NOTE

- 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. (“Loan Central”), a consumer finance company, Ohio Valley Financial Services Agency, LLC (“Ohio Valley Financial Services”), an insurance agency, and OVBC Captive, Inc. (the “Captive”), a limited purpose property and casualty insurance company. 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”. 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

June 30, 2018,

and its results of operations and cash flows for the periods presented. The results of operations for the

three

and

six

months ended

June 30, 2018

are

not

necessarily indicative of the operating results to be anticipated for the full fiscal year ending

December 31, 2018.

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, 2017

contains consolidated financial statements and related notes which should be read in conjunction with the accompanying consolidated financial statements.

The consolidated financial statements for

2017

have been reclassified to conform to the presentation for

2018.

These reclassifications had

effect on the net income or shareholders’ equity.

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

4,724,124

and

4,681,763

for the

three

months ended

June 30, 2018

and

2017,

respectively. The weighted average common shares outstanding were

4,717,901

and

4,677,066

for the

six

months ended

June 30, 2018

and

2017,

respectively. Ohio Valley had

dilutive effect and

potential common shares issuable under stock options or other agreements for any period presented.

ADOPTION OF

NEW ACCOUNTING

STANDARD UPDATES (“ASU”)

May 2014,

the Financial Accounting Standards Board (“FASB”) issued ASU

No.

2014

09,

which was then adopted by the Company as of

January 1, 2018

and all subsequent amendments to the ASU (collectively, “ASC

606”

). ASC

606

(i) creates a single framework for recognizing revenue from contracts with customers that fall within its scope and (ii) revises when it is appropriate to recognize a gain (loss) from the transfer of nonfinancial assets, such as other real estate owned. The guidance establishes a

five

-step model which entities must follow to recognize revenue and removes inconsistencies and weaknesses in existing guidance. Additional disclosures providing information about contracts with customers are required. Adoption did

not

have a material impact on the Company’s results of operations or financial position. The Company adopted ASC

606

using the modified retrospective transition method. As of

December 31, 2017,

the Company had

uncompleted customer contracts and as a result,

cumulative transition adjustment was posted to the Company’s accumulated deficit during

2018.

January 2016,

the FASB issued ASU

No.

2016

01,

"Recognition and Measurement of Financial Assets and Financial Liabilities". The update provided updated accounting and reporting requirements for both public and non-public entities effective for interim and annual periods beginning after

December 15, 2017,

using a cumulative-effect adjustment to the balance sheet as of the beginning of the year of adoption. The most significant provisions that impacted the Company were:

) measurement of equity securities at fair value, with the changes in fair value recognized in the income statement;

) elimination of the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments at amortized cost on the balance sheet;

) utilization of the exit price notion when measuring the fair value of financial instruments for disclosure purposes; and

) requirement of separate presentation of both financial assets and liabilities by measurement category and form of financial asset on the balance sheet or accompanying notes to the financial statements. The Company adopted ASU

No.

2016

effective

January 1, 2018

and determined the impact to be

not

material to the Company’s financial statements. The amendments did change the method utilized to disclose the fair value of the loan portfolio to reflect an exit price notion as opposed to an entry price. For additional information on fair value of assets and liabilities, see Note

August 2016,

FASB issued an update (ASU

2016

15,

“Statement of Cash Flows”) (Topic

230

), which addressed

eight

specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in this update applied to all entities, including business entities and

not

-for-profit entities that were required to present a statement of cash flows, and were effective for public business entities for fiscal years beginning after

December 15, 2017,

and interim periods within those fiscal years. The Company adopted ASU

2016

effective

January 1, 2018,

which had

impact to the consolidated financial statements and related disclosures.

February 2018,

the FASB issued ASU

2018

02,

“Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. The purpose of this Update is to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act that was enacted on

December, 22, 2017.

The Update is effective for public business entities for annual periods beginning after

December 15, 2018,

and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company elected to early adopt this accounting guidance effective

April 1, 2018.

This resulted in the reclassification of

$173

in stranded tax effects from accumulated other comprehensive income to retained earnings within this

June 30, 2018

Form

-Q.

Revenue Recognition

ASU

No.

2014

09,

“Revenue from Contracts with Customers” ASC

606

provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance enumerates

five

steps that entities should follow in achieving this core principle. Revenue generated from financial instruments, such as interest and dividends on loans and investment securities, are

not

included in the scope of ASC

606.

The adoption of ASC

606

did

not

result in a change to the accounting for any of the Company’s revenue streams that are within the scope of the amendments. The Company’s services that fall within the scope of ASC

606

are recognized as revenue as the Company satisfies its obligation to the customer. All of the Company’s revenue from contracts with customers within the scope of ASC

606

are presented in the Company’s consolidated statements of income as components of non-interest income. The list below describes the specific revenue stream under ASC

606,

which corresponds directly to the line item within the statement of income in which it is being included:

●

Service charges on deposit accounts

– these include general service fees charged for deposit account maintenance and activity and transaction-based fees charged for certain services, such as debit card, wire transfer, or overdraft activities. Revenue is recognized when the performance obligation is completed, which is generally after a transaction is completed or monthly for account maintenance services.

●

Trust fees

- this includes periodic fees due from trust customers for managing the customers' financial assets. Fees are generally charged on a quarterly or annual basis and are recognized ratably throughout the period, as the services are provided on an ongoing basis.

●

Electronic refund check/deposit fees

– A tax refund clearing agreement between the Bank and a tax refund product provider requires the Bank to process electronic refund checks and electronic refund deposits presented for payment on behalf of taxpayers through accounts containing taxpayer refunds. The Bank, in turn, receives a fee paid by the

third

-party tax software provider for each transaction that is processed. The amount of fees received are tiered based on the tax refund product selected. Since the Bank acts as a sub servicer in the tax process relationship, a portion of the fee collected is passed on to the tax refund product provider.

●

Debit/credit card interchange income

– includes interchange income from cardholder transactions conducted with merchants, throughout various interchange networks with which the Company participates. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, as transaction processing services are provided to the deposit customer. Gross fees from interchange are recorded in operating income separately from gross network costs, which are recorded in operating expense.

●

Gain (loss) on other real estate owned

– the Company records a gain or loss from the sale of other real estate owned (“OREO”) when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.

All of the Company’s revenue from contracts with customers within the scope of ASC

606

listed above pertained to the banking segment, with

revenue impact recognized from the consumer finance segment during the periods presented.

ACCOUNTING GUIDANCE TO BE ADOPTED IN FUTURE PERIODS:

June 2016,

the FASB issued ASU

No.

2016

13,

“Financial Instruments - Credit Losses”. ASU

2016

requires entities to report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss” 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. This ASU is effective for annual periods, and interim periods within those annual periods, beginning after

December 15, 2019.

Early adoption is permitted, for annual periods and interim periods within those annual periods, beginning after

December 15, 2018.

Management is currently in the developmental stages of implementing the ASU. A steering committee has been established, models are being evaluated, and available historical information is being collected, in order to assess the expected credit losses. However, the impact to the financial statements is still yet to be determined.