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, 2017 and December 31, 2016 : (dollars in thousands) June 30, December 31, Commercial Commercial and Industrial $ 1,241,953 $ 1,249,791 Commercial Mortgage 2,009,886 1,889,551 Construction 248,030 270,018 Lease Financing 205,043 208,332 Total Commercial 3,704,912 3,617,692 Consumer Residential Mortgage 3,317,179 3,163,073 Home Equity 1,473,123 1,334,163 Automobile 484,092 454,333 Other 1 408,307 380,524 Total Consumer 5,682,701 5,332,093 Total Loans and Leases $ 9,387,613 $ 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 $1.8 million and $4.4 million for the three months ended June 30, 2017 and 2016 , respectively, and $3.2 million and $6.2 million for the six months ended June 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 six months ended June 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 June 30, 2017 and 2016 . (dollars in thousands) Commercial Consumer Total 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 Three Months Ended June 30, 2016 Allowance for Loan and Lease Losses: Balance at Beginning of Period $ 61,810 $ 42,867 $ 104,677 Loans and Leases Charged-Off (204 ) (3,551 ) (3,755 ) Recoveries on Loans and Leases Previously Charged-Off 418 1,592 2,010 Net Loans and Leases Recovered (Charged-Off) 214 (1,959 ) (1,745 ) Provision for Credit Losses 5 995 1,000 Balance at End of Period $ 62,029 $ 41,903 $ 103,932 Six Months Ended June 30, 2016 Allowance for Loan and Lease Losses: Balance at Beginning of Period $ 60,714 $ 42,166 $ 102,880 Loans and Leases Charged-Off (461 ) (8,181 ) (8,642 ) Recoveries on Loans and Leases Previously Charged-Off 7,323 3,371 10,694 Net Loans and Leases Recovered (Charged-Off) 6,862 (4,810 ) 2,052 Provision for Credit Losses (5,547 ) 4,547 (1,000 ) Balance at End of Period $ 62,029 $ 41,903 $ 103,932 As of June 30, 2016 Allowance for Loan and Lease Losses: Individually Evaluated for Impairment $ 7 $ 3,195 $ 3,202 Collectively Evaluated for Impairment 62,022 38,708 100,730 Total $ 62,029 $ 41,903 $ 103,932 Recorded Investment in Loans and Leases: Individually Evaluated for Impairment $ 22,271 $ 38,691 $ 60,962 Collectively Evaluated for Impairment 3,283,571 4,986,936 8,270,507 Total $ 3,305,842 $ 5,025,627 $ 8,331,469 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. The special mention credit quality indicator is not used for classes of loans and leases that are included in the consumer portfolio segment. 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, 2017 and December 31, 2016 . June 30, 2017 (dollars in thousands) Commercial and Industrial Commercial Mortgage Construction Lease Financing Total Commercial Pass $ 1,197,264 $ 1,937,447 $ 246,283 $ 204,572 $ 3,585,566 Special Mention 16,752 53,046 282 — 70,080 Classified 27,937 19,393 1,465 471 49,266 Total $ 1,241,953 $ 2,009,886 $ 248,030 $ 205,043 $ 3,704,912 (dollars in thousands) Residential Mortgage Home Equity Automobile Other 1 Total Consumer Pass $ 3,307,841 $ 1,466,847 $ 483,553 $ 407,468 $ 5,665,709 Special Mention — 1,764 — — 1,764 Classified 9,338 4,512 539 839 15,228 Total $ 3,317,179 $ 1,473,123 $ 484,092 $ 408,307 $ 5,682,701 Total Recorded Investment in Loans and Leases $ 9,387,613 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 June 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 June 30, 2017 Commercial Commercial and Industrial $ 310 $ 68 $ — $ 175 $ 553 $ 1,241,400 $ 1,241,953 $ 78 Commercial Mortgage 12 — — 1,460 1,472 2,008,414 2,009,886 899 Construction — — — — — 248,030 248,030 — Lease Financing — — — — — 205,043 205,043 — Total Commercial 322 68 — 1,635 2,025 3,702,887 3,704,912 977 Consumer Residential Mortgage 3,486 869 2,269 9,337 15,961 3,301,218 3,317,179 733 Home Equity 2,331 524 2,343 3,405 8,603 1,464,520 1,473,123 1,006 Automobile 11,184 1,397 539 — 13,120 470,972 484,092 — Other 1 2,886 1,597 1,859 — 6,342 401,965 408,307 — Total Consumer 19,887 4,387 7,010 12,742 44,026 5,638,675 5,682,701 1,739 Total $ 20,209 $ 4,455 $ 7,010 $ 14,377 $ 46,051 $ 9,341,562 $ 9,387,613 $ 2,716 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 June 30, 2017 and December 31, 2016 . (dollars in thousands) Recorded Investment Unpaid Principal Balance Related Allowance for Loan Losses June 30, 2017 Impaired Loans with No Related Allowance Recorded: Commercial Commercial and Industrial $ 8,216 $ 15,178 $ — Commercial Mortgage 9,573 13,073 — Construction 1,465 1,465 — Total Commercial 19,254 29,716 — Total Impaired Loans with No Related Allowance Recorded $ 19,254 $ 29,716 $ — Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 624 $ 624 $ 13 Commercial Mortgage 319 319 32 Total Commercial 943 943 45 Consumer Residential Mortgage 21,947 26,686 3,167 Home Equity 1,735 1,735 267 Automobile 12,178 12,178 279 Other 1 2,668 2,669 79 Total Consumer 38,528 43,268 3,792 Total Impaired Loans with an Allowance Recorded $ 39,471 $ 44,211 $ 3,837 Impaired Loans: Commercial $ 20,197 $ 30,659 $ 45 Consumer 38,528 43,268 3,792 Total Impaired Loans $ 58,725 $ 73,927 $ 3,837 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 six months ended June 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 $ 8,717 $ 61 $ 10,032 $ 112 Commercial Mortgage 9,369 77 10,059 93 Construction 1,477 24 1,570 25 Total Commercial 19,563 162 21,661 230 Total Impaired Loans with No Related Allowance Recorded $ 19,563 $ 162 $ 21,661 $ 230 Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 657 $ 9 $ 968 $ 12 Commercial Mortgage 331 4 — — Total Commercial 988 13 968 12 Consumer Residential Mortgage 23,148 214 27,995 250 Home Equity 1,621 20 1,511 18 Automobile 11,547 195 7,422 125 Other 1 2,663 57 1,932 43 Total Consumer 38,979 486 38,860 436 Total Impaired Loans with an Allowance Recorded $ 39,967 $ 499 $ 39,828 $ 448 Impaired Loans: Commercial $ 20,551 $ 175 $ 22,629 $ 242 Consumer 38,979 486 38,860 436 Total Impaired Loans $ 59,530 $ 661 $ 61,489 $ 678 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 $ 8,996 $ 142 $ 11,571 $ 218 Commercial Mortgage 9,370 162 10,175 162 Construction 1,489 48 1,581 51 Total Commercial 19,855 352 23,327 431 Total Impaired Loans with No Related Allowance Recorded $ 19,855 $ 352 $ 23,327 $ 431 Impaired Loans with an Allowance Recorded: Commercial Commercial and Industrial $ 693 $ 20 $ 1,075 $ 32 Commercial Mortgage 342 8 — — Total Commercial 1,035 28 1,075 32 Consumer Residential Mortgage 23,974 426 28,323 501 Home Equity 1,586 37 1,370 35 Automobile 10,918 364 7,285 247 Other 1 2,550 110 1,843 82 Total Consumer 39,028 937 38,821 865 Total Impaired Loans with an Allowance Recorded $ 40,063 $ 965 $ 39,896 $ 897 Impaired Loans: Commercial $ 20,890 $ 380 $ 24,402 $ 463 Consumer 39,028 937 38,821 865 Total Impaired Loans $ 59,918 $ 1,317 $ 63,223 $ 1,328 1 Comprised of other revolving credit and installment financing. For the three and six months ended June 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 six months ended June 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 $57.5 million and $60.0 million as of June 30, 2017 and December 31, 2016 , respectively. As of June 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 six months ended June 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 6 $ 4,191 $ 11 16 $ 2,955 $ — Commercial Mortgage 1 700 — — — — Total Commercial 7 4,891 11 16 2,955 — Consumer Residential Mortgage — — — 1 440 — Home Equity 1 4 4 — — — Automobile 99 2,115 49 53 977 22 Other 2 40 304 8 40 271 8 Total Consumer 140 2,423 61 94 1,688 30 Total 147 $ 7,314 $ 72 110 $ 4,643 $ 30 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 11 $ 7,235 $ 11 18 $ 3,102 $ 2 Commercial Mortgage 2 1,096 — — — — Total Commercial 13 8,331 11 18 3,102 2 Consumer Residential Mortgage — — — 4 1,610 15 Home Equity 1 239 4 1 478 6 Automobile 209 4,315 99 108 2,008 48 Other 2 114 891 24 99 684 19 Total Consumer 324 5,445 127 212 4,780 88 Total 337 $ 13,776 $ 138 230 $ 7,882 $ 90 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, 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 Residential Mortgage — $ — 1 $ 43 Automobile 12 267 3 21 Other 2 18 137 9 70 Total Consumer 30 404 13 134 Total 30 $ 404 13 $ 134 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 Residential Mortgage — — 3 1,056 Home Equity — — 1 162 Automobile 17 390 4 57 Other 2 36 255 22 142 Total Consumer 53 645 30 1,417 Total 54 $ 694 30 $ 1,417 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 $6.2 million as of June 30, 2017 . |