5. LOANS AND LEASES

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

	December 31,
	2013			2012
	(Dollars in thousands)

Commercial, financial & agricultural	$	398,365		$	246,278
Real estate:
Construction	75,927			96,240
Mortgage - residential	1,237,841			1,035,273
Mortgage - commercial	601,114			673,506
Consumer	311,670			143,387
Leases	6,241			10,504
	2,631,158			2,205,188
Unearned income	(557		)	(1,244		)
Total loans and leases	$	2,630,601		$	2,203,944

During the year ended December 31, 2013, we transferred the collateral in 12 portfolio loans with a carrying value of $4.4 million to other real estate. We did not transfer any portfolio loans to the held-for-sale category and we did not sell any portfolio loans in 2013. In 2013, we purchased auto loan portfolios for $67.7 million, which included a $2.8 million premium over the $64.9 million outstanding balance. At the time of purchase, the auto loan portfolios had a weighted average remaining term of 72 months. In 2013, we also purchased participation interests in student loans totaling $17.4 million, which represented the outstanding balance at the time of purchases. At the time of purchases, the student loans had a weighted average remaining term of 122 months.

During the year ended December 31, 2012, we transferred three portfolio loans, two of which were non-performing, with a carrying value of $1.5 million, to the held-for-sale category. In addition, we transferred 20 portfolio loans with a carrying value of $4.8 million to other real estate. No portfolio loans were sold or purchased during the year ended December 31, 2012.

In the normal course of business, our bank makes loans to certain directors, executive officers and their affiliates under terms that management believes are consistent with its general lending policies. An analysis of the activity of such loans follows:

	December 31,
	2013			2012
	(Dollars in thousands)

Balance, beginning of year	$	1,501		$	4,579
Additions	17,487			2,348
Repayments	(6,046		)	(5,426		)
Balance, end of year	$	12,942		$	1,501

Impaired Loans

The following table presents by class, the balance in the Allowance and the recorded investment in loans and leases based on the Company’s impairment method as of December 31, 2013 and 2012:

	Commercial,			Real estate
	financial & agricultural			Construction			Mortgage - residential		Mortgage - commercial			Consumer			Leases		Total
	(Dollars in thousands)
December 31, 2013
Allowance for loan and lease losses:
Ending balance attributable to loans:
Individually evaluated for impairment	$	349		$	—		$	—	$	—		$	—		$	—	$	349
Collectively evaluated for impairment	12,847			2,774			28,441		26,778			6,576			55		77,471
	13,196			2,774			28,441		26,778			6,576			55		77,820
Unallocated																	6,000
Total ending balance	$	13,196		$	2,774		$	28,441	$	26,778		$	6,576		$	55	$	83,820

Loans and leases:
Individually evaluated for impairment	$	3,939		$	8,065		$	36,779	$	16,271		$	—		$	—	$	65,054
Collectively evaluated for impairment	394,426			67,862			1,201,062		584,843			311,670			6,241		2,566,104
	398,365			75,927			1,237,841		601,114			311,670			6,241		2,631,158
Unearned income	351			(311		)	1,418		(1,033		)	(982		)	—		(557		)
Total ending balance	$	398,716		$	75,616		$	1,239,259	$	600,081		$	310,688		$	6,241	$	2,630,601

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 December 31, 2013 and 2012:

	Unpaid Principal Balance		Recorded Investment		Allowance Allocated
	(Dollars in thousands)
December 31, 2013
Impaired loans with no related allowance recorded:
Commercial, financial & agricultural	$	1,069	$	1,040	$	—
Real estate:
Construction	14,451		8,065		—
Mortgage - residential	41,117		36,779		—
Mortgage - commercial	22,353		16,271		—
Total impaired loans with no related allowance recorded	78,990		62,155		—
Impaired loans with an allowance recorded:
Commercial, financial & agricultural	4,367		2,899		349
Total impaired loans with an allowance recorded	4,367		2,899		349
Total	$	83,357	$	65,054	$	349

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 December 31, 2013, 2012 and 2011:

	Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
December 31, 2013
Commercial, financial & agricultural	$	4,138	$	24
Real estate:
Construction	24,545		1,442
Mortgage - residential	38,378		586
Mortgage - commercial	21,107		833
Leases	33		—
Total	$	88,201	$	2,885

December 31, 2012
Commercial, financial & agricultural	$	3,486	$	39
Real estate:
Construction	56,762		771
Mortgage - residential	47,240		308
Mortgage - commercial	18,852		506
Leases	133		—
Total	$	126,473	$	1,624

December 31, 2011
Commercial, financial & agricultural	$	549	$	—
Real estate:
Construction	115,612		772
Mortgage - residential	58,262		616
Mortgage - commercial	19,116		469
Total	$	193,539	$	1,857

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 December 31, 2013 and 2012:

	30 - 59 Days Past Due		60 - 89 Days Past Due		Accruing Loans Greater than 90 Days Past Due		Nonaccrual Loans		Total Past Due		Loans and Leases Not Past Due		Total
	(Dollars in thousands)
December 31, 2013
Commercial, financial & agricultural	$	50	$	—	$	—	$	3,533	$	3,583	$	395,133	$	398,716
Real estate:
Construction	—		120		—		4,015		4,135		71,481		75,616
Mortgage - residential	3,898		1,885		—		20,271		26,054		1,213,205		1,239,259
Mortgage - commercial	544		—		—		13,769		14,313		585,768		600,081
Consumer	577		92		—		—		669		310,019		310,688
Leases	—		—		15		—		15		6,226		6,241
Total	$	5,069	$	2,097	$	15	$	41,588	$	48,769	$	2,581,832	$	2,630,601

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

Interest income totaling $0.4 million, $0.7 million, and $0.8 million was recognized on nonaccrual loans, including loans held for sale, in 2013, 2012 and 2011, respectively. Additional interest income of $4.9 million, $10.1 million, and $14.2 million would have been recognized in 2013, 2012 and 2011, respectively, had these loans been accruing interest throughout those periods. Additionally, interest income of $2.5 million, $0.8 million, and $0.7 million was collected and recognized on charged-off loans in 2013, 2012 and 2011, respectively.

Modifications

TDRs included in nonperforming assets at December 31, 2013 consisted of 42 Hawaii residential mortgage loans with a combined principal balance of $12.5 million, one U.S. Mainland commercial mortgage loan with a principal balance of $9.0 million, three Hawaii construction and development loans with a combined principal balance of $1.3 million, and one Hawaii commercial loan with a principal balance of $0.5 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 $23.3 million of TDRs still accruing interest at December 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.

Some loans modified in a TDR may already be on nonaccrual status and partial charge-offs may have already been taken against the outstanding loan balance. Thus, these loans have already been identified as impaired and have already been evaluated under the Company’s Allowance methodology. As a result, some loans modified in a TDR may have the financial effect of increasing the specific allowance associated with the loan. The loans modified in a TDR did not have a material effect on our Provision and Allowance during the years ended December 31, 2013 and 2012.

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

	Number of Contracts	Recorded Investment (as of period end)		Increase in the Allowance
	(Dollars in thousands)
Year ended December 31, 2013
Commercial, financial & agricultural	1	$	517	$	—
Real estate:
Construction	1	178		—
Mortgage - residential	7	2,566		—
Mortgage - commercial	1	8,952		—
Total	10	$	12,213	$	—

Year ended December 31, 2012
Commercial, financial & agricultural	4	$	447	$	—
Real estate:
Construction	8	11,120		—
Mortgage - residential	10	3,782		427
Mortgage - commercial	6	9,124		—
Total	28	$	24,473	$	427

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

	Year Ended December 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	$	517	—	$	—
Real estate:
Construction	—	—		7	5,949
Mortgage - residential	—	—		4	893
Mortgage - commercial	—	—		2	5,890
Total	1	$	517	13	$	12,732

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 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 are considered to be pass rated loans and leases. The following table presents by class and credit indicator, the recorded investment in the Company’s loans and leases as of December 31, 2013 and 2012:

	Pass		Special Mention		Substandard		Doubtful		Loss		Less: Unearned Income			Total
	(Dollars in thousands)
December 31, 2013
Commercial, financial & agricultural	$	371,285	$	21,511	$	5,569	$	—	$	—	$	(351	)	$	398,716
Real estate:
Construction	67,435		4,477		4,015		—		—		311			75,616
Mortgage - residential	1,213,636		845		23,360		—		—		(1,418		)	1,239,259
Mortgage - commercial	551,488		20,206		29,420		—		—		1,033			600,081
Consumer	311,670		—		—		—		—		982			310,688
Leases	6,241		—		—		—		—		—			6,241
Total	$	2,521,755	$	47,039	$	62,364	$	—	$	—	$	557		$	2,630,601

December 31, 2012
Commercial, financial & agricultural	$	232,062	$	6,609	$	7,607	$	—	$	—	$	60		$	246,218
Real estate:
Construction	42,619		9,635		43,986		—		—		46			96,194
Mortgage - residential	1,003,268		1,109		30,896		—		—		(124		)	1,035,397
Mortgage - commercial	577,638		65,114		30,754		—		—		1,258			672,248
Consumer	143,258		—		129		—		—		4			143,383
Leases	9,860		274		370		—		—		—			10,504
Total	$	2,008,705	$	82,741	$	113,742	$	—	$	—	$	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 December 31, 2013 and 2012, we did not have any loans that we considered to be subprime.