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 Exchange 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,” “plans,” “goals,” “seeks,” “projects,” “estimates,” “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 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 Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025 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 applicable law. BUSINESS OVERVIEW: The following discussion on consolidated financial statements includes 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. FINANCIAL RESULTS OVERVIEW: Net income totaled $2,927 during the second quarter of 2026, a decrease of $1,283 from the same period in 2025. Earnings per share for the second quarter of 2026 finished at $.62 per share, compared to $.89 per share during the second quarter of 2025. Net income totaled $7,224 during the first six months of 2026, a decrease of $1,392 from the same period in 2025. Earnings per share during the first six months of 2026 finished at $1.53 per share, compared to $1.83 per share during the first six months of 2025. Lower net earnings had a corresponding impact on the Company’s annualized net income to average asset ratio, or return on assets, which decreased 42 basis points to 0.70% during the second quarter of 2026, and decreased 27 basis points to 0.89% during the first six months of 2026, compared to the same periods in 2025. In addition, the Company’s net income to average equity ratio, or return on equity, decreased 397 basis points to 6.82% during the second quarter of 2026, and decreased 282 basis points to 8.48% during the first six months of 2026, compared to the same periods in 2025. 32 Lower earnings during the three and six months ended June 30, 2026 compared to the same periods in 2025 were primarily impacted by higher provision expense caused by the collateral impairments of two commercial loan relationships. These collateral deficiencies required specific reserve allocations that contributed to most of the $2,607 and $3,813 increases in provision expense during the three and six months ended June 30, 2026 compared to the same periods in 2025. Lower earnings were also impacted by growth in noninterest expense, increasing $196 and $679 during the three and six months ended June 30, 2026 compared to the same periods in 2025. Noninterest expense was impacted by higher salaries and employee benefit costs, software and other noninterest expense, partially offset by lower data processing costs. These negative factors were partially offset by growth in net interest and noninterest income, which collectively increased $1,201 and $2,591 during the three and six months ended June 30, 2026 compared to the same periods in 2025. Net interest income grew in large part due to a 12.6% and 10.6% increase in average earning assets during the three and six months ended June 30, 2026, coming primarily from loans. The impacts from earning asset growth were partially offset by decreases in the net interest margin during both the quarterly and year-to-date periods, impacted by higher funding costs. The improvement in noninterest income occurred primarily during the second quarter of 2026 with $377 in unrealized gains earned on equity securities as part of the Company’s participation in the Visa Inc. exchange offer. This contributed to a $338 increase in quarterly noninterest income, while allowing year-to-date noninterest income to finish relatively stable with the prior year-to-date, decreasing by just $20. During the three and six months ended June 30, 2026, net interest income increased $863, or 5.9%, and $2,611, or 9.4%, over the same periods in 2025. The increases were primarily related to a $177,570 and $149,285 increase in average earning assets during the quarterly and year-to-date periods. This was led mostly by a 14.7% and 14.4% increase in average loans during the three and six months ended June 30, 2026 compared to the same periods in 2025. The growth in average loans was related to the commercial and residential real estate lending segments. The emphasis on higher-yielding loan growth during the first half of 2026 contributed to lower average securities during the three and six months ended June 30, 2026. The decrease in average securities was also impacted by a reduced need for securities to be pledged as collateral to secure public fund deposits. Net interest earnings were negatively affected by a lower net interest margin, which decreased 24 basis points during the second quarter of 2026, and decreased 4 basis points during the first half of 2026, compared to the same periods in 2025. Margin contraction, especially during the quarter, was largely impacted by the effects of an $817 market discount on purchased loans that was recorded to interest income during the second quarter of 2025 compared to no market discount income during 2026. Margin decreases were also impacted by the cost of funding sources increasing at a greater pace than the yield on earning assets. The cost of funding sources increased as the composition of funding sources shifted to higher cost certificates of deposit (“CDs”) from promotional offerings, and higher money market accounts from individual and business customers. During the three and six months ended June 30, 2026, the Company’s provision for credit loss expense increased $2,607 and $3,813, when compared to the same periods in 2025. The increase resulted primarily from $4,531 and $6,561 in specific allocations on two collateral dependent loans during the three and six months ended June 30, 2026. These increases in reserves were partially offset by a net decrease in modeled loss rates and a decrease in certain qualitative risk factors and lower net charge offs. During the three months ended June 30, 2026, noninterest income increased $338, or 11.9%, over the same period in 2025, while decreasing $20, or 0.3%, during the six months ended June 30, 2026 from the same period in 2025. The quarterly increase was driven by $377 in unrealized gains on equity securities. This was from the Company’s participation in the Visa Inc. exchange offer during the second quarter of 2026 to exchange its Visa B-1 shares for a mix of Visa B-3 and Class C common stock, with the Class C common stock being marked to fair value resulting in the gains on equity securities previously mentioned. Further increases to noninterest income came from higher debit and credit card interchange income, and bank owned life insurance ("BOLI") and annuity asset income, which collectively increased $69 and $293 during the three and six months ended June 30, 2026 compared to the same periods in 2025. Decreases to noninterest income came primarily from electronic refund check and deposit fees, which decreased $135 and $675 during the three and six months ended June 30, 2026 compared to the same periods in 2025. This was due to the expiration of a tax processing agreement with a third party. During the three and six months ended June 30, 2026, noninterest expense increased $196, or 1.8%, and $679, or 3.1%, over the same periods in 2025. Noninterest expense was impacted mostly by salaries and employee benefits, which increased $359 and $694 during the three and six months ended June 30, 2026 over the same periods in 2025 due to annual merit increases and higher health insurance premiums. Other noninterest expense was up $251 and $278 during the three and six months ended June 30, 2026 over the same periods in 2025 due to higher state taxes, loan costs, and other miscellaneous expenses associated with troubled credits. Also increasing was software expense and FDIC insurance, which were collectively up $151 and $341 during the three and six months ended June 30, 2026 over the same periods in 2025. Software costs increased due to the investment in software to enhance internal processes, while FDIC premiums increased due to a higher assessment base and an increase in the assessment rate in relation to higher nonperforming loans. Partially offsetting increases in noninterest expense were lower data processing expenses, which decreased $605 and $619 during the three and six months ended June 30, 2026 over the same periods in 2025. This was due to a $544 recovery from a vendor in the second quarter of 2026 for a billing error. 33 The $319 and $509 decreases in the Company’s provision for income taxes during the three and six months ended June 30, 2026, compared to the same periods in 2025, were largely due to the decrease in operating income affected by the factors mentioned above, as well as a decrease in the effective tax rate. At June 30, 2026, total assets were $1,661,436, an increase of $78,782 from year-end 2025. The increase in assets was primarily the result of a $50,096 increase in loans, and a $31,513 increase in interest-bearing deposits with banks. Loan growth was led by a 5.7% increase in the Company’s commercial loan portfolio, and a 4.5% increase in the Company’s residential real estate loan portfolio. The increase in interest-bearing deposits with banks was primarily associated with balances maintained at the Federal Reserve Bank (“FRB”) that were impacted by the year-to-date growth in both interest- and noninterest-bearing deposit liabilities. At June 30, 2026, total liabilities were $1,488,050, up $75,653 from year-end 2025. Contributing most to this increase were higher interest-bearing deposit balances, up $73,604 from year-end 2025, consisting of higher balances from time deposits (+8.8%) and savings, negotiable order of withdrawal ("NOW") and money market balances (+5.8%), while noninterest-bearing demand deposits increased 1.6% from year-end 2025. At June 30, 2026, total shareholders' equity was $173,386, up $3,129 from December 31, 2025. This increase consisted of year-to-date net income being partially offset by year-to-date cash dividends paid and an after-tax increase in net unrealized losses on AFS securities. Regulatory capital ratios of the Company remained higher than the "well capitalized" minimums. Comparison of Financial Condition at June 30, 2026 and December 31, 2025 The following discussion focuses in more detail on the consolidated financial condition of the Company at June 30, 2026 compared to December 31, 2025. 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, 2026, cash and cash equivalents were $78,084, an increase of $32,187, or 70.1%, from December 31, 2025. The increase came primarily from interest-bearing deposits with banks, which were up $31,513, or 101.5%, from year-end 2025. The Company’s interest-bearing FRB clearing account contributed most to the increase in interest-bearing deposits with banks, representing 80% of cash and cash equivalents at June 30, 2026. The Company utilizes its interest-bearing FRB clearing account to manage excess funds, as well as to assist in funding earning asset growth. The increase in excess funds during the first half of 2026 resulted primarily from growth in total deposits, which were up 5.9% from year-end 2025. 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 (“FOMC”). During the first half of 2026, the FOMC took no action to reduce the targeted federal funds rate, which remains at a target range of 3.50% to 3.75%. 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 investment securities decreased $3,342, or 1.3% from year-end 2025. The decrease came mostly from U.S. Government and U.S. Government agency (“Agency”) mortgage-backed securities, which were collectively down $3,654, or 1.5%, from year-end 2025. During the first half of 2026, total purchases, net of maturities, for both U.S. Government and Agency mortgage-backed securities totaled $17,152. This was completely offset by $19,189 in principal repayments coming mostly from Agency mortgage-backed securities. 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, 2026, the Company’s investment securities portfolio was comprised mostly of Agency mortgage-backed securities at 63.0% of total investments, while U.S. Government securities represented 32.7%. Included in the factors mentioned above were changes in net unrealized losses associated with AFS debt securities. During the first half of 2026, an increase in long-term market rates led to a $2,352 decrease in the fair value associated with the Company’s AFS securities at June 30, 2026. The fair value of an investment security moves inversely to interest rates, so as rates increased, the fair value decreased, causing the unrealized loss in the portfolio to increase. These changes in rates are typical and do not impact earnings of the Company as long as the securities are held to full maturity. Also included in total investment securities were marketable equity securities of $376 at June 30, 2026. During the second quarter of 2026, the Company participated in an exchange offer initiated by Visa, Inc., where 954 Visa Class B-1 shares were tendered by the Company in exchange for a mix of Visa Class B-3 and Class C common stock. The Company then marked its Visa Class C common stock to fair value based on the Visa Class A common stock market price as of the exchange date of May 8, 2026. Prior to the exchange offer, the Company’s Class B-1 shares were not marketable and were carried at a $0 cost basis. This initial fair value adjustment of the Company’s Visa Class C common stock resulted in a $349 increase to equity securities. The Company followed with another fair value adjustment at June 30, 2026 that resulted in a $27 increase to equity securities. The changes in fair value from equity securities were recognized in net income. 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 by 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. 35 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 d pendent on local market conditions for residential properties as loan amounts are determined, in part, by the fair value of the property at origination. COMMERCIAL REAL ESTATE BY INDUSTRY As of June 30, 2026 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 . $ 275,852 54.33 % Accommodation and Food Services 76,917 15.15 % Retail Trade 40,340 7.94 % Health Care and Social Assistance 23,706 4.67 % Manufacturing 19,515 3.84 % Construction 16,545 3.26 % All Other 54,873 10.81 % Total $ 507,748 100.00 % 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 $1,246,114 at June 30, 2026, representing an increase of $50,096, or 4.2%, as compared to $1,196,018 at December 31, 2025. The increase in loans came primarily from both the commercial and residential real estate portfolios, as well as the commercial and industrial portfolio, while partially being offset by a decrease in the consumer loan portfolio from year-end 2025. The Company’s commercial loan portfolio increased $36,479, or 5.7%, from year-end 2025. The most significant driver of this increase was higher loan balances within the commercial real estate portfolio, which increased $37,711, or 8.0%, from year-end 2025. At June 30, 2026, commercial real estate loans represented the largest segment of the Company’s total loan portfolio at 40.7%. The increase from year-end 2025 came primarily from new originations within the nonowner-occupied and construction loan segments. The growth in commercial loans was partially offset by a decrease in the commercial and industrial portfolio, which was down $1,232, or 0.7%, from year-end 2025. The decrease was impacted by an increase in principal repayments during the first half of 2026. 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 compared to other types of loans. At June 30, 2026, residential real estate loans represented the second largest segment of the Company’s total loan portfolio at 35.1%. During 2026, mortgage rates remained elevated relative to variable rate options, which provided the Company with fewer opportunities to originate and sell long-term fixed-rate residential mortgages to the Federal Home Loan Mortgage Corporation. Due to the elevated mortgage rates, mortgage customers were selecting more in-house variable rate mortgage products than long-term fixed rate products, which enhanced the growth in the portfolio. As a result, residential real estate loans increased $19,013, or 4.5%, from year-end 2025. 36 The increases in the Company’s commercial and residential real estate loan portfolios at June 30, 2026 were partially offset by a decrease in the Company’s consumer loan portfolio, which was down $5,396, or 3.8%, from year-end 2025. This change was impacted by a $5,412, or 14.5%, 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 in 2024. Decreases in consumer loans also came from a $4,185, or 7.9%, decrease in other consumer loans from year-end 2025, impacted by principal repayments and payoffs. Decreases in consumer loans were partially offset by a $4,201, or 8.3%, 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, 2026, the Company determined that all AFS securities that experienced a decline in fair value below the amortized cost basis were due to non-credit related factors. Therefore, no ACL was recorded, and no provision expense was recognized during the six months ended June 30, 2026. 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 the issuer’s bond rating, historical loss, financial condition, and timely principal and interest payments. At June 30, 2026, the ACL for HTM debt securities was $1 based on a .02% cumulative default rate taken from the S&P and Moody’s bond rating index. This compares to an ACL of $1 at December 31, 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 considering 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, 2026, the ACL for loans totaled $16,610, or 1.33%, of total loans. As of December 31, 2025, the ACL for loans totaled $11,519, or 0.96%, of total loans. The $5,091, or 44.2%, increase in the ACL was impacted by a $6,561 increase in specific reserves on loans individually evaluated for impairment from year-end 2025. During the first half of 2026, the Company individually evaluated the commercial loans of two borrowers for expected credit loss. Of the two stressed loan relationships, one is a commercial and industrial loan to an automobile dealership and the other is a commercial real estate loan for the construction of a hotel. After measuring the fair value of the loans’ collateral to the loans’ recorded investment, the Company identified $6,561 in expected losses based on the impairment associated with the borrowers’ collateral. This resulted in a corresponding charge to provision expense to establish the specific allocation within the ACL at June 30, 2026. The Company considers the specific allocations to be related to this specific group of loan relationships and not reflective of a broader deterioration in portfolio credit quality. 37 The increase in the ACL was also impacted by additional reserves associated with loan growth of $50,096 during the first half of 2026 compared to a $39,442 increase in loan balances during the first half of 2025. These increases in specific and general reserves were partially offset by the improvements in certain qualitative risk factors that included improved portfolio terms, such as reduced exposure to variable rate loans repricing higher and a positive net charge-off trend for consumer loans due to exiting indirect lending, along with improved general economic conditions. The Company also experienced a decrease in modeled loss rates largely due to the improvement in unemployment projections. The Company experienced higher delinquency levels as compared to year-end 2025. Nonperforming loans to total loans increased to 1.44% at June 30, 2026, compared to 1.40% at December 31, 2025, while nonperforming assets to total assets increased to 1.08% at June 30, 2026, compared to 1.06% at December 31, 2025. The increase in nonperforming loans was primarily related to one commercial loan being placed on nonaccrual status during the first quarter of 2026. The loan is secured by commercial real estate and was identified as having collateral impairment, which required a specific allocation of the ACL at June 30, 2026. Management believes that the ACL at June 30, 2026 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, 2026 increased $78,761, or 5.9%, from year-end 2025. The increase in deposits came primarily from interest-bearing deposit balances, which were up by $73,604, or 7.2%, from year-end 2025, while noninterest-bearing deposits increased $5,157, or 1.6%, from year-end 2025. The increase in noninterest-bearing demand deposits was primarily from the Company’s business and incentive-based checking account balances. The increase in interest-bearing deposits came primarily from time deposit balances, which increased $43,136, or 8.8%, from year-end 2025, $58,854 of which was a result of an increase in retail time deposits. The Company targeted growth in retail CDs by promoting a special CD rate during the first half of 2026 to assist in funding loan growth. This resulted in the Company utilizing less wholesale CDs to help fund earning asset demand, which decreased $15,718 from year-end 2025. Savings and money market balances also increased $25,971, or 8.4%, from year-end 2025. The increase came primarily from money market accounts, which increased $24,264 from year-end 2025, 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 to both individual and business customers. Savings account balances increased $1,707 impacted mostly by the Company’s statement savings account product. Further increases in interest-bearing deposits came from NOW account balances, which increased $4,497, or 2.1%, from year-end 2025. The increase was largely from a $4,733 increase in the Company’s municipal NOW product balances, particularly within the Gallia County, Ohio, and Mason County, West Virginia, market areas. The Company expects to continue to experience increased competition for deposits in its market areas, which could challenge its net growth. The Company will continue to emphasize growth and retention within its core deposit relationships during 2026, reflecting the Company’s efforts to reduce its reliance on higher cost funding and improving net interest income. Other Borrowed Funds Other borrowed funds were $41,822 at June 30, 2026, a decrease of $3,026, or 6.7%, from year-end 2025. 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. 38 Shareholders’ Equity Total shareholders' equity at June 30, 2026 increased $3,129, or 1.8%, to finish at $173,386, as compared to $170,257 at December 31, 2025. This was primarily from year-to-date net income partially offset by cash dividends paid and a decrease in accumulated other comprehensive income. The decrease in accumulated other comprehensive income was related to the $1,833, net of tax, market depreciation of AFS securities due to an increase in market interest rates. Comparison of Results of Operations For the Three and Six Months Ended June 30, 2026 and 2025 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, 2026, compared to the same period in 2025. 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, 2026, net interest income increased $863, or 5.9%, and $2,611, or 9.4%, compared to the same periods in 2025, respectively. The quarterly and year-to-date improvements during 2026 came from average earning asset growth, partially offset by a decrease in the net interest margin. Average asset growth was impacted primarily by loans and interest-bearing deposits with banks, while the margin fell as our funding expenses outpaced the returns on our earning assets. Total interest and fee income recognized on the Company’s earning assets increased $2,439, or 11.6%, during the second quarter of 2026, and $5,114, or 12.5%, during the six months ended June 30, 2026, compared to the same periods in 2025. The earnings growth was impacted by interest on loans, which increased $1,995, or 11.6%, and $4,732, or 14.3%, during the three and six months ended June 30, 2026, compared to the same periods in 2025. This improvement was mostly impacted by average loan balances, which increased $156,821 during the second quarter of 2026 and $151,658 during the first half of 2026. Balance increases came primarily from 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. The effects of average loan growth on revenue improvement were partially offset by average loan yields decreasing 21 basis points to 6.61% during the second quarter of 2026 and decreasing 5 basis points to 6.63% during the first half of 2026, compared to the same periods in 2025. The loan yield decreases came primarily from the income recognition of an $817 market discount on one purchased commercial and industrial loan that paid off during the second quarter of 2025. While the market discount benefited loan yields in 2025, the Company recognized no market discount income on purchased loans during the same periods in 2026, causing loan yields to decrease. At June 30, 2026, the Company had one purchased commercial and industrial loan remaining with an unrecognized market discount of $1,052. Total interest income from interest-bearing deposits with banks increased $327, or 51.2%, during the second quarter of 2026, and increased $83, or 5.7%, during the first half of 2026, compared to the same periods in 2025. This was largely from average balance increases with the Company’s interest-bearing FRB clearing account, which increased $44,629 and $16,789 during the three and six months ended June 30, 2026, compared to the same periods in 2025. Balances in the FRB clearing account increased primarily from interest-bearing deposit growth and net proceeds from securities, which provided more than enough FRB clearing deposits to help fund loan growth during 2026. Interest income from the FRB clearing account was negatively impacted by short-term rate decreases during 2025. Between September and December 2025, the FRB took action to reduce the rate associated with the FRB clearing account by 75 basis points due to inflationary pressures, which lowered the target federal funds rate to a range of 3.50% to 3.75% going into 2026. These decreases in interest rates had a negative impact on the FRB clearing account’s interest earnings during the three and six months ended June 30, 2026. Total interest on securities increased $101, or 4.3%, during the second quarter of 2026, and $319, or 7.1%, during the first half of 2026, compared to the same periods in 2025. The earnings growth was primarily related to an increase in the average yield on taxable securities. This was impacted by the Company’s decision to sell $36,950 in taxable securities yielding 1.35% during the second half of 2025 and replace them with similar taxable securities yielding 4.52% with longer durations. As a result, the average yield on taxable securities increased 53 basis points to 3.81% during the second quarter of 2026, and 56 basis points to 3.80% during the first half of 2026, compared to the same periods in 2025. The yield improvement from taxable securities completely offset the negative impact of lower average securities balances, which decreased $24,118, or 8.7%, during the second quarter of 2026, and $19,402, or 7.1%, during the first half of 2026, compared to the same periods in 2025. Average securities have decreased largely due to the Company’s emphasis on growing higher-yielding loans during 2026, as well as a lower need for securities to be pledged as collateral to secure public fund NOW accounts from a year ago, particularly with the Bank’s public fund NOW account deposits with the Ohio Treasurer (the “Treasurer”) as part of the Ohio Homebuyer Plus program. Securities pledged as collateral to secure the Treasurer deposit balances totaled $59,044 at June 30, 2026, compared to $81,123 at June 30, 2025. 39 Total interest expense incurred on the Company’s interest-bearing liabilities increased $1,576, or 24.2%, during the second quarter of 2026, and $2,503, or 19.0%, during the first half of 2026, compared to the same periods in 2025. The increases were impacted by average interest-bearing liability growth during both periods, coming mostly from higher time, savings, and money market deposit balances. The increase in time deposit balances was impacted by the Company’s strategy to raise additional retail deposits during 2026 by offering special CD rate offerings. The increase in savings and money market account balances were mostly impacted by deposit growth within the Company’s tiered money market product (Money Fund) that offered competitive rates to both individual and business customers. These increases were partially offset by a decrease in average NOW account balances, which came largely from lower public fund balances from a year ago. The growth in interest expense from higher average interest-bearing liabilities was further impacted by a higher average cost on average interest-bearing liabilities during 2026. The average rates on the Company’s savings, NOW, and money market balances increased 16 basis points to 1.57% during the second quarter of 2026, and increased 12 basis points during the first half of 2026, as product rates on tiered money market accounts adjusted upward, while public fund NOW account balances shifted to a new higher-costing cash sweep product offered by the Bank. While product rates on various savings, NOW, and money market products increased, the Company experienced a decrease in the weighted average cost of its time deposit balances. Prior to 2025, market competition for deposits had resulted in higher rates on short-term CD offerings. Since then, product rates on retail CDs have decreased during 2025 and into 2026. The Company’s strategy to fund loan growth by raising additional retail deposits through special CD rate offerings was in effect during the second half of 2025. This has allowed a large portion of these short-term retail CDs to renew at lower rates during the three and six months ended June 30, 2026. As a result of the rate repricings on retail CDs, the average cost associated with time deposits decreased by 16 basis points to 3.96% during the second quarter of 2026 and decreased 23 basis points to 4.00% during the first half of 2026, compared to the same periods in 2025. This helped to reduce the expense impacts of higher average deposit balances, and the average rate increases in specific savings, NOW and money market products. The Company’s net interest margin is defined as fully tax-equivalent net interest income as a percentage of average earning assets. During 2026, the Company’s net interest margin decreased 24 basis points to 3.92% during the second quarter of 2026 and decreased 4 basis points to 3.97% during the first half of 2026, compared to the same periods in 2025. The decrease in the net interest margin was related to the average cost of funding sources increasing at a greater pace than the yield on earning assets. Comparing the first half of 2026 to the first half of 2025, the yield on average earning assets improved 9 basis points in relation to the growth in higher yielding loans that now comprise a larger percentage of earning assets, along with the yield on taxable securities. However, included in the yield on earning assets for the second quarter and first half of 2025 was the $817 market discount on purchased loans compared to no market discount income during the same periods in 2026, resulting in a 6 basis point decrease to the earning asset yield during the second quarter of 2026. During both the three and six months ended June 30, 2026, the average cost of funds increased as the composition of funding sources shifted to higher cost deposit sources, such as CDs and money market accounts that were offered pursuant to certain promotional offerings mentioned above. These promotional offerings were utilized to fund loan growth and to maintain an appropriate liquidity position. As a result, the average cost of funds increased 21 basis points during the second quarter of 2026 and increased 16 basis points during the first half of 2026, compared to the same periods in 2025. The Company’s primary focus is to invest its funds into higher yielding assets, particularly loans, as opportunities arise. However, if loan balances do not continue to expand and remain a larger component of overall earning assets, the Company will face pressure within its net interest income and margin improvement. Provision for Credit Losses 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, 2026, the Company’s provision for credit losses expense totaled $3,755, an increase of $2,607 over the three months ended June 30, 2025. For the six months ended June 30, 2026, the Company’s provision for credit losses expense totaled $5,377, an increase of $3,813 over the six months ended June 30, 2025. 40 The increases in provision for credit loss expense during both periods were primarily related to the establishment of specific allocations totaling $4,531 and $6,561 during the three and six months ended June 30, 2026 on two commercial loan relationships that were deemed to be collateral dependent. In addition, provision for credit loss expense was required to cover higher general reserves for the increase in loans during 2026. These increases in reserves were partially offset by the improvements in certain qualitative risk factors that contributed to a $1,234 decrease in reserves during the second quarter of 2026, and a $2,242 decrease in reserves during the first half of 2026, compared to the same periods in 2025. Factors contributing to lower qualitative risk included improved portfolio terms, such as reduced exposure to variable rate loans repricing higher and a positive net charge-off trend for consumer loans due to exiting indirect lending, along with lower modeled loss rates in relation to the improvement in unemployment projections. The Company also experienced less net charge-offs, which contributed to a $168 and $315 decrease in provision expense during the three and six months ended June 30, 2026. Credit loss expense during 2026 was also impacted by unfunded commitments on off-balance sheet liabilities, which decreased $175 and $195 during the three and six months ended June 30, 2026 , compared to the same periods in 2025. The impact came mostly from lower loss rates on commercial lines during both periods. 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 $338, or 11.9%, during the three months ended June 30, 2026, and decreased $20, or 0.3%, during the six months ended June 30, 2026, compared to the same periods in 2025. The quarterly increase was primarily from the $377 in unrealized gains on equity securities from the Company’s participation in the Visa exchange offer previously mentioned. Further increases to noninterest income came from higher debit and credit card interchange fees, which increased $70 and $156 during the three and six months ended June 30, 2026, compared to the same periods in 2025. The growth in interchange income was driven by increases in transaction volume for both debit and credit cards during 2026. Increases also came from BOLI and annuity assets due to the receipt of life insurance proceeds during the first quarter of 2026, leading to a $137 increase in BOLI and annuity earnings during the six months ended June 30, 2026, while remaining relatively stable during the second quarter of 2026, decreasing by $1. Decreases to noninterest income came primarily from a $135 and $675 decrease in electronic refund check and deposit fees during the three and six months ended June 30, 2026, compared to the same periods in 2025. The decrease was due to the expiration of a tax processing agreement with a third party at year-end 2025. The remaining noninterest income categories increased $27 during the three months ended June 30, 2026, and decreased $15 during the six months ended June 30, 2026, impacted by a mix of higher service charges on deposit accounts and a decline in commercial loan servicing fees. Noninterest Expense Noninterest expense increased $196, or 1.8%, during the three months ended June 30, 2026, and increased $679, or 3.1%, during the six months ended June 30, 2026, compared to the same periods in 2025. Contributing most to the increase was the Company’s largest noninterest expense, salaries and employee benefits, which increased $359, or 5.8%, during the three months ended June 30, 2026, and $694, or 5.7%, during the six months ended June 30, 2026, compared to the same periods in 2025. The expense increase was primarily related to annual merit increases and higher health insurance premiums. Other noninterest expense increased $251 and $278 during the three and six months ended June 30, 2026 in large part due to higher state taxes, loan costs, and other miscellaneous expenses associated with troubled credits. State taxes included higher West Virginia Business & Occupation and Ohio Financial Institutions taxes. Loan costs included increases to foreclosure and loan vendor expense. Increases in other miscellaneous expenses included the remittance of real estate taxes associated with the properties of select troubled credits. Higher noninterest expense also came from software expense, which increased $74 and $206 during the three and six months ended June 30, 2026. Higher costs in this category were the result of the investment in software to enhance internal processes. 41 Also contributing to higher noninterest expense was higher FDIC insurance premiums, which increased $77 and $135 during the three and six months ended June 30, 2026. The increase was related to a higher assessment base due to growth in assets and to an increase in the assessment rate in relation to the higher nonperforming loans. Partially offsetting increases in noninterest expense were lower data processing expenses, which decreased $605 and $619 during the three and six months ended June 30, 2026. This was due to a $544 recovery from a vendor in the second quarter of 2026 for a billing error that occurred over a 7-year period. The remaining noninterest expense categories increased $40 during the second quarter of 2026, and decreased $15 during the first half of 2026, compared to the same periods in 2025, impacted by a mix of higher building, equipment and marketing costs and a decline in professional fees. Efficiency The Company’s efficiency ratio is a non-US GAAP measurement and is defined as noninterest expense as a percentage of fully tax-equivalent net interest income plus noninterest income. The effects of provision expense are excluded from the efficiency ratio. Management believes the efficiency ratio provides investors with important information regarding operational efficiency and operating performance. 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, 2026 to the same periods in 2025, the Company has benefited from an increase in average earning assets, primarily from a composition shift to higher-yielding loans. However, a composition shift to higher-costing time deposits combined with an $817 market discount on purchased loans from 2025 contributed to decreases in the net interest margin during the three and six months ended June 30, 2026 compared to the same periods in 2025. Although the net interest margin contracted, the additional growth in average earning assets more than offset the margin decreases resulting in a 5.9% and 9.4% increase in net interest income during the second quarter and first half of 2026. The growth in net interest income was further enhanced by the strong growth in noninterest income during the second quarter of 2026, bringing 2026’s year-to-date noninterest revenue more in line with the prior year-to-date. The quarterly increase was largely impacted by the unrealized gains on equity securities, as well as higher earnings from debit and credit interchange and BOLI insurance, which helped to counter the negative effects from lower electronic refund check and deposit fees from an expired tax processing agreement. And while noninterest expense increased during 2026, the pace of growth was slowed during the second quarter with the $544 refund from a vendor billing error that resulted in a 62.4% and 32.7% decrease in data processing expense during the three and six months ended June 30, 2026. This caused total noninterest expense to increase just 1.8% during the second quarter of 2026 compared to a 4.5% increase during the linked first quarter of 2026. Based on the net increase in revenue sources and slower cost growth in overhead during the quarter, the Company’s efficiency ratio decreased (improved) to 60.08% during the three months ended June 30, 2026, compared to 63.09% during the three months ended June 30, 2025. The Company’s year-to-date efficiency ratio also decreased (improved) to 60.89% during the six months ended June 30, 2026, compared to 63.51% during the six months ended June 30, 2025. Provision for income taxes The Company’s income tax provision decreased $319, or 32.7%, during the three months ended June 30, 2026, and decreased $509, or 24.0%, during the six months ended June 30, 2026, compared to the same periods in 2025. During the second quarter of 2026, operating income decreased 30.9% and the associated effective tax rate decreased from 18.9% in 2025 to 18.3% in 2026. During the first half of 2026, operating income decreased 17.7% and the associated effective tax rate decreased from 19.8% in 2025 to 18.3% in 2026. The effective rate decreases during both the quarterly and year-to-date periods of 2026 were primarily from higher 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 The Community Bank Leverage Ratio (CBLR) framework provides simplified capital requirements for qualifying community banking organizations (QCBOs), including banks and holding companies. To be eligible for the CBLR framework, a QCBO must meet the following criteria: • Have less than $10 billion in total consolidated assets, • Hold limited amounts of certain trading assets and liabilities, • Maintain limited off-balance sheet exposure, and • Achieve a leverage ratio greater than 9.0%. The federal banking agencies adopted a final rule that modified the CBLR framework effective July 1, 2026. Key provisions included a decrease in the CBLR requirement from 9.0% to 8.0%, extension of the grace period to meet one or more CBLR qualifying requirements from two consecutive quarters to four consecutive quarters, as long as the leverage ratio stays above 7.0%, and a cap on the extended grace period to eight quarters within a five-year period. A QCBO failing to satisfy these requirements must comply with the existing Basel III capital requirements. The Bank opted into the CBLR, and, therefore, is not required to comply with the Basel III capital requirements. As of June 30, 2026, the Bank’s CBLR was 9.73%. Cash dividends paid by the Company were $2,262 during the first half of 2026. The year-to-date dividends paid totaled $0.48 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 $328,951, represented 19.8% of total assets at June 30, 2026 compared to $300,436 and 19.0% of total assets at December 31, 2025. The increase in liquid funds came primarily from the $32,187 increase in cash and cash equivalents, which was related to the growth in total deposits. From year-end 2025, total deposits increased $78,761, or 5.9%, of which a portion was utilized to fund loan growth of $50,096. 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, 2026, the Bank could borrow an additional $170,848 from the FHLB and the borrowing line with the FRB had availability of $35,665. 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, 2026, the amount of brokered CDs outstanding was 2.78% of total assets, as compared to 3.92% at December 31, 2025. At June 30, 2026, the Bank had utilized 36.17% of our FHLB capacity, a decrease from 37.62% at December 31, 2025. The collective internal limit on all wholesale funding sources is 40% of total assets. At June 30, 2026, the Bank’s total wholesale funding sources represented 10.52% of total assets, a decrease from 11.89% at December 31, 2025. Based on the collective internal wholesale funding limit, the Bank had the capacity to borrow an additional $485 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 $1,408,428 in total deposit balances at June 30, 2026, only 36.7%, or $517,318, 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, 2026. 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 commercial 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.