Ohio Valley Banc Earnings 2019-03-31

OVBC 10Q Quarterly Report

Balance Sheet	Income Statement	Cash 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

☐ 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

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

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

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

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

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

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.

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.

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.

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		----

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%

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.

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

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.

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

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

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

EX-4	exhibit4_033119.htm
EX-31.1	exhibit311_033119.htm
EX-31.2	exhibit312_033119.htm
EX-32	exhibit32_033119.htm