5. LOANS AND LEASES

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

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

Commercial, financial and agricultural	$	441,697	$	398,365
Real estate:
Construction	109,617		75,927
Mortgage - residential	1,249,717		1,135,155
Mortgage - commercial	697,448		703,800
Consumer	371,693		311,670
Leases	3,691		6,241
	2,873,863		2,631,158
Net deferred costs (income)	892		(557		)
Total loans and leases	$	2,874,755	$	2,630,601

During the nine months ended September 30, 2014, we foreclosed on four loans with a carrying value of $1.8 million. We did not transfer any portfolio loans to the held-for-sale category and no portfolio loans were sold during the nine months ended September 30, 2014. In May 2014, we purchased participation interests 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. During the nine months ended September 30, 2014, we also purchased participation interests in student loans totaling $51.5 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 nine months ended September 30, 2013, we foreclosed on nine loans with a carrying value of $3.5 million. We did not transfer any portfolio loans to the held-for-sale category and no portfolio loans were sold during the nine months ended September 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. During the nine months ended September 30, 2013, we also purchased participation interests in student loans totaling $15.5 million, which represented the outstanding balance at the time of purchase. At the time of purchases, the student loans had a weighted average remaining term of 122 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 September 30, 2014 and December 31, 2013:

	Commercial,		Real Estate
	Financial & Agricultural		Construction			Mortgage - Residential		Mortgage - Commercial			Consumer			Leases		Total
	(Dollars in thousands)
September 30, 2014
Allowance for loan and lease losses:
Ending balance attributable to loans:
Individually evaluated for impairment	$	2,778	$	—		$	—	$	—		$	—		$	—	$	2,778
Collectively evaluated for impairment	9,086		14,897			19,269		24,527			8,269			12		76,060
	11,864		14,897			19,269		24,527			8,269			12		78,838
Unallocated																4,000
Total ending balance	$	11,864	$	14,897		$	19,269	$	24,527		$	8,269		$	12	$	82,838

Loans and leases:
Individually evaluated for impairment	$	15,998	$	5,017		$	30,671	$	23,727		$	—		$	—	$	75,413
Collectively evaluated for impairment	425,699		104,600			1,219,046		673,721			371,693			3,691		2,798,450
	441,697		109,617			1,249,717		697,448			371,693			3,691		2,873,863
Net deferred costs (income)	634		(377		)	2,091		(874		)	(582		)	—		892
Total ending balance	$	442,331	$	109,240		$	1,251,808	$	696,574		$	371,111		$	3,691	$	2,874,755

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 September 30, 2014 and December 31, 2013:

	Unpaid Principal Balance		Recorded Investment		Allowance Allocated
	(Dollars in thousands)
September 30, 2014
Impaired loans with no related allowance recorded:
Commercial, financial & agricultural	$	3,113	$	3,113	$	—
Real estate:
Construction	11,404		5,017		—
Mortgage - residential	33,909		30,671		—
Mortgage - commercial	30,850		23,727		—
Total impaired loans with no related allowance recorded	79,276		62,528		—
Impaired loans with an allowance recorded:
Commercial, financial & agricultural	14,353		12,885		2,778
Total impaired loans with an allowance recorded	14,353		12,885		2,778
Total	$	93,629	$	75,413	$	2,778

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 nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,								Nine Months Ended September 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	$	16,377	$	6	$	4,104	$	6	$	14,031	$	17	$	4,189	$	18
Real estate:
Construction	5,088		43		20,812		942		5,712		119		28,149		1,409
Mortgage - residential	31,460		85		36,151		15		33,762		522		38,840		343
Mortgage - commercial	19,195		137		19,513		350		17,147		252		22,355		532
Leases	—		—		—		—		—		—		43		—
Total	$	72,120	$	271	$	80,580	$	1,313	$	70,652	$	910	$	93,576	$	2,302

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, 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)
September 30, 2014
Commercial, financial & agricultural	$	633	$	151	$	—	$	15,625	$	16,409	$	425,922	$	442,331
Real estate:
Construction	—		—		—		324		324		108,916		109,240
Mortgage - residential	199		1,168		—		12,691		14,058		1,237,750		1,251,808
Mortgage - commercial	—		273		—		13,056		13,329		683,245		696,574
Consumer	1,115		494		62		—		1,671		369,440		371,111
Leases	—		—		—		—		—		3,691		3,691
Total	$	1,947	$	2,086	$	62	$	41,696	$	45,791	$	2,828,964	$	2,874,755

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 September 30, 2014 consisted of 39 Hawaii residential mortgage loans with a combined principal balance of $7.6 million, a Hawaii commercial loan with a principal balance of $0.4 million, and a Hawaii construction and development loan with a principal balance of $0.2 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 $29.9 million of TDRs still accruing interest at September 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 nine months ended September 30, 2014.

The following table presents by class, information related to loans modified in a TDR during the three and nine months ended September 30, 2014 and 2013.

	Number of Contracts	Recorded Investment (as of Period End)		Increase in the Allowance
	(Dollars in thousands)
Three Months Ended September 30, 2014
Real estate mortgage - residential	3	$	220	$	—

Three Months Ended September 30, 2013
Real estate:
Mortgage - residential	1	$	241	$	—
Mortgage - commercial	1	9,099		—
Total	2	$	9,340	$	—

Nine Months Ended September 30, 2014
Real estate mortgage - residential	12	$	806	$	—

Nine Months Ended September 30, 2013
Commercial, financial & agricultural	1	$	564	$	—
Real estate:
Construction	1	184		—
Mortgage - residential	4	1,860		—
Mortgage - commercial	1	9,099		—
Total	7	$	11,707	$	—

The following table presents by class, loans modified as a TDR within the previous twelve months that subsequently defaulted during the nine months ended September 30, 2013. No loans were modified as a TDR within the previous twelve months that subsequently defaulted during the three and nine months ended September 30, 2014 and the three months ended September 30, 2013.

	Nine Months Ended
	September 30, 2013
	Number of Contracts	Recorded Investment (as of Period End)
	(Dollars in thousands)

Real estate mortgage - residential	1	$	354

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 September 30, 2014 and December 31, 2013:

	Pass		Special Mention		Substandard		Subtotal		Net Deferred Costs (Income)			Total
	(Dollars in thousands)
September 30, 2014
Commercial, financial & agricultural	$	412,141	$	10,361	$	19,195	$	441,697	$	634		$	442,331
Real estate:
Construction	105,739		—		3,878		109,617		(377		)	109,240
Mortgage - residential	1,235,974		437		13,306		1,249,717		2,091			1,251,808
Mortgage - commercial	660,795		4,909		31,744		697,448		(874		)	696,574
Consumer	371,381		—		312		371,693		(582		)	371,111
Leases	3,691		—		—		3,691		—			3,691
Total	$	2,789,721	$	15,707	$	68,435	$	2,873,863	$	892		$	2,874,755

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 September 30, 2014 and December 31, 2013, we did not have any loans that we considered to be subprime.