Recent accounting pronouncements

Investments in Qualified Affordable Housing Projects. In January 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-01, “Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects,” which permits entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met and investment amortization, net of tax credits, may be recognized in the income statement as a component of income taxes attributable to continuing operations. The amendments also require additional disclosures.

The Company retrospectively adopted ASU No. 2014-01 in the first quarter of 2015. For prior periods, pursuant to ASU No. 2014-01, (a) amortization expense related to ASB’s qualifying investments in low income housing tax credits was reclassified from noninterest expense to income taxes; and (b) additional amortization, net of associated tax benefits was recognized in income taxes as a result of the adoption. The cumulative effect to retained earnings as of January 1, 2014 of adopting this guidance was a reduction of $0.7 million. Amounts in the financial statements as of December 31, 2014 and 2013 and for the three and nine months ended September 30, 2014, have been updated to reflect the retrospective application.

For the quarter ended September 30, 2015, ASB recognized $1.3 million of amortization, $1.3 million of tax credits and $0.6 million of other tax benefits associated with the low income housing tax credits within income taxes. For the nine months ended September 30, 2015, ASB recognized $3.8 million of amortization, $3.9 million of tax credits and $1.6 million of other tax benefits associated with the low income housing tax credits within income taxes.

The table below summarizes the impact to prior period financial statements of the adoption of ASU No. 2014-01:



	HEI Consolidated												ASB
(in thousands)	As previously filed			Adjustment from adoption of ASU No. 2014-01			Revision adjustment (see Note 1)			As currently reported			As previously filed		Adjustment from adoption of ASU No. 2014-01			As currently reported

HEI Consolidated Income Statement/ASB Statement of Income Data
Three months ended September 30, 2014
Bank expenses/Noninterest expense	$	43,964		$	(934	)				$	43,030		$	39,664	$	(934	)	$	38,730
Bank operating income/Income before income taxes	19,572			934						20,506			19,572		934			20,506
Income taxes	26,323			941						27,264			6,312		941			7,253
Net income for common stock/Net income	47,815			(7		)				47,808			13,260		(7		)	13,253
Nine months ended September 30, 2014
Bank expenses/Noninterest expense	129,528			(2,750		)				126,778			117,924		(2,750		)	115,174
Bank operating income/Income before income taxes	58,243			2,750						60,993			58,244		2,750			60,994
Income taxes	73,265			3,037						76,302			18,769		3,037			21,806
Net income for common stock/Net income	135,163			(287		)				134,876			39,475		(287		)	39,188
HEI Consolidated Balance Sheet/ASB Balance Sheet Data
December 31, 2014
Other assets	541,542			981						$	542,523		$	304,435	$	981		$	305,416
Total assets and Total liabilities and shareholders’ equity	11,184,161			981						$	11,185,142		$	5,565,241	$	981		$	5,566,222
Deferred income taxes/Other liabilities	631,734			1,836						$	633,570		$	116,527	$	1,836		$	118,363
Total liabilities	9,358,440			1,836						$	9,360,276		$	5,030,598	$	1,836		$	5,032,434
Retained earnings	297,509			(855		)				$	296,654		$	212,789	$	(855	)	$	211,934
Total shareholders’ equity	1,791,428			(855		)				$	1,790,573		$	534,643	$	(855	)	$	533,788
HEI Consolidated Statement of Changes in Stockholders’ Equity
December 31, 2013
Retained earnings	255,694			(664		)				$	255,030
Total shareholders’ equity	1,727,070			(664		)				$	1,726,406
HEI Consolidated Statement of Cash Flows
Nine months ended September 30, 2014
Net income	136,580			(287		)				136,293
Increase in deferred income taxes	48,900			370			$	1,026		50,296
Change in other assets and liabilities	(47,677		)	(83		)	(8,566		)	(56,326		)

Reclassification of loans upon foreclosure. In January 2014, the FASB issued ASU No. 2014-04, “Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure,” which clarifies when an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer loan. A creditor is considered to have received physical possession of residential real estate property collateralizing a consumer loan upon either: (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure; or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through a deed in lieu of foreclosure or through a similar legal agreement. The amendment also requires additional disclosures.

The Company adopted ASU No. 2014-04 in the first quarter of 2015 and the adoption did not have a material impact on the Company’s results of operations, financial condition or liquidity.

Revenues from contracts. In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers: (Topic 606).” The core principle of the guidance in ASU No. 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (1) identify the contract/s with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when, or as, the entity satisfies a performance obligation.

The Company plans to adopt ASU No. 2014-09 in the first quarter of 2018, but has not determined the method of adoption (full or modified retrospective application) nor the impact of adoption on its results of operations, financial condition or liquidity.

Repurchase agreements. In June 2014, the FASB issued ASU No. 2014-11, “Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosure,” which changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. It also requires additional disclosures about repurchase agreements and other similar transactions. The ASU requires a new disclosure for transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. The ASU also requires expanded disclosures about the nature of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings.

The Company adopted ASU No. 2014-11 in the first quarter of 2015 and the adoption did not have a material impact on the Company’s results of operations, financial condition or liquidity.

Debt issuance costs. In April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs,” which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.

The Company plans to retrospectively adopt ASU No. 2015-03 in the first quarter 2016 and does not expect the adoption to have a material impact on the Company’s results of operations, financial condition or liquidity.