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Section 1: 10-K (FORM 10-K AT 12/31/19)

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

OR

□ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________

Commission file number 0-20914

OHIO VALLEY BANC CORP.
(Exact Name of Registrant as Specified in its Charter)

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

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

(740) 446-2631
(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.



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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.



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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.



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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.



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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.


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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.



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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.


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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
merge or consolidate with any other bank holding company.

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.


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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 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
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.

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.


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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 neighborhoods.
Equal Credit Opportunity Act: prohibits discrimination in any credit transaction on the basis of any of various criteria.
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.


11


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 the housing credit needs of the communities in which they are located.
Real Estate Settlement Procedures Act: requires that lenders provide borrowers with disclosures regarding the nature and cost of real estate settlements and prohibits abusive practices that increase borrowers’ costs.
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 with non-affiliated parties and to protect customer information from unauthorized access.
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.


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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.


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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.


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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.



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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.


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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
Level 3 consists of institutions with assets of at least $1 billion and less than $50 billion.

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
require board oversight, recordkeeping and disclosure to the appropriate regulatory agency.

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.


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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.


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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.


C.
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 - 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
 
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 Operations” located in Ohio Valley’s 2019 Annual Report to Shareholders.


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
 
                               
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 Loans,” within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” located in Ohio Valley’s 2019 Annual Report to Shareholders.


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 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 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 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.


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 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 their loss exposure have been considered in management’s analysis of the adequacy of the allowance for loan losses.


3.
Foreign Outstandings - There were no foreign outstandings at December 31, 2019, 2018 or 2017.


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 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 31, 2019, located in Ohio Valley’s 2019 Annual Report to Shareholders which is incorporated herein by reference.


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
 
                               
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 “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 “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
       
(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
       
(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.

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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.


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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.


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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.



25


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;
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 expansion;
our ability to finance an acquisition or other expansion and the possible dilution to our existing shareholders;
the diversion of management’s attention to the negotiation of a transaction and the integration of the operations and personnel of the combining businesses;
entry into unfamiliar markets;
the possible failure of the introduction of new products and services into our existing business;
the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on our results of operations; and
the risk of loss of key employees and customers.

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.



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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.



27


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.


28

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.

29

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.


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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.


31

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.


32


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.

33

 
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.


34


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.


35


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.


36

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.


37


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.




38


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
 
     
3.2
 
     
4.1
 
     
4.2
 
     
10.1*
 
     
10.2*
 
     
10.3(a)*
 
     
10.3(b)*
 
     
10.4*
 



39


Exhibit Number
 
Exhibit Description
     
10.5*
 
     
10.6(a)*
 
     
10.6(b)*
 
     
10.7(a)*
 
     
10.7(b)*
 
     
10.7(c)*
 
     
10.7(d)*
 
     
10.7(e)*
 
     
10.8*
 
     
10.9*
 



40


Exhibit Number
 
Exhibit Description
     
10.10*
 
     
10.11*
 
     
10.12*
 
     
10.13*
 
     
10.14*
 
     
10.15*
 
     
10.16*
 
     
10.17*
 



41


Exhibit Number
 
Exhibit Description
     
10.18*
 
     
10.19*
 
     
10.20*
 
     
10.21*
 
     
10.22*
 
     
10.22(a)*
 
     
10.23*
 
     
10.23(a)*
 
     
10.24*
 



42



Exhibit Number
 
Exhibit Description
     
13
 
     
21
 
     
23
 
     
31.1
 
     
31.2
 
     
32
 
     
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) 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 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, 2018 and 2017; and (vi) Notes to the Consolidated Financial Statements.


43


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
   
     


44
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Section 2: EX-4.1 (EXHIBIT 4.1 AS OF 12/31/19)

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.

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Section 3: EX-4.2 (REGISTERED SECURITIES AS OF 12/31/19)

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.








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Section 4: EX-10.2 (EXECUTIVE GROUP SPLIT DOLLAR PLAN - MILLER/SMITH/HART-HARRIS)

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

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Section 5: EX-10.7(D) (EXECUTIVE DEFERRED COMPENSATION PLANS - WISEMAN/HART-HARRIS)

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

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Section 6: EX-10.7(E) (EXECUTIVE DEFERRED COMPENSATION AGREEMENT - SMITH/WISEMAN/HART-HARRIS)

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
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Section 7: EX-10.8 (SUMMARY OF COMPENSATION - DIRECTORS & OFFICERS)

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.



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Section 8: EX-10.9 (SUMMARY OF BONUS PROGRAM OF OVBC)

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.

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Section 9: EX-10.22(A) (DIRECTOR RETIREMENT AGREEMENT - ROBBINS/MILLER)

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
     



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Section 10: EX-10.24 (SEVERANCE AGREEMENT AND RELEASE - HART-HARRIS)

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:

1. 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.

2. 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.

3. 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.

4. 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.



5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.










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Section 11: EX-13 (ANNUAL REPORT TO SHAREHOLDERS AS OF 12/31/19)


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.


1


We think of 2019 like a mighty oak.
It was about returning to our roots…




[Pictures Only]



2


...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.


3


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 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 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 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 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 annual OVB Community Bowl with this photo for their Gallia Academy alumni co-workers.



4




[Pictures Only]



5


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



6



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.


7



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

8





 



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.

9

consolidated statements of condition

 
 
As of December 31
 
 
 
2019
   
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
 



See accompanying notes to consolidated financial statements

10

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

11

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

12

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)
       
 
 
Common
Stock
   
Additional Paid-In Capital
   
Retained
Earnings
   
Accumulated Other Comprehensive Income(Loss)
   
Treasury
Stock
   
Total
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,
    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  
   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,
    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,
    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
 



See accompanying notes to consolidated financial statements

13

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

14

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.



15

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.



16

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