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Section 1: 10-Q (10-Q)

Document
 

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
 
 
 
FORM 10-Q
 
 
 

(Mark One)
 
ý      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018
 
or

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from               to              
 
Commission file number 001-31567
 
 393419182_g119311bai001a09.jpg

CENTRAL PACIFIC FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
 
Hawaii
 
99-0212597
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
220 South King Street, Honolulu, Hawaii 96813
(Address of principal executive offices) (Zip Code)
 
(808) 544-0500
(Registrant's telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ý  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.:
 
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o
Emerging growth company o
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act . o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No ý
 
The number of shares outstanding of registrant's common stock, no par value, on April 25, 2018 was 29,600,237 shares.
 


 

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES
Form 10-Q
 
Table of Contents
 
Page
 
 
 
Item 1.
Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2

 

PART I.   FINANCIAL INFORMATION
 
Forward-Looking Statements
 
This document may contain forward-looking statements concerning: projections of revenues, income/loss, earnings/loss per share, capital expenditures, dividends, capital structure, net interest margin or other financial items, plans and objectives of management for future operations, future economic performance, or any of the assumptions underlying or relating to any of the foregoing. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts, and may include the words "believes," "plans," "intends," "expects," "anticipates," "forecasts," "hopes," "should," "estimates" or words of similar meaning. While we believe that our forward-looking statements and the assumptions underlying them are reasonably based, such statements and assumptions are by their nature subject to risks and uncertainties, and thus could later prove to be inaccurate or incorrect. Accordingly, actual results could materially differ from projections for a variety of reasons, to include, but not be limited to: adverse changes in the financial performance and/or condition of our borrowers and, as a result, increased loan delinquency rates, deterioration in asset quality, and losses in our loan portfolio; the impact of local, national, and international economies and events (including natural disasters such as wildfires, tsunamis, storms and earthquakes) on the Company's business and operations and on tourism, the military, and other major industries operating within the Hawaii market and any other markets in which the Company does business; deterioration or malaise in domestic economic conditions, including any destabilization in the financial industry and deterioration of the real estate market, as well as the impact of declining levels of consumer and business confidence in the state of the economy in general and in financial institutions in particular; changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act, changes in capital standards, other regulatory reform, including but not limited to regulations promulgated by the Consumer Financial Protection Bureau, government-sponsored enterprise reform, and any related rules and regulations on our business operations and competitiveness; the costs and effects of legal and regulatory developments, including the resolution of legal proceedings or regulatory or other governmental inquiries, the results of regulatory examinations or reviews and the effect of, and our ability to comply with, any regulatory orders or actions we are or may become subject to; ability to successfully implement our initiatives to lower our efficiency ratio; the ability to address any material weakness in our internal controls over financial reporting or disclosure controls and procedures; the effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rate, securities market and monetary fluctuations; negative trends in our market capitalization and adverse changes in the price of the Company's common stock; political instability; acts of war or terrorism; changes in consumer spending, borrowings and savings habits; failure to maintain effective internal control over financial reporting or disclosure controls and procedures; technological changes; changes in the competitive environment among financial holding companies and other financial service providers; the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; our ability to attract and retain key personnel; changes in our organization, compensation and benefit plans; and our success at managing the risks involved in the foregoing items. For further information on factors that could cause actual results to materially differ from projections, please see the Company's publicly available Securities and Exchange Commission filings, including the Company's Form 10-K for the last fiscal year and, in particular, the discussion of "Risk Factors" set forth therein. The Company does not update any of its forward-looking statements except as required by law.


3

 

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(dollars in thousands)
March 31,
2018
 
December 31,
2017
Assets
 

 
 

Cash and due from banks
$
59,905

 
$
75,318

Interest-bearing deposits in other banks
5,875

 
6,975

Investment securities:
 
 
 
Available-for-sale debt securities, at fair value
1,326,092

 
1,304,066

Held-to-maturity debt securities, at amortized cost; fair value of: $171,399 at March 31, 2018 and $189,201 at December 31, 2017
177,078

 
191,753

Equity securities, at fair value
753

 
825

Total investment securities
1,503,923

 
1,496,644

 
 
 
 
Loans held for sale
7,492

 
16,336

 
 
 
 
Loans and leases
3,816,146

 
3,770,615

Allowance for loan and lease losses
(49,217
)
 
(50,001
)
Net loans and leases
3,766,929

 
3,720,614

 
 
 
 
Premises and equipment, net
47,436

 
48,348

Accrued interest receivable
16,070

 
16,581

Investment in unconsolidated subsidiaries
6,478

 
7,088

Other real estate owned
595

 
851

Mortgage servicing rights
15,821

 
15,843

Core deposit premium
1,337

 
2,006

Bank-owned life insurance
156,611

 
156,293

Federal Home Loan Bank stock
9,007

 
7,761

Other assets
53,808

 
53,050

Total assets
$
5,651,287

 
$
5,623,708

 
 
 
 
Liabilities
 

 
 

Deposits:
 

 
 

Noninterest-bearing demand
$
1,349,029

 
$
1,395,556

Interest-bearing demand
946,464

 
933,054

Savings and money market
1,533,483

 
1,481,876

Time
1,151,455

 
1,145,868

Total deposits
4,980,431

 
4,956,354

 
 
 
 
Short-term borrowings
56,000

 
32,000

Long-term debt
92,785

 
92,785

Other liabilities
37,963

 
42,534

Total liabilities
5,167,179

 
5,123,673

 
 
 
 
Equity
 

 
 

Preferred stock, no par value, authorized 1,000,000 shares; issued and outstanding: none at March 31, 2018 and December 31, 2017

 

Common stock, no par value, authorized 185,000,000 shares; issued and outstanding: 29,707,122 at March 31, 2018 and 30,024,222 at December 31, 2017
493,794

 
503,988

Surplus
86,497

 
86,098

Accumulated deficit
(78,454
)
 
(89,036
)
Accumulated other comprehensive income (loss)
(17,729
)
 
(1,039
)
Total shareholders' equity
484,108

 
500,011

Non-controlling interest

 
24

Total equity
484,108

 
500,035

Total liabilities and equity
$
5,651,287

 
$
5,623,708

See accompanying notes to consolidated financial statements.

4

 

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) 
 
Three Months Ended
March 31,
(dollars in thousands, except per share data)
2018
 
2017
Interest income:
 

 
 

Interest and fees on loans and leases
$
37,390

 
$
34,957

Interest and dividends on investment securities:
 
 
 
Taxable interest
8,843

 
8,135

Tax-exempt interest
933

 
979

Dividends
15

 
12

Interest on deposits in other banks
84

 
74

Dividends on Federal Home Loan Bank stock
45

 
56

Total interest income
47,310

 
44,213

Interest expense:
 

 
 

Interest on deposits:
 

 
 

Demand
180

 
140

Savings and money market
369

 
257

Time
3,425

 
1,717

Interest on short-term borrowings
43

 
31

Interest on long-term debt
971

 
813

Total interest expense
4,988

 
2,958

Net interest income
42,322

 
41,255

Provision (credit) for loan and lease losses
(211
)
 
(80
)
Net interest income after credit for loan and lease losses
42,533

 
41,335

Other operating income:
 

 
 

Mortgage banking income
1,847

 
1,943

Service charges on deposit accounts
2,003

 
2,036

Other service charges and fees
3,034

 
2,748

Income from fiduciary activities
956

 
864

Equity in earnings of unconsolidated subsidiaries
43

 
61

Fees on foreign exchange
211

 
163

Income from bank-owned life insurance
318

 
1,117

Loan placement fees
197

 
134

Net gain on sales of foreclosed assets

 
102

Other
345

 
846

Total other operating income
8,954

 
10,014

Other operating expense:
 

 
 

Salaries and employee benefits
18,505

 
17,387

Net occupancy
3,266

 
3,414

Equipment
1,068

 
842

Amortization of core deposit premium
669

 
668

Communication expense
898

 
900

Legal and professional services
1,821

 
1,792

Computer software expense
2,267

 
2,252

Advertising expense
612

 
392

Foreclosed asset expense
294

 
36

Other
4,118

 
3,777

Total other operating expense
33,518

 
31,460

Income before income taxes
17,969

 
19,889

Income tax expense
3,692

 
6,810

Net income
$
14,277

 
$
13,079

Per common share data:
 

 
 

Basic earnings per common share
$
0.48

 
$
0.43

Diluted earnings per common share
$
0.48

 
$
0.42

Cash dividends declared
$
0.19

 
$
0.16

Shares used in computation:
 
 
 
Basic shares
29,807,572

 
30,714,895

Diluted shares
30,041,351

 
31,001,238

 See accompanying notes to consolidated financial statements.

5

 

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
 
 
 
Three Months Ended
March 31,
(dollars in thousands)
 
2018
 
2017
Net income
 
$
14,277

 
$
13,079

Other comprehensive income (loss), net of tax:
 
 
 
 
Net change in unrealized gain (loss) on investment securities
 
(14,971
)
 
2,124

Minimum pension liability adjustment
 
256

 
(364
)
Total other comprehensive income (loss), net of tax
 
(14,715
)
 
1,760

Comprehensive income (loss)
 
$
(438
)
 
$
14,839

 
See accompanying notes to consolidated financial statements.

6

 

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited)
 
 
 
Common
Shares
Outstanding
 
Preferred
Stock
 
Common
Stock
 
Surplus
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Non-
Controlling
Interest
 
Total
 
 
(dollars in thousands, except per share data)
 
Balance at December 31, 2017
30,024,222

 
$

 
$
503,988

 
$
86,098

 
$
(89,036
)
 
$
(1,039
)
 
$
24

 
$
500,035

 
Impact of the adoption of new accounting standards (1)

 

 

 

 
1,975

 
(1,975
)
 

 

 
Net income

 

 

 

 
14,277

 

 

 
14,277

 
Other comprehensive loss

 

 

 

 

 
(14,715
)
 

 
(14,715
)
 
Cash dividends ($0.19 per share)

 

 

 

 
(5,670
)
 

 

 
(5,670
)
 
2,850 net shares of common stock purchased by directors' deferred compensation plan

 

 
(83
)
 

 

 

 

 
(83
)
 
344,362 shares of common stock repurchased and other related costs
(344,362
)
 

 
(10,111
)
 


 

 

 

 
(10,111
)
 
Share-based compensation
27,262

 

 

 
399

 

 

 

 
399

 
Non-controlling interest

 

 

 

 

 

 
(24
)
 
(24
)
 
Balance at March 31, 2018
29,707,122

 
$

 
$
493,794

 
$
86,497

 
$
(78,454
)
 
$
(17,729
)
 
$

 
$
484,108

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2016
30,796,243

 
$

 
$
530,932

 
$
84,180

 
$
(108,941
)
 
$
(1,521
)
 
$
25

 
$
504,675

 
Net income

 

 

 

 
13,079

 

 

 
13,079

 
Other comprehensive income

 

 

 

 

 
1,760

 

 
1,760

 
Cash dividends ($0.16 per share)

 

 

 

 
(4,922
)
 

 

 
(4,922
)
 
113,750 shares of common stock repurchased and other related costs
(113,750
)
 

 
(3,529
)
 

 

 

 

 
(3,529
)
 
Share-based compensation
18,726

 

 

 
498

 

 

 

 
498

 
Non-controlling interest

 

 

 

 

 

 

 

 
Balance at March 31, 2017
30,701,219

 
$

 
$
527,403

 
$
84,678

 
$
(100,784
)
 
$
239

 
$
25

 
$
511,561

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Represents the impact of the adoption of Accounting Standards Update ("ASU") 2018-02 and ASU 2016-01. See Note 2 - Recent Accounting Pronouncements to the consolidated financial statements for additional information.
 
 
See accompanying notes to consolidated financial statements.

7

 

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Three Months Ended
March 31,
(dollars in thousands)
2018
 
2017
Cash flows from operating activities:
 

 
 

Net income
$
14,277

 
$
13,079

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 

Provision (credit) for loan and lease losses
(211
)
 
(80
)
Depreciation and amortization
1,599

 
1,537

Write down of other real estate, net of gain on sale
256

 
(162
)
Amortization of core deposit premium and mortgage servicing rights
1,126

 
1,188

Net amortization and accretion of premium/discounts on investment securities
2,922

 
2,966

Share-based compensation
399

 
498

Net gain on sales of residential mortgage loans
(972
)
 
(1,312
)
Proceeds from sales of loans held for sale
64,106

 
86,663

Originations of loans held for sale
(54,290
)
 
(63,375
)
Equity in earnings of unconsolidated subsidiaries
(43
)
 
(61
)
Net increase in cash surrender value of bank-owned life insurance
(318
)
 
(208
)
Deferred income taxes
3,620

 
6,685

Net tax benefits from share-based compensation
72

 
125

Net change in other assets and liabilities
(3,198
)
 
(2,373
)
Net cash provided by operating activities
29,345

 
45,170

Cash flows from investing activities:
 

 
 

Proceeds from maturities of and calls on investment securities available-for-sale
40,039

 
49,204

Purchases of investment securities available-for-sale
(85,240
)
 
(107,512
)
Proceeds from maturities of and calls on investment securities held-to-maturity
14,545

 
6,069

Net loan proceeds (originations)
(46,144
)
 
2,111

Purchases of loan portfolios

 
(24,121
)
Proceeds from sale of foreclosed loans/other real estate owned
40

 
102

Proceeds from bank-owned life insurance

 
782

Purchases of premises and equipment
(687
)
 
(1,582
)
Net return of capital from unconsolidated subsidiaries
539

 
438

Net (purchases of) proceeds from redemption of FHLB stock
(1,246
)
 
4,239

Net cash used in investing activities
(78,154
)
 
(70,270
)
Cash flows from financing activities:
 

 
 

Net increase in deposits
24,077

 
169,243

Net (decrease) increase in short-term borrowings
24,000

 
(114,000
)
Cash dividends paid on common stock
(5,670
)
 
(4,922
)
Repurchases of common stock and other related costs
(10,111
)
 
(3,529
)
Net cash provided by financing activities
32,296

 
46,792

Net increase (decrease) in cash and cash equivalents
(16,513
)
 
21,692

Cash and cash equivalents at beginning of period
82,293

 
84,341

Cash and cash equivalents at end of period
$
65,780

 
$
106,033

 
 
 
 
Supplemental disclosure of cash flow information:
 

 
 

Cash paid during the period for:
 

 
 

Interest
$
4,877

 
$
2,396

Income taxes
22

 

Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Net reclassification of loans to foreclosed loans/other real estate owned
40

 


 See accompanying notes to consolidated financial statements.

8

 

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
 
The accompanying unaudited consolidated financial statements of Central Pacific Financial Corp. and Subsidiaries (herein referred to as the "Company," "we," "us" or "our") have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

These interim condensed consolidated financial statements and notes should be read in conjunction with the Company's consolidated financial statements and notes thereto filed on Form 10-K, as amended by our Form 10-K/A for the fiscal year ended December 31, 2017. In the opinion of management, all adjustments necessary for a fair presentation have been made and include all normal recurring adjustments. Interim results of operations are not necessarily indicative of results to be expected for the year.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

In December 2015, we acquired a 50% ownership interest in a mortgage loan origination and brokerage company, One Hawaii HomeLoans, LLC. The bank concluded that the investment meets the consolidation requirements under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 810, "Consolidation." The bank concluded that the entity meets the definition of a variable interest entity and that we are the primary beneficiary of the variable interest entity. Accordingly, the investment was consolidated into our financial statements. One Hawaii HomeLoans, LLC was terminated in 2017, and final payment of taxes and distributions to members were made in March 2018.

We have 50% ownership interests in three other mortgage loan origination and brokerage companies which are accounted for using the equity method and are included in investment in unconsolidated subsidiaries: Gentry HomeLoans, LLC, Haseko HomeLoans, LLC and Island Pacific HomeLoans, LLC. We also had 50% ownership interest in one additional mortgage loan origination and brokerage company, Pacific Access Mortgage, LLC, which was also accounted for using the equity method and was included in investment in unconsolidated subsidiaries. Pacific Access Mortgage, LLC was terminated in 2017, and final payment of taxes and distributions to members were made in March 2018.

We also have non-controlling equity investments in affiliates that are accounted for under the cost method and are included in investment in unconsolidated subsidiaries.

Our investments in unconsolidated subsidiaries accounted for under the equity and cost methods were $0.1 million and $6.3 million, respectively, at March 31, 2018 and $0.6 million and $6.5 million, respectively, at December 31, 2017. Our policy for determining impairment of these investments includes an evaluation of whether a loss in value of an investment is other than temporary. Evidence of a loss in value includes absence of an ability to recover the carrying amount of the investment or the inability of the investee to sustain an earnings capacity which would justify the carrying amount of the investment. We perform impairment tests whenever indicators of impairment are present. If the value of an investment declines and it is considered other than temporary, the investment is written down to its respective fair value in the period in which this determination is made.

The Company sponsors the Central Pacific Bank Foundation, which is not consolidated in the Company's financial statements.

Reclassifications

The Company's equity investment securities in the prior year have been reclassified from available-for-sale debt securities to conform to the current year's presentation. The reclassification had no impact on the Company's reported net income or shareholders' equity.


9

 

2.   RECENT ACCOUNTING PRONOUNCEMENTS
 
Accounting Standards Adopted in 2018

In May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers (Topic 606)." ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This ASU replaces most existing revenue recognition guidance in GAAP. ASU 2014-09 was initially effective for the Company's reporting period beginning on January 1, 2017. However, in August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date" which deferred the effective date by one year. For financial reporting purposes, the standard allows for either a full retrospective or modified retrospective adoption. The FASB has also issued additional updates to provide further clarification to specific implementation issues associated with ASU 2014-09. These updates include ASU 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations," ASU 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing," ASU 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients," and ASU 2016-20 "Technical Corrections and Improvements to Topic 606." Our revenue is comprised of net interest income on financial assets and financial liabilities, which is our main source of income, and other operating income. The scope of ASU 2014-09 explicitly excludes net interest income, as well as other revenues associated with financial assets and liabilities, including loans, leases, securities and derivatives. With respect to other operating income, the Company conducted a comprehensive scoping exercise to determine the revenue streams that are in scope of the guidance. This included reviewing the contracts potentially impacted by the standard in revenue streams such as deposit-related fees, merchant fees, bank card fees, interchange fees, commissions income, trust and asset management fees, foreign exchange fees, and loan placement fees. We adopted ASU 2014-09 and all subsequent amendments to the standard beginning January 1, 2018 under the modified retrospective approach. Based on our analysis, the standard required us to change how we recognize certain recurring revenue streams on a gross versus net basis. This resulted in an increase in other service charges and fees totaling $0.1 million during the first quarter of 2018 and the resultant increase in other operating expense-other for the same amount. These changes did not have an impact to our net income; as such a cumulative effect adjustment to opening accumulated deficit was not deemed necessary. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606 while prior period amounts continue to be recorded in accordance with legacy GAAP. Refer to Note 12 - Revenue from Contracts with Customers for further discussion on the Company's accounting policies for revenue sources within the scope of Accounting Standards Codification ("ASC") 606.

In January 2016, the FASB issued ASU 2016-01, "Financial Instruments (Topic 825): Recognition and Measurement of Financial Assets and Liabilities." The amendments in ASU 2016-01 made targeted improvements to GAAP as follows: 1) required equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, 2) simplified the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, 3) eliminated the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities, 4) eliminated the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, 5) required public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, 6) required an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, 7) required separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements, and 8) clarified that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The Company adopted ASU 2016-01 beginning January 1, 2018, which resulted in a reclassification of the Company's equity investment securities portfolio of $0.8 million and $0.8 million as of March 31, 2018 and December 31, 2017, respectively, from available-for-sale debt securities to equity securities on the Company's consolidated balance sheets. Changes in fair value are recognized in net income. In addition, during the first quarter of 2018, the Company recorded a cumulative effect adjustment which increased opening retained earnings (or reduced opening accumulated deficit) and decreased accumulated other comprehensive income (loss) ("AOCI") by $0.1 million related to the unrealized gains on the equity investment securities portfolio and changes in the fair value of the equity investment securities portfolio were recognized in net income. The Company also engaged a third-party consultant, who used a refined calculation to determine the fair value of our loans held for investment portfolio using the exit price notion, which is included in our fair value disclosures in Note 18 - Fair Value of Financial Assets and Liabilities. The refined calculation did not have a material impact on our fair value disclosures.


10

 

In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments." ASU 2016-15 provided guidance on eight statement of cash flow classification issues and was intended to reduce the current and future diversity in practice described in the amendments. Current GAAP is either unclear or does not include specific guidance on the eight statement of cash flow classification issues included in ASU 2016-15. The Company adopted ASU 2016-15 effective January 1, 2018. The amendments in ASU 2016-15 did not impact the Company's financial statements as our current practice was consistent with the update.

In March 2017, the FASB issued ASU 2017-07, "Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost." ASU 2017-07 requires an entity to present the service cost component of the net periodic benefit cost in the same line item or items in the statement of income as other employee compensation costs arising from services rendered by the pertinent employees during the period. In addition, only the service cost component is eligible for capitalization. The other components of net benefit costs should be presented in the statement of income separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item is used to present the other components, that line item shall be described appropriately. The line items used in the income statement to present the components other than the service cost component shall be disclosed if a Company elects to not present them in a separate line item. The Company adopted ASU 2017-07 effective January 1, 2018. The amendments in ASU 2017-07 did not impact the Company's financial statements.

In March 2017, the FASB issued ASU 2017-08, "Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities." ASU 2017-08 shortens the amortization period for certain callable debt securities held at a premium to the earliest call date. ASU 2017-08 does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The Company adopted ASU 2017-08 effective January 1, 2018. The amendments in ASU 2017-08 did not impact the Company's financial statements.

In May 2017, the FASB issued ASU 2017-09, "Compensation-Stock Compensation (Topic 718): Scope of Modification." ASU 2017-09 was issued to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation - Stock Compensation, to a change to the terms or conditions of a share-based payment award. Diversity in practice has arisen in part because some entities apply modification accounting under Topic 718 for modifications to terms and conditions that they consider substantive, but do not when they conclude that particular modifications are not substantive. Others apply modification accounting for any change to an award, except for changes that they consider purely administrative in nature. Still others apply modification accounting when a change to an award changes the fair value, the vesting, or the classification of the award. In practice, it appears that the evaluation of a change in fair value, vesting, or classification may be used to evaluate whether a change is substantive. ASU 2017-09 includes guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The Company adopted ASU 2017-09 effective January 1, 2018. The amendments in ASU 2017-09 did not impact the Company's financial statements as the Company has not historically had any scope modifications and has no plans to do so in the near future.

In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." ASU 2018-02 was issued to address certain stranded tax effects in AOCI as a result of H.R.1., commonly referred to as the Tax Cuts and Jobs Act ("Tax Reform"). ASU 2018-02 provides companies the option to reclassify stranded tax effects within AOCI to retained earnings (or accumulated deficit) in each period in which the effect of the change from the newly enacted corporate tax rate is recorded. The amount of the reclassification is calculated on the basis of the difference between the historical and newly enacted tax rates for deferred tax assets and liabilities related to items within AOCI. ASU 2018-02 requires companies to disclose its accounting policy related to releasing income tax effects from accumulated other comprehensive income, whether it has elected to reclassify the stranded tax effects, and information about the other income tax effects that are reclassified. Although ASU 2018-02 was effective for the Company's reporting period beginning on January 1, 2019, the Company elected to early adopt the standard effective January 1, 2018. As a result, the Company recorded cumulative effect adjustments which increased opening retained earnings (or reduced opening accumulated deficit) and decreased AOCI for the stranded tax effects related to the Company's defined benefit pension and supplemental retirement plan obligations and the unrealized gain on the Company's investment securities portfolio by $1.4 million and $0.5 million, respectively.


11

 

3. INVESTMENT SECURITIES
 
A summary of our investment portfolio is as follows:
 
(dollars in thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
March 31, 2018
 

 
 

 
 

 
 

Held-to-maturity:
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

Residential - U.S. Government-sponsored entities
$
96,619

 
$
29

 
$
(3,510
)
 
$
93,138

Commercial - U.S. Government-sponsored entities
80,459

 

 
(2,198
)
 
78,261

Total
$
177,078

 
$
29

 
$
(5,708
)
 
$
171,399

 
 
 
 
 
 
 
 
Available-for-sale:
 

 
 

 
 

 
 

Debt securities:
 

 
 

 
 

 
 

States and political subdivisions
$
177,766

 
$
1,385

 
$
(1,930
)
 
$
177,221

Corporate securities
68,433

 
51

 
(426
)
 
68,058

U.S. Treasury obligations and direct obligations of U.S Government agencies
37,148

 
84

 
(79
)
 
37,153

Mortgage-backed securities:
 

 
 

 
 

 
 

Residential - U.S. Government-sponsored entities
831,728

 
493

 
(20,899
)
 
811,322

Commercial - U.S. Government agencies and sponsored entities
54,628

 

 
(1,171
)
 
53,457

Residential - Non-government agencies
44,667

 
396

 
(623
)
 
44,440

Commercial - Non-government agencies
135,010

 
998

 
(1,567
)
 
134,441

Total
$
1,349,380

 
$
3,407

 
$
(26,695
)
 
$
1,326,092

 
 
 
 
 
 
 
 
Equity securities
$
619

 
$
134

 
$

 
$
753



12

 

(dollars in thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
December 31, 2017
 

 
 

 
 

 
 

Held-to-maturity:
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

Residential - U.S. Government-sponsored entities
$
100,279

 
$
106

 
$
(2,222
)
 
$
98,163

Commercial - U.S. Government-sponsored entities
91,474

 

 
(436
)
 
91,038

Total
$
191,753

 
$
106

 
$
(2,658
)
 
$
189,201

 
 
 
 
 
 
 
 
Available-for-sale:
 

 
 

 
 

 
 

Debt securities:
 

 
 

 
 

 
 

States and political subdivisions
$
178,459

 
$
2,041

 
$
(719
)
 
$
179,781

Corporate securities
73,772

 
582

 
(76
)
 
74,278

U.S. Treasury obligations and direct obligations of U.S Government agencies
25,519

 
60

 
(69
)
 
25,510

Mortgage-backed securities:
 
 
 
 
 
 
 

Residential - U.S. Government-sponsored entities
808,242

 
2,230

 
(9,789
)
 
800,683

Commercial - U.S. Government agencies and sponsored entities
40,012

 

 
(287
)
 
39,725

Residential - Non-government agencies
45,679

 
1,084

 

 
46,763

Commercial - Non-government agencies
135,058

 
2,461

 
(193
)
 
137,326

Total
$
1,306,741

 
$
8,458

 
$
(11,133
)
 
$
1,304,066

 
 
 
 
 
 
 
 
Equity securities
$
686

 
$
139

 
$

 
$
825



13

 

The amortized cost and estimated fair value of investment securities at March 31, 2018 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
 
March 31, 2018
(dollars in thousands)
Amortized Cost
 
Fair Value
Held-to-maturity:
 

 
 

Mortgage-backed securities:
 

 
 

Residential - U.S. Government-sponsored entities
$
96,619

 
$
93,138

Commercial - U.S. Government-sponsored entities
80,459

 
78,261

Total
$
177,078

 
$
171,399

 
 
 
 
Available-for-sale:
 

 
 

Due in one year or less
$
13,691

 
$
13,702

Due after one year through five years
156,766

 
156,598

Due after five years through ten years
49,619

 
49,279

Due after ten years
63,271

 
62,853

 
 
 
 
Mortgage-backed securities:
 
 
 
Residential - U.S. Government-sponsored entities
831,728

 
811,322

Commercial - U.S. Government agencies and sponsored entities
54,628

 
53,457

Residential - Non-government agencies
44,667

 
44,440

Commercial - Non-government agencies
135,010

 
134,441

Total
$
1,349,380

 
$
1,326,092

 
 
 
 
Equity securities
$
619

 
$
753

 
We did not sell any available-for-sale securities during the three months ended March 31, 2018 and 2017.

Investment securities of $1.04 billion and $1.08 billion at March 31, 2018 and December 31, 2017, respectively, were pledged to secure public funds on deposit and other long-term debt and short-term borrowings.

Provided below is a summary of the 335 and 223 investment securities which were in an unrealized or unrecognized loss position at March 31, 2018 and December 31, 2017, respectively, aggregated by major security type and length of time in a continuous unrealized or unrecognized loss position.
 
 
Less Than 12 Months
 
12 Months or Longer
 
Total
(dollars in thousands)
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
March 31, 2018
 

 
 

 
 

 
 

 
 

 
 

Debt securities:
 

 
 

 
 

 
 

 
 

 
 

States and political subdivisions
$
81,236

 
$
(1,043
)
 
$
14,893

 
$
(887
)
 
$
96,129

 
$
(1,930
)
Corporate securities
44,658

 
(245
)
 
5,177

 
(181
)
 
49,835

 
(426
)
U.S. Treasury obligations and direct obligations of U.S Government agencies
10,852

 
(79
)
 

 

 
10,852

 
(79
)
Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

Residential - U.S. Government-sponsored entities
550,723

 
(10,744
)
 
321,774

 
(13,665
)
 
872,497

 
(24,409
)
Residential - Non-government agencies
26,466

 
(623
)
 

 

 
26,466

 
(623
)
Commercial - U.S. Government agencies and sponsored entities
131,718

 
(3,369
)
 

 

 
131,718

 
(3,369
)
Commercial - Non-government agencies
83,975

 
(1,567
)
 

 

 
83,975

 
(1,567
)
Total temporarily impaired securities
$
929,628

 
$
(17,670
)
 
$
341,844

 
$
(14,733
)
 
$
1,271,472

 
$
(32,403
)

14

 


 
Less Than 12 Months
 
12 Months or Longer
 
Total
(dollars in thousands)
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
December 31, 2017
 

 
 

 
 

 
 

 
 

 
 

Debt securities:
 

 
 

 
 

 
 

 
 

 
 

States and political subdivisions
$
53,811

 
$
(305
)
 
$
15,403

 
$
(414
)
 
$
69,214

 
$
(719
)
Corporate securities

 

 
5,307

 
(76
)
 
5,307

 
(76
)
U.S. Treasury obligations and direct obligations of U.S Government agencies
10,740

 
(69
)
 

 

 
10,740

 
(69
)
Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

Residential - U.S. Government-sponsored entities
335,883

 
(3,372
)
 
340,219

 
(8,639
)
 
676,102

 
(12,011
)
Residential - Non-government agencies

 

 

 

 

 

Commercial - U.S. Government-sponsored entities
130,763

 
(723
)
 

 

 
130,763

 
(723
)
Commercial - Non-government agencies
28,490

 
(193
)
 

 

 
28,490

 
(193
)
Total temporarily impaired securities
$
559,687

 
$
(4,662
)
 
$
360,929

 
$
(9,129
)
 
$
920,616

 
$
(13,791
)

Other-Than-Temporary Impairment ("OTTI")
 
Unrealized losses for all investment securities are reviewed to determine whether the losses are deemed "other-than-temporary." Investment securities are evaluated for OTTI on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether a decline in their value below amortized cost is other-than-temporary. In conducting this assessment, we evaluate a number of factors including, but not limited to:
 
The length of time and the extent to which fair value has been less than the amortized cost basis;
Adverse conditions specifically related to the security, an industry, or a geographic area;
The historical and implied volatility of the fair value of the security;
The payment structure of the debt security and the likelihood of the issuer being able to make payments;
Failure of the issuer to make scheduled interest or principal payments;
Any rating changes by a rating agency; and
Recoveries or additional declines in fair value subsequent to the balance sheet date.
 
The term "other-than-temporary" is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value are not necessarily favorable, or that there is a general lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized for anticipated credit losses.
 
Because we have no intent to sell securities in an unrealized loss position and it is not more likely than not that we will be required to sell such securities before recovery of its amortized cost basis, we do not consider our investments to be other-than-temporarily impaired.


15

 

4. LOANS AND LEASES
 
Loans and leases, excluding loans held for sale, consisted of the following:
 
(dollars in thousands)
March 31, 2018
 
December 31, 2017
Commercial, financial and agricultural
$
516,160

 
$
503,738

Real estate:


 


Construction
62,046

 
64,525

Residential mortgage
1,347,555

 
1,337,193

Home equity
425,510

 
412,230

Commercial mortgage
1,007,296

 
979,239

Consumer
454,967

 
470,819

Leases
285

 
362

Gross loans and leases
3,813,819

 
3,768,106

Net deferred costs
2,327

 
2,509

Total loans and leases, net of deferred costs
$
3,816,146

 
$
3,770,615

 
 
 
 
 
During the three months ended March 31, 2018, we foreclosed on one loan totaling $40 thousand, which was sold at book value. During the three months ended March 31, 2017, we did not foreclose on any loans. During the three months ended March 31, 2018 and 2017, 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, 2018 and 2017.

During the three months ended March 31, 2018, we did not purchase any loan portfolios.

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%.

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, 2018 and December 31, 2017:
 
 
 
 
Real Estate
 
 
 
 
 
 
(dollars in thousands)
Comml, Fin & Ag
 
Constr
 
Resi Mortgage
 
Home Equity
 
Comml Mortgage
 
Consumer
 
Leases
 
Total
March 31, 2018
 

 
 

 
 

 
 
 
 

 
 
 
 

 
 

Allowance:
 

 
 

 
 

 
 
 
 

 
 
 
 

 
 

Individually evaluated for impairment
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$

Collectively evaluated for impairment
7,476

 
1,714

 
14,207

 
3,328

 
16,186

 
6,306

 

 
49,217

Total ending balance
$
7,476

 
$
1,714

 
$
14,207

 
$
3,328

 
$
16,186

 
$
6,306

 
$

 
$
49,217

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans and leases:
 

 
 

 
 

 
 
 
 

 
 
 
 

 
 

Individually evaluated for impairment
$
457

 
$
2,517

 
$
13,626

 
$
659

 
$
3,704

 
$

 
$

 
$
20,963

Collectively evaluated for impairment
515,703

 
59,529

 
1,333,929

 
424,851

 
1,003,592

 
454,967

 
285

 
3,792,856

Subtotal
516,160

 
62,046

 
1,347,555

 
425,510

 
1,007,296

 
454,967

 
285

 
3,813,819

Net deferred costs (income)
320

 
(393
)
 
3,933

 
(1
)
 
(1,468
)
 
(64
)
 

 
2,327

Total loans and leases, net of deferred costs (income)
$
516,480

 
$
61,653

 
$
1,351,488

 
$
425,509

 
$
1,005,828

 
$
454,903

 
$
285

 
$
3,816,146



16

 

 
 
 
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 March 31, 2018 and December 31, 2017. The following table presents by class, information related to impaired loans as of March 31, 2018 and December 31, 2017:
 
 
March 31, 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
$
568

 
$
457

 
$

 
$
602

 
$
491

 
$

Real estate:
 
 
 
 
 
 
 
 
 
 
 
Construction
7,867

 
2,517

 

 
7,947

 
2,597

 

Residential mortgage
14,685

 
13,626

 

 
14,920

 
13,862

 

Home equity
659

 
659

 

 
416

 
416

 

Commercial mortgage
3,704

 
3,704

 

 
3,914

 
3,914

 

Total impaired loans
$
27,483

 
$
20,963

 
$

 
$
27,799

 
$
21,280

 
$


The following table presents by class, the average recorded investment and interest income recognized on impaired loans for the three months ended March 31, 2018 and 2017:
 
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
(dollars in thousands)
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
Commercial, financial & agricultural
$
483

 
$
2

 
$
1,873

 
$

Real estate:
 
 
 
 
 

 
 

Construction
2,557

 
26

 
2,885

 
24

Residential mortgage
13,744

 
137

 
19,302

 
97

Home equity
567

 

 
1,181

 

Commercial mortgage
3,809

 
38

 
5,519

 
47

Total
$
21,160

 
$
203

 
$
30,760

 
$
168

 
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 March 31, 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.


17

 

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, 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
March 31, 2018
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial, financial & agricultural
$
1,076

 
$
428

 
$

 
$

 
$
1,504

 
$
514,976

 
$
516,480

Real estate:
 
 
 
 
 
 
 
 
 

 
 
 
 

Construction

 

 

 

 

 
61,653

 
61,653

Residential mortgage
4,129

 
381

 

 
2,184

 
6,694

 
1,344,794

 
1,351,488

Home equity
49

 
175

 

 
659

 
883

 
424,626

 
425,509

Commercial mortgage

 

 

 

 

 
1,005,828

 
1,005,828

Consumer
2,149

 
839

 
417

 

 
3,405

 
451,498

 
454,903

Leases

 

 

 

 

 
285

 
285

Total
$
7,403

 
$
1,823

 
$
417

 
$
2,843

 
$
12,486

 
$
3,803,660

 
$
3,816,146


(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 March 31, 2018 consisted of six Hawaii residential mortgage loans with a combined principal balance of $0.6 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 $12.4 million of TDRs still accruing interest at March 31, 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 months ended March 31, 2018.


18

 

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 months ended March 31, 2018.

(dollars in thousands)
Number of
Contracts