Loans

The following summarizes the Company’s major classifications for loans (in thousands):



	June 30, 2013			December 31, 2012
Residential real estate	$	1,170,123		$	1,031,435
Home equity – junior liens	138,367			143,110
Commercial and industrial	138,299			108,739
Commercial real estate	1,023,311			821,970
Consumer	54,242			36,564
DDA overdrafts	3,103			4,551
Gross loans	2,527,445			2,146,369
Allowance for loan losses	(20,069		)	(18,809		)
Net loans	$	2,507,376		$	2,127,560

Construction loans of $15.9 million and $15.4 million are included within residential real estate loans at June 30, 2013 and December 31, 2012, respectively. Construction loans of $24.7 million and $15.4 million are included within commercial real estate loans at June 30, 2013 and December 31, 2012, respectively. The Company’s commercial and residential real estate construction loans are primarily secured by real estate within the Company’s principal markets. These loans were originated under the Company’s loan policy, which is focused on the risk characteristics of the loan portfolio, including construction loans. Adequate consideration has been given to these loans in establishing the Company’s allowance for loan losses.

The information in the following tables related to the Community acquisition are estimated amounts, based on management's assumptions. Once the purchase price allocation is finalized, actual results could be significantly different than those assumed below.

The following table details the loans acquired in conjunction with the Virginia Savings and Community acquisitions (in thousands):



	Virginia
	Savings		Community		Total
June 30, 2013
Outstanding loan balance	$	57,294	$	330,214	$	387,508

Credit-impaired loans:
Carrying value	5,421		27,845		33,266
Contractual principal and interest	7,330		47,850		55,180

December 31, 2012
Outstanding loan balance	$	65,219	$	—	$	65,219

Credit-impaired loans:
Carrying value	7,018		—		7,018
Contractual principal and interest	10,759		—		10,759

Changes in the accretable yield for the six months ended June 30, 2013 is as follows (in thousands):



	Virginia Savings						Community						Total
				Carrying						Carrying						Carrying
	Accretable			Amount			Accretable			Amount			Accretable			Amount
	Yield			of Loans			Yield			of Loans			Yield			of Loans
Balance at the beginning of the period	$	1,823		$	7,018		$	—		$	—		$	1,823		$	7,018
Additions	—			—			5,587			31,703			5,587			31,703
Accretion	(746		)	746			(1,088		)	1,088			(1,834		)	1,834
Net reclassifications to accretable yield from
non-accretable yield	889			—			—			—			889			—
Payments received, net	—			(2,341		)	—			(4,946		)	—			(7,287		)
Disposals	(554		)	(2		)	(20		)	—			(574		)	(2		)
Balance at the end of period	$	1,412		$	5,421		$	4,479		$	27,845		$	5,891		$	33,266

A reconciliation of the contractual required principal and interest balance to the basis of purchased credit-impaired loans as of June 30, 2013 is as follows (in thousands):



	Virginia
	Savings			Community			Total
Contractual required principal and interest	$	7,330		$	47,850		$	55,180
Nonaccretable difference	(497		)	(15,526		)	(16,023		)
Expected cash flows	6,833			32,324			39,157
Accretable yield	(1,412		)	(4,479		)	(5,891		)
Basis in acquired loans	$	5,421		$	27,845		$	33,266

Increases in expected cash flow subsequent to the acquisition are recognized first as a reduction of any previous impairment, then prospectively through adjustment of the yield on the loans or pools over its remaining life, while decreases in expected cash flows are recognized as impairment through a provision for loan loss an increase in the allowance for purchased credit-impaired loans.