UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended ~~September 30, 2022~~March 31, 2023


☐		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to to

Commission File Number: 1-6887

BANK OF HAWAII CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		99-0148992
(State of incorporation)		(I.R.S. Employer Identification No.)


130 Merchant Street	Honolulu	Hawaii	96813
(Address of principal executive offices)	(City)	(State)	(Zip Code)

~~1-888-643-3888~~1-888-643-3888

(Registrant’s telephone number, including area code)

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


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.01 per share	BOH	New York Stock Exchange
Depository Shares, Each Representing 1/40th Interest in a Share of 4.375% Fixed Rate Non-Cumulative Preferred Stock, Series A	BOH.PRA	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes☒ No ☐

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


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of ~~October~~April 18, ~~2022,~~2023, there were ~~40,012,833~~39,648,881 shares of common stock outstanding.

Table of Contents

Bank of ~~Hawaii~~Hawai‘i Corporation

Form 10-Q

Index


		Page

Part I - Financial Information

Item 1.	Financial Statements (Unaudited)

	Consolidated Statements of Income – Three ~~and nine~~ months ended ~~September 30,~~March 31, 2023, and March 31, 2022 ~~and September 30, 2021~~	2

	Consolidated Statements of Comprehensive Income – Three ~~and nine~~ months ended ~~September 30,~~March 31, 2023, and March 31, 2022 ~~and September 30, 2021~~	3

	Consolidated Statements of Condition – ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021~~2022	4

	Consolidated Statements of Shareholders’ Equity – ~~Nine~~Three months ended ~~September 30,~~March 31, 2023, and March 31, 2022 ~~and September 30, 2021~~	5

	Consolidated Statements of Cash Flows – ~~Nine~~Three months ended ~~September 30,~~March 31, 2023, and March 31, 2022 ~~and September 30, 2021~~	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3837

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6258

Item 4.	Controls and Procedures	6258

Part II - Other Information		6359

Item 1.	Legal Proceedings	6359

Item 1A.	Risk Factors	6359

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6359

Item 6.	Exhibits	6460

Signatures		6561

Table of Contents

Bank of ~~Hawaii~~Hawai‘i Corporation and Subsidiaries

Consolidated Statements of Income (Unaudited)


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
(dollars in thousands, except per share amounts)	2022			2021			2022			2021			2023			2022
Interest Income
Interest and Fees on Loans and Leases	$	115,013		$	100,570		$	311,115		$	300,763		$	136,501		$	94,439
Income on Investment Securities
Available-for-Sale		16,995			16,396			52,079			48,700			23,893			17,100
Held-to-Maturity		20,243			16,754			57,782			43,630			23,948			18,701
Deposits		10			2			19			9			27			4
Funds Sold		2,335			382			3,181			779			3,366			127
Other		322			159			877			526			597			202
Total Interest Income		154,918			134,263			425,053			394,407			188,332			130,573
Interest Expense
Deposits		10,296			3,837			16,184			12,318			37,794			2,353
Securities Sold Under Agreements to Repurchase		2,745			3,423			8,311			10,426			5,377			2,772
Funds Purchased		40			—			99			1			704			2
Short-Term Borrowings		—			—			92			—			3,203			—
Other Debt		182			184			547			760			5,299			183
Total Interest Expense		13,263			7,444			25,233			23,505			52,377			5,310
Net Interest Income		141,655			126,819			399,820			370,902			135,955			125,263
Provision for Credit Losses		—			(10,400	)		(8,000	)		(40,800	)		2,000			(5,500	)
Net Interest Income After Provision for Credit Losses		141,655			137,219			407,820			411,702			133,955			130,763
Noninterest Income
Trust and Asset Management		10,418			11,415			33,151			34,375			10,690			11,276
Mortgage Banking		1,002			3,136			4,989			12,056			1,004			2,740
Service Charges on Deposit Accounts		7,526			6,510			22,107			18,703			7,737			7,272
Fees, Exchange, and Other Service Charges		13,863			13,604			41,008			41,018			13,808			12,952
Investment Securities Losses, Net		(2,147	)		(1,259	)		(4,987	)		(39	)		(1,792	)		(1,545	)
Annuity and Insurance		1,034			735			2,695			2,348			1,271			791
Bank-Owned Life Insurance		2,486			1,897			7,493			5,877			2,842			2,349
Other		(3,522	)		5,340			9,913			14,441			5,177			7,716
Total Noninterest Income		30,660			41,378			116,369			128,779			40,737			43,551
Noninterest Expense
Salaries and Benefits		59,938			56,447			177,631			168,859			65,088			59,924
Net Occupancy		10,186			3,079			29,942			17,216			9,872			9,826
Net Equipment		9,736			8,924			28,432			26,598			10,375			9,153
Data Processing		4,616			4,722			13,783			15,601			4,583			4,560
Professional Fees		3,799			2,948			10,599			9,468			3,883			3,258
FDIC Insurance		1,680			1,594			4,772			4,917			3,234			1,502
Other		15,794			18,805			47,403			49,252			14,884			15,651
Total Noninterest Expense		105,749			96,519			312,562			291,911			111,919			103,874
Income Before Provision for Income Taxes		66,566			82,078			211,627			248,570			62,773			70,440
Provision for Income Taxes		13,765			20,025			47,130			59,035			15,931			15,606
Net Income	$	52,801		$	62,053		$	164,497		$	189,535		$	46,842		$	54,834
Preferred Stock Dividends		1,969			1,006			5,908			1,006			1,969			1,969
Net Income Available to Common Shareholders	$	50,832		$	61,047		$	158,589		$	188,529		$	44,873		$	52,865
Basic Earnings Per Common Share	$	1.28		$	1.53		$	4.00		$	4.73		$	1.14		$	1.33
Diluted Earnings Per Common Share	$	1.28		$	1.52		$	3.98		$	4.70		$	1.14		$	1.32
Dividends Declared Per Common Share	$	0.70		$	0.70		$	2.10		$	2.04		$	0.70		$	0.70
Basic Weighted Average Common Shares		39,567,047			39,881,437			39,670,409			39,870,450			39,276,833			39,752,679
Diluted Weighted Average Common Shares		39,758,209			40,080,919			39,848,795			40,088,899			39,465,889			39,956,391

The accompanying notes are an integral part of the Consolidated Financial Statements (Unaudited).

Table of Contents

Bank of ~~Hawaii~~Hawai‘i Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
(dollars in thousands)	2022			2021			2022			2021			2023		2022
Net Income	$	52,801		$	62,053		$	164,497		$	189,535		$	46,842	$	54,834
Other Comprehensive Loss, Net of Tax:
Net Unrealized Losses on Investment Securities		(79,600	)		(7,541	)		(382,371	)		(57,714	)
Other Comprehensive Income (Loss), Net of Tax:
Net Unrealized Gains (Losses) on Investment Securities														29,276		(180,124	)
Defined Benefit Plans		354			441			1,059			1,324			84		353
Total Other Comprehensive Loss		(79,246	)		(7,100	)		(381,312	)		(56,390	)
Total Other Comprehensive Income (Loss)														29,360		(179,771	)
Comprehensive Income (Loss)	$	(26,445	)	$	54,953		$	(216,815	)	$	133,145		$	76,202	$	(124,937	)

The accompanying notes are an integral part of the Consolidated Financial Statements (Unaudited).

Table of Contents

Bank of ~~Hawaii~~Hawai‘i Corporation and Subsidiaries

Consolidated Statements of Condition (Unaudited)


(dollars in thousands)	September 30, 2022			December 31, 2021			March 31, 2023			December 31, 2022
Assets
Interest-Bearing Deposits in Other Banks	$	5,429		$	2,571		$	2,554		$	3,724
Funds Sold		402,714			361,536			272,018			81,364
Investment Securities
Available-for-Sale		2,424,608			4,276,056			2,815,083			2,844,823
Held-to-Maturity (Fair Value of $4,668,074 and $4,646,619)		5,461,160			4,694,780
Held-to-Maturity (Fair Value of $4,601,876 and $4,615,393)								5,312,815			5,414,139
Loans Held for Sale		418			26,746			2,149			1,035
Loans and Leases		13,321,606			12,259,076			13,824,522			13,646,420
Allowance for Credit Losses		(146,436	)		(157,821	)		(143,577	)		(144,439	)
Net Loans and Leases		13,175,170			12,101,255			13,680,945			13,501,981
Total Earning Assets		21,469,499			21,462,944			22,085,564			21,847,066
Cash and Due From Banks		247,506			196,327			337,413			316,679
Premises and Equipment, Net		208,251			199,393			203,131			206,777
Operating Lease Right-of-Use Assets		94,613			95,621			91,387			92,307
Accrued Interest Receivable		50,143			45,242			63,175			61,002
Foreclosed Real Estate		1,040			2,332			1,040			1,040
Mortgage Servicing Rights		23,104			22,251			22,102			22,619
Goodwill		31,517			31,517			31,517			31,517
Bank-Owned Life Insurance		451,407			344,587			455,602			453,882
Other Assets		556,960			384,727			641,046			573,988
Total Assets	$	23,134,040		$	22,784,941		$	23,931,977		$	23,606,877
Liabilities
Deposits
Noninterest-Bearing Demand	$	7,300,157		$	7,275,287		$	6,385,872		$	6,714,982
Interest-Bearing Demand		4,399,625			4,628,567			4,283,801			4,232,567
Savings		7,954,006			7,456,165			7,898,874			7,962,410
Time		1,234,985			1,000,089			1,922,753			1,705,737
Total Deposits		20,888,773			20,360,108			20,491,300			20,615,696
Short-Term Borrowings								325,000			—
Securities Sold Under Agreements to Repurchase		425,490			450,490			725,490			725,490
Other Debt		10,319			10,391			510,269			410,294
Operating Lease Liabilities		102,705			103,210			99,746			100,526
Retirement Benefits Payable		37,053			38,494			26,768			26,991
Accrued Interest Payable		3,405			2,499			13,061			9,698
Taxes Payable		13,527			11,901			11,039			7,104
Other Liabilities		370,384			196,237			374,874			394,083
Total Liabilities		21,851,656			21,173,330			22,577,547			22,289,882
Commitments, Contingencies, and Guarantees (Note 12)
Commitments and Contingencies (Note 12)
Shareholders’ Equity
Preferred Stock ($.01 par value; authorized 180,000 shares; issued and outstanding: September 30, 2022 and December 31, 2021 - 180,000)		180,000			180,000
Common Stock ($.01 par value; authorized 500,000,000 shares; issued / outstanding: September 30, 2022 - 58,728,796 / 40,011,473 and December 31, 2021 - 58,554,669 / 40,253,193)		582			581
Preferred Stock ($.01 par value; authorized 180,000 shares; issued and outstanding: March 31, 2023 and December 31, 2022 - 180,000)								180,000			180,000
Common Stock ($.01 par value; authorized 500,000,000 shares; issued / outstanding: March 31, 2023 -58,722,929 / 39,646,506 and December 31, 2022 -58,733,625 / 39,835,750)								583			582
Capital Surplus		615,985			602,508			624,126			620,578
Accumulated Other Comprehensive Loss		(447,694	)		(66,382	)		(405,298	)		(434,658	)
Retained Earnings		2,024,641			1,950,375			2,074,428			2,055,912
Treasury Stock, at Cost (Shares; September 30, 2022 - 18,717,323 and December 31, 2021 - 18,301,476)		(1,091,130	)		(1,055,471	)
Treasury Stock, at Cost (Shares: March 31, 2023 - 19,076,423 and December 31, 2022 - 18,897,875)								(1,119,409	)		(1,105,419	)
Total Shareholders’ Equity		1,282,384			1,611,611			1,354,430			1,316,995
Total Liabilities and Shareholders’ Equity	$	23,134,040		$	22,784,941		$	23,931,977		$	23,606,877

The accompanying notes are an integral part of the Consolidated Financial Statements (Unaudited).

Table of Contents

Bank of ~~Hawaii~~Hawai‘i Corporation and Subsidiaries

Consolidated Statements of Shareholders’ Equity (Unaudited)


(dollars in thousands)	Preferred Shares Outstanding		Preferred Stock		Common Shares Outstanding			Common Stock		Capital Surplus			Accum. Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total			Preferred Shares Outstanding		Preferred Stock		Common Shares Outstanding			Common Stock		Capital Surplus		Accum. Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total
Balance as of December 31, 2022																										180,000	$	180,000		39,835,750		$	582	$	620,578	$	(434,658	)	$	2,055,912		$	(1,105,419	)	$	1,316,995
Net Income																										—		—		—			—		—		—			46,842			—			46,842
Other Comprehensive Income																										—		—		—			—		—		29,360			—			—			29,360
Share-Based Compensation																										—		—		—			—		3,371		—			—			—			3,371
Common Stock Issued under Purchase and Equity Compensation Plans																										—		—		13,164			1		177		—			1,587			(197	)		1,568
Common Stock Repurchased																										—		—		(202,408	)		—		—		—			—			(13,793	)		(13,793	)
Cash Dividends Declared Common Stock ($0.70 per share)																										—		—		—			—		—		—			(27,944	)		—			(27,944	)
Cash Dividends Declared Preferred Stock																										—		—		—			—		—		—			(1,969	)		—			(1,969	)
Balance as of March 31, 2023																										180,000	$	180,000		39,646,506		$	583	$	624,126	$	(405,298	)	$	2,074,428		$	(1,119,409	)	$	1,354,430


Balance as of December 31, 2021		180,000	$	180,000		40,253,193		$	581	$	602,508		$	(66,382	)	$	1,950,375		$	(1,055,471	)	$	1,611,611			180,000	$	180,000		40,253,193		$	581	$	602,508	$	(66,382	)	$	1,950,375		$	(1,055,471	)	$	1,611,611
Net Income		—		—		—			—		—			—			54,834			—			54,834			—		—		—			—		—		—			54,834			—			54,834
Other Comprehensive Loss		—		—		—			—		—			(179,771	)		—			—			(179,771	)		—		—		—			—		—		(179,771	)		—			—			(179,771	)
Share-Based Compensation		—		—		—			—		4,010			—			—			—			4,010			—		—		—			—		4,010		—			—			—			4,010
Common Stock Issued under Purchase and Equity Compensation Plans		—		—		197,783			1		543			—			(185	)		2,036			2,395			—		—		197,783			1		543		—			(185	)		2,036			2,395
Common Stock Repurchased		—		—		(162,611	)		—		—			—			—			(13,960	)		(13,960	)		—		—		(162,611	)		—		—		—			—			(13,960	)		(13,960	)
Cash Dividends Declared Common Stock ($0.70 per share)		—		—		—			—		—			—			(28,265	)		—			(28,265	)
Cash Dividends Declared Common Stock ($0.70 per share)																										—		—		—			—		—		—			(28,265	)		—			(28,265	)
Cash Dividends Declared Preferred Stock		—		—		—			—		—			—			(1,969	)		—			(1,969	)						—			—		—		—			(1,969	)		—			(1,969	)
Balance as of March 31, 2022		180,000	$	180,000		40,288,365		$	582	$	607,061		$	(246,153	)	$	1,974,790		$	(1,067,395	)	$	1,448,885			180,000	$	180,000		40,288,365		$	582	$	607,061	$	(246,153	)	$	1,974,790		$	(1,067,395	)	$	1,448,885

Net Income		—		—		—			—		—			—			56,862			—			56,862
Other Comprehensive Loss		—		—		—			—		—			(122,295	)		—			—			(122,295	)
Share-Based Compensation		—		—		—			—		4,162			—			—			—			4,162
Common Stock Issued under Purchase and Equity Compensation Plans		—		—		30,442			—		471			—			531			661			1,663
Common Stock Repurchased		—		—		(136,148	)		—		—			—			—			(10,353	)		(10,353	)
Cash Dividends Declared Common Stock ($0.70 per share)		—		—		—			—		—			—			(28,209	)		—			(28,209	)
Cash Dividends Declared Preferred Stock		—		—		—			—		—			—			(1,969	)		—			(1,969	)
Balance as of June 30, 2022		180,000	$	180,000		40,182,659		$	582	$	611,694		$	(368,448	)	$	2,002,005		$	(1,077,087	)	$	1,348,746

Net Income		—		—		—			—		—			—			52,801			—			52,801
Other Comprehensive Loss		—		—		—			—		—			(79,246	)		—			—			(79,246	)
Share-Based Compensation		—		—		—			—		3,775			—			—			—			3,775
Common Stock Issued under Purchase and Equity Compensation Plans		—		—		19,741			—		516			—			(91	)		1,192			1,617
Common Stock Repurchased		—		—		(190,927	)		—		—			—			—			(15,235	)		(15,235	)
Cash Dividends Declared Common Stock ($0.70 per share)		—		—		—			—		—			—			(28,105	)		—			(28,105	)
Cash Dividends Declared Preferred Stock		—		—		—			—		—			—			(1,969	)		—			(1,969	)
Balance as of September 30, 2022		180,000	$	180,000		40,011,473		$	582	$	615,985		$	(447,694	)	$	2,024,641		$	(1,091,130	)	$	1,282,384

Balance as of December 31, 2020		—	$	—		40,119,312		$	580	$	591,360		$	7,822		$	1,811,979		$	(1,037,234	)	$	1,374,507
Net Income		—		—		—			—		—			—			59,949			—			59,949
Other Comprehensive Loss		—		—		—			—		—			(49,609	)		—			—			(49,609	)
Share-Based Compensation		—		—		—			—		2,780			—			—			—			2,780
Common Stock Issued under Purchase and Equity Compensation Plans		—		—		310,905			—		664			—			(845	)		2,990			2,809
Common Stock Repurchased		—		—		(35,983	)		—		—			—			—			(3,189	)		(3,189	)
Cash Dividends Declared Common Stock ($0.67 per share)		—		—		—			—		—			—			(27,026	)		—			(27,026	)
Balance as of March 31, 2021		—	$	—		40,394,234		$	580	$	594,804		$	(41,787	)	$	1,844,057		$	(1,037,433	)	$	1,360,221

Net Income		—		—		—			—		—			—		��	67,533			—			67,533
Other Comprehensive Income		—		—		—			—		—			319			—			—			319
Share-Based Compensation		—		—		—			—		3,342			—			—			—			3,342
Preferred Stock Issued, Net		180,000		180,000		—			—		(4,513	)		—			—			—			175,487
Common Stock Issued under Purchase and Equity Compensation Plans		—		—		72,421			0		628			—			(46	)		3,269			3,851
Common Stock Repurchased		—		—		(1,173	)		—		—			—			—			(109	)		(109	)
Cash Dividends Declared Common Stock ($0.67 per share)		—		—		—			—		—			—			(27,113	)		—			(27,113	)
Balance as of June 30, 2021		180,000	$	180,000		40,465,482		$	580	$	594,261		$	(41,468	)	$	1,884,431		$	(1,034,273	)	$	1,583,531

Net Income		—		—		—			—		—			—			62,053			—			62,053
Other Comprehensive Loss		—		—		—			—		—			(7,100	)		—			—			(7,100	)
Share-Based Compensation		—		—		—			—		3,536			—			—			—			3,536
Preferred Stock Issued, Net		—		—		—			—		—			—			—			—			—
Common Stock Issued under Purchase and Equity Compensation Plans		—		—		82,939			—		544			—			(327	)		4,282			4,499
Common Stock Repurchased		—		—		(242,620	)		—		—			—			—			(20,114	)		(20,114	)
Cash Dividends Declared Common Stock ($0.70 per share)		—		—		—			—		—			—			(28,290	)		—			(28,290	)
Cash Dividends Declared Preferred Stock		—		—		—			—		—			—			(1,006	)		—			(1,006	)
Balance as of September 30, 2021		180,000	$	180,000		40,305,801		$	580	$	598,341		$	(48,568	)	$	1,916,861		$	(1,050,105	)	$	1,597,109

The accompanying notes are an integral part of the Consolidated Financial Statements (Unaudited).

Table of Contents

Bank of ~~Hawaii~~Hawai‘i Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)


	Nine Months Ended						Three Months Ended
	September 30,						March 31,
(dollars in thousands)	2022			2021			2023			2022
Operating Activities
Net Income	$	164,497		$	189,535		$	46,842		$	54,834
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses		(8,000	)		(40,800	)		2,000			(5,500	)
Depreciation and Amortization		15,947			15,751			5,885			5,308
Amortization of Deferred Loan and Lease (Fees) Costs, Net		(501	)		(13,431	)		323			(856	)
Amortization and Accretion of Premiums/Discounts on Investment Securities, Net		16,971			27,147			3,390			7,031
Amortization of Operating Lease Right-of-Use Assets		8,939			8,562			2,908			2,903
Share-Based Compensation		11,947			9,658			3,371			4,010
Benefit Plan Contributions		(1,236	)		(1,274	)		(419	)		(417	)
Deferred Income Taxes		(6,840	)		5,308			5,708			3,332
Gains on Sale of Premises and Equipment		—			(9,893	)
Loss on Agreement to Sell Assets That Will Terminate Certain Leveraged Leases		6,918			—
Net Losses (Gains) on Sales of Loans and Leases		(3,365	)		(12,639	)
Net Gains on Sales of Loans and Leases								(676	)		(1,724	)
Net Losses on Sales of Investment Securities		4,987			39			1,792			1,545
Proceeds from Sales of Loans Held for Sale		122,404			412,153			7,299			77,591
Originations of Loans Held for Sale		(95,024	)		(319,274	)		(8,384	)		(55,110	)
Net Tax Benefits from Share-Based Compensation		158			1,349
Net Tax Benefits (Deficiency) from Share-Based Compensation								(418	)		214
Net Change in Other Assets and Other Liabilities		31,065			68,084			(100,580	)		(51,366	)
Net Cash Provided by Operating Activities		268,867			340,275
Net Cash Provided by (Used in) Operating Activities								(30,959	)		41,795

Investing Activities
Investment Securities Available-for-Sale:
Proceeds from Sales, Prepayments and Maturities		597,452			1,138,809
Proceeds from Prepayments and Maturities								59,837			249,585
Purchases		(556,813	)		(1,789,229	)		—			(481,723	)
Investment Securities Held-to-Maturity:
Proceeds from Prepayments and Maturities		517,448			914,953			105,876			216,409
Purchases		(15,240	)		(2,569,229	)		—			(15,240	)
Net Change in Loans and Leases		(1,070,567	)		(149,765	)		(180,606	)		(284,797	)
Purchases of Premises and Equipment		(24,805	)		(14,314	)		(2,240	)		(5,658	)
Proceeds from Sale of Premises and Equipment		—			9,008
Net Cash Used in Investing Activities		(552,525	)		(2,459,767	)		(17,133	)		(321,424	)

Financing Activities
Net Change in Deposits		528,665			2,282,057			(124,396	)		356,179
Net Change in Short-Term Borrowings		(25,000	)		(150,100	)		325,000			—
Proceeds from Long-Term Debt								100,000			—
Repayments of Long-Term Debt		(72	)		(50,067	)		(25	)		(24	)
Net Proceeds from Issuance of Preferred Stock		—			175,487
Proceeds from Issuance of Common Stock		5,315			10,836			1,437			2,288
Repurchase of Common Stock		(39,548	)		(23,412	)		(13,793	)		(13,960	)
Cash Dividends Paid on Common Stock		(84,579	)		(82,429	)		(27,944	)		(28,265	)
Cash Dividends Paid on Preferred Stock		(5,908	)		(1,006	)		(1,969	)		(1,969	)
Net Cash Provided by Financing Activities		378,873			2,161,366			258,310			314,249
Net Change in Cash and Cash Equivalents		95,215			41,874			210,218			34,620
Cash and Cash Equivalents at Beginning of Period		560,434			614,088			401,767			560,434
Cash and Cash Equivalents at End of Period	$	655,649		$	655,962		$	611,985		$	595,054
Supplemental Information
Cash Paid for Interest	$	24,326		$	25,207		$	49,014		$	5,264
Cash Paid for Income Taxes		38,467			41,193			92			3,069
Non-Cash Investing and Financing Activities:
Transfer of Investment Securities from Available-for-Sale to Held-to-Maturity		1,275,043			—
Transfer from Loans to Loans Held for Sale		380			23,888			—			380

The accompanying notes are an integral part of the Consolidated Financial Statements (Unaudited).

Table of Contents

Bank of ~~Hawaii~~Hawai‘i Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

Bank of Hawaii Corporation (the “Parent”) is a Delaware corporation and a bank holding company headquartered in Honolulu, Hawaii. Bank of Hawai‘i Corporation is a trade name of Bank of Hawaii Corporation, and along with its subsidiaries (collectively, the “Company”) provide a broad range of financial products and services to ~~customers~~businesses, consumers and governments in Hawaii ~~Guam,~~ and ~~other Pacific Islands.~~the West Pacific. The majority of the Company’s operations consist of customary commercial and consumer banking services including, but not limited to, lending, leasing, deposit services, trust and investment activities, brokerage services, and trade financing. The accompanying consolidated financial statements include the accounts of the Parent and its subsidiaries. The Parent’s principal operating subsidiary is Bank of Hawaii (the “Bank”)., doing business as Bank of Hawai‘i.

The consolidated financial statements in this report have not been audited by an independent registered public accounting firm, but, in the opinion of management, reflect all adjustments necessary for a fair presentation of the results for the interim periods. All such adjustments are of a normal recurring nature. Intercompany accounts and transactions have been eliminated in consolidation. Certain prior period information has been reclassified to conform to the current period presentation. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for the full fiscal year or for any future period.

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and accompanying notes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Accounting Standard Pending Adoption

In March ~~2022,~~2023, the FASB issued ASU ~~2022-02, “Financial Instruments -~~2023-02, “Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit ~~Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.~~Structures Using the Proportional Amortization Method.” ASU ~~2022-02 eliminates~~2023-02 permits reporting entities to elect to account for their tax equity investments, regardless of the ~~accounting guidance for troubled debt restructurings (“TDRs”), while enhancing disclosure requirements for~~tax credit program from which the income tax credits are received, using the proportional amortization method if certain ~~loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.~~conditions are met. ASU ~~2022-02~~2023-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2022.~~2023. ASU ~~2022-02~~2023-02 is not expected to have a material impact on the Company’s consolidated financial statements.

Note 2. Cash and Cash Equivalents

The Company is normally required to maintain cash on hand or on deposit with the Board of Governors of the Federal Reserve System (“FRB”) based on the amount of certain customer deposits, mainly checking accounts, however, the FRB lowered the reserve requirement ratios on transaction accounts to zero percent effective March 26, 2020; therefore, there was no required reserve as of September 30, 2022.

The following table provides a reconciliation of cash and cash equivalents reported within the consolidated statement of condition:


(dollars in thousands)	September 30, 2022		March 31, 2023
Interest-Bearing Deposits in Other Banks	$	5,429	$	2,554
Funds Sold		402,714		272,018
Cash and Due From Banks		247,506		337,413
Total Cash and Cash Equivalents	$	655,649	$	611,985

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Note 3. Investment Securities

The amortized cost, gross unrealized gains and losses, and fair value of the Company’s investment securities as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, were as follows:


(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2022
March 31, 2023
Available-for-Sale:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	259,692	$	885	$	(16,224	)	$	244,353	$	240,400	$	535	$	(12,564	)	$	228,371
Debt Securities Issued by States and Political Subdivisions		74,057		—		(12,995	)		61,062		107,659		458		(10,375	)		97,742
Debt Securities Issued by U.S. Government-Sponsored Enterprises		1,758		—		(140	)		1,618		48,807		—		(151	)		48,656
Debt Securities Issued by Corporations		430,809		—		(60,091	)		370,718		849,661		1,148		(51,776	)		799,033
Mortgage-Backed Securities:
Residential - Government Agencies		864,919		305		(89,537	)		775,687		799,732		235		(86,385	)		713,582
Residential - U.S. Government-Sponsored Enterprises		949,497		2		(129,814	)		819,685		896,586		2		(113,989	)		782,599
Commercial - Government Agencies or Sponsored Agencies		171,632		—		(20,147	)		151,485		166,933		—		(21,833	)		145,100
Total Mortgage-Backed Securities		1,986,048		307		(239,498	)		1,746,857		1,863,251		237		(222,207	)		1,641,281
Total	$	2,752,364	$	1,192	$	(328,948	)	$	2,424,608	$	3,109,778	$	2,378	$	(297,073	)	$	2,815,083
Held-to-Maturity:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	131,587	$	—	$	(19,180	)	$	112,407	$	131,649	$	—	$	(15,407	)	$	116,242
Debt Securities Issued by Corporations		17,845		—		(2,522	)		15,323		12,397		—		(2,010	)		10,387
Mortgage-Backed Securities:
Residential - Government Agencies		1,900,988		19		(276,868	)		1,624,139		1,807,744		58		(253,255	)		1,554,547
Residential - U.S. Government-Sponsored Enterprises		2,958,051		12		(411,442	)		2,546,621		2,916,693		45		(356,166	)		2,560,572
Commercial - Government Agencies or Sponsored Agencies		452,689		—		(83,105	)		369,584		444,332		—		(84,204	)		360,128
Total Mortgage-Backed Securities		5,311,728		31		(771,415	)		4,540,344		5,168,769		103		(693,625	)		4,475,247
Total	$	5,461,160	$	31	$	(793,117	)	$	4,668,074	$	5,312,815	$	103	$	(711,042	)	$	4,601,876
December 31, 2021
December 31, 2022
Available-for-Sale:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	248,858	$	1,513	$	(284	)	$	250,087	$	248,335	$	638	$	(15,067	)	$	233,906
Debt Securities Issued by States and Political Subdivisions		74,743		1,080		(5	)		75,818		107,689		158		(12,582	)		95,265
Debt Securities Issued by U.S. Government-Sponsored Enterprises		1,758		33		(11	)		1,780		48,807		0		(179	)		48,628
Debt Securities Issued by Corporations		384,590		2,339		(3,816	)		383,113		850,585		809		(56,736	)		794,658
Mortgage-Backed Securities:
Residential - Government Agencies		1,327,990		9,818		(18,766	)		1,319,042		828,798		245		(96,215	)		732,828
Residential - U.S. Government-Sponsored Enterprises		2,127,781		4,792		(42,247	)		2,090,326		919,980		1		(126,110	)		793,871
Commercial - Government Agencies or Sponsored Agencies		155,164		1,885		(1,159	)		155,890		168,242		—		(22,575	)		145,667
Total Mortgage-Backed Securities		3,610,935		16,495		(62,172	)		3,565,258		1,917,020		246		(244,900	)		1,672,366
Total	$	4,320,884	$	21,460	$	(66,288	)	$	4,276,056	$	3,172,436	$	1,851	$	(329,464	)	$	2,844,823
Held-to-Maturity:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	131,495	$	287	$	(643	)	$	131,139	$	131,619	$	—	$	(18,202	)	$	113,417
Debt Securities Issued by Corporations		20,316		76		(249	)		20,143		17,014		—		(2,534	)		14,480
Mortgage-Backed Securities:
Residential - Government Agencies		1,774,394		12,139		(30,621	)		1,755,912		1,848,239		35		(294,047	)		1,554,227
Residential - U.S. Government-Sponsored Enterprises		2,286,880		15,508		(32,627	)		2,269,761		2,968,322		8		(397,055	)		2,571,275
Commercial - Government Agencies or Sponsored Agencies		481,695		324		(12,355	)		469,664		448,945		—		(86,951	)		361,994
Total Mortgage-Backed Securities		4,542,969		27,971		(75,603	)		4,495,337		5,265,506		43		(778,053	)		4,487,496
Total	$	4,694,780	$	28,334	$	(76,495	)	$	4,646,619	$	5,414,139	$	43	$	(798,789	)	$	4,615,393

The Company elected to exclude accrued interest receivable (“AIR”) from the amortized cost basis of debt securities disclosed throughout this footnote. For available-for-sale (“AFS”) debt securities, AIR totaled ~~$6.8~~$12.3 million and ~~$8.4~~$11.7 million as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, respectively. For held-to-maturity (“HTM”) debt securities, AIR totaled ~~$9.2 million and $8.2~~$9.2 million as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, respectively. AIR is included in the ~~“accrued interest receivable”~~Accrued Interest Receivable line item on the Company’s consolidated statements of condition.

Table of Contents

During the three months ended September 30, 2022, the Company transferred at fair value approximately $1.3 billion in available-for-sale investment securities to the held-to-maturity category. The related unrealized after-tax losses of approximately $176.7 million remained in accumulated other comprehensive income (loss) to be amortized over the estimated remaining life of the securities as an adjustment of yield, and recognized in interest income. No gains or losses were recognized at the time of transfer. Management considers the held-to-maturity classification of these investment securities to be appropriate as the Company has the positive intent and ability to hold these securities to maturity.

The table below presents an analysis of the contractual maturities of the Company’s investment securities as of ~~September 30, 2022.~~March 31, 2023. Debt securities issued by government agencies (Small Business Administration securities) and mortgage-backed securities are disclosed separately in the table below as these investment securities may prepay prior to their scheduled contractual maturity dates.


(dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available-for-Sale:
Due in One Year or Less	$	433	$	429	$	8,904	$	8,864
Due After One Year Through Five Years		277,971		255,858		419,407		400,680
Due After Five Years Through Ten Years		371,893		307,504		728,368		675,121
Due After Ten Years		13,130		10,251		6,380		5,207
		663,427		574,042		1,163,059		1,089,872
Debt Securities Issued by Government Agencies		102,889		103,709		83,468		83,930
Mortgage-Backed Securities:
Residential - Government Agencies		864,919		775,687		799,732		713,582
Residential - U.S. Government-Sponsored Enterprises		949,497		819,685		896,586		782,599
Commercial - Government Agencies or Sponsored Agencies		171,632		151,485		166,933		145,100
Total Mortgage-Backed Securities		1,986,048		1,746,857		1,863,251		1,641,281
Total	$	2,752,364	$	2,424,608	$	3,109,778	$	2,815,083
Held-to-Maturity:
Due After One Year Through Five Years		14,260		13,208		58,719		52,706
Due After Five Year Through Ten Years		124,087		105,737		74,373		64,940
Due After Ten Years		11,085		8,785		10,954		8,983
		149,432		127,730		144,046		126,629
Mortgage-Backed Securities:
Residential - Government Agencies		1,900,988		1,624,139		1,807,744		1,554,547
Residential - U.S. Government-Sponsored Enterprises		2,958,051		2,546,621		2,916,693		2,560,572
Commercial - Government Agencies or Sponsored Agencies		452,689		369,584		444,332		360,128
Total Mortgage-Backed Securities		5,311,728		4,540,344		5,168,769		4,475,247
Total	$	5,461,160	$	4,668,074	$	5,312,815	$	4,601,876

Investment securities with carrying values of ~~$3.5~~$7.9 billion and ~~$2.9~~$4.1 billion as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, respectively, were pledged to secure deposits of governmental entities, securities sold under agreements to repurchase, and FRB discount window borrowing.

The table below presents the losses from the sales of investment securities for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, and ~~September 30, 2021:~~March 31, 2022:

Three Months Ended
September 30,

Nine Months Ended
September 30,

(dollars in thousands)

2022

2021

2022

2021

Gross Gains on Sales of Investment Securities

$
—

$
110

$
—

$
3,785

Gross Losses on Sales of Investment Securities

(2,147
)

(1,369
)

(4,987
)

(3,824
)
Net Losses on Sales of Investment Securities

$
(2,147
)

$
(1,259
)

$
(4,987
)

$
(39
)


	Three Months Ended March 31,
(dollars in thousands)	2023			2022
Total Losses on Sales of Investment Securities	$	(1,792	)	$	(1,545	)

The losses on sales of investment securities during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023, and March 31, 2022, ~~and September 30, 2021,~~ were due to fees paid to the counterparties of the Company’s prior Visa Class B share sale transactions, which are expensed as incurred. These losses were not the result of the Company selling its investment securities.

Table of Contents

The following table summarizes the Company’s AFS debt securities in an unrealized loss position for which an allowance for credit losses was not deemed necessary, aggregated by major security type and length of time in a continuous unrealized loss position:


	Less Than 12 Months					12 Months or Longer					Total					Less Than 12 Months					12 Months or Longer					Total
(dollars in thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
September 30, 2022
Available-for-Sale:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	124,896	$	(12,517	)	$	28,316	$	(3,707	)	$	153,212	$	(16,224	)
Debt Securities Issued by States and Political Subdivisions		60,528		(12,952	)		434		(43	)		60,962		(12,995	)
Debt Securities Issued by U.S. Government- Sponsored Enterprises		1,011		(72	)		606		(68	)		1,617		(140	)
Debt Securities Issued by Corporations		125,121		(13,518	)		245,598		(46,573	)		370,719		(60,091	)
Mortgage-Backed Securities:
Residential - Government Agencies		528,883		(40,230	)		235,024		(49,307	)		763,907		(89,537	)
Residential - U.S. Government-Sponsored Enterprises		393,814		(51,047	)		424,086		(78,767	)		817,900		(129,814	)
Commercial-Government Agencies or Sponsored Agencies		117,478		(13,776	)		34,007		(6,371	)		151,485		(20,147	)
Total Mortgage-Backed Securities		1,040,175		(105,053	)		693,117		(134,445	)		1,733,292		(239,498	)
Total	$	1,351,731	$	(144,112	)	$	968,071	$	(184,836	)	$	2,319,802	$	(328,948	)

December 31, 2021
March 31, 2023
Available-for-Sale:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	51,455	$	(195	)	$	9,995	$	(89	)	$	61,450	$	(284	)	$	11,940	$	(37	)	$	148,474	$	(12,527	)	$	160,414	$	(12,564	)
Debt Securities Issued by States and Political Subdivisions		643		(5	)		—		—			643		(5	)		8,041		(16	)		62,948		(10,359	)		70,989		(10,375	)
Debt Securities Issued by U.S. Government- Sponsored Enterprises		814		(10	)		49		(1	)		863		(11	)		47,004		(46	)		1,652		(105	)		48,656		(151	)
Debt Securities Issued by Corporations		249,629		(2,846	)		64,029		(970	)		313,658		(3,816	)		149,430		(570	)		376,921		(51,206	)		526,351		(51,776	)
Mortgage-Backed Securities:
Residential - Government Agencies		810,157		(17,131	)		41,471		(1,635	)		851,628		(18,766	)		56,131		(1,453	)		652,088		(84,932	)		708,219		(86,385	)
Residential - U.S. Government-Sponsored Enterprises		1,670,500		(35,711	)		180,205		(6,536	)		1,850,705		(42,247	)		10,399		(365	)		772,000		(113,624	)		782,399		(113,989	)
Commercial - Government Agencies or Sponsored Agencies		25,664		(223	)		21,810		(936	)		47,474		(1,159	)		753		(22	)		144,347		(21,811	)		145,100		(21,833	)
Total Mortgage-Backed Securities		2,506,321		(53,065	)		243,486		(9,107	)		2,749,807		(62,172	)		67,283		(1,840	)		1,568,435		(220,367	)		1,635,718		(222,207	)
Total	$	2,808,862	$	(56,121	)	$	317,559	$	(10,167	)	$	3,126,421	$	(66,288	)	$	283,698	$	(2,509	)	$	2,158,430	$	(294,564	)	$	2,442,128	$	(297,073	)

December 31, 2022
Available-for-Sale:
Debt Securities Issued by the U.S. Treasury and Government Agencies																$	28,574	$	(1,118	)	$	127,841	$	(13,949	)	$	156,415	$	(15,067	)
Debt Securities Issued by States and Political Subdivisions																	11,341		(1,240	)		49,985		(11,342	)		61,326		(12,582	)
Debt Securities Issued by U.S. Government- Sponsored Enterprises																	47,825		(108	)		803		(71	)		48,628		(179	)
Debt Securities Issued by Corporations																	438,225		(7,995	)		284,350		(48,741	)		722,575		(56,736	)
Mortgage-Backed Securities:
Residential - Government Agencies																	386,809		(30,492	)		340,824		(65,723	)		727,633		(96,215	)
Residential - U.S. Government-Sponsored Enterprises																	194,684		(22,294	)		598,986		(103,816	)		793,670		(126,110	)
Commercial - Government Agencies or Sponsored Agencies																	98,694		(13,247	)		46,973		(9,328	)		145,667		(22,575	)
Total Mortgage-Backed Securities																	680,187		(66,033	)		986,783		(178,867	)		1,666,970		(244,900	)
Total																$	1,206,152	$	(76,494	)	$	1,449,762	$	(252,970	)	$	2,655,914	$	(329,464	)

The Company does not believe that the AFS debt securities that were in an unrealized loss position as of ~~September 30, 2022,~~March 31, 2023, which were comprised of ~~383~~393 individual securities, represent a credit loss impairment. As of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, the gross unrealized loss positions were primarily related to mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss. Total gross unrealized losses were ~~primarily~~ 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. The Company does not intend to sell the investment securities that were in an unrealized loss position and it is not more likely than not that the Company will be required to sell the investment securities before recovery of their amortized cost basis, which may be at maturity.

Substantially all of the Company’s HTM debt securities are issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss. Therefore, an allowance for credit losses for these securities was not deemed necessary as of ~~September 30, 2022.~~ March 31, 2023.

Table of Contents

Interest income from taxable and non-taxable investment securities for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023, and March 31, 2022, ~~and September 30, 2021,~~ were as follows:


	Three Months Ended March 31,
(dollars in thousands)	2023		2022
Taxable	$	47,757	$	35,790
Non-Taxable		84		11
Total Interest Income from Investment Securities	$	47,841	$	35,801

Three Months Ended
September 30,

Nine Months Ended
September 30,

(dollars in thousands)

2022

2021

2022

2021

Taxable

$
37,231

$
32,889

$
109,830

$
91,510

Non-Taxable

7

261

31

820

Total Interest Income from Investment Securities

$
37,238

$
33,150

$
109,861

$
92,330

As of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, the carrying value of the Company’s Federal Home Loan Bank of Des Moines stock and Federal Reserve Bank stock was as follows:


(dollars in thousands)	September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022
Federal Home Loan Bank of Des Moines Stock	$	10,000	$	10,000	$	43,000	$	26,000
Federal Reserve Bank Stock		26,959		26,624		27,182		27,065
Total	$	36,959	$	36,624	$	70,182	$	53,065

These securities can only be redeemed or sold at their par value and only to the respective issuing institution or to another member institution. The Company records these non-marketable equity securities as a component of other assets and periodically evaluates these securities for impairment. Management considers these non-marketable equity securities to be long-term investments. Accordingly, when evaluating these securities for impairment, management considers the ultimate recoverability of the par value rather than recognizing temporary declines in value.

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

Loans and Leases

The Company’s loan and lease portfolio was comprised of the following as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021:~~2022:


(dollars in thousands)	March 31, 2023		December 31, 2022
Commercial
Commercial and Industrial	$	1,425,916	$	1,389,066
Paycheck Protection Program		15,175		19,579
Commercial Mortgage		3,826,283		3,725,542
Construction		232,903		260,825
Lease Financing		65,611		69,491
Total Commercial		5,565,888		5,464,503
Consumer
Residential Mortgage		4,691,298		4,653,072
Home Equity		2,260,001		2,225,950
Automobile		877,979		870,396
Other 2		429,356		432,499
Total Consumer		8,258,634		8,181,917
Total Loans and Leases	$	13,824,522	$	13,646,420

(dollars in thousands)

September 30,
2022

December 31,
2021

Commercial

Commercial and Industrial

$
1,368,966

$
1,361,921

Paycheck Protection Program

22,955

126,779

Commercial Mortgage

3,591,943

3,152,130

Construction

236,498

220,254

Lease Financing

73,989

105,108

Total Commercial

5,294,351

4,966,192

Consumer

Residential Mortgage

4,585,723

4,309,602

Home Equity

2,185,484

1,836,588

Automobile

820,640

736,565

Other ¹

435,408

410,129

Total Consumer

8,027,255

7,292,884

Total Loans and Leases

$
13,321,606

$
12,259,076

1.

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

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 was less than ~~$0.1~~$0.1~~million and $1.2~~ million for the three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021 respectively, and $0.2 million and $5.9 million for the nine months ended September 30, 2022 and 2021, respectively.~~March 31, 2022.

Table of Contents

The Company elected to exclude AIR from the amortized cost basis of loans disclosed throughout this footnote. As of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, AIR for loans totaled ~~$34.0~~$41.5 million and ~~$28.7~~$40.1 million, respectively, and is included in the “accrued interest receivable” line item on the Company’s consolidated statements of condition.

Allowance for Credit Losses (the “Allowance”)

The following presents by portfolio segment, the activity in the Allowance for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, and ~~September 30, 2021.~~March 31, 2022.


(dollars in thousands)	Commercial			Consumer			Total			Commercial			Consumer			Total
Three Months Ended September 30, 2022
Three Months Ended March 31, 2023
Allowance for Credit Losses:
Balance at Beginning of Period	$	61,826		$	86,686		$	148,512		$	63,900		$	80,539		$	144,439
Loans and Leases Charged-Off		(147	)		(2,718	)		(2,865	)		(261	)		(4,048	)		(4,309	)
Recoveries on Loans and Leases Previously Charged-Off		45			1,673			1,718			50			1,591			1,641
Net Loans and Leases Recovered (Charged-Off)		(102	)		(1,045	)		(1,147	)		(211	)		(2,457	)		(2,668	)
Provision for Credit Losses		157			(1,086	)		(929	)		(4,918	)		6,724			1,806
Balance at End of Period	$	61,881		$	84,555		$	146,436		$	58,771		$	84,806		$	143,577
Nine Months Ended September 30, 2022
Three Months Ended March 31, 2022
Allowance for Credit Losses:
Balance at Beginning of Period	$	64,950		$	92,871		$	157,821		$	64,950		$	92,871		$	157,821
Loans and Leases Charged-Off		(729	)		(9,390	)		(10,119	)		(349	)		(3,559	)		(3,908	)
Recoveries on Loans and Leases Previously Charged-Off		465			6,390			6,855			369			2,053			2,422
Net Loans and Leases Recovered (Charged-Off)		(264	)		(3,000	)		(3,264	)		20			(1,506	)		(1,486	)
Provision for Credit Losses		(2,805	)		(5,316	)		(8,121	)		(2,877	)		(1,430	)		(4,307	)
Balance at End of Period	$	61,881		$	84,555		$	146,436		$	62,093		$	89,935		$	152,028
Three Months Ended September 30, 2021
Allowance for Credit Losses:
Balance at Beginning of Period	$	78,639		$	101,746		$	180,385
Loans and Leases Charged-Off		(196	)		(3,249	)		(3,445	)
Recoveries on Loans and Leases Previously Charged-Off		118			2,134			2,252
Net Loans and Leases Recovered (Charged-Off)		(78	)		(1,115	)		(1,193	)
Provision for Credit Losses		(9,894	)		(1,378	)		(11,272	)
Balance at End of Period	$	68,667		$	99,253		$	167,920
Nine Months Ended September 30, 2021
Allowance for Credit Losses:
Balance at Beginning of Period	$	84,847		$	131,405		$	216,252
Loans and Leases Charged-Off		(900	)		(13,145	)		(14,045	)
Recoveries on Loans and Leases Previously Charged-Off		374			8,378			8,752
Net Loans and Leases Recovered (Charged-Off)		(526	)		(4,767	)		(5,293	)
Provision for Credit Losses		(15,654	)		(27,385	)		(43,039	)
Balance at End of Period	$	68,667		$	99,253		$	167,920

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 ~~(e.g., credit scoring or payment performance),~~ are typically ~~risk-rated~~monitored and ~~monitored~~risk-rated collectively. These are typically loans and leases to individuals in the classes which comprise the consumer portfolio segment.

Table of Contents

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%~~60% or less. Home equity loans that are past due 90 days or more as to principal or interest may be considered Pass if: a) the home equity loan is in a first lien position and the current loan-to-value ratio is ~~60%~~60% or less; or b) the first mortgage is with the Company and the current combined loan-to-value ratio is ~~60%~~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 ~~that are past due 90 days or more~~may be current as to principal orand interest, but may be considered ~~Pass based on~~Classified for a period of generally up to six months following a loan modification. Following a period of demonstrated performance in accordance with the ~~criteria described in~~modified contractual terms, the ~~definition of Pass.~~ loan may be removed from Classified status.

Table of Contents

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 ~~September 30, 2022.~~March 31, 2023.


		Term Loans by Origination Year
(dollars in thousands)	2023 2			2022		2021		2020		2019		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total Loans and Leases
March 31, 2023
Commercial
Commercial and Industrial
Pass		$	193,760	$	327,583	$	274,437	$	170,647	$	45,234	$	100,412	$	284,517	$	126	$	1,396,716
Special Mention			454		260		4,507		-		-		169		697		-		6,087
Classified			-		2,617		1,510		978		-		14,769		3,220		19		23,113
Total Commercial and Industrial		$	194,214	$	330,460	$	280,454	$	171,625	$	45,234	$	115,350	$	288,434	$	145	$	1,425,916
Paycheck Protection Program
Pass		$	-	$	-	$	2,941	$	12,234	$	-	$	-	$	-	$	-	$	15,175
Total Paycheck Protection Program		$	-	$	-	$	2,941	$	12,234	$	-	$	-	$	-	$	-	$	15,175
Commercial Mortgage
Pass		$	476,513	$	1,068,867	$	750,112	$	513,505	$	267,100	$	555,077	$	50,040	$	-	$	3,681,214
Special Mention			-		86,018		7,729		4,811		-		20,995		-		-		119,553
Classified			3,220		175		1,953		8,370		-		11,798		-		-		25,516
Total Commercial Mortgage		$	479,733	$	1,155,060	$	759,794	$	526,686	$	267,100	$	587,870	$	50,040	$	-	$	3,826,283
Construction
Pass		$	9,124	$	138,875	$	63,866	$	2,902	$	16,691	$	296	$	1,149	$	-	$	232,903
Total Construction		$	9,124	$	138,875	$	63,866	$	2,902	$	16,691	$	296	$	1,149	$	-	$	232,903
Lease Financing
Pass		$	2,617	$	14,469	$	16,885	$	10,796	$	8,670	$	10,795	$	-	$	-	$	64,232
Special Mention			-		706		-		-		-		-		-		-		706
Classified			-		-		-		-		-		673		-		-		673
Total Lease Financing		$	2,617	$	15,175	$	16,885	$	10,796	$	8,670	$	11,468	$	-	$	-	$	65,611
Total Commercial		$	685,688	$	1,639,570	$	1,123,940	$	724,243	$	337,695	$	714,984	$	339,623	$	145	$	5,565,888
Consumer
Residential Mortgage
Pass		$	104,228	$	820,761	$	1,291,098	$	1,018,872	$	316,122	$	1,137,671	$	-	$	-	$	4,688,752
Classified			-		-		-		-		324		2,222		-		-		2,546
Total Residential Mortgage		$	104,228	$	820,761	$	1,291,098	$	1,018,872	$	316,446	$	1,139,893	$	-	$	-	$	4,691,298
Home Equity
Pass		$	-	$	-	$	-	$	-	$	-	$	878	$	2,220,133	$	37,024	$	2,258,035
Classified			-		-		-		-		-		25		681		1,260		1,966
Total Home Equity		$	-	$	-	$	-	$	-	$	-	$	903	$	2,220,814	$	38,284	$	2,260,001
Automobile
Pass		$	90,387	$	376,242	$	197,708	$	89,894	$	73,066	$	50,084	$	-	$	-	$	877,381
Classified			-		203		122		60		100		113		-		-		598
Total Automobile		$	90,387	$	376,445	$	197,830	$	89,954	$	73,166	$	50,197	$	-	$	-	$	877,979
Other1
Pass		$	36,431	$	174,242	$	115,748	$	26,317	$	32,554	$	20,226	$	22,265	$	940	$	428,723
Classified			-		68		142		31		174		142		57		19		633
Total Other		$	36,431	$	174,310	$	115,890	$	26,348	$	32,728	$	20,368	$	22,322	$	959	$	429,356
Total Consumer		$	231,046	$	1,371,516	$	1,604,818	$	1,135,174	$	422,340	$	1,211,361	$	2,243,136	$	39,243	$	8,258,634
Total Loans and Leases		$	916,734	$	3,011,086	$	2,728,758	$	1,859,417	$	760,035	$	1,926,345	$	2,582,759	$	39,388	$	13,824,522

Term Loans by Origination Year

(dollars in thousands)

2022

2021

2020

2019

2018

Prior

Revolving
Loans

Revolving
Loans
Converted
to Term
Loans

Total Loans
and Leases

September 30, 2022

Commercial

Commercial and Industrial

Pass

$
274,968

$
382,203

$
240,451

$
71,445

$
49,597

$
76,600

$
234,231

$
212

$
1,329,707

Special Mention

287

-

-

-

111

94

18,087

-

18,579

Classified

-

9,482

1,064

-

1,686

6,378

2,045

25

20,680

Total Commercial and
   Industrial

$
275,255

$
391,685

$
241,515

$
71,445

$
51,394

$
83,072

$
254,363

$
237

$
1,368,966

Paycheck Protection Program

Pass

$
-

$
7,410

$
15,545

$
-

$
-

$
-

$
-

$
-

$
22,955

Total Paycheck Protection Program

$
-

$
7,410

$
15,545

$
-

$
-

$
-

$
-

$
-

$
22,955

Commercial Mortgage

Pass

$
943,746

$
824,641

$
711,566

$
285,509

$
133,164

$
513,977

$
58,187

$
-

$
3,470,790

Special Mention

29,854

37,949

31,175

-

1,493

-

-

-

100,471

Classified

690

3,172

7,264

628

-

8,928

-

-

20,682

Total Commercial
   Mortgage

$
974,290

$
865,762

$
750,005

$
286,137

$
134,657

$
522,905

$
58,187

$
-

$
3,591,943

Construction

Pass

$
51,288

$
65,884

$
94,072

$
16,957

$
-

$
594

$
7,703

$
-

$
236,498

Total Construction

$
51,288

$
65,884

$
94,072

$
16,957

$
-

$
594

$
7,703

$
-

$
236,498

Lease Financing

Pass

$
12,892

$
18,675

$
12,879

$
10,876

$
8,225

$
10,442

$
-

$
-

$
73,989

Total Lease
Financing

$
12,892

$
18,675

$
12,879

$
10,876

$
8,225

$
10,442

$
-

$
-

$
73,989

Total Commercial

$
1,313,725

$
1,349,416

$
1,114,016

$
385,415

$
194,276

$
617,013

$
320,253

$
237

$
5,294,351

Consumer

Residential Mortgage

Pass

$
694,780

$
1,319,910

$
1,048,413

$
325,127

$
142,493

$
1,055,000

$
-

$
-

$
4,585,723

Total Residential
   Mortgage

$
694,780

$
1,319,910

$
1,048,413

$
325,127

$
142,493

$
1,055,000

$
-

$
-

$
4,585,723

Home Equity

Pass

$
-

$
-

$
-

$
-

$
-

$
985

$
2,146,118

$
33,833

$
2,180,936

Classified

-

-

-

-

-

189

2,477

1,882

4,548

Total Home Equity

$
-

$
-

$
-

$
-

$
-

$
1,174

$
2,148,595

$
35,715

$
2,185,484

Automobile

Pass

$
299,115

$
234,767

$
111,893

$
95,422

$
54,835

$
24,140

$
-

$
-

$
820,172

Classified

58

131

54

75

77

73

-

-

468

Total Automobile

$
299,173

$
234,898

$
111,947

$
95,497

$
54,912

$
24,213

$
-

$
-

$
820,640

Other¹

Pass

$
153,897

$
135,469

$
36,000

$
50,763

$
21,507

$
12,860

$
23,277

$
1,121

$
434,894

Classified

15

177

16

160

82

33

20

11

514

Total Other

$
153,912

$
135,646

$
36,016

$
50,923

$
21,589

$
12,893

$
23,297

$
1,132

$
435,408

Total Consumer

$
1,147,865

$
1,690,454

$
1,196,376

$
471,547

$
218,994

$
1,093,280

$
2,171,892

$
36,847

$
8,027,255

Total Loans and Leases

$
2,461,590

$
3,039,870

$
2,310,392

$
856,962

$
413,270

$
1,710,293

$
2,492,145

$
37,084

$
13,321,606

1.

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

Loans reported as Special Mention or Classified in the 2023 column represent renewal of loans that originated in an earlier period.

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

For the ~~nine~~three months ended ~~September 30, 2022, $4.2~~March 31, 2023, $2.1 million revolving loans were converted to term loans.

Table of Contents

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, ~~2021.~~2022.


		Term Loans by Origination Year
(dollars in thousands)	2022			2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total Loans and Leases
December 31, 2022
Commercial
Commercial and Industrial
Pass		$	360,748	$	348,300	$	224,264	$	59,127	$	46,799	$	71,906	$	257,349	$	155	$	1,368,648
Special Mention			273		-		-		-		96		92		1,357		-		1,818
Classified			7,295		91		1,030		-		1,644		6,267		2,252		21		18,600
Total Commercial and Industrial		$	368,316	$	348,391	$	225,294	$	59,127	$	48,539	$	78,265	$	260,958	$	176	$	1,389,066
Paycheck Protection Program
Pass		$	-	$	5,359	$	14,220	$	-	$	-	$	-	$	-	$	-	$	19,579
Total Paycheck Protection Program		$	-	$	5,359	$	14,220	$	-	$	-	$	-	$	-	$	-	$	19,579
Commercial Mortgage
Pass		$	1,182,831	$	771,375	$	691,054	$	283,553	$	131,055	$	494,924	$	48,771	$	-	$	3,603,563
Special Mention			29,707		37,657		28,105		-		1,482		5,014		-		-		101,965
Classified			182		1,964		8,545		624		-		8,699		-		-		20,014
Total Commercial Mortgage		$	1,212,720	$	810,996	$	727,704	$	284,177	$	132,537	$	508,637	$	48,771	$	-	$	3,725,542
Construction
Pass		$	124,507	$	69,992	$	37,133	$	16,838	$	-	$	297	$	12,058	$	-	$	260,825
Special Mention			-		-		-		-		-		-		-		-		-
Total Construction		$	124,507	$	69,992	$	37,133	$	16,838	$	-	$	297	$	12,058	$	-	$	260,825
Lease Financing
Pass		$	16,959	$	17,823	$	11,408	$	9,768	$	6,379	$	6,444	$	-	$	-	$	68,781
Classified			-		-		-		-		710		-		-		-		710
Total Lease Financing		$	16,959	$	17,823	$	11,408	$	9,768	$	7,089	$	6,444	$	-	$	-	$	69,491
Total Commercial		$	1,722,502	$	1,252,561	$	1,015,759	$	369,910	$	188,165	$	593,643	$	321,787	$	176	$	5,464,503
Consumer
Residential Mortgage
Pass		$	827,909	$	1,304,831	$	1,035,285	$	321,208	$	138,214	$	1,023,841	$	-	$	-	$	4,651,288
Classified			-		-		-		-		552		1,232		-		-		1,784
Total Residential Mortgage		$	827,909	$	1,304,831	$	1,035,285	$	321,208	$	138,766	$	1,025,073	$	-	$	-	$	4,653,072
Home Equity
Pass		$	-	$	-	$	-	$	-	$	-	$	890	$	2,186,598	$	36,114	$	2,223,602
Classified			-		-		-		-		-		25		1,105		1,218		2,348
Total Home Equity		$	-	$	-	$	-	$	-	$	-	$	915	$	2,187,703	$	37,332	$	2,225,950
Automobile
Pass		$	405,440	$	216,039	$	100,608	$	84,052	$	45,301	$	18,366	$	-	$	-	$	869,806
Classified			121		260		23		43		92		51		-		-		590
Total Automobile		$	405,561	$	216,299	$	100,631	$	84,095	$	45,393	$	18,417	$	-	$	-	$	870,396
Other1
Pass		$	185,347	$	124,759	$	31,343	$	39,902	$	16,364	$	9,853	$	23,228	$	1,020	$	431,816
Classified			117		114		70		148		129		24		59		22		683
Total Other		$	185,464	$	124,873	$	31,413	$	40,050	$	16,493	$	9,877	$	23,287	$	1,042	$	432,499
Total Consumer		$	1,418,934	$	1,646,003	$	1,167,329	$	445,353	$	200,652	$	1,054,282	$	2,210,990	$	38,374	$	8,181,917
Total Loans and Leases		$	3,141,436	$	2,898,564	$	2,183,088	$	815,263	$	388,817	$	1,647,925	$	2,532,777	$	38,550	$	13,646,420

Term Loans by Origination Year

(dollars in thousands)
2021

2020

2019

2018

2017

Prior

Revolving
Loans

Revolving
Loans
Converted
to Term
Loans

Total Loans
and Leases

December 31, 2021

Commercial

Commercial and Industrial

Pass

$
455,984

$
301,646

$
79,826

$
68,026

$
27,246

$
75,321

$
256,240

$
471

$
1,264,760

Special Mention

1,966

32,667

-

-

-

101

27,031

-

61,765

Classified

10,851

1,919

87

1,990

505

17,481

2,509

54

35,396

Total Commercial and
   Industrial

$
468,801

$
336,232

$
79,913

$
70,016

$
27,751

$
92,903

$
285,780

$
525

$
1,361,921

Paycheck Protection Program

Pass

$
86,484

$
40,295

$
-

$
-

$
-

$
-

$
-

$
-

$
126,779

Total Paycheck Protection Program

$
86,484

$
40,295

$
-

$
-

$
-

$
-

$
-

$
-

$
126,779

Commercial Mortgage

Pass

$
958,719

$
736,155

$
338,160

$
261,991

$
178,436

$
459,337

$
53,386

$
-

$
2,986,184

Special Mention

68,768

39,773

-

30,000

-

6,069

-

-

144,610

Classified

3,740

7,815

640

-

-

9,141

-

-

21,336

Total Commercial
   Mortgage

$
1,031,227

$
783,743

$
338,800

$
291,991

$
178,436

$
474,547

$
53,386

$
-

$
3,152,130

Construction

Pass

$
67,069

$
94,878

$
40,051

$
-

$
596

$
-

$
17,660

$
-

$
220,254

Special Mention

-

-

-

-

-

-

-

-

-

Total Construction

$
67,069

$
94,878

$
40,051

$
-

$
596

$
-

$
17,660

$
-

$
220,254

Lease Financing

Pass

$
21,637

$
15,075

$
15,697

$
9,902

$
2,004

$
39,937

$
-

$
-

$
104,252

Classified

-

-

-

856

-

-

-

-

856

Total Lease
Financing

$
21,637

$
15,075

$
15,697

$
10,758

$
2,004

$
39,937

$
-

$
-

$
105,108

Total Commercial

$
1,675,218

$
1,270,223

$
474,461

$
372,765

$
208,787

$
607,387

$
356,826

$
525

$
4,966,192

Consumer

Residential Mortgage¹

Pass

$
1,392,337

$
1,131,330

$
367,525

$
177,215

$
256,825

$
982,759

$
-

$
-

$
4,307,991

Classified

-

-

294

-

905

412

-

-

1,611

Total Residential
   Mortgage

$
1,392,337

$
1,131,330

$
367,819

$
177,215

$
257,730

$
983,171

$
-

$
-

$
4,309,602

Home Equity ¹

Pass

$
-

$
-

$
-

$
-

$
-

$
2,986

$
1,795,107

$
35,427

$
1,833,520

Classified

-

-

-

-

-

58

2,649

361

3,068

Total Home Equity

$
-

$
-

$
-

$
-

$
-

$
3,044

$
1,797,756

$
35,788

$
1,836,588

Automobile

Pass

$
301,285

$
152,022

$
138,887

$
91,411

$
33,268

$
18,963

$
-

$
-

$
735,836

Classified

165

85

134

137

120

88

-

-

729

Total Automobile

$
301,450

$
152,107

$
139,021

$
91,548

$
33,388

$
19,051

$
-

$
-

$
736,565

Other ²

Pass

$
172,735

$
49,769

$
92,983

$
44,489

$
16,218

$
6,444

$
25,622

$
1,444

$
409,704

Classified

39

90

183

47

27

17

22

-

425

Total Other

$
172,774

$
49,859

$
93,166

$
44,536

$
16,245

$
6,461

$
25,644

$
1,444

$
410,129

Total Consumer

$
1,866,561

$
1,333,296

$
600,006

$
313,299

$
307,363

$
1,011,727

$
1,823,400

$
37,232

$
7,292,884

Total Loans and Leases

$
3,541,779

$
2,603,519

$
1,074,467

$
686,064

$
516,150

$
1,619,114

$
2,180,226

$
37,757

$
12,259,076

1.

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

¹	~~Certain prior period information has been reclassified to conform to current presentations.~~

²	~~Comprised of other revolving credit, installment, and lease financing.~~

For the year ended December 31, ~~2021, $4.1~~2022, $6.2 million revolving loans were converted to term loans.

Table of Contents

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 ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021.~~

2022.

(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 September 30, 2022

Commercial

Commercial and Industrial

$
132

$
75

$
—

$
49

$
256

$
1,368,710

$
1,368,966

$
49

Paycheck Protection Program

—

—

—

—

—

22,955

22,955

—

Commercial Mortgage

—

—

—

3,396

3,396

3,588,547

3,591,943

3,396

Construction

—

—

—

—

—

236,498

236,498

—

Lease Financing

—

—

—

—

—

73,989

73,989

—

Total Commercial

132

75

—

3,445

3,652

5,290,699

5,294,351

3,445

Consumer

Residential Mortgage

1,693

888

3,279

4,945

10,805

4,574,918

4,585,723

878

Home Equity

1,772

643

1,061

4,438

7,914

2,177,570

2,185,484

896

Automobile

9,498

1,374

467

—

11,339

809,301

820,640

—

Other ¹

1,829

775

513

—

3,117

432,291

435,408

—

Total Consumer

14,792

3,680

5,320

9,383

33,175

7,994,080

8,027,255

1,774

Total

$
14,924

$
3,755

$
5,320

$
12,828

$
36,827

$
13,284,779

$
13,321,606

$
5,219

As of December 31, 2021

Commercial

Commercial and Industrial

$
2,006

$
14

$
—

$
243

$
2,263

$
1,359,658

$
1,361,921

$
151

Paycheck Protection Program

—

—

—

—

—

126,779

126,779

—

Commercial Mortgage

—

—

—

8,205

8,205

3,143,925

3,152,130

8,205

Construction

—

—

—

—

—

220,254

220,254

—

Lease Financing

—

—

—

—

—

105,108

105,108

—

Total Commercial

2,006

14

—

8,448

10,468

4,955,724

4,966,192

8,356

Consumer

Residential Mortgage

2,046

1,263

3,159

3,305

9,773

4,299,829

4,309,602

—

Home Equity

1,791

748

3,456

4,881

10,876

1,825,712

1,836,588

1,544

Automobile

7,804

1,495

729

—

10,028

726,537

736,565

—

Other ¹

2,686

904

426

—

4,016

406,113

410,129

—

Total Consumer

14,327

4,410

7,770

8,186

34,693

7,258,191

7,292,884

1,544

Total

$
16,333

$
4,424

$
7,770

$
16,634

$
45,161

$
12,213,915

$
12,259,076

$
9,900


(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 March 31, 2023
Commercial
Commercial and Industrial	$	1,689	$	77	$	—	$	31	$	1,797	$	1,424,119	$	1,425,916	$	19
Paycheck Protection Program		—		—		—		—		—		15,175		15,175		—
Commercial Mortgage		304		—		—		3,216		3,520		3,822,763		3,826,283		3,216
Construction		—		—		—		—		—		232,903		232,903		—
Lease Financing		—		—		—		—		—		65,611		65,611		—
Total Commercial		1,993		77		—		3,247		5,317		5,560,571		5,565,888		3,235
Consumer
Residential Mortgage		2,595		790		4,566		4,199		12,150		4,679,148		4,691,298		1,958
Home Equity		2,603		974		1,723		3,638		8,938		2,251,063		2,260,001		143
Automobile		10,762		1,411		598		—		12,771		865,208		877,979		—
Other 1		1,966		893		632		—		3,491		425,865		429,356		—
Total Consumer		17,926		4,068		7,519		7,837		37,350		8,221,284		8,258,634		2,101
Total	$	19,919	$	4,145	$	7,519	$	11,084	$	42,667	$	13,781,855	$	13,824,522	$	5,336

As of December 31, 2022
Commercial
Commercial and Industrial	$	252	$	9	$	—	$	37	$	298	$	1,388,768	$	1,389,066	$	37
Paycheck Protection Program		—		—		—		—		—		19,579		19,579
Commercial Mortgage		—		—		—		3,309		3,309		3,722,233		3,725,542		3,309
Construction		—		—		—		—		—		260,825		260,825		—
Lease Financing		—		—		—		—		—		69,491		69,491		—
Total Commercial		252		9		—		3,346		3,607		5,460,896		5,464,503		3,346
Consumer
Residential Mortgage		3,016		721		2,429		4,239		10,405		4,642,667		4,653,072		1,729
Home Equity		1,639		960		1,673		4,022		8,294		2,217,656		2,225,950		664
Automobile		13,293		1,988		589		—		15,870		854,526		870,396		—
Other 1		2,318		1,302		683		—		4,303		428,196		432,499		—
Total Consumer		20,266		4,971		5,374		8,261		38,872		8,143,045		8,181,917		2,393
Total	$	20,518	$	4,980	$	5,374	$	11,607	$	42,479	$	13,603,941	$	13,646,420	$	5,739

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

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

¹16	~~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.~~

Table of Contents

Non-Accrual Loans and Leases

The following presents the non-accrual loans and leases as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021.~~2022.


	September 30, 2022						December 31, 2021						March 31, 2023						December 31, 2022
(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		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	$	49	$	—	$	49	$	243	$	—	$	243	$	31	$	—	$	31	$	37	$	—	$	37
Commercial Mortgage		—		3,396		3,396		4,661		3,544		8,205		—		3,216		3,216		—		3,309		3,309
Total Commercial		49		3,396		3,445		4,904		3,544		8,448		31		3,216		3,247		37		3,309		3,346
Consumer
Residential Mortgage		4,869		76		4,945		2,959		346		3,305		4,199		—		4,199		4,239		—		4,239
Home Equity		4,438		—		4,438		4,881		—		4,881		3,638		—		3,638		4,022		—		4,022
Total Consumer		9,307		76		9,383		7,840		346		8,186		7,837		—		7,837		8,261		—		8,261
Total	$	9,356	$	3,472	$	12,828	$	12,744	$	3,890	$	16,634	$	7,868	$	3,216	$	11,084	$	8,298	$	3,309	$	11,607

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.

Loan Modifications to Borrowers Experiencing Financial Difficulty

~~A modification of a loan constitutes a~~In January 2023, the Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”), which eliminated the accounting guidance for troubled debt ~~restructuring~~restructurings (“~~TDR”~~TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. This guidance was applied on a prospective basis. Upon adoption of this guidance, the Company no longer establishes a specific reserve for ~~economic or legal reasons related~~modifications to borrowers experiencing financial difficulty. Instead, these modifications are included in their respective cohort and a ~~borrower’s financial difficulties, grants a concession~~historical loss rate is applied to the borrower that it would not otherwise consider. Loans modified in a TDR were $48.3 million as of September 30, 2022, and $70.0 million as of December 31, 2021. There were $0.1 million and $0.2 million commitmentscurrent loan balance to ~~lend additional funds on loans modified in a TDR as of September 30, 2022, and December 31, 2021, respectively.~~

Loans modified in a TDR may be 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 reducing the specific Allowance associated with the loan because the potential loss has been recognized. 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 discountedarrive at the ~~loan’s effective~~quantitative baseline portion of the Allowance.

Modifications to borrowers experiencing financial difficulty may include interest rate ~~the loan’s observable market price,~~reductions, principal or ~~the estimated fair value~~interest forgiveness, forbearances, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of ~~the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates.~~

collateral. The following ~~presents~~illustrates the most common loan modifications by ~~class, information related~~loan classes offered by the Company that are required to ~~loans modified in a TDR during~~be disclosed pursuant to the ~~three and nine months ended September 30, 2022, and September 30, 2021.~~requirements of ASU 2022-02:

Loans Modified as a TDR for the
Three Months Ended September 30, 2022

Loans Modified as a TDR for the
Three Months Ended September 30, 2021

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

1

$
213

$
16

2

$
153

$
2

Total Commercial

1

213

16

2

153

2

Consumer

Residential Mortgage

—

—

—

2

796

21

Home Equity

1

197

—

2

779

46

Automobile

40

793

11

71

1,632

22

Other ²

10

57

2

51

439

16

Total Consumer

51

1,047

13

126

3,646

105

Total

52

$
1,260

$
29

128

$
3,799

$
107


Loan Classes	Modification Types
Commercial:	Term extension, interest rate reductions, payment delay, or combination thereof. These modifications extend the term of the loan, lower the payment amount, or otherwise delay payments during a defined period for the purpose of providing borrowers additional time to return to compliance with the original loan term.
Residential Mortgage/ Home Equity:	Forbearance period greater than six months. These modifications require reduced or no payments during the forbearance period for the purpose of providing borrowers additional time to return to compliance with the original loan term.
Residential Mortgage/ Home Equity:	Term extension and rate adjustment. These modifications extend the term of the loan and provides for an adjustment to the interest rate, which reduces the monthly payment requirement.
Automobile/ Direct Installment:	Term extension greater than three months. These modifications extend the term of the loan, which reduces the monthly payment requirement.

Table of Contents

Loans Modified as a TDR for the
Nine Months Ended September 30, 2022

Loans Modified as a TDR for the
Nine Months Ended September 30, 2021

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

1

$
213

$
16

7

$
258

$
4

Total Commercial

1

213

16

7

258

4

Consumer

Residential Mortgage

5

1,205

71

14

5,785

584

Home Equity

3

282

5

9

1,488

80

Automobile ²

93

1,807

24

331

6,902

95

Other ^2,3

39

254

9

144

1,321

48

Total Consumer

140

3,548

109

498

15,496

807

Total

141

$
3,761

$
125

505

$
15,754

$
811

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 table presents ~~by class, all loans modified in a TDR that defaulted~~the amortized cost basis of loan modifications made to borrowers experiencing financial difficulty during the ~~three~~quarter ended March 31, 2023.


	As of March 31, 2023
							%
			Payment				of
			Delay				Total
			and				Class of
	Term		Term				Loans and
(dollars in thousands)	Extension		Extension		Total		Leases
Commercial
Commercial and Industrial	$	—	$	7,091	$	7,091		0.50	%
Total Commercial		—		7,091		7,091		0.13	%
Consumer
Residential Mortgage		137		—		137		0.00	%
Home Equity		141		—		141		0.01	%
Automobile		1,815		—		1,815		0.21	%
Other1		175		—		175		0.04	%
Total Consumer		2,268		—		2,268		0.03	%
Total Loans and Leases	$	2,268	$	7,091	$	9,359		0.07	%

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

The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the quarter ended ~~September 30, 2022,~~March 31, 2023.


	As of March 31, 2023
	Weighted-Average		Weighted-Average
	Months of		Payment
(dollars in thousands)	Term Extension		Deferral
Commercial
Commercial and Industrial		6	$	1,159
Consumer
Residential Mortgage		58		—
Home Equity		64		—
Automobile		23		—
Other1		23		—

1Comprised of other revolving credit, installment and ~~September 30, 2021, and within twelve months~~lease financing.

There were no loan modifications made to borrowers experiencing financial difficulty during the quarter ended March 31, 2023, that subsequently defaulted.

The following table presents the aging analysis of ~~their modification date. A TDR is considered~~loan modifications made to ~~be in default once it becomes 60 days or more past due following a modification.~~borrowers experiencing financial difficulty during the quarter ended March 31, 2023.

Three Months Ended September 30, 2022

Three Months Ended September 30, 2021

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

5

$
61

8

$
157

Other ²

4

27

5

27

Total Consumer

9

88

13

184

Total

9

$
88

13

$
184

Nine Months Ended September 30, 2022

Nine Months Ended September 30, 2021

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

$
181

1

$
528

Home Equity

1

65

—

—

Automobile

14

228

12

213

Other ²

13

92

12

112

Total Consumer

29

566

25

853

Total

29

$
566

25

$
853

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 changed by additional increases, adjustments, or partial charge-offs to further write-down the carrying value of the loan.

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	As of March 31, 2023
(dollars in thousands)	Current		30 - 59 Days Past Due		60 - 89 Days Past Due		Past Due 90 Days or More		Non- Accrual		Total
Commercial
Commercial and Industrial	$	7,091	$	—	$	—	$	—	$	—	$	7,091
Total Commercial		7,091		—		—		—		—		7,091
Consumer
Residential Mortgage		—		—		—		—		137		137
Home Equity		141		—		—		—		—		141
Automobile		1,815		—		—		—		—		1,815
Other1		175		—		—		—		—		175
Total Consumer		2,131		—		—		—		137		2,268
Total Loans and Leases		9,222	$	—	$	—	$	—	$	137	$	9,359

~~In accordance with Section 4013~~1 Comprised of ~~the CARES Act and the joint agency statement issued by banking agencies, certain qualified loan~~other revolving credit, installment and lease ~~modifications related to~~financing.

The following table presents by loan class and year of origination, the ~~COVID-19 pandemic are not accounted for as TDRs. There were no loan~~gross charge-offs recorded during the quarter ended March 31, 2023.


(dollars in thousands)	2023		2022		2021		2020		2019		Prior		Total Loans and Leases
As of March 31, 2023
Commercial
Commercial and Industrial	$	—	$	188	$	—	$	—	$	—	$	72	$	260
Total Commercial		—		188		—		—		—		72		260
Consumer
Home Equity		—		—		—		—		—		50		50
Automobile		—		314		507		228		191		423		1,663
Other1		—		821		565		120		395		435		2,336
Total Consumer		—		1,135		1,072		348		586		908		4,049
Total	$	—	$	1,323	$	1,072	$	348	$	586	$	980	$	4,309

1 Comprised of other revolving credit, installment and lease ~~modifications as of September 30, 2022, and $40.5 million (8 loans) for the commercial segment and $3.1 million (11 loans) for the consumer segment as of December 31, 2021.~~financing.

Foreclosure Proceedings

Consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure totaled ~~$6.6~~$3.9 million as of ~~September 30, 2022.~~March 31, 2023.

Note 5. Mortgage Servicing Rights

The Company’s portfolio of residential mortgage loans serviced for third parties was ~~$2.6~~$2.6 billion as of ~~September 30, 2022,~~March 31, 2023, and ~~$2.7~~$2.6 billion as of December 31, ~~2021.~~2022. Substantially all of these loans were originated by the Company and sold to third parties on a non-recourse basis with servicing rights retained. These retained servicing rights are recorded as a servicing asset and are initially recorded at fair value (see Note 13 Fair Value of Assets and Liabilities for more information). Changes to the balance of mortgage servicing rights are recorded in mortgage banking income in the Company’s consolidated statements of income.

The Company’s mortgage servicing activities include collecting principal, interest, and escrow payments from borrowers; making tax and insurance payments on behalf of borrowers; monitoring delinquencies and executing foreclosure proceedings; and accounting for and remitting principal and interest payments to investors. Servicing income, including late and ancillary fees, was ~~$1.5~~$1.4 million and ~~$1.6~~$1.5 million for the three months ended ~~September 30,~~March 31, 2023, and March 31, 2022, ~~and September 30, 2021, respectively, and $4.5 million and $4.8 million for the nine months ended September 30, 2022, and September 30, 2021,~~ respectively. Servicing income is recorded in mortgage banking income in the Company’s consolidated statements of income. The Company’s residential mortgage investor loan servicing portfolio is primarily comprised of fixed rate loans concentrated in Hawaii.

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For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023, and March 31, 2022, ~~and September 30, 2021,~~ the change in the carrying value of the Company’s mortgage servicing rights accounted for under the fair value measurement method was as follows:


	Three Months Ended March 31,
(dollars in thousands)	2023			2022
Balance at Beginning of Period	$	717		$	800
Change in Fair Value Due to Payoffs		(10	)		(19	)
Balance at End of Period	$	707		$	781

Three Months Ended
September 30,

Nine Months Ended
September 30,

(dollars in thousands)

2022

2021

2022

2021

Balance at Beginning of Period

$
747

$
875

$
800

$
958

Change in Fair Value Due to Payoffs

(15
)

(49
)

(68
)

(132
)
Balance at End of Period

$
732

$
826

$
732

$
826


	Three Months Ended March 31,
(dollars in thousands)	2023			2022
Balance at Beginning of Period	$	21,902		$	21,451
Servicing Rights that Resulted From Asset Transfers		65			751
Amortization		(572	)		(844	)
Valuation Allowance Recovery (Provision)		—			1,829
Balance at End of Period	$	21,395		$	23,187

Valuation Allowance:
Balance at Beginning of Period	$	—		$	(1,829	)
Valuation Allowance Recovery (Provision)		—			1,829
Balance at End of Period	$	—		$	—
Fair Value of Mortgage Servicing Rights Accounted for Under the Amortization Method
Beginning of Period	$	27,323		$	21,451
End of Period	$	26,456		$	26,088

Three Months Ended
September 30,

Nine Months Ended
September 30,

(dollars in thousands)

2022

2021

2022

2021

Balance at Beginning of Period

$
22,793

$
20,598

$
21,451

$
18,694

Servicing Rights that Resulted From Asset Transfers

160

1,082

1,115

4,022

Amortization

(581
)

(1,069
)

(2,023
)

(3,228
)
Valuation Allowance Recovery (Provision)

—

662

1,829

1,785

Balance at End of Period

$
22,372

$
21,273

$
22,372

$
21,273

Valuation Allowance:

Balance at Beginning of Period

$
—

$
(2,769
)

$
(1,829
)

$
(3,892
)
Valuation Allowance Recovery (Provision)

—

662

1,829

1,785

Balance at End of Period

$
—

$
(2,107
)

$
—

$
(2,107
)
Fair Value of Mortgage Servicing Rights Accounted for
Under the Amortization Method

Beginning of Period

$
28,314

$
20,598

$
21,451

$
18,694

End of Period

$
27,678

$
21,273

$
27,678

$
21,273

~~Table of Contents~~

The key data and assumptions used in estimating the fair value of the Company’s mortgage servicing rights as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, were as follows:


	March 31, 2023			December 31, 2022
Weighted-Average Constant Prepayment Rate 1		4.35	%		4.02	%
Weighted-Average Life (in years)		9.36			9.64
Weighted-Average Note Rate		3.61	%		3.60	%
Weighted-Average Discount Rate 2		9.84	%		9.93	%

September 30,
2022

December 31,
2021

Weighted-Average Constant Prepayment Rate ¹

4.11
%

10.70
%
Weighted-Average Life (in years)

9.62

6.18

Weighted-Average Note Rate

3.59
%

3.62
%
Weighted-Average Discount Rate ²

10.01
%

7.04
%
1.

Represents annualized loan prepayment rate assumption.

Derived from multiple interest rate scenarios that incorporate a spread to a market yield curve and market volatilities.

~~Represents annualized loan prepayment rate assumption.~~

²	~~Derived from multiple interest rate scenarios that incorporate a spread to a market yield curve and market volatilities.~~

A sensitivity analysis of the Company’s fair value of mortgage servicing rights to changes in certain key assumptions as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, is presented in the following table.


(dollars in thousands)	September 30, 2022			December 31, 2021			March 31, 2023			December 31, 2022
Constant Prepayment Rate
Decrease in fair value from 25 basis points (“bps”) adverse change	$	(348	)	$	(252	)	$	(334	)	$	(346	)
Decrease in fair value from 50 bps adverse change		(690	)		(498	)		(662	)		(686	)
Discount Rate
Decrease in fair value from 25 bps adverse change		(319	)		(223	)		(304	)		(316	)
Decrease in fair value from 50 bps adverse change		(631	)		(441	)		(602	)		(626	)

This analysis generally cannot be extrapolated because the relationship of a change in one key assumption to the change in the fair value of the Company’s mortgage servicing rights usually is not linear. Also, the effect of changing one key assumption without changing other assumptions is not realistic.

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Note 6. Affordable Housing Projects Tax Credit Partnerships

The Company makes equity investments in various limited partnerships or limited liability companies that sponsor affordable housing projects utilizing the Low Income Housing Tax Credit (“LIHTC”) pursuant to Section 42 of the Internal Revenue Code. The purpose of these investments is to achieve a satisfactory return on capital, to facilitate the sale of affordable housing product offerings, and to assist in achieving goals associated with the Community Reinvestment Act. The primary activities of these entities include the identification, development, and operation of multi-family housing that is leased to qualifying residential tenants. Generally, these types of investments are funded through a combination of debt and equity.

The Company is a limited partner or non-managing member in each LIHTC limited partnership or limited liability company, respectively. Each of these entities is managed by an unrelated third-party general partner or managing member who exercises significant control over the affairs of the entity. The general partner or managing member has all the rights, powers and authority granted or permitted to be granted to a general partner of a limited partnership or managing member of a limited liability company. Duties entrusted to the general partner or managing member include, but are not limited to: investment in operating companies, company expenditures, investment of excess funds, borrowing funds, employment of agents, disposition of fund property, prepayment and refinancing of liabilities, votes and consents, contract authority, disbursement of funds, accounting methods, tax elections, bank accounts, insurance, litigation, cash reserve, and use of working capital reserve funds. Except for limited rights granted to the limited partner(s) or non-managing member(s) relating to the approval of certain transactions, the limited partner(s) and non-managing member(s) may not participate in the operation, management, or control of the entity’s business, transact any business in the entity’s name or have any power to sign documents for or otherwise bind the entity. In addition, the general partner or managing member may only be removed by the limited partner(s) or managing member(s) in the event of a failure to comply with the terms of the agreement or negligence in performing its duties.

~~Table of Contents~~

The general partner or managing member of each entity has both the power to direct the activities which most significantly affect the performance of each entity and the obligation to absorb losses or the right to receive benefits that could be significant to the entities. Therefore, the Company has determined that it is not the primary beneficiary of any LIHTC entity. The Company uses the effective yield method to account for its pre-2015 investments in these entities. Beginning January 1, 2015, any new investments that meet the requirements of the proportional amortization method are recognized using the proportional amortization method. The Company’s net affordable housing tax credit investments including the related unfunded commitments were ~~$163.8~~$189.3 million and ~~$134.7~~$174.5 million as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, respectively, and are included in other assets in the consolidated statements of condition.

Unfunded Commitments

As of ~~September 30, 2022,~~March 31, 2023, the expected payments for unfunded affordable housing commitments were as follows:


(dollars in thousands)	Amount
2023	$	47,729
2024		24,731
2025		24,115
2026		156
2027		133
Thereafter		509
Total Unfunded Commitments	$	97,373

Table of Contents

(dollars in thousands)

Amount

2022

$
9,078

2023

38,624

2024

6,427

2025

16,448

2026

141

Thereafter

3,823

Total Unfunded Commitments

$
74,541

The following table presents tax credits and other tax benefits recognized and amortization expense related to affordable housing for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, and ~~September 30, 2021.~~March 31, 2022.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
(dollars in thousands)	2022		2021		2022		2021		2023		2022
Effective Yield Method
Tax credits and other tax benefits recognized	$	1,520	$	2,151	$	4,586	$	6,453
Tax Credits and Other Tax Benefits Recognized									$	1,457	$	2,730
Amortization Expense in Provision for Income Taxes		1,296		1,670		3,889		5,032		1,106		1,358
Proportional Amortization Method
Tax credits and other tax benefits recognized	$	3,802	$	2,708	$	11,381	$	8,178
Tax Credits and Other Tax Benefits Recognized									$	5,438	$	2,592
Amortization Expense in Provision for Income Taxes		3,331		2,332		9,860		7,043		4,940		3,203

There were no impairment losses related to LIHTC investments during the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, and ~~September 30, 2021.~~March 31, 2022.

Note 7. Securities Sold Under Agreements to Repurchase

The following table presents the remaining contractual maturities of the Company’s repurchase agreements as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, disaggregated by the class of collateral pledged.


	Remaining Contractual Maturity of Repurchase Agreements
(dollars in thousands)	Up to 90 days		91-365 days		1-3 Years		After 3 Years		Total
March 31, 2023
Class of Collateral Pledged:
Debt Securities Issued by States and Political Subdivisions	$	—	$	—	$	490	$	—	$	490
Mortgage-Backed Securities:
Residential - Government Agencies		—		—		26,386		—		26,386
Residential - U.S. Government-Sponsored Enterprises		—		—		398,614		300,000		698,614
Total	$	—	$	—	$	425,490	$	300,000	$	725,490
December 31, 2022
Class of Collateral Pledged:
Debt Securities Issued by States and Political Subdivisions	$	—	$	—	$	—	$	490	$	490
Mortgage-Backed Securities:
Residential - Government Agencies		—		—		28,673		—		28,673
Residential - U.S. Government-Sponsored Enterprises		—		—		396,327		300,000		696,327
Total	$	—	$	—	$	425,000	$	300,490	$	725,490

Table of Contents

Remaining Contractual Maturity of Repurchase Agreements

(dollars in thousands)

Up to
90 days

91-365
days

1-3 Years

After
3 Years

Total

September 30, 2022

Class of Collateral Pledged:

Debt Securities Issued by States and Political Subdivisions

$
—

$
—

$
490

$
—

$
490

Mortgage-Backed Securities:

Residential - Government Agencies

—

—

30,597

—

30,597

Residential - U.S. Government-Sponsored Enterprises

—

—

394,403

—

394,403

Total

$
—

$
—

$
425,490

$
—

$
425,490

December 31, 2021

Class of Collateral Pledged:

Debt Securities Issued by States and Political Subdivisions

$
—

$
—

$
—

$
490

$
490

Mortgage-Backed Securities: ¹

Residential - Government Agencies

—

—

38,685

13,407

52,092

Residential - U.S. Government-Sponsored Enterprises

—

—

236,315

161,593

397,908

Total

$
—

$
—

$
275,000

$
175,490

$
450,490

The following table presents the assets and liabilities subject to an enforceable master netting arrangement, or repurchase agreements as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021.~~2022. The swap agreements the Company has with our commercial banking customers are not subject to an enforceable master netting arrangement, and therefore, are excluded from this table. Centrally cleared swap agreements between the Company and institutional counterparties are also excluded from this table. See Note 11 Derivative Financial Instruments for more information on swap agreements.


	(i)		(ii)		(iii) = (i)-(ii)		(iv)				(v) = (iii)-(iv)
							Gross Amounts Not Offset in the Statements of Condition
(dollars in thousands)	Gross Amounts Recognized in the Statements of Condition		Gross Amounts Offset in the Statements of Condition		Net Amounts Presented in the Statements of Condition		Netting Adjustments per Master Netting Arrangements		Fair Value of Collateral Pledged/ Received 1		Net Amount
March 31, 2023
Assets:
Interest Rate Swap Agreements:
Institutional Counterparties	$	75,144	$	—	$	75,144	$	75,144	$	—	$	—

Liabilities:
Interest Rate Swap Agreements:
Institutional Counterparties		9,602		—	$	9,602		9,602		—		—
Repurchase Agreements:
Private Institutions		725,000		—		725,000		—		725,000		—
Government Entities		490		—		490		—		490		—
Total Repurchase Agreements	$	725,490	$	—	$	725,490	$	—	$	725,490	$	—
December 31, 2022
Assets:
Interest Rate Swap Agreements:
Institutional Counterparties	$	42,339	$	—	$	42,339	$	42,339	$	—	$	—
Liabilities:
Interest Rate Swap Agreements:
Institutional Counterparties		3,554		—		3,554		3,554		—		—
Repurchase Agreements:
Private Institutions		725,000		—		725,000		—		725,000		—
Government Entities		490		—		490		—		490		—
Total Repurchase Agreements	$	725,490	$	—	$	725,490	$	—	$	725,490	$	—

(i)

(ii)

(iii) = (i)-(ii)

(iv)

(v) = (iii)-(iv)

Gross Amounts Not Offset in
the Statements of Condition

(dollars in thousands)

Gross Amounts
Recognized in
the Statements
of Condition

Gross Amounts
Offset in
the Statements
of Condition

Net Amounts
Presented in
the Statements
of Condition

Netting
Adjustments
per Master
Netting
Arrangements

Fair Value
of Collateral
Pledged/
Received ¹

Net Amount

September 30, 2022

Assets:

Interest Rate Swap Agreements:

Institutional Counterparties

$
37,814

$
—

$
37,814

$
37,814

$
—

$
—

Liabilities:

Interest Rate Swap Agreements:

Institutional Counterparties

293

—

293

293

—

—

Repurchase Agreements:

Private Institutions

425,000

—

425,000

—

425,000

—

Government Entities

490

—

490

—

490

—

$
425,490

$
—

$
425,490

$
—

$
425,490

$
—

December 31, 2021

Assets:

Interest Rate Swap Agreements:

Institutional Counterparties

$
26

$
—

$
26

$
26

$
—

$
—

Liabilities:

Interest Rate Swap Agreements:

Institutional Counterparties

5,948

—

5,948

26

5,922

—

Repurchase Agreements:

Private Institutions

450,000

—

450,000

—

450,000

—

Government Entities

490

—

490

—

490

—

$
450,490

$
—

$
450,490

$
—

$
450,490

$
—

1.

The application of collateral cannot reduce the net amount below zero. Therefore, excess collateral is not reflected in this table. For interest rate swap agreements, the fair value of investment securities pledged was $35.6 million and $34.8 million as of March 31, 2023, and December 31, 2022, respectively. For repurchase agreements with private institutions, the fair value of investment securities pledged was $776.4 million and $755.9 million as of March 31, 2023, and December 31, 2022, respectively. For repurchase agreements with government entities, the fair value of investment securities pledged was $0.8 million as of March 31, 2023, and December 31, 2022.

¹23

The application of collateral cannot reduce the net amount below zero. Therefore, excess collateral is not reflected in this table. For interest rate swap agreements, the fair value of investment securities pledged was $34.4 million and $58.3 million as of September 30, 2022, and December 31, 2021, respectively. For repurchase agreements with private institutions, the fair value of investment securities pledged was $407.2 million and $523.4 million as of September 30, 2022, and December 31, 2021, respectively. For repurchase agreements with government entities, the fair value of investment securities pledged was $0.9 million and $1.3 million as of September 30, 2022, and December 31, 2021, respectively.

Table of Contents

Note 8. Accumulated Other Comprehensive Income (Loss)

The following table presents the components of other comprehensive income (loss) for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, and ~~September 30, 2021:~~March 31, 2022:


(dollars in thousands)	Before Tax			Tax Effect			Net of Tax
Three Months Ended March 31, 2023
Net Unrealized Gains (Losses) on Investment Securities:
Net Unrealized Gains (Losses) Arising During the Period	$	32,918		$	8,723		$	24,195
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) that (Increase) Decrease Net Income:
Amortization of Unrealized Holding (Gains) Losses on Held-to- Maturity Securities 1		6,913			1,832			5,081
Net Unrealized Gains (Losses) on Investment Securities		39,831			10,555			29,276
Defined Benefit Plans:
Amortization of Net Actuarial Losses (Gains)		175			47			128
Amortization of Prior Service Credit		(61	)		(17	)		(44	)
Defined Benefit Plans, Net		114			30			84
Other Comprehensive Income (Loss)	$	39,945		$	10,585		$	29,360

Three Months Ended March 31, 2022
Net Unrealized Gains (Losses) on Investment Securities:
Net Unrealized Gains (Losses) Arising During the Period	$	(245,147	)	$	(64,974	)	$	(180,173	)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) that (Increase) Decrease Net Income:
Amortization of Unrealized Holding (Gains) Losses on Held-to- Maturity Securities 1		67			18			49
Net Unrealized Gains (Losses) on Investment Securities		(245,080	)		(64,956	)		(180,124	)
Defined Benefit Plans:
Amortization of Net Actuarial Losses (Gains)		542			143			399
Amortization of Prior Service Credit		(62	)		(16	)		(46	)
Defined Benefit Plans, Net		480			127			353
Other Comprehensive Income (Loss)	$	(244,600	)	$	(64,829	)	$	(179,771	)

(dollars in thousands)

Before Tax

Tax Effect

Net of Tax

Three Months Ended September 30, 2022

Net Unrealized Gains (Losses) on Investment Securities:

Net Unrealized Gains (Losses) Arising During the Period

$
(111,338
)

$
(29,506
)

$
(81,832
)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)
   that (Increase) Decrease Net Income:

Amortization of Unrealized Holding (Gains) Losses on Held-to-
   Maturity Securities ¹

3,037

805

2,232

Net Unrealized Gains (Losses) on Investment Securities

(108,301
)

(28,701
)

(79,600
)
Defined Benefit Plans:

Amortization of Net Actuarial Losses (Gains)

542

143

399

Amortization of Prior Service Credit

(61
)

(16
)

(45
)
Defined Benefit Plans, Net

481

127

354

Other Comprehensive Income (Loss)

$
(107,820
)

$
(28,574
)

$
(79,246
)

Three Months Ended September 30, 2021

Net Unrealized Gains (Losses) on Investment Securities:

Net Unrealized Gains (Losses) Arising During the Period

$
(10,263
)

$
(2,719
)

$
(7,544
)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)
   that (Increase) Decrease Net Income:

(Gain) Loss on Sale

(83
)

(22
)

(61
)
Amortization of Unrealized Holding (Gains) Losses on Held-to-
   Maturity Securities ¹

87

23

64

Net Unrealized Gains (Losses) on Investment Securities

(10,259
)

(2,718
)

(7,541
)
Defined Benefit Plans:

Amortization of Net Actuarial Losses (Gains)

662

175

487

Amortization of Prior Service Credit

(62
)

(16
)

(46
)
Defined Benefit Plans, Net

600

159

441

Other Comprehensive Income (Loss)

$
(9,659
)

$
(2,559
)

$
(7,100
)

Nine Months Ended September 30, 2022

Net Unrealized Gains (Losses) on Investment Securities:

Net Unrealized Gains (Losses) Arising During the Period

$
(523,365
)

$
(138,715
)

$
(384,650
)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)
   that (Increase) Decrease Net Income:

Amortization of Unrealized Holding (Gains) Losses on Held-to-
   Maturity Securities ¹

3,100

821

2,279

Net Unrealized Gains (Losses) on Investment Securities

(520,265
)

(137,894
)

(382,371
)
Defined Benefit Plans:

Amortization of Net Actuarial Losses (Gains)

1,626

431

1,195

Amortization of Prior Service Credit

(184
)

(48
)

(136
)
Defined Benefit Plans, Net

1,442

383

1,059

Other Comprehensive Income (Loss)

$
(518,823
)

$
(137,511
)

$
(381,312
)

Nine Months Ended September 30, 2021

Net Unrealized Gains (Losses) on Investment Securities:

Net Unrealized Gains (Losses) Arising During the Period

$
(75,360
)

$
(19,954
)

$
(55,406
)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)
   that (Increase) Decrease Net Income:

(Gain) Loss on Sale

(3,758
)

(1,014
)

(2,744
)
Amortization of Unrealized Holding (Gains) Losses on Held-to-
   Maturity Securities ¹

593

157

436

Net Unrealized Gains (Losses) on Investment Securities

(78,525
)

(20,811
)

(57,714
)
Defined Benefit Plans:

Amortization of Net Actuarial Losses (Gains)

1,985

525

1,460

Amortization of Prior Service Credit

(185
)

(49
)

(136
)
Defined Benefit Plans, Net

1,800

476

1,324

Other Comprehensive Income (Loss)

$
(76,725
)

$
(20,335
)

$
(56,390
)
1

These amount relates to the amortization/accretion of unrealized net gains and losses related to the Company’s reclassification of available-for-sale investment securities to the held-to-maturity category. The unrealized net gains/losses will be amortized/accreted over the remaining life of the investment securities as an adjustment of yield.

The amount relates to the amortization/accretion of unrealized net gains and losses related to the Company’s reclassification of available-for-sale investment securities to the held-to-maturity category. The unrealized net gains/losses will be amortized/accreted over the remaining life of the investment securities as an adjustment of yield.

~~Table of Contents~~T

~~The~~he following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax, for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, and ~~September 30, 2021:~~March 31, 2022:


(dollars in thousands)	Investment Securities- Available- for-Sale			Investment Securities- Held-to-Maturity			Defined Benefit Plans			Accumulated Other Comprehensive Income (Loss)
Three Months Ended March 31, 2023
Balance at Beginning of Period	$	(240,783	)	$	(168,797	)	$	(25,078	)	$	(434,658	)
Other Comprehensive Income (Loss) Before Reclassifications		24,195			—			—			24,195
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)		—			5,081			84			5,165
Total Other Comprehensive Income (Loss)		24,195			5,081			84			29,360
Balance at End of Period	$	(216,588	)	$	(163,716	)	$	(24,994	)	$	(405,298	)

Three Months Ended March 31, 2022
Balance at Beginning of Period	$	(32,940	)	$	54		$	(33,496	)		(66,382	)
Other Comprehensive Income (Loss) Before Reclassifications		(180,173	)		—			—			(180,173	)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)		—			49			353			402
Total Other Comprehensive Income (Loss)		(180,173	)		49			353			(179,771	)
Balance at End of Period	$	(213,113	)	$	103		$	(33,143	)	$	(246,153	)

(dollars in thousands)

Investment
Securities-
Available-
for-Sale

Investment
Securities-
Held-to-Maturity

Defined Benefit
Plans

Accumulated
Other
Comprehensive
Income (Loss)

Three Months Ended September 30, 2022

Balance at Beginning of Period

$
(335,758
)

$
101

$
(32,791
)

$
(368,448
)
Other Comprehensive Income (Loss) Before Reclassifications

(81,832
)

—

—

(81,832
)
Unrealized Net Losses Related to the Transfer of Securities
   from Available-for-Sale to Held-to-Maturity

176,700

(176,700
)

—

—

Amounts Reclassified from Accumulated Other
   Comprehensive Income (Loss)

—

2,232

354

2,586

Total Other Comprehensive Income (Loss)

94,868

(174,468
)

354

(79,246
)
Balance at End of Period

$
(240,890
)

$
(174,367
)

$
(32,437
)

$
(447,694
)

Three Months Ended September 30, 2021

Balance at Beginning of Period

$
950

$
(51
)

$
(42,367
)

$
(41,468
)
Other Comprehensive Income (Loss) Before Reclassifications

(7,544
)

—

—

(7,544
)
Amounts Reclassified from Accumulated Other
   Comprehensive Income (Loss)

(61
)

64

441

444

Total Other Comprehensive Income (Loss)

(7,605
)

64

441

(7,100
)
Balance at End of Period

$
(6,655
)

$
13

$
(41,926
)

$
(48,568
)

Nine Months Ended September 30, 2022

Balance at Beginning of Period

$
(32,940
)

$
54

$
(33,496
)

$
(66,382
)
Other Comprehensive Income (Loss) Before Reclassifications

(384,650
)

—

—

(384,650
)
Unrealized Net Losses Related to the Transfer of Securities
   from Available-for-Sale to Held-to-Maturity

176,700

(176,700
)

—

—

Amounts Reclassified from Accumulated Other
   Comprehensive Income (Loss)

—

2,279

1,059

3,338

Total Other Comprehensive Income (Loss)

(207,950
)

(174,421
)

1,059

(381,312
)
Balance at End of Period

$
(240,890
)

$
(174,367
)

$
(32,437
)

$
(447,694
)

Nine Months Ended September 30, 2021

Balance at Beginning of Period

$
51,495

$
(423
)

$
(43,250
)

$
7,822

Other Comprehensive Income (Loss) Before Reclassifications

(55,406
)

—

—

(55,406
)
Amounts Reclassified from Accumulated Other
   Comprehensive Income (Loss)

(2,744
)

436

1,324

(984
)
Total Other Comprehensive Income (Loss)

(58,150
)

436

1,324

(56,390
)
Balance at End of Period

$
(6,655
)

$
13

$
(41,926
)

$
(48,568
)

Table of Contents

~~The~~The following table presents the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, and ~~September 30, 2021:~~

March 31, 2022:

Details about Accumulated Other
Comprehensive Income (Loss) Components

Amount Reclassified from Accumulated
Other Comprehensive Income (Loss)¹

Affected Line Item in the Statement
Where Net Income Is Presented

Three Months Ended September 30,

(dollars in thousands)

2022

2021

Amortization of Unrealized Holding Gains (Losses) on
Investment Securities Held-to-Maturity

$
(3,037
)

$
(87
)

Interest Income

805

23

Provision for Income Tax

(2,232
)

(64
)

Net of Tax
Sale of Investment Securities Available-for-Sale

—

83

Investment Securities Gains (Losses), Net

—

(22
)

Provision for Income Tax

—

61

Net of tax

Amortization of Defined Benefit Plan Items

Prior Service Credit ²

61

62

Net Actuarial Losses ²

(542
)

(662
)

(481
)

(600
)

Total Before Tax

127

159

Provision for Income Tax

(354
)

(441
)

Net of Tax

Total Reclassifications for the Period

$
(2,586
)

$
(444
)

Net of Tax

Details about Accumulated Other
Comprehensive Income (Loss) Components

Amount Reclassified from Accumulated
Other Comprehensive Income (Loss)¹

Affected Line Item in the Statement
Where Net Income Is Presented

Nine Months Ended September 30,

(dollars in thousands)

2022

2021

Amortization of Unrealized Holding Gains (Losses) on
Investment Securities Held-to-Maturity

$
(3,100
)

$
(593
)

Interest Income

821

157

Provision for Income Tax

(2,279
)

(436
)

Net of Tax
Sale of Investment Securities Available-for-Sale

—

3,758

Investment Securities Gains (Losses), Net

—

(1,014
)

Provision for Income Tax

—

2,744

Net of tax

Amortization of Defined Benefit Plan Items

Prior Service Credit ²

184

185

Net Actuarial Losses ²

(1,626
)

(1,985
)

(1,442
)

(1,800
)

Total Before Tax

383

476

Provision for Income Tax

(1,059
)

(1,324
)

Net of Tax

Total Reclassifications for the Period

$
(3,338
)

$
984

Net of Tax


Details about Accumulated Other Comprehensive Income (Loss) Components	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)1						Affected Line Item in the Statement Where Net Income Is Presented
	Three Months Ended March 31,
(dollars in thousands)	2023			2022
Amortization of Unrealized Holding Gains (Losses) on Investment Securities Held-to-Maturity	$	(6,913	)	$	(67	)	Interest Income
		1,832			18		Provision for Income Tax
		(5,081	)		(49	)	Net of Tax

Amortization of Defined Benefit Plan Items
Prior Service Credit 2		61			62
Net Actuarial Losses 2		(175	)		(542	)
		(114	)		(480	)	Total Before Tax
		30			127		Provision for Income Tax
		(84	)		(353	)	Net of Tax

Total Reclassifications for the Period	$	(5,165	)	$	(402	)	Net of Tax

¹	~~Amounts in parentheses indicate reductions to net income.~~

Amounts in parentheses indicate reductions to net income.

²	2. These accumulated other comprehensive income (loss) components are included in the computation ~~of net periodic benefit cost and are included in other noninterest expense on the consolidated statements of income.~~

~~Table~~ of ~~Contents~~

net periodic benefit cost and are included in other noninterest expense on the consolidated statements of income.

Note 9. Earnings Per Common Share

Earnings per common share is computed using the two-class method. The following is a reconciliation of the weighted average number of common shares used in the calculation of basic and diluted earnings per common share and antidilutive stock options and restricted stock outstanding for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, and ~~September 30, 2021:~~March 31, 2022:


	Three Months Ended March 31,
(dollars in thousands, except shares and per share amounts)	2023		2022
Numerator:
Net Income Available to Common Shareholders	$	44,873	$	52,865

Denominator:
Weighted Average Common Shares Outstanding - Basic		39,276,833		39,752,679
Dilutive Effect of Equity Based Awards		189,056		203,712
Weighted Average Common Shares Outstanding - Diluted		39,465,889		39,956,391

Earnings Per Common Share:
Basic	$	1.14	$	1.33
Diluted	$	1.14	$	1.32

Antidilutive Stock Options and Restricted Stock Outstanding		148,920		4,399

Three Months Ended
September 30,

Nine Months Ended
September 30,

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

2022

2021

2022

2021

Numerator:

Net Income Available to Common Shareholders

$
50,832

$
61,047

$
158,589

$
188,529

Denominator:

Weighted Average Common Shares Outstanding - Basic

39,567,047

39,881,437

39,670,409

39,870,450

Dilutive Effect of Equity Based Awards

191,162

199,482

178,386

218,449

Weighted Average Common Shares Outstanding - Diluted

39,758,209

40,080,919

39,848,795

40,088,899

Earnings Per Common Share:

Basic

$
1.28

$
1.53

$
4.00

$
4.73

Diluted

$
1.28

$
1.52

$
3.98

$
4.70

Antidilutive Stock Options and Restricted Stock Outstanding

—

47,087

—

44,217

Note 10. Business Segments

The Company’s business segments are defined as Consumer Banking, Commercial Banking, and Treasury and Other. The Company’s internal management accounting process measures the performance of these business segments. This process, which is not necessarily comparable with the process used by any other financial institution, uses various techniques to assign balance sheet and income statement amounts to the business segments, including allocations of income, expense, the provision for credit losses, and capital. This process is dynamic and requires certain allocations based on judgment and other subjective factors. Unlike financial accounting, there is no comprehensive authoritative guidance for management accounting that is equivalent to GAAP. Previously reported results have been reclassified to conform to the current reporting structure.

Table of Contents

The net interest income of the business segments reflects the results of a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics and reflects the allocation of net interest income related to the Company’s overall asset and liability management activities on a proportionate basis. The basis for the allocation of net interest income is a function of the Company’s assumptions that are subject to change based on changes in current interest rates and market conditions. Funds transfer pricing also serves to transfer interest rate risk to Treasury. However, the other business segments have some latitude to retain certain interest rate exposures related to customer pricing decisions within guidelines.

The provision for credit losses for the Consumer Banking and Commercial Banking business segments reflects the actual net charge-offs of those business segments. The amount of the consolidated provision for loan and lease losses is based on the methodology that ~~we use~~the Company used to estimate our consolidated Allowance. The residual provision for credit losses to arrive at the consolidated provision for credit losses is included in Treasury and Other.

Noninterest income and expense includes allocations from support units to business units. These allocations are based on actual usage where practicably calculated or by management’s estimate of such usage.

The provision for income taxes is allocated to business segments using a ~~26%~~26% effective income tax rate. However, the provision for income taxes for our Commercial Leasing ~~business unit~~portfolio (included in the Commercial Banking segment) and Auto Leasing portfolio and Pacific Century Life Insurance business unit (both included in the Consumer Banking segment) are assigned their actual effective income tax rates due to the unique relationship that income taxes have with their products. The residual income tax expense or benefit to arrive at the consolidated effective tax rate is included in Treasury and Other.

~~Table of Contents~~

Consumer Banking

Consumer Banking offers a broad range of financial products and services, including loan, deposit and insurance products; private banking and international client banking services; trust services; investment management; and institutional investment advisory services. Consumer Banking also provides a full service brokerage offering equities, mutual funds, life insurance, and annuity products. Loan and lease products include residential mortgage loans, home equity lines of credit, automobile loans and leases, personal lines of credit, installment loans, small business loans and leases, and credit cards. Deposit products include checking, savings, and time deposit accounts. Private banking and personal trust groups assist individuals and families in building and preserving their wealth by providing investment, credit, and trust services to high-net-worth individuals. The investment management group manages portfolios utilizing a variety of investment products. Also within Consumer Banking, institutional client services offer investment advice to corporations, government entities, and foundations. Products and services from Consumer Banking are delivered to customers through 51 branch locations and ~~316~~320 ATMs throughout Hawaii and the Pacific Islands, e-Bankoh ~~(on-line~~(online banking service), a customer service center, and a mobile banking service.

Commercial Banking

Commercial Banking offers products including corporate banking, commercial real estate loans, commercial lease financing, auto dealer financing, and deposit products. Commercial lending and deposit products are offered to middle-market and large companies in Hawaii and the Pacific Islands. In addition, Commercial Banking offers deposit products to government entities in Hawaii. Commercial real estate mortgages focus on customers that include investors, developers, and builders predominantly domiciled in Hawaii. Commercial Banking also includes international banking and provides merchant services to its customers.

Treasury and Other

Treasury consists of corporate asset and liability management activities, including interest rate risk management and a foreign currency exchange business. This segment’s assets and liabilities (and related interest income and expense) consist of interest-bearing deposits, investment securities, federal funds sold and purchased, and short and long-term borrowings. The primary sources of

Table of Contents

noninterest income are from bank-owned life insurance, net gains from the sale of investment securities, and foreign exchange income related to customer-driven currency requests from merchants and island visitors. The net residual effect of the transfer pricing of assets and liabilities is included in Treasury, along with the elimination of intercompany transactions.

Other organizational units (Technology, Operations, Marketing, ~~Customer Experience,~~ Human Resources, Finance, Credit and Risk Management, and Corporate and Regulatory Administration) provide a wide-range of support to the Company’s other income earning segments. Expenses incurred by these support units are charged to the business segments through an internal cost allocation process.

~~Table of Contents~~

Selected business segment financial information as of and for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023, and March 31, 2022, ~~and September 30, 2021,~~ were as follows:


(dollars in thousands)	Consumer Banking			Commercial Banking			Treasury and Other			Consolidated Total
Three Months Ended March 31, 2023
Net Interest Income	$	98,008		$	56,705		$	(18,758	)	$	135,955
Provision for Credit Losses		2,669			(1	)		(668	)		2,000
Net Interest Income (Loss) After Provision for Credit Losses		95,339			56,706			(18,090	)		133,955
Noninterest Income		31,154			8,649			934			40,737
Noninterest Expense		(85,073	)		(20,289	)		(6,557	)		(111,919	)
Income (Loss) Before Provision for Income Taxes		41,420			45,066			(23,713	)		62,773
Provision for Income Taxes		(10,623	)		(10,793	)		5,485			(15,931	)
Net Income (Loss)	$	30,797		$	34,273		$	(18,228	)	$	46,842
Total Assets as of March 31, 2023	$	8,654,243		$	5,625,254		$	9,652,480		$	23,931,977

Three Months Ended March 31, 2022 1
Net Interest Income	$	70,361		$	46,349		$	8,553		$	125,263
Provision for Credit Losses		1,683			(197	)		(6,986	)		(5,500	)
Net Interest Income After Provision for Credit Losses		68,678			46,546			15,539			130,763
Noninterest Income		31,969			10,198			1,384			43,551
Noninterest Expense		(81,810	)		(18,669	)		(3,395	)		(103,874	)
Income Before Provision for Income Taxes		18,837			38,075			13,528			70,440
Provision for Income Taxes		(4,714	)		(9,197	)		(1,695	)		(15,606	)
Net Income	$	14,123		$	28,878		$	11,833		$	54,834
Total Assets as of March 31, 2022 1	$	7,927,186		$	5,174,115		$	9,899,016		$	23,000,317
1 Certain prior period information has been reclassified to conform to current presentation.

(dollars in thousands)

Consumer
Banking

Commercial
Banking

Treasury
and Other

Consolidated
Total

Three Months Ended September 30, 2022

Net Interest Income

$
85,666

$
56,249

$
(260
)

$
141,655

Provision for Credit Losses

1,148

(1
)

(1,147
)

—

Net Interest Income After Provision for Credit Losses

84,518

56,250

887

141,655

Noninterest Income

30,974

(911
)

597

30,660

Noninterest Expense

(83,278
)

(17,073
)

(5,398
)

(105,749
)
Income (Loss) Before Provision for Income Taxes

32,214

38,266

(3,914
)

66,566

Provision for Income Taxes

(8,104
)

(9,273
)

3,612

(13,765
)
Net Income

$
24,110

$
28,993

$
(302
)

$
52,801

Total Assets as of September 30, 2022

$
8,399,068

$
5,486,330

$
9,248,642

$
23,134,040

Three Months Ended September 30, 2021

Net Interest Income

$
72,062

$
50,088

$
4,669

$
126,819

Provision for Credit Losses

1,235

(42
)

(11,593
)

(10,400
)
Net Interest Income After Provision for Credit Losses

70,827

50,130

16,262

137,219

Noninterest Income

32,046

7,906

1,426

41,378

Noninterest Expense

(71,377
)

(15,924
)

(9,218
)

(96,519
)
Income Before Provision for Income Taxes

31,496

42,112

8,470

82,078

Provision for Income Taxes

(8,001
)

(10,373
)

(1,651
)

(20,025
)
Net Income

$
23,495

$
31,739

$
6,819

$
62,053

Total Assets as of September 30, 2021

$
7,530,513

$
5,087,831

$
10,347,039

$
22,965,383

Nine Months Ended September 30, 2022

Net Interest Income

$
232,654

$
152,391

$
14,775

$
399,820

Provision for Credit Losses

3,463

(200
)

(11,263
)

(8,000
)
Net Interest Income After Provision for Credit Losses

229,191

152,591

26,038

407,820

Noninterest Income

94,811

17,650

3,908

116,369

Noninterest Expense

(247,724
)

(52,757
)

(12,081
)

(312,562
)
Income Before Provision for Income Taxes

76,278

117,484

17,865

211,627

Provision for Income Taxes

(19,151
)

(28,721
)

742

(47,130
)
Net Income

$
57,127

$
88,763

$
18,607

$
164,497

Total Assets as of September 30, 2022

$
8,399,068

$
5,486,330

$
9,248,642

$
23,134,040

Nine Months Ended September 30, 2021

Net Interest Income

$
212,991

$
146,269

$
11,642

$
370,902

Provision for Credit Losses

5,088

205

(46,093
)

(40,800
)
Net Interest Income After Provision for Credit Losses

207,903

146,064

57,735

411,702

Noninterest Income

98,344

22,339

8,096

128,779

Noninterest Expense

(222,426
)

(47,343
)

(22,142
)

(291,911
)
Income Before Provision for Income Taxes

83,821

121,060

43,689

248,570

Provision for Income Taxes

(20,840
)

(29,634
)

(8,561
)

(59,035
)
Net Income

$
62,981

$
91,426

$
35,128

$
189,535

Total Assets as of September 30, 2021

$
7,530,513

$
5,087,831

$
10,347,039

$
22,965,383

~~Table of Contents~~

Note 11. Derivative Financial Instruments

The notional amount and fair value of the Company’s derivative financial instruments as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, were as follows:


	March 31, 2023					December 31, 2022
(dollars in thousands)	Notional Amount		Fair Value			Notional Amount		Fair Value
Interest Rate Lock Commitments	$	6,748	$	17		$	3,860	$	58
Forward Commitments		6,757		(19	)		3,256		6
Interest Rate Swap Agreements
Receive Fixed/Pay Variable Swaps		1,879,140		(118,554	)		1,821,433		(160,914	)
Pay Fixed/Receive Variable Swaps		1,879,140		65,542			1,821,433		38,785
Foreign Exchange Contracts		24,789		201			52,065		1,745
Conversion Rate Swap Agreement 1		135,380	NA				124,752	NA

Table of Contents

September 30, 2022

December 31, 2021

(dollars in thousands)

Notional Amount

Fair Value

Notional Amount

Fair Value

Interest Rate Lock Commitments

$
7,379

$
(40
)

$
45,857

$
1,084

Forward Commitments

6,556

143

58,523

(35
)
Interest Rate Swap Agreements

Receive Fixed/Pay Variable Swaps

1,572,800

(169,645
)

1,400,322

28,742

Pay Fixed/Receive Variable Swaps

1,572,800

37,521

1,400,322

(5,922
)
Foreign Exchange Contracts

96,832

(3,443
)

102,548

(674
)
Conversion Rate Swap Agreement

107,126

—

131,672

—

1

The conversation rate swap agreements were valued at zero as further reductions to the conversion rate were deemed neither probable nor reasonable estimable.

The following table presents the Company’s derivative financial instruments, their fair values, and their location in the consolidated statements of condition as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021:~~2022:


Derivative Financial Instruments	March 31, 2023				December 31, 2022
Not Designated as Hedging Instruments 1	Asset		Liability		Asset		Liability
(dollars in thousands)	Derivatives		Derivatives		Derivatives		Derivatives
Interest Rate Lock Commitments	$	174	$	—	$	64	$	6
Forward Commitments		5		24		10		4
Interest Rate Swap Agreements		84,666		137,678		45,831		167,960
Foreign Exchange Contracts		205		4		1,812		67
Total	$	85,050	$	137,706	$	47,717	$	168,037

Derivative Financial Instruments

September 30, 2022

December 31, 2021

Not Designated as Hedging Instruments ¹

Asset

Liability

Asset

Liability

(dollars in thousands)

Derivatives

Derivatives

Derivatives

Derivatives

Interest Rate Lock Commitments

$
55

$
95

$
1,084

$
—

Forward Commitments

144

1

17

52

Interest Rate Swap Agreements

38,051

170,175

40,733

17,913

Foreign Exchange Contracts

6

3,449

177

851

Total

$
38,256

$
173,720

$
42,011

$
18,816

1

Asset derivatives are included in other assets and liability derivatives are included in other liabilities in the consolidated statements of condition. The Company’s free-standing derivative financial instruments are required to be carried at their fair value on the Company’s consolidated statements of condition.

The following table presents the Company’s derivative financial instruments and the amount and location of the net gains or losses recognized in the consolidated statements of income for the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, and ~~September 30, 2021:~~March 31, 2022:


	Location of
Derivative Financial Instruments	Net Gains (Losses)	Three Months Ended
Not Designated as Hedging Instruments	Recognized in the	March 31,
(dollars in thousands)	Statements of Income	2023			2022
Interest Rate Lock Commitments	Mortgage Banking	$	204		$	(1,079	)
Forward Commitments	Mortgage Banking		(31	)		1,908
Interest Rate Swap Agreements 1	Other Noninterest Income		(16	)		(6	)
Foreign Exchange Contracts	Other Noninterest Income		841			274
Total		$	998		$	1,097

Location of

Derivative Financial Instruments

Net Gains (Losses)

Three Months Ended

Nine Months Ended

Not Designated as Hedging Instruments

Recognized in the

September 30,

September 30,

(dollars in thousands)

Statements of Income

2022

2021

2022

2021

Interest Rate Lock Commitments

Mortgage Banking

$
1

$
2,083

$
(1,012
)

$
6,927

Forward Commitments

Mortgage Banking

289

(53
)

2,510

1,598

Interest Rate Swap Agreements

Other Noninterest Income

126

2,147

6,225

4,848

Foreign Exchange Contracts

Other Noninterest Income

430

401

936

1,120

Total

$
846

$
4,578

$
8,659

$
14,493

1

The net gains and losses presented in the table above have been updated to properly exclude the fee income generated from the execution of these derivative financial instruments.

As of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, the Company did not designate any derivative financial instruments as formal hedging relationships.

2928

Table of Contents

Interest Rate Swap Agreements

The Company enters into interest rate swap agreements to facilitate the risk management strategies of a small number of commercial banking customers. The Company mitigates the risk of entering into these agreements by entering into equal and offsetting interest rate swap agreements with highly rated third party financial institutions. The interest rate swap agreements are free-standing derivatives and are recorded at fair value in the Company’s consolidated statements of condition (asset positions are included in other assets and liability positions are included in other liabilities). The Company is party to master netting arrangements with its financial institution counterparties; however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Collateral, usually in the form of ~~cash or~~ marketable securities, is posted by the party (i.e., the Company or the financial institution counterparty) with net liability positions in accordance with contract thresholds. The fair values of certain counterparty interest rate swaps are zero due to the settlement of centrally-cleared variation margin rules. The Company had net asset positions with its financial institution counterparties totaling ~~$35.8~~$65.5 million and ~~net liability positions with its financial institution counterparties totaling $5.9~~$38.8 million as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, respectively.

~~Parties to over-the-counter derivatives which are centrally cleared through a clearinghouse~~ exchange daily payments that reflect the daily change in value of the derivatives. Effective 2017, these payments, commonly referred to as variation margin, are recorded as settlements of the derivatives’ mark-to-market exposure rather than collateral against the exposures. This rule change effectively results in all centrally cleared derivatives having a fair value that approximates zero on a daily basis. Substantially all of our swap agreements originated after the rule change are centrally cleared.

Conversion Rate Swap Agreements

As certain sales of Visa Class B restricted shares were completed, the Company entered into a conversion rate swap agreement with the buyer that requires payment to the buyer in the event Visa further reduces the conversion ratio of Class B into Class A unrestricted common shares. In the event of Visa increasing the conversion ratio, the buyer would be required to make payment to the Company. As of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, the conversion rate swap agreement was valued at zero (i.e., no contingent liability recorded) as further reductions to the conversion ratio were deemed neither probable nor reasonably estimable by management.

Note 12. Commitments ~~Contingencies,~~ and ~~Guarantees~~Contingencies

The Company’s credit commitments as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, were as follows:


(dollars in thousands)	September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022
Unfunded Commitments to Extend Credit	$	3,507,523	$	2,982,673	$	3,582,980	$	3,592,872
Standby Letters of Credit		135,212		135,167		133,397		129,512
Commercial Letters of Credit		20,672		18,956		15,804		24,030
Total Credit Commitments	$	3,663,407	$	3,136,796	$	3,732,181	$	3,746,414

Unfunded Commitments to Extend Credit

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of the terms or conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since commitments may expire without being drawn, the total commitment amount does not necessarily represent future cash requirements.

~~Table of Contents~~

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third-party. Standby letters of credit generally become payable upon the failure of the customer to perform according to the terms of the underlying contract with the third-party, while commercial letters of credit are issued specifically to facilitate commerce and typically result in the commitment being drawn on when the underlying transaction is consummated between the customer and a third party. The contractual amount of these letters of credit represents the maximum potential future payments guaranteed by the Company. The Company has recourse against the customer for any amount it is required to pay to a third-party under a standby letter of credit, and generally holds cash or deposits as collateral on those standby letters of credit for which collateral is deemed necessary. Assets valued at $108.2 million secured certain specifically identified standby letters of credit as of March 31, 2023. As of March 31, 2023, the standby and commercial letters of credit had remaining terms ranging from 1 to 14 months.

Contingencies

Table of Contents

The Company is subject to various pending and threatened legal proceedings arising out of the normal course of business or operations. On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection with outstanding legal proceedings using the most recent information available. On a case-by-case basis, reserves are established for those legal claims for which it is probable that a loss will be incurred and the amount of such loss can be reasonably estimated. Based on information currently available, management believes that the eventual outcome of ~~these~~any claims against the Company will not be materially in excess of such amounts reserved by the Company. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters may result in a loss that materially exceeds the reserves established by the Company.

Note 13. Fair Value of Assets and Liabilities

Fair Value Hierarchy

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. GAAP established a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:


Level 1:	Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and is used to measure fair value whenever available. A contractually binding sales price also provides reliable evidence of fair value.

Level 2:	Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; inputs to the valuation methodology include quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs to the valuation methodology that utilize model-based techniques for which all significant assumptions are observable in the market.

Level 3:	Inputs to the valuation methodology are unobservable and significant to the fair value measurement; inputs to the valuation methodology that utilize model-based techniques for which significant assumptions are not observable in the market; or inputs to the valuation methodology that require significant management judgment or estimation, some of which may be internally developed.

In some instances, an instrument may fall into multiple levels of the fair value hierarchy. In such instances, the instrument’s level within the fair value hierarchy is based on the lowest of the three levels (with Level 3 being the lowest) that is significant to the fair value measurement. Our assessment of the significance of an input requires judgment and considers factors specific to the instrument.

~~Table of Contents~~

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Investment Securities Available-for-Sale

Level 1 investment securities are comprised of debt securities issued by the U.S. Treasury, as quoted prices were available, unadjusted, for identical securities in active markets. Level 2 investment securities were primarily comprised of debt securities issued by the Small Business Administration, states and municipalities, corporations, as well as mortgage-backed securities issued by government agencies and ~~government sponsored~~government-sponsored enterprises. Fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models. In cases where there may be limited or less transparent information provided by the Company’s ~~third-party~~third party pricing service, fair value may be estimated by the use of secondary pricing services or through the use of non-binding ~~third-party~~third party broker quotes.

Table of Contents

Loans Held for Sale

The fair value of the Company’s residential mortgage loans held for sale was determined based on quoted prices for similar loans in active markets, and therefore, is classified as a Level 2 measurement.

Mortgage Servicing Rights

The Company estimates the fair value of mortgage servicing rights by using a discounted cash flow model to calculate the present value of estimated future net servicing income. The Company stratifies its mortgage servicing portfolio on the basis of loan type. The assumptions used in the discounted cash flow model are those that the Company believes market participants would use in estimating future net servicing income. Significant assumptions in the valuation of mortgage servicing rights include estimated loan repayment rates, the discount rate, servicing costs, and the timing of cash flows, among other factors. Mortgage servicing rights are classified as Level 3 measurements due to the use of significant unobservable inputs, as well as significant management judgment and estimation.

Other Assets

Other assets recorded at fair value on a recurring basis are primarily comprised of investments related to deferred compensation arrangements. Quoted prices for these investments, primarily in mutual funds, are available in active markets. Thus, the Company’s investments related to deferred compensation arrangements are classified as Level 1 measurements in the fair value hierarchy.

Derivative Financial Instruments

Derivative financial instruments recorded at fair value on a recurring basis are comprised of interest rate lock commitments (“IRLCs”), forward commitments, interest rate swap agreements, foreign exchange contracts, and Visa Class B to Class A shares conversion rate swap agreements. The fair values of IRLCs are calculated based on the value of the underlying loan held for sale, which in turn is based on quoted prices for similar loans in the secondary market. However, this value is adjusted by a factor which considers the likelihood that the loan in a locked position will ultimately close. This factor, the closing ratio, is derived from the Bank’s internal data and is adjusted using significant management judgment. As such, IRLCs are classified as Level 3 measurements. Forward commitments are classified as Level 2 measurements as they are primarily based on quoted prices from the secondary market based on the settlement date of the contracts, interpolated or extrapolated, if necessary, to estimate a fair value as of the end of the reporting period.

~~Table of Contents~~

The fair values of interest rate swap agreements are calculated using a discounted cash flow approach and utilize Level 2 observable inputs such as a market yield curve, effective date, maturity date, notional amount, and stated interest rate. The valuation methodology for interest rate swaps with financial institution counterparties (and the related customer interest rate swaps) is based on the Secured Overnight Financing Rate. In addition, the Company includes in its fair value calculation a credit factor adjustment which is based primarily on management judgment. Thus, interest rate swap agreements are classified as a Level 3 measurement. The fair values of foreign exchange contracts are calculated using the Bank’s multi-currency accounting system which utilizes contract specific information such as currency, maturity date, contractual amount, and strike price, along with market data information such as the spot rates of specific currency and yield curves. Foreign exchange contracts are classified as Level 2 measurements because while they are valued using the Bank’s multi-currency accounting system, significant management judgment or estimation is not required. The fair value of the Visa Class B restricted shares to Class A unrestricted common shares conversion rate swap agreements represent the amount owed by the Company to the buyer of the Visa Class B shares as a result of a reduction of the conversion ratio subsequent to the sales date. As of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, the conversion rate swap agreements were valued at zero as reductions to the conversion ratio were neither probable nor reasonably estimable by management. See Note 11 Derivative Financial Instruments for more information.

Table of Contents

The Company is exposed to credit risk if borrowers or counterparties fail to perform. The Company seeks to minimize credit risk through credit approvals, limits, monitoring procedures, and collateral requirements. The Company generally enters into transactions with borrowers of high credit quality and counterparties that carry high quality credit ratings. Credit risk associated with borrowers or counterparties as well as the Company’s non-performance risk is factored into the determination of the fair value of derivative financial instruments.

3332

Table of Contents

The ~~table~~Table below presents the balances of assets and liabilities measured at fair value on a recurring basis as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021:~~2022.


	Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs				Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
(dollars in thousands)	(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)		Total
September 30, 2022
March 31, 2023
Assets:
Investment Securities Available-for-Sale
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	140,644	$	103,709	$	—	$	244,353	$	144,440	$	83,931	$	—	$	228,371
Debt Securities Issued by States and Political Subdivisions		—		61,062		—		61,062		—		97,742		—		97,742
Debt Securities Issued by U.S. Government-Sponsored Enterprises		—		1,618		—		1,618		—		48,656		—		48,656
Debt Securities Issued by Corporations		—		370,718		—		370,718		—		799,033		—		799,033
Mortgage-Backed Securities:
Residential - Government Agencies		—		775,687		—		775,687		—		713,582		—		713,582
Residential - U.S. Government-Sponsored Enterprises		—		819,685		—		819,685		—		782,599		—		782,599
Commercial - Government Agencies		—		151,485		—		151,485		—		145,100		—		145,100
Total Mortgage-Backed Securities		—		1,746,857		—		1,746,857		—		1,641,281		—		1,641,281
Total Investment Securities Available-for-Sale		140,644		2,283,964		—		2,424,608		144,440		2,670,643		—		2,815,083
Loans Held for Sale		—		418		—		418		—		2,149		—		2,149
Mortgage Servicing Rights		—		—		732		732		—		—		707		707
Other Assets	��	44,182		—		—		44,182		51,651		—		—		51,651
Derivatives ¹		—		150		38,106		38,256		—		210		84,840		85,050
Total Assets Measured at Fair Value on a Recurring Basis as of September 30, 2022	$	184,826	$	2,284,532	$	38,838	$	2,508,196
Total Assets Measured at Fair Value on a Recurring Basis as of March 31, 2023									$	196,091	$	2,673,002	$	85,547	$	2,954,640
Liabilities:
Derivatives ¹	$	—	$	3,450	$	170,270	$	173,720	$	—	$	28	$	137,678	$	137,706
Total Liabilities Measured at Fair Value on a Recurring Basis as of September 30, 2022	$	—	$	3,450	$	170,270	$	173,720
December 31, 2021
Total Liabilities Measured at Fair Value on a Recurring Basis as of March 31, 2023									$	—	$	28	$	137,678	$	137,706
December 31, 2022
Assets:
Investment Securities Available-for-Sale
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	114,845	$	135,242	$	—	$	250,087	$	141,944	$	91,962	$	—	$	233,906
Debt Securities Issued by States and Political Subdivisions		—		75,818		—		75,818		—		95,265		—		95,265
Debt Securities Issued by U.S. Government-Sponsored Enterprises		—		1,780		—		1,780		—		48,628		—		48,628
Debt Securities Issued by Corporations		—		383,113		—		383,113		—		794,658		—		794,658
Mortgage-Backed Securities:
Residential - Government Agencies		—		1,319,042		—		1,319,042		—		732,828		—		732,828
Residential - U.S. Government-Sponsored Enterprises		—		2,090,326		—		2,090,326		—		793,871		—		793,871
Commercial - Government Agencies		—		155,890		—		155,890
Commercial - Government Agencies or Sponsored Agencies										—		145,667		—		145,667
Total Mortgage-Backed Securities		—		3,565,258		—		3,565,258		—		1,672,366		—		1,672,366
Total Investment Securities Available-for-Sale		114,845		4,161,211		—		4,276,056		141,944		2,702,879		—		2,844,823
Loans Held for Sale		—		26,746		—		26,746		—		1,035		—		1,035
Mortgage Servicing Rights		—		—		800		800		—		—		717		717
Other Assets		56,411		—		—		56,411		47,755		—		—		47,755
Derivatives ¹		—		194		41,817		42,011		—		1,822		45,895		47,717
Total Assets Measured at Fair Value on a Recurring Basis as of December 31, 2021	$	171,256	$	4,188,151	$	42,617	$	4,402,024
Total Assets Measured at Fair Value on a Recurring Basis as of December 31, 2022									$	189,699	$	2,705,736	$	46,612	$	2,942,047
Liabilities:
Derivatives ¹	$	—	$	903	$	17,913	$	18,816	$	—	$	70	$	167,967	$	168,037
Total Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2021	$	—	$	903	$	17,913	$	18,816
Total Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2022									$	—	$	70	$	167,967	$	168,037

1 The fair value of each class of derivatives is shown in Note 11 Derivative Financial Instruments.

¹33	~~The fair value of each class of derivatives is shown in Note 11~~ ~~Derivative Financial Instruments~~.

Table of Contents

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023, and March 31, 2022, ~~and September 30, 2021,~~ the changes in Level 3 assets and liabilities measured at fair value on a recurring basis were as follows:


(dollars in thousands)	Mortgage Servicing Rights 1			Net Derivative Assets and Liabilities 2
Three Months Ended March 31, 2023
Balance as of January 1, 2023	$	717		$	(122,071	)
Realized and Unrealized Net Gains (Losses):
Included in Net Income		(10	)		336
Transfers to Loans Held for Sale		—			(236	)
Variation Margin Payments		—			69,133
Balance as of March 31, 2023	$	707		$	(52,838	)
Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held as of March 31, 2023	$	—		$	188

Three Months Ended March 31, 2022
Balance as of January 1, 2022	$	800		$	23,904
Realized and Unrealized Net Gains (Losses):
Included in Net Income3		(19	)		(1,085	)
Transfers to Loans Held for Sale		—			113
Variation Margin Payments		—			(73,361	)
Balance as of March 31, 2022	$	781		$	(50,429	)
Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held as of March 31, 2022	$	—		$	(1,085	)

1 Realized and unrealized gains and losses related to mortgage servicing rights are reported as a component of mortgage banking income in the Company’s consolidated statements of income.

2 Realized and unrealized gains and losses related to interest rate lock commitments are reported as a component of mortgage banking income in the Company’s consolidated statements of income. Realized and unrealized gains and losses related to interest rate swap agreements are reported as a component of other noninterest income in the Company’s consolidated statements of income.

3 The unrealized net losses included in net income related to assets still held as of March 31, 2022, has been updated to exclude the impact of activities unrelated to the computation of unrealized net losses.

(dollars in thousands)

Mortgage
Servicing
Rights ¹

Net Derivative
Assets and
Liabilities ²

Three Months Ended September 30, 2022

Balance as of July 1, 2022

$
747

$
(82,948
)
Realized and Unrealized Net Gains (Losses):

Included in Net Income

(15
)

36

Transfers to Loans Held for Sale

—

(284
)
Variation Margin Payments

—

(48,968
)
Balance as of September 30, 2022

$
732

$
(132,164
)
Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held             as of September 30, 2022

$
—

$
(132,164
)

Three Months Ended September 30, 2021

Balance as of July 1, 2021

$
875

$
37,957

Realized and Unrealized Net Gains (Losses):

Included in Net Income

(49
)

2,095

Transfers to Loans Held for Sale

—

(3,068
)
Variation Margin Payments

—

(5,875
)
Balance as of September 30, 2021

$
826

$
31,109

Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held             as of September 30, 2021

$
—

$
31,109

Nine Months Ended September 30, 2022

Balance as of January 1, 2022

$
800

23,904

Realized and Unrealized Net Gains (Losses):

Included in Net Income

(68
)

(961
)
Transfers to Loans Held for Sale

—

(111
)
Variation Margin Payments

—

(154,996
)
Balance as of September 30, 2022

$
732

(132,164
)
Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held       as of September 30, 2022

$
—

$
(132,164
)

Nine Months Ended September 30, 2021

Balance as of January 1, 2021

$
958

$
77,880

Realized and Unrealized Net Gains (Losses):

Included in Net Income

(132
)

7,008

Transfers to Loans Held for Sale

—

(10,652
)
Variation Margin Payments

—

(43,127
)
Balance as of September 30, 2021

$
826

$
31,109

Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held       as of September 30, 2021

$
—

$
31,109

¹	~~Realized and unrealized gains and losses related to mortgage servicing rights are reported as a component of mortgage banking income in the Company’s consolidated statements of income.~~

Realized and unrealized gains and losses related to interest rate lock commitments are reported as a component of mortgage banking income in the Company’s consolidated statements of income. Realized and unrealized gains and losses related to interest rate swap agreements are reported as a component of other noninterest income in the Company’s consolidated statements of income.

~~Table of Contents~~

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, the significant unobservable inputs used in the fair value measurements were as follows:



(dollars in thousands)	Valuation Technique	Description	Range						Weighted Average¹			Fair Value			Valuation Technique	Description	Range						Weighted Average1			Fair Value
September 30, 2022
March 31, 2023
Mortgage Servicing Rights	Discounted Cash Flow	Constant Prepayment Rate		3.21	%	-	10.46	%		4.11	%	$	28,410		Discounted Cash Flow	Constant Prepayment Rate		3.28	%	-	11.10	%		4.35	%	$	27,163
		Discount Rate		9.02	%	-	10.02	%		10.01	%	$	—			Discount Rate		8.73	%	-	10.42	%		9.84	%	$	—
Net Derivative Assets and Liabilities:
Interest Rate Lock Commitments	Pricing Model	Closing Ratio		84.10	%	-	95.70	%		91.64	%	$	(40	)	Pricing Model	Closing Ratio		84.60	%	-	99.00	%		91.50	%	$	174
Interest Rate Swap Agreements	Discounted Cash Flow	Credit Factor		0.00	%	-	0.49	%		0.01	%	$	(132,124	)	Discounted Cash Flow	Credit Factor		0.00	%	-	0.49	%		0.01	%	$	(53,012	)

December 31, 2021
December 31, 2022
Mortgage Servicing Rights	Discounted Cash Flow	Constant Prepayment Rate		6.51	%	-	11.48	%		10.70	%	$	22,251		Discounted Cash Flow	Constant Prepayment Rate		2.81	%	-	10.63	%		4.02	%	$	28,040
		Discount Rate		6.49	%	-	7.08	%		7.04	%	$	—			Discount Rate		8.70	%	-	10.40	%		9.93	%
Net Derivative Assets and Liabilities:
Interest Rate Lock Commitments	Pricing Model	Closing Ratio		75.40	%	-	100.00	%		90.47	%	$	1,084		Pricing Model	Closing Ratio		84.10	%	-	99.00	%		92.86	%	$	58
Interest Rate Swap Agreements	Discounted Cash Flow	Credit Factor		0.00	%	-	0.49	%		0.14	%	$	22,820		Discounted Cash Flow	Credit Factor		0.00	%	-	0.49	%		0.01	%	$	(122,129	)

1 Unobservable inputs for mortgage servicing rights and interest rate lock commitments were weighted by loan amount. Unobservable inputs for interest rate swap agreements were weighted by fair value.

Table of Contents

~~Unobservable inputs for mortgage servicing rights and interest rate lock commitments were weighted by loan amount. Unobservable inputs for interest rate swap agreements were weighted by fair value.~~

Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement. Although the constant prepayment rate and the discount rate are not directly interrelated, they generally move in opposite directions of each other.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The Company may be required periodically to measure certain assets and liabilities at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower-of-cost-or-fair value accounting or impairment write-downs of individual assets. The following table represents the assets measured at fair value on a nonrecurring basis as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021.~~2022.


(dollars in thousands)	Fair Value Hierarchy	Net Carrying Amount		Valuation Allowance			Fair Value Hierarchy	Net Carrying Amount		Valuation Allowance
September 30, 2022
March 31, 2023
Mortgage Servicing Rights - amortization method	Level 3	$	22,372	$	—		Level 3	$	21,395	$	—

December 31, 2021
December 31, 2022
Mortgage Servicing Rights - amortization method	Level 3	$	21,451	$	(1,829	)	Level 3	$	21,902	$	—

~~The change in valuation allowance of mortgage servicing rights accounted for under the amortization method was primarily due to changes in certain key assumptions used to estimate fair value.~~ As previously mentioned, all of the Company's mortgage servicing rights are classified as Level 3 measurements due to the use of significant unobservable inputs, as well as significant management judgment and estimation.

~~Table of Contents~~

Fair Value Option

The following table reflects the difference between the aggregate fair value and the aggregate unpaid principal balance of the Company’s residential mortgage loans held for sale as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021.~~ 2022.


(dollars in thousands)	Aggregate Fair Value		Aggregate Unpaid Principal		Aggregate Fair Value Less Aggregate Unpaid Principal			Aggregate Fair Value		Aggregate Unpaid Principal		Aggregate Fair Value Less Aggregate Unpaid Principal
September 30, 2022
March 31, 2023
Loans Held for Sale	$	418	$	433	$	(15	)	$	2,149	$	2,135	$	14

December 31, 2021
December 31, 2022
Loans Held for Sale	$	26,746	$	26,309	$	437		$	1,035	$	1,016	$	19

Changes in the estimated fair value of residential mortgage loans held for sale are reported as a component of mortgage banking income in the Company’s consolidated statements of income. For the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, and year ended December 31, ~~2021,~~2022, the net gains or losses from the change in fair value of the Company’s residential mortgage loans held for sale were not material.

Table of Contents

Financial Instruments Not Recorded at Fair Value on a Recurring Basis

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments not recorded at fair value on a recurring basis as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021.~~2022. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For non-marketable equity securities such as Federal Home Loan Bank of Des Moines and Federal Reserve Bank stock, the carrying amount is a reasonable estimate of fair value as these securities can only be redeemed or sold at their par value and only to the respective issuing government supported institution or to another member institution. For financial liabilities such as noninterest-bearing demand, interest-bearing demand, and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.


					Fair Value Measurements										Fair Value Measurements
	Carrying				Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs		Carrying				Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
(dollars in thousands)	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)		Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
September 30, 2022
March 31, 2023
Financial Instruments - Assets
Investment Securities Held-to-Maturity	$	5,461,160	$	4,668,074	$	112,407	$	4,555,667	$	—	$	5,312,815	$	4,601,876	$	116,242	$	4,485,634	$	—
Loans ¹		13,037,703		12,003,760		—		—		12,003,760
Loans												13,556,149		12,734,400		—		—		12,734,400
Financial Instruments - Liabilities
Time Deposits		1,234,985		1,208,445		—		1,208,445		—		1,922,753		1,900,997		—		1,900,997		—
Securities Sold Under Agreements to Repurchase		425,490		409,772		—		409,772		—		725,490		725,014		—		725,014		—
December 31, 2021
Financial Instruments - Assets
Other Debt 1												500,000		510,625				510,625
December 31, 2022
Financial Instruments – Assets
Investment Securities Held-to-Maturity	$	4,694,780	$	4,646,619	$	131,139	$	4,515,480	$	—	$	5,414,139	$	4,615,393	$	113,417	$	4,501,976	$	—
Loans ¹		11,921,869		12,094,631		—		—		12,094,631
Financial Instruments - Liabilities
Loans												13,371,226		12,386,615		—		—		12,386,615
Financial Instruments – Liabilities
Time Deposits		1,000,089		998,134		—		998,134		—		1,705,737		1,679,777		—		1,679,777		—
Securities Sold Under Agreements to Repurchase		450,490		469,293		—		469,293		—		725,490		718,614		—		718,614		—
Other Debt 1												400,000		402,877		—		402,877		—

1 Excludes finance lease obligations.

¹	~~Carrying amount is net of unearned income and the Allowance.~~

3736

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following MD&A is intended to help the reader understand the Company and its operations and is focused on our fiscal 2023 financial results, including comparisons of year-to-year performance, trends, and updates from the Company’s most recent 10-K filing. Discussion and analysis of our 2022 fiscal year, as well as the year-to-year comparison between fiscal 2022 and 2021, are included "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 1, 2023.

Forward-Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts and may include statements concerning, among other things, the anticipated economic and business environment in our service area and elsewhere, credit quality and other financial and business matters in future periods, our future results of operations and financial position, our business strategy and plans and our objectives and future operations. We also may make forward-looking statements in our other documents filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”). In addition, our senior management may ~~make~~provide forward-looking statements orally to analysts, investors, representatives of the media and others. Our forward-looking statements are based on numerous assumptions, any of which could prove to be inaccurate, and actual results may differ materially from those projected because of a variety of risks and uncertainties, including, but not limited to: 1) general economic conditions either nationally, internationally, or locally may be different than expected, and particularly, any event that negatively impacts the tourism industry in Hawaii; 2) the compounding effects of the COVID-19 pandemic, including reduced tourism in Hawaii, the duration and scope of government mandates or other limitations of or restrictions on travel, ~~and any lingering effects therefrom,~~ volatility in the international and national economy and credit markets, inflation, worker absenteeism, quarantines or other travel or health-related restrictions, the length and severity of the COVID-19 pandemic, the pace of recovery following the COVID-19 pandemic, and the effect of government, business and individual actions intended to mitigate the effects of the COVID-19 pandemic; 3) changes in market interest rates that may affect credit markets and our ability to maintain our net interest margin; 4) disruptions and instability in the banking industry; 5) inflationary pressures including Federal Reserve interest rate hikes; 6) the effect of potential recessionary conditions; 7) changes in our credit quality or risk profile that may increase or decrease the required level of our reserve for credit losses; 5)8) the impact of legislative and regulatory initiatives, particularly the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018; 6)9) changes to the amount and timing of proposed common stock repurchases; 7)10) unanticipated changes in the securities markets, public debt markets, and other capital markets in the U.S. and internationally, including, without limitation, the anticipated elimination of the London Interbank Offered Rate (“LIBOR”) as a benchmark interest rate; 8)11) changes in fiscal and monetary policies of the markets in which we operate; 9)12) the increased cost of maintaining or the Company’s ability to maintain adequate liquidity and capital, based on the requirements adopted by the Basel Committee on Banking Supervision and U.S. regulators; ~~10)~~13) changes in accounting standards; ~~11) the effect of~~14) changes in ~~or interpretations of~~ tax laws or regulations, including Public Law 115-97, commonly known as the Tax Cuts and Jobs ~~Act; 12)~~Act, or the interpretation of such laws and regulations; 15) any failure ~~or disruption~~ in or breach of our operational ~~or security~~ systems, information systems or infrastructure, or those of our merchants, third party vendors and other service providers; ~~13)~~16) any interruption or breach of security of our information systems resulting in failures or disruptions in customer account management, general ledger processing, and loan or deposit systems; ~~14)~~17) natural disasters, public unrest or adverse weather, public health, disease outbreaks, and other conditions impacting us and our customers’ operations or negatively impacting the tourism industry in Hawaii; ~~15)~~18) competitive pressures in the markets for financial services and products; ~~16)~~19) actual or alleged conduct which could harm our reputation; and ~~17)~~20) the impact of litigation and regulatory investigations of the Company, including costs, expenses, settlements, and judgments. Given these risks and uncertainties, investors should not place undue reliance on any forward-looking statement as a prediction of our actual results. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included under the section entitled “Risk Factors” in Part II of this ~~report and Part I of our Annual Report on Form 10-K for the year ended December 31, 2021, and subsequent periodic and current reports filed with the SEC.~~report. Words such as “believes,” “anticipates,” “expects,” “intends,” “targeted,” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. We undertake no obligation to update forward-looking statements to reflect later events or circumstances, except as may be required by law.

For the reasons described above, we caution you against relying on any forward-looking statements. You should not consider any list of such factors to be an exhaustive statement of all of the risks, uncertainties, or potentially inaccurate assumptions that could cause our current expectations or beliefs to change. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as otherwise may be required by the federal securities laws.

3837

Table of Contents

Investor Announcements

Investors and others should note that the Company intends to announce financial and other information to the Company’s investors using the Company’s investor relations website at https://ir.boh.com, social media channels, press releases, SEC filings and public conference calls and webcasts, all for purposes of complying with the Company’s disclosure obligations under Regulation FD. Accordingly, investors should monitor these channels, as information is updated and new information is posted.

Critical Accounting Policies

Our Consolidated Financial Statements were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and follow general practices within the industries in which we operate. The ~~most~~ significant accounting policies we follow are presented in Note 1 to the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. Application of these principles requires us to make estimates, assumptions, and judgments that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Most accounting policies are not considered by management to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical in the preparation of the Consolidated Financial Statements. These factors include among other things, whether the policy requires management to make difficult, subjective, and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. The accounting policies which we believe to be most critical in preparing our Consolidated Financial Statements are presented in the section titled “Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. There have been no significant changes in the Company’s application of critical accounting policies since December 31, ~~2021.~~2022.

Overview

~~Bank of Hawaii Corporation (the “Parent”) is~~We are a ~~Delaware corporation and a bank holding company headquartered in Honolulu, Hawaii. The Parent’s principal operating subsidiary is Bank of Hawaii (the “Bank”).~~

~~The Bank, directly and through its subsidiaries, provides a broad range of~~regional financial services ~~and products to~~company serving businesses, consumers, and governments in Hawaii, Guam, and other Pacific Islands. ~~References to “we,” “our,” “us,” or~~Our principal operating subsidiary, the ~~“Company” refer to the Parent and its subsidiaries that are consolidated for financial reporting purposes.~~Bank, was founded in 1897.

~~The Company’s~~Our business strategy is to use our unique market knowledge, prudent management discipline and brand strength to deliver exceptional value to our stakeholders. Our business plan is balanced between growth and risk management while maintaining flexibility to adjust to economic changes. We will continue to focus on providing customers with best-in-class service and an innovative mix of products and services. We will also remain focused on continuing to deliver strong financial results while maintaining prudent risk and capital management strategies as well as our commitment to support our local communities.

Hawaii Economy

Improvements in visitor arrivals and job growth during the quarter have continued to help in the recovery of Hawaii’s economy, which was severely impacted by the COVID-19 pandemic. ~~Visitor~~Domestic visitor arrivals have surpassed pre-pandemic levels, but international visitor arrivals have been slower to recover and have not returned to pre-pandemic levels. While visitor arrivals are ~~near pre-pandemic levels, and~~forecasted to be moderate in the ~~easing of international travel restrictions and restoration of international flights to and from Hawaii are~~coming year, a healthy construction industry is expected to ~~contribute to the continued improvement~~offset some of the ~~economy.~~expected slowdown. Hawaii’s unemployment rate was ~~4.1%~~3.6% in ~~August 2022,~~February 2023, while still above the pre-pandemic level, it has fallen substantially since its peak in April and May of 2020.

For the first ~~nine~~three months of ~~2022,~~2023, the ~~volume of single-family home sales on Oahu decreased 15.8%, while the volume of condominium sales on Oahu decreased 3.3% compared with the same period in 2021. The~~ median price of single-family home sales and condominium sales on Oahu ~~increased 13.9%~~changed by -6.8% and ~~9.1%~~2.0%, respectively, ~~for the first nine months of 2022~~ compared to the same period in ~~2021. As~~2022. The volume of ~~September 30, 2022,~~single-family home sales and condominiums sales on Oahu decreased 37.0% and 38.9%, respectively, for the first three months of 2023 compared with the same period in 2022. Despite these declines in the median price of single-family home sales and sales volume, as of March 31, 2023, inventory of single-family homes and condominiums on Oahu ~~remained~~continues to remain low at ~~1.9~~2.1 months and ~~2.0~~2.4 months, respectively.

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Table of Contents

Earnings Summary

Net income for the ~~third~~first quarter of ~~2022~~2023 was ~~$52.8~~$46.8 million, a decrease of ~~$9.3~~$8.0 million or 15% compared to the same period in ~~2021.~~2022. Diluted earnings per common share was ~~$1.28~~$1.14 for the ~~third~~first quarter of ~~2022,~~2023, a decrease of ~~$0.24~~$0.18 or ~~16%~~14% compared to the same period in ~~2021.~~2022.

•

The return on average common equity for the first quarter of 2023 was 15.79% compared with 15.44% in the same period in 2022.

•

Net interest income for the first quarter of 2023 was $136.0 million, an increase of 9% from the same period in 2022. Net interest margin was 2.47% in the first quarter of 2023, an increase of 13 basis points from the same period in 2022. The increase in the net interest margin compared to the prior year was due to the higher interest rate environment and strong loan growth over the year.

•

The provision for credit losses was $2.0 million for the first quarter of 2023 compared with a net benefit of $5.5 million in the same period in 2022.

•

Noninterest income was $40.7 million in the first quarter of 2023, a decrease of 6% from the same period in 2022, primarily due to decreases in customer swap transactions, and mortgage banking income, and a $0.6 million adjustment related to a change in the Visa Class B conversion ratio.

•

Noninterest expense was $111.9 million in the first quarter of 2023, an increase of 8% compared to the same period in 2022, due to seasonal payroll expenses of $4.0 million and separation expenses of $3.1 million included in the first quarter of 2023, as well as higher equipment expenses of $1.2 million and FDIC insurance expenses of $1.7 million.

•

The effective tax rate for the first quarter of 2023 was 25.38% compared with 22.15% in the same period in 2022.

•

Total non-performing assets were $12.1 million at March 31, 2023, a decrease of 39% compared to March 31, 2022. Non-performing assets as percentage of total loans and leases and foreclosed real estate were 0.09% at March 31, 2023, a decrease of 7 basis points compared to March 31, 2022.

•

Net loan and lease charge-offs during the first quarter of 2023 were $2.7 million or 0.08% annualized of total average loans and leases outstanding, comprised of charge-offs of $4.3 million partially offset by recoveries of $1.6 million. Compared to the first quarter of 2022, net loan and lease charge-offs increased by $1.2 million or 3 basis points annualized on total average loans and leases outstanding.

•

The allowance for credit losses on loans and leases was $143.6 million at March 31, 2023, a decrease of $8.5 million from March 31, 2022. The ratio of the allowance for credit losses to total loans and leases outstanding was 1.04% at the end of the quarter, a decrease of 17 basis points from the end of the same period in 2022.

•

~~The return on average assets for the third quarter of 2022 was 0.91% compared with 1.07% in the same period in 2021.~~

•

~~The return on average common equity for the third quarter of 2022 was 16.98% compared with 17.08% in the same period in 2021.~~

•

Net interest income for the third quarter of 2022 was $141.7 million, an increase of 12% from the same period in 2021. Net interest margin was 2.60% in the third quarter of 2022, an increase of 28 basis points from the same period in 2021. The increase in the net interest margin from prior year is largely due to the higher interest rate environment and continued strong loan growth.

•

~~There was no provision for credit losses for the third quarter of 2022 compared with a net benefit of $10.4 million in the same period in 2021.~~

•

Noninterest income was $30.7 million in the third quarter of 2022, a decrease of 26% from the same period in 2021, primarily due to a one-time pre-tax charge of $6.9 million related to our agreement to sell assets that will terminate certain leveraged leases. The sale and lease termination will complete the Company’s process of exiting the leveraged lease market.

•

Noninterest expense was $105.7 million in the third quarter of 2022, an increase of 10% compared to the same period in 2021, due to higher salaries and benefits and higher occupancy expenses, primarily due to a one-time benefit in the same quarter of last year from the sale of property.

•

~~The efficiency ratio during the third quarter of 2022 was 61.37% compared with 57.38% in the same period in 2021.~~

•

~~The effective tax rate for the third quarter of 2022 was 20.68% compared with 24.40% in the same period in 2021.~~

•

Total non-performing assets were $13.9 million at September 30, 2022, a decrease of $6.8 million compared to September 30, 2021. Non-performing assets as percentage of total loans and leases and foreclosed real estate were 0.10% at September 30, 2022, a decrease of 7 basis points compared to September 30, 2021.

•

Net loan and lease charge-offs during the third quarter of 2022 were $1.1 million or 0.03% annualized of total average loans and leases outstanding, comprised of charge-offs of $2.9 million partially offset by recoveries of $1.7 million. Compared to the third quarter of 2021, net loan and lease charge-offs decreased by $0.05 million or 1 basis points on total average loans and leases outstanding.

•

The allowance for credit losses on loans and leases was $146.4 million at September 30, 2022, a decrease of $21.5 million from September 30, 2021. The ratio of the allowance for credit losses to total loans and leases outstanding was 1.10% at the end of the quarter, a decrease of 29 basis points from the end of the same period in 2021.

We maintained a strong balance sheet during the ~~third~~first quarter of ~~2022,~~2023, with what we believe are appropriate reserves for credit losses and high levels of liquidity and capital.

•

~~Total assets increased to $23.1 billion at September 30, 2022, an increase of 1.5% from December 31, 2021.~~

•

Total assets increased to $23.9 billion at March 31, 2023, an increase of 1.4% from December 31, 2022.

•

The investment securities portfolio was $7.9 billion at September 30, 2022, a decrease of 12.1% from December 31, 2021. During the third quarter, the Company transferred approximately $1.3 billion in available-for-sale investment securities to held-to-maturity. The portfolio remains largely comprised of securities issued by U.S. government agencies and U.S. government-sponsored enterprises.

•

The investment securities portfolio was $8.1 billion at March 31, 2023, a decrease of 1.6% from December 31, 2022. The portfolio remains largely comprised of securities issued by U.S. government agencies and U.S. government-sponsored enterprises.

•

Total loans and leases were $13.8 billion at March 31, 2023, an increase of 1.3% from December 31, 2022, primarily due to growth in home equity, commercial mortgage, and residential mortgage loans.

4039

Table of Contents

•

Total deposits were $20.5 billion at March 31, 2023, a decrease of 0.6% from December 31, 2022.

•

In the first three months of 2023, we repurchased 150,000 shares of common stock at a total cost of $9.9 million. Cash dividends of $27.9 million on common shares, and $2.0 million on preferred shares, were distributed during the first three months of 2023.

•

Total loans and leases were $13.3 billion at September 30, 2022, an increase of 8.7% from December 31, 2021, primarily due to growth in home equity, commercial mortgage, and residential mortgage loans.

•

~~Total deposits were $20.9 billion at September 30, 2022, an increase of 2.6% from December 31, 2021.~~

•

~~Total shareholders’ equity was $1.3 billion as of September 30, 2022, a decrease of $0.3 billion or 20.4% from December 31, 2021.~~

•

~~In the first nine months of 2022, we repurchased 435,283 shares of common stock at a total cost of $34.9 million. Cash dividends of $84.6 million on common shares, and $5.9 million on preferred shares, were distributed during the~~ ~~first nine months~~ ~~of 2022~~.

~~Table of Contents~~

Analysis of Statements of Income

Average balances, related income and expenses, and resulting yields and rates are presented in Table 1. An analysis of the change in net interest income, on a taxable-equivalent basis, is presented in Table 2.


Average Balances and Interest Rates - Taxable-Equivalent Basis											Table 1
	Three Months Ended								Three Months Ended
	March 31, 2023								March 31, 2022
	Average		Income/		Yield/				Average		Income/		Yield/
(dollars in millions)	Balance		Expense		Rate				Balance		Expense		Rate
Earning Assets
Interest-Bearing Deposits in Other Banks	$	1.7	$	—		6.25		%	$	3.4	$	—		0.45	%
Funds Sold		295.9		3.4		4.55				238.5		0.1		0.21
Investment Securities
Available-for-Sale
Taxable		2,820.3		23.8		3.40				4,399.9		17.1		1.56
Non-Taxable		9.6		0		4.38				3.0		0.0		1.93
Held-to-Maturity
Taxable		5,336.2		23.8		1.78				4,567.4		18.6		1.63
Non-Taxable		35.3		0.2		2.10				35.8		0.2		2.10
Total Investment Securities		8,201.4		47.9		2.34				9,006.1		35.9		1.59
Loans Held for Sale		1.5		0.0		5.30				13.7		0.1		2.78
Loans and Leases 1
Commercial and Industrial		1,411.4		16.2		4.67				1,332.9		9.0		2.73
Paycheck Protection Program		16.9		0.1		2.35				89.0		1.8		8.33
Commercial Mortgage		3,736.9		45.1		4.90				3,158.8		21.7		2.80
Construction		280.4		3.9		5.65				227.6		2.1		3.68
Commercial Lease Financing		66.9		0.0		(0.14	)			98.8		0.4		1.45
Residential Mortgage		4,666.0		39.9		3.42				4,343.3		34.9		3.21
Home Equity		2,239.4		18.2		3.30				1,898.9		13.3		2.83
Automobile		871.8		7.3		3.37				737.4		5.9		3.23
Other 2		427.8		6.2		5.83				403.7		5.5		5.47
Total Loans and Leases		13,717.5		136.9		4.03				12,290.4		94.6		3.10
Other		67.20		0.6		3.56				36.7		0.2		2.21
Total Earning Assets 3		22,285.2		188.8		3.42				21,588.8		130.9		2.44
Cash and Due From Banks		319.1								233.3
Other Assets		1,261.2								1,025.4
Total Assets	$	23,865.5							$	22,847.5

Interest-Bearing Liabilities
Interest-Bearing Deposits
Demand	$	4,215.9	$	5.2		0.50		%	$	4,655.4	$	0.5		0.04	%
Savings		8,009.0		20.6		1.05				7,540.6		1.1		0.06
Time		1,789.9		12.0		2.71				971.5		0.8		0.34
Total Interest-Bearing Deposits		14,014.8		37.8		1.09				13,167.5		2.4		0.07
Short-Term Borrowings		325.4		3.9		4.80				6.8		—		0.11
Securities Sold Under Agreements to Repurchase		725.5		5.4		2.96				450.5		2.8		2.46
Other Debt		499.6		5.3		4.30				10.4		0.2		7.05
Total Interest-Bearing Liabilities		15,565.3		52.4		1.36				13,635.2		5.4		0.16
Net Interest Income			$	136.4							$	125.5
Interest Rate Spread						2.06		%						2.28	%
Net Interest Margin						2.47		%						2.34	%
Noninterest-Bearing Demand Deposits		6,416.1								7,258.6
Other Liabilities		551.2								385.0
Shareholders’ Equity		1,332.9								1,568.7
Total Liabilities and Shareholders’ Equity	$	23,865.5							$	22,847.5

Average Balances and Interest Rates - Taxable-Equivalent Basis

Table 1

Three Months Ended

Three Months Ended

Nine Months Ended

Nine Months Ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Average

Income/

Yield/

Average

Income/

Yield/

Average

Income/

Yield/

Average

Income/

Yield/

(dollars in millions)

Balance

Expense

Rate

Balance

Expense

Rate

Balance

Expense

Rate

Balance

Expense

Rate

Earning Assets

Interest-Bearing Deposits in Other Banks

$
2.9

$
—

1.32

%
$
3.2

$
—

0.23

%
$
3.3

$
—

0.76

%
$
2.9

$
—

0.44

%
Funds Sold

411.8

2.3

2.22

999.5

0.4

0.15

308.6

3.2

1.36

833.7

0.8

0.12

Investment Securities

Available-for-Sale

Taxable

3,481.9

17.0

1.95

4,454.9

16.3

1.46

3,998.2

52.0

1.74

4,252.9

48.4

1.52

Non-Taxable

2.5

—

1.56

10.1

0.1

4.34

2.8

—

1.84

11.5

0.4

4.29

Held-to-Maturity

Taxable

4,645.7

20.1

1.73

4,294.6

16.5

1.53

4,530.4

57.4

1.69

3,728.9

42.9

1.53

Non-Taxable

35.6

0.2

2.10

64.8

0.4

2.37

35.7

0.6

2.10

48.2

0.9

2.46

Total Investment Securities

8,165.7

37.3

1.82

8,824.4

33.3

1.51

8,567.1

110.0

1.71

8,041.5

92.6

1.54

Loans Held for Sale

4.3

0.1

4.46

24.6

0.2

2.80

8.1

0.2

3.43

25.5

0.5

2.81

Loans and Leases ¹

Commercial and Industrial

1,353.8

12.5

3.66

1,252.8

9.1

2.88

1,339.0

31.4

3.13

1,281.0

28.1

2.94

Paycheck Protection Program

28.0

0.2

3.02

392.0

7.9

7.98

51.7

2.5

6.59

545.9

20.0

4.90

Commercial Mortgage

3,530.9

33.3

3.74

2,952.7

21.9

2.94

3,350.3

81.3

3.25

2,894.5

64.5

2.98

Construction

233.0

2.8

4.81

289.9

2.5

3.38

227.7

7.3

4.30

280.0

7.3

3.51

Commercial Lease Financing

89.1

0.4

1.58

109.3

0.4

1.58

94.0

1.0

1.49

107.1

1.2

1.52

Residential Mortgage

4,526.6

37.4

3.30

4,253.2

34.8

3.27

4,439.1

108.6

3.26

4,211.8

106.2

3.36

Home Equity

2,144.8

16.4

3.04

1,621.4

12.2

2.97

2,026.5

44.1

2.91

1,596.4

36.9

3.09

Automobile

795.5

6.4

3.19

718.7

6.2

3.41

764.2

18.4

3.21

712.5

18.4

3.46

Other ²

425.0

5.9

5.48

368.3

5.7

6.16

416.5

17.0

5.44

373.2

18.1

6.48

Total Loans and Leases

13,126.7

115.3

3.49

11,958.3

100.7

3.35

12,709.0

311.6

3.27

12,002.4

300.7

3.35

Other

36.9

0.3

3.49

31.5

0.2

2.02

37.2

0.9

3.14

32.4

0.5

2.17

Total Earning Assets ³

21,748.3

155.3

2.84

21,841.5

134.8

2.45

21,633.3

425.9

2.63

20,938.4

395.1

2.52

Cash and Due From Banks

233.5

252.2

235.0

259.6

Other Assets

1,154.0

899.3

1,090.9

881.2

Total Assets

$
23,135.8

$
22,993.0

$
22,959.2

$
22,079.2

Interest-Bearing Liabilities

Interest-Bearing Deposits

Demand

$
4,286.0

$
1.4

0.13

%
$
4,707.1

$
0.7

0.06

%
$
4,459.9

$
2.6

0.08

%
$
4,450.6

$
2.0

0.06

%
Savings

7,962.0

6.6

0.33

7,687.0

1.8

0.09

7,733.3

9.5

0.16

7,414.6

5.0

0.09

Time

1,146.9

2.3

0.79

1,267.0

1.4

0.44

1,023.6

4.1

0.53

1,437.1

5.3

0.49

Total Interest-Bearing Deposits

13,394.9

10.3

0.30

13,661.1

3.9

0.11

13,216.8

16.2

0.16

13,302.3

12.3

0.12

Short-Term Borrowings

4.9

0.1

3.17

—

—

—

23.9

0.2

1.05

0.8

—

0.09

Securities Sold Under Agreements to
Repurchase

425.5

2.7

2.52

547.8

3.4

2.45

441.1

8.3

2.48

572.7

10.4

2.40

Other Debt

10.3

0.2

7.05

10.4

0.2

7.04

10.3

0.6

7.05

33.5

0.8

3.03

Total Interest-Bearing Liabilities

13,835.6

13.3

0.38

14,219.3

7.5

0.21

13,692.1

25.3

0.25

13,909.3

23.5

0.22

Net Interest Income

$
142.0

$
127.3

$
400.6

$
371.6

Interest Rate Spread

2.46

%

2.24

%

2.38

%

2.30

%
Net Interest Margin

2.60

%

2.32

%

2.47

%

2.37

%
Noninterest-Bearing Demand Deposits

7,468.8

6,812.7

7,404.5

6,316.8

Other Liabilities

463.5

362.9

420.9

389.5

Shareholders’ Equity

1,367.9

1,598.1

1,441.7

1,463.6

Total Liabilities and Shareholders’
Equity

$
23,135.8

$
22,993.0

$
22,959.2

$
22,079.2

1

Non-performing loans and leases are included in the respective average loan and lease balances. Income, if any, on such loans and leases is recognized on a cash basis.

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

Interest income includes taxable-equivalent basis adjustments, based upon a federal statutory tax rate of 21%, of $0.5 million for the three months ended March 31, 2023, and $0.3 million for the three months ended March 31, 2022.

¹40	~~Non-performing loans and leases are included in the respective average loan and lease balances. Income, if any, on such loans and leases is recognized on a cash basis.~~

²	~~Comprised of other consumer revolving credit, installment, and consumer lease financing.~~

³	Interest income includes taxable-equivalent basis adjustments, based upon a federal statutory tax rate of 21%, of $0.3 million and $0.8 million for the three and nine months ended September 30, 2022, and $0.3 million and $0.8 million for the three and nine months ended September 30, 2021.

Table of Contents


Analysis of Change in Net Interest Income - Taxable-Equivalent Basis							Table 2
	Three Months Ended March 31, 2023
	Compared to March 31, 2022
(dollars in millions)	Volume 1			Rate 1			Total
Change in Interest Income:
Funds Sold	$	-		$	3.3		$	3.3
Investment Securities
Available-for-Sale
Taxable		(7.8	)		14.5			6.7
Non-Taxable		0.1			—			0.1
Held-to-Maturity
Taxable		3.3			1.9			5.2
Non-Taxable		—			—			-
Total Investment Securities		(4.4	)		16.4			12.0
Loans Held for Sale		(0.1	)		—			(0.1	)
Loans and Leases
Commercial and Industrial		0.6			6.6			7.2
Paycheck Protection Program		(0.9	)		(0.8	)		(1.7	)
Commercial Mortgage		4.6			18.8			23.4
Construction		0.6			1.2			1.8
Commercial Lease Financing		(0.2	)		(0.2	)		(0.4	)
Residential Mortgage		2.7			2.3			5.0
Home Equity		2.5			2.4			4.9
Automobile		1.1			0.3			1.4
Other 2		0.3			0.4			0.7
Total Loans and Leases		11.3			31.0			42.3
Other		0.2			0.2			0.4
Total Change in Interest Income		7.0			50.9			57.9

Change in Interest Expense:
Interest-Bearing Deposits
Demand		—			4.7			4.7
Savings		—			19.5			19.5
Time		1.2			10.0			11.2
Total Interest-Bearing Deposits		1.2			34.2			35.4
Short-Term Borrowings		2.0			1.9			3.9
Securities Sold Under Agreements to Repurchase		2.0			0.6			2.6
Other Debt		5.2			(0.1	)		5.1
Total Change in Interest Expense		10.4			36.6			47.0

Change in Net Interest Income	$	(3.4	)	$	14.3		$	10.9

Analysis of Change in Net Interest Income - Taxable-Equivalent Basis

Table 2

Nine Months Ended September 30, 2022

Compared to September 30, 2021

(dollars in millions)

Volume ¹

Rate ¹

Total

Change in Interest Income:

Funds Sold

$
(0.8
)
$
3.2

$
2.4

Investment Securities

Available-for-Sale

Taxable

(3.0
)

6.6

3.6

Non-Taxable

(0.3
)

(0.1
)

(0.4
)
Held-to-Maturity

Taxable

9.9

4.6

14.5

Non-Taxable

(0.2
)

(0.1
)

(0.3
)
Total Investment Securities

6.4

11.0

17.4

Loans Held for Sale

(0.4
)

0.1

(0.3
)
Loans and Leases

Commercial and Industrial

1.3

2.0

3.3

Paycheck Protection Program

(22.6
)

5.1

(17.5
)
Commercial Mortgage

10.8

6.0

16.8

Construction

(1.5
)

1.5

—

Commercial Lease Financing

(0.1
)

(0.1
)

(0.2
)
Residential Mortgage

5.7

(3.3
)

2.4

Home Equity

9.4

(2.2
)

7.2

Automobile

1.3

(1.3
)

—

Other ²

2.0

(3.1
)

(1.1
)
Total Loans and Leases

6.3

4.6

10.9

Other

0.1

0.3

0.4

Total Change in Interest Income

11.6

19.2

30.8

Change in Interest Expense:

Interest-Bearing Deposits

Demand

—

0.6

0.6

Savings

0.2

4.3

4.5

Time

(1.6
)

0.4

(1.2
)
Total Interest-Bearing Deposits

(1.4
)

5.3

3.9

Short-Term Borrowings

0.2

—

0.2

Securities Sold Under Agreements to Repurchase

(2.5
)

0.4

(2.1
)
Other Debt

(0.8
)

0.6

(0.2
)
Total Change in Interest Expense

(4.5
)

6.3

1.8

Change in Net Interest Income

$
16.1

$
12.9

$
29.0

1

The change in interest income and expense not solely due to changes in volume or rate has been allocated on a pro-rata basis to the volume and rate columns.

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

¹	~~The change in interest income and expense not solely due to changes in volume or rate has been allocated on a pro-rata basis to the volume and rate columns.~~

²	~~Comprised of other consumer revolving credit, installment, and consumer lease financing.~~

Net Interest Income

Net interest income is affected by the size and mix of our balance sheet components as well as the spread between interest earned on assets and interest paid on liabilities. Net interest margin is defined as net interest income, on a taxable-equivalent basis, as a percentage of average earning assets.

Yields on our earning assets increased by ~~39 basis points in the third quarter of 2022 and by 11~~98 basis points in the first ~~nine months~~quarter of ~~2022~~2023 compared to the same ~~periods~~period in ~~2021.~~2022. This is primarily due to the higher rate environment in ~~2022~~2023 compared to the prior year.

~~Table of Contents~~

Yields on our investment securities portfolio, ~~increased by 31 basis points in the third quarter of 2022 and by 17 basis points in the first nine months of 2022 compared to the same periods in 2021. Yields on our~~ commercial and industrial loans, commercial mortgage loans, residential mortgage loans, and home equity loans increased ~~by 78 basis points~~ in the ~~third~~first quarter of ~~2022~~2023 compared to the same period in ~~2021 and by 20 basis points in the first nine months of~~ 2022 ~~compared to the same period in 2021~~ due to the higher interest rate environment. Contractual yields on Paycheck Protection Program loans are fixed at 1%, however, effective yield varies based on processing fee income being accelerated due to loans being forgiven by the Small Business Administration (“SBA”) ahead of maturity. Yields on our commercial mortgage loans increased by 80 basis points in the third quarter of 2022 and by 27 basis points in the first nine months of 2022 compared to the same periods in 2021 primarily due to the higher interest rate environment and an interest recovery in the second quarter of 2022. Yields on our construction loans increased by ~~143 basis points in the third quarter of 2022 and by 79~~197 basis points in the first ~~nine months~~quarter of ~~2022~~2023 compared to the same periods in ~~2021~~2022 due to the higher interest rate environment and the payoff of lower yielding loans compared to new loans being booked. ~~Yields on our residential mortgage loans increased by 3 basis point in the third quarter~~

Table of 2022 compared to the same period in 2021. Yields on our residential mortgage loans decreased by 10 basis points in the first nine months of 2022 compared to the same period in 2021 primarily due to pay downs of higher rate loans. Yields on our home equity loans increased by 7 basis points in the third quarter of 2022 compared to the same period in 2021 due to the higher interest rate environment. Yields on our home equity loans decreased by 18 basis points in the first nine months of 2022 compared to the same period in 2021 primarily due to new loans booked at lower yields while higher yielding loans continue to pay off.Contents

Interest rates paid on our interest-bearing liabilities increased by ~~17 basis points in the third quarter of 2022 and by 3~~120 basis points in the first ~~nine months~~quarter of ~~2022~~2023 compared to the same ~~periods~~period in ~~2021.~~2022. The rates paid on securities sold under agreements to repurchase increased by ~~7 basis points in the third quarter of 2022 and by 8~~50 basis points in the first ~~nine months of 2022 compared to the same periods in 2021 primarily due to the early termination of repurchase agreements with private institutions in 2021.~~

~~The average balance of our earning assets was relatively unchanged in the third~~ quarter of ~~2022~~2023 compared to the same period in ~~2021.~~ 2022.

The average balance of our earning assets increased by ~~$0.7 billion or~~ 3% in the first ~~nine months~~quarter of ~~2022~~2023 compared to the same period in ~~2021 primarily due to an increase in the average balances of our loan and lease portfolio.~~2022. The average balance of our funds sold ~~decreased~~increased by ~~$587.7~~$57.4 million or ~~59% in the third quarter of 2022 and by $525.1 million or 63%~~24% in the first ~~nine months~~quarter of ~~2022~~2023 compared to the same ~~periods~~period in ~~2021.~~2022. The average balance of our investment securities decreased by ~~$0.7~~$0.8 billion or 7%9% in the ~~third~~first quarter of ~~2022~~2023 compared to the same period in ~~2021. The average balance of our investment securities increased by $0.5 billion or 7% in the first nine months of 2022 compared to the same period in 2021.~~2022. The average balance of our loan and lease portfolio increased by ~~$1.2~~$1.4 billion or ~~10% in the third quarter of 2022 and by $706.6 million or 6%~~12% in the first ~~nine months~~quarter of ~~2022~~2023 compared to the same ~~periods~~period in ~~2021.~~2022. The average balance of our commercial mortgage portfolio increased by ~~$578.2~~$578.1 million or ~~20% in the third quarter of 2022 and by $455.8 million or 16%~~18% in the first ~~nine months~~quarter of ~~2022~~2023 compared to the same ~~periods~~period in ~~2021~~2022 as a result of continued demand from new and existing customers. The average balance of our residential mortgage portfolio increased by ~~$273.4~~$322.7 million or ~~6% in the third quarter of 2022 and by $227.3 million or 5%~~7% in the first ~~nine months~~quarter of ~~2022~~2023 compared to the same ~~periods~~period in ~~2021~~2022 primarily due to ~~higher~~ loan originations partially offset by lower payoff activity. The average balance of our home equity portfolio increased by ~~$523.4~~$340.5 million or ~~32% in the third quarter of 2022 and by $430.1 million or 27%~~18% in the first ~~nine months~~quarter of ~~2022~~2023 compared to the same ~~periods~~period in ~~2021~~2022 mainly due to growth driven by ongoing promotions of our SmartRefi program.

The average balances of our core interest bearing deposit products for the three months ended ~~September 30, 2022 decreased~~March 31, 2023, increased by ~~$0.1 billion or 1%~~$28.9 million compared to the same period in ~~2021. The average balances for the nine months ended September 30, 2022, increased by $0.3 billion or 3% compared to the same period in 2021.~~2022. The average balances of our interest-bearing liabilities for the three months ~~and nine months~~ ended ~~September 30, 2022 and decreased~~March 31, 2023 increased by ~~$0.4~~$1.9 billion or ~~3% and by $0.2 billion or 2%~~14% compared to the same ~~periods~~period in ~~2021.~~2022. The average balance of our interest bearing demand deposits for the three months ended ~~September 30, 2022,~~March 31, 2023, decreased by $0.4 billion or 9% compared to the same period in ~~2021. The average balance of our interest bearing demand deposits for the nine months ended September 30, 2022 was relatively unchanged compared to the same period in 2021.~~2022. The average balance of our savings deposits for the three months ~~and nine months~~ ended ~~September 30, 2022,~~March 31, 2023, increased by ~~$275.0~~$468.4 million or ~~4% and by $318.7 million or 4%~~6% compared to the same ~~periods~~period in ~~2021.~~2022. The average balance of our time deposits for the three months ~~and nine months~~ ended ~~September 30, 2022, decreased~~March 31, 2023, increased by ~~$120.1~~$818.4 million or ~~9% and by $413.5 million or 29%~~84% compared to the same ~~periods~~period in ~~2021.~~

~~Table of Contents~~2022.

The average balances of our securities sold under agreements to repurchase for the three months ~~and nine months ended September 30, 2022 decreased~~increased by ~~$122.3~~$275.0 million or ~~22% and by $131.6 million or 23%~~61% compared to the same ~~periods~~period in ~~2021. These decreases were~~2022. The increase was due to ~~terminations and calls of~~$300.0 million in repurchase agreements ~~with private institutions, of which $25.0 million was called~~that originated in ~~2022 and $150.0 million terminated in 2021.~~late 2022. The average balances of our other debt, which was comprised primarily of Federal Home Loan Bank (“FHLB”) advances, ~~decreased~~increased by ~~$0.1~~$489.2 million ~~or 1%~~ in the ~~third~~first quarter of ~~2022 and by $23.2 million or 69% for the first nine months in 2022~~2023 compared to the same ~~periods~~period in ~~2021,~~2022, primarily due to ~~the prepayment of~~ FHLB advances totaling ~~$50.0~~$500.0 million ~~during 2021.~~that originated in the fourth quarter of 2022.

Noninterest Income

Table 3 presents the components of noninterest income.


Noninterest Income																Table 3									Table 3
	Three Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended March 31,
(dollars in thousands)	2022			2021			Change			2022			2021			Change			2023			2022			Change
Trust and Asset Management	$	10,418		$	11,415		$	(997	)	$	33,151		$	34,375		$	(1,224	)	$	10,690		$	11,276		$	(586	)
Mortgage Banking		1,002			3,136			(2,134	)		4,989			12,056			(7,067	)		1,004			2,740			(1,736	)
Service Charges on Deposit Accounts		7,526			6,510			1,016			22,107			18,703			3,404			7,737			7,272			465
Fees, Exchange, and Other Service Charges		13,863			13,604			259			41,008			41,018			(10	)		13,808			12,952			856
Investment Securities Gains (Losses), Net		(2,147	)		(1,259	)		(888	)		(4,987	)		(39	)		(4,948	)		(1,792	)		(1,545	)		(247	)
Annuity and Insurance		1,034			735			299			2,695			2,348			347			1,271			791			480
Bank-Owned Life Insurance		2,486			1,897			589			7,493			5,877			1,616			2,842			2,349			493
Other Income		(3,522	)		5,340			(8,862	)		9,913			14,441			(4,528	)		5,177			7,716			(2,539	)
Total Noninterest Income	$	30,660		$	41,378		$	(10,718	)	$	116,369		$	128,779		$	(12,410	)	$	40,737		$	43,551		$	(2,814	)

Trust and asset management income is comprised of fees earned from the management and administration of trusts and other customer assets. The management fees are largely based upon the market value of the assets and the fee rate charged to customers. Total trust assets under administration were ~~$10.1 billion and $11.1~~$10.9 billion as of ~~September 30, 2022,~~March 31, 2023, and ~~September 30, 2021, respectively.~~March 31, 2022. Trust and asset management income decreased by ~~$1.0~~$0.6 million or ~~9% in the third quarter of 2022 and by $1.2 million or 4%~~5% for the first ~~nine~~three months of ~~2022~~2023 compared to the same ~~periods~~period in ~~2021.~~2022 primarily due to a decrease in the average market value of assets under management.

Table of Contents

Mortgage banking income is highly influenced by mortgage interest rates, the housing market, and the amount of our loan ~~sales, and our valuation of mortgage servicing rights.~~sales. Mortgage banking income decreased by ~~$2.1~~$1.7 million or ~~68%~~63% in the ~~third~~first quarter of ~~2022 and by $7.1 million or 59% for the first nine months of 2022~~2023 compared to the same ~~periods~~period in ~~2021. These decreases were~~2022. This decrease was primarily due to ~~decreased sales of conforming saleable loans from current production.~~

~~Service charges on deposit accounts increased by $1.0 million or 16% in~~a net valuation allowance recovery to our servicing rights during the ~~third~~first quarter of 2022 and by $3.4 million or 18% for the first nine months of 2022 compared to the same periods in 2021. These increases were primarily due to an increase in overdraft fees compared to the same periods in 2021.2022.

Fees, exchange, and other service charges are primarily comprised of debit and credit card income, fees from ATMs, merchant service activity, and other loan fees and service charges. Fees, exchange, and other service charges increased by ~~$0.3~~$0.9 million or 2%7% in the ~~third~~first quarter of ~~2022~~2023 compared to the same period in ~~2021~~2022, primarily due to increases in ~~ATM fees~~merchant income, debit card income, and ~~merchant income. Fees, exchange, and other service charges were relatively unchanged for~~credit card commissions.

Other noninterest income decreased by $2.5 million or 33% in the first ~~nine months~~quarter of ~~2022~~2023 compared to the same period in ~~2021.~~

~~Investment securities net losses, totaled $2.1 million in the third quarter of~~ 2022 compared to $1.3 million during the same period in 2021, and net losses of $5.0 million the first nine months of 2022 compared to $0.04 million during the same period in 2021. The net losses in 2022 were primarily due to the fees paid to the counterparties of our prior Visa Class B share sales transactions, while the net gains in 2021 were primarily due to the sales of mortgage-backed and corporate debt securities, and the fees paid to the counterparties of our prior Visa Class B share sales transactions.

~~Annuity and insurance income increased by $0.3 million or 41%~~ ~~in the third quarter of 2022 and by $0.3 million or 15% for the first nine months of 2022 compared to the same periods in 2021 primarily due to increase in customer purchase of annuities.~~

~~Table of Contents~~

Bank-owned life insurance increased by $0.6 million or 31% in the third quarter of 2022 and by $1.6 million or 27% for the first nine months of 2022 compared to the same periods in 2021 primarily due to policy purchases.

Other noninterest income decreased by $8.9 million or 166% in the third quarter of 2022 compared to the same period in 2021 primarily due to a $6.9 million loss related to our agreement to sell assets that will terminate certain leveraged leases, and a decrease in customer derivative program fees. Other noninterest income decreased by $4.5 million or 31% for the first nine months of 2022 compared to the same periods in 2021 primarily due to the aforementioned loss on the sale of leased assets, partially offset by an increase in other income.

Noninterest Expense

Table 4 presents the components of noninterest expense.


Noninterest Expense												Table 4							Table 4
	Three Months Ended September 30,							Nine Months Ended September 30,							Three Months Ended March 31,
(dollars in thousands)	2022		2021		Change			2022		2021		Change			2023		2022		Change
Salaries	$	37,792	$	34,676	$	3,116		$	109,445	$	99,658	$	9,787		$	38,617	$	34,932	$	3,685
Incentive Compensation		5,885		4,677		1,208			18,069		15,763		2,306			3,997		6,111		(2,114	)
Share-Based Compensation		3,558		3,335		223			11,319		9,093		2,226			3,159		3,799		(640	)
Commission Expense		1,005		1,772		(767	)		3,878		6,807		(2,929	)		647		1,641		(994	)
Retirement and Other Benefits		4,448		4,746		(298	)		13,177		15,552		(2,375	)		5,888		4,693		1,195
Payroll Taxes		2,826		2,825		1			10,804		9,819		985			5,848		4,944		904
Medical, Dental, and Life Insurance		2,605		3,222		(617	)		8,430		8,850		(420	)		3,864		3,234		630
Separation Expense		1,819		1,194		625			2,509		3,317		(808	)		3,068		570		2,498
Total Salaries and Benefits		59,938		56,447		3,491			177,631		168,859		8,772			65,088		59,924		5,164
Net Occupancy		10,186		3,079		7,107			29,942		17,216		12,726			9,872		9,826		46
Net Equipment		9,736		8,924		812			28,432		26,598		1,834			10,375		9,153		1,222
Data Processing		4,616		4,722		(106	)		13,783		15,601		(1,818	)		4,583		4,560		23
Professional Fees		3,799		2,948		851			10,599		9,468		1,131			3,883		3,258		625
FDIC Insurance		1,680		1,594		86			4,772		4,917		(145	)		3,234		1,502		1,732
Other Expense:
Advertising		2,376		2,736		(360	)		7,429		7,066		363			2,045		2,623		(578	)
Delivery and Postage Services		1,596		1,363		233			4,890		4,704		186			1,681		1,506		175
Broker's Charges		837		980		(143	)		3,551		2,467		1,084			849		1,463		(614	)
Merchant Transaction and Card Processing Fees		1,538		1,424		114			4,475		3,781		694			1,653		1,453		200
Mileage Program Travel		1,185		1,340		(155	)		3,537		3,708		(171	)		1,093		1,196		(103	)
Other		8,262		10,962		(2,700	)		23,521		27,526		(4,005	)		7,563		7,410		153
Total Other Expense		15,794		18,805		(3,011	)		47,403		49,252		(1,849	)		14,884		15,651		(767	)
Total Noninterest Expense	$	105,749	$	96,519	$	9,230		$	312,562	$	291,911	$	20,651		$	111,919	$	103,874	$	8,045

Total salaries and benefits expense increased by ~~$3.5~~$5.2 million or 6%9% in the ~~third~~first quarter of ~~2022 and by $8.8 million or 5% for the first nine months of 2022~~2023 compared to the same ~~periods~~period in ~~2021. These increases were~~2022. This increase was primarily due to an increase in base salaries coupled with an increase in ~~incentive compensation~~separation expense and ~~share-based compensation due to a higher number of restricted stock units being amortized.~~retirement and other benefits. These increases were partially offset by a decrease in ~~commission, retirement and other benefits, and medical, dental, and life insurance~~incentive compensation expense.

Net occupancy expense increased by $7.1 million or 231% in the third quarter of 2022 and by $12.7 million or 74% for the first nine months of 2022 compared to the same periods in 2021. These increases were primarily due to the gain on sale of real estate property on the island of Oahu during the prior year coupled with an increase in maintenance and repairs for the first nine months of 2022 compared to the same periods in 2021.

Net equipment expense increased by ~~$0.8~~$1.2 million or ~~9% in the third quarter of 2022 and by $1.8 million or 7%~~13% for the first ~~nine~~three months of ~~2022~~2023 compared to the same ~~periods~~period in ~~2021. These increases were~~2022. This increase was due to higher software license fees, coupled with an increase in ~~maintenance~~depreciation expense.

46Professional fees increased by $0.6 million for the first three months of 2023 compared to the same period in 2022 primarily due to outsourcing the Company's SOX and certain tax functions.

FDIC insurance expense increased by $1.7 million or 115% for the first three months of 2023 compared to the same period in 2022 primarily due to an increase in the initial base deposit insurance assessment rate.

Table of Contents

Data processing expense decreased by $0.1 million or 2% in the third quarter of 2022 and $1.8 million or 12% for the first nine months of 2022 compared to the same periods in 2021. These decreases were primarily due to expenses we incurred in 2021 related to the rollout of contactless cards.

FDIC insurance expense was relatively unchanged in the third quarter of 2022 and decreased by $0.1 million or 3% for the first nine months of 2022 compared to the same periods in 2021 primarily due to decrease in assessment rates.

Total other expense decreased by ~~$3.0~~$0.8 million or ~~16% in the third quarter of 2022 and by $1.8 million or 4%~~5% for the first ~~nine~~three months of ~~2022~~2023 compared to the same ~~periods~~period in ~~2021. These decreases were~~2022. The decrease was primarily due to ~~early termination costs incurred, $3.8 million in the third quarter of 2021~~lower broker charges, mileage program travel expense, and ~~$7.0 million in the first nine months of 2021 related to the prepayment of repurchase agreements.~~ advertising expense.

Provision for Income Taxes

Table 5 presents our provision for income taxes and effective tax rates.


Provision for Income Taxes and Effective Tax Rates										Table 5						Table 5
	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(dollars in thousands)	2022			2021			2022			2021			2023			2022
Provision for Income Taxes	$	13,765		$	20,025		$	47,130		$	59,035		$	15,931		$	15,606
Effective Tax Rates		20.68	%		24.40	%		22.27	%		23.75	%		25.38	%		22.15	%

The provision for income taxes was ~~$13.8~~$15.9 million in the ~~third~~first quarter of ~~2022, a decrease~~2023, an increase of ~~$6.3~~$0.3 million compared to the same period in 2021. The effective tax rate for the third quarter of 2022 was 20.68%, down from 24.40% for the same period in 2021. The lower effective rate in the third quarter of 2022 compared to the same period in 2021 was primarily due to increases in tax-advantaged investments such as investments in low income housing and municipal bonds and a lower pretax book income. These were partially offset by decreases in tax credits and reduced tax benefits from the exercise of stock options and the vesting of restricted stock

~~The provision for income taxes was $47.1 million for the first nine months of 2022, an increase of $13.7 million compared to the same period in 2021.~~2022. The effective tax rate for the first ~~nine months~~quarter of ~~2022~~2023 was ~~22.27%~~25.38%, ~~down~~an increase from ~~23.43%~~22.15% for the same period in ~~2021.~~2022. The ~~lower~~higher effective tax rate ~~for~~in the first ~~nine months~~quarter of ~~2022~~2023 compared to ~~2021~~the same period in 2022 was primarily due to a loss of tax benefits from exiting the ~~aforementioned lower pretax book income~~leverage lease business, an increase in valuation allowance and tax ~~benefit from early buyouts of our equity interest in leverage leases.~~deficiency on share-based compensation.

Analysis of Statements of Condition

Investment Securities

The carrying value of our investment securities portfolio was ~~$7.9~~$8.1 billion and ~~$9.0~~$8.3 billion as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, respectively.

We continually evaluate our investment securities portfolio in response to established asset/liability management objectives, changing market conditions that could affect profitability, and the level of interest rate risk to which we are exposed to. These evaluations may cause us to change the level of funds we deploy into investment securities, change the composition of our investment securities portfolio, and change the proportion of investments made into the available-for-sale and held-to-maturity investment categories.

Mortgage-backed securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac are the largest concentration in our portfolio. As of ~~September 30, 2022,~~March 31, 2023, these mortgage-backed securities were all AAA-rated, with a low probability of a change in their credit ratings in the near future.

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Gross unrealized gains in our investment securities portfolio were ~~$1.2~~$2.5 million as of ~~September 30, 2022,~~March 31, 2023, and ~~$49.8~~$1.9 million as of December 31, ~~2021.~~2022. Gross unrealized losses in our investment securities portfolio were ~~$1,122.1 million~~$1.0 billion as of ~~September 30, 2022,~~March 31, 2023, and ~~$142.8 million~~$1.1 billion as of December 31, ~~2021. The overall increase in net unrealized losses was primarily due to the increase in interest rates during~~ 2022. The gross unrealized losses were primarily related to mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises. The overall decrease in net unrealized losses was primarily due to the decrease in interest rates in the first quarter of 2023. See Note 3 to the Consolidated Financial Statements for more information.

Loans and Leases

Table 6 presents the composition of our loan and lease portfolio by major categories.


Loan and Lease Portfolio Balances					Table 6
(dollars in thousands)	March 31, 2023		December 31, 2022		Change
Commercial
Commercial and Industrial	$	1,425,916	$	1,389,066	$	36,850
Paycheck Protection Program		15,175		19,579		(4,404	)
Commercial Mortgage		3,826,283		3,725,542		100,741
Construction		232,903		260,825		(27,922	)
Lease Financing		65,611		69,491		(3,880	)
Total Commercial		5,565,888		5,464,503		101,385
Consumer
Residential Mortgage		4,691,298		4,653,072		38,226
Home Equity		2,260,001		2,225,950		34,051
Automobile		877,979		870,396		7,583
Other 1		429,356		432,499		(3,143	)
Total Consumer		8,258,634		8,181,917		76,717
Total Loans and Leases	$	13,824,522	$	13,646,420	$	178,102

Loan and Lease Portfolio Balances

Table 6

(dollars in thousands)

September 30,
2022

December 31,
2021

Change

Commercial

Commercial and Industrial

$
1,368,966

$
1,361,921

$
7,045

Paycheck Protection Program

22,955

126,779

(103,824
)
Commercial Mortgage

3,591,943

3,152,130

439,813

Construction

236,498

220,254

16,244

Lease Financing

73,989

105,108

(31,119
)
Total Commercial

5,294,351

4,966,192

328,159

Consumer

Residential Mortgage

4,585,723

4,309,602

276,121

Home Equity

2,185,484

1,836,588

348,896

Automobile

820,640

736,565

84,075

Other ¹

435,408

410,129

25,279

Total Consumer

8,027,255

7,292,884

734,371

Total Loans and Leases

$
13,321,606

$
12,259,076

$
1,062,530

1

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

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

Total loans and leases as of ~~September 30, 2022,~~March 31, 2023, increased by ~~$1,062.5~~$178.1 million or 9%1%, from December 31, ~~2021,~~2022, primarily due to growth from commercial mortgage loans, residential mortgage loans, commercial and industrial loans and home equity lines of credit.

Commercial loans and leases as of ~~September 30, 2022,~~March 31, 2023, increased by ~~$328.2~~$101.4 million or 7%2% from December 31, ~~2021.~~2022. Commercial and industrial loans ~~remained relatively unchanged~~increased by $36.9 million or 3% from December 31, ~~2021.~~2022 primarily due to higher corporate demand for funding from new and existing customers. PPP loans decreased by ~~$103.8~~$4.4 million, or ~~82%~~22% from December 31, ~~2021,~~2022, primarily due to ~~forgiveness payments received from the SBA.~~paydowns. Commercial mortgage loans increased by ~~$439.8~~100.7 million or ~~14%~~3% from December 31, ~~2021,~~2022, primarily due to demand from new and existing customers. Construction loans ~~increased~~decreased by ~~$16.2~~$27.9 million or 7%11% from December 31, ~~2021,~~2022, primarily due to ~~an increase in~~slowdown of construction activity in our market. Lease financing decreased by ~~$31.1 million, or 30% from December 31, 2021, primarily due to an $11 million early buyout and paydowns.~~

~~Consumer loans and leases as of September 30, 2022, increased by $734.4 million or 10% from December 31, 2021. Residential mortgage loans increased by $276.1~~$3.9 million, or 6% from December 31, ~~2021,~~2022, primarily due to higher rates and a significant decrease in payoff activity. Home equity portfolio increased by $348.9 million or 19% from December 31, 2021, as a result of continued strength in new loan originations and low payoff levels. Automobile loans increased $84.1 million or 11% from December 31, 2021, primarily driven by competitive loan programs and strong customer demand. Other consumer loans increased by $25.3 million or 6% from December 31, 2021, primarily due to growth in our installment loans.
paydowns.

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Consumer loans and leases as of March 31, 2023, increased by $76.7 million or 1% from December 31, 2022. Residential mortgage loans increased by $38.2 million or 1% from December 31, 2022, primarily due to decline in in payoff activity and salable loan volume which more than offset lower production volume that was the result of a from higher interest rate environment. Home equity portfolio increased by $34.1 million or 2% from December 31, 2022, as a result of modest growth in new originations and a slowdown in payoffs. Automobile loans and other consumer loans remained relatively unchanged from December 31, 2022.

Table 7 presents the composition of our loan and lease portfolio by geographic area and by major categories.


Geographic Distribution of Loan and Lease Portfolio									Table 7
(dollars in thousands)	Hawaii		U.S. Mainland 1		Guam		Other Pacific Islands		Total
March 31, 2023
Commercial
Commercial and Industrial	$	1,218,263	$	136,140	$	57,729	$	13,784	$	1,425,916
Paycheck Protection Program		11,965		2,298		443		469		15,175
Commercial Mortgage		3,432,635		210,745		182,459		444		3,826,283
Construction		137,674		95,229		—		—		232,903
Lease Financing		62,319		—		3,292		—		65,611
Total Commercial		4,862,856		444,412		243,923		14,697		5,565,888
Consumer
Residential Mortgage		4,607,853		5,607		77,316		522		4,691,298
Home Equity		2,211,089		45		48,867		—		2,260,001
Automobile		672,108		—		159,519		46,352		877,979
Other 2		365,448		—		53,041		10,867		429,356
Total Consumer		7,856,498		5,652		338,743		57,741		8,258,634
Total Loans and Leases	$	12,719,354	$	450,064	$	582,666	$	72,438	$	13,824,522
December 31, 2022
Commercial
Commercial and Industrial	$	1,182,706	$	127,302	$	66,686	$	12,372	$	1,389,066
Paycheck Protection Program		15,980		2,601		485		513		19,579
Commercial Mortgage		3,226,112		288,566		210,864		—		3,725,542
Construction		260,825		—		—		—		260,825
Lease Financing		66,321		—		3,170		—		69,491
Total Commercial		4,751,944		418,469		281,205		12,885		5,464,503
Consumer
Residential Mortgage		4,576,143		—		76,376		553		4,653,072
Home Equity		2,176,848		46		49,056		—		2,225,950
Automobile		663,608		—		160,694		46,094		870,396
Other 2		366,744		—		54,107		11,648		432,499
Total Consumer		7,783,343		46		340,233		58,295		8,181,917
Total Loans and Leases	$	12,535,287	$	418,515	$	621,438	$	71,180	$	13,646,420

Geographic Distribution of Loan and Lease Portfolio

Table 7

(dollars in thousands)

Hawaii

U.S.
Mainland ¹

Guam

Other
Pacific
Islands

Total

September 30, 2022

Commercial

Commercial and Industrial

$
1,174,306

$
111,772

$
76,629

$
6,259

$
1,368,966

Paycheck Protection Program

18,892

2,984

526

553

22,955

Commercial Mortgage

3,099,822

284,658

207,463

—

3,591,943

Construction

236,498

—

—

—

236,498

Lease Financing

67,281

3,415

3,293

—

73,989

Total Commercial

4,596,799

402,829

287,911

6,812

5,294,351

Consumer

Residential Mortgage

4,509,005

—

76,137

581

4,585,723

Home Equity

2,137,274

48

48,162

—

2,185,484

Automobile

618,651

—

157,845

44,144

820,640

Other²

369,253

—

53,826

12,329

435,408

Total Consumer

7,634,183

48

335,970

57,054

8,027,255

Total Loans and Leases

$
12,230,982

$
402,877

$
623,881

$
63,866

$
13,321,606

December 31, 2021

Commercial

Commercial and Industrial

$
1,146,593

$
141,643

$
68,934

$
4,751

$
1,361,921

Paycheck Protection Program

111,457

10,842

1,586

2,894

126,779

Commercial Mortgage

2,758,641

158,192

235,297

—

3,152,130

Construction

220,254

—

—

—

220,254

Lease Financing

68,757

32,695

3,656

—

105,108

Total Commercial

4,305,702

343,372

309,473

7,645

4,966,192

Consumer

Residential Mortgage

4,232,834

—

76,022

746

4,309,602

Home Equity

1,794,330

58

42,200

—

1,836,588

Automobile

547,660

—

151,722

37,183

736,565

Other ²

346,625

—

48,490

15,014

410,129

Total Consumer

6,921,449

58

318,434

52,943

7,292,884

Total Loans and Leases

$
11,227,151

$
343,430

$
627,907

$
60,588

$
12,259,076

1

For secured loans and leases, classification as U.S. Mainland is made based on where the collateral is located. For unsecured loans and leases, classification as U.S. Mainland is made based on the location where the majority of the borrower’s business operations are conducted.

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

¹	For secured loans and leases, classification as U.S. Mainland is made based on where the collateral is located. For unsecured loans and leases, classification as U.S. Mainland is made based on the location where the majority of the borrower’s business operations are conducted.

²	~~Comprised of other revolving credit, installment, and lease financing.~~

Our commercial and consumer lending activities are concentrated primarily in Hawaii and the Pacific Islands. Our commercial loan and lease portfolio to borrowers based on the U.S. Mainland includes legacy lease financing and participation in shared national credits for customers whose operations and assets extend beyond Hawaii.

4946

Table of Contents

Other Assets

Table 8 presents the major components of other assets.


Other Assets	Other Assets					Table 8			Other Assets					Table 8
(dollars in thousands)		September 30, 2022		December 31, 2021		Change				March 31, 2023		December 31, 2022		Change
Federal Home Loan Bank of Des Moines and Federal Reserve Bank Stock		$	36,959	$	36,624	$	335			$	70,182	$	53,065	$	17,117
Derivative Financial Instruments			38,256		42,011		(3,755	)			85,050		47,717		37,333
Low-Income Housing and Other Equity Investments			164,881		136,647		28,234				189,670		175,283		14,387
Deferred Compensation Plan Assets			44,182		56,411		(12,229	)			51,651		47,755		3,896
Prepaid Expenses			21,318		17,670		3,648				25,468		18,651		6,817
Accounts Receivable			22,895		13,323		9,572				15,534		12,168		3,366
Deferred Tax Assets			187,119		42,276		144,843				161,436		177,713		(16,277	)
Other			41,350		39,765		1,585				42,055		41,636		419
Total Other Assets		$	556,960	$	384,727	$	172,233			$	641,046	$	573,988	$	67,058

Total other assets increased by ~~$172.2~~$67.1 million or ~~45%~~12% from December 31, ~~2021.~~2022. This increase was due to a ~~$144.8~~$37.3 million increase in ~~deferred tax assets,~~derivative financial instruments, which was primarily due to ~~temporary differences between financial reporting~~fair value increase of our interest rate swap agreement assets, which was impacted by prevailing interest rates. Federal Home Loan Bank of Des Moines stock increased by $17.1 million due to increase of stock activity. In addition, low-income housing and ~~income tax basis~~other equity investments increased by $14.4 million due to additional funding of ~~unrealized losses on investment securities.~~existing projects.

Deposits

Table 9 presents the composition of our deposits by major customer categories.


Deposits					Table 9						Table 9
(dollars in thousands)	September 30, 2022		December 31, 2021		Change		March 31, 2023		December 31, 2022		Change
Consumer	$	10,507,946	$	10,438,844	$	69,102	$	10,158,833	$	10,304,335	$	(145,502	)
Commercial		8,841,781		8,641,932		199,849		8,594,441		8,569,670		24,771
Public and Other		1,539,046		1,279,332		259,714		1,738,026		1,741,691		(3,665	)
Total Deposits	$	20,888,773	$	20,360,108	$	528,665	$	20,491,300	$	20,615,696	$	(124,396	)

Total deposits were ~~$20.9~~$20.5 billion as of ~~September 30, 2022, an increase~~March 31, 2023, a decrease of ~~$528.7~~$124.4 million or 3%1% from December 31, ~~2021.~~2022. Consumer deposits ~~increased~~decreased by ~~$69.1~~$145.5 million ~~or 1%~~ primarily due to a ~~$92.8~~$341 million decrease in core deposits, partially offset by $195 million increase in time deposits. Commercial deposits increased by $24.8 million due to an increase in $47.5 million in time deposits, partially offset by ~~$23.7 million~~a decrease ~~in core deposits. Commercial deposits increased by $199.8 million or 2% due to an increase~~ in core deposits of ~~$189.2 million and $10.6 million in time deposits.~~$22.7 million. In addition, public and other deposits ~~increased by $259.7 million or 20% due to an increase in public time deposits of $131.5 million and $128.2 million in core deposits.~~remained relatively unchanged from December 31, 2022.

Table 10 presents the composition of our savings deposits.


Savings Deposits					Table 10						Table 10
(dollars in thousands)	September 30, 2022		December 31, 2021		Change		March 31, 2023		December 31, 2022		Change
Money Market	$	2,891,391	$	2,529,985	$	361,406	$	3,345,015	$	3,101,594	$	243,421
Regular Savings		5,062,615		4,926,180		136,435		4,553,859		4,860,816		(306,957	)
Total Savings Deposits	$	7,954,006	$	7,456,165	$	497,841	$	7,898,874	$	7,962,410	$	(63,536	)

Table of Contents

The increase in Money Market was primarily due to increase in commercial deposits of $261.8 million partially offset by $18.4 million decrease in consumer deposits. The decrease in Regular Savings was due to decreases in consumer and public deposits of $185.5 million and $132.5 million, respectively, partially offset by $11.0 million increase in commercial deposits.

Table 11 presents the maturity distribution of the estimated uninsured time deposits.


Maturity Distribution of Estimated Uninsured Time Deposits					Table 11							Table 11
(dollars in thousands)	September 30, 2022		December 31, 2021		Change			March 31, 2023		December 31, 2022		Change
Remaining maturity:
Three months or less	$	167,133	$	220,045	$	(52,912	)	$	243,352	$	715,224	$	(471,872	)
After three through six months		346,305		93,514		252,791			160,976		180,933		(19,957	)
After six through twelve months		192,985		137,514		55,471			417,579		242,426		175,153
After twelve months		84,379		74,133		10,246			473,806		115,335		358,471
Total	$	790,802	$	525,206	$	265,596		$	1,295,713	$	1,253,918	$	41,795

Estimated uninsured deposits totaled ~~$11.1 billion and $10.5~~$10.7 billion at ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, respectively. Uninsured amounts are estimated based on the portion of account balances in excess of FDIC insurance limits. Estimated uninsured time deposits increased by ~~$265.6~~$41.8 million from December 31, ~~2021,~~2022, primarily due to ~~$131.5 million~~ increase in ~~public~~consumer and commercial time ~~deposits and $92.8 million in consumer time~~ deposits.

Securities Sold Under Agreements to Repurchase

Table 12 presents the composition of our securities sold under agreements to repurchase.


Securities Sold Under Agreements to Repurchase					Table 12							Table 12
(dollars in thousands)	September 30, 2022		December 31, 2021		Change			March 31, 2023		December 31, 2022		Change
Private Institutions	$	425,000	$	450,000	$	(25,000	)	$	725,000	$	725,000	$	—
Government Entities		490		490		—			490		490		—
Total Securities Sold Under Agreements to Repurchase	$	425,490	$	450,490	$	(25,000	)	$	725,490	$	725,490	$	—

Securities sold under agreements to repurchase was ~~$425.5~~$725.5 million as of ~~September 30, 2022, a decrease of $25.0 million or 5.5% from~~March 31, 2023, and December 31, ~~2021.~~2022. As of ~~September 30, 2022,~~March 31, 2023, the weighted-average maturity was ~~2.11~~1.61 years for our repurchase agreements with government entities and ~~2.19~~3.45 years for our repurchase agreements with private institutions. As of ~~September 30, 2022,~~March 31, 2023, the weighted-average interest rate for outstanding agreements with government entities and private institutions was 1.55% and ~~2.53%~~2.97%, respectively, with all rates being fixed. Each of our repurchase agreements is accounted for as a collateralized financing arrangement (i.e., a secured borrowing) and not as a sale and subsequent repurchase of securities.

Other Debt

Table 13 presents the composition of our other debt.


Other Debt					Table 13							Table 13
(dollars in thousands)	September 30, 2022		December 31, 2021		Change			March 31, 2023		December 31, 2022		Change
Federal Home Loan Bank Advances								$	500,000	$	400,000	$	100,000
Finance Lease Obligations		10,319		10,391		(72	)		10,269		10,294		(25	)
Total	$	10,319	$	10,391	$	(72	)	$	510,269	$	410,294	$	99,975

5148

Table of Contents

Analysis of Business Segments

Our business segments are defined as Consumer Banking, Commercial Banking, and Treasury and Other.

Table 14 summarizes net income from our business segments. Additional information about segment performance is presented in Note 10 to the Consolidated Financial Statements.


Business Segment Net Income								Table 14						Table 14
	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended March 31,
(dollars in thousands)	2022			2021		2022		2021			2023			2022 1
Consumer Banking	$	24,110		$	23,495	$	57,127	$	62,981		$	30,797		$	14,123
Commercial Banking		28,993			31,739		88,763		91,426			34,273			28,878
Total		53,103			55,234		145,890		154,407			65,070			43,001
Treasury and Other		(302	)		6,819		18,607		35,128			(18,228	)		11,833
Consolidated Total	$	52,801		$	62,053	$	164,497	$	189,535		$	46,842		$	54,834
1 Certain prior period information has been reclassified to conform to current presentation.										1 Certain prior period information has been reclassified to conform to current presentation.

Consumer Banking

Net income increased by ~~$0.6~~$16.7 million or 3%118% in the ~~third~~first quarter of ~~2022~~2023 compared to the same period in ~~2021~~2022 primarily due to an increase in net interest income. This was partially offset by an increase in noninterest expense, an increase in the provision for credit losses, and a decrease in noninterest income. The increase in net interest income was primarily due to higher deposit spreads and higher loan balances, partly offset by lower loan spreads and lower deposit balances. The increase in noninterest expense was primarily due to higher salaries and benefits expense and higher allocated expenses related to support units. The increase in the provision for credit losses was primarily due to higher net charge-offs in the installment loan and automobile loan portfolios, and lower recoveries in the home equity portfolio. The decrease in noninterest income was primarily due to a decrease in mortgage banking income, related to a net valuation recovery to our servicing rights during the first quarter of 2022.

Commercial Banking

Net income increased by $5.4 million or 19% in the first quarter of 2023 compared to the same period in 2022 primarily due to an increase in net interest income, ~~partly~~partially offset by a decrease in noninterest income and an increase in noninterest expense. The increase in net interest income was primarily due to ~~higher deposit margins~~increased earnings credits on noninterest bearing, savings, and ~~higher deposit and loan balances, partly~~time deposits, partially offset by reduced spreads on interest bearing demand deposits and lower ~~loan margins. The increase in noninterest expense was primarily due to higher allocated expenses~~balances and deferred fees related to ~~support units, higher salaries and benefits expense, and higher occupancy expense.~~

~~Net income decreased by $5.9 million or 9% in~~ the first nine months of 2022 compared to the same period in 2021 primarily due to an increase in noninterest expense and a decrease in noninterest income, partly offset by an increase in net interest income. The increase in noninterest expense was primarily due to higher allocated expenses related to support units, higher salaries and benefits expense, and a gain on the sale of a real estate property on the island of Oahu in the first nine months of 2021. This was partly offset by the rollout of contactless cards in the first quarter of 2021.Payroll Protection Program. The decrease in noninterest income was primarily due to lower mortgage banking income as a result of decreased sales of conforming saleable loans from current production, partly offset by higher overdraft fees and other income. The increase in net interest income was primarily due to higher deposit margins and higher deposit and loan balances, partly offset by lower loan margins.

~~Commercial Banking~~

~~Net income decreased by $2.7 million in the third quarter of 2022 compared to the same period in 2021 primarily due to~~ a decrease in noninterest income and taxes, partially offset by an increase to interest income. The decrease in noninterest income is primarily due to a one-time pre-tax charge of $6.9 million related to our agreement to sell assets that will terminate certain leveraged leases, along with a reduction in customer derivative program revenue. The increase in interest income is due primarily to increased spreads on noninterest bearing, savings, and time deposits. The increase in interest income was partially offset by runoff in the payroll protection program portfolio and a decrease in spread on our commercial mortgage portfolio. The decrease in the tax provision is primarily due to the tax benefit related to the sale of leased assets noted above.

~~Net income decreased by $2.6 million in the first nine months of 2022 compared to the same period in 2021 primarily due to an increase in noninterest expense and decrease in noninterest~~ revenue, partially offset by an increase in ~~interest income and reduction in the tax provision.~~merchant income. The increase in noninterest expense was primarily due to higher allocated expenses from support units, merchant processing fees, and salaries and benefits, partially offset by increased deferred salaries from loan originations. The decrease in noninterest income is primarily due to ~~a one-time pre-tax charge of $6.9 million~~increased salaries & benefits, merchant transaction & processing fees, and broker charges related to our agreement to sell assets that will terminate certain leveraged leases, and a reduction in loan fees due to a large one time prepayment fee recognized in March 2021. The reduction to noninterest income was partially offset by increased merchant income andthe customer derivative program revenue. The increase in interest income is due primarily to increased spreads and balances on noninterest bearing deposits and an increase in commercial mortgage balances. The increase in interest income was partially offset by runoffnow reflected in the ~~payroll protection program~~

~~Table~~segment instead of ~~Contents~~Treasury.

~~portfolio and a decrease in commercial and industrial spreads. The decrease in the tax provision is primarily due to the tax benefit related to the sale of leased assets noted above.~~

Treasury and Other

Net income decreased by ~~$7.1~~$30.1 million in the ~~third~~first quarter of ~~2022~~2023 compared to the same period in ~~2021~~2022 primarily due to lower net interest income and a lower negative provision for credit ~~losses and net interest income,~~losses. This was partially offset by a lower ~~noninterest expense and~~ provision for income taxes. The decrease in the negative Provision was primarily due to management’s best estimate of losses over the life of loans and leases in our portfolio in accordance with the current expected credit losses (CECL) approach, given the economic outlook. The decrease in net interest income was primarily due to higher ~~deposit~~ funding costs, partially offset by an increase in interest income from higher asset yields. The decrease in noninterest expense was driven by early termination costs incurred in the third quarter of 2021 related to the prepayment of repurchase agreements. The provision for income taxes in this business segment represents the residual amount to arrive at the total tax expense for the Company.

Net income decreased by $16.5 million in the first nine months of 2022 compared to the same period in 2021 primarily due to lower negative provision for credit losses, partially offset by lower noninterest expense and lower provision for income taxes. The decrease in the negative Provision was primarily due to management’s best estimate of losses over the life of loans and leases in our portfolio in accordance with the CECL approach, given the economic outlook. The ~~decrease in noninterest expense was due to early termination costs incurred in the second and third quarter of 2021 related to the prepayment of repurchase agreements and FHLB advances. The~~ provision for income taxes in this business segment represents the residual amount to arrive at the total tax expense for the Company.

Table of Contents

Corporate Risk Profile

Credit Risk

As of ~~September 30, 2022,~~March 31, 2023, our overall credit risk profile remains strong and reflects the continued recovery of Hawaii’s ~~economy, which was severely impacted by the COVID-19 pandemic.~~ economy.

We actively manage exposures with deteriorating asset quality to reduce levels of potential loss exposure and closely monitor our reserves and capital to address both anticipated and unforeseen issues. Risk management activities include detailed analysis of portfolio segments and stress tests of certain segments to ensure that reserve and capital levels are appropriate. We perform frequent loan and lease-level risk monitoring and risk rating reviews, which provide opportunities for early interventions to allow for credit exits or restructuring, loan and lease sales, and voluntary workouts and liquidations.

~~Table of Contents~~

Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More

Table 15 presents information on non-performing assets (“NPAs”) and accruing loans and leases past due 90 days or more.


Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More							Table 15
(dollars in thousands)	March 31, 2023			December 31, 2022			Change
Non-Performing Assets
Non-Accrual Loans and Leases
Commercial
Commercial and Industrial	$	31		$	37		$	(6	)
Commercial Mortgage		3,216			3,309			(93	)
Total Commercial		3,247			3,346			(99	)
Consumer
Residential Mortgage		4,199			4,239			(40	)
Home Equity		3,638			4,022			(384	)
Total Consumer		7,837			8,261			(424	)
Total Non-Accrual Loans and Leases		11,084			11,607			(523	)
Foreclosed Real Estate		1,040			1,040			—
Total Non-Performing Assets	$	12,124		$	12,647		$	(523	)
Accruing Loans and Leases Past Due 90 Days or More
Consumer
Residential Mortgage	$	4,566		$	2,429		$	2,137
Home Equity		1,723			1,673			50
Automobile		598			589			9
Other 1		632			683			(51	)
Total Consumer		7,519			5,374			2,145
Total Accruing Loans and Leases Past Due 90 Days or More	$	7,519		$	5,374		$	2,145
Total Loans and Leases	$	13,824,522		$	13,646,420		$	178,102
Ratio of Non-Accrual Loans and Leases to Total Loans and Leases		0.08	%		0.09	%		(0.01	)%
Ratio of Non-Performing Assets to Total Loans and Leases and Foreclosed Real Estate		0.09	%		0.09	%		—
Ratio of Non-Performing Assets to Total Assets		0.05	%		0.05	%		(0.00	)%
Ratio of Commercial Non-Performing Assets to Total Commercial Loans and Leases and Commercial Foreclosed Real Estate		0.06	%		0.06	%		—
Ratio of Consumer Non-Performing Assets to Total Consumer Loans and Leases and Consumer Foreclosed Real Estate		0.11	%		0.11	%		—
Ratio of Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More to Total Loans and Leases and Foreclosed Real Estate		0.14	%		0.13	%		0.01	%
Changes in Non-Performing Assets
Balance as of December 31, 2022	$	12,647
Additions		552
Reductions
Payments		(778	)
Return to Accrual Status		(297	)
Sales of Foreclosed Real Estate
Charge-offs/Write-downs
Total Reductions		(1,075	)
Balance as of March 31, 2023	$	12,124

Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More

Table 15

(dollars in thousands)

September 30,
2022

December 31,
2021

Change

Non-Performing Assets

Non-Accrual Loans and Leases

Commercial

Commercial and Industrial

$
49

$
243

$
(194
)
Commercial Mortgage

3,396

8,205

(4,809
)
Total Commercial

3,445

8,448

(5,003
)
Consumer

Residential Mortgage

4,945

3,305

1,640

Home Equity

4,438

4,881

(443
)
Total Consumer

9,383

8,186

1,197

Total Non-Accrual Loans and Leases

12,828

16,634

(3,806
)
Foreclosed Real Estate

1,040

2,332

(1,292
)
Total Non-Performing Assets

$
13,868

$
18,966

$
(5,098
)
Accruing Loans and Leases Past Due 90 Days or More

Consumer

Residential Mortgage

$
3,279

$
3,159

$
120

Home Equity

1,061

3,456

(2,395
)
Automobile

467

729

(262
)
Other ¹

513

426

87

Total Consumer

5,320

7,770

(2,450
)
Total Accruing Loans and Leases Past Due 90 Days or More

$
5,320

$
7,770

$
(2,450
)
Restructured Loans on Accrual Status and Not Past Due 90 Days or More

$
44,641

$
60,519

$
(15,878
)
Total Loans and Leases

$
13,321,606

$
12,259,076

$
1,062,530

Ratio of Non-Accrual Loans and Leases to Total Loans and Leases

0.10
%

0.14
%

(0.04
)%
Ratio of Non-Performing Assets to Total Loans and Leases and Foreclosed Real Estate

0.10
%

0.15
%

(0.05
)%
Ratio of Non-Performing Assets to Total Assets

0.06
%

0.07
%

(0.01
)%
Ratio of Commercial Non-Performing Assets to Total Commercial Loans and Leases
   and Commercial Foreclosed Real Estate

0.07
%

0.17
%

(0.10
)%
Ratio of Consumer Non-Performing Assets to Total Consumer Loans and Leases
   and Consumer Foreclosed Real Estate

0.13
%

0.14
%

(0.01
)%
Ratio of Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days
   or More to Total Loans and Leases and Foreclosed Real Estate

0.14
%

0.22
%

(0.08
)%
Changes in Non-Performing Assets

Balance as of December 31, 2021

$
18,966

Additions

5,025

Reductions

Payments

(7,447
)

Return to Accrual Status

(1,383
)

Sales of Foreclosed Real Estate

(1,292
)

Charge-offs/Write-downs

(1
)

Total Reductions

(10,123
)

Balance as of September 30, 2022

$
13,868

1

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

Table of Contents

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

NPAs consist of non-accrual loans and leases, and foreclosed real estate. Changes in the level of non-accrual loans and leases typically represent additions for loans and leases that reach a specified past due status, offset by reductions for loans and leases that are charged-off, paid down, sold, transferred to foreclosed real estate, or are no longer classified as non-accrual because they have returned to accrual status.

Residential mortgage non-accrual loans were ~~$4.9~~$4.2 million as of ~~September 30, 2022, an increase of $1.6 million or 50%~~March 31, 2023, remained relatively unchanged from December 31, ~~2021.~~2022. As of ~~September 30, 2022,~~March 31, 2023, our residential mortgage non-accrual loans were comprised of 1716 loans with a weighted average current loan-to-value ratio of ~~58%~~59%.

~~Table of Contents~~

Foreclosed real estate represents property acquired as the result of borrower defaults on loans. Foreclosed real estate is recorded at fair value, less estimated selling costs, at the time of foreclosure. On an ongoing basis, properties are appraised as required by market conditions and applicable regulations. Foreclosed real estate was $1.0 million as of ~~September 30, 2022, a $1.3 million or 55% decrease from December~~March 31, ~~2021.~~2023.

Loans and Leases Past Due 90 Days or More and Still Accruing Interest

Loans and leases in this category are 90 days or more past due, as to principal or interest, and are still accruing interest because they are well secured and in the process of collection. Loans and leases past due 90 days or more and still accruing interest were ~~$5.3~~$7.5 million as of ~~September 30, 2022,~~March 31, 2023, a ~~$2.5~~$2.1 million or ~~32% decrease~~40% increase from December 31, ~~2021.~~2022. The ~~decrease~~increase was primarily in ~~home equity and automobile, which was partially offset by increases in~~ residential ~~mortgage and other.~~mortgage.

~~Table 16 presents information on loans with terms that have been modified in a TDR.~~

Loans Modified in a Troubled Debt Restructuring

Table 16

(dollars in thousands)

September 30,
2022

December 31,
2021

Change

Commercial

Commercial and Industrial

$
6,921

$
18,722

$
(11,801
)
Commercial Mortgage

6,593

11,777

(5,184
)
Total Commercial

13,514

30,499

(16,985
)
Consumer

Residential Mortgage

15,417

16,102

(685
)
Home Equity

4,650

4,877

(227
)
Automobile

12,846

16,148

(3,302
)
Other¹

1,870

2,331

(461
)
Total Consumer

34,783

39,458

(4,675
)
Total

$
48,297

$
69,957

$
(21,660
)

¹51	~~Comprised of other revolving credit and installment financing.~~

Table of Contents

Reserve for Credit Losses

Table 1716 presents the activity in our reserve for credit losses.


Reserve for Credit Losses							Table 16
	Three Months Ended
(dollars in thousands)	March 31, 2023			December 31, 2022			March 31, 2022
Balance at Beginning of Period	$	151,247		$	152,927		$	164,297
Loans and Leases Charged-Off
Commercial
Commercial and Industrial		(261	)		(196	)		(349	)
Consumer
Home Equity		(50	)		(10	)		(68	)
Automobile		(1,663	)		(1,171	)		(1,530	)
Other 1		(2,335	)		(1,846	)		(1,961	)
Total Loans and Leases Charged-Off		(4,309	)		(3,223	)		(3,908	)
Recoveries on Loans and Leases Previously Charged-Off
Commercial
Commercial and Industrial		50			87			369
Consumer
Residential Mortgage		61			63			54
Home Equity		184			202			515
Automobile		672			412			739
Other 1		674			604			745
Total Recoveries on Loans and Leases Previously Charged-Off		1,641			1,368			2,422
Net Charged-Off - Loans and Leases		(2,668	)		(1,855	)		(1,486	)
Net Charged-Off - Accrued Interest Receivable		—			(25	)		(47	)
Provision for Credit Losses:
Loans and Leases		1,806			(142	)		(4,307	)
Accrued Interest Receivable		—			25			(367	)
Unfunded Commitments		194			317			(826	)
Total Provision for Credit Losses		2,000			200			(5,500	)
Balance at End of Period	$	150,579		$	151,247		$	157,264
Components
Allowance for Credit Losses - Loans and Leases	$	143,577		$	144,439		$	152,028
Reserve for Unfunded Commitments		7,002			6,808			5,236
Total Reserve for Credit Losses	$	150,579		$	151,247		$	157,264
Average Loans and Leases Outstanding	$	13,717,483		$	13,452,791		$	12,290,402
Ratio of Net Loans and Leases Charged-Off to Average Loans and Leases Outstanding (annualized)		0.08	%		0.05	%		0.05	%
Ratio of Allowance for Credit Losses to Loans and Leases Outstanding 2		1.04	%		1.06	%		1.21	%

Reserve for Credit Losses

Table 17

Three Months Ended September 30,

Nine Months Ended September 30,

(dollars in thousands)

2022

2021

2022

2021

Balance at Beginning of Period

$
154,098

$
186,371

$
164,297

$
221,303

Loans and Leases Charged-Off

Commercial

Commercial and Industrial

(147
)

(196
)

(729
)

(900
)
Consumer

Residential Mortgage

—

(197
)

(80
)

(316
)
Home Equity

—

(289
)

(90
)

(412
)
Automobile

(794
)

(576
)

(3,481
)

(3,894
)
Other ¹

(1,924
)

(2,187
)

(5,739
)

(8,523
)
Total Loans and Leases Charged-Off

(2,865
)

(3,445
)

(10,119
)

(14,045
)
Recoveries on Loans and Leases Previously Charged-Off

Commercial

Commercial and Industrial

45

118

465

374

Consumer

Residential Mortgage

156

173

1,130

1,609

Home Equity

367

216

1,298

1,276

Automobile

441

943

1,864

3,034

Other ¹

709

802

2,098

2,459

Total Recoveries on Loans and Leases Previously
   Charged-Off

1,718

2,252

6,855

8,752

Net Charged-Off - Loans and Leases

(1,147
)

(1,193
)

(3,264
)

(5,293
)
Net Charged-Off  - Accrued Interest Receivable

—

(70
)

(47
)

(502
)
Provision for Credit Losses:

Loans and Leases

(929
)

(11,272
)

(8,121
)

(43,039
)
Accrued Interest Receivable

—

(703
)

(367
)

(1,531
)
Unfunded Commitments

905

1,575

429

3,770

Total Provision for Credit Losses

(24
)

(10,400
)

(8,059
)

(40,800
)
Balance at End of Period

$
152,927

$
174,708

$
152,927

$
174,708

Components

Allowance for Credit Losses - Loans and Leases

$
146,436

$
167,920

$
146,436

$
167,920

Allowance for Credit Losses - Accrued Interest Receivable

—

667

—

667

Reserve for Unfunded Commitments

6,491

6,121

6,491

6,121

Total Reserve for Credit Losses

$
152,927

$
174,708

$
152,927

$
174,708

Average Loans and Leases Outstanding

$
13,126,717

$
11,958,321

$
12,709,045

$
12,002,426

Ratio of Net Loans and Leases Charged-Off to
   Average Loans and Leases Outstanding (annualized)

0.03
%

0.04
%

0.03
%

0.06
%
Ratio of Allowance for Credit Losses to
   Loans and Leases Outstanding ²

1.10
%

1.39
%

1.10
%

1.39
%
1

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

The numerator comprises the Allowance for Credit Losses – Loans and Leases.

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

²	~~The numerator comprises the Allowance for Credit Losses – Loans and Leases.~~

5652

Table of Contents

Allowance for Credit Losses - Loans and Leases

As of ~~September 30, 2022,~~March 31, 2023, the Allowance was ~~$146.4~~$143.6 million or ~~1.10%~~1.04% of total loans and leases outstanding ~~(1.12%~~(1.04% excluding PPP loans), compared with an Allowance of ~~$157.8~~$144.4 million or ~~1.29%~~1.06% of total loans and leases outstanding ~~(1.30%~~(1.08% excluding PPP loans) as of December 31, ~~2021. The decrease in~~2022. While the total Allowance and the ratio of the Allowance to loans and leases outstanding ~~was primarily due~~has declined, the Allowance as of March 31, 2023 continues to ~~management’s best estimate of~~include a qualitative overlay to account for potential losses ~~over the life of loans and leases in our portfolio in accordance with the CECL approach, including the improved near term economic outlook~~ associated with the ~~return~~current economic uncertainty and the risk of ~~international visitors.~~a U.S. recession.

Net charge-offs on loans and leases were ~~$1.1~~$2.7 million or ~~0.03%~~0.08% of total average loans and leases, on an annualized basis, in the ~~third~~first quarter of ~~2022~~2023 compared to net charge-offs of ~~$1.2~~$1.5 million or ~~0.04%~~0.05% of total average loans and leases, on an annualized basis, in the ~~third~~first quarter of ~~2021.~~2022. The ~~decrease~~increase in net charge-offs on loans and leases was primarily due to the ~~lower~~higher gross charge-offs in ~~home equity~~automobile and other loans, ~~partially offset by~~and lower recoveries in ~~automobile loans. Net charge-off on loans and leases were $3.3 million or 0.03% of total average loans and leases, on an annualized basis, for the first nine months of 2022.~~home equity.

Reserve for Unfunded Commitments

The Unfunded Reserve was ~~$6.5~~$7.0 million as of ~~September 30, 2022,~~March 31, 2023, an increase of ~~$0.4~~$0.2 million or 7%3% from December 31, ~~2021,~~2022, primarily driven by lower utilization of and construction loan commitments, partially offset by higher utilization of commercial and industrial ~~and construction loan~~ commitments. The reserve for unfunded commitments is recorded in other liabilities in the consolidated statements of condition.

Provision for Credit Losses

For the first ~~nine~~three months of ~~2022,~~2023, the ~~Provision~~provision for ~~Credit Losses~~credit losses was ~~a net benefit of $8.0~~$2.0 million compared to a net benefit of ~~$40.8~~$5.5 million during the same period in ~~2021.~~2022. The ~~decrease~~increase in the ~~net benefit~~provision was primarily due to ~~a lower~~smaller reduction in the ~~Allowance~~allowance for ~~Credit Losses – Loans and Leases for the first nine months of 2022 compared~~credit losses in addition to ~~the same period in 2021.~~higher total net charge-offs.

Market Risk

Market risk is the potential of loss arising from adverse changes in interest rates and prices. We are exposed to market risk as a consequence of the normal course of conducting our business activities. Our market risk management process involves measuring, monitoring, controlling, and mitigating risks that can significantly impact our statements of income and condition. In this management process, market risks are balanced with expected returns in an effort to enhance earnings performance, while limiting volatility.

Our primary market risk exposure is interest rate risk.

Interest Rate Risk

The objective of our interest rate risk management process is to maximize net interest income while operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity. The potential cash flows, sales, or replacement value of many of our assets and liabilities, especially those that earn or pay interest, are sensitive to changes in the general level of interest rates. This interest rate risk arises primarily from our core business activities of extending loans and accepting deposits. Our investment securities portfolio is also subject to significant interest rate risk.

Many factors affect our exposure to changes in interest rates such as general economic and financial conditions, customer preferences, historical pricing relationships, and repricing characteristics of financial instruments. Our earnings are affected not only by general economic conditions but also by the monetary and fiscal policies of the U.S. and its agencies, particularly the Federal Reserve Bank (the “FRB”). The monetary policies of the FRB can influence the overall growth of loans, investment securities, and deposits and the level of interest rates earned on assets and paid for liabilities.

Table of Contents

In managing interest rate risk, we, through the Asset/Liability Management Committee (“ALCO”), measure short and long-term sensitivities to changes in interest rates. The ALCO, which is comprised of members of executive management, utilizes several techniques to manage interest rate risk, which include:

•

adjusting the balance sheet mix or altering the interest rate characteristics of assets and liabilities;

•

changing product pricing strategies;

•

modifying characteristics of the investment securities portfolio; and

•

using derivative financial instruments.

•

~~adjusting the balance sheet mix or altering the interest rate characteristics of assets and liabilities;~~

•

~~changing product pricing strategies;~~

•

~~modifying characteristics of the investment securities portfolio; and~~

•

~~using derivative financial instruments.~~

Our use of derivative financial instruments, as detailed in Note 11 to the Consolidated Financial Statements, has generally been limited. This is due to natural on-balance sheet hedges arising out of offsetting interest rate exposures from loans and investment securities with deposits and other interest-bearing liabilities. In particular, the investment securities portfolio is utilized to manage the interest rate exposure and sensitivity to within the guidelines and limits established by the ALCO. We utilize natural and offsetting economic hedges in an effort to reduce the need to employ off-balance sheet derivative financial instruments to hedge interest rate risk exposures. Expected movements in interest rates are also considered in managing interest rate risk. Thus, as interest rates change, we may use different techniques to manage interest rate risk.

A key element in our ongoing process to measure and monitor interest rate risk is the utilization of an asset/liability simulation model that attempts to capture the dynamic nature of the statement of condition. The model is used to estimate and measure the statement of condition sensitivity to changes in interest rates. These estimates are based on assumptions about the behavior of loan and deposit pricing, prepayment rates on mortgage-based assets, and principal amortization and maturities on other financial instruments. The model’s analytics include the effects of standard prepayment options on mortgages and customer withdrawal options for deposits. While such assumptions are inherently uncertain, we believe that our assumptions are reasonable.

We utilize net interest income simulations to analyze income sensitivities to changes in interest rates. Table 1817 presents, as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021,~~2022, an estimate of the change in net interest income that would result from a gradual and immediate change in interest rates, moving in a parallel shock over the entire yield curve, relative to the measured base case scenario. The base case scenario assumes the statement of condition and interest rates are generally unchanged. Based on our net interest income simulation as of ~~September 30, 2022,~~March 31, 2023, net interest income is expected to increase as interest rates rise. ~~Rising~~In addition, rising interest rates would drive higher rates on loans and investment securities, as well as induce a slower pace of premium amortization on certain securities within our investment portfolio. However, lower interest rates would likely cause a decline in net interest income as lower rates would lead to lower yields on loans and investment securities, as well as drive higher premium amortization on existing investment securities. Based on our net interest income simulation as of ~~September 30, 2022,~~March 31, 2023, net interest income sensitivity to changes in interest rates as of ~~September 30, 2022,~~March 31, 2023, was ~~less~~more sensitive in comparison to the sensitivity profile as of December 31, ~~2021.~~2022.


Net Interest Income Sensitivity Profile									Table 18											Table 17
	Impact on Future Annual Net Interest Income											Impact on Future Annual Net Interest Income
(dollars in thousands)	September 30, 2022					December 31, 2021						March 31, 2023					December 31, 2022
Gradual Change in Interest Rates (basis points)
+200	$	19,622		3.3	%	$	29,697			6.1	%	$	16,980		3.0	%	$	13,943			2.4	%
+100		9,653		1.6			15,306			3.1			8,682		1.5			7,673			1.3
-100		(7,366	)	(1.3	)		(8,922	)		(1.8	)		(5,404	)	(1.0	)		(4,365	)		(0.7	)
Immediate Change in Interest Rates (basis points)
+200	$	41,824		7.1	%	$	68,037			14.0	%	$	30,986		5.5	%	$	22,100			3.8	%
+100		21,030		3.6			38,361			7.9			18,236		3.2			11,627			2.0
-100		(16,714	)	(2.9	)		(30,511	)		(6.3	)		(14,352	)	(2.6	)		(8,659	)		(1.5	)

Table of Contents

To analyze the impact of changes in interest rates in a more realistic manner, non-parallel interest rate scenarios are also simulated. ~~These~~Given the current shape of the yield curve, these non-parallel interest rate scenarios indicate that net interest income may ~~decrease~~increase from the base case scenario should the yield curve flatten orand may decrease should the yield curve become more inverted for a period of time. ~~Conversely,~~However, if the yield curve were to steepen, net interest income may increase.

~~Table of Contents~~

Other Market Risks

In addition to interest rate risk, we are exposed to other forms of market risk in our normal business transactions. Foreign currency and foreign exchange contracts expose us to a small degree of foreign currency risk. These transactions are primarily executed on behalf of customers. Our trust and asset management income are at risk to fluctuations in the market values of underlying assets, particularly debt and equity securities. Also, our share-based compensation expense is dependent on the fair value of our stock options, restricted stock units, and restricted stock at the date of grant. The fair value of stock options, restricted stock units, and restricted stock is impacted by the market price of the Parent’s common stock on the date of grant and is at risk to changes in equity markets, general economic conditions, and other factors.

Liquidity Risk Management

The objective of our liquidity risk management process is to manage cash flow and liquidity in an effort to provide continuous access to sufficient, reasonably priced funds. Funding requirements are impacted by loan originations and refinancings, deposit balance changes, liability issuances and settlements, and off-balance sheet funding commitments. We consider and comply with various regulatory guidelines regarding required liquidity levels and periodically monitor our liquidity position in light of the changing economic environment and customer activity. Based on periodic liquidity assessments, we may alter our asset, liability, and off-balance sheet positions. The ALCO monitors sources and uses of funds and modifies asset and liability positions as liquidity requirements change. This process, combined with our ability to raise funds in money and capital markets and through private placements, provides flexibility in managing the exposure to liquidity risk.

In an effort to satisfy our liquidity needs, we actively manage our assets and liabilities. We have access to immediate liquid resources in the form of cash which is primarily on deposit with the FRB. Potential sources of liquidity also include investment securities in our available-for-sale securities portfolio, ~~and~~ our ability to sell loans in the secondary ~~market.~~market, and to secure borrowings from the FRB and FHLB. Our held-to-maturity securities, while not intended for sale, may also be utilized in repurchase agreements to obtain funding. Our core deposits have historically provided us with a long-term source of stable and relatively ~~lower~~low cost source of funding. Additional funding is available through the issuance of long-term debt or equity.

Maturities and payments on outstanding loans and investment securities also provide a steady flow of funds. Liquidity is further enhanced by our ability to pledge loans to access secured borrowings from the FHLB and FRB. As of ~~September 30, 2022,~~March 31, 2023, we had additional borrowing capacity of ~~$3.1~~$2.3 billion from the FHLB and ~~$608.1 million~~$4.5 billion from the FRB based on the amount of collateral pledged.

We continued our focus on maintaining a strong liquidity position throughout the first ~~nine~~three months of ~~2022.~~2023. As of ~~September 30, 2022,~~March 31, 2023, cash and cash equivalents were ~~$655.6~~$612.0 million, the ~~fair~~carrying value of our available-for-sale investment securities was ~~$2.4~~$2.8 billion, and total deposits were ~~$20.9 billion as~~$20.5 billion. As of ~~September 30, 2022.~~March 31, 2023, our available-for-sale investment securities portfolio was comprised of securities with an average base duration of approximately 3.82 years.

Capital Management

We actively manage capital, commensurate with our risk profile, to enhance shareholder value. We also seek to maintain capital levels for the Company and the Bank at amounts in excess of the regulatory “well-capitalized” thresholds. Periodically, we may respond to market conditions by implementing changes to our overall balance sheet positioning to manage our capital position.

Table of Contents

The Company and the Bank are each subject to regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements could cause certain mandatory and discretionary actions by regulators that, if undertaken, would likely have a material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative and qualitative measures. These measures were established by regulation intended to ensure capital adequacy. Capital ratios are calculated using the regulatory capital rule that allows a five-year transition period related to the adoption of CECL. As of ~~September 30, 2022,~~March 31, 2023, the Company’s capital levels remained characterized as ~~“well-capitalized”.~~“well-capitalized.” There have been no conditions or events since ~~September 30, 2022,~~March 31, 2023, that management believes have changed either the Company’s or the Bank’s capital classifications. The Company’s regulatory capital ratios are presented in Table 1918 below.

~~Table of Contents~~

Table 1918 presents our regulatory capital and ratios as of ~~September 30, 2022,~~March 31, 2023, and December 31, ~~2021.~~2022.


Regulatory Capital and Ratios				Table 18
(dollars in thousands)	March 31, 2023			December 31, 2022
Regulatory Capital
Total Common Shareholders’ Equity	$	1,178,943		$	1,141,507
Add: CECL Transitional Amount		4,749			7,124
Less: Goodwill, Net of Deferred Tax Liabilities		28,746			28,746
Postretirement Benefit Liability Adjustments		(24,994	)		(25,078	)
Net Unrealized Losses on Investment Securities 1		(380,304	)		(409,580	)
Other		(198	)		(198	)
Common Equity Tier 1 Capital		1,560,442			1,554,741
Preferred Stock, Net of Issuance Cost		175,487			175,487
Tier 1 Capital		1,735,929			1,730,228
Allowable Reserve for Credit Losses		146,550			145,202
Total Regulatory Capital	$	1,882,479		$	1,875,430
Risk-Weighted Assets	$	14,341,398		$	14,238,798
Key Regulatory Capital Ratios
Common Equity Tier 1 Capital Ratio		10.88	%		10.92	%
Tier 1 Capital Ratio		12.10			12.15
Total Capital Ratio		13.13			13.17
Tier 1 Leverage Ratio		7.19			7.37

Regulatory Capital and Ratios

Table 19

(dollars in thousands)

September 30,
2022

December 31,
2021

Regulatory Capital

Total Common Shareholders’ Equity

$
1,106,896

$
1,436,124

Add: CECL Transitional Amount

7,124

9,498

Less: Goodwill, Net of Deferred Tax Liabilities

28,747

28,747

Postretirement Benefit Liability Adjustments

(32,437
)

(33,496
)
Net Unrealized Losses on Investment Securities ¹

(415,257
)

(32,886
)
Other

(198
)

(198
)
Common Equity Tier 1 Capital

1,533,165

1,483,455

Preferred Stock, Net of Issuance Cost

175,487

175,487

Tier 1 Capital

1,708,652

1,658,942

Allowable Reserve for Credit Losses

146,882

153,001

Total Regulatory Capital

$
1,855,534

$
1,811,943

Risk-Weighted Assets

$
13,428,188

$
12,236,805

Key Regulatory Capital Ratios

Common Equity Tier 1 Capital Ratio

11.42
%

12.12
%
Tier 1 Capital Ratio

12.72

13.56

Total Capital Ratio

13.82

14.81

Tier 1 Leverage Ratio

7.28

7.32

1

Includes unrealized gains and losses related to the Company’s reclassification of available-for-sale investment securities to the held-to-maturity category.

¹	~~Includes unrealized gains and losses related to the Company’s reclassification of available-for-sale investment securities to the held-to-maturity category.~~

Regulatory capital ratios as of ~~September 30, 2022~~March 31, 2023 are preliminary.

As of ~~September 30, 2022,~~March 31, 2023, shareholders’ equity was ~~$1.3~~$1.4 billion, ~~a decrease~~an increase of ~~$329.2~~$37.4 million or ~~20%~~3% from December 31, ~~2021.~~2022. For the first ~~nine~~three months of ~~2022,~~2023, net income of ~~$164.5~~$46.8 million, other comprehensive income of $29.4 million, share-based compensation of $3.4 million, and common stock issuances of ~~$5.7 million, and share-based compensation of $11.9~~$1.6 million were offset by ~~other comprehensive loss of $381.3 million,~~ cash dividends paid of ~~$84.6~~$27.9 million on common shares, common stock repurchased of ~~$39.5~~$13.8 million, and cash dividends declared of ~~$5.9~~$2.0 million on preferred shares. In the first ~~nine~~three months of ~~2022,~~2023, we repurchased ~~435,283~~150,000 shares under our share repurchase program. These shares were repurchased at an average cost per share of ~~$80.14~~$65.69 and a total cost of ~~$34.9~~$9.9 million. From the beginning of our share repurchase program in July 2001 through ~~September 30, 2022,~~March 31, 2023, we repurchased a total of ~~57.8~~58.2 million shares of our common stock and returned a total of $2.4 billion to our shareholders at an average cost of ~~$41.05~~$41.24 per share.

In January 2023, the Board of Directors authorized an additional $100.0 million for the share repurchase program. Remaining buyback authority under our share repurchase program was ~~$50.9~~$126.0 million as of ~~September 30, 2022.~~March 31, 2023. The actual amount and timing of future share repurchases, if any, will depend on market and economic conditions, regulatory rules, applicable SEC rules, and various other factors.

In ~~October 2022,~~April 2023, the Parent’s Board of Directors declared a quarterly dividend payment of its Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, of $10.94 per share, equivalent to $0.2735 per depositary share. The dividend will be payable on ~~November~~May 1, ~~2022~~2023 to shareholders of record of the preferred stock at the close of business on ~~October 17, 2022.~~April 14, 2023.

Table of Contents

In ~~October 2022,~~April 2023, the Parent’s Board of Directors declared a quarterly cash dividend of $0.70 per share on the Parent’s outstanding common shares. The dividend will be payable on ~~December 14, 2022,~~June 15, 2023, to shareholders of record of the common stock at the close of business on ~~November 30, 2022.~~

~~Regulatory Initiatives Affecting the Banking Industry~~

~~U.S. Government Relief Programs in Response to the COVID-19 Pandemic~~

On March 27, 2020, President Trump signed the CARES Act into law. Many of the provisions of the CARES Act were renewed or extended by the Coronavirus Response and Relief Supplemental Appropriations Act on December 21, 2020.

~~Table of Contents~~

The CARES Act established the Paycheck Protection Program, an expansion of the SBA’s 7(a) loan program. The PPP provided loans to small businesses who were affected by economic conditions as a result of the COVID-19 pandemic to provide cash flow assistance to employers who maintained their payroll (including healthcare and certain related expenses), mortgage interest, rent, leases, utilities and interest on existing debt during this emergency. The funding period of the PPP ended on May 31, 2021. Pursuant to the provisions of Section 1106 of the CARES Act, borrowers may apply to the Bank for loan forgiveness of all or a portion of the loan, subject to certain eligibility requirements and conditions.2023.

Operational Risk

Operational risk represents the risk of loss resulting from our operations, including, but not limited to, the risk of fraud by employees or persons outside the Company, errors relating to transaction processing and technology, failure to adhere to compliance requirements, and the risk of cyber attacks. We are also exposed to operational risk through our outsourcing arrangements, and the effect that changes in circumstances or capabilities of our outsourcing vendors can have on our ability to continue to perform operational functions necessary to our business. The risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards, adverse business decisions or their implementation, and customer attrition due to potential negative publicity. Operational risk is inherent in all business activities, and management of this risk is important to the achievement of Company goals and objectives.

Our Operational Risk Committee (the “ORC”) provides oversight and assesses the most significant operational risks facing the Company. We have developed a framework that provides for a centralized operating risk management function through the ORC, supplemented by business unit responsibility for managing operational risks specific to their business units. Our internal audit department also validates the system of internal controls through ongoing risk-based audit procedures and reports on the effectiveness of internal controls to executive management and the Audit and Risk Committee of the Board of Directors.

We continuously strive to strengthen our system of internal controls to improve the oversight of operational risk. While our internal controls have been designed to minimize operational risks, there is no assurance that business disruption or operational losses will not occur. On an ongoing basis, management reassesses operational risks, implements appropriate process changes, and invests in enhancements to our systems of internal controls.

Off-Balance Sheet Arrangements, Credit Commitments, and Contractual Obligations

Off-Balance Sheet Arrangements

We hold interests in several unconsolidated variable interest entities (“VIEs”). These unconsolidated VIEs are primarily low-income housing partnerships and solar energy partnerships. Variable interests are defined as contractual ownership or other interests in an entity that change with fluctuations in an entity’s net asset value. The primary beneficiary consolidates the VIE. We have determined that the Company is not the primary beneficiary of these entities. As a result, we do not consolidate these VIEs.

Credit Commitments and Contractual Obligations

Our credit commitments and contractual obligations have not changed materially since previously reported in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

See “Market Risk” of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of ~~September 30, 2022.~~March 31, 2023. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of ~~September 30, 2022.~~March 31, 2023.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended ~~September 30, 2022,~~March 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II - Other Information

Item 1. Legal Proceedings

Information regarding legal proceedings is incorporated by reference from “Contingencies” in Note 12 to our Consolidated Financial Statements (unaudited) set forth in Part I of this report.

Item 1A. Risk Factors

There are no material changes from the risk factors set forth under Part I, Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022, except as described below.

Risks Related to Recent Events Impacting the Financial Services Industry

Recent events impacting the financial services industry, including the failure of Silicon Valley Bank and Signature Bank, have resulted in decreased confidence in banks among consumer and commercial depositors, other counterparties and investors, as well as significant disruption, volatility and reduced valuations of equity and other securities of banks in the capital markets. These events occurred during a period of rapidly rising interest rates which, among other things, has resulted in unrealized losses in longer duration securities and loans held by banks, more competition for bank deposits and may increase the risk of a potential recession. These recent events have, and could continue to, adversely impact the market price and volatility of the Company’s common stock.

These recent events may also result in potentially adverse changes to laws or regulations governing banks and bank holding companies or result in the impositions of restrictions through supervisory or enforcement activities, including higher capital requirements, which could have a material impact on our business. Inability to access short-term funding, loss of client deposits or changes in our credit ratings could increase the cost of funding, limit access to capital markets or negatively impact our overall liquidity or capitalization. We may be impacted by concerns regarding the soundness or creditworthiness of other financial institutions, which can cause substantial and cascading disruption within the financial markets and increased expenses. The cost of resolving the recent bank failures may prompt the FDIC to increase its premiums above the recently increased levels or to issue additional special assessments.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Parent’s repurchases of its common stock during the ~~third~~first quarter of ~~2022~~2023 were as follows:


Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased 1		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs 2
January 1 - 31, 2023		8,936	$	76.30		6,000	$	135,437,086
February 1 - 28, 2023		107,222		75.80		57,750		131,021,933
March 1 - 31, 2023		86,250		57.77		86,250		126,038,927
Total		202,408	$	68.14		150,000

Issuer Purchases of Equity Securities

Period

Total Number
of Shares
Purchased ¹

Average Price
Paid Per
Share

Total Number of
Shares Purchased
as Part of
Publicly Announced
Plans or Programs

Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under
the Plans or
Programs ²

July 1 - 31, 2022

8,988

$
78.76

8,000

$
65,177,760

August 1 - 31, 2022

93,024

81.29

92,250

57,680,905

September 1 - 30, 2022

87,208

78.32

87,208

50,850,766

Total

189,220

$
79.79

187,458

1

During the first quarter of 2023, 52,408 shares were acquired from employees in connection with income tax withholdings related to the vesting of restricted stock and acquired by the trustee of a trust established pursuant to the Bank of Hawai‘i Corporation Director Deferred Compensation Plan (the “DDCP”) directly from the Parent in satisfaction of the Company’s obligations to participants under the DDCP. The issuance of these shares was made in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) by Section 4(a)(2) thereof. The trustee under the trust and the participants under the DDCP are “Accredited Investors”, as defined in Rule 501(a) under the Securities Act. These transactions did not involve a public offering and occurred without general solicitation or advertising. The shares were purchased at the closing price of the Parent’s common stock on the dates of purchase.

The share repurchase program was first announced in July 2001. The program has no set expiration or termination date. The actual amount and timing of future share repurchases, if any, will depend on market and economic conditions, regulatory rules, applicable SEC rules, and various other factors.

During the third quarter of 2022, 3,469 shares were acquired from employees in connection with income tax withholdings related to the vesting of restricted stock and acquired by the trustee of a trust established pursuant to the Bank of Hawaii Corporation Director Deferred Compensation Plan (the “DDCP”) directly from the Parent in satisfaction of the Company’s obligations to participants under the DDCP. The issuance of these shares was made in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) by Section 4(a)(2) thereof. The trustee under the trust and the participants under the DDCP are “Accredited Investors”, as defined in Rule 501(a) under the Securities Act. These transactions did not involve a public offering and occurred without general solicitation or advertising. The shares were purchased at the closing price of the Parent’s common stock on the dates of purchase.

²	The share repurchase program was first announced in July 2001. The program has no set expiration or termination date. The actual amount and timing of future share repurchases, if any, will depend on market and economic conditions, regulatory rules, applicable SEC rules, and various other factors.

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Item 6. Exhibits

A list of exhibits to this Form 10-Q is set forth on the Exhibit Index and is incorporated herein by reference.

Exhibit Index


Exhibit Number

3.1		Certificate of Incorporation of Bank of Hawaii Corporation (f/k/a Pacific Century Financial Corporation and Bancorp Hawaii, Inc.), as amended (incorporated by reference to Exhibit 3.1 to Bank of Hawaii Corporation’s Annual Report on Form 10-K for its fiscal year ended December 31, 2005 filed on February 28, 2006).

3.2		Certificate of Amendment of Certificate of Incorporation of Bank of Hawaii Corporation (incorporated by reference to Exhibit 3.1 to Bank of Hawaii Corporation’s Current Report on Form 8-K filed on April 30, 2008).

3.3		Certificate of Designations of 4.375% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A (incorporated by reference to Exhibit 3.1 to Bank of Hawaii Corporation’s Current Report on Form 8-K filed on June 15, 2021).

3.4		Amended and Restated By-laws of Bank of Hawaii Corporation (as amended ~~October 19, 2018)~~November 20, 2020) (incorporated by reference to Exhibit 3.2 to Bank of Hawaii Corporation’s Current Report on Form 8-K filed on ~~October 24, 2018)~~November 23, 2020).

4.1		Deposit Agreement, dated June 15, 2021, by and among Bank of Hawaii Corporation, Computershare Inc. and Computershare Trust Company, N.A., jointly as depositary, and the holders from time to time of the depositary receipts described therein (incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on June 15, 2021)

4.2		Form Depository Receipt (included in Exhibit 4.1)

31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Amended, Adopted Pursuant to Section 302 of the Sarbanes Oxley Act of 2002

31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Amended, Adopted Pursuant to Section 302 of the Sarbanes Oxley Act of 2002

32		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		The cover page for the Company’s Quarterly Report on the Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101

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Signatures

~~Signatures~~

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Date:	~~October 26, 2022~~April 24, 2023		Bank of Hawaii Corporation

		By:	/s/ Peter S. Ho
			Peter S. Ho
			Chairman of the Board,
			Chief Executive Officer, and
			President

		By:	/s/ Dean Y. Shigemura
			Dean Y. Shigemura
			Vice Chair, Chief Financial Officer ~~and~~ ~~Principal Accounting Officer~~

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	Loans Modified as a TDR for the Three Months Ended September 30, 2022						Loans Modified as a TDR for the Three Months Ended September 30, 2021
			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		1	$	213	$	16		2	$	153	$	2
Total Commercial		1		213		16		2		153		2
Consumer
Residential Mortgage		—		—		—		2		796		21
Home Equity		1		197		—		2		779		46
Automobile		40		793		11		71		1,632		22
Other ²		10		57		2		51		439		16
Total Consumer		51		1,047		13		126		3,646		105
Total		52	$	1,260	$	29		128	$	3,799	$	107

	Three Months Ended September 30, 2022				Three Months Ended September 30, 2021
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		5	$	61		8	$	157
Other ²		4		27		5		27
Total Consumer		9		88		13		184
Total		9	$	88		13	$	184

(dollars in thousands)	Mortgage Servicing Rights ¹			Net Derivative Assets and Liabilities ²
Three Months Ended September 30, 2022
Balance as of July 1, 2022	$	747		$	(82,948	)
Realized and Unrealized Net Gains (Losses):
Included in Net Income		(15	)		36
Transfers to Loans Held for Sale		—			(284	)
Variation Margin Payments		—			(48,968	)
Balance as of September 30, 2022	$	732		$	(132,164	)
Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held as of September 30, 2022	$	—		$	(132,164	)

Three Months Ended September 30, 2021
Balance as of July 1, 2021	$	875		$	37,957
Realized and Unrealized Net Gains (Losses):
Included in Net Income		(49	)		2,095
Transfers to Loans Held for Sale		—			(3,068	)
Variation Margin Payments		—			(5,875	)
Balance as of September 30, 2021	$	826		$	31,109
Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held as of September 30, 2021	$	—		$	31,109

Nine Months Ended September 30, 2022
Balance as of January 1, 2022	$	800			23,904
Realized and Unrealized Net Gains (Losses):
Included in Net Income		(68	)		(961	)
Transfers to Loans Held for Sale		—			(111	)
Variation Margin Payments		—			(154,996	)
Balance as of September 30, 2022	$	732			(132,164	)
Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held as of September 30, 2022	$	—		$	(132,164	)

Nine Months Ended September 30, 2021
Balance as of January 1, 2021	$	958		$	77,880
Realized and Unrealized Net Gains (Losses):
Included in Net Income		(132	)		7,008
Transfers to Loans Held for Sale		—			(10,652	)
Variation Margin Payments		—			(43,127	)
Balance as of September 30, 2021	$	826		$	31,109
Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held as of September 30, 2021	$	—		$	31,109

Regulatory Capital and Ratios				Table 19
(dollars in thousands)	September 30, 2022			December 31, 2021
Regulatory Capital
Total Common Shareholders’ Equity	$	1,106,896		$	1,436,124
Add: CECL Transitional Amount		7,124			9,498
Less: Goodwill, Net of Deferred Tax Liabilities		28,747			28,747
Postretirement Benefit Liability Adjustments		(32,437	)		(33,496	)
Net Unrealized Losses on Investment Securities ¹		(415,257	)		(32,886	)
Other		(198	)		(198	)
Common Equity Tier 1 Capital		1,533,165			1,483,455
Preferred Stock, Net of Issuance Cost		175,487			175,487
Tier 1 Capital		1,708,652			1,658,942
Allowable Reserve for Credit Losses		146,882			153,001
Total Regulatory Capital	$	1,855,534		$	1,811,943
Risk-Weighted Assets	$	13,428,188		$	12,236,805
Key Regulatory Capital Ratios
Common Equity Tier 1 Capital Ratio		11.42	%		12.12	%
Tier 1 Capital Ratio		12.72			13.56
Total Capital Ratio		13.82			14.81
Tier 1 Leverage Ratio		7.28			7.32

Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased ¹		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ²
July 1 - 31, 2022		8,988	$	78.76		8,000	$	65,177,760
August 1 - 31, 2022		93,024		81.29		92,250		57,680,905
September 1 - 30, 2022		87,208		78.32		87,208		50,850,766
Total		189,220	$	79.79		187,458