Ohio Valley Banc Corp

Annual Report 2017

 

 

 

 

A Message from Management

Dear Neighbors and Friends,

Congratulations! Ohio Valley Bank, a subsidiary of YOUR company, celebrated its 145th year in business in 2017.  Ohio Valley Bank also reached a significant milestone by closing out the year with over $1 billion in assets. These accomplishments would not have been possible without the unwavering support of our community and the generosity of shareholders like you.

During 2017, our supporters also mourned losses, though not of the financial kind. We were saddened by the passing of our eighth president, Jim Dailey, and longtime banker and director, Leon Saunders. Know that the lessons of service these great men taught us are well woven into the fabric of today's Ohio Valley Banc Corp.

As we look to 2018, we are inspired by an acute sense of community. Our hope is that our actions surpass our words. Community First is truly at the heart of our purpose. Whether its handing out a check for a new construction project, posting a congratulating ad in a school event program, or getting our hands dirty helping with a fundraiser to support youth programs, we are committed to not only help our communities exist, but to thrive.

Within these pages you will find the annual reporting of a company run by your friends and neighbors, real people of and for the communities in which they live and work. As a result of their diligence, your company earned $7.5 million in net income for the year, an increase of 8.5 percent over the prior year.

If you have any questions regarding this Annual Report, we invite you to reach out to us. Our door is always open.

We do hope to see you at this year's Annual Shareholders Meeting. Make special note of the date. This year's meeting will be a week later than usual. It is scheduled for Wednesday, May 16, 2018. As is tradition, the meeting will be held at the Morris & Dorothy Haskins Ariel Theatre and will start promptly at 5 p.m. with social hour before. Please join us.

Sincerely,

Jeffrey E. Smith

Chairman of the Board

Ohio Valley Banc Corp.

Thomas E. Wiseman

President and CEO

Ohio Valley Banc Corp.

 

It's about a COMPANY that invests

in the future of its COMMUNITY

because it's the right thing to do.

 

 

 

 

 

Tom Wiseman talks with Jerry Davis about one group's dream to transform the abandoned train depot into the Gallipolis Railroad Freight Station Museum. The museum opened in 2017 with monetary and volunteer help from OVB and other generous contributors.

Right Top Row L-R: OVB's annual Veterans Appreciation Luncheon, OVB's Dan Short recognizes Eastern High School Students of the Month, OVB's Kimberly Broyles and Emily Conway volunteer with many others at Rockets Over Rio.

Middle Row: OVB's Brian Hall takes a break on his trip to help hurricane victims in Houston, Maranda Prevatt and Niki Kazee give Marco a hug at the OVB Barboursville Customer Appreciation Day, Loan Officer Ryan Young throws the first pitch at a Gallia Academy varsity baseball game.

Bottom Row: OVB volunteers at Special Olympics, Bankers put in some sweat equity at Field of Hope, Mason County 4-Hers learn the basics of banking from OVB's Hope Roush at 4-H Camp.

 

 

 

 

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2017 in Review by the numbers
$399,467	Dollars given to local charities, schools, and organizations through donations and sponsorships.
$804,069.50	Cash back earned by OVB Rewards Checking accountholders.
5,023	Loan Central customers received their tax refund early through our loan program.
$4,971,154.91	Deposited using a cell phone or tablets.
3,496	Hours (or 437 work days) Ohio Valley Bank and Loan Central employees actively volunteered in their communities during bank hours.
$109,045,393.43	Loaned to individuals in our community to help them finance their ambitions and dreams.
1,034,780	Transactions conducted at Ohio Valley Bank offices.
over 600	Students learned how to handle their money responsibly courtesy of fun financial literacy programs provided for free from OVB.

 

 

OVBC DIRECTORS			OVBC OFFICERS
Jeffrey E. Smith			Jeffrey E. Smith
Chairman, Ohio Valley Banc Corp. and Ohio Valley Bank			Chairman of the Board
Thomas E. Wiseman			Thomas E. Wiseman
President & CEO, Ohio Valley Banc Corp. and Ohio Valley Bank			President and Chief Executive Officer
David W. Thomas, Lead Director			Larry E. Miller, II
Former Chief Examiner, Ohio Division of Financial Institutions bank supervision and regulation			Chief Operating Officer and Secretary
			Katrinka V. Hart-Harris
Anna P. Barnitz			Senior Vice President
Treasurer & CFO, Bob's Market & Greenhouses, Inc. wholesale horticultural products and retail landscaping stores			Scott W. Shockey
			Senior Vice President & Chief Financial Officer
Brent A. Saunders
Chairman of the Board, Holzer Health System Attorney, Halliday, Sheets & Saunders healthcare			Mario P. Liberatore, Vice President Cherie A. Elliott, Vice President
			Jennifer L. Osborne, Vice President
Harold A. Howe			Tom R. Shepherd, Vice President
Self-employed, Real Estate Investment and Rental Property			Bryan F. Stepp, Vice President
			Frank W. Davison, Vice President
Brent R. Eastman			Bryan W. Martin, Vice President
President and Co-owner, Ohio Valley Supermarkets			Ryan J. Jones, Vice President
Partner, Eastman Enterprises			Paula W. Clay, Assistant Secretary
			Cindy H. Johnston, Assistant Secretary
John G. Jones
Retired President, MBD, Ohio Valley Bank
			LOAN CENTRAL OFFICERS
Kimberly A. Canady
Owner, Canady Farms, LLC			Larry E. Miller, II, Chairman of the Board
agricultural products and agronomy services
			Cherie A. Elliott, President
Edward J. Robbins			Timothy R. Brumfield, Vice President & Secretary, Manager,
President & CEO, Ohio Valley Veneer, Inc.			Gallipolis Office
wood harvesting, processing and manufacturing of dry lumber & flooring in Ohio,			John J. Holtzapfel, Compliance Officer & Manager, Wheelersburg
Kentucky, and Tennessee			Office
			T. Joe Wilson, Manager, Waverly Office
			Joseph I. Jones, Manager, South Point Office
			Gregory G. Kauffman,  Manager, Chillicothe Office
			Steven B. Leach, Manager, Jackson Office
OHIO VALLEY BANK DIRECTORS
Jeffrey E. Smith	Brent A. Saunders		WEST VIRGINIA ADVISORY BOARD
Thomas E Wiseman	Brent R. Eastman
David W. Thomas	John G. Jones		Mario P. Liberatore	Stephen L. Johnson
Harold A. Howe	Kimberly A. Canady		Richard L. Handley	E. Allen Bell
Anna P. Barnitz	Edward J. Robbins		Trenton M. Stover	John A. Myers
			DIRECTORS EMERITUS
			W. Lowell Call	Barney A. Molnar
			Steven B. Chapman	Wendell B. Thomas
			Robert E. Daniel	Lannes C. Williamson

 

 

 

 

OHIO VALLEY BANK OFFICERS
EXECUTIVE OFFICERS			ASSISTANT VICE PRESIDENTS
Jeffrey E. Smith	Chairman of the Board		Melissa P. Wooten	Shareholder Relations Manager & Trust
Thomas E. Wiseman	President and Chief Executive Officer			Officer
Larry E. Miller, II	Chief Operating Officer and Secretary		Kimberly R. Williams	Systems Officer
Katrinka V. Hart-Harris	Executive Vice President, Special Projects		Paula W. Clay	Assistant Secretary
Scott W. Shockey	Executive Vice President, Chief Financial		Cindy H. Johnston	Assistant Secretary
	Officer		Joe J. Wyant	Region Manager Jackson County
Mario P. Liberatore	President, OVB West Virginia		Brenda G. Henson	Manager Deposit Services
			Gabriel U. Stewart	Chief Information Security Officer
			Randall L. Hammond	Security Officer/Loss Prevention
SENIOR VICE PRESIDENTS			Barbara A. Patrick	BSA Officer/Loss Prevention
Jennifer L. Osborne	Retail Lending		Richard P. Speirs	Facilities Manager
Tom R. Shepherd	Chief Deposit Officer		Lori A. Edwards	Secondary Market Manager
Bryan F. Stepp	Chief Credit Officer		Raymond G. Polcyn	Manager of Loan Production Office
Frank W. Davison	Financial Bank Group		Stephanie L. Stover	Retail Lending Operations Manager
Bryan W. Martin	Chief Administrative Officer		Brandon O. Huff	Systems Administrator
Ryan J. Jones	Chief Risk Officer		Anita M. Good	Regional Branch Administrator
			Angela S. Kinnaird	Customer Support Manager
			Laura F. Conger	Risk Administration Officer
VICE PRESIDENTS			Lonnie L. Hunt	Lender/Business Development Officer
Richard D. Scott	Trust		Ruth R. Murphy	Lender/Business Development Officer
Patrick H. Tackett	Corporate Banking		Terri M. Camden	Human Resources Officer
Marilyn E. Kearns	Director of Human Resources		Shelly N. Boothe	Business Development Officer
Fred K. Mavis	Business Development Officer
Rick A. Swain	Western Division Branch Manager
Bryna S. Butler	Corporate Communications		ASSISTANT CASHIERS
Tamela D. LeMaster	Branch Administration/CRM		Lois J. Scherer	EFT Officer
Christopher L. Preston	Branch Administration		Linda K. Roe	Lead Cultural Engineer & Talent
	Business Development			Development Specialist
Gregory A. Phillips	Consumer Lending		Glen P. Arrowood, II	Manager of Indirect Lending
Diana L. Parks	Internal Audit Liaison		Michelle L. Hammond	Escrow Supervisor/Lead Mortgage Loan
John A. Anderson	Loan Operations			Documentation
Kyla R. Carpenter	Director of Marketing		Patricia G. Hapney	Retail Lending & Personal Banker
Allen W. Elliott	Director of Customer Support		Anthony W. Staley	Product Development Business Sales &
E. Kate Cox	Director of Cultural Enhancement			Support
Brian E. Hall	Corporate Banking		Jon C. Jones	Western Cabell Region Manager
Daniel T. Roush	Senior Compliance Officer		Daniel F. Short	Meigs Region Manager
Gary L. Crabtree	Lender/Business Development Officer		Pamela K. Smith	Eastern Cabell Region Manager
Adam D. Massie	Business Development/Lending		William F. Richards	Advertising Manager
	Administration-MBC
Shawn R. Siders	Senior Credit Officer
Jay D. Miller	Business Development Officer
Jody M. DeWees	Trust
Christopher S. Petro	Comptroller

 

 

 

 

Ohio Valley Bank
Athens, Ohio
Loan Office - 2097 East State Street Suite C
Gallia County, Ohio
Main Office - 420 Third Avenue
Mini Bank - 437 Fourth Avenue
Inside Walmart - 2145 Eastern Avenue
Jackson Pike - 3035 State Route 160
Inside Holzer - 100 Jackson Pike
Loan Office - Walmart Plaza, 2145 Eastern Avenue
Rio Grande - 27 North College Avenue
Jackson County, Ohio
Upper Main - 740 East Main Street
Downtown - 400 East Main Street
Oak Hill - 116 Jackson Street
Wellston - 123 South Ohio Avenue
Mt. Sterling, Ohio
255 Yankeetown Street		Loan Central
New Holland, Ohio		Chillicothe, Ohio
25 North Main Street		1080 N. Bridge Street, Unit 43
Pomeroy, Ohio		Gallipolis, Ohio
Inside Sav-a-Lot - 700 West Main Street		2145 Eastern Avenue
Waverly, Ohio		Jackson, Ohio
507 West Emmitt Avenue		420 East Main Street
Barboursville, West Virginia		South Point, Ohio
6431 East State Route 60		348 County Road 410
Milton, West Virginia		Waverly, Ohio
280 East Main Street		505 West Emmitt Avenue
Point Pleasant, West Virginia		Wheelersburg, Ohio
328 Viand Street		326 Center Street

 

(1) Securities include interest-bearing deposits with banks and restricted investments in bank stocks.

(2) Other borrowed funds include subordinated debentures.

 

 

See accompanying notes to consolidated financial statements

 

See accompanying notes to consolidated financial statements

 

See accompanying notes to consolidated financial statements

 

See accompanying notes to consolidated financial statements

See accompanying notes to consolidated financial statements

Amounts are in thousands, except share and per share data.

 

Note A - Summary of Significant Accounting Policies

The Company provides a full range of commercial and retail banking services from 25 offices located in southeastern Ohio and western West Virginia.  It accepts deposits in checking, savings, time and money market accounts and makes personal, commercial, floor plan, student, construction and real estate loans.  Substantially all loans are secured by specific items of collateral, including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from business operations. The Company also offers safe deposit boxes, wire transfers and other standard banking products and services.  The Bank's deposits are insured by the Federal Deposit Insurance Corporation.  In addition to accepting deposits and making loans, the Bank invests in U. S. Government and agency obligations, interest-bearing deposits in other financial institutions and investments permitted by applicable law.

The Bank's trust department provides a wide variety of fiduciary services for trusts, estates and benefit plans and also provides investment and security services as an agent for its customers.

Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the U.S., management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.

Cash and Cash Equivalents: Cash and cash equivalents include cash on hand, noninterest-bearing deposits with banks, federal funds sold and interest-bearing deposits with banks with maturity terms of less than 90 days. Generally, federal funds are purchased and sold for one-day periods. The Company reports net cash flows for customer loan transactions, deposit transactions, short-term borrowings and interest-bearing deposits with other financial institutions.

Certificates of deposit in financial institutions:  Certificates of deposit in financial institutions are carried at cost and have maturity terms of 90 days or greater.  The longest maturity date is September 30, 2019.

Securities: The Company classifies securities into held to maturity and available for sale categories. Held to maturity securities are those which the Company has the positive intent and ability to hold to maturity and are reported at amortized cost. Securities classified as available for sale include securities that could be sold for liquidity, investment management or similar reasons even if there is not a present intention of such a sale. Available for sale securities are reported at fair value, with unrealized gains or losses included in other comprehensive income, net of tax.

Premium amortization is deducted from, and discount accretion is added to, interest income on securities using the level yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. Gains and losses are recognized upon the sale of specific identified securities on the completed trade date.

Note A - Summary of Significant Accounting Policies (continued)

Other-Than-Temporary Impairments of Securities:  In determining an other-than-temporary impairment ("OTTI"), management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an OTTI decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time. 

 

When an OTTI occurs, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss. If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the investment's amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

Restricted Investments in Bank Stocks:  The Bank is a member of the Federal Home Loan Bank ("FHLB") system.  Additionally, the Bank is a member of the Federal Reserve Bank ("FRB") system.  Members are required to own a certain amount of stock based on their level of borrowings and other factors and may invest in additional amounts.  FHLB stock and FRB stock are carried at cost, classified as restricted securities, and periodically evaluated for impairment based on ultimate recovery of par value.  Both cash and stock dividends are reported as income. The Company has additional investments in other restricted bank stocks that are not material to the financial statements.

Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs, and an allowance for loan losses. Interest income is reported on an accrual basis using the interest method and includes amortization of net deferred loan fees and costs over the loan term using the level yield method without anticipating prepayments.  The amount of the Company's recorded investment is not materially different than the amount of unpaid principal balance for loans.

Interest income is discontinued and the loan moved to non-accrual status when full loan repayment is in doubt, typically when the loan is impaired or payments are past due 90 days or over unless the loan is well-secured or in process of collection. Past due status is based on the contractual terms of the loan.  In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.  Nonaccrual loans and loans past due 90 days or over and still accruing include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income.  Interest received on such loans is accounted for on the cash-basis method until qualifying for return to accrual.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for Loan Losses:  The allowance for loan losses is a valuation allowance for probable incurred credit losses.  Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.  Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors.  Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged-off.

Note A - Summary of Significant Accounting Policies (continued)

The allowance consists of specific and general components.  The specific component relates to loans that are individually classified as impaired.  A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.  Loans for which the terms have been modified and for which the borrower is experiencing financial difficulties are considered troubled debt restructurings and classified as impaired.

 

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length and reasons for the delay, the borrower's prior payment record, and the amount of shortfall in relation to the principal and interest owed. 

Commercial and commercial real estate loans are individually evaluated for impairment.  If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan's existing rate or at the fair value of collateral if repayment is expected solely from the collateral.  Smaller balance homogeneous loans, such as consumer and most residential real estate, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosure.  Troubled debt restructurings are measured at the present value of estimated future cash flows using the loan's effective rate at inception.  If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral.  For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The general component covers non-impaired loans and impaired loans that are not individually reviewed for impairment and is based on historical loss experience adjusted for current factors.  The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent 3 years for the consumer and real estate portfolio segment and 5 years for the commercial portfolio segment. The total loan portfolio's actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment.  These economic factors include consideration of the following:  levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations.  The following portfolio segments have been identified:  Commercial and Industrial, Commercial Real Estate, Residential Real Estate, and Consumer.

Commercial and industrial loans consist of borrowings for commercial purposes to individuals, corporations, partnerships, sole proprietorships, and other business enterprises.  Commercial and industrial loans are generally secured by business assets such as equipment, accounts receivable, inventory, or any other asset excluding real estate and generally made to finance capital expenditures or operations.  The Company's risk exposure is related to deterioration in the value of collateral securing the loan should foreclosure become necessary.  Generally, business assets used or produced in operations do not maintain their value upon foreclosure, which may require the Company to write down the value significantly to sell.

Commercial real estate consists of nonfarm, nonresidential loans secured by owner-occupied and nonowner-occupied commercial real estate as well as commercial construction loans.  An owner-occupied loan relates to a borrower purchased building or space for which the repayment of principal is dependent upon cash flows from the ongoing business operations conducted by the party, or an affiliate of the party, who owns the property.  Owner-occupied loans that are dependent on cash flows from operations can be adversely affected by current market conditions for their product or service.  A nonowner-occupied loan is a property loan for which the repayment of principal is dependent upon rental income associated with the property or the subsequent sale of the property.  Nonowner-occupied loans that are dependent upon rental income are primarily impacted by local economic conditions which dictate occupancy rates and the amount of rent charged.  Commercial construction loans consist of borrowings to purchase and develop raw land into 1-4 family residential properties.  Construction loans are extended to individuals as well as corporations for the construction of an individual or multiple properties and are secured by raw land and the subsequent improvements.  Repayment of the loans to real estate developers is dependent upon the sale of properties to third parties in a timely fashion upon completion.  Should there be delays in construction or a downturn in the market for those properties, there may be significant erosion in value which may be absorbed by the Company.

 

 

 

Note A - Summary of Significant Accounting Policies (continued)

Residential real estate loans consist of loans to individuals for the purchase of 1-4 family primary residences with repayment primarily through wage or other income sources of the individual borrower.  The Company's loss exposure to these loans is dependent on local market conditions for residential properties as loan amounts are determined, in part, by the fair value of the property at origination.

 

Consumer loans are comprised of loans to individuals secured by automobiles, open-end home equity loans and other loans to individuals for household, family, and other personal expenditures, both secured and unsecured.  These loans typically have maturities of 6 years or less with repayment dependent on individual wages and income.  The risk of loss on consumer loans is elevated as the collateral securing these loans, if any, rapidly depreciate in value or may be worthless and/or difficult to locate if repossession is necessary.  The Company has allocated the highest percentage of its allowance for loan losses as a percentage of loans to the other identified loan portfolio segments due to the larger dollar balances associated with such portfolios.

At December 31, 2017, there were no changes to the accounting policies or methodologies within any of the Company's loan portfolio segments from the prior period.

The following represents the composition of the Company's loan portfolio as of December 31:

 

Approximately 4.86% of total loans were unsecured at December 31, 2017, down from 5.61% at December 31, 2016.

The Bank, in the normal course of its operations, conducts business with correspondent financial institutions. Balances in correspondent accounts, investments in federal funds, certificates of deposit and other short-term securities are closely monitored to ensure that prudent levels of credit and liquidity risks are maintained.  At December 31, 2017, the Bank's primary correspondent balance was $60,872 on deposit at the Federal Reserve Bank, Cleveland, Ohio.

Premises and Equipment:  Land is carried at cost.  Premises  and  equipment are  stated at  cost  less  accumulated  depreciation, which is  computed using the straight-line method over the estimated useful life of the owned asset and, for leasehold improvement, over the remaining term of the leased facility, whichever is shorter. The useful lives range from 3 to 8 years for equipment, furniture and fixtures and 7 to 39 years for buildings and improvements.

Foreclosed assets:  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.  Physical possession of residential real estate property collateralizing a consumer mortgage loan occurs when legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the property to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense.  Operating costs after acquisition are expensed. Foreclosed assets totaled $1,574 and $2,129 at December 31, 2017 and 2016.

Goodwill:  Goodwill resulting from business combinations prior to January 1, 2009 represents the excess of the purchase price over the fair value of the net assets of businesses acquired.  Goodwill resulting from business combinations after January 1, 2009, is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date.  Goodwill acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually.

 

 

 

 

Note A - Summary of Significant Accounting Policies (continued)

Goodwill is the only intangible asset with an indefinite life on our balance sheet. The Company has selected December 31 as the date to perform its annual qualitative impairment test.  Given that the Company has been profitable and had positive equity, the qualitative assessment indicated that it was more likely than not that the fair value of goodwill was more than the carrying amount, resulting in no impairment.

Long-term Assets:  Premises and equipment and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

 

Mortgage Servicing Rights:  A mortgage servicing right ("MSR") is a contractual agreement where the right to service a mortgage loan is sold by the original lender to another party. When the Company sells mortgage loans to the secondary market, it retains the servicing rights to these loans. The Company's MSR is recognized separately when acquired through sales of loans and is initially recorded at fair value with the income statement effect recorded in mortgage banking income. Subsequently, the MSR is then amortized in proportion to and over the period of estimated future servicing income of the underlying loan. The MSR is then evaluated for impairment periodically based upon the fair value of the rights as compared to the carrying amount, with any impairment being recognized through a valuation allowance. Fair value of the MSR is based on market prices for comparable mortgage servicing contracts. Impairment is determined by stratifying rights into groupings based on predominant risk characteristics, such as interest rate, loan type and investor type.  If the Company later determines that all or a portion of the impairment no longer exists for a particular grouping, a reduction of the allowance may be recorded as an increase to income.  At December 31, 2017 and 2016, the Company's MSR assets were $360 and $387, respectively.

Earnings Per Share:  Earnings per share is based on net income divided by the following weighted average number of common shares outstanding during the periods: 4,685,067 for 2017; 4,351,748 for 2016; 4,117,675 for 2015.  Ohio Valley had no dilutive securities outstanding for any period presented.

Income Taxes: Income tax expense is the sum of the current year income tax due or refundable and the change in deferred tax assets and liabilities.  Deferred tax assets and liabilities are the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized at the time of enactment of such change in tax rates.  A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.  On December 22, 2017, the Tax Cuts and Jobs Act ("TCJA") was enacted, which among other things, reduced the federal income tax rate from 34% to 21% effective January 1, 2018. This required the Company's deferred tax assets and liabilities to be revalued using the 21% federal tax rate enacted. The effect was recorded in the fourth quarter tax provision.

A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.  The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination.  For tax positions not meeting the "more likely than not" test, no tax benefit is recorded.  The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

Comprehensive Income: Comprehensive income consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale which are also recognized as separate components of equity, net of tax.

Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

Bank Owned Life Insurance and Annuity Assets:  The Company has purchased life insurance policies on certain key executives.  Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. The Company also purchased an annuity investment for a certain key executive that earns interest.

Employee Stock Ownership Plan: Compensation expense is based on the market price of shares as they are committed to be allocated to participant accounts.

 

 

 

Note A - Summary of Significant Accounting Policies (continued)

 

Restrictions on Cash:  Cash on hand or on deposit with a third-party correspondent and the Federal Reserve Bank of $61,915 and $28,102 was required to meet regulatory reserve and clearing requirements at year-end 2017 and 2016.  The balances on deposit with a third-party correspondent do not earn interest.

Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged.  Net cash settlements on derivatives that do not qualify for hedge accounting are reported in noninterest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged.

At December 31, 2017 and 2016, the  Company's only  derivatives on  hand were  interest rate swaps, which are  classified as stand-alone derivatives.  See Note H for more specific disclosures related to interest rate swaps.

Fair Value of Financial Instruments:  Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note O.  Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items.  Changes in assumptions or in market conditions could significantly affect the estimates.

Reclassifications: The consolidated financial statements for 2016 and 2015 have been reclassified to conform with the presentation for 2017.  These reclassifications had no effect on the net results of operations or shareholders' equity.

Note A - Summary of Significant Accounting Policies (continued)

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

   In February 2016, the FASB issued an update (ASU 2016-02, Leases) which will require lessees to record most leases on their balance sheet and recognize leasing expenses in the income statement. Operating leases, except for short-term leases that are subject to an accounting policy election, will be recorded on the balance sheet for lessees by establishing a lease liability and corresponding right-of-use asset. The guidance in this ASU will become effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. Management is currently evaluating the impact of this update on its consolidated financial statements and related disclosures.

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

In August 2016, the FASB issued an update (ASU 2016-15, Statement of Cash Flows) which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows.  The amendments in this Update apply to all entities, including business entities and not-for-profit entities that are required to present a statement of cash flows, and are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.  Early adoption is permitted, including adoption in an interim period.  The adoption of ASU 2016-15 is not expected to have a material effect on the Company's financial statements.

In January 2017, the FASB issued an update (ASU 2017-04, Intangibles – Goodwill and Other) which is intended to simplify the measurement of goodwill in periods following the date on which the goodwill is initially recorded. Under the amendments in this update, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. However, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. A public business entity that is a U.S. Securities and Exchange Commission filer should adopt the amendments in this update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Adoption by the Company is not expected to have a material impact on the consolidated financial statements and related disclosures.

In February 2018, the FASB issued ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income".  The purpose of this Update is to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA.  The Update is effective for public business entities for annual periods beginning after December 15, 2018, and interim periods within those fiscal years.  Early adoption is permitted, including adoption in an interim period. The adoption of ASU 2018-02 is not expected to have a material effect on the Company's financial statements.

Note B – Business Combinations

As of the close of business on August 5, 2016, Ohio Valley completed its merger with Milton Bancorp, Inc. ("Milton Bancorp") pursuant to the terms of the Agreement and Plan of Merger dated as of January 7, 2016, by and between Ohio Valley and Milton Bancorp, as amended (the "Merger Agreement").  Pursuant to the terms of the Merger Agreement, Milton Bancorp was merged with and into Ohio Valley.  Immediately following the Merger, The Milton Banking Company ("Milton Bank") was merged with and into the Bank.  As a result of the Merger and in accordance with the terms of the Merger Agreement, each Milton Bancorp share was converted into the right to receive either 1,636 Ohio Valley common shares, no par value, or cash in the amount of $37,219, subject to certain allocation procedures set forth in the Merger Agreement pursuant to which 80% of the 400 outstanding Milton Bancorp common shares were converted into the right to receive Ohio Valley common shares and the remaining 20% of the outstanding Milton Bancorp common shares were converted into the right to receive cash.  Each of the 1,237 Milton Bancorp preferred shares issued and outstanding were converted into the right to receive a cash payment in the amount of $3,600 per preferred share.  The consideration paid for Milton Bancorp totaled $18,875, of which $11,444 was the market value of the Company's common shares and $7,431 was cash.  Ohio Valley financed part of the cash portion of the purchase price through $5,000 in borrowed funds.  Milton Bank's results of operations were included in the Company's results beginning August 6, 2016.  Merger-related expenses of $930 were recorded to the Company's income statement for the year ended December 31, 2016.  The fair value of the common shares issued as part of the consideration paid for Milton Bancorp was determined in the basis of the closing price of the Company's common shares on the acquisition date.  After the Merger, the Company's assets totaled approximately $950 million and branches increased to 25 locations.

Goodwill of $6,534 arising from the acquisition consisted largely of synergies from combining the operations of the companies.  As the acquisition was treated as a nontaxable stock acquisition transaction, the goodwill was not deductible for tax purposes.  The following table summarizes the consideration paid for Milton Bancorp and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date:

The fair value of net assets acquired included fair value adjustments to certain receivables that were not considered impaired as of the acquisition date. This consisted of non-impaired loans with a fair value of $111,558 and gross contractual amounts receivable of $112,249 on the date of acquisition.  The fair value adjustments were determined using discounted contractual cash flows.  The Company also acquired purchase credit impaired loans that management deemed to be not material for disclosure.

 

 

Note C - Securities

 

The following table summarizes the amortized cost and fair value of securities available for sale and securities held to maturity at December 31, 2017 and 2016 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses:

 

 

At year-end 2017 and 2016, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders' equity.

 

There were no sales of debt securities during 2017 and 2016.  During 2015, proceeds from the sales of debt securities totaled $10,550 with gross gains of $163 recognized.

 

Securities with a carrying value of approximately $70,078 at December 31, 2017 and $72,397 at December 31, 2016 were pledged to secure public deposits and repurchase agreements and for other purposes as required or permitted by law.

 

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 December 31, 2017, 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 December 31, 2017 and 2016 represents an other-than-temporary impairment.
 

Note C - Securities (continued)

The amortized cost and estimated fair value of debt securities at December 31, 2017, 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. 

   

The following table summarizes securities with unrealized losses at December 31, 2017 and December 31, 2016, aggregated by major security type and length of time in a continuous unrealized loss position: