Toggle SGML Header (+)


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, 2019
 
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

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 every Interactive Data File required to be submitted 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 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, a 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
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 13(a) 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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common stock, No Par Value
 
CPF
 
New York Stock Exchange

The number of shares outstanding of registrant's common stock, no par value, on April 30, 2019 was 28,629,541 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 volcanoes, 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,
2019
 
December 31,
2018
Assets
 

 
 

Cash and due from banks
$
90,869

 
$
80,569

Interest-bearing deposits in other banks
7,310

 
21,617

Investment securities:
 
 
 
Available-for-sale debt securities, at fair value
1,319,450

 
1,205,478

Held-to-maturity debt securities, at amortized cost; fair value of: none at March 31, 2019 and $144,272 at December 31, 2018

 
148,508

Equity securities, at fair value
910

 
826

Total investment securities
1,320,360

 
1,354,812

 
 
 
 
Loans held for sale
3,539

 
6,647

 
 
 
 
Loans and leases
4,101,571

 
4,078,366

Allowance for loan and lease losses
(47,267
)
 
(47,916
)
Net loans and leases
4,054,304

 
4,030,450

 
 
 
 
Premises and equipment, net
44,527

 
45,285

Accrued interest receivable
17,082

 
17,000

Investment in unconsolidated subsidiaries
16,054

 
14,008

Other real estate owned
276

 
414

Mortgage servicing rights
15,347

 
15,596

Bank-owned life insurance
158,392

 
157,440

Federal Home Loan Bank stock
16,145

 
16,645

Right of use lease asset
54,781

 

Other assets
42,366

 
46,543

Total assets
$
5,841,352

 
$
5,807,026

 
 
 
 
Liabilities
 

 
 

Deposits:
 

 
 

Noninterest-bearing demand
$
1,357,890

 
$
1,436,967

Interest-bearing demand
965,316

 
954,011

Savings and money market
1,562,798

 
1,448,257

Time
1,062,124

 
1,107,255

Total deposits
4,948,128

 
4,946,490

 
 
 
 
Short-term borrowings
179,000

 
197,000

Long-term debt
101,547

 
122,166

Lease liability
54,861

 

Other liabilities
55,178

 
49,645

Total liabilities
5,338,714

 
5,315,301

 
 
 
 
Shareholders' Equity
 

 
 

Preferred stock, no par value, authorized 1,000,000 shares; issued and outstanding: none at March 31, 2019 and December 31, 2018

 

Common stock, no par value, authorized 185,000,000 shares; issued and outstanding: 28,723,041 at March 31, 2019 and 28,967,715 at December 31, 2018
462,952

 
470,660

Additional paid-in capital
89,374

 
88,876

Accumulated deficit
(41,733
)
 
(51,718
)
Accumulated other comprehensive income (loss)
(7,955
)
 
(16,093
)
Total shareholders' equity
502,638

 
491,725

Total liabilities and shareholders' equity
$
5,841,352

 
$
5,807,026

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)
2019
 
2018
Interest income:
 

 
 

Interest and fees on loans and leases
$
43,768

 
$
37,390

Interest and dividends on investment securities:
 
 
 
Taxable interest
8,260

 
8,843

Tax-exempt interest
866

 
933

Dividends
18

 
15

Interest on deposits in other banks
68

 
84

Dividends on Federal Home Loan Bank stock
161

 
45

Total interest income
53,141

 
47,310

Interest expense:
 

 
 

Interest on deposits:
 

 
 

Demand
192

 
180

Savings and money market
791

 
369

Time
5,092

 
3,425

Interest on short-term borrowings
893

 
43

Interest on long-term debt
1,060

 
971

Total interest expense
8,028

 
4,988

Net interest income
45,113

 
42,322

Provision (credit) for loan and lease losses
1,283

 
(211
)
Net interest income after provision (credit) for loan and lease losses
43,830

 
42,533

Other operating income:
 

 
 

Mortgage banking income
1,424

 
1,847

Service charges on deposit accounts
2,081

 
2,003

Other service charges and fees
3,064

 
3,034

Income from fiduciary activities
965

 
956

Equity in earnings of unconsolidated subsidiaries
8

 
43

Fees on foreign exchange
151

 
211

Income from bank-owned life insurance
952

 
318

Loan placement fees
149

 
197

Other
2,879

 
345

Total other operating income
11,673

 
8,954

Other operating expense:
 

 
 

Salaries and employee benefits
19,889

 
18,505

Net occupancy
3,458

 
3,266

Equipment
1,006

 
1,068

Amortization of core deposit premium

 
669

Communication expense
734

 
898

Legal and professional services
1,570

 
1,821

Computer software expense
2,597

 
2,267

Advertising expense
711

 
612

Foreclosed asset expense
159

 
294

Other
4,224

 
4,004

Total other operating expense
34,348

 
33,404

Income before income taxes
21,155

 
18,083

Income tax expense
5,118

 
3,806

Net income
$
16,037

 
$
14,277

Per common share data:
 

 
 

Basic earnings per common share
$
0.56

 
$
0.48

Diluted earnings per common share
$
0.55

 
$
0.48

Cash dividends declared
$
0.21

 
$
0.19

Weighted average common shares outstanding used in computation:
 
 
 
Basic shares
28,758,310

 
29,807,572

Diluted shares
28,979,855

 
30,041,351

 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)
 
2019
 
2018
Net income
 
$
16,037

 
$
14,277

Other comprehensive income (loss), net of tax:
 
 
 
 
Net change in unrealized gain (loss) on investment securities
 
10,996

 
(14,971
)
Defined benefit plans
 
242

 
256

Total other comprehensive income (loss), net of tax
 
11,238

 
(14,715
)
Comprehensive income (loss)
 
$
27,275

 
$
(438
)
 
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
 
Additional Paid-In Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Non-
Controlling
Interest
 
Total
 
(dollars in thousands, except per share data)
Balance at December 31, 2018
28,967,715

 
$

 
$
470,660

 
$
88,876

 
$
(51,718
)
 
$
(16,093
)
 
$

 
$
491,725

Impact of the adoption of new accounting standards (1)

 

 

 

 

 
(3,100
)
 

 
(3,100
)
Adjusted balance at January 1, 2019
28,967,715

 

 
470,660

 
88,876

 
(51,718
)
 
(19,193
)
 

 
488,625

Net income

 

 

 

 
16,037

 

 

 
16,037

Other comprehensive income

 

 

 

 

 
11,238

 

 
11,238

Cash dividends ($0.21 per share)

 

 

 

 
(6,052
)
 

 

 
(6,052
)
277,000 shares of common stock repurchased and retired and other related costs
(277,000
)
 

 
(7,708
)
 

 

 

 

 
(7,708
)
Share-based compensation
32,326

 

 


 
498

 

 

 

 
498

Balance at March 31, 2019
28,723,041

 
$

 
$
462,952

 
$
89,374

 
$
(41,733
)
 
$
(7,955
)
 
$

 
$
502,638

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 (2)

 

 

 

 
139

 
(139
)
 

 

Adjusted balance at January 1, 2018
30,024,222

 

 
503,988

 
86,098

 
(88,897
)
 
(1,178
)
 
24

 
500,035

Impact of the adoption of new accounting standards (3)

 

 

 

 
1,836

 
(1,836
)
 

 

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 retired and other related costs
(344,362
)
 

 
(10,111
)
 

 

 

 

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

 

 

 
399

 

 

 

 
399

Net loss from variable interest entity

 

 

 

 

 

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

 
$

 
$
493,794

 
$
86,497

 
$
(78,454
)
 
$
(17,729
)
 
$

 
$
484,108

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Represents the impact of the adoption of Accounting Standards Update ("ASU") ASU 2017-12. See Note 2 to the consolidated financial statements for additional information.
(2) Represents the impact of the adoption of ASU 2016-01.
(3) Represents the impact of the adoption of ASU 2018-02.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
2019
 
2018
Cash flows from operating activities:
 

 
 

Net income
$
16,037

 
$
14,277

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

Provision (credit) for loan and lease losses
1,283

 
(211
)
Depreciation and amortization of premises and equipment
1,540

 
1,599

Noncash lease expense
79

 

Cash flows from operating leases
(1,549
)
 

Gain or loss on sale of other real estate, net of write-downs
138

 
256

Amortization of core deposit premium and mortgage servicing rights
471

 
1,126

Net amortization and accretion of premium/discounts on investment securities
2,211

 
2,922

Share-based compensation expense
498

 
399

Net gain on sales of residential mortgage loans
(611
)
 
(972
)
Proceeds from sales of loans held for sale
31,877

 
64,106

Originations of loans held for sale
(28,158
)
 
(54,290
)
Equity in earnings of unconsolidated subsidiaries
(8
)
 
(43
)
Distributions from unconsolidated subsidiaries
82

 
539

Net increase in cash surrender value of bank-owned life insurance
(952
)
 
(318
)
Deferred income taxes
5,013

 
3,734

Net tax benefits from share-based compensation
105

 
72

Net change in other assets and liabilities
(2,173
)
 
(3,312
)
Net cash provided by operating activities
25,883

 
29,884

Cash flows from investing activities:
 

 
 

Proceeds from maturities of and calls on investment securities available-for-sale
43,093

 
40,039

Purchases of investment securities available-for-sale

 
(85,240
)
Proceeds from maturities of and calls on investment securities held-to-maturity

 
14,545

Proceeds from sale of MasterCard stock
2,555

 

Net loan proceeds (originations)
(6,851
)
 
(46,144
)
Purchases of loan portfolios
(18,286
)
 

Proceeds from sale of foreclosed loans/other real estate owned

 
40

Net purchases of premises and equipment
(782
)
 
(687
)
Net return of capital from unconsolidated subsidiaries
622

 

Net (purchases of) proceeds from redemption of FHLB stock
500

 
(1,246
)
Net cash used in investing activities
20,851

 
(78,693
)
Cash flows from financing activities:
 

 
 

Net increase in deposits
1,638

 
24,077

Repayments of long-term debt
(20,619
)
 

Net increase (decrease) in short-term borrowings
(18,000
)
 
24,000

Cash dividends paid on common stock
(6,052
)
 
(5,670
)
Repurchases of common stock and other related costs
(7,708
)
 
(10,111
)
Net cash provided by financing activities
(50,741
)
 
32,296

Net increase (decrease) in cash and cash equivalents
(4,007
)
 
(16,513
)
Cash and cash equivalents at beginning of period
102,186

 
82,293

Cash and cash equivalents at end of period
$
98,179

 
$
65,780

 
 
 
 
Supplemental disclosure of cash flow information:
 

 
 

Cash paid during the period for:
 

 
 

Interest
$
8,402

 
$
4,877

Income taxes

 
22

Supplemental disclosure of non-cash information:
 
 
 
Net reclassification of loans to foreclosed loans/other real estate owned

 
40

Net transfer of investment securities held to maturity to available for sale
149,042

 

Right-of-use lease assets obtained in exchange for lease liabilities
55,887

 

 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 for the fiscal year ended December 31, 2018. 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 was 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 was made in March 2018.

During the fourth quarter of 2018, we voluntarily changed our accounting policy for investments in low income housing tax credit ("LIHTC") partnerships from the cost method to the proportional amortization method using the practical expedient available under ASC 323, "Investments - Equity Method and Joint Ventures", which permits an investor to amortize the initial cost of the investment in proportion to only the tax credits allocated to the investor. We believe the proportional amortization method is preferable because it better reflects the economics of an investment that is made for the primary purpose of receiving tax credits and other tax benefits. In addition to a change in the timing of the recognition of amortization expense on LIHTC investments, amortization expense on LIHTC investments is now reflected in the income tax expense line, which provides users a better understanding of the nature of the returns of such investments, instead of in other operating expenses on the consolidated statements of income. The change did not impact net income, the consolidated balance sheets and the consolidated statements of cash flows.

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, proportional amortization and cost methods were $0.1 million, $14.3 million and $1.6 million, respectively, at March 31, 2019 and $0.2 million, $11.6 million and $2.2 million, respectively, at December 31, 2018. 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

9

 

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

Certain prior year amounts in the consolidated financial statements and the notes thereto have been reclassified to conform to the fiscal 2019 presentation. Such reclassifications had no effect on the Company's reported net income or shareholders' equity.

2. RECENT ACCOUNTING PRONOUNCEMENTS
 
Accounting Standards Adopted in 2019

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." ASU 2016-02 increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The ASU establishes a right-of-use ("ROU") model that requires a lessee to recognize a ROU lease asset and lease liability on the balance sheet for all leases with a term of longer than 12 months. The FASB has also made available several practical expedients to assist entities with the adoption of ASU 2016-02. Among other things, these practical expedients require no reassessment of whether existing contracts are or contain leases as well as no reassessment of lease classification for current leases. In July 2018, the FASB released ASU 2018-11, "Leases (Topic 842): Targeted Improvements," which adds an additional practical expedient that allows entities to elect not to recast comparative periods presented when transitioning to Topic 842. The Company elected to adopt the practical expedient allowed under ASU 2018-11. During the year ended December 31, 2018, the Company engaged a software vendor to assist in the implementation of ASU 2016-02. The Company adopted ASU 2016-02 effective January 1, 2019 using the modified retrospective approach and recorded a ROU lease asset and corresponding lease liability on the Company's consolidated balance sheet of $55.9 million for its operating leases where it is a lessee. There was no impact to the Company's financial statements for its leases where it is a lessor. As of March 31, 2019, the ROU lease asset and lease liability was $54.8 million and $54.9 million, respectively. See Note 12 - Leases for required disclosures on this new standard.

In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." ASU 2017-12 was issued to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The FASB believes that such amendments will: 1) improve the transparency of information about an entity’s risk management activities and 2) simplify the application of hedge accounting. The ASU allows an entity that qualifies for the last-of-layer method to reclassify securities from the held-to-maturity category to the available-for-sale category. The Company adopted ASU 2017-12 effective January 1, 2019 and transferred its entire held-to-maturity investment securities portfolio with a fair value of $144.3 million at January 1, 2019 to the available-for-sale portfolio. On the date of adoption, the Company recorded a cumulative effect adjustment related to the unrealized loss on the investment securities transferred, which decreased available-for-sale investments by $4.2 million, increased deferred tax assets by $1.1 million, and decreased opening accumulated other comprehensive income (loss) ("AOCI") by $3.1 million. The ASU did not have a material impact on our current derivative activities.

Impact of Other Recently Issued Accounting Pronouncements on Future Filings

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. In issuing the standard, the FASB is responding to criticism that today’s “incurred loss” guidance delays the recognition of credit losses on loans, leases, held-to-maturity debt securities, loan commitments, and financial guarantees, and instead provides for a current expected credit loss (“CECL”) approach to determine the allowance for credit losses. CECL requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. In addition, this guidance modifies the accounting treatment for other-than-temporary impairment for available-for-sale debt securities. Organizations will continue to use judgment to determine which loss estimation methods are appropriate for their circumstances. This guidance requires entities to record a cumulative effect adjustment to the consolidated balance sheet as of the beginning of the first reporting period in which the guidance is effective. However, an organization may elect to phase in the regulatory capital impact over a three-year transition period if adoption of the new standard results in a reduction of retained earnings. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with earlier adoption permitted. As such, the Company will implement CECL for the reporting period

10

 

beginning January 1, 2020. The new guidance will require significant operational changes, particularly in existing processes, data collection and analysis.

The Company has formed a steering committee that is responsible for oversight of the Company’s implementation strategy for compliance with provisions of the new standard. The Company has also established a project management governance process to manage the implementation across affected disciplines. With the help of an external third-party provider specializing in CECL reserving model design as well as other related consulting services, we have begun evaluating several potential CECL test models. As part of this process, the Company has determined potential loan pool segmentation and sub-segmentation under CECL, as well as evaluated various key economic loss drivers for each segment. Further, the Company has engaged an additional third party specializing in economic forecasting services, to enable the Company to develop reasonable and supportable forecasts under CECL. Finally, the Company has begun developing internal controls around the CECL process, data, calculations and implementation. Later in the year, the Company plans to generate and evaluate model scenarios under CECL in tandem with its current reserving processes for select interim reporting periods in 2019. While the Company is currently unable to reasonably estimate the impact of adopting this new guidance, management expects the impact of adoption will be significantly influenced by its own historical experience, the composition and quality of the Company’s loans as well as economic forecast conditions as of the date of adoption. The Company also anticipates significant changes to the processes and procedures for calculating the reserve for credit losses and continues to evaluate the potential impact on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement." The ASU is part of the FASB's disclosure framework project to improve the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of the information required by generally accepted accounting principles. The ASU modifies disclosure requirements on fair value measurements in Topic 820 and is effective for the Company's reporting period beginning January 1, 2020. Early adoption is permitted. Based on preliminary evaluation, the ASU will not have a material impact on disclosures in our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, "Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans." Like ASU 2018-13, this ASU is part of the FASB's disclosure framework project. This ASU modifies disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The ASU is effective for the Company's reporting period beginning January 1, 2021. Early adoption is permitted. Based on preliminary evaluation, the ASU will not have a material impact on disclosures in our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, "Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," which requires an entity in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized implementation costs should be presented in the same line item on the balance sheet as amounts prepaid for the hosted service, if any (generally as an “other asset”). The capitalized costs will be amortized over the term of the hosting arrangement, with the amortization expense being presented in the same income statement line item as the fees paid for the hosted service. ASU 2018-15 is effective for the Company's reporting period beginning January 1, 2020 and early adoption is permitted. We are currently in the process of evaluating the potential impact the amendments will have on our consolidated financial statements, but we do not expect the adoption of the ASU to have a material impact on our consolidated financial statements.


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, 2019
 

 
 

 
 

 
 

Available-for-sale:
 

 
 

 
 

 
 

Debt securities:
 

 
 

 
 

 
 

States and political subdivisions
$
161,638

 
$
1,532

 
$
(562
)
 
$
162,608

Corporate securities
52,893

 
90

 
(87
)
 
52,896

U.S. Treasury obligations and direct obligations of U.S Government agencies
31,985

 

 
(448
)
 
31,537

Mortgage-backed securities:
 

 
 

 
 

 
 

Residential - U.S. Government-sponsored entities
791,994

 
1,183

 
(13,517
)
 
779,660

Commercial - U.S. Government agencies and sponsored entities
117,671

 
87

 
(1,283
)
 
116,475

Residential - Non-government agencies
40,648

 
573

 
(112
)
 
41,109

Commercial - Non-government agencies
134,819

 
1,138

 
(792
)
 
135,165

Total available-for-sale securities
$
1,331,648

 
$
4,603

 
$
(16,801
)
 
$
1,319,450

 
 
 
 
 
 
 
 
Equity securities
$
910

 
$

 
$

 
$
910


(dollars in thousands)
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
December 31, 2018
 

 
 

 
 

 
 

Held-to-maturity:
 

 
 

 
 

 
 

Mortgage-backed securities:
 

 
 

 
 

 
 

Residential - U.S. Government-sponsored entities
$
83,436

 
$
19

 
$
(3,174
)
 
$
80,281

Commercial - U.S. Government-sponsored entities
65,072

 

 
(1,081
)
 
63,991

Total held-to-maturity securities
$
148,508

 
$
19

 
$
(4,255
)
 
$
144,272

 
 
 
 
 
 
 
 
Available-for-sale:
 

 
 

 
 

 
 

Debt securities:
 

 
 

 
 

 
 

States and political subdivisions
$
174,114

 
$
1,035

 
$
(1,475
)
 
$
173,674

Corporate securities
55,259

 

 
(410
)
 
54,849

U.S. Treasury obligations and direct obligations of U.S Government agencies
33,257

 

 
(683
)
 
32,574

Mortgage-backed securities:
 
 
 
 
 
 
 

Residential - U.S. Government-sponsored entities
736,175

 
369

 
(19,492
)
 
717,052

Commercial - U.S. Government agencies and sponsored entities
53,014

 

 
(1,531
)
 
51,483

Residential - Non-government agencies
41,245

 
337

 
(464
)
 
41,118

Commercial - Non-government agencies
134,867

 
1,013

 
(1,152
)
 
134,728

Total available-for-sale securities
$
1,227,931

 
$
2,754

 
$
(25,207
)
 
$
1,205,478

 
 
 
 
 
 
 
 
Equity securities
$
826

 
$

 
$

 
$
826



12

 

As discussed in Note 2 - Recent Accounting Pronouncements, on January 1, 2019 in connection with the adoption of ASU 2017-12, the Company transferred all of its held-to-maturity investment securities with an amortized cost of $148.5 million and fair value of $144.3 million to its available-for-sale investment securities portfolio.

The amortized cost and estimated fair value of investment securities at March 31, 2019 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.
 
 
March 31, 2019
(dollars in thousands)
Amortized Cost
 
Fair Value
Available-for-sale:
 

 
 

Due in one year or less
$
58,360

 
$
58,394

Due after one year through five years
88,840

 
89,162

Due after five years through ten years
50,939

 
51,278

Due after ten years
48,377

 
48,207

 
 
 
 
Mortgage-backed securities:
 
 
 
Residential - U.S. Government-sponsored entities
791,994

 
779,660

Commercial - U.S. Government agencies and sponsored entities
117,671

 
116,475

Residential - Non-government agencies
40,648

 
41,109

Commercial - Non-government agencies
134,819

 
135,165

Total available-for-sale securities
$
1,331,648

 
$
1,319,450

 
 
 
 
Equity securities
$
910

 
$
910

 
We did not sell any available-for-sale securities during the three months ended March 31, 2019 and March 31, 2018.

Investment securities of $0.80 billion and $0.98 billion at March 31, 2019 and December 31, 2018, respectively, were pledged to secure public funds on deposit and other short-term borrowings.

Provided below is a summary of the 245 and 336 investment securities which were in an unrealized or unrecognized loss position at March 31, 2019 and December 31, 2018, 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, 2019
 

 
 

 
 

 
 

 
 

 
 

Debt securities:
 

 
 

 
 

 
 

 
 

 
 

States and political subdivisions
$
13,980

 
$
(20
)
 
$
35,577

 
$
(542
)
 
$
49,557

 
$
(562
)
Corporate securities

 

 
25,054

 
(87
)
 
25,054

 
(87
)
U.S. Treasury obligations and direct obligations of U.S Government agencies
12,630

 
(93
)
 
18,907

 
(355
)
 
31,537

 
(448
)
Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

Residential - U.S. Government-sponsored entities
22,533

 
(461
)
 
645,030

 
(13,056
)
 
667,563

 
(13,517
)
Residential - Non-government agencies

 

 
15,478

 
(112
)
 
15,478

 
(112
)
Commercial - U.S. Government agencies and sponsored entities

 

 
102,257

 
(1,283
)
 
102,257

 
(1,283
)
Commercial - Non-government agencies
14,888

 
(48
)
 
60,637

 
(744
)
 
75,525

 
(792
)
Total temporarily impaired securities
$
64,031

 
$
(622
)
 
$
902,940

 
$
(16,179
)
 
$
966,971

 
$
(16,801
)


13

 

 
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, 2018
 

 
 

 
 

 
 

 
 

 
 

Debt securities:
 

 
 

 
 

 
 

 
 

 
 

States and political subdivisions
$
38,099

 
$
(157
)
 
$
49,505

 
$
(1,318
)
 
$
87,604

 
$
(1,475
)
Corporate securities
49,729

 
(250
)
 
5,120

 
(160
)
 
54,849

 
(410
)
U.S. Treasury obligations and direct obligations of U.S Government agencies
30,029

 
(613
)
 
2,545

 
(70
)
 
32,574

 
(683
)
Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

 
 

Residential - U.S. Government-sponsored entities
88,957

 
(1,229
)
 
666,685

 
(21,437
)
 
755,642

 
(22,666
)
Residential - Non-government agencies

 

 
24,515

 
(464
)
 
24,515

 
(464
)
Commercial - U.S. Government-sponsored entities
13,973

 
(247
)
 
101,500

 
(2,365
)
 
115,473

 
(2,612
)
Commercial - Non-government agencies
33,847

 
(233
)
 
46,680

 
(919
)
 
80,527

 
(1,152
)
Total temporarily impaired securities
$
254,634

 
$
(2,729
)
 
$
896,550

 
$
(26,733
)
 
$
1,151,184

 
$
(29,462
)

Visa and MasterCard Class B Common Stock

As of March 31, 2019, the Company owns 34,631 shares of Class B common stock of Visa, Inc. ("Visa"). These shares were received in 2008 as part of Visa's initial public offering ("IPO"). These shares are transferable only under limited circumstances until they can be converted into shares of the publicly traded Class A common stock. This conversion will not occur until the resolution of certain litigation, which is indemnified by Visa members. Since its IPO, Visa has funded a litigation reserve to settle these litigation claims. At its discretion, Visa may continue to increase the litigation reserve based upon a change in the conversion ratio of each member bank’s restricted Class B common stock to unrestricted Class A common stock. Due to the existing transfer restriction and the uncertainty of the outcome of the Visa litigation, the Company has determined that the Visa Class B common stock does not have a readily determinable fair value and chooses to carry the shares on the Company's consolidated balance sheets at zero cost basis.

During the first quarter of 2019, the Company converted the 11,170 shares of Class B common stock of MasterCard, Inc. ("MasterCard") it received during their initial public offering to an equal number of Class A common stock and sold the shares for $2.6 million. The shares were carried on the Company's consolidated balance sheets at zero cost basis and the proceeds received were recorded as a gain in other operating income - other in the Company's consolidated statements of income. The Company no longer owns any shares of MasterCard Class B common stock.

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.

14

 


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



15

 

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.


16

 

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