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Allowance for Probable Loan Losses | 9 Months Ended
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Sep. 30, 2018
Allowance for Probable Loan Losses |
Allowance for Probable Loan Losses | Note 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 economic uncertainty as the economy recovers from the recent prolonged downturn. 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 reasonably 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 determines 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. A summary of the transactions in the allowance for probable loan losses by loan class is as follows:
|  | Three Months Ended September 30, 2018 |  |  |  |
|  | Domestic |  | Foreign |  |  |  |
|  |  |  |  | Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  | Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  | Other |  | Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  | Construction & |  | Real Estate: |  | Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  | Land |  | Farmland & |  | Real Estate: |  | Residential: |  | Residential: |  |  |  |  |  |  |  |  |  |
|  | Commercial |  | Development |  | Commercial |  | Multifamily |  | First Lien |  | Junior Lien |  | Consumer |  | Foreign |  | Total |
|  | (Dollars in Thousands) |
Balance at June 30, |  | $ | 16,596 |  | $ | 14,703 |  | $ | 18,296 |  | $ | 1,574 |  | $ | 3,591 |  | $ | 6,793 |  | $ | 450 |  | $ | 850 |  | $ | 62,853 |
Losses charged to allowance |  |  | (6,798) |  |  | — |  |  | — |  |  | — |  |  | (74) |  |  | (133) |  |  | (80) |  |  | (3) |  |  | (7,088) |
Recoveries credited to allowance |  |  | 489 |  |  | 4 |  |  | 19 |  |  | — |  |  | 23 |  |  | 53 |  |  | 12 |  |  | 9 |  |  | 609 |
Net (losses) recoveries charged to allowance |  |  | (6,309) |  |  | 4 |  |  | 19 |  |  | — |  |  | (51) |  |  | (80) |  |  | (68) |  |  | 6 |  |  | (6,479) |
Provision charged to operations |  |  | 3,039 |  |  | 397 |  |  | 1,050 |  |  | (138) |  |  | (354) |  |  | 194 |  |  | 57 |  |  | 35 |  |  | 4,280 |
Balance at September 30, |  | $ | 13,326 |  | $ | 15,104 |  | $ | 19,365 |  | $ | 1,436 |  | $ | 3,186 |  | $ | 6,907 |  | $ | 439 |  | $ | 891 |  | $ | 60,654 |
|  | Three Months Ended September 30, 2017 |  |  |  |
|  | Domestic |  | Foreign |  |  |  |
|  |  |  |  | Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  | Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  | Other |  | Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  | Construction & |  | Real Estate: |  | Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  | Land |  | Farmland & |  | Real Estate: |  | Residential: |  | Residential: |  |  |  |  |  |  |  |  |  |
|  | Commercial |  | Development |  | Commercial |  | Multifamily |  | First Lien |  | Junior Lien |  | Consumer |  | Foreign |  | Total |
|  | (Dollars in Thousands) |
Balance at June 30, |  | $ | 25,140 |  | $ | 13,249 |  | $ | 17,472 |  | $ | 997 |  | $ | 2,314 |  | $ | 4,357 |  | $ | 488 |  | $ | 902 |  | $ | 64,919 |
Losses charged to allowance |  |  | (4,249) |  |  | (213) |  |  | — |  |  | — |  |  | (16) |  |  | (202) |  |  | (63) |  |  | — |  |  | (4,743) |
Recoveries credited to allowance |  |  | 631 |  |  | 17 |  |  | 341 |  |  | — |  |  | — |  |  | 85 |  |  | 6 |  |  | 5 |  |  | 1,085 |
Net (losses) recoveries charged to allowance |  |  | (3,618) |  |  | (196) |  |  | 341 |  |  | — |  |  | (16) |  |  | (117) |  |  | (57) |  |  | 5 |  |  | (3,658) |
Provision charged to operations |  |  | 5,473 |  |  | (1,168) |  |  | 371 |  |  | — |  |  | 817 |  |  | 995 |  |  | 82 |  |  | 21 |  |  | 6,591 |
Balance at September 30, |  | $ | 26,995 |  | $ | 11,885 |  | $ | 18,184 |  | $ | 997 |  | $ | 3,115 |  | $ | 5,235 |  | $ | 513 |  | $ | 928 |  | $ | 67,852 |
|  | Nine Months Ended September 30, 2018 |  |  |  |
|  | Domestic |  | Foreign |  |  |  |
|  |  |  |  | Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  | Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  | Other |  | Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  | Construction & |  | Real Estate: |  | Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  | Land |  | Farmland & |  | Real Estate: |  | Residential: |  | Residential: |  |  |  |  |  |  |  |  |  |
|  | Commercial |  | Development |  | Commercial |  | Multifamily |  | First Lien |  | Junior Lien |  | Consumer |  | Foreign |  | Total |
|  | (Dollars in Thousands) |
Balance at December 31, |  | $ | 27,905 |  | $ | 11,675 |  | $ | 16,663 |  | $ | 1,109 |  | $ | 2,950 |  | $ | 6,103 |  | $ | 440 |  | $ | 842 |  | $ | 67,687 |
Losses charged to allowance |  |  | (11,798) |  |  | (1) |  |  | (70) |  |  | — |  |  | (118) |  |  | (172) |  |  | (262) |  |  | (3) |  |  | (12,424) |
Recoveries credited to allowance |  |  | 1,520 |  |  | 8 |  |  | 229 |  |  | — |  |  | 25 |  |  | 348 |  |  | 39 |  |  | 10 |  |  | 2,179 |
Net (losses) recoveries charged to allowance |  |  | (10,278) |  |  | 7 |  |  | 159 |  |  | — |  |  | (93) |  |  | 176 |  |  | (223) |  |  | 7 |  |  | (10,245) |
Provision charged to operations |  |  | (4,301) |  |  | 3,422 |  |  | 2,543 |  |  | 327 |  |  | 329 |  |  | 628 |  |  | 222 |  |  | 42 |  |  | 3,212 |
Balance at September 30, |  | $ | 13,326 |  | $ | 15,104 |  | $ | 19,365 |  | $ | 1,436 |  | $ | 3,186 |  | $ | 6,907 |  | $ | 439 |  | $ | 891 |  | $ | 60,654 |
|  | Nine Months Ended September 30, 2017 |  |  |
|  | Domestic |  | Foreign |  |  |
|  |  |  |  | Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  | Real Estate: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  | Other |  | Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  | Construction & |  | Real Estate: |  | Commercial |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  | Land |  | Farmland & |  | Real Estate: |  | Residential: |  | Residential: |  |  |  |  |  |  |  |  |
|  | Commercial |  | Development |  | Commercial |  | Multifamily |  | First Lien |  | Junior Lien |  | Consumer |  | Foreign |  | Total
|  | (Dollars in Thousands)
Balance at December 31, |  | $ | 25,649 |  | $ | 13,889 |  | $ | 16,731 |  | $ | 806 |  | $ | 2,455 |  | $ | 3,716 |  | $ | 531 |  | $ | 884 |  | $ | 64,661
Losses charged to allowance |  |  | (9,248) |  |  | (213) |  |  | (40) |  |  | — |  |  | (77) |  |  | (340) |  |  | (223) |  |  | — |  |  | (10,141)
Recoveries credited to allowance |  |  | 3,484 |  |  | 20 |  |  | 488 |  |  | — |  |  | 7 |  |  | 182 |  |  | 35 |  |  | 20 |  |  | 4,236
Net (losses) recoveries charged to allowance |  |  | (5,764) |  |  | (193) |  |  | 448 |  |  | — |  |  | (70) |  |  | (158) |  |  | (188) |  |  | 20 |  |  | (5,905)
Provision charged to operations |  |  | 7,110 |  |  | (1,811) |  |  | 1,005 |  |  | 191 |  |  | 730 |  |  | 1,677 |  |  | 170 |  |  | 24 |  |  | 9,096
Balance at September 30, |  | $ | 26,995 |  | $ | 11,885 |  | $ | 18,184 |  | $ | 997 |  | $ | 3,115 |  | $ | 5,235 |  | $ | 513 |  | $ | 928 |  | $ | 67,852
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 individually or collectively. The decreases in provision for probable loan losses charged to expense for the three and nine months ended September 30, 2018 and September 30, 2017 can be attributed to a decrease in the historical loss experience in the commercial category of the calculation and a decrease in loans classified as Watch-List Substandard and Impaired. As discussed in prior periods, charge-offs increased from historical levels due to the deterioration of one relationship that is secured by multiple pieces of transportation equipment beginning in the fourth quarter of 2014. The Company uses a three year historical charge-off experience in the calculation, therefore, as those charge-offs are eliminated from the calculation, the allowance for probable loan losses is impacted. As fluctuations occur in historical loss factors, management evaluates the need to adjust the qualitative factors used in the calculation to properly reflect probable loan losses. The table below provides additional information on the balance of loans individually or collectively evaluated for impairment and their related allowance, by loan class as of September 30, 2018 and December 31, 2017:
|  | September 30, 2018 |
|  | Loans Individually |  | Loans Collectively |
|  | Evaluated For |  | Evaluated For |
|  | Impairment |  | Impairment |
|  | Recorded |  |  |  |  | Recorded |  |  |  |
|  | Investment |  | Allowance |  | Investment |  | Allowance |
|  | (Dollars in Thousands) |
Domestic |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 17,236 |  | $ | 584 |  | $ | 1,061,329 |  | $ | 12,742 |
Commercial real estate: other construction & land development |  |  | 2,130 |  |  | 116 |  |  | 1,876,310 |  |  | 14,988 |
Commercial real estate: farmland & commercial |  |  | 4,157 |  |  | — |  |  | 1,977,397 |  |  | 19,365 |
Commercial real estate: multifamily |  |  | 586 |  |  | — |  |  | 186,759 |  |  | 1,436 |
Residential: first lien |  |  | 6,173 |  |  | — |  |  | 420,373 |  |  | 3,186 |
Residential: junior lien |  |  | 740 |  |  | — |  |  | 720,346 |  |  | 6,907 |
Consumer |  |  | 1,164 |  |  | — |  |  | 45,482 |  |  | 439 |
Foreign |  |  | 306 |  |  | — |  |  | 154,653 |  |  | 891 |
Total |  | $ | 32,492 |  | $ | 700 |  | $ | 6,442,649 |  | $ | 59,954 |
|  | December 31, 2017 |
|  | Loans Individually |  | Loans Collectively |
|  | Evaluated For |  | Evaluated For |
|  | Impairment |  | Impairment |
|  | Recorded |  |  |  |  | Recorded |  |  |  |
|  | Investment |  | Allowance |  | Investment |  | Allowance |
|  | (Dollars in Thousands) |
Domestic |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 17,947 |  | $ | 300 |  | $ | 1,068,520 |  | $ | 27,605 |
Commercial real estate: other construction & land development |  |  | 2,455 |  |  | 116 |  |  | 1,681,095 |  |  | 11,559 |
Commercial real estate: farmland & commercial |  |  | 33,123 |  |  | 18 |  |  | 2,010,162 |  |  | 16,645 |
Commercial real estate: multifamily |  |  | 476 |  |  | — |  |  | 192,440 |  |  | 1,109 |
Residential: first lien |  |  | 6,852 |  |  | — |  |  | 425,925 |  |  | 2,950 |
Residential: junior lien |  |  | 723 |  |  | — |  |  | 700,025 |  |  | 6,103 |
Consumer |  |  | 1,281 |  |  | — |  |  | 48,262 |  |  | 440 |
Foreign |  |  | 347 |  |  | — |  |  | 158,539 |  |  | 842 |
Total |  | $ | 63,204 |  | $ | 434 |  | $ | 6,284,968 |  | $ | 67,253 |
The table below provides additional information on loans accounted for on a non-accrual basis by loan class at September 30, 2018 and December 31, 2017:
|  | September 30, 2018 |  | December 31, 2017 |
|  | (Dollars in Thousands) |
Domestic |  |  |  |  |  |  |
Commercial |  | $ | 17,199 |  | $ | 17,909 |
Commercial real estate: other construction & land development |  |  | 2,130 |  |  | 2,455 |
Commercial real estate: farmland & commercial |  |  | 4,157 |  |  | 33,123 |
Commercial real estate: multifamily |  |  | 586 |  |  | 476 |
Residential: first lien |  |  | 197 |  |  | 712 |
Residential: junior lien |  |  | — |  |  | 11 |
Consumer |  |  | 31 |  |  | 44 |
Total non-accrual loans |  | $ | 24,300 |  | $ | 54,730 |
The decrease in impaired and non-accrual loans at September 30, 2018 compared to December 31, 2017 can be attributed to a relationship secured by a waterpark foreclosed upon in the second quarter of 2018. The relationship was classified as Watch-List Impaired at December 31, 2017. 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 (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 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 at September 30, 2018 and December 31, 2017:
|  | September 30, 2018
|  |  |  |  |  |  |  |  |  |  | Quarter to Date |  | Year to Date
|  |  |  |  | Unpaid |  |  |  |  | Average |  |  |  |  | Average |  |  |
|  | Recorded |  | Principal |  | Related |  | Recorded |  | Interest |  | Recorded |  | Interest
|  | Investment |  | Balance |  | Allowance |  | Investment |  | Recognized |  | Investment |  | Recognized
|  | (Dollars in Thousands)
Loans with Related Allowance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Domestic |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 1,619 |  | $ | 2,212 |  | $ | 584 |  | $ | 1,620 |  | $ | — |  | $ | 1,794 |  | $ | —
Commercial real estate: other construction & land development |  |  | 138 |  |  | 169 |  |  | 116 |  |  | 139 |  |  | — |  |  | 142 |  |  | —
Total impaired loans with related allowance |  | $ | 1,757 |  | $ | 2,381 |  | $ | 700 |  | $ | 1,759 |  | $ | — |  | $ | 1,936 |  | $ | —
|  | September 30, 2018 |
|  |  |  |  |  |  |  | Quarter to Date |  | Year to Date |
|  |  |  |  | Unpaid |  | Average |  |  |  |  | Average |  |  |  |
|  | Recorded |  | Principal |  | Recorded |  | Interest |  | Recorded |  | Interest |
|  | Investment |  | Balance |  | Investment |  | Recognized |  | Investment |  | Recognized |
|  | (Dollars in Thousands) |
Loans with No Related Allowance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Domestic |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 15,617 |  | $ | 43,068 |  | $ | 15,758 |  | $ | — |  | $ | 16,464 |  | $ | 2 |
Commercial real estate: other construction & land development |  |  | 1,992 |  |  | 2,199 |  |  | 1,994 |  |  | — |  |  | 2,203 |  |  | — |
Commercial real estate: farmland & commercial |  |  | 4,157 |  |  | 4,660 |  |  | 5,986 |  |  | — |  |  | 36,633 |  |  | — |
Commercial real estate: multifamily |  |  | 586 |  |  | 617 |  |  | 590 |  |  | — |  |  | 575 |  |  | — |
Residential: first lien |  |  | 6,173 |  |  | 6,257 |  |  | 6,362 |  |  | 76 |  |  | 6,929 |  |  | 228 |
Residential: junior lien |  |  | 740 |  |  | 748 |  |  | 743 |  |  | 11 |  |  | 807 |  |  | 33 |
Consumer |  |  | 1,164 |  |  | 1,167 |  |  | 1,187 |  |  | 1 |  |  | 1,192 |  |  | 2 |
Foreign |  |  | 306 |  |  | 306 |  |  | 318 |  |  | 4 |  |  | 331 |  |  | 11 |
Total impaired loans with no related allowance |  | $ | 30,735 |  | $ | 59,022 |  | $ | 32,938 |  | $ | 92 |  | $ | 65,134 |  | $ | 276 |
|  | December 31, 2017
|  |  |  |  | Unpaid |  |  |  |  | Average |  |  |  |
|  | Recorded |  | Principal |  | Related |  | Recorded |  | Interest |
|  | Investment |  | Balance |  | Allowance |  | Investment |  | Recognized |
|  | (Dollars in Thousands)
Loans with Related Allowance |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Domestic |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate: other construction & land development |  | $ | 1,300 |  | $ | 1,577 |  | $ | 300 |  | $ | 1,346 |  | $ | — |
Commercial real estate: farmland & commercial |  |  | 145 |  |  | 169 |  |  | 116 |  |  | 150 |  |  | — |
Commercial real estate: multifamily |  |  | 449 |  |  | 590 |  |  | 18 |  |  | 489 |  |  | — |
Total impaired loans with related allowance |  | $ | 1,894 |  | $ | 2,336 |  | $ | 434 |  | $ | 1,985 |  | $ | — |
|  | December 31, 2017
|  |  |  |  | Unpaid |  | Average |  |  |  |
|  | Recorded |  | Principal |  | Recorded |  | Interest |
|  | Investment |  | Balance |  | Investment |  | Recognized |
|  | (Dollars in Thousands)
Loans with No Related Allowance |  |  |  |  |  |  |  |  |  |  |  |  |
Domestic |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 16,646 |  | $ | 44,095 |  | $ | 19,354 |  | $ | 3 |
Commercial real estate: other construction & land development |  |  | 2,310 |  |  | 2,455 |  |  | 2,336 |  |  | 67 |
Commercial real estate: farmland & commercial |  |  | 32,675 |  |  | 33,275 |  |  | 8,523 |  |  | 110 |
Commercial real estate: multifamily |  |  | 476 |  |  | 505 |  |  | 401 |  |  | — |
Residential: first lien |  |  | 6,852 |  |  | 6,968 |  |  | 6,860 |  |  | 298 |
Residential: junior lien |  |  | 723 |  |  | 736 |  |  | 1,011 |  |  | 52 |
Consumer |  |  | 1,281 |  |  | 1,283 |  |  | 1,214 |  |  | 1 |
Foreign |  |  | 347 |  |  | 347 |  |  | 751 |  |  | 16 |
Total impaired loans with no related allowance |  | $ | 61,310 |  | $ | 89,664 |  | $ | 40,450 |  | $ | 547 |
The following table details key information regarding the Company’s impaired loans by loan class at September 30, 2017:
|  | September 30, 2017
|  | Quarter to Date |  |  | Year to Date
|  | Average |  |  |  | Average |  |  |
|  | Recorded |  | Interest |  | Recorded |  | Interest
|  | Investment |  | Recognized |  | Investment |  | Recognized
|  | (Dollars in Thousands) |  |  |  |  |
Loans with Related Allowance |  |  |  |  |  |  |  |  |  |  |  |
Domestic |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 2,215 |  | $ | — |  | $ | 2,439 |  | $ | —
Commercial real estate: other construction & land development |  |  | 149 |  |  | — |  |  | 151 |  |  | —
Commercial real estate: farmland & commercial |  |  | 500 |  |  | — |  |  | 496 |  |  | —
Total impaired loans with related allowance |  | $ | 2,864 |  | $ | — |  | $ | 3,086 |  | $ | —
|  | September 30, 2017
|  | Quarter to Date |  | Year to Date
|  | Average |  |  |  | Average |  |  |
|  | Recorded |  | Interest |  | Recorded |  | Interest
|  | Investment |  | Recognized |  | Investment |  | Recognized
|  | (Dollars in Thousands) |  |  |  |  |  |
Loans with No Related Allowance |  |  |  |  |  |  |  |  |  |  |  |
Domestic |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 18,547 |  | $ | 1 |  | $ | 18,931 |  | $ | 2
Commercial real estate: other construction & land development |  |  | 2,296 |  |  | — |  |  | 3,456 |  |  | —
Commercial real estate: farmland & commercial |  |  | 7,936 |  |  | 21 |  |  | 9,456 |  |  | 79
Commercial real estate: multifamily |  |  | 502 |  |  | — |  |  | 521 |  |  | —
Residential: first lien |  |  | 6,733 |  |  | 81 |  |  | 6,903 |  |  | 241
Residential: junior lien |  |  | 765 |  |  | 11 |  |  | 975 |  |  | 35
Consumer |  |  | 1,317 |  |  | 2 |  |  | 1,278 |  |  | 2
Foreign |  |  | 759 |  |  | 4 |  |  | 753 |  |  | 12
Total impaired loans with no related allowance |  | $ | 38,855 |  | $ | 120 |  | $ | 42,273 |  | $ | 371
A portion of the impaired loans have adequate collateral and credit enhancements not requiring a related allowance for loan loss. Management recognizes the risks associated with these impaired loans, however, management is confident the Company’s loss exposure regarding these credits will be significantly reduced due to the Company’s long-standing practices that 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. 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. The following table details loans accounted for as “troubled debt restructuring,” segregated by loan class. Loans accounted for as troubled debt restructuring are included in impaired loans.
|  | September 30, 2018 |  | December 31, 2017 |
|  |  | (Dollars in Thousands) |
Domestic |  |  |  |  |  |  |
Commercial |  | $ | 6,440 |  | $ | 6,910 |
Commercial real estate: farmland & commercial |  |  | — |  |  | — |
Residential: first lien |  |  | 5,976 |  |  | 6,140 |
Residential: junior lien |  |  | 740 |  |  | 712 |
Consumer |  |  | 1,134 |  |  | 1,237 |
Foreign |  |  | 306 |  |  | 347 |
Total troubled debt restructuring |  | $ | 14,596 |  | $ | 15,346 |
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 believes 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 September 30, 2018 was adequate to absorb probable losses from loans in the portfolio at that date. The following tables present information regarding the aging of past due loans by loan class at September 30, 2018 and December 31, 2017:
|  | September 30, 2018 |
|  |  |  |  |  |  |  |  |  |  | 90 Days or |  | Total |  |  |  |  |  |  |
|  | 30 - 59 |  | 60 - 89 |  | 90 Days or |  | greater & |  | Past |  |  |  |  | Total |
|  | Days |  | Days |  | Greater |  | still accruing |  | Due |  | Current |  | Portfolio |
|  | (Dollars in Thousands) |
Domestic |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 14,468 |  | $ | 1,381 |  | $ | 17,410 |  | $ | 886 |  | $ | 33,259 |  | $ | 1,045,306 |  | $ | 1,078,565 |
Commercial real estate: other construction & land development |  |  | 2,596 |  |  | 81 |  |  | 1,005 |  |  | 100 |  |  | 3,682 |  |  | 1,874,758 |  |  | 1,878,440 |
Commercial real estate: farmland & commercial |  |  | 27,621 |  |  | 733 |  |  | 3,655 |  |  | 789 |  |  | 32,009 |  |  | 1,949,545 |  |  | 1,981,554 |
Commercial real estate: multifamily |  |  | 282 |  |  | — |  |  | 586 |  |  | — |  |  | 868 |  |  | 186,477 |  |  | 187,345 |
Residential: first lien |  |  | 4,029 |  |  | 709 |  |  | 3,538 |  |  | 3,435 |  |  | 8,276 |  |  | 418,270 |  |  | 426,546 |
Residential: junior lien |  |  | 746 |  |  | 287 |  |  | 1,120 |  |  | 1,120 |  |  | 2,153 |  |  | 718,933 |  |  | 721,086 |
Consumer |  |  | 410 |  |  | 64 |  |  | 52 |  |  | 38 |  |  | 526 |  |  | 46,120 |  |  | 46,646 |
Foreign |  |  | 1,238 |  |  | 1,137 |  |  | 1,081 |  |  | 1,081 |  |  | 3,456 |  |  | 151,503 |  |  | 154,959 |
Total past due loans |  | $ | 51,390 |  | $ | 4,392 |  | $ | 28,447 |  | $ | 7,449 |  | $ | 84,229 |  | $ | 6,390,912 |  | $ | 6,475,141 |
|  | December 31, 2017 |
|  |  |  |  |  |  |  |  |  |  | 90 Days or |  | Total |  |  |  |  |  |  |
|  | 30 - 59 |  | 60 - 89 |  | 90 Days or |  | greater & |  | Past |  |  |  |  | Total |
|  | Days |  | Days |  | Greater |  | still accruing |  | Due |  | Current |  | Portfolio |
|  |  | (Dollars in Thousands) |
Domestic |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 3,790 |  | $ | 398 |  | $ | 18,308 |  | $ | 537 |  | $ | 22,496 |  | $ | 1,063,971 |  | $ | 1,086,467 |
Commercial real estate: other construction & land development |  |  | 354 |  |  | 308 |  |  | 820 |  |  | 6 |  |  | 1,482 |  |  | 1,682,068 |  |  | 1,683,550 |
Commercial real estate: farmland & commercial |  |  | 3,925 |  |  | 518 |  |  | 31,133 |  |  | 954 |  |  | 35,576 |  |  | 2,007,709 |  |  | 2,043,285 |
Commercial real estate: multifamily |  |  | 84 |  |  | — |  |  | 476 |  |  | — |  |  | 560 |  |  | 192,356 |  |  | 192,916 |
Residential: first lien |  |  | 4,295 |  |  | 2,458 |  |  | 4,095 |  |  | 3,861 |  |  | 10,848 |  |  | 421,929 |  |  | 432,777 |
Residential: junior lien |  |  | 1,310 |  |  | 580 |  |  | 1,110 |  |  | 1,099 |  |  | 3,000 |  |  | 697,748 |  |  | 700,748 |
Consumer |  |  | 868 |  |  | 98 |  |  | 160 |  |  | 133 |  |  | 1,126 |  |  | 48,417 |  |  | 49,543 |
Foreign |  |  | 1,229 |  |  | 69 |  |  | 667 |  |  | 667 |  |  | 1,965 |  |  | 156,921 |  |  | 158,886 |
Total past due loans |  | $ | 15,855 |  | $ | 4,429 |  | $ | 56,769 |  | $ | 7,257 |  | $ | 77,053 |  | $ | 6,271,119 |  | $ | 6,348,172 |
The increase in the 30 – 59 days Commercial real estate: farmland and commercial category at September 30, 2018 compared to December 31, 2017 can be attributed to one relationship secured by commercial real estate leased by car dealerships. The decrease in the 90 days or greater Commercial real estate: farmland and commercial category at September 30, 2018 compared to December 31, 2017 can be attributed to the removal of a loan relationship primarily secured by a water park due to the foreclosure of the collateral in the second quarter of 2018. The Company’s internal classified report is segregated into the following categories: (i) “Special Review Credits,” (ii) “Watch List-Pass Credits,” and (iii) “Watch List-Substandard Credits.” The loans placed in the “Special Review Credits” category reflect management’s opinion that the loans reflect potential weakness which requires 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 in accordance with the provisions of 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 at September 30, 2018 and December 31, 2017 is as follows:
|  |  |  |  | September 30, 2018 |
|  |  |  |  | Special |  | Watch |  | Watch List— |  | Watch List— |
|  | Pass |  | Review |  | List—Pass |  | Substandard |  | Impaired |
|  |  |  |  | (Dollars in Thousands) |
Domestic |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 959,115 |  | $ | 449 |  | $ | 38,469 |  | $ | 63,296 |  | $ | 17,236 |
Commercial real estate: other construction & land development |  |  | 1,811,960 |  |  | 1,662 |  |  | 7,171 |  |  | 55,517 |  |  | 2,130 |
Commercial real estate: farmland & commercial |  |  | 1,759,210 |  |  | 59,433 |  |  | 38,622 |  |  | 120,132 |  |  | 4,157 |
Commercial real estate: multifamily |  |  | 185,823 |  |  | — |  |  | — |  |  | 936 |  |  | 586 |
Residential: first lien |  |  | 419,328 |  |  | — |  |  | 129 |  |  | 916 |  |  | 6,173 |
Residential: junior lien |  |  | 719,464 |  |  | — |  |  | 882 |  |  | — |  |  | 740 |
Consumer |  |  | 45,482 |  |  | — |  |  | — |  |  | — |  |  | 1,164 |
Foreign |  |  | 154,653 |  |  | — |  |  | — |  |  | — |  |  | 306 |
Total |  | $ | 6,055,035 |  | $ | 61,544 |  | $ | 85,273 |  | $ | 240,797 |  | $ | 32,492 |
|  |  |  |  | December 31, 2017 |
|  |  |  |  | Special |  | Watch |  | Watch List— |  | Watch List— |
|  | Pass |  | Review |  | List—Pass |  | Substandard |  | Impaired |
|  |  |  |  | (Dollars in Thousands) |
Domestic |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial |  | $ | 905,707 |  | $ | — |  | $ | 3,170 |  | $ | 159,643 |  | $ | 17,947 |
Commercial real estate: other construction & land development |  |  | 1,616,604 |  |  | 1,288 |  |  | 672 |  |  | 62,531 |  |  | 2,455 |
Commercial real estate: farmland & commercial |  |  | 1,863,763 |  |  | 5,134 |  |  | 41,820 |  |  | 99,445 |  |  | 33,123 |
Commercial real estate: multifamily |  |  | 192,440 |  |  | — |  |  | — |  |  | — |  |  | 476 |
Residential: first lien |  |  | 425,811 |  |  | 40 |  |  | — |  |  | 74 |  |  | 6,852 |
Residential: junior lien |  |  | 699,875 |  |  | 150 |  |  | — |  |  | — |  |  | 723 |
Consumer |  |  | 48,262 |  |  | — |  |  | — |  |  | — |  |  | 1,281 |
Foreign |  |  | 158,539 |  |  | — |  |  | — |  |  | — |  |  | 347 |
Total |  | $ | 5,911,001 |  | $ | 6,612 |  | $ | 45,662 |  | $ | 321,693 |  | $ | 63,204 |
The increase in Special Review credits at September 30, 2018 compared to December 31, 2017 can be attributed to the reclassification of one relationship secured by real estate used for day care facilities from Pass. The increase in Watch List – Pass credits at September 30, 2018 can be attributed to the reclassification of a relationship in the oil and gas production business from Watch List - Substandard. The decrease in Commercial Watch List-Substandard credits at September 30, 2018 compared to December 31, 2017 can be primarily attributed to the payoff of a loan relationship secured by barges used in the transportation of petroleum products and the reclassification of a relationship in the oil and gas production business to Watch List - Pass. The increase in Commercial real estate: farmland and commercial Watch List – Substandard credits at September 30, 2018 compared to December 31, 2017 can be attributed to the reclassification of a relationship secured by commercial real estate leased by car dealerships from Pass. The decrease in Watch List-Impaired at September 30, 2018 compared to December 31, 2017 can be attributed to the foreclosure of a loan relationship primarily secured by a water park.

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