OTE

–

LOANS

AND ALLOWANCE FOR LOAN LOSSES

Loans are comprised of the following:	June 30,			December 31,
	2019			2018
Residential real estate	$	311,040		$	304,079
Commercial real estate:
Owner-occupied		59,815			61,694
Nonowner-occupied		129,535			117,188
Construction		32,164			37,478
Commercial and industrial		102,296			113,243
Consumer:
Automobile		66,696			70,226
Home equity		23,229			22,512
Other		51,351			50,632
		776,126			777,052
Less: Allowance for loan losses		(7,401	)		(6,728	)

Loans, net	$	768,725		$	770,324

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

three

months ended

June 30, 2019

and

2018:

June 30, 2019	Residential Real Estate			Commercial Real Estate			Commercial and Industrial			Consumer			Total
Allowance for loan losses:
Beginning balance	$	2,079		$	2,452		$	1,315		$	2,167		$	8,013
Provision for loan losses		(552	)		(260	)		(169	)		175			(806	)
Loans charged off		(78	)		(438	)		(111	)		(536	)		(1,163	)
Recoveries		524			468			60			305			1,357
Total ending allowance balance	$	1,973		$	2,222		$	1,095		$	2,111		$	7,401

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

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

six

months ended

June 30, 2019

and

2018:

June 30, 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		261			133			304			873			1,571
Loans charged off		(407	)		(579	)		(344	)		(1,193	)		(2,523	)
Recoveries		536			482			72			535			1,625
Total ending allowance balance	$	1,973		$	2,222		$	1,095		$	2,111		$	7,401

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

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, 2019

and

December 31, 2018:

June 30, 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	$	7	$	27	$	----	$	----	$	34
Collectively evaluated for impairment		1,966		2,195		1,095		2,111		7,367
Total ending allowance balance	$	1,973	$	2,222	$	1,095	$	2,111	$	7,401

Loans:
Loans individually evaluated for impairment	$	1,954	$	11,252	$	7,289	$	6	$	20,501
Loans collectively evaluated for impairment		309,086		210,262		95,007		141,270		755,625
Total ending loans balance	$	311,040	$	221,514	$	102,296	$	141,276	$	776,126

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

June 30, 2019

and

December 31, 2018:

June 30, 2019	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With an allowance recorded:
Residential real estate	$	1,213	$	1,213	$	7
Commercial real estate:
Nonowner-occupied		357		290		27
With no related allowance recorded:
Residential real estate		741		741		----
Commercial real estate:
Owner-occupied		3,453		3,453		----
Nonowner-occupied		8,819		7,509		----
Construction		328		----		----
Commercial and industrial		7,289		7,289		----
Consumer		6		6
Total	$	22,206	$	20,501	$	34

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

and

six

months ended

June 30, 2019

and

2018:

	Three months ended June 30, 2019						Six months ended June 30, 2019
	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	$	1,213	$	----	$	----	$	1,214	$	5	$	5
Commercial real estate:
Nonowner-occupied		324		1		1		337		1		1
With no related allowance recorded:
Residential real estate		636		6		6		575		11		11
Commercial real estate:
Owner-occupied		3,483		58		58		3,111		112		112
Nonowner-occupied		7,458		117		117		5,287		228		228
Construction		----		5		5		----		11		11
Commercial and industrial		7,366		121		121		6,591		242		242
Consumer:
Other		6		----		----		4		----		----
Total	$	20,486	$	308	$	308	$	17,119	$	610	$	610

	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

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, 2019

and

December 31, 2018,

other real estate owned for residential real estate properties totaled

$77

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

$2,009

and

$2,375

as of

June 30, 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

June 30, 2019

and

December 31, 2018:

June 30, 2019	Loans Past Due 90 Days And Still Accruing		Nonaccrual

Residential real estate	$	328	$	7,216
Commercial real estate:
Owner-occupied		----		141
Nonowner-occupied		----		463
Construction		----		200
Commercial and industrial		956		171
Consumer:
Automobile		233		115
Home equity		221		276
Other		117		91
Total	$	1,855	$	8,673

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

June 30, 2019

and

December 31, 2018:

June 30, 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	$	4,651	$	782	$	2,460	$	7,893	$	303,147	$	311,040
Commercial real estate:
Owner-occupied		198		156		----		354		59,461		59,815
Nonowner-occupied		229		338		290		857		128,678		129,535
Construction		159		----		----		159		32,005		32,164
Commercial and industrial		160		435		1,066		1,661		100,635		102,296
Consumer:
Automobile		1,384		198		260		1,842		64,854		66,696
Home equity		342		72		411		825		22,404		23,229
Other		717		213		126		1,056		50,295		51,351
Total	$	7,840	$	2,194	$	4,613	$	14,647	$	761,479	$	776,126

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

June 30, 2019

and

December 31, 2018:

June 30, 2019	TDR’s Performing to Modified Terms		TDR’s Not Performing to Modified Terms		Total TDR’s
Residential real estate:
Interest only payments	$	505	$	----	$	505
Commercial real estate:
Owner-occupied
Interest only payments		926		----		926
Reduction of principal and interest payments		1,543		----		1,543
Maturity extension at lower stated rate than market rate		431		----		431
Credit extension at lower stated rate than market rate		397		----		397
Nonowner-occupied
Rate reduction		----		290		290
Credit extension at lower stated rate than market rate		558		----		558
Commercial and industrial:
Interest only payments		4,989		----		4,989
Reduction of principal and interest payments		197		----		197

Total TDR’s	$	9,546	$	290	$	9,836

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

June 30, 2019,

the balance in TDR loans increased

$1,202,

13.9%,

from year-end

2018.

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

$27

June 30, 2019,

as compared to

$98

in reserves at

December 31, 2018.

June 30, 2019,

the Company had

$1,268

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

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, 2019:

		TDR’s Performing to Modified Terms				TDR’s Not Performing to Modified Terms
Three months ended June 30, 2019	Number of Loans	Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Pre- Modification Recorded Investment		Post- Modification Recorded Investment
Residential real estate:
Interest only payments	1	$	292	$	292	$	----	$	----
Commercial and Industrial:
Interest only payments	1		282		282
Total TDR’s	2	$	574	$	574	$	----	$	----

		TDR’s Performing to Modified Terms				TDR’s Not Performing to Modified Terms
Six months ended June 30, 2019	Number of Loans	Pre- Modification Recorded Investment		Post- Modification Recorded Investment		Pre- Modification Recorded Investment		Post- Modification Recorded Investment
Residential real estate:
Interest only payments	1	$	292	$	292	$	----	$	----
Commercial and Industrial:
Interest only payments	1		282		282
Total TDR’s	2	$	574	$	574	$	----	$	----

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, 2019.

The Company had

TDR’s that, during the

three

and

six

months ended

June 30, 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

$750.

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, 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:

June 30, 2019	Pass		Criticized		Classified		Total
Commercial real estate:
Owner-occupied	$	49,522	$	7,207	$	3,086	$	59,815
Nonowner-occupied		121,028		----		8,507		129,535
Construction		32,164		----		----		32,164
Commercial and industrial		85,857		2,669		13,770		102,296
Total	$	288,571	$	9,876	$	25,363	$	323,810

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

June 30, 2019

and

December 31, 2018:

June 30, 2019	Consumer
	Automobile		Home Equity		Other		Residential Real Estate		Total

Performing	$	66,348	$	22,732	$	51,143	$	303,496	$	443,719
Nonperforming		348		497		208		7,544		8,597
Total	$	66,696	$	23,229	$	51,351	$	311,040	$	452,316

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

4.75%

of total loans were unsecured at

June 30, 2019,

down from

5.02%

December 31, 2018.