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 March 31, 2017 and December 31, 2016 : (dollars in thousands) March 31, December 31, Commercial Commercial and Industrial $ 1,250,006 $ 1,249,791 Commercial Mortgage 1,909,064 1,889,551 Construction 262,660 270,018 Lease Financing 208,765 208,332 Total Commercial 3,630,495 3,617,692 Consumer Residential Mortgage 3,224,206 3,163,073 Home Equity 1,411,489 1,334,163 Automobile 468,078 454,333 Other 1 379,541 380,524 Total Consumer 5,483,314 5,332,093 Total Loans and Leases $ 9,113,809 $ 8,949,785 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 $1.3 million and $1.8 million for the three months ended March 31, 2017 and 2016 , respectively. Allowance for Loan and Lease Losses (the “Allowance”) The following presents by portfolio segment, the activity in the Allowance for the three months ended March 31, 2017 and 2016 . 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 March 31, 2017 and 2016 . (dollars in thousands) Commercial Consumer Total Three Months Ended March 31, 2017 Allowance for Loan and Lease Losses: Balance at Beginning of Period $ 65,680 $ 38,593 $ 104,273 Loans and Leases Charged-Off (174 ) (5,530 ) (5,704 ) Recoveries on Loans and Leases Previously Charged-Off 336 1,759 2,095 Net Loans and Leases Recovered (Charged-Off) 162 (3,771 ) (3,609 ) Provision for Credit Losses 1,051 3,349 4,400 Balance at End of Period $ 66,893 $ 38,171 $ 105,064 As of March 31, 2017 Allowance for Loan and Lease Losses: Individually Evaluated for Impairment $ 38 $ 3,912 $ 3,950 Collectively Evaluated for Impairment 66,855 34,259 101,114 Total $ 66,893 $ 38,171 $ 105,064 Recorded Investment in Loans and Leases: Individually Evaluated for Impairment $ 20,902 $ 39,429 $ 60,331 Collectively Evaluated for Impairment 3,609,593 5,443,885 9,053,478 Total $ 3,630,495 $ 5,483,314 $ 9,113,809 Three Months Ended March 31, 2016 Allowance for Loan and Lease Losses: Balance at Beginning of Period $ 60,714 $ 42,166 $ 102,880 Loans and Leases Charged-Off (257 ) (4,630 ) (4,887 ) Recoveries on Loans and Leases Previously Charged-Off 6,905 1,779 8,684 Net Loans and Leases Recovered (Charged-Off) 6,648 (2,851 ) 3,797 Provision for Credit Losses (5,552 ) 3,552 (2,000 ) Balance at End of Period $ 61,810 $ 42,867 $ 104,677 As of March 31, 2016 Allowance for Loan and Lease Losses: Individually Evaluated for Impairment $ 157 $ 3,406 $ 3,563 Collectively Evaluated for Impairment 61,653 39,461 101,114 Total $ 61,810 $ 42,867 $ 104,677 Recorded Investment in Loans and Leases: Individually Evaluated for Impairment $ 22,986 $ 39,028 $ 62,014 Collectively Evaluated for Impairment 3,233,267 4,770,329 8,003,596 Total $ 3,256,253 $ 4,809,357 $ 8,065,610 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 March 31, 2017 and December 31, 2016 . March 31, 2017 (dollars in thousands) Commercial and Industrial Commercial Mortgage Construction Lease Financing Total Commercial Pass $ 1,204,150 $ 1,811,871 $ 256,962 $ 208,253 $ 3,481,236 Special Mention 18,915 73,225 4,209 4 96,353 Classified 26,941 23,968 1,489 508 52,906 Total $ 1,250,006 $ 1,909,064 $ 262,660 $ 208,765 $ 3,630,495 (dollars in thousands) Residential Mortgage Home Equity Automobile Other 1 Total Consumer Pass $ 3,212,370 $ 1,404,974 $ 467,405 $ 378,785 $ 5,463,534 Special Mention — 2,464 — — 2,464 Classified 11,836 4,051 673 756 17,316 Total $ 3,224,206 $ 1,411,489 $ 468,078 $ 379,541 $ 5,483,314 Total Recorded Investment in Loans and Leases $ 9,113,809 December 31, 2016 (dollars in thousands) Commercial and Industrial Commercial Mortgage Construction Lease Financing Total Commercial Pass $ 1,203,025 $ 1,792,119 $ 264,287 $ 207,386 $ 3,466,817 Special Mention 20,253 66,734 4,218 5 91,210 Classified 26,513 30,698 1,513 941 59,665 Total $ 1,249,791 $ 1,889,551 $ 270,018 $ 208,332 $ 3,617,692 (dollars in thousands) Residential Mortgage Home Equity Automobile Other 1 Total Consumer Pass $ 3,149,294 $ 1,327,676 $ 453,439 $ 379,793 $ 5,310,202 Special Mention — 2,964 — — 2,964 Classified 13,779 3,523 894 731 18,927 Total $ 3,163,073 $ 1,334,163 $ 454,333 $ 380,524 $ 5,332,093 Total Recorded Investment in Loans and Leases $ 8,949,785 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 March 31, 2017 and December 31, 2016 . (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 March 31, 2017 Commercial Commercial and Industrial $ 6,275 $ 161 $ — $ 228 $ 6,664 $ 1,243,342 $ 1,250,006 $ 162 Commercial Mortgage 639 675 — 973 2,287 1,906,777 1,909,064 404 Construction — — — — — 262,660 262,660 — Lease Financing — — — — — 208,765 208,765 — Total Commercial 6,914 836 — 1,201 8,951 3,621,544 3,630,495 566 Consumer Residential Mortgage 3,259 1,169 2,313 11,756 18,497 3,205,709 3,224,206 1,517 Home Equity 2,342 1,012 1,133 3,517 8,004 1,403,485 1,411,489 1,300 Automobile 9,128 1,266 673 — 11,067 457,011 468,078 — Other 1 2,663 1,650 1,738 — 6,051 373,490 379,541 — Total Consumer 17,392 5,097 5,857 15,273 43,619 5,439,695 5,483,314 2,817 Total $ 24,306 $ 5,933 $ 5,857 $ 16,474 $ 52,570 $ 9,061,239 $ 9,113,809 $ 3,383 As of December 31, 2016 Commercial Commercial and Industrial $ 10,698 $ 1,016 $ — $ 151 $ 11,865 $ 1,237,926 $ 1,249,791 $ — Commercial Mortgage 128 17 — 997 1,142 1,888,409 1,889,551 416 Construction — — — — — 270,018 270,018 — Lease Financing — — — — — 208,332 208,332 — Total Commercial 10,826 1,033 — 1,148 13,007 3,604,685 3,617,692 416 Consumer Residential Mortgage 6,491 106 3,127 13,780 23,504 3,139,569 3,163,073 1,628 Home Equity 3,063 2,244 1,457 3,147 9,911 1,324,252 1,334,163 1,015 Automobile 11,692 2,162 894 — 14,748 439,585 454,333 — Other 1 3,200 1,532 1,592 — 6,324 374,200 380,524 — Total Consumer 24,446 6,044 7,070 16,927 54,487 5,277,606 5,332,093 2,643 Total $ 35,272 $ 7,077 $ 7,070 $ 18,075 $ 67,494 $ 8,882,291 $ 8,949,785 $ 3,059 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 March 31, 2017 and December 31, 2016 . (dollars in thousands) Recorded Investment Unpaid Principal Balance Related Allowance for Loan Losses March 31, 2017 Impaired Loans with No Related Allowance Recorded: Commercial Commercial and Industrial $ 9,217 $ 16,179 $ — Commercial Mortgage 9,165 12,665 — Construction 1,489 1,489 — Total Commercial 19,871 30,333 — Total Impaired Loans with No Related Allowance Recorded $ 19,871 $ 30,333 $ — Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 689 $ 689 $ 14 Commercial Mortgage 342 342 24 Total Commercial 1,031 1,031 38 Consumer Residential Mortgage 24,349 29,338 3,325 Home Equity 1,507 1,507 263 Automobile 10,916 10,916 248 Other 1 2,657 2,657 76 Total Consumer 39,429 44,418 3,912 Total Impaired Loans with an Allowance Recorded $ 40,460 $ 45,449 $ 3,950 Impaired Loans: Commercial $ 20,902 $ 31,364 $ 38 Consumer 39,429 44,418 3,912 Total Impaired Loans $ 60,331 $ 75,782 $ 3,950 December 31, 2016 Impaired Loans with No Related Allowance Recorded: Commercial Commercial and Industrial $ 9,556 $ 16,518 $ — Commercial Mortgage 9,373 12,873 — Construction 1,513 1,513 — Total Commercial 20,442 30,904 — Total Impaired Loans with No Related Allowance Recorded $ 20,442 $ 30,904 $ — Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 765 $ 765 $ 24 Commercial Mortgage 365 365 21 Total Commercial 1,130 1,130 45 Consumer Residential Mortgage 25,625 30,615 3,224 Home Equity 1,516 1,516 15 Automobile 9,660 9,660 206 Other 1 2,325 2,325 65 Total Consumer 39,126 44,116 3,510 Total Impaired Loans with an Allowance Recorded $ 40,256 $ 45,246 $ 3,555 Impaired Loans: Commercial $ 21,572 $ 32,034 $ 45 Consumer 39,126 44,116 3,510 Total Impaired Loans $ 60,698 $ 76,150 $ 3,555 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 months ended March 31, 2017 and 2016 . 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 $ 9,387 $ 81 $ 12,360 $ 106 Commercial Mortgage 9,269 85 10,231 69 Construction 1,501 24 1,593 26 Total Commercial 20,157 190 24,184 201 Total Impaired Loans with No Related Allowance Recorded $ 20,157 $ 190 $ 24,184 $ 201 Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 727 $ 11 $ 1,285 $ 20 Commercial Mortgage 354 4 — — Total Commercial 1,081 15 1,285 20 Consumer Residential Mortgage 24,987 212 28,606 251 Home Equity 1,512 17 1,303 17 Automobile 10,288 169 7,198 122 Other 1 2,491 53 1,781 39 Total Consumer 39,278 451 38,888 429 Total Impaired Loans with an Allowance Recorded $ 40,359 $ 466 $ 40,173 $ 449 Impaired Loans: Commercial $ 21,238 $ 205 $ 25,469 $ 221 Consumer 39,278 451 38,888 429 Total Impaired Loans $ 60,516 $ 656 $ 64,357 $ 650 1 Comprised of other revolving credit and installment financing. For the three months ended March 31, 2017 and 2016 , 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 months ended March 31, 2017 and 2016 , 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 $59.5 million and $60.0 million as of March 31, 2017 and December 31, 2016 , respectively. As of March 31, 2017 , there were $0.3 million commitments to lend additional funds on loans modified in a TDR. As of December 31, 2016 , there were $0.4 million of 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 months ended March 31, 2017 and 2016 . 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 5 $ 3,858 $ 1 17 $ 2,988 $ — Commercial Mortgage 1 404 — — — — Total Commercial 6 4,262 1 17 2,988 — Consumer Residential Mortgage 1 98 — 3 1,166 197 Home Equity — — — 1 478 6 Automobile 113 2,303 52 53 1,123 24 Other 2 90 643 18 62 450 13 Total Consumer 204 3,044 70 119 3,217 240 Total 210 $ 7,306 $ 71 136 $ 6,205 $ 240 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 months ended March 31, 2017 and 2016 , 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 2 $ 148 — $ — Commercial Mortgage 1 404 — — Total Commercial 3 552 — — Consumer Residential Mortgage — — 2 1,031 Home Equity — — 1 165 Automobile 11 224 5 116 Other 2 27 199 18 111 Total Consumer 38 423 26 1,423 Total 41 $ 975 26 $ 1,423 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 $7.7 million as of March 31, 2017 . |