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LOANS AND ALLOWANCE FOR LOAN LOSSES

3 Months Ended

Mar. 31, 2022

LOANS AND ALLOWANCE FOR LOAN LOSSES [Abstract]

NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans are comprised of the following:

	March 31, 2022			December 31, 2021

Residential real estate	$	270,576		$	274,425
Commercial real estate:
Owner-occupied		72,020			71,979
Nonowner-occupied		163,083			176,100
Construction		32,035			33,718
Commercial and industrial		144,160			141,525
Consumer:
Automobile		47,022			48,206
Home equity		22,770			22,375
Other		59,980			62,863
		811,646			831,191
Less: Allowance for loan losses		(5,268	)		(6,483	)

Loans, net	$	806,378		$	824,708

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The CARES Act provided assistance to small businesses through the establishment of the Paycheck Protection Program (“PPP”). The PPP provided small businesses with funds to use for payroll and certain other expenses. There were no commercial and industrial loans originated under the PPP at March 31, 2022, as compared to $446 at December 31, 2021. These loans are guaranteed by the Small Business Administration (“SBA”).

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2022 and 2021:

March 31, 2022	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	980		$	2,548		$	1,571		$	1,384		$	6,483
Provision for loan losses		(279	)		(575	)		(190	)		(82	)		(1,126	)
Loans charged off		(3	)		(1	)		—			(330	)		(334	)
Recoveries		16			19			8			202			245
Total ending allowance balance	$	714		$	1,991		$	1,389		$	1,174		$	5,268

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

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, 2022 and December 31, 2021:

March 31, 2022	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	$	—	$	—	$	66	$	—	$	66
Collectively evaluated for impairment		714		1,991		1,323		1,174		5,202
Total ending allowance balance	$	714	$	1,991	$	1,389	$	1,174	$	5,268

Loans:
Loans individually evaluated for impairment	$	—	$	3,083	$	4,077	$	30	$	7,190
Loans collectively evaluated for impairment		270,576		264,055		140,083		129,742		804,456
Total ending loans balance	$	270,576	$	267,138	$	144,160	$	129,772	$	811,646

December 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	$	—	$	—	$	10	$	—	$	10
Collectively evaluated for impairment		980		2,548		1,561		1,384		6,473
Total ending allowance balance	$	980	$	2,548	$	1,571	$	1,384	$	6,483

Loans:
Loans individually evaluated for impairment	$	—	$	5,411	$	4,531	$	81	$	10,023
Loans collectively evaluated for impairment		274,425		276,386		136,994		133,363		821,168
Total ending loans balance	$	274,425	$	281,797	$	141,525	$	133,444	$	831,191

The following tables present information related to loans individually evaluated for impairment by class of loans as of March 31, 2022 and December 31, 2021:

March 31, 2022	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:
Commercial and industrial	$	1,730	$	1,730	$	66
With no related allowance recorded:
Commercial real estate:
Owner-occupied		2,737		2,700		—
Nonowner-occupied		383		383		—
Commercial and industrial		2,347		2,347		—
Consumer:
Home equity		30		30		—
Total	$	7,227	$	7,190	$	66

December 31, 2021	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:
Commercial and industrial	$	1,993	$	1,993	$	10
With no related allowance recorded:
Commercial real estate:
Owner-occupied		5,052		5,027		—
Nonowner-occupied		384		384		—
Commercial and industrial		2,538		2,538		—
Consumer:
Home equity		31		31		—
Other		50		50		—
Total	$	10,048	$	10,023	$	10

The following tables present information related to loans individually evaluated for impairment by class of loans for the three months ended March 31, 2022 and 2021:

	Three months ended March 31, 2022
	Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized
With an allowance recorded:
Commercial and industrial	$	1,862	$	40	$	40
With no related allowance recorded:
Commercial real estate:
Owner-occupied		2,713		39		39
Nonowner-occupied		384		7		7
Commercial and industrial		2,323		23		23
Consumer:
Home equity		30		1		1
Total	$	7,312	$	110	$	110

	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

The recorded investment of a loan excludes accrued interest and net deferred origination fees and costs due to immateriality.

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). Other real estate owned for residential real estate properties totaled $15 as of March 31, 2022 and December 31, 2021. In addition, nonaccrual residential mortgage loans that are in the process of foreclosure had a recorded investment of $337 and $316 as of March 31, 2022 and December 31, 2021, 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, 2022 and December 31, 2021:

March 31, 2022	Loans Past Due 90 Days And Still Accruing		Nonaccrual

Residential real estate	$	8	$	2,260
Commercial real estate:
Owner-occupied		—		1,024
Nonowner-occupied		—		70
Construction		—		56
Commercial and industrial		—		155
Consumer:
Automobile		73		39
Home equity		—		146
Other		379		27
Total	$	460	$	3,777

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

Residential real estate	$	10	$	2,683
Commercial real estate:
Owner-occupied		—		1,055
Nonowner-occupied		—		—
Construction		—		146
Commercial and industrial		65		150
Consumer:
Automobile		55		147
Home equity		—		148
Other		160		17
Total	$	290	$	4,346

The following table presents the aging of the recorded investment of past due loans by class of loans as of March 31, 2022 and December 31, 2021:

March 31, 2022	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	$	1,603	$	1,019	$	746	$	3,368	$	267,208	$	270,576
Commercial real estate:
Owner-occupied		711		188		140		1,039		70,981		72,020
Nonowner-occupied		261		—		70		331		162,752		163,083
Construction		10		—		33		43		31,992		32,035
Commercial and industrial		92		148		155		395		143,765		144,160
Consumer:
Automobile		657		131		109		897		46,125		47,022
Home equity		-		150		47		197		22,573		22,770
Other		239		42		399		680		59,300		59,980
Total	$	3,573	$	1,678	$	1,699	$	6,950	$	804,696	$	811,646

December 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	$	2,208	$	1,218	$	921	$	4,347	$	270,078	$	274,425
Commercial real estate:
Owner-occupied		895		—		153		1,048		70,931		71,979
Nonowner-occupied		100		—		—		100		176,000		176,100
Construction		36		53		33		122		33,596		33,718
Commercial and industrial		517		60		215		792		140,733		141,525
Consumer:
Automobile		656		148		194		998		47,208		48,206
Home equity		35		165		47		247		22,128		22,375
Other		401		133		177		711		62,152		62,863
Total	$	4,848	$	1,777	$	1,740	$	8,365	$	822,826	$	831,191

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, 2022 and December 31, 2021:

March 31, 2022	TDRs Performing to Modified Terms		TDRs Not Performing to Modified Terms		Total TDRs

Commercial real estate:
Owner-occupied
Reduction of principal and interest payments	$	1,446	$	—	$	1,446
Credit extension at lower stated rate than market rate		371		—		371
Nonowner-occupied
Credit extension at lower stated rate than market rate		383		—		383
Commercial and industrial:
Interest only payments		2,347		—		2,347

Total TDRs	$	4,547	$	—	$	4,547

December 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	$	1,455	$	—	$	1,455
Maturity extension at lower stated rate than market rate		268		—		268
Credit extension at lower stated rate than market rate		375		—		375
Nonowner-occupied
Credit extension at lower stated rate than market rate		385		—		385
Commercial and industrial:
Interest only payments		2,301		—		2,301

Total TDRs	$	4,784	$	—	$	4,784

At March 31, 2022 and December 31, 2021, the Company had no specific allocations in reserves to customers whose loan terms were modified in TDRs. At March 31, 2022, the Company had $3,153 in commitments to lend additional amounts to customers with outstanding loans that are classified as TDRs, as compared to $3,199 at December 31, 2021.

There were no TDR loan modifications that occurred during the three months ended March 31, 2022 and 2021 and, therefore, had no impact to provision expense or the allowance for loan losses.

During the three months ended March 31, 2022 and 2021, the Company had no TDRs 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 CARES Act 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. Through March 31, 2022, the Company had modified 591 loans related to COVID-19 with an outstanding loan balance of $107,098 that were not reported as TDRs. As of March 31, 2022, the Company had 19 of those modified loans still operating under their COVID-19 related deferral terms with an outstanding loan balance of $378 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 $1,000.

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, 2022 and December 31, 2021, and based on the most recent analysis performed, the risk category of commercial loans by class of loans was as follows:

March 31, 2022	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	67,374	$	2,611	$	2,035	$	72,020
Nonowner-occupied		162,817		—		266		163,083
Construction		32,002		—		33		32,035
Commercial and industrial		137,896		2,032		4,232		144,160
Total	$	400,089	$	4,643	$	6,566	$	411,298

December 31, 2021	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	66,999	$	618	$	4,362	$	71,979
Nonowner-occupied		175,901		—		199		176,100
Construction		33,685		—		33		33,718
Commercial and industrial		134,983		1,862		4,680		141,525
Total	$	411,568	$	2,480	$	9,274	$	423,322

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, 2022 and December 31, 2021:

March 31, 2022	Consumer						Residential
	Automobile		Home Equity		Other		Real Estate		Total

Performing	$	46,910	$	22,624	$	59,574	$	268,308	$	397,416
Nonperforming		112		146		406		2,268		2,932
Total	$	47,022	$	22,770	$	59,980	$	270,576	$	400,348

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

Performing	$	48,004	$	22,227	$	62,686	$	271,732	$	404,649
Nonperforming		202		148		177		2,693		3,220
Total	$	48,206	$	22,375	$	62,863	$	274,425	$	407,869

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 4.69% of total loans were unsecured at March 31, 2022, up from 4.45% at December 31, 2021.