Loans and allowance for loan losses:

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



	September 30,			December 31,
	2019			2018
Commercial and industrial	$	997,921		$	867,083
Construction	537,784			556,051
Residential real estate:
1-to-4 family mortgage	710,077			555,815
Residential line of credit	215,493			190,480
Multi-family mortgage	80,352			75,457
Commercial real estate:
Owner occupied	620,635			493,524
Non-owner occupied	914,502			700,248
Consumer and other	268,580			228,853
Gross loans	4,345,344			3,667,511
Less: Allowance for loan losses	(31,464		)	(28,932		)
Net loans	$	4,313,880		$	3,638,579

As of September 30, 2019 and December 31, 2018, $527,351 and $618,976, respectively, of qualifying residential mortgage loans (including loans held for sale) and $521,754 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 September 30, 2019 and December 31, 2018, $1,403,511 and $1,336,092, respectively, of qualifying loans were pledged to the Federal Reserve Bank under the Borrower-in-Custody program.

As of September 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 $63,069 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 September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Balance at the beginning of period	$	(14,862	)	$	(20,169	)	$	(16,587	)	$	(17,682	)
Additions through the branch acquisition of Atlantic Capital Bank	—			—			(1,167		)	—
Principal reductions and other reclassifications from nonaccretable difference	(150		)	(84		)	100			(3,536		)
Accretion	1,583			2,103			5,471			6,943
Changes in expected cash flows	110			6			(1,136		)	(3,869		)
Balance at end of period	$	(13,319	)	$	(18,144	)	$	(13,319	)	$	(18,144	)

Included in the ending balance of the accretable yield on PCI loans at September 30, 2019 and December 31, 2018, is a purchase accounting liquidity discount of $781 and $2,436, respectively. There is also a purchase accounting nonaccretable credit discount of $4,331 and $4,355 related to the PCI loan portfolio at September 30, 2019 and December 31, 2018, respectively, and an accretable credit and liquidity discount on non-PCI loans of $10,075 and $4,483 as of September 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 $1,583 and $5,471 during the three and nine months ended September 30, 2019, respectively, and $2,103 and $6,943 during the three and nine months ended September 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 $2,102 and $6,030 for the three and nine months ended September 30, 2019, respectively, and $2,130 and $5,745 for the three and nine months ended September 30, 2018, respectively.

The following provides the changes in the allowance for loan losses by portfolio segment for the three and nine months ended September 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 September 30, 2019
Beginning balance - June 30, 2019	$	4,923		$	9,655	$	3,288		$	755		$	617		$	3,512	$	4,478		$	2,910		$	30,138
Provision for loan losses	234			186		18			67			(43		)	194		461			714			1,831
Recoveries of loans previously charged-off	16			1		25			75			—			3		—			92			212
Loans charged off	(3		)	—		—			(170		)	—			—		(12		)	(532		)	(717		)
Ending balance - September 30, 2019	$	5,170		$	9,842	$	3,331		$	727		$	574		$	3,709	$	4,927		$	3,184		$	31,464
Nine Months Ended September 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	17			105		(77		)	100			8			482		790			2,678			4,103
Recoveries of loans previously charged-off	66			8		62			121			—			95		—			435			787
Loans charged off	(261		)	—		(82		)	(305		)	—			—		(12		)	(1,698		)	(2,358		)
Ending balance - September 30, 2019	$	5,170		$	9,842	$	3,331		$	727		$	574		$	3,709	$	4,927		$	3,184		$	31,464



	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, 2018
Beginning balance - June 30, 2018	$	4,747		$	9,023		$	3,378		$	795		$	391	$	3,290		$	3,272	$	1,451		$	26,347
Provision for loan losses	847			(754		)	47			25			292		236			639		486			1,818
Recoveries of loans previously charged-off	104			13			99			31			—		10			—		103			360
Loans charged off	(333		)	(14		)	(4		)	(13		)	—		(55		)	—		(498		)	(917		)
Ending balance - September 30, 2018	$	5,365		$	8,268		$	3,520		$	838		$	683	$	3,481		$	3,911	$	1,542		$	27,608
Nine Months Ended September 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	1,088			35			235			(175		)	249		(163		)	1,043		886			3,198
Recoveries of loans previously charged-off	374			1,127			157			102			—		141			51		416			2,368
Loans charged off	(558		)	(29		)	(69		)	(33		)	—		(55		)	—		(1,255		)	(1,999		)
Ending balance - September 30, 2018	$	5,365		$	8,268		$	3,520		$	838		$	683	$	3,481		$	3,911	$	1,542		$	27,608

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 September 30, 2019 and December 31, 2018:



	September 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	$	13	$	—	$	11	$	—	$	—	$	52	$	405	$	254	$	735
Collectively evaluated for impairment	5,064		9,796		3,173		727		574		3,641		4,225		1,967		29,167
Acquired with deteriorated credit quality	93		46		147		—		—		16		297		963		1,562
Ending balance - September 30, 2019	$	5,170	$	9,842	$	3,331	$	727	$	574	$	3,709	$	4,927	$	3,184	$	31,464



	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 September 30, 2019 and December 31, 2018:



	September 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	$	3,834	$	2,061	$	1,346	$	245	$	—	$	2,476	$	7,846	$	459	$	18,267
Collectively evaluated for impairment	992,463		532,521		687,748		215,175		80,352		612,112		894,468		249,169		4,264,008
Acquired with deteriorated credit quality	1,624		3,202		20,983		73		—		6,047		12,188		18,952		63,069
Ending balance - September 30, 2019	$	997,921	$	537,784	$	710,077	$	215,493	$	80,352	$	620,635	$	914,502	$	268,580	$	4,345,344



	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 September 30, 2019 and December 31, 2018:



September 30, 2019	Pass		Watch		Substandard		Total
Loans, excluding purchased credit impaired loans
Commercial and industrial	$	930,094	$	49,209	$	16,994	$	996,297
Construction	528,358		4,074		2,150		534,582
Residential real estate:
1-to-4 family mortgage	666,942		8,254		13,898		689,094
Residential line of credit	212,556		1,171		1,693		215,420
Multi-family mortgage	80,285		67		—		80,352
Commercial real estate:
Owner occupied	574,582		25,962		14,044		614,588
Non-owner occupied	868,007		25,597		8,710		902,314
Consumer and other	243,495		3,315		2,818		249,628
Total loans, excluding purchased credit impaired loans	$	4,104,319	$	117,649	$	60,307	$	4,282,275
Purchased credit impaired loans
Commercial and industrial	$	—	$	1,023	$	601	$	1,624
Construction	—		2,994		208		3,202
Residential real estate:
1-to-4 family mortgage	—		16,540		4,443		20,983
Residential line of credit	—		—		73		73
Multi-family mortgage	—		—		—		—
Commercial real estate:
Owner occupied	—		4,244		1,803		6,047
Non-owner occupied	—		5,620		6,568		12,188
Consumer and other	—		14,074		4,878		18,952
Total purchased credit impaired loans	$	—	$	44,495	$	18,574	$	63,069
Total loans	$	4,104,319	$	162,144	$	78,881	$	4,345,344



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 September 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 $3,598 and $3,605 as of September 30, 2019 and December 31, 2018, respectively, and an additional $754 and $4,076 were contractually past due 90 days or more as of September 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 September 30, 2019 and December 31, 2018:



September 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	$	3,892	$	4	$	383	$	1,624	$	992,018	$	997,921
Construction	327		—		1,107		3,202		533,148		537,784
Residential real estate:
1-to-4 family mortgage	5,552		1,316		7,260		20,983		674,966		710,077
Residential line of credit	475		298		421		73		214,226		215,493
Multi-family mortgage	—		—		—		—		80,352		80,352
Commercial real estate:
Owner occupied	153		—		1,274		6,047		613,161		620,635
Non-owner occupied	2,605		5		6,596		12,188		893,108		914,502
Consumer and other	2,446		829		870		18,952		245,483		268,580
Total	$	15,450	$	2,452	$	17,911	$	63,069	$	4,246,462	$	4,345,344



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 September 30, 2019 and December 31, 2018, segregated by class, were as follows:



September 30, 2019	Recorded investment		Unpaid principal		Related allowance
With a related allowance recorded:
Commercial and industrial	$	3,081	$	3,081	$	13
Residential real estate:
1-to-4 family mortgage	264		324		11
Commercial real estate:
Owner occupied	182		220		52
Non-owner occupied	6,796		6,831		405
Consumer and other	395		395		254
Total	$	10,718	$	10,851	$	735
With no related allowance recorded
Commercial and industrial	$	753	$	898	$	—
Construction	2,061		2,484		—
Residential real estate:
1-to-4 family mortgage	1,082		1,400		—
Residential line of credit	245		262		—
Commercial real estate:
Owner occupied	2,294		3,437		—
Non-owner occupied	1,050		1,781		—
Consumer and other	64		64		—
Total	$	7,549	$	10,326	$	—
Total impaired loans	$	18,267	$	21,177	$	735



December 31, 2018	Recorded investment		Unpaid principal		Related allowance
With a related allowance recorded:
Commercial and industrial	$	618	$	732	$	3
Residential real estate:
1-to-4 family mortgage	145		145		7
Commercial real estate:
Owner occupied	560		641		53
Non-owner occupied	5,686		5,686		205
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		—
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 nine months ended September 30, 2019 and 2018 on impaired loans, segregated by class, were as follows:



	Three Months Ended				Nine Months Ended
September 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	$	3,109	$	51	$	1,850	$	156
Construction	—		—		—		—
Residential real estate:
1-to-4 family mortgage	265		2		205		13
Residential line of credit	—		—		—		—
Multi-family mortgage	—		—		—		—
Commercial real estate:
Owner occupied	184		4		371		10
Non-owner occupied	6,143		56		6,241		90
Consumer and other	447		—		198		19
Total	$	10,148	$	113	$	8,865	$	288
With no related allowance recorded:
Commercial and industrial	$	766	$	11	$	991	$	36
Construction	1,639		90		1,641		142
Residential real estate:
1-to-4 family mortgage	835		24		962		50
Residential line of credit	427		—		245		2
Multi-family mortgage	—		—		—		—
Commercial real estate:
Owner occupied	2,045		41		2,171		103
Non-owner occupied	1,050		—		1,050		—
Consumer and other	66		2		69		5
Total	$	6,828	$	168	$	7,129	$	338
Total impaired loans	$	16,976	$	281	$	15,994	$	626
September 30, 2018
With a related allowance recorded:
Commercial and industrial	$	922	$	81	$	872	$	84
Residential real estate:
1-to-4 family mortgage	186		2		189		7
Commercial real estate:
Owner occupied	661		7		706		34
Non-owner occupied	—		—		72		2
Total	$	1,769	$	90	$	1,839	$	127
With no related allowance recorded:
Commercial and industrial	$	1,983	$	21	$	1,729	$	80
Construction	1,279		35		1,283		70
Residential real estate:
1-to-4 family mortgage	1,313		15		1,189		60
Residential line of credit	127		8		127		8
Multi-family mortgage	569		2		583		26
Commercial real estate:
Owner occupied	1,490		27		1,572		87
Non-owner occupied	1,049		—		1,313		7
Consumer and other	54		1		53		2
Total	$	7,864	$	109	$	7,849	$	340
Total impaired loans	$	9,633	$	199	$	9,688	$	467

As of September 30, 2019 and December 31, 2018, the Company has a recorded investment in troubled debt restructurings of $11,460 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 $171 and $63 of specific reserves for those loans at September 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, $3,211 and $2,703 were classified as non-accrual loans as of September 30, 2019 and December 31, 2018, respectively.

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



Three Months Ended September 30, 2019	Number of loans	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Charge offs and specific reserves
Commercial and industrial	1	$	16	$	16	$	—
Construction	1	1,070		1,070		—
Commercial real estate:
Owner occupied	1	927		927		—
Non-owner occupied	1	1,366		1,366		106
Residential real estate:
1-to-4 family mortgage	1	128		128		—
Total	5	$	3,507	$	3,507	$	106



Three Months Ended September 30, 2018	Number of loans	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Charge offs and specific reserves
Commercial real estate:
Owner occupied	1	$	143	$	143	$	—
Consumer and other	4	55		55		—
Total	5	$	198	$	198	$	—



Nine Months Ended September 30, 2019	Number of loans	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Charge offs and specific reserves
Commercial and industrial	3	$	3,204	$	3,204	$	—
Construction	1	1,070		1,070		—
Commercial real estate:
Owner occupied	1	927		927		—
Non-owner occupied	1	1,366		1,366		106
Residential real estate:
1-to-4 family mortgage	1	128		128		—
Total	7	$	6,695	$	6,695	$	106



Nine Months Ended September 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	$	—
Commercial real estate:
Owner occupied	1	143		143		—
Residential real estate:
1-4 family mortgage	1	249		249		—
Consumer and other	5	61		61		—
Total	9	$	1,340	$	1,340	$	—

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 nine months ended September 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 nine months ended September 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.