LOANS

Loans are summarized as follows:



Dollars in thousands	June 30, 2017		December 31, 2016		June 30, 2016
Commercial	$	176,362	$	119,088	$	101,521
Commercial real estate
Owner-occupied	239,108		203,047		190,534
Non-owner occupied	455,439		381,921		348,099
Construction and development
Land and land development	74,155		72,042		65,702
Construction	22,967		16,584		8,506
Residential real estate
Non-jumbo	355,546		265,641		225,919
Jumbo	63,899		65,628		52,105
Home equity	81,192		74,596		75,904
Mortgage warehouse lines	35,068		85,966		80,282
Consumer	37,630		25,534		19,520
Other	9,049		9,489		10,008
Total loans, net of unearned fees	1,550,415		1,319,536		1,178,100
Less allowance for loan losses	12,332		11,674		11,377
Loans, net	$	1,538,083	$	1,307,862	$	1,166,723

The outstanding balance and the recorded investment of acquired loans included in the consolidated balance sheet at June 30, 2017 are as follows:



	Acquired Loans
Dollars in thousands	Purchased Credit Impaired		Purchased Performing		Total
Outstanding balance	$	6,555	$	254,721	$	261,276

Recorded investment
Commercial	$	13	$	34,073	$	34,086
Commercial real estate
Owner-occupied	696		25,073		25,769
Non-owner occupied	1,914		35,967		37,881
Construction and development
Land and land development	56		9,895		9,951
Construction	—		1,079		1,079
Residential real estate
Non-jumbo	1,885		120,704		122,589
Jumbo	1,011		6,591		7,602
Home equity	—		3,652		3,652
Consumer	—		15,285		15,285
Other	—		228		228
Total recorded investment	$	5,575	$	252,547	$	258,122

The following table presents a summary of the change in the accretable yield of the PCI loan portfolio for the period from January 1, 2017 to June 30, 2017:



Dollars in thousands
Accretable yield, January 1, 2017	$	290
Accretion	(86		)
Additions for First Century Bankshares, Inc. acquisition	661
Reclassification of nonaccretable difference due to improvement in expected cash flows	—
Other changes, net	(14		)
Accretable yield, June 30, 2017	$	851

The following table presents the contractual aging of the recorded investment in past due loans by class as of June 30, 2017 and 2016 and December 31, 2016.



	At June 30, 2017
	Past Due										> 90 days and Accruing
Dollars in thousands	30-59 days		60-89 days		> 90 days		Total		Current		> 90 days and Accruing
Commercial	$	372	$	100	$	63	$	535	$	175,827	$	—
Commercial real estate
Owner-occupied	300		141		494		935		238,173		—
Non-owner occupied	192		343		1,491		2,026		453,413		—
Construction and development
Land and land development	238		70		3,577		3,885		70,270		—
Construction	—		—		—		—		22,967		—
Residential mortgage
Non-jumbo	5,109		2,115		3,752		10,976		344,570		—
Jumbo	—		—		—		—		63,899		—
Home equity	2		343		576		921		80,271		—
Mortgage warehouse lines	—		—		—		—		35,068		—
Consumer	524		135		329		988		36,642		62
Other	—		—		—		—		9,049		—
Total	$	6,737	$	3,247	$	10,282	$	20,266	$	1,530,149	$	62



	At December 31, 2016
	Past Due										> 90 days and Accruing
Dollars in thousands	30-59 days		60-89 days		> 90 days		Total		Current		> 90 days and Accruing
Commercial	$	90	$	86	$	165	$	341	$	118,747	$	—
Commercial real estate
Owner-occupied	93		—		509		602		202,445		—
Non-owner occupied	340		—		65		405		381,516		—
Construction and development
Land and land development	423		129		3,852		4,404		67,638		—
Construction	—		—		—		—		16,584		—
Residential mortgage
Non-jumbo	4,297		1,889		3,287		9,473		256,168		—
Jumbo	—		—		—		—		65,628		—
Home equity	—		302		57		359		74,237		—
Mortgage warehouse lines	—		—		—		—		85,966		—
Consumer	308		84		150		542		24,992		—
Other	—		—		—		—		9,489		—
Total	$	5,551	$	2,490	$	8,085	$	16,126	$	1,303,410	$	—



	At June 30, 2016
	Past Due										> 90 days and Accruing
Dollars in thousands	30-59 days		60-89 days		> 90 days		Total		Current		> 90 days and Accruing
Commercial	$	318	$	107	$	211	$	636	$	100,885	$	—
Commercial real estate
Owner-occupied	157		—		1,278		1,435		189,099		—
Non-owner occupied	180		14		—		194		347,905		—
Construction and development
Land and land development	45		475		4,748		5,268		60,434		—
Construction	—		—		—		—		8,506		—
Residential mortgage
Non-jumbo	3,978		950		2,466		7,394		218,525		—
Jumbo	—		—		—		—		52,105		—
Home equity	—		77		447		524		75,380		—
Mortgage warehouse lines	—		—		—		—		80,282		—
Consumer	145		52		84		281		19,239		—
Other	—		—		—		—		10,008		—
Total	$	4,823	$	1,675	$	9,234	$	15,732	$	1,162,368	$	—

Nonaccrual loans: The following table presents the nonaccrual loans included in the net balance of loans at June 30, 2017, December 31, 2016 and June 30, 2016.



	June 30,				December 31,
Dollars in thousands	2017		2016		2016
Commercial	$	786	$	399	$	298
Commercial real estate
Owner-occupied	495		1,278		509
Non-owner occupied	1,556		4,495		4,336
Construction and development
Land & land development	3,613		5,400		4,465
Construction	—		—		—
Residential mortgage
Non-jumbo	6,155		2,937		4,621
Jumbo	—		—		—
Home equity	705		594		194
Mortgage warehouse lines	—		—		—
Consumer	329		91		151
Total	$	13,639	$	15,194	$	14,574

Impaired loans: Impaired loans include the following:

▪

Loans which we risk-rate (consisting of loan relationships having aggregate balances in excess of $2.5 million, or loans exceeding $500,000 and exhibiting credit weakness) through our normal loan review procedures and which, based on current information and events, it is probable that we will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement. Risk-rated loans with insignificant delays or insignificant short falls in the amount of payments expected to be collected are not considered to be impaired.


▪	Loans that have been modified in a troubled debt restructuring.

Both commercial and consumer loans are deemed impaired upon being contractually modified in a troubled debt restructuring. Troubled debt restructurings typically result from our loss mitigation activities and occur when we grant a concession to a borrower who is experiencing financial difficulty in order to minimize our economic loss and to avoid foreclosure or repossession of collateral. Once restructured, a loan is generally considered impaired until its maturity, regardless of whether the borrower performs under the modified terms. Although such a loan may be returned to accrual status if the criteria set forth in our accounting policy are met, the loan would continue to be evaluated for an asset-specific allowance for loan losses and we would continue to report the loan in the impaired loan table below.

The following tables present loans individually evaluated for impairment at June 30, 2017, December 31, 2016 and June 30, 2016.



	June 30, 2017
Dollars in thousands	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Impaired Balance		Interest Income Recognized while impaired

Without a related allowance
Commercial	$	264	$	264	$	—	$	269	$	10
Commercial real estate
Owner-occupied	498		498		—		504		29
Non-owner occupied	9,848		9,849		—		10,563		518
Construction and development
Land & land development	4,601		4,601		—		4,891		94
Construction	—		—		—		—		—
Residential real estate
Non-jumbo	4,330		4,340		—		4,093		198
Jumbo	3,610		3,608		—		3,617		172
Home equity	523		523		—		523		25
Mortgage warehouse lines	—		—		—		—		—
Consumer	33		34		—		36		3
Total without a related allowance	$	23,707	$	23,717	$	—	$	24,496	$	1,049

With a related allowance
Commercial	$	267	$	267	$	267	$	269	$	—
Commercial real estate
Owner-occupied	6,817		6,817		196		6,832		278
Non-owner occupied	—		—		—		—		—
Construction and development
Land & land development	1,475		1,476		531		1,487		56
Construction	—		—		—		—		—
Residential real estate
Non-jumbo	2,209		2,211		315		2,127		105
Jumbo	846		846		18		849		42
Home equity	—		—		—		—		—
Mortgage warehouse lines	—		—		—		—		—
Consumer	—		—		—		—		—
Total with a related allowance	$	11,614	$	11,617	$	1,327	$	11,564	$	481

Total
Commercial	$	23,770	$	23,772	$	994	$	24,815	$	985
Residential real estate	11,518		11,528		333		11,209		542
Consumer	33		34		—		36		3
Total	$	35,321	$	35,334	$	1,327	$	36,060	$	1,530



	December 31, 2016
Dollars in thousands	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Impaired Balance		Interest Income Recognized while impaired

Without a related allowance
Commercial	$	285	$	285	$	—	$	247	$	10
Commercial real estate
Owner-occupied	520		520		—		534		31
Non-owner occupied	10,203		10,205		—		10,675		294
Construction and development
Land & land development	5,227		5,227		—		5,270		80
Construction	—		—		—		—		—
Residential real estate
Non-jumbo	4,055		4,065		—		3,910		193
Jumbo	3,640		3,639		—		3,693		175
Home equity	524		523		—		523		22
Mortgage warehouse lines	—		—		—		—		—
Consumer	44		44		—		50		5
Total without a related allowance	$	24,498	$	24,508	$	—	$	24,902	$	810

With a related allowance
Commercial	$	—	$	—	$	—	$	—	$	—
Commercial real estate
Owner-occupied	6,864		6,864		347		6,879		269
Non-owner occupied	1,311		1,311		197		1,327		43
Construction and development
Land & land development	2,066		2,066		585		2,074		80
Construction	—		—		—		—		—
Residential real estate
Non-jumbo	2,055		2,057		251		1,851		78
Jumbo	853		853		24		862		44
Home equity	—		—		—		—		—
Mortgage warehouse lines	—		—		—		—		—
Consumer	—		—		—		—		—
Total with a related allowance	$	13,149	$	13,151	$	1,404	$	12,993	$	514

Total
Commercial	$	26,476	$	26,478	$	1,129	$	27,006	$	807
Residential real estate	11,127		11,137		275		10,839		512
Consumer	44		44		—		50		5
Total	$	37,647	$	37,659	$	1,404	$	37,895	$	1,324



	June 30, 2016
Dollars in thousands	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Impaired Balance		Interest Income Recognized while impaired

Without a related allowance
Commercial	$	798	$	798	$	—	$	199	$	9
Commercial real estate
Owner-occupied	5,305		5,305		—		5,375		208
Non-owner occupied	10,469		10,470		—		10,912		297
Construction and development
Land & land development	7,364		7,365		—		7,408		162
Construction	—		—		—		—		—
Residential real estate
Non-jumbo	3,866		3,880		—		3,780		169
Jumbo	3,713		3,711		—		3,725		177
Home equity	709		709		—		709		21
Mortgage warehouse lines	—		—		—		—		—
Consumer	53		53		—		57		5
Total without a related allowance	$	32,277	$	32,291	$	—	$	32,165	$	1,048

With a related allowance
Commercial	$	19	$	19	$	19	$	—	$	—
Commercial real estate
Owner-occupied	2,882		2,882		13		2,906		112
Non-owner occupied	1,859		1,859		144		1,850		72
Construction and development
Land & land development	1,153		1,153		141		1,152		—
Construction	—		—		—		—		—
Residential real estate
Non-jumbo	2,331		2,332		179		2,335		112
Jumbo	864		864		28		866		43
Home equity	—		—		—		—		—
Mortgage warehouse lines	—		—		—		—		—
Consumer	—		—		—		—		—
Total with a related allowance	$	9,108	$	9,109	$	524	$	9,109	$	339

Total
Commercial	$	29,849	$	29,851	$	317	$	29,802	$	860
Residential real estate	11,483		11,496		207		11,415		522
Consumer	53		53		—		57		5
Total	$	41,385	$	41,400	$	524	$	41,274	$	1,387

Included in impaired loans are TDRs of $26.9 million, of which $26.5 million were current with respect to restructured contractual payments at June 30, 2017, and $28.6 million, of which $28.1 million were current with respect to restructured contractual payments at December 31, 2016. There were no commitments to lend additional funds under these restructurings at either balance sheet date.

The following table presents by class the TDRs that were restructured during the three and six months ended June 30, 2017 and June 30, 2016 . Generally, the modifications were extensions of term, modifying the payment terms from principal and interest to interest only for an extended period, or reduction in interest rate. All TDRs are evaluated individually for allowance for loan loss purposes.



	For the Three Months Ended June 30, 2017					For the Three Months Ended June 30, 2016
Dollars in thousands	Number of Modifications	Pre-modification Recorded Investment		Post-modification Recorded Investment		Number of Modifications	Pre-modification Recorded Investment		Post-modification Recorded Investment
Residential real estate
Non-jumbo	1	206		206		2	145		145
Consumer	—	—		—		1	2		2
Total	1	$	206	$	206	3	$	147	$	147



	For the Six Months Ended June 30, 2017					For the Six Months Ended June 30, 2016
Dollars in thousands	Number of Modifications	Pre-modification Recorded Investment		Post-modification Recorded Investment		Number of Modifications	Pre-modification Recorded Investment		Post-modification Recorded Investment
Residential real estate
Non-jumbo	5	1,087		1,087		3	395		395
Consumer	—	—		—		1	2		2
Total	5	$	1,087	$	1,087	4	$	397	$	397

During the three months and six months ended June 30, 2017, three non-jumbo residential real estate loans that had been restructured within the past twelve months defaulted. A default is considered as either the loan was past due 30 days or more at any time during the period, or the loan was fully or partially charged off during the period.

The following table details the activity regarding TDRs by loan type for the three months and six months ended June 30, 2017, and the related allowance on TDRs.



For the Three Months Ended June 30, 2017
	Construction & Land Development								Commercial Real Estate						Residential Real Estate
Dollars in thousands	Land & Land Develop- ment			Construc- tion		Commer- cial			Owner Occupied			Non- Owner Occupied			Non- jumbo			Jumbo			Home Equity		Mortgage Warehouse Lines		Con- sumer			Other		Total
Troubled debt restructurings
Balance April 1, 2017	$	3,514		$	—	$	178		$	7,355		$	6,591		$	6,214		$	4,478		$	523	$	—	$	40		$	—	$	28,893
Additions	—			—		—			—			—			206			—			—		—		—			—		206
Charge-offs	—			—		—			—			—			—			—			—		—		—			—		—
Net (paydowns) advances	(607		)	—		(7		)	(40		)	(1,346		)	(220		)	(22		)	—		—		(6		)	—		(2,248		)
Transfer into foreclosed properties	—			—		—			—			—			—			—			—		—		—			—		—
Refinance out of TDR status	—			—		—			—			—			—			—			—		—		—			—		—
Balance, June 30, 2017	$	2,907		$	—	$	171		$	7,315		$	5,245		$	6,200		$	4,456		$	523	$	—	$	34		$	—	$	26,851

Allowance related to troubled debt restructurings	$	733		$	—	$	—		$	196		$	—		$	315		$	18		$	—	$	—	$	—		$	—	$	1,262



For the Six Months Ended June 30, 2017
	Construction & Land Development								Commercial Real Estate						Residential Real Estate
Dollars in thousands	Land & Land Develop- ment			Construc- tion		Commer- cial			Owner Occupied			Non- Owner Occupied			Non- jumbo			Jumbo			Home Equity		Mortgage Warehouse Lines		Con- sumer			Other		Total
Troubled debt restructurings
Balance January 1, 2017	$	3,866		$	—	$	183		$	7,383		$	6,714		$	5,417		$	4,493		$	523	$	—	$	44		$	—	$	28,623
Additions	—			—		—			—			—			1,087			—			—		—		—			—		1,087
Charge-offs	—			—		—			—			(65		)	—			—			—		—		—			—		(65		)
Net (paydowns) advances	(959		)	—		(12		)	(68		)	(1,404		)	(304		)	(37		)	—		—		(10		)	—		(2,794		)
Transfer into foreclosed properties	—			—		—			—			—			—			—			—		—		—			—		—
Refinance out of TDR status	—			—		—			—			—			—			—			—		—		—			—		—
Balance, June 30, 2017	$	2,907		$	—	$	171		$	7,315		$	5,245		$	6,200		$	4,456		$	523	$	—	$	34		$	—	$	26,851

Allowance related to troubled debt restructurings	$	733		$	—	$	—		$	196		$	—		$	315		$	18		$	—	$	—	$	—		$	—	$	1,262

The following table presents the recorded investment in construction and development, commercial, and commercial real estate loans which are generally evaluated based upon our internal risk ratings.



Loan Risk Profile by Internal Risk Rating
	Construction and Development												Commercial Real Estate
	Land and Land Development				Construction				Commercial				Owner Occupied				Non-Owner Occupied				Mortgage Warehouse Lines
Dollars in thousands	6/30/2017		12/31/2016		6/30/2017		12/31/2016		6/30/2017		12/31/2016		6/30/2017		12/31/2016		6/30/2017		12/31/2016		6/30/2017		12/31/2016
Pass	$	67,205	$	64,144	$	22,967	$	16,584	$	171,525	$	117,214	$	231,047	$	201,113	$	446,434	$	375,181	$	35,068	$	85,966
OLEM (Special Mention)	1,893		2,097		—		—		4,040		1,471		5,671		567		2,040		1,381		—		—
Substandard	5,057		5,801		—		—		797		403		2,390		1,367		6,965		5,359		—		—
Doubtful	—		—		—		—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—		—		—		—
Total	$	74,155	$	72,042	$	22,967	$	16,584	$	176,362	$	119,088	$	239,108	$	203,047	$	455,439	$	381,921	$	35,068	$	85,966

The following table presents the recorded investment in consumer, residential real estate, and home equity loans, which are generally evaluated based on the aging status of the loans, which was previously presented, and payment activity.



	Performing						Nonperforming
Dollars in thousands	6/30/2017		12/31/2016		6/30/2016		6/30/2017		12/31/2016		6/30/2016
Residential real estate
Non-jumbo	$	349,391	$	261,020	$	222,982	$	6,155	$	4,621	$	2,937
Jumbo	63,899		65,628		52,105		—		—		—
Home Equity	80,487		74,402		75,310		705		194		594
Consumer	37,190		25,368		19,418		440		166		102
Other	9,049		9,489		10,008		—		—		—
Total	$	540,016	$	435,907	$	379,823	$	7,300	$	4,981	$	3,633

Loan commitments: ASC Topic 815, Derivatives and Hedging, requires that commitments to make mortgage loans should be accounted for as derivatives if the loans are to be held for sale, because the commitment represents a written option and accordingly is recorded at the fair value of the option liability.