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, 2018 and December 31, 2017 : (dollars in thousands) March 31, December 31, Commercial Commercial and Industrial $ 1,329,096 $ 1,279,347 Commercial Mortgage 2,097,339 2,103,967 Construction 186,530 202,253 Lease Financing 179,771 180,931 Total Commercial 3,792,736 3,766,498 Consumer Residential Mortgage 3,505,239 3,466,773 Home Equity 1,601,698 1,585,455 Automobile 558,468 528,474 Other 1 458,487 449,747 Total Consumer 6,123,892 6,030,449 Total Loans and Leases $ 9,916,628 $ 9,796,947 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 $0.3 million and $1.3 million for the three months ended March 31, 2018 and 2017 , 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, 2018 and 2017 . 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, 2018 and 2017 . (dollars in thousands) Commercial Consumer Total Three Months Ended March 31, 2018 Allowance for Loan and Lease Losses: Balance at Beginning of Period $ 65,822 $ 41,524 $ 107,346 Loans and Leases Charged-Off (206 ) (5,782 ) (5,988 ) Recoveries on Loans and Leases Previously Charged-Off 328 2,127 2,455 Net Loans and Leases Recovered (Charged-Off) 122 (3,655 ) (3,533 ) Provision for Credit Losses (1,834 ) 5,959 4,125 Balance at End of Period $ 64,110 $ 43,828 $ 107,938 As of March 31, 2018 Allowance for Loan and Lease Losses: Individually Evaluated for Impairment $ 59 $ 3,783 $ 3,842 Collectively Evaluated for Impairment 64,051 40,045 104,096 Total $ 64,110 $ 43,828 $ 107,938 Recorded Investment in Loans and Leases: Individually Evaluated for Impairment $ 21,095 $ 40,727 $ 61,822 Collectively Evaluated for Impairment 3,771,641 6,083,165 9,854,806 Total $ 3,792,736 $ 6,123,892 $ 9,916,628 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 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 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 March 31, 2018 and December 31, 2017 . March 31, 2018 (dollars in thousands) Commercial and Industrial Commercial Mortgage Construction Lease Financing Total Commercial Pass $ 1,289,103 $ 2,041,154 $ 183,240 $ 179,401 $ 3,692,898 Special Mention 22,506 36,431 — 10 58,947 Classified 17,487 19,754 3,290 360 40,891 Total $ 1,329,096 $ 2,097,339 $ 186,530 $ 179,771 $ 3,792,736 (dollars in thousands) Residential Mortgage Home Equity Automobile Other 1 Total Consumer Pass $ 3,498,291 $ 1,597,383 $ 558,135 $ 457,702 $ 6,111,511 Classified 6,948 4,315 333 785 12,381 Total $ 3,505,239 $ 1,601,698 $ 558,468 $ 458,487 $ 6,123,892 Total Recorded Investment in Loans and Leases $ 9,916,628 December 31, 2017 (dollars in thousands) Commercial and Industrial Commercial Mortgage Construction Lease Financing Total Commercial Pass $ 1,234,738 $ 2,046,745 $ 198,926 $ 180,522 $ 3,660,931 Special Mention 15,394 35,762 6 11 51,173 Classified 29,215 21,460 3,321 398 54,394 Total $ 1,279,347 $ 2,103,967 $ 202,253 $ 180,931 $ 3,766,498 (dollars in thousands) Residential Mortgage Home Equity Automobile Other 1 Total Consumer Pass $ 3,457,531 $ 1,580,917 $ 527,587 $ 449,008 $ 6,015,043 Classified 9,242 4,538 887 739 15,406 Total $ 3,466,773 $ 1,585,455 $ 528,474 $ 449,747 $ 6,030,449 Total Recorded Investment in Loans and Leases $ 9,796,947 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, 2018 and December 31, 2017 . (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, 2018 Commercial Commercial and Industrial $ 1,611 $ 301 $ — $ 986 $ 2,898 $ 1,326,198 $ 1,329,096 $ 735 Commercial Mortgage 423 — — 1,367 1,790 2,095,549 2,097,339 801 Construction — — — — — 186,530 186,530 — Lease Financing — — — — — 179,771 179,771 — Total Commercial 2,034 301 — 2,353 4,688 3,788,048 3,792,736 1,536 Consumer Residential Mortgage 4,325 2,677 2,927 6,725 16,654 3,488,585 3,505,239 790 Home Equity 2,768 1,255 3,013 3,890 10,926 1,590,772 1,601,698 1,036 Automobile 9,172 1,577 333 — 11,082 547,386 558,468 — Other 1 2,896 1,587 1,895 — 6,378 452,109 458,487 — Total Consumer 19,161 7,096 8,168 10,615 45,040 6,078,852 6,123,892 1,826 Total $ 21,195 $ 7,397 $ 8,168 $ 12,968 $ 49,728 $ 9,866,900 $ 9,916,628 $ 3,362 As of December 31, 2017 Commercial Commercial and Industrial $ 4,196 $ 641 $ — $ 448 $ 5,285 $ 1,274,062 $ 1,279,347 $ 313 Commercial Mortgage 187 404 — 1,398 1,989 2,101,978 2,103,967 465 Construction — — — — — 202,253 202,253 — Lease Financing — — — — — 180,931 180,931 — Total Commercial 4,383 1,045 — 1,846 7,274 3,759,224 3,766,498 778 Consumer Residential Mortgage 7,815 2,008 2,703 9,243 21,769 3,445,004 3,466,773 806 Home Equity 2,532 2,736 1,624 3,991 10,883 1,574,572 1,585,455 1,312 Automobile 11,728 2,232 886 — 14,846 513,628 528,474 — Other 1 3,007 1,639 1,934 — 6,580 443,167 449,747 — Total Consumer 25,082 8,615 7,147 13,234 54,078 5,976,371 6,030,449 2,118 Total $ 29,465 $ 9,660 $ 7,147 $ 15,080 $ 61,352 $ 9,735,595 $ 9,796,947 $ 2,896 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, 2018 and December 31, 2017 . (dollars in thousands) Recorded Investment Unpaid Principal Balance Related Allowance for Loan Losses March 31, 2018 Impaired Loans with No Related Allowance Recorded: Commercial Commercial and Industrial $ 8,982 $ 12,596 $ — Commercial Mortgage 9,498 12,998 — Construction 1,399 1,399 — Total Commercial 19,879 26,993 — Total Impaired Loans with No Related Allowance Recorded $ 19,879 $ 26,993 $ — Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 968 $ 1,659 $ 34 Commercial Mortgage 248 248 25 Total Commercial 1,216 1,907 59 Consumer Residential Mortgage 20,399 25,142 3,080 Home Equity 1,953 1,953 276 Automobile 15,627 15,627 337 Other 1 2,748 2,748 90 Total Consumer 40,727 45,470 3,783 Total Impaired Loans with an Allowance Recorded $ 41,943 $ 47,377 $ 3,842 Impaired Loans: Commercial $ 21,095 $ 28,900 $ 59 Consumer 40,727 45,470 3,783 Total Impaired Loans $ 61,822 $ 74,370 $ 3,842 December 31, 2017 Impaired Loans with No Related Allowance Recorded: Commercial Commercial and Industrial $ 8,094 $ 15,747 $ — Commercial Mortgage 8,696 12,196 — Construction 1,415 1,415 — Total Commercial 18,205 29,358 — Total Impaired Loans with No Related Allowance Recorded $ 18,205 $ 29,358 $ — Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 811 $ 811 $ 21 Commercial Mortgage 1,200 1,200 120 Total Commercial 2,011 2,011 141 Consumer Residential Mortgage 21,581 26,324 3,118 Home Equity 1,965 1,965 276 Automobile 14,811 14,811 305 Other 1 2,645 2,645 76 Total Consumer 41,002 45,745 3,775 Total Impaired Loans with an Allowance Recorded $ 43,013 $ 47,756 $ 3,916 Impaired Loans: Commercial $ 20,216 $ 31,369 $ 141 Consumer 41,002 45,745 3,775 Total Impaired Loans $ 61,218 $ 77,114 $ 3,916 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, 2018 and 2017 . 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 $ 8,538 $ 113 $ 9,387 $ 81 Commercial Mortgage 9,097 87 9,269 85 Construction 1,407 23 1,501 24 Total Commercial 19,042 223 20,157 190 Total Impaired Loans with No Related Allowance Recorded $ 19,042 $ 223 $ 20,157 $ 190 Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 890 $ 10 $ 727 $ 11 Commercial Mortgage 724 3 354 4 Total Commercial 1,614 13 1,081 15 Consumer Residential Mortgage 20,990 212 24,987 212 Home Equity 1,959 25 1,512 17 Automobile 15,219 261 10,288 169 Other 1 2,697 52 2,491 53 Total Consumer 40,865 550 39,278 451 Total Impaired Loans with an Allowance Recorded $ 42,479 $ 563 $ 40,359 $ 466 Impaired Loans: Commercial $ 20,656 $ 236 $ 21,238 $ 205 Consumer 40,865 550 39,278 451 Total Impaired Loans $ 61,521 $ 786 $ 60,516 $ 656 1 Comprised of other revolving credit and installment financing. For the three months ended March 31, 2018 and 2017 , 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, 2018 and 2017 , 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 $60.2 million and $60.1 million as of March 31, 2018 and December 31, 2017 , respectively. There were $1.3 million and $1.5 million commitments to lend additional funds on loans modified in a TDR as of March 31, 2018 and December 31, 2017 , respectively. 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 commercial and consumer 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, 2018 and 2017 . 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 $ 503 $ — 5 $ 3,858 $ 1 Commercial Mortgage — — — 1 404 — Total Commercial 1 503 — 6 4,262 1 Consumer Residential Mortgage 1 112 — 1 98 — Automobile 98 2,179 47 113 2,303 52 Other 2 80 547 14 90 643 18 Total Consumer 179 2,838 61 204 3,044 70 Total 180 $ 3,341 $ 61 210 $ 7,306 $ 71 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, 2018 and 2017 , 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 $ 29 2 $ 148 Commercial Mortgage 1 341 1 404 Total Commercial 2 370 3 552 Consumer Home Equity 1 236 — — Automobile 25 435 11 224 Other 2 32 215 27 199 Total Consumer 58 886 38 423 Total 60 $ 1,256 41 $ 975 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 $3.9 million as of March 31, 2018 . |