What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-14 compared with 2022-08-15 · 321 added, 325 removed, 258 unchanged (71% of the section changed)

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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

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 Coronavirus (“COVID-19”) pandemic, and which

could cause actual results to differ materially from those expressed in such forward looking statements.

Such statements involve various important assumptions, risks, uncertainties, and other factors, many of which are beyond our control and which could cause actual results to differ materially from those expressed in such forward looking

These factors include, but are not limited to:

the effects of COVID-19 on our business, operations, customers and capital position;

default rates on loans made to our customers related to COVID-19 and its impact on our customers’ operations and financial condition;

higher default rates on loans made to our customers related to COVID-19 and its impact on our customers’

operations and financial condition;

the impact of COVID-19 on local, national and global economic conditions;

the effects of various governmental

responses to COVID-19;

unexpected changes in interest rates or disruptions in the mortgage market;

the effects of various governmental responses to COVID-19;

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;

unexpected changes in interest rates or disruptions in the mortgage market;

effects of various governmental responses to COVID-19;

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;

fluctuations in interest rates;

the level of defaults and prepayment on loans made by

Ohio Valley Banc Corp.

(“Ohio Valley”) and its direct and indirect subsidiaries (collectively, the “Company”);

the level of defaults and prepayment on loans made by Ohio Valley Banc Corp.

(“Ohio Valley”) and its direct and indirect subsidiaries (collectively, the

unanticipated litigation, claims, or assessments;

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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, 2021.

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 intention to republish revised or updated forward looking statements, whether as a result of new information, unanticipated future events or otherwise.

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, 2021.

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 intention to republish revised or updated forward looking statements, whether as a result of new

information, unanticipated future events or otherwise.

BUSINESS OVERVIEW:

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IMPACT of COVID-19:

COVID-19 has caused significant disruption in the United

States and international economies and financial markets.

The primary markets served by the Company in southeastern Ohio and western West Virginia have been significantly impacted by COVID-19, which has changed the way we live and work.

The continued

effects of COVID-19 on the economy, supply chains, financial markets, unemployment levels, businesses and our customers are unknown and unpredictable.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law.

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The funds were provided in the form of loans that would be fully forgiven if certain criteria were

In 2021, Congress amended the PPP

by extending the authority of the Small Business Administration (“SBA”) to guarantee loans and the ability of PPP lenders to disburse PPP loans until May 31, 2021.

Company supported its clients who experienced financial hardship due to COVID-19 through participation in the PPP, assistance with expedited deposits of CARES Act stimulus payments, and loan modifications, as needed.

In 2021, Congress amended the PPP by extending the authority of the Small Business Administration (“SBA”) to guarantee loans and the ability of PPP lenders to disburse PPP loans until May 31, 2021.

The Company supported its clients who experienced

financial hardship due to COVID-19 through participation in the PPP, assistance with expedited deposits of CARES Act stimulus payments, and loan modifications, as needed.

FINANCIAL RESULTS OVERVIEW:

Net income totaled $1,999 during the second quarter of 2022, a

decrease of $862 from the same period of 2021.

Earnings per share for the second quarter of 2022 finished at $.42 per share, compared to $.60 per share during the second quarter of 2021.

Net income totaled $6,124 during the six months ended June 30,

2022, a decrease of $268 from the same period of 2021.

Earnings per share during the first six months of 2022 finished at $1.29 per share, compared to $1.34 per share during the first six months of 2021.

Q uarterly earnings were negatively impacted by increases in both provision and noninterest expense, being partially offset by growth in net interest and noninterest income.

Earnings during the first six

months of 2022 were negatively impacted by higher noninterest expense, being partially offset by improved net interest and noninterest income and lower provision expense.

The impact of lower net earnings during 2022 also had a direct impact to the

Company’s annualized net income to average asset ratio, or return on assets, which decreased to 0.98% for the six months ended June 30, 2022, compared to 1.06% for the six months ended June 30, 2021.

The Company’s net income to average equity ratio,

or return on equity, also decreased to 8.87% for the six months ended June 30, 2022, compared to 9.39% for the six months ended June 30, 2021.

During the three months ended June 30, 2022, net interest income increased $338, or 3.3%, over the same period in 2021.

During the six months ended June 30, 2022, net

interest income increased $280, or 1.4%, over the same period in 2021.

Growth in net interest income was generated by higher average earning assets, which increased by 1.5% during the second quarter of 2022, and 3.5% during the first half of 2022,

compared to the same periods in 2021.

The increases were primarily due to growth in average investment securities in relation to higher average deposit balances.

Partially offsetting growth in securities were lower average loans, which decreased 1.2%

during the second quarter of 2022, and 1.7% during the first half of 2022, compared to the same periods in 2021.

The decreases in average loans were largely the result of decreased residential real estate loans and payoffs of PPP loans.

While average

Federal Reserve balances were down, the Federal Reserve’s actions in increasing rates by 150 basis points during the first half of 2022 contributed to higher associated interest income on those balances during the second quarter and year-to-date.

interest income growth was further impacted by lower interest expense on deposits, decreasing 36.5% and 39.0% during both the quarterly and year-to-date periods ended June 30, 2022, respectively, compared to the same periods in 2021.

This is largely

the result of a lower average cost of funds, as well as a composition shift from higher-costing time deposits to lower-costing demand and savings account balances.

During the three months ended June 30, 2022, the Company’s provision for loan loss was $813, which contributed to a $786 increase in provision expense when compared to the same period in 2021.

This increase in provision expense was impacted by a $752 increase in quarterly net charge offs, related primarily to a single loan

relationship.

During the six months ended June 30, 2022, the Company experienced negative provision for loan loss, which contributed to a $288 decrease in provision expense

when compared to the same period in 2021.

The decrease from the prior year was related to improved economic risk factors impacted by lower net charge-offs and criticized and classified loans, as well as the partial release of the COVID-19 reserve for

the pandemic environment.

During the three months ended June 30, 2022, noninterest income increased $130, or 5.2%, from the same period in 2021.

This increase came largely from increases in service

charges on deposit accounts.

During the six months ended June 30, 2022, noninterest income increased $511, or 8.7%, from the same period in 2021.

This increase came largely from increases in service charges on deposit accounts, interchange income on

debit and credit card transactions, and mortgage banking income in relation to Race Day, the Company’s new online mortgage company.

During the three months ended June 30, 2022, noninterest expense increased $726, or 7.8%, over the same period in 2021.

During the six months ended June 30, 2022,

Net income totaled $3,690 during the third quarter of 2022, an

increase of $654 over the same period of 2021.

Earnings per share for the third quarter of 2022 finished at $.77 per share, compared to $.63 per share during the third quarter of 2021.

Net income totaled $9,814 during the nine months ended September

30, 2022, an increase of $386 over the same period of 2021.

Earnings per share during the first nine months of 2022 finished at $2.06 per share, compared to $1.97 per share during the first nine months of 2021.

Earnings during both the q uarterly and yearly periods were positively impacted by growth in both net interest income and noninterest income, and decreases in provision expense, partially offset

by increases in noninterest expense.

The impact of higher net earnings during 2022 also had a direct impact to the Company’s annualized net income to average asset ratio, or return on assets, which increased to 1.04% for the nine months ended September

30, 2022, compared to 1.03% for the nine months ended September 30, 2021.

The Company’s net income to average equity ratio, or return on equity, also increased to 9.56% for the nine months ended September 30, 2022, compared to 9.13% for the nine

months ended September 30, 2021.

During the three months ended September 30, 2022, net interest income increased $1,486, or 14.3%, over the same period in 2021.

During the nine months ended September 30,

2022, net interest income increased $1,766, or 5.8%, over the same period in 2021.

Growth in net interest income was impacted by an increase in the net interest margin and higher average earning assets.

In relation to the Federal Reserve’s actions of

increasing market interest rates during 2022, the net interest margin has responded positively due to the yield on earning assets increasing more than the cost of interest-bearing liabilities.

Growth in earning asset yields has positively impacted

interest earnings during both the quarter and year-to-date periods ended September 30, 2022.

Net interest income growth was further impacted by lower interest expense on deposits, decreasing 20.8% and 31.0% during both the quarterly and year-to-date

periods ended September 30, 2022, respectively, compared to the same periods in 2021.

This is largely the result of a lower average cost of funds, as well as a composition shift from higher-costing time deposits to lower-costing demand and savings

account balances.

The increase in average earning assets came primarily from growth in average investment securities in relation to higher average deposit balances.

Average loans also increased during the third quarter of 2022 by 1.6%, which helped

limit the year-to-date average loan decline to just 0.6% during the year-to-date period.

The quarterly increase in average loans was impacted by higher average commercial and consumer loans, while the year-to-date decrease in average loans was impacted

by decreased residential real estate loans and payoffs of PPP loans.

During the three months ended September 30, 2022, the Company’s provision for loan loss was negative $378, which contributed to a $285 decrease in provision expense when compared to the same period in 2021.

This decrease in provision expense was impacted by the elimination of a specific reserve on a collateral dependent impaired

loan due to the full collection of the loan balance.

During the nine months ended September 30, 2022, the Company’s provision for loan loss was negative $691, which

contributed to a $573 decrease in provision expense when compared to the same period in 2021.

The decrease from the prior year was related to improved economic risk factors such as lower criticized and classified loans, as well as the partial release

of the COVID-19 reserve for the pandemic environment.

During the three months ended September 30, 2022, noninterest income was relatively stable, increasing $3, or 0.1%, over the same period in 2021.

This increase came

largely from increases in service charges on deposit accounts.

During the nine months ended September 30, 2022, noninterest income increased $514, or 6.1%, from the same period in 2021.

This increase came largely from increases in service charges on

deposit accounts, interchange income on debit and credit card transactions, and mortgage banking income in relation to Race Day.

During the three months ended September 30, 2022, noninterest expense increased $878, or 9.3%, over the same period in 2021.

During the nine months ended September 30,

2022, noninterest expense increased $2,205, or 7.9%, over the same period in 2021.

The increases during both periods were primarily related to higher salaries and employee benefit costs impacted by the staffing of Race Day, as well as higher annual merit

The increases during both periods were primarily related to higher salaries and employee benefit costs impacted by the staffing of Race Day, as well as higher annual

merit expenses.

The Company also experienced increases in data processing costs, professional fees, and software expense, as well as various other overhead costs from Race Day.

The Company’s provision for income taxes decreased $182, or 34.0%, during the three months ended June 30, 2022, and increased $20, or 1.6%, during the six months ended

June 30, 2022, compared to the same periods in 2021.

The Company’s provision for income taxes increased $242, or 43.3%, during the three months ended September 30, 2022, and increased $262, or 14.4%, during the nine months

ended September 30, 2022, compared to the same periods in 2021.

This was largely due to the changes in taxable income affected by the factors mentioned above.

At June 30, 2022, total assets were $1,253,886, an increase of $4,117 from year-end 2021.

assets were primarily impacted by increases in loans and investment securities, which were collectively up $55,119, or 5.4%, from year-end 2021.

This was largely the result of the deployment of a portion of the Company’s heightened cash balance to

higher yielding earning assets during the first half of 2022 and resulted in a decrease of $58,012 in Federal Reserve Bank balances from year-end 2021.

The Company’s loan portfolio experienced increases in the residential real estate segment (+12.3%),

the commercial segment (+0.4%) and the consumer loan segment (+2.7%).

At June 30, 2022, total liabilities were $1,121,316, up $12,903 from year-end 2021.

At September 30, 2022, total assets were $1,252,474, an increase of $2,705 from year-end 2021.

Higher assets were primarily impacted by increases in loans and investment

securities, which were collectively up $31,914, or 3.1%, from year-end 2021.

This was largely the result of the deployment of a portion of the Company’s heightened cash balance to higher yielding earning assets during the first nine months of 2022 and

resulted in a decrease of $38,298 in Federal Reserve Bank balances from year-end 2021.

The Company’s loan portfolio experienced increases in the commercial segment (+3.6%) and the consumer loan segment (+8.8%), partially offset by a decrease in the

residential real estate segment (-0.8%).

At September 30, 2022, total liabilities were $1,123,854, up $15,441 from year-end 2021.

Contributing most to this increase were higher deposit balances, which increased

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The increase was impacted mostly from higher interest-bearing demand deposits, partially offset by lower time deposits and noninterest bearing demand deposits.

At June 30, 2022, total shareholders' equity was $132,570, down $8,786 since December 31, 2021.

This was largely the result of cash dividends paid and a decrease in net

unrealized gains on available for sale securities being partially offset by improved quarterly net income.

At September 30, 2022, total shareholders' equity was $128,620, down $12,736 since December 31, 2021.

This was largely the result of cash dividends paid and a decrease in

net unrealized gains on available for sale securities, being partially offset by improved quarterly net income.

Regulatory capital ratios of the Company remained higher than the "well capitalized" minimums.

Comparison of Financial Condition

at June 30, 2022 and December 31, 2021

The following discussion focuses, in more detail, on the consolidated financial condition of the Company at June 30, 2022 compared to December 31, 2021.

This discussion

should be read in conjunction with the interim consolidated financial statements and the footnotes included in this Form 10‑Q.

at September 30, 2022 and December 31, 2021

The following discussion focuses, in more detail, on the consolidated financial condition of the Company at September 30, 2022 compared to December 31, 2021.

discussion should be read in conjunction with the interim consolidated financial statements and the footnotes included in this Form 10‑Q.

Cash and Cash Equivalents

At June 30, 2022, cash and cash equivalents were $94,094, a decrease of $57,940, or 38.1%, from December 31, 2021.

The decrease in cash and cash equivalents came mostly

from lower interest-bearing deposits on hand with correspondent banks.

At September 30, 2022, cash and cash equivalents were $113,111, a decrease of $38,923, or 25.6%, from December 31, 2021.

The decrease in cash and cash equivalents came

mostly from lower interest-bearing deposits on hand with correspondent banks.

Over 86% of cash and cash equivalents consisted of the Company’s interest-bearing Federal Reserve Bank clearing account, which decreased $38,298, or 28.2%, from year-end

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 half of 2022, the Company utilized a portion of its clearing account balances to reinvest in higher-yielding loans and investment securities.

This shift into higher-yielding earning assets not only helped to minimize the dilutive effect that higher

clearing account balances had on the net interest margin during the year, but also contributed to an increase in the net interest margin during the second quarter of 2022 over the second quarter of 2021.

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.

During the first half of 2022, the rate associated with the Company’s Federal

Reserve Bank clearing account increased 150 basis points due to rising inflationary concerns, resulting in a target federal funds rate range of 1.50% to 1.75%.

Although interest-bearing deposits in the Federal Reserve Bank are the Company's

lowest-yielding interest-earning asset, the investment rate is higher than the rate the Company would have received from its investments in federal funds sold.

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 2022, the Company utilized a portion of its clearing account balances to reinvest in higher-yielding loans and investment securities.

This shift into higher-yielding earning assets helped to minimize the dilutive effect that

higher clearing account balances have on the net interest margin.

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.

During the first nine months of 2022, the rate associated with the Company’s Federal Reserve Bank clearing account increased 300 basis points due to rising inflationary concerns, resulting in a target federal funds rate

range of 3.00% to 3.25%.

Although interest-bearing deposits in the Federal Reserve Bank are the Company's lowest-yielding interest-earning asset, the investment rate is higher than the rate the Company would have received from its investments in

federal funds sold.

Furthermore, Federal Reserve balances are 100% secured by the U.S.

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Certificates of Deposit

At June 30, 2022, the Company had $1,873 in certificates of deposit owned by the Captive, down from $2,329 at year-end 2021.

The deposits on hand at June 30, 2022 consist

of eight certificates with remaining maturity terms ranging from less than 10 months up to 15 months.

At September 30, 2022, the Company had $1,868 in certificates of deposit owned by the Captive, down from $2,329 at year-end 2021.

The deposits on hand at September 30,

2022 consisted of eight certificates with remaining maturity terms ranging from less than 7 months up to 12 months.

The balance of total securities increased $7,192, or 3.8%, compared to year-end 2021.

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Government agency (“Agency”) mortgage-backed securities, which represented 63.4% of total

investments at June 30, 2022.

During the first half of 2022, the Company invested $29,470 in new Agency mortgage-backed securities, while receiving principal repayments of $12,412.

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.

The Company also redeployed a portion of its heightened excess funds to purchase $19,801 in U.S.

securities during the first half of 2022.

investments at September 30, 2022.

During the first nine months of 2022, the Company invested $29,470 in new Agency mortgage-backed securities, while receiving proceeds from maturities and principal repayments of $18,019.

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.

The Company also redeployed a portion of its heightened excess funds

to purchase $24,633 in U.S.

Government securities during the first nine months of 2022.

In addition, the continued increases in long-term reinvestment rates during 2022 led to a $24,567 decrease in the fair value of the Company’s available for sale

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The loan portfolio represents the Company’s largest asset category and is its most significant source of interest income.

Gross loan balances increased to $870,252 at June

30, 2022, representing an increase of $39,061, or 4.7%, as compared to $831,191 at December 31, 2021.

The increase in loans came primarily from the residential real estate portfolio, with other increases coming from the total commercial and consumer

loan portfolios from year-end 2021.

The Company’s residential real estate loan portfolio increased $33,716, or 12.3%, from year-end 2021.

The residential real estate loan segment comprises the largest

portion of the Company’s overall loan portfolio at 35.4% and consists primarily of one- to four-family residential mortgages and carries many of the same customer and industry risks as the commercial loan portfolio.

The increase in residential real

estate loans was largely related to 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

The mortgage lender eventually sells the loan and repays the Bank.

From year-end 2021, warehouse lending balances increased $37,236.

Partially offsetting the increase in warehouse lending balances were the principal repayments and payoffs

in both long-term fixed-rate and short-term adjustable-rate mortgages.

A decrease in refinancing volume and an increase in long-term reinvestment rates have led to a slower

demand for mortgage loans during 2022.

Further increases in loans came from the Company’s total commercial loan portfolio, which increased $1,790, or 0.4%, from year-end 2021.

Contributing most to this increase

were higher loan balances within the commercial and industrial portfolio, up $7,052, or 5.0%, from year-end 2021.

The growth was impacted by an increase in larger loan originations during the year.

Commercial and industrial loans consist of loans to

corporate borrowers primarily in small to mid-sized industrial and commercial companies that include service, retail and wholesale merchants.

Gross loan balances increased to $855,913 at

September 30, 2022, representing an increase of $24,722, or 3.0%, as compared to $831,191 at December 31, 2021.

The increase in loans came primarily from the commercial and consumer loan portfolios, partially offset by a decrease in the residential

real estate portfolio from year-end 2021.

The Company’s total commercial loan portfolio increased $15,098, or 3.6%, from year-end 2021.

Contributing most to this increase were higher loan balances within the

commercial and industrial portfolio, up $11,892, or 8.4%, from year-end 2021.

The growth was impacted by an increase in larger loan originations for the first nine months of 2022.

Commercial and industrial loans consist of loans to corporate borrowers

primarily in small to mid-sized industrial and commercial companies that include service, retail and wholesale merchants.

Collateral securing these loans includes equipment, inventory, and stock.

The commercial and industrial

segment also includes PPP loan balances that had a significant impact on average earning asset growth in 2021.

The commercial and industrial segment also includes PPP

loan balances that had a significant impact on average earning asset growth in 2021.

The Company’s remaining PPP loans of $446 that were outstanding at year-end 2021 were paid off during the first quarter of 2022.

Increases in commercial and industrial loans were partially offset by a $5,262, or 1.9%, decrease in the commercial real estate portfolio from year-end 2021.

commercial real estate segment comprised the largest portion of the Company’s total commercial loan portfolio at June 30, 2022 at 65.0%.

Decreases came primarily from the principal payoffs of a limited number of large nonowner-occupied loan balances

from year-end 2021.

Commercial loans were also positively impacted by an increase in the commercial real estate portfolio, which increased $3,206, or 1.1%, from year-end 2021.

The commercial

real estate segment comprised the largest portion of the Company’s total commercial loan portfolio at September 30, 2022 at 65.0%.

The increase came from construction loans, which offset the decreases in both the owner- and nonowner-occupied loan

segments from year-end 2021.

While management believes lending opportunities exist in the Company’s markets, future commercial lending activities will depend upon economic and other related

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commercial lending, which generally yields a higher return on investment as compared to other types of loans.

The Company’s loan portfolio at June 30, 2022 was also impacted by higher consumer loan balances from year-end 2021, increasing $3,555, or 2.7%.

This change was impacted

by a $2,583, or 11.5%, increase in home equity lines of credit.

The remaining consumer loan portfolio increased $972, or 0.9%, from year-end 2021, mostly from automobile loans.

Further increases in loans came from the Company’s consumer loan balances from year-end 2021, increasing $11,778, or 8.8%.

This change was impacted by a $6,203, or 12.9%,

increase in automobile loans, and a $4,380, or 19.6%, increase in home equity lines of credit.

The remaining consumer loan portfolio increased $1,195, or 1.9%, from year-end 2021, mostly from unsecured consumer loans.

The Company’s residential real estate loan portfolio decreased $2,154, or 0.8%, from year-end 2021.

The residential real estate loan segment comprises the largest portion

of the Company’s overall loan portfolio at 31.8% and consists primarily of one- to four-family residential mortgages and carries many of the same customer and industry risks as the commercial loan portfolio.

The decrease in residential real estate

loans was largely related to the principal repayments and payoffs in both long-term fixed-rate and short-term adjustable-rate mortgages.

A decrease in refinancing volume

and an increase in long-term reinvestment rates have led to a slower demand for mortgage loans during 2022.

Allowance for Loan Losses

The Company established a $5,214 allowance for loan losses at June 30, 2022, which represents a decrease from the $6,483 allowance at year-end 2021.

The Company established a $4,811 allowance for loan losses at September 30, 2022, which represents a decrease from the $6,483 allowance at year-end 2021.

As part of the

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conditions and unemployment rates, criticized/classified asset coverage levels and loan loss recoveries.

During the first half of 2022, the Company experienced a $1,556 decrease in its general allocations of the allowance for loan losses.

During the first nine months of 2022, the Company experienced a $1,662 decrease in its general allocations of the allowance for loan losses.

Contributing to this decrease were lower reserves associated with the COVID-19 risk factor.

The Company added a COVID-19 risk factor in 2020 due to the negative economic outlook of the pandemic.

Based on positive asset quality trends and lower net charge offs, management released $645 of the reserve related to the COVID-19 risk factor during the first half of 2022, resulting in a corresponding decrease in both

provision expense and general allocations of the allowance for loan loss.

Based on positive asset quality trends and lower net charge offs, management released $645 of the reserve related to the COVID-19 risk factor during the first nine months of 2022, resulting in a corresponding decrease in

both provision expense and general allocations of the allowance for loan loss.

Excluding the impact from the COVID-19 risk factor, the Company experienced a $1,017 decrease in general allocations of the allowance for loan losses related to

improvements in various economic risk factors, including those associated with criticized and classified assets.

During the second quarter of 2022, the Company experienced a payoff on one commercial loan relationship that had $6,500 in loans and

committed balances, which reduced classified assets and released general reserves during the first half of 2022.

Furthermore, the Company upgraded a single commercial loan relationship during the first quarter of 2022 totaling $2,232 from a classified

to a criticized loan status, which also contributed to the release of general reserves during the first half of 2022.

The loan upgrade came as a result of improvements in the borrower’s financial performance and ability to repay their loans.

Additionally, the Company’s delinquency levels decreased from year-end 2021, with nonperforming loans to total loans of 0.46% at June 30, 2022, compared to 0.56% at December 31, 2021, and lower nonperforming assets to total assets of 0.32% at June 30,

2022, compared to 0.37% at year-end 2021.

Lower general allocations during the first half of 2022 were also impacted by higher loan recoveries, while the historical loan loss factor remained at 0.18% at June 30, 2022, and year-end 2021.

Decreases in general allocations were partially offset by a $287 increase in specific allocations from year-end 2021.

Specific allocations of the allowance for loan

losses identify loan impairment by measuring fair value of the underlying collateral and the present value of estimated future cash flows.

The change in specific reserves was primarily related to the loan impairments of one borrower relationship during

the first half of 2022.

The Company’s allowance for loan losses to total loans ratio finished at 0.60% at June 30, 2022, and 0.78% at year-end 2021.

Management believes that the allowance for

loan losses at June 30, 2022 was adequate and reflected probable incurred losses in the loan portfolio.

Changes in the circumstances of particular borrowers, as well as adverse developments in the economy, particularly with respect to COVID-19, are

factors that could change, and management will make adjustments to the allowance for loan losses as needed.

Asset quality will continue to remain a key focus of the Company, as management continues to stress not just loan growth, but quality in loan

underwriting.

During the second and third quarters of 2022, the Company experienced payoffs on two commercial loan relationships that had $8,019 in loans

and committed balances, which reduced classified assets and released general reserves during the first nine months of 2022.

Furthermore, the Company upgraded a single commercial loan relationship during the first quarter of 2022 totaling $2,232 from a

classified to a criticized loan status, which also contributed to the release of general reserves during the first nine months of 2022.

The loan upgrade came as a result of improvements in the borrower’s financial performance and ability to repay their

Additionally, the Company’s delinquency levels decreased from year-end 2021, with nonperforming loans to total loans of 0.46% at September 30, 2022, compared to 0.56% at December 31, 2021, and lower nonperforming assets to total assets of 0.32%

at September 30, 2022, compared to 0.37% at year-end 2021.

Lower general allocations during the first nine months of 2022 were also impacted by higher loan recoveries.

The Company’s specific allocations decreased $10 from year-end 2021.

Specific allocations of the allowance for loan losses identify loan impairment by measuring fair

value of the underlying collateral and the present value of estimated future cash flows.

The change in specific reserves was related to the payoff on one commercial borrower during the third quarter of 2022 that led to the release of specific reserves.

The Company’s allowance for loan losses to total loans ratio finished at 0.56% at September 30, 2022, and 0.78% at year-end 2021.

Management believes that the allowance

for loan losses at September 30, 2022 was adequate and reflected probable incurred losses in the loan portfolio.

Changes in the circumstances of particular borrowers, as well as adverse developments in the economy, particularly with respect to

inflation, are factors that could change, and management will make adjustments to the allowance for loan losses as needed.

Asset quality will continue to remain a key focus of the Company, as management continues to stress not just loan growth, but

quality in loan underwriting.

Deposits continue to be the most significant source of funds used by the Company to meet obligations for depositor withdrawals, fund the borrowing needs of loan customers,

and fund ongoing operations.

Total deposits at June 30, 2022 increased $13,446, or 1.3%, from year-end 2021.

This change in deposits came primarily from interest-bearing deposit balances, which were up by $20,880, or 3.0%, from year-end 2021, while

noninterest-bearing deposits decreased $7,434, or 2.1%, from year-end 2021.

Total deposits at September 30, 2022 increased $14,417, or 1.4%, from year-end 2021.

This change in deposits came primarily from interest-bearing deposit balances, which were up by $14,643, or 2.1%, from year-end 2021,

while noninterest-bearing deposits decreased $226, or 0.1%, from year-end 2021.

The increase in interest-bearing deposits was primarily a result of higher interest-bearing NOW account balances from year-end 2021, which increased $34,322, or 16.7%.

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primarily from the Company’s retail time deposits, which decreased $22,709 from year-end 2021 due to the consumer shift to savings and money market products.

Time deposits were also impacted by lower brokered and internet CD issuances, down

collectively by $5,482, as a result of the heightened liquidity position from year-end 2021.

Time deposits were also impacted by a $12,666 decrease in brokered and internet CD issuances,

which was primarily the result of the heightened liquidity position from year-end 2021.

The decrease in noninterest-bearing deposits was primarily in the Company’s business and incentive-based checking account balances from year-end 2021.

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Other Borrowed Funds

Other borrowed funds were $18,484 at June 30, 2022, a decrease of $1,130, or 5.8%, from year-end 2021.

Other borrowed funds were $18,085 at September 30, 2022, a decrease of $1,529, or 7.8%, from year-end 2021.

The decrease was related primarily to the principal repayments

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Shareholders’ Equity

Total shareholders' equity at June 30, 2022 decreased $8,786, or 6.2%, to finish at $132,570, as compared to $141,356 at December 31, 2021.

This was from quarterly net

income being completely offset by cash dividends paid and a decrease in the fair value of available for sale securities.

The after-tax change in fair value totaled $12,769 from year-end 2021, as market rate increases continued during the first half of

2022, causing a decrease in the fair value of the Company’s available for sale investment portfolio.

Total shareholders' equity at September 30, 2022 decreased $12,736, or 9.0%, to $128,620, as compared to $141,356 at December 31, 2021.

This decrease was primarily the

result of quarterly net income being completely offset by cash dividends paid and a decrease in the fair value of available for sale securities.

The after-tax change in fair value totaled $19,408 from year-end 2021, as market rate increases continued

during the first nine months of 2022, causing a decrease in the fair value of the Company’s available for sale investment portfolio.

Comparison of Results of Operations

For the Three and Six Months Ended

June 30, 2022 and 2021

The following discussion focuses, in more detail, on the consolidated results of operations of the Company for the three and six months ended June 30, 2022, compared to

the same period in 2021.

For the Three and Nine Months Ended

September 30, 2022 and 2021

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, 2022, compared

to the same period in 2021.

This discussion should be read in conjunction with the interim consolidated financial statements and the footnotes included in this Form 10‑Q.

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interest expense incurred on interest-bearing liabilities.

During the three months ended June 30, 2022, net interest income increased $338, or 3.3%, compared to the same period in 2021.

During the six months ended June 30, 2022, net interest income

increased $280, or 1.4%, compared to the same period in 2021.

The improvement during both periods was mostly attributable to an increase in average earning assets combined with a decrease in the average costs paid on deposits, being partially offset by

lower earning asset yields and lower loan fees.

Total interest and fee income recognized on the Company’s earning assets increased just $22, or 0.2%, during the second quarter of 2022, and decreased $447, or 2.0%,

during the first half of 2022, compared to the same periods in 2021.

The limited to lower earnings during both periods was impacted by interest and fees on loans, which decreased $542, or 5.1%, during the second quarter of 2022, and $1,309, or 6.2%,

during the first half of 2022, compared to the same periods in 2021.

This was largely related to the decline in loan fees, which were down $310 and $649 during the quarterly and year-to-date periods ended June 30, 2022, compared to the same periods in

The decrease in loan fees was primarily a result of decreased PPP fees during both periods as a result of the payoffs of all PPP loans by the end of the first quarter of 2022.

Interest on loans decreased $233 and $661 during the quarterly and

year-to-date periods ended June 30, 2022, compared to the same periods in 2021, as a result of lower loan yields and lower average balances.

The average interest rate yield on loans decreased 5 basis points during the second quarter of 2022, and

decreased 8 basis points during the first half of 2022, compared to the same periods in 2021.

While average loan rates were down, the actions taken by the Federal Reserve to increase rates during the first half of 2022 have had a positive impact on

average loan yields.

On a linked quarter basis, the average interest rate yield on loans was 4.55% during the second quarter of 2022 compared to 4.55% for the first quarter of 2022 and 4.59% for the fourth quarter of 2021.

Average loans decreased

$10,269 during the second quarter of 2022, and $14,184 during the first half of 2022, compared to the same periods in 2021.

The decrease came mostly from the payoffs of all the Company’s PPP loans during 2021 and 2022, while a decrease in average real

estate loan balances impacted by principal repayments and payoffs, combined with a lower volume of new originations, also contributed to the decrease.

Total interest income from interest-bearing deposits with banks increased $199, or 603.0%, during the second quarter of 2022, and increased $225, or 368.9%, during the

first half of 2022, compared to the same periods in 2021.

The increases during both periods were largely from the rate increases associated with the Company’s interest-bearing Federal Reserve Bank clearing account.

As previously mentioned, the Federal

Reserve took action during the first half of 2022 to increase the target federal funds rate by 150 basis points due to rising inflationary concerns.

This had a corresponding effect to the interest rate tied to the Federal Reserve clearing account,

which also increased by 150 basis points.

The impact from higher rates was partially offset by lower average Federal Reserve Bank balances, which decreased $17,673 during the second quarter of 2022, and $3,343 during the first half of 2022, compared to

During the three months ended September 30, 2022, net interest income increased $1,486, or 14.3%, compared to the same period in 2021.

During the nine months ended September 30, 2022, net

interest income increased $1,766, or 5.8%, compared to the same period in 2021.

The improvement during both periods came from an increase in average earning assets, as well as a combination of higher earning asset yields and lower average costs paid on

deposits, partially offset by lower loan fees.

Total interest and fee income recognized on the Company’s earning assets increased $1,306, or 11.6%, during the third quarter of 2022, and increased $859, or 2.6%, during

the first nine months of 2022, compared to the same periods in 2021.

The earnings growth during both periods was impacted by interest on loans, which increased $705, or 7.3%, during the third quarter of 2022, and $45, or 0.2%, during the first nine

months of 2022, compared to the same periods in 2021.

This improvement was largely related to average loan yield increases impacted by the aggressive actions taken by the Federal Reserve to increase rates during the first nine months of 2022.

March 2022, the Federal Reserve has increased rates by 300 basis points, which has led to the repricing of a portion of the Company’s loan portfolio.

As a result, the average interest rate yield on loans increased 25 basis points during the third

quarter of 2022, and increased 3 basis points during the first nine months of 2022, compared to the same periods in 2021.

Partially offsetting the growth in interest income on loans were decreases in loan fees, which were down $243 and $892 during the

quarterly and year-to-date periods ended September 30, 2022, respectively, compared to the same periods in 2021.

The decreases in loan fees were primarily a result of decreased PPP fees during both periods as a result of the payoffs of all PPP loans by

the end of the first quarter of 2022.

Average loans increased $13,106 during the third quarter of 2022, while decreasing $4,987 during the first nine months of 2022, compared to the same periods in 2021.

The quarter-to-date increase was largely

impacted by growth in average commercial and industrial loans, as well as average consumer automobile loans.

The year-to-date decrease was primarily the result of the payoff of all of the Company’s PPP loans during 2021 and 2022, a decrease in average

residential real estate loan balances impacted by principal repayments and payoffs, and a lower volume of new loan originations.

Total interest income from interest-bearing deposits with banks increased $466, or 932.0%, during the third quarter of 2022, and increased $691, or 622.5%, during the

first nine months of 2022, compared to the same periods in 2021.

The increases during both periods were largely attributable to the rate increases associated with the Company’s interest-bearing Federal Reserve Bank clearing account.

As previously

mentioned, the Federal Reserve took action during the first nine months of 2022 to increase the target federal funds rate by 300 basis points due to rising inflationary concerns.

This had a corresponding effect on the interest rate tied to the Federal

Reserve clearing account, which also increased by 300 basis points.

The impact from higher rates was partially offset by lower average Federal Reserve Bank balances, which decreased $20,473 during the third quarter of 2022, and $9,115 during the first

nine months of 2022, compared to the same periods in 2021.

The Company utilized Federal Reserve Bank balances to help fund new loans and security purchases during the first nine months of 2022.

Total interest on securities increased $346, or 58.8%, during the third quarter of 2022, and increased $981, or 61.7%, during the first nine months of 2022, compared to

the same periods in 2021.

The Company utilized Federal Reserve Bank balances to help fund new loans and security purchases during the first half of 2022.

Total interest on securities increased $357, or 66.2%, during the second quarter of 2022, and increased $635, or 63.3%, during the first half of 2022, compared to the same

periods in 2021.

Due to the surge in deposits and proceeds from PPP loan payoffs, the Company has taken opportunities to reinvest a portion of these excess funds into new U.S.

Government, Agency and Agency mortgage-backed securities.

This contributed

to average security balance increases of $47,173 during the second quarter of 2022 and $58,104 during the first half of 2022, compared to the same periods in 2021.

The average yield on securities also increased 38 basis points during the second quarter

of 2022 and 23 basis points during the first half of 2022, which contributed to growth in interest income.

This change was partly impacted by the Company’s decision to sell $48,732 in lower yielding securities during the fourth quarter of 2021 that

carried an average yield of 0.89% and replace them with similar securities at an average yield of 1.30%.

Total interest expense incurred on the Company’s interest-bearing liabilities decreased $316, or 32.1%, during the second quarter of 2022, and decreased $727, or 32.3%,

during the first half of 2022, compared to the same periods in 2021.

Interest expense decreased despite increases in average interest-bearing deposits of $11,169 during the second quarter of 2022, and $21,321 during the first half of 2022, compared to

the same periods in 2021.

The converse relationship between increasing average interest-bearing liabilities to lower interest expense is related to the repricing efforts in a lower rate environment, which drove down average costs during 2020 and 2021.

Lower deposit expense was mostly impacted by the continued decline in CD rates, which contributed to a $296 decrease in time deposit interest expense during the second quarter of 2022, and a $646 decrease during the first half of 2022, compared to the

same periods in 2021.

contributed to average security balance increases of $23,753 during the third quarter of 2022 and $46,699 during the first nine months of 2022, compared to the same periods in 2021.

The average yield on securities also increased 52 basis points during

the third quarter of 2022 and 33 basis points during the first nine months of 2022, which contributed to growth in interest income.

This change was partly impacted by the Company’s decision to sell $48,732 in lower yielding securities during the fourth

quarter of 2021 that carried an average yield of 0.89% and replace them with similar securities at an average yield of 1.30%.

Total interest expense incurred on the Company’s interest-bearing liabilities decreased $180, or 20.8%, during the third quarter of 2022, and decreased $907, or 31.0%,

during the first nine months of 2022, compared to the same periods in 2021.

Interest expense decreased despite increases in average interest-bearing deposits of $5,217 during the third quarter of 2022, and $15,894 during the first nine months of 2022,

compared to the same periods in 2021.

2021 and 2022.

Lower deposit expense was mostly impacted by the continued decline in CD rates, which contributed to a $217 decrease in time deposit interest expense during the third quarter of 2022, and an $863 decrease during the first nine months of

2022, compared to the same periods in 2021.

As CD rates have repriced downward, the Company has benefited from lower interest expense on newly issued CDs at lower rates.

As a result of the rate repricings on time deposits, the Company’s total weighted average costs on

interest-bearing deposits has decreased by 19 basis points from 0.48% at June 30, 2021, to 0.29% at June 30, 2022.

As a result of the rate repricings on time deposits, the Company’s total weighted

average costs on interest-bearing deposits has decreased by 17 basis points from 0.45% during the nine months ended September 30, 2021, to 0.28% during the nine months ended September 30, 2022.

The Company’s net interest margin is defined as fully tax-equivalent net interest income as a percentage of average earning assets.

During 2022, the Company’s second

quarter net interest margin improved to 3.64%, compared to 2021’s second quarter net interest margin of 3.58%.

The Company’s year-to-date net interest margin finished at 3.58% at June 30, 2022, compared to 2021’s year-to-date net interest margin of

The year-to-date margin decrease was largely impacted by the decrease in PPP loan fees and a low interest rate environment that impacted lower earning asset yields during 2022 combined with decreases in average loan balances.

The quarterly

margin increase was impacted by the redeployment of lower yielding Federal Reserve Bank balances into higher yielding loans and securities.

This composition shift from lower yielding Federal Reserve clearing account balances limited the dilutive effect

to the net interest margin during the second quarter of 2022.

Furthermore, the actions taken by the Federal Reserve to increase rates by 125 basis points during the second quarter of 2022 had a direct impact to the rate repricings of the Federal

Reserve Bank account and a portion of the loan portfolio, which had a positive impact on the margin.

During 2022, the Company’s third

quarter net interest margin improved to 4.03%, compared to 2021’s third quarter net interest margin of 3.57%.

The Company’s year-to-date net interest margin improved to 3.73% at September 30, 2022, compared to 2021’s year-to-date net interest margin of

The quarterly and year-to-date margin increases were impacted by the actions taken by the Federal Reserve to increase rates by 300 basis points during the third quarter and nine months ended September 30, 2022.

This had a direct impact to the

rate repricings of the Federal Reserve Bank account and a portion of the loan portfolio, which had a positive impact on the margin.

Margin enhancement also came from the redeployment of lower yielding Federal Reserve Bank balances into higher yielding

loans and securities.

This composition shift from lower yielding Federal Reserve clearing account balances has reduced the dilutive effect to the net interest margin during 2022.

Partially offsetting these positive effects to the margin were decreases

in PPP loan fees and lower average year-to-date loan balances.

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.

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.

Provision for Loan Losses

For the three months ended June 30, 2022, the Company’s provision expense increased $786 over the same period in 2021.

The increase was directly related to a $752 increase

in net charge offs during the second quarter of 2022 compared to the same period in 2021.

In June 2022, the Company charged off two commercial and industrial loans totaling $613 as part of a single borrower relationship, which required a corresponding

increase to provision expense.

For the six months ended June 30, 2022, the Company’s provision expense decreased $288 from the same period in 2021.

The year-to-date

improvement came primarily from a decrease in general allocations.

As previously discussed, the Company’s general allocations of the allowance for loan losses were impacted by the release of $645 in COVID-19 general reserves during the first

quarter of 2022.

The Company removed a portion of its COVID-19 reserves due to positive asset quality trends and lower net charge offs, which resulted in a corresponding decrease of $645 to provision expense during the first half of 2022.

Further contributing to lower provision expense were the impacts of the Company’s other general reserve allocations.

During the first half of 2022, the Company decreased its

general allocations, excluding the COVID-19 risk factor, from $3,840 at December 31, 2021, to $2,781 at June 30, 2022.

For the three months ended September 30, 2022, the Company’s provision expense decreased $285 when compared to the same period in 2021.

The quarterly decrease was

directly related to the elimination of a specific reserve on a collateral dependent impaired loan due to the full collection of the loan balance.

Upon payoff of the impaired loan, the Company reduced provision expense by $297, which represented the

specific reserves that had been allocated to the collateral deficiency of the loan.

For the nine months ended September 30, 2022 , the Company’s provision expense decreased $573 when

compared to the same period in 2021.

The year-to-date improvement came primarily from a decrease in general allocations.

As previously discussed, the Company’s

general allocations of the allowance for loan losses were impacted by the release of $645 in COVID-19 general reserves during the first quarter of 2022.

The Company removed a portion of its COVID-19 reserves due to positive asset quality trends and

lower net charge offs, which resulted in a corresponding decrease of $645 to provision expense during the first nine months of 2022.

Further contributing to lower provision

expense were the impacts of the Company’s other general reserve allocations.

During the first nine months of 2022, the Company decreased its general allocations, excluding the COVID-19 risk factor, from $3,840 at December 31, 2021, to $2,715 at

September 30, 2022.

Lower general reserves were a result of various improvements within the economic risk factor calculation that included:

criticized and classified assets, lower delinquency levels, and higher annualized level of loan recoveries.

Decreases in provision expense were partially offset by increases in net charge offs and specific allocations during the year, which required

corresponding increases to provision expense.

During the first half of 2022, net charge offs increased $620 compared to the same period in 2021, due in large part to the charge off of a single borrower relationship discussed above.

An increase in

specific allocations also increased provision expense during the first half of 2022 to $297 at June 30, 2022, compared to $60 in specific allocations at June 30, 2021.

lower criticized and classified assets, lower delinquency levels, and higher annualized level of loan

Decreases in provision expense were partially offset by increases in net charge offs during the year, which required corresponding increases to provision expense.

During the first nine months of 2022, net charge offs increased $603

compared to the same period in 2021, due in large part to the charge off of two commercial and industrial loans in June 2022 totaling $613 as part of a single borrower relationship, which required a corresponding increase to provision expense.

Future provisions to the allowance for loan losses will continue to be based on management’s quarterly in-depth evaluation that is discussed in further detail under the

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Noninterest Income

Noninterest income increased $130, or 5.2%, during the three months ended June 30, 2022, and increased $511, or 8.7%, during the six months ended June 30, 2022, when

Noninterest income increased $3, or 0.1%, during the three months ended September 30, 2022, and increased $514, or 6.1%, during the nine months ended September 30, 2022,

when compared to the same periods in 2021.

Higher noninterest revenue was largely impacted by increases in service charges on deposit accounts, which were up $148 and $506 during the three and nine months ended September 30, 2022, respectively,

compared to the same periods in 2021.

Higher noninterest revenue was largely impacted by increases in service charges on deposit accounts, which were up $205 and $358 during the three and six months ended June 30, 2022, compared to the same periods in

2021, respectively.

This included a higher volume of overdraft transactions during both the quarterly and year-to-date periods of 2022.

Further impacting growth in noninterest revenue was mortgage banking income, which increased $34 and $90 during the three and six months ended June 30, 2022, compared to

the same periods in 2021, respectively.

Further impacting growth in noninterest revenue was interchange income, which increased $54 during the third quarter of 2022, and increased $143 during the first nine

months of 2022, compared to the same periods in 2021.

This was impacted by an increase in consumer spending that led to a higher volume of transactions associated with the Company’s debit and credit card products.

Increases in noninterest revenue also came from mortgage banking income, which increased $6 and $96 during the three and nine months ended September 30, 2022,

respectively, compared to the same periods in 2021.

Mortgage banking income increased largely due to Race Day.

Race Day was formed in April 2021 and began conducting business during the third quarter of 2021.

During the second quarter of 2022, Race Day

experienced loan sales that yielded $127 in mortgage banking revenue, which contributed to $223 in mortgage banking revenue during the first half of 2022.

These increases were partially offset by decreases in the Bank’s secondary market income due to

less volume of mortgage refinancings.

Increases in noninterest revenue also came from interchange income, which increased $4 during the second quarter of 2022, and increased $89 during the first half of 2022,

compared to the same periods in 2021.

This was impacted by an increase in consumer spending that led to a higher volume of transactions associated with the Company’s debit and credit card products.

During the third quarter of 2022, Race Day

experienced loan sales that yielded $108 in mortgage banking revenue, which contributed to $332 in mortgage banking revenue during the first nine months of 2022.

These increases were partially offset by decreases in the Bank’s secondary market income

due to less volume of mortgage refinancings.

Partially offsetting increases to noninterest income were decreases in other noninterest income.

During the second quarter of 2022, other noninterest income decreased

During the third quarter of 2022, other noninterest income decreased $167,

or 46.9%, compared to the same period in 2021.

During the first half of 2022, other noninterest income decreased $67, or 15.0%, compared to the same period in 2021.

The decreases were largely impacted by a $70 non-recurring gain on the sale of a

branch building in Jackson, Ohio, that was sold in June 2021.

The building had been acquired as part of the merger with the Milton Banking Company in 2016.

The remaining noninterest income categories increased $6, or 1.3%, during the second quarter of 2022, and $41, or 2.0%, during the first half of 2022, compared to the same

periods in 2021.

The increases came primarily from growth in trust division income and higher earnings on bank owned life insurance and annuity assets.

During the first nine months of 2022, other noninterest income decreased $234, or 29.1%, compared to the same period in 2021.

The decreases were largely impacted by the sale of bank owned property during

The property sales from 2021 resulted in a $194 non-recurring gain, which included the sales of vacant land in Lawrence County, Ohio and a branch building in Jackson, Ohio, that had been acquired as part of the merger with the Milton Banking

Company in 2016.

The remaining noninterest income categories decreased $38, or 11.7%, during the third quarter of 2022, and increased $3, or 0.1%, during the first nine months of 2022,

compared to the same periods in 2021.

The quarter-to-date decrease was largely impacted by lower earnings on bank owned life insurance and annuity assets.

The year-to-date increase came primarily from growth in trust division income.

Noninterest Expense

Noninterest expense increased $726, or 7.8%, during the three months ended June 30, 2022, and increased $1,327, or 7.2%, during the six months ended June 30, 2022,

Noninterest expense increased $878, or 9.3%, during the three months ended September 30, 2022, and increased $2,205, or 7.9%, during the nine months ended September 30,

2022, compared to the same periods in 2021.

Contributing most to the increase in noninterest expense were salaries and employee benefits, which increased $404 and $704 during the three and six months ended June 30, 2022, compared to the same periods in 2021,

respectively.

Contributing most to the increases in noninterest expense were salaries and employee benefits, which increased $391 and $1,095 during the three and nine months ended September 30, 2022, respectively, compared

to the same periods in 2021.

The e xpense increase was largely from the staffing of Race Day employees in 2021, which led to higher salaries expense in 2022.

Other expense increases in this

category also came from annual merit increases and higher retirement plan costs in 2022.

Higher noninterest expense also came from software costs, which increased $122 and $176 during the three and six months ended June 30, 2022, compared to the same periods

in 2021, respectively.

Other expense

increases in this category also came from annual merit increases and higher retirement plan costs in 2022.

Higher noninterest expense also came from software costs, which increased $97 and $273 during the three and nine months ended September 30, 2022, respectively, compared to

the same periods in 2021.

The increases were largely impacted by the associated software costs from Race Day, which included various software platforms and resources that were necessary to begin conducting business.

Further impacting higher overhead costs were professional fees, which increased $71 and $130 during the three and six months ended June 30, 2022, compared to the same

periods in 2021, respectively.

Professional fees were impacted by higher accounting expenses associated with adhering to regulatory guidance.

Data processing expenses increased $28 and $125 during the three and six months ended June 30, 2022, compared to the same periods in 2021, respectively.

Higher costs in

this category were the direct result of the volume increase in debit and credit card transactions, which increased processing costs.

Other noninterest expense also increased $138 and $300 during the three and six months ended June 30, 2022, compared to the same periods in 2021, respectively.

primarily impacted by various other overhead costs associated with Race Day, including loan expenses and employee recruiting costs.

The remaining noninterest expense categories decreased $37 and $108 during the three and six months ended June 30, 2022, compared to the same periods in 2021,

respectively.

These decreases were impacted mostly from expense savings related to lower marketing and furniture and equipment costs.

Further impacting higher overhead costs were data processing expenses, which increased $109 and $234 during the three and nine months ended September 30, 2022,

respectively, compared to the same periods in 2021.

Higher costs in this category were the direct result of the volume increase in debit and credit card transactions, which increased processing costs.

Professional fees also increased $123 during the nine months ended September 30, 2022, while decreasing $7 during the three months ended September 30, 2022, compared to

the same periods in 2021.

Professional fees for the year were impacted by higher accounting expenses associated with regulatory compliance.

The Company also experienced a

lower volume of collection costs during the third quarter of 2022.

Other noninterest expense also increased $119 and $419 during the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021.

was primarily impacted by various other overhead costs associated with Race Day, including the expense associated with purchasing mortgage loan marketing leads and employee recruiting costs.

The remaining noninterest expense categories increased $169 and $61 during the three and nine months ended September 30, 2022, respectively, compared to the same periods

These increases were mostly a result of higher marketing costs.

The Company’s efficiency ratio is defined as noninterest expense as a percentage of fully tax-equivalent net interest income plus noninterest income.

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Comparing the

three and six months ended June 30, 2022, to the same periods in 2021, the Company continues to benefit from a larger decrease in the average cost on interest-bearing liabilities than the decrease on earning asset yields.

The composition shift from

lower yielding Federal Reserve Bank balances to higher yielding loans and securities, combined with the Federal Reserve’s rate increases during the first half of 2022 has had a positive impact to the net interest margin.

These factors more than offset

the decrease in PPP loan fees that were more impactful during 2021 than 2022.

As a result, net interest income during the three and six months ended June 30, 2022, has outperformed the net interest income results during the same periods in 2021.

However, it has been the increases in overhead costs that have completely offset the benefits of higher net interest earnings.

Increases in overhead costs associated with Race Day have contributed to higher noninterest expense, which have increased

over 7.0% during both the three and six months ended June 30, 2022, compared to the same periods in 2021.

Furthermore, the Company’s increases in quarterly and year-to-date overhead expense were only partially offset by increases in noninterest income

during both periods.

As a result, the Company’s quarterly efficiency number increased (regressed) to 75.3% during the three months ended June 30, 2022 from 72.4% during the same period in 2021.

The Company’s year-to-date efficiency number also

increased (regressed) to 73.0% during the first half of 2022 from 70.2% during the same period in 2021.

three and nine months ended September 30, 2022, to the same periods in 2021, the Company has benefited from an increase in earning asset yields and a decrease in the average costs on interest-bearing liabilities.

The actions of the Federal Reserve to

increase market rates have contributed to the asset yield improvement.

Furthermore, the composition shift from lower yielding Federal Reserve Bank balances to higher yielding loans and securities has also had a positive impact to the net interest

These factors more than offset the decrease in PPP loan fees that were more impactful during 2021 than 2022.

As a result, net interest income during the three and nine months ended September 30, 2022, has outperformed the net interest income

results during the same periods in 2021.

Increases in overhead costs associated with Race Day have contributed to higher noninterest expense, which have increased 9.3% and 7.9% during the three and nine months ended September 30, 2022, respectively,

compared to the same periods in 2021.

The increases in overhead expense, net of noninterest revenue, during the third quarter of 2022 are only partially offsetting the benefits of higher net interest earnings.

As a result, the Company’s quarterly

efficiency number during the quarter decreased (improved) to 71.0% during the three months ended September 30, 2022, from 72.3% during the same period in 2021.

While the margin continues to improve, increasing overhead costs has completely offset net

interest earnings on a year-to-date basis.

As a result, the Company’s year-to-date efficiency number increased (regressed) to 72.3% during the first nine months of 2022 from 70.9% during the same period in 2021.

Provision for income taxes

The Company’s income tax provision decreased $182 during the three months ended June 30, 2022, and increased $20 during the six months ended June 30, 2022, when compared

to the same periods in 2021.

The Company’s income tax provision increased $242 during the three months ended September 30, 2022, and increased $262 during the nine months ended September 30, 2022,

when compared to the same periods in 2021.

The changes in tax expense corresponded directly to the change in associated taxable income during 2022 and 2021.

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The Bank opted into the CBLR, and will, therefore, not be required to comply with the Basel III capital requirements.

As of June 30, 2022, the Bank’s CBLR

Pursuant to the CARES Act, the federal banking regulators in April 2020 issued interim final rules to set the CBLR at 8% beginning in the second quarter of

2020 through the end of 2020.

As of September 30, 2022, the Bank’s

CBLR was 10.55%.

Pursuant to the CARES Act, the federal banking regulators in April 2020 issued interim final rules to set the CBLR at 8.0% beginning in the second quarter

of 2020 through the end of 2020.

The CBLR was then increased to 8.5% in 2021 until it was returned to 9.0% for all community banks beginning January 1, 2022.

Cash dividends paid by the Company were $2,716 during the first half of 2022.

Cash dividends paid by the Company were $3,717 during the first nine months of 2022.

The year-to-date dividends paid totaled $0.78 per share.

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raise funds in the market place.

Total cash and cash equivalents, held to maturity securities maturing within one year, and available for sale securities, which totaled $288,145, represented 23.0% of total assets at June 30, 2022 compared to $329,264

Total cash and cash equivalents, held to maturity securities maturing within one year, and available for sale securities, which totaled $298,314, represented 23.8% of total assets at September 30, 2022 compared to

$329,264 and 26.3% of total assets at December 31, 2021.

To further enhance the Bank’s ability to meet liquidity demands, the FHLB offers advances to the Bank.

At June 30, 2022, the Bank could borrow an additional $116,069 from the FHLB.

Furthermore, the Bank

has established a borrowing line with the Federal Reserve.

At June 30, 2022, this line had total availability of $51,567.

At September 30, 2022, the Bank could borrow an additional $96,813 from the FHLB.

Furthermore, the Bank has established a borrowing line with the Federal Reserve.

At September 30, 2022, this line had total availability of $55,203.

Lastly, the Bank also has the ability to purchase federal funds from a correspondent bank.

For further cash flow information, see

the condensed consolidated statement of cash flows above.

cash flow information, see the condensed consolidated statement of cash flows above.

Management does not rely on any single source of liquidity and monitors the level of liquidity based on many factors affecting the Company’s financial condition.

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for current factors.

The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent 3 years for the consumer and real estate portfolio segment and 5 years for

the commercial portfolio segment.

The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent three years for the consumer and real estate portfolio segment and 5 years

for the commercial portfolio segment.

The total loan portfolio’s actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment.

These economic factors include consideration of the following:

of and trends in delinquencies and impaired loans;

levels of and trends in delinquencies and impaired loans;

levels of and trends in charge-offs and recoveries;

48 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis