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

Forward Looking Statements

Except for the historical statements and discussions contained herein, statements contained in this report constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934 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," and similar expressions. Such statements involve various important assumptions, risks, uncertainties, and other factors, many of which are beyond our control, which could cause actual results to differ materially from those expressed in such forward looking statements. These factors include, but are not limited to, the risk factors discussed in Part I, Item 1A of Ohio Valley's Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and Ohio Valley's other securities filings. 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 intention to republish revised or updated forward looking statements as a result of unanticipated future events.

Financial Overview

The Company is primarily engaged in commercial and retail banking, offering a blend of commercial, consumer and agricultural banking services within central and 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, commercial, floor plan and student loans; and the making of construction and real estate loans. The Bank also offers individual retirement accounts, safe deposit boxes, wire transfers and other standard banking products and services. As part of its lending function, the Bank also offers credit card services. Loan Central engages in consumer finance, offering smaller balance personal and mortgage loans to individuals with higher credit risk history. Loan Central's line of business also includes seasonal tax refund loan services during the January through April periods. Ohio Valley Financial Services sells life insurance.

For the three months ended March 31, 2009, net income increased by $86, or 4.4%, compared to the same quarterly period in 2008, to finish at $2,051. Earnings per share for the first quarter of 2009 increased $.03, or 6.3%, compared to the same quarterly period in 2008, to finish at $.51 per share. Earnings per share growth for the quarterly period ending March 31, 2009 continues to exceed the nominal dollar net income growth pace due to the Company's stock repurchase program, with increases in treasury stock repurchases from a year ago lowering the weighted average number of common shares outstanding. The annualized net income to average asset ratio, or return on assets (ROA), and net income to average equity ratio, or return on equity (ROE), both increased to 1.02% and 13.13% at March 31, 2009, as compared to 1.00% and 13.10%, respectively, at March 31, 2008. The Company's growth in earnings during the first three months of 2009 was accomplished primarily by: 1) net interest income expansion of 7.9% as a result of the lower short-term interest rate environment initiated by the Federal Reserve Bank, and 2) noninterest income improvement of 30.2% over 2008's first three months due to the increased transaction volume related to the Company's gain on sale of loans to the secondary market and seasonal tax clearing services performed in the first quarter of 2009.

The consolidated total assets of the Company increased $40,856, or 5.2%, during the first three months of 2009 as compared to year-end 2008, to finish at $821,964. This improvement in assets was led by an increase in the Company's interest-bearing deposits in other financial institutions, which increased $42,206 from year-end 2008, largely from the deployment of interest- and non-interest bearing deposit liability growth. The Company's loan portfolio also experienced an increase from year-end 2008, growing 0.5%, a relatively stable growth pace. This mild increase came primarily from its commercial loan portfolio, which includes commercial real estate and commercial and industrial loans. Historical low interest rates have created an increasing demand for consumers to refinance their existing mortgage loans. This has led to a significant increase in the volume of real estate loans sold to the secondary market, which has caused a corresponding decrease to the Company's residential real estate loan portfolio, which was down 3.8% from year-end 2008. Furthermore, the Company's residential real estate loan portfolio continues to be challenged by various economic trends that have had a negative impact on consumer spending. New purchases of U.S. Government sponsored entity securities led the increase in the Company's investment securities. While the demand for loans was minimal during the first three months of 2009, the Company was able to benefit from growth in its total deposit liabilities of $61,820 from year-end 2008. Interest-bearing deposit liability growth was led by surges in the Company's wholesale deposits of $32,617, public fund NOW balances of $12,934 and Market Watch balances of $8,340, all up from year-end 2008. Furthermore, the Company's noninterest-bearing demand deposits increased $11,428 from year-end 2008. The total deposits retained from year-end 2008 were partially used to fund the repayments of other borrowed funds, which decreased $25,626 from year-end 2008. The excess liquidity created by the growth in total deposits will continue to be used as funding sources for potential earning asset growth during 2009.

Comparison of Financial Condition at March 31, 2009 and December 31, 2008

The following discussion focuses, in more detail, on the consolidated financial condition of the Company at March 31, 2009 compared to December 31, 2008. The purpose of this discussion is to provide the reader a more thorough understanding of the consolidated financial statements. This discussion should be read in conjunction with the interim consolidated financial statements and the footnotes included in this Form 10-Q.

Cash and Cash Equivalents

The Company's cash and cash equivalents consist of cash and non-interest bearing balances due from banks and federal funds sold. The amounts of cash and cash equivalents fluctuate on a daily basis due to customer activity and liquidity needs. At March 31, 2009, cash and cash equivalents had decreased $9,360, or 52.9%, to $8,321 as compared to $17,681 at December 31, 2008. This was largely the result of increased loan balances and investment security purchases during the first quarter of 2009. As liquidity levels vary continuously based on consumer activities, amounts of cash and cash equivalents can vary widely at any given point in time. Management believes that the current balance of cash and cash equivalents remains at a level that will meet cash obligations and provide adequate liquidity. Further information regarding the Company's liquidity can be found under the caption "Liquidity" in this Management's Discussion and Analysis.

Interest-Bearing Deposits in Other Financial Institutions

At March 31, 2009, the Company had a total of $42,817 invested as interest-bearing deposits in other financial institutions, an increase from only $611 at December 31, 2008. This increase is largely the result of the Company's excess liquidity position due to excess deposit liability growth. Historically, the Company has typically invested its excess funds with various correspondent banks in the form of federal funds sold, a common strategy performed by most banks. Beginning in the fourth quarter of 2008, the Company began shifting its emphasis of maintaining its excess liquidity from federal funds sold to its existing clearing account on hand at the Federal Reserve Bank. During this period in 2008, the Federal Reserve Board announced that it would begin paying interest on depository institutions' required and excess reserve balances. The interest rate paid on both the required and excess reserve balances will be based on the targeted federal funds rate established by the Federal Open Market Committee. As of the filing date of this report, the interest rate calculated by the Federal Reserve was 0.25%. Prior to this, the Federal Reserve Bank balances held by the Company were non-interest bearing. This interest rate is similar to what the Company would have received from its investments in federal funds sold, currently targeting a range of 0.0% to 0.25%. Furthermore, Federal Reserve Bank balances are 100% secured.

Securities

During the first three months of 2009, investment securities increased $4,043 to finish at $96,369, an increase of 4.4% as compared to year-end 2008. The Company's investment securities portfolio consists of mortgage-backed securities, U.S. Government sponsored entity ("GSE") securities and obligations of states and political subdivisions. GSE securities increased $8,212, or 25.8%, as a result of two large purchases in March 2009. In addition to attractive yield opportunities and a desire to increase diversification within the Company's securities portfolio, GSE securities have also been used to satisfy pledging requirements for repurchase agreements. At March 31, 2009, the Company's repurchase agreements increased 13.4%, increasing the need to secure these balances. This increase was partially offset by decreases in both mortgage-backed securities and obligations of states and political subdivisions, which were down $3,209, or 7.4%, and $960, or 5.7%, respectively, from year-end 2008. Mortgage-backed securities continue to make up the largest portion of the Company's investment portfolio, totaling $40,305, or 41.8% of total investments at March 31, 2009. The primary advantage of mortgage-backed securities has been the increased cash flows due to the more rapid (monthly) repayment of principal as compared to other types of investment securities, which deliver proceeds upon maturity or call date. However, with the current interest rate environment, the cash flow is being reinvested at lower rates. Principal repayments from mortgage-backed securities totaled $3,844 from January 1, 2009 through March 31, 2009. For the remainder of 2009, the Company's focus will be to generate interest revenue primarily through loan growth, as loans generate the highest yields of total earning assets.

Loans

The loan portfolio represents the Company's largest asset category and is its most significant source of interest income. During the first three months of 2009, total loans increased $3,168, or 0.5%, from year-end 2008. Higher loan balances were mostly influenced by total commercial loans, which were up $9,918, or 4.1%, from year-end 2008. The Company's commercial loans include both commercial real estate and commercial and industrial loans. Management continues to place emphasis on its commercial lending, which generally yields a higher return on investment as compared to other types of loans. The Company's commercial and industrial loan portfolio, up $2,591, or 5.8%, from year-end 2008, consists of loans to corporate borrowers primarily in small to mid-sized industrial and commercial companies that include service, retail and wholesale merchants. Collateral securing these loans includes equipment, inventory, and stock. Commercial real estate, the Company's largest segment of commercial loans, increased $7,327, or 3.7%. This segment of loans is mostly secured by commercial real estate and rental property. Commercial real estate consists of loan participations with other banks outside the Company's primary market area. Although the Company is not actively marketing participation loans outside its primary market area, it is taking advantage of the relationships it has with

certain lenders in those areas where the Company believes it can profitably participate with an acceptable level of risk. The commercial loan portfolio, including participation loans, consists primarily of rental property loans (24.6% of portfolio), medical industry loans (11.9% of portfolio), land development loans (8.5% of portfolio), and hotel and motel loans (8.0% of portfolio). During the first three months of 2009, the primary market areas for the Company's commercial loan originations, excluding loan participations, were in the areas of Gallia, Jackson and Franklin counties of Ohio, which accounted for 76.0% of total originations. The growing West Virginia markets also accounted for 11.1% of total originations for the same time period. While management believes lending opportunities exist in the Company's markets, future commercial lending activities will depend upon economic and related conditions, such as general demand for loans in the Company's primary markets, interest rates offered by the Company and normal underwriting considerations. Additionally, the potential for larger than normal commercial loan payoffs may limit loan growth during the remainder of 2009.

Also contributing to the loan portfolio increase were consumer loans, which were up $2,291, or 1.8%, from year-end 2008. The Company's consumer loans are secured by automobiles, mobile homes, recreational vehicles and other personal property. Personal loans and unsecured credit card receivables are also included as consumer loans. The increase in consumer loans came mostly from the Company's automobile indirect lending segment, which increased $2,143, or 7.9%, from year-end 2008. The automobile lending segment continues to represent the largest portion of the Company's consumer loan portfolio, representing 22.6% of total consumer loans at March 31, 2009. Prior to 2009, the Company's indirect automobile segment was on a declining pace due to the growing economic factors that had weakened the economy and consumer spending. During this time, the Company's loan underwriting process and interest rates offered on indirect automobile opportunities struggled to compete with the more aggressive lending practices of local banks and alternative methods of financing, such as captive finance companies offering loans at below-market interest rates related to this segment. As the economy continues to be challenged, these banks and captive finance companies that once were successful in getting the majority of the indirect automobile opportunities are now struggling because of the losses they have had to absorb as well as the overall decrease in demand for auto loans. As a result, these businesses have had to tighten their operations and underwriting processes which have allowed the Company to compete better for a larger portion of the indirect business within its local markets. Furthermore, the Company has added several new auto dealer relationships that have contributed to more business opportunities in 2009.

Further enhancing the growth in indirect auto loan balances were increases in the Company's tax refund anticipation loans ("RAL"). RAL loans are short-term cash advances against a customer's anticipated income tax refund. At March 31, 2009, the Company had $2,210 in RAL balances as compared to $828 at March 31, 2008, an increase of $1,382, or 166.9%. Since the terms of RAL loans are short in nature, continued loan payoffs should leave minimal balances remaining by year-end 2009.

The remaining consumer loan products not discussed above were collectively down $1,234, which included general decreases in loan balances from mobile homes, all-terrain vehicles and recreation vehicles. While the total consumer loan portfolio was up from year-end 2008, management will continue to place more emphasis on other loan portfolios (i.e. residential real estate and commercial) that will promote increased profitable loan growth and higher returns. Indirect automobile loans bear additional costs from dealers that partially offset interest revenue and lower the rate of return. Management believes that the volume of indirect automobile opportunities have begun to stabilize and does not anticipate any significant growth during the remaining fiscal year of 2009.

Generating residential real estate loans remains a key focus of the Company's lending efforts. Residential real estate loan balances comprise the largest portion of the Company's loan portfolio and consist primarily of one- to four-family residential mortgages and carry many of the same customer and industry risks as the commercial loan portfolio. During the first three months of 2009, total residential real estate loan balances decreased $9,674, or 3.8%, from year-end 2008 to total $243,019. During the end of 2008 and first quarter of 2009, long-term interest rates decreased to historic low levels that prompted a significant surge of demand for these types of long-term fixed-rate real estate loan products. At March 31, 2009, the 30-year treasury rate was 3.56%, compared to 4.30% from a year ago, a decrease of 74 basis points. Consumers wanted to take advantage of securing their mortgage with a low rate and reducing their monthly costs. To help manage interest rate risk and satisfy demand for longer-termed, fixed-rate real estate loans, the Company gained significant opportunities during the first quarter of 2009 to originate and sell fixed-rate mortgages to the secondary market. During the first quarter of 2009, the Company sold $22,131 in loans as compared to $11,704 in secondary market loans that were sold during the entire year of 2008. The increased volume of loans sold to the secondary market contributed to growth in real estate origination fees and higher gains on sale revenue in 2009 as compared to 2008. The increase in demand for real estate refinancings combined with the Company's emphasis on selling loans to the secondary market to manage interest rate risk has led to a decrease in the Company's longer-termed, fixed-rate real estate loans, which were down $7,627, or 4.1%, from year-end 2008. Terms of these fixed-rate loans include 15-, 20- and 30-year periods. This also contributed to a lower balance of the Company's one-year adjustable-rate mortgages, which were down $2,757, or 8.3%, from year-end 2008.

The remaining real estate loan portfolio balances increased $710 primarily from the Company's other variable rate products. The Company believes it has limited its interest rate risk exposure due to its practice of promoting and selling residential mortgage loan production to the secondary market.

The Company recognized an increase of $633 in other loans from year-end 2008. Other loans consist primarily of state and municipal loans and overdrafts. This increase was largely due to an increase in state and municipal loans of $559.

The Company continues to monitor the pace of its loan volume. The well-documented housing market crisis and other disruptions within the economy have negatively impacted consumer spending, which has limited the lending opportunities within the Company's market locations. Dramatic declines in the housing market during the past year, with falling home prices and increasing foreclosures and unemployment, have resulted in significant write-downs of asset values by financial institutions. To combat this ongoing potential for loan loss, the Company will continue to remain consistent in its approach to sound underwriting practices without sacrificing asset quality and avoiding exposure to unnecessary risk that could weaken the credit quality of the portfolio. The Company expects total loan growth in 2009 to be challenged, with volume to continue at a stable-to-declining pace throughout the rest of the year.

Allowance for Loan Losses

Management continually monitors the loan portfolio to identify potential portfolio risks and to detect potential credit deterioration in the early stages, and then establishes reserves based upon its evaluation of these inherent risks. During the first three months of 2009, the Company's allowance for loan losses remained relatively stable, finishing at $7,704, as compared to $7,799 at year-end 2008. This stable level of reserves was, in part, due to the mild pace of growth within the Company's loan portfolio, up just 0.5% from year-end 2008. Nonperforming loans at March 31, 2009 totaled 0.95% of total portfolio loans, an increase from the December 31, 2008 ratio of 0.84%. Nonperforming loans increased $743, or 14.1%, to finish at $6,017 at March 31, 2009 as compared to year-end 2008. Of the nonperforming loans at March 31, 2009, about 71% were real estate secured. The increase in nonperforming loans was mostly related to two real estate mortgage borrowers with payment performance difficulties that were placed on nonaccrual during March 2009. These two troubled credits also impacted the Company's nonperforming assets, which increased $833, or 8.4%, to finish at $10,801 at March 31, 2009 as compared to year-end 2008. Approximately 0.50% of nonperforming assets is related to one large commercial borrowing classified as other real estate owned ("OREO").

During the first quarter of 2008, the Company experienced problems with one of its commercial borrowers that was unable to meet the debt requirements of its loans. During this time, the Company stopped recognizing interest income on the loans, reversed all interest that had been accrued and unpaid and classified the loans as nonperforming. During the second quarter of 2008, continued analysis of these loans was performed, which included the reviews of updated appraisals that reflected a decline in market values due to deteriorating market conditions. This analysis, along with continued loan deterioration of this large commercial borrower, prompted management to charge down the loan by $750, including estimated costs to sell, to the estimated fair value of the collateral. Subsequently, the Company transferred approximately $4,214 in loans to OREO as a result of reaching a settlement agreement with the borrower that included the Bank receiving deeds in lieu of foreclosure. The Company's ratio of nonperforming assets, which include these OREO properties, to total assets equated to 1.31% at March 31, 2009, an increase from 1.28% at year-end 2008. Excluding the aforementioned large commercial borrowing classified as OREO, nonperforming assets to total assets would equal 0.80%. Both nonperforming loans and nonperforming assets at March 31, 2009 continue to be in various stages of resolution for which management believes such loans are adequately collateralized or otherwise appropriately considered in its determination of the adequacy of the allowance for loan losses.

In addition to the nonperforming loans and nonperforming assets discussed above, there was $21,597 of loans held by the Company at March 31, 2009 classified as impaired, or for which management has concerns regarding the ability of the borrowers to meet existing repayment terms. These impaired loans reflect the distinct possibility that the Company will not be able to collect all amounts due according to the contractual terms of the loan. Although these loans have been identified as potential problem loans, they may never become delinquent or classified as non-performing. Impaired loans are considered in the determination of the overall adequacy of the allowance for loan losses.

During the first three months of 2009, net charge-offs totaled $943, which were up $403 from the same period in 2008, in large part due to one residential real estate loan. Management believes that the allowance for loan losses is adequate and reflects probable incurred losses in the loan portfolio. Asset quality remains a key focus, as management continues to stress not just loan growth, but quality in loan underwriting as well.

Deposits

Deposits are used as part of the Company's liquidity management strategy to meet obligations for depositor withdrawals, fund the borrowing needs of loan customers, and to fund ongoing operations. Deposits, both interest- and noninterest-bearing, continue to be the most significant source of funds used by the Company to support earning assets. The Company seeks to maintain a proper balance of core deposit relationships on hand while also utilizing various wholesale deposit sources such as brokered and network certificates of deposit ("CD") balances as an alternative funding source to efficiently manage the net interest margin. Deposits are influenced by changes in interest rates, economic conditions and competition from other banks. During the first three months of 2009, total deposits were up $61,820, or 10.4%, from year-end 2008. The change in deposits came primarily from an increase in the Company's interest-bearing time deposits, interest-bearing demand deposits and money market deposit balances.

Core relationship deposits are considered by management as a primary source of the Bank's liquidity. The Bank focuses on these kinds of deposit relationships with consumers from local markets who can maintain multiple accounts and services at the Bank. The Company views core deposits as the foundation of its long-term funding sources because it believes such core deposits are more stable and less sensitive to changing interest rates and other economic factors. As a result, the Bank's core customer relationship strategy has resulted in a higher percentage of its deposits being held in NOW accounts, money market accounts, and noninterest-bearing demand accounts from year-end 2008, while a lesser percentage has resulted in retail time deposits from year-end 2008.

Deposit growth came mostly from time deposits, which increased $24,025, or 7.8%, from year-end 2008. Time deposits, particularly CD's, are the most significant source of funding for the Company's earning assets, making up 50.7% of total deposits. With loan balances maintaining a relatively stable growth pace, up just 0.5% from year-end 2008, there has not been an aggressive need to deploy time deposits as a funding source. As market rates have aggressively lowered since September 2007, the Company has seen the cost of its retail CD balances reprice downward (as a lagging effect to the actions by the Federal Reserve) to reflect current deposit rates. This lagging effect has caused the interest rates on the Company's retail CD portfolio to stabilize and become comparable to the interest rate offerings of its alternative funding source, wholesale fund deposits. As market rates have fallen considerably from a year ago, the Bank's CD customers have been more likely to consider re-investing their matured CD balances with other institutions offering the most attractive rates. This has led to an increased maturity runoff within its "customer relation" retail CD portfolio. Furthermore, with the significant downturn in economic conditions, the Bank's CD customers in general have experienced reduced funds available to deposit with structured terms, choosing to remain more liquid. As a result, the Company has experienced a shift within its time deposit portfolio, with retail CD balances decreasing $8,592 from year-end 2008, while utilizing more wholesale funding deposits (i.e., brokered and network CD issuances), which increased $32,617 from year-end 2008. The Bank increased its use of brokered deposits during the previous two quarters with laddered maturities into the future. This trend of utilizing brokered CD's selectively based on maturity and interest rate opportunities not only fits well with management's strategy of funding the balance sheet with low-costing wholesale funds, but it also assists to support . . .