OHIO VALLEY BANC CORP 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollars in thousands, except share and per share data) Cautionary Note Regarding Forward-Looking Statements Certain statements contained in this quarterly report on Form 10-Q (the “report”) and other publicly available documents incorporated herein by reference constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended (the “Exchange Act”), and as defined in the Private Securities Litigation Reform Act of 1995. Such statements are often, but not always, identified by the use of such words as “believes,” “anticipates,” “expects,” “intends,” “plan,” “goal,” “seek,” “project,” “estimate,” “strategy,” “future,” “likely,” “may,” “should,” “will,” and other similar expressions. Such statements involve various important assumptions, risks, uncertainties, and other factors, many of which are beyond our control, particularly with regard to developments related to the current economic and geopolitical landscape, and which could cause actual results to differ materially from those expressed in such forward looking-statements. However, it is difficult to predict the effect of known factors, and by Ohio Valley Banc Corp. (“Ohio Valley”) cannot anticipate all factors that could affect future results. Important factors that could cause actual results to differ materially from expectations expressed in or implied in forward looking statements include, but are not limited to: the effects of fluctuating interest rates on our customers’ operations and financial condition; changes in political, economic or other factors, such as inflation rates, recessionary or expansive trends, taxes, tariffs, the effects of implementation of legislation and the continuing economic uncertainty in various parts of the world; competitive pressures; the level of defaults and prepayment on loans made by Ohio Valley and its direct and indirect subsidiaries (collectively, the “Company”); unanticipated litigation, claims, or assessments; fluctuations in the cost of obtaining funds to make loans; and regulatory changes. Additional detailed information concerning such factors is available in the Company’s filings with the Securities and Exchange Commission, under the Exchange Act, including the disclosure under the heading “Item 1A. Risk Factors” of Part I of the 2024 Annual Report for the fiscal year ended December 31, 2024 and elsewhere in this document (including, without limitation, in conjunction with the forward looking statements themselves and under the heading “Critical Accounting Estimates”). All forward looking statements are qualified in their entirety by these and other cautionary statements that the Company makes from time to time in its other SEC filings and public communications. Readers are cautioned not to place undue reliance on such forward looking statements, which speak only as of the date hereof. The Company undertakes no obligation and disclaims any duty to update or revise any forward looking statements, whether as a result of new information, unanticipated future events or otherwise, except as required by law. BUSINESS OVERVIEW: The following discussion on consolidated financial statements include the accounts of Ohio Valley and its wholly-owned subsidiaries, The Ohio Valley Bank Company (the “Bank”), Loan Central, Inc., a consumer finance company (“Loan Central”), and Ohio Valley Financial Services Agency, LLC, an insurance agency. The Bank has one active, wholly-owned subsidiary, Ohio Valley REO, LLC, an Ohio limited liability company. The Company is primarily engaged in commercial and retail banking, offering a blend of commercial and consumer banking services within southeastern Ohio as well as western West Virginia. The banking services offered by the Bank include the acceptance of deposits in checking, savings, time and money market accounts; the making and servicing of personal and commercial loans; the making of construction and real estate loans; and credit card services. The Bank also offers individual retirement accounts, safe deposit boxes, wire transfers and other standard banking products and services. Furthermore, the Bank offers Tax Refund Advance Loans (“TALs”) to Loan Central tax customers. A TAL represents a short-term loan offered by the Bank to tax preparation customers of Loan Central. IMPACT OF PARTICIPATING IN THE OHIO HOMEBUYER PLUS PROGRAM: During the third quarter of 2024, the Company began participating in a program offered by the Ohio Treasurer (the “Treasurer”) called Ohio Homebuyer Plus. The program is designed to encourage Ohio residents to save for the purchase of a home. As a participant in the program, the Company developed the “Sweet Home Ohio” deposit account to offer participants an above-market interest rate of 5.83%, along with a deposit bonus to assist customers in achieving their home savings goals. For each Sweet Home Ohio account that was opened, the Company received a deposit from the Treasurer at a subsidized interest rate of 0.86%. Accounts connected with Ohio Homebuyer Plus must be used within five years and the corresponding balance of Treasurer deposits will fluctuate based upon active customer accounts. At June 30, 2025, the balance of Sweet Home Ohio accounts totaled $8,419 compared to $6,775 at December 31, 2024. At June 30, 2025, the amount of Treasurer deposits totaled $77,265 compared to $97,366 at December 31, 2024. Since the Treasurer deposits are classified as public funds, which are required to be collateralized, the Company invested the funds in securities to be pledged as collateral to the Treasurer. At June 30, 2025, the balance of securities used to collateralize the Treasurer deposits totaled $81,123 compared to $102,871 at December 31, 2024. 32 FINANCIAL RESULTS OVERVIEW: Net income totaled $4,210 during the second quarter of 2025, an increase of $1,238 from the same period of 2024. Earnings per share for the second quarter of 2025 finished at $.89 per share, compared to $.63 per share during the second quarter of 2024. Net income totaled $8,616 during the first six months of 2025, an increase of $2,851 from the same period of 2024. Earnings per share during the first six months of 2025 finished at $1.83 per share, compared to $1.21 per share during the first six months of 2024. Earnings were positively impacted by the growth in average earning assets, which increased 8.3% and 9.5% during both the quarterly and year-to-date periods, respectively. The increases came primarily from loans and securities, which contributed to a 21.5% and 19.5% increase in net interest income during both the three and six months ended June 30, 2025, compared to the same periods in 2024, respectively. Also contributing to higher net earnings were increases in noninterest income, up 5.4% and 1.5%, during both the three and six months ended June 30, 2025, compared to the same periods in 2024, respectively. The positive effects from higher net interest and noninterest income were partially offset by higher provision and noninterest expense. During the second quarter of 2025, provision expense increased $967 in large part due to strong asset growth and higher net charge-offs, which contributed to a 67.8% increase in provision expense on a year-to-date basis. In addition, noninterest expense increased 1.7% and 1.2% during both the three and six months ended June 30, 2025, compared to the same periods in 2024, respectively. Higher net earnings also had a corresponding impact on the Company’s annualized net income to average asset ratio, or return on assets, which increased 32 basis points to 1.16% during the first six months of 2025, compared to the same period in 2024. In addition, the Company’s net income to average equity ratio, or return on equity, increased 329 basis points to 11.30% during the first six months of 2025, compared to the same period in 2024. During the three months ended June 30, 2025, net interest income increased $2,572, or 21.5%, over the same period in 2024. During the six months ended June 30, 2025, net interest income increased $4,522, or 19.5%, over the same period in 2024. Net interest income growth during both the quarterly and year-to-date periods came mostly from an increase in average earning assets, led by securities and loans. During the three months ended June 30, 2025, average securities increased $103,063 while average loans increased $51,150. During the six months ended June 30, 2025, average securities increased $99,312 while average loans increased $59,742. The growth in average securities came in large part due to the increased pledging requirements on public fund deposits as part of the Ohio Homebuyer Plus program. The growth in average loans was related to the commercial and residential real estate lending segments. Earnings were further enhanced by a higher net interest margin, increasing 43 basis points during the three months ended June 30, 2025, and 33 basis points during the six months ended June 30, 2025, compared to the same periods in 2024, respectively. Margin growth was related to an increase in the yield on earning assets, while the cost of funding sources decreased. The improvement to earning asset yields was directly related to the growth in higher-yielding securities and loans, and the accretion of an $817 market discount on purchased loans that was recognized in the second quarter of 2025. The cost of funding sources decreased as the composition of funding sources shifted to lower cost deposit sources, such as Negotiable Order of Withdrawal (“NOW”), savings, money market, and checking accounts. During the three and six months ended June 30, 2025, the Company’s provision for credit loss expense increased $967 and $632, when compared to the same periods in 2024. The increases during both periods came primarily from growth in loan balances, higher net charge-offs, and an increase in modeled loss rates in relation to the regression in GDP and unemployment projections. During the three and six months ended June 30, 2025, noninterest income increased $147, or 5.4%, and $97, or 1.5%, from the same periods in 2024. The increases came mostly from interchange income earned on debit and credit cards, which increased $56 and $60 during the three and six months ended June 30, 2025, when compared to the same periods in 2024. Other noninterest income also increased $71 during the second quarter of 2025 and $21 during the first half of 2025, when compared to the same periods in 2024. Increases to other noninterest income came mostly from lower losses related to both other real estate owned (“OREO”) and the pending sale of premises, while card merchant fees and mortgage application referral fees also increased during both the quarterly and year-to-date periods. These increases were partially offset by a decline in swap asset revenue. 33 During the three and six months ended June 30, 2025, noninterest expense increased $186, or 1.7%, and $263, or 1.2%, over the same periods in 2024. Noninterest expenses were led by increases in data processing and marketing costs, which collectively increased $239, or 23.7%, and $411, or 20.1%, during the three and six months ended June 30, 2025, over the same periods in 2024. Data processing expenses were impacted by costs associated with the Company’s debit and credit card platforms. Marketing cost increases were impacted by higher donation and advertising budgets for 2025. The Company’s largest noninterest expense, salaries and employee benefits, increased $8 during the three months ended June 30, 2025, but decreased $147 during the six months ended June 30, 2025, when compared to the same periods in 2024. Cost savings in salaries and employee benefits during the first half of 2025 were the direct result of a voluntary early retirement program implemented in 2024. The changes in the remaining noninterest expense areas were minimal. The $328 and $873 increase in the Company’s provision for income taxes during the three and six months ended June 30, 2025, compared to the same periods in 2024, was largely due to the increase in operating income affected by the factors mentioned above, as well as an increase in the effective tax rate. At June 30, 2025, total assets were $1,510,358, an increase of $6,946 from year-end 2024. The increase in assets was primarily the result of a $39,442 increase in loans, which was driven by strong second quarter loan growth of $57,971 that more than offset the $18,529 decrease in loans that occurred during the first quarter. The first quarter loan decrease was related to a $31,473 decrease in a warehouse line of credit extended to another mortgage lender. The second quarter growth in loans occurred primarily in the targeted areas of commercial real estate, commercial and industrial, and residential real estate loans. This included a $12,777 repurchase of two commercial and industrial loans in June 2025 that had been previously participated out The increase in loans was primarily funded by a $29,581 decrease in interest-bearing balances maintained at the FRB. Total securities also decreased by $3,334 in relation to a lower need for securities to be pledged to the Treasurer due to a $20,101 deposit balance decrease from year-end 2024. At June 30, 2025, total liabilities were $1,349,598, down $3,486 from year-end 2024. Contributing most to this decrease were lower interest-bearing deposit balances, down $7,406 from year-end 2024, consisting of lower balances from NOW accounts (-5.6%), and time deposits (-2.2%), partially offset by an increase in savings and money market accounts (+5.8%). At June 30, 2025, the Company experienced higher noninterest-bearing demand deposits, increasing $8,990 from year-end 2024. At June 30, 2025, total shareholders' equity was $160,760, up $10,432 from December 31, 2024. This increase came primarily from year-to-date net income and an after-tax increase in net unrealized gains on AFS securities, partially offset by year-to-date cash dividends paid. Regulatory capital ratios of the Company remained higher than the "well capitalized" minimums. Comparison of Financial Condition at June 30, 2025 and December 31, 2024 The following discussion focuses in more detail on the consolidated financial condition of the Company at June 30, 2025 compared to December 31, 2024. This discussion should be read in conjunction with the interim consolidated financial statements and the notes included in this Form 10‑Q. Cash and Cash Equivalents At June 30, 2025, cash and cash equivalents were $54,627, a decrease of $28,480, or 34.3%, from December 31, 2024. The decrease came primarily from interest-bearing deposits with banks, which were down $29,581, or 43.9%, from year-end 2024. The Company’s interest-bearing FRB clearing account contributed most to the decrease in interest-bearing deposits with banks, representing 68% of cash and cash equivalents at June 30, 2025. The Company utilizes its interest-bearing FRB clearing account to manage excess funds, as well as to assist in funding earning asset growth. The decrease in excess funds during the first six months of 2025 came primarily from an increase in loans, which were up $39,442 from year-end 2024. The interest rate paid on both the required and excess reserve balances of the FRB is based on the targeted federal funds rate established by the Federal Open Market Committee, which remained at a range of 4.25% to 4.50% at June 30, 2025 and December 31, 2024. The interest-bearing deposit balances in the FRB are 100% secured by the U.S. Government. As liquidity levels continuously vary based on consumer activities, amounts of cash and cash equivalents can vary widely at any given point in time. The Company’s focus during periods of heightened liquidity will be to invest excess funds into longer-term, higher-yielding assets, primarily loans, when opportunities arise. 34 Securities The balance of total securities decreased $3,334, or 1.2% from year-end 2024. As previously mentioned, the decrease in securities was impacted by the lower need for securities to pledge to the Treasurer for deposits related to the Homebuyers Plus program. The Company’s U.S. Government securities portfolio decreased $63,226 from $168,030 at year-end 2024 to $104,804 at June 30, 2025, impacted by $65,180 in scheduled maturities. The Company utilized a portion of its proceeds from maturities of U.S. Government securities to fund additional purchases in U.S. Government agency (“Agency”) mortgage-backed securities, which were up $60,295, or 64.0%, from year-end 2024. During the first half of 2025, purchases of Agency mortgage-backed securities totaled $67,306, while being partially offset by $10,841 in principal repayments. The monthly repayment of principal has been the primary advantage of Agency mortgage-backed securities as compared to other types of investment securities, which deliver proceeds upon maturity or call date. At June 30, 2025, the Company’s investment securities portfolio was comprised mostly of Agency mortgage-backed securities at 56.8% of total investments, while U.S. Government securities represented 38.6%. Included in the factors mentioned above were changes in net unrealized losses associated with AFS securities. During the first half of 2025, a decrease in long-term market rates led to a $5,051 increase in the fair value associated with the Company’s AFS securities at June 30, 2025. The fair value of an investment security moves inversely to interest rates, so as rates decreased, the fair value increased, causing the unrealized loss in the portfolio to decrease. These changes in rates are typical and do not impact earnings of the Company as long as the securities are held to full maturity. Loans The loan portfolio represents the Company’s largest asset category and is its most significant source of interest income. Loan segments have been identified as Commercial Real Estate, Commercial and Industrial, Residential Real Estate, and Consumer. Commercial real estate consists of owner-occupied, nonowner-occupied and construction loans. Owner-occupied loans consist of nonfarm, nonresidential properties. A commercial owner-occupied loan is a borrower purchased building or space for which the repayment of principal is dependent upon cash flows from the ongoing operations conducted by the party, or an affiliate of the party, who owns the property. Owner-occupied loans of the Company include loans secured by hospitals, churches, and hardware and convenience stores. Nonowner-occupied loans are property loans for which the repayment of principal is dependent upon rental income associated with the property or the subsequent sale of the property, such as apartment buildings, condominiums, hotels, and motels. These loans are primarily impacted by the level of interest rates associated with the debt and to local economic conditions, which dictate occupancy rates and the amount of rent charged. The increase in debt service due to higher interest rates may not be able to be passed on to tenants. As part of the origination process, loan interest rates and occupancy rates are stressed to determine the impact on the borrower’s ability to maintain adequate debt service under different economic conditions. Furthermore, the Company monitors the concentration in any one industry and has established limits relative to capital. In addition, credit quality trends are monitored by industry to determine if a change in the risk exposure to a certain industry may warrant a change in our underwriting standards. Table I has been provided to illustrate the industry composition of the commercial real estate portfolio. Commercial construction loans are extended to individuals as well as corporations for the construction of an individual property or multiple properties and are secured by raw land and the subsequent improvements. Commercial real estate also includes loan participations with other banks outside the Company’s primary market area. Although the Company is not actively seeking to participate in loans originated outside its primary market area, it has taken advantage of the relationships it has with certain lenders in those areas where the Company believes it can profitably participate with an acceptable level of risk. Commercial and industrial loans consist of loans to corporate borrowers primarily in small to mid-sized industrial and commercial companies that include service, retail, and wholesale merchants. Collateral securing these loans includes equipment, inventory, and stock. Residential real estate loans consist of loans to individuals for the purchase of 1-4 family primary residences with repayment primarily through wage or other income sources of the individual borrower. The Company’s loss exposure to these loans is dependent on local market conditions for residential properties as loan amounts are determined, in part, by the fair value of the property at origination. 35 COMMERCIAL REAL ESTATE BY INDUSTRY As of June 30, 2025 Table I The following table provides the composition of commercial real estate loans by industry classification (as defined by the North American Industry Classification System). (dollars in thousands) Amount % of Total Real Estate Rental and Leasing $ 212,834 50.75 % Accommodation and Food Services 71,780 17.12 % Retail Trade 31,220 7.44 % Health Care and Social Assistance 24,565 5.86 % Manufacturing 18,957 4.52 % Construction 16,169 3.86 % All Other 43,811 10.45 % Total $ 419,336 100.00 % Consumer loans are primarily secured by automobiles, mobile homes, recreational vehicles, and other personal property. Personal loans and unsecured credit card receivables are also included as consumer loans. The Company’s loan balances increased to $1,101,267 at June 30, 2025, representing an increase of $39,442, or 3.7%, as compared to $1,061,825 at December 31, 2024. The increase in loans came primarily from the commercial real estate and commercial and industrial portfolios, partially offset by decreases in the residential real estate and consumer loan portfolios from year-end 2024. The Company’s commercial loan portfolio increased $64,117, or 12.1%, from year-end 2024. The most significant driver of this increase was higher loan balances within the commercial real estate portfolio, which increased $46,349, or 12.4%, from year-end 2024. At June 30, 2025, commercial real estate loans represented the largest segment of the Company’s total loan portfolio at 38.1%. The increase from year-end 2025 came primarily from new originations within the owner- and nonowner-occupied loan segments. Commercial loans were also positively impacted by an increase in the commercial and industrial portfolio, which was up $17,768, or 11.2%, from year-end 2024. The growth was impacted by an increase in larger loan originations during the year. This included a $12,777 repurchase of two commercial and industrial loans in June 2025 that had been previously participated out. While management believes lending opportunities exist in the Company’s markets, future commercial lending activities will depend upon economic and other related conditions, such as general demand for loans in the Company’s primary markets, interest rates offered by the Company, and the effects of competitive pressure and normal underwriting considerations. Management will continue to place emphasis on its commercial lending, which generally yields a higher return on investment as compared to other types of loans. The increase in the Company’s commercial loan portfolio at June 30, 2025 was partially offset by decreases in the residential real estate and consumer loan portfolios. The Company’s residential real estate loan portfolio decreased $12,808, or 3.4%, from year-end 2024. At June 30, 2025, residential real estate loans represented the second largest segment of the Company’s total loan portfolio at 32.7%. As previously mentioned, the decrease was largely due to a $31,473 paydown in a warehouse line of credit extended to another mortgage lender. The warehouse lending line is used by the mortgage lender to make loans for the purchase of one- to four-family residential real estate properties. The mortgage lender eventually sells the loan and repays the Bank. The paydown was a result of lower mortgage volume due to higher mortgage rates and the increase in the lead bank’s internal capacity in relation to a capital infusion. At June 30, 2025, the balance of this line of credit was $0, but may increase in future periods if mortgage volume increases and the funding needs of the lead bank changes. The remaining residential real estate loan balances increased $18,665, or 5.0%, from year-end 2024. Through the first half of 2025, as mortgage rates continued to increase, the Company experienced fewer opportunities to sell long-term fixed rate loans to the secondary market. As a result of the elevated mortgage rates, mortgage customers selected more variable rate mortgage products instead of long-term fixed rate mortgage products. This had a direct impact on lowering loan volume within the long-term fixed rate loan portfolio (down $2,563) and contributed to a shift into more short-term variable rate mortgages (up $13,970) as of June 30, 2025. 36 Further decreases in loans came from the Company’s consumer loan portfolio, which was down $11,867, or 7.6%, from year-end 2024. This change was impacted by a $7,901, or 15.7%, decrease in automobile loans. This was directly impacted by management’s strategy to place more emphasis on higher yielding loan portfolios (i.e. commercial, and to a smaller extent, residential real estate). Indirect automobile loans bear additional costs from dealers that partially offset interest revenue and lower the rate of return. As a result, the Company exited the indirect lending business for automobiles and recreational vehicles during the fourth quarter of 2024. Decreases in consumer loans also came from a $7,020, or 10.9%, decrease in other consumer loans from year-end 2024, impacted by principal repayments and payoffs. Decreases in consumer loans were partially offset by a $3,054, or 7.2%, increase in home equity lines of credit. Allowance for Credit Losses The Company maintains an ACL that represents management’s best estimate of the appropriate level of losses and risks inherent in our applicable financial assets under the current expected credit loss (“CECL”) model. The amount of the ACL should not be interpreted as an indication that charge-offs in future periods will necessarily occur in those amounts, or at all. The determination of the ACL involves a high degree of judgement and subjectivity. Please refer to Note 1 of the notes to the financial statements for discussion regarding our ACL methodologies for securities and loans. For AFS debt securities, the Company evaluates the securities at each measurement date to determine whether the decline in the fair value below the amortized costs basis is due to credit-related factors or noncredit-related factors. As of June 30, 2025, the Company determined that all AFS securities that experienced a decline in fair value below the amortized cost basis from year-end 2024 were due to non-credit related factors. Furthermore, the Company 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. Therefore, no ACL was recorded, and no provision expense was recognized during the three and six months ended June 30, 2025. For HTM debt securities, the Company evaluates the securities collectively by major security type at each measurement date to determine expected credit losses based on issuer’s bond rating, historical loss, financial condition, and timely principal and interest payments. At June 30, 2025, a $1 ACL was recognized based on a .02% cumulative default rate taken from the S&P and Moody’s bond rating index. The $1 ACL for HTM debt securities was unchanged from December 31, 2024, resulting in no provision expense during the three and six months ended June 30, 2025. For loans, the Company’s ACL is management’s estimate of expected lifetime credit losses, measured over the contractual life of a loan, that considers historical loss experience, current conditions, and forecasts of future economic conditions. The ACL on loans is established through a provision for credit losses recognized in earnings. The ACL on loans is reduced by charge-offs on loans and is increased by recoveries of amounts previously charged off. Management employs a process and methodology to estimate the ACL on loans that evaluates both quantitative and qualitative factors within two main components. The first component involves pooling loans into portfolio segments for loans that share similar risk characteristics. The second component involves individually analyzed loans that do not share similar risk characteristics with loans that are pooled into portfolio segments. The ACL for loans with similar risk characteristics are collectively evaluated for expected credit losses based on certain quantitative information that include historical loss rates, prepayment rates, and curtailment rates. Expected credit losses on loans with similar characteristics are also determined by certain qualitative factors that include national unemployment rates, national gross domestic product forecasts, changes in lending policy, quality of loan review, and delinquency status. The ACL for loans that do not share similar risk characteristics are individually evaluated for expected credit losses primarily based on foreclosure status and whether a loan is collateral dependent. Expected credit losses on individually evaluated loans are then determined using the present value of expected future cash flows based upon the loan’s original effective interest rate, at the loan’s observable market price, or if the loan was collateral dependent, at the fair value of the collateral. As of June 30, 2025, the ACL for loans totaled $10,856, or 0.99%, of total loans. As of December 31, 2024, the ACL for loans totaled $10,088, or 0.95%, of total loans. The $768, or 7.6%, increase in the ACL came primarily from loans collectively evaluated. The increase in ACL reserves was mostly due to a higher historical loss rate within the commercial real estate and commercial and industrial portfolios, partially offset by a lower historical loss rate within the consumer loan portfolio. 37 Increases in the ACL were also impacted by a $42 increase in specific reserves on loans individually evaluated for impairment from year-end 2024. During the second quarter of 2025, the Company individually evaluated one residential real estate loan for expected credit loss. After measuring the fair value of the loan’s collateral to the loan’s recorded investment, the Company identified $42 in expected losses based on the impairment associated with the borrower’s collateral. This resulted in a corresponding charge to provision expense to establish the specific allocation within the ACL at June 30, 2025. The Company experienced minimal change in its delinquency levels from year-end 2024. Nonperforming loans to total loans decreased slightly to 0.45% at June 30, 2025, compared to 0.46% at December 31, 2024, while nonperforming assets to total assets remained unchanged at 0.33%. The decrease in nonperforming loans to total loans resulted from a $130 decrease in nonaccrual loans, coming mostly from the commercial real estate and consumer loan portfolios. Management believes that the ACL at June 30, 2025 was appropriate to absorb expected losses in the loan portfolio. Changes in the circumstances of particular borrowers, as well as adverse developments in the economy, are factors that could change, and management will make adjustments to the ACL as needed. Asset quality will continue to remain a key focus of the Company as management continues to stress not just loan growth, but quality in loan underwriting. Deposits Deposits are used as part of the Company’s liquidity management strategy to meet obligations for depositor withdrawals, fund the borrowing needs of loan customers, and fund ongoing operations. Deposits continue to be the most significant source of funds used by the Company to support earning assets. Total deposits at June 30, 2025 increased $1,584, or 0.1%, from year-end 2024. This minimal change in deposits came primarily from noninterest-bearing deposit balances, which were up by $8,990, or 2.8%, from year-end 2024, while interest-bearing deposits decreased $7,406, or 0.8%, from year-end 2024. The increase in noninterest-bearing demand deposits was primarily from the Company’s business and incentive-based checking account balances. The decrease in interest-bearing deposits came primarily from NOW account balances, which decreased $15,411, or 5.6%, from year-end 2024. The decrease was largely from a $20,101 decrease in the Company’s municipal NOW account with the Treasurer in relation to the Homebuyer Plus program. Excluding this decrease in the Treasurer account balances, the Company would have experienced a $4,036 increase in its other municipal NOW product balances, particularly within the Gallia County, Ohio, and Mason County, West Virginia, market areas. Further decreases in interest-bearing deposits came from time deposit balances, which decreased $8,682, or 2.2%, from year-end 2024. The decrease came from wholesale time deposits, which decreased $13,901, or 22.8%, from year-end 2024. This was the result of $14,270 in brokered CD maturities during the second quarter of 2025. Retail time deposits increased $5,219 from year-end 2024, partially offsetting the impact of lower wholesale deposits. The surge in product rate increases on retail CDs continue to slow during 2025, which has limited the growth in time deposits from year-end 2024 compared to savings and money market deposits. Partially offsetting the decreases in NOW and time deposit balances were higher savings and money market account balances, which increased $16,687, or 5.8%, from year-end 2024. The increase came primarily from money market accounts, which increased $9,101 from year-end 2024, impacted mostly by increases in the Company’s tiered money market product (Money Fund) that was introduced in 2023 and offers a higher rate on tiered deposit balances. Savings account balances increased $7,586 impacted mostly by the Company’s statement savings account product. While facing increased competition for deposits in its market areas, the Company will continue to emphasize growth and retention in its core deposit relationships during the remainder of 2025, reflecting the Company’s efforts to reduce its reliance on higher cost funding and improve net interest income. 38 Other Borrowed Funds Other borrowed funds were $37,177 at June 30, 2025, a decrease of $2,563, or 6.4%, from year-end 2024. The decrease was related to the scheduled principal amortization for applicable FHLB advances. While deposits continue to be the primary source of funding for growth in earning assets, management will continue to utilize various wholesale funding sources to help manage interest rate sensitivity and liquidity. Shareholders’ Equity Total shareholders' equity at June 30, 2025 increased $10,432, or 6.9%, to finish at $160,760, as compared to $150,328 at December 31, 2024. This was primarily from year-to-date net income and an increase in the fair value of AFS securities, partially offset by cash dividends paid. The after-tax increase in fair value on AFS securities totaled $3,937 from year-end 2024, as long-term market rates decreased during the first half of 2025, causing an increase in the fair value of AFS securities. Comparison of Results of Operations For the Three and Six Months Ended June 30, 2025 and 2024 The following discussion focuses, in more detail, on the consolidated results of operations of the Company for the three and six months ended June 30, 2025, compared to the same period in 2024. This discussion should be read in conjunction with the interim consolidated financial statements and the notes included in this Form 10‑Q. Net Interest Income The most significant portion of the Company's revenue, net interest income, results from properly managing the spread between interest income on earning assets and interest expense incurred on interest-bearing liabilities. During the three and six months ended June 30, 2025, net interest income increased $2,572, or 21.5%, and $4,522, or 19.5%, compared to the same periods in 2024, respectively. The quarterly and year-to-date improvement during 2025 came from average earning asset growth and the net interest margin. The average growth was impacted by a composition shift into higher-yielding loans and securities, combined with a consumer shift to more lower-cost deposit sources that helped reduce the higher average costs paid on deposits and borrowings. Total interest and fee income recognized on the Company’s earning assets increased $2,387, or 12.8%, during the second quarter of 2025, and $4,503, or 12.4%, during the six months ended June 30, 2025, compared to the same periods in 2024, respectively. The earnings growth was impacted by interest on loans, which increased $1,725, or 11.1%, and $3,072, or 10.2%, during the three and six months ended June 30, 2025, compared to the same periods in 2024, respectively. This improvement was impacted by increases in both average loan balances and loan yields. Overall, average loans increased $51,150 during the second quarter of 2025 and $59,742 during the first half of 2025. Balance increases were mostly realized within the commercial and residential real estate loan portfolios due to higher commercial loan volume and a consumer preference for short-term, variable rate residential real estate loans. Loan revenue improvement also came from average loan yields increasing 37 basis points to 6.82% during the second quarter of 2025 and increasing 28 basis points during the first half of 2025, compared to the same periods in 2024. A portion of the loan yield improvement came from the recognition of a market discount on two purchased commercial and industrial loans totaling $817 in the second quarter of 2025. Loan yield increases were mostly impacted by the commercial and residential real estate loan portfolios. Total interest on securities increased $1,342, or 136.8%, during the second quarter of 2025, and $2,606, or 137.2%, during the first half of 2025, compared to the same periods in 2024. The earnings growth was primarily from the purchase of $100,497 in U.S. Government securities during the third quarter of 2024 as part of the Company’s participation in the state’s Homebuyer Plus program. The securities were purchased at a weighted average yield of 4.7% with maturity terms ranging from 6 to 18 months. The security purchases were used to collateralize $100,000 in public fund deposits received by the Treasurer as part of the program. This contributed to increases in average security balances, which were up $103,063 and $99,312 during the three and six months ended June 30, 2025, compared to the same periods in 2024. While average securities have grown in large part due to the security purchases from the Homebuyer Plus program, the Company has placed more emphasis on growing its higher-yielding loan portfolio during 2024 and 2025, utilizing proceeds from various maturities and repayments of securities to help fund loan growth. Earnings from securities were positively impacted by increases in the average yield on securities, impacted by the $100,497 purchase of U.S Government securities at a weighted average yield of 4.7% that was higher than the 2.04% average yield on the total securities portfolio at June 30, 2024. Average security yields were also positively impacted by the elevated market rate environment during 2024 that continued into 2025. As a result, average security yields increased 115 basis points to 3.25% during the second quarter of 2025 and increased 117 basis points to 3.21% during the first half of 2025, compared to the same periods in 2024. 39 Total interest income from interest-bearing deposits with banks decreased $807, or 55.8%, during the second quarter of 2025, and decreased $1,398, or 48.8%, during the first half of 2025, compared to the same periods in 2024. This was largely from average balance decreases with the Company’s interest-bearing FRB clearing account, which decreased $45,937 and $36,766 during the three and six months ended June 30, 2025, compared to the same periods in 2024, respectively. FRB clearing balances were used to assist in funding loan growth, which contributed to the average balance decrease of FRB funds during 2025. Further impacting lower interest income from the FRB clearing account were short-term rate decreases during 2024. Between September and December 2024, the FRB took action to reduce the rate associated with the FRB clearing account by 100 basis points due to improvements in inflationary pressures. This action lowered the target federal funds rate to a range of 4.25% to 4.50%, which had a negative impact on the FRB clearing account’s interest earnings. Total interest expense incurred on the Company’s interest-bearing liabilities decreased $185, or 2.8%, during the second quarter of 2025, and decreased $19, or 0.1%, during the first half of 2025, compared to the same periods in 2024. Decreases in interest expense were impacted by a lower cost of funds as the composition of average funding sources shifted from higher cost deposit sources such as time deposits to lower cost deposit sources such as NOW, savings, and money market deposits. The decrease in lower cost of funds completely offset the increases in average interest-bearing liabilities, primarily from deposits. Growth in the Company’s average interest-bearing liabilities came mostly from NOW, savings and money market deposit balances, which increased $103,195 and $110,624 during both the second quarter and first half of 2025, compared to the same periods in 2024. A large portion of this growth came from lower-costing NOW and savings account balances related to the Company’s participation in the Homebuyers Plus program. With the additions of the municipal NOW Treasurer account and new Home Sweet Home savings accounts during the second half of 2024, this contributed to an average balance increase of $87,013 and $90,804 in interest-bearing deposits during the three and six months ended June 30, 2025, compared to the same periods in 2024, respectively. Average interest-bearing deposit growth also came from the Company’s lower-costing tiered money market product (Money Fund), which increased $31,235 and $31,530 during the three and six months ended June 30, 2025, compared to the same periods in 2024, respectively. The Company also experienced a $4,557 and $6,083 increase in its average time deposits during both the second quarter and first half of 2025, compared to the same periods in 2024. While the movement of higher time deposit balances had a corresponding impact to higher interest expense, the average cost associated with time deposits decreased 44 basis points to 4.23% during the first half of 2025. During 2023, rate offerings on retail CDs continued to adjust up as a result of market competition. The Company had offered various “short-term” CD rate specials with maturity terms of less than one year to attract and retain its core deposit funding during this time. Since then, product rates on retail CDs have decreased, which has allowed a large portion of those short-term retail CDs to renew at lower rates, or in some cases, be reinvested into lower-costing NOW, savings or money market accounts (average cost of 1.40%). Furthermore, the Company’s average wholesale funding balances decreased $19,627 during the first half of 2025, which included the use of brokered CDs (average cost of 4.68%) and FHLB advances (average cost of 4.05%). With the Company utilizing the growth in its lower-cost retail deposit sources to fund earning asset growth, the reliance on higher-cost wholesale deposits to fund asset growth decreased, which contributed to lower interest expense during 2025. As a result of the rate repricings on retail CDs and the deposit shift into lower-cost funding sources, the Company’s total weighted average costs on interest-bearing liabilities decreased by 17 basis points from 2.15% at June 30, 2025 to 1.98% at June 30, 2024. The Company’s net interest margin is defined as fully tax-equivalent net interest income as a percentage of average earning assets. During 2025, the Company’s second quarter net interest margin increased to 4.17%, compared to 2024’s second quarter net interest margin of 3.74%. The Company’s year-to-date net interest margin increased to 4.01%, compared to 2024’s year-to-date net interest margin of 3.68%. Positive contributions to margin growth came from the Company’s average earning assets, which increased 8.3% and 9.5% during the second quarter and first half of 2025, respectively, mostly from higher-yielding loans and securities. Margin improvement was also positively impacted by lower average costs associated with the Bank’s interest-bearing liabilities due to a deposit composition shift into more lower-cost NOW, savings, and money market account deposits. Furthermore, the Company has benefited from its retail CDs repricing at lower product rates, while also relying less on wholesale funding sources. The Company’s primary focus is to invest its funds into higher yielding assets, particularly loans, as opportunities arise. However, if loan balances do not continue to expand and remain a larger component of overall earning assets, the Company will face pressure within its net interest income and margin improvement. 40 Provision for Credit Losses Provision for credit losses is recorded to achieve an ACL that is adequate to absorb estimated losses inherent in the Company’s loan portfolio, unfunded loans, and HTM debt securities. Management performs, on a quarterly basis, a detailed analysis of the ACL that encompasses asset portfolio composition, asset quality, loss experience and other relevant economic factors. For the three months ended June 30, 2025, the Company’s provision for credit losses expense totaled $1,148, an increase of $967 when compared to $181 in provision expense during the three months ended June 30, 2024. For the six months ended June 30, 2025, the Company’s provision for credit losses expense totaled $1,564, an increase of $632 when compared to $932 in provision expense during the six months ended June 30, 2024. The increase in credit loss expense came primarily from loans, which increased $895 during the second quarter of 2025, and increased $514 during the first half of 2025, compared to the same periods in 2024. Provision expense on loans during 2025 was impacted primarily by increases in net charge-offs, which were up $385 during the second quarter of 2025 and $410 during the first half of 2025, compared to the same periods in 2024. The increases in net charge-offs during 2025 were the result of large recoveries collected on one commercial and industrial borrower during the second quarter of 2024. Provision expense on loans during 2025 was also impacted by a higher historical loan loss and qualitative risk factor that increased reserves. The historical loan loss factor was primarily impacted by a regression in GDP and unemployment projections from year-end 2024. The qualitative risk factor was impacted by the improvement in residential real estate loan collateral risks that lowered reserves during 2024, that were not as impactful in 2025. Further increases to provision expense also came from increases in loan balances generally allocated for due to strong loan growth during 2025 that generated higher general reserves and a corresponding increase to provision expense. Credit loss expense during 2025 was also impacted by unfunded commitments on off-balance sheet liabilities, which increased $72 during the three months ended June 30, 2025, and increased $118 during the first half of 2025, compared to the same periods in 2024. The impact came mostly from an increase in the originations of several new commercial and industrial lines during the second quarter of 2025. Future provisions to the ACL will continue to be based on management’s quarterly in-depth evaluation that is discussed in further detail under the caption “Critical Accounting Estimates” within this Management’s Discussion and Analysis. Noninterest Income Noninterest income increased $147, or 5.4%, during the three months ended June 30, 2025, and increased $97, or 1.5%, during the six months ended June 30, 2025, compared to the same periods in 2024. The increases came mostly from interchange income earned on debit and credit cards, which increased $56 and $60 during the three and six months ended June 30, 2025, compared to the same periods in 2024, respectively. This was due to an increase in the transaction volume associated with debit and credit cards. The Company’s other noninterest income also increased $71 and $21 during the three and six months ended June 30, 2025, compared to the same periods in 2024, respectively. Other noninterest income was primarily impacted by losses of $54 incurred on OREO properties and the sale of bank premises during the second quarter of 2024 that did not repeat in 2025. Other noninterest income was also impacted by increases in card merchant fees and mortgage application referral fees partially offset by decreases in swap asset revenue. The remaining noninterest income categories increased $20, or 1.6%, during the second quarter of 2025, and increased $16, or 0.5%, during the first half of 2025, compared to the same periods in 2024. 41 Noninterest Expense Noninterest expense increased $186, or 1.7%, during the three months ended June 30, 2025, and increased $263, or 1.2%, during the three months ended June 30, 2025, compared to the same periods in 2024. Contributing most to the increase in noninterest expense were data processing expenses, which increased $181 and $299 during the three and six months ended June 30, 2025, compared to the same periods in 2024, respectively. Higher costs in this category were primarily related to debit and credit card processing due to higher transaction volume and conversion costs for the Company’s new reward platform. Higher noninterest expense also came from marketing expense, which increased $58 during the second quarter of 2025, and $112 during the first half of 2025. Higher costs in this category were the direct result of additional expense added to both the donations and advertising budgets for 2025. The Company’s largest noninterest expense, salaries and employee benefits, increased $8, or 0.1%, during the three months ended June 30, 2025, but decreased $147, or 1.2%, during the six months ended June 30, 2025, compared to the same periods in 2024. The year-to-date decrease was primarily related to the Company’s full-time equivalent employee base being down ten employees from 245 at June 30, 2024 to 235 at June 30, 2025. Furthermore, insurance premium costs saw a decrease in 2025, also coinciding with a smaller full-time equivalent employee base. The primary reason for the decrease in employee base was due to the voluntary early retirement program that was implemented in 2024. The early retirement program was expected to reduce salary and employee benefit expense. Partially offsetting the year-to-date expense savings from the early retirement program were annual merit increases, which contributed to the increase in salaries and employee benefits during the second quarter of 2025. The remaining noninterest expense categories decreased $61 during the second quarter of 2025, and decreased $1 during the first half of 2025, compared to the same periods in 2024. Efficiency The Company’s efficiency ratio is defined as noninterest expense as a percentage of fully tax-equivalent net interest income plus noninterest income. The effects from provision expense are excluded from the efficiency ratio. Management continues to place emphasis on managing its balance sheet mix and interest rate sensitivity as well as developing more innovative ways to generate noninterest revenue. Comparing the three and six months ended June 30, 2025 to the same periods in 2024, the Company has benefited from an increase in average earning assets, primarily from higher-yielding loans and securities, a decrease in average costs on interest-bearing deposits, and a deposit composition shift from higher-costing time deposits to lower-costing savings, NOW, money market and checking account deposits. Positive earnings growth has not only benefited from an increase in noninterest income during 2025, but also from the cost savings in salaries and employee benefits that resulted from management’s implementation of a voluntary retirement program in 2024. This has helped to limit overhead expense to just a 1.7% increase during the second quarter of 2025, and a 1.2% increase during the first half of 2025, over the same periods in 2024. With strong growth in net interest income combined with minimal overhead expense pickup from 2024, the Company’s quarterly efficiency number decreased (improved) to 63.09% during the three months ended June 30, 2025, compared to 73.37% during the three months ended June 30, 2024. The Company’s year-to-date efficiency number also decreased (improved) to 63.51% during the six months ended June 30, 2025, compared to 72.41% during the six months ended June 30, 2024. Provision for income taxes The Company’s income tax provision increased $328 during the three months ended June 30, 2025, and increased $873 during the six months ended June 30, 2025, compared to the same periods in 2024. The increase in tax expense was related to increases in operating income and the effective tax rate. During the second quarter of 2025, operating income increased 43.3% and the associated effective tax rate increased from 17.9% in 2024 to 18.8% in 2025. During the first half of 2025, operating income increased 53.1% and the associated effective tax rate increased from 17.8% in 2024 to 19.8% in 2025. The effective rate increases during both the quarterly and year-to-date periods of 2025 were primarily from lower tax-exempt earnings. Capital Resources Federal regulators have classified and defined capital into the following components: (i) Tier 1 capital, which includes tangible shareholders’ equity for common stock, qualifying preferred stock and certain qualifying hybrid instruments, and (ii) Tier 2 capital, which includes a portion of the allowance for credit losses, certain qualifying long-term debt, preferred stock and hybrid instruments which do not qualify as Tier 1 capital. 42 In September 2019, consistent with Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies issued a final rule providing simplified capital requirements for certain community banking organizations (banks and holding companies). Under the rule, a qualifying community banking organization (“QCBO”) is eligible to opt into the Community Bank Leverage Ratio (“CBLR”) framework in lieu of the Basel III capital requirements if it has less than $10 billion in total consolidated assets, limited amounts of certain trading assets and liabilities, limited amounts of off-balance sheet exposure and a leverage ratio greater than 9.0%. The new rule took effect January 1, 2020, and QCBOs were allowed to opt into the new CBLR framework in their Call Report beginning the first quarter of 2020. A QCBO opting into the CBLR framework must maintain a CBLR of 9.0%, subject to a two-quarter grace period to come back into compliance, provided that the QCBO maintains a leverage ratio of more than 8.0% during the grace period. A QCBO failing to satisfy these requirements must comply with the existing Basel III capital requirements as implemented by the banking regulators in July 2013. The Bank opted into the CBLR, and, therefore, is not required to comply with the Basel III capital requirements. The numerator of the CBLR is Tier 1 capital, as calculated under present rules. The denominator of the CBLR is the QCBO’s average assets, calculated in accordance with the QCBO’s Call Report instructions and less assets deducted from Tier 1 capital. The current rules and Call Report instructions were impacted by the Company’s adoption of ASC 326 and its election to apply the 3-year CECL transition provision on January 1, 2023. By making this election, the Bank, in accordance with Section 301 of the regulatory capital rules, will increase it retained earnings (Tier 1 Capital) and average assets by 75% of its CECL transition amount during the first year of the transition period, 50% of its CECL transition amount during the second year, and 25% of its CECL transitional amount during the third year of the transition period. The Bank’s transition amount during year three of the transitional period totaled $2,276, which resulted in the add-back of $569 to both Tier 1 capital and average assets as part of the CBLR calculation for June 30, 2025. As of June 30, 2025, the Bank’s CBLR was 10.27%. Cash dividends paid by the Company were $2,121 during the first half of 2025. The year-to-date dividends paid totaled $0.45 per share. Liquidity Liquidity relates to the Company's ability to meet the cash demands and credit needs of its customers in the short and long-term and is provided by the ability to readily convert assets to cash and raise funds in the marketplace. The Company manages funding and liquidity based on point-in-time metrics as well as forward-looking projections, which incorporate different sources and uses of funds under base and stress scenarios. Liquidity risk is monitored and managed by the Bank’s Asset Liability Committee using a series of policy limits and key risk indicators, which are established to ensure risks are managed within the Company’s risk tolerance. The Company maintains a contingency funding plan that provides for liquidity stress testing, which assesses the liquidity needs under varying market conditions, time horizons and other events. The stress testing provides for ongoing monitoring of unused borrowing capacity and available sources of contingent liquidity to prepare for unexpected liquidity needs and to cover unanticipated events that could affect liquidity. Total cash and cash equivalents, HTM securities maturing within one year, and AFS securities, which totaled $320,797, represented 21.2% of total assets at June 30, 2025 compared to $352,563 and 23.5% of total assets at December 31, 2024.This decrease in liquid funds went primarily towards the funding of loans, which increased $39,442 from year-end 2024, mostly from the commercial loan portfolio. Loan funding sources also came from an increase in net proceeds from maturities and paydowns of securities. Increases in deposits were largely impacted by growth in noninterest-bearing demand deposits and savings and money market deposits, which increased 4.2% from year-end 2024, partially offset by lower interest-bearing demand deposits and time deposits, which decreased 3.6%, from year-end 2024. In addition to the on-balance sheet liquidity discussed above, the Bank has established multiple sources of funding to further enhance the Bank’s ability to meet liquidity demands. The Bank has pledged collateral to the FHLB and the FRB to establish committed borrowing lines. At June 30, 2025, the Bank could borrow an additional $111,440 from the FHLB and the borrowing line with the FRB had availability of $46,988. For each of these sources, the Bank has established an internal limit of 85% of our borrowing capacity. In addition to the committed borrowing lines, the Bank has access to several wholesale funding sources, such as, brokered CDs, a $25 million federal funds purchase limit with two correspondent banks, and the ability to bid on available funds from select deposit placement services. The Bank has established limits for each respective funding source and a collective limit on all wholesale funding sources. The Bank’s internal limit on brokered CDs is 10% of total assets. At June 30, 2025, the amount of brokered CDs outstanding was 2.29% of total assets, as compared to 3.25% at December 31, 2024. At June 30, 2025, the Bank had utilized 43.77% of its FHLB capacity, a decrease from 52.21% at December 31, 2024. The collective internal limit on all wholesale funding sources is 40% of total assets. At June 30, 2025, the Bank’s total wholesale funding sources represented 10.02% of total assets. Based on the collective internal wholesale funding limit, the Bank had the capacity to borrow an additional $449 million in wholesale funds and the available funding from the respective wholesale funding sources exceeded this amount, which provides the flexibility to utilize one source more than another due to pricing or availability. 43 As part of performing liquidity stress tests, the Bank monitors and evaluates the exposure to uninsured deposits. Of the Company’s $1,276,762 in total deposit balances at June 30, 2025, only 38.9%, or $496,161, were deemed uninsured as per the $250 FDIC threshold. A portion of these deposits are on behalf of public entity customers, which require the Bank to pledge securities or FHLB letters of credit to cover the amount of the deposit balance that is deemed uninsured. To the extent these deposits left the Bank, the level of unpledged securities and the borrowing capacity at the FHLB would increase or could be utilized to fund the deposit outflow. The sum of current on-balance sheet liquidity and available wholesale funding sources exceeded the balance of uninsured deposits at June 30, 2025. Included in on-balance sheet liquidity are AFS securities in an unrealized loss position. Although management does not intend to sell the securities before the recovery of its cost basis, they are a contingent resource from a liquidity perspective. As our liquidity position dictates, the preceding funding sources may be utilized to supplement our liquidity position. If the utilization of wholesale funding increases to fund asset growth or for liquidity management purposes, the net interest margin may be negatively impacted due to the higher relative cost of these sources as compared to core deposits. For further cash flow information, see the condensed consolidated statement of cash flows. Management does not rely on any single source of liquidity and monitors the level of liquidity based on many factors affecting the Company’s financial condition. Off-Balance Sheet Arrangements As discussed in Note 5 – Financial Instruments with Off-Balance Sheet Risk, the Company engages in certain off-balance sheet credit-related activities, including commitments to extend credit and standby letters of credit, which could require the Company to make cash payments in the event that specified future events occur. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Standby letters of credit are conditional commitments to guarantee the performance of a customer to a third party. While these commitments are necessary to meet the financing needs of the Company’s customers, many of these commitments are expected to expire without being drawn upon. Therefore, the total amount of commitments does not necessarily represent future cash requirements. Critical Accounting Estimates The preparation of financial statements and related disclosures requires management to use judgment and make estimates. The Company evaluates such estimates on an ongoing basis. By their nature, these judgments are subject to uncertainty. We base our estimates on historical experience, current trends and other factors that we believe to be relevant and reasonable under the circumstances at the time the estimate was made. We believe our estimates, assumptions, and judgments are reasonable in that they were based on information available when the estimates, assumptions and judgments were made. However, because future events and their effects cannot be determined with certainty, actual results could differ materially from those implied by our assumptions and estimates. The Company believes the determination of the ACL involves a higher degree of judgment and complexity than its other significant accounting policies. The ACL is calculated with the objective of maintaining a reserve level believed by management to be sufficient to absorb estimated credit losses over the life of an asset or off-balance sheet credit exposure. Management’s determination of the adequacy of the ACL is based on periodic evaluations of past events, including historical credit loss experience on financial assets with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the financial assets. However, this evaluation has subjective components requiring material estimates, including expected default probabilities, the expected loss given default, the amounts and timing of expected future cash flows on individually evaluated collateral dependent loans, and estimated losses based on historical loss experience and forecasted economic conditions. All of these factors may be susceptible to significant change. To the extent that actual results differ from management estimates, additional provisions for credit losses may be required that would adversely impact earnings in future periods. Refer to “Allowance for Credit Losses” and “Provision for Credit Losses” sections within this Management’s Discussion and Analysis for additional discussion. 44 Concentration of Credit Risk The Company maintains a diversified credit portfolio, with residential real estate loans currently comprising the most significant portion. Credit risk is primarily subject to loans made to businesses and individuals in southeastern Ohio and western West Virginia. Management believes this risk to be general in nature, as there are no material concentrations of loans to any industry or consumer group. To the extent possible, the Company diversifies its loan portfolio to limit credit risk by avoiding industry concentrations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.