Note D - Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note

D

- Loans and Allowance for Loan Losses

Loans are comprised of the following at

December 31:

	201 7			201 6
Residential real estate	$	309,163		$	286,022
Commercial real estate:
Owner-occupied		73,573			77,605
Nonowner-occupied		101,571			90,532
Construction		38,302			45,870
Commercial and industrial		107,089			100,589
Consumer:
Automobile		68,626			59,772
Home equity		21,431			20,861
Other		49,564			53,650
		769,319			734,901
Less: Allowance for loan losses		(7,499	)		(7,699	)
Loans, net	$	761,820		$	727,202

The following table presents the activity in the allowance for loan losses by portfolio segment for the year

s ended

December 31, 2017,

2016

and

2015:

December 31, 201 7	Residential Real Estate			Commercial Real Estate			Commercial & Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	939		$	4,315		$	907		$	1,538		$	7,699
Provision for loan losses		1,016			(632	)		658			1,522			2,564
Loans charged off		(745	)		(1,067	)		(627	)		(1,642	)		(4,081	)
Recoveries		260			362			86			609			1,317
Total ending allowance balance	$	1,470		$	2,978		$	1,024		$	2,027		$	7,499

December 31, 201 6	Residential Real Estate			Commercial Real Estate			Commercial & Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,087		$	1,959		$	2,589		$	1,013		$	6,648
Provision for loan losses		(63	)		2,287			(1,112	)		1,714			2,826
Loans charged off		(384	)		(63	)		(586	)		(2,170	)		(3,203	)
Recoveries		299			132			16			981			1,428
Total ending allowance balance	$	939		$	4,315		$	907		$	1,538		$	7,699

December 31, 201 5	Residential Real Estate			Commercial Real Estate			Commercial & Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1, 426		$	4 ,195		$	1, 602		$	1,111		$	8 ,334
Provision for loan losses		103			(469	)		777			679			1 ,090
Loans charged off		( 828	)		( 1,971	)		( 24	)		(1, 428	)		( 4,251	)
Recoveries		38 6			204			234			651			1, 475
Total ending allowance balance	$	1, 087		$	1 ,959		$	2 ,589		$	1, 013		$	6 ,648

The following table presents the balance in the allowance for loan losses and the recorded investment of loans by portfolio segment and based on impairment method as

of

December 31, 2017

and

2016:

December 31, 201 7	Residential Real Estate		Commercial Real Estate		Commercial & Industrial		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	----	$	94	$	----	$	----	$	94
Collectively evaluated for impairment		1,470		2,884		1,024		2,027		7,405
Total ending allowance balance	$	1,470	$	2,978	$	1,024	$	2,027	$	7,499
Loans:
Loans individually evaluated for impairment	$	1,420	$	7,333	$	9,154	$	201	$	18,108
Loans collectively evaluated for impairment		307,743		206,113		97,935		139,420		751,211
Total ending loans balance	$	309,163	$	213,446	$	107,089	$	139,621	$	769,319

December 31, 201 6	Residential Real Estate		Commercial Real Estate		Commercial & Industrial		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	----	$	2,535	$	241	$	205	$	2,981
Collectively evaluated for impairment		939		1,780		666		1,333		4,718
Total ending allowance balance	$	939	$	4,315	$	907	$	1,538	$	7,699
Loans:
Loans individually evaluated for impairment	$	717	$	13,111	$	8,465	$	416	$	22,709
Loans collectively evaluated for impairment		285,305		200,896		92,124		133,867		712,192
Total ending loans balance	$	286,022	$	214,007	$	100,589	$	134,283	$	734,901

The following table presents information related to loans individually evaluated for impairment by class of loans as of the year

s ended

December 31, 2017,

2016

and

2015:

December 31, 201 7	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized
With an allowance recorded:
Commercial real estate:
Nonowner-occupied	$	372	$	372	$	94	$	378	$	17	$	17
With no related allowance recorded:
Residential real estate		1,420		1,420		----		851		66		66
Commercial real estate:
Owner-occupied		3,427		3,427		----		2,456		184		184
Nonowner-occupied		4,989		3,534		----		3,521		81		81
Construction		352		----		----		----		19		19
Commercial and industrial		9,154		9,154		----		8,544		481		481
Consumer:
Home equity		203		201		----		208		7		7
Total	$	19,917	$	18,108	$	94	$	15,958	$	855	$	855

December 31, 201 6	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized
With an allowance recorded:
Commercial real estate:
Owner-occupied	$	5,477	$	5,477	$	2,435	$	3,185	$	300	$	300
Nonowner-occupied		384		384		100		390		19		19
Commercial and industrial		392		392		241		391		----		----
Consumer:
Home equity		416		416		205		421		21		21
With no related allowance recorded:
Residential real estate		717		717		----		726		31		31
Commercial real estate:
Owner-occupied		3,638		3,091		----		3,005		178		178
Nonowner-occupied		5,078		3,632		----		3,572		79		79
Construction		1,001		527		----		522		136		136
Commercial and industrial		8,073		8,073		----		7,681		381		381
Total	$	25,176	$	22,709	$	2,981	$	19,893	$	1,145	$	1,145

December 31, 201 5	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized
With an allowance recorded:
Commercial real estate:
Owner-occupied	$	204	$	204	$	204	$	204	$	13	$	13
Nonowner-occupied		396		396		107		402		75		75
Commercial and industrial		4,355		4,355		1,850		3,545		149		149
Consumer:
Home equity		218		218		3		219		8		8
With no related allowance recorded:
Residential real estate		1,001		1,001		----		809		45		45
Commercial real estate:
Owner-occupied		3,812		3,265		----		2,747		181		181
Nonowner-occupied		5,178		2,773		----		3,439		49		49
Construction		680		680		----		544		----		----
Commercial and industrial		4,336		4,336		----		3,985		180		180
Total	$	20,180	$	17,228	$	2,164	$	15,894	$	700	$	700

The recorded investment of a loan is its carrying value excluding accrued interest and deferred loan fees.

Nonaccrual loans and loans past due

90

days or more and still accruing include both smaller balance homogenous loans that are collectively evaluated for impairment and individually classified as impaired loans.

The Company transfers loans to other real estate owned, at fair value less cost to sell, in the period the Company obtains physical possession of the property (through legal title or through a deed in lieu).

As of

December 31, 2017

and

December 31, 2016,

other real estate owned for residential real estate properties totaled

$262

and

$938,

respectively. In addition, nonaccrual residential mortgage loans that are in the process of foreclosure had a recorded investment of

$2,410

and

$1,492

as of

December 31, 2017

and

December 31, 2016,

respectively.

The following table presents the recorded investment of nonaccrual loans and loans past due

90

days or more and still accruing by class of loans as of

December 31, 2017

and

2016:

	Loans Past Due 90 Days And Still Accruing		Nonaccrual
December 31, 201 7
Residential real e state	$	131	$	5,906
Commercial real estate:
Owner-occupied		----		476
Nonowner-occupied		----		2,454
Construction		----		444
Commercial and industrial		----		337
Consumer:
Automobile		127		86
Home equity		----		283
Other		76		126
Total	$	334	$	10,112

	Loans Past Due 90 Days And Still Accruing		Nonaccrual
December 31, 201 6
Residential real e state	$	132	$	3,445
Commercial real estate:
Owner-occupied		28		1,571
Nonowner-occupied		----		2,506
Construction		----		527
Commercial and industrial		----		867
Consumer:
Automobile		121		5
Home equity		----		34
Other		46		6
Total	$	327	$	8,961

The following table presents the aging of the recorded investment of past due loans by class of loans as of

December 31, 2017

and

2016:

December 31, 201 7	30-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Loans Not Past Due		Total
Residential real estate	$	5,383	$	671	$	1,673	$	7,727	$	301,436	$	309,163
Commercial real estate:
Owner-occupied		194		161		160		515		73,058		73,573
Nonowner-occupied		140		----		2,238		2,378		99,193		101,571
Construction		----		----		169		169		38,133		38,302
Commercial and industrial		303		243		191		737		106,352		107,089
Consumer:
Automobile		1,257		346		151		1,754		66,872		68,626
Home equity		90		272		27		389		21,042		21,431
Other		865		218		76		1,159		48,405		49,564
Total	$	8,232	$	1,911	$	4,685	$	14,828	$	754,491	$	769,319

December 31, 201 6	30-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Loans Not Past Due		Total
Residential real estate	$	3,728	$	953	$	2,201	$	6,882	$	279,140	$	286,022
Commercial real estate:
Owner-occupied		134		366		1,325		1,825		75,780		77,605
Nonowner-occupied		261		18		2,506		2,785		87,747		90,532
Construction		66		52		182		300		45,570		45,870
Commercial and industrial		1,283		483		800		2,566		98,023		100,589
Consumer:
Automobile		1,091		221		126		1,438		58,334		59,772
Home equity		349		45		----		394		20,467		20,861
Other		685		155		46		886		52,764		53,650
Total	$	7,597	$	2,293	$	7,186	$	17,076	$	717,825	$	734,901

Troubled Debt Restructurings:

A troubled debt restructuring (“TDR”) occurs when the Company has agreed to a loan modification in the form of a concession for a borrower who is experiencing financial difficulty.

  All TDR’s are considered to be impaired.   The modification of the terms of such loans included

one

or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; a reduction in the contractual principal and interest payments of the loan; or short-term interest-only payment terms.

       The Company has allocated reserves for a portion of its TDR’s to reflect the fair values of the underlying collateral or the present value of the concessionary terms granted to the customer.

The following table presents the types of TDR loan modifications by class of loans as of

December 31, 2017

and

December 31, 2016:

	TDR ’s Performing to Modified Terms		TDR’s Not Performing to Modified Terms		Total TDR ’s
December 31, 201 7
Residential real estate :
Interest only payments	$	697	$	----	$	697
Commercial real estate:
Owner-occupied
Interest only payments		997		----		997
Reduction of principal and interest payments		554		----		554
Maturity extension at lower stated rate than market rate		1,466		----		1,466
Credit extension at lower stated rate than market rate		410				410
Nonowner-occupied
Interest only payments		560		1,961		2,521
Rate reduction		372		----		372
Credit extension at lower stated rate than market rate		570		----		570
Commercial and industrial
Interest only payments		9,154		----		9,154
Consumer:
Home equity
Maturity extension at lower stated rate than market rate		----		201		201
Total TDR ’s	$	14,780	$	2,162	$	16,942

	TDR ’s Performing to Modified Terms		TDR’s Not Performing to Modified Terms		Total TDR ’s
December 31, 201 6
Residential real estate :
Interest only payments	$	717	$	----	$	717
Commercial real estate:
Owner-occupied
Interest only payments		284		----		284
Rate reduction		----		232		232
Reduction of principal and interest payments		579		----		579
Maturity extension at lower stated rate than market rate		1,582		----		1,582
Nonowner-occupied
Interest only payments		600		2,210		2,810
Rate reduction		384		----		384
Credit extension at lower stated rate than market rate		574		----		574
Commercial and industrial
Interest only payments		8,074		----		8,074
Credit extension at lower stated rate than market rate		----		391		391
Consumer:
Home equity
Maturity extension at lower stated rate than market rate		213		----		213
Credit extension at lower stated rate than market rate		203		----		203
Total TDR ’s	$	13,210	$	2,833	$	16,043

At

December 31,

201

7,

the balance in TDR loans increased

$899,

or

5.6%,

from year-end

2016.

The Company’s specific allocations in reserves to customers whose loan terms have been modified in TDR’s totaled

$94

at

December 31, 2017,

as compared to

$546

in reserves at

December 31, 2016.

At

December 31, 2017,

the Company had

$846

in commitments to lend additional amounts to customers with outstanding loans that are classified as TDR’s, as compared to

$2,427

at

December 31, 2016.

The following table presents the pre- and post-modification balances of TDR loan modifications by class of loans that occurred during the years

ended

December 31, 2017

and

2016:

			TDR ’s Performing to Modified Terms				TDR ’s Not Performing to Modified Terms
	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
December 31, 201 7
Commercial real estate:
O wner-occupied
Interest only payments		1	$	997	$	997	$	----	$	----
Credit extension at lower stated rate than market rate		1		412		412		----		----
Total TDR ’s		2	$	1,409	$	1,409	$	----	$	----

The troubled debt restructurings described above

had

no

impact on the allowance for loan losses and resulted in

no

charge-offs during the year ended

December 31, 2017.

			TDR ’s Performing to Modified Terms				TDR ’s Not Performing to Modified Terms
	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
December 31, 201 6
Commercial real estate:
Nono wner-occupied
Interest only payments		1	$	----	$	----	$	226	$	226
Credit extension at lower stated rate than market rate		1		574		574		----		----
Total TDR ’s		2	$	574	$	574	$	226	$	226

The troubled debt restructurings described above increased the allowance for loan losses by $

11

and resulted in charge-offs of

$11

during the year ended

December 31, 2016.

The Company had

no

TDR's that occurred during the year ended

December 31, 2017

and

2015

that experienced any payment defaults within

twelve

months following their loan modification. During the

twelve

months ended

December 31, 2016,

the Company placed

one

commercial real estate TDR totaling

$226

on nonaccrual status. Excluding this

$226

commercial real estate loan, there were

no

other TDR's described above at

December 31, 2016

that experienced any payment defaults within

twelve

months following their loan modification. A default is considered to have occurred once the TDR is past due

90

days or more or it has been placed on nonaccrual. TDR loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. These risk categories are represented by a loan grading scale

from

1

through

11.

The Company analyzes loans individually with a higher credit risk rating and groups these loans into categories called “criticized” and ”classified” assets. The Company considers its criticized assets to be loans that are graded

8

and its classified assets to be loans that are graded

9

through

11.

The Company’s risk categories are reviewed at least annually on loans that have aggregate borrowing amounts that meet or exceed

$500.

The Company uses the following definitions for its

criticized

loan risk ratings:

Special Mention.

Loans classified as special mention indicate considerable risk due to deterioration of repayment (in the earliest stages) due to potential weak primary repayment source, or payment delinquency.  These loans will be under constant supervision, are

not

classified and do

not

expose the institution to sufficient risks to warrant classification.  These deficiencies should be correctable within the normal course of business, although significant changes in company structure or policy

may

be necessary to correct the deficiencies.  These loans are considered bankable assets with

no

apparent loss of principal or interest envisioned.  The perceived risk in continued lending is considered to have increased beyond the level where such loans would normally be granted.  Credits that are defined as a troubled debt restructuring should be graded

no

higher than special mention until they have been reported as performing over

one

year after restructuring.

The Company uses the following definitions for its

classified

loan risk ratings:

Substandard.

Loans classified as substandard represent very high risk, serious delinquency, nonaccrual, or unacceptable credit. Repayment through the primary source of repayment is in jeopardy due to the existence of

one

or more well defined weaknesses and the collateral pledged

may

inadequately protect collection of the loans. Loss of principal is

not

likely if weaknesses are corrected, although financial statements normally reveal significant weakness. Loans are still considered collectible, although loss of principal is more likely than with special mention loan grade

8

loans. Collateral liquidation considered likely to satisfy debt.

Doubtful

.

Loans classified as doubtful display a high probability of loss, although the amount of actual loss at the time of classification is undetermined. This should be a temporary category until such time that actual loss can be identified, or improvements made to reduce the seriousness of the classification. These loans exhibit all substandard characteristics with the addition that weaknesses make collection or liquidation in full highly questionable and improbable. This classification consists of loans where the possibility of loss is high after collateral liquidation based upon existing facts, market conditions, and value. Loss is deferred until certain important and reasonable specific pending factors which

may

strengthen the credit can be more accurately determined. These factors

may

include proposed acquisitions, liquidation procedures, capital injection, and receipt of additional collateral, mergers, or refinancing plans. A doubtful classification for an entire credit should be avoided when collection of a specific portion appears highly probable with the adequately secured portion graded substandard. 

Loss

.

Loans classified as loss are considered uncollectible and are of such little value that their continuance as bankable assets is

not

warranted. This classification does

not

mean that the credit has absolutely

no

recovery or salvage value, but rather it is

not

practical or desirable to defer writing off this asset yielding such a minimum value even though partial recovery

may

be affected in the future. Amounts classified as loss should be promptly charged off.

Criticized and classified loans will mostly consist of commercial and industrial and commercial real estate loans. The Company considers its loans that do

not

meet the criteria for a criticized and classified asset rating as pass rated loans, which will include loans graded from

1

(Prime) to

7

(Watch). All commercial loans are categorized into a risk category either at the time of origination or re-evaluation date.

As of

December 31,

201

7

and

December 31, 2016,

and based on the most recent analysis performed, the risk category of commercial loans by class of loans is as follows:

December 31, 201 7	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	64,993	$	934	$	7,646	$	73,573
Nonowner-occupied		93,197		3,776		4,598		101,571
Construction		37,735		156		411		38,302
Commercial and industrial		91,097		6,058		9,934		107,089
Total	$	287,022	$	10,924	$	22,589	$	320,535

December 31, 201 6	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	66,495	$	428	$	10,682	$	77,605
Nonowner-occupied		83,103		2,364		5,065		90,532
Construction		45,325		----		545		45,870
Commercial and industrial		94,091		188		6,310		100,589
Total	$	289,014	$	2,980	$	22,602	$	314,596

The Company also obtains the credit scores of its borrowers upon origination (if available by the credit bureau) but

not

thereafter. The Company focuses mostly on the performance and repayment ability of the borrower as an indicator of credit risk and does

not

consider a borrower’s credit score to be a significant influence in the determination of a loan’s credit risk grading.

For residential and consumer loan classes, the Company evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity.

  The following table presents the recorded investment of residential and consumer loans by class of loans based on payment activity as of

December 31, 2017

and

December 31, 2016:

	Consumer
December 31, 201 7	Automobile		Home Equity		Other		Residential Real Estate		Total
Performing	$	68,413	$	21,148	$	49,362	$	303,126	$	442,049
Nonperforming		213		283		202		6,037		6,735
Total	$	68,626	$	21,431	$	49,564	$	309,163	$	448,784

	Consumer
December 31, 201 6	Automobile		Home Equity		Other		Residential Real Estate		Total
Performing	$	59,646	$	20,827	$	53,598	$	282,445	$	416,516
Nonperforming		126		34		52		3,577		3,789
Total	$	59,772	$	20,861	$	53,650	$	286,022	$	420,305

The Company, through its subsidiaries, grants residential, consumer, and commercial loans to customers located primarily in the

 southeastern area of Ohio as well as the western counties of West Virginia.  Approximately

4.86%

of total loans were unsecured at

December 31, 2017,

down from

5.61%

at

December 31, 2016.