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LOANS AND ALLOWANCE FOR LOAN LOSSES

6 Months Ended

Jun. 30, 2022

LOANS AND ALLOWANCE FOR LOAN LOSSES [Abstract]

NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans are comprised of the following:

	June 30, 2022			December 31, 2021

Residential real estate	$	308,141		$	274,425
Commercial real estate:
Owner-occupied		70,760			71,979
Nonowner-occupied		167,327			176,100
Construction		38,448			33,718
Commercial and industrial		148,577			141,525
Consumer:
Automobile		49,502			48,206
Home equity		24,958			22,375
Other		62,539			62,863
		870,252			831,191
Less: Allowance for loan losses		(5,214	)		(6,483	)

Loans, net	$	865,038		$	824,708

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law as a result of the coronavirus ("COVID-19"). 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. At June 30, 2022, there were no commercial and industrial loans originated under the PPP, as compared to $446 at December 31, 2021. These loans are guaranteed by the Small Business Administration.

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2022 and 2021:

June 30, 2022	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	714		$	1,991		$	1,389		$	1,174		$	5,268
Provision for loan losses		(77	)		(150	)		769			271			813
Loans charged off		(39	)		(15	)		(618	)		(372	)		(1,044	)
Recoveries		16			20			8			133			177
Total ending allowance balance	$	614		$	1,846		$	1,548		$	1,206		$	5,214

June 30, 2021	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,377		$	2,346		$	1,791		$	1,373		$	6,887
Provision for loan losses		(293	)		219			(55	)		156			27
Loans charged-off		(25	)		(42	)		—			(240	)		(307	)
Recoveries		29			15			4			144			192
Total ending allowance balance	$	1,088		$	2,538		$	1,740		$	1,433		$	6,799

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2022 and 2021:

June 30, 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		(356	)		(725	)		579			189			(313	)
Loans charged-off		(42	)		(16	)		(618	)		(702	)		(1,378	)
Recoveries		32			39			16			335			422
Total ending allowance balance	$	614		$	1,846		$	1,548		$	1,206		$	5,214

June 30, 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		(409	)		117			(3	)		270			(25	)
Loans charged-off		(26	)		(52	)		(71	)		(599	)		(748	)
Recoveries		43			42			38			289			412
Total ending allowance balance	$	1,088		$	2,538		$	1,740		$	1,433		$	6,799

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 June 30, 2022 and December 31, 2021:

June 30, 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	$	—	$	—	$	297	$	—	$	297
Collectively evaluated for impairment		614		1,846		1,251		1,206		4,917
Total ending allowance balance	$	614	$	1,846	$	1,548	$	1,206	$	5,214

Loans:
Loans individually evaluated for impairment	$	—	$	2,042	$	1,507	$	—	$	3,549
Loans collectively evaluated for impairment		308,141		274,493		147,070		136,999		866,703
Total ending loans balance	$	308,141	$	276,535	$	148,577	$	136,999	$	870,252

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 June 30, 2022 and December 31, 2021:

June 30, 2022	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:
Commercial and industrial	$	1,507	$	1,507	$	297
With no related allowance recorded:
Commercial real estate:
Owner-occupied		1,714		1,660		—
Nonowner-occupied		382		382		—
Total	$	3,603	$	3,549	$	297

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 and six months ended June 30, 2022 and 2021:

	Three months ended June 30, 2022						Six months ended June 30, 2022
	Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized		Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized
With an allowance recorded:
Commercial and industrial	$	1,619	$	15	$	15	$	1,744	$	54	$	54
With no related allowance recorded:
Commercial real estate:
Owner-occupied		1,675		26		26		1,687		48		48
Nonowner-occupied		382		7		7		383		14		14
Total	$	3,676	$	48	$	48	$	3,814	$	116	$	116

	Three months ended June 30, 2021						Six months ended June 30, 2021
	Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized		Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized
With an allowance recorded:
Commercial and industrial	$	268	$	5	$	5	$	274	$	9	$	9
Consumer:
Other		50		1		1		50		1		1
With no related allowance recorded:
Commercial real estate:
Owner-occupied		5,190		86		86		5,212		164		164
Nonowner-occupied		388		7		7		389		14		14
Commercial and industrial		2,636		33		33		3,224		81		81
Consumer:
Home equity		33		1		1		33		1		1
Other
Total	$	8,565	$	133	$	133	$	9,182	$	270	$	270

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 June 30, 2022 and December 31, 2021. In addition, nonaccrual residential mortgage loans that are in the process of foreclosure had a recorded investment of $499 and $316 as of June 30, 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 June 30, 2022 and December 31, 2021:

June 30, 2022	Loans Past Due 90 Days And Still Accruing		Nonaccrual

Residential real estate	$	91	$	2,195
Commercial real estate:
Owner-occupied		—		992
Nonowner-occupied		—		131
Construction		—		50
Commercial and industrial		—		149
Consumer:
Automobile		96		65
Home equity		—		146
Other		74		8
Total	$	261	$	3,736

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 June 30, 2022 and December 31, 2021:

June 30, 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	$	2,309	$	792	$	570	$	3,671	$	304,470	$	308,141
Commercial real estate:
Owner-occupied		303		—		992		1,295		69,465		70,760
Nonowner-occupied		424		—		131		555		166,772		167,327
Construction		—		83		33		116		38,332		38,448
Commercial and industrial		1,250		—		149		1,399		147,178		148,577
Consumer:
Automobile		692		151		158		1,001		48,501		49,502
Home equity		85		—		125		210		24,748		24,958
Other		341		122		77		540		61,999		62,539
Total	$	5,404	$	1,148	$	2,235	$	8,787	$	861,465	$	870,252

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 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 June 30, 2022 and December 31, 2021:

June 30, 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	$	427	$	—	$	427
Credit extension at lower stated rate than market rate		367		—		367
Nonowner-occupied
Credit extension at lower stated rate than market rate		382		—		382

Total TDRs	$	1,176	$	—	$	1,176

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 June 30, 2022 and December 31, 2021, the Company had no specific allocations in reserves to customers whose loan terms have been modified in TDRs. At June 30, 2022, the Company had no 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 and six months ended June 30, 2022 and 2021, and there was no resulting impact to provision expense or the allowance for loan losses.

During the three and six months ended June 30, 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 June 30, 2022, the Company had modified 549 loans related to COVID-19 with an outstanding loan balance of $100,093 that were not reported as TDRs. As of June 30, 2022, the Company had seven of those modified loans still operating under their COVID-19 related deferral terms with an outstanding loan balance of $206 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) that results from potential weak primary repayment source or payment delinquency. These loans will be under constant supervision, and 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 TDRs 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 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 June 30, 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:

June 30, 2022	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	67,196	$	2,572	$	992	$	70,760
Nonowner-occupied		167,080		—		247		167,327
Construction		38,415		—		33		38,448
Commercial and industrial		144,954		1,966		1,657		148,577
Total	$	417,645	$	4,538	$	2,929	$	425,112

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 June 30, 2022 and December 31, 2021:

June 30, 2022	Consumer						Residential
	Automobile		Home Equity		Other		Real Estate		Total

Performing	$	49,341	$	24,812	$	62,457	$	305,855	$	442,465
Nonperforming		161		146		82		2,286		2,675
Total	$	49,502	$	24,958	$	62,539	$	308,141	$	445,140

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 4.59% of total loans were unsecured at June 30, 2022, up from 4.45% at December 31, 2021.