OHIO VALLEY BANC CORP

NET INTEREST INCOME

The most significant portion of the Company’s revenue, net interest income, results from properly managing the spread between interest income on earning assets and interest expense incurred on interest-bearing liabilities. The Company earns interest and dividend income from loans, investment securities and short-term investments while incurring interest expense on interest-bearing deposits and short- and long-term borrowings. Net interest income is affected by changes in both the average volume and mix of assets and liabilities and the level of interest rates for financial instruments. Changes in net interest income are measured by net interest margin and net interest spread. Net interest margin is expressed as the percentage of net interest income to average interest-earning assets. Net interest spread is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. Both of these are reported on a fully tax-equivalent (“FTE”) basis. Net interest margin exceeds the net interest rate spread because noninterest-bearing sources of funds, principally noninterest-bearing demand deposits and stockholders’ equity, also support interest-earning assets. The following is a discussion of changes in interest-earning assets, interest-bearing liabilities and the associated impact on interest income and interest expense for the two years ended December 31, 2025 and 2024. Tables I and II have been prepared to summarize the significant changes outlined in this analysis.

Net interest income in 2025 totaled $58,279 on an FTE basis, up $8,939, or 18.1%, from 2024. This increase reflects the positive contributions from a 7.7% increase in average earning assets and a 36 basis point improvement in the net interest margin. The increase in average earning assets came mostly from a 7.3% increase in loans and a 23.6% increase in securities, partially offset by a 29.0% decrease in interest-bearing balances with banks during 2025, as compared to the same period in 2024. The increase in the net interest margin was related to an increase in the earning asset yield combined with a decrease in the cost of funding sources. The earning asset yield increased 25 basis points in large part due to the growth in higher yielding loans and securities, along with the recognition of $1,648 in market discounts on purchased loans during 2025. The decreases in the cost of funding sources were partially linked to higher costing CDs repricing to lower current market rates along with a shift in the composition of funding sources to lower cost deposit sources such as NOW, money market, and savings accounts. These factors contributed to a decrease in the Company’s average interest-bearing liability costs by 20 basis points during 2025. As a result, the net interest margin increased 36 basis points from 3.71% in 2024 to 4.07% in 2025. The net interest margin increase of 36 basis points reflects a 25 basis point increase from the mix and yield on earning assets and a 20 basis point decrease in funding costs impacted by CD market rate decreases and a composition shift to a greater number of lower-costing deposits. These positive effects were partially offset by a 9 basis point decrease from the use of noninterest-bearing funding (i.e., demand deposits and shareholders’ equity).

Net interest income increased in 2025 primarily due to the increase in both the average volume and yield of earning assets combined with the decrease in the average cost of interest-bearing liabilities. These positive factors were partially offset by an increase in the average volume of interest-bearing liabilities in 2025. The volume increase in average earning assets contributed to a $5,515 increase in FTE interest income during 2025 compared to 2024, while the yield increase in average earning assets was responsible for increasing FTE interest income by $3,957 during the same period. Furthermore, the decrease in average interest-bearing liability costs contributed to a $1,643 decrease in interest expense during 2025, which also contributed to the growth in net interest income. These positive impacts were partially offset by a volume increase in average interest-bearing liabilities that contributed to a $2,176 increase in interest expense during 2025 compared to 2024. The volume increase in average earning assets was led by loans, which increased $75,080, or 7.3%, during 2025, which contributed to $4,951 in additional FTE interest income during 2025 compared to 2024. Average balance growth occurred within the Company’s commercial real estate, commercial and industrial, and residential real estate loan portfolio segments, partially offset by a decrease in the consumer loan segment. While average loans increased in 2025, average securities experienced more accelerated growth in 2025. As a result, the Company’s average loan composition decreased to 76.5% of average earning assets at year-end 2025, as compared to 76.8% for 2024. The increase in average earning asset yield for 2025 was largely impacted by loans, which included the recognition of $1,648 in market discounts on one purchased commercial and industrial loan during 2025. Loan yields were mostly impacted by the commercial and residential real estate loan portfolios. The increase in loan yields was only partially limited by the actions takenby the FRB to decrease short-term rates during 2024 and 2025, which had a direct impact on the repricing of a portion of the Company’s loan portfolio. As a result, the average loan yield grew to 6.73% at year-end 2025, as compared to 6.40% at year-end 2024, which contributed to $3,441 in additional FTE interest income during 2025 compared to 2024.