What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-15 compared with 2022-11-14 · 456 added, 524 removed, 55 unchanged (95% of the section changed)

2 unchanged sentences

Forward Looking Statements

Certain statements contained in this report and other publicly available documents incorporated herein by reference constitute "forward

looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended (the “Exchange Act”), and as defined in the Private Securities Litigation Reform Act of 1995.

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 and which could cause actual results to differ materially from those expressed in such forward looking

Certain statements contained in this report and other publicly available documents incorporated herein by reference

constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended (the “Exchange Act”), and as defined in the Private Securities Litigation

Reform Act of 1995.

“will,” and other similar expressions.

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 statements.

These factors include, but are not limited to:

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

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;

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;

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

unexpected changes in interest rates or disruptions in the

mortgage market;

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;

1 unchanged sentence

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;

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

unanticipated litigation,

claims, or assessments;

fluctuations in the cost of obtaining funds to make loans;

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.

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, 2022.

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.

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:

The following discussion on consolidated financial statements include the

accounts of Ohio Valley and its wholly-owned subsidiaries, The Ohio Valley Bank Company (the “Bank”), Loan Central, Inc., a consumer finance company (“Loan Central”), Ohio Valley Financial Services Agency, LLC, an insurance agency, and OVBC Captive,

Inc., a limited purpose property and casualty insurance company (the “Captive”).

The Bank has two wholly-owned subsidiaries, Race Day Mortgage, Inc., an Ohio corporation that provides online consumer mortgages (“Race Day”), and Ohio Valley REO, LLC,

an Ohio limited liability company.

Ohio Valley and its subsidiaries are collectively referred to as the “Company.”

The Company is primarily engaged in commercial and retail banking, offering a blend of commercial and consumer banking services within southeastern Ohio as well as western

West Virginia.

The following discussion on consolidated

financial statements include the accounts of Ohio Valley and its wholly-owned subsidiaries, The Ohio Valley Bank Company (the “Bank”), Loan Central, Inc., a consumer finance company (“Loan Central”), Ohio Valley Financial Services Agency, LLC, an

insurance agency, and OVBC Captive, Inc., a limited purpose property and casualty insurance company (“the Captive”).

The Bank has two wholly-owned subsidiaries, Race Day Mortgage, Inc., an Ohio corporation that provides online consumer mortgages

(“Race Day”), and Ohio Valley REO, LLC, an Ohio limited liability company.

In February 2023, Ohio Valley announced that it was taking steps toward closing Race Day.

The decision to start this process was made due to low loan demand, issues retaining

personnel, and lack of profitability.

Ohio Valley plans to see current loan applications in progress to completion.

An exact date of closing is anticipated to be set once existing loan applications have been processed.

Ohio Valley and its

subsidiaries are collectively referred to as the “Company.”

The Company is primarily engaged in commercial and retail banking, offering a blend of commercial and consumer banking services within southeastern Ohio as

well as western West Virginia.

The banking services offered by the Bank include the acceptance of deposits in checking, savings, time and money market accounts;

the making and servicing of personal, commercial, floor plan and student loans;

the making of construction

and real estate loans;

of construction and real estate loans;

and credit card services.

The Bank also offers individual retirement accounts, safe deposit boxes, wire transfers and other standard banking products and services.

Furthermore, the Bank offers Tax Refund Advance Loans (“TALs”)

to Loan Central tax customers.

Furthermore, the Bank offers Tax Refund Advance

Loans (“TALs”) to Loan Central tax customers.

A TAL represents a short-term loan offered by the Bank to tax preparation customers of Loan Central.

IMPACT of COVID-19:

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

The CARES Act provided assistance to small businesses through

the establishment of the Paycheck Protection Program ("PPP").

The PPP provided small businesses with funds to use for payroll and certain other expenses.

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.

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.

IMPACT OF ADOPTING NEW ACCOUNTING GUIDANCE:

Effective January 1, 2023, the Company adopted ASU No.

2016-13 Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, (“ASU 2016-13”) (“ASC 326”) as amended.

The new accounting guidance replaces the “incurred loss” model with an “expected loss” model, which is referred to as the current expected credit loss (“CECL”) model.

The measurement of expected credit losses under the CECL model is

applicable to financial assets measured at amortized cost, including loan receivables and held to maturity debt securities.

It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of

credit, financial guarantees, and other similar instruments).

Upon adoption of ASC 326, the Company increased the allowance for credit losses by $2,162.

In addition, a reserve for unfunded commitments and held to maturity securities was established

totaling $631 and $3, respectively.

The Company recorded a net charge to retained earnings of $2,209 as of January 1, 2023 for the cumulative effect of adopting ASC 326.

The adoption of ASC 326 did not have an effect to net earnings on January 1, 2023.

FINANCIAL RESULTS OVERVIEW:

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 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 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 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

$14,417 from year-end 2021.

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

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.

Net income totaled $3,908 during the

first quarter of 2023, a decrease of $217 from the same period of 2022.

Earnings per share for the first quarter of 2023 finished at $.82 per share, compared to $.87 per share during the first quarter of 2022.

Quarterly earnings decreased largely from

increases in provision for credit loss expense and noninterest expense being partially offset by increases in both net interest and noninterest income.

The impact of lower net earnings during the first quarter of 2023 also had a direct impact to the

Company’s annualized net income to average asset ratio, or return on assets, which decreased to 1.28% for the three months ended March 31, 2023, compared to 1.34% for the three months ended March 31, 2022.

Conversely, the Company’s net income to

average equity ratio, or return on equity, increased to 11.85% for the three months ended March 31, 2023, compared to 11.78% for the three months ended March 31, 2022.

While current year net earnings were down, the Company recorded a $2,209 charge to

retained earnings for the cumulative effect of adopting ASC 326 on January 1, 2023.

This impact of adopting new accounting guidance reduced capital but had no corresponding impact to net earnings, which contributed to the increase in average return on

equity during 2023 over 2022.

During the three months ended March 31, 2023, net interest income increased $1,732, or 17.3%, over the same period in 2022.

Growth in net interest income was

impacted by an increase in the net interest margin, which completely offset the effects of lower average earning assets.

The Federal Reserve’s actions of increasing market interest rates during 2022 and 2023 have had a significant impact in growing the

net interest margin, which finished at 4.21% for the quarter ended March 31, 2023 compared to 3.51% at the end of the same period in 2022.

The net interest margin has responded positively due to the yield on earning assets increasing more than the cost

of interest-bearing liabilities.

Average assets during the first quarter of 2023 decreased $25,531 compared to the first quarter of 2022.

While average assets were down 2.2%, the Company benefited from having higher relative balances maintained in

loans, as opposed to the Federal Reserve, which generally yields less than loans.

During the first quarter of 2023, average loans increased $78,563, while average balances with the Federal Reserve decreased $92,224, compared to the same period in 2022.

The Company’s provision for credit loss during the first quarter of 2023 increased $1,615, largely due to a $1,126 negative provision for credit loss

recorded during the three months ended March 31, 2022 .

This negative provision expense from the first quarter of 2022 was related to lower criticized and classified loans and the partial release of the COVID reserve for the pandemic environment.

During the three months ended March 31, 2023, noninterest income increased $47, or 1.3%, over the same period in 2022.

This increase was largely from $231 in

commissions earned by Race Day during 2023 for mortgage application referrals.

This was partially offset by a decrease of $188 in mortgage banking income from loan sales to the secondary market, which have been negatively impacted by elevated mortgage

During the three months ended March 31, 2023, noninterest expense increased $484, or 4.9%, over the same period in 2022.

The increase was primarily related

to salaries and employee benefit costs impacted by higher annual merit expenses.

The Company also experienced increases in software expense, FDIC insurance premiums, and data processing costs, partially offset by a decrease in professional fees.

The Company’s provision for income taxes decreased $103 during the three months ended March 31, 2023, compared to the same period in 2022.

This was largely

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

At March 31, 2023, total assets were $1,266,465, an increase of $55,678 from year-end 2022.

Higher assets were primarily impacted by increases in cash and

cash equivalents and loans, which were collectively up $65,122, or 7.0%, from year-end 2022.

Growth in cash and cash equivalents came primarily from higher balances held at the Federal Reserve as a result of the growth in deposits exceeding the growth

Growth in total loans came from increases in the consumer loan segment (+10.9%), commercial and industrial loan segment (+4.3%), commercial real estate loan segment (+1.6%), partially offset by a decrease in the residential real estate loan

segment (-2.0%).

At March 31, 2023, total liabilities were $1,128,920, up $53,161 from year-end 2022.

Contributing most to this increase were higher deposit balances, which

increased $53,540 from year-end 2022.

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

At March 31, 2023, total shareholders' equity was $137,545, up $2,517 from December 31, 2022.

This increase came from quarterly net income, a decrease in net

unrealized losses on available for sale securities, partially offset by quarterly cash dividends paid.

The increase in shareholders’ equity was further limited by the adoption of new accounting guidance for measuring credit losses, which required a

$2,209 charge to retained earnings.

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

Comparison of Financial Condition

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.

at March 31, 2023 and December 31, 2022

The following discussion focuses, in more detail, on the consolidated financial condition of the Company at March 31, 2023 compared to December 31, 2022.

This 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 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

At March 31, 2023, cash and cash equivalents were $89,848, an increase of $43,858, or 95.4%, from December 31, 2022.

The increase in cash and cash

equivalents came mostly from higher interest-bearing deposits on hand with correspondent banks.

Over 81% of cash and cash equivalents consisted of the Company’s interest-bearing Federal Reserve Bank clearing account, which increased $42,753, or

138.8%, from year-end 2022.

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.

As liquidity levels continuously vary based on consumer activities, amounts of cash and cash equivalents can vary widely at any given point in time.

Company’s focus during periods of heightened liquidity will be to invest excess funds into longer-term, higher-yielding assets, primarily loans, when opportunities arise.

During the first quarter of 2023, the Company experienced increases in funds from Bank deposits, primarily time deposits, which were maintained in the Federal Reserve account.

A portion of these clearing account funds

were used to reinvest in higher-yielding loans, and to also help cover deposit runoff in noninterest-bearing demand and other interest-bearing deposit balances.

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 three months of 2023, the rate associated with the Company’s Federal Reserve Bank clearing account increased 50

basis points due to continued rising inflationary concerns, resulting in a target federal funds rate range of 4.75% to 5.00%.

The interest-bearing deposit balances in the Federal Reserve Bank account are 100% secured by the U.S.

As liquidity levels continuously vary based on consumer activities, amounts of cash and cash equivalents can vary widely at any given point

The Company’s focus during periods of heightened liquidity will be to invest excess funds into longer-term, higher-yielding assets, primarily loans, when opportunities arise.

Certificates of Deposit

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.

The increase was primarily the result of investment security purchases funded by

excess funds being maintained within the Federal Reserve Bank clearing account.

The Company’s investment securities portfolio is made up mostly of U.S.

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

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

The fair value of an investment security moves inversely to interest rates, so as rates increased, the unrealized gain in the portfolio decreased.

These changes in rates are typical and do not impact earnings of the Company as long as the

securities are held to full maturity.

At March 31, 2023, the Company had $735 in certificates of deposit owned by the Captive, down from $1,127 at year-end 2022.

The deposits on hand at March

31, 2023 consist of three certificates with remaining maturity terms of less than six months.

The balance of total securities decreased $4,546, or 2.4%, compared to year-end 2022.

The decrease came mostly from U.S.

Government agency (“Agency”)

mortgage-backed securities, which were down $2,954, or 2.4%, from year-end 2022.

The Company’s investment securities portfolio is made up mostly of Agency mortgage-backed securities, which represented 62.7% of total investments at March 31, 2023.

During the first quarter of 2023, the Company received proceeds from principal repayments of $4,416.

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 experienced $2,000 in maturities from its Agency security portfolio, which further decreased investments from year-end 2022.

Partially offsetting these decreasing factors were changes in net unrealized losses associated with available for sale securities.

During 2023, long-term

reinvestment rates decreased, which led to a $2,145 increase in the fair value of the Company’s available for sale securities.

The fair value of an investment security moves inversely to interest rates, so as rates decreased, the unrealized loss in

the portfolio was reduced causing the fair value to increase.

These changes in rates are typical and do not impact earnings of the Company as long as the securities are held to full maturity.

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

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.

Gross loan balances increased to

$906,313 at March 31, 2023, representing an increase of $21,264, or 2.4%, as compared to $885,049 at December 31, 2022.

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

residential real estate portfolio from year-end 2022.

The Company’s total consumer loan balances from year-end 2022 increased $16,146, or 10.9%.

This change was impacted by an $11,534, or 17.6%, increase in

other consumer loans.

Growth in other consumer loans came largely from the purchase of a pool of unsecured loans in January 2023 that had a carrying amount of $14,218 at March 31, 2023.

Growth in consumer loans also came from a $3,881, or 7.1%,

increase in automobile loans, and a $731, or 2.6%, increase in home equity lines of credit.

Further increases in loans came from the Company’s commercial loan portfolio, which increased $11,106, or 2.5%, from year-end 2022.

Contributing most to this

increase were higher loan balances within the commercial and industrial portfolio, up $6,516, or 4.3%, from year-end 2022.

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.

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

Commercial loans were also positively impacted by an increase in the commercial real estate portfolio, which increased $4,590, or 1.6%, from year-end 2022.

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

conditions, such as general demand for loans in the Company’s primary markets, interest rates offered by the Company, and the effects of competitive pressure and normal underwriting considerations.

Management will continue to place emphasis on its

commercial lending, which generally yields a higher return on investment as compared to other types of 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 commercial real estate segment comprised the largest portion of the Company’s total loan portfolio at March 31, 2023 at 32.4%.

The increase came from the nonowner-occupied and construction loan segments, which offset the decrease in owner-occupied

loans from year-end 2022.

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

related conditions, such as general demand for loans in the Company’s primary markets, interest rates offered by the Company, and the effects of competitive pressure and normal underwriting considerations.

Management will continue to place emphasis on

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

The Company’s residential real estate loan portfolio decreased $5,988, or 2.0%, from year-end 2022.

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 $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

Company’s quarterly analysis of the allowance for loan losses, management will review various factors that directly impact the general allocation needs of the allowance, which include:

historical loan losses, loan delinquency levels, local economic

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

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 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 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 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%.

Residential real estate loans represent the second

largest segment of the Company’s total loan portfolio at 32.1% 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.

decrease in refinancing volume and an increase in long-term reinvestment rates have led to a slower demand for mortgage loans during 2023.

Allowance for Credit Losses

The Company maintains an allowance for credit losses (“ACL”) that represents management’s best estimate of the appropriate level of losses and risks inherent

in our applicable financial assets under the current expected credit loss (“CECL”) model.

The amount of the ACL should not be interpreted as an indication that charge-offs in future periods will necessarily occur in those amounts, or at all.

determination of the ACL involves a high degree of judgement and subjectivity.

Please refer to Note 1 of the notes to the financial statements for discussion regarding our ACL methodologies for securities and loans.

For AFS debt securities, the Company evaluates the securities at each measurement date to determine whether the decline in the fair value below the amortized

costs basis is due to credit-related factors or noncredit-related factors.

Upon adoption of ASC 326 on January 1, 2023, and as of March 31, 2023, the Company determined that all AFS securities that experienced a decline in fair value below the

amortized cost basis were due to non-credit related factors.

Furthermore, the security types for all AFS debt securities contained explicit government guarantees.

Therefore, no ACL was recorded, and no provision expense was recognized during the three

months ended March 31, 2023.

For HTM debt securities, the Company evaluates the securities collectively by major security type at each measurement date to determine expected credit

losses based on issuer’s bond rating, historical loss, financial condition, and timely principal and interest payments.

Upon adoption of ASC 326 on January 1, 2023, a $3 ACL was recognized based on a .03% cumulative default rate taken from the S&P

and Moody’s bond rating index.

At March 31, 2023, the ACL for HTM debt securities remained unchanged at $3, resulting in no provision expense during the three months ended March 31, 2023.

For loans, the Company’s ACL is management’s estimate of expected lifetime credit losses, measured over the contractual life of a loan, that considers

historical loss experience, current conditions, and forecasts of future economic conditions.

The ACL on loans is established through a provision for credit losses recognized in earnings.

The ACL on loans is reduced by charge-offs on loans and is

increased by recoveries of amounts previously charged off.

Management employs a process and methodology to estimate the ACL on loans that evaluates both quantitative and qualitative factors within two main components.

The first component involves

pooling loans into portfolio segments for loans that share similar risk characteristics.

The second component involves individually analyzed loans that do no share similar risk characteristics with loans that are pooled into portfolio segments.

for loans with similar risk characteristics are collectively evaluated for expected credit losses based on certain quantitative information that include historical loss rates, prepayment rates, and curtailment rates.

Expected credit losses on loans

with similar characteristics are also determined by certain qualitative factors that include national unemployment rates, national gross domestic product forecasts, changes in lending policy, quality of loan review, and delinquency status.

loans that do not share similar risk characteristics are individually evaluated for expected credit losses primarily based on foreclosure status and whether a loan is collateral-dependent.

Expected credit losses on individually evaluated loans are then

determined using the present value of expected future cash flows based upon the loan’s original effective interest rate, at the loan’s observable market price, or if the loan was collateral dependent, at the fair value of the collateral.

As of March 31, 2023, the ACL for loans totaled $7,607, or 0.84%, of total loans.

As of December 31, 2022, the ACL for loans totaled $5,269, or 0.60%, of

The increase in the ACL of $2,338, or 44.4%, was primarily due to the $2,162 impact of adopting ASC 326 on January 1, 2023, affected mostly by the residential real estate and consumer loan portfolio segments.

Upon transition to the CECL

model, the Company’s ACL increased another $176 to finish with $7,607 in reserves, all from loans collectively evaluated.

This increase was mostly impacted by a $22,441 increase in collectively evaluated loan balances during the first quarter of 2023,

primarily from consumer loans.

The Company experienced lower delinquency levels from year-end 2022, which resulted in lower provision expense.

Nonperforming loans to total loans decreased

to 0.39% at March 31, 2023, compared to 0.43% at December 31, 2022, and nonperforming assets to total assets decreased to 0.28% at March 31, 2023, compared to 0.31% at December 31, 2022.

During the first quarter of 2023, the Company individually evaluated several loans with a single borrower relationship for expected credit loss.

value of the loans’ collateral was measured to the loans’ recorded investment and no expected losses were identified as part of that review.

As a result, there were no specific reserves recorded during the three months ended March 31, 2023.

Management believes that the allowance for loan losses at March 31, 2023 was appropriate to absorb expected losses in the loan portfolio.

Changes in the

circumstances of particular borrowers, as well as adverse developments in the economy, are factors that could change, and management will make adjustments to the allowance for credit 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 March 31, 2023 increased $53,540, or 5.2%, from year-end 2022.

This change in deposits came primarily from interest-bearing deposit balances, which were up by $68,359, or

10.2%, from year-end 2022, while noninterest-bearing deposits decreased $14,819, or 4.2%, from year-end 2022.

The increase in interest-bearing deposits came primarily from time deposit balances, which increased $99,678, or 65.6%, from year-end

The increase came from brokered CD issuances, which were up collectively by $58,707, primarily to manage the Company’s tightened liquidity position during the first quarter of 2023.

Further increases came from retail time deposits, which

increased $40,971 from year-end 2022.

As market rates increased during 2022, deposit rates began adjusting upward during the second half of 2022 and into 2023.

This contributed to higher rate offerings on CD products, influencing a consumer shift away

from lower-cost savings and money market products and into more higher-cost time deposit products.

Also impacting deposit balance growth were higher interest-bearing NOW account balances from year-end 2022, which increased $4,055, or

This increase was largely driven by higher municipal NOW product balances, particularly within the Gallia County, Ohio, and Mason County, West Virginia, market areas.

Growth in interest-bearing deposits also came from savings deposits, which increased

$8,642, or 5.9%, from year-end 2021, primarily from higher statement savings account balances.

Interest-bearing deposit growth was further impacted by higher money market balances from year-end 2021, which increased $7,054, or 4.3%.

Partially offsetting the increases in interest-bearing deposits were time deposit balances, which decreased $35,375, or 18.7%, from year-end 2021.

The decrease came

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 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.

While facing increased competition for deposits in its market areas, the Company will continue to emphasize growth and retention in its core deposit relationships during

the remainder of 2022, reflecting the Company’s efforts to reduce its reliance on higher cost funding and improve net interest income.

Partially offsetting the increases in time deposit and NOW accounts were decreases in other interest-bearing balances that include money

market deposits (down $27,626) and savings deposits (down $7,748).

Elevated deposit rates on CD products and deposit rate competition were contributing factors to the deposit decreases.

The decrease in noninterest-bearing demand deposits came primarily from the Company’s business and incentive-based checking account

While facing increased competition for deposits in its market areas, the Company will continue to emphasize growth and retention in its

core deposit relationships during the remainder of 2023, reflecting the Company’s efforts to reduce its reliance on higher cost funding and improve net interest income.

Other Borrowed Funds

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

applied to various FHLB advances during the first quarter of 2022.

While deposits continue to be the primary source of funding for growth in earning assets, management will continue to utilize FHLB advances and promissory notes to help manage interest

rate sensitivity and liquidity.

Other borrowed funds were $17,330 at March 31, 2023, a decrease of $615, or 3.4%, from year-end 2022.

The decrease was related to the

ongoing monthly principal repayments of FHLB advances.

While deposits continue to be the primary source of funding for growth in earning assets, management will continue to utilize FHLB advances and promissory notes to help manage interest rate

sensitivity and liquidity.

Shareholders’ Equity

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.

Total shareholders' equity at March 31, 2023 increased $2,517, or 1.9%, to finish at $137,545, as compared to $135,028 at December 31,

This was primarily from quarterly net income and an increase in the fair value of available for sale securities, partially offset by cash dividends paid and a transition adjustment related to the adoption of ASC 326.

The after-tax change in fair

value totaled $1,695 from year-end 2022, as long-term market rates decreased during the first three months of 2023, causing an increase in the fair value of the Company’s available for sale investment portfolio.

The after-tax impact from the adoption

of ASC totaled $2,209 and was applied against retained earnings effective January 1, 2023.

Comparison of Results of Operations

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.

For the Three Months Ended

March 31, 2023 and 2022

The following discussion focuses, in more detail, on the consolidated results of operations of the Company for the three months ended

March 31, 2023, compared to the same period in 2022.

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

Net Interest Income

The most significant portion of the Company's revenue, net interest income, results from properly managing the spread between interest income on earning assets and

interest expense incurred on interest-bearing liabilities.

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.

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.

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.

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

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 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 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.

Provision for Loan Losses

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

The most significant portion of the Company's revenue, net interest income, results from properly managing the spread between interest income on earning

assets and interest expense incurred on interest-bearing liabilities.

During the three months ended March 31, 2023, net interest income increased $1,732, or 17.3%, compared to the same period in 2022.

The improvement came from higher earning asset

yields completely offsetting higher average costs paid on deposits, combined with a composition shift into higher-yielding loans.

Total interest and fee income recognized on the Company’s earning assets increased $3,137, or 29.4%, during the first quarter of 2023, compared to the same

period in 2022.

The earnings growth was impacted by interest on loans, which increased $2,478, or 25.3%.

This improvement was largely related to average loan yield increases impacted by the aggressive actions taken by the Federal Reserve to increase

rates during 2022 and 2023.

Since the end of March 2022, the Federal Reserve has increased rates by another 450 basis points, which contributed to the repricing of a portion of the Company’s loan portfolio.

As a result, the average interest rate yield

on loans increased 71 basis points to 5.62% during the first quarter of 2023, compared to 4.91% during the first quarter of 2022.

Average loans increased $78,563 during the first quarter of 2023, compared to the first quarter of 2022.

quarter-to-date increase was largely impacted by growth in average commercial and consumer loans.

Total interest income from interest-bearing deposits with banks increased $372 during the first quarter of 2023, compared to the same period in 2022.

increase was 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 2022 to increase short-term rates due to rising

inflationary concerns.

Since the end of March 2022, the target federal funds rate has increased by another 450 basis points.

This had a corresponding effect to the interest rate tied to the Federal Reserve clearing account, which also increased by 450

basis points during that time.

The impact from higher rates was partially offset by lower average Federal Reserve Bank balances, which decreased $92,224 during the first quarter of 2023, compared to the same period in 2022.

The Company utilized Federal

Reserve Bank balances to help fund new loans and manage the net decrease in average deposits during that time.

Total interest on securities increased $258, or 34.8%, during the first quarter of 2023, compared to the same period in 2022.

Contributing most to this

increase was the average yield on securities increasing 41 basis points to reach 1.91% during the first quarter of 2023.

The average yield increase was positively impacted by the reinvestment of maturities at market rates higher than the average

portfolio yield.

The average securities yield was also positively impacted by the Company’s decision to sell $12,500 in lower yielding securities during the fourth quarter of 2022 and use the proceeds to reinvest into higher-yielding securities.

However, with the Company’s focus of reinvesting excess funds into higher-yielding loans and managing excess funds within its higher-yielding Federal Reserve deposit account, average security balances have decreased $9,017 during the first quarter of

2023, compared to the same period in 2022.

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:

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

caption “Critical Accounting Policies - Allowance for Loan Losses” within this Management’s Discussion and Analysis.

Total interest expense incurred on the Company’s interest-bearing liabilities increased $1,405 during the first quarter of 2023, compared to the same period

Increases in interest expense were impacted by a rise in average costs combined with increases in higher-costing average deposit balances.

The elevated market rates in 2022 and 2023 had a more immediate impact to increasing rates on earning

assets, while the average cost of deposits did not increase until the second half of 2022.

Entering 2023, rates on the Company’s retail CD offerings have adjusted to much higher levels than a year ago, leading to more of a consumer demand to reinvest

from lower-cost savings and money market deposit products (average cost at 0.44%) into more time deposit products (average cost at 2.45%).

Furthermore, the Company issued $62,707 in brokered CDs during the first quarter of 2023 at average costs ranging

from 4.5% to 4.6%.

These wholesale deposits were used to manage liquidity constraints during the first quarter of 2023, but also contributed to the growth in interest expense over 2022.

With deposit rates on the rise, the Company experienced a

composition shift from less lower-cost average savings, NOW and money market account balances (down $33,594) into more higher-cost average time deposit balances (up $30,229).

As a result of the rate repricings on time deposits and the deposit shift

into higher-cost deposits, the Company’s total weighted average costs on interest-bearing deposits increased by 75 basis points from 0.29% at March 31, 2022, to 1.04% at March 31, 2023.

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

During 2023, the

Company’s first quarter net interest margin improved to 4.21%, compared to 2022’s first quarter net interest margin of 3.51%.

The quarterly margin increase was impacted by the actions taken by the Federal Reserve to increase rates during 2022 and 2023.

This had a direct impact to the rate repricings on the loan and securities portfolios, and the Federal Reserve Bank account, which had a positive impact on the margin.

Margin enhancement also came from the redeployment of Federal Reserve Bank balances

into higher yielding loans.

Partially offsetting these positive effects to the margin were increases in average deposit costs and the composition shift to higher-cost time deposit balances from a year ago.

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.

Provision for Credit Losses

The Company’s provision for credit losses expense totaled $489 during the three months ended March 31, 2023, an increase of $1,615 when compared to $1,126 in

negative provision expense during the three months ended March 31, 2022.

For 2023, the provision expense came primarily from $289 in net loan charge-offs, primarily in the commercial real estate and consumer loan portfolios.

Further provision expense

on loans came from $176 in expected losses associated with the $22,441 increase in general loan balances from year-end 2022.

For 2022, the negative provision expense was primarily impacted by the release of general loan reserves within the allowance

based on various credit quality improvements.

During the first quarter of 2022, the Company released $645 in COVID-19 general reserves due to positive asset quality trends and lower net charge offs, which resulted in a corresponding decrease of $645 to

provision expense in March 2022.

Further contributing to negative provision expense during the first quarter of 2022 was the release of $574 in other general reserves.

This reduction in other general reserves was affected by various improvements within

the economic risk factor calculation that included:

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

This resulted in a corresponding decrease of $574 to provision expense in March 2022.

Credit loss expense during the first quarter of 2023 also came from unfunded commitments on off-balance sheet liabilities.

Upon adoption of ASC 326, the

Company established $631 in reserves for unfunded commitments within total liabilities on the consolidated balance sheet.

This transition adjustment was included as a charge to retained earnings on January 1, 2023.

The Company re-evaluated its unfunded

commitments to extend credit at March 31, 2023 and determined a reserve of $655 was required, which resulted in a $24 provision expense charge during the first quarter of 2023.

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

detail under the caption “Critical Accounting Policies - Allowance for Loan Losses” within this Management’s Discussion and Analysis (this “MD&A”).

Noninterest Income

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.

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

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

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 income increased $47, or 1.3%, during the three months ended March 31, 2023, compared to the same period in 2022.

Higher noninterest revenue was

largely impacted by increases in other noninterest income, which increased $263 over 2022.

This was primarily from broker fee income of $231 at Race Day recorded during the first quarter of 2023.

Beginning in the fourth quarter of 2022, Race Day

transitioned from originating and selling loans to a broker that identifies and matches home borrowers with potential lenders, while also assisting in the underwriting process.

This transition is a result of the Company’s decision to discontinue

operations of Race Day, as discussed above.

The broker fees represent commissions earned by Race Day for mortgage application referrals at the time the loan was funded by the lender.

The Company does not expect to continue to receive this level of

broker fee commissions during the second quarter of 2023 as it is anticipated that Race Day will continue to wind down operations.

Partially offsetting the increase in other noninterest income was a $188, or 80.0%, decrease in mortgage banking income affected by a lower volume of real

estate loans sold to the secondary market in 2023.

During periods of heavy refinancing due to lower market rates, the Company will take opportunities to sell a portion of its real estate volume to the secondary market to satisfy consumer demand and

help minimize the interest rate risk exposure to rising rates.

However, market rates have continued to shift upward in 2023, causing long-term mortgage rates to increase and slow down the consumer demand for long-term, fixed-rate real estate mortgages.

As a result, the Bank’s mortgage banking income decreased $92 and Race Day’s mortgage banking income decreased $96 during the first quarter of 2023, compared to the first quarter of 2022.

The impact to Race Day was largely due to their transition to

broker activity as previously discussed.

The remaining noninterest income categories decreased $28, or 0.9%, during the first quarter of 2023, compared to the first quarter of 2022.

The net decrease

came primarily from bank owned life insurance and annuity asset income (down $67), and tax preparation fees (down $57), partially offset by increases in service charges on deposit accounts (up $53), and debit/credit card interchange income (up $38).

Noninterest Expense

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 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 $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 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.

Noninterest expense increased $484, or 4.9%, during the first quarter of 2023, compared to the same period in 2022.

Contributing most to the increase in

noninterest expense were salaries and employee benefits, which increased $314 during the first quarter of 2023, compared to the same period in 2022.

increase was largely from annual performance- based merit increases that were recorded in the first quarter of 2023.

Higher noninterest expense also came from software costs, which increased $59 during the first quarter of 2023, compared to the same period in 2022.

increase was largely impacted by various software purchases and enhancements at the Bank to further improve operational efficiencies in 2023.

Further impacting higher overhead costs were FDIC premium costs, which increased $56 during the first quarter of 2023, compared to the same period in 2022.

During the fourth quarter of 2022, the FDIC announced it was going to increase initial base deposit insurance assessment rate schedules uniformly by 2 basis points beginning in the first quarterly assessment period of 2023.

This action by the FDIC is

in response to the Deposit Insurance Fund reserve falling below the 1.35% minimum level in the second quarter of 2020 following outsized growth in insured deposits in the first half of 2020.

The Bank adjusted its premium expense accrual in anticipation

of the 2-basis point adjustment increase to all quarterly assessments during 2023.

Also contributing to higher noninterest expense were data processing expenses, which increased $48 during the first quarter of 2023, compared to the same

period in 2022.

Higher costs in this category were the direct result of special programming costs associated with enhancing mobile and desktop user platforms, as well as the volume increase in debit card transactions, which increased processing costs.

Partially offsetting the increases in noninterest expense were lower professional fees, which decreased $56 during the first quarter of 2023, compared to the

same period in 2022.

Professional fees for the year were impacted by lower accounting expenses in relation to higher-than-normal costs in 2022 that were associated with adhering to new regulatory guidance in 2022.

The Company also experienced a lower volume of collection costs during the first quarter of 2023.

T he remaining noninterest expense categories increased $63, or 2.6%,

during the first quarter of 2023, compared to the same period in 2022.

The net increase came primarily from other noninterest expense (up $37) impacted by higher loan closing costs, net occupancy/furniture/equipment expense (up $16), and marketing

costs (up $12).

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

The effects from

provision expense are excluded from the efficiency ratio.

effects from provision expense are excluded from the efficiency ratio.

Management continues to place emphasis on managing its balance sheet mix and interest rate sensitivity as well as developing more innovative ways to generate noninterest revenue.

Comparing the

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.

Comparing the three months ended March 31, 2023 to the same period in 2022, the Company has benefited from an increase in earning asset yields due to market rate increases by the Federal Reserve, and a higher composition of higher-yielding loans.

positive factors have completely offset the negative effects of higher average costs on interest-bearing liabilities and a deposit shift to more higher-cost time deposit balances.

As a result, net interest income during the three months ended March 31,

2023 has outperformed the net interest income results during the same period in 2022.

Increases in overhead costs associated with annual merit increases have contributed to higher noninterest expense, which was up 4.9% during the three months ended

March 31, 2023, compared to the same periods in 2022.

However, the increases in overhead expense, net of noninterest revenue, during the first quarter of 2023 are only partially offsetting the benefits of higher net interest earnings.

As a result, the

Company’s quarterly efficiency number decreased (improved) to 65.7% during the three months ended March 31, 2023, from 70.8% during the same period in 2022.

Provision for income taxes

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.

The Company’s income tax provision decreased $103 during the three months ended March 31, 2023, compared to the same period in 2022.

The change in tax

expense corresponded directly to the change in associated taxable income during 2023 and 2022.

Capital Resources

Federal regulators have classified and defined capital into the following components:

(i) Tier 1 capital, which includes tangible shareholders’ equity for

common stock, qualifying preferred stock and certain qualifying hybrid instruments, and (ii) Tier 2 capital, which includes a portion of the allowance for loan losses, certain qualifying long-term debt, preferred stock and hybrid instruments which do

not qualify as Tier 1 capital.

In September 2019, consistent with Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies issued

a final rule providing simplified capital requirements for certain community banking organizations (banks and holding companies).

Under the rule, a qualifying community banking organization (“QCBO”) is eligible to opt into the Community Bank Leverage

Ratio (“CBLR”) framework in lieu of the Basel III capital requirements if it has less than $10 billion in total consolidated assets, limited amounts of certain trading assets and liabilities, limited amounts of off-balance sheet exposure and a leverage

ratio greater than 9.0%.

(i) Tier 1 capital, which includes tangible

shareholders’ equity for common stock, qualifying preferred stock and certain qualifying hybrid instruments, and (ii) Tier 2 capital, which includes a portion of the allowance for loan losses, certain qualifying long-term debt, preferred stock and

hybrid instruments which do not qualify as Tier 1 capital.

In September 2019, consistent with Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking

agencies issued a final rule providing simplified capital requirements for certain community banking organizations (banks and holding companies).

Under the rule, a qualifying community banking organization (“QCBO”) is eligible to opt into the Community

Bank Leverage Ratio (“CBLR”) framework in lieu of the Basel III capital requirements if it has less than $10 billion in total consolidated assets, limited amounts of certain trading assets and liabilities, limited amounts of off-balance sheet exposure

and a leverage ratio greater than 9.0%.

The new rule took effect January 1, 2020, and QCBOs were allowed to opt into the new CBLR framework in their Call Report beginning the first quarter of 2020.

A QCBO opting into the CBLR framework must maintain a CBLR of 9.0%, subject to a two quarter grace period to come back into compliance, provided that the

QCBO maintains a leverage ratio of more than 8.0% during the grace period.

A QCBO opting into the CBLR framework must maintain a CBLR of 9.0%, subject to a two-quarter grace period to come back into compliance,

provided that the QCBO maintains a leverage ratio of more than 8.0% during the grace period.

A QCBO failing to satisfy these requirements must comply with the existing Basel III capital requirements as implemented by the banking regulators in July

The numerator of the CBLR is Tier 1 capital, as calculated under present rules.

The denominator of the CBLR is the QCBO’s average assets, calculated in

accordance with the QCBO’s Call Report instructions and less assets deducted from Tier 1 capital.

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

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 $3,717 during the first nine months of 2022.

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

CBLR is Tier 1 capital, as calculated under present rules.

The denominator of the CBLR is the QCBO’s average assets, calculated in accordance with the QCBO’s Call Report instructions and less assets deducted from Tier 1 capital.

The current rules and

Call Report instructions were impacted by the Company’s adoption of ASC 326 and its election to apply the 3-year CECL transition provision on January 1, 2023.

By making this election, the Bank, in accordance with Section 301 of the regulatory capital

rules, will increase it retained earnings (Tier 1 Capital) and average assets by 75% of its CECL transition amount during the first year of the transition period, 50% of its CECL transition amount during the second year, and 25% of its CECL

transitional amount during the third year of the transition period.

The Bank’s transition amount from the adoption of CECL totaled $2,276, which resulted in the add-back of $1,707 to both Tier 1 capital and average assets as part of the CBLR

calculation for March 31, 2023.

As of March 31, 2023, the Bank’s CBLR was 11.22%.

Cash dividends paid by the Company were $1,002 during the first three months of 2023.

The year-to-date dividends paid totaled $0.21 per share.

Liquidity relates to the Company's ability to meet the cash demands and credit needs of its customers and is provided by the ability to readily convert assets to cash and

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 $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.

Liquidity relates to the Company's ability to meet the cash demands and credit needs of its customers and is provided by the ability to readily convert

assets to cash and raise funds in the marketplace.

Total cash and cash equivalents, held to maturity securities maturing within one year, and available for sale securities, which totaled $270,186, represented 21.3% of total assets at March 31, 2023

compared to $230,853 and 19.1% of total assets at December 31, 2022.

This higher composition of liquidity was largely impacted by growth in time deposits, which increased 65.6% from year-end 2022.

Of the Company's $251,597 in time deposit balances at

March 31, 2023, only 21.9%, or $55,043, were deemed uninsured as per the $250 FDIC threshold.

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

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.

At March 31, 2023, the Bank could borrow an additional

$101,748 from the FHLB.

Furthermore, the Bank has established a borrowing line with the Federal Reserve, which had availability of $58,204 at March 31, 2023.

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

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

our liquidity position dictates, the preceding funding sources, or other sources such as brokered CD’s, may be utilized to supplement our liquidity position.

For further cash flow information, see the condensed consolidated statement of cash flows

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.

Off-Balance Sheet Arrangements

As discussed in Note 5 – Financial Instruments with Off-Balance Sheet Risk, the Company engages in certain off-balance sheet credit-related activities, including

commitments to extend credit and standby letters of credit, which could require the Company to make cash payments in the event that specified future events occur.

Commitments to extend credit are agreements to lend to a customer as long as there is no

violation of any condition established in the contract.

As discussed in Note 5 – Financial Instruments with Off-Balance Sheet Risk, the Company engages in certain off-balance sheet credit-related activities,

including commitments to extend credit and standby letters of credit, which could require the Company to make cash payments in the event that specified future events occur.

Commitments to extend credit are agreements to lend to a customer as long as

there is no violation of any condition established in the contract.

Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.

Standby letters of credit are conditional commitments to guarantee the performance

of a customer to a third party.

Standby letters of credit are conditional commitments to guarantee the

performance of a customer to a third party.

While these commitments are necessary to meet the financing needs of the Company’s customers, many of these commitments are expected to expire without being drawn upon.

Therefore, the total amount of commitments does not

necessarily represent future cash requirements.

Therefore, the total amount of

commitments does not necessarily represent future cash requirements.

Critical Accounting Policies

The most significant accounting policies followed by the Company are presented in Note A to the financial statements in the Company’s 2021 Annual Report to Shareholders.

These policies, along with the disclosures presented in the other financial statement notes, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined.

Management views

critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and

assumptions could have a significant impact on the financial statements.

Management currently views the adequacy of the allowance for loan losses to be a critical accounting policy.

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.

Impaired loans generally consist of loans with balances of $200 or more on

nonaccrual status or nonperforming in nature.

Loans for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered TDRs and 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

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 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:

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.

During the second quarter

of 2022, the Company established a new economic risk factor for certain risks that may impact the loan portfolio, such as elevated inflation, increasing interest rates, slowing housing starts, declining GDP, and negative employment trends.

The following portfolio segments have been identified:

Commercial Real Estate, Commercial and Industrial, Residential Real Estate, and Consumer.

Commercial and industrial loans consist of borrowings for commercial purposes by individuals, corporations, partnerships, sole proprietorships, and other business

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.

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.

Commercial real estate consists of nonfarm, nonresidential loans secured by owner-occupied and nonowner-occupied commercial real estate as well as commercial construction

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

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 one- to four-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.

there be delays in construction or a downturn in the market for those properties, there may be significant erosion in value which may be absorbed by the Company.

Residential real estate loans consist of loans to individuals for the purchase of one- to four-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 6 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.

During the last several years, one of the most significant portions of the Company’s net loan charge-offs have been from consumer loans.

Nevertheless, 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 and inherent risk associated with such

The most significant accounting policies followed by the Company are presented in Note A to the financial statements in the Company’s 2022 Annual Report to

Shareholders, as updated in Note 1 of the Notes to Unaudited Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

These policies, along with the disclosures presented in the other financial statement notes, provide information on

how significant assets and liabilities are valued in the financial statements and how those values are determined.

Management views critical accounting policies to be those which are highly dependent on subjective or complex judgments, estimates and

assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements.

Management currently views the adequacy

of the allowance for credit losses to be a critical accounting policy.

Allowance for credit losses

The Company believes the determination of the allowance for credit losses involves a higher degree of judgment and complexity than its other significant

accounting policies.

The allowance for credit losses is calculated with the objective of maintaining a reserve level believed by management to be sufficient to absorb estimated credit losses over the life of an asset or off-balance sheet credit

Management’s determination of the adequacy of the allowance for credit losses is based on periodic evaluations of past events, including historical credit loss experience on financial assets with similar risk characteristics, current

conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets.

However, this evaluation has subjective components requiring material estimates,

including expected default probabilities, the expected loss given default, the amounts and timing of expected future cash flows on impaired loans, and estimated losses based on historical loss experience and forecasted economic conditions.

factors may be susceptible to significant change.

To the extent that actual results differ from management estimates, additional provisions for credit losses may be required that would adversely impact earnings in future periods.

Refer to “Allowance

for Credit Losses” and “Provision for Credit Losses” sections within this MD&A for additional discussion.

Concentration of Credit Risk

The Company maintains a diversified credit portfolio, with residential real estate loans currently comprising the most significant portion.

Credit risk is primarily

subject to loans made to businesses and individuals in southeastern Ohio and western West Virginia.

Credit risk is

primarily subject to loans made to businesses and individuals in southeastern Ohio and western West Virginia.

Management believes this risk to be general in nature, as there are no material concentrations of loans to any industry or consumer group.

To the extent

possible, the Company diversifies its loan portfolio to limit credit risk by avoiding industry concentrations.

the extent possible, the Company diversifies its loan portfolio to limit credit risk by avoiding industry concentrations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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What changed 10-Q

Item 2. Management’s Discussion and Analysis