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FHB First Hawaiian

Filed: 3 May 21, 8:00pm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

or

  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  001-14585

FIRST HAWAIIAN, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware

99-0156159

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

999 Bishop Street, 29th Floor

Honolulu, HI

96813

(Address of Principal Executive Offices)

(Zip Code)

(808) 525-7000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

Trading Symbol(s)

Name of each exchange on which registered:

Common Stock, par value $0.01 per share

FHB

NASDAQ Global Select Market

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   No .

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  Yes   No .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No .

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 130,371,311 shares of Common Stock, par value $0.01 per share, were outstanding as of April 20, 2021.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FIRST HAWAIIAN, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Three Months Ended

March 31, 

(dollars in thousands, except per share amounts)

2021

  

2020

Interest income

Loans and lease financing

$

110,939

$

134,971

Available-for-sale securities

23,146

21,210

Other

491

2,351

Total interest income

134,576

158,532

Interest expense

Deposits

4,056

15,600

Short-term and long-term borrowings

1,362

4,249

Total interest expense

5,418

19,849

Net interest income

129,158

138,683

Provision for credit losses

41,200

Net interest income after provision for credit losses

129,158

97,483

Noninterest income

Service charges on deposit accounts

6,718

8,950

Credit and debit card fees

14,551

14,949

Other service charges and fees

8,846

8,539

Trust and investment services income

8,492

9,591

Bank-owned life insurance

2,389

2,260

Investment securities gains, net

85

Other

2,872

4,854

Total noninterest income

43,868

49,228

Noninterest expense

Salaries and employee benefits

43,936

44,829

Contracted services and professional fees

17,188

16,055

Occupancy

7,170

7,243

Equipment

5,491

4,708

Regulatory assessment and fees

2,034

1,946

Advertising and marketing

1,591

1,823

Card rewards program

4,835

7,015

Other

14,061

12,847

Total noninterest expense

96,306

96,466

Income before provision for income taxes

76,720

50,245

Provision for income taxes

19,027

11,380

Net income

$

57,693

$

38,865

Basic earnings per share

$

0.44

$

0.30

Diluted earnings per share

$

0.44

$

0.30

Basic weighted-average outstanding shares

129,933,104

129,895,706

Diluted weighted-average outstanding shares

130,589,878

130,351,585

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

2

FIRST HAWAIIAN, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)

Three Months Ended

March 31, 

(dollars in thousands)

  

2021

  

2020

Net income

$

57,693

  

$

38,865

Other comprehensive (loss) income, net of tax:

Net change in pensions and other benefits

(96)

Net change in investment securities

(75,039)

35,974

Other comprehensive (loss) income

(75,039)

35,878

Total comprehensive (loss) income

$

(17,346)

$

74,743

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

3

FIRST HAWAIIAN, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Unaudited)

March 31, 

December 31, 

(dollars in thousands, except share amount)

  

2021

  

2020

Assets

Cash and due from banks

$

278,994

$

303,373

Interest-bearing deposits in other banks

983,816

737,571

Investment securities, at fair value (amortized cost: $6,708,431 as of March 31, 2021 and $5,985,031 as of December 31, 2020)

6,692,479

6,071,415

Loans held for sale

9,390

11,579

Loans and leases

13,300,289

13,279,097

Less: allowance for credit losses

200,366

208,454

Net loans and leases

13,099,923

13,070,643

Premises and equipment, net

319,949

322,401

Accrued interest receivable

69,879

69,626

Bank-owned life insurance

468,927

466,537

Goodwill

995,492

995,492

Mortgage servicing rights

10,869

10,731

Other assets

567,878

603,463

Total assets

$

23,497,596

$

22,662,831

Liabilities and Stockholders' Equity

Deposits:

Interest-bearing

$

11,958,606

$

11,705,609

Noninterest-bearing

8,175,075

7,522,114

Total deposits

20,133,681

19,227,723

Long-term borrowings

200,010

200,010

Retirement benefits payable

143,736

143,373

Other liabilities

336,539

347,621

Total liabilities

20,813,966

19,918,727

Commitments and contingent liabilities (Note 12)

Stockholders' equity

Common stock ($0.01 par value; authorized 300,000,000 shares; issued/outstanding: 140,455,180 / 129,749,890 as of March 31, 2021; issued/outstanding: 140,191,133 / 129,912,272 as of December 31, 2020)

1,405

1,402

Additional paid-in capital

2,517,048

2,514,014

Retained earnings

497,418

473,974

Accumulated other comprehensive (loss) income, net

(43,435)

31,604

Treasury stock (10,705,290 shares as of March 31, 2021 and 10,278,861 shares as of December 31, 2020)

(288,806)

(276,890)

Total stockholders' equity

2,683,630

2,744,104

Total liabilities and stockholders' equity

$

23,497,596

$

22,662,831

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

4

FIRST HAWAIIAN, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

Three Months Ended March 31, 2021

Accumulated

Additional

Other

Common Stock

Paid-In

Retained

Comprehensive

Treasury

(dollars in thousands, except share amounts)

  

Shares

  

Amount

  

Capital

  

Earnings

  

Income (Loss)

  

Stock

  

Total

Balance as of December 31, 2020

  

129,912,272

$

1,402

  

$

2,514,014

  

$

473,974

  

$

31,604

  

$

(276,890)

  

$

2,744,104

Net income

57,693

57,693

Cash dividends declared ($0.26 per share)

(33,812)

(33,812)

Equity-based awards

170,082

3

3,034

(437)

(2,373)

227

Common stock repurchased

(332,464)

(9,543)

(9,543)

Other comprehensive loss, net of tax

(75,039)

(75,039)

Balance as of March 31, 2021

129,749,890

$

1,405

$

2,517,048

$

497,418

$

(43,435)

$

(288,806)

$

2,683,630

Three Months Ended March 31, 2020

Accumulated

Additional

Other

Common Stock

Paid-In

Retained

Comprehensive

Treasury

(dollars in thousands, except share amounts)

  

Shares

  

Amount

  

Capital

  

Earnings

  

Loss (Income)

  

Stock

  

Total

Balance as of December 31, 2019

129,928,479

$

1,399

$

2,503,677

$

437,072

$

(31,749)

$

(270,141)

$

2,640,258

Cumulative-effect adjustment of a change in accounting principle, net of tax: ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments

(12,517)

(12,517)

Net income

38,865

38,865

Cash dividends declared ($0.26 per share)

(33,782)

(33,782)

Equity-based awards

117,248

2

2,800

(315)

(1,504)

983

Common stock repurchased

(217,759)

(5,000)

(5,000)

Other comprehensive income, net of tax

35,878

35,878

Balance as of March 31, 2020

129,827,968

$

1,401

$

2,506,477

$

429,323

$

4,129

$

(276,645)

$

2,664,685

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

5

FIRST HAWAIIAN, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Three Months Ended

March 31, 

(dollars in thousands)

  

2021

  

2020

Cash flows from operating activities

Net income

$

57,693

$

38,865

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Provision for credit losses

41,200

Depreciation, amortization and accretion, net

13,643

17,121

Deferred income tax provision

355

6,624

Stock-based compensation

3,037

2,802

Other losses (gains)

1,090

(15)

Originations of loans held for sale

(61,552)

(41,062)

Proceeds from sales of loans held for sale

67,067

35,435

Net gains on sales of loans originated for investment and held for sale

(1,486)

(2,459)

Net gains on investment securities

(85)

Change in assets and liabilities:

Net decrease (increase) in other assets

27,030

(22,164)

Net increase (decrease) in other liabilities

47,323

(128,111)

Net cash provided by (used in) operating activities

154,200

(51,849)

Cash flows from investing activities

Available-for-sale securities:

Proceeds from maturities and principal repayments

448,655

259,447

Proceeds from calls and sales

145

78,472

Purchases

(1,178,760)

(272,324)

Other investments:

Proceeds from sales

2,404

8,492

Purchases

(14,515)

(9,196)

Loans:

Net increase in loans and leases resulting from originations and principal repayments

(45,193)

(276,113)

Proceeds from sales of loans originated for investment

220

132,011

Purchases of loans

(558)

(30,244)

Proceeds from bank-owned life insurance

906

Purchases of premises, equipment and software

(3,791)

(14,728)

Proceeds from sales of premises and equipment

185

Proceeds from sales of other real estate owned

69

Other

(1,171)

(1,035)

Net cash used in investing activities

(792,564)

(124,058)

Cash flows from financing activities

Net increase in deposits

905,958

575,008

Dividends paid

(33,812)

(33,782)

Stock tendered for payment of withholding taxes

(2,373)

(1,504)

Common stock repurchased

(9,543)

(5,000)

Net cash provided by financing activities

860,230

534,722

Net increase in cash and cash equivalents

221,866

358,815

Cash and cash equivalents at beginning of period

1,040,944

694,017

Cash and cash equivalents at end of period

$

1,262,810

$

1,052,832

Supplemental disclosures

Interest paid

$

8,894

$

24,163

Income taxes paid, net of income tax refunds

981

5,165

Noncash investing and financing activities:

Operating lease right-of-use assets obtained in exchange for new lease obligations

6,864

Transfers from loans and leases to loans held for sale

1,840

131,201

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

6

FIRST HAWAIIAN, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Basis of Presentation

First Hawaiian, Inc. (“FHI” or the “Parent”), a bank holding company, owns 100% of the outstanding common stock of First Hawaiian Bank (“FHB” or the “Bank”), its only direct, wholly owned subsidiary. FHB offers a comprehensive suite of banking services, including loans, deposit products, wealth management, insurance, trust, retirement planning, credit card and merchant processing services, to consumer and commercial customers.

The accompanying unaudited interim consolidated financial statements of First Hawaiian, Inc. and Subsidiary (the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

The accompanying unaudited interim consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

In the opinion of management, all adjustments, which consist of normal recurring adjustments necessary for a fair presentation of the interim period consolidated financial information, have been made. Results of operations for interim periods are not necessarily indicative of results to be expected for the entire year. Intercompany account balances and transactions have been eliminated in consolidation.

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s best knowledge of current events, actual results may differ from these estimates.

Accounting Standards Adopted in 2021

In October 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-08, Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs. Prior to the adoption of ASU No. 2020-08, previous guidance shortened the amortization period for certain purchased callable debt securities held at a premium by requiring that entities amortize the premium associated with those callable debt securities to the earliest call date. The guidance in ASU No. 2020-08 changes the amortization period so that an entity shall amortize the premium to the next call date. The Company adopted the provisions of ASU No. 2020-08 on January 1, 2021 and it did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements

There were no ASUs issued by the FASB that were applicable to the Company in future reporting periods.

2. Investment Securities

As of March 31, 2021 and December 31, 2020, investment securities consisted predominantly of the following investment categories:

U.S. Treasury and debt securities – includes U.S. Treasury notes and debt securities issued by government agencies.

Mortgage-backed securities – includes securities backed by notes or receivables secured by mortgage assets with cash flows based on actual or scheduled payments.

7

Collateralized mortgage obligations – includes securities backed by a pool of mortgages with cash flows distributed based on certain rules rather than pass through payments.

As of March 31, 2021 and December 31, 2020, all of the Company’s investment securities were classified as available-for-sale. Amortized cost and fair value of securities as of March 31, 2021 and December 31, 2020 were as follows:

March 31, 2021

December 31, 2020

Amortized

Unrealized

Unrealized

Fair

Amortized

Unrealized

Unrealized

Fair

(dollars in thousands)

  

Cost

  

Gains

  

Losses

  

Value

  

Cost

  

Gains

  

Losses

  

Value

U.S. Treasury and government agency debt securities

$

177,745

$

447

$

(2,468)

$

175,724

$

170,123

$

1,359

$

(61)

$

171,421

Mortgage-backed securities:

Residential - Government agency

129,908

3,986

133,894

155,169

5,293

160,462

Residential - Government-sponsored enterprises

797,426

10,867

(7,373)

800,920

434,282

13,643

(725)

447,200

Commercial - Government agency

523,293

8,068

(3,845)

527,516

583,232

16,537

(119)

599,650

Commercial - Government-sponsored enterprises

1,180,034

1,676

(47,535)

1,134,175

931,095

9,045

(7,983)

932,157

Collateralized mortgage obligations:

Government agency

1,818,181

29,899

(2,982)

1,845,098

1,902,326

32,246

(1,019)

1,933,553

Government-sponsored enterprises

2,081,844

15,537

(22,229)

2,075,152

1,808,804

18,991

(823)

1,826,972

Total available-for-sale securities

$

6,708,431

$

70,480

$

(86,432)

$

6,692,479

$

5,985,031

$

97,114

$

(10,730)

$

6,071,415

Accrued interest receivable related to available-for-sale investment securities was $11.3 million and $10.6 million as of March 31, 2021 and December 31, 2020, respectively, and is recorded separately from the amortized cost basis of investment securities on the Company’s interim consolidated balance sheets.

Proceeds from calls and sales of investment securities were $0.1 million and nil for the three months ended March 31, 2021, respectively. Proceeds from calls and sales of investment securities were $75.0 million and $3.5 million, respectively, for the three months ended March 31, 2020. The Company recorded gross realized gains of NaN and gross realized losses of NaN for the three months ended March 31, 2021. The Company recorded gross realized gains of $0.1 million and gross realized losses of NaN for the three months ended March 31, 2020. The income tax benefit related to the Company’s net realized loss on the sale of investment securities was NaN during the three months ended March 31, 2021. The income tax expense related to the net realized gains on the sale of investment securities was NaN for the three months ended March 31, 2020. Gains and losses realized on sales of securities are determined using the specific identification method.

Interest income from taxable investment securities was $22.1 million and $21.2 million, respectively, for the three months ended March 31, 2021 and 2020. Interest income from non-taxable investment securities was $1.0 million and NaN, respectively, during the three months ended March 31, 2021 and 2020.

The amortized cost and fair value of debt securities issued by the U.S. Treasury and government agencies as of March 31, 2021, by contractual maturity, are shown below. Mortgage-backed securities and collateralized mortgage obligations are disclosed separately in the table below as remaining expected maturities will differ from contractual maturities as borrowers have the right to prepay obligations.

8

March 31, 2021

Amortized

Fair

(dollars in thousands)

  

Cost

  

Value

Due in one year or less

$

$

Due after one year through five years

41,513

41,878

Due after five years through ten years

83,988

83,461

Due after ten years

52,244

50,385

177,745

175,724

Mortgage-backed securities:

Residential - Government agency

129,908

133,894

Residential - Government-sponsored enterprises

797,426

800,920

Commercial - Government agency

523,293

527,516

Commercial - Government-sponsored enterprises

1,180,034

1,134,175

Total mortgage-backed securities

2,630,661

2,596,505

Collateralized mortgage obligations:

Government agency

1,818,181

1,845,098

Government-sponsored enterprises

2,081,844

2,075,152

Total collateralized mortgage obligations

3,900,025

3,920,250

Total available-for-sale securities

$

6,708,431

$

6,692,479

At March 31, 2021, pledged securities totaled $2.6 billion, of which $2.4 billion was pledged to secure public deposits and $184.2 million was pledged to secure other financial transactions. At December 31, 2020, pledged securities totaled $2.4 billion, of which $2.3 billion was pledged to secure public deposits and $186.1 million was pledged to secure other financial transactions.

The Company held 0 securities of any single issuer, other than debt securities issued by the U.S. government, government agencies and government-sponsored enterprises, taken in the aggregate, which were in excess of 10% of stockholders’ equity as of March 31, 2021 or December 31, 2020.

The following tables present the unrealized gross losses and fair values of securities in the available-for-sale portfolio by length of time that the 145 and 50 individual securities in each category have been in a continuous loss position as of March 31, 2021 and December 31, 2020, respectively. The unrealized losses on investment securities were 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.

Time in Continuous Loss as of March 31, 2021

Less Than 12 Months

12 Months or More

Total

Unrealized

Unrealized

Unrealized

(dollars in thousands)

  

Losses

  

Fair Value

  

Losses

  

Fair Value

  

Losses

  

Fair Value

U.S. Treasury and government agency debt securities

$

(2,468)

$

121,457

$

$

$

(2,468)

$

121,457

Mortgage-backed securities:

Residential - Government-sponsored enterprises

(7,373)

511,463

(7,373)

511,463

Commercial - Government agency

(3,845)

248,776

(3,845)

248,776

Commercial - Government-sponsored enterprises

(47,535)

898,725

(47,535)

898,725

Collateralized mortgage obligations:

Government agency

(2,974)

370,875

(8)

5,020

(2,982)

375,895

Government-sponsored enterprises

(22,229)

1,036,086

(22,229)

1,036,086

Total available-for-sale securities with unrealized losses

$

(86,424)

$

3,187,382

$

(8)

$

5,020

$

(86,432)

$

3,192,402

9

Time in Continuous Loss as of December 31, 2020

Less Than 12 Months

12 Months or More

Total

Unrealized

Unrealized

Unrealized

(dollars in thousands)

  

Losses

  

Fair Value

  

Losses

  

Fair Value

  

Losses

  

Fair Value

U.S. Treasury and government agency debt securities

$

(61)

$

38,507

$

$

$

(61)

$

38,507

Mortgage-backed securities:

Residential - Government-sponsored enterprises

(725)

64,987

(725)

64,987

Commercial - Government agency

(119)

32,346

(119)

32,346

Commercial - Government-sponsored enterprises

(7,983)

427,759

(7,983)

427,759

Collateralized mortgage obligations:

Government agency

(994)

209,124

(25)

6,190

(1,019)

215,314

Government-sponsored enterprises

(823)

296,160

(823)

296,160

Total available-for-sale securities with unrealized losses

$

(10,705)

$

1,068,883

$

(25)

$

6,190

$

(10,730)

$

1,075,073

At March 31, 2021 and December 31, 2020, the Company did not have any securities with the intent to sell and determined it was more likely than not that the Company would not be required to sell the securities prior to recovery of the amortized cost basis. As the Company had the intent and ability to hold the remaining securities in an unrealized loss position as of March 31, 2021 and December 31, 2020, each security with an unrealized loss position in the above tables has been further assessed to determine if a credit loss exists. As of March 31, 2021 and December 31, 2020, the Company did not expect any credit losses in its debt securities and 0 credit losses were recognized on securities during the three months ended March 31, 2021 and for the year ended December 31, 2020.

As of March 31, 2021 and December 31, 2020, the Company’s available-for-sale investment securities were comprised entirely of debt, mortgage-backed securities and collateralized mortgage obligations issued by the U.S. Government and its agencies. Management has concluded that the long history with no credit losses from these issuers indicates an expectation that nonpayment of the amortized cost basis is zero. The Company’s available-for-sale investment securities are explicitly or implicitly fully guaranteed by the U.S. government. The U.S. government can print its own currency and its currency is routinely held by central banks and other major financial institutions. The dollar is used in international commerce, and commonly is viewed as a reserve currency, all of which qualitatively indicates that historical credit loss information should be minimally affected by current conditions and reasonable and supportable forecasts. Thus, the Company has not recorded an allowance for credit losses for its available-for-sale debt securities as of March 31, 2021 and December 31, 2020.

Visa Class B Restricted Shares

In 2008, the Company received 394,000 Visa Class B restricted shares as part of Visa’s IPO. Visa Class B restricted shares are not currently convertible to publicly traded Visa Class A common shares, and only transferable in limited circumstances, until the settlement of certain litigation which are indemnified by Visa members, including the Company. As there are existing transfer restrictions and the outcome of the aforementioned litigation is uncertain, these shares were included in the consolidated balance sheets at their historical cost of $0.

In 2016, the Company recorded a $22.7 million net realized gain related to the sale of 274,000 Visa Class B restricted shares. Concurrent with the sale of the Visa Class B restricted shares, the Company entered into an agreement with the buyer that requires payment to the buyer in the event Visa reduces each member bank’s Class B conversion rate to unrestricted Class A common shares. On June 28, 2018, Visa additionally funded its litigation escrow account, thereby reducing each member bank’s Class B conversion rate to unrestricted Class A common shares. Accordingly, on July 5, 2018, Visa announced a decrease in conversion rate from 1.6483 to 1.6298, effective June 28, 2018. In July 2018, the Company made a payment of approximately $0.7 million to the buyer as a result of the reduction in the Visa Class B conversion rate.  On September 27, 2019, Visa additionally funded its litigation escrow account, thereby further reducing each member bank’s Class B conversion rate to unrestricted Class A common shares. Accordingly, on September 30, 2019, Visa announced a decrease in conversion rate from 1.6298 to 1.6228, effective September 27, 2019. In October 2019, the Company made a payment of approximately $0.3 million to the buyer as a result of the reduction in the Visa Class B conversion rate. See “Note 11. Derivative Financial Instruments” for more information.

The Company held approximately 120,000 Visa Class B restricted shares as of both March 31, 2021 and December 31, 2020. These shares continued to be carried at $0 cost basis as of both March 31, 2021 and December 31, 2020.

10

3. Loans and Leases

As of March 31, 2021 and December 31, 2020, loans and leases were comprised of the following:

March 31, 

December 31, 

(dollars in thousands)

  

2021

  

2020

Commercial and industrial

$

3,121,436

$

3,019,507

Commercial real estate

3,396,233

3,392,676

Construction

739,271

735,819

Residential:

Residential mortgage

3,715,676

  

3,690,218

Home equity line

805,746

841,624

Total residential

  

4,521,422

4,531,842

Consumer

1,283,779

1,353,842

Lease financing

238,148

245,411

Total loans and leases

$

13,300,289

$

13,279,097

Outstanding loan balances are reported net of deferred loan costs and fees of $16.8 million and $26.1 million at March 31, 2021 and December 31, 2020, respectively.

Accrued interest receivable related to loans and leases was $58.6 million and $59.0 million as of March 31, 2021 and December 31, 2020, respectively, and is recorded separately from the amortized cost basis of loans and leases on the Company’s unaudited interim consolidated balance sheets.

As of both March 31, 2021 and December 31, 2020, residential real estate loans totaling $2.9 billion were pledged to collateralize the Company’s borrowing capacity at the Federal Home Loan Bank of Des Moines (“FHLB”), and consumer, commercial and industrial, commercial real estate and residential real estate loans totaling $1.9 billion were pledged to collateralize the Company’s borrowing capacity at the Federal Reserve Bank of San Francisco (“FRB”). Residential real estate loans collateralized by properties that were in the process of foreclosure totaled $2.8 million and $2.3 million as of March 31, 2021 and December 31, 2020, respectively.

In the course of evaluating the credit risk presented by a customer and the pricing that will adequately compensate the Company for assuming that risk, management may require a certain amount of collateral support. The type of collateral held varies, but may include accounts receivable, inventory, land, buildings, equipment, income-producing commercial properties and residential real estate. The Company applies the same collateral policy for loans whether they are funded immediately or on a delayed basis. The loan and lease portfolio is principally located in Hawaii and, to a lesser extent, on the U.S. Mainland, Guam and Saipan. The risk inherent in the portfolio depends upon both the economic strength and stability of the state or territories, which affects property values, and the financial strength and creditworthiness of the borrowers.

4. Allowance for Credit Losses

The Company maintains the allowance for credit losses for loans and leases (the “ACL”) that is deducted from the amortized cost basis of loans and leases to present the net carrying value of loans and leases expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount of loans and leases.

The Company also maintains an estimated reserve for unfunded commitments on the unaudited interim consolidated balance sheets. The reserve for unfunded commitments is reduced in the period in which the off-balance sheet financial instruments expire, loan funding occurs, or is otherwise settled.

11

In response to the COVID-19 pandemic, on March 27, 2020, the CARES Act was signed into law. The CARES Act creates a forbearance program for federally backed mortgage loans, protects borrowers from negative credit reporting due to loan accommodations related to the National Emergency, and provides financial institutions the option to temporarily suspend certain requirements under GAAP related to troubled debt restructurings (“TDRs”) for a limited period of time to account for the effects of COVID-19. Financial institutions accounting for eligible loans under the CARES Act are not required to report such loans as TDRs in accordance with GAAP. In addition, Interagency Statements were issued on March 22, 2020 and April 7, 2020 to encourage financial institutions to work prudently with borrowers and to describe the agencies’ interpretation of how current accounting rules under GAAP apply to certain COVID-19 related modifications. The agencies confirmed with the FASB that short-term modifications (e.g., six months or less) for payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant and made on a good faith basis in response to borrowers impacted by COVID-19 who were current prior to any relief are not TDRs under GAAP. The agencies also confirmed that these short-term modifications should not be reported as being on nonaccrual status and should not be considered past due during the period of the deferral. The Company has adopted the provisions of both the CARES Act and Interagency Statements. The Company is first applying the CARES Act guidance in determining if certain loan modifications are not required to be reported as TDRs. If the loan modification does not qualify under the CARES Act, then the Interagency Statement guidance is applied. On December 27, 2020, the Consolidated Appropriations Act – 2021 (the “CAA”) was signed into law, which extends the temporary relief from TDR reporting through the earlier of (1) January 1, 2022, or (2) 60 days after the date on which the national emergency concerning COVID-19 terminates. The interim consolidated financial information below reflects the application of this guidance.

Rollforward of the Allowance for Credit Losses

The following presents the activity in the ACL by class of loans and leases for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31, 2021

Commercial Lending

Residential Lending

Commercial

Commercial

Home

and

Real

Lease

Residential

Equity

(dollars in thousands)

  

Industrial

  

Estate

  

Construction

  

Financing

  

Mortgage

    

Line

  

Consumer

  

Total

Allowance for credit losses:

Balance at beginning of period

$

24,711

$

58,123

$

10,039

$

3,298

$

40,461

$

7,163

$

64,659

$

208,454

Charge-offs

(963)

(66)

(98)

(6,541)

(7,668)

Recoveries

215

3

166

17

24

2,655

3,080

Increase (decrease) in Provision

3,359

(6,369)

347

(101)

(1,909)

(519)

1,692

(3,500)

Balance at end of period

$

27,322

$

51,691

$

10,552

$

3,197

$

38,471

$

6,668

$

62,465

$

200,366

Three Months Ended March 31, 2020

Commercial Lending

Residential Lending

Commercial

Commercial

Home

and

Real

Lease

Residential

Equity

(dollars in thousands)

  

Industrial

  

Estate

  

Construction

  

Financing

  

Mortgage

    

Line

  

Consumer

  

Unallocated

  

Total

Allowance for credit losses:

Balance at beginning of period

$

28,975

$

22,325

$

4,844

$

424

$

29,303

$

9,876

$

34,644

$

139

$

130,530

Adoption of ASU No. 2016-13

(16,105)

10,559

(1,803)

207

(2,793)

(4,731)

15,575

(139)

770

Charge-offs

(201)

(8)

(8,597)

(8,806)

Recoveries

220

110

135

122

2,083

2,670

Increase in Provision

7,995

9,954

5,673

220

3,376

1,297

12,334

40,849

Balance at end of period

$

20,884

$

42,838

$

8,824

$

851

$

30,021

$

6,556

$

56,039

$

$

166,013

Rollforward of the Reserve for Unfunded Commitments

The following presents the activity in the Reserve for Unfunded Commitments for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31, 2021

Commercial Lending

Residential Lending

Commercial

Commercial

Home

and

Real

Lease

Residential

Equity

(dollars in thousands)

  

Industrial

  

Estate

  

Construction

  

Financing

  

Mortgage

  

Line

  

Consumer

  

Total

Reserve for unfunded commitments:

Balance at beginning of period

$

11,719

$

1,328

$

9,037

$

$

2

$

8,452

$

65

$

30,603

Increase (decrease) in Provision

4,410

(216)

(724)

(2)

48

(16)

3,500

Balance at end of period

$

16,129

$

1,112

$

8,313

$

$

$

8,500

$

49

$

34,103

12

Three Months Ended March 31, 2020

Commercial Lending

Residential Lending

Commercial

Commercial

Home

and

Real

Lease

Residential

Equity

(dollars in thousands)

  

Industrial

  

Estate

  

Construction

  

Financing

  

Mortgage

  

Line

  

Consumer

  

Total

Reserve for unfunded commitments:

Balance at beginning of period

$

$

$

$

$

$

$

600

$

600

Adoption of ASU No. 2016-13

5,390

778

4,119

7

6,587

(581)

16,300

Increase (decrease) in Provision

(599)

(82)

694

(6)

340

4

351

Balance at end of period

$

4,791

$

696

$

4,813

$

$

1

$

6,927

$

23

$

17,251

Credit Quality Information

The Company performs an internal loan review and grading or scoring procedures on an ongoing basis. The review provides management with periodic information as to the quality of the loan portfolio and effectiveness of the Company’s lending policies and procedures. The objective of the loan review and grading or scoring procedures is to identify, in a timely manner, existing or emerging credit quality issues so that appropriate steps can be initiated to avoid or minimize future losses.

Loans and leases subject to grading primarily include: commercial and industrial loans, commercial real estate loans, construction loans and lease financing. Other loans subject to grading include installment loans to businesses or individuals for business and commercial purposes, overdraft lines of credit, commercial credit cards, and other credits as may be determined. Credit quality indicators for internally graded loans and leases are generally updated on an annual basis or on a quarterly basis for those loans  and leases deemed to be of potentially higher risk.

An internal credit risk rating system is used to determine loan grade and is based on borrower credit risk and transactional risk. The loan grading process is a mechanism used to determine the risk of a particular borrower and is based on the following factors of a borrower: character, earnings and operating cash flow, asset and liability structure, debt capacity, management and controls, borrowing entity, and industry and operating environment.

Pass – “Pass” (uncriticized) loans and leases, are not considered to carry greater than normal risk. The borrower has the apparent ability to satisfy obligations to the Company, and therefore no loss in ultimate collection is anticipated.

Special Mention – Loans and leases that have potential weaknesses deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for assets or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Substandard – Loans and leases that are inadequately protected by the current financial condition and paying capacity of the obligor or by any collateral pledged. Loans and leases so classified must have a well-defined weakness or weaknesses that jeopardize the collection of the debt. They are characterized by the distinct possibility that the bank may sustain some loss if the deficiencies are not corrected.

Doubtful – Loans and leases that have weaknesses found in substandard borrowers with the added provision that the weaknesses make collection of debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss – Loans and leases classified as loss are considered uncollectible and of such little value that their continuance as an asset is not warranted. This classification does not mean that the loan or lease has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future.

Loans that are primarily monitored for credit quality using FICO scores include: residential mortgage loans, home equity lines and consumer loans. FICO scores are calculated primarily based on a consideration of payment history, the current amount of debt, the length of credit history available, a recent history of new sources of credit and the mix of credit type. FICO scores are updated on a monthly, quarterly or bi-annual basis, depending on the product type.

13

The amortized cost basis by year of origination and credit quality indicator of the Company’s loans and leases as of March 31, 2021 was as follows:

Revolving

Loans

Converted

Term Loans

Revolving

to Term

Amortized Cost Basis by Origination Year

Loans

Loans

Amortized

Amortized

(dollars in thousands)

2021

2020

2019

2018

2017

Prior

Cost Basis

Cost Basis

Total

Commercial Lending

Commercial and Industrial

Risk rating:

Pass

$

495,898

$

781,914

$

315,190

$

152,290

$

51,136

$

218,781

$

785,046

$

27,922

$

2,828,177

Special Mention

17,608

10,957

19,751

1,930

5,373

66,867

607

123,093

Substandard

23,098

2,808

16,913

584

12,048

28,361

1,367

85,179

Other (1)

3,252

9,848

11,793

7,889

4,362

1,496

46,347

84,987

Total Commercial and Industrial

499,150

832,468

340,748

196,843

58,012

237,698

926,621

29,896

3,121,436

Commercial Real Estate

Risk rating:

Pass

41,958

346,445

613,930

556,954

454,433

1,104,669

51,280

8

3,169,677

Special Mention

1,491

58,763

14,518

33,401

64,971

173,144

Substandard

346

14,751

3,740

26,082

8,004

52,923

Other (1)

489

489

Total Commercial Real Estate

41,958

348,282

672,693

586,223

491,574

1,196,211

59,284

8

3,396,233

Construction

Risk rating:

Pass

32,201

73,512

260,522

162,052

58,537

63,624

��

24,043

674,491

Special Mention

507

706

4,429

9,172

14,814

Substandard

536

1,478

2,014

Other (1)

5,410

16,755

9,924

7,588

3,655

4,040

580

47,952

Total Construction

37,611

90,267

270,953

170,882

66,621

78,314

24,623

739,271

Lease Financing

Risk rating:

Pass

6,487

73,461

58,375

12,521

16,410

60,734

227,988

Special Mention

566

334

843

286

1,223

599

3,851

Substandard

2,714

1,673

293

1,107

522

6,309

Total Lease Financing

7,053

76,509

60,891

13,100

18,740

61,855

238,148

Total Commercial Lending

$

585,772

$

1,347,526

$

1,345,285

$

967,048

$

634,947

$

1,574,078

$

1,010,528

$

29,904

$

7,495,088

(continued)

14

Revolving

Loans

Converted

Term Loans

Revolving

to Term

Amortized Cost Basis by Origination Year

Loans

Loans

(continued)

Amortized

Amortized

(dollars in thousands)

2021

2020

2019

2018

2017

Prior

Cost Basis

Cost Basis

Total

Residential Lending

Residential Mortgage

FICO:

740 and greater

$

269,847

$

698,143

$

355,459

$

261,304

$

320,423

$

1,031,922

$

$

$

2,937,098

680 - 739

32,425

83,210

51,384

41,764

48,039

168,279

425,101

620 - 679

4,220

15,727

7,626

11,214

9,310

49,018

97,115

550 - 619

1,945

2,810

2,906

14,044

21,705

Less than 550

854

602

2,914

2,673

7,043

No Score (3)

4,599

12,498

17,761

21,197

19,972

55,404

131,431

Other (2)

5,767

20,213

13,584

13,754

20,607

21,516

580

162

96,183

Total Residential Mortgage

316,858

829,791

448,613

352,645

424,171

1,342,856

580

162

3,715,676

Home Equity Line

FICO:

740 and greater

589,662

2,108

591,770

680 - 739

149,384

3,537

152,921

620 - 679

37,325

1,432

38,757

550 - 619

12,870

1,419

14,289

Less than 550

3,641

359

4,000

No Score (3)

4,009

4,009

Total Home Equity Line

796,891

8,855

805,746

Total Residential Lending

316,858

829,791

448,613

352,645

424,171

1,342,856

797,471

9,017

4,521,422

Consumer Lending

FICO:

740 and greater

37,038

105,809

109,925

86,146

44,909

22,098

107,725

266

513,916

680 - 739

19,163

79,376

82,058

58,077

31,081

16,370

72,053

774

358,952

620 - 679

6,167

38,079

44,459

30,055

21,453

11,715

33,935

1,213

187,076

550 - 619

337

8,215

18,414

15,800

13,267

8,437

11,582

1,364

77,416

Less than 550

88

2,644

8,907

7,785

5,711

3,445

4,181

719

33,480

No Score (3)

955

354

99

57

99

7

32,161

411

34,143

Other (2)

376

1,774

66

2,183

6,748

67,649

78,796

Total Consumer Lending

63,748

234,853

265,636

197,986

118,703

68,820

329,286

4,747

1,283,779

Total Loans and Leases

$

966,378

$

2,412,170

$

2,059,534

$

1,517,679

$

1,177,821

$

2,985,754

$

2,137,285

$

43,668

$

13,300,289

(1)Other credit quality indicators used for monitoring purposes are primarily FICO scores. The majority of the loans in this population were originated to borrowers with a prime FICO score.
(2)Other credit quality indicators used for monitoring purposes are primarily internal risk ratings. The majority of the loans in this population were graded with a “Pass” rating.
(3)No FICO scores are primarily related to loans and leases extended to non-residents.  Loans and leases of this nature are primarily secured by collateral and/or are closely monitored for performance.

15

The amortized cost basis by year of origination and credit quality indicator of the Company’s loans and leases as of December 31, 2020 was as follows:

Revolving

Loans

Converted

Term Loans

Revolving

to Term

Amortized Cost Basis by Origination Year

Loans

Loans

Amortized

Amortized

(dollars in thousands)

2020

2019

2018

2017

2016

Prior

Cost Basis

Cost Basis

Total

Commercial Lending

Commercial and Industrial

Risk rating:

Pass

$

873,639

$

324,030

$

183,329

$

73,000

$

49,886

$

94,360

$

1,058,786

$

28,853

$

2,685,883

Special Mention

20,937

10,370

20,164

2,099

279

8,316

101,183

1,549

164,897

Substandard

23,804

2,023

2,568

677

4,063

8,113

33,775

250

75,273

Other (1)

13,142

13,426

9,246

5,337

1,867

280

50,156

93,454

Total Commercial and Industrial

931,522

349,849

215,307

81,113

56,095

111,069

1,243,900

30,652

3,019,507

Commercial Real Estate

Risk rating:

Pass

342,845

611,243

541,104

447,366

295,426

814,398

47,604

323

3,100,309

Special Mention

1,500

63,617

26,187

33,482

37,841

61,279

2,999

226,905

Substandard

29

3,964

18,983

3,779

10,615

18,083

9,511

64,964

Other (1)

498

498

Total Commercial Real Estate

344,374

678,824

586,274

484,627

343,882

894,258

60,114

323

3,392,676

Construction

Risk rating:

Pass

53,931

233,730

202,808

83,792

23,171

41,536

28,386

667,354

Special Mention

508

707

4,717

9,172

15,104

Substandard

541

1,840

521

989

3,891

Other (1)

16,578

16,393

7,775

3,685

1,800

2,656

583

49,470

Total Construction

70,509

250,631

211,831

94,034

25,492

54,353

28,969

735,819

Lease Financing

Risk rating:

Pass

79,064

60,717

13,669

17,207

3,010

61,266

234,933

Special Mention

950

892

311

1,300

351

295

4,099

Substandard

2,708

1,677

327

1,141

526

6,379

Total Lease Financing

82,722

63,286

14,307

19,648

3,361

62,087

245,411

Total Commercial Lending

$

1,429,127

$

1,342,590

$

1,027,719

$

679,422

$

428,830

$

1,121,767

$

1,332,983

$

30,975

$

7,393,413

(continued)

16

Revolving

Loans

Converted

Term Loans

Revolving

to Term

Amortized Cost Basis by Origination Year

Loans

Loans

(continued)

Amortized

Amortized

(dollars in thousands)

2020

2019

2018

2017

2016

Prior

Cost Basis

Cost Basis

Total

Residential Lending

Residential Mortgage

FICO:

740 and greater

$

728,807

$

384,248

$

290,484

$

361,297

$

314,971

$

830,795

$

$

$

2,910,602

680 - 739

85,151

53,090

44,616

50,703

39,230

144,537

417,327

620 - 679

15,767

7,604

11,460

9,628

7,982

43,393

95,834

550 - 619

1,971

2,818

2,920

4,474

10,144

22,327

Less than 550

861

593

2,916

594

2,138

7,102

No Score (3)

13,823

18,861

21,214

21,821

14,355

45,147

135,221

Other (2)

21,011

15,860

18,540

22,677

9,550

13,426

578

163

101,805

Total Residential Mortgage

864,559

482,495

389,725

471,962

391,156

1,089,580

578

163

3,690,218

Home Equity Line

FICO:

740 and greater

608,282

2,163

610,445

680 - 739

159,886

3,155

163,041

620 - 679

44,005

1,571

45,576

550 - 619

11,644

884

12,528

Less than 550

5,159

330

5,489

No Score (3)

4,545

4,545

Total Home Equity Line

833,521

8,103

841,624

Total Residential Lending

864,559

482,495

389,725

471,962

391,156

1,089,580

834,099

8,266

4,531,842

Consumer Lending

FICO:

740 and greater

113,373

122,965

99,678

54,691

24,029

6,034

114,748

275

535,793

680 - 739

83,316

90,853

66,143

36,426

16,358

4,985

76,391

773

375,245

620 - 679

40,469

48,904

33,917

24,705

11,144

3,788

36,622

1,221

200,770

550 - 619

9,125

20,274

17,693

15,126

7,825

2,883

12,980

1,458

87,364

Less than 550

3,017

10,139

9,189

6,517

3,123

1,118

5,261

799

39,163

No Score (3)

339

103

64

109

10

33,854

356

34,835

Other (2)

380

1,890

73

2,214

45

6,768

69,302

80,672

Total Consumer Lending

250,019

295,128

226,757

139,788

62,534

25,576

349,158

4,882

1,353,842

Total Loans and Leases

$

2,543,705

$

2,120,213

$

1,644,201

$

1,291,172

$

882,520

$

2,236,923

$

2,516,240

$

44,123

$

13,279,097

(1)Other credit quality indicators used for monitoring purposes are primarily FICO scores. The majority of the loans in this population were originated to borrowers with a prime FICO score.
(2)Other credit quality indicators used for monitoring purposes are primarily internal risk ratings. The majority of the loans in this population were graded with a “Pass” rating.
(3)No FICO scores are primarily related to loans and leases extended to non-residents.  Loans and leases of this nature are primarily secured by collateral and/or are closely monitored for performance.

There were 0 loans and leases graded as Loss as of March 31, 2021 and December 31, 2020.

The amortized cost basis of revolving loans that were converted to term loans during the three months ended March 31, 2021 and 2020 was as follows:

Three Months Ended

(dollars in thousands)

March 31, 2021

Commercial and industrial

$

229

Home equity line

1,079

Consumer

493

Total Revolving Loans Converted to Term Loans During the Period

$

1,801

17

Three Months Ended

(dollars in thousands)

March 31, 2020

Commercial and industrial

$

28,228

Residential mortgage

296

Total Revolving Loans Converted to Term Loans During the Period

$

28,524

Past-Due Status

The Company continually updates its aging analysis for loans and leases to monitor the migration of loans and leases into past due categories. The Company considers loans and leases that are delinquent for 30 days or more to be past due. As of March 31, 2021 and December 31, 2020, the aging analysis of the amortized cost basis of the Company’s past due loans and leases was as follows:

March 31, 2021

Past Due

Loans and

Greater

Leases Past

Than or

Due 90 Days

30-59

60-89

Equal to

or More and

Days

Days

90 Days

Total

Total Loans

Still Accruing

(dollars in thousands)

  

Past Due

  

Past Due

  

Past Due

  

Past Due

  

Current

  

and Leases

Interest

Commercial and industrial

$

4,710

$

786

$

1,751

$

7,247

$

3,114,189

$

3,121,436

$

1,365

Commercial real estate

1,727

443

1,990

4,160

3,392,073

3,396,233

1,054

Construction

1,383

668

2,051

737,220

739,271

89

Lease financing

238,148

238,148

Residential mortgage

11,659

904

3,152

15,715

3,699,961

3,715,676

Home equity line

1,744

126

4,975

6,845

798,901

805,746

4,975

Consumer

10,611

2,282

2,024

14,917

1,268,862

1,283,779

2,024

Total

$

31,834

$

4,541

$

14,560

$

50,935

$

13,249,354

$

13,300,289

$

9,507

December 31, 2020

Past Due

Loans and

Greater

Leases Past

Than or

Due 90 Days

30-59

60-89

Equal to

or More and

Days

Days

90 Days

Total

Total Loans

Still Accruing

(dollars in thousands)

  

Past Due

  

Past Due

  

Past Due

  

Past Due

  

Current

  

and Leases

Interest

Commercial and industrial

$

2,585

$

604

$

2,626

$

5,815

$

3,013,692

$

3,019,507

$

2,108

Commercial real estate

75

2,568

963

3,606

3,389,070

3,392,676

882

Construction

779

376

2,137

3,292

732,527

735,819

93

Lease financing

245,411

245,411

Residential mortgage

3,382

4,125

3,372

10,879

3,679,339

3,690,218

Home equity line

1,375

743

4,818

6,936

834,688

841,624

4,818

Consumer

18,492

5,205

3,266

26,963

1,326,879

1,353,842

3,266

Total

$

26,688

$

13,621

$

17,182

$

57,491

$

13,221,606

$

13,279,097

$

11,167

Nonaccrual Loans and Leases

The Company generally places a loan or lease on nonaccrual status when management believes that collection of principal or interest has become doubtful or when a loan or lease becomes 90 days past due as to principal or interest, unless it is well secured and in the process of collection. The Company charges off a loan or lease when facts indicate that the loan or lease is considered uncollectible.

18

The amortized cost basis of loans and leases on nonaccrual status as of March 31, 2021 and December 31, 2020 and the amortized cost basis of loans and leases on nonaccrual status with no ACL as of March 31, 2021 and December 31, 2020 were as follows:

March 31, 2021

Nonaccrual

Loans

and Leases

With No

Nonaccrual

Allowance

Loans

(dollars in thousands)

  

for Credit Losses

and Leases

Commercial and industrial

$

$

593

Commercial real estate

857

937

Construction

579

Residential mortgage

1,311

6,999

Total Nonaccrual Loans and Leases

$

2,168

$

9,108

December 31, 2020

Nonaccrual

Loans

and Leases

With No