OHIO VALLEY BANC CORP 10-Q

ITEM 1. FINANCIAL STATEMENTS OHIO VALLEY BANC CORP. CONSOLIDATED BALANCE SHEETS (UNAUDITED) (dollars in thousands, except share and per share data) September 30, 2020 December 31, 2019 ASSETS Cash and noninterest-bearing deposits with banks $ 13,745 $ 12,812 Interest-bearing deposits with banks 69,809 39,544 Total cash and cash equivalents 83,554 52,356 Certificates of deposit in financial institutions 2,745 2,360 Securities available for sale 110,349 105,318 Securities held to maturity (estimated fair value: 2020 - $ 12,022 ; 2019 - $ 12,404 ) 11,674 12,033 Restricted investments in bank stocks 7,506 7,506 Total loans 853,038 772,774 Less: Allowance for loan losses ( 7,730 ) ( 6,272 ) Net loans 845,308 766,502 Premises and equipment, net 21,332 19,217 Premises and equipment held for sale, net 641 653 Other real estate owned, net 96 540 Accrued interest receivable 3,779 2,564 Goodwill 7,319 7,319 Other intangible assets, net 125 174 Bank owned life insurance and annuity assets 35,796 30,596 Operating lease right-of-use asset, net 918 1,053 Other assets 6,796 5,081 Total assets $ 1,137,938 $ 1,013,272 LIABILITIES Noninterest-bearing deposits $ 270,086 $ 222,607 Interest-bearing deposits 674,898 598,864 Total deposits 944,984 821,471 Other borrowed funds 29,321 33,991 Subordinated debentures 8,500 8,500 Operating lease liability 918 1,053 Accrued liabilities 21,317 20,078 Total liabilities 1,005,040 885,093 COMMITMENTS AND CONTINGENT LIABILITIES (See Note 5) SHAREHOLDERS’ EQUITY Common stock ($ 1.00 stated value per share, 10,000,000 shares authorized; 2020 - 5,447,185 shares issued; 2019 - 5,447,185 shares issued) 5,447 5,447 Additional paid-in capital 51,165 51,165 Retained earnings 89,294 86,751 Accumulated other comprehensive income 2,704 528 Treasury stock, at cost ( 659,739 shares) ( 15,712 ) ( 15,712 ) Total shareholders’ equity 132,898 128,179 Total liabilities and shareholders’ equity $ 1,137,938 $ 1,013,272 See accompanying notes to consolidated financial statements 3 OHIO VALLEY BANC CORP. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (dollars in thousands, except per share data) Three months ended September 30, Nine months ended September 30, 2020 2019 2020 2019 Interest and dividend income: Loans, including fees $ 10,877 $ 11,362 $ 32,389 $ 34,576 Securities Taxable 535 637 1,723 1,911 Tax exempt 73 85 220 253 Dividends 58 91 188 308 Interest-bearing deposits with banks 20 333 200 977 Other Interest 11 13 38 37 11,574 12,521 34,758 38,062 Interest expense: Deposits 1,274 1,592 4,150 4,446 Other borrowed funds 174 215 561 676 Subordinated debentures 44 88 166 274 1,492 1,895 4,877 5,396 Net interest income 10,082 10,626 29,881 32,666 Provision for (recovery of) loan losses ( 2 ) 444 3,451 2,015 Net interest income after provision for loan losses 10,084 10,182 26,430 30,651 Noninterest income: Service charges on deposit accounts 423 553 1,249 1,573 Trust fees 64 59 193 195 Income from bank owned life insurance and annuity assets 207 179 616 534 Mortgage banking income 445 80 966 227 Debit / credit card interchange income 1,130 1,049 3,003 2,935 Loss on other real estate owned ( 1 ) ( 15 ) ( 84 ) ( 1 ) Tax preparation fees 9 — 643 — Litigation settlement — — 2,000 — Other 157 202 539 493 2,434 2,107 9,125 5,956 Noninterest expense: Salaries and employee benefits 5,973 5,652 16,854 16,715 Occupancy 481 479 1,362 1,370 Furniture and equipment 284 255 824 788 Professional fees 525 598 1,596 1,959 Marketing expense 306 270 867 810 FDIC insurance 69 — 93 113 Data processing 538 540 1,841 1,629 Software 318 362 1,111 1,200 Foreclosed assets 38 62 117 187 Amortization of intangibles 14 27 48 89 Other 1,345 1,493 4,299 4,237 9,891 9,738 29,012 29,097 Income before income taxes 2,627 2,551 6,543 7,510 Provision for income taxes 333 414 984 1,101 NET INCOME $ 2,294 $ 2,137 $ 5,559 $ 6,409 Earnings per share $ 0.48 $ 0.45 $ 1.16 $ 1.35 See accompanying notes to consolidated financial statements 4 OHIO VALLEY BANC CORP. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (dollars in thousands) Three months ended September 30, Nine months ended September 30, 2020 2019 2020 2019 Net Income $ 2,294 $ 2,137 $ 5,559 $ 6,409 Other comprehensive income (loss): Change in unrealized gain (loss) on available for sale securities ( 267 ) ( 251 ) 2,755 3,200 Related tax (expense) benefit 56 52 ( 579 ) ( 672 ) Total other comprehensive income (loss), net of tax ( 211 ) ( 199 ) 2,176 2,528 Total comprehensive income $ 2,083 $ 1,938 $ 7,735 $ 8,937 See accompanying notes to consolidated financial statements 5 OHIO VALLEY BANC CORP. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) (dollars in thousands, except share and per share data) Quarter-to-date Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Shareholders' Equity Balance at July 1, 2020 $ 5,447 $ 51,165 $ 88,006 $ 2,915 $ ( 15,712 ) $ 131,821 Net income — — 2,294 — — 2,294 Other comprehensive loss, net — — — ( 211 ) — ( 211 ) Cash dividends, $ 0.21 per share — — ( 1,006 ) — — ( 1,006 ) Balance at September 30, 2020 $ 5,447 $ 51,165 $ 89,294 $ 2,704 $ ( 15,712 ) $ 132,898 Balance at July 1, 2019 $ 5,427 $ 50,492 $ 83,121 $ 592 $ ( 15,712 ) $ 123,920 Net income — — 2,137 — — 2,137 Other comprehensive loss, net — — — ( 199 ) — ( 199 ) Common stock issued through dividend reinvestment, 10,120 shares 10 334 — — — 344 Cash dividends, $ 0.21 per share — — ( 1,001 ) — — ( 1,001 ) Balance at September 30, 2019 $ 5,437 $ 50,826 $ 84,257 $ 393 $ ( 15,712 ) $ 125,201 Year-to-date Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Shareholders' Equity Balance at January 1, 2020 $ 5,447 $ 51,165 $ 86,751 $ 528 $ ( 15,712 ) $ 128,179 Net income — — 5,559 — — 5,559 Other comprehensive income, net — — — 2,176 — 2,176 Cash dividends, $ 0.63 per share — — ( 3,016 ) — — ( 3,016 ) Balance at September 30, 2020 $ 5,447 $ 51,165 $ 89,294 $ 2,704 $ ( 15,712 ) $ 132,898 Balance at January 1, 2019 $ 5,400 $ 49,477 $ 80,844 $ ( 2,135 ) $ ( 15,712 ) $ 117,874 Net income — — 6,409 — — 6,409 Other comprehensive income, net — — — 2,528 — 2,528 Common stock issued to ESOP, 8,333 shares 8 320 — — — 328 Common stock issued through dividend reinvestment, 29,219 shares 29 1,029 — — — 1,058 Cash dividends, $ 0.63 per share — — ( 2,996 ) — — ( 2,996 ) Balance at September 30, 2019 $ 5,437 $ 50,826 $ 84,257 $ 393 $ ( 15,712 ) $ 125,201 See accompanying notes to consolidated financial statements 6 OHIO VALLEY BANC CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (dollars in thousands) Nine months ended September 30, 2020 2019 Net cash provided by operating activities: $ 7,530 $ 9,571 Investing activities: Proceeds from maturities of securities available for sale 23,344 14,145 Purchases of securities available for sale ( 25,884 ) ( 20,127 ) Proceeds from maturities of securities held to maturity 328 2,301 Proceeds from maturities of certificates of deposit in financial institutions 735 — Purchase of certificates of deposit in financial institutions ( 1,120 ) ( 295 ) Net change in loans ( 82,347 ) ( 5,646 ) Proceeds from sale of other real estate owned 446 393 Purchases of premises and equipment ( 3,101 ) ( 4,828 ) Purchases of bank owned life insurance and annuity assets ( 4,583 ) — Net cash (used in) investing activities ( 92,182 ) ( 14,057 ) Financing activities: Change in deposits 123,536 10,622 Proceeds from common stock through dividend reinvestment — 1,058 Cash dividends ( 3,016 ) ( 2,996 ) Repayment of Federal Home Loan Bank borrowings ( 3,994 ) ( 3,017 ) Change in other long-term borrowings ( 406 ) ( 1,899 ) Change in other short-term borrowings ( 270 ) — Net cash provided by financing activities 115,850 3,768 Change in cash and cash equivalents 31,198 ( 718 ) Cash and cash equivalents at beginning of period 52,356 71,180 Cash and cash equivalents at end of period $ 83,554 $ 70,462 Supplemental disclosure: Cash paid for interest $ 5,117 $ 4,791 Cash paid for income taxes 1,950 890 Transfers from loans to other real estate owned 86 112 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 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share data) NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION: The accompanying consolidated financial statements include the accounts of Ohio Valley Banc Corp. (“Ohio Valley”) and its wholly-owned subsidiaries, The Ohio Valley Bank Company (the “Bank”), Loan Central, Inc., a consumer finance company (“Loan Central”), Ohio Valley Financial Services Agency, LLC, an insurance agency, and OVBC Captive, Inc., a limited purpose property and casualty insurance company (the “Captive”). 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 and its subsidiaries are collectively referred to as the “Company.” All material intercompany accounts and transactions have been eliminated in consolidation. These interim financial statements are prepared by the Company without audit and reflect all adjustments of a normal recurring nature which, in the opinion of management, are necessary to present fairly the consolidated financial position of the Company at September 30, 2020, and its results of operations and cash flows for the periods presented. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the operating results to be anticipated for the full fiscal year ending December 31, 2020. The accompanying consolidated financial statements do not purport to contain all the necessary financial disclosures required by U.S. generally accepted accounting principles (“US GAAP”) that might otherwise be necessary in the circumstances. The Annual Report of the Company for the year ended December 31, 2019 contains consolidated financial statements and related notes which should be read in conjunction with the accompanying consolidated financial statements. The consolidated financial statements for 2019 have been reclassified to conform to the presentation for 2020. These reclassifications had no effect on net income or shareholders’ equity. CURRENT EVENTS: In March 2020, the World Health Organization declared the outbreak of the coronavirus (“COVID-19”) as a global pandemic. COVID-19 has continued to negatively impact the global economy, disrupt global supply chains, create significant volatility, disrupt financial markets, and increase unemployment levels. The resulting temporary closure of many businesses and the implementation of social distancing and sheltering-in-place policies has impacted, and may continue to impact, many of the Company’s customers. The potential financial impact of COVID-19 is unknown at this time and depends largely on the actions taken by governmental authorities and other third parties. In addition, COVID-19 may adversely impact several industries within our geographic footprint and impair the ability of our customers to fulfill their contractual obligations to the Company. This could result in a material adverse effect on our business operations, asset valuations, liquidity, financial condition, and results of operations. Effects may include: ● Increased provision for loan losses. Continued uncertainty regarding the severity and duration of COVID-19 and related economic effects will continue to affect the accounting for loan losses. It also is possible that asset quality could worsen, and that loan charge-offs could increase. The Company is actively participating in the Paycheck Protection Program (“PPP”) by providing loans to small businesses negatively impacted by COVID-19. PPP loans are fully guaranteed by the U.S. government, and if that should change, the Company could be required to increase its allowance for loan losses through an additional provision for loan losses charged to earnings. ● Valuation and fair value measurement challenges. Material adverse impacts of COVID-19 may result in valuation impairments on the Company’s securities, impaired loans, goodwill, other real estate owned, and interest rate swap agreements. 8 NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: The accounting and reporting policies followed by the Company conform to US GAAP established by the Financial Accounting Standards Board (“FASB”). The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. INDUSTRY SEGMENT INFORMATION: Internal financial information is primarily reported and aggregated in two lines of business: banking and consumer finance. EARNINGS PER SHARE: Earnings per share are computed based on net income divided by the weighted average number of common shares outstanding during the period. The weighted average common shares outstanding were 4,787,446 and 4,773,258 for the three months ended September 30 , 2020 and 2019 , respectively. The weighted average common shares outstanding were 4,787,446 and 4,761,954 for the nine months ended September 30, 2020 and 2019, respectively. Ohio Valley had no dilutive effect and no potential common shares issuable under stock options or other agreements for any period presented. ADOPTION OF NEW ACCOUNTING STANDARD UPDATES (“ASU”): In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted. For non-public entities, this ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The adoption of this ASU did not have a material impact on the Company’s consolidated financial position or results of operations. ACCOUNTING GUIDANCE TO BE ADOPTED IN FUTURE PERIODS: In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses”. ASU 2016-13 requires entities to replace the current “incurred loss” model with an “expected loss” model, which is referred to as the current expected credit loss (“CECL”) model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU will also require enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. A CECL steering committee has developed a CECL model and is evaluating the source data, various credit loss methodologies and model results in relation to the new ASU guidance. Management expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective. Management expects the adoption will result in a material increase to the allowance for loan losses balance. At this time, the impact is being evaluated. On October 16, 2019, the FASB confirmed it would delay the effective date of this ASU for smaller reporting companies, such as the Company, until fiscal years beginning after December 15, 2022. 9 NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values: Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. The following is a description of the Company’s valuation methodologies used to measure and disclose the fair values of its financial assets and liabilities on a recurring or nonrecurring basis: Securities: The fair values for securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations. Impaired Loans: At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. In some instances, fair value adjustments can be made based on a quoted price from an observable input, such as a purchase agreement. Such adjustments would be classified as a Level 2 classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly. 10 NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) Other Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. In some instances, fair value adjustments can be made based on a quoted price from an observable input, such as a purchase agreement. Such adjustments would be classified as a Level 2 classification. Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of management reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with management’s own assumptions of fair value based on factors that include recent market data or industry-wide statistics. On an as-needed basis, the Company reviews the fair value of collateral, taking into consideration current market data, as well as all selling costs that typically approximate 10 %. Interest Rate Swap Agreements: The fair value of interest rate swap agreements is determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The variable cash receipts (or payments) are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves (Level 2). Assets and Liabilities Measured on a Recurring Basis Assets and liabilities measured at fair value on a recurring basis are summarized below: Fair Value Measurements at September 30, 2020 Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: U.S. Government sponsored entity securities — $ 15,506 — Agency mortgage-backed securities, residential — 94,843 — Interest rate swap derivatives — 1,096 — Liabilities: Interest rate swap derivatives — ( 1,096 ) — Fair Value Measurements at December 31, 2019 Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: U.S. Government sponsored entity securities — $ 16,736 — Agency mortgage-backed securities, residential — 88,582 — Interest rate swap derivatives — 465 — Liabilities : Interest rate swap derivatives — ( 465 ) — There were no transfers between Level 1 and Level 2 during 2020 or 2019. 11 NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) Assets and Liabilities Measured on a Nonrecurring Basis Assets and liabilities measured at fair value on a nonrecurring basis at September 30, 2020 and December 31, 2019 are summarized below: Fair Value Measurements at September 30, 2020 Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Impaired loans: Commercial real estate: Nonowner-occupied — $ 199 — Fair Value Measurements at December 31, 2019 Using Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Impaired loans: Commercial real estate: Nonowner-occupied — — $ 1,644 Commercial and Industrial — — 4,559 At September 30, 2020, the recorded investment of impaired loans measured for impairment using the fair value of collateral for collateral-dependent loans totaled $ 242 , with a corresponding valuation allowance of $ 43 , resulting in an increase of $ 43 in provision expense during the three and nine months ended September 30, 2020, with no corresponding charge-offs recognized. This is compared to no provision expense during the three and nine months ended September 30, 2019. At December 31, 2019, the recorded investment of impaired loans measured for impairment using the fair value of collateral for collateral-dependent loans totaled $ 7,010 , with a corresponding valuation allowance of $ 807 , resulting in an increase of $ 807 in provision expense during the year ended December 31, 2019, with no corresponding charge-offs recognized. There was no other real estate owned that was measured at fair value less costs to sell at September 30, 2020 and December 31, 2019. There were no corresponding write downs during the three and nine months ended September 30, 2020 and 2019. The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2019: December 31, 2019 Fair Value Valuation Technique(s) Unobservable Input(s) Range (Weighted Average) Impaired loans: 1 1 Commercial real estate: Owner-occupied $ 1,644 Sales approach Adjustment to comparables 0 % to 20 % 9.7 % Commercial and industrial 4,559 Sales approach Adjustment to comparables 0 % to 61 % 10.3 % 12 NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) The carrying amounts and estimated fair values of financial instruments at September 30, 2020 and December 31, 2019 are as follows: Carrying Fair Value Measurements at September 30, 2020 Using Value Level 1 Level 2 Level 3 Total Financial Assets: Cash and cash equivalents $ 83,554 $ 83,554 $ — $ — $ 83,554 Certificates of deposit in financial institutions 2,745 — 2,745 — 2,745 Securities available for sale 110,349 — 110,349 — 110,349 Securities held to maturity 11,674 — 3,974 8,048 12,022 Loans, net 845,308 — 199 841,318 841,517 Interest rate swap derivatives 1,096 — 1,096 — 1,096 Accrued interest receivable 3,779 — 370 3,409 3,779 Financial liabilities: Deposits 944,984 270,086 677,187 — 947,273 Other borrowed funds 29,321 — 31,610 — 31,610 Subordinated debentures 8,500 — 5,556 — 5,556 Interest rate swap derivatives 1,096 — 1,096 — 1,096 Accrued interest payable 1,349 1 1,348 — 1,349 Carrying Fair Value Measurements at December 31, 2019 Using: Value Level 1 Level 2 Level 3 Total Financial Assets: Cash and cash equivalents $ 52,356 $ 52,356 $ — $ — $ 52,356 Certificates of deposit in financial institutions 2,360 — 2,360 — 2,360 Securities available for sale 105,318 — 105,318 — 105,318 Securities held to maturity 12,033 — 6,446 5,958 12,404 Loans, net 766,502 — — 771,285 771,285 Interest rate swap derivatives 465 — 465 — 465 Accrued interest receivable 2,564 — 315 2,249 2,564 Financial liabilities: Deposits 821,471 222,607 599,937 — 822,544 Other borrowed funds 33,991 — 34,345 — 34,345 Subordinated debentures 8,500 — 6,275 — 6,275 Interest rate swap derivatives 465 — 465 — 465 Accrued interest payable 1,589 3 1,586 — 1,589 Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. 13 NOTE 3 – SECURITIES The following table summarizes the amortized cost and fair value of securities available for sale and securities held to maturity at September 30, 2020 and December 31, 2019, and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive (loss) and gross unrecognized gains and losses: Securities Available for Sale Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value September 30 , 2020 U.S. Government sponsored entity securities $ 15,111 $ 395 $ — $ 15,506 Agency mortgage-backed securities, residential 91,815 3,032 ( 4 ) 94,843 Total securities $ 106,926 $ 3,427 $ ( 4 ) $ 110,349 December 31, 2019 U.S. Government sponsored entity securities $ 16,579 $ 163 $ ( 6 ) $ 16,736 Agency mortgage-backed securities, residential 88,071 807 ( 296 ) 88,582 Total securities $ 104,650 $ 970 $ ( 302 ) $ 105,318 Securities Held to Maturity Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Estimated Fair Value September 30 , 2020 Obligations of states and political subdivisions $ 11,672 $ 348 $ — $ 12,020 Agency mortgage-backed securities, residential 2 — — 2 Total securities $ 11,674 $ 348 $ — $ 12,022 December 31, 2019 Obligations of states and political subdivisions $ 12,031 $ 372 $ ( 1 ) $ 12,402 Agency mortgage-backed securities, residential 2 — — 2 Total securities $ 12,033 $ 372 $ ( 1 ) $ 12,404 The amortized cost and estimated fair value of debt securities at September 30, 2020, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because certain issuers may have the right to call or prepay the debt obligations prior to their contractual maturities. Securities not due at a single maturity are shown separately. Available for Sale Held to Maturity Debt Securities: Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value Due in one year or less $ 6,895 $ 6,938 $ 1,817 $ 2,005 Due in over one to five years 8,216 8,568 5,646 5,658 Due in over five to ten years — — 4,209 4,357 Agency mortgage-backed securities, residential 91,815 94,843 2 2 Total debt securities $ 106,926 $ 110,349 $ 11,674 $ 12,022 14 NOTE 3 – SECURITIES (Continued) The following table summarizes securities with unrealized losses at September 30, 2020 and December 31, 2019, aggregated by major security type and length of time in a continuous unrealized loss position: September 30, 2020 Less Than 12 Months 12 Months or More Total Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Securities Available for Sale Agency mortgage-backed securities, residential $ 10,102 $ ( 4 ) $ — $ — $ 10,102 $ ( 4 ) Total available for sale $ 10,102 $ ( 4 ) $ — $ — $ 10,102 $ ( 4 ) There were no securities held to maturity with unrealized losses at September 30, 2020. December 31, 2019 Less Than 12 Months 12 Months or More Total Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Securities Available for Sale U.S. Government sponsored entity securities $ — $ — $ 1,999 $ ( 6 ) $ 1,999 $ ( 6 ) Agency mortgage-backed securities, residential 15,041 ( 84 ) 21,344 ( 212 ) 36,385 ( 296 ) Total available for sale $ 15,041 $ ( 84 ) $ 23,343 $ ( 218 ) $ 38,384 $ ( 302 ) Less Than 12 Months 12 Months or More Total Fair Value Unrecognized Loss Fair Value Unrecognized Loss Fair Value Unrecognized Loss Securities Held to Maturity Obligations of states and political subdivisions $ 204 $ ( 1 ) $ — $ — $ 204 $ ( 1 ) Total held to maturity $ 204 $ ( 1 ) $ — $ — $ 204 $ ( 1 ) There were no sales of investment securities during the three and nine months ended September 30, 2020 or 2019. Unrealized losses on the Company’s debt securities have not been recognized into income because the issuers’ securities are of high credit quality as of September 30, 2020, and management does not intend to sell, and it is likely that management will not be required to sell, the securities prior to their anticipated recovery. Management does no t believe any individual unrealized loss at September 30, 2020 and December 31, 2019 represents an other-than-temporary impairment. 15 NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES Loans are comprised of the following: September 30, 2020 December 31, 2019 Residential real estate $ 313,090 $ 310,253 Commercial real estate: Owner-occupied 52,214 55,825 Nonowner-occupied 161,934 131,398 Construction 35,247 34,913 Commercial and industrial 158,833 100,023 Consumer: Automobile 56,370 63,770 Home equity 19,531 22,882 Other 55,819 53,710 853,038 772,774 Less: Allowance for loan losses ( 7,730 ) ( 6,272 ) Loans, net $ 845,308 $ 766,502 Commercial and industrial loans include $ 35,114 of loans originated under the PPP at September 30, 2020. The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended September 30, 2020 and 2019: September 30 , 2020 Residential Real Estate Commercial Real Estate Commercial and Industrial Consumer Total Allowance for loan losses: Beginning balance $ 2,024 $ 2,700 $ 1,649 $ 1,608 $ 7,981 Provision for loan losses ( 275 ) ( 98 ) 230 141 ( 2 ) Loans charged off ( 90 ) — ( 96 ) ( 398 ) ( 584 ) Recoveries 110 15 44 166 335 Total ending allowance balance $ 1,769 $ 2,617 $ 1,827 $ 1,517 $ 7,730 September 30 , 2019 Residential Real Estate Commercial Real Estate Commercial and Industrial Consumer Total Allowance for loan losses: Beginning balance $ 1,973 $ 2,222 $ 1,095 $ 2,111 $ 7,401 Provision for loan losses ( 165 ) ( 536 ) 1,193 ( 48 ) 444 Loans charged-off ( 465 ) — ( 1,168 ) ( 419 ) ( 2,052 ) Recoveries 80 92 11 177 360 Total ending allowance balance $ 1,423 $ 1,778 $ 1,131 $ 1,821 $ 6,153 16 NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued) The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended September 30, 2020 and 2019: September 30, 2020 Residential Real Estate Commercial Real Estate Commercial and Industrial Consumer Total Allowance for loan losses: Beginning balance $ 1,250 $ 1,928 $ 1,447 $ 1,647 $ 6,272 Provision for loan losses 715 1,131 505 1,100 3,451 Loans charged-off ( 340 ) ( 516 ) ( 185 ) ( 1,677 ) ( 2,718 ) Recoveries 144 74 60 447 725 Total ending allowance balance $ 1,769 $ 2,617 $ 1,827 $ 1,517 $ 7,730 September 30 , 2019 Residential Real Estate Commercial Real Estate Commercial and Industrial Consumer Total Allowance for loan losses: Beginning balance $ 1,583 $ 2,186 $ 1,063 $ 1,896 $ 6,728 Provision for loan losses 96 ( 403 ) 1,497 825 2,015 Loans charged-off ( 872 ) ( 579 ) ( 1,512 ) ( 1,612 ) ( 4,575 ) Recoveries 616 574 83 712 1,985 Total ending allowance balance $ 1,423 $ 1,778 $ 1,131 $ 1,821 $ 6,153 The following table presents the balance in the allowance for loan losses and the recorded investment of loans by portfolio segment and based on impairment method as of September 30, 2020 and December 31, 2019: September 30 , 2020 Residential Real Estate Commercial Real Estate Commercial and Industrial Consumer Total Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment $ — $ 43 $ — $ — $ 43 Collectively evaluated for impairment 1,769 2,574 1,827 1,517 7,687 Total ending allowance balance $ 1,769 $ 2,617 $ 1,827 $ 1,517 $ 7,730 Loans: Loans individually evaluated for impairment $ 417 $ 4,130 $ 2,536 $ 485 $ 7,568 Loans collectively evaluated for impairment 312,673 245,265 156,297 131,235 845,470 Total ending loans balance $ 313,090 $ 249,395 $ 158,833 $ 131,720 $ 853,038 December 31, 2019 Residential Real Estate Commercial Real Estate Commercial and Industrial Consumer Total Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment $ — $ 385 $ 303 $ 119 $ 807 Collectively evaluated for impairment 1,250 1,543 1,144 1,528 5,465 Total ending allowance balance $ 1,250 $ 1,928 $ 1,447 $ 1,647 $ 6,272 Loans: Loans individually evaluated for impairment $ 438 $ 11,300 $ 4,910 $ 487 $ 17,135 Loans collectively evaluated for impairment 309,815 210,836 95,113 139,875 755,639 Total ending loans balance $ 310,253 $ 222,136 $ 100,023 $ 140,362 $ 772,774 17 NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued) The following tables present information related to loans individually evaluated for impairment by class of loans as of September 30, 2020 and December 31, 2019: September 30 , 2020 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated With an allowance recorded: Commercial real estate: Nonowner-occupied $ 242 $ 242 $ 43 With no related allowance recorded: Residential real estate 421 417 — Commercial real estate: Owner-occupied 3,157 3,157 — Nonowner-occupied 731 731 — Commercial and industrial 2,536 2,536 — Consumer: Home equity 485 485 — Total $ 7,572 $ 7,568 $ 43 December 31, 2019 Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated With an allowance recorded: Commercial real estate: Owner-occupied $ 2,030 $ 2,030 $ 385 Commercial and industrial 4,861 4,861 303 Consumer: Automobile 8 8 8 Other 111 111 111 With no related allowance recorded: Residential real estate 438 438 — Commercial real estate: Owner-occupied 1,778 1,778 — Nonowner-occupied 7,492 7,492 — Commercial and industrial 49 49 — Consumer: Home equity 368 368 — Total $ 17,135 $ 17,135 $ 807 18 NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued) The following tables present information related to loans individually evaluated for impairment by class of loans for the three and nine months ended September 30, 2020 and 2019: Three months ended September 30, 2020 Nine months ended September 30, 2020 Average Impaired Loans Interest Income Recognized Cash Basis Interest Recognized Average Impaired Loans Interest Income Recognized Cash Basis Interest Recognized With an allowance recorded: Commercial real estate: Nonowner-occupied $ 242 $ — $ — $ 242 $ — $ — With no related allowance recorded: Residential real estate 420 7 7 426 15 15 Commercial real estate: Owner-occupied 3,161 23 23 2,957 124 124 Nonowner-occupied 753 15 15 772 39 39 Commercial and industrial 2,807 20 20 3,543 149 149 Consumer: Home equity 444 3 3 415 12 12 Total $ 7,827 $ 68 $ 68 $ 8,355 $ 339 $ 339 Three months ended September 30, 2019 Nine months ended September 30, 2019 Average Impaired Loans Interest Income Recognized Cash Basis Interest Recognized Average Impaired Loans Interest Income Recognized Cash Basis Interest Recognized With an allowance recorded: With no related allowance recorded: Residential real estate $ 446 $ 4 $ 4 $ 469 $ 20 $ 20 Commercial real estate: Owner-occupied 3,349 53 53 3,144 167 167 Nonowner-occupied 7,949 142 142 6,243 370 370 Commercial and industrial 6,089 110 110 6,110 352 352 Consumer: Home equity 175 15 15 87 15 15 Other 6 — — 5 — — Total $ 18,014 $ 324 $ 324 $ 16,058 $ 924 $ 924 The recorded investment of a loan is its carrying value excluding accrued interest and deferred loan fees. Nonaccrual loans and loans past due 90 days or more and still accruing include both smaller balance homogenous loans that are collectively evaluated for impairment and individually classified as impaired loans. The Company transfers loans to other real estate owned, at fair value less cost to sell, in the period the Company obtains physical possession of the property (through legal title or through a deed in lieu). As of September 30, 2020, there was $ 97 in other real estate owned for residential real estate properties, as compared to $ 68 at December 31, 2019. In addition, nonaccrual residential mortgage loans that are in the process of foreclosure had a recorded investment of $ 684 and $ 1,780 as of September 30, 2020 and December 31, 2019, respectively. 19 NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued) The following table presents the recorded investment of nonaccrual loans and loans past due 90 days or more and still accruing by class of loans as of September 30, 2020 and December 31, 2019: September 30 , 2020 Loans Past Due 90 Days And Still Accruing Nonaccrual Residential real estate $ 58 $ 4,648 Commercial real estate: Owner-occupied — 208 Nonowner-occupied — 597 Construction — 167 Commercial and industrial 30 150 Consumer: Automobile 56 155 Home equity — 211 Other 46 31 Total $ 190 $ 6,167 December 31, 2019 Loans Past Due 90 Days And Still Accruing Nonaccrual Residential real estate $ 255 $ 6,119 Commercial real estate: Owner-occupied — 863 Nonowner-occupied — 804 Construction — 229 Commercial and industrial — 590 Consumer: Automobile 239 61 Home equity — 392 Other 395 91 Total $ 889 $ 9,149 20 NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued) The following table presents the aging of the recorded investment of past due loans by class of loans as of September 30, 2020 and December 31, 2019: September 30 , 2020 30-59 Days Past Due 60-89 Days Past Due 90 Days Or More Past Due Total Past Due Loans Not Past Due Total Residential real estate $ 2,515 $ 1,134 $ 1,337 $ 4,986 $ 308,104 $ 313,090 Commercial real estate: Owner-occupied 2,814 923 195 3,932 48,282 52,214 Nonowner-occupied 157 — 597 754 161,180 161,934 Construction 161 — — 161 35,086 35,247 Commercial and industrial 104 21 180 305 158,528 158,833 Consumer: Automobile 705 133 183 1,021 55,349 56,370 Home equity 145 84 112 341 19,190 19,531 Other 365 226 76 667 55,152 55,819 Total $ 6,966 $ 2,521 $ 2,680 $ 12,167 $ 840,871 $ 853,038 December 31, 2019 30-59 Days Past Due 60-89 Days Past Due 90 Days Or More Past Due Total Past Due Loans Not Past Due Total Residential real estate $ 4,015 $ 1,314 $ 1,782 $ 7,111 $ 303,142 $ 310,253 Commercial real estate: Owner-occupied 383 59 144 586 55,239 55,825 Nonowner-occupied 12 — 697 709 130,689 131,398 Construction 186 19 49 254 34,659 34,913 Commercial and industrial 1,320 312 241 1,873 98,150 100,023 Consumer: Automobile 986 329 246 1,561 62,209 63,770 Home equity 106 18 279 403 22,479 22,882 Other 559 139 443 1,141 52,569 53,710 Total $ 7,567 $ 2,190 $ 3,881 $ 13,638 $ 759,136 $ 772,774 Troubled Debt Restructurings: A troubled debt restructuring (“TDR”) occurs when the Company has agreed to a loan modification in the form of a concession for a borrower who is experiencing financial difficulty. All TDRs are considered to be impaired. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; a reduction in the contractual principal and interest payments of the loan; or short-term interest-only payment terms. The Company has allocated reserves for a portion of its TDRs to reflect the fair values of the underlying collateral or the present value of the concessionary terms granted to the customer. 21 NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued) The following table presents the types of TDR loan modifications by class of loans as of September 30, 2020 and December 31, 2019: September 30 , 2020 TDRs Performing to Modified Terms TDRs Not Performing to Modified Terms Total TDRs Residential real estate: Interest only payments $ 203 $ — $ 203 Commercial real estate: Owner-occupied Interest only payments — — — Reduction of principal and interest payments 1,494 — 1,494 Maturity extension at lower stated rate than market rate 354 — 354 Credit extension at lower stated rate than market rate 386 — 386 Nonowner-occupied Credit extension at lower stated rate than market rate 391 — 391 Commercial and industrial: Interest only payments 2,536 — 2,536 Total TDRs $ 5,364 $ — $ 5,364 December 31, 2019 TDRs Performing to Modified Terms TDRs Not Performing to Modified Terms Total TDRs Residential real estate: Interest only payments $ 209 $ — $ 209 Commercial real estate: Owner-occupied Interest only payments 882 — 882 Reduction of principal and interest payments 1,521 — 1,521 Maturity extension at lower stated rate than market rate 393 — 393 Credit extension at lower stated rate than market rate 393 — 393 Nonowner-occupied Credit extension at lower stated rate than market rate 395 — 395 Commercial and industrial: Interest only payments 4,574 — 4,574 Reduction of principal and interest payments 185 — 185 Total TDRs $ 8,552 $ — $ 8,552 At September 30 , 2020 , the balance in TDR loans decreased $ 3,188 , or 37.3 % , from year-end 2019 . The Company had no specific allocations in reserves to customers whose loan terms have been modified in TDRs at September 30 , 2020 , as compared to $ 227 in reserves at December 31, 2019 . At September 30 , 2020 , the Company had $ 2,964 in commitments to lend additional amounts to customers with outstanding loans that are classified as TDRs, as compared to $ 941 at December 31, 2019 . 22 NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued) There were no TDR loan modifications that occurred during the three and nine months ended September 30, 2020. Furthermore, there were no TDR loan modifications that occurred during the three months ended September 30, 2019. The following table presents the pre- and post-modification balances of TDR loan modifications by class of loans that occurred during the nine months ended September 30, 2019: TDRs Performing to Modified Terms TDRs Not Performing to Modified Terms Nine months ended September 30 , 2019 Number of Loans Pre-Modification Recorded Investment Post-Modification Recorded Investment Pre-Modification Recorded Investment Post-Modification Recorded Investment Residential real estate: Interest only payments 1 $ 292 $ 292 $ — $ — Commercial and Industrial: Interest only payments 1 282 282 Total TDRs 2 $ 574 $ 574 $ — $ — The TDRs described above had no impact on the allowance for loan losses and resulted in no charge-offs during the nine months ended September 30, 2019. During the third quarter of 2019, the Company had one TDR loan totaling $ 133 that experienced a payment default within twelve months following its loan modification. This commercial and industrial loan was first modified as a TDR in April 2019 and was converted to nonaccrual status in August 2019. The Company had no additional TDRs that, during the three and nine months ended September 30, 2020 and 2019, experienced any payment defaults within twelve months following their loan modification. A default is considered to have occurred once the TDR is past due 90 days or more or it has been placed on nonaccrual. TDR loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020 and provided guidance on the modification of loans as a result of COVID-19, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs. This includes short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers are considered current under the CARES Act and related regulatory guidance if they are less than 30 days past due on their contractual payments at the time a modification program is implemented. As of September 30, 2020, the Company had modified 745 loans related to COVID-19 with an aggregate loan balance of $ 151,595 . As of September 30 , 2020 , the Company had 231 modified loans remaining that were related to COVID-19 with an aggregate loan balance of $ 38,926 that were not reported as TDRs in the tables presented above. 23 NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued) Credit Quality Indicators: The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. These risk categories are represented by a loan grading scale from 1 through 11. The Company analyzes loans individually with a higher credit risk rating and groups these loans into categories called “criticized” and ”classified” assets. The Company considers its criticized assets to be loans that are graded 8 and its classified assets to be loans that are graded 9 through 11. The Company’s risk categories are reviewed at least annually on loans that have aggregate borrowing amounts that meet or exceed $ 750 . The Company uses the following definitions for its criticized loan risk ratings: Special Mention. Loans classified as special mention indicate considerable risk due to deterioration of repayment (in the earliest stages) due to potential weak primary repayment source, or payment delinquency. These loans will be under constant supervision, are not classified and do not expose the institution to sufficient risks to warrant classification. These deficiencies should be correctable within the normal course of business, although significant changes in company structure or policy may be necessary to correct the deficiencies. These loans are considered bankable assets with no apparent loss of principal or interest envisioned. The perceived risk in continued lending is considered to have increased beyond the level where such loans would normally be granted. Credits that are defined as a TDR should be graded no higher than special mention until they have been reported as performing over one year after restructuring. The Company uses the following definitions for its classified loan risk ratings: Substandard. Loans classified as substandard represent very high risk, serious delinquency, nonaccrual, or unacceptable credit. Repayment through the primary source of repayment is in jeopardy due to the existence of one or more well defined weaknesses and the collateral pledged may inadequately protect collection of the loans. Loss of principal is not likely if weaknesses are corrected, although financial statements normally reveal significant weakness. Loans are still considered collectible, although loss of principal is more likely than with special mention loans. Collateral liquidation is considered likely to satisfy debt. Doubtful. Loans classified as doubtful display a high probability of loss, although the amount of actual loss at the time of classification is undetermined. This classification should be temporary until such time that actual loss can be identified, or improvements made to reduce the seriousness of the classification. These loans exhibit all substandard characteristics with the addition that weaknesses make collection or liquidation in full highly questionable and improbable. This classification consists of loans where the possibility of loss is high after collateral liquidation based upon existing facts, market conditions, and value. Loss is deferred until certain important and reasonable specific pending factors which may strengthen the credit can be more accurately determined. These factors may include proposed acquisitions, liquidation procedures, capital injection, receipt of additional collateral, mergers, or refinancing plans. A doubtful classification for an entire credit should be avoided when collection of a specific portion appears highly probable with the adequately secured portion graded substandard. Loss. Loans classified as loss are considered uncollectible and are of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the credit has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset yielding such a minimum value even though partial recovery may be affected in the future. Amounts classified as loss should be promptly charged off. 24 NOTE 4 – LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued) Criticized and classified loans will mostly consist of commercial and industrial and commercial real estate loans. The Company considers its loans that do not meet the criteria for a criticized and classified asset rating as pass rated loans, which will include loans graded from 1 (Prime) to 7 (Watch). All commercial loans are categorized into a risk category either at the time of origination or reevaluation date. As of September 30, 2020 and December 31, 2019, and based on the most recent analysis performed, the risk category of commercial loans by class of loans was as follows: September 30 , 2020 Pass Criticized Classified Total Commercial real estate: Owner-occupied $ 46,934 $ 682 $ 4,598 $ 52,214 Nonowner-occupied 154,757 6,031 1,146 161,934 Construction 35,247 — — 35,247 Commercial and industrial 154,048 1,773 3,012 158,833 Total $ 390,986 $ 8,486 $ 8,756 $ 408,228 December 31, 2019 Pass Criticized Classified Total Commercial real estate: Owner-occupied $ 49,486 $ 2,889 $ 3,450 $ 55,825 Nonowner-occupied 123,847 — 7,551 131,398 Construction 34,864 — 49 34,913 Commercial and industrial 89,749 298 9,976 100,023 Total $ 297,946 $ 3,187 $ 21,026 $ 322,159 The Company also obtains the credit scores of its borrowers upon origination (if available by the credit bureau), but the scores are not updated. The Company focuses mostly on the performance and repayment ability of the borrower as an indicator of credit risk and does not consider a borrower's credit score to be a significant influence in the determination of a loan's credit risk grading. For residential and consumer loan classes, the Company evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment of residential and consumer loans by class of loans based on repayment activity as of September 30, 2020 and December 31, 2019: September 30 , 2020 Consumer Residential Automobile Home Equity Other Real Estate Total Performing $ 56,159 $ 19,320 $ 55,742 $ 308,384 $ 439,605 Nonperforming 211 211 77 4,706 5,205 Total $ 56,370 $ 19,531 $ 55,819 $ 313,090 $ 444,810 December 31, 2019 Consumer Residential Automobile Home Equity Other Real Estate Total Performing $ 63,470 $ 22,490 $ 53,224 $ 303,879 $ 443,063 Nonperforming 300 392 486 6,374 7,552 Total $ 63,770 $ 22,882 $ 53,710 $ 310,253 $ 450,615 The Company originates residential, consumer, and commercial loans to customers located primarily in the southeastern areas of Ohio as well as the western counties of West Virginia. Approximately 4.33 % of total loans were unsecured at September 30, 2020, down from 5.00 % at December 31, 2019. 25 NOTE 5 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit, and financial guarantees written, is represented by the contractual amount of those instruments. The contract amounts of these instruments are not included in the consolidated financial statements. At September 30, 2020, the contract amounts of these instruments totaled approximately $ 86,146 , compared to $ 75,178 at December 31, 2019. The Bank uses the same credit policies in making commitments and conditional obligations as it does for instruments recorded on the balance sheet. Since many of these instruments are expected to expire without being drawn upon, the total contract amounts do not necessarily represent future cash requirements. NOTE 6 - OTHER BORROWED FUNDS Other borrowed funds at September 30, 2020 and December 31, 2019 are comprised of advances from the Federal Home Loan Bank (“FHLB”) of Cincinnati and promissory notes. FHLB Borrowings Promissory Notes Totals September 30, 2020 $ 25,763 $ 3,558 $ 29,321 December 31, 2019 $ 29,758 $ 4,233 $ 33,991 Pursuant to collateral agreements with the FHLB, advances were secured by $ 305,131 in qualifying mortgage loans, $ 79,447 in commercial loans and $ 5,365 in FHLB stock at September 30, 2020. Fixed-rate FHLB advances of $ 25,763 mature through 2042 and have interest rates ranging from 1.53 % to 3.31 % and a year-to-date weighted average cost of 2.40 %. There were no variable-rate FHLB borrowings at September 30, 2020. At September 30, 2020, the Company had a cash management line of credit enabling it to borrow up to $ 100,000 from the FHLB. All cash management advances have an original maturity of 90 days. The line of credit must be renewed on an annual basis. There was $ 100,000 available on this line of credit at September 30, 2020. Based on the Company's current FHLB stock ownership, total assets and pledgeable loans, the Company had the ability to obtain borrowings from the FHLB up to a maximum of $ 203,193 at September 30, 2020. Of this maximum borrowing capacity, the Company had $ 109,189 available to use as additional borrowings, of which $ 100,000 could be used for short-term, cash management advances, as mentioned above. Promissory notes, issued primarily by Ohio Valley, are due at various dates through a final maturity date of May 18, 2021 , and have fixed rates ranging from 2.00 % to 2.85 % and a year-to-date weighted average cost of 2.31 % at September 30, 2020, as compared to 2.73 % at December 31, 2019. There were seven promissory notes payable by Ohio Valley to related parties totaling $ 3,558 at September 30, 2020, and December 31, 2019. There were no promissory notes payable to other banks at September 30, 2020, as compared to $ 405 at December 31, 2019. Letters of credit issued on the Bank's behalf by the FHLB to collateralize certain public unit deposits as required by law totaled $ 68,240 at September 30, 2020 and $ 56,500 at December 31, 2019. Scheduled principal payments as of September 30, 2020: FHLB Borrowings Promissory Notes Totals 2020 $ 858 $ 1,998 $ 2,856 2021 2,888 1,560 4,448 2022 2,727 — 2,727 2023 2,588 — 2,588 2024 2,214 — 2,214 Thereafter 14,488 — 14,488 $ 25,763 $ 3,558 $ 29,321 26 NOTE 7 – SEGMENT INFORMATION The reportable segments are determined by the products and services offered, primarily distinguished between banking and consumer finance. They are also distinguished by the level of information provided to the chief operating decision maker, who uses such information to review performance of various components of the business, which are then aggregated if operating performance, products/services, and customers are similar. Loans, investments, and deposits provide the majority of the net revenues from the banking operation, while loans provide the majority of the net revenues for the consumer finance segment. All Company segments are domestic. Total revenues from the banking segment, which accounted for the majority of the Company's total revenues, totaled 94.0 % and 93.9 % of total consolidated revenues for the quarters end September 30, 2020 and 2019, respectively. The accounting policies used for the Company's reportable segments are the same as those described in Note 1 - Summary of Significant Accounting Policies. Income taxes are allocated based on income before tax expense. Information for the Company’s reportable segments is as follows: Three Months Ended September 30, 2020 Banking Consumer Finance Total Company Net interest income $ 9,562 $ 520 $ 10,082 Provision expense — ( 2 ) ( 2 ) Noninterest income 2,385 49 2,434 Noninterest expense 9,295 596 9,891 Tax expense 339 ( 6 ) 333 Net income 2,313 ( 19 ) 2,294 Assets 1,126,202 11,736 1,137,938 Three Months Ended September 30, 2019 Banking Consumer Finance Total Company Net interest income $ 10,048 $ 578 $ 10,626 Provision expense 450 ( 6 ) 444 Noninterest income 2,043 64 2,107 Noninterest expense 9,115 623 9,738 Tax expense 409 5 414 Net income 2,117 20 2,137 Assets 1,034,209 11,749 1,045,958 Nine Months Ended September 30, 2020 Banking Consumer Finance Total Company Net interest income $ 28,350 $ 1,531 $ 29,881 Provision expense 3,445 6 3,451 Noninterest income 8,073 1,052 9,125 Noninterest expense 27,110 1,902 29,012 Tax expense 843 141 984 Net income 5,025 534 5,559 Assets 1,126,202 11,736 1,137,938 Nine Months Ended September 30, 2019 Banking Consumer Finance Total Company Net interest income $ 30,173 $ 2,493 $ 32,666 Provision expense 1,900 115 2,015 Noninterest income 5,822 134 5,956 Noninterest expense 27,146 1,951 29,097 Tax expense 984 117 1,101 Net income 5,965 444 6,409 Assets 1,034,209 11,749 1,045,958 27 NOTE 8 – LEASES Substantially all of the Company’s operating lease right-of-use (“ROU”) assets and operating lease liabilities represent leases for branch buildings and office space to conduct business. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet. The lease expense for these leases are recorded on a straight-line basis over the lease term. Leases with initial terms in excess of 12 months are recorded as either operating or financing leases on the consolidated balance sheet. The Company has no finance lease arrangements. Operating leases have remaining lease terms ranging from 12 months to 17 years, some of which include options to extend the leases for up to 15 years. Operating lease ROU assets and operating lease liabilities are valued based on the present value of future minimum lease payments, discounted with an incremental borrowing rate for the same term as the underlying lease. The Company has one lease arrangement that contains variable lease payments that are adjusted periodically for an index. Upon adoption of the new lease guidance on January 1, 2019, an initial ROU asset of $ 1,280 was recognized as a non-cash asset addition to the consolidated balance sheet. Balance sheet information related to leases was as follows: As of September 30, 2020 As of December 31, 2019 Operating leases: Operating lease right-of-use assets $ 918 $ 1,053 Operating lease liabilities 918 1,053 The components of lease cost were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Operating lease cost $ 32 $ 70 $ 127 $ 216 Short-term lease expense 7 14 23 45 Future undiscounted lease payments for operating leases with initial terms of one year or more as of September 30, 2020 are as follows: Operating Leases 2020 (remaining) $ 40 2021 157 2022 157 2023 116 2024 95 Thereafter 546 Total lease payments 1,111 Less: Imputed Interest ( 193 ) Total operating leases $ 918 Other information was as follows: As of September 30, 2020 As of December 31, 2019 Weighted-average remaining lease term for operating leases 9.8 years 10.6 years Weighted-average discount rate for operating leases 2.78 % 2.76 % 28