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, 2017 and December 31, 2016 : (dollars in thousands) September 30, December 31, Commercial Commercial and Industrial $ 1,252,238 $ 1,249,791 Commercial Mortgage 2,050,998 1,889,551 Construction 232,487 270,018 Lease Financing 204,240 208,332 Total Commercial 3,739,963 3,617,692 Consumer Residential Mortgage 3,366,634 3,163,073 Home Equity 1,528,353 1,334,163 Automobile 506,102 454,333 Other 1 432,904 380,524 Total Consumer 5,833,993 5,332,093 Total Loans and Leases $ 9,573,956 $ 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 $1.4 million and $3.6 million for the three months ended September 30, 2017 and 2016 , respectively, and $4.6 million and $9.8 million for the nine months ended September 30, 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 and nine months ended September 30, 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 September 30, 2017 and 2016 . (dollars in thousands) Commercial Consumer Total Three Months Ended September 30, 2017 Allowance for Loan and Lease Losses: Balance at Beginning of Period $ 66,182 $ 40,171 $ 106,353 Loans and Leases Charged-Off (611 ) (5,607 ) (6,218 ) Recoveries on Loans and Leases Previously Charged-Off 598 2,148 2,746 Net Loans and Leases Recovered (Charged-Off) (13 ) (3,459 ) (3,472 ) Provision for Credit Losses 295 3,705 4,000 Balance at End of Period $ 66,464 $ 40,417 $ 106,881 Nine Months Ended September 30, 2017 Allowance for Loan and Lease Losses: Balance at Beginning of Period $ 65,680 $ 38,593 $ 104,273 Loans and Leases Charged-Off (909 ) (16,500 ) (17,409 ) Recoveries on Loans and Leases Previously Charged-Off 1,200 6,167 7,367 Net Loans and Leases Recovered (Charged-Off) 291 (10,333 ) (10,042 ) Provision for Credit Losses 493 12,157 12,650 Balance at End of Period $ 66,464 $ 40,417 $ 106,881 As of September 30, 2017 Allowance for Loan and Lease Losses: Individually Evaluated for Impairment $ 136 $ 3,762 $ 3,898 Collectively Evaluated for Impairment 66,328 36,655 102,983 Total $ 66,464 $ 40,417 $ 106,881 Recorded Investment in Loans and Leases: Individually Evaluated for Impairment $ 21,738 $ 39,385 $ 61,123 Collectively Evaluated for Impairment 3,718,225 5,794,608 9,512,833 Total $ 3,739,963 $ 5,833,993 $ 9,573,956 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 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. 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, 2017 and December 31, 2016 . September 30, 2017 (dollars in thousands) Commercial and Industrial Commercial Mortgage Construction Lease Financing Total Commercial Pass $ 1,206,294 $ 1,997,523 $ 231,033 $ 203,806 $ 3,638,656 Special Mention 18,593 30,744 13 — 49,350 Classified 27,351 22,731 1,441 434 51,957 Total $ 1,252,238 $ 2,050,998 $ 232,487 $ 204,240 $ 3,739,963 (dollars in thousands) Residential Mortgage Home Equity Automobile Other 1 Total Consumer Pass $ 3,357,447 $ 1,521,919 $ 505,296 $ 432,211 $ 5,816,873 Special Mention — 1,764 — — 1,764 Classified 9,187 4,670 806 693 15,356 Total $ 3,366,634 $ 1,528,353 $ 506,102 $ 432,904 $ 5,833,993 Total Recorded Investment in Loans and Leases $ 9,573,956 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 September 30, 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 September 30, 2017 Commercial Commercial and Industrial $ 2,063 $ 206 $ 5 $ 901 $ 3,175 $ 1,249,063 $ 1,252,238 $ 162 Commercial Mortgage 1,321 619 — 1,425 3,365 2,047,633 2,050,998 404 Construction — — — — — 232,487 232,487 — Lease Financing — — — — — 204,240 204,240 — Total Commercial 3,384 825 5 2,326 6,540 3,733,423 3,739,963 566 Consumer Residential Mortgage 3,838 1,456 2,933 9,188 17,415 3,349,219 3,366,634 1,517 Home Equity 2,588 1,017 1,392 4,128 9,125 1,519,228 1,528,353 1,300 Automobile 9,743 1,623 806 — 12,172 493,930 506,102 — Other 1 2,772 1,912 1,528 — 6,212 426,692 432,904 — Total Consumer 18,941 6,008 6,659 13,316 44,924 5,789,069 5,833,993 2,817 Total $ 22,325 $ 6,833 $ 6,664 $ 15,642 $ 51,464 $ 9,522,492 $ 9,573,956 $ 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 September 30, 2017 and December 31, 2016 . (dollars in thousands) Recorded Investment Unpaid Principal Balance Related Allowance for Loan Losses September 30, 2017 Impaired Loans with No Related Allowance Recorded: Commercial Commercial and Industrial $ 8,967 $ 16,279 $ — Commercial Mortgage 9,450 12,950 — Construction 1,441 1,440 — Total Commercial 19,858 30,669 — Total Impaired Loans with No Related Allowance Recorded $ 19,858 $ 30,669 $ — Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 656 $ 656 $ 14 Commercial Mortgage 1,224 1,224 122 Total Commercial 1,880 1,880 136 Consumer Residential Mortgage 21,401 26,140 3,117 Home Equity 1,810 1,810 267 Automobile 13,612 13,612 304 Other 1 2,562 2,562 74 Total Consumer 39,385 44,124 3,762 Total Impaired Loans with an Allowance Recorded $ 41,265 $ 46,004 $ 3,898 Impaired Loans: Commercial $ 21,738 $ 32,549 $ 136 Consumer 39,385 44,124 3,762 Total Impaired Loans $ 61,123 $ 76,673 $ 3,898 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 and nine months ended September 30, 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 $ 8,592 $ 106 $ 9,762 $ 115 Commercial Mortgage 9,512 61 9,848 90 Construction 1,453 23 1,548 25 Total Commercial 19,557 190 21,158 230 Total Impaired Loans with No Related Allowance Recorded $ 19,557 $ 190 $ 21,158 $ 230 Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 640 $ 11 $ 681 $ 27 Commercial Mortgage 771 31 194 5 Total Commercial 1,411 42 875 32 Consumer Residential Mortgage 21,674 209 27,172 235 Home Equity 1,773 20 1,428 15 Automobile 12,895 217 7,908 129 Other 1 2,615 52 2,064 44 Total Consumer 38,957 498 38,572 423 Total Impaired Loans with an Allowance Recorded $ 40,368 $ 540 $ 39,447 $ 455 Impaired Loans: Commercial $ 20,968 $ 232 $ 22,033 $ 262 Consumer 38,957 498 38,572 423 Total Impaired Loans $ 59,925 $ 730 $ 60,605 $ 685 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 $ 8,989 $ 248 $ 11,061 $ 333 Commercial Mortgage 9,390 223 10,040 252 Construction 1,477 71 1,570 76 Total Commercial 19,856 542 22,671 661 Total Impaired Loans with No Related Allowance Recorded $ 19,856 $ 542 $ 22,671 $ 661 Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 684 $ 31 $ 983 $ 59 Commercial Mortgage 562 39 97 5 Total Commercial 1,246 70 1,080 64 Consumer Residential Mortgage 23,331 635 27,889 736 Home Equity 1,642 57 1,365 50 Automobile 11,592 581 7,553 376 Other 1 2,553 162 1,922 126 Total Consumer 39,118 1,435 38,729 1,288 Total Impaired Loans with an Allowance Recorded $ 40,364 $ 1,505 $ 39,809 $ 1,352 Impaired Loans: Commercial $ 21,102 $ 612 $ 23,751 $ 725 Consumer 39,118 1,435 38,729 1,288 Total Impaired Loans $ 60,220 $ 2,047 $ 62,480 $ 2,013 1 Comprised of other revolving credit and installment financing. For the three and nine months ended September 30, 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 and nine months ended September 30, 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 $59.2 million and $60.0 million as of September 30, 2017 and December 31, 2016 , respectively. As of September 30, 2017 , there were no 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 are 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, 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 1 $ 198 $ — 4 $ 97 $ 1 Commercial Mortgage 2 1,307 93 1 208 2 Total Commercial 3 1,505 93 5 305 3 Consumer Residential Mortgage — — — 3 547 258 Home Equity 2 203 1 — — — Automobile 123 2,636 59 79 1,678 38 Other 2 34 383 9 62 510 14 Total Consumer 159 3,222 69 144 2,735 310 Total 162 $ 4,727 $ 162 149 $ 3,040 $ 313 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 12 $ 7,485 $ 12 6 $ 3,084 $ 1 Commercial Mortgage 3 2,007 93 1 208 2 Total Commercial 15 9,492 105 7 3,292 3 Consumer Residential Mortgage — — — 8 3,025 274 Home Equity 3 442 5 1 476 5 Automobile 326 6,657 149 184 3,617 82 Other 2 136 1,131 28 155 1,127 31 Total Consumer 465 8,230 182 348 8,245 392 Total 480 $ 17,722 $ 287 355 $ 11,537 $ 395 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, 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 Consumer Automobile 15 $ 373 1 $ 3 Other 2 13 83 — — Total Consumer 28 456 1 3 Total 28 $ 456 1 $ 3 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 $ 49 — $ — Total Commercial 1 49 — — Consumer Residential Mortgage — — 3 1,044 Home Equity — — 1 158 Automobile 23 551 3 47 Other 2 33 184 18 110 Total Consumer 56 735 25 1,359 Total 57 $ 784 25 $ 1,359 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 $5.5 million as of September 30, 2017 . |