4. LOANS AND LEASES

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



(dollars in thousands)	June 30, 2018		December 31, 2017
Commercial, financial and agricultural	$	522,903	$	503,738
Real estate:
Construction	67,289		64,525
Residential mortgage	1,373,345		1,337,193
Home equity	430,871		412,230
Commercial mortgage	1,019,629		979,239
Consumer	464,950		470,819
Leases	223		362
Gross loans and leases	3,879,210		3,768,106
Net deferred costs	2,371		2,509
Total loans and leases, net of deferred costs	$	3,881,581	$	3,770,615

During the six months ended June 30, 2018, we foreclosed on one loan totaling $40 thousand, which was sold at a small premium to book value.

During the six months ended June 30, 2017, we foreclosed on one loan totaling $0.1 million.

During the six months ended June 30, 2018 and 2017, we did not transfer any loans to the held-for-sale category.

We did not sell any portfolio loans during the six months ended June 30, 2018 and 2017.

In May 2018, we purchased an auto loan portfolio totaling $20.6 million which included a $0.1 million premium over the $20.5 million outstanding balance. At the time of purchase, the auto loans had a weighted average remaining term of 63 months and a weighted average yield, net of the premium paid and servicing costs, of 3.89%.

In November 2017, we purchased an auto loan portfolio totaling $33.1 million which included a $1.1 million premium over the $31.9 million outstanding balance. At the time of purchase, the auto loans had a weighted average remaining term of 76 months and a weighted average yield, net of the premium paid and servicing costs, of 3.04%.

In May 2017, we purchased an 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 an 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%.

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, 2018 and December 31, 2017:



			Real Estate
(dollars in thousands)	Comml, Fin & Ag		Constr			Resi Mortgage		Home Equity			Comml Mortgage			Consumer			Leases		Total
June 30, 2018
Allowance:
Individually evaluated for impairment	$	—	$	—		$	—	$	—		$	—		$	—		$	—	$	—
Collectively evaluated for impairment	7,525		1,811			14,252		3,168			15,094			6,331			—		48,181
Total ending balance	$	7,525	$	1,811		$	14,252	$	3,168		$	15,094		$	6,331		$	—	$	48,181

Loans and leases:
Individually evaluated for impairment	$	423	$	2,437		$	12,888	$	514		$	3,572		$	—		$	—	$	19,834
Collectively evaluated for impairment	522,480		64,852			1,360,457		430,357			1,016,057			464,950			223		3,859,376
Subtotal	522,903		67,289			1,373,345		430,871			1,019,629			464,950			223		3,879,210
Net deferred costs (income)	392		(395		)	3,874		(1		)	(1,439		)	(60		)	—		2,371
Total loans and leases, net of deferred costs (income)	$	523,295	$	66,894		$	1,377,219	$	430,870		$	1,018,190		$	464,890		$	223	$	3,881,581



			Real Estate
(dollars in thousands)	Comml, Fin & Ag		Constr			Resi Mortgage		Home Equity		Comml Mortgage			Consumer			Leases		Total
December 31, 2017
Allowance:
Individually evaluated for impairment	$	—	$	—		$	—	$	—	$	—		$	—		$	—	$	—
Collectively evaluated for impairment	7,594		1,835			14,328		3,317		16,801			6,126			—		50,001
Total ending balance	$	7,594	$	1,835		$	14,328	$	3,317	$	16,801		6,126			$	—	$	50,001

Loans and leases:
Individually evaluated for impairment	$	491	$	2,597		$	13,862	$	416	$	3,914		$	—		$	—	$	21,280
Collectively evaluated for impairment	503,247		61,928			1,323,331		411,814		975,325			470,819			362		3,746,826
Subtotal	503,738		64,525			1,337,193		412,230		979,239			470,819			362		3,768,106
Net deferred costs (income)	281		(285		)	4,028		—		(1,442		)	(73		)	—		2,509
Total loans and leases, net of deferred costs (income)	$	504,019	$	64,240		$	1,341,221	$	412,230	$	977,797		$	470,746		$	362	$	3,770,615

There were no impaired loans with an allowance recorded as of June 30, 2018 and December 31, 2017. The following table presents by class, information related to impaired loans as of June 30, 2018 and December 31, 2017:



	June 30, 2018						December 31, 2017
	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	$	533	$	423	$	—	$	602	$	491	$	—
Real estate:
Construction	7,787		2,437		—		7,947		2,597		—
Residential mortgage	13,947		12,888		—		14,920		13,862		—
Home equity	514		514		—		416		416		—
Commercial mortgage	3,572		3,572		—		3,914		3,914		—
Total impaired loans	$	26,353	$	19,834	$	—	$	27,799	$	21,280	$	—

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, 2018 and 2017:



	Three Months Ended								Six Months Ended
	June 30, 2018				June 30, 2017				June 30, 2018				June 30, 2017
(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	$	628	$	3	$	1,291	$	4	$	540	$	5	$	1,624	$	4
Real estate:
Construction	2,464		28		2,783		24		2,517		54		2,841		48
Residential mortgage	12,832		159		17,658		1,070		13,358		296		18,597		1,167
Home equity	518		—		1,482		1		546		—		1,310		1
Commercial mortgage	3,616		36		5,346		46		3,726		74		5,445		93
Total	$	20,058	$	226	$	28,560	$	1,145	$	20,687	$	429	$	29,817	$	1,313

Foreclosure Proceedings

The Company did not have any residential mortgage loans collateralized by residential real estate property that were in the process of foreclosure at June 30, 2018. The Company had $40 thousand of residential mortgage loans collateralized by residential real estate property that were in the process of foreclosure at December 31, 2017.

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, 2018 and December 31, 2017:



(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, 2018
Commercial, financial & agricultural	$	10,622	$	283	$	—	$	—	$	10,905	$	512,390	$	523,295
Real estate:
Construction	—		—		—		—		—		66,894		66,894
Residential mortgage	—		2,069		279		2,400		4,748		1,372,471		1,377,219
Home equity	48		105		—		514		667		430,203		430,870
Commercial mortgage	—		—		—		—		—		1,018,190		1,018,190
Consumer	1,512		860		362		—		2,734		462,156		464,890
Leases	—		—		—		—		—		223		223
Total	$	12,182	$	3,317	$	641	$	2,914	$	19,054	$	3,862,527	$	3,881,581



(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, 2017
Commercial, financial & agricultural	$	410	$	355	$	—	$	—	$	765	$	503,254	$	504,019
Real estate:
Construction	—		—		—		—		—		64,240		64,240
Residential mortgage	4,037		2,127		49		2,280		8,493		1,332,728		1,341,221
Home equity	105		264		—		416		785		411,445		412,230
Commercial mortgage	—		—		—		79		79		977,718		977,797
Consumer	2,126		1,056		515		—		3,697		467,049		470,746
Leases	—		—		—		—		—		362		362
Total	$	6,678	$	3,802	$	564	$	2,775	$	13,819	$	3,756,796	$	3,770,615

Modifications

Troubled debt restructurings ("TDRs") included in nonperforming assets at June 30, 2018 consisted of four Hawaii residential mortgage loans with a combined principal balance of $0.5 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 $11.3 million of TDRs still accruing interest at June 30, 2018, none of which were more than 90 days delinquent. At December 31, 2017, there were $12.6 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, 2018.

The following table presents by class, information related to loans modified in a TDR during the period presented. There were no loans modified in a TDR during the three and six months ended June 30, 2018 or the three months ended June 30, 2017.



(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	$	—
Total	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, 2018 and 2017.

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 by 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, 2018 and December 31, 2017:



(dollars in thousands)	Pass		Special Mention		Substandard		Loss		Subtotal		Net Deferred Costs (Income)			Total
June 30, 2018
Commercial, financial & agricultural	$	496,758	$	8,390	$	17,755	$	—	$	522,903	$	392		$	523,295
Real estate:
Construction	58,410		8,879		—		—		67,289		(395		)	66,894
Residential mortgage	1,370,568		—		2,777		—		1,373,345		3,874			1,377,219
Home equity	430,357		—		514		—		430,871		(1		)	430,870
Commercial mortgage	1,007,316		10,613		1,700		—		1,019,629		(1,439		)	1,018,190
Consumer	464,588		—		158		204		464,950		(60		)	464,890
Leases	223		—		—		—		223		—			223
Total	$	3,828,220	$	27,882	$	22,904	$	204	$	3,879,210	$	2,371		$	3,881,581



(dollars in thousands)	Pass		Special Mention		Substandard		Loss		Subtotal		Net Deferred Costs (Income)			Total
December 31, 2017
Commercial, financial & agricultural	$	474,995	$	7,543	$	21,200	$	—	$	503,738	$	281		$	504,019
Real estate:
Construction	55,646		8,879		—		—		64,525		(285		)	64,240
Residential mortgage	1,334,760		—		2,433		—		1,337,193		4,028			1,341,221
Home equity	411,814		—		416		—		412,230		—			412,230
Commercial mortgage	955,865		12,735		10,639		—		979,239		(1,442		)	977,797
Consumer	470,243		—		305		271		470,819		(73		)	470,746
Leases	362		—		—		—		362		—			362
Total	$	3,703,685	$	29,157	$	34,993	$	271	$	3,768,106	$	2,509		$	3,770,615