4. LOANS AND LEASES

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



	December 31,
	2016		2015
	(Dollars in thousands)
Commercial, financial & agricultural	$	509,987	$	520,457
Real estate:
Construction	101,729		85,196
Mortgage:
Residential	1,213,983		1,131,882
Home equity	361,210		301,980
Commercial	886,615		761,566
Consumer:
Automobiles	212,926		190,202
Other consumer	235,684		217,822
Leases	677		1,028
Subtotal	3,522,811		3,210,133
Net deferred costs	2,079		1,399
Total loans and leases	$	3,524,890	$	3,211,532

There are different types of risk characteristics for the loans in each portfolio segment. The construction and real estate segment's predominant risk characteristics 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, 2016, we transferred the collateral in two portfolio loans with a carrying value of $1.3 million to other real estate. We did not transfer any loans to the held-for-sale category during the year ended December 31, 2016. In addition, we did not sell any portfolio loans during the year ended December 31, 2016.

In 2016, we purchased two auto loan portfolios totaling $41.2 million, which included a $0.9 million premium over the $40.3 million outstanding balance. At the time of purchase, the auto loan portfolios had a weighted average remaining term of 64 months. In 2016, we also purchased two unsecured consumer loan portfolios totaling $35.7 million, which represented the outstanding balance at the time of purchases. At the time of purchases, the unsecured consumer loans had a weighted average remaining term of 38 months.

During the year ended December 31, 2015, we transferred the collateral in eight portfolio loans with a carrying value of $2.2 million to other real estate. In the second quarter of 2015, we transferred two portfolio loans with a carrying value of $6.6 million to the held-for-sale category, and later sold the two loans in the second quarter of 2015 at its carrying value.

In 2015, we purchased two auto loan portfolios for $52.8 million, which included a $1.7 million premium over the $51.1 million outstanding balance. At the time of purchase, the auto loan portfolios had a weighted average remaining term of 74 months. In 2015, we also purchased unsecured consumer loans totaling $15.9 million, which represented the outstanding balance at the time of purchases. At the time of purchases, the unsecured consumer loans had a weighted average remaining term of 37 months.

In the normal course of business, our bank makes loans to certain directors, executive officers and their affiliates. An analysis of the activity of such loans follows:



	December 31,
	2016			2015
	(Dollars in thousands)
Balance, beginning of year	$	10,475		$	29,231
Additions	8,398			10,392
Repayments	(1,726		)	(20,863		)
Other changes	—			(8,285		)
Balance, end of year	$	17,147		$	10,475

Other changes represent changes in the composition of directors, executive officers and their affiliates that occurred during the year.

Impaired Loans

The following tables present 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, 2016 and 2015:



			Real Estate
	Comm., Fin. & Ag.		Constr.			Resi. Mortgage		Home Equity			Comml. Mortgage			Consumer - Auto.		Consumer - Other			Leases		Total
	(Dollars in thousands)
December 31, 2016
Allowance:
Individually evaluated for impairment	$	—	$	—		$	—	$	—		$	—		$	—	$	—		$	—	$	—
Collectively evaluated for impairment	8,637		4,224			15,055		3,502			19,104			3,000		3,109			—		56,631
Total ending balance	$	8,637	$	4,224		$	15,055	$	3,502		$	19,104		$	3,000	$	3,109		$	—	$	56,631

Loans and leases:
Individually evaluated for impairment	$	1,877	$	2,936		$	19,940	$	333		$	5,637		$	—	$	—		$	—	$	30,723
Collectively evaluated for impairment	508,110		98,793			1,194,043		360,877			880,978			212,926		235,684			677		3,492,088
Subtotal	509,987		101,729			1,213,983		361,210			886,615			212,926		235,684			677		3,522,811
Net deferred costs (income)	453		(191		)	3,251		(1		)	(1,176		)	—		(257		)	—		2,079
Total ending balance	$	510,440	$	101,538		$	1,217,234	$	361,209		$	885,439		$	212,926	$	235,427		$	677	$	3,524,890



			Real Estate
	Comm., Fin. & Ag.		Constr.			Resi. Mortgage		Home Equity		Comml. Mortgage			Consumer - Auto.		Consumer - Other			Leases		Unallocated		Total
	(Dollars in thousands)
December 31, 2015
Allowance:
Individually evaluated for impairment	$	—	$	—		$	—	$	—	$	51		$	—	$	—		$	—	$	—	$	51
Collectively evaluated for impairment	6,905		8,454			14,642		3,096		21,796			2,891		3,339			—		—		61,123
Subtotal	6,905		8,454			14,642		3,096		21,847			2,891		3,339			—		—		61,174
Unallocated	—		—			—		—		—			—		—			—		2,140		2,140
Total ending balance	$	6,905	$	8,454		$	14,642	$	3,096	$	21,847		$	2,891	$	3,339		$	—	$	2,140	$	63,314

Loans and leases:
Individually evaluated for impairment	$	1,044	$	4,126		$	21,940	$	776	$	10,318		$	—	$	—		$	—	$	—	$	38,204
Collectively evaluated for impairment	519,413		81,070			1,109,942		301,204		751,248			190,202		217,822			1,028		—		3,171,929
Subtotal	520,457		85,196			1,131,882		301,980		761,566			190,202		217,822			1,028		—		3,210,133
Net deferred costs (income)	629		(311		)	2,443		—		(817		)	—		(545		)	—		—		1,399
Total ending balance	$	521,086	$	84,885		$	1,134,325	$	301,980	$	760,749		$	190,202	$	217,277		$	1,028	$	—	$	3,211,532

The following table presents by class, impaired loans as of December 31, 2016 and 2015:



	December 31, 2016						December 31, 2015
	Unpaid Principal Balance		Recorded Investment		Allowance Allocated		Unpaid Principal Balance		Recorded Investment		Allowance Allocated
	(Dollars in thousands)
Impaired loans with no related Allowance recorded:
Commercial, financial & agricultural	$	1,988	$	1,877	$	—	$	1,155	$	1,044	$	—
Real estate:
Construction	9,056		2,936		—		10,472		4,126		—
Residential mortgage	21,568		19,940		—		24,016		21,940		—
Home equity	333		333		—		776		776		—
Commercial mortgage	5,637		5,637		—		10,010		9,152		—
Total	38,582		30,723		—		46,429		37,038		—
Impaired loans with an Allowance recorded:
Real estate: Commercial mortgage	—		—		—		1,166		1,166		51
Total	—		—		—		1,166		1,166		51
Total impaired loans	$	38,582	$	30,723	$	—	$	47,595	$	38,204	$	51

The following table presents by class, the average recorded investment and interest income recognized on impaired loans as of December 31, 2016, 2015 and 2014:



	Year Ended				Year Ended				Year Ended
	December 31, 2016				December 31, 2015				December 31, 2014
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
Commercial, financial & agricultural	$	1,891	$	10	$	6,273	$	17	$	14,303	$	22
Real estate:
Construction	3,509		123		4,428		190		5,517		163
Residential mortgage	21,809		236		25,556		60		30,938		564
Home equity	472		17		545		18		2,164		63
Commercial mortgage	8,537		321		14,240		373		18,692		397
Total	$	36,218	$	707	$	51,042	$	658	$	71,614	$	1,209

Foreclosure Proceedings

The Company had $0.3 million and $0.9 million of residential mortgage loans collateralized by residential real estate property that were in the process of foreclosure at December 31, 2016 and 2015, respectively.

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 tables present by class, the aging of the recorded investment in past due loans and leases as of December 31, 2016 and 2015:



	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)
December 31, 2016
Commercial, financial & agricultural	$	761	$	80	$	—	$	1,877	$	2,718	$	507,722	$	510,440
Real estate:
Construction	—		—		—		—		—		101,538		101,538
Mortgage:
Residential	5,014		478		—		5,322		10,814		1,206,420		1,217,234
Home equity	43		280		1,120		333		1,776		359,433		361,209
Commercial	127		—		—		864		991		884,448		885,439
Consumer:
Automobiles	743		353		208		—		1,304		211,622		212,926
Other consumer	639		272		63		—		974		234,453		235,427
Leases	—		—		—		—		—		677		677
Total	$	7,327	$	1,463	$	1,391	$	8,396	$	18,577	$	3,506,313	$	3,524,890



	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)
December 31, 2015
Commercial, financial & agricultural	$	276	$	140	$	—	$	1,044	$	1,460	$	519,626	$	521,086
Real estate:
Construction	—		—		—		—		—		84,885		84,885
Mortgage:
Residential	3,134		325		—		5,464		8,923		1,125,402		1,134,325
Home equity	700		220		—		666		1,586		300,394		301,980
Commercial	54		—		—		7,094		7,148		753,601		760,749
Consumer:
Automobiles	912		168		151		—		1,231		188,971		190,202
Other consumer	531		353		122		—		1,006		216,271		217,277
Leases	—		—		—		—		—		1,028		1,028
Total	$	5,607	$	1,206	$	273	$	14,268	$	21,354	$	3,190,178	$	3,211,532

Interest income totaling $0.6 million, $0.5 million, and $0.4 million was recognized on nonaccrual loans, including loans held for sale, in 2016, 2015 and 2014, respectively. Additional interest income of $1.2 million, $1.5 million, and $4.0 million would have been recognized in 2016, 2015 and 2014, respectively, had these loans been accruing interest throughout those periods. Additionally, interest income of $1.3 million, $0.8 million, and $0.2 million was collected and recognized on charged-off loans in 2016, 2015 and 2014, respectively.

Modifications

TDRs included in nonperforming assets at December 31, 2016 consisted of 21 Hawaii residential mortgage loans with a combined principal balance of $2.8 million and three 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. At December 31, 2015, TDRs included in nonperforming assets consisted of 26 loans with a combined principal balance of $6.6 million.

There were $16.2 million of TDRs still accruing interest at December 31, 2016, none of which were more than 90 days delinquent. At December 31, 2015, there were $20.3 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, 2016 and 2015.

The following table presents by class, information related to loans modified in a TDR during the years ended December 31, 2016 and 2015:



	Year ended December 31, 2016					Year ended December 31, 2015
	Number of Contracts	Recorded Investment (as of period end)		Increase in the Allowance		Number of Contracts	Recorded Investment (as of period end)		Increase in the Allowance
	(Dollars in thousands)
Commercial, financial & agricultural	—	$	—	$	—	1	$	488	$	—
Real estate: Residential mortgage	3	282		—		3	4,131		—
Total	3	282		—		4	4,619		—

No loans were modified as a TDR within the previous twelve months that subsequently defaulted during the years ended December 31, 2016 and 2015.

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 tables present by class and credit indicator, the recorded investment in the Company's loans and leases as of December 31, 2016 and 2015:



	Pass		Special Mention		Substandard		Loss		Subtotal		Net Deferred Costs (Income)			Total
	(Dollars in thousands)
December 31, 2016
Commercial, financial & agricultural	$	502,305	$	2,632	$	5,050	$	—	$	509,987	$	453		$	510,440
Real estate:
Construction	91,812		9,896		21		—		101,729		(191		)	101,538
Mortgage:
Residential	1,208,552		109		5,322		—		1,213,983		3,251			1,217,234
Home equity	359,757		—		1,453		—		361,210		(1		)	361,209
Commercial	852,872		18,845		14,898		—		886,615		(1,176		)	885,439
Consumer:
Automobiles	212,718		—		50		158		212,926		—			212,926
Other consumer	235,544		—		140		—		235,684		(257		)	235,427
Leases	677		—		—		—		677		—			677
Total	$	3,464,237	$	31,482	$	26,934	$	158	$	3,522,811	$	2,079		$	3,524,890



	Pass		Special Mention		Substandard		Loss		Subtotal		Net Deferred Costs (Income)			Total
	(Dollars in thousands)
December 31, 2015
Commercial, financial & agricultural	$	514,971	$	2,168	$	3,318	$	—	$	520,457	$	629		$	521,086
Real estate:
Construction	83,601		808		787		—		85,196		(311		)	84,885
Mortgage:
Residential	1,126,418		—		5,464		—		1,131,882		2,443			1,134,325
Home equity	301,314		—		666		—		301,980		—			301,980
Commercial	705,520		41,335		14,711		—		761,566		(817		)	760,749
Consumer:
Automobiles	190,051		—		151		—		190,202		—			190,202
Other consumer	217,727		95		—		—		217,822		(545		)	217,277
Leases	1,028		—		—		—		1,028		—			1,028
Total	$	3,140,630	$	44,406	$	25,097	$	—	$	3,210,133	$	1,399		$	3,211,532

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, 2016 and 2015, we did not have any loans that we considered to be subprime.