5. LOANS AND LEASES

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

	June 30,		December 31,
	2014		2013
	(Dollars in thousands)

Commercial, financial and agricultural	$	432,029	$	398,365
Real estate:
Construction	100,357		75,927
Mortgage - residential	1,224,948		1,135,155
Mortgage - commercial	698,688		703,800
Consumer	333,609		311,670
Leases	4,087		6,241
	2,793,718		2,631,158
Net deferred costs (income)	465		(557		)
Total loans and leases	$	2,794,183	$	2,630,601

During the six months ended June 30, 2014, we foreclosed on three loans with a carrying value of $1.5 million. We did not transfer any portfolio loans to the held-for-sale category and no portfolio loans were sold during the six months ended June 30, 2014. In May 2014, we purchased participation interest in auto loans totaling $11.2 million, which included a $0.3 million premium over the $10.9 million outstanding balance. At the time of purchase, the auto loans had a weighted average remaining term of 71 months. In May 2014, we also purchased participation interest in student loans totaling $11.5 million, which represented the outstanding balance at the time of purchase. At the time of purchase, the student loans had a weighted average remaining term of 123 months.

During the six months ended June 30, 2013, we foreclosed on seven loans with a carrying value of $3.2 million. We did not transfer any portfolio loans to the held-for-sale category and no portfolio loans were sold during the six months ended June 30, 2013. In June 2013, we purchased an auto loan portfolio for $21.6 million, which included a $0.8 million premium over the $20.8 million outstanding balance. At the time of purchase, the auto loan portfolio had a weighted average remaining term of 76 months. In June 2013, we also purchased participation interests in student loans for $4.7 million, which represented the outstanding balance at the time of purchase. At the time of purchase, the student loans had a weighted average remaining term of 130 months.

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, 2014 and December 31, 2013:

	Commercial,		Real Estate
	Financial & Agricultural		Construction			Mortgage - Residential		Mortgage - Commercial			Consumer			Leases		Total
	(Dollars in thousands)
June 30, 2014
Allowance for loan and lease losses:
Ending balance attributable to loans:
Individually evaluated for impairment	$	3,173	$	—		$	—	$	—		$	—		$	—	$	3,173
Collectively evaluated for impairment	9,082		15,525			19,198		25,885			6,723			13		76,426
	12,255		15,525			19,198		25,885			6,723			13		79,599
Unallocated																4,000
Total ending balance	$	12,255	$	15,525		$	19,198	$	25,885		$	6,723		$	13	$	83,599

Loans and leases:
Individually evaluated for impairment	$	17,041	$	5,185		$	32,064	$	17,176		$	—		$	—	$	71,466
Collectively evaluated for impairment	414,988		95,172			1,192,884		681,512			333,609			4,087		2,722,252
	432,029		100,357			1,224,948		698,688			333,609			4,087		2,793,718
Net deferred costs (income)	715		(479		)	1,916		(956		)	(731		)	—		465
Total ending balance	$	432,744	$	99,878		$	1,226,864	$	697,732		$	332,878		$	4,087	$	2,794,183

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
Net deferred costs (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 June 30, 2014 and December 31, 2013:

	Unpaid Principal Balance		Recorded Investment		Allowance Allocated
	(Dollars in thousands)
June 30, 2014
Impaired loans with no related allowance recorded:
Commercial, financial & agricultural	$	3,342	$	3,342	$	—
Real estate:
Construction	11,572		5,185		—
Mortgage - residential	35,573		32,064		—
Mortgage - commercial	24,299		17,176		—
Total impaired loans with no related allowance recorded	74,786		57,767		—
Impaired loans with an allowance recorded:
Commercial, financial & agricultural	15,167		13,699		3,173
Total impaired loans with an allowance recorded	15,167		13,699		3,173
Total	$	89,953	$	71,466	$	3,173

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 for the three and six months ended June 30, 2014 and 2013:

	Three Months Ended June 30,								Six Months Ended June 30,
	2014				2013				2014				2013
	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	$	17,300	$	6	$	4,403	$	6	$	12,858	$	11	$	4,225	$	12
Real estate:
Construction	5,225		44		26,892		291		6,024		76		36,464		467
Mortgage - residential	33,419		274		37,588		197		34,913		437		39,992		328
Mortgage - commercial	16,201		76		19,302		92		16,123		115		18,404		182
Leases	—		—		34		—		—		—		61		—
Total	$	72,145	$	400	$	88,219	$	586	$	69,918	$	639	$	99,146	$	989

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, 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)
June 30, 2014
Commercial, financial & agricultural	$	95	$	114	$	—	$	16,657	$	16,866	$	415,878	$	432,744
Real estate:
Construction	—		—		—		373		373		99,505		99,878
Mortgage - residential	136		45		99		13,608		13,888		1,212,976		1,226,864
Mortgage - commercial	—		—		—		6,236		6,236		691,496		697,732
Consumer	964		334		20		—		1,318		331,560		332,878
Leases	—		—		—		—		—		4,087		4,087
Total	$	1,195	$	493	$	119	$	36,874	$	38,681	$	2,755,502	$	2,794,183

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 June 30, 2014 consisted of 38 Hawaii residential mortgage loans with a combined principal balance of $7.9 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 $30.7 million of TDRs still accruing interest at June 30, 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 and six months ended June 30, 2014.

The following table presents by class, information related to loans modified in a TDR during the six months ended June 30, 2014 and the three and six months ended June 30, 2013. No loans were modified in a TDR during the three months ended June 30, 2014.

	Number of Contracts	Recorded Investment (as of Period End)		Increase in the Allowance
	(Dollars in thousands)
Three Months Ended June 30, 2013
Real estate:
Construction	1	$	189	$	—
Mortgage - residential	3	1,626		—
Total	4	$	1,815	$	—

Six Months Ended June 20, 2014
Real estate mortgage - residential	9	$	600	$	—

Six Months Ended June 30, 2013
Commercial, financial & agricultural	1	$	587	$	—
Real estate:
Construction	1	189		—
Mortgage - residential	3	1,626		—
Total	5	$	2,402	$	—

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, 2013. No loans were modified as a TDR within the previous twelve months that subsequently defaulted during the three and six months ended June 30, 2014.

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. The following table presents by class and credit indicator, the recorded investment in the Company’s loans and leases as of June 30, 2014 and December 31, 2013:

	Pass		Special Mention		Substandard		Subtotal		Net Deferred Costs (Income)			Total
	(Dollars in thousands)
June 30, 2014
Commercial, financial & agricultural	$	402,119	$	11,344	$	18,566	$	432,029	$	715		$	432,744
Real estate:
Construction	96,231		—		4,126		100,357		(479		)	99,878
Mortgage - residential	1,210,715		—		14,233		1,224,948		1,916			1,226,864
Mortgage - commercial	653,898		9,285		35,505		698,688		(956		)	697,732
Consumer	333,589		—		20		333,609		(731		)	332,878
Leases	4,087		—		—		4,087		—			4,087
Total	$	2,700,639	$	20,629	$	72,450	$	2,793,718	$	465		$	2,794,183

December 31, 2013
Commercial, financial & agricultural	$	371,285	$	21,511	$	5,569	$	398,365	$	351		$	398,716
Real estate:
Construction	67,435		4,477		4,015		75,927		(311		)	75,616
Mortgage - residential	1,113,363		361		21,431		1,135,155		1,418			1,136,573
Mortgage - commercial	651,761		20,690		31,349		703,800		(1,033		)	702,767
Consumer	311,670		—		—		311,670		(982		)	310,688
Leases	6,241		—		—		6,241		—			6,241
Total	$	2,521,755	$	47,039	$	62,364	$	2,631,158	$	(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 June 30, 2014 and December 31, 2013, we did not have any loans that we considered to be subprime.

Three and Six Months Ended June 30,

Number of Contracts

Recorded Investment
(as of Period End)

(Dollars in thousands)

Commercial, financial & agricultural