Company Quick10K Filing
Quick10K
Ohio Valley Banc
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$40.10 5 $190
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
8-K 2019-02-12 Other Events
8-K 2019-01-29 Earnings, Exhibits
8-K 2019-01-15 Other Events
8-K 2018-10-25 Earnings, Exhibits
8-K 2018-10-16 Other Events
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-07-17 Other Events
8-K 2018-05-16 Shareholder Vote
8-K 2018-04-26 Earnings, Exhibits
8-K 2018-04-17 Other Events
8-K 2018-01-30 Earnings, Exhibits
8-K 2018-01-16 Other Events
ONB Old National Bancorp
FULT Fulton Financial
COLB Columbia Banking System
BPFH Boston Private Financial Holdings
BANC Banc of California
PFIS Peoples Financial Services
PWOD Penns Woods Bancorp
FBIZ First Business Financial Services
TCFC Community Financial
FUSB First US Bancshares
OVBC 2018-09-30
Part I - Financial Information
Item 1. Financial Statements
Note 1- Summary of Significant Accounting Policies
Note 2 - Fair Value of Financial Instruments
Note 3 - Securities
Note 4 - Loans and Allowance for Loan Losses
Note 5 - Financial Instruments with Off-Balance Sheet Risk
Note 6 - Other Borrowed Funds
Note 7 - Segment Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-4 exhibit4_093018.htm
EX-31.1 exhibit311_093018.htm
EX-31.2 exhibit312_093018.htm
EX-32 exhibit32_093018.htm

Ohio Valley Banc Earnings 2018-09-30

OVBC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 sec10q093018.htm FORM 10-Q AT 09/30/18

United States
Securities and Exchange Commission
Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number 0-20914

OHIO VALLEY BANC CORP.
(Exact name of registrant as specified in its charter)

Ohio
31-1359191
(State of Incorporation)
(I.R.S. Employer Identification No.)

420 Third Avenue
 
Gallipolis, Ohio
45631
(Address of principal executive offices)
(ZIP Code)

(740) 446-2631
(Issuer's telephone number, including area code)
_____________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes    No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes    No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,  a smaller reporting company or an emerging growth company.  See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer
 
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Emerging growth company
     

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No 

The number of common shares of the registrant outstanding as of November 9, 2018 was 4,733,120.


OHIO VALLEY BANC CORP.
Index

   
Page Number
PART I.
FINANCIAL INFORMATION
 
     
Item 1.
Financial Statements (Unaudited)
 
 
Consolidated Balance Sheets
3
 
Condensed Consolidated Statements of Income
4
 
Consolidated Statements of Comprehensive Income
5
 
Condensed Consolidated Statements of Cash Flows
6
 
Notes to the Consolidated Financial Statements
7
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
27
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
39
Item 4.
Controls and Procedures
40
     
PART II.
OTHER INFORMATION
 
     
Item 1.
Legal Proceedings
40
Item 1A.
Risk Factors
40
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
41
Item 3.
Defaults Upon Senior Securities
41
Item 4.
Mine Safety Disclosures
41
Item 5.
Other Information
41
Item 6.
Exhibits
42
     
Signatures
 
43



 



2

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

OHIO VALLEY BANC CORP.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollars in thousands, except share and per share data)

   
September 30,
2018
   
December 31,
2017
 
             
ASSETS
           
Cash and noninterest-bearing deposits with banks
 
$
11,349
   
$
12,664
 
Interest-bearing deposits with banks
   
53,770
     
61,909
 
Total cash and cash equivalents
   
65,119
     
74,573
 
                 
Certificates of deposit in financial institutions
   
2,310
     
1,820
 
Securities available for sale
   
104,877
     
101,125
 
Securities held to maturity (estimated fair value: 2018 - $17,538; 2017 - $18,079)
   
17,219
     
17,581
 
Restricted investments in bank stocks
   
7,506
     
7,506
 
                 
Total loans
   
782,377
     
769,319
 
    Less: Allowance for loan losses
   
(8,315
)
   
(7,499
)
Net loans
   
774,062
     
761,820
 
                 
Premises and equipment, net
   
13,856
     
13,281
 
Other real estate owned, net
   
1,332
     
1,574
 
Accrued interest receivable
   
2,862
     
2,503
 
Goodwill
   
7,371
     
7,371
 
Other intangible assets, net
   
410
     
514
 
Bank owned life insurance and annuity assets
   
29,198
     
28,675
 
Other assets
   
7,394
     
7,947
 
Total assets
 
$
1,033,516
   
$
1,026,290
 
                 
LIABILITIES
               
Noninterest-bearing deposits
 
$
232,575
   
$
253,655
 
Interest-bearing deposits
   
620,320
     
603,069
 
Total deposits
   
852,895
     
856,724
 
                 
Other borrowed funds
   
40,514
     
35,949
 
Subordinated debentures
   
8,500
     
8,500
 
Accrued liabilities
   
17,768
     
15,756
 
Total liabilities
   
919,677
     
916,929
 
                 
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 5)
   
----
     
----
 
                 
SHAREHOLDERS' EQUITY
               
Common stock ($1.00 stated value per share, 10,000,000 shares authorized; 2018 - 5,392,859 shares issued; 2017 - 5,362,005 shares issued)
   
5,393
     
5,362
 
Additional paid-in capital
   
49,208
     
47,895
 
Retained earnings
   
77,982
     
72,694
 
Accumulated other comprehensive loss
   
(3,032
)
   
(878
)
Treasury stock, at cost (659,739 shares)
   
(15,712
)
   
(15,712
)
Total shareholders' equity
   
113,839
     
109,361
 
Total liabilities and shareholders' equity
 
$
1,033,516
   
$
1,026,290
 


 

See accompanying notes to consolidated financial statements
3


OHIO VALLEY BANC CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except per share data)

   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2018
   
2017
   
2018
   
2017
 
                         
Interest and dividend income:
                       
Loans, including fees
 
$
11,118
   
$
10,489
   
$
33,134
   
$
31,410
 
Securities
                               
Taxable
   
583
     
535
     
1,739
     
1,559
 
Tax exempt
   
93
     
104
     
280
     
312
 
Dividends
   
112
     
101
     
328
     
287
 
Interest-bearing deposits with banks
   
265
     
81
     
1,321
     
459
 
Other Interest
   
10
     
7
     
26
     
17
 
     
12,181
     
11,317
     
36,828
     
34,044
 
                                 
Interest expense:
                               
Deposits
   
1,081
     
757
     
2,934
     
1,985
 
Other borrowed funds
   
250
     
228
     
740
     
673
 
Subordinated debentures
   
87
     
64
     
241
     
182
 
     
1,418
     
1,049
     
3,915
     
2,840
 
Net interest income
   
10,763
     
10,268
     
32,913
     
31,204
 
Provision for loan losses
   
962
     
1,601
     
1,695
     
1,921
 
Net interest income after provision for loan losses
   
9,801
     
8,667
     
31,218
     
29,283
 
                                 
Noninterest income:
                               
Service charges on deposit accounts
   
534
     
541
     
1,551
     
1,575
 
Trust fees
   
69
     
64
     
197
     
177
 
Income from bank owned life insurance and annuity assets
   
173
     
577
     
522
     
981
 
Mortgage banking income
   
93
     
59
     
225
     
164
 
Electronic refund check / deposit fees
   
33
     
----
     
1,566
     
1,667
 
Debit / credit card interchange income
   
943
     
863
     
2,736
     
2,506
 
Gain (loss) on other real estate owned
   
(82
)
   
(23
)
   
75
     
(94
)
Other
   
164
     
201
     
669
     
531
 
     
1,927
     
2,282
     
7,541
     
7,507
 
Noninterest expense:
                               
Salaries and employee benefits
   
5,537
     
5,019
     
16,780
     
15,528
 
Occupancy
   
469
     
449
     
1,336
     
1,331
 
Furniture and equipment
   
263
     
269
     
775
     
787
 
Professional fees
   
514
     
434
     
1,537
     
1,338
 
Marketing expense
   
263
     
273
     
787
     
785
 
FDIC insurance
   
110
     
99
     
368
     
366
 
Data processing
   
759
     
564
     
2,180
     
1,652
 
Software
   
398
     
365
     
1,160
     
1,102
 
Foreclosed assets
   
54
     
158
     
164
     
425
 
Amortization of intangibles
   
33
     
38
     
105
     
120
 
Other
   
1,361
     
1,554
     
4,051
     
5,039
 
     
9,761
     
9,222
     
29,243
     
28,473
 
                                 
Income before income taxes
   
1,967
     
1,727
     
9,516
     
8,317
 
Provision for income taxes
   
221
     
74
     
1,428
     
1,706
 
                                 
NET INCOME
 
$
1,746
   
$
1,653
   
$
8,088
   
$
6,611
 
                                 
Earnings per share
 
$
.37
   
$
.35
   
$
1.71
   
$
1.41
 
 
Dividends per share  
  $   .21     $  .21      
$
.63      
$
 .63  





See accompanying notes to consolidated financial statements
4

 
 
OHIO VALLEY BANC CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(dollars in thousands)
 
   
   
Three months ended
September 30,
   
Nine months ended
September 30,
 
   
2018
   
2017
   
2018
   
2017
 
                         
Net Income
 
$
1,746
   
$
1,653
   
$
8,088
   
$
6,611
 
                                 
Other comprehensive income:
                               
  Change in unrealized loss on available for sale securities
   
(534
)
   
20
     
(2,508
)
   
1,485
 
  Related tax expense
   
112
     
(7
)
   
527
     
(505
)
Total other comprehensive income (loss), net of tax
   
(422
)
   
13
     
(1,981
)
   
980
 
                                 
Total comprehensive income
 
$
1,324
   
$
1,666
   
$
6,107
   
$
7,591
 





 






See accompanying notes to consolidated financial statements
5


 
OHIO VALLEY BANC CORP.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (UNAUDITED)
(dollars in thousands)
 
             
   
Nine months ended
September 30,
 
   
2018
   
2017
 
             
Net cash provided by operating activities:
 
$
13,239
   
$
5,926
 
                 
Investing activities:
               
Proceeds from maturities of securities available for sale
   
17,324
     
16,358
 
Purchases of securities available for sale
   
(23,756
)
   
(25,177
)
Proceeds from maturities of securities held to maturity
   
321
     
846
 
Purchases of securities held to maturity
   
----
     
(389
)
Proceeds from maturities of certificates of deposit in financial institutions
   
----
     
245
 
Purchases of certificates of deposit in financial institutions
   
(490
)
   
(395
)
Net change in loans
   
(14,349
)
   
(46,281
)
Proceeds from sale of other real estate owned
   
810
     
987
 
Purchases of premises and equipment
   
(1,437
)
   
(1,247
)
Proceeds from bank owned life insurance
   
----
     
3,754
 
Net cash used in investing activities
   
(21,577
)
   
(51,299
)
                 
Financing activities:
               
Change in deposits
   
(3,758
)
   
58,867
 
Proceeds from common stock through dividend reinvestment
   
1,049
     
----
 
Cash dividends
   
(2,973
)
   
(2,947
)
Proceeds from Federal Home Loan Bank borrowings
   
8,000
     
4,785
 
Repayment of Federal Home Loan Bank borrowings
   
(2,487
)
   
(4,720
)
Change in other long-term borrowings
   
(862
)
   
(343
)
Change in other short-term borrowings
   
(85
)
   
(33
)
Net cash provided by financing activities
   
(1,116
)
   
55,609
 
                 
Change in cash and cash equivalents
   
(9,454
)
   
10,236
 
Cash and cash equivalents at beginning of period
   
74,573
     
40,166
 
Cash and cash equivalents at end of period
 
$
65,119
   
$
50,402
 
                 
Supplemental disclosure:
               
                 
Cash paid for interest
 
$
3,580
   
$
2,665
 
Cash paid for income taxes
   
1,750
     
2,236
 
Transfers from loans to other real estate owned
   
494
     
1,337
 
Other real estate owned sales financed by The Ohio Valley Bank Company
   
----
     
167
 
                 
                 


 

See accompanying notes to consolidated financial statements
6

 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION:  The accompanying consolidated financial statements include the accounts of Ohio Valley Banc Corp. ("Ohio Valley") and its wholly-owned subsidiaries, The Ohio Valley Bank Company (the "Bank"), Loan Central, Inc. ("Loan Central"), a consumer finance company, Ohio Valley Financial Services Agency, LLC ("Ohio Valley Financial Services"), an insurance agency, and OVBC Captive, Inc. (the "Captive"), a limited purpose property and casualty insurance company.  The Bank has one wholly-owned subsidiary, Ohio Valley REO, LLC ("Ohio Valley REO"), an Ohio limited liability company, to which the Bank transfers certain real estate acquired by the Bank through foreclosure for sale by Ohio Valley REO.  Ohio Valley and its subsidiaries are collectively referred to as the "Company".  All material intercompany accounts and transactions have been eliminated in consolidation.
These interim financial statements are prepared by the Company without audit and reflect all adjustments of a normal recurring nature which, in the opinion of management, are necessary to present fairly the consolidated financial position of the Company at September 30, 2018, and its results of operations and cash flows for the periods presented.  The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the operating results to be anticipated for the full fiscal year ending December 31, 2018.  The accompanying consolidated financial statements do not purport to contain all the necessary financial disclosures required by U.S. generally accepted accounting principles ("US GAAP") that might otherwise be necessary in the circumstances.  The Annual Report of the Company for the year ended December 31, 2017 contains consolidated financial statements and related notes which should be read in conjunction with the accompanying consolidated financial statements.
The consolidated financial statements for 2017 have been reclassified to conform to the presentation for 2018.  These reclassifications had no effect on the net income or shareholders' equity.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS:  The accounting and reporting policies followed by the Company conform to US GAAP established by the Financial Accounting Standards Board ("FASB"). The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.

INDUSTRY SEGMENT INFORMATION:  Internal financial information is primarily reported and aggregated in two lines of business, banking and consumer finance.

EARNINGS PER SHARE:  Earnings per share are computed based on net income divided by the weighted average number of common shares outstanding during the period.  The weighted average common shares outstanding were 4,730,624 and 4,688,284 for the three months ended September 30, 2018 and 2017, respectively.  The weighted average common shares outstanding were 4,722,189 and 4,680,846 for the nine months ended September 30, 2018 and 2017, respectively.  Ohio Valley had no dilutive effect and no potential common shares issuable under stock options or other agreements for any period presented.

ADOPTION OF NEW ACCOUNTING STANDARD UPDATES ("ASU"):  In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, which was then adopted by the Company as of January 1, 2018 and all subsequent amendments to the ASU (collectively, "ASC 606").  ASC 606 (i) creates a single framework for recognizing revenue from contracts with customers that fall within its scope and (ii) revises when it is appropriate to recognize a gain (loss) from the transfer of nonfinancial assets, such as other real estate owned. The guidance establishes a five-step model which entities must follow to recognize revenue and removes inconsistencies and weaknesses in existing guidance.  Additional disclosures providing information about contracts with customers are required. Adoption did not have a material impact on the Company's results of operations or financial position. The Company adopted ASC 606 using the modified retrospective transition method.  As of December 31, 2017, the Company had no uncompleted customer contracts and as a result, no cumulative transition adjustment was posted to the Company's accumulated deficit during 2018.

 

7


 
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In January 2016, the FASB issued ASU No. 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities". The update provided updated accounting and reporting requirements for both public and non-public entities effective for interim and annual periods beginning after December 15, 2017, using a cumulative-effect adjustment to the balance sheet as of the beginning of the year of adoption. The most significant provisions that impacted the Company were: 1) measurement of equity securities at fair value, with the changes in fair value recognized in the income statement; 2) elimination of the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments at amortized cost on the balance sheet; 3) utilization  of the  exit price notion  when  measuring  the fair value  of  financial  instruments for disclosure purposes; and 4) requirement of separate presentation of both financial assets and liabilities by measurement category and form of financial asset on the balance sheet or accompanying notes to the financial statements. The Company adopted ASU No. 2016-01 effective January 1, 2018 and determined the impact to be not material to the Company's financial statements.  The amendments did change the method utilized to disclose the fair value of the loan portfolio to reflect an exit price notion as opposed to an entry price.  For additional information on fair value of assets and liabilities, see Note 2.

In August 2016, FASB issued an update (ASU 2016-15, "Statement of Cash Flows") (Topic 230), which addressed eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in this update applied to all entities, including business entities and not-for-profit entities that were required to present a statement of cash flows, and were effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted ASU 2016-15 effective January 1, 2018, which had no impact to the consolidated financial statements and related disclosures.

In February 2018, the FASB issued ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income".  The purpose of this Update is to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act that was enacted on December, 22, 2017.  The Update is effective for public business entities for annual periods beginning after December 15, 2018, and interim periods within those fiscal years.  Early adoption is permitted, including adoption in an interim period. The Company elected to early adopt this accounting guidance effective April 1, 2018.  This resulted in the reclassification of $173 in stranded tax effects from accumulated other comprehensive income to retained earnings within the June 30, 2018 Form 10-Q.

Revenue Recognition
ASU No. 2014-09, "Revenue from Contracts with Customers" ASC 606 provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance enumerates five steps that entities should follow in achieving this core principle. Revenue generated from financial instruments, such as interest and dividends on loans and investment securities, are not included in the scope of ASC 606. The adoption of ASC 606 did not result in a change to the accounting for any of the Company's revenue streams that are within the scope of the amendments. The Company's services that fall within the scope of ASC 606 are recognized as revenue as the Company satisfies its obligation to the customer. All of the Company's revenue from contracts with customers within the scope of ASC 606 are presented in the Company's consolidated statements of income as components of non-interest income.  The list below describes the specific revenue stream under ASC 606, which corresponds directly to the line item within the statement of income in which it is being included:

· Service charges on deposit accounts – these include general service fees charged for deposit account maintenance and activity and transaction-based fees charged for certain services, such as debit card, wire transfer, or overdraft activities. Revenue is recognized when the performance obligation is completed, which is generally after a transaction is completed or monthly for account maintenance services.
· Trust fees - this includes periodic fees due from trust customers for managing the customers' financial assets. Fees are generally charged on a quarterly or annual basis and are recognized ratably throughout the period, as the services are provided on an ongoing basis.
 
 
8


 
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

· Electronic refund check/deposit fees – A tax refund clearing agreement between the Bank and a tax refund product provider requires the Bank to process electronic refund checks and electronic refund deposits presented for payment on behalf of taxpayers through accounts containing taxpayer refunds. The Bank, in turn, receives a fee paid by the third-party tax software provider for each transaction that is processed.  The amount of fees received are tiered based on the tax refund product selected.  Since the Bank acts as a sub servicer in the tax process relationship, a portion of the fee collected is passed on to the tax refund product provider.
· Debit/credit card interchange income – includes interchange income from cardholder transactions conducted with merchants, throughout various interchange networks with which the Company participates.  Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, as transaction processing services are provided to the deposit customer.  Gross fees from interchange are recorded in operating income separately from gross network costs, which are recorded in operating expense.
· Gain (loss) on other real estate owned – the Company records a gain or loss from the sale of other real estate owned ("OREO") when control of the property transfers to the buyer, which generally occurs at the time of an executed deed.  When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable.  Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer.  In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.

All of the Company's revenue from contracts with customers within the scope of ASC 606 listed above pertained to the banking segment, with no revenue impact recognized from the consumer finance segment during the periods presented.

ACCOUNTING GUIDANCE TO BE ADOPTED IN FUTURE PERIODS:  In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses". ASU 2016-13 requires entities to report "expected" credit losses on financial instruments and other commitments to extend credit rather than the current "incurred loss" model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU will also require enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity's portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. This ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted, for annual periods and interim periods within those annual periods, beginning after December 15, 2018.  Management is currently in the developmental stages of implementing the ASU.  A steering committee has been established, models are being evaluated, and available historical information is being collected, in order to assess the expected credit losses.  However, the impact to the financial statements is still yet to be determined.


9


 
NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  There are three levels of inputs that may be used to measure fair values:
 
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
 
Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
 
Level 3: Significant unobservable inputs that reflect a company's own assumptions about the assumptions that market participants would use in pricing an asset or liability.
 
The following is a description of the Company's valuation methodologies used to measure and disclose the fair values of its financial assets and liabilities on a recurring or nonrecurring basis:
 
Securities:  The fair values for securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.

Impaired Loans:  At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower's financial statements, or aging reports, adjusted or discounted based on management's historical knowledge, changes in market conditions from the time of the valuation, and management's expertise and knowledge of the client and client's business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Other Real Estate Owned:  Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. 

Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of management reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with management's own assumptions of fair value based on factors that include recent market data or industry-wide statistics. On an as-needed basis, the Company reviews the fair value of collateral, taking into consideration current market data, as well as all selling costs that typically approximate 10%.
 
10


 
NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

Interest Rate Swap Agreements:  The fair value of interest rate swap agreements is determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments).  The variable cash receipts (or payments) are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves (Level 2).

Assets and Liabilities Measured on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis are summarized below:
 
   
Fair Value Measurements at September 30, 2018 Using
 
   
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Assets:
                 
U.S. Government sponsored entity securities
   
----
   
$
16,452
     
----
 
Agency mortgage-backed securities, residential
   
----
     
88,425
     
----
 
Interest rate swap derivatives
   
----
     
159
     
----
 
Interest rate swap derivatives
   
----
     
(159
)
   
----
 

   
Fair Value Measurements at December 31, 2017 Using
 
   
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Assets:
                 
U.S. Government sponsored entity securities
   
----
   
$
13,473
     
----
 
Agency mortgage-backed securities, residential
   
----
     
87,652
     
----
 
Interest rate swap derivatives
   
----
     
59
     
----
 
Interest rate swap derivatives
   
----
     
(59
)
   
----
 

There were no transfers between Level 1 and Level 2 during 2018 or 2017.

Assets and Liabilities Measured on a Nonrecurring Basis
Assets and liabilities measured at fair value on a nonrecurring basis are summarized below:
   
Fair Value Measurements at September 30, 2018, Using
 
   
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
 Inputs
(Level 3)
 
Assets:
                 
Impaired loans:
                 
  Residential real estate
   
----
     
----
   
$
332
 
                         
Other real estate owned:
                       
  Commercial real estate:
                       
     Construction
   
----
     
----
     
822
 

   
Fair Value Measurements at December 31, 2017, Using
 
   
Quoted Prices in
Active Markets for Identical Assets
(Level 1)
   
Significant Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Assets:
                 
Impaired loans:
                 
  Commercial real estate:
                 
     Nonowner-occupied
   
----
     
----
   
$
216
 
     Construction
   
----
     
----
     
756
 
                         
Other real estate owned:
                       
  Commercial real estate:
                       
     Construction
   
----
     
----
     
822
 
 
 
11

 
NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
 
At September 30, 2018, the Company's recorded investment of impaired loans measured for impairment using the fair value of collateral for collateral-dependent loans totaled $741, with a corresponding valuation allowance of $409.  This resulted in an increase of $409 to provision expense during the three and nine months ended September 30, 2018, with no additional charge-offs recognized.  This is compared to a $142 increase to provision expense during the three and nine months ended September 30, 2017, with no additional charge-offs recognized.  At December 31, 2017, the recorded investment of impaired loans measured for impairment using the fair value of collateral for collateral-dependent loans totaled $972, with no corresponding valuation allowance, resulting in no impact to provision expense and no charge-offs during the year ended December 31, 2017.

Other real estate owned that was measured at fair value less costs to sell at September 30, 2018 and December 31, 2017 had a net carrying amount of $822, which is made up of the outstanding balance of $2,217, net of a valuation allowance of $1,395. There were no corresponding write downs during the three and nine months ended September 30, 2018 and 2017.

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at September 30, 2018 and December 31, 2017:

September 30, 2018
 
 
Fair Value
 
 
Valuation Technique(s)
 
Unobservable
Input(s)
 
 
Range
 
(Weighted
Average)
 
Impaired loans:
                     
  Residential real estate
 
$
332
 
Sales approach
 
Adjustment to comparables
 
0% to 33%
   
12.4%
 
                           
Other real estate owned:
                         
  Commercial real estate:
                         
      Construction
   
822
 
Sales approach
 
Adjustment to comparables
 
5% to 40%
   
18.1%
 

December 31, 2017
 
 
Fair Value
 
 
Valuation Technique(s)
 
Unobservable
Input(s)
 
 
Range
 
(Weighted
Average)
 
Impaired loans:
                     
  Commercial real estate:
                     
      Nonowner-occupied
 
$
216
 
Sales approach
 
Adjustment to comparables
 
1.6% to 50%
   
26.7%
 
      Construction
   
756
 
Sales approach
 
Adjustment to comparables
 
1.3% to 56%
   
32.9%
 
                           
Other real estate owned:
                         
  Commercial real estate:
                         
      Construction
   
822
 
Sales approach
 
Adjustment to comparables
 
5% to 40%
   
18.1%
 


The carrying amounts and estimated fair values of financial instruments at September 30, 2018 and December 31, 2017 are as follows:
 
         
Fair Value Measurements at September 30, 2018 Using:   
 
   
Carrying
Value
   
 
Level 1
   
 
Level 2
   
 
Level 3
   
 
Total
 
Financial Assets:
                             
Cash and cash equivalents
 
$
65,119
   
$
65,119
   
$
----
   
$
----
   
$
65,119
 
Certificates of deposit in financial institutions
   
2,310
     
----
     
2,310
     
----
     
2,310
 
Securities available for sale
   
104,877
     
----
     
104,877
     
----
     
104,877
 
Securities held to maturity
   
17,219
     
----
     
8,697
     
8,841
     
17,538
 
Restricted investments in bank stocks
   
7,506
     
N/A
     
N/A
     
N/A
     
N/A
 
Loans, net
   
774,062
     
----
     
----
     
771,705
     
771,705
 
Accrued interest receivable
   
2,862
     
----
     
389
     
2,473
     
2,862
 
                                         
Financial liabilities:
                                       
Deposits
   
852,895
     
232,575
     
618,608
     
----
     
851,183
 
Other borrowed funds
   
40,514
     
----
     
38,207
     
----
     
38,207
 
Subordinated debentures
   
8,500
     
----
     
6,606
     
----
     
6,606
 
Accrued interest payable
   
1,128
     
3
     
1,125
     
----
     
1,128
 
 
 
 
12

 
NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

         
Fair Value Measurements at December 31, 2017 Using:   
 
   
Carrying
Value
   
 
Level 1
   
 
Level 2
   
 
Level 3
   
 
Total
 
Financial Assets:
                             
Cash and cash equivalents
 
$
74,573
   
$
74,573
   
$
----
   
$
----
   
$
74,573
 
Certificates of deposit in financial institutions
   
1,820
     
----
     
1,820
     
----
     
1,820
 
Securities available for sale
   
101,125
     
----
     
101,125
     
----
     
101,125
 
Securities held to maturity
   
17,581
     
----
     
9,020
     
9,059
     
18,079
 
Restricted investments in bank stocks
   
7,506
     
N/A
     
N/A
     
N/A
     
N/A
 
Loans, net
   
761,820
     
----
     
----
     
760,746
     
760,746
 
Accrued interest receivable
   
2,503
     
----
     
268
     
2,235
     
2,503
 
                                         
Financial liabilities:
                                       
Deposits
   
856,724
     
253,655
     
602,268
     
----
     
855,923
 
Other borrowed funds
   
35,949
     
----
     
34,810
     
----
     
34,810
 
Subordinated debentures
   
8,500
     
----
     
6,678
     
----
     
6,678
 
Accrued interest payable
   
792
     
4
     
788
     
----
     
792
 

The methods and assumptions, not previously presented, used to estimate fair values are described as follows:

Cash and Cash Equivalents: The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1.

Certificates of Deposit in Financial Institutions: The carrying amounts of certificates of deposit in financial institutions approximate fair values and are classified as Level 2.

Securities Held to Maturity:  The fair values for securities held to maturity are determined in the same manner as securities held for sale and discussed earlier in this note.  Level 3 securities consist of nonrated municipal bonds and tax credit ("QZAB") bonds.

Restricted Investments in Bank Stocks: It is not practical to determine the fair value of Federal Home Loan Bank, Federal Reserve Bank and United Bankers Bank stock due to restrictions placed on their transferability.

Loans: The estimated fair value of loans as of September 30, 2018 follows the guidance in ASU 2016-01, which prescribes an "exit price" approach in estimating and disclosing fair value of financial instruments. The fair value calculation at that date discounted estimated future cash flows using rates that incorporated discounts for credit, liquidity, and marketability factors. The fair value estimate shown as of December 31, 2017 used an "entry price" approach. The fair value calculation for that date discounted estimated future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Consequently, the fair value disclosures for September 30, 2018 and December 31, 2017 are not directly comparable.

Deposits: The fair values disclosed for noninterest-bearing deposits are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date resulting in a Level 2 classification. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

Other Borrowed Funds: The carrying values of the Company's short-term borrowings, generally maturing within ninety days, approximate their fair values resulting in a Level 2 classification. The fair values of the Company's long-term borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

Subordinated Debentures: The fair values of the Company's Subordinated Debentures are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.
 
13


 
NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

Accrued Interest Receivable and Payable: The carrying amount of accrued interest approximates fair value, resulting in a classification that is consistent with the earning assets and interest-bearing liabilities with which it is associated.

Off-balance Sheet Instruments:  Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. The fair value of commitments is not material.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

NOTE 3 – SECURITIES

The following table summarizes the amortized cost and fair value of securities available for sale and securities held to maturity at September 30, 2018 and December 31, 2017 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses:

Securities Available for Sale
 
Amortized
 Cost
   
Gross Unrealized
 Gains
   
Gross Unrealized Losses
   
Estimated
Fair Value
 
September 30, 2018
                       
  U.S. Government sponsored entity securities
 
$
16,835
   
$
----
   
$
(383
)
 
$
16,452
 
  Agency mortgage-backed securities, residential
   
91,880
     
51
     
(3,506
)
   
88,425
 
      Total securities
 
$
108,715
   
$
51
   
$
(3,889
)
 
$
104,877
 
                                 
December 31, 2017
                               
  U.S. Government sponsored entity securities
 
$
13,622
   
$
----
   
$
(149
)
 
$
13,473
 
  Agency mortgage-backed securities, residential
   
88,833
     
300
     
(1,481
)
   
87,652
 
      Total securities
 
$
102,455
   
$
300
   
$
(1,630
)
 
$
101,125
 


Securities Held to Maturity
 
Amortized
Cost
   
Gross Unrecognized Gains
   
Gross Unrecognized Losses
   
Estimated
Fair Value
 
September 30, 2018
                       
  Obligations of states and political subdivisions
 
$
17,216
   
$
460
   
$
(141
)
 
$
17,535
 
  Agency mortgage-backed securities, residential
   
3
     
----
     
----
     
3
 
      Total securities
 
$
17,219
   
$
460
   
$
(141
)
 
$
17,538
 
                                 
December 31, 2017
                               
  Obligations of states and political subdivisions
 
$
17,577
   
$
533
   
$
(35
)
 
$
18,075
 
  Agency mortgage-backed securities, residential
   
4
     
----
     
----
     
4
 
      Total securities
 
$
17,581
   
$
533
   
$
(35
)
 
$
18,079
 

 

14


 
NOTE 3 – SECURITIES (Continued)

The amortized cost and estimated fair value of debt securities at September 30, 2018, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because certain issuers may have the right to call or prepay the debt obligations prior to their contractual maturities.  Securities not due at a single maturity are shown separately.

   
Available for Sale
   
Held to Maturity
 
 
Debt Securities:
 
Amortized
Cost
   
Estimated
Fair Value
   
Amortized
 Cost
   
Estimated
Fair Value
 
                         
  Due in one year or less
 
$
----
   
$
----
   
$
2,416
   
$
2,134
 
  Due in over one to five years
   
16,835
     
16,452
     
5,448
     
5,877
 
  Due in over five to ten years
   
----
     
----
     
7,094
     
7,365
 
  Due after ten years
   
----
     
----
     
2,258
     
2,159
 
  Agency mortgage-backed securities, residential
   
91,880
     
88,425
     
3
     
3
 
      Total debt securities
 
$
108,715
   
$
104,877
   
$
17,219
   
$
17,538
 

The following table summarizes securities with unrealized losses at September 30, 2018 and December 31, 2017, aggregated by major security type and length of time in a continuous unrealized loss position:

September 30, 2018
 
Less Than 12 Months
   
12 Months or More
   
Total
 
   
Fair Value
   
Unrealized Loss
   
Fair Value
   
Unrealized Loss
   
Fair Value
   
Unrealized Loss
 
Securities Available for Sale
                                   
U.S. Government sponsored
                                   
   entity securities
 
$
7,896
   
$
(42
)
 
$
8,556
   
$
(341
)
 
$
16,452
   
$
(383
)
Agency mortgage-backed
                                               
securities, residential
   
25,248
     
(294
)
   
58,158
     
(3,212
)
   
83,406
     
(3,506
)
      Total available for sale
 
$
33,144
   
$
(336
)
 
$
66,714
   
$
(3,553
)
 
$
99,858
   
$
(3,889
)

   
Less Than 12 Months
   
12 Months or More
   
Total
 
   
Fair Value
   
Unrecognized Loss
   
Fair Value
   
Unrecognized Loss
   
Fair Value
   
Unrecognized Loss
 
Securities Held to Maturity
                                   
Obligations of states and
                                   
political subdivisions
 
$
3,620
   
$
(20
)
 
$
1,308
   
$
(121
)
 
$
4,928
   
$
(141
)
      Total held to maturity
 
$
3,620
   
$
(20
)
 
$
1,308
   
$
(121
)
 
$
4,928
   
$
(141
)

December 31, 2017
 
Less Than 12 Months
   
12 Months or More
   
Total
 
   
Fair Value
   
Unrealized Loss
   
Fair Value
   
Unrealized Loss
   
Fair Value
   
Unrealized Loss
 
Securities Available for Sale
                                   
U.S. Government sponsored
                                   
entity securities
 
$
6,910
   
$
(97
)
 
$
6,563
   
$
(52
)
 
$
13,473
   
$
(149
)
Agency mortgage-backed
                                               
securities, residential
   
37,421
     
(434
)
   
31,763
     
(1,047
)
   
69,184
     
(1,481
)
      Total available for sale
 
$
44,331
   
$
(531
)
 
$
38,326
   
$ (1,099
 
$
82,657
   
$
(1,630
)

   
Less Than 12 Months
   
12 Months or More
   
Total
 
   
Fair Value
   
Unrecognized Loss
   
Fair Value
   
Unrecognized Loss
   
Fair Value
   
Unrecognized Loss
 
Securities Held to Maturity
                                   
Obligations of states and
                                   
political subdivisions
 
$
362
   
$
(2
)
 
$
1,502
   
$
(33
)
 
$
1,864
   
$
(35
)
      Total held to maturity
 
$
362
   
$
(2
)
 
$
1,502
   
$
(33
)
 
$
1,864
   
$
(35
)

There were no sales of investment securities during the three and nine months ended September 30, 2018 and 2017. Unrealized losses on the Company's debt securities have not been recognized into income because the issuers' securities are of high credit quality as of September 30, 2018, and management does not intend to sell, and it is likely that management will not be required to sell, the securities prior to their anticipated recovery.  Management does not believe any individual unrealized loss at September 30, 2018 and December 31, 2017 represents an other-than-temporary impairment.
 
15


 
NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans are comprised of the following:
 
September 30,
   
December 31,
 
   
2018
   
2017
 
Residential real estate
 
$
305,314
   
$
309,163
 
Commercial real estate:
               
    Owner-occupied
   
64,236
     
73,573
 
    Nonowner-occupied
   
115,107
     
101,571
 
    Construction
   
39,202
     
38,302
 
Commercial and industrial
   
116,489
     
107,089
 
Consumer:
               
    Automobile
   
70,137
     
68,626
 
    Home equity
   
22,419
     
21,431
 
    Other
   
49,473
     
49,564
 
     
782,377
     
769,319
 
Less:  Allowance for loan losses
   
(8,315
)
   
(7,499
)
                 
Loans, net
 
$
774,062
   
$
761,820
 

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2018 and 2017:

September 30, 2018
 
Residential
Real Estate
   
Commercial
Real Estate
   
Commercial
and Industrial
   
 
Consumer
   
 
Total
 
Allowance for loan losses:
                             
    Beginning balance
 
$
1,886
   
$
2,392
   
$
1,242
   
$
2,119
   
$
7,639
 
    Provision for loan losses
   
681
     
(378
)
   
197
     
462
     
962
 
    Loans charged off
   
(184
)
   
----
     
(136
)
   
(722
)
   
(1,042
)
    Recoveries
   
49
     
431
     
80
     
196
     
756
 
    Total ending allowance balance
 
$
2,432
   
$
2,445
   
$
1,383
   
$
2,055
   
$
8,315
 

September 30, 2017
 
Residential
Real Estate
   
Commercial
Real Estate
   
Commercial
and Industrial
   
 
Consumer
   
 
Total
 
Allowance for loan losses:
                             
    Beginning balance
 
$
1,300
   
$
2,813
   
$
932
   
$
1,907
   
$
6,952
 
    Provision for loan losses
   
493
     
540
     
238
     
330
     
1,601
 
    Loans charged-off
   
(445
)
   
(434
)
   
(202
)
   
(420
)
   
(1,501
)
    Recoveries
   
83
     
41
     
4
     
133
     
261
 
    Total ending allowance balance
 
$
1,431
   
$
2,960
   
$
972
   
$
1,950
   
$
7,313
 

The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended September 30, 2018 and 2017:

September 30, 2018
 
Residential
Real Estate
   
Commercial
Real Estate
   
Commercial
and Industrial
   
 
Consumer
   
 
Total
 
Allowance for loan losses:
                             
    Beginning balance
 
$
1,470
   
$
2,978
   
$
1,024
   
$
2,027
   
$
7,499
 
    Provision for loan losses
   
1,261
     
(1,041
)
   
196
     
1,279
     
1,695
 
    Loans charged off
   
(421
)
   
(1
)
   
(140
)
   
(1,818
)
   
(2,380
)
    Recoveries
   
122
     
509
     
303
     
567
     
1,501
 
    Total ending allowance balance
 
$
2,432
   
$
2,445
   
$
1,383
   
$
2,055
   
$
8,315
 

September 30, 2017
 
Residential
Real Estate
   
Commercial
Real Estate
   
Commercial
and Industrial
   
 
Consumer
   
 
Total
 
Allowance for loan losses:
                             
    Beginning balance
 
$
939
   
$
4,315
   
$
907
   
$
1,538
   
$
7,699
 
    Provision for loan losses
   
870
     
(636
)
   
588
     
1,099
     
1,921
 
    Loans charged-off
   
(591
)
   
(1,046
)
   
(605
)
   
(1,125
)
   
(3,367
)
    Recoveries
   
213
     
327
     
82
     
438
     
1,060
 
    Total ending allowance balance
 
$
1,431
   
$
2,960
   
$
972
   
$
1,950
   
$
7,313
 

 

 
16


 
NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

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 September 30, 2018 and December 31, 2017:

September 30, 2018
 
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
 
$
409
   
$
90
   
$
----
   
$
----
   
$
499
 
Collectively evaluated for impairment
   
2,023
     
2,355
     
1,383
     
2,055
     
7,816
 
Total ending allowance balance
 
$
2,432
   
$
2,445
   
$
1,383
   
$
2,055
   
$
8,315
 
                                         
Loans:
                                       
Loans individually evaluated for impairment
 
$
926
   
$
4,289
   
$
5,727
   
$
----
   
$
10,942
 
Loans collectively evaluated for impairment
   
304,388
     
214,256
     
110,762
     
142,029
     
771,435
 
Total ending loans balance
 
$
305,314
   
$
218,545
   
$
116,489
   
$
142,029
   
$
782,377
 

December 31, 2017
 
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
 
$
----
   
$
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
 

The following tables present information related to loans individually evaluated for impairment by class of loans as of September 30, 2018 and December 31, 2017:
 
September 30, 2018
 
Unpaid Principal
 Balance
   
Recorded
Investment
   
Allowance for Loan Losses Allocated
 
With an allowance recorded:
                 
    Residential real estate
 
$
715
   
$
707
   
$
409
 
    Commercial real estate:
                       
        Nonowner-occupied
   
363
     
363
     
90
 
With no related allowance recorded:
                       
    Residential real estate
   
219
     
219
     
----
 
    Commercial real estate:
                       
        Owner-occupied
   
2,416
     
2,416
     
----
 
        Nonowner-occupied
   
2,932
     
1,510
     
----
 
        Construction
   
340
     
----
     
----
 
    Commercial and industrial
   
5,727
     
5,727
     
----
 
            Total
 
$
12,712
   
$
10,942
   
$
499
 

December 31, 2017
 
Unpaid Principal
 Balance
   
Recorded
Investment
   
Allowance for Loan Losses Allocated
 
With an allowance recorded:
                 
    Commercial real estate:
                 
        Nonowner-occupied
 
$
372
   
$
372
   
$
94
 
With no related allowance recorded:
                       
    Residential real estate
   
1,420
     
1,420
     
----
 
    Commercial real estate:
                       
        Owner-occupied
   
3,427
     
3,427
     
----
 
        Nonowner-occupied
   
4,989
     
3,534
     
----
 
        Construction
   
352
     
----
     
----
 
    Commercial and industrial
   
9,154
     
9,154
     
----
 
    Consumer:
                   
----
 
        Home equity
   
203
     
201
     
----
 
            Total
 
$
19,917
   
$
18,108
   
$
94
 
 
 
17

 
NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

The following tables present information related to loans individually evaluated for impairment by class of loans for the three and nine months ended September 30, 2018 and 2017:

   
Three months ended September 30, 2018
   
Nine months ended September 30, 2018
 
   
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
 
$
707
   
$
----
   
$
----
   
$
711
   
$
----
   
$
----
 
    Commercial real estate:
                                               
        Nonowner-occupied
   
365
     
3
     
3
     
368
     
12
     
12
 
With no related allowance recorded:
                                               
    Residential real estate
   
219
     
4
     
4
     
222
     
34
     
34
 
    Commercial real estate:
                                               
        Owner-occupied
   
2,434
     
36
     
36
     
2,462
     
105
     
105
 
        Nonowner-occupied
   
1,786
     
11
     
11
     
2,154
     
47
     
47
 
        Construction
   
----
     
5
     
5
     
----
     
15
     
15
 
    Commercial and industrial
   
5,753
     
89
     
89
     
5,474
     
321
     
321
 
            Total
 
$
11,264
   
$
148
   
$
148
   
$
11,391
   
$
534
   
$
534
 


   
Three months ended September 30, 2017
   
Nine months ended September 30, 2017
 
   
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
 
$
221
   
$
7
   
$
7
   
$
55
   
$
7
   
$
7
 
    Commercial real estate:
                                               
        Nonowner-occupied
   
563
     
3
     
3
     
584
     
12
     
12
 
    Consumer:
                                               
        Home equity
   
208
     
1
     
1
     
210
     
5
     
5
 
With no related allowance recorded:
                                               
    Residential real estate
   
935
     
10
     
10
     
824
     
37
     
37
 
    Commercial real estate:
                                               
        Owner-occupied
   
2,409
     
37
     
37
     
2,407
     
112
     
112
 
        Nonowner-occupied
   
3,552
     
19
     
19
     
3,518
     
57
     
57
 
        Construction
   
157
     
5
     
5
     
170
     
14
     
14
 
    Commercial and industrial
   
9,260
     
135
     
135
     
8,776
     
358
     
358
 
            Total
 
$
17,305
   
$
217
   
$
217