5. LOANS AND LEASES

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

	March 31,			December 31,
	2014			2013
	(Dollars in thousands)

Commercial, financial and agricultural	$	435,692		$	398,365
Real estate:
Construction	86,958			75,927
Mortgage - residential	1,178,533			1,135,155
Mortgage - commercial	684,546			703,800
Consumer	306,440			311,670
Leases	5,338			6,241
	2,697,507			2,631,158
Unearned income	(53		)	(557		)
Total loans and leases	$	2,697,454		$	2,630,601

During the three months ended March 31, 2014, we transferred one loan with a carrying value of $0.4 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, 2014.

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.

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, 2014 and December 31, 2013:

	Commercial,		Real Estate
	Financial & Agricultural		Construction			Mortgage - Residential		Mortgage - Commercial			Consumer			Leases		Total
	(Dollars in thousands)
March 31, 2014
Allowance for loan and lease losses:
Ending balance attributable to loans:
Individually evaluated for impairment	$	3,492	$	—		$	—	$	—		$	—		$	—	$	3,492
Collectively evaluated for impairment	9,294		14,940			17,812		25,925			5,687			12		73,670
	12,786		14,940			17,812		25,925			5,687			12		77,162
Unallocated																6,000
Total ending balance	$	12,786	$	14,940		$	17,812	$	25,925		$	5,687		$	12	$	83,162

Loans and leases:
Individually evaluated for impairment	$	17,462	$	5,309		$	36,313	$	15,922		$	—		$	—	$	75,006
Collectively evaluated for impairment	418,230		81,649			1,142,220		668,624			306,440			5,338		2,622,501
	435,692		86,958			1,178,533		684,546			306,440			5,338		2,697,507
Unearned income	552		(303		)	1,559		(993		)	(868		)	—		(53		)
Total ending balance	$	436,244	$	86,655		$	1,180,092	$	683,553		$	305,572		$	5,338	$	2,697,454

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			25,272		29,947			6,576			55		77,471
	13,196		2,774			25,272		29,947			6,576			55		77,820
Unallocated																6,000
Total ending balance	$	13,196	$	2,774		$	25,272	$	29,947		$	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			1,098,376		687,529			311,670			6,241		2,566,104
	398,365		75,927			1,135,155		703,800			311,670			6,241		2,631,158
Unearned income	351		(311		)	1,418		(1,033		)	(982		)	—		(557		)
Total ending balance	$	398,716	$	75,616		$	1,136,573	$	702,767		$	310,688		$	6,241	$	2,630,601

The following table presents by class, impaired loans as of March 31, 2014 and December 31, 2013:

	Unpaid Principal Balance		Recorded Investment		Allowance Allocated
	(Dollars in thousands)
March 31, 2014
Impaired loans with no related allowance recorded:
Commercial, financial & agricultural	$	3,389	$	3,389	$	—
Real estate:
Construction	11,695		5,309		—
Mortgage - residential	40,370		36,313		—
Mortgage - commercial	22,003		15,922		—
Total impaired loans with no related allowance recorded	77,457		60,933		—
Impaired loans with an allowance recorded:
Commercial, financial & agricultural	15,571		14,073		3,492
Total impaired loans with an allowance recorded	15,571		14,073		3,492
Total	$	93,028	$	75,006	$	3,492

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

The following table presents by class, the average recorded investment and interest income recognized on impaired loans as of March 31, 2014 and 2013:

	Three Months Ended March 31,
	2014				2013
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)

Commercial, financial & agricultural	$	8,417	$	5	$	4,091	$	6
Real estate:
Construction	6,822		32		43,643		176
Mortgage - residential	36,407		163		41,795		131
Mortgage - commercial	16,045		39		17,730		90
Leases	—		—		82		—
Total	$	67,691	$	239	$	107,341	$	403

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, 2014 and December 31, 2013:

	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, 2014
Commercial, financial & agricultural	$	706	$	69	$	7	$	17,067	$	17,849	$	418,395	$	436,244
Real estate:
Construction	—		—		—		379		379		86,276		86,655
Mortgage - residential	2,887		—		—		18,161		21,048		1,159,044		1,180,092
Mortgage - commercial	159		—		—		13,610		13,769		669,784		683,553
Consumer	770		200		23		—		993		304,579		305,572
Leases	—		—		—		—		—		5,338		5,338
Total	$	4,522	$	269	$	30	$	49,217	$	54,038	$	2,643,416	$	2,697,454

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		1,110,519		1,136,573
Mortgage - commercial	544		—		—		13,769		14,313		688,454		702,767
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

Modifications

Troubled debt restructurings (“TDRs”) included in nonperforming assets at March 31, 2014 consisted of 44 Hawaii residential mortgage loans with a combined principal balance of $10.1 million, a U.S. Mainland commercial mortgage loan with a principal balance of $9.0 million, a Hawaii commercial loan with a principal balance of $0.5 million, and two Hawaii construction and development loans with a combined principal balance of $0.3 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 $21.8 million of TDRs still accruing interest at March 31, 2014, none of which were more than 90 days delinquent. At December 31, 2013, there were $23.3 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 for loan and lease losses (the “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 to our provision for loan and lease losses expense (the “Provision”) and the Allowance during the three months ended March 31, 2014.

The following table presents by class, information related to loans modified in a TDR during the three months ended March 31, 2014 and 2013:

	Number of Contracts	Recorded Investment (as of Period End)		Increase in the Allowance
	(Dollars in thousands)
Three Months Ended March 31, 2014
Real estate mortgage - residential	9	$	613	$	—

Three Months Ended March 31, 2013
Commercial, financial & agricultural	1	$	1,500	$	—

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, 2014 and 2013:

	Three Months Ended March 31,
	2014			2013
	Number of Contracts	Recorded Investment (as of Period End)		Number of Contracts	Recorded Investment (as of Period End)
	(Dollars in thousands)
Real estate:
Construction	1	$	175	5	$	1,574
Mortgage - residential	—	—		1	354
Total	1	$	175	6	$	1,928

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 March 31, 2014 and December 31, 2013:

	Pass		Special Mention		Substandard		Less: Unearned Income			Total
	(Dollars in thousands)
March 31, 2014
Commercial, financial & agricultural	$	398,105	$	17,003	$	20,584	$	(552	)	$	436,244
Real estate:
Construction	78,568		4,948		3,442		303			86,655
Mortgage - residential	1,159,844		228		18,461		(1,559		)	1,180,092
Mortgage - commercial	635,915		20,495		28,136		993			683,553
Consumer	306,417		—		23		868			305,572
Leases	5,338		—		—		—			5,338
Total	$	2,584,187	$	42,674	$	70,646	$	53		$	2,697,454

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	1,113,363		361		21,431		(1,418		)	1,136,573
Mortgage - commercial	651,761		20,690		31,349		1,033			702,767
Consumer	311,670		—		—		982			310,688
Leases	6,241		—		—		—			6,241
Total	$	2,521,755	$	47,039	$	62,364	$	557		$	2,630,601

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, 2014 and December 31, 2013, we did not have any loans that we considered to be subprime.