from lower average balances during the quarter. Average security yields increased 13 basis points to 2.04% during the first half of 2024, which only partially offset the negative impact from lower average security balances during the year.

Previous wording

Total interest expense incurred on the Company’s interest-bearing liabilities increased $4,422 during the first quarter of 2024, compared to the same period in 2023. Increases in interest expense were impacted by a rise in average costs combined with increases in higher-costing average deposit balances. As market competition continued to increase, rate offerings on CDs continued to adjust up in 2023. The Company increased CD rates during this time to attract and retain deposits, which has led to more of a consumer demand to reinvest from lower-cost NOW, savings and money market account deposit products (down $63,751 at an average cost of 1.33%) into more higher-cost time deposit products (up $174,225 at an average cost of 4.63%). Furthermore, the Company’s average wholesale funding balances increased $49,897, which included the use of brokered CDs (average cost of 4.87%) and FHLB advances (average cost of 4.03%). These higher-cost wholesale deposits were used to fund asset growth, but also contributed to the growth in interest expense over 2023. As a result of the rate repricings on time deposits and the deposit shift into higher-cost funding sources, the Company’s total weighted average costs on interest-bearing liabilities increased by 187 basis points from 1.07% at March 31, 2023, to 2.94% at March 31, 2024.

Current wording

Total interest expense incurred on the Company’s interest-bearing liabilities increased $3,286 during the second quarter of 2024, and $7,708 during the first half of 2024, compared to the same periods in 2023. Increases in interest expense were impacted by a rise in average costs combined with increases in higher-costing average deposit balances. As market competition continued to increase, rate offerings on CDs continued to adjust up in 2023. The Company increased CD rates during this time to attract and retain deposits, which has led to more of a consumer demand to reinvest from lower-cost NOW, savings and money market account deposit products (down $45,269 at an average cost of 1.36% during the year) into more higher-cost time deposit products (up $150,970 at an average cost of 4.67% during the year). Furthermore, the Company’s average wholesale funding balances increased $34,747 during the year, which included the use of brokered CDs (average cost of 4.87%) and FHLB advances (average cost of 4.03%). These higher-cost wholesale deposits were used to fund asset growth, but also contributed to the growth in interest expense over 2023. As a result of the rate repricings on time deposits and the deposit shift into higher-cost funding sources, the Company’s total weighted average costs on interest-bearing liabilities increased by 155 basis points from 1.40% at June 30, 2023, to 2.95% at June 30, 2024.

Previous wording

The Company’s net interest margin is defined as fully tax-equivalent net interest income as a percentage of average earning assets. During 2024, the Company’s first quarter net interest margin decreased to 3.61%, compared to 2023’s first quarter net interest margin of 4.21%. The quarterly margin decrease was impacted by higher average costs associated with the Bank’s interest-bearing liabilities due to customer pricing pressures, deposit competition, and a higher utilization of wholesale funding sources. Furthermore, the Bank continues to experience a deposit composition shift into more higher-cost retail CDs and less lower-cost NOW, savings, money market, and checking account deposits, which put increased pressure on margin growth during the first quarter of 2024. Partially offsetting these negative effects during the first quarter of 2024 were increases in earning asset yields and a higher composition of average loan balances. The Company’s primary focus is to invest its funds into higher yielding assets, particularly loans, as opportunities arise. However, if loan balances do not continue to expand and remain a larger component of overall earning assets, the Company will continue to face pressure within its net interest income and margin improvement.

Current wording

The Company’s net interest margin is defined as fully tax-equivalent net interest income as a percentage of average earning assets. During 2024, the Company’s second quarter net interest margin decreased to 3.74%, compared to 2023’s second quarter net interest margin of 4.03%. The Company’s year-to-date net interest margin decreased to 3.68% at June 30, 2024, compared to 2023’s year-to-date net interest margin of 4.12% at June 30, 2023. The margin decreases were impacted by higher average costs associated with the Bank’s interest-bearing liabilities due to customer pricing pressures, deposit competition, and a higher utilization of wholesale funding sources. Furthermore, the Bank continues to experience a deposit composition shift into more higher-cost retail CDs and less lower-cost NOW, savings, money market, and checking account deposits, which put increased pressure on margin growth during the three and six months ended June 30, 2024. Although the net interest margin has decreased from the prior year’s quarterly and year-to-date periods, the net interest margin has improved during 2024 when comparing linked quarters. When comparing the second quarter net interest margin of 3.74% to the first quarter net interest margin of 3.61% from 2024, this represents an increase of 13 basis points. The increase was related to increases in earning asset yields and a higher composition of average loan balances due to the 9.2% quarterly increase in average loans. Positive contributions to the margin have also come from an average deposit mix that is trending back towards checking, NOW, savings and money market deposit accounts during the second quarter of 2024. This, along with the benefits of higher-yielding loan growth, contributed to the quarterly increase in net interest income during the three months ended June 30, 2024. The Company’s primary focus is to invest its funds into higher yielding assets, particularly loans, as opportunities arise. However, if loan balances do not continue to expand and remain a larger component of overall earning assets, the Company will continue to face pressure within its net interest income and margin improvement.

Previous wording

Provision for credit losses is recorded to achieve an ACL that is adequate to absorb estimated losses inherent in the Company’s loan portfolio, unfunded loans, and held to maturity debt securities. Management performs, on a quarterly basis, a detailed analysis of the ACL that encompasses asset portfolio composition, asset quality, loss experience and other relevant economic factors. The Company’s provision for credit losses expense totaled $751 during the three months ended March 31, 2024, an increase of $262, or 53.6%, when compared to $489 in provision expense during the three months ended March 31, 2023. The increase in credit loss expense came primarily from loans, impacted by additional reserves associated with certain qualitative risk factors and historical loan loss factors that contributed to $316 in additional provision expense during the first quarter of 2024. The increasing factors came primarily from the residential real estate and commercial real estate loan segments. Further increases in loan provision came from an increase in net charge-offs, which increased $106, or 37.0%, during the first quarter of 2024, compared to the same period in 2023. Higher net charge-offs during 2024 came mostly from the consumer loan portfolio and required corresponding increases to provision expense. Partially offsetting the increasing effects to provision expense mentioned above was a $4,404 decrease in collectively evaluated loan balances at March 31, 2024 compared to March 31, 2023. This resulted in less general reserves and a corresponding decrease to provision expense.

Current wording

The increase in credit loss expense came primarily from loans, impacted by additional reserves associated with a higher historical loan loss factor and increases in collectively evaluated loan balances. In total, these increasing factors contributed to $508 and $639 in additional provision expense during the three and six months ended June 30, 2024, compared to the same periods in 2023, respectively. The increase in the historical loss factor came primarily from the commercial real estate loan segment. The growth in collectively evaluated loan balances during the six months ended June 30, 2024 was $2,629 higher than the growth during the same period in 2023, which resulted in additional general reserves and a corresponding increase to provision expense. Partially offsetting the increasing effects to provision expense mentioned above were decreases in certain qualitative risk factors and net charge-offs, which were down $484 and $223 during the three and six months ended June 30, 2024, compared to the same periods in 2023, respectively. The decrease in the qualitative risk factor came primarily from the commercial real estate loan segment, while lower net charge-offs during 2024 came primarily from an increase in recoveries within the commercial and industrial loan portfolio.

Previous wording

Noninterest income decreased $71, or 1.9%, during the three months ended March 31, 2024, compared to the same period in 2023. Lower noninterest revenue was largely impacted by decreases in other noninterest income, which decreased $161 from 2023. The decrease was largely impacted by the closing of Race Day in December 2023, which resulted in a $231 decrease in mortgage application referral income.

Current wording

Noninterest income decreased $12, or 0.4%, during the three months ended June 30, 2024, and decreased $83, or 1.3%, during the six months ended June 30, 2024, compared to the same periods from 2023. Lower noninterest revenue was largely impacted by decreases in other noninterest income, which decreased $121 and $282 during the three and six months ended June 30, 2024, compared to the same periods from 2023, respectively. The decreases were largely impacted by the closing of Race Day in December 2023, which resulted in a $16 and $247 decrease in mortgage application referral income during the second quarter and first half of 2024, compared to the same periods from 2023, respectively. Other noninterest income was also impacted by losses incurred on OREO properties and the sale of bank premises. During the second quarter of 2024, the Company re-evaluated the fair value of a single property carried as OREO resulting in a $7 loss adjustment to the property’s fair value. This is compared to a $38 gain on OREO that was recognized during the second quarter of 2023. Furthermore, the Company is in the process of completing the sale of one of its support facilities. At June 30, 2024, the Company and the prospective buyer reached an agreement on the sale price of the facility. While the transaction is still subject to further approvals, the Company reduced the carrying value of the facility to reflect the expected sales price. This resulted in a $46 loss on sale of bank premises, which further reduced other noninterest income during the second quarter of 2024.

Previous wording

Partially offsetting the decrease in other noninterest income was a $114, or 18.7%, increase in service charges on deposit accounts during the first quarter of 2024, compared to the same period in 2023. This was impacted by a higher volume of overdraft transactions during the three months ended March 31, 2024.

Current wording

Partially offsetting the decreases in other noninterest income were increases in service charges on deposit accounts, which were up $78, or 11.9%, during the second quarter of 2024, and $192, or 15.2%, during the first half of 2024, compared to the same periods in 2023. The increases have been impacted by a higher volume of overdraft transactions during 2024.

Previous wording

The remaining noninterest income categories decreased $24, or 0.9%, during the first quarter of 2024, compared to the first quarter of 2023. The net decrease came primarily from debit/credit card interchange income (down $28) and tax preparation fees (down $24), partially offset by increases in bank owned life insurance and annuity asset income (up $18) and trust fee income (up $18).

Current wording

The remaining noninterest income categories increased $31, or 1.8%, during the second quarter of 2024, and $7, or 0.2%, during the first half of 2024, compared to the same periods in 2023. The net increases came primarily from bank owned life insurance and annuity asset income and trust fee income, partially offset by lower tax preparation fees during the quarter and year-to-date periods.

Previous wording

Noninterest expense increased $469, or 4.6%, during the first quarter of 2024, compared to the same period in 2023. Contributing most to the increase in noninterest expense were salaries and employee benefits, which increased $283 during the first quarter of 2024, compared to the same period in 2023. The expense increase was largely from annual performance- based merit increases and higher health insurance premiums that were recorded in the first quarter of 2024. Furthermore, the Company’s average full-time equivalent employee base was up seven employees from 237 at March 31, 2023 to 244 at March 31, 2024. Partially offsetting the growth in salaries and employee benefit expense was the elimination of staffing for Race Day by April 2023, which resulted in a savings of $192 for the first quarter of 2024, compared to the same period in 2023.

Current wording

Noninterest expense increased $448, or 4.3%, during the three months ended June 30, 2024, and increased $917, or 4.4%, during the six months ended June 30, 2024, compared to the same periods from 2023. Contributing most to the increase in noninterest expense were salaries and employee benefits, which increased $345 and $628 during the three and six months ended June 30, 2024, compared to the same periods from 2023, respectively. The expense increase was largely from annual performance-based merit increases and higher health insurance premiums. Furthermore, the Company’s average full-time equivalent employee base was up five employees from 238 at June 30, 2023 to 243 at June 30, 2024. Partially offsetting the growth in salaries and employee benefit expense was the elimination of staffing for Race Day by April 2023, which resulted in a savings of $24 for the second quarter of 2024, and $216 for the first half of 2024, compared to the same periods in 2023.