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 June 30, 2018 and December 31, 2017 : (dollars in thousands) June 30, December 31, Commercial Commercial and Industrial $ 1,282,967 $ 1,279,347 Commercial Mortgage 2,169,357 2,103,967 Construction 185,350 202,253 Lease Financing 178,598 180,931 Total Commercial 3,816,272 3,766,498 Consumer Residential Mortgage 3,548,444 3,466,773 Home Equity 1,622,314 1,585,455 Automobile 592,705 528,474 Other 1 473,588 449,747 Total Consumer 6,237,051 6,030,449 Total Loans and Leases $ 10,053,323 $ 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 $0.5 million and $1.8 million for the three months ended June 30, 2018 and 2017 , respectively, and $0.8 million and $3.2 million for the six months ended June 30, 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 and six months ended June 30, 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 June 30, 2018 and 2017 . (dollars in thousands) Commercial Consumer Total Three Months Ended June 30, 2018 Allowance for Loan and Lease Losses: Balance at Beginning of Period $ 64,110 $ 43,828 $ 107,938 Loans and Leases Charged-Off (485 ) (5,176 ) (5,661 ) Recoveries on Loans and Leases Previously Charged-Off 366 2,045 2,411 Net Loans and Leases Recovered (Charged-Off) (119 ) (3,131 ) (3,250 ) Provision for Credit Losses (279 ) 3,779 3,500 Balance at End of Period $ 63,712 $ 44,476 $ 108,188 Six Months Ended June 30, 2018 Allowance for Loan and Lease Losses: Balance at Beginning of Period $ 65,822 $ 41,524 $ 107,346 Loans and Leases Charged-Off (691 ) (10,958 ) (11,649 ) Recoveries on Loans and Leases Previously Charged-Off 694 4,172 4,866 Net Loans and Leases Recovered (Charged-Off) 3 (6,786 ) (6,783 ) Provision for Credit Losses (2,113 ) 9,738 7,625 Balance at End of Period $ 63,712 $ 44,476 $ 108,188 As of June 30, 2018 Allowance for Loan and Lease Losses: Individually Evaluated for Impairment $ 100 $ 3,827 $ 3,927 Collectively Evaluated for Impairment 63,612 40,649 104,261 Total 63,712 44,476 108,188 Recorded Investment in Loans and Leases: Individually Evaluated for Impairment $ 12,184 $ 41,981 $ 54,165 Collectively Evaluated for Impairment 3,804,088 6,195,070 9,999,158 Total $ 3,816,272 $ 6,237,051 $ 10,053,323 Three Months Ended June 30, 2017 Allowance for Loan and Lease Losses: Balance at Beginning of Period $ 66,893 $ 38,171 $ 105,064 Loans and Leases Charged-Off (124 ) (5,363 ) (5,487 ) Recoveries on Loans and Leases Previously Charged-Off 266 2,260 2,526 Net Loans and Leases Recovered (Charged-Off) 142 (3,103 ) (2,961 ) Provision for Credit Losses (853 ) 5,103 4,250 Balance at End of Period $ 66,182 $ 40,171 $ 106,353 Six Months Ended June 30, 2017 Allowance for Loan and Lease Losses: Balance at Beginning of Period $ 65,680 $ 38,593 $ 104,273 Loans and Leases Charged-Off (298 ) (10,893 ) (11,191 ) Recoveries on Loans and Leases Previously Charged-Off 602 4,019 4,621 Net Loans and Leases Recovered (Charged-Off) 304 (6,874 ) (6,570 ) Provision for Credit Losses 198 8,452 8,650 Balance at End of Period $ 66,182 $ 40,171 $ 106,353 As of June 30, 2017 Allowance for Loan and Lease Losses: Individually Evaluated for Impairment $ 45 $ 3,792 $ 3,837 Collectively Evaluated for Impairment 66,137 36,379 102,516 Total $ 66,182 $ 40,171 $ 106,353 Recorded Investment in Loans and Leases: Individually Evaluated for Impairment $ 20,197 $ 38,528 $ 58,725 Collectively Evaluated for Impairment 3,684,715 5,644,173 9,328,888 Total $ 3,704,912 $ 5,682,701 $ 9,387,613 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 June 30, 2018 and December 31, 2017 . June 30, 2018 (dollars in thousands) Commercial and Industrial Commercial Mortgage Construction Lease Financing Total Commercial Pass $ 1,239,719 $ 2,116,370 $ 182,092 $ 177,800 $ 3,715,981 Special Mention 31,290 37,903 — 473 69,666 Classified 11,958 15,084 3,258 325 30,625 Total $ 1,282,967 $ 2,169,357 $ 185,350 $ 178,598 $ 3,816,272 (dollars in thousands) Residential Mortgage Home Equity Automobile Other 1 Total Consumer Pass $ 3,541,722 $ 1,617,621 $ 592,030 $ 472,918 $ 6,224,291 Classified 6,722 4,693 675 670 12,760 Total $ 3,548,444 $ 1,622,314 $ 592,705 $ 473,588 $ 6,237,051 Total Recorded Investment in Loans and Leases $ 10,053,323 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 June 30, 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 June 30, 2018 Commercial Commercial and Industrial $ 551 $ 696 $ 2 $ 917 $ 2,166 $ 1,280,801 $ 1,282,967 $ 716 Commercial Mortgage 491 — 5,680 659 $ 6,830 $ 2,162,527 2,169,357 434 Construction 707 — — — 707 184,643 185,350 — Lease Financing — — — — — 178,598 178,598 — Total Commercial 1,749 696 5,682 1,576 9,703 3,806,569 3,816,272 1,150 Consumer Residential Mortgage 2,028 3,230 2,281 6,722 14,261 3,534,183 3,548,444 455 Home Equity 4,240 1,141 3,016 3,933 12,330 1,609,984 1,622,314 1,825 Automobile 10,809 1,976 674 — 13,459 579,246 592,705 — Other 1 2,794 1,401 1,660 — 5,855 467,733 473,588 — Total Consumer 19,871 7,748 7,631 10,655 45,905 6,191,146 6,237,051 2,280 Total $ 21,620 $ 8,444 $ 13,313 $ 12,231 $ 55,608 $ 9,997,715 $ 10,053,323 $ 3,430 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 June 30, 2018 and December 31, 2017 . (dollars in thousands) Recorded Investment Unpaid Principal Balance Related Allowance for Loan Losses June 30, 2018 Impaired Loans with No Related Allowance Recorded: Commercial Commercial and Industrial $ 6,097 $ 9,639 $ — Commercial Mortgage 3,203 6,703 — Construction 1,373 1,373 — Total Commercial 10,673 17,715 — Total Impaired Loans with No Related Allowance Recorded $ 10,673 $ 17,715 $ — Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 1,288 $ 1,900 $ 78 Commercial Mortgage 223 223 22 Total Commercial 1,511 2,123 100 Consumer Residential Mortgage 20,619 25,362 3,110 Home Equity 2,488 2,488 276 Automobile 16,010 16,010 328 Other 1 2,864 2,864 113 Total Consumer 41,981 46,724 3,827 Total Impaired Loans with an Allowance Recorded $ 43,492 $ 48,847 $ 3,927 Impaired Loans: Commercial $ 12,184 $ 19,838 $ 100 Consumer 41,981 46,724 3,827 Total Impaired Loans $ 54,165 $ 66,562 $ 3,927 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 and six months ended June 30, 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 $ 7,540 $ 83 $ 8,717 $ 61 Commercial Mortgage 6,351 30 9,369 77 Construction 1,386 22 1,477 24 Total Commercial 15,277 135 19,563 162 Total Impaired Loans with No Related Allowance Recorded $ 15,277 $ 135 $ 19,563 $ 162 Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 1,128 $ 10 $ 657 $ 9 Commercial Mortgage 236 3 331 4 Total Commercial 1,364 13 988 13 Consumer Residential Mortgage 20,509 215 23,148 214 Home Equity 2,221 26 1,621 20 Automobile 15,819 278 11,547 195 Other 1 2,806 56 2,663 57 Total Consumer 41,355 575 38,979 486 Total Impaired Loans with an Allowance Recorded $ 42,719 $ 588 $ 39,967 $ 499 Impaired Loans: Commercial $ 16,641 $ 148 $ 20,551 $ 175 Consumer 41,355 575 38,979 486 Total Impaired Loans $ 57,996 $ 723 $ 59,530 $ 661 Six Months Ended Six 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 $ 7,724 $ 196 $ 8,996 $ 142 Commercial Mortgage 7,132 117 9,370 162 Construction 1,396 45 1,489 48 Total Commercial 16,252 358 19,855 352 Total Impaired Loans with No Related Allowance Recorded $ 16,252 $ 358 $ 19,855 $ 352 Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 1,022 $ 20 $ 693 $ 20 Commercial Mortgage 557 6 342 8 Total Commercial 1,579 26 1,035 28 Consumer Residential Mortgage 20,866 427 23,974 426 Home Equity 2,135 51 1,586 37 Automobile 15,483 539 10,918 364 Other 1 2,752 108 2,550 110 Total Consumer 41,236 1,125 39,028 937 Total Impaired Loans with an Allowance Recorded $ 42,815 $ 1,151 $ 40,063 $ 965 Impaired Loans: Commercial $ 17,831 $ 384 $ 20,890 $ 380 Consumer 41,236 1,125 39,028 937 Total Impaired Loans $ 59,067 $ 1,509 $ 59,918 $ 1,317 1 Comprised of other revolving credit and installment financing. For the three and six months ended June 30, 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 and six months ended June 30, 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 $52.6 million and $60.1 million as of June 30, 2018 and December 31, 2017 , respectively. There were $0.3 million and $1.5 million commitments to lend additional funds on loans modified in a TDR as of June 30, 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 and six months ended June 30, 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 6 $ 712 $ 48 6 $ 4,191 $ 11 Commercial Mortgage — — — 1 700 — Total Commercial 6 712 48 7 4,891 11 Consumer Residential Mortgage 2 455 30 — — — Home Equity 3 545 — 1 4 4 Automobile 72 1,521 31 99 2,115 49 Other 2 63 468 14 40 304 8 Total Consumer 140 2,989 75 140 2,423 61 Total 146 $ 3,701 $ 123 147 $ 7,314 $ 72 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 7 $ 1,233 $ 48 11 $ 7,235 $ 11 Commercial Mortgage — — — 2 1,096 — Total Commercial 7 1,233 48 13 8,331 11 Consumer Residential Mortgage 2 455 30 — — — Home Equity 3 545 — 1 239 4 Automobile 170 3,654 75 209 4,315 99 Other 2 138 967 28 114 891 24 Total Consumer 313 5,621 133 324 5,445 127 Total 320 $ 6,854 $ 181 337 $ 13,776 $ 138 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 six months ended June 30, 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 Consumer Automobile 14 $ 289 12 $ 267 Other 2 21 167 18 137 Total Consumer 35 456 30 404 Total 35 $ 456 30 $ 404 Six Months Ended Six 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 Home Equity 1 236 — — Automobile 32 606 17 390 Other 2 41 295 36 255 Total Consumer 74 1,137 53 645 Total 74 $ 1,137 54 $ 694 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 June 30, 2018 . |