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

Loans outstanding at September 30, 2017 and December 31, 2016, by major lending classification are as follows:

	September 30,			December 31,
	2017			2016
Commercial and industrial	$	731,588		$	386,233
Construction		435,414			245,905
Residential real estate:
1-to-4 family mortgage		459,467			294,924
Residential line of credit		188,392			177,190
Multi-family mortgage		74,004			44,977
Commercial real estate:
Owner occupied		473,395			357,346
Non-owner occupied		521,416			267,902
Consumer and other		230,886			74,307
Gross loans		3,114,562			1,848,784
Less: Allowance for loan losses		(23,482	)		(21,747	)
Net loans	$	3,091,080		$	1,827,037

As of September 30, 2017 and December 31, 2016, $522,389 and $565,717, respectively, of 1-to-4 family mortgage loans, loans held for sale and multi-family mortgage loans were pledged to the Federal Home Loan Bank of Cincinnati securing advances against the Bank’s line.

As of September 30, 2017 and December 31, 2016, $690,113 and $1,072,118, respectively, of commercial and industrial , construction, residential real estate, commercial real estate, and consumer and other loans were pledged to the Federal Reserve Bank under the Borrower-in-Custody program.

The following provides the allowance for loan losses by portfolio segment and the related investment in loans net of unearned interest for the three and nine months ended September 30, 2017 and 2016 (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, 2017
Beginning balance - June 30, 2017	$	5,440		$	5,579		$	2,974		$	1,445		$	513	$	3,983		$	2,452		$	861		$	23,247
Provision for loan losses		315			(476	)		(269	)		(565	)		10		65			24			112			(784	)
Recoveries of loans previously charged-off		200			1,022			86			157			—		24			1			104			1,594
Loans charged off		(221	)		—			(32	)		(9	)		—		(64	)		—			(249	)		(575	)
Ending balance - September 30, 2017	$	5,734		$	6,125		$	2,759		$	1,028		$	523	$	4,008		$	2,477		$	828		$	23,482
Nine Months Ended September 30, 2017
Beginning balance - December 31, 2016	$	5,309		$	4,940		$	3,197		$	1,613		$	504	$	3,302		$	2,019		$	863		$	21,747
Provision for loan losses		(848	)		111			(409	)		(749	)		19		731			(1,184	)		423			(1,906	)
Recoveries of loans previously charged-off		1,794			1,080			126			368			—		39			1,642			400			5,449
Loans charged off		(521	)		(6	)		(155	)		(204	)		—		(64	)		—			(858	)		(1,808	)
Ending balance - September 30, 2017	$	5,734		$	6,125		$	2,759		$	1,028		$	523	$	4,008		$	2,477		$	828		$	23,482

	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	$	5,924		$	4,373		$	3,611		$	1,944		$	453	$	3,764		$	2,634		$	1,031		$	23,734
Provision for loan losses		381			66			48			(126	)		158		(83	)		(367	)		(6	)		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	$	5,955		$	4,471		$	3,495		$	1,825		$	611	$	3,685		$	2,289		$	959		$	23,290
Nine Months Ended September 30, 2016
Beginning balance - December 31, 2015	$	5,135		$	5,143		$	4,176		$	2,201		$	311	$	3,682		$	2,622		$	1,190		$	24,460
Provision for loan losses		896			(807	)		(571	)		(415	)		300		81			(360	)		149			(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	$	5,955		$	4,471		$	3,495		$	1,825		$	611	$	3,685		$	2,289		$	959		$	23,290

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, 2017 and December 31, 2016:

													September 30, 2017
	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	$	15	$	—	$	24	$	—	$	—	$	352	$	43	$	11	$	445
Collectively evaluated for impairment		5,719		6,125		2,735		1,028		523		3,656		2,434		803		23,023
Acquired with deteriorated credit quality		—		—		—		—		—		—		—		14		14
Ending balance - September 30, 2017	$	5,734	$	6,125	$	2,759	$	1,028	$	523	$	4,008	$	2,477	$	828	$	23,482

													December 31, 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	$	135	$	—	$	23	$	—	$	—	$	113	$	242	$	—	$	513
Collectively evaluated for impairment		5,174		4,940		3,174		1,613		504		3,189		1,777		863		21,234
Acquired with deteriorated credit quality		—		—		—		—		—		—		—		—		—
Ending balance - December 31, 2016	$	5,309	$	4,940	$	3,197	$	1,613	$	504	$	3,302	$	2,019	$	863	$	21,747

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, 2017 and December 31, 2016:

													September 30, 2017
	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	$	826	$	1,295	$	1,272	$	—	$	988	$	2,785	$	1,732	$	23	$	8,921
Collectively evaluated for impairment		727,885		426,039		433,544		188,392		72,994		459,537		500,713		204,082		3,013,186
Acquired with deteriorated credit quality		2,877		8,080		24,651		—		22		11,073		18,971		26,781		92,455
Ending balance - September 30, 2017	$	731,588	$	435,414	$	459,467	$	188,392	$	74,004	$	473,395	$	521,416	$	230,886	$	3,114,562

													December 31, 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	$	1,476	$	2,686	$	2,471	$	311	$	1,027	$	2,752	$	2,201	$	27	$	12,951
Collectively evaluated for impairment		384,279		238,900		290,346		176,879		43,922		350,812		260,361		74,276		1,819,775
Acquired with deteriorated credit quality		478		4,319		2,107		—		28		3,782		5,340		4		16,058
Ending balance - December 31, 2016	$	386,233	$	245,905	$	294,924	$	177,190	$	44,977	$	357,346	$	267,902	$	74,307	$	1,848,784

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’s risk rating definitions include:

Watch. Loans rated as watch includes loans in which management believes conditions have occurred, or may occur, which could result in the loan being downgraded to a worse rated category. Also included in watch are loans rated as special mention, which 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 rated 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 rated 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. Also included in this category are loans considered doubtful, which have all the weaknesses previously described and management believes those weaknesses may 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 are considered to be pass rated loans.

The following table shows credit quality indicators by portfolio class at September 30, 2017 and December 31, 2016:

September 30, 2017	Pass		Watch		Substandard		Total
Loans, excluding purchased credit impaired loans
Commercial and industrial	$	671,566	$	53,388	$	3,757	$	728,711
Construction		419,219		6,402		1,713		427,334
Residential real estate:
1-to-4 family mortgage		421,020		6,548		7,248		434,816
Residential line of credit		185,892		1,461		1,039		188,392
Multi-family mortgage		72,214		142		1,626		73,982
Commercial real estate:
Owner occupied		429,691		27,960		4,671		462,322
Non-owner occupied		486,487		13,967		1,991		502,445
Consumer and other		202,697		930		478		204,105
Total loans, excluding purchased credit impaired loans	$	2,888,786	$	110,798	$	22,523	$	3,022,107

Purchased credit impaired loans
Commercial and industrial	$	—	$	1,665	$	1,212	$	2,877
Construction		—		3,383		4,697		8,080
Residential real estate:
1-to-4 family mortgage		—		21,127		3,524		24,651
Residential line of credit		—		—		—		—
Multi-family mortgage		—		—		22		22
Commercial real estate:
Owner occupied		—		3,294		7,779		11,073
Non-owner occupied		—		7,740		11,231		18,971
Consumer and other		—		18,181		8,600		26,781
Total purchased credit impaired loans	$	—	$	55,390	$	37,065	$	92,455
Total loans	$	2,888,786	$	166,188	$	59,588	$	3,114,562

December 31, 2016	Pass		Watch		Substandard		Total
Loans, excluding purchased credit impaired loans
Commercial and industrial	$	351,046	$	31,074	$	3,635	$	385,755
Construction		236,588		4,612		386		241,586
Residential real estate:
1-to-4 family mortgage		277,948		6,945		7,924		292,817
Residential line of credit		173,011		1,875		2,304		177,190
Multi-family mortgage		43,770		152		1,027		44,949
Commercial real estate:
Owner occupied		338,698		10,459		4,407		353,564
Non-owner occupied		249,877		10,273		2,412		262,562
Consumer and other		73,454		417		432		74,303
Total loans, excluding purchased credit impaired loans	$	1,744,392	$	65,807	$	22,527	$	1,832,726

Purchased credit impaired loans
Commercial and industrial	$	—	$	—	$	478	$	478
Construction		—		—		4,319		4,319
Residential real estate:
1-to-4 family mortgage		—		—		2,107		2,107
Residential line of credit		—		—		—		—
Multi-family mortgage		—		—		28		28
Commercial real estate:
Owner occupied		—		—		3,782		3,782
Non-owner occupied		—		—		5,340		5,340
Consumer and other		—		—		4		4
Total purchased credit impaired loans	$	—	$	—	$	16,058	$	16,058
Total loans	$	1,744,392	$	65,807	$	38,585	$	1,848,784

Changes in accretable yield on purchase credit impaired loans were as follows:

	Purchased Credit Impaired Accretable yield
Balance at June 30, 2017	$	(1,845	)
Additions through the acquisition of the Clayton Banks		(18,457	)
Principal reductions/ pay-offs		(690	)
Recoveries		—
Accretion		1,646
Balance at September 30, 2017	$	(19,346	)

Balance at June 30, 2016	$	(1,248	)
Principal reductions/ pay-offs		(381	)
Accretion		590
Balance at September 30, 2016	$	(1,039	)

	Purchased Credit Impaired Accretable yield
Balance at December 31, 2016	$	(2,444	)
Additions through the acquisition of the Clayton Banks		(18,457	)
Principal reductions/ pay-offs		(1,680	)
Recoveries		(23	)
Accretion		3,258
Balance at September 30, 2017	$	(19,346	)

Balance at December 31, 2015	$	(1,637	)
Principal reductions/ pay-offs		(1,839	)
Accretion		2,437
Balance at September 30, 2016	$	(1,039	)

PCI loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. However, these loans are considered to be performing, even though they may be contractually past due, as any non-payment of contractual principal or interest is considered in the periodic re-estimation of expected cash flows and is included in the resulting recognition of current period covered loan loss provision or future period yield adjustments. The accrual of interest is discontinued on PCI loans if management can no longer reliably estimate future cash flows on the loan. No PCI loans were classified as nonaccrual at September 30, 2017 or December 31, 2016 as the carrying value of the respective loan or pool of loans cash flows were considered estimable and probable of collection. Therefore, interest revenue, through accretion of the difference between the carrying value of the loans and the expected cash flows, is being recognized on all PCI loans. Accretion of interest income amounting to $1,646 and $3,258 was recognized on purchased credit impaired loans during the three and nine months ended September 30, 2017 compared with $590 and $2,437 for the three and nine months ended September 30, 2016. The total purchase accounting contribution through accretion for all purchased loans was $1,537 and $3,545 for three and nine months ended September 30, 2017, respectively, compared with $590 and $2,437 for the three and nine months ended September 30, 2016, respectively.

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, loans current on payments accruing interest and purchased credit impaired loans by category at September 30, 2017 and December 31, 2016:

September 30, 2017	30-89 days past due		90 days or more and accruing interest		Non-accrual loans		Loans current on payments and accruing interest		Purchased Credit Impaired loans		Total
Commercial and industrial	$	388	$	37	$	469	$	727,817	$	2,877	$	731,588
Construction		596		44		239		426,455		8,080		435,414
Residential real estate:
1-to-4 family mortgage		3,600		520		2,257		428,439		24,651		459,467
Residential line of credit		932		250		529		186,681		—		188,392
Multi-family mortgage		—		87		—		73,895		22		74,004
Commercial real estate:
Owner occupied		2,520		134		2,308		457,360		11,073		473,395
Non-owner occupied		—		—		1,916		500,529		18,971		521,416
Consumer and other		2,326		166		31		201,582		26,781		230,886
Total	$	10,362	$	1,238	$	7,749	$	3,002,758	$	92,455	$	3,114,562

December 31, 2016	30-89 days past due		90 days or more and accruing interest		Non-accrual loans		Loans current on payments and accruing interest		Purchased Credit Impaired loans		Total
Commercial and industrial	$	262	$	127	$	1,297	$	384,069	$	478	$	386,233
Construction		441		17		254		240,874		4,319		245,905
Residential real estate:
1-to-4 family mortgage		3,130		697		2,289		286,701		2,107		294,924
Residential line of credit		1,139		433		601		175,017		—		177,190
Multi-family mortgage		—		—		—		44,949		28		44,977
Commercial real estate:
Owner occupied		186		—		2,007		351,371		3,782		357,346
Non-owner occupied		158		—		2,251		260,153		5,340		267,902
Consumer and other		433		55		30		73,785		4		74,307
Total	$	5,749	$	1,329	$	8,729	$	1,816,919	$	16,058	$	1,848,784

Impaired loans recognized in conformity with ASC 310 at September 30, 2017 and December 31, 2016, segregated by class, were as follows:

September 30, 2017	Recorded investment		Unpaid principal		Related allowance
With a related allowance recorded:
Commercial and industrial	$	53	$	53	$	15
Construction		—		—		—
Residential real estate:
1-to-4 family mortgage		199		501		24
Residential line of credit		—		—		—
Multi-family mortgage		—		—		—
Commercial real estate:
Owner occupied		1,077		1,123		352
Non-owner occupied		148		151		43
Consumer and other		22		22		11
Total	$	1,499	$	1,850	$	445
With no related allowance recorded
Commercial and industrial	$	773	$	977	$	—
Construction		1,295		1,315		—
Residential real estate:
1-to-4 family mortgage		1,073		1,077		—
Residential line of credit		—		—		—
Multi-family mortgage		988		988		—
Commercial real estate:
Owner occupied		1,708		2,183		—
Non-owner occupied		1,584		2,856		—
Consumer and other		1		1		—
Total	$	7,422	$	9,397	$	—
Total impaired loans	$	8,921	$	11,247	$	445

December 31, 2016	Recorded investment		Unpaid principal		Related allowance
With a related allowance recorded:
Commercial and industrial	$	854	$	854	$	135
Construction		—		—		—
Residential real estate:
1-to-4 family mortgage		103		369		23
Residential line of credit		—		—		—
Multi-family mortgage		—		—		—
Commercial real estate:
Owner occupied		635		654		113
Non-owner occupied		1,151		1,678		242
Consumer and other		1		1		—
Total	$	2,744	$	3,556	$	513
With no related allowance recorded:
Commercial and industrial	$	622	$	746	$	—
Construction		2,686		2,694		—
Residential real estate:
1-to-4 family mortgage		2,368		2,370		—
Residential line of credit		311		321		—
Multi-family mortgage		1,027		1,027		—
Commercial real estate:
Owner occupied		2,117		3,205		—
Non-owner occupied		1,050		1,781		—
Consumer and other		26		26		—
Total	$	10,207	$	12,170	$	—
Total impaired loans	$	12,951	$	15,726	$	513

Average recorded investment and interest income on a cash basis recognized during the three and nine months ended September 30, 2017 and 2016 on impaired loans, segregated by class, were as follows:

	Three Months Ended				Nine Months Ended
September 30, 2017	Average recorded investment		Interest income recognized (cash basis)		Average recorded investment		Interest income recognized (cash basis)
With a related allowance recorded:
Commercial and industrial	$	392	$	2	$	454	$	2
Construction		—		—		—		—
Residential real estate:
1-to-4 family mortgage		148		7		151		7
Residential line of credit		—		—		—		—
Multi-family mortgage		—		—		—		—
Commercial real estate:
Owner occupied		843		39		856		39
Non-owner occupied		328		3		650		3
Consumer and other		11		1		12		1
Total	$	1,721	$	52	$	2,122	$	52
With no related allowance recorded:
Commercial and industrial	$	633	$	34	$	698	$	34
Construction		797		41		1,991		41
Residential real estate:
1-to-4 family mortgage		1,584		51		1,721		51
Residential line of credit		—		—		156		—
Multi-family mortgage		995		34		1,008		34
Commercial real estate:
Owner occupied		1,737		92		1,913		92
Non-owner occupied		1,590		12		1,317		12
Consumer and other		13		—		14		—
Total	$	7,347	$	264	$	8,815	$	264
Total impaired loans	$	9,068	$	316	$	10,936	$	316
September 30, 2016
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
Total impaired loans	$	15,733	$	144	$	15,690	$	399

As of September 30, 2017 and December 31, 2016, the Company has a recorded investment in troubled debt restructurings of $8,095 and $8,802, 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 $202 and $402 of specific reserves for those loans at September 30, 2017 and December 31, 2016, respectively, and has committed to lend additional amounts totaling up to $1 and $1, respectively to these customers. Of these loans, $3,816 and $4,265 were classified as non-accrual loans as of September 30, 2017 and December 31, 2016.

The following table presents the financial effect of TDRs recorded during the periods indicated:

Three Months Ended September 30, 2017	Number of loans	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Charge offs and specific reserves
Residential real estate:
1-to-4 family mortgage	1	$	143	$	143	$	8
Total	1	$	143	$	143	$	8


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

Nine Months Ended September 30, 2017	Number of loans	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Charge offs and specific reserves
Commercial and industrial	1	$	5	$	5	$	—
Residential real estate:
1-to-4 family mortgage	1		143		143		8
Commercial real estate:
Owner occupied	1		377		377		—
Non-owner occupied	2		711		711		—
Total	5	$	1,236	$	1,236	$	8

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	6	$	2,301	$	2,301	$	86
Residential real estate:
1-4 family mortgage	5		326		326		45
Commercial real estate:
Owner occupied	2		786		786		—
Non-owner occupied	1		133		133		—
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, 2017 or 2016.

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, 2017 and 2016 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.