Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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 (Section 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, or a smaller reporting 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.

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Ifsecurities areregistered pursuant toSection 12(b)oftheAct,indicate bycheckmarkwhether thefinancial statements oftheregistrant included inthefilingreflectthecorrection ofanerrortopreviously issued financial statements. ☐

Indicate bycheckmarkwhether anyofthoseerrorcorrectionsarerestatementsthatrequired arecoveryanalysis ofincentive-based compensation received byanyoftheregistrant’sexecutive oﬃcers during therelevant recovery period pursuant to§240.10D-1(b). ☐

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

The aggregate market value of the registrant’s outstanding voting common stock held by non-affiliates on June 30, ~~2021~~2022 (the last business day of the registrant’s most recently completed second fiscal quarter), determined using the per share closing price on that date on the New York Stock Exchange of ~~$84.22,~~$74.40, was approximately ~~$3,343,790,618.~~$2,927,429,225. There was no non-voting common equity of the registrant outstanding on that date.

As of February 15, ~~2022,~~2023, there were ~~40,287,629~~39,785,398 shares of common stock outstanding.

Portions of the registrant’s definitive proxy statement relating to its ~~2022~~2023 Annual Meeting of Shareholders, are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the registrant’s fiscal year end ended December 31, ~~2021.~~2022.

Bank of Hawaii Corporation ~~(the~~(“Bank of Hawai‘i Corporation” or the “Parent”) is a Delaware corporation and a bank holding company (“BHC”) headquartered in Honolulu, Hawaii. The Parent’s principal operating subsidiary, Bank of Hawaii ~~(the~~(“Bank of Hawai‘i” or the “Bank”), was organized on December 17, 1897, and is chartered by the State of Hawaii. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (the “FDIC”) and the Bank is a member of the Federal Reserve System.

The Bank, directly and through its subsidiaries, provides a broad range of financial products and services primarily to customers in Hawaii, Guam, and other Pacific Islands. References to “we,” “our,” “us,” or “the Company” refer to the Parent and its subsidiaries and are consolidated for financial reporting purposes. The Bank’s subsidiaries are identified in Exhibit 21.1 to this Form 10-K and include, among others, ~~Bank of Hawaii Leasing, Inc.,~~ Bankoh Investment Services, Inc., and Pacific Century Life Insurance Corporation. The Bank’s subsidiaries are engaged in ~~equipment leasing,~~ securities brokerage, investment advisory services, and providing credit insurance.

We are organized into three business segments for management reporting purposes: Consumer Banking, Commercial Banking, and Treasury and Other. See Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and Note 13 to the Consolidated Financial Statements for more information.

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports can be found free of charge on our website at www.boh.com as soon as reasonably practicable after such material is electronically filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”). The SEC maintains a website, www.sec.gov, which contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Our Corporate Governance Guidelines; charters of the Audit and Risk Committee, the Human Resources and Compensation Committee, and the Nominating and Corporate Governance Committee; and our Code of Business Conduct and Ethics are available on our website at www.boh.com. Printed copies of this information may be obtained, without charge, by written request to the Corporate Secretary at 130 Merchant Street, Honolulu, Hawaii, 96813.

The Company operates in a highly competitive environment subject to intense competition from traditional financial service providers including banks, savings associations, credit unions, mortgage companies, finance companies, mutual funds, brokerage firms, insurance companies, and other non-traditional providers of financial services including financial service subsidiaries of commercial and manufacturing companies. Some of our competitors are not subject to the same level of regulation and oversight that is required of banks and BHCs, and receive favorable tax treatment. As a result, some of our competitors may have lower cost structures. Also, some of our competitors, through delivery channels such as the Internet, may be based outside of the markets that we serve. By emphasizing our extensive branch network, exceptional service levels, and knowledge of local trends and conditions, the Company believes it has developed a competitive advantage in its market.

Our operations are subject to extensive regulation by federal and state governmental authorities. The regulations are primarily intended to protect depositors, customers, and the integrity of the U.S. banking system and capital markets. The following information describes some of the more significant laws and regulations applicable to us. The descriptions below are qualified in their entirety by reference to the applicable laws and regulations. Proposals to change the laws and regulations governing the banking industry are frequently raised in Congress, in state legislatures, and with the various bank regulatory agencies. Changes in applicable laws or regulations, or a change in the way such laws or regulations are interpreted by regulatory agencies or courts, may have a material impact on our business, operations, and earnings.

The Parent is registered as a BHC under the Bank Holding Company Act of 1956, as amended (the “BHC Act”), and is subject to the supervision of and to examination by the Board of Governors of the Federal Reserve (the “FRB”). The Parent is also registered as a financial institution holding company under the Hawaii Code of Financial Institutions (the “Code”) and is subject to the registration, reporting, and examination requirements of the Code.

The BHC Act prohibits, with certain exceptions, a BHC from acquiring direct or indirect beneficial ownership or control of either a company that is not a bank, or more than 5% of the voting shares of any bank, without the FRB’s prior approval. A BHC is generally prohibited from engaging in any activity other than banking, managing or controlling banks or other subsidiaries authorized under the BHC Act, or an activity that the FRB has determined to be so closely related to those activities as to be a proper incident to one of them.

Under FRB policy, a BHC is expected to serve as a source of financial and management strength to its subsidiary bank(s). A BHC is also expected to commit resources to support its subsidiary bank(s) in circumstances where it might not do so absent such a policy. Under this policy, a BHC is expected to maintain reliable funding and contingency plans to stand ready to provide adequate capital funds to its subsidiary bank(s) during periods of financial adversity and to maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary bank(s).

Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Riegle-Neal Act”) banks and BHCs from any state are permitted to acquire banks located in any other state, subject to certain conditions, including certain nationwide and state-imposed deposit concentration limits. Banks also have the ability, subject to certain restrictions, to acquire branches outside their home states by acquisition or merger under the Riegle-Neal Act. The establishment of new interstate branches is also possible in those states with laws that expressly permit de novo branching. Because the Code permits de novo branching by out-of-state banks, those banks may establish new branches in Hawaii.

The Bank is subject to extensive federal, state, territorial and foreign regulations that significantly affect its business and activities. The Bank is subject to supervision of the FRB and examination by the Federal Reserve Bank of San Francisco, the Consumer Financial Protection Bureau (the “CFPB”), and the State of Hawaii Department of Commerce and Consumer Affairs’ (“DCCA”) Division of Financial Institutions. These regulatory bodies have broad authority to implement standards and to initiate proceedings designed to prohibit depository institutions from engaging in activities that may represent “unsafe” or “unsound” banking practices or constitute violations of applicable laws, rules, regulations, administrative orders, or written agreements with regulators. The standards relate to, among other compliance matters, operations and management, asset quality, interest rate exposure, capital, executive compensation, and consumer protection. The regulatory bodies are authorized to take action against institutions that fail to meet such standards, including the assessment of civil monetary penalties and restitution, the issuance of cease-and-desist orders, and other actions, up to and including revocation of a bank’s charter for the most severe infractions, or putting such a bank into receivership if it is not financially viable.

Bankoh Investment Services, Inc., the broker-dealer and investment adviser subsidiary of the Bank, is incorporated in Hawaii and is regulated by the SEC, the Financial Industry Regulatory Authority, and the DCCA’s Insurance Division. Pacific Century Life Insurance Corporation is incorporated in Arizona and is primarily regulated by the State of Arizona Department of Insurance.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and its regulations, among other things, mandated capital and liquidity requirements, established standards for mortgage lenders, regulated executive and incentive-based compensation, imposed various consumer protections and numerous other provisions. Provisions also limit or place significant burdens and costs on activities traditionally conducted by banking organizations, such as arranging and participating in swap and derivative transactions, proprietary trading and investing in private equity and other funds.

Several provisions of the Dodd-Frank Act were significantly changed by enactment of the Economic Growth, Regulatory Relief, and Consumer Protection Act in May 2018, notably by eliminating the requirement for institutions like the Company to perform and publicly disclose periodic stress tests. The Company continues to monitor and implement rules, regulations, and interpretations of the Dodd-Frank Act as they are adopted and modified, and to evaluate their application to our current and future operations.

In July 2013, the FRB, the Office of the Comptroller of the Currency (the “OCC”) and the FDIC adopted new capital rules (the “Rules”). These Rules were designed to help ensure that banks maintain strong capital positions by increasing both the quantity and quality of capital held by U.S. banking organizations. The Rules reflect, in part, certain standards initially adopted by the Basel Committee on Banking Supervision in December 2010 (which are commonly called “Basel III” standards) as well as requirements by the Dodd-Frank Act.

The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) identifies five capital categories for insured depository institutions: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.”

The federal banking agencies are authorized by FDICIA to impose progressively more restrictive constraints on operations, management and capital distributions, depending on the capital category in which an institution is classified. These “prompt corrective actions” can include: requiring an insured depository institution to adopt a capital restoration plan guaranteed by the institution’s parent company; placing limits on asset growth and restrictions on activities, including restrictions on transactions with affiliates; restricting the interest rates the institution may pay on deposits; prohibiting the payment of principal or interest on subordinated debt; prohibiting the holding company from making capital distribution without prior regulatory approval; and ultimately appointing a receiver for the institution.

A “well capitalized” institution must have a Common Equity Tier 1 Capital Ratio of at least 6.5%, a Tier 1 Capital Ratio of at least 8%, a Total Capital Ratio of at least 10%, a Tier 1 Leverage Ratio of at least 5%, and not be subject to a capital directive order. As of December 31, ~~2021,~~2022, the Bank was classified as “well capitalized.” The classification of a depository institution under one of the categories set out above is primarily for the purpose of applying the prompt corrective actions, and is not intended to be, nor should it be interpreted as, a representation of the overall financial condition or the prospects of that financial institution. See Note 11 to the Consolidated Financial Statements for more information.

The Parent is a legal entity separate and distinct from the Bank. The Parent’s principal source of funds to pay dividends on its common stock and to service its liabilities is dividends from the Bank. Various federal and state laws and regulations limit the amount of dividends the Bank may pay to the Parent without regulatory approval. The FRB is authorized to determine the circumstances when the payment of dividends would be an unsafe or unsound practice and to prohibit such payments. The right of the Parent, its shareholders, and creditors to participate in any distribution of the assets or earnings of its subsidiaries is also subject to the prior claims of creditors of those subsidiaries. For information regarding the limitations on the Bank’s ability to pay dividends to the Parent, see Note 11 to the Consolidated Financial Statements.

Transactions between the Bank and any affiliate are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of the Bank is any company or entity which controls, is controlled by or is under common control with the Bank which is not a subsidiary of the Bank. Under federal law, the Bank is subject to restrictions that limit the transfer of funds or other items of value to the Parent, and any other non-bank affiliates in “covered transactions.” In general, covered transactions include making loans to an affiliate, the purchase of or investment in the securities issued by an affiliate, the purchase of assets from an affiliate, the acceptance of securities issued by an affiliate as collateral security for a loan or extensions of credit to any person or company, the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate, or certain transactions with an affiliate that involve the borrowing or lending of securities and certain derivative transactions with an affiliate.

Unless an exemption applies, covered transactions by the Bank with a single affiliate are limited to 10% of the Bank’s capital and surplus, and with respect to all covered transactions with affiliates in the aggregate, they are limited to 20% of the Bank’s capital and surplus. Section 23B of the Federal Reserve Act and Federal Reserve Regulation W also require that certain transactions between the Bank and its affiliates be on terms substantially the same, or at least as favorable to the Bank, as those prevailing at the time for comparable transactions with or involving other non-affiliated persons.

The Federal Reserve Act and Federal Reserve Regulation O place restrictions and certain reporting requirements on any extension of credit made by a member bank to (a) an executive officer, director, or principal shareholder of the bank, or any company of which the bank is a subsidiary, and of any other subsidiary of that company, and (b) a company controlled by such a person, or to a political or campaign committee that benefits or is controlled by such a person (collectively referred to as “insiders”). These restrictions include limits on loans to one borrower and conditions that must be met before such loans can be made. There is also an aggregate limitation on all loans to insiders and their related interests. Certain restrictions also ~~extend~~apply to extensions of credit made to an executive officer, directors, or principal shareholder of a bank (or to a related interest of such person) by a correspondent bank.

In December 2013, the Federal Reserve, the OCC, the FDIC, the SEC, and the Commodities Futures Trading Commission issued final rules to implement certain provisions of the Dodd-Frank Act commonly known as the ~~“Volker~~“Volcker Rule.” The Volcker Rule, as amended on August 20, 2019, generally prohibits U.S. banks from engaging in proprietary trading and restricts those banking entities from sponsoring, investing in, or having certain relationships with hedge funds and private equity funds. The prohibitions under the Volcker Rule are subject to a number of statutory exemptions, restrictions, and definitions. The Volcker Rule has not had a material impact on the Company’s Consolidated Financial Statements, but we continue to evaluate its application to our current and future operations.

The FDIC provides insurance coverage for certain deposits held by the Bank through the Deposit Insurance Fund, which the FDIC maintains by assessing depository institutions an insurance premium. The Bank is assessed deposit insurance premiums by the FDIC using a risk-based assessment rate and an adjusted average total assets. The Bank’s FDIC insurance assessment was $6.5 million in 2022, $6.5 million in 2021, and $5.8 million in ~~2020, and $5.2 million in 2019.~~2020.

A depository institution’s deposit insurance may be terminated by the FDIC upon a finding that the institution’s financial condition is unsafe or unsound, or that the institution has engaged in unsafe or unsound practices, or has violated any applicable rule, regulation, or order or condition enacted or imposed by a regulatory agency. Termination of the Bank’s deposit insurance would end its ability to function as a commercial bank in Hawaii.

In the event of the “liquidation or other resolution” of an insured depository institution, claims of insured and uninsured depositors for deposits payable in the United States (including the claims of the FDIC as subrogee of insured depositors), plus certain claims for administrative expenses of the FDIC as a receiver will have priority in payment ahead of unsecured creditors including, in the case of the Bank, the Parent.

The federal banking agencies also have adopted guidelines prescribing safety and soundness standards. These guidelines establish general standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings standards, compensation, fees and benefits. In general, the guidelines require appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines before capital becomes impaired.

Federal banking regulators, pursuant to the Gramm-Leach-Bliley Act, have enacted regulations limiting the ability of banks and other financial institutions to disclose nonpublic consumer information to non-affiliated third parties. The regulations require disclosure of privacy policies and allow consumers to prevent certain personal information from being shared with non-affiliated third parties. The Fair and Accurate Credit Transaction Act (“FACT Act”) requires financial institutions to develop and implement an identity theft prevention program to detect, prevent and mitigate identity theft “red flags” to reduce the risk that customer information will be misused to conduct fraudulent financial transactions.

A number of other federal and state consumer protection laws extensively govern the Bank’s relationship with its customers. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, Telephone Consumer Protection Act, the Service Members Civil Relief Act and these laws’ respective state-law counterparts, as well as state and territorial usury laws and laws regarding unfair and deceptive acts and practices. These and other laws subject the Bank to substantial regulatory oversight and, among other things, require disclosures of the cost of credit and terms of deposit accounts, provide substantive consumer rights, prohibit discrimination in credit transactions, regulate the use of credit report information, provide financial privacy protections, prohibit unfair, deceptive and abusive practices, and restrict the Bank’s ability to raise interest rates.

The CFPB was created under the Dodd-Frank Act as an agency responsible for promulgating and enforcing regulations designed to protect consumers including adding prohibitions on unfair, deceptive and abusive acts and practices. The CFPB, along with other prudential regulators and the Department of Justice, have also expanded the focus of their regulatory examinations and investigations to include “fair and responsible banking.” Fair and responsible banking strives to provide equal credit opportunities to all applicants of a community, to prohibit discrimination by lenders on the basis of certain borrower characteristics, and to ensure that a bank’s practices are not deceptive, unfair, or take unreasonable advantage of consumers or businesses. The enhanced focus encompasses the entire loan life cycle, including post-closing activities such as collections and servicing, and pre-application activities such as marketing and loan solicitation and origination.

Violations of applicable consumer protection laws and regulations can result in significant potential liability from litigation brought by customers, including actual damages, restitution and attorneys’ fees. Federal bank regulators, state attorneys general and state and local consumer protection agencies may also seek to enforce consumer protection requirements and obtain these and other remedies, including regulatory sanctions, customer rescission rights, and civil money penalties. Failure to comply with consumer protection requirements may also result in our failure to obtain required bank regulatory approvals for transactions the Bank may wish to pursue, or prohibit us from engaging in such transactions even if approval is not required.

The Bank is subject to the Bank Secrecy Act and other anti-money laundering laws and regulations, including the USA PATRIOT Act of 2001. The USA PATRIOT Act created new laws, regulations, and penalties, imposed significant new compliance and due diligence obligations, and expanded the application of those laws outside the U.S. Additionally, like all U.S. companies and individuals, the Company is prohibited from transacting business with certain individuals and entities named on the Office of Foreign Asset Control’s list of Specially Designated Nationals and Blocked Persons.

The Bank has been required to implement policies, procedures, and controls to detect, prevent, and report potential money laundering and terrorist financing and to verify the identity of its customers. The Company maintains procedures and systems to identify its customers, and to monitor and block transactions related to prohibited persons and entities. Violations of these requirements can result in substantial civil and criminal sanctions. In addition, the federal financial institution regulatory agencies consider the effectiveness of a financial institution’s anti-money laundering activities when reviewing bank mergers and BHC acquisitions.

As of December 31, ~~2021,~~2022, we employed ~~2,056~~2,076 full-time equivalent employees, of which ~~1,952~~1,973 are located in the State of Hawaii, with the remainder located in Guam and other Pacific Islands. None of our employees are subject to a collective bargaining agreement.

The Company values the contributions of all of its employees and is committed to building an active and connected employee community within the Company. Key areas of focus for the Company include:

Diversity and Inclusion: The Company believes that a diverse and inclusive workforce fosters an environment where everyone can thrive and be successful. As of December 31, ~~2021,~~2022, approximately 87% of our workforce are minorities (non-Caucasian) and approximately 63% of our workforce are female, which accounts for ~~45%~~43% and ~~56%~~60% of our senior leaders and managers, respectively. We conduct an external pay equity study periodically to evaluate that a gender pay gap does not exist.

Employee Development and Training: The Company is committed to providing all employees with the opportunity to grow, connect and thrive within the Company. We foster a seamlessly collaborative, digitally connected workplace to support changing needs. We enhance people leadership capability to deliver exceptional employee experience and develop our workforce of tomorrow. Skills and professional development training is provided to employees at all levels, with additional development sessions specifically targeted to managers and leaders. Key initiatives included the ~~launch~~continued support of ~~an enhanced Advanced Leaders program~~executive coaching to elevate leadership capabilities, the ~~development~~launch of a new and competitive Leadership Development Program, the first ~~all virtual~~hybrid Pathways to Professional Excellence cohort with the largest enrollment of 3538 employees and an ~~improved~~enhanced online performance management process that allows the employee to own the first step of the performance review process.

To help maintain Hawaii’s special culture of ‘ohana and working together toward common goals, renewed attention was paid to engaging teammates ~~during the pandemic, especially those working remotely.~~in a hybrid environment. Based on employee feedback from surveys, ~~special~~ online and in-person sessions were created in ~~2021~~2022 to connect with employees and encourage collaboration. “Exec Connect” ~~launched~~kicked off in ~~April 2021,~~January with our Executive Committee and returned in November during Employee Experience (“EX”) Month with our Operating Committee, giving employees opportunities to interact with members of the Executive Committee and Operating Committee. Employees were able to hear about high level strategies and share their own concerns and observations. “Exec Connect” ~~was a hit, and~~ proved to be especially valuable in welcoming new employees, allowing them to familiarize themselves with key executives and other employees. “Recruit Connect” ~~launched~~also continued in ~~July 2021~~2022 to help teammates identify job opportunities within the Company and find out more about them. In some cases, sessions led to referred candidates joining the Bank, and to current employees finding a new career path. “Manager Excellence Forums” ~~launched~~continued in ~~January 2021~~February 2022 as a platform connecting managers so that they can learn from and support one another when facing real management issues, and discuss practical solutions. Manager engagement has been key to navigating the ~~pandemic~~ever changing business environment, and these forums help managers stay connected and improve their management skills while moving forward with their teams. Forum topics are suggested by the participants, who meet every other month, and have included ~~increasing employee morale, resilience, managing hybrid teams, self-care,~~Reemergence, Mastering Change, Employee Experience, opportunities to deliver great EX, importance of psychological safety, and ~~employee retention.~~how our leaders can continue to build stronger teams. “Rising Team” launched in October 2022 to offer a new and modern way for us to strengthen our connection with our teammates. “Rising Team” is a software tool that provides managers a way to facilitate sessions with their team and offers everyone the opportunity to share thoughts and feedback in real time on a variety of leadership themed topics, such as Psychological safety, Appreciation, Natural talents and Career horizons.

Employee Benefits: The Company believes in enabling a healthy workforce and providing a benefits program that is designed to attract, retain, and motivate employees. In addition to competitive insurance, healthcare, and retirement offerings, examples of more innovative and workforce-specific benefits offerings include: mortgage discount program, student loan assistance program, ~~fitness classes,~~ well-being sessions, and personal finance education. ~~During~~In 2022, the ~~pandemic, the Company enhanced their~~Bank introduced a new Paid Time Off benefit ~~offerings to include changes to the Retirement Savings Plan~~that provides our employees with more flexibility and ~~medical benefits, and increased mental wellness resources.~~ paid Parental Leave.

Health and Safety: The health and safety of our employees is a priority. In ~~2021,~~2022, our commitment to workplace safety and workforce health enabled the Company to maintain business and operational continuity without diminishing our focus on both employee and customer safety during the COVID-19 pandemic. ~~Examples of specific initiatives to enhance on-site safety include daily employee health screening as well as temperature scanning and social distancing protocols in both office and branch locations.~~ We also invested in ventilation system ~~upgrades and installed physical health guards/barriers.~~upgrades. Employees who chose not to get COVID vaccinated, were required to complete COVID testing weekly. The Company paid for the testing, provided paid time off to complete the weekly testing, and secured on site testing arrangements for our employees. The Company hosted onsite COVID-19 vaccine and/or booster shot clinics, as well as provided paid time off for employees to receive their COVID-19 vaccine and/or booster shot.

Chairman and Chief Executive Officer since July 2010 and President since April 2008.

Vice Chair since December 2017; Chief Financial Officer since March ~~2017;~~2017.

Vice Chair, Senior Executive ~~Vice President~~Director of Wealth Management since January 2022; Regional Managing Director - Washington and Alaska of Wells Fargo from May ~~2008~~2009 to ~~November 2017; Controller from August 2014 to February 2017.~~December 2021.

Vice Chair, Client Solutions Group since April ~~2016; Vice Chair, Operations and Technology from October 2012 to March~~ 2016.

Chief Banking Officer since January 2022; Chief Commercial Officer from April 2020 to December 2021; Vice Chair since June 2016.

Vice Chair since November 2022; Senior Executive Director of Mortgage Banking and Loans since February 2020; Executive Vice President and Senior Executive Director of eCommerce from September 2018 to February 2020; Executive Vice President, Director of Business and Retail Deposit Products from February 2018 to September 2018.

Principal Accounting Officer, ~~since April 2020;~~ Senior Vice President and Controller since ~~August 2019;~~November 2022; Global Controller of Blockchain.com from September 2021 to October 2022; Senior Vice President ~~Finance~~ and ~~Accounting Operations~~Controller of First Interstate Bank from ~~August~~October 2018 to September 2021; Corporate Controller of Ethos Lending LLC from February 2017 to ~~July 2019.~~

There are a number of risks and uncertainties that could negatively affect our business, financial condition or results of operations. We are subject to various risks resulting from changing economic, environmental, political, industry, business, financial and regulatory conditions. The risks and uncertainties described below are what management believes are the material risk factors that could affect our business and operations, although they are not the only risks that may have a material adverse effect on the Company.

Adverse changes in business and economic conditions, in particular those of Hawaii, Guam and other Pacific Islands, could lead to lower revenue, lower asset quality, and lower earnings.

Our business and earnings are closely tied to the economies of Hawaii and the Pacific Islands. These local economies rely heavily on tourism, the U.S. military, real estate, construction, government, and other service-based industries. Lower visitor arrivals or spending, real or threatened acts of war or terrorism, public unrest, increases in energy costs, the availability of affordable air transportation, climate change, natural disasters and adverse weather, public health issues including ~~Asian air pollution and the spread of~~ the COVID-19 pandemic, and Federal, State of Hawaii and local government budget issues may impact consumer and corporate spending. Additionally, financial markets may be adversely affected by the current or anticipated impact of military conflict, including ~~escalating~~continuing military ~~tension~~conflict between Russia and Ukraine, terrorism or other geopolitical events.

The impacts of various travel restrictions and quarantine requirements for visitors to Hawaii ~~has~~in connection with the COVID-19 pandemic had a dramatic negative impact on ~~tourism. These events have contributed to a significant deterioration in~~tourism and general economic conditions in our ~~markets which has impacted and will continue to adversely impact us and our customers’ operations. Though~~markets. Although there has been ~~an increase~~significant improvement in tourism and general economic ~~recovery recently, many of the impacts in~~conditions, COVID-19 continues to impact Hawaii and the Pacific Islands, ~~still linger.~~including a lagging recovery in international tourism.

Deterioration of economic conditions, locally, nationally, and internationally could adversely affect the quality of our assets, credit losses, and the demand for our products and services, which could lead to lower revenues, higher expenses, and lower earnings. The level of domestic and international visitor arrivals and spending, housing prices, and unemployment rates are some of the metrics that we continually monitor. We also monitor the value of collateral, such as real estate, that secures the loans we have made. The borrowing power of our customers could also be negatively impacted by a decline in the value of collateral.

Climate change and the governmental responses to it could have a material adverse impact on the Bank and its customers

The impacts of climate change, such as extreme weather conditions, natural disasters and rising sea levels, could impact the Bank’s operations as well as those of its customers and third party vendors upon which it relies. Such events could also result in market volatility or negatively impact our customers’ ability to pay outstanding loans, or result in the deterioration of the value of our collateral causing a material adverse effect on the Bank’s financial condition and results of operation. Furthermore, increasing regulation related to climate change could have an adverse effect on the business and financial condition of the Bank and its customers, including our credit portfolio. Further legislation and regulatory requirements could increase the operating expenses of, or otherwise adversely impact, the Bank or its customers. To the extent that the Bank or its customers experience increases in costs, reductions in the value of assets, constraints on operations or similar concerns driven by changes in regulation relating to climate change, the Bank’s business and results of operations may be adversely affected.

The COVID-19 pandemic has disrupted the Hawaii economy and our business, the extent of the impact on our business and our financial results remains uncertain.

The COVID-19 pandemic has had a material adverse effect on our operations and financial performance. The duration of the COVID-19 pandemic and its effects still cannot be determined with a reasonable level of certainty. We have experienced unprecedented levels of government stimulus in response to the COVID-19 pandemic, and have seen certain economic activities recovering since 2020, however, the lasting impacts of which are unknown.

Novel viruses such as COVID-19 increase concerns related to illness when traveling and gathering in large numbers. In response, the majority of the nation’s state and local jurisdictions imposed various restrictions in order to control the spread of COVID-19. Though most of these restrictions have now been lifted there is the possibility that they could be imposed again in the future.

Even as more and more individuals become fully vaccinated against COVID-19, prior and any future travel restrictions and mandatory quarantines related to the COVID-19 pandemic may have a lasting impact on tourism spending in Hawaii. Because many of our customers, both commercial and consumer, derive at least some of their income from tourism, ~~this~~a dramatic drop in tourism spending affects them directly, as well as the Hawaii economy as a whole. A downturn in the Hawaii economy and widespread reduction to our customers’ income in turn will have a negative impact on our operations. We are unable to predict the extent to which the COVID-19 pandemic and related impacts will continue to adversely affect our business, results of operations, financial condition, regulatory capital, and liquidity ratios.

The COVID-19 pandemic, the institution of physical distancing, and shelter-in-place requirements resulted in both temporary and permanent closures of many businesses. As a result, the demand for our products and services has been and may continue to be significantly impacted. Our operations may also be disrupted if significant portions of our workforce are unable to work effectively, due to illness, quarantines, government actions, or other restrictions in connection with the COVID-19 pandemic. We ~~have already~~had temporarily ~~or permanently~~ closed certain of our branches and ~~offices and many~~permanently closed others. Many employees are now working ~~remotely. Though we have re-opened most of our branches, others remain closed.~~remotely or on a hybrid schedule.

In response to the COVID-19 pandemic, we temporarily suspended residential property foreclosure sales, evictions, and involuntary automobile repossessions. ~~Foreclosures and evictions remain suspended.~~ We continue to work with our customers ~~as many of~~after the initial assistance programs ~~have now~~ expired. The extent to which the COVID-19 pandemic impacts our business, results of operations, financial condition, regulatory capital, and liquidity ratios will depend on the scope and duration of the COVID-19 pandemic, actions taken by governmental authorities, actions taken by other third parties in response to the COVID-19 pandemic, and the pace of recovery when the COVID-19 pandemic subsides, all of which are highly uncertain.

Any reduction in defense spending by the federal government could adversely impact the economy in Hawaii and the Pacific Islands.

The U.S. military has a major presence in Hawaii and the Pacific Islands. As a result, the U.S. military is an important aspect of the economies in which we operate. The funding of the U.S. military is subject to the overall U.S. Government budget and appropriation decisions and processes which are driven by numerous factors, including geo-political events, macroeconomic conditions, and the ability and willingness of the U.S. Government to enact legislation. U.S. Government appropriations have been and likely will continue to be affected by larger U.S. Government budgetary issues and related legislation. Cuts in defense and other security spending could have an adverse impact on the economies in which we operate, which could adversely affect our business, financial condition, and results of operations.

Changes in interest rates could adversely impact our results of operations and capital.

Our earnings are highly dependent on the spread between the interest earned on loans, leases, and investment securities and the interest paid on deposits and borrowings. We primarily rely on customer deposits as a sizable source of relatively stable and low-cost funds. Changes in market interest rates impact the rates earned on loans, leases, and investment securities and the rates paid on deposits and borrowings. In addition, changes to market interest rates could impact the level of loans, leases, investment securities, deposits, and borrowings, and the credit profile of our current borrowers. Interest rates are affected by many factors beyond our control, and fluctuate in response to general economic conditions, currency fluctuations, and the monetary and fiscal policies of various governmental and regulatory authorities.

Changes in monetary policy, including changes in interest rates, will influence the origination of loans and leases, the purchase of investments, the generation of deposits, and the rates received on loans and investment securities and paid on deposits. Any substantial prolonged change in market interest rates may negatively impact our ability to attract deposits, originate loans and leases, and achieve satisfactory interest rate spreads. If we are unable to continue to fund loans and other assets through customer deposits or access capital markets on favorable terms or if we otherwise fail to manage our liquidity effectively, our liquidity, net interest margin, financial results and conditions may be adversely affected.

Credit losses could increase if economic conditions stagnate or ~~deteriorate further.~~deteriorate.

Increased credit losses for the Bank could result if economic conditions stagnate or ~~deteriorate further.~~deteriorate. The risk of nonpayment on loans and leases is inherent in all lending activities. We maintain a reserve for credit losses to absorb estimated expected credit losses over the life of the loan and lease ~~and commitment portfolios~~portfolio as of the balance sheet date. Management makes various assumptions and judgments about the loan and lease portfolios in determining the level of the reserve for credit losses. Many of these assumptions are based on current economic conditions. Should economic conditions stagnate or deteriorate ~~further~~ nationally or in Hawaii, we may experience higher credit losses in future periods.

Inability of our borrowers to make timely repayments on their loans, or decreases in real estate collateral values may result in increased delinquencies, foreclosures, and customer bankruptcies, any of which could have a material adverse effect on our financial condition or results of operations.

Consumer protection initiatives and court decisions related to the foreclosure process affect our remedies as a creditor.

Proposed consumer protection initiatives related to the foreclosure process, including voluntary and/or mandatory programs intended to permit or require lenders to consider loan modifications or other alternatives to foreclosure, could increase our credit losses or increase our expense in pursuing our remedies as a creditor.

In addition, Hawaii’s appellate courts have made rulings that increase the complexity and risk of nonjudicial, or out-of-court, foreclosures. At the same time, a chronic backlog of cases in the Hawaii courts has slowed the judicial foreclosure process, which delays the Bank’s ability to take over, preserve, and sell the mortgaged property. The manner in which these issues are ultimately resolved could impact our foreclosure procedures and costs, which in turn could affect our financial condition or results of operations.

Changes in the capital markets could materially affect the level of assets under management and the demand for our other fee-based services.

Changes in the capital markets could affect the volume of income from and demand for our fee-based services. Our investment management revenues depend in large part on the level of assets under management. Market volatility that leads customers to liquidate investments or move investments to other institutions or asset classes, as well as lower asset values can reduce our level of assets under management, thereby decreasing our investment management revenues.

The Parent is a separate and distinct legal entity from the Bank. The Parent receives substantially all of its cash in the form of dividends from the Bank. These dividends are the principal source of funds to pay, dividends on the Parent’s common and preferred stock or to repurchase common stock under the Parent’s share repurchase program. Various federal and state laws and regulations limit the amount of dividends that the Bank may pay to the Parent. The Parent’s ability to meet its obligations, pay dividends to shareholders, or repurchase stock, may be further limited if federal and state laws and regulations further limit the amount of dividends the Bank is permitted to pay the Parent.

There can be no assurance that the Parent will continue to declare cash dividends or repurchase stock.

During ~~2021,~~2022, the Parent repurchased ~~328,832~~627,629 shares of common stock at a total cost of ~~$27.3~~$49.8 million under its share repurchase program. We suspended share repurchases from March 2020 to July 2021 in light of the COVID-19 pandemic. The ~~actual amount and timing of future share repurchases, if any, will depend on market conditions, applicable SEC rules, and various other factors. The~~ Parent also paid cash dividends of ~~$110.6~~$112.6 million on common shares during ~~2021.~~2022. In January ~~2022,~~2023, the Parent’s Board of Directors declared a quarterly cash dividend of $0.70 per share on the Parent’s outstanding common shares.

Our dividend payments and/or stock repurchases may change from time-to-time, and we cannot provide assurance that we will continue to declare dividends and/or repurchase stock in any particular amounts or at all. Dividends and/or stock repurchases are subject to capital availability and periodic determinations by our Board of Directors. We continue to evaluate the potential impact that regulatory proposals may have on our liquidity and capital management strategies, including Basel III and those required under the Dodd-Frank Act. The actual amount and timing of future dividends and share repurchases, if any, will depend on market and economic conditions, applicable SEC rules, federal and state regulatory restrictions, and various other factors. In addition, the amount we spend and the number of shares we are able to repurchase under our stock repurchase program may further be affected by a number of other factors, including the stock price and blackout periods in which we are restricted from repurchasing shares. A reduction in or elimination of our dividend payments and/or stock repurchases could have a negative effect on our stock price.

The end of LIBOR may adversely affect our financial instruments that are directly or indirectly tied to LIBOR.

On March 5, 2021, the UK Financial Conduct Authority, which regulates LIBOR, confirmed that all LIBOR settings will either cease to be provided by any administrator or will no longer be representative immediately after December 31, 2021 for 1-week and 2-month US dollar LIBOR and immediately after June 30, 2023 for all remaining US dollar LIBOR settings. In addition, U.S. banking regulatory agencies issued guidance encouraging banks to cease entering into new contracts that use U.S. dollar LIBOR as a reference rate by December 31, 2021. At the same time, various alternative rates, including the Secured Overnight Financing Rate (SOFR), have begun to be used more widely in both loan and derivative products.

We have loans, derivative contracts, and other financial instruments with rates that are either directly or indirectly tied to LIBOR. As the transition progresses, the interest rates on these instruments, as well as the revenue and expenses associated with the same, may be adversely affected. Furthermore, failure to adequately manage this transition process with our customers, could adversely impact our reputation.

The ~~Company formed~~transition continues to be overseen by an enterprise-wide, cross-functional project team ~~to oversee the transition. The project team~~that reports to ~~a steering committee as well as Management and the Board~~executive management on ~~a periodic~~an ongoing basis. The project team is organized around key work streams, which cover the products, systems, and operational processes impacted by the transition as well as client communication. Since its formation, the project team has ~~completed an inventory of existing LIBOR-indexed products, which is monitored on an ongoing basis, added LIBOR fallback language to new loans, and~~ overseen the transition to non-LIBOR based adjustable rate mortgages and floating rate commercial ~~loans.~~loans as well as related customer derivatives (LIBOR-based ARMs no longer offered since November 2020 and LIBOR-based commercial loans no longer offered since December 2021) and continues to work toward facilitating the transition of legacy LIBOR products.

Fiscal and Monetary Policy changes may significantly impact our profitability and liquidity

The Company’s business and earnings are significantly affected by the fiscal and monetary policies of the Federal Government and its agencies. The Bank is particularly affected by the policies of the Federal Reserve, which regulates the supply of money and credit in the United States. Among the instruments of monetary policy available to the Federal Reserve are (a) conducting open market operations in U.S. government securities, (b) changing the discount rates of borrowings of depository institutions, (c) imposing or changing reserve requirements against depository institutions’ deposits, and (d) imposing or changing reserve requirements against certain borrowings by banks and their affiliates. These methods are used in varying degrees and combinations to directly affect the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits. Changes to these policies of the Federal Reserve may have a material effect on our business, results of operations and financial condition.

Legislation and regulatory initiatives affecting the financial services industry, including new interpretations, restrictions and requirements, could detrimentally affect the Company’s business.

The Dodd-Frank Act, enacted in July 2010, triggered sweeping reforms to the financial services industry. The Dodd-Frank Act, other consumer protection laws, and their implementing rules and regulations are likely to continue to result in increased compliance costs, along with possible restrictions on our products, services and manner of operations, any of which may have a material adverse effect on our ~~operating~~ results of operations and financial condition.

The CFPB has exercised its broad rule-making, supervisory, and examination authority of consumer financial products, as well as expanded data collection and enforcement powers, over depository institutions with more than $10.0 billion in assets. Staff changes to key positions within the CFPB by the Biden administration may result in the CFPB pursuing more strict enforcement policies, similar to that experienced under the Obama administration. Regulation of overall safety and soundness, the CRA, federal housing and flood insurance, as they pertain to consumer financial products and services, remains with the FRB. As a result of greater regulatory scrutiny of consumer financial products as a whole, the Company has become subject to more and expanded regulatory examinations, which also could result in increased costs as well as harm to our reputation in the event of a finding that we have not complied with the increased regulatory requirements.

New laws, regulations, and changes, and the uncertainty surrounding whether such laws, regulations and changes will be implemented, interpreted, repealed or reinstated, in the current regulatory and political climate, may continue to increase our costs of regulatory compliance. They may significantly affect the markets in which we do business, the markets for and value of our investments, and our ongoing operations, costs, and profitability.

Bank of Hawaii and its nonbank subsidiaries are subject to extensive federal and applicable state regulation and supervision. The bank regulatory scheme is primarily intended to protect depositors’ funds, federal deposit insurance funds, and the banking system as a whole, not shareholders. This regulatory framework affects our lending practices, capital structure, investment practices, dividend policy, and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations, and policies for possible changes, and proposed changes can be expected from the new federal administration that took office in January 2021. With Democratic control of the White House and both chambers of Congress there may be greater oversight of the banking industry.

Further, leadership and staff changes in regulatory agencies such as the CFPB, CFTC, SEC, and the Treasury Department could lead to changes in the rulemaking, supervision, examination and enforcement priorities and policies of the agencies. The potential impact of any changes within these agencies cannot be predicted at this time.

Changes in the capital, leverage, liquidity requirements for financial institutions could materially affect future requirements of the Company.

Under Basel III, financial institutions are required to have more capital and a higher quality of capital. Under the final rules issued by the banking regulators, minimum requirements increased for both the quantity and quality of capital held by the Company.

Compliance with Basel III resulted in increased capital, liquidity, and disclosure requirements. See the “Regulatory Initiatives Affecting the Banking Industry” section in MD&A for more information.

Changes in income tax laws and interpretations, or in accounting standards, could materially affect our financial condition or results of operations.

Further changes in income tax laws could be enacted, or interpretations of existing income tax laws could change, causing an adverse effect on our financial condition or results of operations. For example, the Inflation Reduction Act was enacted on August 16, 2022, and introduced, among provisions, a new corporate minimum income tax on certain large corporations, an excise tax of 1% on certain share repurchases by corporations, and increased funding for the Internal Revenue Service. Although we do not anticipate the new corporate minimum income tax will currently apply to us, changes in our business and any future regulations or other guidance on the interpretation and application of the new corporate minimum tax, as well as the potential application of the share repurchase excise tax, may result in additional taxes payable by us, which could materially and adversely affect our financial results and operations. Similarly, our accounting policies and methods are fundamental to how we report our financial condition and results of operations. Some of these policies require use of estimates and assumptions that may affect the value of our assets, liabilities, and financial results. Periodically, new accounting standards are issued or existing standards are revised, changing the methods for preparing our financial statements. These changes are not within our control and may significantly impact our financial condition and results of operations.

A failure in or breach of our operational systems, information systems, or infrastructure, or those of our third party vendors and other service providers, may result in financial losses, loss of customers, or damage to our reputation.

We rely heavily on communications and information systems to conduct our business. In addition, we rely on third parties to provide key components of our infrastructure, including loan, deposit and general ledger processing, internet connections, and network access. These types of information and related systems are critical to the operation of our business and essential to our ability to perform day-to-day operations, and, in some cases, are critical to the operations of certain of our customers. These third parties with which we do business or that facilitate our business activities, including exchanges, clearing firms, financial

intermediaries or vendors that provide services or security solutions for our operations, could also be sources of operational and information security risk to us, including breakdowns or failures of their own systems or capacity constraints. In addition, our communications and information systems and operations (including those of third parties that facilitate our business activities) could be damaged or interrupted due to events such as natural or human-caused disasters (including public health crises) or extreme weather (including as a result of climate change), geopolitical events and security issues, computer viruses, physical or electronic break-ins, operational failures, and similar events or disruptions.

Although we have safeguards and business continuity plans in place, our business operations may be adversely affected by significant and widespread disruption to our physical infrastructure or operating systems that support our business and our customers, resulting in financial losses, loss of customers, or damage to our reputation.

An interruption or breach in security of our information systems or those related to merchants and third party vendors, including as a result of cyber attacks, could disrupt our business, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, or result in financial losses.

Our business requires the collection and retention of large volumes of customer data, including payment card numbers and other personally identifiable information in various information systems that we maintain and in those maintained by third parties with whom we contract to provide data services. We also maintain important internal company data such as personally identifiable information about our employees and information relating to our operations. The integrity and protection of that customer and company data is important to us. As customer, public, legislative and regulatory expectations and requirements regarding operational and information security have increased, our operating systems and infrastructure must continue to be safeguarded and monitored for potential failures, disruptions and breakdowns.

Our technologies, systems, networks and software, and those of other financial institutions have been, and are likely to continue to be, the target of cybersecurity threats and attacks, which may range from uncoordinated individual attempts to sophisticated and targeted measures directed at us. These cybersecurity threats and attacks may include, but are not limited to, attempts to access information, including customer and company information, malicious code, computer viruses and denial of service attacks that could result in unauthorized access, misuse, loss or destruction of data (including confidential customer information), account takeovers, unavailability of service or other events. These types of threats may result from human error, fraud or malice on the part of external or internal parties, intelligence-gathering by foreign governments, or from accidental technological failure internally or by our vendors. Further, to access our products and services our customers may use computers and mobile devices that are beyond our security control systems. The risk of a security breach or disruption, particularly through cyber-attack or cyber intrusion, including by computer hackers, has increased as the number, intensity and sophistication of attempted attacks and intrusions around the world have increased.

Our customers and employees have been, and will continue to be, targeted by parties using fraudulent emails and other communications in attempts to misappropriate passwords, payment card numbers, bank account information or other personal information or to introduce viruses or other malware through “trojan horse” programs to our customers’ devices. These communications may appear to be legitimate messages sent by the Bank or other businesses, but direct recipients to fake websites operated by the sender of the email or request that the recipient send a password or other confidential information via email or download a program. Despite our efforts to mitigate these threats through product improvements, use of encryption and authentication technology to secure online transmission of confidential consumer information, and customer and employee education, such attempted frauds against us or our merchants and our third party service providers remain a serious issue. The pervasiveness of cyber security incidents in general and the risks of cyber-crime are complex and continue to evolve. In light of several recent high-profile data breaches involving other companies’ losses of customer personal and financial information, we believe this risk could cause customer and/or Bank losses, damage to our brand, and increase our costs through the ongoing cost of technology investments to improve security, as well as the potential financial and reputational impact of a cyber security incident involving the Company.

Although we make significant efforts to maintain the security and integrity of our information systems and have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Even the most well-protected information, networks, systems and facilities remain potentially vulnerable because attempted security breaches, particularly cyber-attacks and intrusions, or disruptions will occur in the future, and because the techniques used in such attempts are constantly evolving and generally are not recognized until launched against a target, in some cases are designed not to be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus making it virtually impossible for us to entirely mitigate this risk. A security breach or other significant disruption could: 1) disrupt the proper functioning of our networks and systems and therefore our operations and/or those of certain of our customers; 2) result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of confidential, sensitive or otherwise valuable information of ours or our customers, including account numbers and other financial and personal information; 3) result in a violation of applicable privacy, data breach and other laws, subjecting the Bank to additional regulatory scrutiny and exposing the Bank to civil litigation, governmental fines and possible financial liability; 4) require significant management attention and resources to remedy the damages that result; or 5) harm our reputation or cause a decrease in the number of customers that choose to do business with us or reduce the level of business that our customers do with us. The occurrence of any such failures, disruptions or security breaches could have a negative impact on our results of operations, financial condition, and cash flows as well as damage our brand and reputation.

Our mortgage banking income is highly influenced by the level and direction of mortgage interest rates, real estate activity, and refinancing activity. Interest rates can affect the amount of mortgage banking activity and impact fee income and the fair value of our derivative financial instruments and mortgage servicing rights. Mortgage banking income may also be impacted by changes in our strategy to manage our residential mortgage portfolio. For example, we may occasionally decide to add more conforming saleable loans to our portfolio (as opposed to selling the loans in the secondary market) which would reduce our gains on sales of residential mortgage loans. These variables could adversely affect mortgage banking income.

Our mortgage loan servicing business may be impacted if we do not meet our obligations, or if servicing standards change.

We act as servicer for mortgage loans sold into the secondary market, primarily to government sponsored ~~entities~~enterprises (“GSEs”) such as Fannie Mae. As a seller and servicer for those loans, we make warranties about their origination and are required to perform servicing according to complex contractual and handbook requirements. We maintain systems and procedures intended to ensure that we comply with these requirements. We may be penalized and, in limited instances required to repurchase certain mortgages, due to alleged failures to adhere to these requirements. Should GSEs change the requirements in their servicing handbooks, we may sustain higher compliance costs.

Risks related to representation and warranty provisions may impact our mortgage loan servicing business

The Company sells residential mortgage loans in the secondary market primarily to ~~the~~ Fannie Mae. The Company also pools ~~FHA~~Federal Housing Administration (“FHA”) insured and VAU.S. Department of Veterans Affairs (“VA”) guaranteed residential mortgage loans for sale to Ginnie Mae. These pools of FHA-insured and VA-guaranteed residential mortgage loans are securitized by Ginnie Mae. The agreements under which the Company sells residential mortgage loans to Fannie Mae or Ginnie Mae and the insurance or guaranty agreements with FHA and VA contain provisions that include various representations and warranties regarding the origination and characteristics of the residential mortgage loans. Although the specific representations and warranties vary among investors, insurance or guarantee agreements, they typically cover ownership of the loan, validity of the lien securing the loan, the absence of delinquent taxes or liens against the property securing the loan, compliance with loan criteria set forth in the applicable agreement, compliance with applicable federal, state, and local laws, and other matters. As of December 31, ~~2021,~~2022, the unpaid principal balance of residential mortgage loans sold by the Company was ~~$2.3~~$2.1 billion. The agreements under which the Company sells residential mortgage loans require delivery of various documents to the investor or its document custodian. Although these loans are primarily sold on a non-recourse basis, the Company may be obligated to repurchase residential mortgage loans or reimburse investors for losses incurred if a loan review reveals that underwriting and documentation standards were potentially not met. Some agreements may require the Company to repurchase delinquent loans. Upon receipt of a repurchase request, the Company works with investors or insurers to arrive at a mutually agreeable resolution. Repurchase demands are typically reviewed on an individual loan by loan basis to validate the claims made by the investor or insurer and to determine if a contractually required repurchase event has occurred. The Company manages the risk associated with potential repurchases or other forms of settlement through its underwriting and quality assurance practices and by servicing mortgage loans to meet investor and secondary market standards. For the year ended December 31, ~~2021,~~2022, the Company repurchased ~~seven~~six residential mortgage loans with an aggregate unpaid principal balance totaling ~~$0.9~~$1.6 million as a result of the representation and warranty provisions contained in these contracts. The loans were delinquent as to principal and interest at the time of repurchase, however, no material losses were incurred related to these repurchases.

Risks relating to residential mortgage loan servicing activities may adversely affect our results.

In addition to servicing loans in the Company’s portfolio, substantially all of the loans the Company sells to investors are sold with servicing rights retained. The Company also services loans originated by other mortgage loan originators. As servicer, the Company’s primary duties are to: (1) collect payments due from borrowers; (2) advance certain delinquent payments of principal and interest; (3) maintain and administer any hazard, title, or primary mortgage insurance policies relating to the mortgage loans; (4) maintain any required escrow accounts for payment of taxes and insurance and administer escrow payments; and (5) foreclose on defaulted mortgage loans or, to the extent consistent with the documents governing a securitization, consider alternatives to foreclosure, such as loan modifications or short sales. Each agreement under which the Company acts as servicer generally specifies a standard of responsibility for actions taken by the Company in such capacity and provides protection against expenses and liabilities incurred by the Company when acting in compliance with the respective servicing agreements. However, if the Company commits a material breach of obligations as servicer, the Company may be subject to termination if the breach is not cured within a specified period following notice. The standards governing servicing and the possible remedies for violations of such standards vary by investor. These standards and remedies are determined by servicing guides issued by the investors as well as the contract provisions established between the investors and the Company. Remedies could include repurchase of an affected loan.

The requirement to record certain assets and liabilities at fair value may adversely affect our financial results.

We report certain assets, including available-for-sale investment securities, at fair value. Generally, for assets that are reported at fair value we use quoted market prices or valuation models that utilize market data inputs to estimate fair value. Because we record these assets at their estimated fair value, we may incur losses even if the asset in question presents minimal credit risk. The level of interest rates can impact the estimated fair value of investment securities. Disruptions in the capital markets may require us to reserve for credit losses in future periods with respect to investment securities in our portfolio. The amount and timing of any credit allowance recognized will be measured as the difference between the security’s amortized cost basis and the amount expected to be collected over the security’s lifetime.

Natural disasters and adverse weather could negatively affect real estate property values and bank operations.

Real estate and real estate property values play an important role for the Bank in several ways. The Bank owns or leases many real estate properties in connection with its operations, primarily located in Hawaii with its unique weather and geology. Our business operations could suffer to the extent the Bank cannot utilize its branch network due to damage from weather or other natural disasters. Real estate is also utilized as collateral for many of our loans. A natural disaster in Hawaii or the Pacific Islands could cause property values in the affected areas to fall, which could require the Bank to record an impairment on its financial statements. A natural disaster could also impact borrowers’ ability to pay their financial obligations, which would increase our exposure to loan defaults.

Our future depends on our ability to compete effectively. We compete for deposits, loans, leases, and other financial services with a variety of competitors, including banks, thrifts, savings associations, credit unions, mortgage companies, finance companies, mutual funds, brokerage firms, insurance companies, and other non-traditional providers of financial services, including financial technology companies and financial service subsidiaries of commercial and manufacturing companies. Some of our competitors are not subject to the same level of regulation and oversight that is required of banks and BHCs, and may benefit from tax exemptions or lower tax rates. As a result, some of these competitors may have lower cost structures.

We expect competitive conditions to intensify as consolidation in the financial services industry continues. The financial services industry is also likely to become more competitive as further technological advances enable more companies, including non-depository institutions, to provide financial services. Also, some of our competitors, through delivery channels such as the Internet, may be based outside of the markets that we serve.

Both federal and local laws provide mechanisms for out-of-state banks and their holding companies to acquire or open branches in our service territories. Failure to effectively address this competitive risk by competing, innovating and making effective use of new and existing channels to deliver our products and services could adversely affect our financial condition or results of operations.

Negative public opinion could damage our reputation and adversely impact our earnings and liquidity.

Reputational risk, or the risk to our business, earnings, liquidity, and capital from negative public opinion, could result from our actual or alleged conduct in a variety of areas, including legal and regulatory compliance, lending practices, corporate governance, litigation, ethical issues, or inadequate protection of customer information. We expend significant resources to comply with regulatory requirements. Failure to comply could result in reputational harm or significant legal and/or remedial costs. Damage to our reputation could adversely affect our ability to retain and attract new customers, and adversely impact our earnings and liquidity.

We are subject to certain litigation, and our expenses related to this litigation may adversely affect our results.

We are, from time-to-time, involved in various legal proceedings arising from our normal business activities. These claims and legal actions, including supervisory actions by our regulators, could involve large monetary claims and significant defense costs. The outcome of these cases is uncertain. Substantial legal liability or significant regulatory action against us could have material financial effects or cause significant reputational harm to us, which in turn could seriously harm our business prospects. We may

be exposed to substantial uninsured liabilities, which could materially affect our results of operations and financial condition. Based on information currently available, we believe that the eventual outcome of known actions against us will not be materially in excess of such amounts accrued by us. However, in the event of unexpected future developments, it is possible that the ultimate resolution of those matters may be material to our financial results for any particular period. See the Contingencies section of Note 20 to the Consolidated Financial Statements for more information.

Our performance depends on attracting and retaining key employees and skilled personnel to operate our business effectively.

Our success is dependent on our ability to recruit qualified and skilled personnel to operate our business effectively. Competition for these qualified and skilled people is intense. There are a limited number of qualified personnel in the markets we serve, so our success depends in part on the continued services of many of our current management and other key employees. Failure to retain our key employees and maintain adequate staffing of qualified personnel could adversely impact our operations and our ability to compete.

We continue to experience higher turnover, consistent with others in the industry. That said, the financial industry has been more resilient with signs of leveling toward the end of 2021. Overall, sourcing and hiring of new employees has continued to keep pace with terminations. Employee retention efforts, to include a one-time inflation adjustment in conjunction with annual merit increases to help employees with the rapid rate of inflation, continue as well.

The soundness of other financial institutions may adversely impact our financial condition or results of operations.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, lending, counterparty, or other relationships. As a result, defaults by, or even rumors or questions about, one or more financial services institutions or the financial services industry in general have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. We have exposure to many different industries and counterparties, and we routinely execute transactions with brokers and dealers, commercial banks, investment banks, mutual funds, and other institutional clients. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due us. Such losses could materially affect our financial condition or results of operations.

Our principal offices are located in the Financial Plaza of the Pacific in Honolulu, Hawaii. We own and lease other branch offices and operating facilities located throughout Hawaii and the Pacific Islands. Additional information with respect to premises and equipment is presented in Notes 6 and 23 to the Consolidated Financial Statements.

We are from time to time subject to lawsuits, investigations and claims arising out of the conduct of our business. Management believes that the ultimate resolution of these matters is not likely to materially affect our financial position and results of operations. For additional information, see Note 20 to the Consolidated Financial Statements, under the discussion related to Contingencies.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Information regarding the historical market prices of the Parent’s common stock, book value, and dividends declared on that stock are shown below.

	Market Price Range								Dividends		Market Price Range								Dividends
Year/Period	High		Low		Close		Book Value		Declared		High		Low		Close		Book Value		Declared
2022											$	92.38	$	70.15	$	77.56	$	28.54	$	2.80
First Quarter												92.38		79.60		83.92				0.70
Second Quarter												84.93		70.97		74.40				0.70
Third Quarter												85.45		70.89		76.12				0.70
Fourth Quarter												82.87		70.15		77.56				0.70

2021	$	99.10	$	75.65	$	83.76	$	35.57	$	2.74	$	99.10	$	75.65	$	83.76	$	35.57	$	2.74
First Quarter		99.10		75.65		89.49				0.67		99.10		75.65		89.49				0.67
Second Quarter		95.95		81.23		84.22				0.67		95.95		81.23		84.22				0.67
Third Quarter		87.12		75.68		82.17				0.70		87.12		75.68		82.17				0.70
Fourth Quarter		88.96		78.73		83.76				0.70		88.96		78.73		83.76				0.70

2020	$	95.53	$	46.70	$	76.62	$	34.26	$	2.68
First Quarter		95.53		46.70		54.91				0.67
Second Quarter		72.74		51.15		61.41				0.67
Third Quarter		61.94		48.77		50.52				0.67
Fourth Quarter		80.38		49.25		76.62				0.67

The common stock of the Parent is traded on the New York Stock Exchange (NYSE Symbol: BOH) and quoted daily in leading financial publications. As of February 15, ~~2022,~~2023, there were ~~5,469~~5,290 common shareholders of record.

The Parent’s Board of Directors considers on a quarterly basis the feasibility of paying a cash dividend to its shareholders and the level and feasibility of repurchasing shares of the Parent’s common stock. Under the Parent’s historical practice, dividends declared on common stock are paid within the quarter. See “Dividend Restrictions” under “Supervision and Regulation” in Item 1 of this report and Note 11 to the Consolidated Financial Statements for more information.

The following graph shows the cumulative total return for the Parent’s common stock compared to the cumulative total returns for the Standard & Poor’s (“S&P”) 500 Index, the S&P Banks Index, and the S&P ~~Banks~~Supercomposite Regional Bank Index. The Company has added the S&P Supercomposite Regional Bank Index to the graph because the companies in this index are the ones with which the Company competes for capital and talent. The graph assumes that $100 was invested on December 31, ~~2016,~~2017, in the Parent’s common stock, the S&P 500 Index, the S&P Banks Index, and the S&P ~~Banks~~Supercomposite Regional Bank Index. The cumulative total return on each investment is as of December 31 of each of the subsequent five years and assumes reinvestment of dividends.

	2016		2017		2018		2019		2020		2021		2017		2018		2019		2020		2021		2022
Bank of Hawaii Corporation	$	100	$	99	$	80	$	169	$	98	$	110	$	100	$	81	$	118	$	99	$	111	$	107
S&P 500 Index	$	100	$	122	$	116	$	171	$	181	$	233	$	100	$	96	$	126	$	149	$	192	$	157
S&P Banks Index	$	100	$	122	$	102	$	178	$	123	$	167	$	100	$	84	$	118	$	101	$	137	$	111
S&P Supercomposite Regional Bank Index													$	100	$	82	$	107	$	99	$	139	$	114

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following MD&A is intended to help the reader understand the Company and its operations and is focused on our fiscal ~~2021~~2022 and ~~2020~~2021 financial results, including comparisons of year-to-year performance between these years. Discussion and analysis of our ~~2019~~2020 fiscal year, as well as the year-to-year comparison between fiscal ~~2020~~2021 and ~~2019,~~2020, 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, ~~2020,~~2021, filed with the SEC on March 1, ~~2021.~~2022.

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

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

Our Consolidated Financial Statements were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and follow general practices within the industries in which we operate. The most significant accounting policies we follow are presented in Note 1 to the Consolidated Financial Statements. 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 those that are related to the determination of the reserve for credit losses, fair value estimates, ~~leased asset residual values,~~ and income taxes.

A consequence of lending activities is that we may incur credit losses. The amount of such losses will vary depending upon the risk characteristics of the loan and lease portfolio as affected by economic ~~conditions such as rising interest rates and the financial performance of borrowers.~~conditions.

The reserve for credit losses consists of the allowance for credit losses (the “Allowance”) and the reserve for unfunded commitments (the “Unfunded Reserve”). The reserve for credit losses also included a reserve for accrued interest receivable related to loans in which interest payment forbearances were granted to borrowers impacted by the COVID-19 pandemic. As a result of our January 1, 2020, adoption of ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments,” and its related amendments, our methodology for estimating the reserve for credit losses changed significantly from December 31, 2019. The standard replaced the “incurred loss” approach with an “expected loss” approach known as current expected credit loss (“CECL”). The CECL approach requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures). It removes the incurred loss approach’s threshold that delayed the recognition of a credit loss until it was “probable” a loss event was “incurred.” The reserve for credit losses is an estimate that is subject to uncertainty due to various assumptions and significant judgements used in the estimation process.

The estimate of expected credit losses under the CECL approach is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is generally the starting point for estimating expected credit losses. We then consider whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period from which historical experience was used. ~~Finally, we consider forecasts about future~~These adjustments can include accounting for new or discontinued products, changes in our portfolio composition, delinquency trends, and with forecasted economic conditions ~~that are reasonable~~including but not limited to unemployment, real estate market conditions (e.g. prices, sales activity and ~~supportable.~~inventory), visitor arrivals, the continued uncertainty of the COVID-19 pandemic, and the cumulative impact of fiscal, monetary and regulatory programs in response to the pandemic. The Unfunded Reserve represents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit and standby letters of credit. The Unfunded Reserve is determined by estimating future draws and applying the expected loss rates on those draws. However, a liability is not recognized for commitments unconditionally cancellable by the Company.

Management’s evaluation of the appropriateness of the reserve for credit losses is often the most critical of accounting estimates for a financial institution. Our determination of the amount of the reserve for credit losses requires significant reliance on the credit risk rating we assign to individual borrowers, the use of estimates and significant judgment as to the amount and timing of expected future cash flows on criticized loans, significant reliance onThe historical loss ~~rates on homogenous portfolios, consideration of our quantitative and qualitative evaluation of economic factors, and~~experience for the reliance on our reasonable and supportable forecasts. While our methodology in establishing the reserve for credit losses attributes portions of the Allowance and Unfunded Reserve to the commercial and consumer portfolio segments, the entire Allowance and Unfunded Reserve is available to absorb credit losses inherent in the total loan and lease portfolio and total amount of unfunded credit commitments, respectively. The provision for credit losses reflects our internal calculation and judgment of the appropriate amount of the reserve for credit losses.

~~The reserve for credit losses related to our~~ commercial portfolio segment is ~~generally most sensitive to the credit~~primarily determined using a Cohort method. This method pools loans into groups (“cohorts”) sharing similar risk ~~rating assigned to each borrower. Commercial loan~~characteristics based on product and risk ratings, and tracks each cohort’s historical net charge-offs to calculate a historical loss rate. The historical loss rates for each cohort are ~~evaluated based on each situation by experienced senior credit officers and are subject~~then averaged to ~~periodic review by~~calculate an ~~independent internal team~~overall historical loss rate which is applied to current loan balances to arrive at the quantitative baseline portion of ~~credit specialists.~~ the Allowance for most of the commercial portfolio segment.

The ~~reserve~~historical loss experience for ~~credit losses related to our~~the consumer portfolio segment is generally most sensitive to economic assumptions and delinquency trends. The reserve for credit losses attributable to each portfolio segment also includes an amount for inherent risks not reflectedprimarily determined using a Vintage method. This method measures historical loss behavior in the form of a historical ~~analyses.~~loss rate for homogenous loan pools that originate in the same period, known as a vintage. The historical loss rates are then applied to origination loan balances by vintage to determine the quantitative baseline portion of the Allowance for most of the consumer portfolio segment. The homogenous loan pools are segmented according to similar risk characteristics (e.g., residential mortgage, home equity) and may be sub-segmented further based on historical loss behavior. For example, we sub-segment residential mortgages by geography and home equity by lien position.

The Unfunded Reserve is determined by estimating future draws and applying the expected loss rates on those draws. Future draws are based on historical averages of utilization rates (i.e., the likelihood of draws taken). To estimate future draws on unfunded balances, current utilization rates are compared to historical utilization rates. If current utilization rates are below historical utilization rates, the rate difference is applied to the committed balance to estimate the future draw. Expected loss rates are estimated using the loss rates calculated for the corresponding loan category in the Allowance. For the commercial portfolio,

the historical loss rates were calculated utilizing the Cohort methodology, while the consumer portfolio utilized the Vintage methodology.

We also consider qualitative adjustments to the quantitative baseline such as the impact of current environmental factors at the reporting date that did not exist over the period from which historical experience was used. Relevant factors include, but are not limited to, concentrations of credit risk, ~~(geographic,~~such as geographic, large borrower, industry; and ~~industry),~~ economic trends and conditions, such as Hawaii unemployment, real estate prices and market conditions, and visitor arrivals. We also consider changes in underwriting standards, experience and depth of lending staff, trends in delinquencies, and the level of criticized loans.

forecasted economic conditions and other factors on the performance of the loan portfolios, which could differ from historical loss experience. We also perform asset quality reviews which includes a review of forecasted gross charge-offs and recoveries, nonperforming assets, criticized loans and leases, and risk rating migration. The results of the asset quality review are used to consider qualitative adjustments to the quantitative baseline. After the one-year R&S loss forecast period, this adjustment assumes an immediate reversion to historical loss rates for the remaining expected life of the loan.

The ~~impact~~company utilizes the University of ~~utilizing the CECL approach~~Hawaii Economic Research Organization (“UHERO”) macroeconomic forecast that continuously changes due to ~~calculate the~~economic conditions and events. The forecast includes various economic variables for Hawaii such as gross domestic product (“GDP”), unemployment rate, visitor arrivals, residential real estate market conditions, personal income, and inflation rate. We also utilize other third party macroeconomic forecast tools to provide broader US economic variables such as interest rates.

The reserve for credit losses is ~~significantly influenced by the composition, characteristics and quality of our loan portfolio, as well as the prevailing~~generally sensitive to economic conditions and ~~forecasts utilized. Material~~assumptions given the impact for potential losses for the consumer portfolio and risk rating migration for the commercial portfolio. For the consumer portfolio, as an example, an increase in the forecasted Hawaii unemployment rate could lead to an increase in the rate of delinquencies and consequently charge-offs for consumer borrowers. For the Allowance at December 31, 2022, a 25 basis point increase in the forecasted Hawaii unemployment rates would have increased the quantitative component of the Allowance for consumer loans by an estimated $2.6 million. For the commercial portfolio, the impact of adverse changes in economic conditions on borrowers will vary, and generally evaluated on a case-by-case basis to ~~these~~include the borrower’s existing financial capacity. Borrowers that would be most adversely impacted are identified as having the potential for migrating from a Pass to a Classified risk rating. For the Allowance at December 31, 2022, a 50 basis point increase in the % of commercial loans risk rated as Classified would increase the quantitative component of the Allowance for commercial loans by an estimated $2.1 million. This sensitivity analysis is hypothetical and ~~other relevant factors~~provided only to indicate the potential impact changes in economic conditions and assumptions may result in greater volatility to the reserve for credit losses, and therefore, greater volatility to our reported earnings. See Notes 1 and 4 to the Consolidated Financial Statements and the “Corporate Risk Profile - Credit Risk” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) for more informationhave on the Allowance estimate. Additionally, changes in factors and ~~the Unfunded Reserve.~~inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others.

Fair value is 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. The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market inputs. For financial instruments that are traded actively and have quoted market prices or observable market inputs, there is minimal subjectivity involved in measuring fair value. However, when quoted market prices or observable market inputs are not fully available, significant management judgment may be necessary to estimate fair value. In developing our fair value measurements, we maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value hierarchy defines Level 1 valuations as those based on quoted prices, unadjusted, for identical instruments traded in active markets. Level 2 valuations are those based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-based valuation techniques for which all significant assumptions are observable in the market. Level 3 valuations are based on model-based techniques that use at least one significant assumption not observable in the market, or significant management judgment or estimation, some of which may be internally developed.

Financial assets that are recorded at fair value on a recurring basis include available-for-sale investment securities, loans held for sale, mortgage servicing rights, investments related to deferred compensation arrangements, and derivative financial instruments. As of December 31, ~~2021,~~2022, and December 31, ~~2020, $4.0~~2021, $2.9 billion or ~~20%~~12% and ~~$2.7~~$4.4 billion or ~~15%~~19%, respectively, of our total assets consisted of financial assets recorded at fair value on a recurring basis and most of these financial assets consisted of available-for-sale investment securities measured using information from a third party pricing service. These investments in debt securities and mortgage-backed securities were all classified in either Levels 1 or 2 of the fair value hierarchy. Financial liabilities that are

recorded at fair value on a recurring basis are comprised of derivative financial instruments. As of December 31, ~~2021,~~2022, and December 31, ~~2020, $17.4~~2021, $168.0 million and ~~$6.4~~$18.8 million, respectively, or less than 1% of our total liabilities consisted of financial liabilities recorded at fair value on a recurring basis.

As of December 31, ~~2021,~~2022, and December 31, ~~2020,~~2021, Level 3 financial assets recorded at fair value on a recurring basis were ~~$96.2~~$46.6 million and ~~$29.7~~$42.6 million, respectively, or less than 1% of our total assets, and were comprised primarily of ~~mortgage servicing rights and~~ derivative financial instruments. As of December 31, ~~2021,~~2022, and December 31, ~~2020,~~2021, Level 3 financial liabilities recorded at fair value on a recurring basis were ~~$17.4~~$168.0 million and ~~$6.1~~$17.9 million, respectively, or less than 1% of our total liabilities, and were comprised of derivative financial instruments.

Our third party pricing service makes no representations or warranties that the pricing data provided to us is complete or free from errors, omissions, or defects. As a result, we have processes in place to monitor and periodically review the information provided to us by our third party pricing service such as: 1) Our third party pricing service provides us with documentation by asset class of inputs and methodologies used to value securities. We review this documentation to evaluate the inputs and valuation methodologies used to place securities into the appropriate level of the fair value hierarchy. This documentation is periodically updated by our third party pricing service. Accordingly, transfers of securities within the fair value hierarchy are made if deemed necessary. 2) On a quarterly basis, management also selects a sample of securities priced by the Company’s third party pricing service and reviews the significant assumptions and valuation methodologies used by the pricing service with respect to those securities. The information provided is comprised of market reference data, which may include reported trades; bids, offers, or broker-dealer dealer quotes; benchmark yields and spreads; as well as other reference data as appropriate. Periodically, based on these reviews, management determines whether the current placement of the security in the fair value hierarchy is appropriate or whether transfers may be warranted. 3) On a quarterly basis, management reviews the pricing information received from our third party pricing service. This review process includes a comparison to a second source. 4) Our third party pricing service has also established processes for us to submit inquiries regarding quoted prices. Periodically, we will challenge the quoted prices provided by our third party pricing service. Our third party pricing service will review the inputs to the evaluation in light of the new market data presented by us. Our third party pricing service may then affirm the original quoted price or may update the evaluation on a going forward basis. Generally, we do not adjust the price from the third party service provider. 5) On an annual basis, we obtain and review the third party’s most recently issued Service Organization Controls report related to controls placed in operation and tests of operating effectiveness, to update our understanding of the third party pricing service’s control environment.

See Note 21 to the Consolidated Financial Statements for more information on our fair value measurements.

We determine our liabilities for income taxes based on current tax regulations and interpretations in tax jurisdictions where our income is subject to taxation. Currently, we file tax returns for federal, six state and local domestic jurisdictions, and three foreign jurisdictions. In estimating income taxes payable or receivable, we assess the relative merits and risks of the appropriate tax treatment considering statutory, judicial, and regulatory guidance in the context of each tax position. Accordingly, previously estimated liabilities are regularly reevaluated and adjusted through the provision for income taxes. Changes in the estimate of income taxes payable or receivable occur periodically due to changes in tax rates, interpretations of tax law, the status of examinations being conducted by various taxing authorities, and newly enacted statutory, judicial and regulatory guidance that impact the relative merits and risks of each tax position. These changes, when they occur, may affect the provision for income taxes as well as current and deferred income taxes, and may be significant to our statements of income and condition.

Management's determination of the realization of net deferred tax assets is based upon management's judgment of various future events and uncertainties, including the timing, character and amount of future income, as well as the implementation of various tax planning strategies to maximize realization of the deferred tax assets. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. As of December 31, ~~2021,~~2022, and December 31, ~~2020,~~2021, we carried a valuation allowance of ~~$3.2~~$6.2 million and ~~$3.6~~$3.2 million, respectively, related to our deferred tax assets established in connection with our low-income housing investments.

We are also required to record a liability, referred to as an unrecognized tax benefit ("UTB"), for the entire amount of benefit taken in a prior or future income tax return when we determine that a tax position has a less than 50% likelihood of being accepted by the taxing authority. As of December 31, ~~2021,~~2022, and December 31, ~~2020,~~2021, our liabilities for UTBs were ~~$4.0~~$3.7 million and ~~$5.4~~$4.0 million, respectively.

In ~~2021,~~2022, the Company recognized federal and State of Hawaii investment tax credits from energy investments. The Company uses the deferral method of accounting for its investment tax credit with the benefit recognized in the provision for income taxes. These credits reduced the Company's provision for income taxes by $1.0 million, $2.1 million, and $3.1 million in 2022, 2021, and ~~$4.1 million in 2021,~~ 2020, ~~and 2019,~~ respectively.

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.

The COVID-19 pandemic has had and is continuing to have an impact on the Hawaii economy. ~~Prior to the COVID-19 pandemic, at risk industries of leisure and hospitality represented 19% of jobs and 10% of Hawaii’s GDP.~~ Hawaii benefits from a wide range of industries that help to provide stability in the case of economic shocks. Federal government jobs, primarily military, have historically been a stabilizing part of Hawaii’s economy, supplying about 20% of GDP. Construction activity, including the Honolulu Rail Project, and other non-visitor-related activities have continued despite the COVID-19 pandemic. Hawaii’s large retiree population also contributes to a stable economic base. Hawaii’s unemployment rate was ~~5.7%~~3.2% in December ~~2021, while still above the pre-pandemic level, it has fallen~~2022, substantially ~~since~~below its peak in April and May of ~~2020.~~2020 and below the national average as of year-end 2022.

As previously mentioned, local housing prices are one of the metrics that we continually monitor. While sales volume fell year-over-year given the sharp rise in interest rates, home prices remained relatively stable and months of inventory remained relatively low. The volume of single-family home sales on Oahu ~~increased 17.9%~~decreased 23.2% in ~~2021~~2022 compared to ~~2020,~~2021, while the volume of condominium sales on Oahu ~~increased 53.1%~~decreased 11.8% in ~~2021~~2022 compared to ~~2020.~~2021. The median price of single-family home sales on Oahu increased by ~~19.3%~~11.6% in ~~2021~~2022 compared to ~~2020,~~2021, while the condominium sales price on Oahu increased by ~~9.2%~~7.4% in ~~2021~~2022 compared to ~~2020.~~2021. As of December 31, ~~2021,~~2022, months of inventory of single-family homes and condominiums on Oahu was 2.1 months and 2.2 months, respectively, compared to 0.8 months and 1.6 months ~~respectively.~~as of December 31, 2021.

Net income for ~~2021~~2022 was ~~$253.3~~$225.8 million, ~~an increase~~a decrease of ~~$99.6~~$27.6 million or ~~65%~~11% compared to ~~2020.~~2021. Diluted earnings per common share were ~~$6.25~~$5.48 in ~~2021, an increase~~2022, a decrease of ~~$2.39~~$0.77 or ~~62%~~12% compared to ~~2020.~~2021. Our return on average assets was ~~1.14%~~0.98% in ~~2021, an increase~~2022, a decrease of 3516 basis points from ~~2020,~~2021, and our return on average shareholders’ equity was 16.10% in 2022, compared to 16.94% in ~~2021, compared to 11.38% in 2020.~~2021.

Our ~~higher~~lower net income in ~~2021~~2022 was primarily due to the following:

We maintained a strong balance sheet throughout ~~2021,~~2022, with what we believe are adequate reserves for credit losses, and high levels of liquidity and capital.

Average balances, related income and expenses, and resulting yields and rates, on a taxable-equivalent basis, 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	Average Balances and Interest Rates – Taxable-Equivalent Basis													Table 1				Average Balances and Interest Rates – Taxable-Equivalent Basis												Table 1
		2021							2020										2022							2021
(dollars in millions)		Average Balance		Income/ Expense		Yield/ Rate			Average Balance		Income/ Expense				Yield/ Rate				Average Balance		Income/ Expense		Yield/ Rate			Average Balance		Income/ Expense			Yield/ Rate
Earning Assets
Interest-Bearing Deposits in Other Banks		$	2.7	$	—		0.36	%	$	2.2	$	—				0.61	%		$	3.0	$	—		1.05	%	$	2.7	$	—			0.36	%
Funds Sold			692.4		0.9		0.13			434.1		0.9				0.21				260.5		4.3		1.64			692.4		0.9			0.13
Investment Securities
Available-for-Sale
Taxable			4,266.9		64.2		1.50			2,961.9		60.3				2.04				3,644.2		70.5		1.93			4,266.9		64.2			1.50
Non-Taxable			10.1		0.4		4.21			27.6		1.2				4.36				4.0		0.1		2.92			10.1		0.4			4.21
Held-to-Maturity
Taxable			3,988.1		61.0		1.53			3,125.2		65.0				2.08				4,750.0		80.9		1.70			3,988.1		61.0			1.53
Non-Taxable			50.7		1.2		2.41			52.6		1.4				2.66				35.6		0.7		2.10			50.7		1.2			2.41
Total Investment Securities			8,315.8		126.8		1.53			6,167.3		127.9				2.07				8,433.8		152.2		1.80			8,315.8		126.8			1.53
Loans Held for Sale			24.3		0.7		2.82			19.4		0.6				3.28				6.9		0.3		3.70			24.3		0.7			2.82
Loans and Leases ¹
Commercial and Industrial			1,739.0		62.8		3.61			1,797.5		59.3				3.30				1,349.3		46.2		3.42			1,285.1		37.1			2.88
Paycheck Protection Program																				44.0		2.7		6.07			453.9		25.7			5.67
Commercial Mortgage			2,940.0		86.7		2.95			2,666.1		90.9				3.41				3,420.1		121.9		3.56			2,940.0		86.7			2.95
Construction			271.6		9.5		3.50			240.1		9.4				3.92				232.6		10.6		4.56			271.6		9.5			3.50
Commercial Lease Financing			107.2		1.5		1.42			111.3		(1.0	)			(0.88	)			88.5		1.3		1.49			107.2		1.5			1.42
Residential Mortgage			4,232.4		140.1		3.31			3,978.7		146.0				3.67				4,484.2		147.4		3.29			4,232.4		140.1			3.31
Home Equity			1,637.1		49.6		3.03			1,642.7		56.8				3.46				2,072.2		62.1		3.00			1,637.1		49.6			3.03
Automobile			717.0		24.6		3.43			709.1		25.3				3.57				786.1		25.4		3.23			717.0		24.6			3.43
Other ²			379.4		23.9		6.30			446.6		30.9				6.91				419.5		23.0		5.49			379.4		23.9			6.30
Total Loans and Leases			12,023.7		398.7		3.32			11,592.1		417.6				3.60				12,896.5		440.6		3.42			12,023.7		398.7			3.32
Other			32.9		0.7		2.13			33.7		0.7				1.96				40.5		1.2		3.01			32.9		0.7			2.13
Total Earning Assets ³			21,091.8		527.8		2.50			18,248.8		547.7				3.00				21,641.2		598.6		2.77			21,091.8		527.8			2.50
Cash and Due from Banks			252.5							263.8										237.4							252.5
Other Assets			882.9							875.1										1,128.1							882.9
Total Assets		$	22,227.2						$	19,387.7									$	23,006.7						$	22,227.2

Interest-Bearing Liabilities
Interest-Bearing Deposits
Demand		$	4,509.8	$	2.7		0.06	%	$	3,426.8	$	2.5				0.07	%		$	4,377.1	$	6.1		0.14	%	$	4,509.8	$	2.7			0.06	%
Savings			7,421.9		6.2		0.08			6,702.7		12.4				0.19				7,767.7		22.9		0.30			7,421.9		6.2			0.08
Time			1,331.8		6.3		0.47			1,708.1		18.1				1.06				1,135.5		10.7		0.94			1,331.8		6.3			0.47
Total Interest-Bearing Deposits			13,263.5		15.2		0.11			11,837.6		33.0				0.28				13,280.3		39.7		0.30			13,263.5		15.2			0.11
Short-Term Borrowings			5.2		—		0.13			33.5	0.2					0.47				77.1		2.5		3.23			5.2		—			0.13
Securities Sold Under Agreements to Repurchase			541.9	13.3			2.45			602.7	15.2					2.54				479.8	12.6			2.63			541.9	13.3				2.45
Other Debt			27.7	0.9			3.41			62.1	1.7					2.73				42.4	2			4.82			27.7	0.9				3.41
Total Interest-Bearing Liabilities			13,838.3		29.4		0.21			12,535.9		50.1				0.40				13,879.6		56.8		0.41			13,838.3		29.4			0.21
Net Interest Income				$	498.4						$	497.6									$	541.8						$	498.4
Interest Rate Spread							2.29	%								2.60	%							2.36	%							2.29	%
Net Interest Margin							2.36	%								2.73	%							2.50	%							2.36	%
Noninterest-Bearing Demand Deposits			6,507.6							5,062.6										7,270.4							6,507.6
Other Liabilities			385.7							437.6										454.2							385.7
Shareholders’ Equity			1,495.6							1,351.6										1,402.5							1,495.6
Total Liabilities and Shareholders’ Equity		$	22,227.2						$	19,387.7									$	23,006.7						$	22,227.2

Analysis of Change in Net Interest Income – Taxable-Equivalent Basis	Analysis of Change in Net Interest Income – Taxable-Equivalent Basis							Table 2			Analysis of Change in Net Interest Income – Taxable-Equivalent Basis							Table 2
		Year Ended December 31, 2021 Compared to 2020										Year Ended December 31, 2022 Compared to 2021
(dollars in millions)		Volume¹			Rate ¹			Total				Volume¹			Rate ¹			Total
Change in Interest Income:
Funds Sold		$	0.4		$	(0.4	)	$	—			$	(0.9	)	$	4.3		$	3.4
Investment Securities
Available-for-Sale
Taxable			22.2			(18.3	)		3.9				(10.3	)		16.6			6.3
Non-Taxable			(0.7	)		(0.1	)		(0.8	)			(0.2	)		(0.1	)		(0.3	)
Held-to-Maturity
Taxable			15.5			(19.5	)		(4.0	)			12.5			7.4			19.9
Non-Taxable			(0.1	)		(0.1	)		(0.2	)			(0.3	)		(0.2	)		(0.5	)
Total Investment Securities			36.9			(38.0	)		(1.1	)			1.7			23.7			25.4
Loans Held for Sale			0.2			(0.1	)		0.1				(0.6	)		0.2			(0.4	)
Loans and Leases
Commercial and Industrial			1.6			1.9			3.5				1.9			7.2			9.1
Paycheck Protection Program													(24.8	)		1.8			(23.0	)
Commercial Mortgage			8.8			(13.0	)		(4.2	)			15.5			19.7			35.2
Construction			1.2			(1.1	)		0.1				(1.5	)		2.6			1.1
Commercial Lease Financing			—			2.5			2.5				(0.2	)		0.0			(0.2	)
Residential Mortgage			8.9			(14.8	)		(5.9	)			8.3			(1.0	)		7.3
Home Equity			(0.2	)		(7.0	)		(7.2	)			13.1			(0.6	)		12.5
Automobile			0.3			(1.0	)		(0.7	)			2.3			(1.5	)		0.8
Other ²			(4.4	)		(2.6	)		(7.0	)			2.3			(3.2	)		(0.9	)
Total Loans and Leases			16.2			(35.1	)		(18.9	)			16.9			25.0			41.9
Other													0.2			0.3			0.5
Total Change in Interest Income			53.7			(73.6	)		(19.9	)			17.3			53.5			70.8

Change in Interest Expense:
Interest-Bearing Deposits
Demand			0.7			(0.5	)		0.2				(0.1	)		3.5			3.4
Savings			1.2			(7.4	)		(6.2	)			0.3			16.4			16.7
Time			(3.4	)		(8.4	)		(11.8	)			(1.0	)		5.4			4.4
Total Interest-Bearing Deposits			(1.5	)		(16.3	)		(17.8	)			(0.8	)		25.3			24.5
Short-Term Borrowings			(0.1	)		(0.1	)		(0.2	)			0.9			1.6			2.5
Securities Sold Under Agreements to Repurchase			(1.5	)		(0.4	)		(1.9	)			(1.6	)		0.9			(0.7	)
Other Debt			(1.1	)		0.3			(0.8	)			0.6			0.5			1.1
Total Change in Interest Expense			(4.2	)		(16.5	)		(20.7	)			(0.9	)		28.3			27.4
Change in Net Interest Income		$	57.9		$	(57.1	)	$	0.8			$	18.2		$	25.2		$	43.4

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

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

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. We experienced lower yields in both our investment securities portfolio and loan portfolio, which were partially offset by lower rates paid on our interest-bearing deposits, a reflection of the lower rate environment.

Yields on our earning assets ~~decreased~~increased by 5027 basis points in ~~2021~~2022 compared to ~~2020~~2021 primarily due to the ~~lower~~higher rate environment. Yields on our commercial and industrial loans increased by 31 points primarily due to accelerated fees as a result of PPP loans forgiveness. Yields on our commercial mortgage decreased by 46 basis points due to lower yields on floating rate loans, and new loans with lower rates than loans that were paid off. Yields on our construction loans decreased by 42 basis points due to lower yields on floating-rate loans, and new loans with lower rates in comparison to loans that were paid off or transferred to commercial mortgage upon completion. Yields on our commercial lease financing increased by 230 basis points primarily due to no leveraged lease residual impairment in 2021 compare to $3.0 million impairment in the residual value of a leveraged lease in 2020. Yields on our funds sold decreased by 8 basis points primarily due to federal fund rate decreases. In addition, yields on our investment securities portfolio decreased by 54 basis points primarily due to purchases of lower yielding securities in the current lower rate environment.

Yields on our investment securities portfolio increased by 27 basis points. Yields on our funds sold increased by 151 basis points primarily due to federal fund rate increases. Yields on our commercial and industrial loans excluding Paycheck Protection Program (“PPP”) loans increased by 54 basis points primarily due to the higher interest rate environment. Contractual yields on Paycheck Protection Program loans are fixed at 1%, however, effective yield varies based on processing fee income being accelerated due to loans being forgiven by the Small Business Administration (“SBA”) ahead of maturity. Yields on our commercial mortgage loans increased by 61 basis points due to the higher interest rate environment and an interest recovery in the second quarter of 2022. Yields on our construction loans increased by 106 basis points due to the higher interest rate environment and the payoff of lower yielding loans. Yields on our residential mortgage loans and home equity loans decreased by 2 basis points and 3 basis points, respectively, primarily due to pay downs of higher rate loans offset by the higher interest rate environment. Yields on other loans decreased by 81 basis points primarily due to the full year impact of promotional lower rate installment loans originated in the prior year.

Interest rates paid on our interest-bearing liabilities ~~decreased 19~~increased 20 basis points in ~~2021~~2022 compared to ~~2020. Decreases to our funding costs were primarily due to lower rates paid on our interest-bearing deposits.~~2021. Interest rates paid on our securities sold under agreements to repurchase ~~decreased~~increased by 918 basis points from ~~2020. In~~ 2021 ~~we terminated four~~primarily due to the addition of ~~our~~$300.0 million in repurchase agreements ~~and partially terminated one,~~ with ~~an aggregate total~~private institutions in the fourth quarter of ~~$150.0 million, with three private institution. These repurchase agreements had a weighted-average interest rate of 2.0% and were scheduled to mature in 2022, 2024, 2025, and 2026.~~2022.

Average balances of our earning assets increased by ~~$2.8~~$0.5 billion or ~~16%~~3% in ~~2021~~2022 compared to ~~2020~~2021 primarily due to ~~growth~~an increase in the average balances of our ~~deposits. In particular, the~~loan and lease portfolio. The average balance of funds sold decreased by $431.9 million or 62%. The average balances of our investment securities increased by ~~$2.1~~$0.1 billion. The average balance of total loan and leases increased by ~~$431.6 million. The average balance of funds sold increased by $258.3~~$872.8 million. The average balance of our commercial and industrial portfolio ~~including PPP loans decreased~~increased by ~~$58.5~~$64.2 million in 2021 compared to the same period in 2020. This decrease was primarily due to higher payoff activities, partially offset by an increase of PPP loans. The increase in PPP loans was due to origination of new loans under the PPP in 2021.or 5%. The average balance of our commercial mortgage portfolio increased by ~~$273.9~~$480.1 million or 16% as a result of continued demand from new and existing customers. The average balance of our residential mortgage portfolio increased by ~~$253.7~~$251.8 million or 6% primarily due to ~~higher loan~~new originations ~~partially~~which offset continued paydowns. The average balance of our home equity portfolio increased by ~~an increase in payoff activity.~~$435.1 million mainly due to growth driven by ongoing promotions of our SmartRefi program. The average balance of our automobile loans portfolio increased by ~~$7.9~~$69.1 million or 10% primarily due to competitive loan programs and pricing.

The average ~~balance~~balances of our ~~home equity portfolio decreased~~interest bearing deposit products increased by ~~$5.6~~$16.8 million ~~as a result of a slight increase in payoff levels.~~

~~Average~~or 0.1%. The average balances of our interest-bearing liabilities increased by ~~$1.3 billion~~$41.3 million or ~~10%~~0.3%. The average balance of our interest bearing demand deposits decreased by $132.7 million or 2.9%. The average balance of our savings deposits increased by $345.8 million or 4.7%. The average balance of our time deposits decreased by $196.3 million or 14.7%.

The average balances of our securities sold under agreements to repurchase decreased by $62.1 million or 11%. This decrease was due to terminations and calls of repurchase agreements with private institutions ($25.0 million called in ~~2021 compared to 2020~~2022 and $150.0 million terminated in 2021), partially offset by $300.0 million originated in late 2022. The average balances of our other debt, which was comprised primarily of Federal Home Loan Bank (“FHLB”) advances, increased by $14.7 million or 53% primarily due to ~~growth~~new FHLB advances totaling $400.0 million originated in ~~our demand and savings deposits which increased~~late 2022, partially offset by ~~$1.1 billion and $719.2 million, respectively. Average balances in other debt decreased by $34.4 million primarily due to~~ the prepayment of FHLB advances totaling $50.0 million ~~in the second quarter of~~during 2021.

Table 3 presents the major components of noninterest income for ~~2021~~2022 and ~~2020.~~2021.

Noninterest Income	Table 3											Table 3
	Year Ended December 31,					Dollar Change			Percent Change			Year Ended December 31,						Dollar Change			Percent Change
(dollars in thousands)	2021			2020		2021 to 2020						2022			2021			2022 to 2021
Trust and Asset Management	$	46,068		$	43,456	$	2,612			6	%	$	43,803		$	46,068		$	(2,265	)		(5	)%
Mortgage Banking		14,964			17,871		(2,907	)		(16	)		5,980			14,964			(8,984	)		(60	)
Service Charges on Deposit Accounts		25,564			24,910		654			3			29,620			25,564			4,056			16
Fees, Exchange, and Other Service Charges		55,457			47,056		8,401			18			54,914			55,457			(543	)		(1	)
Investment Securities Gains (Losses), Net		(1,297	)		9,932		(11,229	)	n.m.
Investment Securities Losses, Net													(6,111	)		(1,297	)		(4,814	)	n.m.
Annuity and Insurance		3,224			3,362		(138	)		(4	)		3,782			3,224			558			17
Bank-Owned Life Insurance		7,784			7,388		396			5			9,968			7,784			2,184			28
Other		19,589			30,434		(10,845	)		(36	)		15,585			19,589			(4,004	)		(20	)
Total Noninterest Income	$	171,353		$	184,409	$	(13,056	)		(7	)%	$	157,541		$	171,353		$	(13,812	)		(8	)%

Trust and asset management income is comprised of fees earned from the management and administration of trusts and other customer assets. These fees are largely based upon the market value of the assets that the Bank manages and the fee rate charged to customers. Total trust assets under administration were ~~$11.5~~$10.5 billion and ~~$10.5~~$11.5 billion as of December 31, ~~2021,~~2022, and December 31, ~~2020,~~2021, respectively. Trust and asset management income ~~increased~~decreased by ~~$2.6~~$2.3 million or 6%5% in ~~2021~~2022 compared to ~~2020~~2021 due to ~~increases~~decreases in trust assets under administration and tax service fees.

Mortgage banking income is highly influenced by mortgage interest rates, the housing market, the amount of our loan sales, and our valuation of mortgage servicing rights. Mortgage banking income decreased by ~~$2.9~~$9.0 million or ~~16%~~60% in ~~2021~~2022 compared to ~~2020. The~~2021. This decrease ~~in 2021~~ was primarily due to decreased sales of conforming saleable loans from current ~~production, which~~production. This decrease was partially offset by ~~a valuation allowance recovery to our~~lower amortization of mortgage servicing rights.

Service charges on deposit accounts increased by ~~$0.7~~$4.1 million or 3%16% in ~~2021~~2022 compared to ~~2020.~~2021. This increase was primarily due to an increase in ~~account analysis fees.~~

~~Fees, exchange, and other service charges are primarily comprised of debit and credit card income,~~overdraft fees ~~from ATMs, merchant service activity, and other loan fees and special charges. Fees, exchange, and other service charges increased by $8.4 million or 18%~~attributed to an increase in ~~2021 compared to 2020. This increase was primarily due to higher debit and credit card~~ transaction ~~volume, higher merchant sales volume, coupled with the Bank’s suspension of ATM surcharge fees from April 1, 2020, through June 30, 2020.~~volume.

Net ~~gains (losses)~~losses on sales of investment securities totaled ~~($1.3)~~$6.1 million and ~~$9.9~~$1.3 million in 2022 and 2021, ~~and 2020,~~ respectively. The net loss in 2022 was primarily due to $6.1 million in the fees paid to the counterparties of our prior Visa Class B share sales transactions. The net loss in 2021 was primarily due to $5.1 million of the fees paid to the counterparties of our prior Visa Class B share sales transactions. ~~These net losses in 2021 were~~This was offset by $3.8 million net gains on the sales of ~~mortgage-backed~~investment securities ~~corporate, and government debt securities. The net gain of $9.9 million~~ in 2020 was primarily due to the sale of 80,214 Visa Class B Shares generating net gain of $14.3 million, which was partially offset by $4.3 million of the fees paid to the counterparties of our prior Visa Class B share sales transactions.

~~Annuity and insurance income decreased by $0.1 million or 4% in 2021 compared to 2020 primarily due to a decrease in annuity and life insurance products.~~2021.

Bank-owned life insurance increased by ~~$0.4~~$2.2 million or 5%28% in ~~2021~~2022 compared to ~~2020~~2021 primarily due to ~~higher death benefit received~~policy purchases in ~~2021.~~2022.

Other noninterest income decreased by ~~$10.8~~$4.0 million or ~~36%~~20% in ~~2021~~2022 compared to ~~2020.~~2021. This decrease was primarily due to a ~~$9.3~~$6.9 million ~~decrease in fees~~loss related to ~~our customer interest rate swap derivatives and a $1.5 million decrease in other income.~~the sale of certain leveraged lease assets.

Table 4 presents the major components of noninterest expense for ~~2021~~2022 and ~~2020.~~2021.

Noninterest Expense	Table 4										Table 4
	Year Ended December 31,				Dollar Change			Percent Change			Year Ended December 31,				Dollar Change			Percent Change
(dollars in thousands)	2021		2020		2021 to 2020						2022		2021		2022 to 2021
Salaries and Benefits:
Salaries	$	135,416	$	134,178	$	1,238			1	%	$	146,840	$	135,416	$	11,424			8	%
Incentive Compensation		22,462		9,153		13,309		n.m.				23,425		22,462		963			0
Share-Based Compensation		12,489		6,783		5,706			84			15,220		12,489		2,731			22
Commission Expense		8,901		6,985		1,916			27			4,708		8,901		(4,193	)		(47	)
Retirement and Other Benefits		20,213		18,528		1,685			9			17,242		20,213		(2,971	)		(15	)
Payroll Taxes		12,404		12,241		163			1			13,395		12,404		991			8
Medical, Dental, and Life Insurance		12,831		12,917		(86	)		(1	)		11,958		12,831		(873	)		(7	)
Separation Expense		3,577		6,544		(2,967	)		(45	)		2,482		3,577		(1,095	)		(31	)
Total Salaries and Benefits		228,293		207,329		20,964			10			235,270		228,293		6,977			3
Net Occupancy		26,244		39,533		(13,289	)		(34	)		39,441		26,244		13,197			50
Net Equipment		35,703		35,448		255			1			38,374		35,703		2,671			7
Data Processing		20,297		18,499		1,798			10			18,362		20,297		(1,935	)		(10	)
Professional Fees		12,895		12,186		709			6			14,557		12,895		1,662			13
FDIC Insurance		6,536		5,780		756			13			6,546		6,536		10			0
Other Expense:
Delivery and Postage Services		6,358		6,975		(617	)		(9	)		6,606		6,358		248			4
Mileage Program Travel		4,948		4,521		427			9			4,591		4,948		(357	)		(7	)
Merchant Transaction and Card Processing Fees		5,180		4,259		921			22			6,005		5,180		825			16
Advertising		9,606		8,331		1,275			15			9,976		9,606		370			4
Amortization - Solar Energy Partnership Investments		2,048		3,678		(1,630	)		(44	)		1,189		2,048		(859	)		(42	)
Other		35,481		27,268		8,213			30			34,348		35,481		(1,133	)		(3	)
Total Other Expense		63,621		55,032		8,589			16			62,715		63,621		(906	)		(1	)
Total Noninterest Expense	$	393,589	$	373,807	$	19,782			5	%	$	415,265	$	393,589	$	21,676			6	%

Total salaries and benefits increased by ~~$21.0~~$7.0 million or ~~10%~~3% in ~~2021~~2022 compared to ~~2020~~2021 primarily due a ~~$13.3~~$11.4 million increase in ~~incentive compensation~~salaries coupled with a ~~$5.7~~$2.7 million increase in shared-based compensation due to a higher number of restricted stock units being ~~amortized, which was partially offset by forfeiture of unvested restricted stock grants.~~amortized. These increases were partially offset by a $4.2 million decrease in commission expense and a $3.0 million decrease in ~~separation expense.~~ retirement and other benefits.

Net occupancy expense ~~decreased~~increased by ~~$13.3~~$13.2 million or ~~34%~~50% in ~~2021~~2022 compared to ~~2020~~2021 primarily due to ~~$9.4 million net gain~~gains on ~~sales~~sale of real estate property on the island of Oahu and Guam in 2021 of $9.5 million, coupled with ~~a decrease~~an increase in ~~repairs and maintenance~~net rental expense in ~~2021, and an impairment charge related to the closures of 12 branches recorded in 2020.~~2022.

Net equipment expense increased by ~~$0.3~~$2.7 million or 1%7% in ~~2021~~2022 compared to ~~2020~~2021 primarily due to an increase in software license fees ~~and maintenance.~~coupled with an increase in maintenance expense. These increases were partially offset by a decrease in depreciation expense in 2022 compared to 2021.

Data processing expense ~~increased~~decreased by ~~$1.8~~$1.9 million or 10% in ~~2021~~2022 compared to ~~2020~~2021 primarily due to ~~ongoing information technology projects coupled with~~expenses we incurred in 2021 related to the rollout of contactless ~~debit cards in 2021.~~cards.

Professional fees expense increased by ~~$0.7 million or 6% in 2021 compared to 2020 due to an increase in professional services primarily in human resources and executive administration.~~

~~FDIC insurance increased by $0.8~~$1.7 million or 13% in ~~2021~~2022 compared to ~~2020~~2021 due to ~~an increase in average total assets.~~the augmentation of staffing to support corporate initiatives.

Total other expense increased by $8.6 million or 16% in 2021 compared to 2020 primarily due to $7.0 million early termination costs incurred in 2021 related to the prepayment of $150.0 million of repurchase agreements and $50.0 million FHLB advances.

Table 5 presents our provision for income taxes and effective tax rates for ~~2021~~2022 and ~~2020:~~2021:

Provision for Income Taxes and Effective Tax Rates	Table 5						Table 5
(dollars in thousands)		Provision for Income Taxes		Effective Tax Rates				Provision for Income Taxes		Effective Tax Rates
2022								$	64,830		22.31	%
2021		$	72,182		22.17	%		$	72,182		22.17	%
2020			35,320		18.68	%

The provision for income taxes was ~~$72.2~~$64.8 million in ~~2021, an increase~~2022, a decrease of ~~$36.9~~$7.4 million compared to ~~2020.~~2021. The higher effective tax rate in ~~2021~~2022 compared to ~~2020~~2021 was primarily due to ~~higher pretax income~~the decrease in tax benefits from tax-advantaged investments such as Investments in Low-Income Housing, Municipal Bonds, and ~~fewer energy tax credits.~~Leasing Transactions. The effective tax rate in ~~2021~~2022 was also negatively impacted by ~~an increase in the disallowance of the compensation deduction under Sec.162 (m). The nondeductible compensation in 2021 was larger than 2020, due to changes~~a reduction in tax ~~law under~~benefits from the ~~Tax Cut~~exercise of stock options and ~~Jobs Act that became effective in 2021.~~the vesting of restricted stock.

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

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

Yields on our earning assets increased by 27 basis points in 2022 compared to 2021 primarily due to the higher rate environment.

Interest rates paid on our interest-bearing liabilities increased 20 basis points in 2022 compared to 2021. Interest rates paid on our securities sold under agreements to repurchase increased by 18 basis points from 2021 primarily due to the addition of $300.0 million in repurchase agreements with private institutions in the fourth quarter of 2022.

Average balances of our earning assets increased by $0.5 billion or 3% in 2022 compared to 2021 primarily due to an increase in the average balances of our loan and lease portfolio. The average balance of funds sold decreased by $431.9 million or 62%. The average balances of our investment securities increased by $0.1 billion. The average balance of total loan and leases increased by $872.8 million. The average balance of our commercial and industrial portfolio increased by $64.2 million or 5%. The average balance of our commercial mortgage portfolio increased by $480.1 million or 16% as a result of continued demand from new and existing customers. The average balance of our residential mortgage portfolio increased by $251.8 million or 6% primarily due tonew originations which offset continued paydowns. The average balance of our home equity portfolio increased by $435.1 million mainly due to growth driven by ongoing promotions of our SmartRefi program. The average balance of our automobile loans portfolio increased by $69.1 million or 10% primarily due to competitive loan programs and pricing.

The average balances of our interest bearing deposit products increased by $16.8 million or 0.1%. The average balances of our interest-bearing liabilities increased by $41.3 million or 0.3%. The average balance of our interest bearing demand deposits decreased by $132.7 million or 2.9%. The average balance of our savings deposits increased by $345.8 million or 4.7%. The average balance of our time deposits decreased by $196.3 million or 14.7%.

The average balances of our securities sold under agreements to repurchase decreased by $62.1 million or 11%. This decrease was due to terminations and calls of repurchase agreements with private institutions ($25.0 million called in 2022 and $150.0 million terminated in 2021), partially offset by $300.0 million originated in late 2022. The average balances of our other debt, which was comprised primarily of Federal Home Loan Bank (“FHLB”) advances, increased by $14.7 million or 53% primarily due to new FHLB advances totaling $400.0 million originated in late 2022, partially offset by the prepayment of FHLB advances totaling $50.0 million during 2021.

Trust and asset management income is comprised of fees earned from the management and administration of trusts and other customer assets. These fees are largely based upon the market value of the assets that the Bank manages and the fee rate charged to customers. Total trust assets under administration were $10.5 billion and $11.5 billion as of December 31, 2022, and December 31, 2021, respectively. Trust and asset management income decreased by $2.3 million or 5% in 2022 compared to 2021 due to decreases in trust assets under administration and tax service fees.

Mortgage banking income is highly influenced by mortgage interest rates, the housing market, the amount of our loan sales, and our valuation of mortgage servicing rights. Mortgage banking income decreased by $9.0 million or 60% in 2022 compared to 2021. This decrease was primarily due to decreased sales of conforming saleable loans from current production. This decrease was partially offset by lower amortization of mortgage servicing rights.

Service charges on deposit accounts increased by $4.1 million or 16% in 2022 compared to 2021. This increase was primarily due to an increase in overdraft fees attributed to an increase in transaction volume.

Net losses on sales of investment securities totaled $6.1 million and $1.3 million in 2022 and 2021, respectively. The net loss in 2022 was primarily due to $6.1 million in the fees paid to the counterparties of our prior Visa Class B share sales transactions. The net loss in 2021 was primarily due to $5.1 million of the fees paid to the counterparties of our prior Visa Class B share sales transactions. This was offset by $3.8 million net gains on the sales of investment securities in 2021.

Bank-owned life insurance increased by $2.2 million or 28% in 2022 compared to 2021 primarily due to policy purchases in 2022.

Other noninterest income decreased by $4.0 million or 20% in 2022 compared to 2021. This decrease was primarily due to a $6.9 million loss related to the sale of certain leveraged lease assets.

Total salaries and benefits increased by $7.0 million or 3% in 2022 compared to 2021 primarily due a $11.4 million increase in salaries coupled with a $2.7 million increase in shared-based compensation due to a higher number of restricted stock units being amortized. These increases were partially offset by a $4.2 million decrease in commission expense and a $3.0 million decrease in retirement and other benefits.

Net occupancy expense increased by $13.2 million or 50% in 2022 compared to 2021 primarily due to gains on sale of real estate property on the island of Oahu and Guam in 2021 of $9.5 million, coupled with an increase in net rental expense in 2022.

Net equipment expense increased by $2.7 million or 7% in 2022 compared to 2021 primarily due to an increase in software license fees coupled with an increase in maintenance expense. These increases were partially offset by a decrease in depreciation expense in 2022 compared to 2021.

Data processing expense decreased by $1.9 million or 10% in 2022 compared to 2021 primarily due to expenses we incurred in 2021 related to the rollout of contactless cards.

Professional fees expense increased by $1.7 million or 13% in 2022 compared to 2021 due to the augmentation of staffing to support corporate initiatives.

Table 5 presents our provision for income taxes and effective tax rates for 2022 and 2021:

The provision for income taxes was $64.8 million in 2022, a decrease of $7.4 million compared to 2021. The higher effective tax rate in 2022 compared to 2021 was primarily due to the decrease in tax benefits from tax-advantaged investments such as Investments in Low-Income Housing, Municipal Bonds, and Leasing Transactions. The effective tax rate in 2022 was also negatively impacted by a reduction in tax benefits from the exercise of stock options and the vesting of restricted stock.

Net income decreased by $13.0 million or 14% in 2021 compared to 2020 primarily due to an increase in noninterest expense and a decrease in net interest income. This was partly offset by an increase in noninterest income and a decrease in the provision for credit losses. The increase in noninterest expense was primarily due to increases in allocated expense, partly offset by a decrease in net occupancy expense, which was primarily due to $3.1 million net gain on sales of real estate property on the island of Oahu, and an impairment charge related to the closures of 12 branches recorded in 2020. The decrease in net interest income was primarily due to lower average rates in the segment’s deposit portfolio, partly offset by higher average balances in the deposit portfolio, as well as higher average rates and higher average balances in the segment’s loan portfolio. The increase in noninterest income was primarily due to increases in trust and asset management fees and debit card income, partly offset by a decrease in mortgage banking income. The decrease in the provision for credit losses was primarily due to lower net charge-offs in our automobile, residential mortgage, and installment loan portfolios.

Net income increased by $0.6 million or 0.5% in 2021 compared to 2020 primarily due to an increase in net interest income, partially offset by a decrease in noninterest income and an increase in noninterest expense. The increase in net interest income was primarily due to growth in the segment’s loan portfolios and a reduction in the provision for credit losses, partially offset by lower average rates on deposits. Loan growth was primarily driven by increases in the commercial mortgage and construction portfolios. Deposit growth was primarily driven by increases in demand and savings deposits, partially offset by a decrease in time deposits. The decrease in noninterest income is primarily due to a decrease in customer derivative program revenue, partially offset by increased in loan fees, service charges on deposit accounts, and merchant income. The increase in noninterest expense was primarily due to higher salaries and benefits expenses and merchant transaction and processing fees, partially offset by lower allocated expenses from support units.

Net income increased by $112.0 million in 2021 compared to 2020 primarily due to a decrease in provision for credit losses, partially offset by an increase in provision for income taxes and a decrease in noninterest income. The decrease in 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, consumer delinquency rates, post deferral consumer payment trends, low commercial delinquency rates post-deferral, strong commercial performance and liquidity levels, and forecasts for COVID-19 pandemic driven market changes, as well as the cumulative impact of the intervention of fiscal, monetary and regulatory programs. The provision for income taxes in this business segment represents the residual amount to arrive at the total tax expense for the Company. The decrease in noninterest income was due to the sale of Visa Class B Shares during the second quarter of 2020.

~~Table 7 presents the maturity distribution at amortized cost, weighted-average yield to maturity, and fair value of our investment securities.~~

Maturities and Average Yield on Securities

Table 7

(dollars in millions)

1 Year
or Less

Weighted
Average
Yield

After 1
Year-5
Years

Weighted
Average
Yield

After 5
Years-10
Years

Weighted
Average
Yield

Over 10
Years

Weighted
Average
Yield

Total

Weighted
Average
Yield

Fair
Value

As of December 31, 2021

Available-for-Sale¹

Debt Securities Issued by the U.S.
   Treasury and Government Agencies ²

$
1.3

1.8
%

$
202.8

1.2
%

$
44.8

1.4
%

$
—

—
%

$
248.9

1.2
%

$
250.1

Debt Securities Issued by States and
   Political Subdivisions

0.7

2.2

1.9

1.8

59.0

2.1

13.1

2.3

74.7

2.1

75.8

Debt Securities Issued by U.S.
   Government-Sponsored Enterprises

—

—

1.8

1.4

—

—

—

—

1.8

1.4

1.8

Debt Securities Issued by Corporations

—

—

141.0

2.1

243.6

2.2

—

—

384.6

2.2

383.1

Mortgage-Backed Securities ²

Residential - Government Agencies

13.7

2.5

1,273.1

1.5

41.2

2.4

—

—

1,328.0

1.5

1,319.1

Residential - U.S. Government-
   Sponsored Enterprises

8.0

2.5

1,905.1

1.4

214.7

1.4

—

—

2,127.8

1.4

2,090.3

Commercial - Government Agencies

2.5

1.8

152.6

2.3

—

—

—

—

155.1

2.3

155.9

Total Mortgage-Backed Securities

24.2

2.4

3,330.8

1.5

255.9

1.6

—

—

3,610.9

1.5

3,565.3

Total Available-for-Sale

$
26.2

2.4
%

$
3,678.3

1.5
%

$
603.3

1.9
%

$
13.1

2.3
%

$
4,320.9

1.5
%

$
4,276.1

Held-to-Maturity

Debt Securities Issued by the U.S.
   Treasury and Government Agencies

$
—

—
%

$
7.5

0.3
%

$
124.0

1.4
%

$
—

—
%

$
131.5

1.3
%

$
131.1

Debt Securities Issued by Corporations

—

—

9.0

1.6

—

—

11.3

1.6

20.3

1.6

20.1

Mortgage-Backed Securities ²

Residential - Government Agencies

5.4

1.2

1,629.3

1.5

139.7

2.4

—

—

1,774.4

1.6

1,755.9

Residential - U.S. Government-
   Sponsored Enterprises

1.6

1.4

1,583.1

1.9

702.2

1.6

—

—

2,286.9

1.8

2,269.8

Commercial - Government Agencies

—

—

272.7

1.5

163.1

1.4

45.9

1.7

481.7

1.5

469.7

Total Mortgage-Backed Securities

7.0

1.3

3,485.1

1.7

1,005.0

1.7

45.9

1.7

4,543.0

1.7

4,495.4

Total Held-to-Maturity

$
7.0

1.3
%

$
3,501.6

1.7
%

$
1,129.0

1.7
%

$
57.2

1.7
%

$
4,694.8

1.7
%

$
4,646.6

Total Investment Securities

As of December 31, 2021

$
33.2

$
7,179.9

$
1,732.3

$
70.3

$
9,015.7

$
8,922.7

As of December 31, 2020

$
118.3

$
5,674.7

$
1,191.3

$
—

$
6,984.3

$
7,140.3

~~As of December 31, 2021, our investment securities portfolio was comprised of securities with an average base duration of approximately 4.43 years.~~

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. 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 continue to be the largest concentrations in our portfolio. As of December 31, 2021, these mortgage-backed securities were all AAA-rated, with a low probability of a change in their credit ratings in the near future. As of December 31, 2021, our available-for-sale investment securities portfolio was comprised of securities with an average base duration of approximately 4.15 years.

Gross unrealized gains in our investment securities portfolio were $49.8 million as of December 31, 2021, and $158.9 million as of December 31, 2020. Gross unrealized losses on our temporarily impaired investment securities were $142.8 million as of December 31, 2021, and $2.9 million as of December 31, 2020. The overall increase in net unrealized losses was primarily due to the increase in interest rates during 2021.

~~The gross unrealized loss positions were primarily related to mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises.~~ ~~These securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss.~~ Total gross unrealized losses were primarily attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities. We do not intend to sell the investment securities that were in an unrealized loss position and it is not more likely than not that we will be required to sell the investment securities before recovery of their amortized cost basis, which may be at maturity.

The Company’s corporate bond holdings as of December 31, 2021, had a fair value of $403.3 million. Of this total, $24.7 million or 6% was fully guaranteed by the Export-Import Bank of the United States, an agency of the U.S. government, and $11.0 million was fully guaranteed by the U.S. government acting through the U.S. Agency for International Development. Of the remaining $367.5 million of corporate bonds, all were credit-rated A- or better by at least one nationally recognized statistical rating organization.

~~Table 8 presents the composition of our loan and lease portfolio by major categories.~~

¹~~The PPP amounts presented, which are reported net of deferred costs and fees, were previously included as a component of the Commercial and Industrial loan class.~~

Total loans and leases were $12.3 billion as of December 31, 2021. This represents a $319.1 million or 3% increase from December 31, 2020, primarily due to growth in our consumer loan and lease portfolio.

The commercial loan and lease portfolio is comprised of commercial and industrial loans, PPP loans, commercial mortgages, construction loans, and lease financing. Commercial and industrial loans are made primarily to corporations, middle market, and small businesses for the purpose of financing equipment acquisition, expansion, working capital, and other general business purposes. PPP loans were made to small businesses who were affected by economic conditions as a result of the COVID-19 pandemic to provide cash flow assistance to employers. Commercial mortgages and construction loans are offered to real estate investors, developers, and builders primarily domiciled in Hawaii. Commercial mortgages are secured by first mortgages on commercial real estate at loan-to-value ratios generally not exceeding 75%. The commercial properties are predominantly developments such as retail centers, apartments, industrial properties, and to a lesser extent, specialized properties such as hotels. The primary source of repayment for investor property is cash flow from the property and for owner-occupied property is the operating cash flow from the business. Construction loans are made for the purchase or construction of a property for which repayment will be generated by the property. We classify loans as construction until the completion of the construction phase. Following construction, if a loan is retained, the loan is reclassified to the commercial mortgage category. Lease financing consists of sales-type leases and leveraged leases and are used by commercial customers to finance capital purchases. Although our primary market is Hawaii, the commercial portfolio contains loans to some borrowers based on the U.S. Mainland, including some Shared National Credits.

Commercial loans and leases were $5.0 billion as of December 31, 2021, a decrease of $134.5 million or 3% from December 31, 2020. Commercial and industrial loans remained relatively unchanged from December 31, 2020. PPP loans decreased by $390.9 million or 76% from December 31, 2020, primarily due to forgiveness payments received from SBA. Commercial mortgage loans increased by $297.3 million or 10% from December 31, 2020, primarily due to continued demand from new and existing customers. Construction loans decreased by $39.5 million or 15% from December 31, 2020, primarily due to paydowns and successful completion of construction projects such as condominiums and low-income housing, partially offset by increased activity in our portfolio. Lease financing decreased by $5.7 million or 5% from December 31, 2020, primarily due to paydowns.

The consumer loan and lease portfolio is comprised of residential mortgage loans, home equity lines and loans, indirect auto loans and leases, and other consumer loans including personal credit lines and direct installment loans. These products are generally offered in the geographic markets we serve. Although we offer a variety of products, our residential mortgage loan portfolio is primarily comprised of fixed-rate loans concentrated in Hawaii. We also offer a variety of home equity lines and loans, usually secured by first mortgages on residential property of the borrower. Automobile lending activities include loans and leases secured by new or used automobiles. We originate automobile loans and leases on an indirect basis through selected dealerships. Direct installment loans are generally unsecured and are often used for personal expenses or for debt consolidation.

Consumer loans and leases were $7.3 billion as of December 31, 2021, an increase of $453.6 million or 7% from December 31, 2020. Residential mortgage loans increased by $179.1 million or 4% from December 31, 2020, primarily due to continued high origination volume in all channels (retail, wholesale, and direct to consumer). Home equity increased by $232.1 million or 14% from December 31, 2020, as a result of strong increase in new originations, solid facility utilization rates and stable payoff levels. Automobile loans increased by $27.8 million or 4% from December 31, 2020, primarily driven by competitive loan programs and strong consumer demand. Other consumer loans increased by $14.6 million or 4% from December 31, 2020, primarily due to growth in our installment loans.

~~See Note 4 to the Consolidated Financial Statements and the “Corporate Risk Profile – Credit Risk” section of MD&A for more information on our loan and lease portfolio.~~

~~Table 9 presents the geographic distribution of our loan and lease portfolio.~~

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 leveraged lease financing and participation in Shared National Credits.

²~~As of December 31, 2021, loans maturing after one year consisted of $752.7 million in variable rate loans and $479.2 million in fixed rate loans.~~

Goodwill was $31.5 million as of December 31, 2021, and December 31, 2020. As of December 31, 2021, based on our qualitative assessment, there were no reporting units where we believed it was more likely than not that the fair value of a reporting unit was less than its carrying amount, including goodwill. See Note 1 to the Consolidated Financial Statements for more information on our goodwill impairment policy.

Other assets were $384.7 million as of December 31, 2021, a decrease of $50.6 million or 12% from December 31, 2020. This decrease was due to a $54.2 million decrease in derivative financial instruments, which was primarily due to fair value decreases of our interest rate swap agreement assets, which are impacted by prevailing interest rates. Low-income housing and other equity investments decreased by $6.3 million due to amortization and delays in prospective projects that are now expected to close in 2022. Deferred taxes increased by $25.6 million primarily due to changes in unrealized gains and losses in Other Comprehensive Income, partially offset by changes to the allowance for credit losses. Deferred compensation plan assets increased by $3.0 million primarily due to an increase in the executive deferred compensation plan. See Note 7 to the Consolidated Financial Statements for more information on the composition of our other assets.

~~Table 11 presents the components of our deposits by major customer categories as of December 31, 2021, and December 31, 2020.~~

Total deposits were $20.4 billion as of December 31, 2021, a $2.1 billion or 12% increase from December 31, 2020. This increase was primarily due to an increase in consumer and commercial deposits. Consumer deposits increased by $1.1 billion due to an increase in core deposits. Commercial deposits increased by $1.3 billion or 18% due to a $1.3 billion increase in core deposits and $33.1 million increase in time deposits. In addition, public and other deposits decreased by $281.7 million or 18% due to a decrease in time deposits of $524.6 million offset by a $242.9 million increase in public core deposits.

~~Table 12 presents the components of our savings deposits as of December 31, 2021, and December 31, 2020.~~

~~Table 13 presents the maturity distribution of the estimated uninsured time deposits as of December 31, 2021, and December 31, 2020.~~

Estimated uninsured deposits totaled $10.5 billion and $11.0 billion at December 31, 2021, and December 31, 2020, respectively. Uninsured amounts are estimated based on the portion of account balances in excess of FDIC insurance limits. Estimated uninsured time deposits decreased $594.6 million from December 31, 2020, primarily due to $524.7 million decrease in public time deposits.