OTE

–

LOANS

AND ALLOWANCE FOR LOAN LOSSES

Loans are comprised of the following:	June 30,			December 31,
	2017			2016
Residential real estate	$	304,537		$	286,022
Commercial real estate:
Owner-occupied		75,829			77,605
Nonowner-occupied		93,083			90,532
Construction		43,215			45,870
Commercial and industrial		102,950			100,589
Consumer:
Automobile		64,540			59,772
Home equity		21,300			20,861
Other		51,451			53,650
		756,905			734,901
Less: Allowance for loan losses		(6,952	)		(7,699	)

Loans, net	$	749,953		$	727,202

The following table presents the activity in the allowance for loan losses by portfolio segment for the

three

months ended

June 30, 2017

and

2016:

June 30, 2017	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,392		$	2,729		$	1,360		$	1,834		$	7,315
Provision for loan losses		(68	)		(89	)		(35	)		367			175
Loans charged off		(73	)		(53	)		(399	)		(384	)		(909	)
Recoveries		49			226			6			90			371
Total ending allowance balance	$	1,300		$	2,813		$	932		$	1,907		$	6,952

June 30, 2016	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,185		$	1,995		$	2,672		$	1,094		$	6,946
Provision for loan losses		(258	)		1,445			(1,266	)		220			141
Loans charged-off		(67	)		(52	)		----			(353	)		(472	)
Recoveries		46			76			10			187			319
Total ending allowance balance	$	906		$	3,464		$	1,416		$	1,148		$	6,934

The following table presents the activity in the allowance for loan losses by portfolio segment for the

six

months ended

June 30, 2017

and

2016:

June 30, 2017	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	939		$	4,315		$	907		$	1,538		$	7,699
Provision for loan losses		377			(1,176	)		350			769			320
Loans charged off		(146	)		(612	)		(403	)		(705	)		(1,866	)
Recoveries		130			286			78			305			799
Total ending allowance balance	$	1,300		$	2,813		$	932		$	1,907		$	6,952

June 30, 2016	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,087		$	1,959		$	2,589		$	1,013		$	6,648
Provision for loan losses		(218	)		1,462			(1,184	)		560			620
Loans charged-off		(171	)		(52	)		----			(836	)		(1,059	)
Recoveries		208			95			11			411			725
Total ending allowance balance	$	906		$	3,464		$	1,416		$	1,148		$	6,934

The following table presents the balance in the allowance for loan losses and the recorded investment of loans by portfolio segment and based on impairment method as of

June 30, 2017

and

December 31, 2016:

June 30, 2017	Residential Real Estate		Commercial Real Estate		Commercial and Industrial		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	----	$	97	$	----	$	1	$	98
Collectively evaluated for impairment		1,300		2,716		932		1,906		6,854
Total ending allowance balance	$	1,300	$	2,813	$	932	$	1,907	$	6,952

Loans:
Loans individually evaluated for impairment	$	1,141	$	7,262	$	9,077	$	209	$	17,689
Loans collectively evaluated for impairment		303,396		204,865		93,873		137,082		739,216
Total ending loans balance	$	304,537	$	212,127	$	102,950	$	137,291	$	756,905

December 31, 2016	Residential Real Estate		Commercial Real Estate		Commercial and Industrial		Consumer		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	----	$	2,535	$	241	$	205	$	2,981
Collectively evaluated for impairment		939		1,780		666		1,333		4,718
Total ending allowance balance	$	939	$	4,315	$	907	$	1,538	$	7,699

Loans:
Loans individually evaluated for impairment	$	717	$	13,111	$	8,465	$	416	$	22,709
Loans collectively evaluated for impairment		285,305		200,896		92,124		133,867		712,192
Total ending loans balance	$	286,022	$	214,007	$	100,589	$	134,283	$	734,901

The following tables present information related to loans individually evaluated for impairment by class of loans as of

June 30, 2017

and

December 31, 2016:

June 30, 2017	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:
Commercial real estate:
Nonowner-occupied	$	377	$	377	$	97
Consumer:
Home equity		209		209		1
With no related allowance recorded:
Residential real estate		1,141		1,141		----
Commercial real estate:
Owner-occupied		3,164		2,665		----
Nonowner-occupied		5,229		3,773		----
Construction		993		447		----
Commercial and industrial		9,390		9,077		----
Total	$	20,503	$	17,689	$	98

December 31, 2016	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:
Commercial real estate:
Owner-occupied	$	5,477	$	5,477	$	2,435
Nonowner-occupied		384		384		100
Commercial and industrial		392		392		241
Consumer:
Home equity		416		416		205
With no related allowance recorded:
Residential real estate		717		717		----
Commercial real estate:
Owner-occupied		3,638		3,091		----
Nonowner-occupied		5,078		3,632		----
Construction		1,001		527		----
Commercial and industrial		8,073		8,073		----
Total	$	25,176	$	22,709	$	2,981

The following tables present information related to loans individually evaluated for impairment by class of loans for the

three

and

six

months ended

June 30, 2017

and

2016:

	Three months ended June 30, 2017						Six months ended June 30, 2017
	Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized		Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized
With an allowance recorded:
Commercial real estate:
Nonowner-occupied	$	379	$	5	$	5	$	380	$	14	$	14
Consumer:
Home equity		209		2		2		210		5		5
With no related allowance recorded:
Residential real estate		1,028		12		12		992		20		20
Commercial real estate:
Owner-occupied		2,836		36		36		2,921		120		120
Nonowner-occupied		3,779		21		21		3,730		74		74
Construction		487		5		5		501		108		108
Commercial and industrial		8,990		100		100		8,815		290		290
Total	$	17,708	$	181	$	181	$	17,549	$	631	$	631

	Three months ended June 30, 2016						Six months ended June 30, 2016
	Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized		Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized
With an allowance recorded:
Commercial real estate:
Owner-occupied	$	2,570	$	143	$	143	$	1,781	$	147	$	147
Nonowner-occupied		392		5		5		393		10		10
Commercial and industrial		887		----		----		887		----		----
Consumer:
Home equity		218		2		2		218		4		4
With no related allowance recorded:
Residential real estate		728		7		7		730		16		16
Commercial real estate:
Owner-occupied		3,197		40		40		3,220		83		83
Nonowner-occupied		3,378		29		29		3,176		42		42
Construction		431		97		97		514		97		97
Commercial and industrial		8,212		95		95		8,076		187		187
Total	$	20,013	$	418	$	418	$	18,995	$	586	$	586

The recorded investment of a loan is its carrying value excluding accrued interest and deferred loan fees.

Nonaccrual loans and loans past due

days or more and still accruing include both smaller balance homogenous loans that are collectively evaluated for impairment and individually classified as impaired loans.

The Company transfers loans to other real estate owned, at fair value less cost to sell, in the period the Company obtains physical possession of the property (through legal title or through a deed in lieu). As of

June 30, 2017

and

December 31, 2016,

other real estate owned secured by residential real estate totaled

$564

and

$938,

respectively. In addition, nonaccrual residential mortgage loans that are in the process of foreclosure had a recorded investment of

$1,812

and

$1,492

as of

June 30, 2017

and

December 31, 2016,

respectively.

The following table presents the recorded investment of nonaccrual loans and loans past due

days or more and still accruing by class of loans as of

June 30, 2017

and

December 31, 2016:

June 30, 2017	Loans Past Due 90 Days And Still Accruing		Nonaccrual

Residential real estate	$	185	$	3,366
Commercial real estate:
Owner-occupied		----		384
Nonowner-occupied		----		2,713
Construction		----		447
Commercial and industrial		70		468
Consumer:
Automobile		110		30
Home equity		235		17
Other		141		58
Total	$	741	$	7,483

December 31, 2016	Loans Past Due 90 Days And Still Accruing		Nonaccrual

Residential real estate	$	132	$	3,445
Commercial real estate:
Owner-occupied		28		1,571
Nonowner-occupied		----		2,506
Construction		----		527
Commercial and industrial		----		867
Consumer:
Automobile		121		5
Home equity		----		34
Other		46		6
Total	$	327	$	8,961

The following table presents the aging of the recorded investment of past due loans by class of loans as of

June 30, 2017

and

December 31, 2016:

June 30, 2017	30-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Loans Not Past Due		Total

Residential real estate	$	4,312	$	1,017	$	2,207	$	7,536	$	297,001	$	304,537
Commercial real estate:
Owner-occupied		1,870		512		234		2,616		73,213		75,829
Nonowner-occupied		83		235		2,478		2,796		90,287		93,083
Construction		191		62		447		700		42,515		43,215
Commercial and industrial		1,075		234		475		1,784		101,166		102,950
Consumer:
Automobile		850		225		140		1,215		63,325		64,540
Home equity		136		232		235		603		20,697		21,300
Other		547		128		200		875		50,576		51,451
Total	$	9,064	$	2,645	$	6,416	$	18,125	$	738,780	$	756,905

December 31, 2016	30-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Loans Not Past Due		Total

Residential real estate	$	3,728	$	953	$	2,201	$	6,882	$	279,140	$	286,022
Commercial real estate:
Owner-occupied		134		366		1,325		1,825		75,780		77,605
Nonowner-occupied		261		18		2,506		2,785		87,747		90,532
Construction		66		52		182		300		45,570		45,870
Commercial and industrial		1,283		483		800		2,566		98,023		100,589
Consumer:
Automobile		1,091		221		126		1,438		58,334		59,772
Home equity		349		45		----		394		20,467		20,861
Other		685		155		46		886		52,764		53,650
Total	$	7,597	$	2,293	$	7,186	$	17,076	$	717,825	$	734,901

Troubled Debt Restructurings:

A troubled debt restructuring (“TDR”) occurs when the Company has agreed to a loan modification in the form of a concession for a borrower who is experiencing financial difficulty. All TDR’s are considered to be impaired. The modification of the terms of such loans included

one

or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; a reduction in the contractual principal and interest payments of the loan; or short-term interest-only payment terms.

The Company has allocated reserves for a portion of its TDR’s to reflect the fair values of the underlying collateral or the present value of the concessionary terms granted to the customer.

The following table presents the types of TDR loan modifications by class of loans as of

June 30, 2017

and

December 31, 2016:

June 30, 2017	TDR’s Performing to Modified Terms		TDR’s Not Performing to Modified Terms		Total TDR’s
Residential real estate:
Interest only payments	$	706	$	----	$	706
Maturity extension at lower stated rate than market rate		231				231
Credit extension at lower stated rate than market rate		----		204		204
Commercial real estate:
Owner-occupied
Interest only payments		164		----		164
Reduction of principal and interest payments		566		----		566
Maturity extension at lower stated rate than market rate		1,525		----		1,525
Nonowner-occupied
Interest only payments		560		2,179		2,739
Rate reduction		377		----		377
Credit extension at lower stated rate than market rate		572		----		572
Commercial and industrial:
Interest only payments		8,229		----		8,229
Maturity extension at lower stated rate than market rate		770		----		770
Credit extension at lower stated rate than market rate		----		78		78
Consumer:
Home equity
Maturity extension at lower stated rate than market rate		208		----		208

Total TDR’s	$	13,908	$	2,461	$	16,369

December 31, 2016	TDR’s Performing to Modified Terms		TDR’s Not Performing to Modified Terms		Total TDR’s
Residential real estate:
Interest only payments	$	717	$	----	$	717
Commercial real estate:
Owner-occupied
Interest only payments		284		----		284
Rate reduction		----		232		232
Reduction of principal and interest payments		579		----		579
Maturity extension at lower stated rate than market rate		1,582		----		1,582
Nonowner-occupied
Interest only payments		600		2,210		2,810
Rate reduction		384		----		384
Credit extension at lower stated rate than market rate		574		----		574
Commercial and industrial:
Interest only payments		8,074		----		8,074
Credit extension at lower stated rate than market rate		----		391		391
Consumer:
Home equity
Maturity extension at lower stated rate than market rate		213		----		213
Credit extension at lower stated rate than market rate		203		----		203

Total TDR’s	$	13,210	$	2,833	$	16,043

During the

three

and

six

months ended

June 30, 2017,

the TDR's described above decreased the provision expense and the allowance for loan losses by

$79

and

$135,

respectively, with corresponding charge-offs of

$313.

This is compared to a decrease of

$1,167

and

$1,119

in the provision expense and the allowance for loan losses during the

three

and

six

months ended

June 30, 2016,

respectively, with

corresponding charge-offs. During the year ended

December 31, 2016,

the TDR's described above decreased the allowance for loan losses and provision expense by

$1,112

with corresponding charge-offs of

$11.

June 30, 2017,

the balance in TDR loans increased

$326,

2.0%,

from year-end

2016.

The Company had

85%

of its TDR's performing according to their modified terms at

June 30, 2017,

as compared to

82%

December 31, 2016.

The Company's specific allocations in reserves to customers whose loan terms have been modified in TDR’s totaled

$98

June 30, 2017,

as compared to

$546

in reserves at

December 31, 2016.

June 30, 2017,

the Company had

$2,271

in commitments to lend additional amounts to customers with outstanding loans that are classified as TDR’s, as compared to

$2,427

December 31, 2016.

There were

TDR loan modifications or defaults during the

three

months ended

June 30, 2016.

The following table presents the pre- and post-modification balances of TDR loan modifications by class of loans that occurred during the

three

months ended

June 30, 2017:

			TDR’s Performing to Modified Terms				TDR’s Not Performing to Modified Terms
Three months ended June 30, 2017	Number of Loans		Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Pre- Modification Recorded Investment		Post- Modification Recorded Investment

Residential real estate		1	$	231	$	231	$	----	$	----
Commercial and industrial		2		770		770		----		----
Total TDR’s		3	$	1,001	$	1,001	$	----	$	----

The following table presents the pre- and post-modification balances of TDR loan modifications by class of loans that occurred during the

six

months ended

June 30, 2017

and

2016:

			TDR’s Performing to Modified Terms				TDR’s Not Performing to Modified Terms
Six months ended June 30, 2017	Number of Loans		Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Pre- Modification Recorded Investment		Post- Modification Recorded Investment

Residential real estate		1	$	231	$	231	$	----	$	----
Commercial and industrial		2		770		770		----		----
Total TDR’s		3	$	1,001	$	1,001	$	----	$	----

			TDR’s Performing to Modified Terms				TDR’s Not Performing to Modified Terms
Six months ended June 30, 2016	Number of Loans		Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Pre- Modification Recorded Investment		Post- Modification Recorded Investment

Commercial real estate:
Nonowner-occupied
Interest only payments		1	$	238	$	238	$	----	$	----
Credit extension at lower stated rate than market rate		1		575		575		----		----
Total TDR’s		2	$	813	$	813	$	----	$	----

All of the Company’s loans that were restructured during the

six

months ended

June 30, 2017

were performing in accordance with their modified terms and have

not

experienced any payment defaults within

twelve

months following their loan modification. The Company’s loans that were restructured during the

six

months ended

June 30, 2016

included a loan for

$238

that experienced a payment default within

twelve

months following the loan modification and is

not

performing in accordance with the modified loan terms as of

June 30, 2017.

A default is considered to have occurred once the TDR is past due

days or more or it has been placed on nonaccrual. TDR loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. The loans modified during the

six

months ended

June 30, 2017

had

impact on the provision expense or the allowance for loan losses. As of

June 30, 2017,

the Company had

allocation of reserves to customers whose loan terms were modified during the

first

six

months of

2017.

The loans modified during the

six

months ended

June 30, 2016

had

impact on the provision expense or the allowance for loan losses. As of

June 30, 2016,

the Company had

allocation of reserves to customers whose loan terms were modified during the

first

six

months of

2016.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. These risk categories are represented by a loan grading scale from

through

10.

The Company analyzes loans individually with a higher credit risk rating and groups these loans into categories called “criticized” and ”classified” assets. The Company considers its criticized assets to be loans that are graded

and its classified assets to be loans that are graded

through

11.

The Company’s risk categories are reviewed at least annually on loans that have aggregate borrowing amounts that meet or exceed

$500.

The Company uses the following definitions for its criticized loan risk ratings:

Special Mention.

Loans classified as special mention indicate considerable risk due to deterioration of repayment (in the earliest stages) due to potential weak primary repayment source, or payment delinquency. These loans will be under constant supervision, are

not

classified and do

not

expose the institution to sufficient risks to warrant classification. These deficiencies should be correctable within the normal course of business, although significant changes in company structure or policy

may

be necessary to correct the deficiencies. These loans are considered bankable assets with

apparent loss of principal or interest envisioned. The perceived risk in continued lending is considered to have increased beyond the level where such loans would normally be granted. Credits that are defined as a troubled debt restructuring should be graded

higher than special mention until they have been reported as performing over

one

year after restructuring.

The Company uses the following definitions for its classified loan risk ratings:

Substandard.

Loans classified as substandard represent very high risk, serious delinquency, nonaccrual, or unacceptable credit. Repayment through the primary source of repayment is in jeopardy due to the existence of

one

or more well defined weaknesses and the collateral pledged

may

inadequately protect collection of the loans. Loss of principal is

not

likely if weaknesses are corrected, although financial statements normally reveal significant weakness. Loans are still considered collectible, although loss of principal is more likely than with special mention loan grade

loans. Collateral liquidation considered likely to satisfy debt.

Doubtful.

Loans classified as doubtful display a high probability of loss, although the amount of actual loss at the time of classification is undetermined. This should be a temporary category until such time that actual loss can be identified, or improvements made to reduce the seriousness of the classification. These loans exhibit all substandard characteristics with the addition that weaknesses make collection or liquidation in full highly questionable and improbable. This classification consists of loans where the possibility of loss is high after collateral liquidation based upon existing facts, market conditions, and value. Loss is deferred until certain important and reasonable specific pending factors which

may

strengthen the credit can be more accurately determined. These factors

may

include proposed acquisitions, liquidation procedures, capital injection, receipt of additional collateral, mergers, or refinancing plans. A doubtful classification for an entire credit should be avoided when collection of a specific portion appears highly probable with the adequately secured portion graded substandard.

Loss

Loans classified as loss are considered uncollectible and are of such little value that their continuance as bankable assets is

not

warranted. This classification does

not

mean that the credit has absolutely

recovery or salvage value, but rather it is

not

practical or desirable to defer writing off this asset yielding such a minimum value even though partial recovery

may

be affected in the future. Amounts classified as loss should be promptly charged off.

Criticized and classified loans will mostly consist of commercial and industrial and commercial real estate loans. The Company considers its loans that do

not

meet the criteria for a criticized and classified asset rating as pass rated loans, which will include loans graded from

(Prime) to

(Watch). All commercial loans are categorized into a risk category either at the time of origination or reevaluation date. As of

June 30, 2017

and

December 31, 2016,

and based on the most recent analysis performed, the risk category of commercial loans by class of loans was as follows:

June 30, 2017	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	64,378	$	2,124	$	9,327	$	75,829
Nonowner-occupied		86,284		2,240		4,559		93,083
Construction		42,504		----		711		43,215
Commercial and industrial		96,611		1,355		4,984		102,950
Total	$	289,777	$	5,719	$	19,581	$	315,077

December 31, 2016	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	66,495	$	428	$	10,682	$	77,605
Nonowner-occupied		83,103		2,364		5,065		90,532
Construction		45,325		----		545		45,870
Commercial and industrial		94,091		188		6,310		100,589
Total	$	289,014	$	2,980	$	22,602	$	314,596

The Company also obtains the credit scores of its borrowers upon origination (if available by the credit bureau), but the scores are

not

updated. The Company focuses mostly on the performance and repayment ability of the borrower as an indicator of credit risk and does

not

consider a borrower's credit score to be a significant influence in the determination of a loan's credit risk grading.

For residential and consumer loan classes, the Company evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment of residential and consumer loans by class of loans based on repayment activity as of

June 30, 2017

and

December 31, 2016:

June 30, 2017	Consumer
	Automobile		Home Equity		Other		Residential Real Estate		Total

Performing	$	64,400	$	21,048	$	51,252	$	300,986	$	437,686
Nonperforming		140		252		199		3,551		4,142
Total	$	64,540	$	21,300	$	51,451	$	304,537	$	441,828

December 31, 2016	Consumer
	Automobile		Home Equity		Other		Residential Real Estate		Total

Performing	$	59,646	$	20,827	$	53,598	$	282,445	$	416,516
Nonperforming		126		34		52		3,577		3,789
Total	$	59,772	$	20,861	$	53,650	$	286,022	$	420,305

The Company, through its subsidiaries, originates residential, consumer, and commercial loans to customers located primarily in the southeastern areas of Ohio as well as the western counties of West Virginia. Approximately

5.12%

of total loans were unsecured at

June 30, 2017,

down from

5.61%

December 31, 2016.