OTE

–

LOANS

AND ALLOWANCE FOR LOAN LOSSES

Loans are comprised of the following:	September 30,			December 31,
	2018			2017
Residential real estate	$	305,314		$	309,163
Commercial real estate:
Owner-occupied		64,236			73,573
Nonowner-occupied		115,107			101,571
Construction		39,202			38,302
Commercial and industrial		116,489			107,089
Consumer:
Automobile		70,137			68,626
Home equity		22,419			21,431
Other		49,473			49,564
		782,377			769,319
Less: Allowance for loan losses		(8,315	)		(7,499	)

Loans, net	$	774,062		$	761,820

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

three

months ended

September 30, 2018

and

2017:

September 30, 2018	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	1,886		$	2,392		$	1,242		$	2,119		$	7,639
Provision for loan losses		681			(378	)		197			462			962
Loans charged off		(184	)		----			(136	)		(722	)		(1,042	)
Recoveries		49			431			80			196			756
Total ending allowance balance	$	2,432		$	2,445		$	1,383		$	2,055		$	8,315

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

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

nine

months ended

September 30, 2018

and

2017:

September 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		1,261			(1,041	)		196			1,279			1,695
Loans charged off		(421	)		(1	)		(140	)		(1,818	)		(2,380	)
Recoveries		122			509			303			567			1,501
Total ending allowance balance	$	2,432		$	2,445		$	1,383		$	2,055		$	8,315

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

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, 2018

and

December 31, 2017:

September 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	$	409	$	90	$	----	$	----	$	499
Collectively evaluated for impairment		2,023		2,355		1,383		2,055		7,816
Total ending allowance balance	$	2,432	$	2,445	$	1,383	$	2,055	$	8,315

Loans:
Loans individually evaluated for impairment	$	926	$	4,289	$	5,727	$	----	$	10,942
Loans collectively evaluated for impairment		304,388		214,256		110,762		142,029		771,435
Total ending loans balance	$	305,314	$	218,545	$	116,489	$	142,029	$	782,377

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

September 30, 2018

and

December 31, 2017:

September 30, 2018	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:
Residential real estate	$	715	$	707	$	409
Commercial real estate:
Nonowner-occupied		363		363		90
With no related allowance recorded:
Residential real estate		219		219		----
Commercial real estate:
Owner-occupied		2,416		2,416		----
Nonowner-occupied		2,932		1,510		----
Construction		340		----		----
Commercial and industrial		5,727		5,727		----
Total	$	12,712	$	10,942	$	499

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

nine

months ended

September 30, 2018

and

2017:

	Three months ended September 30, 2018						Nine months ended September 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:
Residential real estate	$	707	$	----	$	----	$	711	$	----	$	----
Commercial real estate:
Nonowner-occupied		365		3		3		368		12		12
With no related allowance recorded:
Residential real estate		219		4		4		222		34		34
Commercial real estate:
Owner-occupied		2,434		36		36		2,462		105		105
Nonowner-occupied		1,786		11		11		2,154		47		47
Construction		----		5		5		----		15		15
Commercial and industrial		5,753		89		89		5,474		321		321
Total	$	11,264	$	148	$	148	$	11,391	$	534	$	534

	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

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, 2018

and

December 31, 2017,

other real estate owned for residential real estate properties totaled

$379

and

$262,

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

$2,399

and

$2,410

as of

September 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

September 30, 2018

and

December 31, 2017:

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

Residential real estate	$	167	$	6,929
Commercial real estate:
Owner-occupied		----		494
Nonowner-occupied		----		1,142
Construction		----		389
Commercial and industrial		147		284
Consumer:
Automobile		247		45
Home equity		122		227
Other		373		67
Total	$	1,056	$	9,577

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

September 30, 2018

and

December 31, 2017:

September 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	$	3,924	$	910	$	1,848	$	6,682	$	298,632	$	305,314
Commercial real estate:
Owner-occupied		113		191		129		433		63,803		64,236
Nonowner-occupied		263		363		948		1,574		113,533		115,107
Construction		167		----		157		324		38,878		39,202
Commercial and industrial		2,737		105		276		3,118		113,371		116,489
Consumer:
Automobile		1,145		266		247		1,658		68,479		70,137
Home equity		251		200		334		785		21,634		22,419
Other		631		112		378		1,121		48,352		49,473
Total	$	9,231	$	2,147	$	4,317	$	15,695	$	766,682	$	782,377

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

September 30, 2018

and

December 31, 2017:

September 30, 2018	TDR’s Performing to Modified Terms		TDR’s Not Performing to Modified Terms		Total TDR’s
Residential real estate:
Interest only payments	$	218	$	----	$	218
Commercial real estate:
Owner-occupied
Interest only payments		989		----		989
Reduction of principal and interest payments		535		----		535
Maturity extension at lower stated rate than market rate		488		----		488
Credit extension at lower stated rate than market rate		404		----		404
Nonowner-occupied
Interest only payments		----		948		948
Rate reduction		363		----		363
Credit extension at lower stated rate than market rate		563		----		563
Commercial and industrial:
Interest only payments		5,427		----		5,427

Total TDR’s	$	8,987	$	948	$	9,935

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

September 30, 2018,

the balance in TDR loans decreased

$7,007,

41.4%,

from year-end

2017.

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

$90

September 30, 2018,

as compared to

$94

in reserves at

December 31, 2017.

September 30, 2018,

the Company had

$73

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

nine

months ended

September 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

nine

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 market rate		1	$	412	$	412	$	----	$	----
Total TDR’s		1	$	412	$	412	$	----	$	----

			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
Maturity extension at lower stated rate than market rate		1	$	231	$	231	$	----	$	----
Commercial real estate:
Owner-occupied
Credit extension at lower stated rate than market rate		1		412		412		----		----
Commercial and industrial
Maturity extension at lower stated rate than market rate		2		770		770		----		----
Total TDR’s		4	$	1,413	$	1,413	$	----	$	----

The troubled debt restructurings described above had

impact on the allowance for loan losses and resulted in

charge-offs during the

three

and

nine

months ended

September 30, 2017.

The Company had

TDR’s that, during the

three

and

nine

months ended

September 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

September 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:

September 30, 2018	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	54,380	$	2,476	$	7,380	$	64,236
Nonowner-occupied		111,921		847		2,339		115,107
Construction		38,898		133		171		39,202
Commercial and industrial		97,204		9,494		9,791		116,489
Total	$	302,403	$	12,950	$	19,681	$	335,034

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

September 30, 2018

and

December 31, 2017:

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

Performing	$	69,845	$	22,070	$	49,033	$	298,218	$	439,166
Nonperforming		292		349		440		7,096		8,177
Total	$	70,137	$	22,419	$	49,473	$	305,314	$	447,343

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

4.84%

of total loans were unsecured at

September 30, 2018,

down from

4.86%

December 31, 2017.