Company Quick10K Filing
Quick10K
Ohio Valley Banc
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$36.45 5 $173
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
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
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-15 Officers, Shareholder Vote
8-K 2019-04-25 Earnings, Exhibits
8-K 2019-04-16 Other Events
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
FOX Twenty-First Century Fox 23,560
EMN Eastman Chemical 10,490
RXN Rexnord 3,020
GLOG Gaslog 1,200
UTL Unitil 836
QTNT Quotient 578
REPL Replimune Group 512
WLDN Willdan Group 411
LIVX Livexlive Media 251
PKPH Peak Pharmaceuticals 0
OVBC 2019-03-31
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
Note 8 - Leases
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_033119.htm
EX-31.1 exhibit311_033119.htm
EX-31.2 exhibit312_033119.htm
EX-32 exhibit32_033119.htm

Ohio Valley Banc Earnings 2019-03-31

OVBC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 sec10q033119.htm FORM 10-Q AT 03/31/19
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 March 31, 2019

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 

Securities registered pursuant to Section 12(b) of the Act:
Common shares, without par value
OVBC
The NASDAQ Stock Market LLC
(The NASDAQ Global Market)
(Title of each class)
(Trading Symbol)
(Name of each exchange on which registered)

The number of common shares of the registrant outstanding as of May 10, 2019 was 4,758,659.


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
 
Consolidated Statements of Changes in Shareholders’ Equity
6
 
Condensed Consolidated Statements of Cash Flows
7
 
Notes to the Consolidated Financial Statements
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 28
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
38
Item 4.
Controls and Procedures
39
     
PART II.
OTHER INFORMATION
 
     
Item 1.
Legal Proceedings
39
Item 1A.
Risk Factors
39
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
39
Item 3.
Defaults Upon Senior Securities
40
Item 4.
Mine Safety Disclosures
40
Item 5.
Other Information
40
Item 6.
Exhibits
41
     
Signatures
 
42


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)

   
March 31,
2019
   
December 31,
2018
 
             
ASSETS
           
Cash and noninterest-bearing deposits with banks
 
$
13,128
   
$
13,806
 
Interest-bearing deposits with banks
   
59,769
     
57,374
 
Total cash and cash equivalents
   
72,897
     
71,180
 
                 
Certificates of deposit in financial institutions
   
2,065
     
2,065
 
Securities available for sale
   
110,281
     
102,164
 
Securities held to maturity (estimated fair value: 2019 - $16,124; 2018 - $16,234)
   
15,590
     
15,816
 
Restricted investments in bank stocks
   
7,506
     
7,506
 
                 
Total loans
   
780,644
     
777,052
 
    Less: Allowance for loan losses
   
(8,013
)
   
(6,728
)
Net loans
   
772,631
     
770,324
 
                 
Premises and equipment, net
   
15,535
     
14,855
 
Premises and equipment held for sale, net     280
      ----
 
Other real estate owned, net
   
470
     
430
 
Accrued interest receivable
   
2,808
     
2,638
 
Goodwill
   
7,371
     
7,371
 
Other intangible assets, net
   
349
     
379
 
Bank owned life insurance and annuity assets
   
29,571
     
29,392
 
Operating lease right-of-use asset, net
   
1,214
     
----
 
Other assets
   
6,305
     
6,373
 
Total assets
 
$
1,044,873
   
$
1,030,493
 
                 
LIABILITIES
               
Noninterest-bearing deposits
 
$
233,804
   
$
237,821
 
Noninterest-bearing deposits held for sale
     8,657       ----
 
Interest-bearing deposits
   
600,691
     
608,883
 
Interest-bearing deposits held for sale
    18,552
       ----  
Total deposits
   
861,704
     
846,704
 
                 
Other borrowed funds
   
37,577
     
39,713
 
Subordinated debentures
   
8,500
     
8,500
 
Operating lease liability
   
1,214
     
----
 
Accrued liabilities
   
15,526
     
17,702
 
Total liabilities
   
924,521
     
912,619
 
                 
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 5)
   
----
     
----
 
                 
SHAREHOLDERS’ EQUITY
               
Common stock ($1.00 stated value per share, 10,000,000 shares authorized; 2019 - 5,418,398 shares issued; 2018 - 5,400,065 shares issued)
   
5,418
     
5,400
 
Additional paid-in capital
   
50,162
     
49,477
 
Retained earnings
   
81,042
     
80,844
 
Accumulated other comprehensive loss
   
(558
)
   
(2,135
)
Treasury stock, at cost (659,739 shares)
   
(15,712
)
   
(15,712
)
Total shareholders’ equity
   
120,352
     
117,874
 
Total liabilities and shareholders’ equity
 
$
1,044,873
   
$
1,030,493
 


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
March 31,
 
   
2019
   
2018
 
             
Interest and dividend income:
           
Loans, including fees
 
$
11,912
   
$
11,249
 
Securities
               
Taxable
   
618
     
566
 
Tax exempt
   
84
     
93
 
Dividends
   
113
     
109
 
Interest-bearing deposits with banks
   
319
     
685
 
Other Interest
   
12
     
7
 
     
13,058
     
12,709
 
                 
Interest expense:
               
Deposits
   
1,342
     
892
 
Other borrowed funds
   
235
     
235
 
Subordinated debentures
   
94
     
72
 
     
1,671
     
1,199
 
Net interest income
   
11,387
     
11,510
 
Provision for loan losses
   
2,377
     
756
 
Net interest income after provision for loan losses
   
9,010
     
10,754
 
                 
Noninterest income:
               
Service charges on deposit accounts
   
503
     
502
 
Trust fees
   
64
     
60
 
Income from bank owned life insurance and annuity assets
   
178
     
176
 
Mortgage banking income
   
69
     
64
 
Electronic refund check / deposit fees
   
----
     
1,228
 
Debit / credit card interchange income
   
914
     
861
 
Gain (loss) on other real estate owned
   
----
     
(13
)
Other
   
118
     
198
 
     
1,846
     
3,076
 
Noninterest expense:
               
Salaries and employee benefits
   
5,536
     
5,702
 
Occupancy
   
453
     
441
 
Furniture and equipment
   
263
     
254
 
Professional fees
   
672
     
508
 
Marketing expense
   
270
     
262
 
FDIC insurance
   
3
     
143
 
Data processing
   
535
     
714
 
Software
   
411
     
396
 
Foreclosed assets
   
106
     
55
 
Amortization of intangibles
   
31
     
36
 
Other
   
1,288
     
1,297
 
     
9,568
     
9,808
 
                 
Income before income taxes
   
1,288
     
4,022
 
Provision for income taxes
   
95
     
656
 
                 
NET INCOME
 
$
1,193
   
$
3,366
 
                 
Earnings per share
 
$
.25
   
$
.71
 
                 
Dividends per share
 
$
.21
   
$
.21
 


See accompanying notes to consolidated financial statements
4


OHIO VALLEY BANC CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(dollars in thousands)
 
   
   
Three months ended
March 31,
 
   
2019
   
2018
 
             
Net Income
 
$
1,193
   
$
3,366
 
                 
Other comprehensive income:
               
  Change in unrealized loss on available for sale securities
   
1,996
     
(1,566
)
  Related tax (expense) benefit
   
(419
)
   
329
 
Total other comprehensive income (loss), net of tax
   
1,577
     
(1,237
)
                 
Total comprehensive income
 
$
2,770
   
$
2,129
 


See accompanying notes to consolidated financial statements
5


OHIO VALLEY BANC CORP.
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS’ EQUITY (UNAUDITED)
 
(dollars in thousands, except share and per share data)
 
 
 
Common
Stock
   
Additional Paid-In Capital
   
Retained
Earnings
   
Accumulated Other Comprehensive (Loss)
   
Treasury
Stock
   
Total
Shareholders' Equity
 
Balance at December 31, 2018
 
$
5,400
   
$
49,477
   
$
80,844
   
$
(2,135
)
 
$
(15,712
)
 
$
117,874
 
Net income
   
----
     
----
     
1,193
     
----
     
----
     
1,193
 
Other comprehensive income, net
   
----
     
----
     
----
     
1,577
     
----
     
1,577
 
Common stock issued to ESOP, 8,333 shares
   
8
     
320
     
----
     
----
     
----
     
328
 
Common stock issued through dividend reinvestment, 10,000 shares
   
10
     
365
     
----
     
----
     
----
     
375
 
Cash dividends, $.21 per share
   
----
     
----
     
(995
)
   
----
     
----
     
(995
)
Balance at March 31, 2019
 
$
5,418
   
$
50,162
   
$
81,042
   
$
(558
)
 
$
(15,712
)
 
$
120,352
 
                                                 
Balance at December 31, 2017
 
$
5,362
   
$
47,895
   
$
72,694
   
$
(878
)
 
$
(15,712
)
 
$
109,361
 
Net income
   
----
     
----
     
3,366
     
----
     
----
     
3,366
 
Other comprehensive (loss), net
   
----
     
----
     
----
     
(1,237
)
   
----
     
(1,237
)
Common stock issued to ESOP, 7,294 shares
   
7
     
288
     
----
     
----
     
----
     
295
 
Common stock issued through dividend reinvestment, 10,223 shares
   
10
     
403
     
----
     
----
     
----
     
413
 
Cash dividends, $.21 per share
   
----
     
----
     
(987
)
   
----
     
----
     
(987
)
Balance at March 31, 2018
 
$
5,379
   
$
48,586
   
$
75,073
   
$
(2,115
)
 
$
(15,712
)
 
$
111,211
 


See accompanying notes to consolidated financial statements
6


OHIO VALLEY BANC CORP.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (UNAUDITED)
(dollars in thousands)
 
             
   
Three months ended
March 31,
 
   
2019
   
2018
 
             
Net cash provided by operating activities:
 
$
1,358
   
$
5,668
 
                 
Investing activities:
               
Proceeds from maturities of securities available for sale
   
3,881
     
3,958
 
Purchases of securities available for sale
   
(10,035
)
   
(9,921
)
Proceeds from maturities of securities held to maturity
   
215
     
214
 
Net change in loans
   
(4,717
)
   
902
 
Proceeds from sale of other real estate owned
   
----
     
349
 
Purchases of premises and equipment
   
(1,246
)
   
(473
)
Net cash used in investing activities
   
(11,902
)
   
(4,971
)
                 
Financing activities:
               
Change in deposits
   
15,017
     
62,812
 
Proceeds from common stock through dividend reinvestment
   
375
     
413
 
Cash dividends
   
(995
)
   
(987
)
Proceeds from Federal Home Loan Bank borrowings
   
----
     
8,000
 
Repayment of Federal Home Loan Bank borrowings
   
(1,508
)
   
(896
)
Change in other long-term borrowings
   
(628
)
   
(118
)
Change in other short-term borrowings
   
----
     
(332
)
Net cash provided by financing activities
   
12,261
     
68,892
 
                 
Change in cash and cash equivalents
   
1,717
     
69,589
 
Cash and cash equivalents at beginning of period
   
71,180
     
74,573
 
Cash and cash equivalents at end of period
 
$
72,897
   
$
144,162
 
                 
Supplemental disclosure:
               
Cash paid for interest
 
$
1,434
   
$
1,061
 
Cash paid for amounts included in the measurement of operating lease liabilities
   
66
     
----
 
Transfers from loans to other real estate owned
   
40
     
131
 
Operating lease right-of-use asset
   
1,280
     
----
 
Operating lease liability
   
1,280
     
----
 
                 


See accompanying notes to consolidated financial statements
7


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 March 31, 2019, and its results of operations and cash flows for the periods presented.  The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the operating results to be anticipated for the full fiscal year ending December 31, 2019.  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, 2018 contains consolidated financial statements and related notes which should be read in conjunction with the accompanying consolidated financial statements.
The consolidated financial statements for 2018 have been reclassified to conform to the presentation for 2019.  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 4,748,474 and 4,711,608 for the three months ended March 31, 2019 and 2018, 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”):  On January 1, 2019, the Company adopted ASU 2016-02, “Leases”, which requires the recognition of the right-of-use (“ROU”) assets and related operating and finance lease liabilities on the balance sheet.  As permitted by ASU 2016-02, the Company applied the optional transition method and elected the adoption date of January 1, 2019.  As a result, the consolidated balance sheet prior to January 1, 2019 was not restated and continues to be reported under the old guidance, which did not require the recognition of operating leases on the balance sheet. Therefore, the consolidated balance sheet for 2019 is not comparative to 2018.

As permitted by ASU 2016-02, the Company elected the package of practical expedients that permits the Company to not reassess (1) whether a contract is or contains a lease, (2) the classification of existing leases, and (3) initial direct costs for any existing leases. As a result, leases entered into prior to January 1, 2019 were accounted for under the old guidance and were not reassessed.  For lease contracts entered into on or after January 1, 2019, the Company will assess whether the contract is or contains a lease based on (1) whether the contract involves the use of a distinct, identified asset, (2) whether the Company obtains the right to substantially all the economic benefit from the use of asset, and (3) whether the Company has the right to direct the use of asset.


8


NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The adoption of ASU 2016-02 had a substantial impact to our consolidated balance sheet, primarily from the recognition of the operating lease ROU assets and the liability for operating leases. Operating leases consist primarily of branch buildings and office space for both the Bank and Loan Central. The Company has no finance leases. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities were both recognized based on the present value of future lease payments, discounted with an incremental borrowing rate for the same term as the underlying lease. The present value of future minimum lease payments also includes any options noted within the lease terms to extend the lease when it is reasonably certain the Company will exercise that option. The Company elected to keep leases with an initial term of 12 months or less off of the consolidated balance sheet and recognize those lease payments in the consolidated statements of income on a straight-line basis over the lease term. Leases that contain variable lease payments, including payments based on an index or rate, are initially measured using the index or rate in effect at the commencement date. Additional payments based on the change in an index or rate are recorded as a period expense when incurred. Upon adoption, the Company recorded an adjustment of $1,280 to operating ROU assets and the related lease liability. For additional information on leases, see Note 8.

Beginning January 1, 2019, the Company adopted ASU No. 2017-08, “Premium Amortization on Purchased Callable Debt Securities Receivables”, which requires the amortization of the premium on callable debt securities to the earliest call date. The amortization period for callable debt securities purchased at a discount was not be impacted by the ASU. This ASU did not have a material impact on the Company’s consolidated financial position or results of operations.

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 replace the current “incurred loss” model with an “expected loss” model, which is referred to as the current expected credit loss (“CECL”) 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.  A CECL steering committee has developed a CECL model and is evaluating the source data, various credit loss methodologies and model results in relation to the new ASU guidance.  Management expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective.  Management expects the adoption will result in a material increase to the allowance for loan losses balance.  At this time, the impact is being evaluated.

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. In some instances, fair value adjustments can be made based on a quoted price from an observable input, such as a purchase agreement.  Such adjustments would be classified as a Level 2 classification.

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.

10


NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

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%.

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 March 31, 2019 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
   
----
   
$
16,689
     
----
 
Agency mortgage-backed securities, residential
   
----
     
93,592
     
----
 
Interest rate swap derivatives
   
----
     
237
     
----
 
Interest rate swap derivatives
   
----
     
(237
)
   
----
 

   
Fair Value Measurements at December 31, 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
   
----
   
$
16,630
     
----
 
Agency mortgage-backed securities, residential
   
----
     
85,534
     
----
 
Interest rate swap derivatives
   
----
     
101
     
----
 
Interest rate swap derivatives
   
----
     
(101
)
   
----
 

There were no transfers between Level 1 and Level 2 during 2019 or 2018.

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 March 31, 2019, 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
   
----
     
----
   
$
1,206
 
  Commercial real estate:
                       
     Owner-occupied
   
----
     
----
     
156
 
     Nonowner-occupied
   
----
     
----
     
263
 
  Commercial and industrial
   
----
     
----
     
1,898
 
                         
Other real estate owned:
                       
  Commercial real estate:
                       
     Construction
   
----
     
228
     
----
 

11


NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

   
Fair Value Measurements at December 31, 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:
                 
  Commercial real estate:
                 
     Nonowner-occupied
   
----
     
----
   
$
264
 
                         
Other real estate owned:
                       
  Commercial real estate:
                       
     Construction
   
----
     
228
     
----
 
 
At March 31, 2019, the Company’s recorded investment of impaired loans measured for impairment using the fair value of collateral for collateral-dependent loans totaled $3,784, with a corresponding valuation allowance of $261.  This resulted in an increase of $163 to provision expense during the three months ended March 31, 2019, with no additional charge-offs recognized.  This is compared to no provision expense on such loans during the three months ended March 31, 2018, and no additional charge-offs recognized.  At December 31, 2018, the recorded investment of impaired loans measured for impairment using the fair value of collateral for collateral-dependent loans totaled $362, with a corresponding valuation allowance of $98, resulting in an increase of $4 in provision expense during the year ended December 31, 2018, with no corresponding charge-offs recognized.

Other real estate owned that was measured at fair value less costs to sell at March 31, 2019 and December 31, 2018 had a net carrying amount of $228, which is made up of the outstanding balance of $2,217, net of a valuation allowance of $1,989. There were no corresponding write downs during the three months ended March 31, 2019 and 2018.

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 March 31, 2019 and December 31, 2018:

March 31, 2019

 
Fair Value
 

Valuation Technique(s)
 
Unobservable
Input(s)
 
 
Range
 
(Weighted
Average)
Impaired loans:
                   
  Residential real estate
 
$
1,206
 
Sales approach
 
Adjustment to comparables
 
0.2% to 20%
 
11.2%
  Commercial real estate:
                     
     Owner-occupied
   
156
 
Sales approach
 
Adjustment to comparables
 
 7.8% to 478%
 
124.4%
     Nonowner-occupied
   
263
 
Sales approach
 
Adjustment to comparables
 
6.8% to 66.7%
 
18.0%

December 31, 2018

 
Fair Value
 
Valuation Technique(s)
 
Unobservable
Input(s)
 
 
Range
 
(Weighted
Average)
Impaired loans:
                   
  Commercial real estate:
                   
      Nonowner-occupied
 
$
264
 
Sales approach
 
Adjustment to comparables
 
6.8% to 66.7%
 
18.0%


12


NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

The carrying amounts and estimated fair values of financial instruments at March 31, 2019 and December 31, 2018 are as follows:

         
Fair Value Measurements at March 31, 2019 Using:
   
Carrying
Value
   
Level 1
   
Level 2
   
Level 3
   
Total
Financial Assets:
                           
Cash and cash equivalents
 
$
72,897
   
$
72,897
   
$
----
   
$
----
   
$
72,897
Certificates of deposit in financial institutions
   
2, 065
     
----
     
2,065
     
----
     
2,065
Securities available for sale
   
110,281
     
----
     
110,281
     
----
     
110,281
Securities held to maturity
   
15,590
     
----
     
7,664
     
8,460
     
16,124
Loans, net
   
772,631
     
----
     
----
     
771,559
     
771,559
Accrued interest receivable
   
2,808
     
----
     
406
     
2,402
     
2,808
                                       
Financial liabilities:
                                     
Deposits, including held for sale
   
861,704
     
242,894
     
619,302
     
----
     
862,196
Other borrowed funds
   
37,577
     
----
     
36,224
     
----
     
36,224
Subordinated debentures
   
8,500
     
----
     
6,897
     
----
     
6,897
Accrued interest payable
   
1,492
     
3
     
1,489
     
----
     
1,492

         
Fair Value Measurements at December 31, 2018 Using:
   
Carrying
Value
   
Level 1
   
Level 2
   
Level 3
   
Total
Financial Assets:
                           
Cash and cash equivalents
 
$
71,180
   
$
71,180
   
$
----
   
$
----
   
$
71,180
Certificates of deposit in financial institutions
   
2,065
     
----
     
2,065
     
----
     
2,065
Securities available for sale
   
102,164
     
----
     
102,164
     
----
     
102,164
Securities held to maturity
   
15,816
     
----
     
7,625
     
8,609
     
16,234
Loans, net
   
770,324
     
----
     
----
     
766,784
     
766,784
Accrued interest receivable
   
2,638
     
----
     
312
     
2,326
     
2,638
                                       
Financial liabilities:
                                     
Deposits
   
846,704
     
237,821
     
607,593
     
----
     
845,414
Other borrowed funds
   
39,713
     
----
     
37,644
     
----
     
37,644
Subordinated debentures
   
8,500
     
----
     
7,054
     
----
     
7,054
Accrued interest payable
   
1,255
     
3
     
1,252
     
----
     
1,255

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

Loans: The fair values of loans as of March 31, 2019 and December 31, 2018 follow the guidance in ASU 2016-01, which prescribes an “exit price” approach in estimating and disclosing fair value of financial instruments resulting in a Level 3 classification. The fair value calculation at that date discounted estimated future cash flows using rates that incorporated discounts for credit, liquidity, and marketability factors.

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.

13

NOTE 3 – SECURITIES

The following table summarizes the amortized cost and fair value of securities available for sale and securities held to maturity at March 31, 2019 and December 31, 2018 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive (loss) and gross unrecognized gains and losses:

Securities Available for Sale
 
Amortized
Cost
   
Gross Unrealized
Gains
   
Gross Unrealized
Losses
   
Estimated
Fair Value
 
March 31, 2019
                       
  U.S. Government sponsored entity securities
 
$
16,677
   
$
91
   
$
(79
)
 
$
16,689
 
  Agency mortgage-backed securities, residential
   
94,310
     
389
     
(1,107
)
   
93,592
 
      Total securities
 
$
110,987
   
$
480
   
$
(1,186
)
 
$
110,281
 
                                 
December 31, 2018
                               
  U.S. Government sponsored entity securities
 
$
16,837
   
$
8
   
$
(215
)
 
$
16,630
 
  Agency mortgage-backed securities, residential
   
88,030
     
92
     
(2,588
)
   
85,534
 
      Total securities
 
$
104,867
   
$
100
   
$
(2,803
)
 
$
102,164
 

Securities Held to Maturity
 
Amortized
Cost
   
Gross Unrecognized
Gains
   
Gross Unrecognized
Losses
   
Estimated
Fair Value
 
March 31, 2019
                       
  Obligations of states and political subdivisions
 
$
15,587
   
$
546
   
$
(12
)
 
$
16,121
 
  Agency mortgage-backed securities, residential
   
3
     
----
     
----
     
3
 
      Total securities
 
$
15,590
   
$
546
   
$
(12
)
 
$
16,124
 
                                 
December 31, 2018
                               
  Obligations of states and political subdivisions
 
$
15,813
   
$
502
   
$
(84
)
 
$
16,231
 
  Agency mortgage-backed securities, residential
   
3
     
----
     
----
     
3
 
      Total securities
 
$
15,816
   
$
502
   
$
(84
)
 
$
16,234
 

The amortized cost and estimated fair value of debt securities at March 31, 2019, 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
 
$
----
   
$
----
   
$
926
   
$
927
 
  Due in over one to five years
   
16,677
     
16,689
     
6,431
     
6,601
 
  Due in over five to ten years
   
----
     
----
     
8,230
     
8,593
 
  Due after ten years
   
----
     
----
     
----
     
----
 
  Agency mortgage-backed securities, residential
   
94,310
     
93,592
     
3
     
3
 
      Total debt securities
 
$
110,987
   
$
110,281
   
$
15,590
   
$
16,124
 


14

NOTE 3 – SECURITIES (Continued)

The following table summarizes securities with unrealized losses at March 31, 2019 and December 31, 2018, aggregated by major security type and length of time in a continuous unrealized loss position:

March 31, 2019
 
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
 
$
----
   
$
----
   
$
5,935
   
$
(79
)
 
$
5,935
   
$
(79
)
Agency mortgage-backed
                                               
securities, residential
   
----
     
----
     
59,641
     
(1,107
)
   
59,641
     
(1,107
)
      Total available for sale
 
$
----
   
$
----
   
$
65,576
   
$
(1,186
)
 
$
65,576
   
$
(1,186
)

   
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
 
$
----
   
$
----
   
$
1,380
   
$
(12
)
 
$
1,380
   
$
(12
)
      Total held to maturity
 
$
----
   
$
----
   
$
1,380
   
$
(12
)
 
$
1,380
   
$
(12
)

December 31, 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
 
$
1,981
   
$
(1
)
 
$
8,679
   
$
(214
)
 
$
10,660
   
$
(215
)
Agency mortgage-backed
                                               
securities, residential
   
8,564
     
(43
)
   
62,619
     
(2,545
)
   
71,183
     
(2,588
)
      Total available for sale
 
$
10,545
   
$
(44
)
 
$
71,298
   
$
(2,759
)
 
$
81,843
   
$
(2,803
)

   
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
 
$
484
   
$
(3
)
 
$
1,312
   
$
(81
)
 
$
1,796
   
$
(84
)
      Total held to maturity
 
$
484
   
$
(3
)
 
$
1,312
   
$
(81
)
 
$
1,796
   
$
(84
)

There were no sales of investment securities during the three months ended March 31, 2019 and 2018. 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 March 31, 2019, 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 March 31, 2019 and December 31, 2018 represents an other-than-temporary impairment.

15

NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES

Loans are comprised of the following:
 
March 31,
   
December 31,
 
   
2019
   
2018
 
Residential real estate
 
$
302,391
   
$
304,079
 
Commercial real estate:
               
    Owner-occupied
   
64,553
     
61,694
 
    Nonowner-occupied
   
127,105
     
117,188
 
    Construction
   
31,848
     
37,478
 
Commercial and industrial
   
114,755
     
113,243
 
Consumer:
               
    Automobile
   
66,999
     
70,226
 
    Home equity
   
23,215
     
22,512
 
    Other
   
49,778
     
50,632
 
     
780,644
     
777,052
 
Less:  Allowance for loan losses
   
(8,013
)
   
(6,728
)
                 
Loans, net
 
$
772,631
   
$
770,324
 

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2019 and 2018:

March 31, 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
   
813
     
393
     
473
     
699
     
2,378
 
    Loans charged off
   
(329
)
   
(141
)
   
(233
)
   
(658
)
   
(1,361
)
    Recoveries
   
12
     
14
     
12
     
230
     
268
 
    Total ending allowance balance
 
$
2,079
   
$
2,452
   
$
1,315
   
$
2,167
   
$
8,013
 

March 31, 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
   
594
     
(581
)
   
316
     
427
     
756
 
    Loans charged-off
   
(60
)
   
(1
)
   
(4
)
   
(522
)
   
(587
)
    Recoveries
   
55
     
27
     
37
     
209
     
328
 
    Total ending allowance balance
 
$
2,059
   
$
2,423
   
$
1,373
   
$
2,141
   
$
7,996
 

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 March 31, 2019 and December 31, 2018:

March 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
 
$
89
   
$
95
   
$
71
   
$
6
   
$
261
 
Collectively evaluated for impairment
   
1,990
     
2,357
     
1,244
     
2,161
     
7,752
 
Total ending allowance balance
 
$
2,079
   
$
2,452
   
$
1,315
   
$
2,167
   
$
8,013
 
                                         
Loans:
                                       
Loans individually evaluated for impairment
 
$
1,745
   
$
11,278
   
$
7,443
   
$
6
   
$
20,472
 
Loans collectively evaluated for impairment
   
300,646
     
212,228
     
107,312
     
139,986
     
760,172
 
Total ending loans balance
 
$
302,391
   
$
223,506
   
$
114,755
   
$
139,992
   
$
780,644
 


16

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

December 31, 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
 
$
----
   
$
98
   
$
----
   
$
----
   
$
98
 
Collectively evaluated for impairment
   
1,583
     
2,088
     
1,063
     
1,896
     
6,630
 
Total ending allowance balance
 
$
1,583
   
$
2,186
   
$
1,063
   
$
1,896
   
$
6,728
 
                                         
Loans:
                                       
Loans individually evaluated for impairment
 
$
1,667
   
$
3,835
   
$
7,116
   
$
----
   
$
12,618
 
Loans collectively evaluated for impairment
   
302,412
     
212,525
     
106,127
     
143,370
     
764,434
 
Total ending loans balance
 
$
304,079
   
$
216,360
   
$
113,243
   
$
143,370
   
$
777,052
 

The following tables present information related to loans individually evaluated for impairment by class of loans as of March 31, 2019 and December 31, 2018:

 March 31, 2019
 
Unpaid Principal
Balance
   
Recorded
Investment
   
Allowance for Loan Losses Allocated
 
With an allowance recorded:
                 
    Residential real estate
 
$
1,295
   
$
1,295
   
$
89
 
    Commercial real estate:
                       
        Owner-occupied
   
156
     
156
     
----
 
        Nonowner-occupied
   
358
     
358
     
95
 
    Commercial and industrial
   
1,968
     
1,968
     
71
 
    Consumer:
                       
        Home equity
   
6
     
6
     
6
 
With no related allowance recorded:
                       
    Residential real estate
   
450
     
450
     
----
 
    Commercial real estate:
                       
        Owner-occupied
   
3,356