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LOANS AND LEASES
 9 Months Ended
Sep. 30, 2012
LOANS AND LEASES  
LOANS AND LEASES

5.   LOANS AND LEASES

 

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

 

 

 

September 30,

 

December 31,

 

 

 

2012

 

2011

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

Commercial, financial and agricultural

 

$

211,424

 

$

180,571

 

Real estate:

 

 

 

 

 

Construction

 

104,277

 

161,126

 

Mortgage - residential

 

985,721

 

896,566

 

Mortgage - commercial

 

674,854

 

701,399

 

Consumer

 

123,420

 

108,810

 

Leases

 

12,150

 

17,702

 

 

 

2,111,846

 

2,066,174

 

Unearned income

 

(1,683

)

(1,727

)

Total loans and leases

 

$

2,110,163

 

$

2,064,447

 

 

During the nine months ended September 30, 2012, we transferred three loans with a carrying value of $1.5 million, two of which were non-performing, to the held-for-sale category. In addition, we transferred 15 loans with a carrying value of $3.0 million to other real estate. No portfolio loans were purchased during the nine months ended September 30, 2012.

 

During the nine months ended September 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 24 loans with a carrying value of $38.2 million to other real estate. No portfolio loans were sold or purchased during the nine months ended September 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 September 30, 2012 and December 31, 2011:

 

 

 

Commercial,

 

Real estate

 

 

 

 

 

 

 

 

 

financial &
agricultural

 

Construction

 

Mortgage -
 residential

 

Mortgage -
 commercial

 

Consumer

 

Leases

 

Total

 

 

 

(Dollars in thousands)

 

September 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan and lease losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance attributable to loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

937

 

$

1,582

 

$

311

 

$

237

 

$

—

 

$

13

 

$

3,080

 

Collectively evaluated for impairment

 

4,592

 

6,162

 

31,970

 

42,697

 

2,313

 

114

 

87,848

 

 

 

5,529

 

7,744

 

32,281

 

42,934

 

2,313

 

127

 

90,928

 

Unallocated

 

 

 

 

 

 

 

 

 

 

 

 

 

6,000

 

Total ending balance

 

$

5,529

 

$

7,744

 

$

32,281

 

$

42,934

 

$

2,313

 

$

127

 

$

96,928

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and leases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individually evaluated for impairment

 

$

4,227

 

$

50,524

 

$

45,409

 

$

17,075

 

$

—

 

$

246

 

$

117,481

 

Collectively evaluated for impairment

 

207,197

 

53,753

 

940,312

 

657,779

 

123,420

 

11,904

 

1,994,365

 

 

 

211,424

 

104,277

 

985,721

 

674,854

 

123,420

 

12,150

 

2,111,846

 

Unearned income

 

(16

)

17

 

(351

)

(1,333

)

—

 

—

 

(1,683

)

Total ending balance

 

$

211,408

 

$

104,294

 

$

985,370

 

$

673,521

 

$

123,420

 

$

12,150

 

$

2,110,163

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 September 30, 2012 and December 31, 2011:

 

 

 

Unpaid Principal
Balance

 

Recorded
Investment

 

Allowance
Allocated

 

 

 

(Dollars in thousands)

 

September 30, 2012

 

 

 

 

 

 

 

Impaired loans with no related allowance recorded:

 

 

 

 

 

 

 

Commercial, financial & agricultural

 

$

1,439

 

$

740

 

$

—

 

Real estate:

 

 

 

 

 

 

 

Construction

 

53,331

 

38,924

 

—

 

Mortgage - residential

 

49,884

 

43,906

 

—

 

Mortgage - commercial

 

18,196

 

16,838

 

—

 

Total impaired loans with no related allowance recorded

 

122,850

 

100,408

 

—

 

Impaired loans with an allowance recorded:

 

 

 

 

 

 

 

Commercial, financial & agricultural

 

4,862

 

3,487

 

937

 

Real estate:

 

 

 

 

 

 

 

Construction

 

13,678

 

11,600

 

1,582

 

Mortgage - residential

 

1,967

 

1,503

 

311

 

Mortgage - commercial

 

237

 

237

 

237

 

Leases

 

246

 

246

 

13

 

Total impaired loans with an allowance recorded

 

20,990

 

17,073

 

3,080

 

Total

 

$

143,840

 

$

117,481

 

$

3,080

 

 

 

 

 

 

 

 

 

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 September 30, 2012 and 2011:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 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

 

$

3,956

 

$

1

 

$

331

 

$

—

 

$

3,304

 

$

30

 

$

407

 

$

—

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

48,412

 

83

 

110,543

 

81

 

58,893

 

728

 

128,135

 

719

 

Mortgage - residential

 

46,036

 

120

 

59,309

 

370

 

48,418

 

298

 

59,449

 

575

 

Mortgage - commercial

 

17,994

 

162

 

20,615

 

(16

)

19,589

 

330

 

19,214

 

368

 

Leases

 

252

 

—

 

—

 

—

 

135

 

—

 

—

 

—

 

Total

 

$

116,650

 

$

366

 

$

190,798

 

$

435

 

$

130,339

 

$

1,386

 

$

207,205

 

$

1,662

 

 

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 September 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)

 

September 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial & agricultural

 

$

84

 

$

17

 

$

15

 

$

3,604

 

$

3,720

 

$

207,688

 

$

211,408

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

—

 

—

 

—

 

45,166

 

45,166

 

59,128

 

104,294

 

Mortgage - residential

 

180

 

3,340

 

490

 

33,475

 

37,485

 

947,885

 

985,370

 

Mortgage - commercial

 

1,135

 

—

 

—

 

10,440

 

11,575

 

661,946

 

673,521

 

Consumer

 

341

 

85

 

7

 

—

 

433

 

122,987

 

123,420

 

Leases

 

—

 

—

 

27

 

246

 

273

 

11,877

 

12,150

 

Total

 

$

1,740

 

$

3,442

 

$

539

 

$

92,931

 

$

98,652

 

$

2,011,511

 

$

2,110,163

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 September 30, 2012 totaled $49.1 million and consisted of 68 Hawaii residential mortgage loans with a combined principal balance of $26.6 million, two U.S. Mainland construction and development loans with a combined principal balance of $17.1 million, a U.S. Mainland commercial mortgage loan with a principal balance of $3.0 million, seven Hawaii construction and development loans with a combined principal balance of $2.3 million and a Hawaii commercial loan with a principal balance of $0.1 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 $24.9 million of TDRs still accruing interest at September 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 effect on our provision for loan and lease losses expense (the “Provision”) and the Allowance during the three and nine months ended September 30, 2012.

 

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

 

 

 

Number of
Contracts

 

Recorded
Investment (as of
period end)

 

Additional
Partial
Charge-offs

 

 

 

(Dollars in thousands)

 

Three months ended September 30, 2012

 

 

 

 

 

 

 

Commercial, financial & agricultural

 

1

 

$

457

 

$

—

 

Real estate:

 

 

 

 

 

 

 

Construction

 

4

 

9,838

 

—

 

Mortgage - residential

 

3

 

1,226

 

155

 

Total

 

8

 

$

11,521

 

$

155

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2011

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

Mortgage - residential

 

9

 

$

2,954

 

$

—

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2012

 

 

 

 

 

 

 

Commercial, financial & agricultural

 

4

 

$

624

 

$

—

 

Real estate:

 

 

 

 

 

 

 

Construction

 

8

 

11,377

 

—

 

Mortgage - residential

 

10

 

4,258

 

—

 

Mortgage - commercial

 

4

 

9,623

 

—

 

Total

 

26

 

$

25,882

 

$

—

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2011

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

Construction

 

2

 

$

10,593

 

$

3,014

 

Mortgage - residential

 

26

 

9,635

 

447

 

Total

 

28

 

$

20,228

 

$

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 nine months ended September 30, 2012 and 2011:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 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

 

3

 

$

4,668

 

—

 

$

—

 

7

 

$

6,207

 

1

 

$

5,332

 

Mortgage - residential

 

1

 

93

 

1

 

347

 

4

 

878

 

37

 

13,503

 

Mortgage - commercial

 

 

 

 

 

—

 

—

 

2

 

6,212

 

—

 

—

 

Total

 

4

 

$

4,761

 

1

 

$

347

 

13

 

$

13,297

 

38

 

$

18,835

 

 

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 September 30, 2012 and December 31, 2011:

 

 

 

Pass

 

Special
Mention

 

Substandard

 

Doubtful

 

Loss

 

Not Rated

 

Less:
Unearned
Income

 

Total

 

 

 

(Dollars in thousands)

 

September 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial, financial & agricultural

 

$

151,970

 

$

6,186

 

$

8,354

 

$

—

 

$

—

 

$

44,914

 

$

16

 

$

211,408

 

Real estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

39,106

 

12,389

 

50,189

 

—

 

—

 

2,593

 

(17

)

104,294

 

Mortgage - residential

 

81,532

 

3,023

 

37,005

 

—

 

—

 

864,161

 

351

 

985,370

 

Mortgage - commercial

 

547,668

 

77,826

 

32,086

 

—

 

—

 

17,274

 

1,333

 

673,521

 

Consumer

 

10,296

 

—

 

76

 

—

 

—

 

113,048

 

—

 

123,420

 

Leases

 

11,167

 

297

 

686

 

—

 

—

 

—

 

—

 

12,150

 

Total

 

$

841,739

 

$

99,721

 

$

128,396

 

$

—

 

$

—

 

$

1,041,990

 

$

1,683

 

$

2,110,163

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 September 30, 2012 and December 31, 2011, we did not have any loans that we considered to be subprime.