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, 2016 and December 31, 2015 : (dollars in thousands) September 30, December 31, Commercial Commercial and Industrial $ 1,217,849 $ 1,115,168 Commercial Mortgage 1,807,190 1,677,147 Construction 263,079 156,660 Lease Financing 201,436 204,877 Total Commercial 3,489,554 3,153,852 Consumer Residential Mortgage 3,098,936 2,925,605 Home Equity 1,295,993 1,069,400 Automobile 437,659 381,735 Other 1 371,955 348,393 Total Consumer 5,204,543 4,725,133 Total Loans and Leases $ 8,694,097 $ 7,878,985 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 $3.6 million and $1.8 million for the three months ended September 30, 2016 and 2015 , respectively, and $9.8 million and $4.1 million for the nine months ended September 30, 2016 and 2015 , 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, 2016 and 2015 . 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, 2016 and 2015 . (dollars in thousands) Commercial Consumer Total Three Months Ended September 30, 2016 Allowance for Loan and Lease Losses: Balance at Beginning of Period $ 62,029 $ 41,903 $ 103,932 Loans and Leases Charged-Off (209 ) (4,707 ) (4,916 ) Recoveries on Loans and Leases Previously Charged-Off 296 2,221 2,517 Net Loans and Leases Recovered (Charged-Off) 87 (2,486 ) (2,399 ) Provision for Credit Losses 442 2,058 2,500 Balance at End of Period $ 62,558 $ 41,475 $ 104,033 Nine Months Ended September 30, 2016 Allowance for Loan and Lease Losses: Balance at Beginning of Period $ 60,714 $ 42,166 $ 102,880 Loans and Leases Charged-Off (670 ) (12,888 ) (13,558 ) Recoveries on Loans and Leases Previously Charged-Off 7,619 5,592 13,211 Net Loans and Leases Recovered (Charged-Off) 6,949 (7,296 ) (347 ) Provision for Credit Losses (5,105 ) 6,605 1,500 Balance at End of Period $ 62,558 $ 41,475 $ 104,033 As of September 30, 2016 Allowance for Loan and Lease Losses: Individually Evaluated for Impairment $ 11 $ 3,436 $ 3,447 Collectively Evaluated for Impairment 62,547 38,039 100,586 Total $ 62,558 $ 41,475 $ 104,033 Recorded Investment in Loans and Leases: Individually Evaluated for Impairment $ 21,793 $ 38,450 $ 60,243 Collectively Evaluated for Impairment 3,467,761 5,166,093 8,633,854 Total $ 3,489,554 $ 5,204,543 $ 8,694,097 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 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, 2016 and December 31, 2015 . September 30, 2016 (dollars in thousands) Commercial and Industrial Commercial Mortgage Construction Lease Financing Total Commercial Pass $ 1,164,869 $ 1,707,003 $ 250,918 $ 200,701 $ 3,323,491 Special Mention 20,880 60,080 10,625 6 91,591 Classified 32,100 40,107 1,536 729 74,472 Total $ 1,217,849 $ 1,807,190 $ 263,079 $ 201,436 $ 3,489,554 (dollars in thousands) Residential Mortgage Home Equity Automobile Other 1 Total Consumer Pass $ 3,085,868 $ 1,292,916 $ 437,081 $ 371,359 $ 5,187,224 Classified 13,068 3,077 578 596 17,319 Total $ 3,098,936 $ 1,295,993 $ 437,659 $ 371,955 $ 5,204,543 Total Recorded Investment in Loans and Leases $ 8,694,097 December 31, 2015 (dollars in thousands) Commercial and Industrial Commercial Mortgage Construction Lease Financing Total Commercial Pass $ 1,059,475 $ 1,591,696 $ 154,976 $ 204,348 $ 3,010,495 Special Mention 28,076 43,674 80 76 71,906 Classified 27,617 41,777 1,604 453 71,451 Total $ 1,115,168 $ 1,677,147 $ 156,660 $ 204,877 $ 3,153,852 (dollars in thousands) Residential Mortgage Home Equity Automobile Other 1 Total Consumer Pass $ 2,910,667 $ 1,064,253 $ 381,420 $ 347,710 $ 4,704,050 Classified 14,938 5,147 315 683 21,083 Total $ 2,925,605 $ 1,069,400 $ 381,735 $ 348,393 $ 4,725,133 Total Recorded Investment in Loans and Leases $ 7,878,985 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, 2016 and December 31, 2015 . (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, 2016 Commercial Commercial and Industrial $ 197 $ 423 $ — $ 201 $ 821 $ 1,217,028 $ 1,217,849 $ 111 Commercial Mortgage — 20 — 1,023 1,043 1,806,147 1,807,190 429 Construction — — — — — 263,079 263,079 — Lease Financing — — — — — 201,436 201,436 — Total Commercial 197 443 — 1,224 1,864 3,487,690 3,489,554 540 Consumer Residential Mortgage 3,100 2,271 2,583 12,735 20,689 3,078,247 3,098,936 1,581 Home Equity 2,751 756 1,210 2,966 7,683 1,288,310 1,295,993 867 Automobile 8,663 1,364 578 — 10,605 427,054 437,659 — Other 1 2,449 1,260 1,273 — 4,982 366,973 371,955 — Total Consumer 16,963 5,651 5,644 15,701 43,959 5,160,584 5,204,543 2,448 Total $ 17,160 $ 6,094 $ 5,644 $ 16,925 $ 45,823 $ 8,648,274 $ 8,694,097 $ 2,988 As of December 31, 2015 Commercial Commercial and Industrial $ 1,118 $ 359 $ — $ 5,829 $ 7,306 $ 1,107,862 $ 1,115,168 $ 452 Commercial Mortgage 1,245 27 — 3,469 4,741 1,672,406 1,677,147 2,890 Construction 2,120 — — — 2,120 154,540 156,660 — Lease Financing — — — — — 204,877 204,877 — Total Commercial 4,483 386 — 9,298 14,167 3,139,685 3,153,852 3,342 Consumer Residential Mortgage 7,148 3,993 4,453 14,598 30,192 2,895,413 2,925,605 2,056 Home Equity 3,856 1,906 1,710 4,081 11,553 1,057,847 1,069,400 1,710 Automobile 8,103 1,803 315 — 10,221 371,514 381,735 — Other 1 2,281 1,448 1,096 — 4,825 343,568 348,393 — Total Consumer 21,388 9,150 7,574 18,679 56,791 4,668,342 4,725,133 3,766 Total $ 25,871 $ 9,536 $ 7,574 $ 27,977 $ 70,958 $ 7,808,027 $ 7,878,985 $ 7,108 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, 2016 and December 31, 2015 . (dollars in thousands) Recorded Investment Unpaid Principal Balance Related Allowance for Loan Losses September 30, 2016 Impaired Loans with No Related Allowance Recorded: Commercial Commercial and Industrial $ 9,528 $ 16,490 $ — Commercial Mortgage 9,634 13,134 — Construction 1,536 1,536 — Total Commercial 20,698 31,160 — Total Impaired Loans with No Related Allowance Recorded $ 20,698 $ 31,160 $ — Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 707 $ 707 $ 7 Commercial Mortgage 388 388 4 Total Commercial 1,095 1,095 11 Consumer Residential Mortgage 26,585 32,102 3,168 Home Equity 1,349 1,349 15 Automobile 8,356 8,356 189 Other 1 2,160 2,160 64 Total Consumer 38,450 43,967 3,436 Total Impaired Loans with an Allowance Recorded $ 39,545 $ 45,062 $ 3,447 Impaired Loans: Commercial $ 21,793 $ 32,255 $ 11 Consumer 38,450 43,967 3,436 Total Impaired Loans $ 60,243 $ 76,222 $ 3,447 December 31, 2015 Impaired Loans with No Related Allowance Recorded: Commercial Commercial and Industrial $ 14,650 $ 28,212 $ — Commercial Mortgage 10,407 13,907 — Construction 1,604 1,604 — Total Commercial 26,661 43,723 — Total Impaired Loans with No Related Allowance Recorded $ 26,661 $ 43,723 $ — Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 1,289 $ 1,289 $ 205 Total Commercial 1,289 1,289 205 Consumer Residential Mortgage 28,981 34,694 3,171 Home Equity 1,089 1,089 12 Automobile 7,012 7,012 143 Other 1 1,665 1,665 47 Total Consumer 38,747 44,460 3,373 Total Impaired Loans with an Allowance Recorded $ 40,036 $ 45,749 $ 3,578 Impaired Loans: Commercial $ 27,950 $ 45,012 $ 205 Consumer 38,747 44,460 3,373 Total Impaired Loans $ 66,697 $ 89,472 $ 3,578 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, 2016 and 2015 . 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 $ 9,762 $ 115 $ 13,368 $ 96 Commercial Mortgage 9,848 90 7,155 67 Construction 1,548 25 1,637 26 Total Commercial 21,158 230 22,160 189 Total Impaired Loans with No Related Allowance Recorded $ 21,158 $ 230 $ 22,160 $ 189 Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 681 $ 27 $ 6,105 $ 24 Commercial Mortgage 194 5 — — Total Commercial 875 32 6,105 24 Consumer Residential Mortgage 27,172 235 30,719 265 Home Equity 1,428 15 1,191 9 Automobile 7,908 129 6,013 104 Other 1 2,064 44 1,218 28 Total Consumer 38,572 423 39,141 406 Total Impaired Loans with an Allowance Recorded $ 39,447 $ 455 $ 45,246 $ 430 Impaired Loans: Commercial $ 22,033 $ 262 $ 28,265 $ 213 Consumer 38,572 423 39,141 406 Total Impaired Loans $ 60,605 $ 685 $ 67,406 $ 619 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 $ 11,061 $ 333 $ 12,074 $ 304 Commercial Mortgage 10,040 252 6,799 198 Construction 1,570 76 1,658 80 Total Commercial 22,671 661 20,531 582 Total Impaired Loans with No Related Allowance Recorded $ 22,671 $ 661 $ 20,531 $ 582 Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 983 $ 59 $ 6,401 $ 78 Commercial Mortgage 97 5 — — Total Commercial 1,080 64 6,401 78 Consumer Residential Mortgage 27,889 736 31,374 796 Home Equity 1,365 50 1,149 28 Automobile 7,553 376 5,737 319 Other 1 1,922 126 1,082 77 Total Consumer 38,729 1,288 39,342 1,220 Total Impaired Loans with an Allowance Recorded $ 39,809 $ 1,352 $ 45,743 $ 1,298 Impaired Loans: Commercial $ 23,751 $ 725 $ 26,932 $ 660 Consumer 38,729 1,288 39,342 1,220 Total Impaired Loans $ 62,480 $ 2,013 $ 66,274 $ 1,880 1 Comprised of other revolving credit and installment financing. For the three and nine months ended September 30, 2016 and 2015 , 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, 2016 and 2015 , 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 $59.4 million and $65.0 million as of September 30, 2016 and December 31, 2015 , respectively. As of September 30, 2016 , there were $0.7 million commitments to lend additional funds on loans modified in a TDR. As of December 31, 2015 , there were no commitments to lend additional funds on loans modified in a TDR. 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, 2016 and 2015 . 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 4 $ 97 $ 1 13 $ 6,551 $ — Commercial Mortgage 1 208 2 — — — Total Commercial 5 305 3 13 6,551 — Consumer Residential Mortgage 3 547 258 2 749 — Home Equity — — — 1 168 2 Automobile 79 1,678 38 47 1,172 22 Other 2 62 510 14 50 344 9 Total Consumer 144 2,735 310 100 2,433 33 Total 149 $ 3,040 $ 313 113 $ 8,984 $ 33 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 6 $ 3,084 $ 1 27 $ 8,438 $ 4 Commercial Mortgage 1 208 2 2 1,179 — Total Commercial 7 3,292 3 29 9,617 4 Consumer Residential Mortgage 8 3,025 274 12 4,211 84 Home Equity 1 476 5 3 370 4 Automobile 184 3,617 82 119 2,723 51 Other 2 155 1,127 31 102 702 20 Total Consumer 348 8,245 392 236 8,006 159 Total 355 $ 11,537 $ 395 265 $ 17,623 $ 163 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, 2016 and 2015 , 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 Consumer Residential Mortgage — $ — 2 $ 1,069 Automobile 1 3 3 52 Other 2 — — 10 56 Total Consumer 1 3 15 1,177 Total 1 $ 3 15 $ 1,177 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 Total Commercial — — 1 4,341 Consumer Residential Mortgage 3 1,044 3 1,374 Home Equity 1 158 — — Automobile 3 47 6 108 Other 2 18 110 19 98 Total Consumer 25 1,359 28 1,580 Total 25 $ 1,359 29 $ 5,921 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 $7.2 million as of September 30, 2016 . |