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LOANS AND ALLOWANCE FOR LOAN LOSSES

3 Months Ended

Mar. 31, 2021

LOANS AND ALLOWANCE FOR LOAN LOSSES [Abstract]

NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans are comprised of the following:

	March 31, 2021			December 31, 2020

Residential real estate	$	290,587		$	305,478
Commercial real estate:
Owner-occupied		54,228			51,863
Nonowner-occupied		159,262			164,523
Construction		37,656			37,063
Commercial and industrial		159,716			157,692
Consumer:
Automobile		53,475			55,241
Home equity		20,608			19,993
Other		55,518			56,811
		831,050			848,664
Less: Allowance for loan losses		(6,887	)		(7,160	)

Loans, net	$	824,163		$	841,504

Commercial and industrial loans include $25,829 of loans originated under the PPP at March 31, 2021 compared to $27,933 at December 31, 2020. These loans are guaranteed by the SBA.

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2021 and 2020:

March 31, 2021	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,480		$	2,431		$	1,776		$	1,473		$	7,160
Provision for loan losses		(116	)		(102	)		52			114			(52	)
Loans charged off		(1	)		(10	)		(71	)		(359	)		(441	)
Recoveries		14			27			34			145			220
Total ending allowance balance	$	1,377		$	2,346		$	1,791		$	1,373		$	6,887

March 31, 2020	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,250		$	1,928		$	1,447		$	1,647		$	6,272
Provision for loan losses		926			1,572			624			724			3,846
Loans charged-off		(198	)		(516	)		(33	)		(889	)		(1,636	)
Recoveries		24			44			7			172			247
Total ending allowance balance	$	2,002		$	3,028		$	2,045		$	1,654		$	8,729

The following table presents the balance in the allowance for loan losses and the recorded investment of loans by portfolio segment and based on impairment method as of March 31, 2021 and December 31, 2020:

March 31, 2021	Residential Real Estate		Commercial Real Estate		Commercial and Industrial		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	8	$	32	$	50	$	90
Collectively evaluated for impairment		1,377		2,338		1,759		1,323		6,797
Total ending allowance balance	$	1,377	$	2,346	$	1,791	$	1,373	$	6,887

Loans:
Loans individually evaluated for impairment	$	205	$	5,606	$	3,311	$	83	$	9,205
Loans collectively evaluated for impairment		290,382		245,540		156,405		129,518		821,845
Total ending loans balance	$	290,587	$	251,146	$	159,716	$	129,601	$	831,050

December 31, 2020	Residential Real Estate		Commercial Real Estate		Commercial and Industrial		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		1,480		2,431		1,776		1,473		7,160
Total ending allowance balance	$	1,480	$	2,431	$	1,776	$	1,473	$	7,160

Loans:
Loans individually evaluated for impairment	$	411	$	5,845	$	4,686	$	84	$	11,026
Loans collectively evaluated for impairment		305,067		247,604		153,006		131,961		837,638
Total ending loans balance	$	305,478	$	253,449	$	157,692	$	132,045	$	848,664

The following tables present information related to loans individually evaluated for impairment by class of loans as of March 31, 2021 and December 31, 2020:

March 31, 2021	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:
Commercial real estate:
Owner-occupied	$	2,105	$	2,105	$	8
Commercial and industrial		276		276		32
Consumer:
Other		50		50		50
With no related allowance recorded:
Residential real estate		215		205		—
Commercial real estate:
Owner-occupied		3,112		3,112		—
Nonowner-occupied		389		389		—
Commercial and industrial		3,035		3,035		—
Consumer:
Home equity		33		33		—
Total	$	9,215	$	9,205	$	90

December 31, 2020	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:	$	----	$	----	$	---
With no related allowance recorded:
Residential real estate		418		411		—
Commercial real estate:
Owner-occupied		5,256		5,256		—
Nonowner-occupied		632		589		—
Commercial and industrial		4,686		4,686		—
Consumer:
Home equity		34		34		—
Other		50		50		—
Total	$	11,076	$	11,026	$	—

The following tables present information related to loans individually evaluated for impairment by class of loans for the three months ended March 31, 2021 and 2020:

	Three months ended March 31, 2021
	Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized
With an allowance recorded:
Commercial real estate:
Owner-occupied	$	2,109	$	43	$	43
Commercial and industrial		281		4		4
Consumer:
Other		50		1		1
With no related allowance recorded:
Residential real estate		207		3		3
Commercial real estate:
Owner-occupied		3,128		34		34
Nonowner-occupied		389		7		7
Commercial and industrial		3,718		47		47
Consumer:
Home equity		33		1		1
Total	$	9,915	$	140	$	140

	Three months ended March 31, 2020
	Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized
With an allowance recorded:
Commercial real estate:
Owner-occupied	$	875	$	9	$	9
Commercial and industrial		611		7		7
With no related allowance recorded:
Residential real estate		433		4		4
Commercial real estate:
Owner-occupied		2,754		48		48
Nonowner-occupied		1,033		11		11
Commercial and industrial		4,279		66		66
Consumer:
Home equity		385		5		5
Total	$	10,370	$	150	$	150

The recorded investment of a loan is its carrying value excluding accrued interest and deferred loan fees.

Nonaccrual loans and loans past due 90 days or more and still accruing include both smaller balance homogenous loans that are collectively evaluated for impairment and individually classified as impaired loans.

The Company transfers loans to other real estate owned, at fair value less cost to sell, in the period the Company obtains physical possession of the property (through legal title or through a deed in lieu). As of March 31, 2021, there were no other real estate owned for residential real estate properties, as compared to $43 at December 31, 2020. In addition, nonaccrual residential mortgage loans that are in the process of foreclosure had a recorded investment of $693 and $1,097 as of March 31, 2021 and December 31, 2020, respectively.

The following table presents the recorded investment of nonaccrual loans and loans past due 90 days or more and still accruing by class of loans as of March 31, 2021 and December 31, 2020:

March 31, 2021	Loans Past Due 90 Days And Still Accruing		Nonaccrual

Residential real estate	$	39	$	4,828
Commercial real estate:
Owner-occupied		—		457
Nonowner-occupied		—		162
Construction		—		153
Commercial and industrial		—		149
Consumer:
Automobile		59		55
Home equity		—		160
Other		42		26
Total	$	140	$	5,990

December 31, 2020	Loans Past Due 90 Days And Still Accruing		Nonaccrual

Residential real estate	$	127	$	5,256
Commercial real estate:
Owner-occupied		—		205
Nonowner-occupied		—		362
Construction		—		156
Commercial and industrial		15		149
Consumer:
Automobile		146		129
Home equity		—		210
Other		136		36
Total	$	424	$	6,503

The following table presents the aging of the recorded investment of past due loans by class of loans as of March 31, 2021 and December 31, 2020:

March 31, 2021	30-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Loans Not Past Due		Total

Residential real estate	$	2,123	$	506	$	965	$	3,594	$	286,993	$	290,587
Commercial real estate:
Owner-occupied		292		923		445		1,660		52,568		54,228
Nonowner-occupied		2,098		—		162		2,260		157,002		159,262
Construction		-		29		82		111		37,545		37,656
Commercial and industrial		140		-		149		289		159,427		159,716
Consumer:
Automobile		451		80		99		630		52,845		53,475
Home equity		61		127		138		326		20,282		20,608
Other		161		71		61		293		55,225		55,518
Total	$	5,326	$	1,736	$	2,101	$	9,163	$	821,887	$	831,050

December 31, 2020	30-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Loans Not Past Due		Total

Residential real estate	$	2,845	$	496	$	1,663	$	5,004	$	300,474	$	305,478
Commercial real estate:
Owner-occupied		470		1,003		193		1,666		50,197		51,863
Nonowner-occupied		94		—		362		456		164,067		164,523
Construction		—		82		—		82		36,981		37,063
Commercial and industrial		1,112		11		164		1,287		156,405		157,692
Consumer:
Automobile		831		131		258		1,220		54,021		55,241
Home equity		204		81		113		398		19,595		19,993
Other		446		76		172		694		56,117		56,811
Total	$	6,002	$	1,880	$	2,925	$	10,807	$	837,857	$	848,664

Troubled Debt Restructurings:

A troubled debt restructuring (“TDR”) occurs when the Company has agreed to a loan modification in the form of a concession for a borrower who is experiencing financial difficulty. All TDRs are considered to be impaired. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; a reduction in the contractual principal and interest payments of the loan; or short-term interest-only payment terms.

The Company has allocated reserves for a portion of its TDRs to reflect the fair values of the underlying collateral or the present value of the concessionary terms granted to the customer.

The following table presents the types of TDR loan modifications by class of loans as of March 31, 2021 and December 31, 2020:

March 31, 2021	TDRs Performing to Modified Terms		TDRs Not Performing to Modified Terms		Total TDRs

Commercial real estate:
Owner-occupied
Reduction of principal and interest payments	$	1,479	$	—	$	1,479
Maturity extension at lower stated rate than market rate		329		—		329
Credit extension at lower stated rate than market rate		381		—		381
Nonowner-occupied
Credit extension at lower stated rate than market rate		389		—		389
Commercial and industrial:
Interest only payments		3,035		—		3,035

Total TDRs	$	5,613	$	—	$	5,613

December 31, 2020	TDRs Performing to Modified Terms		TDRs Not Performing to Modified Terms		Total TDRs
Residential real estate:
Interest only payments	$	202	$	—	$	202
Commercial real estate:
Owner-occupied
Reduction of principal and interest payments		1,486		—		1,486
Maturity extension at lower stated rate than market rate		351		—		351
Credit extension at lower stated rate than market rate		384		—		384
Nonowner-occupied
Credit extension at lower stated rate than market rate		390		—		390
Commercial and industrial:
Interest only payments		4,400		—		4,400

Total TDRs	$	7,213	$	—	$	7,213

The Company had no specific allocations in reserves to customers whose loan terms have been modified in TDRs at March 31, 2021 and December 31, 2020. At March 31, 2021, the Company had $2,465 in commitments to lend additional amounts to customers with outstanding loans that are classified as TDRs, as compared to $1,100 at December 31, 2020.

There were no TDR loan modifications that occurred during the three months ended March 31, 2021 and 2020 that impacted provision expense or the allowance for loan losses.

The Company had no TDRs that occurred during the three months ended March 31, 2021 and 2020 that experienced any payment defaults within twelve months following their loan modification. A default is considered to have occurred once the TDR is past due 90 days or more or it has been placed on nonaccrual. TDR loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020 and provided guidance on the modification of loans as a result of COVID-19, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief are not TDRs. This includes short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers are considered current if they are less than 30 days past due on their contractual payments at the time of modification. As of March 31, 2021, the Company had modified 783 loans related to COVID-19 with an outstanding loan balance of $147,985 that were not reported as TDRs. As of March 31, 2021, the Company had 56 modified loans that were still in active deferral related to COVID-19 with an outstanding loan balance of $2,395 that were not reported as TDRs in the tables presented above.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. These risk categories are represented by a loan grading scale from 1 through 11. The Company analyzes loans individually with a higher credit risk rating and groups these loans into categories called “criticized” and ”classified” assets. The Company considers its criticized assets to be loans that are graded 8 and its classified assets to be loans that are graded 9 through 11. The Company’s risk categories are reviewed at least annually on loans that have aggregate borrowing amounts that meet or exceed $750.

The Company uses the following definitions for its criticized loan risk ratings:

Special Mention. Loans classified as "special mention" indicate considerable risk due to deterioration of repayment (in the earliest stages) due to potential weak primary repayment source, or payment delinquency. These loans will be under constant supervision, are not classified and do not expose the institution to sufficient risks to warrant classification. These deficiencies should be correctable within the normal course of business, although significant changes in company structure or policy may be necessary to correct the deficiencies. These loans are considered bankable assets with no apparent loss of principal or interest envisioned. The perceived risk in continued lending is considered to have increased beyond the level where such loans would normally be granted. Credits that are defined as a TDR should be graded no higher than special mention until they have been reported as performing over one year after restructuring.

The Company uses the following definitions for its classified loan risk ratings:

Substandard. Loans classified as "substandard" represent very high risk, serious delinquency, nonaccrual, or unacceptable credit. Repayment through the primary source of repayment is in jeopardy due to the existence of one or more well-defined weaknesses, and the collateral pledged may inadequately protect collection of the loans. Loss of principal is not likely if weaknesses are corrected, although financial statements normally reveal significant weakness. Loans are still considered collectible, although loss of principal is more likely than with special mention loans. Collateral liquidation is considered likely to satisfy debt.

Doubtful. Loans classified as "doubtful" display a high probability of loss, although the amount of actual loss at the time of classification is undetermined. This classification should be temporary until such time that actual loss can be identified, or improvements are made to reduce the seriousness of the classification. These loans exhibit all substandard characteristics with the addition that weaknesses make collection or liquidation in full highly questionable and improbable. This classification consists of loans where the possibility of loss is high after collateral liquidation based upon existing facts, market conditions, and value. Loss is deferred until certain important and reasonable specific pending factors that may strengthen the credit can be more accurately determined. These factors may include proposed acquisitions, liquidation procedures, capital injection, receipt of additional collateral, mergers, or refinancing plans. A doubtful classification for an entire credit should be avoided when collection of a specific portion appears highly probable with the adequately secured portion graded substandard.

Loss. Loans classified as "loss" are considered uncollectible and are of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the credit has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset yielding such a minimum value even though partial recovery may be affected in the future. Amounts classified as loss should be promptly charged off.

Criticized and classified loans will mostly consist of commercial and industrial and commercial real estate loans. The Company considers its loans that do not meet the criteria for a criticized and classified asset rating as pass rated loans, which will include loans graded from 1 (Prime) to 7 (Watch). All commercial loans are categorized into a risk category either at the time of origination or reevaluation date. As of March 31, 2021 and December 31, 2020, and based on the most recent analysis performed, the risk category of commercial loans by class of loans was as follows:

March 31, 2021	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	48,758	$	655	$	4,815	$	54,228
Nonowner-occupied		155,258		3,635		369		159,262
Construction		37,574		—		82		37,656
Commercial and industrial		154,244		2,012		3,460		159,716
Total	$	395,834	$	6,302	$	8,726	$	410,862

December 31, 2020	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	46,604	$	669	$	4,590	$	51,863
Nonowner-occupied		160,324		3,629		570		164,523
Construction		37,063		—		—		37,063
Commercial and industrial		150,786		2,064		4,842		157,692
Total	$	394,777	$	6,362	$	10,002	$	411,141

The Company also obtains the credit scores of its borrowers upon origination (if available by the credit bureau), but the scores are not updated. The Company focuses mostly on the performance and repayment ability of the borrower as an indicator of credit risk and does not consider a borrower's credit score to be a significant influence in the determination of a loan's credit risk grading.

For residential and consumer loan classes, the Company evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment of residential and consumer loans by class of loans based on repayment activity as of March 31, 2021 and December 31, 2020:

March 31, 2021	Consumer						Residential
	Automobile		Home Equity		Other		Real Estate		Total

Performing	$	53,361	$	20,448	$	55,450	$	285,720	$	414,979
Nonperforming		114		160		68		4,867		5,209
Total	$	53,475	$	20,608	$	55,518	$	290,587	$	420,188

December 31, 2020	Consumer						Residential
	Automobile		Home Equity		Other		Real Estate		Total

Performing	$	54,966	$	19,783	$	56,639	$	300,095	$	431,483
Nonperforming		275		210		172		5,383		6,040
Total	$	55,241	$	19,993	$	56,811	$	305,478	$	437,523

The Company originates residential, consumer, and commercial loans to customers located primarily in the southeastern areas of Ohio as well as the western counties of West Virginia. Approximately 4.04% of total loans were unsecured at March 31, 2021, down from 4.22% at December 31, 2020.