UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

or

oTRANSITION 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 x  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 x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer o Accelerated filer x Non-accelerated filer o Smaller reporting company 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 x

The number of shares outstanding of registrant’s common stock, no par value, on April 28, 2015 was 31,537,681 shares.

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

Table of Contents

Part I.	Financial Information	3
Item I.	Financial Statements (Unaudited)
	Consolidated Balance Sheets March 31, 2015 and December 31, 2014	4
	Consolidated Statements of Income Three months ended March 31, 2015 and 2014	5
	Consolidated Statements of Comprehensive Income Three months ended March 31, 2015 and 2014	6
	Consolidated Statements of Changes in Equity Three months ended March 31, 2015 and 2014	7
	Consolidated Statements of Cash Flows Three months ended March 31, 2015 and 2014	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 4.	Controls and Procedures	55
Part II.	Other Information	56
Item 1A.	Risk Factors	56
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 6.	Exhibits	57
Signatures		58
Exhibit Index		59

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, concerning plans and objectives of management for future operations, concerning future economic performance, or concerning 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: an increase in inventory or adverse conditions in the Hawaii and California real estate markets and deterioration in the construction industry; 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 further 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 and the results of regulatory examinations or reviews; ability to successfully implement our initiatives to lower our efficiency ratio; 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)

	March 31,			December 31,
	2015			2014
	(Dollars in thousands)
Assets
Cash and due from banks	$	74,743		$	72,316
Interest-bearing deposits in other banks	10,478			13,691
Investment securities:
Available for sale, at fair value	1,298,487			1,229,018
Held to maturity, at amortized cost (fair value of $256,357 at March 31, 2015 and $235,597 at December 31, 2014)	255,592			238,287
Total investment securities	1,554,079			1,467,305
Loans held for sale	7,206			9,683
Loans and leases	2,967,772			2,932,198
Allowance for loan and lease losses	(71,433		)	(74,040		)
Net loans and leases	2,896,339			2,858,158
Premises and equipment, net	48,768			49,214
Accrued interest receivable	13,420			13,584
Investment in unconsolidated subsidiaries	6,840			7,246
Other real estate	3,349			2,948
Other intangible assets	28,230			29,697
Bank-owned life insurance	153,251			152,283
Federal Home Loan Bank stock	43,442			43,932
Other assets	125,780			132,930
Total assets	$	4,965,925		$	4,852,987
Liabilities and Equity
Deposits:
Noninterest-bearing demand	$	1,042,781		$	1,034,146
Interest-bearing demand	806,555			788,272
Savings and money market	1,247,266			1,242,598
Time	1,092,040			1,045,284
Total deposits	4,188,642			4,110,300
Short-term borrowings	70,000			38,000
Long-term debt	92,785			92,785
Other liabilities	41,573			43,861
Total liabilities	4,393,000			4,284,946
Equity:
Preferred stock, no par value, authorized 1,100,000 shares, issued and outstanding none at March 31, 2015 and December 31, 2014, respectively	—			—
Common stock, no par value, authorized 185,000,000 shares, issued and outstanding 34,797,133 and 35,233,674 shares at March 31, 2015 and December 31, 2014, respectively	632,867			642,205
Surplus	80,545			79,716
Accumulated deficit	(150,815		)	(157,039		)
Accumulated other comprehensive income	10,328			3,159
Total equity	572,925			568,041
Total liabilities and equity	$	4,965,925		$	4,852,987

See accompanying notes to consolidated financial statements.

4

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended
	March 31,
(Amounts in thousands, except per share data)	2015			2014
Interest income:
Interest and fees on loans and leases	$	28,602		$	26,883
Interest and dividends on investment securities:
Taxable interest	8,150			9,496
Tax-exempt interest	998			994
Dividends	9			1
Interest on deposits in other banks	11			7
Dividends on Federal Home Loan Bank stock	11			12
Total interest income	37,781			37,393
Interest expense:
Interest on deposits:
Demand	95			90
Savings and money market	223			224
Time	548			630
Interest on short-term borrowings	43			17
Interest on long-term debt	637			636
Total interest expense	1,546			1,597
Net interest income	36,235			35,796
Provision (credit) for loan and lease losses	(2,747		)	(1,316		)
Net interest income after credit for loan and lease losses	38,982			37,112
Other operating income:
Service charges on deposit accounts	1,968			1,993
Loan servicing fees	1,423			1,444
Other service charges and fees	3,105			2,943
Income from fiduciary activities	834			1,062
Equity in earnings of unconsolidated subsidiaries	96			52
Fees on foreign exchange	128			114
Income from bank-owned life insurance	674			670
Loan placement fees	147			143
Net gain on sales of residential loans	1,594			1,239
Net gain on sales of foreclosed assets	33			162
Other	1,188			322
Total other operating income	11,190			10,144
Other operating expense:
Salaries and employee benefits	17,165			17,434
Net occupancy	3,501			3,590
Equipment	909			796
Amortization of other intangible assets	2,105			1,240
Communication expense	824			894
Legal and professional services	2,219			1,812
Computer software expense	2,096			1,358
Advertising expense	635			686
Foreclosed asset expense	72			105
Other	4,492			4,015
Total other operating expense	34,018			31,930
Income before income taxes	16,154			15,326
Income tax expense	5,759			5,518
Net income	$	10,395		$	9,808
Per common share data:
Basic earnings per share	$	0.30		$	0.23
Diluted earnings per share	0.29			0.23
Cash dividends declared	0.12			0.08
Shares used in computation:
Basic shares	34,827			41,915
Diluted shares	35,479			42,477

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,
	2015		2014
	(Dollars in thousands)
Net income	$	10,395	$	9,808
Other comprehensive income, net of tax
Net change in unrealized gain on investment securities	6,909		9,576
Minimum pension liability adjustment	260		187
Other comprehensive income, net of tax	7,169		9,763
Comprehensive income	$	17,564	$	19,571

See accompanying notes to consolidated financial statements.

6

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

													Accumulated
	Common												Other			Non-
	Shares		Preferred		Common					Accumulated			Comprehensive			Controlling
	Outstanding		Stock		Stock			Surplus		Deficit			Income (Loss)			Interests		Total
	(Dollars in thousands, except per share data)
Balance at December 31, 2014	35,233,674		$	—	$	642,205		$	79,716	$	(157,039	)	$	3,159		$	—	$	568,041
Net income			—		—			—		10,395			—			—		10,395
Other comprehensive income	—		—		—			—		—			7,169			—		7,169
Cash dividends ($0.12 per share)	—		—		—			—		(4,171		)	—			—		(4,171		)
12,559 net shares of common stock purchased by directors’ deferred compensation plan	—		—		(50		)	—		—			—			—		(50		)
473,829 shares of common stock repurchased and other related costs	(473,829	)	—		(9,288		)	—		—			—			—		(9,288		)
Share-based compensation	37,288		—					829		—			—			—		829
Non-controlling interests	—		—		—			—		—			—			—		—
Balance at March 31, 2015	34,797,133		$	—	$	632,867		$	80,545	$	(150,815	)	$	10,328		$	—	$	572,925
Balance at December 31, 2013	42,107,633		$	—	$	784,547		$	75,498	$	(184,087	)	$	(15,845	)	$	61	$	660,174
Net income	—		—		—			—		9,808			—			—		9,808
Other comprehensive income	—		—		—			—		—			9,763			—		9,763
Cash dividends ($0.08 per share)	—		—		—			—		(3,370		)	—			—		(3,370		)
3,368 net shares of common stock sold by directors’ deferred compensation plan	—		—		34			—		—			—			—		34
3,405,888 shares of common stock repurchased and other related costs	(3,405,888	)	—		(68,873		)	—		—			—			—		(68,873		)
Share-based compensation	21,505		—		—			928		—			—			—		928
Non-controlling interests	—		—		—			—		—			—			—		—
Balance at March 31, 2014	38,723,250		$	—	$	715,708		$	76,426	$	(177,649	)	$	(6,082	)	$	61	$	608,464

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,
	2015			2014
	(Dollars in thousands)
Cash flows from operating activities:
Net income	$	10,395		$	9,808
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (credit) for loan and lease losses	(2,747		)	(1,316		)
Depreciation and amortization	1,479			1,463
Write down of other real estate, net of gain on sale	—			(65		)
Amortization of other intangible assets	2,105			1,240
Net amortization of investment securities	1,918			2,191
Share-based compensation	829			928
Net gain on sales of residential loans	(1,594		)	(1,239		)
Proceeds from sales of loans held for sale	96,788			84,989
Originations of loans held for sale	(92,717		)	(82,627		)
Equity in earnings of unconsolidated subsidiaries	(96		)	(52		)
Increase in cash surrender value of bank-owned life insurance	(968		)	(670		)
Deferred income taxes	5,339			5,535
Net change in other assets and liabilities	(5,020		)	(1,169		)
Net cash provided by operating activities	15,711			19,016
Cash flows from investing activities:
Proceeds from maturities of and calls on investment securities available for sale	35,942			32,639
Purchases of investment securities available for sale	(95,716		)	(18,923		)
Proceeds from maturities of and calls on investment securities held to maturity	4,807			3,171
Purchases of investment securities held to maturity	(22,249		)	—
Net loan originations	(36,803		)	(66,567		)
Proceeds from sale of other real estate	968			771
Purchases of premises and equipment	(1,033		)	(416		)
Distributions from unconsolidated subsidiaries	214			354
Contributions to unconsolidated subsidiaries	—			(60		)
Proceeds from redemption of FHLB stock	490			601
Net cash used in investing activities	(113,380		)	(48,430		)
Cash flows from financing activities:
Net increase in deposits	78,342			49,594
Repayments of long-term debt	—			(4		)
Net increase in short-term borrowings	32,000			93,985
Cash dividends paid on common stock	(4,171		)	(3,370		)
Repurchases of common stock and other related costs	(9,288		)	(68,873		)
Net cash provided by financing activities	96,883			71,332
Net increase (decrease) in cash and cash equivalents	(786		)	41,918
Cash and cash equivalents at beginning of period	86,007			49,348
Cash and cash equivalents at end of period	$	85,221		$	91,266
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	1,599		$	1,654
Income taxes	100			—
Cash received during the period for:
Income taxes	—			79
Supplemental disclosure of noncash investing and financing activities:
Net change in common stock held by directors’ deferred compensation plan	$	50		$	(34	)
Net reclassification of loans to other real estate	1,369			372

See accompanying notes to consolidated financial statements.

8

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.   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, 2014. 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.

Certain prior period amounts in the consolidated financial statements and the notes thereto have been reclassified to conform to the current period presentation. Such reclassifications had no effect on net income or shareholders’ equity for any periods presented.

2.   RECENT ACCOUNTING PRONOUNCEMENTS

In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-01, “Investments — Equity Method and Joint Ventures: Accounting for Investments in Qualified Affordable Housing Projects.” The provisions of ASU 2014-01 provide guidance on accounting for investments by a reporting entity in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for the low-income housing tax credit. The ASU permits entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. The Company did not elect the use of the proportional amortization method of ASU 2014-01 on January 1, 2015 which has no material impact on our consolidated financial statements.

In January 2014, the FASB issued ASU 2014-04, “Receivables — Troubled Debt Restructurings by Creditors — Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.” The provisions of ASU 2014-04 provide guidance on when an in substance repossession or foreclosure occurs, which is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate property recognized. Additionally, the amendments in this update require interim and annual disclosure of both: 1) the amount of foreclosed residential real estate property held by the creditor and 2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The Company adopted the prospective transition method of ASU 2014-04 on January 1, 2015 and the adoption did not have a material impact on our consolidated financial statements.

In June 2014, the FASB issued ASU 2014-11, “Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures.” ASU 2014-11 requires two accounting changes. First, the amendments change the accounting for repurchase-to-maturity transactions to secured borrowings. Second, for repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement. ASU 2014-11 requires disclosures for certain transactions comprising a transfer of a financial asset accounted for as a sale, and an agreement with the same transferee entered into in contemplation of the initial transfer which results in the transferor retaining substantially all of the exposure to the economic return on the transferred financial asset throughout the term of the transaction. ASU 2014-11 also requires additional disclosures for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions that are accounted for as secured borrowings. The adoption of ASU 2014-11 on January 1, 2015 did not have a material impact on our consolidated financial statements.

9

In August 2014, the FASB issued ASU 2014-14, “Receivables — Troubled Debt Restructurings by Creditors Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure.”  ASU 2014-14 requires that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: 1) the loan has a government guarantee that is not separable from the loan before foreclosure; 2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim; and 3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed.  Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance expected to be recovered from the guarantor. The adoption of ASU 2014-14 on January 1, 2015 did not have a material impact on our consolidated financial statements.

3.   INVESTMENT SECURITIES

A summary of available for sale and held to maturity investment securities are as follows:

			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in thousands)
At March 31, 2015:
Held to Maturity:
Mortgage-backed securities - U.S. Government sponsored entities	$	255,592	$	1,446	$	(681	)	$	256,357
Available for Sale:
Debt securities:
States and political subdivisions	$	189,961	$	3,380	$	(863	)	$	192,478
Corporate securities	98,847		2,480		—			101,327
Mortgage-backed securities:
U.S. Government sponsored entities	776,750		12,912		(2,616		)	787,046
Non-agency collateralized mortgage obligations	208,455		8,412		(81		)	216,786
Other	747		103		—			850
Total	$	1,274,760	$	27,287	$	(3,560	)	$	1,298,487
At December 31, 2014:
Held to Maturity:
Mortgage-backed securities - U.S. Government sponsored entities	$	238,287	$	196	$	(2,886	)	$	235,597
Available for Sale:
Debt securities:
States and political subdivisions	$	191,280	$	2,054	$	(1,689	)	$	191,645
Corporate securities	99,237		1,492		(125		)	100,604
Mortgage-backed securities:
U.S. Government sponsored entities	744,527		11,064		(4,033		)	751,558
Non-agency collateralized mortgage obligations	180,905		4,456		(1,027		)	184,334
Other	757		120		—			877
Total	$	1,216,706	$	19,186	$	(6,874	)	$	1,229,018

10

The amortized cost and estimated fair value of investment securities at March 31, 2015 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, 2015
	Amortized Cost		Estimated Fair Value
	(Dollars in thousands)
Held to Maturity
Mortage-backed securities	$	255,592	$	256,357
Available for Sale
Due in one year or less	$	—	$	—
Due after one year through five years	70,129		71,798
Due after five years through ten years	103,461		105,207
Due after ten years	115,218		116,800
Mortage-backed securities	985,205		1,003,832
Other	747		850
Total	$	1,274,760	$	1,298,487

We did not sell any available for sale securities during the first quarter of 2015 and 2014.

Investment securities of $944.4 million and $900.5 million at March 31, 2015 and December 31, 2014, respectively, were pledged to secure public funds on deposit and other long-term and short-term borrowings.

Provided below is a summary of the 121 and 195 investment securities which were in an unrealized loss position at March 31, 2015 and December 31, 2014, respectively.

	Less than 12 months					12 months or longer					Total
			Unrealized					Unrealized					Unrealized
Description of Securities	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
	(Dollars in thousands)
At March 31, 2015:
Debt securities:
States and political subdivisions	$	34,821	$	(257	)	$	23,447	$	(606	)	$	58,268	$	(863	)
Corporate securities	—		—			—		—			—		—
Mortgage-backed securities:
U.S. Government sponsored entities	143,680		(1,298		)	176,086		(1,999		)	319,766		(3,297		)
Non-agency collateralized mortgage obligations	31,664		(81		)	—		—			31,664		(81		)
Total temporarily impaired securities	$	210,165	$	(1,636	)	$	199,533	$	(2,605	)	$	409,698	$	(4,241	)
At December 31, 2014:
Debt securities:
States and political subdivisions	$	23,591	$	(145	)	$	68,622	$	(1,544	)	$	92,213	$	(1,689	)
Corporate securities	23,938		(125		)	—		—			23,938		(125		)
Mortgage-backed securities:
U.S. Government sponsored entities	119,210		(521		)	403,926		(6,398		)	523,136		(6,919		)
Non-agency collateralized mortgage obligations	20,857		(100		)	47,539		(927		)	68,396		(1,027		)
Total temporarily impaired securities	$	187,596	$	(891	)	$	520,087	$	(8,869	)	$	707,683	$	(9,760	)

11

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.

4.   LOANS AND LEASES

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

	March 31,		December 31,
	2015		2014
	(Dollars in thousands)
Commercial, financial and agricultural	$	500,251	$	463,070
Real estate:
Construction	113,137		115,023
Mortgage - residential	1,298,076		1,280,089
Mortgage - commercial	702,113		704,099
Consumer	350,344		365,662
Leases	2,885		3,140
	2,966,806		2,931,083
Net deferred costs	966		1,115
Total loans and leases	$	2,967,772	$	2,932,198

During the three months ended March 31, 2015, we transferred the collateral in three portfolio loans with a carrying value of $1.4 million to other real estate. We did not transfer any portfolio loans to the held-for-sale category and no portfolio loans were sold or purchased during the three months ended March 31, 2015.

During the three months ended March 31, 2014, we transferred one loan with a carrying value of $0.4 million to other real estate. We did not transfer any portfolio loans to the held-for-sale category and no portfolio loans were sold or purchased during the three months ended March 31, 2014.

12

Impaired Loans

The following table presents by class, the balance in the allowance for loan and lease losses and the recorded investment in loans and leases based on the Company’s impairment measurement method as of March 31, 2015 and December 31, 2014:

	Commercial,		Real Estate
	Financial & Agricultural		Construction			Mortgage -  Residential		Mortgage - Commercial			Consumer			Leases		Total
	(Dollars in thousands)
March 31, 2015
Allowance for loan and lease losses:
Ending balance attributable to loans:
Individually evaluated for impairment	$	772	$	—		$	—	$	—		$	—		$	—	$	772
Collectively evaluated for impairment	8,019		14,305			17,057		20,161			7,119			—		66,661
	8,791		14,305			17,057		20,161			7,119			—		67,433
Unallocated																4,000
Total ending balance	$	8,791	$	14,305		$	17,057	$	20,161		$	7,119		$	—	$	71,433
Loans and leases:
Individually evaluated for impairment	$	13,727	$	4,606		$	28,514	$	22,601		$	—		$	—	$	69,448
Collectively evaluated for impairment	486,524		108,531			1,269,562		679,512			350,344			2,885		2,897,358
	500,251		113,137			1,298,076		702,113			350,344			2,885		2,966,806
Net deferred costs (income)	432		(416		)	2,228		(857		)	(421		)	—		966
Total ending balance	$	500,683	$	112,721		$	1,300,304	$	701,256		$	349,923		$	2,885	$	2,967,772
December 31, 2014
Allowance for loan and lease losses:
Ending balance attributable to loans:
Individually evaluated for impairment	$	1,533	$	—		$	—	$	—		$	—		$	—	$	1,533
Collectively evaluated for impairment	7,421		14,969			17,927		20,869			7,314			7		68,507
	8,954		14,969			17,927		20,869			7,314			7		70,040
Unallocated																4,000
Total ending balance	$	8,954	$	14,969		$	17,927	$	20,869		$	7,314		$	7	$	74,040
Loans and leases:
Individually evaluated for impairment	$	13,369	$	4,888		$	30,893	$	23,126		$	—		$	—	$	72,276
Collectively evaluated for impairment	449,701		110,135			1,249,196		680,973			365,662			3,140		2,858,807
	463,070		115,023			1,280,089		704,099			365,662			3,140		2,931,083
Net deferred costs (income)	693		(469		)	2,235		(826		)	(518		)	—		1,115
Total ending balance	$	463,763	$	114,554		$	1,282,324	$	703,273		$	365,144		$	3,140	$	2,932,198

13

The following table presents by class, impaired loans as of March 31, 2015 and December 31, 2014:

	Unpaid Principal  Balance		Recorded  Investment		Allowance  Allocated
	(Dollars in thousands)
March 31, 2015
Impaired loans with no related allowance recorded:
Commercial, financial & agricultural	$	5,178	$	3,599	$	—
Real estate:
Construction	10,951		4,606		—
Mortgage - residential	31,161		28,514		—
Mortgage - commercial	29,723		22,601		—
Total impaired loans with no related allowance recorded	77,013		59,320		—
Impaired loans with an allowance recorded:
Commercial, financial & agricultural	12,660		10,128		772
Total impaired loans with an allowance recorded	12,660		10,128		772
Total	$	89,673	$	69,448	$	772
December 31, 2014
Impaired loans with no related allowance recorded:
Commercial, financial & agricultural	$	738	$	738	$	—
Real estate:
Construction	11,275		4,888		—
Mortgage - residential	34,131		30,893		—
Mortgage - commercial	30,249		23,126		—
Total impaired loans with no related allowance recorded	76,393		59,645		—
Impaired loans with an allowance recorded:
Commercial, financial & agricultural	16,630		12,631		1,533
Total impaired loans with an allowance recorded	16,630		12,631		1,533
Total	$	93,023	$	72,276	$	1,533

The following table presents by class, the average recorded investment and interest income recognized on impaired loans for the three months ended March 31, 2015 and 2014:

	Three Months Ended March 31,
	2015				2014
	Average  Recorded  Investment		Interest Income  Recognized		Average  Recorded  Investment		Interest Income  Recognized
	(Dollars in thousands)
Commercial, financial & agricultural	$	13,646	$	5	$	8,417	$	5
Real estate:
Construction	4,699		86		6,822		32
Mortgage - residential	28,954		1		36,407		163
Mortgage - commercial	22,751		164		16,045		39
Leases					—		—
Total	$	70,050	$	256	$	67,691	$	239

The Company had $3.9 million of consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure at March 31, 2015.

14

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 table presents by class, the aging of the recorded investment in past due loans and leases as of March 31, 2015 and December 31, 2014:

	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
	(Dollars in thousands)
March 31, 2015
Commercial, financial & agricultural	$	290	$	225	$	—	$	13,377	$	13,892	$	486,791	$	500,683
Real estate:
Construction	—		—		—		146		146		112,575		112,721
Mortgage - residential	1,945		—		—		11,430		13,375		1,286,929		1,300,304
Mortgage - commercial	—		—		—		12,468		12,468		688,788		701,256
Consumer	895		212		5		—		1,112		348,811		349,923
Leases	—		—		—		—		—		2,885		2,885
Total	$	3,130	$	437	$	5	$	37,421	$	40,993	$	2,926,779	$	2,967,772
December 31, 2014
Commercial, financial & agricultural	$	183	$	85	$	—	$	13,007	$	13,275	$	450,488	$	463,763
Real estate:
Construction	—		—		—		310		310		114,244		114,554
Mortgage - residential	3,078		379		—		13,048		16,505		1,265,819		1,282,324
Mortgage - commercial	68		—		—		12,722		12,790		690,483		703,273
Consumer	1,500		417		77		—		1,994		363,150		365,144
Leases	—		—		—		—		—		3,140		3,140
Total	$	4,829	$	881	$	77	$	39,087	$	44,874	$	2,887,324	$	2,932,198

Modifications

Troubled debt restructurings (“TDRs”) included in nonperforming assets at March 31, 2015 consisted of 33 Hawaii residential mortgage loans with a combined principal balance of $6.6 million, 11 Hawaii commercial mortgage loans to the same borrower with a combined principal balance of $0.9 million, a Hawaii commercial loan of $0.4 million, and a Hawaii construction and development loan of $0.04 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 $19.8 million of TDRs still accruing interest at March 31, 2015, none of which were more than 90 days delinquent. At December 31, 2014, there were $29.5 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. As a result, some loans 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, 2015.

15

The following table presents by class, information related to loans modified in a TDR during the three months ended March 31, 2015 and 2014.

	Number  of  Contracts	Recorded Investment (as of Period End)		Increase  in the  Allowance
	(Dollars in thousands)
Three Months Ended March 31, 2015
Real estate mortgage - commercial	11	$	910	$	—
Three Months Ended March 31, 2014
Real estate mortgage - residential	9	$	613	$	—

The following table presents by class, loans modified as a TDR within the previous twelve months that subsequently defaulted during the three months ended March 31, 2015 and 2014.  The following table presents, by class, loans modified as a TDR within the previous twelve months that subsequently defaulted during the three months ended March 31, 2015 and 2014.

	Three Months Ended March 31,
	2015		2014
	Number of  Contracts	Recorded Investment  (as of Period End)	Number of  Contracts	Recorded Investment  (as of Period End)
	(Dollars in thousands)
Real estate mortgage -construction	—	—	1	175

Credit Quality Indicators

The Company categorizes loans and leases into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans and leases individually by classifying the loans and leases as to credit risk. This analysis includes non-homogeneous loans and leases, such as commercial and commercial real estate loans. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk ratings:

Special Mention. Loans and leases classified as special mention, while still adequately protected by the borrower’s capital adequacy and payment capability, exhibit distinct weakening trends and/or elevated levels of exposure to external conditions. If left unchecked or uncorrected, these potential weaknesses may result in deteriorated prospects of repayment. These exposures require management’s close attention so as to avoid becoming undue or unwarranted credit exposures.

Substandard. Loans and leases classified as subst