What changed in this filing

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Item 1. Financial Statements

2021-05-04 compared with 2020-11-02 · 302 added, 642 removed, 974 unchanged (49% of the section changed)

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(dollars in thousands, except per share amounts)

15 unchanged sentences

Bank-owned life insurance

Investment securities gains (losses), net

Investment securities gains, net

Total noninterest income

15 unchanged sentences

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

Three Months Ended

Nine Months Ended

September 30,

(dollars in thousands)

3 unchanged sentences

Other comprehensive (loss) income

Total comprehensive income

Total comprehensive (loss) income

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

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

September 30,

(dollars in thousands, except share amount)

2 unchanged sentences

Investment securities, at fair value (amortized cost:

$ 5,584,556 as of September 30, 2020 and $ 4,080,663 as of December 31, 2019)

$ 6,708,431 as of March 31, 2021 and $ 5,985,031 as of December 31, 2020)

Loans held for sale

3 unchanged sentences

Premises and equipment, net

Other real estate owned and repossessed personal property

Accrued interest receivable

5 unchanged sentences

Total deposits

Short-term borrowings

Long-term borrowings

7 unchanged sentences

issued/outstanding:

140,190,428 / 129,911,789 as of September 30, 2020;

140,455,180 / 129,749,890 as of March 31, 2021;

issued/outstanding:

2 unchanged sentences

Retained earnings

Accumulated other comprehensive income (loss), net

Treasury stock ( 10,278,639 shares as of September 30, 2020 and 9,988,671 shares as of December 31, 2019)

Accumulated other comprehensive (loss) income, net

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

Total stockholders' equity

4 unchanged sentences

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three Months Ended September 30, 2020

Comprehensive

(dollars in thousands, except share amounts)

Balance as of June 30, 2020

Cash dividends declared ($ 0.26 per share)

Equity-based awards

Other comprehensive loss, net of tax

Balance as of September 30, 2020

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Comprehensive

2 unchanged sentences

Balance as of December 31, 2020

Cumulative-effect adjustment of a change in accounting principle, net of tax:

2016-13, Financial Instruments - Credit Losses (Topic 326 ) , Measurement of Credit Losses on Financial Instruments

Cash dividends declared ( $ 0.26 per share)

1 unchanged sentence

Common stock repurchased

Other comprehensive income, net of tax

Balance as of September 30, 2020

FIRST HAWAIIAN, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

Three Months Ended September 30, 2019

Comprehensive

(dollars in thousands, except share amounts)

Balance as of June 30, 2019

Cash dividends declared ($ 0.26 per share)

Equity-based awards

Common stock repurchased

( 2,289,292 )

Other comprehensive income, net of tax

Balance as of September 30, 2019

Nine Months Ended September 30, 2019

Other comprehensive loss, net of tax

Balance as of March 31, 2021

Three Months Ended March 31, 2020

Comprehensive

(dollars in thousands, except share amounts)

Loss (Income)

Balance as of December 31, 2019

Cumulative-effect adjustment of a change in accounting principle, net of tax:

2016-13, Financial Instruments - Credit Losses (Topic 326 ) , Measurement of Credit Losses on Financial Instruments

Cash dividends declared ($ 0.26 per share)

1 unchanged sentence

Common stock repurchased

( 3,799,138 )

Other comprehensive income, net of tax

Balance as of September 30, 2019

Balance as of March 31, 2020

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

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

September 30,

Three Months Ended

(dollars in thousands)

Cash flows from operating activities

Adjustments to reconcile net income to net cash provided by operating activities:

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

Provision for credit losses

Depreciation, amortization and accretion, net

Deferred income tax (benefits) provision

Deferred income tax provision

Stock-based compensation

Other (gains) losses

Other losses (gains)

Originations of loans held for sale

Proceeds from sales of loans held for sale

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

Net losses on investment securities

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

Net gains on investment securities

Change in assets and liabilities:

Net increase in other assets

Net decrease in other liabilities

Net cash provided by operating activities

Net decrease (increase) in other assets

Net increase (decrease) in other liabilities

Net cash provided by (used in) operating activities

Cash flows from investing activities

5 unchanged sentences

Proceeds from sales

Net (increase) decrease in loans and leases resulting from originations and principal repayments

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

Proceeds from sales of loans originated for investment

2 unchanged sentences

Purchases of premises, equipment and software

Proceeds from sales of premises and equipment

Proceeds from sales of other real estate owned

Net cash (used in) provided by investing activities

( 1,923,317 )

Net cash used in investing activities

Cash flows from financing activities

Net increase (decrease) in deposits

Repayment of short-term borrowings

Repayment of long-term borrowings

Net increase in deposits

Dividends paid

1 unchanged sentence

Common stock repurchased

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Net increase in cash and cash equivalents

5 unchanged sentences

Noncash investing and financing activities:

Transfers from loans and leases to other real estate owned

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

Transfers from loans and leases to loans held for sale

Obligation to fund low-income housing partnerships

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

17 unchanged sentences

Although these estimates are based on management’s best knowledge of current events, actual results may differ from these estimates.

Investment Securities

As of September 30, 2020 and December 31, 2019, investment securities were comprised of debt, mortgage-backed securities and collateralized mortgage obligations issued by the U.S.

Government, its agencies and government-sponsored enterprises.

The Company amortizes premiums and accretes discounts using the interest method over the expected lives of the individual securities.

Premiums on callable debt securities are amortized to their earliest call date.

All investment securities transactions are recorded on a trade-date basis.

All of the Company’s investment securities were categorized as available-for-sale as of September 30, 2020 and December 31, 2019.

Available-for-sale investment securities are reported at fair value, with unrealized gains and losses reported in accumulated other comprehensive income.

Gains and losses realized on sales of investment securities are determined using the specific identification method.

For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income.

For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates at the individual security level whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, management considers the extent to which fair value is less than amortized cost and adverse conditions specifically related to the security, among other factors.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.

Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the allowance for credit losses, if any, are recorded as a provision for (or reversal of) credit losses.

Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale investment security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

As noted above, as of September 30, 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, its agencies and government-sponsored enterprises.

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 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 September 30, 2020.

Accrued interest receivable related to available-for-sale investment securities was $ 10.1 million as of September 30, 2020 and is recorded separately from the amortized cost basis of investment securities on the Company’s interim consolidated balance sheet.

Loans and Leases

Loans are reported at amortized cost which includes the principal amount outstanding, net of deferred loan fees and costs and cumulative net charge-offs.

Interest income is recognized on an accrual basis.

Loan origination fees, certain direct costs and unearned discounts and premiums, if any, are deferred and are generally accreted or amortized into interest income as yield adjustments using the interest method over the contractual life of the loan.

Other credit-related fees are recognized as fee income, a component of noninterest income, when earned.

Direct financing leases are carried at the aggregate of lease payments receivable plus the estimated residual value of leased property, less unearned income.

Unearned income on direct financing leases is amortized over the lease term by methods that approximate the interest method.

Residual values on leased assets are periodically reviewed for impairment.

Accrued interest receivable related to loans and leases was $ 55.9 million as of September 30, 2020 and is recorded separately from the amortized cost basis of loans and leases on the Company’s interim consolidated balance sheet.

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.

A full or partial charge-off is recorded in the period in which the loan or lease is deemed uncollectible.

When the Company places a loan or lease on nonaccrual status, previously accrued and uncollected interest is concurrently reversed against interest income.

When the Company receives an interest payment on a nonaccrual loan or lease, the payment is applied as a reduction of the principal balance.

Nonaccrual loans and leases are generally returned to accrual status when they become current as to principal and interest and future payments are reasonably assured.

Allowance for Credit Losses

The allowance for credit losses for loans and leases (the “ACL”) is a valuation account that is deducted from the amortized cost basis of loans and leases to present the net amount expected to be collected from loans and leases.

Loans and leases are charged-off against the ACL when management believes the uncollectibility of a loan or lease balance is confirmed.

Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The Company’s ACL and the reserve for unfunded commitments under the Current Expected Credit Losses (“CECL”) approach utilizes both quantitative and qualitative components.

The Company’s methodology utilizes a quantitative model based on a single forward-looking macroeconomic forecast.

The quantitative estimation is overlaid with qualitative adjustments to account for current conditions and forward-looking events not captured in the quantitative model.

Qualitative adjustments that are considered include adjustments for regulatory determinants, model limitations, model maturity, and other current or forecasted events that are not captured in the Company’s historical loss experience.

The Company generally evaluates loans and leases on a collective or pool basis when similar risk characteristics exist.

However, loans and leases that do not share similar risk characteristics are evaluated on an individual basis.

Such loans and leases evaluated individually are excluded from the collective evaluation.

Individually assessed loans are measured for estimated credit loss (“ECL”) based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral, less estimated selling costs, if the loan is collateral-dependent.

Management reviews relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts about the future.

Historical credit loss experience provides the basis for the estimation of expected credit losses.

Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency levels, or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors.

The Company utilizes a Probability of Default (“PD”)/Loss Given Default (“LGD”) framework to estimate the ACL and the reserve for unfunded commitments.

The PD represents the percentage expectation to default, measured by assessing loans and leases that migrate to default status (i.e., nonaccrual status, troubled debt restructurings (“TDRs”), 90 days or more past due, partial or full charge-offs or bankruptcy).

LGD is defined as the percentage of the exposure at default (“EAD”) lost at the time of default, net of any recoveries, and will be unique to each of the collateral types securing the Company’s loans.

PD and LGD’s are based on past experience of the Company and management’s expectations of the future.

The ECL on loans and leases is calculated by taking the product of the credit exposure, lifetime default probability (“LDP”) and the LGD.

The ECL model is applied to current credit exposures at the account level, using assumptions calibrated at the portfolio segment level using internal historical loan and lease level data.

The Company estimates the default risk of a credit exposure over the remaining life of each account using a transition probability matrix approach which captures both the average rate of up/down-grade and default transitions, as well as withdrawal rates which capture the historical rate of exposure decline due to loan and lease amortization and prepayment.

To apply the transition matrices, each credit exposure’s remaining life is split into two time segments.

The first time segment is for the reasonable and supportable forecast period over which the transition matrices which are applied have been adjusted to incorporate current and forecasted conditions over that period.

Management has determined that using a one year time horizon for the reasonable and supportable forecast period for all classes of loans and leases is a reasonable forecast horizon given the difficulty in predicting future economic conditions with a high degree of certainty.

The second time segment is the reversion period from the end of the reasonable and supportable forecast period to the maturity of the exposure, over which long-run average transition matrices are applied.

Management elected to use an immediate reversion to the mean approach.

Lifetime loss rates are applied against the amortized cost basis of loans and leases and unfunded commitments to estimate the ACL and the reserve for unfunded commitments.

On a quarterly basis, management convenes the Bank’s forecasting team which is responsible for qualitatively forecasting the economic outlook over the reasonable and supportable forecast period within the context of forecasting credit losses.

Management reviews local and national economic forecasts and other pertinent materials to inform the team in establishing their best estimate of the economic outlook over the reasonable and supportable forecast period.

The team considers unemployment rates, gross domestic product, personal income per capita, visitor arrivals and expenditures and home prices along with other relevant information.

The results from the Bank’s forecasting team dictates the direction of the economic forecast compared to current economic conditions (i.e., better or worse) and the magnitude of the forecast adjustment (e.g., mild, medium or severe).

The direction of the economic forecast and magnitude are used to qualitatively adjust the modifier that is applied to the long-run default rates over the reasonable and supportable forecast period.

The Company has identified three portfolio segments in estimating the ACL:

commercial, residential real estate and consumer lending.

The Company’s commercial portfolio segment is comprised of four distinct classes:

commercial and industrial loans, commercial real estate loans, construction loans and lease financing.

The key risk drivers related to this portfolio segment include risk rating, collateral type, and remaining maturity.

The Company’s residential real estate portfolio segment is comprised of two distinct classes:

residential real estate loans and home equity lines of credit.

Specific risk characteristics related to this portfolio include the value of the underlying collateral, credit score and remaining maturity.

Finally, the Company’s consumer portfolio segment is not further segmented, but consists primarily of automobile loans, credit cards and other installment loans.

Automobile loans constitute the majority of this segment and are monitored using credit scores, collateral values and remaining maturity.

The remainder of the consumer portfolio is predominantly unsecured.

Reserve for Unfunded Commitments

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company.

The reserve for unfunded commitments is adjusted through the provision for credit losses.

The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

Accounting Standards Adopted in 2021

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments .

This guidance eliminates the probable recognition threshold for credit losses on financial assets measured at amortized cost.

For loans and held-to-maturity debt securities, this guidance requires a CECL approach to determine an ACL.

CECL requires loss estimates for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts.

CECL also applies to off-balance sheet (“OBS”) credit exposures (e.g., unfunded loan commitments), except for unconditionally cancellable commitments.

In addition, this guidance modifies the other-than-temporary-impairment model for available-for-sale debt securities to require an allowance for credit losses instead of a direct write-down, which allows for a reversal of credit losses in future periods.

In April 2019, the FASB also issued ASU No.

2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments .

As it relates to CECL, this guidance amended certain provisions contained in ASU No.

2016-13, particularly with regards to the inclusion of accrued interest in the definition of amortized cost, as well as clarifying that extension and renewal options that are not unconditionally cancelable by the entity that are included in the original or modified contract should be considered in the entity’s determination of expected credit losses.

As permitted by ASU No.

2016-13, the Company elected the practical expedient to use the fair value of collateral at the reporting date when recording the net carrying amount of the asset and determining the ACL for a financial asset for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the Company’s assessment as of the reporting date.

Furthermore, as permitted by ASU No.

2019-04, the Company made accounting policy elections to not measure an ACL on accrued interest receivable, write-off accrued interest receivable by reversing interest income and present accrued interest receivable separately from the related financial asset on the balance sheet.

The implementation of CECL required significant operational changes, particularly in data collection and analysis.

The Company formed a working group comprised of teams from different disciplines, including credit, finance and information technology, to evaluate the requirements of the new standard and the impact it will have on the Company’s existing processes.

The Company also engaged a software vendor and had run several CECL parallel run productions during 2019.

The Company adopted the provisions of ASU No.

2016-13 and related amendments by recording a cumulative effect adjustment to retained earnings as of January 1, 2020.

Note that the Company did not opt to delay the implementation of CECL requirements as permitted under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which allows entities to delay implementation until the earlier of (1) the date on which the national emergency concerning the Coronavirus Disease 2019 (“COVID-19”) terminates, or (2) December 31, 2020.

The following table presents the impact of adopting ASC Topic 326 as of January 1, 2020:

After Adoption of

(dollars in thousands)

ASC Topic 326

Allowance for Credit Losses - Loans and Leases

Reserve for Unfunded Commitments (1)

Pretax Cumulative Effect Adjustment of a Change in Accounting Principle

Cumulative-Effect Adjustment of a Change in Accounting Principle, Net of Tax

(1) The reserve for unfunded commitments is included as a component of other liabilities in the Company's interim consolidated balance sheets.

In January 2017, the FASB issued ASU No.

2017-04, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment .

This guidance simplifies the subsequent measurement of goodwill by eliminating Step 2 from the current two-step goodwill impairment test.

This guidance provides that a goodwill impairment test be conducted by comparing the fair value of a reporting unit with its carrying amount.

Entities are to recognize an impairment charge for goodwill by the amount by which the carrying amount exceeds the reporting unit’s fair value.

Entities will continue to have the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.

The Company adopted the provisions of ASU No.

2017-04 on January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement .

This guidance is a part of the FASB’s disclosure framework project to improve disclosure effectiveness.

This guidance eliminates certain disclosure requirements for fair value measurements:

the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, an entity’s policy for the timing of transfers between levels of the fair value hierarchy and an entity’s valuation processes for Level 3 fair value measurements.

This guidance also adds new disclosure requirements for public entities:

changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements of instruments held at the end of the reporting period, and the range and weighted average of significant unobservable inputs used to develop recurring and nonrecurring Level 3 fair value measurements, including how the weighted average is calculated.

Furthermore, this guidance modifies certain requirements which will involve disclosing:

transfers into and out of Level 3 of the fair value hierarchy, purchases and issuances of Level 3 assets and liabilities, and information about the measurement uncertainty of Level 3 fair value measurements as of the reporting date.

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.

See “Note 17.

Fair Value” for required disclosures related to this new guidance.

Recent Accounting Pronouncements

The following ASU has been issued by the FASB and is applicable to the Company in future reporting periods.

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

The relief provided by this guidance is elective and applies to all entities, subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform.

The guidance provides that changes in contract terms that are made to effect the reference rate reform transition are considered related to the replacement of a reference rate if they are not the result of a business decision that is separate from or in addition to changes to the terms of a contract to effect that transition.

The guidance also provides an optional expedient for loans that would permit the Company to account for the modification as if it was only minor and not an extinguishment in accordance with GAAP.

For leases, the guidance provides an optional expedient for modifications to not trigger reassessment of lease classification and the discount rate or require the entity to remeasure lease payments or perform the other reassessments or remeasurements that would otherwise be triggered by a modification under GAAP when the modification is not accounted for as a separate contract.

The optional amendments in ASU No.

2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022.

As of September 30, 2020, the Company did not elect any of the optional expedients provided for by this guidance.

The Company is in the process of evaluating the optional expedients and the impact that this new guidance may have on the Company’s consolidated financial statements.

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

Investment Securities

As of September 30, 2020 and December 31, 2019, investment securities consisted predominantly of the following investment categories:

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

Treasury and debt securities – includes U.S.

Treasury notes and debt securities issued by agencies and government-sponsored enterprises.

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.

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 September 30, 2020 and December 31, 2019, all of the Company’s investment securities were classified as available-for-sale.

Amortized cost and fair value of securities as of September 30, 2020 and December 31, 2019 were as follows:

September 30, 2020

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

1 unchanged sentence

Treasury and government agency debt securities

Government-sponsored enterprises debt securities

Mortgage-backed securities:

7 unchanged sentences

Total available-for-sale securities

Proceeds from both calls and sales of investment securities were nil for the three months ended September 30, 2020, and $ 101.7 million and $ 543.0 million, respectively, for the nine months ended September 30, 2020.

Proceeds from calls and sales of investment securities were $ 38.0 million and nil , respectively, for the three months ended September 30, 2019 and $ 38.0 million and $ 905.6 million, respectively, for the nine months ended September 30, 2019.

The Company recorded gross realized gains of nil and gross realized losses of nil for the three months ended September 30, 2020 and gross realized gains of $ 0.6 million and gross realized losses of $ 0.7 million for the nine months ended September 30, 2020.

The Company recorded no gross realized gains and no gross realized losses for the three months ended September 30, 2019 and gross realized gains of $ 0.1 million and gross realized losses of $ 2.7 million for the nine months ended September 30, 2019.

The income tax benefit related to the Company’s net realized loss on the sale of investment securities was nil during both the three and nine months ended September 30, 2020.

The income tax expense related to the net realized gains on the sale of investment securities was nil for the three months ended September 30, 2019.

The income tax benefit related to the Company's net realized loss on the sale of investment securities was $ 0.7 million for the nine months ended September 30, 2019.

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 nil and gross realized losses of nil for the three months ended March 31, 2021.

The Company recorded gross realized gains of $ 0.1 million and gross realized losses of nil 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 nil 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 nil 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 $ 20.2 million and $ 22.3 million, respectively, for the three months ended September 30, 2020 and 2019, and $ 59.0 million and $ 71.5 million, respectively, for the nine months ended September 30, 2020 and 2019.

Interest income from non-taxable investment securities was $ 0.1 million and nil , respectively, during the three months ended September 30, 2020 and 2019, and $ 0.1 million and nil , respectively, for the nine months ended September 30, 2020 and 2019.

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 nil , 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 September 30, 2020, by contractual maturity, are shown below.

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.

September 30, 2020

March 31, 2021

(dollars in thousands)

14 unchanged sentences

Total available-for-sale securities

At September 30, 2020, pledged securities totaled $ 2.4 billion, of which $ 2.2 billion was pledged to secure public deposits and $ 201.4 million was pledged to secure other financial transactions.

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 no 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 September 30, 2020 or December 31, 2019.

The following table presents the unrealized gross losses and fair values of securities in the available-for-sale portfolio by length of time that the 24 and 118 individual securities in each category have been in a continuous loss position as of September 30, 2020 and December 31, 2019, respectively.

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.

At September 30, 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.

Time in Continuous Loss as of September 30, 2020

Time in Continuous Loss as of March 31, 2021

Less Than 12 Months

14 unchanged sentences

(dollars in thousands)

Government-sponsored enterprises debt securities

Treasury and government agency debt securities

Mortgage-backed securities:

Residential - Government agency

Residential - Government-sponsored enterprises

Commercial - Government agency

Commercial - Government-sponsored enterprises

3 unchanged sentences

Total available-for-sale securities with unrealized losses

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 no 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 can print its own currency and its currency is routinely held by central banks and other major financial institutions.

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

12 unchanged sentences

Derivative Financial Instruments” for more information.

The Company held approximately 120,000 Visa Class B restricted shares as of both September 30, 2020 and December 31, 2019.

These shares continued to be carried at $ 0 cost basis as of both September 30, 2020 and December 31, 2019.

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.

Loans and Leases

As of September 30, 2020 and December 31, 2019, loans and leases were comprised of the following:

September 30,

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

(dollars in thousands)

6 unchanged sentences

Total loans and leases

Outstanding loan balances are reported net of deferred loan costs and fees of $ 19.0 million and $ 41.0 million at September 30, 2020 and December 31, 2019, respectively.

As of September 30, 2020, residential real estate loans totaling $ 3.0 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 mortgage loans totaling $ 1.8 billion were pledged to collateralize the Company’s borrowing capacity at the Federal Reserve Bank of San Francisco (“FRB”).

As of December 31, 2019, residential real estate loans totaling $ 2.9 billion were pledged to collateralize the Company’s borrowing capacity at the FHLB, and consumer, commercial and industrial and commercial real estate loans totaling $ 953.2 million were pledged to collateralize the Company’s borrowing capacity at the FRB.

Residential real estate loans collateralized by properties that were in the process of foreclosure totaled $ 2.8 million and $ 4.1 million as of September 30, 2020 and December 31, 2019, respectively.

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.

5 unchanged sentences

Allowance for Credit Losses

The Company maintains an 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 collectability of the reported amount of loans and leases.

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 OBS financial instruments expire, loan funding occurs, or is otherwise settled.

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.

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 TDRs for a limited period of time to account for the effects of COVID-19.

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.

5 unchanged sentences

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 and nine months ended September 30, 2020:

Three Months Ended September 30, 2020

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

5 unchanged sentences

Balance at end of period

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2020

Commercial Lending

6 unchanged sentences

Balance at end of period

The following presents the activity in the ACL by class of loans and leases for the three and nine months ended September 30, 2019, presented in accordance with Topic 310, Receivables :

Three Months Ended September 30, 2019

Commercial Lending

(dollars in thousands)

Allowance for credit losses:

Balance at beginning of period

Increase (decrease) in Provision

Balance at end of period

Nine Months Ended September 30, 2019

Commercial Lending

(dollars in thousands)

Allowance for credit losses:

Balance at beginning of period

Increase (decrease) in Provision

Balance at end of period

The disaggregation of the ACL and recorded investment in loans by impairment methodology as of December 31, 2019, presented in accordance with Topic 310, Receivables , was as follows:

December 31, 2019

Commercial Lending

(dollars in thousands)

Allowance for credit losses:

Individually evaluated for impairment

Collectively evaluated for impairment

Balance at end of period

Loans and leases:

Individually evaluated for impairment

Collectively evaluated for impairment

Balance at end of period

Rollforward of the Reserve for Unfunded Commitments

The following presents the activity in the Reserve for Unfunded Commitments for the three and nine months ended September 30, 2020:

Three Months Ended September 30, 2020

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

5 unchanged sentences

Balance at end of period

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2020

Commercial Lending

32 unchanged sentences

FICO scores are updated on a monthly, quarterly or bi-annual basis, depending on the product type.

The amortized cost basis by year of origination and credit quality indicator of the Company's loans and leases as of September 30, 2020 was as follows:

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:

Amortized Cost Basis by Origination Year

36 unchanged sentences

Loans and leases of this nature are primarily secured by collateral and/or are closely monitored for performance.

There were no loans and leases graded as Loss as of September 30, 2020.

The amortized cost basis of revolving loans that were converted to term loans during the three and nine months ended September 30, 2020 was as follows:

Three Months Ended

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:

Amortized Cost Basis by Origination Year

(dollars in thousands)

September 30, 2020

Commercial Lending

Commercial and Industrial

Special Mention

Total Commercial and Industrial

Commercial Real Estate

Special Mention

Total Commercial Real Estate

Special Mention

Total Construction

Lease Financing

Special Mention

Total Lease Financing

Total Commercial Lending

Amortized Cost Basis by Origination Year

(dollars in thousands)

Residential Lending

Residential Mortgage

740 and greater

Less than 550

Total Residential Mortgage

Home Equity Line

Total Revolving Loans Converted to Term Loans During the Period

Nine Months Ended

740 and greater

Less than 550

Total Home Equity Line

Total Residential Lending

Consumer Lending

740 and greater

Less than 550

Total Consumer Lending

Total Loans and Leases

(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 no 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)

September 30, 2020

March 31, 2021

Commercial and industrial

Residential mortgage

Home equity line

Total Revolving Loans Converted to Term Loans During the Period

The credit risk profiles by internally assigned grade for loans and leases as of December 31, 2019, presented in accordance with Topic 310, Receivables , were as follows:

December 31, 2019

(dollars in thousands)

Special mention

There were no loans and leases graded as Loss as of December 31, 2019.

The credit risk profiles based on payment activity for loans and leases that were not subject to loan grading as of December 31, 2019 presented in accordance with Topic 310, Receivables , were as follows:

December 31, 2019

Three Months Ended

(dollars in thousands)

March 31, 2020

Commercial and industrial

Residential mortgage

Home Equity Line

Consumer - Auto

Non-performing and delinquent

Total Revolving Loans Converted to Term Loans During the Period

Past-Due Status

1 unchanged sentence

The Company considers loans and leases that are delinquent for 30 days or more to be past due.

As of September 30, 2020, the aging analysis of the amortized cost basis of the Company’s past due loans and leases was as follows:

September 30, 2020

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

Still Accruing

5 unchanged sentences

Home equity line

As of December 31, 2019, the aging analysis of the Company’s past due loans and leases, presented in accordance with Topic 310, Receivables , was as follows:

December 31, 2020

Accruing Loans and Leases

Still Accruing

(dollars in thousands)

7 unchanged sentences

The Company charges off a loan or lease when facts indicate that the loan or lease is considered uncollectible.

The amortized cost basis of loans and leases on nonaccrual status as of September 30, 2020 and January 1, 2020 and the amortized cost basis of loans and leases on nonaccrual status with no allowance for credit losses as of September 30, 2020 were as follows:

September 30, 2020

January 1, 2020

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

(dollars in thousands)

4 unchanged sentences

Total Nonaccrual Loans and Leases

For the three and nine months ended September 30, 2020, the Company recognized interest income of $ 0.1 million and $ 0.2 million, respectively, on nonaccrual loans and leases.

Furthermore, for the three and nine months ended September 30, 2020, the amount of accrued interest receivables written off by reversing interest income was $ 0.2 million and $ 1.1 million, respectively.

Collateral-Dependent Loans and Leases

Collateral-dependent loans and leases are those for which repayment (on the basis of the Company’s assessment as of the reporting date) is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty.

As of September 30, 2020, the amortized cost basis of collateral-dependent loans was $ 33.3 million.

These loans were primarily collateralized by commercial and residential real estate property and borrower assets.

As of September 30, 2020, the fair value of collateral on substantially all collateral-dependent loans were significantly in excess of their amortized cost basis.

Impaired Loans

The total carrying amounts and the total unpaid principal balances of impaired loans and leases as of December 31, 2019, presented in accordance with Topic 310, Receivables , were as follows:

December 31, 2020

(dollars in thousands)

Impaired loans with no related allowance recorded:

Commercial and industrial

Commercial real estate

Residential mortgage

Impaired loans with a related allowance recorded:

Commercial and industrial

Commercial real estate

Residential mortgage

Total impaired loans:

Commercial and industrial

Commercial real estate

Residential mortgage

The following table provides information with respect to the Company’s average balances, and of interest income recognized from, impaired loans for the three and nine months ended September 30, 2019, presented in accordance with Topic 310, Receivables :

Three Months Ended

Nine Months Ended

September 30, 2019

(dollars in thousands)

Impaired loans with no related allowance recorded:

Commercial and industrial

Commercial real estate

Residential mortgage

Impaired loans with a related allowance recorded:

Commercial and industrial

Commercial real estate

Residential mortgage

Total impaired loans:

for Credit Losses

Commercial and industrial

1 unchanged sentence

Residential mortgage

Total Nonaccrual Loans and Leases

For the three months ended March 31, 2021 and 2020, the Company recognized interest income of $ 0.1 million and nil, respectively, on nonaccrual loans and leases.

Furthermore, for the three months ended March 31, 2021 and 2020, the amount of accrued interest receivables written off by reversing interest income was $ 0.4 million and not material, respectively.

Collateral-Dependent Loans and Leases

As of March 31, 2021 and December 31, 2020, the amortized cost basis of collateral-dependent loans were $ 23.3 million and $ 21.0 million, respectively.

These loans were primarily collateralized by residential real estate property and borrower assets.

As of March 31, 2021 and December 31, 2020, the fair value of collateral on substantially all collateral-dependent loans were significantly in excess of their amortized cost basis.

Modifications

Commercial and industrial loans modified in a TDR may involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans.

Commercial and industrial loans modified in a TDR may involve temporary interest-only payments, term and amortization extensions, and converting revolving credit lines to term loans.

Modifications of commercial real estate and construction loans in a TDR may involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor.

1 unchanged sentence

Interest continues to accrue on the missed payments and as a result, the effective yield on the loan remains unchanged.

As the forbearance period usually involves an insignificant payment delay, lease financing modifications typically do not meet the reporting criteria for a TDR.

Residential real estate loans modified in a TDR may be comprised of loans where monthly payments are lowered to accommodate the borrowers' financial needs for a period of time, normally two years .

Generally, consumer loans are not classified as a TDR as they are normally charged off upon reaching a predetermined delinquency status that ranges from 120 to 180 days and varies by product type.

Residential real estate loans modified in a TDR may be comprised of loans where monthly payments are lowered to accommodate the borrowers' financial needs for a period of time, including extended interest-only periods and re-amortization of the balance.

Modifications of consumer loans in a TDR may involve temporary or permanent reduced payments, temporary interest-only payments and below-market interest rates.

Loans modified in a TDR may already be on nonaccrual status and in some cases, partial charge-offs may have already been taken against the outstanding loan balance.

4 unchanged sentences

Management exercises significant judgment in developing these estimates.

The following presents, by class, information related to loans modified in a TDR during the three and nine months ended September 30, 2020 and 2019:

The following presents, by class, information related to loans modified in a TDR during the three months ended March 31, 2021 and 2020:

Three Months Ended

Nine Months Ended

September 30, 2020

(dollars in thousands)

Investment (1)

Commercial and industrial

(1) The recorded investment balances reflect all partial paydowns and charge-offs since the modification date and do not include TDRs that have been fully paid off, charged off, or foreclosed upon by the end of the period.

Three Months Ended

Nine Months Ended

September 30, 2019

March 31, 2021

March 31, 2020

(dollars in thousands)

Investment (1)

Contracts (1)

Investment (2)

2 unchanged sentences

The above loans were modified in a TDR through an extension of maturity dates, temporary interest-only payments, reduced payments, or below-market interest rates.

The Company had commitments to extend credit, standby letters of credit, and commercial letters of credit totaling $ 6.2 billion and $ 6.1 billion as of September 30, 2020 and December 31, 2019, respectively.

Of the $ 6.2 billion at September 30, 2020, there were no commitments related to borrowers who had loan terms modified in a TDR.

The above loans were modified in a TDR through an extension of maturity dates, temporary interest-only payments, temporary payment deferrals, reduced payments, converting revolving credit lines to term loans or below-market interest rates.

The Company had commitments to extend credit, standby letters of credit, and commercial letters of credit totaling $ 6.3 billion and $ 6.1 billion as of March 31, 2021 and December 31, 2020, respectively.

Of the $ 6.3 billion at March 31, 2021, there were commitments of $ 0.4 million related to borrowers who had loan terms modified in a TDR.

Of the $ 6.1 billion at December 31, 2020, there were commitments of $ 0.2 million related to borrowers who had loan terms modified in a TDR.

2 unchanged sentences

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended

September 30, 2020

September 30, 2019

March 31, 2021

March 31, 2020

(dollars in thousands)

1 unchanged sentence

Investment (1)

Commercial and industrial (2)

Construction (3)

Residential mortgage (4)

(2) For the three and nine months ended September 30, 2020, the maturity date for the commercial and industrial loan that subsequently defaulted was extended.

For the three and nine months ended September 30, 2019, the commercial and industrial loans that subsequently defaulted were temporarily modified to interest-only payments.

(3) For the nine months ended September 30, 2019, the maturity date for the residential mortgage loan that subsequently defaulted was extended.

(2) For the three months ended March 31, 2021, the types of modifications for the commercial and industrial loans that subsequently defaulted include temporary deferrals of principal and interest and temporary reduced payments.

(3) For the three months ended March 31, 2021, the construction loan that subsequently defaulted was modified through temporary deferral of principal and interest.

(4) For the three months ended March 31, 2021, the residential mortgage loan that subsequently defaulted was modified through temporary interest-only payments.

(5) For the three months ended March 31, 2021, the types of modifications for the consumers loans that subsequently defaulted include temporary reduced payments, temporary interest-only payments and below-market interest rates.

Foreclosure Proceedings

As of September 30, 2020, there were no residential mortgage loans collateralized by real estate property that was modified in a TDR that was in process of foreclosure.

As of December 31, 2019, there was one residential mortgage loan collateralized by real estate property of $ 0.3 million that was modified in a TDR that was in process of foreclosure.

As of March 31, 2021 and December 31, 2020, there were no residential mortgage loans collateralized by real estate property that was modified in a TDR that was in process of foreclosure.

Foreclosed Property

As of September 30, 2020, there were no residential real estate properties held from foreclosed residential real estate loans.

As of December 31, 2019, residential real estate properties from two foreclosed residential real estate loans were held and included in other real estate owned and repossessed personal property with a carrying value of $ 0.3 million on the unaudited interim consolidated balance sheets.

As of March 31, 2021 and December 31, 2020, there were no residential real estate properties held from foreclosed residential real estate loans.

Mortgage Servicing Rights

2 unchanged sentences

Mortgage loan servicing income is recorded in noninterest income as a part of other service charges and fees and amortization of the servicing assets is recorded in noninterest income as part of other income.

The unpaid principal amount of residential real estate loans serviced for others was $ 2.3 billion as of both September 30, 2020 and December 31, 2019.

Servicing fees include contractually specified fees, late charges, and ancillary fees, and were $ 1.4 million and $ 1.6 million for the three months ended September 30, 2020 and 2019, respectively, and $ 4.4 million and $ 4.8 million for the nine months ended September 30, 2020 and 2019, respectively.

Amortization of mortgage servicing rights (“MSRs”) was $ 1.4 million and $ 1.0 million for the three months ended September 30, 2020 and 2019, respectively, and $ 4.7 million and $ 2.6 million for the nine months ended September 30, 2020 and 2019, respectively.

The unpaid principal amount of residential real estate loans serviced for others was $ 2.0 billion and $ 2.2 billion as of March 31, 2021 and December 31, 2020, respectively.

Servicing fees include contractually specified fees, late charges, and ancillary fees, and were $ 1.3 million and $ 1.5 million for the three months ended March 31, 2021 and 2020, respectively.

Amortization of mortgage servicing rights (“MSRs”) was $ 0.5 million and $ 2.0 million for the three months ended March 31, 2021 and 2020, respectively.

The estimated future amortization expenses for MSRs over the next five years are as follows:

6 unchanged sentences

The details of the Company’s MSRs are presented below:

September 30,

(dollars in thousands)

2 unchanged sentences

Net carrying value

The following table presents changes in amortized MSRs for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended September 30,

Nine Months Ended September 30,

The following table presents changes in amortized MSRs for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

(dollars in thousands)

4 unchanged sentences

MSRs are evaluated for impairment if events and circumstances indicate a possible impairment.

No impairment of MSRs was recorded for the three and nine months ended September 30, 2020 and 2019.

The quantitative assumptions used in determining the lower of cost or fair value of the Company’s MSRs as of September 30, 2020 and December 31, 2019 were as follows:

September 30, 2020

No impairment of MSRs was recorded for the three months ended March 31, 2021 and 2020.

The quantitative assumptions used in determining the lower of cost or fair value of the Company’s MSRs as of March 31, 2021 and December 31, 2020 were as follows:

March 31, 2021

December 31, 2020

15 unchanged sentences

Counterparties to ACH transactions, certain interest rate swaps, the FHLB and the FRB do not have the right to sell or repledge the collateral.

The carrying amounts of the assets pledged as collateral to secure public deposits, borrowing arrangements and other transactions as of September 30, 2020 and December 31, 2019 were as follows:

The carrying amounts of the assets pledged as collateral to secure public deposits, borrowing arrangements and other transactions as of March 31, 2021 and December 31, 2020 were as follows:

(dollars in thousands)

September 30, 2020

March 31, 2021

December 31, 2020

4 unchanged sentences

Interest rate swaps

As the Company did not enter into reverse repurchase agreements or repurchase agreements, no collateral was accepted or pledged as of September 30, 2020 and December 31, 2019.

As the Company did not enter into reverse repurchase agreements or repurchase agreements, no collateral was accepted or pledged as of March 31, 2021 and December 31, 2020.

In addition, no debt was extinguished by in-substance defeasance.

As of September 30, 2020 and December 31, 2019, deposits were categorized as interest-bearing or noninterest-bearing as follows:

As of March 31, 2021 and December 31, 2020, deposits were categorized as interest-bearing or noninterest-bearing as follows:

(dollars in thousands)

September 30, 2020

March 31, 2021

December 31, 2020

4 unchanged sentences

Total deposits

The following table presents the maturity distribution of time certificates of deposit as of September 30, 2020:

The following table presents the maturity distribution of time certificates of deposit as of March 31, 2021:

(dollars in thousands)

6 unchanged sentences

Four to five years

Time certificates of deposit in denominations of $250,000 or more, in the aggregate, were $ 1.5 billion and $ 1.4 billion as of September 30, 2020 and December 31, 2019, respectively.

Overdrawn deposit accounts are classified as loans and totaled $ 2.9 million and $ 3.6 million as of September 30, 2020 and December 31, 2019, respectively.

Short-Term Borrowings

At September 30, 2020 and December 31, 2019, short-term borrowings were comprised of the following:

(dollars in thousands)

September 30, 2020

December 31, 2019

Short-term FHLB fixed-rate advances (1)

Total short-term borrowings

(1) Interest is payable monthly.

As of December 31, 2019, the Company’s short-term borrowings included $ 400.0 million in short-term FHLB fixed-rate advances with a weighted average interest rate of 2.84 %.

The short-term FHLB fixed-rate advances required monthly interest-only payments with the principal amount due on the maturity date.

As of September 30, 2020, the Company had no short-term borrowings as the remaining short-term FHLB fixed-rate advance (as of June 30, 2020) matured in July 2020.

As of September 30, 2020 and December 31, 2019, the available remaining borrowing capacity with the FHLB was $ 2.0 billion and $ 1.7 billion, respectively.

The FHLB fixed-rate advances and remaining borrowing capacity were secured by residential real estate loan collateral as of September 30, 2020 and December 31, 2019.

As of September 30, 2020 and December 31, 2019, the Company had an undrawn line of credit of $ 1.0 billion and $ 596.8 million from the FRB, respectively.

The borrowing capacity with the FRB was secured by consumer, commercial and industrial, commercial real estate and residential mortgage loans as of September 30, 2020 and December 31, 2019.

Transfers of Financial Assets” for more information.

Time certificates of deposit in denominations of $250,000 or more, in the aggregate, were $ 1.1 billion and $ 1.3 billion as of March 31, 2021 and December 31, 2020, respectively.

Overdrawn deposit accounts are classified as loans and totaled $ 1.0 million and $ 2.6 million as of March 31, 2021 and December 31, 2020, respectively.

Long-Term Borrowings

Long-term borrowings consisted of the following as of September 30, 2020 and December 31, 2019:

Long-term borrowings consisted of the following as of March 31, 2021 and December 31, 2020:

(dollars in thousands)

September 30, 2020

March 31, 2021

December 31, 2020

3 unchanged sentences

(1) Interest is payable monthly.

As of September 30, 2020 and December 31, 2019, the Company’s long-term borrowings included $ 200.0 million in FHLB fixed-rate advances with a weighted average interest rate of 2.73 % and maturity dates ranging from 2023 to 2024.

As of March 31, 2021 and December 31, 2020, the Company’s long-term borrowings included $ 200.0 million in FHLB fixed-rate advances with a weighted average interest rate of 2.73 % and maturity dates ranging from 2023 to 2024.

The FHLB fixed-rate advances require monthly interest-only payments with the principal amount due on the maturity date.

As of September 30, 2020 and December 31, 2019, the Company’s long-term borrowings included a finance lease obligation with a 6.78 % annual interest rate that matures in 2022.

As of September 30, 2020, future contractual principal payments and maturities of long-term borrowings were as follows:

As of both March 31, 2021 and December 31, 2020, the available remaining borrowing capacity with the FHLB was $ 2.0 billion.

The FHLB fixed-rate advances and remaining borrowing capacity were secured by residential real estate loan collateral as of March 31, 2021 and December 31, 2020.

As of March 31, 2021 and December 31, 2020, the Company had an undrawn line of credit of $ 1.2 billion and $ 1.1 billion from the FRB, respectively.

The borrowing capacity with the FRB was secured by consumer, commercial and industrial, commercial real estate and residential real estate loans as of March 31, 2021 and December 31, 2020.

Transfers of Financial Assets” for more information.

As of March 31, 2021 and December 31, 2020, the Company’s long-term borrowings included a finance lease obligation with a 6.78 % annual interest rate that matures in 2022.

As of March 31, 2021, future contractual principal payments and maturities of long-term borrowings were as follows:

(dollars in thousands)

(1) FHLB fixed-rate advance callable on December 4, 2020 with an interest rate of 2.80 % .

(2) FHLB fixed-rate advance callable on January 15, 2021 with an interest rate of 2.65 % .

(1) FHLB fixed-rate advance callable on June 3, 2021 with an interest rate of 2.80 % .

(2) FHLB fixed-rate advance callable on July 15, 2021 with an interest rate of 2.65 % .

Accumulated Other Comprehensive Income (Loss)

1 unchanged sentence

The Company’s significant items of accumulated other comprehensive loss are pension and other benefits and net unrealized gains or losses on investment securities.

Changes in accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2020 and 2019 are presented below:

Changes in accumulated other comprehensive income (loss) for the three months ended March 31, 2021 and 2020 are presented below:

(dollars in thousands)

Accumulated other comprehensive income at June 30, 2020

Three months ended September 30, 2020

Accumulated other comprehensive income at December 31, 2020

Three months ended March 31, 2021

Investment securities:

Unrealized net losses arising during the period

Reclassification of net losses to net income:

Investment securities gains, net

Net change in investment securities

Other comprehensive loss

Accumulated other comprehensive income at September 30, 2020

(dollars in thousands)

Accumulated other comprehensive loss at December 31, 2019

Nine months ended September 30, 2020

Change in Company tax rate

Net change in pension and other benefits

Investment securities:

Unrealized net gains arising during the period

Reclassification of net losses to net income:

Investment securities losses, net

Net change in investment securities

Other comprehensive income

Accumulated other comprehensive income at September 30, 2020

(dollars in thousands)

Accumulated other comprehensive loss at June 30, 2019

Three months ended September 30, 2019

Investment securities:

Unrealized net gains arising during the period

Net change in investment securities

Other comprehensive income

Accumulated other comprehensive loss at September 30, 2019

Accumulated other comprehensive loss at March 31, 2021

(dollars in thousands)

Accumulated other comprehensive loss at December 31, 2019

Nine months ended September 30, 2019

Three months ended March 31, 2020

Pension and other benefits:

Net actuarial losses arising during the year

Change in Company tax rate

Net change in pension and other benefits

1 unchanged sentence

Unrealized net gains arising during the period

Reclassification of net losses to net income:

Investment securities losses, net

Reclassification of net gains to net income:

Investment securities gains, net

Net change in investment securities

Other comprehensive income

Accumulated other comprehensive loss at September 30, 2019

Accumulated other comprehensive income at March 31, 2020

The following table summarizes changes in accumulated other comprehensive income (loss), net of tax, for the periods indicated:

2 unchanged sentences

Income (Loss)

Three Months Ended September 30, 2020

Three Months Ended March 31, 2021

Balance at beginning of period

1 unchanged sentence

Balance at end of period

Nine Months Ended September 30, 2020

Balance at beginning of period

Other comprehensive (loss) income

Balance at end of period

Three Months Ended September 30, 2019

Three Months Ended March 31, 2020

Balance at beginning of period

1 unchanged sentence

Balance at end of period

Nine Months Ended September 30, 2019

Balance at beginning of period

Other comprehensive (loss) income

Balance at end of period

Regulatory Capital Requirements

6 unchanged sentences

Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios of Common Equity Tier 1 (“CET1”) capital, Tier 1 capital and total capital to risk-weighted assets, as well as a minimum leverage ratio.

The table below sets forth those ratios at September 30, 2020 and December 31, 2019:

The table below sets forth those ratios at March 31, 2021 and December 31, 2020:

First Hawaiian

1 unchanged sentence

(dollars in thousands)

September 30, 2020:

March 31, 2021:

Common equity tier 1 capital to risk-weighted assets

8 unchanged sentences

(1) As defined by the regulations issued by the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation (“FDIC”).

A capital conservation buffer requires a 2.5 % capital conservation buffer designed to absorb losses during periods of economic stress.

Federal regulations require a 2.5 % capital conservation buffer designed to absorb losses during periods of economic stress.

The capital conservation buffer is composed entirely of CET1, on top of these minimum risk weighted asset ratios, effectively resulting in minimum ratios of (i) 7 % CET1 to risk-weighted assets, (ii) 8.5 % Tier 1 capital to risk-weighted assets, and (iii) 10.5 % total capital to risk-weighted assets.

As of September 30, 2020, under the bank regulatory capital guidelines, the Company and Bank were both classified as well-capitalized.

Management is not aware of any conditions or events that have occurred since September 30, 2020, to change the capital adequacy category of the Company or the Bank.

As of March 31, 2021, under the bank regulatory capital guidelines, the Company and Bank were both classified as well-capitalized.

Management is not aware of any conditions or events that have occurred since March 31, 2021, to change the capital adequacy category of the Company or the Bank.

Derivative Financial Instruments

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however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes.

The following table summarizes notional amounts and fair values of derivatives held by the Company as of September 30, 2020 and December 31, 2019:

September 30, 2020

The following table summarizes notional amounts and fair values of derivatives held by the Company as of March 31, 2021 and December 31, 2020:

March 31, 2021

December 31, 2020

14 unchanged sentences

Those transactions cleared through a clearinghouse require initial margin collateral and variation margin payments depending on the contracts being in a net asset or liability position.

The amount of initial margin cash collateral posted by the Company was $ 10.1 million and $ 8.7 million as of September 30, 2020 and December 31, 2019, respectively.

As of September 30, 2020 and December 31, 2019, the variation margin was $ 159.9 million and $ 63.5 million, respectively.

As of September 30, 2020, the Company pledged $ 30.9 million in financial instruments and $ 23.5 million in cash as collateral for interest rate swaps.

As of March 31, 2021, the amount of initial margin cash collateral received by the Company was $ 1.4 million.

As of December 31, 2020, the amount of initial margin cash collateral posted by the Company was $ 4.8 million.

As of March 31, 2021 and December 31, 2020, the variation margin was $ 80.1 million and $ 129.9 million, respectively.

As of March 31, 2021, the Company pledged $ 30.7 million in financial instruments and $ 11.7 million in cash as collateral for interest rate swaps.

As of December 31, 2020, the Company pledged $ 30.8 million in financial instruments and $ 25.2 million in cash as collateral for interest rate swaps.

As of September 30, 2020 and December 31, 2019, the cash collateral includes the excess initial margin for interest rate swaps cleared through clearinghouses and cash collateral for interest rate swaps with financial institution counterparties.

As of March 31, 2021 and December 31, 2020, the cash collateral includes the excess initial margin for interest rate swaps cleared through clearinghouses and cash collateral for interest rate swaps with financial institution counterparties.

Fair Value Hedges

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Any gain or loss on the swaps, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, is recognized in current period earnings.

At September 30, 2020 and December 31, 2019, the Company carried one interest rate swap with a notional amount of $ 22.8 million and $ 23.2 million, respectively, with a negative fair value of $ 1.4 million and $ 0.7 million, respectively, that was categorized as a fair value hedge for a commercial and industrial loan.

As of both March 31, 2021 and December 31, 2020, the Company carried one interest rate swap with a notional amount of $ 22.5 million.

As of March 31, 2021 and December 31, 2020, the interest rate swap was categorized as a fair value hedge for a commercial and industrial loan with a negative fair value of $ 1.1 million and $ 1.3 million, respectively.

The Company received a USD Prime floating rate and paid a fixed rate of 2.90 % .

The swap matures in 2023.

The following table shows the gains and losses recognized in income related to derivatives in fair value hedging relationships for the three and nine months ended September 30, 2020 and 2019:

The following table shows the gains and losses recognized in income related to derivatives in fair value hedging relationships for the three months ended March 31, 2021 and 2020:

Gains (losses) recognized in

Three Months Ended

Nine Months Ended

the consolidated statements

September 30,

(dollars in thousands)

5 unchanged sentences

Loans and lease financing

As of September 30, 2020 and December 31, 2019, the following amounts were recorded in the unaudited interim consolidated balance sheets related to the cumulative basis adjustments for fair value hedges:

As of March 31, 2021 and December 31, 2020, the following amounts were recorded in the unaudited interim consolidated balance sheets related to the cumulative basis adjustments for fair value hedges:

Cumulative Amount of Fair Value

3 unchanged sentences

(dollars in thousands)

September 30, 2020

March 31, 2021

December 31, 2020

September 30, 2020

March 31, 2021

December 31, 2020

3 unchanged sentences

For the derivatives that are not designated as hedges, changes in fair value are reported in current period earnings.

The following table summarizes the impact on pretax earnings of derivatives not designated as hedges, as reported on the unaudited interim consolidated statements of income for the three and nine months ended September 30, 2020 and 2019:

Net gains (losses) recognized

Three Months Ended

Nine Months Ended

in the consolidated statements

September 30,

(dollars in thousands)

6 unchanged sentences

Other noninterest income

As of September 30, 2020, the Company carried multiple interest rate swaps with notional amounts totaling $ 3.0 billion, all of which were related to the Company’s customer swap program, with a positive fair value of $ 159.9 million and a negative fair value of nil .

As of March 31, 2021, the Company carried multiple interest rate swaps with notional amounts totaling $ 3.0 billion, all of which were related to the Company’s customer swap program, with a positive fair value of $ 80.1 million and a negative fair value of nil .

The Company received floating rates ranging from 0.11 % to 3.82 % and paid fixed rates ranging from 2.02 % to 5.78 %.

1 unchanged sentence

As of December 31, 2020, the Company carried multiple interest rate swaps with notional amounts totaling $ 3.0 billion, all of which were related to the Company’s customer swap program, with a positive fair value of $ 129.9 million and a negative fair value of nil .

The Company received 1-month LIBOR and paid fixed rates ranging from 1.71 % to 8.73 %.

These swaps resulted in net interest expense of nil during both the three and nine months ended September 30, 2020 and 2019.

The Company received floating rates ranging from 0.15 % to 3.16 % and paid fixed rates ranging from 2.02 % to 5.78 %.

These swaps resulted in net interest expense of nil during both the three months ended March 31, 2021 and 2020.

The Company’s customer swap program is designed by offering customers a variable-rate loan that is swapped to fixed-rate through an interest rate swap.

The Company simultaneously executes an offsetting interest rate swap with a swap dealer.

Upfront fees on the dealer swap are recorded in other noninterest income and totaled $ 0.5 million and $ 1.9 million for the three months ended September 30, 2020 and 2019, respectively, and $ 7.0 million and $ 3.8 million for the nine months ended September 30, 2020 and 2019, respectively.

Upfront fees on the dealer swap are recorded in other noninterest income and totaled $ 0.5 million and $ 1.9 million for the three months ended March 31, 2021 and 2020, respectively.

In conjunction with the 2016 sale of Class B restricted shares of common stock issued by Visa, the Company entered into a funding swap 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.

6 unchanged sentences

Under the terms of the funding swap agreement, the Company will make monthly payments to the buyer based on Visa’s Class A stock price and the number of Visa Class B restricted shares that were sold until the date on which the covered litigation is settled.

A derivative liability (“Visa derivative”) of $ 0.9 million and $ 4.2 million was included in the unaudited interim consolidated balance sheets at September 30, 2020 and December 31, 2019, respectively, to provide for the fair value of this liability.

A derivative liability (“Visa derivative”) of $ 3.4 million and $ 4.6 million was included in the unaudited interim consolidated balance sheets at March 31, 2021 and December 31, 2020, respectively, to provide for the fair value of this liability.

There were no sales of these shares prior to 2016.

9 unchanged sentences

Collateral for customer interest rate swap agreements, calculated as the pledged asset less loan balance, requires valuation of the pledged asset.

Counterparty credit risk adjustments of negative $ 0.1 million and nil were recognized during the three months ended September 30, 2020 and 2019, respectively, and $0.2 million and $0.1 million were recognized during the nine months ended September 30, 2020 and 2019, respectively.

Counterparty credit risk adjustments of $ 0.1 million were recognized during both the three months ended March 31, 2021 and 2020.

Credit-Risk Related Contingent Features

Certain of our derivative contracts contain provisions whereby if the Company’s credit rating were to be downgraded by certain major credit rating agencies as a result of a merger or material adverse change in the Company’s financial condition, the counterparty could require an early termination of derivative instruments in a net liability position.

The aggregate fair value of all derivative instruments with such credit-risk related contingent features that are in a net liability position was $ 12.8 million and $ 4.0 million at September 30, 2020 and December 31, 2019, respectively, for which we posted $ 13.5 million and $ 4.7 million, respectively, in collateral in the normal course of business.

If the Company’s credit rating had been downgraded as of September 30, 2020 and December 31, 2019, we may have been required to settle the contracts in an amount equal to their fair value.

The aggregate fair value of all derivative instruments with such credit-risk related contingent features that are in a net liability position was $ 14.1 million and $ 19.8 million at March 31, 2021 and December 31, 2020, respectively, for which we posted $ 14.1 million and $ 20.4 million, respectively, in collateral in the normal course of business.

If the Company’s credit rating had been downgraded as of March 31, 2021 and December 31, 2020, we may have been required to settle the contracts in an amount equal to their fair value.

Commitments and Contingent Liabilities

Contingencies

Various legal proceedings are pending or threatened against the Company.

On November 2, 2020, a lawsuit was filed in Hawaii Circuit Court by a Bank customer related to the sale of credit facilities that the Bank had previously extended to the customer.

The customer asserts claims against the Bank for interference with the customer’s contract and business opportunity, unfair methods of competition and declaratory and injunctive relief.

The outcome of this legal proceeding is uncertain at this point.

Based on information available to the Company at present, the Company cannot reasonably estimate a range of potential loss, if any, for this action.

Accordingly, the Company has not recognized any liability associated with this action.

Management disputes any wrongdoing and the case is being vigorously defended.

In addition to the litigation noted above, various legal proceedings are pending or threatened against the Company.

After consultation with legal counsel, management does not expect that the aggregate liability, if any, resulting from these proceedings would have a material effect on the Company’s unaudited interim consolidated financial position, results of operations or cash flows.

11 unchanged sentences

In addition, the Company manages the potential credit risk in commitments to extend credit by limiting the total amount of arrangements, both by individual customer and in the aggregate, by monitoring the size and expiration structure of these portfolios and by applying the same credit standards maintained for all of its related credit activities.

Commitments to extend credit are reported net of participations sold to other institutions of $ 107.7 million and $ 94.1 million at September 30, 2020 and December 31, 2019, respectively.

Commitments to extend credit are reported net of participations sold to other institutions of $ 81.2 million and $ 93.1 million at March 31, 2021 and December 31, 2020, respectively.

Standby and Commercial Letters of Credit

2 unchanged sentences

The credit risk to the Company arises from its obligation to make payment in the event of a customer’s contractual default.

Standby letters of credit are reported net of participations sold to other institutions of $ 11.0 million and $ 9.0 million at September 30, 2020 and December 31, 2019, respectively.

The Company also had

commitments for commercial and similar letters of credit.

Standby letters of credit are reported net of participations sold to other institutions of $ 10.8 million and $ 11.0 million at March 31, 2021 and December 31, 2020, respectively.

The Company also had commitments for commercial and similar letters of credit.

Commercial letters of credit are issued specifically to facilitate commerce whereby the commitment is typically drawn upon when the underlying transaction between the customer and a third-party is consummated.

2 unchanged sentences

Collateral held supports those commitments for which collateral is deemed necessary.

The commitments outstanding as of September 30, 2020 have maturities ranging from October 2020 to May 2022.

The commitments outstanding as of March 31, 2021 have maturities ranging from April 2021 to June 2022.

Substantially all fees received from the issuance of such commitments are deferred and amortized on a straight-line basis over the term of the commitment.

Financial instruments with off-balance sheet risk at September 30, 2020 and December 31, 2019 were as follows:

September 30,

Financial instruments with off-balance sheet risk at March 31, 2021 and December 31, 2020 were as follows:

(dollars in thousands)

30 unchanged sentences

The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services that are promised within each contract and identifies those that contain performance obligations, and assesses whether each promised good or service is

The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Disaggregation of Revenue

In 2019, the Company made changes to the internal measurement of segment operating profits for the purpose of evaluating segment performance and resource allocation.

The Company has restated the selected financial information for the three and nine months ended September 30, 2019 in order to conform with the current presentation.

See “Note 18.

Reportable Operating Segments” in the notes to the unaudited interim consolidated financial statements.

The following table summarizes the Company’s revenues, which includes net interest income on financial instruments and noninterest income, disaggregated by type of service and business segments for the periods indicated:

Three Months Ended September 30, 2020

(dollars in thousands)

Net interest income (1)

Service charges on deposit accounts

Credit and debit card fees

Other service charges and fees

Trust and investment services income

Not in scope of Topic 606 (1)

Total noninterest income

Total revenue

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

(dollars in thousands)

10 unchanged sentences

The guidance explicitly excludes net interest income from financial assets and liabilities as well as other noninterest income from loans, leases, investment securities and derivative financial instruments.

Three Months Ended September 30, 2019

(dollars in thousands)

Net interest income (1)

Service charges on deposit accounts

Credit and debit card fees

Other service charges and fees

Trust and investment services income

Not in scope of Topic 606 (1)

Total noninterest income

Total revenue

Nine Months Ended September 30, 2019

Three Months Ended March 31, 2020

(dollars in thousands)

10 unchanged sentences

For the three and nine months ended September 30, 2020 and 2019, substantially all of the Company’s revenues under the scope of Topic 606 were related to performance obligations satisfied at a point in time.

For the three months ended March 31, 2021 and 2020, substantially all of the Company’s revenues under the scope of Topic 606 were related to performance obligations satisfied at a point in time.

The following is a discussion of revenues within the scope of Topic 606.

19 unchanged sentences

In prior years, the Company received signing bonuses from two vendors which are being amortized over the term of the respective contracts.

As of September 30, 2020 and December 31, 2019, the Company had contract liabilities of $ 1.2 million and $ 1.8 million, respectively, which it expects to recognize over the remaining term of the respective contracts with the vendors.

For the three and nine months ended September 30, 2020, the Company’s recognized revenues and contract liabilities decreased by approximately $ 0.2 million and $ 0.6 million, respectively, due to the passage of time.

For the three and nine months ended September 30, 2019, the Company’s recognized revenues and contract liabilities decreased by approximately $ 0.2 million and $ 0.6 million, respectively, due to the passage of time.

As of March 31, 2021 and December 31, 2020, the Company had contract liabilities of $ 0.8 million and $ 1.0 million, respectively, which it expects to recognize over the remaining term of the respective contracts with the vendors.

For both the three months ended March 31, 2021 and 2020, the Company’s recognized revenues increased and contract liabilities decreased by approximately $ 0.2 million, due to the passage of time.

There were no changes in contract liabilities due to changes in transaction price estimates.

A contract asset is the right to consideration for transferred goods or services when the amount is conditioned on something other than the passage of time.

As of September 30, 2020 and December 31, 2019, there were no receivables from contracts with customers or contract assets recorded on the Company’s consolidated balance sheets.

Except for the contract liabilities noted above, the Company did not have any significant performance obligations as of September 30, 2020 and December 31, 2019.

As of March 31, 2021 and December 31, 2020, there were no material receivables from contracts with customers or contract assets recorded on the Company’s consolidated balance sheets.

Except for the contract liabilities noted above, the Company did not have any significant performance obligations as of March 31, 2021 and December 31, 2020.

The Company also did not have any material contract acquisition costs or use any significant judgments or estimates in recognizing revenue for financial reporting purposes.

Earnings per Share

For the three and nine months ended September 30, 2020, the Company made no adjustments to net income for the purpose of computing earnings per share and there were 353,000 and 352,000 antidilutive securities, respectively.

For the three and nine months ended September 30, 2019, the Company made no adjustments to net income for the purpose of computing earnings per share and there were no antidilutive securities.

For the three and nine months ended September 30, 2020 and 2019, the computations of basic and diluted earnings per share were as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

For the three months ended March 31, 2021 and 2020, the Company made no adjustments to net income for the purpose of computing earnings per share and there were 27,000 and nil antidilutive securities, respectively.

For the three months ended March 31, 2021 and 2020, the computations of basic and diluted earnings per share were as follows:

Three Months Ended March 31,

(dollars in thousands, except shares and per share amounts)

6 unchanged sentences

Benefit Plans

The Company sponsors an unfunded supplemental executive retirement plan (“SERP”) for certain key executives.

In March 2019, the Company’s board of directors approved an amendment to the SERP to freeze the SERP, which became effective on July 1, 2019.

As a result of the amendment, since the effective date, there have not been any, and there will be no new accruals of benefits, including service accruals.

Existing benefits under the SERP, as of the effective date of the amendment described above, will otherwise continue in accordance with the terms of the SERP.

The following table sets forth the components of net periodic benefit cost for the Company’s pension and postretirement benefit plans for the three and nine months ended September 30, 2020 and 2019:

The following table sets forth the components of net periodic benefit cost for the Company’s pension and postretirement benefit plans for the three months ended March 31, 2021 and 2020:

Income line item where recognized in

3 unchanged sentences

the consolidated statements of income

Three Months Ended September 30,

Salaries and employee benefits

Interest cost

Other noninterest expense

Expected return on plan assets

Other noninterest expense

Prior service credit

Other noninterest expense

Recognized net actuarial loss (gain)

Other noninterest expense

Total net periodic benefit cost

Nine Months Ended September 30,

Three Months Ended March 31,

Salaries and employee benefits

8 unchanged sentences

Total net periodic benefit cost

The Company recognized operating lease income related to lease payments of $ 1.6 million and $ 1.5 million for the three months ended September 30, 2020 and 2019, respectively, and $ 4.7 million and $ 4.4 million for the nine months ended September 30, 2020 and 2019, respectively.

In addition, the Company recognized $ 1.4 million of lease income related to variable lease payments for both the three months ended September 30, 2020 and 2019, and $ 4.3 million and $ 4.0 million for the nine months ended September 30, 2020 and 2019, respectively.

The Company recognized operating lease income related to lease payments of $ 1.7 million and $ 1.5 million for the three months ended March 31, 2021 and 2020, respectively.

In addition, the Company recognized $ 1.5 million of lease income related to variable lease payments for both the three months ended March 31, 2021 and 2020.

The Company determines the fair values of its financial instruments based on the requirements established in Accounting Standards Codification Topic 820 (“Topic 820”), Fair Value Measurements , which provides a framework for measuring fair value under GAAP and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

13 unchanged sentences

The Company has an organized and established process for determining and reviewing the fair value of financial instruments reported in the Company’s financial statements.

The fair value

measurements are reviewed to ensure they are reasonable and in line with market experience in similar asset and liability classes.

The fair value measurements are reviewed to ensure they are reasonable and in line with market experience in similar asset and liability classes.

Additionally, the Company may be required to record at fair value other assets on a nonrecurring basis, such as other real estate owned, other customer relationships, and other intangible assets.

11 unchanged sentences

Management also identifies investment securities which may have traded in illiquid or inactive markets by identifying instances of a significant decrease in the volume or frequency of trades, relative to historical levels, as well as instances of a significant widening of the bid-ask spread in the brokered markets.

As of September 30, 2020 and December 31, 2019, management did not make adjustments to prices provided by the third-party pricing services as a result of illiquid or inactive markets.

As of March 31, 2021 and December 31, 2020, management did not make adjustments to prices provided by the third-party pricing services as a result of illiquid or inactive markets.

The Company’s third-party pricing service has also established processes for the Company to submit inquiries regarding quoted prices.

11 unchanged sentences

Accordingly, on September 30, 2019, Visa announced a decrease in conversion rate from 1.6298 to 1.6228 effective September 27, 2019.

The Visa derivative of $ 0.9 million and $ 4.2 million was included in the unaudited interim consolidated balance sheets at September 30, 2020 and December 31, 2019, respectively, to provide for the fair value of this liability.

The Visa derivative of $ 3.4 million and $ 4.6 million was included in the unaudited interim consolidated balance sheets at March 31, 2021 and December 31, 2020, respectively, to provide for the fair value of this liability.

The potential liability related to this funding swap agreement was determined based on management’s estimate of the timing and the amount of Visa’s litigation settlement and the resulting payments due to the counterparty under the terms of the contract.

As such, the funding swap agreement is classified as Level 3 in the fair value hierarchy.

The significant unobservable inputs used in the fair value measurement of

the Company’s funding swap agreement are the potential future changes in the conversion rate, expected term and growth rate of the market price of Visa Class A common shares.

The significant unobservable inputs used in the fair value measurement of the Company’s funding swap agreement are the potential future changes in the conversion rate, expected term and growth

rate of the market price of Visa Class A common shares.

Material increases (or decreases) in any of those inputs may result in a significantly higher (or lower) fair value measurement.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019 are summarized below:

Fair Value Measurements as of September 30, 2020

Assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 are summarized below:

Fair Value Measurements as of March 31, 2021

Quoted Prices in

17 unchanged sentences

(1) Backed by residential real estate.

(2) Other assets include derivative assets.

(2) Other assets classified as Level 1 include mutual funds and money market funds that have quoted prices in active markets and are related to the Company’s deferred compensation plans.

Other assets classified as Level 2 include derivative assets.

(3) Other liabilities include derivative liabilities.

6 unchanged sentences

Inputs (Level 3)

Treasury securities

Government-sponsored enterprises debt securities

Treasury and government agency debt securities

Mortgage-backed securities:

1 unchanged sentence

Residential - Government-sponsored enterprises (1)

Commercial - Government agency

Commercial - Government-sponsored enterprises

6 unchanged sentences

(1) Backed by residential real estate.

(2) Other assets include derivative assets.

(2) Other assets classified as Level 1 include mutual funds and money market funds that have quoted prices in active markets and are related to the Company’s deferred compensation plans.

Other assets classified as Level 2 include derivative assets.

(3) Other liabilities include derivative liabilities.

Changes in Fair Value Levels

For the three and nine months ended September 30, 2020 , there were no transfers between fair value hierarchy levels.

The changes in Level 3 liabilities measured at fair value on a recurring basis for the three and nine months ended September 30, 2020 and 2019 are summarized below.

For the three months ended March 31, 2021 and 2020, there were no transfers between fair value hierarchy levels.

The changes in Level 3 liabilities measured at fair value on a recurring basis for the three months ended March 31, 2021 and 2020 are summarized below:

Visa Derivative

(dollars in thousands)

Three Months Ended September 30,

Balance as of July 1,

Total net gains (losses) included in other noninterest income

Balance as of September 30,

Total net gains (losses) included in net income attributable to the change in unrealized gains or losses related to liabilities still held as of September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Balance as of January 1,

Total net gains (losses) included in other noninterest income

Balance as of September 30,

Total net gains (losses) included in net income attributable to the change in unrealized gains or losses related to liabilities still held as of September 30,

Total net gains included in other noninterest income

Balance as of March 31,

Total net gains included in net income attributable to the change in unrealized gains or losses related to liabilities still held as of March 31,

Assets and Liabilities Carried at Other Than Fair Value

The following tables summarize for the periods indicated the estimated fair value of the Company’s financial instruments that are not required to be carried at fair value on a recurring basis, excluding leases and deposit liabilities with no defined or contractual maturity.

September 30, 2020

March 31, 2021

Fair Value Measurements

24 unchanged sentences

Time deposits (2)

Short-term borrowings

Long-term borrowings (3)

(1) Excludes financing leases of $ 246.0 million at September 30, 2020 and $ 202.5 million at December 31, 2019.

(2) Excludes deposit liabilities with no defined or contractual maturity of $ 16.3 billion as of September 30, 2020 and $ 13.9 billion as of December 31, 2019.

(3) Excludes capital lease obligations of $ 10 thousand and $ 19 thousand as of September 30, 2020 and December 31, 2019, respectively.

(1) Excludes financing leases of $ 238.1 million at March 31, 2021 and $ 245.4 million at December 31, 2020.

(2) Excludes deposit liabilities with no defined or contractual maturity of $ 18.0 billion as of March 31, 2021 and $ 16.9 billion as of December 31, 2020.

(3) Excludes capital lease obligations of $ 10 thousand as of both March 31, 2021 and December 31, 2020.

Unfunded loan and lease commitments and letters of credit are not included in the tables above.

As of September 30, 2020 and December 31, 2019, the Company had $ 6.2 billion and $ 6.1 billion, respectively, of unfunded loan and lease commitments and letters of credit.

The Company believes that a reasonable estimate of the fair value of these instruments is the carrying value of deferred fees plus the related reserve for unfunded commitments, which totaled $ 37.0 million and $ 14.4 million at September 30, 2020 and December 31, 2019, respectively.

As of March 31, 2021 and December 31, 2020, the Company had $ 6.3 billion and $ 6.1 billion, respectively, of unfunded loan and lease commitments and letters of credit.

The Company believes that a reasonable estimate of the fair value of these instruments is the carrying value of deferred fees plus the related reserve for unfunded commitments, which totaled $ 45.5 million and $ 42.3 million at March 31, 2021 and December 31, 2020, respectively.

No active trading market exists for these instruments, and the estimated fair value does not include value associated with the borrower relationship.

12 unchanged sentences

The Company measures the estimated credit losses on collateral-dependent loans by performing a lower-of-cost-or-fair-value analysis.

If the estimated credit losses are determined by the value of the collateral, the net carrying amount is adjusted to fair value on a nonrecurring basis as Level 3 by recognizing an allowance for credit losses.

If the estimated credit losses are determined by the value of the collateral, the net carrying amount is adjusted to fair value on a nonrecurring basis as Level 3 by recognizing an ACL.

Other real estate owned

6 unchanged sentences

These assets are subject to fair value adjustments that result from the application of lower of cost or fair value accounting or write-downs of individual assets to fair value.

The following table provides the level of valuation inputs used to determine each fair value adjustment and the fair value of the related individual assets or portfolio of assets with fair value adjustments on a nonrecurring basis as of September 30, 2020 and December 31, 2019:

(dollars in thousands)

September 30, 2020

March 31, 2021

Collateral-dependent loans

1 unchanged sentence

Collateral-dependent loans

Total losses on collateral-dependent loans were nil and $ 0.5 million for the three months ended September 30, 2020 and 2019, respectively, and $ 0.4 million and $ 0.5 million for the nine months ended September 30, 2020 and 2019, respectively.

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of September 30, 2020 and December 31, 2019, the significant unobservable inputs used in the fair value measurements were as follows:

Quantitative Information about Level 3 Fair Value Measurements at September 30, 2020

Total expected credit losses recognized on collateral-dependent loans were nil and $ 0.4 million for the three months ended March 31, 2021 and 2020, respectively.

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of March 31, 2021 and December 31, 2020, the significant unobservable inputs used in the fair value measurements were as follows:

Quantitative Information about Level 3 Fair Value Measurements at March 31, 2021

(dollars in thousands)

1 unchanged sentence

Unobservable Input

Collateral-dependent loans

Appraisal Value

Visa derivative

5 unchanged sentences

Growth Rate - 13 % (4)

(1) The fair value of these assets is determined based on appraised values of the collateral or broker opinions, the range of which is not meaningful to disclose.

(2) Due to the uncertainty in the movement of the conversion rate, the current conversion rate was utilized in the fair value calculation.

(3) The expected term of 1 year was based on the median of 0.5 to 1.5 years.

(4) The growth rate of 13 % was based on the arithmetic average of analyst price targets.

Quantitative Information about Level 3 Fair Value Measurements at December 31, 2020

7 unchanged sentences

Discounted Cash Flow

Expected Conversion Rate - 1.6228

Expected Conversation Rate - 1.6228 (2)

1.5977 - 1.6228

Expected Term - 1 year (3)

0.5 to 1.5 years

Growth Rate - 13 % (4)

(1) The fair value of these assets is determined based on appraised values of the collateral or broker opinions, the range of which is not meaningful to disclose.

(2) Due to the uncertainty in the movement of the conversion rate, the current conversion rate was utilized in the fair value calculation.

(3) The expected term of 1 year was based on the median of 0.5 to 1.5 years.

(4) The growth rate of 13 % was based on the arithmetic average of analyst price targets.

Reportable Operating Segments

13 unchanged sentences

Income tax expense is allocated to each business segment based on the consolidated effective income tax rate for the period shown.

In 2019, the Company made changes to the internal measurement of segment operating profits for the purpose of evaluating segment performance and resource allocation.

The primary reason for the change was to align deposit balances within the business segment that directly manages them.

Specifically, certain deposit balances previously included as part of the Retail Banking segment have been reclassified to the Commercial Banking segment.

The reallocation of select deposit balances affected net interest income, net interest income after provision for credit losses, noninterest income, provision for income taxes and net income.

The Company has reported its selected financial information using the new deposit balance alignments for the three and nine months ended September 30, 2020.

The Company has restated the selected financial information for the three and nine months ended September 30, 2019 in order to conform with the current presentation.

Additionally, during the fourth quarter of 2019, the Company changed its assumptions embedded in allocating deposit costs to business segments.

The Company has reported its selected financial information using the new deposit cost assumptions starting with the fourth quarter of 2019.

Business Segments

6 unchanged sentences

Commercial Banking

Commercial Banking offers products that include corporate banking, residential and commercial real estate loans, commercial lease financing, automobile loans and auto dealer financing, business deposit products and credit cards.

Commercial Banking offers products that include corporate banking, commercial real estate loans, commercial lease financing, automobile loans and auto dealer financing, business deposit products and credit cards.

Commercial lending and deposit products are offered primarily to middle-market and large companies locally, nationally, and internationally.

8 unchanged sentences

(dollars in thousands)

Three Months Ended September 30, 2020

Three Months Ended March 31, 2021

Net interest income (expense)

Provision for credit losses

Net interest income (expense) after provision for credit losses

Noninterest income

Noninterest expense

Income (loss) before (provision) benefit for income taxes

(Provision) benefit for income taxes

Net income (loss)

Total assets as of September 30, 2020

(dollars in thousands)

Nine Months Ended September 30, 2020

Net interest income

Provision for credit losses

Net interest income after provision for credit losses

Noninterest income

Noninterest expense

Income (loss) before (provision) benefit for income taxes

(Provision) benefit for income taxes

Net income (loss)

Total assets as of September 30, 2020

(dollars in thousands)

Three Months Ended September 30, 2019

Net interest income

Provision for credit losses

Net interest income after provision for credit losses

Benefit (Provision) for credit losses

Net interest income (loss) after provision for credit losses

Noninterest income

3 unchanged sentences

Net income (loss)

Total assets as of September 30, 2019

(dollars in thousands)

Nine Months Ended September 30, 2019

Three Months Ended March 31, 2020

Net interest income

3 unchanged sentences

Noninterest expense

Income (loss) before (provision) benefit for income taxes

(Provision) benefit for income taxes

Net income (loss)

Total assets as of September 30, 2019

Income before provision for income taxes

Provision for income taxes

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements