OHIO VALLEY BANC CORP (OVBC)

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(dollars in thousands, except share and per share data)

Cautionary Note Regarding Forward-Looking Statements

Certain statements contained in this quarterly report on
Form 10-Q (the “report”) and other publicly available documents incorporated
herein by reference constitute "forward looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and as defined in the Private Securities Litigation Reform Act of
1995.  Such statements are often, but not
always, identified by the use of such words as “believes,” “anticipates,”
“expects,” “intends,” “plans,” “goals,” “seeks,” “projects,” “estimates,”
“strategy,” “future,” “likely,” “may,” “should,” “will,” and other similar
expressions. Such statements involve various important assumptions, risks,
uncertainties, and other factors, many of which are beyond our control,
particularly with regard to developments related to the current economic and
geopolitical landscape, and which could cause actual results to differ
materially from those expressed in such forward looking statements. However, it
is difficult to predict the effect of known factors, and Ohio Valley Banc Corp.
(“Ohio Valley”) cannot anticipate all factors that could affect future results.
Important factors that could cause actual results to differ materially from
expectations expressed in or implied in forward looking statements include, but
are not limited to: the effects of fluctuating interest rates on our customers’
operations and financial condition; changes in political, economic or other factors,
such as inflation rates, recessionary or expansive trends, taxes, tariffs, the
effects of implementation of legislation and the continuing economic
uncertainty in various parts of the world; competitive pressures; the level of
defaults and prepayment on loans made by Ohio Valley and its direct and
indirect subsidiaries (collectively, the “Company”); unanticipated litigation,
claims, or assessments; fluctuations in the cost of obtaining funds to make
loans; and regulatory changes. Additional detailed information concerning such
factors is available in the Company’s filings with the Securities and Exchange
Commission, under the Exchange Act, including the disclosure under the heading
“Item 1A. Risk Factors” of Part I of the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2025 and elsewhere in this document
(including, without limitation, in conjunction with the forward looking
statements themselves and under the heading “Critical Accounting Estimates”).
All forward looking statements are qualified in their entirety by these and
other cautionary statements that the Company makes from time to time in its
other SEC filings and public communications. Readers are cautioned not to place
undue reliance on such forward looking statements, which speak only as of the
date hereof. The Company undertakes no obligation and disclaims any duty to
update or revise any forward looking statements, whether as a result of new
information, unanticipated future events or otherwise, except as required by
applicable law.

BUSINESS OVERVIEW: The following discussion on consolidated financial statements includes
the accounts of Ohio Valley and its wholly-owned subsidiaries, The Ohio Valley
Bank Company (the “Bank”), Loan Central, Inc., a consumer finance company
(“Loan Central”), and Ohio Valley Financial Services Agency, LLC, an insurance
agency. The Bank has one active, wholly-owned subsidiary, Ohio Valley REO, LLC,
an Ohio limited liability company.

The Company is primarily engaged in commercial and
retail banking, 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 and
commercial loans; the making of construction and real estate loans; and credit
card services. The Bank also offers individual retirement accounts, safe deposit
boxes, wire transfers and other standard banking products and services.
Furthermore, the Bank offers Tax Refund Advance Loans (“TALs”) to Loan Central
tax customers. A TAL represents a short-term loan offered by the Bank to tax
preparation customers of Loan Central.

FINANCIAL RESULTS OVERVIEW: Net income totaled $2,927 during the second quarter
of 2026, a decrease of $1,283 from the same period in 2025. Earnings per share
for the second quarter of 2026 finished at $.62 per share, compared to $.89 per
share during the second quarter of 2025. Net income totaled $7,224 during the
first six months of 2026, a decrease of $1,392 from the same period in 2025.
Earnings per share during the first six months of 2026 finished at $1.53 per
share, compared to $1.83 per share during the first six months of
2025. Lower net earnings had a corresponding impact on the Company’s annualized
net income to average asset ratio, or return on assets, which decreased 42
basis points to 0.70% during the second quarter of 2026, and decreased 27 basis
points to 0.89% during the first six months of 2026, compared to the same
periods in 2025. In addition, the Company’s net income to average equity ratio,
or return on equity, decreased 397 basis points to 6.82% during the second
quarter of 2026, and decreased 282 basis points to 8.48% during the first six
months of 2026, compared to the same periods in 2025.

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Lower earnings during the three and six months ended
June 30, 2026 compared to the same periods in 2025 were primarily impacted by higher
provision expense caused by the collateral impairments of two commercial loan
relationships. These collateral deficiencies required specific reserve
allocations that contributed to most of the $2,607 and $3,813 increases in
provision expense during the three and six months ended June 30, 2026 compared
to the same periods in 2025. Lower earnings were also impacted by growth in noninterest
expense, increasing $196 and $679 during the three and six months ended June
30, 2026 compared to the same periods in 2025. Noninterest expense was impacted
by higher salaries and employee benefit costs, software  and other noninterest expense, partially
offset by lower data processing costs. These negative factors were partially
offset by growth in net interest and noninterest income, which collectively
increased $1,201 and $2,591 during the three and six months ended June 30, 2026
compared to the same periods in 2025. Net interest income grew in large part
due to a 12.6% and 10.6% increase in average earning assets during the three
and six months ended June 30, 2026, coming primarily from loans. The impacts
from earning asset growth were partially offset by decreases in the net
interest margin during both the quarterly and year-to-date periods, impacted by
higher funding costs. The improvement in noninterest income occurred primarily during
the second quarter of 2026 with $377 in unrealized gains earned on equity
securities as part of the Company’s participation in the Visa Inc. exchange offer.
This contributed to a $338 increase in quarterly noninterest income, while allowing
year-to-date noninterest income to finish relatively stable with the prior
year-to-date, decreasing by just $20.

During the three and six months ended June 30, 2026,
net interest income increased $863, or 5.9%, and $2,611, or 9.4%, over the same
periods in 2025. The increases were primarily related to a $177,570 and
$149,285 increase in average earning assets during the quarterly and
year-to-date periods. This was led mostly by a 14.7% and 14.4% increase in
average loans during the three and six months ended June 30, 2026 compared to
the same periods in 2025. The growth in average loans was related to the
commercial and residential real estate lending segments. The emphasis on
higher-yielding loan growth during the first half of 2026 contributed to lower
average securities during the three and six months ended June 30, 2026. The decrease in average securities was
also impacted by a reduced need for securities to be pledged as collateral to
secure public fund deposits. Net interest earnings were negatively affected by a
lower net interest margin, which decreased 24 basis points during the second
quarter of 2026, and decreased 4 basis points during the first half of 2026,
compared to the same periods in 2025. Margin contraction, especially during the
quarter, was largely impacted by the effects of an $817 market discount on
purchased loans that was recorded to interest income during the second quarter
of 2025 compared to no market discount income during 2026. Margin decreases were also
impacted by the cost of funding sources increasing at a greater pace than the
yield on earning assets. The cost of funding sources increased as the
composition of funding sources shifted to higher cost certificates of deposit
(“CDs”) from promotional offerings, and higher money market accounts from
individual and business customers.

During the three and six months ended June 30, 2026,
the Company’s provision for credit loss expense increased $2,607 and $3,813,
when compared to the same periods in 2025. The increase resulted primarily from
$4,531 and $6,561 in specific allocations on two collateral dependent loans
during the three and six months ended June 30, 2026. These increases in
reserves were partially offset by a net decrease in modeled loss rates and a
decrease in certain qualitative risk factors and lower net charge offs.

During the three months ended June 30, 2026,
noninterest income increased $338, or 11.9%, over the same period in 2025,
while decreasing $20, or 0.3%, during the six months ended June 30, 2026 from
the same period in 2025. The quarterly increase was driven by $377 in
unrealized gains on equity securities. This was from the Company’s
participation in the Visa Inc. exchange offer during the second quarter of 2026 to
exchange its Visa B-1 shares for a mix of Visa B-3 and Class C common stock,
with the Class C common stock being marked to fair value resulting in the gains
on equity securities previously mentioned. Further increases to noninterest
income came from higher debit and credit card interchange income, and bank
owned life insurance ("BOLI") and annuity asset income, which collectively increased $69
and $293 during the three and six months ended June 30, 2026 compared to the
same periods in 2025. Decreases to noninterest income came primarily from
electronic refund check and deposit fees, which decreased $135 and $675 during
the three and six months ended June 30, 2026 compared to the same periods in
2025. This was due to the expiration of a tax processing agreement with a third
party.

During the three and six months ended June 30, 2026,  noninterest expense increased $196, or 1.8%,
and $679, or 3.1%, over the same periods in 2025. Noninterest expense was
impacted mostly by salaries and employee benefits, which increased $359 and
$694 during the three and six months ended June 30, 2026 over the same periods
in 2025 due to annual merit increases and higher health insurance premiums. Other
noninterest expense was up $251 and $278 during the three and six months ended
June 30, 2026 over the same periods in 2025 due to higher state taxes, loan
costs, and other miscellaneous expenses associated with troubled credits. Also
increasing was software expense and FDIC insurance, which were collectively up
$151 and $341 during the three and six months ended June 30, 2026 over the same
periods in 2025. Software costs increased due to the investment in software to
enhance internal processes, while FDIC premiums increased due to a higher
assessment base and an increase in the assessment rate in relation to higher
nonperfor

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