OHIO VALLEY BANC CORP

CAPITAL RESOURCES

Federal regulators have classified and defined capital into the following components: (i) Tier 1 capital, which includes tangible shareholders’ equity for common stock, qualifying preferred stock and certain qualifying hybrid instruments, and (ii) Tier 2 capital, which includes a portion of the allowance for credit losses, certain qualifying long-term debt, preferred stock and hybrid instruments which do not qualify as Tier 1 capital.

In September 2019, consistent with Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies issued a final rule providing simplified capital requirements for certain community banking organizations (banks and holding companies). Under the rule, a qualifying community banking organization (“QCBO”) is eligible to opt into the Community Bank Leverage Ratio (“CBLR”) framework in lieu of the Basel III capital requirements if it has less than $10 billion in total consolidated assets, limited amounts of certain trading assets and liabilities, limited amounts of off-balance sheet exposure and a leverage ratio greater than 9.0%. The new rule took effect January 1, 2020, and QCBOs were allowed to opt into the new CBLR framework in their Call Report beginning the first quarter of 2020.

A QCBO opting into the CBLR framework must maintain a CBLR of 9.0%, subject to a two quarter grace period to come back into compliance, provided that the QCBO maintains a leverage ratio of more than 8.0% during the grace period. A QCBO failing to satisfy these requirements must comply with the existing Basel III capital requirements as implemented by the banking regulators in July 2013.

The Bank opted into the CBLR, and therefore, is not required to comply with the Basel III capital requirements. The numerator of the CBLR is Tier 1 capital, as calculated under present rules. The denominator of the CBLR is the QCBO’s average assets, calculated in accordance with the QCBO’s Call Report instructions and less assets deducted from Tier 1 capital. The current rules and Call Report instructions were impacted by the Company’s adoption of ASC 326 and its election to apply the 3-year CECL transition provision on January 1, 2023. By making this election, the Bank, in accordance with Section 301 of the regulatory capital rules, will increase it retained earnings (Tier 1 Capital) and average assets by 75% of its CECL transition amount during the first year of the transition period, 50% of its CECL transition amount during the second year, and 25% of its CECL transitional amount during the third year of the transition period. The Bank’s transition amount from the adoption of CECL totaled $2,276, which resulted in the add-back of $1,138 to both Tier 1 capital and average assets as part of the CBLR calculation for December 31, 2024. As of December 31, 2024, the Bank’s CBLR was 9.9%.

As detailed in Note P to the financial statements, at December 31, 2024, the Bank was deemed to be “well capitalized” under applicable prompt corrective action regulations. The Company’s total shareholders’ equity at December 31, 2024 of $150,328 increased $6,321, or 4.4%, as compared to $144,007 at December 31, 2023. Capital grew during 2024 primarily from year-to-date net income of $10,999, less dividends paid of $4,177. This net growth was further impacted by a $944 after-tax increase in net unrealized gains on AFS securities from year-end 2023. During 2024, long-term market rates decreased, which caused an increase in the fair value of the Company’s available for sale investment portfolio. Lastly, the Company issued $500 in common shares to the ESOP plan. Partially offsetting these growth factors was the purchase of $1,945 in common shares during 2024 under the announced stock buyback plan. At December 31, 2024, the cumulative amount of common shares purchased under the plan totaled $2,967 of the $5,000 permitted.