Ohio Valley Banc Corp. Reports 3rd Quarter Earnings

GALLIPOLIS, Ohio, Oct. 27, 2016

"The challenges and expense associated with the merger of two community banks are, for the most part, behind us," stated Thomas E. Wiseman, president and CEO.  "While net income and earnings per share numbers carry the burden of the merger expense, we had positive growth in revenue and assets due to the event.  The new combined OVBC has the tools and positioning in the market to focus our efforts on successfully pursuing our Community First mission.  There is much opportunity as we bring desired, competitive products, such as our holiday credit card introductory special, cash-back Rewards Checking, and Apple Pay, to these expanded and new markets."

For the third quarter of 2016, net interest income increased $700,000, and for the nine months ended September 30, 2016, net interest income increased $927,000 from the same respective periods last year.  Positively impacting net interest income was the growth in earning assets.  For the three months ended September 30, 2016, average earning assets increased $97 million, and for the nine months ended September 30, 2016, average earning assets increased $36 million from the same respective periods the prior year.  The growth in average earning assets was primarily attributable to the acquisition of Milton Bancorp, Inc. ("Milton") during the third quarter.  At the time of closing, Milton had total assets of $132 million, of which $113 million was in loans and $6 million was in investment securities.  Also contributing to loan growth was the opening of our Athens loan production office in late 2015.  As of September 30, 2016, the new office had nearly $17 million in loans outstanding.  Partially offsetting the contribution from the growth in earning assets was the decrease in the net interest margin.  For the nine months ended September 30, 2016, the net interest margin was 4.34 percent, compared to 4.38 percent for the same period the prior year.

For the three months ended September 30, 2016, the provision for loan losses totaled $1,708,000, an increase of $1,719,000, and for the nine months ended September 30, 2016, the provision for loan losses totaled $2,328,000, an increase of $1,618,000, from the same respective periods in 2015.  The provision for loan loss expense incurred for the three months ended September 30, 2016 was related to net charge-offs of $1,105,000 and to a net increase in specific reserves on collateral dependent impaired loans of $231,000.  During the third quarter of 2016, management identified impairment of $814,000 on two collateral dependent impaired loans and charged off a collateral dependent impaired loan's specific reserve of $586,000.  For the nine months ended September 30, 2016, the provision for loan loss expense incurred was related to net charge-offs of $1,439,000 and to a net increase in specific reserves on collateral dependent impaired loans of $730,000.  The ratio of nonperforming loans to total loans was 1.31 percent at September 30, 2016 compared to 1.24 percent at December 31, 2015 and 1.42 percent at September 30, 2015.  Based on the evaluation of the adequacy of the allowance for loan losses, management believes that the allowance for loan losses at September 30, 2016 was adequate and reflects probable incurred losses in the portfolio.  The allowance for loan losses was 1.04 percent of total loans at September 30, 2016, compared to 1.13 percent at December 31, 2015 and 1.18 percent at September 30, 2015.

For the three months ended September 30, 2016, noninterest income totaled $1,693,000, compared to $1,584,000 for the same period last year, an increase of $109,000.  Contributing to the increase was service charges on deposit accounts, which was impacted from the merging of Milton deposit accounts.  Noninterest income totaled $6,789,000 for the nine months ended September 30, 2016, as compared to $6,990,000 for the same period last year, a decrease of $201,000.  For the first nine months of 2016, tax refund processing fees totaled $2,037,000, a decrease of $325,000 from the same period the prior year.  The decrease was related to the lower per item fee received by the Company as defined in the contract with the third-party tax refund product provider.  Also contributing to lower noninterest income for the nine-month period was the $163,000 decrease in gain on sale of securities.  During the nine months ended September 30, 2016, management elected not to sell any securities.  Partially offsetting the decreases in noninterest income was the year-to-date increase of $253,000 in service charges on deposit accounts related to higher overdraft fees and the addition of Milton deposit accounts.  For the first nine months of 2016, all other noninterest income sources increased $34,000 from the same period a year ago.

For the three months ended September 30, 2016, noninterest expense totaled $8,828,000, an increase of $1,101,000 from the same period last year.  For the nine months ended September 30, 2016, noninterest expense totaled $24,570,000, an increase of $1,862,000, or 8.2 percent, from the same period last year.  Generally, the acquisition of Milton contributed to an increase in most noninterest expense categories, reflecting both one-time merger related expenses and recurring expenses related to having a larger organization after the merger.  The Company's largest noninterest expense, salaries and employee benefits, increased $476,000 as compared to the third quarter of 2015 and increased $748,000 as compared to the first nine months of 2015.  The increase was primarily related to adding Milton employees, annual merit increases, and higher health insurance expense.  Also contributing to higher noninterest expense were one-time expenses related to the merger with Milton.  During the third quarter, the Company incurred $416,000 in merger related expenses, bringing the year-to-date merger related expenses to $777,000.  The remaining noninterest expenses increased $337,000 for the first nine months of 2016, as compared to the same period last year, led by software, occupancy, and furniture and equipment expense.

The Company's total assets at September 30, 2016 were $970 million, an increase of $174 million from December 31, 2015.  The acquisition of Milton provided $132 million in assets.  At September 30, 2016, total shareholders' equity exceeded $105 million, an increase of $15 million from December 31, 2015.  The consideration paid for Milton totaled $18.9 million, of which $11.5 million was the market value of OVBC common shares and $7.4 million was cash.