4. LOANS AND LEASES

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

	June 30,		December 31,
	2015		2014
	(Dollars in thousands)

Commercial, financial and agricultural	$	499,078	$	463,070
Real estate:
Construction	83,833		115,023
Mortgage - residential	1,349,594		1,280,089
Mortgage - commercial	695,995		704,099
Consumer	373,588		365,662
Leases	2,589		3,140
	3,004,677		2,931,083
Net deferred costs	1,378		1,115
Total loans and leases	$	3,006,055	$	2,932,198

During the six months ended June 30, 2015, we transferred the collateral in six portfolio loans with a carrying value of $1.6 million to other real estate and two portfolio loans to a single borrower with a carrying value of $6.6 million to the held-for-sale category. In June 2015, we purchased participation interest in auto loans totaling $28.1 million, which included a $1.0 million premium over the $27.1 million outstanding balance. At the time of purchase, the auto loans had a weighted average remaining term of 79 months. No portfolio loans were sold during the six months ended June 30, 2015.

During the six months ended June 30, 2014, we transferred three loans with a carrying value of $1.5 million to other real estate. 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.

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, 2015 and December 31, 2014:

	Commercial,		Real Estate
	Financial & Agricultural		Construction			Mortgage -Residential		Mortgage -Commercial			Consumer			Leases		Total
	(Dollars in thousands)
June 30, 2015
Allowance for loan and lease losses:
Ending balance attributable to loans:
Individually evaluated for impairment	$	58	$	—		$	—	$	—		$	—		$	—	$	58
Collectively evaluated for impairment	7,511		10,670			17,846		20,008			7,330			1		63,366
	7,569		10,670			17,846		20,008			7,330			1		63,424
Unallocated																3,500
Total ending balance	$	7,569	$	10,670		$	17,846	$	20,008		$	7,330		$	1	$	66,924

Loans and leases:
Individually evaluated for impairment	$	3,513	$	4,474		$	26,654	$	14,850		$	—		$	—	$	49,491
Collectively evaluated for impairment	495,565		79,359			1,322,940		681,145			373,588			2,589		2,955,186
	499,078		83,833			1,349,594		695,995			373,588			2,589		3,004,677
Net deferred costs (income)	523		(278		)	2,368		(802		)	(433		)	—		1,378
Total ending balance	$	499,601	$	83,555		$	1,351,962	$	695,193		$	373,155		$	2,589	$	3,006,055

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

The following table presents by class, impaired loans as of June 30, 2015 and December 31, 2014:

	Unpaid Principal Balance		Recorded Investment		Allowance Allocated
	(Dollars in thousands)
June 30, 2015
Impaired loans with no related allowance recorded:
Commercial, financial & agricultural	$	1,303	$	1,192	$	—
Real estate:
Construction	10,820		4,474		—
Mortgage - residential	28,967		26,654		—
Mortgage - commercial	17,967		14,850		—
Total impaired loans with no related allowance recorded	59,057		47,170		—
Impaired loans with an allowance recorded:
Commercial, financial & agricultural	3,789		2,321		58
Total impaired loans with an allowance recorded	3,789		2,321		58
Total	$	62,846	$	49,491	$	58

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

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, 2015 and 2014:

	Three Months Ended June 30,									Six Months Ended June 30,
	2015					2014				2015					2014
	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	$	6,911	$	5		$	17,300	$	6	$	10,278	$	10		$	12,858	$	11
Real estate:
Construction	4,518		26			5,225		44		4,608		112			6,024		76
Mortgage - residential	27,312		(7		)	33,419		274		28,134		(6		)	34,913		437
Mortgage - commercial	16,438		175			16,201		76		19,595		339			16,123		115
Total	$	55,179	$	199		$	72,145	$	400	$	62,615	$	455		$	69,918	$	639

The Company had $3.0 million of consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure at June 30, 2015.

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, 2015 and December 31, 2014:

	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, 2015
Commercial, financial & agricultural	$	128	$	52	$	—	$	3,175	$	3,355	$	496,246	$	499,601
Real estate:
Construction	—		—		—		133		133		83,422		83,555
Mortgage - residential	724		183		—		10,032		10,939		1,341,023		1,351,962
Mortgage - commercial	—		—		—		13,490		13,490		681,703		695,193
Consumer	1,236		431		45		—		1,712		371,443		373,155
Leases	—		—		—		—		—		2,589		2,589
Total	$	2,088	$	666	$	45	$	26,830	$	29,629	$	2,976,426	$	3,006,055

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

Modifications

Troubled debt restructurings (“TDRs”) included in nonperforming assets at June 30, 2015 consisted of 30 Hawaii residential mortgage loans with a combined principal balance of $6.1 million, a Hawaii commercial mortgage loan of $1.0 million, two Hawaii commercial loans with a combined principal balance of $0.9 million, and a Hawaii construction loan of $34 thousand. 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 $19.0 million of TDRs still accruing interest at June 30, 2015, none of which were more than 90 days delinquent. At December 31, 2014, there were $29.5 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 on our provision for loan and lease losses (the “Provision”) and the Allowance during the three and six months ended June 30, 2015.

The following table presents by class, information related to loans modified in a TDR during the three and six months ended June 30, 2015 and 2014. 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, 2015
Commercial, financial & agricultural	1	$	535	$	—

Six Months Ended June 30, 2015
Commercial, financial & agricultural	1	$	535	$	—
Real estate mortgage - residential	1	964		—
Total	2	$	1,499	$	—

Six Months Ended June 30, 2014
Real estate mortgage - residential	9	$	600	$	—

No loans were modified as a TDR within the previous twelve months that subsequently defaulted during the three and six months ended June 30, 2015 and 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, 2015 and December 31, 2014:

	Pass		Special Mention		Substandard		Subtotal		Net Deferred Costs (Income)			Total
	(Dollars in thousands)
June 30, 2015
Commercial, financial & agricultural	$	487,885	$	4,855	$	6,338	$	499,078	$	523		$	499,601
Real estate:
Construction	81,221		1,640		972		83,833		(278		)	83,555
Mortgage - residential	1,339,067		—		10,527		1,349,594		2,368			1,351,962
Mortgage - commercial	668,926		4,047		23,022		695,995		(802		)	695,193
Consumer	373,543		—		45		373,588		(433		)	373,155
Leases	2,589		—		—		2,589		—			2,589
Total	$	2,953,231	$	10,542	$	40,904	$	3,004,677	$	1,378		$	3,006,055

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

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, 2015 and December 31, 2014, we did not have any loans that we considered to be subprime.