Note (4)—Loans and allowance for loan losses:

Loans outstanding at September 30, 2016 and December 31, 2015, by major lending classification are as follows (in thousands):

	September 30, 2016			December 31, 2015
Commercial and industrial	$	370,379		$	317,038
Construction		227,321			231,025
Residential real estate:
1-to-4 family mortgage		286,580			287,749
Residential line of credit		173,898			171,526
Multi-family mortgage		54,129			59,510
Commercial real estate:
Owner occupied		350,790			330,207
Non-owner occupied		265,190			237,222
Consumer and other		65,056			67,586
Gross loans		1,793,343			1,701,863
Less: Allowance for loan losses		(23,290	)		(24,460	)
Net loans	$	1,770,053		$	1,677,403

As of September 30, 2016 and December 31, 2015, $445,598 and $26,089, respectively, of 1-to-4 family mortgage loans and loans held for sale were pledged to the Federal Home Loan Bank of Cincinnati securing advances against the Bank’s line. As of September 30, 2016 and December 31, 2015, $29,451 and $43,825, respectively, of multi-family mortgage loans were pledged to the Federal Home Loan Bank of Cincinnati securing advances against the Bank’s line.

The following provides the allowance for loan losses by portfolio segment and the related investment in loans net of unearned interest for the nine months ended September 30, 2016 and 2015 (in thousands):

	Commercial and industrial			Construction			1-to-4 family residential mortgage			Residential line of credit			Multi- family residential mortgage		Commercial real estate owner occupied			Commercial real estate non-owner occupied			Consumer and other			Total
Three Months Ended September 30 ,2016
Beginning balance- June 30, 2016	$	6,051		$	4,266		$	3,555		$	1,922		$	448	$	3,672		$	2,752		$	1,068		$	23,734
Provision for loan losses		423			103			108			(99	)		165		(35	)		(359	)		(235	)		71
Recoveries of loans previously charged-off		8			32			2			36			—		4			22			95			199
Loans charged off		(358	)		—			(166	)		(29	)		—		—			—			(161	)		(714	)
Ending balance- September 30, 2016	$	6,124		$	4,401		$	3,499		$	1,830		$	613	$	3,641		$	2,415		$	767		$	23,290
Nine Months Ended September 30 ,2016
Beginning balance - December 31, 2015	$	5,288		$	5,030		$	4,126		$	2,178		$	311	$	4,034		$	2,610		$	883		$	24,460
Provision for loan losses		912			(764	)		(517	)		(387	)		302		(315	)		(222	)		264			(727	)
Recoveries of loans previously charged-off		480			137			109			143			—		15			27			266			1,177
Loans charged off		(556	)		(2	)		(219	)		(104	)		—		(93	)		—			(646	)		(1,620	)
Ending balance- September 30, 2016	$	6,124		$	4,401		$	3,499		$	1,830		$	613	$	3,641		$	2,415		$	767		$	23,290

	Commercial and industrial			Construction			1-to-4 family residential mortgage			Residential line of credit			Multi- family residential mortgage			Commercial real estate owner occupied			Commercial real estate non-owner occupied			Consumer and other			Total
Three Months Ended September 30 ,2015
Beginning balance - June 30, 2015	$	5,422		$	4,251		$	5,206		$	3,592		$	312		$	7,112		$	2,294		$	841		$	29,030
Provision for loan losses		791			(824	)		45			39			(12	)		(2,084	)		576			310			(1,159	)
Recoveries of loans previously charged-off		21			976			92			147			—			13			3			177			1,429
Loans charged off		(104	)		(33	)		(376	)		(104	)		—			(1,057	)		(54	)		(378	)		(2,106	)
Ending balance- September 30, 2015	$	6,130		$	4,370		$	4,967		$	3,674		$	300		$	3,984		$	2,819		$	950		$	27,194
Nine Months Ended September 30 ,2015
Beginning balance - December 31, 2014	$	6,600		$	3,721		$	6,364		$	2,790		$	184		$	6,075		$	2,641		$	655		$	29,030
Provision for loan losses		(276	)		(404	)		(985	)		737			116			(1,060	)		226			709			(937	)
Recoveries of loans previously charged-off		53			1,086			127			251			—			26			6			433			1,982
Loans charged off		(247	)		(33	)		(539	)		(104	)		—			(1,057	)		(54	)		(847	)		(2,881	)
Ending balance- September 30, 2015	$	6,130		$	4,370		$	4,967		$	3,674		$	300		$	3,984		$	2,819		$	950		$	27,194

The following table provides the allocation of the allowance for loan losses by loan category broken out between loans individually evaluated for impairment and loans collectively evaluated for impairment as of September 30, 2016 and December 31, 2015 (in thousands):

													September 30, 2016
	Commercial and industrial		Construction		1-to-4 family residential mortgage		Residential line of credit		Multi- family residential mortgage		Commercial real estate owner occupied		Commercial real estate non-owner occupied		Consumer and other		Total
Amount of allowance allocated to:
Individually evaluated for impairment	$	24	$	—	$	30	$	140	$	—	$	162	$	748	$	2	$	1,106
Collectively evaluated for impairment		6,100		4,401		3,469		1,690		613		3,479		1,667		765		22,184
Ending balance- September 30, 2016	$	6,124	$	4,401	$	3,499	$	1,830	$	613	$	3,641	$	2,415	$	767	$	23,290

													December 31, 2015
	Commercial and industrial		Construction		1-to-4 family residential mortgage		Residential line of credit		Multi- family residential mortgage		Commercial real estate owner occupied		Commercial real estate non-owner occupied		Consumer and other		Total
Year-end amount of allowance allocated to:
Individually evaluated for impairment	$	89	$	5	$	66	$	—	$	—	$	38	$	775	$	—	$	973
Collectively evaluated for impairment		5,199		5,025		4,060		2,178		311		3,996		1,835		883		23,487
Ending balance- December 31, 2015	$	5,288	$	5,030	$	4,126	$	2,178	$	311	$	4,034	$	2,610	$	883	$	24,460

The following table provides the amount of loans by loan category broken between loans individually evaluated for impairment and loans collectively evaluated for impairment as of September 30, 2016 and December 31, 2015 (in thousands):

													September 30, 2016
	Commercial and industrial		Construction		1-to-4 family residential mortgage		Residential line of credit		Multi- family residential mortgage		Commercial real estate owner occupied		Commercial real estate non-owner occupied		Consumer and other		Total
Loans, net of unearned income
Individually evaluated for impairment	$	1,531	$	2,773	$	2,721	$	316	$	1,034	$	2,658	$	3,331	$	3	$	14,367
Collectively evaluated for impairment		368,317		220,030		281,609		173,582		53,065		344,302		256,384		65,048		1,762,337
Acquired with deteriorated credit quality		531		4,518		2,250		—		30		3,830		5,475		5		16,639
Ending balance – September 30, 2016	$	370,379	$	227,321	$	286,580	$	173,898	$	54,129	$	350,790	$	265,190	$	65,056	$	1,793,343

													December 31, 2015
	Commercial and industrial		Construction		1-to-4 family residential mortgage		Residential line of credit		Multi- family residential mortgage		Commercial real estate owner occupied		Commercial real estate non-owner occupied		Consumer and other		Total
Loans, net of unearned income
Individually evaluated for impairment	$	1,499	$	2,866	$	3,686	$	—	$	1,074	$	2,425	$	4,026	$	—	$	15,576
Collectively evaluated for impairment		314,665		221,300		281,235		171,526		58,400		322,999		227,205		67,582		1,664,912
Acquired with deteriorated credit quality		874		6,859		2,828		—		36		4,783		5,991		4		21,375
Ending balance- December 31, 2015	$	317,038	$	231,025	$	287,749	$	171,526	$	59,510	$	330,207	$	237,222	$	67,586	$	1,701,863

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. The Company analyzes loans individually by classifying the loans as to credit risk. The Company uses the following definitions for risk ratings:

Watch. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.

The following table shows credit quality indicators by portfolio class at September 30, 2016 and December 31, 2015 (in thousands):

September 30, 2016	Pass		Watch		Substandard		Total
Commercial and industrial	$	357,447	$	8,769	$	4,163	$	370,379
Construction		219,155		3,053		5,113		227,321
Residential real estate:
1-to-4 family mortgage		269,839		6,605		10,136		286,580
Residential line of credit		169,686		2,298		1,914		173,898
Multi-family mortgage		52,910		155		1,064		54,129
Commercial real estate:
Owner occupied		331,746		10,661		8,383		350,790
Non-owner occupied		243,161		13,080		8,949		265,190
Consumer and other		64,263		459		334		65,056
Total	$	1,708,207	$	45,080	$	40,056	$	1,793,343

December 31, 2015	Pass		Watch		Substandard		Total
Commercial and industrial	$	310,125	$	1,060	$	5,853		317,038
Construction		219,684		3,238		8,103		231,025
Residential real estate:
1-to-4 family mortgage		268,046		9,367		10,336		287,749
Residential line of credit		165,838		3,069		2,619		171,526
Multi-family mortgage		58,234		166		1,110		59,510
Commercial real estate:
Owner occupied		310,538		9,852		9,817		330,207
Non-owner occupied		206,645		20,218		10,359		237,222
Consumer and other		66,794		460		332		67,586
Total	$	1,605,904	$	47,430	$	48,529	$	1,701,863

Loans acquired in business combinations that exhibited at the date of acquisition evidence of deterioration of credit quality since origination such that it was probable that all contractually required payments would not be collected are considered to be purchased credit impaired and were as follows at September 30, 2016 and December 31, 2015 (in thousands):

	September 30, 2016		December 31, 2015
Commercial and industrial	$	531	$	874
Construction		4,518		6,859
Residential real estate:
1-to-4 family mortgage		2,250		2,828
Residential line of credit		—		—
Multi-family mortgage		30		36
Commercial real estate:
Owner occupied		3,830		4,783
Non-owner occupied		5,475		5,991
Consumer and other		5		4
Total	$	16,639	$	21,375

The following table presents the current value of loans determined to be impaired at the time of acquisition at September 30, 2016 and December 31, 2015 (in thousands):

	September 30, 2016			December 31, 2015
Contractually-required principal and interest	$	23,736		$	31,381
Nonaccretable difference		(6,058	)		(8,369	)
Cash flows expected to be collected		17,678			23,012
Accretable yield		(1,039	)		(1,637	)
Current value	$	16,639		$	21,375

Changes in accretable yield and nonaccretable difference of purchased loans were as follows (in thousands):

	Accretable yield						Nonaccretable Difference
	Purchased Credit Impaired			Purchased Non-impaired			Purchased Credit Impaired			Purchased Non-impaired			Total
Balance at July 1, 2016	$	(1,248	)	$	(1,613	)	$	(6,439	)	$	—		$	(9,300	)
Additions through acquisition		—			—			—			—			—
Principal reductions/ pay-offs		(381	)		—			381			—			—
Charge-offs		—			—			—			—			—
Accretion		590			224			—			—			814
Balance at September 30, 2016	$	(1,039	)	$	(1,389	)	$	(6,058	)	$	—		$	(8,486	)

Balance at July 1, 2015	$	—		$	—		$	—		$	—		$	—
Additions through acquisition		(1,991	)		(1,945	)		(8,508	)		(70	)		(12,514	)
Principal reductions/ pay-offs		—			—			—			—			—
Charge-offs		—			—			—			—			—
Accretion		—			—			—			—			—
Balance at September 30, 2015	$	(1,991	)	$	(1,945	)	$	(8,508	)	$	(70	)	$	(12,514	)

	Accretable yield						Nonaccretable Difference
	Purchased Credit Impaired			Purchased Non-impaired			Purchased Credit Impaired			Purchased Non-impaired			Total
Balance at January 1, 2016	$	(1,637	)	$	(2,147	)	$	(8,369	)	$	(70	)	$	(12,223	)
Additions through acquisition		—			—			—			—			—
Principal reductions/ pay-offs		(1,839	)		—			1,839			—			—
Charge-offs		—			—		472				—			472
Sale of credit card portfolio		—			—			—		70				70
Accretion		2,437			758			—			—			3,195
Balance at September 30, 2016	$	(1,039	)	$	(1,389	)	$	(6,058	)	$	—		$	(8,486	)

Balance at January 1, 2015	$	—		$	—		$	—		$	—		$	—
Additions through acquisition		(1,991	)		(1,945	)		(8,508	)		(70	)		(12,514	)
Principal reductions/ pay-offs		—			—			—			—			—
Charge-offs		—			—			—			—			—
Sale of credit card portfolio		—			—			—			—			—
Accretion		—			—			—			—			—
Balance at September 30, 2015	$	(1,991	)	$	(1,945	)	$	(8,508	)	$	(70	)	$	(12,514	)

There were no purchased credit impaired loans prior to the NWGB acquisition on September 18, 2015.

Nonperforming loans include loans that are no longer accruing interest (non-accrual loans) and loans past due ninety or more days and still accruing interest. Nonperforming loans and impaired loans are defined differently. Some loans may be included in both categories, whereas other loans may only be included in one category.

The following table provides the period-end amounts of loans that are past due thirty to eighty-nine days, past due ninety or more days and still accruing interest, loans not accruing interest and loans current on payments accruing interest by category at September 30, 2016 and December 31, 2015 (in thousands):

September 30, 2016	30-89 days past due		90 days or more and accruing interest		Non-accrual loans		Loans current on payments and accruing interest		Total
Commercial and industrial	$	313	$	264	$	1,219	$	368,052	$	369,848
Construction		985		201		257		221,360		222,803
Residential real estate:
1-to-4 family mortgage		3,170		520		2,020		278,620		284,330
Residential line of credit		405		194		644		172,655		173,898
Multi-family mortgage		138		—		—		53,961		54,099
Commercial real estate:								—
Owner occupied		180		17		2,061		344,702		346,960
Non-owner occupied		92		—		3,385		256,238		259,715
Consumer and other		490		146		36		64,379		65,051
Total	$	5,773	$	1,342	$	9,622	$	1,759,967	$	1,776,704

Loans acquired with deteriorated credit quality amounting to $16,639 and have been excluded from the table above in accordance with ASC-310-10-50, Receivables- Overall- Disclosure.

December 31, 2015	30-89 days past due		90 days or more and accruing interest		Non-accruing loans		Loans current on payments and accruing interest		Total
Commercial and industrial	$	283	$	103	$	1,659	$	314,119	$	316,164
Construction		81		33		272		223,780		224,166
Residential real estate:
1-to-4 family mortgage		2,798		268		2,124		279,731		284,921
Residential line of credit		1,053		323		1,114		169,036		171,526
Multi-family mortgage		—		—		—		59,474		59,474
Commercial real estate:
Owner occupied		382		—		1,848		323,194		325,424
Non-owner occupied		60		—		3,638		227,533		231,231
Consumer and other		331		160		45		67,046		67,582
Total	$	4,988	$	887	$	10,700	$	1,663,913	$	1,680,488

Loans acquired with deteriorated credit quality amounting to $21,375 have been excluded from the table above in accordance with ASC-310-10-50, Receivables- Overall- Disclosure.

Impaired loans recognized in conformity with ASC 310 at September 30, 2016 and December 31, 2015, segregated by class, were as follows (in thousands):

September 30, 2016	Recorded investment		Unpaid principal		Related allowance
With a related allowance recorded:
Commercial and industrial	$	362	$	362	$	24
Construction		—		—		—
Residential real estate:
1-to-4 family mortgage		110		376		30
Residential line of credit		316		322		140
Multi-family mortgage		—		—		—
Commercial real estate:
Owner occupied		825		831		162
Non-owner occupied		2,163		2,169		748
Consumer and other		3		3		2
Total	$	3,779	$	4,063	$	1,106
With no related allowance recorded
Commercial and industrial	$	1,169	$	1,528	$	—
Construction		2,773		2,778		—
Residential real estate:
1-to-4 family mortgage		2,611		2,615		—
Residential line of credit		—		—		—
Multi-family mortgage		1,034		1,034		—
Commercial real estate:
Owner occupied		1,833		2,957		—
Non-owner occupied		1,168		1,902		—
Consumer and other		—		—		—
Total	$	10,588	$	12,814	$	—
Total impaired loans	$	14,367	$	16,877	$	1,106

	Three Months Ended				Nine Months Ended
September 30, 2016	Average recorded investment		Interest income recognized (cash basis)		Average recorded investment		Interest income recognized (cash basis)
With a related allowance recorded:
Commercial and industrial	$	363	$	3	$	820	$	14
Construction		—		—		102		—
Residential real estate:
1-to-4 family mortgage		200		1		1,482		27
Residential line of credit		319		4		213		6
Multi-family mortgage		—		—		—		—
Commercial real estate:
Owner occupied		807		17		1,115		18
Non-owner occupied		2,573		4		2,776		13
Consumer and other		2		—		1		—
Total	$	4,264	$	29	$	6,509	$	78
With no related allowance recorded
Commercial and industrial	$	1,318	$	13	$	767	$	17
Construction		2,782		36		2,712		99
Residential real estate:
1-to-4 family mortgage		2,680		19		2,060		103
Residential line of credit		—		—		—		—
Multi-family mortgage		1,037		13		1,052		25
Commercial real estate:
Owner occupied		2,239		33		1,378		75
Non-owner occupied		1,413		1		1,212		2
Consumer and other		—		—				—
Total	$	11,469	$	115	$	9,181	$	321

September 30, 2015
With a related allowance recorded:
Commercial and industrial	$	1,844	$	34	$	2,130	$	45
Construction		4,707		51		4,702		144
Residential real estate:
1-to-4 family mortgage		4,358		73		3,660		149
Residential line of credit		—		—		—		—
Multi-family mortgage		887		—		877		—
Commercial real estate:
Owner occupied		2,853		16		2,368		52
Non-owner occupied		4,397		13		3,007		90
Consumer and other		—		—				—
Total	$	19,046	$	187	$	16,744	$	480
With no related allowance recorded
Commercial and industrial	$	425	$	—	$	390	$	—
Construction		444		—		136		—
Residential real estate:
1-to-4 family mortgage		180		—		95		—
Residential line of credit		—		—		—		—
Multi-family mortgage		218		—		214		—
Commercial real estate:
Owner occupied		157		—		146		44
Non-owner occupied		1,416		—		1,195		18
Consumer and other		—		—		—		—
Total	$	2,840	$	—	$	2,176	$	62

December 31, 2015	Recorded investment		Unpaid principal		Related allowance		Average recorded investment		Interest income recognized (cash basis)
With a related allowance recorded:
Commercial and industrial	$	1,133	$	1,133	$	89	$	1,269	$	22
Construction		308		308		5		517		3
Residential real estate:
1-to-4 family mortgage		3,397		3,398		66		2,345		199
Residential line of credit		—		—		—		—		—
Multi-family mortgage		—		—		—		468		—
Commercial real estate:
Owner occupied		2,302		2,422		38		1,938		77
Non-owner occupied		2,976		2,976		775		3,039		18
Consumer and other		—		—		—		—		—
Total	$	10,116	$	10,237	$	973	$	9,576	$	319
With no related allowance recorded:
Commercial and industrial	$	366	$	993	$	—	$	660	$	—
Construction		2,558		2,558		—		4,337		127
Residential real estate:
1-to-4 family mortgage		289		289		—		2,815		7
Residential line of credit		—		—		—		—		—
Multi-family mortgage		1,074		1,074		—		652		25
Commercial real estate:
Owner occupied		123		229		—		788		—
Non-owner occupied		1,050		1,781		—		855		—
Consumer and other		—		—		—		—		—
Total	$	5,460	$	6,924	$	—	$	10,107	$	159
Total impaired loans	$	15,576	$	17,161	$	973	$	19,683	$	478

As of September 30, 2016 and December 31, 2015, the Company has a recorded investment in troubled debt restructurings of $10,125 and $15,289, respectively. The modifications included extensions of the maturity date and/or a stated rate of interest to one lower than the current market rate. The Company has allocated $848 and $946 of specific reserves for those loans at September 30, 2016 and December 31, 2015, respectively, and has committed to lend additional amounts totaling up to $1 and $69, respectively to these customers. Of these loans, $5,274 and $5,898 were classified as non-accrual loans as of September 30, 2016 and December 31, 2015.

The following table presents the financial effect of TDRs recorded during the periods indicated ($ amounts in thousands):

Three months ended September 30, 2016	Number of loans		Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Charge offs and specific reserves
Commercial real estate:
Owner occupied	1			118		118		—
Residential real estate:
1-4 family mortgage	1			1,098		1,098		—
Consumer and other		2		4		4		—
Total	4		$	1,220	$	1,220	$	—

Three months ended September 30, 2015	Number of loans	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Charge offs and specific reserves
Commercial real estate:
Owner occupied	1		221		221		—
Total	1	$	221	$	221	$	—

Nine months ended September 30, 2016	Number of loans		Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Charge offs and specific reserves
Commercial and industrial
Commercial real estate:
Owner occupied	1			460		460		—
Residential real estate:
1-4 family mortgage	5			1,819		1,819		39
Consumer and other		2		4		4		—
Total	8		$	2,283	$	2,283	$	39

Nine months ended September 30, 2015	Number of loans	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Charge offs and specific reserves
Commercial and industrial	6	$	2,301	$	2,301	$	86
Commercial real estate:
Owner occupied	2		786		786		—
Non-owner occupied	1		133		133		—
Residential real estate:
1-4 family mortgage	5	326		326			45
Total	14	$	3,546	$	3,546	$	131

There were no loans modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the nine months ended September 30, 2016. The following presents loans modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the nine months ended September 30, 2015.

	Defaulted		Charge-offs and specific reserves
Residential real estate:
1-to-4 family mortgage	$	145	$	45
Total	$	145	$	45

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

The terms of certain other loans were modified during the nine months ended September 30, 2016 and 2015 that did not meet the definition of a troubled debt restructuring. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the company’s internal underwriting policy.