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Allowance for Probable Loan Losses
 12 Months Ended
Dec. 31, 2013
Allowance for Probable Loan Losses  
Allowance for Probable Loan Losses

(4) Allowance for Probable Loan Losses

        The allowance for probable loan losses primarily consists of the aggregate loan loss allowances of the bank subsidiaries. The allowances are established through charges to operations in the form of provisions for probable loan losses. Loan losses or recoveries are charged or credited directly to the allowances. The allowance for probable loan losses of each bank subsidiary is maintained at a level considered appropriate by management, based on estimated probable losses in the loan portfolio. The allowance for probable loan losses is derived from the following elements: (i) allowances established on specific impaired loans, which are based on a review of the individual characteristics of each loan, including the customer's ability to repay the loan, the underlying collateral values, and the industry in which the customer operates, (ii) allowances based on actual historical loss experience for similar types of loans in the Company's loan portfolio, and (iii) allowances based on general economic conditions, changes in the mix of loans, company resources, border risk and credit quality indicators, among other things. All segments of the loan portfolio continue to be impacted by the prolonged economic downturn. Loans secured by real estate could be impacted negatively by the continued economic environment and resulting decrease in collateral values. Consumer loans may be impacted by continued and prolonged unemployment rates.

        The Company's management continually reviews the allowance for loan losses of the bank subsidiaries using the amounts determined from the allowances established on specific impaired loans, the allowance established on quantitative historical loss percentages, and the allowance based on qualitative data to establish an appropriate amount to maintain in the Company's allowance for loan losses. Should any of the factors considered by management in evaluating the adequacy of the allowance for probable loan losses change, the Company's estimate of probable loan losses could also change, which could affect the level of future provisions for probable loan losses. While the calculation of the allowance for probable loan losses utilizes management's best judgment and all information available, the adequacy of the allowance is dependent on a variety of factors beyond the Company's control, including, among other things, the performance of the entire loan portfolio, the economy, changes in interest rates and the view of regulatory authorities towards loan classifications.

        The loan loss provision is determined using the following methods. On a weekly basis, loan past due reports are reviewed by the credit quality committee to determine if a loan has any potential problems and if a loan should be placed on the Company's internal classified report. Additionally, the Company's credit department reviews the majority of the Company's loans for proper internal classification purposes regardless of whether they are past due and segregates any loans with potential problems for further review. The credit department will discuss the potential problem loans with the servicing loan officers to determine any relevant issues that were not discovered in the evaluation. Also, an analysis of loans that is provided through examinations by regulatory authorities is considered in the review process. After the above analysis is completed, the Company will determine if a loan should be placed on an internal classified report because of issues related to the analysis of the credit, credit documents, collateral and/or payment history.

        While the Texas and Oklahoma economies are performing better than other parts of the country, Texas and Oklahoma are not completely immune to the problems associated with the U.S. economy. The increase in income and capital gains taxes on certain individuals, the increase in payroll taxes, and the unprecedented debt and deficit of the United States not yet resolved, adds uncertainty to the possibility of robust economic growth and may create a slowdown in the economy. Thus, the risk of loss associated with all segments of the loan portfolio in these markets continues to be impacted by the prolonged economic weakness. The downturn in the economy and other risk factors are minimized by the underwriting standards of the bank subsidiaries. The general underwriting standards encompass the following principles: (i) the financial strength of the borrower including strong earnings, a high net worth, significant liquidity and an acceptable debt to worth ratio, (ii) managerial and business competence, (iii) the ability to repay, (iv) for a new business, projected cash flows, (v) loan to value, (vi) in the case of a secondary guarantor, a guarantor financial statement, and (vii) financial and/or other character references. Although the underwriting standards reduce the risk of loss, unique risk factors exist in each type of loan that the bank subsidiaries invest.

        Commercial and industrial loans are mostly secured by the collateral pledged by the borrower that are directly related to the business activities of the company such as accounts receivable and inventory. The ability of the borrower to collect accounts receivable, and to turn inventory into sales are risk factors in the repayment of the loan.

        Construction and land development loans can carry risk of repayment when projects incur cost overruns, have an increase in the price of building materials, encounter zoning and environmental issues, or encounter other factors that may affect the completion of a project on time and on budget. Additionally, repayment risk may be negatively impacted when the market experiences a deterioration in the value of real estate. Risks specifically related to 1-4 family development loans also include the practice by the mortgage industry of more restrictive underwriting standards, which inhibits the buyer from obtaining long term financing and excessive housing and lot inventory in the market.

        Commercial real estate loans demonstrate a risk of repayment when market values deteriorate, the business experiences turnover in key management, the business has an inability to attract or keep occupancy levels stable, or when the market experiences an exit of a specific business industry that is significant to the local economy, such as a manufacturing plant.

        First and second lien residential 1-4 family mortgage and consumer loan repayments may be affected by unemployment or underemployment and deteriorating market values of real estate.

        A summary of the changes in the allowance for probable loan losses by loan class is as follows:

 
   December 31, 2013  
 
   Domestic    
   Foreign    
  
 
   Commercial   Commercial
real estate:
other
construction &
land
development		   Commercial
real estate:
farmland &
commercial		   Commercial
real estate:
multifamily		   Residential:
first lien		   Residential:
junior lien		   Consumer   Foreign   Total  
 
   (Dollars in Thousands)
    
  

Balance at December 31,

   $ 11,632   $ 12,720   $ 21,880   $ 694   $ 4,390   $ 4,448   $ 1,289   $ 1,140   $ 58,193  

Losses charge to allowance

     (11,737 )   (278 )   (600 )   (5 )   (632 )   (620 )   (561 )   (22 )   (14,455 )

Recoveries credited to allowance

     2,690     87     152     —     61     298     162     5     3,455  
                                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net losses charged to allowance

     (9,047 )   (191 )   (448 )   (5 )   (571 )   (322 )   (399 )   (17 )   (11,000 )

Provision (credit) charged to operations

     19,848     12     3,035     87     (7 )   123     (140 )   10     22,968  
                                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Balance at December 31,

   $ 22,433   $ 12,541   $ 24,467   $ 776   $ 3,812   $ 4,249   $ 750   $ 1,133   $ 70,161  
                                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                                       


 

 
   December 31, 2012  
 
   Domestic    
   Foreign    
  
 
   Commercial   Commercial
real estate:
other
construction &
land
development		   Commercial
real estate:
farmland &
commercial		   Commercial
real estate:
multifamily		   Residential:
first lien		   Residential:
junior lien		   Consumer   Foreign   Total  
 
   (Dollars in Thousands)
    
  

Balance at December 31,

   $ 26,617   $ 19,940   $ 24,227   $ 1,003   $ 4,562   $ 4,760   $ 1,724   $ 1,359   $ 84,192  

Losses charge to allowance

     (34,721 )   (7,617 )   (13,724 )   —     (227 )   (1,190 )   (756 )   (111 )   (58,346 )

Recoveries credited to allowance

     3,547     229     220     —     13     195     184     —     4,388  
                                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net losses charged to allowance

     (31,174 )   (7,388 )   (13,504 )   —     (214 )   (995 )   (572 )   (111 )   (53,958 )

Provision (credit) charged to operations

     16,189     168     11,157     (309 )   42     683     137     (108 )   27,959  
                                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Balance at December 31,

   $ 11,632   $ 12,720   $ 21,880   $ 694   $ 4,390   $ 4,448   $ 1,289   $ 1,140   $ 58,193  
                                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                                       

        The allowance for probable loan losses is a reserve established through a provision for probable loan losses charged to expense, which represents management's best estimate of probable loan losses when evaluating loans (i) individually or (ii) collectively. The Company's allowance for probable loan losses increased for the year ended December 31, 2013 mainly due to the addition of a specific reserve of approximately $12,000,000 on a previously identified impaired commercial loan that further deteriorated during 2013. The Company's net charge off experience decreased from December 31, 2013 compared to December 31, 2012 mainly due to four commercial real estate relationships charged off in 2012. The relationships were charged off as a result of the Company's assessment that no further collection of the loan was probable based on the borrowers' financial condition.

        The table below provides additional information on the balance of loans individually or collectively evaluated for impairment and their related allowance, by loan class:

 
   December 31, 2013  
 
   Loans individually
evaluated for
impairment		   Loans collectively
evaluated for
impairment		  
 
   Recorded
Investment		   Allowance   Recorded
Investment		   Allowance  
 
   (Dollars in Thousands)
  

Domestic

                          

Commercial

   $ 34,183   $ 12,234   $ 1,008,459   $ 10,199  

Commercial real estate: other construction & land development

     13,976     852     1,194,532     11,689  

Commercial real estate: farmland & commercial          

     16,038     2,916     1,734,001     21,551  

Commercial real estate: multifamily

     295     —     101,803     776  

Residential: first lien

     6,153     —     432,309     3,812  

Residential: junior lien

     3,206     —     406,024     4,249  

Consumer

     1,606     —     64,808     750  

Foreign

     436     —     181,406     1,133  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

   $ 75,893   $ 16,002   $ 5,123,342   $ 54,159  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   


 

 
   December 31, 2012  
 
   Loans individually
evaluated for
impairment		   Loans collectively
evaluated for
impairment		  
 
   Recorded
Investment		   Allowance   Recorded
Investment		   Allowance  
 
   (Dollars in Thousands)
  

Domestic

                          

Commercial

   $ 32,768   $ 1,477   $ 736,342   $ 10,155  

Commercial real estate: other construction & land development

     28,660     539     1,119,009     12,181  

Commercial real estate: farmland & commercial          

     13,945     2,730     1,659,377     19,150  

Commercial real estate: multifamily

     353     —     82,595     694  

Residential: first lien

     3,656     —     453,075     4,390  

Residential: junior lien

     1,850     —     379,886     4,448  

Consumer

     1,326     —     73,188     1,289  

Foreign

     447     —     188,527     1,140  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total

   $ 83,005   $ 4,746   $ 4,691,999   $ 53,447  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   

        Loans accounted for on a non-accrual basis at December 31, 2013, 2012 and 2011 amounted to $62,823,000, $71,768,000 and $118,505,000, respectively. The effect of such non-accrual loans reduced interest income by $4,088,000, $2,549,000 and $4,114,000 for the years ended December 31, 2013, 2012 and 2011, respectively. Amounts received on non-accruals are applied, for financial accounting purposes, first to principal and then to interest after all principal has been collected. Accruing loans contractually past due 90 days or more as to principal or interest payments at December 31, 2013, 2012 and 2011 amounted to $7,197,000, $15,033,000 and $14,288,000, respectively.

        The table below provides additional information on loans accounted for on a non-accrual basis by loan class:

 
   December 31,  
 
   2013   2012  
 
   (Dollars in
Thousands)
  

Domestic

              

Commercial

   $ 34,110   $ 31,929  

Commercial real estate: other construction & land development

     11,726     26,410  

Commercial real estate: farmland & commercial

     13,775     11,681  

Commercial real estate: multifamily

     295     353  

Residential: first lien

     1,266     1,175  

Residential: junior lien

     1,576     175  

Consumer

     75     45  
           
​ ​ ​ ​ ​ ​ ​ ​

Total non-accrual loans

   $ 62,823   $ 71,768  
           
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
           

        Impaired loans are those loans where it is probable that all amounts due according to contractual terms of the loan agreement will not be collected. The Company has identified these loans through its normal loan review procedures. Impaired loans are measured based on (1) the present value of expected future cash flows discounted at the loan's effective interest rate; (2) the loan's observable market price; or (3) the fair value of the collateral if the loan is collateral dependent. Substantially all of the Company's impaired loans are measured at the fair value of the collateral. In limited cases the Company may use other methods to determine the level of impairment of a loan if such loan is not collateral dependent.

        The following tables detail key information regarding the Company's impaired loans by loan class for the year ended December 31, 2013:

 
   December 31, 2013  
 
   Recorded
Investment		   Unpaid
Principal
Balance		   Related
Allowance		   Average
Recorded
Investment		   Interest
Recognized		  
 
   (Dollars in Thousands)
  

Loans with Related Allowance

                                

Domestic

                                

Commercial

   $ 17,178   $ 17,177   $ 12,234   $ 18,019   $ 38  

Commercial real estate: other construction & land development

     6,818     6,825     852     6,058     —  

Commercial real estate: farmland & commercial

     7,259     10,697     2,916     7,167     92  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total impaired loans with related allowance

   $ 31,255   $ 34,699   $ 16,002   $ 31,244   $ 130  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                       


 

 
   December 31, 2013  
 
   Recorded
Investment		   Unpaid
Principal
Balance		   Average
Recorded
Investment		   Interest
Recognized		  
 
   (Dollars in Thousands)
  

Loans with No Related Allowance

                          

Domestic

                          

Commercial

   $ 17,005   $ 17,023   $ 16,778   $ 2  

Commercial real estate: other construction & land development

     7,158     7,187     18,164     74  

Commercial real estate: farmland & commercial          

     8,779     9,949     7,313     —  

Commercial real estate: multifamily

     295     295     322     —  

Residential: first lien

     6,153     6,258     4,860     179  

Residential: junior lien

     3,206     3,226     2,347     99  

Consumer

     1,606     1,612     1,380     1  

Foreign

     436     436     452     19  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total impaired loans with no related allowance          

   $ 44,638   $ 45,986   $ 51,616   $ 374  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   

        The following tables detail key information regarding the Company's impaired loans by loan class for the year ended December 31, 2012:

 
   December 31, 2012  
 
   Recorded
Investment		   Unpaid
Principal
Balance		   Related
Allowance		   Average
Recorded
Investment		   Interest
Recognized		  
 
   (Dollars in Thousands)
  

Loans with Related Allowance

                                

Domestic

                                

Commercial

   $ 1,633   $ 1,679   $ 1,477   $ 21,126   $ 39  

Commercial real estate: other construction & land development

     3,671     3,671     539     6,608     —  

Commercial real estate: farmland & commercial

     6,678     9,923     2,730     7,342     92  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total impaired loans with related allowance

   $ 11,982   $ 15,273   $ 4,746   $ 35,076   $ 131  
                       
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                       


 

 
   December 31, 2012  
 
   Recorded
Investment		   Unpaid
Principal
Balance		   Average
Recorded
Investment		   Interest
Recognized		  
 
   (Dollars in Thousands)
  

Loans with No Related Allowance

                          

Domestic

                          

Commercial

   $ 31,135   $ 31,170   $ 2,996   $ 4  

Commercial real estate: other construction & land development

     24,989     25,160     39,449     141  

Commercial real estate: farmland & commercial          

     7,267     9,340     16,536     8  

Commercial real estate: multifamily

     353     353     381     —  

Residential: first lien

     3,656     3,984     2,876     60  

Residential: junior lien

     1,850     1,944     1,939     104  

Consumer

     1,326     1,330     1,193     —  

Foreign

     447     447     166     6  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total impaired loans with no related allowance          

   $ 71,023   $ 73,728   $ 65,536   $ 323  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   

        Impaired loans with no related allowance decreased for December 31, 2013 when compared to December 31, 2012 due to a few previously identified impaired loans being paid off, recording large principal paydowns, or foreclosed upon and included in other real estate owned during 2013.

        A portion of the impaired loans have adequate collateral and credit enhancements not requiring a related allowance for loan loss. The level of impaired loans is reflective of the economic weakness that has been created by the financial crisis and the subsequent economic downturn. Management is confident the Company's loss exposure regarding these credits will be significantly reduced due to the Company's long-standing practices that emphasize secured lending with strong collateral positions and guarantor support. Management is likewise confident the reserve for probable loan losses is adequate. The Company has no direct exposure to sub-prime loans in its loan portfolio, but the sub-prime crisis has affected the credit markets on a national level, and as a result, the Company has experienced an increasing amount of impaired loans; however, management's decision to place loans in this category does not necessarily mean that the Company will experience significant losses from these loans or significant increases in impaired loans from these levels.

        Management of the Company recognizes the risks associated with these impaired loans. However, management's decision to place loans in this category does not necessarily mean that losses will occur. In the current environment, troubled loan management can be protracted because of the legal and process problems that delay the collection of an otherwise collectable loan. Additionally, management believes that the collateral related to these impaired loans and/or the secondary support from guarantors mitigates the potential for losses from impaired loans. It is also important to note that even though the economic conditions in Texas and Oklahoma are weakened, we believe these markets are improving and better positioned to recover than many other areas of the country. Loans accounted for as "troubled debt restructuring," which are included in impaired loans, were not significant and totaled $20,358,000 and $29,395,000 as of December 31, 2013 and December 31, 2012, respectively.

        The bank subsidiaries charge off that portion of any loan which management considers to represent a loss as well as that portion of any other loan which is classified as a "loss" by bank examiners. Commercial and industrial or real estate loans are generally considered by management to represent a loss, in whole or part, when an exposure beyond any collateral coverage is apparent and when no further collection of the loss portion is anticipated based on the borrower's financial condition and general economic conditions in the borrower's industry. Generally, unsecured consumer loans are charged-off when 90 days past due.

        While management of the Company considers that it is generally able to identify borrowers with financial problems reasonably early and to monitor credit extended to such borrowers carefully, there is no precise method of predicting loan losses. The determination that a loan is likely to be uncollectible and that it should be wholly or partially charged-off as a loss is an exercise of judgment. Similarly, the determination of the adequacy of the allowance for probable loan losses can be made only on a subjective basis. It is the judgment of the Company's management that the allowance for probable loan losses at December 31, 2013 was adequate to absorb probable losses from loans in the portfolio at that date.

        The following table presents information regarding the aging of past due loans by loan class:

 
   December 31, 2013  
 
   30 - 59
Days		   60 - 89
Days		   90 Days or
Greater		   90 Days or
greater &
still accruing		   Total
Past due		   Current   Total
Portfolio		  
 
   (Dollars in Thousands)
  

Domestic

                                            

Commercial

   $ 4,240   $ 538   $ 36,066   $ 2,051   $ 40,844   $ 1,001,798   $ 1,042,642  

Commercial real estate: other construction & land development

     1,042     —     9,942     62     10,984     1,197,524     1,208,508  

Commercial real estate: farmland & commercial

     6,216     520     6,990     417     13,726     1,736,313     1,750,039  

Commercial real estate: multifamily

     39     142     295     —     476     101,622     102,098  

Residential: first lien

     4,758     3,046     4,541     3,518     12,345     426,117     438,462  

Residential: junior lien

     606     198     1,900     368     2,704     406,526     409,230  

Consumer

     1,523     469     803     781     2,795     63,619     66,414  

Foreign

     1,467     417     —     —     1,884     179,958     181,842  
                               
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total past due loans

   $ 19,891   $ 5,330   $ 60,537   $ 7,197   $ 85,758   $ 5,113,477   $ 5,199,235  
                               
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                               


 

 
   December 31, 2012  
 
   30 - 59
Days		   60 - 89
Days		   90 Days or
Greater		   90 Days or
greater &
still accruing		   Total
Past due		   Current   Total
Portfolio		  
 
   (Dollars in Thousands)
  

Domestic

                                            

Commercial

   $ 4,393   $ 471   $ 3,386   $ 2,689   $ 8,250   $ 760,860   $ 769,110  

Commercial real estate: other construction & land development

     1,107     2,300     24,225     497     27,632     1,120,037     1,147,669  

Commercial real estate: farmland & commercial

     3,127     21,272     2,310     929     26,709     1,646,613     1,673,322  

Commercial real estate: multifamily

     685     —     353     —     1,038     81,910     82,948  

Residential: first lien

     4,305     2,510     10,645     9,657     17,460     439,271     456,731  

Residential: junior lien

     2,035     410     259     115     2,704     379,032     381,736  

Consumer

     1,598     404     915     882     2,917     71,597     74,514  

Foreign

     2,257     1,005     264     264     3,526     185,448     188,974  
                               
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total past due loans

   $ 19,507   $ 28,372   $ 42,357   $ 15,033   $ 90,236   $ 4,684,768   $ 4,775,004  
                               
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                               

        The Company's internal classified report is segregated into the following categories: (i) "Special Review Credits," (ii) "Watch List—Pass Credits," or (iii) "Watch List—Substandard Credits." The loans placed in the "Special Review Credits" category reflect the Company's opinion that the loans reflect potential weakness which require monitoring on a more frequent basis. The "Special Review Credits" are reviewed and discussed on a regular basis with the credit department and the lending staff to determine if a change in category is warranted. The loans placed in the "Watch List—Pass Credits" category reflect the Company's opinion that the credit contains weaknesses which represent a greater degree of risk, which warrant "extra attention." The "Watch List—Pass Credits" are reviewed and discussed on a regular basis with the credit department and the lending staff to determine if a change in category is warranted. The loans placed in the "Watch List—Substandard Credits" classification are considered to be potentially inadequately protected by the current sound worth and debt service capacity of the borrower or of any pledged collateral. These credit obligations, even if apparently protected by collateral value, have shown defined weaknesses related to adverse financial, managerial, economic, market or political conditions which may jeopardize repayment of principal and interest. Furthermore, there is the possibility that some future loss could be sustained by the Company if such weaknesses are not corrected. For loans that are classified as impaired, management evaluates these credits ASC 310-10, "Receivables," and, if deemed necessary, a specific reserve is allocated to the credit. The specific reserve allocated under ASC 310-10, is based on (i) the present value of expected future cash flows discounted at the loan's effective interest rate; (ii) the loan's observable market price; or (iii) the fair value of the collateral if the loan is collateral dependent. Substantially all of the Company's loans evaluated as impaired under ASC 310-10 are measured using the fair value of collateral method. In limited cases, the Company may use other methods to determine the specific reserve of a loan under ASC 310-10 if such loan is not collateral dependent.

        The allowance based on historical loss experience on the Company's remaining loan portfolio, which includes the "Special Review Credits," "Watch List—Pass Credits," and "Watch List—Substandard Credits" is determined by segregating the remaining loan portfolio into certain categories such as commercial loans, installment loans, international loans, loan concentrations and overdrafts. Installment loans are then further segregated by number of days past due. A historical loss percentage, adjusted for (i) management's evaluation of changes in lending policies and procedures, (ii) current economic conditions in the market area served by the Company, (iii) other risk factors, (iv) the effectiveness of the internal loan review function, (v) changes in loan portfolios, and (vi) the composition and concentration of credit volume is applied to each category. Each category is then added together to determine the allowance allocated under ASC 450-20.

        A summary of the loan portfolio by credit quality indicator by loan class is as follows:

 
    
   December 31, 2013  
 
   Pass   Special
Review		   Watch
List—Pass		   Watch List—
Substandard		   Watch List—
Impaired		  
 
    
   (Dollars in Thousands)
  

Domestic

                                

Commercial

   $ 955,522   $ 2,270   $ 4,389   $ 46,278   $ 34,183  

Commercial real estate: other construction & land development

     1,167,295     14,247     9,318     3,672     13,976  

Commercial real estate: farmland & commercial

     1,635,179     56,438     21,912     20,472     16,038  

Commercial real estate: multifamily

     100,948     —     —     855     295  

Residential: first lien

     432,067     122     —     120     6,153  

Residential: junior lien

     405,731     —     —     293     3,206  

Consumer

     64,808     —     —     —     1,606  

Foreign

     180,837     —     —     569     436  
                       
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Total

   $ 4,942,387   $ 73,077   $ 35,619   $ 72,259   $ 75,893  
                       
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   December 31, 2012  
 
   Pass   Special
Review		   Watch
List—Pass		   Watch List—
Substandard		   Watch List—
Impaired		  
 
    
   (Dollars in Thousands)
  

Domestic

                                

Commercial

   $ 675,263   $ 4,278   $ 16,535   $ 40,266   $ 32,768  

Commercial real estate: other construction & land development

     1,038,749     55,079     2,614     22,567     28,660  

Commercial real estate: farmland & commercial

     1,486,572     109,144     46,316     17,345     13,945  

Commercial real estate: multifamily

     82,542     —     53     —     353  

Residential: first lien

     446,218     519     —     6,338     3,656  

Residential: junior lien

     378,000     77     309     1,500     1,850  

Consumer

     73,188     —     —     —     1,326  

Foreign

     188,499     —     28     —     447  
                       
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Total

   $ 4,369,031   $ 169,097   $ 65,855   $ 88,016   $ 83,005  
                       
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