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, 2018 and December 31, 2017 : (dollars in thousands) September 30, December 31, Commercial Commercial and Industrial $ 1,314,609 $ 1,279,347 Commercial Mortgage 2,237,020 2,103,967 Construction 176,447 202,253 Lease Financing 172,232 180,931 Total Commercial 3,900,308 3,766,498 Consumer Residential Mortgage 3,596,627 3,466,773 Home Equity 1,625,208 1,585,455 Automobile 625,086 528,474 Other 1 483,833 449,747 Total Consumer 6,330,754 6,030,449 Total Loans and Leases $ 10,231,062 $ 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 $0.4 million and $1.4 million for the three months ended September 30, 2018 and 2017 , respectively, and $1.1 million and $4.6 million for the nine months ended September 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 nine months ended September 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 September 30, 2018 and 2017 . (dollars in thousands) Commercial Consumer Total Three Months Ended September 30, 2018 Allowance for Loan and Lease Losses: Balance at Beginning of Period $ 63,712 $ 44,476 $ 108,188 Loans and Leases Charged-Off (449 ) (5,578 ) (6,027 ) Recoveries on Loans and Leases Previously Charged-Off 542 2,187 2,729 Net Loans and Leases Recovered (Charged-Off) 93 (3,391 ) (3,298 ) Provision for Credit Losses 1,274 2,526 3,800 Balance at End of Period $ 65,079 $ 43,611 $ 108,690 Nine Months Ended September 30, 2018 Allowance for Loan and Lease Losses: Balance at Beginning of Period $ 65,822 $ 41,524 $ 107,346 Loans and Leases Charged-Off (1,140 ) (16,536 ) (17,676 ) Recoveries on Loans and Leases Previously Charged-Off 1,236 6,359 7,595 Net Loans and Leases Recovered (Charged-Off) 96 (10,177 ) (10,081 ) Provision for Credit Losses (839 ) 12,264 11,425 Balance at End of Period $ 65,079 $ 43,611 $ 108,690 As of September 30, 2018 Allowance for Loan and Lease Losses: Individually Evaluated for Impairment $ 135 $ 3,810 $ 3,945 Collectively Evaluated for Impairment 64,944 39,801 104,745 Total 65,079 43,611 108,690 Recorded Investment in Loans and Leases: Individually Evaluated for Impairment $ 12,190 $ 42,218 $ 54,408 Collectively Evaluated for Impairment 3,888,118 6,288,536 10,176,654 Total $ 3,900,308 $ 6,330,754 $ 10,231,062 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 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 September 30, 2018 and December 31, 2017 . September 30, 2018 (dollars in thousands) Commercial and Industrial Commercial Mortgage Construction Lease Financing Total Commercial Pass $ 1,283,903 $ 2,187,477 $ 173,214 $ 171,091 $ 3,815,685 Special Mention 20,841 34,623 1,885 444 57,793 Classified 9,865 14,920 1,348 697 26,830 Total $ 1,314,609 $ 2,237,020 $ 176,447 $ 172,232 $ 3,900,308 (dollars in thousands) Residential Mortgage Home Equity Automobile Other 1 Total Consumer Pass $ 3,590,268 $ 1,620,882 $ 624,256 $ 483,043 $ 6,318,449 Classified 6,359 4,326 830 790 12,305 Total $ 3,596,627 $ 1,625,208 $ 625,086 $ 483,833 $ 6,330,754 Total Recorded Investment in Loans and Leases $ 10,231,062 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 September 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 September 30, 2018 Commercial Commercial and Industrial $ 4,092 $ 33 $ — $ 1,205 $ 5,330 $ 1,309,279 $ 1,314,609 $ 860 Commercial Mortgage 1,487 585 — 652 2,724 2,234,296 2,237,020 — Construction — — — — — 176,447 176,447 — Lease Financing — — — — — 172,232 172,232 — Total Commercial 5,579 618 — 1,857 8,054 3,892,254 3,900,308 860 Consumer Residential Mortgage 2,335 2,609 2,426 6,359 13,729 3,582,898 3,596,627 709 Home Equity 3,276 910 3,112 3,673 10,971 1,614,237 1,625,208 848 Automobile 12,756 2,342 829 — 15,927 609,159 625,086 — Other 1 2,711 1,490 1,727 — 5,928 477,905 483,833 — Total Consumer 21,078 7,351 8,094 10,032 46,555 6,284,199 6,330,754 1,557 Total $ 26,657 $ 7,969 $ 8,094 $ 11,889 $ 54,609 $ 10,176,453 $ 10,231,062 $ 2,417 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 September 30, 2018 and December 31, 2017 . (dollars in thousands) Recorded Investment Unpaid Principal Balance Related Allowance for Loan Losses September 30, 2018 Impaired Loans with No Related Allowance Recorded: Commercial Commercial and Industrial $ 5,702 $ 9,402 $ — Commercial Mortgage 3,155 6,655 — Construction 1,348 1,348 — Total Commercial 10,205 17,405 — Total Impaired Loans with No Related Allowance Recorded $ 10,205 $ 17,405 $ — Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 1,786 $ 2,397 $ 115 Commercial Mortgage 199 199 20 Total Commercial 1,985 2,596 135 Consumer Residential Mortgage 20,523 25,239 3,051 Home Equity 2,902 2,902 345 Automobile 16,006 16,006 308 Other 1 2,787 2,787 106 Total Consumer 42,218 46,934 3,810 Total Impaired Loans with an Allowance Recorded $ 44,203 $ 49,530 $ 3,945 Impaired Loans: Commercial $ 12,190 $ 20,001 $ 135 Consumer 42,218 46,934 3,810 Total Impaired Loans $ 54,408 $ 66,935 $ 3,945 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 nine months ended September 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 $ 5,900 $ 48 $ 8,592 $ 106 Commercial Mortgage 3,179 15 9,512 61 Construction 1,361 2 1,453 23 Total Commercial 10,440 65 19,557 190 Total Impaired Loans with No Related Allowance Recorded $ 10,440 $ 65 $ 19,557 $ 190 Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 1,537 $ 55 $ 640 $ 11 Commercial Mortgage 211 17 771 31 Total Commercial 1,748 72 1,411 42 Consumer Residential Mortgage 20,571 456 21,674 209 Home Equity 2,695 35 1,773 20 Automobile 16,008 293 12,895 217 Other 1 2,826 62 2,615 52 Total Consumer 42,100 846 38,957 498 Total Impaired Loans with an Allowance Recorded $ 43,848 $ 918 $ 40,368 $ 540 Impaired Loans: Commercial $ 12,188 $ 137 $ 20,968 $ 232 Consumer 42,100 846 38,957 498 Total Impaired Loans $ 54,288 $ 983 $ 59,925 $ 730 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 $ 6,927 $ 244 $ 8,989 $ 248 Commercial Mortgage 5,285 132 9,390 223 Construction 1,373 47 1,477 71 Total Commercial 13,585 423 19,856 542 Total Impaired Loans with No Related Allowance Recorded $ 13,585 $ 423 $ 19,856 $ 542 Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 1,347 $ 75 $ 684 $ 31 Commercial Mortgage 223 23 562 39 Total Commercial 1,570 98 1,246 70 Consumer Residential Mortgage 20,514 883 23,331 635 Home Equity 2,448 86 1,642 57 Automobile 15,881 832 11,592 581 Other 1 2,800 170 2,553 162 Total Consumer 41,643 1,971 39,118 1,435 Total Impaired Loans with an Allowance Recorded $ 43,213 $ 2,069 $ 40,364 $ 1,505 Impaired Loans: Commercial $ 15,155 $ 521 $ 21,102 $ 612 Consumer 41,643 1,971 39,118 1,435 Total Impaired Loans $ 56,798 $ 2,492 $ 60,220 $ 2,047 1 Comprised of other revolving credit and installment financing. For the three and nine months ended September 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 nine months ended September 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 $52.8 million and $60.1 million as of September 30, 2018 and December 31, 2017 , respectively. There were $0.1 million and $1.5 million commitments to lend additional funds on loans modified in a TDR as of September 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 nine months ended September 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 1 $ 233 $ — 1 $ 198 $ — Commercial Mortgage — — — 2 1,307 93 Total Commercial 1 233 — 3 1,505 93 Consumer Residential Mortgage 2 296 5 — — — Home Equity 2 434 69 2 203 1 Automobile 87 1,700 33 123 2,636 59 Other 2 49 326 9 34 383 9 Total Consumer 140 2,756 116 159 3,222 69 Total 141 $ 2,989 $ 116 162 $ 4,727 $ 162 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 8 $ 1,450 $ 47 12 $ 7,485 $ 12 Commercial Mortgage — — — 3 2,007 93 Total Commercial 8 1,450 47 15 9,492 105 Consumer Residential Mortgage 4 749 35 — — — Home Equity 5 971 69 3 442 5 Automobile 254 5,196 100 326 6,657 149 Other 2 173 1,182 34 136 1,131 28 Total Consumer 436 8,098 238 465 8,230 182 Total 444 $ 9,548 $ 285 480 $ 17,722 $ 287 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, 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 12 $ 266 15 $ 373 Other 2 28 174 13 83 Total Consumer 40 440 28 456 Total 40 $ 440 28 $ 456 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 Automobile 32 614 23 551 Other 2 56 382 33 184 Total Consumer 88 996 56 735 Total 88 $ 996 57 $ 784 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 $4.3 million as of September 30, 2018 . |