Loans and Leases and the Allowance for Loan and Lease Losses | Loans and Leases and the Allowance for Credit Losses Loans and Leases The Company’s loan and lease portfolio was comprised of the following as of March 31, 2020 , and December 31, 2019 : (dollars in thousands) March 31, December 31, Commercial Commercial and Industrial $ 1,558,232 $ 1,379,152 Commercial Mortgage 2,616,243 2,518,051 Construction 245,390 194,170 Lease Financing 110,704 122,454 Total Commercial 4,530,569 4,213,827 Consumer Residential Mortgage 3,928,183 3,891,100 Home Equity 1,692,154 1,676,073 Automobile 716,214 720,286 Other 1 485,660 489,606 Total Consumer 6,822,211 6,777,065 Total Loans and Leases $ 11,352,780 $ 10,990,892 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 $3.2 million and $0.5 million for the three months ended March 31, 2020 , and March 31, 2019 , respectively. The Company elected to exclude accrued interest receivable (“AIR”) from the amortized cost basis of loans disclosed throughout this footnote. As of March 31, 2020, and December 31, 2019, AIR for loans totaled $30.9 million and $30.7 million , respectively, and is included in the “accrued interest receivable” line item on the Company’s consolidated statements of condition. Allowance for Credit Losses (the “Allowance”) As previously mentioned in Note 1 Summary of Significant Accounting Policies , the Company’s January 1, 2020, adoption of ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments,” resulted in a significant change to our methodology for estimating the Allowance since December 31, 2019. As a result of this adoption, the Company recorded a $1.7 million decrease to the Allowance as a cumulative-effect adjustment on January 1, 2020. The following presents by portfolio segment, the activity in the Allowance for the three months ended March 31, 2020 , and March 31, 2019 . (dollars in thousands) Commercial Consumer Total Three Months Ended March 31, 2020 Allowance for Credit Losses: Balance at Beginning of Period (December 31, 2019) $ 73,801 $ 36,226 $ 110,027 CECL Adoption (Day 1) Impact (18,789 ) 17,052 (1,737 ) Balance at Beginning of Period (January 1, 2020) 55,012 53,278 108,290 Loans and Leases Charged-Off (693 ) (6,484 ) (7,177 ) Recoveries on Loans and Leases Previously Charged-Off 329 3,108 3,437 Net Loans and Leases Recovered (Charged-Off) (364 ) (3,376 ) (3,740 ) Provision for Credit Losses 13,339 20,261 33,600 Balance at End of Period $ 67,987 $ 70,163 $ 138,150 Three Months Ended March 31, 2019 Allowance for Credit Losses: Balance at Beginning of Period $ 66,874 $ 39,819 $ 106,693 Loans and Leases Charged-Off (1,986 ) (4,842 ) (6,828 ) Recoveries on Loans and Leases Previously Charged-Off 501 2,657 3,158 Net Loans and Leases Recovered (Charged-Off) (1,485 ) (2,185 ) (3,670 ) Provision for Credit Losses 2,138 862 3,000 Balance at End of Period $ 67,527 $ 38,496 $ 106,023 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 all 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. The Special Mention credit quality indicator is not used for the consumer portfolio segment. 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 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 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. For pass rated credits, risk ratings are certified at a minimum annually. For special mention or classified credits, risk ratings are reviewed for appropriateness on an ongoing basis monthly or at a minimum quarterly. The following presents by credit quality indicator, loan class, and year of origination, the amortized cost basis of the Company’s loans and leases as of March 31, 2020 . Term Loans by Origination Year (dollars in thousands) YTD 2019 2018 2017 2016 Prior Revolving Revolving Loans Converted to Term Loans Total Loans and Leases March 31, 2020 Commercial Commercial and Industrial Pass $ 160,663 $ 253,285 $ 212,901 $ 93,614 $ 87,982 $ 108,952 $ 557,732 $ 1,122 $ 1,476,251 Special Mention 62 508 2,087 700 116 152 19,345 — 22,970 Classified 605 22,117 1,678 1,455 440 20,479 12,069 168 59,011 Total Commercial and Industrial $ 161,330 $ 275,910 $ 216,666 $ 95,769 $ 88,538 $ 129,583 $ 589,146 $ 1,290 $ 1,558,232 Commercial Mortgage Pass $ 209,933 $ 591,055 $ 396,239 $ 302,711 $ 329,045 $ 602,337 $ 81,036 $ — $ 2,512,356 Special Mention 3,961 820 19,919 13,176 7,359 7,884 — — 53,119 Classified 11,464 5,413 8,453 1,405 704 23,329 — — 50,768 Total Commercial Mortgage $ 225,358 $ 597,288 $ 424,611 $ 317,292 $ 337,108 $ 633,550 $ 81,036 $ — $ 2,616,243 Construction Pass $ 54,220 $ 81,985 $ 45,600 $ 20,336 $ — $ 1,936 $ 40,152 $ — $ 244,229 Classified — — — — — 1,161 — — 1,161 Total Construction $ 54,220 $ 81,985 $ 45,600 $ 20,336 $ — $ 3,097 $ 40,152 $ — $ 245,390 Lease Financing Pass $ 2,785 $ 23,324 $ 16,762 $ 5,767 $ 12,007 $ 48,527 $ — $ — $ 109,172 Special Mention — — — 2 34 — — — 36 Classified 38 80 1,206 59 113 — — — 1,496 Total Lease Financing $ 2,823 $ 23,404 $ 17,968 $ 5,828 $ 12,154 $ 48,527 $ — $ — $ 110,704 Total Commercial $ 443,731 $ 978,587 $ 704,845 $ 439,225 $ 437,800 $ 814,757 $ 710,334 $ 1,290 $ 4,530,569 Consumer Residential Mortgage Pass $ 212,313 $ 704,271 $ 445,511 $ 625,159 $ 678,049 $ 1,258,545 $ — $ — $ 3,923,848 Classified — — — 932 — 3,403 — — 4,335 Total Residential Mortgage $ 212,313 $ 704,271 $ 445,511 $ 626,091 $ 678,049 $ 1,261,948 $ — $ — $ 3,928,183 Home Equity Pass $ — $ — $ — $ — $ — $ 6,245 $ 1,637,082 $ 43,589 $ 1,686,916 Classified — — — — — 103 3,973 1,162 5,238 Total Home Equity $ — $ — $ — $ — $ — $ 6,348 $ 1,641,055 $ 44,751 $ 1,692,154 Automobile Pass $ 63,914 $ 265,516 $ 208,273 $ 98,987 $ 51,746 $ 26,912 $ — $ — $ 715,348 Classified — 182 166 257 179 82 — — 866 Total Automobile $ 63,914 $ 265,698 $ 208,439 $ 99,244 $ 51,925 $ 26,994 $ — $ — $ 716,214 Other 1 Pass $ 45,414 $ 181,911 $ 123,803 $ 68,751 $ 17,783 $ 6,098 $ 39,053 $ 1,643 $ 484,456 Classified — 326 326 302 119 44 79 8 1,204 Total Other $ 45,414 $ 182,237 $ 124,129 $ 69,053 $ 17,902 $ 6,142 $ 39,132 $ 1,651 $ 485,660 Total Consumer $ 321,641 $ 1,152,206 $ 778,079 $ 794,388 $ 747,876 $ 1,301,432 $ 1,680,187 $ 46,402 $ 6,822,211 Total Loans and Leases $ 765,372 $ 2,130,793 $ 1,482,924 $ 1,233,613 $ 1,185,676 $ 2,116,189 $ 2,390,521 $ 47,692 $ 11,352,780 1 Comprised of other revolving credit, installment, and lease financing. For the three months ended March 31, 2020, $0.6 million revolving loans were converted to term loans. The following presents by loan class and credit quality indicator, the recorded investment in the Company’s loans and leases as of December 31, 2019 . December 31, 2019 (dollars in thousands) Commercial and Industrial Commercial Mortgage Construction Lease Financing Total Commercial Pass $ 1,306,040 $ 2,463,858 $ 188,832 $ 120,933 $ 4,079,663 Special Mention 37,722 16,453 4,148 — 58,323 Classified 35,390 37,740 1,190 1,521 75,841 Total $ 1,379,152 $ 2,518,051 $ 194,170 $ 122,454 $ 4,213,827 (dollars in thousands) Residential Mortgage Home Equity Automobile Other 1 Total Consumer Pass $ 3,886,389 $ 1,671,468 $ 719,337 $ 488,113 $ 6,765,307 Classified 4,711 4,605 949 1,493 11,758 Total $ 3,891,100 $ 1,676,073 $ 720,286 $ 489,606 $ 6,777,065 Total Recorded Investment in Loans and Leases $ 10,990,892 1 Comprised of other revolving credit, installment, and lease financing. Aging Analysis Loans and leases are considered to be past due once becoming 30 days delinquent. For the consumer portfolio, this generally represents two missed monthly payments. The following presents by class, an aging analysis of the Company’s loan and lease portfolio as of March 31, 2020 , and December 31, 2019 . (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, 2020 Commercial Commercial and Industrial $ 3,596 $ 255 $ — $ 634 $ 4,485 $ 1,553,747 $ 1,558,232 $ 429 Commercial Mortgage 4,637 — — 9,048 13,685 2,602,558 2,616,243 9,048 Construction 720 — — — 720 244,670 245,390 — Lease Financing 23 — — — 23 110,681 110,704 — Total Commercial 8,976 255 — 9,682 18,913 4,511,656 4,530,569 9,477 Consumer Residential Mortgage 3,935 2,342 3,024 4,330 13,631 3,914,552 3,928,183 1,104 Home Equity 4,367 2,819 3,426 4,086 14,698 1,677,456 1,692,154 839 Automobile 14,590 4,096 866 — 19,552 696,662 716,214 — Other 1 3,648 1,905 1,205 — 6,758 478,902 485,660 — Total Consumer 26,540 11,162 8,521 8,416 54,639 6,767,572 6,822,211 1,943 Total $ 35,516 $ 11,417 $ 8,521 $ 18,098 $ 73,552 $ 11,279,228 $ 11,352,780 $ 11,420 As of December 31, 2019 Commercial Commercial and Industrial $ 12,534 $ 148 $ — $ 830 $ 13,512 $ 1,365,640 $ 1,379,152 $ 421 Commercial Mortgage 2,998 — — 9,244 12,242 2,505,809 2,518,051 9,244 Construction 101 51 — — 152 194,018 194,170 — Lease Financing 720 — — — 720 121,734 122,454 — Total Commercial 16,353 199 — 10,074 26,626 4,187,201 4,213,827 9,665 Consumer Residential Mortgage 6,097 2,070 1,839 4,125 14,131 3,876,969 3,891,100 1,429 Home Equity 3,949 2,280 4,125 3,181 13,535 1,662,538 1,676,073 412 Automobile 16,067 4,154 949 — 21,170 699,116 720,286 — Other 1 3,498 2,074 1,493 — 7,065 482,541 489,606 — Total Consumer 29,611 10,578 8,406 7,306 55,901 6,721,164 6,777,065 1,841 Total $ 45,964 $ 10,777 $ 8,406 $ 17,380 $ 82,527 $ 10,908,365 $ 10,990,892 $ 11,506 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. Non-Accrual Loans and Leases The following presents the non-accrual loans and leases as of March 31, 2020, and December 31, 2019. March 31, 2020 December 31, 2019 (dollars in thousands) Nonaccrual loans with a related ACL Nonaccrual loans without a related ACL Total Nonaccrual loans Total Nonaccrual loans Commercial Commercial and Industrial $ 634 $ — $ 634 $ 830 Commercial Mortgage 3,543 5,505 9,048 9,244 Total Commercial 4,177 5,505 9,682 10,074 Consumer Residential Mortgage 3,399 931 4,330 4,125 Home Equity 4,086 — 4,086 3,181 Total Consumer 7,485 931 8,416 7,306 Total $ 11,662 $ 6,436 $ 18,098 $ 17,380 All payments received while on non-accrual status are applied against the principal balance of the loan or lease. The Company does not recognize interest income while loans or leases are on non-accrual status. Modifications A modification of a loan constitutes a 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 $67.1 million as of March 31, 2020 , and $69.1 million as of December 31, 2019 . There were $0.2 million and $0.3 million commitments to lend additional funds on loans modified in a TDR as of March 31, 2020 , and December 31, 2019 , 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 fully amortizing the loan 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, 2020 , and March 31, 2019 . 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 2 $ 99 $ 2 3 $ 111 $ 5 Commercial Mortgage — — — 1 3,907 — Total Commercial 2 99 2 4 4,018 5 Consumer Automobile 52 893 14 117 2,240 34 Other 2 31 240 10 39 229 6 Total Consumer 83 1,133 24 156 2,469 40 Total 85 $ 1,232 $ 26 160 $ 6,487 $ 45 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, 2020 , and March 31, 2019 , 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 18 $ 176 14 $ 266 Other 2 5 50 19 125 Total Consumer 23 226 33 391 Total 23 $ 226 33 $ 391 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. Modifications in response to COVID-19 The Company began offering short-term loan modifications to assist borrowers during the COVID-19 national emergency. The CARES Act along with a joint agency statement issued by banking agencies, provides that short-term modifications made in response to COVID-19 does not need to be accounted for as a TDR. Accordingly, the Company does not account for such loan modifications as TDRs. See Note 1 Summary of Significant Accounting Policies for more information. Foreclosure Proceedings Consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure totaled $1.9 million as of March 31, 2020 . |