Loans

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their unpaid principal balances, adjusted for any charge-offs, the ALL, and any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

Loan interest income is accrued daily on outstanding balances. The following accounting policies, related to accrual and nonaccrual loans, apply to all portfolio segments and loan classes, which the Company considers to be the same. The accrual of interest is normally discontinued when a loan is specifically determined to be impaired and/or management believes, after considering collection efforts and other factors, that the borrower's financial condition is such that collection of interest is doubtful. Generally, any unpaid interest previously accrued on those loans is reversed against current period interest income. A loan may be restored to accrual status when its financial status has significantly improved and there is no principal or interest past due. A loan may also be restored to accrual status if the borrower makes six consecutive monthly payments or the lump sum equivalent. Income on nonaccrual loans is generally not recognized unless a loan is returned to accrual status or after all principal has been collected. Interest income generally is not recognized on impaired loans unless the likelihood of further loss is remote. Interest payments received on such loans are generally applied as a reduction of the loan principal balance. Delinquency status is determined based on contractual terms for all portfolio segments and loan classes. Loans past due 30 days or more are considered delinquent. Loans are considered in process of foreclosure when a judgment of foreclosure has been issued by the court.

Loan origination fees and direct loan origination costs are deferred and amortized as an adjustment of the related loan's yield using methods that approximate the interest method. The Company generally amortizes these amounts over the estimated average life of the related loans.

The composition of Net loans as of the balance sheet dates were as follows:



	September 30, 2017			December 31, 2016
	(Dollars in thousands)
Residential real estate	$	176,399		$	172,727
Construction real estate	36,796			34,189
Commercial real estate	257,192			249,063
Commercial	48,166			41,999
Consumer	3,832			3,962
Municipal	56,517			31,350
Gross loans	578,902			533,290
Allowance for loan losses	(5,259		)	(5,247		)
Net deferred loan costs	749			649
Net loans	$	574,392		$	528,692

There were no loans pledged as collateral on deposits of municipalities at September 30, 2017 and December 31, 2016. Qualifying residential first mortgage loans and certain commercial real estate loans held by Union may be pledged as collateral for borrowings from the FHLB under a blanket lien.

A summary of current, past due and nonaccrual loans as of the balance sheet dates follows:



September 30, 2017	Current		30-59 Days		60-89 Days		90 Days and Over and Accruing		Nonaccrual		Total
	(Dollars in thousands)
Residential real estate	$	173,964	$	231	$	748	$	207	$	1,249	$	176,399
Construction real estate	36,572		—		142		22		60		36,796
Commercial real estate	256,186		266		32		—		708		257,192
Commercial	48,141		2		11		—		12		48,166
Consumer	3,760		68		4		—		—		3,832
Municipal	56,517		—		—		—		—		56,517
Total	$	575,140	$	567	$	937	$	229	$	2,029	$	578,902



December 31, 2016	Current		30-59 Days		60-89 Days		90 Days and Over and Accruing		Nonaccrual		Total
	(Dollars in thousands)
Residential real estate	$	168,125	$	1,661	$	472	$	672	$	1,797	$	172,727
Construction real estate	34,148		17		—		—		24		34,189
Commercial real estate	245,402		1,642		153		157		1,709		249,063
Commercial	41,920		12		42		10		15		41,999
Consumer	3,946		12		3		1		—		3,962
Municipal	31,350		—		—		—		—		31,350
Total	$	524,891	$	3,344	$	670	$	840	$	3,545	$	533,290

There were three residential real estate loans totaling $373 thousand in process of foreclosure at September 30, 2017. Aggregate interest on nonaccrual loans not recognized was $1.3 million as of September 30, 2017 and 2016 and $1.3 million as of December 31, 2016.