LOANS AND ALLOWANCE FOR LOAN LOSSES

6 Months Ended

Jun. 30, 2020

LOANS AND ALLOWANCE FOR LOAN LOSSES [Abstract]

LOANS AND ALLOWANCE FOR LOAN LOSSES

NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans are comprised of the following:

	June 30, 2020			December 31, 2019
Residential real estate	$	314,987		$	310,253
Commercial real estate:
Owner-occupied		53,580			55,825
Nonowner-occupied		151,780			131,398
Construction		34,531			34,913
Commercial and industrial		142,972			100,023
Consumer:
Automobile		60,369			63,770
Home equity		20,125			22,882
Other		52,488			53,710
		830,832			772,774
Less:  Allowance for loan losses		(7,981	)		(6,272	)
Loans, net	$	822,851		$	766,502

Commercial and industrial loans include $34,145 of loans originated under the PPP at June 30, 2020.

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2020 and 2019:

June 30, 2020	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	2,002		$	3,028		$	2,045		$	1,654		$	8,729
Provision for loan losses		64			(343	)		(349	)		235			(393	)
Loans charged off		(52	)		—			(56	)		(390	)		(498	)
Recoveries		10			15			9			109			143
Total ending allowance balance	$	2,024		$	2,700		$	1,649		$	1,608		$	7,981

June 30, 2019	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	2,079		$	2,452		$	1,315		$	2,167		$	8,013
Provision for loan losses		(552	)		(260	)		(169	)		175			(806	)
Loans charged-off		(78	)		(438	)		(111	)		(536	)		(1,163	)
Recoveries		524			468			60			305			1,357
Total ending allowance balance	$	1,973		$	2,222		$	1,095		$	2,111		$	7,401

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2020 and 2019:

June 30, 2020	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,250		$	1,928		$	1,447		$	1,647		$	6,272
Provision for loan losses		990			1,229			275			959			3,453
Loans charged off		(250	)		(516	)		(89	)		(1,279	)		(2,134	)
Recoveries		34			59			16			281			390
Total ending allowance balance	$	2,024		$	2,700		$	1,649		$	1,608		$	7,981

June 30, 2019	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,583		$	2,186		$	1,063		$	1,896		$	6,728
Provision for loan losses		261			133			304			873			1,571
Loans charged-off		(407	)		(579	)		(344	)		(1,193	)		(2,523	)
Recoveries		536			482			72			535			1,625
Total ending allowance balance	$	1,973		$	2,222		$	1,095		$	2,111		$	7,401

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 June 30, 2020 and December 31, 2019:

June 30, 2020	Residential Real Estate		Commercial Real Estate		Commercial and Industrial		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		2,024		2,700		1,649		1,608		7,981
Total ending allowance balance	$	2,024	$	2,700	$	1,649	$	1,608	$	7,981
Loans:
Loans individually evaluated for impairment	$	423	$	5,051	$	4,725	$	403	$	10,602
Loans collectively evaluated for impairment		314,564		234,840		138,247		132,579		820,230
Total ending loans balance	$	314,987	$	239,891	$	142,972	$	132,982	$	830,832

December 31, 2019	Residential Real Estate		Commercial Real Estate		Commercial and Industrial		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	385	$	303	$	119	$	807
Collectively evaluated for impairment		1,250		1,543		1,144		1,528		5,465
Total ending allowance balance	$	1,250	$	1,928	$	1,447	$	1,647	$	6,272
Loans:
Loans individually evaluated for impairment	$	438	$	11,300	$	4,910	$	487	$	17,135
Loans collectively evaluated for impairment		309,815		210,836		95,113		139,875		755,639
Total ending loans balance	$	310,253	$	222,136	$	100,023	$	140,362	$	772,774

The following tables present information related to loans individually evaluated for impairment by class of loans as of June 30, 2020 and December 31, 2019:

June 30, 2020	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded	$	—	$	—	$	—
With no related allowance recorded:
Residential real estate		424		423		—
Commercial real estate:
Owner-occupied		4,034		4,034		—
Nonowner-occupied		1,017		1,017		—
Commercial and industrial		4,725		4,725		—
Consumer:
Home equity		403		403		—
Total	$	10,603	$	10,602	$	—

December 31, 2019	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:
Commercial real estate:
Owner-occupied	$	2,030	$	2,030	$	385
Commercial and industrial		4,861		4,861		303
Consumer:
Automobile		8		8		8
Other		111		111		111
With no related allowance recorded:
Residential real estate		438		438		—
Commercial real estate:
Owner-occupied		1,778		1,778		—
Nonowner-occupied		7,492		7,492		—
Commercial and industrial		49		49		—
Consumer:
Home equity		368		368		—
Total	$	17,135	$	17,135	$	807

The following tables present information related to loans individually evaluated for impairment by class of loans for the three and  six months ended June 30, 2020 and 2019:

	Three months ended June 30, 2020						Six months ended June 30, 2020
	Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized		Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized
With an allowance recorded	$	—	$	—	$	—	$	—	$	—	$	—
With no related allowance recorded:
Residential real estate		426		5		5		430		8		8
Commercial real estate:
Owner-occupied		4,051		44		44		3,764		102		102
Nonowner-occupied		1,018		13		13		1,027		24		24
Commercial and industrial		4,355		56		56		4,428		129		129
Consumer:
Home equity		403		3		3		391		8		8
Total	$	10,253	$	121	$	121	$	10,040	$	271	$	271

	Three months ended June 30, 2019						Six months ended June 30, 2019
	Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized		Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized
With an allowance recorded:
Residential real estate	$	1,213	$	—	$	—	$	1,214	$	5	$	5
Commercial real estate:
Nonowner-occupied		324		1		1		337		1		1
With no related allowance recorded:
Residential real estate		636		6		6		575		11		11
Commercial real estate:
Owner-occupied		3,483		58		58		3,111		112		112
Nonowner-occupied		7,458		117		117		5,287		228		228
Commercial and industrial		7,366		121		121		6,591		242		242
Consumer:
Other		6		—		—		4		—		—
Total	$	20,486	$	303	$	303	$	17,119	$	599	$	599

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 June 30, 2020, there were no other real estate owned for residential real estate properties, as compared to $68 at December 31, 2019. In addition, nonaccrual residential mortgage loans that are in the process of foreclosure had a recorded investment of $759 and $1,780 as of June 30, 2020 and December 31, 2019, 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 June 30, 2020 and December 31, 2019:

June 30, 2020	Loans Past Due 90 Days And Still Accruing		Nonaccrual
Residential real estate	$	153	$	5,773
Commercial real estate:
Owner-occupied		60		341
Nonowner-occupied		—		716
Construction		—		176
Commercial and industrial		11		427
Consumer:
Automobile		65		177
Home equity		—		213
Other		164		60
Total	$	453	$	7,883

December 31, 2019	Loans Past Due 90 Days And Still Accruing		Nonaccrual
Residential real estate	$	255	$	6,119
Commercial real estate:
Owner-occupied		—		863
Nonowner-occupied		—		804
Construction		—		229
Commercial and industrial		—		590
Consumer:
Automobile		239		61
Home equity		—		392
Other		395		91
Total	$	889	$	9,149

The following table presents the aging of the recorded investment of past due loans by class of loans as of June 30, 2020 and December 31, 2019:

June 30, 2020	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	$	2,352	$	1,260	$	2,081	$	5,693	$	309,294	$	314,987
Commercial real estate:
Owner-occupied		494		—		313		807		52,773		53,580
Nonowner-occupied		645		—		599		1,244		150,536		151,780
Construction		153		—		20		173		34,358		34,531
Commercial and industrial		60		—		438		498		142,474		142,972
Consumer:
Automobile		462		124		221		807		59,562		60,369
Home equity		112		81		112		305		19,820		20,125
Other		254		134		192		580		51,908		52,488
Total	$	4,532	$	1,599	$	3,976	$	10,107	$	820,725	$	830,832

December 31, 2019	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	$	4,015	$	1,314	$	1,782	$	7,111	$	303,142	$	310,253
Commercial real estate:
Owner-occupied		383		59		144		586		55,239		55,825
Nonowner-occupied		12		—		697		709		130,689		131,398
Construction		186		19		49		254		34,659		34,913
Commercial and industrial		1,320		312		241		1,873		98,150		100,023
Consumer:
Automobile		986		329		246		1,561		62,209		63,770
Home equity		106		18		279		403		22,479		22,882
Other		559		139		443		1,141		52,569		53,710
Total	$	7,567	$	2,190	$	3,881	$	13,638	$	759,136	$	772,774

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 TDRs 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 TDRs 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 June 30, 2020 and December 31, 2019:

June 30, 2020	TDRs Performing to Modified Terms		TDRs Not Performing to Modified Terms		Total TDRs
Residential real estate:
Interest only payments	$	205	$	—	$	205
Commercial real estate:
Owner-occupied
Interest only payments		868		—		868
Reduction of principal and interest payments		1,501		—		1,501
Maturity extension at lower stated rate than market rate		354		—		354
Credit extension at lower stated rate than market rate		388		—		388
Nonowner-occupied
Credit extension at lower stated rate than market rate		393		—		393
Commercial and industrial:
Interest only payments		3,077		—		3,077
Total TDRs	$	6,786	$	—	$	6,786

December 31, 2019	TDRs Performing to Modified Terms		TDRs Not Performing to Modified Terms		Total TDRs
Residential real estate:
Interest only payments	$	209	$	—	$	209
Commercial real estate:
Owner-occupied
Interest only payments		882		—		882
Reduction of principal and interest payments		1,521		—		1,521
Maturity extension at lower stated rate than market rate		393		—		393
Credit extension at lower stated rate than market rate		393		—		393
Nonowner-occupied
Credit extension at lower stated rate than market rate		395		—		395
Commercial and industrial:
Interest only payments		4,574		—		4,574
Reduction of principal and interest payments		185		—		185
Total TDRs	$	8,552	$	—	$	8,552

At June 30, 2020, the balance in TDR loans decreased $1,766, or 20.7%, from year-end 2019. The Company had no specific allocations in reserves to customers whose loan terms have been modified in TDRs at  June 30, 2020, as compared to $227 in reserves at December 31, 2019. At June 30, 2020, the Company had $2,423 in commitments to lend additional amounts to customers with outstanding loans that are classified as TDRs, as compared to $941 at December 31, 2019.

There were no TDR loan modifications that occurred during the three and six months ended June 30, 2020. The following table presents the pre- and post-modification balances of TDR loan modifications by class of loans that occurred during the three and six months ended June 30, 2019:

			TDRs Performing to Modified Terms				TDRs Not Performing toModified Terms
Three months ended June 30, 2019	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Residential real estate:
Interest only payments		1	$	292	$	292	$	—	$	—
Commercial and Industrial:
Interest only payments		1		282		282
Total TDRs		2	$	574	$	574	$	—	$	—

			TDRs Performing to Modified Terms				TDRs Not Performing to Modified Terms
Six months ended June 30, 2019	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Residential real estate:
Interest only payments		1	$	292	$	292	$	—	$	—
Commercial and Industrial:
Interest only payments		1		282		282
Total TDRs		2	$	574	$	574	$	—	$	—

The TDRs described above had no impact on the allowance for loan losses and resulted in no charge-offs during the three and six months ended June 30, 2019.

The Company had no TDRs that occurred during the three and six months ended June 30, 2020 or June 30, 2019 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.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020 and provided guidance around the modification of loans as a result of the COVID-19 pandemic, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs. This includes short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers are considered current under the CARES Act and related regulatory guidance if they are less than 30 days past due on their contractual payments at the time a modification program is implemented.  As of June 30, 2020, the Company had modified 692 loans related to the COVID-19 pandemic with an aggregate loan balance of $139,304 that were not reported as TDRs in the tables presented above.

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 $750.

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 TDR 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 loans. Collateral liquidation is considered likely to satisfy debt.

Doubtful.  Loans classified as doubtful display a high probability of loss, although the amount of actual loss at the time of classification is undetermined. This classification should be temporary until such time that actual loss can be identified, or improvements 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, 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 reevaluation date. As of June 30, 2020 and December 31, 2019, and based on the most recent analysis performed, the risk category of commercial loans by class of loans was as follows:

June 30, 2020	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	48,178	$	686	$	4,716	$	53,580
Nonowner-occupied		144,420		6,170		1,190		151,780
Construction		34,531		—		—		34,531
Commercial and industrial		134,820		2,703		5,449		142,972
Total	$	361,949	$	9,559	$	11,355	$	382,863

December 31, 2019	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	49,486	$	2,889	$	3,450	$	55,825
Nonowner-occupied		123,847		—		7,551		131,398
Construction		34,864		—		49		34,913
Commercial and industrial		89,749		298		9,976		100,023
Total	$	297,946	$	3,187	$	21,026	$	322,159

The Company also obtains the credit scores of its borrowers upon origination (if available by the credit bureau), but the scores are not updated. 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 repayment activity as of June 30, 2020 and December 31, 2019:

June 30, 2020	Consumer						Residential
	Automobile		Home Equity		Other		Real Estate		Total
Performing	$	60,127	$	19,912	$	52,264	$	309,061	$	441,364
Nonperforming		242		213		224		5,926		6,605
Total	$	60,369	$	20,125	$	52,488	$	314,987	$	447,969

December 31, 2019	Consumer						Residential
	Automobile		Home Equity		Other		Real Estate		Total
Performing	$	63,470	$	22,490	$	53,224	$	303,879	$	443,063
Nonperforming		300		392		486		6,374		7,552
Total	$	63,770	$	22,882	$	53,710	$	310,253	$	450,615

The Company, through its subsidiaries, originates residential, consumer, and commercial loans to customers located primarily in the southeastern areas of Ohio as well as the western counties of West Virginia.  Approximately 4.34% of total loans were unsecured at June 30, 2020, down from 5.00% at December 31, 2019.