UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2021~~2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-14585

FIRST HAWAIIAN, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware		99-0156159
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

999 Bishop Street, 29th Floor

Honolulu, HI

96813

(Address of Principal Executive Offices)

(Zip Code)

(808) 525-7000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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


Title of each class:	Trading Symbol(s)	Name of each exchange on which registered:
Common Stock, par value $0.01 per share	FHB	NASDAQ Global Select Market

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ⌧☒

Accelerated filer ◻☐

Non-accelerated filer ◻☐

Smaller reporting company ☐

Emerging growth company ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: ~~129,585,404~~127,698,700 shares of Common Stock, par value $0.01 per share, were outstanding as of July ~~26, 2021.~~29, 2022.

Table of Contents

TABLE OF CONTENTS

FIRST HAWAIIAN, INC.

FORM 10-Q

INDEX


Part I Financial Information			Page No.
	Item 1.	Financial Statements (unaudited)		2
		Consolidated Statements of Income for the three and six months ended June 30, ~~2021~~2022 and ~~2020~~2021		2
		Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, ~~2021~~2022 and ~~2020~~2021		3
		Consolidated Balance Sheets as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021		4
		Consolidated Statements of Stockholders' Equity for the three and six months ended June 30, ~~2021~~2022 and ~~2020~~2021		5
		Consolidated Statements of Cash Flows for the six months ended June 30, ~~2021~~2022 and ~~2020~~2021		7
		Notes to Consolidated Financial Statements (unaudited)		8
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		4749
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		9293
	Item 4.	Controls and Procedures		9293
Part II Other Information				9293
	Item 1.	Legal Proceedings		9293
	Item 1A.	Risk Factors		9293
	Item 22..	Unregistered Sales of Equity Securities and Use of Proceeds		93
	Item 6.	Exhibits		9495
	Exhibit Index			9495
	Signatures			9596

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FIRST HAWAIIAN, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Three Months Ended

Six Months Ended

June 30,

June 30,
(dollars in thousands, except per share amounts)

2021

2020

2021

2020
Interest income

Loans and lease financing

$
110,919

$
122,298

$
221,858

$
257,269
Available-for-sale securities

24,637

17,529

47,783

38,739
Other

666

792

1,157

3,143
Total interest income

136,222

140,619

270,798

299,151
Interest expense

Deposits

3,363

8,583

7,419

24,183
Short-term and long-term borrowings

1,378

4,214

2,740

8,463
Total interest expense

4,741

12,797

10,159

32,646
Net interest income

131,481

127,822

260,639

266,505
Provision for credit losses

(35,000)

55,446

(35,000)

96,646
Net interest income after provision for credit losses

166,481

72,376

295,639

169,859
Noninterest income

Service charges on deposit accounts

6,632

5,927

13,350

14,877
Credit and debit card fees

16,746

10,870

31,297

25,819
Other service charges and fees

10,303

7,912

19,149

16,451
Trust and investment services income

8,707

8,664

17,199

18,255
Bank-owned life insurance

3,104

4,432

5,493

6,692
Investment securities gains (losses), net

102

(211)

102

(126)
Other

3,777

8,062

6,649

12,916
Total noninterest income

49,371

45,656

93,239

94,884
Noninterest expense

Salaries and employee benefits

45,982

42,414

89,918

87,243
Contracted services and professional fees

16,516

15,478

33,704

31,533
Occupancy

7,314

7,302

14,484

14,545
Equipment

6,362

5,207

11,853

9,915
Regulatory assessment and fees

1,826

2,100

3,860

4,046
Advertising and marketing

1,469

1,402

3,060

3,225
Card rewards program

6,262

5,163

11,097

12,178
Other

13,657

12,384

27,718

25,231
Total noninterest expense

99,388

91,450

195,694

187,916
Income before provision for income taxes

116,464

26,582

193,184

76,827
Provision for income taxes

29,723

6,533

48,750

17,913
Net income

$
86,741

$
20,049

$
144,434

$
58,914
Basic earnings per share

$
0.67

$
0.15

$
1.11

$
0.45
Diluted earnings per share

$
0.67

$
0.15

$
1.11

$
0.45
Basic weighted-average outstanding shares

129,392,339

129,856,730

129,661,228

129,876,218
Diluted weighted-average outstanding shares

129,828,847

130,005,195

130,164,762

130,163,722


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(dollars in thousands, except per share amounts)	2022		2021		2022		2021
Interest income
Loans and lease financing	$	111,916	$	110,919	$	215,648	$	221,858
Available-for-sale investment securities		16,643		24,637		48,750		47,783
Held-to-maturity investment securities		18,289		—		18,289		—
Other		2,896		666		3,678		1,157
Total interest income		149,744		136,222		286,365		270,798
Interest expense
Deposits		4,597		3,363		7,346		7,419
Short-term and long-term borrowings		—		1,378		—		2,740
Total interest expense		4,597		4,741		7,346		10,159
Net interest income		145,147		131,481		279,019		260,639
Provision for credit losses		1,000		(35,000)		(4,747)		(35,000)
Net interest income after provision for credit losses		144,147		166,481		283,766		295,639
Noninterest income
Service charges on deposit accounts		6,843		6,632		14,344		13,350
Credit and debit card fees		17,056		16,746		31,906		31,297
Other service charges and fees		9,018		10,303		18,672		19,149
Trust and investment services income		8,759		8,707		17,642		17,199
Bank-owned life insurance		(859)		3,104		(1,276)		5,493
Investment securities gains, net		—		102		—		102
Other		3,320		3,777		4,229		6,649
Total noninterest income		44,137		49,371		85,517		93,239
Noninterest expense
Salaries and employee benefits		49,902		45,982		98,128		89,918
Contracted services and professional fees		18,617		16,516		35,764		33,704
Occupancy		7,334		7,314		14,744		14,484
Equipment		7,754		6,362		13,731		11,853
Regulatory assessment and fees		2,301		1,826		4,525		3,860
Advertising and marketing		1,994		1,469		4,022		3,060
Card rewards program		7,285		6,262		14,168		11,097
Other		13,988		13,657		28,135		27,718
Total noninterest expense		109,175		99,388		213,217		195,694
Income before provision for income taxes		79,109		116,464		156,066		193,184
Provision for income taxes		19,749		29,723		38,987		48,750
Net income	$	59,360	$	86,741	$	117,079	$	144,434
Basic earnings per share	$	0.46	$	0.67	$	0.92	$	1.11
Diluted earnings per share	$	0.46	$	0.67	$	0.91	$	1.11
Basic weighted-average outstanding shares		127,672,244		129,392,339		127,614,564		129,661,228
Diluted weighted-average outstanding shares		128,014,777		129,828,847		128,108,630		130,164,762

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

Table of Contents

FIRST HAWAIIAN, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	June 30,				June 30,				June 30,				June 30,
(dollars in thousands)	2021		2020		2021		2020		2022		2021		2022		2021
Net income	$	86,741	$	20,049	$	144,434	$	58,914	$	59,360	$	86,741	$	117,079	$	144,434
Other comprehensive income (loss), net of tax:
Net change in pensions and other benefits		—		—		—		(96)
Other comprehensive (loss) income, net of tax:
Net change in investment securities		13,733		48,602		(61,306)		84,576		(52,371)		13,733		(446,922)		(61,306)
Other comprehensive income (loss)		13,733		48,602		(61,306)		84,480
Total comprehensive income	$	100,474	$	68,651	$	83,128	$	143,394
Net change in cash flow derivative hedges										(1,584)		—		(2,842)		—
Other comprehensive (loss) income										(53,955)		13,733		(449,764)		(61,306)
Total comprehensive income (loss)									$	5,405	$	100,474	$	(332,685)	$	83,128

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

Table of Contents

FIRST HAWAIIAN, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Unaudited)

June 30,

December 31,
(dollars in thousands, except share amount)

2021

2020
Assets

Cash and due from banks

$
347,861

$
303,373
Interest-bearing deposits in other banks

1,558,437

737,571
Investment securities, at fair value (amortized cost: $6,951,153 as of June 30, 2021 and $5,985,031 as of December 31, 2020)

6,953,930

6,071,415
Loans held for sale

1,241

11,579
Loans and leases

13,103,785

13,279,097
Less: allowance for credit losses

169,148

208,454
Net loans and leases

12,934,637

13,070,643

Premises and equipment, net

319,452

322,401
Accrued interest receivable

66,734

69,626
Bank-owned life insurance

466,402

466,537
Goodwill

995,492

995,492
Mortgage servicing rights

10,007

10,731
Other assets

592,135

603,463
Total assets

$
24,246,328

$
22,662,831
Liabilities and Stockholders' Equity

Deposits:

Interest-bearing

$
12,245,193

$
11,705,609
Noninterest-bearing

8,589,922

7,522,114
Total deposits

20,835,115

19,227,723
Long-term borrowings

200,000

200,010
Retirement benefits payable

144,101

143,373
Other liabilities

335,771

347,621
Total liabilities

21,514,987

19,918,727

Commitments and contingent liabilities (Note 12)

Stockholders' equity

Common stock ($0.01 par value; authorized 300,000,000 shares; issued/outstanding: 140,542,398 / 129,019,871 as of June 30, 2021; issued/outstanding: 140,191,133 / 129,912,272 as of December 31, 2020)

1,405

1,402
Additional paid-in capital

2,520,790

2,514,014
Retained earnings

550,511

473,974
Accumulated other comprehensive (loss) income, net

(29,702)

31,604
Treasury stock (11,522,527 shares as of June 30, 2021 and 10,278,861 shares as of December 31, 2020)

(311,663)

(276,890)
Total stockholders' equity

2,731,341

2,744,104
Total liabilities and stockholders' equity

$
24,246,328

$
22,662,831


	June 30,		December 31,
(dollars in thousands, except share amount)	2022		2021
Assets
Cash and due from banks	$	279,629	$	246,716
Interest-bearing deposits in other banks		1,254,047		1,011,753
Investment securities:
Available-for-sale, at fair value (amortized cost: $4,267,809 as of June 30, 2022 and $8,560,733 as of December 31, 2021)		3,967,746		8,428,032
Held-to-maturity, at amortized cost (fair value: $3,910,780 as of June 30, 2022 and NaN as of December 31, 2021)		4,093,215		—
Loans held for sale		180		538
Loans and leases		13,262,781		12,961,999
Less: allowance for credit losses		148,942		157,262
Net loans and leases		13,113,839		12,804,737

Premises and equipment, net		310,047		318,448
Other real estate owned and repossessed personal property		—		175
Accrued interest receivable		63,240		63,158
Bank-owned life insurance		470,542		471,819
Goodwill		995,492		995,492
Mortgage servicing rights		7,152		8,302
Other assets		822,404		643,240
Total assets	$	25,377,533	$	24,992,410
Liabilities and Stockholders' Equity
Deposits:
Interest-bearing	$	12,990,571	$	12,422,283
Noninterest-bearing		9,610,883		9,393,863
Total deposits		22,601,454		21,816,146
Retirement benefits payable		134,151		134,491
Other liabilities		389,317		384,861
Total liabilities		23,124,922		22,335,498

Commitments and contingent liabilities (Note 11)

Stockholders' equity
Common stock ($0.01 par value; authorized 300,000,000 shares; issued/outstanding: 140,943,908 / 127,451,087 as of June 30, 2022; issued/outstanding: 140,581,715 / 127,502,472 as of December 31, 2021)		1,409		1,406
Additional paid-in capital		2,533,407		2,527,663
Retained earnings		654,777		604,534
Accumulated other comprehensive loss, net		(571,457)		(121,693)
Treasury stock (13,492,821 shares as of June 30, 2022 and 13,079,243 shares as of December 31, 2021)		(365,525)		(354,998)
Total stockholders' equity		2,252,611		2,656,912
Total liabilities and stockholders' equity	$	25,377,533	$	24,992,410

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

Table of Contents

FIRST HAWAIIAN, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)


	Three Months Ended June 30, 2022
								Accumulated
				Additional				Other
	Common Stock			Paid-In		Retained		Comprehensive		Treasury
(dollars in thousands, except share amounts)	Shares	Amount		Capital		Earnings		Loss		Stock		Total
Balance as of March 31, 2022	127,686,307	$	1,409	$	2,530,795	$	628,642	$	(517,502)	$	(358,195)	$	2,285,149
Net income	—		—		—		59,360		—		—		59,360
Cash dividends declared ($0.26 per share)	—		—		—		(33,212)		—		—		(33,212)
Equity-based awards	55,338		—		2,612		(13)		—		(330)		2,269
Common stock repurchased	(290,558)		—		—		—		—		(7,000)		(7,000)
Other comprehensive loss, net of tax	—		—		—		—		(53,955)		—		(53,955)
Balance as of June 30, 2022	127,451,087	$	1,409	$	2,533,407	$	654,777	$	(571,457)	$	(365,525)	$	2,252,611


	Six Months Ended June 30, 2022
								Accumulated
				Additional				Other
	Common Stock			Paid-In		Retained		Comprehensive		Treasury
(dollars in thousands, except share amounts)	Shares	Amount		Capital		Earnings		Loss		Stock		Total
Balance as of December 31, 2021	127,502,472	$	1,406	$	2,527,663	$	604,534	$	(121,693)	$	(354,998)	$	2,656,912
Net income	—		—		—		117,079		—		—		117,079
Cash dividends declared ($0.52 per share)	—		—		—		(66,363)		—		—		(66,363)
Equity-based awards	239,173		3		5,744		(473)		—		(3,527)		1,747
Common stock repurchased	(290,558)		—		—		—		—		(7,000)		(7,000)
Other comprehensive loss, net of tax	—		—		—		—		(449,764)		—		(449,764)
Balance as of June 30, 2022	127,451,087	$	1,409	$	2,533,407	$	654,777	$	(571,457)	$	(365,525)	$	2,252,611

Table of Contents

FIRST HAWAIIAN, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

(Unaudited)


	Three Months Ended June 30, 2021
								Accumulated
				Additional				Other
	Common Stock			Paid-In		Retained		Comprehensive		Treasury
(dollars in thousands, except share amounts)	Shares	Amount		Capital		Earnings		Income (Loss)		Stock		Total
Balance as of March 31, 2021	129,749,890	$	1,405	$	2,517,048	$	497,418	$	(43,435)	$	(288,806)	$	2,683,630
Net income	—		—		—		86,741		—		—		86,741
Cash dividends declared ($0.26 per share)	—		—		—		(33,637)		—		—		(33,637)
Equity-based awards	69,828		—		3,742		(11)		—		(471)		3,260
Common stock repurchased	(799,847)		—		—		—		—		(22,386)		(22,386)
Other comprehensive income, net of tax	—		—		—		—		13,733		—		13,733
Balance as of June 30, 2021	129,019,871	$	1,405	$	2,520,790	$	550,511	$	(29,702)	$	(311,663)	$	2,731,341

Six Months Ended June 30, 2021

Accumulated

Additional

Other

Common Stock

Paid-In

Retained

Comprehensive

Treasury

(dollars in thousands, except share amounts)

Shares

Amount

Capital

Earnings

Income (Loss)

Stock

Total
Balance as of December 31, 2020

129,912,272

$
1,402

$
2,514,014

$
473,974

$
31,604

$
(276,890)

$
2,744,104
Net income

—

—

—

144,434

—

—

144,434
Cash dividends declared ($0.52 per share)

—

—

—

(67,448)

—

—

(67,448)
Equity-based awards

239,910

3

6,776

(449)

—

(2,845)

3,485
Common stock repurchased

(1,132,311)

—

—

—

—

(31,928)

(31,928)
Other comprehensive loss, net of tax

—

—

—

—

(61,306)

—

(61,306)
Balance as of June 30, 2021

129,019,871

$
1,405

$
2,520,790

$
550,511

$
(29,702)

$
(311,663)

$
2,731,341

~~Table of Contents~~

~~FIRST HAWAIIAN, INC. AND SUBSIDIARY~~

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)~~

~~(Unaudited)~~

Three Months Ended June 30, 2020

Accumulated

Additional

Other

Common Stock

Paid-In

Retained

Comprehensive

Treasury

(dollars in thousands, except share amounts)

Shares

Amount

Capital

Earnings

Income (Loss)

Stock

Total
Balance as of March 31, 2020

129,827,968

$
1,401

$
2,506,477

$
429,323

$
4,129

$
(276,645)

$
2,664,685
Net income

—

—

—

20,049

—

—

20,049
Cash dividends declared ($0.26 per share)

—

—

—

(33,765)

—

—

(33,765)
Equity-based awards

38,930

—

2,794

(311)

—

(157)

2,326
Other comprehensive income, net of tax

—

—

—

—

48,602

—

48,602
Balance as of June 30, 2020

129,866,898

$
1,401

$
2,509,271

$
415,296

$
52,731

$
(276,802)

$
2,701,897

Six Months Ended June 30, 2020

Accumulated

Additional

Other

Common Stock

Paid-In

Retained

Comprehensive

Treasury

(dollars in thousands, except share amounts)

Shares

Amount

Capital

Earnings

Income (Loss)

Stock

Total
Balance as of December 31, 2019

129,928,479

$
1,399

$
2,503,677

$
437,072

$
(31,749)

$
(270,141)

$
2,640,258
Cumulative-effect adjustment of a change in accounting principle, net of tax: ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments

—

—

—

(12,517)

—

—

(12,517)
Net income

—

—

—

58,914

—

—

58,914
Cash dividends declared ($0.52 per share)

—

—

—

(67,547)

—

—

(67,547)
Equity-based awards

156,178

2

5,594

(626)

—

(1,661)

3,309
Common stock repurchased

(217,759)

—

—

—

—

(5,000)

(5,000)
Other comprehensive income, net of tax

—

—

—

—

84,480

—

84,480
Balance as of June 30, 2020

129,866,898

$
1,401

$
2,509,271

$
415,296

$
52,731

$
(276,802)

$
2,701,897


	Six Months Ended June 30, 2021
								Accumulated
				Additional				Other
	Common Stock			Paid-In		Retained		Comprehensive		Treasury
(dollars in thousands, except share amounts)	Shares	Amount		Capital		Earnings		Income (Loss)		Stock		Total
Balance as of December 31, 2020	129,912,272	$	1,402	$	2,514,014	$	473,974	$	31,604	$	(276,890)	$	2,744,104
Net income	—		—		—		144,434		—		—		144,434
Cash dividends declared ($0.52 per share)	—		—		—		(67,448)		—		—		(67,448)
Equity-based awards	239,910		3		6,776		(449)		—		(2,845)		3,485
Common stock repurchased	(1,132,311)		—		—		—		—		(31,928)		(31,928)
Other comprehensive loss, net of tax	—		—		—		—		(61,306)		—		(61,306)
Balance as of June 30, 2021	129,019,871	$	1,405	$	2,520,790	$	550,511	$	(29,702)	$	(311,663)	$	2,731,341

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

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FIRST HAWAIIAN, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Six Months Ended

June 30,
(dollars in thousands)

2021

2020
Cash flows from operating activities

Net income

$
144,434

$
58,914
Adjustments to reconcile net income to net cash provided by operating activities:

Provision for credit losses

(35,000)

96,646
Depreciation, amortization and accretion, net

27,567

34,058
Deferred income tax provision (benefits)

7,168

(13,786)
Stock-based compensation

6,779

5,596
Other losses (gains)

76

(33)
Originations of loans held for sale

(73,368)

(123,331)
Proceeds from sales of loans held for sale

85,787

120,970
Net gains on sales of loans originated for investment and held for sale

(2,442)

(4,581)
Net (gains) losses on investment securities

(102)

126
Change in assets and liabilities:

Net decrease in other assets

19,740

18,272
Net increase (decrease) in other liabilities

67,557

(84,298)
Net cash provided by operating activities

248,196

108,553
Cash flows from investing activities

Available-for-sale securities:

Proceeds from maturities and principal repayments

920,073

597,670
Proceeds from calls and sales

2,820

644,703
Purchases

(1,900,080)

(2,195,832)
Other investments:

Proceeds from sales

7,956

18,346
Purchases

(60,155)

(27,562)
Loans:

Net decrease (increase) in loans and leases resulting from originations and principal repayments

183,820

(698,069)
Proceeds from sales of loans originated for investment

2,200

132,011
Purchases of loans

(39,558)

(40,611)
Proceeds from bank-owned life insurance

5,628

1,845
Purchases of premises, equipment and software

(9,689)

(20,646)
Proceeds from sales of premises and equipment

1,394

—
Proceeds from sales of other real estate owned

—

316
Other

(2,422)

(1,951)
Net cash used in investing activities

(888,013)

(1,589,780)
Cash flows from financing activities

Net increase in deposits

1,607,392

2,916,640
Repayment of short-term borrowings

—

(200,000)
Dividends paid

(67,448)

(67,547)
Stock tendered for payment of withholding taxes

(2,845)

(1,661)
Common stock repurchased

(31,928)

(5,000)
Net cash provided by financing activities

1,505,171

2,642,432
Net increase in cash and cash equivalents

865,354

1,161,205
Cash and cash equivalents at beginning of period

1,040,944

694,017
Cash and cash equivalents at end of period

$
1,906,298

$
1,855,222

Supplemental disclosures

Interest paid

$
14,464

$
37,370
Income taxes paid, net of income tax refunds

30,399

4,242
Noncash investing and financing activities:

Operating lease right-of-use assets obtained in exchange for new lease obligations

7,221

1,965
Transfers from loans and leases to loans held for sale

1,839

130,863
Obligation to fund low-income housing partnerships

15,314

11,369


	Six Months Ended
	June 30,
(dollars in thousands)	2022		2021
Cash flows from operating activities
Net income	$	117,079	$	144,434
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		(4,747)		(35,000)
Depreciation, amortization and accretion, net		30,872		27,567
Deferred income tax provision		14,228		7,168
Stock-based compensation		5,747		6,779
Other losses		2,304		76
Originations of loans held for sale		(10,256)		(73,368)
Proceeds from sales of loans held for sale		9,744		85,787
Net losses (gains) on sales of loans originated for investment and held for sale		36		(2,442)
Net gains on investment securities		—		(102)
Change in assets and liabilities:
Net (increase) decrease in other assets		(49,614)		19,740
Net increase in other liabilities		50,351		67,557
Net cash provided by operating activities		165,744		248,196
Cash flows from investing activities
Available-for-sale securities:
Proceeds from maturities and principal repayments		598,865		920,073
Proceeds from calls and sales		1,080		2,820
Purchases		(913,268)		(1,900,080)
Held-to-maturity securities:
Proceeds from maturities and principal repayments		137,014		—
Proceeds from calls		110		—
Purchases		(79,470)		—
Other investments:
Proceeds from sales		4,132		7,956
Purchases		(21,386)		(60,155)
Loans:
Net (increase) decrease in loans and leases resulting from originations and principal repayments		(168,986)		183,820
Proceeds from sales of loans originated for investment		—		2,200
Purchases of loans		(149,512)		(39,558)
Proceeds from bank-owned life insurance		—		5,628
Purchases of premises, equipment and software		(5,966)		(9,689)
Proceeds from sales of premises and equipment		—		1,394
Proceeds from sales of other real estate owned		176		—
Other		(1,744)		(2,422)
Net cash used in investing activities		(598,955)		(888,013)
Cash flows from financing activities
Net increase in deposits		785,308		1,607,392
Dividends paid		(66,363)		(67,448)
Stock tendered for payment of withholding taxes		(3,527)		(2,845)
Common stock repurchased		(7,000)		(31,928)
Net cash provided by financing activities		708,418		1,505,171
Net increase in cash and cash equivalents		275,207		865,354
Cash and cash equivalents at beginning of period		1,258,469		1,040,944
Cash and cash equivalents at end of period	$	1,533,676	$	1,906,298

Supplemental disclosures
Interest paid	$	8,015	$	14,464
Income taxes paid, net of income tax refunds		5,356		30,399
Noncash investing and financing activities:
Operating lease right-of-use assets obtained in exchange for new lease obligations		4,979		7,221
Transfers (to) from loans and leases (from) to loans held for sale		(834)		1,839
Obligation to fund low-income housing partnerships		—		15,314
Transfers of securities from available-for-sale to held-to-maturity		4,133,363		—

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

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FIRST HAWAIIAN, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Basis of Presentation

First Hawaiian, Inc. (“FHI” or the “Parent”), a bank holding company, owns 100% of the outstanding common stock of First Hawaiian Bank (“FHB” or the “Bank”), its only direct, wholly owned subsidiary. FHB offers a comprehensive suite of banking services, including loans, deposit products, wealth management, insurance, trust, retirement planning, credit card and merchant processing services, to consumer and commercial customers.

The accompanying unaudited interim consolidated financial statements of First Hawaiian, Inc. and Subsidiary (the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

The accompanying unaudited interim consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

In the opinion of management, all adjustments, which consist of normal recurring adjustments necessary for a fair presentation of the interim period consolidated financial information, have been made. Results of operations for interim periods are not necessarily indicative of results to be expected for the entire year. Intercompany account balances and transactions have been eliminated in consolidation.

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s best knowledge of current events, actual results may differ from these estimates.

Investment Securities

As of June 30, 2022 and December 31, 2021, investment securities were comprised primarily of debt securities, mortgage-backed securities and collateralized mortgage obligations issued by the U.S. Government, its agencies and government-sponsored enterprises, with under 4% of the investment securities comprised of collateralized loan obligations rated AA or better and obligations issued by local state and political subdivisions rated AA or better. The Company amortizes premiums and accretes discounts using the interest method over the expected lives of the individual securities. Premiums on callable debt securities are amortized to their next call date. All investment securities transactions are recorded on a trade-date basis.

As of June 30, 2022, the Company’s investment securities were categorized as either available-for-sale (investment securities that may be sold before maturity at the discretion of management) or held-to-maturity (investment securities that management has the positive intent and ability to hold to maturity). As of December 31, 2021, all of the Company’s investment securities were categorized as available-for-sale. Available-for-sale investment securities are reported at fair value, with unrealized gains and losses reported in accumulated other comprehensive income. Gains and losses realized on sales of available-for-sale investment securities are determined using the specific identification method. Held-to-maturity investment securities are reported at amortized cost and may have a realized gain or loss if the investment security is retired or redeemed before the original maturity date.

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Transfers of debt securities from the available-for-sale category to the held-to-maturity category are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer remains in accumulated other comprehensive income and in the carrying value of the held-to-maturity investment security. Premiums or discounts on investment securities are amortized or accreted as an adjustment of yield using the interest method over the expected life of the security. Unrealized holding gains or losses that remain in accumulated other comprehensive income are also amortized or accreted over the expected life of the security as an adjustment of yield, offsetting the related amortization of the premium or accretion of the discount.

For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates at the individual security level whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

For held-to-maturity debt securities, the Company utilizes the Current Expected Credit Loss (“CECL”) approach to estimate lifetime expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of held-to-maturity debt securities to present the net amount expected to be collected from held-to-maturity debt securities.

Changes in the allowance for credit losses, if any, are recorded as a provision for (or reversal of) credit losses. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale or held-to-maturity investment security is confirmed or when either of the criteria regarding intent or requirement to sell an available-for-sale investment security is met. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. As of June 30, 2022, the Company’s available-for-sale and held-to-maturity investment securities were comprised primarily of debt, mortgage-backed securities and collateralized mortgage obligations issued by the U.S. Government, its agencies and government-sponsored enterprises. Management has concluded that the long history with 0 credit losses from these issuers indicates an expectation that nonpayment of the amortized cost basis is zero, and these securities are explicitly or implicitly fully guaranteed by the U.S. government. The U.S. government can print its own currency and its currency is routinely held by central banks and other major financial institutions. The dollar is used in international commerce, and commonly is viewed as a reserve currency, all of which qualitatively indicates that historical credit loss information should be minimally affected by current conditions and reasonable and supportable forecasts. Under 4% of the investment securities were comprised of collateralized loan obligations rated AA or better and obligations issued by local state and political subdivisions rated AA or better. These securities are investment grade and highly rated and carry either sufficient credit enhancement or days cash on hand to support timely payments of principal and interest. As a result, the Company does not expect any future payment defaults and has not recorded an allowance for credit losses for its available-for-sale and held-to-maturity debt securities as of June 30, 2022. Similarly, for the same reasons noted above, the Company did not record an allowance for credit losses for its available-for-sale debt securities as of December 31, 2021.

Accrued interest receivable related to available-for-sale and held-to-maturity investment securities are recorded separately from the amortized cost basis of investment securities on the Company’s unaudited interim consolidated balance sheets.

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Accounting Standards Adopted in ~~2021~~2022

In ~~October 2020,~~July 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~No. 2020-08,~~ ~~Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs~~. Prior to the adoption of ASU No. 2020-08, previous guidance shortened the amortization period for certain purchased callable debt securities held at a premium by requiring that entities amortize the premium associated with those callable debt securities to the earliest call date. The guidance in ASU No. 2020-08 changes the amortization period so that an entity shall amortize the premium to the next call date. The Company adopted the provisions of ASU No. 2020-08 on January 1, 2021 and it did not have a material impact on the Company’s consolidated financial statements.

~~Recent Accounting Pronouncements~~

~~The following ASU has been issued by the FASB and is applicable to the Company in future reporting periods.~~

~~In July 2021, the FASB issued ASU~~ No. 2021-05, Leases (Topic 842), Lessors – Certain Leases with Variable Lease Payments. This guidance amends the Topic 842 lease classification requirements for lessors to align them with practice under Topic 840. Lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if both of the following criteria are met: 1) the lease would have been classified as a sales-type lease or a direct financing lease in accordance with the Topic 842 lease classification criteria, and 2) the lessor would have otherwise recognized a day-one loss. The Company adopted the provisions of ASU No. 2021-05 on January 1, 2022 and it did not have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements

The following ASUs have been issued by the FASB and are applicable to the Company in future reporting periods.

In March 2022, the FASB issued ASU No. 2022-01, Derivatives and Hedging (Topic 815),Fair Value Hedging – Portfolio Layer Method. This update clarifies the guidance in Topic 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets. Under current hedge accounting guidance, the “last-of-layer” method enables an entity to apply fair value hedging to a stated amount of a closed portfolio of prepayable financial assets without having to consider prepayment risk or credit risk when measuring those assets. The hedged item represents a single layer within that closed portfolio. This update expands the scope of this guidance to allow entities to apply the “portfolio layer” method to portfolios of all financial assets, including both prepayable and nonprepayable financial assets. The current model is expanded to 1) explicitly allow entities to designate multiple layers in a single portfolio as individual hedged items and 2) also allow entities the flexibility to use any type of derivative (or combination of derivatives) by applying the multiple-layer model that aligns with its risk management strategy. Although no assets may be added to a closed portfolio once it is designated in a portfolio layer method hedge, at any time after the initial hedge designation, new hedging relationships associated with the portfolio may be designated and existing hedging relationships associated with the portfolio may be dedesignated to align with an entity’s evolving strategy for managing interest rate risk on a timely basis. Under the portfolio layer method, the basis of the portfolio assets is generally adjusted at the portfolio level rather than being allocated to individual assets within the portfolio, except when the allocation of basis adjustments is required by other areas of GAAP. The intent of this update is consistent with the FASB’s efforts to better align an entity’s financial reporting with the results of its risk management strategy and to further simplify the hedge accounting model. This update is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early adoption is permitted. The adoption of ASU No. 2022-01 is not expected to have a material impact on the Company’s consolidated financial statements.

In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments – Credit Losses (Topic 326),Troubled Debt Restructurings and Vintage Disclosures. This update eliminates the accounting guidance on troubled debt restructurings (TDRs) for creditors in Subtopic 310-40 and amends the guidance on vintage disclosures to require disclosure of current-period gross write-offs by year of origination. This ASU also updates the requirements related to accounting for credit losses under Topic 326 and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty. This update is effective for fiscal years beginning after December 15, 2021. As the Company adopted Topic 842 before the issuance date of this ASU, the Company has the option to apply these amendments either 1) retrospectively to leases that commenced or were modified on or after the adoption of Topic 842, or 2) prospectively to leases that commence or are modified on or after the date that

~~Table of Contents~~

~~the Company adopts ASU No. 2021-05.~~2022, and interim periods within those fiscal years. Early adoption is permitted. The Company is in the process of evaluating the impact that this new guidance may have on the Company’s consolidated financial statements.

2. Investment Securities

As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, investment securities consisted predominantly of the following investment categories:

U.S. Treasury and debt securities – includes U.S. Treasury notes and debt securities issued by government ~~agencies.~~agencies and government-sponsored enterprises.

Mortgage-backed securities – includes securities backed by notes or receivables secured by mortgage assets with cash flows based on actual or scheduled payments.

Collateralized mortgage obligations – includes securities backed by a pool of mortgages with cash flows distributed based on certain rules rather than pass through payments.

As of June 30, 2021 and December 31, 2020, all of the Company’s investment securities were classified as available-for-sale. Amortized cost and fair value of securities as of June 30, 2021 and December 31, 2020 were as follows:

June 30, 2021

December 31, 2020

Amortized

Unrealized

Unrealized

Fair

Amortized

Unrealized

Unrealized

Fair
(dollars in thousands)

Cost

Gains

Losses

Value

Cost

Gains

Losses

Value
U.S. Treasury and government agency debt securities

$
182,354

$
545

$
(2,127)

$
180,772

$
170,123

$
1,359

$
(61)

$
171,421
Mortgage-backed securities:

Residential - Government agency

110,115

3,174

—

113,289

155,169

5,293

—

160,462
Residential - Government-sponsored enterprises

1,257,032

10,776

(4,360)

1,263,448

434,282

13,643

(725)

447,200
Commercial - Government agency

487,607

6,956

(3,116)

491,447

583,232

16,537

(119)

599,650
Commercial - Government-sponsored enterprises

1,244,031

7,116

(27,342)

1,223,805

931,095

9,045

(7,983)

932,157
Collateralized mortgage obligations:

Government agency

1,645,170

22,631

(5,667)

1,662,134

1,902,326

32,246

(1,019)

1,933,553
Government-sponsored enterprises

2,024,844

11,195

(17,004)

2,019,035

1,808,804

18,991

(823)

1,826,972
Total available-for-sale securities

$
6,951,153

$
62,393

$
(59,616)

$
6,953,930

$
5,985,031

$
97,114

$
(10,730)

$
6,071,415

Accrued interest receivable related to available-for-sale investment securities was $11.6 million and $10.6 million as of June 30, 2021 and December 31, 2020, respectively, and is recorded separately from the amortized cost basis of investment securities on the Company’s unaudited interim consolidated balance sheets.

Proceeds from calls and sales of investment securities were $0.2 million and $2.5 million, respectively, for the three months ended June 30, 2021, and $0.3 million and $2.5 million, respectively, for the six months ended June 30, 2021. Proceeds from calls and sales of investment securities were $26.7 million and $539.5 million, respectively, for the three months ended June 30, 2020, and $101.7 million and $543.0 million, respectively, for the six months ended June 30, 2020. The Company recorded gross realized gains of $0.1 million and gross realized losses of NaN during both the three and six months ended June 30, 2021. The Company recorded gross realized gains of $0.5 million and gross realized losses of $0.8 million for the three months ended June 30, 2020, and gross realized gains of $0.6 million and gross realized losses of $0.8 million for the six months ended June 30, 2020. The income tax expense related to the Company’s net realized gains on the sale of investment securities was NaN during both the three and six months ended June 30, 2021. The income tax benefit related to the net realized loss on the sale of investment securities was $0.1 million and NaN, respectively, for the three and six months ended June 30, 2020. Gains and losses realized on sales of securities are determined using the specific identification method.

Interest income from taxable investment securities was $22.4 million and $17.5 million, respectively, for the three months ended June 30, 2021 and 2020, and $44.6 million and $38.7 million, respectively, for the six months ended June 30, 2021 and 2020. Interest income from non-taxable investment securities was $2.2 million and NaN, respectively, during the three months ended June 30, 2021 and 2020, and $3.2 million and NaN, respectively, during the six months ended June 30, 2021 and 2020.

~~Table of Contents~~

The amortized cost and fair value of debt securities issued by the U.S. Treasury and government agencies as of June 30, 2021, by contractual maturity, are shown below. Mortgage-backed securities and collateralized mortgage obligations are disclosed separately in the table below as remaining expected maturities will differ from contractual maturities as borrowers have the right to prepay obligations.

June 30, 2021

Amortized

Fair
(dollars in thousands)

Cost

Value
Due in one year or less

$
—

$
—
Due after one year through five years

41,497

41,787
Due after five years through ten years

83,608

82,670
Due after ten years

57,249

56,315

182,354

180,772

Mortgage-backed securities:

Residential - Government agency

110,115

113,289
Residential - Government-sponsored enterprises

1,257,032

1,263,448
Commercial - Government agency

487,607

491,447
Commercial - Government-sponsored enterprises

1,244,031

1,223,805
Total mortgage-backed securities

3,098,785

3,091,989
Collateralized mortgage obligations:

Government agency

1,645,170

1,662,134
Government-sponsored enterprises

2,024,844

2,019,035
Total collateralized mortgage obligations

3,670,014

3,681,169
Total available-for-sale securities

$
6,951,153

$
6,953,930

At June 30, 2021, pledged securities totaled $2.0 billion, of which $1.8 billion was pledged to secure public deposits and $192.8 million was pledged to secure other financial transactions. At December 31, 2020, pledged securities totaled $2.4 billion, of which $2.3 billion was pledged to secure public deposits and $186.1 million was pledged to secure other financial transactions.

The Company held 0 securities of any single issuer, other than debt securities issued by the U.S. government, government agencies and government-sponsored enterprises, taken in the aggregate, which were in excess of 10% of stockholders’ equity as of June 30, 2021 or December 31, 2020.

The following tables present the unrealized gross losses and fair values of securities in the available-for-sale portfolio by length of time that the 162 and 50 individual securities in each category have been in a continuous loss position as of June 30, 2021 and December 31, 2020, respectively. The unrealized losses on investment securities were attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities.

Time in Continuous Loss as of June 30, 2021

Less Than 12 Months

12 Months or More

Total

Unrealized

Unrealized

Unrealized

(dollars in thousands)

Losses

Fair Value

Losses

Fair Value

Losses

Fair Value
U.S. Treasury and government agency debt securities

$
(2,127)

$
120,987

$
—

$
—

$
(2,127)

$
120,987
Mortgage-backed securities:

Residential - Government-sponsored enterprises

(4,360)

618,414

—

—

(4,360)

618,414
Commercial - Government agency

(2,899)

193,041

(217)

7,064

(3,116)

200,105
Commercial - Government-sponsored enterprises

(27,342)

865,899

—

—

(27,342)

865,899
Collateralized mortgage obligations:

Government agency

(5,667)

463,392

—

—

(5,667)

463,392
Government-sponsored enterprises

(17,004)

1,237,282

—

—

(17,004)

1,237,282
Total available-for-sale securities with unrealized losses

$
(59,399)

$
3,499,015

$
(217)

$
7,064

$
(59,616)

$
3,506,079

~~Table of Contents~~

Time in Continuous Loss as of December 31, 2020

Less Than 12 Months

12 Months or More

Total

Unrealized

Unrealized

Unrealized

(dollars in thousands)

Losses

Fair Value

Losses

Fair Value

Losses

Fair Value
U.S. Treasury and government agency debt securities

$
(61)

$
38,507

$
—

$
—

$
(61)

$
38,507
Mortgage-backed securities:

Residential - Government-sponsored enterprises

(725)

64,987

—

—

(725)

64,987
Commercial - Government agency

(119)

32,346

—

—

(119)

32,346
Commercial - Government-sponsored enterprises

(7,983)

427,759

—

—

(7,983)

427,759
Collateralized mortgage obligations:

Government agency

(994)

209,124

(25)

6,190

(1,019)

215,314
Government-sponsored enterprises

(823)

296,160

—

—

(823)

296,160
Total available-for-sale securities with unrealized losses

$
(10,705)

$
1,068,883

$
(25)

$
6,190

$
(10,730)

$
1,075,073

At June 30, 2021 and December 31, 2020, the Company did not have any securities with the intent to sell and determined it was more likely than not that the Company would not be required to sell the securities prior to recovery of the amortized cost basis. As the Company had the intent and ability to hold the remaining securities in an unrealized loss position as of June 30, 2021 and December 31, 2020, each security with an unrealized loss position in the above tables has been further assessed to determine if a credit loss exists. As of June 30, 2021 and December 31, 2020, the Company did not expect any credit losses in its debt securities and 0 credit losses were recognized on securities during the three and six months ended June 30, 2021 and for the year ended December 31, 2020.

As of June 30, 2021 and December 31, 2020, the Company’s available-for-sale investment securities were comprised entirely of debt, mortgage-backed securities and collateralized mortgage obligations issued by the U.S. Government, its agencies and government-sponsored enterprises. Management has concluded that the long history with 0 credit losses from these issuers indicates an expectation that nonpayment of the amortized cost basis is 0. The Company’s available-for-sale investment securities are explicitly or implicitly fully guaranteed by the U.S. government. The U.S. government can print its own currency and its currency is routinely held by central banks and other major financial institutions. The dollar is used in international commerce, and commonly is viewed as a reserve currency, all of which qualitatively indicates that historical credit loss information should be minimally affected by current conditions and reasonable and supportable forecasts. Thus, the Company has not recorded an allowance for credit losses for its available-for-sale debt securities as of June 30, 2021 and December 31, 2020.

~~Visa Class B Restricted Shares~~

In 2008, the Company received 394,000 Visa Class B restricted shares as part of Visa’s IPO. Visa Class B restricted shares are not currently convertible to publicly traded Visa Class A common shares, and only transferable in limited circumstances, until the settlement of certain litigation which are indemnified by Visa members, including the Company. As there are existing transfer restrictions and the outcome of the aforementioned litigation is uncertain, these shares were included in the consolidated balance sheets at their historical cost of $0.

In 2016, the Company recorded a $22.7 million net realized gain related to the sale of 274,000 Visa Class B restricted shares. Concurrent with the sale of the Visa Class B restricted shares, the Company entered into an agreement with the buyer that requires payment to the buyer in the event Visa reduces each member bank’s Class B conversion rate to unrestricted Class A common shares. On June 28, 2018, Visa additionally funded its litigation escrow account, thereby reducing each member bank’s Class B conversion rate to unrestricted Class A common shares. Accordingly, on July 5, 2018, Visa announced a decrease in conversion rate from 1.6483 to 1.6298, effective June 28, 2018. In July 2018, the Company made a payment of approximately $0.7 million to the buyer as a result of the reduction in the Visa Class B conversion rate. On September 27, 2019, Visa additionally funded its litigation escrow account, thereby further reducing each member bank’s Class B conversion rate to unrestricted Class A common shares. Accordingly, on September 30, 2019, Visa announced a decrease in conversion rate from 1.6298 to 1.6228, effective September 27, 2019. In October 2019, the Company made a payment of approximately $0.3 million to the buyer as a result of the reduction in the Visa Class B conversion rate. See “Note 11. Derivative Financial Instruments” for more information.

The Company held approximately 120,000 Visa Class B restricted shares as of both June 30, 2021 and December 31, 2020. These shares continued to be carried at $0 cost basis as of both June 30, 2021 and December 31, 2020.

~~Table of Contents~~

~~3. Loans and Leases~~

~~As of June 30, 2021 and December 31, 2020, loans and leases were comprised of the following:~~

June 30,

December 31,
(dollars in thousands)

2021

2020
Commercial and industrial

$
2,564,547

$
3,019,507
Commercial real estate

3,528,068

3,392,676
Construction

853,865

735,819
Residential:

Residential mortgage

3,821,407


3,690,218
Home equity line

825,368

841,624
Total residential


4,646,775

4,531,842
Consumer

1,267,559

1,353,842
Lease financing

242,971

245,411
Total loans and leases

$
13,103,785

$
13,279,097

~~Outstanding loan balances are reported net of deferred loan costs and fees of $20.4 million and $26.1 million at June 30, 2021 and December 31, 2020, respectively.~~

Accrued interest receivable related to loans and leases was $55.1 million and $59.0 million as of June 30, 2021 and December 31, 2020, respectively, and is recorded separately from the amortized cost basis of loans and leases on the Company’s unaudited interim consolidated balance sheets.

As of June 30, 2021, residential real estate loans totaling $2.6 billion were pledged to collateralize the Company’s borrowing capacity at the Federal Home Loan Bank of Des Moines (“FHLB”), and consumer, commercial and industrial, commercial real estate and residential real estate loans totaling $1.9 billion were pledged to collateralize the Company’s borrowing capacity at the Federal Reserve Bank of San Francisco (“FRB”). As of December 31, 2020, residential real estate loans totaling $2.9 billion were pledged to collateralize the Company’s borrowing capacity at the FHLB, and consumer, commercial and industrial, commercial real estate and residential mortgage loans totaling $1.9 billion were pledged to collateralize the Company’s borrowing capacity at the FRB. Residential real estate loans collateralized by properties that were in the process of foreclosure totaled $2.6 million and $2.3 million as of June 30, 2021 and December 31, 2020, respectively.

In the course of evaluating the credit risk presented by a customer and the pricing that will adequately compensate the Company for assuming that risk, management may require a certain amount of collateral support. The type of collateral held varies, but may include accounts receivable, inventory, land, buildings, equipment, income-producing commercial properties and residential real estate. The Company applies the same collateral policy for loans whether they are funded immediately or on a delayed basis. The loan and lease portfolio is principally located in Hawaii and, to a lesser extent, on the U.S. Mainland, Guam and Saipan. The risk inherent in the portfolio depends upon both the economic strength and stability of the state or territories, which affects property values, and the financial strength and creditworthiness of the borrowers.

~~4. Allowance for Credit Losses~~

The Company also maintains an estimated reserve for unfunded commitments on the unaudited interim consolidated balance sheets. The reserve for unfunded commitments is reduced in the period in which the off-balance sheet financial instruments expire, loan funding occurs, or is otherwise settled.

Table of Contents

~~In response~~

Collateralized loanobligations– includes structured debt securities backed by a pool of loans, consisting of primarily non-investment grade broadly syndicated corporate loans with additional credit enhancement. These are floating rate securities that have an investment grade rating of AA or better.

Debt securities issued by states and political subdivisions– includes general obligation bonds issued by state and local governments.

As of June 30, 2022, the Company’s investment securities were classified as either available-for-sale or held-to-maturity. As of December 31, 2021, all of the Company’s investment securities were classified as available-for-sale. Amortized cost and fair value of securities as of June 30, 2022 and December 31, 2021 were as follows:


	June 30, 2022								December 31, 2021
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
(dollars in thousands)	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
U.S. Treasury and government agency debt securities	$	168,129	$	—	$	(8,964)	$	159,165	$	196,662	$	125	$	(4,224)	$	192,563
Government-sponsored enterprises debt securities		20,000		—		(37)		19,963		—		—		—		—
Mortgage-backed securities:
Residential - Government agency		72,027		—		(4,069)		67,958		135,764		1,791		(291)		137,264
Residential - Government-sponsored enterprises		1,444,461		24		(111,470)		1,333,015		1,496,605		6,914		(12,419)		1,491,100
Commercial - Government agency		297,271		—		(29,614)		267,657		392,443		1,741		(6,521)		387,663
Commercial - Government-sponsored enterprises		147,160		918		(6,242)		141,836		1,415,511		2,646		(48,714)		1,369,443
Commercial - Non-agency		21,957		—		(407)		21,550		—		—		—		—
Collateralized mortgage obligations:
Government agency		1,102,277		—		(76,938)		1,025,339		2,103,187		7,768		(31,432)		2,079,523
Government-sponsored enterprises		744,622		—		(60,062)		684,560		2,671,131		3,608		(53,695)		2,621,044
Collateralized loan obligations		249,905		45		(3,247)		246,703		105,245		2		—		105,247
Debt securities issued by states and political subdivisions		—		—		—		—		44,185		—		—		44,185
Total available-for-sale securities	$	4,267,809	$	987	$	(301,050)	$	3,967,746	$	8,560,733	$	24,595	$	(157,296)	$	8,428,032

Government agency debt securities	$	55,148	$	—	$	(2,405)	$	52,743	$	—	$	—	$	—	$	—
Mortgage-backed securities:
Residential - Government agency		47,309		—		(3,031)		44,278		—		—		—		—
Residential - Government-sponsored enterprises		93,458		—		(6,117)		87,341		—		—		—		—
Commercial - Government agency		30,497		—		(2,685)		27,812		—		—		—		—
Commercial - Government-sponsored enterprises		1,173,398		—		(63,627)		1,109,771		—		—		—		—
Collateralized mortgage obligations:
Government agency		879,010		—		(31,243)		847,767		—		—		—		—
Government-sponsored enterprises		1,760,755		—		(69,483)		1,691,272		—		—		—		—
Debt securities issued by states and political subdivisions		53,640		—		(3,844)		49,796		—		—		—		—
Total held-to-maturity securities	$	4,093,215	$	—	$	(182,435)	$	3,910,780	$	—	$	—	$	—	$	—

During the three and six months ended June 30, 2022, the Company reclassified at fair value approximately $4.1 billion in available-for-sale investment securities to the ~~COVID-19 pandemic,~~held-to-maturity category. The related unrealized after-tax losses of approximately $338.8 million remained in accumulated other comprehensive income to be amortized over the estimated remaining life of the securities as an adjustment of yield, offsetting the related accretion of the discount on ~~March 27, 2020,~~ the ~~CARES Act~~transferred securities. NaN gains or losses were recognized at the time of reclassification. Management considers the held-to-maturity classification of these investment securities to be appropriate as the Company has the positive intent and ability to hold these securities to maturity. As of June 30, 2022, the weighted average life of the transferred securities was ~~signed into law.~~approximately 8.0 years. Material changes in prepayment speeds may result in a significant impact to the estimated remaining life of these securities.

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Accrued interest receivable related to available-for-sale investment securities was $8.7 million and $14.1 million as of June 30, 2022 and December 31, 2021, respectively. Accrued interest receivable related to held-to-maturity investment securities was $7.0 million and NaN as of June 30, 2022 and December 31, 2021, respectively. Accrued interest receivable is recorded separately from the amortized cost basis of investment securities on the Company’s unaudited interim consolidated balance sheets.

Proceeds from calls and sales of investment securities were $0.2 million and NaN, respectively, for the three months ended June 30, 2022, and $1.2 million and NaN, respectively, for the six months ended June 30, 2022. Proceeds from calls and sales of investment securities were $0.2 million and $2.5 million, respectively, for the three months ended June 30, 2021, and $0.3 million and $2.5 million, respectively, for the six months ended June 30, 2021. The ~~CARES Act creates a forbearance program~~Company recorded gross realized gains of NaN and gross realized losses of NaN for ~~federally backed mortgage loans, protects borrowers from negative credit reporting due to loan accommodations~~the three and six months ended June 30, 2022. The Company recorded gross realized gains of $0.1 million and gross realized losses of NaN during both the three and six months ended June 30, 2021. The income tax expense related to the ~~National Emergency,~~Company’s net realized gains on the sale of investment securities was NaN for the three and ~~provides financial institutions the option to temporarily suspend certain requirements under GAAP~~six months ended June 30, 2022. The income tax expense related to ~~troubled debt restructurings (“TDRs”) for a limited period~~the Company’s net realized gains on the sale of ~~time to account for~~investment securities was NaN during both the effects of COVID-19. Financial institutions accounting for eligible loans under the CARES Act are not required to report such loans as TDRs in accordance with GAAP. In addition, Interagency Statements were issued on March 22, 2020three and April 7, 2020 to encourage financial institutions to work prudently with borrowers and to describe the agencies’ interpretation of how current accounting rules under GAAP apply to certain COVID-19 related modifications. The agencies confirmed with the FASB that short-term modifications (e.g., six months ~~or less) for payment deferrals, fee waivers, extensions~~ended June 30, 2021. Gains and losses realized on sales of ~~repayment terms, or delays in payment that~~securities are insignificant and made on a good faith basis in response to borrowers impacted by COVID-19 who were current prior to any relief are not TDRs under GAAP. The agencies also confirmed that these short-term modifications should not be reported as being on nonaccrual status and should not be considered past due duringdetermined using the period of the deferral. The Company has adopted the provisions of both the CARES Act and Interagency Statements. The Company is first applying the CARES Act guidance in determining if certain loan modifications are not required to be reported as TDRs. If the loan modification does not qualify under the CARES Act, then the Interagency Statement guidance is applied. On December 27, 2020, the Consolidated Appropriations Act – 2021 (the “CAA”) was signed into law, which extends the temporary relief from TDR reporting through the earlier of (1) January 1, 2022, or (2) 60 days after the date on which the national emergency concerning COVID-19 terminates. The interim consolidated financial information below reflects the application of this guidance.specific identification method.

Interest income from taxable investment securities was $31.6 million and $22.4 million, respectively, for the three months ended June 30, 2022 and 2021, and $60.7 million and $44.6 million, respectively, for the six months ended June 30, 2022 and 2021. Interest income from non-taxable investment securities was $3.3 million and $2.2 million, respectively, for the three months ended June 30, 2022 and 2021, and $6.3 million and $3.2 million, respectively, for the six months ended June 30, 2022 and 2021.

The amortized cost and fair value of debt securities issued by the U.S. Treasury, government agencies, government-sponsored enterprises and states and political subdivisions, non-agency mortgage-backed securities and collateralized loan obligations as of June 30, 2022, by contractual maturity, are shown below. Mortgage-backed securities and collateralized mortgage obligations issued by government agencies and government-sponsored enterprises are disclosed separately in the table below as remaining expected maturities will differ from contractual maturities as borrowers have the right to prepay obligations.

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	June 30, 2022
	Amortized		Fair
(dollars in thousands)	Cost		Value
Due in one year or less	$	30,106	$	29,762
Due after one year through five years		79,915		77,983
Due after five years through ten years		177,556		170,656
Due after ten years		172,414		168,980
		459,991		447,381

Mortgage-backed securities:
Residential - Government agency		72,027		67,958
Residential - Government-sponsored enterprises		1,444,461		1,333,015
Commercial - Government agency		297,271		267,657
Commercial - Government-sponsored enterprises		147,160		141,836
Total mortgage-backed securities		1,960,919		1,810,466
Collateralized mortgage obligations:
Government agency		1,102,277		1,025,339
Government-sponsored enterprises		744,622		684,560
Total collateralized mortgage obligations		1,846,899		1,709,899
Total available-for-sale securities	$	4,267,809	$	3,967,746

Due in one year or less	$	—	$	—
Due after one year through five years		—		—
Due after five years through ten years		—		—
Due after ten years		108,788		102,539
		108,788		102,539

Mortgage-backed securities:
Residential - Government agency		47,309		44,278
Residential - Government-sponsored enterprises		93,458		87,341
Commercial - Government agency		30,497		27,812
Commercial - Government-sponsored enterprises		1,173,398		1,109,771
Total mortgage-backed securities		1,344,662		1,269,202
Collateralized mortgage obligations:
Government agency		879,010		847,767
Government-sponsored enterprises		1,760,755		1,691,272
Total collateralized mortgage obligations		2,639,765		2,539,039
Total held-to-maturity securities	$	4,093,215	$	3,910,780

At June 30, 2022, pledged securities totaled $2.6 billion, of which $2.4 billion was pledged to secure public deposits and $191.3 million was pledged to secure other financial transactions. At December 31, 2021, pledged securities totaled $2.1 billion, of which $1.9 billion was pledged to secure public deposits and $193.2 million was pledged to secure other financial transactions.

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The following tables present the unrealized gross losses and fair values of securities in the available-for-sale portfolio by length of time that the 296 and 318 individual securities in each category have been in a continuous loss position as of June 30, 2022 and December 31, 2021, respectively. The unrealized losses on available-for-sale investment securities were attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities.

Time in Continuous Loss as of June 30, 2022

Less Than 12 Months

12 Months or More

Total

Unrealized

(dollars in thousands)

Losses

Fair Value

Losses

Fair Value

Losses

Fair Value

U.S. Treasury and government agency debt securities

(2,239)

87,782

(6,725)

71,383

(8,964)

159,165

Government-sponsored enterprises debt securities

(37)

19,964

—

(37)

19,964

Mortgage-backed securities:

Residential - Government agency

(4,069)

67,958

—

(4,069)

67,958

Residential - Government-sponsored enterprises

(110,301)

1,303,823

(1,169)

9,196

(111,470)

1,313,019

Commercial - Government agency

(12,813)

150,595

(16,801)

116,854

(29,614)

267,449

Commercial - Government-sponsored enterprises

(4,482)

77,564

(1,760)

18,478

(6,242)

96,042

Commercial - Non-agency

(407)

21,550

—

(407)

21,550

Collateralized mortgage obligations:

Government agency

(74,997)

988,818

(1,941)

16,549

(76,938)

1,005,367

Government-sponsored enterprises

(41,157)

517,636

(18,905)

166,924

(60,062)

684,560

Collateralized loan obligations:

(3,247)

170,425

—

(3,247)

170,425

Total available-for-sale securities with unrealized losses

(253,749)

3,406,115

(47,301)

399,384

(301,050)

3,805,499


	Time in Continuous Loss as of December 31, 2021
	Less Than 12 Months				12 Months or More				Total
	Unrealized				Unrealized				Unrealized
(dollars in thousands)	Losses		Fair Value		Losses		Fair Value		Losses		Fair Value
U.S. Treasury and government agency debt securities	$	(3,355)	$	134,468	$	(869)	$	16,642	$	(4,224)	$	151,110
Mortgage-backed securities:
Residential - Government agency		(291)		51,231		—		—		(291)		51,231
Residential - Government-sponsored enterprises		(10,876)		1,230,104		(1,543)		32,415		(12,419)		1,262,519
Commercial - Government agency		(5,239)		186,024		(1,282)		26,063		(6,521)		212,087
Commercial - Government-sponsored enterprises		(22,179)		744,819		(26,535)		397,123		(48,714)		1,141,942
Collateralized mortgage obligations:
Government agency		(31,432)		1,441,848		—		—		(31,432)		1,441,848
Government-sponsored enterprises		(52,551)		2,255,535		(1,144)		24,959		(53,695)		2,280,494
Total available-for-sale securities with unrealized losses	$	(125,923)	$	6,044,029	$	(31,373)	$	497,202	$	(157,296)	$	6,541,231

At June 30, 2022 and December 31, 2021, the Company did not have any available-for-sale securities with the intent to sell and determined it was more likely than not that the Company would not be required to sell these securities prior to recovery of the amortized cost basis. As the Company had the intent and ability to hold the remaining available-for-sale securities in an unrealized loss position as of June 30, 2022 and December 31, 2021, each security with an unrealized loss position in the above tables has been further assessed to determine if a credit loss exists. As of June 30, 2022 and December 31, 2021, the Company did not expect any credit losses in its available-for-sale debt securities and 0 credit losses were recognized on available-for-sale securities during the three and six months ended June 30, 2022 and for the year ended December 31, 2021.

Table of Contents

As of June 30, 2022 and December 31, 2021, the Company’s investment securities were comprised primarily of debt securities, mortgage-backed securities and collateralized mortgage obligations issued by the U.S. Government, its agencies and government-sponsored enterprises, with under 4% of the investment securities comprised of collateralized loan obligations rated AA or better and obligations issued by local state and political subdivisions rated AA or better. For investment securities issued by the U.S. Government, its agencies and government-sponsored enterprises, management has concluded that the long history with no credit losses from these issuers indicates an expectation that nonpayment of the amortized cost basis is zero, and these securities are explicitly or implicitly fully guaranteed by the U.S. government. The U.S. government can print its own currency and its currency is routinely held by central banks and other major financial institutions. The dollar is used in international commerce, and commonly is viewed as a reserve currency, all of which qualitatively indicates that historical credit loss information should be minimally affected by current conditions and reasonable and supportable forecasts. For collateralized loan obligations and debt securities issued by local state and political subdivisions, these securities are investment grade and highly rated and carry either sufficient credit enhancement or days cash on hand to support timely payments of principal and interest. As a result, the Company does not expect any future payment defaults and has 0t recorded an allowance for credit losses for its available-for-sale and held-to-maturity debt securities as of June 30, 2022. Similarly, for the same reasons noted above, the Company did 0t record an allowance for credit losses for its available-for-sale debt securities as of December 31, 2021.

The Company holds approximately 120,000 Visa Class B restricted shares as of both June 30, 2022 and December 31, 2021. These shares continued to be carried at $0 cost basis as of both June 30, 2022 and December 31, 2021.

3. Loans and Leases

As of June 30, 2022 and December 31, 2021, loans and leases were comprised of the following:


	June 30,		December 31,
(dollars in thousands)	2022		2021
Commercial and industrial	$	1,942,132	$	2,087,099
Commercial real estate		3,956,828		3,639,623
Construction		727,771		813,969
Residential:
Residential mortgage		4,212,768		4,083,367
Home equity line		971,569		876,608
Total residential		5,184,337		4,959,975
Consumer		1,207,051		1,229,939
Lease financing		244,662		231,394
Total loans and leases	$	13,262,781	$	12,961,999

Outstanding loan balances are reported net of deferred loan costs and fees of $52.1 million and $42.2 million at June 30, 2022 and December 31, 2021, respectively.

Accrued interest receivable related to loans and leases was $47.4 million and $49.0 million as of June 30, 2022 and December 31, 2021, respectively, and is recorded separately from the amortized cost basis of loans and leases on the Company’s unaudited interim consolidated balance sheets.

As of June 30, 2022, residential real estate loans totaling $2.2 billion were pledged to collateralize the Company’s borrowing capacity at the Federal Home Loan Bank of Des Moines (“FHLB”), and consumer, commercial and industrial, commercial real estate and residential real estate loans totaling $1.7 billion were pledged to collateralize the Company’s borrowing capacity at the Federal Reserve Bank of San Francisco (“FRB”). As of December 31, 2021, residential real estate loans totaling $2.4 billion were pledged to collateralize the Company’s borrowing capacity at the FHLB, and consumer, commercial and industrial, commercial real estate and residential real estate loans totaling $1.7 billion were pledged to collateralize the Company’s borrowing capacity at the FRB. Residential real estate loans collateralized by properties that were in the process of foreclosure totaled $4.7 million as of both June 30, 2022 and December 31, 2021.

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4. Allowance for Credit Losses

The Company maintains the allowance for credit losses for loans and leases (the “ACL”) that is deducted from the amortized cost basis of loans and leases to present the net carrying value of loans and leases expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount of loans and leases. While management utilizes its best judgment and information available, the ultimate appropriateness of the ACL is dependent upon a variety of factors beyond our control, including the performance of our loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications. The Company’s methodology is more fully described in our Annual Report on Form 10-K for the year ended December 31, 2021.

Rollforward of the Allowance for Credit Losses

The following presents the activity in the ACL by class of loans and leases for the three and six months ended June 30, ~~2021~~2022 and ~~2020:~~2021:

Three Months Ended June 30, 2021

Three Months Ended June 30, 2022

Commercial Lending

Residential Lending

Commercial Lending

Residential Lending

Commercial

Home

Commercial

Home

and

Real

Lease

Residential

Equity

and

Real

Lease

Residential

Equity

(dollars in thousands)

Industrial

Estate

Construction

Financing

Mortgage

Line

Consumer

Total

Industrial

Estate

Construction

Financing

Mortgage

Line

Consumer

Total

Allowance for credit losses:

Balance at beginning of period

27,322

51,691

10,552

3,197

38,471

6,668

62,465

200,366

19,160

45,238

8,908

1,362

30,888

5,084

39,640

150,280

Charge-offs

(330)

—

(3,917)

(4,247)

(243)

—

(1,120)

(3,659)

(5,022)

Recoveries

287

—

2,797

3,148

301

—

192

191

1,940

2,684

Decrease in Provision

(4,216)

(4,670)

(400)

(130)

(4,277)

(456)

(15,970)

(30,119)

Provision

(3,294)

(512)

(3,541)

(24)

2,555

579

5,237

1,000

Balance at end of period

23,063

47,033

10,152

3,067

34,208

6,250

45,375

169,148

15,924

44,726

5,367

1,398

33,635

4,734

43,158

148,942

Six Months Ended June 30, 2021

Six Months Ended June 30, 2022

Commercial Lending

Residential Lending

Commercial Lending

Residential Lending

Commercial

Home

Commercial

Home

and

Real

Lease

Residential

Equity

and

Real

Lease

Residential

Equity

(dollars in thousands)

Industrial

Estate

Construction

Financing

Mortgage

Line

Consumer

Total

Industrial

Estate

Construction

Financing

Mortgage

Line

Consumer

Total

Allowance for credit losses:

Balance at beginning of period

24,711

58,123

10,039

3,298

40,461

7,163

64,659

208,454

20,080

42,951

9,773

1,659

34,364

5,642

42,793

157,262

Charge-offs

(1,293)

(66)

—

(98)

—

(10,458)

(11,915)

(949)

—

(1,163)

(7,768)

(9,880)

Recoveries

502

166

—

5,452

6,228

354

—

208

219

4,088

4,943

Decrease in Provision

(857)

(11,039)

(53)

(231)

(6,186)

(975)

(14,278)

(33,619)

Provision

(3,561)

1,761

(4,406)

(321)

(937)

4,045

(3,383)

Balance at end of period

23,063

47,033

10,152

3,067

34,208

6,250

45,375

169,148

15,924

44,726

5,367

1,398

33,635

4,734

43,158

148,942


	Three Months Ended June 30, 2020																Three Months Ended June 30, 2021
	Commercial Lending								Residential Lending								Commercial Lending								Residential Lending
	Commercial		Commercial								Home						Commercial		Commercial								Home
	and		Real				Lease		Residential		Equity						and		Real				Lease		Residential		Equity
(dollars in thousands)	Industrial		Estate		Construction		Financing		Mortgage		Line		Consumer		Total		Industrial		Estate		Construction		Financing		Mortgage		Line		Consumer		Total
Allowance for credit losses:
Balance at beginning of period	$	20,884	$	42,838	$	8,824	$	851	$	30,021	$	6,556	$	56,039	$	166,013	$	27,322	$	51,691	$	10,552	$	3,197	$	38,471	$	6,668	$	62,465	$	200,366
Charge-offs		(13,974)		(2,723)		(379)		—		(14)		—		(8,907)		(25,997)		(330)		—		—		—		—		—		(3,917)		(4,247)
Recoveries		100		—		30		—		17		8		2,456		2,611		287		12		—		—		14		38		2,797		3,148
Increase (decrease) in Provision		14,289		13,007		(3,199)		2,986		3,850		1,071		17,489		49,493
Provision																		(4,216)		(4,670)		(400)		(130)		(4,277)		(456)		(15,970)		(30,119)
Balance at end of period	$	21,299	$	53,122	$	5,276	$	3,837	$	33,874	$	7,635	$	67,077	$	192,120	$	23,063	$	47,033	$	10,152	$	3,067	$	34,208	$	6,250	$	45,375	$	169,148

1316

Table of Contents


	Six Months Ended June 30, 2020																		Six Months Ended June 30, 2021
	Commercial Lending								Residential Lending										Commercial Lending								Residential Lending
	Commercial		Commercial								Home								Commercial		Commercial								Home
	and		Real				Lease		Residential		Equity								and		Real				Lease		Residential		Equity
(dollars in thousands)	Industrial		Estate		Construction		Financing		Mortgage		Line		Consumer		Unallocated		Total		Industrial		Estate		Construction		Financing		Mortgage		Line		Consumer		Total
Allowance for credit losses:
Balance at beginning of period	$	28,975	$	22,325	$	4,844	$	424	$	29,303	$	9,876	$	34,644	$	139	$	130,530
Adoption of ASU No. 2016-13		(16,105)		10,559		(1,803)		207		(2,793)		(4,731)		15,575		(139)		770
Balance at beginning of year																			$	24,711	$	58,123	$	10,039	$	3,298	$	40,461	$	7,163	$	64,659	$	208,454
Charge-offs		(14,175)		(2,723)		(379)		—		(14)		(8)		(17,504)		—		(34,803)		(1,293)		(66)		—		—		(98)		—		(10,458)		(11,915)
Recoveries		320		—		140		—		152		130		4,539		—		5,281		502		15		166		—		31		62		5,452		6,228
Increase in Provision		22,284		22,961		2,474		3,206		7,226		2,368		29,823		—		90,342
Provision																				(857)		(11,039)		(53)		(231)		(6,186)		(975)		(14,278)		(33,619)
Balance at end of period	$	21,299	$	53,122	$	5,276	$	3,837	$	33,874	$	7,635	$	67,077	$	—	$	192,120	$	23,063	$	47,033	$	10,152	$	3,067	$	34,208	$	6,250	$	45,375	$	169,148

Rollforward of the Reserve for Unfunded Commitments

The following presents the activity in the Reserve for Unfunded Commitments for the three and six months ended June 30, ~~2021 and 2020:~~2022:

Three Months Ended June 30, 2021

Three Months Ended June 30, 2022

Commercial Lending

Residential Lending

Commercial Lending

Residential Lending

Commercial

Home

Commercial

Home

and

Real

Lease

Residential

Equity

and

Real

Lease

Residential

Equity

(dollars in thousands)

Industrial

Estate

Construction

Financing

Mortgage

Line

Consumer

Total

Industrial

Estate

Construction

Financing

Mortgage

Line

Consumer

Total

Reserve for unfunded commitments:

Balance at beginning of period

16,129

1,112

8,313

—

8,500

34,103

9,308

1,789

8,046

—

9,766

28,958

Decrease in Provision

(3,321)

(134)

(440)

—

(979)

(7)

(4,881)

Provision

(1,668)

1,961

(1,962)

—

1,657

(17)

—

Balance at end of period

12,808

978

7,873

—

7,521

29,222

7,640

3,750

6,084

—

11,423

28,958

Six Months Ended June 30, 2021

Six Months Ended June 30, 2022

Commercial Lending

Residential Lending

Commercial Lending

Residential Lending

Commercial

Home

Commercial

Home

and

Real

Lease

Residential

Equity

and

Real

Lease

Residential

Equity

(dollars in thousands)

Industrial

Estate

Construction

Financing

Mortgage

Line

Consumer

Total

Industrial

Estate

Construction

Financing

Mortgage

Line

Consumer

Total

Reserve for unfunded commitments:

Balance at beginning of period

11,719

1,328

9,037

—

8,452

30,603

8,615

2,114

8,963

—

10,546

30,322

Increase (decrease) in Provision

1,089

(350)

(1,164)

—

(2)

(931)

(23)

(1,381)

Provision

(975)

1,636

(2,879)

—

877

(40)

(1,364)

Balance at end of period

12,808

978

7,873

—

7,521

29,222

7,640

3,750

6,084

—

11,423

28,958


	Three Months Ended June 30, 2020																Three Months Ended June 30, 2021
	Commercial Lending								Residential Lending								Commercial Lending								Residential Lending
	Commercial		Commercial								Home						Commercial		Commercial								Home
	and		Real				Lease		Residential		Equity						and		Real				Lease		Residential		Equity
(dollars in thousands)	Industrial		Estate		Construction		Financing		Mortgage		Line		Consumer		Total		Industrial		Estate		Construction		Financing		Mortgage		Line		Consumer		Total
Reserve for unfunded commitments:
Balance at beginning of period	$	4,791	$	696	$	4,813	$	—	$	1	$	6,927	$	23	$	17,251	$	16,129	$	1,112	$	8,313	$	—	$	—	$	8,500	$	49	$	34,103
Increase in Provision		3,390		472		1,095		—		2		963		31		5,953
Provision																		(3,321)		(134)		(440)		—		—		(979)		(7)		(4,881)
Balance at end of period	$	8,181	$	1,168	$	5,908	$	—	$	3	$	7,890	$	54	$	23,204	$	12,808	$	978	$	7,873	$	—	$	—	$	7,521	$	42	$	29,222


	Six Months Ended June 30, 2020																Six Months Ended June 30, 2021
	Commercial Lending								Residential Lending								Commercial Lending								Residential Lending
	Commercial		Commercial								Home						Commercial		Commercial								Home
	and		Real				Lease		Residential		Equity						and		Real				Lease		Residential		Equity
(dollars in thousands)	Industrial		Estate		Construction		Financing		Mortgage		Line		Consumer		Total		Industrial		Estate		Construction		Financing		Mortgage		Line		Consumer		Total
Reserve for unfunded commitments:
Balance at beginning of period	$	—	$	—	$	—	$	—	$	—	$	—	$	600	$	600	$	11,719	$	1,328	$	9,037	$	—	$	2	$	8,452	$	65	$	30,603
Adoption of ASU No. 2016-13		5,390		778		4,119		—		7		6,587		(581)		16,300
Increase (decrease) in Provision		2,791		390		1,789		—		(4)		1,303		35		6,304
Provision																		1,089		(350)		(1,164)		—		(2)		(931)		(23)		(1,381)
Balance at end of period	$	8,181	$	1,168	$	5,908	$	—	$	3	$	7,890	$	54	$	23,204	$	12,808	$	978	$	7,873	$	—	$	—	$	7,521	$	42	$	29,222

Credit Quality Information

The Company performs an internal loan review and grading or scoring procedures on an ongoing basis. The review provides management with periodic information as to the quality of the loan portfolio and effectiveness of the Company’s lending policies and procedures. The objective of the loan review and grading or scoring procedures is to identify, in a timely manner, existing or emerging credit quality issues so that appropriate steps can be initiated to avoid or minimize future losses.

~~Table of Contents~~

Loans and leases subject to grading primarily include: commercial and industrial loans, commercial real estate loans, construction loans and lease financing. Other loans subject to grading include installment loans to businesses or individuals for business and commercial purposes, overdraft lines of credit, commercial credit cards, and other credits as may be determined. Credit quality indicators for internally graded loans and leases are generally updated on an annual basis or on a quarterly basis for those loans and leases deemed to be of potentially higher risk.

Table of Contents

An internal credit risk rating system is used to determine loan grade and is based on borrower credit risk and transactional risk. The loan grading process is a mechanism used to determine the risk of a particular borrower and is based on the following factors of a borrower: character, earnings and operating cash flow, asset and liability structure, debt capacity, management and controls, borrowing entity, and industry and operating environment.

Pass – “Pass” (uncriticized) loans and leases, are not considered to carry greater than normal risk. The borrower has the apparent ability to satisfy obligations to the Company, and therefore no loss in ultimate collection is anticipated.

Special Mention – Loans and leases that have potential weaknesses deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for assets or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Substandard – Loans and leases that are inadequately protected by the current financial condition and paying capacity of the obligor or by any collateral pledged. Loans and leases so classified must have a well-defined weakness or weaknesses that jeopardize the collection of the debt. They are characterized by the distinct possibility that the bank may sustain some loss if the deficiencies are not corrected.

Doubtful – Loans and leases that have weaknesses found in substandard borrowers with the added provision that the weaknesses make collection of debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss – Loans and leases classified as loss are considered uncollectible and of such little value that their continuance as an asset is not warranted. This classification does not mean that the loan or lease has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future.

Loans that are primarily monitored for credit quality using FICO scores include: residential mortgage loans, home equity lines and consumer loans. FICO scores are calculated primarily based on a consideration of payment history, the current amount of debt, the length of credit history available, a recent history of new sources of credit and the mix of credit type. FICO scores are updated on a monthly, quarterly or bi-annual basis, depending on the product type.

1518

Table of Contents

The amortized cost basis by year of origination and credit quality indicator of the Company’s loans and leases as of June 30, ~~2021~~2022 was as follows:

Revolving

Loans

Converted

Term Loans

Revolving

to Term

Term Loans

Revolving

to Term

Amortized Cost Basis by Origination Year

Loans

Amortized Cost Basis by Origination Year

Loans

Amortized

(dollars in thousands)

2021

2020

2019

2018

2017

Prior

Cost Basis

Total

2022

2021

2020

2019

2018

Prior

Cost Basis

Total

Commercial Lending

Commercial and Industrial

Risk rating:

Pass

606,765

422,457

242,554

136,069

48,828

207,502

674,340

23,935

2,362,450

216,303

421,981

66,601

182,175

60,586

156,647

697,256

19,128

1,820,677

Special Mention

122

8,994

33,617

12,735

1,425

4,647

14,338

376

76,254

2,816

316

1,628

2,822

748

5,295

1,073

841

15,539

Substandard

—

7,149

2,400

16,246

137

8,731

6,397

1,344

42,404

—

320

1,103

1,605

1,019

879

16,214

114

21,254

Other ⁽¹⁾

9,812

8,774

10,337

6,632

3,531

965

43,388

—

83,439

12,807

9,613

11,531

5,366

3,075

1,576

40,694

—

84,662

Total Commercial and Industrial

616,699

447,374

288,908

171,682

53,921

221,845

738,463

25,655

2,564,547

231,926

432,230

80,863

191,968

65,428

164,397

755,237

20,083

1,942,132

Commercial Real Estate

Risk rating:

Pass

288,366

342,013

571,608

557,533

449,551

1,055,803

63,775

3,328,651

516,062

695,446

338,391

516,210

459,372

1,270,438

84,174

—

3,880,093

Special Mention

—

1,482

52,852

16,081

33,022

55,933

7,604

—

166,974

—

562

47,781

—

11,140

695

—

60,178

Substandard

—

411

—

7,016

2,069

21,962

502

—

31,960

—

180

—

1,742

14,476

—

16,401

Other ⁽¹⁾

—

483

—

483

—

156

—

156

Total Commercial Real Estate

288,366

343,906

624,460

580,630

484,642

1,134,181

71,881

3,528,068

516,062

695,446

339,133

563,991

461,114

1,296,210

84,872

—

3,956,828

Construction

Risk rating:

Pass

49,592

97,149

296,405

173,352

62,983

70,998

55,892

—

806,371

39,575

193,588

127,677

85,471

115,881

88,509

14,965

—

665,666

Special Mention

—

494

705

—

361

—

1,560

—

236

—

350

—

586

Substandard

—

373

—

1,378

—

1,751

—

351

498

—

849

Other ⁽¹⁾

11,829

15,036

5,247

5,381

2,953

2,930

807

—

44,183

13,228

29,529

6,049

2,849

3,913

4,151

951

—

60,670

Total Construction

61,421

112,185

302,146

179,811

65,936

75,667

56,699

—

853,865

52,803

223,117

133,726

88,556

120,145

93,508

15,916

—

727,771

Lease Financing

Risk rating:

Pass

21,690

69,598

55,494

11,376

16,623

60,091

—

234,872

41,656

26,813

49,889

43,989

7,801

68,457

—

238,605

Special Mention

545

308

465

246

232

—

1,877

—

457

2,642

1,358

—

4,485

Substandard

—

2,720

1,668

260

1,072

502

—

6,222

—

195

1,347

—

1,572

Total Lease Financing

22,235

72,626

57,627

11,882

17,776

60,825

—

242,971

41,656

27,270

52,726

45,363

7,826

69,821

—

244,662

Total Commercial Lending

988,721

976,091

1,273,141

944,005

622,275

1,492,518

867,043

25,657

7,189,451

842,447

1,378,063

606,448

889,878

654,513

1,623,936

856,025

20,083

6,871,393

(continued)

1619

Table of Contents

Revolving

Loans

Converted

Term Loans

Revolving

to Term

Term Loans

Revolving

to Term

Amortized Cost Basis by Origination Year

Loans

Amortized Cost Basis by Origination Year

Loans

(continued)

Amortized

(dollars in thousands)

2021

2020

2019

2018

2017

Prior

Cost Basis

Total

2022

2021

2020

2019

2018

Prior

Cost Basis

Total

Residential Lending

Residential Mortgage

FICO:

740 and greater

570,542

675,163

329,047

224,827

293,853

958,515

—

3,051,947

352,342

1,069,214

587,478

252,428

178,752

974,057

—

3,414,271

680 - 739

68,225

86,857

50,699

43,075

42,753

144,223

—

435,832

46,224

124,306

79,422

45,117

21,882

144,226

—

461,177

620 - 679

11,867

12,564

9,988

6,352

9,310

41,478

—

91,559

5,305

19,143

14,291

5,405

3,892

38,470

—

86,506

550 - 619

—

1,018

171

1,322

1,752

11,788

—

16,051

169

1,943

294

226

2,073

8,017

—

12,722

Less than 550

—

1,274

—

346

2,545

2,807

—

6,972

2,085

1,242

—

340

4,656

—

8,383

No Score ⁽³⁾

10,207

8,602

15,988

21,087

18,814

51,217

—

125,915

10,652

14,868

7,544

13,471

16,488

54,373

—

117,396

Other ⁽²⁾

10,440

17,605

12,917

11,910

19,349

20,130

625

155

93,131

20,365

19,445

15,580

9,552

9,757

31,304

4,999

1,311

112,313

Total Residential Mortgage

671,281

803,083

418,810

308,919

388,376

1,230,158

625

155

3,821,407

437,142

1,250,161

704,669

326,199

233,184

1,255,103

4,999

1,311

4,212,768

Home Equity Line

FICO:

740 and greater

—

610,924

1,757

612,681

—

748,148

2,227

750,375

680 - 739

—

147,286

3,619

150,905

—

157,042

3,106

160,148

620 - 679

—

39,660

2,036

41,696

—

40,070

2,454

42,524

550 - 619

—

12,966

1,256

14,222

—

9,202

1,601

10,803

Less than 550

—

2,025

2,072

—

1,159

491

1,650

No Score ⁽³⁾

—

3,792

—

3,792

—

6,069

—

6,069

Total Home Equity Line

—

816,653

8,715

825,368

—

961,690

9,879

971,569

Total Residential Lending

671,281

803,083

418,810

308,919

388,376

1,230,158

817,278

8,870

4,646,775

437,142

1,250,161

704,669

326,199

233,184

1,255,103

966,689

11,190

5,184,337

Consumer Lending

FICO:

740 and greater

82,086

97,867

100,874

77,671

38,340

16,537

112,925

284

526,584

115,911

132,565

66,828

59,155

38,001

17,426

117,266

203

547,355

680 - 739

50,771

70,303

73,024

48,071

26,097

12,183

70,627

747

351,823

53,590

80,240

45,783

41,393

23,562

13,947

67,636

566

326,717

620 - 679

21,372

31,170

37,145

25,852

17,799

9,120

31,515

1,258

175,231

11,760

35,430

17,746

22,180

13,928

11,374

30,079

1,018

143,515

550 - 619

2,887

9,729

17,206

14,016

11,217

6,263

10,652

1,234

73,204

1,000

6,548

6,576

10,400

7,652

6,801

10,044

1,026

50,047

Less than 550

322

3,826

6,934

5,439

3,757

2,295

3,184

748

26,505

379

1,758

2,973

5,022

2,547

2,525

3,047

483

18,734

No Score ⁽³⁾

834

33,144

420

34,688

1,087

402

37,536

303

39,465

Other ⁽²⁾

394

370

1,759

2,183

74,717

—

79,524

1,675

4,218

358

1,674

—

2,152

71,141

—

81,218

Total Consumer Lending

158,666

213,328

237,027

171,152

99,480

46,451

336,764

4,691

1,267,559

185,402

261,161

140,273

139,876

85,721

54,270

336,749

3,599

1,207,051

Total Loans and Leases

1,818,668

1,992,502

1,928,978

1,424,076

1,110,131

2,769,127

2,021,085

39,218

13,103,785

1,464,991

2,889,385

1,451,390

1,355,953

973,418

2,933,309

2,159,463

34,872

13,262,781

(1)	Other credit quality indicators used for monitoring purposes are primarily FICO scores. The majority of the loans in this population were originated to borrowers with a prime FICO score.

(2)	Other credit quality indicators used for monitoring purposes are primarily internal risk ratings. The majority of the loans in this population were graded with a “Pass” rating.

(3)	No FICO scores are primarily related to loans and leases extended to non-residents. Loans and leases of this nature are primarily secured by collateral and/or are closely monitored for performance.

1720

Table of Contents

The amortized cost basis by year of origination and credit quality indicator of the Company’s loans and leases as of December 31, ~~2020~~2021 was as follows:

Revolving

Loans

Converted

Term Loans

Revolving

to Term

Term Loans

Revolving

to Term

Amortized Cost Basis by Origination Year

Loans

Amortized Cost Basis by Origination Year

Loans

Amortized

(dollars in thousands)

2020

2019

2018

2017

2016

Prior

Cost Basis

Total

2021

2020

2019

2018

2017

Prior

Cost Basis

Total

Commercial Lending

Commercial and Industrial

Risk rating:

Pass

873,639

324,030

183,329

73,000

49,886

94,360

1,058,786

28,853

2,685,883

623,098

129,665

223,388

88,409

29,380

168,591

644,947

40,193

1,947,671

Special Mention

20,937

10,370

20,164

2,099

279

8,316

101,183

1,549

164,897

397

4,382

4,213

12,552

974

5,313

4,804

986

33,621

Substandard

23,804

2,023

2,568

677

4,063

8,113

33,775

250

75,273

354

1,380

1,951

1,285

3,551

17,893

1,043

27,517

Other ⁽¹⁾

13,142

13,426

9,246

5,337

1,867

280

50,156

—

93,454

13,277

7,070

7,741

4,453

1,995

370

43,384

—

78,290

Total Commercial and Industrial

931,522

349,849

215,307

81,113

56,095

111,069

1,243,900

30,652

3,019,507

637,126

142,497

237,293

106,699

32,409

177,825

711,028

42,222

2,087,099

Commercial Real Estate

Risk rating:

Pass

342,845

611,243

541,104

447,366

295,426

814,398

47,604

323

3,100,309

693,370

338,140

533,887

487,739

415,186

940,732

78,479

14,891

3,502,424

Special Mention

1,500

63,617

26,187

33,482

37,841

61,279

2,999

—

226,905

—

48,499

7,470

25,513

30,255

7,600

—

119,337

Substandard

3,964

18,983

3,779

10,615

18,083

9,511

—

64,964

—

1,776

164

15,303

459

—

17,702

Other ⁽¹⁾

—

498

—

498

—

160

—

160

Total Commercial Real Estate

344,374

678,824

586,274

484,627

343,882

894,258

60,114

323

3,392,676

693,370

338,140

582,386

496,985

440,863

986,450

86,538

14,891

3,639,623

Construction

Risk rating:

Pass

53,931

233,730

202,808

83,792

23,171

41,536

28,386

—

667,354

154,558

107,767

210,314

155,311

62,770

48,021

22,859

—

761,600

Special Mention

—

508

707

4,717

—

9,172

—

15,104

—

244

707

—

356

—

1,307

Substandard

—

541

1,840

521

989

—

3,891

—

363

—

839

—

1,202

Other ⁽¹⁾

16,578

16,393

7,775

3,685

1,800

2,656

583

—

49,470

26,835

8,875

4,317

4,308

2,684

2,048

793

—

49,860

Total Construction

70,509

250,631

211,831

94,034

25,492

54,353

28,969

—

735,819

181,393

116,642

214,875

160,689

65,454

51,264

23,652

—

813,969

Lease Financing

Risk rating:

Pass

79,064

60,717

13,669

17,207

3,010

61,266

—

234,933

33,980

60,650

48,236

9,449

15,009

57,130

—

224,454

Special Mention

950

892

311

1,300

351

295

—

4,099

501

2,702

1,506

311

153

—

5,173

Substandard

2,708

1,677

327

1,141

—

526

—

6,379

—

270

140

871

470

—

1,767

Total Lease Financing

82,722

63,286

14,307

19,648

3,361

62,087

—

245,411

34,481

63,622

49,882

9,776

16,033

57,600

—

231,394

Total Commercial Lending

1,429,127

1,342,590

1,027,719

679,422

428,830

1,121,767

1,332,983

30,975

7,393,413

1,546,370

660,901

1,084,436

774,149

554,759

1,273,139

821,218

57,113

6,772,085

(continued)

1821

Table of Contents

Revolving

Loans

Converted

Term Loans

Revolving

to Term

Term Loans

Revolving

to Term

Amortized Cost Basis by Origination Year

Loans

Amortized Cost Basis by Origination Year

Loans

(continued)

Amortized

(dollars in thousands)

2020

2019

2018

2017

2016

Prior

Cost Basis

Total

2021

2020

2019

2018

2017

Prior

Cost Basis

Total

Residential Lending

Residential Mortgage

FICO:

740 and greater

728,807

384,248

290,484

361,297

314,971

830,795

—

2,910,602

1,101,958

635,061

286,993

198,622

251,906

829,175

—

3,303,715

680 - 739

85,151

53,090

44,616

50,703

39,230

144,537

—

417,327

140,997

81,590

45,163

27,315

32,855

125,906

—

453,826

620 - 679

15,767

7,604

11,460

9,628

7,982

43,393

—

95,834

15,781

11,943

5,268

10,149

9,069

37,404

—

89,614

550 - 619

—

1,971

2,818

2,920

4,474

10,144

—

22,327

1,735

873

698

533

2,033

7,475

—

13,347

Less than 550

—

861

593

2,916

594

2,138

—

7,102

—

345

2,603

2,838

—

5,786

No Score ⁽³⁾

13,823

18,861

21,214

21,821

14,355

45,147

—

135,221

18,882

7,938

15,051

18,107

17,333

42,185

—

119,496

Other ⁽²⁾

21,011

15,860

18,540

22,677

9,550

13,426

578

163

101,805

25,625

16,263

10,242

11,297

16,242

17,152

718

97,583

Total Residential Mortgage

864,559

482,495

389,725

471,962

391,156

1,089,580

578

163

3,690,218

1,304,978

753,668

363,415

266,368

332,041

1,062,135

718

4,083,367

Home Equity Line

FICO:

740 and greater

—

608,282

2,163

610,445

—

671,566

1,873

673,439

680 - 739

—

159,886

3,155

163,041

—

141,889

3,968

145,857

620 - 679

—

44,005

1,571

45,576

—

37,815

2,500

40,315

550 - 619

—

11,644

884

12,528

—

9,090

948

10,038

Less than 550

—

5,159

330

5,489

—

2,574

2,642

No Score ⁽³⁾

—

4,545

—

4,545

—

4,317

—

4,317

Total Home Equity Line

—

833,521

8,103

841,624

—

867,251

9,357

876,608

Total Residential Lending

864,559

482,495

389,725

471,962

391,156

1,089,580

834,099

8,266

4,531,842

1,304,978

753,668

363,415

266,368

332,041

1,062,135

867,295

10,075

4,959,975

Consumer Lending

FICO:

740 and greater

113,373

122,965

99,678

54,691

24,029

6,034

114,748

275

535,793

155,929

83,337

79,617

56,707

24,525

8,067

117,843

209

526,234

680 - 739

83,316

90,853

66,143

36,426

16,358

4,985

76,391

773

375,245

93,214

56,327

55,126

34,049

17,527

6,315

69,366

707

332,631

620 - 679

40,469

48,904

33,917

24,705

11,144

3,788

36,622

1,221

200,770

41,671

21,986

28,491

19,403

12,952

5,324

31,165

1,175

162,167

550 - 619

9,125

20,274

17,693

15,126

7,825

2,883

12,980

1,458

87,364

7,836

8,265

13,265

10,497

7,469

3,244

10,359

1,089

62,024

Less than 550

3,017

10,139

9,189

6,517

3,123

1,118

5,261

799

39,163

2,272

3,867

6,646

3,484

2,739

1,175

3,195

536

23,914

No Score ⁽³⁾

339

103

109

—

33,854

356

34,835

481

35,414

320

36,397

Other ⁽²⁾

380

1,890

2,214

6,768

69,302

—

80,672

4,737

365

1,712

2,182

77,528

—

86,572

Total Consumer Lending

250,019

295,128

226,757

139,788

62,534

25,576

349,158

4,882

1,353,842

306,140

174,166

184,913

124,197

67,459

24,158

344,870

4,036

1,229,939

Total Loans and Leases

2,543,705

2,120,213

1,644,201

1,291,172

882,520

2,236,923

2,516,240

44,123

13,279,097

3,157,488

1,588,735

1,632,764

1,164,714

954,259

2,359,432

2,033,383

71,224

12,961,999

(1)	Other credit quality indicators used for monitoring purposes are primarily FICO scores. The majority of the loans in this population were originated to borrowers with a prime FICO score.

(2)	Other credit quality indicators used for monitoring purposes are primarily internal risk ratings. The majority of the loans in this population were graded with a “Pass” rating.

(3)	No FICO scores are primarily related to loans and leases extended to non-residents. Loans and leases of this nature are primarily secured by collateral and/or are closely monitored for performance.

There were 0 loans and leases graded as Loss as of June 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

The amortized cost basis of revolving loans that were converted to term loans during the three and six months ended June 30, ~~2021~~2022 and ~~2020~~2021 was as follows:

Three Months Ended
(dollars in thousands)

June 30, 2021
Commercial and industrial

$
30
Home equity line

538
Consumer

443
Total Revolving Loans Converted to Term Loans During the Period

$
1,011


	Three Months Ended
(dollars in thousands)	June 30, 2022
Commercial and industrial	$	277
Home equity line		1,057
Consumer		336
Total Revolving Loans Converted to Term Loans During the Period	$	1,670

1922

Table of Contents


	Six Months Ended
(dollars in thousands)	June 30, 2022
Commercial and industrial	$	480
Home equity line		2,072
Consumer		690
Total Revolving Loans Converted to Term Loans During the Period	$	3,242


	Three Months Ended
(dollars in thousands)	June 30, 2021
Commercial and industrial	$	30
Home equity line		538
Consumer		443
Total Revolving Loans Converted to Term Loans During the Period	$	1,011


	Six Months Ended
(dollars in thousands)	June 30, 2021
Commercial and industrial	$	259
Home equity line		1,617
Consumer		936
Total Revolving Loans Converted to Term Loans During the Period	$	2,812

Three Months Ended
(dollars in thousands)

June 30, 2020
Commercial and industrial

$
294
Home equity line

3,928
Total Revolving Loans Converted to Term Loans During the Period

$
4,222

Six Months Ended
(dollars in thousands)

June 30, 2020
Commercial and industrial

$
28,522
Residential mortgage

296
Home equity line

3,928
Total Revolving Loans Converted to Term Loans During the Period

$
32,746

Past-Due Status

The Company continually updates its aging analysis for loans and leases to monitor the migration of loans and leases into past due categories. The Company considers loans and leases that are delinquent for 30 days or more to be past due. As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the aging analysis of the amortized cost basis of the Company’s past due loans and leases was as follows:

June 30, 2021

June 30, 2022

Past Due

Loans and

Past Due

Loans and

Greater

Leases Past

Greater

Leases Past

Than or

Due 90 Days

Than or

Due 90 Days

30-59

60-89

Equal to

or More and

30-59

60-89

Equal to

or More and

Days

90 Days

Total

Total Loans

Still Accruing

Days

90 Days

Total

Total Loans

Still Accruing

(dollars in thousands)

Past Due

Current

and Leases

Interest

Past Due

Current

and Leases

Interest

Commercial and industrial

6,835

380

1,140

8,355

2,556,192

2,564,547

494

4,848

630

2,798

8,276

1,933,856

1,942,132

2,230

Commercial real estate

623

—

937

1,560

3,526,508

3,528,068

—

5,101

—

903

6,004

3,950,824

3,956,828

176

Construction

—

202

262

853,603

853,865

—

352

445

727,326

727,771

352

Lease financing

—

242,971

—

244,662

—

Residential mortgage

3,533

1,290

4,113

8,936

3,812,471

3,821,407

—

4,445

2,090

3,955

10,490

4,202,278

4,212,768

750

Home equity line

1,310

435

4,680

6,425

818,943

825,368

4,680

8,627

551

1,039

10,217

961,352

971,569

1,039

Consumer

12,492

2,210

1,134

15,836

1,251,723

1,267,559

1,134

24,744

3,544

1,218

29,506

1,177,545

1,207,051

1,218

Total

24,793

4,517

12,064

41,374

13,062,411

13,103,785

6,368

47,858

6,815

10,265

64,938

13,197,843

13,262,781

5,765


	December 31, 2020														December 31, 2021
	Past Due												Loans and		Past Due												Loans and
					Greater								Leases Past						Greater								Leases Past
					Than or								Due 90 Days						Than or								Due 90 Days
	30-59		60-89		Equal to								or More and		30-59		60-89		Equal to								or More and
	Days		Days		90 Days		Total				Total Loans		Still Accruing		Days		Days		90 Days		Total				Total Loans		Still Accruing
(dollars in thousands)	Past Due		Past Due		Past Due		Past Due		Current		and Leases		Interest		Past Due		Past Due		Past Due		Past Due		Current		and Leases		Interest
Commercial and industrial	$	2,585	$	604	$	2,626	$	5,815	$	3,013,692	$	3,019,507	$	2,108	$	1,195	$	1,195	$	1,318	$	3,708	$	2,083,391	$	2,087,099	$	740
Commercial real estate		75		2,568		963		3,606		3,389,070		3,392,676		882		631		—		—		631		3,638,992		3,639,623		—
Construction		779		376		2,137		3,292		732,527		735,819		93		162		—		—		162		813,807		813,969		—
Lease financing		—		—		—		—		245,411		245,411		—		—		—		—		—		231,394		231,394		—
Residential mortgage		3,382		4,125		3,372		10,879		3,679,339		3,690,218		—		3,030		1,002		5,617		9,649		4,073,718		4,083,367		987
Home equity line		1,375		743		4,818		6,936		834,688		841,624		4,818		1,538		538		3,681		5,757		870,851		876,608		3,681
Consumer		18,492		5,205		3,266		26,963		1,326,879		1,353,842		3,266		16,534		3,366		1,800		21,700		1,208,239		1,229,939		1,800
Total	$	26,688	$	13,621	$	17,182	$	57,491	$	13,221,606	$	13,279,097	$	11,167	$	23,090	$	6,101	$	12,416	$	41,607	$	12,920,392	$	12,961,999	$	7,208

2023

Table of Contents

Nonaccrual Loans and Leases

The Company generally places a loan or lease on nonaccrual status when management believes that collection of principal or interest has become doubtful or when a loan or lease becomes 90 days past due as to principal or interest, unless it is well secured and in the process of collection. The Company charges off a loan or lease when facts indicate that the loan or lease is considered uncollectible.

The amortized cost basis of loans and leases on nonaccrual status as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 and the amortized cost basis of loans and leases on nonaccrual status with no ACL as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 were as follows:

June 30, 2021

June 30, 2022

Nonaccrual

Loans

and Leases

With No

Nonaccrual

With No

Nonaccrual

Allowance

Loans

Allowance

Loans

(dollars in thousands)

for Credit Losses

and Leases

for Credit Losses

and Leases

Commercial and industrial

—

828

—

682

Commercial real estate

857

937

727

Residential mortgage

1,877

7,140

2,153

6,450

Total Nonaccrual Loans and Leases

2,734

8,905

2,880

7,859


	December 31, 2020				December 31, 2021
	Nonaccrual				Nonaccrual
	Loans				Loans
	and Leases				and Leases
	With No		Nonaccrual		With No		Nonaccrual
	Allowance		Loans		Allowance		Loans
(dollars in thousands)	for Credit Losses		and Leases		for Credit Losses		and Leases
Commercial and industrial	$	—	$	518	$	—	$	718
Commercial real estate		—		80		727		727
Construction		1,840		2,043
Residential mortgage		1,316		6,441		1,192		5,637
Total Nonaccrual Loans and Leases	$	3,156	$	9,082	$	1,919	$	7,082

For both the three and six months ended June 30, 2022, the Company recognized interest income of $0.1 million, on nonaccrual loans and leases, and for the three and six months ended June 30, 2021, the Company recognized interest income of $0.1 million and $0.2 million, respectively, on nonaccrual loans and ~~leases, and~~leases. Furthermore, for ~~both~~ the three and six months ended June 30, ~~2020,~~2022, the ~~Company recognized~~amount of accrued interest receivables written off by reversing interest income ~~of $0.1~~was $0.2 million ~~on nonaccrual loans~~ and ~~leases. Furthermore,~~$0.4 million, respectively, and for the three and six months ended June 30, 2021, the amount of accrued interest receivables written off by reversing interest income was $0.1 million and $0.5 million, ~~respectively, and for the three and six months ended June 30, 2020, the amount of accrued interest receivables written off by reversing interest income was $0.5 million and $0.9 million,~~ respectively.

Collateral-Dependent Loans and Leases

Collateral-dependent loans and leases are those for which repayment (on the basis of the Company’s assessment as of the reporting date) is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the amortized cost basis of collateral-dependent loans were ~~$8.8~~$7.6 million and ~~$21.0~~$7.5 million, respectively. As of both June 30, 2022 and December 31, 2021, these loans were primarily collateralized by residential real estate property. As of ~~December 31, 2020, these loans were primarily collateralized by residential real estate property and borrower assets. As of~~both June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the fair value of collateral on substantially all collateral-dependent loans were significantly in excess of their amortized cost basis.

2124

Table of Contents

Modifications

Commercial and industrial loans modified in a TDR may involve temporary interest-only payments, term and amortization extensions, and converting revolving credit lines to term loans. Modifications of commercial real estate and construction loans in a TDR may involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor. Modifications of construction loans in a TDR may also involve extending the interest-only payment period. Interest continues to accrue on the missed payments and as a result, the effective yield on the loan remains unchanged. Residential real estate loans modified in a TDR may be comprised of loans where monthly payments are lowered to accommodate the ~~borrowers'~~borrowers’ financial needs for a period of time, including extended interest-only periods and re-amortization of the balance. Modifications of consumer loans in a TDR may involve temporary or permanent reduced payments, temporary interest-only payments and below-market interest rates.

Loans modified in a TDR may already be on nonaccrual status and in some cases, partial charge-offs may have already been taken against the outstanding loan balance. Loans modified in a TDR are evaluated for impairment. As a result, this may have a financial effect of increasing the specific ACL associated with the loan. An ACL for impaired commercial loans, including commercial real estate and construction loans, that have been modified in a TDR is measured based on the present value of expected future cash flows discounted at the ~~loan's~~loan’s effective interest rate or if the loan is collateral-dependent, the estimated fair value of the collateral, less any selling costs. An ACL for impaired residential real estate loans that have been modified in a TDR is measured based on the estimated fair value of the collateral, less any selling costs. Management exercises significant judgment in developing these estimates.

The following presents, by class, information related to loans modified in a TDR during the three and six months ended June 30, ~~2021~~2022 and ~~2020:~~2021:

Three Months Ended

Six Months Ended

Three Months Ended

Six Months Ended

June 30, 2021

June 30, 2022

Number of

Recorded

Related

Number of

Recorded

Related

Number of

Recorded

Related

Number of

Recorded

Related

(dollars in thousands)

Contracts

Investment⁽¹⁾

ACL

Contracts

Investment⁽¹⁾

ACL

Contracts⁽¹⁾

Investment⁽²⁾

ACL

Contracts⁽¹⁾

Investment⁽²⁾

ACL

Commercial and industrial

246

2,545

170

Commercial real estate

382

Construction

—

708

Residential mortgage

751

143

5,629

240

260

Consumer

186

1,797

407

1,728

15,868

2,274

514

143

201

2,107

346

Total

191

3,176

661

1,759

25,132

2,868

774

177

202

2,367

380


	Three Months Ended					Six Months Ended
	June 30, 2020					June 30, 2020
											Three Months Ended					Six Months Ended
											June 30, 2021					June 30, 2021
	Number of	Recorded		Related		Number of	Recorded		Related		Number of	Recorded		Related		Number of	Recorded		Related
(dollars in thousands)	Contracts	Investment⁽¹⁾		Allowance		Contracts	Investment⁽¹⁾		ACL		Contracts⁽¹⁾	Investment⁽²⁾		ACL		Contracts⁽¹⁾	Investment⁽²⁾		ACL
Commercial and industrial	—	$	—	$	—	1	$	500	$	30	1	$	246	$	13	15	$	2,545	$	170
Commercial real estate											1		382		98	1		382		98
Construction											—		—		—	2		708		86
Residential mortgage											3		751		143	13		5,629		240
Consumer											186		1,797		407	1,728		15,868		2,274
Total	—	$	—	$	—	1	$	500	$	30	191	$	3,176	$	661	1,759	$	25,132	$	2,868

(1)	The number of contracts does not include TDRs that have been fully paid off, charged off, or foreclosed upon by the end of the period.

(2)	The recorded investment balances reflect all partial paydowns and charge-offs since the modification date and do not include TDRs that have been fully paid off, charged off, or foreclosed upon by the end of the period.

The above loans were modified in a TDR through an extension of maturity dates, temporary interest-only payments, temporary payment deferrals, reduced payments, converting revolving credit lines to term loans or below-market interest rates.

The Company had commitments to extend credit, standby letters of credit, and commercial letters of credit totaling ~~$6.5~~$6.8 billion and ~~$6.1~~$6.7 billion as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Of the ~~$6.5~~$6.8 billion at June 30, ~~2021,~~2022, there were commitments of ~~$0.4~~$0.1 million to lend additional funds related to borrowers who had loan terms modified in a TDR. Of the ~~$6.1~~$6.7 billion at December 31, ~~2020,~~2021, there were commitments of $0.2 million to lend additional funds related to borrowers who had loan terms modified in a TDR.

2225

Table of Contents

The following table presents, by class, loans modified in TDRs that have defaulted in the current period within 12 months of their permanent modification date for the periods indicated. The Company is reporting these defaulted TDRs based on a payment default definition of 30 days past due:


	Three Months Ended			Six Months Ended			Three Months Ended			Six Months Ended			Three Months Ended			Six Months Ended			Three Months Ended			Six Months Ended
	June 30, 2021			June 30, 2021			June 30, 2020			June 30, 2020			June 30, 2022			June 30, 2022			June 30, 2021			June 30, 2021
	Number of	Recorded		Number of	Recorded		Number of	Recorded		Number of	Recorded		Number of	Recorded		Number of	Recorded		Number of	Recorded		Number of	Recorded
(dollars in thousands)	Contracts	Investment⁽¹⁾		Contracts	Investment⁽¹⁾		Contracts	Investment⁽¹⁾		Contracts	Investment⁽¹⁾		Contracts⁽¹⁾	Investment⁽²⁾		Contracts⁽¹⁾	Investment⁽²⁾		Contracts⁽¹⁾	Investment⁽²⁾		Contracts⁽¹⁾	Investment⁽²⁾
Commercial and industrial	—	$	—	2	$	387	1	$	500	1	$	500	2	$	541	3	$	655	—	$	—	2	$	387
Construction	—		—	1		361	—		—	—		—	—		—	—		—	—		—	1		361
Residential mortgage	1		371	1		371	—		—	—		—	—		—	—		—	1		371	1		371
Consumer	135		1,944	158		2,260	—		—	—		—	151		2,197	229		3,250	135		1,944	158		2,260
Total	136	$	2,315	162	$	3,379	1	$	500	1	$	500	153	$	2,738	232	$	3,905	136	$	2,315	162	$	3,379

(1)	The number of contracts does not include TDRs that have been fully paid off, charged off, or foreclosed upon by the end of the period.

(2)	The recorded investment balances reflect all partial paydowns and charge-offs since the modification date and do not include TDRs that have been fully paid off, charged off, or foreclosed upon by the end of the period.

Foreclosure Proceedings

As of both June 30, 2022 and December 31, 2021, there was one residential mortgage loan of ~~$0.4~~$0.3 million ~~collateralized by real estate property that was modified in a TDR that was in process of foreclosure. As of December 31, 2020, there were 0 residential mortgage loans~~ collateralized by real estate property that was modified in a TDR that was in process of foreclosure.

Foreclosed Property

As of June 30, ~~2021 and December 31, 2020,~~2022, there were 0 residential real estate properties held from foreclosed residential real estate loans. As of December 31, 2021, residential real estate property held from one foreclosed residential mortgage loan of $0.2 million was included in other real estate owned and repossessed personal property shown in the unaudited interim consolidated balance sheets.

5. Mortgage Servicing Rights

Mortgage servicing activities include collecting principal, interest, tax, and insurance payments from borrowers while accounting for and remitting payments to investors, taxing authorities, and insurance companies. The Company also monitors delinquencies and administers foreclosure proceedings.

Mortgage loan servicing income is recorded in noninterest income as a part of other service charges and fees and amortization of the servicing assets is recorded in noninterest income as part of other income. The unpaid principal amount of residential real estate loans serviced for others was ~~$1.9~~$1.5 billion and ~~$2.2~~$1.7 billion as of June 30, ~~2021~~2022 and December 31, ~~2020, respectively.~~2021. Servicing fees include contractually specified fees, late charges, and ancillary fees, and were ~~$1.2~~$1.0 million and ~~$1.4~~$1.2 million for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$2.5~~$2.0 million and ~~$2.9~~$2.5 million for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Amortization of mortgage servicing rights (“MSRs”) was $0.5 million and $1.3 million for ~~both~~the three months ended June 30, 2022 and 2021, respectively and ~~2020,~~$1.3 million and $1.8 ~~million and $3.3~~ million for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The estimated future amortization expenses for MSRs over the next five years are as follows:


	Estimated		Estimated
(dollars in thousands)	Amortization		Amortization
Under one year	$	1,921	$	1,075
One to two years		1,516		942
Two to three years		1,230		826
Three to four years		1,014		722
Four to five years		847		632

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Table of Contents

The details of the Company’s MSRs are presented below:


	June 30,		December 31,		June 30,		December 31,
(dollars in thousands)	2021		2020		2022		2021
Gross carrying amount	$	68,961	$	67,856	$	69,207	$	69,103
Less: accumulated amortization		58,954		57,125		62,055		60,801
Net carrying value	$	10,007	$	10,731	$	7,152	$	8,302

The following table presents changes in amortized MSRs for the three and six months ended June 30, ~~2021~~2022 and ~~2020:~~2021:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands)	2021		2020		2021		2020		2022		2021		2022		2021
Balance at beginning of period	$	10,869	$	11,979	$	10,731	$	12,668	$	7,650	$	10,869	$	8,302	$	10,731
Originations		421		915		1,105		2,206		20		421		105		1,105
Amortization		(1,283)		(1,299)		(1,829)		(3,279)		(518)		(1,283)		(1,255)		(1,829)
Balance at end of period	$	10,007	$	11,595	$	10,007	$	11,595	$	7,152	$	10,007	$	7,152	$	10,007
Fair value of amortized MSRs at beginning of period	$	14,921	$	17,615	$	14,029	$	20,329	$	13,585	$	14,921	$	12,243	$	14,029
Fair value of amortized MSRs at end of period	$	13,480	$	15,159	$	13,480	$	15,159	$	14,969	$	13,480	$	14,969	$	13,480

MSRs are evaluated for impairment if events and circumstances indicate a possible impairment. NaN impairment of MSRs was recorded for the three and six months ended June 30, ~~2021~~2022 and ~~2020.~~2021.

The quantitative assumptions used in determining the lower of cost or fair value of the Company’s MSRs as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 were as follows:


	June 30, 2021							December 31, 2020							June 30, 2022							December 31, 2021
						Weighted							Weighted							Weighted							Weighted
	Range					Average		Range					Average		Range					Average		Range					Average
Conditional prepayment rate	14.85	%	-	31.02	%	15.37	%	11.86	%	-	26.52	%	16.90	%	8.09	%	-	25.35	%	8.45	%	13.77	%	-	25.19	%	14.61	%
Life in years (of the MSR)	1.70		-	5.16		4.96		1.83		-	6.68		4.45		2.39		-	7.11		6.87		1.99		-	5.31		5.03
Weighted-average coupon rate	3.63	%	-	6.77	%	3.75	%	3.24	%	-	6.98	%	3.84	%	3.55	%	-	6.37	%	3.68	%	3.58	%	-	6.56	%	3.71	%
Discount rate	10.00	%	-	10.00	%	10.00	%	10.00	%	-	10.00	%	10.00	%	10.00	%	-	10.01	%	10.00	%	10.00	%	-	10.01	%	10.00	%

The sensitivities surrounding MSRs are expected to have an immaterial impact on fair value.

6. Transfers of Financial Assets

The Company’s transfers of financial assets with continuing interest may include pledges of collateral to secure public deposits and repurchase agreements, FHLB and FRB borrowing capacity, automated clearing house (“ACH”) transactions and interest rate swaps.

For public deposits and repurchase agreements, the Company enters into bilateral agreements with the entity to pledge investment securities as collateral in the event of default. The right of setoff for a repurchase agreement resembles a secured borrowing, whereby the collateral pledged by the Company would be used to settle the fair value of the repurchase agreement should the Company be in default. The counterparty has the right to sell or repledge the investment securities. The Company is required by the counterparty to maintain adequate collateral levels. In the event the collateral fair value falls below stipulated levels, the Company will pledge additional investment securities. For transfers of assets with the FHLB and the FRB, the Company enters into bilateral agreements to pledge loans as collateral to secure borrowing capacity. For ACH transactions, the Company enters into bilateral agreements to collateralize possible daylight overdrafts. For interest rate swaps, the Company enters into bilateral agreements to pledge collateral when either party is in a negative fair value position to mitigate counterparty credit risk. Counterparties to ACH transactions, certain interest rate swaps, the FHLB and the FRB do not have the right to sell or repledge the collateral.

2427

Table of Contents

The carrying amounts of the assets pledged as collateral to secure public deposits, borrowing arrangements and other transactions as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 were as follows:


(dollars in thousands)	June 30, 2021		December 31, 2020		June 30, 2022		December 31, 2021
Public deposits	$	1,813,339	$	2,251,508	$	2,402,529	$	1,913,369
Federal Home Loan Bank		2,623,025		2,917,317		2,161,017		2,380,042
Federal Reserve Bank		1,873,763		1,919,744		1,711,775		1,724,279
ACH transactions		113,201		111,347		118,408		115,038
Interest rate swaps		50,858		56,004		29,762		48,430
Total	$	6,474,186	$	7,255,920	$	6,423,491	$	6,181,158

As of June 30, 2022 and December 31, 2021, the borrowing capacity with the FHLB was $1.6 billion and $1.8 billion, respectively. The FHLB fixed-rate advances and remaining borrowing capacity were secured by residential real estate loan collateral as of June 30, 2022 and December 31, 2021. As of June 30, 2022 and December 31, 2021, the Company had an undrawn line of credit of $1.3 billion and $1.1 billion, respectively, from the FRB. The borrowing capacity with the FRB was secured by consumer, commercial and industrial, commercial real estate and residential real estate loans as of June 30, 2022 and December 31, 2021.

As the Company did not enter into reverse repurchase agreements or repurchase agreements, 0 collateral was accepted or pledged as of June 30, ~~2021~~2022 and December 31, ~~2020.~~2021. In addition, 0 debt was extinguished by in-substance defeasance.

7. Deposits

As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, deposits were categorized as interest-bearing or noninterest-bearing as follows:


(dollars in thousands)	June 30, 2021		December 31, 2020		June 30, 2022		December 31, 2021
U.S.:
Interest-bearing	$	11,393,789	$	10,928,712	$	12,115,934	$	11,553,298
Noninterest-bearing		7,718,714		6,674,352		8,667,756		8,498,187
Foreign:
Interest-bearing		851,404		776,897		874,637		868,985
Noninterest-bearing		871,208		847,762		943,127		895,676
Total deposits	$	20,835,115	$	19,227,723	$	22,601,454	$	21,816,146

The following table presents the maturity distribution of time certificates of deposit as of June 30, ~~2021:~~2022:

Under

$250,000

Under

$250,000

(dollars in thousands)

$250,000

or More

Total

$250,000

or More

Total

Three months or less

171,763

276,990

448,753

171,772

180,025

351,797

Over three through six months

169,882

146,794

316,676

182,045

199,301

381,346

Over six through twelve months

409,825

331,625

741,450

361,888

293,603

655,491

One to two years

109,209

82,409

191,618

89,003

21,527

110,530

Two to three years

84,594

14,534

99,128

49,814

11,053

60,867

Three to four years

33,388

4,728

38,116

43,595

17,297

60,892

Four to five years

45,581

21,625

67,206

38,887

6,754

45,641

Thereafter

466

250

716

416

700

1,116

Total

1,024,708

878,955

1,903,663

937,420

730,260

1,667,680

Time certificates of deposit in denominations of $250,000 or more, in the aggregate, were ~~$0.9~~$0.7 billion and ~~$1.3~~$0.8 billion as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Overdrawn deposit accounts are classified as loans and totaled ~~$4.3~~$7.0 million and ~~$2.6~~$2.1 million as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

~~8. Long-Term Borrowings~~

~~Long-term borrowings consisted of the following as of June 30, 2021 and December 31, 2020:~~

(dollars in thousands)

June 30, 2021

December 31, 2020
Finance lease

$
—

$
10
FHLB fixed-rate advances⁽¹⁾

200,000

200,000
Total long-term borrowings

$
200,000

$
200,010

~~(1)~~

~~Interest is payable monthly.~~

~~Table of Contents~~

As of June 30, 2021 and December 31, 2020, the Company’s long-term borrowings included $200.0 million in FHLB fixed-rate advances with a weighted average interest rate of 2.73% and maturity dates ranging from 2023 to 2024. The FHLB fixed-rate advances require monthly interest-only payments with the principal amount due on the maturity date. As of June 30, 2021 and December 31, 2020, the available remaining borrowing capacity with the FHLB was $1.8 billion and $2.0 billion, respectively. The FHLB fixed-rate advances and remaining borrowing capacity were secured by residential real estate loan collateral as of June 30, 2021 and December 31, 2020. As of both June 30, 2021 and December 31, 2020, the Company had an undrawn line of credit of $1.1 billion from the FRB. The borrowing capacity with the FRB was secured by consumer, commercial and industrial, commercial real estate and residential real estate loans as of June 30, 2021 and December 31, 2020. See “Note 6. Transfers of Financial Assets” for more information.

~~As of June 30, 2021, future contractual principal payments and maturities of long-term borrowings were as follows:~~

Principal
(dollars in thousands)

Payments
2021

$
—
2022

—
2023⁽¹⁾

100,000
2024⁽²⁾

100,000
2025

—
Total

$
200,000

~~(1)~~

~~FHLB fixed-rate advance callable on September 3, 2021 with an interest rate of 2.80%.~~

~~(2)~~

~~FHLB fixed-rate advance callable on October 15, 2021 with an interest rate of 2.65%.~~

Table of Contents

9.8. Accumulated Other Comprehensive ~~Income (Loss)~~Loss

Accumulated other comprehensive ~~income (loss)~~loss is defined as the revenues, expenses, gains and losses that are included in comprehensive ~~income~~loss but excluded from net income. The Company’s significant items of accumulated other comprehensive ~~income (loss)~~loss are pension and other benefits, net unrealized gains or losses on investment securities and net unrealized gains or losses on ~~investment securities.~~cash flow derivative hedges.

Changes in accumulated other comprehensive ~~income (loss)~~loss for the three and six months ended June 30, ~~2021~~2022 and ~~2020~~2021 are presented below:

Income

Tax

Pre-tax

Benefit

Net of

Pre-tax

Benefit

Net of

(dollars in thousands)

Amount

(Expense)

Tax

Amount

(Expense)

Tax

Accumulated other comprehensive loss at March 31, 2021

(59,238)

15,803

(43,435)

Three months ended June 30, 2021

Accumulated other comprehensive loss at March 31, 2022

(705,768)

188,266

(517,502)

Three months ended June 30, 2022

Investment securities:

Unrealized net gains arising during the period

18,831

(5,023)

13,808

Reclassification of net gains to net income:

Investment securities gains, net

(102)

(75)

Unrealized net losses arising during the period

(91,352)

24,369

(66,983)

Reclassification of net losses to net income:

Amortization of unrealized holding losses on held-to-maturity securities

19,929

(5,317)

14,612

Net change in investment securities

18,729

(4,996)

13,733

(71,423)

19,052

(52,371)

Other comprehensive income

18,729

(4,996)

13,733

Accumulated other comprehensive loss at June 30, 2021

(40,509)

10,807

(29,702)

Cash flow derivative hedges:

Unrealized net losses arising during the period

(1,523)

407

(1,116)

Reclassification of net gains included in net income

(638)

170

(468)

Net change in cash flow derivative hedges

(2,161)

577

(1,584)

Other comprehensive loss

(73,584)

19,629

(53,955)

Accumulated other comprehensive loss at June 30, 2022

(779,352)

207,895

(571,457)


			Income
			Tax
	Pre-tax		Benefit		Net of
(dollars in thousands)	Amount		(Expense)		Tax
Accumulated other comprehensive loss at December 31, 2021	$	(165,967)	$	44,274	$	(121,693)
Six months ended June 30, 2022
Investment securities:
Unrealized net losses arising during the period		(629,437)		167,903		(461,534)
Reclassification of net losses to net income:
Amortization of unrealized holding losses on held-to-maturity securities		19,929		(5,317)		14,612
Net change in investment securities		(609,508)		162,586		(446,922)
Cash flow derivative hedges:
Unrealized net losses arising during the period		(3,239)		865		(2,374)
Reclassification of net gains included in net income		(638)		170		(468)
Net change in cash flow derivative hedges		(3,877)		1,035		(2,842)
Other comprehensive loss		(613,385)		163,621		(449,764)
Accumulated other comprehensive loss at June 30, 2022	$	(779,352)	$	207,895	$	(571,457)

2629

Table of Contents


			Income
			Tax
	Pre-tax		Benefit		Net of
(dollars in thousands)	Amount		(Expense)		Tax
Accumulated other comprehensive loss at March 31, 2021	$	(59,238)	$	15,803	$	(43,435)
Three months ended June 30, 2021
Investment securities:
Unrealized net gains arising during the period		18,831		(5,023)		13,808
Reclassification of net gains to net income:
Investment securities gains, net		(102)		27		(75)
Net change in investment securities		18,729		(4,996)		13,733
Other comprehensive income		18,729		(4,996)		13,733
Accumulated other comprehensive loss at June 30, 2021	$	(40,509)	$	10,807	$	(29,702)


			Income
			Tax
	Pre-tax		Benefit		Net of
(dollars in thousands)	Amount		(Expense)		Tax
Accumulated other comprehensive income at December 31, 2020	$	43,098	$	(11,494)	$	31,604
Six months ended June 30, 2021
Investment securities:
Unrealized net losses arising during the period		(83,505)		22,274		(61,231)
Reclassification of net gains to net income:
Investment securities gains, net		(102)		27		(75)
Net change in investment securities		(83,607)		22,301		(61,306)
Other comprehensive loss		(83,607)		22,301		(61,306)
Accumulated other comprehensive loss at June 30, 2021	$	(40,509)	$	10,807	$	(29,702)

Income

Tax

Pre-tax

Benefit

Net of
(dollars in thousands)

Amount

(Expense)

Tax
Accumulated other comprehensive income at March 31, 2020

$
5,629

$
(1,500)

$
4,129
Three months ended June 30, 2020

Investment securities:

Unrealized net gains arising during the period

66,071

(17,624)

48,447
Reclassification of net losses to net income:

Investment securities losses, net

211

(56)

155
Net change in investment securities

66,282

(17,680)

48,602
Other comprehensive income

66,282

(17,680)

48,602
Accumulated other comprehensive income at June 30, 2020

$
71,911

$
(19,180)

$
52,731

The following table summarizes changes in accumulated other comprehensive loss, net of tax, for the periods indicated:

Income

Tax

Pre-tax

Benefit

Net of
(dollars in thousands)

Amount

(Expense)

Tax
Accumulated other comprehensive loss at December 31, 2019

$
(43,450)

$
11,701

$
(31,749)
Six months ended June 30, 2020

Pension and other benefits:

Change in Company tax rate

—

(96)

(96)
Net change in pension and other benefits

—

(96)

(96)
Investment securities:

Unrealized net gains arising during the period

115,235

(30,751)

84,484
Reclassification of net losses to net income:

Investment securities losses, net

126

(34)

92
Net change in investment securities

115,361

(30,785)

84,576
Other comprehensive income

115,361

(30,881)

84,480
Accumulated other comprehensive income at June 30, 2020

$
71,911

$
(19,180)

$
52,731



	Pensions								Accumulated
	and		Available-for-Sale		Held-to-Maturity		Cash Flow		Other
	Other		Investment		Investment		Derivative		Comprehensive
(dollars in thousands)	Benefits		Securities		Securities		Hedges		Loss
Three Months Ended June 30, 2022
Balance at beginning of period	$	(24,390)	$	(491,854)	$	—	$	(1,258)	$	(517,502)
Unrealized net losses related to the transfer of securities from available-for-sale to held-to-maturity		—		338,816		(338,816)		—		—
Other comprehensive (loss) income		—		(66,983)		14,612		(1,584)		(53,955)
Balance at end of period	$	(24,390)	$	(220,021)	$	(324,204)	$	(2,842)	$	(571,457)

Six Months Ended June 30, 2022
Balance at beginning of year	$	(24,390)	$	(97,303)	$	—	$	—	$	(121,693)
Unrealized net losses related to the transfer of securities from available-for-sale to held-to-maturity		—		338,816		(338,816)		—		—
Other comprehensive (loss) income		—		(461,534)		14,612		(2,842)		(449,764)
Balance at end of period	$	(24,390)	$	(220,021)	$	(324,204)	$	(2,842)	$	(571,457)

Three Months Ended June 30, 2021
Balance at beginning of period	$	(31,737)	$	(11,698)	$	—	$	—	$	(43,435)
Other comprehensive income		—		13,733		—		—		13,733
Balance at end of period	$	(31,737)	$	2,035	$	—	$	—	$	(29,702)

Six Months Ended June 30, 2021
Balance at beginning of year	$	(31,737)	$	63,341	$	—	$	—	$	31,604
Other comprehensive loss		—		(61,306)		—		—		(61,306)
Balance at end of period	$	(31,737)	$	2,035	$	—	$	—	$	(29,702)

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~~The following table summarizes changes in accumulated other comprehensive income (loss), net of tax, for the periods indicated:~~

Pensions

Accumulated

and

Other

Other

Investment

Comprehensive
(dollars in thousands)

Benefits

Securities

Income (Loss)
Three Months Ended June 30, 2021

Balance at beginning of period

$
(31,737)

$
(11,698)

$
(43,435)
Other comprehensive income

—

13,733

13,733
Balance at end of period

$
(31,737)

$
2,035

$
(29,702)

Six Months Ended June 30, 2021

Balance at beginning of period

$
(31,737)

$
63,341

$
31,604
Other comprehensive loss

—

(61,306)

(61,306)
Balance at end of period

$
(31,737)

$
2,035

$
(29,702)

Three Months Ended June 30, 2020

Balance at beginning of period

$
(28,178)

$
32,307

$
4,129
Other comprehensive income

—

48,602

48,602
Balance at end of period

$
(28,178)

$
80,909

$
52,731

Six Months Ended June 30, 2020

Balance at beginning of period

$
(28,082)

$
(3,667)

$
(31,749)
Other comprehensive income

(96)

84,576

84,480
Balance at end of period

$
(28,178)

$
80,909

$
52,731

~~10.~~9. Regulatory Capital Requirements

Federal and state laws and regulations limit the amount of dividends the Company may declare or pay. The Company depends primarily on dividends from FHB as the source of funds for the Company’s payment of dividends.

The Company and the Bank are subject to various regulatory capital requirements imposed by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s operating activities and financial condition. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of its assets and certain off-balance sheet items. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios of Common Equity Tier 1 (“CET1”) capital, Tier 1 capital and total capital to risk-weighted assets, as well as a minimum leverage ratio.

~~Table of Contents~~

The table below sets forth those ratios at June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


					First Hawaiian				Minimum		Well-						First Hawaiian				Minimum		Well-
	First Hawaiian, Inc.				Bank				Capital		Capitalized		First Hawaiian, Inc.				Bank				Capital		Capitalized
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Ratio⁽¹⁾		Ratio⁽¹⁾		Amount		Ratio		Amount		Ratio		Ratio⁽¹⁾		Ratio⁽¹⁾
June 30, 2021:
June 30, 2022:
Common equity tier 1 capital to risk-weighted assets	$	1,765,551	12.76	%	$	1,751,187	12.66	%	4.50	%	6.50	%	$	1,828,576	11.98	%	$	1,818,243	11.91	%	4.50	%	6.50	%
Tier 1 capital to risk-weighted assets		1,765,551	12.76	%		1,751,187	12.66	%	6.00	%	8.00	%		1,828,576	11.98	%		1,818,243	11.91	%	6.00	%	8.00	%
Total capital to risk-weighted assets		1,938,829	14.01	%		1,924,461	13.91	%	8.00	%	10.00	%		2,006,476	13.14	%		1,996,143	13.07	%	8.00	%	10.00	%
Tier 1 capital to average assets (leverage ratio)		1,765,551	7.68	%		1,751,187	7.61	%	4.00	%	5.00	%		1,828,576	7.54	%		1,818,243	7.50	%	4.00	%	5.00	%

December 31, 2020:
December 31, 2021:
Common equity tier 1 capital to risk-weighted assets	$	1,717,008	12.47	%	$	1,699,485	12.34	%	4.50	%	6.50	%	$	1,783,113	12.24	%	$	1,769,214	12.14	%	4.50	%	6.50	%
Tier 1 capital to risk-weighted assets		1,717,008	12.47	%		1,699,485	12.34	%	6.00	%	8.00	%		1,783,113	12.24	%		1,769,214	12.14	%	6.00	%	8.00	%
Total capital to risk-weighted assets		1,889,958	13.73	%		1,872,427	13.60	%	8.00	%	10.00	%		1,965,280	13.49	%		1,951,377	13.40	%	8.00	%	10.00	%
Tier 1 capital to average assets (leverage ratio)		1,717,008	8.00	%		1,699,485	7.92	%	4.00	%	5.00	%		1,783,113	7.24	%		1,769,214	7.18	%	4.00	%	5.00	%

(1)	As defined by the regulations issued by the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation (“FDIC”).

Federal regulations require a 2.5% capital conservation buffer designed to absorb losses during periods of economic stress. The capital conservation buffer is composed entirely of CET1, on top of these minimum risk weighted asset ratios, effectively resulting in minimum ratios of (i) 7% CET1 to risk-weighted assets, (ii) 8.5% Tier 1 capital to risk-weighted assets, and (iii) 10.5% total capital to risk-weighted assets. As of June 30, ~~2021,~~2022, under the bank regulatory capital guidelines, the Company and Bank were both classified as well-capitalized. Management is not aware of any conditions or events that have occurred since June 30, ~~2021,~~2022, to change the capital adequacy category of the Company or the Bank.

~~11.~~10. Derivative Financial Instruments

The Company enters into derivative contracts primarily to manage its interest rate risk, as well as for customer accommodation purposes. Derivatives used for risk management purposes consist of interest rate swaps that are designated as ~~either~~ a fair value hedge or a cash flow hedge. The derivatives are recognized on the unaudited interim consolidated balance sheets as either assets or liabilities at fair value. Derivatives entered into for customer accommodation purposes consist of various free-standing interest rate derivative products and foreign exchange contracts. The Company is party to master netting arrangements with its financial institution counterparties; however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes.

~~The following table summarizes notional amounts and fair values of derivatives held by the Company as of June 30, 2021 and December 31, 2020:~~

June 30, 2021

December 31, 2020

Fair Value

Fair Value

Notional

Asset

Liability

Notional

Asset

Liability
(dollars in thousands)

Amount

Derivatives⁽¹⁾

Derivatives⁽²⁾

Amount

Derivatives⁽¹⁾

Derivatives⁽²⁾
Derivatives designated as hedging instruments:

Interest rate swaps

$
22,066

$
—

$
(963)

$
22,451

$
—

$
(1,276)
Derivatives not designated as hedging instruments:

Interest rate swaps

2,988,086

82,703

—

3,002,333

129,888

—
Visa derivative

99,059

—

(2,132)

92,647

—

(4,554)
Interest rate caps and floors

148,800

9

(9)

148,800

7

(7)
Foreign exchange contracts

71

—

—

326

—

—

~~(1)~~

~~The positive fair values of derivative assets are included in other assets.~~

~~(2)~~

~~The negative fair values of derivative liabilities are included in other liabilities.~~

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The following table summarizes the notional amounts and fair values of derivatives held by the Company as of June 30, 2022 and December 31, 2021:


	June 30, 2022						December 31, 2021
			Fair Value						Fair Value
	Notional		Asset		Liability		Notional		Asset		Liability
(dollars in thousands)	Amount		Derivatives⁽¹⁾		Derivatives⁽²⁾		Amount		Derivatives⁽¹⁾		Derivatives⁽²⁾
Derivatives designated as hedging instruments:
Interest rate swaps	$	267,500	$	4,932	$	(3,877)	$	67,500	$	—	$	(1,211)
Derivatives not designated as hedging instruments:
Interest rate swaps		2,937,558		5,454		(23,984)		2,827,582		50,898		—
Visa derivative		107,464		—		(3,786)		105,916		—		(5,530)
Interest rate caps and floors		—		—		—		148,800		27		(27)
Foreign exchange contracts		232		—		—		217		—		—

(1)	The positive fair values of derivative assets are included in other assets.

(2)	The negative fair values of derivative liabilities are included in other liabilities.

Certain interest rate swaps noted above, are cleared through clearinghouses, rather than directly with counterparties. Those transactions cleared through a clearinghouse require initial margin collateral and variation margin payments depending on the contracts being in a net asset or liability position. As of June 30, 2022 and December 31, 2021, the amount of initial margin cash collateral received by the Company was ~~$1.8 million. As of December 31, 2020, the amount of initial margin cash collateral posted by the Company was $4.8 million.~~$0.8 million and $1.7 million, respectively. As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the variation margin was ~~$82.7~~$18.5 million and ~~$129.9~~$50.9 million, respectively.

As of June 30, ~~2021,~~2022, the Company pledged ~~$30.6~~$29.8 million in financial instruments and ~~$20.3~~received $30.7 million in cash as collateral for interest rate swaps. As of December 31, ~~2020,~~2021, the Company pledged ~~$30.8~~$30.3 million in financial instruments and ~~$25.2~~$18.1 million in cash as collateral for interest rate swaps. As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the cash collateral includes the excess initial margin for interest rate swaps cleared through clearinghouses and cash collateral for interest rate swaps with financial institution counterparties.

Fair Value Hedges

To manage the risk related to the Company’s net interest margin, interest rate swaps are utilized to hedge certain fixed-rate loans. These swaps have maturity, amortization and prepayment features that correspond to the loans hedged, and are designated and qualify as fair value hedges. Any gain or loss on the swaps, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, is recognized in current period earnings.

At June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company carried 1 interest rate swap with a notional amount of ~~$22.1~~$67.5 million, which was designated and ~~$22.5 million, respectively. As of June 30, 2021 and December 31, 2020, the interest rate swap was categorized~~qualified as a fair value hedge for a commercial and industrial ~~loan with~~loan. As of June 30, 2022 and December 31, 2021, the interest rate swap had a positive fair value of $4.9 million and a negative fair value of $1.0 million, ~~and $1.3 million,~~ respectively. The swap was executed in the fourth quarter of 2021, will start in the fourth quarter of 2023, and will mature in 2041. The Company ~~received~~will receive a USD ~~Prime~~Federal Funds floating rate and ~~paid~~will pay a fixed rate of ~~2.90%~~2.07%. ~~The swap matures in 2023.~~

The following table shows the gains and losses recognized in income related to derivatives in fair value hedging relationships for the three and six months ended June 30, ~~2021~~2022 and ~~2020:~~2021:

Gains (losses) recognized in

Three Months Ended

Six Months Ended

the consolidated statements

June 30,

June 30,
(dollars in thousands)

of income line item

2021

2020

2021

2020
Gains (losses) on fair value hedging relationships recognized in interest income⁽¹⁾:

Recognized on interest rate swap

Loans and lease financing

$
121

$
57

$
313

$
(898)
Recognized on hedged item

Loans and lease financing

(138)

35

(387)

942

As of June 30, 2021 and December 31, 2020, the following amounts were recorded in the unaudited interim consolidated balance sheets related to the cumulative basis adjustments for fair value hedges:

Cumulative Amount of Fair Value

Hedging Adjustment Included in the

Gains (losses) recognized in

Three Months Ended

Six Months Ended

Carrying Amount of the Hedged Asset

the consolidated statements

June 30,

(dollars in thousands)

June 30, 2021

December 31, 2020

June 30, 2021

December 31, 2020

of income line item

2022

2021

2022

2021

Line item in the consolidated balance sheets in which the hedged item is included

Loans and leases

23,600

24,355

1,100

1,487

Gains (losses) on fair value hedging relationships recognized in interest income:

Recognized on interest rate swap

Loans and lease financing

4,631

121

6,143

313

Recognized on hedged item

Loans and lease financing

(4,729)

(138)

(6,346)

(387)

3032

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As of June 30, 2022 and December 31, 2021, the following amounts were recorded in the unaudited interim consolidated balance sheets related to the cumulative basis adjustments for fair value hedges:

Cumulative Amount of Fair Value

Hedging Adjustment Included in the

Carrying Amount of the Hedged Asset

(dollars in thousands)

June 30, 2022

December 31, 2021

June 30, 2022

December 31, 2021

Line item in the consolidated balance sheets in which the hedged item is included

Loans and leases

62,542

68,707

(4,958)

1,207

Cash Flow Hedges

The Company utilized interest rate swaps to reduce asset sensitivity and enhance current yields associated with interest payments received on a pool of floating-rate loans. The Company entered into interest rate swaps paying floating rates and receiving fixed rates. The floating-rate index (Bloomberg Short-Term Bank Yield Index, or “BSBY”) corresponds to the floating-rate nature of the interest receipts being hedged (based on USD Prime). The swaps provide an initial benefit to interest income as the Company receives the higher fixed rate, which persists for as long as the floating rate remains below the swap’s fixed rate. By hedging with interest rate swaps, the Company minimizes the adverse impact on interest income associated with a low interest rate environment on floating-rate loans.

As of June 30, 2022, the Company carried 2 interest rate swaps with notional amounts totaling $200.0 million, with a negative fair value totaling $3.9 million. The swaps mature in 2024. The Company received fixed rates ranging from 1.70% to 2.08% and paid 1-month BSBY.

The interest rate swaps are designated and qualify as cash flow hedges. To the extent that the hedge is considered highly effective, the gain or loss on the interest rate swaps is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period that the hedged transaction affects earnings.

The following table summarizes the effect of cash flow hedging relationships for the three and six months ended June 30, 2022:


(dollars in thousands)	Three Months Ended June 30, 2022			Six Months Ended June 30, 2022
Pretax net losses recognized in other comprehensive income on cash flow derivative hedges	$	(1,523)	$	(3,239)
Pretax net gains reclassified from accumulated other comprehensive income to interest income from loans and lease financing		(638)		(638)

The estimated net amount to be reclassified within the next 12 months out of accumulated other comprehensive income (loss) into earnings is $2.2 million as a decrease to interest income from loans and lease financing. As of June 30, 2022, the maximum length of time over which forecasted transactions are hedged is approximately two years.

Free-Standing Derivative Instruments

For the derivatives that are not designated as hedges, changes in fair value are reported in current period earnings. The following table summarizes the impact on pretax earnings of derivatives not designated as hedges, as reported on the unaudited interim consolidated statements of income for the three and six months ended June 30, ~~2021~~2022 and ~~2020:~~2021:

Net gains (losses) recognized

Three Months Ended

Six Months Ended

Net gains (losses) recognized

Three Months Ended

Six Months Ended

in the consolidated statements

June 30,

in the consolidated statements

June 30,

(dollars in thousands)

of income line item

2021

2020

2021

2020

of income line item

2022

2021

2022

2021

Derivatives Not Designated As Hedging Instruments:

Interest rate swaps

Other noninterest income

—

Visa derivative

Other noninterest income

(23)

103

109

Other noninterest income

123

(23)

(1,357)

Foreign exchange contracts

Other noninterest income

—

Other noninterest income

(6)

—

Table of Contents

As of June 30, ~~2021,~~2022, the Company carried multiple interest rate swaps with notional amounts totaling ~~$3.0~~$2.9 billion, all of which were related to the Company’s customer swap program, with a positive fair value of ~~$82.7~~$5.5 million and a negative fair value of ~~NaN.~~$24.0 million. The Company received floating rates ranging from ~~0.00%~~1.06% to ~~3.33%~~4.06% and paid fixed rates ranging from ~~2.02%~~2.06% to 6.19%. The swaps mature between July ~~2021~~2022 and June 2040. As of December 31, ~~2020,~~2021, the Company carried multiple interest rate swaps with notional amounts totaling ~~$3.0~~$2.8 billion, all of which were related to the Company’s customer swap program, with a positive fair value of ~~$129.9~~$50.9 million and a negative fair value of NaN. The Company received floating rates ranging from ~~0.15%~~0.00% to ~~3.16%~~3.55% and paid fixed rates ranging from 2.02% to ~~5.78%~~6.19%. These swaps resulted in net interest expense of NaN during both the three and six months ended June 30, ~~2021~~2022 and ~~2020.~~2021.

The Company’s customer swap program is designed by offering customers a variable-rate loan that is swapped to fixed-rate through an interest rate swap. The Company simultaneously executes an offsetting interest rate swap with a swap dealer. Upfront fees on the dealer swap are recorded in other noninterest income and totaled ~~$1.3~~$0.5 million and ~~$4.6~~$1.3 million for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$1.7~~$1.4 million and ~~$6.5~~$1.7 million for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Visa Class B Restricted Shares

In ~~conjunction with~~2016, the ~~2016~~Company recorded a $22.7 million net realized gain related to the sale of 274,000 Visa Class B restricted ~~shares~~shares. Concurrent with the sale of ~~common stock issued by~~the Visa Class B restricted shares, the Company entered into a funding swap agreement with the buyer that requires payment to the buyer in the event Visa reduces each member bank’s Class B conversion rate to unrestricted Class A common shares. ~~On June 28,~~During 2018 through 2022, Visa ~~additionally~~ funded its litigation escrow account, thereby reducing each member bank’s Class B conversion rate to unrestricted Class A common ~~shares. Accordingly, on July 5, 2018, Visa announced a decrease in conversion rate~~shares from 1.6483 to ~~1.6298 effective June 28, 2018. In July 2018,~~ the Company made a payment of approximately $0.7 million to the buyer as a result of the reduction in the Visa Class B conversion rate. On September 27, 2019, Visa additionally funded its litigation escrow account, thereby further reducing each member bank’s Class Bcurrent conversion rate to unrestricted Class A common shares. Accordingly, on September 30, 2019, Visa announced a decrease in conversion rate from 1.6298 to 1.6228 effective September 27, 2019. In October 2019, the Company made a payment of ~~approximately $0.3 million to the buyer as a result of the reduction in the Visa Class B conversion rate.~~1.6059. Under the terms of the funding swap agreement, the Company will make monthly payments to the buyer based on Visa’s Class A stock price and the number of Visa Class B restricted shares that were sold until the date on which the covered litigation is settled. A derivative liability (“Visa derivative”) of ~~$2.1~~$3.8 million and ~~$4.6~~$5.5 million was included in the unaudited interim consolidated balance sheets at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, to provide for the fair value of this liability. There were no sales of these shares prior to 2016. See “Note ~~16.~~15. Fair Value” for more information.

Counterparty Credit Risk

By using derivatives, the Company is exposed to counterparty credit risk if counterparties to the derivative contracts do not perform as expected. If a counterparty fails to perform, the Company’s counterparty credit risk is equal to the amount reported as a derivative asset, net of cash or other collateral received, and net of derivatives in a loss position with the same counterparty to the extent master netting arrangements exist. The Company minimizes counterparty credit risk through credit approvals, limits, monitoring procedures, executing master netting arrangements and obtaining collateral, where appropriate. Counterparty credit risk related to derivatives is considered in determining fair value.

~~Table of Contents~~

The Company’s interest rate swap agreements include bilateral collateral agreements with collateral requirements, which begin with exposures in excess of $0.3 million. For each counterparty, the Company reviews the interest rate swap collateral daily. Collateral for customer interest rate swap agreements, calculated as the pledged asset less loan balance, requires valuation of the pledged asset. Counterparty credit risk adjustments of NaN were recognized during both the three months ended June 30, 2022 and 2021, and $0.1 million were recognized during ~~the three months ended June 30, 2021 and 2020, respectively, and $0.1 million and $0.3 million were recognized during~~both the six months ended June 30, ~~2021~~2022 and ~~2020, respectively.~~2021.

Credit-Risk Related Contingent Features

Some of our derivative contracts contain provisions whereby if the Company’s credit rating were to be downgraded by certain major credit rating agencies as a result of a merger or material adverse change in the Company’s financial condition, the counterparty could require an early termination of derivative instruments in a net liability position. The aggregate fair value of all derivative instruments with such credit-risk related contingent features that are in a net liability position was ~~$23.3~~$0.1 million and ~~$19.8~~$26.9 million at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, for which we posted ~~$20.7 million~~NaN and ~~$20.4~~$19.8 million, respectively, in collateral in the normal course of business. If the Company’s credit rating had been downgraded as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, we may have been required to settle the contracts in an amount equal to their fair value.

Table of Contents

~~12.~~11. Commitments and Contingent Liabilities

Contingencies

On November 2, 2020, a lawsuit was filed in Hawaii Circuit Court by a Bank customer related to the sale of credit facilities that the Bank had previously extended to the customer. The customer asserts claims against the Bank for interference with the customer’s contract and business opportunity, unfair methods of competition and declaratory and injunctive relief. The outcome of this legal proceeding is uncertain at this point. Based on information available to the Company at present, the Company cannot reasonably estimate a range of potential loss, if any, for this action. Accordingly, the Company has not recognized any liability associated with this action. Management disputes any wrongdoing and the case is being vigorously defended.

On July 2, 2021, a complaint was filed in the Superior Court of the State of Washington, King Country. The complaint alleges that the Bank breached a Master Business Services Agreement dated 2018 between the plaintiff and the Bank. Based on the information available to the Company at present, the Company cannot reasonably estimate a range of potential loss, if any, for this action. Accordingly, the Company has not recognized any liability associated with this action. Management disputes any wrongdoing and the case is being vigorously defended.

In addition to the litigation noted above, various legal proceedings are pending or threatened against the Company. After consultation with legal counsel, management does not expect that the aggregate liability, if any, resulting from these proceedings would have a material effect on the Company’s unaudited interim consolidated financial position, results of operations or cash flows.

Financial Instruments with Off-Balance Sheet Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby and commercial letters of credit which are not reflected in the unaudited interim consolidated financial statements.

~~Table of Contents~~

Unfunded Commitments to Extend Credit

A commitment to extend credit is a legally binding agreement to lend funds to a customer, usually at a stated interest rate and for a specified purpose. Commitments are reported net of participations sold to other institutions. Such commitments have fixed expiration dates and generally require a fee. The extension of a commitment gives rise to credit risk. The actual liquidity requirements or credit risk that the Company will experience is expected to be lower than the contractual amount of commitments to extend credit because a significant portion of those commitments are expected to expire without being drawn upon. Certain commitments are subject to loan agreements containing covenants regarding the financial performance of the customer that must be met before the Company is required to fund the commitment. The Company uses the same credit policies in making commitments to extend credit as it does in making loans. In addition, the Company manages the potential credit risk in commitments to extend credit by limiting the total amount of arrangements, both by individual customer and in the aggregate, by monitoring the size and expiration structure of these portfolios and by applying the same credit standards maintained for all of its related credit activities. Commitments to extend credit are reported net of participations sold to other institutions of ~~$100.8~~$91.7 million and ~~$93.1~~$95.5 million at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

Standby and Commercial Letters of Credit

Standby letters of credit are issued on behalf of customers in connection with contracts between the customers and third parties. Under standby letters of credit, the Company assures that the third parties will receive specified funds if customers fail to meet their contractual obligations. The credit risk to the Company arises from its obligation to make payment in the event of a customer’s contractual default. Standby letters of credit are reported net of participations sold to other institutions of ~~$10.8~~$8.2 million and ~~$11.0~~$10.7 million at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The Company also had commitments for commercial and similar letters of credit. Commercial letters of credit are issued specifically to facilitate commerce whereby the commitment is typically drawn upon when the underlying transaction between the customer and a third-party is consummated. The maximum amount of potential future payments guaranteed by the Company is limited to the contractual amount of these letters. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held supports those commitments for which collateral is deemed necessary. The commitments outstanding as of June 30, ~~2021~~2022 have maturities ranging from ~~July 2021~~August 2022 to ~~October 2022.~~September 2026. Substantially all fees received from the issuance of such commitments are deferred and amortized on a straight-line basis over the term of the commitment.

Table of Contents

Financial instruments with off-balance sheet risk at June 30, ~~2021~~2022 and December 31, ~~2020~~2021 were as follows:

June 30,

December 31,

June 30,

December 31,

(dollars in thousands)

2021

2020

2022

2021

Financial instruments whose contract amounts represent credit risk:

Commitments to extend credit

6,334,949

5,934,535

6,584,364

6,490,301

Standby letters of credit

180,011

185,108

232,024

182,447

Commercial letters of credit

3,353

3,834

3,409

3,307

Guarantees

The Company sells residential mortgage loans in the secondary market primarily to the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation that may potentially require repurchase under certain conditions. This risk is managed through the Company’s underwriting practices. The Company services loans sold to investors and loans originated by other originators under agreements that may include repurchase remedies if certain servicing requirements are not met. This risk is managed through the Company’s quality assurance and monitoring procedures. Management does not anticipate any material losses as a result of these transactions.

Foreign Exchange Contracts

The Company has forward foreign exchange contracts that represent commitments to purchase or sell foreign currencies at a future date at a specified price. The Company’s utilization of forward foreign exchange contracts is subject to the primary underlying risk of movements in foreign currency exchange rates and to additional counterparty risk should its counterparties fail to meet the terms of their contracts. Forward foreign exchange contracts are utilized to mitigate the Company’s risk to satisfy customer demand for foreign currencies and are not used for trading purposes. See “Note ~~11.~~10. Derivative Financial Instruments” for more information.

~~Table of Contents~~

Reorganization Transactions

On April 1, 2016, a series of reorganization transactions were undertaken to facilitate FHI’s initial public offering. In connection with the reorganization transactions, FHI distributed its interest in BancWest Holding Inc. (“BWHI”), including Bank of the West (“BOW”) to BNP Paribas (“BNPP”) so that BWHI was held directly by BNPP. As a result of the reorganization transactions that occurred on April 1, 2016, various tax or other contingent liabilities could arise related to the business of BOW, or related to the Company’s operations prior to the restructuring when it was known as BancWest Corporation, including its then wholly owned subsidiary, BOW. The Company is not able to determine the ultimate outcome or estimate the amounts of these contingent liabilities, if any, at this time.

~~13.~~12. Revenue from Contracts with Customers

Revenue Recognition

In accordance with Topic 606, revenues are recognized when control of promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services that are promised within each contract and identifies those that contain performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

~~Disaggregation of Revenue~~

In the second quarter of 2021, the Company made changes to the internal measurement of segment operating profits for the purpose of evaluating segment performance and resource allocation. The Company has restated the selected financial information for the three and six months ended June 30, 2020 in order to conform with the current presentation. See “Note 17. Reportable Operating Segments” contained in our unaudited interim consolidated financial statements for further information.

The following table summarizes the Company’s revenues, which includes net interest income on financial instruments and noninterest income, disaggregated by type of service and business segments for the periods indicated:

Three Months Ended June 30, 2021

Treasury

Retail

Commercial

and

(dollars in thousands)

Banking

Banking

Other

Total
Net interest income⁽¹⁾

$
97,106

$
40,234

$
(5,859)

$
131,481

Service charges on deposit accounts

5,788

341

503

6,632
Credit and debit card fees

—

14,692

1,440

16,132
Other service charges and fees

5,983

1,590

382

7,955
Trust and investment services income

8,707

—

—

8,707
Other

149

623

367

1,139
Not in scope of Topic 606⁽¹⁾

1,868

2,282

4,656

8,806
Total noninterest income

22,495

19,528

7,348

49,371
Total revenue

$
119,601

$
59,762

$
1,489

$
180,852

3436

Table of Contents

Six Months Ended June 30, 2021

Treasury

Retail

Commercial

and

(dollars in thousands)

Banking

Banking

Other

Total
Net interest income⁽¹⁾

$
191,560

$
78,500

$
(9,421)

$
260,639

Service charges on deposit accounts

11,874

564

912

13,350
Credit and debit card fees

—

27,217

2,868

30,085
Other service charges and fees

11,547

2,065

734

14,346
Trust and investment services income

17,199

—

—

17,199
Other

228

2,119

703

3,050
Not in scope of Topic 606⁽¹⁾

5,222

3,604

6,383

15,209
Total noninterest income

46,070

35,569

11,600

93,239
Total revenue

$
237,630

$
114,069

$
2,179

$
353,878

Disaggregation of Revenue

Three Months Ended June 30, 2022

Treasury

Retail

Commercial

and

(dollars in thousands)

Banking

Other

Total

Net interest income⁽¹⁾

107,368

36,826

953

145,147

Service charges on deposit accounts

6,085

413

345

6,843

Credit and debit card fees

—

15,243

1,206

16,449

Other service charges and fees

6,306

417

487

7,210

Trust and investment services income

8,759

—

8,759

Other

175

2,873

287

3,335

Not in scope of Topic 606⁽¹⁾

1,160

1,469

(1,088)

1,541

Total noninterest income

22,485

20,415

1,237

44,137

Total revenue

129,853

57,241

2,190

189,284

Six Months Ended June 30, 2022

Treasury

Retail

Commercial

and

(dollars in thousands)

Banking

Other

Total

Net interest income⁽¹⁾

201,416

71,914

5,689

279,019

Service charges on deposit accounts

12,734

759

851

14,344

Credit and debit card fees

—

28,269

2,422

30,691

Other service charges and fees

12,869

1,198

856

14,923

Trust and investment services income

17,642

—

17,642

Other

303

5,457

545

6,305

Not in scope of Topic 606⁽¹⁾

2,252

3,387

(4,027)

1,612

Total noninterest income

45,800

39,070

647

85,517

Total revenue

247,216

110,984

6,336

364,536

(1)

Most of the Company’s revenue is not within the scope of ASU No. 2014-09, Revenue from Contracts with Customers. The guidance explicitly excludes net interest income from financial assets and liabilities as well as other noninterest income from loans, leases, investment securities, ~~and~~ derivative financial ~~instruments.~~instruments and bank-owned life insurance.


		Three Months Ended June 30, 2020								Three Months Ended June 30, 2021
					Treasury								Treasury
	Retail		Commercial		and				Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total		Banking		Banking		Other		Total
Net interest income⁽¹⁾	$	91,675	$	37,565	$	(1,418)	$	127,822	$	97,106	$	40,234	$	(5,859)	$	131,481

Service charges on deposit accounts		5,469		326		132		5,927		5,788		341		503		6,632
Credit and debit card fees		—		10,122		275		10,397		—		14,692		1,440		16,132
Other service charges and fees		4,580		215		338		5,133		5,983		1,590		382		7,955
Trust and investment services income		8,664		—		—		8,664		8,707		—		—		8,707
Other		56		1,499		112		1,667		149		623		367		1,139
Not in scope of Topic 606⁽¹⁾		3,403		5,893		4,572		13,868		1,868		2,282		4,656		8,806
Total noninterest income		22,172		18,055		5,429		45,656		22,495		19,528		7,348		49,371
Total revenue	$	113,847	$	55,620	$	4,011	$	173,478	$	119,601	$	59,762	$	1,489	$	180,852

Six Months Ended June 30, 2020

Treasury

Retail

Commercial

and

(dollars in thousands)

Banking

Banking

Other

Total
Net interest income⁽¹⁾

$
181,558

$
71,979

$
12,968

$
266,505

Service charges on deposit accounts

13,556

677

644

14,877
Credit and debit card fees

—

23,009

1,874

24,883
Other service charges and fees

9,454

639

854

10,947
Trust and investment services income

18,255

—

—

18,255
Other

241

2,605

300

3,146
Not in scope of Topic 606⁽¹⁾

7,042

8,921

6,813

22,776
Total noninterest income

48,548

35,851

10,485

94,884
Total revenue

$
230,106

$
107,830

$
23,453

$
361,389

Table of Contents


		Six Months Ended June 30, 2021
					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Net interest income⁽¹⁾	$	191,560	$	78,500	$	(9,421)	$	260,639

Service charges on deposit accounts		11,874		564		912		13,350
Credit and debit card fees		—		27,217		2,868		30,085
Other service charges and fees		11,547		2,065		734		14,346
Trust and investment services income		17,199		—		—		17,199
Other		228		2,119		703		3,050
Not in scope of Topic 606⁽¹⁾		5,222		3,604		6,383		15,209
Total noninterest income		46,070		35,569		11,600		93,239
Total revenue	$	237,630	$	114,069	$	2,179	$	353,878

(1)

Most of the Company’s revenue is not within the scope of ASU No. 2014-09, Revenue from Contracts with Customers. The guidance explicitly excludes net interest income from financial assets and liabilities as well as other noninterest income from loans, leases, investment securities, ~~and~~ derivative financial ~~instruments.~~instruments and bank-owned life insurance.

For the three and six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, substantially all of the Company’s revenues under the scope of Topic 606 were related to performance obligations satisfied at a point in time.

The following is a discussion of revenues within the scope of Topic 606.

~~Table of Contents~~

Service Charges on Deposit Accounts

Service charges on deposit accounts relate to fees generated from a variety of deposit products and services rendered to customers. Charges include, but are not limited to, overdraft fees, non-sufficient fund fees, dormant fees and monthly service charges. Such fees are recognized concurrent with the event on a daily basis or on a monthly basis depending upon the customer’s cycle date.

Credit and Debit Card Fees

Credit and debit card fees primarily represent revenues earned from interchange fees, ATM fees and merchant processing fees. Interchange and network revenues are earned on credit and debit card transactions conducted with payment networks. ATM fees are primarily earned as a result of surcharges assessed to non-FHB customers who use an FHB ATM. Merchant processing fees are primarily earned on transactions in which FHB is the acquiring bank. Such fees are generally recognized concurrently with the delivery of services on a daily basis.

Trust and Investment Services Fees

Trust and investment services fees represent revenue earned by directing, holding and managing customers’ assets. Fees are generally computed based on a percentage of the previous period’s value of assets under management. The transaction price (i.e., percentage of assets under management) is established at the inception of each contract. Trust and investment services fees also include fees collected when the Company acts as agent or personal representative and executes security transactions, performs collection and disbursement of income, and completes investment management and other administrative tasks.

Other Fees

Other fees primarily include revenues generated from wire transfers, lockboxes, bank issuance of checks and insurance commissions. Such fees are recognized concurrent with the event or on a monthly basis.

Table of Contents

Contract Balances

A contract liability is an entity’s obligation to transfer goods or services to a customer for which the entity has received consideration (or the amount is due) from the customer. ~~In prior years, the~~The Company received signing bonuses from 23 vendors in prior years and one vendor in the current year, which are being amortized over the term of the respective contracts. As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had contract liabilities of ~~$0.6~~$2.6 million and ~~$1.0~~$3.0 million, respectively, which it expects to recognize over the remaining term of the respective contracts with the vendors. For the three and six months ended June 30, ~~2021,~~2022, the Company’s recognized revenues increased and contract liabilities decreased by approximately $0.2 million and ~~$0.4~~$0.5 million, respectively, due to the passage of time. For the three and six months ended June 30, ~~2020,~~2021, the Company’s recognized revenues increased and contract liabilities decreased by approximately $0.2 million and $0.4 million, respectively, due to the passage of time. There were 0 changes in contract liabilities due to changes in transaction price estimates.

A contract asset is the right to consideration for transferred goods or services when the amount is conditioned on something other than the passage of time. As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, there were 0 material receivables from contracts with customers or contract assets recorded on the Company’s consolidated balance sheets.

Other

Except for the contract liabilities noted above, the Company did ~~not~~0t have any significant performance obligations as of June 30, ~~2021~~2022 and December 31, ~~2020.~~2021. The Company also did ~~not~~0t have any material contract acquisition costs or use any significant judgments or estimates in recognizing revenue for financial reporting purposes.

~~Table of Contents~~

~~14.~~13. Earnings per Share

For the three and six months ended June 30, 2022, the Company made 0 adjustments to net income for the purpose of computing earnings per share and there were 149,000 and 22,000 antidilutive securities, respectively. For the three and six months ended June 30, 2021, the Company made 0 adjustments to net income for the purpose of computing earnings per share and there were no0 antidilutive securities. For the three and six months ended June 30, ~~2020, the Company made 0 adjustments to net income for the purpose of computing earnings per share~~2022 and ~~there were 537,000 and 513,000 antidilutive securities, respectively. For the three and six months ended June 30,~~ 2021, ~~and 2020,~~ the computations of basic and diluted earnings per share were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands, except shares and per share amounts)	2021		2020		2021		2020		2022		2021		2022		2021
Numerator:
Net income	$	86,741	$	20,049	$	144,434	$	58,914	$	59,360	$	86,741	$	117,079	$	144,434

Denominator:
Basic: weighted-average shares outstanding		129,392,339		129,856,730		129,661,228		129,876,218		127,672,244		129,392,339		127,614,564		129,661,228
Add: weighted-average equity-based awards		436,508		148,465		503,534		287,504		342,533		436,508		494,066		503,534
Diluted: weighted-average shares outstanding		129,828,847		130,005,195		130,164,762		130,163,722		128,014,777		129,828,847		128,108,630		130,164,762

Basic earnings per share	$	0.67	$	0.15	$	1.11	$	0.45	$	0.46	$	0.67	$	0.92	$	1.11
Diluted earnings per share	$	0.67	$	0.15	$	1.11	$	0.45	$	0.46	$	0.67	$	0.91	$	1.11

Table of Contents

~~15.~~14. Noninterest Income and Noninterest Expense

Benefit Plans

The following table sets forth the components of net periodic benefit cost for the Company’s pension and postretirement benefit plans for the three and six months ended June 30, ~~2021~~2022 and ~~2020:~~2021:


	Income line item where recognized in	Pension Benefits				Other Benefits				Income line item where recognized in	Pension Benefits				Other Benefits
(dollars in thousands)	the consolidated statements of income	2021		2020		2021		2020		the consolidated statements of income	2022		2021		2022		2021
Three Months Ended June 30,
Service cost	Salaries and employee benefits	$	—	$	—	$	264	$	189	Salaries and employee benefits	$	—	$	—	$	214	$	264
Interest cost	Other noninterest expense		1,231		1,621		131		164	Other noninterest expense		1,361		1,231		143		131
Expected return on plan assets	Other noninterest expense		(766)		(1,194)		—		—	Other noninterest expense		(782)		(766)		—		—
Prior service credit	Other noninterest expense		—		—		—		(13)
Recognized net actuarial loss (gain)	Other noninterest expense		1,720		1,429		—		(26)	Other noninterest expense		1,269		1,720		(101)		—
Total net periodic benefit cost		$	2,185	$	1,856	$	395	$	314		$	1,848	$	2,185	$	256	$	395

Six Months Ended June 30,
Service cost	Salaries and employee benefits	$	—	$	—	$	528	$	378	Salaries and employee benefits	$	—	$	—	$	429	$	528
Interest cost	Other noninterest expense		2,462		3,242		262		328	Other noninterest expense		2,722		2,462		287		262
Expected return on plan assets	Other noninterest expense		(1,532)		(2,388)		—		—	Other noninterest expense		(1,565)		(1,532)		—		—
Prior service credit	Other noninterest expense		—		—		—		(26)
Recognized net actuarial loss (gain)	Other noninterest expense		3,440		2,858		—		(52)	Other noninterest expense		2,537		3,440		(202)		—
Total net periodic benefit cost		$	4,370	$	3,712	$	790	$	628		$	3,694	$	4,370	$	514	$	790

Leases

The Company recognized operating lease income related to lease payments of $1.6 million for both the three months ended June 30, 2022 and 2021, and ~~2020,~~$3.1 million and $3.3 ~~million and $3.1~~ million for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. In addition, the Company recognized ~~$1.5~~$1.6 million and ~~$1.4~~$1.5 million of lease income related to variable lease payments for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$3.0~~$3.2 million and ~~$2.9~~$3.0 million for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

~~Table of Contents~~

~~16.~~15. Fair Value

The Company determines the fair values of its financial instruments based on the requirements established in Accounting Standards Codification Topic 820 (“Topic 820”), Fair Value Measurements, which provides a framework for measuring fair value under GAAP and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Topic 820 defines fair value as the exit price, the price that would be received for an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date under current market conditions.

Fair Value Hierarchy

Topic 820 establishes three levels of fair values based on the markets in which the assets or liabilities are traded and the reliability of the assumptions used to determine fair value. The levels are:

◾

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.

◾

Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

◾

Level 3: Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability (“Company-level data”). Level 3 assets and liabilities include financial instruments whose value is determined using unobservable inputs to pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Table of Contents

Topic 820 requires that the Company disclose estimated fair values for certain financial instruments. Financial instruments include such items as investment securities, loans, deposits, interest rate and foreign exchange contracts, swaps and other instruments as defined by the standard. The Company has an organized and established process for determining and reviewing the fair value of financial instruments reported in the Company’s financial statements. The fair value measurements are reviewed to ensure they are reasonable and in line with market experience in similar asset and liability classes.

Additionally, the Company may be required to record at fair value other assets on a nonrecurring basis, such as other real estate owned, other customer relationships, and other intangible assets. These nonrecurring fair value adjustments typically involve the application of lower-of-cost-or-fair-value accounting or write-downs of individual assets.

Disclosure of fair values is not required for certain items such as lease financing, obligations for pension and other postretirement benefits, premises and equipment, prepaid expenses, deposit liabilities with no defined or contractual maturity, and income tax assets and liabilities.

Reasonable comparisons of fair value information with that of other financial institutions cannot necessarily be made because the standard permits many alternative calculation techniques, and numerous assumptions have been used to estimate the Company’s fair values.

~~Table of Contents~~

Valuation Techniques Used in the Fair Value Measurement of Assets and Liabilities Carried at Fair Value

For the assets and liabilities measured at fair value on a recurring basis (categorized in the valuation hierarchy table below), the Company applies the following valuation techniques:

Available-for-sale securities

Available-for-sale debt securities are recorded at fair value on a recurring basis. Fair value measurement is based on quoted prices, including estimates by third-party pricing services, if available. If quoted prices are not available, fair values are measured using proprietary valuation models that utilize market observable parameters from active market makers and inter-dealer brokers whereby securities are valued based upon available market data for securities with similar characteristics. Management reviews the pricing information received from the Company’s third-party pricing service to evaluate the inputs and valuation methodologies used to place securities into the appropriate level of the fair value hierarchy and transfers of securities within the fair value hierarchy are made if necessary. On a monthly basis, management reviews the pricing information received from the third-party pricing service which includes a comparison to non-binding third-party broker quotes, as well as a review of market-related conditions impacting the information provided by the third-party pricing service. Management also identifies investment securities which may have traded in illiquid or inactive markets by identifying instances of a significant decrease in the volume or frequency of trades, relative to historical levels, as well as instances of a significant widening of the bid-ask spread in the brokered markets. As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, management did not make adjustments to prices provided by the third-party pricing services as a result of illiquid or inactive markets. The Company’s third-party pricing service has also established processes for the Company to submit inquiries regarding quoted prices. Periodically, the Company will challenge the quoted prices provided by the third-party pricing service. The Company’s third-party pricing service will review the inputs to the evaluation in light of the new market data presented by the Company. The Company’s third-party pricing service may then affirm the original quoted price or may update the evaluation on a going forward basis. The Company classifies all available-for-sale securities as Level 2.

Derivatives

Most of the Company’s derivatives are traded in over-the-counter markets where quoted market prices are not readily available. For those derivatives, the Company measures fair value on a recurring basis using proprietary valuation models that primarily use market observable inputs, such as yield curves, and option volatilities. The fair value of derivatives includes values associated with counterparty credit risk and the Company’s own credit standing. The Company classifies these derivatives, included in other assets and other liabilities, as Level 2.

Table of Contents

Concurrent with the sale of the Visa Class B restricted shares, the Company entered into an agreement with the buyer that requires payment to the buyer in the event Visa reduces each member bank’s Class B conversion rate to unrestricted Class A common shares. ~~On July 5,~~During 2018 through 2022, Visa ~~announced a decrease in conversion rate from 1.6483 to 1.6298 effective June 28, 2018. On September 27, 2019, Visa additionally~~ funded its litigation escrow account, thereby ~~further~~ reducing each member bank’s Class B conversion rate to unrestricted Class A common ~~shares. Accordingly, on September 30, 2019, Visa announced a decrease in~~shares from 1.6483 to the current conversion rate ~~from 1.6298 to 1.6228 effective September 27, 2019.~~of 1.6059. The Visa derivative of ~~$2.1~~$3.8 million and ~~$4.6~~$5.5 million was included in the unaudited interim consolidated balance sheets at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, to provide for the fair value of this liability. The potential liability related to this funding swap agreement was determined based on management’s estimate of the timing and the amount of Visa’s litigation settlement and the resulting payments due to the counterparty under the terms of the contract. As such, the funding swap agreement is classified as Level 3 in the fair value hierarchy. The significant unobservable inputs used in the fair value measurement of the Company’s funding swap agreement are the potential future changes in the conversion rate, expected term and growth rate of the market price of Visa Class A common shares. Material increases (or decreases) in any of those inputs may result in a significantly higher (or lower) fair value measurement.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021 are summarized below:

Fair Value Measurements as of June 30, 2022

Quoted Prices in

Significant

Active Markets for

Other

Significant

Identical Assets

Observable

Unobservable

(dollars in thousands)

(Level 1)

Inputs (Level 2)

Inputs (Level 3)

Total

Assets

U.S. Treasury and government agency debt securities

—

159,165

—

159,165

Government-sponsored enterprises debt securities

—

19,963

—

19,963

Mortgage-backed securities:

Residential - Government agency⁽¹⁾

—

67,958

—

67,958

Residential - Government-sponsored enterprises⁽¹⁾

—

1,333,015

—

1,333,015

Commercial - Government agency

—

267,657

—

267,657

Commercial - Government-sponsored enterprises

—

141,836

—

141,836

Commercial - Non-agency

—

21,550

—

21,550

Collateralized mortgage obligations:

Government agency

—

1,025,339

—

1,025,339

Government-sponsored enterprises

—

684,560

—

684,560

Collateralized loan obligations

—

246,703

—

246,703

Total available-for-sale securities

—

3,967,746

—

3,967,746

Other assets⁽²⁾

6,703

10,386

—

17,089

Liabilities

Other liabilities⁽³⁾

—

(27,861)

(3,786)

(31,647)

Total

6,703

3,950,271

(3,786)

3,953,188

(1)	Backed by residential real estate.

(2)	Other assets classified as Level 1 include mutual funds and money market funds that have quoted prices in active markets and are related to the Company’s deferred compensation plans. Other assets classified as Level 2 include derivative assets.

(3)	Other liabilities include derivative liabilities.

3942

Table of Contents

~~Assets and Liabilities Recorded at Fair Value on a Recurring Basis~~

~~Assets and liabilities measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020 are summarized below:~~


	Fair Value Measurements as of June 30, 2021								Fair Value Measurements as of December 31, 2021
	Quoted Prices in		Significant						Quoted Prices in		Significant
	Active Markets for		Other		Significant				Active Markets for		Other		Significant
	Identical Assets		Observable		Unobservable				Identical Assets		Observable		Unobservable
(dollars in thousands)	(Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total		(Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total
Assets
U.S. Treasury and government agency debt securities	$	—	$	180,772	$	—	$	180,772	$	—	$	192,563	$	—	$	192,563
Mortgage-backed securities:
Residential - Government agency⁽¹⁾		—		113,289		—		113,289		—		137,264		—		137,264
Residential - Government-sponsored enterprises⁽¹⁾		—		1,263,448		—		1,263,448		—		1,491,100		—		1,491,100
Commercial - Government agency		—		491,447		—		491,447		—		387,663		—		387,663
Commercial - Government-sponsored enterprises		—		1,223,805		—		1,223,805		—		1,369,443		—		1,369,443
Collateralized mortgage obligations:
Government agency		—		1,662,134		—		1,662,134		—		2,079,523		—		2,079,523
Government-sponsored enterprises		—		2,019,035		—		2,019,035		—		2,621,044		—		2,621,044
Collateralized loan obligations										—		105,247		—		105,247
Debt securities issued by states and political subdivisions										—		44,185		—		44,185
Total available-for-sale securities		—		6,953,930		—		6,953,930		—		8,428,032		—		8,428,032
Other assets⁽²⁾		12,901		82,712		—		95,613		7,382		50,925		—		58,307
Liabilities
Other liabilities⁽³⁾		—		(972)		(2,132)		(3,104)		—		(1,238)		(5,530)		(6,768)
Total	$	12,901	$	7,035,670	$	(2,132)	$	7,046,439	$	7,382	$	8,477,719	$	(5,530)	$	8,479,571

(1)	Backed by residential real estate.

(2)	Other assets classified as Level 1 include mutual funds and money market funds that have quoted prices in active markets and are related to the Company’s deferred compensation plans. Other assets classified as Level 2 include derivative assets.

(3)	Other liabilities include derivative liabilities.

Fair Value Measurements as of December 31, 2020

Quoted Prices in

Significant

Active Markets for

Other

Significant

Identical Assets

Observable

Unobservable

(dollars in thousands)

(Level 1)

Inputs (Level 2)

Inputs (Level 3)

Total
Assets

U.S. Treasury and government agency debt securities

$
—

$
171,421

$
—

$
171,421
Mortgage-backed securities:

Residential - Government agency⁽¹⁾

—

160,462

—

160,462
Residential - Government-sponsored enterprises⁽¹⁾

—

447,200

—

447,200
Commercial - Government agency

—

599,650

—

599,650
Commercial - Government-sponsored enterprises

—

932,157

—

932,157
Collateralized mortgage obligations:

Government agency

—

1,933,553

—

1,933,553
Government-sponsored enterprises

—

1,826,972

—

1,826,972
Total available-for-sale securities

—

6,071,415

—

6,071,415
Other assets⁽²⁾

11,691

129,895

—

141,586
Liabilities

Other liabilities⁽³⁾

—

(1,283)

(4,554)

(5,837)
Total

$
11,691

$
6,200,027

$
(4,554)

$
6,207,164

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


	Quantitative Information about Level 3 Fair Value Measurements at June 30, 2022
				Significant
(dollars in thousands)	Fair value		Valuation Technique	Unobservable Input	Range
Visa derivative	$	(3,786)	Discounted Cash Flow	Expected Conversion Rate - 1.6059⁽¹⁾	1.5885-1.6059
				Expected Term - 1 year⁽²⁾	0.5 to 1.5 years
				Growth Rate - 26%⁽³⁾	10% - 38%


	Quantitative Information about Level 3 Fair Value Measurements at December 31, 2021
				Significant
(dollars in thousands)	Fair value		Valuation Technique	Unobservable Input	Range
Visa derivative	$	(5,530)	Discounted Cash Flow	Expected Conversion Rate - 1.6181⁽¹⁾	1.5885-1.6181
				Expected Term - 1 year⁽²⁾	0.5 to 1.5 years
				Growth Rate - 26%⁽³⁾	10% - 38%

(1)	~~Backed by residential real estate.~~Due to the uncertainty in the movement of the conversion rate, the current conversion rate was utilized in the fair value calculation.

(2)

~~Other assets classified as Level~~The expected term of 1 ~~include mutual funds and money market funds that have quoted prices in active markets and are related~~year was based on the median of 0.5 to ~~the Company’s deferred compensation plans. Other assets classified as Level 2 include derivative assets.~~1.5 years.

(3)	~~Other liabilities include derivative liabilities.~~The growth rate was based on the arithmetic average of analyst price targets.

4043

Table of Contents

Changes in Fair Value Levels

For the three and six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, there were 0 transfers between fair value hierarchy levels.

The changes in Level 3 liabilities measured at fair value on a recurring basis for the three and six months ended June 30, ~~2021~~2022 and ~~2020~~2021 are summarized below:


	Visa Derivative				Visa Derivative
(dollars in thousands)	2021		2020		2022		2021
Three Months Ended June 30,
Balance as of April 1,	$	(3,369)	$	(3,199)	$	(5,794)	$	(3,369)
Total net gains (losses) included in other noninterest income						123		(23)
Settlements						1,885		1,260
Balance as of June 30,					$	(3,786)	$	(2,132)
Total net gains (losses) included in net income attributable to the change in unrealized gains or losses related to liabilities still held as of June 30,					$	123	$	(23)

Six Months Ended June 30,
Balance as of January 1,					$	(5,530)	$	(4,554)
Total net (losses) gains included in other noninterest income		(23)		103		(1,357)		3
Settlements		1,260		1,001		3,101		2,419
Balance as of June 30,	$	(2,132)	$	(2,095)	$	(3,786)	$	(2,132)
Total net (losses) gains included in net income attributable to the change in unrealized gains or losses related to liabilities still held as of June 30,	$	(23)	$	103	$	(1,357)	$	3

Six Months Ended June 30,
Balance as of January 1,	$	(4,554)	$	(4,233)
Total net gains included in other noninterest income		3		109
Settlements		2,419		2,029
Balance as of June 30,	$	(2,132)	$	(2,095)
Total net gains included in net income attributable to the change in unrealized gains or losses related to liabilities still held as of June 30,	$	3	$	109

Assets and Liabilities Carried at Other Than Fair Value

The following tables summarize for the periods indicated the estimated fair value of the Company’s financial instruments that are not required to be carried at fair value on a recurring basis, excluding leases and deposit liabilities with no defined or contractual maturity.

June 30, 2021

June 30, 2022

Fair Value Measurements

Quoted Prices in

Significant

Quoted Prices in

Significant

Active Markets

Other

Unobservable

Active Markets

Other

Unobservable

for Identical

Observable

Inputs

for Identical

Observable

Inputs

(dollars in thousands)

Book Value

Assets (Level 1)

Inputs (Level 2)

(Level 3)

Total

Book Value

Assets (Level 1)

Inputs (Level 2)

(Level 3)

Total

Financial assets:

Cash and cash equivalents

1,906,298

347,861

1,558,437

—

1,906,298

1,533,676

279,629

1,254,047

—

1,533,676

Investment securities held-to-maturity

4,093,215

—

3,910,780

—

3,910,780

Loans held for sale

1,241

—

1,271

—

1,271

180

—

182

—

182

Loans⁽¹⁾

12,860,814

—

13,044,658

13,018,119

—

12,587,779

Financial liabilities:

Time deposits⁽²⁾

1,903,663

—

1,907,349

—

1,907,349

1,667,680

—

1,636,768

—

1,636,768

Long-term borrowings

200,000

—

210,874

—

210,874

4144

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	December 31, 2020										December 31, 2021
			Fair Value Measurements										Fair Value Measurements
			Quoted Prices in		Significant		Significant						Quoted Prices in		Significant		Significant
			Active Markets		Other		Unobservable						Active Markets		Other		Unobservable
			for Identical		Observable		Inputs						for Identical		Observable		Inputs
(dollars in thousands)	Book Value		Assets (Level 1)		Inputs (Level 2)		(Level 3)		Total		Book Value		Assets (Level 1)		Inputs (Level 2)		(Level 3)		Total
Financial assets:
Cash and cash equivalents	$	1,040,944	$	303,373	$	737,571	$	—	$	1,040,944	$	1,258,469	$	246,716	$	1,011,753	$	—	$	1,258,469
Loans held for sale		11,579		—		12,018		—		12,018		538		—		542		—		542
Loans⁽¹⁾		13,033,686		—		—		13,255,636		13,255,636		12,730,605		—		—		12,791,811		12,791,811

Financial liabilities:
Time deposits⁽²⁾	$	2,348,298	$	—	$	2,357,137	$	—	$	2,357,137	$	1,776,438	$	—	$	1,773,321	$	—	$	1,773,321
Long-term borrowings⁽³⁾		200,000		—		214,167		—		214,167

(1)	Excludes financing leases of ~~$243.0~~$244.7 million at June 30, ~~2021~~2022 and ~~$245.4~~$231.4 million at December 31, ~~2020.~~2021.

(2)	Excludes deposit liabilities with no defined or contractual maturity of ~~$18.9~~$20.9 billion as of June 30, ~~2021~~2022 and ~~$16.9~~$20.0 billion as of December 31, ~~2020.~~

~~(3)~~

~~Excludes capital lease obligations of $10 thousand as of December 31, 2020.~~2021.

Unfunded loan and lease commitments and letters of credit are not included in the tables above. As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had ~~$6.5~~$6.8 billion and ~~$6.1~~$6.7 billion, respectively, of unfunded loan and lease commitments and letters of credit. The Company believes that a reasonable estimate of the fair value of these instruments is the carrying value of deferred fees plus the related reserve for unfunded commitments, which totaled ~~$41.9~~$42.4 million and ~~$42.3~~$44.3 million at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. No active trading market exists for these instruments, and the estimated fair value does not include value associated with the borrower relationship. The Company does not estimate the fair values of certain unfunded loan and lease commitments that can be canceled by providing notice to the borrower. As Company-level data is incorporated into the fair value measurement, unfunded loan and lease commitments and letters of credit are classified as Level 3.

Valuation Techniques Used in the Fair Value Measurement of Assets and Liabilities Carried at the Lower of Cost or Fair Value

The Company applies the following valuation techniques to assets measured at the lower of cost or fair value:

Mortgage servicing rights

MSRs are carried at the lower of cost or fair value and are therefore subject to fair value measurements on a nonrecurring basis. The fair value of MSRs is determined using models which use significant unobservable inputs, such as estimates of prepayment rates, the resultant weighted average lives of the MSRs and the option-adjusted spread levels. Accordingly, the Company classifies MSRs as Level 3.

Collateral-dependent loans

Collateral-dependent loans are those for which repayment is expected to be provided substantially through the operation or sale of the collateral. These loans are measured at fair value on a nonrecurring basis using collateral values as a practical expedient. The fair values of collateral are primarily based on real estate appraisal reports prepared by third-party appraisers less estimated selling costs. The Company measures the estimated credit losses on collateral-dependent loans by performing a lower of cost or fair value analysis. If the estimated credit losses are determined by the value of the collateral, the net carrying amount is adjusted to fair value on a nonrecurring basis as Level 3 by recognizing an ACL.

Other real estate owned

The Company values these properties at fair value at the time the Company acquires them, which establishes their new cost basis. After acquisition, the Company carries such properties at the lower of cost or fair value less estimated selling costs on a nonrecurring basis. Fair value is measured on a nonrecurring basis using collateral values as a practical expedient. The fair values of collateral for other real estate owned are primarily based on real estate appraisal reports prepared by third-party appraisers less disposition costs, and are classified as Level 3.

~~Table of Contents~~

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company may be required to record certain assets at fair value on a nonrecurring basis in accordance with GAAP. These assets are subject to fair value adjustments that result from the application of lower of cost or fair value accounting or write-downs of individual assets to fair value.

Table of Contents

~~The following table provides the level of valuation inputs used to determine each fair value adjustment and the fair value of the related individual~~There were 0 assets ~~or portfolio of assets~~ with nonrecurring fair value adjustments ~~on a nonrecurring basis~~held as of June 30, ~~2021~~2022 and December 31, ~~2020:~~

(dollars in thousands)

Level 1

Level 2

Level 3
June 30, 2021

Collateral-dependent loans

$
—

$
—

$
—
December 31, 2020

Collateral-dependent loans

$
—

$
—

$
1,840

~~Total expected credit losses recognized on collateral-dependent loans~~2021. Additionally, there were ~~NaN~~0 nonrecurring fair value adjustments for both the three ~~months ended June 30, 2021~~ and ~~2020, and NaN and $0.4 million for the~~ six months ended June 30, ~~2021~~2022 and ~~2020, respectively.~~2021.

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of June 30, 2021 and December 31, 2020, the significant unobservable inputs used in the fair value measurements were as follows:


	~~Quantitative Information about Level 3 Fair Value Measurements at June 30, 2021~~
				~~Significant~~
~~(dollars in thousands)~~	~~Fair value~~		~~Valuation Technique~~	~~Unobservable Input~~	~~Range~~
~~Visa derivative~~	$	~~(2,132)~~	~~Discounted Cash Flow~~	~~Expected Conversation Rate -~~ ~~1.6228~~⁽²⁾	~~1.5977~~-~~1.6228~~
				~~Expected Term -~~ 1 ~~year~~⁽³⁾	~~0.5~~ to ~~1.5~~ ~~years~~
				~~Growth Rate -~~ ~~13%~~⁽⁴⁾	4% - ~~17%~~

Quantitative Information about Level 3 Fair Value Measurements at December 31, 2020

Significant

(dollars in thousands)

Fair value

Valuation Technique

Unobservable Input

Range
Collateral-dependent loans

$
1,840

Appraisal Value

Appraisal Value

n/m⁽¹⁾
Visa derivative

$
(4,554)

Discounted Cash Flow

Expected Conversation Rate - 1.6228⁽²⁾

1.5977-1.6228

Expected Term - 1 year⁽³⁾

0.5 to 1.5 years

Growth Rate - 13%⁽⁴⁾

4% - 17%

~~(1)~~

~~The fair value of these assets is determined based on appraised values of the collateral or broker opinions, the range of which is not meaningful to disclose.~~

~~(2)~~

~~Due to the uncertainty in the movement of the conversion rate, the current conversion rate was utilized in the fair value calculation.~~

~~(3)~~

~~The expected term of 1 year was based on the median of 0.5 to 1.5 years.~~

~~(4)~~

~~The growth rate of 13% was based on the arithmetic average of analyst price targets.~~

~~17.~~16. Reportable Operating Segments

The Company’s operations are organized into 3 business segments – Retail Banking, Commercial Banking, and Treasury and Other. These segments reflect how discrete financial information is currently evaluated by the chief operating decision maker and how performance is assessed and resources allocated. The Company’s internal management process measures the performance of these business segments. This process, which is not necessarily comparable with similar information for any other financial institution, uses various techniques to assign balance sheet and income statement amounts to the business segments, including allocations of income, expense, the provision for credit losses, and capital. This process is dynamic and requires certain allocations based on judgment and other subjective factors. Unlike financial accounting, there is no comprehensive authoritative guidance for management accounting that is equivalent to GAAP.

~~Table of Contents~~

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

The Company allocates the provision for credit losses from the Treasury and Other business segment (which is comprised of many of the Company’s support units) to the Retail and Commercial business segments. These allocations are based on direct costs incurred by the Retail and Commercial business segments.

Noninterest income and expense includes allocations from support units to the business segments. These allocations are based on actual usage where practicably calculated or by management’s estimate of such usage. Income tax expense is allocated to each business segment based on the consolidated effective income tax rate for the period shown.

In the second quarter of 2021, the Company made changes to the internal measurement of segment operating profits for the purpose of evaluating segment performance and resource allocation. The primary reason for the change was to align PPP loan balances within the business segment that directly manages them. Specifically, PPP loan balances previously included as part of the Retail Banking segment have been reclassified to the Commercial Banking segment. The reallocation of select PPP loan balances affected net interest income, net interest income after provision for credit losses, noninterest expense, provision for income taxes, net income and asset balances. The Company has reported its selected financial information using the new PPP loan balance alignments for the three and six months ended June 30, 2021. The Company has restated the selected financial information for the three and six months ended June 30, 2020 in order to conform with the current presentation.

Business Segments

Retail Banking

Retail Banking offers a broad range of financial products and services to consumers and small businesses. Loan and lease products offered include residential and commercial mortgage loans, home equity lines of credit and loans, automobile loans and leases, ~~personal~~secured and unsecured lines of credit, installment loans and small business loans and leases. Deposit products offered include checking, savings, and time deposit accounts. Retail Banking also offers wealth management services. Products and services from Retail Banking are delivered to customers through 5451 banking locations throughout the State of Hawaii, Guam, and Saipan.

Commercial Banking

Commercial Banking offers products that include corporate banking related products, commercial real estate loans, commercial lease financing, secured and unsecured lines of credit, automobile loans and auto dealer financing, business deposit products and credit cards. Commercial lending and deposit products are offered primarily to middle-market and large companies locally, nationally, and internationally.

Treasury and Other

Treasury consists of corporate asset and liability management activities including interest rate risk management. The segment’s assets and liabilities (and related interest income and expense) consist of interest-bearing deposits, investment securities, federal funds sold and purchased, government deposits, short- and long-term borrowings and bank-owned properties. The primary sources of noninterest income are from bank-owned life insurance, net gains from the sale of investment securities, foreign exchange income related to customer-driven currency requests from merchants and island visitors and management of bank-owned properties. The net residual effect of the transfer pricing of assets and liabilities is included in Treasury, along with the elimination of intercompany transactions.

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

4446

Table of Contents

The following tables present selected business segment financial information for the periods indicated.

Treasury

Retail

Commercial

and

Retail

Commercial

and

(dollars in thousands)

Banking

Other

Total

Banking

Other

Total

Three Months Ended June 30, 2021

Net interest income (expense)

97,106

40,234

(5,859)

131,481

Benefit of provision for credit losses

12,654

17,465

4,881

35,000

Net interest income (expense) after provision for credit losses

109,760

57,699

(978)

166,481

Three Months Ended June 30, 2022

Net interest income

107,368

36,826

953

145,147

Provision for credit losses

(386)

(614)

—

(1,000)

Net interest income after provision for credit losses

106,982

36,212

953

144,147

Noninterest income

22,495

19,528

7,348

49,371

22,485

20,415

1,237

44,137

Noninterest expense

(62,115)

(24,993)

(12,280)

(99,388)

(73,357)

(26,962)

(8,856)

(109,175)

Income (loss) before (provision) benefit for income taxes

70,140

52,234

(5,910)

116,464

56,110

29,665

(6,666)

79,109

(Provision) benefit for income taxes

(17,884)

(13,285)

1,446

(29,723)

(13,896)

(7,251)

1,398

(19,749)

Net income (loss)

52,256

38,949

(4,464)

86,741

42,214

22,414

(5,268)

59,360

Total assets as of June 30, 2021

6,862,294

6,404,153

10,979,881

24,246,328

Treasury

Retail

Commercial

and

Retail

Commercial

and

(dollars in thousands)

Banking

Other

Total

Banking

Other

Total

Six Months Ended June 30, 2021

Net interest income (expense)

191,560

78,500

(9,421)

260,639

Benefit of provision for credit losses

14,124

19,495

1,381

35,000

Net interest income (expense) after provision for credit losses

205,684

97,995

(8,040)

295,639

Six Months Ended June 30, 2022

Net interest income

201,416

71,914

5,689

279,019

Benefit for credit losses

1,455

1,928

1,364

4,747

Net interest income after benefit for credit losses

202,871

73,842

7,053

283,766

Noninterest income

46,070

35,569

11,600

93,239

45,800

39,070

647

85,517

Noninterest expense

(125,004)

(47,471)

(23,219)

(195,694)

(143,577)

(53,467)

(16,173)

(213,217)

Income (loss) before (provision) benefit for income taxes

126,750

86,093

(19,659)

193,184

105,094

59,445

(8,473)

156,066

(Provision) benefit for income taxes

(32,010)

(21,629)

4,889

(48,750)

(26,046)

(14,504)

1,563

(38,987)

Net income (loss)

94,740

64,464

(14,770)

144,434

79,048

44,941

(6,910)

117,079

Total assets as of June 30, 2021

6,862,294

6,404,153

10,979,881

24,246,328

Treasury

Retail

Commercial

and

(dollars in thousands)

Banking

Banking

Other

Total
Three Months Ended June 30, 2020

Net interest income (expense)

$
91,675

$
37,565

$
(1,418)

$
127,822
Provision for credit losses

(24,311)

(25,183)

(5,952)

(55,446)
Net interest income (expense) after provision for credit losses

67,364

12,382

(7,370)

72,376

Noninterest income

22,172

18,055

5,429

45,656
Noninterest expense

(60,022)

(18,062)

(13,366)

(91,450)
Income (loss) before (provision) benefit for income taxes

29,514

12,375

(15,307)

26,582

(Provision) benefit for income taxes

(7,554)

(2,956)

3,977

(6,533)
Net income (loss)

$
21,960

$
9,419

$
(11,330)

$
20,049
Total assets as of June 30, 2020

$
7,068,251

$
6,826,032

$
9,099,432

$
22,993,715


					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Three Months Ended June 30, 2021
Net interest income (expense)	$	97,106	$	40,234	$	(5,859)	$	131,481
Benefit for credit losses		12,654		17,465		4,881		35,000
Net interest income (expense) after provision for credit losses		109,760		57,699		(978)		166,481

Noninterest income		22,495		19,528		7,348		49,371
Noninterest expense		(62,115)		(24,993)		(12,280)		(99,388)
Income (loss) before (provision) benefit for income taxes		70,140		52,234		(5,910)		116,464

(Provision) benefit for income taxes		(17,884)		(13,285)		1,446		(29,723)
Net income (loss)	$	52,256	$	38,949	$	(4,464)	$	86,741

4547

Table of Contents


					Treasury								Treasury
	Retail		Commercial		and				Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total		Banking		Banking		Other		Total
Six Months Ended June 30, 2020
Net interest income	$	181,558	$	71,979	$	12,968	$	266,505
Provision for credit losses		(44,376)		(45,967)		(6,303)		(96,646)
Net interest income after provision for credit losses		137,182		26,012		6,665		169,859
Six Months Ended June 30, 2021
Net interest income (expense)									$	191,560	$	78,500	$	(9,421)	$	260,639
Benefit for credit losses										14,124		19,495		1,381		35,000
Net interest income (expense) after provision for credit losses										205,684		97,995		(8,040)		295,639

Noninterest income		48,548		35,851		10,485		94,884		46,070		35,569		11,600		93,239
Noninterest expense		(121,666)		(39,567)		(26,683)		(187,916)		(125,004)		(47,471)		(23,219)		(195,694)
Income (loss) before (provision) benefit for income taxes		64,064		22,296		(9,533)		76,827		126,750		86,093		(19,659)		193,184

(Provision) benefit for income taxes		(15,077)		(5,601)		2,765		(17,913)		(32,010)		(21,629)		4,889		(48,750)
Net income (loss)	$	48,987	$	16,695	$	(6,768)	$	58,914	$	94,740	$	64,464	$	(14,770)	$	144,434
Total assets as of June 30, 2020	$	7,068,251	$	6,826,032	$	9,099,432	$	22,993,715

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, including the documents incorporated by reference herein, contains, and from time to time our management may make, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would,” “annualized” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including the following: ~~the impact of the ongoing COVID-19 pandemic and any other pandemic, epidemic or health-related crisis; the geographic concentration of our business; current and future economic and market~~ conditions in the ~~United States~~financial markets and economic conditions generally orand in Hawaii, Guam and Saipan in particular; a sustained period of high inflation; our dependence on the real estate markets in which we operate; ~~concentrated~~risk arising from conditions in the commercial real estate market; concentration of exposures to certain asset classes and individual obligors; ~~the effect of the current low~~ interest rate ~~environment or changes~~risk and fluctuations in interest rates on our business including our net interest income, net interest margin, the fair value of our investment securities, and our mortgage loan originations, mortgage servicing rights and mortgage loans held for sale;rates; changes ~~in the method pursuant to which LIBOR and other benchmark rates are determined~~ or the discontinuance of ~~LIBOR;~~the London Interbank Offered Rate (“LIBOR”); the possibility of a decline in the value of the investment securities we own; the possibility of a deterioration in the credit quality ~~in our portfolio;~~of, or defaults by, third parties who owe us money, securities or other assets or whose securities or obligations we hold; the possibility we might underestimate the credit losses inherent in our loan and lease portfolio; our ability to ~~maintain our Bank’s reputation; the future value of the investment securities that we own; our ability to~~ attract and retain customer deposits; our inability to receive dividends from our bank, ~~pay dividends~~our ability to ~~our common stockholders and satisfy obligations as they become due;~~raise additional capital in the ~~effects of severe weather, geopolitical instability, including war, terrorist attacks, pandemics or other severe health emergencies and man-made and natural disasters;~~future; our ability to maintain, ~~consistent growth, earnings~~attract and ~~profitability;~~retain customer relationships; our ability to attract and retain key personnel and other skilled employees or changes in our management personnel; our ability to effectively compete with other financial services companies and the effects of competition in the financial services industry on our business;employees; the effectiveness of our techniques for managing risk and our use of data and modeling both in our management decision-making generally and ~~internal disclosure controls~~in meeting regulatory expectations in particular; the effectiveness of the appraisals and ~~procedures; our ability to keep pace with technological changes; any failure or interruption of our information and communications systems; our ability to identify and address cybersecurity risks;~~other valuation techniques we use; the occurrence of fraudulent activity, breaches or ~~effect of a material breach of, or disruption to, the security of any~~failures of our information security controls or ~~our vendors’ systems; the failure to properly use and protect our customer and employee information and data;~~cybersecurity-related incidents; the possibility of employee misconduct or mistakes; ~~our ability to successfully develop and commercialize new or enhanced products and services;~~ changes in the ~~demand for our products and services; the effects~~actual or perceived soundness or condition of ~~problems encountered by~~ other financial institutions; ~~our access~~consumer protection initiatives related to ~~sources of liquidity and capital to address our liquidity needs; our use of~~ the ~~secondary mortgage market as a source of liquidity;~~foreclosure process; risks ~~associated~~in connection with ~~the~~any sale of ~~loans and with our use of appraisals in valuing and monitoring~~ loans; the possibility that ~~actual results may differ from~~certain external vendors on which we rely experience difficulty, terminate their services or fail to comply with banking laws and regulations; issues regarding the accuracy and completeness of information about customers and counterparties; risks associated with our accounting estimates and ~~forecasts; fluctuations~~risk management processes and controls. changes in our accounting policies or in accounting standards; risks relating to the geographic concentration in our existing markets; risks relating to competition in a highly competitive industry and market area; the possibility that new lines of business, products, product enhancements or services may subject us to additional risks; a change in the ~~fair value~~key role of ~~our assets and liabilities and off-balance sheet exposures;~~dealers within the effects of the failure of any component of our business infrastructure provided by a third party; the potential for environmental liability; the risk of being subject to litigation and the outcome thereof; the impact of, and changes in, applicable laws, regulations and accounting standards and policies, including the enactment of the Tax Act (Public Law 115-97) on December 22, 2017; possible changes in trade, monetary and fiscal policies of, and other activities undertaken by, governments, agencies, central banks and similar organizations; our likelihood of success in, and the impact of, litigationautomotive industry or ~~regulatory actions;~~ our ability to ~~continue~~maintain or build relationships with them; technological change; future legislative or regulatory change; risks relating to our bank in times of stress; capital adequacy requirements; the possibility that we may not pay dividends on our common stock in the future; the possibility of rulemaking changes implemented by the CFPB; the possibility of litigation and regulatory actions; the possibility of increases in FDIC insurance premiums; the risk of non-compliance with the USA PATRIOT Act, the Bank Secrecy Act or other laws and regulations; risks regarding regulations relating to privacy, information security and data protection, and differences in regulation; risks relating to our use of third-party vendors and our other ongoing third-party business relationships; environmental liability risks associated with our bank branches and any real estate collateral we acquire upon foreclosure; the possibility of litigation pertaining to our fiduciary responsibilities; the impact of the ongoing COVID-19 pandemic and any other pandemic, epidemic or health-related crisis; the effects of severe weather, hurricanes, tsunamis, natural disasters, pandemics, acts of war or terrorism or other external events; volatility in our stock price; the possibility of future sales and issuances of our common stock; ~~contingent~~the possibility of unexpected tax liabilities and unexpected tax liabilities that may be applicable to us as a result of the ~~Reorganization Transactions;~~reorganization transactions to facilitate FHI’s initial public offering; and damage to our reputation from any of the factors described above.

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The foregoing factors should not be considered an exhaustive list and should be read together with the risk factors and other cautionary statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2022. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by applicable law.

Company Overview

FHI is a bank holding company, which owns 100% of the outstanding common stock of FHB, its only direct, wholly owned subsidiary. FHB was founded in 1858 under the name Bishop & Company and was the first successful banking partnership in the Kingdom of Hawaii and the second oldest bank formed west of the Mississippi River. The Bank operates its business through three operating segments: Retail Banking, Commercial Banking and Treasury and Other.

References to “we,” “our,” “us,” or the “Company” refer to the Parent and its subsidiary that are consolidated for financial reporting purposes.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements of the Company reflect the results of operations, financial position and cash flows of FHI and its wholly owned subsidiary, FHB. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and accompanying notes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect normal recurring adjustments necessary for a fair presentation of the results for the interim periods.

The accompanying unaudited interim consolidated financial statements of the Company should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 and filed with the U.S. Securities and Exchange Commission (the “SEC”).

~~Recent Developments regarding COVID-19 and the~~ Hawaii ~~and Global~~ Economy

~~Overview~~

~~The COVID-19 pandemic has brought unprecedented challenges to businesses and economies around the world, particularly those in the United States. Our business has been, and~~Hawaii’s economy continues to ~~be, impacted by the recent and ongoing developments relating to the COVID-19 pandemic. As the restrictive measures to address the pandemic continued to be eased~~reflect growth during the ~~first~~ six months ofended June 30, 2022. The statewide seasonally adjusted unemployment rate was 4.3% in June 2022 compared to 7.7% in June 2021 ~~the U.S. economy has begun to improve from~~and 13.9% in June 2020, ~~and with the availability and distribution of COVID-19 vaccines, we anticipate continued improvements in commercial and consumer activity and the U.S. economy.~~

In our primary markets in Hawaii, restrictions have continued to be reduced. In September 2020, the City and County of Honolulu (“City”) implemented a framework for reducing the spread of COVID-19, with criteria set for loosening or tightening restrictions on businesses and activities to keep Honolulu residents healthy. The initial framework included four tiers of re-opening, with Tier 1 being the most restrictive. Under the revamped framework, a fifth and final tier was added. As of July 8, 2021, the City is in Tier 5, allowing for, among other things, indoor social gatherings of up to 25 people and outdoor social gatherings of up to 75 people. Accordingaccording to the State of Hawaii Department of ~~Health, as of July 28, 2021, approximately 60.1% of Hawaii’s population has been fully vaccinated~~Labor and the 7-day average new case counts are at 230 cases. According to the tier framework, when 70% of the State’s population has been fully vaccinated, all COVID-19 related restrictions in the State of Hawaii are expected to be removed.

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While the economy continues to recover, we recognize that our customers continue to experience varying degrees of financial distress, which we expect to continue, though to a lesser degree, throughout 2021. There remains a high degree of uncertainty relating to the ongoing spread and severity of the virus and new variants. To the extent that the economy continues to be negatively impacted by the pandemic, our results will be affected. In light of the uncertainties and continuing developments discussed herein, the ultimate adverse impact of COVID-19 cannot be reliably estimated at this time, but it has been and is expected to continue to be material.

~~Hawaii Economy~~

Hawaii’s economy continues to be significantly impacted by COVID-19 and the responses to it. Because the Hawaii economy is heavily dependent on tourism, the combination of various response measures to the COVID-19 pandemic resulted in unprecedented fluxes in Hawaii unemployment. The statewide seasonally adjusted unemployment rate was 7.7% in June 2021 compared to 13.9% in June 2020, according to the Hawaii Department of Business, Economic Development & Tourism,Industrial Relations, while the national seasonally adjusted unemployment rate was 3.6% in June 2022 compared to 5.9% in June 2021 ~~compared to~~and 11.1% in June 2020.

Domestic visitor arrivals are near pre-pandemic levels, with average daily domestic passenger counts during the first six months of 2022 at approximately 85.4% of the average daily passenger counts during the first six months of 2019. Prior to the pandemic, tourists from Japan represented a significant portion of international visitors to the state. We are beginning to see an increase in Japanese visitors but are still well below the arrival count before the pandemic. Visitor arrivals ~~for~~from Japan during the first six months of 2022 were 34,925 as compared to 7,448 during the first six months of 2021 ~~increased by 27.6% compared to~~and 734,235 during the same period in 2020, according to the Hawaii Tourism Authority. On July 8, 2021, the State revised its travel requirements, allowing visitors to avoid the mandatory 10-day quarantine if 1) they test negative for COVID-19 within 72 hoursfirst six months of departure or 2) they present evidence of being fully vaccinated in the United States and its Territories. While we may continue to see a gradual improvement in unemployment as local businesses reopen, visitor arrivals increase with looser travel restrictions, and the COVID-19 vaccine becomes more widely administered, the timing and extent of the return of air travel and the recovery of the Hawaii tourism industry remains highly uncertain and beyond our control.2019.

~~The volume of home sales on Oahu has increased relative to the corresponding period in 2020, which was significantly impacted by the COVID-19 pandemic.~~ For the six months ended June 30, ~~2021,~~2022, the volume of single-family home sales ~~increased~~decreased by ~~32.9%~~8.8%, while condominium sales increased by ~~70.7%~~7.5%, in each case as compared to the same period in ~~2020,~~2021, according to the Honolulu Board of Realtors. The median price of single-family home sales and condominium sales on Oahu was ~~$949,000~~$1,100,000 and ~~$455,000,~~$515,000, respectively, or an increase of ~~21.0%~~17.0% and ~~6.4%~~13.2%, respectively, for the six months ended June 30, ~~2021~~2022 as compared to the same period in ~~2020.~~2021. As of June 30, ~~2021,~~2022, months of inventory of single-family homes and condominiums on Oahu remained low at approximately ~~1.2~~1.5 and ~~2.1~~1.6 months, respectively. Lastly, state general excise and use tax revenues increased by ~~2.5%~~24.0% for the ~~first~~ six months ~~of 2021~~ended June 30, 2022 as compared to the same period in ~~2020,~~2021, according to the Hawaii Department of Business, Economic Development & Tourism.

~~Legislative and Regulatory Developments~~

Actions taken by the federal government and the Federal Reserve and other bank regulatory agencies to partially mitigate the economic effects of COVID-19 and related containment measures have had, and will continue to have, an impact on our financial position and results of operations. Certain of these actions are further discussed below.

~~The Federal Reserve has instituted a number of other measures to mitigate the lasting impact from the COVID-19 pandemic, including the following:~~

●

~~establishing a temporary repurchase agreement facility for foreign and international monetary authorities;~~

●

~~committing to quantitative easing through large-scale asset-purchase programs;~~

●

~~lowering the rate charged on its discount window and extending the length of the loans offered;~~

●

~~increasing the frequency of engagement with currency swap lines with foreign central banks;~~

●

~~expanding the collateral accepted by its Term Asset-Backed Securities Loan Facility; and~~

●

~~introducing a number of additional facilities designed to enhance support for small and mid-sized businesses.~~

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~~The U.S. government has also enacted certain fiscal stimulus measures in several phases to counteract the economic disruption caused by COVID-19, such as:~~

●

The CARES Act, enacted on March 27, 2020, established, among other COVID relief programs, a $670 billion loan program (the “Paycheck Protection Program” or the “PPP”) for fully guaranteed loans (which may then be forgiven) to small businesses.

●

The Consolidated Appropriations Act – 2021 (the “CAA”) extended the term of a number of initiatives under the CARES Act. One such example was the extension of the Small Business Administration’s (“SBA”) authority to make commitments under the PPP to March 31, 2021 or until the additional PPP funds were exhausted. The PPP Extension Act of 2021 later extended the covered period of the PPP to June 30, 2021. The PPP ended on May 31, 2021.

●

The American Rescue Plan Act of 2021 (“American Rescue Plan”), enacted on March 11, 2021, builds upon the measures established in the CARES Act and the CAA. Through this legislation, unemployment benefits were extended to September 6, 2021, eligible individuals received direct stimulus payments of up to $1,400, an additional $7 billion was added to the PPP, while expanding eligibility to include non-profit organizations previously excluded from the program, and funds were allocated for COVID-19 vaccines, testing and contact tracing.

~~We are continuing to monitor the potential development of additional legislation and further actions taken by the U.S. government.~~

The State of Hawaii received at least $1.25 billion in federal aid from the CARES Act, with the majority of this federal aid used to help fund state and county government response efforts to COVID-19. Additional federal funding provided for unemployment assistance, direct cash payments to Hawaii residents and funding to support local schools and colleges. The CAA provided an additional $1.7 billion in new federal funding, while extending the ability of the State of Hawaii and its local governments to use its previously received federal aid until December 31, 2021. The American Rescue Plan also provides an additional $2.2 billion of federal funding to the State of Hawaii.

~~Impact to our Operations~~

We saw a significant decrease in customer traffic in our branches in the past year. As a result, we strategically closed 26 of our branch locations on a temporary basis and closed four of them permanently in November 2020. As of June 2021, we reopened 19 of the temporarily closed branch locations in connection with the reopening of local businesses. The temporary (or in certain cases, permanent) closures of bank branches and the safety precautions implemented at reopened branches could result in consumers becoming more comfortable with technology and seeing less need for face-to-face interaction. Our business is relationship driven and such changes could necessitate changes to our business practices to accommodate changing consumer behaviors. The Bank continues to adapt to these changing behaviors and launched its newly enhanced mobile banking application in April 2021, allowing customers to not only perform certain transactions virtually but also to integrate their financial information in one place and categorize their transactions to fit their budgeting or financial management needs. We continue to provide service to customers and operate our businesses on all islands of Hawaii, Guam and Saipan. Many of our employees continue to work remotely. We continue to emphasize the importance of practicing social distancing and good hygiene practices in the workplace, especially as more employees have returned to working in our physical offices and spaces.

~~Impact on our Financial Position and Results of Operations~~

We expect that COVID-19 will continue to impact commercial activity throughout the State of Hawaii and nationally, and thus continue to affect the way our customers (businesses and individuals), vendors and counterparties meet existing payment, or other, obligations to us. As Hawaii’s economy continues to reopen, we expect that local consumption of goods and services will continue to improve. Additionally, although forecasts of the Hawaii economy currently point towards more favorable results, the timing and extent of the return of air travel and the recovery of the Hawaii tourism industry remains uncertain and is dependent upon, among other things, the number of cases declining around the globe, in the United States and, in particular, in Hawaii, the pace at which consumers will spend the savings accumulated during the crisis, public health impacts of new COVID-19 variants, the continued administration of the vaccine to unvaccinated populations, and the duration of immunity granted by the current vaccine.

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~~During this time~~There remains many uncertainties related to COVID-19 including, among other things, the impact of ~~uncertainty, we remain committed~~a recent increase in case numbers throughout the United States, the ongoing impact to ~~servicing~~ our ~~customers. The~~customers, employees and vendors; the impact to the financial services and banking industry; and the impact to the economy as a whole, as well as the effect of actions taken, or that may yet be taken, or inaction by governmental authorities to mitigate both the economic ~~pressures~~ and ~~uncertainties arising from~~health-related effects of COVID-19. Refer to our Annual Report on Form 10-K for the year ended December 31, 2021, for further information regarding (i) the impact of the COVID-19 pandemic have resulted in and may continue to result in specific changes in consumer and business spending and borrowing and saving habits, affecting the demand for loans and other products and services we offer. For example, certain industries may take longer to recover (particularly those that rely on travel or in-person foot traffic) as certain consumers may still be hesitant to travel or return to full social interaction. We lend to customers operating in such industries including tourism, hotels/lodging, restaurants, entertainment and commercial real estate, among others. We will continue to closely monitor the impact that COVID-19 and the recession in Hawaii has on our ~~customers~~operations and ~~will adjust~~our results thereof, as well as the means by which we assist our customers during this period of financial hardship. We are working with our customers impacted by COVID-19 by offering payment deferrals and forbearance on certain loan products.

~~The uncertainty of the economy as it recovers from the pandemic may continue to have a negative~~ impact on our financial position and (ii) legislative and regulatory actions taken related to the COVID-19 pandemic, particularly as they relate to the banking and financial services industry.

Effect of Inflation and Changing Prices

The consolidated financial statements and related financial data presented in this Form 10-Q have been prepared according to generally accepted accounting principles in the United States, which require the measurement of financial positions and operating results in terms of ~~operations. A sustained period~~historical dollars without considering the change in the relative purchasing power of ~~lower~~money over time due to inflation.

In recent periods, the increase in inflationary conditions accelerated due to, among other factors, global supply chain disruptions caused by the pandemic. Higher gasoline and other commodity prices or supply chain disruptions resulting from Russia’s ongoing invasion of Ukraine are also contributing to higher inflation levels, which could, in turn, adversely affect the U.S. economy, the demand for our products and creditworthiness of our borrowers.

Our operating costs have increased as inflationary conditions put upward pressure on the Company’s expenses. As virtually all of our assets and liabilities are monetary in nature, interest rates ~~would likely reduce~~(which do not necessarily move in the same direction or the same extent as the prices of goods and services) generally have a more significant impact on our performance than do general levels of inflation. Rising interest rates, which are expected to continue to rise, may contribute to increased net interest margins and benefit our net interest ~~margin, as, currently, our interest rate profile is such that we project net interest~~ income ~~will benefit from higher interest rates~~ as our assets ~~would~~are expected to reprice faster and to a greater degree than our ~~liabilities, while~~liabilities. Changes in interest rates, could influence not only the interest we receive on loans and securities and the amount of interest we pay on deposits and borrowings, but also our ability to originate loans and deposits. In addition, changes in interest rates also have a significant impact on (i) the carrying value of certain assets, including loans, real estate and investment securities, on our balance sheet and (ii) the level of loan refinancing activity in our portfolio, which impacts the amount of prepayment penalty income we receive on loans we hold. In addition, we may incur debt in the ~~case of lower interest rates, our assets would reprice downward~~future, and ~~to a greater degree than our liabilities. Although the Federal Reserve indicated~~ that ~~they may potentially raise interest rates as soon as 2023, the future continues to remain highly uncertain. Our net interest margin~~debt may also be ~~reduced as a result of our participation in the PPP, as loans made thereunder that are not forgiven carry an~~sensitive to interest ~~rate of 1%.~~

Our credit risk profile has also been, and we expect that it will continue to be, adversely impacted during this period of financial hardship for our customers. We also expect that we will see temporary decreases in non-interest income, partially driven by certain measures we have taken to assist customers during the COVID-19 pandemic.rates.

In light of volatility in the capital markets and economic disruptions, we continue to carefully monitor our capital and liquidity positions. As of June 30, ~~2021,~~2022, the Company was “well-capitalized” and met all applicable regulatory capital requirements, including a Common Equity Tier 1 ~~(“CET1”)~~ capital ratio of ~~12.76%~~11.98%, compared to the minimum requirement of 4.50%. We continue to ~~anticipate that we will have sufficient capital~~maintain high levels ~~to meet all~~ of ~~these requirements. Additionally, we continue to access our routine short-term funding sources, such as borrowings and repurchase agreements, and our longer-term funding sources.~~liquidity. For additional discussions regarding our capital and liquidity positions and related risks, refer to the sections titled ~~“Liquidity”~~“Liquidity and Capital Resources” and “Capital” in this ~~Management’s Discussion~~MD&A.

These and ~~Analysis~~other key factors could impact our profitability in future reporting periods. See Item 1A. Risk Factors, beginning in the section captioned “Summary of ~~Financial Condition and Results of Operations (“MD&A”).~~Risk Factors,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022.

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Selected Financial Data

Our financial highlights for the periods indicated are presented in Table 1:


Financial Highlights										Table 1												Table 1
	For the Three Months Ended						For the Six Months Ended						For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,						June 30,						June 30,
(dollars in thousands, except per share data)	2021			2020			2021			2020			2022			2021			2022			2021
Income Statement Data:
Interest income	$	136,222		$	140,619		$	270,798		$	299,151		$	149,744		$	136,222		$	286,365		$	270,798
Interest expense		4,741			12,797			10,159			32,646			4,597			4,741			7,346			10,159
Net interest income		131,481			127,822			260,639			266,505			145,147			131,481			279,019			260,639
Provision for credit losses		(35,000)			55,446			(35,000)			96,646			1,000			(35,000)			(4,747)			(35,000)
Net interest income after provision for credit losses		166,481			72,376			295,639			169,859			144,147			166,481			283,766			295,639
Noninterest income		49,371			45,656			93,239			94,884			44,137			49,371			85,517			93,239
Noninterest expense		99,388			91,450			195,694			187,916			109,175			99,388			213,217			195,694
Income before provision for income taxes		116,464			26,582			193,184			76,827			79,109			116,464			156,066			193,184
Provision for income taxes		29,723			6,533			48,750			17,913			19,749			29,723			38,987			48,750
Net income	$	86,741		$	20,049		$	144,434		$	58,914		$	59,360		$	86,741		$	117,079		$	144,434
Basic earnings per share	$	0.67		$	0.15		$	1.11		$	0.45		$	0.46		$	0.67		$	0.92		$	1.11
Diluted earnings per share	$	0.67		$	0.15		$	1.11		$	0.45		$	0.46		$	0.67		$	0.91		$	1.11
Basic weighted-average outstanding shares		129,392,339			129,856,730			129,661,228			129,876,218			127,672,244			129,392,339			127,614,564			129,661,228
Diluted weighted-average outstanding shares		129,828,847			130,005,195			130,164,762			130,163,722			128,014,777			129,828,847			128,108,630			130,164,762
Dividends declared per share	$	0.26		$	0.26		$	0.52		$	0.52		$	0.26		$	0.26		$	0.52		$	0.52
Dividend payout ratio		38.81	%		173.33	%		46.85	%		115.56	%		56.52	%		38.81	%		57.14	%		46.85	%
Supplemental Income Statement Data (non-GAAP)⁽¹⁾:
Core net interest income	$	131,481		$	127,822		$	260,639		$	266,505
Core noninterest income		49,269			45,867			93,137			95,010
Core noninterest expense		98,228			91,450			194,534			187,916
Core net income		87,704			20,204			145,397			59,007
Core basic earnings per share		0.68			0.16			1.12			0.45
Core diluted earnings per share		0.68			0.16			1.12			0.45
Other Financial Information / Performance Ratios⁽²⁾:
Other Financial Information / Performance Ratios⁽¹⁾:
Net interest margin		2.46	%		2.58	%		2.50	%		2.84	%		2.60	%		2.46	%		2.51	%		2.50	%
Core net interest margin (non-GAAP)^(1),(3)		2.46	%		2.58	%		2.50	%		2.84	%
Efficiency ratio		54.74	%		52.70	%		55.12	%		51.99	%		57.33	%		54.74	%		58.15	%		55.12	%
Core efficiency ratio (non-GAAP)^(1),(4)		54.13	%		52.64	%		54.81	%		51.97	%
Return on average total assets		1.45	%		0.36	%		1.24	%		0.56	%		0.94	%		1.45	%		0.94	%		1.24	%
Core return on average total assets (non-GAAP)^(1),(5)		1.46	%		0.36	%		1.25	%		0.56	%
Return on average tangible assets (non-GAAP)⁽¹¹⁾		1.51	%		0.38	%		1.30	%		0.58	%
Core return on average tangible assets (non-GAAP)^(1),(6)		1.53	%		0.38	%		1.30	%		0.58	%
Return on average tangible assets (non-GAAP)⁽²⁾														0.98	%		1.51	%		0.98	%		1.30	%
Return on average total stockholders' equity		12.92	%		2.99	%		10.75	%		4.42	%		10.52	%		12.92	%		9.82	%		10.75	%
Core return on average total stockholders' equity (non-GAAP)^(1),(7)		13.07	%		3.01	%		10.82	%		4.43	%
Return on average tangible stockholders' equity (non-GAAP)⁽¹¹⁾		20.51	%		4.74	%		16.99	%		7.04	%
Core return on average tangible stockholders' equity (non-GAAP)^(1),(8)		20.74	%		4.77	%		17.10	%		7.05	%
Return on average tangible stockholders' equity (non-GAAP)⁽²⁾														18.79	%		20.51	%		16.76	%		16.99	%
Noninterest expense to average assets		1.66	%		1.65	%		1.68	%		1.77	%		1.73	%		1.66	%		1.71	%		1.68	%
Core noninterest expense to average assets (non-GAAP)^(1),(9)		1.64	%		1.65	%		1.67	%		1.77	%
											(continued)												(continued)

Table of Contents


(continued)	June 30,			December 31,			June 30,			December 31,
(dollars in thousands, except per share data)	2021			2020			2022			2021
Balance Sheet Data:
Cash and cash equivalents	$	1,906,298		$	1,040,944		$	1,533,676		$	1,258,469
Investment securities		6,953,930			6,071,415
Investment securities available-for-sale								3,967,746			8,428,032
Investment securities held-to-maturity								4,093,215			—
Loans and leases		13,103,785			13,279,097			13,262,781			12,961,999
Allowance for credit losses for loans and leases		169,148			208,454			148,942			157,262
Goodwill		995,492			995,492			995,492			995,492
Total assets		24,246,328			22,662,831			25,377,533			24,992,410
Total deposits		20,835,115			19,227,723			22,601,454			21,816,146
Long-term borrowings		200,000			200,010
Total liabilities		21,514,987			19,918,727			23,124,922			22,335,498
Total stockholders' equity		2,731,341			2,744,104			2,252,611			2,656,912
Book value per share	$	21.17		$	21.12		$	17.67		$	20.84
Tangible book value per share (non-GAAP)⁽¹¹⁾	$	13.45		$	13.46
Tangible book value per share (non-GAAP)⁽²⁾							$	9.86		$	13.03

Asset Quality Ratios:
Non-accrual loans and leases / total loans and leases		0.07	%		0.07	%		0.06	%		0.05	%
Allowance for credit losses for loans and leases / total loans and leases		1.29	%		1.57	%		1.12	%		1.21	%
Net charge-offs / average total loans and leases⁽¹⁰⁾		0.09	%		0.23	%
Net charge-offs / average total loans and leases⁽³⁾								0.08	%		0.10	%


	June 30,			December 31,			June 30,			December 31,
Capital Ratios:	2021			2020			2022			2021
Common Equity Tier 1 Capital Ratio		12.76	%		12.47	%		11.98	%		12.24	%
Tier 1 Capital Ratio		12.76	%		12.47	%		11.98	%		12.24	%
Total Capital Ratio		14.01	%		13.73	%		13.14	%		13.49	%
Tier 1 Leverage Ratio		7.68	%		8.00	%		7.54	%		7.24	%
Total stockholders' equity to total assets		11.26	%		12.11	%		8.88	%		10.63	%
Tangible stockholders' equity to tangible assets (non-GAAP)⁽¹¹⁾		7.47	%		8.07	%
Tangible stockholders' equity to tangible assets (non-GAAP)⁽²⁾								5.16	%		6.92	%

(1)

We present net interest income, noninterest income, noninterest expense, net income, basic earnings per share, diluted earnings per share and the related ratios described below, on an adjusted, or “core” basis, each a non-GAAP financial measure. These core measures exclude from the corresponding GAAP measure the impact of certain items that we do not believe are representative of our financial results. We believe that the presentation of these non-GAAP measures helps identify underlying trends in our business from period to period that could otherwise be distorted by the effect of certain expenses, gains and other items included in our operating results. We believe that these core measures provide useful information about our operating results and enhance the overall understanding of our past performance and future performance. Investors should consider our performance and financial condition as reported under GAAP and all other relevant information when assessing our performance or financial condition. Non-GAAP measures have limitations as analytical tools and investors should not consider them in isolation or as a substitute for analysis of our financial results or financial condition as reported under GAAP.

~~Table of Contents~~

~~The following table provides a reconciliation of net interest income, noninterest income, noninterest expense and net income to their “core” non-GAAP financial measures:~~

GAAP to Non-GAAP Reconciliation

Table 2

For the Three Months Ended

For the Six Months Ended

June 30,

June 30,

(dollars in thousands, except per share data)

2021

2020

2021

2020

Net interest income

$
131,481

$
127,822

$
260,639

$
266,505

Core net interest income (non-GAAP)

$
131,481

$
127,822

$
260,639

$
266,505

Noninterest income

$
49,371

$
45,656

$
93,239

$
94,884

(Gains) losses on sale of securities

(102)

211

(102)

126

Core noninterest income (non-GAAP)

$
49,269

$
45,867

$
93,137

$
95,010

Noninterest expense

$
99,388

$
91,450

$
195,694

$
187,916

One-time items^(a)

(1,160)

—

(1,160)

—

Core noninterest expense (non-GAAP)

$
98,228

$
91,450

$
194,534

$
187,916

Net income

$
86,741

$
20,049

$
144,434

$
58,914

(Gains) losses on sale of securities

(102)

211

(102)

126

One-time noninterest expense items^(a)

1,160

—

1,160

—

Tax adjustments^(b)

(95)

(56)

(95)

(33)

Total core adjustments

963

155

963

93

Core net income (non-GAAP)

$
87,704

$
20,204

$
145,397

$
59,007

Basic earnings per share

$
0.67

$
0.15

$
1.11

$
0.45

Diluted earnings per share

$
0.67

$
0.15

$
1.11

$
0.45

Efficiency ratio

54.74
%

52.70
%

55.12
%

51.99
%

Core basic earnings per share (non-GAAP)

$
0.68

$
0.16

$
1.12

$
0.45

Core diluted earnings per share (non-GAAP)

$
0.68

$
0.16

$
1.12

$
0.45

Core efficiency ratio (non-GAAP)

54.13
%

52.64
%

54.81
%

51.97
%

~~(a)~~

~~One-time items included severance costs.~~

~~(b)~~

~~Represents the adjustments to net income, tax effected at the Company’s effective tax rate for the respective period.~~

~~(2)~~

Except for the ~~efficiency ratio and the core~~ efficiency ratio, amounts are annualized for the three and six months ended June 30, ~~2021~~2022 and ~~2020.~~

~~(3)~~

Core net interest margin is a non-GAAP financial measure. We compute our core net interest margin as the ratio of core net interest income to average earning assets. For a reconciliation to the most directly comparable GAAP financial measure for core net interest income, see Table 2, GAAP to Non-GAAP Reconciliation.

~~(4)~~

Core efficiency ratio is a non-GAAP financial measure. We compute our core efficiency ratio as the ratio of core noninterest expense to the sum of core net interest income and core noninterest income. For a reconciliation to the most directly comparable GAAP financial measure for core noninterest expense, core net interest income and core noninterest income, see Table 2, GAAP to Non-GAAP Reconciliation.

~~(5)~~

Core return on average total assets is a non-GAAP financial measure. We compute our core return on average total assets as the ratio of core net income to average total assets. For a reconciliation to the most directly comparable GAAP financial measure for core net income, see Table 2, GAAP to Non-GAAP Reconciliation.

~~(6)~~

Core return on average tangible assets is a non-GAAP financial measure. We compute our core return on average tangible assets as the ratio of core net income to average tangible assets, which is calculated by subtracting (and thereby effectively excluding) amounts related to the effect of goodwill from our average total assets. For a reconciliation to the most directly comparable GAAP financial measure for core net income, see Table 2, GAAP to Non-GAAP Reconciliation.

~~(7)~~

Core return on average total stockholders’ equity is a non-GAAP financial measure. We compute our core return on average total stockholders’ equity as the ratio of core net income to average total stockholders’ equity. For a reconciliation to the most directly comparable GAAP financial measure for core net income, see Table 2, GAAP to Non-GAAP Reconciliation.

~~Table of Contents~~

~~(8)~~

Core return on average tangible stockholders’ equity is a non-GAAP financial measure. We compute our core return on average tangible stockholders’ equity as the ratio of core net income to average tangible stockholders’ equity, which is calculated by subtracting (and thereby effectively excluding) amounts related to the effect of goodwill from our average total stockholders’ equity. For a reconciliation to the most directly comparable GAAP financial measure for core net income, see Table 2, GAAP to Non-GAAP Reconciliation.

~~(9)~~

Core noninterest expense to average assets is a non-GAAP financial measure. We compute our core noninterest expense to average assets as the ratio of core noninterest expense to average total assets. For a reconciliation to the most directly comparable GAAP financial measure for core noninterest expense, see Table 2, GAAP to Non-GAAP Reconciliation.

~~(10)~~

~~Net charge-offs / average total loans and leases is annualized for the six months ended June 30,~~ 2021.

~~(11)~~(2)

Return on average tangible assets, return on average tangible stockholders’ equity, tangible book value per share and tangible stockholders’ equity to tangible assets are non-GAAP financial measures. We compute our return on average tangible assets as the ratio of net income to average tangible assets. We compute our return on average tangible stockholders’ equity as the ratio of net income to average tangible stockholders’ equity. We compute our tangible book value per share as the ratio of tangible stockholders’ equity to outstanding shares. We compute our tangible stockholders’ equity to tangible assets as the ratio of tangible stockholders’ equity to tangible assets. We believe that these financial measures are useful for investors, regulators, management and others to evaluate financial performance and capital adequacy relative to other financial institutions. Although these non-GAAP financial measures are frequently used by shareholders in the evaluation of a company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP.

(3)	Net charge-offs / average total loans and leases is annualized for the six months ended June 30, 2022.

Table of Contents

The following table provides a reconciliation of these non-GAAP financial measures with their most closely related GAAP measures for the periods indicated:


GAAP to Non-GAAP Reconciliation											Table 3												Table 2
	For the Three Months Ended						For the Six Months Ended						For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,						June 30,						June 30,
(dollars in thousands, except per share data)	2021			2020			2021			2020			2022			2021			2022			2021
Income Statement Data:
Noninterest expense	$	99,388		$	91,450		$	195,694		$	187,916		$	109,175		$	99,388		$	213,217		$	195,694
Core noninterest expense	$	98,228		$	91,450		$	194,534		$	187,916

Net income	$	86,741		$	20,049		$	144,434		$	58,914		$	59,360		$	86,741		$	117,079		$	144,434
Core net income	$	87,704		$	20,204		$	145,397		$	59,007

Average total stockholders' equity	$	2,691,966		$	2,697,775		$	2,709,735		$	2,679,293		$	2,262,654		$	2,691,966		$	2,404,471		$	2,709,735
Less: average goodwill		995,492			995,492			995,492			995,492			995,492			995,492			995,492			995,492
Average tangible stockholders' equity	$	1,696,474		$	1,702,283		$	1,714,243		$	1,683,801		$	1,267,162		$	1,696,474		$	1,408,979		$	1,714,243

Average total assets	$	24,015,065		$	22,341,654		$	23,482,839		$	21,327,479		$	25,250,176		$	24,015,065		$	25,165,783		$	23,482,839
Less: average goodwill		995,492			995,492			995,492			995,492			995,492			995,492			995,492			995,492
Average tangible assets	$	23,019,573		$	21,346,162		$	22,487,347		$	20,331,987		$	24,254,684		$	23,019,573		$	24,170,291		$	22,487,347

Return on average total stockholders' equity^(a)		12.92	%		2.99	%		10.75	%		4.42	%		10.52	%		12.92	%		9.82	%		10.75	%
Core return on average total stockholders' equity (non-GAAP)^(a)		13.07	%		3.01	%		10.82	%		4.43	%
Return on average tangible stockholders' equity (non-GAAP)^(a)		20.51	%		4.74	%		16.99	%		7.04	%		18.79	%		20.51	%		16.76	%		16.99	%
Core return on average tangible stockholders' equity (non-GAAP)^(a)		20.74	%		4.77	%		17.10	%		7.05	%

Return on average total assets^(a)		1.45	%		0.36	%		1.24	%		0.56	%		0.94	%		1.45	%		0.94	%		1.24	%
Core return on average total assets (non-GAAP)^(a)		1.46	%		0.36	%		1.25	%		0.56	%
Return on average tangible assets (non-GAAP)^(a)		1.51	%		0.38	%		1.30	%		0.58	%		0.98	%		1.51	%		0.98	%		1.30	%
Core return on average tangible assets (non-GAAP)^(a)		1.53	%		0.38	%		1.30	%		0.58	%

Noninterest expense to average assets^(a)		1.66	%		1.65	%		1.68	%		1.77	%		1.73	%		1.66	%		1.71	%		1.68	%
Core noninterest expense to average assets (non-GAAP)^(a)		1.64	%		1.65	%		1.67	%		1.77	%

~~(continued)~~


	As of			As of
	June 30,			December 31,
(dollars in thousands, except share amount and per share data)	2022			2021
Balance Sheet Data:
Total stockholders' equity	$	2,252,611		$	2,656,912
Less: goodwill		995,492			995,492
Tangible stockholders' equity	$	1,257,119		$	1,661,420

Total assets	$	25,377,533		$	24,992,410
Less: goodwill		995,492			995,492
Tangible assets	$	24,382,041		$	23,996,918

Shares outstanding		127,451,087			127,502,472

Total stockholders' equity to total assets		8.88	%		10.63	%
Tangible stockholders' equity to tangible assets (non-GAAP)		5.16	%		6.92	%

Book value per share	$	17.67		$	20.84
Tangible book value per share (non-GAAP)	$	9.86		$	13.03

~~Table of Contents~~

As of

As of

(continued)

June 30,

December 31,

(dollars in thousands, except share amount and per share data)

2021

2020

Balance Sheet Data:

Total stockholders' equity

$
2,731,341

$
2,744,104

Less: goodwill

995,492

995,492

Tangible stockholders' equity

$
1,735,849

$
1,748,612

Total assets

$
24,246,328

$
22,662,831

Less: goodwill
��

995,492

995,492

Tangible assets

$
23,250,836

$
21,667,339

Shares outstanding

129,019,871

129,912,272

Total stockholders' equity to total assets

11.26
%

12.11
%
Tangible stockholders' equity to tangible assets (non-GAAP)

7.47
%

8.07
%

Book value per share

$
21.17

$
21.12

Tangible book value per share (non-GAAP)

$
13.45

$
13.46

(a)	Annualized for the three and six months ended June 30, ~~2021~~2022 and ~~2020.~~2021.

Financial Highlights

Results of operations for the three and six months ended June 30, 2021 and 2020 were significantly affected by the economic decline attributable to the onset of the COVID-19 pandemic that began to be felt in March 2020, as well as the economic improvements that occurred in the first six months of 2021 as the Hawaii economy began to reopen and tourists started to return to Hawaii in more significant numbers.

Net income was ~~$86.7~~$59.4 million for the three months ended June 30, ~~2021, an increase~~2022, a decrease of ~~$66.7~~$27.4 million or 32% as compared to the same period in ~~2020.~~2021. Basic and diluted earnings per share were both ~~$0.67~~$0.46 per share for the three months ended June 30, ~~2021, an increase~~2022, a decrease of ~~$0.52~~$0.21 per share or 31% as compared to the same period in ~~2020.~~2021. Net income was impacted by a $13.7 million increase in net interest income driven by the rising interest rate environment and a $10.0 million decrease in the provision for income taxes. The ~~increase~~decrease in net income was primarily due to a ~~negative~~ provision for credit losses (the “Provision”) of $1.0 million for the three months ended June 30, 2022, compared to a negative provision of $35.0 million for the three months ended June 30, 2021, ~~compared~~in addition to a Provision of $55.4 million for the three months ended June 30, 2020. The increase in net income was also related to a $3.7 million increase in noninterest income and a $3.7 million increase in net interest income, partially offset by a $23.2 million increase in the provision for income taxes and a $7.9$9.8 million increase in noninterest expense ~~for the three months ended June 30, 2021.~~

~~Our return on average total assets was 1.45% for the three months ended June 30, 2021, an increase of 109 basis points from the same period~~and a $5.2 million decrease in 2020, and our return on average total stockholders’ equity was 12.92% for the three months ended June 30, 2021, an increase of 993 basis points from the same period in 2020. Our return on average tangible assets was 1.51% for the three months ended June 30, 2021, an increase of 113 basis points from the same period in 2020, and our return on average tangible stockholders’ equity was 20.51% for the three months ended June 30, 2021, up from 4.74% for the same period in 2020. We continued to prudently manage our expenses, as our efficiency ratio was 54.74% for the three months ended June 30, 2021, compared to 52.70% for the same period in 2020.noninterest income.

~~Our results for the three months ended June 30, 2021 were highlighted by the following:~~

●

Net interest income was $131.5 million for the three months ended June 30, 2021, an increase of $3.7 million or 3% as compared to the same period in 2020. Our net interest margin was 2.46% for the three months ended June 30, 2021, a decrease of 12 basis points as compared to the same period in 2020. The increase in net interest income was primarily due to higher average balances in our investment securities portfolio and lower deposit funding costs, partially offset by lower average balances and yields in most loan categories during the three months ended June 30, 2021.

5654

Table of Contents

Our return on average total assets was 0.94% for the three months ended June 30, 2022, a decrease of 51 basis points from the same period in 2021, and our return on average total stockholders’ equity was 10.52% for the three months ended June 30, 2022, a decrease of 240 basis points from the same period in 2021. Our return on average tangible assets was 0.98% for the three months ended June 30, 2022, a decrease of 53 basis points from the same period in 2021, and our return on average tangible stockholders’ equity was 18.79% for the three months ended June 30, 2022, a decrease of 172 basis points from the same period in 2021. Our efficiency ratio was 57.33% for the three months ended June 30, 2022 compared to 54.74% for the same period in 2021.

Our results for the three months ended June 30, 2022 were highlighted by the following:

●

~~There~~Net interest income was ~~a negative Provision of $35.0~~$145.1 million for the three months ended June 30, ~~2021,~~2022, an increase of $13.7 million or 10% as compared to the same period in 2021. Our net interest margin was 2.60% for the three months ended June 30, 2022, an increase of 14 basis points as compared to the same period in 2021. The increase in net interest income, on a fully taxable-equivalent basis, was primarily due to higher average balances and yields in our investment securities portfolio, higher yields on interest-bearing deposits in other banks, higher yields in a few loan categories and lower borrowing costs, partially offset by lower average balances in a few loan categories and higher deposit funding costs compared to the same period in 2021.

●

There was a Provision of $1.0 million for the three months ended June 30, 2022, compared to a ~~Provision~~negative provision of ~~$55.4~~$35.0 million for the same period in ~~2020.~~2021. The negative Provision in 2021 was primarily due to lower expected credit losses as a result of the economic recovery after COVID-19 and its impact on Hawaii’s economy, key industries, businesses and our customers. The Provision is recorded to maintain the ~~Allowance~~ACL and the reserve for ~~Credit Losses (“ACL”)~~unfunded commitments at levels deemed adequate to absorb lifetime expected credit losses in our loan and lease portfolio and unfunded loan and lease commitments as of the balance sheet date.

●

Noninterest income was ~~$49.4~~$44.1 million for the three months ended June 30, ~~2021, an increase~~2022, a decrease of ~~$3.7~~$5.2 million or 8%11% as compared to the same period in ~~2020.~~2021. The ~~increase~~decrease was primarily due to a ~~$5.9~~negative $0.9 million ~~increase~~of Bank-owned life insurance (“BOLI”) income as compared to $3.1 million of BOLI income for the same period in ~~credit and debit card fees,~~2021, as well as a ~~$2.4~~$1.3 million ~~increase~~decrease in other service charges and fees, and a $0.7 million increase in service charges on deposit accounts, reflecting increased local economic activity as tourism has increased and the economy has begun to reopen. This was partially offset by a $4.3 million decrease in other noninterest income and a $1.3 million decrease in bank-owned life insurance (“BOLI”) income.fees.

●

Noninterest expense was ~~$99.4~~$109.2 million for the three months ended June 30, ~~2021,~~2022, an increase of ~~$7.9~~$9.8 million or 9%10% compared to the same period in ~~2020.~~2021. The increase in noninterest expense was primarily due to a ~~$3.6~~$3.9 million increase in salaries and employee benefits, a ~~$1.3~~$2.1 million increase in ~~other noninterest expense,~~contracted services and professional fees, a ~~$1.2~~$1.4 million increase in equipment expense, a ~~$1.1~~$1.0 million increase in card rewards program expense and a ~~$1.0~~$0.5 million increase in ~~contracted services~~advertising and ~~professional fees.~~marketing expense.

Net income was ~~$144.4~~$117.1 million for the six months ended June 30, ~~2021, an increase~~2022, a decrease of ~~$85.5~~$27.4 million or 19% as compared to the same period in ~~2020.~~2021. Basic ~~and diluted~~ earnings per share ~~were both $1.11~~was $0.92 per share for the six months ended June 30, ~~2021, an increase~~2022, a decrease of ~~$0.66~~$0.19 per share as compared to the same period in ~~2020.~~2021. Diluted earnings per share was $0.91 per share for the six months ended June 30, 2022, a decrease of $0.20 per share as compared to the same period in 2021. The ~~increase~~decrease in net income was primarily due to a negative Provision of $4.7 million for the six months ended June 30, 2022, compared to a negative Provision of $35.0 million for the six months ended June 30, ~~2021, compared~~2021. The decrease in net income was also due to a ~~Provision of $96.6~~$17.5 million increase in noninterest expense and a $7.7 million decrease in noninterest income. This was partially offset by an $18.4 million increase in net interest income and a $10.0 million decrease in the provision for income taxes for the six months ended June 30, ~~2020. This~~2022.

Our return on average total assets was partially offset by a $30.8 million increase in the provision for income taxes, a $7.8 million increase in noninterest expense, a $5.9 million decrease in net interest income and a $1.6 million decrease in noninterest income0.94% for the six months ended June 30, ~~2021.~~

~~Our return on average total assets was 1.24% for the six months ended June~~2022, a decrease of 30 ~~2021, an increase of 68~~ basis points from the same period in ~~2020,~~2021, and our return on average total stockholders’ equity was ~~10.75%~~9.82% for the six months ended June 30, ~~2021, an increase~~2022, a decrease of ~~633~~93 basis points for the same period in 2021. Our return on average tangible assets was 0.98% for the six months ended June 30, 2022, a decrease of 32 basis points from the same period in ~~2020. Our return on average tangible assets was 1.30% for the six months ended June 30,~~ 2021, ~~an increase of 72 basis points from the same period in 2020,~~ and our return on average tangible stockholders’ equity was ~~16.99%~~16.76% for the six months ended June 30, ~~2021, up from 7.04%~~2022, a decrease of 23 basis points for the same period in ~~2020.~~2021. Our efficiency ratio was ~~55.12%~~58.15% for the six months ended June 30, ~~2021~~2022 compared to ~~51.99%~~55.12% for the same period in ~~2020.~~2021.

Table of Contents

Our results for the six months ended June 30, ~~2021~~2022 were highlighted by the following:

●

Net interest income was ~~$260.6~~$279.0 million for the six months ended June 30, ~~2021, a decrease~~2022, an increase of ~~$5.9~~$18.4 million or 2%7% as compared to the same period in ~~2020.~~2021. Our net interest margin was ~~2.50%~~2.51% for the six months ended June 30, ~~2021, a decrease~~2022, an increase of 34one basis ~~points~~point as compared to the same period in ~~2020.~~2021. The ~~decrease~~increase in net interest income, on a fully taxable-equivalent basis, was primarily due to ~~lower~~higher average balances and yields in ~~most loan categories and lower yields in~~ our investment securities ~~portfolio.~~portfolio, higher yields on interest-bearing deposits in other banks, and lower borrowing costs. This was partially offset by ~~higher~~lower average balances in ~~our investment securities portfolio and lower deposit funding costs.~~a few loan categories compared to the same period in 2021.

●

There was a negative Provision of ~~$35.0~~$4.7 million for the six months ended June 30, ~~2021,~~2022, compared to a negative Provision of ~~$96.6~~$35.0 million for the same period in ~~2020.~~2021. The negative Provision in 2021 was primarily due to lower expected credit losses as a result of the economic recovery ~~after~~and easing of restrictions related to the COVID-19 pandemic and ~~its~~the impact of the pandemic on Hawaii’s economy, key industries, businesses and our customers. The Provision is recorded to maintain the ACL at levels deemed adequate to absorb lifetime expected credit losses in our loan and lease portfolio as of the balance sheet date.

●

Noninterest income was ~~$93.2~~$85.5 million for the six months ended June 30, ~~2021,~~2022, a decrease of ~~$1.6~~$7.7 million or 2%8% as compared to the same period in ~~2020.~~2021. The decrease was primarily due to a ~~$6.3~~negative $1.3 million of Bank-owned life insurance (“BOLI”) income as compared to $5.5 million of BOLI income for the same period in 2021, as well as a $2.4 million decrease in other noninterest income, partially offset by a ~~$1.5~~$1.0 million ~~decrease~~increase in service charges on deposit accounts ~~a $1.2 million decrease in BOLI income~~ and a ~~$1.1 million decrease in trust and investment services income, partially offset by a $5.5~~$0.6 million increase in credit and debit card ~~fees and a $2.7 million increase in other service charges and~~ fees.

~~Table of Contents~~

●

Noninterest expense was ~~$195.7~~$213.2 million for the six months ended June 30, ~~2021,~~2022, an increase of ~~$7.8~~$17.5 million or 4%9% as compared to the same period in ~~2020.~~2021. The increase in noninterest expense was primarily due to ~~a $2.7~~an $8.2 million increase in salaries and employee benefits expense, a ~~$2.5~~$3.1 million increase in ~~other noninterest~~card rewards program expense, a ~~$2.2~~$2.1 million increase in contracted services and professional fees, ~~and~~ a $1.9 million increase in equipment expense, ~~partially offset by~~ a ~~$1.1~~$1.0 million ~~decrease~~increase in ~~card rewards program expense.~~advertising and marketing expense and a $0.7 million increase in regulatory assessment and fees.

Hawaii’s economy continues to ~~be significantly impacted by~~show improvement through the first six months of 2022 as COVID-19 and the responses to it. Because the Hawaii economy is heavily dependent on tourism, the combination of various response measures to the COVID-19 pandemic resulted in unprecedented fluxes in Hawaii unemployment. While we may continue to see a gradual improvement in unemployment as local businesses reopen,was less disruptive. Domestic visitor arrivals to Hawaii have reached near pre-pandemic levels, while visitor arrivals from Japan, traditionally Hawaii’s largest international market, have started to slowly increase. There remains many uncertainties related to COVID-19, including the impact of a recent increase ~~with looser travel restrictions, and~~in case numbers throughout the ~~COVID-19 vaccine becomes more widely administered, the timing and extent of the return of air travel and the recovery of the Hawaii tourism industry remains highly uncertain and beyond our control.~~United States.

We continued to maintain high levels of liquidity and remained well-capitalized as of June 30, ~~2021.~~2022. CET1 was ~~12.76%~~11.98% as of June 30, ~~2021, an increase~~2022, a decrease of 2926 basis points from December 31, ~~2020.~~2021. The ~~increase~~decrease in CET1 was primarily due to loan growth as well as the dividends declared and paid to the Company’s stockholders, partially offset by earnings for the six months ended June 30, ~~2021, including the $35.0 million negative Provision, partially offset by the dividends declared and paid to the Company’s stockholders.~~2022.

●

Total loans and leases were ~~$13.1~~$13.3 billion as of June 30, ~~2021, a decrease~~2022, an increase of ~~$175.3~~$300.8 million or 1%2% from December 31, ~~2020.~~2021. The ~~decrease~~increase in total loans and leases was primarily due to increases in commercial real estate loans and residential mortgage loans, partially offset by a decrease in ~~the dealer flooring~~PPP loans, which are included in commercial and ~~indirect automobile loan portfolios, partially offset by increases~~industrial loans, and decreases in ~~the commercial real estate, residential mortgage~~construction loans and ~~construction portfolios.~~consumer loans.

●

The ACL was ~~$169.1~~$148.9 million as of June 30, ~~2021,~~2022, a decrease of ~~$39.3~~$8.3 million or ~~19%~~5% from December 31, ~~2020.~~2021. This decrease was primarily due to the ~~$33.6 million negative Provision expense due to lower expected credit losses~~release of certain qualitative overlays, such as the COVID-19 overlay in the ~~consumer~~residential portfolio, and ~~commercial real estate portfolios.~~continued improvement in credit quality and moderate improvement in the economic outlook during the six months ended June 30, 2022. The ratio of our ACL to total loans and leases outstanding was ~~1.29%~~1.12% as of June 30, ~~2021,~~2022, a decrease of 28nine basis points compared to December 31, ~~2020.~~2021.

Table of Contents

●

We continued to invest in high-grade investment securities, primarily collateralized mortgage obligations issued by the Government National Mortgage Association (“Ginnie Mae”), the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and mortgage-backed securities issued by Ginnie Mae, Freddie Mac, Fannie Mae and Municipal Housing Authorities. The total ~~fair~~carrying value of our investment securities portfolio was ~~$7.0~~$8.1 billion as of June 30, ~~2021, an increase~~2022, a decrease of ~~$882.5~~$367.1 million or ~~15%~~4% from December 31, ~~2020.~~2021. The ~~increase~~decrease was primarily due to ~~purchases~~a lower valuation resulting from higher market interest rates as of June 30, 2022, relative to December 31, 2021. During the second quarter of 2022, we reclassified at fair value $4.1 billion in ~~this portfolio as we invested excess liquidity into~~available-for-sale investment securities ~~partially offset by principal repayments.~~to the held-to-maturity category to enhance our capital management in a rising interest rate environment.

●

Total deposits were ~~$20.8~~$22.6 billion as of June 30, ~~2021,~~2022, an increase of ~~$1.6 billion~~$785.3 million or 8%4% from December 31, ~~2020.~~2021. The increase in total deposits was primarily due to a ~~$1.1 billion~~$630.4 million increase in savings deposit balances, a $217.0 million increase in demand deposit balances and a ~~$583.2~~$46.6 million increase in money market deposit balances, ~~and a $401.0 million increase in savings deposit balances,~~ partially offset by a ~~$444.6~~$108.8 million decrease in time deposit balances.

●

Total stockholders’ equity was ~~$2.7~~$2.3 billion as of June 30, ~~2021,~~2022, a decrease of ~~$12.8~~$404.3 million or 15% from December 31, ~~2020.~~2021. The decrease in stockholders’ equity was primarily due to net unrealized losses in our investment securities portfolio, net of tax, of $446.9 million and dividends declared and paid to the Company’s stockholders of ~~$67.4 million, a net unrealized loss in the fair value of our investment securities net of tax of $61.3 million and share repurchases of $31.9~~$66.4 million, partially offset by earnings for the period of ~~$144.4~~$117.1 million.

~~Table of Contents~~

Analysis of Results of Operations

Net Interest Income

For the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, average balances, related income and expenses, on a fully taxable-equivalent basis, and resulting yields and rates are presented in Table 4.3. An analysis of the change in net interest income, on a fully taxable-equivalent basis, is presented in Table 5.4.

Table of Contents


Average Balances and Interest Rates											Table 4													Table 3
	Three Months Ended						Three Months Ended							Three Months Ended						Three Months Ended
	June 30, 2021						June 30, 2020							June 30, 2022						June 30, 2021
					Average							Average						Average							Average
	Average		Income/		Yield/		Average		Income/			Yield/		Average		Income/		Yield/		Average		Income/			Yield/
(dollars in millions)	Balance		Expense		Rate		Balance		Expense			Rate		Balance		Expense		Rate		Balance		Expense			Rate
Earning Assets
Interest-Bearing Deposits in Other Banks	$	1,503.0	$	0.4	0.10	%	$	1,436.2	$	0.4		0.10	%	$	1,297.3	$	2.8	0.85	%	$	1,503.0	$	0.4		0.10	%
Available-for-Sale Investment Securities
Taxable		6,298.3		22.5	1.43			4,389.7		17.5		1.60			3,946.4		16.6	1.68			6,298.3		22.5		1.43
Non-Taxable		468.4		2.7	2.30			0.7		—		2.58			8.4		0.1	5.26			468.4		2.7		2.30
Total Available-for-Sale Investment Securities		6,766.7		25.2	1.49			4,390.4		17.5		1.60
Held-to-Maturity Investment Securities
Taxable															3,533.6		15.0	1.70			—		—		—
Non-Taxable															607.0		4.1	2.71			—		—		—
Total Investment Securities															8,095.4		35.8	1.77			6,766.7		25.2		1.49
Loans Held for Sale		2.0		—	1.44			9.8		0.1		2.93			0.3		—	5.06			2.0		—		1.44
Loans and Leases ⁽¹⁾
Commercial and industrial		2,882.1		21.1	2.94			3,601.0		24.3		2.71			1,951.3		15.0	3.09			2,882.1		21.1		2.94
Commercial real estate		3,419.7		25.3	2.97			3,438.8		28.3		3.31			3,808.9		30.7	3.23			3,419.7		25.3		2.97
Construction		800.9		6.3	3.15			584.1		4.9		3.35			711.3		6.3	3.57			800.9		6.3		3.15
Residential:
Residential mortgage		3,765.4		34.0	3.62			3,682.7		35.7		3.88			4,183.0		36.7	3.51			3,765.4		34.0		3.62
Home equity line		812.6		5.5	2.72			885.2		6.8		3.07			945.7		5.9	2.49			812.6		5.5		2.72
Consumer		1,277.9		16.9	5.32			1,526.5		20.6		5.42			1,218.0		15.5	5.09			1,277.9		16.9		5.32
Lease financing		246.5		1.9	3.06			238.4		1.7		2.88			240.4		2.1	3.53			246.5		1.9		3.06
Total Loans and Leases		13,205.1		111.0	3.37			13,956.7		122.3		3.52			13,058.6		112.2	3.44			13,205.1		111.0		3.37
Other Earning Assets		62.5		0.3	1.91			61.7		0.4		2.79			69.0		0.1	0.79			62.5		0.3		1.91
Total Earning Assets⁽²⁾		21,539.3		136.9	2.55			19,854.8		140.7		2.84			22,520.6		150.9	2.68			21,539.3		136.9		2.55
Cash and Due from Banks		290.7						295.1							300.8						290.7
Other Assets		2,185.1						2,191.8							2,428.8						2,185.1
Total Assets	$	24,015.1					$	22,341.7						$	25,250.2					$	24,015.1

Interest-Bearing Liabilities
Interest-Bearing Deposits
Savings	$	6,361.8	$	0.5	0.03	%	$	5,501.9	$	0.9		0.07	%	$	6,971.3	$	1.7	0.10	%	$	6,361.8	$	0.5		0.03	%
Money Market		3,783.1		0.5	0.06			3,270.3		1.1		0.13			4,127.4		1.4	0.14			3,783.1		0.5		0.06
Time		2,034.5		2.3	0.45			3,335.6		6.6		0.79			1,671.4		1.5	0.36			2,034.5		2.3		0.45
Total Interest-Bearing Deposits		12,179.4		3.3	0.11			12,107.8		8.6		0.29			12,770.1		4.6	0.14			12,179.4		3.3		0.11
Short-Term Borrowings		—		—	—			395.6		2.8		2.88
Long-Term Borrowings		200.0		1.4	2.76			200.0		1.4		2.77			—		—	—			200.0		1.4		2.76
Total Interest-Bearing Liabilities		12,379.4		4.7	0.15			12,703.4		12.8		0.41			12,770.1		4.6	0.14			12,379.4		4.7		0.15
Net Interest Income			$	132.2					$	127.9						$	146.3					$	132.2
Interest Rate Spread					2.40	%						2.43	%					2.54	%						2.40	%
Net Interest Margin					2.46	%						2.58	%					2.60	%						2.46	%
Noninterest-Bearing Demand Deposits		8,458.6						6,432.6							9,631.4						8,458.6
Other Liabilities		485.1						507.9							586.0						485.1
Stockholders' Equity		2,692.0						2,697.8							2,262.7						2,692.0
Total Liabilities and Stockholders' Equity	$	24,015.1					$	22,341.7						$	25,250.2					$	24,015.1

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

(2)	Interest income includes taxable-equivalent basis adjustments of ~~$0.7~~$1.2 million and ~~$0.1~~$0.7 million for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

5958

Table of Contents

Analysis of Change in Net Interest Income

Table 5

Table 4

Three Months Ended June 30, 2021

Three Months Ended June 30, 2022

Compared to June 30, 2020

Compared to June 30, 2021

(dollars in millions)

Volume

Rate

Total ⁽¹⁾

Volume

Rate

Total ⁽¹⁾

Change in Interest Income:

Interest-Bearing Deposits in Other Banks

—

2.4

Available-for-Sale Investment Securities

Taxable

7.0

(2.0)

5.0

(9.4)

3.5

(5.9)

Non-Taxable

2.7

—

2.7

(4.1)

1.5

(2.6)

Total Available-for-Sale Investment Securities

9.7

(2.0)

7.7

Loans Held for Sale

(0.1)

—

(0.1)

Held-to-Maturity Investment Securities

Taxable

15.0

—

15.0

Non-Taxable

4.1

—

4.1

Total Investment Securities

5.6

5.0

10.6

Loans and Leases

Commercial and industrial

(5.2)

2.0

(3.2)

(7.1)

1.0

(6.1)

Commercial real estate

(0.1)

(2.9)

(3.0)

3.0

2.4

5.4

Construction

1.7

(0.3)

1.4

(0.8)

0.8

—

Residential:

Residential mortgage

0.8

(2.5)

(1.7)

3.7

(1.0)

2.7

Home equity line

(0.5)

(0.8)

(1.3)

0.9

(0.5)

0.4

Consumer

(3.3)

(0.4)

(3.7)

(0.7)

(1.4)

Lease financing

0.1

0.2

(0.1)

0.3

0.2

Total Loans and Leases

(6.5)

(4.8)

(11.3)

(1.1)

2.3

1.2

Other Earning Assets

—

(0.1)

—

(0.2)

Total Change in Interest Income

3.1

(6.9)

(3.8)

4.5

9.5

14.0

Change in Interest Expense:

Interest-Bearing Deposits

Savings

0.1

(0.5)

(0.4)

0.1

1.1

1.2

Money Market

0.1

(0.7)

(0.6)

0.1

0.8

0.9

Time

(2.0)

(2.3)

(4.3)

(0.4)

(0.8)

Total Interest-Bearing Deposits

(1.8)

(3.5)

(5.3)

(0.2)

1.5

1.3

Short-term Borrowings

(1.4)

(2.8)

Long-term Borrowings

(0.7)

(1.4)

Total Change in Interest Expense

(3.2)

(4.9)

(8.1)

(0.9)

0.8

(0.1)

Change in Net Interest Income

6.3

(2.0)

4.3

5.4

8.7

14.1

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

Net interest income, on a fully taxable-equivalent basis, was ~~$132.2~~$146.3 million for the three months ended June 30, ~~2021,~~2022, an increase of ~~$4.3~~$14.1 million or 3%11% compared to the same period in ~~2020.~~2021. Our net interest margin was ~~2.46%~~2.60% for the three months ended June 30, ~~2021, a decrease~~2022, an increase of 1214 basis points from the same period in ~~2020.~~2021. The increase in net interest income, on a fully taxable-equivalent basis, was primarily due to higher average balances and yields in our investment securities portfolio, higher yields on interest-earning deposits in other banks, higher loan yields in a few categories and lower ~~deposit funding~~borrowing costs, partially offset by lower average balances ~~and yields~~ in ~~most~~a few loan categories and higher deposit funding costs during the three months ended June 30, ~~2021.~~2022. Fees are accelerated into net interest income upon the forgiveness of PPP loans. Net interest income for the three months ended June 30, 2022 and 2021 ~~and 2020~~ included ~~$8.1~~$1.3 million and ~~$3.7~~$8.1 million, respectively, of fees from PPP loans. As of June 30, ~~2021,~~2022, there were approximately ~~$23.0~~$0.9 million of additional fees remaining on our PPP loans that had not yet been recognized into income.

Table of Contents

For the three months ended June 30, ~~2021,~~2022, the average balance of our investment securities portfolio was ~~$6.8~~$8.1 billion, an increase of ~~$2.4~~$1.3 billion or ~~54%~~20% compared to the same period in ~~2020.~~2021. Yields on our investment securities portfolio were 1.77% for the three months ended June 30, 2022, an increase of 28 basis points as compared to the same period in 2021, primarily due to an increase in interest rates. For the three months ended June 30, ~~2021,~~2022, the average balance of our loans and leases was ~~$13.2~~$13.1 billion, a decrease of ~~$751.6~~$146.5 million or 5%1% compared to the same period in ~~2020.~~2021. The decrease in the average balance of our loans and leases was primarily due to a decrease in PPP loans in our commercial and industrial loan portfolio, partially offset by an increase in residential mortgage loans and commercial real estate loans. Yields on our loans and leases were ~~3.37%~~3.44% for the three months ended June 30, ~~2021, a decrease~~2022, an increase of 15seven basis points as compared to the same period in ~~2020.~~2021. We experienced ~~a decrease~~an increase in our yields from total loans primarily due to ~~decreases~~increases in our commercial real estate ~~and residential mortgage loans. This was partially offset by an increase in our yields from commercial and industrial~~ loans. The adjustable rate commercial real estate loans are typically based on the LIBOR. ~~Increases in the yield on commercial and industrial loans stemmed from higher PPP loan fees as these fees were accelerated into income upon the forgiveness of the loans.~~ Deposit funding costs were ~~$3.3~~$4.6 million for the three months ended June 30, ~~2021, a decrease~~2022, an increase of ~~$5.3~~$1.3 million or ~~62%~~39% compared to the same period in ~~2020,~~2021 primarily due to ~~a decrease~~an increase in interest rates. Rates paid on our interest-bearing deposits were 1114 basis points for the three months ended June 30, ~~2021, a decrease~~2022, an increase of 18three basis points compared to the same period in ~~2020.~~

~~Table~~2021. Borrowing costs were nil for the three months ended June 30, 2022, a decrease of ~~Contents~~$1.4 billion compared to the same period in 2021 due to the termination of our long-term borrowings in November 2021.

For the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, average balances, related income and expenses, on a fully taxable-equivalent basis, and resulting yields and rates are presented in Table 6.5. An analysis of the change in net interest income, on a fully taxable-equivalent basis, is presented in Table 7.6.

Average Balances and Interest Rates

Table 6

Six Months Ended

Six Months Ended

June 30, 2021

June 30, 2020

Average

Income/

Yield/

Average

Income/

Yield/

(dollars in millions)

Balance

Expense

Rate

Balance

Expense

Rate

Earning Assets









Interest-Bearing Deposits in Other Banks

$
1,222.4

$
0.6

0.10
%
$
976.5

$
2.0

0.40
%
Available-for-Sale Investment Securities

Taxable

6,125.1

44.6

1.46

4,211.4

38.7

1.84

Non-Taxable

373.7

4.0

2.11

0.4

—

2.58

Total Available-for-Sale Investment Securities

6,498.8

48.6

1.49

4,211.8

38.7

1.84

Loans Held for Sale

5.6

0.1

2.28

12.8

0.1

2.17

Loans and Leases⁽¹⁾

Commercial and industrial

2,954.0

41.5

2.84

3,188.4

48.9

3.08

Commercial real estate

3,402.6

50.2

2.98

3,426.3

62.9

3.69

Construction

774.0

12.1

3.16

561.5

10.6

3.79

Residential:

Residential mortgage

3,730.9

68.7

3.68

3,711.5

73.4

3.95

Home equity line

817.3

11.2

2.76

886.3

14.5

3.28

Consumer

1,300.7

34.7

5.37

1,569.2

43.6

5.59

Lease financing

244.1

3.7

3.04

230.8

3.3

2.90

Total Loans and Leases

13,223.6

222.1

3.38

13,574.0

257.2

3.80

Other Earning Assets

60.2

0.5

1.85

59.4

1.2

3.99

Total Earning Assets⁽²⁾

21,010.6

271.9

2.60

18,834.5

299.2

3.19

Cash and Due from Banks

292.3

311.2

Other Assets

2,179.9

2,181.8

Total Assets

$
23,482.8

$
21,327.5

Interest-Bearing Liabilities

Interest-Bearing Deposits

Savings

$
6,169.5

$
1.1

0.04
%
$
5,296.1

$
4.2

0.16
%
Money Market

3,657.3

1.0

0.05

3,167.6

5.7

0.36

Time

2,160.8

5.3

0.49

2,935.1

14.3

0.98

Total Interest-Bearing Deposits

11,987.6

7.4

0.12

11,398.8

24.2

0.43

Short-Term Borrowings

—

—

—

398.6

5.7

2.88

Long-Term Borrowings

200.0

2.7

2.76

200.0

2.7

2.77

Total Interest-Bearing Liabilities

12,187.6

10.1

0.17

11,997.4

32.6

0.55

Net Interest Income

$
261.8

$
266.6

Interest Rate Spread

2.43
%

2.64
%
Net Interest Margin

2.50
%

2.84
%
Noninterest-Bearing Demand Deposits

8,086.1

6,143.0

Other Liabilities

499.4

507.8

Stockholders' Equity

2,709.7

2,679.3

Total Liabilities and Stockholders' Equity

$
23,482.8

$
21,327.5

Table of Contents


Average Balances and Interest Rates												Table 5
	Six Months Ended							Six Months Ended
	June 30, 2022							June 30, 2021
	Average		Income/		Yield/			Average		Income/		Yield/
(dollars in millions)	Balance		Expense		Rate			Balance		Expense		Rate
Earning Assets
Interest-Bearing Deposits in Other Banks	$	1,218.3	$	3.3		0.55	%	$	1,222.4	$	0.6	0.10	%
Available-for-Sale Investment Securities
Taxable		5,862.7		45.7		1.56			6,125.1		44.6	1.46
Non-Taxable		320.8		3.9		2.41			373.7		4.0	2.11
Held-to-Maturity Investment Securities
Taxable		1,776.6		15.0		1.69			—		—	—
Non-Taxable		305.2		4.1		2.71			—		—	—
Total Investment Securities		8,265.3		68.7		1.66			6,498.8		48.6	1.49
Loans Held for Sale		0.8		—		2.60			5.6		0.1	2.28
Loans and Leases⁽¹⁾
Commercial and industrial		1,962.1		29.7		3.05			2,954.0		41.5	2.84
Commercial real estate		3,721.0		56.4		3.06			3,402.6		50.2	2.98
Construction		738.9		12.1		3.30			774.0		12.1	3.16
Residential:
Residential mortgage		4,147.2		71.5		3.45			3,730.9		68.7	3.68
Home equity line		918.8		11.3		2.48			817.3		11.2	2.76
Consumer		1,218.3		31.1		5.14			1,300.7		34.7	5.37
Lease financing		233.4		4.0		3.48			244.1		3.7	3.04
Total Loans and Leases		12,939.7		216.1	��	3.36			13,223.6		222.1	3.38
Other Earning Assets		68.0		0.4		1.05			60.2		0.5	1.85
Total Earning Assets⁽²⁾		22,492.1		288.5		2.58			21,010.6		271.9	2.60
Cash and Due from Banks		296.5							292.3
Other Assets		2,377.2							2,179.9
Total Assets	$	25,165.8						$	23,482.8

Interest-Bearing Liabilities
Interest-Bearing Deposits
Savings	$	6,820.7	$	2.2		0.07	%	$	6,169.5	$	1.1	0.04	%
Money Market		4,088.3		2.0		0.09			3,657.3		1.0	0.05
Time		1,709.8		3.2		0.38			2,160.8		5.3	0.49
Total Interest-Bearing Deposits		12,618.8		7.4		0.12			11,987.6		7.4	0.12
Long-Term Borrowings		—		—		—			200.0		2.7	2.76
Total Interest-Bearing Liabilities		12,618.8		7.4		0.12			12,187.6		10.1	0.17
Net Interest Income			$	281.1						$	261.8
Interest Rate Spread						2.46	%					2.43	%
Net Interest Margin						2.51	%					2.50	%
Noninterest-Bearing Demand Deposits		9,563.6							8,086.1
Other Liabilities		578.9							499.4
Stockholders' Equity		2,404.5							2,709.7
Total Liabilities and Stockholders' Equity	$	25,165.8						$	23,482.8

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

(2)	Interest income includes taxable-equivalent basis adjustments of ~~$1.1~~$2.1 million and ~~$0.1~~$1.1 million for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Table of Contents

Analysis of Change in Net Interest Income

Table 7

Table 6

Six Months Ended June 30, 2021

Six Months Ended June 30, 2022

Compared to June 30, 2020

Compared to June 30, 2021

(dollars in millions)

Volume

Rate

Total⁽¹⁾

Volume

Rate

Total⁽¹⁾

Change in Interest Income:

Interest-Bearing Deposits in Other Banks

0.3

(1.7)

(1.4)

—

2.7

Available-for-Sale Investment Securities

Taxable

15.0

(9.1)

5.9

(1.9)

3.0

1.1

Non-Taxable

4.0

—

4.0

(0.6)

0.5

(0.1)

Total Available-for-Sale Investment Securities

19.0

(9.1)

9.9

Held-to-Maturity Investment Securities

Taxable

15.0

—

15.0

Non-Taxable

4.1

—

4.1

Total Investment Securities

16.6

3.5

20.1

Loans Held for Sale

(0.1)

—

(0.1)

Loans and Leases

Commercial and industrial

(3.6)

(3.8)

(7.4)

(14.7)

2.9

(11.8)

Commercial real estate

(0.4)

(12.3)

(12.7)

4.8

1.4

6.2

Construction

3.5

(2.0)

1.5

(0.5)

0.5

—

Residential:

Residential mortgage

0.4

(5.1)

(4.7)

7.2

(4.4)

2.8

Home equity line

(1.1)

(2.2)

(3.3)

1.3

(1.2)

0.1

Consumer

(7.3)

(1.6)

(8.9)

(2.1)

(1.5)

(3.6)

Lease financing

0.2

0.4

(0.2)

0.5

0.3

Total Loans and Leases

(8.3)

(26.8)

(35.1)

(4.2)

(1.8)

(6.0)

Other Earning Assets

—

(0.7)

0.1

(0.2)

(0.1)

Total Change in Interest Income

11.0

(38.3)

(27.3)

12.4

4.2

16.6

Change in Interest Expense:

Interest-Bearing Deposits

Savings

0.5

(3.6)

(3.1)

0.1

1.0

1.1

Money Market

0.8

(5.5)

(4.7)

0.2

0.8

1.0

Time

(3.1)

(5.9)

(9.0)

(1.0)

(1.1)

(2.1)

Total Interest-Bearing Deposits

(1.8)

(15.0)

(16.8)

(0.7)

0.7

—

Short-Term Borrowings

(2.8)

(2.9)

(5.7)

Long-Term Borrowings

(1.4)

(1.3)

(2.7)

Total Change in Interest Expense

(4.6)

(17.9)

(22.5)

(2.1)

(0.6)

(2.7)

Change in Net Interest Income

15.6

(20.4)

(4.8)

14.5

4.8

19.3

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

Net interest income, on a fully taxable-equivalent basis, was ~~$261.8~~$281.1 million for the six months ended June 30, ~~2021, a decrease~~2022, an increase of ~~$4.8~~$19.3 million or 2%7% compared to the same period in ~~2020.~~2021. Our net interest margin was ~~2.50%~~2.51% for the six months ended June 30, ~~2021, a decrease~~2022, an increase of 34one basis ~~points~~point from the same period in ~~2020.~~2021. The ~~decrease~~increase in net interest income, on a fully taxable-equivalent basis, was primarily due to ~~lower~~higher average balances and yields in ~~most loan categories and lower yields in~~ our investment securities ~~portfolio.~~portfolio, higher yields on interest-bearing deposits in other banks and lower borrowing costs. This was partially offset by ~~higher~~lower average balances in ~~our investment securities portfolio and lower deposit funding costs.~~a few loan categories. Fees are accelerated into net interest income upon the forgiveness of PPP loans. Net interest income for the six months ended June 30, 2022 and 2021 ~~and 2020~~ included ~~$14.0~~$4.5 million and ~~$3.7~~$14.0 million, respectively, of fees from PPP loans. As of June 30, ~~2021,~~2022, there were approximately ~~$23.0~~$0.9 million of additional fees remaining on our PPP loans that had not yet been recognized into income.

For the six months ended June 30, 2022, the average balance of our investment securities portfolio was $8.3 billion, an increase of $1.8 billion or 27% compared to the same period in 2021. For the six months ended June 30, 2022, the yield in our investment securities portfolio was 1.66%, an increase of 17 basis points compared to the same period in 2021, primarily due to an increase in interest rates. For the six months ended June 30, 2022, the average balance of our loans and leases was ~~$13.2~~$12.9 billion, a decrease of ~~$350.4~~$283.9 million or 3%2% compared to the same period in ~~2020. Yields on~~2021. The decrease in the average balance of our loans and leases was primarily due to a decrease in PPP loans in our commercial and industrial loan portfolio, partially offset by an increase in residential mortgage loans. Borrowing costs were ~~3.38%~~nil for the six months ended June 30, ~~2021,~~2022, a decrease of ~~42 basis points as~~$2.7 billion compared to the same period in ~~2020. We experienced a decrease in our yield from total loans primarily~~2021 due to decreases in commercial real estate, residential mortgage and commercial and industrial loans. The decrease in our adjustable rate commercial and industrial and commercial real estate loans are typically based on LIBOR. For the ~~six months ended June 30, 2021, the average balance~~termination of our ~~investment securities portfolio was $6.5 billion, an increase of $2.3 billion or 54% compared to the same period~~long-term borrowings in 2020. For the six months ended June 30, 2021, the yield in our investment securities portfolio was 1.49%, a decrease of 35 basis points compared to the same period in 2020. Deposit funding costs were $7.4 million for the six months ended June 30, 2021, a decrease of $16.8 million or 69% compared to the same period in 2020. Rates paid on our interest-bearing deposits were 12 basis points for the six months ended June 30, 2021, a decrease of 31 basis points compared to the same period in 2020.November 2021.

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The Federal Reserve influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions. Our loan portfolio is affected by changes in the prime interest rate. The prime rate ~~began in 2020~~ at ~~4.75%~~the start of 2021 was 3.25%. The prime rate ~~decreased 150~~increased 25 basis points in March ~~2020~~2022 to ~~3.25%~~3.50%, 50 basis points in May 2022 to 4.00%, and 75 basis points in June 2022 to 4.75%, where it remained as at the end of the second quarter of ~~2021.~~2022. As noted above, our loan portfolio is also impacted by changes in the LIBOR. At June 30, 2022, the one-month and three-month U.S. dollar LIBOR interest rates were 1.79% and 2.29%, respectively, while at June 30, 2021, the one-month and three-month U.S. dollar LIBOR interest rates were 0.10% and 0.15%~~, respectively, while at June 30, 2020, the one-month and three-month U.S. dollar LIBOR interest rates were 0.16% and 0.30%~~, respectively. The target range for the federal funds rate, which is the cost of immediately available overnight funds, began ~~2020~~2021 at ~~1.50%~~0.00% to ~~1.75%~~0.25%. The target range for the federal funds rate ~~decreased 150~~increased 25 basis points in March ~~2020~~2022 to ~~0.00%~~0.25% to ~~0.25%~~0.50%, 50 basis points in May 2022 to 0.75% to 1.00%, and 75 basis points in June 2022 to 1.50% to 1.75%, where it remained as at the end of the second quarter of ~~2021.~~2022. In June ~~2021,~~2022, the Federal Reserve indicated that it expects to ~~maintain~~increase the targeted federal funds rate ~~at current levels~~ through ~~2021. The decrease~~2022 if inflation pressures remain elevated and released projections whereby the midpoint of the projected range reflected an increase in the ~~target range for the~~targeted federal funds rate in ~~2020 was largely an emergency measure by the Federal Reserve aimed at mitigating the economic impact of COVID-19.~~both 2022 and 2023.

Provision for Credit Losses

There was a ~~negative~~ Provision of ~~$35.0~~$1.0 million for the three months ended June 30, ~~2021,~~2022, compared to a negative Provision of ~~$55.4~~$35.0 million for the same period in ~~2020. This decrease~~2021. The negative Provision in 2021 was primarily due to lower expected credit losses as a result of the economic recovery after COVID-19 and its impact on Hawaii’s economy, key industries, businesses and our customers. We recorded net charge-offs of loans and leases of ~~$1.1~~$2.3 million and ~~$23.4~~$1.1 million for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. This represented charge-offs of ~~0.03%~~0.07% and ~~0.67%~~0.03% of average loans and leases, on an annualized basis, for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. There was a negative Provision of $4.7 million for the six months ended June 30, 2022, compared to a negative Provision of $35.0 million for the ~~six months ended June 30, 2021, compared to a Provision of $96.6 million for the~~ same period in ~~2020.~~2021. We recorded net charge-offs of loans and leases of ~~$5.7~~$4.9 million and ~~$29.5~~$5.7 million for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. This represented ~~net~~ charge-offs of ~~0.09%~~0.08% and ~~0.44%~~0.09% of average loans and leases, on an annualized basis, for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The ACL was ~~$169.1~~$148.9 million as of June 30, ~~2021,~~2022, a decrease of ~~$39.3~~$8.3 million or ~~19%~~5% from December 31, ~~2020~~2021 and represented ~~1.29%~~1.12% of total outstanding loans and leases as of June 30, ~~2021~~2022 compared to ~~1.57%~~1.21% of total outstanding loans and leases as of December 31, ~~2020.~~2021. The reserve for unfunded commitments was ~~$29.2~~$29.0 million as of June 30, ~~2021,~~2022, compared to ~~$30.6~~$30.3 million as of December 31, ~~2020.~~2021. The Provision is recorded to maintain the ACL and the reserve for unfunded commitments at levels deemed adequate by management based on the factors noted in the “Risk Governance and Quantitative and Qualitative Disclosures About Market Risk — Credit Risk” section of this MD&A.

Noninterest Income

Table 87 presents the major components of noninterest income for the three months ended June 30, 2022 and 2021 and ~~2020 and~~ Table 98 presents the major components of noninterest income for the six months ended June 30, ~~2021~~2022 and ~~2020:~~2021:


Noninterest Income							Table 8								Table 7
	Three Months Ended								Three Months Ended
	June 30,				Dollar		Percent		June 30,				Dollar		Percent
(dollars in thousands)	2021		2020		Change		Change		2022		2021		Change		Change
Service charges on deposit accounts	$	6,632	$	5,927	$	705	12	%	$	6,843	$	6,632	$	211	3	%
Credit and debit card fees		16,746		10,870		5,876	54			17,056		16,746		310	2
Other service charges and fees		10,303		7,912		2,391	30			9,018		10,303		(1,285)	(12)
Trust and investment services income		8,707		8,664		43	—			8,759		8,707		52	1
Bank-owned life insurance		3,104		4,432		(1,328)	(30)			(859)		3,104		(3,963)	(128)
Investment securities gains (losses), net		102		(211)		313	n/m
Investment securities gains, net										—		102		(102)	n/m
Other		3,777		8,062		(4,285)	(53)			3,320		3,777		(457)	(12)
Total noninterest income	$	49,371	$	45,656	$	3,715	8	%	$	44,137	$	49,371	$	(5,234)	(11)	%

n/m – Denotes a variance that is not a meaningful metric to inform the change in noninterest income ~~for~~from the three months ended June 30, ~~2021~~2022 to the same period in ~~2020.~~2021.

Table of Contents

Noninterest Income

Table 9

Six Months Ended

June 30,

Dollar

Percent

(dollars in thousands)

2021

2020

Change

Change

Service charges on deposit accounts

$
13,350

$
14,877

$
(1,527)

(10)
%
Credit and debit card fees

31,297

25,819

5,478

21

Other service charges and fees

19,149

16,451

2,698

16

Trust and investment services income

17,199

18,255

(1,056)

(6)

Bank-owned life insurance

5,493

6,692

(1,199)

(18)

Investment securities gains (losses), net

102

(126)

228

n/m

Other

6,649

12,916

(6,267)

(49)

Total noninterest income

$
93,239

$
94,884

$
(1,645)

(2)
%


Noninterest Income								Table 8
	Six Months Ended
	June 30,				Dollar			Percent
(dollars in thousands)	2022		2021		Change			Change
Service charges on deposit accounts	$	14,344	$	13,350	$	994		7	%
Credit and debit card fees		31,906		31,297		609		2
Other service charges and fees		18,672		19,149		(477)		(2)
Trust and investment services income		17,642		17,199		443		3
Bank-owned life insurance		(1,276)		5,493		(6,769)	��	(123)
Investment securities gains, net		—		102		(102)		n/m
Other		4,229		6,649		(2,420)		(36)
Total noninterest income	$	85,517	$	93,239	$	(7,722)		(8)	%

n/m – Denotes a variance that is not a meaningful metric to inform the change in noninterest income ~~for~~from the six months ended June 30, ~~2021~~2022 to the same period in ~~2020.~~2021.

Total noninterest income was ~~$49.4~~$44.1 million for the three months ended June 30, ~~2021, an increase~~2022, a decrease of ~~$3.7~~$5.2 million or 11% as compared to the same period in 2021. Total noninterest income was $85.5 million for the six months ended June 30, 2022, a decrease of $7.7 million or 8% as compared to the same period in ~~2020. Total noninterest income was $93.2~~2021.

Service charges on deposit accounts were $6.8 million for the three months ended June 30, 2022, an increase of $0.2 million or 3% as compared to the same period in 2021. Service charges on deposit accounts were $14.3 million for the six months ended June 30, ~~2021,~~2022, an increase of $1.0 million or 7% as compared to the same period in 2021. This increase was primarily due to a $0.9 million increase in overdraft and checking account fees and a $0.5 million increase in account analysis service charges, partially offset by a $0.4 million decrease in checking account service fees.

Credit and debit card fees were $17.1 million for the three months ended June 30, 2022, an increase of ~~$1.6~~$0.3 million or 2% as compared to the same period in ~~2020.~~2021. Credit and debit card fees were $31.9 million for the six months ended June 30, 2022, an increase of $0.6 million or 2% as compared to the same period in 2021. This increase was primarily due to a $1.8 million increase in interchange settlement fees and a $0.8 million increase in merchant service revenues, partially offset by a $1.3 million increase in network association dues and a $0.6 million decrease in ATM interchange and surcharge fees.

~~Service~~Other service charges ~~on deposit accounts~~and fees were ~~$6.6~~$9.0 million for the three months ended June 30, ~~2021, an increase~~2022, a decrease of ~~$0.7~~$1.3 million or 12% as compared to the same period in ~~2020.~~2021. This ~~increase~~decrease was primarily due to a $1.1 million decrease in miscellaneous service fees, a $0.3 million decrease in service fees related to participation loans, a $0.2 million decrease in safe deposit box rental fees and a $0.2 million decrease in insurance income, partially offset by a $0.6 million increase in ~~overdraft~~fees from annuities and ~~checking account fees. Service~~securities.Other service charges ~~on deposit accounts~~and fees were ~~$13.4~~$18.7 million for the six months ended June 30, ~~2021,~~2022, a decrease of ~~$1.5~~$0.5 million or ~~10%~~2% as compared to the same period in ~~2020.~~2021. This decrease was primarily due to a $0.8 million decrease in ~~overdraft and checking account~~miscellaneous service fees, a ~~$0.5~~$0.6 million decrease in ~~checking account~~ service fees related to participation loans, a $0.2 million decrease in safe deposit box rental fees and a ~~$0.5~~$0.2 million decrease in ~~account analysis service charges,~~insurance income, partially offset by a ~~$0.4 million increase in ATM interchange fees from customers.~~

Credit and debit card fees were $16.7 million for the three months ended June 30, 2021, an increase of $5.9 million or 54% as compared to the same period in 2020. This increase was primarily due to a $2.7 million increase in interchange settlement fees, a $2.1 million increase in merchant service revenues, a $1.3 million increase in ATM interchange and surcharge fees and a $0.4 million increase in debit card interchange fees. This was partially offset by a $0.9 million increase in network association dues. Credit and debit card fees were $31.3 million for the six months ended June 30, 2021, an increase of $5.5 million or 21% as compared to the same period in 2020. This increase was primarily due to a $1.4 million increase in interchange settlement fees, a $1.1 million increase in ATM interchange and surcharge fees, a $1.1 million increase in merchant service revenues, a $1.1 million decrease in network association dues and a $0.6 million increase in debit card interchange fees.

Other service charges and fees were $10.3 million for the three months ended June 30, 2021, an increase of $2.4 million or 30% as compared to the same period in 2020. This increase was primarily due to a $1.2 million increase in miscellaneous service fees and a $1.1$1.5 million increase in fees from annuities and securities. Other service charges and fees were $19.1 million for the six months ended June 30, 2021, an increase of $2.7 million or 16% as compared to the same period in 2020. This increase was primarily due to a $1.7 million increase in fees from annuities and securities and a $1.2 million increase in miscellaneous service fees.

Trust and investment services income was ~~$8.7~~$8.8 million for the three months ended June 30, ~~2021, a minimal change~~2022, an increase of $0.1 million or 1% as compared to the same period in ~~2020.~~2021. Trust and investment services income was ~~$17.2~~$17.6 million for the six months ended June 30, ~~2021, a decrease~~2022, an increase of ~~$1.1~~$0.4 million or 6%3% as compared to the same period in ~~2020. This decrease was primarily due to a $1.2 million decrease in business cash management fees.~~2021.

BOLI income was ~~$3.1~~a negative $0.9 million for the three months ended June 30, ~~2021~~2022, a decrease of ~~$1.3~~$4.0 million ~~or 30%~~ as compared to the same period in ~~2020. This decrease was due to a $0.7 million decrease in death benefit proceeds from life insurance policies and a $0.6 million decrease in BOLI earnings.~~2021. BOLI income was ~~$5.5~~a negative $1.3 million for the six months ended June 30, ~~2021,~~2022, a decrease of ~~$1.2~~$6.8 million ~~or 18%~~ as compared to the same period in ~~2020. This~~2021. The decrease ~~was due~~for both periods stems from the volatility of the market, which has led to ~~a $0.7 million decrease in death benefit proceeds from life insurance policies and a $0.5 million decrease~~mark-to-market losses in BOLI earnings.

Net gains on the sale of investment securities were nil and $0.1 million for the three months ended June 30, 2022 and 2021, ~~an increase of $0.3 million as compared to the same period in 2020.~~respectively. Net gains on the sale of investment securities were nil and $0.1 million for the six months ended June 30, 2022 and 2021, ~~an increase of $0.2 million as compared to the same period in 2020.~~respectively.

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Other noninterest income was ~~$3.8~~$3.3 million for the three months ended June 30, ~~2021,~~2022, a decrease of ~~$4.3~~$0.5 million or ~~53%~~12% as compared to the same period in ~~2020.~~2021. This decrease was primarily due to a ~~$3.4~~$1.2 million decrease in market adjustments on mutual funds purchased, a $0.8 million decrease in customer-related interest rate swap fees, a ~~$0.9~~$0.6 million decrease in ~~volume-based incentives,~~gains on the sale of bank properties and a ~~$0.8~~$0.5 million decrease in gains on the sale of residential loans to government-sponsored ~~enterprises, and a $0.5 million decrease in net mortgage servicing rights,~~enterprises. This was partially offset by a ~~$0.6~~$1.2 million tax refund received, a $0.9 million increase in ~~gains on the sale of bank properties~~volume-based incentives and a $0.4 million increase in ~~market adjustments on mutual funds purchased.~~ net mortgage servicing rights income.Other noninterest income was ~~$6.6~~$4.2 million for six months ended June 30, ~~2021,~~2022, a decrease of ~~$6.3~~$2.4 million or ~~49%~~36% as compared to the same period in ~~2020.~~2021. This decrease was primarily due to a ~~$4.8 million decrease in customer-related interest rate swap fees, a $1.2~~$1.5 million decrease in gains on the sale of residential loans to government-sponsored enterprises, a ~~$0.7~~$1.4 million increase in net losses recognized on income related to derivative contracts, a $1.0 million decrease in market adjustments on mutual funds purchased, ~~and a $0.5 million decrease in market adjustments for foreign exchange transactions. This was partially offset by~~ a $0.6 million ~~increase~~decrease in gains on the sale of bank ~~properties.~~properties and a $0.4 million decrease in net mortgage servicing rights income. This was partially offset by a $1.2 million tax refund received and a $0.9 million increase in volume-based incentives.

Noninterest Expense

Table 109 presents the major components of noninterest expense for the three months ended June 30, 2022 and 2021 and ~~2020 and~~ Table 1110 presents the major components of noninterest expense for the six months ended June 30, ~~2021~~2022 and ~~2020:~~2021:


Noninterest Expense							Table 10								Table 9
	Three Months Ended								Three Months Ended
	June 30,					Dollar	Percentage		June 30,					Dollar	Percentage
(dollars in thousands)	2021		2020			Change	Change		2022		2021			Change	Change
Salaries and employee benefits	$	45,982	$	42,414	$	3,568	8	%	$	49,902	$	45,982	$	3,920	9	%
Contracted services and professional fees		16,516		15,478		1,038	7			18,617		16,516		2,101	13
Occupancy		7,314		7,302		12	—			7,334		7,314		20	—
Equipment		6,362		5,207		1,155	22			7,754		6,362		1,392	22
Regulatory assessment and fees		1,826		2,100		(274)	(13)			2,301		1,826		475	26
Advertising and marketing		1,469		1,402		67	5			1,994		1,469		525	36
Card rewards program		6,262		5,163		1,099	21			7,285		6,262		1,023	16
Other		13,657		12,384		1,273	10			13,988		13,657		331	2
Total noninterest expense	$	99,388	$	91,450	$	7,938	9	%	$	109,175	$	99,388	$	9,787	10	%


Noninterest Expense							Table 11								Table 10
	Six Months Ended								Six Months Ended
	June 30,				Dollar		Percentage		June 30,				Dollar		Percentage
(dollars in thousands)	2021		2020		Change		Change		2022		2021		Change		Change
Salaries and employee benefits	$	89,918	$	87,243	$	2,675	3	%	$	98,128	$	89,918	$	8,210	9	%
Contracted services and professional fees		33,704		31,533		2,171	7			35,764		33,704		2,060	6
Occupancy		14,484		14,545		(61)	—			14,744		14,484		260	2
Equipment		11,853		9,915		1,938	20			13,731		11,853		1,878	16
Regulatory assessment and fees		3,860		4,046		(186)	(5)			4,525		3,860		665	17
Advertising and marketing		3,060		3,225		(165)	(5)			4,022		3,060		962	31
Card rewards program		11,097		12,178		(1,081)	(9)			14,168		11,097		3,071	28
Other		27,718		25,231		2,487	10			28,135		27,718		417	2
Total noninterest expense	$	195,694	$	187,916	$	7,778	4	%	$	213,217	$	195,694	$	17,523	9	%

Total noninterest expense was ~~$99.4~~$109.2 million for the three months ended June 30, ~~2021,~~2022, an increase of ~~$7.9~~$9.8 million or 10% as compared to the same period in 2021. Total noninterest expense was $213.2 million for the six months ended June 30, 2022, an increase of $17.5 million or 9% as compared to the same period in ~~2020. Total noninterest expense was $195.7 million for the six months ended June 30, 2021, an increase of $7.8 million or 4% as compared to the same period in 2020.~~2021.

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Salaries and employee benefits expense was ~~$46.0~~$49.9 million for the three months ended June 30, ~~2021,~~2022, an increase of ~~$3.6~~$3.9 million or 8%9% as compared to the same period in ~~2020.~~2021. This increase was primarily due to a ~~$1.5~~$3.6 million ~~increase~~decrease in ~~other compensation, including~~payroll and benefit costs being deferred as loan origination costs, a ~~nonrecurring severance cost of $1.2 million, a $0.9 million increase in temporary help expenses, a $0.7~~$2.2 million increase in base salaries and related payroll taxes and a ~~$0.4~~$0.5 million increase in ~~group health~~incentive compensation. This was partially offset by a $2.5 million decrease in other compensation, primarily related to an adjustment made to the deferred compensation plan ~~costs.~~as a result of market conditions, a nonrecurring severance cost of $1.2 million recorded during the three months ended June 30, 2021, and a decrease in commissions. Salaries and employee benefits expense was ~~$89.9~~$98.1 million for the six months ended June 30, ~~2021,~~2022, an increase of ~~$2.7~~$8.2 million or 3%9% as compared to the same period in ~~2020.~~2021. This increase was primarily due to a ~~$3.0~~$6.1 million increase in other compensation, including a nonrecurring severance cost of $1.2 million, a $1.7 million increase in base salaries and related payroll taxes, a $1.6 million increase in temporary help expenses, a $0.6 million increase in retirement plan expenses, and a $0.6 million increase in group health plan costs. This was partially offset by a $4.7 million increasedecrease in payroll and benefit costs being deferred as loan origination ~~costs.~~costs, a $3.5 million increase in base salaries and related payroll taxes and a $2.5 million increase in incentive compensation. This was partially offset by a $4.0 million decrease in other compensation, primarily related to adjustments made to the deferred compensation plan as a result of market conditions, a nonrecurring severance cost of $1.2 million recorded during the six months ended June 30, 2021, and a decrease in commissions.

Contracted services and professional fees were ~~$16.5~~$18.6 million for the three months ended June 30, ~~2021,~~2022, an increase of ~~$1.0~~$2.1 million or 7%13% as compared to the same period in ~~2020.~~2021. This increase was primarily due to a ~~$0.8~~$1.8 million increase in ~~outside services, primarily attributable to marketing~~audit, legal and ~~new customer services. Contracted services and professional~~consultant fees, ~~were $33.7 million for the six months ended June 30, 2021, an increase of $2.2 million or 7% as compared to the same period in 2020. This increase was primarily due to~~ a ~~$1.7~~$1.2 million increase in outside services, primarily attributable to marketing and new customer services, ~~and~~partially offset by a ~~$0.3~~$0.8 million ~~increase~~decrease in contracted data processing ~~expenses,~~expenses. Contracted services and professional fees were $35.8 million for the six months ended June 30, 2022, an increase of $2.1 million or 6% as compared to the same period in 2021. This increase was primarily ~~related~~due to ~~system upgrades~~a $2.4 million increase in audit, legal and ~~product enhancements.~~consultant fees, a $1.0 million increase in outside services, primarily attributable to marketing and new customer services, partially offset by a $1.3 million decrease in contracted data processing expenses.

Occupancy expense was $7.3 million for the three months ended June 30, ~~2021,~~2022, a minimal change as compared to the same period in ~~2020.~~2021. Occupancy expense was ~~$14.5~~$14.7 million for the six months ended June 30, ~~2021, a decrease~~2022, an increase of ~~$0.1~~$0.3 million or 2% as compared to the same period in ~~2020.~~2021.

Equipment expense was ~~$6.4~~$7.8 million for the three months ended June 30, ~~2021,~~2022, an increase of ~~$1.2~~$1.4 million or 22% as compared to the same period in ~~2020.~~2021. This increase was primarily due to a $1.5 million increase in technology-related ~~license~~licensing and maintenance fees. Equipment expense was ~~$11.9~~$13.7 million for the six months ended June 30, ~~2021,~~2022, an increase of $1.9 million or ~~20%~~16% as compared to the same period in ~~2020.~~2021. This increase was primarily due to a $2.1 million increase in technology-related license and maintenance ~~fees.~~fees, partially offset by a $0.4 million decrease in furniture and equipment depreciation.

Regulatory assessment and fees were ~~$1.8~~$2.3 million for the three months ended June 30, ~~2021, a decrease~~2022, an increase of ~~$0.3~~$0.5 million or ~~13%~~26% as compared to the same period in ~~2020. Regulatory assessment and fees were $3.9 million for the six months ended June 30, 2021, a decrease of $0.2 million or 5% as compared to the same period in 2020.~~

Advertising and marketing expense was $1.5 million for the three months ended June 30, 2021, an increase of $0.1 million or 5% as compared to the same period in 2020. Advertising and marketing expense was $3.1 million for the six months ended June 30, 2021, a decrease of $0.2 million or 5% as compared to the same period in 2020.

~~Card rewards program expense was $6.3 million for the three months ended June 30, 2021, an increase of $1.1 million or 21% as compared to the same period in 2020.~~2021. This increase was primarily due to a $0.5 million increase in ~~credit card cash reward redemptions~~the FDIC insurance assessment. Regulatory assessment and ~~a $0.4 million increase in priority rewards card redemptions. Card rewards program expense was $11.1~~fees were $4.5 million for the six months ended June 30, ~~2021, a decrease~~2022, an increase of ~~$1.1~~$0.7 million or 9%17% as compared to the same period in ~~2020.~~2021. This ~~decrease~~increase was primarily due to a ~~$1.3~~$0.7 million ~~decrease~~increase in ~~priority rewards card redemptions.~~the FDIC insurance assessment.

~~Other noninterest~~Advertising and marketing expense was ~~$13.7~~$2.0 million for the three months ended June 30, ~~2021,~~2022, an increase of ~~$1.3~~$0.5 million or ~~10%~~36% as compared to the same period in ~~2020.~~2021. This increase was primarily due to a $0.4 million increase in advertising costs. Advertising and marketing expense was $4.0 million for the six months ended June 30, 2022, an increase of $1.0 million or 31% as compared to the same period in 2021. This increase was primarily due to a $0.8 million increase in advertising costs.

Card rewards program expense was $7.3 million for the three months ended June 30, 2022, an increase of $1.0 million or 16% as compared to the same period in 2021. This increase was primarily due to a $1.0 million increase in ~~software amortization,~~priority rewards card redemptions and a ~~$0.3~~$0.5 million increase in ~~pension-related expenses, a $0.2 million increase in brokers~~interchange fees ~~and a $0.2 million increase in operational losses (which includes losses as a result of bank error, fraud, items processing, or theft). This was~~paid to our credit card partners, partially offset by a $0.5 million decrease in ~~charitable contributions. Other noninterest~~credit card cash reward redemptions.Card rewards program expense was ~~$27.7~~$14.2 million for the six months ended June 30, ~~2021,~~2022, an increase of ~~$2.5~~$3.1 million or ~~10%~~28% as compared to the same period in ~~2020.~~2021. This increase was primarily due to a ~~$2.1~~$2.6 million increase in ~~software amortization,~~priority rewards card redemptions and a $0.7 million increase in ~~pension-related expenses and a $0.4 million increase in other tax expense, partially offset by a $0.7 million decrease in charitable contributions.~~interchange fees paid to our credit card partners.

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Other noninterest expense was $14.0 million for the three months ended June 30, 2022, an increase of $0.3 million or 2% as compared to the same period in 2021.Other noninterest expense was $28.1 million for the six months ended June 30, 2022, an increase of $0.4 million or 2% as compared to the same period in 2021.

Provision for Income Taxes

The provision for income taxes was $19.7 million (an effective tax rate of 24.96%) for the three months ended June 30, 2022, compared with a provision for income taxes of $29.7 million (an effective tax rate of 25.52%) for the ~~three months ended June 30, 2021, compared with the~~same period in 2021. The provision for income taxes ~~of $6.5~~was $39.0 million (an effective tax rate of ~~24.58%~~24.98%) for the ~~same period in 2020. The~~six months ended June 30, 2022, compared with a provision for income taxes ~~was~~of $48.8 million (an effective tax rate of 25.24%) for the ~~six months ended June 30, 2021, compared with the provision for income taxes of $17.9 million (an effective tax rate of 23.32%) for the~~ same period in ~~2020.~~2021. The ~~increase~~decrease in the effective tax ~~rate was primarily from the recognition of a tax benefit for the six months ended June 30, 2020,~~rates is partially due to a state tax settlement with BNP Paribas USA, Inc. related to periods during which the Company was included in the state combined returns of BNP Paribas USA, Inc. A similar tax benefit was not recognized during the six months ended June 30, 2021. In addition, the significant ~~increase~~decrease in pre-tax income for the three and six months ended June 30, ~~2021~~2022, which caused the permanent tax ~~benefit~~benefits to have a disproportionately ~~lesser~~greater impact on the effective tax rate ~~as compared to~~than in the ~~same periods in 2020.~~previous periods.

Analysis of Business Segments

Our business segments are Retail Banking, Commercial Banking and Treasury and Other. Table 1211 summarizes net income from our business segments for the three and six months ended June 30, ~~2021~~2022 and ~~2020.~~2021. Additional information about operating segment performance is presented in “Note ~~17.~~16. Reportable Operating Segments” contained in our unaudited interim consolidated financial statements.

In the second quarter of 2021, the Company made changes to the internal measurement of segment operating profits for the purpose of evaluating segment performance and resource allocation. The primary reason for the change was to align PPP loan balances within the business segment that directly manages them. Specifically, PPP loan balances previously included as part of the Retail Banking segment have been reclassified to the Commercial Banking segment. The reallocation of select PPP loan balances affected net interest income, net interest income after provision for credit losses, noninterest expense, provision for income taxes, net income and asset balances. The Company has reported its selected financial information using the new PPP loan balance alignments for the three and six months ended June 30, 2021. The Company has restated the selected financial information for the three and six months ended June 30, 2020 in order to conform with the current presentation.


Business Segment Net Income								Table 12								Table 11
	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	June 30,				June 30,				June 30,				June 30,
(dollars in thousands)	2021		2020		2021		2020		2022		2021		2022		2021
Retail Banking	$	52,256	$	21,960	$	94,740	$	48,987	$	42,214	$	52,256	$	79,048	$	94,740
Commercial Banking		38,949		9,419		64,464		16,695		22,414		38,949		44,941		64,464
Treasury and Other		(4,464)		(11,330)		(14,770)		(6,768)		(5,268)		(4,464)		(6,910)		(14,770)
Total	$	86,741	$	20,049	$	144,434	$	58,914	$	59,360	$	86,741	$	117,079	$	144,434

Retail Banking. Our Retail Banking segment includes the financial products and services we provide to consumers, small businesses and certain commercial customers. Loan and lease products offered include residential and commercial mortgage loans, home equity lines of credit and loans, automobile loans and leases, ~~personal~~secured and unsecured lines of credit, installment loans and small business loans and leases. Deposit products offered include checking, savings and time deposit accounts. Our Retail Banking segment also includes our wealth management services.

Net income for the Retail Banking segment was ~~$52.3~~$42.2 million for the three months ended June 30, ~~2021, an increase~~2022, a decrease of ~~$30.3~~$10.0 million or 19% as compared to the same period in ~~2020.~~2021. The ~~increase~~decrease in net income for the Retail Banking segment was primarily due to a Provision of $0.4 million for the three months ended June 30, 2022, compared to a negative Provision of $12.7 million for the three months ended June 30, ~~2021, compared to a Provision of $24.3 million for the three months ended June 30, 2020.~~2021. The ~~increase~~decrease in net income for the Retail ~~Banking~~banking segment was also ~~stemmed from~~due to a ~~$5.4~~$11.2 million increase in ~~net interest income. This was~~noninterest expense, partially offset by a $10.3 million increase in net interest income and a $4.0 million decrease in the provision for income ~~taxes and a $2.1 million~~taxes. The increase ~~in noninterest expense. The decrease~~ in the Provision was primarily due to ~~lower~~higher expected credit losses as a result of the risk of economic ~~recovery after~~recession due to inflation resulting from higher oil prices and the continued impact of the COVID-19 ~~and its impact~~pandemic on Hawaii’s economy, key industries, businesses and our customers. The increase in net interest income was primarily due to a higher spread on our residential mortgage loan portfolio and an increase in net transfer pricing credits on interest expenses from deposits as a result of higher average deposit balances, partially offset by lower yields on our deposit portfolio. The increase in the provision for income taxes was primarily due to the increase in pretax income. The increase in noninterest expense was primarily due to higher overall expenses that were allocated to the Retail Banking segment ~~partially offset by decreases~~and increases in salaries and benefits expense, losses and charge-offs, occupancy expense and equipment expense. The increase in net interest income was primarily due to an increase in transfer pricing credits on interest expenses from deposits as a result of higher yields on our deposit portfolio. The decrease in the provision for income taxes was primarily due to the decrease in pretax income.

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Net income for the Retail Banking segment was ~~$94.7~~$79.0 million for the six months ended June 30, ~~2021, an increase~~2022, a decrease of ~~$45.8~~$15.7 million or ~~93%~~17% as compared to the same period in ~~2020.~~2021. The ~~increase~~decrease in net income for the Retail Banking segment was primarily due to an $18.6 million increase in noninterest expense and a negative Provision of $1.5 million for the six months ended June 30, 2022, compared to a negative Provision of $14.1 million for the six months ended June 30, 2021, compared to a Provision of $44.4 million for the six months ended June 30, 2020. The increase in net income for the Retail Banking segment also stemmed from a $10.0 million increase in net interest income.2021. This was partially offset by a ~~$16.9~~$9.9 million increase in net interest income and a $6.0 million decrease in the provision for income taxes, a $3.3 million increase in noninterest expense and a $2.5 million decrease in noninterest income. The decrease in the Provision was primarily due to lower expected credit losses as a result of the economic recovery after COVID-19 and its impact on Hawaii’s economy, key industries, businesses and our customers. The increase in net interest income was primarily due to a higher spread on our residential mortgage loan portfolio and an increase in net transfer pricing credits on interest expenses from deposits as a result of higher average deposit balances, partially offset by lower yields on our deposit portfolio. The increase in the provision for income taxes was primarily due to the increase in pretax income.taxes. The increase in noninterest expense was primarily due to higher overall expenses that were allocated to the Retail Banking segment ~~partially offset by decreases~~and increases in salaries and benefits expense, occupancy expense, insurance expense, equipment expense and ~~occupancy expense. The~~losses and charge-offs. This was partially offset by a decrease in ~~noninterest~~contracted services and professional fees. The increase in the Provision was primarily due to higher expected credit losses as a result of the risk of economic recession due to inflation resulting from higher oil prices and the continued impact of the COVID-19 pandemic on Hawaii’s economy, key industries, businesses and our customers. The increase in net interest income was primarily due to ~~decreases~~an increase in ~~service charges and~~net transfer pricing credits on interest expenses from deposits as a result of higher yields on our deposit ~~accounts, trust and investment services income and market adjustments for foreign exchange transactions and lower gains on the sale of residential mortgage loans,~~portfolio, partially offset by ~~an increase~~a decrease in ~~other service charges~~our average balances and ~~fees.~~

~~Total assets~~yields in our consumer loan portfolio. The decrease in the provision for income taxes was primarily due to the ~~Retail Banking segment was relatively flat during the six months ended June 30, 2021.~~decrease in pretax income.

Commercial Banking. Our Commercial Banking segment includes our corporate banking related products, commercial real estate loans, commercial lease financing, secured and unsecured lines of credit, automobile loans and auto dealer financing, business deposit products and credit cards that we provide primarily to middle market and large companies ~~in Hawaii, Guam, Saipan~~locally, nationally and ~~California.~~internationally.

Net income for the Commercial Banking segment was ~~$38.9~~$22.4 million for the three months ended June 30, ~~2021, an increase~~2022, a decrease of ~~$29.5~~$16.5 million or 42% as compared to the same period in ~~2020.~~2021. The decrease in net income for the Commercial Banking segment was primarily due to a Provision of $0.6 million for the three months ended June 30, 2022, compared to a negative Provision of $17.5 million for the three months ended June 30, 2021. The decrease in net income for the Commercial Banking segment was also due to a $3.4 million decrease in net interest income and a $2.0 million increase in noninterest expense, partially offset by a $6.0 million decrease in the provision for income taxes. The increase in the Provision was primarily due to higher expected credit losses as a result of the risk of economic recession due to inflation resulting from higher oil prices and the continued impact of the COVID-19 pandemic on Hawaii’s economy, key industries, businesses and our customers. The decrease in net interest income was primarily due to a decrease in commercial loan fees, partially offset by an increase in transfer pricing credits on interest expenses from deposits as a result of higher yields on our deposit portfolio. The increase in noninterest expense was primarily due to higher overall expenses that were allocated to the Commercial Banking segment and an increase in card rewards program expense, partially offset by decreases in salaries and benefits expense, other tax expense and supplies. The decrease in the provision for income taxes was primarily due to the decrease in pretax income.

Net income for the Commercial Banking segment was $44.9 million for the six months ended June 30, 2022, a decrease of $19.5 million or 30% as compared to the same period in 2021. The decrease in net income for the Commercial Banking segment was primarily due to a negative Provision of ~~$17.5~~$1.9 million for the ~~three~~six months ended June 30, ~~2021,~~2022, compared to a negative Provision of ~~$25.2~~$19.5 million for the ~~three~~six months ended June 30, ~~2020.~~2021. The ~~increase~~decrease in net income for the Commercial Banking segment also stemmed from a ~~$2.7~~$6.6 million ~~increase~~decrease in net interest income and a ~~$1.5~~$6.0 million increase in noninterest ~~income,~~expense, partially offset by a ~~$10.3~~$7.1 million ~~increase~~decrease in the provision for income taxes and a ~~$6.9~~$3.5 million increase in noninterest ~~expense.~~income. The ~~decrease~~increase in the Provision was primarily due to ~~lower~~higher expected credit losses as a result of the risk of economic ~~recovery after~~recession due to inflation resulting from higher oil prices and the continued impact of the COVID-19 ~~and its impact~~pandemic on Hawaii’s economy, key industries, businesses and our customers. The ~~increase~~decrease in net interest income was primarily due to a decrease in average balances and loan fees in our commercial and industrial portfolio, partially offset by an increase in ~~loan fees, partially offset by~~transfer pricing credits on interest expenses from deposits as a decrease in commercial loan income. The increase in noninterest income was primarily due to an increase in credit and debit card fees and miscellaneous service charge fees, partially offset by decreases in customer-related interest rate swap fees and volume-based incentives. The increase in the provision for income taxes was primarily due to the increase in pretax income.result of higher yields on our deposit portfolio. The increase in noninterest expense was primarily due to ~~increases in salaries and benefits expense, card rewards program expense,~~ higher overall expenses that were allocated to the Commercial Banking segment and an increase in ~~supplies,~~card rewards program expense, partially offset by ~~a decrease~~decreases in salaries and benefits expense, contracted services and professional ~~fees.~~

Net income for the Commercial Banking segment was $64.5 million for the six months ended June 30, 2021, an increase of $47.8 million as compared to the same period in 2020. The increase in net income for the Commercial Banking segment was primarily due to a negative Provision of $19.5 million for the six months ended June 30, 2021, compared to a Provision of $46.0 million for the six months ended June 30, 2020. The increase in net income for the Commercial Banking segment also stemmed from a $6.5 million increase in net interest income, partially offset by a $16.0 million increase in the provision for income taxesfees, other tax expense and ~~a $7.9 million increase in noninterest~~occupancy expense. The decrease in the Provision was primarily due to lower expected credit losses as a result of the economic recovery after COVID-19 and its impact on Hawaii’s economy, key industries, businesses and our customers. The increase in net interest income was primarily due to an increase in loan fees, partially offset by a decrease in credit card loan income. The increase in the provision for income taxes was primarily due to the ~~increase~~decrease in pretax income. The increase in noninterest ~~expense~~income was primarily due to ~~increases~~a tax refund received, an increase in ~~salaries and benefits expense, higher overall expenses that were allocated to the Commercial Banking segment~~volume-based incentives and an increase in ~~other tax expense,~~credit and debit card fees, partially offset by a decrease in ~~card rewards program expenses.~~

~~The decrease in total assets for the Commercial Banking segment was primarily due to a decrease in dealer flooring, partially offset by increases in our commercial real estate~~other service charges and ~~construction portfolios during the six months ended June 30, 2021.~~fees.

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Treasury and Other. Our Treasury and Other segment includes our treasury business, which consists of corporate asset and liability management activities, including interest rate risk management. The assets and liabilities (and related interest income and expense) of our treasury business consist of interest-bearing deposits, investment securities, federal funds sold and purchased, government deposits, short- and long-term borrowings and bank-owned properties. Our primary sources of noninterest income are from bank-owned life insurance, net gains from the sale of investment securities, foreign exchange income related to customer driven currency requests from merchants and island visitors and management of bank-owned properties in Hawaii and Guam. The net residual effect of the transfer pricing of assets and liabilities is included in Treasury and Other, along with the elimination of intercompany transactions.

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

Net loss for the Treasury and Other segment was ~~$4.5~~$5.3 million for the three months ended June 30, ~~2021, a decrease~~2022, an increase in loss of ~~$6.9~~$0.8 million or ~~61%~~18% as compared to the same period in ~~2020.~~2021. The decrease in the net loss was primarily due to a negative Provision of $4.9 million for the three months ended June 30, 2021, compared to a Provision of $6.0 million for the three months ended June 30, 2020. The decreaseincrease in net loss for the Treasury and Other segment ~~also stemmed from~~was primarily due to a ~~$1.9~~$6.1 million ~~increase~~decrease in noninterest income and a ~~$1.1~~$4.9 million ~~decrease~~increase in ~~noninterest expense,~~the Provision, partially offset by a ~~$4.4~~$6.8 million increase in net interest ~~expense~~income and a ~~$2.5~~$3.4 million decrease in ~~the benefit for income taxes.~~noninterest expense. The decrease in the Provision was primarily due to lower expected credit losses as a result of the economic recovery after COVID-19 and its impact on Hawaii’s economy, key industries, businesses and our customers. The increase in noninterest income was primarily due to ~~increases~~negative BOLI income, a decrease in ~~ATM interchange~~market adjustments on mutual funds purchased and ~~surcharge fees and~~a decrease in gains on the sale of bank properties. The ~~decrease~~increase in ~~noninterest expense~~the Provision was ~~primarily~~ due to ~~lower overall expenses that were allocated~~higher increases in the Provision related to the Treasury and Other segment and a decrease in supplies, partially offset by increases in contracted services and professional fees, software depreciation, equipment expense and salaries and employee benefits expense. The decrease in the benefitreserve for ~~income taxes was primarily due to the decrease in pretax loss.~~unfunded commitments. The increase in net interest ~~expense~~income was primarily due to ~~lower earnings credits as a result of lower average yields in our loan portfolio, partially offset by~~ higher average balances and yields in our investment securities portfolio, higher earnings credits on our loan portfolio, higher yields in our interest-bearing deposits in other banks and a decrease in borrowings. This was partially offset by an increase in net transfer pricing charges on interest expenses from deposits as a result of higher ~~average deposit balances, partially offset by lower~~ yields on our deposit ~~portfolio and a decrease in borrowings.~~

Net loss for the Treasury and Other segment was $14.8 million for the six months ended June 30, 2021, an increase in loss of $8.0 million as compared to the same period in 2020. The increase in net loss was primarily due to a $22.4 million increase in net interest expense. This was partially offset due to a negative Provision of $1.4 million, for the six months ended June 30, 2021, compared to a Provision of $6.3 million for the three months ended June 30, 2020. The partial offset to the increase in net loss for the Treasury and Other segment also stemmed from a $3.5 million decrease in noninterest expense, a $2.1 million increase in the benefit for income taxes and a $1.1 million increase in noninterest income. The increase in net interest expense was primarily due to lower earnings credits as a result of lower average yields in our loan portfolio and a decrease in interest-bearing deposits in other banks due to lower yields, partially offset by a decrease in net transfer pricing charges on interest expenses from deposits as a result of higher average deposit balances, partially offset by lower yields on our deposit portfolio, higher average balances in our investment securities portfolio and a decrease in borrowings. The decrease in the Provision was primarily due to lower expected credit losses as a result of the economic recovery after COVID-19 and its impact on Hawaii’s economy, key industries, businesses and our customers.portfolio. The decrease in noninterest expense was primarily due to higher overall expenses that led to a larger credit allocation to the Treasury and Other segment and a decrease in software amortization. This was partially offset by increases in contracted services and professional fees, salaries and benefits expense, equipment expense, supplies, charitable contributions and advertising and marketing expense.

Net loss for the Treasury and Other segment was $6.9 million for the six months ended June 30, 2022, a decrease in loss of $7.9 million or 53% as compared to the same period in 2021. The decrease in net loss was primarily due to a $15.1 million increase in net interest income and a $7.0 million decrease in noninterest expense. This was partially offset by a $11.0 million decrease in noninterest income and a $3.3 million decrease in the benefit for income taxes. The increase in net interest income was primarily due to higher average balances and yields in our investment securities portfolio, higher earnings credits on our loan portfolio, higher yields in our interest-bearing deposits in other banks and a decrease in borrowings. This was partially offset by an increase in net transfer pricing charges on interest expenses from deposits as a result of higher yields on our deposit portfolio. The decrease in noninterest expense was primarily due to higher overall expenses that led to a larger credit allocation to the Treasury and Other segment and decreases in software amortization and pension-related expenses. This was partially offset by increases in salaries and benefits expense, contracted services and professional fees, ~~software depreciation,~~ equipment expenses, advertising and ~~pension-related expenses.~~marketing expense, charitable contributions, supplies and regulatory assessment and fees. The decrease in noninterest income was primarily due to negative BOLI income, an increase in net losses recognized on income related to derivative contracts, a decrease in market adjustments on mutual funds purchased, write-off of a fixed asset and a decrease in gains on the sale of bank properties. The decrease in the benefit for income taxes was primarily due to the ~~increase~~decrease in pretax loss. The increase in noninterest income was primarily due to increases in ATM interchange fees from customers and other service charges and fees, gains on the sale of bank properties, customer-related interest rate swap fees allocated to the Treasury and Other segment and higher net gains on the sale of investment securities, partially offset by decreases in BOLI income and market adjustments on mutual funds purchased.

The increase in total assets for the Treasury and Other segment was primarily due to increases in our investment securities portfolio and interest-bearing deposits in other banks during the six months ended June 30, 2021.

~~Table of Contents~~

Analysis of Financial Condition

Liquidity and Capital Resources

Liquidity refers to our ability to maintain cash flow that is adequate to fund operations and meet present and future financial obligations through either the sale or maturity of existing assets or by obtaining additional funding through liability management. We consider the effective and prudent management of liquidity to be fundamental to our health and strength. Our objective is to manage our cash flow and liquidity reserves so that they are adequate to fund our obligations and other commitments on a timely basis and at a reasonable cost.

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Liquidity is managed to ensure stable, reliable and cost-effective sources of funds to satisfy demand for credit, deposit withdrawals and investment opportunities. Funding requirements are impacted by loan originations and refinancings, deposit balance changes, liability issuances and settlements and off-balance sheet funding commitments. We consider and comply with various regulatory and internal guidelines regarding required liquidity levels and periodically monitor our liquidity position in light of the changing economic environment and customer activity. Based on periodic liquidity assessments, we may alter our asset, liability and off-balance sheet positions. The Company’s Asset Liability Management Committee (“ALCO”) monitors sources and uses of funds and modifies asset and liability positions as liquidity requirements change. This process, combined with our ability to raise funds in money and capital markets and through private placements, provides flexibility in managing the exposure to liquidity risk.

Immediate liquid resources are available in cash, which is primarily on deposit with the Federal Reserve Bank of San Francisco (the “FRB”). As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, cash and cash equivalents were ~~$1.9~~$1.5 billion and ~~$1.0~~$1.3 billion, respectively. Potential sources of liquidity also include investment securities in our available-for-sale portfolio and held-to-maturity portfolio. The carrying value of our available-for-sale investment securities and held-to maturity investment securities were ~~$7.0~~$4.0 billion and ~~$6.1~~$4.1 billion as of June 30, ~~2021 and~~2022, respectively. The carrying value of our available-for-sale investment securities were $8.4 billion as of December 31, ~~2020, respectively.~~2021. We did not hold any held-to-maturity investment securities as of December 31, 2021. As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, we maintained our excess liquidity primarily in collateralized mortgage obligations issued by Ginnie Mae, Fannie Mae and Freddie Mac and mortgage-backed securities issued by Ginnie Mae, Freddie Mac, Fannie Mae and Municipal Housing Authorities. As of June 30, ~~2021,~~2022, our available-for-sale investment securities portfolio was comprised of securities with a weighted average life of approximately ~~5.5~~4.5 years and our held-to maturity investment securities portfolio was comprised of securities with a weighted average life of approximately 7.9 years. These funds offer substantial resources to meet either new loan demand or to help offset reductions in our deposit funding ~~base.~~base as they provide quick sources of liquidity by pledging to obtain secured borrowings and repurchase agreements or sales of our available-for sale securities portfolio. Liquidity is further enhanced by our ability to pledge loans to access secured borrowings from the FHLB and the FRB. As of June 30, ~~2021,~~2022, we have borrowing capacity of ~~$1.8~~$1.6 billion from the FHLB and ~~$1.1~~$1.3 billion from the FRB based on the amount of collateral pledged.

Our core deposits have historically provided us with a long-term source of stable and relatively lower cost of funding. Our core deposits, defined as all deposits exclusive of time deposits exceeding $250,000, totaled ~~$20.0~~$21.9 billion and ~~$17.9~~$21.0 billion as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, which represented ~~96%~~97% and ~~93%~~96%, respectively, of our total deposits. These core deposits are normally less volatile, often with customer relationships tied to other products offered by the ~~Company,~~Company; however, deposit levels could decrease if interest rates increase significantly or if corporate customers increase investing activities and reduce deposit balances.

The Company’s routine funding requirements are expected to consist primarily of general corporate needs and capital to be returned to our shareholders. We expect to meet these obligations from dividends paid by the Bank to the Parent. Additional sources of liquidity available to us include selling residential real estate loans in the secondary market, taking out short- and long-term borrowings and issuing long-term debt and equity securities. ~~At the start of the pandemic, we increased~~

Our material cash requirements from our ~~liquidity position through additional public time deposits in anticipation of a surge in funding needs due to our participation in the PPP~~current and ~~other additional liquidity needs. While our public time deposits~~long-term contractual obligations have not changed materially since ~~decreased from the fourth quarter of 2020, we have continued to maintain strong levels of liquidity~~previously reported as of ~~June 30,~~December 31, 2021. We believe that our existing cash, cash equivalents, investments, and cash expected to be generated from operations, are still sufficient to meet our cash requirements within the next twelve months and beyond.

Potential Demands on Liquidity from Off-Balance Sheet Arrangements

We have off-balance sheet arrangements, such as variable interest entities, guarantees, and certain financial instruments with off-balance sheet risk, that may affect the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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Variable Interest Entities

We hold interests in several unconsolidated variable interest entities (“VIEs”). These unconsolidated VIEs are primarily low-income housing tax credit investments in partnerships and limited liability companies. Variable interests are defined as contractual ownership or other interests in an entity that change with fluctuations in an entity’s net asset value. The primary beneficiary consolidates the VIE. Based on our analysis, we have determined that the Company is not the primary beneficiary of these entities. As a result, we do not consolidate these VIEs. Unfunded commitments to fund these low-income housing tax credit investments were $46.3 million and $62.6 million as of June 30, 2022 and December 31, 2021, respectively.

Guarantees

We sell residential mortgage loans on the secondary market, primarily to Fannie Mae or Freddie Mac. The agreements under which we sell residential mortgage loans to Fannie Mae or Freddie Mac 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 June 30, 2022 and December 31, 2021, the unpaid principal balance of our portfolio of residential mortgage loans sold was $1.5 billion and $1.7 billion, respectively. The agreements under which we sell 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, we 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 in the origination of those loans. Upon receipt of a repurchase request, we work with investors 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 to determine if a contractually required repurchase event has occurred. We manage the risk associated with potential repurchases or other forms of settlement through our underwriting and quality assurance practices and by servicing mortgage loans to meet investor and secondary market standards. For the six months ended June 30, 2022, there was a $0.5 million pending repurchase request of a residential mortgage loan, however there were no completed repurchases.

In addition to servicing loans in our portfolio, substantially all of the loans we sell to investors are sold with servicing rights retained. We also service loans originated by other mortgage loan originators. As servicer, our 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 loan modifications or short sales. Each agreement under which we act 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 we commit a material breach of obligations as servicer, we 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. For the six months ended June 30, 2022, we had no repurchase requests related to loan servicing activities, nor were there any pending repurchase requests as of June 30, 2022.

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Although to-date repurchase requests related to representation and warranty provisions and servicing activities have been limited, it is possible that requests to repurchase mortgage loans may increase in frequency as investors more aggressively pursue all means of recovering losses on their purchased loans. However, as of June 30, 2022, management believes that this exposure is not material due to the historical level of repurchase requests and loss trends and thus has not established a liability for losses related to mortgage loan repurchases. As of June 30, 2022, 99% of our residential mortgage loans serviced for investors were current. We maintain ongoing communications with investors and continue to evaluate this exposure by monitoring the level and number of repurchase requests as well as the delinquency rates in loans sold to investors.

Financial Instruments with Off-Balance Sheet Risk

See “Note 11. Commitments and Contingent Liabilities” contained in our unaudited interim consolidated financial statements for more information on our financial instruments with off-balance sheet risk.

Investment Securities

Table 1312 presents the estimated fair value of our available-for-sale investment securities portfolio and amortized cost of our held-to-maturity investment securities portfolio as of June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:

Investment Securities

Table 13

Table 12

June 30,

December 31,

June 30,

December 31,

(dollars in thousands)

2021

2020

2022

2021

U.S. Treasury and government agency debt securities

180,772

171,421

159,165

192,563

Government-sponsored enterprises debt securities

19,963

—

Mortgage-backed securities:

Residential - Government agency

67,958

137,264

Residential - Government-sponsored enterprises

1,333,015

1,491,100

Commercial - Government agency

267,657

387,663

Commercial - Government-sponsored enterprises

141,836

1,369,443

Commercial - Non-agency

21,550

—

Collateralized mortgage obligations:

Government agency

1,025,339

2,079,523

Government-sponsored enterprises

684,560

2,621,044

Collateralized loan obligations

246,703

105,247

Debt securities issued by states and political subdivisions

—

44,185

Total available-for-sale securities

3,967,746

8,428,032

Government agency debt securities

55,148

—

Mortgage-backed securities:

Residential - Government agency

113,289

160,462

47,309

—

Residential - Government-sponsored enterprises

1,263,448

447,200

93,458

—

Commercial - Government agency

491,447

599,650

30,497

—

Commercial - Government-sponsored enterprises

1,223,805

932,157

1,173,398

—

Collateralized mortgage obligations:

Government agency

1,662,134

1,933,553

879,010

—

Government-sponsored enterprises

2,019,035

1,826,972

1,760,755

—

Total available-for-sale securities

6,953,930

6,071,415

Debt securities issued by states and political subdivisions

53,640

—

Total held-to-maturity securities

4,093,215

—

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Table 1413 presents the maturity distribution at amortized cost and weighted-average yield to maturity of our ~~available-for-sale~~ investment securities portfolio as of June 30, ~~2021:~~2022:

Maturities and Weighted-Average Yield on Securities⁽¹⁾

Table 14

Maturities and Weighted-Average Yield on Securities⁽¹⁾

Table 13

1 Year or Less

After 1 Year - 5 Years

After 5 Years - 10 Years

Over 10 Years

Total

1 Year or Less

After 1 Year - 5 Years

After 5 Years - 10 Years

Over 10 Years

Total

Weighted

Average

Fair

Average

Fair

(dollars in millions)

Amount

Yield

Amount

Yield

Amount

Yield

Amount

Yield

Amount

Yield

Value

Amount

Yield

Amount

Yield

Amount

Yield

Amount

Yield

Amount

Yield

Value

As of June 30, 2021

As of June 30, 2022

Available-for-sale securities

U.S. Treasury and government agency debt securities

—

41.5

0.84

83.6

1.03

57.3

1.56

182.4

1.15

180.8

30.1

0.81

59.9

1.83

78.1

1.03

—

168.1

1.28

159.2

Government-sponsored enterprises debt securities

—

20.0

3.33

—

20.0

3.33

20.0

Mortgage-backed securities:

Residential - Government agency⁽²⁾

—

72.0

2.30

—

72.0

2.30

67.9

Residential - Government-sponsored enterprises⁽²⁾

—

596.7

2.10

847.8

1.31

—

1,444.5

1.64

1,333.0

Commercial - Government agency⁽²⁾

7.3

3.31

254.8

1.87

35.1

1.73

—

297.2

1.89

267.7

Commercial - Government-sponsored enterprises⁽²⁾

—

147.2

2.86

—

147.2

2.86

141.8

Commercial - Non-agency

—

22.0

2.65

22.0

2.65

21.5

Collateralized mortgage obligations⁽²⁾:

Government agency

4.6

1.70

654.4

1.85

443.3

1.67

—

1,102.3

1.78

1,025.3

Government-sponsored enterprises

4.3

2.13

391.1

1.40

349.2

1.67

—

744.6

1.53

684.6

Collateralized loan obligations

—

99.5

3.82

150.4

3.68

249.9

3.74

246.7

Total available-for-sale securities as of June 30, 2022

46.3

1.41

2,124.1

1.92

1,925.0

1.62

172.4

3.55

4,267.8

1.85

3,967.7

Held-to-maturity securities

Government agency debt securities

—

55.1

1.57

55.1

1.57

52.7

Mortgage-backed securities⁽²⁾:

Residential - Government agency

—

110.1

2.29

—

110.1

2.29

113.3

—

47.3

2.11

—

47.3

2.11

44.3

Residential - Government-sponsored enterprises

—

962.5

1.52

294.5

1.30

—

1,257.0

1.47

1,263.5

—

93.5

1.48

—

93.5

1.48

87.3

Commercial - Government agency

—

411.1

2.08

76.5

1.77

—

487.6

2.03

491.4

—

6.2

1.57

24.3

1.97

—

30.5

1.89

27.8

Commercial - Government-sponsored enterprises

—

87.4

1.75

611.1

1.56

545.5

2.08

1,244.0

1.80

1,223.8

—

42.7

0.98

518.7

1.77

612.0

2.24

1,173.4

1.98

1,109.8

Collateralized mortgage obligations⁽²⁾:

Government agency

23.9

1.85

1,232.8

1.69

388.5

1.20

—

1,645.2

1.58

1,662.1

—

779.7

1.31

99.3

1.32

879.0

1.31

847.8

Government-sponsored enterprises

31.9

2.02

977.4

1.25

1,015.6

1.38

—

2,024.9

1.33

2,019.0

—

274.6

1.45

1,392.2

1.43

94.0

1.42

1,760.8

1.43

1,691.3

Total available-for-sale securities as of June 30, 2021

55.8

1.95

3,822.8

1.59

2,469.8

1.38

602.8

2.03

6,951.2

1.56

6,953.9

Debt securities issued by state and political subdivisions

—

53.6

2.27

53.6

2.27

49.8

Total held-to-maturity securities as of June 30, 2022

—

323.5

1.39

2,855.7

1.48

914.0

2.02

4,093.2

1.59

3,910.8

(1)	Weighted-average yields were computed on a fully taxable-equivalent basis.

(2)	Maturities for mortgage-backed securities and collateralized mortgage obligations anticipate future prepayments.

The ~~fair~~carrying value of our ~~available-for-sale~~ investment securities portfolio was ~~$7.0~~$8.1 billion as of June 30, ~~2021, an increase~~2022, a decrease of ~~$882.5~~$367.1 million or ~~15%~~4% compared to December 31, ~~2020.~~2021. Our available-for-sale investment securities are carried at fair value with changes in fair value reflected in other comprehensive income or through the Provision. Our held-to-maturity investment securities are carried at amortized cost.

During the three and six months ended June 30, 2022, we reclassified at fair value $4.1 billion in available-for-sale investment securities to the held-to-maturity category to enhance our capital management in a rising interest rate environment. The related unrealized after-tax losses of approximately $338.8 million remained in accumulated other comprehensive income to be amortized over the estimated remaining life of the securities as an adjustment of yield, offsetting the related accretion of the discount on the transferred securities. No gains or losses were recognized at the time of reclassification. In addition, we consider the held-to-maturity classification of these investment securities to be appropriate as there is both the positive intent and ability to hold these securities to maturity. As of June 30, 2022, the weighted average life of the transferred securities was approximately 8.0 years. Material changes in prepayment speeds may result in a significant impact to the estimated remaining life of these securities.

As of June 30, ~~2021,~~2022, we maintained all of our investment securities in either the available-for-sale category ~~recorded~~(recorded at fair ~~value~~value) or the held-to-maturity category (recorded at amortized cost) in the unaudited interim consolidated balance sheets, with ~~$3.7~~$4.3 billion invested in collateralized mortgage obligations issued by Ginnie Mae, Fannie Mae and Freddie Mac. Our ~~available-for-sale~~investment securities portfolio also included ~~$3.1~~$3.2 billion in mortgage-backed securities issued by Ginnie Mae, Freddie Mac, Fannie Mae, ~~and~~ Municipal Housing Authorities and ~~$180.8~~non-agency entities, $246.7 million in collateralized loan obligations, $234.3 million in debt securities issued by the ~~U.S~~U.S. Treasury, ~~and~~ government agencies (US International Development Finance Corporation bonds). and government-sponsored enterprises and $53.6 million in debt securities issued by states and political subdivisions.

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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 and change the composition of our investment securities portfolio.

~~Table of Contents~~

Gross unrealized gains in our investment securities portfolio were ~~$62.4~~$1.0 million and ~~$97.1~~$24.6 million as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Gross unrealized losses in our investment securities portfolio were ~~$59.6~~$483.5 million and ~~$10.7~~$157.3 million as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The decrease in unrealized gains and increase in unrealized loss in our investment securities portfolio was primarily due to higher market interest rates as of June 30, ~~2021,~~2022, relative to December 31, ~~2020,~~2021, resulting in a lower valuation. Additionally, the decrease in unrealized gains and increase in unrealized loss positions was primarily related to our commercial mortgage-backed securities, mortgage-backed securities and collateralized mortgage obligations, the fair values of which are sensitive to changes in market interest rates.

WeFor our available-for-sale investment securities, we conduct a regular assessment of our investment securities portfolio to determine whether any securities are impaired. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and ~~the ACL~~an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through the ~~ACL~~allowance for credit losses is recognized in other comprehensive income. For the three and six months ended June 30, ~~2021,~~2022, we did not record any credit losses related to our available-for-sale investment securities portfolio.

For our held-to-maturity investment securities, we utilize the Current Expected Credit Loss (“CECL”) approach to estimate lifetime expected credit losses. Substantially all of our held-to-maturity securities are issued by the U.S. Government, its agencies and government-sponsored enterprises. These securities have a long history of no credit losses and carry the explicit or implicit guarantee of the U.S. government. Therefore, as of June 30, 2022, we did not record an allowance for credit losses related to our held-to-maturity investment securities portfolio.

We are required to hold non-marketable equity securities, comprised of FHLB stock, as a condition of our membership in the FHLB system. Our FHLB stock is accounted for at cost, which equals par or redemption value. As of both June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, we held $10.1 million in FHLB stock, ~~of $18.1 million,~~ which is recorded as a component of other assets in our unaudited interim consolidated balance sheets.

See “Note 2. Investment Securities” contained in our unaudited interim consolidated financial statements for more information on our investment securities portfolio.

Loans and Leases

Table 1514 presents the composition of our loan and lease portfolio by major categories as of June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:

Loans and Leases

Table 15

Table 14

June 30,

December 31,

June 30,

December 31,

(dollars in thousands)

2021

2020

2022

2021

Commercial and industrial:

Commercial and industrial excluding Paycheck Protection Program loans

1,753,444

2,218,266

1,898,899

1,870,657

Paycheck Protection Program loans

811,103

801,241

43,233

216,442

Total commercial and industrial

2,564,547

3,019,507

1,942,132

2,087,099

Commercial real estate

3,528,068

3,392,676

3,956,828

3,639,623

Construction

853,865

735,819

727,771

813,969

Residential:

Residential mortgage

3,821,407

3,690,218

4,212,768

4,083,367

Home equity line

825,368

841,624

971,569

876,608

Total residential

4,646,775

4,531,842

5,184,337

4,959,975

Consumer

1,267,559

1,353,842

1,207,051

1,229,939

Lease financing

242,971

245,411

244,662

231,394

Total loans and leases

13,103,785

13,279,097

13,262,781

12,961,999

Table of Contents

Total loans and leases were ~~$13.1~~$13.3 billion as of June 30, ~~2021, a decrease~~2022, an increase of ~~$175.3~~$300.8 million or 1%2% from December 31, ~~2020.~~2021. The ~~decrease~~increase in total loans and leases was primarily due to ~~decreases~~increases in commercial real estate loans and residential mortgage loans, partially offset by a decrease in PPP loans, which are included in commercial and industrial loans, and ~~consumer loans, partially offset by increases~~decreases in ~~commercial real estate loans,~~ construction loans and ~~residential mortgage~~consumer loans. ~~It is possible that the continued effects of COVID-19 on the economy could result in less demand for our loan products.~~

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. We also offer a variety of automobile dealer flooring lines to our customers in Hawaii and California to assist with the financing of their inventory. Commercial and industrial loans were ~~$2.6~~$1.9 billion as of June 30, ~~2021,~~2022, a decrease of ~~$455.0~~$145.0 million or ~~15%~~7% from December 31, ~~2020.~~2021. This decrease was primarily due to a decrease in ~~dealer flooring, partially offset by an increase in our Shared National Credits~~PPP loans of $173.2 million during the six months ended June 30, ~~2021.~~2022.

~~Table of Contents~~

Commercial real estate loans are secured by first mortgages on commercial real estate at loan to value (“LTV”) ratios generally not exceeding 75% and a minimum debt service coverage ratio of 1.20 to 1. The commercial properties are predominantly apartments, neighborhood and grocery anchored retail, industrial, office, and to a lesser extent, specialized properties such as hotels. The primary source of repayment for investor property and owner-occupied property is cash flow from the property and operating cash flow from the business, respectively. Commercial real estate loans were ~~$3.5~~$4.0 billion as of June 30, ~~2021,~~2022, an increase of ~~$135.4~~$317.2 million or 4%9% from December 31, ~~2020.~~2021. This increase was primarily due to an increase in U.S. Mainland commercial real estate loans during the six months ended June 30, ~~2021.~~2022.

Construction loans are for the purchase or construction of a property for which repayment will be generated by the property. Loans in this portfolio are primarily for the purchase of land, as well as for the development of commercial properties, single family homes and condominiums. We classify loans as construction until the completion of the construction phase. Following completion of the construction phase, if a loan is retained by the Bank, the loan is reclassified to the commercial real estate or residential real estate classes of loans. Construction loans were ~~$853.9~~$727.8 million as of June 30, ~~2021, an increase~~2022, a decrease of ~~$118.0~~$86.2 million or ~~16%~~11% from December 31, ~~2020.~~2021. The ~~increase~~decrease in construction loans was primarily due to ~~the funding~~payoffs of ~~U.S. Mainland and Hawaii construction loan draws~~several large projects during the six months ended June 30, ~~2021.~~2022.

Residential real estate loans are generally secured by 1-4 unit residential properties and are underwritten using traditional underwriting systems to assess the credit risks and financial capacity and repayment ability of the consumer. Decisions are primarily based on LTV ratios, debt-to-income (“DTI”) ratios, liquidity and credit scores. LTV ratios generally do not exceed 80%, although higher levels are permitted with mortgage insurance. We offer fixed rate mortgage products and variable rate mortgage products. Since our transition from LIBOR in late 2021, we now offer variable rate mortgage products based on SOFR with interest rates that are subject to change every six months, after the third, fifth, seventh or tenth year, depending on the product. Prior to this, we offered variable rate mortgage products based on LIBOR with interest rates that were subject to change every year after the first, third, fifth or tenth year, depending on the ~~product and are based on LIBOR.~~product. Variable rate residential mortgage loans are underwritten at fully-indexed interest rates. We generally do not offer interest-only, payment-option facilities, Alt-A loans or any product with negative amortization. Residential real estate loans were ~~$4.6~~$5.2 billion as of June 30, ~~2021,~~2022, an increase of ~~$114.9~~$224.4 million or 3%5% from December 31, 2020. This increase was primarily due to an increase in residential mortgages of $131.2 million, partially offset by a decrease in home equity lines of $16.3 million during the six months ended June 30, 2021.

Consumer loans consist primarily of open- and closed-end direct and indirect credit facilities for personal, automobile and household purchases as well as credit card loans. We seek to maintain reasonable levels of risk in consumer lending by following prudent underwriting guidelines, which include an evaluation of personal credit history, cash flow and collateral values based on existing market conditions. Consumer loans were ~~$1.3~~$1.2 billion as of June 30, ~~2021,~~2022, a decrease of ~~$86.3~~$22.9 million or 6%2% from December 31, ~~2020. The decrease in consumer loans was primarily due to decreases in indirect automobile loans and other unsecured consumer loans.~~2021.

Lease financing consists of commercial single investor leases and leveraged leases. Underwriting of new lease transactions is based on our lending policy, including but not limited to an analysis of customer cash flows and secondary sources of repayment, including the value of leased equipment, the guarantors’ cash flows and/or other credit enhancements. No new leveraged leases are being added to the portfolio and all remaining leveraged leases are running off. Lease financing was ~~$243.0~~$244.7 million as of June 30, ~~2021, a decrease~~2022, an increase of ~~$2.4~~$13.3 million or 1%6% from December 31, ~~2020.~~2021. The ~~reduction~~increase was ~~reflective~~primarily due to the closing of ~~weak demand for new business equipment and vehicles in~~several large lease transactions during the ~~Hawaii market.~~six months ended June 30, 2022.

See “Note 3. Loans and Leases” and “Note 4. Allowance for Credit Losses” contained in our unaudited interim consolidated financial statements and the discussion in “Analysis of Financial Condition — Allowance for Credit Losses” of this MD&A for more information on our loan and lease portfolio.

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The Company’s loan and lease portfolio includes adjustable-rate loans, primarily tied to Prime and LIBOR, hybrid-rate loans, for which the initial rate is fixed for a period from one year to as much as ten years, and fixed rate loans, for which the interest rate does not change through the life of the loan or the remaining life of the loan. Table 1615 presents the recorded investment in our loan and lease portfolio as of June 30, ~~2021~~2022 by rate type:

Loans and Leases by Rate Type

Table 16

Loans and Leases by Rate Type

Table 15

June 30, 2021

June 30, 2022

Adjustable Rate

Hybrid

Fixed

Adjustable Rate

Hybrid

Fixed

(dollars in thousands)

Prime

LIBOR

Treasury

Other

Total

Rate

Total

Prime

LIBOR

Treasury

SOFR

BSBY

Other

Total

Rate

Total

Commercial and industrial

228,807

1,163,018

—

1,037

1,392,862

34,631

1,137,054

2,564,547

296,599

765,047

—

165,605

64,813

241,794

1,533,858

53,813

354,461

1,942,132

Commercial real estate

276,351

2,019,321

319

810,509

3,106,500

131,720

289,848

3,528,068

422,397

1,650,736

—

525,128

35,923

804,726

3,438,910

147,120

370,798

3,956,828

Construction

126,206

598,065

26,218

750,515

3,676

99,674

853,865

118,674

426,585

33,251

—

27,898

606,428

7,541

113,802

727,771

Residential:

Residential mortgage

21,943

176,737

78,714

55,974

333,368

312,888

3,175,151

3,821,407

25,902

141,906

58,377

90,435

—

70,077

386,697

255,130

3,570,941

4,212,768

Home equity line

358,019

—

5,914

—

363,933

461,413

825,368

1,354

—

1,450

724,994

245,125

971,569

Total residential

379,962

176,737

84,628

55,974

697,301

774,301

3,175,173

4,646,775

27,256

141,906

58,473

90,435

—

70,077

388,147

980,124

3,816,066

5,184,337

Consumer

295,572

3,920

1,074

300,658

966,825

1,267,559

302,129

—

1,029

—

1,007

1,767

305,932

—

901,119

1,207,051

Lease financing

—

242,971

—

244,662

Total loans and leases

1,306,898

3,961,061

86,047

893,830

6,247,836

944,404

5,911,545

13,103,785

1,167,055

2,984,274

59,522

814,419

101,743

1,146,262

6,273,275

1,188,598

5,800,908

13,262,781

% by rate type at June 30, 2021

100

% by rate type at June 30, 2022

100

Tables 1716 and 1817 present the geographic distribution of our loan and lease portfolio as of June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:

Geographic Distribution of Loan and Lease Portfolio

Table 17

Table 16

June 30, 2021

June 30, 2022

U.S.

Guam &

Foreign &

U.S.

Guam &

Foreign &

(dollars in thousands)

Hawaii

Mainland⁽¹⁾

Saipan

Other

Total

Hawaii

Mainland⁽¹⁾

Saipan

Other

Total

Commercial and industrial

1,570,734

833,195

151,861

8,757

2,564,547

936,952

887,387

90,223

27,570

1,942,132

Commercial real estate

2,185,928

945,579

396,361

200

3,528,068

2,219,625

1,341,248

395,955

—

3,956,828

Construction

438,599

408,969

6,297

—

853,865

345,462

375,181

7,128

—

727,771

Residential:

Residential mortgage

3,697,534

1,416

122,457

—

3,821,407

4,062,727

814

149,227

—

4,212,768

Home equity line

796,868

—

28,500

—

825,368

938,183

—

33,374

971,569

Total residential

4,494,402

1,416

150,957

—

4,646,775

5,000,910

814

182,601

5,184,337

Consumer

942,951

17,057

306,060

1,491

1,267,559

884,172

37,904

281,967

3,008

1,207,051

Lease financing

75,041

151,568

16,362

—

242,971

62,607

167,805

14,250

—

244,662

Total Loans and Leases

9,707,655

2,357,784

1,027,898

10,448

13,103,785

9,449,728

2,810,339

972,124

30,590

13,262,781

Percentage of Total Loans and Leases

73%

18%

100%

71%

21%

100%

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

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Geographic Distribution of Loan and Lease Portfolio										Table 18										Table 17
	December 31, 2020										December 31, 2021
			U.S.		Guam &		Foreign &						U.S.		Guam &		Foreign &
(dollars in thousands)	Hawaii		Mainland⁽¹⁾		Saipan		Other		Total		Hawaii		Mainland⁽¹⁾		Saipan		Other		Total
Commercial and industrial	$	1,755,804	$	1,042,318	$	193,829	$	27,556	$	3,019,507	$	1,070,206	$	871,699	$	112,739	$	32,455	$	2,087,099
Commercial real estate		2,180,829		809,493		402,142		212		3,392,676		2,226,487		1,023,018		389,922		196		3,639,623
Construction		333,112		398,218		4,489		—		735,819		340,290		467,331		6,348		—		813,969
Residential:
Residential mortgage		3,568,827		1,662		119,729		—		3,690,218		3,949,550		1,054		132,763		—		4,083,367
Home equity line		811,964		—		29,660		—		841,624		845,517		—		31,091		—		876,608
Total residential		4,380,791		1,662		149,389		—		4,531,842		4,795,067		1,054		163,854		—		4,959,975
Consumer		1,001,868		18,993		331,255		1,726		1,353,842		920,154		17,278		290,839		1,668		1,229,939
Lease financing		80,670		149,934		14,807		—		245,411		68,246		148,950		14,198		—		231,394
Total Loans and Leases	$	9,733,074	$	2,420,618	$	1,095,911	$	29,494	$	13,279,097	$	9,420,450	$	2,529,330	$	977,900	$	34,319	$	12,961,999
Percentage of Total Loans and Leases		73%		18%		8%		1%		100%		73%		19%		7%		1%		100%

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

Our lending activities are concentrated primarily in Hawaii. However, we also have lending activities on the U.S. mainland, Guam and Saipan. Our commercial lending activities on the U.S. mainland include automobile dealer flooring activities in California, participation in the Shared National Credits Program and selective commercial real estate projects based on existing customer relationships. Our lease financing portfolio includes commercial leveraged and single investor lease financing activities both in Hawaii and on the U.S. mainland. However, no new leveraged leases are being added to the portfolio and all remaining leveraged leases are running off. Our consumer lending activities are concentrated primarily in Hawaii and, to a smaller extent, in Guam and Saipan.

Table 1918 presents ~~certain~~the contractual maturities of our loan ~~maturity~~and lease portfolio by major categories and the sensitivities ~~of those loans~~ to changes in interest rates as of June 30, ~~2021:~~2022:

Maturities for Selected Loan Categories⁽¹⁾

Table 19

Maturities for Loan and Lease Portfolio⁽¹⁾

Table 18

June 30, 2021

June 30, 2022

Due in One

Due After One

Due After

Due in One

Due After One

Due After Five

Due After

(dollars in thousands)

Year or Less

to Five Years

Five Years

Total

Year or Less

to Five Years

to Fifteen Years

Fifteen Years

Total

Commercial and industrial

883,527

1,330,547

350,473

2,564,547

471,980

1,030,612

359,903

79,637

1,942,132

Commercial real estate

381,174

1,836,282

1,718,431

20,941

3,956,828

Construction

290,816

428,008

135,041

853,865

292,771

299,809

107,330

27,861

727,771

Total Selected Loans

1,174,343

1,758,555

485,514

3,418,412

Residential:

Residential mortgage

27,927

43,374

476,325

3,665,142

4,212,768

Home equity line

16,835

118,937

190,182

645,615

971,569

Total residential

44,762

162,311

666,507

4,310,757

5,184,337

Consumer

140,046

830,525

236,480

—

1,207,051

Lease financing

4,048

124,761

115,853

—

244,662

Total Loans and Leases

1,334,781

4,284,300

3,204,504

4,439,196

13,262,781

Total of loans with:

Total of loans and leases with:

Adjustable interest rates

748,477

999,531

395,369

2,143,377

1,135,676

2,911,863

1,927,418

298,318

6,273,275

Hybrid interest rates

29,233

8,982

38,307

66,622

190,100

163,140

768,736

1,188,598

Fixed interest rates

425,774

729,791

81,163

1,236,728

132,483

1,182,337

1,113,946

3,372,142

5,800,908

Total Selected Loans

1,174,343

1,758,555

485,514

3,418,412

Total Loans and Leases

1,334,781

4,284,300

3,204,504

4,439,196

13,262,781

(1)	Based on contractual ~~maturities.~~maturities, including extension and renewal options that are not unconditionally cancellable by the Company.

Table of Contents

Credit Quality

We perform an internal loan review and grading or scoring procedures on an ongoing basis. The review provides management with periodic information as to the quality of the loan portfolio and effectiveness of our lending policies and procedures. The objective of the loan review and grading or scoring procedures is to identify, in a timely manner, existing or emerging credit quality issues so that appropriate steps can be initiated to avoid or minimize future losses.

~~Table of Contents~~

For purposes of managing credit risk and estimating the ACL, management has identified three portfolio segments (commercial, residential and consumer) that we use to develop our systematic methodology to determine the ACL. The categorization of loans for the evaluation of credit risk is specific to our credit risk evaluation process and these loan categories are not necessarily the same as the loan categories used for other evaluations of our loan portfolio. See “Note 4. Allowance for Credit Losses” contained in our unaudited interim consolidated financial statements for more information about our approach to estimating the ACL.

The following tables and discussion address non-performing assets, loans and leases that are 90 days past due but are still accruing interest, impaired loans and loans modified in a TDR.

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

Table 2019 presents information on our non-performing assets and accruing loans and leases past due 90 days or more as of June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More					Table 20						Table 19
	June 30,			December 31,			June 30,			December 31,
(dollars in thousands)	2021			2020			2022			2021
Non-Performing Assets
Non-Accrual Loans and Leases
Commercial Loans:
Commercial and industrial	$	828		$	518		$	682		$	718
Commercial real estate		937			80			727			727
Construction		—			2,043
Total Commercial Loans		1,765			2,641			1,409			1,445
Residential Loans:
Residential mortgage		7,140			6,441			6,450			5,637
Total Residential Loans		7,140			6,441			6,450			5,637
Total Non-Accrual Loans and Leases		8,905			9,082			7,859			7,082
Other Real Estate Owned ("OREO")		—			—			—			175
Total Non-Performing Assets	$	8,905		$	9,082		$	7,859		$	7,257

Accruing Loans and Leases Past Due 90 Days or More
Commercial Loans:
Commercial and industrial	$	494		$	2,108		$	2,230		$	740
Commercial real estate		—			882			176			—
Construction		60			93			352			—
Total Commercial Loans		554			3,083			2,758			740
Residential Loans:
Residential mortgage								750			987
Home equity line		4,680			4,818			1,039			3,681
Total Residential Loans		4,680			4,818			1,789			4,668
Consumer		1,134			3,266			1,218			1,800
Total Accruing Loans and Leases Past Due 90 Days or More	$	6,368		$	11,167		$	5,765		$	7,208

Restructured Loans on Accrual Status and Not Past Due 90 Days or More	$	36,668		$	16,684		$	29,440		$	34,893
Total Loans and Leases	$	13,103,785		$	13,279,097		$	13,262,781		$	12,961,999

Ratio of Non-Accrual Loans and Leases to Total Loans and Leases		0.07	%		0.07	%		0.06	%		0.05	%
Ratio of Non-Performing Assets to Total Loans and Leases and OREO		0.07	%		0.07	%		0.06	%		0.06	%
Ratio of Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More to Total Loans and Leases and OREO		0.12	%		0.15	%		0.10	%		0.11	%

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Table 2120 presents the activity in Non-Performing Assets (“NPAs”) for the six months ended June 30, 2022 and 2021:


Non-Performing Assets		Table 21				Table 20
			Six Months Ended June 30,
(dollars in thousands)		Six Months Ended June 30, 2021	2022		2021
Balance at beginning of period	$	9,082	$	7,257	$	9,082
Additions		4,180		2,461		4,180
Reductions
Payments		(1,253)		(619)		(1,253)
Return to accrual status		(1,146)		(760)		(1,146)
Sales of other real estate owned				(175)		—
Transfers to loans held for sale		(1,840)		—		(1,840)
Charge-offs/write-downs		(118)		(305)		(118)
Total Reductions		(4,357)		(1,859)		(4,357)
Balance at end of period	$	8,905	$	7,859	$	8,905

The level of NPAs represents an indicator of the potential for future credit losses. NPAs consist of non-accrual loans and leases and other real estate ~~owned.~~owned (“OREO”). Changes in the level of non-accrual loans and leases typically represent increases for loans and leases that reach a specified past due status, offset by reductions for loans and leases that are charged-off, paid down, sold, transferred to held for sale classification, transferred to ~~other real estate owned~~OREO or are no longer classified as non-accrual because they have returned to accrual status as a result of continued performance and an improvement in the borrower’s financial condition and loan repayment capabilities.

Total NPAs were ~~$8.9~~$7.9 million as of June 30, ~~2021, a decrease~~2022, an increase of ~~$0.2~~$0.6 million or 2%8% from December 31, ~~2020.~~2021. The ratio of our NPAs to total loans and leases and ~~other real estate owned~~OREO was ~~0.12%~~0.06% as of both June 30, ~~2021, a decrease of three basis points from~~2022 and December 31, ~~2020. During~~2021. The increase in NPAs during the six months ended June 30, ~~2021, construction non-accrual loans decreased by $2.0 million, offset by increases~~2022, was due to an increase in ~~commercial real estate non-accrual loans of $0.9 million,~~ residential mortgage non-accrual loans of ~~$0.7 million and commercial and industrial non-accrual loans of $0.3 million.~~

As of June 30, 2021, commercial real estate non-accrual loans were $0.9 million, an increase of $0.9 million from December 31, 2020. This increase was due to the addition of a $0.9 million commercial real estate loan.

~~As of June 30, 2021, commercial and industrial non-accrual loans were~~ $0.8 ~~million, an increase of $0.3 million or 60% from December 31, 2020. This increase was primarily due to additions in commercial and industrial loans totaling $0.5~~ million, partially offset by ~~payments and charge-offs.~~

~~As of June 30, 2021, construction non-accrual loans were nil,~~ a decrease in OREO of ~~$2.0 million from December 31, 2020. This decrease was primarily due to a $1.8 million transfer to loans held for sale.~~$0.2 million.

The largest component of our NPAs continues to be residential mortgage loans. The level of these NPAs can remain elevated due to a lengthy judicial foreclosure process in Hawaii. As of June 30, ~~2021,~~2022, residential mortgage non-accrual loans were ~~$7.1~~$6.5 million, an increase of ~~$0.7~~$0.8 million or ~~11%~~14% from December 31, ~~2020.~~2021. This increase was ~~primarily~~ due to additions of residential mortgage non-accrual loans totaling $2.4 million, partially offset by payments of $0.6 million, returns to accrual status of ~~$1.1 million, payments of $0.5~~$0.8 million and charge-offs of ~~$0.1~~$0.2 million. As of June 30, ~~2021,~~2022, our residential mortgage non-accrual loans were comprised of 3534 loans with a weighted average current LTV ratio of ~~47%~~41%.

~~Other real estate owned~~OREO represents property acquired as the result of borrower defaults on loans. ~~Other real estate owned~~OREO is recorded at fair value, less estimated selling costs, at the time of foreclosure. On an ongoing basis, properties are appraised as required by market conditions and applicable regulations. As of ~~both~~ June 30, ~~2021 and~~2022, we did not hold any OREO. As of December 31, ~~2020, there were no other real estate owned.~~2021, OREO was $0.2 million which comprised of one residential property.

Loans and Leases Past Due 90 Days or More and Still Accruing Interest. Loans and leases in this category are 90 days or more past due, as to principal or interest, and are still accruing interest because they are well secured and in the process of collection.

Loans and leases past due 90 days or more and still accruing interest were ~~$6.4~~$5.8 million as of June 30, ~~2021,~~2022, a decrease of ~~$4.8~~$1.4 million or ~~43%~~20%, as compared to December 31, ~~2020.~~2021. This decrease was primarily due to decreases in home equity lines of $2.6 million and consumer loans of ~~$2.1~~$0.6 million, partially offset by an increases in commercial and industrial loans of ~~$1.6~~$1.5 million and ~~commercial real estate~~construction loans of ~~$0.9~~$0.4 million, that were past due 90 days or more and still accruing interest.

~~Table of Contents~~

Impaired Loans. A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. For a loan that has been modified in a TDR, the contractual terms of the loan agreement refers to the contractual terms specified by the original loan agreement, not the contractual terms specified by the modified loan agreement.

Table of Contents

Total impaired loans were ~~$45.7~~$37.6 million and ~~$25.8~~$42.2 million as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. These impaired loans had a related ACL of ~~$4.6~~$3.7 million and ~~$2.4~~$4.2 million as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The ~~increase~~decrease in impaired loans during the six months ended June 30, ~~2021,~~2022 was primarily due to ~~increases~~decreases in consumer loans of ~~$15.8 million, residential mortgage loans of $3.9~~$2.2 million, commercial real estate loans of ~~$1.0~~$1.2 million, residential mortgages of $0.7 million and commercial and industrial loans of ~~$0.5 million, partially offset by a decrease in construction loans of $1.3~~$0.6 million. ~~The change in the impaired loans balance includes charge-offs and paydowns.~~ For the three and six months ended June 30, ~~2021,~~2022, we recorded charge-offs of $0.5 million and $1.4 million, respectively, and $0.4 million and $0.8 million, respectively, ~~and $16.4 million~~ during ~~both~~ the three and six months ended June 30, ~~2020,~~2021, related to our total impaired loans. Our impaired loans are considered in management’s assessment of the overall adequacy of the ACL.

If interest due on the balances of all non-accrual loans as of June 30, 2022 and 2021 had been accrued under the original terms, approximately $0.1 million and $0.2 million in additional interest income would have been recorded during the three and six months ended June 30, ~~2021,~~2022, respectively, and ~~$0.5~~$0.1 million and ~~$0.6~~$0.2 million during the three and six months ended June 30, ~~2020,~~2021, respectively. Actual interest income recorded on these loans was $0.1 million for both the three and six months ended June 30, 2022, compared to $0.1 million and $0.2 million for the three and six months ended June 30, 2021, ~~respectively, compared to $0.1 million during both the three and six months ended June 30, 2020.~~respectively.

~~COVID-19 Financial Hardship Relief Programs~~Paycheck Protection Program

Certain borrowers have been unable to meet their contractual payment obligations because of the adverse effects of COVID-19. To help mitigate these effects, we have been offering various relief programs to assist customers who are experiencing financial hardship due to COVID-19. For example, for certain residential mortgage and commercial loans, various relief options were available on a case-by-case basis, including payment deferrals for up to six months. For certain consumer loans, loan assistance was being offered in the form of payment deferrals for up to three months, which extended the term of the loan by the number of months deferred, and interest continued to accrue on the principal balance. The short-term modifications for payment deferrals, extensions of repayment terms, or delays in payment described above that are insignificant and made on a good faith basis in response to borrowers impacted by COVID-19 who were current prior to any relief are not required to be accounted for and disclosed as TDRs under GAAP. See “Note 4. Allowance for Credit Losses” in the notes to our unaudited interim consolidated financial statements for further discussion on short-term modifications.

~~Table 22 presents information on our loans and leases that received payment deferrals under our COVID-19 financial hardship relief programs as of June 30, 2021:~~

Loans and Leases that Received Payment Deferrals under COVID-19 Financial Hardship Relief Programs

Table 22

June 30, 2021

Number of Loans

Amortized

(dollars in thousands)

and Leases

Cost Basis

Loans and Leases that Received Payment Deferrals under COVID-19 Financial Hardship Relief Programs

Commercial and industrial

840

$
490,863

Commercial real estate

403

1,098,810

Construction

26

50,471

Lease financing

52

10,175

Residential mortgage

1,306

522,554

Consumer

18,914

204,046

Total Loans and Leases that Received Payment Deferrals under COVID-19 Financial Hardship Relief Programs

21,541

$
2,376,919

Total Loans and Leases

$
13,103,785

Ratio of Loans and Leases that Received Payment Deferrals under COVID-19 Financial Hardship Relief Programs to Total Loans and Leases

18.1
%

~~Table of Contents~~

~~In addition to the relief programs described above, we also~~We participated in the PPP offered by the ~~SBA.~~Small Business Administration (“SBA”). The PPP iswas intended to help small businesses impacted by the COVID-19 pandemic by providing “fully forgivable” loans ~~for up to $10 million~~ to cover payroll expenses, including employee benefits, and can also be used for various other eligible expenses. PPP loans have a fixed interest rate of one percent per annum and a maturity date of up to five years, with the ability to prepay the loan in full without penalty. The first payment is deferred until the date the SBA remits the borrower’s loan forgiveness amount to the Bank, or if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period. Interest will continue to accrue during the initial deferment period. The borrower may apply with the Bank for loan forgiveness of the amount due on the loan in an amount equal to payroll, employee benefits, and other eligible expenses incurred, subject to limitations, in accordance with the PPP and the CARES Act, as amended by the ~~PPPF~~Paycheck Protection Program Flexibility Act of 2020 (the “PPPF Act”) and ~~CAA.~~the Consolidated Appropriations Act – 2021 (the “CAA”). Because the purpose of the PPP is to help small businesses keep their workers employed and paid, if the business spends less than 60% of loan proceeds on payroll costs, uses the loan proceeds for non-payroll costs that are not eligible expenses, or significantly reduces its employee count or compensation levels without qualifying for other exceptions, a portion of the loan will not be forgiven, and the business will be required to repay that portion of the loan to the Bank over the remaining term of the loan.

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Table 2321 presents information on our PPP loans outstanding as of June 30, 2022 and December 31, 2021 to borrowers operating in industries we consider to be the most impacted by the COVID-19 pandemic (“high impact industries”) and all other industries:

PPP Loans Outstanding to Borrowers by Industry

Table 23

Table 21

June 30, 2021

June 30, 2022

December 31, 2021

Number

Amortized

Number

Amortized

Number

Amortized

(dollars in thousands)

of Loans

Cost Basis

of Loans

Cost Basis

of Loans

Cost Basis

PPP Loans Outstanding to Borrowers by Industry

High Impact Industries:

Food service

722

163,872

16,070

207

61,025

Automobile dealers

37,881

337

7,544

Retail

466

49,601

4,801

13,961

Hospitality/Hotel

132

69,225

3,858

31,979

Transportation

172

36,264

479

3,408

Total PPP Loans Outstanding to Borrowers Operating in High Impact Industries

1,535

356,843

106

25,545

380

117,917

All other industries ⁽¹⁾

3,708

454,260

164

17,688

605

98,525

Total PPP Loans Outstanding ⁽²⁾

5,243

811,103

270

43,233

985

216,442

Total Loans and Leases

13,103,785

13,262,781

12,961,999

Ratio of PPP Loans Outstanding to Borrowers Operating in High Impact Industries to Total Loans and Leases

2.7

0.2

0.9

Ratio of PPP Loans Outstanding to Total Loans and Leases

6.2

0.3

1.7

(1)

“All other industries” represent borrowers that received PPP loans that did not operate in the five high impact industries listed ~~above, which is~~above. At June 30, 2022, this was primarily comprised of the administrative and support services, construction, and real estate industries. At December 31, 2021, this was primarily comprised of the construction, health care, ~~professional services, and~~ administrative and support services, and arts and entertainment industries.

(2)

~~Outstanding~~At June 30, 2022, outstanding loan balances are reported net of deferred loan costs and fees of ~~$1.6~~nil and $0.9 million, respectively. At December 31, 2021, outstanding loan balances are reported net of deferred loan costs and fees of $0.2 million and ~~$23.0~~$5.4 million, ~~respectively, at June 30, 2021.~~respectively.

~~Table of Contents~~

Loans Modified in a Troubled Debt Restructuring

Table 2422 presents information on loans whose terms have been modified in a TDR as of June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:


Loans Modified in a Troubled Debt Restructuring				Table 24				Table 22
	June 30,		December 31,		June 30,		December 31,
(dollars in thousands)	2021		2020		2022		2021
Commercial and industrial	$	2,645	$	2,298	$	1,362	$	1,956
Commercial real estate		7,310		7,126		5,969		7,121
Construction		708		—		667		689
Total commercial		10,663		9,424		7,998		9,766
Residential mortgage		11,504		7,553		9,285		10,828
Total residential		11,504		7,553		9,285		10,828
Consumer		15,834		—		13,547		15,710
Total	$	38,001	$	16,977	$	30,830	$	36,304

Loans modified in a TDR were ~~$38.0~~$30.8 million as of June 30, ~~2021, an increase~~2022, a decrease of ~~$21.0~~$5.5 million or 15% from December 31, ~~2020.~~2021. This ~~increase~~decrease was primarily due to ~~increases~~decreases in consumer loans of ~~$15.8~~$2.2 million, residential ~~mortgages~~mortgage loans of ~~$4.0~~$1.5 million, commercial real estate loans of $1.2 million and ~~construction~~commercial and industrial loans of ~~$0.7~~$0.6 million. As of June 30, ~~2021, $36.7~~2022, $29.4 million or ~~96%~~95% of our loans modified in a TDR were performing in accordance with their modified contractual terms and were on accrual status.

Generally, loans modified in a TDR are returned to accrual status after the borrower has demonstrated performance under the modified terms by making six consecutive timely payments. See “Note 4. Allowance for Credit Losses” contained in our unaudited interim consolidated financial statements ~~and “Analysis of Financial Condition — COVID-19 Financial Hardship Relief Programs”~~ for more ~~information and a description of the modification programs that we currently offer to our customers.~~information.

As noted above, we have been providing our borrowers with opportunities to defer payments, or portions thereof. In the absence of intervening factors, such short-term modifications made on a good faith basis are not categorized as troubled debt restructurings, nor are loans granted payment deferrals related to COVID-19 reported as past due or placed on non-accrual status (provided the loans were not past due or on non-accrual status prior to the deferral).

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Allowance for Credit Losses for Loans and Leases & Reserve for Unfunded Commitments

~~We adopted the provisions of Accounting Standards Update (“ASU”) No. 2016-13,~~ ~~Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments~~ on January 1, 2020. This guidance changed the accounting for credit losses from an “incurred loss” model, which estimates a loss allowance based on current known and inherent losses within a loan portfolio to an “expected loss” model, which estimates a loss based on losses expected to be recorded over the life of the loan portfolio.

Effective January 1, 2020, we recorded a pre-tax cumulative effect adjustment to increase the ACL by $0.8 million and to increase the reserve for unfunded commitments by $16.3 million. The Company’s ACL under CECL is significantly more dependent on the quantitative model and less on the qualitative assessment, compared to the previous incurred loss model. The increase in the ACL was primarily related to our indirect auto, commercial real estate and consumer loan products. This was partially offset by the decrease in the ACL related to our commercial and industrial, home equity lines and residential real estate loan products. These directional changes were predominantly due to differences between the loss emergence periods previously used under the incurred loss methodology and the remaining life of the loan as required under CECL. The large increase to our reserve for unfunded commitments was primarily due to an increase in utilization rates estimated using our CECL methodology.

Table ~~of Contents~~

~~Table 25~~23 presents an analysis of our ACL for the periods indicated:


Allowance for Credit Losses											Table 25
Allowance for Credit Losses and Reserve for Unfunded Commitments																							Table 23
	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2021			2020			2021			2020			2022			2021			2022			2021
Balance at Beginning of Period	$	200,366		$	166,013		$	208,454		$	130,530		$	179,238		$	234,469		$	187,584		$	239,057
Adjustment to Adopt ASC Topic 326		—			—			—			770
After Adoption of ASC Topic 326		200,366			166,013			208,454			131,300
Loans and Leases Charged-Off
Commercial Loans:
Commercial and industrial		(330)			(13,974)			(1,293)			(14,175)			(243)			(330)			(949)			(1,293)
Commercial real estate		—			(2,723)			(66)			(2,723)			—			—			—			(66)
Construction		—			(379)			—			(379)
Total Commercial Loans		(330)			(17,076)			(1,359)			(17,277)			(243)			(330)			(949)			(1,359)
Residential Loans:
Residential mortgage		—			(14)			(98)			(14)			—			—			—			(98)
Home equity line		—			—			—			(8)			(1,120)			—			(1,163)			—
Total Residential Loans		—			(14)			(98)			(22)			(1,120)			—			(1,163)			(98)
Consumer		(3,917)			(8,907)			(10,458)			(17,504)			(3,659)			(3,917)			(7,768)			(10,458)
Total Loans and Leases Charged-Off		(4,247)			(25,997)			(11,915)			(34,803)			(5,022)			(4,247)			(9,880)			(11,915)
Recoveries on Loans and Leases Previously Charged-Off
Commercial Loans:
Commercial and industrial		287			100			502			320			301			287			354			502
Commercial real estate		12			—			15			—			—			12			14			15
Construction		—			30			166			140			—			—			—			166
Lease financing														60			—			60			—
Total Commercial Loans		299			130			683			460			361			299			428			683
Residential Loans:
Residential mortgage		14			17			31			152			192			14			208			31
Home equity line		38			8			62			130			191			38			219			62
Total Residential Loans		52			25			93			282			383			52			427			93
Consumer		2,797			2,456			5,452			4,539			1,940			2,797			4,088			5,452
Total Recoveries on Loans and Leases Previously Charged-Off		3,148			2,611			6,228			5,281			2,684			3,148			4,943			6,228
Net Loans and Leases Charged-Off		(1,099)			(23,386)			(5,687)			(29,522)			(2,338)			(1,099)			(4,937)			(5,687)
Provision for Credit Losses - Loans and Leases		(30,119)			49,493			(33,619)			90,342
Provision for Credit Losses														1,000			(35,000)			(4,747)			(35,000)
Balance at End of Period	$	169,148		$	192,120		$	169,148		$	192,120		$	177,900		$	198,370		$	177,900		$	198,370
Components:
Allowance for Credit Losses													$	148,942		$	169,148		$	148,942		$	169,148
Reserve for Unfunded Commitments														28,958			29,222			28,958			29,222
Total Allowance for Credit Losses and Reserve for Unfunded Commitments													$	177,900		$	198,370		$	177,900		$	198,370
Average Loans and Leases Outstanding	$	13,205,086		$	13,956,669		$	13,223,575		$	13,574,048		$	13,058,558		$	13,205,086		$	12,939,745		$	13,223,575
Ratio of Net Loans and Leases Charged-Off to Average Loans and Leases Outstanding⁽¹⁾		0.03	%		0.67	%		0.09	%		0.44	%		0.07	%		0.03	%		0.08	%		0.09	%
Ratio of Allowance for Credit Losses for Loans and Leases to Loans and Leases Outstanding		1.29	%		1.40	%		1.29	%		1.40	%		1.12	%		1.29	%		1.12	%		1.29	%
Ratio of Allowance for Credit Losses for Loans and Leases to Non-accrual Loans and Leases														18.95x			18.99x			18.95x			18.99x

(1)	Annualized for the three and six months ended June 30, ~~2021~~2022 and ~~2020.~~2021.

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Tables 2624 and 2725 present the allocation of the ACL by loan and lease category, in both dollars and as a percentage of total loans and leases outstanding as of June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:

Allocation of the Allowance for Credit Losses by Loan and Lease Category

Table 26

Table 24

June 30, 2022

Allocated

Loan

ACL as

category as

% of loan or

% of total

June 30,

December 31,

lease

loans and

(dollars in thousands)

2021

2020

Amount

category

leases

Commercial and industrial

23,063

24,711

15,924

0.82

14.64

Commercial real estate

47,033

58,123

44,726

1.13

29.83

Construction

10,152

10,039

5,367

0.74

5.49

Lease financing

3,067

3,298

1,398

0.57

1.85

Total commercial

83,315

96,171

67,415

0.98

51.81

Residential mortgage

34,208

40,461

33,635

0.80

31.76

Home equity line

6,250

7,163

4,734

0.49

7.33

Total residential

40,458

47,624

38,369

0.74

39.09

Consumer

45,375

64,659

43,158

3.58

9.10

Total Allowance for Credit Losses for Loans and Leases

169,148

208,454

Total

148,942

1.12

100.00


Allocation of the Allowance for Credit Losses by Loan and Lease Category					Table 25
	December 31, 2021
			Allocated		Loan
			ACL as		category as
			% of loan or		% of total
			lease		loans and
(dollars in thousands)	Amount		category		leases
Commercial and industrial	$	20,080	0.96	%	16.10	%
Commercial real estate		42,951	1.18		28.08
Construction		9,773	1.20		6.28
Lease financing		1,659	0.72		1.79
Total commercial		74,463	1.10		52.25
Residential mortgage		34,364	0.84		31.50
Home equity line		5,642	0.64		6.76
Total residential		40,006	0.81		38.26
Consumer		42,793	3.48		9.49
Total	$	157,262	1.21	%	100.00	%

Table 26 presents the net charge-offs (recoveries) to average loans and leases by category during the three and six months ended June 30, 2022 and 2021:


Net Charge-Offs (Recoveries) to Average Loans and Leases By Category⁽¹⁾											Table 26
	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Commercial and industrial		(0.01)	%		0.01	%		0.06	%		0.05	%
Commercial real estate		—			—			—			—
Construction		—			—			—			(0.04)
Lease financing		(0.10)			—			(0.05)			—
Total commercial		(0.01)			—			0.02			0.02
Residential mortgage		(0.02)			—			(0.01)			—
Home equity line		0.39			(0.02)			0.21			(0.02)
Total residential		0.06			—			0.03			—
Consumer		0.57			0.35			0.61			0.78
Total loans and leases		0.07	%		0.03	%		0.08	%		0.09	%

(1)	Annualized for the three and six months ended June 30, 2022 and 2021.

8183

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Allocation of the Allowance for Credit Losses by Loan and Lease Category (as a percentage of total loans and leases outstanding)
Table 27

June 30,

December 31,

2021

2020

Allocated

Loan

Allocated

Loan

ACL as

category as

ACL as

category as

% of loan or

% of total

% of loan or

% of total

lease

loans and

lease

loans and

category

leases

category

leases

Commercial and industrial

0.90
%
19.57
%
0.82
%
22.74
%
Commercial real estate

1.33

26.92

1.71

25.55

Construction

1.19

6.52

1.36

5.54

Lease financing

1.26

1.86

1.34

1.85

Total commercial

1.16

54.87

1.30

55.68

Residential mortgage

0.90

29.16

1.10

27.78

Home equity line

0.76

6.30

0.85

6.34

Total residential

0.87

35.46

1.05

34.12

Consumer

3.58

9.67

4.78

10.20

Total

1.29
%
100.00
%
1.57
%
100.00
%

As of June 30, ~~2021,~~2022, the ACL was ~~$169.1~~$148.9 million or ~~1.29%~~1.12% of total loans and leases outstanding, compared with an ACL of ~~$208.5~~$157.3 million or ~~1.57%~~1.21% of total loans and leases outstanding as of December 31, ~~2020.~~2021. The ~~level~~reserve for unfunded commitments was $29.0 million as of ~~the ACL was commensurate with the adverse impacts that COVID-19 is having on the Hawaii and global economy.~~June 30, 2022, compared to $30.3 million as of December 31, 2021.

Net charge-offs of loans and leases were ~~$1.1~~$2.3 million or ~~0.03%~~0.07% of total average loans and leases, on an annualized basis, for the three months ended June 30, ~~2021,~~2022, compared to net charge-offs of ~~$23.4~~$1.1 million or ~~0.67% of total average loans and leases, on an annualized basis,~~0.03% for the three months ended June 30, ~~2020.~~2021. Net ~~charge-offs~~recoveries in our commercial lending portfolio were ~~nil and $16.9~~$0.1 million for the three months ended June 30, ~~2021 and 2020, respectively. The decrease in~~2022, compared to net charge-offs ~~in our commercial lending portfolio was primarily due to $16.0 million in charge-offs related to several loans that were adversely impacted by the shut-down~~ of ~~the tourism industry in Hawaii during the three months ended June 30, 2020. Net recoveries in our residential lending portfolio were $0.1 million and~~ nil for the three months ended June 30, ~~2021 and 2020, respectively.~~2021. Net charge-offs in our residential lending portfolio were $0.7 million for the three months ended June 30, 2022, compared to net recoveries of $0.1 million for the three months ended June 30, 2021. Net charge-offs in our consumer lending portfolio were ~~$1.1~~$1.7 million and ~~$6.5~~$1.1 million for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Net charge-offs in our consumer portfolio segment include those related to credit cards, automobile loans, installment loans and small business lines of credit and reflect the inherent risk associated with these loans.

Net charge-offs of loans and leases were $4.9 million or 0.08% of total average loans and leases on an annualized basis, for the six months ended June 30, 2022, compared to $5.7 million or 0.09% of total average loans and leases, on an annualized basis, for the six months ended June 30, ~~2021, compared to $29.5 million or 0.44% of total average loans and leases, on an annualized basis, for the six months ended June 30, 2020.~~2021. Net charge-offs in our commercial lending portfolio were ~~$0.7~~$0.5 million and ~~$16.8~~$0.7 million for the six months ended June 30, 2022 and 2021, ~~and 2020,~~ respectively. ~~The decrease in net~~Net charge-offs in our commercial lending portfolio was primarily due to $16.0 million in charge-offs related to several loans that were adversely impacted by the shut-down of the tourism industry in Hawaii during the six months ended June 30, 2020. Net recoveries in our residential lending portfolio were ~~nil~~$0.7 million and ~~$0.3 million~~nil for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Net charge-offs in our consumer lending portfolio were ~~$5.0~~$3.7 million and ~~$13.0~~$5.0 million for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Net charge-offs in our consumer portfolio segment include those related to credit card, automobile loans, installment loans and small business lines of credit and reflect the inherent risk associated with these loans.

The decrease in the ACL was primarily due to ~~lower expected~~the release of certain qualitative overlays, such as the COVID-19 overlay in the residential portfolio, and continued improvement in credit ~~losses as~~quality during the six months ended June 30, 2022. Additionally, the economic outlook moderately improved with downside risks due to inflation and geo-political instability that could impact credit quality improved during the second quarter of 2021. However, we continued to retain a COVID-19 related overlay as a component of the ACL as Hawaii’s economy continues to be significantly impacted by COVID-19. As noted earlier, a significant number of our customers (primarily individuals and small businesses) have taken advantage of payment deferral programs in assisting them while they may be temporarily unemployed or while their businesses have closed.losses. We will continue to closely monitor the ~~impact of COVID-19 on our tourism industry and the re-opening~~uncertainty of the ~~Hawaii~~ economy ~~under new guidelines. While we have begun to see and may continue to see a gradual improvement in unemployment~~ as ~~local businesses and~~it is recovering from the Hawaii tourism industry continues to reopen in 2021 and the COVID-19 vaccine becomes more widely administered, the timing and extent of the return of air travel and the recovery of the Hawaii tourism industry is highly uncertain and beyond our control.pandemic.

AsAlthough we determine the amount of each component of the ACL separately, the ACL as a whole was considered appropriate by management as of June 30, ~~2021,~~2022 and December 31, 2021. Furthermore, as of June 30, 2022, while the allocation of our ACL to all of our ~~commercial, residential and consumer~~ portfolio segments was lower as compared to December 31, ~~2020,~~2021, the ACL was considered adequate based on our ongoing analysis of estimated expected credit losses, credit risk profiles, current economic outlook, coverage ratios and other relevant factors. We will continue to monitor factors that drive expected credit losses including ~~COVID-19~~the uncertainty of the economy as it is recovering from the pandemic and the impact on ~~the Hawaii economy,~~ local businesses and our ~~customers.~~customers, inflation and geo-political instability. See “Note 4. Allowance for Credit Losses” contained in our unaudited interim consolidated financial statements for more information on the ACL.

~~Table of Contents~~

Goodwill

Goodwill was $995.5 million as of both June 30, ~~2021~~2022 and December 31, ~~2020.~~2021. Our goodwill originated from the acquisition of the Company by BNP Paribas in December of 2001. Goodwill generated in that acquisition was recorded on the balance sheet of the Bank as a result of push down accounting treatment, and remains on our consolidated balance sheets.

The Company’s policy is to assess goodwill for impairment at the reporting unit level on an annual basis or between annual assessments if a triggering event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Impairment is the condition that exists when the carrying amount of a reporting unit exceeds its fair value. There was no impairment in our goodwill for the three and six months ended June 30, ~~2021.~~2022. Future events, including the ongoing impacts of the COVID-19 pandemic, that could cause a significant decline in our expected future cash flows or a significant adverse change in our business or the business climate may necessitate taking charges in future reporting periods related to the impairment of our goodwill.

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Other Assets

Other assets were ~~$592.1~~$822.4 million as of June 30, ~~2021, a decrease~~2022, an increase of ~~$11.3~~$179.2 million or 2%28% from December 31, ~~2020.~~2021. This ~~decrease~~increase was primarily due to a ~~$47.2 million decrease in interest rate swap agreements, partially offset by a $13.1 million increase in municipal advances, a $12.9~~$142.7 million increase in current tax receivables and deferred tax assets, ~~and~~ a ~~$9.4~~$34.7 million increase in prepaid ~~assets.~~assets, a $27.1 million increase in accounts receivables and a $15.4 million increase in municipal advances. This was partially offset by a $45.5 million decrease in interest rate swap agreements.

Deposits

Deposits are the primary funding source for the Bank and are acquired from a broad base of local markets, including both individual and corporate customers. We obtain funds from depositors by offering a range of deposit types, including demand, savings, money market and time.

Table 2827 presents the composition of our deposits as of June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:

Deposits

Table 28

Table 27

June 30,

December 31,

June 30,

December 31,

(dollars in thousands)

2021

2020

2022

2021

U.S.:

Demand

8,589,922

7,522,114

8,667,755

8,498,187

Savings

6,421,053

6,020,075

6,834,744

6,214,566

Money Market

3,920,477

3,337,236

3,812,152

3,751,054

Time

1,903,663

2,348,298

1,469,039

1,587,678

Total Deposits⁽¹⁾

20,835,115

19,227,723

Foreign⁽¹⁾:

Demand

943,127

895,676

Savings

408,441

398,209

Money Market

267,554

282,016

Time

198,642

188,760

Total Deposits⁽²⁾

22,601,454

21,816,146

(1)	Foreign deposits were comprised of Guam and Saipan deposit accounts.

(2)	Public deposits were ~~$1.3~~$1.6 billion as of June 30, ~~2021, a decrease~~2022, an increase of ~~$336.3~~$473.0 million or ~~20%~~42% compared to December 31, ~~2020.~~2021.

Total deposits were ~~$20.8~~$22.6 billion as of June 30, ~~2021,~~2022, an increase of ~~$1.6 billion~~$785.3 million or 8%4% from December 31, ~~2020.~~2021. The increase in deposit balances stemmed primarily from a ~~$1.1 billion~~$541.8 million increase in public savings deposit balances and a $230.9 million increase in non-public demand deposit ~~balances, a $583.2 million increase in non-public money market deposit balances and a $462.8 million increase in non-public savings deposit balances,~~balances. These increases were partially offset by a ~~$444.6~~$108.8 million decrease in total time deposit balances. ~~We increased our liquidity position in anticipation of a surge in funding needs, primarily due to our participation in the PPP.~~

~~Long-term Borrowings~~

Long-term borrowings were $200.0 million as of both June 30, 2021 and December 31, 2020. The Company’s long-term borrowings included $200.0 million in FHLB fixed-rate advances with a weighted average interest rate of 2.73% and maturity dates ranging from 2023 to 2024. Long-term borrowings mature in excess of one year from the unaudited interim consolidated balance sheet date.

As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the ~~available remaining borrowing capacity with the FHLB was $1.8~~Company had $15.6 billion and ~~$2.0~~$14.7 billion, ~~respectively. The FHLB fixed-rate advances and~~respectively, in uninsured deposits.

Table 28 presents the amount of time deposits that were in excess of the FDIC insurance limit, further segregated by time remaining ~~borrowing capacity were secured by residential real estate loan collateral~~until maturity, as of June 30, ~~2021 and December 31, 2020.~~2022:


Uninsured Time Deposits		Table 28
(dollars in thousands)		June 30, 2022
Three months or less	$	239,586
Over three through six months		272,135
Over six through twelve months		476,170
Over twelve months		122,020
Total	$	1,109,911

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Pension and Postretirement Plan Obligations

We have a noncontributory qualified defined benefit pension plan, an unfunded supplemental executive retirement plan (“SERP”), a directors’ retirement plan (a non-qualified pension plan for eligible directors) and a postretirement benefit plan providing life insurance and healthcare benefits that we offer to our directors and employees, as applicable. The noncontributory qualified defined benefit pension plan, the unfunded supplemental executive retirement plan and the directors’ retirement plan are all frozen to new participants. On March 11, 2019, the Company’s board of directors approved an amendment to the SERP to freeze the SERP. As a result of such amendment, effective July 1, 2019, there are no new accruals of benefits, including service accruals. To calculate annual pension costs, we use the following key variables: (1) size of the employee population, length of service and estimated compensation increases; (2) actuarial assumptions and estimates; (3) expected long-term rate of return on plan assets; and (4) discount rate.

Pension and postretirement benefit plan obligations, net of pension plan assets, were ~~$128.1~~$119.2 million as of June 30, ~~2021, an~~2022, a nominal increase ~~of $1.0 million or 1%~~ from December 31, ~~2020.~~2021. This increase was primarily due to net periodic benefit costs for the six months ended June 30, ~~2021~~2022 of ~~$5.2~~$4.2 million, offset by payments of ~~$4.2~~$4.1 million.

See “Note ~~15.~~14. Noninterest Income and Noninterest Expense” contained in our unaudited interim consolidated financial statements for more information on our pension and postretirement benefit plans.

~~Foreign Activities~~

Cross-border outstandings are defined as loans (including accrued interest), acceptances, interest-bearing deposits with other banks, other interest-bearing investments and any other monetary assets which are denominated in dollars or other non-local currency. As of June 30, 2021 and December 31, 2020, there were no aggregate cross-border outstandings in other countries which amounted to 0.75% to 1% of our total consolidated assets. Additionally, there were no cross-border outstandings in excess of 1% of our total consolidated assets as of both June 30, 2021 and December 31, 2020.

Capital

The bank regulators currently use a combination of risk-based ratios and a leverage ratio to evaluate capital adequacy. The Company and the Bank are subject to the federal bank regulators’ final rules implementing Basel III and various provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Capital Rules”).

The Capital Rules, among other things impose a capital measure called CET1, to which most deductions/adjustments to regulatory capital must be made. In addition, the Capital Rules specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain specified requirements.

Under the Capital Rules, the minimum capital ratios are as follows:

●

4.5% CET1 capital to risk-weighted assets,

●

6.0% Tier 1 capital (that is, CET1 capital plus Additional Tier 1 capital) to risk-weighted assets,

●

8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets, and

●

4.0% Tier 1 capital to average quarterly assets.

The Capital Rules also require a 2.5% capital conservation buffer designed to absorb losses during periods of economic stress. The capital conservation buffer is composed entirely of CET1, on top of these minimum risk weighted asset ratios, effectively resulting in minimum ratios of (i) 7% CET1 to risk-weighted assets, (ii) 8.5% Tier 1 capital to risk-weighted assets, and (iii) 10.5% total capital to risk-weighted assets.

As of June 30, ~~2021,~~2022, the Company’s capital levels remained characterized as “well capitalized” under the Capital Rules. Our regulatory capital ratios, calculated in accordance with the Capital Rules, are presented in Table 29 below. There have been no conditions or events since June 30, ~~2021~~2022 that management believes have changed either the Company’s or the Bank’s capital classifications. CET1 was ~~12.76%~~11.98% as of June 30, ~~2021, an increase~~2022, a decrease of 2926 basis points from December 31, ~~2020.~~2021. The ~~increase~~decrease in CET1 was primarily due to loan growth and the dividends declared and paid to the Company’s stockholders, partially offset by earnings for the six months ended June 30, ~~2021, including the $35.0 million negative Provision, partially offset by the dividends declared and paid to the Company’s stockholders.~~2022.

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Regulatory Capital					Table 29						Table 29

	June 30,			December 31,			June 30,			December 31,
(dollars in thousands)	2021			2020			2022			2021
Stockholders' Equity	$	2,731,341		$	2,744,104		$	2,252,611		$	2,656,912
Less:
Goodwill		995,492			995,492			995,492			995,492
Accumulated other comprehensive (loss) income, net		(29,702)			31,604
Accumulated other comprehensive loss, net								(571,457)			(121,693)
Common Equity Tier 1 Capital and Tier 1 Capital	$	1,765,551		$	1,717,008		$	1,828,576		$	1,783,113
Add:
Qualifying allowance for credit losses and reserve for unfunded commitments		173,278			172,950			177,900			182,167
Total Capital	$	1,938,829		$	1,889,958		$	2,006,476		$	1,965,280
Risk-Weighted Assets	$	13,837,108		$	13,769,885		$	15,267,627		$	14,567,961

Key Regulatory Capital Ratios
Common Equity Tier 1 Capital Ratio		12.76	%		12.47	%		11.98	%		12.24	%
Tier 1 Capital Ratio		12.76	%		12.47	%		11.98	%		12.24	%
Total Capital Ratio		14.01	%		13.73	%		13.14	%		13.49	%
Tier 1 Leverage Ratio		7.68	%		8.00	%		7.54	%		7.24	%

In ~~February 2021,~~January 2022, the Company announced a stock repurchase program for up to $75.0 million of its outstanding common stock during ~~2021.~~2022. As of June 30, ~~2021, $43.1~~2022, $68.0 million remained of the ~~$75~~$75.0 million total repurchase amount authorized under the stock repurchase program for ~~2021.~~2022. The timing and amount of stock repurchases are influenced by various internal and external factors.

In July ~~2021,~~2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.26 per share on our outstanding shares. The dividend will be paid on September ~~3, 2021~~2, 2022 to shareholders of record at the close of business on August ~~23, 2021.~~22, 2022.

~~Off-Balance Sheet Arrangements and Guarantees~~

~~Off-Balance Sheet Arrangements~~

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

~~Guarantees~~

~~Table of Contents~~

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 to determine if a contractually required repurchase event has occurred. We manage the risk associated with potential repurchases or other forms of settlement through our underwriting and quality assurance practices and by servicing mortgage loans to meet investor and secondary market standards. For the six months ended June 30, 2021, there were two residential mortgage loan repurchases totaling $0.6 million and there were no pending repurchase requests.

In addition to servicing loans in our portfolio, substantially all of the loans we sell to investors are sold with servicing rights retained. We also service loans originated by other mortgage loan originators. As servicer, our 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 loan modifications or short sales. Each agreement under which we act 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 we commit a material breach of obligations as servicer, we 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. For the six months ended June 30, 2021, we had no repurchase requests related to loan servicing activities, nor were there any pending repurchase requests as of June 30, 2021.

Although to-date repurchase requests related to representation and warranty provisions and servicing activities have been limited, it is possible that requests to repurchase mortgage loans may increase in frequency as investors more aggressively pursue all means of recovering losses on their purchased loans. However, as of June 30, 2021, management believes that this exposure is not material due to the historical level of repurchase requests and loss trends and thus has not established a liability for losses related to mortgage loan repurchases. As of June 30, 2021, 97% of our residential mortgage loans serviced for investors were current. We maintain ongoing communications with investors and continue to evaluate this exposure by monitoring the level and number of repurchase requests as well as the delinquency rates in loans sold to investors.

~~Contractual Obligations~~

~~Our contractual obligations have not changed materially since previously reported as of December 31, 2020.~~

Future Application of Accounting Pronouncements

For a discussion of the expected impact of accounting pronouncements recently issued but not adopted by us as of June 30, ~~2021,~~2022, see “Note 1. Organization and Basis of Presentation — Recent Accounting Pronouncements” to the unaudited interim consolidated financial statements for more information.

Risk Governance and Quantitative and Qualitative Disclosures About Market Risk

Managing risk is an essential part of successfully operating our business. Management believes that the most prominent risk exposures for the Company are credit risk, market risk, liquidity risk management, capital management and operational risk. See “Analysis of Financial Condition — ~~Liquidity”~~Liquidity and Capital Resources” and “—Capital” sections of this MD&A for further discussions of liquidity risk management and capital management, respectively.

~~Table of Contents~~

Credit Risk

Credit risk is the risk that borrowers or counterparties will be unable or unwilling to repay their obligations in accordance with the underlying contractual terms. We manage and control credit risk in the loan and lease portfolio by adhering to well-defined underwriting criteria and account administration standards established by management. Written credit policies document underwriting standards, approval levels, exposure limits and other limits or standards deemed necessary and prudent. Portfolio diversification at the obligor, industry, product, and/or geographic location levels is actively managed to mitigate concentration risk. In addition, credit risk management includes an independent credit review process that assesses compliance with commercial, real estate and consumer credit policies, risk ratings and other critical credit information. In addition to implementing risk management practices that are based upon established and sound lending practices, we adhere to sound credit principles. We understand and evaluate our customers’ borrowing needs and capacity to repay, in conjunction with their character and history.

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Management has identified three categories of loans that we use to develop our systematic methodology to determine the ACL: commercial, residential and consumer.

Commercial lending is further categorized into four distinct classes based on characteristics relating to the borrower, transaction and collateral. These classes are: commercial and industrial, commercial real estate, construction and lease financing. Commercial and industrial loans are primarily for the purpose of financing equipment acquisition, expansion, working capital and other general business purposes by medium to larger Hawaii based corporations, as well as U.S. mainland and international companies. Commercial and industrial loans are typically secured by non-real estate assets whereby the collateral is trading assets, enterprise value or inventory. As with many of our customers, our commercial and industrial loan customers are heavily dependent on tourism, government expenditures and real estate values. Commercial real estate loans are secured by real estate, including but not limited to structures and facilities to support activities designated as retail, health care, general office space, warehouse and industrial space. Our Bank’s underwriting policy generally requires that net cash flows from the property be sufficient to service the debt while still maintaining an appropriate amount of reserves. Commercial real estate loans in Hawaii are characterized by having a limited supply of real estate at commercially attractive locations, long delivery time frames for development and high interest rate sensitivity. Our construction lending portfolio consists primarily of land loans, single family and condominium development loans. Financing of construction loans is subject to a high degree of credit risk given the long delivery time frames for such projects. Construction lending activities are underwritten on a project financing basis whereby the cash flows or lease rents from the underlying real estate collateral or the sale of the finished inventory is the primary source of repayment. Market feasibility analysis is typically performed by assessing market comparables, market conditions and demand in the specific lending area and general community. We require presales of finished inventory prior to loan funding. However, because this analysis is typically performed on a forward looking basis, real estate construction projects typically present a higher risk profile in our lending activities. Lease financing activities include commercial single investor leases and leveraged leases used to purchase items ranging from computer equipment to transportation equipment. Underwriting of new leasing arrangements typically includes analyzing customer cash flows, evaluating secondary sources of repayment, such as the value of the leased asset, the guarantors’ net cash flows as well as other credit enhancements provided by the lessee.

Residential lending is further categorized into the following classes: residential mortgages (loans secured by 1-4 family residential properties and home equity loans) and home equity lines of credit. Our Bank’s underwriting standards typically require LTV ratios of not more than 80%, although higher levels are permitted with accompanying mortgage insurance. First mortgage loans secured by residential properties generally carry a moderate level of credit risk, with an average loan size of approximately $368,000. Residential mortgage loan production is added to our loan portfolio or is sold in the secondary market, based on management’s evaluation of our liquidity, capital and loan portfolio mix as well as market conditions. Changes in interest rates, the economic environment and other market factors have impacted, and will likely continue to impact, the marketability and value of collateral and the financial condition of our borrowers which impacts the level of credit risk inherent in this portfolio, although we remain in a supply constrained housing environment in Hawaii. Geographic concentrations exist for this portfolio as nearly all residential mortgage loans and home equity lines of credit are for residences located in Hawaii, Guam or Saipan. These island locales are susceptible to a wide array of potential natural disasters including, but not limited to, hurricanes, floods, tsunamis and earthquakes. We offer home equity lines of credit with variable rates; fixed rate lock options may be available post-closing. All lines are underwritten at 2% over the fully indexed rate. Our procedures for underwriting home equity lines of credit include an assessment of an applicant’s overall financial capacity and repayment ability. Decisions are primarily based on repayment ability via debt-to-income ratios, LTV ratios and an evaluation of credit history.

~~Table of Contents~~

Consumer lending is further categorized into the following classes of loans: credit cards, automobile loans and other consumer-related installment loans. Consumer loans are either unsecured or secured by the borrower’s personal assets. The average loan size is generally small and risk is diversified among many borrowers. We offer a wide array of credit cards for business and personal use. In general, our customers are attracted to our credit card offerings on the basis of price, credit limit, reward programs and other product features. Credit card underwriting decisions are generally based on repayment ability of our borrower via DTI ratios, credit bureau information, including payment history, debt burden and credit scores, such as FICO, and analysis of financial capacity. Automobile lending activities include loans and leases secured by new or used automobiles. We originate the majority of our automobile loans and leases on an indirect basis through selected dealerships. Our procedures for underwriting automobile loans include an assessment of an applicant’s overall financial capacity and repayment ability, credit history and the ability to meet existing obligations and payments on the proposed loan or lease. Although an applicant’s creditworthiness is the primary consideration, the underwriting process also includes a comparison of the value of the collateral security to the proposed loan amount. We require borrowers to maintain full coverage automobile insurance on automobile loans and leases, with the Bank listed as either the loss payee or additional insured.

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Installment loans consist of open and closed end facilities for personal and household purchases. We seek to maintain reasonable levels of risk in installment lending by following prudent underwriting guidelines which include an evaluation of personal credit history and cash flow.

In addition to geographic concentration risk, we also monitor our exposure to industry risk. While the Bank, our customers and our results of operations could be adversely impacted by events affecting the tourism industry, we also monitor our other industry exposures, including, but not limited to, our exposures in the oil, gas and energy industries. As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, we did not have material exposures to customers in the oil, gas and energy industries.

Market Risk

Market risk is the potential of loss arising from changes in interest rates, foreign exchange rates, equity prices and commodity prices, including the correlation among these factors and their volatility. When the value of an instrument is tied to such external factors, the holder faces market risk. We are exposed to market risk primarily from interest rate risk, which is defined as the risk of loss of net interest income or net interest margin because of changes in interest rates.

The potential cash flows, sales or replacement value of many of our assets and liabilities, especially those that earn or pay interest, are sensitive to changes in the general level of interest rates. In the banking industry, changes in interest rates can significantly impact earnings and the safety and soundness of an entity.

Interest rate risk arises primarily from our core business activities of extending loans and accepting deposits. This occurs when our interest earning loans and interest-bearing deposits mature or reprice at different times, on a different basis or in unequal amounts. Interest rates may also affect loan demand, credit losses, mortgage origination volume, pre- payment speeds and other items affecting earnings.

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

Market Risk Measurement

We primarily use net interest income simulation analysis to measure and analyze interest rate risk. We run various hypothetical interest rate scenarios and compare these results against a measured base case scenario. Our net interest income simulation analysis incorporates various assumptions, which we believe are reasonable but which may have a significant impact on results. These assumptions include: (1) the timing of changes in interest rates, (2) shifts or rotations in the yield curve, (3) re-pricing characteristics for market rate sensitive instruments on and off-balance sheet, (4) differing sensitivities of financial instruments due to differing underlying rate indices and (5) varying loan prepayment speeds for different interest rate scenarios. Because of limitations inherent in any approach used to measure interest rate risk, simulation results are not intended as a forecast of the actual effect of a change in market interest rates on our results but rather as a means to better plan and execute appropriate asset liability management strategies to manage our interest rate risk.

~~Table of Contents~~

Table 30 presents, for the twelve months subsequent to June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, an estimate of the changes in net interest income that would result from ramps (gradual changes) and shocks (immediate changes) in market interest rates, moving in a parallel fashion over the entire yield curve, relative to the measured base case scenario. Ramp scenarios assume interest rates move gradually in parallel across the yield curve relative to the base case scenario. Shock scenarios assume an immediate and sustained parallel shift in interest rates across the entire yield curve, relative to the base case scenario. The base case scenario assumes that the balance sheet and interest rates are generally unchanged. We evaluate the sensitivity by using a static forecast, where the balance sheets as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 are held constant.

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Net Interest Income Sensitivity Profile - Estimated Percentage Change Over 12 Months		Table 30								Table 30
		Static Forecast				Static Forecast				Static Forecast				Static Forecast
	June 30, 2021				December 31, 2020				June 30, 2022				December 31, 2021
Ramp Change in Interest Rates (basis points)
+100			6.9	%			6.4	%			4.0	%			6.1	%
+50			3.5				3.2				2.0				3.1
(50)			(1.6)				(1.7)				(2.0)				(1.4)
(100)			(2.4)				(2.5)				(4.0)				(2.4)

Immediate Change in Interest Rates (basis points)
+100			13.4	%			12.4	%			7.8	%			11.8	%
+50			6.8				6.3				3.9				6.0
(50)			(3.1)				(3.0)				(4.0)				(2.9)
(100)			(5.0)				(4.4)				(8.3)				(5.7)

The table above shows the effects of a simulation which estimates the effect of a gradual and immediate sustained parallel shift in the yield curve of −100, −50, +50 and +100 basis points in market interest rates over a twelve-month period on our net interest income.

Currently, our interest rate profile is such that we project net interest income will benefit from higher interest rates as our assets would reprice faster and to a greater degree than our liabilities, while in the case of lower interest rates, our assets would reprice downward and to a greater degree than our liabilities.

Under the static balance sheet forecast as of June 30, ~~2021~~2022 our net interest income sensitivity profile is ~~slightly higher~~lower in higher interest rate scenarios compared to similar forecasts as of December 31, ~~2020.~~2021. The sensitivity outcomes described above are primarily due to the ~~impact~~higher rate environment and lower forecasted prepayments of ~~holding a larger federal funds position~~mortgage assets as of June 30, ~~2021~~2022 as compared with December 31, ~~2020. A larger federal funds position has the effect of magnifying the impact of higher interest rate scenarios.~~2021.

The comparisons above provide insight into the potential effects of changes in interest rates on net interest income. The Company believes that its approach to interest rate risk has appropriately considered its susceptibility to both rising and falling rates and has adopted strategies which minimize the impact of such risks.

We also have longer term interest rate risk exposures which may not be appropriately measured by net interest income simulation analysis. We use market value of equity (“MVE”) sensitivity analysis to study the impact of long-term cash flows on earnings and capital. MVE involves discounting present values of all cash flows of on-balance sheet and off-balance sheet items under different interest rate scenarios. The discounted present value of all cash flows represents our MVE. MVE analysis requires modifying the expected cash flows in each interest rate scenario, which will impact the discounted present value. The amount of base case measurement and its sensitivity to shifts in the yield curve allow management to measure longer term repricing option risk in the balance sheet.

~~Table of Contents~~

Limitations of Market Risk Measures

The results of our simulation analyses are hypothetical, and a variety of factors might cause actual results to differ substantially from what is depicted. For example, if the timing and magnitude of interest rate changes differ from those projected, our net interest income might vary significantly. Non parallel yield curve shifts such as a flattening or steepening of the yield curve or changes in interest rate spreads would also cause our net interest income to be different from that depicted. An increasing interest rate environment could reduce projected net interest income if deposits and other short-term liabilities re-price faster than expected or faster than our assets re-price. Actual results could differ from those projected if we grow assets and liabilities faster or slower than estimated, if we experience a net outflow of deposits or if our mix of assets and liabilities otherwise changes. For example, while we maintain relatively high levels of liquidity, a faster than expected withdrawal of deposits out of the bank may cause us to seek higher cost sources of funding. Actual results could also differ from those projected if we experience substantially different prepayment speeds in our loan portfolio than those assumed in the simulation analyses. Finally, these simulation results do not consider all the actions that we may undertake in response to potential or actual changes in interest rates, such as changes to our loan, investment, deposit, funding or hedging strategies.

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Market Risk Governance

We seek to achieve consistent growth in net interest income and capital while managing volatility arising from changes in market interest rates. The objective of our interest rate risk management process is to increase net interest income while operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity.

To manage the impact on net interest income, we manage our exposure to changes in interest rates through our asset and liability management activities within guidelines established by our ALCO and approved by our board of directors. The ALCO has the responsibility for approving and ensuring compliance with the ALCO management policies, including interest rate risk exposures. The objective of our interest rate risk management process is to maximize net interest income while operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity.

Through review and oversight by the ALCO, we attempt to engage in strategies that neutralize interest rate risk as much as possible. Our use of derivative financial instruments, as detailed in “Note ~~11.~~10. Derivative Financial Instruments” to the unaudited interim consolidated financial statements, has generally been limited. This is due to natural on balance sheet hedges arising out of offsetting interest rate exposures from loans and investment securities with deposits and other interest-bearing liabilities. In particular, the investment securities portfolio is utilized to manage the interest rate exposure and sensitivity to within the guidelines and limits established by the ALCO. We utilize natural and offsetting economic hedges in an effort to reduce the need to employ off-balance sheet derivative financial instruments to hedge interest rate risk exposures. Expected movements in interest rates are also considered in managing interest rate risk. Thus, as interest rates change, we may use different techniques to manage interest rate risk.

Management uses the results of its various simulation analyses to formulate strategies to achieve a desired risk profile within the parameters of our capital and liquidity guidelines.

In addition, our business relies upon a large volume of loans, derivative contracts and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR to establish their interest rate and/or value. ~~In 2017, the U.K.~~The United Kingdom’s Financial Conduct Authority, ~~announced that it would no longer compel banks to submit rates for the calculation of LIBOR after 2021. The administrator of~~which regulates LIBOR, has ~~stated it will extend~~announced that publication of the most commonly used U.S. Dollar LIBOR settings will cease to be provided or cease to be representative after June 30, ~~2023 and to cease publishing~~2023. The publication of all other LIBOR settings onceased to be provided or ceased to be representative as of December 31, 2021. The U.S. federal banking agencies issued guidance strongly encouraging banking organizations to cease using the U.S. ~~dollar~~Dollar LIBOR as a reference rate in ~~new~~“new” contracts ~~as soon as practicable and in any event~~ by December 31, ~~2021. It is not possible to know whether~~2021 at the latest. As such, effective December 31, 2021, we have ceased the use of U.S Dollar LIBOR ~~will continue to be viewed~~ as ~~an acceptable market benchmark, what~~a reference rate ~~or rates may become accepted alternatives to LIBOR or what~~on all new contracts. Although the ~~effect of any such changes in views or alternatives may have on the financial markets for LIBOR-linked financial instruments. The~~ full impact of alternatives to LIBOR on the valuations, pricing and operation of our financial instruments is not yet ~~known; however, the primary instruments that may be impacted include loans, securities and derivatives indexed to LIBOR that mature after December 31, 2021. We~~known, we have established a working group, consisting of key stakeholders from throughout the Company, to ~~monitor developments relating~~spearhead the continued transition from LIBOR to alternative reference rates. In the United States, LIBOR-priced transactions and products will transfer to the Secured Overnight Financing Rate (“SOFR”), Prime Rate or other similar indices (collectively, “Alternative Rates”). There are risks inherent with the transition to any Alternative Rate as the rate may behave differently than LIBOR ~~uncertainty~~in reaction to monetary, market and ~~changes and to guide the Bank’s response. This team~~economic events.

Our LIBOR transition plan is ~~currently working~~organized around key work streams, including work to ensure that our technology systems are prepared for the transition, our loan documents that reference LIBOR-based rates have been appropriately amended to reference other methods of interest rate determinations and internal and external stakeholders are apprised of the transition. We have implemented certain SOFR and BSBY conventions and are in the process of developing other products and transaction agreements that are based on reference rates other than LIBOR. To see the recorded investment in our loan and lease portfolio by rate type, refer to Table 15 in the section titled “Loans and Leases” in this MD&A.

For a further discussion of the various risks the Company faces in connection with the expected replacement of LIBOR on its operations, see “Risk Factors—Market Risks—Certain of our businesses, our funding and financial products may be adversely affected by changes or the discontinuance of LIBOR” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022.

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Operational Risk

Operational risk is the risk of loss arising from inadequate or failed processes, people or systems, external events (such as natural disasters), or compliance, reputational or legal matters, including the risk of loss resulting from fraud, litigation and breaches in data security. Operational risk is inherent in all of our business ventures and the management of that risk is important to the achievement of our objectives. We have a framework in place that includes the reporting and assessment of any operational risk events, and the assessment of our mitigating strategies within our key business lines. This framework is implemented through our policies, processes and reporting requirements. We measure and report operational risk using the seven operational risk event types projected by the Basel Committee on Banking Supervision in Basel II: (1) external fraud; (2) internal fraud; (3) employment practices and workplace safety; (4) clients, products and business practices; (5) damage to physical assets; (6) business disruption and system failures; and (7) execution, delivery and process management. Our operational risk review process is also a core part of our assessment of material new products or activities.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Governance and Quantitative and Qualitative Disclosures About Market Risk.”

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company’s management, including the Chief Executive Officer and Interim Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange ~~Act��~~Act”)) as of June 30, ~~2021.~~2022. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Interim Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, the Company’s Chief Executive Officer and Interim Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, ~~2021~~2022.

Changes in Internal Control over Financial Reporting

~~There were no~~On May 31, 2022, the Company successfully converted to its new core systems, including a new digital banking platform, new deposits and loans applications and a new general ledger accounting system. These new system implementations have resulted in certain changes into the Company’s business processes and internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) in the quarter ended June 30, 2022.

Except as set forth above, there were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company operates in a highly regulated environment. From time to time, the Company is party to various litigation matters incidental to the conduct of our business. We are not presently party to any legal proceedings the resolution of which we believe would have a material adverse effect on our business, prospects, financial condition, liquidity, results of operation, cash flows or capital levels.

ITEM 1A. RISK FACTORS

Item 1A of Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, filed with the SEC on February 25, ~~2021~~2022 contain a discussion of our risk factors. Except to the extent that additional factual information disclosed in this Quarterly Report on Form 10-Q relates to such risk factors, there are no material changes from the risk factors as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides certain information with respect to our purchases of shares of the Company’s common stock during the three months ended June 30, ~~2021:~~2022:

Issuer Purchases of Equity Securities

Total Number of

Approximate Dollar

Total Number of

Approximate Dollar

Shares Purchased

Value of Shares

Shares Purchased

Value of Shares

Total Number

Average

as Part of Publicly

that May Yet Be

Total Number

Average

as Part of Publicly

that May Yet Be

of Shares

Price Paid

Announced Plans or

Purchased Under the

of Shares

Price Paid

Announced Plans or

Purchased Under the

Period

Purchased¹

per Share

Programs²

Plans or Programs²

Purchased¹

per Share

Programs²

Plans or Programs²

April 1, 2021 through April 30, 2021

294,423

27.45

294,423

57,374,434

May 1, 2021 through May 31, 2021

223,390

28.05

206,000

51,581,319

June 1, 2021 through June 30, 2021

299,424

28.42

299,424

43,071,663

April 1, 2022 through April 30, 2022

75,000,000

May 1, 2022 through May 31, 2022

35,817

25.31

25,500

74,357,864

June 1, 2022 through June 30, 2022

267,716

23.99

265,058

68,000,019

Total

817,237

27.97

799,847

303,533

24.15

290,558

(1)	Includes ~~17,390~~12,975 shares acquired from employees to satisfy income tax withholding requirements in connection with vested share awards during the three months ended June 30, ~~2021.~~2022.

(2)

In ~~February 2021,~~January 2022, the Company announced a stock repurchase program for up to $75 million of its outstanding common stock during ~~2021.~~2022. As of June 30, ~~2021, $43.1~~2022, $68.0 million remained of the $75 million total repurchase amount authorized under the stock repurchase program for ~~2021.~~2022. The timing and amount of stock repurchases are influenced by various internal and external factors.

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ITEM 6. EXHIBITS

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

Exhibit Index


Exhibit Number

~~10.1~~	First Hawaiian, Inc. Amended & Restated 2016 Non-Employee Director Plan (incorporated by reference to Annex B of the Registrant’s Definitive Proxy Statement on Schedule 14A filed by First Hawaiian, Inc. on March 12, 2021 (File No. 001-14585))

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

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

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

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

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

101.SCH	Inline XBRL Taxonomy Extension Schema Document

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document

104	Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101)

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Signatures

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


Date: August ~~2, 2021~~8, 2022		First Hawaiian, Inc.



	By:	/s/ Robert S. Harrison
		Robert S. Harrison Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)



	By:	/s/ ~~Ravi Mallela~~Ralph M. Mesick
		~~Ravi Mallela~~Ralph M. Mesick Vice Chairman, Chief Risk Officer and Interim Chief Financial Officer ~~(Principal Financial Officer and Principal Accounting Officer)~~

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	Principal
(dollars in thousands)	Payments
2021	$	—
2022		—
2023⁽¹⁾		100,000
2024⁽²⁾		100,000
2025		—
Total	$	200,000


(dollars in thousands)	Level 1		Level 2		Level 3
June 30, 2021
Collateral-dependent loans	$	—	$	—	$	—
December 31, 2020
Collateral-dependent loans	$	—	$	—	$	1,840