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Note 6: Loans and Allowance For Loan Losses | 9 Months Ended
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Sep. 30, 2016
Notes |
Note 6: Loans and Allowance For Loan Losses | NOTE 6: LOANS AND ALLOWANCE FOR LOAN LOSSES
| September 30, |  | December 31,
| 2016 |  | 2015
| (In Thousands)
One- to four-family residential construction | $ 26,540 |  | $ 23,526
Subdivision construction | 16,947 |  | 38,504
Land development | 53,585 |  | 58,440
Commercial construction | 700,232 |  | 600,794
Owner occupied one- to four-family residential | 215,301 |  | 110,277
Non-owner occupied one- to four-family residential | 137,500 |  | 149,874
Commercial real estate | 1,172,522 |  | 1,043,474
Other residential | 643,110 |  | 419,549
Commercial business | 347,369 |  | 357,580
Industrial revenue bonds | 25,215 |  | 37,362
Consumer auto | 498,098 |  | 439,895
Consumer other | 70,399 |  | 74,829
Home equity lines of credit | 104,014 |  | 83,966
Acquired FDIC-covered loans, net of discounts | 144,420 |  | 236,071
Acquired loans no longer covered by FDIC loss sharing agreements, |  |  |
net of discounts | 78,885 |  | 33,338
Acquired non-covered loans, net of discounts | 81,986 |  | 93,436
| 4,316,123 |  | 3,800,915
Undisbursed portion of loans in process | (588,114) |  | (418,702)
Allowance for loan losses | (37,002) |  | (38,149)
Deferred loan fees and gains, net | (4,500) |  | (3,528)
| $ 3,686,507 |  | $ 3,340,536
Weighted average interest rate | 4.54% |  | 4.56%
Classes of loans by aging were as follows:
| September 30, 2016
|  |  |  |  |  |  | Total Loans
|  |  | Past Due |  |  |  | > 90 Days
| 30-59 Days | 60-89 Days | 90 Days | Total Past |  | Total Loans | Past Due and
| Past Due | Past Due | or More | Due | Current | Receivable | Still Accruing
| (In Thousands)
One- to four-family |  |  |  |  |  |  |
residential construction | $ — | $ — | $ — | $ — | $ 26,540 | $ 26,540 | $ —
Subdivision construction | — | — | 111 | 111 | 16,836 | 16,947 | —
Land development | 5 | 40 | 1,715 | 1,760 | 51,825 | 53,585 | —
Commercial construction | — | — | — | — | 700,232 | 700,232 | —
Owner occupied one- to four- |  |  |  |  |  |  |
family residential | 89 | 636 | 951 | 1,676 | 213,625 | 215,301 | 14
Non-owner occupied one- to |  |  |  |  |  |  |
four-family residential | — | — | 347 | 347 | 137,153 | 137,500 | —
Commercial real estate | 59 | 122 | 7,054 | 7,235 | 1,165,287 | 1,172,522 | —
Other residential | 178 | — | — | 178 | 642,932 | 643,110 | —
Commercial business | 93 | 22 | 455 | 570 | 346,799 | 347,369 | —
Industrial revenue bonds | — | — | — | — | 25,215 | 25,215 | —
Consumer auto | 4,217 | 1,353 | 1,522 | 7,092 | 491,006 | 498,098 | 1
Consumer other | 644 | 273 | 680 | 1,597 | 68,802 | 70,399 | 3
Home equity lines of credit | 308 | 1 | 338 | 647 | 103,367 | 104,014 | —
Acquired FDIC-covered |  |  |  |  |  |  |
loans, net of discounts | 358 | 1,890 | 8,241 | 10,489 | 133,931 | 144,420 | 117
Acquired loans no longer |  |  |  |  |  |  |
covered by loss sharing |  |  |  |  |  |  |
agreements, net of |  |  |  |  |  |  |
discounts | 118 | 105 | 2,277 | 2,500 | 76,385 | 78,885 | —
Acquired non-covered loans, |  |  |  |  |  |  |
net of discounts | 556 | 11 | 4,406 | 4,973 | 77,013 | 81,986 | 592
| 6,625 | 4,453 | 28,097 | 39,175 | 4,276,948 | 4,316,123 | 727
Less FDIC-supported loans, |  |  |  |  |  |  |
and acquired non-covered |  |  |  |  |  |  |
loans, net of discounts | 1,032 | 2,006 | 14,924 | 17,962 | 287,329 | 305,291 | 709
Total | $ 5,593 | $ 2,447 | $ 13,173 | $ 21,213 | $ 3,989,619 | $ 4,010,832 | $ 18
| 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 | 356,263 | 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 | $ —
Nonaccruing loans (excluding FDIC-supported loans, net of discount and acquired non-covered loans, net of discount) are summarized as follows:
| September 30, |  | December 31,
| 2016 |  | 2015
| (In Thousands)
One- to four-family residential construction | $ — |  | $ —
Subdivision construction | 111 |  | —
Land development | 1,715 |  | 139
Commercial construction | — |  | —
Owner occupied one- to four-family residential | 937 |  | 715
Non-owner occupied one- to four-family residential | 347 |  | 345
Commercial real estate | 7,054 |  | 13,488
Other residential | — |  | —
Commercial business | 455 |  | 288
Industrial revenue bonds | — |  | —
Consumer auto | 1,521 |  | 721
Consumer other | 677 |  | 576
Home equity lines of credit | 338 |  | 297
Total | $ 13,155 |  | $ 16,569
The following table presents the activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2016. 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 September 30, 2016:
| 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 July 1, 2016 | $ 4,184 | $ 3,698 | $ 16,157 | $ 3,013 | $ 3,531 | $ 7,550 | $ 38,133
Provision (benefit) charged to expense | (738) | 1,702 | 1,130 | (1,238) | (425) | 2,069 | 2,500
Losses charged off | (38) | — | (1,815) | (1) | (191) | (2,548) | (4,593)
Recoveries | 23 | 15 | 17 | 80 | 33 | 794 | 962
Balance September 30, 2016 | $ 3,431 | $ 5,415 | $ 15,489 | $ 1,854 | $ 2,948 | $ 7,865 | $ 37,002
Ending balance: |  |  |  |  |  |  |
Balance January 1, 2016 | $ 4,900 | $ 3,190 | $ 14,738 | $ 3,019 | $ 4,203 | $ 8,099 | $ 38,149
Provision (benefit) charged to expense | (1,387) | 2,186 | 5,114 | (1,252) | (1,093) | 3,333 | 6,901
Losses charged off | (129) | — | (5,546) | (31) | (383) | (6,047) | (12,136)
Recoveries | 47 | 39 | 1,183 | 118 | 221 | 2,480 | 4,088
Balance September 30, 2016 | $ 3,431 | $ 5,415 | $ 15,489 | $ 1,854 | $ 2,948 | $ 7,865 | $ 37,002
Ending balance: |  |  |  |  |  |  |
Individually evaluated for |  |  |  |  |  |  |
impairment | $ 566 | $ — | $ 2,280 | $ 1,079 | $ 1,046 | $ 441 | $ 5,412
Collectively evaluated for |  |  |  |  |  |  |
impairment | $ 2,258 | $ 5,317 | $ 13,015 | $ 731 | $ 1,804 | $ 7,254 | $ 30,379
Loans acquired and |  |  |  |  |  |  |
accounted for under ASC |  |  |  |  |  |  |
310-30 | $ 607 | $ 98 | $ 194 | $ 44 | $ 98 | $ 170 | $ 1,211
Loans |  |  |  |  |  |  |
Individually evaluated for |  |  |  |  |  |  |
impairment | $ 5,887 | $ 3,977 | $ 13,369 | $ 9,051 | $ 2,326 | $ 2,900 | $ 37,510
Collectively evaluated for |  |  |  |  |  |  |
impairment | $ 390,401 | $ 639,133 | $ 1,159,153 | $ 744,766 | $ 370,258 | $ 669,611 | $ 3,973,322
Loans acquired and |  |  |  |  |  |  |
accounted for under ASC |  |  |  |  |  |  |
310-30 | $ 166,733 | $ 31,678 | $ 57,240 | $ 3,741 | $ 7,706 | $ 38,193 | $ 305,291
The following table presents the activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 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 July 1, 2015 | $ 3,886 | $ 3,342 | $ 20,191 | $ 3,288 | $ 3,992 | $ 4,999 | $ 39,698
Provision (benefit) charged to expense | 515 | 162 | (284) | (158) | 728 | 740 | 1,703
Losses charged off | — | — | (803) | (132) | (193) | (1,312) | (2,440)
Recoveries | 36 | 12 | 32 | 81 | 45 | 711 | 917
Balance September 30, 2015 | $ 4,437 | $ 3,516 | $ 19,136 | $ 3,079 | $ 4,572 | $ 5,138 | $ 39,878
Balance January 1, 2015 | $ 3,455 | $ 2,941 | $ 19,773 | $ 3,562 | $ 3,679 | $ 5,025 | $ 38,435
Provision (benefit) charged to expense | 961 | 546 | (45) | (348) | 1,618 | 1,571 | 4,303
Losses charged off | (66) | (2) | (807) | (329) | (968) | (3,394) | (5,566)
Recoveries | 87 | 31 | 215 | 194 | 243 | 1,936 | 2,706
Balance September 30, 2015 | $ 4,437 | $ 3,516 | $ 19,136 | $ 3,079 | $ 4,572 | $ 5,138 | $ 39,878
The following table presents 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 |  |  |  |  |  |  |
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 portfolio segments used in the preceding three tables correspond to the loan classes used in all other tables in Note 6 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 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 include loans modified in troubled debt restructurings where concessions have been granted to borrowers experiencing financial difficulties. Impaired loans (excluding FDIC-supported loans, net of discount and acquired non-covered loans, net of discount), are summarized as follows:
| September 30, 2016
|  | Unpaid |  |
| Recorded | Principal | Specific |
| Balance | Balance | Allowance |
| (In Thousands)
One- to four-family residential construction | $— | $— | $— |
Subdivision construction | 851 | 860 | 133 |
Land development | 9,051 | 9,146 | 1,079 |
Commercial construction | — | — | — |
Owner occupied one- to four-family residential | 3,170 | 3,450 | 382 |
Non-owner occupied one- to four-family residential | 1,865 | 2,119 | 51 |
Commercial real estate | 13,369 | 16,269 | 2,280 |
Other residential | 3,977 | 3,977 | — |
Commercial business | 2,326 | 2,438 | 1,046 |
Industrial revenue bonds | — | — | — |
Consumer auto | 1,632 | 1,751 | 245 |
Consumer other | 886 | 959 | 133 |
Home equity lines of credit | 383 | 396 | 63 |
Total | $37,510 | $41,365 | $5,412 |
| Three Months Ended |  | Nine Months Ended
| September 30, 2016 |  | September 30, 2016
| Average |  |  | Average |
| Investment | Interest |  | Investment | Interest
| in Impaired | Income |  | in Impaired | Income
| Loans | Recognized |  | Loans | Recognized
| (In Thousands)
One- to four-family residential construction | $— | $— |  | $— | $—
Subdivision construction | 924 | 6 |  | 987 | 36
Land development | 9,066 | 120 |  | 8,016 | 266
Commercial construction | — | — |  | — | —
Owner occupied one- to four-family residential | 3,181 | 50 |  | 3,252 | 129
Non-owner occupied one- to four-family residential | 1,947 | 31 |  | 1,877 | 83
Commercial real estate | 22,325 | 223 |  | 28,133 | 847
Other residential | 6,321 | 44 |  | 7,779 | 219
Commercial business | 2,190 | 39 |  | 2,174 | 87
Industrial revenue bonds | — | — |  | — | —
Consumer auto | 1,434 | 55 |  | 1,123 | 93
Consumer other | 864 | 27 |  | 876 | 56
Home equity lines of credit | 395 | 3 |  | 422 | 22
Total | $48,647 | $598 |  | $54,639 | $1,838
| At or for the Year Ended 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 | 61 | 403 | 27
Total | $62,161 | $65,689 | $6,093 | $59,153 | $2,980
| September 30, 2015
|  | Unpaid |  |
| Recorded | Principal | Specific |
| Balance | Balance | Allowance |
| (In Thousands)
One- to four-family residential construction | $712 | $712 | $— |
Subdivision construction | 2,531 | 2,535 | 218 |
Land development | 7,416 | 7,421 | 1,405 |
Commercial construction | — | — | — |
Owner occupied one- to four-family residential | 3,462 | 3,732 | 411 |
Non-owner occupied one- to four-family residential | 1,853 | 2,064 | 134 |
Commercial real estate | 32,232 | 33,618 | 3,340 |
Other residential | 9,567 | 9,567 | — |
Commercial business | 2,701 | 2,783 | 473 |
Industrial revenue bonds | — | — | — |
Consumer auto | 725 | 762 | 109 |
Consumer other | 861 | 993 | 129 |
Home equity lines of credit | 430 | 456 | 73 |
Total | $62,490 | $64,643 | $6,292 |
| Three Months Ended |  | Nine Months Ended
| September 30, 2015 |  | September 30, 2015
| Average |  |  | Average |
| Investment | Interest |  | Investment | Interest
| in Impaired | Income |  | in Impaired | Income
| Loans | Recognized |  | Loans | Recognized
| (In Thousands)
One- to four-family residential construction | $634 | $7 |  | $755 | $35
Subdivision construction | 3,749 | 32 |  | 4,218 | 99
Land development | 7,425 | 72 |  | 7,425 | 204
Commercial construction | — | — |  | — | —
Owner occupied one- to four-family residential | 3,424 | 44 |  | 3,696 | 132
Non-owner occupied one- to four-family residential | 1,739 | 30 |  | 1,737 | 75
Commercial real estate | 28,026 | 559 |  | 26,979 | 1,189
Other residential | 9,612 | 106 |  | 9,711 | 286
Commercial business | 2,058 | 62 |  | 2,163 | 109
Industrial revenue bonds | — | — |  | — | —
Consumer auto | 626 | 19 |  | 502 | 40
Consumer other | 732 | 30 |  | 628 | 63
Home equity lines of credit | 395 | 7 |  | 402 | 20
Total | $58,420 | $968 |  | $58,216 | $2,252
At September 30, 2016, $17.0 million of impaired loans had specific valuation allowances totaling $5.4 million. At December 31, 2015, $25.1 million of impaired loans had specific valuation allowances totaling $6.1 million. 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 tables present newly restructured loans during the three and nine months ended September 30, 2016 by type of modification:
| Three Months Ended September 30, 2016
|  |  |  | Total
| Interest Only | Term | Combination | Modification
| (In Thousands)
Consumer | $ — | $ 18 | $ — | $ 18
| $ — | $ 18 | $ — | $ 18
| Nine Months Ended September 30, 2016
|  |  |  | Total
| Interest Only | Term | Combination | Modification
| (In Thousands)
Mortgage loans on real estate: |  |  |  |
One -to four- family residential | $ 429 | $ — | $ — | $ 429
Commercial | 60 | — | — | 60
Construction and land development | 2,946 | — | — | 2,946
Commercial business | — | 22 | — | 22
Consumer | — | 58 | — | 58
| $ 3,435 | $ 80 | $ — | $ 3,515
At September 30, 2016, the Company had $25.0 million of loans that were modified in troubled debt restructurings and impaired, as follows: $8.1 million of construction and land development loans, $7.6 million of single family and multi-family residential mortgage loans, $7.1 million of commercial real estate loans, $1.9 million of commercial business loans and $309,000 of consumer loans. Of the total troubled debt restructurings at September 30, 2016, $22.7 million were accruing interest and $7.9 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 nine months ended September 30, 2016. 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, 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. During the three months ended September 30, 2016, no loans designated as troubled debt restructurings met the criteria for placement back on accrual status. During the nine months ended September 30, 2016, loans designated as troubled debt restructurings totaling $424,000 met the criteria for placement back on accrual status. The $424,000 consisted of $235,000 of one- to four- family residential loans, $100,000 of commercial real estate loans and $89,000 of consumer loans. The criteria is generally a minimum of six months of payment performance under original or modified terms. 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 FDIC-covered and previously covered loans are evaluated using this internal grading system. These loans are accounted for in pools and the loans acquired in the InterSavings Bank FDIC transaction are currently substantially covered through loss sharing agreements with the FDIC. Minimal adverse classification in these loan pools was identified as of September 30, 2016 and December 31, 2015, 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 September 30, 2016 and December 31, 2015, respectively. See Note 7 for further discussion of the acquired loan pools and remaining 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. For interim periods, the Company uses three full years plus the interim period’s annualized average losses for the general component of the allowance for loan loss calculation. 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 average life of the loan, 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 the Company’s 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:
|  | September 30, 2016
|  |  | Special |  |  |
| Satisfactory | Watch | Mention | Substandard | Doubtful | Total
| (In Thousands)
One- to four-family residential |  |  |  |  |  |
construction | $ 25,529 | $ — | $ 1,011 | $ — | $ — | $ 26,540
Subdivision construction | 13,543 | 18 | 2,987 | 399 | — | 16,947
Land development | 42,889 | 5,140 | — | 5,556 | — | 53,585
Commercial construction | 700,232 | — | — | — | — | 700,232
Owner occupied one- to four- |  |  |  |  |  |
family residential | 213,964 | 30 | — | 1,307 | — | 215,301
Non-owner occupied one- to four- |  |  |  |  |  |
family residential | 133,134 | 471 | 3,421 | 474 | — | 137,500
Commercial real estate | 1,142,425 | 20,819 | — | 9,278 | — | 1,172,522
Other residential | 638,413 | 4,519 | — | 178 | — | 643,110
Commercial business | 343,978 | 2,440 | 424 | 527 | — | 347,369
Industrial revenue bonds | 25,215 | — | — | — | — | 25,215
Consumer auto | 496,491 | — | — | 1,607 | — | 498,098
Consumer other | 69,665 | — | — | 734 | — | 70,399
Home equity lines of credit | 103,644 | — | — | 370 | — | 104,014
Acquired FDIC-covered loans, |  |  |  |  |  |
net of discounts | 144,224 | — | — | 196 | — | 144,420
Acquired loans no longer covered |  |  |  |  |  |
by FDIC loss sharing |  |  |  |  |  |
agreements, net of discounts | 78,833 | — | — | 52 | — | 78,885
Acquired non-covered loans, |  |  |  |  |  |
net of discounts | 80,559 | — | — | 1,427 | — | 81,986
Total | $ 4,252,738 | $ 33,437 | $ 7,843 | $ 22,105 | $ — | $ 4,316,123
| 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

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