OTE

–

LOANS

AND ALLOWANCE FOR LOAN LOSSES

Loans are comprised of the following:	September 30,			December 31,
	201 7			201 6
Residential real estate	$	318,244		$	286,022
Commercial real estate:
Owner-occupied		72,525			77,605
Nonowner-occupied		99,966			90,532
Construction		42,352			45,870
Commercial and industrial		103,550			100,589
Consumer:
Automobile		67,999			59,772
Home equity		21,287			20,861
Other		52,034			53,650
		777,957			734,901
Less: Allowance for loan losses		(7,313	)		(7,699	)

Loans, net	$	770,644		$	727,202

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

three

months ended

September 30, 2017

and

2016:

September 30, 2017	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,300		$	2,813		$	932		$	1,907		$	6,952
Provision for loan losses		493			540			238			330			1,601
Loans charged off		(445	)		(434	)		(202	)		(420	)		(1,501	)
Recoveries		83			41			4			133			261
Total ending allowance balance	$	1,431		$	2,960		$	972		$	1,950		$	7,313

September 30, 2016	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	906		$	3,464		$	1,416		$	1,148		$	6,934
Provision for loan losses		228			802			149			529			1,708
Loans charged-off		(151	)		(11	)		(587	)		(704	)		(1,453	)
Recoveries		30			19			1			298			348
Total ending allowance balance	$	1,013		$	4,274		$	979		$	1,271		$	7,537

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

nine

months ended

September 30, 2017

and

2016:

September 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		870			(636	)		588			1,099			1,921
Loans charged off		(591	)		(1,046	)		(605	)		(1,125	)		(3,367	)
Recoveries		213			327			82			438			1,060
Total ending allowance balance	$	1,431		$	2,960		$	972		$	1,950		$	7,313

September 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		10			2,264			(1,035	)		1,089			2,328
Loans charged-off		(322	)		(63	)		(587	)		(1,540	)		(2,512	)
Recoveries		238			114			12			709			1,073
Total ending allowance balance	$	1,013		$	4,274		$	979		$	1,271		$	7,537

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

September 30, 2017

and

December 31, 2016:

September 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	$	127	$	111	$	----	$	2	$	240
Collectively evaluated for impairment		1,304		2,849		972		1,948		7,073
Total ending allowance balance	$	1,431	$	2,960	$	972	$	1,950	$	7,313

Loans:
Loans individually evaluated for impairment	$	1,153	$	6,798	$	9,522	$	208	$	17,681
Loans collectively evaluated for impairment		317,091		208,045		94,028		141,112		760,276
Total ending loans balance	$	318,244	$	214,843	$	103,550	$	141,320	$	777,957

December 31, 201 6	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

September 30, 2017

and

December 31, 2016:

September 30, 2017	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:
Residential real estate
Commercial real estate:	$	224	$	221	$	127
Nonowner-occupied		604		530		111
Consumer:
Home equity		208		208		2
With no related allowance recorded:
Residential real estate		932		932		----
Commercial real estate:
Owner-occupied		2,563		2,563		----
Nonowner-occupied		4,995		3,548		----
Construction		635		157		----
Commercial and industrial		9,522		9,522		----
Total	$	19,683	$	17,681	$	240

December 31, 201 6	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

nine

months ended

September 30, 2017

and

2016:

	Three months ended September 30, 2017						Nine months ended September 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:
Residential real estate	$	221	$	7	$	7	$	55	$	7	$	7
Commercial real estate:
Nonowner-occupied		563		3		3		584		12		12
Consumer:
Home equity		208		1		1		210		5		5
With no related allowance recorded:
Residential real estate		935		10		10		824		37		37
Commercial real estate:
Owner-occupied		2,409		37		37		2,407		112		112
Nonowner-occupied		3,552		19		19		3,518		57		57
Construction		157		5		5		170		14		14
Commercial and industrial		9,260		135		135		8,776		358		358
Total	$	17,305	$	217	$	217	$	16,544	$	602	$	602

	Three months ended September 30, 2016						Nine months ended September 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	$	5,427	$	94	$	94	$	2,815	$	241	$	241
Nonowner-occupied		389		5		5		392		15		15
Commercial and industrial		391		----		----		391		----		----
Consumer:
Home equity		217		1		1		218		5		5
With no related allowance recorded:
Residential real estate		725		4		4		728		20		20
Commercial real estate:
Owner-occupied		2,797		37		37		2,879		120		120
Nonowner-occupied		3,680		33		33		3,557		75		75
Construction		363		11		11		521		108		108
Commercial and industrial		8,575		103		103		8,234		290		290
Total	$	22,564	$	288	$	288	$	19,735	$	874	$	874

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

September 30, 2017

and

December 31, 2016,

other real estate owned secured by residential real estate totaled

$384

and

$938,

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

$1,979

and

$1,492

as of

September 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

September 30, 2017

and

December 31, 2016:

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

Residential real estate	$	316	$	4,452
Commercial real estate:
Owner-occupied		----		308
Nonowner-occupied		21		2,624
Construction		----		402
Commercial and industrial		15		345
Consumer:
Automobile		90		75
Home equity		390		35
Other		136		110
Total	$	968	$	8,351

December 31, 201 6	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

September 30, 2017

and

December 31, 2016:

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

Residential real estate	$	5,498	$	1,697	$	1,172	$	8,367	$	309,877	$	318,244
Commercial real estate:
Owner-occupied		198		282		142		622		71,903		72,525
Nonowner-occupied		358		----		2,645		3,003		96,963		99,966
Construction		----		----		231		231		42,121		42,352
Commercial and industrial		440		42		250		732		102,818		103,550
Consumer:
Automobile		982		206		112		1,300		66,699		67,999
Home equity		25		70		390		485		20,802		21,287
Other		609		243		137		989		51,045		52,034
Total	$	8,110	$	2,540	$	5,079	$	15,729	$	762,228	$	777,957

December 31, 201 6	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

September 30, 2017

and

December 31, 2016:

September 30, 2017	TDR ’s Performing to Modified Terms		TDR ’s Not Perform ing to Modified Terms		Total TDR ’s
Residential real estate :
Interest only payments	$	702	$	----	$	702
Maturity extension at lower stated rate than market rate		230				230
Commercial real estate:
Owner-occupied
Interest only payments		94		----		94
Reduction of principal and interest payments		560		----		560
Maturity extension at lower stated rate than market rate		1,497		----		1,497
Credit extension at lower stated rate than market rate		412		----		412
Nonowner-occupied
Interest only payments		560		2,115		2,675
Rate reduction		375		----		375
Credit extension at lower stated rate than market rate		570		----		570
Commercial and industrial :
Interest only payments		8,752		----		8,752
Maturity extension at lower stated rate than market rate		770		----		770
Consumer:
Home equity
Maturity extension at lower stated rate than market rate		----		208		208

Total TDR ’s	$	14,522	$	2,323	$	16,845

December 31, 201 6	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

September 30, 2017,

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

$93,

with corresponding charge-offs of

$78.

During the

nine

months ended

September 30, 2017,

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

$42,

with corresponding charge-offs of

$391.

There was an increase of

$14

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

three

months ended

September 30, 2016,

with corresponding charge-offs of

$11,

and a decrease of

$1,105

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

nine

months ended

September 30, 2016,

with corresponding charge-offs of

$11.

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.

September 30, 2017,

the balance in TDR loans increased

$802,

5.0%,

from year-end

2016.

The Company had

86%

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

September 30, 2017,

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

$113

September 30, 2017,

compared to

$546

in reserves at

December 31, 2016.

September 30, 2017,

the Company had

$1,747

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

$2,427

December 31, 2016.

There were

TDR loan modifications

or defaults during the

three

months ended

September 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

September 30, 2017:

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

Commercial real estate:
Owner-occupied
Credit extension at lower stated rate than m arket rate		1		412		412	$	----	$	----
Total TDR ’s		1	$	412	$	412	$	----	$	----

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

occurred during the

nine

months ended

September 30, 2017

and

2016:

			TDR ’s Performing to Modified Terms				TDR ’s Not Performing to Modified Terms
Nine months ended September 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	$	----	$	----
Maturity extension at lower stated rate than market rate
Commercial real estate:
Owner-occupied
Credit extension at lower stated rate than market rate		1		412		412		----		----
Commercial and industrial		2		770		770		----		----
Total TDR ’s		4	$	1,413	$	1,413	$	----	$	----

			TDR ’s Performing to Modified Terms				TDR ’s Not Performing to Modified Terms
Nine months ended September 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	$	----	$	----	$	226	$	226
Credit extension at lower stated rate than m arket rate		1		574		574		----		----
Total TDR ’s		2	$	574	$	574	$	226	$	226

All of the Company

’s loans that were restructured during the

nine

months ended

September 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

nine

months ended

September 30, 2016

included a loan for

$226

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

September 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

nine

months ended

September 30, 2017

had

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

September 30, 2017,

the Company had

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

first

nine

months of

2017.

The loans modified during the

nine

months ended

September 30, 2016

increased the provision expense and the allowance for loan losses by

$11.

As of

September 30, 2016,

the Company had

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

first

nine

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

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

September 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:

September 30, 2017	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	63,913	$	955	$	7,657	$	72,525
Nonowner-occupied		93,831		2,223		3,912		99,966
Construction		41,936		----		416		42,352
Commercial and industrial		96,614		1,350		5,586		103,550
Total	$	296,294	$	4,528	$	17,571	$	318,393

December 31, 2016	Pass		C riticized		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, t

he 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

September 30, 2017

and

December 31, 2016:

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

Performing	$	67,834	$	20,862	$	51,788	$	313,476	$	453,960
Nonperforming		165		425		246		4,768		5,604
Total	$	67,999	$	21,287	$	52,034	$	318,244	$	459,564

December 31, 201 6	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

4.92%

of total loans were unsecured at

September 30, 2017,

down from

5.61%

December 31, 2016.