Loans and Leases and the Allowance for Credit Losses

6 Months Ended

Jun. 30, 2021

Loans And Leases And Allowance For Loan And Lease Losses [Abstract]

Loans and Leases and the Allowance for Credit Losses

Note 4. Loans and Leases and the Allowance for Credit Losses

Loans and Leases

The Paycheck Protection Program (“PPP”) amounts presented, which are reported net of deferred costs and fees, were previously included as a component of the Commercial and Industrial loan class.

The Company’s loan and lease portfolio was comprised of the following as of June 30, 2021, and December 31, 2020:

(dollars in thousands)	June 30, 2021		December 31, 2020
Commercial
Commercial and Industrial	$	1,257,305	$	1,357,610
PPP		513,513		517,683
Commercial Mortgage		2,944,435		2,854,829
Construction		277,393		259,798
Lease Financing		110,500		110,766
Total Commercial		5,103,146		5,100,686
Consumer
Residential Mortgage		4,264,180		4,130,513
Home Equity		1,594,781		1,604,538
Automobile		714,729		708,800
Other ¹		364,542		395,483
Total Consumer		6,938,232		6,839,334
Total Loans and Leases	$	12,041,378	$	11,940,020

¹	^{Comprised of other revolving credit, installment, and lease financing.}

The majority of the Company’s lending activity is with customers located in the State of Hawaii. A substantial portion of the Company’s real estate loans are secured by real estate in Hawaii.

Net gains related to sales of residential mortgage loans, recorded as a component of mortgage banking income were $2.6 million and $2.4 million for the three months ended June 30, 2021, and June 30, 2020, respectively, and $4.7 million and $5.6 million for the first six months ended June 30, 2021 and June 30, 2020, respectively.

The Company elected to exclude AIR from the amortized cost basis of loans disclosed throughout this footnote. As of June 30, 2021, and December 31, 2020, AIR for loans totaled $31.2 million and $35.9 million, respectively, and is included in the “accrued interest receivable” line item on the Company’s consolidated statements of condition.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was passed by Congress and signed into law on March 27, 2020. The CARES Act established the PPP, which provides loans to small businesses who were affected by economic conditions as a result of COVID-19 to provide cash-flow assistance to employers who maintain their eligible costs during the COVID-19 emergency. PPP loans carry an interest rate of one percent, and a maturity of two or five years. These loans are fully guaranteed by the SBA and may be eligible for forgiveness by the SBA to the extent that the proceeds are used to cover eligible costs over a period of up to 24 weeks after the loan is made as long as certain conditions are met regarding employee retention and compensation levels. PPP loans deemed eligible for forgiveness by the SBA will be repaid by the SBA to the Company. The SBA pays the Company fees for processing PPP loans. These processing fees are accounted for as loan origination fees and recognized over the contractual loan term as a yield adjustment on the loans.

Allowance for Credit Losses (the “Allowance”)

The following presents by portfolio segment, the activity in the Allowance for the three and six months ended June 30, 2021, and June 30, 2020.

(dollars in thousands)	Commercial			Consumer			Total
Three Months Ended June 30, 2021
Allowance for Credit Losses:
Balance at Beginning of Period	$	82,811		$	115,532		$	198,343
Loans and Leases Charged-Off		(456	)		(3,853	)		(4,309	)
Recoveries on Loans and Leases Previously Charged-Off		144			2,981			3,125
Net Loans and Leases Recovered (Charged-Off)		(312	)		(872	)		(1,184	)
Provision for Credit Losses		(3,860	)		(12,914	)		(16,774	)
Balance at End of Period	$	78,639		$	101,746		$	180,385
Six Months Ended June 30, 2021
Allowance for Credit Losses:
Balance at Beginning of Period	$	84,847		$	131,405		$	216,252
Loans and Leases Charged-Off		(704	)		(9,896	)		(10,600	)
Recoveries on Loans and Leases Previously Charged-Off		256			6,244			6,500
Net Loans and Leases Recovered (Charged-Off)		(448	)		(3,652	)		(4,100	)
Provision for Credit Losses		(5,760	)		(26,007	)		(31,767	)
Balance at End of Period	$	78,639		$	101,746		$	180,385
Three Months Ended June 30, 2020
Allowance for Credit Losses:
Balance at Beginning of Period	$	67,987		$	70,163		$	138,150
Loans and Leases Charged-Off		(656	)		(7,627	)		(8,283	)
Recoveries on Loans and Leases Previously Charged-Off		1,524			1,648			3,172
Net Loans and Leases Recovered (Charged-Off)		868			(5,979	)		(5,111	)
Provision for Credit Losses		3,667			36,733			40,400
Balance at End of Period	$	72,522		$	100,917		$	173,439
Six Months Ended June 30, 2020
Allowance for Credit Losses:
Balance at Beginning of Period (December 31, 2020)	$	73,801		$	36,226		$	110,027
CECL Adoption (Day 1) Impact		(18,789	)		17,052			(1,737	)
Balance at Beginning of Period (January 1, 2020)		55,012			53,278			108,290
Loans and Leases Charged-Off		(1,349	)		(14,111	)		(15,460	)
Recoveries on Loans and Leases Previously Charged-Off		1,853			4,756			6,609
Net Loans and Leases Recovered (Charged-Off)		504			(9,355	)		(8,851	)
Provision for Credit Losses		17,006			56,994			74,000
Balance at End of Period	$	72,522		$	100,917		$	173,439

Credit Quality Indicators

The Company uses several credit quality indicators to manage credit risk in an ongoing manner. The Company uses an internal credit risk rating system that categorizes loans and leases into pass, special mention, or classified categories. Credit risk ratings are applied individually to those classes of loans and leases that have significant or unique credit characteristics that benefit from a case-by-case evaluation. These are typically loans and leases to businesses or individuals in the classes which comprise the commercial portfolio segment. Groups of loans and leases that are underwritten and structured using standardized criteria and characteristics, such as statistical models (e.g., credit scoring or payment performance), are typically risk-rated and monitored collectively. These are typically loans and leases to individuals in the classes which comprise the consumer portfolio segment.

The following are the definitions of the Company’s credit quality indicators:

Pass:

Loans and leases in all classes within the commercial and consumer portfolio segments that are not adversely rated, are contractually current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan or lease agreement. Residential mortgage loans that are past due 90 days or more as to principal or interest may be considered Pass if the current loan-to-value ratio is 60% or less. Home equity loans that are past due 90 days or more as to principal or interest may be considered Pass if the first mortgage is with the Company and the current combined loan-to-value ratio is 60% or less.

Special Mention:

Loans and leases in all classes within the commercial portfolio segment that have potential weaknesses that deserve management’s close attention. If not addressed, these potential weaknesses may result in deterioration of the repayment prospects for the loan or lease. The Special Mention credit quality indicator is not used for the consumer portfolio segment.

Classified:

Loans and leases in the classes within the commercial portfolio segment that are inadequately protected by the sound worth and paying capacity of the borrower or of the collateral pledged, if any. Classified loans and leases are also those in the classes within the consumer portfolio segment that are past due 90 days or more as to principal or interest. Residential mortgage and home equity loans may be current as to principal and interest, but may be considered Classified for a period of generally up to six months following a loan modification. Following a period of demonstrated performance in accordance with the modified contractual terms, the loan may be removed from Classified status.

For pass rated credits, risk ratings are certified at a minimum annually. For special mention or classified credits, risk ratings are reviewed for appropriateness on an ongoing basis, monthly, or at a minimum, quarterly. The following presents by credit quality indicator, loan class, and year of origination, the amortized cost basis of the Company’s loans and leases as of June 30, 2021.

		Term Loans by Origination Year
(dollars in thousands)	YTD June 30, 2021			2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total Loans and Leases
June 30, 2021
Commercial
Commercial and Industrial
Pass		$	155,952	$	397,887	$	110,322	$	88,056	$	38,839	$	97,488	$	264,104	$	606	$	1,153,254
Special Mention			2,046		11,189		-		-		-		167		34,424		35		47,861
Classified			188		1,492		95		13,058		643		18,809		21,826		79		56,190
Total Commercial and Industrial		$	158,186	$	410,568	$	110,417	$	101,114	$	39,482	$	116,464	$	320,354	$	720	$	1,257,305
PPP
Pass		$	273,933	$	239,580	$	-	$	-	$	-	$	-	$	-	$	-	$	513,513
Total PPP		$	273,933	$	239,580	$	-	$	-	$	-	$	-	$	-	$	-	$	513,513
Commercial Mortgage
Pass		$	366,072	$	819,888	$	384,925	$	334,830	$	213,563	$	603,288	$	76,580	$	-	$	2,799,146
Special Mention			2,082		66,902		28,340		288		-		13,532		-		-		111,144
Classified			2,433		13,456		647		-		5,058		12,551		-		-		34,145
Total Commercial Mortgage		$	370,587	$	900,246	$	413,912	$	335,118	$	218,621	$	629,371	$	76,580	$	-	$	2,944,435
Construction
Pass		$	58,780	$	122,752	$	66,038	$	11,281	$	895	$	-	$	17,647	$	-	$	277,393
Total Construction		$	58,780	$	122,752	$	66,038	$	11,281	$	895	$	-	$	17,647	$	-	$	277,393
Lease Financing
Pass		$	16,191	$	17,249	$	18,115	$	11,671	$	3,039	$	43,308	$	-	$	-	$	109,573
Special Mention			-		-		-		927		-		-		-		-		927
Total Lease Financing		$	16,191	$	17,249	$	18,115	$	12,598	$	3,039	$	43,308	$	-	$	-	$	110,500
Total Commercial		$	877,677	$	1,690,395	$	608,482	$	460,111	$	262,037	$	789,143	$	414,581	$	720	$	5,103,146
Consumer
Residential Mortgage
Pass		$	850,707	$	1,218,829	$	452,181	$	225,001	$	332,560	$	1,181,550	$	-	$	-	$	4,260,828
Classified			-		-		294		397		909		1,752		-		-		3,352
Total Residential Mortgage		$	850,707	$	1,218,829	$	452,475	$	225,398	$	333,469	$	1,183,302	$	-	$	-	$	4,264,180
Home Equity
Pass		$	-	$	-	$	-	$	-	$	-	$	3,524	$	1,550,205	$	33,831	$	1,587,560
Classified			-		-		-		-		-		116		5,839		1,266		7,221
Total Home Equity		$	-	$	-	$	-	$	-	$	-	$	3,640	$	1,556,044	$	35,097	$	1,594,781
Automobile
Pass		$	156,177	$	181,983	$	173,776	$	122,448	$	49,436	$	30,631	$	-	$	-	$	714,451
Classified			11		64		68		7		22		106		-		-		278
Total Automobile		$	156,188	$	182,047	$	173,844	$	122,455	$	49,458	$	30,737	$	-	$	-	$	714,729
Other¹
Pass		$	51,802	$	60,646	$	119,677	$	68,058	$	26,288	$	8,372	$	27,833	$	1,431	$	364,107
Classified			-		34		172		120		56		19		32		2		435
Total Other		$	51,802	$	60,680	$	119,849	$	68,178	$	26,344	$	8,391	$	27,865	$	1,433	$	364,542
Total Consumer		$	1,058,697	$	1,461,556	$	746,168	$	416,031	$	409,271	$	1,226,070	$	1,583,909	$	36,530	$	6,938,232
Total Loans and Leases		$	1,936,374	$	3,151,951	$	1,354,650	$	876,142	$	671,308	$	2,015,213	$	1,998,490	$	37,250	$	12,041,378

¹	Comprised of other revolving credit, installment, and lease financing.

For the six months ended June 30, 2021, and June 30, 2020, $2.9 million and $1.3 million revolving loans, respectively, were converted to term loans.

The following presents by credit quality indicator, loan class, and year of origination, the amortized cost basis of the Company’s loans and leases as of December 31, 2020.

		Term Loans by Origination Year
(dollars in thousands)	2020			2019		2018		2017		2016		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total Loans and Leases
December 31, 2020
Commercial
Commercial and Industrial
Pass		$	426,780	$	149,024	$	149,468	$	49,385	$	52,354	$	68,269	$	342,339	$	847	$	1,238,466
Special Mention			11,702		42		-		-		110		95		32,319		52		44,320
Classified			32,208		1,734		2,266		777		19		19,166		18,529		125		74,824
Total Commercial and Industrial		$	470,690	$	150,800	$	151,734	$	50,162	$	52,483	$	87,530	$	393,187	$	1,024	$	1,357,610
PPP
Pass		$	517,683	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	517,683
Total PPP		$	517,683	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	517,683
Commercial Mortgage
Pass		$	847,676	$	458,472	$	350,363	$	245,157	$	267,860	$	425,157	$	76,869	$	-	$	2,671,554
Special Mention			66,523		28,418		291		7,117		8,665		5,035		-		-		116,049
Classified			49,640		655		2,783		274		4,742		9,132		-		-		67,226
Total Commercial Mortgage		$	963,839	$	487,545	$	353,437	$	252,548	$	281,267	$	439,324	$	76,869	$	-	$	2,854,829
Construction
Pass		$	106,508	$	105,731	$	11,275	$	8,133	$	-	$	-	$	28,151	$	-	$	259,798
Total Construction		$	106,508	$	105,731	$	11,275	$	8,133	$	-	$	-	$	28,151	$	-	$	259,798
Lease Financing
Pass		$	19,906	$	20,132	$	13,785	$	4,202	$	9,657	$	41,755	$	-	$	-	$	109,437
Classified			33		67		1,092		42		95		-		-		-		1,329
Total Lease Financing		$	19,939	$	20,199	$	14,877	$	4,244	$	9,752	$	41,755	$	-	$	-	$	110,766
Total Commercial		$	2,078,659	$	764,275	$	531,323	$	315,087	$	343,502	$	568,609	$	498,207	$	1,024	$	5,100,686
Consumer
Residential Mortgage
Pass		$	1,300,831	$	576,452	$	295,522	$	454,165	$	545,798	$	954,120	$	-	$	-	$	4,126,888
Classified			-		294		-		1,032		-		2,299		-		-		3,625
Total Residential Mortgage		$	1,300,831	$	576,746	$	295,522	$	455,197	$	545,798	$	956,419	$	-	$	-	$	4,130,513
Home Equity
Pass		$	-	$	-	$	-	$	-	$	-	$	4,449	$	1,556,671	$	37,559	$	1,598,679
Classified			-		-		-		-		-		88		4,693		1,078		5,859
Total Home Equity		$	-	$	-	$	-	$	-	$	-	$	4,537	$	1,561,364	$	38,637	$	1,604,538
Automobile
Pass		$	219,218	$	213,914	$	158,216	$	68,776	$	33,899	$	13,850	$	-	$	-	$	707,873
Classified			101		245		171		113		161		136		-		-		927
Total Automobile		$	219,319	$	214,159	$	158,387	$	68,889	$	34,060	$	13,986	$	-	$	-	$	708,800
Other¹
Pass		$	71,042	$	145,549	$	92,993	$	39,770	$	9,225	$	2,189	$	32,070	$	1,485	$	394,323
Classified			51		419		375		167		42		21		85		-		1,160
Total Other		$	71,093	$	145,968	$	93,368	$	39,937	$	9,267	$	2,210	$	32,155	$	1,485	$	395,483
Total Consumer		$	1,591,243	$	936,873	$	547,277	$	564,023	$	589,125	$	977,152	$	1,593,519	$	40,122	$	6,839,334
Total Loans and Leases		$	3,669,902	$	1,701,148	$	1,078,600	$	879,110	$	932,627	$	1,545,761	$	2,091,726	$	41,146	$	11,940,020

¹	Comprised of other revolving credit, installment, and lease financing.

Aging Analysis

Loans and leases are considered to be past due once becoming 30 days delinquent. For the consumer portfolio, this generally represents two missed monthly payments. The following presents by class, an aging analysis of the Company’s loan and lease portfolio as of June 30, 2021, and December 31, 2020.

(dollars in thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		Past Due 90 Days or More		Non- Accrual		Total Past Due and Non- Accrual		Current		Total Loans and Leases		Non- Accrual Loans and Leases that are Current ²
As of June 30, 2021
Commercial
Commercial and Industrial	$	195	$	1,990	$	—	$	258	$	2,443	$	1,254,862	$	1,257,305	$	217
PPP		—		—		—		—		—		513,513		513,513		—
Commercial Mortgage		—		—		—		8,413		8,413		2,936,022		2,944,435		4,869
Construction		—		—		—		—		—		277,393		277,393		—
Lease Financing		—		—		—		—		—		110,500		110,500		—
Total Commercial		195		1,990		—		8,671		10,856		5,092,290		5,103,146		5,086
Consumer
Residential Mortgage		5,587		2,194		4,069		2,437		14,287		4,249,893		4,264,180		932
Home Equity		1,031		440		4,498		5,534		11,503		1,583,278		1,594,781		1,154
Automobile		5,828		755		277		—		6,860		707,869		714,729		—
Other ¹		1,645		852		434		—		2,931		361,611		364,542		—
Total Consumer		14,091		4,241		9,278		7,971		35,581		6,902,651		6,938,232		2,086
Total	$	14,286	$	6,231	$	9,278	$	16,642	$	46,437	$	11,994,941	$	12,041,378	$	7,172

As of December 31, 2020
Commercial
Commercial and Industrial	$	191	$	59	$	—	$	441	$	691	$	1,356,919	$	1,357,610	$	285
PPP		—		—		—		—		—		517,683		517,683		—
Commercial Mortgage		—		—		—		8,527		8,527		2,846,302		2,854,829		4,983
Construction		—		—		—		—		—		259,798		259,798		—
Lease Financing		—		—		—		—		—		110,766		110,766		—
Total Commercial		191		59		—		8,968		9,218		5,091,468		5,100,686		5,268
Consumer
Residential Mortgage		4,049		2,083		5,274		3,223		14,629		4,115,884		4,130,513		2,100
Home Equity		3,423		3,378		3,187		3,958		13,946		1,590,592		1,604,538		987
Automobile		6,358		2,215		925		—		9,498		699,302		708,800		—
Other ¹		2,556		1,612		1,160		—		5,328		390,155		395,483		—
Total Consumer		16,386		9,288		10,546		7,181		43,401		6,795,933		6,839,334		3,087
Total	$	16,577	$	9,347	$	10,546	$	16,149	$	52,619	$	11,887,401	$	11,940,020	$	8,355

¹	Comprised of other revolving credit, installment, and lease financing.

²	Represents non-accrual loans that are not past due 30 days or more; however, full payment of principal and interest is still not expected.

Non-Accrual Loans and Leases

The following presents the non-accrual loans and leases as of June 30, 2021, and December 31, 2020.

	June 30, 2021						December 31, 2020
(dollars in thousands)	Non-accrual loans with a related ACL		Non-accrual loans without a related ACL		Total Non- accrual loans		Non-accrual loans with a related ACL		Non-accrual loans without a related ACL		Total Non- accrual loans
Commercial
Commercial and Industrial	$	258	$	—	$	258	$	441	$	—	$	441
Commercial Mortgage		8,413		—		8,413		8,527		—		8,527
Total Commercial		8,671		—		8,671		8,968		—		8,968
Consumer
Residential Mortgage		2,314		123		2,437		3,096		127		3,223
Home Equity		5,534		—		5,534		3,958		—		3,958
Total Consumer		7,848		123		7,971		7,054		127		7,181
Total	$	16,519	$	123	$	16,642	$	16,022	$	127	$	16,149

All payments received while on non-accrual status are applied against the principal balance of the loan or lease. The Company does not recognize interest income while loans or leases are on non-accrual status.

Modifications

A modification of a loan constitutes a troubled debt restructuring (“TDR”) when the Company, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. Loans modified in a TDR were $84.9 million as of June 30, 2021, and $72.5 million as of December 31, 2020. There were $0.2 million and $0.5 million commitments to lend additional funds on loans modified in a TDR as of June 30, 2021, and December 31, 2020, respectively.

Loans modified in a TDR are typically already on non-accrual status and partial charge-offs have in some cases already been taken against the outstanding loan balance. As a result, loans modified in a TDR may have the financial effect of increasing the specific Allowance associated with the loan. An Allowance for impaired commercial and consumer loans that have been modified in a TDR is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates.

The following presents by class, information related to loans modified in a TDR during the three and six months ended June 30, 2021, and June 30, 2020.

	Loans Modified as a TDR for the Three Months Ended June 30, 2021						Loans Modified as a TDR for the Three Months Ended June 30, 2020
			Recorded		Increase in				Recorded		Increase in
Troubled Debt Restructurings			Investment		Allowance				Investment		Allowance
(dollars in thousands)	Number of Contracts		(as of period end)¹		(as of period end)		Number of Contracts		(as of period end)¹		(as of period end)
Commercial
Construction		—		—		—		1		1,152		—
Total Commercial		—		—		—		1		1,152		—
Consumer
Residential Mortgage		7		3,714		120		—		—		—
Home Equity		5		462		9		—		—		—
Automobile		187		3,797		52		19		305		5
Other ²		105		1,010		38		5		52		2
Total Consumer		304		8,983		219		24		357		7
Total		304	$	8,983	$	219		25	$	1,509	$	7

¹	The period end balances reflect all paydowns and charge-offs since the modification date. TDRs fully paid-off, charged-off, or foreclosed upon by period end are not included.

²	Comprised of other revolving credit and installment financing.

	Loans Modified as a TDR for the Six Months Ended June 30, 2021						Loans Modified as a TDR for the Six Months Ended June 30, 2020
			Recorded		Increase in				Recorded		Increase in
Troubled Debt Restructurings			Investment		Allowance				Investment		Allowance
(dollars in thousands)	Number of Contracts		(as of period end)¹		(as of period end)		Number of Contracts		(as of period end)¹		(as of period end)
Commercial
Commercial and Industrial		5	$	109	$	2		2	$	98	$	2
Construction		—		—		—		1		1,152		—
Total Commercial		5		109		2		3		1,250		2
Consumer
Residential Mortgage		7		3,714		120		—		—		—
Home Equity		7		717		36		—		—		—
Automobile		570		11,670		162		70		1,172		19
Other ²		320		2,932		111		35		274		11
Total Consumer		904		19,033		429		105		1,446		30
Total		909	$	19,142	$	431		108	$	2,696	$	32

¹ The period end balances reflect all paydowns and charge-offs since the modification date. TDRs fully paid-off, charged-off, or foreclosed upon by period end are not included.

²	Comprised of other revolving credit and installment financing.

The following presents by class, all loans modified in a TDR that defaulted during the three and six months ended June 30, 2021, and June 30, 2020, and within twelve months of their modification date. A TDR is considered to be in default once it becomes 60 days or more past due following a modification.

	Three Months Ended June 30, 2021				Three Months Ended June 30, 2020
TDRs that Defaulted During the Period,			Recorded				Recorded
Within Twelve Months of their Modification Date	Number of		Investment		Number of		Investment
(dollars in thousands)	Contracts		(as of period end)¹		Contracts		(as of period end)¹
Consumer
Automobile		16	$	296		19	$	331
Other ²		12		140		2		14
Total Consumer		28		436		21		345
Total		28	$	436		21	$	345

	Six Months Ended June 30, 2021				Six Months Ended June 30, 2020
TDRs that Defaulted During the Period,			Recorded				Recorded
Within Twelve Months of their Modification Date	Number of		Investment		Number of		Investment
(dollars in thousands)	Contracts		(as of period end)¹		Contracts		(as of period end)¹
Consumer
Residential Mortgage		1	$	534		—	$	—
Automobile		23		385		34		636
Other ²		23		216		6		40
Total Consumer		47		1,135		40		676
Total		47	$	1,135		40	$	676

¹	The period end balances reflect all paydowns and charge-offs since the modification date. TDRs fully paid-off, charged-off, or foreclosed upon by period end are not included.

²	Comprised of other revolving credit and installment financing.

Commercial and consumer loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, the Company evaluates the loan for possible further impairment. The specific Allowance associated with the loan may be increased, adjustments may be made in the allocation of the Allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan.

Modifications in response to COVID-19

The Company initially offered short-term loan modifications to assist borrowers during the COVID-19 national emergency. These modifications generally involve principal and/or interest payment deferrals for up to six months. As the COVID-19 pandemic persists in negatively impacting the economy, the Company continues to offer additional loan modifications to borrowers struggling as a result of COVID-19. Similar to the initial modifications granted, the additional round of loan modifications generally involve principal and/or interest payment deferrals for up to an additional six months for commercial and consumer loans, and principal-only deferrals for up to an additional 12 months for selected commercial loans. The Company generally continues to accrue and recognize interest income during the deferral period. The Company offers several repayment options such as immediate repayment, repayment over a designated time period or as a balloon payment at maturity, or by extending the loan term. These modifications generally do not involve forgiveness or interest rate reductions. In addition, the Company evaluates the need to record an allowance for the related AIR. As of June 30, 2021, and December 31, 2020, the Company recorded an AIR allowance of $1.4 million and $2.7 million, respectively. The allowance was recorded as a contra-asset against AIR with the offset to provision for credit losses. In addition, the Company elected to deduct the AIR from the AIR Allowance (rather than reversing interest income) when the AIR is deemed uncollectible, which generally occurs when the related loan is placed on nonaccrual status or is charged-off.

Company, as lessor, also granted short-term lease concessions on some of its sales-type finance leases for equipment and automobiles. The concessions primarily consists of six-month extension programs whereby lease payments currently due are deferred and shifted to the end of the lease term. Interest income continues to accrue, and in certain cases paid during the deferral period. Additional rounds of lease concessions were not material.

In accordance with Section 4013 of the CARES Act and the joint agency statement issued by banking agencies, these COVID-19 related loan and lease modifications are not accounted for as TDRs. These loan and lease modifications totaled $205.3 million (118 loans and leases) for the commercial segment and $13.2 million (65 loans and leases) for the consumer segment as of June 30, 2021, and $311.6 million (210 loans and leases) for the commercial segment and $178.1 million (1,920 loans and leases) for the consumer segment as of December 31, 2020.

Foreclosure Proceedings

Consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure totaled $1.5 million as of June 30, 2021.