5.LOANS AND LEASES

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

	December 31,
	2014		2013
	(Dollars in thousands)

Commercial, financial & agricultural	$	463,070	$	398,365
Real estate:
Construction	115,023		75,927
Mortgage - residential	1,280,089		1,135,155
Mortgage - commercial	704,099		703,800
Consumer	365,662		311,670
Leases	3,140		6,241
	2,931,083		2,631,158
Net deferred costs (income)	1,115		(557		)
Total loans and leases	$	2,932,198	$	2,630,601

There are different types of risk characteristic for the loans in each portfolio segment. The construction and real estate segment’s predominant risk characteristic are the collateral and the geographic location of the property collateralizing the loan, as well as the operating cash flow for the commercial real estate properties. The commercial and industrial (including leases) segment’s predominant risk characteristics are the cash flows of the business we lend to, the global cash flows and liquidity of the guarantors of such losses, as well as economic and market conditions. The consumer segment’s predominant risk characteristics are employment and income levels as they relate to the consumer.

During the year ended December 31, 2014, we transferred the collateral in six portfolio loans with a carrying value of $2.8 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 2014. In 2014, we purchased auto loan portfolios for $11.2 million, which included a $0.3 million premium over the $10.9 million outstanding balance. At the time of purchase, the auto loan portfolios had a weighted average remaining term of 71 months. In 2014, we also purchased participation interests in student loans totaling $51.5 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 123 months.

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.

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,
	2014			2013
	(Dollars in thousands)

Balance, beginning of year	$	12,942		$	1,501
Additions	19,448			17,487
Repayments	(3,159		)	(6,046		)
Balance, end of year	$	29,231		$	12,942

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, 2014 and 2013:

	Commercial,		Real estate
	Financial & Agricultural		Construction			Mortgage - Residential		Mortgage - Commercial			Consumer			Leases		Total
	(Dollars in thousands)
December 31, 2014
Allowance for loan and lease losses:
Ending balance attributable to loans:
Individually evaluated for impairment	$	1,533	$	—		$	—	$	—		$	—		$	—	$	1,533
Collectively evaluated for impairment	7,421		14,969			17,927		20,869			7,314			7		68,507
	8,954		14,969			17,927		20,869			7,314			7		70,040
Unallocated																4,000
Total ending balance	$	8,954	$	14,969		$	17,927	$	20,869		$	7,314		$	7	$	74,040

Loans and leases:
Individually evaluated for impairment	$	13,369	$	4,888		$	30,893	$	23,126		$	—		$	—	$	72,276
Collectively evaluated for impairment	449,701		110,135			1,249,196		680,973			365,662			3,140		2,858,807
	463,070		115,023			1,280,089		704,099			365,662			3,140		2,931,083
Net deferred costs (income)	693		(469		)	2,235		(826		)	(518		)	—		1,115
Total ending balance	$	463,763	$	114,554		$	1,282,324	$	703,273		$	365,144		$	3,140	$	2,932,198

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 December 31, 2014 and 2013:

	Unpaid Principal Balance		Recorded Investment		Allowance Allocated
	(Dollars in thousands)
December 31, 2014
Impaired loans with no related allowance recorded:
Commercial, financial & agricultural	$	738	$	738	$	—
Real estate:
Construction	11,275		4,888		—
Mortgage - residential	34,131		30,893		—
Mortgage - commercial	30,249		23,126		—
Total impaired loans with no related allowance recorded	76,393		59,645		—
Impaired loans with an allowance recorded:
Commercial, financial & agricultural	16,630		12,631		1,533
Total impaired loans with an allowance recorded	16,630		12,631		1,533
Total	$	93,023	$	72,276	$	1,533

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 December 31, 2014, 2013 and 2012:

	Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
December 31, 2014
Commercial, financial & agricultural	$	14,303	$	22
Real estate:
Construction	5,517		163
Mortgage - residential	33,102		627
Mortgage - commercial	18,692		397
Total	$	71,614	$	1,209

December 31, 2013
Commercial, financial & agricultural	$	4,138	$	24
Real estate:
Construction	24,545		1,442
Mortgage - residential	38,325		586
Mortgage - commercial	21,160		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	47,154		298
Mortgage - commercial	18,938		516
Leases	133		—
Total	$	126,473	$	1,624

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, 2014 and 2013:

	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, 2014
Commercial, financial & agricultural	$	183	$	85	$	—	$	13,007	$	13,275	$	450,488	$	463,763
Real estate:
Construction	—		—		—		310		310		114,244		114,554
Mortgage - residential	3,078		379		—		13,048		16,505		1,265,819		1,282,324
Mortgage - commercial	68		—		—		12,722		12,790		690,483		703,273
Consumer	1,500		417		77		—		1,994		363,150		365,144
Leases	—		—		—		—		—		3,140		3,140
Total	$	4,829	$	881	$	77	$	39,087	$	44,874	$	2,887,324	$	2,932,198

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

Interest income totaling $0.4 million, $0.4 million, and $0.7 million was recognized on nonaccrual loans, including loans held for sale, in 2014, 2013 and 2012, respectively. Additional interest income of $4.0 million, $4.9 million, and $10.1 million would have been recognized in 2014, 2013 and 2012, respectively, had these loans been accruing interest throughout those periods. Additionally, interest income of $0.2 million, $2.5 million, and $0.8 million was collected and recognized on charged-off loans in 2014, 2013 and 2012, respectively.

Modifications

TDRs included in nonperforming assets at December 31, 2014 consisted of 35 Hawaii residential mortgage loans with a combined principal balance of $7.5 million, one Hawaii commercial loan with a principal balance of $0.4 million, and two Hawaii construction and development loans with a combined 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 $29.5 million of TDRs still accruing interest at December 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 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, 2014 and 2013.

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

	Number of Contracts		Recorded Investment (as of period end)		Increase in the Allowance
	(Dollars in thousands)
Year ended December 31, 2014
Real estate - mortgage - residential	$	12	$	790	$	—

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	$	—

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, 2014 and 2013:

	Year Ended December 31,
	2014			2013
	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 - mortgage - residential	1	25		—	—
Total	1	$	25	1	$	517

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, 2014 and 2013:

	Pass		Special Mention		Substandard		Subtotal		Net Deferred Costs (Income)			Total
	(Dollars in thousands)
December 31, 2014
Commercial, financial & agricultural	$	432,892	$	14,655	$	15,523	$	463,070	$	693		$	463,763
Real estate:
Construction	111,370		—		3,653		115,023		(469		)	114,554
Mortgage - residential	1,265,470		352		14,267		1,280,089		2,235			1,282,324
Mortgage - commercial	660,492		10,498		33,109		704,099		(826		)	703,273
Consumer	365,332		294		36		365,662		(518		)	365,144
Leases	3,140		—		—		3,140		—			3,140
Total	$	2,838,696	$	25,799	$	66,588	$	2,931,083	$	1,115		$	2,932,198

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