Loans and allowance for loan losses | Note (4)—Loans and allowance for loan losses: Loans outstanding at September 30, 2017 and December 31, 2016, by major lending classification are as follows: September 30, December 31, 2017 2016 Commercial and industrial $ 731,588 $ 386,233 Construction 435,414 245,905 Residential real estate: 1-to-4 family mortgage 459,467 294,924 Residential line of credit 188,392 177,190 Multi-family mortgage 74,004 44,977 Commercial real estate: Owner occupied 473,395 357,346 Non-owner occupied 521,416 267,902 Consumer and other 230,886 74,307 Gross loans 3,114,562 1,848,784 Less: Allowance for loan losses (23,482 ) (21,747 ) Net loans $ 3,091,080 $ 1,827,037 As of September 30, 2017 and December 31, 2016, $522,389 and $565,717, respectively, of 1-to-4 family mortgage loans, loans held for sale and multi-family mortgage loans were pledged to the Federal Home Loan Bank of Cincinnati securing advances against the Bank’s line. As of September 30, 2017 and December 31, 2016, $690,113 and $1,072,118, respectively, of commercial and industrial , construction, residential real estate, commercial real estate, and consumer and other loans were pledged to the Federal Reserve Bank under the Borrower-in-Custody program. The following provides the allowance for loan losses by portfolio segment and the related investment in loans net of unearned interest for the three and nine months ended September 30, 2017 and 2016 (in thousands): Commercial and industrial Construction 1-to-4 family residential mortgage Residential line of credit Multi- family residential mortgage Commercial real estate owner occupied Commercial real estate non-owner occupied Consumer and other Total Three Months Ended September 30, 2017 Beginning balance - June 30, 2017 $ 5,440 $ 5,579 $ 2,974 $ 1,445 $ 513 $ 3,983 $ 2,452 $ 861 $ 23,247 Provision for loan losses 315 (476 ) (269 ) (565 ) 10 65 24 112 (784 ) Recoveries of loans previously charged-off 200 1,022 86 157 — 24 1 104 1,594 Loans charged off (221 ) — (32 ) (9 ) — (64 ) — (249 ) (575 ) Ending balance - September 30, 2017 $ 5,734 $ 6,125 $ 2,759 $ 1,028 $ 523 $ 4,008 $ 2,477 $ 828 $ 23,482 Nine Months Ended September 30, 2017 Beginning balance - December 31, 2016 $ 5,309 $ 4,940 $ 3,197 $ 1,613 $ 504 $ 3,302 $ 2,019 $ 863 $ 21,747 Provision for loan losses (848 ) 111 (409 ) (749 ) 19 731 (1,184 ) 423 (1,906 ) Recoveries of loans previously charged-off 1,794 1,080 126 368 — 39 1,642 400 5,449 Loans charged off (521 ) (6 ) (155 ) (204 ) — (64 ) — (858 ) (1,808 ) Ending balance - September 30, 2017 $ 5,734 $ 6,125 $ 2,759 $ 1,028 $ 523 $ 4,008 $ 2,477 $ 828 $ 23,482 Commercial and industrial Construction 1-to-4 family residential mortgage Residential line of credit Multi- family residential mortgage Commercial real estate owner occupied Commercial real estate non-owner occupied Consumer and other Total Three Months Ended September 30, 2016 Beginning balance - June 30, 2016 $ 5,924 $ 4,373 $ 3,611 $ 1,944 $ 453 $ 3,764 $ 2,634 $ 1,031 $ 23,734 Provision for loan losses 381 66 48 (126 ) 158 (83 ) (367 ) (6 ) 71 Recoveries of loans previously charged-off 8 32 2 36 — 4 22 95 199 Loans charged off (358 ) — (166 ) (29 ) — — — (161 ) (714 ) Ending balance - September 30, 2016 $ 5,955 $ 4,471 $ 3,495 $ 1,825 $ 611 $ 3,685 $ 2,289 $ 959 $ 23,290 Nine Months Ended September 30, 2016 Beginning balance - December 31, 2015 $ 5,135 $ 5,143 $ 4,176 $ 2,201 $ 311 $ 3,682 $ 2,622 $ 1,190 $ 24,460 Provision for loan losses 896 (807 ) (571 ) (415 ) 300 81 (360 ) 149 (727 ) Recoveries of loans previously charged-off 480 137 109 143 — 15 27 266 1,177 Loans charged off (556 ) (2 ) (219 ) (104 ) — (93 ) — (646 ) (1,620 ) Ending balance - September 30, 2016 $ 5,955 $ 4,471 $ 3,495 $ 1,825 $ 611 $ 3,685 $ 2,289 $ 959 $ 23,290 The following table provides the allocation of the allowance for loan losses by loan category broken out between loans individually evaluated for impairment and loans collectively evaluated for impairment as of September 30, 2017 and December 31, 2016: September 30, 2017 Commercial and industrial Construction 1-to-4 family residential mortgage Residential line of credit Multi- family residential mortgage Commercial real estate owner occupied Commercial real estate non-owner occupied Consumer and other Total Amount of allowance allocated to: Individually evaluated for impairment $ 15 $ — $ 24 $ — $ — $ 352 $ 43 $ 11 $ 445 Collectively evaluated for impairment 5,719 6,125 2,735 1,028 523 3,656 2,434 803 23,023 Acquired with deteriorated credit quality — — — — — — — 14 14 Ending balance - September 30, 2017 $ 5,734 $ 6,125 $ 2,759 $ 1,028 $ 523 $ 4,008 $ 2,477 $ 828 $ 23,482 December 31, 2016 Commercial and industrial Construction 1-to-4 family residential mortgage Residential line of credit Multi- family residential mortgage Commercial real estate owner occupied Commercial real estate non-owner occupied Consumer and other Total Amount of allowance allocated to: Individually evaluated for impairment $ 135 $ — $ 23 $ — $ — $ 113 $ 242 $ — $ 513 Collectively evaluated for impairment 5,174 4,940 3,174 1,613 504 3,189 1,777 863 21,234 Acquired with deteriorated credit quality — — — — — — — — — Ending balance - December 31, 2016 $ 5,309 $ 4,940 $ 3,197 $ 1,613 $ 504 $ 3,302 $ 2,019 $ 863 $ 21,747 The following table provides the amount of loans by loan category broken between loans individually evaluated for impairment and loans collectively evaluated for impairment as of September 30, 2017 and December 31, 2016: September 30, 2017 Commercial and industrial Construction 1-to-4 family residential mortgage Residential line of credit Multi- family residential mortgage Commercial real estate owner occupied Commercial real estate non-owner occupied Consumer and other Total Loans, net of unearned income Individually evaluated for impairment $ 826 $ 1,295 $ 1,272 $ — $ 988 $ 2,785 $ 1,732 $ 23 $ 8,921 Collectively evaluated for impairment 727,885 426,039 433,544 188,392 72,994 459,537 500,713 204,082 3,013,186 Acquired with deteriorated credit quality 2,877 8,080 24,651 — 22 11,073 18,971 26,781 92,455 Ending balance - September 30, 2017 $ 731,588 $ 435,414 $ 459,467 $ 188,392 $ 74,004 $ 473,395 $ 521,416 $ 230,886 $ 3,114,562 December 31, 2016 Commercial and industrial Construction 1-to-4 family residential mortgage Residential line of credit Multi- family residential mortgage Commercial real estate owner occupied Commercial real estate non-owner occupied Consumer and other Total Loans, net of unearned income Individually evaluated for impairment $ 1,476 $ 2,686 $ 2,471 $ 311 $ 1,027 $ 2,752 $ 2,201 $ 27 $ 12,951 Collectively evaluated for impairment 384,279 238,900 290,346 176,879 43,922 350,812 260,361 74,276 1,819,775 Acquired with deteriorated credit quality 478 4,319 2,107 — 28 3,782 5,340 4 16,058 Ending balance - December 31, 2016 $ 386,233 $ 245,905 $ 294,924 $ 177,190 $ 44,977 $ 357,346 $ 267,902 $ 74,307 $ 1,848,784 The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. The Company’s risk rating definitions include: Watch. Loans rated as watch includes loans in which management believes conditions have occurred, or may occur, which could result in the loan being downgraded to a worse rated category. Also included in watch are loans rated as special mention, which have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Substandard. Loans rated as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so rated have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Also included in this category are loans considered doubtful, which have all the weaknesses previously described and management believes those weaknesses may make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loans not meeting the criteria above are considered to be pass rated loans. The following table shows credit quality indicators by portfolio class at September 30, 2017 and December 31, 2016: September 30, 2017 Pass Watch Substandard Total Loans, excluding purchased credit impaired loans Commercial and industrial $ 671,566 $ 53,388 $ 3,757 $ 728,711 Construction 419,219 6,402 1,713 427,334 Residential real estate: 1-to-4 family mortgage 421,020 6,548 7,248 434,816 Residential line of credit 185,892 1,461 1,039 188,392 Multi-family mortgage 72,214 142 1,626 73,982 Commercial real estate: Owner occupied 429,691 27,960 4,671 462,322 Non-owner occupied 486,487 13,967 1,991 502,445 Consumer and other 202,697 930 478 204,105 Total loans, excluding purchased credit impaired loans $ 2,888,786 $ 110,798 $ 22,523 $ 3,022,107 Purchased credit impaired loans Commercial and industrial $ — $ 1,665 $ 1,212 $ 2,877 Construction — 3,383 4,697 8,080 Residential real estate: 1-to-4 family mortgage — 21,127 3,524 24,651 Residential line of credit — — — — Multi-family mortgage — — 22 22 Commercial real estate: Owner occupied — 3,294 7,779 11,073 Non-owner occupied — 7,740 11,231 18,971 Consumer and other — 18,181 8,600 26,781 Total purchased credit impaired loans $ — $ 55,390 $ 37,065 $ 92,455 Total loans $ 2,888,786 $ 166,188 $ 59,588 $ 3,114,562 December 31, 2016 Pass Watch Substandard Total Loans, excluding purchased credit impaired loans Commercial and industrial $ 351,046 $ 31,074 $ 3,635 $ 385,755 Construction 236,588 4,612 386 241,586 Residential real estate: 1-to-4 family mortgage 277,948 6,945 7,924 292,817 Residential line of credit 173,011 1,875 2,304 177,190 Multi-family mortgage 43,770 152 1,027 44,949 Commercial real estate: Owner occupied 338,698 10,459 4,407 353,564 Non-owner occupied 249,877 10,273 2,412 262,562 Consumer and other 73,454 417 432 74,303 Total loans, excluding purchased credit impaired loans $ 1,744,392 $ 65,807 $ 22,527 $ 1,832,726 Purchased credit impaired loans Commercial and industrial $ — $ — $ 478 $ 478 Construction — — 4,319 4,319 Residential real estate: 1-to-4 family mortgage — — 2,107 2,107 Residential line of credit — — — — Multi-family mortgage — — 28 28 Commercial real estate: Owner occupied — — 3,782 3,782 Non-owner occupied — — 5,340 5,340 Consumer and other — — 4 4 Total purchased credit impaired loans $ — $ — $ 16,058 $ 16,058 Total loans $ 1,744,392 $ 65,807 $ 38,585 $ 1,848,784 Changes in accretable yield on purchase credit impaired loans were as follows: Purchased Credit Impaired Accretable yield Balance at June 30, 2017 $ (1,845 ) Additions through the acquisition of the Clayton Banks (18,457 ) Principal reductions/ pay-offs (690 ) Recoveries — Accretion 1,646 Balance at September 30, 2017 $ (19,346 ) Balance at June 30, 2016 $ (1,248 ) Principal reductions/ pay-offs (381 ) Accretion 590 Balance at September 30, 2016 $ (1,039 ) Purchased Credit Impaired Accretable yield Balance at December 31, 2016 $ (2,444 ) Additions through the acquisition of the Clayton Banks (18,457 ) Principal reductions/ pay-offs (1,680 ) Recoveries (23 ) Accretion 3,258 Balance at September 30, 2017 $ (19,346 ) Balance at December 31, 2015 $ (1,637 ) Principal reductions/ pay-offs (1,839 ) Accretion 2,437 Balance at September 30, 2016 $ (1,039 ) PCI loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. However, these loans are considered to be performing, even though they may be contractually past due, as any non-payment of contractual principal or interest is considered in the periodic re-estimation of expected cash flows and is included in the resulting recognition of current period covered loan loss provision or future period yield adjustments. The accrual of interest is discontinued on PCI loans if management can no longer reliably estimate future cash flows on the loan. No PCI loans were classified as nonaccrual at September 30, 2017 or December 31, 2016 as the carrying value of the respective loan or pool of loans cash flows were considered estimable and probable of collection. Therefore, interest revenue, through accretion of the difference between the carrying value of the loans and the expected cash flows, is being recognized on all PCI loans. Accretion of interest income amounting to $1,646 and $3,258 was recognized on purchased credit impaired loans during the three and nine months ended September 30, 2017 compared with $590 and $2,437 for the three and nine months ended September 30, 2016. The total purchase accounting contribution through accretion for all purchased loans was $1,537 and $3,545 for three and nine months ended September 30, 2017, respectively, compared with $590 and $2,437 for the three and nine months ended September 30, 2016, respectively. Nonperforming loans include loans that are no longer accruing interest (non-accrual loans) and loans past due ninety or more days and still accruing interest. Nonperforming loans and impaired loans are defined differently. Some loans may be included in both categories, whereas other loans may only be included in one category. The following table provides the period-end amounts of loans that are past due thirty to eighty-nine days, past due ninety or more days and still accruing interest, loans not accruing interest, loans current on payments accruing interest and purchased credit impaired loans by category at September 30, 2017 and December 31, 2016: September 30, 2017 30-89 days past due 90 days or more and accruing interest Non-accrual loans Loans current on payments and accruing interest Purchased Credit Impaired loans Total Commercial and industrial $ 388 $ 37 $ 469 $ 727,817 $ 2,877 $ 731,588 Construction 596 44 239 426,455 8,080 435,414 Residential real estate: 1-to-4 family mortgage 3,600 520 2,257 428,439 24,651 459,467 Residential line of credit 932 250 529 186,681 — 188,392 Multi-family mortgage — 87 — 73,895 22 74,004 Commercial real estate: Owner occupied 2,520 134 2,308 457,360 11,073 473,395 Non-owner occupied — — 1,916 500,529 18,971 521,416 Consumer and other 2,326 166 31 201,582 26,781 230,886 Total $ 10,362 $ 1,238 $ 7,749 $ 3,002,758 $ 92,455 $ 3,114,562 December 31, 2016 30-89 days past due 90 days or more and accruing interest Non-accrual loans Loans current on payments and accruing interest Purchased Credit Impaired loans Total Commercial and industrial $ 262 $ 127 $ 1,297 $ 384,069 $ 478 $ 386,233 Construction 441 17 254 240,874 4,319 245,905 Residential real estate: 1-to-4 family mortgage 3,130 697 2,289 286,701 2,107 294,924 Residential line of credit 1,139 433 601 175,017 — 177,190 Multi-family mortgage — — — 44,949 28 44,977 Commercial real estate: Owner occupied 186 — 2,007 351,371 3,782 357,346 Non-owner occupied 158 — 2,251 260,153 5,340 267,902 Consumer and other 433 55 30 73,785 4 74,307 Total $ 5,749 $ 1,329 $ 8,729 $ 1,816,919 $ 16,058 $ 1,848,784 Impaired loans recognized in conformity with ASC 310 at September 30, 2017 and December 31, 2016, segregated by class, were as follows: September 30, 2017 Recorded investment Unpaid principal Related allowance With a related allowance recorded: Commercial and industrial $ 53 $ 53 $ 15 Construction — — — Residential real estate: 1-to-4 family mortgage 199 501 24 Residential line of credit — — — Multi-family mortgage — — — Commercial real estate: Owner occupied 1,077 1,123 352 Non-owner occupied 148 151 43 Consumer and other 22 22 11 Total $ 1,499 $ 1,850 $ 445 With no related allowance recorded Commercial and industrial $ 773 $ 977 $ — Construction 1,295 1,315 — Residential real estate: 1-to-4 family mortgage 1,073 1,077 — Residential line of credit — — — Multi-family mortgage 988 988 — Commercial real estate: Owner occupied 1,708 2,183 — Non-owner occupied 1,584 2,856 — Consumer and other 1 1 — Total $ 7,422 $ 9,397 $ — Total impaired loans $ 8,921 $ 11,247 $ 445 December 31, 2016 Recorded investment Unpaid principal Related allowance With a related allowance recorded: Commercial and industrial $ 854 $ 854 $ 135 Construction — — — Residential real estate: 1-to-4 family mortgage 103 369 23 Residential line of credit — — — Multi-family mortgage — — — Commercial real estate: Owner occupied 635 654 113 Non-owner occupied 1,151 1,678 242 Consumer and other 1 1 — Total $ 2,744 $ 3,556 $ 513 With no related allowance recorded: Commercial and industrial $ 622 $ 746 $ — Construction 2,686 2,694 — Residential real estate: 1-to-4 family mortgage 2,368 2,370 — Residential line of credit 311 321 — Multi-family mortgage 1,027 1,027 — Commercial real estate: Owner occupied 2,117 3,205 — Non-owner occupied 1,050 1,781 — Consumer and other 26 26 — Total $ 10,207 $ 12,170 $ — Total impaired loans $ 12,951 $ 15,726 $ 513 Average recorded investment and interest income on a cash basis recognized during the three and nine months ended September 30, 2017 and 2016 on impaired loans, segregated by class, were as follows: Three Months Ended Nine Months Ended September 30, 2017 Average recorded investment Interest income recognized (cash basis) Average recorded investment Interest income recognized (cash basis) With a related allowance recorded: Commercial and industrial $ 392 $ 2 $ 454 $ 2 Construction — — — — Residential real estate: 1-to-4 family mortgage 148 7 151 7 Residential line of credit — — — — Multi-family mortgage — — — — Commercial real estate: Owner occupied 843 39 856 39 Non-owner occupied 328 3 650 3 Consumer and other 11 1 12 1 Total $ 1,721 $ 52 $ 2,122 $ 52 With no related allowance recorded: Commercial and industrial $ 633 $ 34 $ 698 $ 34 Construction 797 41 1,991 41 Residential real estate: 1-to-4 family mortgage 1,584 51 1,721 51 Residential line of credit — — 156 — Multi-family mortgage 995 34 1,008 34 Commercial real estate: Owner occupied 1,737 92 1,913 92 Non-owner occupied 1,590 12 1,317 12 Consumer and other 13 — 14 — Total $ 7,347 $ 264 $ 8,815 $ 264 Total impaired loans $ 9,068 $ 316 $ 10,936 $ 316 September 30, 2016 With a related allowance recorded: Commercial and industrial $ 363 $ 3 $ 820 $ 14 Construction — — 102 — Residential real estate: 1-to-4 family mortgage 200 1 1,482 27 Residential line of credit 319 4 213 6 Multi-family mortgage — — — — Commercial real estate: Owner occupied 807 17 1,115 18 Non-owner occupied 2,573 4 2,776 13 Consumer and other 2 — 1 — Total $ 4,264 $ 29 $ 6,509 $ 78 With no related allowance recorded: Commercial and industrial $ 1,318 $ 13 $ 767 $ 17 Construction 2,782 36 2,712 99 Residential real estate: 1-to-4 family mortgage 2,680 19 2,060 103 Residential line of credit — — — — Multi-family mortgage 1,037 13 1,052 25 Commercial real estate: Owner occupied 2,239 33 1,378 75 Non-owner occupied 1,413 1 1,212 2 Consumer and other — — — — Total $ 11,469 $ 115 $ 9,181 $ 321 Total impaired loans $ 15,733 $ 144 $ 15,690 $ 399 As of September 30, 2017 and December 31, 2016, the Company has a recorded investment in troubled debt restructurings of $8,095 and $8,802, respectively. The modifications included extensions of the maturity date and/or a stated rate of interest to one lower than the current market rate. The Company has allocated $202 and $402 of specific reserves for those loans at September 30, 2017 and December 31, 2016, respectively, and has committed to lend additional amounts totaling up to $1 and $1, respectively to these customers. Of these loans, $3,816 and $4,265 were classified as non-accrual loans as of September 30, 2017 and December 31, 2016. The following table presents the financial effect of TDRs recorded during the periods indicated: Three Months Ended September 30, 2017 Number of loans Pre-modification outstanding recorded investment Post-modification outstanding recorded investment Charge offs and specific reserves Residential real estate: 1-to-4 family mortgage 1 $ 143 $ 143 $ 8 Total 1 $ 143 $ 143 $ 8 Three Months Ended September 30, 2016 Number of loans Pre-modification outstanding recorded investment Post-modification outstanding recorded investment Charge offs and specific reserves Residential real estate: 1-to-4 family mortgage 1 $ 1,098 $ 1,098 $ — Commercial real estate: Owner occupied 1 118 118 — Consumer and other 2 4 4 — Total 4 $ 1,220 $ 1,220 $ — Nine Months Ended September 30, 2017 Number of loans Pre-modification outstanding recorded investment Post-modification outstanding recorded investment Charge offs and specific reserves Commercial and industrial 1 $ 5 $ 5 $ — Residential real estate: 1-to-4 family mortgage 1 143 143 8 Commercial real estate: Owner occupied 1 377 377 — Non-owner occupied 2 711 711 — Total 5 $ 1,236 $ 1,236 $ 8 Nine Months Ended September 30, 2016 Number of loans Pre-modification outstanding recorded investment Post-modification outstanding recorded investment Charge offs and specific reserves Commercial and industrial 6 $ 2,301 $ 2,301 $ 86 Residential real estate: 1-4 family mortgage 5 326 326 45 Commercial real estate: Owner occupied 2 786 786 — Non-owner occupied 1 133 133 — Total 14 $ 3,546 $ 3,546 $ 131 There were no loans modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the nine months ended September 30, 2017 or 2016. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. The terms of certain other loans were modified during the nine months ended September 30, 2017 and 2016 that did not meet the definition of a troubled debt restructuring. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the company’s internal underwriting policy. |