NOTE 3: Loans

Major classifications of loans are summarized as follows:


	June 30,		December 31,
(Dollars in thousands)	2017		2016
Real estate – residential mortgage	$	186,952	$	188,264
Real estate – construction 1		34,683		55,732
Commercial, financial and agricultural 2		415,449		390,388
Equity lines		52,893		52,600
Consumer		12,334		8,399
Consumer finance		291,257		301,845
		993,568		997,228
Less allowance for loan losses		(36,496)		(37,066)
Loans, net	$	957,072	$	960,162

Includes the Corporation's real estate construction lending and consumer real estate lot lending.

Includes the Corporation’s commercial real estate lending, land acquisition and development lending, builder line lending and commercial business lending.

Consumer loans included $235,000 and $284,000 of demand deposit overdrafts at June 30, 2017 and December 31, 2016, respectively.

The outstanding principal balance and the carrying amount of loans acquired pursuant to the Corporation's acquisition of Central Virginia Bank (CVB) on October 1, 2013 (or acquired loans) that were recorded at fair value at the acquisition date and are included in the consolidated balance sheet at June 30, 2017 and December 31, 2016 were as follows:


	June 30, 2017						December 31, 2016
	Acquired Loans -		Acquired Loans -				Acquired Loans -		Acquired Loans -
	Purchased		Purchased		Acquired Loans -		Purchased		Purchased		Acquired Loans -
(Dollars in thousands)	Credit Impaired		Performing		Total		Credit Impaired		Performing		Total
Outstanding principal balance	$	16,628	$	52,113	$	68,741	$	19,770	$	56,213	$	75,983
Carrying amount
Real estate – residential mortgage	$	1,150	$	12,948	$	14,098	$	1,219	$	13,422	$	14,641
Commercial, financial and agricultural1		5,322		26,321		31,643		7,759		28,615		36,374
Equity lines		270		10,198		10,468		278		11,178		11,456
Consumer		—		18		18		—		114		114
Total acquired loans	$	6,742	$	49,485	$	56,227	$	9,256	$	53,329	$	62,585

Includes acquired loans classified by the Corporation as commercial real estate lending, land acquisition and development lending, builder line lending and commercial business lending.

Loans on nonaccrual status were as follows:


	June 30,		December 31,
(Dollars in thousands)	2017		2016
Real estate – residential mortgage	$	1,329	$	1,652
Real estate – construction		—		—
Commercial, financial and agricultural:
Commercial real estate lending		6,507		1,619
Commercial business lending		52		131
Equity lines		721		757
Consumer		1		118
Consumer finance		497		565
Total loans on nonaccrual status	$	9,107	$	4,842

The past due status of loans as of June 30, 2017 was as follows:


															90+ Days
	30 - 59 Days		60 - 89 Days		90+ Days		Total								Past Due and
(Dollars in thousands)	Past Due		Past Due		Past Due		Past Due		PCI		Current1		Total Loans		Accruing 2
Real estate – residential mortgage	$	916	$	126	$	703	$	1,745	$	1,150	$	184,057	$	186,952	$	201
Real estate – construction:
Construction lending		—		—		—		—		—		29,095		29,095		—
Consumer lot lending		—		—		—		—		—		5,588		5,588		—
Commercial, financial and agricultural:
Commercial real estate lending		274		5,600		—		5,874		5,322		278,037		289,233		—
Land acquisition and development lending		—		—		—		—		—		40,546		40,546		—
Builder line lending		—		—		—		—		—		26,368		26,368		—
Commercial business lending		70		52		—		122		—		59,180		59,302		—
Equity lines		140		25		—		165		270		52,458		52,893		—
Consumer		75		2		2		79		—		12,255		12,334		10
Consumer finance		10,501		1,811		497		12,809		—		278,448		291,257		—
Total	$	11,976	$	7,616	$	1,202	$	20,794	$	6,742	$	966,032	$	993,568	$	211

For the purposes of the table above, “Current” includes loans that are 1-29 days past due.

Includes purchased credit impaired (PCI) loans of $188,000.

The table above includes the following:

nonaccrual loans that are current of $3.18 million, 30-59 days past due of $103,000, 60-89 days past due of $4.82 million and 90+ days past due of $1.00 million.

performing loans purchased in the acquisition of CVB that are current of $49.30 million, 30-59 days past due of $56,000 and 60-89 days past due of $125,000.

The past due status of loans as of December 31, 2016 was as follows:


															90+ Days
	30 - 59 Days		60 - 89 Days		90+ Days		Total								Past Due and
(Dollars in thousands)	Past Due		Past Due		Past Due		Past Due		PCI		Current1		Total Loans		Accruing
Real estate – residential mortgage	$	848	$	233	$	184	$	1,265	$	1,219	$	185,780	$	188,264	$	—
Real estate – construction:
Construction lending		—		—		—		—		—		47,062		47,062		—
Consumer lot lending		—		—		—		—		—		8,670		8,670		—
Commercial, financial and agricultural:
Commercial real estate lending		5,121		12		—		5,133		7,245		249,408		261,786		—
Land acquisition and development lending		—		—		—		—		—		43,472		43,472		—
Builder line lending		—		—		—		—		—		22,391		22,391		—
Commercial business lending		75		—		—		75		514		62,150		62,739		—
Equity lines		853		138		—		991		278		51,331		52,600		—
Consumer		22		—		118		140		—		8,259		8,399		6
Consumer finance		13,011		1,975		565		15,551		—		286,294		301,845		—
Total	$	19,930	$	2,358	$	867	$	23,155	$	9,256	$	964,817	$	997,228	$	6

For the purposes of the table above, “Current” includes loans that are 1-29 days past due.

The table above includes the following:

nonaccrual loans that are current of $3.04 million, 30-59 days past due of $570,000, 60‑89 days past due of $370,000 and 90+ days past due of $867,000.

performing loans purchased in the acquisition of CVB that are current of $52.64 million, 30-59 days past due of $532,000, 60-89 days past due of $143,000 and 90+ days past due of $17,000.

Loan modifications that were classified as troubled debt restructurings (TDRs) during the three and six months ended June 30, 2017 and 2016 were as follows:


	Three Months Ended June 30,
	2017					2016
		Pre-		Post-			Pre-		Post-
		Modification		Modification			Modification		Modification
	Number of	Recorded		Recorded		Number of	Recorded		Recorded
(Dollars in thousands)	Loans	Investment		Investment		Loans	Investment		Investment
Real estate – residential mortgage – interest rate concession	—	$	—	$	—	2	$	736	$	760
Commercial, financial and agricultural:
Commercial real estate lending – interest rate concession	3		2,142		2,142	2		131		131
Commercial business lending – term concession	—		—		—	1		25		25
Total	3	$	2,142	$	2,142	5	$	892	$	916


	Six Months Ended June 30,
	2017					2016
		Pre-		Post-			Pre-		Post-
		Modification		Modification			Modification		Modification
	Number of	Recorded		Recorded		Number of	Recorded		Recorded
(Dollars in thousands)	Loans	Investment		Investment		Loans	Investment		Investment
Real estate – residential mortgage – interest rate concession	—	$	—	$	—	3	$	793	$	817
Commercial, financial and agricultural:
Commercial real estate lending – interest rate and term concession	3		4,646		4,646	—		—		—
Commercial real estate lending – interest rate concession	4		2,154		2,154	2		131		131
Commercial business lending – interest rate concession	—		—		—	1		100		100
Commercial business lending – term concession	—		—		—	1		25		25
Consumer – interest rate concession	—		—		—	1		291		291
Total	7	$	6,800	$	6,800	8	$	1,340	$	1,364

A TDR payment default occurs when, within 12 months of the original TDR modification, either a full or partial charge-off occurs or a TDR becomes 90 days or more past due. There were no TDR payment defaults during the three and six months ended June 30, 2017 and 2016.

Impaired loans, which consisted solely of TDRs, and the related allowance at June 30, 2017 were as follows:



			Recorded		Recorded
			Investment		Investment				Average
	Unpaid		in Loans		in Loans				Balance-		Interest
	Principal		without		with		Related		Impaired		Income
(Dollars in thousands)	Balance		Specific Reserve		Specific Reserve		Allowance		Loans		Recognized
Real estate – residential mortgage	$	3,504	$	1,257	$	2,137	$	304	$	3,479	$	87
Commercial, financial and agricultural:
Commercial real estate lending		8,190		1,065		6,932		963		8,207		42
Commercial business lending		123		60		61		33		128		2
Equity lines		32		—		31		31		32		1
Consumer		321		—		322		3		321		6
Total	$	12,170	$	2,382	$	9,483	$	1,334	$	12,167	$	138

Impaired loans, which consisted solely of TDRs, and the related allowance at December 31, 2016 were as follows:



			Recorded		Recorded
			Investment		Investment				Average
	Unpaid		in Loans		in Loans				Balance-		Interest
	Principal		without		with		Related		Impaired		Income
(Dollars in thousands)	Balance		Specific Reserve		Specific Reserve		Allowance		Loans		Recognized
Real estate – residential mortgage	$	3,539	$	1,676	$	1,732	$	251	$	3,446	$	122
Commercial, financial and agricultural:
Commercial real estate lending		1,967		430		1,272		261		1,746		29
Commercial business lending		167		89		74		46		181		8
Equity lines		32		32		—		—		32		1
Consumer		520		—		520		94		521		8
Total	$	6,225	$	2,227	$	3,598	$	652	$	5,926	$	168

PCI loans had an unpaid principal balance of $16.63 million and a carrying value of $6.74 million at June 30, 2017. Determining the fair value of purchased credit impaired loans required the Corporation to estimate cash flows expected to result from those loans and to discount those cash flows at appropriate rates of interest. For such loans, the excess of the cash flows expected at acquisition over the estimated fair value is recognized as interest income over the remaining lives of the loans and is called the accretable yield. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition reflects the effect of estimated credit losses and is called the nonaccretable difference, and is not recorded. In accordance with U.S. GAAP, there was no carry-over of the previously established allowance for loan losses for acquired loans.

The following table presents a summary of the change in the accretable yield of the PCI loan portfolio for the six months ended June 30, 2017:


	June 30,
(Dollars in thousands)	2017		2016
Accretable yield, balance at beginning of period	$	8,637	$	10,419
Accretion		(1,318)		(1,029)
Reclassification of nonaccretable difference due to improvement in expected cash flows		561		656
Other changes, net		(239)		(302)
Accretable yield, balance at end of period	$	7,641	$	9,744