Loans

Segments

Loans, excluding loans held for sale, as of September 30, 2015 and December 31, 2014, were comprised of the following (dollars in thousands):



	September 30, 2015		December 31, 2014
Commercial	$	164,025	$	126,981
Commercial real estate:
Construction and land development	68,692		50,863
Commercial real estate	424,404		391,472
Residential real estate:
Residential	219,415		175,293
Home equity	98,249		91,075
Consumer	6,199		5,241
Total loans	$	980,984	$	840,925

Acquired Loans

Interest income, including accretion income of $2,379,000, on loans acquired from MidCarolina Financial Corporation ("MidCarolina") and MainStreet for the nine months ended September 30, 2015 was approximately $11,333,000. The outstanding principal balance and the carrying amount of these loans included in the consolidated balance sheets at September 30, 2015 and December 31, 2014 are as follows (dollars in thousands):



	September 30, 2015		December 31, 2014
Outstanding principal balance	$	162,190	$	84,892
Carrying amount	151,026		78,111

The outstanding principal balance and related carrying amount of acquired impaired loans, for which the Company applies FASB ASC 310-30, to account for interest earned, at September 30, 2015 and December 31, 2014 are as follows (dollars in thousands):



	September 30, 2015		December 31, 2014
Outstanding principal balance	$	43,325	$	18,357
Carrying amount	35,569		14,933

The following table presents changes in the accretable yield on acquired impaired loans, for which the Company applies FASB ASC 310-30, for the nine months ended September 30, 2015 (dollars in thousands):



	Accretable Yield
Balance at December 31, 2014	$	1,440
Additions from merger with MainStreet	7,647
Accretion	(1,437		)
Other changes, net	(589		)
Balance at September 30, 2015	$	7,061

Past Due Loans

The following table shows an analysis by portfolio segment of the Company's past due loans at September 30, 2015 (dollars in thousands):



	30- 59 Days Past Due		60-89 Days Past Due		90 Days + Past Due and Still Accruing		Non- Accrual Loans		Total Past Due		Current		Total Loans
Commercial	$	4	$	—	$	—	$	103	$	107	$	163,918	$	164,025
Commercial real estate:
Construction and land development	84		—		—		263		347		68,345		68,692
Commercial real estate	137		598		—		2,651		3,386		421,018		424,404
Residential:
Residential	709		235		—		1,368		2,312		217,103		219,415
Home equity	58		32		—		960		1,050		97,199		98,249
Consumer	3		34		—		14		51		6,148		6,199
Total	$	995	$	899	$	—	$	5,359	$	7,253	$	973,731	$	980,984

The following table shows an analysis by portfolio segment of the Company's past due loans at December 31, 2014 (dollars in thousands):



	30- 59 Days Past Due		60-89 Days Past Due		90 Days + Past Due and Still Accruing		Non- Accrual Loans		Total Past Due		Current		Total Loans
Commercial	$	114	$	165	$	—	$	—	$	279	$	126,702	$	126,981
Commercial real estate:
Construction and land development	44		269		—		279		592		50,271		50,863
Commercial real estate	257		—		—		3,010		3,267		388,205		391,472
Residential:
Residential	390		325		—		560		1,275		174,018		175,293
Home equity	223		60		—		262		545		90,530		91,075
Consumer	1		42		—		1		44		5,197		5,241
Total	$	1,029	$	861	$	—	$	4,112	$	6,002	$	834,923	$	840,925

Impaired Loans

The following table presents the Company's impaired loan balances by portfolio segment, excluding loans acquired with deteriorated credit quality, at September 30, 2015 (dollars in thousands):



	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	107	$	108	$	—	$	203	$	—
Commercial real estate:
Construction and land development	249		306		—		382		—
Commercial real estate	1,108		1,425		—		1,524		—
Residential:
Residential	920		921		—		626		—
Home equity	803		803		—		695		—
Consumer	15		15		—		34		1
	$	3,202	$	3,578	$	—	$	3,464	$	1
With a related allowance recorded:
Commercial	—		—		—		—		—
Commercial real estate:
Construction and land development	413		413		2		484		21
Commercial real estate	249		249		6		254		12
Residential
Residential	379		379		24		333		10
Home equity	106		106		2		24		—
Consumer	—		—		—		—		—
	$	1,147	$	1,147	$	34	$	1,095	$	43
Total:
Commercial	$	107	$	108	$	—	$	203	$	—
Commercial real estate:
Construction and land development	662		719		2		866		21
Commercial real estate	1,357		1,674		6		1,778		12
Residential:
Residential	1,299		1,300		24		959		10
Home equity	909		909		2		719		—
Consumer	15		15		—		34		1
	$	4,349	$	4,725	$	34	$	4,559	$	44

The following table presents the Company's impaired loan balances by portfolio segment, excluding loans acquired with deteriorated credit quality, at December 31, 2014 (dollars in thousands):



	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	7	$	7	$	—	$	12	$	1
Commercial real estate:
Construction and land development	280		325		—		448		—
Commercial real estate	1,520		1,797		—		1,844		—
Residential:
Residential	603		603		—		723		8
Home equity	256		256		—		316		—
Consumer	1		1		—		2		—
	$	2,667	$	2,989	$	—	$	3,345	$	9
With a related allowance recorded:
Commercial	$	—	$	—	$	—	$	—	$	—
Commercial real estate:
Construction and land development	576		577		12		593		34
Commercial real estate	1,275		1,422		149		1,297		8
Residential:
Residential	4		4		1		4		—
Home equity	—		—		—		—		—
Consumer	15		15		3		17		1
	$	1,870	$	2,018	$	165	$	1,911	$	43
Total:
Commercial	$	7	$	7	$	—	$	12	$	1
Commercial real estate:
Construction and land development	856		902		12		1,041		34
Commercial real estate	2,795		3,219		149		3,141		8
Residential:
Residential	607		607		1		727		8
Home equity	256		256		—		316		—
Consumer	16		16		3		19		1
	$	4,537	$	5,007	$	165	$	5,256	$	52

The following tables show the detail of loans modified as troubled debt restructurings ("TDRs") during the three and nine months ended September 30, 2015 included in the impaired loan balances (dollars in thousands):



	Loans Modified as a TDR for the
	Three Months Ended September 30, 2015
Loan Type	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial	2	$	52	$	31
Commercial real estate	—	—		—
Construction and land development	—	—		—
Home Equity	1	106		106
Residential real estate	1	382		294
Consumer	—	—		—
Total	4	$	540	$	431



	Loans Modified as a TDR for the
	Nine Months Ended September 30, 2015
Loan Type	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial	2	$	52	$	31
Commercial real estate	3	256		249
Construction and land development	—	—		—
Home Equity	1	106		106
Residential real estate	5	776		680
Consumer	—	—		—
Total	11	$	1,190	$	1,066

The following tables show the detail of loans modified as TDRs during the three and nine months ended September 30, 2014 included in the impaired loan balances (dollars in thousands):



	Loans Modified as a TDR for the
	Three Months Ended September 30, 2014
Loan Type	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial	—	$	—	$	—
Commercial real estate	—	—		—
Construction and land development	—	—		—
Home Equity	—	—		—
Residential real estate	—	—		—
Consumer	—	—		—
Total	—	$	—	$	—



	Loans Modified as a TDR for the
	Nine Months Ended September 30, 2014
Loan Type	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial	—	$	—	$	—
Commercial real estate	1	182		179
Construction and land development	—	—		—
Home Equity	1	8		8
Residential real estate	2	121		115
Consumer	—	—		—
Total	4	$	311	$	302

During the three and nine months ended September 30, 2015 and September 30, 2014, the Company had one loan that subsequently defaulted within twelve months of modification as a TDR. The credit is a commercial real estate loan which became over 90 days past due during the third quarter of 2015, after being restructured in the second quarter of 2015. The Company defines defaults as one or more payments that occur more than 90 days past the due date, charge-off or foreclosure subsequent to modification.

Residential Real Estate in Process of Foreclosure

The Company had $386,000 in residential real estate in the process of foreclosure and $131,000 in residential other real estate owned at September 30, 2015.

Risk Grades

The following table shows the Company's loan portfolio broken down by internal risk grading as of September 30, 2015 (dollars in thousands):

Commercial and Consumer Credit Exposure

Credit Risk Profile by Internally Assigned Grade



	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Residential		Home Equity
Pass	$	162,525	$	63,538	$	411,483	$	198,067	$	95,351
Special Mention	1,362		1,579		6,179		16,268		1,528
Substandard	138		3,575		6,742		5,080		1,370
Doubtful	—		—		—		—		—
Total	$	164,025	$	68,692	$	424,404	$	219,415	$	98,249

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity



	Consumer

Performing	$	6,148
Nonperforming	51
Total	$	6,199

The following table shows the Company's loan portfolio broken down by internal risk grading as of December 31, 2014 (dollars in thousands):

Commercial and Consumer Credit Exposure

Credit Risk Profile by Internally Assigned Grade



	Commercial		Commercial Real Estate Construction		Commercial Real Estate Other		Residential		Home Equity
Pass	$	125,405	$	45,534	$	382,607	$	165,367	$	88,646
Special Mention	1,569		569		4,889		6,709		1,801
Substandard	7		4,760		3,976		3,217		628
Doubtful	—		—		—		—		—
Total	$	126,981	$	50,863	$	391,472	$	175,293	$	91,075

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity



	Consumer

Performing	$	5,240
Nonperforming	1
Total	$	5,241

Loans classified in the Pass category typically are fundamentally sound and risk factors are reasonable and acceptable.

Loans classified in the Special Mention category typically have been criticized internally, by loan review or the loan officer, or by external regulators under the current credit policy regarding risk grades. Loans classified in the Substandard category typically have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are typically characterized by the possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Loans classified in the Doubtful category typically have all the weaknesses inherent in loans classified as substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur that may salvage the debt.

Consumer loans are classified as performing or nonperforming. A loan is nonperforming when payments of interest and principal are past due 90 days or more, or payments are less than 90 days past due, but there are other good reasons to doubt that payment will be made in full.