BOH_2014.06.30_10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-Q
 
(Mark One)
 
ý              Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period
    ended June 30, 2014
 
or
 
o                 Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition
period from              to            
 
Commission File Number: 1-6887
 
BANK OF HAWAII CORPORATION
(Exact name of registrant as specified in its charter)
 
Delaware
 
99-0148992
(State of incorporation)
 
(I.R.S. Employer Identification No.)
 
 
 
130 Merchant Street, Honolulu, Hawaii
 
96813
(Address of principal executive offices)
 
(Zip Code)
 1-888-643-3888
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ý  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o  No ý
 
As of July 22, 2014, there were 44,263,317 shares of common stock outstanding.


Bank of Hawaii Corporation
Form 10-Q
Index
 
 
 
Page
 
 
 
Part I - Financial Information
 
 
 
 
Item 1.
Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

1

Bank of Hawaii Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
(dollars in thousands, except per share amounts)
2014

 
2013

 
2014

 
2013

Interest Income
 

 
 

 
 

 
 

Interest and Fees on Loans and Leases
$
65,818

 
$
62,729

 
$
129,344

 
$
125,549

Income on Investment Securities
 
 
 
 
 
 
 
Available-for-Sale
10,697

 
15,073

 
21,457

 
30,924

Held-to-Maturity
26,938

 
19,189

 
54,827

 
39,043

Deposits
1

 
1

 
4

 
4

Funds Sold
168

 
74

 
305

 
133

Other
302

 
285

 
604

 
569

Total Interest Income
103,924

 
97,351

 
206,541

 
196,222

Interest Expense
 

 
 

 
 

 
 

Deposits
2,393

 
2,579

 
4,751

 
5,225

Securities Sold Under Agreements to Repurchase
6,465

 
6,751

 
12,862

 
13,756

Funds Purchased
4

 
10

 
7

 
32

Long-Term Debt
650

 
671

 
1,276

 
1,309

Total Interest Expense
9,512

 
10,011

 
18,896

 
20,322

Net Interest Income
94,412

 
87,340

 
187,645

 
175,900

Provision for Credit Losses
(2,199
)
 
—

 
(2,199
)
 
—

Net Interest Income After Provision for Credit Losses
96,611

 
87,340

 
189,844

 
175,900

Noninterest Income
 

 
 

 
 

 
 

Trust and Asset Management
12,005

 
12,089

 
23,857

 
23,975

Mortgage Banking
1,804

 
5,820

 
3,809

 
12,231

Service Charges on Deposit Accounts
8,638

 
9,112

 
17,516

 
18,413

Fees, Exchange, and Other Service Charges
13,370

 
13,133

 
26,309

 
25,067

Investment Securities Gains, Net
2,079

 
—

 
4,239

 
—

Insurance
1,930

 
2,393

 
4,053

 
4,718

Bank-Owned Life Insurance
1,519

 
1,335

 
3,121

 
2,632

Other
3,136

 
4,159

 
6,345

 
8,783

Total Noninterest Income
44,481

 
48,041

 
89,249

 
95,819

Noninterest Expense
 

 
 

 
 

 
 

Salaries and Benefits
45,081

 
45,341

 
91,978

 
94,016

Net Occupancy
9,254

 
9,661

 
18,671

 
19,296

Net Equipment
4,669

 
4,380

 
9,272

 
8,957

Data Processing
3,842

 
3,050

 
7,491

 
6,316

Professional Fees
2,613

 
2,391

 
4,873

 
4,617

FDIC Insurance
2,055

 
1,949

 
4,131

 
3,898

Other
13,568

 
14,409

 
28,213

 
28,468

Total Noninterest Expense
81,082

 
81,181

 
164,629

 
165,568

Income Before Provision for Income Taxes
60,010

 
54,200

 
114,464

 
106,151

Provision for Income Taxes
18,520

 
16,437

 
34,382

 
32,408

Net Income
$
41,490

 
$
37,763

 
$
80,082

 
$
73,743

Basic Earnings Per Share
$
0.94

 
$
0.85

 
$
1.81

 
$
1.66

Diluted Earnings Per Share
$
0.94

 
$
0.85

 
$
1.81

 
$
1.65

Dividends Declared Per Share
$
0.45

 
$
0.45

 
$
0.90

 
$
0.90

Basic Weighted Average Shares
44,053,899

 
44,493,069

 
44,123,030

 
44,518,629

Diluted Weighted Average Shares
44,246,431

 
44,608,497

 
44,332,838

 
44,644,348

 
The accompanying notes are an integral part of the Consolidated Financial Statements (Unaudited).

2

Bank of Hawaii Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
(dollars in thousands)
 
2014

 
2013

 
2014

 
2013

Net Income
 
$
41,490

 
$
37,763

 
$
80,082

 
$
73,743

Other Comprehensive Income (Loss), Net of Tax:
 
 

 
 

 
 

 
 

Net Unrealized Gains (Losses) on Investment Securities
 
8,617

 
(46,572
)
 
14,888

 
(56,213
)
Defined Benefit Plans
 
156

 
201

 
312

 
279

Total Other Comprehensive Income (Loss)
 
8,773

 
(46,371
)
 
15,200

 
(55,934
)
Comprehensive Income (Loss)
 
$
50,263

 
$
(8,608
)
 
$
95,282

 
$
17,809

 
The accompanying notes are an integral part of the Consolidated Financial Statements (Unaudited).

3

Bank of Hawaii Corporation and Subsidiaries
Consolidated Statements of Condition (Unaudited)
(dollars in thousands)
June 30,
2014

 
December 31,
2013

Assets
 

 
 

Interest-Bearing Deposits
$
4,552

 
$
3,617

Funds Sold
796,275

 
271,414

Investment Securities
 

 
 

Available-for-Sale
2,209,763

 
2,243,697

     Held to Maturity (Fair Value of $4,743,012 and $4,697,587)
4,704,551

 
4,744,519

Loans Held for Sale
3,678

 
6,435

Loans and Leases
6,426,353

 
6,095,387

Allowance for Loan and Lease Losses
(113,838
)
 
(115,454
)
Net Loans and Leases
6,312,515

 
5,979,933

Total Earning Assets
14,031,334

 
13,249,615

Cash and Noninterest-Bearing Deposits
141,950

 
188,715

Premises and Equipment
108,116

 
108,636

Accrued Interest Receivable
44,311

 
43,930

Foreclosed Real Estate
3,944

 
3,205

Mortgage Servicing Rights
26,397

 
28,123

Goodwill
31,517

 
31,517

Other Assets
456,936

 
430,539

Total Assets
$
14,844,505

 
$
14,084,280

 
 
 
 
Liabilities
 

 
 

Deposits
 

 
 

Noninterest-Bearing Demand
$
4,070,334

 
$
3,681,128

Interest-Bearing Demand
2,566,240

 
2,355,608

Savings
4,525,593

 
4,560,150

Time
1,507,867

 
1,317,770

Total Deposits
12,670,034

 
11,914,656

Funds Purchased
8,467

 
9,982

Securities Sold Under Agreements to Repurchase
745,626

 
770,049

Long-Term Debt
173,671

 
174,706

Retirement Benefits Payable
35,017

 
34,965

Accrued Interest Payable
5,099

 
4,871

Taxes Payable and Deferred Taxes
42,131

 
34,907

Other Liabilities
113,659

 
128,168

Total Liabilities
13,793,704

 
13,072,304

Shareholders’ Equity
 

 
 

Common Stock ($.01 par value; authorized 500,000,000 shares;
issued / outstanding: June 30, 2014 - 57,631,552 / 44,297,228
and December 31, 2013 - 57,480,846 / 44,490,385)
573

 
572

Capital Surplus
527,284

 
522,505

Accumulated Other Comprehensive Loss
(16,623
)
 
(31,823
)
Retained Earnings
1,191,512

 
1,151,754

Treasury Stock, at Cost (Shares: June 30, 2014 - 13,334,324
and December 31, 2013 - 12,990,461)
(651,945
)
 
(631,032
)
Total Shareholders’ Equity
1,050,801

 
1,011,976

Total Liabilities and Shareholders’ Equity
$
14,844,505

 
$
14,084,280

 The accompanying notes are an integral part of the Consolidated Financial Statements (Unaudited).

4

Bank of Hawaii Corporation and Subsidiaries
Consolidated Statements of Shareholders’ Equity (Unaudited)
(dollars in thousands)
Common
Shares Outstanding

 
Common Stock

 
Capital
Surplus

 
Accum.
Other
Compre-
hensive
Income
(Loss)

 
Retained Earnings

 
Treasury Stock

 
Total

Balance as of December 31, 2013
44,490,385

 
$
572

 
$
522,505

 
$
(31,823
)
 
$
1,151,754

 
$
(631,032
)
 
$
1,011,976

Net Income
—

 
—

 
—

 
—

 
80,082

 
—

 
80,082

Other Comprehensive Income
—

 
—

 
—

 
15,200

 
—

 
—

 
15,200

Share-Based Compensation
—

 
—

 
3,820

 
—

 
—

 
—

 
3,820

Common Stock Issued under Purchase and Equity
Compensation Plans and Related Tax Benefits
274,621

 
1

 
959

 
—

 
(279
)
 
6,074

 
6,755

Common Stock Repurchased
(467,778
)
 
—

 
—

 
—

 
—

 
(26,987
)
 
(26,987
)
Cash Dividends Declared ($0.90 per share)
—

 
—

 
—

 
—

 
(40,045
)
 
—

 
(40,045
)
Balance as of June 30, 2014
44,297,228

 
$
573

 
$
527,284

 
$
(16,623
)
 
$
1,191,512

 
$
(651,945
)
 
$
1,050,801

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2012
44,754,835

 
$
571

 
$
515,619

 
$
29,208

 
$
1,084,477

 
$
(608,210
)
 
$
1,021,665

Net Income
—

 
—

 
—

 
—

 
73,743

 
—

 
73,743

Other Comprehensive Loss
—

 
—

 
—

 
(55,934
)
 
—

 
—

 
(55,934
)
Share-Based Compensation
—

 
—

 
2,732

 
—

 
—

 
—

 
2,732

Common Stock Issued under Purchase and Equity
Compensation Plans and Related Tax Benefits
379,870

 
1

 
453

 
—

 
(2,235
)
 
10,294

 
8,513

Common Stock Repurchased
(490,109
)
 
—

 
—

 
—

 
—

 
(23,960
)
 
(23,960
)
Cash Dividends Declared ($0.90 per share)
—

 
—

 
—

 
—

 
(40,391
)
 
—

 
(40,391
)
Balance as of June 30, 2013
44,644,596

 
$
572

 
$
518,804

 
$
(26,726
)
 
$
1,115,594

 
$
(621,876
)
 
$
986,368

The accompanying notes are an integral part of the Consolidated Financial Statements (Unaudited).

5

Bank of Hawaii Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
 
Six Months Ended
 
June 30,
(dollars in thousands)
2014

 
2013

Operating Activities
 

 
 

Net Income
$
80,082

 
$
73,743

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
 

 
 

Provision for Credit Losses
(2,199
)
 
—

Depreciation and Amortization
6,172

 
6,106

Amortization of Deferred Loan and Lease Fees
(938
)
 
(1,807
)
Amortization and Accretion of Premiums/Discounts on Investment Securities, Net
24,886

 
31,996

Share-Based Compensation
3,820

 
2,732

Benefit Plan Contributions
(892
)
 
(677
)
Deferred Income Taxes
(222
)
 
(4,650
)
Net Gains on Sales of Loans and Leases
(1,650
)
 
(13,938
)
Net Gains on Investment Securities
(4,239
)
 
—

Proceeds from Sales of Loans Held for Sale
57,411

 
445,293

Originations of Loans Held for Sale
(52,947
)
 
(438,711
)
Tax Benefits from Share-Based Compensation
(405
)
 
(491
)
Net Change in Other Assets and Other Liabilities
(35,031
)
 
22,287

Net Cash Provided by Operating Activities
73,848

 
121,883

 
 
 
 
Investing Activities
 

 
 

Investment Securities Available-for-Sale:
 

 
 

Proceeds from Prepayments and Maturities
165,023

 
567,569

Proceeds from Sales
12,750

 
—

Purchases
(126,791
)
 
(373,053
)
Investment Securities Held-to-Maturity:
 

 
 

Proceeds from Prepayments and Maturities
374,734

 
569,150

Purchases
(347,876
)
 
(769,040
)
Net Change in Loans and Leases
(336,068
)
 
(11,483
)
Premises and Equipment, Net
(5,651
)
 
(6,853
)
Net Cash Used in Investing Activities
(263,879
)
 
(23,710
)
 
 
 
 
Financing Activities
 

 
 

Net Change in Deposits
755,378

 
(80,284
)
Net Change in Short-Term Borrowings
(25,938
)
 
105,977

Proceeds from Long-Term Debt
—

 
50,000

Tax Benefits from Share-Based Compensation
405

 
491

Proceeds from Issuance of Common Stock
6,249

 
8,076

Repurchase of Common Stock
(26,987
)
 
(23,960
)
Cash Dividends Paid
(40,045
)
 
(40,391
)
Net Cash Provided by Financing Activities
669,062

 
19,909

 
 
 
 
Net Change in Cash and Cash Equivalents
479,031

 
118,082

Cash and Cash Equivalents at Beginning of Period
463,746

 
352,861

Cash and Cash Equivalents at End of Period
$
942,777

 
$
470,943

Supplemental Information
 

 
 

Cash Paid for Interest
$
18,170

 
$
20,117

Cash Paid for Income Taxes
27,696

 
36,616

Non-Cash Investing Activities:
 

 
 

Transfer from Investment Securities Available-For-Sale to Investment Securities Held-To-Maturity
—

 
254,779

Transfer from Loans to Foreclosed Real Estate
3,311

 
2,551

 
The accompanying notes are an integral part of the Consolidated Financial Statements (Unaudited).

6

Bank of Hawaii Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

Note 1.  Summary of Significant Accounting Policies

Basis of Presentation

Bank of Hawaii Corporation (the “Parent”) is a Delaware corporation and a bank holding company headquartered in Honolulu, Hawaii.  Bank of Hawaii Corporation and its subsidiaries (collectively, the “Company”) provide a broad range of financial products and services to customers in Hawaii, Guam, and other Pacific Islands.  The Parent’s principal and only operating subsidiary is Bank of Hawaii (the “Bank”).  All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and accompanying notes required by GAAP for complete financial statements.  In the opinion of management, the consolidated financial statements reflect normal recurring adjustments necessary for a fair presentation of the results for the interim periods.

Certain prior period information has been reclassified to conform to the current period presentation.

These statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.  Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes.  Actual results may differ from those estimates and such differences could be material to the financial statements.

Accounting Standards Adopted in 2014

In July 2013, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." The provisions of ASU No. 2013-11 require an entity to present an unrecognized tax benefit, or portion thereof, in the statement of financial position as a reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward, with certain exceptions related to availability. The Company adopted the provisions of ASU No. 2013-11 effective January 1, 2014. The adoption of ASU No. 2013-11 had no impact on the Company's Consolidated Financial Statements.

Accounting Standards Pending Adoption

In January 2014, the FASB issued ASU No. 2014-01, "Accounting for Investments in Qualified Affordable Housing Projects." ASU No. 2014-01 permits reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense. This new guidance also requires new disclosures for all investors in these projects. ASU No. 2014-01 is effective for interim and annual reporting periods beginning after December 15, 2014. Upon adoption, the guidance must be applied retrospectively to all periods presented. However, entities that used the effective yield method to account for investments in these projects before adoption may continue to do so for these pre-existing investments. The Company currently accounts for such investments using the effective yield method and plans to continue to do so for these pre-existing investments after adopting ASU No. 2014-01 on January 1, 2015. The Company expects investments made after January 1, 2015 to meet the criteria required for the proportional amortization method and plans to make such an accounting policy election. The adoption of ASU No. 2014-01 is not expected to have a material impact on the Company's Consolidated Financial Statements.


7

In January 2014, the FASB issued ASU No. 2014-04, "Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure." The objective of this guidance is to clarify when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. ASU No. 2014-04 states that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either: (1) The creditor obtaining legal title to the residential real estate property upon completion of a foreclosure; or (2) The borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, ASU No. 2014-04 requires interim and annual disclosure of both: (1) The amount of foreclosed residential real estate property held by the creditor; and (2) The recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. ASU No. 2014-04 is effective for interim and annual reporting periods beginning after December 15, 2014. The adoption of ASU No. 2014-04 is not expected to have a material impact on the Company's Consolidated Financial Statements.

In May 2014, the FASB and the International Accounting Standards Board (the "IASB") jointly issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under GAAP and International Financial Reporting Standards ("IFRS"). Previous revenue recognition guidance in GAAP comprised broad revenue recognition concepts together with numerous revenue requirements for particular industries or transactions, which sometimes resulted in different accounting for economically similar transactions. In contrast, IFRS provided limited revenue recognition guidance and, consequently, could be difficult to apply to complex transactions. Accordingly, the FASB and the IASB initiated a joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS that would: (1) Remove inconsistencies and weaknesses in revenue requirements; (2) Provide a more robust framework for addressing revenue issues; (3) Improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets; (4) Provide more useful information to users of financial statements through improved disclosure requirements; and (5) Simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. To meet those objectives, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies generally will be required to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The standard is effective for public entities for interim and annual periods beginning after December 15, 2016; early adoption is not permitted. For financial reporting purposes, the standard allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognized at the date of initial application. The Company is currently evaluating the provisions of ASU No. 2014-09 and will be closely monitoring developments and additional guidance to determine the potential impact the new standard will have on the Company's Consolidated Financial Statements.
 
In June 2014, the FASB issued ASU No. 2014-11, "Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures." The new guidance aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. Going forward, these transactions would all be accounted for as secured borrowings. The guidance eliminates sale accounting for repurchase-to-maturity transactions and supersedes the guidance under which a transfer of a financial asset and a contemporaneous repurchase financing could be accounted for on a combined basis as a forward agreement, which has resulted in outcomes referred to as off-balance-sheet accounting. The amendments in the ASU require a new disclosure for transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. The amendments in the ASU also require expanded disclosures about the nature of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The amendments in this ASU are effective for public companies for the first interim or annual period beginning after December 15, 2014. In addition, for public companies, the disclosure for certain transactions accounted for as a sale is effective for the first interim or annual reporting periods beginning on or after December 15, 2014, and the disclosure for transactions accounted for as secured borrowings is required to be presented for annual reporting periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. As of June 30, 2014, all of the Company's repurchase agreements were typical in nature (i.e., not repurchase-to-maturity transactions or repurchase agreements executed as a repurchase financing) and are accounted for as secured borrowings. As such, the adoption of ASU No. 2014-11 is not expected to have a material impact on the Company's Consolidated Financial Statements.


8

In June 2014, the FASB issued ASU No. 2014-12, "Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period." The amendments in the ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718, Compensation - Stock Compensation, as it relates to awards with performance conditions that affect vesting to account for such awards. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. The amendments in this ASU are effective for interim or annual reporting periods beginning after December 15, 2015; early adoption is permitted. Entities may apply the amendments in this ASU either: (1) prospectively to all awards granted or modified after the effective date; or (2) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. As of June 30, 2014, the Company did not have any share-based payment awards that include performance targets that could be achieved after the requisite service period. As such, the adoption of ASU No. 2014-12 is not expected to have a material impact on the Company's Consolidated Financial Statements.


9


Note 2.  Investment Securities

The amortized cost, gross unrealized gains and losses, and fair value of the Company’s investment securities as of June 30, 2014 and December 31, 2013 were as follows:

(dollars in thousands)
Amortized Cost

 
Gross
Unrealized Gains

 
Gross
Unrealized Losses

 
Fair Value

June 30, 2014
 

 
 

 
 

 
 

Available-for-Sale:
 

 
 

 
 

 
 

Debt Securities Issued by the U.S. Treasury and Government Agencies
$
353,389

 
$
6,305

 
$
(103
)
 
$
359,591

Debt Securities Issued by States and Political Subdivisions
715,360

 
17,704

 
(2,675
)
 
730,389

Debt Securities Issued by Corporations
254,897

 
956

 
(5,195
)
 
250,658

Mortgage-Backed Securities:
 

 
 

 
 

 
 

    Residential - Government Agencies
541,174

 
13,751

 
(1,312
)
 
553,613

    Residential - U.S. Government-Sponsored Enterprises
112,561

 
1,975

 
(2
)
 
114,534

    Commercial - Government Agencies
209,289

 
—

 
(8,311
)
 
200,978

Total Mortgage-Backed Securities
863,024

 
15,726

 
(9,625
)
 
869,125

Total
$
2,186,670

 
$
40,691

 
$
(17,598
)
 
$
2,209,763

Held-to-Maturity:
 

 
 

 
 

 
 

Debt Securities Issued by the U.S. Treasury and Government Agencies
$
508,494

 
$
2,957

 
$
(1,370
)
 
$
510,081

Debt Securities Issued by States and Political Subdivisions
251,312

 
12,183

 
—

 
263,495

Debt Securities Issued by Corporations
174,268

 
245

 
(2,954
)
 
171,559

Mortgage-Backed Securities:
 
 
 
 
 
 
 

    Residential - Government Agencies
3,225,889

 
54,777

 
(25,801
)
 
3,254,865

    Residential - U.S. Government-Sponsored Enterprises
224,456

 
2,253

 
—

 
226,709

    Commercial - Government Agencies
320,132

 
300

 
(4,129
)
 
316,303

Total Mortgage-Backed Securities
3,770,477

 
57,330


(29,930
)

3,797,877

Total
$
4,704,551

 
$
72,715

 
$
(34,254
)
 
$
4,743,012

 
 
 
 
 
 
 
 
December 31, 2013
 

 
 

 
 

 
 

Available-for-Sale:
 

 
 

 
 

 
 

Debt Securities Issued by the U.S. Treasury and Government Agencies
$
390,873

 
$
6,640

 
$
(234
)
 
$
397,279

Debt Securities Issued by States and Political Subdivisions
691,861

 
8,396

 
(13,455
)
 
686,802

Debt Securities Issued by Corporations
280,172

 
1,165

 
(7,836
)
 
273,501

Mortgage-Backed Securities:
 
 
 
 
 
 
 

    Residential - Government Agencies
641,227

 
13,816

 
(1,849
)
 
653,194

    Residential - U.S. Government-Sponsored Enterprises
21,865

 
1,403

 
—

 
23,268

    Commercial - Government Agencies
219,859

 
—

 
(10,206
)
 
209,653

Total Mortgage-Backed Securities
882,951

 
15,219

 
(12,055
)
 
886,115

Total
$
2,245,857

 
$
31,420

 
$
(33,580
)
 
$
2,243,697

Held-to-Maturity:
 

 
 

 
 

 
 

Debt Securities Issued by the U.S. Treasury and Government Agencies
$
433,987

 
$
3,045

 
$
(3,667
)
 
$
433,365

Debt Securities Issued by States and Political Subdivisions
253,039

 
817

 
(133
)
 
253,723

Debt Securities Issued by Corporations
190,181

 
—

 
(5,708
)
 
184,473

Mortgage-Backed Securities:
 
 
 
 
 
 
 

    Residential - Government Agencies
3,523,343

 
31,786

 
(66,572
)
 
3,488,557

    Residential - U.S. Government-Sponsored Enterprises
21,602

 
1,423

 
—

 
23,025

    Commercial - Government Agencies
322,367

 
—

 
(7,923
)
 
314,444

Total Mortgage-Backed Securities
3,867,312

 
33,209

 
(74,495
)
 
3,826,026

Total
$
4,744,519

 
$
37,071

 
$
(84,003
)
 
$
4,697,587


10


The table below presents an analysis of the contractual maturities of the Company’s investment securities as of June 30, 2014.  Debt securities issued by government agencies (Small Business Administration securities) and mortgage-backed securities are disclosed separately in the table below as these investment securities may prepay prior to their scheduled contractual maturity dates.
(dollars in thousands)
Amortized Cost

 
Fair Value

Available-for-Sale:
 

 
 

Due in One Year or Less
$
24,182

 
$
24,418

Due After One Year Through Five Years
274,660

 
279,698

Due After Five Years Through Ten Years
614,588

 
616,671

Due After Ten Years
116,803

 
121,970

 
1,030,233

 
1,042,757

 
 
 
 
Debt Securities Issued by Government Agencies
293,413

 
297,881

Mortgage-Backed Securities:
 

 
 

    Residential - Government Agencies
541,174

 
553,613

    Residential - U.S. Government-Sponsored Enterprises
112,561

 
114,534

    Commercial - Government Agencies
209,289

 
200,978

Total Mortgage-Backed Securities
863,024

 
869,125

Total
$
2,186,670

 
$
2,209,763

 
 
 
 
Held-to-Maturity:
 

 
 

Due in One Year or Less
$
30,114

 
$
30,408

Due After One Year Through Five Years
478,380

 
479,673

Due After Five Years Through Ten Years
163,398

 
168,757

Due After Ten Years
262,182

 
266,297

 
934,074

 
945,135

Mortgage-Backed Securities:
 

 
 

    Residential - Government Agencies
3,225,889

 
3,254,865

    Residential - U.S. Government-Sponsored Enterprises
224,456

 
226,709

    Commercial - Government Agencies
320,132

 
316,303

Total Mortgage-Backed Securities
3,770,477

 
3,797,877

Total
$
4,704,551

 
$
4,743,012


Investment securities with carrying values of $3.0 billion and $2.6 billion as of June 30, 2014 and December 31, 2013, respectively, were pledged to secure deposits of governmental entities and securities sold under agreements to repurchase.

The table below presents the gains and losses from the sales of investment securities for the three and six months ended June 30, 2014 and 2013. There were no sales of investment securities for the three and six months ended June 30, 2013.
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(dollars in thousands)
2014

 
2013

 
2014

 
2013
Gross Gains on Sales of Investment Securities
$
2,079

 
$
—

 
$
4,239

 
$
—

Gross Losses on Sales of Investment Securities
—

 
—

 
—

 
—

Net Gains on Sales of Investment Securities
$
2,079

 
$
—

 
$
4,239

 
$
—




11

The Company’s investment securities in an unrealized loss position, segregated by continuous length of impairment, were as follows:
 
Less Than 12 Months
 
12 Months or Longer
 
Total
(dollars in thousands)
Fair Value

 
Gross Unrealized Losses

 
Fair Value

 
Gross Unrealized Losses

 
Fair Value

 
Gross Unrealized Losses

June 30, 2014
 

 
 

 
 

 
 

 
 

 
 

Available-for-Sale:
 
 
 
 
 
 
 
 
 
 
 
Debt Securities Issued by the U.S. Treasury
   and Government Agencies
$
15,665

 
$
(96
)
 
$
1,647

 
$
(7
)
 
$
17,312

 
$
(103
)
Debt Securities Issued by States
   and Political Subdivisions
37,133

 
(98
)
 
168,899

 
(2,577
)
 
206,032

 
(2,675
)
Debt Securities Issued by Corporations
14,807

 
(194
)
 
188,174

 
(5,001
)
 
202,981

 
(5,195
)
Mortgage-Backed Securities:
 
 
 
 
 
 
 
 


 


    Residential - Government Agencies
6,763

 
(557
)
 
8,687

 
(755
)
 
15,450

 
(1,312
)
    Residential - U.S. Government-Sponsored Enterprises
18,957

 
(2
)
 
—

 
—

 
18,957

 
(2
)
    Commercial - Government Agencies
—

 
—

 
200,978

 
(8,311
)
 
200,978

 
(8,311
)
Total Mortgage-Backed Securities
25,720

 
(559
)
 
209,665

 
(9,066
)
 
235,385

 
(9,625
)
Total
$
93,325

 
$
(947
)
 
$
568,385

 
$
(16,651
)
 
$
661,710

 
$
(17,598
)
Held-to-Maturity:
 
 
 
 
 
 
 
 
 
 
 
Debt Securities Issued by the U.S. Treasury
   and Government Agencies
$
49,584

 
$
(76
)
 
$
164,511

 
$
(1,294
)
 
$
214,095

 
$
(1,370
)
Debt Securities Issued by Corporations
32,979

 
(126
)
 
81,549

 
(2,828
)
 
114,528

 
(2,954
)
Mortgage-Backed Securities:
 
 
 
 
 
 
 
 
 
 
 
    Residential - Government Agencies
270,529

 
(1,989
)
 
936,922

 
(23,812
)
 
1,207,451

 
(25,801
)
    Commercial - Government Agencies
37,861

 
(104
)
 
220,524

 
(4,025
)
 
258,385

 
(4,129
)
Total Mortgage-Backed Securities
308,390

 
(2,093
)
 
1,157,446

 
(27,837
)
 
1,465,836

 
(29,930
)
Total
$
390,953

 
$
(2,295
)
 
$
1,403,506

 
$
(31,959
)
 
$
1,794,459

 
$
(34,254
)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
 

 
 

 
 

 
 

 
 

 
 

Available-for-Sale:
 
 
 
 
 
 
 
 
 
 
 
Debt Securities Issued by the U.S. Treasury
     and Government Agencies
$
26,181

 
$
(225
)
 
$
2,117

 
$
(9
)
 
$
28,298

 
$
(234
)
Debt Securities Issued by States
     and Political Subdivisions
415,718

 
(10,934
)
 
42,607

 
(2,521
)
 
458,325

 
(13,455
)
Debt Securities Issued by Corporations
200,364

 
(7,836
)
 
—

 
—

 
200,364

 
(7,836
)
Mortgage-Backed Securities:
 
 
 
 
 
 
 
 
 
 
 
     Residential - Government Agencies
76,744

 
(781
)
 
10,027

 
(1,068
)
 
86,771

 
(1,849
)
     Commercial - Government Agencies
164,478

 
(7,935
)
 
45,175

 
(2,271
)
 
209,653

 
(10,206
)
Total Mortgage-Backed Securities
241,222

 
(8,716
)
 
55,202

 
(3,339
)
 
296,424

 
(12,055
)
Total
$
883,485

 
$
(27,711
)
 
$
99,926

 
$
(5,869
)
 
$
983,411

 
$
(33,580
)
Held-to-Maturity:
 
 
 
 
 
 
 
 
 
 
 
Debt Securities Issued by the U.S. Treasury
and Government Agencies
$
271,469

 
$
(3,667
)
 
$
—

 
$
—

 
$
271,469

 
$
(3,667
)
Debt Securities Issued by States
and Political Subdivisions
52,026

 
(133
)
 
—

 
—

 
52,026

 
(133
)
Debt Securities Issued by Corporations
163,736

 
(4,278
)
 
20,736

 
(1,430
)
 
184,472

 
(5,708
)
Mortgage-Backed Securities:
 
 
 
 
 
 
 
 
 
 
 
     Residential - Government Agencies
1,767,086

 
(54,067
)
 
190,939

 
(12,505
)
 
1,958,025

 
(66,572
)
     Commercial - Government Agencies
224,277

 
(4,753
)
 
90,167

 
(3,170
)
 
314,444

 
(7,923
)
Total Mortgage-Backed Securities
1,991,363

 
(58,820
)
 
281,106

 
(15,675
)
 
2,272,469

 
(74,495
)
Total
$
2,478,594

 
$
(66,898
)
 
$
301,842

 
$
(17,105
)
 
$
2,780,436

 
$
(84,003
)


12

The Company does not believe that the investment securities that were in an unrealized loss position as of June 30, 2014, which were comprised of 181 securities, represent an other-than-temporary impairment.  Total gross unrealized losses were primarily attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities.  As of June 30, 2014 and December 31, 2013, the gross unrealized losses reported for mortgage-backed securities were primarily related to investment securities issued by the Government National Mortgage Association. The Company does not intend to sell the investment securities that were in an unrealized loss position and it is not more likely than not that the Company will be required to sell the investment securities before recovery of their amortized cost bases, which may be at maturity.

Interest income from taxable and non-taxable investment securities for the three and six months ended June 30, 2014 and 2013 were as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(dollars in thousands)
2014

 
2013

 
2014

 
2013

Taxable
$
32,316

 
$
29,833

 
$
65,743

 
$
61,254

Non-Taxable
5,319

 
4,429

 
10,541

 
8,713

Total Interest Income from Investment Securities
$
37,635

 
$
34,262

 
$
76,284

 
$
69,967


As of June 30, 2014, included in the Company's investment securities at fair value were securities issued by political subdivisions within the State of Hawaii of $578.6 million, representing 58% of the total fair value of the Company's municipal debt securities. Of the entire Hawaii municipal bond portfolio, 94% were credit-rated Aa2 or better by Moody's while the remaining Hawaii municipal bonds were credit-rated A2 or better by at least one nationally recognized statistical rating organization. Also, approximately 76% of the Company's Hawaii municipal bond holdings were general obligation issuances. As of June 30, 2014, there were no other holdings of municipal debt securities that were issued by a single state or political subdivision which comprised more than 10% of the total fair value of the Company's municipal debt securities.

As of June 30, 2014, the carrying value of the Company’s Federal Home Loan Bank and Federal Reserve Bank stock was as follows:
(dollars in thousands)
June 30,
2014

 
December 31,
2013

Federal Home Loan Bank Stock
$
52,502

 
$
58,021

Federal Reserve Bank Stock
19,243

 
19,138

Total
$
71,745

 
$
77,159


These securities can only be redeemed or sold at their par value and only to the respective issuing government-supported institution or to another member institution.  The Company records these non-marketable equity securities as a component of other assets and periodically evaluates these securities for impairment.  Management considers these non-marketable equity securities to be long-term investments.  Accordingly, when evaluating these securities for impairment, management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value.

Visa Class B Restricted Shares

In 2008, the Company received Visa Class B restricted shares as part of Visa’s initial public offering. These shares are transferable only under limited circumstances until they can be converted into the publicly traded Class A shares. This conversion will not occur until the settlement of certain litigation which is indemnified by Visa members such as the Company. Visa funded an escrow account from its initial public offering to settle these litigation claims. Should this escrow account not be sufficient to cover these litigation claims, Visa is entitled to fund additional amounts to the escrow account by reducing each member bank's Class B conversion ratio to unrestricted Class A shares (conversion ratio is currently 0.4206).

During the second quarter of 2014, the Company recorded a $2.0 million gain on the sale of 23,500 Visa Class B shares (9,884 Class A equivalents). For the first six months of 2014, the Company recorded a $4.0 million gain on the sale of 45,500 Visa Class B shares (19,137 Class A equivalents). Concurrent with these sales, the Company entered into an agreement with the buyer that requires payment to the buyer in the event Visa further reduces the conversion ratio. Based on the existing transfer restriction and the uncertainty of the covered litigation, the remaining 452,914 Class B shares (190,496 Class A equivalents) that the Company owns are carried at a zero cost basis.


13

Note 3.    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, 2014 and December 31, 2013:

(dollars in thousands)
June 30,
2014

 
December 31,
2013

Commercial
 

 
 

Commercial and Industrial
$
988,940

 
$
911,367

Commercial Mortgage
1,345,549

 
1,247,510

Construction
121,434

 
107,349

Lease Financing
237,585

 
262,207

Total Commercial
2,693,508

 
2,528,433

Consumer
 

 
 

Residential Mortgage
2,355,085

 
2,282,894

Home Equity
811,180

 
773,385

Automobile
287,794

 
255,986

Other 1
278,786

 
254,689

Total Consumer
3,732,845

 
3,566,954

Total Loans and Leases
$
6,426,353

 
$
6,095,387

1 
Comprised of other revolving credit, installment, and lease financing.
Most 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 $0.6 million and $2.7 million for the three months ended June 30, 2014 and 2013, respectively, and $1.3 million and $6.0 million for the six months ended June 30, 2014 and 2013, respectively.

14

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, 2014 and 2013.  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, 2014 and 2013.

(dollars in thousands)
Commercial

 
Consumer

 
Total

Three Months Ended June 30, 2014
 

 
 

 
 

Allowance for Loan and Lease Losses:
 

 
 

 
 

Balance at Beginning of Period
$
71,390

 
$
42,736

 
$
114,126

Loans and Leases Charged-Off
(815
)
 
(3,182
)
 
(3,997
)
Recoveries on Loans and Leases Previously Charged-Off
2,156

 
3,752

 
5,908

Net Loans and Leases Charged-Off
1,341

 
570

 
1,911

Provision for Credit Losses
(845
)
 
(1,354
)
 
(2,199
)
Balance at End of Period
$
71,886

 
$
41,952

 
$
113,838

Six Months Ended June 30, 2014
 

 
 

 
 

Allowance for Loan and Lease Losses:
 

 
 

 
 

Balance at Beginning of Period
$
71,446

 
$
44,008

 
$
115,454

Loans and Leases Charged-Off
(1,634
)
 
(6,401
)
 
(8,035
)
Recoveries on Loans and Leases Previously Charged-Off
3,097

 
5,521

 
8,618

Net Loans and Leases Charged-Off
1,463

 
(880
)
 
583

Provision for Credit Losses
(1,023
)
 
(1,176
)
 
(2,199
)
Balance at End of Period
$
71,886

 
$
41,952

 
$
113,838

As of June 30, 2014
 

 
 

 
 

Allowance for Loan and Lease Losses:
 

 
 

 
 

Individually Evaluated for Impairment
$
8,693

 
$
3,332

 
$
12,025

Collectively Evaluated for Impairment
63,193

 
38,620

 
101,813

Total
$
71,886

 
$
41,952

 
$
113,838

Recorded Investment in Loans and Leases:
 

 
 

 
 

Individually Evaluated for Impairment
$
27,089

 
$
38,007

 
$
65,096

Collectively Evaluated for Impairment
2,666,419

 
3,694,838

 
6,361,257

Total
$
2,693,508

 
$
3,732,845

 
$
6,426,353

 
 
 
 
 
 
Three Months Ended June 30, 2013
 

 
 

 
 

Allowance for Loan and Lease Losses:
 

 
 

 
 

Balance at Beginning of Period
$
73,416

 
$
53,462

 
$
126,878

Loans and Leases Charged-Off
(266
)
 
(4,438
)
 
(4,704
)
Recoveries on Loans and Leases Previously Charged-Off
470

 
1,931

 
2,401

Net Loans and Leases Charged-Off
204

 
(2,507
)
 
(2,303
)
Provision for Credit Losses
(3,423
)
 
3,423

 
—

Balance at End of Period
$
70,197

 
$
54,378

 
$
124,575

Six Months Ended June 30, 2013
 

 
 

 
 

Allowance for Loan and Lease Losses:
 

 
 

 
 

Balance at Beginning of Period
$
72,704

 
$
56,153

 
$
128,857

Loans and Leases Charged-Off
(648
)
 
(9,355
)
 
(10,003
)
Recoveries on Loans and Leases Previously Charged-Off
1,267

 
4,454

 
5,721

Net Loans and Leases Charged-Off
619

 
(4,901
)
 
(4,282
)
Provision for Credit Losses
(3,126
)
 
3,126

 
—

Balance at End of Period
$
70,197

 
$
54,378

 
$
124,575

As of June 30, 2013
 

 
 

 
 

Allowance for Loan and Lease Losses:
 

 
 

 
 

Individually Evaluated for Impairment
$
195

 
$
3,927

 
$
4,122

Collectively Evaluated for Impairment
70,002

 
50,451

 
120,453

Total
$
70,197

 
$
54,378

 
$
124,575

Recorded Investment in Loans and Leases:
 

 
 

 
 

Individually Evaluated for Impairment
$
20,059

 
$
36,756

 
$
56,815

Collectively Evaluated for Impairment
2,380,703

 
3,421,634

 
5,802,337

Total
$
2,400,762

 
$
3,458,390

 
$
5,859,152


15

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. 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 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.


16

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, 2014 and December 31, 2013.
 
June 30, 2014
(dollars in thousands)
Commercial
and Industrial

 
Commercial
Mortgage

 
Construction

 
Lease
Financing

 
Total
Commercial

Pass
$
945,760

 
$
1,279,850

 
$
118,967

 
$
237,224

 
$
2,581,801

Special Mention
12,671

 
27,766

 
—

 
24

 
40,461

Classified
30,509

 
37,933

 
2,467

 
337

 
71,246

Total
$
988,940

 
$
1,345,549

 
$
121,434

 
$
237,585

 
$
2,693,508

 
 
 
 
 
 
 
 
 
 
(dollars in thousands)
Residential
Mortgage

 
Home
Equity

 
Automobile

 
Other 1

 
Total
Consumer

Pass
$
2,338,230

 
$
807,358

 
$
287,557

 
$
277,980

 
$
3,711,125

Classified
16,855

 
3,822

 
237

 
806

 
21,720

Total
$
2,355,085

 
$
811,180

 
$
287,794

 
$
278,786

 
$
3,732,845

Total Recorded Investment in Loans and Leases
 
 

 
 

 
 

 
$
6,426,353

 
December 31, 2013
(dollars in thousands)
Commercial
and Industrial

 
Commercial
Mortgage

 
Construction

 
Lease
Financing

 
Total
Commercial

Pass
$
867,813