LOANS AND LEASES | 4. LOANS AND LEASES Loans and leases, excluding loans held for sale, consisted of the following as of June 30, 2019 and December 31, 2018 : (dollars in thousands) June 30, 2019 December 31, 2018 Commercial, financial and agricultural $ 590,071 $ 581,177 Real estate: Construction 72,835 67,269 Residential mortgage 1,513,104 1,424,384 Home equity 472,918 468,966 Commercial mortgage 1,094,256 1,041,685 Consumer 501,273 492,268 Leases 52 124 Gross loans and leases 4,244,509 4,075,873 Net deferred costs 2,604 2,493 Total loans and leases, net of deferred costs $ 4,247,113 $ 4,078,366 During the six months ended June 30, 2019 , we did not foreclose on any loans. During the six months ended June 30, 2018 , we foreclosed on one loan totaling $40 thousand . During the six months ended June 30, 2019 and 2018 , 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, 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 the second quarter of 2019, we purchased consumer loans totaling $31.0 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 June 30, 2019 and December 31, 2018 : Real Estate (dollars in thousands) Comml, Fin & Ag Constr Resi Mortgage Home Equity Comml Mortgage Consumer Leases Total June 30, 2019 Allowance: Individually evaluated for impairment $ — $ — $ — $ — $ — $ — $ — $ — Collectively evaluated for impairment 8,109 1,313 13,367 4,313 11,668 9,497 — 48,267 Total ending balance $ 8,109 $ 1,313 $ 13,367 $ 4,313 $ 11,668 $ 9,497 $ — $ 48,267 Loans and leases: Individually evaluated for impairment $ 178 $ — $ 7,569 $ 244 $ 2,097 $ — $ — $ 10,088 Collectively evaluated for impairment 589,893 72,835 1,505,535 472,674 1,092,159 501,273 52 4,234,421 Subtotal 590,071 72,835 1,513,104 472,918 1,094,256 501,273 52 4,244,509 Net deferred costs (income) 412 (408 ) 3,832 233 (1,398 ) (67 ) — 2,604 Total loans and leases, net of deferred costs (income) $ 590,483 $ 72,427 $ 1,516,936 $ 473,151 $ 1,092,858 $ 501,206 $ 52 $ 4,247,113 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 June 30, 2019 and December 31, 2018 . The following table presents by class, information related to impaired loans as of June 30, 2019 and December 31, 2018 : June 30, 2019 December 31, 2018 (dollars in thousands) Unpaid Recorded Allowance Unpaid Recorded Allowance Impaired loans: Commercial, financial and agricultural $ 288 $ 178 $ — $ 330 $ 220 $ — Real estate: Construction — — — 3,076 2,273 — Residential mortgage 8,306 7,569 — 11,019 10,075 — Home equity 244 244 — 275 275 — Commercial mortgage 2,097 2,097 — 2,348 2,348 — Total impaired loans $ 10,935 $ 10,088 $ — $ 17,048 $ 15,191 $ — 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, 2019 and 2018 : Three Months Ended Six Months Ended June 30, 2019 June 30, 2018 June 30, 2019 June 30, 2018 (dollars in thousands) Average Interest Average Interest Average Interest Average Interest Commercial, financial and agricultural $ 185 $ 2 $ 628 $ 3 $ 199 $ 5 $ 540 $ 5 Real estate: Construction 1,434 32 2,464 28 1,890 62 2,517 54 Residential mortgage 8,583 607 12,832 159 9,289 713 13,358 296 Home equity 254 13 518 — 393 13 546 — Commercial mortgage 2,138 23 3,616 36 2,222 46 3,726 74 Total $ 12,594 $ 677 $ 20,058 $ 226 $ 13,993 $ 839 $ 20,687 $ 429 For the three and six months ended June 30, 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 and six months ended June 30, 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 June 30, 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 June 30, 2019 and December 31, 2018 : (dollars in thousands) Accruing Accruing Accruing Nonaccrual Total Loans and Total June 30, 2019 Commercial, financial and agricultural $ 1,104 $ 469 $ — $ — $ 1,573 $ 588,910 $ 590,483 Real estate: Construction — — — — — 72,427 72,427 Residential mortgage 89 975 — 738 1,802 1,515,134 1,516,936 Home equity 970 — — 244 1,214 471,937 473,151 Commercial mortgage — — — — — 1,092,858 1,092,858 Consumer 2,013 737 267 — 3,017 498,189 501,206 Leases — — — — — 52 52 Total $ 4,176 $ 2,181 $ 267 $ 982 $ 7,606 $ 4,239,507 $ 4,247,113 (dollars in thousands) Accruing Accruing Accruing Nonaccrual Total Loans and 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 June 30, 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 $9.1 million of TDRs still accruing interest at June 30, 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 and six months ended June 30, 2019 . No loans were modified in a TDR during the three and six months ended June 30, 2019 and 2018 . No loans were modified as a TDR within the previous twelve months that subsequently defaulted during the three and six months ended June 30, 2019 and 2018 . We had no commitments on TDRs during the three and six months ended June 30, 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 June 30, 2019 and December 31, 2018 : (dollars in thousands) Pass Special Substandard Loss Subtotal Net Total June 30, 2019 Commercial, financial and agricultural $ 574,264 $ 3,994 $ 11,813 $ — $ 590,071 $ 412 $ 590,483 Real estate: Construction 72,835 — — — 72,835 (408 ) 72,427 Residential mortgage 1,512,276 — 828 — 1,513,104 3,832 1,516,936 Home equity 472,674 — 244 — 472,918 233 473,151 Commercial mortgage 1,054,254 26,711 13,291 — 1,094,256 (1,398 ) 1,092,858 Consumer 501,007 — 178 88 501,273 (67 ) 501,206 Leases 52 — — — 52 — 52 Total $ 4,187,362 $ 30,705 $ 26,354 $ 88 $ 4,244,509 $ 2,604 $ 4,247,113 (dollars in thousands) Pass Special Substandard Loss Subtotal Net 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 |