Loans Receivable and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2023

Loans Receivable and Allowance for Credit Losses

Loans Receivable and Allowance for Credit Losses

(7)Loans Receivable and Allowance for Credit Losses

The components of loans receivable, net of allowance for credit losses (ACL) under ASC 326 as of December 31, 2023 and net of allowance for loan losses under ASC 310 as of December 31, 2022 are as follows:

	December 31,
(Dollars in thousands)	2023		2022
Real estate loans:
First mortgages:
One- to four-family residential	$	1,277,544	$	1,253,558
Multi-family residential		5,855		6,448
Construction, commercial, and other		11,631		23,903
Home equity loans and lines of credit		7,058		6,426
Total real estate loans		1,302,088		1,290,335
Other loans:
Loans on deposit accounts		196		216
Consumer and other loans		8,257		8,381
Total other loans		8,453		8,597
Total loans		1,310,541		1,298,932
Net unearned fees and discounts		(1,989)		(2,136)
Total loans, net of unearned fees and discounts		1,308,552		1,296,796
Allowance for credit/loan losses		(5,121)		(2,032)
Loans receivable, net of allowance for credit/loan losses	$	1,303,431	$	1,294,764

The table below presents the activity in the allowance for credit/loan losses by portfolio segment:

			Construction,		Home
			Commercial,		Equity
			and Other		Loans and
	Residential		Mortgage		Lines of		Consumer
(Dollars in thousands)	Mortgage		Loans		Credit		and Other		Unallocated		Totals
Year ended December 31, 2023:
Balance, beginning of year	$	1,263	$	434	$	1	$	75	$	259	$	2,032
Adoption of ASU No. 2016-13		3,393		71		(1)		5		(259)		3,209
(Reversal of provision) provision for credit losses		(110)		9		—		98		—		(3)
		4,546		514		—		178		—		5,238
Charge-offs		(75)		—		—		(82)		—		(157)
Recoveries		31		—		—		9		—		40
Net charge-offs		(44)		—		—		(73)		—		(117)
Balance, end of year	$	4,502	$	514	$	—	$	105	$	—	$	5,121
Year ended December 31, 2022:
Balance, beginning of year	$	1,814	$	435	$	1	$	89	$	330	$	2,669
(Reversal of provision) provision for loan losses		(551)		(1)		—		47		(71)		(576)
		1,263		434		1		136		259		2,093
Charge-offs		—		—		—		(62)		—		(62)
Recoveries		—		—		—		1		—		1
Net charge-offs		—		—		—		(61)		—		(61)
Balance, end of year	$	1,263	$	434	$	1	$	75	$	259	$	2,032

We recorded a reversal of credit loss provision of $3,000 under ASC 326 for the year ended December 31, 2023 that was primarily due to a decrease in provisions for the mortgage loan portfolio, which was partially offset by an increase in provisions for the consumer loan portfolio.  The decrease in provisions in the mortgage loan portfolio was primarily due to a decrease in forecasted charge-offs, which was partially offset by an increase in the loan portfolio and a decrease in forecasted prepayments. The increase in provisions for the consumer loan portfolio was primarily due to an increase in the consumer loan portfolio and forecasted charge-offs and a decrease in forecasted prepayments. There were no reserves for off-balance sheet credit exposures at December 31, 2023.  Prior to the adoption of the CECL accounting standard, the Company had a reserve for off-balance sheet credit exposures of $49,000 at December 31, 2022.

The table below presents the balance in the allowance for loan losses and the recorded investment in loans, net of unearned fees and discounts, by portfolio segment, and based on impairment method as of December 31, 2022, as determined in accordance with ASC 310 prior to the adoption of ASU 2016-13:

			Construction,		Home
			Commercial,		Equity
			and Other		Loans and
	Residential		Mortgage		Lines of		Consumer
(Dollars in thousands)	Mortgage		Loans		Credit		and Other		Unallocated		Totals
December 31, 2022:
Allowance for loan losses:
Ending allowance balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		1,263		434		1		75		259		2,032
Total ending allowance balance	$	1,263	$	434	$	1	$	75	$	259	$	2,032
Loans:
Ending loan balance:
Individually evaluated for impairment	$	2,693	$	—	$	16	$	—	$	6	$	2,715
Collectively evaluated for impairment		1,255,300		23,775		6,411		8,595		—		1,294,081
Total ending loan balance	$	1,257,993	$	23,775	$	6,427	$	8,595	$	6	$	1,296,796

The table below presents the balance of impaired loans individually evaluated for impairment by class of loans as of December 31, 2022, in accordance with ASC 310 prior to the adoption of ASU 2016-13:

			Unpaid
	Recorded		Principal
(Dollars in thousands)	Investment		Balance
December 31, 2022:
With no related allowance recorded:
One- to four-family residential mortgages	$	2,693	$	3,209
Home equity loans and lines of credit		16		30
Consumer loans		6		6
Total	$	2,715	$	3,245

The table below presents the average recorded investment and interest income recognized on impaired loans by class of loans as of December 31, 2022, in accordance with ASC 310 prior to the adoption of ASU 2016-13:

	Average
	Recorded		Interest Income
(Dollars in thousands)	Investment		Recognized
2022:
With no related allowance recorded:
One- to four-family residential mortgages	$	2,776	$	24
Home equity loans and lines of credit		17		—
Consumer loans		6		—
Total	$	2,799	$	24

There were no loans individually evaluated for impairment with a related allowance for loan loss as of December 31, 2022. At December 31, 2022, loans individually evaluated for impairment did not have an allocated allowance for loan loss because they were written down to fair value at the time of impairment. At December 31, 2022, an impaired loan would also not have an allocated allowance if the value of the property securing the loan, less the cost to sell the property, was greater than the loan balance.

The Company primarily uses the aging of loans to monitor the credit quality of its loan portfolio. The table below presents by credit quality indicator, loan class and year of origination, the amortized cost basis of the Company’s loans as of December 31, 2023:

														Revolving Loans
	Amortized Cost of Term Loans by Origination Year													Amortized
(Dollars in thousands)		2023		2022		2021		2020		2019		Prior		Cost Basis		Total
December 31, 2023:
Commercial
30 - 59 days past due		$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
60 - 89 days past due			—		—		—		—		—		—		—		—
90 days or more past due			—		—		—		—		—		—		—		—
Loans not past due			387		353		4,836		—		203		856		1,230		7,865
Total Commercial			387		353		4,836		—		203		856		1,230		7,865
Consumer
30 - 59 days past due			4		—		—		—		—		—		—		4
60 - 89 days past due			—		—		—		—		—		—		—		—
90 days or more past due			—		—		—		—		—		—		—		—
Loans not past due			271		80		20		4		14		42		6,137		6,568
Total Consumer			275		80		20		4		14		42		6,137		6,572
Real Estate
30 - 59 days past due			—		—		—		—		—		428		—		428
60 - 89 days past due			—		—		—		—		—		—		—		—
90 days or more past due			—		—		—		—		140		87		—		227
Loans not past due			91,195		129,148		283,571		183,887		91,113		514,546		—		1,293,460
Total Real Estate			91,195		129,148		283,571		183,887		91,253		515,061		—		1,294,115
Total		$	91,857	$	129,581	$	288,427	$	183,891	$	91,470	$	515,959	$	7,367	$	1,308,552

The Company did not have any revolving loans that converted to term loans during the year ended December 31, 2023.

The following table presents by loan class and year of origination, the gross charge-offs recorded during the year ended December 31, 2023.

(Dollars in thousands)	2023		2022		2021		2020		2019		Prior		Total
Year ended December 31, 2023:
One- to four-family residential mortgages	$	—	$	—	$	—	$	—	$	13	$	62	$	75
Loans on deposit accounts		78		—		—		—		—		—		78
Consumer and other		1		—		—		—		3		—		4
Total	$	79	$	—	$	—	$	—	$	16	$	62	$	157

The table below presents the aging of loans and accrual status by class of loans, net of unearned fees and discounts. Loans with a formal loan payment deferral plan in place are not considered contractually past due or delinquent if the borrower is in compliance with the loan payment deferral plan.

															Loans
															90 Days
															or More
	30 - 59		60 - 89		90 Days or										Past Due
	Days Past		Days Past		More		Total Past		Loans Not		Total		Nonaccrual		and Still
(Dollars in thousands)	Due		Due		Past Due		Due		Past Due		Loans		Loans		Accruing
December 31, 2023:
One- to four-family residential mortgages	$	428	$	—	$	227	$	655	$	1,274,960	$	1,275,615	$	2,079	$	—
Multi-family residential mortgages		—		—		—		—		5,848		5,848		—		—
Construction, commercial, and other mortgages		—		—		—		—		11,570		11,570		—		—
Home equity loans and lines of credit		—		—		—		—		7,060		7,060		11		—
Loans on deposit accounts		—		—		—		—		196		196		—		—
Consumer and other		4		—		—		4		8,259		8,263		170		—
Total	$	432	$	—	$	227	$	659	$	1,307,893	$	1,308,552	$	2,260	$	—
December 31, 2022:
One- to four-family residential mortgages	$	—	$	409	$	559	$	968	$	1,250,586	$	1,251,554	$	2,279	$	—
Multi-family residential mortgages		—		—		—		—		6,439		6,439		—		—
Construction, commercial, and other mortgages		—		—		—		—		23,775		23,775		—		—
Home equity loans and lines of credit		—		—		—		—		6,427		6,427		16		—
Loans on deposit accounts		—		—		—		—		217		217		—		—
Consumer and other		6		—		6		12		8,372		8,384		6		—
Total	$	6	$	409	$	565	$	980	$	1,295,816	$	1,296,796	$	2,301	$	—

The table below presents the amortized cost basis of loans on nonaccrual status as of December 31, 2023 and 2022.

	December 31, 2023						December 31, 2022
(Dollars in thousands)	Nonaccrual Loans With a Related ACL		Nonaccrual Loans Without a Related ACL		Total Nonaccrual Loans		Total Nonaccrual Loans
One- to four-family residential mortgages	$	1,030	$	1,049	$	2,079	$	2,279
Home equity loans and lines of credit		11		—		11		16
Consumer and other		170		—		170		6
Total Nonaccrual Loans and Leases	$	1,211	$	1,049	$	2,260	$	2,301

All payment received while on nonaccrual status are applied against the principal balance of the loan.

When a mortgage loan becomes seriously delinquent (90 days or more contractually past due), it displays weaknesses that may result in a loss. As a loan becomes more delinquent, the likelihood of the borrower repaying the loan decreases and the loan becomes more collateral-dependent. A mortgage loan becomes collateral-dependent when the proceeds for repayment can be expected to come only from the sale or operation of the collateral and not from borrower repayments. Generally, appraisals are obtained after a loan becomes collateral-dependent or is four months delinquent. The carrying value of collateral-dependent loans is adjusted to the fair value of the collateral less selling costs. Any commercial real estate, commercial, construction or equity loan that has a loan balance in excess of a specified amount is also periodically reviewed to determine whether the loan exhibits any weaknesses and is performing in accordance with its contractual terms. The amortized cost basis of collateral-dependent loans, excluding accrued interest receivable, was $227,000 and $559,000 at December 31, 2023 and 2022, respectively. These loans were collateralized by residential real estate in Hawaii. As of December 31, 2023 and 2022, the fair value of the collateral less selling costs of these collateral-dependent loans exceeded the amortized cost basis. There was no ACL on collateral-dependent loans.

In August 2023, wildfires on Maui partially or completely destroyed 12 homes which were collateral for $3.2 million of mortage loans held by the Company. Since the wildfire occurred, $300,000 of these loans have been paid off using insurance proceeds. At December 31, 2023, the Company had $2.8 million of mortgage loans which were collateralized by homes partially or completely destroyed in the Maui wildfires and all of these loans were current. A $61,000 mortgage loan, which was collateralized by a home destroyed in the Maui wildfire, is in the Bank’s forbearance program which was designed to assit borrowers experiencing financial dificulties. The forbearance program allows the borrower to defer his interest payments for six months. All of the homes which were destroyed are insured and the Company does not expect to incur a loss on these loans. The Company also has $18.7 million of mortgage loans on Maui at December 31, 2023 which were not affected by the wildfires. As of December 31, 2023, all of these loans were current. The $61,000 loan in the forbearance program was the only loan modifed in the year ended December 31, 2023. There were no loans modified during the year ended December 31, 2022.

The Company had no real estate owned as of December 31, 2023 or 2022. There were two one- to four-family residential mortgage loans totaling $227,000 in the process of foreclosure at December 31, 2023 and 2022.

Nearly all the Company’s real estate loans are collateralized by real estate located in the State of Hawaii. Loan-to-value ratios on these real estate loans generally do not exceed 80% at the time of origination.

During the years ended December 31, 2023 and 2022, the Company sold mortgage loans held for sale with principal balances of $827,000 and $5.4 million, respectively, and recognized a gain of $10,000 and a loss of $3,000, respectively. The Company had no loans held for sale at December 31, 2023 or 2022.

The Company serviced loans for others with principal balances of $33.2 million and $36.0 million at December 31, 2023 and 2022, respectively. Of these amounts, $19.3 million and $20.7 million of loan balances relate to securitizations for which the Company continues to hold the related mortgage-backed securities at December 31, 2023 and 2022, respectively. The amount of contractually specified servicing fees earned was $91,000 and $101,000 for 2023 and 2022, respectively. The fees are reported in service and other fees in the Consolidated Statements of Income.

In the normal course of business, the Company has made loans to certain directors and executive officers under terms which management believes are consistent with the Company’s general lending policies. Loans to directors and executive officers amounted to $392,000 and $414,000 at December 31, 2023 and 2022, respectively.