Loans and allowance for loan losses:

Loans outstanding at June 30, 2019 and December 31, 2018, by major lending classification are as follows:



	June 30,			December 31,
	2019			2018
Commercial and industrial	$	989,288		$	867,083
Construction	525,954			556,051
Residential real estate:
1-to-4 family mortgage	688,984			555,815
Residential line of credit	218,006			190,480
Multi-family mortgage	82,945			75,457
Commercial real estate:
Owner occupied	602,723			493,524
Non-owner occupied	922,150			700,248
Consumer and other	259,466			228,853
Gross loans	4,289,516			3,667,511
Less: Allowance for loan losses	(30,138		)	(28,932		)
Net loans	$	4,259,378		$	3,638,579

As of June 30, 2019 and December 31, 2018, $573,213 and $618,976, respectively, of qualifying residential mortgage loans (including loans held for sale) and $474,237 and $608,735, respectively, of qualifying commercial mortgage loans were pledged to the Federal Home Loan Bank of Cincinnati securing advances against the Bank’s line of credit. As of June 30, 2019 and December 31, 2018, $1,423,565 and $1,336,092, respectively, of qualifying loans were pledged to the Federal Reserve Bank under the Borrower-in-Custody program.

As of June 30, 2019 and December 31, 2018, 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 $67,450 and $68,999, respectively. The following table presents changes in the value of the accretable yield for PCI loans for the periods indicated.



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Balance at the beginning of period	$	(14,814	)	$	(16,955	)	$	(16,587	)	$	(17,682	)
Additions through the branch acquisition of Atlantic Capital Bank	(1,167		)	—			(1,167		)	—
Principal reductions and other reclassifications from nonaccretable difference	30			(2,158		)	250			(3,452		)
Accretion	1,705			2,639			3,888			4,840
Changes in expected cash flows	(616		)	(3,695		)	(1,246		)	(3,875		)
Balance at end of period	$	(14,862	)	$	(20,169	)	$	(14,862	)	$	(20,169	)

Included in the ending balance of the accretable yield on PCI loans at June 30, 2019 and December 31, 2018, is a purchase accounting liquidity discount of $1,605 and $2,436, respectively. There is also a purchase accounting nonaccretable credit discount of $4,596 and $4,355 related to the PCI loan portfolio at June 30, 2019 and December 31,2018, respectively and an accretable credit and liquidity discount on non-PCI loans of $11,064 and $4,740 as of June 30, 2019 and $7,527 and $2,197, respectively, as of December 31, 2018.

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 on PCI loans amounted to $1,705 and $3,888 during the three and six months ended June 30, 2019, respectively, and $2,639 and $4,840 during the three and six months ended June 30, 2018, respectively. This includes both the contractual interest income recognized and the purchase accounting contribution through accretion of the liquidity discount for changes in estimated cash flows. The total purchase accounting contribution through accretion excluding contractual interest collected for all purchased loans was $2,097 and $3,928 for the three and six months ended June 30, 2019, respectively, and $1,928 and $3,615 for the three and six months ended June 30, 2018, respectively.

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, 2019 and 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
Three Months Ended June 30, 2019
Beginning balance - March 31, 2019	$	5,514		$	9,758		$	3,295		$	731		$	539	$	3,098	$	4,583		$	2,296		$	29,814
Provision for loan losses	(550		)	(109		)	(30		)	106			78		409		(105		)	1,082			881
Recoveries of loans previously charged-off	38			6			24			21			—		5		—			119			213
Loans charged off	(79		)	—			(1		)	(103		)	—		—		—			(587		)	(770		)
Ending balance - June 30, 2019	$	4,923		$	9,655		$	3,288		$	755		$	617	$	3,512	$	4,478		$	2,910		$	30,138
Six Months Ended June 30, 2019
Beginning balance - December 31, 2018	$	5,348		$	9,729		$	3,428		$	811		$	566	$	3,132	$	4,149		$	1,769		$	28,932
Provision for loan losses	(217		)	(81		)	(95		)	33			51		288		329			1,964			2,272
Recoveries of loans previously charged-off	50			7			37			46			—		92		—			343			575
Loans charged off	(258		)	—			(82		)	(135		)	—		—		—			(1,166		)	(1,641		)
Ending balance - June 30, 2019	$	4,923		$	9,655		$	3,288		$	755		$	617	$	3,512	$	4,478		$	2,910		$	30,138



	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

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 June 30, 2019 and December 31, 2018:



	June 30, 2019
	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	$	11	$	—	$	15	$	—	$	—	$	38	$	299	$	338	$	701
Collectively evaluated for impairment	4,802		9,608		3,202		755		617		3,458		3,873		1,777		28,092
Acquired with deteriorated credit quality	110		47		71		—		—		16		306		795		1,345
Ending balance - June 30, 2019	$	4,923	$	9,655	$	3,288	$	755	$	617	$	3,512	$	4,478	$	2,910	$	30,138



	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

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 June 30, 2019 and December 31, 2018:



	June 30, 2019
	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	$	3,914	$	1,216	$	853	$	609	$	—	$	1,980	$	6,539	$	567	$	15,678
Collectively evaluated for impairment	983,542		520,062		665,730		217,323		82,945		594,120		902,221		240,445		4,206,388
Acquired with deteriorated credit quality	1,832		4,676		22,401		74		—		6,623		13,390		18,454		67,450
Ending balance - June 30, 2019	$	989,288	$	525,954	$	688,984	$	218,006	$	82,945	$	602,723	$	922,150	$	259,466	$	4,289,516



	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

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 June 30, 2019 and December 31, 2018:



June 30, 2019	Pass		Watch		Substandard		Total
Loans, excluding purchased credit impaired loans
Commercial and industrial	$	919,900	$	57,599	$	9,957	$	987,456
Construction	512,525		7,426		1,327		521,278
Residential real estate:
1-to-4 family mortgage	646,636		7,341		12,606		666,583
Residential line of credit	213,362		1,864		2,706		217,932
Multi-family mortgage	82,876		69		—		82,945
Commercial real estate:
Owner occupied	559,544		23,251		13,305		596,100
Non-owner occupied	890,293		11,418		7,049		908,760
Consumer and other	236,005		2,656		2,351		241,012
Total loans, excluding purchased credit impaired loans	$	4,061,141	$	111,624	$	49,301	$	4,222,066
Purchased credit impaired loans
Commercial and industrial	$	—	$	1,101	$	731	$	1,832
Construction	—		3,747		929		4,676
Residential real estate:
1-to-4 family mortgage	—		17,365		5,036		22,401
Residential line of credit	—		—		74		74
Multi-family mortgage	—		—		—		—
Commercial real estate:
Owner occupied	—		4,613		2,010		6,623
Non-owner occupied	—		5,520		7,870		13,390
Consumer and other	—		15,577		2,877		18,454
Total purchased credit impaired loans	$	—	$	47,923	$	19,527	$	67,450
Total loans	$	4,061,141	$	159,547	$	68,828	$	4,289,516



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

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. As such, PCI loans are excluded from past due disclosures presented below. The accrual and/or accretion 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, 2019 or December 31, 2018 as the present value of the respective loan or pool of loans cash flows were considered estimable and probable of collection. Therefore, interest income, through accretion of the difference between the carrying value of the loans and the expected cash flows, is being recognized on all PCI loans. PCI contractually past due 30-89 days amounted to $5,541 and $3,605 as of June 30, 2019 and December 31, 2018, respectively, and an additional $1,178 and $4,076 were contractually past due 90 days or more as of June 30, 2019 and December 31, 2018, respectively.

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 June 30, 2019 and December 31, 2018:



June 30, 2019	30-89 days past due		90 days or more and accruing interest		Non-accrual loans		Purchased Credit Impaired loans		Loans current on payments and accruing interest		Total
Commercial and industrial	$	2,421	$	122	$	366	$	1,832	$	984,547	$	989,288
Construction	—		18		266		4,676		520,994		525,954
Residential real estate:
1-to-4 family mortgage	4,188		891		5,927		22,401		655,577		688,984
Residential line of credit	1,106		552		790		74		215,484		218,006
Multi-family mortgage	—		—		—		—		82,945		82,945
Commercial real estate:
Owner occupied	990		—		1,376		6,623		593,734		602,723
Non-owner occupied	518		57		6,663		13,390		901,522		922,150
Consumer and other	1,972		460		747		18,454		237,833		259,466
Total	$	11,195	$	2,100	$	16,135	$	67,450	$	4,192,636	$	4,289,516



December 31, 2018	30-89 days past due		90 days or more and accruing interest		Non-accrual loans		Purchased Credit Impaired loans		Loans current on payments and accruing interest		Total
Commercial and industrial	$	999	$	65	$	438	$	1,448	$	864,133	$	867,083
Construction	109		—		283		5,755		549,904		556,051
Residential real estate:
1-to-4 family mortgage	4,919		737		2,704		19,377		528,078		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		6,016		484,481		493,524
Non-owner occupied	61		77		6,885		16,266		676,959		700,248
Consumer and other	1,987		1,008		148		20,137		205,573		228,853
Total	$	9,208	$	3,041	$	13,685	$	68,999	$	3,572,578	$	3,667,511

Impaired loans recognized in conformity with ASC 310 at June 30, 2019 and December 31, 2018, segregated by class, were as follows:



June 30, 2019	Recorded investment		Unpaid principal		Related allowance
With a related allowance recorded:
Commercial and industrial	$	3,136	$	3,136	$	11
Construction	—		—		—
Residential real estate:
1-to-4 family mortgage	266		324		15
Residential line of credit	—		—		—
Multi-family mortgage	—		—		—
Commercial real estate:
Owner occupied	185		218		38
Non-owner occupied	5,490		5,524		299
Consumer and other	499		499		338
Total	$	9,576	$	9,701	$	701
With no related allowance recorded
Commercial and industrial	$	778	$	935	$	—
Construction	1,216		1,263		—
Residential real estate:
1-to-4 family mortgage	587		899		—
Residential line of credit	609		628		—
Multi-family mortgage	—		—		—
Commercial real estate:
Owner occupied	1,795		2,567		—
Non-owner occupied	1,049		1,781		—
Consumer and other	68		68		—
Total	$	6,102	$	8,141	$	—
Total impaired loans	$	15,678	$	17,842	$	701



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

Average recorded investment and interest income on a cash basis recognized during the three and six months ended June 30, 2019 and 2018 on impaired loans, segregated by class, were as follows:



	Three Months Ended				Six Months Ended
June 30, 2019	Average recorded investment		Interest income recognized (cash basis)		Average recorded investment		Interest income recognized (cash basis)
With a related allowance recorded:
Commercial and industrial	$	3,161	$	67	$	1,877	$	105
Construction	—		—		—		—
Residential real estate:
1-to-4 family mortgage	336		9		206		11
Residential line of credit	—		—		—		—
Multi-family mortgage	—		—		—		—
Commercial real estate:
Owner occupied	187		4		373		6
Non-owner occupied	5,570		34		5,588		34
Consumer and other	250		19		250		19
Total	$	9,504	$	133	$	8,294	$	175
With no related allowance recorded:
Commercial and industrial	$	819	$	11	$	1,004	$	25
Construction	1,218		4		1,219		52
Residential real estate:
1-to-4 family mortgage	528		18		715		26
Residential line of credit	607		—		427		2
Multi-family mortgage	—		—		—		—
Commercial real estate:
Owner occupied	1,830		34		1,922		62
Non-owner occupied	1,049		—		1,049		—
Consumer and other	70		1		71		3
Total	$	6,121	$	68	$	6,407	$	170
Total impaired loans	$	15,625	$	201	$	14,701	$	345
June 30, 2018
With a related allowance recorded:
Commercial and industrial	$	103	$	2	$	103	$	3
Construction	—		—		—		—
Residential real estate:
1-to-4 family mortgage	189		2		191		4
Residential line of credit	—		—		—		—
Multi-family mortgage	—		—		—		—
Commercial real estate:
Owner occupied	670		21		799		27
Non-owner occupied	71		—		72		2
Consumer and other	—		—		—		—
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
Residential line of credit	—		—		—		—
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

As of June 30, 2019 and December 31, 2018, the Company has a recorded investment in troubled debt restructurings of $8,714 and $6,794, 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 $50 and $63 of specific reserves for those loans at June 30, 2019 and December 31, 2018, respectively. There were no commitments to lend any additional amounts to these customers for either period end. Of these loans, $2,448 and $2,703 were classified as non-accrual loans as of June 30, 2019 and December 31, 2018, respectively.

The following tables present the financial effect of TDRs recorded during the periods indicated. There were no new TDRs added during the three months ended June 30, 2019.



Six Months Ended June 30, 2019	Number of loans	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Charge offs and specific reserves
Commercial and industrial	2	$	3,188	$	3,188	$	—
Total	2	$	3,188	$	3,188	$	—



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:
1-4 family mortgage	1	249		249		—
Consumer and other	1	5		5		—
Total	4	$	1,141	$	1,141	$	—

There were no loans modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the three or six months ended June 30, 2019 and 2018. 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 three and six months ended June 30, 2019 and 2018 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.