OHIO VALLEY BANC CORP 10-Q

ITEM 1. FINANCIAL STATEMENTS OHIO VALLEY BANC CORP. CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollars in thousands, except share and per share data) June 30, 2023 December 31, 2022 ASSETS Cash and noninterest-bearing deposits with banks $ 14,919 $ 14,330 Interest-bearing deposits with banks 41,876 31,660 Total cash and cash equivalents 56,795 45,990 Certificates of deposit in financial institutions 245 1,862 Securities available for sale 174,508 184,074 Securities held to maturity, net of allowance for credit losses of $ 3 in 2023 and $ 0 in 2022; (estimated fair value: 2023 - $ 8,218 ; 2022 - $ 8,460 ) 8,964 9,226 Restricted investments in bank stocks 4,204 5,953 Total loans 949,952 885,049 Less: Allowance for credit losses ( 7,571 ) ( 5,269 ) Net loans 942,381 879,780 Premises and equipment, net 21,091 20,436 Premises and equipment held for sale, net 583 593 Accrued interest receivable 3,164 3,112 Goodwill 7,319 7,319 Other intangible assets, net 16 29 Bank owned life insurance and annuity assets 40,045 39,627 Operating lease right-of-use asset, net 1,297 1,294 Deferred tax assets 6,412 6,266 Other assets 7,206 5,226 Total assets $ 1,274,230 $ 1,210,787 LIABILITIES Noninterest-bearing deposits $ 338,974 $ 354,413 Interest-bearing deposits 737,598 673,242 Total deposits 1,076,572 1,027,655 Other borrowed funds 26,904 17,945 Subordinated debentures 8,500 8,500 Operating lease liability 1,297 1,294 Allowance for credit losses on off-balance sheet commitments 565 — Other liabilities 22,320 20,365 Total liabilities 1,136,158 1,075,759 COMMITMENTS AND CONTINGENT LIABILITIES (See Note 5) — — SHAREHOLDERS’ EQUITY Common stock ($ 1.00 stated value per share, 10,000,000 shares authorized; 2023 - 5,470,453 shares issued; 2022 - 5,465,707 shares issued) 5,470 5,465 Additional paid-in capital 51,842 51,722 Retained earnings 111,499 109,320 Accumulated other comprehensive income (loss) ( 14,073 ) ( 14,813 ) Treasury stock, at cost ( 693,933 shares) ( 16,666 ) ( 16,666 ) Total shareholders’ equity 138,072 135,028 Total liabilities and shareholders’ equity $ 1,274,230 $ 1,210,787 See accompanying notes to consolidated financial statements OHIO VALLEY BANC CORP. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (dollars in thousands, except per share data) Three months ended June 30, Six months ended June 30, 2023 2022 2023 2022 Interest and dividend income: Loans, including fees $ 13,293 $ 10,020 $ 25,569 $ 19,818 Securities Taxable 934 851 1,892 1,546 Tax exempt 41 45 83 92 Dividends 75 69 165 127 Interest-bearing deposits with banks 671 232 1,097 286 Other interest 3 4 5 9 15,017 11,221 28,811 21,878 Interest expense: Deposits 3,091 507 4,923 1,026 Other borrowed funds 169 103 271 209 Subordinated debentures 143 58 281 100 3,403 668 5,475 1,335 Net interest income 11,614 10,553 23,336 20,543 Provision for (recovery of) credit losses 24 813 513 ( 313 ) Net interest income after provision for (recovery of) credit losses 11,590 9,740 22,823 20,856 Noninterest income: Service charges on deposit accounts 653 595 1,264 1,153 Trust fees 82 86 168 167 Income from bank owned life insurance and annuity assets 211 195 418 469 Mortgage banking income 44 220 91 455 Electronic refund check / deposit fees 135 135 675 675 Debit / credit card interchange income 1,215 1,177 2,388 2,312 Tax preparation fees 33 50 664 738 Other 340 178 812 387 2,713 2,636 6,480 6,356 Noninterest expense: Salaries and employee benefits 5,841 5,683 11,725 11,253 Occupancy 485 424 947 902 Furniture and equipment 330 279 628 545 Professional fees 433 498 866 987 Marketing expense 241 229 482 458 FDIC insurance 142 88 280 170 Data processing 726 688 1,446 1,360 Software 588 556 1,150 1,059 Foreclosed assets 7 36 9 37 Amortization of intangibles 6 10 13 20 Other 1,616 1,532 3,141 3,020 10,415 10,023 20,687 19,811 Income before income taxes 3,888 2,353 8,616 7,401 Provision for income taxes 639 354 1,459 1,277 NET INCOME $ 3,249 $ 1,999 $ 7,157 $ 6,124 Earnings per share $ 0.68 $ 0.42 $ 1.50 $ 1.29 See accompanying notes to consolidated financial statements OHIO VALLEY BANC CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (dollars in thousands) Three months ended June 30, Six months ended June 30, 2023 2022 2023 2022 Net Income $ 3,249 $ 1,999 $ 7,157 $ 6,124 Other comprehensive income (loss): Change in unrealized gain (loss) on available for sale securities ( 1,209 ) ( 5,472 ) 936 ( 16,164 ) Related tax (expense) benefit 254 1,150 ( 196 ) 3,395 Total other comprehensive income (loss), net of tax ( 955 ) ( 4,322 ) 740 ( 12,769 ) Total comprehensive income (loss) $ 2,294 $ ( 2,323 ) $ 7,897 $ ( 6,645 ) See accompanying notes to consolidated financial statements OHIO VALLEY BANC CORP. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) (dollars in thousands, except share and per share data) Quarter-to-date Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Shareholders’ Equity Balance at April 1, 2023 $ 5,470 $ 51,842 $ 110,017 $ ( 13,118 ) $ ( 16,666 ) $ 137,545 Net income — — 3,249 — — 3,249 Other comprehensive loss, net — — — ( 955 ) — ( 955 ) Cash dividends, $ 0.37 per share — — ( 1,767 ) — — ( 1,767 ) Balance at June 30 , 2023 $ 5,470 $ 51,842 $ 111,499 $ ( 14,073 ) $ ( 16,666 ) $ 138,072 Balance at April 1, 2022 $ 5,465 $ 51,722 $ 103,829 $ ( 7,739 ) $ ( 16,666 ) $ 136,611 Net income — — 1,999 — — 1,999 Other comprehensive loss, net — — — ( 4,322 ) — ( 4,322 ) Cash dividends, $ 0.36 per share — — ( 1,718 ) — — ( 1,718 ) Balance at June 30 , 2022 $ 5,465 $ 51,722 $ 104,110 $ ( 12,061 ) $ ( 16,666 ) $ 132,570 Year-to-date Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Shareholders’ Equity Balance at January 1, 2023 $ 5,465 $ 51,722 $ 109,320 $ ( 14,813 ) $ ( 16,666 ) $ 135,028 Cumulative change in adopting ASU 2016-13 — — ( 2,209 ) — — ( 2,209 ) Balance at January 1, 2023 (as adjusted for change in adopting ASU 2016-13) 5,465 51,722 107,111 ( 14,813 ) ( 16,666 ) 132,819 Net income — — 7,157 — — 7,157 Other comprehensive loss, net — — — 740 — 740 Cash dividends, $ 0.58 per share — — ( 2,769 ) — — ( 2,769 ) Common Stock issued to ESOP, 4,746 shares 5 120 — — — 125 Balance at June 30 , 2023 $ 5,470 $ 51,842 $ 111,499 $ ( 14,073 ) $ ( 16,666 ) $ 138,072 Balance at January 1, 2022 $ 5,447 $ 51,165 $ 100,702 $ 708 $ ( 16,666 ) $ 141,356 Net income — — 6,124 — — 6,124 Other comprehensive loss, net — — — ( 12,769 ) — ( 12,769 ) Cash dividends, $ 0.57 per share — — ( 2,716 ) — — ( 2,716 ) Common stock issued to ESOP, 18,522 shares 18 557 — — — 575 Balance at June 30 , 2022 $ 5,465 $ 51,722 $ 104,110 $ ( 12,061 ) $ ( 16,666 ) $ 132,570 See accompanying notes to consolidated financial statements OHIO VALLEY BANC CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (dollars in thousands) Six months ended June 30, 2023 2022 Net cash provided by operating activities: $ 8,176 $ 5,117 Investing activities: Proceeds from maturities and paydowns of securities available for sale 11,328 16,760 Purchases of securities available for sale — ( 49,271 ) Proceeds from calls and maturities of securities held to maturity 249 547 Purchase of securities held to maturity ( 586 ) ( 384 ) Proceeds from maturities of certificates of deposit in financial institutions 1,855 445 Purchase of certificates of deposits in financial institutions ( 245 ) — Purchase of restricted investments in bank stocks ( 111 ) — Redemptions of restricted investments in bank stocks 1,860 — Net change in loans ( 65,406 ) ( 40,006 ) Purchases of premises and equipment ( 1,422 ) ( 948 ) Proceeds from building grant — 200 Net cash (used in) investing activities ( 52,478 ) ( 72,657 ) Financing activities: Change in deposits 48,917 13,446 Cash dividends ( 2,769 ) ( 2,716 ) Proceeds from Federal Home Loan Bank borrowings 10,000 — Repayment of Federal Home Loan Bank borrowings ( 1,060 ) ( 1,130 ) Change in other short-term borrowings 19 — Net cash provided by financing activities 55,107 9,600 Change in cash and cash equivalents 10,805 ( 57,940 ) Cash and cash equivalents at beginning of period 45,990 152,034 Cash and cash equivalents at end of period $ 56,795 $ 94,094 Supplemental disclosure: Cash paid for interest $ 2,859 $ 1,443 Cash paid for income taxes 1,900 1,100 Operating lease liability arising from obtaining right-of-use asset 187 — See accompanying notes to consolidated financial statements NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION: The accompanying consolidated financial statements include the accounts of Ohio Valley Banc Corp. (“Ohio Valley”) and its wholly-owned subsidiaries, The Ohio Valley Bank Company (the “Bank”), Loan Central, Inc., a consumer finance company, Ohio Valley Financial Services Agency, LLC, an insurance agency, and OVBC Captive, Inc., a limited purpose property and casualty insurance company. The Bank has two wholly-owned subsidiaries, Race Day Mortgage, Inc., an Ohio corporation that provided online consumer mortgages, and Ohio Valley REO, LLC, an Ohio limited liability company (“Ohio Valley REO”), to which the Bank transfers certain real estate acquired by the Bank through foreclosure for sale by Ohio Valley REO. 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. All pending loan applications have been processed and a closing date will be determined upon termination of various contractual service agreements. Ohio Valley and its subsidiaries are collectively referred to as the “Company.” All material intercompany accounts and transactions have been eliminated in consolidation. These interim financial statements are prepared by the Company without audit and reflect all adjustments of a normal recurring nature which, in the opinion of management, are necessary to present fairly the consolidated financial position of the Company at June 30, 2023, and its results of operations and cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2023, are not necessarily indicative of the operating results to be anticipated for the full fiscal year ending December 31, 2023. The accompanying consolidated financial statements do not purport to contain all the necessary financial disclosures required by U.S. generally accepted accounting principles (“US GAAP”) that might otherwise be necessary in the circumstances. The Annual Report of the Company for the year ended December 31, 2022, contains consolidated financial statements and related notes which should be read in conjunction with the accompanying consolidated financial statements. The consolidated financial statements for 2022 have been reclassified to conform to the presentation for 2023. These reclassifications had no effect on net income or shareholders’ equity. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: The accounting and reporting policies followed by the Company conform to US GAAP established by the Financial Accounting Standards Board (“FASB”). The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. INDUSTRY SEGMENT INFORMATION: Internal financial information is primarily reported and aggregated in two lines of business: banking and consumer finance. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS: Effective January 1, 2023, the Company adopted ASU No. 2022-02 Financial Instruments - Credit Losses (Topic 326): TDR’s and Vintage Disclosures . This new accounting guidance eliminated the previous accounting guidance for troubled debt restructurings (“TDRs”) and resulted in additional disclosure requirements related to gross charge offs by year of origination and the removal of TDR disclosures, replaced by additional disclosures on the types of modifications of loans to borrowers experiencing financial difficulties. 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 HTM 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). In addition, ASC 326 made changes to the accounting for available for sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities management does not intend to sell or believes that it is more likely than not they will be required to sell. The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable US GAAP. The Company recorded a net decrease to retained earnings of $ 2,209 as of January 1, 2023 for the cumulative effect of adopting ASC 326. NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The following table illustrates the transition adjustment of adopting ASC 326: January 1, 2023 As Reported Under ASC 326 Pre-ASC 326 Adoption Impact of ASC 326 Adoption Assets: ACL - HTM debt securities Obligations of states and political subdivisions $ 3 $ — $ 3 ACL - Loans Residential real estate 2,026 681 1,345 Commercial real estate 2,200 2,038 162 Commercial and industrial 1,177 1,293 ( 116 ) Consumer 2,028 1,257 771 Total ACL - Loans $ 7,431 $ 5,269 $ 2,162 Deferred tax assets $ 6,853 $ 6,266 $ 587 Liabilities: ACL - Off-balance sheet commitments $ 631 $ — $ 631 DEBT SECURITIES: The Company classifies securities into held to maturity (“HTM”) and available for sale (“AFS”) categories. HTM securities are those which the Company has the positive intent and ability to hold to maturity and are reported at amortized cost. Securities classified as AFS include securities that could be sold for liquidity, investment management or similar reasons even if there is not a present intention of such a sale. AFS securities are reported at fair value, with unrealized gains or losses included in other comprehensive income, net of tax. Premium amortization is deducted from, and discount accretion is added to, interest income on securities using the level yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Gains and losses are recognized upon the sale of specific identified securities on the completed trade date. ALLOWANCE FOR CREDIT LOSSES (“ACL”) - AFS SECURITIES: For AFS debt securities in an unrealized position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities AFS that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair values has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income. Changes in the ACL are recorded as credit loss expense (or reversal). Losses are charged against the allowance when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on AFS debt securities totaled $ 429 at June 30, 2023, and is excluded from the estimate of credit losses. Management classifies the AFS portfolio into the following major security types: U.S. Government securities, U.S. Government sponsored entity securities, and Agency mortgage-backed residential securities. These security types have an explicit government guarantee, and therefore, no ACL is recorded for these securities. As a result, there was no ACL related to AFS debt securities at June 30, 2023. NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) ACL - HTM SECURITIES: Management measures expected credit losses on HTM debt securities on a collective basis by major security type with each type sharing similar risk characteristics and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The ACL on securities HTM is a contra asset valuation account that is deducted from the carrying amount of HTM securities to present the net amount expected to be collected. HTM securities are charged off against the ACL when deemed uncollectible. Adjustments to the ACL are reported in the Company’s consolidated statements of income in the provision for credit losses. Accrued interest receivable on HTM securities is excluded from the estimate of credit losses. Management classifies the HTM portfolio into two major security types: Obligations of states and political subdivisions and Agency mortgage-backed residential securities. Agency mortgage-backed residential securities consist of only two securities with balances that are not significant. With regard to obligations of states and political subdivisions, management considers (1) issuer bond ratings, (2) historical loss rates for given bond ratings, (3) the financial condition of the issuer, and (4) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities. At June 30, 2023, there was $ 3 in the ACL related to HTM debt securities, with no corresponding provision expense during the three and six months ended June 30, 2023. LOANS: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs, and an ACL. Interest income is reported on an accrual basis using the interest method and includes amortization of net deferred loan fees and costs over the loan term using the level yield method without anticipating prepayments. The amount of the Company’s recorded investment is not materially different than the amount of unpaid principal balance for loans. Interest income is discontinued and the loan moved to non-accrual status when full loan repayment is in doubt, typically when the loan payments are past due 90 days or over unless the loan is well-secured or in process of collection. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis method until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. The Bank also originates long-term, fixed-rate mortgage loans, with the full intention of being sold to the secondary market. These loans are considered held for sale during the period of time after the principal has been advanced to the borrower by the Bank, but before the Bank has been reimbursed by the Federal Home Loan Mortgage Corporation, typically within a few business days. Loans sold to the secondary market are carried at the lower of aggregate cost or fair value. As of June 30, 2023 and December 31, 2022, there were no loans held for sale by the Bank. ACL – LOANS: The ACL for loans is a contra asset valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the ACL when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. The ACL is adjusted through the provision for credit losses and reduced by net charge offs of loans. The ACL is an estimate of expected credit losses, measured over the contractual life of a loan, that considers historical loss experience, current conditions and forecasts of future economic conditions. Determination of an appropriate ACL is inherently subjective and may have significant changes from period to period. The methodology for determining the ACL has two main components: evaluation of expected credit losses for certain groups of loans that share similar risk characteristics and evaluation of loans that do not share risk characteristics with other loans. NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The ACL is measured on a collective (pool) basis when similar risk characteristics exist. The Company has identified the following portfolio segments and measures the ACL using the following methods: Portfolio Segment Measurement Method Loss Driver Residential real estate Cumulative Undiscounted Expected Loss National Unemployment, National GDP Commercial real estate: Owner-occupied Cumulative Undiscounted Expected Loss National Unemployment, National GDP Nonowner-occupied Cumulative Undiscounted Expected Loss National Unemployment, National GDP Construction Cumulative Undiscounted Expected Loss National Unemployment, National GDP Commercial and industrial Cumulative Undiscounted Expected Loss National Unemployment, National GDP Consumer: Automobile Cumulative Undiscounted Expected Loss National Unemployment Home equity Cumulative Undiscounted Expected Loss National Unemployment Other Cumulative Undiscounted Expected Loss, Remaining Life Method National Unemployment Historical credit loss experience is the basis for the estimation of expected credit losses. We apply historical loss rates to pools of loans with similar risk characteristics. In defining historical loss rates and the prepayment rates and curtailment rates used to determine the expected life of loans, the use of regional and national peer data was used. After consideration of the historic loss calculation, management applies qualitative adjustments to reflect the current conditions and reasonable and supportable forecasts not already reflected in the historical loss information at the balance sheet date. Our reasonable and supportable forecast adjustment is based on the national unemployment rate and the national gross domestic product forecast for the first year. For periods beyond our reasonable and supportable forecast, we revert to historical loss rates utilizing a straight-line method over a two-year reversion period. The qualitative adjustments for current conditions are based upon changes in lending policies and practices, experience and ability of lending staff, quality of the Company’s loan review system, value of underlying collateral, the volume and severity of past due loans, the value of underlying collateral for collateral dependent loans, the existence of and changes in concentrations and other external factors. Each factor is assigned a value to reflect improving, stable, or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower, or the extension of renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company. The Company has elected to exclude accrued interest receivable from the measurement of its ACL. When a loan is placed on non-accrual status, any outstanding accrued interest is reversed against interest income. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not also included in the collective evaluation. We evaluate all loans that meet the following criteria: 1) when it is determined that foreclosure is probable; 2) substandard, doubtful and nonperforming loans when repayment is expected to be provided substantially through the operation or sale of the collateral; 3) when it is determined by management that a loan does not share similar risk characteristics with other loans. Specific reserves are established based on the following three acceptable methods for measuring the ACL: 1) the present value of expected future cash flows discounted at the loan’s original effective interest rate; 2) the loan’s observable market price; or 3) the fair value of the collateral when the loan is collateral dependent. Our individual loan evaluations consist primarily of the fair value of collateral method because most of our loans are collateral dependent. Collateral values are discounted to consider disposition costs when appropriate. A specific reserve is established or a charge-off is taken if the fair value of the loan is less than the loan balance. At June 30, 2023, there was $ 7,571 in the ACL related to loans, with corresponding provision expense of $ 114 and $ 579 during the three and six months ended June 30, 2023, respectively. The Company’s loan portfolio segments have been identified as follows: Commercial and Industrial, Commercial Real Estate, Residential Real Estate, and Consumer. NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Commercial and industrial: Portfolio segment consists of borrowings for commercial purposes to individuals, corporations, partnerships, sole proprietorships, and other business enterprises. Commercial and industrial loans are generally secured by business assets such as equipment, accounts receivable, inventory, or any other asset excluding real estate and generally made to finance capital expenditures or operations. The Company’s risk exposure is related to deterioration in the value of collateral securing the loan should foreclosure become necessary. Generally, business assets used or produced in operations do not maintain their value upon foreclosure, which may require the Company to write down the value significantly to sell. Commercial real estate: Portfolio segment consists of nonfarm, nonresidential loans secured by owner-occupied and nonowner-occupied commercial real estate as well as commercial construction loans. An owner-occupied loan relates to a borrower purchased building or space for which the repayment of principal is dependent upon cash flows from the ongoing business operations conducted by the party, or an affiliate of the party, who owns the property. Owner-occupied loans that are dependent on cash flows from operations can be adversely affected by current market conditions for their product or service. A nonowner-occupied loan is a property loan for which the repayment of principal is dependent upon rental income associated with the property or the subsequent sale of the property. Nonowner-occupied loans that are dependent upon rental income are primarily impacted by local economic conditions which dictate occupancy rates and the amount of rent charged. Commercial construction loans consist of borrowings to purchase and develop raw land into 1-4 family residential properties. Construction loans are extended to individuals as well as corporations for the construction of an individual or multiple properties and are secured by raw land and the subsequent improvements. Repayment of the loans to real estate developers is dependent upon the sale of properties to third parties in a timely fashion upon completion. Should there be delays in construction or a downturn in the market for those properties, there may be significant erosion in value that may be absorbed by the Company. Residential real estate: Portfolio segment consists of loans to individuals for the purchase of 1-4 family primary residences with repayment primarily through wage or other income sources of the individual borrower. The Company’s loss exposure to these loans is dependent on local market conditions for residential properties as loan amounts are determined, in part, by the fair value of the property at origination. Consumer: Portfolio segment consists of loans to individuals secured by automobiles, open-end home equity loans and other loans to individuals for household, family, and other personal expenditures, both secured and unsecured. These loans typically have maturities of six years or less with repayment dependent on individual wages and income. The risk of loss on consumer loans is elevated as the collateral securing these loans, if any, rapidly depreciate in value or may be worthless and/or difficult to locate if repossession is necessary. The Company has allocated the highest percentage of its allowance for credit losses as a percentage of loans to the other identified loan portfolio segments due to the larger dollar balances associated with such portfolios.. ACL – OFF-BALANCE SHEET CREDIT EXPOSURES: The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The ACL on off-balance sheet credit exposures is adjusted through credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. At June 30, 2023, there was $ 565 in the ACL related to off-balance sheet credit exposures, with a corresponding recovery of provision expense totaling $ 90 and $ 66 during the three and six months ended June 30, 2023, respectively. EARNINGS PER SHARE: Earnings per share are computed based on net income divided by the weighted average number of common shares outstanding during the quarter. The weighted average common shares outstanding were 4,776,520 and 4,771,774 for the three months ended June 30, 2023 and 2022, respectively. The weighted average common shares outstanding were 4,774,999 and 4,766,453 for the six months ended June 30, 2023 and 2022, respectively. Ohio Valley had no dilutive effect and no potential common shares issuable under stock options or other agreements for any period presented. NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values: Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. The following is a description of the Company’s valuation methodologies used to measure and disclose the fair values of its financial assets and liabilities on a recurring or nonrecurring basis: Securities: The fair values for securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations. Individually Evaluated Collateral Dependent Loans: The fair value of individually evaluated collateral dependent loans is generally based on the fair value of collateral, less costs to sell. When carried at fair value, individually evaluated collateral dependent loans generally receive specific allocations of the ACL. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. In some instances, fair value adjustments can be made based on a quoted price from an observable input, such as a purchase agreement. Such adjustments would be classified as a Level 2 classification. I ndividually evaluated collateral dependent loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. Other Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. In some instances, fair value adjustments can be made based on a quoted price from an observable input, such as a purchase agreement. Such adjustments would be classified as a Level 2 classification. Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of management reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with management’s own assumptions of fair value based on factors that include recent market data or industry-wide statistics. On an as-needed basis, the Company reviews the fair value of collateral, taking into consideration current market data, as well as all selling costs, which typically amount to approximately 10 % of the fair value of such collateral. Interest Rate Swap Agreements: The fair value of interest rate swap agreements is determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The variable cash receipts (or payments) are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves (Level 2). NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) Assets and Liabilities Measured on a Recurring Basis Assets and liabilities measured at fair value on a recurring basis are summarized below: Fair Value Measurements at June 30, 2023 Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: U.S. Government securities $ 55,795 $ — $ — U.S. Government sponsored entity securities — 5,874 — Agency mortgage-backed securities, residential — 112,839 — Interest rate swap derivatives — 1,375 — Liabilities: Interest rate swap derivatives — ( 1,375 ) — Fair Value Measurements at December 31, 2022 Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: U.S. Government securities $ 54,792 $ — $ — U.S. Government sponsored entity securities — 7,983 — Agency mortgage-backed securities, residential — 121,299 — Interest rate swap derivatives — 1,340 — Liabilities : Interest rate swap derivatives — ( 1,340 ) — Assets and Liabilities Measured on a Nonrecurring Basis There were no assets or liabilities measured at fair value on a nonrecurring basis at June 30, 2023 and December 31, 2022. There was no other real estate owned measured at fair value less costs to sell at June 30, 2023 and December 31, 2022. Furthermore, there were no corresponding write downs during the three and six months ended June 30, 2023 and 2022. There was no quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at June 30, 2023 and December 31, 2022. NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) The carrying amounts and estimated fair values of financial instruments at June 30, 2023 and December 31, 2022 are as follows: Carrying Fair Value Measurements at June 30, 2023 Using Value Level 1 Level 2 Level 3 Total Financial Assets: Cash and cash equivalents $ 56,795 $ 56,795 $ — $ — $ 56,795 Certificates of deposit in financial institutions 245 — 245 — 245 Securities available for sale 174,508 55,795 118,713 — 174,508 Securities held to maturity 8,964 — 4,999 3,219 8,218 Loans, net 942,381 — — 909,492 909,492 Interest rate swap derivatives 1,375 — 1,375 — 1,375 Accrued interest receivable 3,164 — 440 2,724 3,164 Financial liabilities: Deposits 1,076,572 812,691 261,679 — 1,074,370 Other borrowed funds 26,904 — 25,411 — 25,411 Subordinated debentures 8,500 — 8,500 — 8,500 Interest rate swap derivatives 1,375 — 1,375 — 1,375 Accrued interest payable 3,048 — 3,048 — 3,048 Carrying Fair Value Measurements at December 31, 2022 Using Value Level 1 Level 2 Level 3 Total Financial Assets: Cash and cash equivalents $ 45,990 $ 45,990 $ — $ — $ 45,990 Certificates of deposit in financial institutions 1,862 — 1,862 — 1,862 Securities available for sale 184,074 54,792 129,282 — 184,074 Securities held to maturity 9,226 — 4,987 3,473 8,460 Loans, net 879,780 — — 846,870 846,870 Interest rate swap derivatives 1,340 — 1,340 — 1,340 Accrued interest receivable 3,112 — 485 2,627 3,112 Financial liabilities: Deposits 1,027,655 875,736 149,974 — 1,025,710 Other borrowed funds 17,945 — 16,364 — 16,364 Subordinated debentures 8,500 — 8,500 — 8,500 Interest rate swap derivatives 1,340 — 1,340 — 1,340 Accrued interest payable 432 1 431 — 432 Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. NOTE 3 – SECURITIES The following table summarizes the amortized cost and fair value of securities available for sale and securities held to maturity at June 30, 2023 and December 31, 2022, and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive (loss) and gross unrecognized gains and losses: Securities Available for Sale Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value June 30 , 2023 U.S. Government securities $ 58,567 $ — $ ( 2,772 ) $ 55,795 U.S. Government sponsored entity securities 6,680 — ( 806 ) 5,874 Agency mortgage-backed securities, residential 127,076 — ( 14,237 ) 112,839 Total securities $ 192,323 $ — $ ( 17,815 ) $ 174,508 December 31, 2022 U.S. Government securities $ 57,698 $ — $ ( 2,906 ) $ 54,792 U.S. Government sponsored entity securities 8,845 — ( 862 ) 7,983 Agency mortgage-backed securities, residential 136,282 — ( 14,983 ) 121,299 Total securities $ 202,825 $ — $ ( 18,751 ) $ 184,074 Securities Held to Maturity Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Estimated Fair Value Allowance for Credit Losses June 30 , 2023 Obligations of states and political subdivisions $ 8,966 $ 21 $ ( 770 ) $ 8,217 $ ( 3 ) Agency mortgage-backed securities, residential 1 — — 1 — Total securities $ 8,967 $ 21 $ ( 770 ) $ 8,218 $ ( 3 ) December 31 , 2022 Obligations of states and political subdivisions $ 9,225 $ 32 $ ( 798 ) $ 8,459 Agency mortgage-backed securities, residential 1 — — 1 Total securities $ 9,226 $ 32 $ ( 798 ) $ 8,460 The amortized cost and estimated fair value of debt securities at June 30, 2023, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because certain issuers may have the right to call or prepay the debt obligations prior to their contractual maturities. Securities not due at a single maturity are shown separately. Available for Sale Held to Maturity Debt Securities: Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value Due in one year or less $ 15,939 $ 15,672 $ 585 $ 583 Due in over one to five years 49,308 45,997 3,890 3,725 Due in over five to ten years — — 3,780 1,943 Due after ten years — — 711 1,966 Agency mortgage-backed securities, residential 127,076 112,839 1 1 Total debt securities $ 192,323 $ 174,508 $ 8,967 $ 8,218 There were no sales of securities during the three and six months ended June 30, 2023 and 2022. Debt securities with a carrying value of approximately $ 133,093 at June 30, 2023 and $ 126,318 at December 31, 2022 , were pledged to secure public deposits, repurchase agreements, and for other purposes required or permitted by law. NOTE 3 – SECURITIES (Continued) The following table summarizes debt securities available for sale in an unrealized loss position for which an allowance for credit losses has not been recorded at June 30, 2023 and December 31, 2022, aggregated by major security type and length of time in a continuous unrealized loss position: June 30 , 2023 Less Than 12 Months 12 Months or More Total Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Securities Available for Sale U.S. Government securities $ 17,784 $ ( 238 ) $ 38,011 $ ( 2,534 ) $ 55,795 $ ( 2,772 ) U.S. Government sponsored entity securities — — 5,874 ( 806 ) 5,874 ( 806 ) Agency mortgage-backed securities, residential 8,308 ( 524 ) 104,531 ( 13,713 ) 112,839 ( 14,237 ) Total available for sale $ 26,092 $ ( 762 ) $ 148,416 $ ( 17,053 ) $ 174,508 $ ( 17,815 ) December 31, 2022 Less Than 12 Months 12 Months or More Total Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Securities Available for Sale U.S. Government securities $ 36,460 $ ( 977 ) $ 18,332 $ ( 1,929 ) $ 54,792 $ ( 2,906 ) U.S Government sponsored entity securities 2,786 ( 60 ) 5,197 ( 802 ) 7,983 ( 862 ) Agency mortgage-backed securities, residential 71,510 ( 7,178 ) 49,789 ( 7,805 ) 121,299 ( 14,983 ) Total available for sale $ 110,756 $ ( 8,215 ) $ 73,318 $ ( 10,536 ) $ 184,074 $ ( 18,751 ) Management evaluates available for sale debt securities in unrealized positions to determine whether impairment is due to credit-related factors. Consideration is given to (1) the extent to which the fair value is less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value. At June 30, 2023, the Company had 103 available for sale debt securities in an unrealized position without an allowance for credit losses, of which 19 were from U.S. Government securities, 3 were from U.S. Government sponsored entity securities, and 81 were from Agency mortgage-backed residential securities. Management does not have the intent to sell any of these securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline. Accordingly, as of June 30, 2023, management believes that the unrealized losses detailed in the previous table are due to noncredit-related factors, including changes in interest rates and other market conditions and, therefore, the Company carried no allowance for credit losses on available for sale debt securities at June 30, 2023. NOTE 3 – SECURITIES (Continued) The following table presents the activity in the allowance for credit losses for held to maturity debt securities: Held to Maturity Debt Securities Six months ended June 30, 2023 Allowance for credit losses: Beginning balance $ — Impact of adopting ASC 326 3 Credit loss expense — Allowance for credit losses ending balance $ 3 The Company’s held to maturity securities primarily consist of obligations of states and political subdivisions. The ACL on held to maturity securities is estimated at each measurement date on a collective basis by major security type. Risk factors such as issuer bond ratings, historical loss rates, financial condition of issuer, and timely principal and interest payments of issuer were evaluated to determine if a credit reserve was required within the portfolio. At June 30, 2023, there were no past due principal and interest payments related to held to maturity securities. The Company identified a cumulative loss rate of .03 % using historical loss data provided by S&P and Moody’s bond rating service. This resulted in a $ 3 credit loss reserve for held to maturity debt securities upon adoption of ASC 326 on January 1, 2023, with no provision expense during the three and six months ended June 30, 2023. NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES Loans are comprised of the following: June 30, 2023 December 31, 2022 Residential real estate $ 319,036 $ 297,036 Commercial real estate: Owner-occupied 71,486 72,719 Nonowner-occupied 184,304 182,831 Construction 45,432 33,205 Commercial and industrial 160,747 151,232 Consumer: Automobile 60,230 54,837 Home equity 30,168 27,791 Other 78,549 65,398 949,952 885,049 Less: Allowance for credit losses ( 7,571 ) ( 5,269 ) Loans, net $ 942,381 $ 879,780 At June 30, 2023 and December 31, 2022 , net deferred loan origination costs were $ 903 and $ 663 , respectively. At June 30, 2023 and December 31, 2022 , net unamortized loan purchase premiums were $ 787 and $ 1,142 , respectively. NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued) The following table presents the recorded investment of nonaccrual loans and loans past due 90 days or more and still accruing by class of loans as of June 30, 2023 and December 31, 2022: June 30 ,2023 Loans Past Due 90 Days And Still Accruing Nonaccrual Loans With No ACL Nonaccrual Loans With an ACL Total Nonaccrual Loans Residential real estate $ 39 $ — $ 1,246 $ 1,246 Commercial real estate: Owner-occupied — 825 52 877 Nonowner-occupied 9 — 68 68 Construction — — 3 3 Commercial and industrial — — 145 145 Consumer: Automobile 31 — 144 144 Home equity — — 99 99 Other 12 — 70 70 Total $ 91 $ 825 $ 1,827 $ 2,652 December 31 , 2022 Loans Past Due 90 Days And Still Accruing Nonaccrual Residential real estate $ 100 $ 1,708 Commercial real estate: Owner-occupied — 938 Nonowner-occupied — 70 Construction — 75 Commercial and industrial — 150 Consumer: Automobile 27 82 Home equity — 151 Other 411 59 Total $ 538 $ 3,233 The Company recognized $ 67 and $ 87 of interest income in nonaccrual loans during the three and six months ended June 30, 2023. NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued) The following table presents the aging of the recorded investment of past due loans by class of loans as of June 30, 2023 and December 31, 2022: June 30 , 2023 30-59 Days Past Due 60-89 Days Past Due 90 Days Or More Past Due Total Past Due Loans Not Past Due Total Residential real estate $ 777 $ 505 $ 345 $ 1,627 $ 317,409 $ 319,036 Commercial real estate: Owner-occupied 76 77 873 1,026 70,460 71,486 Nonowner-occupied 270 — 77 347 183,957 184,304 Construction - — — - 45,432 45,432 Commercial and industrial 81 — 145 226 160,521 160,747 Consumer: Automobile 828 182 161 1,171 59,059 60,230 Home equity 33 44 99 176 29,992 30,168 Other 428 100 65 593 77,956 78,549 Total $ 2,493 $ 908 $ 1,765 $ 5,166 $ 944,786 $ 949,952 December 31 , 2022 30-59 Days Past Due 60-89 Days Past Due 90 Days Or More Past Due Total Past Due Loans Not Past Due Total Residential real estate $ 1,799 $ 701 $ 497 $ 2,997 $ 294,039 $ 297,036 Commercial real estate: Owner-occupied 97 — 938 1,035 71,684 72,719 Nonowner-occupied 626 5 — 631 182,200 182,831 Construction 40 45 17 102 33,103 33,205 Commercial and industrial 21 — 150 171 151,061 151,232 Consumer: Automobile 804 240 97 1,141 53,696 54,837 Home equity 204 — 151 355 27,436 27,791 Other 875 113 452 1,440 63,958 65,398 Total $ 4,466 $ 1,104 $ 2,302 $ 7,872 $ 877,177 $ 885,049 Credit Quality Indicators: The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. These risk categories are represented by a loan grading scale from 1 through 11. The Company analyzes loans individually with a higher credit risk rating and groups these loans into categories called “criticized” and ”classified” assets. The Company considers its criticized assets to be loans that are graded 8 and its classified assets to be loans that are graded 9 through 11. The Company’s risk categories are reviewed at least annually on loans that have aggregate borrowing amounts that meet or exceed $ 1,000 . The Company uses the following definitions for its criticized loan risk ratings: Special Mention. Loans classified as “special mention” indicate considerable risk due to deterioration of repayment (in the earliest stages) due to potential weak primary repayment source, or payment delinquency. These loans will be under constant supervision, are not classified and do not expose the institution to sufficient risks to warrant classification. These deficiencies should be correctable within the normal course of business, although significant changes in company structure or policy may be necessary to correct the deficiencies. These loans are considered bankable assets with no apparent loss of principal or interest envisioned. The perceived risk in continued lending is considered to have increased beyond the level where such loans would normally be granted. NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued) The Company uses the following definitions for its classified loan risk ratings: Substandard. Loans classified as “substandard” represent very high risk, serious delinquency, nonaccrual, or unacceptable credit. Repayment through the primary source of repayment is in jeopardy due to the existence of one or more well-defined weaknesses, and the collateral pledged may inadequately protect collection of the loans. Loss of principal is not likely if weaknesses are corrected, although financial statements normally reveal significant weakness. Loans are still considered collectible, although loss of principal is more likely than with special mention loans. Collateral liquidation is considered likely to satisfy debt. Doubtful. Loans classified as “doubtful” display a high probability of loss, although the amount of actual loss at the time of classification is undetermined. This classification should be temporary until such time that actual loss can be identified, or improvements are made to reduce the seriousness of the classification. These loans exhibit all substandard characteristics with the addition that weaknesses make collection or liquidation in full highly questionable and improbable. This classification consists of loans where the possibility of loss is high after collateral liquidation based upon existing facts, market conditions, and value. Loss is deferred until certain important and reasonable specific pending factors that may strengthen the credit can be more accurately determined. These factors may include proposed acquisitions, liquidation procedures, capital injection, receipt of additional collateral, mergers, or refinancing plans. A doubtful classification for an entire credit should be avoided when collection of a specific portion appears highly probable with the adequately secured portion graded substandard. Loss. Loans classified as “loss” are considered uncollectible and are of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the credit has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset yielding such a minimum value even though partial recovery may be affected in the future. Amounts classified as loss should be promptly charged off. As of June 30, 2023 and December 31, 2022, and based on the most recent analysis performed, the risk category of commercial loans by class of loans was as follows: Revolving Loans Term Loans Amortized Cost Basis by Origination Year Amortized June 30, 2023 2023 2022 2021 2020 2019 Prior Cost Basis Total Commercial real estate - Owner-occupied Risk Rating Pass $ 3,150 $ 6,871 $ 25,806 $ 6,121 $ 6,558 $ 18,139 $ 1,554 $ 68,199 Special Mention — — — — — 533 — 533 Substandard — — — — 490 1,964 300 2,754 Doubtful — — — — — — — — Total $ 3,150 $ 6,871 $ 25,806 $ 6,121 $ 7,048 $ 20,636 $ 1,854 $ 71,486 Current Period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued) Revolving Loans Term Loans Amortized Cost Basis by Origination Year Amortized June 30, 2023 2023 2022 2021 2020 2019 Prior Cost Basis Total Commercial real estate - Nonowner-occupied Risk Rating Pass $ 8,188 $ 28,927 $ 34,701 $ 25,956 $ 15,695 $ 64,024 $ 1,587 $ 179,078 Special Mention — — — 3,276 — 1,872 — 5,148 Substandard — — 78 — — — — 78 Doubtful — — — — — — — — Total $ 8,188 $ 28,927 $ 34,779 $ 29,232 $ 15,695 $ 65,896 $ 1,587 $ 184,304 Current Period gross charge-offs $ — $ — $ 132 $ — $ — $ — $ — $ 132 Revolving Loans Term Loans Amortized Cost Basis by Origination Year Amortized June 30, 2023 2023 2022 2021 2020 2019 Prior Cost Basis Total Commercial real estate - Construction Risk Rating Pass $ 4,262 $ 30,932 $ 5,911 $ 331 $ 451 $ 3,484 $ 61 $ 45,432 Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total $ 4,262 $ 30,932 $ 5,911 $ 331 $ 451 $ 3,484 $ 61 $ 45,432 Current Period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Revolving Loans Term Loans Amortized Cost Basis by Origination Year Amortized June 30, 2023 2023 2022 2021 2020 2019 Prior Cost Basis Total Commercial and Industrial Risk Rating Pass $ 5,061 $ 33,596 $ 27,707 $ 32,679 $ 536 $ 29,270 $ 30,063 $ 158,912 Special Mention — — — — — 39 — 39 Substandard — — — 1,491 — 305 — 1,796 Doubtful — — — — — — — — Total $ 5,061 $ 33,596 $ 27,707 $ 34,170 $ 536 $ 29,614 $ 30,063 $ 160,747 Current Period gross charge-offs $ — $ — $ — $ — $ — $ — $ 29 $ 29 NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued) December 31, 2022 Pass Criticized Classified Total Commercial real estate: Owner-occupied $ 68,236 $ 3,545 $ 938 $ 72,719 Nonowner-occupied 177,479 5,352 — 182,831 Construction 33,143 — 62 33,205 Commercial and industrial 147,627 1,879 1,726 151,232 Total $ 426,485 $ 10,776 $ 2,726 $ 439,987 The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses. For residential and consumer loan classes, the Company evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment of residential and consumer loans by class of loans based on repayment activity as of June 30, 2023 and December 31, 2022: Revolving Loans Term Loans Amortized Cost Basis by Origination Year Amortized June 30, 2023 2023 2022 2021 2020 2019 Prior Cost Basis Total Residential Real Estate: Payment Performance Performing $ 26,473 $ 41,394 $ 54,051 $ 47,025 $ 22,791 $ 100,227 $ 25,790 $ 317,751 Nonperforming — — — 8 120 1,157 — 1,285 Total $ 26,473 $ 41,394 $ 54,051 $ 47,033 $ 22,911 $ 101,384 $ 25,790 $ 319,036 Current Period gross charge-offs $ — $ 1 $ 3 $ — $ — $ 67 $ — $ 71 Revolving Loans Term Loans Amortized Cost Basis by Origination Year Amortized June 30, 2023 2023 2022 2021 2020 2019 Prior Cost Basis Total Consumer - Automobile: Payment Performance Performing $ 16,765 $ 26,128 $ 9,527 $ 4,219 $ 1,885 $ 1,542 $ — $ 60,066 Nonperforming 64 42 26 1 19 12 — 164 Total $ 16,829 $ 26,170 $ 9,553 $ 4,220 $ 1,904 $ 1,554 $ — $ 60,230 Current Period gross charge-offs $ 3 $ 52 $ 79 $ — $ 12 $ 3 $ — $ 149 NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued) Revolving Loans Term Loans Amortized Cost Basis by Origination Year Amortized June 30, 2023 2023 2022 2021 2020 2019 Prior Cost Basis Total Consumer - Home Equity: Payment Performance Performing $ — $ 161 $ — $ — $ — $ 39 $ 29,869 $ 30,069 Nonperforming — — — — — — 99 99 Total $ — $ 161 $ — $ — $ — $ 39 $ 29,968 $ 30,168 Current Period gross charge-offs $ — $ — $ — $ — $ — $ — $ 43 $ 43 Revolving Loans Term Loans Amortized Cost Basis by Origination Year Amortized June 30, 2023 2023 2022 2021 2020 2019 Prior Cost Basis Total Consumer - Other: Payment Performance Performing $ 13,238 $ 29,701 $ 13,263 $ 5,890 $ 1,648 $ 1,341 $ 13,396 $ 78,477 Nonperforming — 9 6 29 13 15 — 72 Total $ 13,238 $ 29,710 $ 13,269 $ 5,919 $ 1,661 $ 1,356 $ 13,396 $ 78,549 Current Period gross charge-offs $ 154 $ 54 $ 75 $ 38 $ 21 $ 15 $ 92 $ 449 Consumer December 31, 2022 Automobile Home Equity Other Residential Real Estate Total Performing $ 54,728 $ 27,640 $ 64,928 $ 295,228 $ 442,524 Nonperforming 109 151 470 1,808 2,538 Total $ 54,837 $ 27,791 $ 65,398 $ 297,036 $ 445,062 The Company originates residential, consumer, and commercial loans to customers located primarily in the southeastern areas of Ohio as well as the western counties of West Virginia. Approximately 4.36 % of total loans were unsecured at June 30, 2023, down from 4.52 % at December 31, 2022. N OTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued) Modifications to Borrowers Experiencing Financial Difficulty: Occasionally, the Company modifies loans to borrowers experiencing financial difficulty. These modifications may include one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; a reduction in the contractual principal and interest payments of the loan; or short-term interest-only payment terms. All modifications to borrowers experiencing financial difficulty are considered to be impaired. During the six months ended June 30, 2023, the Company experienced no new modifications to borrowers experiencing financial difficulty. The following table presents the activity in the allowance for credit losses by portfolio segment for the three months ended June 30, 2023 and 2022: June 30 , 2023 Residential Real Estate Commercial Real Estate Commercial and Industrial Consumer Total Allowance for credit losses: Beginning balance $ 2,031 $ 2,306 $ 1,177 $ 2,093 $ 7,607 Provision for credit losses 89 ( 69 ) ( 176 ) 270 114 Loans charged-off ( 24 ) — — ( 393 ) ( 417 ) Recoveries 11 15 114 127 267 Total ending allowance balance $ 2,107 $ 2,252 $ 1,115 $ 2,097 $ 7,571 June 30 , 2022 Residential Real Estate Commercial Real Estate Commercial and Industrial Consumer Total Allowance for credit losses: Beginning balance $ 714 $ 1,991 $ 1,389 $ 1,174 $ 5,268 Provision for credit losses ( 77 ) ( 150 ) 769 271 813 Loans charged-off ( 39 ) ( 15 ) ( 618 ) ( 372 ) ( 1,044 ) Recoveries 16 20 8 133 177 Total ending allowance balance $ 614 $ 1,846 $ 1,548 $ 1,206 $ 5,214 The following table presents the activity in the allowance for credit losses by portfolio segment for the six months ended June 30, 2023 and 2022: June 30 , 2023 Residential Real Estate Commercial Real Estate Commercial and Industrial Consumer Total Allowance for credit losses: Beginning balance $ 681 $ 2,038 $ 1,293 $ 1,257 $ 5,269 Impact of adopting ASC 326 1,345 162 ( 116 ) 771 2,162 Provision for credit losses 128 156 ( 155 ) 450 579 Loans charged-off ( 71 ) ( 132 ) ( 29 ) ( 641 ) ( 873 ) Recoveries 24 28 122 260 434 Total ending allowance balance $ 2,107 $ 2,252 $ 1,115 $ 2,097 $ 7,571 June 30 , 2022 Residential Real Estate Commercial Real Estate Commercial and Industrial Consumer Total Allowance for credit losses: Beginning balance $ 980 $ 2,548 $ 1,571 $ 1,384 $ 6,483 Provision for credit losses ( 356 ) ( 725 ) 579 189 ( 313 ) Loans charged-off ( 42 ) ( 16 ) ( 618 ) ( 702 ) ( 1,378 ) Recoveries 32 39 16 335 422 Total ending allowance balance $ 614 $ 1,846 $ 1,548 $ 1,206 $ 5,214 N OTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued) The following table presents the balance in the allowance for credit losses and the recorded investment of loans by portfolio segment and based on impairment method as of December 31, 2022: December 31 , 2022 Residential Real Estate Commercial Real Estate Commercial and Industrial Consumer Total Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment $ — $ — $ — $ — $ — Collectively evaluated for impairment 681 2,038 1,293 1,257 5,269 Total ending allowance balance $ 681 $ 2,038 $ 1,293 $ 1,257 $ 5,269 Loans: Loans individually evaluated for impairment $ — $ 1,986 $ — $ 28 $ 2,014 Loans collectively evaluated for impairment 297,036 286,769 151,232 147,998 883,035 Total ending loans balance $ 297,036 $ 288,755 $ 151,232 $ 148,026 $ 885,049 The following table presents the amortized cost basis of collateral dependent loans by class of loans as of June 30, 2023: Collateral Type June 30, 2023 Real Estate Business Assets Total Commercial real estate: Owner-occupied $ 517 $ 281 $ 798 Consumer: Home equity 27 — 27 Total collateral dependent loans $ 544 $ 281 $ 825 The following tables present information related to loans individually evaluated for impairment by class of loans as of December 31, 2022: December 31 , 2022 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated With an allowance recorded: $ — $ — $ — With no related allowance recorded: Commercial real estate: Owner-occupied 1,692 1,607 — Nonowner-occupied 379 379 — Consumer: Home equity 28 28 — Total $ 2,099 $ 2,014 $ — N OTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued) The following tables present information related to loans individually evaluated for impairment by class of loans for the three and six months ended June 30, 2022: Three months ended June 30, 2022 Six months ended June 30, 2022 Average Impaired Loans Interest Income Recognized Cash Basis Interest Recognized Average Impaired Loans Interest Income Recognized Interest Income Recognized With an allowance recorded: Commercial and industrial $ 1,619 $ 15 $ 15 $ 1,744 $ 54 $ 54 With no related allowance recorded: Commercial real estate: Owner-occupied 1,675 26 26 1,687 48 48 Nonowner-occupied 382 7 7 383 14 14 Total $ 3,676 $ 48 $ 48 $ 3,814 $ 116 $ 116 The recorded investment of a loan excludes accrued interest and net deferred origination fees and costs due to immateriality. Nonaccrual loans and loans past due 90 days or more and still accruing include both smaller balance homogenous loans that are collectively evaluated for impairment and individually classified as impaired loans. The Company transfers loans to other real estate owned, at fair value less cost to sell, in the period the Company obtains physical possession of the property (through legal title or through a deed in lieu). As of June 30, 2023, the Company had 68 in other real estate owned for residential real estate properties compared to none at December 31, 2022. In addition, nonaccrual residential mortgage loans that are in the process of foreclosure had a recorded investment of $ 455 and $ 370 as of June 30, 2023 and December 31, 2022, respectively. NOTE 5 – FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit, and financial guarantees written, is represented by the contractual amount of those instruments. The contract amounts of these instruments are not included in the consolidated financial statements. At June 30, 2023, the contract amounts of these instruments totaled approximately $ 110,924 , compared to $ 103,413 at December 31, 2022. The Bank estimates expected credit losses over the contractual period in which the Bank is exposed to credit risk via a contractual obligation to extend credit. At June 30, 2023, the estimated ACL related to off-balance sheet commitments was $ 565 , which includes a $ 90 recovery of provision during the three months ended June 30, 2023 and a $ 66 recovery of provision during the six months ended June 30, 2023. The Bank uses the same credit policies in making commitments and conditional obligations as it does for instruments recorded on the balance sheet. Since many of these instruments are expected to expire without being drawn upon, the total contract amounts do not necessarily represent future cash requirements. NOTE 6 – OTHER BORROWED FUNDS Other borrowed funds at June 30, 2023 and December 31, 2022 are comprised of advances from the Federal Home Loan Bank (“FHLB”) of Cincinnati and promissory notes. FHLB Borrowings Promissory Notes Totals June 30 , 2023 $ 24,510 $ 2,394 $ 26,904 December 31, 2022 $ 15,569 $ 2,376 $ 17,945 Pursuant to collateral agreements with the FHLB, advances are secured by $ 312,680 in qualifying mortgage loans, $ 32,359 in commercial loans and $ 2,064 in FHLB stock at June 30, 2023. Fixed-rate FHLB advances of $ 24,510 mature through 2042 and have interest rates ranging from 1.53 % to 4.68 % and a year-to-date weighted average cost of 2.70 % at June 30, 2023 and 2.39 % at December 31, 2022. There were no variable-rate FHLB borrowings at June 30, 2023. At June 30, 2023, the Company had a cash management line of credit enabling it to borrow up to $ 100,000 from the FHLB, subject to the stock ownership and collateral limitations described below. All cash management advances have an original maturity of 90 days . The line of credit must be renewed on an annual basis. There was $ 100,000 available on this line of credit at June 30, 2023. Based on the Company’s current FHLB stock ownership, total assets and pledgeable loans, the Company had the ability to obtain borrowings from the FHLB up to a maximum of $ 191,392 at June 30, 2023. Of this maximum borrowing capacity, the Company had $ 106,932 available to use as additional borrowings, of which $ 100,000 could be used for short term, cash management advances, as mentioned above. Promissory notes, issued primarily by Ohio Valley, are due at various dates through a final maturity date of November 18, 2024 , and have fixed rates ranging from 3.15 % to 5.00 % and a year-to-date weighted average cost of 3.26 % at June 30, 2023, as compared to 1.35 % at December 31, 2022. At June 30, 2023, there were six promissory notes payable by Ohio Valley to related parties totaling $ 2,394 . There were no promissory notes payable to other banks at June 30, 2023 or December 31, 2022. Letters of credit issued on the Bank’s behalf by the FHLB to collateralize certain public unit deposits as required by law totaled $ 59,950 at June 30, 2023 and $ 75,140 at December 31, 2022. Scheduled principal payments as of June 30, 2023: FHLB Borrowings Promissory Notes Totals 2023 $ 2,764 $ — $ 2,764 2024 4,959 2,394 7,353 2025 4,983 — 4,983 2026 2,908 — 2,908 2027 1,397 — 1,397 Thereafter 7,499 — 7,499 $ 24,510 $ 2,394 $ 26,904 NOTE 7 – SEGMENT INFORMATION The reportable segments are determined by the products and services offered, primarily distinguished between banking and consumer finance. They are also distinguished by the level of information provided to the chief operating decision maker, who uses such information to review performance of various components of the business, which are then aggregated if operating performance, products/services, and customers are similar. Loans, investments, and deposits provide the majority of the net revenues from the banking operation, while loans provide the majority of the net revenues for the consumer finance segment. All Company segments are domestic. Total revenues from the banking segment, which accounted for the majority of the Company’s total revenues, totaled 94.4 % and 92.9 % of total consolidated revenues for the quarters end June 30, 2023 and 2022, respectively. The accounting policies used for the Company’s reportable segments are the same as those described in Note 1 - Summary of Significant Accounting Policies. Income taxes are allocated based on income before tax expense. Information for the Company’s reportable segments is as follows: Three Months Ended June 30, 2023 Banking Consumer Finance Total Company Net interest income $ 11,070 $ 544 $ 11,614 Provision for (recovery of) credit losses 40 ( 16 ) 24 Noninterest income 2,618 95 2,713 Noninterest expense 9,784 631 10,415 Provision for income taxes 634 5 639 Net income 3,230 19 3,249 Assets 1,259,929 14,301 1,274,230 Three Months Ended June 30, 2022 Banking Consumer Finance Total Company Net interest income $ 10,024 $ 529 $ 10,553 Provision for (recovery of) credit losses 800 13 813 Noninterest income 2,523 113 2,636 Noninterest expense 9,459 564 10,023 Provision for income taxes 341 13 354 Net income 1,947 52 1,999 Assets 1,240,072 13,814 1,253,886 Six Months Ended June 30, 2023 Banking Consumer Finance Total Company Net interest income $ 22,254 $ 1,082 $ 23,336 Provision for (recovery of) credit losses 624 ( 111 ) 513 Noninterest income 5,618 862 6,480 Noninterest expense 19,380 1,307 20,687 Provision for income taxes 1,303 156 1,459 Net income 6,565 592 7,157 Assets 1,259,929 14,301 1,274,230 Six Months Ended June 30, 2022 Banking Consumer Finance Total Company Net interest income $ 19,492 $ 1,051 $ 20,543 Provision for (recovery of) credit losses ( 300 ) ( 13 ) ( 313 ) Noninterest income 5,414 942 6,356 Noninterest expense 18,553 1,258 19,811 Provision for income taxes 1,121 156 1,277 Net income 5,532 592 6,124 Assets 1,240,072 13,814 1,253,886 NOTE 8 – LEASES Substantially all of the Company’s operating lease right-of-use (“ROU”) assets and operating lease liabilities represent leases for branch buildings and office space to conduct business. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet. The lease expense for these leases are recorded on a straight-line basis over the lease term. Leases with initial terms in excess of 12 months are recorded as either operating or financing leases on the consolidated balance sheet. The Company has no finance lease arrangements. Operating leases have remaining lease terms ranging from 34 months to 18 years, some of which include options to extend the leases for up to 15 years. Operating lease ROU assets and operating lease liabilities are valued based on the present value of future minimum lease payments, discounted with an incremental borrowing rate for the same term as the underlying lease. The Company has one lease arrangement that contains variable lease payments that are adjusted periodically for an index. Balance sheet information related to leases is as follows: As of June 30, 2023 As of December 31, 2022 Operating leases: Operating lease right-of-use assets $ 1,297 $ 1,294 Operating lease liabilities 1,297 1,294 The components of lease cost are as follows: Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Operating lease cost $ 55 $ 42 $ 106 $ 84 Short-term lease expense — 8 — 18 Future undiscounted lease payments for operating leases with initial terms of one year or more as of June 30, 2023 are as follows: Operating Leases 2023 (remaining) $ 98 2024 195 2025 195 2026 140 2027 108 Thereafter 875 Total lease payments 1,611 Less: Imputed Interest ( 314 ) Total operating leases $ 1,297 Other information is as follows: As of June 30, 2023 As of December 31, 2022 Weighted-average remaining lease term for operating leases 13.5 years 12.1 years Weighted-average discount rate for operating leases 2.94 % 2.70 % NOTE 9 – RISKS AND UNCERTAINTIES The risks pertinent to our bank regarding liquidity and rising deposit costs have increased due to an elevated interest rate environment and increased deposit competition within our markets. Our liquidity position is supported by the management of liquid assets such as cash and interest-bearing deposits with banks, and liabilities such as core deposits. The bank can also access other sources of funds such as brokered deposits and FHLB advances. With the present economic conditions putting a strain on liquidity and higher borrowing costs, the Company believes it has sufficient liquid assets and funding sources should there be a liquidity need. NOTE 10 – DEPOSITS Deposits are comprised of the following: June 30, 2023 December 31, 2022 Noninterest-bearing deposits $ 338,974 $ 354,413 Interest-bearing deposits: NOW accounts 197,869 209,758 Savings and money market 275,848 311,565 Time deposits of $250,000 or less 208,975 115,049 Time deposits of more than $250,000 54,906 36,870 Total interest-bearing deposits 737,598 673,242 Total deposits $ 1,076,572 $ 1,027,655 Brokered deposits, included in time deposits, were $ 62,648 and $ 3,999 at June 30, 2023 and December 31, 2022, respectively.