5. LOANS AND LEASES

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

	March 31,			December 31,
	2013			2012
	(Dollars in thousands)

Commercial, financial and agricultural	$	316,999		$	246,278
Real estate:
Construction	88,082			96,240
Mortgage - residential	1,073,994			1,035,273
Mortgage - commercial	637,574			673,506
Consumer	150,144			143,387
Leases	8,936			10,504
	2,275,729			2,205,188
Unearned income	(1,131		)	(1,244		)
Total loans and leases	$	2,274,598		$	2,203,944

During the three months ended March 31, 2013, we transferred two loans with a carrying value of $0.6 million to other real estate. We did not transfer any portfolio loans to the held-for-sale category and no portfolio loans were sold or purchased during the three months ended March 31, 2013.

During the three months ended March 31, 2012, we 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 two loans with a carrying value of $0.5 million to other real estate. No portfolio loans were sold or purchased during the three months ended March 31, 2012.

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 March 31, 2013 and December 31, 2012:

	Commercial,			Real estate
	financial & agricultural			Construction			Mortgage - residential		Mortgage - commercial			Consumer			Leases		Total
	(Dollars in thousands)
March 31, 2013
Allowance for loan and lease losses:
Ending balance attributable to loans:
Individually evaluated for impairment	$	510		$	1,582		$	—	$	1,720		$	—		$	3	$	3,815
Collectively evaluated for impairment	8,131			2,364			29,991		33,569			2,864			72		76,991
	8,641			3,946			29,991		35,289			2,864			75		80,806
Unallocated																	6,000
Total ending balance	$	8,641		$	3,946		$	29,991	$	35,289		$	2,864		$	75	$	86,806

Loans and leases:
Individually evaluated for impairment	$	5,043		$	39,013		$	40,225	$	23,664		$	—		$	59	$	108,004
Collectively evaluated for impairment	311,956			49,069			1,033,769		613,910			150,144			8,877		2,167,725
	316,999			88,082			1,073,994		637,574			150,144			8,936		2,275,729
Unearned income	(131		)	(31		)	407		(1,185		)	(191		)	—		(1,131		)
Total ending balance	$	316,868		$	88,051		$	1,074,401	$	636,389		$	149,953		$	8,936	$	2,274,598

December 31, 2012
Allowance for loan and lease losses:
Ending balance attributable to loans:
Individually evaluated for impairment	$	882		$	1,582		$	272	$	270		$	—		$	5	$	3,011
Collectively evaluated for impairment	4,105			2,928			29,638		48,230			2,421			80		87,402
	4,987			4,510			29,910		48,500			2,421			85		90,413
Unallocated																	6,000
Total ending balance	$	4,987		$	4,510		$	29,910	$	48,500		$	2,421		$	85	$	96,413

Loans and leases:
Individually evaluated for impairment	$	3,957		$	48,264		$	42,865	$	15,911		$	—		$	95	$	111,092
Collectively evaluated for impairment	242,321			47,976			992,408		657,595			143,387			10,409		2,094,096
	246,278			96,240			1,035,273		673,506			143,387			10,504		2,205,188
Unearned income	(60		)	(46		)	124		(1,258		)	(4		)	—		(1,244		)
Total ending balance	$	246,218		$	96,194		$	1,035,397	$	672,248		$	143,383		$	10,504	$	2,203,944

The following table presents by class, impaired loans as of March 31, 2013 and December 31, 2012:

	Unpaid Principal Balance		Recorded Investment		Allowance Allocated
	(Dollars in thousands)
March 31, 2013
Impaired loans with no related allowance recorded:
Commercial, financial & agricultural	$	2,677	$	1,978	$	—
Real estate:
Construction	39,337		27,413		—
Mortgage - residential	46,618		40,225		—
Mortgage - commercial	13,236		12,604		—
Total impaired loans with no related allowance recorded	101,868		82,220		—
Impaired loans with an allowance recorded:
Commercial, financial & agricultural	4,537		3,065		510
Real estate:
Construction	13,678		11,600		1,582
Mortgage - commercial	15,750		11,060		1,720
Leases	59		59		3
Total impaired loans with an allowance recorded	34,024		25,784		3,815
Total	$	135,892	$	108,004	$	3,815

December 31, 2012
Impaired loans with no related allowance recorded:
Commercial, financial & agricultural	$	1,225	$	526	$	—
Real estate:
Construction	52,352		36,664		—
Mortgage - residential	47,364		41,894		—
Mortgage - commercial	13,616		13,211		—
Total impaired loans with no related allowance recorded	114,557		92,295		—
Impaired loans with an allowance recorded:
Commercial, financial & agricultural	4,807		3,431		882
Real estate:
Construction	13,678		11,600		1,582
Mortgage - residential	1,935		971		272
Mortgage - commercial	3,939		2,700		270
Leases	95		95		5
Total impaired loans with an allowance recorded	24,454		18,797		3,011
Total	$	139,011	$	111,092	$	3,011

The following table presents by class, the average recorded investment and interest income recognized on impaired loans as of March 31, 2013 and 2012:

	Three Months Ended March 31,
	2013				2012
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)

Commercial, financial & agricultural	$	4,091	$	6	$	2,086	$	3
Real estate:
Construction	43,643		176		76,184		645
Mortgage - residential	41,795		131		49,904		57
Mortgage - commercial	17,730		90		18,402		22
Leases	82		—		—		—
Total	$	107,341	$	403	$	146,576	$	727

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 March 31, 2013 and December 31, 2012:

	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)
March 31, 2013
Commercial, financial & agricultural	$	159	$	136	$	—	$	4,605	$	4,900	$	311,968	$	316,868
Real estate:
Construction	—		—		—		18,272		18,272		69,779		88,051
Mortgage - residential	7,710		415		—		24,842		32,967		1,041,434		1,074,401
Mortgage - commercial	—		—		—		17,462		17,462		618,927		636,389
Consumer	327		96		—		—		423		149,530		149,953
Leases	—		—		—		59		59		8,877		8,936
Total	$	8,196	$	647	$	—	$	65,240	$	74,083	$	2,200,515	$	2,274,598

December 31, 2012
Commercial, financial & agricultural	$	123	$	139	$	—	$	3,510	$	3,772	$	242,446	$	246,218
Real estate:
Construction	124		—		—		38,742		38,866		57,328		96,194
Mortgage - residential	8,330		590		387		27,499		36,806		998,591		1,035,397
Mortgage - commercial	219		—		—		9,487		9,706		662,542		672,248
Consumer	249		169		116		—		534		142,849		143,383
Leases	—		—		—		94		94		10,410		10,504
Total	$	9,045	$	898	$	503	$	79,332	$	89,778	$	2,114,166	$	2,203,944

Modifications

Troubled debt restructurings (“TDRs”) included in nonperforming assets at March 31, 2013 consisted of 57 Hawaii residential mortgage loans with a combined principal balance of $17.7 million, a U.S. Mainland commercial mortgage loan with a principal balance of $2.2 million, six Hawaii construction and development loans with a combined principal balance of $1.8 million and two Hawaii commercial loans with a combined principal balance of $1.5 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 $42.8 million of TDRs still accruing interest at March 31, 2013, none of which were more than 90 days delinquent. At December 31, 2012, there were $31.8 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 months ended March 31, 2013.

The following table presents by class, information related to loans modified in a TDR during the three months ended March 31, 2013 and 2012:

	Number of Contracts	Recorded Investment (as of period end)		Increase in the Allowance
	(Dollars in thousands)
Three months ended March 31, 2013
Commercial, financial & agricultural	1	$	1,500	$	—

Three months ended March 31, 2012
Real estate:
Mortgage - residential	6	$	3,209	$	—
Mortgage - commercial	2	6,775		—
Total	8	$	9,984	$	—

The following table presents by class, loans modified as a TDR within the previous twelve months that subsequently defaulted during the three months ended March 31, 2013 and 2012:

	Three Months Ended March 31,
	2013			2012
	Number of Contracts	Recorded Investment (as of period end)		Number of Contracts	Recorded Investment (as of period end)
	(Dollars in thousands)

Commercial, financial & agricultural	1	$	1,500	—	$	—
Real estate:
Construction	5	5,437		2	13,831
Mortgage - residential	1	354		11	4,381
Mortgage - commercial	1	3,146		1	3,158
Total	8	$	10,437	14	$	21,370

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 March 31, 2013 and December 31, 2012:

	Pass		Special Mention		Substandard		Doubtful		Loss		Not Rated		Less: Unearned Income			Total
	(Dollars in thousands)
March 31, 2013
Commercial, financial & agricultural	$	268,961	$	2,543	$	7,243	$	—	$	—	$	38,252	$	131		$	316,868
Real estate:
Construction	44,996		5,673		34,736		—		—		2,677		31			88,051
Mortgage - residential	95,881		718		27,449		—		—		949,946		(407		)	1,074,401
Mortgage - commercial	555,691		35,798		34,469		—		—		11,616		1,185			636,389
Consumer	10,226		150		22		—		—		139,746		191			149,953
Leases	8,461		183		292		—		—		—		—			8,936
Total	$	984,216	$	45,065	$	104,211	$	—	$	—	$	1,142,237	$	1,131		$	2,274,598

December 31, 2012
Commercial, financial & agricultural	$	192,298	$	6,609	$	7,607	$	—	$	—	$	39,764	$	60		$	246,218
Real estate:
Construction	39,623		9,635		43,986		—		—		2,996		46			96,194
Mortgage - residential	83,535		1,109		30,896		—		—		919,733		(124		)	1,035,397
Mortgage - commercial	563,813		65,114		30,754		—		—		13,825		1,258			672,248
Consumer	10,161		—		129		—		—		133,097		4			143,383
Leases	9,860		274		370		—		—		—		—			10,504
Total	$	899,290	$	82,741	$	113,742	$	—	$	—	$	1,109,415	$	1,244		$	2,203,944

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 March 31, 2013 and December 31, 2012, we did not have any loans that we considered to be subprime.