LOANS AND LEASES

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



(dollars in thousands)	September 30, 2015		December 31, 2014
Commercial, financial and agricultural	$	505,907	$	463,070
Real estate:
Construction	75,632		115,023
Mortgage - residential	1,382,835		1,280,089
Mortgage - commercial	737,816		704,099
Consumer	396,670		365,662
Leases	1,123		3,140
	3,099,983		2,931,083
Net deferred costs	1,480		1,115
Total loans and leases	$	3,101,463	$	2,932,198

During the nine months ended September 30, 2015, we foreclosed on seven portfolio loans with a carrying value of $2.1 million. In the second quarter of 2015, we transferred two portfolio loans to a single borrower with a carrying value of $6.6 million to the held-for-sale category and sold the two loans in the second quarter of 2015 at its carrying value. We did not transfer any loans to the held-for-sale category and no portfolio loans were sold in the first and third quarters of 2015.

In August 2015, we purchased a participation interest in auto loans totaling $24.7 million, which included a $0.8 million premium over the $23.9 million outstanding balance. At the time of purchase, the auto loans had a weighted average remaining term of 68 months. In June 2015, we purchased a 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.

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 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. 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.

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, 2015 and December 31, 2014:



			Real Estate
(dollars in thousands)	Commercial, Financial & Agricultural		Construction			Mortgage -Residential		Mortgage -Commercial			Consumer			Leases		Total
September 30, 2015
Allowance for loan and lease losses:
Ending balance attributable to loans:
Individually evaluated for impairment	$	—	$	—		$	—	$	—		$	—		$	—	$	—
Collectively evaluated for impairment	7,610		8,251			17,973		21,565			7,745					63,144
	7,610		8,251			17,973		21,565			7,745			—		63,144
Unallocated																3,500
Total ending balance	$	7,610	$	8,251		$	17,973	$	21,565		$	7,745		$	—	$	66,644

Loans and leases:
Individually evaluated for impairment	$	3,384	$	4,251		$	24,079	$	4,984		$	—		$	—	$	36,698
Collectively evaluated for impairment	502,523		71,381			1,358,756		732,832			396,670			1,123		3,063,285
	505,907		75,632			1,382,835		737,816			396,670			1,123		3,099,983
Net deferred costs (income)	636		(252		)	2,451		(831		)	(524		)	—		1,480
Total ending balance	$	506,543	$	75,380		$	1,385,286	$	736,985		$	396,146		$	1,123	$	3,101,463

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 September 30, 2015 and December 31, 2014:



(dollars in thousands)	Unpaid Principal Balance		Recorded Investment		Allowance Allocated
September 30, 2015
Impaired loans with no related allowance recorded:
Commercial, financial & agricultural	$	5,023	$	3,384	$	—
Real estate:
Construction	10,596		4,251		—
Mortgage - residential	26,213		24,079		—
Mortgage - commercial	4,984		4,984		—
Total impaired loans with no related allowance recorded	46,816		36,698		—
Impaired loans with an allowance recorded:
Commercial, financial & agricultural	—		—		—
Total impaired loans with an allowance recorded	—		—		—
Total	$	46,816	$	36,698	$	—

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 nine months ended September 30, 2015 and 2014:



	Three Months Ended								Nine Months Ended
	September 30, 2015				September 30, 2014				September 30, 2015				September 30, 2014
(dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial, financial & agricultural	$	3,444	$	4	$	16,377	$	6	$	8,000	$	14	$	14,031	$	17
Real estate:
Construction	4,325		40		5,088		43		4,514		152		5,712		119
Mortgage - residential	25,466		87		31,460		85		27,245		81		33,762		522
Mortgage - commercial	8,464		15		19,195		137		15,884		354		17,147		252
Total	$	41,699	$	146	$	72,120	$	271	$	55,643	$	601	$	70,652	$	910

The Company had $1.6 million of consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure at September 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 September 30, 2015 and December 31, 2014:



(dollars in thousands)	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
September 30, 2015
Commercial, financial & agricultural	$	183	$	544	$	—	$	3,056	$	3,783	$	502,760	$	506,543
Real estate:
Construction	—		—		—		—		—		75,380		75,380
Mortgage - residential	463		249		—		6,301		7,013		1,378,273		1,385,286
Mortgage - commercial	—		59		—		2,731		2,790		734,195		736,985
Consumer	1,049		381		130		—		1,560		394,586		396,146
Leases	—		—		—		—		—		1,123		1,123
Total	$	1,695	$	1,233	$	130	$	12,088	$	15,146	$	3,086,317	$	3,101,463

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 September 30, 2015 consisted of 24 Hawaii residential mortgage loans with a combined principal balance of $3.7 million and two Hawaii commercial loans with a combined principal balance of $0.8 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 $21.0 million of TDRs still accruing interest at September 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 nine months ended September 30, 2015.

The following table presents by class, information related to loans modified in a TDR during the nine months ended September 30, 2015 and the three and nine months ended September 30, 2014. No loans were modified in a TDR during the three months ended September 31, 2015.



(dollars in thousands)	Number of Contracts	Recorded Investment (as of Period End)		Increase in the Allowance

Nine Months Ended September 30, 2015
Commercial, financial & agricultural	1	$	512	$	—
Real estate: Mortgage - residential	1	957		—
Total	2	$	1,469	$	—

Three Months Ended September 30, 2014
Real estate: Mortgage - residential	3	$	220	$	—

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

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



(dollars in thousands)	Pass		Special Mention		Substandard		Loss		Subtotal		Net Deferred Costs (Income)			Total
September 30, 2015
Commercial, financial & agricultural	$	495,865	$	3,700	$	6,342	$	—	$	505,907	$	636		$	506,543
Real estate:
Construction	73,515		1,304		813		—		75,632		(252		)	75,380
Mortgage - residential	1,376,321		—		6,514		—		1,382,835		2,451			1,385,286
Mortgage - commercial	706,215		17,869		13,732		—		737,816		(831		)	736,985
Consumer	396,441		100		94		35		396,670		(524		)	396,146
Leases	1,123		—		—		—		1,123		—			1,123
Total	$	3,049,480	$	22,973	$	27,495	$	35	$	3,099,983	$	1,480		$	3,101,463

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 September 30, 2015 and December 31, 2014, we did not have any loans that we considered to be subprime.