OHIO VALLEY BANC CORP

Previous wording

Certain statements contained in this quarterly report on Form 10-Q (the “report”) and other publicly available documents incorporated herein by reference constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended (the “Exchange Act”), and as defined in the Private Securities Litigation Reform Act of 1995. Such statements are often, but not always, identified by the use of such words as “believes,” “anticipates,” “expects,” “intends,” “plan,” “goal,” “seek,” “project,” “estimate,” “strategy,” “future,” “likely,” “may,” “should,” “will,” and other similar expressions. Such statements involve various important assumptions, risks, uncertainties, and other factors, many of which are beyond our control, particularly with regard to developments related to the current economic and geopolitical landscape, and which could cause actual results to differ materially from those expressed in such forward looking-statements. However, it is difficult to predict the effect of known factors, and by Ohio Valley Banc Corp. (“Ohio Valley”) cannot anticipate all factors that could affect future results. Important factors that could cause actual results to differ materially from expectations expressed in or implied in forward-looking statements include, but are not limited to: the effects of fluctuating interest rates on our customers’ operations and financial condition; changes in political, economic or other factors, such as inflation rates, recessionary or expansive trends, taxes, the effects of implementation of legislation and the continuing economic uncertainty in various parts of the world; competitive pressures; the level of defaults and prepayment on loans made by Ohio Valley and its direct and indirect subsidiaries (collectively, the “Company”); unanticipated litigation, claims, or assessments; fluctuations in the cost of obtaining funds to make loans; and regulatory changes. Additional detailed information concerning such factors is available in the Company’s filings with the Securities and Exchange Commission, under the Exchange Act, including the disclosure under the heading “Item 1A. Risk Factors” of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and elsewhere in this document (including, without limitation, in conjunction with the forward-looking statements themselves and under the heading “Critical Accounting Estimates”). All forward-looking statements are qualified in their entirety by these and other cautionary statements that the Company makes from time to time in its other SEC filings and public communications. Readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation and disclaims any duty to update or revise, any forward-looking statements, whether as a result of new information, unan…

Excerpt shortened here; the source contains the full paragraph.

Current wording

Certain statements contained in this quarterly report on Form 10-Q (the “report”) and other publicly available documents incorporated herein by reference constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended (the “Exchange Act”), and as defined in the Private Securities Litigation Reform Act of 1995. Such statements are often, but not always, identified by the use of such words as “believes,” “anticipates,” “expects,” “intends,” “plan,” “goal,” “seek,” “project,” “estimate,” “strategy,” “future,” “likely,” “may,” “should,” “will,” and other similar expressions. Such statements involve various important assumptions, risks, uncertainties, and other factors, many of which are beyond our control, particularly with regard to developments related to the current economic and geopolitical landscape, and which could cause actual results to differ materially from those expressed in such forward looking-statements. However, it is difficult to predict the effect of known factors, and by Ohio Valley Banc Corp. (“Ohio Valley”) cannot anticipate all factors that could affect future results. Important factors that could cause actual results to differ materially from expectations expressed in or implied in forward looking statements include, but are not limited to: the effects of fluctuating interest rates on our customers’ operations and financial condition; changes in political, economic or other factors, such as inflation rates, recessionary or expansive trends, taxes, tariffs, the effects of implementation of legislation and the continuing economic uncertainty in various parts of the world; competitive pressures; the level of defaults and prepayment on loans made by Ohio Valley and its direct and indirect subsidiaries (collectively, the “Company”); unanticipated litigation, claims, or assessments; fluctuations in the cost of obtaining funds to make loans; and regulatory changes. Additional detailed information concerning such factors is available in the Company’s filings with the Securities and Exchange Commission, under the Exchange Act, including the disclosure under the heading “Item 1A. Risk Factors” of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024 and elsewhere in this document (including, without limitation, in conjunction with the forward looking statements themselves and under the heading “Critical Accounting Estimates”). All forward looking statements are qualified in their entirety by these and other cautionary statements that the Company makes from time to time in its other SEC filings and public communications. Readers are cautioned not to place undue reliance on such forward looking statements, which speak only as of the date hereof. The Company undertakes no obligation and disclaims any duty to update or revise any forward looking statements, whether as a result of new informati…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

BUSINESS OVERVIEW: The following discussion on consolidated financial statements include the accounts of Ohio Valley and its wholly-owned subsidiaries, The Ohio Valley Bank Company (the “Bank”), Loan Central, Inc., a consumer finance company (“Loan Central”), and Ohio Valley Financial Services Agency, LLC, an insurance agency. The Bank has one wholly-owned subsidiary, Ohio Valley REO, LLC, an Ohio limited liability company. In December 2023, Ohio Valley ceased operating Race Day Mortgage, Inc. (“Race Day”), which had been a wholly-owned subsidiary of the Bank since April 2021. The decision to cease operating Race Day was made due to low loan demand, poor employee retention, and lack of profitability. In December 2023, Ohio Valley also ceased operating OVBC Captive, Inc. (the “Captive”), which had been a subsidiary of Ohio Valley since July 2014. The decision to cease operating the Captive was the result of proposed IRS regulations that adversely impacted the taxation of small captives and severely limited the Captive’s ability to operate.

Current wording

BUSINESS OVERVIEW: The following discussion on consolidated financial statements include the accounts of Ohio Valley and its wholly-owned subsidiaries, The Ohio Valley Bank Company (the “Bank”), Loan Central, Inc., a consumer finance company (“Loan Central”), and Ohio Valley Financial Services Agency, LLC, an insurance agency. The Bank has one active, wholly-owned subsidiary, Ohio Valley REO, LLC, an Ohio limited liability company.

Previous wording

The Company is primarily engaged in commercial and retail banking, offering a blend of commercial and consumer banking services within southeastern Ohio as well as western West Virginia. The banking services offered by the Bank include the acceptance of deposits in checking, savings, time and money market accounts; the making and servicing of personal, commercial, floor plan and student loans; the making of construction and real estate loans; and credit card services. The Bank also offers individual retirement accounts, safe deposit boxes, wire transfers and other standard banking products and services. Furthermore, the Bank offers Tax Refund Advance Loans (“TALs”) to Loan Central tax customers. A TAL represents a short-term loan offered by the Bank to tax preparation customers of Loan Central.

Current wording

The Company is primarily engaged in commercial and retail banking, offering a blend of commercial and consumer banking services within southeastern Ohio as well as western West Virginia. The banking services offered by the Bank include the acceptance of deposits in checking, savings, time and money market accounts; the making and servicing of personal and commercial loans; the making of construction and real estate loans; and credit card services. The Bank also offers individual retirement accounts, safe deposit boxes, wire transfers and other standard banking products and services. Furthermore, the Bank offers Tax Refund Advance Loans (“TALs”) to Loan Central tax customers. A TAL represents a short-term loan offered by the Bank to tax preparation customers of Loan Central.

Previous wording

IMPACT OF PARTICIPATING IN THE OHIO HOMEBUYER PLUS PROGRAM: During the third quarter of 2024, the Company began participating in a program offered by the Ohio Treasurer called Ohio Homebuyer Plus. The program is designed to encourage Ohio residents to save for the purchase of a home. As a participant in the program, the Company developed the Sweet Home Ohio deposit account to offer participants an above-market interest rate of 5.83% along with a deposit bonus to assist customers in achieving their home savings goal. For each account that was opened, the Company received a deposit from the Treasurer at a subsidized interest rate of 0.86%. Accounts connected with Ohio Homebuyer Plus must be used within five years and the corresponding balance of Treasurer deposits will fluctuate based upon active customer accounts. At September 30, 2024, the balance of Sweet Home Ohio accounts totaled $5,283 and the amount deposited by the Treasurer totaled $100,000. This contributed to a $134,284 increase in total deposits from year-end 2023. Since the Treasurer deposits are classified as public funds, which are required to be collateralized, the Company invested the funds in securities to be pledged as collateral to the Treasurer. A total of $100,497 in U.S. Government securities were purchased at a weighted average yield of 4.7% with maturity terms ranging from 6 months to 18 months. This contributed to a $108,855 increase in securities from year-end 2023. The Company is expected to generate a net interest spread of 3.59% from its participation in the Homebuyer Plus program when considering the $100,497 investment in 4.7% yielding securities being partially offset by $105,283 in deposits at a weighted average cost of 1.11%.

Current wording

IMPACT OF PARTICIPATING IN THE OHIO HOMEBUYER PLUS PROGRAM: During the third quarter of 2024, the Company began participating in a program offered by the Ohio Treasurer (the “Treasurer”) called the Ohio Homebuyer Plus. The program is designed to encourage Ohio residents to save for the purchase of a home. As a participant in the program, the Company developed the “Sweet Home Ohio” deposit account to offer participants an above-market interest rate of 5.83%, along with a deposit bonus to assist customers in achieving their home savings goals. For each Sweet Home Ohio account that was opened, the Company received a deposit from the Treasurer at a subsidized interest rate of 0.86%. Accounts connected with Ohio Homebuyer Plus must be used within five years and the corresponding balance of Treasurer deposits will fluctuate based upon active customer accounts. At March 31, 2025, the balance of Sweet Home Ohio accounts totaled $7,729 compared to $6,775 at December 31, 2024. At March 31, 2025, the amount of Treasurer deposits totaled $82,373 compared to $97,366 at December 31, 2024. Since the Treasurer deposits are classified as public funds, which are required to be collateralized, the Company invested the funds in securities to be pledged as collateral to the Treasurer. At March 31, 2025, the balance of securities used to collateralize the Treasurer deposits totaled $96,707 compared to $102,871 at December 31, 2024.

Previous wording

FINANCIAL RESULTS OVERVIEW: Net income totaled $2,719 during the third quarter of 2024, an increase of $468 from the same period of 2023. Earnings per share for the third quarter of 2024 finished at $.58 per share, compared to $.47 per share during the third quarter of 2023. Net income totaled $8,484 during the nine months ended September 30, 2024, a decrease of $924 from the same period of 2023. Earnings per share during the first nine months of 2024 finished at $1.79 per share, compared to $1.97 per share during the first nine months of 2023. The positive results during the quarterly period were impacted by a 13.4% increase in average earning assets, coming primarily from loans and securities, which contributed to a 10.6% and 2.9% increase in net interest income during the three and nine months ended September 30, 2024, compared to the same periods in 2023, respectively. During both the quarterly and year-to-date periods, earnings were negatively impacted by higher provision for credit loss and noninterest expenses. The negative effects from higher provision and noninterest expenses were partially offset by increases in noninterest income during both the quarterly and year-to-date periods. The contrasting results in net earnings during the quarterly and year-to-date periods of 2024 had a corresponding impact to the Company’s annualized net income to average asset ratio, or return on assets, which increased 5 basis points to 0.75% during the three months ended September 30, 2024, while decreasing 19 basis points to 0.81% during the nine months ended September 30, 2024, compared to the same periods in 2023, respectively. In addition, the Company’s net income to average equity ratio, or return on equity, increased 93 basis points to 7.39% during the three months ended September 30, 2024, while decreasing 141 basis points to 7.80% during the nine months ended September 30, 2023.

Current wording

FINANCIAL RESULTS OVERVIEW: Net income totaled $4,406 during the first quarter of 2025, an increase of $1,613 from the same period of 2024. Earnings per share for the first quarter of 2025 finished at $.94 per share, compared to $.58 per share during the first quarter of 2024. The positive results during the quarterly period were impacted by a 10.8% increase in average earning assets, coming primarily from loans and securities, which contributed to a 17.4% increase in net interest income during the three months ended March 31, 2025, compared to the same period in 2024. Also contributing to higher net earnings was a 44.6% decrease in provision for credit loss expense, impacted by a decrease in loan balances generally allocated for during 2025. The positive effects from higher net interest income and lower provision expense were partially offset by a 1.4% decrease in noninterest income and a 0.7% increase in noninterest expense. Higher net earnings also had a corresponding impact to the Company’s annualized net income to average asset ratio, or return on assets, which increased 37 basis points to 1.20% during the first quarter of 2025, compared to the same period in 2024. In addition, the Company’s net income to average equity ratio, or return on equity, increased 405 basis points to 11.82% during the first quarter of 2025, compared to the same period in 2024.

Previous wording

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

Current wording

The $545 increase in the Company’s provision for income taxes during the three months ended March 31, 2025, compared to the same period in 2024, was largely due to the increase in operating income affected by the factors mentioned above, as well as an increase in the effective tax rate.

Previous wording

At September 30, 2024, total liabilities were $1,341,870, up $133,742 from year-end 2023. Contributing most to this increase were higher deposit balances, which increased $134,284 from year-end 2023. Leading deposit growth were interest-bearing deposit balances, up $140,545 from year-end 2023, consisting of higher balances from Negotiable Order of Withdrawal (“NOW”) accounts (+70.5%), savings and money market accounts (+3.5%), and time deposits (+3.0%). The participation in the Ohio Homebuyer Plus program during the third quarter of 2024 contributed to most of the growth in NOW account balances (+$100,000), while also contributing to $5,283 in new savings account deposit balances during the third quarter of 2024. Partially offsetting growth in interest-bearing deposits were noninterest-bearing demand deposits, which decreased $6,261 from year-end 2023.

Current wording

At March 31, 2025, total liabilities were $1,357,390, up $4,306 from year-end 2024. Contributing most to this increase were higher deposit balances, which increased $8,991 from year-end 2024. Leading deposit growth were interest-bearing deposit balances, up $10,510 from year-end 2024, consisting of higher balances from savings and money market accounts (+2.4%), and time deposits (+1.6%), partially offset by a decrease in Negotiable Order of Withdrawal (“NOW”) accounts (-0.9%). At March 31, 2025, the Company experienced lower noninterest-bearing demand deposits, decreasing $1,519 from year-end 2024.

Previous wording

At September 30, 2024, total shareholders' equity was $152,153, up $8,146 from December 31, 2023. This increase came primarily from year-to-date net income and an increase in net unrealized gains on available for sale securities, 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.

Current wording

At March 31, 2025, total shareholders' equity was $155,715, up $5,387 from December 31, 2024. This increase came primarily from quarterly net income and an after-tax increase in net unrealized gains on AFS securities, partially offset by quarterly cash dividends paid. Regulatory capital ratios of the Company remained higher than the "well capitalized" minimums.

Previous wording

At September 30, 2024, cash and cash equivalents were $82,204, a decrease of $45,922, or 35.8%, from December 31, 2023. The decrease came primarily from interest-bearing deposits with banks, which were down $50,411, or 44.3%, from year-end 2023. Over 76% 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 nine months 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. In September 2024, the Federal Reserve took action to reduce short-term market rates by 50 basis points, in large part to inflationary improvements. The Federal Reserve reduced short-term rates again by another 25 basis points in November 2024. The two rate cuts have resulted in a lower target federal funds rate range of 4.50% to 4.75%. The interest-bearing deposit balances in the Federal Reserve Bank account are 100% secured by the U.S. Government.

Current wording

At March 31, 2025, cash and cash equivalents were $120,608, an increase of $37,501, or 45.1%, from December 31, 2024. The increase came primarily from interest-bearing deposits with banks, which were up $34,634, or 51.4%, from year-end 2024. The Company’s interest-bearing FRB clearing account contributed most to the increase in interest-bearing deposits with banks, representing 84% of cash and cash equivalents at March 31, 2025. The Company utilizes its interest-bearing FRB clearing account to manage excess funds, as well as to assist in funding earning asset growth. The increases in excess funds during the first quarter of 2025 came primarily from decreases in both loans and securities, which were down $18,529 and $9,378, respectively, from year-end 2024. As previously mentioned, the decrease in loans was related to a $31,473 decrease in a warehouse line of credit extended to another mortgage lender. The decrease in securities was related to the lower need for securities to pledge to the Treasurer deposits as part of the Homebuyer Plus program. The interest rate paid on both the required and excess reserve balances of the FRB is based on the targeted federal funds rate established by the Federal Open Market Committee, which remained at a range of 4.25% to 4.50% at March 31, 2025 and December 31, 2024. The interest-bearing deposit balances in the FRB are 100% secured by the U.S. Government.

Previous wording

Total balance of total securities increased $108,855, or 63.9% compared to year-end 2023. In relation to the Ohio Homebuyer Plus program, the Company experienced a $100,000 increase in interest-bearing deposits classified as public funds, which are required to be collateralized. To satisfy pledging requirements, the funds were invested in $100,497 of U.S. Government securities to pledge as collateral to the Treasurer. The securities were purchased at a weighted average yield of 4.7% with maturity terms ranging from 6 months to 18 months. As a result, the Company’s U.S. Government securities portfolio increased $118,545 from $50,297 at year-end 2023 to $168,842 at September 30, 2024. Partially offsetting the increase in U.S. Government securities was a decrease in U.S. Government agency (“Agency”) mortgage-backed securities, which were down $9,706, or 9.1%, from year-end 2023. During the first nine months of 2024, the Company received proceeds from principal repayments of $12,913. 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. Prior to the third quarter of 2024, the Company’s investment securities portfolio had been mostly comprised of Agency mortgage-backed securities, which now represent 34.5% of total investments at September 30, 2024, with U.S. Government securities now comprising the most at 60.5%.

Current wording

The balance of total securities decreased $9,378, or 3.4% from year-end 2024. As previously mentioned, the decrease in securities was impacted by the lower need for securities to pledge to the Treasurer deposits in relation to the Homebuyers Plus program. The Company’s U.S. Government securities portfolio decreased $33,860 from $168,030 at year-end 2024 to $134,170 at March 31, 2025, impacted by $35,000 in scheduled maturities. The Company utilized a portion of its proceeds from maturities of U.S. Government securities to fund additional purchases in U.S. Government agency (“Agency”) mortgage-backed securities, which were up $24,918, or 26.5%, from year-end 2024. During the first quarter of 2025, purchases of Agency mortgage-backed securities totaled $27,482, while being partially offset by $4,460 in principal repayments. 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. At March 31, 2025, the Company’s investment securities portfolio was comprised mostly of U.S. Government securities at 50.5% of total investments, while Agency mortgage-backed securities represented 44.8%.

Previous wording

Included in the increasing factors mentioned above were changes in net unrealized losses associated with available for sale securities. During the third quarter of 2024, long-term reinvestment rates decreased, which led to a $5,432 increase 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 decreased, the unrealized loss in the portfolio was decreased causing the fair value to increase. 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 increasing factors mentioned above were changes in net unrealized losses associated with AFS securities. During the first quarter of 2025, a decrease in long-term market rates led to a $2,589 increase in the fair value associated with the Company’s AFS securities at March 31, 2025. The fair value of an investment security moves inversely to interest rates, so as rates decreased, the fair value increased, causing the unrealized loss in the portfolio 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 BY INDUSTRY As of September 30, 2024 Table I The following table provides the composition of commercial real estate loans by industry classification (as defined by the North American Industry Classification System).

Current wording

The following table provides the composition of commercial real estate loans by industry classification (as defined by the North American Industry Classification System).

Previous wording

The Company’s loan balances increased to $1,048,912 at September 30, 2024, representing an increase of $77,012, or 7.9%, 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 decreased to $1,043,296 at March 31, 2025, representing a decrease of $18,529, or 1.7%, as compared to $1,061,825 at December 31, 2024. The decrease in loans came primarily from the residential real estate loan and consumer loan portfolios, partially offset by increases in in the commercial real estate and commercial and industrial portfolios from year-end 2024.

Previous wording

Further increases in loans came from the Company’s residential real estate loan portfolio, which increased $39,805, or 12.5%, from year-end 2023. At September 30, 2024, residential real estate loans represented the second largest segment of the Company’s total loan portfolio at 34.3%. 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 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 $5,829) and contributed to a shift into more short-term variable rate mortgages (up $27,850) at September 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 $20,047 during the first nine months of 2024.

Current wording

The Company’s residential real estate loan portfolio decreased $24,708, or 6.6%, from year-end 2024. At March 31, 2025, residential real estate loans represented the second largest segment of the Company’s total loan portfolio at 33.4%. As previously mentioned, the decrease was largely due to a $31,473 paydown in a warehouse line of credit extended to another 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. The paydown was a result of lower mortgage volume due to higher mortgage rates and the increase in the lead bank’s internal capacity in relation to a capital infusion. The balance of this line of credit is expected to increase in future periods if mortgage volume increases and the funding needs of the lead bank changes. The remaining residential real estate loan balances increased $6,765, or 1.8%, from year-end 2024. During 2025, as mortgage rates continued to increase, the Company experienced less opportunities to sell long-term fixed rate loans to the secondary market. With elevated mortgage rates, mortgage customers were selecting more 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 $1,435) and contributed to a shift into more short-term variable rate mortgages (up $7,947) as of March 31, 2025.

Previous wording

The increases in the Company’s commercial and residential real estate loan portfolios at September 30, 2024 were partially offset by a decrease in the consumer loan portfolio, which was down $9,888, or 5.7%, from year-end 2023. This change was impacted by a $7,949, or 10.6%, decrease in other consumer loans, impacted by principal repayments and payoffs. Decreases in consumer loans also came from a $7,538, or 12.3%, 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. As a result, the Company exited the indirect lending business for automobiles and recreational vehicles effective October 11, 2024. Decreases in consumer loans were partially offset by a $5,599, or 15.6%, increase in home equity lines of credit.

Current wording

Further decreases in loans came from the Company’s consumer loan portfolio, which was down $8,003, or 5.1%, from year-end 2024. This change was impacted by a $4,651, or 9.3%, decrease in automobile loans. 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. As a result, the Company exited the indirect lending business for automobiles and recreational vehicles during the fourth quarter of 2024. Decreases in consumer loans also came from a $4,248, or 6.6%, decrease in other consumer loans from year-end 2024, impacted by principal repayments and payoffs. Decreases in consumer loans were partially offset by a $896, or 2.1%, increase in home equity lines of credit.

Previous wording

The Company’s commercial loan portfolio increased $47,095, or 9.8%, from year-end 2023. Contributing most to this increase were higher loan balances within the commercial real estate portfolio, which increased $42,603, or 13.2%, from year-end 2023. Commercial real estate loans represent the largest segment of the Company’s total loan portfolio at September 30, 2024, at 34.8%. The increase from year-end 2023 came primarily from new originations within the nonowner-occupied and construction loan segments.

Current wording

The decreases in the Company’s residential real estate and consumer loan portfolios at March 31, 2025 were partially offset by an increase in commercial loans. The Company’s commercial loan portfolio increased $14,182, or 2.7%, from year-end 2024. Contributing most to this increase were higher loan balances within the commercial real estate portfolio, which increased $7,992, or 2.1%, from year-end 2024. At March 31, 2025, commercial real estate loans represented the largest segment of the Company’s total loan portfolio at 36.5%. The increase from year-end 2025 came primarily from new originations within the owner- and nonowner-occupied loan segments.

Previous wording

While management believes lending opportunities exist in the Company’s markets, future commercial lending activities will depend upon economic and other related conditions, such as general demand for loans in the Company’s primary markets, interest rates offered by the Company, and the effects of competitive pressure and normal underwriting considerations. Management will continue to place emphasis on its commercial lending, which generally yields a higher return on investment as compared to other types of loans.

Current wording

Commercial loans were also positively impacted by an increase in the commercial and industrial portfolio, which was up $6,190, or 3.9%, from year-end 2024. The growth was impacted by an increase in larger loan originations during the year. While management believes lending opportunities exist in the Company’s markets, future commercial lending activities will depend upon economic and other related conditions, such as general demand for loans in the Company’s primary markets, interest rates offered by the Company, and the effects of competitive pressure and normal underwriting considerations. Management will continue to place emphasis on its commercial lending, which generally yields a higher return on investment as compared to other types of loans.

Previous wording

The Company maintains an allowance for credit losses (“ACL”) that represents management’s best estimate of the appropriate level of losses and risks inherent in our applicable financial assets under the current expected credit loss (“CECL”) model. The amount of the ACL should not be interpreted as an indication that charge-offs in future periods will necessarily occur in those amounts, or at all. The determination of the ACL involves a high degree of judgement and subjectivity. Please refer to Note 1 of the notes to the financial statements for discussion regarding our ACL methodologies for securities and loans.

Current wording

The Company maintains an ACL that represents management’s best estimate of the appropriate level of losses and risks inherent in our applicable financial assets under the current expected credit loss (“CECL”) model. The amount of the ACL should not be interpreted as an indication that charge-offs in future periods will necessarily occur in those amounts, or at all. The determination of the ACL involves a high degree of judgement and subjectivity. Please refer to Note 1 of the notes to the financial statements for discussion regarding our ACL methodologies for securities and loans.

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 September 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 nine months ended September 30, 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 March 31, 2025, the Company determined that all AFS securities that experienced a decline in fair value below the amortized cost basis from year-end 2024 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, 2025.

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 September 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 nine months ended September 30, 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 March 31, 2025, a $1 ACL was recognized based on a .02% cumulative default rate taken from the S&P and Moody’s bond rating index. The $1 ACL for HTM debt securities was unchanged from December 31, 2024, resulting in no provision expense during the three months ended March 31, 2025.

Previous wording

As of September 30, 2024, the ACL for loans totaled $9,919, or 0.95%, 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 $1,152, or 13.1%, was mostly from loans collectively evaluated, which increased $725. The increase was impacted by additional reserves from a $72,333 increase in collectively evaluated loan balances during the first nine months of 2024, primarily from the residential and commercial real estate loan segments. The increase in ACL reserves was 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 residential real estate segment.

Current wording

As of March 31, 2025, the ACL for loans totaled $10,139, or 0.97%, of total loans. As of December 31, 2024, the ACL for loans totaled $10,088, or 0.95%, of total loans. All of the $51, or 0.5%, increase in the ACL came from loans collectively evaluated. The increase in ACL reserves was impacted primarily by a higher historical loss rate within the commercial real estate and commercial and industrial portfolios, partially offset by a lower historical loss rate within the consumer loan portfolio. At March 31, 2025, there were no specific reserves on loans being individually evaluated for impairment, the same as year-end 2024.

Previous wording

The Company experienced higher delinquency levels from year-end 2023. Nonperforming loans to total loans increased to 0.44% at September 30, 2024, compared to 0.26% at December 31, 2023, and nonperforming assets to total assets increased to 0.32% at September 30, 2024, compared to 0.19% at December 31, 2023. The increase in both delinquency calculations resulted from a $2,138 increase in nonaccrual loans, primarily as a result of a single commercial and industrial loan relationship that was placed into nonaccrual status during the third quarter of 2024.

Current wording

The Company experienced minimal change in their delinquency levels from year-end 2024. Nonperforming loans to total loans increased slightly to 0.48% at March 31, 2025, compared to 0.46% at December 31, 2024, while nonperforming assets to total assets remained unchanged at 0.33%. The increase in nonperforming loans to total loans resulted from a $124 increase in nonaccrual loans, coming mostly from the commercial and industrial and residential real estate loan portfolios.

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 September 30, 2024 increased $134,284, or 11.9%, from year-end 2023. This change in deposits came primarily from interest-bearing deposit balances, which were up by $140,545, or 17.5%, from year-end 2023, while noninterest-bearing deposits decreased $6,261, or 1.9%, 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 March 31, 2025 increased $8,991, or 0.7%, from year-end 2024. This change in deposits came primarily from interest-bearing deposit balances, which were up by $10,510, or 1.1%, from year-end 2024, while noninterest-bearing deposits decreased $1,519, or 0.5%, from year-end 2024.

Previous wording

Further increases in interest-bearing deposits came from savings and money market account balances, which increased $8,892, or 3.5%, 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 also experienced a $5,283 increase in its new Sweet Home Ohio savings account balances as part of the Ohio Homebuyer Plus program. The Company’s remaining 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 $6,948, or 2.4%, from year-end 2024. The increase came primarily from savings accounts, which increased $6,590 from year-end 2024, impacted mostly by the Company’s statement savings account product. Money market account balances increased $358 from year-end 2024, impacted mostly by increases in the Company’s tiered money market product (Money Fund) that was introduced in 2023 and offers a higher rate on tiered deposit balances.

Previous wording

The increase in interest-bearing deposits came primarily from higher interest-bearing NOW account balances, which increased $120,194, or 70.5%, from year-end 2023. The increase was largely driven by the Company’s participation with the Ohio Homebuyer Plus program that resulted in $100,000 in deposits to a new municipal NOW account with the State of Ohio Treasurer. Excluding the new Treasurer account, the Company also experienced increases of $24,069 in other municipal NOW product balances, particularly within the Gallia County, Ohio, and Mason County, West Virginia, market areas.

Current wording

Partially offsetting the increases in savings, money market and time deposit balances were lower interest-bearing NOW account balances, which decreased $2,574, or 0.9%, from year-end 2024. The decrease was largely from a $14,993 decrease in the Company’s municipal NOW account with the Treasurer in relation to the Homebuyer Plus program. Excluding this decrease in the Treasurer account balances, the Company would have experienced a $16,216 increase in its other municipal NOW product balances, particularly within the Gallia County, Ohio, and Mason County, West Virginia, market areas.

Previous wording

Other borrowed funds were $40,888 at September 30, 2024, a decrease of $3,705, or 8.3%, 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 $38,440 at March 31, 2025, a decrease of $1,300, or 3.3%, from year-end 2024. The decrease was related to the scheduled principal amortization for applicable 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 and nine months ended September 30, 2024, compared to the same period in 2023. This discussion should be read in conjunction with the interim consolidated financial statements and the notes 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 months ended March 31, 2025, compared to the same period in 2024. This discussion should be read in conjunction with the interim consolidated financial statements and the notes 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 and nine months ended September 30, 2024, net interest income increased $1,205, or 10.6%, and $1,022, of 2.9%, compared to the same periods in 2023, respectively. The improvement during both periods came from average earning asset growth 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.

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 March 31, 2025, net interest income increased $1,950, or 17.4%, compared to the same period in 2024. The improvement during 2025 came from average earning asset growth and the net interest margin. The average growth was impacted by a composition shift into higher-yielding loans and securities, combined with a consumer shift to more lower-cost deposit sources that helped reduce the higher average costs paid on deposits and borrowings.

Previous wording

Total interest on securities increased $869, or 90.8%, during the third quarter of 2024, and $794, or 27.1%, during the first nine months of 2024, compared to the same periods in 2023. The earnings growth was primarily from the purchase of $100,497 in U.S. Government securities during the third quarter of 2024 as part of the Company’s participation in the state’s Homebuyer Plus program. The securities were purchased at a weighted average yield of 4.7% with maturity terms ranging from 6 months to 18 months. The security purchases were used to collateralize $100,00 in public fund deposits received by the State Treasurer as part of the program. This contributed to increases in average security balances, which were up $59,752 and $9,272 during the three and nine months ended September 30, 2024, compared to the same periods in 2023, respectively. While securities have grown in large part due to the security purchases from the Homebuyer Plus program, the Company has placed more emphasis on growing its higher-yielding loan portfolio during 2023 and 2024, utilizing 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, impacted by the $100,497 purchase of U.S Government securities at a weighted average yield of 4.7% that was higher than the 2.39% average yield on the total securities portfolio. Average security yields have also been positively impacted by the elevated market rate environment during both 2023 and 2024. As a result, average security yields increased 98 basis points to 2.89% during the third quarter of 2024 and increased 48 basis points to 2.39% during the first nine months of 2024, compared to the same periods in 2023.

Current wording

Total interest on securities increased $1,264, or 137.5%, during the first quarter of 2025, compared to the same period in 2024. The earnings growth was primarily from the purchase of $100,497 in U.S. Government securities during the third quarter of 2024 as part of the Company’s participation in the state’s Homebuyer Plus program. The securities were purchased at a weighted average yield of 4.7% with maturity terms ranging from 6 months to 18 months. The security purchases were used to collateralize $100,00 in public fund deposits received by the Treasurer as part of the program. This contributed to increases in average security balances, which were up $95,521 during the first quarter of 2025, compared to the same period in 2024. While securities have grown in large part due to the security purchases from the Homebuyer Plus program, the Company has placed more emphasis on growing its higher-yielding loan portfolio during 2024 and 2025, utilizing 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, impacted by the $100,497 purchase of U.S Government securities at a weighted average yield of 4.7% that was higher than the 3.17% average yield on the total securities portfolio at March 31, 2025. Average security yields have also been positively impacted by the elevated market rate environment during 2024 that continued into 2025. As a result, average security yields increased 119 basis points to 3.17% during the first quarter of 2025, compared to the same period in 2024.

Previous wording

Total interest income from interest-bearing deposits with banks increased $189 during the third quarter of 2024, and $1,955 during the first nine months 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 $14,099 and $44,271 during the three and nine months ended September 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. The rate increases were the result of the Federal Reserve increasing short-term rates during 2022 and 2023 due to rising inflationary concerns at that time. However, in September 2024, the Federal Reserve took action to reduce short-term rates by 50 basis points due in large part to the improvement in the inflationary pressures that had negatively impacted the economy in 2022 and 2023. This lowered the target federal funds rate to a range of 4.75% to 5.00%, which is expected to have a negative impact on the Federal Reserve Bank clearing account’s interest earnings.

Current wording

Total interest income from interest-bearing deposits with banks decreased $591 during the first quarter of 2025, compared to the same period in 2024. This was largely from average balance decreases with the Company’s interest-bearing FRB clearing account, which decreased $27,503 during the three months ended March 31, 2025, compared to the same period in 2024. FRB clearing balances were used to assist in funding loan growth, which contributed to the average balance decrease of FRB funds during the first quarter of 2025, compared to the first quarter of 2024. Further impacting lower interest income from the FRB clearing account were short-term rate decreases during 2024. Between September and December 2024, the FRB took action to reduce the rate associated with the FRB clearing account by 100 basis points due to improvements in inflationary pressures. This action lowered the target federal funds rate to a range of 4.25% to 4.50%, which had a negative impact on the FRB clearing account’s interest earnings.

Previous wording

Total interest expense incurred on the Company’s interest-bearing liabilities increased $2,268 during the third quarter of 2024, and $9,976 during the first nine months 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 $9,782 at an average cost of 1.37% during the year) into more higher-cost time deposit products (up $129,211 at an average cost of 4.67% during the year). Furthermore, the Company’s average wholesale funding balances increased $20,053 during the year, which included the use of brokered CDs (average cost of 4.88%) 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 123 basis points from 1.68% at September 30, 2023, to 2.91% at September 30, 2024.

Current wording

The Company also experienced a $7,609 increase in its average time deposits during the first quarter of 2025, compared to the same period in 2024. While the movement of higher time deposit balances had a corresponding impact to higher interest expense, the average cost associated with time deposits decreased during the first quarter of 2025, compared to the same period in 2024. During 2023, rate offerings on retail CDs continued to adjust up as a result of market competition. The Company had offered various “short-term” CD rate specials with maturity terms of less than one year to attract and retain its core deposit funding during this time. Since then, product rates on retail CDs have decreased, which has allowed a large portion of those short-term retail CDs to renew at lower rates, or in some cases, be reinvested into lower-costing savings or money market accounts. Furthermore, the Company’s average wholesale funding balances decreased $20,172 during the first quarter of 2025, which included the use of brokered CDs (average cost of 4.70%) and FHLB advances (average cost of 4.05%). With the Company utilizing the growth in its lower-cost retail deposit sources to fund earning asset growth, the reliance on higher-cost wholesale deposits to fund asset growth decreased, which helped to limit the growth in interest expense during 2025. As a result of the rate repricings on retail CDs and the deposit shift into lower-cost funding sources, the Company’s total weighted average costs on interest-bearing liabilities decreased by 14 basis points from 2.15% at March 31, 2024 to 2.01% at March 31, 2025.

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 third quarter net interest margin decreased to 3.76%, compared to 2023’s third quarter net interest margin of 3.85%. The Company’s year-to-date net interest margin decreased to 3.71% at September 30, 2024, compared to 2023’s year-to-date net interest margin of 4.03% at September 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 nine months ended September 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. From the first quarter to the second quarter of 2024, the net interest margin increased 13 basis points from 3.61% to 3.74% and from the second quarter to the third quarter of 2024, the net interest margin increased 2 basis points from 3.74% to 3.76%. These margin improvements were related to increases in earning asset yields and a higher composition of average loan balances due to the 9.0% increase in average year-to-date 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 and third quarters of 2024. This, along with the benefits of higher-yielding loan growth, contributed to the increase in net interest income during the three and nine months ended September 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.

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 2025, the Company’s first quarter net interest margin increased to 3.85%, compared to 2024’s first quarter net interest margin of 3.61%. Positive contributions to margin growth came from a 10.9% increase in the Company’s average earning assets, mostly from higher-yielding loans and securities. The margin increase was also positively impacted by lower average costs associated with the Bank’s interest-bearing liabilities due to a deposit composition shift into more lower-cost NOW, savings, money market, and checking account deposits. Furthermore, the Company has benefited from its retail CDs repricing at lower product rates, while also relying less on wholesale funding sources. 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 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. For the three months ended September 30, 2024, the Company’s provision for credit losses expense totaled $920, an increase of $32 when compared to $888 in provision expense during the three months ended September 30, 2023. For the nine months ended September 30, 2024, the Company’s provision for credit losses expense totaled $1,852, an increase of $451 when compared to $1,401 in provision expense during the nine months ended September 30, 2023.

Current 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 HTM 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. For the three months ended March 31, 2025, the Company’s provision for credit losses expense totaled $416, a decrease of $335 when compared to $751 in provision expense during the three months ended March 31, 2024.

Previous wording

Credit loss expense during 2024 was also impacted by unfunded commitments, which was down $140 and $137 during the three and nine months ended September 30, 2024, compared to the same periods in 2023, respectively. The impact came mostly from the commercial real estate construction segment.

Current wording

Credit loss expense during 2025 was also impacted by unfunded commitments on off-balance sheet liabilities, which increased $46 during the three months ended March 31, 2025, compared to the same period in 2024. During the first quarter of 2025, credit loss expense on unfunded commitments was reduced by $60, compared to a reduction of $106 in credit loss expense during first quarter of 2024. The impact came mostly from the commercial real estate construction segment.

Previous wording

Future provisions to the allowance for credit losses will continue to be based on management’s quarterly in-depth evaluation that is discussed in further detail under the caption “Critical Accounting Estimates” within this Management’s Discussion and Analysis.

Current wording

Future provisions to the ACL will continue to be based on management’s quarterly in-depth evaluation that is discussed in further detail under the caption “Critical Accounting Estimates” within this Management’s Discussion and Analysis.

Previous wording

The Company’s efficiency ratio is defined as noninterest expense as a percentage of fully tax-equivalent net interest income plus noninterest income. The effects from provision expense are excluded from the efficiency ratio. Management continues to place emphasis on managing its balance sheet mix and interest rate sensitivity as well as developing more innovative ways to generate noninterest revenue. Comparing the three and nine months ended September 30, 2024 to the same periods in 2023, the Company has benefited from an increase in earning asset yields due to previous market rate increases by the Federal Reserve, and a higher composition of higher-yielding loans. Average loans continue to grow, increasing over 9% during both the quarterly and year-to-date periods, and continued to transition into more lower-cost funding deposits during the third quarter that had a positive impact to quarterly net interest income. Earnings also benefited from the $100,497 purchase of securities during the third quarter of 2024 due to the Company’s participation in the Homebuyer Plus program. However, the continued trend of increasing deposit rates, a deposit composition shift to higher-cost time deposit balances, and the increased use of higher-cost wholesale funding sources led to margin compression during both the third quarter and the first nine months of 2024 and had a negative impact to year-to-date net interest income. While net interest earnings are improving, contributions from noninterest income also grew by 11.1% and 2.2% during the third quarter and the first nine months of 2024, while overhead expense increased 8.1% and 5.7% during the same periods due to higher annual merit adjustments and health insurance premiums, as well as severance expense. The positive effects of higher net interest income during the quarter was the contributing factor to the Company’s improved quarterly efficiency number, which decreased to 72.0% during the three months ended September 30, 2024, from 73.6% during the same period in 2023. However, the net interest income growth for the year was completely offset by higher overhead expense which has contributed to a higher year-to-date efficiency number, which increased (regressed) to 72.3% during the nine months ended September 30, 2024, from 70.3% during the same period in 2023.

Current wording

The Company’s efficiency ratio is defined as noninterest expense as a percentage of fully tax-equivalent net interest income plus noninterest income. The effects from provision expense are excluded from the efficiency ratio. Management continues to place emphasis on managing its balance sheet mix and interest rate sensitivity as well as developing more innovative ways to generate noninterest revenue. Comparing the three months ended March 31, 2025 to the same period in 2024, the Company has benefited from an increase in average earning assets, primarily from higher-yielding loans and securities, a decrease in average costs on interest-bearing deposits, and a deposit composition shift from higher-costing time deposits to lower-costing savings, NOW, money market and checking account deposits. While noninterest revenue is below the prior year, earnings have benefited from cost savings in salaries and employee benefits that resulted from management’s implementation of a voluntary retirement program in 2024. This has helped to limit overhead expense to just a 0.7% increase over 2024. With a strong 17.4% increase in net interest income combined with minimal overhead expense pickup from 2024, the Company’s year-to-date efficiency number decreased (improved) to 63.95% during the three months ended March 31, 2025, compared to 71.47% during the three months ended March 31, 2024.

Previous wording

The Bank opted into the CBLR, and therefore, is not required to comply with the Basel III capital requirements The numerator of the CBLR is Tier 1 capital, as calculated under present rules. The denominator of the CBLR is the QCBO’s average assets, calculated in accordance with the QCBO’s Call Report instructions and less assets deducted from Tier 1 capital. The current rules and Call Report instructions were impacted by the Company’s adoption of ASC 326 and its election to apply the 3-year CECL transition provision on January 1, 2023. By making this election, the Bank, in accordance with Section 301 of the regulatory capital rules, will increase it retained earnings (Tier 1 Capital) and average assets by 75% of its CECL transition amount during the first year of the transition period, 50% of its CECL transition amount during the second year, and 25% of its CECL transitional amount during the third year of the transition period. The Bank’s transition amount during year two of the transitional period totaled $2,276, which resulted in the add-back of $1,138 to both Tier 1 capital and average assets as part of the CBLR calculation for September 30, 2024. As of September 30, 2024, the Bank’s CBLR was 10.25%.

Current wording

The Bank opted into the CBLR, and, therefore, is not required to comply with the Basel III capital requirements. The numerator of the CBLR is Tier 1 capital, as calculated under present rules. The denominator of the CBLR is the QCBO’s average assets, calculated in accordance with the QCBO’s Call Report instructions and less assets deducted from Tier 1 capital. The current rules and Call Report instructions were impacted by the Company’s adoption of ASC 326 and its election to apply the 3-year CECL transition provision on January 1, 2023. By making this election, the Bank, in accordance with Section 301 of the regulatory capital rules, will increase it retained earnings (Tier 1 Capital) and average assets by 75% of its CECL transition amount during the first year of the transition period, 50% of its CECL transition amount during the second year, and 25% of its CECL transitional amount during the third year of the transition period. The Bank’s transition amount during year three of the transitional period totaled $2,276, which resulted in the add-back of $569 to both Tier 1 capital and average assets as part of the CBLR calculation for March 31, 2025. As of March 31, 2025, the Bank’s CBLR was 10.13%.

Previous wording

Cash dividends paid by the Company were $3,141 during the first nine months of 2024. The year-to-date dividends paid totaled $0.66 per share.

Current wording

Cash dividends paid by the Company were $1,037 during the first three months of 2025. The year-to-date dividends paid totaled $0.22 per share.

Previous wording

Liquidity relates to the Company's ability to meet the cash demands and credit needs of its customers in the short and long-term and is provided by the ability to readily convert assets to cash and raise funds in the marketplace. The Company manages funding and liquidity based on point-in-time metrics as well as forward-looking projections, which incorporate different sources and uses of funds under base and stress scenarios. Liquidity risk is monitored and managed by the Bank’s Asset Liability Committee using a series of policy limits and key risk indicators are established to ensure risks are managed within the Company’s risk tolerance. The Company maintains a contingency funding plan that provides for liquidity stress testing, which assesses the liquidity needs under varying market conditions, time horizons and other events. The stress testing provides for ongoing monitoring of unused borrowing capacity and available sources of contingent liquidity to prepare for unexpected liquidity needs and to cover unanticipated events that could affect liquidity.

Current wording

Liquidity relates to the Company's ability to meet the cash demands and credit needs of its customers in the short and long-term and is provided by the ability to readily convert assets to cash and raise funds in the marketplace. The Company manages funding and liquidity based on point-in-time metrics as well as forward-looking projections, which incorporate different sources and uses of funds under base and stress scenarios. Liquidity risk is monitored and managed by the Bank’s Asset Liability Committee using a series of policy limits and key risk indicators, which are established to ensure risks are managed within the Company’s risk tolerance. The Company maintains a contingency funding plan that provides for liquidity stress testing, which assesses the liquidity needs under varying market conditions, time horizons and other events. The stress testing provides for ongoing monitoring of unused borrowing capacity and available sources of contingent liquidity to prepare for unexpected liquidity needs and to cover unanticipated events that could affect liquidity.

Previous wording

Total cash and cash equivalents, HTM securities maturing within one year, and AFS securities, which totaled $354,566, represented 23.7% of total assets at September 30, 2024 compared to $290,781 and 21.5% of total assets at December 31, 2023. This growth in liquid funds came primarily from increases in deposits, as well as increases in borrowings and net proceeds from maturities and paydowns of securities. A large portion of these dollars were used to fund the 7.9% growth in loans. Increases in deposits were largely impacted by growth in NOW, savings and money market deposits, which increased 30.3% from year-end 2023, partially offset by lower noninterest-bearing deposits, which decreased 1.9%, from year-end 2023.

Current wording

Total cash and cash equivalents, HTM securities maturing within one year, and AFS securities, which totaled $380,702, represented 25.2% of total assets at March 31, 2025 compared to $352,563 and 23.5% of total assets at December 31, 2024. This growth in liquid funds came primarily from a decrease in loans that was impacted by a large $31,473 paydown on the Bank’s warehouse line of credit extended to another mortgage lender. Liquid fund growth from year-end 2024 also came from an increase in net proceeds from maturities and paydowns of securities. Increases in deposits were largely impacted by growth in time, savings and money market deposits, which increased 1.9% from year-end 2024, partially offset by lower interest-bearing and noninterest-bearing demand deposits, which decreased 0.7%, from year-end 2024.