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Note 6: Loans and Allowance For Loan Losses | 3 Months Ended
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Jun. 30, 2017
Notes |
Note 6: Loans and Allowance For Loan Losses | NOTE 6: LOANS AND ALLOWANCE FOR LOAN LOSSES
| June 30, |  | December 31,
| 2017 |  | 2016
| (In Thousands)
One- to four-family residential construction | $ 21,292 |  | $ 21,737
Subdivision construction | 19,030 |  | 17,186
Land development | 49,104 |  | 50,624
Commercial construction | 949,034 |  | 780,614
Owner occupied one- to four-family residential | 186,631 |  | 200,340
Non-owner occupied one- to four-family residential | 127,024 |  | 136,924
Commercial real estate | 1,219,382 |  | 1,186,906
Other residential | 684,813 |  | 663,378
Commercial business | 348,293 |  | 348,628
Industrial revenue bonds | 23,193 |  | 25,065
Consumer auto | 429,346 |  | 494,233
Consumer other | 65,913 |  | 70,001
Home equity lines of credit | 108,227 |  | 108,753
Acquired FDIC-covered loans, net of discounts | — |  | 134,356
Acquired loans no longer covered by FDIC loss sharing agreements, |  |  |
net of discounts | 177,786 |  | 72,569
Acquired non-covered loans, net of discounts | 65,427 |  | 76,234
| 4,474,495 |  | 4,387,548
Undisbursed portion of loans in process | (659,913) |  | (585,313)
Allowance for loan losses | (36,533) |  | (37,400)
Deferred loan fees and gains, net | (5,233) |  | (4,869)
| $ 3,772,816 |  | $ 3,759,966
Weighted average interest rate | 4.68% |  | 4.58%
Classes of loans by aging were as follows:
| June 30, 2017
|  |  |  |  |  |  | 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 | $ — | $ — | $ 379 | $ 379 | $ 20,913 | $ 21,292 | $ —
Subdivision construction | — | — | 105 | 105 | 18,925 | 19,030 | —
Land development | — | 547 | 139 | 686 | 48,418 | 49,104 | —
Commercial construction | — | — | — | — | 949,034 | 949,034 | —
Owner occupied one- to four- |  |  |  |  |  |  |
family residential | 215 | 244 | 986 | 1,445 | 185,186 | 186,631 | —
Non-owner occupied one- to |  |  |  |  |  |  |
four-family residential | — | 250 | 516 | 766 | 126,258 | 127,024 | —
Commercial real estate | — | 4,025 | 2,554 | 6,579 | 1,212,803 | 1,219,382 | —
Other residential | 425 | — | 162 | 587 | 684,226 | 684,813 | —
Commercial business | 293 | — | 5,388 | 5,681 | 342,612 | 348,293 | —
Industrial revenue bonds | — | — | — | — | 23,193 | 23,193 | —
Consumer auto | 4,701 | 1,522 | 2,092 | 8,315 | 421,031 | 429,346 | 18
Consumer other | 488 | 211 | 729 | 1,428 | 64,485 | 65,913 | —
Home equity lines of credit | 30 | 318 | 214 | 562 | 107,665 | 108,227 | 16
Acquired loans no longer |  |  |  |  |  |  |
covered by loss sharing |  |  |  |  |  |  |
agreements, net of |  |  |  |  |  |  |
discounts | 1,226 | 1,356 | 7,740 | 10,322 | 167,464 | 177,786 | —
Acquired non-covered loans, |  |  |  |  |  |  |
net of discounts | 669 | 5 | 1,719 | 2,393 | 63,034 | 65,427 | —
| 8,047 | 8,478 | 22,723 | 39,248 | 4,435,247 | 4,474,495 | 34
Less FDIC-assisted acquired |  |  |  |  |  |  |
loans, net of discounts | 1,895 | 1,361 | 9,459 | 12,715 | 230,498 | 243,213 | —
Total | $ 6,152 | $ 7,117 | $ 13,264 | $ 26,533 | $ 4,204,749 | $ 4,231,282 | $ 34
| December 31, 2016
|  |  |  |  |  |  | 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 | $ — | $ — | $ — | $ — | $ 21,737 | $ 21,737 | $ —
Subdivision construction | — | — | 109 | 109 | 17,077 | 17,186 | —
Land development | 413 | 584 | 1,718 | 2,715 | 47,909 | 50,624 | —
Commercial construction | — | — | — | — | 780,614 | 780,614 | —
Owner occupied one- to four- |  |  |  |  |  |  |
family residential | 1,760 | 388 | 1,125 | 3,273 | 197,067 | 200,340 | —
Non-owner occupied one- to |  |  |  |  |  |  |
four-family residential | 309 | 278 | 404 | 991 | 135,933 | 136,924 | —
Commercial real estate | 1,969 | 1,988 | 4,404 | 8,361 | 1,178,545 | 1,186,906 | —
Other residential | 4,632 | — | 162 | 4,794 | 658,584 | 663,378 | —
Commercial business | 1,741 | 24 | 3,088 | 4,853 | 343,775 | 348,628 | —
Industrial revenue bonds | — | — | — | — | 25,065 | 25,065 | —
Consumer auto | 8,252 | 2,451 | 1,989 | 12,692 | 481,541 | 494,233 | —
Consumer other | 1,103 | 278 | 649 | 2,030 | 67,971 | 70,001 | —
Home equity lines of credit | 136 | 158 | 433 | 727 | 108,026 | 108,753 | —
Acquired FDIC-covered loans, net of discounts | 4,476 | 1,201 | 8,226 | 13,903 | 120,453 | 134,356 | 301
Acquired loans no longer covered by FDIC loss sharing agreements, |  |  |  |  |  |  |
net of discounts | 1,356 | 552 | 1,401 | 3,309 | 69,260 | 72,569 | 222
Acquired non-covered loans, net of discounts | 851 | 173 | 2,854 | 3,878 | 72,356 | 76,234 | —
| 26,998 | 8,075 | 26,562 | 61,635 | 4,325,913 | 4,387,548 | 523
Less FDIC-supported loans, |  |  |  |  |  |  |
and acquired non-covered loans, net of discounts | 6,683 | 1,926 | 12,481 | 21,090 | 262,069 | 283,159 | 523
Total | $ 20,315 | $ 6,149 | $ 14,081 | $ 40,545 | $ 4,063,844 | $ 4,104,389 | $ —
Nonaccruing loans (excluding FDIC-assisted acquired loans, net of discount) are summarized as follows:
| June 30, |  | December 31,
| 2017 |  | 2016
| (In Thousands)
One- to four-family residential construction | $ 379 |  | $ —
Subdivision construction | 105 |  | 109
Land development | 139 |  | 1,718
Commercial construction | — |  | —
Owner occupied one- to four-family residential | 986 |  | 1,125
Non-owner occupied one- to four-family residential | 516 |  | 404
Commercial real estate | 2,554 |  | 4,404
Other residential | 162 |  | 162
Commercial business | 5,388 |  | 3,088
Industrial revenue bonds | — |  | —
Consumer auto | 2,074 |  | 1,989
Consumer other | 729 |  | 649
Home equity lines of credit | 198 |  | 433
Total | $ 13,230 |  | $ 14,081
The following table presents the activity in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2017. 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 June 30, 2017:
| 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 April 1, 2017 | $ 2,857 | $ 3,790 | $ 15,487 | $ 2,497 | $ 4,671 | $ 7,691 | $ 36,993
Provision (benefit) charged to expense | (427) | (147) | 1,246 | (724) | (661) | 2,663 | 1,950
Losses charged off | (41) | (2) | (1,291) | (92) | — | (2,565) | (3,991)
Recoveries | 24 | 14 | — | 30 | 355 | 1,158 | 1,581
Balance June 30, 2017 | $ 2,413 | $ 3,655 | $ 15,442 | $ 1,711 | $ 4,365 | $ 8,947 | $ 36,533
Balance January 1, 2017 | $ 2,322 | $ 5,486 | $ 15,938 | $ 2,284 | $ 3,015 | $ 8,355 | $ 37,400
Provision (benefit) charged to expense | 122 | (1,898) | 770 | (223) | 1,224 | 4,205 | 4,200
Losses charged off | (76) | (2) | (1,292) | (387) | (275) | (5,968) | (8,000)
Recoveries | 45 | 69 | 26 | 37 | 401 | 2,355 | 2,933
Balance June 30, 2017 | $ 2,413 | $ 3,655 | $ 15,442 | $ 1,711 | $ 4,365 | $ 8,947 | $ 36,533
Ending balance: |  |  |  |  |  |  |
Individually evaluated for |  |  |  |  |  |  |
impairment | $ 565 | $ — | $ 67 | $ — | $ 3,189 | $ 603 | $ 4,424
Collectively evaluated for |  |  |  |  |  |  |
impairment | $ 1,794 | $ 3,614 | $ 15,147 | $ 1,630 | $ 1,142 | $ 8,272 | $ 31,599
Loans acquired and |  |  |  |  |  |  |
accounted for under ASC |  |  |  |  |  |  |
310-30 | $ 54 | $ 41 | $ 228 | $ 81 | $ 34 | $ 72 | $ 510
Loans |  |  |  |  |  |  |
Individually evaluated for |  |  |  |  |  |  |
impairment | $ 6,542 | $ 3,582 | $ 5,946 | $ 457 | $ 6,973 | $ 3,515 | $ 27,015
Collectively evaluated for |  |  |  |  |  |  |
impairment | $ 347,435 | $ 681,231 | $ 1,213,436 | $ 997,681 | $ 364,513 | $ 599,971 | $ 4,204,267
Loans acquired and |  |  |  |  |  |  |
accounted for under ASC |  |  |  |  |  |  |
310-30 | $ 136,159 | $ 23,505 | $ 43,772 | $ 4,030 | $ 5,394 | $ 30,353 | $ 243,213
The following table presents the activity in the allowance for loan losses by portfolio segment for the three and six months ended June 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 April 1, 2016 | $ 4,883 | $ 2,621 | $ 13,728 | $ 3,126 | $ 3,677 | $ 8,991 | $ 37,026
Provision (benefit) charged to expense | (700) | 1,066 | 2,696 | (143) | (114) | (505) | 2,300
Losses charged off | (7) | — | (1,422) | — | (173) | (1,762) | (3,364)
Recoveries | 8 | 11 | 1,155 | 30 | 141 | 826 | 2,171
Balance June 30, 2016 | $ 4,184 | $ 3,698 | $ 16,157 | $ 3,013 | $ 3,531 | $ 7,550 | $ 38,133
Balance January 1, 2016 | $ 4,900 | $ 3,190 | $ 14,738 | $ 3,019 | $ 4,203 | $ 8,099 | $ 38,149
Provision (benefit) charged to expense | (649) | 484 | 3,984 | (14) | (668) | 1,264 | 4,401
Losses charged off | (91) | — | (3,731) | (30) | (192) | (3,499) | (7,543)
Recoveries | 24 | 24 | 1,166 | 38 | 188 | 1,686 | 3,126
Balance June 30, 2016 | $ 4,184 | $ 3,698 | $ 16,157 | $ 3,013 | $ 3,531 | $ 7,550 | $ 38,133
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, 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 |  |  |  |  |  |  |
Individually evaluated for |  |  |  |  |  |  |
impairment | $ 570 | $ — | $ 2,209 | $ 1,291 | $ 1,295 | $ 997 | $ 6,362
Collectively evaluated for |  |  |  |  |  |  |
impairment | $ 1,628 | $ 5,396 | $ 13,507 | $ 953 | $ 1,681 | $ 7,248 | $ 30,413
Loans acquired and |  |  |  |  |  |  |
accounted for under ASC |  |  |  |  |  |  |
310-30 | $ 124 | $ 90 | $ 222 | $ 40 | $ 39 | $ 110 | $ 625
Loans |  |  |  |  |  |  |
Individually evaluated for |  |  |  |  |  |  |
impairment | $ 6,015 | $ 3,812 | $ 10,507 | $ 6,023 | $ 4,539 | $ 3,385 | $ 34,281
Collectively evaluated for |  |  |  |  |  |  |
impairment | $ 370,172 | $ 659,566 | $ 1,176,399 | $ 825,215 | $ 369,154 | $ 669,602 | $ 4,070,108
Loans acquired and |  |  |  |  |  |  |
accounted for under ASC |  |  |  |  |  |  |
310-30 | $ 155,378 | $ 29,600 | $ 54,208 | $ 2,191 | $ 6,429 | $ 35,353 | $ 283,159
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-assisted loans, net of discount), are summarized as follows:
| June 30, 2017
|  | Unpaid |
| Recorded | Principal | Specific
| Balance | Balance | Allowance
| (In Thousands)
One- to four-family residential construction | $ 380 | $ 380 | $ —
Subdivision construction | 498 | 512 | 120
Land development | 457 | 545 | —
Commercial construction | — | — | —
Owner occupied one- to four-family residential | 3,475 | 3,766 | 357
Non-owner occupied one- to four-family residential | 2,189 | 2,446 | 88
Commercial real estate | 5,945 | 6,303 | 67
Other residential | 3,582 | 3,600 | —
Commercial business | 6,973 | 7,827 | 3,189
Industrial revenue bonds | — | — | —
Consumer auto | 2,272 | 2,462 | 412
Consumer other | 885 | 998 | 133
Home equity lines of credit | 359 | 431 | 58
Total | $ 27,015 | $ 29,270 | $ 4,424
| Three Months Ended |  | Six Months Ended
| June 30, 2017 |  | June 30, 2017
| Average |  |  | Average |
| Investment | Interest |  | Investment | Interest
| in Impaired | Income |  | in Impaired | Income
| Loans | Recognized |  | Loans | Recognized
| (In Thousands)
One- to four-family residential construction | $ 382 | $ — |  | $ 386 | $ —
Subdivision construction | 701 | 5 |  | 756 | 12
Land development | 3,069 | 5 |  | 3,267 | 21
Commercial construction | — | — |  | — | —
Owner occupied one- to four-family residential | 3,302 | 43 |  | 3,356 | 80
Non-owner occupied one- to four-family residential | 2,066 | 26 |  | 1,999 | 48
Commercial real estate | 9,056 | 101 |  | 10,193 | 159
Other residential | 3,719 | 37 |  | 3,761 | 75
Commercial business | 6,979 | 40 |  | 6,432 | 126
Industrial revenue bonds | — | — |  | — | —
Consumer auto | 2,029 | 48 |  | 2,211 | 77
Consumer other | 857 | 24 |  | 827 | 39
Home equity lines of credit | 339 | 8 |  | 367 | 18
Total | $ 32,499 | $ 337 |  | $ 33,555 | $ 655
| At or for the Year Ended December 31, 2016 |
|  |  |  | Average |
|  | Unpaid |  | Investment | Interest
| Recorded | Principal | Specific | in Impaired | Income
| Balance | Balance | Allowance | Loans | Recognized
| (In Thousands) |
One- to four-family residential construction | $ — | $ — | $ — | $ — | $ —
Subdivision construction | 818 | 829 | 131 | 948 | 46
Land development | 6,023 | 6,120 | 1,291 | 8,020 | 304
Commercial construction | — | — | — | — | —
Owner occupied one- to four-family |  |  |  |  |
residential | 3,290 | 3,555 | 374 | 3,267 | 182
Non-owner occupied one- to four-family |  |  |  |  |
residential | 1,907 | 2,177 | 65 | 1,886 | 113
Commercial real estate | 10,507 | 12,121 | 2,209 | 23,928 | 984
Other residential | 3,812 | 3,812 | — | 6,813 | 258
Commercial business | 4,539 | 4,652 | 1,295 | 2,542 | 185
Industrial revenue bonds | — | — | — | — | —
Consumer auto | 2,097 | 2,178 | 629 | 1,307 | 141
Consumer other | 812 | 887 | 244 | 884 | 70
Home equity lines of credit | 476 | 492 | 124 | 417 | 32
Total | $ 34,281 | $ 36,823 | $ 6,362 | $ 50,012 | $ 2,315
| June 30, 2016
|  | Unpaid |
| Recorded | Principal | Specific
| Balance | Balance | Allowance
| (In Thousands)
One- to four-family residential construction | $ — | $ — | $ —
Subdivision construction | 964 | 975 | 205
Land development | 7,464 | 7,557 | 1,442
Commercial construction | — | — | —
Owner occupied one- to four-family residential | 3,240 | 3,524 | 394
Non-owner occupied one- to four-family residential | 1,979 | 2,225 | 97
Commercial real estate | 26,776 | 28,692 | 3,080
Other residential | 7,511 | 7,511 | —
Commercial business | 1,989 | 2,056 | 947
Industrial revenue bonds | — | — | —
Consumer auto | 1,176 | 1,223 | 176
Consumer other | 768 | 822 | 115
Home equity lines of credit | 387 | 402 | 65
Total | $ 52,254 | $ 54,987 | $ 6,521
| Three Months Ended |  | Six Months Ended
| June 30, 2016 |  | June 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 | 990 | 23 |  | 1,019 | 30
Land development | 7,474 | 77 |  | 7,490 | 146
Commercial construction | — | — |  | — | —
Owner occupied one- to four-family residential | 3,245 | 22 |  | 3,288 | 79
Non-owner occupied one- to four-family residential | 1,891 | 52 |  | 1,841 | 52
Commercial real estate | 28,987 | 400 |  | 31,037 | 624
Other residential | 7,521 | 77 |  | 8,509 | 175
Commercial business | 2,102 | 24 |  | 2,166 | 48
Industrial revenue bonds | — | — |  | — | —
Consumer auto | 1,005 | 21 |  | 967 | 38
Consumer other | 867 | 10 |  | 883 | 29
Home equity lines of credit | 410 | 7 |  | 435 | 19
Total | $ 54,492 | $ 713 |  | $ 57,635 | $ 1,240
At June 30, 2017, $10.6 million of impaired loans had specific valuation allowances totaling $4.4 million. At December 31, 2016, $18.1 million of impaired loans had specific valuation allowances totaling $6.4 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 six months ended June 30, 2017 and 2016, respectively, by type of modification:
| Three Months Ended June 30, 2017
|  |  |  | Total
| Interest Only | Term | Combination | Modification
| (In Thousands)
Consumer | $ — | $ 5 | $ — | $ 5
| $ — | $ 5 | $ — | $ 5
| Six Months Ended June 30, 2017
|  |  |  | Total
| Interest Only | Term | Combination | Modification
| (In Thousands)
Consumer | $ — | $ 5 | $ — | $ 5
Commercial business | — | — | 274 | 274
| $ — | $ 5 | $ 274 | $ 279
| Three Months Ended June 30, 2016
|  |  |  | Total
| Interest Only | Term | Combination | Modification
| (In Thousands)
Commercial business | $ — | $ 22 | $ — | $ 22
Consumer | — | 39 | — | 39
| $ — | $ 61 | $ — | $ 61
| Six Months Ended June 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 | — | 41 | — | 41
| $ 3,435 | $ 63 | $ — | $ 3,498
At June 30, 2017, the Company had $13.6 million of loans that were modified in troubled debt restructurings and impaired, as follows: $850,000 of construction and land development loans, $7.0 million of single family and multi-family residential mortgage loans, $3.8 million of commercial real estate loans, $1.5 million of commercial business loans and $428,000 of consumer loans. Of the total troubled debt restructurings at June 30, 2017, $11.9 million were accruing interest and $2.0 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 six months ended June 30, 2017. When loans modified as troubled debt restructurings 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, 2016, the Company had $21.1 million of loans that were modified in troubled debt restructurings and impaired, as follows: $5.0 million of construction and land development loans, $7.4 million of single family and multi-family residential mortgage loans, $7.1 million of commercial real estate loans, $1.3 million of commercial business loans and $296,000 of consumer loans. Of the total troubled debt restructurings at December 31, 2016, $18.9 million were accruing interest and $7.9 million were classified as substandard using the Company’s internal grading system. During the three and six months ended June 30, 2017, $111,000 and »$345,000 of loans, respectively, all of which consisted of one- to four- family residential loans, designated as troubled debt restructurings met the criteria for placement back on accrual status. The criteria is generally a minimum of six months of payment performance under original or modified terms. During the three months ended June 30, 2016, loans designated as troubled debt restructurings totaling $404,000 met the criteria for placement back on accrual status. The $404,000 consisted of $235,000 of one- to four- family residential loans, $100,000 of commercial real estate loans and $69,000 of consumer loans. During the six months ended June 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 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-assisted acquired loans are evaluated using this internal grading system. These loans are accounted for in pools. Minimal adverse classification in these acquired loan pools was identified as of June 30, 2017 and December 31, 2016, respectively. See Note 7 for further discussion of the acquired loan pools and the termination of the 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, 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:
|  | June 30, 2017
|  |  | Special |  |  |
| Satisfactory | Watch | Mention | Substandard | Doubtful | Total
| (In Thousands)
One- to four-family residential |  |  |  |  |  |
construction | $ 20,325 | $ 587 | $ — | $ 380 | $ — | $ 21,292
Subdivision construction | 16,413 | 2,512 | — | 105 | — | 19,030
Land development | 44,066 | 4,900 | — | 138 | — | 49,104
Commercial construction | 949,034 | — | — | — | — | 949,034
Owner occupied one- to four- |  |  |  |  |  |
family residential | 184,983 | — | — | 1,648 | — | 186,631
Non-owner occupied one- to four- |  |  |  |  |  |
family residential | 125,678 | 456 | — | 890 | — | 127,024
Commercial real estate | 1,198,014 | 18,064 | — | 3,304 | — | 1,219,382
Other residential | 680,511 | 4,140 | — | 162 | — | 684,813
Commercial business | 340,162 | 2,634 | — | 5,497 | — | 348,293
Industrial revenue bonds | 23,193 | — | — | — | — | 23,193
Consumer auto | 427,145 | — | — | 2,201 | — | 429,346
Consumer other | 65,171 | — | — | 742 | — | 65,913
Home equity lines of credit | 107,881 | — | — | 346 | — | 108,227
Acquired loans no longer covered |  |  |  |  |  |
by FDIC loss sharing |  |  |  |  |  |
agreements, net of discounts | 177,771 | — | — | 15 | — | 177,786
Acquired non-covered loans, |  |  |  |  |  |
net of discounts | 65,427 | — | — | — | — | 65,427
Total | $ 4,425,774 | $ 33,293 | $ — | $ 15,428 | $ — | $ 4,474,495
| December 31, 2016
|  |  | Special |  |  |
| Satisfactory | Watch | Mention | Substandard | Doubtful | Total
| (In Thousands)
One- to four-family residential |  |  |  |  |  |
construction | $ 20,771 | $ 966 | $ — | $ — | $ — | $ 21,737
Subdivision construction | 14,059 | 2,729 | — | 398 | — | 17,186
Land development | 39,925 | 5,140 | — | 5,559 | — | 50,624
Commercial construction | 780,614 | — | — | — | — | 780,614
Owner occupied one- to-four- |  |  |  |  |  |
family residential | 198,835 | 67 | — | 1,438 | — | 200,340
Non-owner occupied one- to- |  |  |  |  |  |
four-family residential | 135,930 | 465 | — | 529 | — | 136,924
Commercial real estate | 1,160,280 | 20,154 | — | 6,472 | — | 1,186,906
Other residential | 658,846 | 4,370 | — | 162 | — | 663,378
Commercial business | 342,685 | 2,651 | — | 3,292 | — | 348,628
Industrial revenue bonds | 25,065 | — | — | — | — | 25,065
Consumer auto | 492,165 | — | — | 2,068 | — | 494,233
Consumer other | 69,338 | — | — | 663 | — | 70,001
Home equity lines of credit | 108,290 | — | — | 463 | — | 108,753
Acquired FDIC-covered loans, |  |  |  |  |  |
net of discounts | 134,356 | — | — | — | — | 134,356
Acquired loans no longer covered |  |  |  |  |  |
by FDIC loss sharing |  |  |  |  |  |
agreements, net of discounts | 72,552 | — | — | 17 | — | 72,569
Acquired non-covered loans, |  |  |  |  |  |
net of discounts | 76,234 | — | — | — | — | 76,234
Total | $ 4,329,945 | $ 36,542 | $ — | $ 21,061 | $ — | $ 4,387,548

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