OTE

–

LOANS

AND ALLOWANCE FOR LOAN LOSSES

Loans are comprised of the following:	March 31, 2017			December 31, 2016
Residential real estate	$	287,161		$	286,022
Commercial real estate:
Owner-occupied		72,232			77,605
Nonowner-occupied		89,521			90,532
Construction		49,821			45,870
Commercial and industrial		105,663			100,589
Consumer:
Automobile		62,072			59,772
Home equity		20,966			20,861
Other		51,425			53,650
		738,861			734,901
Less: Allowance for loan losses		(7,315	)		(7,699	)

Loans, net	$	731,546		$	727,202

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

three

months ended

March

31,

2017

and

2016:

March 31, 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		445			(1,087	)		385			402			145
Loans charged off		(73	)		(559	)		(4	)		(321	)		(957	)
Recoveries		81			60			72			215			428
Total ending allowance balance	$	1,392		$	2,729		$	1,360		$	1,834		$	7,315

March 31, 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		40			17		82		340			479
Loans charged-off		(104	)		----		----		(483	)		(587	)
Recoveries		162			19		1		224			406
Total ending allowance balance	$	1,185		$	1,995	$	2,672	$	1,094		$	6,946

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,

2017

and

December

31,

2016:

March 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	$	----	$	153	$	391	$	1	$	545
Collectively evaluated for impairment		1,392		2,576		969		1,833		6,770
Total ending allowance balance	$	1,392	$	2,729	$	1,360	$	1,834	$	7,315

Loans:
Loans individually evaluated for impairment	$	915	$	7,701	$	8,903	$	209	$	17,728
Loans collectively evaluated for impairment		286,246		203,873		96,760		134,254		721,133
Total ending loans balance	$	287,161	$	211,574	$	105,663	$	134,463	$	738,861

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

March

31,

2017

and

December

31,2016:

March 31, 2017	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:
Commercial real estate:
Nonowner-occupied	$	381	$	381	$	98
Construction		354		345		55
Commercial and industrial		392		392		391
Consumer:
Home equity		209		209		1
With no related allowance recorded:
Residential real estate		915		915		----
Commercial real estate:
Owner-occupied		4,112		3,008		----
Nonowner-occupied		5,236		3,785		----
Construction		643		182		----
Commercial and industrial		8,511		8,511		----
Total	$	20,753	$	17,728	$	545

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

months ended

March

31,

2017

and

2016:

	Three months ended March 31, 2017
	Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized
With an allowance recorded:
Commercial real estate:
Nonowner-occupied	$	382	$	5	$	5
Construction		345		----		----
Commercial and industrial		392		----		----
Consumer:
Home equity		211		2		2
With no related allowance recorded:
Residential real estate		918		12		12
Commercial real estate:
Owner-occupied		3,547		36		36
Nonowner-occupied		3,822		21		21
Construction		182		4		4
Commercial and industrial		8,292		100		100
Total	$	18,091	$	180	$	180

	Three months ended March 31, 2016
	Average Impaired Loans		Interest Income Recognized		Cash Basis Interest Recognized
With an allowance recorded:
Commercial real estate:
Owner-occupied	$	204	$	4	$	4
Nonowner-occupied		395		5		5
Commercial and industrial		4,439		41		41
Consumer:
Home equity		219		2		2
With no related allowance recorded:
Residential real estate		731		9		9
Commercial real estate:
Owner-occupied		3,257		43		43
Nonowner-occupied		3,134		13		13
Construction		680		----		----
Commercial and industrial		4,341		51		51
Total	$	17,400	$	168	$	168

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,

2017

and

December

31,

2016,

other real estate owned secured by residential real estate totaled

$365

and

$938,

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

$1,542

and

$1,492

as of

March

31,

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

March

31,

2017

and

December

31,

2016:

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

Residential real estate	$	144	$	3,411
Commercial real estate:
Owner-occupied		----		657
Nonowner-occupied		----		2,752
Construction		----		527
Commercial and industrial		----		925
Consumer:
Automobile		206		27
Home equity		----		18
Other		104		36
Total	$	454	$	8,353

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

March

31,

2017

and

December

31,

2016:

March 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	$	2,470	$	1,510	$	2,011	$	5,991	$	281,170	$	287,161
Commercial real estate:
Owner-occupied		889		327		471		1,687		70,545		72,232
Nonowner-occupied		48		84		2,752		2,884		86,637		89,521
Construction		65		487		182		734		49,087		49,821
Commercial and industrial		379		259		830		1,468		104,195		105,663
Consumer:
Automobile		828		167		221		1,216		60,856		62,072
Home equity		----		----		----		----		20,966		20,966
Other		661		91		146		898		50,527		51,425
Total	$	5,340	$	2,925	$	6,613	$	14,878	$	723,983	$	738,861

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

March

31,

2017

and

December

31,

2016:

March 31, 2017	TDR’s Performing to Modified Terms		TDR’s Not Performing to Modified Terms		Total TDR’s
Residential real estate:
Interest only payments	$	711	$	----	$	711
Credit extension at lower stated rate than market rate		204		----		204
Commercial real estate:
Owner-occupied
Interest only payments		231		----		231
Rate reduction		----		232		232
Reduction of principal and interest payments		573		----		573
Maturity extension at lower stated rate than market rate		1,560		----		1,560
Nonowner-occupied
Interest only payments		560		2,182		2,742
Rate reduction		381		----		381
Credit extension at lower stated rate than market rate		572		----		572
Commercial and industrial:
Interest only payments		8,512		----		8,512
Credit extension at lower stated rate than market rate		----		391		391
Consumer:
Home equity
Maturity extension at lower stated rate than market rate		209		----		209

Total TDR’s	$	13,513	$	2,805	$	16,318

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

months ended

March

31,

2017,

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

$56

with no corresponding charge-offs. Compared to the

three

months ended

March

31,

2016,

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

$48

with no 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.

March

31,

2017,

the balance in TDR loans increased

$275,

1.7%,

from year-end

2016.

The Company had

83%

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

March

31,

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

$490

March

31,

2017,

as compared to

$546

in reserves at

December

31,

2016.

March

31,

2017,

the Company had

$1,989

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 no TDR loan modifications or defaults during the

three

months ended

March

31,

2017.

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

March

31,

2016:

	TDR’s Performing to Modified Terms				TDR’s Not Performing to Modified Terms
Three months ended March 31, 2016	Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Pre- Modification Recorded Investment		Post- Modification Recorded Investment

Commercial real estate:
Nonowner-occupied
Interest only payments	$	238	$	238	$	----	$	----
Credit extension at lower stated rate than market rate		581		581		----		----
Total TDR’s	$	819	$	819	$	----	$	----

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

three

months ended

March

31,

2016

were performing in accordance with their modified terms. Furthermore, there were no TDR’s described above at

March

31,

2016

that 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. The loans modified during the

three

months ended

March

31,

2016

had no impact on the provision expense or the allowance for loan losses. As of

March

31,

2016,

the Company had no allocation of reserves to customers whose loan terms were modified during the

first

three

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 no 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 no 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 no 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,

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:

March 31, 2017	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	61,934	$	1,244	$	9,054	$	72,232
Nonowner-occupied		82,204		2,339		4,978		89,521
Construction		49,025		----		796		49,821
Commercial and industrial		98,545		1,274		5,844		105,663
Total	$	291,708	$	4,857	$	20,672	$	317,237

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

March

31,

2017

and

December

31,

2016:

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

Performing	$	61,839	$	20,948	$	51,285	$	283,606	$	417,678
Nonperforming		233		18		140		3,555		3,946
Total	$	62,072	$	20,966	$	51,425	$	287,161	$	421,624

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

5.01%

of total loans were unsecured at

March

31,

2017,

down from

5.61%

December

31,

2016.