NOTE 3: Loans

Major classifications of loans are summarized as follows:


	September 30,		December 31,
(Dollars in thousands)	2016		2015
Real estate – residential mortgage	$	185,451	$	186,763
Real estate – construction 1		33,283		7,759
Commercial, financial and agricultural 2		390,863		356,062
Equity lines		50,278		50,111
Consumer		8,636		9,011
Consumer finance		304,157		291,755
		972,668		901,461
Less allowance for loan losses		(37,070)		(35,569)
Loans, net	$	935,598	$	865,892

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 $286,000 and $266,000 of demand deposit overdrafts at September 30, 2016 and December 31, 2015, 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 (acquired loans) that were recorded at fair value at the acquisition date and are included in the consolidated balance sheet at September 30, 2016 and December 31, 2015 were as follows:


	September 30, 2016						December 31, 2015
	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	$	21,581	$	59,526	$	81,107	$	25,701	$	70,993	$	96,694
Carrying amount
Real estate – residential mortgage	$	1,225	$	13,726	$	14,951	$	1,305	$	15,478	$	16,783
Commercial, financial and agricultural1		9,239		30,329		39,568		12,317		37,287		49,604
Equity lines		277		12,156		12,433		286		13,969		14,255
Consumer		—		132		132		—		288		288
Total acquired loans	$	10,741	$	56,343	$	67,084	$	13,908	$	67,022	$	80,930

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:


	September 30,		December 31,
(Dollars in thousands)	2016		2015
Real estate – residential mortgage	$	1,747	$	2,297
Real estate – construction:
Construction lending		—		—
Consumer lot lending		—		—
Commercial, financial and agricultural:
Commercial real estate lending		1,656		2,515
Land acquisition and development lending		—		—
Builder line lending		—		359
Commercial business lending		142		86
Equity lines		765		881
Consumer		3		19
Consumer finance		495		830
Total loans on nonaccrual status	$	4,808	$	6,987

The past due status of loans as of September 30, 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	$	678	$	206	$	347	$	1,231	$	1,225	$	182,995	$	185,451	$	—
Real estate – construction:
Construction lending		—		—		—		—		—		25,873		25,873		—
Consumer lot lending		—		—		—		—		—		7,410		7,410		—
Commercial, financial and agricultural:
Commercial real estate lending		3,784		1,439		534		5,757		7,482		226,052		239,291		455
Land acquisition and development lending		—		—		270		270		—		60,079		60,349		270
Builder line lending		—		—		367		367		—		22,132		22,499		367
Commercial business lending		22		49		84		155		1,757		66,812		68,724		—
Equity lines		169		80		—		249		277		49,752		50,278		—
Consumer		122		—		3		125		—		8,511		8,636		—
Consumer finance		10,587		1,447		495		12,529		—		291,628		304,157		—
Total	$	15,362	$	3,221	$	2,100	$	20,683	$	10,741	$	941,244	$	972,668	$	1,092

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 $3.03 million, 30-59 days past due of $643,000, 60-89 days past due of $397,000 and 90+ days past due of $1.53 million.

performing loans purchased in the acquisition of CVB that are current of $55.95 million, 30-59 days past due of $171,000, and 60-89 days past due of $223,000.

The past due status of loans as of December 31, 2015 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		Accruing2
Real estate – residential mortgage	$	737	$	146	$	574	$	1,457	$	1,305	$	184,001	$	186,763	$	268
Real estate – construction:
Construction lending		—		—		—		—		—		5,996		5,996		—
Consumer lot lending		—		—		—		—		—		1,763		1,763		—
Commercial, financial and agricultural:
Commercial real estate lending		1,475		1,280		423		3,178		10,359		204,079		217,616		172
Land acquisition and development lending		—		—		—		—		—		46,311		46,311		—
Builder line lending		—		—		359		359		—		20,612		20,971		—
Commercial business lending		20		86		321		427		1,958		68,779		71,164		321
Equity lines		378		—		612		990		286		48,835		50,111		—
Consumer		84		2		19		105		—		8,906		9,011		—
Consumer finance		15,046		2,264		830		18,140		—		273,615		291,755		—
Total	$	17,740	$	3,778	$	3,138	$	24,656	$	13,908	$	862,897	$	901,461	$	761

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

Includes purchased credit impaired (PCI) loans of $172,000.

The table above includes the following:

nonaccrual loans that are current of $3.17 million, 30-59 days past due of $377,000, 60‑89 days past due of $887,000 and 90+ days past due of $2.55 million.

performing loans purchased in the acquisition of CVB that are current of $66.37 million, 30-59 days past due of $270,000, 60-89 days past due of $0 and 90+ days past due of $378,000.

Loan modifications that were classified as troubled debt restructurings (TDRs) during the three and nine months ended September 30, 2016 and 2015 were as follows:


	Three Months Ended September 30,
	2016					2015
		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	$	343	$	344	1	$	202	$	202
Commercial, financial and agricultural:
Commercial real estate lending – interest rate concession	1		96		96	—		—		—
Consumer – interest rate concession	—		—		—	1		115		115
Total	3	$	439	$	440	2	$	317	$	317


	Nine Months Ended September 30,
	2016					2015
		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	5	$	1,136	$	1,161	2	$	441	$	441
Commercial, financial and agricultural:
Commercial real estate lending – interest rate concession	3		227		227	1		15		15
Commercial business lending – interest rate concession	1		100		100	1		17		17
Commercial business lending – term concession	1		25		25	—		—		—
Consumer – interest rate concession	1		291		291	2		261		261
Total	11	$	1,779	$	1,804	6	$	734	$	734

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 defaults during the three and nine months ended September 30, 2016.

Impaired loans, which consisted solely of TDRs, and the related allowance at September 30, 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	$	3,560	$	772	$	2,656	$	364	$	3,465	$	88
Commercial, financial and agricultural:
Commercial real estate lending		2,013		51		1,715		310		1,799		23
Commercial business lending		185		—		180		33		200		7
Equity lines		32		30		—		—		32		1
Consumer		520		—		520		78		521		8
Total	$	6,310	$	853	$	5,071	$	785	$	6,017	$	127

Impaired loans, which consisted solely of TDRs, and the related allowance at December 31, 2015 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	$	2,828	$	173	$	2,516	$	360	$	2,718	$	97
Commercial, financial and agricultural:
Commercial real estate lending		2,522		61		2,258		438		2,361		35
Commercial business lending		99		—		99		28		108		1
Equity lines		32		30		—		—		30		1
Consumer		207		—		207		23		208		7
Total	$	5,688	$	264	$	5,080	$	849	$	5,425	$	141

PCI loans had an unpaid principal balance of $21.58 million and a carrying value of $10.74 million at September 30, 2016. 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 nine months ended September 30, 2016 and 2015:


	September 30,
(Dollars in thousands)	2016		2015
Accretable yield, balance at beginning of period	$	10,419	$	13,488
Accretion		(1,731)		(2,047)
Reclassification of nonaccretable difference due to improvement in expected cash flows		924		287
Other changes, net		(503)		(307)
Accretable yield, balance at end of period	$	9,109	$	11,421