Loans and allowance for loan losses:

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



	December 31,
	2018			2017
Commercial and industrial	$	867,083		$	715,075
Construction	556,051			448,326
Residential real estate:
1-to-4 family mortgage	555,815			480,989
Residential line of credit	190,480			194,986
Multi-family mortgage	75,457			62,374
Commercial real estate:
Owner occupied	493,524			495,872
Non-owner occupied	700,248			551,588
Consumer and other	228,853			217,701
Gross loans	3,667,511			3,166,911
Less: Allowance for loan losses	(28,932		)	(24,041		)
Net loans	$	3,638,579		$	3,142,870

As of December 31, 2018 and 2017, $618,976 and $761,197, respectively, of qualifying residential mortgage loans (including loans held for sale) and $608,735 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 December 31, 2018 and 2017, $1,336,092 and $737,856, respectively, of qualifying loans were pledged to the Federal Reserve Bank under the Borrower-in-Custody program.

As of December 31, 2018 and 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 $68,999 and $88,835, respectively. The following table presents changes in the value of the accretable yield for PCI loans for the periods indicated.



	Year Ended December 31,
	2018			2017			2016
Balance at the beginning of period	$	(17,682	)	$	(2,444	)	$	(1,637	)
Additions through the acquisition of the Clayton Banks	—			(18,868		)	—
Principal reductions and other reclassifications from nonaccretable difference	(4,047		)	(1,841		)	(3,438		)
Recoveries	—			(23		)	—
Accretion	9,010			5,299			2,631
Changes in expected cash flows	(3,868		)	195			—
Balance at end of period	$	(16,587	)	$	(17,682	)	$	(2,444	)

Included in the ending balance of the accretable yield on PCI loans in the table above at December 31, 2018, is a purchase accounting liquidity discount of $2,436. There is also a purchase accounting nonaccretable credit discount of $4,355 related to the PCI loan portfolio at December 31, 2018 and an accretable credit and liquidity discount on non-PCI loans of $7,527 and $2,197, respectively.

Interest revenue, through accretion of the difference between the recorded investment of the loans and the expected cash flows, is being recognized on all PCI loans. Accretion of interest income amounting to $9,010, $5,299 and $2,631 was recognized on purchased credit impaired loans during the years ended December 31, 2018, 2017 and 2016, respectively. This includes both the contractual interest income recognized 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 excluding contractual interest collected for all purchased loans was $7,608, $5,419 and $3,538 for the years ended December 31, 2018, 2017 and 2016, respectively.

The following provides the allowance for loan losses by portfolio segment and the related investment in loans net of unearned interest for the years December 31, 2018, 2017 and 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
Year Ended December 31, 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	1,395			1,459			547			(275		)	132		(478		)	1,281		1,337			5,398
Recoveries of loans previously charged-off	390			1,164			171			178			—		143			51		550			2,647
Loans charged off	(898		)	(29		)	(138		)	(36		)	—		(91		)	—		(1,613		)	(2,805		)
Adjustments for transfers to loans HFS	—			—			(349		)	—			—		—			—		—			(349		)
Ending balance - December 31, 2018	$	5,348		$	9,729		$	3,428		$	811		$	566	$	3,132		$	4,149	$	1,769		$	28,932



	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 Ended December 31, 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	(2,158		)	1,138			41			(788		)	(70		)	483			(848		)	1,252			(950		)
Recoveries of loans previously charged-off	1,894			1,084			159			395			—			61			1,646			532			5,771
Loans charged off	(584		)	(27		)	(200		)	(276		)	—			(288		)	—			(1,152		)	(2,527		)
Ending balance - December 31, 2017	$	4,461		$	7,135		$	3,197		$	944		$	434		$	3,558		$	2,817		$	1,495		$	24,041



	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 Ended December 31, 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	212			(417		)	(882		)	(630		)	193		(271		)	(271		)	587			(1,479		)
Recoveries of loans previously charged-off	524			216			127			174			—		140			195			240			1,616
Loans charged off	(562		)	(2		)	(224		)	(132		)	—		(249		)	(527		)	(1,154		)	(2,850		)
Ending balance - December 31, 2016	$	5,309		$	4,940		$	3,197		$	1,613		$	504	$	3,302		$	2,019		$	863		$	21,747

The following tables 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 December 31, 2018, 2017 and 2016:



	December 31, 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	$	3	$	—	$	7	$	—	$	—	$	53	$	205	$	—	$	268
Collectively evaluated for impairment	5,247		9,677		3,205		811		566		3,066		3,628		1,583		27,783
Acquired with deteriorated credit quality	98		52		216		—		—		13		316		186		881
Ending balance - December 31, 2018	$	5,348	$	9,729	$	3,428	$	811	$	566	$	3,132	$	4,149	$	1,769	$	28,932



	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



	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 tables 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 December 31, 2018, 2017 and 2016:



	December 31, 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	$	1,847	$	1,221	$	987	$	245	$	—	$	2,608	$	6,735	$	73	$	13,716
Collectively evaluated for impairment	863,788		549,075		535,451		190,235		75,457		484,900		677,247		208,643		3,584,796
Acquired with deteriorated credit quality	1,448		5,755		19,377		—		—		6,016		16,266		20,137		68,999
Ending balance - December 31, 2018	$	867,083	$	556,051	$	555,815	$	190,480	$	75,457	$	493,524	$	700,248	$	228,853	$	3,667,511



	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



	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 uses the following definitions for risk ratings:

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 tables show credit quality indicators by portfolio class at December 31, 2018 and 2017:



December 31, 2018	Pass		Watch		Substandard		Total
Loans, excluding purchased credit impaired loans
Commercial and industrial	$	804,447	$	52,624	$	8,564	$	865,635
Construction	543,953		5,012		1,331		550,296
Residential real estate:
1-to-4 family mortgage	519,541		8,697		8,200		536,438
Residential line of credit	186,753		1,039		2,688		190,480
Multi-family mortgage	75,381		76		—		75,457
Commercial real estate:
Owner occupied	456,694		16,765		14,049		487,508
Non-owner occupied	667,447		8,881		7,654		683,982
Consumer and other	204,279		2,763		1,674		208,716
Total loans, excluding purchased credit impaired loans	$	3,458,495	$	95,857	$	44,160	$	3,598,512
Purchased credit impaired loans
Commercial and industrial	$	—	$	964	$	484	$	1,448
Construction	—		3,229		2,526		5,755
Residential real estate:
1-to-4 family mortgage	—		14,681		4,696		19,377
Residential line of credit	—		—		—		—
Multi-family mortgage	—		—		—		—
Commercial real estate:
Owner occupied	—		4,110		1,906		6,016
Non-owner occupied	—		8,266		8,000		16,266
Consumer and other	—		15,422		4,715		20,137
Total purchased credit impaired loans	$	—	$	46,672	$	22,327	$	68,999
Total loans	$	3,458,495	$	142,529	$	66,487	$	3,667,511



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

Nonperforming loans include loans that are no longer accruing interest (nonaccrual 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.

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 December 31, 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.

The following tables provide 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 December 31, 2018 and 2017:



December 31, 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	$	999	$	65	$	6,124	$	858,447	$	1,448	$	867,083
Construction	109		—		283		549,904		5,755		556,051
Residential real estate:
1-to-4 family mortgage	4,919		737		2,704		528,078		19,377		555,815
Residential line of credit	726		957		804		187,993		—		190,480
Multi-family mortgage	—		—		—		75,457		—		75,457
Commercial real estate:
Owner occupied	407		197		2,423		484,481		6,016		493,524
Non-owner occupied	61		77		1,199		682,645		16,266		700,248
Consumer and other	1,987		1,008		148		205,573		20,137		228,853
Total	$	9,208	$	3,041	$	13,685	$	3,572,578	$	68,999	$	3,667,511



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 at December 31, 2018 and 2017, segregated by class, were as follows:



December 31, 2018	Recorded investment		Unpaid principal		Related allowance
With a related allowance recorded:
Commercial and industrial	$	618	$	732	$	3
Construction	—		—		—
Residential real estate:
1-to-4 family mortgage	145		145		7
Residential line of credit	—		—		—
Multi-family mortgage	—		—		—
Commercial real estate:
Owner occupied	560		641		53
Non-owner occupied	5,686		5,686		205
Consumer and other	—		—		—
Total	$	7,009	$	7,204	$	268
With no related allowance recorded
Commercial and industrial	$	1,229	$	1,281	$	—
Construction	1,221		1,262		—
Residential real estate:
1-to-4 family mortgage	842		1,151		—
Residential line of credit	245		249		—
Multi-family mortgage	—		—		—
Commercial real estate:
Owner occupied	2,048		2,780		—
Non-owner occupied	1,049		1,781		—
Consumer and other	73		73		—
Total	$	6,707	$	8,577	$	—
Total impaired loans	$	13,716	$	15,781	$	268



December 31, 2017	Recorded investment		Unpaid principal		Related allowance
With a related allowance recorded:
Commercial and industrial	$	53	$	53	$	20
Construction	—		—		—
Residential real estate:
1-to-4 family mortgage	194		495		18
Residential line of credit	—		—		—
Multi-family mortgage	—		—		—
Commercial real estate:
Owner occupied	844		1,123		120
Non-owner occupied	144		150		33
Consumer and other	—		—		—
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		—
Residential line of credit	—		—		—
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



	December 31,
	2018				2017				2016
	Average recorded investment		Interest income recognized (cash basis)		Average recorded investment		Interest income recognized (cash basis)		Average recorded investment		Interest income recognized (cash basis)
With a related allowance recorded:
Commercial and industrial	$	335	$	121	$	454	$	2	$	994	$	17
Construction	—		—		—		—		154		—
Residential real estate:
1-to-4 family mortgage	170		9		149		9		1,750		1
Residential line of credit	—		—		—		—		—		—
Multi-family mortgage	—		—		—		—		—		—
Commercial real estate:
Owner occupied	702		43		740		48		1,756		25
Non-owner occupied	2,915		2		648		5		1,777		—
Consumer and other	—		—		1		—		1		—
Total	$	4,122	$	175	$	1,992	$	64	$	6,432	$	43
With no related allowance recorded
Commercial and industrial	$	1,377	$	70	$	1,074	$	38	$	494	$	20
Construction	1,255		74		1,988		46		2,622		132
Residential real estate:
1-to-4 family mortgage	955		74		1,718		63		1,329		137
Residential line of credit	123		15		156		—		156		10
Multi-family mortgage	489		26		1,003		46		1,051		37
Commercial real estate:
Owner occupied	1,862		148		1,897		122		1,120		119
Non-owner occupied	1,313		7		1,313		19		1,050		—
Consumer and other	49		4		26		1		13		—
Total	$	7,423	$	418	$	9,175	$	335	$	7,835	$	455
Total impaired loans	$	11,545	$	593	$	11,167	$	399	$	14,267	$	498

As of December 31, 2018 and 2017, the Company has a recorded investment in troubled debt restructurings of $6,794 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 $63 and $172 of specific reserves for those loans at December 31, 2018 and 2017, respectively, and has committed to lend additional amounts totaling up to $0 and $2, respectively to these customers. Of these loans, $2,703 and $3,205 were classified as non-accrual loans as of December 31, 2018 and 2017, respectively.

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



Year Ended December 31, 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	$	—
Commercial real estate:
Owner occupied	1	143		143		—
Residential real estate:
1-to-4 family mortgage	1	249		249		—
Consumer and other	5	61		61		—
Total	9	$	1,340	$	1,340	$	—



Year Ended December 31, 2017	Number of loans	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Charge offs and specific reserves
Commercial and industrial	2	$	627	$	627	$	—
Commercial real estate:
Owner occupied	1	377		377		—
Non-owner occupied	2	711		711		68
Residential real estate:
1-4 family mortgage	1	143		143		8
Consumer and other	1	25		25		—
Total	7	$	1,883	$	1,883	$	76



Year Ended December 31, 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	5	1,819		1,819		—
Consumer and other	3	29		29		—
Total	9	$	1,966	$	1,966	$	—

There were no loans modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the years ended December 31, 2018, 2017 and 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 years ended December 31, 2018, 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.