4. LOANS AND LEASES

Loans and leases, excluding loans held for sale, consisted of the following as of March 31, 2019 and December 31, 2018:



(dollars in thousands)	March 31, 2019		December 31, 2018
Commercial, financial and agricultural	$	566,248	$	581,177
Real estate:
Construction	71,483		67,269
Residential mortgage	1,447,970		1,424,384
Home equity	465,798		468,966
Commercial mortgage	1,059,401		1,041,685
Consumer	487,888		492,268
Leases	83		124
Gross loans and leases	4,098,871		4,075,873
Net deferred costs	2,700		2,493
Total loans and leases, net of deferred costs	$	4,101,571	$	4,078,366

During the three months ended March 31, 2019, we did not foreclose on any loans.

During the three months ended March 31, 2018, we foreclosed on one loan totaling $40 thousand.

During the three months ended March 31, 2019 and 2018, we did not transfer any loans to the held-for-sale category.

We did not sell any portfolio loans during the three months ended March 31, 2019 and 2018.

In the first quarter of 2019, we purchased consumer loans totaling $18.3 million which represented the outstanding balance at the time of purchase.

In 2018, we purchased consumer loans totaling $58.6 million, which included a 0.1 million premium over the $58.5 million outstanding balance at the time of purchase.

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 March 31, 2019 and December 31, 2018:



			Real Estate
(dollars in thousands)	Comml, Fin & Ag		Constr			Resi Mortgage		Home Equity		Comml Mortgage			Consumer			Leases		Total
March 31, 2019
Allowance:
Individually evaluated for impairment	$	—	$	—		$	—	$	—	$	—		$	—		$	—	$	—
Collectively evaluated for impairment	7,847		1,299			12,851		4,278		12,036			8,956			—		47,267
Total ending balance	$	7,847	$	1,299		$	12,851	$	4,278	$	12,036		$	8,956		$	—	$	47,267

Loans and leases:
Individually evaluated for impairment	$	199	$	2,194		$	9,633	$	570	$	2,222		$	—		$	—	$	14,818
Collectively evaluated for impairment	566,049		69,289			1,438,337		465,228		1,057,179			487,888			83		4,084,053
Subtotal	566,248		71,483			1,447,970		465,798		1,059,401			487,888			83		4,098,871
Net deferred costs (income)	547		(308		)	3,824		107		(1,395		)	(75		)	—		2,700
Total loans and leases, net of deferred costs (income)	$	566,795	$	71,175		$	1,451,794	$	465,905	$	1,058,006		$	487,813		$	83	$	4,101,571



			Real Estate
(dollars in thousands)	Comml, Fin & Ag		Constr			Resi Mortgage		Home Equity		Comml Mortgage			Consumer			Leases		Total
December 31, 2018
Allowance:
Individually evaluated for impairment	$	—	$	—		$	—	$	—	$	—		$	—		$	—	$	—
Collectively evaluated for impairment	8,027		1,202			14,349		3,788		13,358			7,192			—		47,916
Total ending balance	$	8,027	$	1,202		$	14,349	$	3,788	$	13,358		7,192			$	—	$	47,916

Loans and leases:
Individually evaluated for impairment	$	220	$	2,273		$	10,075	$	275	$	2,348		$	—		$	—	$	15,191
Collectively evaluated for impairment	580,957		64,996			1,414,309		468,691		1,039,337			492,268			124		4,060,682
Subtotal	581,177		67,269			1,424,384		468,966		1,041,685			492,268			124		4,075,873
Net deferred costs (income)	483		(342		)	3,821		—		(1,407		)	(62		)	—		2,493
Total loans and leases, net of deferred costs (income)	$	581,660	$	66,927		$	1,428,205	$	468,966	$	1,040,278		$	492,206		$	124	$	4,078,366

There were no impaired loans with an allowance recorded as of March 31, 2019 and December 31, 2018. The following table presents by class, information related to impaired loans as of March 31, 2019 and December 31, 2018:



	March 31, 2019						December 31, 2018
	Unpaid Principal Balance		Recorded Investment		Allowance Allocated		Unpaid Principal Balance		Recorded Investment		Allowance Allocated
	(dollars in thousands)
Impaired loans:
Commercial, financial and agricultural	$	309	$	199	$	—	$	330	$	220	$	—
Real estate:
Construction	2,996		2,194		—		3,076		2,273		—
Residential mortgage	10,578		9,633		—		11,019		10,075		—
Home equity	570		570		—		275		275		—
Commercial mortgage	2,222		2,222		—		2,348		2,348		—
Total impaired loans	$	16,675	$	14,818	$	—	$	17,048	$	15,191	$	—

The following table presents by class, the average recorded investment and interest income recognized on impaired loans for the three months ended March 31, 2019 and 2018:



	Three Months Ended
	March 31, 2019				March 31, 2018
(dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial, financial and agricultural	$	209	$	3	$	483	$	2
Real estate:
Construction	2,233		30		2,557		26
Residential mortgage	9,818		106		13,744		137
Home equity	497		—		567		—
Commercial mortgage	2,285		23		3,809		38
Total	$	15,042	$	162	$	21,160	$	203

For the three months ended March 31, 2019 and 2018, the amount of interest income recognized on impaired loans within the period that the loans were impaired were primarily related to loans modified in a troubled debt restructuring ("TDR") that were on accrual status. For the three months ended March 31, 2019 and 2018, the amount of interest income recognized using a cash-based method of accounting during the period that the loans were impaired was not material.

Foreclosure Proceedings

The Company had $0.5 million and $0.7 million of residential mortgage loans collateralized by residential real estate property that were in the process of foreclosure at March 31, 2019 and December 31, 2018, 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 March 31, 2019 and December 31, 2018:



(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
March 31, 2019
Commercial, financial and agricultural	$	924	$	565	$	—	$	—	$	1,489	$	565,306	$	566,795
Real estate:
Construction	—		—		—		—		—		71,175		71,175
Residential mortgage	3,559		—		—		2,492		6,051		1,445,743		1,451,794
Home equity	108		—		—		570		678		465,227		465,905
Commercial mortgage	—		—		—		—		—		1,058,006		1,058,006
Consumer	1,712		518		159		—		2,389		485,424		487,813
Leases	—		—		—		—		—		83		83
Total	$	6,303	$	1,083	$	159	$	3,062	$	10,607	$	4,090,964	$	4,101,571



(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, 2018
Commercial, financial and agricultural	$	1,348	$	162	$	—	$	—	$	1,510	$	580,150	$	581,660
Real estate:
Construction	—		—		—		—		—		66,927		66,927
Residential mortgage	3,966		157		—		2,048		6,171		1,422,034		1,428,205
Home equity	433		104		298		275		1,110		467,856		468,966
Commercial mortgage	—		—		—		—		—		1,040,278		1,040,278
Consumer	2,340		872		238		—		3,450		488,756		492,206
Leases	—		—		—		—		—		124		124
Total	$	8,087	$	1,295	$	536	$	2,323	$	12,241	$	4,066,125	$	4,078,366

Modifications

Troubled debt restructurings ("TDRs") included in nonperforming assets at March 31, 2019 consisted of three Hawaii residential mortgage loans with a combined principal balance of $0.4 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 $11.8 million of TDRs still accruing interest at March 31, 2019, none of which were more than 90 days delinquent. At December 31, 2018, there were $12.9 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 months ended March 31, 2019.

No loans were modified in a TDR during the three months ended March 31, 2019 and 2018.

No loans were modified as a TDR within the previous twelve months that subsequently defaulted during the three months ended March 31, 2019 and 2018.

We had no commitments on TDRs during the three months ended March 31, 2019 and 2018.

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 March 31, 2019 and December 31, 2018:



(dollars in thousands)	Pass		Special Mention		Substandard		Loss		Subtotal		Net Deferred Costs (Income)			Total
March 31, 2019
Commercial, financial and agricultural	$	554,400	$	2,142	$	9,706	$	—	$	566,248	$	547		$	566,795
Real estate:
Construction	71,483		—		—		—		71,483		(308		)	71,175
Residential mortgage	1,445,385		—		2,585		—		1,447,970		3,824			1,451,794
Home equity	465,228		—		570		—		465,798		107			465,905
Commercial mortgage	1,033,791		11,881		13,729		—		1,059,401		(1,395		)	1,058,006
Consumer	487,729		—		114		45		487,888		(75		)	487,813
Leases	83		—		—		—		83		—			83
Total	$	4,058,099	$	14,023	$	26,704	$	45	$	4,098,871	$	2,700		$	4,101,571



(dollars in thousands)	Pass		Special Mention		Substandard		Loss		Subtotal		Net Deferred Costs (Income)			Total
December 31, 2018
Commercial, financial and agricultural	$	552,706	$	7,961	$	20,510	$	—	$	581,177	$	483		$	581,660
Real estate:
Construction	67,269		—		—		—		67,269		(342		)	66,927
Residential mortgage	1,422,240		—		2,144		—		1,424,384		3,821			1,428,205
Home equity	468,394		—		572		—		468,966		—			468,966
Commercial mortgage	1,029,581		10,412		1,692		—		1,041,685		(1,407		)	1,040,278
Consumer	492,030		—		80		158		492,268		(62		)	492,206
Leases	124		—		—		—		124		—			124
Total	$	4,032,344	$	18,373	$	24,998	$	158	$	4,075,873	$	2,493		$	4,078,366