OHIO VALLEY BANC CORP 10-Q

ITEM 1. FINANCIAL STATEMENTS OHIO VALLEY BANC CORP. CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollars in thousands, except share and per share data) September 30, 2023 December 31, 2022 ASSETS Cash and noninterest-bearing deposits with banks $ 15,929 $ 14,330 Interest-bearing deposits with banks 75,261 31,660 Total cash and cash equivalents 91,190 45,990 Certificates of deposit in financial institutions — 1,862 Securities available for sale 166,842 184,074 Securities held to maturity, net of allowance for credit losses of $ 2 in 2023 and $ 0 in 2022; (estimated fair value: 2023 - $ 7,929 ; 2022 - $ 8,460 ) 8,946 9,226 Restricted investments in bank stocks 5,062 5,953 Total loans 961,222 885,049 Less: Allowance for credit losses ( 8,173 ) ( 5,269 ) Net loans 953,049 879,780 Premises and equipment, net 21,351 20,436 Premises and equipment held for sale, net 578 593 Accrued interest receivable 3,743 3,112 Goodwill 7,319 7,319 Other intangible assets, net 11 29 Bank owned life insurance and annuity assets 40,478 39,627 Operating lease right-of-use asset, net 1,251 1,294 Deferred tax assets 7,050 6,266 Other assets 7,082 5,226 Total assets $ 1,313,952 $ 1,210,787 LIABILITIES Noninterest-bearing deposits $ 326,545 $ 354,413 Interest-bearing deposits 768,995 673,242 Total deposits 1,095,540 1,027,655 Other borrowed funds 45,751 17,945 Subordinated debentures 8,500 8,500 Operating lease liability 1,251 1,294 Allowance for credit losses on off-balance sheet commitments 643 — Other liabilities 25,474 20,365 Total liabilities 1,177,159 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 112,699 109,320 Accumulated other comprehensive income (loss) ( 16,470 ) ( 14,813 ) Treasury stock, at cost (2023 - 697,321 shares; 2022 - 693,933 shares) ( 16,748 ) ( 16,666 ) Total shareholders’ equity 136,793 135,028 Total liabilities and shareholders’ equity $ 1,313,952 $ 1,210,787 See accompanying notes to consolidated financial statements 3 OHIO VALLEY BANC CORP. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (dollars in thousands, except per share data) Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Interest and dividend income: Loans, including fees $ 14,299 $ 10,984 $ 39,868 $ 30,802 Securities Taxable 917 889 2,809 2,435 Tax exempt 40 45 123 137 Dividends 71 95 236 222 Interest-bearing deposits with banks 601 516 1,698 802 Other interest 4 3 9 12 15,932 12,532 44,743 34,410 Interest expense: Deposits 4,058 504 8,981 1,530 Other borrowed funds 341 101 612 310 Subordinated debentures 157 82 438 182 4,556 687 10,031 2,022 Net interest income 11,376 11,845 34,712 32,388 Provision for (recovery of) credit losses 888 ( 378 ) 1,401 ( 691 ) Net interest income after provision for (recovery of) credit losses 10,488 12,223 33,311 33,079 Noninterest income: Service charges on deposit accounts 714 662 1,978 1,815 Trust fees 79 80 247 247 Income from bank owned life insurance and annuity assets 219 205 637 674 Mortgage banking income 42 185 133 640 Electronic refund check / deposit fees — — 675 675 Debit / credit card interchange income 1,285 1,291 3,673 3,603 Tax preparation fees 3 3 667 741 Other 226 189 1,038 576 2,568 2,615 9,048 8,971 Noninterest expense: Salaries and employee benefits 5,909 5,867 17,634 17,120 Occupancy 493 517 1,440 1,419 Furniture and equipment 351 296 979 841 Professional fees 430 418 1,296 1,405 Marketing expense 241 260 723 718 FDIC insurance 141 80 421 250 Data processing 737 776 2,183 2,136 Software 621 561 1,771 1,620 Foreclosed assets 6 11 15 48 Amortization of intangibles 5 8 18 28 Other 1,445 1,553 4,586 4,573 10,379 10,347 31,066 30,158 Income before income taxes 2,677 4,491 11,293 11,892 Provision for income taxes 426 801 1,885 2,078 NET INCOME $ 2,251 $ 3,690 $ 9,408 $ 9,814 Earnings per share $ 0.47 $ 0.77 $ 1.97 $ 2.06 See accompanying notes to consolidated financial statements 4 OHIO VALLEY BANC CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (dollars in thousands) Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Net Income $ 2,251 $ 3,690 $ 9,408 $ 9,814 Other comprehensive income (loss): Change in unrealized gain (loss) on available for sale securities ( 3,033 ) ( 8,403 ) ( 2,097 ) ( 24,567 ) Related tax (expense) benefit 636 1,764 440 5,159 Total other comprehensive income (loss), net of tax ( 2,397 ) ( 6,639 ) ( 1,657 ) ( 19,408 ) Total comprehensive income (loss) $ ( 146 ) $ ( 2,949 ) $ 7,751 $ ( 9,594 ) See accompanying notes to consolidated financial statements 5 OHIO VALLEY BANC CORP. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) (dollars in thousands, except share and per share data) Quarter-to-date Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Shareholders’ Equity Balance at July 1, 2023 $ 5,470 $ 51,842 $ 111,499 $ ( 14,073 ) $ ( 16,666 ) $ 138,072 Net income — — 2,251 — — 2,251 Other comprehensive loss, net — — — ( 2,397 ) — ( 2,397 ) Cash dividends, $ 0.22 per share — — ( 1,051 ) — — ( 1,051 ) Shares acquired for treasury, 3,388 shares — — — — ( 82 ) ( 82 ) Balance at September 30 , 2023 $ 5,470 $ 51,842 $ 112,699 $ ( 16,470 ) $ ( 16,748 ) $ 136,793 Balance at July 1, 2022 $ 5,465 $ 51,722 $ 104,110 $ ( 12,061 ) $ ( 16,666 ) $ 132,570 Net income — — 3,690 — — 3,690 Other comprehensive loss, net — — — ( 6,639 ) — ( 6,639 ) Cash dividends, $ 0.21 per share — — ( 1,001 ) — — ( 1,001 ) Balance at September 30 , 2022 $ 5,465 $ 51,722 $ 106,799 $ ( 18,700 ) $ ( 16,666 ) $ 128,620 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 — — 9,408 — — 9,408 Other comprehensive loss, net — — — ( 1,657 ) — ( 1,657 ) Cash dividends, $ 0.80 per share — — ( 3,820 ) — — ( 3,820 ) Common Stock issued to ESOP, 4,746 shares 5 120 — — — 125 Shares acquired for treasury, 3,388 shares — — — — ( 82 ) ( 82 ) Balance at September 30 , 2023 $ 5,470 $ 51,842 $ 112,699 $ ( 16,470 ) $ ( 16,748 ) $ 136,793 Balance at January 1, 2022 $ 5,447 $ 51,165 $ 100,702 $ 708 $ ( 16,666 ) $ 141,356 Net income — — 9,814 — — 9,814 Other comprehensive loss, net — — — ( 19,408 ) — ( 19,408 ) Cash dividends, $ 0.78 per share — — ( 3,717 ) — — ( 3,717 ) Common stock issued to ESOP, 18,522 shares 18 557 — — — 575 Balance at September 30 , 2022 $ 5,465 $ 51,722 $ 106,799 $ ( 18,700 ) $ ( 16,666 ) $ 128,620 See accompanying notes to consolidated financial statements 6 OHIO VALLEY BANC CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (dollars in thousands) Nine months ended September 30, 2023 2022 Net cash provided by operating activities: $ 14,147 $ 10,236 Investing activities: Proceeds from maturities and paydowns of securities available for sale 16,090 22,652 Purchases of securities available for sale — ( 54,103 ) Proceeds from calls and maturities of securities held to maturity 262 634 Purchase of securities held to maturity ( 586 ) ( 1,071 ) Proceeds from maturities of certificates of deposit in financial institutions 2,100 445 Purchase of certificates of deposits in financial institutions ( 245 ) — Purchase of restricted investments in bank stocks ( 969 ) — Redemptions of restricted investments in bank stocks 1,860 1,312 Net change in loans ( 76,950 ) ( 25,695 ) Purchases of premises and equipment ( 1,984 ) ( 1,662 ) Disposals of premises and equipment — 420 Proceeds from building grant — 200 Reimbursement of building grant ( 100 ) — Purchases of bank owned life insurance and annuity assets ( 250 ) ( 1,462 ) Withdrawals from annuity asset 36 — Net cash (used in) investing activities ( 60,736 ) ( 58,330 ) Financing activities: Change in deposits 67,885 14,417 Cash dividends ( 3,820 ) ( 3,718 ) Purchases of treasury stock ( 82 ) — Proceeds from Federal Home Loan Bank borrowings 30,000 — Repayment of Federal Home Loan Bank borrowings ( 2,212 ) ( 1,528 ) Change in other short-term borrowings 18 — Net cash provided by financing activities 91,789 9,171 Change in cash and cash equivalents 45,200 ( 38,923 ) Cash and cash equivalents at beginning of period 45,990 152,034 Cash and cash equivalents at end of period $ 91,190 $ 113,111 Supplemental disclosure: Cash paid for interest $ 5,762 $ 2,137 Cash paid for income taxes 2,300 1,350 Operating lease liability arising from obtaining right-of-use asset 187 108 See accompanying notes to consolidated financial statements 7 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION: The accompanying consolidated financial statements include the accounts of Ohio Valley Banc Corp. (“Ohio Valley”) and its wholly-owned subsidiaries, The Ohio Valley Bank Company (the “Bank”), Loan Central, Inc., a consumer finance company, Ohio Valley Financial Services Agency, LLC, an insurance agency, and OVBC Captive, Inc., a limited purpose property and casualty insurance company. The Bank has two wholly-owned subsidiaries, Race Day Mortgage, Inc. (“Race Day”), 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. Currently, there are no remaining loan applications to complete, and all commissions earned on mortgage application referrals have been recorded. An exact date of closing is still yet to be determined. Ohio Valley and its subsidiaries are collectively referred to as the “Company.” All material intercompany accounts and transactions have been eliminated in consolidation. These interim financial statements are prepared by the Company without audit and reflect all adjustments of a normal recurring nature which, in the opinion of management, are necessary to present fairly the consolidated financial position of the Company at September 30, 2023, and its results of operations and cash flows for the periods presented. The results of operations for the three and nine months ended September 30, 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. 8 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 $ 433 at September 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 September 30, 2023. 9 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 September 30, 2023, there was $ 2 in the ACL related to HTM debt securities, which included a $ 1 recovery of provision expense during the three and nine months ended September 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 September 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. 10 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 September 30, 2023, there was $ 8,173 in the ACL related to loans, with corresponding provision expense of $ 812 and $ 1,391 during the three and nine months ended September 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. 11 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 September 30, 2023, there was $ 643 in the ACL related to off-balance sheet credit exposures, with corresponding provision expense of $ 77 and $ 11 during the three and nine months ended September 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 4,775,308 and 4,771,774 for the three months ended September 30, 2023 and 2022 , respectively. The weighted average common shares outstanding were 4,775,103 and 4,768,246 for the nine months ended September 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. 12 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). 13 NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) Assets and Liabilities Measured on a Recurring Basis Assets and liabilities measured at fair value on a recurring basis are summarized below: Fair Value Measurements at September 30, 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 $ 55,863 $ — $ — U.S. Government sponsored entity securities — 5,674 — Agency mortgage-backed securities, residential — 105,305 — Interest rate swap derivatives — 1,607 — Liabilities: Interest rate swap derivatives — ( 1,607 ) — 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 September 30, 2023 and December 31, 2022. There was no other real estate owned measured at fair value less costs to sell at September 30, 2023 and December 31, 2022. Furthermore, there were no corresponding write downs during the three and nine months ended September 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 September 30, 2023 and December 31, 2022. 14 NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) The carrying amounts and estimated fair values of financial instruments at September 30, 2023 and December 31, 2022 are as follows: Carrying Fair Value Measurements at September 30, 2023 Using Value Level 1 Level 2 Level 3 Total Financial Assets: Cash and cash equivalents $ 91,190 $ 91,190 $ — $ — $ 91,190 Certificates of deposit in financial institutions - — - — - Securities available for sale 166,842 55,863 110,979 — 166,842 Securities held to maturity 8,946 — 4,873 3,056 7,929 Loans, net 953,049 — — 922,791 922,791 Interest rate swap derivatives 1,607 — 1,607 — 1,607 Accrued interest receivable 3,743 — 595 3,148 3,743 Financial liabilities: Deposits 1,095,540 774,344 319,424 — 1,093,768 Other borrowed funds 45,751 — 43,888 — 43,888 Subordinated debentures 8,500 — 8,500 — 8,500 Interest rate swap derivatives 1,607 — 1,607 — 1,607 Accrued interest payable 4,701 — 4,701 — 4,701 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. 15 NOTE 3 – SECURITIES The following table summarizes the amortized cost and fair value of securities available for sale and securities held to maturity at September 30, 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 September 30 , 2023 U.S. Government securities $ 58,717 $ — $ ( 2,854 ) $ 55,863 U.S. Government sponsored entity securities 6,527 — ( 853 ) 5,674 Agency mortgage-backed securities, residential 122,446 — ( 17,141 ) 105,305 Total securities $ 187,690 $ — $ ( 20,848 ) $ 166,842 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 September 30 , 2023 Obligations of states and political subdivisions $ 8,947 $ 13 $ ( 1,032 ) $ 7,928 $ ( 2 ) Agency mortgage-backed securities, residential 1 — — 1 — Total securities $ 8,948 $ 13 $ ( 1,032 ) $ 7,929 $ ( 2 ) 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 September 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 $ 18,390 $ 18,203 $ 585 $ 584 Due in over one to five years 46,854 43,334 3,885 3,658 Due in over five to ten years — — 2,207 1,850 Due after ten years — — 2,270 1,836 Agency mortgage-backed securities, residential 122,446 105,305 1 1 Total debt securities $ 187,690 $ 166,842 $ 8,948 $ 7,929 There were no sales of securities during the three and nine months ended September 30, 2023 and 2022. Debt securities with a carrying value of approximately $ 134,812 at September 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. 16 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 September 30, 2023 and December 31, 2022, aggregated by major security type and length of time in a continuous unrealized loss position: September 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 $ 12,257 $ ( 232 ) $ 43,606 $ ( 2,622 ) $ 55,863 $ ( 2,854 ) U.S. Government sponsored entity securities — — 5,674 ( 853 ) 5,674 ( 853 ) Agency mortgage-backed securities, residential — — 105,305 ( 17,141 ) 105,305 ( 17,141 ) Total available for sale $ 12,257 $ ( 232 ) $ 154,585 $ ( 20,616 ) $ 166,842 $ ( 20,848 ) 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 September 30, 2023, the Company had 102 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 80 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 September 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 September 30, 2023. 17 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 Nine months ended September 30, 2023 Allowance for credit losses: Beginning balance $ — Impact of adopting ASC 326 3 Provision for (recovery of) credit loss expense ( 1 ) Allowance for credit losses ending balance $ 2 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 September 30, 2023, there were no past due principal and interest payments related to held to maturity securities. Upon adoption of ASC 326 on January 1, 2023, 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. During the third quarter of 2023, the cumulative loss rate decreased to 0.02 % , resulting in a $ 1 recovery of provision expense during the three and nine months ended September 30, 2023. NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES Loans are comprised of the following: September 30, 2023 December 31, 2022 Residential real estate $ 321,967 $ 297,036 Commercial real estate: Owner-occupied 79,503 72,719 Nonowner-occupied 183,369 182,831 Construction 48,538 33,205 Commercial and industrial 157,275 151,232 Consumer: Automobile 62,216 54,837 Home equity 32,073 27,791 Other 76,281 65,398 961,222 885,049 Less: Allowance for credit losses ( 8,173 ) ( 5,269 ) Loans, net $ 953,049 $ 879,780 At September 30, 2023 and December 31, 2022 , net deferred loan origination costs were $ 892 and $ 663 , respectively. At September 30, 2023 and December 31, 2022 , net unamortized loan purchase premiums were $ 739 and $ 1,142 , respectively. 18 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 September 30, 2023 and December 31, 2022: September 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 $ 17 $ — $ 1,299 $ 1,299 Commercial real estate: Owner-occupied — 787 — 787 Nonowner-occupied — — 64 64 Construction — — 2 2 Commercial and industrial — — 51 51 Consumer: Automobile 55 — 188 188 Home equity — — 97 97 Other 31 — 127 127 Total $ 103 $ 787 $ 1,828 $ 2,615 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 $ 55 and $ 142 of interest income in nonaccrual loans during the three and nine months ended September 30, 2023. 19 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 September 30, 2023 and December 31, 2022: September 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 $ 1,832 $ 337 $ 428 $ 2,597 $ 319,370 $ 321,967 Commercial real estate: Owner-occupied 99 74 787 960 78,543 79,503 Nonowner-occupied 64 — — 64 183,305 183,369 Construction 4 — — 4 48,534 48,538 Commercial and industrial 73 79 51 203 157,072 157,275 Consumer: Automobile 789 196 191 1,176 61,040 62,216 Home equity 723 — 97 820 31,253 32,073 Other 470 422 150 1,042 75,239 76,281 Total $ 4,054 $ 1,108 $ 1,704 $ 6,866 $ 954,356 $ 961,222 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. 20 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 September 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 September 30 , 2023 2023 2022 2021 2020 2019 Prior Cost Basis Total Commercial real estate: Owner-occupied Risk Rating Pass $ 9,870 $ 10,287 $ 24,938 $ 6,041 $ 6,427 $ 17,397 $ 1,203 $ 76,163 Special Mention — — — — — 704 — 704 Substandard — — — — 484 1,853 299 2,636 Doubtful — — — — — — — — Total $ 9,870 $ 10,287 $ 24,938 $ 6,041 $ 6,911 $ 19,954 $ 1,502 $ 79,503 Current Period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — 21 NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued) Revolving Loans Term Loans Amortized Cost Basis by Origination Year Amortized September 30 , 2023 2023 2022 2021 2020 2019 Prior Cost Basis Total Commercial real estate: Nonowner-occupied Risk Rating Pass $ 9,898 $ 29,533 $ 32,637 $ 25,574 $ 15,558 $ 62,778 $ 1,440 $ 177,418 Special Mention — — — 3,251 — 1,853 — 5,104 Substandard — — 847 — — — — 847 Doubtful — — — — — — — — Total $ 9,898 $ 29,533 $ 33,484 $ 28,825 $ 15,558 $ 64,631 $ 1,440 $ 183,369 Current Period gross charge-offs $ — $ — $ 132 $ — $ — $ — $ — $ 132 Revolving Loans Term Loans Amortized Cost Basis by Origination Year Amortized September 30 , 2023 2023 2022 2021 2020 2019 Prior Cost Basis Total Commercial real estate: Construction Risk Rating Pass $ 11,396 $ 26,764 $ 6,275 $ 307 $ 405 $ 3,336 $ 55 $ 48,538 Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Total $ 11,396 $ 26,764 $ 6,275 $ 307 $ 405 $ 3,336 $ 55 $ 48,538 Current Period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Revolving Loans Term Loans Amortized Cost Basis by Origination Year Amortized September 30 , 2023 2023 2022 2021 2020 2019 Prior Cost Basis Total Commercial and Industrial: Risk Rating Pass $ 5,170 $ 32,171 $ 27,308 $ 31,884 $ 421 $ 28,503 $ 29,844 $ 155,301 Special Mention 147 — 61 — — 24 90 322 Substandard — — — 1,454 — 198 — 1,652 Doubtful — — — — — — — — Total $ 5,317 $ 32,171 $ 27,369 $ 33,338 $ 421 $ 28,725 $ 29,934 $ 157,275 Current Period gross charge-offs $ — $ — $ — $ — $ — $ — $ 29 $ 29 22 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 September 30, 2023 and December 31, 2022: Revolving Loans Term Loans Amortized Cost Basis by Origination Year Amortized September 30 , 2023 2023 2022 2021 2020 2019 Prior Cost Basis Total Residential Real Estate: Payment Performance Performing $ 39,481 $ 44,441 $ 52,742 $ 46,166 $ 22,172 $ 96,487 $ 19,162 $ 320,651 Nonperforming — — — — 187 1,129 — 1,316 Total $ 39,481 $ 44,441 $ 52,742 $ 46,166 $ 22,359 $ 97,616 $ 19,162 $ 321,967 Current Period gross charge-offs $ — $ — $ 3 $ — $ — $ 100 $ — $ 103 Revolving Loans Term Loans Amortized Cost Basis by Origination Year Amortized September 30 , 2023 2023 2022 2021 2020 2019 Prior Cost Basis Total Consumer: Automobile Payment Performance Performing $ 24,641 $ 22,862 $ 8,264 $ 3,608 $ 1,508 $ 1,090 $ — $ 61,973 Nonperforming 8 126 57 22 10 20 — 243 Total $ 24,649 $ 22,988 $ 8,321 $ 3,630 $ 1,518 $ 1,110 $ — $ 62,216 Current Period gross charge-offs $ 21 $ 117 $ 112 $ 5 $ 26 $ 3 $ — $ 284 23 NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES (Continued) Revolving Loans Term Loans Amortized Cost Basis by Origination Year Amortized September 30 , 2023 2023 2022 2021 2020 2019 Prior Cost Basis Total Consumer: Home Equity Payment Performance Performing $ — $ — $ — $ — $ — $ 6 $ 31,970 $ 31,976 Nonperforming — — — — — — 97 97 Total $ — $ — $ — $ — $ — $ 6 $ 32,067 $ 32,073 Current Period gross charge-offs $ — $ — $ — $ — $ — $ — $ 87 $ 87 Revolving Loans Term Loans Amortized Cost Basis by Origination Year Amortized September 30 , 2023 2023 2022 2021 2020 2019 Prior Cost Basis Total Consumer: Other Payment Performance Performing $ 15,529 $ 27,250 $ 12,046 $ 5,017 $ 1,370 $ 1,084 $ 13,827 $ 76,123 Nonperforming 7 11 21 100 8 6 5 158 Total $ 15,536 $ 27,261 $ 12,067 $ 5,117 $ 1,378 $ 1,090 $ 13,832 $ 76,281 Current Period gross charge-offs $ 223 $ 71 $ 93 $ 67 $ 26 $ 52 $ 191 $ 723 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 4.23 % of total loans were unsecured at September 30, 2023, down from 4.52 % at December 31, 2022. 24 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 nine months ended September 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 September 30, 2023 and 2022: September 30 , 2023 Residential Real Estate Commercial Real Estate Commercial and Industrial Consumer Total Allowance for credit losses: Beginning balance $ 2,107 $ 2,252 $ 1,115 $ 2,097 $ 7,571 Provision for credit losses ( 44 ) 238 68 550 812 Loans charged-off ( 32 ) — — ( 453 ) ( 485 ) Recoveries 25 73 7 170 275 Total ending allowance balance $ 2,056 $ 2,563 $ 1,190 $ 2,364 $ 8,173 September 30 , 2022 Residential Real Estate Commercial Real Estate Commercial and Industrial Consumer Total Allowance for credit losses: Beginning balance $ 614 $ 1,846 $ 1,548 $ 1,206 $ 5,214 Provision for credit losses ( 189 ) 42 ( 308 ) 77 ( 378 ) Loans charged-off ( 57 ) ( 20 ) — ( 262 ) ( 339 ) Recoveries 55 29 36 194 314 Total ending allowance balance $ 423 $ 1,897 $ 1,276 $ 1,215 $ 4,811 The following table presents the activity in the allowance for credit losses by portfolio segment for the nine months ended September 30, 2023 and 2022: September 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 84 394 ( 87 ) 1,000 1,391 Loans charged-off ( 103 ) ( 132 ) ( 29 ) ( 1,094 ) ( 1,358 ) Recoveries 49 101 129 430 709 Total ending allowance balance $ 2,056 $ 2,563 $ 1,190 $ 2,364 $ 8,173 September 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 ( 545 ) ( 683 ) 271 266 ( 691 ) Loans charged-off ( 99 ) ( 36 ) ( 618 ) ( 964 ) ( 1,717 ) Recoveries 87 68 52 529 736 Total ending allowance balance $ 423 $ 1,897 $ 1,276 $ 1,215 $ 4,811 25 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 September 30, 2023: Collateral Type September 30, 2023 Real Estate Business Assets Total Residential real estate $ 229 $ — $ 229 Commercial real estate: Owner-occupied 517 270 787 Consumer: Home equity 27 — 27 Total collateral dependent loans $ 773 $ 270 $ 1,043 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 $ — 26 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 nine months ended September 30, 2022: Three months ended September 30, 2022 Nine months ended September 30, 2022 Average Impaired Loans Interest Income Recognized Cash Basis Interest Recognized Average Impaired Loans Interest Income Recognized Interest Income Recognized With an allowance recorded: $ — $ — $ — $ — $ — $ — With no related allowance recorded: Commercial real estate: Owner-occupied 1,650 18 18 1,676 66 66 Nonowner-occupied 381 8 8 382 22 22 Consumer: Home equity 14 1 1 22 1 1 Total $ 2,045 $ 27 $ 27 $ 2,080 $ 89 $ 89 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 September 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 $ 349 and $ 370 as of September 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 September 30, 2023, the contract amounts of these instruments totaled approximately $ 128,781 , 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 September 30, 2023, the estimated ACL related to off-balance sheet commitments was $ 643 , which included $ 77 provision expense during the three months ended September 30, 2023 and $ 11 in provision during the nine months ended September 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 September 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 September 30 , 2023 $ 43,357 $ 2,394 $ 45,751 December 31, 2022 $ 15,569 $ 2,376 $ 17,945 27 NOTE 6 – OTHER BORROWED FUNDS (Continued) Pursuant to collateral agreements with the FHLB, advances are secured by $ 315,076 in qualifying mortgage loans, $ 34,202 in commercial loans and $ 2,922 in FHLB stock at September 30, 2023. Fixed-rate FHLB advances of $ 43,357 mature through 2042 and have interest rates ranging from 1.53 % to 4.91 % and a year-to-date weighted average cost of 3.19 % at September 30, 2023 and 2.34 % at December 31, 2022. There were no variable-rate FHLB borrowings at September 30, 2023. At September 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 September 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 $ 180,030 at September 30, 2023. Of this maximum borrowing capacity, the Company had $ 87,522 available to use as additional borrowings, of which $ 87,522 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 3.61 % at September 30, 2023, as compared to 1.35 % at December 31, 2022. At September 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 September 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 $ 49,150 at September 30, 2023 and $ 75,140 at December 31, 2022. Scheduled principal payments as of September 30, 2023: FHLB Borrowings Promissory Notes Totals 2023 $ 1,611 $ — $ 1,611 2024 4,959 2,394 7,353 2025 4,983 — 4,983 2026 12,908 — 12,908 2027 11,397 — 11,397 Thereafter 7,499 — 7,499 $ 43,357 $ 2,394 $ 45,751 28 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 95.1 % and 94.0 % of total consolidated revenues for the quarters end September 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 September 30, 2023 Banking Consumer Finance Total Company Net interest income $ 10,816 $ 560 $ 11,376 Provision for (recovery of) credit losses 727 161 888 Noninterest income 2,526 42 2,568 Noninterest expense 9,793 586 10,379 Provision for income taxes 456 ( 30 ) 426 Net income 2,366 ( 115 ) 2,251 Assets 1,299,554 14,398 1,313,952 Three Months Ended September 30, 2022 Banking Consumer Finance Total Company Net interest income $ 11,299 $ 546 $ 11,845 Provision for (recovery of) credit losses ( 400 ) 22 ( 378 ) Noninterest income 2,573 42 2,615 Noninterest expense 9,743 604 10,347 Provision for income taxes 809 ( 8 ) 801 Net income 3,720 ( 30 ) 3,690 Assets 1,238,597 13,877 1,252,474 Nine Months Ended September 30, 2023 Banking Consumer Finance Total Company Net interest income $ 33,070 $ 1,642 $ 34,712 Provision for (recovery of) credit losses 1,351 50 1,401 Noninterest income 8,144 904 9,048 Noninterest expense 29,173 1,893 31,066 Provision for income taxes 1,759 126 1,885 Net income 8,931 477 9,408 Assets 1,299,554 14,398 1,313,952 Nine Months Ended September 30, 2022 Banking Consumer Finance Total Company Net interest income $ 30,791 $ 1,597 $ 32,388 Provision for (recovery of) credit losses ( 700 ) 9 ( 691 ) Noninterest income 7,987 984 8,971 Noninterest expense 28,296 1,862 30,158 Provision for income taxes 1,930 148 2,078 Net income 9,252 562 9,814 Assets 1,238,597 13,877 1,252,474 29 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 31 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 September 30, 2023 As of December 31, 2022 Operating leases: Operating lease right-of-use assets $ 1,251 $ 1,294 Operating lease liabilities 1,251 1,294 The components of lease cost are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Operating lease cost $ 49 $ 51 $ 155 $ 135 Short-term lease expense 7 10 7 28 Future undiscounted lease payments for operating leases with initial terms of one year or more as of September 30, 2023 are as follows: Operating Leases 2023 (remaining) $ 49 2024 195 2025 195 2026 140 2027 108 Thereafter 875 Total lease payments 1,562 Less: Imputed Interest ( 311 ) Total operating leases $ 1,251 Other information is as follows: As of September 30, 2023 As of December 31, 2022 Weighted-average remaining lease term for operating leases 13.2 years 12.1 years Weighted-average discount rate for operating leases 2.92 % 2.70 % 30 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: September 30, 2023 December 31, 2022 Noninterest-bearing deposits $ 326,545 $ 354,413 Interest-bearing deposits: NOW accounts 188,649 209,758 Savings and money market 259,150 311,565 Time deposits of $250,000 or less 254,192 115,049 Time deposits of more than $250,000 67,004 36,870 Total interest-bearing deposits 768,995 673,242 Total deposits $ 1,095,540 $ 1,027,655 Brokered deposits, included in time deposits, were $ 66,071 and $ 3,999 at September 30, 2023 and December 31, 2022, respectively. 31