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

Loans outstanding at June 30, 2018 and December 31, 2017, by major lending classification are as follows:

	June 30,			December 31,
	2018			2017
Commercial and industrial	$	813,054		$	715,075
Construction		522,471			448,326
Residential real estate:
1-to-4 family mortgage		528,158			480,989
Residential line of credit		208,668			194,986
Multi-family mortgage		57,344			62,374
Commercial real estate:
Owner occupied		470,872			495,872
Non-owner occupied		600,629			551,588
Consumer and other		214,379			217,701
Gross loans		3,415,575			3,166,911
Less: Allowance for loan losses		(26,347	)		(24,041	)
Net loans	$	3,389,228		$	3,142,870

As of June 30, 2018 and December 31, 2017, $598,522 and $761,197, respectively, of qualifying residential mortgage loans (including loans held for sale) and $539,621 and $207,370, respectively, of qualifying commercial mortgage loans were pledged to the Federal Home Loan Bank of Cincinnati securing advances against the Bank’s line. As of June 30, 2018 and December 31, 2017, $1,218,505 and $724,312, respectively, of qualifying loans were pledged to the Federal Reserve Bank under the Borrower-in-Custody program.

As of June 30, 2018 and December 31, 2017, the carrying value of purchased credit impaired loans (“PCI”) loans accounted for under ASC 310-30 Loans and Debt Securities Acquired with Deteriorated Credit Quality, were $78,313 and $88,835, respectively. The following table presents changes in the value of the accretable yield for PCI loans for the periods indicated.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Balance at beginning of period	$	(16,955	)	$	(2,142	)	$	(17,682	)	$	(2,444	)
Principal reductions/ pay-offs		(2,158	)		(292	)		(3,452	)		(990	)
Recoveries		—			—			—			(23	)
Accretion		2,639			589			4,840			1,612
Other changes		(3,695	)		—			(3,875	)		—
Balance at end of period	$	(20,169	)	$	(1,845	)	$	(20,169	)	$	(1,845	)

Included in the ending balance in the table above at June 30, 2018, are PCI loans with a purchase accounting liquidity discount of $4,212. There is also a purchase accounting nonaccretable credit discount of $5,236 related to the PCI loan portfolio at June 30, 2018 and an accretable credit and liquidity discount on non-PCI loans of $9,337 and $3,018, respectively.

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 $2,639 and $4,840 was recognized on purchased credit impaired loans during the three and six months ended June 30, 2018, respectively, compared with $589 and $1,612 for the three and six months ended June 30, 2017, respectively. This includes both the contractual interest income and the purchase accounting contribution through accretion of the liquidity discount and credit mark for changes in estimated cash flows. The total purchase accounting contribution through accretion for all purchased loans was $1,928 and $3,615 for three and six months ended June 30, 2018, respectively, compared with $848 and $2,008 for the three and six months ended June 30, 2017.

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 six months ended June 30, 2018 and 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
Three Months Ended June 30, 2018
Beginning balance - March 31, 2018	$	4,578		$	7,866		$	3,122		$	1,165		$	449		$	3,014		$	2,753	$	1,459		$	24,406
Provision for loan losses		39			310			218			(414	)		(58	)		168			519		281			1,063
Recoveries of loans previously charged-off		135			862			43			44			—			108			—		107			1,299
Loans charged off		(5	)		(15	)		(5	)		—			—			—			—		(396	)		(421	)
Ending balance - June 30, 2018	$	4,747		$	9,023		$	3,378		$	795		$	391		$	3,290		$	3,272	$	1,451		$	26,347
Six Months Ended June 30, 2018
Beginning balance - December 31, 2017	$	4,461		$	7,135		$	3,197		$	944		$	434		$	3,558		$	2,817	$	1,495		$	24,041
Provision for loan losses		241			789			188			(200	)		(43	)		(399	)		404		400			1,380
Recoveries of loans previously charged-off		270			1,114			58			71			—			131			51		313			2,008
Loans charged off		(225	)		(15	)		(65	)		(20	)		—			—			—		(757	)		(1,082	)
Ending balance - June 30, 2018	$	4,747		$	9,023		$	3,378		$	795		$	391		$	3,290		$	3,272	$	1,451		$	26,347

	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 June 30, 2017
Beginning balance - March 31, 2017	$	5,402		$	5,598		$	2,896		$	1,514		$	508	$	3,387	$	2,660		$	933		$	22,898
Provision for loan losses		(1,342	)		(48	)		99			(29	)		5		585		(210	)		75			(865	)
Recoveries of loans previously charged-off		1,511			29			14			155			—		11		2			283			2,005
Loans charged off		(131	)		—			(35	)		(195	)		—		—		—			(430	)		(791	)
Ending balance - June 30, 2017	$	5,440		$	5,579		$	2,974		$	1,445		$	513	$	3,983	$	2,452		$	861		$	23,247
Six Months Ended June 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		(1,163	)		587			(140	)		(184	)		9		666		(1,208	)		311			(1,122	)
Recoveries of loans previously charged-off		1,594			58			40			211			—		15		1,641			296			3,855
Loans charged off		(300	)		(6	)		(123	)		(195	)		—		—		—			(609	)		(1,233	)
Ending balance - June 30, 2017	$	5,440		$	5,579		$	2,974		$	1,445		$	513	$	3,983	$	2,452		$	861		$	23,247

The following table provides the allocation of the allowance for loan losses by loan category broken out between loans individually evaluated for impairment, loans collectively evaluated for impairment and loans acquired with deteriorated credit quality as of June 30, 2018 and December 31, 2017:

													June 30, 2018
	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	$	49	$	—	$	12	$	—	$	—	$	124	$	—	$	—	$	185
Collectively evaluated for impairment		4,685		8,998		3,227		795		391		3,082		2,894		1,407		25,479
Acquired with deteriorated credit quality		13		25		139		—		—		84		378		44		683
Ending balance - June 30, 2018	$	4,747	$	9,023	$	3,378	$	795	$	391	$	3,290	$	3,272	$	1,451	$	26,347

													December 31, 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	$	20	$	—	$	18	$	—	$	—	$	120	$	33	$	—	$	191
Collectively evaluated for impairment		4,441		7,135		3,179		944		434		3,438		2,784		1,495		23,850
Acquired with deteriorated credit quality		—		—		—		—		—		—		—		—		—
Ending balance - December 31, 2017	$	4,461	$	7,135	$	3,197	$	944	$	434	$	3,558	$	2,817	$	1,495	$	24,041

The following table provides the amount of loans by loan category broken between loans individually evaluated for impairment, loans collectively evaluated for impairment and loans acquired with deteriorated credit quality as of June 30, 2018 and December 31, 2017:

													June 30, 2018
	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	$	2,186	$	1,281	$	1,503	$	—	$	951	$	2,266	$	1,049	$	27	$	9,263
Collectively evaluated for impairment		809,102		514,129		505,643		208,668		56,377		460,281		581,531		192,268		3,327,999
Acquired with deteriorated credit quality		1,766		7,061		21,012		—		16		8,325		18,049		22,084		78,313
Ending balance - June 30, 2018	$	813,054	$	522,471	$	528,158	$	208,668	$	57,344	$	470,872	$	600,629	$	214,379	$	3,415,575

													December 31, 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	$	1,579	$	1,289	$	1,262	$	—	$	978	$	2,520	$	1,720	$	25	$	9,373
Collectively evaluated for impairment		711,352		439,309		456,229		194,986		61,376		481,390		531,704		192,357		3,068,703
Acquired with deteriorated credit quality		2,144		7,728		23,498		—		20		11,962		18,164		25,319		88,835
Ending balance - December 31, 2017	$	715,075	$	448,326	$	480,989	$	194,986	$	62,374	$	495,872	$	551,588	$	217,701	$	3,166,911

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 June 30, 2018 and December 31, 2017:

June 30, 2018	Pass		Watch		Substandard		Total
Loans, excluding purchased credit impaired loans
Commercial and industrial	$	746,253	$	59,476	$	5,559	$	811,288
Construction		499,370		14,278		1,762		515,410
Residential real estate:
1-to-4 family mortgage		490,856		8,625		7,665		507,146
Residential line of credit		205,614		1,632		1,422		208,668
Multi-family mortgage		56,245		133		950		57,328
Commercial real estate:
Owner occupied		434,025		20,435		8,087		462,547
Non-owner occupied		565,195		16,096		1,289		582,580
Consumer and other		185,919		2,289		4,087		192,295
Total loans, excluding purchased credit impaired loans	$	3,183,477	$	122,964	$	30,821	$	3,337,262

Purchased credit impaired loans
Commercial and industrial	$	—	$	1,187	$	579	$	1,766
Construction		—		3,332		3,729		7,061
Residential real estate:
1-to-4 family mortgage		—		16,721		4,291		21,012
Residential line of credit		—		—		—		—
Multi-family mortgage		—		—		16		16
Commercial real estate:
Owner occupied		—		4,488		3,837		8,325
Non-owner occupied		—		7,465		10,584		18,049
Consumer and other		—		17,474		4,610		22,084
Total purchased credit impaired loans	$	—	$	50,667	$	27,646	$	78,313
Total loans	$	3,183,477	$	173,631	$	58,467	$	3,415,575

December 31, 2017	Pass		Watch		Substandard		Total
Loans, excluding purchased credit impaired loans
Commercial and industrial	$	657,595	$	50,946	$	4,390	$	712,931
Construction		431,242		7,388		1,968		440,598
Residential real estate:
1-to-4 family mortgage		440,202		9,522		7,767		457,491
Residential line of credit		192,427		1,184		1,375		194,986
Multi-family mortgage		61,234		142		978		62,354
Commercial real estate:
Owner occupied		451,140		28,308		4,462		483,910
Non-owner occupied		517,253		14,199		1,972		533,424
Consumer and other		189,081		2,712		589		192,382
Total loans, excluding purchased credit impaired loans	$	2,940,174	$	114,401	$	23,501	$	3,078,076

Purchased credit impaired loans
Commercial and industrial	$	—	$	1,499	$	645	$	2,144
Construction		—		3,324		4,404		7,728
Residential real estate:
1-to-4 family mortgage		—		20,284		3,214		23,498
Residential line of credit		—		—		—		—
Multi-family mortgage		—		—		20		20
Commercial real estate:
Owner occupied		—		4,631		7,331		11,962
Non-owner occupied		—		7,359		10,805		18,164
Consumer and other		—		19,751		5,568		25,319
Total purchased credit impaired loans	$	—	$	56,848	$	31,987	$	88,835
Total loans	$	2,940,174	$	171,249	$	55,488	$	3,166,911

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 June 30, 2018 or December 31, 2017 as the carrying value of the respective loan or pool of loans cash flows were considered estimable and probable of collection.

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 June 30, 2018 and December 31, 2017:

June 30, 2018	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	$	3,138	$	145	$	707	$	807,298	$	1,766	$	813,054
Construction		850		193		328		514,039		7,061		522,471
Residential real estate:
1-to-4 family mortgage		3,605		859		2,293		500,389		21,012		528,158
Residential line of credit		1,345		254		507		206,562		—		208,668
Multi-family mortgage		—		—		—		57,328		16		57,344
Commercial real estate:
Owner occupied		249		—		2,052		460,246		8,325		470,872
Non-owner occupied		—		—		1,212		581,368		18,049		600,629
Consumer and other		1,807		188		75		190,225		22,084		214,379
Total	$	10,994	$	1,639	$	7,174	$	3,317,455	$	78,313	$	3,415,575

December 31, 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	$	5,859	$	90	$	533	$	706,449	$	2,144	$	715,075
Construction		1,412		241		300		438,645		7,728		448,326
Residential real estate:
1-to-4 family mortgage		4,678		956		2,548		449,309		23,498		480,989
Residential line of credit		527		134		699		193,626		—		194,986
Multi-family mortgage		—		—		—		62,354		20		62,374
Commercial real estate:
Owner occupied		521		358		2,582		480,449		11,962		495,872
Non-owner occupied		121		—		1,371		531,932		18,164		551,588
Consumer and other		1,945		217		68		190,152		25,319		217,701
Total	$	15,063	$	1,996	$	8,101	$	3,052,916	$	88,835	$	3,166,911

Impaired loans recognized in conformity with ASC 310-20 at June 30, 2018 and December 31, 2017, segregated by class, were as follows:

June 30, 2018	Recorded investment		Unpaid principal		Related allowance
With a related allowance recorded:
Commercial and industrial	$	153	$	153	$	49
Residential real estate:
1-to-4 family mortgage		187		488		12
Commercial real estate:
Owner occupied		754		819		124
Total	$	1,094	$	1,460	$	185
With no related allowance recorded:
Commercial and industrial	$	2,033	$	2,387	$	—
Construction		1,281		1,314		—
Residential real estate:
1-to-4 family mortgage		1,316		1,322		—
Multi-family mortgage		951		951		—
Commercial real estate:
Owner occupied		1,512		2,039		—
Non-owner occupied		1,049		1,781		—
Consumer and other		27		27		—
Total	$	8,169	$	9,821	$	—
Total impaired loans	$	9,263	$	11,281	$	185

December 31, 2017	Recorded investment		Unpaid principal		Related allowance
With a related allowance recorded:
Commercial and industrial	$	53	$	53	$	20
Residential real estate:
1-to-4 family mortgage		194		495		18
Commercial real estate:
Owner occupied		844		1,123		120
Non-owner occupied		144		150		33
Total	$	1,235	$	1,821	$	191
With no related allowance recorded:
Commercial and industrial	$	1,526	$	1,570	$	—
Construction		1,289		1,313		—
Residential real estate:
1-to-4 family mortgage		1,068		1,072		—
Multi-family mortgage		978		978		—
Commercial real estate:
Owner occupied		1,676		2,168		—
Non-owner occupied		1,576		2,325		—
Consumer and other		25		25		—
Total	$	8,138	$	9,451	$	—
Total impaired loans	$	9,373	$	11,272	$	191

Average recorded investment and interest income on a cash basis recognized during the three and six months ended June 30, 2018 and 2017 on impaired loans, segregated by class, were as follows:

	Three Months Ended				Six Months Ended
June 30, 2018	Average recorded investment		Interest income recognized (cash basis)		Average recorded investment		Interest income recognized (cash basis)
With a related allowance recorded:
Commercial and industrial	$	103	$	2	$	103	$	3
Residential real estate:
1-to-4 family mortgage		189		2		191		4
Commercial real estate:
Owner occupied		670		21		799		27
Non-owner occupied		71		—		72		2
Total	$	1,033	$	25	$	1,165	$	36
With no related allowance recorded:
Commercial and industrial	$	1,683	$	43	$	1,780	$	59
Construction		1,283		6		1,285		36
Residential real estate:
1-to-4 family mortgage		1,309		31		1,192		44
Multi-family mortgage		958		12		965		24
Commercial real estate:
Owner occupied		1,539		28		1,594		60
Non-owner occupied		1,310		—		1,313		7
Consumer and other		28		1		26		1
Total	$	8,110	$	121	$	8,155	$	231
Total impaired loans	$	9,143	$	146	$	9,320	$	267
June 30, 2017
With a related allowance recorded:
Commercial and industrial	$	729	$	5	$	792	$	10
Residential real estate:
1-to-4 family mortgage		98		—		100		—
Commercial real estate:
Owner occupied		616		8		622		20
Non-owner occupied		514		2		829		2
Consumer and other		—		—		1		—
Total	$	1,957	$	15	$	2,344	$	32
With no related allowance recorded:
Commercial and industrial	$	519	$	7	$	557	$	16
Construction		302		4		1,493		9
Residential real estate:
1-to-4 family mortgage		2,106		15		2,232		32
Residential line of credit		—		—		156		—
Multi-family mortgage		1,008		12		1,014		23
Commercial real estate:
Owner occupied		1,801		23		1,941		61
Non-owner occupied		1,602		5		1,323		5
Consumer and other		25		—		25		1
Total	$	7,363	$	66	$	8,741	$	147
Total impaired loans	$	9,320	$	81	$	11,085	$	179

As of June 30, 2018 and December 31, 2017, the Company has a recorded investment in troubled debt restructurings of $8,603 and $8,604, 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 $90 and $172 of specific reserves for those loans at June 30, 2018 and December 31, 2017, respectively, and has committed to lend additional amounts totaling up to $4 and $2, respectively to these customers. Of these loans, $3,000 and $3,205 were classified as non-accrual loans as of June 30, 2018 and December 31, 2017, respectively.

The following tables present the financial effect of TDRs recorded during the periods indicated:

Three Months Ended June 30, 2018	Number of loans		Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Charge offs and specific reserves
Commercial and industrial		2	$	887	$	887	$	—
Total		2	$	887	$	887	$	—

Six Months Ended June 30, 2018	Number of loans	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Charge offs and specific reserves
Commercial and industrial	2	$	887	$	887	$	—
Residential real estate:
1-to-4 family mortgage	1		249		249		—
Consumer and other	1		5		5		—
Total	4	$	1,141	$	1,141	$	—

Six Months Ended June 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	$	—
Commercial real estate:
Owner occupied	1		377		377		—
Non-owner occupied	2		711		711		—
Total	4	$	1,093	$	1,093	$	—

There were no TDRs recorded during the three months ended June 30, 2017. Additionally, there were no loans modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the six months ended June 30, 2018 or 2017.

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 six months ended June 30, 2018 and 2017 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.