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Note 3: Loans and Allowance For Loan Losses | 12 Months Ended
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Dec. 31, 2015
Notes |
Note 3: Loans and Allowance For Loan Losses | Note 3: Loans and Allowance for Loan Losses Classes of loans at December 31, 2015 and 2014, included:
| 2015 |  | 2014
(In Thousands) |  |  |
One- to four-family residential construction | $23,526 |  | $40,361
Subdivision construction | 38,504 |  | 28,593
Land development | 58,440 |  | 52,096
Commercial construction | 600,794 |  | 392,929
Owner occupied one- to four-family residential | 110,277 |  | 87,549
Non-owner occupied one- to four-family residential | 149,874 |  | 143,051
Commercial real estate | 1,043,474 |  | 945,876
Other residential | 419,549 |  | 392,414
Commercial business | 357,580 |  | 354,012
Industrial revenue bonds | 37,362 |  | 41,061
Consumer auto | 439,895 |  | 323,353
Consumer other | 74,829 |  | 78,029
Home equity lines of credit | 83,966 |  | 66,272
Acquired FDIC-covered loans, net of discounts | 236,071 |  | 286,608
Acquired loans no longer covered by FDIC loss sharing |  |  |
agreements, net of discounts | 33,338 |  | 49,945
Acquired non-covered loans, net of discounts | 93,436 |  | 121,982
| 3,800,915 |  | 3,404,131
Undisbursed portion of loans in process | (418,702) |  | (323,572)
Allowance for loan losses | (38,149) |  | (38,435)
Deferred loan fees and gains, net | (3,528) |  | (3,276)
| $3,340,536 |  | $3,038,848
Classes of loans by aging were as follows:
| December 31, 2015
|  |  |  |  |  |  | Total Loans
|  |  |  |  |  | Total | > 90 Days Past
| 30-59 Days | 60-89 Days | Over 90 | Total Past |  | Loans | Due and
| Past Due | Past Due | Days | Due | Current | Receivable | Still Accruing
(In Thousands) |  |  |  |  |  |  |
One- to four-family |  |  |  |  |  |  |
residential construction | $649 | $-- | $-- | $649 | $22,877 | $23,526 | $--
Subdivision construction | -- | -- | -- | -- | 38,504 | 38,504 | --
Land development | 2,245 | 148 | 139 | 2,532 | 55,908 | 58,440 | --
Commercial construction | 1 | -- | -- | 1 | 600,793 | 600,794 | --
Owner occupied one- to four- |  |  |  |  |  |  |
family residential | 1,217 | 345 | 715 | 2,277 | 108,000 | 110,277 | --
Non-owner occupied one- to |  |  |  |  |  |  |
four-family residential | -- | -- | 345 | 345 | 149,529 | 149,874 | --
Commercial real estate | 1,035 | 471 | 13,488 | 14,994 | 1,028,480 | 1,043,474 | --
Other residential | -- | -- | -- | -- | 419,549 | 419,549 | --
Commercial business | 1,020 | 9 | 288 | 1,317 | 356,253 | 357,580 | --
Industrial revenue bonds | -- | -- | -- | -- | 37,362 | 37,362 | --
Consumer auto | 3,351 | 891 | 721 | 4,963 | 434,932 | 439,895 | --
Consumer other | 943 | 236 | 576 | 1,755 | 73,074 | 74,829 | --
Home equity lines of credit | 212 | 123 | 297 | 632 | 83,334 | 83,966 | --
Acquired FDIC-covered loans, net of discounts | 7,936 | 603 | 9,712 | 18,251 | 217,820 | 236,071 | --
Acquired loans no longer covered by FDIC loss sharing agreements, |  |  |  |  |  |  |
net of discounts | 989 | 39 | 33 | 1,061 | 32,277 | 33,338 | --
Acquired non-covered loans, net of discounts | 1,081 | 638 | 5,914 | 7,633 | 85,803 | 93,436 | --
| 20,679 | 3,503 | 32,228 | 56,410 | 3,744,505 | 3,800,915 | --
Less FDIC-supported loans, |  |  |  |  |  |  |
and acquired non-covered loans, net of discounts | 10,006 | 1,280 | 15,659 | 26,945 | 335,900 | 362,845 | --
Total | $10,673 | $2,223 | $16,569 | $29,465 | $3,408,605 | $3,438,070 | $--
| December 31, 2014
|  |  |  |  |  |  | Total Loans
|  |  |  |  |  | Total | > 90 Days Past
| 30-59 Days | 60-89 Days | Over 90 | Total Past |  | Loans | Due and
| Past Due | Past Due | Days | Due | Current | Receivable | Still Accruing
(In Thousands) |  |  |  |  |  |  |
One- to four-family |  |  |  |  |  |  |
residential construction | $-- | $-- | $-- | $-- | $40,361 | $40,361 | $--
Subdivision construction | 109 | -- | -- | 109 | 28,484 | 28,593 | --
Land development | 110 | -- | 255 | 365 | 51,731 | 52,096 | --
Commercial construction | -- | -- | -- | -- | 392,929 | 392,929 | --
Owner occupied one- to four- |  |  |  |  |  |  |
family residential | 2,037 | 441 | 1,029 | 3,507 | 84,042 | 87,549 | 170
Non-owner occupied one- to |  |  |  |  |  |  |
four-family residential | 583 | -- | 296 | 879 | 142,172 | 143,051 | --
Commercial real estate | 6,887 | -- | 4,699 | 11,586 | 934,290 | 945,876 | 187
Other residential | -- | -- | -- | -- | 392,414 | 392,414 | --
Commercial business | 59 | -- | 411 | 470 | 353,542 | 354,012 | --
Industrial revenue bonds | -- | -- | -- | -- | 41,061 | 41,061 | --
Consumer auto | 1,801 | 244 | 316 | 2,361 | 320,992 | 323,353 | --
Consumer other | 1,301 | 260 | 801 | 2,362 | 75,667 | 78,029 | 397
Home equity lines of credit | 89 | -- | 340 | 429 | 65,843 | 66,272 | 22
Acquired FDIC-covered loans, net of discounts | 6,236 | 1,062 | 16,419 | 23,717 | 262,891 | 286,608 | 194
Acquired loans no longer covered by FDIC loss sharing agreements, |  |  |  |  |  |  |
net of discounts | 754 | 46 | 243 | 1,043 | 48,902 | 49,945 | --
Acquired non-covered loans, net of discounts | 2,638 | 640 | 11,248 | 14,526 | 107,456 | 121,982 | --
| 22,604 | 2,693 | 36,057 | 61,354 | 3,342,777 | 3,404,131 | 970
Less FDIC-supported loans, |  |  |  |  |  |  |
and acquired non-covered loans, net of discounts | 9,628 | 1,748 | 27,910 | 39,286 | 419,249 | 458,535 | 194
Total | $12,976 | $945 | $8,147 | $22,068 | $2,923,528 | $2,945,596 | $776
Nonaccruing loans are summarized as follows:
| December 31,
| 2015 |  | 2014
(In Thousands) |  |  |
One- to four-family residential construction | $-- |  | $--
Subdivision construction | -- |  | --
Land development | 139 |  | 255
Commercial construction | -- |  | --
Owner occupied one- to four-family residential | 715 |  | 859
Non-owner occupied one- to four-family |  |  |
residential | 345 |  | 296
Commercial real estate | 13,488 |  | 4,512
Other residential | -- |  | --
Commercial business | 288 |  | 411
Industrial revenue bonds | -- |  | --
Consumer auto | 721 |  | 316
Consumer other | 576 |  | 404
Home equity lines of credit | 297 |  | 318
Total | $16,569 |  | $7,371
The following table presents the activity in the allowance for loan losses by portfolio segment for the year ended December 31, 2015. Also presented are the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of December 31, 2015:
| One- to Four- |  |  |  |  |  |
| Family |  |  |  |  |  |
| Residential |  |  |  |  |  |
| and | Other | Commercial | Commercial | Commercial |  |
| Construction | Residential | Real Estate | Construction | Business | Consumer | Total
(In Thousands) |  |  |  |  |  |  |
Allowance for Loan Losses |  |  |  |  |  |  |
Balance, January 1, 2015 | $3,455 | $2,941 | $19,773 | $3,562 | $3,679 | $5,025 | $38,435
Provision (benefit) charged to expense | 1,428 | 193 | (2,753) | (619) | 1,450 | 5,820 | 5,519
Losses charged off | (80) | (2) | (2,584) | (329) | (1,202) | (5,315) | (9,512)
Recoveries | 97 | 58 | 302 | 405 | 276 | 2,569 | 3,707
Balance, |  |  |  |  |  |  |
December 31, 2015 | $4,900 | $3,190 | $14,738 | $3,019 | $4,203 | $8,099 | $38,149
Ending balance: |  |  |  |  |  |  |
Individually evaluated |  |  |  |  |  |  |
for impairment | $731 | $-- | $2,556 | $1,391 | $1,115 | $300 | $6,093
Collectively evaluated |  |  |  |  |  |  |
for impairment | $3,464 | $3,122 | $11,888 | $1,570 | $2,862 | $7,647 | $30,553
Loans acquired and |  |  |  |  |  |  |
accounted for under |  |  |  |  |  |  |
ASC 310-30 | $705 | $68 | $294 | $58 | $226 | $152 | $1,503
Loans |  |  |  |  |  |  |
Individually evaluated |  |  |  |  |  |  |
for impairment | $6,129 | $9,533 | $34,629 | $7,555 | $2,365 | $1,950 | $62,161
Collectively evaluated |  |  |  |  |  |  |
for impairment | $316,052 | $410,016 | $1,008,845 | $651,679 | $392,577 | $596,740 | $3,375,909
Loans acquired and |  |  |  |  |  |  |
accounted for under |  |  |  |  |  |  |
ASC 310-30 | $194,697 | $35,945 | $73,148 | $4,981 | $10,500 | $43,574 | $362,845
The following table presents the activity in the allowance for loan losses by portfolio segment for the year ended December 31, 2014. Also presented are the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of December 31, 2014:
| One- to Four- |  |  |  |  |  |
| Family |  |  |  |  |  |
| Residential |  |  |  |  |  |
| and | Other | Commercial | Commercial | Commercial |  |
| Construction | Residential | Real Estate | Construction | Business | Consumer | Total
(In Thousands) |  |  |  |  |  |  |
Allowance for Loan Losses |  |  |  |  |  |  |
Balance, January 1, 2014 | $6,235 | $2,678 | $16,939 | $4,464 | $6,451 | $3,349 | $40,116
Provision (benefit) charged to expense | (1,025) | 227 | 1,855 | (957) | 409 | 3,642 | 4,151
Losses charged off | (2,251) | (1) | (2,160) | (126) | (3,286) | (4,005) | (11,829)
Recoveries | 496 | 37 | 3,139 | 181 | 105 | 2,039 | 5,997
Balance, |  |  |  |  |  |  |
December 31, 2014 | $3,455 | $2,941 | $19,773 | $3,562 | $3,679 | $5,025 | $38,435
Ending balance: |  |  |  |  |  |  |
Individually evaluated |  |  |  |  |  |  |
for impairment | $829 | $-- | $1,751 | $1,507 | $823 | $232 | $5,142
Collectively evaluated |  |  |  |  |  |  |
for impairment | $2,532 | $2,923 | $16,671 | $1,905 | $2,805 | $4,321 | $31,157
Loans acquired and |  |  |  |  |  |  |
accounted for under |  |  |  |  |  |  |
ASC 310-30 | $94 | $18 | $1,351 | $150 | $51 | $472 | $2,136
Loans |  |  |  |  |  |  |
Individually evaluated |  |  |  |  |  |  |
for impairment | $11,488 | $9,804 | $28,641 | $7,601 | $2,725 | $1,480 | $61,739
Collectively evaluated |  |  |  |  |  |  |
for impairment | $288,066 | $382,610 | $917,235 | $437,424 | $392,348 | $466,174 | $2,883,857
Loans acquired and |  |  |  |  |  |  |
accounted for under |  |  |  |  |  |  |
ASC 310-30 | $234,158 | $48,470 | $107,278 | $1,937 | $17,789 | $48,903 | $458,535
The following table presents the activity in the allowance for loan losses by portfolio segment for the year ended December 31, 2013. Also presented are the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of December 31, 2013:
| One- to Four- |  |  |  |  |  |
| Family |  |  |  |  |  |
| Residential |  |  |  |  |  |
| and | Other | Commercial | Commercial | Commercial |  |
| Construction | Residential | Real Estate | Construction | Business | Consumer | Total
(In Thousands) |  |  |  |  |  |  |
Allowance for Loan Losses |  |  |  |  |  |  |
Balance, January 1, 2013 | $6,822 | $4,327 | $17,441 | $3,938 | $5,096 | $3,025 | $40,649
Provision charged to expense | 1,496 | 1,556 | 6,922 | 1,142 | 4,404 | 1,866 | 17,386
Losses charged off | (2,196) | (3,248) | (9,836) | (788) | (4,072) | (3,312) | (23,452)
Recoveries | 113 | 43 | 2,412 | 172 | 1,023 | 1,770 | 5,533
Balance, |  |  |  |  |  |  |
December 31, 2013 | $6,235 | $2,678 | $16,939 | $4,464 | $6,451 | $3,349 | $40,116
Ending balance: |  |  |  |  |  |  |
Individually evaluated |  |  |  |  |  |  |
for impairment | $2,501 | $-- | $90 | $473 | $4,162 | $218 | $7,444
Collectively evaluated |  |  |  |  |  |  |
for impairment | $3,734 | $2,678 | $16,845 | $3,991 | $2,287 | $3,131 | $32,666
Loans acquired and |  |  |  |  |  |  |
accounted for under |  |  |  |  |  |  |
ASC 310-30 | $-- | $-- | $4 | $-- | $2 | $-- | $6
Loans |  |  |  |  |  |  |
Individually evaluated |  |  |  |  |  |  |
for impairment | $13,055 | $10,983 | $31,591 | $12,628 | $8,755 | $1,389 | $78,401
Collectively evaluated |  |  |  |  |  |  |
for impairment | $297,057 | $314,616 | $791,329 | $229,332 | $306,514 | $273,871 | $2,212,619
Loans acquired and |  |  |  |  |  |  |
accounted for under |  |  |  |  |  |  |
ASC 310-30 | $206,964 | $35,095 | $84,591 | $6,989 | $4,883 | $47,642 | $386,164
The portfolio segments used in the preceding three tables correspond to the loan classes used in all other tables in Note 3 as follows: · The one- to four-family residential and construction segment includes the one- to four-family residential construction, subdivision construction, owner occupied one- to four-family residential and non-owner occupied one- to four-family residential classes. · The other residential segment corresponds to the other residential class. · The commercial real estate segment includes the commercial real estate and industrial revenue bonds classes. · The commercial construction segment includes the land development and commercial construction classes. · The commercial business segment corresponds to the commercial business class. · The consumer segment includes the consumer auto, consumer other and home equity lines of credit classes. The weighted average interest rate on loans receivable at December 31, 2015 and 2014, was 4.56% and 4.66%, respectively. Loans serviced for others are not included in the accompanying consolidated statements of financial condition. The unpaid principal balances of loans serviced for others were $237.7 million and $266.4 million at December 31, 2015 and 2014, respectively. In addition, available lines of credit on these loans were $32.3 million and $33.0 million at December 31, 2015 and 2014, respectively. A loan is considered impaired, in accordance with the impairment accounting guidance (FASB ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include not only nonperforming loans but also loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. The following summarizes information regarding impaired loans at and during the years ended December 31, 2015, 2014 and 2013:
|  |  | Year Ended
| December 31, 2015 |  | December 31, 2015
|  |  |  |  | Average |
|  | Unpaid |  |  | Investment | Interest
| Recorded | Principal | Specific |  | in Impaired | Income
| Balance | Balance | Allowance |  | Loans | Recognized
(In Thousands) |  |  |  |  |  |
One- to four-family residential construction | $-- | $-- | $-- |  | $633 | $35
Subdivision construction | 1,061 | 1,061 | 214 |  | 3,533 | 109
Land development | 7,555 | 7,644 | 1,391 |  | 7,432 | 287
Commercial construction | -- | -- | -- |  | -- | --
Owner occupied one- to four-family |  |  |  |  |  |
residential | 3,166 | 3,427 | 389 |  | 3,587 | 179
Non-owner occupied one- to four-family |  |  |  |  |  |
residential | 1,902 | 2,138 | 128 |  | 1,769 | 100
Commercial real estate | 34,629 | 37,259 | 2,556 |  | 28,610 | 1,594
Other residential | 9,533 | 9,533 | -- |  | 9,670 | 378
Commercial business | 2,365 | 2,539 | 1,115 |  | 2,268 | 138
Industrial revenue bonds | -- | -- | -- |  | -- | --
Consumer auto | 791 | 829 | 119 |  | 576 | 59
Consumer other | 802 | 885 | 120 |  | 672 | 74
Home equity lines of credit | 357 | 374 | 62 |  | 403 | 27
Total | $62,161 | $65,689 | $6,093 |  | $59,153 | $2,980
|  |  | Year Ended
| December 31, 2014 |  | December 31, 2014
|  |  |  |  | Average |
|  | Unpaid |  |  | Investment | Interest
| Recorded | Principal | Specific |  | in Impaired | Income
| Balance | Balance | Allowance |  | Loans | Recognized
(In Thousands) |  |  |  |  |  |
One- to four-family residential construction | $1,312 | $1,312 | $-- |  | $173 | $76
Subdivision construction | 4,540 | 4,540 | 344 |  | 2,593 | 226
Land development | 7,601 | 8,044 | 1,507 |  | 9,691 | 292
Commercial construction | -- | -- | -- |  | -- | --
Owner occupied one- to four-family |  |  |  |  |  |
residential | 3,747 | 4,094 | 407 |  | 4,808 | 212
Non-owner occupied one- to four-family |  |  |  |  |  |
residential | 1,889 | 2,113 | 78 |  | 4,010 | 94
Commercial real estate | 28,641 | 30,781 | 1,751 |  | 29,808 | 1,253
Other residential | 9,804 | 9,804 | -- |  | 10,469 | 407
Commercial business | 2,725 | 2,750 | 823 |  | 2,579 | 158
Industrial revenue bonds | -- | -- | -- |  | 2,644 | --
Consumer auto | 420 | 507 | 63 |  | 219 | 37
Consumer other | 629 | 765 | 94 |  | 676 | 71
Home equity lines of credit | 431 | 476 | 75 |  | 461 | 25
Total | $61,739 | $65,186 | $5,142 |  | $68,131 | $2,851
|  |  | Year Ended
| December 31, 2013 |  | December 31, 2013
|  |  |  |  | Average |
|  | Unpaid |  |  | Investment | Interest
| Recorded | Principal | Specific |  | in Impaired | Income
| Balance | Balance | Allowance |  | Loans | Recognized
(In Thousands) |  |  |  |  |  |
One- to four-family residential construction | $-- | $-- | $-- |  | $36 | $--
Subdivision construction | 3,502 | 3,531 | 1,659 |  | 3,315 | 163
Land development | 12,628 | 13,042 | 473 |  | 13,389 | 560
Commercial construction | -- | -- | -- |  | -- | --
Owner occupied one- to four-family |  |  |  |  |  |
residential | 5,802 | 6,117 | 593 |  | 5,101 | 251
Non-owner occupied one- to four-family |  |  |  |  |  |
residential | 3,751 | 4,003 | 249 |  | 4,797 | 195
Commercial real estate | 31,591 | 34,032 | 90 |  | 42,242 | 1,632
Other residential | 10,983 | 10,983 | --- |  | 13,837 | 434
Commercial business | 6,057 | 6,077 | 4,162 |  | 6,821 | 179
Industrial revenue bonds | 2,698 | 2,778 | -- |  | 2,700 | 27
Consumer auto | 216 | 231 | 32 |  | 145 | 16
Consumer other | 604 | 700 | 91 |  | 630 | 63
Home equity lines of credit | 569 | 706 | 95 |  | 391 | 38
Total | $78,401 | $82,200 | $ 7,444 |  | $ 93,404 | $3,558
At December 31, 2015, $25.1 million of impaired loans had specific valuation allowances totaling $6.1 million. At December 31, 2014, $20.0 million of impaired loans had specific valuation allowances totaling $5.1 million. At December 31, 2013, $18.0 million of impaired loans had specific valuation allowances totaling $7.4 million. For impaired loans which were nonaccruing, interest of approximately $1.0 million, $1.1 million and $1.6 million would have been recognized on an accrual basis during the years ended December 31, 2015, 2014 and 2013, respectively. Included in certain loan categories in the impaired loans are troubled debt restructurings that were classified as impaired. Troubled debt restructurings are loans that are modified by granting concessions to borrowers experiencing financial difficulties. These concessions could include a reduction in the interest rate on the loan, payment extensions, forgiveness of principal, forbearance or other actions intended to maximize collection. The types of concessions made are factored into the estimation of the allowance for loan losses for troubled debt restructurings primarily using a discounted cash flows or collateral adequacy approach. The following table presents newly restructured loans during 2015 and 2014 by type of modification:
| 2015
|  |  |  | Total
| Interest Only | Term | Combination | Modification
(In Thousands) |  |  |  |
Mortgage loans on real estate: |  |  |  |
Residential one-to-four family | $-- | $407 | $164 | $571
Commercial | -- | 115 | -- | 115
Commercial | -- | 1,095 | -- | 1,095
Consumer | -- | 97 | -- | 97
| $-- | $1,714 | $164 | $1,878
| 2014
|  |  |  | Total
| Interest Only | Term | Combination | Modification
(In Thousands) |  |  |  |
Mortgage loans on real estate: |  |  |  |
One- to four-family |  |  |  |
residential construction | $-- | $-- | $223 | $223
Subdivision construction | -- | 250 | -- | 250
Residential one-to-four family | 308 | 426 | -- | 734
Commercial | 506 | 1,928 | -- | 2,434
Other residential | -- | 1,881 | -- | 1,881
Commercial | -- | 1,150 | -- | 1,150
Consumer | -- | 145 | -- | 145
| $814 | $5,780 | $223 | $6,817
At December 31, 2015, the Company had $45.0 million of loans that were modified in troubled debt restructurings and impaired, as follows: $7.9 million of construction and land development loans, $13.5 million of single family and multi-family residential mortgage loans, $21.3 million of commercial real estate loans, $2.0 million of commercial business loans and $311,000 of consumer loans. Of the total troubled debt restructurings at December 31, 2015, $39.0 million were accruing interest and $12.2 million were classified as substandard using the Company’s internal grading system which is described below. The Company had no troubled debt restructurings which were modified in the previous 12 months and subsequently defaulted during the year ended December 31, 2015. When loans modified as troubled debt restructuring have subsequent payment defaults, the defaults are factored into the determination of the allowance for loan losses to ensure specific valuation allowances reflect amounts considered uncollectible. At December 31, 2014, the Company had $47.6 million of loans that were modified in troubled debt restructurings and impaired, as follows: $8.3 million of construction and land development loans, $13.8 million of single family and multi-family residential mortgage loans, $23.3 million of commercial real estate loans, $1.9 million of commercial business loans and $324,000 of consumer loans. Of the total troubled debt restructurings at December 31, 2014, $39.2 million were accruing interest and $18.3 million were classified as substandard using the Company’s internal grading system. During the year ended December 31, 2015, borrowers with loans designated as troubled debt restructurings totaling $2.7 million met the criteria for placement back on accrual status. This criteria is generally a minimum of six months of payment performance under original or modified terms. The $2.7 million was made up of $1.3 million of commercial real estate loans, $1.0 million of residential mortgage loans, $337,000 of construction and land development loans, $43,000 of consumer loans and $29,000 of commercial business loans. The Company reviews the credit quality of its loan portfolio using an internal grading system that classifies loans as “Satisfactory,” “Watch,” “Special Mention,” “Substandard” and “Doubtful.” Substandard loans are characterized by the distinct possibility that the Bank will sustain some loss if certain deficiencies are not corrected. Doubtful loans are those having all the weaknesses inherent to those classified Substandard with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Special mention loans possess potential weaknesses that deserve management’s close attention but do not expose the Bank to a degree of risk that warrants substandard classification. Loans classified as watch are being monitored because of indications of potential weaknesses or deficiencies that may require future classification as special mention or substandard. Loans not meeting any of the criteria previously described are considered satisfactory. The acquired FDIC-covered loans are evaluated using this internal grading system. These loans are accounted for in pools and are currently substantially covered through loss sharing agreements with the FDIC. Minimal adverse classification in the loan pools was identified as of December 31, 2015 and 2014, respectively. The acquired loans no longer covered by the FDIC are also evaluated using this internal grading system, and are accounted for in pools. Minimal adverse classification in the loan pools was identified as of December 31, 2015 and 2014, respectively. The acquired non-covered loans are also evaluated using this internal grading system. These loans are accounted for in pools and minimal adverse classification in the loan pools was identified as of December 31, 2015. See Note 4 for further discussion of the acquired loan pools and loss sharing agreements. The Company evaluates the loan risk internal grading system definitions and allowance for loan loss methodology on an ongoing basis. In the fourth quarter of 2014, the Company began using a three-year average of historical losses for the general component of the allowance for loan loss calculation. The Company had previously used a five-year average. The Company believes that the three-year average provides a better representation of the current risks in the loan portfolio. This change was made after consultation with our regulators and other third-party consultants, as well as a review of the practices used by the Company’s peers. This change did not materially affect the level of the allowance for loan losses. The general component of the allowance for loan losses is affected by several factors, including, but not limited to, average historical losses, the current composition of the loan portfolio, current and expected economic conditions, collateral values and internal risk ratings. Management considers all these factors in determining the adequacy of its allowance for loan losses. No other significant changes were made to the loan risk grading system definitions and allowance for loan loss methodology during the past year. The loan grading system is presented by loan class below:
| December 31, 2015
|  |  | Special |  |  |
| Satisfactory | Watch | Mention | Substandard | Doubtful | Total
(In Thousands) |  |  |  |  |  |
One- to four-family residential |  |  |  |  |  |
construction | $22,798 | $-- | $728 | $-- | $-- | $23,526
Subdivision construction | 34,370 | 263 | 3,407 | 464 | -- | 38,504
Land development | 47,357 | 6,992 | -- | 4,091 | -- | 58,440
Commercial construction | 600,794 | -- | -- | -- | -- | 600,794
Owner occupied one- to-four- |  |  |  |  |  |
family residential | 108,584 | 587 | -- | 1,106 | -- | 110,277
Non-owner occupied one- to- |  |  |  |  |  |
four-family residential | 144,744 | 516 | 3,827 | 787 | -- | 149,874
Commercial real estate | 1,005,894 | 18,805 | -- | 18,775 | -- | 1,043,474
Other residential | 409,172 | 8,422 | -- | 1,955 | -- | 419,549
Commercial business | 355,370 | 1,303 | 438 | 469 | --- | 357,580
Industrial revenue bonds | 37,362 | -- | -- | -- | -- | 37,362
Consumer auto | 439,157 | -- | -- | 738 | -- | 439,895
Consumer other | 74,167 | -- | -- | 662 | -- | 74,829
Home equity lines of credit | 83,627 | -- | -- | 339 | -- | 83,966
Acquired FDIC-covered loans, |  |  |  |  |  |
net of discounts | 236,055 | -- | -- | 16 | -- | 236,071
Acquired loans no longer covered |  |  |  |  |  |
by FDIC loss sharing |  |  |  |  |  |
agreements, net of discounts | 33,237 | -- | -- | 101 | -- | 33,338
Acquired non-covered loans, |  |  |  |  |  |
net of discounts | 91,614 | -- | -- | 1,822 | -- | 93,436
Total | $3,724,302 | $36,888 | $8,400 | $31,325 | $-- | $3,800,915
| December 31, 2014
|  |  | Special |  |  |
| Satisfactory | Watch | Mention | Substandard | Doubtful | Total
(In Thousands) |  |  |  |  |  |
One- to four-family residential |  |  |  |  |  |
construction | $39,049 | $--- | $-- | $1,312 | $-- | $40,361
Subdivision construction | 24,269 | 21 | -- | 4,303 | -- | 28,593
Land development | 41,035 | 5,000 | -- | 6,061 | -- | 52,096
Commercial construction | 392,929 | -- | -- | -- | -- | 392,929
Owner occupied one- to-four- |  |  |  |  |  |
family residential | 85,041 | 745 | -- | 1,763 | -- | 87,549
Non-owner occupied one- to- |  |  |  |  |  |
four-family residential | 141,198 | 580 | -- | 1,273 | -- | 143,051
Commercial real estate | 901,167 | 32,155 | -- | 12,554 | -- | 945,876
Other residential | 380,811 | 9,647 | -- | 1,956 | -- | 392,414
Commercial business | 351,744 | 423 | -- | 1,845 | --- | 354,012
Industrial revenue bonds | 40,037 | 1,024 | -- | --- | -- | 41,061
Consumer auto | 323,002 | -- | -- | 351 | -- | 323,353
Consumer other | 77,507 | 3 | -- | 519 | -- | 78,029
Home equity lines of credit | 65,841 | -- | -- | 431 | -- | 66,272
Acquired FDIC-covered loans, |  |  |  |  |  |
net of discounts | 286,049 | -- | -- | 559 | -- | 286,608
Acquired loans no longer covered |  |  |  |  |  |
by FDIC loss sharing |  |  |  |  |  |
agreements, net of discounts | 48,592 | -- | -- | 1,353 | -- | 49,945
Acquired non-covered loans, |  |  |  |  |  |
net of discounts | 121,982 | -- | -- | -- | -- | 121,982
Total | $3,320,253 | $49,598 | $-- | $34,280 | $--- | $3,404,131
Certain of the Bank’s real estate loans are pledged as collateral for borrowings as set forth in Notes 9 and 11. Certain directors and executive officers of the Company and the Bank are customers of and had transactions with the Bank in the ordinary course of business. Except for the interest rates on loans secured by personal residences, in the opinion of management, all loans included in such transactions were made on substantially the same terms as those prevailing at the time for comparable transactions with unrelated parties. Generally, residential first mortgage loans and home equity lines of credit to all employees and directors have been granted at interest rates equal to the Bank’s cost of funds, subject to annual adjustments in the case of residential first mortgage loans and monthly adjustments in the case of home equity lines of credit. At December 31, 2015 and 2014, loans outstanding to these directors and executive officers are summarized as follows:
| December 31, |
| 2015 |  | 2014
(In Thousands) |  |  |
Balance, beginning of year | $16,028 |  | $7,093
New loans | 3,390 |  | 10,427
Payments | (5,131) |  | (1,492)
Balance, end of year | $14,287 |  | $16,028

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