4. LOANS AND LEASES

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



(dollars in thousands)	June 30, 2017		December 31, 2016
Commercial, financial and agricultural	$	499,693	$	509,987
Real estate:
Construction	94,324		101,729
Residential mortgage	1,246,159		1,213,983
Home equity	394,721		361,210
Commercial mortgage	896,221		886,615
Consumer:
Automobiles	256,858		212,926
Other consumer	201,392		235,684
Leases	523		677
Gross loans and leases	3,589,891		3,522,811
Net deferred costs	1,844		2,079
Total loans and leases, net of deferred costs	$	3,591,735	$	3,524,890

During the six months ended June 30, 2017, we foreclosed on one loan totaling $0.1 million. We did not transfer any loans to the held-for-sale category. In addition, we did not sell any portfolio loans during the six months ended June 30, 2017.

During the six months ended June 30, 2016, we foreclosed on one portfolio loan totaling $0.5 million. We did not transfer any loans to the held-for-sale category. In addition, we did not sell any portfolio loans during the six months ended June 30, 2016.

In May 2017, we purchased an indirect auto loan portfolio totaling $26.6 million which included a $0.9 million premium over the $25.7 million outstanding balance. At the time of purchase, the auto loans had a weighted average remaining term of 77 months and a weighted average yield, net of the premium paid and servicing costs, of 2.67%.

In March 2017, we purchased a direct auto loan portfolio totaling $24.1 million which included a $0.4 million premium over the $23.8 million outstanding balance. At the time of purchase, the auto loans had a weighted average remaining term of 55 months and a weighted average yield, net of the premium paid and servicing costs, of 2.60%.

In May 2016, we purchased an indirect auto loan portfolio totaling $18.0 million which included a $0.5 million premium over the $17.5 million outstanding balance. At the time of purchase, the auto loans had a weighted average remaining term of 75 months and a weighted average yield, net of the premium paid and servicing costs, of 2.50%. During the second quarter of 2016, we also purchased unsecured consumer loans totaling $6.9 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 and a weighted average yield net of servicing costs of 5.57%.

In March 2016, we purchased a direct auto loan portfolio totaling $23.2 million which included a $0.3 million premium over the $22.9 million outstanding balance. At the time of purchase, the auto loans had a weighted average remaining term of 56 months and a weighted average yield, net of the premium paid and servicing costs, of 2.63%. During the first quarter of 2016, we also purchased unsecured consumer loans totaling $28.8 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 and a weighted average yield net of servicing costs of 5.55%.

Impaired Loans

The following tables present by class, the balance in the allowance for loan and lease losses (the "Allowance") and the recorded investment in loans and leases based on the Company's impairment measurement method as of June 30, 2017 and December 31, 2016:



			Real Estate
(dollars in thousands)	Comml, Fin & Ag		Constr			Resi Mortgage		Home Equity			Comml Mortgage			Consumer - Auto		Consumer - Other			Leases		Total
June 30, 2017
Allowance:
Individually evaluated for impairment	$	—	$	—		$	—	$	—		$	—		$	—	$	—		$	—	$	—
Collectively evaluated for impairment	8,598		3,212			14,034		3,370			18,184			2,780		2,650			—		52,828
Total ending balance	$	8,598	$	3,212		$	14,034	$	3,370		$	18,184		$	2,780	$	2,650		$	—	$	52,828

Loans and leases:
Individually evaluated for impairment	$	1,265	$	2,757		$	17,225	$	1,509		$	5,302		$	—	$	—		$	—	$	28,058
Collectively evaluated for impairment	498,428		91,567			1,228,934		393,212			890,919			256,858		201,392			523		3,561,833
Subtotal	499,693		94,324			1,246,159		394,721			896,221			256,858		201,392			523		3,589,891
Net deferred costs (income)	199		(487		)	3,458		(1		)	(1,209		)	—		(116		)	—		1,844
Total loans and leases, net of deferred costs (income)	$	499,892	$	93,837		$	1,249,617	$	394,720		$	895,012		$	256,858	$	201,276		$	523	$	3,591,735



			Real Estate
(dollars in thousands)	Comml, Fin & Ag		Constr			Resi Mortgage		Home Equity			Comml Mortgage			Consumer - Auto		Consumer - Other			Leases		Total
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 loans and leases, net of deferred costs (income)	$	510,440	$	101,538		$	1,217,234	$	361,209		$	885,439		$	212,926	235,427			$	677	$	3,524,890

There were no impaired loans with an allowance recorded as of June 30, 2017 and December 31, 2016. The following table presents by class, information related to impaired loans as of June 30, 2017 and December 31, 2016:



	June 30, 2017						December 31, 2016
	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	$	1,376	$	1,265	$	—	$	1,988	$	1,877	$	—
Real estate:
Construction	8,107		2,757		—		9,056		2,936		—
Residential mortgage	18,284		17,225		—		21,568		19,940		—
Home equity	1,509		1,509		—		333		333		—
Commercial mortgage	5,302		5,302		—		5,637		5,637		—
Total impaired loans	$	34,578	$	28,058	$	—	$	38,582	$	30,723	$	—

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, 2017 and 2016:



	Three Months Ended								Six Months Ended
	June 30, 2017				June 30, 2016				June 30, 2017				June 30, 2016
(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	$	1,291	$	4	$	2,176	$	10	$	1,624	$	4	$	1,799	$	10
Real estate:
Construction	2,783		24		3,917		34		2,841		48		3,982		70
Residential mortgage	17,658		1,070		22,718		9		18,597		1,167		22,235		7
Home equity	1,482		1		723		—		1,310		1		639		—
Commercial mortgage	5,346		46		8,786		37		5,445		93		9,463		71
Total	$	28,560	$	1,145	$	38,320	$	90	$	29,817	$	1,313	$	38,118	$	158

Foreclosure Proceedings

The Company had $1.3 million and $0.3 million of residential mortgage loans collateralized by residential real estate property that were in the process of foreclosure at June 30, 2017 and December 31, 2016, 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 June 30, 2017 and December 31, 2016:



(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
June 30, 2017
Commercial, financial & agricultural	$	225	$	53	$	—	$	1,000	$	1,278	$	498,614	$	499,892
Real estate:
Construction	—		—		—		—		—		93,837		93,837
Residential mortgage	—		1,887		—		4,691		6,578		1,243,039		1,249,617
Home equity	216		183		—		1,509		1,908		392,812		394,720
Commercial mortgage	83		—		—		834		917		894,095		895,012
Consumer:
Automobiles	972		244		130		—		1,346		255,512		256,858
Other consumer	708		368		123		—		1,199		200,077		201,276
Leases	—		—		—		—		—		523		523
Total	$	2,204	$	2,735	$	253	$	8,034	$	13,226	$	3,578,509	$	3,591,735



(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
December 31, 2016
Commercial, financial & agricultural	$	761	$	80	$	—	$	1,877	$	2,718	$	507,722	$	510,440
Real estate:
Construction	—		—		—		—		—		101,538		101,538
Residential mortgage	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 mortgage	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

Modifications

Troubled debt restructurings ("TDRs") included in nonperforming assets at June 30, 2017 totaled $3.8 million and consisted of 12 Hawaii residential mortgage loans with a combined principal balance of $2.8 million and two Hawaii commercial, financial and agricultural loans with a combined principal balance of $1.0 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 $14.2 million of TDRs still accruing interest at June 30, 2017, none of which were more than 90 days delinquent. At December 31, 2016, 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 for loan and lease losses (the "Allowance") methodology. Loans that were not on nonaccrual status when 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, 2017.

The following table presents by class, information related to loans modified in a TDR during the period presented. No loans were modified in a TDR during the three months ended June 30, 2017 or the three and six months ended June 30, 2016.



(dollars in thousands)	Number of Contracts	Recorded Investment (as of Period End)	Increase in the Allowance
Six Months Ended June 30, 2017
Commercial, financial & agricultural	1	653	—

No loans were modified as a TDR within the previous twelve months that subsequently defaulted during the three and six months ended June 30, 2017 and 2016.

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 estimated 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, 2017 and December 31, 2016:



(dollars in thousands)	Pass		Special Mention		Substandard		Loss		Subtotal		Net Deferred Costs (Income)			Total
June 30, 2017
Commercial, financial & agricultural	$	475,393	$	2,106	$	22,194	$	—	$	499,693	$	199		$	499,892
Real estate:
Construction	83,720		10,604		—		—		94,324		(487		)	93,837
Residential mortgage	1,241,362		—		4,797		—		1,246,159		3,458			1,249,617
Home equity	393,212		—		1,509		—		394,721		(1		)	394,720
Commercial mortgage	861,699		22,622		11,900		—		896,221		(1,209		)	895,012
Consumer:
Automobiles	256,728		—		66		64		256,858		—			256,858
Other consumer	201,202		—		190		—		201,392		(116		)	201,276
Leases	523		—		—		—		523		—			523
Total	$	3,513,839	$	35,332	$	40,656	$	64	$	3,589,891	$	1,844		$	3,591,735



(dollars in thousands)	Pass		Special Mention		Substandard		Loss		Subtotal		Net Deferred Costs (Income)			Total
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
Residential mortgage	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 mortgage	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

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, 2017 and December 31, 2016, we did not have any loans that we considered to be subprime.