OTE

–

LOANS

AND ALLOWANCE FOR LOAN LOSSES

Loans are comprised of the following:	June 30,			December 31,
	2018			2017
Residential real estate	$	305,318		$	309,163
Commercial real estate:
Owner-occupied		66,171			73,573
Nonowner-occupied		116,476			101,571
Construction		39,888			38,302
Commercial and industrial		114,838			107,089
Consumer:
Automobile		68,446			68,626
Home equity		22,240			21,431
Other		48,603			49,564
		781,980			769,319
Less: Allowance for loan losses		(7,639	)		(7,499	)

Loans, net	$	774,341		$	761,820

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

three

months ended

June 30, 2018

and

2017:

June 30, 2018	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	2,059		$	2,423		$	1,373		$	2,141		$	7,996
Provision for loan losses		(14	)		(82	)		(317	)		390			(23	)
Loans charged off		(177	)		----			----			(574	)		(751	)
Recoveries		18			51			186			162			417
Total ending allowance balance	$	1,886		$	2,392		$	1,242		$	2,119		$	7,639

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

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

six

months ended

June 30, 2018

and

2017:

June 30, 2018	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,470		$	2,978		$	1,024		$	2,027		$	7,499
Provision for loan losses		580			(663	)		(1	)		817			733
Loans charged off		(237	)		(1	)		(4	)		(1,096	)		(1,338	)
Recoveries		73			78			223			371			745
Total ending allowance balance	$	1,886		$	2,392		$	1,242		$	2,119		$	7,639

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

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, 2018

and

December 31, 2017:

June 30, 2018	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	$	----	$	90	$	----	$	----	$	90
Collectively evaluated for impairment		1,886		2,302		1,242		2,119		7,549
Total ending allowance balance	$	1,886	$	2,392	$	1,242	$	2,119	$	7,639

Loans:
Loans individually evaluated for impairment	$	1,627	$	5,593	$	9,037	$	----	$	16,257
Loans collectively evaluated for impairment		303,691		216,942		105,801		139,289		765,723
Total ending loans balance	$	305,318	$	222,535	$	114,838	$	139,289	$	781,980

December 31, 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	$	----	$	94	$	----	$	----	$	94
Collectively evaluated for impairment		1,470		2,884		1,024		2,027		7,405
Total ending allowance balance	$	1,470	$	2,978	$	1,024	$	2,027	$	7,499

Loans:
Loans individually evaluated for impairment	$	1,420	$	7,333	$	9,154	$	201	$	18,108
Loans collectively evaluated for impairment		307,743		206,113		97,935		139,420		751,211
Total ending loans balance	$	309,163	$	213,446	$	107,089	$	139,621	$	769,319

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

June 30, 2018

and

December 31, 2017:

June 30, 2018	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:
Commercial real estate:
Nonowner-occupied	$	366	$	366	$	90
With no related allowance recorded:
Residential real estate		1,688		1,627		----
Commercial real estate:
Owner-occupied		2,451		2,451		----
Nonowner-occupied		4,198		2,776		----
Construction		344		----		----
Commercial and industrial		9,037		9,037		----
Total	$	18,084	$	16,257	$	90

December 31, 2017	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:
Commercial real estate:
Nonowner-occupied	$	372	$	372	$	94
With no related allowance recorded:
Residential real estate		1,420		1,420		----
Commercial real estate:
Owner-occupied		3,427		3,427		----
Nonowner-occupied		4,989		3,534		----
Construction		352		----		----
Commercial and industrial		9,154		9,154		----
Consumer:						----
Home equity		203		201		----
Total	$	19,917	$	18,108	$	94

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, 2018

and

2017:

	Three months ended June 30, 2018						Six months ended June 30, 2018
	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	$	368	$	7	$	7	$	370	$	8	$	8
With no related allowance recorded:
Residential real estate		1,653		11		11		1,575		30		30
Commercial real estate:
Owner-occupied		2,465		36		36		2,478		69		69
Nonowner-occupied		3,037		16		16		3,131		37		37
Construction		----		5		5		----		10		10
Commercial and industrial		8,615		107		107		8,794		232		232
Total	$	16,138	$	182	$	182	$	16,348	$	386	$	386

	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

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, 2018

and

December 31, 2017,

other real estate owned for residential real estate properties totaled

$436

and

$262,

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

$1,969

and

$2,410

as of

June 30, 2018

and

December 31, 2017,

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, 2018

and

December 31, 2017:

June 30, 2018	Loans Past Due 90 Days And Still Accruing		Nonaccrual

Residential real estate	$	188	$	6,983
Commercial real estate:
Owner-occupied		----		641
Nonowner-occupied		----		1,977
Construction		----		397
Commercial and industrial		21		386
Consumer:
Automobile		135		67
Home equity		----		295
Other		127		98
Total	$	471	$	10,844

December 31, 2017	Loans Past Due 90 Days And Still Accruing		Nonaccrual

Residential real estate	$	131	$	5,906
Commercial real estate:
Owner-occupied		----		476
Nonowner-occupied		----		2,454
Construction		----		444
Commercial and industrial		----		337
Consumer:
Automobile		127		86
Home equity		----		283
Other		76		126
Total	$	334	$	10,112

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

June 30, 2018

and

December 31, 2017:

June 30, 2018	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	$	2,599	$	742	$	1,950	$	5,291	$	300,027	$	305,318
Commercial real estate:
Owner-occupied		274		23		290		587		65,584		66,171
Nonowner-occupied		617		----		1,775		2,392		114,084		116,476
Construction		174		----		157		331		39,557		39,888
Commercial and industrial		404		71		194		669		114,169		114,838
Consumer:
Automobile		1,004		224		158		1,386		67,060		68,446
Home equity		289		34		92		415		21,825		22,240
Other		555		217		147		919		47,684		48,603
Total	$	5,916	$	1,311	$	4,763	$	11,990	$	769,990	$	781,980

December 31, 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	$	5,383	$	671	$	1,673	$	7,727	$	301,436	$	309,163
Commercial real estate:
Owner-occupied		194		161		160		515		73,058		73,573
Nonowner-occupied		140		----		2,238		2,378		99,193		101,571
Construction		----		----		169		169		38,133		38,302
Commercial and industrial		303		243		191		737		106,352		107,089
Consumer:
Automobile		1,257		346		151		1,754		66,872		68,626
Home equity		90		272		27		389		21,042		21,431
Other		865		218		76		1,159		48,405		49,564
Total	$	8,232	$	1,911	$	4,685	$	14,828	$	754,491	$	769,319

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, 2018

and

December 31, 2017:

June 30, 2018	TDR’s Performing to Modified Terms		TDR’s Not Performing to Modified Terms		Total TDR’s
Residential real estate:
Interest only payments	$	685	$	----	$	685
Commercial real estate:
Owner-occupied
Interest only payments		997		----		997
Reduction of principal and interest payments		541		----		541
Maturity extension at lower stated rate than market rate		507		----		507
Credit extension at lower stated rate than market rate		406		----		406
Nonowner-occupied
Interest only payments		487		1,498		1,985
Rate reduction		366		----		366
Credit extension at lower stated rate than market rate		564		----		564
Commercial and industrial:
Interest only payments		8,737		----		8,737

Total TDR’s	$	13,290	$	1,498	$	14,788

December 31, 2017	TDR’s Performing to Modified Terms		TDR’s Not Performing to Modified Terms		Total TDR’s
Residential real estate:
Interest only payments	$	697	$	----	$	697
Commercial real estate:
Owner-occupied
Interest only payments		997		----		997
Reduction of principal and interest payments		554		----		554
Maturity extension at lower stated rate than market rate		1,466		----		1,466
Credit extension at lower stated rate than market rate		410		----		410
Nonowner-occupied
Interest only payments		560		1,961		2,521
Rate reduction		372		----		372
Credit extension at lower stated rate than market rate		570		----		570
Commercial and industrial:
Interest only payments		9,154		----		9,154
Consumer:
Home equity
Maturity extension at lower stated rate than market rate		----		201		201

Total TDR’s	$	14,780	$	2,162	$	16,942

June 30, 2018,

the balance in TDR loans decreased

$2,154,

12.7%,

from year-end

2017.

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

$90

June 30, 2018,

as compared to

$94

in reserves at

December 31, 2017.

June 30, 2018,

the Company had

$1,263

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

$846

December 31, 2017.

There were

TDR loan modifications that occurred during the

three

and

six

months ended

June 30, 2018.

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

three

and

six

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
Maturity extension at lower stated rate than market rate	1	$	231	$	231	$	----	$	----
Commercial and industrial
Maturity extension at lower stated rate than market rate	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, 2017	Number of Loans	Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Pre- Modification Recorded Investment		Post- Modification Recorded Investment
Residential real estate
Maturity extension at lower stated rate than market rate	1	$	231	$	231	$	----	$	----
Commercial and industrial
Maturity extension at lower stated rate than market rate	2		770		770		----		----
Total TDR’s	3	$	1,001	$	1,001	$	----	$	----

The troubled debt restructurings described above had

impact on the allowance for loan losses and resulted in

charge-offs during the

three

and

six

months ended

June 30, 2017.

The Company had

TDR’s that, during the

three

and

six

months ended

June 30, 2018

and

2017,

experienced any payment defaults within

twelve

months following their loan modification. 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 the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

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 is 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 classification should be temporary 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, 2018

and

December 31, 2017,

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

June 30, 2018	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	56,810	$	1,057	$	8,304	$	66,171
Nonowner-occupied		112,057		855		3,564		116,476
Construction		39,583		134		171		39,888
Commercial and industrial		96,185		8,508		10,145		114,838
Total	$	304,635	$	10,554	$	22,184	$	337,373

December 31, 2017	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	64,993	$	934	$	7,646	$	73,573
Nonowner-occupied		93,197		3,776		4,598		101,571
Construction		37,735		156		411		38,302
Commercial and industrial		91,097		6,058		9,934		107,089
Total	$	287,022	$	10,924	$	22,589	$	320,535

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, 2018

and

December 31, 2017:

June 30, 2018	Consumer
	Automobile		Home Equity		Other		Residential Real Estate		Total

Performing	$	68,244	$	21,945	$	48,378	$	298,147	$	436,714
Nonperforming		202		295		225		7,171		7,893
Total	$	68,446	$	22,240	$	48,603	$	305,318	$	444,607

December 31, 2017	Consumer
	Automobile		Home Equity		Other		Residential Real Estate		Total

Performing	$	68,413	$	21,148	$	49,362	$	303,126	$	442,049
Nonperforming		213		283		202		6,037		6,735
Total	$	68,626	$	21,431	$	49,564	$	309,163	$	448,784

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

4.78%

of total loans were unsecured at

June 30, 2018,

down from

4.86%

December 31, 2017.