Loans and Leases and the Allowance for Loan and Lease Losses | Loans and Leases and the Allowance for Loan and Lease Losses Loans and Leases The Company’s loan and lease portfolio was comprised of the following as of September 30, 2015 and December 31, 2014 : (dollars in thousands) September 30, December 31, Commercial Commercial and Industrial $ 1,169,817 $ 1,055,243 Commercial Mortgage 1,622,119 1,437,513 Construction 129,254 109,183 Lease Financing 202,055 226,189 Total Commercial 3,123,245 2,828,128 Consumer Residential Mortgage 2,875,605 2,571,090 Home Equity 993,817 866,688 Automobile 367,640 323,848 Other 1 329,465 307,835 Total Consumer 4,566,527 4,069,461 Total Loans and Leases $ 7,689,772 $ 6,897,589 1 Comprised of other revolving credit, installment, and lease financing. The majority of the Company's lending activity is with customers located in the State of Hawaii. A substantial portion of the Company's real estate loans are secured by real estate in Hawaii. Net gains related to sales of residential mortgage loans, recorded as a component of mortgage banking income were $1.8 million and $0.3 million for the three months ended September 30, 2015 and 2014 , respectively, and $4.1 million and $1.6 million for the nine months ended September 30, 2015 and 2014 , respectively. Allowance for Loan and Lease Losses (the “Allowance”) The following presents by portfolio segment, the activity in the Allowance for the three and nine months ended September 30, 2015 and 2014 . The following also presents by portfolio segment, the balance in the Allowance disaggregated on the basis of the Company’s impairment measurement method and the related recorded investment in loans and leases as of September 30, 2015 and 2014 . (dollars in thousands) Commercial Consumer Total Three Months Ended September 30, 2015 Allowance for Loan and Lease Losses: Balance at Beginning of Period $ 67,005 $ 39,001 $ 106,006 Loans and Leases Charged-Off (160 ) (4,233 ) (4,393 ) Recoveries on Loans and Leases Previously Charged-Off 504 1,921 2,425 Net Loans and Leases Recovered (Charged-Off) 344 (2,312 ) (1,968 ) Provision for Credit Losses (2,708 ) 2,708 — Balance at End of Period $ 64,641 $ 39,397 $ 104,038 Nine Months Ended September 30, 2015 Allowance for Loan and Lease Losses: Balance at Beginning of Period $ 64,551 $ 44,137 $ 108,688 Loans and Leases Charged-Off (650 ) (11,327 ) (11,977 ) Recoveries on Loans and Leases Previously Charged-Off 1,726 5,601 7,327 Net Loans and Leases Recovered (Charged-Off) 1,076 (5,726 ) (4,650 ) Provision for Credit Losses (986 ) 986 — Balance at End of Period $ 64,641 $ 39,397 $ 104,038 As of September 30, 2015 Allowance for Loan and Lease Losses: Individually Evaluated for Impairment $ 1,977 $ 3,336 $ 5,313 Collectively Evaluated for Impairment 62,664 36,061 98,725 Total $ 64,641 $ 39,397 $ 104,038 Recorded Investment in Loans and Leases: Individually Evaluated for Impairment $ 29,016 $ 39,013 $ 68,029 Collectively Evaluated for Impairment 3,094,229 4,527,514 7,621,743 Total $ 3,123,245 $ 4,566,527 $ 7,689,772 Three Months Ended September 30, 2014 Allowance for Loan and Lease Losses: Balance at Beginning of Period $ 71,886 $ 41,952 $ 113,838 Loans and Leases Charged-Off (229 ) (3,432 ) (3,661 ) Recoveries on Loans and Leases Previously Charged-Off 1,202 1,648 2,850 Net Loans and Leases Recovered (Charged-Off) 973 (1,784 ) (811 ) Provision for Credit Losses (6,619 ) 3,954 (2,665 ) Balance at End of Period $ 66,240 $ 44,122 $ 110,362 Nine Months Ended September 30, 2014 Allowance for Loan and Lease Losses: Balance at Beginning of Period $ 71,446 $ 44,008 $ 115,454 Loans and Leases Charged-Off (1,863 ) (9,833 ) (11,696 ) Recoveries on Loans and Leases Previously Charged-Off 4,299 7,169 11,468 Net Loans and Leases Recovered (Charged-Off) 2,436 (2,664 ) (228 ) Provision for Credit Losses (7,642 ) 2,778 (4,864 ) Balance at End of Period $ 66,240 $ 44,122 $ 110,362 As of September 30, 2014 Allowance for Loan and Lease Losses: Individually Evaluated for Impairment $ 2,449 $ 3,653 $ 6,102 Collectively Evaluated for Impairment 63,791 40,469 104,260 Total $ 66,240 $ 44,122 $ 110,362 Recorded Investment in Loans and Leases: Individually Evaluated for Impairment $ 26,061 $ 39,886 $ 65,947 Collectively Evaluated for Impairment 2,702,863 3,837,540 6,540,403 Total $ 2,728,924 $ 3,877,426 $ 6,606,350 Credit Quality Indicators The Company uses several credit quality indicators to manage credit risk in an ongoing manner. The Company uses an internal credit risk rating system that categorizes loans and leases into pass, special mention, or classified categories. Credit risk ratings are applied individually to those classes of loans and leases that have significant or unique credit characteristics that benefit from a case-by-case evaluation. These are typically loans and leases to businesses or individuals in the classes which comprise the commercial portfolio segment. Groups of loans and leases that are underwritten and structured using standardized criteria and characteristics, such as statistical models (e.g., credit scoring or payment performance), are typically risk-rated and monitored collectively. These are typically loans and leases to individuals in the classes which comprise the consumer portfolio segment. The following are the definitions of the Company’s credit quality indicators: Pass: Loans and leases in all classes within the commercial and consumer portfolio segments that are not adversely rated, are contractually current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan or lease agreement. Management believes that there is a low likelihood of loss related to those loans and leases that are considered pass. Special Mention: Loans and leases in the classes within the commercial portfolio segment that have potential weaknesses that deserve management’s close attention. If not addressed, these potential weaknesses may result in deterioration of the repayment prospects for the loan or lease. The special mention credit quality indicator is not used for classes of loans and leases that are included in the consumer portfolio segment. Management believes that there is a moderate likelihood of some loss related to those loans and leases that are considered special mention. Classified: Loans and leases in the classes within the commercial portfolio segment that are inadequately protected by the sound worth and paying capacity of the borrower or of the collateral pledged, if any. Classified loans and leases are also those in the classes within the consumer portfolio segment that are past due 90 days or more as to principal or interest. Residential mortgage loans that are past due 90 days or more as to principal or interest may be considered pass if the Company is in the process of collection and the current loan-to-value ratio is 60% or less. Home equity loans that are past due 90 days or more as to principal or interest may be considered pass if the Company is in the process of collection, the first mortgage is with the Company, and the current combined loan-to-value ratio is 60% or less. Residential mortgage and home equity loans may be current as to principal and interest, but may be considered classified for a period of generally up to six months following a loan modification. Following a period of demonstrated performance in accordance with the modified contractual terms, the loan may be removed from classified status. Management believes that there is a distinct possibility that the Company will sustain some loss if the deficiencies related to classified loans and leases are not corrected in a timely manner. The Company’s credit quality indicators are periodically updated on a case-by-case basis. The following presents by class and by credit quality indicator, the recorded investment in the Company’s loans and leases as of September 30, 2015 and December 31, 2014 . September 30, 2015 (dollars in thousands) Commercial and Industrial Commercial Mortgage Construction Lease Financing Total Commercial Pass $ 1,122,454 $ 1,551,159 $ 127,541 $ 201,473 $ 3,002,627 Special Mention 20,726 31,145 88 85 52,044 Classified 26,637 39,815 1,625 497 68,574 Total $ 1,169,817 $ 1,622,119 $ 129,254 $ 202,055 $ 3,123,245 (dollars in thousands) Residential Mortgage Home Equity Automobile Other 1 Total Consumer Pass $ 2,859,438 $ 989,433 $ 367,009 $ 328,873 $ 4,544,753 Classified 16,167 4,384 631 592 21,774 Total $ 2,875,605 $ 993,817 $ 367,640 $ 329,465 $ 4,566,527 Total Recorded Investment in Loans and Leases $ 7,689,772 December 31, 2014 (dollars in thousands) Commercial and Industrial Commercial Mortgage Construction Lease Financing Total Commercial Pass $ 1,001,474 $ 1,358,812 $ 107,381 $ 225,783 $ 2,693,450 Special Mention 17,364 45,082 — 17 62,463 Classified 36,405 33,619 1,802 389 72,215 Total $ 1,055,243 $ 1,437,513 $ 109,183 $ 226,189 $ 2,828,128 (dollars in thousands) Residential Mortgage Home Equity Automobile Other 1 Total Consumer Pass $ 2,556,140 $ 862,258 $ 323,232 $ 307,123 $ 4,048,753 Classified 14,950 4,430 616 712 20,708 Total $ 2,571,090 $ 866,688 $ 323,848 $ 307,835 $ 4,069,461 Total Recorded Investment in Loans and Leases $ 6,897,589 1 Comprised of other revolving credit, installment, and lease financing. Aging Analysis The following presents by class, an aging analysis of the Company’s loan and lease portfolio as of September 30, 2015 and December 31, 2014 . (dollars in thousands) 30 - 59 Days Past Due 60 - 89 Days Past Due Past Due 90 Days or More Non-Accrual Total Past Due and Non-Accrual Current Total Loans and Leases Non-Accrual Loans and Leases that are Current 2 As of September 30, 2015 Commercial Commercial and Industrial $ 4,830 $ 1,361 $ — $ 8,532 $ 14,723 $ 1,155,094 $ 1,169,817 $ 571 Commercial Mortgage — 29 — 1,058 1,087 1,621,032 1,622,119 833 Construction — — — — — 129,254 129,254 — Lease Financing — — — — — 202,055 202,055 — Total Commercial 4,830 1,390 — 9,590 15,810 3,107,435 3,123,245 1,404 Consumer Residential Mortgage 6,023 1,526 5,060 14,749 27,358 2,848,247 2,875,605 2,419 Home Equity 2,331 2,345 1,396 3,814 9,886 983,931 993,817 1,683 Automobile 7,827 1,612 631 — 10,070 357,570 367,640 — Other 1 2,273 1,454 1,058 — 4,785 324,680 329,465 — Total Consumer 18,454 6,937 8,145 18,563 52,099 4,514,428 4,566,527 4,102 Total $ 23,284 $ 8,327 $ 8,145 $ 28,153 $ 67,909 $ 7,621,863 $ 7,689,772 $ 5,506 As of December 31, 2014 Commercial Commercial and Industrial $ 992 $ 356 $ 2 $ 9,088 $ 10,438 $ 1,044,805 $ 1,055,243 $ 7,819 Commercial Mortgage 458 — — 745 1,203 1,436,310 1,437,513 — Construction — — — — — 109,183 109,183 — Lease Financing — — — — — 226,189 226,189 — Total Commercial 1,450 356 2 9,833 11,641 2,816,487 2,828,128 7,819 Consumer Residential Mortgage 4,907 2,107 4,506 14,841 26,361 2,544,729 2,571,090 632 Home Equity 3,461 2,661 2,596 3,097 11,815 854,873 866,688 375 Automobile 7,862 1,483 616 — 9,961 313,887 323,848 — Other 1 2,416 1,049 941 — 4,406 303,429 307,835 — Total Consumer 18,646 7,300 8,659 17,938 52,543 4,016,918 4,069,461 1,007 Total $ 20,096 $ 7,656 $ 8,661 $ 27,771 $ 64,184 $ 6,833,405 $ 6,897,589 $ 8,826 1 Comprised of other revolving credit, installment, and lease financing. 2 Represents non-accrual loans that are not past due 30 days or more; however, full payment of principal and interest is still not expected. Impaired Loans The following presents by class, information related to impaired loans as of September 30, 2015 and December 31, 2014 . (dollars in thousands) Recorded Investment Unpaid Principal Balance Related Allowance for Loan Losses September 30, 2015 Impaired Loans with No Related Allowance Recorded: Commercial Commercial and Industrial $ 14,131 $ 24,605 $ — Commercial Mortgage 7,337 7,337 — Construction 1,626 1,626 — Total Commercial 23,094 33,568 — Total Impaired Loans with No Related Allowance Recorded $ 23,094 $ 33,568 $ — Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 5,922 $ 12,523 $ 1,977 Total Commercial 5,922 12,523 1,977 Consumer Residential Mortgage 30,253 36,046 3,169 Home Equity 1,191 1,191 13 Automobile 6,238 6,238 117 Other 1 1,331 1,331 37 Total Consumer 39,013 44,806 3,336 Total Impaired Loans with an Allowance Recorded $ 44,935 $ 57,329 $ 5,313 Impaired Loans: Commercial $ 29,016 $ 46,091 $ 1,977 Consumer 39,013 44,806 3,336 Total Impaired Loans $ 68,029 $ 90,897 $ 5,313 December 31, 2014 Impaired Loans with No Related Allowance Recorded: Commercial Commercial and Industrial $ 9,763 $ 15,013 $ — Commercial Mortgage 6,480 6,480 — Construction 1,689 1,689 — Total Commercial 17,932 23,182 — Total Impaired Loans with No Related Allowance Recorded $ 17,932 $ 23,182 $ — Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 7,184 $ 13,784 $ 2,387 Total Commercial 7,184 13,784 2,387 Consumer Residential Mortgage 32,331 37,989 3,445 Home Equity 1,012 1,012 16 Automobile 5,375 5,375 66 Other 1 913 913 34 Total Consumer 39,631 45,289 3,561 Total Impaired Loans with an Allowance Recorded $ 46,815 $ 59,073 $ 5,948 Impaired Loans: Commercial $ 25,116 $ 36,966 $ 2,387 Consumer 39,631 45,289 3,561 Total Impaired Loans $ 64,747 $ 82,255 $ 5,948 1 Comprised of other revolving credit and installment financing. The following presents by class, information related to the average recorded investment and interest income recognized on impaired loans for the three and nine months ended September 30, 2015 and 2014 . Three Months Ended Three Months Ended (dollars in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Impaired Loans with No Related Allowance Recorded: Commercial Commercial and Industrial $ 13,368 $ 96 $ 10,161 $ 96 Commercial Mortgage 7,155 67 7,046 56 Construction 1,637 26 2,024 28 Total Commercial 22,160 189 19,231 180 Consumer Other 1 — — 9 — Total Consumer — — 9 — Total Impaired Loans with No Related Allowance Recorded $ 22,160 $ 189 $ 19,240 $ 180 Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 6,105 $ 24 $ 7,345 $ 25 Total Commercial 6,105 24 7,345 25 Consumer Residential Mortgage 30,719 265 31,989 269 Home Equity 1,191 9 1,029 13 Automobile 6,013 104 5,345 114 Other 1 1,218 28 576 12 Total Consumer 39,141 406 38,939 408 Total Impaired Loans with an Allowance Recorded $ 45,246 $ 430 $ 46,284 $ 433 Impaired Loans: Commercial $ 28,265 $ 213 $ 26,576 $ 205 Consumer 39,141 406 38,948 408 Total Impaired Loans $ 67,406 $ 619 $ 65,524 $ 613 Nine Months Ended Nine Months Ended (dollars in thousands) Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized Impaired Loans with No Related Allowance Recorded: Commercial Commercial and Industrial $ 12,074 $ 304 $ 11,518 $ 254 Commercial Mortgage 6,799 198 9,041 167 Construction 1,658 80 1,540 66 Total Commercial 20,531 582 22,099 487 Consumer Other 1 — — 7 — Total Consumer — — 7 — Total Impaired Loans with No Related Allowance Recorded $ 20,531 $ 582 $ 22,106 $ 487 Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 6,401 $ 78 $ 8,260 $ 80 Total Commercial 6,401 78 8,260 80 Consumer Residential Mortgage 31,374 796 31,915 749 Home Equity 1,149 28 952 27 Automobile 5,737 319 5,235 327 Other 1 1,082 77 471 30 Total Consumer 39,342 1,220 38,573 1,133 Total Impaired Loans with an Allowance Recorded $ 45,743 $ 1,298 $ 46,833 $ 1,213 Impaired Loans: Commercial $ 26,932 $ 660 $ 30,359 $ 567 Consumer 39,342 1,220 38,580 1,133 Total Impaired Loans $ 66,274 $ 1,880 $ 68,939 $ 1,700 1 Comprised of other revolving credit and installment financing. For the three and nine months ended September 30, 2015 and 2014 , the amounts of interest income recognized by the Company within the periods that the loans were impaired were primarily related to loans modified in a troubled debt restructuring that remained on accrual status. For the three and nine months ended September 30, 2015 and 2014 , the amount of interest income recognized using a cash-basis method of accounting during the periods that the loans were impaired was not material. Modifications A modification of a loan constitutes a troubled debt restructuring (“TDR”) when the Company, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. Loans modified in a TDR were $66.3 million and $60.2 million as of September 30, 2015 and December 31, 2014 , respectively. There were no commitments to lend additional funds on loans modified in a TDR as of September 30, 2015 and December 31, 2014 . The Company offers various types of concessions when modifying a loan or lease. Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans. Additional collateral, a co-borrower, or a guarantor is often requested. Commercial mortgage and construction loans modified in a TDR often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a co-borrower or guarantor. Construction loans modified in a TDR may also involve extending the interest-only payment period. Residential mortgage loans modified in a TDR generally include a lower interest rate and the loan being fully amortized for up to 40 years from the modification effective date. In some cases, the Company may forbear a portion of the unpaid principal balance with a balloon payment due upon maturity or pay-off of the loan. Land loans are also included in the class of residential mortgage loans. Land loans are typically structured as interest-only monthly payments with a balloon payment due at maturity. Land loan modifications usually involve extending the interest-only monthly payments up to an additional five years with a balloon payment due at maturity, or re-amortizing the remaining balance over a period up to 360 months . Interest rates are not changed for land loan modifications. Home equity modifications are made infrequently and uniquely designed to meet the specific needs of each borrower. Automobile loans modified in a TDR are primarily comprised of loans where the Company has lowered monthly payments by extending the term. Loans modified in a TDR are typically already on non-accrual status and partial charge-offs have in some cases already been taken against the outstanding loan balance. As a result, loans modified in a TDR may have the financial effect of increasing the specific Allowance associated with the loan. An Allowance for impaired consumer and commercial loans that have been modified in a TDR is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates. The following presents by class, information related to loans modified in a TDR during the three and nine months ended September 30, 2015 and 2014 . Loans Modified as a TDR for the Loans Modified as a TDR for the Recorded Increase in Recorded Increase in Troubled Debt Restructurings Number of Investment Allowance Number of Investment Allowance (dollars in thousands) Contracts (as of period end) 1 (as of period end) Contracts (as of period end) 1 (as of period end) Commercial Commercial and Industrial 13 $ 6,551 $ — 4 $ 1,203 $ 155 Total Commercial 13 6,551 — 4 1,203 155 Consumer Residential Mortgage 2 749 — 6 1,581 56 Home Equity 1 168 2 — — — Automobile 47 1,172 22 35 774 10 Other 2 50 344 9 35 255 8 Total Consumer 100 2,433 33 76 2,610 74 Total 113 $ 8,984 $ 33 80 $ 3,813 $ 229 Loans Modified as a TDR for the Loans Modified as a TDR for the Recorded Increase in Recorded Increase in Troubled Debt Restructurings Number of Investment Allowance Number of Investment Allowance (dollars in thousands) Contracts (as of period end) 1 (as of period end) Contracts (as of period end) 1 (as of period end) Commercial Commercial and Industrial 27 $ 8,438 $ 4 16 $ 5,416 $ 156 Commercial Mortgage 2 1,179 — 1 332 — Total Commercial 29 9,617 4 17 5,748 156 Consumer Residential Mortgage 12 4,211 84 15 4,886 183 Home Equity 3 370 4 2 158 3 Automobile 119 2,723 51 112 2,213 29 Other 2 102 702 20 53 414 13 Total Consumer 236 8,006 159 182 7,671 228 Total 265 $ 17,623 $ 163 199 $ 13,419 $ 384 1 The period end balances reflect all paydowns and charge-offs since the modification date. TDRs fully paid-off, charged-off, or foreclosed upon by period end are not included. 2 Comprised of other revolving credit and installment financing. The following presents by class, all loans modified in a TDR that defaulted during the three and nine months ended September 30, 2015 and 2014 , and within twelve months of their modification date. A TDR is considered to be in default once it becomes 60 days or more past due following a modification. Three Months Ended Three Months Ended TDRs that Defaulted During the Period, Recorded Recorded Within Twelve Months of their Modification Date Number of Investment Number of Investment (dollars in thousands) Contracts (as of period end) 1 Contracts (as of period end) 1 Commercial Commercial and Industrial — $ — 1 $ 22 Total Commercial — — 1 22 Consumer Residential Mortgage 2 1,069 — — Automobile 3 52 5 64 Other 2 10 56 1 16 Total Consumer 15 1,177 6 80 Total 15 $ 1,177 7 $ 102 Nine Months Ended Nine Months Ended TDRs that Defaulted During the Period, Recorded Recorded Within Twelve Months of their Modification Date Number of Investment Number of Investment (dollars in thousands) Contracts (as of period end) 1 Contracts (as of period end) 1 Commercial Commercial and Industrial 1 $ 4,341 3 $ 723 Total Commercial 1 4,341 3 723 Consumer Residential Mortgage 3 1,374 2 509 Automobile 6 108 7 110 Other 2 19 98 3 27 Total Consumer 28 1,580 12 646 Total 29 $ 5,921 15 $ 1,369 1 The period end balances reflect all paydowns and charge-offs since the modification date. TDRs fully paid-off, charged-off, or foreclosed upon by period end are not included. 2 Comprised of other revolving credit and installment financing. Commercial and consumer loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, the Company evaluates the loan for possible further impairment. The specific Allowance associated with the loan may be increased, adjustments may be made in the allocation of the Allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan. Foreclosure Proceedings Consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure totaled $7.0 million as of September 30, 2015 . |