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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 ~~September 30, 2023~~March 31, 2024

☐ 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: ~~127,612,083~~127,841,908 shares of Common Stock, par value $0.01 per share, were outstanding as of ~~October 31, 2023.~~April 30, 2024.

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 nine~~ months ended ~~September 30,~~March 31, 2024 and 2023 ~~and 2022~~		2
		Consolidated Statements of Comprehensive Income ~~(Loss)~~ for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2024 and 2023 ~~and 2022~~		3
		Consolidated Balance Sheets as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023		4
		Consolidated Statements of Stockholders' Equity for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2024 and 2023 ~~and 2022~~		5
		Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2024 and 2023 ~~and 2022~~		76
		Notes to Consolidated Financial Statements (unaudited)		87
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		5346
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		9580
	Item 4.	Controls and Procedures		9580
Part II Other Information				9580
	Item 1.	Legal Proceedings		9580
	Item 1A.	Risk Factors		9580
	Item 5.	Other Information		9580
	Item 6.	Exhibits		9681
	Exhibit Index			9681
	Signatures			9782

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FIRST HAWAIIAN, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
(dollars in thousands, except per share amounts)	2023		2022		2023		2022		2024		2023
Interest income
Loans and lease financing	$	194,098	$	134,646	$	551,777	$	350,294	$	199,844	$	172,339
Available-for-sale investment securities		18,426		19,644		55,208		68,394		14,546		18,688
Held-to-maturity investment securities		18,271		17,950		55,510		36,239		17,793		18,957
Other		9,004		4,150		20,054		7,828		12,769		3,561
Total interest income		239,799		176,390		682,549		462,755		244,952		213,545
Interest expense
Deposits		74,651		13,653		176,006		20,999		84,143		43,284
Short-term and long-term borrowings		6,838		1		20,057		1		5,953		2,563
Other		1,162		—		2,152		—		429		451
Total interest expense		82,651		13,654		198,215		21,000		90,525		46,298
Net interest income		157,148		162,736		484,334		441,755		154,427		167,247
Provision for credit losses		7,500		3,183		21,300		(1,564)		6,300		8,800
Net interest income after provision for credit losses		149,648		159,553		463,034		443,319		148,127		158,447
Noninterest income
Service charges on deposit accounts		7,524		7,089		22,001		21,433		7,546		7,231
Credit and debit card fees		15,748		17,746		47,507		49,652		16,173		16,298
Other service charges and fees		9,546		9,179		27,764		27,851		9,904		9,162
Trust and investment services income		9,742		9,800		28,804		27,442		10,354		9,614
Bank-owned life insurance		1,872		(341)		10,263		(1,617)		4,286		5,120
Other		1,665		2,384		6,129		6,613		3,108		1,598
Total noninterest income		46,097		45,857		142,468		131,374		51,371		49,023
Noninterest expense
Salaries and employee benefits		55,937		51,372		169,873		149,500		59,262		56,032
Contracted services and professional fees		16,393		16,625		50,204		52,389		15,739		16,313
Occupancy		6,711		8,115		22,047		22,859		6,941		7,782
Equipment		11,826		10,791		32,562		24,522		13,413		9,736
Regulatory assessment and fees		4,149		2,487		11,661		7,012		8,120		3,836
Advertising and marketing		2,289		1,902		6,174		5,924		2,612		1,994
Card rewards program		8,358		8,141		24,124		22,309		8,508		8,085
Other		13,720		13,899		42,186		42,034		14,218		14,789
Total noninterest expense		119,383		113,332		358,831		326,549		128,813		118,567
Income before provision for income taxes		76,362		92,078		246,671		248,144		70,685		88,903
Provision for income taxes		18,141		23,060		59,190		62,047		16,465		22,085
Net income	$	58,221	$	69,018	$	187,481	$	186,097	$	54,220	$	66,818
Basic earnings per share	$	0.46	$	0.54	$	1.47	$	1.46	$	0.42	$	0.52
Diluted earnings per share	$	0.46	$	0.54	$	1.47	$	1.45	$	0.42	$	0.52
Basic weighted-average outstanding shares		127,609,860		127,377,713		127,552,255		127,534,746		127,707,354		127,453,820
Diluted weighted-average outstanding shares		127,936,440		127,796,617		127,897,829		127,996,672		128,217,689		128,033,812

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				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
(dollars in thousands)	2023		2022		2023		2022		2024		2023
Net income	$	58,221	$	69,018	$	187,481	$	186,097	$	54,220	$	66,818
Other comprehensive loss, net of tax:
Other comprehensive income, net of tax:
Net change in investment securities		(36,985)		(84,164)		(10,746)		(531,086)		5,667		26,944
Net change in cash flow derivative hedges		990		(3,135)		1,269		(5,977)		763		631
Other comprehensive loss		(35,995)		(87,299)		(9,477)		(537,063)
Total comprehensive income (loss)	$	22,226	$	(18,281)	$	178,004	$	(350,966)
Other comprehensive income										6,430		27,575
Total comprehensive income									$	60,650	$	94,393

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)



	September 30,		December 31,		March 31,		December 31,
(dollars in thousands, except share amount)	2023		2022		2024		2023
Assets
Cash and due from banks	$	246,028	$	297,502	$	202,121	$	185,015
Interest-bearing deposits in other banks		967,400		229,122		1,072,145		1,554,882
Investment securities:
Available-for-sale, at fair value (amortized cost: $3,172,031 as of September 30, 2023 and $3,549,599 as of December 31, 2022)		2,722,704		3,151,133
Held-to-maturity, at amortized cost (fair value: $3,433,029 as of September 30, 2023 and $3,814,822 as of December 31, 2022)		4,104,114		4,320,639
Available-for-sale, at fair value (amortized cost: $2,466,109 as of March 31, 2024 and $2,558,675 as of December 31, 2023)						2,159,338		2,255,336
Held-to-maturity, at amortized cost (fair value: $3,470,710 as of March 31, 2024 and $3,574,856 as of December 31, 2023)						3,988,011		4,041,449
Loans held for sale						—		190
Loans and leases		14,332,335		14,092,012		14,320,208		14,353,497
Less: allowance for credit losses		154,795		143,900		159,836		156,533
Net loans and leases		14,177,540		13,948,112		14,160,372		14,196,964

Premises and equipment, net		277,805		280,355		281,181		281,461
Other real estate owned and repossessed personal property		—		91
Accrued interest receivable		84,327		78,194		85,715		84,417
Bank-owned life insurance		477,698		473,067		484,193		479,907
Goodwill		995,492		995,492		995,492		995,492
Mortgage servicing rights		5,855		6,562		5,533		5,699
Other assets		853,561		796,954		845,085		845,662
Total assets	$	24,912,524	$	24,577,223	$	24,279,186	$	24,926,474
Liabilities and Stockholders' Equity
Deposits:
Interest-bearing	$	13,612,493	$	12,824,383	$	13,620,928	$	13,749,095
Noninterest-bearing		7,898,996		8,864,646		7,048,553		7,583,562
Total deposits		21,511,489		21,689,029		20,669,481		21,332,657
Short-term borrowings		500,000		75,000		500,000		500,000
Retirement benefits payable		99,685		102,577		102,242		103,285
Other liabilities		450,341		441,612		493,702		504,466
Total liabilities		22,561,515		22,308,218		21,765,425		22,440,408

Commitments and contingent liabilities (Note 12)

Stockholders' equity
Common stock ($0.01 par value; authorized 300,000,000 shares; issued/outstanding: 141,330,663 / 127,609,934 as of September 30, 2023; issued/outstanding: 140,963,918 / 127,363,327 as of December 31, 2022)		1,413		1,410
Common stock ($0.01 par value; authorized 300,000,000 shares; issued/outstanding: 141,687,612 / 127,841,908 as of March 31, 2024; issued/outstanding: 141,340,539 / 127,618,761 as of December 31, 2023)						1,417		1,413
Additional paid-in capital		2,545,659		2,538,336		2,551,488		2,548,250
Retained earnings		823,895		736,544		858,494		837,859
Accumulated other comprehensive loss, net		(648,731)		(639,254)		(523,780)		(530,210)
Treasury stock (13,720,729 shares as of September 30, 2023 and 13,600,591 shares as of December 31, 2022)		(371,227)		(368,031)
Treasury stock (13,845,704 shares as of March 31, 2024 and 13,721,778 shares as of December 31, 2023)						(373,858)		(371,246)
Total stockholders' equity		2,351,009		2,269,005		2,513,761		2,486,066
Total liabilities and stockholders' equity	$	24,912,524	$	24,577,223	$	24,279,186	$	24,926,474

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 September 30, 2023													Three Months Ended March 31, 2024
								Accumulated													Accumulated
				Additional				Other									Additional				Other
	Common Stock			Paid-In		Retained		Comprehensive		Treasury				Common Stock			Paid-In		Retained		Comprehensive		Treasury
(dollars in thousands, except share amounts)	Shares	Amount		Capital		Earnings		Loss		Stock		Total		Shares	Amount		Capital		Earnings		Income (Loss)		Stock		Total
Balance as of June 30, 2023	127,608,037	$	1,413	$	2,543,226	$	799,045	$	(612,736)	$	(371,210)	$	2,359,738
Balance as of December 31, 2023														127,618,761	$	1,413	$	2,548,250	$	837,859	$	(530,210)	$	(371,246)	$	2,486,066
Net income	—		—		—		58,221		—		—		58,221	—		—		—		54,220		—		—		54,220
Cash dividends declared ($0.26 per share)	—		—		—		(33,178)		—		—		(33,178)	—		—		—		(33,186)		—		—		(33,186)
Equity-based awards	1,897		—		2,433		(193)		—		(17)		2,223	223,147		4		3,238		(399)		—		(2,612)		231
Other comprehensive loss, net of tax	—		—		—		—		(35,995)		—		(35,995)
Balance as of September 30, 2023	127,609,934	$	1,413	$	2,545,659	$	823,895	$	(648,731)	$	(371,227)	$	2,351,009
Other comprehensive income, net of tax														—		—		—		—		6,430		—		6,430
Balance as of March 31, 2024														127,841,908	$	1,417	$	2,551,488	$	858,494	$	(523,780)	$	(373,858)	$	2,513,761

Nine Months Ended September 30, 2023

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, 2022

127,363,327

$
1,410

$
2,538,336

$
736,544

$
(639,254)

$
(368,031)

$
2,269,005
Net income

—

—

—

187,481

—

—

187,481
Cash dividends declared ($0.78 per share)

—

—

—

(99,468)

—

—

(99,468)
Common stock issued under Employee Stock Purchase Plan

9,548

—

163

—

—

—

163
Equity-based awards

237,059

3

7,160

(662)

—

(3,196)

3,305
Other comprehensive loss, net of tax

—

—

—

—

(9,477)

—

(9,477)
Balance as of September 30, 2023

127,609,934

$
1,413

$
2,545,659

$
823,895

$
(648,731)

$
(371,227)

$
2,351,009

~~Table of Contents~~

~~FIRST HAWAIIAN, INC. AND SUBSIDIARY~~

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

~~(Unaudited)~~

Three Months Ended September 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 June 30, 2022

127,451,087

$
1,409

$
2,533,407

$
654,777

$
(571,457)

$
(365,525)

$
2,252,611
Net income

—

—

—

69,018

—

—

69,018
Cash dividends declared ($0.26 per share)

—

—

—

(33,112)

—

—

(33,112)
Common stock issued under Employee Stock Purchase Plan

10,411

—

224

—

—

—

224
Equity-based awards

2,809

1

1,970

(250)

—

(34)

1,687
Common stock repurchased

(106,627)

—

—

—

—

(2,478)

(2,478)
Other comprehensive loss, net of tax

—

—

—

—

(87,299)

—

(87,299)
Balance as of September 30, 2022

127,357,680

$
1,410

$
2,535,601

$
690,433

$
(658,756)

$
(368,037)

$
2,200,651


	Nine Months Ended September 30, 2022													Three Months Ended March 31, 2023
								Accumulated													Accumulated
				Additional				Other									Additional				Other
	Common Stock			Paid-In		Retained		Comprehensive		Treasury				Common Stock			Paid-In		Retained		Comprehensive		Treasury
(dollars in thousands, except share amounts)	Shares	Amount		Capital		Earnings		Loss		Stock		Total		Shares	Amount		Capital		Earnings		Income (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
Balance as of December 31, 2022														127,363,327	$	1,410	$	2,538,336	$	736,544	$	(639,254)	$	(368,031)	$	2,269,005
Net income	—		—		—		186,097		—		—		186,097	—		—		—		66,818		—		—		66,818
Cash dividends declared ($0.78 per share)	—		—		—		(99,475)		—		—		(99,475)
Common stock issued under Employee Stock Purchase Plan	10,411		—		224		—		—		—		224
Cash dividends declared ($0.26 per share)														—		—		—		(33,114)		—		—		(33,114)
Equity-based awards	241,982		4		7,714		(723)		—		(3,561)		3,434	210,353		3		2,317		(457)		—		(3,135)		(1,272)
Common stock repurchased	(397,185)		—		—		—		—		(9,478)		(9,478)
Other comprehensive loss, net of tax	—		—		—		—		(537,063)		—		(537,063)
Balance as of September 30, 2022	127,357,680	$	1,410	$	2,535,601	$	690,433	$	(658,756)	$	(368,037)	$	2,200,651
Other comprehensive income, net of tax														—		—		—		—		27,575		—		27,575
Balance as of March 31, 2023														127,573,680	$	1,413	$	2,540,653	$	769,791	$	(611,679)	$	(371,166)	$	2,329,012

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 CASH FLOWS

(Unaudited)


	Nine Months Ended				Three Months Ended
	September 30,				March 31,
(dollars in thousands)	2023		2022		2024		2023
Cash flows from operating activities
Net income	$	187,481	$	186,097	$	54,220	$	66,818
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (benefit) for credit losses		21,300		(1,564)
Provision for credit losses						6,300		8,800
Depreciation, amortization and accretion, net		32,425		44,142		9,537		10,827
Deferred income tax (benefit) provision		(13,322)		13,807
Deferred income tax provision						7,238		4,330
Stock-based compensation		7,163		7,718		3,242		2,320
Other losses		1,243		2,780
Gain on property insurance proceeds						(2,202)		—
Other (gains) losses						(7)		1,223
Originations of loans held for sale		(11,483)		(14,243)		(8,624)		(1,468)
Proceeds from sales of loans held for sale		12,613		13,452		8,791		1,447
Change in assets and liabilities:
Net decrease in other assets		20,495		7,348
Net (decrease) increase in other liabilities		(44,095)		62,054
Net decrease (increase) in other assets						11,782		(9,536)
Net decrease in other liabilities						(23,637)		(2,128)
Net cash provided by operating activities		213,820		321,591		66,640		82,633
Cash flows from investing activities
Available-for-sale securities:
Proceeds from maturities and principal repayments		345,798		752,306		81,385		119,692
Proceeds from calls and sales		25,236		1,080		10,000		—
Purchases		—		(938,268)
Held-to-maturity securities:
Proceeds from maturities and principal repayments		238,722		254,157		62,525		68,854
Proceeds from calls		7,950		395		345		220
Purchases		—		(79,470)
Other investments:
Proceeds from sales		78,746		5,496		1,234		13,984
Purchases		(102,639)		(29,514)		(12,618)		(42,251)
Loans:
Net increase in loans and leases resulting from originations and principal repayments		(214,539)		(521,025)
Net decrease (increase) in loans and leases resulting from originations and principal repayments						41,387		(88,408)
Purchases of loans		(48,911)		(225,844)		(15,000)		(48,741)
Proceeds from bank-owned life insurance		5,632		—		—		4,932
Proceeds from property insurance						2,202		—
Purchases of premises, equipment and software		(8,283)		(10,747)		(4,861)		(1,555)
Other		313		(2,994)		104		(1,614)
Net cash provided by (used in) investing activities		328,025		(794,428)
Net cash provided by investing activities						166,703		25,113
Cash flows from financing activities
Net (decrease) increase in deposits		(177,540)		275,592
Net decrease in deposits						(663,176)		(407,529)
Net increase in short-term borrowings						—		175,000
Proceeds from long-term borrowings		500,000		—		—		500,000
Net decrease in other short-term borrowings		(75,000)		—
Dividends paid		(99,468)		(99,475)		(33,186)		(33,114)
Stock tendered for payment of withholding taxes		(3,196)		(3,561)		(2,612)		(3,135)
Proceeds from employee stock purchase plan		163		224
Common stock repurchased		—		(9,478)
Net cash provided by financing activities		144,959		163,302
Net increase (decrease) in cash and cash equivalents		686,804		(309,535)
Net cash (used in) provided by financing activities						(698,974)		231,222
Net (decrease) increase in cash and cash equivalents						(465,631)		338,968
Cash and cash equivalents at beginning of period		526,624		1,258,469		1,739,897		526,624
Cash and cash equivalents at end of period	$	1,213,428	$	948,934	$	1,274,266	$	865,592

Supplemental disclosures
Interest paid	$	173,712	$	21,006	$	88,594	$	40,937
Income taxes paid, net of income tax refunds		50,098		23,471		1,755		1,761
Noncash investing and financing activities:
Transfers from loans and leases and other assets to other real estate owned						69		—
Operating lease right-of-use assets obtained in exchange for new lease obligations		3,239		5,603		—		1,306
Transfers to loans and leases from loans held for sale		—		834
Transfers to loans held for sale from loans and leases		1,133		—
Obligation to fund low-income housing partnerships		25,836		3,569		8,223		—
Transfers of securities from available-for-sale to held-to-maturity		—		4,550,748

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

Table of Contents

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, ~~2022.~~2023.

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.

~~Loan Modifications to Borrowers Experiencing Financial Difficulty~~

Loan modifications are assessed by the Company to determine: (1) whether the borrower is experiencing financial difficulty and (2) whether the Company granted the borrower a modification or combination of modifications in the form of one or more of the following modification types: principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay and/or a term extension. If both criteria are met, then the loan modification is subject to additional evaluation for credit losses and enhanced disclosure requirements.

Generally, a non-accrual loan that has been modified with a borrower experiencing financial difficulty remains on non-accrual status for at least six months to demonstrate that the borrower is able to meet the terms of the modified loan. However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period. If the borrower’s ability to meet the revised payment terms is uncertain, the loan remains on non-accrual status.

~~Table of Contents~~

~~Allowance for Credit Losses~~

The allowance for credit losses for loans and leases (the “ACL”) is a valuation account that is deducted from the amortized cost basis of loans and leases to present the net amount expected to be collected from loans and leases. Loans and leases are charged-off against the ACL when management believes the loan or lease balance is deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. The Company’s ACL and the reserve for unfunded commitments under the Current Expected Credit Losses (“CECL”) approach consist of quantitative and qualitative estimates. The Company’s methodology leverages two quantitative models: a one-variable forward-looking macroeconomic model that estimates the impact of management’s economic outlook and a transition probability matrix that estimates expected losses over the long run. The quantitative estimation is overlaid with qualitative adjustments to account for current conditions and forward-looking factors not captured in the quantitative model. Qualitative adjustments that are considered include adjustments for regulatory determinants, model limitations, model maturity, and other current or anticipated events that are not captured in the Company’s historical loss experience.

The Company generally evaluates loans and leases on a collective or pool basis when similar risk characteristics exist. However, loans and leases that do not share similar risk characteristics are evaluated on an individual basis. Such loans and leases evaluated individually are excluded from the collective evaluation. Individually assessed loans are measured for estimated credit loss (“ECL”) based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral, less estimated selling costs, if the loan is collateral-dependent.

Management reviews relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts about the future. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency levels, or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors.

The Company utilizes a Probability of Default (“PD”)/Loss Given Default (“LGD”) framework to estimate the ACL and the reserve for unfunded commitments. The PD represents the percentage expectation to default, measured by assessing loans and leases that migrate to default status (i.e., nonaccrual status, 90 days or more past due, partial or full charge-offs or bankruptcy). LGD is defined as the percentage of the exposure at default (“EAD”) lost at the time of default, net of any recoveries, and will be unique to each of the collateral types securing the Company’s loans. PD and LGD’s are based on past experience of the Company. The ECL on loans and leases is calculated by taking the product of the credit exposure, lifetime default probability (“LDP”) and the LGD.

The ECL model is applied to current credit exposures at the account level, using assumptions calibrated at the portfolio segment level using internal historical loan and lease level data. The Company estimates the default risk of a credit exposure over the remaining life of each account using a transition probability matrix approach which captures both the average rate of up/down-grade and default transitions, as well as withdrawal rates which capture the historical rate of exposure decline due to loan and lease amortization and prepayment. To apply the transition matrices, each credit exposure’s remaining life is split into two time segments. The first time segment is for the reasonable and supportable forecast period over which the transition matrices which are applied have been adjusted to incorporate current and forecasted conditions over that period. Management has determined that using a one-year time horizon for the reasonable and supportable forecast period for all classes of loans and leases is a reasonable forecast horizon given the difficulty in predicting future economic conditions with a high degree of certainty. The second time segment is the reversion period from the end of the reasonable and supportable forecast period to the maturity of the exposure, over which long-run average transition matrices are applied. Management elected to use an immediate reversion to the mean approach. Lifetime loss rates are applied against the amortized cost basis of loans and leases and unfunded commitments to estimate the ACL and the reserve for unfunded commitments, respectively.

On at least a quarterly basis, management convenes the Bank’s forecasting team which is responsible for reviewing the economic forecast model inputs and outputs and approving the resulting economic adjustment. The model uses a one-variable econometric model to produce factors that modify the long-run default rate assumptions used in the CECL model. These factors are applied to calculate the economic adjustment over the Reasonable and Supportable Forecast Period. At the meeting, management is presented with the economic forecast model input and output as well as the resulting economic adjustment. Depending on the current economic conditions, a range of inputs and outputs may be presented, in which case, using judgment, management will select an input and output.

~~Table of Contents~~

The economic forecast framework also allows management to use judgment in selecting the economic model input in cases where management’s outlook diverges from the official forecasts, and to apply qualitative dollar overlays to account for other economic related conditions not captured in the economic forecast model but are expected to potentially impact losses.

The team also reviews other relevant economic variables and economic factors at the time of the meeting that could potentially impact future losses. These materials are presented to the economic forecasting team as they are economic in nature. If determined to be relevant and needing to be considered in the ACL estimate, these risks will be included in the ACL estimate through a qualitative dollar overlay that is determined using either quantitative analysis or qualitative judgment, or a mix of both. These other factors could include inflation indicators, personal income, or visitor arrivals, for example.

At present, the Company has identified three portfolio segments in estimating the ACL: commercial, residential real estate and consumer lending. The Company’s commercial portfolio segment is comprised of four distinct classes: commercial and industrial loans, commercial real estate loans, construction loans and lease financing. The key risk drivers related to this portfolio segment include risk rating, collateral type, and remaining maturity. The Company’s residential real estate portfolio segment is comprised of two distinct classes: residential real estate loans and home equity lines of credit. Specific risk characteristics related to this portfolio include the value of the underlying collateral, credit score and remaining maturity. Finally, the Company’s consumer portfolio segment is not further segmented, but consists primarily of automobile loans, credit cards and other installment loans. Automobile loans constitute the majority of this segment and are monitored using credit scores, collateral values and remaining maturity. The remainder of the consumer portfolio is predominantly unsecured.

Regarding accrued interest receivable, the Company made accounting policy elections to (1) not measure an ACL on accrued interest receivable, (2) write-off accrued interest receivable by reversing interest income and (3) present accrued interest receivable separately from the related financial asset on the balance sheet. Furthermore, regarding collateral-dependent financial assets, the Company elected the practical expedient to use the fair value of collateral at the reporting date when recording the net carrying amount of the asset and determining the ACL for a financial asset for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the Company’s assessment as of the reporting date.

Accounting Standards Adopted in ~~2023~~2024

In March ~~2022,~~2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. ~~2022-01,~~ 2023-01,~~Derivatives and Hedging~~ Leases (Topic ~~815)~~842), ~~Fair Value Hedging –Portfolio Layer Method.~~ Common Control Arrangements.This update clarifies the accounting for leasehold improvements associated with common control leases. Prior to this update, Topic 842 generally required leasehold improvements to have an amortization period consistent with the shorter of the useful life of those improvements or the remaining lease term. This update will require leasehold improvements associated with common control leases to be (1) amortized by the lessee over the useful life of the leasehold improvements to the common control group (regardless of the lease term) as long as the lessee controls the use of the underlying asset (the leased asset) through a lease, and (2) accounted for as a transfer between entities under common control through an adjustment to equity if, and when, the lessee no longer controls the use of the underlying asset. In addition, this update also subjects leasehold improvements to the impairment 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 prepayable360, Property, Plant, 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. Equipment. The Company adopted the provisions of ASU No. ~~2022-01~~2023-01 on January 1, ~~2023,~~2024, and it did not have a material impact on the Company’s consolidated financial statements.

107

Table of Contents

In March ~~2022,~~2023, the FASB issued ASU No. ~~2022-02, Financial Instruments –~~2023-02, Investments—Equity Method and Joint Ventures (Topic 323), Accounting for Investments in Tax Credit ~~Losses (Topic 326),~~ ~~Troubled Debt Restructurings and Vintage Disclosures~~Structures Using the Proportional Amortization Method.. This update ~~eliminates~~expands the population of tax equity investments for which a reporting entity may elect to apply the proportional amortization method (“PAM”). Under legacy guidance, an entity can only elect to apply the PAM to investments in low-income housing tax credit (“LIHTC”) structures. This update permits an entity to make an election to account for tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the PAM if certain conditions are met. An accounting ~~guidance~~policy election is made to apply the PAM on ~~troubled debt restructurings (“TDRs”)~~a tax credit program-by-program basis rather than electing to apply the PAM at the reporting entity level or to individual investments. By applying the PAM, a reporting entity must account for ~~creditors~~the receipt of the investment tax credits using the flow-through method under Topic 740, Income Taxes, even if the entity applies the deferral method for other investment tax credits received. For all tax equity investments accounted for using the PAM, this update also requires the use of the delayed equity contribution guidance. LIHTC investments not accounted for using the PAM will no longer be permitted to use the delayed equity contribution guidance. In addition, LIHTC investments accounted for using the equity method must apply the impairment guidance in Subtopic ~~310-40~~323-10, Investments—Equity Method and ~~amends~~Joint Ventures—Overall. Further, LIHTC investments that are not accounted for using the PAM or the equity method must use the guidance ~~on vintage disclosures to require disclosure of current-period gross charge-offs by year of origination. This ASU also updates the requirements related to~~in Topic 321, Investments—Equity Securities, when accounting for equity investments. In addition, the amendments in this update require specific disclosures that must be applied to all investments that generate income tax credits and other income tax benefits from a tax credit ~~losses under Topic 326~~program for which the entity has elected to apply the PAM, including investments within that elected program that do not meet the conditions to apply the PAM. Such disclosures include the nature of its tax equity investments and ~~adds enhanced disclosures for creditors with respect to loan refinancings~~the effect of such investments and ~~restructurings for borrowers experiencing~~related income tax credits and other income tax benefits on its financial ~~difficulty.~~position and results of operations. The Company adopted the provisions of ASU No. ~~2022-02~~2023-02 on January 1, ~~2023,~~2024, and it did not have a material impact on the Company’s consolidated financial statements. See “Note ~~4. Allowance for Credit Losses”~~5. Other Assets” for required disclosures related to this new guidance.

~~Enactment of the Inflation Reduction Act of 2022~~

On August 16, 2022, the U.S. government enacted the Inflation Reduction Act (IRA) which, among other changes, created a new corporate alternative minimum tax (AMT) based on adjusted financial statement income and imposes a 1% excise tax on corporate stock repurchases. These provisions became effective January 1, 2023. The enactment of the IRA 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~~November 2023, the FASB issued ASU No. ~~2023-01,~~2023-07, ~~Leases~~Segment Reporting (Topic ~~842)~~280), ~~Common Control Arrangements.~~Improvements to Reportable Segment Disclosures. This update ~~clarifies~~improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments will require public entities to disclose significant segment expenses that are regularly provided to the ~~accounting~~chief operating decision maker (“CODM”) and included within segment profit or loss, an amount and description of its composition for ~~leasehold improvements associated with common control leases. Prior~~other segment items to ~~this update, Topic 842 generally required leasehold improvements~~reconcile to ~~have an amortization period consistent with~~segment profit or loss, and the ~~shorter~~title and position of the ~~useful life~~entity’s CODM. In addition, the amendments clarify circumstances in which an entity can disclose multiple measures of ~~those improvements~~segment profit or ~~the remaining lease term. This update will require leasehold improvements associated~~loss, provide new segment disclosure requirements for entities with ~~common control leases to be (1) amortized by the lessee over the useful life~~a single reportable segment, and expand interim disclosure requirements. The purpose of the ~~leasehold improvements~~amendments is to ~~the common control group (regardless of the lease term) as long as the lessee controls the use of the underlying asset (the leased asset) through a lease,~~enable investors to better understand an entity’s overall performance and (2) accounted for as a transfer between entities under common control through an adjustment to equity if, and when, the lessee no longer controls the use of the underlying asset. In addition, this update also subjects leasehold improvements to the impairment guidance in Topic 360, ~~Property, Plant, and Equipment.~~ ~~This update is~~assess potential future cash flows. The amendments are effective for ~~fiscal years~~the Company’s annual periods beginning ~~after December 15, 2023, including~~January 1, 2024 and interim periods ~~within those fiscal years. Early~~beginning January 1, 2025, with early adoption permitted, and requires retrospective application to all prior periods presented in the financial statements. The Company is ~~permitted. The adoption~~in the process of ~~ASU No. 2023-01 is not expected to~~evaluating the impact that this new guidance may have ~~a material impact~~ on the Company’s consolidated financial statements.

In ~~March~~December 2023, the FASB issued ASU No. ~~2023-02,~~2023-09, ~~Investments—Equity Method and Joint Ventures~~Income Taxes (Topic ~~323)~~740), ~~Accounting for Investments in~~Improvements to Income Tax ~~Credit Structures Using the Proportional Amortization Method.~~Disclosures. This update ~~expands~~includes amendments that further enhance the ~~population~~transparency and decision usefulness of tax equity investments for which a reporting entity may elect to apply the proportional amortization method (“PAM”). Under current guidance, an entity can only elect to apply the PAM to investments in low-income housing tax credit (“LIHTC”) structures. This update permits an entity to make an election to account for tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the PAM if certain conditions are met. An accounting policy election is made to apply the PAM on a tax credit program-by-program basis rather than electing to apply the PAM at the reporting entity level or to individual investments. By applying the PAM, a reporting entity must account for the receipt of the investment tax credits using the flow-through method under Topic 740, ~~Income Taxes~~, even if the entity applies the deferral method for other investment tax credits received. For all tax equity investments accounted for using the PAM, this update also requires the use of the delayed equity contribution guidance. LIHTC investments not accounted for using the PAM will no longer be permitted to use the delayed equity contribution guidance. In addition, LIHTC investments accounted for using the equity method must apply the impairment guidance in Subtopic 323-10, ~~Investments—Equity Method~~disclosures, primarily through standardizing and ~~Joint Ventures—Overall~~~~. Further, LIHTC investments that are not accounted for using the PAM or the equity method must use the guidance in Topic 321,~~ ~~Investments—Equity Securities~~~~, when accounting for equity investments. In addition, the amendments in this update require specific disclosures that must be applied to all investments that generate~~disaggregating rate reconciliation categories and income tax credits and other income tax benefits from a tax credit program for which the entity has elected to apply the PAM, including investments within that elected program that do not meet the conditions to apply the PAM. Such disclosures include the nature of its tax equity investments and the effect of such investments and related income tax credits and other income tax benefits on its financial position and results of operations.taxes paid by jurisdiction. This update is effective for ~~fiscal years~~the Company’s annual periods beginning ~~after December 15, 2023, including interim periods within those fiscal years.~~January 1, 2025. Early adoption is permitted. The ~~adoption~~Company is in the process of ~~ASU No. 2023-02 is not expected to~~evaluating the impact that this new guidance may have ~~a material impact~~ on the Company’s consolidated financial statements.

2. Investment Securities

As of March 31, 2024 and December 31, 2023, 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 and government-sponsored enterprises.

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Table of Contents

~~2. Investment Securities~~

~~As of September 30, 2023 and December 31, 2022, 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 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.

Collateralized loan obligations – 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 ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the Company’s investment securities were classified as either available-for-sale or held-to-maturity. Amortized cost, gross unrealized holding gains and losses and fair value of available-for-sale and held-to-maturity investment securities as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 were as follows:

September 30, 2023

December 31, 2022

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

$
126,264

$
—

$
(12,105)

$
114,159

$
163,309

$
—

$
(12,327)

$
150,982
Government-sponsored enterprises debt securities

20,000

—

(740)

19,260

45,000

—

(699)

44,301
Mortgage-backed securities:

Residential - Government agency

61,768

—

(9,406)

52,362

66,792

—

(7,069)

59,723
Residential - Government-sponsored enterprises

1,185,269

—

(179,487)

1,005,782

1,317,718

—

(157,263)

1,160,455
Commercial - Government agency

272,432

—

(60,535)

211,897

282,700

—

(44,847)

237,853
Commercial - Government-sponsored enterprises

94,021

—

(9,101)

84,920

130,612

—

(11,039)

119,573
Commercial - Non-agency

21,964

—

(362)

21,602

21,964

—

(493)

21,471
Collateralized mortgage obligations:

Government agency

661,207

—

(95,355)

565,852

738,524

—

(85,202)

653,322
Government-sponsored enterprises

479,217

—

(78,469)

400,748

533,103

—

(70,971)

462,132
Collateralized loan obligations

249,889

21

(3,788)

246,122

249,877

50

(8,606)

241,321
Total available-for-sale securities

$
3,172,031

$
21

$
(449,348)

$
2,722,704

$
3,549,599

$
50

$
(398,516)

$
3,151,133

Government agency debt securities

$
53,105

$
—

$
(7,901)

$
45,204

$
54,318

$
—

$
(5,674)

$
48,644
Mortgage-backed securities:

Residential - Government agency

44,379

—

(8,024)

36,355

46,302

—

(6,294)

40,008
Residential - Government-sponsored enterprises

100,905

—

(18,151)

82,754

106,534

—

(12,978)

93,556
Commercial - Government agency

30,733

—

(8,756)

21,977

30,544

—

(5,229)

25,315
Commercial - Government-sponsored enterprises

1,132,818

153

(194,471)

938,500

1,150,449

—

(138,451)

1,011,998
Collateralized mortgage obligations:

Government agency

1,010,551

—

(153,260)

857,291

1,080,492

—

(122,378)

958,114
Government-sponsored enterprises

1,677,519

—

(271,248)

1,406,271

1,798,178

—

(207,045)

1,591,133
Debt securities issued by states and political subdivisions

54,104

—

(9,427)

44,677

53,822

—

(7,768)

46,054
Total held-to-maturity securities

$
4,104,114

$
153

$
(671,238)

$
3,433,029

$
4,320,639

$
—

$
(505,817)

$
3,814,822

~~Table of Contents~~

During the year ended December 31, 2022, the Company reclassified at fair value approximately $4.6 billion, in available-for-sale investment securities to the held-to-maturity category. The related total unrealized after-tax losses of approximately $372.4 million remained in accumulated other comprehensive loss 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. 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. There were no securities transferred from available-for-sale investment securities to the held-to-maturity category during the three and nine months ended September 30, 2023.

March 31, 2024

December 31, 2023

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

$
13,254

$
—

$
(433)

$
12,821

$
33,169

$
—

$
(666)

$
32,503
Government-sponsored enterprises debt securities

20,000

—

(371)

19,629

20,000

—

(408)

19,592
Mortgage-backed securities:

Residential - Government agency

10,959

—

(1,350)

9,609

11,303

—

(1,121)

10,182
Residential - Government-sponsored enterprises

868,033

—

(114,648)

753,385

895,421

—

(112,124)

783,297
Commercial - Government agency

264,691

—

(51,297)

213,394

268,944

—

(50,270)

218,674
Commercial - Government-sponsored enterprises

90,441

—

(6,951)

83,490

93,459

—

(7,028)

86,431
Commercial - Non-agency

21,968

142

—

22,110

21,964

—

(281)

21,683
Collateralized mortgage obligations:

Government agency

523,160

—

(70,997)

452,163

538,718

—

(67,568)

471,150
Government-sponsored enterprises

413,731

—

(60,670)

353,061

425,826

—

(61,856)

363,970
Collateralized loan obligations

239,872

383

(579)

239,676

249,871

43

(2,060)

247,854
Total available-for-sale securities

$
2,466,109

$
525

$
(307,296)

$
2,159,338

$
2,558,675

$
43

$
(303,382)

$
2,255,336

Government agency debt securities

$
51,904

$
—

$
(5,300)

$
46,604

$
52,051

$
—

$
(4,497)

$
47,554
Mortgage-backed securities:

Residential - Government agency

42,961

—

(6,209)

36,752

43,885

—

(5,189)

38,696
Residential - Government-sponsored enterprises

97,914

—

(13,466)

84,448

99,379

—

(11,013)

88,366
Commercial - Government agency

30,853

—

(7,651)

23,202

30,795

—

(7,017)

23,778
Commercial - Government-sponsored enterprises

1,127,321

167

(144,378)

983,110

1,129,738

195

(130,757)

999,176
Collateralized mortgage obligations:

Government agency

972,199

—

(125,164)

847,035

989,130

—

(109,471)

879,659
Government-sponsored enterprises

1,610,563

—

(209,655)

1,400,908

1,642,274

—

(193,897)

1,448,377
Debt securities issued by states and political subdivisions

54,296

—

(5,645)

48,651

54,197

—

(4,947)

49,250
Total held-to-maturity securities

$
3,988,011

$
167

$
(517,468)

$
3,470,710

$
4,041,449

$
195

$
(466,788)

$
3,574,856

Accrued interest receivable related to available-for-sale investment securities was ~~$8.7~~$7.0 million and ~~$8.9~~$7.2 million as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively. Accrued interest receivable related to held-to-maturity investment securities was ~~$7.4~~$7.3 million and ~~$7.5~~$7.0 million as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively. Accrued interest receivable is recorded separately from the amortized cost basis of investment securities on the Company’s unaudited interim consolidated balance sheets.

Table of Contents

Proceeds from calls and sales of investment securities were $10.3 million and nil, respectively, for the three months ended March 31, 2024, and $0.2 million and nil, respectively, for the three months ended ~~September 30, 2023, and $8.0 million and $25.2 million, respectively, for the nine months ended September 30,~~March 31, 2023. Proceeds from calls and sales of investment securities were $0.3 million and nil, respectively, for the three months ended September 30, 2022, and $1.5 million and nil, respectively, for the nine months ended September 30, 2022. The Company recorded gross realized gains of nil and gross realized losses of nil for the three ~~and nine~~ months ended ~~September 30, 2023~~March 31, 2024 and ~~2022.~~2023. The income tax ~~expense~~benefit related to the Company’s net realized ~~gain~~loss on the sale of investment securities was nil for the three ~~and nine~~ months ended ~~September 30, 2023~~March 31, 2024 and ~~2022.~~2023. Gains and losses realized on sales of securities are determined using the specific identification method.

Interest income from taxable investment securities was ~~$33.4~~$29.1 million and ~~$33.8~~$34.0 million, respectively, for the three months ended ~~September 30, 2023~~March 31, 2024 and ~~2022, and $100.7 million and $94.5 million, respectively, for the nine months ended September 30, 2023 and 2022.~~2023. Interest income from non-taxable investment securities was ~~$3.3~~$3.2 million and ~~$3.8~~$3.6 million, respectively, for the three months ended ~~September 30, 2023~~March 31, 2024 and ~~2022, and $10.0 million and $10.1 million, respectively, for the nine months ended September 30, 2023 and 2022.~~2023.

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 ~~September 30, 2023,~~March 31, 2024, 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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September 30, 2023

March 31, 2024

Amortized

Fair

Amortized

Fair
(dollars in thousands)

Cost

Value

Cost

Value
Available-for-sale securities

Due in one year or less

$
19,884

$
19,534

$
13,254

$
12,821
Due after one year through five years

60,651

57,469

29,275

28,885
Due after five years through ten years

172,717

161,989

87,696

87,617
Due after ten years

164,865

162,151

164,869

164,913

418,117

401,143

295,094

294,236

Mortgage-backed securities:

Residential - Government agency

61,768

52,362

10,959

9,609
Residential - Government-sponsored enterprises

1,185,269

1,005,782

868,033

753,385
Commercial - Government agency

272,432

211,897

264,691

213,394
Commercial - Government-sponsored enterprises

94,021

84,920

90,441

83,490
Total mortgage-backed securities

1,613,490

1,354,961

1,234,124

1,059,878
Collateralized mortgage obligations:

Government agency

661,207

565,852

523,160

452,163
Government-sponsored enterprises

479,217

400,748

413,731

353,061
Total collateralized mortgage obligations

1,140,424

966,600

936,891

805,224
Total available-for-sale securities

$
3,172,031

$
2,722,704

$
2,466,109

$
2,159,338

Held-to-maturity securities

Due in one year or less

$
—

$
—

$
—

$
—
Due after one year through five years

—

—

—

—
Due after five years through ten years

10,280

8,732

22,132

20,121
Due after ten years

96,929

81,149

84,068

75,134

107,209

89,881

106,200

95,255

Mortgage-backed securities:

Residential - Government agency

44,379

36,355

42,961

36,752
Residential - Government-sponsored enterprises

100,905

82,754

97,914

84,448
Commercial - Government agency

30,733

21,977

30,853

23,202
Commercial - Government-sponsored enterprises

1,132,818

938,500

1,127,321

983,110
Total mortgage-backed securities

1,308,835

1,079,586

1,299,049

1,127,512
Collateralized mortgage obligations:

Government agency

1,010,551

857,291

972,199

847,035
Government-sponsored enterprises

1,677,519

1,406,271

1,610,563

1,400,908
Total collateralized mortgage obligations

2,688,070

2,263,562

2,582,762

2,247,943
Total held-to-maturity securities

$
4,104,114

$
3,433,029

$
3,988,011

$
3,470,710

At ~~September 30, 2023,~~March 31, 2024, pledged securities totaled ~~$6.3~~$4.3 billion, of which ~~$3.5~~$2.2 billion was pledged to secure borrowing capacity, $1.9 billion was pledged to secure public deposits ~~$2.6 billion was pledged to secure borrowing capacity~~ and ~~$180.1~~$154.0 million was pledged to secure other financial transactions. At December 31, ~~2022,~~2023, pledged securities totaled ~~$3.2~~$5.0 billion, of which ~~$3.0~~$2.6 billion was pledged to secure public deposits, $2.3 billion was pledged to secure borrowing capacity and ~~$207.8~~$183.0 million was pledged to secure other financial transactions.

The Company held no 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 ~~September 30, 2023 or~~March 31, 2024 and December 31, ~~2022.~~2023.

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 ~~279~~204 and ~~275~~222 individual securities in each category have been in a continuous loss position as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, 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.

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Table of Contents

Time in Continuous Loss as of September 30, 2023

Time in Continuous Loss as of March 31, 2024

Less Than 12 Months

12 Months or More

Total

Less Than 12 Months

12 Months or More

Total

Unrealized

Unrealized

Unrealized

Unrealized

Unrealized

Unrealized

(dollars in thousands)

Losses

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

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

$
—

$
—

$
(12,105)

$
114,159

$
(12,105)

$
114,159

$
—

$
—

$
(433)

$
12,821

$
(433)

$
12,821
Government-sponsored enterprises debt securities

—

—

(740)

19,260

(740)

19,260

—

—

(371)

19,629

(371)

19,629
Mortgage-backed securities:

Residential - Government agency

—

—

(9,406)

52,362

(9,406)

52,362

—

—

(1,350)

9,609

(1,350)

9,609
Residential - Government-sponsored enterprises

—

—

(179,487)

1,005,782

(179,487)

1,005,782

—

—

(114,648)

753,385

(114,648)

753,385
Commercial - Government agency

—

—

(60,535)

211,897

(60,535)

211,897

—

—

(51,297)

213,394

(51,297)

213,394
Commercial - Government-sponsored enterprises

—

—

(9,101)

84,920

(9,101)

84,920

—

—

(6,951)

83,490

(6,951)

83,490
Commercial - Non-agency

—

—

(362)

21,602

(362)

21,602
Collateralized mortgage obligations:

Government agency

—

—

(95,355)

565,852

(95,355)

565,852

—

—

(70,997)

452,163

(70,997)

452,163
Government-sponsored enterprises

—

—

(78,469)

400,748

(78,469)

400,748

—

—

(60,670)

353,061

(60,670)

353,061
Collateralized loan obligations

(973)

75,258

(2,815)

169,131

(3,788)

244,389

(8)

8,492

(571)

99,029

(579)

107,521
Total available-for-sale securities with unrealized losses

$
(973)

$
75,258

$
(448,375)

$
2,645,713

$
(449,348)

$
2,720,971

$
(8)

$
8,492

$
(307,288)

$
1,996,581

$
(307,296)

$
2,005,073

Time in Continuous Loss as of December 31, 2022

Time in Continuous Loss as of December 31, 2023

Less Than 12 Months

12 Months or More

Total

Less Than 12 Months

12 Months or More

Total

Unrealized

Unrealized

Unrealized

Unrealized

Unrealized

Unrealized

(dollars in thousands)

Losses

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

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

$
(2,962)

$
83,870

$
(9,365)

$
67,112

$
(12,327)

$
150,982

$
—

$
—

$
(666)

$
32,503

$
(666)

$
32,503
Government-sponsored enterprises debt securities

(699)

44,301

—

—

(699)

44,301

—

—

(408)

19,592

(408)

19,592
Mortgage-backed securities:

Residential - Government agency

(7,069)

59,723

—

—

(7,069)

59,723

—

—

(1,121)

10,182

(1,121)

10,182
Residential - Government-sponsored enterprises

(73,954)

645,338

(83,309)

515,117

(157,263)

1,160,455

—

—

(112,124)

783,297

(112,124)

783,297
Commercial - Government agency

(15,852)

108,842

(28,995)

129,011

(44,847)

237,853

—

—

(50,270)

218,674

(50,270)

218,674
Commercial - Government-sponsored enterprises

(7,348)

94,657

(3,691)

24,916

(11,039)

119,573

—

—

(7,028)

86,431

(7,028)

86,431
Commercial - Non-agency

(493)

21,471

—

—

(493)

21,471

—

—

(281)

21,683

(281)

21,683
Collateralized mortgage obligations:

Government agency

(74,797)

596,907

(10,405)

56,415

(85,202)

653,322

—

—

(67,568)

471,150

(67,568)

471,150
Government-sponsored enterprises

(21,916)

198,108

(49,055)

264,024

(70,971)

462,132

—

—

(61,856)

363,970

(61,856)

363,970
Collateralized loan obligations:

(8,606)

170,042

—

—

(8,606)

170,042
Collateralized loan obligations

(564)

63,667

(1,496)

163,126

(2,060)

226,793
Total available-for-sale securities with unrealized losses

$
(213,696)

$
2,023,259

$
(184,820)

$
1,056,595

$
(398,516)

$
3,079,854

$
(564)

$
63,667

$
(302,818)

$
2,170,608

$
(303,382)

$
2,234,275

At ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the Company did not have any available-for-sale securities ~~in an unrealized loss position~~ with the intent to sell and determined it was more likely than not that the Company would not be required to sell ~~these~~the 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 ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, each security with an unrealized loss position in the above tables has been further assessed to determine if a credit loss exists. As of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the Company did not expect any credit losses in its available-for-sale debt securities and no credit losses were recognized on available-for-sale securities during the three ~~and nine~~ months ended ~~September 30, 2023~~March 31, 2024 and for the year ended December 31, ~~2022.~~2023.

As of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, 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 5% 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 not recorded an allowance for credit losses for its available-for-sale and held-to-maturity debt securities as of ~~September 30, 2023~~March 31, 2024 or December 31, ~~2022.~~2023.

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Table of Contents

During the year ended December 31, 2023, the Company recorded a $40.8 million net realized gain related to the sale of approximately 120,000 Visa Class B restricted shares. The Company ~~held approximately 120,000~~did not hold any Visa Class B restricted shares as of both ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022. These shares continued to be carried at $0 cost basis as of both September 30, 2023 and December 31, 2022.~~2023.

3. Loans and Leases

As of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, loans and leases were comprised of the following:

September 30,

December 31,

March 31,

December 31,
(dollars in thousands)

2023

2022

2024

2023
Commercial and industrial

$
2,101,442

$
2,235,897

$
2,189,875

$
2,165,349
Commercial real estate

4,387,751

4,132,309

4,301,300

4,340,243
Construction

885,112

844,643

972,517

900,292
Residential:

Residential mortgage

4,303,924


4,302,788

4,242,502


4,283,315
Home equity line

1,167,388

1,055,351

1,165,778

1,174,588
Total residential


5,471,312

5,358,139


5,408,280

5,457,903
Consumer

1,154,203

1,222,934

1,054,227

1,109,901
Lease financing

332,515

298,090

394,009

379,809
Total loans and leases

$
14,332,335

$
14,092,012

$
14,320,208

$
14,353,497

Outstanding loan balances are reported net of deferred loan costs and fees of ~~$58.5~~$56.9 million and ~~$56.1~~$57.5 million at ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively.

Accrued interest receivable related to loans and leases was ~~$67.9~~$71.4 million and ~~$61.6~~$70.1 million as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, 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 ~~September 30, 2023, commercial real estate and~~March 31, 2024, residential real estate loans and commercial real estate loans totaling ~~$4.8~~$5.0 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, residential real estate loans and pledged securities totaling ~~$4.8~~$3.9 billion were pledged to collateralize the ~~Company’s~~ borrowing capacity at the Federal Reserve Bank of San Francisco (“FRB”). As of December 31, ~~2022,~~2023, residential real estate loans and commercial real estate loans totaling ~~$3.5~~$4.5 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 and pledged securities totaling ~~$1.7~~$4.3 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 ~~$7.3~~$7.8 million and ~~$2.8~~$6.9 million as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, 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 maintains the ~~ACL~~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, ~~2022.~~2023.

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Table of Contents

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.

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 nine~~ months ended ~~September 30, 2023~~March 31, 2024 and ~~2022:~~2023:

Three Months Ended September 30, 2023

Three Months Ended March 31, 2024

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

$
13,810

$
39,887

$
9,871

$
1,447

$
32,803

$
11,806

$
38,957

$
148,581

$
14,956

$
43,944

$
10,392

$
1,754

$
36,880

$
11,728

$
36,879

$
156,533
Charge-offs

(784)

—

—

—

—

—

(3,665)

(4,449)

(909)

—

—

—

—

—

(4,854)

(5,763)
Recoveries

2,637

—

—

—

53

303

1,746

4,739

211

—

—

—

30

44

1,689

1,974
Provision

(1,963)

3,911

333

263

4,143

(682)

(81)

5,924

2,829

(418)

2,049

731

(120)

(325)

2,346

7,092
Balance at end of period

$
13,700

$
43,798

$
10,204

$
1,710

$
36,999

$
11,427

$
36,957

$
154,795

$
17,087

$
43,526

$
12,441

$
2,485

$
36,790

$
11,447

$
36,060

$
159,836

Nine Months Ended September 30, 2023

Three Months Ended March 31, 2023

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

$
14,564

$
43,810

$
5,843

$
1,551

$
35,175

$
8,296

$
34,661

$
143,900

$
14,564

$
43,810

$
5,843

$
1,551

$
35,175

$
8,296

$
34,661

$
143,900
Charge-offs

(2,572)

—

—

—

(122)

(272)

(12,963)

(15,929)

(791)

—

—

—

(122)

(135)

(4,782)

(5,830)
Recoveries

3,175

—

—

—

110

539

5,640

9,464

246

—

—

—

27

177

2,166

2,616
Provision

(1,467)

(12)

4,361

159

1,836

2,864

9,619

17,360

19

(3,499)

630

(70)

(760)

1,003

9,113

6,436
Balance at end of period

$
13,700

43,798

$
10,204

$
1,710

$
36,999

$
11,427

$
36,957

$
154,795

$
14,038

$
40,311

$
6,473

$
1,481

$
34,320

$
9,341

$
41,158

$
147,122

Three Months Ended September 30, 2022

Commercial Lending

Residential Lending

Commercial

Commercial

Home

and

Real

Lease

Residential

Equity

(dollars in thousands)

Industrial

Estate

Construction

Financing

Mortgage

Line

Consumer

Total
Allowance for credit losses:

Balance at beginning of period

$
15,924

$
44,726

$
5,367

$
1,398

$
33,635

$
4,734

$
43,158

$
148,942
Charge-offs

(328)

(750)

—

—

(1)

—

(3,986)

(5,065)
Recoveries

240

—

—

—

37

356

1,653

2,286
Provision

(703)

416

(643)

235

248

164

2,283

2,000
Balance at end of period

$
15,133

$
44,392

$
4,724

$
1,633

$
33,919

$
5,254

$
43,108

$
148,163

Nine Months Ended September 30, 2022

Commercial Lending

Residential Lending

Commercial

Commercial

Home

and

Real

Lease

Residential

Equity

(dollars in thousands)

Industrial

Estate

Construction

Financing

Mortgage

Line

Consumer

Total
Allowance for credit losses:

Balance at beginning of period

$
20,080

$
42,951

$
9,773

$
1,659

$
34,364

$
5,642

$
42,793

$
157,262
Charge-offs

(1,277)

(750)

—

—

(1)

(1,163)

(11,754)

(14,945)
Recoveries

594

14

—

60

245

575

5,741

7,229
Provision

(4,264)

2,177

(5,049)

(86)

(689)

200

6,328

(1,383)
Balance at end of period

$
15,133

$
44,392

$
4,724

$
1,633

$
33,919

$
5,254

$
43,108

$
148,163

~~Table of Contents~~

Rollforward of the Reserve for Unfunded Commitments

The following presents the activity in the Reserve for Unfunded Commitments for the three ~~and nine~~ months ended ~~September 30, 2023~~March 31, 2024 and ~~2022:~~2023:

Three Months Ended September 30, 2023

Three Months Ended March 31, 2024

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

$
6,354

$
1,991

$
9,789

$
—

$
19

$
18,015

$
31

$
36,199

$
9,116

$
1,787

$
8,048

$
—

$
24

$
16,589

$
41

$
35,605
Provision

3,577

(129)

(382)

—

(6)

(1,475)

(9)

1,576

(324)

86

(1,151)

—

(10)

598

9

(792)
Balance at end of period

$
9,931

$
1,862

$
9,407

$
—

$
13

$
16,540

$
22

$
37,775

$
8,792

$
1,873

$
6,897

$
—

$
14

$
17,187

$
50

$
34,813

Nine Months Ended September 30, 2023

Three Months Ended March 31, 2023

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

$
7,811

$
2,004

$
7,470

$
—

$
30

$
16,483

$
37

$
33,835

$
7,811

$
2,004

$
7,470

$
—

$
30

$
16,483

$
37

$
33,835
Provision

2,120

(142)

1,937

—

(17)

57

(15)

3,940

(658)

(312)

1,482

—

(13)

1,853

12

2,364
Balance at end of period

$
9,931

$
1,862

$
9,407

$
—

$
13

$
16,540

$
22

$
37,775

$
7,153

$
1,692

$
8,952

$
—

$
17

$
18,336

$
49

$
36,199

Three Months Ended September 30, 2022

Commercial Lending

Residential Lending

Commercial

Commercial

Home

and

Real

Lease

Residential

Equity

(dollars in thousands)

Industrial

Estate

Construction

Financing

Mortgage

Line

Consumer

Total
Reserve for unfunded commitments:

Balance at beginning of period

$
7,640

$
3,750

$
6,084

$
—

$
32

$
11,423

$
29

$
28,958
Provision

478

(1,397)

630

—

(4)

1,473

3

1,183
Balance at end of period

$
8,118

$
2,353

$
6,714

$
—

$
28

$
12,896

$
32

$
30,141

Table of Contents

Nine Months Ended September 30, 2022

Commercial Lending

Residential Lending

Commercial

Commercial

Home

and

Real

Lease

Residential

Equity

(dollars in thousands)

Industrial

Estate

Construction

Financing

Mortgage

Line

Consumer

Total
Reserve for unfunded commitments:

Balance at beginning of period

$
8,615

$
2,114

$
8,963

$
—

$
15

$
10,546

$
69

$
30,322
Provision

(497)

239

(2,249)

—

13

2,350

(37)

(181)
Balance at end of period

$
8,118

$
2,353

$
6,714

$
—

$
28

$
12,896

$
32

$
30,141

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.

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.

1915

Table of Contents

The amortized cost basis by year of origination and credit quality indicator of the Company’s loans and leases as of ~~September 30, 2023~~March 31, 2024 was as follows:

Revolving

Revolving

Loans

Loans

Converted

Converted

Term Loans

Revolving

to Term

Term Loans

Revolving

to Term

Amortized Cost Basis by Origination Year

Loans

Loans

Amortized Cost Basis by Origination Year

Loans

Loans

Amortized

Amortized

Amortized

Amortized

(dollars in thousands)

2023

2022

2021

2020

2019

Prior

Cost Basis

Cost Basis

Total

2024

2023

2022

2021

2020

Prior

Cost Basis

Cost Basis

Total
Commercial Lending

Commercial and Industrial

Risk rating:

Pass

$
55,062

$
294,558

$
368,460

$
35,603

$
150,195

$
147,197

$
906,094

$
3,427

$
1,960,596

$
13,488

$
104,265

$
263,282

$
318,417

$
29,787

$
282,287

$
987,132

$
26,745

$
2,025,403
Special Mention

1

31,427

95

730

1,125

1,569

2,677

87

37,711

202

1

23,276

73

539

1,385

8,132

—

33,608
Substandard

217

532

245

847

1,839

1,034

13,947

—

18,661

—

—

20,364

214

572

2,191

25,638

—

48,979
Other ⁽¹⁾

13,438

12,424

5,575

2,856

2,226

1,513

46,442

—

84,474

4,887

12,883

10,053

4,044

1,970

2,396

45,652

—

81,885
Total Commercial and Industrial

68,718

338,941

374,375

40,036

155,385

151,313

969,160

3,514

2,101,442

18,577

117,149

316,975

322,748

32,868

288,259

1,066,554

26,745

2,189,875
Current period gross charge-offs

$
130

$
69

$
74

$
28

$
108

$
2,163

$
—

$
—

$
2,572

—

71

114

61

52

611

—

—

909

Commercial Real Estate

Risk rating:

Pass

288,996

881,117

665,048

329,663

559,287

1,508,430

60,613

—

4,293,154

28,321

344,674

864,166

671,379

334,606

1,866,875

93,485

4,223

4,207,729
Special Mention

2,322

7,643

41,304

543

6,935

13,039

12,483

—

84,269

3,339

2,290

7,591

41,337

1,358

18,507

6,863

—

81,285
Substandard

—

5,110

2,004

170

—

2,599

300

—

10,183

—

—

5,047

1,203

—

5,244

652

—

12,146
Other ⁽¹⁾

—

—

—

—

—

145

—

—

145

—

—

—

—

—

140

—

—

140
Total Commercial Real Estate

291,318

893,870

708,356

330,376

566,222

1,524,213

73,396

—

4,387,751

31,660

346,964

876,804

713,919

335,964

1,890,766

101,000

4,223

4,301,300
Current period gross charge-offs

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Construction

Risk rating:

Pass

129,160

209,227

335,433

59,164

64,168

28,916

3,826

—

829,894

14,198

181,628

311,175

258,400

59,563

65,776

11,872

—

902,612
Special Mention

—

—

—

—

197

669

—

—

866

—

—

—

—

—

837

—

—

837
Substandard

—

—

—

—

—

24,437

—

—

24,437
Other ⁽¹⁾

10,194

24,825

10,313

2,260

2,115

3,932

713

—

54,352

859

12,258

17,492

6,373

1,357

5,588

704

—

44,631
Total Construction

139,354

234,052

345,746

61,424

66,480

33,517

4,539

—

885,112

15,057

193,886

328,667

264,773

60,920

96,638

12,576

—

972,517
Current period gross charge-offs

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Lease Financing

Risk rating:

Pass

83,255

88,367

19,869

35,583

34,828

69,043

—

—

330,945

50,531

114,686

78,028

17,488

28,946

97,319

—

—

386,998
Special Mention

—

—

341

38

—

—

—

—

379

—

51

125

377

20

—

—

—

573
Substandard

747

440

—

—

4

—

—

—

1,191

5,370

676

392

—

—

—

—

—

6,438
Total Lease Financing

84,002

88,807

20,210

35,621

34,832

69,043

—

—

332,515

55,901

115,413

78,545

17,865

28,966

97,319

—

—

394,009
Current period gross charge-offs

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Total Commercial Lending

$
583,392

$
1,555,670

$
1,448,687

$
467,457

$
822,919

$
1,778,086

$
1,047,095

$
3,514

$
7,706,820

$
121,195

$
773,412

$
1,600,991

$
1,319,305

$
458,718

$
2,372,982

$
1,180,130

$
30,968

$
7,857,701
Current period gross charge-offs

$
130

$
69

$
74

$
28

$
108

$
2,163

$
—

$
—

$
2,572

$
—

$
71

$
114

$
61

$
52

$
611

$
—

$
—

$
909
(continued)

2016

Table of Contents

Revolving

Revolving

Loans

Loans

Converted

Converted

Term Loans

Revolving

to Term

Term Loans

Revolving

to Term

Amortized Cost Basis by Origination Year

Loans

Loans

Amortized Cost Basis by Origination Year

Loans

Loans

(continued)

Amortized

Amortized

Amortized

Amortized

(dollars in thousands)

2023

2022

2021

2020

2019

Prior

Cost Basis

Cost Basis

Total

2024

2023

2022

2021

2020

Prior

Cost Basis

Cost Basis

Total
Residential Lending

Residential Mortgage

FICO:

740 and greater

$
195,053

$
527,072

$
1,018,441

$
536,878

$
231,038

$
1,012,924

$
—

$
—

$
3,521,406

$
28,332

$
207,263

$
524,402

$
987,343

$
521,598

$
1,186,496

$
—

$
—

$
3,455,434
680 - 739

29,006

78,642

116,247

73,209

32,906

131,547

—

—

461,557

1,525

36,569

67,192

115,481

67,662

158,890

—

—

447,319
620 - 679

2,847

11,153

15,830

10,678

5,705

36,289

—

—

82,502

910

2,910

16,268

19,056

12,733

41,573

—

—

93,450
550 - 619

269

3,343

4,037

2,458

249

11,724

—

—

22,080

—

1,303

6,506

1,903

2,477

11,685

—

—

23,874
Less than 550

—

196

2,362

1,573

50

5,373

—

—

9,554

—

—

—

2,894

2,006

6,686

—

—

11,586
No Score ⁽³⁾

5,589

19,402

11,729

6,343

9,757

53,515

—

—

106,335

—

9,081

20,505

11,400

6,006

58,777

—

—

105,769
Other ⁽²⁾

10,518

17,079

17,682

12,840

8,733

26,171

7,467

—

100,490

1,419

13,320

16,937

15,740

12,088

32,590

12,976

—

105,070
Total Residential Mortgage

243,282

656,887

1,186,328

643,979

288,438

1,277,543

7,467

—

4,303,924

32,186

270,446

651,810

1,153,817

624,570

1,496,697

12,976

—

4,242,502
Current period gross charge-offs

$
—

$
—

$
—

$
—

$
—

$
122

$
—

$
—

$
122

—

—

—

—

—

—

—

—

—

Home Equity Line

FICO:

740 and greater

—

—

—

—

—

—

961,974

1,503

963,477

—

—

—

—

—

—

943,792

1,428

945,220
680 - 739

—

—

—

—

—

—

148,629

2,382

151,011

—

—

—

—

—

—

162,578

1,886

164,464
620 - 679

—

—

—

—

—

—

34,333

1,326

35,659

—

—

—

—

—

—

33,728

927

34,655
550 - 619

—

—

—

—

—

—

9,099

948

10,047

—

—

—

—

—

—

13,382

971

14,353
Less than 550

—

—

—

—

—

—

5,257

264

5,521

—

—

—

—

—

—

5,392

296

5,688
No Score ⁽³⁾

—

—

—

—

—

—

1,673

—

1,673

—

—

—

—

—

—

1,398

—

1,398
Total Home Equity Line

—

—

—

—

—

—

1,160,965

6,423

1,167,388

—

—

—

—

—

—

1,160,270

5,508

1,165,778
Current period gross charge-offs

$
—

$
—

$
—

$
—

$
—

$
—

$
254

$
18

$
272

—

—

—

—

—

—

—

—

—

Total Residential Lending

$
243,282

$
656,887

$
1,186,328

$
643,979

$
288,438

$
1,277,543

$
1,168,432

$
6,423

$
5,471,312

$
32,186

$
270,446

$
651,810

$
1,153,817

$
624,570

$
1,496,697

$
1,173,246

$
5,508

$
5,408,280
Current period gross charge-offs

$
—

$
—

$
—

$
—

$
—

$
122

$
254

$
18

$
394

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

$
—

Consumer Lending

FICO:

740 and greater

85,839

139,753

84,741

39,390

27,790

13,589

116,342

153

507,597

18,671

82,551

113,914

66,175

28,100

22,442

116,198

138

448,189
680 - 739

60,184

79,628

43,948

20,531

16,192

8,577

74,428

416

303,904

13,464

64,229

64,623

33,167

14,755

13,951

75,151

439

279,779
620 - 679

21,797

32,632

18,094

8,650

9,214

6,191

33,543

892

131,013

4,293

28,729

27,210

15,641

6,793

10,003

35,179

791

128,639
550 - 619

3,745

10,422

7,898

4,953

5,597

4,069

12,456

684

49,824

620

6,973

11,551

7,621

4,025

6,289

13,452

795

51,326
Less than 550

774

5,629

4,519

3,175

3,048

2,459

4,567

560

24,731

110

2,634

6,734

5,075

2,837

4,179

5,782

646

27,997
No Score ⁽³⁾

1,455

297

—

—

5

13

41,852

150

43,772

733

839

209

—

9

16

39,466

256

41,528
Other ⁽²⁾

—

1,188

1,007

340

1,086

1

89,740

—

93,362

—

304

349

960

330

1,032

73,794

—

76,769
Total Consumer Lending

$
173,794

$
269,549

$
160,207

$
77,039

$
62,932

$
34,899

$
372,928

$
2,855

$
1,154,203

$
37,891

$
186,259

$
224,590

$
128,639

$
56,849

$
57,912

$
359,022

$
3,065

$
1,054,227
Current period gross charge-offs

$
152

$
1,710

$
1,723

$
880

$
1,500

$
1,995

$
4,541

$
462

$
12,963

$
—

$
437

$
904

$
496

$
272

$
769

$
1,789

$
187

$
4,854

Total Loans and Leases

$
1,000,468

$
2,482,106

$
2,795,222

$
1,188,475

$
1,174,289

$
3,090,528

$
2,588,455

$
12,792

$
14,332,335

$
191,272

$
1,230,117

$
2,477,391

$
2,601,761

$
1,140,137

$
3,927,591

$
2,712,398

$
39,541

$
14,320,208
Current period gross charge-offs

$
282

$
1,779

$
1,797

$
908

$
1,608

$
4,280

$
4,795

$
480

$
15,929

$
—

$
508

$
1,018

$
557

$
324

$
1,380

$
1,789

$
187

$
5,763
(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.

~~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, 2022 was as follows:~~

Revolving

Loans

Converted

Term Loans

Revolving

to Term

Amortized Cost Basis by Origination Year

Loans

Loans

Amortized

Amortized

(dollars in thousands)

2022

2021

2020

2019

2018

Prior

Cost Basis

Cost Basis

Total
Commercial Lending

Commercial and Industrial

Risk rating:

Pass

$
359,881

$
422,567

$
54,656

$
170,222

$
51,476

$
137,257

$
894,384

$
15,715

$
2,106,158
Special Mention

2,059

240

1,371

2,643

184

1,431

22,897

378

31,203
Substandard

625

289

1,117

1,092

668

885

14,733

65

19,474
Other ⁽¹⁾

17,679

7,721

4,329

3,965

1,881

1,167

42,320

—

79,062
Total Commercial and Industrial

380,244

430,817

61,473

177,922

54,209

140,740

974,334

16,158

2,235,897

Commercial Real Estate

Risk rating:

Pass

889,583

695,882

319,838

565,587

395,474

1,173,163

48,081

—

4,087,608
Special Mention

170

—

555

14,878

512

11,398

675

—

28,188
Substandard

—

—

173

—

1,704

14,485

—

—

16,362
Other ⁽¹⁾

—

—

—

—

—

151

—

—

151
Total Commercial Real Estate

889,753

695,882

320,566

580,465

397,690

1,199,197

48,756

—

4,132,309

Construction

Risk rating:

Pass

124,464

261,536

96,423

97,000

88,973

84,704

25,957

—

779,057
Special Mention

—

—

—

221

—

—

—

—

221
Substandard

—

—

—

—

21

490

—

—

511
Other ⁽¹⁾

29,694

21,339

4,686

2,201

3,784

2,196

954

—

64,854
Total Construction

154,158

282,875

101,109

99,422

92,778

87,390

26,911

—

844,643

Lease Financing

Risk rating:

Pass

113,563

24,052

43,497

37,502

6,004

67,687

—

—

292,305
Special Mention

—

411

2,498

1,299

—

—

—

—

4,208
Substandard

—

—

197

12

11

1,357

—

—

1,577
Total Lease Financing

113,563

24,463

46,192

38,813

6,015

69,044

—

—

298,090

Total Commercial Lending

$
1,537,718

$
1,434,037

$
529,340

$
896,622

$
550,692

$
1,496,371

$
1,050,001

$
16,158

$
7,510,939
~~(continued)~~

2217

Table of Contents

Revolving

Loans

Converted

Term Loans

Revolving

to Term

Amortized Cost Basis by Origination Year

Loans

Loans

(continued)

Amortized

Amortized

(dollars in thousands)

2022

2021

2020

2019

2018

Prior

Cost Basis

Cost Basis

Total
Residential Lending

Residential Mortgage

FICO:

740 and greater

$
557,636

$
1,064,444

$
560,463

$
245,241

$
165,258

$
920,100

$
—

$
—

$
3,513,142
680 - 739

73,929

112,672

82,416

40,355

22,126

130,508

—

—

462,006
620 - 679

12,320

13,804

9,881

3,649

3,054

35,441

—

—

78,149
550 - 619

2,455

2,246

1,791

263

601

6,955

—

—

14,311
Less than 550

—

1,321

367

—

966

5,304

—

—

7,958
No Score ⁽³⁾

22,289

14,671

6,820

10,599

15,921

47,245

—

—

117,545
Other ⁽²⁾

18,970

18,211

15,287

9,201

9,124

29,128

9,202

554

109,677
Total Residential Mortgage

687,599

1,227,369

677,025

309,308

217,050

1,174,681

9,202

554

4,302,788

Home Equity Line

FICO:

740 and greater

—

—

—

—

—

—

817,123

2,059

819,182
680 - 739

—

—

—

—

—

—

171,117

2,714

173,831
620 - 679

—

—

—

—

—

—

45,368

2,100

47,468
550 - 619

—

—

—

—

—

—

7,485

1,029

8,514
Less than 550

—

—

—

—

—

—

1,151

481

1,632
No Score ⁽³⁾

—

—

—

—

—

—

4,724

—

4,724
Total Home Equity Line

—

—

—

—

—

—

1,046,968

8,383

1,055,351
Total Residential Lending

687,599

1,227,369

677,025

309,308

217,050

1,174,681

1,056,170

8,937

5,358,139

Consumer Lending

FICO:

740 and greater

200,887

111,047

53,534

43,912

24,951

8,432

125,126

185

568,074
680 - 739

99,787

67,140

37,260

31,751

15,874

7,665

72,101

514

332,092
620 - 679

25,949

29,587

14,226

16,872

9,672

6,488

31,854

937

135,585
550 - 619

3,017

5,475

5,226

8,056

5,396

3,924

11,269

854

43,217
Less than 550

656

1,351

2,286

3,779

1,869

1,593

3,541

443

15,518
No Score ⁽³⁾

3,205

258

—

51

24

29

38,805

227

42,599
Other ⁽²⁾

1,615

4,082

353

1,368

—

—

78,430

1

85,849
Total Consumer Lending

335,116

218,940

112,885

105,789

57,786

28,131

361,126

3,161

1,222,934

Total Loans and Leases

$
2,560,433

$
2,880,346

$
1,319,250

$
1,311,719

$
825,528

$
2,699,183

$
2,467,297

$
28,256

$
14,092,012
The amortized cost basis by year of origination and credit quality indicator of the Company’s loans and leases as of December 31, 2023 was as follows:

Revolving

Loans

Converted

Term Loans

Revolving

to Term

Amortized Cost Basis by Origination Year

Loans

Loans

Amortized

Amortized

(dollars in thousands)

2023

2022

2021

2020

2019

Prior

Cost Basis

Cost Basis

Total
Commercial Lending

Commercial and Industrial

Risk rating:

Pass

$
85,839

$
273,663

$
346,024

$
32,753

$
146,893

$
141,681

$
971,065

$
1,823

$
1,999,741
Special Mention

1

44,069

80

653

1,032

1,290

22,807

14

69,946
Substandard

—

342

230

677

1,686

829

8,330

—

12,094
Other ⁽¹⁾

15,978

11,598

4,814

2,370

1,702

1,125

45,981

—

83,568
Total Commercial and Industrial

101,818

329,672

351,148

36,453

151,313

144,925

1,048,183

1,837

2,165,349
Current period gross charge-offs

130

70

75

87

168

2,952

—

—

3,482

Commercial Real Estate

Risk rating:

Pass

346,369

872,783

676,362

337,529

523,446

1,414,613

74,238

1,350

4,246,690
Special Mention

2,307

7,618

41,320

1,359

13,550

11,998

819

—

78,971
Substandard

205

5,079

2,003

—

2,953

2,545

1,655

—

14,440
Other ⁽¹⁾

—

—

—

—

—

142

—

—

142
Total Commercial Real Estate

348,881

885,480

719,685

338,888

539,949

1,429,298

76,712

1,350

4,340,243
Current period gross charge-offs

—

—

—

—

2,500

—

—

—

2,500

Construction

Risk rating:

Pass

156,432

269,623

265,674

60,057

63,018

27,847

6,070

—

848,721
Special Mention

—

—

—

—

189

665

—

—

854
Other ⁽¹⁾

12,728

21,036

8,250

2,143

2,031

3,820

709

—

50,717
Total Construction

169,160

290,659

273,924

62,200

65,238

32,332

6,779

—

900,292
Current period gross charge-offs

—

—

—

—

—

—

—

—

—

Lease Financing

Risk rating:

Pass

145,914

82,833

18,680

31,791

30,299

68,520

—

—

378,037
Special Mention

56

137

414

35

—

—

—

—

642
Substandard

712

416

—

—

2

—

—

—

1,130
Total Lease Financing

146,682

83,386

19,094

31,826

30,301

68,520

—

—

379,809
Current period gross charge-offs

—

—

—

—

—

—

—

—

—

Total Commercial Lending

$
766,541

$
1,589,197

$
1,363,851

$
469,367

$
786,801

$
1,675,075

$
1,131,674

$
3,187

$
7,785,693
Current period gross charge-offs

$
130

$
70

$
75

$
87

$
2,668

$
2,952

$
—

$
—

$
5,982
(continued)

Table of Contents

2319

Table of Contents

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 ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the aging analysis of the amortized cost basis of the Company’s past due loans and leases was as follows:

September 30, 2023

March 31, 2024

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

$
3,989

$
673

$
1,277

$
5,939

$
2,095,503

$
2,101,442

$
289

$
1,713

$
162

$
1,470

$
3,345

$
2,186,530

$
2,189,875

$
529
Commercial real estate

—

300

170

470

4,387,281

4,387,751

170

—

—

2,953

2,953

4,298,347

4,301,300

—
Construction

—

—

—

—

885,112

885,112

—

—

—

606

606

971,911

972,517

606
Lease financing

—

—

—

—

332,515

332,515

—

—

—

—

—

394,009

394,009

—
Residential mortgage

3,239

—

6,575

9,814

4,294,110

4,303,924

1,430

1,857

2,742

5,406

10,005

4,232,497

4,242,502

359
Home equity line

6,741

938

3,320

10,999

1,156,389

1,167,388

—

2,996

894

2,827

6,717

1,159,061

1,165,778

—
Consumer

20,327

3,967

1,681

25,975

1,128,228

1,154,203

1,681

15,606

2,873

2,126

20,605

1,033,622

1,054,227

2,126
Total

$
34,296

$
5,878

$
13,023

$
53,197

$
14,279,138

$
14,332,335

$
3,570

$
22,172

$
6,671

$
15,388

$
44,231

$
14,275,977

$
14,320,208

$
3,620

December 31, 2022

December 31, 2023

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

$
2,682

$
769

$
1,441

$
4,892

$
2,231,005

$
2,235,897

$
291

$
2,611

$
349

$
1,464

$
4,424

$
2,160,925

$
2,165,349

$
494
Commercial real estate

4,505

—

727

5,232

4,127,077

4,132,309

—

—

196

300

496

4,339,747

4,340,243

300
Construction

109

—

—

109

844,534

844,643

—

25,191

—

—

25,191

875,101

900,292

—
Lease financing

—

—

—

—

298,090

298,090

—

—

—

—

—

379,809

379,809

—
Residential mortgage

3,681

1,983

2,572

8,236

4,294,552

4,302,788

58

5,244

1,475

4,720

11,439

4,271,876

4,283,315

—
Home equity line

5,161

1,381

2,072

8,614

1,046,737

1,055,351

—

5,940

624

3,550

10,114

1,164,474

1,174,588

—
Consumer

29,927

6,801

2,886

39,614

1,183,320

1,222,934

2,885

23,259

3,897

2,702

29,858

1,080,043

1,109,901

2,702
Total

$
46,065

$
10,934

$
9,698

$
66,697

$
14,025,315

$
14,092,012

$
3,234

$
62,245

$
6,541

$
12,736

$
81,522

$
14,271,975

$
14,353,497

$
3,496

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 ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 and the amortized cost basis of loans and leases on nonaccrual status with no ACL as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 were as follows:

September 30, 2023

March 31, 2024

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

$
503

$
988

$
—

$
942
Commercial real estate

2,685

2,953
Residential mortgage

2,674

7,435

3,297

7,777
Home equity line

596

6,200

1,150

6,345
Total Nonaccrual Loans and Leases

$
3,773

$
14,623

$
7,132

$
18,017

2420

Table of Contents

December 31, 2022

December 31, 2023

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

$
665

$
1,215

$
—

$
970
Commercial real estate

727

727

2,685

2,953
Residential mortgage

1,560

6,166

2,667

7,620
Home equity line

596

3,797

1,163

7,052
Total Nonaccrual Loans and Leases

$
3,548

$
11,905

$
6,515

$
18,595

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2024, the Company recognized interest income of $0.2 million on nonaccrual loans and leases and for the three months ended March 31, 2023, the Company recognized interest income of $0.1 million and $0.4 million, respectively, on nonaccrual loans and leases, and for the three and nine months ended September 30, 2022, the Company recognized interest income of $0.1 million and $0.2 million, respectively, on nonaccrual loans and leases. Furthermore, for both the three ~~and nine~~ months ended ~~September 30,~~March 31, 2024 and 2023, the amount of accrued interest receivables written off by reversing interest income was $0.2 million and $0.7 million, respectively, and for the three and nine months ended September 30, 2022 the amount of accrued interest receivables written off by reversing interest income was $0.3 million and $0.7 million, respectively.million.

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 ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the amortized cost basis of collateral-dependent loans were ~~$7.5~~$32.5 million and ~~$8.2~~$11.1 million, respectively. As of ~~both September 30, 2023~~March 31, 2024, these loans were primarily collateralized by residential real estate property and borrower assets and the fair value of collateral on substantially all collateral-dependent loans were significantly in excess of their amortized cost basis. As of December 31, ~~2022,~~2023, these loans were primarily collateralized by residential real estate property and the fair value of collateral on substantially all collateral-dependent loans were significantly in excess of their amortized cost basis.

Loan Modifications to Borrowers Experiencing Financial Difficulty

~~The Company adopted the provisions of Accounting Standards Update (“ASU”) No. 2022-02, Financial Instruments – Credit Losses (Topic 326),~~ ~~Troubled Debt Restructurings and Vintage Disclosures~~, on January 1, 2023. This update eliminates the accounting guidance on troubled debt restructurings (“TDRs”) for creditors in Subtopic 310-40, 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. For additional information, see “Note 1. Organization and Basis of Presentation.”

Commercial and industrial loans with a borrower experiencing financial difficulty may be modified through interest rate reductions, term extensions, and converting revolving credit lines to term loans. Modifications of commercial real estate and construction loans with a borrower experiencing financial difficulty may involve reducing the interest rate for the remaining term of the loan or extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk. Modifications of construction loans with a borrower experiencing financial difficulty 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. Modifications of residential real estate loans with a borrower experiencing financial difficulty may be comprised of loans where monthly payments are lowered to accommodate the borrowers' financial needs for a period of time, including extended interest-only periods and reamortization of the balance. Modifications of consumer loans with a borrower experiencing financial difficulty may involve interest rate reductions and term extensions.

~~Table of Contents~~

Loans modified with a borrower experiencing financial difficulty, whether in default or not, 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 with a borrower experiencing financial difficulty are evaluated for impairment. As a result, this may have a financial effect of impacting the specific ACL associated with the loan. An ACL for impaired commercial loans, including commercial real estate and construction loans, is measured based on the present value of expected future cash flows discounted at the 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 is measured based on the estimated fair value of the collateral, less any selling costs. Management exercises significant judgment in developing these estimates.

Table of Contents

The following tables present, by class of financing receivable and type of modification granted, the amortized cost basis as of ~~September 30,~~March 31, 2024 and 2023, related to loans modified to borrowers experiencing financial difficulty during the three ~~and nine~~ months ended ~~September 30, 2023:~~March 31, 2024 and 2023, respectively:

Interest Rate Reduction

Interest Rate Reduction

Three Months Ended

Nine Months Ended

Three Months Ended

Three Months Ended

September 30, 2023

September 30, 2023

March 31, 2024

March 31, 2023

Amortized

% of Total Class

Amortized

% of Total Class

Amortized

% of Total Class

Amortized

% of Total Class

(dollars in thousands)

Cost Basis⁽¹⁾

of Financing Receivable



Cost Basis⁽¹⁾

of Financing Receivable



Cost Basis⁽¹⁾

of Financing Receivable



Cost Basis⁽¹⁾

of Financing Receivable

Commercial real estate

$
—

—
%

$
4

n/m
%
Consumer

$
255

0.02
%

$
889

0.08
%

628

0.06

358

0.03

Total

$
255

n/m
%

$
889

0.01
%

$
628

n/m
%

$
362

n/m
%
n/m – Represents less than 0.01% of total class of financing receivable.
(1) The amortized cost basis reflects all partial paydowns and charge-offs since the modification date and do not include loans modified to borrowers experiencing financial difficulty that have been fully paid off, charged off, or foreclosed upon by the end of the period.

Term Extension

Three Months Ended

Three Months Ended

March 31, 2024

March 31, 2023

Amortized

% of Total Class

Amortized

% of Total Class

(dollars in thousands)


Cost Basis⁽¹⁾

of Financing Receivable



Cost Basis⁽¹⁾

of Financing Receivable

Commercial and industrial

$
199

0.01
%

$
96

n/m
%
Construction

—

—

231

0.03

Residential mortgage

310

0.01

34

n/m

Consumer

118

0.01

71

0.01

Total

$
627

n/m
%

$
432

n/m
%
n/m – Represents less than 0.01% of total class of financing receivable.
(1) The amortized cost basis reflects all partial paydowns and charge-offs since the modification date and do not include loans modified to borrowers experiencing financial difficulty that have been fully paid off, charged off, or foreclosed upon by the end of the period.

Term Extension

Other-Than-Insignificant Payment Delay

Three Months Ended

Nine Months Ended

Three Months Ended

Three Months Ended

September 30, 2023

September 30, 2023

March 31, 2024

March 31, 2023

Amortized

% of Total Class

Amortized

% of Total Class

Amortized

% of Total Class

Amortized

% of Total Class

(dollars in thousands)

Cost Basis⁽¹⁾

of Financing Receivable



Cost Basis⁽¹⁾

of Financing Receivable



Cost Basis⁽¹⁾

of Financing Receivable



Cost Basis⁽¹⁾

of Financing Receivable

Commercial and industrial

$
145

0.01
%

$
248

0.01
%
Commercial real estate

—

—

1,214

0.03

Construction

669

0.08

897

0.10

Residential mortgage

—

—

33

n/m

$
1,260

0.03
%

$
—

—
%
Consumer

17

n/m

130

0.01

Total

$
831

0.01
%

$
2,522

0.02
%

$
1,260

n/m
%

$
—

—
%
n/m – Represents less than 0.01% of total class of financing receivable.
(1) The amortized cost basis reflects all partial paydowns and charge-offs since the modification date and do not include loans modified to borrowers experiencing financial difficulty that have been fully paid off, charged off, or foreclosed upon by the end of the period.

The following tables describe, by class of financing receivable and type of modification granted, the financial effect of the modifications made to borrowers experiencing financial difficulty during the three ~~and nine~~ months ended ~~September 30, 2023:~~March 31, 2024 and 2023.

Interest Rate Reduction

Financial Effect

Three Months Ended ~~September 30, 2023~~March 31, 2024

~~Nine~~Three Months Ended ~~September 30,~~March 31, 2023
Commercial real estate

~~Consumer~~—

Reduced weighted-average contractual interest rate by ~~13.31%~~0.75%.
Consumer

Reduced weighted-average contractual interest rate by 13.55%.

Reduced weighted-average contractual interest rate by ~~13.22%~~13.51%.

Term Extension

Financial Effect

Three Months Ended ~~September 30, 2023~~March 31, 2024

~~Nine~~Three Months Ended ~~September 30,~~March 31, 2023
Commercial and industrial

Added a weighted-average ~~2.6~~3.8 years to the life of loans.

Added a weighted-average 3.0 years to the life of loans.
~~Commercial real estate~~Construction

—

Added a weighted-average ~~1.0 years to the life of loans.~~
~~Construction~~

~~Added a weighted-average 1.0 years to the life of loans.~~

~~Added a weighted-average 1.4~~2.9 years to the life of loans.
Residential mortgage

—Added a weighted-average 1.0 years to the life of loans.

Added a weighted-average 5.9 years to the life of loans.
Consumer

Added a weighted-average ~~2.9~~4.2 years to the life of loans.

Added a weighted-average ~~3.6~~4.6 years to the life of loans.

2622

Table of Contents

Other-Than-Insignificant Payment Delay

Financial Effect

Three Months Ended March 31, 2024

Three Months Ended March 31, 2023
Residential mortgage

Deferred an average of $172 thousand in loan payments.

—

The following table presents, by class of financing receivable and type of modification granted, the amortized cost basis, as of ~~September 30,~~March 31, 2024 and 2023, of loans that had a payment default during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2024 and 2023, respectively, and were modified in the 12 months before default to borrowers experiencing financial difficulty. The Company is reporting these defaulted loans based on a payment default definition of 30 days past due:

Amortized Cost Basis of Modified Loans That Subsequently Defaulted⁽¹⁾

Amortized Cost Basis of Modified Loans That Subsequently Defaulted⁽¹⁾

Three Months Ended September 30, 2023

Nine Months Ended September 30, 2023

Three Months Ended March 31, 2024

Three Months Ended March 31, 2023
(dollars in thousands)

Interest Rate Reduction

Interest Rate Reduction

Interest Rate Reduction

Term Extension

Interest Rate Reduction

Term Extension
Consumer

$
166

$
186

$
300

$
7

$
10

$
—
Total

$
166

$
186

$
300

$
7

$
10

$
—
(1) The amortized cost basis reflects all partial paydowns and charge-offs since the modification date and do not include loans modified to borrowers experiencing financial difficulty that have been fully paid off, charged off, or foreclosed upon by the end of the period.

Performance of the loans that are modified to borrowers experiencing financial difficulty is monitored to understand the effectiveness of the Company’s modification efforts. As of ~~September 30,~~March 31, 2024 and 2023, the aging analysis of the amortized cost basis of the performance of loans that have been modified in the last 12 months related to borrowers experiencing financial difficulty was as follows:

September 30, 2023

March 31, 2024

Past Due

Past Due

Greater Than

Greater Than

or Equal to

or Equal to

30-59 Days

60-89 Days

90 Days

Total

30-59 Days

60-89 Days

90 Days

Total

(dollars in thousands)

Past Due

Past Due

Past Due

Past Due

Current

Total

Past Due

Past Due

Past Due

Past Due

Current

Total
Commercial and industrial

$
—

$
—

$
—

$
—

$
248

$
248

$
—

$
—

$
—

$
—

$
467

$
467
Commercial real estate

—

—

—

—

1,214

1,214

—

—

—

—

2,857

2,857
Construction

—

—

—

—

897

897

—

—

—

—

657

657
Residential mortgage

—

—

—

—

33

33

—

—

—

—

1,570

1,570
Consumer

62

18

18

98

921

1,019

96

86

22

204

1,407

1,611
Total

$
62

$
18

$
18

$
98

$
3,313

$
3,411

$
96

$
86

$
22

$
204

$
6,958

$
7,162

March 31, 2023

Past Due

Greater Than

or Equal to

30-59 Days

60-89 Days

90 Days

Total

(dollars in thousands)

Past Due

Past Due

Past Due

Past Due

Current

Total
Commercial and industrial

$
—

$
—

$
—

$
—

$
96

$
96
Commercial real estate

—

—

—

—

4

4
Construction

—

—

—

—

231

231
Residential mortgage

—

—

—

—

34

34
Consumer

9

—

—

9

420

429
Total

$
9

$
—

$
—

$
9

$
785

$
794

The Company had commitments to extend credit, standby letters of credit, and commercial letters of credit totaling ~~$7.0~~$6.5 billion as of ~~September 30,~~both March 31, 2024 and December 31, 2023. Of the ~~$7.0~~$6.5 billion at ~~September 30,~~March 31, 2024, there were no commitments to lend additional funds to borrowers experiencing financial difficulty for which the Company had modified the terms of the loans in the form of an interest rate reduction, term extension, or other-than-insignificant payment delay during the three months ended March 31, 2024. Of the $6.5 billion at December 31, 2023, there were commitments of $5.0 million to lend additional funds to borrowers experiencing financial difficulty for which the Company had modified the terms of the loans in the form of an interest rate reduction or a term extension during the ~~nine months~~year ended ~~September 30,~~December 31, 2023.

~~Troubled Debt Restructuring Disclosures Prior to Adoption of ASU No. 2022-02~~

Prior to the adoption of ASU No. 2022-02, the Company accounted for a modification to the contractual terms of a loan that resulted in granting a concession to a borrower experiencing financial difficulty as a TDR. On January 1, 2023, the Company adopted ASU No. 2022-02, which eliminated TDR accounting prospectively for all restructurings occurring on or after January 1, 2023. Loans that were restructured in a TDR prior to the adoption of ASU No. 2022-02 will continue to be accounted for under the historical TDR accounting until the loan is paid off or subsequently modified. The disclosures below related to TDRs for prior periods are presented in accordance with Subtopic 310-40, ~~Receivables—Troubled Debt Restructurings by Creditors~~.

Commercial and industrial loans modified in a TDR may have involved temporary interest-only payments, term extensions, and converting revolving credit lines to term loans. Modifications of commercial real estate and construction loans in a TDR may have involved 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 have also involved extending the interest-only payment period. Interest continued to accrue on the missed payments and as a result, the effective yield on the loan remained unchanged. Residential real estate loans modified in a TDR may have been comprised of loans where monthly payments were lowered to accommodate the borrowers' financial needs for a period of time, including extended interest-only periods and reamortization of the balance. Modifications of consumer loans in a TDR may have involved temporary or permanent reduced payments, temporary interest-only payments and below-market interest rates.

2723

Table of Contents

Loans modified in a TDR may have already been 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 were evaluated for impairment. As a result, this may have had a financial effect of impacting the specific ACL associated with the loan. An ACL for impaired commercial loans, including commercial real estate and construction loans, that had been modified in a TDR was measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or if the loan was collateral-dependent, the estimated fair value of the collateral, less any selling costs. An ACL for impaired residential real estate loans that had been modified in a TDR was measured based on the estimated fair value of the collateral, less any selling costs. Management exercised significant judgment in developing these estimates.

~~The following presents, by class, information related to loans modified in a TDR during the three and nine months ended September 30, 2022 presented in accordance with Subtopic 310-40,~~ ~~Receivables—Troubled Debt Restructurings by Creditors~~:

Three Months Ended

Nine Months Ended

September 30, 2022

September 30, 2022

Number of

Recorded

Related

Number of

Recorded

Related
(dollars in thousands)

Contracts⁽¹⁾

Investment⁽²⁾

ACL

Contracts⁽¹⁾

Investment⁽²⁾

ACL
Commercial and industrial

2

$
201

$
4

2

$
201

$
4
Residential mortgage

—

—

—

1

252

32
Consumer

50

387

114

234

2,286

424
Total

52

$
588

$
118

237

$
2,739

$
460
~~(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, reduced payments, or below-market interest rates.~~

The Company had commitments to extend credit, standby letters of credit, and commercial letters of credit totaling $7.0 billion as of December 31, 2022. Of the $7.0 billion at December 31, 2022, there were commitments of $0.1 million to lend additional funds related to borrowers who had loan terms modified in a TDR.

The following table presents, by class, loans modified in TDRs that have defaulted in the periods below within 12 months of their permanent modification date for the periods indicated, presented in accordance with Subtopic 310-40, ~~Receivables—Troubled Debt Restructurings by Creditors~~~~. The Company was reporting these defaulted TDRs based on a payment default definition of 30 days past due:~~

Three Months Ended

Nine Months Ended

September 30, 2022

September 30, 2022

Number of

Recorded

Number of

Recorded
(dollars in thousands)

Contracts⁽¹⁾

Investment⁽²⁾

Contracts⁽¹⁾

Investment⁽²⁾
Commercial and industrial

1

$
216

2

$
541
Consumer

123

1,561

219

2,939
Total

124

$
1,777

221

$
3,480
~~(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.

Foreclosed Property

As of ~~September 30,~~both March 31, 2024 and December 31, 2023, there were no residential real estate properties held from foreclosed residential mortgage loans.As of December 31, 2022, residential real estate property held from one foreclosed residential mortgage loan of $0.1 million was included in other real estate owned and repossessed personal property shown in the unaudited interim consolidated balance sheets.

~~Table of Contents~~

5. Other Assets

Bank-Owned Life Insurance

During the three months ended March 31, 2024, the Company entered into a noncash exchange of certain bank-owned life insurance (“BOLI”) policies in accordance with Internal Revenue Code (“IRC”) Section 1035. Policies of $65.3 million were transferred into new policies during this period. No gain or loss was recognized as part of this exchange. There were no policies exchanged during the three months ended March 31, 2023.

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 Company’s maximum potential exposure to repurchases is limited to the unpaid principal amount of residential real estate loans serviced for others, which was ~~$1.4~~$1.3 billion as of both ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023. Servicing fees include contractually specified fees, late charges, and ancillary fees and were $0.8 million and $0.9 million for the three months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022, respectively, and $2.6 million and $2.9 million for the nine months ended September 30, 2023 and 2022,~~ respectively.

Amortization of mortgage servicing rights (“MSRs”) was $0.3 million for both three months ended ~~September 30, 2023~~March 31, 2024 and ~~2022, and $0.8 million and $1.6 million for the nine months ended September 30, 2023 and 2022, respectively.~~2023. 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

$
852

$
811
One to two years

757

720
Two to three years

671

637
Three to four years

592

561
Four to five years

523

497

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

September 30,

December 31,
(dollars in thousands)

2023

2022
Gross carrying amount

$
69,406

$
69,273
Less: accumulated amortization

63,551

62,711
Net carrying value

$
5,855

$
6,562

~~The following table presents changes in amortized MSRs for the three and nine months ended September 30, 2023 and 2022:~~

Three Months Ended September 30,

Nine Months Ended September 30,
(dollars in thousands)

2023

2022

2023

2022
Balance at beginning of period

$
6,072

$
7,152

$
6,562

$
8,302
Originations

65

47

133

151
Amortization

(282)

(333)

(840)

(1,587)
Balance at end of period

$
5,855

$
6,866

$
5,855

$
6,866
Fair value of amortized MSRs at beginning of period

$
14,557

$
14,969

$
15,193

$
12,243
Fair value of amortized MSRs at end of period

$
14,520

$
14,945

$
14,520

$
14,945

~~MSRs are evaluated for impairment if events and circumstances indicate a possible impairment. No impairment of MSRs was recorded for the three and nine months ended September 30, 2023 and 2022.~~

March 31,

December 31,
(dollars in thousands)

2024

2023
Gross carrying amount

$
69,612

$
69,515
Less: accumulated amortization

64,079

63,816
Net carrying value

$
5,533

$
5,699

2924

Table of Contents

The following table presents changes in amortized MSRs for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,
(dollars in thousands)

2024

2023
Balance at beginning of period

$
5,699

$
6,562
Originations

97

17
Amortization

(263)

(280)
Balance at end of period

$
5,533

$
6,299
Fair value of amortized MSRs at beginning of period

$
14,308

$
15,193
Fair value of amortized MSRs at end of period

$
14,071

$
15,169

MSRs are evaluated for impairment if events and circumstances indicate a possible impairment. No impairment of MSRs was recorded for the three months ended March 31, 2024 and 2023.

The quantitative assumptions used in determining the lower of cost or fair value of the Company’s MSRs as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 were as follows:

September 30, 2023

December 31, 2022

March 31, 2024

December 31, 2023

Weighted

Weighted

Weighted

Weighted


Range

Average

Range

Average


Range

Average

Range

Average

Conditional prepayment rate

6.89
%
-
11.27
%
7.02
%
7.02
%
-
13.58
%
7.11
%

6.98
%
-
11.34
%
7.08
%
6.87
%
-
11.53
%
7.04
%
Life in years (of the MSR)

4.26

-
7.25

7.11

3.35

-
7.37

7.20

4.28

-
7.18

7.05

4.30

-
7.22

7.09

Weighted-average coupon rate

3.57
%
-
5.84
%
3.70
%
3.55
%
-
6.24
%
3.68
%

3.63
%
-
5.75
%
3.75
%
3.57
%
-
5.81
%
3.73
%
Discount rate

10.36
%
-
10.55
%
10.52
%
10.41
%
-
10.54
%
10.51
%

10.27
%
-
10.58
%
10.52
%
10.40
%
-
10.60
%
10.52
%

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

Low-Income Housing Tax Credit Investments

The Company has a limited partnership interest or is a member in a limited liability company (“LLC”) in several low-income housing partnerships. These partnerships or LLCs provide funds for the construction and operation of apartment complexes that provide affordable housing to that segment of the population with lower family income. If these developments successfully attract a specified percentage of residents falling in that lower income range, state and/or federal income tax credits are made available to the partners or members. The tax credits are generally recognized over 5 or 10 years. In order to continue receiving the tax credits each year over the life of the partnership or LLC, the low-income residency targets must be maintained.

The Company generally accounts for its interests in these low-income housing partnerships using the proportional amortization method. The Company had $207.4 million and $206.9 million in affordable housing and other tax credit investment partnership interests as of March 31, 2024 and December 31, 2023, respectively, included in other assets on the unaudited interim consolidated balance sheets. The amount of amortization of such investments reported in the provision for income taxes was $7.7 million and $6.1 million during the three months ended March 31, 2024 and 2023, respectively. The affordable housing tax credits and other benefits recognized during the three months ended March 31, 2024 and 2023 were $9.6 million and $7.4 million, respectively, included in the provision for income taxes on the unaudited interim consolidated statements of income and net income on the unaudited interim consolidated statements of cash flows.

Unfunded commitments to fund these investments were $77.2 million and $80.7 million as of March 31, 2024 and December 31, 2023, respectively. These unfunded commitments are unconditional and legally binding and are recorded in other liabilities in the unaudited interim consolidated balance sheets.

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.

Table of Contents

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 and/or securities 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.

The carrying amounts of the assets pledged as collateral to secure public deposits, borrowing arrangements and other transactions as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 were as follows:

(dollars in thousands)

September 30, 2023

December 31, 2022

March 31, 2024

December 31, 2023
Public deposits

$
3,511,412

$
2,977,693

$
1,946,863

$
2,571,359
Federal Home Loan Bank

4,817,865

3,451,070

5,000,994

4,495,266
Federal Reserve Bank

4,801,873

1,704,803

3,943,124

4,074,093
ACH transactions

135,512

133,173

135,443

137,101
Interest rate swaps

585

31,091

1,184

575
Total

$
13,267,247

$
8,297,830

$
11,027,608

$
11,278,394

As the Company did not enter into reverse repurchase agreements or repurchase agreements, no collateral was accepted as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023. In addition, no debt was extinguished by in-substance defeasance.

~~Table of Contents~~

7. Deposits

As of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, deposits were categorized as interest-bearing or noninterest-bearing as follows:

(dollars in thousands)

September 30, 2023

December 31, 2022

March 31, 2024

December 31, 2023
U.S.:

Interest-bearing

$
12,667,072

$
11,936,775

$
12,451,100

$
12,731,915
Noninterest-bearing

6,931,032

7,978,046

6,212,216

6,609,483
Foreign:

Interest-bearing

945,421

887,608

1,169,828

1,017,180
Noninterest-bearing

967,964

886,600

836,337

974,079
Total deposits

$
21,511,489

$
21,689,029

$
20,669,481

$
21,332,657

The following table presents the maturity distribution of time certificates of deposit as of ~~September 30, 2023:~~March 31, 2024:

Under

$250,000

Under

$250,000

(dollars in thousands)

$250,000

or More

Total

$250,000

or More

Total
Three months or less

$
202,932

$
1,093,989

$
1,296,921

$
375,094

$
513,230

$
888,324
Over three through six months

268,176

540,418

808,594

742,247

472,846

1,215,093
Over six through twelve months

785,036

496,157

1,281,193

588,338

445,817

1,034,155
One to two years

114,912

57,576

172,488

54,414

12,867

67,281
Two to three years

41,313

7,422

48,735

28,830

2,448

31,278
Three to four years

26,248

5,529

31,777

22,977

6,826

29,803
Four to five years

17,012

3,452

20,464

17,156

571

17,727
Thereafter

313

646

959

384

—

384
Total

$
1,455,942

$
2,205,189

$
3,661,131

$
1,829,440

$
1,454,605

$
3,284,045

Time certificates of deposit in denominations of $250,000 or more, in the aggregate, were ~~$2.2~~$1.5 billion and ~~$1.5~~$1.8 billion as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively. Overdrawn deposit accounts are classified as loans and totaled ~~$2.0~~$1.9 million and $2.5 million as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively.

Table of Contents

8. Short-Term Borrowings

At ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, short-term borrowings were comprised of the following:

(dollars in thousands)

September 30, 2023

December 31, 2022

March 31, 2024

December 31, 2023
Federal funds purchased

$
—

$
75,000
Short-term FHLB fixed-rate advances⁽¹⁾

500,000

—

$
500,000

$
500,000
Total short-term borrowings

$
500,000

$
75,000

$
500,000

$
500,000
(1) Interest is payable monthly.

As of ~~September 30,~~March 31, 2024 and December 31, 2023, the Company’s short-term borrowings consisted of $500.0 million in short-term FHLB fixed-rate advances with a weighted average interest rate of 4.71% and maturity dates in September 2024. The FHLB fixed-rate advances require monthly interest-only payments with the principal amount due on the maturity date.

As of ~~December~~March 31, ~~2022, the Company’s short-term borrowings consisted of $75.0 million in federal funds purchased with a 4.35% annual interest rate that matured in January 2023. As of September 30, 2023~~2024 and December 31, ~~2022,~~2023, the Company had a remaining line of credit of ~~$2.8~~$2.9 billion and $2.5 billion, respectively, available from the ~~FHLB, respectively.~~FHLB. The FHLB borrowing capacity was secured by commercial real estate and residential real estate loan collateral as of ~~September 30, 2023 and residential real estate loan collateral as of December~~both March 31, ~~2022. As of September 30, 2023~~2024 and December 31, ~~2022, respectively,~~2023. As of March 31, 2024 and December 31, 2023, the Company had an undrawn line of credit of ~~$3.8~~$3.2 billion and ~~$1.2~~$3.3 billion, respectively, available from the FRB. The borrowing capacity with the FRB was secured by consumer, commercial and industrial, commercial real estate, residential real estate loans and pledged securities as of ~~September 30, 2023~~both March 31, 2024 and ~~consumer, commercial and industrial, commercial real estate and residential real estate loans as of~~ December 31, ~~2022.~~2023. See “Note 6. Transfers of Financial Assets” for more information.

~~Table of Contents~~

Nine Months Ended September 30,

Three Months Ended March 31,
(dollars in thousands)

2023

2022


2024

2023

Federal funds purchased:

Weighted-average interest rate at September 30,

—
%

—
%
Weighted-average interest rate at March 31,

—
%

—
%
Highest month-end balance

$
150,000

$
—

$
—

$
150,000

Average outstanding balance

$
23,059

$
55

$
—

$
67,056

Weighted-average interest rate paid

4.45
%

1.67
%

—
%

4.43
%
Short-term FHLB repo advance:

Weighted-average interest rate at September 30,

—
%

—
%
Weighted-average interest rate at March 31,

—
%

5.00
%
Highest month-end balance

$
400,000

$
—

$
—

$
250,000

Average outstanding balance

$
156,319

$
—

$
—

$
52,778

Weighted-average interest rate paid

5.25
%

—
%

—
%

5.02
%
Short-term FHLB fixed-rate advances:

Weighted-average interest rate at September 30,

4.71
%

—
%
Weighted-average interest rate at March 31,

4.71
%

—
%
Highest month-end balance

$
500,000

$
—

$
500,000

$
—

Average outstanding balance

$
20,147

$
—

$
500,000

$
—

Weighted-average interest rate paid

4.34
%

—
%

4.79
%

—
%

9. Accumulated Other Comprehensive Loss

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

~~Changes in accumulated other comprehensive loss for the three and nine months ended September 30, 2023 and 2022 are presented below:~~

Income

Tax

Pre-tax

Benefit

Net of
(dollars in thousands)

Amount

(Expense)

Tax
Accumulated other comprehensive loss at June 30, 2023

$
(835,647)

$
222,911

$
(612,736)
Three months ended September 30, 2023

Investment securities:

Unrealized net losses arising during the period

(61,874)

16,505

(45,369)
Reclassification of net losses to net income:

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

11,434

(3,050)

8,384
Net change in investment securities

(50,440)

13,455

(36,985)
Cash flow derivative hedges:

Unrealized net losses arising during the period

(373)

100

(273)
Reclassification of net losses included in net income

1,723

(460)

1,263
Net change in cash flow derivative hedges

1,350

(360)

990
Other comprehensive loss

(49,090)

13,095

(35,995)
Accumulated other comprehensive loss at September 30, 2023

$
(884,737)

$
236,006

$
(648,731)

~~Table of Contents~~

Income

Tax

Pre-tax

Benefit

Net of
(dollars in thousands)

Amount

(Expense)

Tax
Accumulated other comprehensive loss at December 31, 2022

$
(871,813)

$
232,559

$
(639,254)
Nine months ended September 30, 2023

Investment securities:

Unrealized net losses arising during the period

(50,861)

13,567

(37,294)
Reclassification of net losses to net income:

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

36,206

(9,658)

26,548
Net change in investment securities

(14,655)

3,909

(10,746)
Cash flow derivative hedges:

Unrealized net losses arising during the period

(2,868)

765

(2,103)
Reclassification of net losses included in net income

4,599

(1,227)

3,372
Net change in cash flow derivative hedges

1,731

(462)

1,269
Other comprehensive loss

(12,924)

3,447

(9,477)
Accumulated other comprehensive loss at September 30, 2023

$
(884,737)

$
236,006

$
(648,731)

Income

Tax

Pre-tax

Benefit

Net of
(dollars in thousands)

Amount

(Expense)

Tax
Accumulated other comprehensive loss at June 30, 2022

$
(779,352)

$
207,895

$
(571,457)
Three months ended September 30, 2022

Investment securities:

Unrealized net losses arising during the period

(130,000)

34,677

(95,323)
Reclassification of net losses to net income:

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

15,217

(4,058)

11,159
Net change in investment securities

(114,783)

30,619

(84,164)
Cash flow derivative hedges:

Unrealized net losses arising during the period

(4,372)

1,165

(3,207)
Reclassification of net losses included in net income

98

(26)

72
Net change in cash flow derivative hedges

(4,274)

1,139

(3,135)
Other comprehensive loss

(119,057)

31,758

(87,299)
Accumulated other comprehensive loss at September 30, 2022

$
(898,409)

$
239,653

$
(658,756)

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)
Nine months ended September 30, 2022

Investment securities:

Unrealized net losses arising during the period

(759,437)

202,580

(556,857)
Reclassification of net losses to net income:

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

35,146

(9,375)

25,771
Net change in investment securities

(724,291)

193,205

(531,086)
Cash flow derivative hedges:

Unrealized net losses arising during the period

(7,611)

2,030

(5,581)
Reclassification of net gains included in net income

(540)

144

(396)
Net change in cash flow derivative hedges

(8,151)

2,174

(5,977)
Other comprehensive loss

(732,442)

195,379

(537,063)
Accumulated other comprehensive loss at September 30, 2022

$
(898,409)

$
239,653

$
(658,756)

3327

Table of Contents

Changes in accumulated other comprehensive loss for the three months ended March 31, 2024 and 2023 are presented below:

Income

Tax

Pre-tax

Benefit

Net of
(dollars in thousands)

Amount

(Expense)

Tax
Accumulated other comprehensive loss at December 31, 2023

$
(723,100)

$
192,890

$
(530,210)
Three months ended March 31, 2024

Investment securities:

Unrealized net losses arising during the period

(3,432)

915

(2,517)
Reclassification of net losses to net income:

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

11,160

(2,976)

8,184
Net change in investment securities

7,728

(2,061)

5,667
Cash flow derivative hedges:

Unrealized net losses arising during the period

(713)

189

(524)
Reclassification of net losses included in net income

1,755

(468)

1,287
Net change in cash flow derivative hedges

1,042

(279)

763
Other comprehensive income

8,770

(2,340)

6,430
Accumulated other comprehensive loss at March 31, 2024

$
(714,330)

$
190,550

$
(523,780)

Income

Tax

Pre-tax

Benefit

Net of
(dollars in thousands)

Amount

(Expense)

Tax
Accumulated other comprehensive loss at December 31, 2022

$
(871,813)

$
232,559

$
(639,254)
Three months ended March 31, 2023

Investment securities:

Unrealized net gains arising during the period

25,038

(6,679)

18,359
Reclassification of net losses to net income:

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

11,708

(3,123)

8,585
Net change in investment securities

36,746

(9,802)

26,944
Cash flow derivative hedges:

Unrealized net losses arising during the period

(442)

118

(324)
Reclassification of net losses included in net income

1,303

(348)

955
Net change in cash flow derivative hedges

861

(230)

631
Other comprehensive income

37,607

(10,032)

27,575
Accumulated other comprehensive loss at March 31, 2023

$
(834,206)

$
222,527

$
(611,679)

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

Pensions

Accumulated

Pensions

Accumulated

and

Available-for-Sale

Held-to-Maturity

Cash Flow

Other

and

Available-for-Sale

Held-to-Maturity

Cash Flow

Other

Other

Investment

Investment

Derivative

Comprehensive

Other

Investment

Investment

Derivative

Comprehensive
(dollars in thousands)

Benefits

Securities

Securities

Hedges

Loss

Benefits

Securities

Securities

Hedges

Loss
Three Months Ended September 30, 2023

Three Months Ended March 31, 2024

Balance at beginning of period

$
(5,431)

$
(284,100)

$
(318,782)

$
(4,423)

$
(612,736)

$
(5,373)

$
(222,423)

$
(301,611)

$
(803)

$
(530,210)
Other comprehensive (loss) income

—

(45,369)

8,384

990

(35,995)

—

(2,517)

8,184

763

6,430
Balance at end of period

$
(5,431)

$
(329,469)

$
(310,398)

$
(3,433)

$
(648,731)

$
(5,373)

$
(224,940)

$
(293,427)

$
(40)

$
(523,780)

Nine Months Ended September 30, 2023

Three Months Ended March 31, 2023

Balance at beginning of period

$
(5,431)

$
(292,175)

$
(336,946)

$
(4,702)

$
(639,254)

$
(5,431)

$
(292,175)

$
(336,946)

$
(4,702)

$
(639,254)
Other comprehensive (loss) income

—

(37,294)

26,548

1,269

(9,477)
Other comprehensive income

—

18,359

8,585

631

27,575
Balance at end of period

$
(5,431)

$
(329,469)

$
(310,398)

$
(3,433)

$
(648,731)

$
(5,431)

$
(273,816)

$
(328,361)

$
(4,071)

$
(611,679)

Three Months Ended September 30, 2022

Balance at beginning of period

$
(24,390)

$
(220,021)

$
(324,204)

$
(2,842)

$
(571,457)
Unrealized net losses related to the transfer of securities from available-for-sale to held-to-maturity

—

33,603

(33,603)

—

—
Other comprehensive (loss) income

—

(95,323)

11,159

(3,135)

(87,299)
Balance at end of period

$
(24,390)

$
(281,741)

$
(346,648)

$
(5,977)

$
(658,756)

Nine Months Ended September 30, 2022

Balance at beginning of period

$
(24,390)

$
(97,303)

$
—

$
—

$
(121,693)
Unrealized net losses related to the transfer of securities from available-for-sale to held-to-maturity

—

372,419

(372,419)

—

—
Other comprehensive (loss) income

—

(556,857)

25,771

(5,977)

(537,063)
Balance at end of period

$
(24,390)

$
(281,741)

$
(346,648)

$
(5,977)

$
(658,756)

Table of Contents

10. 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 ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:

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⁾

September 30, 2023:

March 31, 2024:

Common equity tier 1 capital to risk-weighted assets

$
2,004,248

12.21
%
$
1,990,261

12.12
%
4.50
%
6.50
%

$
2,040,871

12.55
%
$
2,029,029

12.48
%
4.50
%
6.50
%
Tier 1 capital to risk-weighted assets

2,004,248

12.21
%

1,990,261

12.12
%
6.00
%
8.00
%

2,040,871

12.55
%

2,029,029

12.48
%
6.00
%
8.00
%
Total capital to risk-weighted assets

2,196,818

13.38
%

2,182,831

13.30
%
8.00
%
10.00
%

2,235,520

13.75
%

2,223,678

13.67
%
8.00
%
10.00
%
Tier 1 capital to average assets (leverage ratio)

2,004,248

8.45
%

1,990,261

8.39
%
4.00
%
5.00
%

2,040,871

8.80
%

2,029,029

8.75
%
4.00
%
5.00
%

December 31, 2022:

December 31, 2023:

Common equity tier 1 capital to risk-weighted assets

$
1,912,767

11.82
%
$
1,895,693

11.71
%
4.50
%
6.50
%

$
2,020,784

12.39
%
$
2,006,393

12.30
%
4.50
%
6.50
%
Tier 1 capital to risk-weighted assets

1,912,767

11.82
%

1,895,693

11.71
%
6.00
%
8.00
%

2,020,784

12.39
%

2,006,393

12.30
%
6.00
%
8.00
%
Total capital to risk-weighted assets

2,090,502

12.92
%

2,073,428

12.81
%
8.00
%
10.00
%

2,212,922

13.57
%

2,198,531

13.48
%
8.00
%
10.00
%
Tier 1 capital to average assets (leverage ratio)

1,912,767

8.11
%

1,895,693

8.04
%
4.00
%
5.00
%

2,020,784

8.64
%

2,006,393

8.57
%
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 ~~September 30, 2023,~~March 31, 2024, 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 ~~September 30, 2023,~~March 31, 2024, to change the capital adequacy category of the Company or the Bank.

11. 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 and collars 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 the notional amounts and fair values of derivatives held by the Company as of September 30, 2023 and December 31, 2022:~~

September 30, 2023

December 31, 2022

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

$
9,829

$
(3,731)

$
267,500

$
7,276

$
(6,840)
Interest rate collars

200,000

—

(951)

200,000

491

(63)
Derivatives not designated as hedging instruments:

Interest rate swaps

2,811,284

3,073

(1,198)

2,849,776

3,178

(42,365)
Visa derivative

102,587

—

(1,200)

121,013

—

(851)
Foreign exchange contracts

191

—

—

210

—

—
~~(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 March 31, 2024 and December 31, 2023:

March 31, 2024

December 31, 2023

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

$
266,563

$
10,234

$
(58)

$
267,500

$
10,861

$
(1,799)
Interest rate collars

200,000

47

(43)

200,000

703

—
Derivatives not designated as hedging instruments:

Interest rate swaps

2,708,933

2,740

(4,645)

2,753,801

1,204

(521)
Visa derivative

114,190

—

(2,300)

107,548

—

(2,300)
Foreign exchange contracts

800

—

—

66

—

—
(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 ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the amount of initial margin cash collateral posted by the Company was ~~$0.6~~$1.2 million and ~~$1.2~~$0.6 million, respectively. As of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the variation margin was $1.9 million and ~~$39.2~~$0.7 million, respectively.

As of ~~September 30, 2023,~~March 31, 2024, the Company pledged ~~$0.6~~$1.2 million in cash and received ~~$49.1~~$35.0 million in cash as collateral for interest rate swaps. As of December 31, ~~2022,~~2023, the Company pledged ~~$29.9 million in financial instruments and $1.2~~$0.6 million in cash and received ~~$48.1~~$27.1 million in cash as collateral for interest rate swaps. As of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, 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.

As of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the Company received ~~$68.5~~$53.3 million and ~~nil,~~$40.9 million, respectively, in securities collateral for interest rate swaps, which is held in a custodial account and is not recorded on the Company’s unaudited interim consolidated balance sheets.

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 ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the Company carried one interest rate swap with a notional amount of $66.6 million and $67.5 million, respectively, which was designated and qualified as a fair value hedge for a commercial and industrial loan. As of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the interest rate swap had a positive fair value of ~~$9.8~~$10.2 million and ~~$7.3~~$10.9 million, respectively. The swap matures in 2041. The Company received a USD Federal Funds floating rate and paid a fixed rate of 2.07%.

~~The following table shows the gains and losses recognized in income related to derivatives in fair value hedging relationships for the three and nine months ended September 30, 2023 and 2022:~~

Gains (losses) recognized in

Three Months Ended

Nine Months Ended

the consolidated statements

September 30,

September 30,
(dollars in thousands)

of income line item

2023

2022

2023

2022
Gains (losses) on fair value hedging relationships recognized in interest income:

Recognized on interest rate swap

Loans and lease financing

$
2,159

$
745

$
2,553

$
6,888
Recognized on hedged item

Loans and lease financing

(2,256)

(839)

(2,833)

(7,185)

As of September 30, 2023 and December 31, 2022, 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

Carrying Amount of the Hedged Asset
(dollars in thousands)

September 30, 2023

December 31, 2022

September 30, 2023

December 31, 2022
Line item in the consolidated balance sheets in which the hedged item is included

Loans and leases

$
57,627

$
60,189

$
(9,873)

$
(7,311)

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The following table shows the gains and losses recognized in income related to derivatives in fair value hedging relationships for the three months ended March 31, 2024 and 2023:

Gains (losses) recognized in

Three Months Ended

the consolidated statements

March 31,
(dollars in thousands)

of income line item

2024

2023
Gains (losses) on fair value hedging relationships recognized in interest income:

Recognized on interest rate swap

Loans and lease financing

$
(627)

$
1,189
Recognized on hedged item

Loans and lease financing

619

(1,284)

As of March 31, 2024 and December 31, 2023, 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

Carrying Amount of the Hedged Asset
(dollars in thousands)

March 31, 2024

December 31, 2023

March 31, 2024

December 31, 2023
Line item in the consolidated balance sheets in which the hedged item is included

Loans and leases

$
56,273

$
56,592

$
(10,289)

$
(10,908)

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~~corresponded to the floating-rate nature of the interest receipts being hedged (based on USD Prime). The swaps provided an initial benefit to interest income as the Company received the higher fixed rate, which persisted while the floating rate remained below the swap’s fixed rate. By hedging with interest rate swaps, the Company minimized the adverse impact on interest income previously associated with a low interest rate environment on floating-rate loans.

As of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the Company carried two interest rate swaps with notional amounts totaling $200.0 million, with a negative fair value totaling ~~$3.7~~$0.1 million and ~~$6.8~~$1.8 million, respectively. The swaps ~~mature~~matured in April 2024. The Company received fixed rates ranging from 1.70% to 2.08% and paid 1-month BSBY.

The Company also utilized interest rate collars to manage interest rate risk and protect against downside risk in yields associated with interest payments received on a pool of floating-rate assets. The floating-rate index of the collars (Secured Overnight Financing Rate, or “SOFR”) corresponds to the floating-rate nature of the interest receipts being hedged (based on SOFR). Interest rate collars involve the payments of variable-rate amounts if the collar index exceeds the cap strike rate on the contract and receipts of variable-rate amounts if the collar index falls below the floor strike rate on the contract. No payments are required if the collar index falls between the cap and floor rates. By hedging with interest rate collars, the Company mitigates the adverse impact on interest income associated with possible future decreases in interest rates.

As of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the Company carried two interest rate collars with notional amounts totaling $200.0 million. As of ~~September 30, 2023, these interest rate collars had a negative fair value of $1.0 million. As of December~~March 31, ~~2022,~~2024, these interest rate collars had a positive fair value of ~~$0.5 million~~nil and a negative fair value of ~~$0.1~~nil. As of December 31, 2023, these interest rate collars had a positive fair value of $0.7 million. The collars mature in 2025 and 2027. The interest rate collars had a floor strike rate of 2.00% and cap strike rates ranging from 5.31% to 5.64%.

The interest rate swaps and collars 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 and collars 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 nine months ended September 30, 2023 and 2022:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,
(dollars in thousands)

2023

2022

2023

2022
Pretax net losses recognized in other comprehensive income on cash flow derivative hedges

$
(373)

$
(4,372)

$
(2,868)

$
(7,611)
Pretax net losses (gains) reclassified from accumulated other comprehensive income to interest income from loans and lease financing

1,723

98

4,599

(540)

The estimated net amount to be reclassified within the next 12 months out of accumulated other comprehensive income (loss) into earnings is $3.7 million as a decrease to interest income from loans and lease financing. As of September 30, 2023, the maximum length of time over which forecasted transactions are hedged is approximately four years.

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The following table summarizes the effect of cash flow hedging relationships for the three months ended March 31, 2024 and 2023:

Three Months Ended

March 31,
(dollars in thousands)

2024

2023
Pretax net losses recognized in other comprehensive income on cash flow derivative hedges

$
(713)

$
(442)
Pretax net losses reclassified from accumulated other comprehensive income to interest income from loans and lease financing

1,755

1,303

The estimated net amount to be reclassified within the next 12 months out of accumulated other comprehensive income (loss) into earnings is nil as a decrease to interest income from loans and lease financing. As of March 31, 2024, the maximum length of time over which forecasted transactions are hedged is approximately four 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 nine~~ months ended ~~September 30, 2023~~March 31, 2024 and ~~2022:~~2023:

Net gains (losses) recognized

Three Months Ended

Nine Months Ended

Net losses recognized
Three Months Ended

in the consolidated statements

September 30,

September 30,

in the consolidated statements
March 31,
(dollars in thousands)

of income line item

2023

2022

2023

2022

of income line item
2024

2023
Derivatives Not Designated As Hedging Instruments:

Interest rate swaps

Other noninterest income

$
26

$
—

$
(532)

$
—

Other noninterest income
$
(7)

$
(378)
Visa derivative

Other noninterest income

$
(1,350)

$
273

(5,129)

(1,084)

Other noninterest income

(1,476)

(1,963)

As of ~~September 30,~~March 31, 2024, the Company carried multiple interest rate swaps with notional amounts totaling $2.7 billion, all of which were related to the Company’s customer swap program, with a positive fair value of $2.7 million and a negative fair value of $4.6 million. The Company received floating rates ranging from 1.89% to 8.33% and paid fixed rates ranging from 2.39% to 5.98%. The swaps mature between April 2024 and October 2043. As of December 31, 2023, the Company carried multiple interest rate swaps with notional amounts totaling $2.8 billion, all of which were related to the Company’s customer swap program, with a positive fair value of ~~$3.1~~$1.2 million and a negative fair value of ~~$1.2~~$0.5 million. The Company received floating rates ranging from ~~5.82%~~5.84% to ~~8.33%~~8.34% and paid fixed rates ranging from 2.39% to 5.86%. The swaps mature between October 2023 and June 2040. As of December 31, 2022, the Company carried multiple interest rate swaps with notional amounts totaling $2.8 billion, all of which were related to the Company’s customer swap program, with a positive fair value of $3.2 million and a negative fair value of $42.4 million. The Company received floating rates ranging from 4.62% to 7.12% and paid fixed rates ranging from 2.39% to 6.13%5.98%. These swaps resulted in net interest expense of nil during both the three ~~and nine~~ months ended ~~September 30, 2023~~March 31, 2024 and ~~2022.~~2023.

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 nil and ~~$0.4~~$0.1 million for the three months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022, respectively, and $1.5 million and $1.8 million for the nine months ended September 30, 2023 and 2022,~~ respectively.

Visa Class B Restricted Shares

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 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. During 2018 through 2023, Visa funded its litigation escrow account, thereby reducing each member bank’s Class B conversion rate to unrestricted Class A common shares from 1.6483 to the current conversion rate of 1.5875. 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 ~~$1.2 million and $0.9~~$2.3 million was included in the unaudited interim consolidated balance sheets at ~~September 30, 2023~~both March 31, 2024 and December 31, ~~2022, respectively,~~2023, to provide for the fair value of this liability. There were no sales of these shares prior to 2016. See “Note 16. Fair Value” for more information.

Table of Contents

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 nil were recognized during both the three months ended ~~September 30, 2023~~March 31, 2024 and ~~2022, and nil and $0.1 million were recognized during the nine months ended September 30, 2023 and 2022, respectively.~~2023.

Credit-Risk Related Contingent Features

Certain of the Company’s 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. The aggregate fair value of all derivative instruments with such credit-risk related contingent features that are in a net liability position was nil at both ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, for which the Company posted nil in collateral in the normal course of business. If the Company’s credit rating had been downgraded as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the Company may have been required to settle the contracts in an amount equal to their fair value.

12. 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.

~~In addition to the litigation noted above, various~~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.

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 ~~$65.5~~$48.8 million and ~~$90.5~~$61.8 million at ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively.

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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 ~~$8.2~~$6.3 million and ~~$8.1~~$6.8 million at ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, 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 ~~September 30, 2023~~March 31, 2024 have maturities ranging from ~~October 2023~~April 2024 to ~~September 2026.~~May 2028. 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.

Financial instruments with off-balance sheet risk at ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 were as follows:

September 30,

December 31,

March 31,

December 31,
(dollars in thousands)

2023

2022

2024

2023
Financial instruments whose contract amounts represent credit risk:

Commitments to extend credit

$
6,722,595

$
6,760,395

$
6,243,969

$
6,308,343
Standby letters of credit

238,704

244,275

250,803

234,102
Commercial letters of credit

5,410

7,299

4,105

3,629

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. Derivative Financial Instruments” for more information.

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.

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13. Revenue from Contracts with Customers

Revenue Recognition

In accordance with Topic 606, Revenue from Contracts with Customers, 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

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 September 30, 2023

Treasury

Retail

Commercial

and

(dollars in thousands)

Banking

Banking

Other

Total
Net interest income⁽¹⁾

$
119,070

$
45,913

$
(7,835)

$
157,148

Service charges on deposit accounts

6,724

714

86

7,524
Credit and debit card fees

—

13,990

1,152

15,142
Other service charges and fees

6,461

425

529

7,415
Trust and investment services income

9,742

—

—

9,742
Other

86

2,599

(48)

2,637
Not in scope of Topic 606⁽¹⁾

1,821

1,130

686

3,637
Total noninterest income

24,834

18,858

2,405

46,097
Total revenue

$
143,904

$
64,771

$
(5,430)

$
203,245

Nine Months Ended September 30, 2023

Three Months Ended March 31, 2024

Treasury

Treasury

Retail

Commercial

and

Retail

Commercial

and

(dollars in thousands)

Banking

Banking

Other

Total

Banking

Banking

Other

Total
Net interest income⁽¹⁾

$
332,227

$
128,348

$
23,759

$
484,334
Net interest income (expense)⁽¹⁾

$
128,057

$
45,381

$
(19,011)

$
154,427

Service charges on deposit accounts

19,723

2,002

276

22,001

6,675

824

47

7,546
Credit and debit card fees

—

42,044

3,687

45,731

—

14,592

1,006

15,598
Other service charges and fees

18,681

1,268

1,592

21,541

6,938

398

570

7,906
Trust and investment services income

28,804

—

—

28,804

10,354

—

—

10,354
Other

413

6,449

2,037

8,899

220

1,148

2,640

4,008
Not in scope of Topic 606⁽¹⁾

5,277

4,069

6,146

15,492

1,848

996

3,115

5,959
Total noninterest income

72,898

55,832

13,738

142,468

26,035

17,958

7,378

51,371
Total revenue

$
405,125

$
184,180

$
37,497

$
626,802

$
154,092

$
63,339

$
(11,633)

$
205,798
(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, derivative financial instruments and bank-owned life insurance.

~~Table of Contents~~

Three Months Ended September 30, 2022

Treasury

Retail

Commercial

and

(dollars in thousands)

Banking

Banking

Other

Total
Net interest income⁽¹⁾

$
117,060

$
39,586

$
6,090

$
162,736

Service charges on deposit accounts

6,421

621

47

7,089
Credit and debit card fees

—

15,831

1,312

17,143
Other service charges and fees

6,081

509

472

7,062
Trust and investment services income

9,800

—

—

9,800
Other

93

1,250

304

1,647
Not in scope of Topic 606⁽¹⁾

2,085

1,637

(606)

3,116
Total noninterest income

24,480

19,848

1,529

45,857
Total revenue

$
141,540

$
59,434

$
7,619

$
208,593

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Treasury

Treasury

Retail

Commercial

and

Retail

Commercial

and

(dollars in thousands)

Banking

Banking

Other

Total

Banking

Banking

Other

Total
Net interest income⁽¹⁾

$
318,476

$
111,500

$
11,779

$
441,755

$
108,920

$
40,939

$
17,388

$
167,247

Service charges on deposit accounts

19,155

1,380

898

21,433

6,541

626

64

7,231
Credit and debit card fees

—

44,099

3,734

47,833

—

14,414

1,296

15,710
Other service charges and fees

18,950

1,708

1,327

21,985

6,171

420

513

7,104
Trust and investment services income

27,442

—

—

27,442

9,614

—

—

9,614
Other

396

6,708

849

7,953

239

1,317

1,649

3,205
Not in scope of Topic 606⁽¹⁾

4,337

5,023

(4,632)

4,728

1,702

1,111

3,346

6,159
Total noninterest income

70,280

58,918

2,176

131,374

24,267

17,888

6,868

49,023
Total revenue

$
388,756

$
170,418

$
13,955

$
573,129

$
133,187

$
58,827

$
24,256

$
216,270
(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, derivative financial instruments and bank-owned life insurance.

Table of Contents

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022,~~ 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.

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.

~~Table of Contents~~

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.

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. The Company received signing bonuses from two vendors in prior years, which are being amortized over the term of the respective contracts. As of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the Company had contract liabilities of ~~$2.1~~$1.8 million and ~~$2.7~~$1.9 million, respectively, which it expects to recognize over the remaining term of the respective contracts with the vendors. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2024, the Company’s recognized revenues increased and contract liabilities decreased by approximately $0.2 million due to the passage of time. For the three months ended March 31, 2023, the Company’s recognized revenues increased and contract liabilities decreased by approximately $0.2 million and $0.6 million due to the passage of time. For the three and nine months ended September 30, 2022, the Company’s recognized revenues increased and contract liabilities decreased by approximately $0.2 million and $0.7 million, respectively, due to the passage of time. There were no 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 ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, there were no material receivables from contracts with customers or contract assets recorded on the Company’s unaudited interim consolidated balance sheets.

Other

Except for the contract liabilities noted above, the Company did not have any significant performance obligations as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023. The Company also did not have any material contract acquisition costs or use any significant judgments or estimates in recognizing revenue for financial reporting purposes.

Table of Contents

14. Earnings per Share

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2024, the Company made no adjustments to net income for the purpose of computing earnings per share and there were 115,000 antidilutive securities. For the three months ended March 31, 2023, the Company made no adjustments to net income for the purpose of computing earnings per share and there were 611,000 and 609,000 antidilutive securities, respectively. For the three and nine months ended September 30, 2022, the Company made no adjustments to net income for the purpose of computing earnings per share and there were no221,000 antidilutive securities. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022,~~ the computations of basic and diluted earnings per share were as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,
(dollars in thousands, except shares and per share amounts)

2023

2022

2023

2022

2024

2023
Numerator:

Net income

$
58,221

$
69,018

$
187,481

$
186,097

$
54,220

$
66,818

Denominator:

Basic: weighted-average shares outstanding

127,609,860

127,377,713

127,552,255

127,534,746

127,707,354

127,453,820
Add: weighted-average equity-based awards

326,580

418,904

345,574

461,926

510,335

579,992
Diluted: weighted-average shares outstanding

127,936,440

127,796,617

127,897,829

127,996,672

128,217,689

128,033,812

Basic earnings per share

$
0.46

$
0.54

$
1.47

$
1.46

$
0.42

$
0.52
Diluted earnings per share

$
0.46

$
0.54

$
1.47

$
1.45

$
0.42

$
0.52

~~Table of Contents~~

15. 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 nine~~ months ended ~~September 30, 2023~~March 31, 2024 and ~~2022:~~2023:

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

2023

2022

2023

2022

the consolidated statements of income

2024

2023

2024

2023
Three Months Ended September 30,

Three Months Ended March 31,

Service cost

Salaries and employee benefits

$
—

$
—

$
136

$
197

Salaries and employee benefits

$
—

$
—

$
137

$
147
Interest cost

Other noninterest expense

2,053

1,523

171

118

Other noninterest expense

1,906

2,059

211

220
Expected return on plan assets

Other noninterest expense

(883)

(783)

—

—

Other noninterest expense

(878)

(883)

—

—
Recognized net actuarial loss (gain)

Other noninterest expense

719

1,269

(379)

(101)

Other noninterest expense

503

719

(322)

(379)
Total net periodic benefit cost

$
1,889

$
2,009

$
(72)

$
214

$
1,531

$
1,895

$
26

$
(12)

Nine Months Ended September 30,

Service cost

Salaries and employee benefits

$
—

$
—

$
430

$
626
Interest cost

Other noninterest expense

6,171

4,245

611

405
Expected return on plan assets

Other noninterest expense

(2,648)

(2,348)

—

—
Recognized net actuarial loss (gain)

Other noninterest expense

2,157

3,806

(1,137)

(303)
Total net periodic benefit cost

$
5,680

$
5,703

$
(96)

$
728

Leases

The Company recognized operating lease income related to lease payments of $1.6 million ~~and $1.5 million~~ for both the three months ended ~~September 30, 2023~~March 31, 2024 and ~~2022, respectively, and $4.7 million and $4.6 million for the nine months ended September 30, 2023 and 2022, respectively.~~2023. In addition, the Company recognized ~~$1.5~~$1.6 million and ~~$1.7~~$1.8 million of lease income related to variable lease payments for the three months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022, respectively, and $4.8 million and $4.9 million for the nine months ended September 30, 2023 and 2022,~~ respectively.

16. 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.

Table of Contents

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 collateral-dependent loans, 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 September 30, 2023 and December 31, 2022, 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. During 2018 through 2023, Visa funded its litigation escrow account, thereby reducing each member bank’s Class B conversion rate to unrestricted Class A common shares from 1.6483 to the current conversion rate of 1.5875. The Visa derivative of ~~$1.2 million and $0.9~~$2.3 million was included in the unaudited interim consolidated balance sheets at ~~September 30, 2023~~both March 31, 2024 and December 31, ~~2022, respectively,~~2023, 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.

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 ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 are summarized below:


Fair Value Measurements as of September 30, 2023

Fair Value Measurements as of March 31, 2024

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

$
—

$
114,159

$
—

$
114,159

$
—

$
12,821

$
—

$
12,821
Government-sponsored enterprises debt securities

—

19,260

—

19,260

—

19,629

—

19,629
Mortgage-backed securities:

Residential - Government agency⁽¹⁾

—

52,362

—

52,362

—

9,609

—

9,609
Residential - Government-sponsored enterprises⁽¹⁾

—

1,005,782

—

1,005,782

—

753,385

—

753,385
Commercial - Government agency

—

211,897

—

211,897

—

213,394

—

213,394
Commercial - Government-sponsored enterprises

—

84,920

—

84,920

—

83,490

—

83,490
Commercial - Non-agency

—

21,602

—

21,602

—

22,110

—

22,110
Collateralized mortgage obligations:

Government agency

—

565,852

—

565,852

—

452,163

—

452,163
Government-sponsored enterprises

—

400,748

—

400,748

—

353,061

—

353,061
Collateralized loan obligations

—

246,122

—

246,122

—

239,676

—

239,676
Total available-for-sale securities

—

2,722,704

—

2,722,704

—

2,159,338

—

2,159,338
Other assets⁽²⁾

1,287

12,902

—

14,189

216

13,021

—

13,237
Liabilities

Other liabilities⁽³⁾

—

(5,880)

(1,200)

(7,080)

—

(4,746)

(2,300)

(7,046)
Total

$
1,287

$
2,729,726

$
(1,200)

$
2,729,813

$
216

$
2,167,613

$
(2,300)

$
2,165,529
(1) Backed by residential real estate.
(2) Other assets classified as Level 1 include 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.

4640

Table of Contents

Fair Value Measurements as of December 31, 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

$
—

$
150,982

$
—

$
150,982
Government-sponsored enterprises debt securities

—

44,301

—

44,301
Mortgage-backed securities:

Residential - Government agency⁽¹⁾

—

59,723

—

59,723
Residential - Government-sponsored enterprises⁽¹⁾

—

1,160,455

—

1,160,455
Commercial - Government agency

—

237,853

—

237,853
Commercial - Government-sponsored enterprises

—

119,573

—

119,573
Commercial - Non-agency

—

21,471

—

21,471
Collateralized mortgage obligations:

Government agency

—

653,322

—

653,322
Government-sponsored enterprises

—

462,132

—

462,132
Collateralized loan obligations

—

241,321

—

241,321
Total available-for-sale securities

—

3,151,133

—

3,151,133
Other assets⁽²⁾

5,376

10,945

—

16,321
Liabilities

Other liabilities⁽³⁾

—

(49,268)

(851)

(50,119)
Total

$
5,376

$
3,112,810

$
(851)

$
3,117,335


Fair Value Measurements as of December 31, 2023

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

$
—

$
32,503

$
—

$
32,503
Government-sponsored enterprises debt securities

—

19,592

—

19,592
Mortgage-backed securities:

Residential - Government agency⁽¹⁾

—

10,182

—

10,182
Residential - Government-sponsored enterprises⁽¹⁾

—

783,297

—

783,297
Commercial - Government agency

—

218,674

—

218,674
Commercial - Government-sponsored enterprises

—

86,431

—

86,431
Commercial - Non-agency

—

21,683

—

21,683
Collateralized mortgage obligations:

Government agency

—

471,150

—

471,150
Government-sponsored enterprises

—

363,970

—

363,970
Collateralized loan obligations

—

247,854

—

247,854
Total available-for-sale securities

—

2,255,336

—

2,255,336
Other assets⁽²⁾

517

12,768

—

13,285
Liabilities

Other liabilities⁽³⁾

—

(2,320)

(2,300)

(4,620)
Total

$
517

$
2,265,784

$
(2,300)

$
2,264,001
(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.

For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the significant unobservable inputs used in the fair value measurements were as follows:

~~Quantitative Information about Level 3 Fair Value Measurements at September 30, 2023~~

~~Significant~~

~~(dollars in thousands)~~

~~Fair value~~
~~Valuation Technique~~
~~Unobservable Input~~
~~Range~~
~~Visa derivative~~

$
~~(1,200)~~

~~Discounted Cash Flow~~

~~Expected Conversion Rate -~~ ~~1.5875~~⁽¹⁾

~~1.5289~~-~~1.5875~~

~~Expected Term -~~ 3 ~~months~~⁽²⁾

0 - 6 ~~months~~

~~Growth Rate -~~ ~~17%~~⁽³⁾

7% - ~~24%~~

Quantitative Information about Level 3 Fair Value Measurements at March 31, 2024

Significant

(dollars in thousands)

Fair value

Valuation Technique

Unobservable Input

Range
Collateral-dependent loans

$
14,623

Financial Statement Values

Discounts to reflect estimated selling costs

0% - 50%
Visa derivative

$
(2,300)

Discounted Cash Flow

Expected Conversion Rate - 1.5875⁽¹⁾

1.5289-1.5875

Expected Term - 6 months⁽²⁾

n/m⁽²⁾

Growth Rate - 9%⁽³⁾

-7% - 22%

Quantitative Information about Level 3 Fair Value Measurements at December 31, ~~2022~~2023

Significant

(dollars in thousands)

Fair value

Valuation Technique

Unobservable Input

Range
Visa derivative

$
~~(851)~~(2,300)

Discounted Cash Flow

Expected Conversion Rate - ~~1.5991~~1.5875⁽¹⁾

~~1.5514-1.5991~~1.5289-1.5875

Expected Term - 35 months⁽²⁾

~~0 - 6 months~~n/m⁽²⁾

Growth Rate - ~~26%~~10%⁽³⁾

~~10%~~-6% - ~~38%~~25%
(1) Due to the uncertainty in the movement of the conversion rate, the current conversion rate as of the respective consolidated balance sheet dates was utilized in the fair value calculation.
(2) The expected ~~term of 3 months was~~terms are based on ~~the median of 0~~a May 2024 claim filing deadline and subsequent period for claims to ~~6 months.~~be processed. As such, a range is not meaningful to disclose.
(3) The growth rate was based on the arithmetic average of analyst price targets.

4741

Table of Contents

Changes in Fair Value Levels

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022,~~ there were no transfers between fair value hierarchy levels.

The changes in Level 3 liabilities measured at fair value on a recurring basis for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2024 and 2023 ~~and 2022~~ are summarized below:

Visa Derivative

Visa Derivative
(dollars in thousands)

2023

2022

2024

2023
Three Months Ended September 30,

Balance as of July 1,

$
(1,200)

$
(3,786)
Total net (losses) gains included in other noninterest income

(1,350)

273
Settlements

1,350

1,154
Balance as of September 30,

$
(1,200)

$
(2,359)
Total net (losses) gains included in net income attributable to the change in unrealized gains or losses related to liabilities still held as of September 30,

$
(1,350)

$
273

Nine Months Ended September 30,

Three Months Ended March 31,

Balance as of January 1,

$
(851)

$
(5,530)

$
(2,300)

$
(851)
Total net losses included in other noninterest income

(5,129)

(1,084)

(1,476)

(1,963)
Settlements

4,780

4,255

1,476

1,614
Balance as of September 30,

$
(1,200)

$
(2,359)
Total net losses included in net income attributable to the change in unrealized losses related to liabilities still held as of September 30,

$
(5,129)

$
(1,084)
Balance as of March 31,

$
(2,300)

$
(1,200)
Total net losses included in net income attributable to the change in unrealized losses related to liabilities still held as of March 31,

$
(1,476)

$
(1,963)

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.

September 30, 2023

March 31, 2024

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

$
1,213,428

$
246,028

$
967,400

$
—

$
1,213,428

$
1,274,266

$
202,121

$
1,072,145

$
—

$
1,274,266
Investment securities held-to-maturity

4,104,114

—

3,433,029

—

3,433,029

3,988,011

—

3,470,710

—

3,470,710
Loans⁽¹⁾

13,999,820

—

—

13,166,377

13,166,377

13,926,199

—

—

13,250,470

13,250,470

Financial liabilities:

Time deposits⁽²⁾

$
3,661,131

$
—

$
3,625,116

$
—

$
3,625,116

$
3,284,045

$
—

$
3,259,350

$
—

$
3,259,350
Short-term borrowings

500,000

—

495,306

—

495,306

500,000

—

498,175

—

498,175

December 31, 2023

Fair Value Measurements

Quoted Prices in

Significant

Significant

Active Markets

Other

Unobservable

for Identical

Observable

Inputs

(dollars in thousands)

Book Value

Assets (Level 1)

Inputs (Level 2)

(Level 3)

Total
Financial assets:

Cash and cash equivalents

$
1,739,897

$
185,015

$
1,554,882

$
—

$
1,739,897
Investment securities held-to-maturity

4,041,449

—

3,574,856

—

3,574,856
Loans held for sale

190

—

192

—

192
Loans⁽¹⁾

13,973,688

—

—

13,385,683

13,385,683

Financial liabilities:

Time deposits⁽²⁾

$
3,456,158

$
—

$
3,432,330

$
—

$
3,432,330
Short-term borrowings

500,000

—

495,306

—

495,306
(1) Excludes financing leases of $394.0 million at March 31, 2024 and $379.8 million at December 31, 2023.
(2) Excludes deposit liabilities with no defined or contractual maturity of $17.4 billion as of March 31, 2024 and $17.9 billion as of December 31, 2023.

4842

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December 31, 2022

Fair Value Measurements

Quoted Prices in

Significant

Significant

Active Markets

Other

Unobservable

for Identical

Observable

Inputs

(dollars in thousands)

Book Value

Assets (Level 1)

Inputs (Level 2)

(Level 3)

Total
Financial assets:

Cash and cash equivalents

$
526,624

$
297,502

$
229,122

$
—

$
526,624
Investment securities held-to-maturity

4,320,639

—

3,814,822

—

3,814,822
Loans⁽¹⁾

13,793,922

—

—

13,138,787

13,138,787

Financial liabilities:

Time deposits⁽²⁾

$
2,476,050

$
—

$
2,423,231

$
—

$
2,423,231
Short-term borrowings

75,000

—

74,991

—

74,991
~~(1)~~ ~~Excludes financing leases of $332.5 million at September 30, 2023 and $298.1 million at December 31, 2022.~~
~~(2)~~ ~~Excludes deposit liabilities with no defined or contractual maturity of $17.9 billion as of September 30, 2023 and $19.2 billion as of December 31, 2022.~~

Unfunded loan and lease commitments and letters of credit are not included in the tables above. As of both ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the Company had ~~$7.0~~$6.5 billion, 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 ~~$52.3~~$48.3 million and ~~$48.5~~$49.8 million at ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, 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 fair value of other collateral such as business assets is typically ascertained by assessing inventory listings and borrower’s financial statements 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.

The following table provides the level of valuation inputs used to determine each fair value adjustment and the fair value of the related individual assets or portfolio of assets with fair value adjustments on a nonrecurring basis as of March 31, 2024:

(dollars in thousands)

Level 1

Level 2

Level 3
March 31, 2024

Collateral-dependent loans

$
—

$
—

$
14,623

Total expected credit losses recognized on collateral-dependent loans were $1.0 million for the three months ended March 31, 2024.

There were no assets with nonrecurring fair value adjustments held as of ~~September 30, 2023 and~~ December 31, ~~2022.~~2023. Additionally, there were no nonrecurring fair value adjustments for ~~both~~ the three ~~and nine~~ months ended ~~September 30, 2023 and 2022.~~March 31, 2023.

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17. Reportable Operating Segments

The Company’s operations are organized into three 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.

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.

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, 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 50 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.

~~Table of Contents~~

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 cross-border wires for business and personal reasons 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.

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

Treasury

Retail

Commercial

and

(dollars in thousands)

Banking

Banking

Other

Total
Three Months Ended September 30, 2023

Net interest income (loss)

$
119,070

$
45,913

$
(7,835)

$
157,148
Provision for credit losses

(2,359)

(3,565)

(1,576)

(7,500)
Net interest income (loss) after provision for credit losses

116,711

42,348

(9,411)

149,648

Noninterest income

24,834

18,858

2,405

46,097
Noninterest expense

(77,873)

(24,976)

(16,534)

(119,383)
Income (loss) before (provision) benefit for income taxes

63,672

36,230

(23,540)

76,362

(Provision) benefit for income taxes

(15,209)

(8,334)

5,402

(18,141)
Net income (loss)

$
48,463

$
27,896

$
(18,138)

$
58,221

Treasury

Retail

Commercial

and

(dollars in thousands)

Banking

Banking

Other

Total
Nine Months Ended September 30, 2023

Net interest income

$
332,227

$
128,348

$
23,759

$
484,334
Provision for credit losses

(6,913)

(10,447)

(3,940)

(21,300)
Net interest income after provision for credit losses

325,314

117,901

19,819

463,034

Noninterest income

72,898

55,832

13,738

142,468
Noninterest expense

(231,313)

(79,832)

(47,686)

(358,831)
Income (loss) before (provision) benefit for income taxes

166,899

93,901

(14,129)

246,671

(Provision) benefit for income taxes

(39,836)

(21,546)

2,192

(59,190)
Net income (loss)

$
127,063

$
72,355

$
(11,937)

$
187,481

5144

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Treasury

Retail

Commercial

and

(dollars in thousands)

Banking

Banking

Other

Total
Three Months Ended September 30, 2022

Net interest income

$
117,060

$
39,586

$
6,090

$
162,736
Provision for credit losses

(773)

(1,227)

(1,183)

(3,183)
Net interest income after provision for credit losses

116,287

38,359

4,907

159,553

Noninterest income

24,480

19,848

1,529

45,857
Noninterest expense

(76,820)

(28,079)

(8,433)

(113,332)
Income (loss) before (provision) benefit for income taxes

63,947

30,128

(1,997)

92,078

(Provision) benefit for income taxes

(16,093)

(7,458)

491

(23,060)
Net income (loss)

$
47,854

$
22,670

$
(1,506)

$
69,018
The following tables present selected business segment financial information for the periods indicated.

Treasury

Treasury

Retail

Commercial

and

Retail

Commercial

and

(dollars in thousands)

Banking

Banking

Other

Total

Banking

Banking

Other

Total
Nine Months Ended September 30, 2022

Net interest income

$
318,476

$
111,500

$
11,779

$
441,755
Benefit for credit losses

682

701

181

1,564
Net interest income after benefit for credit losses

319,158

112,201

11,960

443,319
Three Months Ended March 31, 2024

Net interest income (expense)

$
128,057

$
45,381

$
(19,011)

$
154,427
(Provision) benefit for credit losses

(3,379)

(3,713)

792

(6,300)
Net interest income (expense) after (provision) benefit for credit losses

124,678

41,668

(18,219)

148,127

Noninterest income

70,280

58,918

2,176

131,374

26,035

17,958

7,378

51,371
Noninterest expense

(220,397)

(81,546)

(24,606)

(326,549)

(76,640)

(25,685)

(26,488)

(128,813)
Income (loss) before (provision) benefit for income taxes

169,041

89,573

(10,470)

248,144

74,073

33,941

(37,329)

70,685

(Provision) benefit for income taxes

(42,139)

(21,962)

2,054

(62,047)

(17,928)

(7,273)

8,736

(16,465)
Net income (loss)

$
126,902

$
67,611

$
(8,416)

$
186,097

$
56,145

$
26,668

$
(28,593)

$
54,220

Treasury

Retail

Commercial

and

(dollars in thousands)

Banking

Banking

Other

Total
Three Months Ended March 31, 2023

Net interest income

$
108,920

$
40,939

$
17,388

$
167,247
Provision for credit losses

(2,563)

(3,873)

(2,364)

(8,800)
Net interest income after provision for credit losses

106,357

37,066

15,024

158,447

Noninterest income

24,267

17,888

6,868

49,023
Noninterest expense

(75,843)

(27,770)

(14,954)

(118,567)
Income before provision for income taxes

54,781

27,184

6,938

88,903

Provision for income taxes

(13,266)

(6,330)

(2,489)

(22,085)
Net income

$
41,515

$
20,854

$
4,449

$
66,818

5245

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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. Statements that are not historical or current facts, are forward-looking statements, 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: ~~conditions in the financial markets~~current and future market and economic conditions generally ~~and~~or in Hawaii, Guam and Saipan in ~~particular; the impact of the recent wildfires in Maui,~~particular, including ~~in respect of the Bank’s loan portfolio; turmoil~~inflationary pressures and volatility in the financial services industry, including failures or rumors of failures of other depository institutions, which could affect the ability of FHB to attract and retain depositors, and could affect the ability of financial services providers, including us, to borrow or raise capital; increases in Federal Deposit Insurance Corporation (“FDIC”) assessments due to bank failures; actions taken by governmental agencies to stabilize the financial system and the effectiveness of such actions; a sustained period of high inflation;interest rate environment; our dependence on the real estate markets in which we operate; ~~risk arising from conditions in the commercial real estate market; concentration of~~concentrated exposures to certain asset classes and individual obligors; ~~interest rate risk and fluctuations~~the effect of changes in interest ~~rates; events resulting from~~rates on our business, including our net interest income, net interest margin, the ~~discontinuance~~fair value of our investment securities, and our mortgage loan originations, mortgage servicing rights and mortgage loans held for sale; the ~~London Interbank Offered Rate (“LIBOR”); the possibility of a decline in the~~future value of the investment securities that we own; the possibility of a deterioration in ~~the~~ credit quality ~~of, or defaults by, third parties who owe us money, securities or other assets or whose securities or obligations we hold;~~in our portfolio; the possibility we might underestimate the credit losses inherent in our loan and lease portfolio; our ability to attract and retain customer deposits; our inability to receive dividends from our bank, pay dividends to our ~~ability~~common stockholders and satisfy obligations as they become due; our access to ~~raise additional~~sources of liquidity and capital ~~in the future;~~to address our ~~ability to maintain, attract and retain customer relationships;~~liquidity needs; our ability to attract and retain ~~key personnel and other~~ skilled ~~employees;~~employees or changes in our management personnel; our ability to maintain our Bank's reputation; the effectiveness of our ~~techniques for managing~~ risk management and ~~our use of data~~internal disclosure controls and ~~modeling both in our management decision-making generally and in meeting regulatory expectations in particular; the effectiveness of the appraisals and other valuation techniques we use;~~procedures; the occurrence of fraudulent activity ~~breaches~~ or ~~failures~~effect of a material breach of, or disruption to, the security of any of our ~~information security controls~~ or ~~cybersecurity-related incidents;~~our vendors’ systems; the possibility of employee misconduct or mistakes; ~~changes in the actual~~any failure or ~~perceived soundness or condition~~interruption of ~~other financial institutions; consumer protection initiatives related to the foreclosure process; risks in connection with any sale of loans; the possibility that certain~~ external vendors on which we ~~rely experience difficulty, terminate their~~rely; our ability to effectively compete with other financial services ~~or fail~~companies and the effects of competition in the financial services industry on our business; our ability to ~~comply with banking laws~~identify and ~~regulations; issues regarding the accuracy and completeness of information about customers and counterparties;~~address cybersecurity risks; risks associated with the sale of loans and with our ~~accounting~~use of appraisals in valuing and monitoring loans; the effects of the failure of any component of our business infrastructure provided by a third party; the possibility that actual results may differ from estimates and ~~risk management processes~~forecasts; fluctuations in the fair value of our assets and ~~controls. changes in our accounting policies or in accounting standards; risks relating to~~liabilities and off-balance sheet exposures; the geographic concentration inof 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 key role of dealers within the automotive industry orbusiness; our ability to ~~maintain~~keep pace with technological changes; the challenges posed by the development and use of artificial intelligence; our ability to successfully develop and commercialize new or ~~build relationships with them; technological change; future legislative or regulatory change; risks relating~~enhanced products and services; changes in the demand for our products and services; the impact of, and changes in, applicable laws, regulations and accounting standards and policies; possible changes in trade, monetary and fiscal policies of, and other activities undertaken by, governments, agencies, central banks and similar organizations; the potential scrutiny of overdraft fees; our ability to ~~our bank in times of stress; capital adequacy requirements; the possibility that we may not~~continue to pay dividends on our common ~~stock~~stock; the failure to comply with applicable laws or regulations; the failure to properly use and protect our customer and employee information and data; the risk of being subject to litigation and our likelihood of success in, and the ~~future; the possibility of rulemaking changes implemented by the CFPB; the possibility~~impact of, litigation ~~and~~or 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;potential for 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 pandemics, epidemics or other health-related crises;liability; the effects of severe weather, ~~hurricanes, tsunamis, natural disasters,~~geopolitical instability, including war, terrorist attacks, pandemics ~~acts of war or terrorism~~ or other ~~external events; volatility in our stock price;~~severe health emergencies and man-made natural disasters; the ~~possibility~~potential risks of ~~future sales and issuances of our common stock; the possibility of unexpected tax~~climate change; contingent liabilities and unexpected tax liabilities that may be applicable to us as a

~~Table of Contents~~

result of the ~~reorganization transactions to facilitate FHI’s initial public offering;~~Reorganization Transactions; the potential anti-takeover effects of certain banking laws and certain provisions of our certificate of incorporation; and damage to our reputation from any of the factors described above.

Table of Contents

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, ~~2022 and Quarterly Report on Form 10-Q for the quarters ended March 31, 2023 and June 30,~~ 2023. 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, ~~2022~~2023 and filed with the U.S. Securities and Exchange Commission (the “SEC”).

Hawaii Economy

Hawaii’s economy ~~reflects some decline during~~remains relatively resilient in the ~~nine months ended September 30, 2023, but the forecast for the remainder~~wake of ~~the year is still highly uncertain as the State navigates the aftermath of~~high consumer prices and the wildfires that ~~affected~~struck, and continue to affect, the island of Maui in early ~~August.~~August 2023. According to the State of Hawaii Department of ~~Business, Economic Development & Tourism,~~Labor and Industrial Relations, the statewide seasonally adjusted unemployment rate ~~has~~ decreased to ~~2.8%~~3.1% at ~~September 30, 2023,~~March 31, 2024, compared to 3.5% at ~~September 30, 2022.~~March 31, 2023. Nationally, the seasonally adjusted unemployment rate was 3.8% at ~~September 30, 2023, similar~~March 31, 2024 compared to ~~the~~ 3.5% ~~rate~~ at ~~September 30, 2022.~~March 31, 2023.

~~Although visitor arrivals to Maui decreased in response to the fires that swept across Lahaina and the subsequent closures that occurred in West Maui, domestic~~Domestic visitor arrivals for the ~~entire~~ state continue to remain ~~strong. The~~strong, with the average daily domestic passenger counts for the first ~~nine~~three months of ~~2023 were approximately 6.4% higher than~~2024 similar to the average daily passenger counts during the first ~~nine~~three months of ~~2022,~~2023, according to the Hawaii Tourism Authority. International visitor arrivals from Japan in the first three months of 2024 were the highest for a first calendar quarter in the last three years, but the recovery of arrivals from Japan to pre-pandemic levels remains slow due to the weak yen.

~~Table of Contents~~

The housing market has ~~slowed compared to previous periods. Both volume of real estate sales and housing prices decreased when comparing the first nine months of 2023 with the first nine months of 2022.~~remained relatively stable. According to the Honolulu Board of Realtors, the volume of single-family home sales ~~decreased~~increased by ~~30.5%~~6.1%, while condominium sales decreased by ~~31.2%~~7.1%, ~~as compared to~~when comparing the first three months of 2024 with the same period in ~~2022.~~2023. The median price of a single-family home sold on Oahu in the first ~~nine~~three months of ~~2023~~2024 was ~~$1,050,000, a decrease~~$1,070,000, an increase of ~~5.4%~~4.4% from the same period in ~~2022.~~2023. The median price of a condominium sold on Oahu in the first ~~nine~~three months of ~~2023~~2024 was $505,000, ~~a decrease~~an increase of 1.0% from the same period in ~~2022.~~2023. As of ~~September 30, 2023,~~March 31, 2024, months of inventory of single-family homes and condominiums on Oahu remained low at approximately 2.7 and ~~3.0~~4.0 months, respectively.

~~Lastly, state~~47

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State general excise and use tax revenues increased by ~~5.6%~~2.4% for the ~~nine~~three months ended ~~September 30, 2023~~March 31, 2024 as compared to the same period in ~~2022,~~2023, according to the Hawaii Department of Business, Economic Development & Tourism.

Effect of Recent Natural Disasters

In early August of 2023, wildfires swept across several areas of Maui, impacting residents in upcountry Maui and devastating the historic town of Lahaina. ~~Relief~~As part of the relief efforts, ~~from across the State of Hawaii commenced and continues to this day to aid those who have lost their homes, businesses, and loved ones. We have~~we contributed $250,000 to the Hawaii Community Foundation’s Maui Strong Fund ~~granted~~and continue to offer various loan payment ~~deferrals for~~deferral options to our ~~borrowers~~ affected ~~by the wildfires, waived all ATM fees on Maui, and assisted affected employees with financial aid for temporary housing.~~borrowers. Our operations on Maui also recovered ~~quickly. Although the Lahaina branch~~quickly and ~~ATM were fully burned down, our vault withstood the fire and~~ we ~~were able to account for safe deposit box contents and~~ are in process of ~~returning them to our customers. The remaining branches in Maui have remained fully operational.~~re-opening a temporary location for the Lahaina branch.

The outstanding balance of real estate-secured loans in the Maui fire zones totaled approximately ~~$116~~$102 million as of ~~September 30, 2023.~~March 31, 2024. We require our borrowers to maintain adequate levels of insurance, including fire insurance on residential mortgages. ~~We do not currently know~~Although we are working closely with our resident and business borrowers to navigate the ~~full extent~~post-disaster period, there still remains a great deal of ~~damage to our loan collateral,~~uncertainty regarding their recovery, including how long it will be before rebuilding can start, the amounts of available insurance coverage, the availability of government assistance for our borrowers in the long run or whether ~~our borrowers’~~their longer-term ability to repay their loans has been diminished. ~~There was no exposure to the electric utility as of September 30, 2023.~~

We also expect that the aftermath of the wildfires will continue to impact commercial activity throughout the island of Maui, but there remains much uncertainty as to how long it will take Maui to rebuild, ~~resume~~return tourism to historic levels, and recover economically. Visitor counts to Maui in the first quarter of 2024 are up from August 2023, especially with the re-opening of West Maui in late 2023, but are still lower than in the first quarter of 2023 and before the COVID-19 pandemic in 2019.

Since there is significant uncertainty with respect to the full extent of the negative impacts ~~due to the nature~~ of the wildfires, the Company’s estimates concerning the impact of the wildfires, including those with respect to the loan portfolio potentially impacted, are based on judgment as of the date of this report and subject to change as conditions evolve. We will continue to closely monitor the impact that the wildfires has on our customers and will adjust the means by which we assist our customers during this period of financial and emotional hardship.

~~Effect of Financial Events and Inflation~~Other Economic Developments

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 historical dollars without considering the change in the relative purchasing power of money over time due to inflation.

Although inflation is not rising as quickly as it did in previous periods, prices remain high due to, among other factors, continued global supply chain disruptions, changes in the labor market and geopolitical tensions.

~~Table of Contents~~

Our operating costs continue to increase 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 (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 may contribute to increased yields on assets and higher costs on funding, which generally improves net interest margins when balance sheet composition remains constant. However, changes in interest rates could influence not only the interest rates we receive on loans and securities and the interest rates we pay on deposits and borrowings, but also the composition of loans and deposits. The changing composition of our loans and deposits following a large interest rate change may cause periods where net interest margin compresses as fixed rate loans pay off at a slower pace and deposits migrate to higher cost categories. Our ability to originate loans and deposits could also be impacted. In addition, changes in interest rates have had an impact, and may 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.

There also remain many uncertainties given the closures of Silicon Valley Bank (“SVB”) and Signature Bank in March 2023 and the subsequent appointment of the FDIC as the receiver for those banks. In May 2023, the FDIC issued a notice of proposed rulemaking (“NPR”), which proposed an annual special assessment rate of approximately 12.5 basis points to an assessment base that would equal an insured depository institution’s estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion, to be paid in eight quarterly installments beginning in the first quarter of 2024. If the rule is adopted as proposed, the total amount of the special assessment would be expected to be accrued and recognized as a loss in the period the rule is adopted. The ultimate impact and timing of recognition will depend on the final outcome of the ongoing FDIC deliberations.

~~In addition, the~~ closures and adverse developments affecting certain banks in the first half of 2023 resulted in heightened levels of market activity and volatility, as well as the potential for increased ~~regulations~~regulation and more stringent capital requirements going forward. In ~~response~~November 2023, the FDIC approved a final rule for a special assessment to replenish the deposit insurance fund following bank failures occurring earlier in the year. As a result, the Company previously recorded a related loss of $16.3 million in the fourth quarter of 2023. During the first quarter of 2024, the FDIC issued a notice that the original loss estimate related to the ~~deterioration~~2023 bank failures was subsequently increased and that this increase would result in an additional assessment expense to affected institutions. The Company estimated a related loss of $4.1 million, which was recorded in the ~~operating environment and funding conditions for U.S. banks, in April 2023, Moody’s lowered the macro profile~~first quarter of ~~the U.S. banking system and downgraded the credit ratings of the Bank, among other regional banks.~~2024. In light of ~~volatility in the capital markets~~ongoing economic and ~~economic disruptions,~~geopolitical uncertainties, we continue to carefully monitor our capital and liquidity positions.

As of ~~September 30, 2023,~~March 31, 2024, the Company was “well-capitalized” and met all applicable regulatory capital requirements, including a Common Equity Tier 1 capital ratio of ~~12.21%~~12.55%, compared to the minimum requirement of 4.50%. ~~In light of the volatility in the banking sector, we continue to maintain high levels of liquidity.~~ For additional discussions regarding our capital and liquidity positions and related risks, refer to the sections titled “Liquidity and Capital Resources” and “Capital” in this MD&A.

Economic conditions and therefore our results of operations may be impacted by a variety of other factors as well, such as other natural disasters, an economic slowdown or recession, financial market volatility, supply chain disruptions, monetary and fiscal policy measures, heightened geopolitical tensions, fluctuations in interest rates and foreign currency exchange rates, the political and regulatory environment, changes to the U.S. Federal budget and potential changes in tax laws.

These and other key factors could impact our profitability in future reporting periods. See Item 1A. Risk Factors, beginning in the section captioned “Summary of Risk Factors,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2022,~~2023, filed with the SEC on February ~~24, 2023.~~28, 2024.

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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 Nine Months Ended						For the Three Months Ended
	September 30,						September 30,						March 31,
(dollars in thousands, except per share data)	2023			2022			2023			2022			2024			2023
Income Statement Data:
Interest income	$	239,799		$	176,390		$	682,549		$	462,755		$	244,952		$	213,545
Interest expense		82,651			13,654			198,215			21,000			90,525			46,298
Net interest income		157,148			162,736			484,334			441,755			154,427			167,247
Provision for credit losses		7,500			3,183			21,300			(1,564)			6,300			8,800
Net interest income after provision for credit losses		149,648			159,553			463,034			443,319			148,127			158,447
Noninterest income		46,097			45,857			142,468			131,374			51,371			49,023
Noninterest expense		119,383			113,332			358,831			326,549			128,813			118,567
Income before provision for income taxes		76,362			92,078			246,671			248,144			70,685			88,903
Provision for income taxes		18,141			23,060			59,190			62,047			16,465			22,085
Net income	$	58,221		$	69,018		$	187,481		$	186,097		$	54,220		$	66,818
Basic earnings per share	$	0.46		$	0.54		$	1.47		$	1.46		$	0.42		$	0.52
Diluted earnings per share	$	0.46		$	0.54		$	1.47		$	1.45		$	0.42		$	0.52
Basic weighted-average outstanding shares		127,609,860			127,377,713			127,552,255			127,534,746			127,707,354			127,453,820
Diluted weighted-average outstanding shares		127,936,440			127,796,617			127,897,829			127,996,672			128,217,689			128,033,812
Dividends declared per share	$	0.26		$	0.26		$	0.78		$	0.78		$	0.26		$	0.26
Dividend payout ratio		56.52	%		48.15	%		53.06	%		53.79	%		61.90	%		50.00	%
Other Financial Information / Performance Ratios⁽¹⁾:
Net interest margin		2.86	%		2.93	%		2.96	%		2.65	%		2.91	%		3.11	%
Efficiency ratio		58.31	%		53.98	%		56.86	%		56.63	%		62.15	%		54.46	%
Return on average total assets		0.93	%		1.10	%		1.01	%		0.99	%		0.90	%		1.10	%
Return on average tangible assets (non-GAAP)⁽²⁾		0.97	%		1.14	%		1.06	%		1.03	%		0.94	%		1.15	%
Return on average total stockholders' equity		9.76	%		12.08	%		10.72	%		10.55	%		8.73	%		11.78	%
Return on average tangible stockholders' equity (non-GAAP)⁽²⁾		16.84	%		21.53	%		18.68	%		18.26	%		14.53	%		20.78	%
Noninterest expense to average assets		1.92	%		1.80	%		1.94	%		1.74	%		2.14	%		1.96	%
											(continued)						(continued)

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(continued)	September 30,			December 31,			March 31,			December 31,
(dollars in thousands, except per share data)	2023			2022			2024			2023
Balance Sheet Data:
Cash and cash equivalents	$	1,213,428		$	526,624		$	1,274,266		$	1,739,897
Investment securities available-for-sale		2,722,704			3,151,133			2,159,338			2,255,336
Investment securities held-to-maturity		4,104,114			4,320,639			3,988,011			4,041,449
Loans and leases		14,332,335			14,092,012			14,320,208			14,353,497
Allowance for credit losses for loans and leases		154,795			143,900			159,836			156,533
Goodwill		995,492			995,492			995,492			995,492
Total assets		24,912,524			24,577,223			24,279,186			24,926,474
Total deposits		21,511,489			21,689,029			20,669,481			21,332,657
Short-term borrowings		500,000			75,000			500,000			500,000
Total liabilities		22,561,515			22,308,218			21,765,425			22,440,408
Total stockholders' equity		2,351,009			2,269,005			2,513,761			2,486,066
Book value per share	$	18.42		$	17.82		$	19.66		$	19.48
Tangible book value per share (non-GAAP)⁽²⁾	$	10.62		$	10.00		$	11.88		$	11.68

Asset Quality Ratios:
Non-accrual loans and leases / total loans and leases		0.10	%		0.08	%		0.13	%		0.13	%
Allowance for credit losses for loans and leases / total loans and leases		1.08	%		1.02	%		1.12	%		1.09	%
Net charge-offs / average total loans and leases⁽³⁾		0.06	%		0.08	%		0.11	%		0.09	%


	September 30,			December 31,			March 31,			December 31,
Capital Ratios:	2023			2022			2024			2023
Common Equity Tier 1 Capital Ratio		12.21	%		11.82	%		12.55	%		12.39	%
Tier 1 Capital Ratio		12.21	%		11.82	%		12.55	%		12.39	%
Total Capital Ratio		13.38	%		12.92	%		13.75	%		13.57	%
Tier 1 Leverage Ratio		8.45	%		8.11	%		8.80	%		8.64	%
Total stockholders' equity to total assets		9.44	%		9.23	%		10.35	%		9.97	%
Tangible stockholders' equity to tangible assets (non-GAAP)⁽²⁾		5.67	%		5.40	%		6.52	%		6.23	%

(1)	Except for the efficiency ratio, amounts are annualized for the three ~~and nine~~ months ended ~~September 30, 2023~~March 31, 2024 and ~~2022.~~2023.

(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 ~~nine~~three months ended ~~September 30, 2023.~~March 31, 2024.

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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 2						Table 2
	For the Three Months Ended						For the Nine Months Ended						For the Three Months Ended
	September 30,						September 30,						March 31,
(dollars in thousands)	2023			2022			2023			2022			2024			2023
Income Statement Data:
Noninterest expense	$	119,383		$	113,332		$	358,831		$	326,549		$	128,813		$	118,567

Net income	$	58,221		$	69,018		$	187,481		$	186,097		$	54,220		$	66,818

Average total stockholders' equity	$	2,367,422		$	2,267,152		$	2,337,292		$	2,358,195		$	2,496,840		$	2,299,422
Less: average goodwill		995,492			995,492			995,492			995,492			995,492			995,492
Average tangible stockholders' equity	$	1,371,930		$	1,271,660		$	1,341,800		$	1,362,703		$	1,501,348		$	1,303,930

Average total assets	$	24,727,893		$	24,957,042		$	24,699,826		$	25,095,438		$	24,187,207		$	24,548,124
Less: average goodwill		995,492			995,492			995,492			995,492			995,492			995,492
Average tangible assets	$	23,732,401		$	23,961,550		$	23,704,334		$	24,099,946		$	23,191,715		$	23,552,632

Return on average total stockholders' equity^(a)		9.76	%		12.08	%		10.72	%		10.55	%		8.73	%		11.78	%
Return on average tangible stockholders' equity (non-GAAP)^(a)		16.84	%		21.53	%		18.68	%		18.26	%		14.53	%		20.78	%

Return on average total assets^(a)		0.93	%		1.10	%		1.01	%		0.99	%		0.90	%		1.10	%
Return on average tangible assets (non-GAAP)^(a)		0.97	%		1.14	%		1.06	%		1.03	%		0.94	%		1.15	%

Noninterest expense to average assets^(a)		1.92	%		1.80	%		1.94	%		1.74	%		2.14	%		1.96	%


	As of			As of			As of			As of
	September 30,			December 31,			March 31,			December 31,
(dollars in thousands, except per share data)	2023			2022			2024			2023
Balance Sheet Data:
Total stockholders' equity	$	2,351,009		$	2,269,005		$	2,513,761		$	2,486,066
Less: goodwill		995,492			995,492			995,492			995,492
Tangible stockholders' equity	$	1,355,517		$	1,273,513		$	1,518,269		$	1,490,574

Total assets	$	24,912,524		$	24,577,223		$	24,279,186		$	24,926,474
Less: goodwill		995,492			995,492			995,492			995,492
Tangible assets	$	23,917,032		$	23,581,731		$	23,283,694		$	23,930,982

Shares outstanding		127,609,934			127,363,327			127,841,908			127,618,761

Total stockholders' equity to total assets		9.44	%		9.23	%		10.35	%		9.97	%
Tangible stockholders' equity to tangible assets (non-GAAP)		5.67	%		5.40	%		6.52	%		6.23	%

Book value per share	$	18.42		$	17.82		$	19.66		$	19.48
Tangible book value per share (non-GAAP)	$	10.62		$	10.00		$	11.88		$	11.68

(a)	Annualized for the three ~~and nine~~ months ended ~~September 30, 2023~~March 31, 2024 and ~~2022.~~2023.

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Financial Highlights

Net income was ~~$58.2~~$54.2 million for the three months ended ~~September 30, 2023,~~March 31, 2024, a decrease of ~~$10.8~~$12.6 million or ~~16%~~19% as compared to the same period in ~~2022.~~2023. Basic and diluted earnings per share were both ~~$0.46~~$0.42 per share for the three months ended ~~September 30, 2023,~~March 31, 2024, a decrease of ~~$0.08~~$0.10 per share or ~~15%~~19% as compared to the same period in ~~2022.~~2023. The decrease in net income was primarily due to a ~~$6.1 million increase in noninterest expense, a $5.6~~$12.8 million decrease in net interest income and a ~~$4.3~~$10.2 million increase in noninterest expense. This was partially offset by a $5.6 million decrease in the provision for income taxes, a $2.5 million decrease in the provision for credit losses (the “Provision”)~~. This was partially offset by~~ and a ~~$4.9~~$2.3 million ~~decrease~~increase in ~~the provision for income taxes.~~noninterest income.

Our return on average total assets was ~~0.93%~~0.90% for the three months ended ~~September 30, 2023,~~March 31, 2024, a decrease of 1720 basis points from the same period in ~~2022,~~2023, and our return on average total stockholders’ equity was ~~9.76%~~8.73% for the three months ended ~~September 30, 2023,~~March 31, 2024, a decrease of ~~232~~305 basis points from the same period in ~~2022.~~2023. Our return on average tangible assets was ~~0.97%~~0.94% for the three months ended ~~September 30, 2023,~~March 31, 2024, a decrease of 1721 basis points from the same period in ~~2022,~~2023, and our return on average tangible stockholders’ equity was ~~16.84%~~14.53% for the three months ended ~~September 30, 2023,~~March 31, 2024, a decrease of ~~469~~625 basis points from the same period in ~~2022.~~2023, primarily due to lower net income driven by higher deposit funding costs. Our efficiency ratio was ~~58.31%~~62.15% for the three months ended ~~September 30, 2023~~March 31, 2024 compared to ~~53.98%~~54.46% for the same period in ~~2022.~~2023.

Our results for the three months ended ~~September 30, 2023~~March 31, 2024 were highlighted by the following:

● Net interest income was ~~$157.1~~$154.4 million for the three months ended ~~September 30, 2023,~~March 31, 2024, a decrease of ~~$5.6~~$12.8 million or 3%8% as compared to the same period in ~~2022.~~2023. Our net interest margin was ~~2.86%~~2.91% for the three months ended ~~September 30, 2023,~~March 31, 2024, a decrease of ~~seven~~20 basis points as compared to the same period in ~~2022.~~2023. The decrease in net interest income, on a fully taxable-equivalent basis, was primarily due to higher deposit funding costs and ~~higher~~lower average balances in ~~total borrowings,~~our investment securities portfolio, partially offset by higher yields ~~and average balances~~ in our loan and lease portfolio ~~during the three months ended September 30, 2023.~~and higher average balances in our interest-bearing deposits in other banks.

● The Provision was ~~$7.5~~$6.3 million for the three months ended ~~September 30, 2023, an increase~~March 31, 2024, a decrease of ~~$4.3~~$2.5 million or 28% as compared to the same period in ~~2022.~~2023. The ~~Provision of $7.5 million for~~decrease in the ~~three months ended September 30, 2023,~~Provision was primarily due to decreases in the provision for consumer loans and home equity lines and the provision for unfunded construction and home equity line commitments. This was partially offset by increases in the provision for commercial real estate loans, ~~and residential mortgage loans and the provision for unfunded~~ commercial and industrial ~~commitments.~~loans and construction loans. The Provision is recorded to maintain the allowance for credit losses for loans and leases (the “ACL”) and the reserve for 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 ~~$46.1~~$51.4 million for the three months ended ~~September 30, 2023,~~March 31, 2024, an increase of ~~$0.2~~$2.3 million or 1%5% as compared to the same period in 2022. The increase was primarily due to $1.9 million of Bank-owned life insurance (“BOLI”) income as compared to a negative $0.3 million of BOLI income for the same period in 2022, partially offset by a $2.0 million decrease in credit and debit card fees.

● ~~Noninterest expense was $119.4 million for the three months ended September 30, 2023, an increase of $6.1 million or 5% compared to the same period in 2022.~~2023. The increase in noninterest ~~expense~~income was primarily due to a ~~$4.6~~$1.5 million increase in ~~salaries and employee benefits,~~other noninterest income, a ~~$1.7~~$0.7 million increase in ~~regulatory assessment~~other service charges and fees and a ~~$1.0 million increase in equipment expense, partially offset by a $1.4 million decrease in occupancy expense.~~

Net income was $187.5 million for the nine months ended September 30, 2023, an increase of $1.4 million or 1% as compared to the same period in 2022. Basic earnings per share was $1.47 per share for the nine months ended September 30, 2023, an increase of $0.01 per share or 1% as compared to the same period in 2022. Diluted earnings per share was $1.47 per share for the nine months ended September 30, 2023, an increase of $0.02 per share or 1% as compared to the same period in 2022. The increase in net income was primarily due to a $42.6 million increase in net interest income, an $11.1 million increase in noninterest income and a $2.9 million decrease in the provision for income taxes. This was partially offset by a $32.3 million increase in noninterest expense, in addition to a Provision of $21.3 million for the nine months ended September 30, 2023, compared to a negative Provision of $1.6 million for the nine months ended September 30, 2022.

~~Table of Contents~~

Our return on average total assets was 1.01% for the nine months ended September 30, 2023, an increase of two basis points from the same period in 2022, and our return on average total stockholders’ equity was 10.72% for the nine months ended September 30, 2023, an increase of 17 basis points for the same period in 2022. Our return on average tangible assets was 1.06% for the nine months ended September 30, 2023, an increase of three basis points from the same period in 2022, and our return on average tangible stockholders’ equity was 18.68% for the nine months ended September 30, 2023, an increase of 42 basis points from the same period in 2022. Our efficiency ratio was 56.86% for the nine months ended September 30, 2023 compared to 56.63% for the same period in 2022.

~~Our results for the nine months ended September 30, 2023 were highlighted by the following:~~

●

Net interest income was $484.3 million for the nine months ended September 30, 2023, an increase of $42.6 million or 10% as compared to the same period in 2022. Our net interest margin was 2.96% for the nine months ended September 30, 2023, an increase of 31 basis points as compared to the same period in 2022. The increase in net interest income, on a fully taxable-equivalent basis, was driven by the rising interest rate environment and was primarily due to higher yields and average balances in our loan and lease portfolio and higher yields on interest-bearing deposits in other banks. This was partially offset by higher deposit funding costs and higher average balances in total borrowings during the nine months ended September 30, 2023.

●

The Provision was $21.3 million for the nine months ended September 30, 2023, compared to a negative Provision of $1.6 million for the same period in 2022. The Provision of $21.3 million for the nine months ended September 30, 2023, was primarily due to increases in the provision for consumer loans, construction loans, home equity lines and residential mortgage loans and the provision for unfunded commercial and industrial and construction commitments. The Provision is recorded to maintain the ACL and the reserve for 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 $142.5 million for the nine months ended September 30, 2023, an increase of $11.1 million or 8% as compared to the same period in 2022. The increase was primarily due to $10.3 million of BOLI income as compared to a negative $1.6 million of BOLI income for the same period in 2022, in addition to a $1.4$0.7 million increase in trust and investment services income, partially offset by a ~~$2.1~~$0.8 million decrease in ~~credit and debit card fees.~~Bank-owned life insurance (“BOLI”) income.

●

Noninterest expense was ~~$358.8~~$128.8 million for the ~~nine~~three months ended ~~September 30, 2023,~~March 31, 2024, an increase of ~~$32.3~~$10.2 million or ~~10% as~~9% compared to the same period in ~~2022.~~2023. The increase in noninterest expense was primarily due to a ~~$20.4~~$4.3 million increase in regulatory assessment and fees, of which $4.1 million was attributable to the updated assessment calculation during the first quarter of 2024 of the deposit insurance fund from the FDIC, a $3.7 million increase in equipment expense and a $3.2 million increase in salaries and employee benefits, ~~expense, an $8.0 million increase in equipment expense, a $4.6 million increase in regulatory assessment and fees and a $1.8 million increase in card rewards program expense,~~ partially offset by ~~a $2.2 million decrease in contracted services and professional fees and~~ a $0.8 million decrease in occupancy expense.

For the ~~nine~~three months ended ~~September 30, 2023,~~March 31, 2024, we continued to maintain high levels of liquidity and adequate reserves for credit losses. We also remained well-capitalized. Common Equity Tier 1 (“CET1”) was ~~12.21%~~12.55% as of ~~September 30, 2023,~~March 31, 2024, an increase of 3916 basis points from December 31, ~~2022.~~2023. The increase in CET1 was primarily due to earnings for the ~~nine~~three months ended ~~September 30, 2023,~~March 31, 2024, partially offset by the dividends declared and paid to the Company’s ~~stockholders and an increase in risk-weighted assets driven by an increase in loans and leases.~~stockholders.

●

Total loans and leases were $14.3 billion as of ~~September 30, 2023, an increase~~March 31, 2024, a decrease of ~~$240.3~~$33.3 million or 2%less than 1% from December 31, ~~2022.~~2023. The ~~increase~~decrease in total loans and leases was primarily due to ~~increases~~decreases in ~~commercial real estate~~consumer loans, residential real estate loans ~~construction~~and commercial real estate loans, ~~and lease financing,~~ partially offset by ~~decreases~~increases in construction loans, commercial and industrial loans and ~~consumer loans.~~lease financing.

Table of Contents

●

The ACL was ~~$154.8~~$159.8 million as of ~~September 30, 2023,~~March 31, 2024, an increase of ~~$10.9~~$3.3 million or 8%2% from December 31, ~~2022.~~2023. The ratio of our ACL to total loans and leases outstanding was ~~1.08%~~1.12% as of ~~September 30, 2023,~~March 31, 2024, an increase of ~~six~~three basis points compared to December 31, ~~2022.~~2023.

~~Table of Contents~~

●

Our investment portfolio is comprised of 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, Municipal Housing Authorities and non-agency entities. The total carrying value of our investment securities portfolio was ~~$6.8~~$6.1 billion as of ~~September 30, 2023,~~March 31, 2024, a decrease of ~~$645.0~~$149.4 million or 9%2% from December 31, ~~2022.~~2023. Maturities and payments on investment securities were used to fund loan ~~growth~~originations and offset the decline in deposits.

●

Total borrowings consisted of $500.0 million of short-term borrowings as of ~~September 30, 2023, compared to $75.0 million of short-term borrowings as of~~both March 31, 2024 and December 31, ~~2022.~~2023. For information with respect to the financial terms of such advances, see “– Analysis of Financial Condition – Short-term Borrowings.”

●

Total stockholders’ equity was ~~$2.4~~$2.5 billion as of ~~September 30, 2023,~~March 31, 2024, an increase of ~~$82.0~~$27.7 million or 4%1% from December 31, ~~2022.~~2023. The increase in stockholders’ equity was primarily due to earnings for the period of ~~$187.5~~$54.2 million and net unrealized gains in our investment securities portfolio, net of tax, of $5.7 million, partially offset by dividends declared and paid to the Company’s stockholders of ~~$99.5 million and net unrealized losses in our investment securities portfolio, net of tax, of $10.7~~$33.2 million during the ~~nine~~three months ended ~~September 30, 2023.~~March 31, 2024.

Analysis of Results of Operations

Net Interest Income

For the three months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022,~~ average balances, related income and expenses, on a fully taxable-equivalent basis, and resulting yields and rates are presented in Table 3. An analysis of the change in net interest income, on a fully taxable-equivalent basis, is presented in Table 4.

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Average Balances and Interest Rates											Table 3													Table 3
	Three Months Ended						Three Months Ended							Three Months Ended						Three Months Ended
	September 30, 2023						September 30, 2022							March 31, 2024						March 31, 2023
					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	$	608.6	$	8.2	5.36	%	$	724.0	$	4.0		2.20	%	$	858.6	$	11.6	5.45	%	$	299.6	$	3.4		4.60	%
Available-for-Sale Investment Securities
Taxable		2,834.6		18.4	2.59			3,733.8		19.2		2.05			2,210.6		14.5	2.63			3,081.4		18.4		2.39
Non-Taxable		2.3		—	5.48			45.1		0.6		5.16			1.8		—	5.61			31.1		0.4		5.55
Held-to-Maturity Investment Securities
Taxable		3,544.1		15.0	1.70			3,573.6		14.6		1.64			3,416.4		14.6	1.71			3,683.8		15.7		1.70
Non-Taxable		604.3		4.1	2.66			613.6		4.2		2.72			603.4		4.0	2.65			612.2		4.1		2.74
Total Investment Securities		6,985.3		37.5	2.14			7,966.1		38.6		1.93			6,232.2		33.1	2.13			7,408.5		38.6		2.09
Loans Held for Sale		0.4		—	6.63			0.7		—		3.62			0.7		—	6.92			0.1		—		5.53
Loans and Leases ⁽¹⁾
Commercial and industrial		2,123.5		35.7	6.66			2,025.5		20.7		4.05			2,164.9		37.2	6.92			2,192.9		32.4		5.98
Commercial real estate		4,381.8		71.4	6.47			4,016.7		42.3		4.18			4,323.5		70.1	6.53			4,105.7		58.3		5.76
Construction		873.7		15.5	7.05			737.4		8.6		4.63			924.7		17.4	7.55			873.9		14.7		6.83
Residential:
Residential mortgage		4,316.3		40.1	3.72			4,224.0		36.4		3.45			4,264.1		42.0	3.94			4,307.0		38.4		3.57
Home equity line		1,154.0		10.1	3.45			991.1		7.2		2.87			1,172.1		12.0	4.13			1,074.9		8.7		3.27
Consumer		1,172.8		18.3	6.19			1,218.0		17.1		5.57			1,083.5		18.1	6.71			1,213.5		17.2		5.75
Lease financing		327.3		3.7	4.48			278.7		2.7		3.81			379.8		3.7	3.91			311.4		3.1		4.10
Total Loans and Leases		14,349.4		194.8	5.39			13,491.4		135.0		3.98			14,312.6		200.5	5.63			14,079.3		172.8		4.96
Other Earning Assets		116.8		0.8	2.64			75.9		0.1		0.69			77.8		1.2	5.90			85.8		0.2		0.76
Total Earning Assets⁽²⁾		22,060.5		241.3	4.35			22,258.1		177.7		3.18			21,481.9		246.4	4.61			21,873.3		215.0		3.97
Cash and Due from Banks		276.0						277.0							244.3						286.1
Other Assets		2,391.4						2,421.9							2,461.0						2,388.7
Total Assets	$	24,727.9					$	24,957.0						$	24,187.2					$	24,548.1

Interest-Bearing Liabilities
Interest-Bearing Deposits
Savings	$	5,982.5	$	19.2	1.27	%	$	6,871.5	$	6.7		0.39	%	$	6,059.7	$	23.4	1.56	%	$	6,354.3	$	13.9		0.89	%
Money Market		3,907.2		24.7	2.51			4,086.1		4.8		0.47			3,944.9		28.8	2.94			3,853.5		14.3		1.50
Time		3,362.7		30.8	3.63			1,720.5		2.1		0.48			3,325.3		31.9	3.86			2,515.6		15.1		2.44
Total Interest-Bearing Deposits		13,252.4		74.7	2.23			12,678.1		13.6		0.43			13,329.9		84.1	2.54			12,723.4		43.3		1.38
Federal Funds Purchased		—		—	—			0.2		—		1.67			—		—	—			67.1		0.7		4.43
Other Short-Term Borrowings		113.1		1.5	5.17			—		—		—			500.0		6.0	4.79			52.8		0.7		5.02
Long-Term Borrowings		440.2		5.3	4.83			—		—		—			—		—	—			105.5		1.2		4.52
Other Interest-Bearing Liabilities		89.1		1.2	5.17			—		—		—			33.0		0.4	5.22			42.8		0.4		4.27
Total Interest-Bearing Liabilities		13,894.8		82.7	2.36			12,678.3		13.6		0.43			13,862.9		90.5	2.63			12,991.6		46.3		1.45
Net Interest Income			$	158.6					$	164.1						$	155.9					$	168.7
Interest Rate Spread(3)					1.99	%						2.75	%					1.98	%						2.52	%
Net Interest Margin(4)					2.86	%						2.93	%					2.91	%						3.11	%
Noninterest-Bearing Demand Deposits		7,959.7						9,469.9							7,242.0						8,745.2
Other Liabilities		506.0						541.6							585.5						511.9
Stockholders' Equity		2,367.4						2,267.2							2,496.8						2,299.4
Total Liabilities and Stockholders' Equity	$	24,727.9					$	24,957.0						$	24,187.2					$	24,548.1

(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 $1.5 million and ~~$1.3~~$1.4 million for the three months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022,~~ respectively.

(3)	Interest rate spread is the difference between the average yield on earning assets and the average rate paid on interest-bearing liabilities, on a fully taxable-equivalent basis.

(4)	Net interest margin is net interest income annualized for the three months ended March 31, 2024 and 2023, on a fully taxable-equivalent basis, divided by average total earning assets.

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Analysis of Change in Net Interest Income

Table 4

Three Months Ended September 30, 2023

Three Months Ended March 31, 2024

Compared to September 30, 2022

Compared to March 31, 2023

(dollars in millions)

Volume

Rate

Total ⁽¹⁾

Volume

Rate

Total ⁽¹⁾

Change in Interest Income:

Interest-Bearing Deposits in Other Banks

(0.7)

4.9

4.2

7.5

0.7

8.2

Available-for-Sale Investment Securities

Taxable

(5.2)

4.4

(0.8)

(5.6)

1.7

(3.9)

Non-Taxable

(0.6)

—

(0.6)

(0.4)

—

(0.4)

Held-to-Maturity Investment Securities

Taxable

(0.1)

0.5

0.4

(1.2)

0.1

(1.1)

Non-Taxable

—

(0.1)

—

(0.1)

Total Investment Securities

(5.9)

4.8

(1.1)

(7.2)

1.7

(5.5)

Loans and Leases

Commercial and industrial

1.0

14.0

15.0

(0.4)

5.2

4.8

Commercial real estate

4.1

25.0

29.1

3.3

8.5

11.8

Construction

1.8

5.1

6.9

1.0

1.7

2.7

Residential:

Residential mortgage

0.8

2.9

3.7

(0.4)

4.0

3.6

Home equity line

1.3

1.6

2.9

0.8

2.5

3.3

Consumer

(0.6)

1.8

1.2

(1.9)

2.8

0.9

Lease financing

0.5

1.0

0.7

(0.1)

0.6

Total Loans and Leases

8.9

50.9

59.8

3.1

24.6

27.7

Other Earning Assets

0.1

0.6

0.7

—

1.0

Total Change in Interest Income

2.4

61.2

63.6

3.4

28.0

31.4

Change in Interest Expense:

Interest-Bearing Deposits

Savings

(1.0)

13.5

12.5

(0.7)

10.2

9.5

Money Market

(0.2)

20.1

19.9

0.3

14.2

14.5

Time

3.7

25.0

28.7

6.0

10.8

16.8

Total Interest-Bearing Deposits

2.5

58.6

61.1

5.6

35.2

40.8

Federal Funds Purchased

(0.3)

(0.4)

(0.7)

Other Short-term Borrowings

1.5

—

1.5

5.3

—

5.3

Long-term Borrowings

5.3

—

5.3

(0.6)

(1.2)

Other Interest-Bearing Liabilities

1.2

—

1.2

(0.1)

0.1

—

Total Change in Interest Expense

10.5

58.6

69.1

9.9

34.3

44.2

Change in Net Interest Income

(8.1)

2.6

(5.5)

(6.5)

(6.3)

(12.8)

(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 ~~$158.6~~$155.9 million for the three months ended ~~September 30, 2023,~~March 31, 2024, a decrease of ~~$5.5~~$12.8 million or 3%8% compared to the same period in ~~2022.~~2023. Our net interest margin was ~~2.86%~~2.91% for the three months ended ~~September 30, 2023,~~March 31, 2024, a decrease of ~~seven~~20 basis points from the same period in ~~2022.~~2023. The decrease in net interest income, on a fully taxable-equivalent basis, was primarily due to higher deposit funding costs and ~~higher~~lower average balances in ~~total borrowings,~~our investment securities portfolio, partially offset by higher yields ~~and average balances~~ in our loan and lease portfolio and higher average balances in our interest-bearing deposits in other banks during the three months ended ~~September 30, 2023,~~March 31, 2024, compared to the same period in ~~2022.~~2023. Deposit funding costs were ~~$74.7~~$84.1 million for the three months ended ~~September 30, 2023,~~March 31, 2024, an increase of ~~$61.1~~$40.8 million or 94% compared to the same period in ~~2022,~~2023, primarily due to an increase in interest rates. Rates paid on our interest-bearing deposits were ~~2.23%~~2.54% for the three months ended ~~September 30, 2023,~~March 31, 2024, an increase of ~~180~~116 basis points compared to the same period in ~~2022,~~2023, primarily due to increases in our ~~time,~~ money market, time and savings deposits. For the three months ended ~~September 30, 2023,~~March 31, 2024, the average balance of our ~~total borrowings~~investment securities portfolio was ~~$553.3 million,~~$6.2 billion, a decrease of $1.2 billion or 16% as compared to ~~$0.2 million during~~ the same period in ~~2022,~~2023, primarily due to ~~increases~~the sales, maturities and payments of investment securities in ~~FHLB advances.~~2023. The yield on our loan and lease portfolio was ~~5.39%~~5.63% for the three months ended ~~September 30, 2023,~~March 31, 2024, an increase of ~~141~~67 basis points as compared to the same period in ~~2022.~~2023. We experienced an increase in our yields from total loans and leases primarily due to increases in yields from our adjustable-rate commercial real estate loans and commercial and industrial ~~loans and construction~~ loans, which are largely based on the ~~SOFR.~~Secured Overnight Financing Rate (“SOFR”). For the three months ended ~~September 30, 2023,~~March 31, 2024, the average balance of our ~~loan and lease portfolio~~interest-bearing deposits in other banks was ~~$14.3 billion,~~$858.6 million, an increase of ~~$858.0~~$559.0 million ~~or 6%~~as compared to the same period in ~~2022. The increase in the average balance of our loans and leases reflected increases in most loan categories.~~2023.

6455

Table of Contents

For the nine months ended September 30, 2023 and 2022, average balances, related income and expenses, on a fully taxable-equivalent basis, and resulting yields and rates are presented in Table 5. An analysis of the change in net interest income, on a fully taxable-equivalent basis, is presented in Table 6.

Average Balances and Interest Rates

Table 5

Nine Months Ended

Nine Months Ended

September 30, 2023

September 30, 2022

Average

Income/

Yield/

Average

Income/

Yield/

(dollars in millions)

Balance

Expense

Rate

Balance

Expense

Rate

Earning Assets









Interest-Bearing Deposits in Other Banks

$
493.6

$
18.8

5.10
%
$
1,051.7

$
7.3

0.93
%
Available-for-Sale Investment Securities

Taxable

2,964.0

54.8

2.47

5,145.3

64.9

1.68

Non-Taxable

13.0

0.5

5.57

227.9

4.4

2.59

Held-to-Maturity Investment Securities

Taxable

3,615.0

46.0

1.70

2,382.2

29.7

1.66

Non-Taxable

608.9

11.9

2.62

409.1

8.3

2.71

Total Investment Securities

7,200.9

113.2

2.10

8,164.5

107.3

1.75

Loans Held for Sale

0.3

—

6.11

0.7

—

2.92

Loans and Leases⁽¹⁾

Commercial and industrial

2,193.8

104.3

6.35

1,983.5

50.3

3.39

Commercial real estate

4,224.7

194.6

6.16

3,820.6

98.8

3.46

Construction

874.0

45.4

6.95

738.4

20.7

3.74

Residential:

Residential mortgage

4,312.4

117.6

3.64

4,173.1

108.0

3.45

Home equity line

1,116.4

27.9

3.35

943.2

18.5

2.62

Consumer

1,194.1

53.2

5.95

1,218.2

48.1

5.29

Lease financing

322.9

10.5

4.34

248.7

6.7

3.60

Total Loans and Leases

14,238.3

553.5

5.19

13,125.7

351.1

3.57

Other Earning Assets

107.6

1.3

1.53

70.6

0.5

0.92

Total Earning Assets⁽²⁾

22,040.7

686.8

4.16

22,413.2

466.2

2.78

Cash and Due from Banks

273.3

289.9

Other Assets

2,385.8

2,392.3

Total Assets

$
24,699.8

$
25,095.4

Interest-Bearing Liabilities

Interest-Bearing Deposits

Savings

$
6,144.1

$
49.1

1.07
%
$
6,837.8

$
8.9

0.17
%
Money Market

3,857.0

58.6

2.03

4,087.6

6.8

0.22

Time

2,921.8

68.3

3.12

1,713.4

5.3

0.41

Total Interest-Bearing Deposits

12,922.9

176.0

1.82

12,638.8

21.0

0.22

Federal Funds Purchased

23.0

0.8

4.45

0.1

—

1.67

Other Short-Term Borrowings

176.5

6.8

5.15

—

—

—

Long-Term Borrowings

349.8

12.5

4.78

—

—

—

Other Interest-Bearing Liabilities

62.1

2.1

4.63

—

—

—

Total Interest-Bearing Liabilities

13,534.3

198.2

1.96

12,638.9

21.0

0.22

Net Interest Income

$
488.6

$
445.2

Interest Rate Spread

2.20
%

2.56
%
Net Interest Margin

2.96
%

2.65
%
Noninterest-Bearing Demand Deposits

8,322.2

9,532.0

Other Liabilities

506.0

566.3

Stockholders' Equity

2,337.3

2,358.2

Total Liabilities and Stockholders' Equity

$
24,699.8

$
25,095.4

~~(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 $4.2 million and $3.5 million for the nine months ended September 30, 2023 and 2022, respectively.~~

~~Table of Contents~~

Analysis of Change in Net Interest Income

Table 6

Nine Months Ended September 30, 2023

Compared to September 30, 2022
(dollars in millions)

Volume

Rate

Total⁽¹⁾
Change in Interest Income:

Interest-Bearing Deposits in Other Banks

$
(5.7)

$
17.2

$
11.5
Available-for-Sale Investment Securities

Taxable

(33.6)

23.5

(10.1)
Non-Taxable

(6.3)

2.4

(3.9)
Held-to-Maturity Investment Securities

Taxable

15.6

0.7

16.3
Non-Taxable

3.9

(0.3)

3.6
Total Investment Securities

(20.4)

26.3

5.9
Loans and Leases

Commercial and industrial

5.9

48.1

54.0
Commercial real estate

11.4

84.4

95.8
Construction

4.3

20.4

24.7
Residential:

Residential mortgage

3.6

6.0

9.6
Home equity line

3.7

5.7

9.4
Consumer

(0.9)

6.0

5.1
Lease financing

2.3

1.5

3.8
Total Loans and Leases

30.3

172.1

202.4
Other Earning Assets

0.3

0.5

0.8
Total Change in Interest Income

4.5

216.1

220.6

Change in Interest Expense:

Interest-Bearing Deposits

Savings

(1.0)

41.2

40.2
Money Market

(0.4)

52.2

51.8
Time

6.1

56.9

63.0
Total Interest-Bearing Deposits

4.7

150.3

155.0
Federal Funds Purchased

0.8

—

0.8
Other Short-Term Borrowings

6.8

—

6.8
Long-Term Borrowings

12.5

—

12.5
Other Interest-Bearing Liabilities

2.1

—

2.1
Total Change in Interest Expense

26.9

150.3

177.2
Change in Net Interest Income

$
(22.4)

$
65.8

$
43.4

~~(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 $488.6 million for the nine months ended September 30, 2023, an increase of $43.4 million or 10% compared to the same period in 2022. Our net interest margin was 2.96% for the nine months ended September 30, 2023, an increase of 31 basis points from the same period in 2022. The increase in net interest income, on a fully taxable-equivalent basis, was driven by the rising interest rate environment and was primarily due to higher yields and average balances in our loan and lease portfolio and higher yields on interest-bearing deposits in other banks. This was partially offset by higher deposit funding costs and higher average balances in total borrowings during the nine months ended September 30, 2023. The yield on our loan and lease portfolio was 5.19% for the nine months ended September 30, 2023, an increase of 162 basis points as compared to the same period in 2022. We experienced an increase in our yields from total loans and leases primarily due to increases in yields from our adjustable-rate commercial real estate loans, commercial and industrial loans and construction loans, which are largely based on the SOFR. For the nine months ended September 30, 2023, the average balance of our loan and lease portfolio was $14.2 billion, an increase of $1.1 billion or 8% compared to the same period in 2022. The increase in the average balance of our loans and leases reflected increases in most loan categories. For the nine months ended September 30, 2023, the yield on our interest-bearing deposits in other banks was 5.10%, an increase of 417 basis points compared to the same period in 2022. Deposit funding costs were $176.0 million for the nine months ended September 30, 2023, an increase of $155.0 million compared to the same period in 2022 primarily due to an increase in interest rates. Rates paid on our interest-bearing deposits were 1.82% for the nine months ended September 30, 2023, an increase of 160 basis points compared to the same period in 2022, primarily due to increases in our time, money market and savings deposits. For the nine months ended September 30, 2023,

~~Table of Contents~~

~~the average balance of our total borrowings was $549.3 million, compared to $0.1 million during the same period in 2022, primarily due to increases in FHLB advances.~~

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 ~~2022~~2023 at ~~3.25%~~7.50% and increased a total of 425 basis points (25 basis points in March, 50 basis points in May, 75 basis points in each month of June, July, September and November, and 50 basis points in December) to end the year at 7.50%. During 2023, the prime rate increased 100 basis points (25 basis points each in February, March, May and July) to end the ~~third~~year at 8.50%, where it remained as at the end of the first quarter of ~~2023 at 8.50%.~~2024. As noted above, our loan portfolio is also impacted by changes in the SOFR. At ~~September 30,~~March 31, 2024, the one-month and three-month CME Term SOFR interest rates were 5.33% and 5.30%, respectively. At March 31, 2023, the one-month and three-month CME Term SOFR interest rates were ~~5.32%~~4.80% and ~~5.40%, respectively. At September 30, 2022, the one-month and three-month CME Term SOFR interest rates were 3.04% and 3.59%~~4.91%, respectively. The target range for the federal funds rate, which is the cost of immediately available overnight funds, began in ~~2022~~2023 at ~~0.00%~~4.25% to ~~0.25%. During 2022, the federal funds rate~~4.50%, and increased ~~425~~100 basis points to end the year at ~~4.25%~~5.25% to ~~4.50%. During 2023,~~5.50%, where it remained as at the ~~federal funds rate increased 100 basis points to~~ end of the ~~third~~first quarter of ~~2023 at 5.25% to 5.50%.~~2024.

Provision for Credit Losses

The Provision was ~~$7.5~~$6.3 million for the three months ended ~~September 30, 2023,~~March 31, 2024, a decrease of $2.5 million or 28% as compared to ~~a Provision of $3.2 million for~~ the same period in ~~2022.~~2023. The ~~Provision of $7.5 million for~~decrease in the ~~three months ended September 30, 2023,~~Provision was primarily due to decreases in the provision for consumer loans and home equity lines and the provision for unfunded construction and home equity line commitments. This was partially offset by increases in the provision for commercial real estate loans, ~~and residential mortgage loans and the provision for unfunded~~ commercial and industrial ~~commitments.~~loans and construction loans. We recorded net ~~recoveries~~charge-offs of loans and leases of ~~$0.3~~$3.8 million and ~~net charge-offs of $2.8~~$3.2 million for the three months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022,~~ respectively. This represented net ~~recoveries of 0.01% and net~~ charge-offs of ~~0.08%~~0.11% and 0.09% of average loans and leases, on an annualized basis, for the three months ended ~~September 30,~~March 31, 2024 and 2023, and 2022, respectively. The Provision was $21.3 million for the nine months ended September 30, 2023, compared to a negative Provision of $1.6 million for the same period in 2022. The Provision of $21.3 million for the nine months ended September 30, 2023, was primarily due to increases in the provision for consumer loans, construction loans, home equity lines and residential mortgage loans and the provision for unfunded commercial and industrial and construction commitments. We recorded net charge-offs of loans and leases of $6.5 million and $7.7 million for the nine months ended September 30, 2023 and 2022, respectively. This represented net charge-offs of 0.06% and 0.08% of average loans and leases, on an annualized basis, for the nine months ended September 30, 2023 and 2022, respectively. The ACL was ~~$154.8~~$159.8 million as of ~~September 30, 2023,~~March 31, 2024, an increase of ~~$10.9~~$3.3 million or 8%2% from December 31, ~~2022~~2023 and represented ~~1.08%~~1.12% of total outstanding loans and leases as of ~~September 30, 2023~~March 31, 2024 compared to ~~1.02%~~1.09% of total outstanding loans and leases as of December 31, ~~2022.~~2023. The reserve for unfunded commitments was ~~$37.8~~$34.8 million as of ~~September 30, 2023,~~March 31, 2024, compared to ~~$33.8~~$35.6 million as of December 31, ~~2022.~~2023. 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 75 presents the major components of noninterest income for the three months ended ~~September 30, 2023~~March 31, 2024 and ~~2022~~2023:

Noninterest Income

Table 5

Three Months Ended

March 31,

Dollar

Percent

(dollars in thousands)

2024

2023

Change

Change

Service charges on deposit accounts

$
7,546

$
7,231

$
315

4
%
Credit and debit card fees

16,173

16,298

(125)

(1)

Other service charges and fees

9,904

9,162

742

8

Trust and investment services income

10,354

9,614

740

8

Bank-owned life insurance

4,286

5,120

(834)

(16)

Other

3,108

1,598

1,510

94

Total noninterest income

$
51,371

$
49,023

$
2,348

5
%

Total noninterest income was $51.4 million for the three months ended March 31, 2024, an increase of $2.3 million or 5% as compared to the same period in 2023.

Service charges on deposit accounts were $7.5 million for the three months ended March 31, 2024, an increase of $0.3 million or 4% as compared to the same period in 2023.

Credit and debit card fees were $16.2 million for the three months ended March 31, 2024, a decrease of $0.1 million or 1% as compared to the same period in 2023.

Other service charges and fees were $9.9 million for the three months ended March 31, 2024, an increase of $0.7 million or 8% as compared to the same period in 2023. This increase was primarily due to a $0.6 million increase in fees from annuities and securities.

Table 8of Contents

Trust and investment services income was $10.4 million for the three months ended March 31, 2024, an increase of $0.7 million or 8% as compared to the same period in 2023. This increase was primarily due to a $0.3 million increase in investment management fees, a $0.1 million increase in irrevocable trust fees, a $0.1 million increase in business cash management fees and a $0.1 million increase in money market fund management fees.

BOLI income was $4.3 million for the three months ended March 31, 2024, a decrease of $0.8 million or 16% as compared to the same period in 2023. This decrease was primarily due to a $2.0 million decrease in death benefit proceeds from life insurance policies, partially offset by a $1.1 million increase in BOLI earnings.

Other noninterest income was $3.1 million for the three months ended March 31, 2024, an increase of $1.5 million or 94% as compared to the same period in 2023. This increase was primarily due to $2.0 million in insurance proceeds received in the three months ended March 31, 2024 due to the destruction of the Lahaina branch in the Maui wildfires, a $0.5 million decrease in net losses recognized in income related to derivative contracts and a $0.4 million decrease in interest paid on collateral payments related to derivative instruments, partially offset by a $0.7 million decrease in income due to adjustments to certain liabilities assumed as a result of the Reorganization Transactions, a $0.3 million decrease in market adjustments on mutual funds purchased and a $0.2 million decrease in net credit card equipment sales.

Noninterest Expense

Table 6 presents the major components of noninterest ~~income~~expense for the ~~nine~~three months ended ~~September 30, 2023~~March 31, 2024 and ~~2022:~~2023:

Noninterest Income

Table 7

Three Months Ended

September 30,

Dollar

Percent

(dollars in thousands)

2023

2022

Change

Change

Service charges on deposit accounts

$
7,524

$
7,089

$
435

6
%
Credit and debit card fees

15,748

17,746

(1,998)

(11)

Other service charges and fees

9,546

9,179

367

4

Trust and investment services income

9,742

9,800

(58)

(1)

Bank-owned life insurance

1,872

(341)

2,213

n/m

Other

1,665

2,384

(719)

(30)

Total noninterest income

$
46,097

$
45,857

$
240

1
%

Noninterest Expense

Table 6

Three Months Ended

March 31,

Dollar

Percentage

(dollars in thousands)

2024

2023

Change

Change

Salaries and employee benefits

$
59,262

$
56,032

$
3,230

6
%
Contracted services and professional fees

15,739

16,313

(574)

(4)

Occupancy

6,941

7,782

(841)

(11)

Equipment

13,413

9,736

3,677

38

Regulatory assessment and fees

8,120

3,836

4,284

n/m

Advertising and marketing

2,612

1,994

618

31

Card rewards program

8,508

8,085

423

5

Other

14,218

14,789

(571)

(4)

Total noninterest expense

$
128,813

$
118,567

$
10,246

9
%
n/m – Denotes a variance that is not a meaningful metric to inform the change in noninterest ~~income from~~expense for the three months ended ~~September 30, 2023~~March 31, 2024 to the same period in ~~2022.~~

~~Table of Contents~~

Noninterest Income

Table 8

Nine Months Ended

September 30,

Dollar

Percent

(dollars in thousands)

2023

2022

Change

Change

Service charges on deposit accounts

$
22,001

$
21,433

$
568

3
%
Credit and debit card fees

47,507

49,652

(2,145)

(4)

Other service charges and fees

27,764

27,851

(87)

—

Trust and investment services income

28,804

27,442

1,362

5

Bank-owned life insurance

10,263

(1,617)

11,880

n/m

Other

6,129

6,613

(484)

(7)

Total noninterest income

$
142,468

$
131,374

$
11,094

8
%
~~n/m – Denotes a variance that is not a meaningful metric to inform the change in noninterest income from the nine months ended September 30, 2023 to the same period in 2022.~~2023.

Total noninterest ~~income~~expense was ~~$46.1~~$128.8 million for the three months ended ~~September 30, 2023,~~March 31, 2024, an increase of ~~$0.2~~$10.2 million or 1%9% as compared to the same period in ~~2022. Total noninterest income was $142.5 million for the nine months ended September 30, 2023, an increase of $11.1 million or 8% as compared to the same period in 2022.~~2023.

~~Service charges on deposit accounts were $7.5~~Salaries and employee benefits expense was $59.3 million for the three months ended ~~September 30, 2023,~~March 31, 2024, an increase of ~~$0.4~~$3.2 million or 6% as compared to the same period in ~~2022.~~2023. This increase was primarily due to a $0.3 million increase in account analysis service charges. Service charges on deposit accounts were $22.0 million for the nine months ended September 30, 2023, an increase of $0.6 million or 3% as compared to the same period in 2022. This increase was primarily due to a $0.9 million increase in dormant account fees and a $0.8 million increase in overdraft and checking account fees, partially offset by a $1.0 million decrease in checking account service fees.

Credit and debit card fees were $15.7 million for the three months ended September 30, 2023, a decrease of $2.0 million or 11% as compared to the same period in 2022. This decrease was primarily due to a $1.5 million increase in network association dues and a $0.8 million decrease in merchant service revenues, partially offset by a $0.5 million increase in interchange settlement fees. Credit and debit card fees were $47.5 million for the nine months ended September 30, 2023, a decrease of $2.1 million or 4% as compared to the same period in 2022. This decrease was primarily due to a $4.0 million increase in network association dues and a $0.7 million decrease in merchant service revenues, partially offset by a $2.5 million increase in interchange settlement fees.

Other service charges and fees were $9.5 million for the three months ended September 30, 2023, an increase of $0.4 million or 4% as compared to the same period in 2022. This increase was primarily due to a $0.4 million increase in fees from annuities and securities. Other service charges and fees were $27.8 million for the nine months ended September 30, 2023, a decrease of $0.1 million as compared to the same period in 2022.

Trust and investment services income was $9.7 million for the three months ended September 30, 2023, a decrease of $0.1 million or 1% as compared to the same period in 2022. Trust and investment services income was $28.8 million for the nine months ended September 30, 2023, an increase of $1.4 million or 5% as compared to the same period in 2022. This increase was primarily due to a $0.9 million increase in investment management fees and a $0.9 million increase in business cash management fees, partially offset by a $0.2 million decrease in irrevocable trust fees.

BOLI income was $1.9 million for the three months ended September 30, 2023, an increase of $2.2 million as compared to the same period in 2022. This increase was primarily due to a $2.1 million increase in BOLI earnings. BOLI income was $10.3 million for the nine months ended September 30, 2023, an increase of $11.9 million as compared to the same period in 2022. This increase was primarily due to a $9.7 million increase in BOLI earnings and a $2.1 million increase in death benefit proceeds from life insurance policies.

~~Table of Contents~~

Other noninterest income was $1.7 million for the three months ended September 30, 2023, a decrease of $0.7 million or 30% as compared to the same period in 2022. This decrease was primarily due to a $1.6 million increase in net losses recognized in income related to derivative contracts and a $0.3 million decrease in customer-related interest rate swap fees, partially offset by a $0.7 million increase in volume-based incentives, a $0.5 million increase in market adjustments on mutual funds purchased and a $0.3 million increase in income due to adjustments to certain liabilities assumed as a result of the Reorganization Transactions. Other noninterest income was $6.1 million for the nine months ended September 30, 2023, a decrease of $0.5 million or 7% as compared to the same period in 2022. This decrease was primarily due to a $4.0 million increase in net losses recognized in income related to derivative contracts, a $1.2 million tax refund received during the nine months ended September 30, 2022, a $0.5 million increase in interest paid on collateral payments related to derivative instruments and a $0.3 million decrease in customer-related interest rate swap fees, partially offset by a $2.4 million increase in market adjustments on mutual funds purchased, a $1.9 million increase in income due to adjustments to certain liabilities assumed as a result of the Reorganization Transactions, a $0.7 million increase in volume-based incentives and a $0.7 million increase in net mortgage servicing rights income.

~~Noninterest Expense~~

Table 9 presents the major components of noninterest expense for the three months ended September 30, 2023 and 2022 and Table 10 presents the major components of noninterest expense for the nine months ended September 30, 2023 and 2022:

Noninterest Expense

Table 9

Three Months Ended

September 30,

Dollar

Percentage

(dollars in thousands)

2023

2022


Change

Change

Salaries and employee benefits

$
55,937

$
51,372

$
4,565

9
%
Contracted services and professional fees

16,393

16,625

(232)

(1)

Occupancy

6,711

8,115

(1,404)

(17)

Equipment

11,826

10,791

1,035

10

Regulatory assessment and fees

4,149

2,487

1,662

67

Advertising and marketing

2,289

1,902

387

20

Card rewards program

8,358

8,141

217

3

Other

13,720

13,899

(179)

(1)

Total noninterest expense

$
119,383

$
113,332

$
6,051

5
%

Noninterest Expense

Table 10

Nine Months Ended

September 30,

Dollar

Percentage

(dollars in thousands)

2023

2022

Change

Change

Salaries and employee benefits

$
169,873

$
149,500

$
20,373

14
%
Contracted services and professional fees

50,204

52,389

(2,185)

(4)

Occupancy

22,047

22,859

(812)

(4)

Equipment

32,562

24,522

8,040

33

Regulatory assessment and fees

11,661

7,012

4,649

66

Advertising and marketing

6,174

5,924

250

4

Card rewards program

24,124

22,309

1,815

8

Other

42,186

42,034

152

—

Total noninterest expense

$
358,831

$
326,549

$
32,282

10
%

Total noninterest expense was $119.4 million for the three months ended September 30, 2023, an increase of $6.1 million or 5% as compared to the same period in 2022. Total noninterest expense was $358.8 million for the nine months ended September 30, 2023, an increase of $32.3 million or 10% as compared to the same period in 2022.

~~Table of Contents~~

Salaries and employee benefits expense was $55.9 million for the three months ended September 30, 2023, an increase of $4.6 million or 9% as compared to the same period in 2022. This increase was primarily due to a $2.7 million increase in base salaries and related payroll taxes, a $2.2 million decrease in payroll and benefit costs being deferred as loan origination costs, a $0.5 million increase in state unemployment tax expense and a $0.3 million increase in retirement plan expenses. This was partially offset by a $1.2 million decrease in incentive compensation. Salaries and employee benefits expense was $169.9 million for the nine months ended September 30, 2023, an increase of $20.4 million or 14% as compared to the same period in 2022. This increase was primarily due to a $10.8$1.0 million increase in base salaries and related payroll taxes, a ~~$9.2~~$0.6 million ~~decrease~~increase in ~~payroll~~incentive compensation and ~~benefit costs being deferred as loan origination costs,~~ a ~~$2.0 million expense for payments accrued in the nine months ended September 30, 2023 in connection with separation agreements executed with two executive officers, a $1.0~~$0.3 million increase in state unemployment tax expense and $0.9 million in severance payments accrued in the nine months ended September 30, 2023 for other employee terminations as part of an effort to reduce operating costs. This was partially offset by a $2.4 million decrease in incentive compensation and a $1.1 million decrease in temporary help expenses.expense.

Contracted services and professional fees were ~~$16.4~~$15.7 million for the three months ended ~~September 30, 2023,~~March 31, 2024, a decrease of ~~$0.2 million or 1% as compared to the same period in 2022. Contracted services and professional fees were $50.2 million for the nine months ended September 30, 2023, a decrease of $2.2~~$0.6 million or 4% as compared to the same period in ~~2022.~~2023. This decrease was primarily due to a ~~$6.6~~$0.7 million decrease ~~in contracted data processing expenses and a $2.8 million decrease in audit, legal and consultant fees, partially offset by a $7.1 million increase~~ in outside services, primarily attributable to technology-related projects, marketing and new customer ~~services.~~services and a $0.2 million decrease in contracted data processing expenses. This was partially offset by a $0.3 million increase in audit, legal and consultant fees.

Occupancy expense was ~~$6.7~~$6.9 million for the three months ended ~~September 30, 2023,~~March 31, 2024, a decrease of ~~$1.4~~$0.8 million or ~~17%~~11% as compared to the same period in ~~2022.~~2023. This decrease was primarily due to a ~~$0.9~~$0.4 million decrease in building maintenance expense, a $0.2 million increase in net sublease rental income and a ~~$0.4~~$0.2 million decrease in ~~utilities expense. Occupancy~~building depreciation.

Table of Contents

Equipment expense was ~~$22.0~~$13.4 million for the ~~nine~~three months ended ~~September 30, 2023, a decrease~~March 31, 2024, an increase of ~~$0.8~~$3.7 million or 4%38% as compared to the same period in 2022. This decrease was primarily due to a $0.7 million decrease in building maintenance expense and a $0.6 million decrease in building depreciation, partially offset by a $0.6 million decrease in net sublease rental income.

~~Equipment expense was $11.8 million for the three months ended September 30, 2023, an increase of $1.0 million or 10% as compared to the same period in 2022.~~2023. This increase was primarily due to a ~~$1.3~~$3.6 million increase in technology-related amortization and licensing and maintenance fees, partially offset by a $0.3 million decrease in furniture and equipment depreciation. Equipment expense was $32.6 million for the nine months ended September 30, 2023, an increase of $8.0 million or 33% as compared to the same period in 2022. This increase was primarily due to a $8.9 million increase in technology-related amortization and licensing and maintenance fees, partially offset by a $0.7 million decrease in furniture and equipment depreciation.fees.

Regulatory assessment and fees were ~~$4.1~~$8.1 million for the three months ended ~~September 30, 2023,~~March 31, 2024, an increase of ~~$1.7~~$4.3 million ~~or 67%~~ as compared to the same period in ~~2022. Regulatory assessment and fees were $11.7 million for the nine months ended September 30, 2023, an~~2023. This increase ~~of $4.6 million or 66% as compared to the same period in 2022. These increases were~~was primarily due to increases in the FDIC insurance assessment. In October 2022, the FDIC adopted a final rule to increase the initial base deposit insurance assessment rate schedules by 2 basis points beginning with the first quarterly assessment period of 2023. In MayDuring 2023, the FDIC ~~issued~~approved a ~~notice of proposed rulemaking~~final rule for a special assessment to replenish the deposit insurance fund following ~~the recent~~ bank ~~failures. If the rule is adopted as proposed, the total amount of the special assessment would be expected to be accrued and recognized as a loss~~failures occurring earlier in the ~~period~~year. As a result, the ~~rule is adopted.~~Company previously recorded a related loss of $16.3 million in the fourth quarter of 2023. During the first quarter of 2024, the FDIC issued a notice that the original loss estimate related to the 2023 bank failures was subsequently increased and that this increase would result in an additional assessment expense to affected institutions. The ~~ultimate impact and timing~~Company estimated a related loss of ~~recognition will depend on~~$4.1 million, which was recorded in the ~~final outcome~~first quarter of ~~the ongoing FDIC deliberations.~~2024.

Advertising and marketing expense was ~~$2.3~~$2.6 million for the three months ended ~~September 30, 2023,~~March 31, 2024, an increase of ~~$0.4~~$0.6 million or ~~20%~~31% as compared to the same period in ~~2022.~~2023. This increase was primarily due to a $0.6 million increase in advertising costs.

Card rewards program expense was $8.5 million for the three months ended March 31, 2024, an increase of $0.4 million or 5% as compared to the same period in 2023. This increase was primarily due to a $0.4 million increase in ~~advertising costs. Advertising~~interchange fees paid to our credit card partners and ~~marketing~~a $0.3 million increase in credit card cash reward redemptions, partially offset by a $0.2 million decrease in priority rewards card redemptions.

Other noninterest expense was ~~$6.2~~$14.2 million for the ~~nine~~three months ended ~~September 30, 2023, an increase~~March 31, 2024, a decrease of ~~$0.3~~$0.6 million or 4% as compared to the same period in ~~2022.~~

Card rewards program expense was $8.4 million for the three months ended September 30, 2023, an increase of $0.2 million or 3% as compared to the same period in 2022. Card rewards program expense was $24.1 million for the nine months ended September 30, 2023, an increase of $1.8 million or 8% as compared to the same period in 2022.2023. This ~~increase~~decrease was primarily due to a ~~$1.8~~$1.1 million ~~increase~~decrease in ~~credit card cash reward redemptions~~operational losses, a $0.3 million decrease in pension-related expenses and a ~~$1.1~~$0.2 million ~~increase~~decrease in ~~interchange fees paid to our credit card partners,~~management recruiting expenses. This was partially offset by a ~~$1.2~~settlement expense in connection to a lawsuit against the Company and $0.5 million ~~decrease~~ in ~~priority rewards card redemptions.~~

~~Table of Contents~~

~~Other noninterest expense was $13.7 million for~~costs associated with a fund acquired by the three months ended September 30, 2023, a decrease of $0.2 million or 1% as compared to the same period in 2022. Other noninterest expense was $42.2 million for the nine months ended September 30, 2023, an increase of $0.2 million as compared to the same period in 2022.Company.

Provision for Income Taxes

The provision for income taxes was ~~$18.1~~$16.5 million (an effective tax rate of ~~23.76%~~23.29%) for the three months ended ~~September 30, 2023,~~March 31, 2024, compared with a provision for income taxes of ~~$23.1~~$22.1 million (an effective tax rate of ~~25.04%~~24.84%) for the same period in ~~2022.~~2023. The provision for income taxes was $59.2 million (an effective tax rate of 24.00%) for the nine months ended September 30, 2023, compared with a provision for income taxes of $62.0 million (an effective tax rate of 25.00%) for the same period in 2022. The reductionchange in the effective tax rate was partially due to a reduction in pre-tax income and an increase in non-taxable ~~BOLI~~ income ~~recognized during~~for the three ~~and nine~~ months ended ~~September 30, 2023.~~March 31, 2024.

Analysis of Business Segments

Our business segments are Retail Banking, Commercial Banking and Treasury and Other. Table 117 summarizes net income from our business segments for the three ~~and nine~~ months ended ~~September 30, 2023~~March 31, 2024 and ~~2022.~~2023. Additional information about operating segment performance is presented in “Note 17. Reportable Operating Segments” contained in our unaudited interim consolidated financial statements.

Business Segment Net Income

Table 11
Business Segment Net Income (Loss)

Table 7

Three Months Ended

Nine Months Ended

Three Months Ended

September 30,

September 30,

March 31,
(dollars in thousands)

2023

2022

2023

2022

2024

2023
Retail Banking

$
48,463

$
47,854

$
127,063

$
126,902

$
56,145

$
41,515
Commercial Banking

27,896

22,670

72,355

67,611

26,668

20,854
Treasury and Other

(18,138)

(1,506)

(11,937)

(8,416)

(28,593)

4,449
Total

$
58,221

$
69,018

$
187,481

$
186,097

$
54,220

$
66,818

Retail Banking. Our Retail Banking segment includes the financial products and services we provide 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, 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.

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Net income for the Retail Banking segment was ~~$48.5~~$56.1 million for the three months ended ~~September 30, 2023,~~March 31, 2024, an increase of ~~$0.6~~$14.6 million or 1%35% as compared to the same period in ~~2022.~~2023. The increase in net income for the Retail Banking segment was primarily due to a ~~$2.0~~$19.1 million increase in net interest income and a ~~$0.9~~$1.8 million ~~decrease~~increase in noninterest income, partially offset by a $4.7 million increase in the provision for income taxes, ~~partially offset by~~ a ~~$1.6~~$0.8 million increase in the Provision and a ~~$1.1~~$0.8 million increase in noninterest expense. The increase in net interest income was primarily due to higher deposit spreads ~~partially offset by lower~~and higher loan spreads. The ~~decrease~~increase in noninterest income was primarily due to increases in other services charges and fees and trust and investment services income. The increase in the provision for income taxes was primarily due to the ~~decrease~~increase in pretax income. The ~~Provision for~~increase in the ~~three months ended September 30, 2023,~~provision was primarily due to ~~increases~~an increase in the provision for our ~~commercial and residential real estate~~consumer lending portfolio ~~segments.~~segment. The increase in noninterest expense was primarily due to increases in salaries and benefits expense and regulatory assessment and fees, ~~and other tax expense,~~ partially offset by lower overall expenses that were allocated to the Retail Banking segment.

~~Table of Contents~~

Net income for the Retail Banking segment was $127.1 million for the nine months ended September��30, 2023, an increase of $0.2 million as compared to the same period in 2022. The increase in net income for the Retail Banking segment was primarily due to a $13.8 million increase in net interest income, a $2.6 million increase in noninterest income and a $2.3 million decrease in the provision for income taxes. This was partially offset by a $10.9 million increase in noninterest expense and a Provision of $6.9 million for the nine months ended September 30, 2023, compared to a negative Provision of $0.7 million for the nine months ended September 30, 2022. The increase in net interest income was primarily due to higher deposit spreads, partially offset by lower loan spreads. The increase in noninterest income was primarily due to increases in trust and investment services income and net mortgage servicing rights income. The decrease in the provision for income taxes was primarily due to the decrease in pretax income. The increase in noninterest expense was primarily due to increases in salaries and benefits expense, regulatory assessment and fees and occupancy expense, partially offset by lower overall expenses that were allocated to the Retail Banking segment. The Provision for the nine months ended September 30, 2023, was primarily due to increases in the provision for our commercial, residential real estate and consumer lending portfolio segments.

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 locally, nationally and internationally.

Net income for the Commercial Banking segment was ~~$27.9~~$26.7 million for the three months ended ~~September 30, 2023,~~March 31, 2024, an increase of ~~$5.2~~$5.8 million or ~~23%~~28% as compared to the same period in ~~2022.~~2023. The increase in net income for the Commercial Banking segment was primarily due to a ~~$6.3~~$4.4 million increase in net interest income and a ~~$3.1~~$2.1 million decrease in noninterest expense, partially offset by ~~a $2.3 million increase in the Provision, a $1.0 million decrease in noninterest income and~~ a $0.9 million increase in the provision for income taxes. The increase in net interest income was primarily due to higher loan spreads and average balances. The decrease in noninterest expense was primarily due to lower overall expenses that were allocated to the Commercial Banking segment, partially offset by an increase in salaries and benefits expense. The Provision for the three months ended September 30, 2023, was primarily due to an increase in the provision for our commercial lending portfolio segment. The decrease in noninterest income was primarily due to a decrease in credit and debit card fees, partially offset by an increase in volume-based incentives. The increase in the provision for income taxes was primarily due to the increase in pretax income.

Net income for the Commercial Banking segment was $72.4 million for the nine months ended September 30, 2023, an increase of $4.7 million or 7% as compared to the same period in 2022. The increase in net income for the Commercial Banking segment was primarily due to a $16.8 million increase in net interest income and a $1.7 million decrease in noninterest expense. This was partially offset by a Provision of $10.4 million for the nine months ended September 30, 2023, compared to a negative Provision of $0.7 million for the nine months ended September 30, 2022, in addition to a $3.1 million decrease in noninterest income. The increase in net interest income was primarily due to higher average loan balances anddeposit spreads, partially offset by ~~a decrease in~~lower loan ~~fees.~~and lease spreads. The decrease in noninterest expense was primarily due to lower overall expenses that were allocated to the Commercial Banking segment, partially offset by increases in ~~salaries and benefits expense, card rewards program expense,~~ regulatory assessment and fees and ~~contracted services~~salaries and ~~professional fees.~~benefits expense. The ~~Provision~~increase in the provision for ~~the nine months ended September 30, 2023,~~income taxes was primarily due to ~~increases~~the increase in the provision for our commercial and consumer lending portfolio segment. The decrease in noninterest income was primarily due to decreases in credit and debit card fees and customer-related interest rate swap fees.pretax income.

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 cross-border wires for business and personal reasons and management of bank-owned properties. 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

~~Table of Contents~~

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 ~~$18.1~~$28.6 million for the three months ended ~~September 30, 2023,~~March 31, 2024, an increase in loss of ~~$16.6~~$33.0 million as compared to the same period in ~~2022.~~2023. The increase in net loss for the Treasury and Other segment was primarily due to a ~~$13.9~~$36.4 million increase in net interest expense and an ~~$8.1~~$11.5 million increase in noninterest expense. This was partially offset by a ~~$4.9~~$11.2 million increase in the benefit for income taxes, a $3.2 million decrease in the Provision and a ~~$0.9~~$0.5 million increase in noninterest income. The increase in net interest expense was primarily due to an increase in ~~interest expense from public deposits and higher borrowing costs, partially offset by an increase in~~ net transfer pricing ~~credits~~charges that reside in the Treasury and Other segment and lower average balances in our investment securities portfolio, partially offset by higher ~~yields~~average balances on our interest-bearing deposits in other banks. The increase in noninterest expense was primarily due to lower credit allocations to the Treasury and Other segment and ~~an increase~~increases in equipment expense and regulatory assessment and fees, partially offset by a decrease in ~~occupancy~~contracted services expense. The increase in the benefit for income taxes was primarily due to the increase in pretax loss. The ~~increase~~decrease in ~~noninterest income~~the Provision was primarily due to ~~increases in BOLI income and market adjustments on mutual funds purchased, partially offset by an increase in net losses recognized in income related to derivative contracts.~~

~~Net loss for~~ the Treasury and Other segment was $11.9 million for the nine months ended September 30, 2023, an increase of $3.5 million as compared to the same period in 2022. The increase in net loss was primarily due to a $23.1 million increase in noninterest expense, in addition to a Provision of $3.9 million for the nine months ended September 30, 2023, compared to a negative Provision of $0.2 million for the nine months ended September 30, 2022. This was partially offset by a $12.0 million increase in net interest income and an $11.6 million increase in noninterest income. The increase in noninterest expense was primarily due to lower credit allocations to the Treasury and Other segment, in addition to increases in equipment expense, salaries and benefits expense and regulatory assessment and fees. This was partially offset by decreases in contracted services and professional fees and occupancy expense. The Provision for the nine months ended September 30, 2023, was due to increasesdecrease in the provision for unfunded ~~commitments. The increase in net interest income was primarily due to an increase in net transfer pricing credits that reside in the Treasury~~construction and Other segment and higher yields on interest-bearing deposits in other banks and our investment securities portfolio, partially offset by an increase in interest expense from public deposits and higher borrowing costs.home equity line commitments. The increase in noninterest income was primarily due to ~~increases~~insurance proceeds received in the three months ended March 31, 2024, due to the destruction of the Lahaina branch in the Maui wildfires, partially offset by decreases in BOLI income ~~and market adjustments on mutual funds purchased~~ and income due to adjustments to certain liabilities assumed as a result of the Reorganization ~~Transactions, partially offset by an increase in net losses recognized in income related to derivative contracts.~~Transactions.

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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.

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.

~~Table of Contents~~

Immediate liquid resources are available in cash, which is primarily on deposit with the FRB. As of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, cash and cash equivalents were ~~$1.2~~$1.3 billion and ~~$0.5~~$1.7 billion, respectively. Potential sources of liquidity also include investment securities in our available-for-sale portfolio and held-to-maturity portfolio. The carrying values of our available-for-sale investment securities and held-to-maturity investment securities were ~~$2.7~~$2.2 billion and ~~$4.1~~$4.0 billion as of ~~September 30, 2023,~~March 31, 2024, respectively. The carrying values of our available-for-sale investment securities and held-to-maturity investment securities were ~~$3.2~~$2.3 billion and ~~$4.3~~$4.0 billion as of December 31, ~~2022,~~2023, respectively. As of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, 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, Municipal Housing Authorities and non-agency entities. As of ~~September 30, 2023,~~March 31, 2024, our available-for-sale investment securities portfolio was comprised of securities with a weighted average life of approximately ~~4.3~~4.4 years and our held-to-maturity investment securities portfolio was comprised of securities with a weighted average life of approximately ~~8.1~~7.9 years. These funds offer substantial resources to meet either new loan demand or to help offset reductions in our deposit funding 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. Our available-for-sale investment securities portfolio and our held-to-maturity investment securities portfolio could also be used to support borrowings through the Federal Reserve’s new Bank Term Funding Program (“BTFP”). Under the program, eligible depository institutions can obtain loans of up to one year in length by pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. Although the Bank currently has no intention to borrow funds under the program, the BTFP is available and intended to provide depository institutions with liquidity so as to avoid selling securities at market values below cost. Liquidity is further enhanced by our ability to pledge loans to access secured borrowings from the FHLB and the FRB. As of ~~September 30, 2023,~~March 31, 2024, we have borrowing capacity of ~~$2.8~~$2.9 billion from the FHLB and ~~$3.8~~$3.2 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 ~~$19.3~~$19.2 billion and ~~$20.2~~$19.5 billion as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively, which represented ~~90%~~93% and ~~93%~~91% of our total deposits as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively. These core deposits are normally less volatile and are often with customer relationships tied to other products offered by the ~~Company; however,~~Company. However, deposit levels could decrease if interest rates increase significantly or if corporate customers increase investing activities, including alternative investment options, that reduce deposit balances.

In March 2023, to enhance liquidity as a precaution in light of recent volatility in the banking sector, the Bank took $500.0 million in FHLB advances. For information with respect to the financial terms of such advances, see “ – Short-term Borrowings.” We also utilize short-term advances to help manage liquidity needs that may arise from time to time.

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.

Table of Contents

Our material cash requirements from our current and long-term contractual obligations have not changed materially since previously reported as of December 31, ~~2022.~~2023. 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 12 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.

~~Table of Contents~~

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 ~~$62.2~~$77.2 million and ~~$47.2~~$80.7 million as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, 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. The unpaid principal balance of our portfolio of residential mortgage loans sold was ~~$1.4~~$1.3 billion as of both ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023. 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 ~~nine~~three months ended ~~September 30, 2023,~~March 31, 2024, there ~~was one~~were no residential mortgage loan ~~repurchase totaling $0.2 million~~repurchases 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 ~~nine~~three months ended ~~September 30, 2023,~~March 31, 2024, we had no repurchase requests related to loan servicing activities, nor were there any pending repurchase requests as of ~~September 30, 2023.~~March 31, 2024.

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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 ~~September 30, 2023,~~March 31, 2024, 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 ~~September 30, 2023,~~March 31, 2024, 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.

~~Table of Contents~~

Financial Instruments with Off-Balance Sheet Risk

See “Note 12. 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 128 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 ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:


Investment Securities				Table 12				Table 8
	September 30,		December 31,		March 31,		December 31,
(dollars in thousands)	2023		2022		2024		2023
U.S. Treasury and government agency debt securities	$	114,159	$	150,982	$	12,821	$	32,503
Government-sponsored enterprises debt securities		19,260		44,301		19,629		19,592
Mortgage-backed securities:
Residential - Government agency		52,362		59,723		9,609		10,182
Residential - Government-sponsored enterprises		1,005,782		1,160,455		753,385		783,297
Commercial - Government agency		211,897		237,853		213,394		218,674
Commercial - Government-sponsored enterprises		84,920		119,573		83,490		86,431
Commercial - Non-agency		21,602		21,471		22,110		21,683
Collateralized mortgage obligations:
Government agency		565,852		653,322		452,163		471,150
Government-sponsored enterprises		400,748		462,132		353,061		363,970
Collateralized loan obligations		246,122		241,321		239,676		247,854
Total available-for-sale securities	$	2,722,704	$	3,151,133	$	2,159,338	$	2,255,336

Government agency debt securities	$	53,105	$	54,318	$	51,904	$	52,051
Mortgage-backed securities:
Residential - Government agency		44,379		46,302		42,961		43,885
Residential - Government-sponsored enterprises		100,905		106,534		97,914		99,379
Commercial - Government agency		30,733		30,544		30,853		30,795
Commercial - Government-sponsored enterprises		1,132,818		1,150,449		1,127,321		1,129,738
Collateralized mortgage obligations:
Government agency		1,010,551		1,080,492		972,199		989,130
Government-sponsored enterprises		1,677,519		1,798,178		1,610,563		1,642,274
Debt securities issued by states and political subdivisions		54,104		53,822		54,296		54,197
Total held-to-maturity securities	$	4,104,114	$	4,320,639	$	3,988,011	$	4,041,449

7662

Table of Contents

Table 139 presents the maturity distribution at amortized cost and weighted-average yield to maturity of our investment securities portfolio as of ~~September 30, 2023:~~March 31, 2024:

Maturities and Weighted-Average Yield on Securities⁽¹⁾

Table 13

Maturities and Weighted-Average Yield on Securities⁽¹⁾

Table 9

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 September 30, 2023

As of March 31, 2024

Available-for-sale securities

U.S. Treasury and government agency debt securities

19.9

1.53

40.6

1.97

65.7

1.03

—

126.2

1.41

114.2

13.2

1.03

—

13.2

1.03

12.8

Government-sponsored enterprises debt securities

—

20.0

3.33

—

20.0

3.33

19.3

—

20.0

3.33

—

20.0

3.33

19.6

Mortgage-backed securities:

Residential - Government agency⁽²⁾

—

61.8

2.33

—

61.8

2.33

52.4

—

11.0

2.84

—

11.0

2.84

9.6

Residential - Government-sponsored enterprises⁽²⁾

—

1,125.8

1.64

59.5

1.73

—

1,185.3

1.64

1,005.8

—

843.2

1.35

24.8

1.29

—

868.0

1.34

753.4

Commercial - Government agency⁽²⁾

4.2

3.18

235.2

1.88

33.0

1.76

—

272.4

1.89

211.9

3.3

3.11

228.7

1.89

32.7

1.77

—

264.7

1.89

213.4

Commercial - Government-sponsored enterprises⁽²⁾

28.3

2.92

65.7

1.33

—

94.0

1.81

84.9

27.6

2.99

62.8

1.30

—

90.4

1.82

83.5

Commercial - Non-agency

—

22.0

5.88

22.0

5.88

21.6

—

22.0

7.59

22.0

7.59

22.1

Collateralized mortgage obligations⁽²⁾:

Government agency

6.1

1.87

242.0

2.07

413.1

1.79

—

661.2

1.89

565.8

8.7

1.58

159.8

2.00

354.7

1.74

—

523.2

1.82

452.2

Government-sponsored enterprises

4.8

1.67

286.2

1.30

188.2

1.92

—

479.2

1.55

400.7

7.0

1.43

230.4

1.30

176.3

1.81

—

413.7

1.52

353.0

Collateralized loan obligations

—

107.0

6.24

142.9

6.26

249.9

6.25

246.1

—

9.3

6.26

87.7

6.20

142.9

6.66

239.9

6.48

239.7

Total available-for-sale securities as of September 30, 2023

63.3

2.31

2,015.5

1.68

928.3

2.30

164.9

6.21

3,172.0

2.11

2,722.7

Total available-for-sale securities as of March 31, 2024

59.8

2.18

1,554.2

1.54

687.2

2.33

164.9

6.79

2,466.1

2.13

2,159.3

Held-to-maturity securities

Government agency debt securities

—

53.1

1.57

53.1

1.57

45.2

—

51.9

1.58

51.9

1.58

46.6

Mortgage-backed securities⁽²⁾:

Residential - Government agency

—

44.4

2.16

44.4

2.16

36.3

—

43.0

2.14

—

43.0

2.14

36.8

Residential - Government-sponsored enterprises

—

25.4

1.76

75.5

1.54

100.9

1.60

82.7

—

52.0

1.54

45.9

1.66

97.9

1.60

84.4

Commercial - Government agency

—

6.3

1.63

24.4

2.01

—

30.7

1.93

22.0

—

6.3

1.65

24.6

2.02

—

30.9

1.95

23.2

Commercial - Government-sponsored enterprises

—

128.9

1.91

540.5

1.73

463.4

2.33

1,132.8

1.99

938.5

—

263.6

1.72

459.2

1.77

404.5

2.43

1,127.3

2.00

983.1

Collateralized mortgage obligations⁽²⁾:

Government agency

—

885.6

1.40

125.0

1.36

1,010.6

1.39

857.3

—

884.6

1.40

87.6

1.35

972.2

1.40

847.0

Government-sponsored enterprises

—

201.5

1.60

1,284.0

1.50

192.0

1.40

1,677.5

1.50

1,406.3

—

204.5

1.53

1,177.1

1.52

228.9

1.41

1,610.5

1.51

1,400.9

Debt securities issued by state and political subdivisions

—

10.3

2.08

43.8

2.32

54.1

2.27

44.7

—

22.1

2.13

32.2

2.37

54.3

2.27

48.7

Total held-to-maturity securities as of September 30, 2023

—

336.7

1.72

2,770.2

1.52

997.2

1.92

4,104.1

1.63

3,433.0

Total held-to-maturity securities as of March 31, 2024

—

474.4

1.64

2,662.6

1.55

851.0

1.95

3,988.0

1.64

3,470.7

(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 carrying value of our investment securities portfolio was ~~$6.8~~$6.1 billion as of ~~September 30, 2023,~~March 31, 2024, a decrease of ~~$645.0~~$149.4 million or 9%2% compared to December 31, ~~2022.~~2023. 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 year ended December 31, 2022, we reclassified at fair value $4.6 billion in available-for-sale investment securities to the held-to-maturity category. The related total unrealized after-tax losses of approximately $372.4 million remained in accumulated other comprehensive loss 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. There were no securities transferred from available-for-sale investment securities to the held-to-maturity category during the three and nine months ended September 30, 2023.

As of ~~September 30, 2023,~~March 31, 2024, we maintained all of our investment securities in either the available-for-sale category (recorded at fair value) or the held-to-maturity category (recorded at amortized cost) in the unaudited interim consolidated balance sheets, with ~~$3.7~~$3.4 billion invested in collateralized mortgage obligations issued by Ginnie Mae, Fannie Mae and Freddie Mac. Our investment securities portfolio also included ~~$2.7~~$2.4 billion in mortgage-backed securities issued by Ginnie Mae, Freddie Mac, Fannie Mae, Municipal Housing Authorities and non-agency entities, ~~$246.1~~$239.7 million in collateralized loan obligations, ~~$186.5~~$84.4 million in debt securities issued by the U.S. Treasury, government agencies (U.S. International Development Finance Corporation bonds) and government-sponsored enterprises and ~~$54.1~~$54.3 million in debt securities issued by states and political subdivisions.

~~Table of Contents~~

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 ~~$0.2~~$0.7 million and ~~$0.1~~$0.2 million as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively. Gross unrealized losses in our investment securities portfolio were ~~$1.1 billion~~$824.8 million and ~~$904.3~~$770.2 million as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively. The increase in unrealized loss was primarily due to higher market interest rates as of ~~September 30, 2023,~~March 31, 2024, relative to December 31, ~~2022,~~2023, resulting in a lower valuation. Additionally, the increase in unrealized loss positions were primarily related to our collateralized mortgage obligations, commercial mortgage-backed securities and residential mortgage-backed securities, the fair value of which is sensitive to changes in market interest rates.

For 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 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 allowance for credit losses is recognized in other comprehensive income. For the three ~~and nine~~ months ended ~~September 30, 2023,~~March 31, 2024, 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 ~~September 30, 2023,~~March 31, 2024, 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 ~~September 30, 2023~~both March 31, 2024 and December 31, ~~2022,~~2023, we held ~~$30.1 million and $10.1~~$32.6 million in FHLB stock, ~~respectively,~~ 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 1410 presents the composition of our loan and lease portfolio by major categories as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:

Loans and Leases

Table 14

Table 10

September 30,

December 31,

March 31,

December 31,

(dollars in thousands)

2023

2022

2024

2023

Commercial and industrial:

Commercial and industrial excluding Paycheck Protection Program loans

2,091,379

2,217,604

Paycheck Protection Program loans

10,063

18,293

Total commercial and industrial

2,101,442

2,235,897

Commercial and industrial

2,189,875

2,165,349

Commercial real estate

4,387,751

4,132,309

4,301,300

4,340,243

Construction

885,112

844,643

972,517

900,292

Residential:

Residential mortgage

4,303,924

4,302,788

4,242,502

4,283,315

Home equity line

1,167,388

1,055,351

1,165,778

1,174,588

Total residential

5,471,312

5,358,139

5,408,280

5,457,903

Consumer

1,154,203

1,222,934

1,054,227

1,109,901

Lease financing

332,515

298,090

394,009

379,809

Total loans and leases

14,332,335

14,092,012

14,320,208

14,353,497

~~Table of Contents~~

Total loans and leases were $14.3 billion as of ~~September 30, 2023, an increase~~March 31, 2024, a decrease of ~~$240.3~~$33.3 million or 2%less than 1% from December 31, ~~2022.~~2023. The ~~increase~~decrease in total loans and leases was primarily due to ~~increases~~decreases in ~~commercial real estate loans, construction~~consumer loans, residential real estate loans and ~~lease financing,~~commercial real estate loans, partially offset by ~~decreases~~increases in construction loans, commercial and industrial loans and ~~consumer loans.~~lease financing.

Table of Contents

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 ~~$2.1~~$2.2 billion as of ~~September 30, 2023, a decrease~~March 31, 2024, an increase of ~~$134.5~~$24.5 million or 6%1% from December 31, ~~2022.~~2023.

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 ~~$4.4~~$4.3 billion as of ~~September 30, 2023, an increase~~March 31, 2024, a decrease of ~~$255.4~~$38.9 million or 6%1% from December 31, ~~2022. This increase was primarily due to $280.0 million in completed construction loans that were converted to commercial real estate loans during the nine months ended September 30,~~ 2023.

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 converted to the commercial real estate or residential real estate classes of loans. Construction loans were ~~$885.1~~$972.5 million as of ~~September 30, 2023,~~March 31, 2024, an increase of ~~$40.5~~$72.2 million or 5%8% from December 31, ~~2022.~~2023. The increase in construction loans was primarily due to draws on existing lines ~~partially offset by the completion of $280.0 million in construction loans mentioned above~~ during the ~~nine~~three months ended ~~September 30, 2023.~~March 31, 2024.

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 including HELOC. Since our transition from LIBOR ~~which commenced~~ 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. 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 ~~$5.5~~$5.4 billion as of ~~September 30, 2023, an increase~~March 31, 2024, a decrease of ~~$113.2~~$49.6 million or 2%1% from December 31, ~~2022.~~2023.

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 ~~$1.2~~$1.1 billion as of ~~September 30, 2023,~~March 31, 2024, a decrease of ~~$68.7~~$55.7 million or 6%5% from December 31, ~~2022.~~2023.

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 ~~$332.5~~$394.0 million as of ~~September 30, 2023,~~March 31, 2024, an increase of ~~$34.4~~$14.2 million or ~~12%~~4% from December 31, ~~2022.~~2023. The increase was primarily due to the closing of several large lease transactions during the ~~nine~~three months ended ~~September 30, 2023.~~March 31, 2024.

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 SOFR, Prime and ~~BSBY,~~Bloomberg Short-Term Bank Yield Index (“BSBY”), 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 1511 presents the recorded investment in our loan and lease portfolio as of ~~September 30, 2023~~March 31, 2024 by rate type:


Loans and Leases by Rate Type	Loans and Leases by Rate Type																													Table 15		Loans and Leases by Rate Type																													Table 11
		September 30, 2023																															March 31, 2024
		Adjustable Rate																															Adjustable Rate
																							Hybrid			Fixed																												Hybrid			Fixed
(dollars in thousands)		Treasury			LIBOR			BSBY			Prime			SOFR ⁽¹⁾			Other			Total			Rate			Rate			Total				Treasury			LIBOR⁽¹⁾			BSBY			Prime			SOFR⁽²⁾			Other			Total			Rate			Rate			Total
Commercial and industrial		$	—		$	—		$	444,419		$	292,110		$	911,774		$	75,529		$	1,723,832		$	27,289		$	350,321		$	2,101,442			$	—		$	—		$	39,462		$	287,621		$	911,340		$	651,047		$	1,889,470		$	22,752		$	277,653		$	2,189,875
Commercial real estate			—			—			99,124			453,576			2,468,617			868,730			3,890,047			137,885			359,819			4,387,751				—			—			84,953			479,797			2,359,878			911,884			3,836,512			131,897			332,891			4,301,300
Construction			10			—			43,789			110,722			554,001			14,762			723,284			5,206			156,622			885,112				7			—			36,791			106,308			676,957			14,727			834,790			5,136			132,591			972,517
Residential:
Residential mortgage			8,038			91,928			—			16,564			141,284			70,354			328,168			542,185			3,433,571			4,303,924				5,841			83,710			—			10,286			147,072			68,644			315,553			552,137			3,374,812			4,242,502
Home equity line			92			—			—			843			—			—			935			908,302			258,151			1,167,388				—			—			—			497			—			—			497			917,765			247,516			1,165,778
Total residential			8,130			91,928			—			17,407			141,284			70,354			329,103			1,450,487			3,691,722			5,471,312				5,841			83,710			—			10,783			147,072			68,644			316,050			1,469,902			3,622,328			5,408,280
Consumer			1,062			—			4,693			331,859			—			1,141			338,755			1,234			814,214			1,154,203				967			—			—			325,121			175			1,111			327,374			726			726,127			1,054,227
Lease financing			—			—			—			—			—			—			—			—			332,515			332,515				—			—			—			—			—			—			—			—			394,009			394,009
Total loans and leases		$	9,202		$	91,928		$	592,025		$	1,205,674		$	4,075,676		$	1,030,516		$	7,005,021		$	1,622,101		$	5,705,213		$	14,332,335			$	6,815		$	83,710		$	161,206		$	1,209,630		$	4,095,422		$	1,647,413		$	7,204,196		$	1,630,413		$	5,485,599		$	14,320,208

% by rate type at September 30, 2023			1	%		1	%		4	%		8	%		28	%		7	%		49	%		11	%		40	%		100	%
% by rate type at March 31, 2024																																		1	%		1	%		1	%		8	%		28	%		12	%		51	%		11	%		38	%		100	%

⁽¹⁾Represents ARMs that will adjust to SOFR at the next rate reset.

⁽²⁾Includes $3.3 billion in CME Term SOFR loans.

Tables 1612 and 1713 present the geographic distribution of our loan and lease portfolio as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:

Geographic Distribution of Loan and Lease Portfolio

Table 16

Table 12

September 30, 2023

March 31, 2024

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

869,942

1,113,838

91,360

26,302

2,101,442

911,723

1,151,188

101,483

25,481

2,189,875

Commercial real estate

2,399,519

1,618,248

369,984

—

4,387,751

2,339,802

1,585,140

376,358

—

4,301,300

Construction

417,885

436,983

30,244

—

885,112

387,942

530,264

54,311

—

972,517

Residential:

Residential mortgage

4,156,758

429

146,737

—

4,303,924

4,092,771

2,669

147,062

—

4,242,502

Home equity line

1,125,076

285

42,027

—

1,167,388

1,122,322

259

43,197

—

1,165,778

Total residential

5,281,834

714

188,764

—

5,471,312

5,215,093

2,928

190,259

—

5,408,280

Consumer

800,347

44,619

306,787

2,450

1,154,203

709,567

40,365

301,587

2,708

1,054,227

Lease financing

123,946

192,342

16,227

—

332,515

179,086

201,211

13,712

—

394,009

Total Loans and Leases

9,893,473

3,406,744

1,003,366

28,752

14,332,335

9,743,213

3,511,096

1,037,710

28,189

14,320,208

Percentage of Total Loans and Leases

69%

24%

100%

68%

24%

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 17										Table 13
	December 31, 2022										December 31, 2023
			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	$	917,232	$	1,192,766	$	98,601	$	27,298	$	2,235,897	$	862,698	$	1,179,343	$	97,416	$	25,892	$	2,165,349
Commercial real estate		2,306,075		1,435,512		390,722		—		4,132,309		2,353,847		1,599,984		386,412		—		4,340,243
Construction		361,899		475,744		7,000		—		844,643		392,328		459,314		48,650		—		900,292
Residential:
Residential mortgage		4,152,272		452		150,064		—		4,302,788		4,134,062		2,682		146,571		—		4,283,315
Home equity line		1,020,538		—		34,813		—		1,055,351		1,130,999		313		43,276		—		1,174,588
Total residential		5,172,810		452		184,877		—		5,358,139		5,265,061		2,995		189,847		—		5,457,903
Consumer		877,550		41,647		300,324		3,413		1,222,934		761,328		38,577		307,358		2,638		1,109,901
Lease financing		90,755		193,423		13,912		—		298,090		171,629		193,740		14,440		—		379,809
Total Loans and Leases	$	9,726,321	$	3,339,544	$	995,436	$	30,711	$	14,092,012	$	9,806,891	$	3,473,953	$	1,044,123	$	28,530	$	14,353,497
Percentage of Total Loans and Leases		69%		23%		7%		1%		100%		68%		24%		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 1814 presents the contractual maturities of our loan and lease portfolio by major categories and the sensitivities to changes in interest rates as of ~~September 30, 2023:~~March 31, 2024:

Maturities for Loan and Lease Portfolio⁽¹⁾

Table 18

Table 14

September 30, 2023

March 31, 2024

Due in One

Due After One

Due After Five

Due After

Due in One

Due After One

Due After Five

Due After

(dollars in thousands)

Year or Less

to Five Years

to Fifteen Years

Fifteen Years

Total

Year or Less

to Five Years

to Fifteen Years

Fifteen Years

Total

Commercial and industrial

791,370

991,779

243,701

74,592

2,101,442

775,846

1,109,951

236,719

67,359

2,189,875

Commercial real estate

759,866

2,155,760

1,444,932

27,193

4,387,751

823,734

2,055,587

1,395,324

26,655

4,301,300

Construction

279,165

473,644

93,714

38,589

885,112

331,441

505,946

106,824

28,306

972,517

Residential:

Residential mortgage

12,684

41,044

465,560

3,784,636

4,303,924

17,909

44,821

443,775

3,735,997

4,242,502

Home equity line

16,203

105,616

162,886

882,683

1,167,388

19,861

101,795

139,485

904,637

1,165,778

Total residential

28,887

146,660

628,446

4,667,319

5,471,312

37,770

146,616

583,260

4,640,634

5,408,280

Consumer

190,794

753,843

209,261

305

1,154,203

191,574

714,314

148,339

—

1,054,227

Lease financing

16,074

149,990

142,420

24,031

332,515

26,113

182,665

122,018

63,213

394,009

Total Loans and Leases

2,066,156

4,671,676

2,762,474

4,832,029

14,332,335

2,186,478

4,715,079

2,592,484

4,826,167

14,320,208

Total of loans and leases with:

Adjustable interest rates

1,812,427

3,403,776

1,524,185

264,633

7,005,021

2,014,111

3,456,063

1,486,062

247,960

7,204,196

Hybrid interest rates

41,485

179,007

149,529

1,252,080

1,622,101

41,241

161,957

142,954

1,284,261

1,630,413

Fixed interest rates

212,244

1,088,893

1,088,760

3,315,316

5,705,213

131,126

1,097,059

963,468

3,293,946

5,485,599

Total Loans and Leases

2,066,156

4,671,676

2,762,474

4,832,029

14,332,335

2,186,478

4,715,079

2,592,484

4,826,167

14,320,208

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

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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.

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 and loans and leases that are 90 days past due but are still accruing interest.

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

Table 1915 presents information on our non-performing assets and accruing loans and leases past due 90 days or more as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:


Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More					Table 19						Table 15
	September 30,			December 31,			March 31,			December 31,
(dollars in thousands)	2023			2022			2024			2023
Non-Performing Assets
Non-Accrual Loans and Leases
Commercial Loans:
Commercial and industrial	$	988		$	1,215		$	942		$	970
Commercial real estate		—			727			2,953			2,953
Total Commercial Loans		988			1,942			3,895			3,923
Residential Loans:
Residential mortgage		7,435			6,166			7,777			7,620
Home equity line		6,200			3,797			6,345			7,052
Total Residential Loans		13,635			9,963			14,122			14,672
Total Non-Accrual Loans and Leases		14,623			11,905			18,017			18,595
Other Real Estate Owned ("OREO")		—			91
Total Non-Performing Assets	$	14,623		$	11,996		$	18,017		$	18,595

Accruing Loans and Leases Past Due 90 Days or More
Commercial Loans:
Commercial and industrial	$	289		$	291		$	529		$	494
Commercial real estate		170			—			—			300
Construction								606			—
Total Commercial Loans		459			291			1,135			794
Residential mortgage		1,430			58			359			—
Consumer		1,681			2,885			2,126			2,702
Total Accruing Loans and Leases Past Due 90 Days or More	$	3,570		$	3,234		$	3,620		$	3,496

Total Loans and Leases	$	14,332,335		$	14,092,012		$	14,320,208		$	14,353,497

Ratio of Non-Accrual Loans and Leases to Total Loans and Leases		0.10	%		0.08	%		0.13	%		0.13	%
Ratio of Non-Performing Assets to Total Loans and Leases and OREO		0.10	%		0.09	%		0.13	%		0.13	%
Ratio of Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More to Total Loans and Leases and OREO		0.13	%		0.11	%		0.15	%		0.15	%

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Table 2016 presents the activity in Non-Performing Assets (“NPAs”) for the ~~nine~~three months ended ~~September 30, 2023~~March 31, 2024 and ~~2022:~~2023:


Non-Performing Assets				Table 20				Table 16
	Nine Months Ended September 30,				Three Months Ended March 31,
(dollars in thousands)	2023		2022		2024		2023
Balance at beginning of period	$	11,996	$	7,257	$	18,595	$	11,996
Additions		8,025		4,050		1,405		3,233
Reductions
Payments		(2,745)		(1,467)		(1,235)		(350)
Return to accrual status		(2,289)		(760)		(651)		(968)
Sales of other real estate owned		(91)		(175)		(75)		—
Charge-offs/write-downs		(273)		(483)		(22)		(136)
Total Reductions		(5,398)		(2,885)		(1,983)		(1,454)
Balance at end of period	$	14,623	$	8,422	$	18,017	$	13,775

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 (“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 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 ~~$14.6~~$18.0 million as of ~~September 30, 2023, an increase~~March 31, 2024, a decrease of ~~$2.6~~$0.6 million or ~~22%~~3% from December 31, ~~2022.~~2023. The ratio of our NPAs to total loans and leases and OREO was ~~0.10% and 0.09%~~0.13% as of ~~September 30, 2023~~both March 31, 2024 and December 31, ~~2022, respectively.~~2023. The ~~increase~~decrease in NPAs during the ~~nine~~three months ended ~~September 30, 2023,~~March 31, 2024, was primarily due ~~to increases~~a decrease in home equity line non-accrual loans of ~~$2.4 million and residential mortgage non-accrual loans of $1.3~~$0.7 million, partially offset by ~~decreases~~an increase in ~~commercial real estate non-accrual loans of $0.7 million and commercial and industrial~~residential mortgage non-accrual loans of $0.2 million.

The largest component of our NPAs is typically residential mortgage loans. The level of these NPAs can remain elevated due to a lengthy judicial foreclosure process in Hawaii. As of ~~September 30, 2023,~~March 31, 2024, residential mortgage non-accrual loans were ~~$7.4~~$7.8 million, an increase of ~~$1.3~~$0.2 million or ~~21%~~2% from December 31, ~~2022.~~2023. This increase was due to additions of ~~$2.8~~$1.0 million, partially offset by payments of ~~$1.0~~$0.4 million, ~~and~~ returns to accrual status of ~~$0.5~~$0.3 million and a transfer to OREO of $0.1 million. As of ~~September 30, 2023,~~March 31, 2024, our residential mortgage non-accrual loans were comprised of 35 loans with a weighted average current LTV ratio of ~~36%~~35%.

As of ~~September 30, 2023,~~March 31, 2024, home equity line non-accrual loans were ~~$6.2~~$6.3 million, ~~an increase~~a decrease of ~~$2.4~~$0.7 million or ~~63%~~10% from December 31, ~~2022.~~2023. This ~~increase~~decrease was due to ~~additions in home equity line non-accrual loans~~payments totaling ~~$5.2~~$0.8 million ~~partially offset by~~and returns to accrual status of ~~$1.7~~$0.3 million, ~~payments~~partially offset by additions of ~~$0.8 million and charge-offs of $0.3~~$0.4 million.

OREO represents property acquired as the result of borrower defaults on loans. 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. There was no OREO held as of ~~September 30, 2023. OREO was $0.1 million as of~~March 31, 2024 and December 31, ~~2022, which comprised of one residential property.~~2023.

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

Loans and leases past due 90 days or more and still accruing interest were $3.6 million as of ~~September 30, 2023,~~March 31, 2024, an increase of ~~$0.3~~$0.1 million or ~~10%~~4% from December 31, ~~2022.~~2023. This increase was primarily due to increases in construction loans of $0.6 million and residential mortgage loans of ~~$1.4~~$0.4 million, partially offset by decreases in consumer loans of $0.6 million and commercial real estate loans of ~~$0.2 million, partially offset by a decrease in consumer loans of $1.2~~$0.3 million, that were past due 90 days or more and still accruing interest.

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

Table 2117 presents an analysis of our ACL for the periods indicated:


Allowance for Credit Losses and Reserve for Unfunded Commitments											Table 21						Table 17
	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(dollars in thousands)	2023			2022			2023			2022			2024			2023
Balance at Beginning of Period	$	184,780		$	177,900		$	177,735		$	187,584		$	192,138		$	177,735
Loans and Leases Charged-Off
Commercial Loans:
Commercial and industrial		(784)			(328)			(2,572)			(1,277)			(909)			(791)
Commercial real estate		—			(750)			—			(750)
Total Commercial Loans		(784)			(1,078)			(2,572)			(2,027)
Residential Loans:
Residential mortgage		—			(1)			(122)			(1)			—			(122)
Home equity line		—			—			(272)			(1,163)			—			(135)
Total Residential Loans		—			(1)			(394)			(1,164)			—			(257)
Consumer		(3,665)			(3,986)			(12,963)			(11,754)			(4,854)			(4,782)
Total Loans and Leases Charged-Off		(4,449)			(5,065)			(15,929)			(14,945)			(5,763)			(5,830)
Recoveries on Loans and Leases Previously Charged-Off
Commercial Loans:
Commercial and industrial		2,637			240			3,175			594			211			246
Commercial real estate		—			—			—			14
Lease financing		—			—			—			60
Total Commercial Loans		2,637			240			3,175			668
Residential Loans:
Residential mortgage		53			37			110			245			30			27
Home equity line		303			356			539			575			44			177
Total Residential Loans		356			393			649			820			74			204
Consumer		1,746			1,653			5,640			5,741			1,689			2,166
Total Recoveries on Loans and Leases Previously Charged-Off		4,739			2,286			9,464			7,229			1,974			2,616
Net Loans and Leases Recovered (Charged-Off)		290			(2,779)			(6,465)			(7,716)
Net Loans and Leases Charged-Off														(3,789)			(3,214)
Provision for Credit Losses		7,500			3,183			21,300			(1,564)			6,300			8,800
Balance at End of Period	$	192,570		$	178,304		$	192,570		$	178,304		$	194,649		$	183,321
Components:
Allowance for Credit Losses	$	154,795		$	148,163		$	154,795		$	148,163		$	159,836		$	147,122
Reserve for Unfunded Commitments		37,775			30,141			37,775			30,141			34,813			36,199
Total Allowance for Credit Losses and Reserve for Unfunded Commitments	$	192,570		$	178,304		$	192,570		$	178,304		$	194,649		$	183,321
Average Loans and Leases Outstanding	$	14,349,402		$	13,491,428		$	14,238,309		$	13,125,660		$	14,312,563		$	14,079,337
Ratio of Net Loans and Leases (Recovered) Charged-Off to Average Loans and Leases Outstanding⁽¹⁾		(0.01)	%		0.08	%		0.06	%		0.08	%
Ratio of Net Loans and Leases Charged-Off to Average Loans and Leases Outstanding⁽¹⁾														0.11	%		0.09	%
Ratio of Allowance for Credit Losses for Loans and Leases to Loans and Leases Outstanding		1.08	%		1.08	%		1.08	%		1.08	%		1.12	%		1.03	%
Ratio of Allowance for Credit Losses for Loans and Leases to Non-accrual Loans and Leases		10.59x			17.89x			10.59x			17.89x			8.87x			10.75x

(1)	Annualized for the three ~~and nine~~ months ended ~~September 30, 2023~~March 31, 2024 and ~~2022.~~2023.

~~Table of Contents~~

Tables 2218 and 2319 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 ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:

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

Table 22

Table 18

September 30, 2023

March 31, 2024

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

(dollars in thousands)

Amount

category

leases

Amount

category

leases

Commercial and industrial

13,700

0.65

14.66

17,087

0.78

15.29

Commercial real estate

43,798

1.00

30.61

43,526

1.01

30.04

Construction

10,204

1.15

6.18

12,441

1.28

6.79

Lease financing

1,710

0.51

2.32

2,485

0.63

2.75

Total commercial

69,412

0.90

53.77

75,539

0.96

54.87

Residential mortgage

36,999

0.86

30.03

36,790

0.87

29.63

Home equity line

11,427

0.98

8.15

11,447

0.98

8.14

Total residential

48,426

0.89

38.18

48,237

0.89

37.77

Consumer

36,957

3.20

8.05

36,060

3.42

7.36

Total

154,795

1.08

100.00

159,836

1.12

100.00

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

Table 23

December 31, 2022

Allocated

Loan

ACL as

category as

% of loan or

% of total

lease

loans and

(dollars in thousands)

Amount

category

leases

Commercial and industrial

$
14,564

0.65
%
15.87
%
Commercial real estate

43,810

1.06

29.31

Construction

5,843

0.69

5.99

Lease financing

1,551

0.52

2.13

Total commercial

65,768

0.88

53.30

Residential mortgage

35,175

0.82

30.53

Home equity line

8,296

0.79

7.49

Total residential

43,471

0.81

38.02

Consumer

34,661

2.83

8.68

Total

$
143,900

1.02
%
100.00
%

Table of Contents

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

Table 19

December 31, 2023

Allocated

Loan

ACL as

category as

% of loan or

% of total

lease

loans and

(dollars in thousands)

Amount

category

leases

Commercial and industrial

$
14,956

0.69
%
15.09
%
Commercial real estate

43,944

1.01

30.24

Construction

10,392

1.15

6.27

Lease financing

1,754

0.46

2.65

Total commercial

71,046

0.91

54.25

Residential mortgage

36,880

0.86

29.84

Home equity line

11,728

1.00

8.18

Total residential

48,608

0.89

38.02

Consumer

36,879

3.32

7.73

Total

$
156,533

1.09
%
100.00
%

Table 2420 presents the net charge-offs (recoveries) to average loans and leases by category during the three ~~and nine~~ months ended ~~September 30, 2023~~March 31, 2024 and ~~2022:~~2023:

Net Charge-Offs (Recoveries) to Average Loans and Leases By Category⁽¹⁾

Table 24

Table 20

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,


2023

2022

2023

2022


2024

2023

Commercial and industrial

(0.35)
%

0.02
%

(0.04)
%

0.05
%

0.13
%

0.10
%
Commercial real estate

—

0.07

—

0.03

—

—

Construction

—

—

—

—

—

—

Lease financing

—

—

—

(0.03)

—

—

Total commercial

(0.10)

0.05

(0.01)

0.03

0.04

0.03

Residential mortgage

—

—
��

—

(0.01)

—

0.01

Home equity line

(0.10)

(0.14)

(0.03)

0.08

(0.02)

(0.02)

Total residential

(0.03)

(0.03)

(0.01)

0.01

(0.01)

—

Consumer

0.65

0.76

0.82

0.66

1.17

0.87

Total loans and leases

(0.01)
%

0.08
%

0.06
%

0.08
%

0.11
%

0.09
%
(1) Annualized for the three ~~and nine~~ months ended ~~September 30, 2023~~March 31, 2024 and ~~2022.~~2023.

~~Table of Contents~~

As of ~~September 30, 2023,~~March 31, 2024, the ACL was ~~$154.8~~$159.8 million or ~~1.08%~~1.12% of total loans and leases outstanding, compared with an ACL of ~~$143.9~~$156.5 million or ~~1.02%~~1.09% of total loans and leases outstanding as of December 31, ~~2022.~~2023. The reserve for unfunded commitments was ~~$37.8~~$34.8 million as of ~~September 30, 2023,~~March 31, 2024, compared to ~~$33.8~~$35.6 million as of December 31, ~~2022.~~2023.

Net ~~recoveries~~charge-offs of loans and leases were ~~$0.3~~$3.8 million or ~~0.01%~~0.11% of total average loans and leases, on an annualized basis, for the three months ended ~~September 30, 2023,~~March 31, 2024, compared to net charge-offs of ~~$2.8~~$3.2 million or ~~0.08%~~0.09% for the three months ended ~~September 30, 2022.~~March 31, 2023. Net ~~recoveries~~charge-offs in our commercial lending portfolio were ~~$1.9~~$0.7 million and $0.5 million for the three months ended ~~September 30,~~March 31, 2024 and 2023, ~~compared to net charge-offs of $0.8 million for the three months ended September 30, 2022.~~respectively. Net recoveries in our residential lending portfolio were ~~$0.4~~$0.1 million for ~~both~~ the three months ended ~~September 30, 2023 and 2022, respectively.~~March 31, 2024 compared to net charge-offs of $0.1 million for March 31, 2023. Net charge-offs in our consumer lending portfolio were ~~$1.9~~$3.2 million and ~~$2.3~~$2.6 million for the three months ended ~~September 30,~~March 31, 2024 and 2023, ~~and 2022,~~ 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 $6.5 million or 0.06% of total average loans and leases on an annualized basis, for the nine months ended September 30, 2023, compared to $7.7 million or 0.08% of total average loans and leases, on an annualized basis, for the nine months ended September 30, 2022. Net recoveries in our commercial lending portfolio were $0.6 million for the nine months ended September 30, 2023, compared to net charge-offs of $1.4 million for the nine months ended September 30, 2022. Net recoveries in our residential lending portfolio were $0.3 million for the nine months ended September 30, 2023, compared to net charge-offs of $0.3 million for the nine months ended September 30, 2022. Net charge-offs in our consumer lending portfolio were $7.3 million and $6.0 million for the nine months ended September 30, 2023 and 2022, 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.

Although we determine the amount of each component of the ACL separately, the ACL as a whole was considered appropriate by management as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023. Furthermore, as of ~~September 30, 2023,~~March 31, 2024, 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. The ACL anticipates cyclical losses consistent with a recession and includes a qualitative overlay for potential macroeconomic impacts. We will continue to monitor factors that drive expected credit losses including the uncertainty of the economy, inflation and geopolitical 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 ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023. 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 nine~~ months ended ~~September 30, 2023.~~March 31, 2024. Future events, including geopolitical concerns, inflation concerns, global supply chain issues, and other factors affecting the economy, 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.

~~Table of Contents~~

Other Assets

Other assets were ~~$853.6~~$845.1 million as of ~~September 30, 2023, an increase~~March 31, 2024, a decrease of ~~$56.6~~$0.6 million or 7%less than 1% from December 31, ~~2022.~~2023. The ~~increase~~decrease in other assets was primarily due to ~~increases~~decreases of ~~$25.7~~$21.0 million in ~~municipal advances, $24.6~~suspense and clearing accounts and $7.6 million in current tax receivables and deferred tax ~~assets, $20.0 million in FHLB stock and $7.3 million in LIHTC investments.~~assets. This was partially offset by ~~decreases~~an increase of ~~$11.9~~$26.8 million in prepaid ~~assets and $8.1 million in mutual funds.~~assets.

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 2521 presents the composition of our deposits as of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022:~~2023:

Deposits

Table 25

Table 21

September 30,

December 31,

March 31,

December 31,

(dollars in thousands)

2023

2022

2024

2023

U.S.:

Demand

6,931,032

7,978,046

6,212,216

6,609,483

Savings

5,599,787

5,957,368

5,826,037

5,986,066

Money Market

3,668,328

3,714,244

3,686,061

3,583,191

Time

3,398,957

2,265,163

2,939,002

3,162,658

Foreign⁽¹⁾:

Demand

967,964

886,600

836,337

974,079

Savings

428,521

425,542

451,642

459,018

Money Market

254,726

251,179

373,143

264,662

Time

262,174

210,887

345,043

293,500

Total Deposits⁽²⁾

21,511,489

21,689,029

20,669,481

21,332,657

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

(2)	Public deposits were ~~$2.4~~$1.3 billion as of ~~September 30, 2023, an increase~~March 31, 2024, a decrease of ~~$454.7~~$450.4 million or ~~24%~~25% compared to December 31, ~~2022.~~2023.

Total deposits were ~~$21.5~~$20.7 billion as of ~~September 30, 2023,~~March 31, 2024, a decrease of ~~$177.5~~$663.2 million or 1%3% from December 31, ~~2022.~~2023. The decrease in deposit balances stemmed primarily from a ~~$960.5~~$538.9 million decrease in non-public demand deposit balances, a ~~$276.1~~$469.7 million decrease in public time deposit balances and a $164.8 million decrease in non-public savings ~~deposit balances, a $78.5 million decrease in public savings deposit balances and a $50.3 million decrease in non-public money market~~ deposit balances. These decreases were partially offset by a ~~$530.5 million increase in public time deposit balances and a $654.6~~$297.6 million increase in non-public time deposit balances, a $193.3 million increase in non-public money market deposit balances and a $18.0 million increase in public money market deposit balances.

Table of Contents

As of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the amount of deposits that exceeded FDIC insurance limits were estimated to be ~~$11.1~~$10.1 billion, or ~~52%~~49% of total deposits, and ~~$11.1~~$10.8 billion, or 51% of total deposits, respectively. At ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the Company had ~~$2.4~~$1.3 billion and ~~$1.9~~$1.8 billion, respectively, of public deposits, all of which were fully collateralized with investment securities. As of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the amount of deposits excluding public deposits that exceeded FDIC insurance limits were estimated to be $8.8 billion, or ~~41%~~43% of total deposits, and ~~$9.2~~$9.1 billion, or 42% of total deposits, respectively. As of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, deposit accounts above $250,000 were estimated to be ~~$12.9~~$11.9 billion and ~~$13.3~~$12.6 billion, respectively. As of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, deposit balances over $250,000 in corporate operating accounts were estimated to be $2.1 billion and $2.3 billion, ~~and $2.9 billion,~~ respectively.

~~Table of Contents~~

Table 2622 presents the estimated amount of time deposits that were in excess of the FDIC insurance limit, further segregated by time remaining until maturity, as of ~~September 30, 2023:~~March 31, 2024:


Uninsured Time Deposits		Table 26		Table 22
(dollars in thousands)		September 30, 2023		March 31, 2024
Three months or less	$	1,096,732	$	489,431
Over three through six months		538,783		413,449
Over six through twelve months		504,250		397,568
Over twelve months		85,632		23,344
Total⁽¹⁾	$	2,225,397	$	1,323,792

(1)	Includes ~~$1.4~~$0.4 billion in public time deposits that are fully collateralized with investment securities.

Short-term Borrowings

As of ~~September 30,~~both March 31, 2024 and December 31, 2023, the Company’s short-term borrowings consisted of $500.0 million in short-term FHLB fixed-rate advances with a weighted average interest rate of 4.71% and maturity dates in September 2024. ~~As of December 31, 2022, the Company’s short-term borrowings consisted of $75.0 million in federal funds purchased with a 4.35% annual interest rate that matured in January 2023.~~

As of ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the Company had a remaining line of credit of ~~$2.8~~$2.9 billion and $2.5 billion available from the FHLB, respectively. The FHLB ~~fixed-rate advances and remaining~~ borrowing capacity ~~were~~was secured by commercial real estate and residential real estate loan collateral as of ~~September 30, 2023. The FHLB borrowing capacity was secured by residential real estate loan collateral as of~~both March 31, 2024 and December 31, ~~2022.~~2023.

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 ~~$93.2~~$92.1 million as of ~~September 30, 2023,~~March 31, 2024, a nominal decrease from December 31, ~~2022.~~2023. This decrease was primarily due to payments of ~~$6.2~~$2.2 million, offset by net periodic benefit costs for the ~~nine~~three months ended ~~September 30, 2023~~March 31, 2024 of ~~$5.6~~$1.6 million.

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

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”).

Table of Contents

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.

~~Table of Contents~~

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 ~~September 30, 2023,~~March 31, 2024, 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 2723 below. There have been no conditions or events since ~~September 30, 2023~~March 31, 2024 that management believes have changed either the Company’s or the Bank’s capital classifications. CET1 was ~~12.21%~~12.55% as of ~~September 30, 2023,~~March 31, 2024, an increase of 3916 basis points from December 31, ~~2022.~~2023. The increase in CET1 was primarily due to earnings for the ~~nine~~three months ended ~~September 30, 2023,~~March 31, 2024, partially offset by the dividends declared and paid to the Company’s ~~stockholders and an increase in risk-weighted assets driven by an increase in loans and leases.~~stockholders.


Regulatory Capital					Table 27						Table 23
	September 30,			December 31,			March 31,			December 31,
(dollars in thousands)	2023			2022			2024			2023
Stockholders' Equity	$	2,351,009		$	2,269,005		$	2,513,761		$	2,486,066
Less:
Goodwill		995,492			995,492			995,492			995,492
Accumulated other comprehensive loss, net		(648,731)			(639,254)			(523,780)			(530,210)
Tax credit carryforward								1,178			—
Common Equity Tier 1 Capital and Tier 1 Capital	$	2,004,248		$	1,912,767		$	2,040,871		$	2,020,784
Add:
Qualifying allowance for credit losses and reserve for unfunded commitments		192,570			177,735			194,649			192,138
Total Capital	$	2,196,818		$	2,090,502		$	2,235,520		$	2,212,922
Risk-Weighted Assets	$	16,415,387		$	16,182,743		$	16,263,053		$	16,308,345

Key Regulatory Capital Ratios
FHI's Key Regulatory Capital Ratios
Common Equity Tier 1 Capital Ratio		12.21	%		11.82	%		12.55	%		12.39	%
Tier 1 Capital Ratio		12.21	%		11.82	%		12.55	%		12.39	%
Total Capital Ratio		13.38	%		12.92	%		13.75	%		13.57	%
Tier 1 Leverage Ratio		8.45	%		8.11	%		8.80	%		8.64	%

In January ~~2023,~~2024, the Company announced a stock repurchase program for up to $40.0 million of its outstanding common stock during ~~2023.~~2024. The Company ~~has~~did not ~~repurchased~~repurchase any common stock outstanding under this stock repurchase program during the ~~nine~~three months ended ~~September 30, 2023~~March 31, 2024 and, as a result, $40.0 million remained of the $40.0 million total repurchase amount authorized under the stock repurchase program for ~~2023~~2024 as of ~~September 30, 2023.~~March 31, 2024. The timing and exact amount of stock repurchases, if any, will be subject to management’s discretion and various factors, including the Company’s capital position and financial performance, as well as market conditions. The stock repurchase program may be suspended, terminated or modified at any time for any reason.

Table of Contents

In ~~October 2023,~~April 2024, 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 ~~December 1, 2023~~May 31, 2024 to shareholders of record at the close of business on ~~November~~May 20, ~~2023.~~2024.

~~Table of Contents~~

Future Application of Accounting Pronouncements

For a discussion of the expected impact of accounting pronouncements recently issued but not adopted by us as of ~~September 30, 2023,~~March 31, 2024, 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 and Capital Resources” and “—Capital” sections of this MD&A for further discussions of liquidity risk management and capital management, respectively.

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.

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 or preleasing requirements 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.

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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 ~~$396,000~~$394,000 at ~~September 30, 2023.~~March 31, 2024. 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~~0.95% of the ~~fully indexed rate.~~credit line amount. 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.

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. 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.

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.

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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 2824 presents, for the twelve months subsequent to ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, 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 ~~September 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 are held constant.


Net Interest Income Sensitivity Profile - Estimated Percentage Change Over 12 Months		Table 28								Table 24
		Static Forecast				Static Forecast				Static Forecast				Static Forecast
	September 30, 2023				December 31, 2022				March 31, 2024				December 31, 2023
Gradual Change in Interest Rates (basis points)
+200											3.0	%			3.8	%
+100			2.4	%			3.2	%			1.6				1.9
+50			1.2				1.6				0.9				1.0
(50)			(1.3)				(1.7)				(0.7)				(1.0)
(100)			(2.6)				(3.4)				(1.5)				(2.1)

Immediate Change in Interest Rates (basis points)
+200											6.1	%			7.3	%
+100			4.3	%			5.8	%			3.1				3.6
+50			2.1				2.9				1.7				1.8
(50)			(2.4)				(3.1)				(1.5)				(2.0)
(100)			(4.8)				(6.3)				(3.2)				(4.0)

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, +100 and ~~+100~~+200 basis points in market interest rates over a twelve-month period on our net interest income.

Currently, our interest rate profile, assuming a constant balance sheet, 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. Other factors such as changes in balance sheet composition or deposit rate behavior could result in a change in repricing sensitivity.

Under the static balance sheet forecast as of ~~September 30, 2023,~~March 31, 2024, our net interest income sensitivity profile is slightly lower in higher interest rate scenarios compared to similar forecasts as of December 31, ~~2022.~~2023. The sensitivity outcome described above is primarily due to the impact of ~~accelerated~~changes in deposit ~~repricing as compared with~~mix from December 31, ~~2022.~~2023.

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.

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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.

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.

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. 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.

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In addition, our business relied upon a large volume of loans, derivative contracts and other financial instruments with attributes that ~~are~~were either directly or indirectly dependent on LIBOR to establish their interest rate and/or value. According to the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, U.S. Dollar LIBOR settings have ceased to be provided or ceased to be representative after June 30, 2023. The publication of all other LIBOR settings ceased to be provided or ceased to be representative as of December 31, 2021. We transitioned our financial instruments associated to LIBOR currencies and tenors that ceased or became nonrepresentative on December 31, 2021, to alternative reference rates (collectively, “Alternative Rates”), with limited exceptions. As such, effective December 31, 2021, we have ceased the use of U.S Dollar LIBOR as a reference rate on all new contracts and continue to increase the usage of Alternative Rates such as the ~~Secured Overnight Financing Rate (“SOFR”).~~SOFR. A working group of key stakeholders from throughout the Company ~~has been working to spearhead~~spearheaded the transition from LIBOR to Alternative Rates. There are risks inherent with the transition to any Alternative Rate as the rate may behave differently than LIBOR in reaction to monetary, market and economic events. The working group disbanded after the conclusion of the transition in December 2023.

Our LIBOR transition plan included work to ensure that our technology systems ~~are~~were prepared for the transition, our loan documents that reference LIBOR-based rates ~~have been~~were appropriately amended to reference other methods of interest rate determinations and internal and external stakeholders ~~are~~were apprised of the transition. We have implemented certain Prime Rate ~~SOFR~~ and ~~BSBY~~SOFR conventions as we transitioned our products and transaction agreements to reference rates other than LIBOR. Commercial loans and investment securities have fully transitioned to SOFR rates. Residential mortgages with adjustable rates ~~are in transition to SOFR and expected to~~will fully transition off LIBOR during the fourth quarter of ~~2024 as resets occur six months prior to the effective date for terms up to 12 months.~~2024. To see the recorded investment in our loan and lease portfolio by rate type, refer to Table 1511 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, 2022, filed with the SEC on February 24, 2023.

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 Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of ~~September 30, 2023.~~March 31, 2024. 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 Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of ~~September 30, 2023.~~March 31, 2024.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended ~~September 30, 2023~~March 31, 2024 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, ~~2022,~~2023, filed with the SEC on February ~~24, 2023~~28, 2024 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, ~~2022.~~2023.

ITEM 5. OTHER INFORMATION

During the three months ended ~~September 30, 2023,~~March 31, 2024, none of the Company’s directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company’s securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement,” as defined in Item 408(c) of Regulation S-K.

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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

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: ~~November~~May 6, ~~2023~~2024

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/ James M. Moses

James M. Moses
Vice Chairman and Chief Financial Officer

9782


	September 30, 2023								December 31, 2022
	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	$	126,264	$	—	$	(12,105)	$	114,159	$	163,309	$	—	$	(12,327)	$	150,982
Government-sponsored enterprises debt securities		20,000		—		(740)		19,260		45,000		—		(699)		44,301
Mortgage-backed securities:
Residential - Government agency		61,768		—		(9,406)		52,362		66,792		—		(7,069)		59,723
Residential - Government-sponsored enterprises		1,185,269		—		(179,487)		1,005,782		1,317,718		—		(157,263)		1,160,455
Commercial - Government agency		272,432		—		(60,535)		211,897		282,700		—		(44,847)		237,853
Commercial - Government-sponsored enterprises		94,021		—		(9,101)		84,920		130,612		—		(11,039)		119,573
Commercial - Non-agency		21,964		—		(362)		21,602		21,964		—		(493)		21,471
Collateralized mortgage obligations:
Government agency		661,207		—		(95,355)		565,852		738,524		—		(85,202)		653,322
Government-sponsored enterprises		479,217		—		(78,469)		400,748		533,103		—		(70,971)		462,132
Collateralized loan obligations		249,889		21		(3,788)		246,122		249,877		50		(8,606)		241,321
Total available-for-sale securities	$	3,172,031	$	21	$	(449,348)	$	2,722,704	$	3,549,599	$	50	$	(398,516)	$	3,151,133

Government agency debt securities	$	53,105	$	—	$	(7,901)	$	45,204	$	54,318	$	—	$	(5,674)	$	48,644
Mortgage-backed securities:
Residential - Government agency		44,379		—		(8,024)		36,355		46,302		—		(6,294)		40,008
Residential - Government-sponsored enterprises		100,905		—		(18,151)		82,754		106,534		—		(12,978)		93,556
Commercial - Government agency		30,733		—		(8,756)		21,977		30,544		—		(5,229)		25,315
Commercial - Government-sponsored enterprises		1,132,818		153		(194,471)		938,500		1,150,449		—		(138,451)		1,011,998
Collateralized mortgage obligations:
Government agency		1,010,551		—		(153,260)		857,291		1,080,492		—		(122,378)		958,114
Government-sponsored enterprises		1,677,519		—		(271,248)		1,406,271		1,798,178		—		(207,045)		1,591,133
Debt securities issued by states and political subdivisions		54,104		—		(9,427)		44,677		53,822		—		(7,768)		46,054
Total held-to-maturity securities	$	4,104,114	$	153	$	(671,238)	$	3,433,029	$	4,320,639	$	—	$	(505,817)	$	3,814,822


	Time in Continuous Loss as of December 31, 2022												Time in Continuous Loss as of December 31, 2023
	Less Than 12 Months				12 Months or More				Total				Less Than 12 Months				12 Months or More				Total
	Unrealized				Unrealized				Unrealized				Unrealized				Unrealized				Unrealized
(dollars in thousands)	Losses		Fair Value		Losses		Fair Value		Losses		Fair Value		Losses		Fair Value		Losses		Fair Value		Losses		Fair Value
U.S. Treasury and government agency debt securities	$	(2,962)	$	83,870	$	(9,365)	$	67,112	$	(12,327)	$	150,982	$	—	$	—	$	(666)	$	32,503	$	(666)	$	32,503
Government-sponsored enterprises debt securities		(699)		44,301		—		—		(699)		44,301		—		—		(408)		19,592		(408)		19,592
Mortgage-backed securities:
Residential - Government agency		(7,069)		59,723		—		—		(7,069)		59,723		—		—		(1,121)		10,182		(1,121)		10,182
Residential - Government-sponsored enterprises		(73,954)		645,338		(83,309)		515,117		(157,263)		1,160,455		—		—		(112,124)		783,297		(112,124)		783,297
Commercial - Government agency		(15,852)		108,842		(28,995)		129,011		(44,847)		237,853		—		—		(50,270)		218,674		(50,270)		218,674
Commercial - Government-sponsored enterprises		(7,348)		94,657		(3,691)		24,916		(11,039)		119,573		—		—		(7,028)		86,431		(7,028)		86,431
Commercial - Non-agency		(493)		21,471		—		—		(493)		21,471		—		—		(281)		21,683		(281)		21,683
Collateralized mortgage obligations:
Government agency		(74,797)		596,907		(10,405)		56,415		(85,202)		653,322		—		—		(67,568)		471,150		(67,568)		471,150
Government-sponsored enterprises		(21,916)		198,108		(49,055)		264,024		(70,971)		462,132		—		—		(61,856)		363,970		(61,856)		363,970
Collateralized loan obligations:		(8,606)		170,042		—		—		(8,606)		170,042
Collateralized loan obligations														(564)		63,667		(1,496)		163,126		(2,060)		226,793
Total available-for-sale securities with unrealized losses	$	(213,696)	$	2,023,259	$	(184,820)	$	1,056,595	$	(398,516)	$	3,079,854	$	(564)	$	63,667	$	(302,818)	$	2,170,608	$	(303,382)	$	2,234,275


	Nine Months Ended September 30, 2023																Three Months Ended March 31, 2023
	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	$	14,564	$	43,810	$	5,843	$	1,551	$	35,175	$	8,296	$	34,661	$	143,900	$	14,564	$	43,810	$	5,843	$	1,551	$	35,175	$	8,296	$	34,661	$	143,900
Charge-offs		(2,572)		—		—		—		(122)		(272)		(12,963)		(15,929)		(791)		—		—		—		(122)		(135)		(4,782)		(5,830)
Recoveries		3,175		—		—		—		110		539		5,640		9,464		246		—		—		—		27		177		2,166		2,616
Provision		(1,467)		(12)		4,361		159		1,836		2,864		9,619		17,360		19		(3,499)		630		(70)		(760)		1,003		9,113		6,436
Balance at end of period	$	13,700		43,798	$	10,204	$	1,710	$	36,999	$	11,427	$	36,957	$	154,795	$	14,038	$	40,311	$	6,473	$	1,481	$	34,320	$	9,341	$	41,158	$	147,122


															Revolving																		Revolving
															Loans																		Loans
															Converted																		Converted
	Term Loans												Revolving		to Term				Term Loans												Revolving		to Term
	Amortized Cost Basis by Origination Year												Loans		Loans				Amortized Cost Basis by Origination Year												Loans		Loans
													Amortized		Amortized																Amortized		Amortized
(dollars in thousands)	2023		2022		2021		2020		2019		Prior		Cost Basis		Cost Basis		Total		2024		2023		2022		2021		2020		Prior		Cost Basis		Cost Basis		Total
Commercial Lending
Commercial and Industrial
Risk rating:
Pass	$	55,062	$	294,558	$	368,460	$	35,603	$	150,195	$	147,197	$	906,094	$	3,427	$	1,960,596	$	13,488	$	104,265	$	263,282	$	318,417	$	29,787	$	282,287	$	987,132	$	26,745	$	2,025,403
Special Mention		1		31,427		95		730		1,125		1,569		2,677		87		37,711		202		1		23,276		73		539		1,385		8,132		—		33,608
Substandard		217		532		245		847		1,839		1,034		13,947		—		18,661		—		—		20,364		214		572		2,191		25,638		—		48,979
Other ⁽¹⁾		13,438		12,424		5,575		2,856		2,226		1,513		46,442		—		84,474		4,887		12,883		10,053		4,044		1,970		2,396		45,652		—		81,885
Total Commercial and Industrial		68,718		338,941		374,375		40,036		155,385		151,313		969,160		3,514		2,101,442		18,577		117,149		316,975		322,748		32,868		288,259		1,066,554		26,745		2,189,875
Current period gross charge-offs	$	130	$	69	$	74	$	28	$	108	$	2,163	$	—	$	—	$	2,572		—		71		114		61		52		611		—		—		909

Commercial Real Estate
Risk rating:
Pass		288,996		881,117		665,048		329,663		559,287		1,508,430		60,613		—		4,293,154		28,321		344,674		864,166		671,379		334,606		1,866,875		93,485		4,223		4,207,729
Special Mention		2,322		7,643		41,304		543		6,935		13,039		12,483		—		84,269		3,339		2,290		7,591		41,337		1,358		18,507		6,863		—		81,285
Substandard		—		5,110		2,004		170		—		2,599		300		—		10,183		—		—		5,047		1,203		—		5,244		652		—		12,146
Other ⁽¹⁾		—		—		—		—		—		145		—		—		145		—		—		—		—		—		140		—		—		140
Total Commercial Real Estate		291,318		893,870		708,356		330,376		566,222		1,524,213		73,396		—		4,387,751		31,660		346,964		876,804		713,919		335,964		1,890,766		101,000		4,223		4,301,300
Current period gross charge-offs		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—

Construction
Risk rating:
Pass		129,160		209,227		335,433		59,164		64,168		28,916		3,826		—		829,894		14,198		181,628		311,175		258,400		59,563		65,776		11,872		—		902,612
Special Mention		—		—		—		—		197		669		—		—		866		—		—		—		—		—		837		—		—		837
Substandard																				—		—		—		—		—		24,437		—		—		24,437
Other ⁽¹⁾		10,194		24,825		10,313		2,260		2,115		3,932		713		—		54,352		859		12,258		17,492		6,373		1,357		5,588		704		—		44,631
Total Construction		139,354		234,052		345,746		61,424		66,480		33,517		4,539		—		885,112		15,057		193,886		328,667		264,773		60,920		96,638		12,576		—		972,517
Current period gross charge-offs		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—

Lease Financing
Risk rating:
Pass		83,255		88,367		19,869		35,583		34,828		69,043		—		—		330,945		50,531		114,686		78,028		17,488		28,946		97,319		—		—		386,998
Special Mention		—		—		341		38		—		—		—		—		379		—		51		125		377		20		—		—		—		573
Substandard		747		440		—		—		4		—		—		—		1,191		5,370		676		392		—		—		—		—		—		6,438
Total Lease Financing		84,002		88,807		20,210		35,621		34,832		69,043		—		—		332,515		55,901		115,413		78,545		17,865		28,966		97,319		—		—		394,009
Current period gross charge-offs		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—		—

Total Commercial Lending	$	583,392	$	1,555,670	$	1,448,687	$	467,457	$	822,919	$	1,778,086	$	1,047,095	$	3,514	$	7,706,820	$	121,195	$	773,412	$	1,600,991	$	1,319,305	$	458,718	$	2,372,982	$	1,180,130	$	30,968	$	7,857,701
Current period gross charge-offs	$	130	$	69	$	74	$	28	$	108	$	2,163	$	—	$	—	$	2,572	$	—	$	71	$	114	$	61	$	52	$	611	$	—	$	—	$	909


	December 31, 2022														December 31, 2023
	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	$	2,682	$	769	$	1,441	$	4,892	$	2,231,005	$	2,235,897	$	291	$	2,611	$	349	$	1,464	$	4,424	$	2,160,925	$	2,165,349	$	494
Commercial real estate		4,505		—		727		5,232		4,127,077		4,132,309		—		—		196		300		496		4,339,747		4,340,243		300
Construction		109		—		—		109		844,534		844,643		—		25,191		—		—		25,191		875,101		900,292		—
Lease financing		—		—		—		—		298,090		298,090		—		—		—		—		—		379,809		379,809		—
Residential mortgage		3,681		1,983		2,572		8,236		4,294,552		4,302,788		58		5,244		1,475		4,720		11,439		4,271,876		4,283,315		—
Home equity line		5,161		1,381		2,072		8,614		1,046,737		1,055,351		—		5,940		624		3,550		10,114		1,164,474		1,174,588		—
Consumer		29,927		6,801		2,886		39,614		1,183,320		1,222,934		2,885		23,259		3,897		2,702		29,858		1,080,043		1,109,901		2,702
Total	$	46,065	$	10,934	$	9,698	$	66,697	$	14,025,315	$	14,092,012	$	3,234	$	62,245	$	6,541	$	12,736	$	81,522	$	14,271,975	$	14,353,497	$	3,496


	December 31, 2022				December 31, 2023
	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	$	665	$	1,215	$	—	$	970
Commercial real estate		727		727		2,685		2,953
Residential mortgage		1,560		6,166		2,667		7,620
Home equity line		596		3,797		1,163		7,052
Total Nonaccrual Loans and Leases	$	3,548	$	11,905	$	6,515	$	18,595


	Interest Rate Reduction
	Financial Effect
	Three Months Ended ~~September 30, 2023~~March 31, 2024	~~Nine~~Three Months Ended ~~September 30,~~March 31, 2023
Commercial real estate
~~Consumer~~—	Reduced weighted-average contractual interest rate by ~~13.31%~~0.75%.
Consumer	Reduced weighted-average contractual interest rate by 13.55%.	Reduced weighted-average contractual interest rate by ~~13.22%~~13.51%.


	Term Extension
	Financial Effect
	Three Months Ended ~~September 30, 2023~~March 31, 2024	~~Nine~~Three Months Ended ~~September 30,~~March 31, 2023
Commercial and industrial	Added a weighted-average ~~2.6~~3.8 years to the life of loans.	Added a weighted-average 3.0 years to the life of loans.
~~Commercial real estate~~Construction	—	Added a weighted-average ~~1.0 years to the life of loans.~~
~~Construction~~	~~Added a weighted-average 1.0 years to the life of loans.~~	~~Added a weighted-average 1.4~~2.9 years to the life of loans.
Residential mortgage	—Added a weighted-average 1.0 years to the life of loans.	Added a weighted-average 5.9 years to the life of loans.
Consumer	Added a weighted-average ~~2.9~~4.2 years to the life of loans.	Added a weighted-average ~~3.6~~4.6 years to the life of loans.


	Amortized Cost Basis of Modified Loans That Subsequently Defaulted⁽¹⁾				Amortized Cost Basis of Modified Loans That Subsequently Defaulted⁽¹⁾
	Three Months Ended September 30, 2023		Nine Months Ended September 30, 2023		Three Months Ended March 31, 2024				Three Months Ended March 31, 2023
(dollars in thousands)	Interest Rate Reduction		Interest Rate Reduction		Interest Rate Reduction			Term Extension	Interest Rate Reduction		Term Extension
Consumer	$	166	$	186	$	300	$	7	$	10	$	—
Total	$	166	$	186	$	300	$	7	$	10	$	—


		March 31, 2023
		Past Due
						Greater Than
						or Equal to
		30-59 Days		60-89 Days		90 Days		Total
(dollars in thousands)		Past Due		Past Due		Past Due		Past Due		Current		Total
Commercial and industrial	$	—	$	—	$	—	$	—	$	96	$	96
Commercial real estate		—		—		—		—		4		4
Construction		—		—		—		—		231		231
Residential mortgage		—		—		—		—		34		34
Consumer		9		—		—		9		420		429
Total	$	9	$	—	$	—	$	9	$	785	$	794


	Estimated		Estimated
(dollars in thousands)	Amortization		Amortization
Under one year	$	852	$	811
One to two years		757		720
Two to three years		671		637
Three to four years		592		561
Four to five years		523		497


			Income
			Tax
	Pre-tax		Benefit		Net of
(dollars in thousands)	Amount		(Expense)		Tax
Accumulated other comprehensive loss at June 30, 2023	$	(835,647)	$	222,911	$	(612,736)
Three months ended September 30, 2023
Investment securities:
Unrealized net losses arising during the period		(61,874)		16,505		(45,369)
Reclassification of net losses to net income:
Amortization of unrealized holding losses on held-to-maturity securities		11,434		(3,050)		8,384
Net change in investment securities		(50,440)		13,455		(36,985)
Cash flow derivative hedges:
Unrealized net losses arising during the period		(373)		100		(273)
Reclassification of net losses included in net income		1,723		(460)		1,263
Net change in cash flow derivative hedges		1,350		(360)		990
Other comprehensive loss		(49,090)		13,095		(35,995)
Accumulated other comprehensive loss at September 30, 2023	$	(884,737)	$	236,006	$	(648,731)



	Pensions								Accumulated		Pensions								Accumulated
	and		Available-for-Sale		Held-to-Maturity		Cash Flow		Other		and		Available-for-Sale		Held-to-Maturity		Cash Flow		Other
	Other		Investment		Investment		Derivative		Comprehensive		Other		Investment		Investment		Derivative		Comprehensive
(dollars in thousands)	Benefits		Securities		Securities		Hedges		Loss		Benefits		Securities		Securities		Hedges		Loss
Three Months Ended September 30, 2023
Three Months Ended March 31, 2024
Balance at beginning of period	$	(5,431)	$	(284,100)	$	(318,782)	$	(4,423)	$	(612,736)	$	(5,373)	$	(222,423)	$	(301,611)	$	(803)	$	(530,210)
Other comprehensive (loss) income		—		(45,369)		8,384		990		(35,995)		—		(2,517)		8,184		763		6,430
Balance at end of period	$	(5,431)	$	(329,469)	$	(310,398)	$	(3,433)	$	(648,731)	$	(5,373)	$	(224,940)	$	(293,427)	$	(40)	$	(523,780)

Nine Months Ended September 30, 2023
Three Months Ended March 31, 2023
Balance at beginning of period	$	(5,431)	$	(292,175)	$	(336,946)	$	(4,702)	$	(639,254)	$	(5,431)	$	(292,175)	$	(336,946)	$	(4,702)	$	(639,254)
Other comprehensive (loss) income		—		(37,294)		26,548		1,269		(9,477)
Other comprehensive income												—		18,359		8,585		631		27,575
Balance at end of period	$	(5,431)	$	(329,469)	$	(310,398)	$	(3,433)	$	(648,731)	$	(5,431)	$	(273,816)	$	(328,361)	$	(4,071)	$	(611,679)

Three Months Ended September 30, 2022
Balance at beginning of period	$	(24,390)	$	(220,021)	$	(324,204)	$	(2,842)	$	(571,457)
Unrealized net losses related to the transfer of securities from available-for-sale to held-to-maturity		—		33,603		(33,603)		—		—
Other comprehensive (loss) income		—		(95,323)		11,159		(3,135)		(87,299)
Balance at end of period	$	(24,390)	$	(281,741)	$	(346,648)	$	(5,977)	$	(658,756)

Nine Months Ended September 30, 2022
Balance at beginning of period	$	(24,390)	$	(97,303)	$	—	$	—	$	(121,693)
Unrealized net losses related to the transfer of securities from available-for-sale to held-to-maturity		—		372,419		(372,419)		—		—
Other comprehensive (loss) income		—		(556,857)		25,771		(5,977)		(537,063)
Balance at end of period	$	(24,390)	$	(281,741)	$	(346,648)	$	(5,977)	$	(658,756)


					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⁾
September 30, 2023:
March 31, 2024:
Common equity tier 1 capital to risk-weighted assets	$	2,004,248	12.21	%	$	1,990,261	12.12	%	4.50	%	6.50	%	$	2,040,871	12.55	%	$	2,029,029	12.48	%	4.50	%	6.50	%
Tier 1 capital to risk-weighted assets		2,004,248	12.21	%		1,990,261	12.12	%	6.00	%	8.00	%		2,040,871	12.55	%		2,029,029	12.48	%	6.00	%	8.00	%
Total capital to risk-weighted assets		2,196,818	13.38	%		2,182,831	13.30	%	8.00	%	10.00	%		2,235,520	13.75	%		2,223,678	13.67	%	8.00	%	10.00	%
Tier 1 capital to average assets (leverage ratio)		2,004,248	8.45	%		1,990,261	8.39	%	4.00	%	5.00	%		2,040,871	8.80	%		2,029,029	8.75	%	4.00	%	5.00	%

December 31, 2022:
December 31, 2023:
Common equity tier 1 capital to risk-weighted assets	$	1,912,767	11.82	%	$	1,895,693	11.71	%	4.50	%	6.50	%	$	2,020,784	12.39	%	$	2,006,393	12.30	%	4.50	%	6.50	%
Tier 1 capital to risk-weighted assets		1,912,767	11.82	%		1,895,693	11.71	%	6.00	%	8.00	%		2,020,784	12.39	%		2,006,393	12.30	%	6.00	%	8.00	%
Total capital to risk-weighted assets		2,090,502	12.92	%		2,073,428	12.81	%	8.00	%	10.00	%		2,212,922	13.57	%		2,198,531	13.48	%	8.00	%	10.00	%
Tier 1 capital to average assets (leverage ratio)		1,912,767	8.11	%		1,895,693	8.04	%	4.00	%	5.00	%		2,020,784	8.64	%		2,006,393	8.57	%	4.00	%	5.00	%


	Gains (losses) recognized in	Three Months Ended
	the consolidated statements	March 31,
(dollars in thousands)	of income line item	2024		2023
Gains (losses) on fair value hedging relationships recognized in interest income:
Recognized on interest rate swap	Loans and lease financing	$	(627)	$	1,189
Recognized on hedged item	Loans and lease financing		619		(1,284)


		Three Months Ended September 30, 2022
					Treasury
	Retail		Commercial		and
(dollars in thousands)	Banking		Banking		Other		Total
Net interest income⁽¹⁾	$	117,060	$	39,586	$	6,090	$	162,736

Service charges on deposit accounts		6,421		621		47		7,089
Credit and debit card fees		—		15,831		1,312		17,143
Other service charges and fees		6,081		509		472		7,062
Trust and investment services income		9,800		—		—		9,800
Other		93		1,250		304		1,647
Not in scope of Topic 606⁽¹⁾		2,085		1,637		(606)		3,116
Total noninterest income		24,480		19,848		1,529		45,857
Total revenue	$	141,540	$	59,434	$	7,619	$	208,593


	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	2023		2022		2023		2022		the consolidated statements of income	2024		2023		2024		2023
Three Months Ended September 30,
Three Months Ended March 31,
Service cost	Salaries and employee benefits	$	—	$	—	$	136	$	197	Salaries and employee benefits	$	—	$	—	$	137	$	147
Interest cost	Other noninterest expense		2,053		1,523		171		118	Other noninterest expense		1,906		2,059		211		220
Expected return on plan assets	Other noninterest expense		(883)		(783)		—		—	Other noninterest expense		(878)		(883)		—		—
Recognized net actuarial loss (gain)	Other noninterest expense		719		1,269		(379)		(101)	Other noninterest expense		503		719		(322)		(379)
Total net periodic benefit cost		$	1,889	$	2,009	$	(72)	$	214		$	1,531	$	1,895	$	26	$	(12)

Nine Months Ended September 30,
Service cost	Salaries and employee benefits	$	—	$	—	$	430	$	626
Interest cost	Other noninterest expense		6,171		4,245		611		405
Expected return on plan assets	Other noninterest expense		(2,648)		(2,348)		—		—
Recognized net actuarial loss (gain)	Other noninterest expense		2,157		3,806		(1,137)		(303)
Total net periodic benefit cost		$	5,680	$	5,703	$	(96)	$	728

	Fair Value Measurements as of December 31, 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	$	—	$	150,982	$	—	$	150,982
Government-sponsored enterprises debt securities		—		44,301		—		44,301
Mortgage-backed securities:
Residential - Government agency⁽¹⁾		—		59,723		—		59,723
Residential - Government-sponsored enterprises⁽¹⁾		—		1,160,455		—		1,160,455
Commercial - Government agency		—		237,853		—		237,853
Commercial - Government-sponsored enterprises		—		119,573		—		119,573
Commercial - Non-agency		—		21,471		—		21,471
Collateralized mortgage obligations:
Government agency		—		653,322		—		653,322
Government-sponsored enterprises		—		462,132		—		462,132
Collateralized loan obligations		—		241,321		—		241,321
Total available-for-sale securities		—		3,151,133		—		3,151,133
Other assets⁽²⁾		5,376		10,945		—		16,321
Liabilities
Other liabilities⁽³⁾		—		(49,268)		(851)		(50,119)
Total	$	5,376	$	3,112,810	$	(851)	$	3,117,335


	~~Quantitative Information about Level 3 Fair Value Measurements at September 30, 2023~~
				~~Significant~~
~~(dollars in thousands)~~	~~Fair value~~		~~Valuation Technique~~	~~Unobservable Input~~	~~Range~~
~~Visa derivative~~	$	~~(1,200)~~	~~Discounted Cash Flow~~	~~Expected Conversion Rate -~~ ~~1.5875~~⁽¹⁾	~~1.5289~~-~~1.5875~~
				~~Expected Term -~~ 3 ~~months~~⁽²⁾	0 - 6 ~~months~~
				~~Growth Rate -~~ ~~17%~~⁽³⁾	7% - ~~24%~~


	Quantitative Information about Level 3 Fair Value Measurements at March 31, 2024
				Significant
(dollars in thousands)	Fair value		Valuation Technique	Unobservable Input	Range
Collateral-dependent loans	$	14,623	Financial Statement Values	Discounts to reflect estimated selling costs	0% - 50%
Visa derivative	$	(2,300)	Discounted Cash Flow	Expected Conversion Rate - 1.5875⁽¹⁾	1.5289-1.5875
				Expected Term - 6 months⁽²⁾	n/m⁽²⁾
				Growth Rate - 9%⁽³⁾	-7% - 22%


	December 31, 2023
			Fair Value Measurements
			Quoted Prices in		Significant		Significant
			Active Markets		Other		Unobservable
			for Identical		Observable		Inputs
(dollars in thousands)	Book Value		Assets (Level 1)		Inputs (Level 2)		(Level 3)		Total
Financial assets:
Cash and cash equivalents	$	1,739,897	$	185,015	$	1,554,882	$	—	$	1,739,897
Investment securities held-to-maturity		4,041,449		—		3,574,856		—		3,574,856
Loans held for sale		190		—		192		—		192
Loans⁽¹⁾		13,973,688		—		—		13,385,683		13,385,683

Financial liabilities:
Time deposits⁽²⁾	$	3,456,158	$	—	$	3,432,330	$	—	$	3,432,330
Short-term borrowings		500,000		—		495,306		—		495,306


(dollars in thousands)	Level 1		Level 2		Level 3
March 31, 2024
Collateral-dependent loans	$	—	$	—	$	14,623


Average Balances and Interest Rates												Table 5
	Nine Months Ended							Nine Months Ended
	September 30, 2023							September 30, 2022
	Average		Income/		Yield/			Average		Income/		Yield/
(dollars in millions)	Balance		Expense		Rate			Balance		Expense		Rate
Earning Assets
Interest-Bearing Deposits in Other Banks	$	493.6	$	18.8		5.10	%	$	1,051.7	$	7.3	0.93	%
Available-for-Sale Investment Securities
Taxable		2,964.0		54.8		2.47			5,145.3		64.9	1.68
Non-Taxable		13.0		0.5		5.57			227.9		4.4	2.59
Held-to-Maturity Investment Securities
Taxable		3,615.0		46.0		1.70			2,382.2		29.7	1.66
Non-Taxable		608.9		11.9		2.62			409.1		8.3	2.71
Total Investment Securities		7,200.9		113.2		2.10			8,164.5		107.3	1.75
Loans Held for Sale		0.3		—		6.11			0.7		—	2.92
Loans and Leases⁽¹⁾
Commercial and industrial		2,193.8		104.3		6.35			1,983.5		50.3	3.39
Commercial real estate		4,224.7		194.6		6.16			3,820.6		98.8	3.46
Construction		874.0		45.4		6.95			738.4		20.7	3.74
Residential:
Residential mortgage		4,312.4		117.6		3.64			4,173.1		108.0	3.45
Home equity line		1,116.4		27.9		3.35			943.2		18.5	2.62
Consumer		1,194.1		53.2		5.95			1,218.2		48.1	5.29
Lease financing		322.9		10.5		4.34			248.7		6.7	3.60
Total Loans and Leases		14,238.3		553.5		5.19			13,125.7		351.1	3.57
Other Earning Assets		107.6		1.3		1.53			70.6		0.5	0.92
Total Earning Assets⁽²⁾		22,040.7		686.8		4.16			22,413.2		466.2	2.78
Cash and Due from Banks		273.3							289.9
Other Assets		2,385.8							2,392.3
Total Assets	$	24,699.8						$	25,095.4

Interest-Bearing Liabilities
Interest-Bearing Deposits
Savings	$	6,144.1	$	49.1		1.07	%	$	6,837.8	$	8.9	0.17	%
Money Market		3,857.0		58.6		2.03			4,087.6		6.8	0.22
Time		2,921.8		68.3		3.12			1,713.4		5.3	0.41
Total Interest-Bearing Deposits		12,922.9		176.0		1.82			12,638.8		21.0	0.22
Federal Funds Purchased		23.0		0.8		4.45			0.1		—	1.67
Other Short-Term Borrowings		176.5		6.8		5.15			—		—	—
Long-Term Borrowings		349.8		12.5		4.78			—		—	—
Other Interest-Bearing Liabilities		62.1		2.1		4.63			—		—	—
Total Interest-Bearing Liabilities		13,534.3		198.2		1.96			12,638.9		21.0	0.22
Net Interest Income			$	488.6						$	445.2
Interest Rate Spread						2.20	%					2.56	%
Net Interest Margin						2.96	%					2.65	%
Noninterest-Bearing Demand Deposits		8,322.2							9,532.0
Other Liabilities		506.0							566.3
Stockholders' Equity		2,337.3							2,358.2
Total Liabilities and Stockholders' Equity	$	24,699.8						$	25,095.4


Analysis of Change in Net Interest Income						Table 6
	Nine Months Ended September 30, 2023
	Compared to September 30, 2022
(dollars in millions)	Volume		Rate		Total⁽¹⁾
Change in Interest Income:
Interest-Bearing Deposits in Other Banks	$	(5.7)	$	17.2	$	11.5
Available-for-Sale Investment Securities
Taxable		(33.6)		23.5		(10.1)
Non-Taxable		(6.3)		2.4		(3.9)
Held-to-Maturity Investment Securities
Taxable		15.6		0.7		16.3
Non-Taxable		3.9		(0.3)		3.6
Total Investment Securities		(20.4)		26.3		5.9
Loans and Leases
Commercial and industrial		5.9		48.1		54.0
Commercial real estate		11.4		84.4		95.8
Construction		4.3		20.4		24.7
Residential:
Residential mortgage		3.6		6.0		9.6
Home equity line		3.7		5.7		9.4
Consumer		(0.9)		6.0		5.1
Lease financing		2.3		1.5		3.8
Total Loans and Leases		30.3		172.1		202.4
Other Earning Assets		0.3		0.5		0.8
Total Change in Interest Income		4.5		216.1		220.6

Change in Interest Expense:
Interest-Bearing Deposits
Savings		(1.0)		41.2		40.2
Money Market		(0.4)		52.2		51.8
Time		6.1		56.9		63.0
Total Interest-Bearing Deposits		4.7		150.3		155.0
Federal Funds Purchased		0.8		—		0.8
Other Short-Term Borrowings		6.8		—		6.8
Long-Term Borrowings		12.5		—		12.5
Other Interest-Bearing Liabilities		2.1		—		2.1
Total Change in Interest Expense		26.9		150.3		177.2
Change in Net Interest Income	$	(22.4)	$	65.8	$	43.4


Noninterest Income							Table 7
	Three Months Ended
	September 30,				Dollar		Percent
(dollars in thousands)	2023		2022		Change		Change
Service charges on deposit accounts	$	7,524	$	7,089	$	435	6	%
Credit and debit card fees		15,748		17,746		(1,998)	(11)
Other service charges and fees		9,546		9,179		367	4
Trust and investment services income		9,742		9,800		(58)	(1)
Bank-owned life insurance		1,872		(341)		2,213	n/m
Other		1,665		2,384		(719)	(30)
Total noninterest income	$	46,097	$	45,857	$	240	1	%


Business Segment Net Income								Table 11
Business Segment Net Income (Loss)												Table 7
	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
(dollars in thousands)	2023		2022		2023		2022		2024		2023
Retail Banking	$	48,463	$	47,854	$	127,063	$	126,902	$	56,145	$	41,515
Commercial Banking		27,896		22,670		72,355		67,611		26,668		20,854
Treasury and Other		(18,138)		(1,506)		(11,937)		(8,416)		(28,593)		4,449
Total	$	58,221	$	69,018	$	187,481	$	186,097	$	54,220	$	66,818


Net Charge-Offs (Recoveries) to Average Loans and Leases By Category⁽¹⁾											Table 24						Table 20
	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2023			2022			2023			2022			2024			2023
Commercial and industrial		(0.35)	%		0.02	%		(0.04)	%		0.05	%		0.13	%		0.10	%
Commercial real estate		—			0.07			—			0.03			—			—
Construction		—			—			—			—			—			—
Lease financing		—			—			—			(0.03)			—			—
Total commercial		(0.10)			0.05			(0.01)			0.03			0.04			0.03
Residential mortgage		—			—	��		—			(0.01)			—			0.01
Home equity line		(0.10)			(0.14)			(0.03)			0.08			(0.02)			(0.02)
Total residential		(0.03)			(0.03)			(0.01)			0.01			(0.01)			—
Consumer		0.65			0.76			0.82			0.66			1.17			0.87
Total loans and leases		(0.01)	%		0.08	%		0.06	%		0.08	%		0.11	%		0.09	%


Exhibit Number

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

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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

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Date: ~~November~~May 6, ~~2023~~2024		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/ James M. Moses
		James M. Moses Vice Chairman and Chief Financial Officer