10-K - OVBC - Equibles

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 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
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Gallipolis, Ohio	45631
(Address of principal executive offices)	(ZIP Code)

(740) 446-2631

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common shares, without par value	OVBC	The NASDAQ Stock Market LLC (The NASDAQ Global Market)

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES ◻ NO ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

YES □ NO ☑

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 (§ 232.405 of this chapter) 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 cmpany. 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 □	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 ☑

Based on the closing sales price of $38.57 per share on June 30, 2019, the aggregate market value of the issuer’s shares held by non-affiliates on such date was $158,861,113. For this purpose, shares held by non-affiliates are all outstanding shares except those held by the directors and executive officers of the issuer and those held by The Ohio Valley Bank Company as trustee with respect to which The Ohio Valley Bank Company has sole or shared voting or dispositive power.

The number of common shares of the registrant outstanding as of February 28, 2020, was 4,787,446.

Documents Incorporated By Reference:

(1)	Portions of the 2019 Annual Report to Shareholders of Ohio Valley Banc Corp. (Exhibit 13) are incorporated by reference into Part I, Item 1 and Part II, Items 5, 6, 7, 7A, 8 and 9A.
(2)	Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on May 20, 2020, are incorporated by reference into Part III, Items 10, 11, 12, 13 and 14.

PART I

ITEM 1 - BUSINESS

Organizational History and Subsidiaries

Ohio Valley Banc Corp. (“Ohio Valley” or the “Company”) is an Ohio corporation registered as a financial holding company pursuant to the Bank Holding Company Act of 1956, as amended (“BHC Act”). Ohio Valley was incorporated under the laws of the State of Ohio on January 8, 1992 and began conducting business on October 23, 1992. The principal executive offices of Ohio Valley are located at 420 Third Avenue, Gallipolis, Ohio 45631. Ohio Valley’s common shares are listed on The NASDAQ Global Market under the symbol “OVBC.” Ohio Valley has one banking subsidiary, The Ohio Valley Bank Company (the “Bank”). The Bank has one wholly-owned subsidiary, Ohio Valley REO, LLC, an Ohio limited liability company (“Ohio Valley REO”), to which the Bank transfers certain real estate acquired by the Bank through foreclosure for sale by Ohio Valley REO. Ohio Valley also owns three nonbank subsidiaries, Loan Central, Inc., which engages in lending (“Loan Central”), Ohio Valley Financial Services Agency, LLC, which is used to facilitate the receipt of commissions on insurance sold by the Bank and Loan Central (“Ohio Valley Financial Services”), and OVBC Captive, Inc., a limited purpose property and casualty insurance company (“OVBC Captive”). Ohio Valley also owns one wholly-owned subsidiary trust formed solely to issue a trust preferred security. Ohio Valley and its subsidiaries are collectively referred to as the “Company.” Ohio Valley’s financial service operations are considered by management to be aggregated in two reportable segments: banking and consumer finance. Total revenues from the banking segment, which accounted for the majority of the Company’s total revenues, totaled 94.2%, 92.9% and 92.7% of total consolidated revenues for the years ended December 31, 2019, 2018 and 2017, respectively.

Interested readers can access Ohio Valley’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), through Ohio Valley’s Internet website at www.ovbc.com (this uniform resource locator, or URL, is an inactive textual reference only and is not intended to incorporate the information contained on Ohio Valley’s website into this Annual Report on Form 10-K). These reports can be accessed free of charge through a link to The NASDAQ Stock Market, LLC’s website from Ohio Valley’s website as soon as reasonably practicable after Ohio Valley electronically files such materials with, or furnishes them to, the Securities and Exchange Commission (“SEC”).

Business of Ohio Valley

As a financial holding company registered under the BHC Act, Ohio Valley’s primary business is community banking. As of December 31, 2019, Ohio Valley’s consolidated assets approximated to $1,013,272,000, and total shareholders’ equity approximated to $128,179,000.

Ohio Valley is also permitted to engage in certain non-banking activities, such as securities underwriting and dealing activities, insurance agency and underwriting activities and merchant banking/equity investment activities. Ohio Valley presently has an insurance agency, Ohio Valley Financial Services, which is used to facilitate the receipt of commissions on insurance sold by the Bank and Loan Central. Ohio Valley also has a captive insurance company, OVBC Captive, that is engaged in the business of providing commercial property and various liability insurance to the Company and related entities. Management will consider opportunities to engage in additional nonbanking activities as they arise.

Information about the Company’s business segments is set forth in Note R to the Company’s Financial Statements located in Ohio Valley’s 2019 Annual Report to Shareholders.

Business of Bank Subsidiary

A substantial portion of Ohio Valley’s revenue is derived from cash dividends paid by the Bank. The Bank presently has sixteen offices located in Ohio and West Virginia, all but two offering automatic teller machines (“ATMs”). Eleven of these offices also offer drive-up services. The Bank accounted for substantially all of Ohio Valley’s consolidated assets at December 31, 2019.

The Bank is primarily engaged in commercial and retail banking. The Bank is a full-service financial institution offering a blend of commercial and consumer banking services within southeastern Ohio as well as western West Virginia. The banking services offered by the Bank include the acceptance of deposits in checking, savings, time and money market accounts; the making and servicing of personal, commercial, floor plan and student loans; and the making of construction and real estate loans. The Bank also offers individual retirement accounts, safe deposit boxes, wire transfers and other standard banking products and services. As part of its lending function, the Bank offers credit card services. The Bank’s deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation (“FDIC”). In addition to originating loans, the Bank invests in United States government and agency obligations, interest-bearing deposits in other financial institutions, and other investments permitted by applicable law.

The Bank began offering trust services in 1981. The trust department acts as trustee under wills, trusts and profit sharing plans, as executor and administrator of estates, and as guardian for estates of minors and incompetents. In addition, the trust department performs a variety of investment and security services where the Bank acts as an agent on behalf of the client. Trust services are available to all customers of the Bank.

The Bank also offers Internet banking to its customers, which allows customers to perform various transactions using a computer from any location as long as they have access to the Internet and a secure browser. Specifically, customers can check personal account balances, receive information about transactions within their accounts, make transfers between accounts, stop payment on a check, and reorder checks. Customers may also pay bills online and can make payments to virtually any business or individual. Furthermore, the Bank offers other financial management online services, such as cash management and news updates related to repossession auctions, current rates and general bank news.

In January 2020, the Bank began offering Tax Refund Advance Loans (“TALs”) to Loan Central tax customers. A TAL represents a short-term loan offered by OVB to tax preparation customers of Loan Central. Previously Loan Central offered and originated tax refund anticipation loans that represented a large composition of its annual earnings. However, new Ohio laws that became effective in April 2019 placed numerous restrictions on short-term and small loans extended by certain non-bank lenders in Ohio. As a result, Loan Central is no longer able to directly offer the service to its tax preparation customers, but it is able to do so through the Bank. After Loan Central prepares a customer’s tax return, the customer is offered the opportunity to have immediate access to a portion of the anticipated tax refund by entering into a TAL with the Bank. As part of the process, the tax customer completes a loan application and authorizes the expected tax refund to be deposited with the Bank once it is issued by the IRS. Once the Bank receives the tax refund, the refund is used to repay the TAL and Loan Central’s tax preparation fees, then the remainder of the refund is remitted to Loan Central’s tax customer.

Business of Loan Central

Loan Central is engaged in consumer finance, offering smaller balance personal and mortgage loans generally to individuals with higher credit risk history. Loan Central’s line of business also includes seasonal tax preparation services as part of the TAL lending activity previously discussed. Loan Central presently has six offices, all located within southeastern Ohio.

Business of Financial Services Subsidiaries

Ohio Valley Financial Services is a licensed insurance agency that is used to facilitate the receipt of commissions on insurance sold by the Bank and Loan Central. Ohio Valley Financial Services is licensed by the State of Ohio Department of Insurance.

OVBC Captive is a pure captive insurance company engaged in providing commercial property and various liability insurance to the Company and affiliates. OVBC Captive has been approved under the guidelines of the State of Nevada Division of Insurance.

Variable Interest Entities

Ohio Valley owns one special purpose entity, Ohio Valley Statutory Trust III, which has issued $8,500,000 in trust preferred securities. Ohio Valley has issued a like amount of subordinated debentures to the Trust in exchange for the proceeds of the issuance of the trust preferred securities. Ohio Valley used the proceeds to provide additional capital to the Bank to support growth. Further detail on Ohio Valley Statutory Trust III is located in Ohio Valley’s 2019 Annual Report to Shareholders under “Note J – Subordinated Debentures and Trust Preferred Securities,” in the notes to the Company’s consolidated financial statements for the fiscal year ended December 31, 2019.

Financial Information

Financial information regarding the Company as of December 31, 2019 and 2018 and results of operations for the last three fiscal years are contained in the Company’s consolidated financial statements for the fiscal year ended December 31, 2019.

Lending Activities

The Company’s loan portfolio decreased $4,278,000 to finish at $772,774,000 in 2019. The decrease in total loans was primarily due to principal repayments and payoffs occurring within the Company’s commercial and consumer loan portfolios. The loan portfolio is comprised of commercial (commercial real estate and commercial and industrial), residential real estate and consumer loans, including credit card and home equity loans. During 2019, commercial loans decreased $7,444,000, or 2.3%, and consumer loans decreased $4,278,000, or 0.6%, while residential real estate loans increased $6,174,000, or 2.0%, as compared to 2018. Consolidated interest and fee revenue from loans accounted for 76.94%, 76.31%, and 76.50% of total consolidated revenues in 2019, 2018 and 2017, respectively. The Company’s market area for lending is primarily located in southeastern Ohio and portions of western West Virginia. The Company believes that there is no significant concentration of loans to borrowers engaged in the same or similar industries and does not have any loans to foreign entities.

Residential Real Estate Loans

The Company’s residential real estate loans consist primarily of one- to four-family residential mortgages and carry many of the same customer and industry risks as the commercial loan portfolio. Real estate loans to consumers are secured primarily by a first lien mortgage or deed of trust with evidence of title in favor of the Bank. The Company also requires proof of hazard insurance, required at the time of closing, with the Bank or Loan Central named as the mortgagee and as loss payee. The Company generally requires the amount of a residential real estate loan be no more than 80% of the purchase price or the appraisal value (whichever is the lesser) of the real estate securing the loan, unless private mortgage insurance is obtained by the borrower for the percentage exceeding 80%. These loans generally range from one-year adjustable to thirty-year fixed-rate mortgages. Residential real estate loans also consist of the Company’s warehouse lending activity. Warehouse lending consists of a line of credit provided by the Bank to another mortgage lender that makes loans for the purchase of one- to four-family residential real estate properties. The mortgage lender eventually sells the loans and repays the Bank. The Company’s market area for real estate lending is primarily located in southeastern Ohio and portions of western West Virginia. The Bank continues to sell a portion of its new fixed-rate real estate loan originations to the Federal Home Loan Mortgage Corporation (“Freddie Mac”) to enhance customer service and loan pricing. Secondary market sales of these real estate loans, which have fixed rates with fifteen- to thirty-year terms, have assisted in meeting the consumer preference for long-term fixed-rate loans as well as minimized the Bank’s exposure to interest rate risk.

Commercial Loans

The Company’s commercial loan portfolio consists of loans to corporate borrowers primarily in small to mid-sized industrial and commercial companies that include service, retail and wholesale merchants. Collateral securing these loans includes equipment, inventory, stock, commercial real estate and rental property. Commercial loans are considered to have a higher level of risk compared to other types of loans (i.e., single-family residential mortgages, installment loans and credit card loans), although care is taken to minimize these risks. Numerous risk factors impact this portfolio, such as the economy, new technology, labor rates, cash flow, financial structure and asset quality. The payment experience on commercial loans is dependent on adequate cash flows from the business to service both interest and principal due. Thus, commercial loans may be more sensitive to adverse conditions in the economy generally or adverse conditions in a specific industry. The Company diversifies risk within this portfolio by closely monitoring industry concentrations and portfolios to ensure that it does not exceed established lending guidelines. Underwriting standards require a comprehensive credit analysis and independent evaluation of virtually all larger balance commercial loans prior to approval. The Bank’s loan committee will review and approve all new commercial loan originations that exceed the originating loan officer’s lending limits according to the following thresholds: up to $750,000 unsecured, up to $3,000,000 secured, and up to $3,000,000 aggregate. The Executive Committee of the Bank’s Board of Directors will review and approve all new commercial loan originations up to the legal lending limit of the Bank.

Consumer Loans

Consumer loans are secured by automobiles, mobile homes, recreational vehicles and other personal property. Personal loans and unsecured credit card receivables are also included as consumer loans. The Company makes installment credit available to customers in their primary market area of southeastern Ohio and portions of western West Virginia. Credit approval for consumer loans requires demonstration of sufficient income to repay principal and interest due, stability of employment, a positive credit record and sufficient collateral for secured loans. The Company monitors the risk associated with these types of loans by monitoring factors such as portfolio growth, lending policies and economic conditions. Underwriting standards are continually evaluated and modified based upon these factors. A qualified compliance officer is responsible for monitoring the performance of his or her respective consumer portfolio and updating loan personnel. The Company makes credit life insurance and health and accident insurance available to all qualified borrowers, thus reducing their risk of loss when their income is terminated or interrupted. The Company reviews its respective consumer loan portfolios monthly to charge off loans which do not meet applicable standards. Credit card accounts are administered in accordance with the same standards as those applied to other consumer loans. Consumer loans generally involve more risk as to collectibility than mortgage loans because of the type and nature of collateral and, in certain instances, the absence of collateral. As a result, consumer lending collections are dependent upon the borrower’s continued financial stability and are adversely affected by job loss, divorce or personal bankruptcy and by adverse economic conditions. Also included in the category of consumer loans are home equity loans. Home equity lines of credit are generally made as second mortgages and charged a variable interest rate. Home equity lines are written with ten-year terms but are reviewed annually. The Company’s consumer loans also consist of seasonal TAL loans offered by the Bank during the tax season. As previously discussed, TAL loans loans are short-term, cash advances against a customer's anticipated income tax refund.

Underwriting Standards

The Company’s underwriting guidelines and standards are updated periodically and are presented to the Board of Directors of the holding company for approval. The purposes of the standards and guidelines are to grant loans on a sound and collectible basis; to invest available funds in a safe, profitable manner; to serve the legitimate credit needs of the Company’s primary market areas; and to ensure that all loan applicants receive fair and equal treatment in the lending process. It is the intent of the underwriting guidelines and standards to: minimize losses by carefully investigating the credit history of each applicant, verify the source of repayment and the ability of the applicant to repay, collateralize those loans in which collateral is deemed to be required, exercise care in the documentation of the application, review, approval, and origination process, and administer a comprehensive loan collection program. The above guidelines are adhered to and subject to the experience, background and personal judgment of the loan officer assigned to the loan application. A loan officer may grant, with justification, a loan with variances from the underwriting guidelines and standards. However, a loan officer may not exceed his or her respective lending authority without obtaining the prior, proper approval from a superior.

Investment Activities

The Company’s investment policy stresses the management of the investment securities portfolio, which includes both securities held to maturity and securities available for sale, to maximize the return over the long-term in a manner that is consistent with good banking practices and relative safety of principal. The Company’s investment portfolio is comprised of United States Government sponsored entity and mortgage-backed securities as well as obligations of state and political subdivisions. Revenues from interest and dividends on securities accounted for 5.51%, 5.48% and 5.29% of total consolidated revenues in 2019, 2018 and 2017, respectively. The

  Company currently does not engage in trading account activity.

Funding Activities

Sources of funds for loan and investment activities include “core deposits.” Core deposits include demand deposits, savings, money market, NOW accounts, and certificates of deposit less than $100,000. The Company will also utilize certificates of deposit and money market deposits from wholesale markets, when necessary, to support growth in assets. Short- and long-term advances from the Federal Home Loan Bank have also been a significant source of funding. Further funding has come from one trust preferred securities offering through Ohio Valley Statutory Trust III, totaling $8,500,000. Ohio Valley used the proceeds to provide additional capital to the Bank to support growth.

Electronic Refund Check / Electronic Refund Deposit Activities

The Company began its participation in a tax refund service in 2006, in which it served as a facilitator for the clearing of tax refunds for a single tax refund product provider. An agreement between the Bank and the original provider required the Bank to process electronic refund checks ("ERCs") and electronic refund deposits ("ERDs") presented for payment on behalf of taxpayers containing taxpayer refunds. The Bank, in turn, would receive a fee paid by the provider for each transaction that was processed by the Bank. In 2015 the agreement between the Bank and the original provider, which had a term ending at December 31, 2019, was assumed by MetaBank. MetaBank ceased utilizing the services of the Bank at the end of 2018. Due to the absence of tax processing activity in 2019, the Bank experienced a significant decline in ERC/ERD fee income. As a result, ERC/ ERD fees decreased $1,574,000 during the year ended 2019, as compared to the year ended 2018. On March 10, 2020, the Bank announced that it has entered into a new agreement with a third-party to process future electronic refund checks and deposits presented for payment on behalf of taxpayers through accounts containing taxpayer refunds. The new agreement provides that the Bank will process refunds for five tax seasons, beginning with the 2021 tax season and extending through the 2025 tax season.

Competition

Competition among providers of financial products and services continues to increase, with consumers having the opportunity to select from a growing variety of traditional and nontraditional alternatives. The principal factors of competition for the Company’s banking business are the rates of interest charged for loans, the rates of interest paid for deposits, the fees charged for services and the availability and quality of services. The market area for the Bank is concentrated primarily in the Gallia, Meigs, Jackson, Vinton and Pike Counties of Ohio, as well as the Mason and Cabell Counties of West Virginia. Some additional business originates from the surrounding Ohio counties of Lawrence, Scioto, Athens and Ross. Competition for deposits and loans comes primarily from local banks and savings associations, although some competition is also experienced from local credit unions and insurance companies. The Company also competes with non-financial institutions that offer financial products and services. Some of the Company’s competitors are not subject to the same level of regulation and oversight that is required of banks and bank holding companies. As a result, some of these competitors may have lower cost structures.

Loan Central’s market presence further strengthens the Company’s ability to compete in the Gallia, Jackson, Lawrence and Pike Counties by serving a consumer base that may not meet the Bank’s credit standards. Loan Central also operates in Scioto and Ross counties of Ohio, which are outside the Bank’s primary market area. With the exception of TAL loans related to Loan Central’s tax preparation activities and the Bank’s refund advance activities, the Company’s business is not seasonal, nor is it dependent upon a single or small group of customers.

Historically, larger regional institutions, with substantially greater resources, have been generating a growing market presence. Yet, in recent years, the financial industry continues to consolidate, which affects competition by eliminating some regional and local institutions, while strengthening the acquiring companies. Many financial institutions have experienced significant challenges as a result of the economic crisis, which resulted in bank failures and significant intervention from the United States Government.

Overall, the Company believes it is able to compete effectively in both current and newer markets. There can be no assurance, however, that our ability to market products and services successfully or to obtain adequate yield on our loans will not be impacted by the nature of the competition that now exists or may later develop.

Supervision and Regulation

The following is a summary of certain statutes and regulations affecting Ohio Valley as well as the Bank and Loan Central. This summary is qualified in its entirety by reference to such statutes and regulations. The regulation of financial holding companies and their subsidiaries is intended primarily for the protection of consumers, depositors, borrowers, the Federal Deposit Insurance Fund (“DIF”) and the banking system as a whole, and not for the protection of shareholders. Applicable laws and regulations restrict permissible activities and investments and require actions to protect loan, deposit, brokerage, fiduciary and other customers, as well as the DIF. They also may restrict Ohio Valley’s abilty to repurchase its common shares or to receive dividends from the Bank and impose capital adequacy and liquidity requirements.

Regulation of Financial Holding Company

Ohio Valley is subject to the requirements of the BHC Act and to the reporting requirements of, and examination and regulation by, the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). The Federal Reserve Board has extensive enforcement authority over bank holding companies, including, among other things, the ability to assess civil money penalties, issue cease and desist or removal orders, and require that a bank holding company divest subsidiaries (including its banking subsidiaries). In general, the Federal Reserve Board may initiate enforcement action for violations of laws and regulations and unsafe or unsound practices.

A bank holding company is required to serve as a source of financial strength to each subsidiary bank and to commit resources to support those subsidiary banks. The Federal Reserve Board may require a bank holding company to contribute additional capital to an undercapitalized subsidiary bank and may disapprove of the payment of dividends to the shareholders of the bank holding company if the Federal Reserve Board believes the payment would be an unsafe or unsound practice. The Federal Reserve Board also requires bank holding companies to provide advance notification of planned dividends under certain circumstances.

The BHC Act requires the prior approval of the Federal Reserve Board in any case where a bank holding company proposes to:

•	acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank that is not already majority-owned by it;
•	acquire all or substantially all of the assets of another bank or bank holding company; or
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•	merge or consolidate with any other bank holding company.
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Holding Company Activities

Ohio Valley became a financial holding company in 2000, permitting it to engage in activities beyond those permitted for traditional bank holding companies. In order to become a financial holding company, all of a bank holding company’s subsidiary depository institutions must be well capitalized and well managed under federal banking regulations, and such depository institutions must have received a rating of at least satisfactory under the Community Reinvestment Act of 1977, as amended (the “CRA”). In addition, the holding company must be well managed and, unless it is a small bank holding company under the Federal Reserve Board’s Small Bank Holding Company and Small Savings and Loan Holding Company Policy, must be well capitalized.

Financial holding companies may engage in a wide variety of financial activities, including any activity that the Federal Reserve Board and the Treasury Department consider financial in nature or incidental to financial activities, and any activity that the Federal Reserve Board determines complementary to a financial activity and which does not pose a substantial safety and soundness risk. These activities include securities underwriting and dealing activities, insurance and underwriting activities and merchant banking/equity investment activities. Because it has authority to engage in a broad array of financial activities, a financial holding company may have several affiliates that are functionally regulated by financial regulators other than the Federal Reserve Board, such as the SEC and state insurance regulators.

If a financial holding company or a subsidiary bank fails to meet the requirements for the holding company to remain a financial holding company, the financial holding company must enter into a written agreement with the Federal Reserve Board within 45 days to comply with all applicable capital and management requirements. Until the Federal Reserve Board determines that the holding company and its subsidiary banks meet the requirements, the Federal Reserve Board may impose additional limitations or conditions on the conduct or activities of the financial holding company or any affiliate that the Federal Reserve Board finds to be appropriate or consistent with federal banking laws. If the deficiencies are not corrected within 180 days, the financial holding company may be required to divest ownership or control of all banks. If restrictions are imposed on the activities of the holding company, such restrictions may not be made publicly available pursuant to confidentiality regulations of the banking regulators.

Loan Central is supervised and regulated by the State of Ohio Department of Financial Institutions, Division of Consumer Finance (“ODFI”). Ohio Valley Financial Services is supervised and regulated by the State of Ohio Department of Insurance. OVBC Captive is supervised and regulated by the State of Nevada Division of Insurance. The insurance laws and regulations applicable to insurance agencies, including Ohio Valley Financial Services and OVBC Captive, require education and licensing of individual agents and agencies, require reports and impose business conduct rules.

Economic Growth, Regulatory Relief and Consumer Protection Act

On May 25, 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Regulatory Relief Act”) was signed into law. The Regulatory Relief Act repealed or modified certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended (“Dodd-Frank Act”), and eased regulations on all but the largest banks (those with consolidated assets in excess of $250 billion). Bank holding companies with consolidated assets of less than $100 billion, including Ohio Valley, are no longer subject to enhanced prudential standards. The Regulatory Relief Act also relieves bank holding companies and banks with consolidated assets of less than $100 billion, including Ohio Valley, from certain record-keeping, reporting and disclosure requirements. Certain other regulatory requirements applied only to banks with assets in excess of $50 billion and so did not apply to the Company even before the enactment of the Regulatory Relief Act.

In December 2018, the Office of the Comptroller of the Currency (“OCC”), the Federal Reserve Board, and the FDIC issued a final rule to address regulatory treatment of credit loss allowances under the current expected credit loss (“CECL”) model (accounting standard). The rule revised the federal banking agencies’ regulatory capital rules to identify which credit loss allowances under the CECL model are eligible for inclusion in regulatory capital and to provide banking organizations the option to phase in over three years the day one adverse effects on regulatory capital that may result from the adoption of the CECL model.

Transactions with Affiliates, Directors, Executive Officers and Shareholders

Section 23A and 23B of the Federal Reserve Act, as amended, and Regulation W restrict transactions by banks and their subsidiaries with their affiliates. An affiliate of a bank is any company or entity which controls, is controlled by or is under common control with the bank.

Generally, Sections 23A and 23B and Regulation W:

•	limit the extent to which a bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of that bank’s capital stock<br> and surplus (i.e., tangible capital);
•	limit the extent to which a bank or its subsidiaries may engage in “covered transactions” with all affiliates to 20% of that bank’s capital stock and surplus; and
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•	require that all such transactions be on terms substantially the same, or at least as favorable to the bank subsidiary, as those provided to a non-affiliate.
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The term “covered transaction” includes the making of loans to the affiliate, the purchase of assets from the affiliate, the issuance of a guarantee on behalf of the affiliate, the purchase of securities issued by the affiliate, and other similar types of transactions.

A bank’s authority to extend credit to executive officers, directors and greater than 10% shareholders, as well as entities such persons control, is subject to Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O promulgated thereunder by the Federal Reserve Board. Among other things, these loans must be made on terms substantially the same as those offered to unaffiliated individuals or be made as part of a benefit or compensation program and on terms widely available to employees, and must not involve a greater than normal risk of repayment. In addition, the amount of loans a bank may make to these persons is based, in part, on the bank’s capital position, and specified approval procedures must be followed in making loans which exceed specified amounts.

Regulation of Ohio State Chartered Banks

As an Ohio state-chartered bank that is a member of the Federal Reserve Bank of Cleveland (“FRB”), the Bank is supervised and regulated primarily by the ODFI and the Federal Reserve Board. The Bank is also subject to the regulations of the Consumer Financial Protection Bureau (the “CFPB”), which has broad authority to adopt and enforce consumer protection regulations.

The Bank’s deposits are insured up to applicable limits by the FDIC, and the Bank is subject to the applicable provisions of the Federal Deposit Insurance Act, as amended (“FDIA”) and certain regulations of the FDIC.

Various requirements and restrictions under the laws of the United States, the State of Ohio and the State of West Virginia affect the operations of the Bank, including requirements to maintain reserves against deposits, restrictions on the nature and amount of loans that may be made and the interest that may be charged thereon, restrictions relating to investments and other activities, limitations on credit exposure to correspondent banks, limitations on activities based on capital and surplus, limitations on payment of dividends, limitations on branching and increasingly extensive consumer protection laws and regulations.

In 2017, the State of Ohio completed a substantial re-writing of Ohio’s banking laws that became effective on January 1, 2018. One of the primary purposes of the revision of the law was to adopt one universal bank charter for depository institutions chartered by the state, rather than having separate types of state depository institution charters with different powers and limitations for banks, savings banks and savings and loan associations. The result is that all Ohio-chartered depository institutions are now considered to have full commercial bank powers, unless an institution elects to continue to be governed by federal restrictions applicable to federal savings and loan associations and federal savings banks. While the most substantial changes in the law affect institutions chartered by Ohio as savings banks or savings and loan associations prior to the effectiveness of the new law, some changes also apply to institutions, like the Bank, that were chartered as commercial banks prior to the change in the law. The changes for all Ohio-chartered banks include provisions allowing Ohio-chartered banks to exercise the same powers, perform all acts, and provide all services that are permitted for federally chartered depository institutions, with the exception of laws and regulations dealing with interest rates, thereby enhancing opportunities for Ohio-chartered banks to compete with other financial institutions. Other provisions clarify previous laws addressing, or allow more flexibility with respect to, corporate governance matters, mergers and acquisitions and additional reliance on Ohio corporate law generally.

Consumer Protection Laws and Regulations

Banks are subject to regular examination to ensure compliance with federal statutes and regulations applicable to their business, including consumer protection statutes and implementing regulations. Potential penalties under these laws include, but are not limited to, fines. The Dodd-Frank Act established the CFPB, which has extensive regulatory and enforcement powers over consumer financial products and services. The CFPB has adopted numerous rules with respect to consumer protection laws and has commenced related enforcement actions. The following are just a few of the consumer protection laws applicable to the Bank:

•	Community Reinvestment Act of 1977: imposes a continuing and affirmative obligation to fulfill the credit needs of its entire community, including low- and moderate-income<br> neighborhoods.
•	Equal Credit Opportunity Act: prohibits discrimination in any credit transaction on the basis of any of various criteria.
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•	Truth in Lending Act: requires that credit terms are disclosed in a manner that permits a consumer to understand and compare credit terms more readily and knowledgeably.
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•	Fair Housing Act: makes it unlawful for a lender to discriminate in its housing-related lending activities against any person on the basis of any of certain criteria.
•	Home Mortgage Disclosure Act: requires financial institutions to collect data that enables regulatory agencies to determine whether the financial institutions are serving<br> the housing credit needs of the communities in which they are located.
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•	Real Estate Settlement Procedures Act: requires that lenders provide borrowers with disclosures regarding the nature and cost of real estate settlements and prohibits<br> abusive practices that increase borrowers’ costs.
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•	Privacy provisions of the Gramm-Leach-Bliley Act: requires financial institutions to establish policies and procedures to restrict the sharing of non-public customer data<br> with non-affiliated parties and to protect customer information from unauthorized access.
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The banking regulators also use their authority under the Federal Trade Commission Act to take supervisory or enforcement action with respect to unfair or deceptive acts or practices by banks that may not necessarily fall within the scope of specific banking or consumer finance law.

In October 2017, the CFPB issued a final rule (the “Payday Rule”) to establish regulations for payday loans, vehicle title loans, and certain high-cost installment loans. The Payday Rule addressed two discrete topics. First, it contained a set of provisions with respect to the underwriting of certain covered loans and related reporting and recordkeeping requirements (the “Mandatory Underwriting Provisions”). Second, it contained a set of provisions establishing certain requirements and limitations with respect to attempts to withdraw payments from consumers’ checking or other accounts and related recordkeeping requirements (the “Payment Provisions”). The Payday Rule became effective on January 16, 2018. However, most provisions had a compliance date of August 19, 2019.

On February 6, 2019, the CFPB proposed delaying the August 19, 2019, compliance date for the Mandatory Underwriting Provisions to November 19, 2020. The CFPB proposed in a separate notice to rescind the Mandatory Underwriting Provisions.

On June 6, 2019, the CFPB issued a final rule delaying the compliance date for most Mandatory Underwriting Provisions until November 19, 2020. However, the final rule did not delay the compliance date for the Payment Provisions. The Company does not currently expect the Payday Rule to have a material effect on its financial condition or results of operations on a consolidated basis.

Ohio law requires that lenders in Ohio, with exemptions for banks, savings associations, credit unions and certain other financial institutions, obtain licenses and comply with numerous restrictions on various types of consumer lending. The regulations address maximum permissible interest rates, duration, amounts, permissible collateral, underwriting, renewals, collection and various other aspects of such loans. On July 30, 2018, Ohio adopted a law (“HB 123”) placing much greater restrictions on such loans originated after April 26, 2019. While the Bank is exempt from such laws, Ohio Valley’s consumer finance subsidiary, Loan Central, is not. As discussed above, HB 123 resulted in the Bank beginning to offer TALs to Ohio Valley’s customers so that those customers needs could continue to be met.

Capital Requirements

Financial institutions and their holding companies are required to maintain capital as a way of absorbing losses that can, as well as losses that cannot, be predicted. The Federal Reserve Board has adopted risk-based capital guidelines for financial holding companies as well as state banks that are members of a Federal Reserve Bank. The OCC and the FDIC have adopted risk-based capital guidelines for national banks and state non-member banks, respectively. The guidelines provide a systematic analytical framework which makes regulatory capital requirements sensitive to differences in risk profiles among banking organizations, takes off-balance sheet exposures expressly into account in evaluating capital adequacy and incentivizes holding liquid, low-risk assets. Capital levels as measured by these standards are also used to categorize financial institutions for purposes of certain prompt corrective action regulatory provisions.

The risk-based capital guidelines adopted by the federal banking agencies are based on the “International Convergence of Capital Measurement and Capital Standard,” published by the Basel Committee on Banking Supervision. New capital rules applicable to smaller banking organizations (the “Basel III Capital Rules”), which also implement certain of the provisions of the Dodd-Frank Act, became effective commencing on January 1, 2015. Compliance with the new minimum capital requirements was required effective January 1, 2015, whereas a new capital conservation buffer and deductions from common equity capital phased in from January 1, 2016, through January 1, 2019, and most deductions from common equity tier 1 capital phased in from January 1, 2015, through January 1, 2019.

The rules include (a) a minimum common equity tier 1 capital ratio of 4.5%, (b) a minimum tier 1 capital ratio of 6.0%, (c) a minimum total risk-based capital ratio of 8.0%, and (d) a minimum tier 1 leverage ratio of 4.0%.

Common equity for the common equity tier 1 capital ratio includes common stock (plus related surplus) and retained earnings, plus limited amounts of minority interests in the form of common stock, less the majority of certain regulatory deductions.

Tier 1 capital includes common equity as defined for the common equity tier 1 capital ratio, plus certain non-cumulative preferred stock and related surplus, cumulative preferred stock and related surplus and trust preferred securities that have been grandfathered (but which are not otherwise permitted), and limited amounts of minority interests in the form of additional tier 1 capital instruments, less certain deductions.

Tier 2 capital, which can be included in the total capital ratio, includes certain capital instruments (such as subordinated debt) and limited amounts of the allowance for loan and lease losses, subject to specified eligibility criteria, less applicable deductions.

The deductions from common equity tier 1 capital include goodwill and other intangibles, certain deferred tax assets, mortgage-servicing assets above certain levels, gains on sale in connection with a securitization, investments in a banking organization’s own capital instruments and investments in the capital of unconsolidated financial institutions (above certain levels).

Under the guidelines, capital is compared to the relative risk included in the balance sheet. To derive the risk included in the balance sheet, one of several risk weights is applied to different balance sheet and off-balance sheet assets, primarily based on the relative credit risk of the counterparty. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

The Basel III Capital Rules also place restrictions on the payment of capital distributions, including dividends, and certain discretionary bonus payments to executive officers if the company does not hold a capital conservation buffer of greater than 2.5% composed of common equity tier 1 capital above its minimum risk-based capital requirements, or if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% at the beginning of the quarter. The capital conservation buffer phased in beginning January 1, 2016, at .625% of risk-weighted assets and was increased by that amount each year until fully implemented at 2.50% on January 1, 2019.

Federal banking regulators have established regulations governing prompt corrective action to resolve capital deficient banks. Under these regulations, institutions that become undercapitalized become subject to mandatory regulatory scrutiny and limitations, which increase as capital continues to decrease. Each such institution is also required to file a capital plan with its primary federal regulator, and its holding company must guarantee the capital shortfall up to 5% of the assets of the capital deficient institution at the time it becomes undercapitalized.

In accordance with the Basel III Capital Rules, in order to be “well-capitalized” under the prompt corrective action guidelines, a bank must have a common equity tier 1 capital ratio of at least 6.5%, a total risk-based capital ratio of at least 10.0%, a tier 1 risk-based capital ratio of at least 8.0% and a leverage ratio of at least 5.0%, and the bank must not be subject to any written agreement, order, capital directive or prompt corrective action directive to meet and maintain a specific capital level or any capital measure. At December 31, 2019, the Bank met the capital ratio requirements to be deemed “well-capitalized” according to the guidelines described above.

A bank with a capital level that might qualify for well capitalized or adequately capitalized status may nevertheless be treated as though the bank is in the next lower capital category if the bank’s primary federal banking supervisory authority determines that an unsafe or unsound condition or practice warrants that treatment. A bank’s operations can be significantly affected by its capital classification under the prompt corrective action rules. For example, a bank that is not well capitalized generally is prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market without advance regulatory approval. These deposit-funding limitations can have an adverse effect on the bank’s liquidity. At each successively lower capital category, an insured depository institution is subject to additional restrictions. Undercapitalized banks are required to take specified actions to increase their capital or otherwise decrease the risks to the DIF. Bank regulatory agencies generally are required to appoint a receiver or conservator within 90 days after a bank becomes critically undercapitalized with a leverage ratio of less than 2.0%. The FDIA provides that a federal bank regulatory authority may require a bank holding company to divest itself of an undercapitalized bank subsidiary if the agency determines that divestiture will improve the bank’s financial condition and prospects.

Regulations of the Federal Reserve Board generally require a financial holding company to maintain total risk-based capital of 10.0% and tier 1 risk-based capital of 6.0%. If, however, a bank holding company satisfies the requirements of the Federal Reserve Board’s Small Bank Holding Company and Small Savings and Loan Holding Company Policy Statement (the “SBHCP”), the holding company is not required to meet the consolidated capital requirements. As amended effective in September 2018, the SBHCP requires that the holding company have assets of less than $3 billion, that it meet certain qualitative requirements, and that all of the holding company’s bank subsidiaries meet all bank capital requirements. As of December 31, 2019, Ohio Valley was deemed to meet the SBHCP requirements and so was not required to meet consolidated capital requirements at the holding company level.

Limits on Dividends

The ability of a bank holding company to obtain funds for the payment of dividends and for other cash requirements is largely dependent on the amount of dividends that may be declared by its subsidiary banks and other subsidiaries. The Federal Reserve Board also expects Ohio Valley to serve as a source of strength to the Bank, which may require it to retain capital for further investments in the Bank, rather than for dividends for shareholders of Ohio Valley. The Bank may not pay dividends to Ohio Valley if, after paying such dividends, it would fail to meet the required capital levels. Dividends are also subject to limitations if the Company or the Bank fails to hold the required capital conservation buffer. The Bank must have the approval of its regulatory authorities if a dividend in any year would cause the total dividends for that year to exceed the sum of its current year’s net profits and retained net profits for the preceding two years, less required transfers to surplus. Under Ohio law, the Bank may pay a dividend from surplus only with the approval of its shareholders and the approval of the Superintendent of Financial Institutions. Payment of dividends by the Bank may be restricted at any time at the discretion of its regulatory authorities, if they deem such dividends to constitute an unsafe and/or unsound banking practice or if necessary to maintain adequate capital for the Bank. These provisions could have the effect of limiting Ohio Valley’s ability to pay dividends on its outstanding common shares.

In addition, Federal Reserve Board policy requires Ohio Valley to provide notice to the FRB in advance of the payment of a dividend to Ohio Valley’s shareholders under certain circumstances, and the FRB may disapprove of such dividend payment if the FRB determines the payment would be an unsafe or unsound practice.

Dividend restrictions are also listed within the provisions of Ohio Valley’s trust preferred security arrangements. Under the provisions of these agreements, the interest payable on the trust preferred securities is deferral for up to five years and any such deferral would not be considered a default. During any period of deferral, Ohio Valley would be precluded from declaring or paying dividends to its shareholders or repurchasing any of its common stock.

Deposit Insurance Assessments

The FDIC is an independent federal agency which insures deposits, up to prescribed statutory limits, of federally-insured banks and savings associations and safeguards the safety and soundness of the financial institution industry. The deposits of the Bank are insured up to statutorily prescribed limits by the FDIC, generally up to a maximum of $250,000 per separately insured depositor.

As insurer, the FDIC is authorized to conduct examinations of and to require reporting by insured institutions, including the Bank, to prohibit any insured institution from engaging in any activity the FDIC determines by regulation or order to pose a threat to the DIF, and to take enforcement actions against insured institutions. The FDIC may terminate insurance of deposits of any institution if it finds that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or other regulatory agency.

The FDIC assesses a quarterly deposit insurance premium on each insured institution based on risk characteristics of the institution and may also impose special assessments in emergency situations. The premiums fund the DIF. Pursuant to the Dodd-Frank Act, the FDIC has established 2.0% as the designated reserve ratio (“DRR”), which is the amount in the DIF as a percentage of all DIF insured deposits. In March 2016, the FDIC adopted final rules designed to meet the statutory minimum DRR of 1.35% by September 30, 2020, the deadline imposed by the Dodd-Frank Act. The Dodd-Frank Act requires the FDIC to offset the effect on institutions with assets of less than $10 billion of the increase in the statutory minimum DRR to 1.35% from the former statutory minimum of 1.15%. Although the FDIC’s new rules reduced assessment rates on all banks, they imposed a surcharge on banks with assets of $10 billion or more to be paid until the DRR reached 1.35%. The DRR reached 1.35% at September 30, 2018. The rules further changed the method of determining risk-based assessment rates for established banks with less than $10 billion in assets to better ensure that banks taking on greater risks pay more for deposit insurance than banks that take on less risk. The rules also provide assessment credits to banks with assets of less than $10 billion for the portion of their assessments that contribute to the increase of the DRR to 1.35%. The Bank’s calculated assessment credits totaled $252,900. Such credits will be applied when the reserve ratio is at least 1.38%. At June 30, 2019, the DRR reached 1.40%, exceeding the 1.38% threshold for the first time. As a result, the FDIC began to apply small bank assessment credits to quarterly assessment invoices, beginning with the second quarter assessment payable in September 2019. In addition, the FDIC announced that such credits would continue to be applied as long as the DRR is at least 1.35%, instead of 1.38%, as was originally announced. In 2019, assessment credits totaling $137,600 were applied to the Bank’s quarterly assessments during the second half of 2019.

Insurance of deposits may be terminated by the FDIC upon a finding that the insured institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition enacted or imposed by the bank's regulatory agency. Notice would be given to all depositors before the deposit insurance was terminated.

Community Reinvestment Act

The CRA requires depository institutions to assist in meeting the credit needs of their market areas consistent with safe and sound banking practice. Under the CRA, each depository institution is required to hep meet the credit needs of its market areas by, among other things, providing credit or other financial assistance to low and moderate-income individuals and communities. Depository institutions are periodically examined for compliance with the CRA. As of its most recent evaluation, the Bank was assigned an overall CRA rating of “Satisfactory.”

Customer Privacy Protections

The Bank is subject to regulations limiting the ability of financial institutions to disclose non-public information about consumers to nonaffiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated party.

Monetary Policy and Economic Conditions

The business of commercial banks is affected not only by general economic conditions, but also by the policies of various governmental regulatory authorities, including the Federal Reserve Board. The Federal Reserve Board regulates the money and credit conditions and interest rates in order to influence general economic conditions primarily through open market operations in United States Government securities, changes in the discount rate on bank borrowings and changes in reserve requirements against bank deposits. These policies and regulations significantly influence the amount of bank loans and deposits and the interest rates charged and paid thereon, and thus have an effect on earnings.

Patriot Act

The Uniting and Strengthening of America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorist Act of 2001, as amended (the “Patriot Act”), and related regulations require regulated financial institutions to establish a program specifying procedures for obtaining identifying information from customers seeking to open new accounts and establish enhanced due diligence policies, procedures and controls designed to detect and report suspicious activity. The Company has established policies and procedures to comply with the requirements of the Patriot Act.

Executive and Incentive Compensation

In June 2010, the Federal Reserve Board, the OCC and the FDIC issued joint interagecy guidance on incentive compensation policies (the “Joint Guidance”) intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. This principles-based guidance, which covers all employees that have the ability to affect materially the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should: (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks; (ii) be compatible with effective internal controls and risk management; and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. The Joint Guidance made incentive compensation part of the regulatory agencies’ examination process, with the findings of the supervisory intiatives included in reports of examination and enforcement actions possible.

In 2011, federal bank regulatory agencies jointly issued proposed rules on incentive-based compensation arrangements under applicable provisions of the Dodd-Frank Act (the “First Proposed Joint Rules”). The First Proposed Joint Rules generally would have applied to financial institutions with $1 billion or more in assets that maintain incentive-based compensation arrangements for certain covered employees.

In May 2016, the federal bank regulatory agencies approved a second joint notice of proposed rules (“the Second Proposed Joint Rules”) designed to prohibit incentive-based compensation arrangements that encourage inappropriate risks at financial institutions. The Second Proposed Joint Rules would apply to covered financial institutions with total assets of $1 billion or more. The requirements of the Second Proposed Joint Rules would differ for each of three categories of financial institutions:

•	Level 1 consists of institutions with assets of $250 billion or more;
•	Level 2 consists of institutions with assets of at least $50 billion and less than $250 billion; and
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•	Level 3 consists of institutions with assets of at least $1 billion and less than $50 billion.
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Some of the requirements would apply only to Level 1 and Level 2 institutions. For all covered institutions, including Level 3 institutions, the Second Proposed Joint Rules would:

•	prohibit incentive-based compensation arrangements that are “excessive” or “could lead to material financial loss;”
•	require incentive based compensation that is consistent with a balance of risk and reward, effective management and control of risk, and effective governance; and
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•	require board oversight, recordkeeping and disclosure to the appropriate regulatory agency.
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Level 1 and Level 2 institutions would have additional requirements, including deferrals of awards to certain covered persons; potential downward adjustments, forfeitures or clawbacks; and additional risk-management and control standards, policies and procedures. In addition, certain practices and types of incentive compensation would be prohibited.

Office of Foreign Assets Control Regulation

The United States Treasury Department’s Office of Foreign Assets Control (“OFAC”) administers and enforces economic and trade sanctions against targeted foreign countries and regimes, under authority of various laws, including designated foreign countries, nationals and others. OFAC publishes lists of specially designated targets and countries. Ohio Valley is responsible for, among other things, blocking accounts of, and transactions with, such targets and countries, prohibiting unlicensed trade and financial transactions with them and reporting blocked transactions after their occurrence. Failure to comply with these sanctions could have serious financial, legal and reputational consequences, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations.

Cybersecurity

In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that financial institutions should design multiple layers of security controls to establish several lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing Internet-based services of the financial institution. The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the financial institution’s operations after a cyber-attack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the financial institution or its critical service providers fall victim to this type of cyber-attack. If Ohio Valley fails to observe the regulatory guidance, it could be subject to various regulatory sanctions, including financial penalties.

In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents. These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations.

State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements. Ohio Valley expects this trend of state-level activity in those areas to continue and is continually monitoring developments in the states in which our customers are located.

In the ordinary course of business, Ohio Valley relies on electronic communications and information systems to conduct its operations and to store sensitive data. Ohio Valley employs an in-depth, layered, defensive approach that leverages people, processes and technology to manage and maintain cybersecurity controls. Ohio Valley employs a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats. Notwithstanding the strength of Ohio Valley’s defensive measures, the threat from cyber-attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures. While to date, Ohio Valley has not detected a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, Ohio Valley’s systems and those of its customers and third-party service providers are under constant threat and it is possible that Ohio Valley could experience a significant event in the future. Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our customers.

Employees

As of December 31, 2019, Ohio Valley and its subsidiaries had approximately 284 full-time equivalent employees and officers. Management considers its relationship with its employees and officers to be good.

Other Information

Management anticipates no material effect upon the capital expenditures, earnings and competitive position of the Company by reason of any laws regulating or protecting the environment. Ohio Valley believes that the nature of the operations of its subsidiaries has little, if any, environmental impact. Ohio Valley, therefore, anticipates no material capital expenditures for environmental control facilities in its current fiscal year or for the foreseeable future.

The Bank and Loan Central may be required to make capital expenditures related to properties which they may acquire through foreclosure proceedings in the future. However, the amount of such capital expenditures, if any, is not currently determinable.

Neither Ohio Valley nor its subsidiaries have any material patents, trademarks, licenses, franchises or concessions. No material amounts have been spent on research activities, and no employees are engaged full-time in research activities.

Financial Information About Foreign and Domestic Operations and Export Sales

Ohio Valley’s subsidiaries do not have any offices located in a foreign country, and they have no foreign assets, liabilities, or related income and expense.

Statistical Disclosure

The following section contains certain financial disclosures relating to Ohio Valley as required under the SEC’s Industry Guide 3, “Statistical Disclosure by Bank Holding Companies,” or a specific reference as to the location of the required disclosures in Ohio Valley’s 2019 Annual Report to Shareholders, which are incorporated herein by reference.

I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS’ EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL

A. & B.The average balance sheet information and the related analysis of net interest earnings for the years ended December 31, 2019, 2018 and 2017 are incorporated herein by reference to the information appearing under the caption “Table I – Consolidated Average Balance Sheet & Analysis of Net Interest Income,” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” located in Ohio Valley’s 2019 Annual Report to Shareholders.

Tables setting forth the effect of volume and rate changes on interest income and expense for the years ended December 31, 2019 and 2018 are incorporated herein by reference to the information appearing under the caption “Table II -<br> Rate Volume Analysis of Changes in Interest Income & Expense,” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” located in Ohio Valley’s 2019 Annual Report to Shareholders.

II. INVESTMENT PORTFOLIO

A.	Types of Securities - Total securities on the balance sheet were comprised of the following classifications at December 31:
(dollars in thousands)	2019		2018		2017
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Securities Available for Sale
U.S. Government sponsored entity securities	$	16,736	$	16,630	$	13,473
Agency mortgage-backed securities, residential		88,582		85,534		87,652
Total securities available for sale	$	105,318	$	102,164	$	101,125
Securities Held to Maturity
Obligations of states of the U.S. and
political subdivisions	$	12,031	$	15,813	$	17,577
Agency mortgage-backed securities, residential		2		3		4
Total securities held to maturity	$	12,033	$	15,816	$	17,581
B.	Information required by this item is incorporated herein by reference to the information appearing under the caption “Table III - Securities,” within “Management’s Discussion and Analysis of Financial Condition and Results of<br> Operations” located in Ohio Valley’s 2019 Annual Report to Shareholders.
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C.	Excluding obligations of the United States Government and its agencies, no concentration of securities exists of any issuer that is greater than 10% of shareholders’ equity of Ohio Valley.
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III. LOAN PORTFOLIO

A.	Types of Loans - Total loans on the balance sheet were comprised of the following classifications at December 31:
(dollars in thousands)	2019		2018		2017		2016		2015
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Residential real estate	$	310,253	$	304,079	$	309,163	$	286,022	$	223,875
Commercial real estate		222,136		216,360		213,446		214,007		169,312
Commercial and industrial		100,023		113,243		107,089		100,589		81,936
Consumer		140,362		143,370		139,621		134,283		110,629
	$	772,774	$	777,052	$	769,319	$	734,901	$	585,752
B.	Maturities and Sensitivities of Loans to Changes in Interest Rates - Information required by this item is incorporated herein by reference to the information appearing under the caption “Table VI - Maturity and Repricing Data of<br> Loans,” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” located in Ohio Valley’s 2019 Annual Report to Shareholders.
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C.	1.	Risk Elements - Gross interest income that would have been recorded on loans that were classified as nonaccrual or troubled debt restructurings if the loans had been in<br> accordance with their original terms is estimated to be $1,268,000, $1,173,000 and $1,377,000 for the fiscal years ended December 31, 2019, 2018 and 2017, respectively. The amount of interest income that was included in net income recorded<br> on such loans was $987,000, $908,000 and $920,000 for the fiscal years ended December 31, 2019, 2018 and 2017, respectively. Additional information required by this item is incorporated herein by reference to the information appearing under<br> the caption “Table V - Summary of Nonperforming, Past Due and Restructured Loans,” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” located in Ohio Valley’s 2019 Annual Report to Shareholders.
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2.	Potential Problem Loans - At December 31, 2019 and 2018, there were no loans that are not already included in “Table V - Summary of Nonperforming, Past Due and Restructured Loans” within “Management’s Discussion and Analysis of<br> Financial Condition and Results of Operations” located in Ohio Valley’s 2019 Annual Report to Shareholders, for which management has some doubt as to the borrower’s ability to comply with the present repayment terms. These loans and<br> their loss exposure have been considered in management’s analysis of the adequacy of the allowance for loan losses.
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3.	Foreign Outstandings - There were no foreign outstandings at December 31, 2019, 2018 or 2017.
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4.	Loan Concentrations - As of December 31, 2019 and 2018, there were no concentrations of loans greater than 10% of total loans which are not otherwise disclosed as a category of loans pursuant to Item III.A. above. Also refer to the<br> Consolidated Financial Statements regarding concentrations of credit risk found within “Note A-Summary of Significant Accounting Policies” of the notes to the Company’s consolidated financial statements for the fiscal year ended December<br> 31, 2019, located in Ohio Valley’s 2019 Annual Report to Shareholders which is incorporated herein by reference.
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D.	Other Interest-Bearing Assets - As of December 31, 2019 and 2018, there were no other interest-bearing assets that would be required to be disclosed under Item III.C. if such assets were loans.
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IV. SUMMARY OF LOAN LOSS EXPERIENCE

A.	The following schedule presents an analysis of the allowance for loan losses for the fiscal years ended December 31:
(dollars in thousands)	2019			2018			2017			2016			2015
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Balance, beginning of year	$	6,728		$	7,499		$	7,699		$	6,648		$	8,334
Loans charged off:
Residential real estate		1,060			874			745			384			828
Commercial real estate		602			4			1,067			63			1,971
Commercial and industrial		1,513			208			627			586			24
Consumer		1,917			2,514			1,642			2,170			1,428
Total loans charged off		5,092			3,600			4,081			3,203			4,251
Recoveries of loans:
Residential real estate		629			215			260			299			386
Commercial real estate		2,089			523			362			132			204
Commercial and industrial		90			327			86			16			234
Consumer		828			725			609			981			651
Total recoveries of loans		3,636			1,790			1,317			1,428			1,475
Net loan charge-offs		(1,456	)		(1,810	)		(2,764	)		(1,775	)		(2,776	)
Provision charged to operations		1,000			1,039			2,564			2,826			1,090
Balance, end of year	$	6,272		$	6,728		$	7,499		$	7,699		$	6,648
Ratio of net charge-offs to average loans outstanding		.19	%		.23	%		.37	%		.28	%		.47	%
Ratio of allowance for loan losses to non-performing assets		59.29	%		66.13	%		62.39	%		67.43	%		69.01	%

Discussion of factors that influenced management in determining the amount of additions charged to provision expense is incorporated herein by reference to the information appearing under the captions “Provision Expense” and “Allowance for Loan Losses” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” located in Ohio Valley’s 2019 Annual Report to Shareholders.

B.	Allocation of the Allowance for Loan Losses - Information required by this item is incorporated herein by reference to the information appearing under the caption “Table IV - Allocation of the Allowance for Loan Losses,” within<br> “Management’s Discussion and Analysis of Financial Condition and Results of Operations” located in Ohio Valley’s 2019 Annual Report to Shareholders.

V. DEPOSITS

A.	Deposit Summary - Information required by this item is incorporated herein by reference to the information appearing under the caption “Table I - Consolidated Average Balance Sheet & Analysis of Net Interest Income,” within<br> “Management’s Discussion and Analysis of Financial Condition and Results of Operations” located in Ohio Valley’s 2019 Annual Report to Shareholders.
C.&E.	Foreign Deposits - There were no foreign deposits outstanding at December 31, 2019, 2018, or 2017.
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D.	Schedule of Maturities - The following table provides a summary of total time deposits of $100,000 or greater by remaining maturities for the fiscal year ended December 31, 2019 and 2018:
December 31, 2019			Over		Over
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(dollars in thousands)	3 months		3 through		6 through		Over
	or less		6 months		12 months		12 months
Total time deposits of $100,000 or greater	$	19,207	$	14,556	$	33,942	$	56,663
December 31, 2018			Over		Over
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(dollars in thousands)	3 months		3 through		6 through		Over
	or less		6 months		12 months		12 months
Total time deposits of $100,000 or greater	$	20,107	$	11,371	$	28,927	$	66,558

VI. RETURN ON EQUITY AND ASSETS

Information required by this section is incorporated herein by reference to the information appearing under the caption “Table IX - Key Ratios” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” located in Ohio Valley’s 2019 Annual Report to Shareholders.

VII. SHORT-TERM BORROWINGS

During each of the last three fiscal years, the Company’s average amount of short-term borrowings was less than 30% of shareholders’ equity at the end of the period.

ITEM 1A – RISK FACTORS

Cautionary Statement Regarding Forward-Looking Information

Certain statements contained in this Annual Report on Form 10‑K and other documents that are incorporated herein by reference that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, the statements specifically identified as forward-looking statements within this document. In addition, certain statements in future filings by Ohio Valley with the SEC, in press releases, and in oral and written statements made by or with the approval of Ohio Valley which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Examples of forward-looking statements include: (i) projections of income or expense, earnings per share, the payment or non-payment of dividends, capital structure and other financial items; (ii) statements of plans and objectives of Ohio Valley or our management or Board of Directors, including those relating to products or services and strategic plans, such as mergers; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as “believes,” “anticipates,” “expects,” “intends,” “targeted,” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying those statements.

The Private Securities Litigation Reform Act provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the forward-looking statements. We desire to take advantage of the “safe harbor” provisions of that Act.

Forward-looking statements involve risks and uncertainties. Actual results may differ materially from those predicted by the forward-looking statements because of various factors and possible events, including those factors identified below. There is also the risk that Ohio Valley’s management or Board of Directors incorrectly analyzes these risks and forces, or that the strategies Ohio Valley develops to address them are unsuccessful.

Forward-looking statements speak only as of the date on which they are made, and, except as may be required by law, Ohio Valley undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made to reflect unanticipated events. All subsequent written and oral forward-looking statements attributable to Ohio Valley or any person acting on our behalf are qualified in their entirety by the following cautionary statements.

The following are certain risks that management believes are specific to our business. This should not be viewed as an all-inclusive list of risks or presenting the risk factors listed in any particular order.

Risks Related to Economic, Political and Market Conditions

Economic, political and market risks could adversely affect our earnings and capital through declines in loan demand, quality of investment securities, our borrowers’ ability to repay loans, the value of the collateral securing our loans, and deposits.

Our success depends, to a certain extent, upon local and national economic and political conditions, as well as governmental fiscal and monetary policies. Inflation, recession, unemployment, changes in interest rates, fiscal and monetary policy, tariffs, a United States withdrawal from a significant renegotiation of trade agreements, trade wars, the election of a new United States President in 2020, and other factors beyond our control may adversely affect our deposit levels and composition, the quality of our assets including investment securities available for purchase, and the demand for loans, which, in turn, may adversely affect our earnings and capital. Recent political developments have resulted in substantial changes in economic and political conditions for the United States and the remainder of the world. Economic turmoil in Europe and Asia and changes in oil production in the Middle East affect the economy and stock prices in the United States. The timing and circumstances of the United Kingdom leaving the European Union (Brexit) and their effects on the United States are unknown. Because a significant amount of our loans are secured by real estate, additional decreases in real estate values likely would adversely affect the value of property used as collateral and our ability to sell the collateral upon foreclosure. Adverse changes in the economy may also have a negative effect on the ability of our borrowers to make timely repayments of their loans, which would have an adverse impact on our earnings and cash flows.

In addition, consistent with our community banking philosophy, substantially all of our loans are to individuals and businesses in Ohio and West Virginia. Therefore, our local and regional economies have a direct impact on our ability to generate deposits to support loan growth, the demand for loans, the ability of borrowers to repay loans, the value of collateral securing our loans (particularly loans secured by real estate), and our ability to collect, liquidate and restructure problem loans. Consequently, any decline in the economy of this market area could have a material adverse effect on our financial condition and results of operations. We are less able than larger financial institutions to spread risks of unfavorable local economic conditions across a large number of diversified economies.

Our earnings are significantly affected by the fiscal and monetary policies of the United States Government and its agencies, sometimes adversely.

The policies of the Federal Reserve Board impact us significantly. The Federal Reserve Board regulates the supply of money and credit in the United States. Its policies directly and indirectly influence the rate of interest earned on loans and paid on borrowings and interest-bearing deposits and can also affect the value of financial instruments we hold. Those policies determine to a significant extent our cost of funds for lending and investing. Changes in those policies are beyond our control and are difficult to predict. Federal Reserve Board policies can also affect our borrowers, potentially increasing the risk that they may fail to repay their loans. For example, a tightening of the money supply by the Federal Reserve Board could reduce the demand for a borrower’s products and services. This could adversely affect the borrower’s earnings and ability to repay its loan, which could have a material adverse effect on our financial condition and results of operations.

Changes in interest rates could have a material adverse effect on our financial condition and results of operations.

Our earnings depend substantially on our interest rate spread, which is the difference between (i) the rates we earn on loans, securities and other earning assets and (ii) the interest rates we pay on deposits and other borrowings. These rates are highly sensitive to many factors beyond our control, including general economic conditions and the policies of various governmental and regulatory authorities (in particular, the Federal Reserve Board). While we have taken measures intended to manage the risks of operating in a changing interest rate environment, there can be no assurance that such measures will be effective in avoiding undue interest rate risk. As market interest rates rise, we will have competitive pressures to increase the rates we pay on deposits, which will result in a decrease of our net interest income and could have a material adverse effect on our financial condition and results of operations.

In addition to the effect of changes in interest rates on our interest rate spread, changes in interest rates may negatively affect the ability of our borrowers to repay their loans, particularly as interest rates have been rising and adjustable-rate debt becomes more expensive. Increased defaults on loans could have a material adverse effect on our financial condition, results of operations and cash flows.

A transition away from the London Interbank Offered Rate (“LIBOR”) as a reference rate for financial contracts could negatively affect our income and expenses and the value of various financial contracts.

LIBOR is used extensively in the United States and globally as a reference rate for various commercial and financial contracts, including adjustable rate mortgages, corporate debt, interest rate swaps and other derivatives. In 2017, the United Kingdom’s Financial Conduct Authority announced that in 2021 it would no longer compel banks to submit rates required to calculate LIBOR. Therefore, it is uncertain at this time to what extent banks will continue to provide submissions for the calculation of LIBOR after 2021.

As a result of this announcement, regulators, industry groups and certain committees (e.g., the Alternative Reference Rates Committee) have, among other things, published recommended fallback language for LIBOR-linked financial instruments, identified and recommended alternatives for LIBOR rates (e.g., the Secured Overnight Financing Rate as the recommended alternative to U.S. Dollar LIBOR) and proposed implementations of the recommended alternatives in floating rate instruments, including loans and derivatives. It is currently unknown whether these recommendations and proposals will be broadly accepted, whether they will continue to evolve, and what effect of their implementation may have on the markets for floating-rate financial instruments. Any discontinuance, modification, alternative reference rates or other reforms may adversely affect interest rates on our current or future indebtedness and other financial instruments.

We have a limited number of loans, derivative contracts, borrowings and other financial instruments, and continue to enter into loans, derivatives contracts, borrowings and other financial instruments, with attributes that are directly or indirectly dependent on LIBOR. The transition from LIBOR could create costs and additional risk for us. Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The transition will change our market risk profiles, requiring changes to risk and pricing models, valuation tools, product design and hedging strategies. Further, our failure to adequately manage this transition process with our customers could adversely impact our reputation. Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, any market-wide transition away from LIBOR could have an adverse effect on our business, financial condition and results of operations.

Adverse changes in the financial markets may adversely impact our results of operations.

The capital and credit markets have been experiencing unprecedented levels of volatility since 2008. While we generally invest in securities with limited credit risk, certain investment securities we hold possess higher credit risk since they represent beneficial interests in structured investments collateralized by residential mortgages. Regardless of the level of credit risk, all investment securities are subject to changes in market value due to changing interest rates and implied credit spreads.

Structured investments have at times been subject to significant market volatility due to the uncertainty of credit ratings, deterioration in credit losses occurring within certain types of residential mortgages, changes in prepayments of the underlying collateral and the lack of transparency related to the investment structures and the collateral underlying the structured investment vehicles.

A default by another larger financial institution could adversely affect financial markets generally.

Many financial institutions and their related operations are closely intertwined, and the soundness of such financial institutions may, to some degree, be interdependent. As a result, concerns about, or a default or threatened default by, one institution could lead to significant market-wide liquidity and credit problems, losses or defaults by other institutions. This “systemic risk” may adversely affect our business.

Risks Related to Our Business

We operate in an extremely competitive market, and our business will suffer if we are unable to compete effectively.

In our market area, we encounter significant competition from other commercial banks, savings and loan associations, credit unions, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market mutual funds and other financial institutions. The increasingly competitive environment is a result primarily of changes in regulation, changes in technology and product delivery systems and the accelerating pace of consolidation among financial service providers. Many of our competitors have substantially greater resources and lending limits than we do and may offer services that we do not or cannot provide. Technology and other changes are allowing parties to complete financial transactions that historically have involved banks at one or both ends of the transaction. For example, consumers can now pay bills and transfer funds directly without banks. The process of eliminating banks as intermediaries could result in the loss of fee income, as well as the loss of customer deposits and income generated from those deposits. In addition, technological advancements allow parties to better serve customers, increase efficiency, and reduce costs. Our ability to maintain our history of strong financial performance and return on investment to shareholders will depend, in part, on our ability to use technology to deliver products and services that provide convenience to customers and to create additional efficiencies in our operations.

Our small to medium-sized business target market may have fewer financial resources to weather a downturn in the economy.

We target our business development and marketing strategy largely to serve the banking and financial services needs of small to medium-sized businesses. These small to medium-sized businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger companies. If general economic conditions negatively impact our Ohio and West Virginia markets or the other geographic markets in which we operate, our results of operations and financial condition may be negatively affected.

Our business strategy includes growth plans. Our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively.

We intend to continue pursuing a profitable growth strategy. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in significant growth stages of development. We cannot assure you that we will be able to expand our market presence in our existing markets or successfully enter new markets or that any such expansion will not adversely affect our results of operations. Failure to manage our growth effectively could have a material adverse effect on our business, future prospects, financial condition or results of operations and could adversely affect our ability to successfully implement our business strategy. Also, if we grow more slowly than anticipated, our operating results could be materially adversely affected.

Our ability to grow successfully will depend on a variety of factors, including the continued availability of desirable business opportunities, the competitive responses from other financial institutions in our market areas, our ability to raise sufficient capital and our ability to manage our growth. While we believe we have the management resources and internal systems in place to successfully manage our future growth, there can be no assurance growth opportunities will be available or growth will be successfully managed.

We may acquire other financial institutions or parts of institutions in the future and may open new branches. We also may consider and enter into new lines of business or offer new products or services. Expansions of our business involve a number of expenses and risks, including:

•	the time and costs associated with identifying and evaluating potential acquisitions or new products or services;
•	the potential inaccuracy of estimates and judgments used to evaluate credit, operations, management and market risk with respect to the target institutions;
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•	the time and costs of evaluating new markets, hiring local management and opening new offices, and the delay between commencing these activities and the generation of profits from the<br> expansion;
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•	our ability to finance an acquisition or other expansion and the possible dilution to our existing shareholders;
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•	the diversion of management’s attention to the negotiation of a transaction and the integration of the operations and personnel of the combining businesses;
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•	entry into unfamiliar markets;
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•	the possible failure of the introduction of new products and services into our existing business;
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•	the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on our results of operations; and
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•	the risk of loss of key employees and customers.
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We may incur substantial costs to expand, and we can give no assurance that such expansion will result in the levels of profits we expect. Neither can we assure that integration efforts for any future acquisitions will be successful. We may issue equity securities in connection with acquisitions, which could dilute the economic and voting interests of our existing shareholders. We may also lose customers as we close one or more branches as part of a plan to expand into other areas or become more productive from other branches.

We may not be able to adapt to technological change.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers while reducing costs. Our future success depends, in part, upon our ability to address customer needs by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological changes affecting the financial services industry could negatively affect our growth, revenue and profit.

We are at risk of increased losses from fraud.

Criminals are committing fraud at an increasing rate and are using more sophisticated techniques. In some cases, these individuals are part of larger criminal rings, which allow them to be more effective. Such fraudulent activity has taken many forms, ranging from debit card fraud, check fraud, mechanical devices attached to ATM machines, social engineering and phishing attacks to obtain personal information, or impersonation of clients through the use of falsified or stolen credentials. Additionally, an individual or business entity may properly identify itself, yet seek to establish a business relationship for the purpose of perpetrating fraud. An emerging type of fraud even involves the creation of synthetic identification in which fraudsters "create" individuals for the purpose of perpetrating fraud. Further, in addition to fraud committed directly against us, we may suffer losses as a result of fraudulent activity committed against third parties. Increased deployment of technologies, such as chip card technology, defray and reduce certain aspects of fraud; however, criminals are turning to other sources to steal personally identifiable information, such as unaffiliated healthcare providers and government entities, in order to impersonate the consumer and thereby commit fraud.

Periodic regulatory reviews may affect our operations and financial condition.

We are subject to periodic reviews from state and federal regulators, which may impact our operations and our financial condition. As part of the regulatory review, the loan portfolio and the allowance for loan losses are evaluated. As a result, the incurred loss identified on loans or the assigned loan rating could change and may require us to increase our provision for loan losses or loan charge-offs. In addition, any downgrade in loan ratings could impact our level of impaired loans or classified assets. Any increase in our provision for loan losses or loan charge-offs as required by these regulatory authorities could have a material adverse effect on our financial condition and results of operations. Findings of deficiencies in compliance with regulations could result in restrictions on our activities or even a loss in our financial holding company status.

We have a material weakness in internal control over financial reporting.

In connection with the preparation of our financial statements for the year ended December 31, 2019, and the review of such statements by our independent public accounting firm, Crowe LLP, management identified a material weakness in internal controls over financial reporting, as defined by the Public Company Accounting Oversight Board. The material weakness was related to the process for monitoring loan activity through the subsequent event period to timely identify changes in loan credit quality indicators and impairment for conditions existing at period end that may impact the financial statements.

A material weakness is a deficiency in internal control over financial reporting such that there is a reasonable possibility that a material misstatement would not be prevented or detected in a timely manner. The material weakness was determined to have existed as of December 31, 2019. We are still in the process of remediating the material weakness in internal control over financial reporting, although no changes to financial statements were necessary.

Ohio Valley cannot assure you how quickly the material weakness will be remediated or that additional significant deficiencies or material weaknesses in our internal control over financial reporting will not be identified in the future. Any failure to maintain or implement required controls, or any difficulties we encounter in their implementation, could result in additional significant deficiencies or material weaknesses, cause us to fail to meet our periodic reporting obligations, or result in material misstatements in our financial statements. Any such failure could also adversely affect the results of periodic management evaluations and annual auditor attestation reports regarding the effectiveness of our internal control over financial reporting required under Section 404 of the Sarbanes-Oxley Act of 2002 and the rules promulgated under Section 404. The existence of a material weakness could result in errors in our financial statements that could result in a restatement of financial statements, cause us to fail to meet our reporting obligations and cause investors to lose confidence in our reported financial information, leading to a decline in our stock price.

Our exposure to credit risk could adversely affect our earnings and financial condition.

Making loans carries inherent risks, including interest rate changes over the time period in which loans may be repaid, risks resulting from changes in the economy, risks that we will have inaccurate or incomplete information about borrowers, risks that borrowers will become unable to repay loans; and, in the case of loans secured by collateral, risks resulting from uncertainties about the future value of the collateral.

Commercial and commercial real estate loans comprise a significant portion of our loan portfolio. Commercial loans generally are viewed as having a higher credit risk than residential real estate or consumer loans because they usually involve larger loan balances to a single borrower and are more susceptible to a risk of default during an economic downturn. Since our loan portfolio contains a significant number of commercial and commercial real estate loans, the deterioration of one or a few of these loans could cause a significant increase in nonperforming loans, and ultimately could have a material adverse effect on our earnings and financial condition. We may also have concentrated credit exposure to a particular industry, resulting in a risk of a material adverse effect on our earnings or financial condition if there is an event adversely affecting that industry.

In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information provided to us by customers and counterparties, including financial statements and other financial information. We may also rely on representations of customers and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to a business, we may assume that the customer’s audited financial statements conform with United States generally accepted accounting principles (“GAAP”) and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. We may also rely on the audit report covering those financial statements. Our financial condition, results of operations and cash flows could be negatively impacted to the extent that we rely on financial statements that do not comply with GAAP or on financial statements and other financial information that are materially misleading.

We may be required to repurchase loans we have sold or indemnify loan purchasers under the terms of the sale agreements, which could adversely affect our liquidity, results of operations and financial condition.

When the Bank sells a mortgage loan, it agrees to repurchase or substitute a mortgage loan if it is later found to have breached any representation or warranty the Bank made about the loan or if the borrower is later found to have committed fraud in connection with the origination of the loan. While we have underwriting policies and procedures designed to avoid breaches of representations and warranties as well as borrower fraud, we cannot assurance that no breach or fraud will ever occur. Required repurchases, substitutions or indemnifications could have an adverse effect on our liquidity, results of operations and financial condition.

If our actual loan losses exceed our allowance for loan losses, our net income will decrease.

Our loan customers may not repay their loans according to their terms, and the collateral securing the payment of these loans may be insufficient to pay any remaining loan balance. We may experience significant loan losses, which could have a material adverse effect on our operating results. In accordance with GAAP, we maintain an allowance for loan losses to provide for loan defaults and non-performance, which when combined, we refer to as the allowance for loan losses. Our allowance for loan losses may not be adequate to cover actual credit losses, and future provisions for credit losses could have a material adverse effect on our operating results. Our allowance for loan losses is based upon a number of relevant factors, including, but not limited to, trends in the level of nonperforming assets and classified loans, current economic conditions in the primary lending area, prior experience, possible losses arising from specific problem loans, and our evaluation of the risks in the current portfolio. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates that may be beyond our control, and these losses may exceed current estimates. Federal regulatory agencies, as an integral part of their examination process, review our loans and allowance for loan losses. Moreover, the Financial Accounting Standards Board (“FASB”) has changed its requirements for establishing the allowance, which will be effective for us in the first quarter of 2023. We cannot assure you that we will not further increase the allowance for loan losses or that regulators will not require us to increase this allowance. Either of these occurrences could have a material adverse effect on our financial condition and results of operations.

We may lose business due to declining use by consumers of banks to complete financial transactions or increased depositing of funds electronically with banks outside of our market area, which could negatively affect our net financial condition and
  results of operations.

Technology and other changes allow parties to complete financial transactions without banks. For example, consumers can pay bills and transfer funds directly without banks. Consumers can also shop for higher deposit interest rates at banks across the country, which may offer higher rates because they have few or no physical branches and open deposit accounts electronically. This process could result in the loss of fee income, as well as the loss of client deposits and the income generated from those deposits, in addition to increasing our funding costs.

Failures of, or material breaches in security of, our systems or those of third-party service providers may have a material adverse effect on our business.

We collect, process and store sensitive consumer data by utilizing computer systems and telecommunications networks operated by both us and third-party service providers. Our dependence upon automated systems to record and process the Bank’s transactions poses the risk that technical system flaws, employee errors, tampering or manipulation of those systems, or attacks by third parties will result in losses and may be difficult to detect. Our inability to use these information systems at critical points in time could unfavorably impact the timeliness and efficiency of our business operations. In recent years, some banks have experienced denial of service attacks in which individuals or organizations flood the bank's website with extraordinarily high volumes of traffic, with the goal and effect of disrupting the ability of the bank to process transactions. We could also be adversely affected if one of our employees causes a significant operational break-down or failure, either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates our operations or systems. We are further exposed to the risk that third-party service providers may be unable to fulfill their contractual obligations or will be affected by the same risks as the Bank has. These disruptions may interfere with service to the Bank’s customers, cause additional regulatory scrutiny and result in a financial loss or liability. We are also at risk of the impact of natural disasters, terrorism and international hostilities on our systems or for the effects of outages or other failures involving power or communications systems operated by others.

Employees could engage in fraudulent, improper or unauthorized activities on behalf of clients or improper use of confidential information. We may not be able to prevent employee errors or misconduct, and the precautions we take to detect this type of activity might not be effective in all cases. Employee errors or misconduct could subject us to civil claims for negligence or regulatory enforcement actions, including fines and restrictions on our business.

In addition, there have been instances where financial institutions have been victims of fraudulent activity in which criminals pose as customers to initiate wire and automated clearinghouse transactions out of customer accounts. Although we have policies and procedures in place to verify the authenticity of our customers, we cannot assure that such policies and procedures will prevent all fraudulent transfers. Such activity can result in financial liability and harm to our reputation.

Management cannot be certain that the security controls we have adopted will prevent unauthorized access to our computer systems or those of our third-party service providers, whom we require to maintain similar controls. A security breach of the computer systems and loss of confidential information, such as customer account numbers or personal information, could result in a loss of customers’ confidence and, thus, loss of business. In addition, unauthorized access to or use of sensitive data could subject us to litigation and liability and costs to prevent further such occurrences.

Further, we may be affected by data breaches at retailers and other third parties who participate in data interchanges with us and our customers that involve the theft of customer credit and debit card data, which may include the theft of our debit card PIN numbers and commercial card information used to make purchases at such retailers and other third parties. Such data breaches could result in us incurring significant expenses to reissue debit cards and cover losses, which could result in a material adverse effect on our results of operations.

Our assets at risk for cyber-attacks include financial assets and non-public information belonging to customers. We use several third-party vendors who have access to our assets via electronic media. Certain cyber security risks arise due to this access, including cyber espionage, blackmail, ransom, and theft. As cyber and other data security threats continue to evolve, we may be required to expend significant additional resources to continue to modify and enhance our protective measures or to investigate and remediate any security vulnerabilities.

Our ability to pay cash dividends is limited, and we may be unable to pay cash dividends in the future even if we would like to do so.

We are dependent primarily upon the earnings of our operating subsidiaries for funds to pay dividends on our common stock. The payment of dividends by us is also subject to certain regulatory restrictions. As a result, any payment of dividends in the future will be dependent, in large part, on our ability to satisfy these regulatory restrictions and our subsidiaries’ earnings, capital requirements, financial condition and other factors. Although our financial earnings and financial condition have allowed us to declare and pay periodic cash dividends to our shareholders, there can be no assurance that our dividend policy or the size of dividend distribution will continue in the future, even if we are able to pay dividends. Our failure to pay dividends on our common shares could have a material adverse effect on the market price of our common shares.

We may be compelled to seek additional capital in the future but may not be able to access capital when needed.

Ohio Valley and the Bank are required by regulatory authorities to maintain specified levels of capital. Federal banking agencies have adopted extensive changes to their capital requirements, including raising required amounts and eliminating inclusion of certain instruments from the calculation of capital. If we experience increased loan losses, we may need to obtain additional capital. In addition, we may elect to raise additional capital to support its business, to finance acquisitions, if any, or for other purposes. Our ability to raise additional capital, if needed, will depend on our financial performance, conditions in the capital markets, economic conditions and a number of other factors, many of which are outside of our control. There can be no assurance, therefore, that we can raise additional capital at all or on terms acceptable to us. If we cannot raise additional capital when needed or desired, it may have a material adverse effect on our financial condition, results of operations and prospects.

The loss of key members of our senior management team could adversely affect our business.

We believe that our success depends largely on the efforts and abilities of our senior management. Their experience and industry contacts significantly benefit us. In addition, our success depends in part upon senior management’s ability to implement our business strategy. The competition for qualified personnel in the financial services industry is intense, and the loss of services of any of our senior executive officers or an inability to continue to attract, retain and motivate key personnel could adversely affect our business. We cannot assure you that we will be able to retain our existing key personnel or attract additional qualified personnel.

Loss of key employees may disrupt relationships with certain customers.

Our business is primarily relationship-driven in that many of our key employees have extensive customer relationships. Loss of a key employee with such customer relationships may lead to the loss of business if the customers were to follow that employee to a competitor. While we believe we have strong relationships with our key producers, we cannot guarantee that all of our key personnel will remain with our organization. Loss of such key personnel, should they enter into an employment relationship with one of our competitors, could result in the loss of some of our customers.

If we foreclose on collateral property and own the underlying real estate, we may be subject to the increased costs associated with the ownership of real property, resulting in reduced revenue.

We may have to foreclose on collateral property to protect our investment and may thereafter own and operate such property, in which case we will be exposed to the risks inherent in the ownership of real estate. The amount that we, as a mortgagee, may realize after a default is dependent upon factors outside of our control, including, but not limited to: (i) general or local economic conditions; (ii) neighborhood values; (iii) interest rates; (iv) real estate tax rates; (v) operating expenses of the mortgaged properties; (vi) supply of and demand for rental units or properties; (vii) ability to obtain and maintain adequate occupancy of the properties; (viii) zoning laws; (ix) governmental rules, regulations and fiscal policies; and (x) acts of God. Certain expenditures associated with the ownership of real estate, principally real estate taxes and maintenance costs, may adversely affect the income from the real estate. Therefore, the cost of operating a real property may exceed the rental income earned from such property, and we may have to advance funds in order to protect our investment, or we may be required to dispose of the real property at a loss. We may also acquire properties with hazardious substances that must be removed or remediated, the costs of which could be substantial, and we may not be able to recover such costs from the responsible parties. The foregoing expenditures and costs could adversely affect our ability to generate revenues, resulting in reduced levels of profitability.

The failure of our common shares to be included in the Russell 3000 Index could result in the market for our common shares to become limited and volatile and the price at which you can sell your shares to decrease.

Your ability to sell or purchase our common shares depends upon the existence of an active trading market for our common shares. Additionally, a fair valuation of the purchase or sales price of our common shares also depends upon an active trading market, and thus the price you receive for a thinly-traded stock may not reflect its true value. A limited trading market for common shares may cause fluctuations in the market value of those common shares to be exaggerated, leading to price volatility in excess of that which would occur in a more active trading market.

Although our common shares are quoted on the NASDAQ Global Market, the volume of trades on any given day has historically been limited. As a result, shareholders might not have been able to sell or purchase our common shares at the volume, price or time desired. On June 26, 2017, our common shares were added to the Russell 3000® Index. The addition of our common shares to the Russell 3000® Index increased the volume of trading in our shares as well as the price at which our shares trade. There can be no assurance that our common shares will remain in that index. If our common shares are removed from the Russell 3000® Index, the volume of trading in our shares may decrease materially as well as the prices at which our shares trade.

Our organizational documents may have the effect of discouraging a third party from acquiring us by means of a tender offer, proxy contest or otherwise.

Our articles of incorporation contain provisions that make it more difficult for a third party to gain control or acquire us without the consent of our board of directors. These provisions also could discourage proxy contests and may make it more difficult for dissident shareholders to elect representatives as directors and take other corporate actions. These provisions of our governing documents may have the effect of delaying, deferring or preventing a transaction or a change in control that might be in the best interests of our shareholders.

  The extended disruption of vital infrastructure could negatively impact our results of operations and financial condition.

Our operations depend upon, among other things, our technological and physical infrastructure, including our equipment, facilities and access to the worldwide web via the internet. While disaster recovery procedures are in place, an extended disruption of our vital infrastructure by fire, power loss, natural disaster, telecommunications failure, computer hacking and viruses, denial of service attacks, terrorist activity or the domestic and foreign response to such activity, or other events outside of our control, could have a material adverse impact either on the financial services industry as a whole, or on our business, results of operations, and financial condition.

We may be the subject of litigation, which would result in legal liability and damage our business and reputation.

From time to time, Ohio Valley and the Bank may be subject to claims or legal action from customers, employees or others. Financial institutions like Ohio Valley and the Bank are facing a growing number of significant class actions, including those based on the manner of calculation of interest on loans and the assessment of overdraft fees. Future litigation could include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. Ohio Valley and the Bank are also involved from time to time in other reviews, investigations and proceedings (both formal and informal) by governmental and other agencies regarding their businesses. These matters also could result in adverse judgments, settlements, fines, penalties, injunctions or other relief. Like other financial institutions, Ohio Valley and the Bank are also subject to risk from potential employee misconduct, including non-compliance with policies and improper use or disclosure of confidential information. Substantial legal liability or significant regulatory action against Ohio Valley could materially adversely affect its business, financial condition or results of operations and/or cause significant reputational harm to its business.

Risks Related to Legal, Regulatory and Accounting Changes

New laws and increased regulatory oversight may significantly affect our business, financial condition and results of operations.

The financial services industry is extensively regulated. We are subject to extensive state and federal regulation, supervision and legislation that govern almost all aspects of our operations. Laws and regulations may change from time to time and are primarily intended for the protection of consumers, depositors, borrowers, the DIF and the banking system as a whole, and not to benefit our shareholders. Regulations affecting banks and financial services businesses are undergoing continuous changes, and management cannot predict the effect of these changes. The impact of any changes to laws and regulations or other actions by regulatory agencies may negatively impact us and our ability to increase the value of our business, possibly limiting the services we provide, increasing the potential for competition from non-banks, or requiring us to change the way we operate.

Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution, the classification of assets held by an institution, the adequacy of an institution’s allowance for loan losses and the ability to complete acquisitions. Additionally, actions by regulatory agencies against us could cause us to devote significant time and resources to defending our business and may lead to penalties that materially affect us and our shareholders. Even the reduction of regulatory restrictions could have an adverse effect on us and our shareholders if such lessening of restrictions increases competition within our industry or market area.

We are currently assessing the expected effect of the Payday Rule on the Bank’s and Loan Central’s lending businesses and on the Company’s financial condition and results of operations. The costs of complying with this regulation or a determination to discontinue certain types of consumer lending in light of the expense of compliance could have an adverse effect on the financial conditions and results of operations of the Company. The impact of this rule on the Bank, both with and without the proposed amendments, is estimated to be minimal.

In addition to laws, regulations and actions directed at the operations of banks, proposals to reform the housing finance market could negatively affect our ability to sell loans.

Although it is impossible for us to predict at this time what changes in laws and regulations will be implemented and the effect they will have on us and the rest of our industry, it is possible that our revenue could decrease, our interest expense could increase and deposit insurance premiums could change, and steps may need to be taken to increase qualifying capital. Our operating and compliance costs could increase and could adversely affect our financial condition and results of operations.

Changes in tax laws could adversely affect our financial condition and results of operations.

We are subject to extensive federal, state and local taxes, including income, excise, sales/use, payroll, franchise, withholding and ad valorem taxes. Changes to our taxes could have a material adverse effect on our results of operations. In addition, our customers are subject to a wide variety of federal, state and local taxes. Changes in taxes paid by our customers, including changes in the deductibility of mortgage loan related expenses, may adversely affect their ability to purchase homes or consumer products, which could adversely affect their demand for our loans and deposit products. In addition, such negative effects on our customers could result in defaults on the loans we have made and decrease the value of mortgage-backed securities in which we have invested.

Increases in FDIC insurance premiums may have a material adverse effect on our earnings.

Increased bank failures for several years commencing in 2008 greatly increased resolution costs of the FDIC and depleted the DIF. In order to maintain a strong funding position and restore reserve ratios of the DIF, the FDIC took a number of actions, including increasing assessment rates of insured institutions, requiring riskier institutions to pay a larger share of premiums by factoring in rate adjustments based on secured liabilities and unsecured debt levels, changing the assessment base and requiring a prepayment of assessments for over three years.

We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. If there are additional financial institution failures, we may be required to pay even higher FDIC premiums. Increases in FDIC insurance premiums may materially adversely affect our results of operations and our ability to continue to pay dividends on our common shares at the current rate or at all. The FDIC has recently adopted rules revising its assessments in a manner benefitting banks with assets totaling less than $10 billion. There can be no assurance, though, that assessments will not be changed in the future.

Changes in accounting standards, policies, estimates or procedures could impact our reported financial condition or results of operations.

Entities that set generally applicable accounting standards, such as the FASB, the Securities and Exchange Commission, and other regulatory boards, periodically change the financial accounting and reporting standards that govern the preparation of our consolidated financial statements. These changes can be difficult to predict and can materially affect how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, which would result in the restatement of our financial statements for prior periods.

In June 2016, FASB issued a new accounting standard for recognizing current expected credit losses, commonly referred to as CECL. CECL will result in earlier recognition of credit losses and requires consideration of not only past and current events but also reasonable and supportable forecasts that affect collectability. Ohio Valley became subject to the new standard in the first quarter of 2020. Upon adoption of CECL, credit loss allowances may increase, which will decrease retained earnings and regulatory capital. The federal banking regulators have adopted a regulation that will allow banks to phase in the day-one impact of CECL on regulatory capital over three years. CECL implementation poses operational risk, including the failure to properly transition internal processes or systems, which could lead to call report errors, financial misstatements, or operational losses.

Management’s accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Our management must exercise judgment in selecting and applying many of these accounting policies and methods in order to ensure that they comply with GAAP and reflect management’s judgment as to the most appropriate manner in which to record and report our financial condition and results of operations. In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which might be reasonable under the circumstances yet might result in reporting materially different amounts than would have been reported under a different alternative.

Management has identified several accounting policies that are considered significant (one as being “critical”) to the presentation of our financial condition and results of operations because they require management to make particularly subjective and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. Because of the inherent uncertainty of estimates about these matters, no assurance can be given that the application of alternative policies or methods might not result in our reporting materially different amounts.

ITEM 1B – UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2 - PROPERTIES

Ohio Valley does not own or lease any real or personal property.

The principal executive offices of Ohio Valley and the Bank are located at 420 Third Avenue, Gallipolis, Ohio. The Bank owns twelve financial service centers located in Gallipolis (Gallia Co.), Jackson, Oak Hill and Wellston (Jackson Co.), and Waverly (Pike Co.) in Ohio; and Point Pleasant and Mason (Mason Co.), and Milton and Barboursville (Cabell Co.) in West Virginia. The Bank’s New Holland (Pickaway Co.) and Mount Sterling (Madison Co.) offices in Ohio were sold to North Valley Bank of Corning, Ohio in December 2019. The Bank leases four additional financial service centers located in Gallipolis (Gallia Co.) and Athens (Athens Co.) in Ohio. The Bank also owns and operates thirty-four ATMs, including twenty off-site ATMs. Furthermore, the Bank owns four facilities in Gallipolis (Gallia Co.), Ohio, which are used for additional office space. The Bank also owns a facility in Gallipolis (Gallia Co.), and a facility in Point Pleasant (Mason Co.), in West Virginia, which are all leased to third parties.

Loan Central conducts its consumer finance operations through six offices located in Gallipolis (Gallia Co.), Jackson (Jackson Co.), Waverly (Pike Co.), South Point (Lawrence Co.), Wheelersburg (Scioto Co.) and Chillicothe (Ross Co.), all in Ohio. All of these facilities are leased by Loan Central, except for the Jackson (Jackson Co.) and Wheelersburg (Scioto Co.) facilities. Loan Central leases a portion of its Wheelersburg (Scioto Co.) facility to a third party.

Management considers all of these properties to be satisfactory for the Company’s current operations. The Bank and Loan Centrals’ leased facilities are all subject to commercially standard leasing arrangements.

Information concerning the value of the Company’s owned and leased real property and a summary of future lease payments is contained in “Note D – Premises and Equipment” and “Note E – Leases” of the notes to the Company’s consoldiated financial statements for the fiscal year ended December 31, 2019, located in Ohio Valley’s 2019 Annual Report to Shareholders.

ITEM 3 – LEGAL PROCEEDINGS

Not applicable.

ITEM 4 – MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The information required under this Item 5 by Item 201(d) of SEC Regulation S-K is incorporated herein by reference to the information presented under “Note J - Subordinated Debentures and Trust Preferred Securities” and “Note P - Regulatory Matters” of the notes to the Company’s consolidated financial statements for the fiscal year ended December 31, 2019 located in Ohio Valley’s 2019 Annual Report to Shareholders. Ohio Valley’s common shares are traded on The NASDAQ Stock Market under the symbol “OVBC,” and were held of record by approximately 2,146 shareholders as of February 28, 2020.

Ohio Valley did not sell any unregistered equity securities during the three months ended December 31, 2019.

Ohio Valley did not purchase any of its shares during the three months ended December 31, 2019.

ITEM 6 - SELECTED FINANCIAL DATA

The information required under this Item 6 by Item 301 of SEC Regulation S-K is incorporated herein by reference to the information presented under the caption “Selected Financial Data” located in Ohio Valley’s 2019 Annual Report to Shareholders. Comparisons for presented periods were impacted by factors that included the acquisition of Milton Bank in 2016 and the deferred tax asset expense adjustment in 2017.

ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information required under this Item 7 by Item 303 of SEC Regulation S-K is incorporated herein by reference to the information presented under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” located in Ohio Valley’s 2019 Annual Report to Shareholders.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Ohio Valley’s consolidated financial statements and related notes are listed below and incorporated herein by reference to Ohio Valley’s 2019 Annual Report to Shareholders. The supplementary data located under the captions “Consolidated Quarterly Financial Information (unaudited)” and the “Report of Independent Registered Public Accounting Firm” located in Ohio Valley’s 2019 Annual Report to Shareholders is also incorporated herein by reference.

Consolidated Statements of Condition as of December 31, 2019 and 2018

Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017

Notes to the Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A – CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

With the participation of the Chief Executive Officer (the principal executive officer) and the Senior Vice President and Chief Financial Officer (the principal financial officer) of Ohio Valley, Ohio Valley's management has evaluated the effectiveness of Ohio Valley's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, because of the material weakness described in Management’s Report on Internal Control Over Financial Reporting, Ohio Valley’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were not effective as of December 31, 2019 in ensuring that the information required to be disclosed by Ohio Valley in the reports that Ohio Valley files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and were not operating in an effective manner to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

“Management’s Report on Internal Control Over Financial Reporting” located in Ohio Valley’s 2019 Annual Report to Shareholders is incorporated into this Item 9A by reference.

Report of Registered Public Accounting Firm

The “Report of Independent Registered Public Accounting Firm” located in Ohio Valley’s 2019 Annual Report to Shareholders is incorporated into this Item 9A by reference.

Changes In Internal Control Over Financial Reporting

There were no changes in Ohio Valley's internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during Ohio Valley's fiscal quarter ended December 31, 2019, that have materially affected, or are reasonably likely to materially affect, Ohio Valley's internal control over financial reporting.

ITEM 9B – OTHER INFORMATION

None.

PART III

ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required under this Item 10 by Items 401, 405, and 407(c)(3), (d)(4) and (d)(5) of SEC Regulation S-K is incorporated herein by reference to the information presented in Ohio Valley’s definitive proxy statement relating to the annual meeting of shareholders of Ohio Valley to be held on May 20, 2020 (the “2020 Proxy Statement”), under the captions “Proxy Item 1: Election of Directors,” “Delinquent Section 16(a) Reports,” and “Compensation of Executive Officers and Directors” of the 2020 Proxy Statement.

The Board of Directors of Ohio Valley has adopted a Code of Ethics covering the directors, officers and employees of Ohio Valley and its affiliates, including, without limitation, the principal executive officer, the principal financial officer and the principal accounting officer of Ohio Valley. The Code of Ethics is posted on Ohio Valley’s website at www.ovbc.com. Amendments to the Code of Ethics and waivers of the provisions of the Code of Ethics will also be posted on Ohio Valley’s website. Interested persons may obtain copies of the Code of Ethics without charge by writing to Ohio Valley Banc Corp., Attention: Tom R. Shepherd, Secretary, 420 Third Avenue, Gallipolis, Ohio 45631.

ITEM 11 - EXECUTIVE COMPENSATION

The information required under this Item 11 by Items 402 and 407(e)(4) and (e)(5) of SEC Regulation S-K is incorporated herein by reference to the information presented under the captions “Compensation of Executive Officers and Directors” and “Proxy item 1: Election of Directors – Committees of the Board – Compensation and Management Succession Committee” of the 2020 Proxy Statement.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required under this Item 12 by Item 403 of SEC Regulation S-K is incorporated herein by reference to the information presented under the caption “Ownership of Certain Beneficial Owners and Management” of the 2020 Proxy Statement.

Ohio Valley does not maintain any equity compensation plans requiring disclosure pursuant to Item 201(d) of SEC Regulation S-K.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required under this Item 13 by Item 404 and Item 407(a) of SEC Regulation S-K is incorporated herein by reference to the information presented under the captions “Certain Relationships and Related Transactions” and “Proxy Item 1: Election of Directors” of the 2020 Proxy Statement.

ITEM 14 – PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required under this Item 14 by Item 9(e) of Schedule 14A is incorporated herein by reference to the information presented under the captions “Pre-Approval of Services Performed by Independent Registered Public Accounting Firm” and “Services Rendered by Independent Registered Public Accounting Firm” of the 2020 Proxy Statement.

PART IV

ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

A. (1) Financial Statements

The following consolidated financial statements of Ohio Valley appear in the 2019 Annual Report to Shareholders, Exhibit 13, and are specifically incorporated herein by reference under Item 8 of this Form 10-K:

Consolidated Statements of Condition as of December 31, 2019 and 2018

Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017

Notes to the Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

(2) Financial Statement Schedules

Financial statement schedules are omitted as they are not required or are not applicable, or the required information is included in the financial statements.

(3) Exhibits

Reference is made to the Exhibit Index beginning on page 39 of this Form 10-K.

ITEM 16 – FORM 10-K SUMMARY

Not applicable.

EXHIBIT INDEX

The following exhibits are included in this Form 10-K or are incorporated by reference as noted in the following table:

Exhibit Number	Exhibit Description
3.1	Amended Articles of Incorporation of Ohio Valley (reflects amendments through<br> April 7, 1999) \[for SEC reporting compliance only - - not filed with the Ohio Secretary of State\]. Incorporated herein by reference to Exhibit 3(a) to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2007 (SEC<br> File No. 0-20914).
3.2	Code of Regulations of Ohio Valley: Incorporated herein by<br> reference to Exhibit 3(b) to Ohio Valley’s quarterly report on Form 10-Q for the quarter ended June 30, 2010 (SEC File No. 0-20914).
4.1	Agreement to furnish instruments and agreements defining<br> rights of holders of long-term debt: Filed herewith.
4.2	Description of Registered Securities: Filed herewith.
10.1*	The Ohio Valley Bank Company Executive Group Life Split Dollar Plan<br> Agreement, dated December 31, 2011, between Thomas E. Wiseman and The Ohio Valley Bank Company: Incorporated herein by reference to Exhibit 10.1 to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2015 (SEC File<br> No. 0-20914).
10.2*	Schedule A to Exhibit 10.1 identifying other identical<br> Executive Group Life Split Dollar Agreements between The Ohio Valley Bank Company and certain executive officers of Ohio Valley Banc Corp.: Filed herewith.
10.3(a)*	The Ohio Valley Bank Company Third Amended and Restated Director<br> Retirement Agreement, dated December 18, 2012, between Jeffrey E. Smith and The Ohio Valley Bank Company: Incorporated herein by reference to Exhibit 10.3(a) to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31,<br> 2012 (SEC File No. 0-20914).
10.3(b)*	Schedule A to Exhibit 10.3(a) identifying other identical Third<br> Amended and Restated Director Retirement Agreements between The Ohio Valley Bank Company and directors of Ohio Valley Banc Corp.: Incorporated herein by reference to Exhibit 10.3(b) to Ohio Valley’s Annual Report on Form 10-K for fiscal<br> year ended December 31, 2017 (SEC File No. 0-20914).
10.4*	The Ohio Valley Bank Company Salary Continuation Agreement,<br> dated January 26, 2016, by and between Larry E. Miller and The Ohio Valley Bank Company: Incorporated herein by reference to Exhibit 10.4 to Ohio Valley’s Current Report on Form 8-K filed on January 26, 2016 (SEC File No. 0-20914).

Exhibit Number	Exhibit Description
10.5*	The Ohio Valley Bank Company Salary Continuation Agreement, dated<br> December 18, 2012, between Jeffrey E. Smith and The Ohio Valley Bank Company: Incorporated herein by reference to Exhibit 10.5 to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2012 (SEC File No. 0-20914).
10.6(a)*	The Ohio Valley Bank Company Second Amended and Restated Director<br> Deferred Fee Agreement, dated December 18, 2012, between Thomas E. Wiseman and The Ohio Valley Bank Company: Incorporated herein by reference to Exhibit 10.6(a) to Ohio Valley’s Quarterly Report on Form 10-Q for quarterly period ended<br> September 30, 2015 (SEC File No. 0-20914).
10.6(b)*	Schedule A to Exhibit 10.6(a) identifying other identical Second<br> Amended and Restated Director Deferred Fee Agreements between The Ohio Valley Bank Company and directors of Ohio Valley Banc Corp.: Incorporated herein by reference to Exhibit 10.6(b) to Ohio<br> Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2018 (SEC File No. 0-20914).
10.7(a)*	The Ohio Valley Bank Company Executive Deferred Compensation<br> Agreement, dated December 18, 2012, between Jeffrey E. Smith and The Ohio Valley Bank Company: Incorporated herein by reference to Exhibit 10.6(b) to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2012 (SEC<br> File No. 0-20914).
10.7(b)*	First Amendment to The Ohio Valley Bank Company Executive<br> Deferred Compensation Agreement, dated January 26, 2016: Incorporated herein by reference to Exhibit 10.2 to Ohio Valley’s Current Report on Form 8-K filed on January 26, 2016 (SEC File No. 0-20914).
10.7(c)*	The Ohio Valley Bank Company Executive Deferred Compensation<br> Agreement, dated January 26, 2016, between Larry E. Miller and The Ohio Valley Bank Company: Incorporated herein by reference to Exhibit 10.1 to Ohio Valley’s Current Report on Form 8-K filed on January 26, 2016 (SEC File No. 0-20914).
10.7(d)*	Schedule A to Exhibit 10.7(a) identifying other identical<br> Executive Deferred Compensation Agreements between The Ohio Valley Bank Company and executive officers of Ohio Valley Banc Corp.: Filed herewith.
10.7(e)*	Schedule A to Exhibit 10.7(b) identifying the named<br> executive officers of Ohio Valley Banc Corp. who executed with The Ohio Valley Bank Company the First Amendment to The Ohio Valley Bank Company Executive Deferred Compensation Agreement: Filed herewith.
10.8*	Summary of Compensation for Directors and Named Executive<br> Officers of Ohio Valley Banc Corp.: Filed herewith.
10.9*	Summary of Bonus Program of Ohio Valley Banc Corp.: Filed<br> herewith.

Exhibit Number	Exhibit Description
10.10*	The Ohio Valley Bank<br> Company Supplemental Executive Retirement Plan agreement, dated March 6, 2012, between Thomas E. Wiseman and The Ohio Valley Bank Company; Incorporated herein by reference to Exhibit 10.1 to Ohio Valley’s Current Report on Form 8-K filed on<br> March 9, 2012 (SEC File No. 0-20914).
10.11*	The Ohio Valley Bank Company Fourth Amended and Restated Director<br> Retirement Agreement, dated May 13, 2015, between Brent A. Saunders and The Ohio Valley Bank Company: Incorporated herein by reference to Exhibit 10.11 to Ohio Valley’s Quarterly Report on Form 10-Q for quarterly period ended September 30,<br> 2015 (SEC File No. 0-20914).
10.12*	Schedule A to Exhibit 10.11 identifying other identical<br> Fourth Amended and Restated Director Retirement Agreements between The Ohio Valley Bank Company and directors of Ohio Valley Banc Corp.: Incorporated herein by reference to Exhibit 10.12 to Ohio Valley’s Quarterly Report on Form 10-Q for<br> quarterly period ended September 30, 2015 (SEC File No. 0-20914).
10.13*	The Ohio Valley Bank Company Third Amended and Restated Director<br> Deferred Fee Agreement, dated May 13, 2015, between Brent A. Saunders and The Ohio Valley Bank Company: Incorporated herein by reference to Exhibit 10.13 to Ohio Valley’s Quarterly Report on Form 10-Q for quarterly period ended September<br> 30, 2015 (SEC File No. 0-20914).
10.14*	Schedule A to Exhibit 10.13 identifying other identical Third<br> Amended and Restated Director Deferred Fee Agreements between The Ohio Valley Bank Company and directors of Ohio Valley Banc Corp.: Incorporated herein by reference to Exhibit 10.14 to Ohio Valley’s Quarterly Report on Form 10-Q for<br> quarterly period ended September 30, 2015 (SEC File No. 0-20914).
10.15*	The Ohio Valley Bank Company Director Retirement Agreement, dated<br> December 14, 2016, between Brent R. Eastman and The Ohio Valley Bank Company: Incorporated herein by reference to Exhibit 10.15 to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2016 (SEC File No. 0-20914).
10.16*	The Ohio Valley Bank Company Director Deferred Fee<br> Agreement, dated December 14, 2016, between Brent R. Eastman and The Ohio Valley Bank Company: Incorporated herein by reference to Exhibit 10.16 to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2016 (SEC File<br> No. 0-20914).
10.17*	2016 Determination of Director’s Fees Agreement for<br> purposes of the Director Deferred Fee Agreements for Directors Thomas, Howe, Wiseman, Barnitz and Saunders: Incorporated herein by reference to Exhibit 10.17 to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31,<br> 2016 (SEC File No. 0-20914).

Exhibit Number	Exhibit Description
10.18*	2016 Determination of Director’s Fees Agreement for purposes of<br> the Director Deferred Fee Agreement for Director Smith: Incorporated herein by reference to Exhibit 10.18 to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2016 (SEC File No. 0-20914).
10.19*	2016 Determination of Director’s Fees Agreement for purposes of<br> the Director Retirement Agreement for Directors Thomas, Howe, Smith, and Wiseman: Incorporated herein by reference to Exhibit 10.19 to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2017 (SEC File No. 0-20914).
10.20*	The Ohio Valley Bank Company Director Deferred Fee Agreements<br> between Jeffrey E. Smith and The Ohio Valley Bank Company that include: Director Deferred Fee Agreement dated December 1, 1996, the First Amendment to the Director Deferred Fee Agreement, dated May 20, 2003, and the Second Amendment to the<br> Director Deferred Fee Agreement dated March 29, 2018: Incorporated herein by reference to Exhibit 10.20 to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2018 (SEC File No. 0-20914).
10.21*	2016 Determination of Director’s Fees Agreement for purposes of<br> the Director Retirement Agreement for Directors Barnitz and Saunders: Incorporated herein by reference to Exhibit 10.21 to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2016 (SEC File No. 0-20914).
10.22*	The Ohio Valley Bank Company Director Retirement Agreement, dated<br> December 19, 2017, between Kimberly A. Canady and The Ohio Valley Bank Company: Incorporated herein by reference to Exhibit 10.22 to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2017 (SEC File No. 0-20914).
10.22(a)*	Schedule A to Exhibit<br> 10.22 identifying other Director Retirement Agreements between The Ohio Valley Bank Company and directors of Ohio Valley Banc Corp.: Filed herewith.
10.23*	The Ohio Valley Bank Company Director Deferred Fee Agreement, dated December 19, 2017,<br> between Kimberly A. Canady and The Ohio Valley Bank Company: Incorporated herein by reference to Exhibit 10.24 to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2017 (SEC File No. 0-20914).
10.23(a)*	Schedule A to Exhibit 10.24 identifying other Director Deferred<br> Fee Agreements between The Ohio Valley Bank Company and directors of Ohio Valley Banc Corp.: Incorporated herein by reference to Exhibit 10.24(a) to Ohio Valley’s Annual Report on Form 10-K for fiscal year ended December 31, 2017 (SEC File<br> No. 0-20914).
10.24*	Severance Agreement for Katrinka Hart-Harris: Filed herewith.

Exhibit Number	Exhibit Description
13	Ohio Valley’s Annual Report to Shareholders for the fiscal<br> year ended December 31, 2019: Filed herewith. (Not deemed filed except for portions thereof specifically incorporated by reference into this Annual Report on Form 10-K.)
21	Subsidiaries of Ohio<br> Valley: Filed herewith.
23	Consent of Crowe LLP.: Filed herewith.
31.1	Rule 13a-14(a)/15d-14(a) Certification (Principal Executive<br> Officer): Filed herewith.
31.2	Rule 13a-14(a)/15d-14(a) Certification (Principal Financial<br> Officer): Filed herewith.
32	Section 1350 Certifications (Principal Executive Officer and<br> Principal Accounting Officer): Filed herewith.
101.INS #	XBRL Instance Document: Submitted electronically herewith. #
101.SCH #	XBRL Taxonomy Extension Schema: Submitted electronically herewith. #
101.CAL #	XBRL Taxonomy Extension Calculation Linkbase: Submitted electronically herewith. #
101.DEF #	XBRL Taxonomy Extension Definition Linkbase: Submitted electronically herewith. #
101.LAB #	XBRL Taxonomy Extension Label Linkbase: Submitted electronically herewith. #
101.PRE #	XBRL Taxonomy Extension Presentation Linkbase: Submitted electronically herewith. #

* Compensatory plan or arrangement.

# Attached as Exhibit 101 to Ohio Valley’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 are the following documents formatted in XBRL (eXtensive Business Reporting Language): (i)<br> Consolidated Statements of Condition at December 31, 2019 and December 31, 2018; (ii) Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017; (iii) Consolidated Statements of Comprehensive Income for the years<br> ended December 31, 2019, 2018 and 2017; (iv) Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2019, 2018 and 2017; (v) Consolidated Statements of Cash Flows for the years ended December 31, 2019,<br> 2018 and 2017; and (vi) Notes to the Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Ohio Valley has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

			OHIO VALLEY BANC CORP.
Date:	March 16, 2020	By:	/s/Thomas E.Wiseman
			Thomas E. Wiseman
			Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 16, 2020 by the following persons on behalf of Ohio Valley and in the capacities indicated.

Name	Capacity
/s/Thomas E. Wiseman	Chief Executive Officer
Thomas E. Wiseman	(principal executive officer) and Director
/s/Scott W. Shockey	Senior Vice President and Chief
Scott W. Shockey	Financial Officer (principal financial officer and principal accounting officer)
/s/Jeffrey E. Smith	Chairman of the Board
Jeffrey E. Smith
/s/Anna P. Barnitz	Director
Anna P. Barnitz
/s/David W. Thomas	Director
David W. Thomas
/s/Brent A. Saunders	Director
Brent A. Saunders
/s/Harold A. Howe	Director
Harold A. Howe
/s/Brent R. Eastman	Director
Brent R. Eastman
/s/Larry E. Miller	Director
Larry E. Miller
/s/Kimberly A. Canady	Director
Kimberly A. Canady
/s/Rdward J. Robbins	Director
Edward J. Robbins

EXHIBIT 4.1

OHIO VALLEY BANC CORP.

420 Third Avenue

Gallipolis, OH 45631

(740) 446-2631

March 16, 2020

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

RE: Ohio Valley Banc Corp. – Form 10-K for the fiscal year ended December 31, 2019

Gentlemen:

Ohio Valley Banc Corp., an Ohio corporation (“Ohio Valley”), is today filing an Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “Form 10-K”), as executed on March 16, 2020.

Pursuant to the instructions relating to the Exhibits in Item 601(b)(4)(iii) of Regulation S-K, Ohio Valley hereby agrees to furnish the Commission, upon request, copies of instruments and agreements defining the rights of holders of its long-term debt and of the long-term debt of its consolidated subsidiaries, which are not being filed as exhibits to the Form 10-K. No such instrument or agreement represents long-term debt exceeding 10% of the total assets of Ohio Valley Banc Corp. and its subsidiaries on a consolidated basis.

Very truly yours,

/s/Thomas E. Wiseman
Thomas E. Wiseman
President and Chief Executive Officer
Ohio Valley Banc Corp.

Exhibit 4.2

Description of Ohio Valley Banc Corp. Capital Stock

As of December 31, 2019, Ohio Valley Banc Corp., an Ohio corporation (“Ohio Valley,” the “Company,” “we,” or “our”), had one class of securities registered pursuant to Section 12 of the U.S. Securities Exchange Act of 1934, as amended: Common Stock, without par value (“Common Shares”).

Ohio Valley’s Amended Articles of Incorporation (the “Articles”) authorize 10,000,000 Common Shares, without par value, and do not authorize any other class or series of capital stock of the Company.

The following summary is subject to, and qualified in its entirety by reference to, the Articles and our Code of Regulations (the “Regulations”), as well as the applicable provisions of Chapters 1701, 1704 and 1707 of the Ohio Revised Code. For a complete description of the terms and provisions of our Common Shares, please refer to the Articles and the Regulations, both of which are filed as exhibits to Ohio Valley’s Annual Report on Form 10-K.

Common Shares

Holders of our Common Shares are entitled to one vote for each share held of record on each matter submitted to a vote of shareholders. There is no cumulative voting in the election of directors. Accordingly, the holders of a majority of our outstanding Common Shares entitled to vote in any election of directors can elect all of the directors standing for election, if they should so choose. Holders of our Common Shares are entitled to receive dividends ratably when, as, and if declared by the Board of Directors out of funds legally available for the payment of dividends. Upon our liquidation, dissolution or winding up, holders of our Common Shares are entitled to share ratably in all assets remaining after payment of liabilities. Holders of our Common Shares have no preemptive rights and have no rights to convert their Common Shares into any other securities. There are no redemption or sinking fund provisions applicable to our Common Shares. Our outstanding Common Shares are fully paid and nonassessable.

We have the right, but not the obligation, to repurchase our Common Shares from our shareholders; however, we are not permitted to repurchase our Common Shares if, after the repurchase, we would be insolvent or our assets would be less than our liabilities plus our stated capital.

Transfer Agent and Registrar

We serve as the transfer agent and registrar for our Common Shares. You may reach our stock transfer department at our main office located at 420 Third Avenue, Gallipolis, Ohio 45631. The telephone number for our stock transfer department is (740) 446-2631, extension 365.

Listing

Our Common Shares are listed on the NASDAQ Global Market under the symbol “OVBC.”

Ohio Anti-takeover Statutes

Certain state laws make a change in control of an Ohio corporation more difficult, even if desired by the holders of a majority of the corporation’s shares. Provided below is a summary of the Ohio anti-takeover statutes.

Ohio Revised Code Section 1701.831 is a “control share acquisition” statute. The control share acquisition statute provides, in essence, that any person acquiring shares of an “issuing public corporation” (which Ohio Valley meets by definition) in any of the following three ownership ranges must seek and obtain shareholder approval of the acquisition transaction that first puts such ownership within each such range: (i) one-fifth or more but less than one-third; (ii) one-third or more but less than a majority; and (iii) a majority or more.

The control share acquisition statute applies not only to traditional offers but also to open market purchases, privately-negotiated transactions and original issuances by an Ohio corporation, whether friendly or unfriendly. The procedural requirements of the control share acquisition statute could render approval of any control share acquisition difficult because it must be authorized at a special meeting of shareholders, for which the statutorily prescribed form of notice has been given and at which the statutorily prescribed quorum is present, by the affirmative vote of the majority of the voting power of the corporation in the election of directors represented at the meeting and by a majority of the portion of such voting power, excluding the voting power of interested shares.

A corporation may elect not to be covered by the provisions of the control share acquisition statute by the adoption of an appropriate amendment to its articles of incorporation or its regulations. We have not adopted such an amendment.

Ohio Revised Code Chapter 1704 is a “merger moratorium” statute. The merger moratorium statute provides that, unless a corporation’s articles of incorporation otherwise provide, an “issuing public corporation” (which Ohio Valley meets by definition) may not engage in a “Chapter 1704 transaction” for three years following the date on which a person acquires more than 10% of the voting power in the election of directors of the issuing corporation, unless the Chapter 1704 transaction is approved by the corporation’s board of directors prior to such transaction. A person who acquires such voting power is an “interested shareholder,” and “Chapter 1704 transactions” involve a broad range of transactions, including mergers, consolidations, combinations, liquidations, recapitalizations and other transactions between an issuing public corporation and an interested shareholder if such transactions involve at least 5% of the aggregate fair market value of the assets or shares of the issuing public corporation or assets representing at least 10% of its earning power or income. After the initial three-year moratorium, Chapter 1704 prohibits such transactions absent approval by disinterested shareholders or the transaction meeting certain statutorily defined fair price provisions.

A corporation may elect not to be covered by the provisions of Ohio Revised Code Chapter 1704 by the adoption of an appropriate amendment to its articles of incorporation. We have adopted such an amendment.

Ohio also has enacted Ohio Revised Code Section 1707.043, which provides that a person who announces a control bid with respect to an Ohio corporation that has issued and outstanding shares listed on a national securities exchange (which Ohio Valley does with our Common Shares) must disgorge profits realized by that person upon the sale of any equity securities within 18 months of the announcement.

In addition, Section 1701.59 of the Ohio Revised Code provides that, in determining what a director reasonably believes to be in the best interests of the corporation, such director may consider, in addition to the interests of the corporation’s shareholders, any of the interests of the corporation’s employees, suppliers, creditors and customers, the economy of the State of Ohio and the United States, community and societal considerations and the long-term as well as the short-term interests in the corporation and its shareholders, including the possibility that these interests may be best served by the continued independence of the corporation.

The overall effect of the statutes described above may be to render more difficult or discourage the removal of incumbent management of an Ohio corporation or the assumption of effective control of an Ohio corporation by other persons.

Anti-Takeover Provisions of Our Articles and Regulations

Our Articles and Regulations contain certain provisions which may be deemed to have anti-takeover effects. The following summary is not complete and is qualified in its entirety by reference to our Articles and Regulations.

Supermajority Voting Provisions

Unless at least two-thirds of the whole authorized number of directors recommend their approval, the following actions require the affirmative vote of the holders of 80% of our voting power: (i) amendments of our Articles or adoption of amended Articles; (ii) amendment of our Regulations or adoption of new Regulations; (iii) a merger or consolidation of us with or into another corporation; (iv) a combination or majority share acquisition involving the issuance of our Common Shares and requiring shareholder approval; (v) a sale, lease or exchange of all or substantially all of our assets; (vi) our dissolution; or (vii) a proposal to fix or change the number of our directors by action of the shareholders. If these actions are approved by two-thirds of the whole authorized number of our directors, then such actions must be approved by shareholders holding only a majority of the voting power.

Transactions with Certain Shareholders

Unless minimum price requirements are complied with and a proxy statement is submitted to our shareholders for the purpose of soliciting shareholder approval of the transaction, our Articles require the affirmative vote of 80% of our outstanding Common Shares (and in certain circumstances, a higher percentage) for approval of mergers, business combinations and other similar transactions with holders of shares representing at least 20% of the voting power of the Company entitled to vote in the election of directors. Additionally, the provision of our Articles containing this requirement may not be amended or repealed without the affirmative vote of our shareholders discussed in the preceding sentence.

Classified Board of Directors

Our Regulations classify the Board of Directors into three classes serving staggered three-year terms, and our Articles eliminate cumulative voting for directors.

Shareholder Nominations

Pursuant to our Regulations, shareholder nominations for directors must be made in writing and delivered or mailed to our executive offices not less than 14 days nor more than 50 days prior to any meeting of shareholders called for the election of directors. However, if we give less than 21 days’ notice of the meeting to our shareholders, the nomination must be mailed or delivered not later than the close of business on the seventh day after the day on which we mailed the notice. Each nomination must contain the following information to the extent known by the nominating shareholder: (i) the name and address of each nominee; (ii) the principal occupation of each nominee; (iii) the total number of our Common Shares that will be voted for each nominee; (iv) the name and residence address of the nominating shareholder; (v) the number of our Common Shares owned by the nominating shareholder; and (vi) any other information required to be disclosed with respect to the nominee under the SEC’s proxy rules.

Removal of Directors

Our Articles provide that directors may be removed only by the affirmative vote of the holders of 80% of the voting power at an election of directors, and only for cause.

EXHIBIT 10.2

SCHEDULE A TO EXHIBIT 10.1

The following individuals entered into Executive Group Life Split Dollar Plans with The Ohio Valley Bank Company identified below which are identical to the Executive Group Life Split Dollar Plan, dated December 31, 2011, between Thomas E. Wiseman and The Ohio Valley Bank Company filed herewith.

Name	Date of Agreement
Larry E. Miller II	August 19, 2009
Jeffrey E. Smith	August 20, 2009
Katrinka V. Hart-Harris	August 21, 2009

EXHIBIT 10.7(d)

SCHEDULE A TO EXHIBIT 10.7(a)

The following individuals entered into Executive Deferred Compensation Plans with The Ohio Valley Bank Company identified below which are identical to the Executive Deferred Compensation Plan, dated December 18, 2012, between Jeffrey E. Smith and The Ohio Valley Bank Company filed herewith.

Name	Date of Agreement
Thomas E. Wiseman	December 18, 2012
Katrinka V. Hart-Harris	December 18, 2012

EXHIBIT 10.7(e)

SCHEDULE A TO EXHIBIT 10.7(b)

The following individuals entered into a First Amendment to the Ohio Valley Bank Company Executive Deferred Compensation Agreement with The Ohio Valley Bank Company which are identical to the First Amendment to the Ohio Valley Bank Company Executive Deferred Compensation Agreement, dated January 26, 2016, filed herewith.

Name	Date of Agreement
Jeffrey E. Smith	January 26, 2016
Thomas E. Wiseman	January 26, 2016
Katrinka V. Hart-Harris	January 26, 2016

EXHIBIT 10.8

SUMMARY OF COMPENSATION FOR

IRECTORS AND NAMED EXECUTIVE OFFICERS

OF OHIO VALLEY BANC CORP.

Directors

All of the directors of Ohio Valley Banc Corp. (“Ohio Valley”) also serve as directors of its subsidiary, The Ohio Valley Bank Company (the “Bank”). The directors of Ohio Valley are paid by the Bank for their services rendered as directors of the Bank, not Ohio Valley. Each director of the Bank who is not an employee of Ohio Valley or any of its subsidiaries (a “Non-Employee Director”) receives $750 per month for his or her services. Each director of the Bank who is an employee of Ohio Valley or any of its subsidiaries (an “Employee Director”) receives $350 per month for his or her services. In addition, each director of the Bank receives an annual retainer of $17,000 paid in January or February of each year for services to be rendered during the year, pro-rated for time served for new or retiring members.

Each Non-Employee Director who is a member of the Executive Committee of the Bank receives $2,000 per month for his or her services. In addition, each Non-Employee Director who is a member of the Executive Committee receives an annual retainer of $16,695 paid in January or February of each year for services to be rendered during the year as members of that committee, pro-rated for time served for new or retiring members. Employee Directors receive no additional compensation for serving on the Executive Committee.

Brent A. Saunders, LPA received retainer fees of $21,000 for legal services to the Company and its subsidiaries during 2019, as approved by the Board of Directors in December 2018. In December 2019, the Board of Directors of Ohio Valley approved the payment to Mr. Saunders of $21,000 in retainer fees for legal services to the Company and its subsidiaries during 2020.

The Bank maintains a life insurance policy for each director with a death benefit of two times annual director fees at time of death, reduced by 35% at age 65 and 50% at age 70, as part of the Bank’s group term life insurance program. The life insurance policies terminate upon retirement. Messrs. Miller, Smith and Wiseman, as employees of the Bank, are excluded from this benefit under the terms of the Bank’s group term life insurance program. Each director is entitled to retirement and deferred compensation agreements, and the Bank has executed agreements with all such persons, except that Mr. Miller has elected not to participate in the director deferred compensation plan. These documents are filed as exhibits to various documents filed by Ohio Valley with the Securities and Exchange Commission, as set forth in the Exhibit Index to Ohio Valley’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Named Executive Officers

The following sets forth the current salaries of the executive officers of Ohio Valley named in the Summary Compensation Table in Ohio Valley’s proxy statement (the “Named Executive Officers”):

Name	Current Salary
Jeffrey E. Smith	247,059
Thomas E. Wiseman	375,268
Larry E. Miller II	266,400
Katrinka V. Hart-Harris*	----
*Ms. Hart-Harris retired effective December 31, 2019

Certain Named Executive Officers are entitled to participate in several benefit arrangements, including the Ohio Valley Banc Corp. Bonus Program, the Ohio Valley Bank Company Executive Group Life Split Dollar Plan, the Executive Deferred Compensation Plan, and a supplemental executive retirement plan (currently only for Messrs. Smith, Wiseman and Miller). These benefit plans are set forth in exhibits to various documents filed by Ohio Valley, as set forth in the Exhibit Index to Ohio Valley’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and described in Ohio Valley’s proxy statement for its 2020 annual meeting of shareholders. In addition, Named Executive Officers are entitled to participate in various benefit plans available to all employees, including a Profit Sharing Retirement Plan, a 401(k) plan, an employee stock ownership plan, group term life insurance, health insurance, disability insurance and a flexible compensation/cafeteria plan, as described in Ohio Valley's proxy statement for its 2020 annual meeting of shareholders.

EXHIBIT 10.9

SUMMARY OF BONUS PROGRAM

OF OHIO VALLEY BANC CORP.

The following is a description of the Bonus Program (the "Bonus Program") of Ohio Valley Banc Corp. (the “Company”) provided pursuant to Item 601(b)(10)(iii) of Regulation S-K promulgated by the Securities and Exchange Commission, which requires a written description of a compensatory plan when no formal document contains the compensation information.

The executive officers of the Company receive no compensation from the Company. Instead they are paid by subsidiaries for services rendered in their capacities as executive officers of subsidiaries of the Company.

The objectives of the bonus component of the Company's compensation program are to: (a) motivate executive officers and other employees and reward such persons for the accomplishment of both annual and long range goals of the Company and its subsidiaries, (b) reinforce a strong performance orientation with differentiation and variability in individual awards based on contribution to long-range business results and (c) provide a fully competitive compensation package that will attract, reward, and retain individuals of the highest quality. Typically, all employees of the Company's subsidiaries holding positions with a pay grade of 9 or above, as well as some employees who were graded 9 or above before the redesign of the salary structure, are eligible to participate in the bonus program, including all of the named executive officers. In addition, select employees of the Company, who previously were employees of The Milton Banking Company, are also eligible to participate in the bonus program.

Bonuses payable to participants in the bonus program are based on (a) the performance of the Company and its subsidiaries as measured against specific performance targets; and (b) each employee's individual performance. At the beginning of each fiscal year, the Compensation Committee sets specific performance targets for the Company and its subsidiaries based on a combination of some or all of a number of performance criteria. The targets are based on one or more of the following performance criteria: net income, net income per share, return on assets, return on equity, asset quality (as measured by the ratio of adversely classified assets to tier 1 capital plus the ALLL), tier 1 leverage ratio and efficiency ratio. It is the objective of the Compensation Committee to establish goals that are “reaching” but “reachable.” The Compensation Committee may not consider the goals to be of equal weight, but, in the aggregate, it considers them to be fundamental metrics which are important to the long-term performance of the Company and which, at the same time, do not expose the Company to, nor incent the employees to undertake, excessive risks which would threaten the Company’s long-term value. At the end of the fiscal year, the aggregate amount available for the payment of a bonus, if any, is determined by the Company’s Board of Directors upon recommendation of its Compensation Committee based on an evaluation of the accomplishment of the performance targets. A bonus may be paid without targets having been established or achieved. No officer or employee has any right to the payment of a bonus until the Board of Directors has exercised its discretion to award one and the amount to be paid to each person has been determined and announced.

Once the aggregate amount of the bonus pool is determined, individual bonus awards, for eligible employees in grades 11 and below, are typically determined through a formula that applies each employee's performance evaluation score to a “bonus grid,” reflecting the individual employee's job grade and individual job performance using the performance criteria referenced above. For employees in grades 12 and above, individual bonus awards are determined by the level of achievement by the Company and its subsidiaries of some or all of a number of previously mentioned performance metrics. Upon the recommendation of the Compensation Committee and if approved by the Board, individual bonus awards for grades 12 and above are typically awarded as a percent of base compensation. Employees are evaluated by their supervisors, except for Messrs. Smith, Wiseman and Miller, who are evaluated by the Compensation Committee. The Company’s Board of Directors approves the bonuses payable to the executive officers under the Bonus Program based upon the recommendation of the Compensation Committee.

Bonuses are normally paid in February in cash in a single lump sum, subject to payroll taxes and tax withholdings.

EXHIBIT 10.22(a)

SCHEDULE A TO EXHIBIT 10.22

The following individuals entered into director retirement agreements with The Ohio Valley Bank Company which are identical to the Director Retirement Agreement, dated December 19, 2017, between Kimberly A. Canady and The Ohio Valley Bank Company filed herewith.

Name	Date of Agreement
Edward J. Robbins	December 19, 2017
Larry E. Miller II	December 30, 2019

EXHIBIT 10.24

SEVERANCE AGREEMENT AND RELEASE

THIS SEVERANCE AGREEMENT AND RELEASE is by and between Ohio Valley Bank, its successors and assigns (the “Bank”), 420 Third Avenue, Gallipolis, OH 45631, and Katrinka Hart-Harris, her heirs, executors, administrators, personal or legal representatives, successors and/or assigns (“Employee”). The Bank and Employee agree as follows:

Purpose. The purpose of this Agreement is (i) to facilitate a Reduction in Force which will end the employment relationship between Employee and the Bank, except as provided for in this Agreement; and (ii) to fully resolve all potential disputes arising out of the employment relationship or the severance of employment of Employee, without admission of liability or wrongdoing by any party.
Consideration. In consideration for Employee entering into this Agreement, the Bank agrees as follows:

A. The Bank shall pay Employee pursuant to the schedule set forth in Exhibit A attached.

B. The Bank shall cooperate with Employee with respect to COBRA rights, if applicable to Employee, in accordance with federal and state law.

C. The Bank shall not contest Employee’s application for unemployment compensation, but shall comply with the law in supplying any requested information to the Department of Job and Family Services.

Sole Consideration. Employee acknowledges that any pay or other benefits paid pursuant to this Agreement are paid solely in exchange for promises in this Agreement and are not otherwise available under Bank policy, and that Employee has been properly compensated by the Bank for all hours worked and benefits accrued.
Elimination of Position. Employee acknowledges that effective as of December 31, 2019, Employee’s position with the Bank will be eliminated. Effective on that date, Employee shall not be entitled to any further compensation, remuneration or other benefits from the Bank other than as specifically set forth in this Agreement, Employee’s last work day will be November 27, 2019, and on that date, will immediately return all Bank property in Employee’s possession, including but not limited to laptops, keys, security devices, equipment, documents, data, or information. Employee also agrees not to retain any copies, duplicates, or summaries of these materials, including information stored on Employee’s personal computer which must be purged and deleted. Compliance with these requirements is required before payments will be made as set forth in paragraph 2 above.

Release. Employee releases the Bank, its affiliates and any successors, past and present officers, directors, employees, agents, and assigns from any and all claims, actions, causes of action, claims for relief, damages, promises, and demands which Employee now has or may have against the released parties arising out of employment or the termination of employment, including any possible claims, rights or causes of action arising under the Age Discrimination in Employment Act, any other claim of discrimination on any basis, including 42 U.S.C. § 1981, any contract claim, any claim of defamation, any common law or statutory state law claim, any retaliation claim, any claim pursuant to ERISA, or any claim for attorneys’ fees. Employee also releases the Bank from any claim pursuant to the Family and Medical Leave Act and has received all paid and unpaid leave to which Employee is entitled. Employee agrees not to prosecute or pursue any claim against the Bank that this Release purports to cover. Notwithstanding the foregoing or any other provision of this Agreement, this Release is not intended to interfere with Employee’s guaranteed right to challenge the validity of this Agreement and Release under the Older Workers Benefit Protection Act. Nor is this Release intended to interfere with Employee’s right to file a charge with or to participate in an investigation by the Equal Employment Opportunity Commission (“EEOC”) in connection with any claim Employee may have or to assist the EEOC in any manner. However, by executing this Agreement, Employee waives the right to any recovery in any such EEOC proceeding, or in any state civil rights commission proceeding, or in any such proceeding brought by the EEOC or any state civil rights commission on Employee’s behalf. This Release is a release of both known and unknown claims, but is not a release of future rights or claims that may arise after termination. This Release does not extinguish any rights or obligations arising under this Agreement. Nor does this Release include any non-waivable claims or affect Employee’s vested rights under any applicable retirement or other benefit plans. The Bank expressly denies any liability or alleged violation. Payment is made pursuant to this Agreement solely for the purpose of compromising any and all claims without the cost and burden of litigation. Employee is solely liable for any taxes resulting from the payment of the consideration set forth above. Employee has not filed or caused to be filed any lawsuit against the Bank in any court or any charge or complaint against the Bank with any municipal, state or federal agency.
Confidentiality and Non-Disclosure. Employee agrees to preserve the confidential nature of the Agreement and agrees that Employee has not and will not disclose the existence or the specific terms of this Agreement to anyone other than Employee’s spouse, attorney, and/or financial adviser, or as required by law. Further, Employee agrees to preserve the confidentiality of any confidential or proprietary information of the Bank and both parties agree to refrain from disparaging, damaging, impairing or interfering with the other’s business or reputation. These restrictions apply to communications in any form or format, including blogs, microblogs or other internet postings on social networking websites, chat rooms or any other web facility.
Non-Solicitation and Non-Competition.

A. For a period of two years beginning December 31, 2019, Employee agrees that Employee will not, without the written consent of the Bank (i) solicit, divert, take away or deprive the Bank of any business from any customer of the Bank for or on behalf of any competitive business, regardless of where the business or customer is located, if such customer was a customer or active prospect of the Bank during the period of Employee’s employment by the Bank (the customer’s preference in this matter shall not affect operation of this covenant), or (ii) offer employment to or employ on behalf of Employee or any competitor of the Bank, any person who, at any time within the prior three (3) years, shall have been employed by the Bank or any parent, subsidiary or affiliate of the Bank.

B. For a period of one year beginning December 31, 2019, Employee agrees that Employee will not, without the written consent of the Bank, engage in any business activity, directly or indirectly, on Employee's own behalf or as a partner, owner, officer, stockholder (except by ownership of less than one percent (1%) of the outstanding stock of a publicly held corporation), director, trustee, principal, agent, employee, consultant or otherwise, of any person, bank, firm or corporation which is competitive with any activity in which the Bank or any parent, subsidiary, affiliate, successor or assignee of the Bank is engaged at the time. This covenant shall be limited to those areas where the Bank or any parent, subsidiary, affiliate, successor or assignee is, at the time of reference, doing business. Employee may share the terms of these restrictive covenants set forth in this section of the Agreement with prospective employers solely for the purpose of ensuring compliance with these restrictive covenants.

C. The parties acknowledge that this Section is fair and reasonable under the circumstances. It is the desire and intent of the parties that the provisions of this Section shall be enforced to the fullest extent permitted by law. The Bank is entitled to, and Employee agrees not to oppose the Bank’s request for, equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or other equitable remedy. Accordingly, if any particular portion of this Section shall be adjudicated to be invalid or unenforceable, this Section shall be deemed amended to (i) reform the particular portion to provide for such maximum restrictions as will be valid and enforceable or, if that is not possible, (ii) delete the portion adjudicated to be invalid or unenforceable, such reformation or deletion to apply only with respect to the operation of this Section in the particular jurisdiction in which the adjudication is made.

D. Employee acknowledges that during the course of employment, Employee has and will acquire confidential information about the business of the Bank, its customers and prospective customers and other information and systems utilized by the Bank, and that such confidential information would provide an unfair advantage in competing with the Bank. Based upon the foregoing, Employee acknowledges that the covenants contained in this Section (i) are necessary for the protection of the Bank, (ii) do not impose undue hardship on Employee and (iii) are not injurious to the public.

E. Employee acknowledges and agrees that these covenants are the essence of this Agreement and shall be construed as independent of any other provision of this Agreement, and the existence of any claim or cause of action of Employee against the Bank, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Bank of any of these covenants. Employee acknowledges and agrees that if Employee breaches any of these covenants, the Bank will suffer irreparable harm and will have no adequate remedy at law.

F. If it is judicially determined that Employee has violated any obligations under this Agreement, then the period applicable to each obligation determined to have been violated shall automatically be extended by a period of time equal in length to the period during which such violation(s) occurred and by any time required for enforcement.

G. Employee agrees that this Agreement is specifically conditioned upon Employee entering into these covenants. No other promise or inducement, other than specifically included in this Agreement, has been given for entering into these covenants. These covenants shall survive the termination of this Agreement.

Breach of this Agreement. Except as to claims brought to challenge the validity of this Agreement under the OWBPA or the Age Discrimination in Employment Act, Employee agrees that in the event of Employee’s breach of any of the terms of this Agreement, Employee will forfeit the consideration set forth in paragraph 2. In the event that either party brings litigation to enforce this Agreement, the prevailing party shall be entitled to recover all costs and expenses of litigation, including reasonable attorneys’ fees.
Voluntary Agreement. Each party acknowledges that they have read and that they understand the provisions of this Agreement, that they are relying only on the representations set forth in this Agreement, and that they have entered into the Agreement voluntarily, with full understanding of its significance and intending to be bound by it.
Severability. If any term or provision of this Agreement is held invalid or unenforceable, the remainder of the Agreement shall remain in force. If the waiver of rights in this Agreement is found to be invalid or unenforceable, the parties promise to negotiate a waiver that is enforceable.
Choice of Law. The laws of the State of Ohio shall govern this Agreement and Employee agrees and irrevocably consents to personal jurisdiction in Ohio.
Complete Agreement. This is the complete Agreement of the parties regarding severance matters. The Confidentiality Statement signed by Employee remains in effect and is not suspended or altered in any way by this Agreement. Employee benefit plans offered by the Bank to all qualifying employees remain in effect pursuant to their terms and are not altered by this Agreement.
Effective Date of Agreement. For a period of seven (7) days following the execution of this Agreement, Employee may revoke this Agreement by providing written notice of revocation received by the Bank within the 7-day period. The Agreement shall not become effective or enforceable until this revocation period has expired.
Acknowledgment. Employee may take up to 45 days after receiving this Agreement to sign it. Employee agrees that Employee has had the opportunity to consult counsel if Employee chose to do so, that no deadline less than 45 days has been imposed for the signing of this Agreement and that Employee has had time to read and consider the Agreement (including Exhibit B which designates those employees being offered this severance package) before signing it. Employee received this Agreement on November 22, 2019.

NOTICE: THIS AGREEMENT INCLUDES A RELEASE OF YOUR INDIVIDUAL RIGHTS. YOU MAY WISH TO CONSULT AN ATTORNEY BEFORE EXECUTING THIS AGREEMENT.

The offer expires at noon on January 6, 2020. To accept this offer, sign below, fill in the blank for date as of the date of signing and return the Agreement to the Bank.

IN WITNESS WHEREOF, Employee has executed this Agreement as of the date below.

/s/ Katrinka V. Hart-Harris
Date: November 25, 2019

EXHIBIT A

Employee shall receive the following lump sum payment of $471,462, less all customary deductions, on January 14, 2020, if Employee chooses to sign this Agreement and if Employee remains employed through December 31, 2019:

Employees less than 65 years old as of December 31, 2019 will receive 50% of their current Blanchard base salary (including Christmas gift) until the sooner of the date each Employee respectively reaches age 65, or until December 31, 2024.

They will also receive 100% of the amount the Bank pays for the cost of Plan A health insurance for employee and spouse coverage, regardless of whether they are currently enrolled in the plan, until the sooner of the date each Employee respectively reaches age 65, or until December 31, 2024.

Employees age 65 or older as of December 31, 2019 will receive 50% of their current Blanchard base salary (including Christmas gift) for 1 year.

Employees, regardless of age, shall also receive 100% of any End-of-Year bonus based on their 2018 bonus amount, and an additional $5,000 in lieu of vacation pay.

If Employee chooses to leave employment, or is terminated for cause, prior to December 31, 2019, no severance payment shall be payable pursuant to this Agreement.

EXHIBIT B

Selection criteria and demographic information, which were included to comply with the Older Workers Benefit Protection Act, have been omitted.

OVBC
Annual Report 2019

Our Community pride is bank wide!

A Message from Management

Dear Neighbors and Friends,

Ohio Valley Bank and Loan Central’s dedication to put Community First has not soared higher than it did in 2019. We put our mission statement to work with a $7+ million project to revitalize downtown Gallipolis, a new branch in Mason, cosmetic improvements to our Wellston and Waverly offices, 3,015 volunteer hours given, and over $400,000 in local donations and sponsorships.

Strategic decisions like the sale of our Mt. Sterling and New Holland offices, streamlining of our Jackson offices, and the offering of an optional early retirement package were acted upon to move the bank closer to an efficiency ratio in line with our peers. It is our hope that these efforts will help secure Ohio Valley Bank’s future as an independent community bank for years to come.

2019 also brought new challenges. The most impactful of these was the sudden loss of tax refund processing income and associated legal expense affecting not only Ohio Valley Bank’s bottom line, but that of Loan Central as well. Still, your Company prevailed and ended the year with net income reaching $9.9 million.

However, there is still more work to do in 2020. Our management and staff remain diligent in their pursuit to increase income and decrease expense, without sacrificing our commitment to the communities we serve. The finetuning of our branch network in 2019 laid a solid foundation for growth.

We invite you to review this Annual Report of the Company and let us know if you have any questions. Make plans now to attend the Annual Meeting of Shareholders on May 20th.

Thank you for making a deliberate and positive impact on your community through your support of Ohio Valley Bank and Loan Central.

Sincerely,

/s/Jeffrey E. Smith	/s/Thomas E. Wiseman	/s/Larry E.Miller, II
Jeffrey E. Smith	Thomas E. Wiseman	Larry E. Miller, II
Chairman of the Board	Chief Executive Officer	President & Chief Operating Officer
Ohio Valley Banc Corp.	Ohio Valley Banc Corp.	Ohio Valley Banc Corp.

We think of 2019 like a mighty oak.

It was about returning to our roots…

[Pictures Only]

...And about reaching our branches to the sky!

$421,999
Given to local charities, schools, organizations, and youth through donations and sponsorships.
$90,781,407.49
Loaned to businesses, spurring economic growth in our communities.
3,904
Average transactions per month conducted for customers at the new OVB Bend Area Office.
Over 3,000
Shopped for their next vehicle online at OVB’s Auto Loan Center.www.autos.ovbc.com
$1.013 billion
Total assets as of December 31, 2019.
$7,562,103.04
Deposited using a cell phone or tablet on the go. $831,170 in the month of December alone.

Community First is more than something we say.

Your company puts its Community First mission into action every day.

[Photo] Vice President Adam Massie takes time out to read to students at Bundy Elementary.
[Photo] Ohio Valley Bank’s surprise gift to Gallipolis in Lights. We hope the OVB Tree made your holiday extra special this year and for years to come.
[Photo] Jadah and Jansen were two of five winners in the Main Office’s Halloween Coloring Contest. OVB’s first-ever Luggage Drive collected 70 backpacks stuffed with supplies and 40 pieces<br> of luggage for local foster children. Jackson City Library Children’s Director Sharon Lewli and Lewy the dog get ready for the library’s shark exhibit made possible by OVB.
[Photo] Loan Central Manager Greg Kauffman makes an impact in his community by cleaning and painting an underpass in the Chillicothe area. OVB partners with Eastern High School to reward<br> academic achievers with lunches throughout the year. OVB’s Kyla Carpenter and Tony Staley were part of the “Buy Day Friday” crowd that surprised Poppy’s Coffee, Tea, and Remedies with a flash of customers to gain awareness for buying<br> local.
[Photo] OVB Financial Literacy Leader Hope Roush spent two days at Green Elementary teaching students the basics of savings and credit. Ohio Valley Bank was named the winner of this year’s<br> iGIVE Award for all that they do in their communities, bestowed by the iBELIEVE Foundation and presented by Roger Mace. CEO Tom Wiseman accepted the award on the bank’s behalf. OVB employees who are River Valley alumni geared up for the<br> annual OVB Community Bowl with this photo for their Gallia Academy alumni co-workers.

[Pictures Only]

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

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

22 Convenient Offices
Strategically located in
southern Ohio and western West Virginia
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
	LOAN CENTRAL
Jackson County, Ohio
Upper Main - 740 East Main Street
Oak Hill - 116 Jackson Street	Chillicothe
Wellston - 123 South Ohio Avenue	1080 N. Bridge Street, Unit 43
Waverly, Ohio	Gallipolis, Ohio
507 West Emmitt Avenue	2145 Eastern Avenue
Barboursville, West Virginia	Jackson, Ohio
6431 East State Route 60	420 East Main Street
Bend Area Office, Mason, West Virginia	South Point, Ohio
156 Mallard Lane	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

OHIO VALLEY BANC CORP.
ANNUAL REPORT 2019
FINANCIALS

SELECTED FINANCIAL DATA

	Years Ended December 31
	2019			2018			2017			2016			2015
(dollars in thousands, except share and per share data)
SUMMARY OF OPERATIONS:
Total interest income	$	50,317		$	49,197		$	45,708		$	39,348		$	36,334
Total interest expense		7,265			5,471			3,975			3,022			2,839
Net interest income		43,052			43,726			41,733			36,326			33,495
Provision for loan losses		1,000			1,039			2,564			2,826			1,090
Total other income		9,166			8,938			9,435			8,239			8,597
Total other expenses		39,498			37,426			36,609			32,899			29,619
Income before income taxes		11,720			14,199			11,995			8,840			11,383
Income taxes		1,813			2,255			4,486			1,920			2,809
Net income		9,907			11,944			7,509			6,920			8,574
PER SHARE DATA:
Earnings per share	$	2.08		$	2.53		$	1.60		$	1.59		$	2.08
Cash dividends declared per share	$	0.84		$	0.84		$	0.84		$	0.82		$	0.89
Book value per share	$	26.77		$	24.87		$	23.26		$	22.40		$	21.97
Weighted average number of common shares outstanding		4,767,279			4,725,971			4,685,067			4,351,748			4,117,675
AVERAGE BALANCE SUMMARY:
Total loans	$	775,860		$	773,995		$	753,204		$	644,690		$	589,953
Securities^(1)^		189,187			223,390			193,199			196,389			188,754
Deposits		850,400			886,639			845,227			749,054			694,218
Other borrowed funds^(2)^		45,850			48,967			47,663			39,553			32,878
Shareholders’ equity		122,314			112,393			108,110			98,133			88,720
Total assets		1,035,230			1,063,256			1,014,115			899,209			828,444
PERIOD END BALANCES:
Total loans	$	772,774		$	777,052		$	769,319		$	734,901		$	585,752
Securities^(1)^		166,761			184,925			189,941			151,985			155,900
Deposits		821,471			846,704			856,724			790,452			660,746
Shareholders’ equity		128,179			117,874			109,361			104,528			90,470
Total assets		1,013,272			1,030,493			1,026,290			954,640			796,285
KEY RATIOS:
Return on average assets		.96	%		1.12	%		0.74	%		0.77	%		1.03	%
Return on average equity		8.10	%		10.63	%		6.95	%		7.05	%		9.66	%
Dividend payout ratio		40.37	%		33.20	%		52.36	%		51.79	%		42.74	%
Average equity to average assets		11.82	%		10.57	%		10.66	%		10.91	%		10.71	%

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

(2) Other borrowed funds include subordinated debentures.

consolidated statements of condition


			2018
(dollars in thousands, except share and per share data)
Assets
Cash and noninterest-bearing deposits with banks	12,812		$	13,806
Interest-bearing deposits with banks	39,544			57,374
Total cash and cash equivalents	52,356			71,180
Certificates of deposit in financial institutions	2,360			2,065
Securities available for sale	105,318			102,164
Securities held to maturity (estimated fair value: 2019 - 12,404; 2018 - 16,234)	12,033			15,816
Restricted investments in bank stocks	7,506			7,506
Total loans	772,774			777,052
Less: Allowance for loan losses	(6,272	)		(6,728	)
Net loans	766,502			770,324
Premises and equipment, net	19,217			14,855
Premises and equipment held for sale, net	653			----
Other real estate owned, net	540			430
Accrued interest receivable	2,564			2,638
Goodwill	7,319			7,371
Other intangible assets, net	174			379
Bank owned life insurance and annuity assets	30,596			29,392
Operating lease right-of-use asset, net	1,053			----
Other assets	5,081			6,373
Total assets	1,013,272		$	1,030,493
Liabilities
Noninterest-bearing deposits	222,607		$	237,821
Interest-bearing deposits	598,864			608,883
Total deposits	821,471			846,704
Other borrowed funds	33,991			39,713
Subordinated debentures	8,500			8,500
Operating lease liability	1,053			----
Accrued liabilities	20,078			17,702
Total liabilities	885,093			912,619
Commitments and Contingent Liabilities (See Note L)	----			----
Shareholders’ Equity
Common stock (1.00 stated value per share, 10,000,000 shares authorized; 2019 – 5,447,185 shares issued; 2018 - 5,400,065 shares issued)	5,447			5,400
Additional paid-in capital	51,165			49,477
Retained earnings	86,751			80,844
Accumulated other comprehensive income (loss)	528			(2,135	)
Treasury stock, at cost (659,739 shares)	(15,712	)		(15,712	)
Total shareholders’ equity	128,179			117,874
Total liabilities and shareholders’ equity	1,013,272		$	1,030,493

All values are in US Dollars.

See accompanying notes to consolidated financial statements

Consolidated Statements of Income

For the years ended December 31	2019			2018			2017
(dollars in thousands, except per share data)
Interest and dividend income:
Loans, including fees	$	45,766		$	44,365		$	42,182
Securities:
Taxable		2,542			2,377			2,116
Tax exempt		344			369			411
Dividends		393			440			392
Interest-bearing deposits with banks		1,221			1,608			582
Other interest		51			38			25
		50,317			49,197			45,708
Interest expense:
Deposits		6,026			4,155			2,843
Other borrowed funds		883			986			884
Subordinated debentures		356			330			248
		7,265			5,471			3,975
Net interest income		43,052			43,726			41,733
Provision for loan losses		1,000			1,039			2,564
Net interest income after provision for loan losses		42,052			42,687			39,169
Noninterest income:
Service charges on deposit accounts		2,118			2,084			2,137
Trust fees		264			263			240
Income from bank owned life insurance and annuity assets		704			717			1,226
Mortgage banking income		310			342			265
Electronic refund check / deposit fees		5			1,579			1,692
Debit / credit card interchange income		3,905			3,662			3,376
Loss on other real estate owned		(65	)		(559	)		(189	)
Net gain on branch divestitures		1,256			----			----
Other		669			850			688
		9,166			8,938			9,435
Noninterest expense:
Salaries and employee benefits		23,524			22,191			20,809
Occupancy		1,771			1,754			1,770
Furniture and equipment		1,060			1,023			1,049
Professional fees		2,508			2,016			1,792
Marketing expense		841			777			1,034
FDIC insurance		113			447			465
Data processing		1,996			2,115			2,081
Software		1,705			1,533			1,486
Foreclosed assets		266			238			499
Amortization of intangibles		206			135			156
Other		5,508			5,197			5,468
		39,498			37,426			36,609
Income before income taxes		11,720			14,199			11,995
Provision for income taxes		1,813			2,255			4,486
NET INCOME	$	9,907		$	11,944		$	7,509
Earnings per share	$	2.08		$	2.53		$	1.60

See accompanying notes to consolidated financial statements

Consolidated Statements of

Comprehensive Income

For the years ended December 31	2019			2018			2017
(dollars in thousands)
NET INCOME	$	9,907		$	11,944		$	7,509
Other comprehensive income (loss):
Change in unrealized gain (loss) on available for sale securities		3,371			(1,373	)		171
Related tax (expense) benefit		(708	)		289			(58	)
Total other comprehensive income (loss), net of tax		2,663			(1,084	)		113
Total comprehensive income	$	12,570		$	10,860		$	7,622

See accompanying notes to consolidated financial statements

Consolidated Statements of Changes in

Shareholders’ Equity

For the years ended December 31, 2019, 2018, and 2017
(dollars in thousands, except share and per share data)
		Additional Paid-In Capital		Retained<br><br> <br>Earnings			Accumulated Other Comprehensive Income(Loss)			Treasury<br><br> <br>Stock			Total<br><br> <br>Shareholders' Equity
Balances at January 1, 2017	5,326	$	46,788	$	69,117		$	(991	)	$	(15,712	)	$	104,528
Net income	----		----		7,509			----			----			7,509
Other comprehensive income (loss), net	----		----		----			113			----			113
Common stock issued to ESOP, 15,118 shares	15		413		----			----			----			428
Common stock issued through dividend reinvestment,<br> 21,383 shares	21		694		----			----			----			715
Cash dividends, .84 per share	----		----		(3,932	)		----			----			(3,932	)
Balances at December 31, 2017	5,362		47,895		72,694			(878	)		(15,712	)		109,361
Net income	----		----		11,944			----			----			11,944
Other comprehensive income (loss), net	----		----		----			(1,084	)		----			(1,084	)
Amount reclassified out of accumulated other <br> comprehensive income (loss) per ASU 2018-02	----		----		173			(173	)					----
Common stock issued to ESOP, 7,294 shares	7		288		----			----			----			295
Common stock issued through dividend reinvestment,<br> 30,766 shares	31		1,294		----			----			----			1,325
Cash dividends, .84 per share	----		----		(3,967	)		----			----			(3,967	)
Balances at December 31, 2018	5,400		49,477		80,844			(2,135	)		(15,712	)		117,874
Net income	----		----		9,907			----			----			9,907
Other comprehensive income (loss), net	----		----		----			2,663			----			2,663
Common stock issued to ESOP, 8,333 shares	8		320		----			----			----			328
Common stock issued through dividend reinvestment,<br> 38,787 shares	39		1,368		----			----			----			1,407
Cash dividends, .84 per share	----		----		(4,000	)		----			----			(4,000	)
Balances at December 31, 2019	5,447	$	51,165	$	86,751		$	528		$	(15,712	)	$	128,179

All values are in US Dollars.

See accompanying notes to consolidated financial statements

Consolidated Statements of Cash Flows

For the years ended December 31	2019			2018			2017
(dollars in thousands)
Cash flows from operating activities:
Net income	$	9,907		$	11,944		$	7,509
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment		1,183			1,141			1,277
Net (accretion) of purchase accounting adjustments		(494	)		(188	)		(526	)
Net amortization of securities		173			260			378
Proceeds from sale of loans in secondary market		9,840			11,034			7,857
Loans disbursed for sale in secondary market		(9,530	)		(10,692	)		(7,592	)
Amortization of mortgage servicing rights		68			55			71
Gain on sale of loans		(378	)		(397	)		(336	)
Amortization of intangible assets		206			135			156
Deferred tax (benefit) expense		367			(134	)		1,907
Provision for loan losses		1,000			1,039			2,564
Common stock issued to ESOP		328			295			428
Earnings on bank owned life insurance and annuity assets		(704	)		(717	)		(1,226	)
Loss on sale of other real estate owned		57			21			134
Net write-down of other real estate owned		8			538			55
Net gain on branch divestitures		(1,256	)		----			----
Change in accrued interest receivable		74			(135	)		(188	)
Change in accrued liabilities		2,376			1,946			1,681
Change in other assets		1,528			1,996			347
Net cash provided by operating activities		14,753			18,141			14,496
Cash flows from investing activities:
Proceeds from maturities and paydowns of securities available for sale		20,199			21,139			20,389
Purchases of securities available for sale		(20,126	)		(23,757	)		(25,177	)
Proceeds from calls and maturities of securities held to maturity		3,754			1,711			1,419
Purchases of securities held to maturity		----			----			(389	)
Proceeds from maturities of certificates of deposit in financial institutions		----			----			245
Purchases of certificates of deposit in financial institutions		(295	)		(245	)		(395	)
Net change in loans		2,323			(9,981	)		(37,918	)
Proceeds from sale of other real estate owned		392			1,132			1,466
Purchases of premises and equipment		(6,232	)		(2,725	)		(1,727	)
Disposals of premises and equipment		402			----			----
Proceeds from bank owned life insurance and annuity assets		----			----			2,107
Purchases of bank owned life insurance and annuity assets		(500	)		----			(2,200	)
Net cash (used in) investing activities		(83	)		(12,726	)		(42,180	)
Cash flows from financing activities:
Change in deposits		(25,179	)		(9,930	)		66,444
Proceeds from common stock through dividend reinvestment		1,407			1,325			715
Cash dividends		(4,000	)		(3,967	)		(3,932	)
Proceeds from Federal Home Loan Bank borrowings		----			8,000			4,785
Repayment of Federal Home Loan Bank borrowings		(3,676	)		(3,162	)		(5,318	)
Change in other long-term borrowings		(2,046	)		(989	)		(459	)
Change in other short-term borrowings		----			(85	)		(144	)
Net cash provided by (used in) by financing activities		(33,494	)		(8,808	)		62,091
Cash and cash equivalents:
Change in cash and cash equivalents		(18,824	)		(3,393	)		34,407
Cash and cash equivalents at beginning of year		71,180			74,573			40,166
Cash and cash equivalents at end of year	$	52,356		$	71,180		$	74,573
Supplemental disclosure:
Cash paid for interest	$	6,931		$	5,008		$	3,724
Cash paid for income taxes		890			2,050			2,236
Proceeds from bank owned life insurance and annuity assets not settled		----			----			1,993
Transfers from loans to other real estate owned		570			547			1,337
Other real estate owned sales financed by The Ohio Valley Bank Company		----			----			237
Initial recognition of operating lease right-of-use asset		1,280			----			----
Operating lease liability arising from obtaining right-of-use asset		1,280			----			----

See accompanying notes to consolidated financial statements

Notes to the Consolidated Financial Statements

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

Note A - Summary of Significant Accounting Policies

Description of Business: Ohio Valley Banc Corp. (“Ohio Valley”) is a financial holding company registered under the Bank Holding Company Act of 1956. Ohio Valley has one banking subsidiary, The Ohio Valley Bank Company (the “Bank”), an Ohio state-chartered bank that is a member of the Federal Reserve Bank and is regulated primarily by the Ohio Division of Financial Institutions and the Federal Reserve Board. Ohio Valley also has a subsidiary that engages in consumer lending generally to individuals with higher credit risk history, Loan Central, Inc.; a subsidiary insurance agency that facilitates the receipts of insurance commissions, Ohio Valley Financial Services Agency, LLC; and a limited purpose property and casualty insurance company, OVBC Captive, Inc. 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.”

The Company provides a full range of commercial and retail banking services from 22 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 (“FDIC”). 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.

Principles of Consolidation: The consolidated financial statements include the accounts of Ohio Valley and its wholly-owned subsidiaries, the Bank, Loan Central, Inc., Ohio Valley Financial Services Agency, LLC, and OVBC Captive, Inc. All material intercompany accounts and transactions have been eliminated.

Industry Segment Information: Internal financial information is primarily reported and aggregated in two lines of business, banking and consumer finance.

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 19, 2022.

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.

Notes to the Consolidated Financial Statements

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.

The Bank also originates long-term, fixed-rate mortgage loans, with full intention of being sold to the secondary market. These loans are considered held for sale during the period of time after the principal has been advanced to the borrower by the Bank, but before the Bank has been reimbursed by the Federal Home Loan Mortgage Corporation, typically within a few business days. Loans sold to the secondary market are carried at the lower of aggregate cost or fair value. As of December 31, 2019, there were no loans held for sale by the Bank, as compared to $108 in loans held for sale at December 31, 2018.

Notes to the Consolidated Financial Statements

Note A - Summary of Significant Accounting Policies (continued)

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.

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.

Notes to the Consolidated Financial Statements

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, 2019, there were no changes to the accounting policies or methodologies within any of the Company’s loan portfolio segments from the prior period.

Concentrations of Credit Risk: The Company grants residential, consumer and commercial loans to customers located primarily in the southeastern Ohio and western West Virginia areas.

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

	% of Total Loans
	2019			2018
Residential real estate loans		40.15	%		39.13	%
Commercial real estate loans		28.75	%		27.84	%
Consumer loans		18.16	%		18.46	%
Commercial and industrial loans		12.94	%		14.57	%
		100.00	%		100.00	%

Approximately 5.00% of total loans were unsecured at December 31, 2019, down from 5.02% at December 31, 2018.

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, 2019, the Bank’s primary correspondent balance was $38,095 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 $540 and $430 at December 31, 2019 and 2018.

Notes to the Consolidated Financial Statements

Note A - Summary of Significant Accounting Policies (continued)

Goodwill: Goodwill arises from business combinations and 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. 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, 2019 and 2018, the Company’s MSR assets were $357 and $368, 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: 4,767,279 for 2019; 4,725,971 for 2018;
    4,685,067 for 2017.  Ohio Valley had no dilutive effect and no potential common shares issuable under stock options or other agreements 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 of 2017.

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.

Notes to the Consolidated Financial Statements

Note A - Summary of Significant Accounting Policies (continued)

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.

Dividend Reinvestment Plan: The Company maintains a Dividend Reinvestment Plan. The plan enables shareholders to elect to have their cash dividends on all or a portion of shares held automatically reinvested in additional shares of the Company’s common stock. The stock is issued out of the Company’s authorized shares and credited to participant accounts at fair market value. Dividends are reinvested on a quarterly basis.

Loan Commitments and Related Financial Instruments: Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. These financial instruments are recorded when they are funded. See Note L for more specific disclosure related to loan commitments.

Dividend Restrictions: Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to Ohio Valley or by Ohio Valley to its shareholders. See Note P for more specific disclosure related to dividend restrictions.

Restrictions on Cash: Cash on hand or on deposit with a third-party correspondent and the Federal Reserve Bank of $38,794 and $60,167 was required to meet regulatory reserve and clearing requirements at year-end 2019 and 2018. The balances on deposit with a third-party correspondent do not earn interest.

Derivatives: At the inception of a derivative contract, the Company designates the derivative as one of three types based on the Company’s intentions and belief as to likely effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), or (3) an instrument with no hedging designation (“stand-alone derivative”).

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, 2019 and 2018, 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.

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

Notes to the Consolidated Financial Statements

  Note A - Summary of Significant Accounting Policies \(continued\)

• Service charges on deposit accounts – these include general service fees charged for deposit account maintenance and activity and transaction-based fees charged for certain services, such as debit card, wire transfer, or overdraft activities. Revenue is recognized when the performance obligation is completed, which is generally after a transaction is completed or monthly for account maintenance services.

• Trust fees - this includes periodic fees due from trust customers for managing the customers' financial assets. Fees are generally charged on a quarterly or annual basis and are recognized ratably throughout the period, as the services are provided on an ongoing basis.

• Electronic refund check/deposit fees – A tax refund clearing agreement between the Bank and a tax refund product provider requires the Bank to process electronic refund checks and electronic refund deposits presented for payment on behalf of taxpayers through accounts containing taxpayer refunds. The Bank, in turn, receives a fee paid by the third-party tax software provider for each transaction that is processed. The amount of fees received are tiered based on the tax refund product selected. Since the Bank acts as a sub servicer in the tax process relationship, a portion of the fee collected is passed on to the tax refund product provider.

• Debit/credit card interchange income – includes interchange income from cardholder transactions conducted with merchants, throughout various interchange networks with which the Company participates. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, as transaction processing services are provided to the deposit customer. Gross fees from interchange are recorded in operating income separately from gross network costs, which are recorded in operating expense.

• Gain (loss) on other real estate owned – the Company records a gain or loss from the sale of other real estate owned (“OREO”) when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.

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

Reclassifications: The consolidated financial statements for 2018 and 2017 have been reclassified to conform with the presentation for 2019. These reclassifications had no effect on the net results of operations or shareholders’ equity.

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.

Notes to the Consolidated Financial Statements

  Note A - 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 E.

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. 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. On October 16, 2019, the FASB confirmed it would delay the effective date of this ASU for smaller reporting companies, such as the Company, until fiscal years beginning after December 15, 2022.

Notes to the Consolidated Financial Statements

Note B - Securities

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

	Amortized<br><br> <br>Cost		Gross Unrealized<br><br> <br>Gains		Gross Unrealized<br><br> <br>Losses			Estimated<br><br> <br>Fair Value
Securities Available for Sale
December 31, 2019
U.S. Government sponsored entity securities	$	16,579	$	163	$	(6	)	$	16,736
Agency mortgage-backed securities, residential		88,071		807		(296	)		88,582
Total securities	$	104,650	$	970	$	(302	)	$	105,318
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
	Amortized<br><br> <br>Cost		Gross Unrecognized<br><br> <br>Gains		Gross Unrecognized<br><br> <br>Losses			Estimated<br><br> <br>Fair Value
---	---	---	---	---	---	---	---	---	---
Securities Held to Maturity
December 31, 2019
Obligations of states and political subdivisions	$	12,031	$	372	$	(1	)	$	12,402
Agency mortgage-backed securities, residential		2		----		----			2
Total securities	$	12,033	$	372	$	(1	)	$	12,404
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

At year-end 2019 and 2018, 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 2019, 2018 and 2017.

Securities with a carrying value of approximately $78,418 at December 31, 2019 and $79,443 at December 31, 2018 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, 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 December 31, 2019 and 2018 represents an other-than-temporary impairment.

Notes to the Consolidated Financial Statements

Note B - Securities (continued)

The amortized cost and estimated fair value of debt securities at December 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<br><br> <br>Cost		Estimated<br><br> <br>Fair<br><br> <br>Value		Amortized<br><br> <br>Cost		Estimated<br><br> <br>Fair<br><br> <br>Value
Due in one year or less	$	3,399	$	3,413	$	641	$	644
Due in one to five years		13,180		13,323		6,652		6,813
Due in five to ten years		----		----		4,738		4,945
Due after ten years		----		----		----		----
Agency mortgage-backed securities, residential		88,071		88,582		2		2
Total debt securities	$	104,650	$	105,318	$	12,033	$	12,404

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

December 31, 2019	Less than 12 Months							12 Months or More							Total
Securities Available for Sale	Fair<br><br> <br>Value			Unrealized<br><br> <br>Loss				Fair<br><br> <br>Value			Unrealized<br><br> <br>Loss				Fair<br><br> <br>Value			Unrealized<br><br> <br>Loss
U.S. Government sponsored entity securities		$	----		$	----			$	1,999		$	(6	)		$	1,999		$	(6	)
Agency mortgage-backed securities residential			15,041			(84	)			21,344			(212	)			36,385			(296	)
Total available for sale		$	15,041		$	(84	)		$	23,343		$	(218	)		$	38,384		$	(302	)
	Less than 12 Months							12 Months or More						Total
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
Securities Held to Maturity	Fair<br><br> <br>Value			Unrecognized<br><br> <br>Loss				Fair<br><br> <br>Value			Unrecognized<br><br> <br>Loss			Fair<br><br> <br>Value			Unrecognized<br><br> <br>Loss
Obligations of states and political subdivisions		$	204		$	(1	)		$	----		$	----		$	204		$	(1	)
Total held to maturity		$	204		$	(1	)		$	----		$	----		$	204		$	(1	)
December 31, 2018	Less than 12 Months							12 Months or More							Total
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
Securities Available for Sale	Fair<br><br> <br>Value			Unrealized<br><br> <br>Loss				Fair<br><br> <br>Value			Unrealized<br><br> <br>Loss				Fair<br><br> <br>Value			Unrealized<br><br> <br>Loss
U.S. Government sponsored entity securities		$	1,981		$	(1	)		$	8,679		$	(214	)		$	10,660		$	(215	)
Agency mortgage-backed securitie 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
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
Securities Held to Maturity	Fair<br><br> <br>Value			Unrecognized<br><br> <br>Loss				Fair<br><br> <br>Value			Unrecognized<br><br> <br>Loss				Fair<br><br> <br>Value			Unrecognized<br><br> <br>Loss
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	)

Notes to the Consolidated Financial Statements

Note C - Loans and Allowance for Loan Losses

Loans are comprised of the following at December 31:

	2019			2018
Residential real estate	$	310,253		$	304,079
Commercial real estate:
Owner-occupied		55,825			61,694
Nonowner-occupied		131,398			117,188
Construction		34,913			37,478
Commercial and industrial		100,023			113,243
Consumer:
Automobile		63,770			70,226
Home equity		22,882			22,512
Other		53,710			50,632
		772,774			777,052
Less: Allowance for loan losses		(6,272	)		(6,728	)
Loans, net	$	766,502		$	770,324

The following table presents the activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2019, 2018 and 2017:

December 31, 2019	Residential<br><br> <br>Real Estate			Commercial<br><br> <br>Real Estate			Commercial<br><br> <br>& Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,583		$	2,186		$	1,063		$	1,896		$	6,728
Provision for loan losses		98			(1,745	)		1,807			840			1,000
Loans charged off		(1,060	)		(602	)		(1,513	)		(1,917	)		(5,092	)
Recoveries		629			2,089			90			828			3,636
Total ending allowance balance	$	1,250		$	1,928		$	1,447		$	1,647		$	6,272
December 31, 2018	Residential<br><br> <br>Real Estate			Commercial<br><br> <br>Real Estate			Commercial<br><br> <br>& Industrial			Consumer			Total
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
Allowance for loan losses:
Beginning balance	$	1,470		$	2,978		$	1,024		$	2,027		$	7,499
Provision for loan losses		772			(1,311	)		(80	)		1,658			1,039
Loans charged off		(874	)		(4	)		(208	)		(2,514	)		(3,600	)
Recoveries		215			523			327			725			1,790
Total ending allowance balance	$	1,583		$	2,186		$	1,063		$	1,896		$	6,728
December 31, 2017	Residential<br><br> <br>Real Estate			Commercial<br><br> <br>Real Estate			Commercial<br><br> <br>& Industrial			Consumer			Total
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
Allowance for loan losses:
Beginning balance	$	939		$	4,315		$	907		$	1,538		$	7,699
Provision for loan losses		1,016			(632	)		658			1,522			2,564
Loans charged off		(745	)		(1,067	)		(627	)		(1,642	)		(4,081	)
Recoveries		260			362			86			609			1,317
Total ending allowance balance	$	1,470		$	2,978		$	1,024		$	2,027		$	7,499

Notes to the Consolidated Financial Statements

Note C - Loans and Allowance for Loan Losses (continued)

The following table presents the balance in the allowance for loan losses and the recorded investment of loans by portfolio segment and based on impairment method as of December 31, 2019 and 2018:

December 31, 2019	Residential<br><br> <br>Real Estate		Commercial<br><br> <br>Real Estate		Commercial<br><br> <br>& Industrial		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	----	$	385	$	303	$	119	$	807
Collectively evaluated for impairment		1,250		1,543		1,144		1,528		5,465
Total ending allowance balance	$	1,250	$	1,928	$	1,447	$	1,647	$	6,272
Loans:
Loans individually evaluated for impairment	$	438	$	11,300	$	4,910	$	487	$	17,135
Loans collectively evaluated for impairment		309,815		210,836		95,113		139,875		755,639
Total ending loans balance	$	310,253	$	222,136	$	100,023	$	140,362	$	772,774
December 31, 2018	Residential<br><br> <br>Real Estate		Commercial<br><br> <br>Real Estate		Commercial<br><br> <br>& 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

Notes to the Consolidated Financial Statements

Note C – Loans and Allowance for Loan Losses (continued)

The following table presents information related to loans individually evaluated for impairment by class of loans as of the years ended December 31, 2019, 2018 and 2017:

December 31, 2019	Unpaid<br><br> <br>Principal<br><br> <br>Balance		Recorded<br><br> <br>Investment		Allowance for<br><br> <br>Loan Losses<br><br> <br>Allocated		Average<br><br> <br>Impaired<br><br> <br>Loans		Interest<br><br> <br>Income<br><br> <br>Recognized		Cash Basis<br><br> <br>Interest<br><br> <br>Recognized
With an allowance recorded:
Commercial real estate:
Owner-occupied	$	2,030	$	2,030	$	385	$	1,375	$	197	$	197
Commercial and industrial		4,861		4,861		303		4,796		319		319
Consumer:
Automobile		8		8		8		2		----		----
Other		111		111		111		22		9		9
With no related allowance recorded:
Residential real estate		438		438		----		453		23		23
Commercial real estate:
Owner-occupied		1,778		1,778		----		1,902		113		113
Nonowner-occupied		7,492		7,492		----		6,160		477		477
Construction		319		----		----		----		20		20
Commercial and industrial		49		49		----		300		111		111
Consumer:
Home equity		368		368		----		143		19		19
Total	$	17,454	$	17,135	$	807	$	15,153	$	1,288	$	1,288
December 31, 2018	Unpaid<br><br> <br>Principal<br><br> <br>Balance		Recorded<br><br> <br>Investment		Allowance for<br><br> <br>Loan Losses<br><br> <br>Allocated		Average<br><br> <br>Impaired<br><br> <br>Loans		Interest<br><br> <br>Income<br><br> <br>Recognized		Cash Basis<br><br> <br>Interest<br><br> <br>Recognized
---	---	---	---	---	---	---	---	---	---	---	---	---
With an allowance recorded:
Commercial real estate:
Nonowner-occupied	$	362	$	362	$	98	$	367	$	15	$	15
With no related allowance recorded:
Residential real estate		1,667		1,667		----		511		101		101
Commercial real estate:
Owner-occupied		2,527		2,527		----		2,475		141		141
Nonowner-occupied		2,368		946		----		1,912		57		57
Construction		336		----		----		----		20		20
Commercial and industrial		7,116		7,116		----		5,802		414		414
Total	$	14,376	$	12,618	$	98	$	11,067	$	748	$	748

Notes to the Consolidated Financial Statements

Note C – Loans and Allowance for Loan Losses (continued)

December 31, 2017	Unpaid<br><br> <br>Principal<br><br> <br>Balance		Recorded<br><br> <br>Investment		Allowance for<br><br> <br>Loan Losses<br><br> <br>Allocated		Average<br><br> <br>Impaired<br><br> <br>Loans		Interest<br><br> <br>Income<br><br> <br>Recognized		Cash Basis<br><br> <br>Interest<br><br> <br>Recognized
With an allowance recorded:
Commercial real estate:
Nonowner-occupied	$	372	$	372	$	94	$	378	$	17	$	17
With no related allowance recorded:
Residential real estate		1,420		1,420		----		851		66		66
Commercial real estate:
Owner-occupied		3,427		3,427		----		2,456		184		184
Nonowner-occupied		4,989		3,534		----		3,521		81		81
Construction		352		----		----		----		19		19
Commercial and industrial		9,154		9,154		----		8,544		481		481
Consumer:
Home equity		203		201		----		208		7		7
Total	$	19,917	$	18,108	$	94	$	15,958	$	855	$	855

The recorded investment of a loan is its carrying value excluding accrued interest and deferred loan fees.

Nonaccrual loans and loans past due 90 days or more and still accruing include both smaller balance homogenous loans that are collectively evaluated for impairment and individually classified as impaired loans.

The Company transfers loans to other real estate owned, at fair value less cost to sell, in the period the Company obtains physical possession of the property (through legal title or through a deed in lieu). As of December 31, 2019 and December 31, 2018, other real estate owned for residential real estate properties totaled $68 and $134, respectively. In addition, nonaccrual residential mortgage loans that are in the process of foreclosure had a recorded investment of $1,780 and $2,375 as of December 31, 2019 and December 31, 2018, respectively.

The following table presents the recorded investment of nonaccrual loans and loans past due 90 days or more and still accruing by class of loans as of December 31, 2019 and 2018:

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

Notes to the Consolidated Financial Statements

Note C – Loans and Allowance for Loan Losses (continued)

	Loans Past Due 90 Days<br><br> <br>And Still Accruing		Nonaccrual
December 31, 2018
Residential real estate	$	19	$	6,661
Commercial real estate:
Owner-occupied		----		470
Nonowner-occupied		362		574
Construction		66		416
Commercial and industrial		31		228
Consumer:
Automobile		270		59
Home equity		91		183
Other		228		86
Total	$	1,067	$	8,677

The following table presents the aging of the recorded investment of past due loans by class of loans as of December 31, 2019 and 2018:

December 31, 2019	30-59<br><br> <br>Days<br><br> <br>Past Due		60-89<br><br> <br>Days<br><br> <br>Past Due		90 Days<br><br> <br>Or More<br><br> <br>Past Due		Total<br><br> <br>Past Due		Loans Not<br><br> <br>Past Due		Total
Residential real estate	$	4,015	$	1,314	$	1,782	$	7,111	$	303,142	$	310,253
Commercial real estate:
Owner-occupied		383		59		144		586		55,239		55,825
Nonowner-occupied		12		----		697		709		130,689		131,398
Construction		186		19		49		254		34,659		34,913
Commercial and industrial		1,320		312		241		1,873		98,150		100,023
Consumer:
Automobile		986		329		246		1,561		62,209		63,770
Home equity		106		18		279		403		22,479		22,882
Other		559		139		443		1,141		52,569		53,710
Total	$	7,567	$	2,190	$	3,881	$	13,638	$	759,136	$	772,774
December 31, 2018	30-59<br><br> <br>Days<br><br> <br>Past Due		60-89<br><br> <br>Days<br><br> <br>Past Due		90 Days<br><br> <br>Or More<br><br> <br>Past Due		Total<br><br> <br>Past Due		Loans Not<br><br> <br>Past Due		Total
---	---	---	---	---	---	---	---	---	---	---	---	---
Residential real estate	$	3,369	$	1,183	$	1,642	$	6,194	$	297,885	$	304,079
Commercial real estate:
Owner-occupied		298		----		129		427		61,267		61,694
Nonowner-occupied		299		----		747		1,046		116,142		117,188
Construction		31		----		265		296		37,182		37,478
Commercial and industrial		428		192		110		730		112,513		113,243
Consumer:
Automobile		1,287		286		289		1,862		68,364		70,226
Home equity		171		92		260		523		21,989		22,512
Other		593		291		228		1,112		49,520		50,632
Total	$	6,476	$	2,044	$	3,670	$	12,190	$	764,862	$	777,052

Notes to the Consolidated Financial Statements

Note C – Loans and Allowance for Loan Losses (continued)

Troubled Debt Restructurings:

A troubled debt restructuring (“TDR”) occurs when the Company has agreed to a loan modification in the form of a concession for a borrower who is experiencing financial difficulty. All TDRs are considered to be impaired. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; a reduction in the contractual principal and interest payments of the loan; or short-term interest-only payment terms.

The Company has allocated reserves for a portion of its TDRs to reflect the fair values of the underlying collateral or the present value of the concessionary terms granted to the customer.

The following table presents the types of TDR loan modifications by class of loans as of December 31, 2019 and December 31, 2018:

	TDRs<br><br> <br>Performing to<br><br> <br>Modified Terms		TDRs Not<br><br> <br>Performing to<br><br> <br>Modified Terms		Total<br><br> <br>TDRs
December 31, 2019
Residential real estate:
Interest only payments	$	209	$	----	$	209
Commercial real estate:
Owner-occupied
Interest only payments		882		----		882
Reduction of principal and interest payments		1,521		----		1,521
Maturity extension at lower stated rate than market rate		393		----		393
Credit extension at lower stated rate than market rate		393		----		393
Nonowner-occupied
Credit extension at lower stated rate than market rate		395		----		395
Commercial and industrial
Interest only payments		4,574		----		4,574
Reduction of principal and interest payments		185		----		185
Total TDRs	$	8,552	$	----	$	8,552
	TDRs<br><br> <br>Performing to<br><br> <br>Modified Terms		TDRs Not<br><br> <br>Performing to<br><br> <br>Modified Terms		Total<br><br> <br>TDRs
---	---	---	---	---	---	---
December 31, 2018
Residential real estate:
Interest only payments	$	216	$	----	$	216
Commercial real estate:
Owner-occupied
Interest only payments		968		----		968
Reduction of principal and interest payments		529		----		529
Maturity extension at lower stated rate than market rate		469		----		469
Credit extension at lower stated rate than market rate		402				402
Nonowner-occupied
Interest only payments		----		385		385
Rate reduction		----		362		362
Credit extension at lower stated rate than market rate		561		----		561
Commercial and industrial
Interest only payments		4,742		----		4,742
Total TDRs	$	7,887	$	747	$	8,634

Notes to the Consolidated Financial Statements

Note C – Loans and Allowance for Loan Losses (continued)

At December 31, 2019, the balance in TDR loans decreased $82, or 1.0%, from year-end 2018. The Company’s specific allocations in reserves to customers whose loan terms have been modified in TDRs totaled $227 at December 31, 2019, as compared to $98 in reserves at December 31, 2018. At December 31, 2019, the Company had $941 in commitments to lend additional amounts to customers with outstanding loans that are classified as TDRs, as compared to $758 at December 31, 2018.

There were no TDR loan modifications that occurred during the year ended December 31, 2018. The following tables present the pre- and post-modification balances of TDR loan modifications by class of loans that occurred during the years ended December 31, 2019 and 2017:

			TDRs<br><br> <br>Performing to Modified Terms				TDRs Not<br><br> <br>Performing to Modified Terms
	Number<br><br> <br>of<br><br> <br>Loans		Pre-Modification<br><br> <br>Recorded<br><br> <br>Investment		Post-Modification<br><br> <br>Recorded<br><br> <br>Investment		Pre-Modification<br><br> <br>Recorded<br><br> <br>Investment		Post-Modification<br><br> <br>Recorded<br><br> <br>Investment
December 31, 2019
Commercial real estate:
Owner-occupied
Reduction of principal and interest payments		1	$	1,036	$	1,036	$	----	$	----
Commercial and industrial:
Reduction of principal and interest payments		1		199		199		----		----
Total TDRs		2	$	1,235	$	1,235	$	----	$	----

The TDRs described above increased the provision expense and the allowance for loan losses by $185 during the year ended December 31, 2019, with no corresponding charge-offs.

			TDRs<br><br> <br>Performing to Modified Terms						TDRs Not<br><br> <br>Performing to Modified Terms
	Number<br><br> <br>of<br><br> <br>Loans		Pre-Modification<br><br> <br>Recorded<br><br> <br>Investment			Post-Modification<br><br> <br>Recorded<br><br> <br>Investment			Pre-Modification<br><br> <br>Recorded<br><br> <br>Investment			Post-Modification<br><br> <br>Recorded<br><br> <br>Investment
December 31, 2017
Commercial real estate:
Owner-occupied
Interest only payments		1		$	997		$	997		$	----		$	----
Credit extension at lower stated rate than market rate		1			412			412			----			----
Total TDRs		2		$	1,409		$	1,409		$	----		$	----

The TDRs described above had no impact on the allowance for loan losses and resulted in no charge-offs during the year ended December 31, 2017.

The Company had no TDRs that occurred during the year ended December 31, 2019 and December 31, 2017 that experienced any payment defaults within twelve months following their loan modification. During the twelve months ended December 31, 2018, a commercial real estate TDR totaling $362 became past due 90 days or more. Excluding this $362 commercial real estate loan, there were no other TDRs described above at December 31, 2018 that experienced any payment defaults within twelve months following their loan modification. A default is considered to have occurred once the TDR is past due 90 days or more or it has been placed on nonaccrual. TDR loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Notes to the Consolidated Financial Statements

Note C - Loans and Allowance for Loan Losses (continued)

The terms of certain other loans were modified during the years ended December 31, 2019 and 2018 that did not meet the definition of a TDR. These loans have a total recorded investment of $50,586 as of December 31, 2019 and $28,738 as of December 31, 2018. The modification of these loans primarily involved the modification of the terms of a loan to borrowers who were not experiencing financial difficulties.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. These risk categories are represented by a loan grading scale from 1 through 11. The Company analyzes loans individually with a higher credit risk rating and groups these loans into categories called “criticized” and ”classified” assets. The Company considers its criticized assets to be loans that are graded 8 and its classified assets to be loans that are graded 9 through 11. The Company’s risk categories are reviewed at least annually on loans that have aggregate borrowing amounts that meet or exceed $750.

The Company uses the following definitions for its criticized loan risk ratings:

Special Mention. Loans classified as special mention indicate considerable risk due to deterioration of repayment (in the earliest stages) due to potential weak primary repayment source, or payment delinquency. These loans will be under constant supervision, are not classified and do not expose the institution to sufficient risks to warrant classification. These deficiencies should be correctable within the normal course of business, although significant changes in company structure or policy may be necessary to correct the deficiencies. These loans are considered bankable assets with no apparent loss of principal or interest envisioned. The perceived risk in continued lending is considered to have increased beyond the level where such loans would normally be granted. Credits that are defined as a troubled debt restructuring should be graded no higher than special mention until they have been reported as performing over one year after restructuring.

The Company uses the following definitions for its classified loan risk ratings:

Substandard. Loans classified as substandard represent very high risk, serious delinquency, nonaccrual, or unacceptable credit. Repayment through the primary source of repayment is in jeopardy due to the existence of one or more well defined weaknesses and the collateral pledged may inadequately protect collection of the loans. Loss of principal is not likely if weaknesses are corrected, although financial statements normally reveal significant weakness. Loans are still considered collectible, although loss of principal is more likely than with special mention loan grade 8 loans. Collateral liquidation is considered likely to satisfy debt.

Doubtful. Loans classified as doubtful display a high probability of loss, although the amount of actual loss at the time of classification is undetermined. This should be a temporary category until such time that actual loss can be identified, or improvements made to reduce the seriousness of the classification. These loans exhibit all substandard characteristics with the addition that weaknesses make collection or liquidation in full highly questionable and improbable. This classification consists of loans where the possibility of loss is high after collateral liquidation based upon existing facts, market conditions, and value. Loss is deferred until certain important and reasonable specific pending factors which may strengthen the credit can be more accurately determined. These factors may include proposed acquisitions, liquidation procedures, capital injection, and receipt of additional collateral, mergers, or refinancing plans. A doubtful classification for an entire credit should be avoided when collection of a specific portion appears highly probable with the adequately secured portion graded substandard.

Loss. Loans classified as loss are considered uncollectible and are of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the credit has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset yielding such a minimum value even though partial recovery may be affected in the future. Amounts classified as loss should be promptly charged off.

Criticized and classified loans will mostly consist of commercial and industrial and commercial real estate loans. The Company considers its loans that do not meet the criteria for a criticized and classified asset rating as pass rated loans, which will include loans graded from 1 (Prime) to 7 (Watch). All commercial loans are categorized into a risk category either at the time of origination or re-evaluation date.

Notes to the Consolidated Financial Statements

Note C - Loans and Allowance for Loan Losses (continued)

As of December 31, 2019 and December 31, 2018, and based on the most recent analysis performed, the risk category of commercial loans by class of loans is as follows:

December 31, 2019	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	49,486	$	2,889	$	3,450	$	55,825
Nonowner-occupied		123,847		----		7,551		131,398
Construction		34,864		----		49		34,913
Commercial and industrial		89,749		298		9,976		100,023
Total	$	297,946	$	3,187	$	21,026	$	322,159
December 31, 2018	Pass		Criticized		Classified		Total
---	---	---	---	---	---	---	---	---
Commercial real estate:
Owner-occupied	$	50,474	$	7,724	$	3,496	$	61,694
Nonowner-occupied		115,170		----		2,018		117,188
Construction		37,321		----		157		37,478
Commercial and industrial		92,417		6,536		14,290		113,243
Total	$	295,382	$	14,260	$	19,961	$	329,603

The Company also obtains the credit scores of its borrowers upon origination (if available by the credit bureau) but not thereafter. The Company focuses mostly on the performance and repayment ability of the borrower as an indicator of credit risk and does not consider a borrower’s credit score to be a significant influence in the determination of a loan’s credit risk grading.

For residential and consumer loan classes, the Company evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment of residential and consumer loans by class of loans based on payment activity as of December 31, 2019 and December 31, 2018:

	Consumer
December 31, 2019	Automobile			Home Equity			Other			Residential<br><br> <br>Real Estate			Total
Performing		$	63,470		$	22,490		$	53,224		$	303,879		$	443,063
Nonperforming			300			392			486			6,374			7,552
Total		$	63,770		$	22,882		$	53,710		$	310,253		$	450,615
	Consumer
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
December 31, 2018	Automobile			Home Equity			Other			Residential<br><br> <br>Real Estate			Total
Performing		$	69,897		$	22,238		$	50,318		$	297,399		$	439,852
Nonperforming			329			274			314			6,680			7,597
Total		$	70,226		$	22,512		$	50,632		$	304,079		$	447,449

The Company, through its subsidiaries, grants residential, consumer, and commercial loans to customers located primarily in the southeastern area of Ohio as well as the western counties of West Virginia. Approximately 5.00% of total loans were unsecured at December 31, 2019, down from 5.02% at December 31, 2018.

Notes to the Consolidated Financial Statements

Note D - Premises and Equipment

Following is a summary of premises and equipment at December 31:

	2019		2018
Land	$	2,633	$	2,744
Buildings		20,890		16,154
Leasehold improvements		1,267		1,267
Furniture and equipment		6,847		6,039
		31,637		26,204
Less accumulated depreciation		12,420		11,349
Total premises and equipment	$	19,217	$	14,855

Following is a summary of premises and equipment held for sale at December 31:

	2019		2018
Land	$	153	$	----
Buildings		563		----
		716		----
Less accumulated depreciation		63		----
Total premises and equipment held for sale	$	653	$	----

Note E – Leases

The Company enters into leases in the normal course of business primarily for branch buildings and office space to conduct business. The Company’s leases have remaining terms ranging from 4 months to 17.5 years, some of which include options to extend the leases for up to 15 years.

The Company includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Company will exercise the option. In addition, the Company has elected to account for any non-lease components in its real estate leases as part of the associated lease component. The Company has also elected to not recognize leases with original lease terms of 12 months or less (short-term leases) on the Company’s balance sheet.

Leases are classified as operating or finance leases at the lease commencement date. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. At December 31, 2019, the Company did not have any finance leases.

The Company’s operating lease ROU assets and operating lease liabilities are valued based on the present value of future minimum lease payments, discounted with an incremental borrowing rate for the same term as the underlying lease. The Company has one lease arrangement that contains variable lease payments that are adjusted periodically for an index. Upon adoption of the new lease guidance on January 1, 2019, an initial ROU asset of $1,280 was recognized as a non-cash asset addition to the consolidated balance sheet.

Balance sheet information related to leases was as follows:

	December 31, 2019
Operating leases:
Operating lease right-of-use assets	$	1,053
Operating lease liabilities	$	1,053

Notes to the Consolidated Financial Statements

Note E – Leases (continued)

The components of lease cost were as follows:

	December 31, 2019
Operating lease cost	$	282
Short-term lease expense	$	52

Future undiscounted lease payments for operating leases with initial terms of one year or more as of December 31, 2019 are as follows:

	Operating Leases
2020	$	180
2021		157
2022		157
2023		116
2024		95
Thereafter		546
Total lease payments		1,251
Less: Imputed Interest		(198	)
Total operating leases	$	1,053

Other information was as follows:

	December 31, 2019
Weighted-average remaining lease term for operating leases	10.6 years
Weighted-average discount rate for operating leases		2.76%

Note F – Goodwill and Intangible Assets

Goodwill: The change in goodwill during the year is as follows:

	2019			2018		2017
Beginning of year	$	7,371		$	7,371	$	7,801
Acquired goodwill		----			----		----
Impairment		----			----		----
Finalization of Milton branch sale		(52	)		----		----
Finalization of Milton acquisition accounting		----			----		(430	)
End of year	$	7,319		$	7,371	$	7,371

Impairment exists when a reporting unit’s carrying value of goodwill exceeds its fair value. At December 31, 2019 and 2018, the Company’s reporting unit had positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than not that fair value of the reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that it is more likely than not that fair value of goodwill is more than the carrying value, resulting in no impairment. Therefore, the Company did not proceed to step one of the annual goodwill impairment testing requirement.

Acquired intangible assets: Acquired intangible assets were as follows at year-end:

	2019						2018
	Gross Carrying Amount			Accumulated Amortization			Gross Carrying Amount			Accumulated Amortization
Amortized intangible assets:
Core deposit intangibles		$	738		$	564		$	738		$	359

Aggregate amortization expense was $206 for 2019, $135 for 2018 and $156 for 2017.

Notes to the Consolidated Financial Statements

Note F – Goodwill and Intangible Assets (continued)

Estimated amortization expense for each of the next five years:

2020	$	62
2021		48
2022		35
2023		21
2024		8
Total	$	174

Note G - Deposits

Following is a summary of interest-bearing deposits at December 31:

		2018
NOW accounts	158,434	$	155,166
Savings and Money Market	230,672		237,868
Time:
In denominations of 250,000 or less	175,334		178,736
In denominations of more than 250,000	34,424		37,113
Total time deposits	209,758		215,849
Total interest-bearing deposits	598,864	$	608,883

All values are in US Dollars.

Following is a summary of total time deposits by remaining maturity at December 31, 2019:

2020	$	116,666
2021		58,585
2022		22,833
2023		9,077
2024		1,978
Thereafter		619
Total	$	209,758

Brokered deposits, included in time deposits, were $25,797 and $30,838 at December 31, 2019 and 2018, respectively.

Note H - Interest Rate Swaps

The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities. The Company utilizes interest rate swap agreements as part of its asset/liability management strategy to help manage its interest rate risk position. As part of this strategy, the Company provides its customer with a fixed-rate loan while creating a variable-rate asset for the Company by the customer entering into an interest rate swap with the Company on terms that match the loan. The Company offsets its risk exposure by entering into an offsetting interest rate swap with an unaffiliated institution. These interest rate swaps do not qualify as designated hedges; therefore, each swap is accounted for as a standalone derivative. At December 31, 2019, the Company had interest rate swaps associated with commercial loans with a notional value of $7,633 and a fair value of $459. This is compared to interest rate swaps with a notional value of $9,219 and a fair value of $101 at December 31, 2018. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreement. To further offset the risk exposure related to market value fluctuations of its interest rate swaps, the Company maintains collateral deposits on hand with a third-party correspondent, which totaled $750 at December 31, 2019 and $350 at December 31, 2018.

Notes to the Consolidated Financial Statements

Note I - Other Borrowed Funds

Other borrowed funds at December 31, 2019 and 2018 are comprised of advances from the FHLB of Cincinnati and promissory notes.

	FHLB Borrowings		Promissory Notes		Totals
2019	$	29,758	$	4,233	$	33,991
2018	$	33,434	$	6,279	$	39,713

Pursuant to collateral agreements with the FHLB, advances are secured by $301,244 in qualifying mortgage loans, $69,683 in commercial loans and $5,365 in FHLB stock at December 31, 2019. Fixed-rate FHLB advances of $29,758 mature through 2042 and have interest rates ranging from 1.53% to 3.31% and a year-to-date weighted average cost of 2.39% and 2.36% at December 31, 2019 and 2018, respectively. There were no variable-rate FHLB borrowings at December 31, 2019.

At December 31, 2019, the Company had a cash management line of credit enabling it to borrow up to $80,000 from the FHLB. All cash management advances have an original maturity of 90 days. The line of credit must be renewed on an annual basis. There was $80,000 available on this line of credit at December 31, 2019.

Based on the Company’s current FHLB stock ownership, total assets and pledgeable loans, the Company had the ability to obtain borrowings from the FHLB up to a maximum of $205,559 at December 31, 2019. Of this maximum borrowing capacity of $205,559, the Company had $119,302 available to use as additional borrowings, of which $80,000 could be used for short-term, cash management advances, as mentioned above.

Promissory notes, issued primarily by Ohio Valley, are due at various dates through a final maturity date of May 17, 2021, and have fixed rates ranging from 2.00% to 4.09% and a year-to-date weighted average cost of 2.73% at December 31, 2019, as compared to 2.83% at December 31, 2018. At December 31, 2019, there were eight promissory notes payable by Ohio Valley to related parties totaling $3,558. See Note M for further discussion of related party transactions. Promissory notes payable to other banks totaled $405 at December 31, 2019.

Letters of credit issued on the Bank’s behalf by the FHLB to collateralize certain public unit deposits as required by law totaled $56,500 at December 31, 2019 and $51,700 at December 31, 2018.

Scheduled principal payments over the next five years:

	FHLB Borrowings		Promissory Notes		Totals
2020	$	3,722	$	3,600	$	7,322
2021		3,000		633		3,633
2022		2,841		----		2,841
2023		2,705		----		2,705
2024		2,301		----		2,301
Thereafter		15,189		----		15,189
Total	$	29,758	$	4,233	$	33,991

Note J - Subordinated Debentures and Trust Preferred Securities

On March 22, 2007, a trust formed by Ohio Valley issued $8,500 of adjustable-rate trust preferred securities as part of a pooled offering of such securities. The rate on these trust preferred securities was fixed at 6.58% for five years, and then converted to a floating-rate term on March 15, 2012, based on a rate equal to the 3-month LIBOR plus 1.68%. The interest rate on these trust preferred securities was 3.57% at December 31, 2019 and 4.47% at December 31, 2018. There were no debt issuance costs incurred with these trust preferred securities. The Company issued subordinated debentures to the trust in exchange for the proceeds of the offering. The subordinated debentures must be redeemed no later than June 15, 2037.

Notes to the Consolidated Financial Statements

Note J - Subordinated Debentures and Trust Preferred Securities (continued)

Under the provisions of the related indenture agreements, the interest payable on the trust preferred securities is deferrable for up to five years and any such deferral is not considered a default. During any period of deferral, the Company would be precluded from declaring or paying dividends to shareholders or repurchasing any of the Company’s common stock. Under generally accepted accounting principles, the trusts are not consolidated with the Company. Accordingly, the Company does not report the securities issued by the trust as liabilities, and instead reports as liabilities the subordinated debentures issued by the Company and held by the trust. Since the Company’s equity interest in the trusts cannot be received until the subordinated debentures are repaid, these amounts have been netted. The subordinated debentures may be included in Tier 1 capital (with certain limitations applicable) under current regulatory guidelines and interpretations.

Note K - Income Taxes

On December 22, 2017, the TCJA was signed into law, which included several provisions that affected the Company’s federal income tax expense, which reduced the federal income tax rate to 21% effective January 1, 2018. As a result of the rate reduction, the Company was required to re-measure, through income tax expense in the period of enactment, the deferred tax assets and liabilities using the enacted rate at which these items are expected to be recovered or settled. The re-measurement of the Company’s net deferred tax asset resulted in additional 2017 income tax expense of $1,783.

The provision for income taxes consists of the following components:

	2019		2018			2017
Current tax expense	$	1,446	$	2,389		$	2,579
Deferred tax (benefit) expense		367		(134	)		1,907
Total income taxes	$	1,813	$	2,255		$	4,486

The source of deferred tax assets and deferred tax liabilities at December 31:

	2019			2018
Items giving rise to deferred tax assets:
Allowance for loan losses	$	1,364		$	1,463
Unrealized loss on securities available for sale		----			568
Deferred compensation		1,700			1,580
Deferred loan fees/costs		110			119
Other real estate owned		4			434
Accrued bonus		204			280
Purchase accounting adjustments		24			61
Net operating loss		115			132
Lease liability		274			----
Other		346			257
Items giving rise to deferred tax liabilities:
Mortgage servicing rights		(77	)		(80	)
FHLB stock dividends		(676	)		(676	)
Unrealized gain on securities available for sale		(140	)		----
Prepaid expenses		(182	)		(191	)
Depreciation and amortization		(579	)		(656	)
Right-of-use asset		(274	)		----
Other		----			(3	)
Net deferred tax asset	$	2,213		$	3,288

Notes to the Consolidated Financial Statements

Note K - Income Taxes (continued)

The Company determined that it was not required to establish a valuation allowance for deferred tax assets since management believes that the deferred tax assets are likely to be realized through the future reversals of existing taxable temporary differences, deductions against forecasted income and tax planning strategies.

At December 31, 2019, the Company’s deferred tax asset related to Section 382 net operating loss carryforwards was $550, which will expire in 2026.

The difference between the financial statement tax provision and amounts computed by applying the statutory federal income tax rate of 21% in 2019 and 2018 and 34% in 2017 to income before taxes is as follows:

	2019			2018			2017
Statutory tax	$	2,461		$	2,982		$	4,078
Effect of nontaxable interest		(336	)		(352	)		(514	)
Effect of nontaxable insurance premiums		(212	)		(218	)		(303	)
Income from bank owned insurance, net		(141	)		(142	)		(230	)
Effect of postretirement benefits		54			20			(78	)
Effect of nontaxable life insurance death proceeds		----			----			(175	)
Impact from TCJA		----			----			1,783
Effect of state income tax		100			33			70
Tax credits		(145	)		(217	)		(191	)
Milton Merger Costs		----			----			4
Other items		32			149			42
Total income taxes	$	1,813		$	2,255		$	4,486

At December 31, 2019 and December 31, 2018, the Company had no unrecognized tax benefits. The Company does not expect the amount of unrecognized tax benefits to significantly change within the next twelve months. The Company did not recognize any interest and/or penalties related to income tax matters for the periods presented.

The Company is subject to U.S. federal income tax as well as West Virginia state income tax. The Company is no longer subject to federal or state examination for years prior to 2016. The tax years 2016-2018 remain open to federal and state examinations.

Note L - Commitments and Contingent Liabilities

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit, and financial guarantees written, is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for instruments recorded on the balance sheet.

Notes to the Consolidated Financial Statements

Note L - Commitments and Contingent Liabilities (continued)

Following is a summary of such commitments at December 31:

	2019		2018
Fixed rate	$	660	$	121
Variable rate		70,561		66,580
Standby letters of credit		3,957		4,325

At December 31, 2019, the fixed-rate commitments have interest rates ranging from 3.375% to 6.25% and maturities ranging from 15 years to 30 years.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties.

During the years covered by these consolidated financial statements, the Company participated as a facilitator of tax refunds pursuant to a clearing agreement with a third-party tax refund product provider. The clearing agreement required the Bank to process electronic refund checks (“ERC’s”) and electronic refund deposits (“ERD’s”) presented for payment on behalf of taxpayers containing taxpayer refunds. The Bank received a fee paid by the third-party tax refund product provider for each transaction that is processed. In 2018, the third-party tax refund product provider ceased utilizing the services of the Bank.

There are various contingent liabilities that are not reflected in the financial statements, including claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material effect on financial condition or results of operations.

Note M - Related Party Transactions

Certain directors, executive officers and companies with which they are affiliated were loan customers during 2019. A summary of activity on these borrower relationships with aggregate debt greater than $120 is as follows:

Total loans at January 1, 2019	$	3,674
New loans		890
Repayments		(391	)
Other changes		(199	)
Total loans at December 31, 2019	$	3,974

Other changes include adjustments for loans applicable to one reporting period that are excludable from the other reporting period, such as changes in persons classified as directors, executive officers and companies’ affiliates.

Deposits from principal officers, directors, and their affiliates at year-end 2019 and 2018 were $47,911 and $52,877. In addition, the Company had promissory notes outstanding with directors and their affiliates totaling $3,558 at year-end 2019 and 2018. The interest rates ranged from 1.50% to 2.85%, with terms ranging from 10 to 36 months.

Notes to the Consolidated Financial Statements

Note N - Employee Benefits

The Bank has a profit-sharing plan for the benefit of its employees and their beneficiaries. Contributions to the plan are determined by the Board of Directors of Ohio Valley. Contributions charged to expense were $264, $352, and $340 for 2019, 2018 and 2017.

Ohio Valley maintains an Employee Stock Ownership Plan (“ESOP”) covering substantially all employees of the Company. Ohio Valley issues shares to the ESOP, purchased by the ESOP with subsidiary cash contributions, which are allocated to ESOP participants based on relative compensation. The total number of shares held by the ESOP, all of which have been allocated to participant accounts, were 365,274 and 360,669 at December 31, 2019 and 2018. In addition, the subsidiaries made contributions to its ESOP Trust as follows:

	Years ended December 31
	2019		2018		2017
Number of shares issued		8,333		7,294		15,118
Fair value of stock contributed	$	328	$	295	$	428
Cash contributed		500		500		250
Total expense	$	828	$	795	$	678

Life insurance contracts with a cash surrender value of $28,481 and annuity assets of $2,115 at December 31, 2019 have been purchased by the Company, the owner of the policies. The purpose of these contracts was to replace a current group life insurance program for executive officers, implement a deferred compensation plan for directors and executive officers, implement a director retirement plan and implement supplemental retirement plans for certain officers. Under the deferred compensation plan, Ohio Valley pays each participant the amount of fees deferred plus interest over the participant’s desired term, upon termination of service. Under the director retirement plan, participants are eligible to receive ongoing compensation payments upon retirement subject to length of service. The supplemental retirement plans provide payments to select executive officers upon retirement based upon a compensation formula determined by Ohio Valley’s Board of Directors. The present value of payments expected to be provided are accrued during the service period of the covered individuals and amounted to $7,815 and $7,267 at December 31, 2019 and 2018. Expenses related to the plans for each of the last three years amounted to $627, $602, and $490. In association with the split-dollar life insurance plan, the present value of the postretirement benefit totaled $3,130 at December 31, 2019 and $2,873 at December 31, 2018.

During 2017, the Company collected $2,107 in proceeds on two BOLI policies and recorded $1,993 in proceeds expected to be received from the settlement of two other BOLI policies. This resulted in a $3,586 reduction to BOLI assets and a net gain of $514 that was recorded to income. The proceeds of $1,993 had not yet been collected by year-end 2017 and, therefore, were recorded as other assets at December 31, 2017. The proceeds were collected in 2018.

Note O - 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.

Notes to the Consolidated Financial Statements

Note O - Fair Value of Financial Instruments (continued)

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. 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).

Notes to the Consolidated Financial Statements

Note O - Fair Value of Financial Instruments (continued)

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 December 31, 2019, Using
	Quoted Prices in<br><br> <br>Active Markets<br><br> <br>for Identical<br><br> <br>Assets<br><br> <br>(Level 1)		Significant Other<br><br> <br>Observable<br><br> <br>Inputs<br><br> <br>(Level 2)				Significant<br><br> <br>Unobservable<br><br> <br>Inputs<br><br> <br>(Level 3)
Assets:
U.S. Government sponsored entity securities		----		$	16,736			----
Agency mortgage-backed securities, residential		----			88,582			----
Interest rate swap derivatives		----			465			----
Interest rate swap derivatives		----			(465	)		----
	Fair Value Measurements at December 31, 2018, Using
---	---	---	---	---	---	---	---	---
	Quoted Prices in<br><br> <br>Active Markets<br><br> <br>for Identical<br><br> <br>Assets<br><br> <br>(Level 1)		Significant Other<br><br> <br>Observable<br><br> <br>Inputs<br><br> <br>(Level 2)				Significant<br><br> <br>Unobservable<br><br> <br>Inputs<br><br> <br>(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 December 31, 2019, Using
	Quoted Prices in<br><br> <br>Active Markets<br><br> <br>for Identical<br><br> <br>Assets<br><br> <br>(Level 1)		Significant Other<br><br> <br>Observable<br><br> <br>Inputs<br><br> <br>(Level 2)		Significant<br><br> <br>Unobservable<br><br> <br>Inputs<br><br> <br>(Level 3)
Assets:
Impaired loans:
Commercial real estate:
Owner-occupied	$	----	$	----	$	1,644
Commercial and Industrial		----		----		4,559
	Fair Value Measurements at December 31, 2018, Using
---	---	---	---	---	---	---
	Quoted Prices in<br><br> <br>Active Markets<br><br> <br>for Identical<br><br> <br>Assets<br><br> <br>(Level 1)		Significant Other<br><br> <br>Observable<br><br> <br>Inputs<br><br> <br>(Level 2)		Significant<br><br> <br>Unobservable<br><br> <br>Inputs<br><br> <br>(Level 3)
Assets:
Impaired loans:
Commercial real estate:
Nonowner-occupied	$	----	$	----	$	264
Other real estate owned:
Commercial real estate:
Construction		----		228		----

Notes to the Consolidated Financial Statements

Note O - Fair Value of Financial Instruments (continued)

At December 31, 2019, the recorded investment of impaired loans measured for impairment using the fair value of collateral for collateral-dependent loans totaled $7,010, with a corresponding valuation allowance of $807, resulting in an increase of $807 in provision expense during the year ended December 31, 2019, with no corresponding 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.

There was no other real estate owned that was measured at fair value less costs to sell at December 31, 2019. Other real estate owned that was measured at fair value less costs to sell at 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 at December 31, 2018. There were $594 in corresponding write-downs during 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 December 31, 2019 and December 31, 2018:

December 31, 2019	Fair Value		Valuation<br><br> <br>Technique(s)	Unobservable<br><br> <br>Input(s)	Range	(Weighted<br><br> <br>Average)
Impaired loans:
Commercial real estate:
Owner-occupied	$	1,644	Sales approach	Adjustment to comparables	0% to 20%		9.7%
Commercial and Industrial		4,559	Sales approach	Adjustment to comparables	0% to 61%		10.3%
December 31, 2018	Fair Value		Valuation<br><br> <br>Technique(s)	Unobservable<br><br> <br>Input(s)	Range	(Weighted<br><br> <br>Average)
---	---	---	---	---	---	---	---
Impaired loans:
Commercial real estate:
Nonowner-occupied	$	264	Sales approach	Adjustment to comparables	6.8% to 66.7%		18.0%

Notes to the Consolidated Financial Statements

Note O - Fair Value of Financial Instruments (continued)

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

			Fair Value Measurements at December 31, 2019 Using:
	Carrying<br><br> <br>Value		Level 1		Level 2		Level 3		Total
Financial Assets:
Cash and cash equivalents	$	52,356	$	52,356	$	----	$	----	$	52,356
Certificates of deposit in financial institutions		2,360		----		2,360		----		2,360
Securities available for sale		105,318		----		105,318		----		105,318
Securities held to maturity		12,033		----		6,446		5,958		12,404
Loans, net		766,502		----		----		771,285		771,285
Interest rate swap derivatives		465		----		465		----		465
Accrued interest receivable		2,564		----		315		2,249		2,564
Financial Liabilities:
Deposits		821,471		222,607		599,937		----		822,544
Other borrowed funds		33,991		----		34,345		----		34,345
Subordinated debentures		8,500		----		6,275		----		6,275
Interest rate swap derivatives		465		----		465		----		465
Accrued interest payable		1,589		3		1,586		----		1,589
			Fair Value Measurements at December 31, 2018 Using:
---	---	---	---	---	---	---	---	---	---	---
	Carrying<br><br> <br>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
Interest rate swap derivatives		101		----		101		----		101
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
Interest rate swap derivatives		101		----		101		----		101
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 December 31, 2019 and 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.

Notes to the Consolidated Financial Statements

Note P - Regulatory Matters

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. New rules became effective for the Company and the Bank on January 1, 2015, with full compliance with all of the requirements being fully phased in on January 1, 2019. Minimum requirements increased for both the quantity and quality of capital held by the Company and the Bank. The rules include a capital conservation buffer of 2.5% of risk-weighted assets. The capital conservation buffer began to phase in on January 1, 2016 at 0.625%, and increased by the same amount on each subsequent January 1 over a four-year period. The fully phased-in capital conservation buffer as of January 1, 2019 is 2.5%. Failure to maintain the required common equity tier 1 capital conservation buffer will result in potential restrictions on a bank's ability to pay dividends, repurchase stock and/or pay discretionary compensation to its employees.

Prompt corrective action regulations applicable to insured depository institutions provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year-end 2019 and 2018, the Bank met the capital requirements to be deemed well capitalized under the regulatory framework for prompt corrective action. Regulations of the FRB require a state-chartered bank that is a member of a Federal Reserve Bank to maintain certain amounts and types of capital and generally also require bank holding companies to meet such requirements on a consolidated basis. The FRB generally requires bank holding companies that have chosen to become financial holding companies to be “well capitalized,” as defined by FRB regulations, in order to continue engaging in activities permissible only to bank holding companies that are registered as financial holding companies. If, however, a bank holding company, whether or not also a financial holding company, satisfies the requirements of the FR’s Small Bank Holding Company Policy (the “SBHCP”), the holding company is not required to meet the consolidated capital requirements. As amended effective in September 2018, the SBHCP requires that the holding company have assets of less than $3 billion, that it meet certain qualitative requirements, and that all of the holding company’s bank subsidiaries meet all bank capital requirements. As of December 31, 2019, the Company was deemed to meet the SBHCP requirements and so was not required to meet consolidated capital requirements at the holding company level.

The following table summarizes the capital ratios (excluding the capital conservation buffer) of the Company and the Bank. The minimums for the Company are those that would have been required if the Company was not a small bank holding company under the SBHCP.

	Actual				Minimum Regulatory		Minimum<br><br> <br>To Be Well
2019	Amount		Ratio		Capital Ratio		Capitalized ^(1)^
Total capital (to risk weighted assets)
Consolidated	$	134,930		18.7%		8.0%		10.0%
Bank		120,716		17.0		8.0		10.0
Common equity Tier 1 capital (to risk weighted assets)
Consolidated		120,158		16.6		4.5		N/A
Bank		114,772		16.1		4.5		6.5
Tier 1 capital (to risk weighted assets)
Consolidated		128,658		17.8		6.0		6.0
Bank		114,772		16.1		6.0		8.0
Tier 1 capital (to average assets)
Consolidated		128,658		12.5		4.0		N/A
Bank		114,772		11.3		4.0		5.0

Notes to the Consolidated Financial Statements

Note P – Regulatory Matters (continued)

	Actual				Minimum Regulatory		Minimum<br><br> <br>To Be Well
2018	Amount		Ratio		Capital Ratio		Capitalized ^(1)^
Total capital (to risk weighted assets)
Consolidated	$	127,487		17.7%		8.0%		10.0%
Bank		114,947		16.2		8.0		10.0
Common equity Tier 1 capital (to risk weighted assets)
Consolidated		112,259		15.6		4.5		N/A
Bank		108,547		15.3		4.5		6.5
Tier 1 capital (to risk weighted assets)
Consolidated		120,759		16.7		6.0		6.0
Bank		108,547		15.3		6.0		8.0
Tier 1 capital (to average assets)
Consolidated		120,759		11.8		4.0		N/A
Bank		108,547		10.7		4.0		5.0
(1)	For the Company, these amounts would be required for the Company to engage in activities permissible only for a bank holding company that meets the financial holding company requirements if<br> the Company were not subject to the SBHCP. For the Bank, these are the amounts required for the Bank to be deemed well capitalized under the prompt corrective action regulations.
---	---

Dividends paid by the subsidiaries are the primary source of funds available to Ohio Valley for payment of dividends to shareholders and for other working capital needs. The payment of dividends by the subsidiaries to Ohio Valley is subject to restrictions by regulatory authorities and state law. These restrictions generally limit dividends to the current and prior two years retained earnings of the Bank and Loan Central, Inc., and 90% of the prior year’s net income of OVBC Captive, Inc. At January 1, 2020 approximately $15,042 of the subsidiaries’ retained earnings were available for dividends under these guidelines. In addition to these restrictions, dividend payments cannot reduce regulatory capital levels below minimum regulatory guidelines. The amount of dividends payable by the Bank is also restricted if the Bank does not hold a capital conservation buffer. The ability of Ohio Valley to borrow funds from the Bank is limited as to amount and terms by banking regulations. The Board of Governors of the Federal Reserve System also has a policy requiring Ohio Valley to provide notice to the FRB in advance of the payment of a dividend to Ohio Valley’s shareholders under certain circumstances, and the FRB may disapprove of such dividend payment if the FRB determines the payment would be an unsafe or unsound practice.

Note Q - Parent Company Only Condensed Financial Information

Below is condensed financial information of Ohio Valley. In this information, Ohio Valley’s investment in its subsidiaries is stated at cost plus equity in undistributed earnings of the subsidiaries since acquisition. This information should be read in conjunction with the consolidated financial statements of the Company.

CONDENSED STATEMENTS OF CONDITION

	Years ended December 31:
Assets	2019		2018
Cash and cash equivalents	$	4,308	$	4,032
Investment in subsidiaries		134,910		126,059
Notes receivable – subsidiaries		1,963		3,000
Other assets		48		93
Total assets	$	141,229	$	133,184
Liabilities
Notes payable	$	4,233	$	6,279
Subordinated debentures		8,500		8,500
Other liabilities		317		531
Total liabilities		13,050		15,310
Shareholders’ Equity
Total shareholders’ equity		128,179		117,874
Total liabilities and shareholders’ equity	$	141,229	$	133,184

Notes to the Consolidated Financial Statements

Note Q - Parent Company Only Condensed Financial Information (continued)

CONDENSED STATEMENTS OF INCOME

	Years ended December 31:
Income:	2019		2018		2017
Interest on notes	$	47	$	53	$	51
Dividends from subsidiaries		4,375		4,225		4,400
Expenses:
Interest on notes		139		185		211
Interest on subordinated debentures		356		330		248
Operating expenses		377		351		332
Income before income taxes and equity in undistributed earnings of subsidiaries		3,550		3,412		3,660
Income tax benefit		169		164		244
Equity in undistributed earnings of subsidiaries		6,188		8,368		3,605
Net Income	$	9,907	$	11,944	$	7,509
Comprehensive Income	$	12,570	$	10,860	$	7,622

CONDENSED STATEMENTS OF CASH FLOWS

	Years ended December 31:
Cash flows from operating activities:	2019			2018			2017
Net Income	$	9,907		$	11,944		$	7,509
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries		(6,188	)		(8,368	)		(3,605	)
Common stock issued to ESOP		328			295			428
Change in other assets		45			(26	)		(15	)
Change in other liabilities		(214	)		262			(97	)
Net cash provided by operating activities		3,878			4,107			4,220
Cash flows from investing activities:
Cash paid for Milton Bancorp, Inc. acquisition		----			----			----
Change in notes receivable		1,037			320			100
Net cash provided by (used in) investing activities		1,037			320			100
Cash flows from financing activities:
Change in notes payable		(2,046	)		(1,045	)		(558	)
Proceeds from common stock through dividend reinvestment		1,407			1,325			715
Cash dividends paid		(4,000	)		(3,967	)		(3,932	)
Net cash provided by (used in) financing activities		(4,639	)		(3,687	)		(3775	)
Cash and cash equivalents:
Change in cash and cash equivalents		276			740			545
Cash and cash equivalents at beginning of year		4,032			3,292			2,747
Cash and cash equivalents at end of year	$	4,308		$	4,032		$	3,292

Notes to the Consolidated Financial Statements

  Note R - Segment Information

The reportable segments are determined by the products and services offered, primarily distinguished between banking and consumer finance. They are also distinguished by the level of information provided to the chief operating decision maker, who uses such information to review performance of various components of the business which are then aggregated if operating performance, products/services, and customers are similar. Loans, investments, and deposits provide the majority of the net revenues from the banking operation, while loans provide the majority of the net revenues for the consumer finance segment. All Company segments are domestic.

Total revenues from the banking segment, which accounted for the majority of the Company’s total revenues, totaled 94.2%, 92.9%, and 92.7% of total consolidated revenues for the years ended December 31, 2019, 2018 and 2017, respectively.

The accounting policies used for the Company’s reportable segments are the same as those described in Note A - Summary of Significant Accounting Policies. Income taxes are allocated based on income before tax expense. All goodwill is in the Banking segment.

Segment information is as follows:

	Year Ended December 31, 2019
	Banking		Consumer Finance		Total Company
Net interest income	$	39,865	$	3,187	$	43,052
Provision expense		875		125		1,000
Noninterest income		8,989		177		9,166
Noninterest expense		37,026		2,472		39,498
Tax expense		1,653		160		1,813
Net income		9,300		607		9,907
Assets		1,000,315		12,957		1,013,272
	Year Ended December 31, 2018
---	---	---	---	---	---	---
	Banking		Consumer Finance		Total Company
Net interest income	$	40,380	$	3,346	$	43,726
Provision expense		850		189		1,039
Noninterest income		8,243		695		8,938
Noninterest expense		34,841		2,585		37,426
Tax expense		1,990		265		2,255
Net income		10,942		1,002		11,944
Assets		1,017,902		12,591		1,030,493
	Year Ended December 31, 2017
---	---	---	---	---	---	---
	Banking		Consumer Finance		Total Company
Net interest income	$	38,366	$	3,367	$	41,733
Provision expense		2,415		149		2,564
Noninterest income		8,834		601		9,435
Noninterest expense		34,079		2,530		36,609
Tax expense		3,973		513		4,486
Net income		6,733		776		7,509
Assets		1,013,386		12,904		1,026,290

Notes to the Consolidated Financial Statements

Note S - Consolidated Quarterly Financial Information (unaudited)

	Quarters Ended
	Mar. 31		Jun. 30			Sept. 30		Dec. 31
2019
Total interest income	$	13,058	$	12,483		$	12,521	$	12,255
Total interest expense		1,671		1,830			1,895		1,869
Net interest income		11,387		10,653			10,626		10,386
Provision for loan losses^^		2,377		(806	)		444		(1,015	)
Noninterest income^^		1,846		2,003			2,107		3,210
Noninterest expense		9,568		9,791			9,738		10,401
Net income		1,193		3,079			2,137		3,498
Earnings per share	$	0.25	$	0.65		$	0.45	$	0.73
2018
Total interest income	$	12,709	$	11,938		$	12,181	$	12,369
Total interest expense		1,199		1,298			1,418		1,556
Net interest income		11,510		10,640			10,763		10,813
Provision for loan losses^^		756		(23	)		962		(656	)
Noninterest income^^		3,076		2,538			1,927		1,397
Noninterest expense		9,808		9,674			9,761		8,183
Net income		3,366		2,976			1,746		3,856
Earnings per share	$	0.71	$	0.63		$	0.37	$	0.82

Note T – Subsequent Events

On March 10, 2020, the Bank announced it has entered into a settlement agreement relating to the previously disclosed litigation the Bank had filed against a third-party tax software product provider. The Bank filed the litigation as a result of the third party’s early termination of its tax processing contract with the Bank at the end of 2018. Under the settlement agreement, the third-party has agreed to make a $2,000 payment to the Bank during the first quarter 2020. In addition, the Bank has entered into a new agreement with the third-party to process future electronic refund checks and deposits presented for payment on behalf of taxpayers through accounts containing taxpayer refunds. The new agreement provides that the Bank will process refunds for five tax seasons, beginning with the 2021 tax season and going through the 2025 tax season. The settlement agreement is subject to the court’s entering a dismissal of the litigation

Report of Independent Registered

Public Accounting Firm

To the Board of Directors and Shareholders

Ohio Valley Banc Corp.

Gallipolis, Ohio

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of condition of Ohio Valley Banc Corp. (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three year period ended December 31, 2019, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 16, 2020 expressed an adverse opinion.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/Crowe LLP
Crowe LLP

We have served as the Company’s auditor since 1992.

Louisville, Kentucky

March 16, 2020

Report of Independent Registered

Public Accounting Firm

To the Board of Directors and Shareholders

Ohio Valley Banc Corp.

Gallipolis, Ohio

Opinion on Internal Control over Financial Reporting

We have audited Ohio Valley Banc Corp.’s (the “Company”) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, because of the effects of the material weakness discussed in the following paragraph, the Company has not maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness related to the monitoring of loans through the subsequent events period has been identified and included in Management's Report on Internal Control over Financial Reporting.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated statements of condition of the Company as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively referred to as the "financial statements") and our report dated March 16, 2020 expressed an unqualified opinion. We considered the material weakness identified above in determining the nature, timing, and extent of audit procedures applied in our audit of the 2019 financial statements, and this report on Internal Control over Financial Reporting does not affect such report on the financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate

/s/Crowe LLP
Crowe LLP

Louisville, Kentucky

March 16, 2020

Management’s Report on Internal Control

over Financial Reporting

Board of Directors and Shareholders

Ohio Valley Banc Corp.

The management of Ohio Valley Banc Corp. (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

The system of internal control over financial reporting as it relates to the consolidated financial statements is evaluated for effectiveness by management. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed Ohio Valley Banc Corp.’s system of internal control over financial reporting as of December 31, 2019, in relation to criteria for effective internal control over financial reporting as described in the 2013 “Internal Control Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

A material weakness is a deficiency in internal control over financial reporting such that there is a reasonable possibility that a material misstatement would not be prevented or detected in a timely manner. In connection with the preparation of Ohio Valley's financial statements for the year ended December 31, 2019, and the review of such statements by its independent public accounting firm, Crowe LLP, management identified a material weakness in internal control related to the operating effectiveness of the Company’s control over appropriate monitoring of loans through the subsequent events period, including not timely evaluating information received after the fiscal year end that affected the assessment of the appropriateness of loan grades and impairment classification used in the allowance for loan losses estimate. No restatement of prior period financial statements, no change in previously issued financial results, and no adjustments to the fourth quarter 2019 allowance for loan losses calculation were required as a result of this material weakness in internal control, however, a reasonable possibility exists that material misstatements in Ohio Valley’s financial statements would not be prevented or detected on a timely basis.

Management is taking steps to remediate this material weakness by evaluating the Company’s policies and procedures for and resources allocated to the subsequent events period review control over the assessment of loan grades. As of December 31, 2019, based on management’s assessment, the Company’s internal control over financial reporting was not effective due to this matter.

Crowe LLP, independent registered public accounting firm, has issued audit reports dated March 16, 2020 on the Company's consolidated financial statements and internal control over financial reporting. Those reports are contained in Ohio Valley's Annual Report to Shareholders under the heading "Report of Independent Registered Public Accounting Firm.” Their report expressed an adverse opinion on the effectiveness of Ohio Valley’s internal control over financial reporting as of December 31, 2019.

Ohio Valley Banc Corp.
/s/Thomas E. Wiseman	/s/Scott W. Shockey
Thomas E. Wiseman	Scott W. Shockey
Chief Executive Officer	Senior Vice President, CFO
March 16, 2020

Performance Graph

OHIO VALLEY BANC CORP.

Year ended December 31, 2019

The following graph sets forth a comparison of five-year cumulative total returns among the Company's common shares (indicated “Ohio Valley Banc Corp.” on the Performance Graph), the S & P 500 Index (indicated “S & P 500” on the Performance Graph), and SNL Securities SNL $1 Billion-$5 Billion Bank Asset-Size Index (indicated “SNL $1 Billion-$5 Billion Bank Index”) for fiscal years indicated. Information reflected on the graph assumes an investment of $100 on December 31, 2014 in each of the common shares of the Company, the S & P 500 Index, and the SNL Index. Cumulative total return assumes reinvestment of dividends. The SNL $1 Billion-$5 Billion Bank Index represents stock performance of 154 banks located throughout the United States within the respective asset range as selected by SNL Securities of Charlottesville, Virginia. The Company is included as one of the 154 banks in the SNL $1 Billion-$5 Billion Bank Index.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

FORWARD LOOKING STATEMENTS

Except for the historical statements and discussions contained herein, statements contained in this report and other publicly available documents incorporated herein by reference constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934 and as defined in the Private Securities Litigation Reform Act of 1995. Such statements are often, but not always, identified by the use of such words as “believes,” “anticipates,” “expects,” “intends,” “plan,” “goal,” “seek,” “project,” “estimate,” “strategy,” “future,” “likely,” “may,” “should,” “will,” and similar expressions. Such statements involve various important assumptions, risks, uncertainties, and other factors, many of which are beyond our control and which could cause actual results to differ materially from those expressed in such forward looking statements. These factors include, but are not limited to: changes in political, economic or other factors, such as inflation rates, recessionary or expansive trends, taxes, the effects of implementation of legislation and the continuing economic uncertainty in various parts of the world; competitive pressures; fluctuations in interest rates; the level of defaults and prepayment on loans made by the Company; unanticipated litigation, claims, or assessments; fluctuations in the cost of obtaining funds to make loans; and regulatory changes. Additional detailed information concerning a number of important factors that could cause actual results to differ materially from the forward-looking statements contained in management’s discussion and analysis is available in the Company’s filings with the Securities and Exchange Commission, under the Securities Exchange Act of 1934, including the disclosure under the heading “Item 1A. Risk Factors” of Part 1 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Readers are cautioned not to place undue reliance on such forward looking statements, which speak only as of the date hereof. The Company undertakes no obligation and disclaims any intention to republish revised or updated forward looking statements, whether as a result of new information, unanticipated future events or otherwise.

ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The purpose of this discussion is to provide an analysis of the financial condition and results of operations of Ohio Valley Banc Corp. (“Ohio Valley” or the “Company”) that is not otherwise apparent from the audited consolidated financial statements included in this report. The accompanying consolidated financial information has been prepared by management in conformity with U.S. generally accepted accounting principles (“US GAAP”) and is consistent with that reported in the consolidated financial statements. Reference should be made to those statements and the selected financial data presented elsewhere in this report for an understanding of the following tables and related discussion. All dollars are reported in thousands, except share and per share data.

RESULTS OF OPERATIONS:

SUMMARY

2019 v. 2018

Ohio Valley generated net income of $9,907 for 2019, a decrease of $2,037, or 17.1%, from 2018. Earnings per share were $2.08 for 2019, a decrease of 17.8% from 2018. The decrease in net income and earnings per share for 2019 was impacted by lower net interest income and higher noninterest expense, which collectively contributed to a $2,746 decrease in earnings from 2018. Net interest income was negatively affected by a 3.2% decrease in average earning assets, primarily from lower interest-bearing deposits with banks. Further reducing net interest income was a deposit composition shift to higher costing time and money market deposits. Higher noninterest expense was impacted primarily by a 6.0% increase in salaries and employee benefit costs and a 24.4% increase in professional fees. These negative impacts to earnings were partially offset by higher noninterest income and stable provision expense during 2019, as compared to 2018. Noninterest income was positively impacted by a net gain from the sale of two previously acquired branches during the fourth quarter of 2019 and lower losses on the sale of other real estate owned (“OREO”) properties, partially offset by lower tax processing fees. The change in provision expense was minimal due to lower net charge-offs and lower criticized loans during 2019.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

The Company’s net interest income in 2019 was $43,052, representing a decrease of $674, or 1.5%, from 2018. Average earning assets decreased during 2019 by $32,338, or 3.2%, as compared to 2018, coming primarily from interest-bearing balances with banks. The Company’s average interest-bearing Federal Reserve clearing account decreased $36,528, or 39.0%, during 2019, due to not processing tax refunds in 2019. Prior to 2019, the Bank had facilitated the payment of tax refunds through a third-party tax refund product provider through electronic refund check/deposit (“ERC/ERD”) transactions. ERC/ERD transactions involved the payment of a tax refund to the taxpayer after the Bank had received the refund from the federal/state government. ERC/ERD transactions occurred primarily during the tax refund season, typically the first quarter of each year. In 2018, the third-party tax refund product provider elected to terminate its contract with the Bank early, effectively ceasing the receipt of future tax refunds at the end of 2018. Due to the absence of seasonal deposits from no tax processing activity, the Bank experienced a significant decline in its average Federal Reserve Bank balances during 2019, as compared to 2018. In addition, the Federal Reserve's action to decrease short-term interest rates by 75 basis points from August 2019 to October 2019 further limited interest earnings during the year. Net interest income was also negatively impacted by higher interest expense on deposits, which increased over 32% during 2019. The interest expense increase was largely from time deposits, particularly CDs, repricing at higher market rates, as well as a consumer shift to higher-costing money market deposit accounts. The weighted average costs for time deposits and money market accounts increased 52 and 27 basis points in 2019 and 2018, respectively. Positive contributions to net interest income came primarily from the Company’s loans, with asset yields increasing 16 basis points and average balance growth of $1,865, or 0.2%, during 2019, as compared to 2018. Average loan growth came mostly from the residential and commercial real estate loan portfolios. While earning assets were down, the Company’s net interest margin increased in 2019, finishing at 4.51% in 2019, as compared to 4.43% in 2018. Lower balances maintained at the Federal Reserve, which diluted the net interest margin from the previous year due to the yield on those balances being less than other earning assets, such as loans and securities, contributed the most to the increase in net interest margin.

The Company’s provision expense remained comparable to the prior year, finishing with $1,000 in provision for 2019, as compared to $1,039 in 2018. During 2019, the Company experienced a decrease of $354 in net charge-offs, as well as the continuing trend of improved asset quality and economic risk factors, which were impacted by lower criticized assets and historical loan loss. As a result of this risk factor improvement, the general allocations of the allowance for loan losses decreased by 17.8% from year-end 2018. The impact from lower general allocations was partially offset by an increase in specific allocations on collateral dependent impaired loans from year-end 2018.

The Company’s noninterest income increased $228, or 2.6%, from 2018. The year-to-date increase in noninterest income was largely impacted by a net gain of $1,256 on the sale of its Mount Sterling and New Holland, Ohio branches during the fourth quarter of 2019. The Company had previously acquired the two branches as part of its merger with Milton Bancorp, Inc., on August 5, 2016. Lower costs on the sale of OREO, which were down by $494, or 88.4%, from 2018, also improved noninterest revenue. Lower OREO expense in 2019 was primarily impacted by an asset write-down recorded during the fourth quarter of 2018 to lower the appraised value of one land development property. Noninterest revenue improvement in 2019 also came from interchange income growth, which increased 6.6% from 2018, driven primarily by the rising volume of debit and credit card transactions during 2019. Partially offsetting these growth areas of noninterest income were lower revenues from tax processing fees through the Bank’s ERC/ERD transactions, which decreased $1,574 from 2018. This was in relation to the third-party tax refund product provider terminating the Bank’s contract, as previously discussed.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

The Company’s noninterest expenses during 2019 increased $2,072, or 5.5%, from 2018. This increase was impacted by salary and employee benefit expense, which grew $1,333, or 6.0%, during 2019, as compared to 2018. The increase was largely the result of a voluntary severance package offered to select employees meeting certain criteria during the fourth quarter of 2019. Offering this severance package resulted in a one-time expense of $1,507. Noninterest expense growth was also affected by a $492 increase in professional fees related to higher audit and litigation legal fees. Noninterest expense increases were partially offset by lower FDIC premium costs associated with lower assessment rates and the receipt of a portion of the Bank’s premium credit granted by the FDIC during the second half of 2019.

The Company’s provision for income taxes decreased $442 during 2019, largely due to the changes in taxable income affected by the factors mentioned above.

2018 v. 2017

Ohio Valley generated net income of $11,944 in 2018, an increase of $4,435, or 59.1%, from 2017. Earnings per share were $2.53 for 2018, an increase of 58.1% from 2017. The increase in net income and earnings per share for 2018 was impacted by higher net interest income and lower provision expense, which collectively contributed to a $3,518 increase in earnings over 2017. Net interest income was positively affected by successful growth in interest earnings for both loans and interest-bearing deposits with banks driven by increases in average balances. The reduction in provision expense from the prior year of 2017 was the result of lower general allocations in the allowance for loan losses impacted by the improvement in various economic risk factors, as well as a decline in historical loan losses. The positive contributions from net interest income and provision expense were further enhanced by a decrease in tax expense of $2,231, or 49.7%, from 2017. This was a result of the Tax Cuts and Jobs Act (“TCJA”), enacted on December 22, 2017, which made broad and complex changes to the Internal Revenue Code, including a reduction of the federal income tax rate from 34% to 21%. These positive contributions to earnings growth were partially offset by lower noninterest income and higher noninterest expense during 2018, as compared to 2017. Noninterest income was negatively impacted by lower bank owned life insurance (“BOLI”) earnings and higher losses on the sale of OREO properties. Increases in noninterest expense were primarily from salaries and employee benefits.

During 2018, the Company’s net interest income finished strong at $43,726, representing an increase of $1,993, or 4.8%, from 2017. Average earning assets increased during 2018 by $50,982, or 5.4%, as compared to 2017, coming primarily from loans and interest-bearing balances with banks. The Company’s average interest-bearing Federal Reserve clearing account grew $30,488, or 48.3%, during 2018, as a result of growth in average deposits exceeding the growth in loans, as well as growth from seasonal tax refund processing activity. Furthermore, the Federal Reserve's action to increase short-term interest rates by 100 basis points from December 2017 to December 2018 contributed to interest revenue growth. The Company’s average loans during 2018 grew $20,791, or 2.8%, led by growth within the commercial loan segment. Loan growth came mostly from the Company’s West Virginia and Athens, Ohio locations. While earning assets were up, the Company’s net interest margin declined in 2018, finishing at 4.43% in 2018, as compared to 4.49% in 2017. Contributing to the decrease in net interest margin was higher balances maintained at the Federal Reserve, which diluted the net interest margin due to the yield on those balances being less than other earning assets, such as loans and securities.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

The Company’s provision expense was reduced to $1,039 in 2018, as compared to $2,564 in 2017. During 2018, the level of classified loans, or those loans demonstrating financial weakness, decreased from the prior year due to the improvement in financial performance by certain loan relationships. In addition, the Company’s historical loss rates on loans, overall loan delinquency, and regional unemployment conditions improved from the prior year. As a result of these lower risk factors, the general allocations of the allowance for loan losses decreased by 10.5%.

The Company’s noninterest income decreased $497, or 5.3%, from 2017. The year-to-date decrease in noninterest income was impacted by BOLI and annuity asset earnings, which decreased over 41% during 2018, largely as a result of $514 in net bank owned life insurance proceeds that were collected during the prior year of 2017 in conjunction with the Company's investment in various benefit plans for its directors and key employees. Decreases in noninterest income were also impacted by a $370 increase in losses on the sale of OREO, which was primarily impacted by the lower appraised value on one land development property during the fourth quarter of 2018. Further contributing to lower noninterest income was lower tax processing fees through the Bank’s ERC/ERD transactions, which decreased 6.7%. Partially offsetting these decreasing factors was an increase in interchange income, which was up 8.5% from 2017, driven by the rising volume of debit and credit card transactions during 2018.

The Company’s noninterest expenses during 2018 increased $817, or 2.2%, over 2017. The increase was impacted by salary and employee benefit expense, which grew $1,382, or 6.6%, during 2018, as compared to 2017. The increase was largely the result of annual merit increases and higher health insurance costs. Noninterest expense growth was also affected by increases to professional fees, data processing costs, and software expense. Noninterest expense increases were partially offset by lower costs associated with foreclosed assets, marketing, and “other” noninterest expenses that included costs to maintain OREO properties and third-party consulting fees.

The Company’s provision for income taxes totaled $2,255 in 2018, compared to $4,486 in 2017, which further contributed to growth in net income. The TCJA reduced the Company’s statutory federal income tax rate from 34% to 21%, resulting in lower tax expense during 2018. Furthermore, in December 2017, the reduction of the federal tax rate required the Company’s deferred tax assets and liabilities to be revalued using the enacted 21% federal tax rate. The revaluation resulted in a $1,783 one-time adjustment that increased tax expense in the fourth quarter of 2017.

NET INTEREST INCOME

The most significant portion of the Company's revenue, net interest income, results from properly managing the spread between interest income on earning assets and interest expense incurred on interest-bearing liabilities. The Company earns interest and dividend income from loans, investment securities and short-term investments while incurring interest expense on interest-bearing deposits and short- and long-term borrowings. Net interest income is affected by changes in both the average volume and mix of assets and liabilities and the level of interest rates for financial instruments. Changes in net interest income are measured by net interest margin and net interest spread. Net interest margin is expressed as the percentage of net interest income to average interest-earning assets. Net interest spread is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. Both of these are reported on a fully tax-equivalent (“FTE”) basis. Net interest margin exceeds the net interest rate spread because noninterest-bearing sources of funds, principally noninterest-bearing demand deposits and stockholders' equity, also support interest-earning assets. Following is a discussion of changes in interest-earning assets, interest-bearing liabilities and the associated impact on interest income and interest expense for the three years ended December 31, 2019. Tables I and II have been prepared to summarize the significant changes outlined in this analysis.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Net interest income in 2019 totaled $43,481 on an FTE basis, down $691, or 1.6%, from 2018. This negative change reflects the impact of a 3.2% decrease in average earning assets and a 27 basis point increase in average interest-bearing liabilities, partially offset by a 28 basis point increase in earning asset yield. The drop in average earning assets included a $35,973, or 37.2%, year-over-year decrease in average interest-bearing balances with banks. Market rate increases during 2018 had a corresponding impact to higher average deposit costs, primarily within time and money market deposits. The rate increases in time deposits during 2018 contributed to a higher consumer demand for CDs, which generated most of the increase in average interest-bearing liabilities. Consumer depositors also migrated to higher-costing money market accounts, which contributed to higher average costs within that deposit segment. Elevated earning asset yields were also impacted by the rise in short-term rates during 2018, which affected loans and deposits with banks. The net interest margin increase reflected a 27 basis point negative impact in funding costs completely offset by a 28 basis point positive impact from the mix and yield on earning assets and a 7 basis point increase in the benefit from noninterest-bearing funding (i.e., demand deposits and shareholders' equity).

Net interest income decreased in 2019 primarily due to the decrease in average volume of earning assets plus the increase in average cost of interest-bearing liabilities, partially offset by the increase in average earning asset yield. The volume decrease in average earning assets was responsible for lowering FTE interest income by $568 during 2019 over 2018, while the average cost increase in average interest-bearing liabilities generated an additional $1,784 in interest expense during the same periods. These effects were partially offset by $1,671 in additional FTE interest income from the average earning asset yield increase. Average earning assets for 2019 decreased $32,338, or 3.2%, from the prior year, mostly from interest-bearing balances with banks. The average volume on interest-bearing balances with banks contributed most to the $374 decrease in interest income from these earning asset deposits during 2019. Balances within interest-bearing deposits with banks are driven primarily by the Company’s interest-bearing Federal Reserve Bank clearing account. The Company utilizes its Federal Reserve clearing account to fund earning asset growth and, prior to 2019, to manage seasonal tax refund deposits. The processing of tax refund items prior to 2019 generated a stable source of income, as the Company would experience significant levels of excess funds impacted by the large volume of ERC/ERD transactions that were maintained within its Federal Reserve clearing account. The Bank acted as the facilitator for these ERC/ERD transactions and earned a fee for each cleared item. For the short time the Bank held such refunds, constituting noninterest-bearing deposits, the Bank would increase its deposits with the Federal Reserve. As previously mentioned, the Bank’s third-party tax refund product provider ceased utilizing the services of the Bank at the end of 2018. This absence of seasonal excess funds from no tax processing activity in 2019 led to a 39.0% decrease in average Federal Reserve Bank clearing account balances, which contributed to lower interest income. Further limiting the interest income generated by the clearing account was a reduction in short-term interest rates during 2019. In 2018, the Federal Reserve increased short-term rates by 100 basis points, which increased the interest rate on this clearing account from 1.50% to 2.50% at year-end 2018. Despite having lower average balances entering 2019, the average yield on this clearing account was up over the prior year. Then, beginning in August 2019, the Federal Reserve Bank reduced short-term interest rates by 25 basis points for three consecutive months, lowering the clearing account interest rate to 1.75% at October 2019. As a result, the average yield factor on interest-bearing balances with banks had less of an impact to 2019’s earnings, growing interest income by an additional $325 in 2019, as compared to $674 in additional interest income during 2018. The volume decrease of the Bank’s Federal Reserve clearing account in 2019 led to a lower composition of average interest-bearing balances with banks, finishing at 6.3% of average earning assets in 2019, as compared to 9.7% in 2018.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

The termination of the relationship with the third-party tax refund product provider, until replaced, will continue to adversely affect the Company’s liquidity and net income. On March 10, 2020, the Bank announced that it settled the lawsuit the Bank filed against the third-party tax refund provider alleging breach of contract. The settlement agreement requires the third-party to make a $2,000 payment during the first quarter of 2020. In addition, the Bank entered into a new agreement with the third-party to process future electronic refund checks and deposits presented for payment on behalf of taxpayers through accounts containing taxpayer refunds. The new agreement provides that the Bank will process refunds for five tax seasons, beginning with the 2021 tax season and going through the 2025 tax season. The settlement agreement is subject to the court entering a dismissal of the litigation.

Net interest income was positively impacted by loans, particularly with the change in average yield. The rise in short-term rates during 2018 had a direct impact on the repricings of a portion of the Company’s loan portfolio that benefited earnings in 2019. This increased the average loan yield by 16 basis points to 5.94% at year-end 2019, as compared to 5.78% at year-end 2018, and also contributed to $1,283 in additional FTE interest income during 2019 over 2018. The Company also experienced average loan growth, which increased $1,865, or 0.2%, during 2019. This growth came mostly from the residential and commercial real estate loan segments. The impact from the average volume growth in loans contributed to $108 in additional FTE interest income during 2019 over 2018. While average loans were up only modestly in 2019, the Company also experienced a large decline in excess fund balances being maintained within the Federal Reserve Bank clearing account. As a result, the Company finished with a larger composition of average loans to average earning assets at year-end 2019 of 80.4%, as compared to 77.6% for 2018.

Average securities of $128,391 at year-end 2019 represented a 1.4% increase from the $126,621 in average securities at year-end 2018. Average taxable securities increased 2.8% over the prior year, particularly from purchases within the agency mortgage-backed investment segment, while average tax exempt securities were down 12.0% from the prior year, largely related to maturities of state and municipal investments. The purchases of new taxable securities combined with the significant decrease in average interest-bearing balances with banks contributed to a higher asset composition of average securities in 2019, finishing at 13.3% of average earning assets at year-end 2019, as compared to 12.7% at year-end 2018. Management continues to focus on generating loan growth as loans provide the greatest return to the Company. Management maintains securities at a dollar level adequate enough to provide ample liquidity and cover pledging requirements.

Net interest income was negatively impacted by an upward movement in the average cost of interest-bearing liabilities, particularly time deposits. With average year-to-date loan balances still up over the previous year, the Company utilized more CD balances as a funding source to help keep pace with earning assets. Short-term rate increases from 2018 have had an impact on the repricing of CD rates and have generated more of a consumer demand to invest in a CD product. The average cost of time deposits increased 52 basis points from 1.43% in 2018 to 1.95% in 2019, which generated $1,125 in additional interest expense for the year. To a smaller extent, the volume impact from average time deposit growth of $5,664, or 2.7%, generated $83 in additional interest expense for the year. The growth in time deposits led to an increase in the composition of average time deposits to interest-bearing liabilities from 31.9% at year-end 2018 to 32.6% at year-end 2018.

The Company’s core deposit segment of interest-bearing liabilities consists of negotiable order of withdrawal (“NOW”), savings and money market accounts. During 2019, average balances on these deposits remained relatively stable, increasing $515, or 0.1%, and together represented 60.5% of average interest-bearing liabilities in 2019, as compared to 60.7% in 2018. As a result, the impact to interest expense from this stable movement of average balances was minimal. However, interest expense was significantly impacted by an increase in the average costs of this core group of interest-bearing liabilities, particularly money market accounts. In the fourth quarter of 2018, a new money market product was introduced in an effort to attract new deposits. The account offers a more competitive rate that is higher than the Company’s prior money market account. In addition to attracting new deposits, existing savings and money market accounts have migrated to the new product. This caused the average cost of savings and money market accounts to increase from 0.28% in 2018 to 0.55% in 2019, which generated $631 in additional interest expense for the year.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

In addition, the Company’s other borrowings and subordinated debentures collectively decreased $3,117, or 6.4%, during 2019. The decrease was related to the principal repayments applied to various FHLB advances. Borrowings and subordinated debentures continue to represent the smallest composition of average interest-bearing liabilities, finishing at 7.0% and 7.5% at the end of 2019 and 2018, respectively.

Comparing 2018 to 2017, net interest income of $44,172 on an FTE basis increased $1,661, or 3.9%. This change reflects the impact of a 5.4% increase in average earning assets and a 7 basis point increase in earning asset yield, partially offset by a 20 basis point cost increase in average interest-bearing liabilities. Average earning asset growth included a $30,610, or 46.3%, increase in average interest-bearing balances with banks and a $20,791, or 2.8%, increase in average loans. Earning asset yields were largely impacted by the rise in short-term rates during 2018, which affected loans and deposits with banks. Market rate increases during 2018 also had a corresponding impact to higher average deposit costs, primarily within time deposits. The rate increases in time deposits during 2018 contributed to a higher consumer demand for those products, particularly CDs, which generated most of the average interest-bearing liability increase. The net interest margin decrease reflected a 20 basis point negative impact in funding costs partially offset by a 7 basis point positive impact from the mix and yield on earning assets and a 7 basis point increase in the benefit from noninterest-bearing funding (i.e., demand deposits and shareholders' equity).

The increase in average volume and yield of earning assets, partially offset by the increase in average cost of interest-bearing liabilities was key to the success of 2018’s net interest income improvement. The volume increase in average earning assets was responsible for producing $1,527 in additional FTE interest income during 2018 over 2017, while the average yield increase generated an additional $1,630 in FTE interest income during the same periods. These effects were partially offset by $1,243 in additional interest expense from the average cost increase in average interest-bearing liabilities. Average earning assets for 2018 increased $50,982, or 5.4%, from the prior year, led by interest-bearing balances with banks, which increased $30,610, or 46.3%. More so, the average yield on interest-bearing balances with banks contributed most to the $1,039 increase in interest income from these earning asset deposits during 2018. Balances within interest-bearing deposits with banks are driven primarily by the Company’s interest-bearing Federal Reserve Bank clearing account. During 2018, the Company utilized its Federal Reserve clearing account to manage seasonal tax refund deposits and fund earning asset growth. Average Federal Reserve Bank clearing account balances grew 48.3% during 2018, which contributed to higher interest income. Furthermore, this interest-bearing account carried an interest rate of 1.50% at December 2017. During 2018, the Federal Reserve increased short-term rates by 25 basis points in each of March, June, September and December to reach 2.50% at December 31, 2018. The timing of the December 2017 and March 2018 rate adjustments benefited the Company, as it entered into the first quarter of 2018 experiencing significant levels of excess funds impacted by the large volume of ERC/ERD transactions that were maintained within the Federal Reserve clearing account. As previously mentioned, these ERC/ERD deposits occur primarily during the first half of the year and were the result of the Bank’s relationship with a third-party tax refund product provider. The Bank was able to redeploy some of these excess funds from its Federal Reserve Bank clearing account to help manage the loan growth that was evident in 2018. However, the average growth in total deposits exceeded the average growth in loans, which produced a higher composition of average interest-bearing balances with banks, finishing at 9.7% of average earning assets in 2018, as compared to 7.0% in 2017.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Average earning asset growth also came from loans, which increased $20,791, or 2.8%, during 2018. This growth in loans came mostly from the commercial and consumer loan segments, driven by the West Virginia and Athens, Ohio market locations. The Company’s West Virginia offices, located in Mason and Cabell counties, generated over $10,600 in average loans during 2018, particularly within the commercial loan portfolio segment. Further impacting average loan growth was the Company’s Athens, Ohio loan production office, which opened in late 2015. This office has served to enhance the Company’s market presence in Athens County, which generated over $11,800 in average loans during 2018. The average volume growth in loans contributed to $1,193 in additional FTE interest income during 2018 over 2017. Furthermore, the rise in short-term rates during 2018 also contributed to the repricings of a portion of the Company’s loan portfolio. This led to a higher average loan yield of 5.78% at year-end 2018, as compared to 5.68% at year-end 2017, and also contributed to $769 in additional FTE interest income during 2018 over 2017. While average loans were up in 2018, the Company experienced a higher level of average deposit liabilities that contributed to larger excess fund balances that were maintained within its Federal Reserve Bank clearing account. As a result, the Company finished with a smaller composition of average loans to average earning assets at year-end 2018 of 77.6%, as compared to 79.6% for 2017.

Average securities of $126,621 at year-end 2018 represented a 0.3% decrease from the $127,040 in average securities at year-end 2017. Average tax exempt securities were down 7.5% from the prior year, largely related to maturities of state and municipal investments, while average taxable securities increased 0.5%, particularly from purchases within the U.S. Government sponsored entity and Agency mortgage-backed investment segments. The Company has focused on growing earning assets primarily through loans, which has contributed to a lower asset composition of securities. Management continues to focus on generating loan growth as loans provide the greatest return to the Company. Management maintains securities at a dollar level adequate enough to provide ample liquidity and cover pledging requirements.

Average interest-bearing liabilities increased $23,842, or 3.8%, from 2017 to 2018. The growth in interest-bearing deposits during 2018 was mostly from average time deposits, which grew $20,679, or 10.9%, during 2018, impacted by a consumer demand increase for CDs and a special CD offering during the second half of 2017 that impacted additional average retail funds in 2018. The growth in time deposits resulted in the composition of average time deposits to interest-bearing liabilities trending upward to 31.9% and 29.8% of total interest-bearing liabilities at year-end 2018 and 2017, respectively. The growth in earning assets during 2017 and 2018 caused the Company to use more of its time deposits as funding sources, which contributed to higher composition levels. The higher average cost associated with time deposits, combined with higher portfolio balances in 2018, contributed to the majority of the interest expense increase of 2018.

The Company’s core deposit segment of interest-bearing liabilities consists of NOW, savings and money market accounts. During 2018, average balances on these deposits increased $1,859, or 0.5%, but together represented 60.7% of average interest-bearing liabilities in 2018, as compared to 62.7% in 2017. This decreasing shift in composition was impacted by a higher composition of time deposits during 2018, which were used to help fund earning asset growth. This overall composition shift to lower NOW, savings and money market balances combined with a higher composition of time deposits from 2017 to 2018 contributed to a 20 basis point increase in the average cost of funds from 0.63% at year-end 2017 to 0.83% at year-end 2018.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

CONSOLIDATED AVERAGE BALANCE SHEET & ANALYSIS OF NET INTEREST INCOME

	December 31
Table I	2019								2018								2017
(dollars in thousands)	Average Balance			Income/<br><br> <br>Expense		Yield/<br><br> <br>Average			Average Balance			Income/<br><br> <br>Expense		Yield/<br><br> <br>Average			Average Balance			Income/<br><br> <br>Expense		Yield/<br><br> <br>Average
Assets
Interest-earning assets:
Interest-bearing balances with banks	$	60,796		$	1,272		2.09	%	$	96,769		$	1,646		1.70	%	$	66,159		$	607		0.92	%
Securities:
Taxable		117,530			2,935		2.50			114,278			2,817		2.46			113,699			2,508		2.21
Tax exempt		10,861			432		3.98			12,343			464		3.76			13,341			617		4.63
Loans		775,860			46,107		5.94			773,995			44,716		5.78			753,204			42,754		5.68
Total interest-earning assets		965,047			50,746		5.26	%		997,385			49,643		4.98	%		946,403			46,486		4.91	%
Noninterest-earning assets:
Cash and due from banks		12,259								13,027								12,235
Other nonearning assets		65,397								60,825								62,867
Allowance for loan losses		(7,473	)							(7,981	)							(7,390	)
Total noninterest-earning assets …		70,183								65,871								67,712
Total assets	$	1,035,230							$	1,063,256							$	1,014,115
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
NOW accounts	$	162,910		$	538		0.33	%	$	162,899		$	508		0.31	%	$	157,796		$	464		0.29	%
Savings and money market		236,496			1,290		0.55			235,992			657		0.28			239,236			575		0.24
Time deposits		215,378			4,198		1.95			209,714			2,990		1.43			189,035			1,804		0.95
Other borrowed money		37,350			883		2.37			40,467			986		2.44			39,163			884		2.26
Subordinated debentures		8,500			356		4.18			8,500			330		3.89			8,500			248		2.91
Total int.-bearing liabilities		660,634			7,265		1.10	%		657,572			5,471		0.83	%		633,730			3,975		0.63	%
Noninterest-bearing liabilities:
Demand deposit accounts		235,616								278,034								259,160
Other liabilities		16,666								15,257								13,115
Total noninterest-bearing liabilities		252,282								293,291								272,275
Shareholders’ equity		122,314								112,393								108,110
Total liabilities and shareholders’ equity	$	1,035,230							$	1,063,256							$	1,014,115
Net interest earnings				$	43,481							$	44,172							$	42,511
Net interest earnings as a percent of interest-earning assets							4.51	%							4.43	%							4.49	%
Net interest rate spread							4.16	%							4.15	%							4.28	%
Average interest-bearing liabilities to average earning assets							68.46	%							65.93	%							66.96	%

Fully taxable equivalent yields are reported for tax exempt securities and loans and calculated assuming a 21% tax rate in 2019 and 2018 and a 34% tax rate in 2017, net of nondeductible interest expense. Tax-equivalent adjustments for securities during the years ended December 31, 2019, 2018 and 2017 totaled $88, $95, and $206, respectively. Tax-equivalent adjustments for loans during the years ended December 31, 2019, 2018 and 2017 totaled $341, $351, and $572, respectively. Average balances are computed on an average daily basis. The average balance for available for sale securities includes the market value adjustment. However, the calculated yield is based on the securities’ amortized cost. Average loan balances include nonaccruing loans. Loan income includes cash received on nonaccruing loans.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

RATE VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME & EXPENSE
Table II
(dollars in thousands)	2019									2018
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
	Increase (Decrease)<br><br> <br>From Previous Year Due to									Increase (Decrease)<br><br> <br>From Previous Year Due to
	Volume			Yield/Rate			Total			Volume			Yield/Rate			Total
Interest income
Interest-bearing balances with banks	$	(699	)	$	325		$	(374	)	$	365		$	674		$	1,039
Securities:
Taxable		81			37			118			13			296			309
Tax exempt		(58	)		26			(32	)		(44	)		(109	)		(153	)
Loans		108			1,283			1,391			1,193			769			1,962
Total interest income		(568	)		1,671			1,103			1,527			1,630			3,157
Interest expense
NOW accounts		----			30			30			16			28			44
Savings and money market		2			631			633			(8	)		90			82
Time deposits		83			1,125			1,208			215			971			1,186
Other borrowed money		(75	)		(28	)		(103	)		30			72			102
Subordinated debentures		----			26			26			----			82			82
Total interest expense		10			1,784			1,794			253			1,243			1,496
Net interest earnings	$	(578	)	$	(113	)	$	(691	)	$	1,274		$	387		$	1,661

The change in interest due to volume and rate is determined as follows: Volume Variance - change in volume multiplied by the previous year's rate; Yield/Rate Variance - change in rate multiplied by the previous year's volume; Total Variance –change in volume multiplied by the change in rate. The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. The tax exempt securities and loan income is presented on an FTE basis. FTE yield assumes a 21% tax rate in 2019 and 2018 and a 34% tax rate in 2017, net of related nondeductible interest expense.

In addition, the Company’s other borrowings and subordinated debentures collectively increased $1,304, or 2.7%, during 2018. The increase was related to management's decision to fund specific fixed-rate loans with like-term FHLB advances during the first quarter of 2018. Borrowings and subordinated debentures continue to represent the smallest composition of average interest-bearing liabilities, finishing at 7.5% at the end of both 2018 and 2017.

During 2019, total interest income on average earning assets increased $1,120, or 2.3%, as compared to 2018. During 2018, total interest income on average earning assets increased $3,489, or 7.6%, as compared to 2017. The changes in interest income during both comparison periods were impacted most by the commercial loan portfolio, which portfolio saw improved asset yields during 2019 and 2018 as a result of the rise in interest rates in 2018. The earnings from elevated commercial loan yields in 2019 completely offset a decrease in average commercial loan balances in 2019, which were down 0.6% from 2018. This is compared to a 4.7% increase in average commercial loan balances during 2018. As a result, commercial interest and fee revenue grew by $846, or 4.4%, and $1,729, or 9.8%, during 2019 and 2018, respectively.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

The Company’s interest and fees from its residential real estate loan portfolio increased by $308, or 2.3%, during 2019, but decreased $33, or 0.3%, during 2018. This increase was largely the result of an increase in the Bank's warehouse lending volume. Warehouse lending consists of a line of credit provided by the Bank to another mortgage lender that makes loans for the purchase of one- to four-family residential real estate properties. The mortgage lender eventually sells the loans and repays the Bank. Average warehouse lending balances increased from $8,264 in 2018 to $22,029 in 2019. Positive earnings from higher warehouse lending volume completely offset the negative impacts from decreases in other residential real estate assets. The Company continues to experience continued payoffs and maturities of both long-term fixed-rate mortgages and short-term adjustable-rate mortgages during both 2019 and 2018. Furthermore, the Company continues to sell a portion of its long-term, fixed-rate real estate loans to the Federal Home Loan Mortgage Corporation, while retaining the servicing rights for those mortgages. While this strategy has generated loan sale and servicing fee revenue within noninterest income, it has also limited interest and fee revenues during 2019 and 2018.

In 2019, consumer loan interest and fees increased $247, or 2.1%, as compared to 2018, and increased $487, or 4.3%, during 2018, as compared to 2017. This was impacted mostly by the average balance growth associated with increased home equity loan balances, as well as all-terrain and recreational vehicle loan financings. While growth in average automobile loans had a positive impact to earnings during 2018, the portfolio has since decreased, limiting the growth in consumer loan revenue for 2019.

The Company’s interest income from taxable investment securities increased $118, or 4.2%, in 2019 and $309, or 12.3%, in 2018. Average balances grew during 2019 and 2018 from increased purchases of U.S. Government sponsored entity securities and Agency mortgage-backed securities. Interest income on taxable securities was positively affected by a 4 basis point increase in yield from 2018 to 2019, and a 25 basis point increase in yield from 2017 to 2018. This was primarily due to investment purchases and reinvestment of maturities at market rates higher than the average portfolio yield.

Total interest expense incurred on the Company’s interest-bearing liabilities increased $1,794, or 32.8%, during 2019, and increased $1,496, or 37.6%, during 2018, primarily from interest expense on deposits, particularly time deposits and money market accounts. The Company’s strategy continues to focus on funding earning asset growth with lower cost, core deposit funding sources to further reduce, or limit growth in, interest expense. However, with the improvement in average loan balances in 2019 and 2018, the Company utilized more CD balances as a funding source. In addition, market rates on the Company’s CDs repriced at higher rates impacted by the ongoing short-term rate increases in 2018, which contributed to more consumer demand for CDs during both 2018 and 2019. The Company also experienced a composition shift within its money market portfolio, which has led to higher interest expense. As previously mentioned, a new money market product was introduced in the fourth quarter of 2018. Due to the new account offering a more competitive rate than the previous money market account, consumers migrated to this new product in 2019. Although the composition of average interest-bearing deposits consists mostly of lower-costing NOW, savings and money market balances, the Company’s weighted average costs still increased in 2019. This was primarily from an increasing consumer demand of higher-costing CDs and a composition shift to the new higher-costing money market deposit product. These factors contributed to an increase in the Company’s weighted average costs from 0.83% at year-end 2018 to 1.10% at year-end 2019, and from 0.63% at year-end 2017 to 0.83% at year-end 2018.

The Company’s interest expenses were also impacted by other borrowed money and subordinated debentures, which were down collectively by $77, or 5.9%, during the year ended 2019. This decrease primarily resulted from the average balance decrease in FHLB borrowings caused by principal repayments. Conversely, during the year ended 2018, interest expense from these funding sources were up collectively by $184, or 16.3%, during the year ended 2018. The increase was primarily from the average growth in FHLB borrowings, which were used to fund the purchases of specific earning assets that were originated during both 2018 and 2017.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

During 2019, the Company’s net interest margin benefited from a smaller composition of interest-bearing balances being maintained at the Federal Reserve yielding just 1.75%. In prior years, the higher balances being maintained at the Federal Reserve diluted the net interest margin due to the yield on those balances being less than other earning assets, such as loans and securities. Also during 2019, the Company maintained most of its deposit mix in lower-cost core deposits. These factors were key to completely offsetting the negative impacts of growing interest costs associated with CDs and money market accounts. This contributed to net interest margin improvement from 4.43% in 2018 to 4.51% in 2019. Conversely, the Company experienced an over 46% increase in interest-bearing Federal Reserve balances in 2018 yielding just 2.5%, which effectively diluted the margin in 2018. Also, the Company utilized more of its higher-costing time deposits in 2018 to fund earning asset growth causing the average cost of funds to grow by 20 basis points during that time. As a result, the net interest margin for 2018 compressed from 4.49% in 2017 to 4.43% in 2018. The Company will continue to face pressure on its net interest income and margin improvement if loan balances do not continue to expand and become a larger component of overall earning assets. Although rate repricings on CDs slowed towards the end of 2019, loan demand decreased during the second half of 2019, causing the pace of average loan growth over 2018 to compress during such period. The Company will continue to focus on investing its funds into higher-yielding assets, particularly loans, as opportunities arise.

PROVISION EXPENSE

Credit risk is inherent in the business of originating loans. The Company sets aside an allowance for loan losses through charges to income, which are reflected in the consolidated statement of income as the provision for loan losses. Provision for loan loss is recorded to achieve an allowance for loan losses that is adequate to absorb losses in the Company’s loan portfolio. Management performs, on a quarterly basis, a detailed analysis of the allowance for loan losses that encompasses loan portfolio composition, loan quality, loan loss experience and other relevant economic factors.

The Company’s provision expense during the years ended 2019, 2018 and 2017 totaled $1,000, $1,039 and $2,564, respectively. These results yielded a $39 decrease in provision expense from 2018 to 2019, and a $1,525 decrease in provision expense from 2017 to 2018. Provision expense in 2019 remained comparable to 2018 largely due to an increase in specific allocations being offset by decreases in net charge-offs, general allocations and a decline in loan balances. Specific allocations of the allowance for loan losses identify loan impairment by measuring fair value of the underlying collateral and the present value of estimated future cash flows. When re-evaluating impaired loan balances to their corresponding collateral values at December 31, 2019, a specific allocation of $807 was needed to fund the allowance for loan losses within the commercial real estate, commercial and industrial, and consumer loan segments. This reserve allocation was impacted mostly by two impaired loan relationships and required a corresponding increase to provision for loan losses expense. As a result, specific

  allocations increased by $709 from year-end 2018 to year-end 2019.

The increase in specific reserves during 2019 was partially offset by a $354, or 19.6%, decrease in net-charge offs. Gross charge-offs increased $1,492 during 2019, primarily from charge-offs recorded on one commercial and industrial loan relationship in September 2019. Gross recoveries increased $1,846 during 2019, primarily from two large commercial real estate recoveries in December 2019.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Further offsetting the impact of higher specific reserves in 2019 was lower general allocations. The Company’s general allocation evaluates several factors that include: average historical loan loss trends, credit risk, regional unemployment conditions, asset quality, and changes in classified and criticized assets. At December 31, 2019, general allocations decreased $1,165, or 17.6%, from $6,630 at December 31, 2018 to $5,465 at December 31, 2019. In association with heightened recoveries, the Company’s average historical loan loss factors continued to trend down in 2019, while its criticized asset risk factor decreased, as well. This, combined with a general decline in loan portfolio balances, contributed to lower general allocations at year-end 2019. Partially offsetting these positive factors to general reserves were increases in classified assets and nonperforming levels. The Company’s nonperforming loans to total loans were 1.30% at year-end 2019, as compared to 1.25% at year-end 2018, while nonperforming assets to total assets were 1.04% at year-end 2019 and 0.99% at year-end 2018. The reduction in general reserves contributed to lower provision expense during 2019, as compared to 2018.

The decrease in provision expense in 2018 was mostly impacted by reduced general allocations of the allowance for loan losses. The Company’s average historical loan loss factors continued to trend down while its classified asset risk factor decreased in 2018, as well. Furthermore, the Company’s nonperforming loans to total loans improved from 1.36% to at year-end 2017 to 1.25% at year-end 2018, while nonperforming assets to total assets improved from 1.17% to 0.99% during the same period. As a result, general allocations totaled $6,630 at December 31, 2018, as compared to $7,405 at December 31, 2017, with the decrease coming primarily within the commercial real estate loan portfolio segment. Specific allocations of the allowance for loan losses remained comparable from 2017 to 2018.

During 2018, the Company’s net charge-offs totaled $1,810, as compared to $2,764 in net charge-offs recognized during 2017. The decrease was largely due to the 2017 charge-offs of $612 on one commercial real estate loan relationship and $399 on one commercial and industrial loan relationship that both contained specific allocations. These charge-offs from 2017 did not have a corresponding impact to provision expense since the allocations had already been provided for prior to 2017. Excluding these specific allocation charge-offs from the previous year, net charge-offs during 2018 would have been up just $57, or 3.3%, as compared to 2017.

Management believes that the allowance for loan losses was adequate at December 31, 2019 and reflected probable incurred losses in the portfolio. The allowance for loan losses was 0.81% of total loans at December 31, 2019, as compared to 0.87% at December 31, 2018 and 0.97% at December 31, 2017. Future provisions to the allowance for loan losses will continue to be based on management’s quarterly in-depth evaluation that is discussed in further detail under the caption “Critical Accounting Policies - Allowance for Loan Losses” within this Management’s Discussion and Analysis.

NONINTEREST INCOME

During 2019, total noninterest income increased $228, or 2.6%, as compared to 2018. The increase in noninterest revenue was primarily impacted by a net gain on the sale of the Company’s Mount Sterling and New Holland, Ohio branches. Mount Sterling and New Holland were two of five full-service offices that were acquired as part of the Company’s merger with Milton Bancorp, Inc., in August 2016. Mount Sterling and New Holland served the outlying market areas of Madison County and Pickaway County, in Ohio, respectively, while the remaining branches served the core market area of Jackson County, Ohio. The decision to sell was driven by the distance of these two branches from the Company’s central market area. As a result, the Company sold both branches to North Valley Bank on December 6, 2019, which yielded a net gain of $1,256. This gain was related to a 5% premium on the deposits that were sold.

Also contributing to the increase in noninterest income were lower losses on OREO properties, which finished with a net loss of $65 at year-end 2019, as compared to a net loss of $559 at year-end 2018. OREO losses were elevated in 2018 mostly from the liquidation of one foreclosed land development property during the fourth quarter of 2018 that resulted in a loss on sale of $594.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Noninterest income was also positively impacted in 2019 by an increase in the Company’s interchange income, as the volume of transactions and new card issuances of its debit and credit card products continue to grow. The Company has also been successful in promoting the use of both debit and credit cards by offering incentives that permit their users to redeem accumulated points for merchandise, as well as cash incentives. As a result, debit and credit card interchange income increased $243, or 6.6%, during 2019, as compared to 2018. While incenting debit and credit card customers has increased customer use of electronic payments, which has contributed to higher interchange revenue, the strategy also fits well with the Company's emphasis on growing and enhancing its customer relationships.

Partially offsetting these positive contributors to noninterest income in 2019 was a reduction in seasonal tax refund processing revenue classified as ERC/ERD fees. During the year ended 2019, the Company’s ERC/ERD fees decreased by $1,574, or 99.7%, as compared to the same period in 2018. As previously mentioned, the Bank’s third-party tax refund product provider ceased utilizing the services of the Bank at the end of 2018.

The Company’s remaining noninterest income categories were down $191, or 4.5%, during the year ended 2019 as compared to 2018. This was in large part due to a $114 decrease in overdraft income in 2019 impacted by a lower volume of non-sufficient fund activity. Furthermore, interest rate swap revenue decreased $84 in 2019 due to lower fees resulting from a large origination in 2018. The Company utilizes interest rate swaps to satisfy the desire of large commercial customers to have a fixed-rate loan while permitting the Company to originate a variable-rate loan, which helps mitigate interest rate risk. In association with establishing an interest rate swap agreement, the Company earns a swap fee at the time of origination. The dollar amount of originations decreased during 2019, causing lower fee revenue.

During 2018, total noninterest income decreased $497, or 5.3%, as compared to 2017. The decrease in noninterest revenue was impacted by earnings from tax-free BOLI investments. BOLI investments are maintained by the Company in association with various benefit plans, including deferred compensation plans, director retirement plans and supplemental retirement plans. During 2017, the Company recorded $2,107 in cash proceeds and $1,993 in anticipated cash proceeds related to three BOLI participants, which yielded net BOLI proceeds of $514 that were recorded to income. Those 2017 BOLI proceeds contributed most to the 41.5% decrease in BOLI and annuity asset income, which finished at $717 for 2018, as compared to $1,226 in 2017.

Also contributing to the decrease in noninterest income were higher losses on OREO properties, which finished with a net loss of $559 at year-end 2018, as compared to a net loss of $189 at year-end 2017. OREO losses were elevated in 2018 mostly from the liquidation of one foreclosed land development property during the fourth quarter of 2018 that resulted in a loss on sale of $594.

Noninterest income was also negatively impacted in 2018 by a reduction in seasonal tax refund processing revenue classified as ERC/ERD fees. During the year ended 2018, the Company’s ERC/ERD fees decreased by $113, or 6.7%, as compared to the same period in 2017, largely due to reduced transaction fees associated with each refund facilitated pursuant to the Company’s contract with a third-party tax refund product provider. Furthermore, the Company experienced a decrease in the number of ERC/ERD transactions that were facilitated. As a result of ERC/ERD fee activity being mostly seasonal, the majority of income was recorded during the first half of 2018, accounting for 17.7% of total noninterest income for the year.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Partially offsetting the negative effects to noninterest income in 2018 was an increase in the Company’s interchange income from 2017, as the transaction volume associated with its debit and credit card products continued to grow. Card transactions came mostly from restaurant, gasoline and retail store purchases. Debit and credit card interchange income increased $286, or 8.5%, during 2018, as compared to 2017.

Positive increases to noninterest income in 2018 also came from the Company’s interest rate swap revenue. The increase in transactions involving an interest rate swap during 2018 led to swap fees totaling $114 during the year ended December 31, 2018. As a result, interest rate swap revenue improved to $139 during 2018, as compared to $42 during 2017.

The Company’s remaining noninterest income categories were up $112, or 3.4%, during the year ended 2018 as compared to 2017, in large part due to higher mortgage banking income.

NONINTEREST EXPENSE

Management continues to work diligently to minimize the growth in noninterest expense. For 2019, total noninterest expense increased $2,072, or 5.5%, as compared to 2018. The increase was mostly from salaries and employee benefits, the Company’s largest noninterest expense item. During the year ended December 31, 2019, salaries and employee benefits increased $1,333, or 6.0%, as compared to the same period in 2018. During the fourth quarter of 2019, the Company offered a voluntary severance package to select employees meeting certain criteria in their job positions. Those that accepted the early retirement package retired effective 12/31/19. In connection with this severance package, the Company incurred a one-time expense of $1,507 in December 2019. While the severance expense was a significant cost to the Company in 2019, it is expected to lower salaries and employee benefit costs going forward. Absent the severance payout, salaries and employee benefit expense would have decreased in 2019, as compared to 2018, primarily due to the lower number of employees in 2019, which more than offset the expenses associated with annual merit increases and higher insurance expense.

The Company also experienced an increase in professional fees, which grew $492, or 24.4%, during 2019, as compared to 2018. The increase in professional fees was mostly affected by legal expenses associated with the Bank’s lawsuit against the third-party tax software product provider related to the early termination of the Bank’s tax refund processing contract.

Further increasing noninterest expense was higher software costs, which increased $172, or 11.2%, during 2019, as compared to 2018. This was largely impacted by the disposal of various pieces of incompatible software during the fourth quarter of 2019.

Partially offsetting the increase noninterest expense in 2019 were lower FDIC premiums. FDIC premium expense decreased $334, or 74.7%, during 2019, as compared to 2018. The decrease in premium expense was primarily related to lower assessment rates in 2019. FDIC assessments were further reduced by the FDIC crediting back a portion of the Bank’s premium because the Deposit Insurance Fund (“DIF”) exceeded the statutory minimum of 1.35%. As a result, the FDIC issued credits to banks with assets of less than $10 billion. The credits were based on the portion of bank assessments that had contributed to the successful DIF level. The FDIC calculated the Bank’s associated credit to be $253. In September and December 2019, the Bank was able to utilize $138 of its FDIC credit to fully absorb its third and fourth quarter 2019 FDIC assessments. The Bank anticipates utilizing the $115 in remaining FDIC credits to fully absorb its first quarter 2020 FDIC assessment, and a portion of its second quarter 2020 assessment.

Data processing expenses also provided cost savings to the Company’s overhead, decreasing $119, or 5.6%, in 2019, as compared to 2018. The impact was primarily from nonrecurring transition costs associated with changing debit card processing providers in 2018.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Other noninterest expenses increased $311, or 6.0%, during 2019, as compared to 2018. This increase was impacted by various activities, including consulting fees (up $90), fraudulent expense (up $74), customer incentives (up $68), examination costs (up $38), and loan expense (up $29). Increases in consulting fees were largely associated with the branch sale of the Mount Sterling and New Holland offices. The increase in fraudulent expenses was primarily the result of increased consumer spending on retail transactions. Customer incentive costs continued to trend higher during 2019 as part of management’s emphasis on further building and maintaining core deposit relationships while increasing interchange revenue. Examination costs were impacted by an increase in annual assessments on Ohio-chartered banks during the second half of 2019, as well as higher trust department examination costs.

The remaining noninterest expense categories increased $217, or 5.5%, during the year-ended 2019, as compared to 2018. The increases were primarily from higher costs associated with occupancy, furniture and equipment, marketing and intangible amortization expense.

Total noninterest expense in 2018 increased $817, or 2.2%. The increase was mostly from salaries and employee benefits, the Company’s largest noninterest expense item. During the year ended December 31, 2018, salaries and employee benefits increased $1,382, or 6.6%, as compared to the same period in 2017. The increase was largely from employee compensation costs associated with annual merit increases and higher insurance expense.

The Company also experienced an increase in professional fees, which grew $224, or 12.5%, during 2018, as compared to 2017. Professional fees were impacted by accounting expenses associated with adhering to regulatory guidance and legal expenses associated with the recovery efforts on loan deficiency balances.

Partially offsetting the negative impacts to noninterest expense was lower foreclosure expense, which decreased $261, or 52.3%, during 2018, as compared to 2017. Costs associated with foreclosed assets include the costs of maintaining various commercial real estate properties, such as taxes, management fees and general maintenance.

Marketing expense also decreased $257, or 24.9%, during 2018, as compared to 2017. The Company’s marketing activities include costs associated with advertising, donation and public relations.

Other noninterest expenses decreased $238, or 4.3%, during 2018, as compared to 2017. This decrease was impacted by various activities, including OREO maintenance (down $288) and consulting fees (down $81), partially offset by customer incentives (up $114) and state examination costs (up $45). OREO maintenance deals with the costs associated with property assets that have been acquired through foreclosure. For 2018, these expenses included the costs of maintaining various commercial real estate properties, which consist of taxes, management fees and general maintenance. Decreases in consulting fees were associated with credit card revenue enhancement strategies that were incurred during 2017. Customer incentive costs also increased during 2018 as part of management’s core deposit relationship strategy. Higher state examination costs are a result of the reinstatement of annual assessments on Ohio-chartered banks during the fourth quarter of 2017. Due to the timing of reinstatement, the annual assessment by the Ohio Division of Financial Institutions covered all of 2018, as compared to just the second half of 2017.

The remaining noninterest expense categories decreased $33, or 0.5%, during the year-ended 2018, as compared to 2017. The decreases were primarily due to lower building and equipment costs, as well as lower costs related to assets in process of foreclosure.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

The Company's efficiency ratio is defined as noninterest expense as a percentage of fully tax-equivalent net interest income plus noninterest income. The effects from provision expense are excluded from the efficiency ratio. Management continues to place emphasis on managing its balance sheet mix and interest rate sensitivity as well as developing more innovative ways to generate noninterest revenue. During 2019, the Company’s net interest income finished below the previous year primarily due to a decrease in average earning assets combined with higher deposit costs related to CDs and money market accounts. Furthermore, noninterest expenses increased 5.5%, outpacing the 2.6% growth in noninterest revenue. As a result, the Company's efficiency number increased (regressed) from 70.47% at December 31, 2018 to 75.02% at December 31, 2019. During 2018, the Company was successful in generating more net interest income primarily due to higher average earning assets and increases in short-term market rates, but experienced margin compression due to larger amounts of excess deposits being maintained in lower-yielding asset accounts. Furthermore, noninterest revenue decreased 5.3% during 2018, which, when combined with net interest income, lowered the overall revenue growth pace to a level comparable to the pace of growth in overhead expense. As a result, the Company's efficiency number improved just slightly to 70.47% at December 31, 2018, as compared to 70.48% at December 31, 2017.

PROVISION FOR INCOME TAXES

The provision for income taxes during 2019 totaled $1,813 compared to $2,255 in 2018 and $4,486 in 2017. The effective tax rates for 2019, 2018 and 2017 were 15.5%, 15.9% and 37.4%, respectively. The change in the effective tax rate from 2018 to 2019 was minimal. The decline in the effective tax rate from 2017 to 2018 reflects the changes made by the TCJA, which was enacted on December 22, 2017. The TCJA provided for a reduction in the corporate federal income tax rate from 34% to 21% effective January 1, 2018, as well as the introduction of business-related exclusions, deductions and credits. The higher effective tax rate from 2017 was the result of a $1,783 tax expense adjustment related to the TCJA. During the fourth quarter of 2017, the Company’s deferred tax assets and liabilities had to be revalued using the 21% federal tax rate.

FINANCIAL CONDITION:

CASH AND CASH EQUIVALENTS

The Company’s cash and cash equivalents consist of cash, as well as interest- and non-interest bearing balances due from banks. The amounts of cash and cash equivalents fluctuate on a daily basis due to customer activity and liquidity needs. At December 31, 2019, cash and cash equivalents had decreased $18,824, or 26.4%, to finish at $52,356, as compared to $71,180 at December 31, 2018. The decrease in cash and cash equivalents came mostly from the Company’s interest-bearing Federal Reserve Bank clearing account, impacted by the sale of Mount Sterling and New Holland, Ohio branches to North Valley Bank in December 2019. As part of the sale, the Company funded the transfer of $26,000 in deposits to North Valley Bank in exchange for a 5% deposit premium. At December 31, 2019, the Company’s interest-bearing Federal Reserve Bank clearing account represented over 72% of cash and cash equivalents. The Company utilizes its interest-bearing Federal Reserve Bank clearing account to manage excess funds, as well as to assist in funding earning asset growth. Prior to 2019, the Federal Reserve clearing account was also used to maintain seasonal tax refund deposits associated with the Bank’s tax processing activity. In 2018, the Company was informed by its third-party tax refund product provider that the provider would cease utilizing the services of the Bank by the end of 2018, before the contract expiration date of December 31, 2019. With the elimination of this seasonal activity in 2019, the amount of excess funds that had traditionally been available to the Bank in previous years was significantly lower during 2019. The interest rate paid on both the required and excess reserve balances of the Federal Reserve Bank account is based on the targeted federal funds rate established by the Federal Open Market Committee. During 2018, the rate associated with the Company’s Federal Reserve Bank clearing account increased 100 basis points to 2.5% as a result of the Federal Reserve’s action to increase short-term market rates. The clearing account’s interest rate remained at 2.5% through the first half of 2019. During the second half of 2019, the Federal Reserve took action to reduce short-term market rates by 75 basis points, which lowered the Company’s Federal Reserve clearing account rate down to 1.75% at December 31, 2019. Although considered nominal, the Federal Reserve Bank clearing account’s current rate of 1.75% is higher than the rate the Company would have received from its investments in federal funds sold. Furthermore, Federal Reserve Bank balances are 100% secured. The positive impact from 2018’s short-term rate increases did not translate to higher interest revenue from the Federal Reserve Bank clearing account due to the significant decline in seasonal tax deposits from a year ago.

As liquidity levels vary continuously based on consumer activities, amounts of cash and cash equivalents can vary widely at any given point in time. The Company’s focus will be to invest available funds into longer-term, higher-yielding assets, primarily loans, when the opportunities arise. The Bank anticipates that the new tax processing agreement it has entered into with a third-party, as discussed above, will [materially] improve its liquidity levels during the term of that agreement. Further information regarding the Company’s liquidity can be found under the caption “Liquidity” in this Management’s Discussion and Analysis.

CERTIFICATES OF DEPOSIT IN FINANCIAL INSTITUTIONS

At December 31, 2019, the Company had $2,360 in certificates of deposit owned by the Captive, up $295, or 14.3%, from year-end 2018. The deposits on hand at December 31, 2019 consist of ten certificates with remaining maturity terms ranging from less than 12 months up to 33 months.

SECURITIES

Management's goal in structuring the portfolio is to maintain a prudent level of liquidity while providing an acceptable rate of return without sacrificing asset quality. During 2019, the balance of total securities decreased $629, or 0.5%, compared to year-end 2018. The Company’s investment securities portfolio is made up mostly of Agency mortgage-backed securities, representing 75.5% of total investments at December 31, 2019. During the year ended 2019, the Company invested $20,127 in new Agency mortgage-backed securities, while receiving principal repayments of $19,937. The monthly repayment of principal has been the primary advantage of Agency mortgage-backed securities as compared to other types of investment securities, which deliver proceeds upon maturity or call date. The Company also experienced increased maturities and principal repayments associated with its state and municipal security portfolio, which decreased $3,782, or 23.9%, compared to year-end 2018.

Investment Portfolio Composition
at December 31, 2019	at December 31, 2018
---	---

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

SECURITIES

Table III

	MATURING
As of December 31, 2019	Within One Year						After One but Within Five Years						After Five but Within Ten Years						After Ten Years
(dollars in thousands)	Amount			Yield			Amount			Yield			Amount			Yield			Amount			Yield
U.S. Government sponsored entity<br><br> <br>securities		$	3,413		2.15	%		$	13,323		2.35	%		$	----		----			$	----		----
Obligations of states and political<br><br> <br>subdivisions			644		3.35	%			6,813		5.05	%			4,945		5.58	%			----		----
Agency mortgage-backed securities,<br><br> <br>residential			676		3.45	%			78,080		2.54	%			9,828		2.50	%			----		----
Total securities		$	4,733		2.50	%		$	98,216		2.69	%		$	14,773		3.53	%		$	----		----

Tax-equivalent adjustments of $88 have been made in calculating yields on obligations of states and political subdivisions using a 21% rate. Weighted average yields are calculated on the basis of the cost and effective yields weighted for the scheduled maturity of each security. Mortgage-backed securities, which have prepayment provisions, are assigned to a maturity category based on estimated average lives. Securities are shown at their fair values, which include the market value adjustments for available for sale securities.

In addition, decreasing market rates during 2019 led to a $3,371 decrease in the net unrealized loss position associated with the Company’s available for sale securities, which increased the fair value of securities at December 31, 2019. The fair value of an investment security moves inversely to interest rates, so as rates decreased, the unrealized loss in the portfolio was reduced. These changes in rates are typical and do not impact earnings of the Company as long as the securities are held to full maturity.

Management has not had to sell a debt security during 2019 and 2018 in order to maintain sufficient liquidity, as maturing securities have historically accomplished this.

Prior to 2017, the reinvestment rates on debt securities had shown limited returns due to a sustained low rate environment. The weighted average FTE yield on debt securities was 2.29% at ear-end 2017. Short-term rate increases of 75 basis points in 2017 and 100 basis points in 2018 have had a lagging, but positive impact to the yield on average securities. As a result, the weighted average FTE yield on debt securities has steadily improved to 2.46% at December 31, 2019, as compared to 2.39% at December 31, 2018 and 2.29% at December 31, 2017. While the return performance of debt securities has improved, the Company’s focus will still be to generate interest revenue primarily through loan growth, as loans generate the highest yields of total earning assets. Table III provides a summary of the securities portfolio by category and remaining contractual maturity. Issues classified as equity securities have no stated maturity date and are not included in Table III.

LOANS

In 2019, the Company's primary category of earning assets and most significant source of interest income, total loans, decreased $4,278, or 0.6%, to finish at $772,774. The decrease in loan balances from year-end 2018 came primarily from the commercial and consumer loan portfolios, being partially offset by balance increases in the residential real estate loan portfolio.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Management continues to place emphasis on its commercial lending, which generally yields a higher return on investment as compared to other types of loans. The commercial lending segment decreased $7,444, or 2.3%, from year-end 2018, which came mostly from the commercial and industrial loan portfolio, which decreased $13,220, or 11.7%, from year-end 2018. Over half of the decrease came from the charge-offs and payoffs of several loans from three commercial borrower relationships. Commercial and industrial loans consist of loans to corporate borrowers primarily in small to mid-sized industrial and commercial companies that include service, retail and wholesale merchants. Collateral securing these loans includes equipment, inventory, and stock. The commercial real estate loan segment comprises the largest portion of the Company's total commercial loan portfolio at December 31, 2019, representing 69.0%. Commercial real estate consists of owner-occupied, nonowner-occupied and construction loans. Owner-occupied loans consist of nonfarm, nonresidential properties. A commercial owner-occupied loan is a borrower purchased building or space for which the repayment of principal is dependent upon cash flows from the ongoing operations conducted by the party, or an affiliate of the party, who owns the property. Owner-occupied loans of the Company include loans secured by hospitals, churches, and hardware and convenience stores. Nonowner-occupied loans are property loans for which the repayment of principal is dependent upon rental income associated with the property or the subsequent sale of the property, such as apartment buildings, condominiums, hotels and motels. These loans are primarily impacted by local economic conditions, which dictate occupancy rates and the amount of rent charged. Commercial construction loans are extended to individuals as well as corporations for the construction of an individual property or multiple properties and are secured by raw land and the subsequent improvements. Commercial real estate also includes loan participations with other banks outside the Company’s primary market area. Although the Company is not actively seeking to participate in loans originated outside its primary market area, it has taken advantage of the relationships it has with certain lenders in those areas where the Company believes it can profitably participate with an acceptable level of risk. Commercial real estate loans totaled $222,136 at December 31, 2019, an increase of $5,776, or 2.7%, over the balance of commercial real estate loans at year-end 2018. Most of this growth came from nonowner-occupied loan originations, with balances increasing $14,210, or 12.1%, from year-end 2018. Nonowner-occupied loan originations during 2019 came mostly from the Waverly, Ohio and West Virginia market areas. Partially offsetting increases in the nonowner-occupied loan segment were larger payoffs from the owner-occupied loan segment, which decreased $5,869, or 9.5%, from year-end 2018. Furthermore, construction loans related to one- to four-family residential homes, as well as multi-family residential and land development properties, decreased $2,565, or 6.8%, from year-end 2018.

Loan Portfolio Composition
at December 31, 2019	at December 31, 2018

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

While management believes lending opportunities exist in the Company's markets, future commercial lending activities will depend upon economic and related conditions, such as general demand for loans in the Company's primary markets, interest rates offered by the Company, the effects of competitive pressure and normal underwriting considerations.

Loan decreases also occurred within the Company’s consumer loan portfolio, which decreased $3,008, or 2.1%, from year-end 2018. The Company’s consumer loans are primarily secured by automobiles, mobile homes, recreational vehicles and other personal property. Personal loans and unsecured credit card receivables are also included as consumer loans. The consumer loan portfolio during 2019 was impacted most by lower automobile loans, which decreased $6,456, or 9.2%, from year-end 2018. Automobile loans represent the Company's largest consumer loan segment at 45.4% of total consumer loans. Impacting this was a lower demand for car loans within the Company’s market areas, as well as increased competition with local banks. The decrease in automobile loans was partially offset by increases in both home equity and other consumer type loans, which collectively were up $3,448, or 4.7%, from year-end 2018. This increase was led mostly by other consumer loan types, such as all-terrain and recreational vehicles, as well as unsecured loans. The Company will continue to attempt to increase its auto lending segment while maintaining strict loan underwriting processes to limit future loss exposure. However, the Company will place more emphasis on loan portfolios (i.e. commercial and, to a smaller extent, residential real estate) with higher returns than auto loans. Indirect automobile loans bear additional costs from dealers that partially offset interest revenue and lower the rate of return.

Generating residential real estate loans remains a significant focus of the Company’s lending efforts. The residential real estate loan segment comprises the largest portion of the Company's overall loan portfolio at 40.2% and consists primarily of one- to four-family residential mortgages and carries many of the same customer and industry risks as the commercial loan portfolio. The increase in residential real estate loans was largely the result of the Bank's warehouse lending volume. Warehouse lending consists of a line of credit provided by the Bank to another mortgage lender that makes loans for the purchase of one- to four-family residential real estate properties. The mortgage lender eventually sells the loans and repays the Bank. From year-end 2018, warehouse lending balances increased $9,130, or 57.7%. The increase in warehouse lending volume was partially offset by decreases in residential real estate loans. This decrease was largely the result of increasing short-term adjustable-rate mortgages, which were up $4,163, being completely offset by decreasing long-term fixed-rate mortgages, which decreased $6,762, from year-end 2018. As part of management’s interest rate risk strategy, the Company continues to sell most of its long-term fixed-rate residential mortgages to the Federal Home Loan Mortgage Corporation, while maintaining the servicing rights for those mortgages. A customer which does not qualify for a long-term, secondary market loan may choose from one of the Company's other adjustable-rate mortgage products, which has contributed to higher balances of adjustable-rate mortgages from year-end 2018.

The Company will continue to follow its secondary market strategy until long-term interest rates increase back to a range that falls within an acceptable level of interest rate risk for the Company. Furthermore, the Company will continue to monitor the pace of its loan volume and remain consistent in its approach to sound underwriting practices and a focus on asset quality.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

ALLOWANCE FOR LOAN LOSSES

Tables IV and V have been provided to enhance the understanding of the loan portfolio and the allowance for loan losses. Management evaluates the adequacy of the allowance for loan losses quarterly based on several factors, including, but not limited to, general economic conditions, loan portfolio composition, prior loan loss experience, and management's estimate of probable incurred losses. Management continually monitors the loan portfolio to identify potential portfolio risks and to detect potential credit deterioration in the early stages, and then establishes reserves based upon its evaluation of these inherent risks. Actual losses on loans are reflected as reductions in the reserve and are referred to as charge-offs. The amount of the provision for loan losses charged to operating expenses is the amount necessary, in management's opinion, to maintain the allowance for loan losses at an adequate level that is reflective of probable and inherent loss. The allowance required is primarily a function of the relative quality of the loans in the loan portfolio, the mix of loans in the portfolio and the rate of growth of outstanding loans. Impaired loans, which include loans classified as TDRs, are considered in the determination of the overall adequacy of the allowance for loan losses.

Management continues to focus on improving asset quality and lowering credit risk while working to maintain its relationships with its borrowers. During 2019, the Company’s allowance for loan losses decreased $456, or 6.8%, to finish at $6,272, compared to $6,728 at year-end 2018. The allowance was impacted by a decrease of $1,165 in general allocations from year-end 2018. As part of the Company’s quarterly analysis of the allowance for loan losses, management reviewed various factors that directly impact the general allocation needs of the allowance, which include: historical loan losses, loan delinquency levels, local economic conditions and unemployment rates, criticized/classified asset coverage levels and loan loss recoveries. From year-end 2018, the Company’s historical loss factor decreased by 3 basis points, while the economic risk factor decreased by 12 basis points, which contributed to a lower general allocation of the allowance for loan losses at December 31, 2019. The average historical loss factor continues to improve in large part from increases in loan recoveries. Loan recoveries have increased in each of the past three years, contributing to lower net charge-offs of $1,456 at December 31, 2019, $1,810 at December 31, 2018, and $2,764 at December 31, 2017. Improvement in the economic risk factor from year-end 2018 was largely due to various commercial loan upgrades resulting from improvements in the financial performance of certain borrowers’ ability to repay their loans. This contributed to lower criticized assets for the year, particularly within the commercial owner-occupied and commercial and industrial loan segments.

Specific allocations of the allowance for loan losses identify loan impairment by measuring fair value of the underlying collateral and the present value of estimated future cash flows. At year-end 2019, the Company finished with $807 in specific allocations, as compared to $98 in specific allocations at year-end 2018. This increase in specific reserves was impacted mostly by two impaired loan relationships that were determined to have collateral impairment in December 2019.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

Table IV

(dollars in thousands)	Years Ended December 31
	2019			2018			2017			2016			2015
Commercial loans^(1)^	$	3,375		$	3,249		$	4,002		$	5,222		$	4,548
Percentage of loans to total loans		41.68	%		42.41	%		41.66	%		42.81	%		42.89	%
Residential real estate loans		1,250			1,583			1,470			939			1,087
Percentage of loans to total loans		40.15	%		39.13	%		40.19	%		38.92	%		38.22	%
Consumer loans^(2)^		1,647			1,896			2,027			1,538			1,013
Percentage of loans to total loans		18.17	%		18.46	%		18.15	%		18.27	%		18.89	%
Allowance for loan losses	$	6,272		$	6,728		$	7,499		$	7,699		$	6,648
		100.00	%		100.00	%		100.00	%		100.00	%		100.00	%
Ratio of net charge-offs to average loans		.19	%		.23	%		.37	%		.28	%		.47	%

The above allocation is based on estimates and subjective judgments and is not necessarily indicative of the specific amounts or loan categories in which losses may ultimately occur.

(1) Includes commercial and industrial and commercial real estate loans.

(2) Includes automobile, home equity and other consumer loans.

SUMMARY OF NONPERFORMING, PAST DUE AND RESTRUCTURED LOANS

Table V

(dollars in thousands)	At December 31
	2019			2018			2017			2016			2015
Impaired loans	$	17,135		$	12,618		$	18,108		$	22,709		$	17,228
Past due 90 days or more and still accruing		889			1,067			334			327			39
Nonaccrual		9,149			8,677			10,112			8,961			7,236
Accruing loans past due 90 days or more to total loans		.12	%		.14	%		.04	%		.04	%		.01	%
Nonaccrual loans as a % of total loans		1.18	%		1.11	%		1.32	%		1.22	%		1.23	%
Impaired loans as a % of total loans		2.22	%		1.62	%		2.35	%		3.09	%		2.94	%
Allowance for loan losses as a % of total loans		.81	%		.87	%		.97	%		1.05	%		1.13	%

The impaired loan disclosures are comparable to the nonperforming loan disclosures except that the impaired loan disclosures do not include single-family residential or consumer loans which are analyzed in the aggregate for loan impairment purposes. All of the Company’s troubled debt restructurings are classified as impaired.

Management formally considers placing a loan on nonaccrual status when collection of principal or interest has become doubtful. Furthermore, a loan should not be returned to the accrual status unless either all delinquent principal or interest has been brought current or the loan becomes well secured and is in the process of collection.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

MATURITY AND REPRICING DATA OF LOANS

As of December 31, 2019

Table VI

(dollars in thousands)	MATURING / REPRICING
	Within One Year		After One but Within Five Years		After Five Years		Total
Residential real estate loans	$	97,110	$	140,332	$	72,811	$	310,253
Commercial loans^(1)^		129,675		147,010		45,474		322,159
Consumer loans^(2)^		45,513		71,292		23,557		140,362
Total loans	$	272,298	$	358,634	$	141,842	$	772,774
Loans maturing or repricing after one year with:
---	---	---
Variable interest rates	$	284,507
Fixed interest rates		215,969
Total	$	500,476

(1) Includes commercial and industrial and commercial real estate loans.

(2) Includes automobile, home equity and other consumer loans.

At December 31, 2019, the ratio of the allowance for loan losses decreased to 0.81%, compared to 0.87% at December 31, 2018. Management believes that the allowance for loan losses at December 31, 2019 was adequate and reflected probable incurred losses in the loan portfolio. There can be no assurance, however, that adjustments to the allowance for loan losses will not be required in the future. Changes in the circumstances of particular borrowers, as well as adverse developments in the economy, are factors that could change, and management will make adjustments to the allowance for loan losses as necessary. Asset quality will continue to remain a key focus, as management continues to stress not just loan growth, but quality in loan underwriting as well. Future provisions to the allowance for loan losses will continue to be based on management’s quarterly in-depth evaluation that is discussed in further detail under the caption “Critical Accounting Policies - Allowance for Loan Losses” within this Management’s Discussion and Analysis.

DEPOSITS

Deposits are used as part of the Company’s liquidity management strategy to meet obligations for depositor withdrawals, to fund the borrowing needs of loan customers, and to fund ongoing operations. Deposits, both interest- and noninterest-bearing, continue to be the most significant source of funds used by the Company to support earning assets. Deposits are attractive sources of funding because of their stability and generally low cost as compared with other funding sources. The Company seeks to maintain a proper balance of core deposit relationships on hand while also utilizing various wholesale deposit sources, such as brokered and internet CD balances, as an alternative funding source to manage efficiently the net interest margin. Deposits are influenced by changes in interest rates, economic conditions and competition from other banks. Table VII shows the composition of total deposits as of December 31, 2019, 2018 and 2017. Total deposits decreased $25,233, or 3.0%, from year-end 2018 to finish at $821,471 at December 31, 2019. The decrease was largely from the Company’s sale of the Mount Sterling and New Holland, Ohio branches to North Valley Bank. As a result, deposits totaling over $26,000 were transferred to North Valley Bank in December 2019, causing a significant decline in deposits at the end of the year. Absent the branch sale, the Company’s total deposits would have increased $1,154, or 0.1%, during 2019.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Total deposits consist mostly of “core” deposits, which include noninterest-bearing deposits, as well as interest-bearing demand, savings, and money market deposits. The Bank focuses on core deposit relationships with consumers from local markets who can maintain multiple accounts and services at the Bank. The Company believes such core deposits are more stable and less sensitive to changing interest rates and other economic factors. The decrease in total deposits came primarily from noninterest-bearing balances, which decreased $15,214, or 6.4%, from year-end 2018. Excluding the impact of the branch sale, total noninterest-bearing balances would have decreased $6,556, or 2.9%, from year-end 2018. This change came mostly from lower business checking accounts.

Lower deposits also came from interest-bearing deposits, which decreased $10,019, or 1.6%, in 2019. Decreases in interest-bearing deposit balances came mostly from the Company’s time deposits, which include CDs and individual retirement accounts. Total time deposits decreased $6,091, or 2.8%, from year-end 2018. Excluding the impact of the branch sale, total time deposits would have decreased $1,708, or 0.8%, from year-end 2018. This decrease came largely from the Company's retail CDs, which decreased 3.0% from year-end 2018. During 2017 and 2018, the Company experienced a resurgence in consumer demand for CDs, impacted by a short-term competitive rate offering, as well as increases in market investment rates. With market rates rising in 2017 and 2018, management adjusted its CD rates upward, which generated more consumer preference to invest in 1- to 2-year CDs, as compared to a tiered money market product. After the large volume of consumers investing in CDs during 2017 and 2018, new growth in CDs began to normalize in 2019, while market rates began to move back down. This contributed to the decrease in CD balances from year-end 2018. While the Company's preference is to fund earning asset demand with retail core deposits, wholesale deposits are utilized to help satisfy earning asset growth. With consumers having invested more into CD balances during most of 2019, the Company’s brokered CD issuances decreased $490, or 1.5%, from year-end 2018. The Company will continue to evaluate its use of brokered CDs to manage the Company’s liquidity position and interest rate risk associated with longer-term, fixed-rate asset loan demand.

Composition of Total Deposits
at December 31, 2019	at December 31, 2018

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

DEPOSITS

  Table VII

	As of December 31
(dollars in thousands)	2019		2018		2017
Interest-bearing deposits:
NOW accounts	$	158,434	$	155,166	$	158,650
Money market		130,385		121,294		133,220
Savings accounts		100,287		116,574		107,798
IRA accounts		41,898		43,249		45,312
Certificates of deposit		167,860		172,600		158,089
		598,864		608,883		603,069
Noninterest-bearing deposits:
Demand deposits		222,607		237,821		253,655
Total deposits	$	821,471	$	846,704	$	856,724

Further impacting lower interest-bearing deposits was a net decrease in NOW, savings and money market account balances, which were down $3,928, or 1.0%, from year-end 2018, collectively. Excluding the impact of the branch sale, total NOW, savings and money market account balances would have increased $9,418, or 2.5%, from year-end 2018, collectively. This increase was largely from growth in money market account balances, which were up $9,367, or 7.7%, from year-end 2018. This increase was caused by a shift in consumer preference to a more competitive, higher-costing money market product that was introduced in December 2018. NOW account balances were also up $6,760, or 4.5%, from year-end 2018, particularly from new account relationships in the Cabell County, West Virginia market area. The increases in NOW and money market balances were partially offset by lower savings account balances, which decreased $6,709, or 6.3%, from year-end 2018. This was also impacted by the consumer shift to higher-costing money market accounts previously mentioned.

The Company will continue to experience increased competition for deposits in its market areas, which could challenge its net growth. The Company will continue to emphasize growth and retention within its core deposit relationships during 2020, reflecting the Company’s efforts to reduce its reliance on higher cost funding and improving net interest income.

OTHER BORROWED FUNDS

The Company also accesses other funding sources, including short-term and long-term borrowings, to fund potential asset growth and satisfy short-term liquidity needs. Other borrowed funds consist primarily of FHLB advances and promissory notes. During 2019, other borrowed funds were down $5,722, or 14.4%, from year-end 2018. The decrease was related primarily to the principal repayments applied to various FHLB advances during 2019. While deposits continue to be the primary source of funding for growth in earning assets, management will continue to utilize FHLB advances and promissory notes to help manage interest rate sensitivity and liquidity.

SUBORDINATED DEBENTURES

The Company received proceeds from the issuance of one trust preferred security on March 22, 2007 totaling $8,500 at a fixed rate of 6.58%. The trust preferred security is now at an adjustable rate equal to the 3-month LIBOR plus 1.68%. The Company does not report the securities issued by the trust as a liability, but instead, reports as a liability the subordinated debenture issued by the Company and held by the trust.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

OFF-BALANCE SHEET ARRANGEMENTS

As discussed in Notes I and L to the financial statements at December 31, 2019, the Company engages in certain off-balance sheet credit-related activities, including commitments to extend credit and standby letters of credit, which could require the Company to make cash payments in the event that specified future events occur. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Standby letters of credit are conditional commitments to guarantee the performance of a customer to a third party. While these commitments are necessary to meet the financing needs of the Company’s customers, many of these commitments are expected to expire without being drawn upon. Therefore, the total amount of commitments does not necessarily represent future cash requirements.Management does not anticipate that the Company’s current off-balance sheet activities will have a material impact on the results of operations and financial condition.

CAPITAL RESOURCES

The Company maintains a capital level that exceeds regulatory requirements as a margin of safety for its depositors. Regulations of the Board of Governors of the Federal Reserve System (the “FRB”) require a state-chartered bank that is a member of a Federal Reserve Bank to maintain certain amounts and types of capital and generally also require bank holding companies to meet such requirements on a consolidated basis. The FRB generally requires bank holding companies that have chosen to become financial holding companies to be “well capitalized,” as defined by FRB regulations, in order to continue engaging in activities permissible only to bank holding companies that are registered as financial holding companies. If, however, a bank holding company, whether or not also a financial holding company, satisfies the requirements of the Federal Reserve’s Small Bank Holding Company Policy (the “SBHCP”), the holding company is not required to meet the consolidated capital requirements. As amended effective in September 2018, the SBHCP requires that the holding company have assets of less than $3 billion, that it meet certain qualitative requirements, and that all of the holding company’s bank subsidiaries meet all bank capital requirements. As of December 31, 2019, the Company was deemed to meet the SBHCP requirements and so was not required to meet consolidated capital requirements at the holding company level.

As detailed in Note P to the financial statements at December 31, 2019, the Bank’s capital exceeded the requirements to be deemed “well capitalized” under applicable prompt corrective action regulations. Total shareholders' equity at December 31, 2019 of $128,179 increased $10,305, or 8.7%, as compared to $117,874 at December 31, 2018. Capital growth during 2019 came primarily from year-to-date net income of $9,907, less dividends paid of $4,000. Capital growth during 2019 also came from a $2,663 decrease in net unrealized losses on available for sale securities from year-end 2018, as market rates decreased during 2019 causing an increase in the fair value of the Company’s investment portfolio.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

LIQUIDITY

Liquidity relates to the Company's ability to meet the cash demands and credit needs of its customers and is provided by the ability to readily convert assets to cash and raise funds in the market place. Total cash and cash equivalents, held to maturity securities maturing within one year and available for sale securities, totaling $158,315, represented 15.6% of total assets at December 31, 2019. In addition, the FHLB offers advances to the Bank, which further enhances the Bank's ability to meet liquidity demands. At December 31, 2019, the Bank could borrow an additional $119,302 from the FHLB, of which $80,000 could be used for short-term, cash management advances. Furthermore, the Bank has established a borrowing line with the Federal Reserve. At December 31, 2019, this line had total availability of $49,783. Lastly, the Bank also has the ability to purchase federal funds from a correspondent bank. For further cash flow information, see the condensed consolidated statement of cash flows. Management does not rely on any single source of liquidity and monitors the level of liquidity based on many factors affecting the Company’s financial condition.

INFLATION

Consolidated financial data included herein has been prepared in accordance with US GAAP. Presently, US GAAP requires the Company to measure financial position and operating results in terms of historical dollars with the exception of securities available for sale, which are carried at fair value. Changes in the relative value of money due to inflation or deflation are generally not considered.

In management's opinion, changes in interest rates affect the financial institution to a far greater degree than changes in the inflation rate. While interest rates are greatly influenced by changes in the inflation rate, they do not change at the same rate or in the same magnitude as the inflation rate. Rather, interest rate volatility is based on changes in the expected rate of inflation, as well as monetary and fiscal policies. A financial institution's ability to be relatively unaffected by changes in interest rates is a good indicator of its capability to perform in today's volatile economic environment. The Company seeks to insulate itself from interest rate volatility by ensuring that rate sensitive assets and rate sensitive liabilities respond to changes in interest rates in a similar time frame and to a similar degree.

CRITICAL ACCOUNTING POLICIES

The most significant accounting policies followed by the Company are presented in Note A to the consolidated financial statements. These policies, along with the disclosures presented in the other financial statement notes, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Management views critical accounting policies to be those that are highly dependent on subjective or complex judgments, estimates and assumptions, and where changes in those estimates and assumptions could have a significant impact on the financial statements. Management currently views the adequacy of the allowance for loan losses and business combinations to be critical accounting policies.

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.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

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. Impaired loans generally consist of loans with balances of $200 or more on nonaccrual status or nonperforming in nature. 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.

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 Real Estate, Commercial and Industrial, Residential Real Estate, and Consumer.

CONTRACTUAL OBLIGATIONS

Table VIII

The following table presents, as of December 31, 2019, significant fixed and determinable contractual obligations to third parties by payment date. Further discussion of the nature of each obligation is included in the referenced note to the consolidated financial statements.

	Payments Due In
(dollars in thousands)	Note Reference		Less than One Year		One to Three Years		Three to Five Years		Over Five Years		Total
Deposits without a stated maturity		G	$	611,713	$	----	$	----	$	----	$	611,713
Consumer and brokered time deposits		G		116,666		81,418		11,055		619		209,758
Other borrowed funds		I		7,322		6,474		5,006		15,189		33,991
Subordinated debentures		J		----		----		----		8,500		8,500
Lease obligations				178		223		32		----		433
Total			$	735,879	$	88,115	$	16,093	$	24,308	$	864,395

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

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 one- to four-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.

Residential real estate loans consist of loans to individuals for the purchase of one- to four-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.

KEY RATIOS

Table IX


Return on average assets	.96	%	1.12	%	.74	%	.77	%	1.03	%
Return on average equity	8.10	%	10.63	%	6.95	%	7.05	%	9.66	%
Dividend payout ratio	40.37	%	33.20	%	52.36	%	51.79	%	42.74	%
Average equity to average assets	11.82	%	10.57	%	10.66	%	10.91	%	10.71	%

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

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. During the last several years, one of the most significant portions of the Company’s net loan charge-offs have been from consumer loans. Nevertheless, 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.

CONCENTRATIONS OF CREDIT RISK

The Company maintains a diversified credit portfolio, with residential real estate loans currently comprising the most significant portion. Credit risk is primarily subject to loans made to businesses and individuals in southeastern Ohio and western West Virginia. Management believes this risk to be general in nature, as there are no material concentrations of loans to any industry or consumer group. To the extent possible, the Company diversifies its loan portfolio to limit credit risk by avoiding industry concentrations.

Ohio Valley Banc Corp.

Email: investorrelations@ovbc.com

Web: www.ovbc.com

Phone: 1-800-468-6682

Headquarters: 420 Third Avenue, Gallipolis, Ohio

Traded on The NASDAQ Global Market

Symbol OVBC

EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

NAME	STATE OF<br><br> <br>INCORPORATION	PERCENTAGE<br><br> <br>OF OWNERSHIP
The Ohio Valley Bank Company	Ohio	100%
Loan Central, Inc.	Ohio	100%
Ohio Valley Financial Services Agency, LLC	Ohio	100%
Ohio Valley Statutory Trust III	Delaware	100%
OVBC Captive, Inc.	Nevada	100%

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-178575 on Form S-3 of Ohio Valley Banc Corp. of our report dated March 16, 2020 relating to the financial statements and effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K.

/s/Crowe LLP
Crowe LLP

Louisville, Kentucky

March 16, 2020

Exhibit 31.1

Rule 13a-14(a)/15d-14(a) Certification

I, Thomas E. Wiseman, certify that:

I have reviewed this Annual Report on Form 10-K of Ohio Valley Banc Corp.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant,<br> including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the<br> reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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(c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the<br> end of the period covered by this report based on such evaluation; and
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(d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is<br> reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to<br> record, process, summarize and report financial information; and
(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: March 16, 2020	By:	/s/Thomas E. Wiseman
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		Thomas E. Wiseman, CEO
		(Principal Executive Officer)

Exhibit 31.2

Rule 13a-14(a)/15d-14(a) Certification

I, Scott W. Shockey, certify that:

I have reviewed this Annual Report on Form 10-K of Ohio Valley Banc Corp.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant,<br> including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the<br> reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
---	---
(c)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the<br> end of the period covered by this report based on such evaluation; and
---	---
(d)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is<br> reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
---	---

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to<br> record, process, summarize and report financial information; and
(b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.
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Date: March 16, 2020	By:	/s/Scott W. Shockey
---	---	---
		Scott W. Shockey, Senior Vice President and CFO
		(Principal Financial Officer)

Exhibit 32

SECTION 1350 CERTIFICATION

In connection with the Annual Report of Ohio Valley Banc Corp. (the “Corporation”) on Form 10‑K for the fiscal year ended December 31, 2019 (the “Report”), the undersigned Thomas E. Wiseman, President and Chief Executive Officer of the Corporation, and Scott W. Shockey, Senior Vice President and Chief Financial Officer of the Corporation, each certify, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of their knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.
---	---
* /s/Thomas E. Wiseman	* /s/Scott W. Shockey
---	---
Thomas E. Wiseman	Scott W. Shockey
Chief Executive Officer	Senior Vice President Chief Financial Officer
Dated: March 16, 2020	Dated: March 16, 2020
*	This certification is being furnished as required by Rule 13a-14(b) under the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the<br> United States Code, and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section. This certification shall not be deemed to be incorporated by reference into any<br> filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the Corporation specifically incorporates it by reference in any such filing.
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