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LOANS AND LEASES
 6 Months Ended
Jun. 30, 2012
LOANS AND LEASES  
LOANS AND LEASES

5.   LOANS AND LEASES

 

Loans and leases, excluding loans held for sale, consisted of the following:

 

 

 

June 30,

 

December 31,

 

 

 

2012

 

2011

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

Commercial, financial and agricultural

 

$

197,613

 

$

180,571

 

Real estate:

 

 

 

 

 

Construction

 

106,464

 

161,126

 

Mortgage - residential

 

977,999

 

896,566

 

Mortgage - commercial

 

698,756

 

701,399

 

Consumer

 

108,276

 

108,810

 

Leases

 

13,934

 

17,702

 

 

 

2,103,042

 

2,066,174

 

Unearned income

 

(1,879

)

(1,727

)

Total loans and leases

 

$

2,101,163

 

$

2,064,447

 

 

During the six months ended June 30, 2012, we sold one loan with a carrying value of $0.5 million and transferred one loan, which was non-performing, with a carrying value of $0.3 million, to the held-for-sale category. In addition, we transferred 11 loans with a carrying value of $2.0 million to other real estate. No portfolio loans were purchased during the six months ended June 30, 2012.

 

During the six months ended June 30, 2011, we transferred one loan, which was non-performing, with a carrying value of $1.3 million, to the held-for-sale category. In addition, we transferred 17 loans with a carrying value of $8.5 million to other real estate. No portfolio loans were sold or purchased during the six months ended June 30, 2011.

 

Impaired Loans

 

The following table presents by class, the balance in the allowance for loan and lease losses and the recorded investment in loans and leases based on the Company’s impairment measurement method as of June 30, 2012 and December 31, 2011:

 

 

 

Commercial,

 

Real estate

 

 

 

 

 

 

 

 

 

financial &
agricultural

 

Construction

 

Mortgage -
residential

 

Mortgage -
commercial

 

Consumer

 

Leases

 

Total

 

 

 

(Dollars in thousands)

 

June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan and lease losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance attributable to loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

994

 

$

3,214

 

$

847

 

$

4

 

$

—

 

$

13

 

$

5,072

 

Collectively evaluated for impairment

 

5,268

 

9,117

 

28,974

 

47,238

 

2,008

 

137

 

92,742

 

 

 

6,262

 

12,331

 

29,821

 

47,242

 

2,008

 

150

 

97,814

 

Unallocated

 

 

 

 

 

 

 

 

 

 

 

 

 

6,000

 

Total ending balance

 

$

6,262

 

$

12,331

 

$

29,821

 

$

47,242

 

$

2,008

 

$

150

 

$

103,814

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

3,870

 

$

47,598

 

$

47,634

 

$

20,390

 

$

—

 

$

265

 

$

119,757

 

Collectively evaluated for impairment

 

193,743

 

58,866

 

930,365

 

678,366

 

108,276

 

13,669

 

1,983,285

 

 

 

197,613

 

106,464

 

977,999

 

698,756

 

108,276

 

13,934

 

2,103,042

 

Unearned income

 

78

 

1

 

(535

)

(1,423

)

—

 

—

 

(1,879

)

Total ending balance

 

$

197,691

 

$

106,465

 

$

977,464

 

$

697,333

 

$

108,276

 

$

13,934

 

$

2,101,163

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan and lease losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance attributable to loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

—

 

$

401

 

$

—

 

$

371

 

$

—

 

$

—

 

$

772

 

Collectively evaluated for impairment

 

6,110

 

28,229

 

32,736

 

47,358

 

2,335

 

553

 

117,321

 

 

 

6,110

 

28,630

 

32,736

 

47,729

 

2,335

 

553

 

118,093

 

Unallocated

 

 

 

 

 

 

 

 

 

 

 

 

 

4,000

 

Total ending balance

 

$

6,110

 

$

28,630

 

$

32,736

 

$

47,729

 

$

2,335

 

$

553

 

$

122,093

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

1,367

 

$

62,569

 

$

50,221

 

$

18,451

 

$

—

 

$

—

 

$

132,608

 

Collectively evaluated for impairment

 

179,204

 

98,557

 

846,345

 

682,948

 

108,810

 

17,702

 

1,933,566

 

 

 

180,571

 

161,126

 

896,566

 

701,399

 

108,810

 

17,702

 

2,066,174

 

Unearned income

 

133

 

(63

)

(467

)

(1,330

)

—

 

—

 

(1,727

)

Total ending balance

 

$

180,704

 

$

161,063

 

$

896,099

 

$

700,069

 

$

108,810

 

$

17,702

 

$

2,064,447

 

 

The following table presents by class, impaired loans as of June 30, 2012 and December 31, 2011:

 

 

 

Unpaid Principal
Balance

 

Recorded
Investment

 

Allowance
Allocated

 

 

 

(Dollars in thousands)

 

June 30, 2012

 

 

 

 

 

 

 

Impaired loans with no related allowance recorded:

 

 

 

 

 

 

 

Commercial, financial & agricultural

 

$

1,026

 

$

326

 

$

—

 

Real estate:

 

 

 

 

 

 

 

Construction

 

36,450

 

29,881

 

—

 

Mortgage - residential

 

51,094

 

45,028

 

—

 

Mortgage - commercial

 

18,110

 

17,317

 

—

 

Total impaired loans with no related allowance recorded

 

106,680

 

92,552

 

—

 

Impaired loans with an allowance recorded:

 

 

 

 

 

 

 

Commercial, financial & agricultural

 

4,919

 

3,544

 

994

 

Real estate:

 

 

 

 

 

 

 

Construction

 

22,045

 

17,717

 

3,214

 

Mortgage - residential

 

2,639

 

2,606

 

847

 

Mortgage - commercial

 

4,110

 

3,073

 

4

 

Leases

 

265

 

265

 

13

 

Total impaired loans with an allowance recorded

 

33,978

 

27,205

 

5,072

 

Total

 

$

140,658

 

$

119,757

 

$

5,072

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

Impaired loans with no related allowance recorded:

 

 

 

 

 

 

 

Commercial, financial & agricultural

 

$

2,107

 

$

1,367

 

$

—

 

Real estate:

 

 

 

 

 

 

 

Construction

 

80,283

 

47,877

 

—

 

Mortgage - residential

 

57,195

 

50,221

 

—

 

Mortgage - commercial

 

14,084

 

13,756

 

—

 

Total impaired loans with no related allowance recorded

 

153,669

 

113,221

 

—

 

Impaired loans with an allowance recorded:

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

Construction

 

24,262

 

14,692

 

401

 

Mortgage - commercial

 

6,188

 

4,695

 

371

 

Total impaired loans with an allowance recorded

 

30,450

 

19,387

 

772

 

Total

 

$

184,119

 

$

132,608

 

$

772

 

 

The following table presents by class, the average recorded investment and interest income recognized on impaired loans as of June 30, 2012 and 2011:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

Average
Recorded
Investment

 

Interest
Income
Recognized

 

 

 

(Dollars in thousands)

 

Commercial, financial & agricultural

 

$

4,275

 

$

26

 

$

404

 

$

—

 

$

3,024

 

$

29

 

$

440

 

$

—

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

62,174

 

—

 

127,344

 

531

 

63,387

 

645

 

135,674

 

666

 

Mortgage - residential

 

48,817

 

121

 

58,801

 

32

 

49,438

 

178

 

59,509

 

445

 

Mortgage - commercial

 

22,766

 

146

 

20,042

 

116

 

20,272

 

168

 

18,613

 

116

 

Leases

 

199

 

—

 

—

 

—

 

85

 

—

 

—

 

—

 

Total

 

$

138,231

 

$

293

 

$

206,591

 

$

679

 

$

136,206

 

$

1,020

 

$

214,236

 

$

1,227

 

 

Aging Analysis of Accruing and Non-Accruing Loans and Leases

 

For all loan types, the Company determines delinquency status by considering the number of days full payments required by the contractual terms of the loan are past due. The following table presents by class, the aging of the recorded investment in past due loans and leases as of June 30, 2012 and December 31, 2011:

 

 

 

Accruing Loans
30 - 59 Days Past
Due

 

Accruing Loans
60 - 89 Days Past
Due

 

Accruing 
Loans Greater 
than 90 Days 
Past Due

 

Nonaccrual 
Loans

 

Total Past Due 
and Nonaccrual

 

Loans and 
Leases Not Past 
Due

 

Total

 

 

 

(Dollars in thousands)

 

June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial & agricultural

 

$

120

 

$

43

 

$

—

 

$

3,698

 

$

3,861

 

$

193,830

 

$

197,691

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

—

 

1,546

 

319

 

47,598

 

49,463

 

57,002

 

106,465

 

Mortgage - residential

 

15

 

583

 

156

 

42,199

 

42,953

 

934,511

 

977,464

 

Mortgage - commercial

 

—

 

—

 

—

 

16,805

 

16,805

 

680,528

 

697,333

 

Consumer

 

410

 

533

 

3

 

—

 

946

 

107,330

 

108,276

 

Leases

 

—

 

12

 

27

 

264

 

303

 

13,631

 

13,934

 

Total

 

$

545

 

$

2,717

 

$

505

 

$

110,564

 

$

114,331

 

$

1,986,832

 

$

2,101,163

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial & agricultural

 

$

180

 

$

80

 

$

—

 

$

1,367

 

$

1,627

 

$

179,077

 

$

180,704

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

—

 

442

 

—

 

57,351

 

57,793

 

103,270

 

161,063

 

Mortgage - residential

 

2,972

 

631

 

—

 

47,128

 

50,731

 

845,368

 

896,099

 

Mortgage - commercial

 

602

 

—

 

—

 

15,653

 

16,255

 

683,814

 

700,069

 

Consumer

 

390

 

79

 

28

 

—

 

497

 

108,313

 

108,810

 

Leases

 

28

 

—

 

—

 

—

 

28

 

17,674

 

17,702

 

Total

 

$

4,172

 

$

1,232

 

$

28

 

$

121,499

 

$

126,931

 

$

1,937,516

 

$

2,064,447

 

 

Modifications

 

Troubled debt restructurings (“TDRs”) included in nonperforming assets at June 30, 2012 consisted of 82 Hawaii residential mortgage loans with a combined principal balance of $35.3 million, a Mainland construction and development loan with a principal balance of $13.2 million, two Mainland commercial mortgage loans with a combined principal balance of $6.4 million, seven Hawaii construction and development loans with a combined principal balance of $2.8 million, a Hawaii commercial mortgage loan with a principal balance of $0.5 million and a Hawaii commercial loan with a principal balance of $0.2 million. Concessions made to the original contractual terms of these loans consisted primarily of the deferral of interest and/or principal payments due to deterioration in the borrowers’ financial condition. The principal balances on these TDRs had matured and/or were in default at the time of restructure and we have no commitments to lend additional funds to any of these borrowers. There were $9.2 million of TDRs still accruing interest at June 30, 2012, none of which were more than 90 days delinquent. At December 31, 2011, there were $8.3 million of TDRs still accruing interest, none of which were more than 90 days delinquent.

 

The majority of loans modified in a TDR are typically on nonaccrual status. Thus, these loans have already been identified as impaired and have already been evaluated under the Company’s allowance for loan and lease losses (the “Allowance”) methodology. As a result, the loans modified in a TDR did not have a material affect to our provision for loan and lease losses expense (the “Provision”) and the Allowance during the three and six months ended June 30, 2012.

 

The following table presents by class, information related to loans modified in a TDR during the three and six months ended June 30, 2012 and 2011:

 

 

 

Number of 
Contracts

 

Recorded 
Investment 
(as of 
period end)

 

Additional 
Partial 
Charge-offs

 

 

 

(Dollars in thousands)

 

Three months ended June 30, 2012

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

Construction

 

4

 

$

1,603

 

$

—

 

Mortgage - residential

 

1

 

351

 

—

 

Mortgage - commercial

 

2

 

3,438

 

—

 

Total

 

7

 

$

5,392

 

$

—

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2011

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

Construction

 

1

 

$

5,413

 

$

—

 

Mortgage - residential

 

14

 

6,065

 

27

 

Total

 

15

 

$

11,478

 

$

27

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2012

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

Construction

 

4

 

$

1,603

 

$

—

 

Mortgage - residential

 

7

 

3,560

 

—

 

Mortgage - commercial

 

4

 

10,214

 

—

 

Total

 

15

 

$

15,377

 

$

—

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2011

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

Construction

 

2

 

$

10,841

 

$

3,014

 

Mortgage - residential

 

22

 

8,010

 

447

 

Total

 

24

 

$

18,851

 

$

3,461

 

 

The following table presents by class, loans modified as a TDR within the previous twelve months that subsequently defaulted during the three and six months ended June 30, 2012 and 2011:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

Number of
Contracts

 

Recorded 
Investment
(as of period
end)

 

Number of
Contracts

 

Recorded 
Investment
(as of period
end)

 

Number of
Contracts

 

Recorded 
Investment
(as of period 
end)

 

Number of 
Contracts

 

Recorded 
Investment
(as of period 
end)

 

 

 

(Dollars in thousands)

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

4

 

$

1,603

 

1

 

$

5,242

 

4

 

$

1,603

 

1

 

$

5,242

 

Mortgage - residential

 

1

 

351

 

10

 

5,113

 

3

 

796

 

17

 

6,830

 

Mortgage - commercial

 

1

 

3,307

 

—

 

—

 

2

 

6,465

 

—

 

—

 

Total

 

6

 

$

5,261

 

11

 

$

10,355

 

9

 

$

8,864

 

18

 

$

12,072

 

 

Credit Quality Indicators

 

The Company categorizes loans and leases into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans and leases individually by classifying the loans and leases as to credit risk. This analysis includes loans and leases with an outstanding balance greater than $0.5 million or $1.0 million, depending on loan type, and non-homogeneous loans and leases, such as commercial and commercial real estate loans. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:

 

Special Mention. Loans and leases classified as special mention, while still adequately protected by the borrower’s capital adequacy and payment capability, exhibit distinct weakening trends and/or elevated levels of exposure to external conditions. If left unchecked or uncorrected, these potential weaknesses may result in deteriorated prospects of repayment. These exposures require management’s close attention so as to avoid becoming undue or unwarranted credit exposures.

 

Substandard. Loans and leases classified as substandard are inadequately protected by the borrower’s current financial condition and payment capability or of the collateral pledged, if any. Loans and leases so classified have a well-defined weakness or weaknesses that jeopardize the orderly repayment of debt. They are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected.

 

Doubtful. Loans and leases classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, its classification as an estimate loss is deferred until its more exact status may be determined.

 

Loss. Loans and leases classified as loss are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean the loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. Losses are taken in the period in which they surface as uncollectible.

 

Loans and leases not meeting the criteria above that are analyzed individually as part of the process described above are considered to be pass rated loans and leases. Loans and leases listed as not rated are either less than $0.5 million or are included in groups of homogeneous loan pools. The following table presents by class and credit indicator, the recorded investment in the Company’s loans and leases as of June 30, 2012 and December 31, 2011:

 

 

 

Pass

 

Special 
Mention

 

Substandard

 

Doubtful

 

Loss

 

Not Rated

 

Less: 
Unearned 
Income

 

Total

 

 

 

(Dollars in thousands)

 

June 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial & agricultural

 

$

129,218

 

$

6,965

 

$

9,334

 

$

—

 

$

—

 

$

52,096

 

$

(78

)

$

197,691

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

37,931

 

16,503

 

48,594

 

—

 

—

 

3,436

 

(1

)

106,465

 

Mortgage - residential

 

81,036

 

1,628

 

46,966

 

—

 

—

 

848,369

 

535

 

977,464

 

Mortgage - commercial

 

569,172

 

71,892

 

32,916

 

—

 

—

 

24,776

 

1,423

 

697,333

 

Consumer

 

9,931

 

—

 

—

 

—

 

—

 

98,345

 

—

 

108,276

 

Leases

 

12,911

 

241

 

782

 

—

 

—

 

—

 

—

 

13,934

 

Total

 

$

840,199

 

$

97,229

 

$

138,592

 

$

—

 

$

—

 

$

1,027,022

 

$

1,879

 

$

2,101,163

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial & agricultural

 

$

107,419

 

$

6,087

 

$

15,389

 

$

—

 

$

—

 

$

51,676

 

$

(133

)

$

180,704

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

52,882

 

18,808

 

84,716

 

—

 

—

 

4,720

 

63

 

161,063

 

Mortgage - residential

 

62,314

 

3,823

 

55,017

 

—

 

—

 

775,412

 

467

 

896,099

 

Mortgage - commercial

 

557,494

 

54,170

 

58,599

 

—

 

—

 

31,136

 

1,330

 

700,069

 

Consumer

 

4,659

 

—

 

79

 

—

 

—

 

104,072

 

—

 

108,810

 

Leases

 

16,111

 

327

 

1,264

 

—

 

—

 

—

 

—

 

17,702

 

Total

 

$

800,879

 

$

83,215

 

$

215,064

 

$

—

 

$

—

 

$

967,016

 

$

1,727

 

$

2,064,447

 

 

In accordance with applicable Interagency Guidance issued by our primary bank regulators, we define subprime borrowers as typically having weakened credit histories that include payment delinquencies and possibly more severe problems such as charge-offs, judgments, and bankruptcies. They may also display reduced repayment capacity as measured by credit scores, debt-to-income ratios, or other criteria that may encompass borrowers with incomplete credit histories. Subprime loans are loans to borrowers displaying one or more of these characteristics at the time of origination or purchase. Such loans have a higher risk of default than loans to prime borrowers. At June 30, 2012 and December 31, 2011, we did not have any loans that we considered to be subprime.