OTE

–

LOANS

AND ALLOWANCE FOR LOAN LOSSES

Loans are comprised of the following:

	March 31,			December 31,
	2019			2018
Residential real estate	$	302,391		$	304,079
Commercial real estate:
Owner-occupied		64,553			61,694
Nonowner-occupied		127,105			117,188
Construction		31,848			37,478
Commercial and industrial		114,755			113,243
Consumer:
Automobile		66,999			70,226
Home equity		23,215			22,512
Other		49,778			50,632
		780,644			777,052
Less: Allowance for loan losses		(8,013	)		(6,728	)

Loans, net	$	772,631		$	770,324

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

three

months ended

March 31, 2019

and

2018:

March 31, 2019	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,583		$	2,186		$	1,063		$	1,896		$	6,728
Provision for loan losses		813			393			473			699			2,378
Loans charged off		(329	)		(141	)		(233	)		(658	)		(1,361	)
Recoveries		12			14			12			230			268
Total ending allowance balance	$	2,079		$	2,452		$	1,315		$	2,167		$	8,013

March 31, 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		594			(581	)		316			427			756
Loans charged-off		(60	)		(1	)		(4	)		(522	)		(587	)
Recoveries		55			27			37			209			328
Total ending allowance balance	$	2,059		$	2,423		$	1,373		$	2,141		$	7,996

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

March 31, 2019

and

December 31, 2018:

March 31, 2019	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	$	89	$	95	$	71	$	6	$	261
Collectively evaluated for impairment		1,990		2,357		1,244		2,161		7,752
Total ending allowance balance	$	2,079	$	2,452	$	1,315	$	2,167	$	8,013

Loans:
Loans individually evaluated for impairment	$	1,745	$	11,278	$	7,443	$	6	$	20,472
Loans collectively evaluated for impairment		300,646		212,228		107,312		139,986		760,172
Total ending loans balance	$	302,391	$	223,506	$	114,755	$	139,992	$	780,644

December 31, 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	$	----	$	98	$	----	$	----	$	98
Collectively evaluated for impairment		1,583		2,088		1,063		1,896		6,630
Total ending allowance balance	$	1,583	$	2,186	$	1,063	$	1,896	$	6,728

Loans:
Loans individually evaluated for impairment	$	1,667	$	3,835	$	7,116	$	----	$	12,618
Loans collectively evaluated for impairment		302,412		212,525		106,127		143,370		764,434
Total ending loans balance	$	304,079	$	216,360	$	113,243	$	143,370	$	777,052

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

March 31, 2019

and

December 31, 2018:

March 31, 2019	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:
Residential real estate	$	1,295	$	1,295	$	89
Commercial real estate:
Owner-occupied		156		156		----
Nonowner-occupied		358		358		95
Commercial and industrial		1,968		1,968		71
Consumer:
Home equity		6		6		6
With no related allowance recorded:
Residential real estate		450		450		----
Commercial real estate:
Owner-occupied		3,356		3,356		----
Nonowner-occupied		8,830		7,408		----
Construction		332		----		----
Commercial and industrial		5,475		5,475		----
Total	$	22,226	$	20,472	$	261

December 31, 2018	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:
Commercial real estate:
Nonowner-occupied	$	362	$	362	$	98
With no related allowance recorded:
Residential real estate		1,667		1,667		----
Commercial real estate:
Owner-occupied		2,527		2,527		----
Nonowner-occupied		2,368		946		----
Construction		336		----		----
Commercial and industrial		7,116		7,116		----
Total	$	14,376	$	12,618	$	98

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

three

months ended

March 31, 2019

and

2018:

	Three months ended March 31, 2019
	Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized
With an allowance recorded:
Residential real estate	$	1,255	$	7	$	7
Commercial real estate:
Owner-occupied		78		2		2
Nonowner-occupied		360		----		----
Commercial and industrial		984		36		36
Consumer:
Home equity		3		----		----
With no related allowance recorded:
Residential real estate		451		4		4
Commercial real estate:
Owner-occupied		2,862		52		52
Nonowner-occupied		4,177		112		112
Construction		----		5		5
Commercial and industrial		5,258		84		84
Total	$	15,428	$	302	$	302

	Three months ended March 31, 2018
	Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized
With an allowance recorded:
Commercial real estate:
Nonowner-occupied	$	371	$	1	$	1
With no related allowance recorded:
Residential real estate		1,550		20		20
Commercial real estate:
Owner-occupied		2,491		34		34
Nonowner-occupied		3,521		20		20
Construction		----		5		5
Commercial and industrial		8,673		124		124
Total	$	16,606	$	204	$	204

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

March 31, 2019

and

December 31, 2018,

other real estate owned for residential real estate properties totaled

$134.

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

$1,177

and

$2,375

as of

March 31, 2019

and

December 31, 2018,

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

March 31, 2019

and

December 31, 2018:

March 31, 2019	Loans Past Due 90 Days And Still Accruing		Nonaccrual

Residential real estate	$	235	$	6,848
Commercial real estate:
Owner-occupied		----		425
Nonowner-occupied		----		851
Construction		----		332
Commercial and industrial		----		140
Consumer:
Automobile		143		127
Home equity		----		268
Other		99		94
Total	$	477	$	9,085

December 31, 2018	Loans Past Due 90 Days And Still Accruing		Nonaccrual

Residential real estate	$	19	$	6,661
Commercial real estate:
Owner-occupied		----		470
Nonowner-occupied		362		574
Construction		66		416
Commercial and industrial		31		228
Consumer:
Automobile		270		59
Home equity		91		183
Other		228		86
Total	$	1,067	$	8,677

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

March 31, 2019

and

December 31, 2018:

March 31, 2019	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	$	3,516	$	1,809	$	1,489	$	6,814	$	295,577	$	302,391
Commercial real estate:
Owner-occupied		953		151		89		1,193		63,360		64,553
Nonowner-occupied		714		----		669		1,383		125,722		127,105
Construction		----		61		121		182		31,666		31,848
Commercial and industrial		1,024		112		----		1,136		113,619		114,755
Consumer:
Automobile		1,386		274		160		1,820		65,179		66,999
Home equity		162		----		162		324		22,891		23,215
Other		671		222		101		994		48,784		49,778
Total	$	8,426	$	2,629	$	2,791	$	13,846	$	766,798	$	780,644

December 31, 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	$	3,369	$	1,183	$	1,642	$	6,194	$	297,885	$	304,079
Commercial real estate:
Owner-occupied		298		----		129		427		61,267		61,694
Nonowner-occupied		299		----		747		1,046		116,142		117,188
Construction		31		----		265		296		37,182		37,478
Commercial and industrial		428		192		110		730		112,513		113,243
Consumer:
Automobile		1,287		286		289		1,862		68,364		70,226
Home equity		171		92		260		523		21,989		22,512
Other		593		291		228		1,112		49,520		50,632
Total	$	6,476	$	2,044	$	3,670	$	12,190	$	764,862	$	777,052

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

March 31, 2019

and

December 31, 2018:

March 31, 2019	TDR’s Performing to Modified Terms		TDR’s Not Performing to Modified Terms		Total TDR’s
Residential real estate:
Interest only payments	$	215	$	----	$	215
Commercial real estate:
Owner-occupied
Interest only payments		947		----		947
Reduction of principal and interest payments		1,559		----		1,559
Maturity extension at lower stated rate than market rate		450		----		450
Credit extension at lower stated rate than market rate		400		----		400
Nonowner-occupied
Interest only payments		----		10		10
Rate reduction		----		358		358
Credit extension at lower stated rate than market rate		560		----		560
Commercial and industrial:
Interest only payments		4,886		----		4,886
Reduction of principal and interest payments		199		----		199

Total TDR’s	$	9,216	$	368	$	9,584

December 31, 2018	TDR’s Performing to Modified Terms		TDR’s Not Performing to Modified Terms		Total TDR’s
Residential real estate:
Interest only payments	$	216	$	----	$	216
Commercial real estate:
Owner-occupied
Interest only payments		968		----		968
Reduction of principal and interest payments		529		----		529
Maturity extension at lower stated rate than market rate		469		----		469
Credit extension at lower stated rate than market rate		402		----		402
Nonowner-occupied
Interest only payments		----		385		385
Rate reduction		----		362		362
Credit extension at lower stated rate than market rate		561		----		561
Commercial and industrial:
Interest only payments		4,742		----		4,742

Total TDR’s	$	7,887	$	747	$	8,634

March 31, 2019,

the balance in TDR loans increased

$950,

11.0%,

from year-end

2018.

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

$95

March 31, 2019,

as compared to

$98

in reserves at

December 31, 2018.

March 31, 2019,

the Company had

$614

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

$758

December 31, 2018.

There were

TDR loan modifications that occurred during the

three

months ended

March 31, 2018.

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

three

months ended

March 31, 2019:

			TDR’s Performing to Modified Terms				TDR’s Not Performing to Modified Terms
Three months ended March 31, 2019	Number of Loans		Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Pre-Modification Recorded Investment		Post-Modification Recorded Investment
Commercial real estate:
Owner-occupied
Reduction of principal and interest payments		1	$	1,036	$	1,036	$	----	$	----
Commercial and Industrial:
Reduction of principal and interest payments		1		199		199
Total TDR’s		2	$	1,235	$	1,235	$	----	$	----

The troubled debt restructurings described above had

impact on the allowance for loan losses and resulted in

charge-offs during the

three

months ended

March 31, 2019.

The Company had

TDR’s that, during the

three

months ended

March 31, 2019

and

2018,

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

11.

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

March 31, 2019

and

December 31, 2018,

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

March 31, 2019	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	53,613	$	7,653	$	3,287	$	64,553
Nonowner-occupied		119,130		----		7,975		127,105
Construction		31,848		----		----		31,848
Commercial and industrial		99,986		989		13,780		114,755
Total	$	304,577	$	8,642	$	25,042	$	338,261

December 31, 2018	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	50,474	$	7,724	$	3,496	$	61,694
Nonowner-occupied		115,170		----		2,018		117,188
Construction		37,321		----		157		37,478
Commercial and industrial		92,417		6,536		14,290		113,243
Total	$	295,382	$	14,260	$	19,961	$	329,603

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

March 31, 2019

and

December 31, 2018:

March 31, 2019	Consumer
	Automobile		Home Equity		Other		Residential Real Estate		Total

Performing	$	66,729	$	22,947	$	49,585	$	295,308	$	434,569
Nonperforming		270		268		193		7,083		7,814
Total	$	66,999	$	23,215	$	49,778	$	302,391	$	442,383

December 31, 2018	Consumer
	Automobile		Home Equity		Other		Residential Real Estate		Total

Performing	$	69,897	$	22,238	$	50,318	$	297,399	$	439,852
Nonperforming		329		274		314		6,680		7,597
Total	$	70,226	$	22,512	$	50,632	$	304,079	$	447,449

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

4.44%

of total loans were unsecured at

March 31, 2019,

down from

5.02%

December 31, 2018.