OHIO VALLEY BANC CORP 10-Q

ITEM 1. FINANCIAL STATEMENTS OHIO VALLEY BANC CORP. CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollars in thousands, except share and per share data) September 30, 2022 December 31, 2021 ASSETS Cash and noninterest-bearing deposits with banks $ 13,587 $ 14,111 Interest-bearing deposits with banks 99,524 137,923 Total cash and cash equivalents 113,111 152,034 Certificates of deposit in financial institutions 1,868 2,329 Securities available for sale 184,844 177,000 Securities held to maturity (estimated fair value: 2022 - $ 8,655 ; 2021 - $ 10,450 ) 9,642 10,294 Restricted investments in bank stocks 5,953 7,265 Total loans 855,913 831,191 Less: Allowance for loan losses ( 4,811 ) ( 6,483 ) Net loans 851,102 824,708 Premises and equipment, net 20,490 20,730 Premises and equipment held for sale, net 598 438 Other real estate owned, net 15 15 Accrued interest receivable 3,053 2,695 Goodwill 7,319 7,319 Other intangible assets, net 35 64 Bank owned life insurance and annuity assets 39,417 37,281 Operating lease right-of-use asset, net 1,170 1,195 Deferred tax assets 7,056 2,217 Other assets 6,801 4,185 Total assets $ 1,252,474 $ 1,249,769 LIABILITIES Noninterest-bearing deposits $ 353,352 $ 353,578 Interest-bearing deposits 720,973 706,330 Total deposits 1,074,325 1,059,908 Other borrowed funds 18,085 19,614 Subordinated debentures 8,500 8,500 Operating lease liability 1,170 1,195 Other liabilities 21,774 19,196 Total liabilities 1,123,854 1,108,413 COMMITMENTS AND CONTINGENT LIABILITIES (See Note 5) — — SHAREHOLDERS’ EQUITY Common stock ($ 1.00 stated value per share, 10,000,000 shares authorized; 2022 - 5,465,707 shares issued; 2021 - 5,447,185 shares issued) 5,465 5,447 Additional paid-in capital 51,722 51,165 Retained earnings 106,799 100,702 Accumulated other comprehensive income (loss) ( 18,700 ) 708 Treasury stock, at cost ( 693,933 shares) ( 16,666 ) ( 16,666 ) Total shareholders’ equity 128,620 141,356 Total liabilities and shareholders’ equity $ 1,252,474 $ 1,249,769 See accompanying notes to consolidated financial statements 3 OHIO VALLEY BANC CORP. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (dollars in thousands, except per share data) Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Interest and dividend income: Loans, including fees $ 10,984 $ 10,522 $ 30,802 $ 31,649 Securities Taxable 889 527 2,435 1,411 Tax exempt 45 61 137 180 Dividends 95 58 222 174 Interest-bearing deposits with banks 516 50 802 111 Other Interest 3 8 12 26 12,532 11,226 34,410 33,551 Interest expense: Deposits 504 692 1,530 2,374 Other borrowed funds 101 136 310 436 Subordinated debentures 82 39 182 119 687 867 2,022 2,929 Net interest income 11,845 10,359 32,388 30,622 Provision for (recovery of) loan losses ( 378 ) ( 93 ) ( 691 ) ( 118 ) Net interest income after provision for loan losses 12,223 10,452 33,079 30,740 Noninterest income: Service charges on deposit accounts 662 514 1,815 1,309 Trust fees 80 70 247 212 Income from bank owned life insurance and annuity assets 205 253 674 701 Mortgage banking income 185 179 640 544 Electronic refund check / deposit fees — — 675 675 Debit / credit card interchange income 1,291 1,237 3,603 3,460 Gain on other real estate owned — — 7 1 Tax preparation fees 3 3 741 752 Other 189 356 569 803 2,615 2,612 8,971 8,457 Noninterest expense: Salaries and employee benefits 5,867 5,476 17,120 16,025 Occupancy 517 483 1,419 1,415 Furniture and equipment 296 287 841 852 Professional fees 418 425 1,405 1,282 Marketing expense 260 128 718 664 FDIC insurance 80 84 250 242 Data processing 776 667 2,136 1,902 Software 561 464 1,620 1,347 Foreclosed assets 11 10 48 32 Amortization of intangibles 8 11 28 38 Other 1,553 1,434 4,573 4,154 10,347 9,469 30,158 27,953 Income before income taxes 4,491 3,595 11,892 11,244 Provision for income taxes 801 559 2,078 1,816 NET INCOME $ 3,690 $ 3,036 $ 9,814 $ 9,428 Earnings per share $ 0.77 $ 0.63 $ 2.06 $ 1.97 See accompanying notes to consolidated financial statements 4 OHIO VALLEY BANC CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (dollars in thousands) Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Net Income $ 3,690 $ 3,036 $ 9,814 $ 9,428 Other comprehensive income (loss): Change in unrealized gain (loss) on available for sale securities ( 8,403 ) ( 85 ) ( 24,567 ) ( 1,706 ) Related tax (expense) benefit 1,764 18 5,159 358 Total other comprehensive income (loss), net of tax ( 6,639 ) ( 67 ) ( 19,408 ) ( 1,348 ) Total comprehensive income (loss) $ ( 2,949 ) $ 2,969 $ ( 9,594 ) $ 8,080 See accompanying notes to consolidated financial statements 5 OHIO VALLEY BANC CORP. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) (dollars in thousands, except share and per share data) Quarter-to-date Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Shareholders' Equity Balance at July 1, 2022 $ 5,465 $ 51,722 $ 104,110 $ ( 12,061 ) $ ( 16,666 ) $ 132,570 Net income — — 3,690 — — 3,690 Other comprehensive loss, net — — — ( 6,639 ) — ( 6,639 ) Cash dividends, $ 0.21 per share — — ( 1,001 ) — — ( 1,001 ) Balance at September 30 , 2022 $ 5,465 $ 51,722 $ 106,799 $ ( 18,700 ) $ ( 16,666 ) $ 128,620 Balance at July 1, 2021 $ 5,447 $ 51,165 $ 97,369 $ 1,155 $ ( 15,712 ) $ 139,424 Net income — — 3,036 — — 3,036 Other comprehensive loss, net — — — ( 67 ) — ( 67 ) Cash dividends, $ 0.21 per share — — ( 1,005 ) — — ( 1,005 ) Shares acquired for treasury, 16,569 shares — — — — ( 458 ) ( 458 ) Balance at September 30 , 2021 $ 5,447 $ 51,165 $ 99,400 $ 1,088 $ ( 16,170 ) $ 140,930 Year-to-date Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Shareholders' Equity Balance at January 1, 2022 $ 5,447 $ 51,165 $ 100,702 $ 708 $ ( 16,666 ) $ 141,356 Net income — — 9,814 — — 9,814 Other comprehensive loss, net — — — ( 19,408 ) — ( 19,408 ) Cash dividends, $ 0.78 per share — — ( 3,717 ) — — ( 3,717 ) Common Stock issued to ESOP, 18,522 shares 18 557 — — — 575 Balance at September 30 , 2022 $ 5,465 $ 51,722 $ 106,799 $ ( 18,700 ) $ ( 16,666 ) $ 128,620 Balance at January 1, 2021 $ 5,447 $ 51,165 $ 92,988 $ 2,436 $ ( 15,712 ) $ 136,324 Net income — — 9,428 — — 9,428 Other comprehensive loss, net — — — ( 1,348 ) — ( 1,348 ) Cash dividends, $ 0.63 per share — — ( 3,016 ) — — ( 3,016 ) Shares acquired for treasury, 16,569 shares — — — — ( 458 ) ( 458 ) Balance at September 30 , 2021 $ 5,447 $ 51,165 $ 99,400 $ 1,088 $ ( 16,170 ) $ 140,930 See accompanying notes to consolidated financial statements 6 OHIO VALLEY BANC CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (dollars in thousands) Nine months ended September 30, 2022 2021 Net cash provided by operating activities: $ 10,229 $ 8,080 Investing activities: Proceeds from maturities and calls of securities available for sale 22,652 32,814 Purchases of securities available for sale ( 54,103 ) ( 96,240 ) Proceeds from maturities and calls of securities held to maturity 634 1,586 Purchase of securities held to maturity ( 1,071 ) ( 1,341 ) Proceeds from maturities of certificates of deposit in financial institutions 445 735 Purchase of certificates of deposit in financial institutions — ( 735 ) Redemptions of federal home loan bank stock 1,312 241 Net change in loans ( 25,695 ) 2,548 Proceeds from sale of other real estate owned 7 49 Purchases of premises and equipment ( 1,662 ) ( 797 ) Disposals of premises and equipment 420 486 Proceeds from building grant 200 — Purchases of bank owned life insurance and annuity assets ( 1,462 ) ( 550 ) Net cash (used in) investing activities ( 58,323 ) ( 61,204 ) Financing activities: Change in deposits 14,417 57,937 Cash dividends ( 3,717 ) ( 3,016 ) Purchase of treasury stock — ( 458 ) Proceeds from Federal Home Loan Bank borrowings — 600 Repayment of Federal Home Loan Bank borrowings ( 1,529 ) ( 4,118 ) Change in other short-term borrowings — ( 1,060 ) Net cash provided by financing activities 9,171 49,885 Change in cash and cash equivalents ( 38,923 ) ( 3,239 ) Cash and cash equivalents at beginning of period 152,034 138,303 Cash and cash equivalents at end of period $ 113,111 $ 135,064 Supplemental disclosure: Cash paid for interest $ 2,137 $ 3,525 Cash paid for income taxes 1,350 2,400 Proceeds from bank owned life insurance and annuity assets not settled — 173 Operating lease liability arising from obtaining right-of-use asset 108 570 See accompanying notes to consolidated financial statements 7 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION: The accompanying consolidated financial statements include the accounts of Ohio Valley Banc Corp. (“Ohio Valley”) and its wholly-owned subsidiaries, The Ohio Valley Bank Company (the “Bank”), Loan Central, Inc., a consumer finance company, Ohio Valley Financial Services Agency, LLC, an insurance agency, and OVBC Captive, Inc., a limited purpose property and casualty insurance company. The Bank has two wholly-owned subsidiaries, Race Day Mortgage, Inc., an Ohio corporation that provides online consumer mortgages, and Ohio Valley REO, LLC, an Ohio limited liability company (“Ohio Valley REO”), to which the Bank transfers certain real estate acquired by the Bank through foreclosure for sale by Ohio Valley REO. Ohio Valley and its subsidiaries are collectively referred to as the “Company.” All material intercompany accounts and transactions have been eliminated in consolidation. These interim financial statements are prepared by the Company without audit and reflect all adjustments of a normal recurring nature which, in the opinion of management, are necessary to present fairly the consolidated financial position of the Company at September 30, 2022, and its results of operations and cash flows for the periods presented. The results of operations for the three and nine months ended September 30, 2022, are not necessarily indicative of the operating results to be anticipated for the full fiscal year ending December 31, 2022. The accompanying consolidated financial statements do not purport to contain all the necessary financial disclosures required by U.S. generally accepted accounting principles (“US GAAP”) that might otherwise be necessary in the circumstances. The Annual Report of the Company for the year ended December 31, 2021, contains consolidated financial statements and related notes which should be read in conjunction with the accompanying consolidated financial statements. The consolidated financial statements for 2021 have been reclassified to conform to the presentation for 2022. These reclassifications had no effect on net income or shareholders’ equity. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: The accounting and reporting policies followed by the Company conform to US GAAP established by the Financial Accounting Standards Board (“FASB”). The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. INDUSTRY SEGMENT INFORMATION: Internal financial information is primarily reported and aggregated in two lines of business: banking and consumer finance. LOANS: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs, and an allowance for loan losses. Interest income is reported on an accrual basis using the interest method and includes amortization of net deferred loan fees and costs over the loan term using the level yield method without anticipating prepayments. The amount of the Company’s recorded investment is not materially different than the amount of unpaid principal balance for loans. Interest income is discontinued and the loan moved to non-accrual status when full loan repayment is in doubt, typically when the loan is impaired or payments are past due 90 days or over unless the loan is well-secured or in process of collection. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 days or over and still accruing include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis method until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. 8 NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The Bank also originates long-term, fixed-rate mortgage loans, with the full intention of being sold to the secondary market. These loans are considered held for sale during the period of time after the principal has been advanced to the borrower by the Bank, but before the Bank has been reimbursed by the Federal Home Loan Mortgage Corporation, typically within a few business days. Loans sold to the secondary market are carried at the lower of aggregate cost or fair value. As of September 30, 2022, there were $ 493 in loans held for sale by the Bank, as compared to $ 1,682 in loans held for sale at December 31, 2021. ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified and for which the borrower is experiencing financial difficulties are considered troubled debt restructurings ("TDRs") and are classified as impaired. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length and reasons for the delay, the borrower’s prior payment record, and the amount of shortfall in relation to the principal and interest owed. Commercial and commercial real estate loans are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Smaller balance homogeneous loans, such as consumer and most residential real estate, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosure. TDRs are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For TDRs that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses. The general component covers non-impaired loans and impaired loans that are not individually reviewed for impairment and is based on historical loss experience adjusted 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 three years for the consumer and real estate portfolio segment and five 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: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The following portfolio segments have been identified: Commercial and Industrial, Commercial Real Estate, Residential Real Estate, and Consumer. Commercial and industrial loans consist of borrowings for commercial purposes to individuals, corporations, partnerships, sole proprietorships, and other business enterprises. Commercial and industrial loans are generally secured by business assets such as equipment, accounts receivable, inventory, or any other asset excluding real estate and generally made to finance capital expenditures or operations. The Company’s risk exposure is related to deterioration in the value of collateral securing the loan should foreclosure become necessary. Generally, business assets used or produced in operations do not maintain their value upon foreclosure, which may require the Company to write down the value significantly to sell. 9 NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Commercial real estate consists of nonfarm, nonresidential loans secured by owner-occupied and nonowner-occupied commercial real estate as well as commercial construction loans. An owner-occupied loan relates to a borrower purchased building or space for which the repayment of principal is dependent upon cash flows from the ongoing business operations conducted by the party, or an affiliate of the party, who owns the property. Owner-occupied loans that are dependent on cash flows from operations can be adversely affected by current market conditions for their product or service. A nonowner-occupied loan is a property loan for which the repayment of principal is dependent upon rental income associated with the property or the subsequent sale of the property. Nonowner-occupied loans that are dependent upon rental income are primarily impacted by local economic conditions which dictate occupancy rates and the amount of rent charged. Commercial construction loans consist of borrowings to purchase and develop raw land into 1-4 family residential properties. Construction loans are extended to individuals as well as corporations for the construction of an individual or multiple properties and are secured by raw land and the subsequent improvements. Repayment of the loans to real estate developers is dependent upon the sale of properties to third parties in a timely fashion upon completion. Should there be delays in construction or a downturn in the market for those properties, there may be significant erosion in value that may be absorbed by the Company. Residential real estate loans consist of loans to individuals for the purchase of 1-4 family primary residences with repayment primarily through wage or other income sources of the individual borrower. The Company’s loss exposure to these loans is dependent on local market conditions for residential properties as loan amounts are determined, in part, by the fair value of the property at origination. Consumer loans are comprised of loans to individuals secured by automobiles, open-end home equity loans and other loans to individuals for household, family, and other personal expenditures, both secured and unsecured. These loans typically have maturities of six years or less with repayment dependent on individual wages and income. The risk of loss on consumer loans is elevated as the collateral securing these loans, if any, rapidly depreciate in value or may be worthless and/or difficult to locate if repossession is necessary. The Company has allocated the highest percentage of its allowance for loan losses as a percentage of loans to the other identified loan portfolio segments due to the larger dollar balances associated with such portfolios. At September 30, 2022, there were no changes to the accounting policies or methodologies within any of the Company’s loan portfolio segments from the prior period. EARNINGS PER SHARE: Earnings per share are computed based on net income divided by the weighted average number of common shares outstanding during the quarter. The weighted average common shares outstanding were 4,771,774 and 4,783,886 for the three months ended September 30, 2022 and 2021, respectively. The weighted average common shares outstanding were 4,768,246 and 4,786,246 for the nine months ended September 30, 2022 and 2021, respectively. Ohio Valley had no dilutive effect and no potential common shares issuable under stock options or other agreements for any period presented. ACCOUNTING GUIDANCE TO BE ADOPTED IN FUTURE PERIODS: In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses”. ASU 2016-13 requires entities to replace the current “incurred loss” model with an “expected loss” model, which is referred to as the current expected credit loss (“CECL”) model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU also requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. The Bank’s CECL steering committee has developed a CECL model and is evaluating the source data, various credit loss methodologies and model results in relation to the ASU guidance. Management expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective. For SEC filers who are smaller reporting companies, such as the Company, ASU 2016-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. In March 2022, the FASB issued ASU 2022-02, Financial Instruments-Credit Losses (Topic 326). This standard: (i) eliminates the accounting guidance for TDRs, requiring entities to determine whether a modification results in a new loan or a continuation of an existing loan; (ii) expands disclosures related to modifications; and (iii) requires disclosure of current period gross write-offs of financing receivables within the vintage disclosures table. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and are applied prospectively, except with respect to the recognition and measurement of TDRs, where an entity has the option to apply a modified retrospective transition method. Early adoption of the amendments in this update is permitted if ASU 2016-13 has been previously adopted. An entity may elect to early adopt the amendments regarding TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The Company is assessing the impact that the adoption of ASU 2022-02 will have on its consolidated financial statements. 10 NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values: Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. The following is a description of the Company’s valuation methodologies used to measure and disclose the fair values of its financial assets and liabilities on a recurring or nonrecurring basis: Securities: The fair values for securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations. Impaired Loans: At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. In some instances, fair value adjustments can be made based on a quoted price from an observable input, such as a purchase agreement. Such adjustments would be classified as a Level 2 classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. Other Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. In some instances, fair value adjustments can be made based on a quoted price from an observable input, such as a purchase agreement. Such adjustments would be classified as a Level 2 classification. Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of management reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with management’s own assumptions of fair value based on factors that include recent market data or industry-wide statistics. On an as-needed basis, the Company reviews the fair value of collateral, taking into consideration current market data, as well as all selling costs, which typically amount to approximately 10 % of the fair value of such collateral. Interest Rate Swap Agreements: The fair value of interest rate swap agreements is determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The variable cash receipts (or payments) are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves (Level 2). 11 NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) Assets and Liabilities Measured on a Recurring Basis Assets and liabilities measured at fair value on a recurring basis are summarized below: Fair Value Measurements at September 30, 2022 Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: U.S. Government securities $ 42,790 $ — — U.S. Government sponsored entity securities — 18,717 — Agency mortgage-backed securities, residential — 123,337 — Interest rate swap derivatives — 1,404 — Liabilities: Interest rate swap derivatives — ( 1,404 ) — Fair Value Measurements at December 31, 2021 Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: U.S. Government securities $ 20,143 $ — — U.S. Government sponsored entity securities — 25,916 — Agency mortgage-backed securities, residential — 130,941 — Interest rate swap derivatives — 599 — Liabilities : Interest rate swap derivatives — ( 599 ) — Assets and Liabilities Measured on a Nonrecurring Basis There were no assets or liabilities measured at fair value on a nonrecurring basis at September 30, 2022. Assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2021 are summarized below: Fair Value Measurements at December 31, 2021 Using December 31, 2021 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Impaired loans: Commercial and industrial — — $ 1,983 At December 31, 2021, the recorded investment of impaired loans measured for impairment using the fair value of collateral for collateral-dependent loans totaled $ 1,993 , with a corresponding valuation allowance of $ 10 , resulting in an increase of $ 10 in provision expense during the year ended December 31, 2021, with no corresponding charge-offs recognized. There was no other real estate owned that was measured at fair value less costs to sell at September 30, 2022 and December 31, 2021. There were no corresponding write-downs during the three and nine months ended September 30, 2022 and 2021. 12 NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) There was no quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at September 30, 2022. The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2021: December 31, 2021 Fair Value Valuation Technique(s) Unobservable Input(s) Range Weighted Average Impaired loans: 1 1 Commercial and industrial $ 1,983 Sales approach Adjustment to comparables and equipment comparables 0 % to 25 % 18.5 %% The carrying amounts and estimated fair values of financial instruments at September 30, 2022 and December 31, 2021 are as follows: Carrying Fair Value Measurements at September 30, 2022 Using Value Level 1 Level 2 Level 3 Total Financial Assets: Cash and cash equivalents $ 113,111 $ 113,111 $ — $ — $ 113,111 Certificates of deposit in financial institutions 1,868 — 1,868 — 1,868 Securities available for sale 184,844 42,790 142,054 — 184,844 Securities held to maturity 9,642 — 5,210 3,445 8,655 Loans, net 851,102 — — 825,644 825,644 Interest rate swap derivatives 1,404 — 1,404 — 1,404 Accrued interest receivable 3,053 — 552 2,501 3,053 Financial liabilities: Deposits 1,074,325 920,418 153,807 — 1,074,225 Other borrowed funds 18,085 — 16,646 — 16,646 Subordinated debentures 8,500 — 8,474 — 8,474 Interest rate swap derivatives 1,404 — 1,404 — 1,404 Accrued interest payable 325 — 325 — 325 Carrying Fair Value Measurements at December 31, 2021 Using Value Level 1 Level 2 Level 3 Total Financial Assets: Cash and cash equivalents $ 152,034 $ 152,034 $ — $ — $ 152,034 Certificates of deposit in financial institutions 2,329 — 2,329 — 2,329 Securities available for sale 177,000 20,143 156,857 — 177,000 Securities held to maturity 10,294 — 6,063 4,387 10,450 Loans, net 824,708 — — 821,899 821,899 Interest rate swap derivatives 599 — 599 — 599 Accrued interest receivable 2,695 — 363 2,332 2,695 Financial liabilities: Deposits 1,059,908 870,626 189,796 — 1,060,422 Other borrowed funds 19,614 — 20,279 — 20,279 Subordinated debentures 8,500 — 5,657 — 5,657 Interest rate swap derivatives 599 — 599 — 599 Accrued interest payable 439 1 438 — 439 Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. 13 NOTE 3 – SECURITIES The following table summarizes the amortized cost and fair value of securities available for sale and securities held to maturity at September 30, 2022 and December 31, 2021, and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive (loss) and gross unrecognized gains and losses: Securities Available for Sale Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value September 30 , 2022 U.S. Government securities $ 45,988 $ — $ ( 3,198 ) $ 42,790 U.S. Government sponsored entity securities 21,344 — ( 2,627 ) 18,717 Agency mortgage-backed securities, residential 141,183 — ( 17,846 ) 123,337 Total securities $ 208,515 $ — $ ( 23,671 ) $ 184,844 December 31, 2021 U.S. Government securities $ 20,182 $ — $ ( 39 ) $ 20,143 U.S. Government sponsored entity securities 25,980 109 ( 173 ) 25,916 Agency mortgage-backed securities, residential 129,942 1,476 ( 477 ) 130,941 Total securities $ 176,104 $ 1,585 $ ( 689 ) $ 177,000 Securities Held to Maturity Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Estimated Fair Value September 30 , 2022 Obligations of states and political subdivisions $ 9,641 $ 30 $ ( 1,017 ) $ 8,654 Agency mortgage-backed securities, residential 1 — — 1 Total securities $ 9,642 $ 30 $ ( 1,017 ) $ 8,655 December 31, 2021 Obligations of states and political subdivisions $ 10,292 $ 200 $ ( 44 ) $ 10,448 Agency mortgage-backed securities, residential 2 — — 2 Total securities $ 10,294 $ 200 $ ( 44 ) $ 10,450 The amortized cost and estimated fair value of debt securities at September 30, 2022, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because certain issuers may have the right to call or prepay the debt obligations prior to their contractual maturities. Securities not due at a single maturity are shown separately. Available for Sale Held to Maturity Debt Securities: Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value Due in one year or less $ 1,998 $ 1,987 $ 359 $ 360 Due in over one to five years 60,334 55,264 3,522 3,376 Due in over five to ten years 5,000 4,256 3,022 2,718 Due after ten years — — 2,738 2,200 Agency mortgage-backed securities, residential 141,183 123,337 1 1 Total debt securities $ 208,515 $ 184,844 $ 9,642 $ 8,655 14 NOTE 3 – SECURITIES (Continued) The following table summarizes securities with unrealized losses at September 30, 2022 and December 31, 2021, aggregated by major security type and length of time in a continuous unrealized loss position: September 30 , 2022 Less Than 12 Months 12 Months or More Total Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Securities Available for Sale U.S. Government securities $ 42,790 $ ( 3,198 ) $ — $ — $ 42,790 $ ( 3,198 ) U.S. Government sponsored entity securities 8,017 ( 827 ) 10,700 ( 1,800 ) 18,717 ( 2,627 ) Agency mortgage-backed securities, residential 87,082 ( 11,001 ) 36,255 ( 6,845 ) 123,337 ( 17,846 ) Total available for sale $ 137,889 $ ( 15,026 ) $ 46,955 $ ( 8,645 ) $ 184,844 $ ( 23,671 ) December 31, 2021 Less Than 12 Months 12 Months or More Total Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Securities Available for Sale U.S. Government securities $ 20,143 $ ( 39 ) $ — $ — $ 20,143 $ ( 39 ) U.S Government sponsored entity securities 18,307 ( 173 ) — — 18,307 ( 173 ) Agency mortgage-backed securities, residential 64,560 ( 477 ) — — 64,560 ( 477 ) Total available for sale $ 103,010 $ ( 689 ) $ — $ — $ 103,010 $ ( 689 ) September 30, 2022 Less Than 12 Months 12 Months or More Total Fair Value Unrecognized Loss Fair Value Unrecognized Loss Fair Value Unrecognized Loss Securities Held to Maturity Obligations of states and political subdivisions $ 5,206 $ ( 652 ) $ 1,660 $ ( 365 ) $ 6,866 $ ( 1,017 ) Total held to maturity $ 5,206 $ ( 652 ) $ 1,660 $ ( 365 ) $ 6,866 $ ( 1,017 ) December 31, 2021 Less Than 12 Months 12 Months or More Total Fair Value Unrecognized Loss Fair Value Unrecognized Loss Fair Value Unrecognized Loss Securities Held to Maturity Obligations of states and political subdivisions $ 2,617 $ ( 38 ) $ 130 $ ( 6 ) $ 2,747 $ ( 44 ) Total held to maturity $ 2,617 $ ( 38 ) $ 130 $ ( 6 ) $ 2,747 $ ( 44 ) There were no sales of investment securities during the three and nine months ended September 30, 2022 or 2021. Unrealized losses on the Company’s debt securities have not been recognized into income because the issuers’ securities were of high credit quality as of September 30, 2022, and management does not intend to sell, and it is likely that management will not be required to sell, the securities prior to their anticipated recovery. Management does no t believe any individual unrealized loss at September 30, 2022 and December 31, 2021 represents an other-than-temporary impairment. 15 NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES Loans are comprised of the following: September 30, 2022 December 31, 2021 Residential real estate $ 272,271 $ 274,425 Commercial real estate: Owner-occupied 70,623 71,979 Nonowner-occupied 173,116 176,100 Construction 41,264 33,718 Commercial and industrial 153,417 141,525 Consumer: Automobile 54,409 48,206 Home equity 26,755 22,375 Other 64,058 62,863 855,913 831,191 Less: Allowance for loan losses ( 4,811 ) ( 6,483 ) Loans, net $ 851,102 $ 824,708 On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law in response to 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 September 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 September 30, 2022 and 2021: September 30 , 2022 Residential Real Estate Commercial Real Estate Commercial and Industrial Consumer Total Allowance for loan losses: Beginning balance $ 614 $ 1,846 $ 1,548 $ 1,206 $ 5,214 Provision for loan losses ( 189 ) 42 ( 308 ) 77 ( 378 ) Loans charged off ( 57 ) ( 20 ) — ( 262 ) ( 339 ) Recoveries 55 29 36 194 314 Total ending allowance balance $ 423 $ 1,897 $ 1,276 $ 1,215 $ 4,811 September 30 , 2021 Residential Real Estate Commercial Real Estate Commercial and Industrial Consumer Total Allowance for loan losses: Beginning balance $ 1,088 $ 2,532 $ 1,746 $ 1,433 $ 6,799 Provision for loan losses ( 34 ) 10 ( 263 ) 194 ( 93 ) Loans charged-off ( 49 ) ( 63 ) ( 25 ) ( 280 ) ( 417 ) Recoveries 40 115 113 107 375 Total ending allowance balance $ 1,045 $ 2,594 $ 1,571 $ 1,454 $ 6,664 16 NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued) The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended September 30, 2022 and 2021: September 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 ( 545 ) ( 683 ) 271 266 ( 691 ) Loans charged-off ( 99 ) ( 36 ) ( 618 ) ( 964 ) ( 1,717 ) Recoveries 87 68 52 529 736 Total ending allowance balance $ 423 $ 1,897 $ 1,276 $ 1,215 $ 4,811 September 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 ( 443 ) 121 ( 260 ) 464 ( 118 ) Loans charged-off ( 75 ) ( 115 ) ( 96 ) ( 879 ) ( 1,165 ) Recoveries 83 157 151 396 787 Total ending allowance balance $ 1,045 $ 2,594 $ 1,571 $ 1,454 $ 6,664 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 September 30, 2022 and December 31, 2021: September 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 $ — $ — $ — $ — $ — Collectively evaluated for impairment 423 1,897 1,276 1,215 4,811 Total ending allowance balance $ 423 $ 1,897 $ 1,276 $ 1,215 $ 4,811 Loans: Loans individually evaluated for impairment $ — $ 2,020 $ — $ 28 $ 2,048 Loans collectively evaluated for impairment 272,271 282,983 153,417 145,194 853,865 Total ending loans balance $ 272,271 $ 285,003 $ 153,417 $ 145,222 $ 855,913 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 17 NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued) The following tables present information related to loans individually evaluated for impairment by class of loans as of September 30, 2022 and December 31, 2021: September 30 , 2022 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated With an allowance recorded: $ — $ — $ — With no related allowance recorded: Commercial real estate: Owner-occupied 1,703 1,640 — Nonowner-occupied 380 380 — Consumer: Home equity 28 28 — Total $ 2,111 $ 2,048 $ — 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 18 NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued) The following tables present information related to loans individually evaluated for impairment by class of loans for the three and nine months ended September 30, 2022 and 2021: Three months ended September 30, 2022 Nine months ended September 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: $ — $ — $ — $ — $ — $ — With no related allowance recorded: Commercial real estate: Owner-occupied 1,650 18 18 1,676 66 66 Nonowner-occupied 381 8 8 382 22 22 Consumer: Home equity 14 1 1 22 1 1 Total $ 2,045 $ 27 $ 27 $ 2,080 $ 89 $ 89 Three months ended September 30, 2021 Nine months ended September 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: Consumer: Other $ 49 $ 1 $ 1 $ 49 $ 2 $ 2 With no related allowance recorded: Commercial real estate: Owner-occupied 5,128 74 74 5,183 239 239 Nonowner-occupied 386 7 7 388 21 21 Commercial and industrial 3,174 111 111 3,586 200 200 Consumer: Home equity 32 1 1 33 2 2 Total $ 8,769 $ 194 $ 194 $ 9,239 $ 464 $ 464 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 September 30, 2022 and December 31, 2021. In addition, nonaccrual residential mortgage loans that are in the process of foreclosure had a recorded investment of $ 459 and $ 316 as of September 30, 2022 and December 31, 2021, respectively. 19 NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued) 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 September 30, 2022 and December 31, 2021: September 30 , 2022 Loans Past Due 90 Days And Still Accruing Nonaccrual Residential real estate $ 203 $ 1,531 Commercial real estate: Owner-occupied — 981 Nonowner-occupied — 72 Construction — 15 Commercial and industrial 148 149 Consumer: Automobile 65 105 Home equity — 127 Other 470 75 Total $ 886 $ 3,055 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 20 NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued) The following table presents the aging of the recorded investment of past due loans by class of loans as of September 30, 2022 and December 31, 2021: September 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 $ 1,514 $ 907 $ 624 $ 3,045 $ 269,226 $ 272,271 Commercial real estate: Owner-occupied 188 — 981 1,169 69,454 70,623 Nonowner-occupied 9 6 — 15 173,101 173,116 Construction 34 — — 34 41,230 41,264 Commercial and industrial 96 — 297 393 153,024 153,417 Consumer: Automobile 760 156 157 1,073 53,336 54,409 Home equity 35 — 127 162 26,593 26,755 Other 384 368 514 1,266 62,792 64,058 Total $ 3,020 $ 1,437 $ 2,700 $ 7,157 $ 848,756 $ 855,913 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. 21 NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued) The following table presents the types of TDR loan modifications by class of loans as of September 30, 2022 and December 31, 2021: September 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 $ 419 $ — $ 419 Credit extension at lower stated rate than market rate 364 — 364 Nonowner-occupied Credit extension at lower stated rate than market rate 380 — 380 Total TDRs $ 1,163 $ — $ 1,163 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 September 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 September 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 nine months ended September 30, 2022 and 2021, and, therefore, no impact to provision expense or the allowance for loan losses. During the three and nine months ended September 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 September 30, 2022, the Company had modified 521 loans related to COVID-19 with an outstanding loan balance of $ 97,236 that were not reported as TDRs. As of September 30, 2022, the Company had 11 of those modified loans still operating under their COVID-19 related deferral terms with an outstanding loan balance of $ 120 that were not reported as TDRs in the tables presented above. 22 NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued) 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. 23 NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued) 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 September 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: September 30 , 2022 Pass Criticized Classified Total Commercial real estate: Owner-occupied $ 67,110 $ 2,532 $ 981 $ 70,623 Nonowner-occupied 172,926 — 190 173,116 Construction 41,202 — 62 41,264 Commercial and industrial 151,371 276 1,770 153,417 Total $ 432,609 $ 2,808 $ 3,003 $ 438,420 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 September 30, 2022 and December 31, 2021: September 30 , 2022 Consumer Residential Automobile Home Equity Other Real Estate Total Performing $ 54,239 $ 26,628 $ 63,513 $ 270,537 $ 414,917 Nonperforming 170 127 545 1,734 2,576 Total $ 54,409 $ 26,755 $ 64,058 $ 272,271 $ 417,493 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 4.76 % of total loans were unsecured at September 30, 2022, up from 4.45 % at December 31, 2021. 24 NOTE 5 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit, and financial guarantees written, is represented by the contractual amount of those instruments. The contract amounts of these instruments are not included in the consolidated financial statements. At September 30, 2022, the contract amounts of these instruments totaled approximately $ 101,706 , compared to $ 89,602 at December 31, 2021. The Bank uses the same credit policies in making commitments and conditional obligations as it does for instruments recorded on the balance sheet. Since many of these instruments are expected to expire without being drawn upon, the total contract amounts do not necessarily represent future cash requirements. NOTE 6 - OTHER BORROWED FUNDS Other borrowed funds at September 30, 2022 and December 31, 2021 are comprised of advances from the Federal Home Loan Bank (“FHLB”) of Cincinnati and promissory notes. FHLB Borrowings Promissory Notes Totals September 30 , 2022 $ 15,947 $ 2,138 $ 18,085 December 31, 2021 $ 17,476 $ 2,138 $ 19,614 Pursuant to collateral agreements with the FHLB, advances are secured by $ 265,986 in qualifying mortgage loans, $ 30,420 in commercial loans and $ 3,813 in FHLB stock at September 30, 2022. Fixed-rate FHLB advances of $ 15,947 mature through 2042 and have interest rates ranging from 1.53 % to 2.97 % and a year-to-date weighted average cost of 2.35 % at September 30, 2022 and 2.39 % at December 31, 2021. There were no variable-rate FHLB borrowings at September 30, 2022. At September 30, 2022, the Company had a cash management line of credit enabling it to borrow up to $ 100,000 from the FHLB, subject to the stock ownership and collateral limitations described below. All cash management advances have an original maturity of 90 days . The line of credit must be renewed on an annual basis. There was $ 100,000 available on this line of credit at September 30, 2022. Based on the Company's current FHLB stock ownership, total assets and pledgeable loans, the Company had the ability to obtain borrowings from the FHLB up to a maximum of $ 183,760 at September 30, 2022. Of this maximum borrowing capacity, the Company had $ 96,813 available to use as additional borrowings, of which $ 96,813 could be used for short term, cash management advances, as mentioned above. Promissory notes, issued primarily by Ohio Valley, are due at various dates through a final maturity date of April 13, 2023 , and have fixed rates ranging from 1.25 % to 1.30 % and a year-to-date weighted average cost of 1.25 % at September 30,2022, as compared to 1.23 % at December 31, 2021. At September 30, 2022, there were six promissory notes payable by Ohio Valley to related parties totaling $ 2,138 . There were no promissory notes payable to other banks at September 30, 2022 or December 31, 2021. Letters of credit issued on the Bank's behalf by the FHLB to collateralize certain public unit deposits as required by law totaled $ 71,000 at September 30, 2022 and $ 68,380 at December 31, 2021. Scheduled principal payments as of September 30, 2022: FHLB Borrowings Promissory Notes Totals 2022 $ 580 $ 530 $ 1,110 2023 1,784 1,608 3,392 2024 1,693 — 1,693 2025 1,560 — 1,560 2026 1,434 — 1,434 Thereafter 8,896 — 8,896 $ 15,947 $ 2,138 $ 18,085 25 NOTE 7 – SEGMENT INFORMATION The reportable segments are determined by the products and services offered, primarily distinguished between banking and consumer finance. They are also distinguished by the level of information provided to the chief operating decision maker, who uses such information to review performance of various components of the business, which are then aggregated if operating performance, products/services, and customers are similar. Loans, investments, and deposits provide the majority of the net revenues from the banking operation, while loans provide the majority of the net revenues for the consumer finance segment. All Company segments are domestic. Total revenues from the banking segment, which accounted for the majority of the Company's total revenues, totaled 94.0 % of total consolidated revenues for the quarters end September 30, 2022 and 2021, respectively. The accounting policies used for the Company's reportable segments are the same as those described in Note 1 - Summary of Significant Accounting Policies. Income taxes are allocated based on income before tax expense. Information for the Company’s reportable segments is as follows: Three Months Ended September 30, 2022 Banking Consumer Finance Total Company Net interest income $ 11,299 $ 546 $ 11,845 Provision for loan losses ( 400 ) 22 ( 378 ) Noninterest income 2,573 42 2,615 Noninterest expense 9,743 604 10,347 Provision for income taxes 809 ( 8 ) 801 Net income 3,720 ( 30 ) 3,690 Assets 1,238,597 13,877 1,252,474 Three Months Ended September 30, 2021 Banking Consumer Finance Total Company Net interest income $ 9,843 $ 516 $ 10,359 Provision for loan losses ( 100 ) 7 ( 93 ) Noninterest income 2,582 30 2,612 Noninterest expense 8,861 608 9,469 Provision for income taxes 574 ( 15 ) 559 Net income 3,090 ( 54 ) 3,036 Assets 1,232,353 13,025 1,245,378 Nine Months Ended September 30, 2022 Banking Consumer Finance Total Company Net interest income $ 30,791 $ 1,597 $ 32,388 Provision for loan losses ( 700 ) 9 ( 691 ) Noninterest income 7,987 984 8,971 Noninterest expense 28,296 1,862 30,158 Provision for income taxes 1,930 148 2,078 Net income 9,252 562 9,814 Assets 1,238,597 13,877 1,252,474 Nine Months Ended September 30, 2021 Banking Consumer Finance Total Company Net interest income $ 29,124 $ 1,498 $ 30,622 Provision for loan losses ( 150 ) 32 ( 118 ) Noninterest income 7,474 983 8,457 Noninterest expense 26,095 1,858 27,953 Provision for income taxes 1,693 123 1,816 Net income 8,960 468 9,428 Assets 1,232,353 13,025 1,245,378 26 NOTE 8 – LEASES Substantially all of the Company’s operating lease right-of-use (“ROU”) assets and operating lease liabilities represent leases for branch buildings and office space to conduct business. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet. The lease expense for these leases are recorded on a straight-line basis over the lease term. Leases with initial terms in excess of 12 months are recorded as either operating or financing leases on the consolidated balance sheet. The Company has no finance lease arrangements. Operating leases have remaining lease terms ranging from 7 months to 19 years, some of which include options to extend the leases for up to 15 years. Operating lease ROU assets and operating lease liabilities are valued based on the present value of future minimum lease payments, discounted with an incremental borrowing rate for the same term as the underlying lease. The Company has one lease arrangement that contains variable lease payments that are adjusted periodically for an index. Balance sheet information related to leases is as follows: As of September 30, 2022 As of December 31, 2021 Operating leases: Operating lease right-of-use assets $ 1,170 $ 1,195 Operating lease liabilities 1,170 1,195 The components of lease cost are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Operating lease cost $ 51 $ 41 $ 135 $ 119 Short-term lease expense 10 8 28 24 Future undiscounted lease payments for operating leases with initial terms of one year or more as of September 30, 2022 are as follows: Operating Leases 2022 (remaining) $ 49 2023 153 2024 133 2025 133 2026 119 Thereafter 866 Total lease payments 1,453 Less: Imputed Interest ( 283 ) Total operating leases $ 1,170 Other information is as follows: As of September 30, 2022 As of December 31, 2021 Weighted-average remaining lease term for operating leases 12.6 years 13.7 years Weighted-average discount rate for operating leases 2.36 % 2.29 % 27