The Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, effective January 1, 2021. The guidance replaces the incurred loss methodology with an expected loss methodology that is referred to as the CECL methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance, including loan commitments, standby letters of credits, financial guarantees, and other similar instruments. The Company adopted ASC 326 using the modified retrospective method for loans and off-balance sheet credit exposures. The Company recorded a one-time cumulative-effect adjustment to the allowance for credit losses of $11.6 million. This adjustment brought the balance of the allowance for credit losses to $67.3 million as of January 1, 2021. In addition, the Company recorded an $8.7 million liability for unfunded commitments as of January 1, 2021. The after-tax effect decreased retained earnings by $14.2 million. The adjustment was based upon the Company’s analysis of then-current conditions, assumptions and economic forecasts at January 1, 2021.

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (PCD) that were previously classified as purchased credit impaired (PCI) and accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether PCI assets met the criteria of PCD assets as of the date of adoption. On January 1, 2021, the amortized cost basis of the PCD assets were adjusted to reflect the addition of $1.9 million to the allowance for credit losses.

Results for reporting periods prior to January 1, 2021, continue to be reported in accordance with previously applicable GAAP. Under the incurred loss model, the Company delayed recognition of losses until it was probable that a loss was incurred. The allowance for credit losses was established as losses were estimated to have occurred through a provision for credit losses charged to earnings. Credit losses were charged against the allowance when management believed the uncollectability of a loan balance was confirmed. The allowance for credit losses was evaluated on a regular basis by management and was based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that

may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. The allowance consisted of allocated and general components. The allocated component related to loans that were classified as impaired. For loans classified as impaired, an allowance was established when the present value of expected future cash flows (or collateral value or observable market price) of the impaired loan was lower than the carrying value of that loan. The general component covered non-classified loans and was based on historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process. Results for reporting periods after December 31, 2020, include loans acquired and accounted for under ASC 310-30 net of discount within the loan classes, while for reporting periods prior to January 1, 2021, the loans acquired and accounted for under ASC 310-30 were shown separately.

Beginning on January 1, 2021, the allowance for credit losses is measured using an average historical loss model which incorporates relevant information about past events (including historical credit loss experience on loans with similar risk characteristics), current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the loans. The allowance for credit losses is measured on a collective (pool) basis. Loans are aggregated into pools based on similar risk characteristics including borrower type, collateral and repayment types and expected credit loss patterns. Loans that do not share similar risk characteristics, primarily classified and/or TDR loans with a balance greater than or equal to $100,000, are evaluated on an individual basis.

For loans evaluated for credit losses on a collective basis, average historical loss rates are calculated for each pool using the Company’s historical net charge-offs (combined charge-offs and recoveries by observable historical reporting period) and outstanding loan balances during a lookback period. Lookback periods can be different based on the individual pool and represent management’s credit expectations for the pool of loans over the remaining contractual life. In certain loan pools, if the Company’s own historical loss rate is not reflective of the loss expectations, the historical loss rate is augmented by industry and peer data. The calculated average net charge-off rate is then adjusted for current conditions and reasonable and supportable forecasts. These adjustments increase or decrease the average historical loss rate to reflect expectations of future losses given economic forecasts of key macroeconomic variables including, but not limited to, unemployment rate, GDP, disposable income and market volatility. The adjustments are based on results from various regression models projecting the impact of the macroeconomic variables to loss rates. The forecast is used for a reasonable and supportable period before reverting to historical averages using a straight-line method. The forecast-adjusted loss rate is applied to the amortized cost of loans over the remaining contractual lives, adjusted for expected prepayments. The contractual term excludes expected extensions, renewals and modifications unless there is a reasonable expectation that a troubled debt restructuring will be executed. Additionally, the allowance for credit losses considers other qualitative factors not included in historical loss rates or macroeconomic forecasts such as changes in portfolio composition, underwriting practices, or significant unique events or conditions.

ASU 2016-13 requires an allowance for off balance sheet credit exposures; unfunded lines of credit, undisbursed portions of loans, written residential and commercial commitments, and letters of credit. To determine the amount needed for allowance purposes, a utilization rate is determined either by the model or internally for each pool. Our loss model calculates the reserve on unfunded commitments based upon the utilization rate multiplied by the average loss rate factors in each pool with unfunded and committed balances. The liability for unfunded lending commitments utilizes the same model as the allowance for credit losses on loans; however, the liability for unfunded lending commitments incorporates assumptions for the portion of unfunded commitments that are expected to be funded.

(1)	Loans acquired and accounted for under ASC 310-30 of $74.2 million have been included in the totals by loan class as of December 31, 2021. At the date of CECL adoption, the Company did not reassess whether PCI loans met the criteria of PCD loans.

Classes of loans by aging were as follows as of the dates indicated:


	December 31, 2021
													Total Loans
					Over 90						Total		> 90 Days Past
	30-59 Days		60-89 Days		Days		Total Past				Loans		Due and
	Past Due		Past Due		Past Due		Due		Current		Receivable		Still Accruing

	(In Thousands)
One- to four-family residential construction	$	—	$	—	$	—	$	—	$	28,302	$	28,302	$	—
Subdivision construction		—		—		—		—		26,694		26,694		—
Land development		29		15		468		512		47,315		47,827		—
Commercial construction		—		—		—		—		617,505		617,505		—
Owner occupied one- to four- family residential		843		2		2,216		3,061		558,897		561,958		—
Non-owner occupied one- to four-family residential		—		—		—		—		119,635		119,635		—
Commercial real estate		—		—		2,006		2,006		1,474,224		1,476,230		—
Other residential		—		—		—		—		697,903		697,903		—
Commercial business		1,404		—		—		1,404		279,109		280,513		—
Industrial revenue bonds		—		—		—		—		14,203		14,203		—
Consumer auto		229		31		34		294		48,621		48,915		—
Consumer other		126		28		63		217		37,685		37,902		—
Home equity lines of credit		—		—		636		636		119,329		119,965		—

Total	$	2,631	$	76	$	5,423	$	8,130	$	4,069,422	$	4,077,552	$	—

FDIC-assisted acquired loans included above	$	433	$	—	$	1,736	$	2,169	$	72,001	$	74,170	$	—


	December 31, 2020
													Total Loans
					Over 90						Total		> 90 Days Past
	30-59 Days		60-89 Days		Days		Total Past				Loans		Due and
	Past Due		Past Due		Past Due		Due		Current		Receivable		Still Accruing

	(In Thousands)
One- to four-family residential construction	$	1,365	$	—	$	—	$	1,365	$	19,353	$	20,718	$	—
Subdivision construction		—		—		—		—		4,917		4,917		—
Land development		20		—		—		20		53,990		54,010		—
Commercial construction		—		—		—		—		484,372		484,372		—
Owner occupied one- to four- family residential		1,379		113		1,502		2,994		467,316		470,310		—
Non-owner occupied one- to four-family residential		—		—		69		69		114,429		114,498		—
Commercial real estate		—		79		587		666		1,540,576		1,541,242		—
Other residential		—		—		—		—		999,447		999,447		—
Commercial business		—		—		114		114		317,909		318,023		—
Industrial revenue bonds		—		—		—		—		14,003		14,003		—
Consumer auto		364		119		169		652		85,521		86,173		—
Consumer other		443		7		94		544		40,218		40,762		—
Home equity lines of credit		153		111		508		772		113,917		114,689		—
Loans acquired and accounted for under ASC 310-30, net of discounts		1,662		641		3,843		6,146		92,497		98,643		—

		5,386		1,070		6,886		13,342		4,348,465		4,361,807		—
Less: Loans acquired and accounted for under ASC 310-30, net of discounts		1,662		641		3,843		6,146		92,497		98,643		—

Total	$	3,724	$	429	$	3,043	$	7,196	$	4,255,968	$	4,263,164	$	—

Loans are placed on nonaccrual status at 90 days past due and interest is considered a loss unless the loan is well secured and in the process of collection. Payments received on nonaccrual loans are applied to principal until the loans are returned to accrual status. Loans are returned to accrual status when all payments contractually due are brought current, payment performance is sustained for a period of time, generally six months, and future payments are reasonably assured. With the exception of consumer loans, charge-offs on loans are recorded when available information indicates a loan is not fully collectible and the loss is reasonably quantifiable. Consumer loans are charged-off at specified delinquency dates consistent with regulatory guidelines.

Non-accruing loans as of December 31, 2020 shown below exclude $3.8 million in loans acquired and accounted for under ASC 310-30, while the non-accruing loans as of December 31, 2021 shown below include $1.7 million in loans acquired through various FDIC-assisted transactions in the loan classes listed.


	December 31,		December 31,
	2021		2020

	(In Thousands)

One- to four-family residential construction	$	—	$	—
Subdivision construction		—		—
Land development		468		—
Commercial construction		—		—
Owner occupied one- to four-family residential		2,216		1,502
Non-owner occupied one- to four-family residential		—		69
Commercial real estate		2,006		587
Other residential		—		—
Commercial business		—		114
Industrial revenue bonds		—		—
Consumer auto		34		169
Consumer other		63		94
Home equity lines of credit		636		508
Total non-accruing loans	$	5,423	$	3,043

FDIC-assisted acquired loans included above	$	1,736

No interest income was recorded on these loans for the years ended December 31, 2021 and 2020, respectively.

Nonaccrual loans for which there is no related allowance for credit losses as of December 31, 2021 had an amortized cost of $2.0 million. These loans are individually assessed and do not require an allowance due to being adequately collateralized under the collateral-dependent valuation method. A collateral-dependent loan is a financial asset for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the Company’s assessment as of the reporting date. Collateral-dependent loans are identified by either a classified risk rating or TDR status and a loan balance equal to or greater than $100,000, including, but not limited to, any loan in process of foreclosure or repossession.

The following table presents the activity in the allowance for credit losses by portfolio segment for the year ended December 31, 2021. On January 1, 2021, the Company adopted the CECL methodology, which added $11.6 million to the total Allowance for Credit Loss, including $1.9 million of remaining discount on loans that were previously accounted for as PCI.


	December 31, 2021
	One- to Four-
	Family
	Residential
	and		Other		Commercial		Commercial		Commercial
	Construction		Residential		Real Estate		Construction		Business		Consumer		Total

	(In Thousands)

Allowance for credit losses
Balance, December 31, 2020	$	4,536	$	9,375	$	33,707	$	3,521	$	2,390	$	2,214	$	55,743
CECL adoption		4,533		5,832		(2,531)		(1,165)		1,499		3,427		11,595
Balance, January 1, 2021		9,069		15,207		31,176		2,356		3,889		5,641		67,338
Provision (credit) charged to expense		—		(4,797)		(2,478)		575		—		—		(6,700)
Losses charged off		(190)		—		(142)		(154)		(81)		(2,054)		(2,621)
Recoveries		485		92		48		20		334		1,758		2,737
Balance, December 31, 2021	$	9,364	$	10,502	$	28,604	$	2,797	$	4,142	$	5,345	$	60,754

The following table presents the activity in the allowance for unfunded commitments by portfolio segment for the year ended December 31, 2021. On January 1, 2021, the Company adopted the CECL methodology, which created an $8.7 million allowance for unfunded commitments.


	December 31, 2021
	One- to Four-
	Family
	Residential
	and		Other		Commercial		Commercial		Commercial
	Construction		Residential		Real Estate		Construction		Business		Consumer		Total

	(In Thousands)

Allowance for unfunded commitments
Balance, December 31, 2020	$	—	$	—	$	—	$	—	$	—	$	—	$	—
CECL adoption		917		5,227		354		910		935		347		8,690
Balance, January 1, 2021		917		5,227		354		910		935		347		8,690
Provision (credit) charged to expense		(230)		476		13		(2)		647		35		939
Balance, December 31, 2021	$	687	$	5,703	$	367	$	908	$	1,582	$	382	$	9,629

The following table presents the activity in the allowance for credit losses by portfolio segment for the years ended December 31, 2020 and 2019, respectively, prepared using the previous GAAP incurred loss method prior to the adoption of ASU 2016-13. Also presented are the balance in the allowance for credit losses and the recorded investment in loans based on portfolio segment and impairment method as of the years ended December 31, 2020 and 2019, respectively, prepared using the previous GAAP incurred loss method prior to the adoption of ASU 2016-13.


	December 31, 2020
	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, 2020	$	4,339	$	5,153	$	24,334	$	3,076	$	1,355	$	2,037	$	40,294
Provision (benefit) charged to expense		84		4,042		9,343		242		914		1,246		15,871
Losses charged off		(70)		—		(43)		(1)		(28)		(3,152)		(3,294)
Recoveries		183		180		73		204		149		2,083		2,872

Balance, December 31, 2020	$	4,536	$	9,375	$	33,707	$	3,521	$	2,390	$	2,214	$	55,743

Ending balance:
Individually evaluated for impairment	$	90	$	—	$	445	$	—	$	14	$	164	$	713
Collectively evaluated for impairment	$	4,382	$	9,282	$	32,937	$	3,378	$	2,331	$	2,040	$	54,350
Loans acquired and accounted for under ASC 310-30	$	64	$	93	$	325	$	143	$	45	$	10	$	680

Loans
Individually evaluated for impairment	$	3,546	$	—	$	3,438	$	—	$	167	$	1,897	$	9,048
Collectively evaluated for impairment	$	655,146	$	1,021,145	$	1,550,239	$	1,266,847	$	384,734	$	239,727	$	5,117,838
Loans acquired and accounted for under ASC 310-30	$	57,113	$	6,150	$	24,613	$	2,551	$	2,549	$	5,667	$	98,643


	December 31, 2019
	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, 2019	$	3,122	$	4,713	$	19,803	$	3,105	$	1,568	$	6,098	$	38,409
Provision (benefit) charged to expense		1,625		603		4,651		22		(309)		(442)		6,150
Losses charged off		(534)		(189)		(144)		(101)		(371)		(6,723)		(8,062)
Recoveries		126		26		24		50		467		3,104		3,797

Balance, December 31, 2019	$	4,339	$	5,153	$	24,334	$	3,076	$	1,355	$	2,037	$	40,294

Ending balance:
Individually evaluated for impairment	$	198	$	—	$	517	$	—	$	13	$	201	$	929
Collectively evaluated for impairment	$	3,973	$	5,101	$	23,570	$	2,940	$	1,306	$	1,814	$	38,704
Loans acquired and accounted for under ASC 310-30	$	168	$	52	$	247	$	136	$	36	$	22	$	661

Loans
Individually evaluated for impairment	$	2,960	$	—	$	4,020	$	—	$	1,286	$	2,001	$	10,267
Collectively evaluated for impairment	$	554,450	$	866,006	$	1,490,152	$	1,363,292	$	325,112	$	315,561	$	4,914,573
Loans acquired and accounted for under ASC 310-30	$	74,562	$	5,334	$	29,158	$	3,606	$	3,356	$	11,190	$	127,206

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, 2021 and 2020, was 4.26% and 4.29%, respectively.

Loans serviced for others are not included in the accompanying consolidated statements of financial condition. The unpaid principal balance of loans serviced for others at December 31, 2021, was $385.8 million, consisting of $249.5 million of commercial loan participations sold to other financial institutions and $136.3 million of residential mortgage loans sold. The unpaid principal balance of loans serviced for others at December 31, 2020, was $462.7 million, consisting of $308.4 million of commercial loan participations sold to other financial institutions and $154.3 million of residential mortgage loans sold. In addition, available lines of credit on these loans were $130.9 million and $46.1 million at December 31, 2021 and 2020, respectively.

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2021:



	December 31, 2021
	Principal		Specific
	Balance		Allowance

	(In Thousands)

One- to four-family residential construction	$	—	$	—
Subdivision construction		—		—
Land development		468		—
Commercial construction		—		—
Owner occupied one- to four-family residential		1,980		18
Non-owner occupied one- to four-family residential		—		—
Commercial real estate		2,217		397
Other residential		—		—
Commercial business		—		—
Industrial revenue bonds		—		—
Consumer auto		—		—
Consumer other		160		80
Home equity lines of credit		377		—

Total	$	5,202	$	495

Prior to adoption of ASU 2016-13, a loan was considered impaired, in accordance with the impairment accounting guidance (FASB ASC 310-10-35-16) when, based on then-current information and events, it was probable the Company would be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans included not only nonperforming loans but also loans modified in troubled debt restructurings where concessions had been granted to borrowers experiencing financial difficulties. The following table presents information pertaining to impaired loans as of December 31, 2020 and 2019, respectively, in accordance with previous GAAP prior to the adoption of ASU 2016-13.


							Year Ended
	December 31, 2020						December 31, 2020
							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		20		20		—		115		3
Land development		—		—		—		—		—
Commercial construction		—		—		—		—		—
Owner occupied one- to four-family residential		3,457		3,776		90		2,999		169
Non-owner occupied one- to four-family residential		69		106		—		309		18
Commercial real estate		3,438		3,472		445		3,736		135
Other residential		—		—		—		—		—
Commercial business		166		551		14		800		34
Industrial revenue bonds		—		—		—		—		—
Consumer auto		865		964		140		932		91
Consumer other		403		552		19		298		47
Home equity lines of credit		630		668		5		550		36

Total	$	9,048	$	10,109	$	713	$	9,739	$	533


							Year Ended
	December 31, 2019						December 31, 2019
							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		251		251		96		277		9
Land development		—		—		—		328		101
Commercial construction		—		—		—		—		—
Owner occupied one- to four-family residential		2,300		2,423		82		2,598		131
Non-owner occupied one- to four-family residential		409		574		20		954		43
Commercial real estate		4,020		4,049		517		4,940		264
Other residential		—		—		—		—		—
Commercial business		1,286		1,771		13		1,517		81
Industrial revenue bonds		—		—		—		—		—
Consumer auto		1,117		1,334		181		1,128		125
Consumer other		356		485		16		383		48
Home equity lines of credit		528		548		4		362		37

Total	$	10,267	$	11,435	$	929	$	12,487	$	839

At December 31, 2020, $4.8 million of impaired loans had specific valuation allowances totaling $713,000. At December 31, 2019, $5.2 million of impaired loans had specific valuation allowances totaling $929,000.

For loans which were non-accruing, interest of approximately $432,000, $579,000 and $761,000 would have been recognized on an accrual basis during the years ended December 31, 2021, 2020 and 2019, respectively.

TDRs 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 credit losses for TDRs primarily using a discounted cash flows or collateral adequacy approach

TDRs by class are presented below as of December 31, 2021 and 2020. The December 31, 2020 table excludes $1.7 million of FDIC-assisted acquired loans accounted for under ASC 310-30, while the December 31, 2021 table includes the loans acquired through various FDIC-assisted transactions in the loan classes listed.


	December 31, 2021
	Accruing TDR Loans			Non-accruing TDR Loans			Total TDR Loans
	Number	Balance		Number	Balance		Number	Balance

	(In Thousands)

Construction and land development	1	$	15	—	$	—	1	$	15
One- to four-family residential	10		579	12		1,059	22		1,638
Other residential	—		—	—		—	—		—
Commercial real estate	1		85	1		1,726	2		1,811
Commercial business	—		—	—		—	—		—
Consumer	26		323	13		64	39		387
	38	$	1,002	26	$	2,849	64	$	3,851


	December 31, 2020
	Restructured
	Troubled Debt		Accruing		Restructured
	Non-accruing		Interest		Troubled Debt

	(In Thousands)

Commercial real estate	$	—	$	646	$	646
One- to four-family residential		778		1,121		1,899
Other residential		—		—		—
Construction		—		20		20
Commercial		75		52		127
Consumer		118		511		629
	$	971	$	2,350	$	3,321

The following table presents newly restructured loans during the years ended December 31, 2021, 2020, and 2019 by type of modification:


	2021
							Total
	Interest Only		Term		Combination		Modification

	(In Thousands)

Residential one-to-four family	$	31	$	202	$	134	$	367
Commercial real estate		1,768		—		—		1,768
Commercial business		—		—		—		—
Consumer		—		259		11		270

	$	1,799	$	461	$	145	$	2,405


	2020
							Total
	Interest Only		Term		Combination		Modification

	(In Thousands)

Residential one-to-four family	$	—	$	—	$	1,030	$	1,030
Commercial real estate		—		—		559		559
Commercial business		—		—		22		22
Consumer		—		16		1,951		1,967

	$	—	$	16	$	3,562	$	3,578


	2019
							Total
	Interest Only		Term		Combination		Modification

	(In Thousands)

Consumer	$	—	$	136	$	—	$	136

	$	—	$	136	$	—	$	136

At December 31, 2021, of the $3.9 million in TDRs, $2.9 million were classified as substandard using the Company’s internal grading system. The Company had no TDRs that were modified in the previous 12 months and subsequently defaulted during the year ended December 31, 2021. At December 31, 2020, of the $3.3 million in TDRs, $1.6 million were classified as substandard using the Company’s internal grading system. The Company had no TDRs that were modified in the previous 12 months and subsequently defaulted during the year ended December 31, 2020.

Loans were modified during 2020 or 2021 in response to the COVID-19 pandemic and were within the guidance provided by the CARES Act, the federal banking regulatory agencies, the Securities and Exchange Commission and the Financial Accounting Standards Board (FASB). At December 31, 2021, the Company had no remaining modified commercial loans and eight modified consumer and mortgage loans with an aggregate principal balance outstanding of $1.2 million. These balances have decreased from $232.4 million in commercial loans and $18.2 million in consumer and mortgage loans at December 31, 2020. The loan modifications have not been considered TDRs.

The Company utilizes an internal risk rating system comprised of a series of grades to categorize loans according to perceived risk associated with the expectation of debt repayment. The analysis of the borrower’s ability to repay considers specific information, including but not limited to current financial information, historical payment experience, industry information, collateral levels and collateral types. A risk rating is assigned at loan origination and then monitored throughout the contractual term for possible risk rating changes.

Satisfactory loans range from Excellent to Moderate Risk, but generally are loans supported by strong recent financial statements. Character and capacity of borrower are strong, including reasonable project performance, good industry experience, liquidity and/or net worth. Probability of financial deterioration seems unlikely. Repayment is expected from approved sources over a reasonable period of time.

Watch loans are identified when the borrower has capacity to perform according to terms; however, elements of uncertainty exist. Margins of debt service coverage may be narrow, historical patterns of financial performance may be erratic, collateral margins may be diminished and the borrower may be a new and/or thinly capitalized company. Some management weakness may also exist, the borrower may have somewhat limited access to other financial institutions, and that ability may diminish in difficult economic times.

Special Mention loans have weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects or the Bank’s credit position at some future date. It is a transitional grade that is closely monitored for improvement or deterioration.

The Substandard rating is applied to loans where the borrower exhibits well-defined weaknesses that jeopardize its continued performance and are of a severity that the distinct possibility of default exists. Loans are placed on “non-accrual” when management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment.

Doubtful loans have all the weaknesses inherent to those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable. Loans considered loss are uncollectable and no longer included as an asset.

All loans are analyzed for risk rating updates regularly. For larger loans, rating assessments may be more frequent if relevant information is obtained earlier through debt covenant monitoring or overall relationship management. Smaller loans are monitored as identified by the loan officer based on the risk profile of the individual borrower or if the loan becomes past due related to credit issues. Loans rated Watch, Special Mention, Substandard or Doubtful are subject to quarterly review and monitoring processes. In addition to the regular monitoring performed by the lending personnel and credit committees, loans are subject to review by the credit review department, which verifies the appropriateness of the risk ratings for the loans chosen as part of its risk-based review plan.

The following tables present a summary of loans by risk category and past due status separated by origination and loan class as of December 31, 2021. The first table, which is as of December 31, 2021, was prepared using the CECL methodology and includes $74.2 million in FDIC-assisted acquired loans included in the loan class categories. The remaining accretable discount of $429,000 has not been included in this table. See Note 4 for further discussion of the FDIC-assisted acquired loans and related discount. The undisbursed portions of loans in process have been netted against the gross loan balances for presentation in this table. The second table, which is as of December 31, 2020, was prepared using the previous GAAP incurred loss methodology prior to the adoption of ASU 2016-13. The $98.6 million in FDIC-assisted acquired loans are shown as a total, not within the loan class categories.


	Term Loans by Origination Year
													Revolving
	2021		2020		2019		2018		2017		Prior		Loans		Total

					(In Thousands)

One- to four-family residential construction
Satisfactory (1-4)	$	23,081	$	4,453	$	763	$	—	$	—	$	5	$	—	$	28,302
Watch (5)		—		—		—		—		—		—		—		—
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		—		—		—		—		—		—		—
Total		23,081		4,453		763		—		—		5		—		28,302

Subdivision construction
Satisfactory (1-4)		24,129		949		224		160		252		965		—		26,679
Watch (5)		—		—		—		—		—		—		—		—
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		—		—		—		—		15		—		15
Total		24,129		949		224		160		252		980		—		26,694

Land development construction
Satisfactory (1-4)		9,968		15,965		11,115		2,591		3,013		4,184		527		47,363
Watch (5)		—		—		—		—		—		—		—		—
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		—		—		—		—		—		468		468
Total		9,968		15,965		11,115		2,591		3,013		4,184		995		47,831

Other Construction
Satisfactory (1-4)		145,991		298,710		130,502		42,302		—		—		—		617,505
Watch (5)		—		—		—		—		—		—		—		—
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		—		—		—		—		—		—		—
Total		145,991		298,710		130,502		42,302		—		—		—		617,505

One- to four-family residential
Satisfactory (1-4)		237,498		169,765		93,648		49,618		14,707		113,059		1,662		679,957
Watch (5)		—		—		—		132		—		267		69		468
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		—		144		—		50		1,223		83		1,500
Total		237,498		169,765		93,792		49,750		14,757		114,549		1,814		681,925

Other residential
Satisfactory (1-4)		117,029		96,551		115,418		179,441		104,053		70,438		11,605		694,535
Watch (5)		—		—		—		—		—		3,417		—		3,417
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		—		—		—		—		—		—		—
Total		117,029		96,551		115,418		179,441		104,053		73,855		11,605		697,952

Commercial real estate
Satisfactory (1-4)		141,868		113,226		220,580		231,321		196,166		521,545		22,785		1,447,491
Watch (5)		—		410		582		—		—		25,742		—		26,734
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		—		—		—		—		2,006		—		2,006
Total		141,868		113,636		221,162		231,321		196,166		549,293		22,785		1,476,231

Commercial business
Satisfactory (1-4)		67,049		28,743		23,947		16,513		24,126		58,116		76,187		294,681
Watch (5)		—		—		—		—		—		58		—		58
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		—		—		—		—		—		—		—
Total		67,049		28,743		23,947		16,513		24,126		58,174		76,187		294,739

Consumer
Satisfactory (1-4)		20,140		11,138		7,154		9,065		4,175		24,280		130,111		206,063
Watch (5)		—		—		—		20		4		10		29		63
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		2		—		16		32		280		347		677
Total		20,140		11,140		7,154		9,101		4,211		24,570		130,487		206,803

Combined
Satisfactory (1-4)		786,753		739,500		603,351		531,011		346,492		792,592		242,877		4,042,576
Watch (5)		—		410		582		152		4		29,494		98		30,740
Special Mention (6)		—		—		—		—		—		—		—		—
Classified (7-9)		—		2		144		16		82		3,524		898		4,666
Total	$	786,753	$	739,912	$	604,077	$	531,179	$	346,578	$	825,610	$	243,873	$	4,077,982


	December 31, 2020
					Special
	Satisfactory		Watch		Mention		Substandard		Doubtful		Total

	(In Thousands)

One- to four-family residential construction	$	19,353	$	1,365	$	—	$	—	$	—	$	20,718
Subdivision construction		4,897		—		—		20		—		4,917
Land development		54,010		—		—		—		—		54,010
Commercial construction		484,372		—		—		—		—		484,372
Owner occupied one- to-four-family residential		467,729		216		—		2,365		—		470,310
Non-owner occupied one-to-four-family residential		114,105		324		—		69		—		114,498
Commercial real estate		1,485,596		52,208		—		3,438		—		1,541,242
Other residential		995,950		3,497		—		—		—		999,447
Commercial business		310,806		7,102		—		115		—		318,023
Industrial revenue bonds		14,003		—		—		—		—		14,003
Consumer auto		85,657		5		—		511		—		86,173
Consumer other		40,514		2		—		246		—		40,762
Home equity lines of credit		114,049		39		—		601		—		114,689
Loans acquired and accounted for under ASC 310-30, net of discounts		98,633		—		—		10		—		98,643

Total	$	4,289,674	$	64,758	$	—	$	7,375	$	—	$	4,361,807

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, and their related interests, 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, 2021 and 2020, loans outstanding to these directors and executive officers, and their related interests, are summarized as follows:


	2021		2020

	(In Thousands)

Balance, beginning of year	$	13,468	$	15,240
New loans		629		901
Payments		(4,000)		(2,673)

Balance, end of year	$	10,097	$	13,468