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10-Q

Table of Contents

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, 2023


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

(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 17, 2023, there were 39,750,569 shares of common stock outstanding.

Table of Contents

Bank of 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, 2023, and September 30, 2022	2

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

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

	Consolidated Statements of Shareholders’ Equity – Nine months ended September 30, 2023, and September 30, 2022	5

	Consolidated Statements of Cash Flows – Nine months ended September 30, 2023, and September 30, 2022	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	67

Item 4.	Controls and Procedures	67

Part II - Other Information		68

Item 1.	Legal Proceedings	68

Item 1A.	Risk Factors	68

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69

Item 5.	Other Information	69

Item 6.	Exhibits	69

Signatures		71

Table of Contents

Bank of Hawai‘i Corporation and Subsidiaries

Consolidated Statements of Income (Unaudited)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(dollars in thousands, except per share amounts)	2023			2022			2023			2022
Interest Income
Interest and Fees on Loans and Leases	$	151,245		$	115,013		$	432,287		$	311,115
Income on Investment Securities
Available-for-Sale		23,552			16,995			70,746			52,079
Held-to-Maturity		22,838			20,243			70,161			57,782
Deposits		18			10			63			19
Funds Sold		12,828			2,335			22,589			3,181
Other		1,464			322			4,182			877
Total Interest Income		211,945			154,918			600,028			425,053
Interest Expense
Deposits		72,153			10,296			163,726			16,184
Securities Sold Under Agreements to Repurchase		4,034			2,745			14,847			8,311
Funds Purchased		—			40			888			99
Short-Term Borrowings		—			—			5,713			92
Other Debt		14,821			182			33,614			547
Total Interest Expense		91,008			13,263			218,788			25,233
Net Interest Income		120,937			141,655			381,240			399,820
Provision for Credit Losses		2,000			—			6,500			(8,000	)
Net Interest Income After Provision for Credit Losses		118,937			141,655			374,740			407,820
Noninterest Income
Trust and Asset Management		10,548			10,418			32,453			33,151
Mortgage Banking		1,059			1,002			3,239			4,989
Service Charges on Deposit Accounts		7,843			7,526			23,167			22,107
Fees, Exchange, and Other Service Charges		13,824			13,863			41,782			41,008
Investment Securities Losses, Net		(6,734	)		(2,147	)		(9,836	)		(4,987	)
Annuity and Insurance		1,156			1,034			3,465			2,695
Bank-Owned Life Insurance		2,749			2,486			8,467			7,493
Other		19,889			(3,522	)		31,589			9,913
Total Noninterest Income		50,334			30,660			134,326			116,369
Noninterest Expense
Salaries and Benefits		58,825			59,938			180,088			177,631
Net Occupancy		10,327			10,186			30,190			29,942
Net Equipment		9,477			9,736			30,425			28,432
Data Processing		4,706			4,616			13,888			13,783
Professional Fees		3,846			3,799			12,380			10,599
FDIC Insurance		3,361			1,680			9,768			4,772
Other		15,059			15,794			44,817			47,403
Total Noninterest Expense		105,601			105,749			321,556			312,562
Income Before Provision for Income Taxes		63,670			66,566			187,510			211,627
Provision for Income Taxes		15,767			13,765			46,704			47,130
Net Income	$	47,903		$	52,801		$	140,806		$	164,497
Preferred Stock Dividends		1,969			1,969			5,908			5,908
Net Income Available to Common Shareholders	$	45,934		$	50,832		$	134,898		$	158,589
Basic Earnings Per Common Share	$	1.17		$	1.28		$	3.44		$	4.00
Diluted Earnings Per Common Share	$	1.17		$	1.28		$	3.42		$	3.98
Dividends Declared Per Common Share	$	0.70		$	0.70		$	2.10		$	2.10
Basic Weighted Average Common Shares		39,274,626			39,567,047			39,264,450			39,670,409
Diluted Weighted Average Common Shares		39,420,531			39,758,209			39,392,433			39,848,795

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

Table of Contents

Bank of Hawai‘i Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(dollars in thousands)	2023			2022			2023			2022
Net Income	$	47,903		$	52,801		$	140,806		$	164,497
Other Comprehensive Loss, Net of Tax:
Net Unrealized Losses on Investment Securities		(18,264	)		(79,600	)		(7,205	)		(382,371	)
Defined Benefit Plans		84			354			252			1,059
Total Other Comprehensive Loss		(18,180	)		(79,246	)		(6,953	)		(381,312	)
Comprehensive Income (Loss)	$	29,723		$	(26,445	)	$	133,853		$	(216,815	)

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

Table of Contents

Bank of Hawai‘i Corporation and Subsidiaries

Consolidated Statements of Condition (Unaudited)


(dollars in thousands)	September 30, 2023			December 31, 2022
Assets
Interest-Bearing Deposits in Other Banks	$	4,676		$	3,724
Funds Sold		386,086			81,364
Investment Securities
Available-for-Sale		2,387,324			2,844,823
Held-to-Maturity (Fair Value of $4,104,469 and $4,615,393)		5,088,013			5,414,139
Loans Held for Sale		1,450			1,035
Loans and Leases		13,919,491			13,646,420
Allowance for Credit Losses		(145,263	)		(144,439	)
Net Loans and Leases		13,774,228			13,501,981
Total Earning Assets		21,641,777			21,847,066
Cash and Due From Banks		261,464			316,679
Premises and Equipment, Net		196,094			206,777
Operating Lease Right-of-Use Assets		86,896			92,307
Accrued Interest Receivable		65,541			61,002
Foreclosed Real Estate		1,040			1,040
Mortgage Servicing Rights		21,273			22,619
Goodwill		31,517			31,517
Bank-Owned Life Insurance		458,260			453,882
Other Assets		785,923			573,988
Total Assets	$	23,549,785		$	23,606,877
Liabilities
Deposits
Noninterest-Bearing Demand	$	5,687,442		$	6,714,982
Interest-Bearing Demand		3,925,469			4,232,567
Savings		8,530,384			7,962,410
Time		2,659,014			1,705,737
Total Deposits		20,802,309			20,615,696
Securities Sold Under Agreements to Repurchase		150,490			725,490
Other Debt		560,217			410,294
Operating Lease Liabilities		95,453			100,526
Retirement Benefits Payable		26,074			26,991
Accrued Interest Payable		33,434			9,698
Taxes Payable		6,965			7,104
Other Liabilities		511,003			394,083
Total Liabilities		22,185,945			22,289,882
Commitments and Contingencies (Note 12)
Shareholders’ Equity
Preferred Stock ($.01 par value; authorized 180,000 shares; issued and outstanding: September 30, 2023 and December 31, 2022 - 180,000)		180,000			180,000
Common Stock ($.01 par value; authorized 500,000,000 shares; issued / outstanding: September 30, 2023 -58,767,820 / 39,748,700 and December 31, 2022 -58,733,625 / 39,835,750)		583			582
Capital Surplus		632,425			620,578
Accumulated Other Comprehensive Loss		(441,611	)		(434,658	)
Retained Earnings		2,108,702			2,055,912
Treasury Stock, at Cost (Shares: September 30, 2023 - 19,019,120 and December 31, 2022 - 18,897,875)		(1,116,259	)		(1,105,419	)
Total Shareholders’ Equity		1,363,840			1,316,995
Total Liabilities and Shareholders’ Equity	$	23,549,785		$	23,606,877

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

Table of Contents

Bank of 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
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
Net Income		—		—		—			—		—			—			46,061			—			46,061
Other Comprehensive Loss		—		—		—			—		—			(18,133	)		—			—			(18,133	)
Share-Based Compensation		—		—		—			—		4,301			—			—			—			4,301
Common Stock Issued under Purchase and Equity Compensation Plans		—		—		81,601			—		(225	)		—			699			1,183			1,657
Common Stock Repurchased		—		—		(2,759	)		—		—			—			—			(138	)		(138	)
Cash Dividends Declared Common Stock ($0.70 per share)		—		—		—			—		—			—			(27,930	)		—			(27,930	)
Cash Dividends Declared Preferred Stock		—		—		—			—		—			—			(1,969	)		—			(1,969	)
Balance as of June 30, 2023		180,000	$	180,000		39,725,348		$	583	$	628,202		$	(423,431	)	$	2,091,289		$	(1,118,364	)	$	1,358,279

Net Income		—		—		—			—		—			—			47,903			—			47,903
Other Comprehensive Loss		—		—		—			—		—			(18,180	)		—			—			(18,180	)
Share-Based Compensation		—		—		—			—		4,307			—			—			—			4,307
Preferred Stock Issued, Net		—		—		—			—		—			—			—			—			—
Common Stock Issued under Purchase and Equity Compensation Plans		—		—		26,275			—		(84	)		—			(571	)		2,230			1,575
Common Stock Repurchased		—		—		(2,923	)		—		—			—			—			(125	)		(125	)
Cash Dividends Declared Common Stock ($0.70 per share)		—		—		—			—		—			—			(27,950	)		—			(27,950	)
Cash Dividends Declared Preferred Stock		—		—		—			—		—			—			(1,969	)		—			(1,969	)
Balance as of September 30, 2023		180,000	$	180,000		39,748,700		$	583	$	632,425		$	(441,611	)	$	2,108,702		$	(1,116,259	)	$	1,363,840

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
Net Income		—		—		—			—		—			—			54,834			—			54,834
Other Comprehensive Loss		—		—		—			—		—			(179,771	)		—			—			(179,771	)
Share-Based Compensation		—		—		—			—		4,010			—			—			—			4,010
Common Stock Issued under Purchase and Equity Compensation Plans		—		—		197,783			1		543			—			(185	)		2,036			2,395
Common Stock Repurchased		—		—		(162,611	)		—		—			—			—			(13,960	)		(13,960	)
Cash Dividends Declared Common Stock ($0.70 per share)		—		—		—			—		—			—			(28,265	)		—			(28,265	)
Cash Dividends Declared Preferred Stock						—			—		—			—			(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

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
Preferred Stock Issued, Net		—		—		—			—		—			—			—			—			—
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

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

Table of Contents

Bank of Hawai‘i Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)


	Nine Months Ended
	September 30,
(dollars in thousands)	2023			2022
Operating Activities
Net Income	$	140,806		$	164,497
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses		6,500			(8,000	)
Depreciation and Amortization		16,219			15,947
Amortization of Deferred Loan and Lease Costs (Fees), Net		580			(501	)
Amortization and Accretion of Premiums/Discounts on Investment Securities, Net		10,019			16,971
Amortization of Operating Lease Right-of-Use Assets		8,816			8,939
Share-Based Compensation		11,979			11,947
Benefit Plan Contributions		(1,474	)		(1,236	)
Deferred Income Taxes		(2,041	)		(6,840	)
Loss on Agreement to Sell Assets That Will Terminate Certain Leveraged Leases		—			6,918
Net Gains on Sales of Loans and Leases		(1,688	)		(3,365	)
Net Losses on Sales of Investment Securities		9,836			4,987
Proceeds from Sales of Loans Held for Sale		39,999			122,404
Originations of Loans Held for Sale		(40,734	)		(95,024	)
Net Tax (Deficiency) Benefits from Share-Based Compensation		(490	)		158
Net Change in Other Assets and Other Liabilities		(73,757	)		31,065
Net Cash Provided by Operating Activities		124,570			268,867

Investing Activities
Investment Securities Available-for-Sale:
Proceeds from Prepayments and Maturities		407,947			597,452
Purchases		(396	)		(556,813	)
Investment Securities Held-to-Maturity:
Proceeds from Prepayments and Maturities		339,563			517,448
Purchases		—			(15,240	)
Net Change in Loans and Leases		(277,860	)		(1,070,567	)
Purchases of Premises and Equipment		(5,536	)		(24,805	)
Net Cash Provided by (Used in) Investing Activities		463,718			(552,525	)

Financing Activities
Net Change in Deposits		186,613			528,665
Net Change in Short-Term Borrowings		(575,000	)		(25,000	)
Proceeds from Long-Term Debt		1,350,000			—
Repayments of Long-Term Debt		(1,200,077	)		(72	)
Proceeds from Issuance of Common Stock		4,423			5,315
Repurchase of Common Stock		(14,056	)		(39,548	)
Cash Dividends Paid on Common Stock		(83,824	)		(84,579	)
Cash Dividends Paid on Preferred Stock		(5,908	)		(5,908	)
Net Cash (Used in) Provided by Financing Activities		(337,829	)		378,873
Net Change in Cash and Cash Equivalents		250,459			95,215
Cash and Cash Equivalents at Beginning of Period		401,767			560,434
Cash and Cash Equivalents at End of Period	$	652,226		$	655,649
Supplemental Information
Cash Paid for Interest	$	195,051		$	24,326
Cash Paid for Income Taxes		39,471			38,467
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 Foreclosed Real Estate		567			—
Transfer from Loans to Loans Held for Sale		—			380
Transfer from Loans Held for Sale to Loans		569			—

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

Table of Contents

Bank of 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”), provides a broad range of financial products and services to businesses, consumers and governments in Hawaii and 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 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, 2022. Significant changes to accounting policies from those disclosed in our audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K are presented below.

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 restructurings (“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 modifications made on January 1, 2023 and forward to borrowers experiencing financial difficulty. Instead, these modifications are included in their respective cohort and a historical loss rate is applied to the current loan balance to arrive at the quantitative baseline portion of the Allowance for Credit Losses.

Accounting Standard Pending Adoption

In March 2023, the FASB issued ASU 2023-02, “Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” ASU 2023-02 permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. ASU 2023-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. ASU 2023-02 is not expected to have a material impact on the Company’s consolidated financial statements.

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Note 2. Cash and Cash Equivalents

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


(dollars in thousands)	September 30, 2023
Interest-Bearing Deposits in Other Banks	$	4,676
Funds Sold		386,086
Cash and Due From Banks		261,464
Total Cash and Cash Equivalents	$	652,226

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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, 2023, and December 31, 2022, were as follows:


(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2023
Available-for-Sale:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	228,181	$	408	$	(15,133	)	$	213,456
Debt Securities Issued by States and Political Subdivisions		73,722		—		(13,120	)		60,602
Debt Securities Issued by U.S. Government-Sponsored Enterprises		1,757		—		(117	)		1,640
Debt Securities Issued by Corporations		706,693		7		(57,560	)		649,140
Mortgage-Backed Securities:
Residential - Government Agencies		740,652		101		(108,806	)		631,947
Residential - U.S. Government-Sponsored Enterprises		841,441		—		(142,092	)		699,349
Commercial - Government Agencies or Sponsored Agencies		159,647		—		(28,457	)		131,190
Total Mortgage-Backed Securities		1,741,740		101		(279,355	)		1,462,486
Total	$	2,752,093	$	516	$	(365,285	)	$	2,387,324
Held-to-Maturity:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	131,710	$	—	$	(20,301	)	$	111,409
Debt Securities Issued by Corporations		11,788		—		(2,582	)		9,206
Mortgage-Backed Securities:
Residential - Government Agencies		1,712,317		—		(330,120	)		1,382,197
Residential - U.S. Government-Sponsored Enterprises		2,794,307		5		(519,138	)		2,275,174
Commercial - Government Agencies or Sponsored Agencies		437,891		—		(111,408	)		326,483
Total Mortgage-Backed Securities		4,944,515		5		(960,666	)		3,983,854
Total	$	5,088,013	$	5	$	(983,549	)	$	4,104,469
December 31, 2022
Available-for-Sale:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	248,335	$	638	$	(15,067	)	$	233,906
Debt Securities Issued by States and Political Subdivisions		107,689		158		(12,582	)		95,265
Debt Securities Issued by U.S. Government-Sponsored Enterprises		48,807		—		(179	)		48,628
Debt Securities Issued by Corporations		850,585		809		(56,736	)		794,658
Mortgage-Backed Securities:
Residential - Government Agencies		828,798		245		(96,215	)		732,828
Residential - U.S. Government-Sponsored Enterprises		919,980		1		(126,110	)		793,871
Commercial - Government Agencies or Sponsored Agencies		168,242		—		(22,575	)		145,667
Total Mortgage-Backed Securities		1,917,020		246		(244,900	)		1,672,366
Total	$	3,172,436	$	1,851	$	(329,464	)	$	2,844,823
Held-to-Maturity:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	131,619	$	—	$	(18,202	)	$	113,417
Debt Securities Issued by Corporations		17,014		—		(2,534	)		14,480
Mortgage-Backed Securities:
Residential - Government Agencies		1,848,239		35		(294,047	)		1,554,227
Residential - U.S. Government-Sponsored Enterprises		2,968,322		8		(397,055	)		2,571,275
Commercial - Government Agencies or Sponsored Agencies		448,945		—		(86,951	)		361,994
Total Mortgage-Backed Securities		5,265,506		43		(778,053	)		4,487,496
Total	$	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 $9.9 million and $11.7 million as of September 30, 2023, and December 31, 2022, respectively. For held-to-maturity (“HTM”) debt securities, AIR totaled $10.1 million and $9.2 million as of September 30, 2023, and December 31, 2022, respectively. AIR is included in the Accrued Interest Receivable line item on the Company’s consolidated statements of condition.

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The table below presents an analysis of the contractual maturities of the Company’s investment securities as of September 30, 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
Available-for-Sale:
Due in One Year or Less	$	1,798	$	1,768
Due After One Year Through Five Years		332,832		309,375
Due After Five Years Through Ten Years		598,290		537,433
Due After Ten Years		6,380		4,866
		939,300		853,442
Debt Securities Issued by Government Agencies		71,053		71,396
Mortgage-Backed Securities:
Residential - Government Agencies		740,652		631,947
Residential - U.S. Government-Sponsored Enterprises		841,441		699,349
Commercial - Government Agencies or Sponsored Agencies		159,647		131,190
Total Mortgage-Backed Securities		1,741,740		1,462,486
Total	$	2,752,093	$	2,387,324
Held-to-Maturity:
Due in One Year or Less		966		943
Due After One Year Through Five Years		82,244		71,390
Due After Five Year Through Ten Years		60,288		48,282
		143,498		120,615
Mortgage-Backed Securities:
Residential - Government Agencies		1,712,317		1,382,197
Residential - U.S. Government-Sponsored Enterprises		2,794,307		2,275,174
Commercial - Government Agencies or Sponsored Agencies		437,891		326,483
Total Mortgage-Backed Securities		4,944,515		3,983,854
Total	$	5,088,013	$	4,104,469

Investment securities with carrying values of $7.2 billion and $4.1 billion as of September 30, 2023, and December 31, 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, 2023, and September 30, 2022:


	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2023			2022			2023			2022
Gross Gains on Sales of Investment Securities	$	145		$	—		$	145		$	—
Gross Losses on Sales of Investment Securities		(6,879	)		(2,147	)		(9,981	)		(4,987	)
Total Losses on Sales of Investment Securities	$	(6,734	)	$	(2,147	)	$	(9,836	)	$	(4,987	)

Although the Company had the ability to hold its investment securities until maturity, during the three months ended September 30, 2023, it made the strategic decision to reduce the size of its AFS portfolio by selling various corporate and municipal bonds which resulted in a realized loss of $4.6 million.

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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
(dollars in thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
September 30, 2023
Available-for-Sale:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	8,272	$	(24	)	$	150,513	$	(15,109	)	$	158,785	$	(15,133	)
Debt Securities Issued by States and Political Subdivisions		236		(8	)		60,152		(13,112	)		60,388		(13,120	)
Debt Securities Issued by U.S. Government- Sponsored Enterprises		—		—			1,639		(117	)		1,639		(117	)
Debt Securities Issued by Corporations		322,435		(2,565	)		301,697		(54,995	)		624,132		(57,560	)
Mortgage-Backed Securities:
Residential - Government Agencies		11,455		(70	)		616,352		(108,736	)		627,807		(108,806	)
Residential - U.S. Government-Sponsored Enterprises		330		(7	)		699,020		(142,085	)		699,350		(142,092	)
Commercial - Government Agencies or Sponsored Agencies		—		—			131,189		(28,457	)		131,189		(28,457	)
Total Mortgage-Backed Securities		11,785		(77	)		1,446,561		(279,278	)		1,458,346		(279,355	)
Total	$	342,728	$	(2,674	)	$	1,960,562	$	(362,611	)	$	2,303,290	$	(365,285	)

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, 2023, which were comprised of 399 individual securities, represent a credit loss impairment. As of September 30, 2023, and December 31, 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 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, 2023.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2023		2022		2023		2022
Taxable	$	46,367	$	37,231	$	140,718	$	109,830
Non-Taxable		23		7		189		31
Total Interest Income from Investment Securities	$	46,390	$	37,238	$	140,907	$	109,861

As of September 30, 2023, and December 31, 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, 2023		December 31, 2022
Federal Home Loan Bank of Des Moines Stock	$	32,000	$	26,000
Federal Reserve Bank Stock		27,400		27,065
Total	$	59,400	$	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, 2023, and December 31, 2022:


(dollars in thousands)	September 30, 2023		December 31, 2022
Commercial
Commercial and Industrial	$	1,569,572	$	1,389,066
Paycheck Protection Program		12,529		19,579
Commercial Mortgage		3,784,339		3,725,542
Construction		251,507		260,825
Lease Financing		61,522		69,491
Total Commercial		5,679,469		5,464,503
Consumer
Residential Mortgage		4,699,140		4,653,072
Home Equity		2,285,974		2,225,950
Automobile		856,113		870,396
Other 2		398,795		432,499
Total Consumer		8,240,022		8,181,917
Total Loans and Leases	$	13,919,491	$	13,646,420

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

Most 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 located in the State of Hawaii.

Net gain related to sales of residential mortgage loans, recorded as a component of mortgage banking income were less than $0.1 million for the three months ended September 30, 2023, and September 30, 2022, and $0.3 million and $0.2 million for the nine months ended September 30, 2023, and September 30, 2022, respectively.

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The Company elected to exclude AIR from the amortized cost basis of loans disclosed throughout this footnote. As of September 30, 2023, and December 31, 2022, AIR for loans totaled $45.0 million and $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, 2023, and September 30, 2022.


(dollars in thousands)	Commercial			Consumer			Total
Three Months Ended September 30, 2023
Allowance for Credit Losses:
Balance at Beginning of Period	$	63,941		$	81,426		$	145,367
Loans and Leases Charged-Off		(294	)		(3,323	)		(3,617	)
Recoveries on Loans and Leases Previously Charged-Off		72			1,496			1,568
Net Loans and Leases Recovered (Charged-Off)		(222	)		(1,827	)		(2,049	)
Provision for Credit Losses		4,283			(2,338	)		1,945
Balance at End of Period	$	68,002		$	77,261		$	145,263
Nine Months Ended September 30, 2023
Allowance for Credit Losses:
Balance at Beginning of Period	$	63,900		$	80,539		$	144,439
Loans and Leases Charged-Off		(758	)		(10,679	)		(11,437	)
Recoveries on Loans and Leases Previously Charged-Off		225			5,118			5,343
Net Loans and Leases Recovered (Charged-Off)		(533	)		(5,561	)		(6,094	)
Provision for Credit Losses		4,635			2,283			6,918
Balance at End of Period	$	68,002		$	77,261		$	145,263
Three Months Ended September 30, 2022
Allowance for Credit Losses:
Balance at Beginning of Period	$	61,826		$	86,686		$	148,512
Loans and Leases Charged-Off		(147	)		(2,718	)		(2,865	)
Recoveries on Loans and Leases Previously Charged-Off		45			1,673			1,718
Net Loans and Leases Recovered (Charged-Off)		(102	)		(1,045	)		(1,147	)
Provision for Credit Losses		157			(1,086	)		(929	)
Balance at End of Period	$	61,881		$	84,555		$	146,436
Nine Months Ended September 30, 2022
Allowance for Credit Losses:
Balance at Beginning of Period	$	64,950		$	92,871		$	157,821
Loans and Leases Charged-Off		(729	)		(9,390	)		(10,119	)
Recoveries on Loans and Leases Previously Charged-Off		465			6,390			6,855
Net Loans and Leases Recovered (Charged-Off)		(264	)		(3,000	)		(3,264	)
Provision for Credit Losses		(2,805	)		(5,316	)		(8,121	)
Balance at End of Period	$	61,881		$	84,555		$	146,436

The wildfires that occurred on Maui in August 2023 caused widespread destruction on the island of Maui. The Company’s Allowance as of September 30, 2023, considered the impact the wildfires had on the local community, while also giving the necessary consideration to the insurance coverage and value of any underlying collateral, in addition to the improved economic outlook for the rest of the State of Hawaii.

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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 are typically monitored and risk-rated collectively. These are typically loans and leases to individuals in the classes which comprise the consumer portfolio segment.

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


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

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

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

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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, 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
September 30, 2023
Commercial
Commercial and Industrial
Pass		$	277,427	$	271,993	$	242,363	$	152,581	$	42,673	$	82,144	$	369,945	$	483	$	1,439,609
Special Mention			42,774		5,157		-		-		695		-		39,956		-		88,582
Classified			11,911		2,784		7,960		6,638		-		8,245		3,828		15		41,381
Total Commercial and Industrial		$	332,112	$	279,934	$	250,323	$	159,219	$	43,368	$	90,389	$	413,729	$	498	$	1,569,572
Paycheck Protection Program
Pass		$	-	$	-	$	2,445	$	10,084	$	-	$	-	$	-	$	-	$	12,529
Total Paycheck Protection Program		$	-	$	-	$	2,445	$	10,084	$	-	$	-	$	-	$	-	$	12,529
Commercial Mortgage
Pass		$	756,211	$	1,004,342	$	713,794	$	441,404	$	247,429	$	435,257	$	42,790	$	-	$	3,641,227
Special Mention			30,463		61,654		-		3,908		307		13,551		-		-		109,883
Classified			2,996		162		1,342		13,139		233		15,357		-		-		33,229
Total Commercial Mortgage		$	789,670	$	1,066,158	$	715,136	$	458,451	$	247,969	$	464,165	$	42,790	$	-	$	3,784,339
Construction
Pass		$	20,606	$	132,155	$	76,109	$	2,820	$	16,101	$	297	$	3,419	$	-	$	251,507
Total Construction		$	20,606	$	132,155	$	76,109	$	2,820	$	16,101	$	297	$	3,419	$	-	$	251,507
Lease Financing
Pass		$	7,046	$	13,905	$	14,570	$	9,160	$	6,787	$	8,646	$	-	$	-	$	60,114
Classified			627		54		125		102		-		500		-		-		1,408
Total Lease Financing		$	7,673	$	13,959	$	14,695	$	9,262	$	6,787	$	9,146	$	-	$	-	$	61,522
Total Commercial		$	1,150,061	$	1,492,206	$	1,058,708	$	639,836	$	314,225	$	563,997	$	459,938	$	498	$	5,679,469
Consumer
Residential Mortgage
Pass		$	267,172	$	799,565	$	1,257,550	$	988,296	$	306,197	$	1,078,785	$	-	$	-	$	4,697,565
Classified			-		-		-		-		-		1,575		-		-		1,575
Total Residential Mortgage		$	267,172	$	799,565	$	1,257,550	$	988,296	$	306,197	$	1,080,360	$	-	$	-	$	4,699,140
Home Equity
Pass		$	-	$	-	$	-	$	-	$	-	$	44	$	2,242,699	$	40,870	$	2,283,613
Classified			-		-		-		-		-		-		1,291		1,070		2,361
Total Home Equity		$	-	$	-	$	-	$	-	$	-	$	44	$	2,243,990	$	41,940	$	2,285,974
Automobile
Pass		$	205,059	$	326,054	$	164,714	$	73,234	$	55,196	$	31,464	$	-	$	-	$	855,721
Classified			39		59		149		56		6		83		-		-		392
Total Automobile		$	205,098	$	326,113	$	164,863	$	73,290	$	55,202	$	31,547	$	-	$	-	$	856,113
Other1
Pass		$	74,075	$	150,228	$	99,977	$	16,432	$	21,154	$	34,871	$	1,415	$	-	$	398,152
Classified			118		158		161		21		85		100		-		-		643
Total Other		$	74,193	$	150,386	$	100,138	$	16,453	$	21,239	$	34,971	$	1,415	$	-	$	398,795
Total Consumer		$	546,463	$	1,276,064	$	1,522,551	$	1,078,039	$	382,638	$	1,146,922	$	2,245,405	$	41,940	$	8,240,022
Total Loans and Leases		$	1,696,524	$	2,768,270	$	2,581,259	$	1,717,875	$	696,863	$	1,710,919	$	2,705,343	$	42,438	$	13,919,491

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.

For the nine months ended September 30, 2023, $7.4 million of revolving loans were converted to term loans.

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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, 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
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

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

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

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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, 2023, and December 31, 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, 2023
Commercial
Commercial and Industrial	$	661	$	453	$	—	$	43	$	1,157	$	1,568,415	$	1,569,572	$	43
Paycheck Protection Program		—		—		—		—		—		12,529		12,529		—
Commercial Mortgage		—		—		—		2,996		2,996		3,781,343		3,784,339		2,996
Construction		—		—		—		—		—		251,507		251,507		—
Lease Financing		—		—		—		—		—		61,522		61,522		—
Total Commercial		661		453		—		3,039		4,153		5,675,316		5,679,469		3,039
Consumer
Residential Mortgage		3,176		877		3,519		3,706		11,278		4,687,862		4,699,140		765
Home Equity		3,407		1,750		2,172		3,734		11,063		2,274,911		2,285,974		740
Automobile		10,072		1,089		393		—		11,554		844,559		856,113		—
Other 1		2,311		1,036		643		—		3,990		394,805		398,795		—
Total Consumer		18,966		4,752		6,727		7,440		37,885		8,202,137		8,240,022		1,505
Total	$	19,627	$	5,205	$	6,727	$	10,479	$	42,038	$	13,877,453	$	13,919,491	$	4,544

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.

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Non-Accrual Loans and Leases

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


	September 30, 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
Commercial
Commercial and Industrial	$	43	$	—	$	43	$	37	$	—	$	37
Commercial Mortgage		—		2,996		2,996		—		3,309		3,309
Total Commercial		43		2,996		3,039		37		3,309		3,346
Consumer
Residential Mortgage		3,706		—		3,706		4,239		—		4,239
Home Equity		3,734		—		3,734		4,022		—		4,022
Total Consumer		7,440		—		7,440		8,261		—		8,261
Total	$	7,483	$	2,996	$	10,479	$	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

Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, forbearances, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. The following illustrates the most common loan modifications by loan classes offered by the Company that are required to be disclosed pursuant to the requirements of ASU 2022-02:


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.

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The following table presents the amortized cost basis of loan modifications made to borrowers experiencing financial difficulty during three and nine months ended September 30, 2023.


													%
					Payment		Term						of
					Delay		Extension and						Total
			Interest		and		Interest						Class of
	Term		Rate		Term		Rate		Payment				Loans and
(dollars in thousands)	Extension		Reduction		Extension		Reduction		Delay		Total		Leases
Three Months Ended September 30, 2023
Commercial
Commercial and Industrial	$	19	$	—	$	—	$	—	$	—	$	19		0.00	%
Total Commercial		19		—		—		—		—		19		0.00	%
Consumer
Residential Mortgage		—		—		—		—		715		715		0.02	%
Automobile		3,231		—		—		—		—		3,231		0.38	%
Other1		373		—		—		—		—		373		0.09	%
Total Consumer		3,604		—		—		—		715		4,319		0.05	%
Total Loans and Leases	$	3,623	$	—	$	—	$	—	$	715	$	4,338		0.03	%

Nine Months Ended September 30, 2023
Commercial
Commercial and Industrial	$	109	$	—	$	6,102	$	—	$	—	$	6,211		0.40	%
Commercial Mortgage		—		946		—		—		—		946		0.02	%
Total Commercial		109		946		6,102		—		—		7,157		0.13	%
Consumer
Residential Mortgage		132		—		—		—		715		847		0.02	%
Home Equity		136		—		—		—		—		136		0.01	%
Automobile		7,428		—		—		—		—		7,428		0.87	%
Other1		732		—		—		—		—		732		0.18	%
Total Consumer		8,428		—		—		—		715		9,143		0.11	%
Total Loans and Leases	$	8,537	$	946	$	6,102	$	—	$	715	$	16,300		0.12	%

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

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The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023.


	Weighted-Average		Weighted-Average		Weighted-Average
	Months of		Payment		Interest Rate
(dollars in thousands)	Term Extension		Deferral		Reduction
Three Months Ended September 30, 2023
Commercial
Commercial and Industrial		31	$	—		—	%
Commercial Mortgage		—		—		2.50	%
Consumer
Residential Mortgage		—		5		—
Home Equity		—		—		—
Automobile		22		—		—
Other1		23		—		—

Nine Months Ended September 30, 2023
Commercial
Commercial and Industrial		6	$	1,159		—	%
Commercial Mortgage		—		—		2.50
Consumer
Residential Mortgage		58		5		—
Home Equity		60		—		—
Automobile		23		—		—
Other1		22		—		—

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

The following table presents the loan modifications made to borrowers experiencing financial difficulty that defaulted during the three and nine months ended September 30, 2023.


	Term		Payment
(dollars in thousands)	Extension		Delay		Total
Three Months Ended September 30, 2023
Consumer
Residential Mortgage	$	—	$	715	$	715
Automobile		10		—		10
Total Consumer		10		715		725
Total Loans and Leases	$	10	$	715	$	725

Nine Months Ended September 30, 2023
Consumer
Residential Mortgage	$	—	$	715	$	715
Automobile		140		—		140
Other1		65		—		65
Total Consumer		205		715		920
Total Loans and Leases	$	205	$	715	$	920

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

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The following table presents the aging analysis of loan modifications made to borrowers experiencing financial difficulty as of September 30, 2023.


(dollars in thousands)	Current		30 - 59 Days Past Due		60 - 89 Days Past Due		Past Due 90 Days or More		Non- Accrual		Total
As of September 30, 2023
Commercial
Commercial and Industrial	$	6,121	$	90	$	—	$	—	$	—	$	6,211
Commercial Mortgage		946		—		—		—		—		946
Total Commercial		7,067		90		—		—		—		7,157
Consumer
Residential Mortgage		—		—		—		—		847		847
Home Equity		136		—		—		—		—		136
Automobile		6,505		793		102		28		—		7,428
Other1		584		95		31		22		—		732
Total Consumer		7,225		888		133		50		847		9,143
Total Loans and Leases		14,292	$	978	$	133	$	50	$	847	$	16,300

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

The following table presents by loan class and year of origination, the gross charge-offs recorded during the three and nine months ended September 30, 2023.


(dollars in thousands)	2023		2022		2021		2020		2019		Prior		Total
Three Months Ended September 30, 2023
Commercial
Commercial and Industrial	$	162	$	—	$	—	$	84	$	—	$	48	$	294
Total Commercial		162		—		—		84		—		48		294
Consumer
Residential Mortgage		—		—		—		—		—		—		—
Home Equity		—		—		—		—		13		—		13
Automobile		134		358		309		145		246		161		1,353
Other1		455		510		360		114		238		280		1,957
Total Consumer		589		868		669		259		497		441		3,323
Total	$	751	$	868	$	669	$	343	$	497	$	489	$	3,617

Nine Months Ended September 30, 2023
Commercial
Commercial and Industrial	$	347	$	188	$	—	$	84	$	—	$	139	$	758
Total Commercial		347		188		—		84		—		139		758
Consumer
Residential Mortgage		—		—		—		—		—		6		6
Home Equity		—		—		—		—		13		55		68
Automobile		134		1,229		1,053		481		610		802		4,309
Other 1		813		1,844		1,371		316		952		1,000		6,296
Total Consumer		947		3,073		2,424		797		1,575		1,863		10,679
Total	$	1,294	$	3,261	$	2,424	$	881	$	1,575	$	2,002	$	11,437

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

Foreclosure Proceedings

Consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure totaled $4.7 million as of September 30, 2023.

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Note 5. Mortgage Servicing Rights

The Company’s portfolio of residential mortgage loans serviced for third parties was $2.6 billion as of September 30, 2023, and $2.6 billion as of December 31, 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 $1.4 million and $1.5 million for the three months ended September 30, 2023, and September 30, 2022, respectively, and $4.2 million and $4.5 million for the nine months ended September 30, 2023, and September 30, 2022, 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.

For the three and nine months ended September 30, 2023, and September 30, 2022, 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 September 30,						Nine Months Ended September 30,
(dollars in thousands)	2023			2022			2023			2022
Balance at Beginning of Period	$	695		$	747		$	717		$	800
Change in Fair Value Due to Payoffs		(10	)		(15	)		(32	)		(68	)
Balance at End of Period	$	685		$	732		$	685		$	732


	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2023			2022			2023			2022
Balance at Beginning of Period	$	20,931		$	22,793		$	21,902		$	21,451
Servicing Rights that Resulted From Asset Transfers		206			160			382			1,115
Amortization		(549	)		(581	)		(1,696	)		(2,023	)
Valuation Allowance Recovery (Provision)		—			—			—			1,829
Balance at End of Period	$	20,588		$	22,372		$	20,588		$	22,372

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	$	26,327		$	28,314		$	27,323		$	21,451
End of Period	$	26,423		$	27,678		$	26,423		$	27,678

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


	September 30, 2023			December 31, 2022
Weighted-Average Constant Prepayment Rate 1		3.81	%		4.02	%
Weighted-Average Life (in years)		9.65			9.64
Weighted-Average Note Rate		3.65	%		3.60	%
Weighted-Average Discount Rate 2		10.13	%		9.93	%

Represents annualized loan prepayment rate assumption.

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, 2023, and December 31, 2022, is presented in the following table.


(dollars in thousands)	September 30, 2023			December 31, 2022
Constant Prepayment Rate
Decrease in fair value from 25 basis points (“bps”) adverse change	$	(280	)	$	(346	)
Decrease in fair value from 50 bps adverse change		(602	)		(686	)
Discount Rate
Decrease in fair value from 25 bps adverse change		(302	)		(316	)
Decrease in fair value from 50 bps adverse change		(597	)		(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.

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.

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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 $188.4 million and $174.5 million as of September 30, 2023, and December 31, 2022, respectively, and are included in other assets in the consolidated statements of condition.

Unfunded Commitments

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


(dollars in thousands)	Amount
2023	$	15,708
2024		24,749
2025		32,334
2026		258
2027		154
Thereafter		12,829
Total Unfunded Commitments	$	86,032

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, 2023, and September 30, 2022.


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2023		2022		2023		2022
Effective Yield Method
Tax Credits and Other Tax Benefits Recognized	$	1,457	$	1,520	$	4,372	$	4,586
Amortization Expense in Provision for Income Taxes		1,333		1,296		3,998		3,889
Proportional Amortization Method
Tax Credits and Other Tax Benefits Recognized	$	3,696	$	3,802	$	14,572	$	11,381
Amortization Expense in Provision for Income Taxes		3,203		3,331		12,630		9,860

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

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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, 2023, and December 31, 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
September 30, 2023
Class of Collateral Pledged:
Debt Securities Issued by States and Political Subdivisions	$	—	$	—	$	490	$	—	$	490
Mortgage-Backed Securities:
Residential - Government Agencies		—		—		—		1,792		1,792
Residential - U.S. Government-Sponsored Enterprises		—		—		—		148,208		148,208
Total	$	—	$	—	$	490	$	150,000	$	150,490
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

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The following table presents the assets and liabilities subject to an enforceable master netting arrangement, or repurchase agreements as of September 30, 2023, and December 31, 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
September 30, 2023
Assets:
Interest Rate Swap Agreements:
Institutional Counterparties	$	201,610	$	—	$	201,610	$	201,610	$	—	$	—

Liabilities:
Interest Rate Swap Agreements:
Institutional Counterparties		755		—	$	755		755		—		—
Repurchase Agreements:
Private Institutions		150,000		—		150,000		—		150,000		—
Government Entities		490		—		490		—		490		—
Total Repurchase Agreements	$	150,490	$	—	$	150,490	$	—	$	150,490	$	—
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	$	—

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 $24.8 million and $34.8 million as of September 30, 2023, and December 31, 2022, respectively. For repurchase agreements with private institutions, the fair value of investment securities pledged was $153.8 million and $755.9 million as of September 30, 2023, and December 31, 2022, respectively. For repurchase agreements with government entities, the fair value of investment securities pledged was $0.7 million and $0.8 million as of September 30, 2023, and December 31, 2022, respectively.

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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, 2023, and September 30, 2022:


(dollars in thousands)	Before Tax			Tax Effect			Net of Tax
Three Months Ended September 30, 2023
Net Unrealized Gains (Losses) on Investment Securities:
Net Unrealized Gains (Losses) Arising During the Period	$	(38,035	)	$	(11,439	)	$	(26,596	)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) that (Increase) Decrease Net Income:
(Gain) Loss on Sale		4,582			1,237			3,345
Amortization of Unrealized Holding (Gains) Losses on Held-to- Maturity Securities 1		6,787			1,800			4,987
Net Unrealized Gains (Losses) on Investment Securities		(26,666	)		(8,402	)		(18,264	)
Defined Benefit Plans:
Amortization of Net Actuarial Losses (Gains)		177			46			131
Amortization of Prior Service Credit		(62	)		(15	)		(47	)
Defined Benefit Plans, Net		115			31			84
Other Comprehensive Income (Loss)	$	(26,551	)	$	(8,371	)	$	(18,180	)

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	)

Nine Months Ended September 30, 2023
Net Unrealized Gains (Losses) on Investment Securities:
Net Unrealized Gains (Losses) Arising During the Period	$	(36,702	)	$	(11,086	)	$	(25,616	)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) that (Increase) Decrease Net Income:
(Gain) Loss on Sale		4,582			1,237			3,345
Amortization of Unrealized Holding (Gains) Losses on Held-to- Maturity Securities 1		20,500			5,434			15,066
Net Unrealized Gains (Losses) on Investment Securities		(11,620	)		(4,415	)		(7,205	)
Defined Benefit Plans:
Amortization of Net Actuarial Losses (Gains)		528			140			388
Amortization of Prior Service Credit		(184	)		(48	)		(136	)
Defined Benefit Plans, Net		344			92			252
Other Comprehensive Income (Loss)	$	(11,276	)	$	(4,323	)	$	(6,953	)

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	)

These amounts 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.

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The 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, 2023, and September 30, 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 September 30, 2023
Balance at Beginning of Period	$	(239,803	)	$	(158,718	)	$	(24,910	)	$	(423,431	)
Other Comprehensive Income (Loss) Before Reclassifications		(26,596	)		—			—			(26,596	)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)		3,345			4,987			84			8,416
Total Other Comprehensive Income (Loss)		(23,251	)		4,987			84			(18,180	)
Balance at End of Period	$	(263,054	)	$	(153,731	)	$	(24,826	)	$	(441,611	)

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	)

Nine Months Ended September 30, 2023
Balance at Beginning of Period	$	(240,783	)	$	(168,797	)	$	(25,078	)	$	(434,658	)
Other Comprehensive Income (Loss) Before Reclassifications		(25,616	)		—			—			(25,616	)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)		3,345			15,066			252			18,663
Total Other Comprehensive Income (Loss)		(22,271	)		15,066			252			(6,953	)
Balance at End of Period	$	(263,054	)	$	(153,731	)	$	(24,826	)	$	(441,611	)

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	)

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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, 2023, and September 30, 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)	2023			2022
Amortization of Unrealized Holding Gains (Losses) on Investment Securities Held-to-Maturity	$	(6,787	)	$	(3,037	)	Interest Income
		1,800			805		Provision for Income Tax
		(4,987	)		(2,232	)	Net of Tax
Sale of Investment Securities Available-for-Sale		(4,582	)		—		Investment Securities Gains (Losses), Net
		1,237			—		Provision for Income Tax
		(3,345	)		—		Net of tax

Amortization of Defined Benefit Plan Items
Prior Service Credit 2		62			61
Net Actuarial Losses 2		(177	)		(542	)
		(115	)		(481	)	Total Before Tax
		31			127		Provision for Income Tax
		(84	)		(354	)	Net of Tax

Total Reclassifications for the Period	$	(8,416	)	$	(2,586	)	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)	2023			2022
Amortization of Unrealized Holding Gains (Losses) on Investment Securities Held-to-Maturity	$	(20,500	)	$	(3,100	)	Interest Income
		5,434			821		Provision for Income Tax
		(15,066	)		(2,279	)	Net of Tax
Sale of Investment Securities Available-for-Sale		(4,582	)		—		Investment Securities Gains (Losses), Net
		1,237			—		Provision for Income Tax
		(3,345	)		—		Net of tax

Amortization of Defined Benefit Plan Items
Prior Service Credit 2		184			184
Net Actuarial Losses 2		(528	)		(1,626	)
		(344	)		(1,442	)	Total Before Tax
		92			383		Provision for Income Tax
		(252	)		(1,059	)	Net of Tax

Total Reclassifications for the Period	$	(18,663	)	$	(3,338	)	Net of Tax

Amounts in parentheses indicate reductions to net income.

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.

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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, 2023, and September 30, 2022:


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands, except shares and per share amounts)	2023		2022		2023		2022
Numerator:
Net Income Available to Common Shareholders	$	45,934	$	50,832	$	134,898	$	158,589

Denominator:
Weighted Average Common Shares Outstanding - Basic		39,274,626		39,567,047		39,264,450		39,670,409
Dilutive Effect of Equity Based Awards		145,905		191,162		127,983		178,386
Weighted Average Common Shares Outstanding - Diluted		39,420,531		39,758,209		39,392,433		39,848,795

Earnings Per Common Share:
Basic	$	1.17	$	1.28	$	3.44	$	4.00
Diluted	$	1.17	$	1.28	$	3.42	$	3.98

Antidilutive Stock Options and Restricted Stock Outstanding		202,864		—		222,851		—

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.

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 CECL methodology that the Company had adopted and 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.

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The provision for income taxes is allocated to business segments using a 26% effective income tax rate. However, the provision for income taxes for our Commercial Leasing 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.

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, overdraft 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 320 ATMs throughout Hawaii and the Pacific Islands, a customer service center, e-Bankoh (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 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, 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.

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


(dollars in thousands)	Consumer Banking			Commercial Banking			Treasury and Other			Consolidated Total
Three Months Ended September 30, 2023
Net Interest Income (Loss)	$	100,913		$	53,823		$	(33,799	)	$	120,937
Provision for Credit Losses		1,974			74			(48	)		2,000
Net Interest Income (Loss) After Provision for Credit Losses		98,939			53,749			(33,751	)		118,937
Noninterest Income		31,027			8,483			10,824			50,334
Noninterest Expense		(81,377	)		(18,937	)		(5,287	)		(105,601	)
Income (Loss) Before Provision for Income Taxes		48,589			43,295			(28,214	)		63,670
Provision for Income Taxes		(12,582	)		(10,987	)		7,802			(15,767	)
Net Income (Loss)	$	36,007		$	32,308		$	(20,412	)	$	47,903
Total Assets as of September 30, 2023	$	8,584,221		$	5,719,577		$	9,245,987		$	23,549,785

Three Months Ended September 30, 2022 1
Net Interest Income (Loss)	$	85,658		$	56,251		$	(254	)	$	141,655
Provision for Credit Losses		1,148			(1	)		(1,147	)		—
Net Interest Income After Provision for Credit Losses		84,510			56,252			893			141,655
Noninterest Income		30,974			(911	)		597			30,660
Noninterest Expense		(83,408	)		(17,330	)		(5,011	)		(105,749	)
Income (Loss) Before Provision for Income Taxes		32,076			38,011			(3,521	)		66,566
Provision for Income Taxes		(8,067	)		(9,206	)		3,508			(13,765	)
Net Income (Loss)	$	24,009		$	28,805		$	(13	)	$	52,801
Total Assets as of September 30, 2022 1	$	8,399,068		$	5,486,330		$	9,248,642		$	23,134,040

Nine Months Ended September 30, 2023
Net Interest Income (Loss)	$	298,512		$	164,202		$	(81,474	)	$	381,240
Provision for Credit Losses		6,035			59			406			6,500
Net Interest Income (Loss) After Provision for Credit Losses		292,477			164,143			(81,880	)		374,740
Noninterest Income		94,126			25,072			15,128			134,326
Noninterest Expense		(247,543	)		(58,528	)		(15,485	)		(321,556	)
Income (Loss) Before Provision for Income Taxes		139,060			130,687			(82,237	)		187,510
Provision for Income Taxes		(35,838	)		(32,490	)		21,624			(46,704	)
Net Income (Loss)	$	103,222		$	98,197		$	(60,613	)	$	140,806
Total Assets as of September 30, 2023	$	8,584,221		$	5,719,577		$	9,245,987		$	23,549,785

Nine Months Ended September 30, 2022 1
Net Interest Income	$	232,646		$	152,394		$	14,780		$	399,820
Provision for Credit Losses		3,463			(200	)		(11,263	)		(8,000	)
Net Interest Income After Provision for Credit Losses		229,183			152,594			26,043			407,820
Noninterest Income		94,811			17,650			3,908			116,369
Noninterest Expense		(247,854	)		(53,014	)		(11,694	)		(312,562	)
Income Before Provision for Income Taxes		76,140			117,230			18,257			211,627
Provision for Income Taxes		(19,114	)		(28,654	)		638			(47,130	)
Net Income	$	57,026		$	88,576		$	18,895		$	164,497
Total Assets as of September 30, 2022 1	$	8,399,068		$	5,486,330		$	9,248,642		$	23,134,040
1 Certain prior period information has been reclassified to conform to current presentation.

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Note 11. Derivative Financial Instruments

The Company uses derivative instruments to manage its exposure to market risks, including interest rate risk, and to assist customers with their risk management objectives. The Company designates certain derivatives as hedging instruments in a qualifying hedge accounting relationship, while other derivatives serve as economic hedges that do not qualify for hedge accounting.

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


	September 30, 2023					December 31, 2022
(dollars in thousands)	Notional Amount		Fair Value			Notional Amount		Fair Value
Derivatives designated as hedging instruments
Interest Rate Swap Agreements	$	2,000,000	$	8,216		$	—	$	—
Derivatives not designated as hedging instruments
Interest Rate Lock Commitments		11,764		113			3,860		58
Forward Commitments		11,376		68			3,256		6
Interest Rate Swap Agreements
Receive Fixed/Pay Variable Swaps		2,005,276		(200,915	)		1,821,433		(160,914	)
Pay Fixed/Receive Variable Swaps		2,005,276		200,855			1,821,433		38,785
Foreign Exchange Contracts		620		—			52,065		1,745
Conversion Rate Swap Agreement 1		137,110		—			124,752	NA

The conversion rate swap agreements were valued at zero as further reductions to the conversion rate were deemed neither probable nor reasonably 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, 2023, and December 31, 2022:


	September 30, 2023				December 31, 2022
	Asset		Liability		Asset		Liability
(dollars in thousands)	Derivatives		Derivatives		Derivatives		Derivatives
Derivatives designated as hedging instruments
Interest Rate Swap Agreements	$	8,216	$	—	$	—	$	—
Derivatives not designated as hedging instruments
Interest Rate Lock Commitments		142		29		64		6
Forward Commitments		71		3		10		4
Interest Rate Swap Agreements		202,305		202,365		45,831		167,960
Foreign Exchange Contracts		—		—		1,812		67
Total	$	210,734	$	202,397	$	47,717	$	168,037

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.

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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, 2023, and September 30, 2022:


	Location of
	Net Gains (Losses)	Three Months Ended					Nine Months Ended
	Recognized in the	September 30,					September 30,
(dollars in thousands)	Statements of Income	2023			2022		2023			2022
Derivatives designated as hedging instruments
Recognized on Interest Rate Swap Agreements	Interest Income on Investment Securities Available-for-Sale	$	4,954		$	—	$	4,954		$	—
Recognized on Hedged Item	Interest Income on Investment Securities Available-for-Sale		(5,035	)				(5,035	)	$	—
Recognized on Interest Rate Swap Agreements	Interest and Fees on Loans and Leases		2,828			—		3,262			—
Recognized on Hedged Item	Interest and Fees on Loans and Leases		(2,885	)		—		(3,321	)		—
Derivatives not designated as hedging instruments
Interest Rate Lock Commitments	Mortgage Banking		75			1		553			(1,012	)
Forward Commitments	Mortgage Banking		199			289		260			2,510
Interest Rate Swap Agreements	Other Noninterest Income		21			35		3			52
Foreign Exchange Contracts	Other Noninterest Income		816			430		2,460			936
Conversion Rate Swap Agreement	Investment Securities Gains (Losses), Net		(798	)		—		(1,362	)		—
Total		$	175		$	755	$	1,774		$	2,486

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The following amounts were recorded on the consolidated statement of financial condition related to the cumulative basis adjustment for fair value hedges as of September 30, 2023:


Derivative Financial Instruments
Designated as Hedging Instruments
Line Item in the Consolidated Statement of Condition	Carrying Amount of the Hedged Assets		Cumulative Amount of Fair Value Hedging Adjustment Included In the Carrying Amount of the Hedged Assets
(dollars in thousands)	September 30, 2023		September 30, 2023
Investment Securities, Available-for-Sale1	$	994,965	$	(5,035	)
Loans and Leases2		996,679		(3,321	)

1 These amounts were included in the fair value of closed portfolios of investment securities, available-for-sale used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolios anticipated to be outstanding for the designated hedge period. As of September 30, 2023, the fair value of the closed portfolios used in these hedging relationships was $1.9 billion.

2 These amounts were included in the amortized cost basis of closed portfolios of loans used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolios anticipated to be outstanding for the designated hedge period. As of September 30, 2023, the amortized cost basis of the closed portfolios used in these hedging relationships was $3.2 billion.

Derivatives Not Designated as Hedging Instruments
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 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 Company had net asset positions with its financial institution counterparties totaling $200.9 million and $38.8 million as of September 30, 2023, and December 31, 2022, respectively.

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, 2023, and December 31, 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.

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Derivatives Designated as Hedging Instruments
Fair Value Hedges

The Company is exposed to changes in the fair value of fixed-rate assets due to changes in benchmark interest rates. The Company entered into pay-fixed and receive-floating interest rate swaps to manage its exposure to changes in fair value of its available-for-sale investment securities and fixed rate loans. These interest rate swaps are designated as fair value hedges using the portfolio layer method. The Company receives variable-rate interest payments in exchange for making fixed-rate payments over the lives of the contracts without exchanging the notional amounts. The fair value hedges are recorded as components of other assets and other liabilities in the Company’s consolidated statements of financial condition. The gain or loss on these derivatives, as well as the offsetting loss or gain on the hedged items attributable to the hedged risk are recognized in interest income in the Company’s consolidated statements of income.

Note 12. Commitments and Contingencies

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


(dollars in thousands)	September 30, 2023		December 31, 2022
Unfunded Commitments to Extend Credit	$	3,547,254	$	3,592,872
Standby Letters of Credit		86,534		129,512
Commercial Letters of Credit		20,968		24,030
Total Credit Commitments	$	3,654,756	$	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.

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 $60.6 million secured certain specifically identified standby letters of credit as of September 30, 2023. As of September 30, 2023, the standby and commercial letters of credit had remaining terms ranging from 1 to 12 months.

Contingencies

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 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.

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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.

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 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 pricing service, fair value may be estimated by the use of secondary pricing services or through the use of non-binding third party broker quotes.

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.

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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.

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 ("SOFR"). 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, 2023, and December 31, 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.

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.

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


	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
September 30, 2023
Assets:
Investment Securities Available-for-Sale
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	142,059	$	71,397	$	—	$	213,456
Debt Securities Issued by States and Political Subdivisions		—		60,602		—		60,602
Debt Securities Issued by U.S. Government-Sponsored Enterprises		—		1,640		—		1,640
Debt Securities Issued by Corporations		—		649,140		—		649,140
Mortgage-Backed Securities:
Residential - Government Agencies		—		631,947		—		631,947
Residential - U.S. Government-Sponsored Enterprises		—		699,349		—		699,349
Commercial - Government Agencies		—		131,190		—		131,190
Total Mortgage-Backed Securities		—		1,462,486		—		1,462,486
Total Investment Securities Available-for-Sale		142,059		2,245,265		—		2,387,324
Loans Held for Sale		—		1,450		—		1,450
Mortgage Servicing Rights		—		—		685		685
Other Assets		51,435		—		—		51,435
Derivatives 1		—		71		210,663		210,734
Total Assets Measured at Fair Value on a Recurring Basis as of September 30, 2023	$	193,494	$	2,246,786	$	211,348	$	2,651,628
Liabilities:
Derivatives 1	$	—	$	3	$	202,394	$	202,397
Total Liabilities Measured at Fair Value on a Recurring Basis as of September 30, 2023	$	—	$	3	$	202,394	$	202,397
December 31, 2022
Assets:
Investment Securities Available-for-Sale
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	141,944	$	91,962	$	—	$	233,906
Debt Securities Issued by States and Political Subdivisions		—		95,265		—		95,265
Debt Securities Issued by U.S. Government-Sponsored Enterprises		—		48,628		—		48,628
Debt Securities Issued by Corporations		—		794,658		—		794,658
Mortgage-Backed Securities:
Residential - Government Agencies		—		732,828		—		732,828
Residential - U.S. Government-Sponsored Enterprises		—		793,871		—		793,871
Commercial - Government Agencies or Sponsored Agencies		—		145,667		—		145,667
Total Mortgage-Backed Securities		—		1,672,366		—		1,672,366
Total Investment Securities Available-for-Sale		141,944		2,702,879		—		2,844,823
Loans Held for Sale		—		1,035		—		1,035
Mortgage Servicing Rights		—		—		717		717
Other Assets		47,755		—		—		47,755
Derivatives 1		—		1,822		45,895		47,717
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	$	—	$	70	$	167,967	$	168,037
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.

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For the three and nine months ended September 30, 2023, and September 30, 2022, 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 September 30, 2023
Balance as of July 1, 2023	$	695		$	202
Net Gains/(Losses) Included in Net Income		(10	)		7,878
Transfers to Loans Held for Sale		—			(187	)
Variation Margin Payments		—			376
Balance as of September 30, 2023	$	685		$	8,269
Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held as of September 30, 2023	$	—		$	7,878

Three Months Ended September 30, 2022
Balance as of July 1, 2022	$	747		$	(82,948	)
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	$	—		$	36

Nine Months Ended September 30, 2023
Balance as of January 1, 2023	$	717			(122,071	)
Realized and Unrealized Net Gains (Losses):
Included in Net Income		(32	)		8,772
Transfers to Loans Held for Sale		—			(498	)
Variation Margin Payments		—			122,066
Balance as of September 30, 2023	$	685			8,269
Total Unrealized Net Gains (Losses) Included in Net Income Related to Assets Still Held as of September 30, 2023	$	—		$	8,772

Nine Months Ended September 30, 2022
Balance as of January 1, 2023	$	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	$	—		$	(961	)

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 not designated as hedging instruments are reported as a component of other noninterest income and interest rate swap agreements designated as hedging instruments are reported in interest income in the Company’s consolidated statements of income.

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For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of September 30, 2023, and December 31, 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
September 30, 2023
Mortgage Servicing Rights	Discounted Cash Flow	Constant Prepayment Rate		2.86	%	-	18.44	%		3.81	%	$	27,108
		Discount Rate		7.73	%	-	11.02	%		10.13	%
Net Derivative Assets and Liabilities:
Interest Rate Lock Commitments	Pricing Model	Closing Ratio		83.50	%	-	99.00	%		94.59	%	$	113
Interest Rate Swap Agreements	Discounted Cash Flow	Credit Factor		0.00	%	-	8.04	%		0.01	%	$	8,155

December 31, 2022
Mortgage Servicing Rights	Discounted Cash Flow	Constant Prepayment Rate		2.81	%	-	10.63	%		4.02	%	$	28,040
		Discount Rate		8.70	%	-	10.40	%		9.93	%	$	—
Net Derivative Assets and Liabilities:
Interest Rate Lock Commitments	Pricing Model	Closing Ratio		84.10	%	-	99.00	%		92.86	%	$	58
Interest Rate Swap Agreements	Discounted Cash Flow	Credit Factor		0.00	%	-	0.49	%		0.01	%	$	(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.

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, 2023, and December 31, 2022.


(dollars in thousands)	Fair Value Hierarchy	Net Carrying Amount		Valuation Allowance
September 30, 2023
Mortgage Servicing Rights - amortization method	Level 3	$	20,588	$	—

December 31, 2022
Mortgage Servicing Rights - amortization method	Level 3	$	21,902	$	—

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.

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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, 2023, and December 31, 2022.


(dollars in thousands)	Aggregate Fair Value		Aggregate Unpaid Principal		Aggregate Fair Value Less Aggregate Unpaid Principal
September 30, 2023
Loans Held for Sale	$	1,450	$	1,461	$	(11	)

December 31, 2022
Loans Held for Sale	$	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, 2023, and year ended December 31, 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.

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, 2023, and December 31, 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
	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)
September 30, 2023
Financial Instruments - Assets
Investment Securities Held-to-Maturity	$	5,088,013	$	4,104,469	$	111,409	$	3,993,060	$	—
Loans		13,651,759		12,416,800		—		—		12,416,800
Financial Instruments - Liabilities
Time Deposits		2,659,014		2,627,361		—		2,627,361		—
Securities Sold Under Agreements to Repurchase		150,490		151,963		—		151,963		—
Other Debt 1		550,000		538,987		—		538,987		—
December 31, 2022
Financial Instruments – Assets
Investment Securities Held-to-Maturity	$	5,414,139	$	4,615,393	$	113,417	$	4,501,976	$	—
Loans		13,371,226		12,386,615		—		—		12,386,615
Financial Instruments – Liabilities
Time Deposits		1,705,737		1,679,777		—		1,679,777		—
Securities Sold Under Agreements to Repurchase		725,490		718,614		—		718,614		—
Other Debt 1		400,000		402,877		—		402,877		—

1 Excludes finance lease obligations.

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Item 2. Management’s Discussion and Analysis ("MD&A") 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 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 lingering effects of the COVID-19 pandemic, including reduced tourism in Hawaii, volatility in the international and national economy and credit markets, inflation, worker absenteeism, quarantines or other travel or health-related restrictions, 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, instability and failures 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; 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; 9) changes to the amount and timing of proposed common stock repurchases; 10) unanticipated changes in the securities markets, public debt markets, and other capital markets in the U.S. and internationally, including, without limitation, the elimination of the London Interbank Offered Rate (“LIBOR”) as a benchmark interest rate; 11) changes in fiscal and monetary policies of the markets in which we operate; 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; 13) changes in accounting standards; 14) changes in tax laws or regulations, including Public Law 115-97, commonly known as the Tax Cuts and Jobs Act, or the interpretation of such laws and regulations; 15) any failure in or breach of our operational systems, information systems or infrastructure, or those of our merchants, third party vendors and other service providers; 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; 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; 18) competitive pressures in the markets for financial services and products; 19) actual or alleged conduct which could harm our reputation; and 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 in our Annual Report on Form 10-K for the year ended December 31, 2022. 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.

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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 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, 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, 2022. There have been no significant changes in the Company’s application of critical accounting policies since December 31, 2022.

Overview

We are a regional financial services company serving businesses, consumers, and governments in Hawaii, Guam, and other Pacific Islands. Our principal operating subsidiary, the Bank, was founded in 1897.

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.

Maui Wildfires

On August 8, 2023, wildfires broke out in West Maui destroying the historic town of Lahaina as well as structures and farmland in Kula in Upcountry Maui and North Kihei. Roughly 2,200 structures were lost in the fire, 86% of which were homes.

To support those impacted by the Maui wildfires, Bank of Hawaii Foundation donated $100,000 to Hawaii Community Foundation's Maui Strong Fund. We also temporarily suspended surcharge fees for all Maui ATM users beginning August 10, 2023, and we continue to offer various emergency relief loans and repayment options to affected residents and businesses. Emergency relief programs include the following options:

•

Consumer loans

Loan forbearance for up to 180 days for residential mortgages, home equity loans and home equity lines

Loan extension for up to 90 days for personal loans and auto loans

•

Commercial loans

Principal deferrals for up to 180 days for customers that continue to make interest payments

Interest deferrals or principal and interest deferrals for up to 90 days for all other customers

As of September 30, 2023, loans to our customers impacted by the Maui wildfires represented $169.2 million or 1% of our total loan portfolio, of which $70.7 million is secured by properties or other assets not destroyed in the wildfires, $86.2 million is secured by properties or other assets that were destroyed, and $12.3 million is unsecured. Out of the $86.2 million in credit facilities secured by properties destroyed in the fires, we estimate $66.3 million are adequately covered by insurance, and $15.3 million are adequately

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covered by insurance and the value of the underlying land, with the remaining $4.6 million representing the estimated potential loss. Out of the $12.3 million in unsecured credit facilities, conservatively half of this exposure, $6.2 million, represents the estimated potential loss. Based on the foregoing, our overall estimated potential loss exposure from the fire-impacted areas is $10.8 million. Whether the wildfires resulted in damage to or loss of our customers’ home, job, or business, we are taking significant steps to support them and help the community navigate through this tragic event. As of September 30, 2023, we had $136.4 million in outstanding credit facilities that were under loan payment deferrals as part of our Maui Wildfire emergency relief program.

Hawaii Economy

In the wake of the wildfires, Maui experienced a severe economic disruption. Visitor arrivals declined and thousands of families have been displaced. Until substantial rebuilding can be accomplished, housing displaced residents as well as recovery workers will strain the already tight and expensive Maui housing market. The fires destroyed the vast majority of businesses and jobs in Lahaina, and across Maui, local businesses are struggling from the lower visitor numbers. As a result, the unemployment rate in Maui is expected to increase through the fourth quarter of 2023. Although the Maui recovery effort is generating an impressive inflow of funds from philanthropy, FEMA disaster relief, other government assistance, and usual and supplemental support for the unemployed, it only partially offsets the losses in property and economic activity.

While visitor arrivals to Maui have been impacted, tourism to Central and South Maui has begun to recover and West Maui resorts unaffected by the wildfires reopened on October 8, 2023. We also expect visitors to redirect their travel plans to other islands, predominantly Oahu, Kauai, or the Big Island. The Japanese visitor market continues to show an ongoing gradual recovery towards pre-COVID levels. Visitor arrivals to the state overall remained at or above pre-pandemic levels.

While the wildfires will lead to significant economic losses on Maui, spillover to the broader Hawaii economy is expected to be limited. The economic environment on the other Hawaiian Islands showed continued improvement with the unemployment rate on Oahu falling from 3.3% in December 2022 to 2.2% in September 2023. For the state overall, job growth is expected to slow throughout 2024 because of the current direct loss of Maui economic activity but is expected to rebound in 2025 as rebuilding efforts begin. Construction in other counties will have to compete with Maui recovery demands potentially causing delays in some planned public and private sector projects and will likely lead to upward pressure on costs. Hawaii’s unemployment rate was 2.8% in September 2023, which was below the U.S. unemployment rate of 3.8%.

High interest rates have slowed the home resale market both because of the cost of first-time home purchases and the “lock-in effect” of the low rates many homeowners have on their current mortgage. For the first nine months of 2023, the median price of single-family home sales and condominium sales on Oahu decreased 5.4% and 1.0%, respectively, compared to the same period in 2022. The volume of single-family home sales and condominiums sales on Oahu decreased 30.5% and 31.2%, respectively, for the first nine 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 September 30, 2023, inventory of single-family homes and condominiums on Oahu continues to remain low at 2.7 months and 3.0 months, respectively.

Earnings Summary

Net income for the third quarter of 2023 was $47.9 million, a decrease of $4.9 million or 9% compared to the same period in 2022. Diluted earnings per common share was $1.17 for the third quarter of 2023, a decrease of $0.11 or 9% compared to the same period in 2022.

•

The return on average common equity for the third quarter of 2023 was 15.38% compared with 16.98% in the same quarter of 2022.

•

Net interest income for the third quarter of 2023 was $120.9 million, a decrease of 15% from the same quarter of 2022. The decrease in net interest income in the third quarter of 2023 was primarily due to higher funding costs, partially offset by higher earning asset yields. The net interest margin was 2.13% in the third quarter of 2023, a decrease of 47 basis points from the same period in 2022.

•

The provision for credit losses was $2.0 million for the third quarter of 2023 compared to no provision for credit losses in the same period of 2022.

•

Noninterest income was $50.3 million in the third quarter of 2023, an increase of 64% from the same period in 2022.

•

Noninterest expense was $105.6 million in the third quarter of 2023, comparable to the same quarter of 2022.

•

The effective tax rate for the third quarter of 2023 was 24.76% compared with 20.68% during the same quarter of 2022.

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

•

Total non-performing assets were $11.5 million as of September 30, 2023, down $2.3 million from September 30, 2022. Non-performing assets as a percentage of total loans and leases and foreclosed real estate were 0.08% at the end of the quarter, a decrease of 2 basis points from the same quarter of 2022.

•

Net loan and lease charge-offs during the third quarter of 2023 were $2.0 million or 6 basis points annualized of total average loans and leases outstanding. Net loan and lease charge-offs for the third quarter of 2023 were comprised of charge-offs of $3.6 million partially offset by recoveries of $1.6 million. Compared to the same quarter of 2022, net loan and lease charge-offs increased by $0.9 million or 3 basis points annualized on total average loans and leases outstanding.

•

The allowance for credit losses on loans and leases was $145.3 million as of September 30, 2023, an increase of $0.8 million from December 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, down 6 basis points from the same quarter of 2022.

•

Total assets were $23.5 billion as of September 30, 2023, a decrease of 0.2% from December 31, 2022.

•

The investment securities portfolio was $7.5 billion as of September 30, 2023, a decrease of 9% from December 31, 2022. The investment portfolio remains largely comprised of securities issued by U.S. government agencies and U.S. government-sponsored enterprises.

•

Total loans and leases were $13.9 billion as of September 30, 2023, an increase of 2% from December 31, 2022.

•

Total deposits were$20.8 billion as of September 30, 2023, an increase of 0.9% from December 31, 2022.

•

Total shareholders’ equity was $1.4 billion as of September 30, 2023, an increase of 3.6% from December 31, 2022.

•

No shares of common stock were repurchased under the share repurchase program in the third quarter of 2023. Total remaining buyback authority under the share repurchase program was $126.0 million as of September 30, 2023.

•

The Company’s Board of Directors declared a quarterly cash dividend of $0.70 per share on the Company’s outstanding common shares. The dividend will be payable on December 14, 2023 to shareholders of record at the close of business on November 30, 2023.

•

On October 5, 2023, the Company announced that the Board of Directors declared the quarterly dividend payment of $10.94 per share, equivalent to $0.2735 per depositary share, on its preferred stock. The depositary shares representing the Series A Preferred Stock are traded on the NYSE under the symbol “BOH.PRA.” The dividend will be payable on November 1, 2023 to shareholders of record of the preferred stock as of the close of business on October 17, 2023.

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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							Nine Months Ended							Nine Months Ended
	September 30, 2023							September 30, 2022							September 30, 2023							September 30, 2022
	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	$	—		2.40	%	$	2.9	$	—		1.32	%	$	3.2	$	0.1		2.60	%	$	3.3	$	—		0.76	%
Funds Sold		944.8		12.8		5.31			411.8		2.3		2.22			582.7		22.6		5.11			308.6		3.2		1.36
Investment Securities
Available-for-Sale
Taxable		2,605.4		23.5		3.60			3,481.9		17.0		1.95			2,721.5		70.6		3.46			3,998.2		52.0		1.74
Non-Taxable		3.5		—		3.21			2.5		—		1.56			7.6		0.2		4.22			2.8		—		1.84
Held-to-Maturity
Taxable		5,118.6		22.7		1.77			4,645.7		20.1		1.73			5,227.8		69.7		1.78			4,530.4		57.4		1.69
Non-Taxable		35.0		0.2		2.10			35.6		0.2		2.10			35.2		0.6		2.10			35.7		0.6		2.10
Total Investment Securities		7,762.5		46.4		2.39			8,165.7		37.3		1.82			7,992.1		141.1		2.36			8,567.1		110.0		1.71
Loans Held for Sale		3.8		0.1		6.28			4.3		0.1		4.46			2.7		0.1		5.82			8.1		0.2		3.43
Loans and Leases 1
Commercial and Industrial		1,515.0		18.9		4.96			1,353.8		12.5		3.66			1,461.2		52.7		4.82			1,339.0		31.4		3.13
Paycheck Protection Program		13.1		—		1.32			28.0		0.2		3.02			14.8		0.2		1.70			51.7		2.5		6.59
Commercial Mortgage		3,792.6		51.1		5.35			3,530.9		33.3		3.74			3,781.7		145.6		5.15			3,350.3		81.3		3.25
Construction		241.9		3.7		6.09			233.0		2.8		4.81			256.2		11.1		5.81			227.7		7.3		4.30
Commercial Lease Financing		62.6		0.3		1.84			89.1		0.4		1.58			64.9		0.5		1.11			94.0		1.0		1.49
Residential Mortgage		4,715.3		42.8		3.62			4,526.6		37.4		3.30			4,695.4		123.8		3.51			4,439.1		108.6		3.26
Home Equity		2,283.5		20.1		3.49			2,144.8		16.4		3.04			2,265.2		57.3		3.38			2,026.5		44.1		2.91
Automobile		868.0		8.2		3.75			795.5		6.4		3.19			873.0		23.2		3.55			764.2		18.4		3.21
Other 2		411.2		6.5		6.24			425.0		5.9		5.48			420.8		19.0		6.04			416.5		17.0		5.44
Total Loans and Leases		13,903.2		151.6		4.34			13,126.7		115.3		3.49			13,833.2		433.4		4.19			12,709.0		311.6		3.27
Other		91.6		1.5		6.40			36.9		0.3		3.49			84.60		4.1		6.59			37.2		0.9		3.14
Total Earning Assets 3		22,708.8		212.4		3.72			21,748.3		155.3		2.84			22,498.5		601.4		3.57			21,633.3		425.9		2.63
Cash and Due From Banks		289.8							233.5							308.4							235.0
Other Assets		1,388.8							1,154.0							1,317.5							1,090.9
Total Assets	$	24,387.4						$	23,135.8						$	24,124.4						$	22,959.2

Interest-Bearing Liabilities
Interest-Bearing Deposits
Demand	$	3,929.7	$	6.6		0.67	%	$	4,286.0	$	1.4		0.13	%	$	4,060.0	$	19.3		0.64	%	$	4,459.9	$	2.6		0.08	%
Savings		7,952.6		39.1		1.95			7,962.0		6.6		0.33			7,876.1		86.3		1.46			7,733.3		9.5		0.16
Time		2,767.8		26.5		3.79			1,146.9		2.3		0.79			2,288.2		58.1		3.40			1,023.6		4.1		0.53
Total Interest-Bearing Deposits		14,650.1		72.2		1.95			13,394.9		10.3		0.30			14,224.3		163.7		1.54			13,216.8		16.2		0.16
Funds Purchased		—		—		0.00			4.9		0.1		3.2			24.8		0.9		4.72			12.4		0.1		1.05
Short-Term Borrowings		—		—		—			—		—		—			152.4		5.7		4.94			11.5		0.1		1.06
Securities Sold Under Agreements to Repurchase		528.5		4.0		2.99			425.5		2.7		2.52			659.1		14.8		2.97			441.1		8.3		2.48
Other Debt		1,365.7		14.8		4.31			10.3		0.2		7.05			1,043.6		33.7		4.31			10.3		0.6		7.05
Total Interest-Bearing Liabilities		16,544.3		91.0		2.18			13,835.6		13.3		0.38			16,104.2		218.8		1.81			13,692.1		25.3		0.25
Net Interest Income			$	121.4						$	142.0						$	382.6						$	400.6
Interest Rate Spread						1.54	%						2.46	%						1.76	%						2.38	%
Net Interest Margin						2.13	%						2.60	%						2.27	%						2.47	%
Noninterest-Bearing Demand Deposits		5,842.0							7,468.8							6,089.8							7,404.5
Other Liabilities		636.0							463.5							576.6							420.9
Shareholders’ Equity		1,365.1							1,367.9							1,353.8							1,441.7
Total Liabilities and Shareholders’ Equity	$	24,387.4						$	23,135.8						$	24,124.4						$	22,959.2

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 $0.4 million and $1.4 million for the three and nine months ended September 30, 2023, and $0.3 million and $0.8 million for the three and nine months ended September 30, 2022.

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Analysis of Change in Net Interest Income - Taxable-Equivalent Basis							Table 2
	Nine Months Ended September 30, 2023
	Compared to September 30, 2022
(dollars in millions)	Volume 1			Rate 1			Total
Change in Interest Income:
Interest-Bearing Deposits in Other Banks	$	0.1		$	-		$	0.1
Funds Sold		4.7			14.7			19.4
Investment Securities
Available-for-Sale
Taxable		(20.6	)		39.2			18.6
Non-Taxable		0.1			0.1			0.2
Held-to-Maturity
Taxable		9.2			3.1			12.3
Non-Taxable		—			—			—
Total Investment Securities		(11.3	)		42.4			31.1
Loans Held for Sale		(0.2	)		0.1			(0.1	)
Loans and Leases
Commercial and Industrial		3.1			18.2			21.3
Paycheck Protection Program		(1.2	)		(1.1	)		(2.3	)
Commercial Mortgage		11.6			52.7			64.3
Construction		1.0			2.8			3.8
Commercial Lease Financing		(0.4	)		(0.1	)		(0.5	)
Residential Mortgage		6.5			8.7			15.2
Home Equity		5.6			7.6			13.2
Automobile		2.7			2.1			4.8
Other 2		0.1			1.9			2.0
Total Loans and Leases		29.0			92.8			121.8
Other		1.7			1.5			3.2
Total Change in Interest Income		24.0			151.5			175.5

Change in Interest Expense:
Interest-Bearing Deposits
Demand		(0.3	)		17.0			16.7
Savings		0.2			76.6			76.8
Time		10.0			44.0			54.0
Total Interest-Bearing Deposits		9.9			137.6			147.5
Funds Purchased		0.2			0.6			0.8
Short-Term Borrowings		4.3			1.3			5.6
Securities Sold Under Agreements to Repurchase		4.7			1.8			6.5
Other Debt		33.4			(0.3	)		33.1
Total Change in Interest Expense		52.5			141.0			193.5

Change in Net Interest Income	$	(28.5	)	$	10.5		$	(18.0	)

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.

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 88 basis points in the third quarter of 2023 and increased by 94 basis points in the first nine months of 2023 compared to the same periods in 2022. This is primarily due to the higher rate environment in 2023 compared to the prior year.

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Yields on our investment securities portfolio increased by 57 basis points in the third quarter of 2023 and by 65 basis points in the first nine months of 2023 compared to the same periods in 2022 due to the higher rate environment and slower prepayments. Yields on funds sold increased by 309 basis points in the third quarter of 2023 and by 375 basis points in the first nine months of 2023 compared to the same periods in 2022 also due to the higher rates. Yields on our loan and lease portfolio increased by 85 basis points in the third quarter of 2023 and by 92 basis points in the first nine months of 2023 compared to the same periods in 2022 due to an increase in yields on our floating rate loan portfolio and higher rates on loans that originated during the period.

Interest rates paid on our interest-bearing liabilities increased by 180 basis points in the third quarter of 2023 and by 156 basis points in the first nine months of 2023 compared to the same periods in 2022. The interest rates on savings deposits increased by 162 basis points in the third quarter of 2023 and by 130 basis points in the first nine months of 2023 compared to the same periods in 2022. Interest rates paid on time deposits increased by 300 basis points in the third quarter of 2023 and by 287 basis points in the first nine months of 2023 compared to the same periods in 2022. The rates paid on securities sold under agreements to repurchase increased by 47 basis points in the third quarter of 2023 compared to the same period in 2022. Increases to our funding costs are primarily due to the higher interest rate environment and increased Federal Home Loan Bank advances.

The average balance of our earning assets increased by $1.0 billion or 4% in the third quarter of 2023 and by $0.9 billion or 4% in the first nine months of 2023 compared to the same periods in 2022 primarily due to an increase in the average balances of our loan portfolio. The average balance of our funds sold increased by $533.0 million or 129% in the third quarter of 2023 and by $274.1 million or 89% in the first nine months of 2023 compared to the same periods in 2022. The average balance of our investment securities decreased by $0.4 billion or 5% in the third quarter of 2023 and by $0.6 billion or 7% in the first nine months of 2023 compared to the same periods in 2022. The average balance of our loan and lease portfolio increased by $0.8 billion or 6% in the third quarter of 2023 and by 9% in the first nine months of 2023 compared to the same periods in 2022. The average balance of our commercial mortgage portfolio increased by $261.7 million or 7% in the third quarter of 2023 and by $431.4 million or 13% in the first nine months of 2023 compared to the same periods in 2022 as a result of continued demand from new and existing customers. The average balance of our residential mortgage portfolio increased by $188.7 million or 4% in the third quarter of 2023 and by $256.3 million or 6% in the first nine months of 2023 compared to the same period in 2022 primarily due to loan originations partially offset by lower payoff activity. The average balance of our home equity portfolio increased by $138.7 million or 6% in the third quarter of 2023 and by $238.7 million or 12% in the first nine months of 2023 compared to the same period in 2022 mainly due to growth driven by ongoing promotions of our SmartRefi program.

The average balances of our interest-bearing liabilities for the three and nine months ended September 30, 2023, increased by $2.7 billion or 20% and by $2.4 billion or 18%, respectively, compared to the same periods in 2022 primarily due to increased time deposits and borrowings from the Federal Home Loan Bank. The average balances of our core interest-bearing deposit products for the three months ended September 30, 2023, decreased by $365.7 million or 3% and decreased by $257.1 million or 2% for the nine months ended September 30, 2023, compared to the same periods in 2022 as customers moved their funds into higher rate time deposits. The average balances of our interest-bearing deposits for the three and nine months ended September 30, 2023, increased by $1,255.2 million or 9% and by $1,007.5 million or 8%, respectively, compared to the same periods in 2022. The average balance of our interest-bearing demand deposits for the three and nine months ended September 30, 2023, decreased by $356.3 million or 8% and by $399.9 million or 9%, respectively, compared to the same periods in 2022. The average balance of our savings deposits decreased by $9.4 million for the three months ended September 30, 2023, and increased by $142.8 million or 1.8% for the nine months ended September 30, 2023compared to the same 2022 period. The average balance of our time deposits for the three and nine months ended September 30, 2023, increased by $1.6 billion or 141% and by $1.3 billion or 124%, respectively, compared to the same periods in 2022 due to the higher rate environment.

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The average balances of our securities sold under agreements to repurchase for the three and nine months ended September 30, 2023, increased by $103.0 million or 24% and by $218.0 million or 49% compared to the same periods in 2022. The increase was due to $300.0 million in repurchase agreements that originated in late 2022, offset by terminations of $575 million in the third quarter of 2023. The average balances of our other debt, which was comprised primarily of Federal Home Loan Bank (“FHLB”) advances, increased by $1.4 billion in the third quarter of 2023 and by $1.0 billion for the nine months ended September 30, 2023, compared to the same periods in 2022, primarily due to FHLB advances totaling $1.25 billion that originated during the second quarter of 2023, $100.0 million that originated during the first quarter of 2023, and $400.0 million that originated in the fourth quarter of 2022.

Noninterest Income

Table 3 presents the components of noninterest income.


Noninterest Income																Table 3
	Three Months Ended September 30,									Nine Months Ended September 30,
(dollars in thousands)	2023			2022			Change			2023			2022			Change
Trust and Asset Management		10,548		$	10,418		$	130			32,453		$	33,151		$	(698	)
Mortgage Banking		1,059			1,002			57			3,239			4,989			(1,750	)
Service Charges on Deposit Accounts		7,843			7,526			317			23,167			22,107			1,060
Fees, Exchange, and Other Service Charges		13,824			13,863			(39	)		41,782			41,008			774
Investment Securities Gains (Losses), Net		(6,734	)		(2,147	)		(4,587	)		(9,836	)		(4,987	)		(4,849	)
Annuity and Insurance		1,156			1,034			122			3,465			2,695			770
Bank-Owned Life Insurance		2,749			2,486			263			8,467			7,493			974
Other Income		19,889			(3,522	)		23,411			31,589			9,913			21,676
Total Noninterest Income	$	50,334		$	30,660		$	19,674		$	134,326		$	116,369		$	17,957

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 $10.6 billion and $10.1 billion as of September 30, 2023, and September 30, 2022, respectively. Although total assets under administration increased, trust and asset management income decreased by $0.7 million or 2% for the first nine months of 2023 compared to the same period in 2022 primarily due to a decline in the asset values of customers' accounts that comprise the largest segment in our portfolio.

Mortgage banking income is highly influenced by mortgage interest rates, the housing market, and the amount of our loan sales. Mortgage banking income decreased by $1.8 million or 35% for the first nine months of 2023 compared to the same period in 2022, primarily due to a net valuation allowance recovery to our servicing rights during the first quarter of 2022.

Service charges on deposit accounts increased by $1.1 million or 5% for the first nine months of 2023 compared to the same period in 2022. This increase was primarily due to an increase in overdraft fees compared to the same period in 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 $0.8 million or 2% for the first nine months of 2023 compared to the same period in 2022 primarily due to an increase in merchant income as a result of higher transaction volume.

Investment securities losses increased by $4.6 million in the third quarter and $4.9 million in the first nine months of 2023 compared to the same periods in 2022. The net losses in 2023 were primarily due to $4.6 million net losses on sales of investment securities. Although the Company had the ability to hold its investment securities until maturity, during the three months ended September 30, 2023, it made the strategic decision to reduce the size of its AFS portfolio by selling various corporate and municipal bonds which resulted in a realized loss of $4.6 million.

Annuity and insurance income increased by $0.8 million or 29% for the first nine months of 2023 compared to the same period in 2022 primarily due to increased fixed annuity and insurance income.

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Bank-owned life insurance increased by $1.0 million or 13% for the first nine months of 2023 compared to the same period in 2022 primarily due to an increase in death benefits received.

Other noninterest income increased by $23.4 million or 665% in the third quarter and $21.7 million or 219% for the first nine months of 2023 compared to the same periods in 2022 primarily due to a $14.7 million gain on the extinguishment of repurchase agreements in September 2023 combined with a $6.9 million loss on the sale of leased assets that was recognized in the prior year.

Noninterest Expense

Table 4 presents the components of noninterest expense.


Noninterest Expense												Table 4
	Three Months Ended September 30,							Nine Months Ended September 30,
(dollars in thousands)	2023		2022		Change			2023		2022		Change
Salaries	$	39,426	$	37,792	$	1,634		$	116,005	$	109,445	$	6,560
Incentive Compensation		2,956		5,885		(2,929	)		9,937		18,069		(8,132	)
Share-Based Compensation		4,072		3,558		514			11,327		11,319		8
Commission Expense		676		1,005		(329	)		2,098		3,878		(1,780	)
Retirement and Other Benefits		3,809		4,448		(639	)		13,186		13,177		9
Payroll Taxes		2,921		2,826		95			12,079		10,804		1,275
Medical, Dental, and Life Insurance		2,835		2,605		230			10,267		8,430		1,837
Separation Expense		2,130		1,819		311			5,189		2,509		2,680
Total Salaries and Benefits		58,825		59,938		(1,113	)		180,088		177,631		2,457
Net Occupancy		10,327		10,186		141			30,190		29,942		248
Net Equipment		9,477		9,736		(259	)		30,425		28,432		1,993
Data Processing		4,706		4,616		90			13,888		13,783		105
Professional Fees		3,846		3,799		47			12,380		10,599		1,781
FDIC Insurance		3,361		1,680		1,681			9,768		4,772		4,996
Other Expense:
Advertising		1,894		2,376		(482	)		5,931		7,429		(1,498	)
Delivery and Postage Services		1,800		1,596		204			5,127		4,890		237
Broker's Charges		959		837		122			2,817		3,551		(734	)
Merchant Transaction and Card Processing Fees		1,654		1,538		116			4,886		4,475		411
Mileage Program Travel		1,098		1,185		(87	)		3,285		3,537		(252	)
Other		7,654		8,262		(608	)		22,771		23,521		(750	)
Total Other Expense		15,059		15,794		(735	)		44,817		47,403		(2,586	)
Total Noninterest Expense	$	105,601	$	105,749	$	(148	)	$	321,556	$	312,562	$	8,994

Total salaries and benefits expense decreased by $1.1 million or 2% for the third quarter of 2023 and increased by $2.5 million or 1% for the first nine months of 2023 compared to the same periods in 2022. The decrease in the third quarter was primarily due to a decrease in incentive compensation, commission, and retirement and other benefits, partially offset by an increase in base salaries coupled with an increase in share-based compensation, medical, dental, and life insurance and separation expenses. The increase in the first nine months of 2023 was primarily due to an increase in base salaries coupled with an increase in medical, dental, and life insurance and separation expenses, partially offset by a decrease in incentive compensation and commission expense.

Net equipment expense increased by $2.0 million or 7% for the first nine months compared to the same period in 2022. This increase was due to higher software license fees coupled with an increase in maintenance expense.

Professional fees increased by $1.8 million or 17% for the first nine months of 2023 compared to the same period in 2022 primarily due to an increase in legal fees coupled with an increase in outsourcing various administrative and support functions.

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FDIC insurance expense increased by $1.7 million or 100% in the third quarter of 2023 and by $5.0 million or 105% for the first nine months of 2023 compared to the same periods in 2022 primarily due to an increase in the initial base deposit insurance assessment rate. In May 2023, the FDIC issued a notice of proposed rulemaking (NPR). The NPR proposed an annual special assessment rate of approximately 12.5 basis points to an assessment base that would equal an Insured Depository Institution’s estimated uninsured deposits reported as of December 31, 2022, to be paid in eight quarterly installments beginning in the first quarter of 2024. If the rule is adopted as proposed, the total amount of the special assessment would be accrued and recognized as a loss in the period the rule is adopted.

Total other expense decreased by $0.7 million or 5% for the third quarter of 2023 and by $2.6 million or 5% for the first nine months of 2023 compared to the same periods in 2022. These decreases were primarily due to lower advertising, education and recruitment, and telephone service expenses.

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
	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2023			2022			2023			2022
Provision for Income Taxes	$	15,767		$	13,765		$	46,704		$	47,130
Effective Tax Rates		24.76	%		20.68	%		24.91	%		22.27	%

The provision for income taxes was $15.8 million in the third quarter of 2023, an increase of $2.0 million compared to the same period in 2022. The effective tax rate for the third quarter of 2023 was 24.76%, an increase from 20.68% for the same period in 2022. The higher effective tax rate in the third quarter of 2023 compared to the same period in 2022 was primarily due to a loss of tax benefits from exiting the leverage lease business, an increase in valuation allowance, and a decrease of tax benefits from low-income housing investments related to an investment in Lahaina.

The provision for income taxes was $46.7 million in the first nine months of 2023, a decrease of $0.4 million compared to the same period in 2022. The effective tax rate for the first nine months of 2023 was 24.91%, an increase from 22.27% for the same period in 2022. The higher effective tax rate for the first nine months of 2023 compared to the same period in 2022 was primarily due to a loss of tax benefits from exiting the leverage lease business, an increase in valuation allowance, and a decrease of tax benefits from low-income housing investments related to an investment in Lahaina.

Analysis of Statements of Condition

Investment Securities

The carrying value of our investment securities portfolio was $7.5 billion and $8.3 billion as of September 30, 2023, and December 31, 2022, respectively. The decrease is due to sales of investment securities and cash flows from the portfolio not being reinvested into securities.

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, 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 $0.5 million as of September 30, 2023, and $1.9 million as of December 31, 2022. Gross unrealized losses in our investment securities portfolio were $1.3 billion as of September 30, 2023, and $1.1 billion as of December 31, 2022. The gross unrealized losses were primarily related to mortgage-backed securities issued by U.S. government agencies or U.S. government-sponsored enterprises. 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)	September 30, 2023		December 31, 2022		Change
Commercial
Commercial and Industrial	$	1,569,572	$	1,389,066	$	180,506
Paycheck Protection Program		12,529		19,579		(7,050	)
Commercial Mortgage		3,784,339		3,725,542		58,797
Construction		251,507		260,825		(9,318	)
Lease Financing		61,522		69,491		(7,969	)
Total Commercial		5,679,469		5,464,503		214,966
Consumer
Residential Mortgage		4,699,140		4,653,072		46,068
Home Equity		2,285,974		2,225,950		60,024
Automobile		856,113		870,396		(14,283	)
Other 1		398,795		432,499		(33,704	)
Total Consumer		8,240,022		8,181,917		58,105
Total Loans and Leases	$	13,919,491	$	13,646,420	$	273,071

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

Total loans and leases as of September 30, 2023, increased by $273.1 million or 2%, from December 31, 2022, primarily due to growth from commercial and industrial loans, commercial mortgage loans, residential mortgage loans, and home equity lines of credit.

Commercial loans and leases as of September 30, 2023, increased by $215.0 million or 4% from December 31, 2022. Commercial and industrial loans increased by $180.5 million or 13% from December 31, 2022, primarily due to higher corporate demand for funding from new and existing customers. PPP loans decreased by $7.1 million, or 36% from December 31, 2022, primarily due to paydowns. Commercial mortgage loans increased by $58.8 million or 2% from December 31, 2022, primarily due to demand from new and existing customers. Construction loans decreased by $9.3 million or 4% from December 31, 2022, primarily due to paydowns and loans converted to commercial mortgages. Lease financing decreased by $8.0 million, or 11% from December 31, 2022, primarily due to paydowns.

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Consumer loans and leases as of September 30, 2023, increased by $58.1 million or 1% from December 31, 2022. Residential mortgage loans increased by $46.1 million or 1% from December 31, 2022. While overall production has decreased significantly due to the higher rate environment, overall loan balances increased primarily due to a shift in consumer preference to Adjustable Rate Mortgages for new home purchases. Payoffs remain low due to existing customers having lower interest rates deterring refinances. Home equity portfolio increased by $60.0 million or 3% from December 31, 2022, as a result of reduced payoff levels despite lower production levels. Automobile loans decreased by $14.3 million or 2% from December 31, 2022, as a result of decrease in production resulting from higher interest rates. Other consumer loans decreased by $33.7 million or 8% from December 31, 2022. due to slowdown in installment loan originations and continued paydown of installment loans and automobile leases.

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
September 30, 2023
Commercial
Commercial and Industrial	$	1,349,892	$	140,188	$	63,831	$	15,661	$	1,569,572
Paycheck Protection Program		10,018		1,771		359		381		12,529
Commercial Mortgage		3,302,771		285,679		195,449		440		3,784,339
Construction		251,507		—		—		—		251,507
Lease Financing		60,665		—		857		—		61,522
Total Commercial		4,974,853		427,638		260,496		16,482		5,679,469
Consumer
Residential Mortgage		4,619,557		3,479		75,639		465		4,699,140
Home Equity		2,237,136		44		48,794		—		2,285,974
Automobile		661,438		—		151,649		43,026		856,113
Other 2		340,086		—		48,714		9,995		398,795
Total Consumer		7,858,217		3,523		324,796		53,486		8,240,022
Total Loans and Leases	$	12,833,070	$	431,161	$	585,292	$	69,968	$	13,919,491
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

For secured loans and leases, classification is made based on where the collateral is located. For unsecured loans and leases, classification 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.

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 participation in shared national credits for customers whose operations and assets extend beyond Hawaii.

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Other Assets

Table 8 presents the major components of other assets.


Other Assets					Table 8
(dollars in thousands)	September 30, 2023		December 31, 2022		Change
Federal Home Loan Bank of Des Moines and Federal Reserve Bank Stock	$	59,400	$	53,065	$	6,335
Derivative Financial Instruments		210,734		47,717		163,017
Low-Income Housing and Other Equity Investments		188,431		175,283		13,148
Deferred Compensation Plan Assets		51,435		47,755		3,680
Prepaid Expenses		21,611		18,651		2,960
Accounts Receivable		21,510		12,168		9,342
Deferred Tax Assets		191,743		177,713		14,030
Other		41,059		41,636		(577	)
Total Other Assets	$	785,923	$	573,988	$	211,935

Total other assets increased by $211.9 million or 37% from December 31, 2022. This increase was due to a $163.0 million increase in derivative financial instruments, which was driven by the conversion of our interest rate swap portfolio from LIBOR to CME Term SOFR. Collateral payments received for our LIBOR swap portfolio were considered legal settlements of the derivatives’ exposure in accordance with the rules of the central clearinghouses that were used for settlement purposes. These payments were required to be presented as a contra asset, which reduced the balance of our derivative financial instruments. Currently, our CME Term SOFR swaps are not clearable via a central clearinghouse. Thus, collateral payments received are treated as collateral rather than legal settlements of the derivatives’ exposure and are presented in Other Liabilities in the consolidated statements of condition. Federal Home Loan Bank of Des Moines stock increased by $6.3 million due to increase of stock activity. In addition, low-income housing and other equity investments increased by $13.1 million due to additional funding of existing projects.

Deposits

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


Deposits					Table 9
(dollars in thousands)	September 30, 2023		December 31, 2022		Change
Consumer	$	10,036,261	$	10,304,335	$	(268,074	)
Commercial		8,564,536		8,569,670		(5,134	)
Public and Other		2,201,512		1,741,691		459,821
Total Deposits	$	20,802,309	$	20,615,696	$	186,613

Total deposits were $20.8 billion as of September 30, 2023, an increase of $186.6 million or 1% from December 31, 2022. Consumer deposits decreased by $268.1 million primarily due to a $945.7 million decrease in core deposits, partially offset by $677.6 million increase in time deposits. Commercial deposits decreased by $5.1 million due to a decrease of $231.6 million in core deposits, partially offset by an increase of $226.5 million in time deposits. Public and other deposits increased by $459.8 million primarily from increases of $410.7 million in core deposits and $49.1 million in time deposits.

Table 10 presents the composition of our savings deposits.


Savings Deposits					Table 10
(dollars in thousands)	September 30, 2023		December 31, 2022		Change
Money Market	$	3,686,824	$	3,101,594	$	585,230
Regular Savings		4,843,560		4,860,816		(17,256	)
Total Savings Deposits	$	8,530,384	$	7,962,410	$	567,974

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The increase in Money Market was primarily due to an increase in commercial deposits of $653.0 million offset by $67.8 million decrease in consumer deposits. The decrease in Regular Savings was due to a decrease in consumer deposits of $357.2 million partially offset by increases of $270.6 million and $69.3 million in public deposits and commercial deposits respectively.

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


Maturity Distribution of Estimated Uninsured Time Deposits	Table 11
(dollars in thousands)	September 30, 2023
Remaining maturity:
Three months or less	$	490,126
After three through six months		444,734
After six through twelve months		232,454
After twelve months		487,955
Total	$	1,655,269

Estimated uninsured deposits as calculated pursuant to regulatory guidance and reported in our Call Report include deposits that were collateralized by government-backed securities and intercompany deposits of wholly-owned subsidiaries. The table below presents a reconciliation of our estimated uninsured deposits reported in our Call Report to our adjusted uninsured deposits. We believe the adjusted uninsured deposits provides useful information about our overall credit risk related to our customers’ deposits.


Uninsured Deposits Reconciliation				Table 11a
(dollars in millions)	September 30, 20231			December 31, 2022
Estimated Uninsured Deposits, as Reported in our Call Report1	$	10,949		$	10,486
Less:
Deposits Collaterized by Government-Backed Securities		(2,103	)		(1,630	)
Intercompany Deposits of Wholly-Owned Subsidiaries		(94	)		(63	)
Other		(29	)		(4	)
Adjusted Uninsured Deposits	$	8,723		$	8,789

Balances presented as of September 30, 2023 are preliminary.

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
(dollars in thousands)	September 30, 2023		December 31, 2022		Change
Private Institutions	$	150,000	$	725,000	$	(575,000	)
Government Entities		490		490		—
Total Securities Sold Under Agreements to Repurchase	$	150,490	$	725,490	$	(575,000	)

In September 2023, the Company terminated repurchase agreements with three private institutions, with an aggregate outstanding balance of $425.0 million. The termination of these repurchase agreements resulted in a $14.7 million gain on debt extinguishment, which is reflected in other noninterest income in the consolidated statements of income. In August 2023, a private institution exercised their call right on two repurchase agreements, resulting in their termination, which had an outstanding balance of $150.0 million. Securities sold under agreements to repurchase was $150.5 million and $725.5 million as of September 30, 2023, and December 31, 2022, respectively. As of September 30, 2023, the weighted-average maturity was 1.11 years for our repurchase agreements with government entities and 5.46 years for our repurchase agreements with private institutions. As of September 30, 2023, the weighted-average interest rate for outstanding agreements with government entities and private institutions was 1.55% and 3.80%, 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.

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Other Debt

Table 13 presents the composition of our other debt.


Other Debt					Table 13
(dollars in thousands)	September 30, 2023		December 31, 2022		Change
Federal Home Loan Bank Advances	$	550,000	$	400,000	$	150,000
Finance Lease Obligations		10,217		10,294		(77	)
Total	$	560,217	$	410,294	$	149,923

Although FHLB Advances increased by only $150.0 million as of September 30, 2023 compared to December 31, 2022, we borrowed $1.4 billion from the FHLB during the first six months of 2023 in an effort to provide additional fixed-rate liquidity during that period and to serve as a short-term natural hedge in an environment where interest rates are expected to remain higher for a longer period of time. During the quarter ended September 30, 2023, our deposits increased significantly, providing us with more liquidity, and we also entered into more pay-fixed interest rate swaps, which manages our exposure to a higher interest rate environment. These events allowed us to terminate $1.2 billion in FHLB advances during the quarter ended September 30, 2023.

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
	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2023			2022 1			2023			2022 1
Consumer Banking	$	36,007		$	24,009		$	103,222		$	57,026
Commercial Banking		32,308			28,805			98,197			88,576
Total		68,315			52,814			201,419			145,602
Treasury and Other		(20,412	)		(13	)		(60,613	)		18,895
Consolidated Total	$	47,903		$	52,801		$	140,806		$	164,497
1 Certain prior period information has been reclassified to conform to current presentation.

Consumer Banking

Net income increased by $12.0 million or 50% in the third quarter of 2023 compared to the same period in 2022 primarily due to an increase in net interest income and a decrease in noninterest expense. This was partially offset by an increase in the provision for credit losses. The increase in net interest income was primarily due to higher deposit spreads and higher loan balances, partially offset by lower loan spreads and lower deposit balances. The decrease in noninterest expense was primarily due to lower allocated expense related to support units and lower salaries and benefits expense. The increase in the provision for credit losses was primarily due to lower recoveries in the home equity portfolio and higher net charge-offs in the automobile loan portfolio.

Net income increased by $46.2 million or 81% in the first nine months of 2023 compared to the same period in 2022 primarily due to an increase in net interest income. This was partially offset by an increase in the provision for credit losses. The increase in net interest income was primarily due to higher deposit spreads and higher loan balances, partially offset by lower loan spreads and lower deposit balances. The increase in the provision for credit losses was primarily due to lower recoveries in the residential mortgage and home equity portfolios and higher net charge-offs in the installment loan and automobile loan portfolios.

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Commercial Banking

Net income increased by $3.5 million in the third quarter of 2023 compared to the same period in 2022 primarily due to an increase in noninterest income, partially offset by a decrease to interest income, an increase in noninterest expense, and an increased tax provision. The increase in noninterest income is primarily due to a one-time pre-tax charge of $6.9 million in the third quarter of 2022 related to our agreement to sell assets which terminated certain leveraged leases, along with increased customer derivative program revenue. The decrease to interest income is primarily due to lower spreads on interest bearing and savings deposits along with commercial and industrial and construction loans. The decrease in interest income was partially offset by increased spreads on noninterest bearing deposits and larger average balances on time deposits and commercial mortgage loans. The increase in noninterest expense was driven by increased salaries and benefits, broker charges related to customer derivative program revenue, and higher allocated expenses.

Net income increased by $9.6 million in the first nine months of 2023 compared to the same period in 2022 primarily due to an increase in interest income and noninterest income, partially offset by an increase in noninterest expense, and an increased tax provision. The increase in interest income is primarily due to higher spreads on noninterest bearing and time deposits, along with larger average balances on savings, time deposits and commercial mortgage loans. The increase in interest income was partially offset by decreased spreads on commercial and industrial and construction loans, as well as interest bearing deposit and savings spreads. The increase in noninterest income is primarily due to a one-time pre-tax charge of $6.9 million in the third quarter of 2022 related to our agreement to sell assets which terminated certain leveraged leases, along with increases in customer derivative program revenue, merchant income, and fees earned on money market sweep balances. The increase was partially offset by a decrease in account analysis and loan fee revenue. The increase in noninterest expense was driven by increased salaries and benefits, merchant transaction fees, and higher allocated expenses.

Treasury and Other

Net income decreased by $20.4 million in the third quarter of 2023 compared to the same period in 2022 primarily due to lower net interest income. This was partially offset by higher noninterest income and a lower provision for income taxes. The decrease in net interest income was primarily due to higher funding costs, partially offset by an increase in interest income from higher asset yields. The increase in noninterest income is primarily due to gains on the extinguishment of repurchase agreements, partially offset by realized losses on the sale of available-for-sale investment securities. 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 $79.6 million in the first nine months of 2023 compared to the same period in 2022 primarily due to lower net interest income and higher provision for credit losses. This was partially offset by a lower provision for income taxes and higher noninterest income. The decrease in net interest income was primarily due to higher funding costs, partially offset by an increase in interest income from higher asset yields. The increase in the provision for credit losses 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 provision for income taxes in this business segment represents the residual amount to arrive at the total tax expense for the Company. The increase in noninterest income is primarily due to gains on the extinguishment of repurchase agreements, partially offset by realized losses on the sale of available-for-sale investment securities.

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Corporate Risk Profile

Credit Risk

As of September 30, 2023, our overall credit risk profile remains strong and reflects the continued recovery of Hawaii’s 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.

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)	September 30, 2023	December 31, 2022	Change
Non-Performing Assets
Non-Accrual Loans and Leases
Commercial
Commercial and Industrial	$43	$37	$6
Commercial Mortgage	2,996	3,309	(313)
Total Commercial	3,039	3,346	(307)
Consumer
Residential Mortgage	3,706	4,239	(533)
Home Equity	3,734	4,022	(288)
Total Consumer	7,440	8,261	(821)
Total Non-Accrual Loans and Leases	10,479	11,607	(1,128)
Foreclosed Real Estate	1,040	1,040	—
Total Non-Performing Assets	$11,519	$12,647	$(1,128)
Accruing Loans and Leases Past Due 90 Days or More
Consumer
Residential Mortgage	$3,519	$2,429	$1,090
Home Equity	2,172	1,673	499
Automobile	393	589	(196)
Other 1	643	683	(40)
Total Consumer	6,727	5,374	1,353
Total Accruing Loans and Leases Past Due 90 Days or More	$6,727	$5,374	$1,353
Total Loans and Leases	$13,919,491	$13,646,420	$273,071
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	0.08%	0.09%	(0.01)%
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	0.05%	0.06%	(0.01)%
Ratio of Consumer Non-Performing Assets to Total Consumer Loans and Leases and Consumer Foreclosed Real Estate	0.10%	0.11%	(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	0.13%	0.13%	—
Changes in Non-Performing Assets
Balance as of December 31, 2022	$12,647
Additions	2,986
Reductions
Payments	(2,021)
Return to Accrual Status	(2,083)
Sales of Foreclosed Real Estate
Charge-offs/Write-downs	(10)
Total Reductions	(4,114)
Balance as of September 30, 2023	$11,519

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

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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 $3.7 million as of September 30, 2023, a decrease of $533 thousand from December 31, 2022. As of September 30, 2023, our residential mortgage non-accrual loans were comprised of 18 loans with a weighted average current loan-to-value ratio of 59%.

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, 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 $6.7 million as of September 30, 2023, a $1.4 million or 25% increase from December 31, 2022. The increase was primarily in residential mortgage and home equity.

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Reserve for Credit Losses

Table 16 presents the activity in our reserve for credit losses.


Reserve for Credit Losses										Table 16
	Three Months Ended September 30,						For the Nine Months Ended September 30,
(dollars in thousands)	2023			2022			2023			2022
Balance at Beginning of Period	$	151,702		$	154,098		$	151,247		$	164,297
Loans and Leases Charged-Off
Commercial
Commercial and Industrial		(294	)		(147	)		(758	)		(729	)
Commercial Mortgage		—			—			—			—
Consumer
Residential Mortgage		—			—			(6	)		(80	)
Home Equity		(13	)		—			(68	)		(90	)
Automobile		(1,353	)		(794	)		(4,309	)		(3,481	)
Other 1		(1,957	)		(1,924	)		(6,296	)		(5,739	)
Total Loans and Leases Charged-Off		(3,617	)		(2,865	)		(11,437	)		(10,119	)
Recoveries on Loans and Leases Previously Charged-Off
Commercial
Commercial and Industrial		72			45			225			465
Consumer
Residential Mortgage		69			156			188			1,130
Home Equity		131			367			893			1,298
Automobile		721			441			2,170			1,864
Other 1		575			709			1,867			2,098
Total Recoveries on Loans and Leases Previously Charged-Off		1,568			1,718			5,343			6,855
Net Charged-Off - Loans and Leases		(2,049	)		(1,147	)		(6,094	)		(3,264	)
Net Charged-Off - Accrued Interest Receivable		—			—			—			(47	)
Provision for Credit Losses:
Loans and Leases		1,945			(929	)		6,918			(8,121	)
Accrued Interest Receivable		—			—			—			(367	)
Unfunded Commitments		55			905			(418	)		429
Total Provision for Credit Losses		2,000			(24	)		6,500			(8,059	)
Balance at End of Period	$	151,653		$	152,927		$	151,653		$	152,927
Components
Allowance for Credit Losses - Loans and Leases	$	145,263		$	146,436		$	145,263		$	146,436
Reserve for Unfunded Commitments		6,390			6,491			6,390			6,491
Total Reserve for Credit Losses	$	151,653		$	152,927		$	151,653		$	152,927
Average Loans and Leases Outstanding	$	13,903,214		$	13,126,717		$	13,833,164		$	12,709,045
Ratio of Net Loans and Leases Charged-Off to Average Loans and Leases Outstanding (annualized)		0.06	%		0.03	%		0.06	%		0.03	%
Ratio of Allowance for Credit Losses to Loans and Leases Outstanding 2		1.04	%		1.10	%		1.04	%		1.10	%

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

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

Allowance for Credit Losses - Loans and Leases

As of September 30, 2023, the Allowance was $145.3 million or 1.04% of total loans and leases outstanding, compared with an Allowance of $144.4 million or 1.06% of total loans and leases outstanding as of December 31, 2022. The Allowance as of September 30, 2023, continues to include a qualitative overlay to account for economic uncertainty and downside risk of a recession.

Net charge-offs on loans and leases were $2.0 million or 0.06% of total average loans and leases on an annualized basis, in the third quarter of 2023 compared to net charge-offs of $1.1 million or 0.03% of total average loans and leases on an annualized basis, in the third quarter of 2022. The increase in net charge-offs on loans and leases was primarily due to the Company experiencing a low rate of charge-offs in recent years and charge-offs returning closer to historical rates.

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Reserve for Unfunded Commitments

The Unfunded Reserve was $6.4 million as of September 30, 2023, a decrease of $0.4 million or 6% from December 31, 2022, primarily driven by lower utilization of commercial and industrial 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 months of 2023, the provision for credit losses was $6.5 million compared to a net benefit of $8.0 million during the same period in 2022. The increase in the provision was primarily due to reduction in the allowance for credit losses in 2022 and higher net charge-offs in 2023.

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 managing volatility to an acceptable level.

Our primary market risk exposure is interest rate risk.

Interest Rate Risk

The objective of our interest rate risk management process is to optimize 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.

We utilize two management guidelines to measure our interest rate risk exposure: 1) net interest income (NII) sensitivity, and 2) economic value of equity (“EVE”) sensitivity. NII and EVE sensitivities measure the estimated percentage change in 12-month forward looking net-interest income and economic value, respectively, under instantaneous parallel shocks of the yield curve that range from -400 basis points to +400 basis points. The analysis assumes a static balance sheet and interest rates. The results are measured relative to established guidelines that ensure that fluctuation in income and valuation in both up and down rate shocks remain within levels approved by the Asset and Liability Management Committee (“ALCO”) and the Board of Directors. For the quarter ended September 30, 2023, we remained within applicable guidelines. While we recognize that instantaneous parallel shocks of the entire yield curve are unrealistic, we believe that the application of immediate shocks ranging from -400 basis points to + 400 basis points provides us with a sufficient range of potential outcomes to frame our risk exposures.

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, including mix and duration, of the investment securities portfolio; and

•

using derivative financial instruments.

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Changes in interest rates may have a material impact on earnings and valuation as a result of balance sheet cash flow, maturity structure and repricing frequency. The investment portfolio and loan portfolio has significant repricing volumes and cash flows from maturities and paydowns, providing us with the opportunity to redeploy funds in order to respond to the changing rate environment. These assets are primarily funded by deposit balances, which have an indeterminate life. Historically, our deposit base has consisted primarily of core consumer and commercial deposit relationships. While we strive to position our balance sheet to organically reduce volatility in earnings and valuation, primarily through our funding and investment portfolio positioning, as well as product pricing strategies, we have also established a hedging program designed to allow us to adjust the duration of our earning assets synthetically. As of September 30, 2023, our hedging program consisted primarily of pay-fixed interest rate swaps. As interest rates change, we may use different instruments to manage interest rate risk, including caps, floors, swaptions and other commonly utilized derivative instruments. See Note 11 to the Consolidated Financial Statements.

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 assets and liabilities in various interest rate environments. This model is used to estimate and measure our balance sheet sensitivity to changes in interest rates. Given the structure of our balance sheet, model results are particularly sensitive to changes in prepayment rates on mortgage-related assets and interest-bearing deposit repricing behavior. We utilize a model to estimate the prepayment behavior of our mortgage-related assets, which considers the characteristics of the underlying mortgage loans, including rate (used to gauge refinance incentive), seasoning or age, and seasonality. The model’s forecasted results are regularly tested against historical prepayment behavior and is, in the ordinary course, recalibrated if the difference between actual and projected prepayments exceed established guidelines. Separate models are utilized to project interest-bearing deposit repricing behavior in various interest rate environments. These models were developed based upon our historical repricing behavior over several interest rate cycles. The models’ forecast results are periodically tested against historical pricing and have been and may continue to be recalibrated.

Table 17 presents, as of September 30, 2023, and December 31, 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.


Net Interest Income Sensitivity Profile									Table 17
	Impact on Future Annual Net Interest Income
(dollars in thousands)	September 30, 2023					December 31, 2022
Gradual Change in Interest Rates (basis points)
+200	$	13,143		2.6	%	$	13,943			2.4	%
+100		6,379		1.3			7,673			1.3
-100		(6,920	)	(1.4	)		(4,365	)		(0.7	)
Immediate Change in Interest Rates (basis points)
+200	$	26,650		5.3	%	$	22,100			3.8	%
+100		13,258		2.6			11,627			2.0
-100		(16,201	)	(3.2	)		(8,659	)		(1.5	)

Based on our net interest income simulation as of September 30, 2023, net interest income is expected to increase as interest rates rise. 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, 2023, net interest income sensitivity to changes in interest rates as of September 30, 2023, was more sensitive in comparison to the sensitivity profile as of December 31, 2022. The increase in sensitivity was due to the addition of pay-fixed interest rate swaps, partially offset by an increase in deposit sensitivity.

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

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 refinancing, 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.

We maintain access to ample sources of readily available contingent liquidity. As of September 30, 2023, we had pledged loans and investment securities to the Federal Reserve Discount Window and the Bank Term Funding Program (“BTFP”) and had remaining borrowing capacity of $6.1 billion. The BTFP enables depository institutions to pledge eligible investment securities, primarily government and agency securities, to the Federal Reserve with borrowing capacity based upon the par value, not the fair value, of collateral. While we have pledged securities to the BTFP as a contingent funding source, we have not accessed the facility. We are also a member of the Federal Home Loan Bank (“FHLB”) Des Moines. As of September 30, 2023, we had remaining borrowing capacity of $2.5 billion.

In addition, we utilize our investment securities portfolio as collateral to secure deposits of public entities as well as repurchase agreements with private institution counterparties. The high-quality nature of our investment securities portfolio, which consists primarily of government and agency securities, facilitates the use of these assets for pledging purposes.

Other sources of liquidity also include investment securities in our available-for-sale securities portfolio and our ability to sell loans in the secondary market. Our core deposits have historically provided us with a long-term source of stable and relatively low-cost source of funding. Additional funding is also available through the issuance of long-term debt or equity.

General market and economic conditions will impact our ability to borrow funds from external sources, as well as the cost of such borrowing both in terms of rate as well as haircuts on collateral pledged to support such borrowings. Although a significant portion of our investment securities were in an unrealized loss position as of September 30, 2023, we believe we have sufficient access to various forms of liquidity that would alleviate the need to liquidate these investment securities and realize the losses.

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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.

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, 2023, the Company’s capital levels remained characterized as “well-capitalized.” There have been no conditions or events since September 30, 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 18 below.

Table 18 presents our regulatory capital and ratios as of September 30, 2023, and December 31, 2022.


Regulatory Capital and Ratios				Table 18
(dollars in thousands)	September 30, 2023			December 31, 2022
Regulatory Capital
Total Common Shareholders’ Equity	$	1,188,353		$	1,141,508
Add: CECL Transitional Amount		4,749			7,124
Less: Goodwill, Net of Deferred Tax Liabilities		28,746			28,746
Postretirement Benefit Liability Adjustments		(24,826	)		(25,078	)
Net Unrealized Losses on Investment Securities 1		(416,784	)		(409,579	)
Other		(198	)		(198	)
Common Equity Tier 1 Capital		1,606,164			1,554,741
Preferred Stock, Net of Issuance Cost		175,487			175,487
Tier 1 Capital		1,781,651			1,730,228
Allowable Reserve for Credit Losses		147,624			145,202
Total Regulatory Capital	$	1,929,275		$	1,875,430
Risk-Weighted Assets	$	14,222,825		$	14,238,798
Key Regulatory Capital Ratios
Common Equity Tier 1 Capital Ratio		11.29	%		10.92	%
Tier 1 Capital Ratio		12.53			12.15
Total Capital Ratio		13.56			13.17
Tier 1 Leverage Ratio		7.22			7.37

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

2 Regulatory capital ratios as of September 30, 2023, are preliminary.

As of September 30, 2023, shareholders’ equity was $1.4 billion, an increase of $46.8 million or 4% from December 31, 2022. For the first nine months of 2023, net income of $140.8 million, share-based compensation of $12.0 million, and common stock issuances of $4.8 million were offset by cash dividends paid of $83.8 million on common shares, common stock repurchased of $14.1 million, other comprehensive loss of $7.0 million, and cash dividends declared of $5.9 million on preferred shares. No shares of common stock were repurchased under the share repurchase program in the third quarter of 2023. We repurchased 150,000 shares under our share repurchase program in the first quarter of 2023. These shares were repurchased at an average cost per share of $65.69 and a total cost of $9.9 million. From the beginning of our share repurchase program in July 2001 through September 30, 2023, we repurchased a total of 58.2 million shares of our common stock and returned a total of $2.4 billion to our shareholders at an average cost of $41.24 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 $126.0 million as of September 30, 2023. The actual amount and timing

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of future share repurchases, if any, will depend on market and economic conditions, regulatory rules, applicable SEC rules, and various other factors.

In October 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 1, 2023, to shareholders of record of the preferred stock at the close of business on October 17, 2023.

In October 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, 2023, to shareholders of record of the common stock at the close of business on November 30, 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, 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, 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, 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, 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, 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, Signature Bank and First Republic 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, which could have a material negative impact on our profitability and our business.

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

The Parent’s repurchases of its common stock during the third quarter of 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
July 1 - 31, 2023		2,923	$	43.00		—	$	126,038,927
August 1 - 31, 2023		—		—		—		126,038,927
September 1 - 30, 2023		—		—		—		126,038,927
Total		2,923	$	43.00		—

During the third quarter of 2023, 2,923 shares were 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.

Item 5. Other Information

During the fiscal quarter ended September 30, 2023, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any non-Rule 10b5-1 trading arrangement.

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 November 20, 2020) (incorporated by reference to Exhibit 3.2 to Bank of Hawaii Corporation’s Current Report on Form 8-K filed on 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)

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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

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 25, 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

EX-31.1

Exhibit 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

I, Peter S. Ho, certify that:

I have reviewed this quarterly report on Form 10-Q of Bank of Hawaii Corporation;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit and risk committee of the registrant’s board of directors:

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:	October 25, 2023	/s/ Peter S. Ho
		Peter S. Ho
		Chairman of the Board,
		Chief Executive Officer, and
		President

EX-31.2

Exhibit 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

I, Dean Y. Shigemura, certify that:

I have reviewed this quarterly report on Form 10-Q of Bank of Hawaii Corporation;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:	October 25, 2023	/s/ Dean Y. Shigemura
		Dean Y. Shigemura
		Vice Chair,
		Chief Financial Officer

EX-32

Exhibit 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

We hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of Bank of Hawaii Corporation (the “Company”) for the quarter ended September 30, 2023 (the “Report”):

•

fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

•

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date:	October 25, 2023	/s/ Peter S. Ho
		Peter S. Ho
		Chairman of the Board,
		Chief Executive Officer, and
		President


		/s/ Dean Y. Shigemura
		Dean Y. Shigemura
		Vice Chair,
		Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.