BANK OF HAWAII CORP - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒

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

☐

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

Commission File Number: 1-6887

BANK OF HAWAII CORPORATION

(Exact name of registrant as specified in its charter)

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

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

1-888-643-3888

(Registrant’s telephone number, including area code)

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

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

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

Yes ☒ No ☐

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

Yes ☒ No ☐

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

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

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

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

Yes ☐ No ☒

As of October 18, 2022, there were 40,012,833 shares of common stock outstanding.

Table of Contents

Bank of Hawaii Corporation

Form 10-Q

Index


		Page

Part I - Financial Information

Item 1.	Financial Statements (Unaudited)

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

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

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

	Consolidated Statements of Shareholders’ Equity – Nine months ended September 30, 2022, and September 30, 2021	5

	Consolidated Statements of Cash Flows – Nine months ended September 30, 2022, and September 30, 2021	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	62

Item 4.	Controls and Procedures	62

Part II - Other Information		63

Item 1.	Legal Proceedings	63

Item 1A.	Risk Factors	63

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63

Item 6.	Exhibits	64

Signatures		65

Table of Contents

Bank of Hawaii Corporation and Subsidiaries

Consolidated Statements of Income (Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(dollars in thousands, except per share amounts)	2022			2021			2022			2021
Interest Income
Interest and Fees on Loans and Leases	$	115,013		$	100,570		$	311,115		$	300,763
Income on Investment Securities
Available-for-Sale		16,995			16,396			52,079			48,700
Held-to-Maturity		20,243			16,754			57,782			43,630
Deposits		10			2			19			9
Funds Sold		2,335			382			3,181			779
Other		322			159			877			526
Total Interest Income		154,918			134,263			425,053			394,407
Interest Expense
Deposits		10,296			3,837			16,184			12,318
Securities Sold Under Agreements to Repurchase		2,745			3,423			8,311			10,426
Funds Purchased		40			—			99			1
Short-Term Borrowings		—			—			92			—
Other Debt		182			184			547			760
Total Interest Expense		13,263			7,444			25,233			23,505
Net Interest Income		141,655			126,819			399,820			370,902
Provision for Credit Losses		—			(10,400	)		(8,000	)		(40,800	)
Net Interest Income After Provision for Credit Losses		141,655			137,219			407,820			411,702
Noninterest Income
Trust and Asset Management		10,418			11,415			33,151			34,375
Mortgage Banking		1,002			3,136			4,989			12,056
Service Charges on Deposit Accounts		7,526			6,510			22,107			18,703
Fees, Exchange, and Other Service Charges		13,863			13,604			41,008			41,018
Investment Securities Losses, Net		(2,147	)		(1,259	)		(4,987	)		(39	)
Annuity and Insurance		1,034			735			2,695			2,348
Bank-Owned Life Insurance		2,486			1,897			7,493			5,877
Other		(3,522	)		5,340			9,913			14,441
Total Noninterest Income		30,660			41,378			116,369			128,779
Noninterest Expense
Salaries and Benefits		59,938			56,447			177,631			168,859
Net Occupancy		10,186			3,079			29,942			17,216
Net Equipment		9,736			8,924			28,432			26,598
Data Processing		4,616			4,722			13,783			15,601
Professional Fees		3,799			2,948			10,599			9,468
FDIC Insurance		1,680			1,594			4,772			4,917
Other		15,794			18,805			47,403			49,252
Total Noninterest Expense		105,749			96,519			312,562			291,911
Income Before Provision for Income Taxes		66,566			82,078			211,627			248,570
Provision for Income Taxes		13,765			20,025			47,130			59,035
Net Income	$	52,801		$	62,053		$	164,497		$	189,535
Preferred Stock Dividends		1,969			1,006			5,908			1,006
Net Income Available to Common Shareholders	$	50,832		$	61,047		$	158,589		$	188,529
Basic Earnings Per Common Share	$	1.28		$	1.53		$	4.00		$	4.73
Diluted Earnings Per Common Share	$	1.28		$	1.52		$	3.98		$	4.70
Dividends Declared Per Common Share	$	0.70		$	0.70		$	2.10		$	2.04
Basic Weighted Average Common Shares		39,567,047			39,881,437			39,670,409			39,870,450
Diluted Weighted Average Common Shares		39,758,209			40,080,919			39,848,795			40,088,899

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

Table of Contents

Bank of Hawaii Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(dollars in thousands)	2022			2021			2022			2021
Net Income	$	52,801		$	62,053		$	164,497		$	189,535
Other Comprehensive Loss, Net of Tax:
Net Unrealized Losses on Investment Securities		(79,600	)		(7,541	)		(382,371	)		(57,714	)
Defined Benefit Plans		354			441			1,059			1,324
Total Other Comprehensive Loss		(79,246	)		(7,100	)		(381,312	)		(56,390	)
Comprehensive Income (Loss)	$	(26,445	)	$	54,953		$	(216,815	)	$	133,145

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

Table of Contents

Bank of Hawaii Corporation and Subsidiaries

Consolidated Statements of Condition (Unaudited)

(dollars in thousands)	September 30, 2022			December 31, 2021
Assets
Interest-Bearing Deposits in Other Banks	$	5,429		$	2,571
Funds Sold		402,714			361,536
Investment Securities
Available-for-Sale		2,424,608			4,276,056
Held-to-Maturity (Fair Value of $4,668,074 and $4,646,619)		5,461,160			4,694,780
Loans Held for Sale		418			26,746
Loans and Leases		13,321,606			12,259,076
Allowance for Credit Losses		(146,436	)		(157,821	)
Net Loans and Leases		13,175,170			12,101,255
Total Earning Assets		21,469,499			21,462,944
Cash and Due From Banks		247,506			196,327
Premises and Equipment, Net		208,251			199,393
Operating Lease Right-of-Use Assets		94,613			95,621
Accrued Interest Receivable		50,143			45,242
Foreclosed Real Estate		1,040			2,332
Mortgage Servicing Rights		23,104			22,251
Goodwill		31,517			31,517
Bank-Owned Life Insurance		451,407			344,587
Other Assets		556,960			384,727
Total Assets	$	23,134,040		$	22,784,941
Liabilities
Deposits
Noninterest-Bearing Demand	$	7,300,157		$	7,275,287
Interest-Bearing Demand		4,399,625			4,628,567
Savings		7,954,006			7,456,165
Time		1,234,985			1,000,089
Total Deposits		20,888,773			20,360,108
Securities Sold Under Agreements to Repurchase		425,490			450,490
Other Debt		10,319			10,391
Operating Lease Liabilities		102,705			103,210
Retirement Benefits Payable		37,053			38,494
Accrued Interest Payable		3,405			2,499
Taxes Payable		13,527			11,901
Other Liabilities		370,384			196,237
Total Liabilities		21,851,656			21,173,330
Commitments, Contingencies, and Guarantees (Note 12)
Shareholders’ Equity
Preferred Stock ($.01 par value; authorized 180,000 shares; issued and outstanding: September 30, 2022 and December 31, 2021 - 180,000)		180,000			180,000
Common Stock ($.01 par value; authorized 500,000,000 shares; issued / outstanding: September 30, 2022 - 58,728,796 / 40,011,473 and December 31, 2021 - 58,554,669 / 40,253,193)		582			581
Capital Surplus		615,985			602,508
Accumulated Other Comprehensive Loss		(447,694	)		(66,382	)
Retained Earnings		2,024,641			1,950,375
Treasury Stock, at Cost (Shares; September 30, 2022 - 18,717,323 and December 31, 2021 - 18,301,476)		(1,091,130	)		(1,055,471	)
Total Shareholders’ Equity		1,282,384			1,611,611
Total Liabilities and Shareholders’ Equity	$	23,134,040		$	22,784,941

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

Table of Contents

Bank of Hawaii Corporation and Subsidiaries

Consolidated Statements of Shareholders’ Equity (Unaudited)

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

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

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

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

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

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

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

Table of Contents

Bank of Hawaii Corporation and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

	Nine Months Ended
	September 30,
(dollars in thousands)	2022			2021
Operating Activities
Net Income	$	164,497		$	189,535
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Provision for Credit Losses		(8,000	)		(40,800	)
Depreciation and Amortization		15,947			15,751
Amortization of Deferred Loan and Lease (Fees) Costs, Net		(501	)		(13,431	)
Amortization and Accretion of Premiums/Discounts on Investment Securities, Net		16,971			27,147
Amortization of Operating Lease Right-of-Use Assets		8,939			8,562
Share-Based Compensation		11,947			9,658
Benefit Plan Contributions		(1,236	)		(1,274	)
Deferred Income Taxes		(6,840	)		5,308
Gains on Sale of Premises and Equipment		—			(9,893	)
Loss on Agreement to Sell Assets That Will Terminate Certain Leveraged Leases		6,918			—
Net Losses (Gains) on Sales of Loans and Leases		(3,365	)		(12,639	)
Net Losses on Sales of Investment Securities		4,987			39
Proceeds from Sales of Loans Held for Sale		122,404			412,153
Originations of Loans Held for Sale		(95,024	)		(319,274	)
Net Tax Benefits from Share-Based Compensation		158			1,349
Net Change in Other Assets and Other Liabilities		31,065			68,084
Net Cash Provided by Operating Activities		268,867			340,275

Investing Activities
Investment Securities Available-for-Sale:
Proceeds from Sales, Prepayments and Maturities		597,452			1,138,809
Purchases		(556,813	)		(1,789,229	)
Investment Securities Held-to-Maturity:
Proceeds from Prepayments and Maturities		517,448			914,953
Purchases		(15,240	)		(2,569,229	)
Net Change in Loans and Leases		(1,070,567	)		(149,765	)
Purchases of Premises and Equipment		(24,805	)		(14,314	)
Proceeds from Sale of Premises and Equipment		—			9,008
Net Cash Used in Investing Activities		(552,525	)		(2,459,767	)

Financing Activities
Net Change in Deposits		528,665			2,282,057
Net Change in Short-Term Borrowings		(25,000	)		(150,100	)
Repayments of Long-Term Debt		(72	)		(50,067	)
Net Proceeds from Issuance of Preferred Stock		—			175,487
Proceeds from Issuance of Common Stock		5,315			10,836
Repurchase of Common Stock		(39,548	)		(23,412	)
Cash Dividends Paid on Common Stock		(84,579	)		(82,429	)
Cash Dividends Paid on Preferred Stock		(5,908	)		(1,006	)
Net Cash Provided by Financing Activities		378,873			2,161,366
Net Change in Cash and Cash Equivalents		95,215			41,874
Cash and Cash Equivalents at Beginning of Period		560,434			614,088
Cash and Cash Equivalents at End of Period	$	655,649		$	655,962
Supplemental Information
Cash Paid for Interest	$	24,326		$	25,207
Cash Paid for Income Taxes		38,467			41,193
Non-Cash Investing and Financing Activities:
Transfer of Investment Securities from Available-for-Sale to Held-to-Maturity		1,275,043			—
Transfer from Loans to Loans Held for Sale		380			23,888

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

Table of Contents

Bank of Hawaii Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

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

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

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

Accounting Standard Pending Adoption

In March 2022, the FASB issued ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings (“TDRs”), while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. ASU 2022-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. ASU 2022-02 is not expected to have a material impact on the Company’s consolidated financial statements.

Note 2. Cash and Cash Equivalents

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

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

(dollars in thousands)	September 30, 2022
Interest-Bearing Deposits in Other Banks	$	5,429
Funds Sold		402,714
Cash and Due From Banks		247,506
Total Cash and Cash Equivalents	$	655,649

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Note 3. Investment Securities

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

(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2022
Available-for-Sale:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	259,692	$	885	$	(16,224	)	$	244,353
Debt Securities Issued by States and Political Subdivisions		74,057		—		(12,995	)		61,062
Debt Securities Issued by U.S. Government-Sponsored Enterprises		1,758		—		(140	)		1,618
Debt Securities Issued by Corporations		430,809		—		(60,091	)		370,718
Mortgage-Backed Securities:
Residential - Government Agencies		864,919		305		(89,537	)		775,687
Residential - U.S. Government-Sponsored Enterprises		949,497		2		(129,814	)		819,685
Commercial - Government Agencies or Sponsored Agencies		171,632		—		(20,147	)		151,485
Total Mortgage-Backed Securities		1,986,048		307		(239,498	)		1,746,857
Total	$	2,752,364	$	1,192	$	(328,948	)	$	2,424,608
Held-to-Maturity:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	131,587	$	—	$	(19,180	)	$	112,407
Debt Securities Issued by Corporations		17,845		—		(2,522	)		15,323
Mortgage-Backed Securities:
Residential - Government Agencies		1,900,988		19		(276,868	)		1,624,139
Residential - U.S. Government-Sponsored Enterprises		2,958,051		12		(411,442	)		2,546,621
Commercial - Government Agencies or Sponsored Agencies		452,689		—		(83,105	)		369,584
Total Mortgage-Backed Securities		5,311,728		31		(771,415	)		4,540,344
Total	$	5,461,160	$	31	$	(793,117	)	$	4,668,074
December 31, 2021
Available-for-Sale:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	248,858	$	1,513	$	(284	)	$	250,087
Debt Securities Issued by States and Political Subdivisions		74,743		1,080		(5	)		75,818
Debt Securities Issued by U.S. Government-Sponsored Enterprises		1,758		33		(11	)		1,780
Debt Securities Issued by Corporations		384,590		2,339		(3,816	)		383,113
Mortgage-Backed Securities:
Residential - Government Agencies		1,327,990		9,818		(18,766	)		1,319,042
Residential - U.S. Government-Sponsored Enterprises		2,127,781		4,792		(42,247	)		2,090,326
Commercial - Government Agencies or Sponsored Agencies		155,164		1,885		(1,159	)		155,890
Total Mortgage-Backed Securities		3,610,935		16,495		(62,172	)		3,565,258
Total	$	4,320,884	$	21,460	$	(66,288	)	$	4,276,056
Held-to-Maturity:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	131,495	$	287	$	(643	)	$	131,139
Debt Securities Issued by Corporations		20,316		76		(249	)		20,143
Mortgage-Backed Securities:
Residential - Government Agencies		1,774,394		12,139		(30,621	)		1,755,912
Residential - U.S. Government-Sponsored Enterprises		2,286,880		15,508		(32,627	)		2,269,761
Commercial - Government Agencies or Sponsored Agencies		481,695		324		(12,355	)		469,664
Total Mortgage-Backed Securities		4,542,969		27,971		(75,603	)		4,495,337
Total	$	4,694,780	$	28,334	$	(76,495	)	$	4,646,619

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

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

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

(dollars in thousands)	Amortized Cost		Fair Value
Available-for-Sale:
Due in One Year or Less	$	433	$	429
Due After One Year Through Five Years		277,971		255,858
Due After Five Years Through Ten Years		371,893		307,504
Due After Ten Years		13,130		10,251
		663,427		574,042
Debt Securities Issued by Government Agencies		102,889		103,709
Mortgage-Backed Securities:
Residential - Government Agencies		864,919		775,687
Residential - U.S. Government-Sponsored Enterprises		949,497		819,685
Commercial - Government Agencies or Sponsored Agencies		171,632		151,485
Total Mortgage-Backed Securities		1,986,048		1,746,857
Total	$	2,752,364	$	2,424,608
Held-to-Maturity:
Due After One Year Through Five Years		14,260		13,208
Due After Five Year Through Ten Years		124,087		105,737
Due After Ten Years		11,085		8,785
		149,432		127,730
Mortgage-Backed Securities:
Residential - Government Agencies		1,900,988		1,624,139
Residential - U.S. Government-Sponsored Enterprises		2,958,051		2,546,621
Commercial - Government Agencies or Sponsored Agencies		452,689		369,584
Total Mortgage-Backed Securities		5,311,728		4,540,344
Total	$	5,461,160	$	4,668,074

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

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

	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2022			2021			2022			2021
Gross Gains on Sales of Investment Securities	$	—		$	110		$	—		$	3,785
Gross Losses on Sales of Investment Securities		(2,147	)		(1,369	)		(4,987	)		(3,824	)
Net Losses on Sales of Investment Securities	$	(2,147	)	$	(1,259	)	$	(4,987	)	$	(39	)

The losses on sales of investment securities during the three and nine months ended September 30, 2022, and September 30, 2021, were due to fees paid to the counterparties of the Company’s prior Visa Class B share sale transactions, which are expensed as incurred.

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

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

December 31, 2021
Available-for-Sale:
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	51,455	$	(195	)	$	9,995	$	(89	)	$	61,450	$	(284	)
Debt Securities Issued by States and Political Subdivisions		643		(5	)		—		—			643		(5	)
Debt Securities Issued by U.S. Government- Sponsored Enterprises		814		(10	)		49		(1	)		863		(11	)
Debt Securities Issued by Corporations		249,629		(2,846	)		64,029		(970	)		313,658		(3,816	)
Mortgage-Backed Securities:
Residential - Government Agencies		810,157		(17,131	)		41,471		(1,635	)		851,628		(18,766	)
Residential - U.S. Government-Sponsored Enterprises		1,670,500		(35,711	)		180,205		(6,536	)		1,850,705		(42,247	)
Commercial - Government Agencies or Sponsored Agencies		25,664		(223	)		21,810		(936	)		47,474		(1,159	)
Total Mortgage-Backed Securities		2,506,321		(53,065	)		243,486		(9,107	)		2,749,807		(62,172	)
Total	$	2,808,862	$	(56,121	)	$	317,559	$	(10,167	)	$	3,126,421	$	(66,288	)

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

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

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

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2022		2021		2022		2021
Taxable	$	37,231	$	32,889	$	109,830	$	91,510
Non-Taxable		7		261		31		820
Total Interest Income from Investment Securities	$	37,238	$	33,150	$	109,861	$	92,330

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

(dollars in thousands)	September 30, 2022		December 31, 2021
Federal Home Loan Bank of Des Moines Stock	$	10,000	$	10,000
Federal Reserve Bank Stock		26,959		26,624
Total	$	36,959	$	36,624

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

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

Loans and Leases

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

(dollars in thousands)	September 30, 2022		December 31, 2021
Commercial
Commercial and Industrial	$	1,368,966	$	1,361,921
Paycheck Protection Program		22,955		126,779
Commercial Mortgage		3,591,943		3,152,130
Construction		236,498		220,254
Lease Financing		73,989		105,108
Total Commercial		5,294,351		4,966,192
Consumer
Residential Mortgage		4,585,723		4,309,602
Home Equity		2,185,484		1,836,588
Automobile		820,640		736,565
Other ¹		435,408		410,129
Total Consumer		8,027,255		7,292,884
Total Loans and Leases	$	13,321,606	$	12,259,076

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

The majority of the Company’s lending activity is with customers located in the State of Hawaii. A substantial portion of the Company’s real estate loans are secured by real estate in Hawaii.

Net gains related to sales of residential mortgage loans, recorded as a component of mortgage banking income was less than $0.1 million and $1.2 million for the three months ended September 30, 2022 and 2021 respectively, and $0.2 million and $5.9 million for the nine months ended September 30, 2022 and 2021, respectively.

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

Allowance for Credit Losses (the “Allowance”)

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

(dollars in thousands)	Commercial			Consumer			Total
Three Months Ended September 30, 2022
Allowance for Credit Losses:
Balance at Beginning of Period	$	61,826		$	86,686		$	148,512
Loans and Leases Charged-Off		(147	)		(2,718	)		(2,865	)
Recoveries on Loans and Leases Previously Charged-Off		45			1,673			1,718
Net Loans and Leases Recovered (Charged-Off)		(102	)		(1,045	)		(1,147	)
Provision for Credit Losses		157			(1,086	)		(929	)
Balance at End of Period	$	61,881		$	84,555		$	146,436
Nine Months Ended September 30, 2022
Allowance for Credit Losses:
Balance at Beginning of Period	$	64,950		$	92,871		$	157,821
Loans and Leases Charged-Off		(729	)		(9,390	)		(10,119	)
Recoveries on Loans and Leases Previously Charged-Off		465			6,390			6,855
Net Loans and Leases Recovered (Charged-Off)		(264	)		(3,000	)		(3,264	)
Provision for Credit Losses		(2,805	)		(5,316	)		(8,121	)
Balance at End of Period	$	61,881		$	84,555		$	146,436
Three Months Ended September 30, 2021
Allowance for Credit Losses:
Balance at Beginning of Period	$	78,639		$	101,746		$	180,385
Loans and Leases Charged-Off		(196	)		(3,249	)		(3,445	)
Recoveries on Loans and Leases Previously Charged-Off		118			2,134			2,252
Net Loans and Leases Recovered (Charged-Off)		(78	)		(1,115	)		(1,193	)
Provision for Credit Losses		(9,894	)		(1,378	)		(11,272	)
Balance at End of Period	$	68,667		$	99,253		$	167,920
Nine Months Ended September 30, 2021
Allowance for Credit Losses:
Balance at Beginning of Period	$	84,847		$	131,405		$	216,252
Loans and Leases Charged-Off		(900	)		(13,145	)		(14,045	)
Recoveries on Loans and Leases Previously Charged-Off		374			8,378			8,752
Net Loans and Leases Recovered (Charged-Off)		(526	)		(4,767	)		(5,293	)
Provision for Credit Losses		(15,654	)		(27,385	)		(43,039	)
Balance at End of Period	$	68,667		$	99,253		$	167,920

Credit Quality Indicators

The Company uses several credit quality indicators to manage credit risk in an ongoing manner. The Company uses an internal credit risk rating system that categorizes loans and leases into pass, special mention, or classified categories. Credit risk ratings are applied individually to those classes of loans and leases that have significant or unique credit characteristics that benefit from a case-by-case evaluation. These are typically loans and leases to businesses or individuals in the classes which comprise the commercial portfolio segment. Groups of loans and leases that are underwritten and structured using standardized criteria and characteristics (e.g., credit scoring or payment performance), are typically risk-rated and monitored collectively. These are typically loans and leases to individuals in the classes which comprise the consumer portfolio segment.

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

Pass:

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

Special Mention:

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

Classified:

Loans and leases in the classes within the commercial portfolio segment that are inadequately protected by the sound worth and paying capacity of the borrower or of the collateral pledged, if any. Classified loans and leases are also those in the classes within the consumer portfolio segment that are past due 90 days or more as to principal or interest. Residential mortgage and home equity loans that are past due 90 days or more as to principal or interest may be considered Pass based on the criteria described in the definition of Pass.

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For Pass rated credits, risk ratings are certified at a minimum annually. For Special Mention or Classified credits, risk ratings are reviewed for appropriateness on an ongoing basis, monthly, or at a minimum, quarterly. The following presents by credit quality indicator, loan class, and year of origination, the amortized cost basis of the Company’s loans and leases as of September 30, 2022.

		Term Loans by Origination Year
(dollars in thousands)	2022			2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total Loans and Leases
September 30, 2022
Commercial
Commercial and Industrial
Pass		$	274,968	$	382,203	$	240,451	$	71,445	$	49,597	$	76,600	$	234,231	$	212	$	1,329,707
Special Mention			287		-		-		-		111		94		18,087		-		18,579
Classified			-		9,482		1,064		-		1,686		6,378		2,045		25		20,680
Total Commercial and Industrial		$	275,255	$	391,685	$	241,515	$	71,445	$	51,394	$	83,072	$	254,363	$	237	$	1,368,966
Paycheck Protection Program
Pass		$	-	$	7,410	$	15,545	$	-	$	-	$	-	$	-	$	-	$	22,955
Total Paycheck Protection Program		$	-	$	7,410	$	15,545	$	-	$	-	$	-	$	-	$	-	$	22,955
Commercial Mortgage
Pass		$	943,746	$	824,641	$	711,566	$	285,509	$	133,164	$	513,977	$	58,187	$	-	$	3,470,790
Special Mention			29,854		37,949		31,175		-		1,493		-		-		-		100,471
Classified			690		3,172		7,264		628		-		8,928		-		-		20,682
Total Commercial Mortgage		$	974,290	$	865,762	$	750,005	$	286,137	$	134,657	$	522,905	$	58,187	$	-	$	3,591,943
Construction
Pass		$	51,288	$	65,884	$	94,072	$	16,957	$	-	$	594	$	7,703	$	-	$	236,498
Total Construction		$	51,288	$	65,884	$	94,072	$	16,957	$	-	$	594	$	7,703	$	-	$	236,498
Lease Financing
Pass		$	12,892	$	18,675	$	12,879	$	10,876	$	8,225	$	10,442	$	-	$	-	$	73,989
Total Lease Financing		$	12,892	$	18,675	$	12,879	$	10,876	$	8,225	$	10,442	$	-	$	-	$	73,989
Total Commercial		$	1,313,725	$	1,349,416	$	1,114,016	$	385,415	$	194,276	$	617,013	$	320,253	$	237	$	5,294,351
Consumer
Residential Mortgage
Pass		$	694,780	$	1,319,910	$	1,048,413	$	325,127	$	142,493	$	1,055,000	$	-	$	-	$	4,585,723
Total Residential Mortgage		$	694,780	$	1,319,910	$	1,048,413	$	325,127	$	142,493	$	1,055,000	$	-	$	-	$	4,585,723
Home Equity
Pass		$	-	$	-	$	-	$	-	$	-	$	985	$	2,146,118	$	33,833	$	2,180,936
Classified			-		-		-		-		-		189		2,477		1,882		4,548
Total Home Equity		$	-	$	-	$	-	$	-	$	-	$	1,174	$	2,148,595	$	35,715	$	2,185,484
Automobile
Pass		$	299,115	$	234,767	$	111,893	$	95,422	$	54,835	$	24,140	$	-	$	-	$	820,172
Classified			58		131		54		75		77		73		-		-		468
Total Automobile		$	299,173	$	234,898	$	111,947	$	95,497	$	54,912	$	24,213	$	-	$	-	$	820,640
Other¹
Pass		$	153,897	$	135,469	$	36,000	$	50,763	$	21,507	$	12,860	$	23,277	$	1,121	$	434,894
Classified			15		177		16		160		82		33		20		11		514
Total Other		$	153,912	$	135,646	$	36,016	$	50,923	$	21,589	$	12,893	$	23,297	$	1,132	$	435,408
Total Consumer		$	1,147,865	$	1,690,454	$	1,196,376	$	471,547	$	218,994	$	1,093,280	$	2,171,892	$	36,847	$	8,027,255
Total Loans and Leases		$	2,461,590	$	3,039,870	$	2,310,392	$	856,962	$	413,270	$	1,710,293	$	2,492,145	$	37,084	$	13,321,606

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

For the nine months ended September 30, 2022, $4.2 million revolving loans were converted to term loans.

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The following presents by credit quality indicator, loan class, and year of origination, the amortized cost basis of the Company’s loans and leases as of December 31, 2021.

		Term Loans by Origination Year
(dollars in thousands)	2021			2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term Loans		Total Loans and Leases
December 31, 2021
Commercial
Commercial and Industrial
Pass		$	455,984	$	301,646	$	79,826	$	68,026	$	27,246	$	75,321	$	256,240	$	471	$	1,264,760
Special Mention			1,966		32,667		-		-		-		101		27,031		-		61,765
Classified			10,851		1,919		87		1,990		505		17,481		2,509		54		35,396
Total Commercial and Industrial		$	468,801	$	336,232	$	79,913	$	70,016	$	27,751	$	92,903	$	285,780	$	525	$	1,361,921
Paycheck Protection Program
Pass		$	86,484	$	40,295	$	-	$	-	$	-	$	-	$	-	$	-	$	126,779
Total Paycheck Protection Program		$	86,484	$	40,295	$	-	$	-	$	-	$	-	$	-	$	-	$	126,779
Commercial Mortgage
Pass		$	958,719	$	736,155	$	338,160	$	261,991	$	178,436	$	459,337	$	53,386	$	-	$	2,986,184
Special Mention			68,768		39,773		-		30,000		-		6,069		-		-		144,610
Classified			3,740		7,815		640		-		-		9,141		-		-		21,336
Total Commercial Mortgage		$	1,031,227	$	783,743	$	338,800	$	291,991	$	178,436	$	474,547	$	53,386	$	-	$	3,152,130
Construction
Pass		$	67,069	$	94,878	$	40,051	$	-	$	596	$	-	$	17,660	$	-	$	220,254
Special Mention			-		-		-		-		-		-		-		-		-
Total Construction		$	67,069	$	94,878	$	40,051	$	-	$	596	$	-	$	17,660	$	-	$	220,254
Lease Financing
Pass		$	21,637	$	15,075	$	15,697	$	9,902	$	2,004	$	39,937	$	-	$	-	$	104,252
Classified			-		-		-		856		-		-		-		-		856
Total Lease Financing		$	21,637	$	15,075	$	15,697	$	10,758	$	2,004	$	39,937	$	-	$	-	$	105,108
Total Commercial		$	1,675,218	$	1,270,223	$	474,461	$	372,765	$	208,787	$	607,387	$	356,826	$	525	$	4,966,192
Consumer
Residential Mortgage¹
Pass		$	1,392,337	$	1,131,330	$	367,525	$	177,215	$	256,825	$	982,759	$	-	$	-	$	4,307,991
Classified			-		-		294		-		905		412		-		-		1,611
Total Residential Mortgage		$	1,392,337	$	1,131,330	$	367,819	$	177,215	$	257,730	$	983,171	$	-	$	-	$	4,309,602
Home Equity ¹
Pass		$	-	$	-	$	-	$	-	$	-	$	2,986	$	1,795,107	$	35,427	$	1,833,520
Classified			-		-		-		-		-		58		2,649		361		3,068
Total Home Equity		$	-	$	-	$	-	$	-	$	-	$	3,044	$	1,797,756	$	35,788	$	1,836,588
Automobile
Pass		$	301,285	$	152,022	$	138,887	$	91,411	$	33,268	$	18,963	$	-	$	-	$	735,836
Classified			165		85		134		137		120		88		-		-		729
Total Automobile		$	301,450	$	152,107	$	139,021	$	91,548	$	33,388	$	19,051	$	-	$	-	$	736,565
Other ²
Pass		$	172,735	$	49,769	$	92,983	$	44,489	$	16,218	$	6,444	$	25,622	$	1,444	$	409,704
Classified			39		90		183		47		27		17		22		-		425
Total Other		$	172,774	$	49,859	$	93,166	$	44,536	$	16,245	$	6,461	$	25,644	$	1,444	$	410,129
Total Consumer		$	1,866,561	$	1,333,296	$	600,006	$	313,299	$	307,363	$	1,011,727	$	1,823,400	$	37,232	$	7,292,884
Total Loans and Leases		$	3,541,779	$	2,603,519	$	1,074,467	$	686,064	$	516,150	$	1,619,114	$	2,180,226	$	37,757	$	12,259,076

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

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

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

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Aging Analysis

Loans and leases are considered to be past due once becoming 30 days delinquent. For the consumer portfolio, this generally represents two missed monthly payments. The following presents by class, an aging analysis of the Company’s loan and lease portfolio as of September 30, 2022, and December 31, 2021.

(dollars in thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		Past Due 90 Days or More		Non- Accrual		Total Past Due and Non- Accrual		Current		Total Loans and Leases		Non- Accrual Loans and Leases that are Current ²
As of September 30, 2022
Commercial
Commercial and Industrial	$	132	$	75	$	—	$	49	$	256	$	1,368,710	$	1,368,966	$	49
Paycheck Protection Program		—		—		—		—		—		22,955		22,955		—
Commercial Mortgage		—		—		—		3,396		3,396		3,588,547		3,591,943		3,396
Construction		—		—		—		—		—		236,498		236,498		—
Lease Financing		—		—		—		—		—		73,989		73,989		—
Total Commercial		132		75		—		3,445		3,652		5,290,699		5,294,351		3,445
Consumer
Residential Mortgage		1,693		888		3,279		4,945		10,805		4,574,918		4,585,723		878
Home Equity		1,772		643		1,061		4,438		7,914		2,177,570		2,185,484		896
Automobile		9,498		1,374		467		—		11,339		809,301		820,640		—
Other ¹		1,829		775		513		—		3,117		432,291		435,408		—
Total Consumer		14,792		3,680		5,320		9,383		33,175		7,994,080		8,027,255		1,774
Total	$	14,924	$	3,755	$	5,320	$	12,828	$	36,827	$	13,284,779	$	13,321,606	$	5,219

As of December 31, 2021
Commercial
Commercial and Industrial	$	2,006	$	14	$	—	$	243	$	2,263	$	1,359,658	$	1,361,921	$	151
Paycheck Protection Program		—		—		—		—		—		126,779		126,779		—
Commercial Mortgage		—		—		—		8,205		8,205		3,143,925		3,152,130		8,205
Construction		—		—		—		—		—		220,254		220,254		—
Lease Financing		—		—		—		—		—		105,108		105,108		—
Total Commercial		2,006		14		—		8,448		10,468		4,955,724		4,966,192		8,356
Consumer
Residential Mortgage		2,046		1,263		3,159		3,305		9,773		4,299,829		4,309,602		—
Home Equity		1,791		748		3,456		4,881		10,876		1,825,712		1,836,588		1,544
Automobile		7,804		1,495		729		—		10,028		726,537		736,565		—
Other ¹		2,686		904		426		—		4,016		406,113		410,129		—
Total Consumer		14,327		4,410		7,770		8,186		34,693		7,258,191		7,292,884		1,544
Total	$	16,333	$	4,424	$	7,770	$	16,634	$	45,161	$	12,213,915	$	12,259,076	$	9,900

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

²	Represents non-accrual loans that are not past due 30 days or more; however, full payment of principal and interest is still not expected.

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Non-Accrual Loans and Leases

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

	September 30, 2022						December 31, 2021
(dollars in thousands)	Non-accrual loans with a related ACL		Non-accrual loans without a related ACL		Total Non- accrual loans		Non-accrual loans with a related ACL		Non-accrual loans without a related ACL		Total Non- accrual loans
Commercial
Commercial and Industrial	$	49	$	—	$	49	$	243	$	—	$	243
Commercial Mortgage		—		3,396		3,396		4,661		3,544		8,205
Total Commercial		49		3,396		3,445		4,904		3,544		8,448
Consumer
Residential Mortgage		4,869		76		4,945		2,959		346		3,305
Home Equity		4,438		—		4,438		4,881		—		4,881
Total Consumer		9,307		76		9,383		7,840		346		8,186
Total	$	9,356	$	3,472	$	12,828	$	12,744	$	3,890	$	16,634

All payments received while on non-accrual status are applied against the principal balance of the loan or lease. The Company does not recognize interest income while loans or leases are on non-accrual status.

Modifications

A modification of a loan constitutes a troubled debt restructuring (“TDR”) when the Company, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. Loans modified in a TDR were $48.3 million as of September 30, 2022, and $70.0 million as of December 31, 2021. There were $0.1 million and $0.2 million commitments to lend additional funds on loans modified in a TDR as of September 30, 2022, and December 31, 2021, respectively.

Loans modified in a TDR may be on non-accrual status and partial charge-offs have in some cases already been taken against the outstanding loan balance. As a result, loans modified in a TDR may have the financial effect of reducing the specific Allowance associated with the loan because the potential loss has been recognized. An Allowance for impaired commercial and consumer loans that have been modified in a TDR is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates.

The following presents by class, information related to loans modified in a TDR during the three and nine months ended September 30, 2022, and September 30, 2021.

	Loans Modified as a TDR for the Three Months Ended September 30, 2022						Loans Modified as a TDR for the Three Months Ended September 30, 2021
			Recorded		Increase in				Recorded		Increase in
Troubled Debt Restructurings			Investment		Allowance				Investment		Allowance
(dollars in thousands)	Number of Contracts		(as of period end)¹		(as of period end)		Number of Contracts		(as of period end)¹		(as of period end)
Commercial
Commercial and Industrial		1	$	213	$	16		2	$	153	$	2
Total Commercial		1		213		16		2		153		2
Consumer
Residential Mortgage		—		—		—		2		796		21
Home Equity		1		197		—		2		779		46
Automobile		40		793		11		71		1,632		22
Other ²		10		57		2		51		439		16
Total Consumer		51		1,047		13		126		3,646		105
Total		52	$	1,260	$	29		128	$	3,799	$	107

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	Loans Modified as a TDR for the Nine Months Ended September 30, 2022						Loans Modified as a TDR for the Nine Months Ended September 30, 2021
			Recorded		Increase in				Recorded		Increase in
Troubled Debt Restructurings			Investment		Allowance				Investment		Allowance
(dollars in thousands)	Number of Contracts		(as of period end)¹		(as of period end)		Number of Contracts		(as of period end)¹		(as of period end)
Commercial
Commercial and Industrial		1	$	213	$	16		7	$	258	$	4
Total Commercial		1		213		16		7		258		4
Consumer
Residential Mortgage		5		1,205		71		14		5,785		584
Home Equity		3		282		5		9		1,488		80
Automobile ²		93		1,807		24		331		6,902		95
Other ^2,3		39		254		9		144		1,321		48
Total Consumer		140		3,548		109		498		15,496		807
Total		141	$	3,761	$	125		505	$	15,754	$	811

¹	The period end balances reflect all paydowns and charge-offs since the modification date. TDRs fully paid-off, charged-off, or foreclosed upon by period end are not included.

²	Comprised of other revolving credit and installment financing.

The following presents by class, all loans modified in a TDR that defaulted during the three and nine months ended September 30, 2022, and September 30, 2021, and within twelve months of their modification date. A TDR is considered to be in default once it becomes 60 days or more past due following a modification.

	Three Months Ended September 30, 2022				Three Months Ended September 30, 2021
TDRs that Defaulted During the Period,			Recorded				Recorded
Within Twelve Months of their Modification Date	Number of		Investment		Number of		Investment
(dollars in thousands)	Contracts		(as of period end)¹		Contracts		(as of period end)¹
Consumer
Automobile		5	$	61		8	$	157
Other ²		4		27		5		27
Total Consumer		9		88		13		184
Total		9	$	88		13	$	184

	Nine Months Ended September 30, 2022				Nine Months Ended September 30, 2021
TDRs that Defaulted During the Period,			Recorded				Recorded
Within Twelve Months of their Modification Date	Number of		Investment		Number of		Investment
(dollars in thousands)	Contracts		(as of period end)¹		Contracts		(as of period end)¹
Consumer
Residential Mortgage		1	$	181		1	$	528
Home Equity		1		65		—		—
Automobile		14		228		12		213
Other ²		13		92		12		112
Total Consumer		29		566		25		853
Total		29	$	566		25	$	853

¹	The period end balances reflect all paydowns and charge-offs since the modification date. TDRs fully paid-off, charged-off, or foreclosed upon by period end are not included.

²	Comprised of other revolving credit and installment financing.

Commercial and consumer loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, the Company evaluates the loan for possible further impairment. The specific Allowance associated with the loan may be changed by additional increases, adjustments, or partial charge-offs to further write-down the carrying value of the loan.

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In accordance with Section 4013 of the CARES Act and the joint agency statement issued by banking agencies, certain qualified loan and lease modifications related to the COVID-19 pandemic are not accounted for as TDRs. There were no loan and lease modifications as of September 30, 2022, and $40.5 million (8 loans) for the commercial segment and $3.1 million (11 loans) for the consumer segment as of December 31, 2021.

Foreclosure Proceedings

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

Note 5. Mortgage Servicing Rights

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

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

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

	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2022			2021			2022			2021
Balance at Beginning of Period	$	747		$	875		$	800		$	958
Change in Fair Value Due to Payoffs		(15	)		(49	)		(68	)		(132	)
Balance at End of Period	$	732		$	826		$	732		$	826

	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2022			2021			2022			2021
Balance at Beginning of Period	$	22,793		$	20,598		$	21,451		$	18,694
Servicing Rights that Resulted From Asset Transfers		160			1,082			1,115			4,022
Amortization		(581	)		(1,069	)		(2,023	)		(3,228	)
Valuation Allowance Recovery (Provision)		—			662			1,829			1,785
Balance at End of Period	$	22,372		$	21,273		$	22,372		$	21,273

Valuation Allowance:
Balance at Beginning of Period	$	—		$	(2,769	)	$	(1,829	)	$	(3,892	)
Valuation Allowance Recovery (Provision)		—			662			1,829			1,785
Balance at End of Period	$	—		$	(2,107	)	$	—		$	(2,107	)
Fair Value of Mortgage Servicing Rights Accounted for Under the Amortization Method
Beginning of Period	$	28,314		$	20,598		$	21,451		$	18,694
End of Period	$	27,678		$	21,273		$	27,678		$	21,273

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

	September 30, 2022			December 31, 2021
Weighted-Average Constant Prepayment Rate ¹		4.11	%		10.70	%
Weighted-Average Life (in years)		9.62			6.18
Weighted-Average Note Rate		3.59	%		3.62	%
Weighted-Average Discount Rate ²		10.01	%		7.04	%

¹	Represents annualized loan prepayment rate assumption.

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

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

(dollars in thousands)	September 30, 2022			December 31, 2021
Constant Prepayment Rate
Decrease in fair value from 25 basis points (“bps”) adverse change	$	(348	)	$	(252	)
Decrease in fair value from 50 bps adverse change		(690	)		(498	)
Discount Rate
Decrease in fair value from 25 bps adverse change		(319	)		(223	)
Decrease in fair value from 50 bps adverse change		(631	)		(441	)

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

Note 6. Affordable Housing Projects Tax Credit Partnerships

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

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

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

Unfunded Commitments

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

(dollars in thousands)	Amount
2022	$	9,078
2023		38,624
2024		6,427
2025		16,448
2026		141
Thereafter		3,823
Total Unfunded Commitments	$	74,541

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

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2022		2021		2022		2021
Effective Yield Method
Tax credits and other tax benefits recognized	$	1,520	$	2,151	$	4,586	$	6,453
Amortization Expense in Provision for Income Taxes		1,296		1,670		3,889		5,032
Proportional Amortization Method
Tax credits and other tax benefits recognized	$	3,802	$	2,708	$	11,381	$	8,178
Amortization Expense in Provision for Income Taxes		3,331		2,332		9,860		7,043

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

Note 7. Securities Sold Under Agreements to Repurchase

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

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	Remaining Contractual Maturity of Repurchase Agreements
(dollars in thousands)	Up to 90 days		91-365 days		1-3 Years		After 3 Years		Total
September 30, 2022
Class of Collateral Pledged:
Debt Securities Issued by States and Political Subdivisions	$	—	$	—	$	490	$	—	$	490
Mortgage-Backed Securities:
Residential - Government Agencies		—		—		30,597		—		30,597
Residential - U.S. Government-Sponsored Enterprises		—		—		394,403		—		394,403
Total	$	—	$	—	$	425,490	$	—	$	425,490
December 31, 2021
Class of Collateral Pledged:
Debt Securities Issued by States and Political Subdivisions	$	—	$	—	$	—	$	490	$	490
Mortgage-Backed Securities: ¹
Residential - Government Agencies		—		—		38,685		13,407		52,092
Residential - U.S. Government-Sponsored Enterprises		—		—		236,315		161,593		397,908
Total	$	—	$	—	$	275,000	$	175,490	$	450,490

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

	(i)		(ii)		(iii) = (i)-(ii)		(iv)				(v) = (iii)-(iv)
							Gross Amounts Not Offset in the Statements of Condition
(dollars in thousands)	Gross Amounts Recognized in the Statements of Condition		Gross Amounts Offset in the Statements of Condition		Net Amounts Presented in the Statements of Condition		Netting Adjustments per Master Netting Arrangements		Fair Value of Collateral Pledged/ Received ¹		Net Amount
September 30, 2022
Assets:
Interest Rate Swap Agreements:
Institutional Counterparties	$	37,814	$	—	$	37,814	$	37,814	$	—	$	—

Liabilities:
Interest Rate Swap Agreements:
Institutional Counterparties		293		—		293		293		—		—
Repurchase Agreements:
Private Institutions		425,000		—		425,000		—		425,000		—
Government Entities		490		—		490		—		490		—
	$	425,490	$	—	$	425,490	$	—	$	425,490	$	—
December 31, 2021
Assets:
Interest Rate Swap Agreements:
Institutional Counterparties	$	26	$	—	$	26	$	26	$	—	$	—
Liabilities:
Interest Rate Swap Agreements:
Institutional Counterparties		5,948		—		5,948		26		5,922		—
Repurchase Agreements:
Private Institutions		450,000		—		450,000		—		450,000		—
Government Entities		490		—		490		—		490		—
	$	450,490	$	—	$	450,490	$	—	$	450,490	$	—

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

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Note 8. Accumulated Other Comprehensive Income (Loss)

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

(dollars in thousands)	Before Tax			Tax Effect			Net of Tax
Three Months Ended September 30, 2022
Net Unrealized Gains (Losses) on Investment Securities:
Net Unrealized Gains (Losses) Arising During the Period	$	(111,338	)	$	(29,506	)	$	(81,832	)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) that (Increase) Decrease Net Income:
Amortization of Unrealized Holding (Gains) Losses on Held-to- Maturity Securities ¹		3,037			805			2,232
Net Unrealized Gains (Losses) on Investment Securities		(108,301	)		(28,701	)		(79,600	)
Defined Benefit Plans:
Amortization of Net Actuarial Losses (Gains)		542			143			399
Amortization of Prior Service Credit		(61	)		(16	)		(45	)
Defined Benefit Plans, Net		481			127			354
Other Comprehensive Income (Loss)	$	(107,820	)	$	(28,574	)	$	(79,246	)

Three Months Ended September 30, 2021
Net Unrealized Gains (Losses) on Investment Securities:
Net Unrealized Gains (Losses) Arising During the Period	$	(10,263	)	$	(2,719	)	$	(7,544	)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) that (Increase) Decrease Net Income:
(Gain) Loss on Sale		(83	)		(22	)		(61	)
Amortization of Unrealized Holding (Gains) Losses on Held-to- Maturity Securities ¹		87			23			64
Net Unrealized Gains (Losses) on Investment Securities		(10,259	)		(2,718	)		(7,541	)
Defined Benefit Plans:
Amortization of Net Actuarial Losses (Gains)		662			175			487
Amortization of Prior Service Credit		(62	)		(16	)		(46	)
Defined Benefit Plans, Net		600			159			441
Other Comprehensive Income (Loss)	$	(9,659	)	$	(2,559	)	$	(7,100	)

Nine Months Ended September 30, 2022
Net Unrealized Gains (Losses) on Investment Securities:
Net Unrealized Gains (Losses) Arising During the Period	$	(523,365	)	$	(138,715	)	$	(384,650	)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) that (Increase) Decrease Net Income:
Amortization of Unrealized Holding (Gains) Losses on Held-to- Maturity Securities ¹		3,100			821			2,279
Net Unrealized Gains (Losses) on Investment Securities		(520,265	)		(137,894	)		(382,371	)
Defined Benefit Plans:
Amortization of Net Actuarial Losses (Gains)		1,626			431			1,195
Amortization of Prior Service Credit		(184	)		(48	)		(136	)
Defined Benefit Plans, Net		1,442			383			1,059
Other Comprehensive Income (Loss)	$	(518,823	)	$	(137,511	)	$	(381,312	)

Nine Months Ended September 30, 2021
Net Unrealized Gains (Losses) on Investment Securities:
Net Unrealized Gains (Losses) Arising During the Period	$	(75,360	)	$	(19,954	)	$	(55,406	)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) that (Increase) Decrease Net Income:
(Gain) Loss on Sale		(3,758	)		(1,014	)		(2,744	)
Amortization of Unrealized Holding (Gains) Losses on Held-to- Maturity Securities ¹		593			157			436
Net Unrealized Gains (Losses) on Investment Securities		(78,525	)		(20,811	)		(57,714	)
Defined Benefit Plans:
Amortization of Net Actuarial Losses (Gains)		1,985			525			1,460
Amortization of Prior Service Credit		(185	)		(49	)		(136	)
Defined Benefit Plans, Net		1,800			476			1,324
Other Comprehensive Income (Loss)	$	(76,725	)	$	(20,335	)	$	(56,390	)

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

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

(dollars in thousands)	Investment Securities- Available- for-Sale			Investment Securities- Held-to-Maturity			Defined Benefit Plans			Accumulated Other Comprehensive Income (Loss)
Three Months Ended September 30, 2022
Balance at Beginning of Period	$	(335,758	)	$	101		$	(32,791	)	$	(368,448	)
Other Comprehensive Income (Loss) Before Reclassifications		(81,832	)		—			—			(81,832	)
Unrealized Net Losses Related to the Transfer of Securities from Available-for-Sale to Held-to-Maturity		176,700			(176,700	)		—			—
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)		—			2,232			354			2,586
Total Other Comprehensive Income (Loss)		94,868			(174,468	)		354			(79,246	)
Balance at End of Period	$	(240,890	)	$	(174,367	)	$	(32,437	)	$	(447,694	)

Three Months Ended September 30, 2021
Balance at Beginning of Period	$	950		$	(51	)	$	(42,367	)	$	(41,468	)
Other Comprehensive Income (Loss) Before Reclassifications		(7,544	)		—			—			(7,544	)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)		(61	)		64			441			444
Total Other Comprehensive Income (Loss)		(7,605	)		64			441			(7,100	)
Balance at End of Period	$	(6,655	)	$	13		$	(41,926	)	$	(48,568	)

Nine Months Ended September 30, 2022
Balance at Beginning of Period	$	(32,940	)	$	54		$	(33,496	)	$	(66,382	)
Other Comprehensive Income (Loss) Before Reclassifications		(384,650	)		—			—			(384,650	)
Unrealized Net Losses Related to the Transfer of Securities from Available-for-Sale to Held-to-Maturity		176,700			(176,700	)		—			—
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)		—			2,279			1,059			3,338
Total Other Comprehensive Income (Loss)		(207,950	)		(174,421	)		1,059			(381,312	)
Balance at End of Period	$	(240,890	)	$	(174,367	)	$	(32,437	)	$	(447,694	)

Nine Months Ended September 30, 2021
Balance at Beginning of Period	$	51,495		$	(423	)	$	(43,250	)	$	7,822
Other Comprehensive Income (Loss) Before Reclassifications		(55,406	)		—			—			(55,406	)
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss)		(2,744	)		436			1,324			(984	)
Total Other Comprehensive Income (Loss)		(58,150	)		436			1,324			(56,390	)
Balance at End of Period	$	(6,655	)	$	13		$	(41,926	)	$	(48,568	)

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

Details about Accumulated Other Comprehensive Income (Loss) Components	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)¹						Affected Line Item in the Statement Where Net Income Is Presented
	Three Months Ended September 30,
(dollars in thousands)	2022			2021
Amortization of Unrealized Holding Gains (Losses) on Investment Securities Held-to-Maturity	$	(3,037	)	$	(87	)	Interest Income
		805			23		Provision for Income Tax
		(2,232	)		(64	)	Net of Tax
Sale of Investment Securities Available-for-Sale		—			83		Investment Securities Gains (Losses), Net
		—			(22	)	Provision for Income Tax
		—			61		Net of tax

Amortization of Defined Benefit Plan Items
Prior Service Credit ²		61			62
Net Actuarial Losses ²		(542	)		(662	)
		(481	)		(600	)	Total Before Tax
		127			159		Provision for Income Tax
		(354	)		(441	)	Net of Tax

Total Reclassifications for the Period	$	(2,586	)	$	(444	)	Net of Tax

Details about Accumulated Other Comprehensive Income (Loss) Components	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)¹						Affected Line Item in the Statement Where Net Income Is Presented
	Nine Months Ended September 30,
(dollars in thousands)	2022			2021
Amortization of Unrealized Holding Gains (Losses) on Investment Securities Held-to-Maturity	$	(3,100	)	$	(593	)	Interest Income
		821			157		Provision for Income Tax
		(2,279	)		(436	)	Net of Tax
Sale of Investment Securities Available-for-Sale		—			3,758		Investment Securities Gains (Losses), Net
		—			(1,014	)	Provision for Income Tax
		—			2,744		Net of tax

Amortization of Defined Benefit Plan Items
Prior Service Credit ²		184			185
Net Actuarial Losses ²		(1,626	)		(1,985	)
		(1,442	)		(1,800	)	Total Before Tax
		383			476		Provision for Income Tax
		(1,059	)		(1,324	)	Net of Tax

Total Reclassifications for the Period	$	(3,338	)	$	984		Net of Tax

¹	Amounts in parentheses indicate reductions to net income.

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

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Note 9. Earnings Per Common Share

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

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands, except shares and per share amounts)	2022		2021		2022		2021
Numerator:
Net Income Available to Common Shareholders	$	50,832	$	61,047	$	158,589	$	188,529

Denominator:
Weighted Average Common Shares Outstanding - Basic		39,567,047		39,881,437		39,670,409		39,870,450
Dilutive Effect of Equity Based Awards		191,162		199,482		178,386		218,449
Weighted Average Common Shares Outstanding - Diluted		39,758,209		40,080,919		39,848,795		40,088,899

Earnings Per Common Share:
Basic	$	1.28	$	1.53	$	4.00	$	4.73
Diluted	$	1.28	$	1.52	$	3.98	$	4.70

Antidilutive Stock Options and Restricted Stock Outstanding		—		47,087		—		44,217

Note 10. Business Segments

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

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

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

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

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

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Consumer Banking

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

Commercial Banking

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

Treasury and Other

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

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

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

(dollars in thousands)	Consumer Banking			Commercial Banking			Treasury and Other			Consolidated Total
Three Months Ended September 30, 2022
Net Interest Income	$	85,666		$	56,249		$	(260	)	$	141,655
Provision for Credit Losses		1,148			(1	)		(1,147	)		—
Net Interest Income After Provision for Credit Losses		84,518			56,250			887			141,655
Noninterest Income		30,974			(911	)		597			30,660
Noninterest Expense		(83,278	)		(17,073	)		(5,398	)		(105,749	)
Income (Loss) Before Provision for Income Taxes		32,214			38,266			(3,914	)		66,566
Provision for Income Taxes		(8,104	)		(9,273	)		3,612			(13,765	)
Net Income	$	24,110		$	28,993		$	(302	)	$	52,801
Total Assets as of September 30, 2022	$	8,399,068		$	5,486,330		$	9,248,642		$	23,134,040

Three Months Ended September 30, 2021
Net Interest Income	$	72,062		$	50,088		$	4,669		$	126,819
Provision for Credit Losses		1,235			(42	)		(11,593	)		(10,400	)
Net Interest Income After Provision for Credit Losses		70,827			50,130			16,262			137,219
Noninterest Income		32,046			7,906			1,426			41,378
Noninterest Expense		(71,377	)		(15,924	)		(9,218	)		(96,519	)
Income Before Provision for Income Taxes		31,496			42,112			8,470			82,078
Provision for Income Taxes		(8,001	)		(10,373	)		(1,651	)		(20,025	)
Net Income	$	23,495		$	31,739		$	6,819		$	62,053
Total Assets as of September 30, 2021	$	7,530,513		$	5,087,831		$	10,347,039		$	22,965,383

Nine Months Ended September 30, 2022
Net Interest Income	$	232,654		$	152,391		$	14,775		$	399,820
Provision for Credit Losses		3,463			(200	)		(11,263	)		(8,000	)
Net Interest Income After Provision for Credit Losses		229,191			152,591			26,038			407,820
Noninterest Income		94,811			17,650			3,908			116,369
Noninterest Expense		(247,724	)		(52,757	)		(12,081	)		(312,562	)
Income Before Provision for Income Taxes		76,278			117,484			17,865			211,627
Provision for Income Taxes		(19,151	)		(28,721	)		742			(47,130	)
Net Income	$	57,127		$	88,763		$	18,607		$	164,497
Total Assets as of September 30, 2022	$	8,399,068		$	5,486,330		$	9,248,642		$	23,134,040

Nine Months Ended September 30, 2021
Net Interest Income	$	212,991		$	146,269		$	11,642		$	370,902
Provision for Credit Losses		5,088			205			(46,093	)		(40,800	)
Net Interest Income After Provision for Credit Losses		207,903			146,064			57,735			411,702
Noninterest Income		98,344			22,339			8,096			128,779
Noninterest Expense		(222,426	)		(47,343	)		(22,142	)		(291,911	)
Income Before Provision for Income Taxes		83,821			121,060			43,689			248,570
Provision for Income Taxes		(20,840	)		(29,634	)		(8,561	)		(59,035	)
Net Income	$	62,981		$	91,426		$	35,128		$	189,535
Total Assets as of September 30, 2021	$	7,530,513		$	5,087,831		$	10,347,039		$	22,965,383

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Note 11. Derivative Financial Instruments

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

	September 30, 2022					December 31, 2021
(dollars in thousands)	Notional Amount		Fair Value			Notional Amount		Fair Value
Interest Rate Lock Commitments	$	7,379	$	(40	)	$	45,857	$	1,084
Forward Commitments		6,556		143			58,523		(35	)
Interest Rate Swap Agreements
Receive Fixed/Pay Variable Swaps		1,572,800		(169,645	)		1,400,322		28,742
Pay Fixed/Receive Variable Swaps		1,572,800		37,521			1,400,322		(5,922	)
Foreign Exchange Contracts		96,832		(3,443	)		102,548		(674	)
Conversion Rate Swap Agreement		107,126		—			131,672		—

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

Derivative Financial Instruments	September 30, 2022				December 31, 2021
Not Designated as Hedging Instruments ¹	Asset		Liability		Asset		Liability
(dollars in thousands)	Derivatives		Derivatives		Derivatives		Derivatives
Interest Rate Lock Commitments	$	55	$	95	$	1,084	$	—
Forward Commitments		144		1		17		52
Interest Rate Swap Agreements		38,051		170,175		40,733		17,913
Foreign Exchange Contracts		6		3,449		177		851
Total	$	38,256	$	173,720	$	42,011	$	18,816

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

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

	Location of
Derivative Financial Instruments	Net Gains (Losses)	Three Months Ended					Nine Months Ended
Not Designated as Hedging Instruments	Recognized in the	September 30,					September 30,
(dollars in thousands)	Statements of Income	2022		2021			2022			2021
Interest Rate Lock Commitments	Mortgage Banking	$	1	$	2,083		$	(1,012	)	$	6,927
Forward Commitments	Mortgage Banking		289		(53	)		2,510			1,598
Interest Rate Swap Agreements	Other Noninterest Income		126		2,147			6,225			4,848
Foreign Exchange Contracts	Other Noninterest Income		430		401			936			1,120
Total		$	846	$	4,578		$	8,659		$	14,493

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

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Interest Rate Swap Agreements

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

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

Conversion Rate Swap Agreements

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

Note 12. Commitments, Contingencies, and Guarantees

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

(dollars in thousands)	September 30, 2022		December 31, 2021
Unfunded Commitments to Extend Credit	$	3,507,523	$	2,982,673
Standby Letters of Credit		135,212		135,167
Commercial Letters of Credit		20,672		18,956
Total Credit Commitments	$	3,663,407	$	3,136,796

Unfunded Commitments to Extend Credit

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

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

Contingencies

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

Note 13. Fair Value of Assets and Liabilities

Fair Value Hierarchy

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


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

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

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

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

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Assets and Liabilities Measured at Fair Value on a Recurring Basis

Investment Securities Available-for-Sale

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

Loans Held for Sale

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

Mortgage Servicing Rights

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

Other Assets

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

Derivative Financial Instruments

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

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

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

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

	Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
(dollars in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
September 30, 2022
Assets:
Investment Securities Available-for-Sale
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	140,644	$	103,709	$	—	$	244,353
Debt Securities Issued by States and Political Subdivisions		—		61,062		—		61,062
Debt Securities Issued by U.S. Government-Sponsored Enterprises		—		1,618		—		1,618
Debt Securities Issued by Corporations		—		370,718		—		370,718
Mortgage-Backed Securities:
Residential - Government Agencies		—		775,687		—		775,687
Residential - U.S. Government-Sponsored Enterprises		—		819,685		—		819,685
Commercial - Government Agencies		—		151,485		—		151,485
Total Mortgage-Backed Securities		—		1,746,857		—		1,746,857
Total Investment Securities Available-for-Sale		140,644		2,283,964		—		2,424,608
Loans Held for Sale		—		418		—		418
Mortgage Servicing Rights		—		—		732		732
Other Assets		44,182		—		—		44,182
Derivatives ¹		—		150		38,106		38,256
Total Assets Measured at Fair Value on a Recurring Basis as of September 30, 2022	$	184,826	$	2,284,532	$	38,838	$	2,508,196
Liabilities:
Derivatives ¹	$	—	$	3,450	$	170,270	$	173,720
Total Liabilities Measured at Fair Value on a Recurring Basis as of September 30, 2022	$	—	$	3,450	$	170,270	$	173,720
December 31, 2021
Assets:
Investment Securities Available-for-Sale
Debt Securities Issued by the U.S. Treasury and Government Agencies	$	114,845	$	135,242	$	—	$	250,087
Debt Securities Issued by States and Political Subdivisions		—		75,818		—		75,818
Debt Securities Issued by U.S. Government-Sponsored Enterprises		—		1,780		—		1,780
Debt Securities Issued by Corporations		—		383,113		—		383,113
Mortgage-Backed Securities:
Residential - Government Agencies		—		1,319,042		—		1,319,042
Residential - U.S. Government-Sponsored Enterprises		—		2,090,326		—		2,090,326
Commercial - Government Agencies		—		155,890		—		155,890
Total Mortgage-Backed Securities		—		3,565,258		—		3,565,258
Total Investment Securities Available-for-Sale		114,845		4,161,211		—		4,276,056
Loans Held for Sale		—		26,746		—		26,746
Mortgage Servicing Rights		—		—		800		800
Other Assets		56,411		—		—		56,411
Derivatives ¹		—		194		41,817		42,011
Total Assets Measured at Fair Value on a Recurring Basis as of December 31, 2021	$	171,256	$	4,188,151	$	42,617	$	4,402,024
Liabilities:
Derivatives ¹	$	—	$	903	$	17,913	$	18,816
Total Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2021	$	—	$	903	$	17,913	$	18,816

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

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

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

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

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

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

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

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

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


(dollars in thousands)	Valuation Technique	Description	Range						Weighted Average¹			Fair Value
September 30, 2022
Mortgage Servicing Rights	Discounted Cash Flow	Constant Prepayment Rate		3.21	%	-	10.46	%		4.11	%	$	28,410
		Discount Rate		9.02	%	-	10.02	%		10.01	%	$	—
Net Derivative Assets and Liabilities:
Interest Rate Lock Commitments	Pricing Model	Closing Ratio		84.10	%	-	95.70	%		91.64	%	$	(40	)
Interest Rate Swap Agreements	Discounted Cash Flow	Credit Factor		0.00	%	-	0.49	%		0.01	%	$	(132,124	)

December 31, 2021
Mortgage Servicing Rights	Discounted Cash Flow	Constant Prepayment Rate		6.51	%	-	11.48	%		10.70	%	$	22,251
		Discount Rate		6.49	%	-	7.08	%		7.04	%	$	—
Net Derivative Assets and Liabilities:
Interest Rate Lock Commitments	Pricing Model	Closing Ratio		75.40	%	-	100.00	%		90.47	%	$	1,084
Interest Rate Swap Agreements	Discounted Cash Flow	Credit Factor		0.00	%	-	0.49	%		0.14	%	$	22,820

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

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

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

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

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

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

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

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Fair Value Option

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

(dollars in thousands)	Aggregate Fair Value		Aggregate Unpaid Principal		Aggregate Fair Value Less Aggregate Unpaid Principal
September 30, 2022
Loans Held for Sale	$	418	$	433	$	(15	)

December 31, 2021
Loans Held for Sale	$	26,746	$	26,309	$	437

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

Financial Instruments Not Recorded at Fair Value on a Recurring Basis

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

					Fair Value Measurements
	Carrying				Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
(dollars in thousands)	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
September 30, 2022
Financial Instruments - Assets
Investment Securities Held-to-Maturity	$	5,461,160	$	4,668,074	$	112,407	$	4,555,667	$	—
Loans ¹		13,037,703		12,003,760		—		—		12,003,760
Financial Instruments - Liabilities
Time Deposits		1,234,985		1,208,445		—		1,208,445		—
Securities Sold Under Agreements to Repurchase		425,490		409,772		—		409,772		—
December 31, 2021
Financial Instruments - Assets
Investment Securities Held-to-Maturity	$	4,694,780	$	4,646,619	$	131,139	$	4,515,480	$	—
Loans ¹		11,921,869		12,094,631		—		—		12,094,631
Financial Instruments - Liabilities
Time Deposits		1,000,089		998,134		—		998,134		—
Securities Sold Under Agreements to Repurchase		450,490		469,293		—		469,293		—

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

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

Forward-Looking Statements

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

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

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Investor Announcements

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

Critical Accounting Policies

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

Overview

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

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

The Company’s business strategy is to use our unique market knowledge, prudent management discipline and brand strength to deliver exceptional value to our stakeholders.

Hawaii Economy

Improvements in visitor arrivals and job growth during the quarter have continued to help in the recovery of Hawaii’s economy, which was severely impacted by the COVID-19 pandemic. Visitor arrivals are near pre-pandemic levels, and the easing of international travel restrictions and restoration of international flights to and from Hawaii are expected to contribute to the continued improvement of the economy. Hawaii’s unemployment rate was 4.1% in August 2022, while still above the pre-pandemic level, it has fallen substantially since its peak in April and May of 2020.

For the first nine months of 2022, the volume of single-family home sales on Oahu decreased 15.8%, while the volume of condominium sales on Oahu decreased 3.3% compared with the same period in 2021. The median price of single-family home sales and condominium sales on Oahu increased 13.9% and 9.1%, respectively, for the first nine months of 2022 compared to the same period in 2021. As of September 30, 2022, months of inventory of single-family homes and condominiums on Oahu remained low at 1.9 months and 2.0 months, respectively.

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Earnings Summary

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

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

•

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

•

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

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

•

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

•

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

•

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

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Analysis of Statements of Income

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

Average Balances and Interest Rates - Taxable-Equivalent Basis																								Table 1
	Three Months Ended							Three Months Ended							Nine Months Ended							Nine Months Ended
	September 30, 2022							September 30, 2021							September 30, 2022							September 30, 2021
	Average		Income/		Yield/			Average		Income/		Yield/			Average		Income/		Yield/			Average		Income/		Yield/
(dollars in millions)	Balance		Expense		Rate			Balance		Expense		Rate			Balance		Expense		Rate			Balance		Expense		Rate
Earning Assets
Interest-Bearing Deposits in Other Banks	$	2.9	$	—		1.32	%	$	3.2	$	—		0.23	%	$	3.3	$	—		0.76	%	$	2.9	$	—		0.44	%
Funds Sold		411.8		2.3		2.22			999.5		0.4		0.15			308.6		3.2		1.36			833.7		0.8		0.12
Investment Securities
Available-for-Sale
Taxable		3,481.9		17.0		1.95			4,454.9		16.3		1.46			3,998.2		52.0		1.74			4,252.9		48.4		1.52
Non-Taxable		2.5		—		1.56			10.1		0.1		4.34			2.8		—		1.84			11.5		0.4		4.29
Held-to-Maturity
Taxable		4,645.7		20.1		1.73			4,294.6		16.5		1.53			4,530.4		57.4		1.69			3,728.9		42.9		1.53
Non-Taxable		35.6		0.2		2.10			64.8		0.4		2.37			35.7		0.6		2.10			48.2		0.9		2.46
Total Investment Securities		8,165.7		37.3		1.82			8,824.4		33.3		1.51			8,567.1		110.0		1.71			8,041.5		92.6		1.54
Loans Held for Sale		4.3		0.1		4.46			24.6		0.2		2.80			8.1		0.2		3.43			25.5		0.5		2.81
Loans and Leases ¹
Commercial and Industrial		1,353.8		12.5		3.66			1,252.8		9.1		2.88			1,339.0		31.4		3.13			1,281.0		28.1		2.94
Paycheck Protection Program		28.0		0.2		3.02			392.0		7.9		7.98			51.7		2.5		6.59			545.9		20.0		4.90
Commercial Mortgage		3,530.9		33.3		3.74			2,952.7		21.9		2.94			3,350.3		81.3		3.25			2,894.5		64.5		2.98
Construction		233.0		2.8		4.81			289.9		2.5		3.38			227.7		7.3		4.30			280.0		7.3		3.51
Commercial Lease Financing		89.1		0.4		1.58			109.3		0.4		1.58			94.0		1.0		1.49			107.1		1.2		1.52
Residential Mortgage		4,526.6		37.4		3.30			4,253.2		34.8		3.27			4,439.1		108.6		3.26			4,211.8		106.2		3.36
Home Equity		2,144.8		16.4		3.04			1,621.4		12.2		2.97			2,026.5		44.1		2.91			1,596.4		36.9		3.09
Automobile		795.5		6.4		3.19			718.7		6.2		3.41			764.2		18.4		3.21			712.5		18.4		3.46
Other ²		425.0		5.9		5.48			368.3		5.7		6.16			416.5		17.0		5.44			373.2		18.1		6.48
Total Loans and Leases		13,126.7		115.3		3.49			11,958.3		100.7		3.35			12,709.0		311.6		3.27			12,002.4		300.7		3.35
Other		36.9		0.3		3.49			31.5		0.2		2.02			37.2		0.9		3.14			32.4		0.5		2.17
Total Earning Assets ³		21,748.3		155.3		2.84			21,841.5		134.8		2.45			21,633.3		425.9		2.63			20,938.4		395.1		2.52
Cash and Due From Banks		233.5							252.2							235.0							259.6
Other Assets		1,154.0							899.3							1,090.9							881.2
Total Assets	$	23,135.8						$	22,993.0						$	22,959.2						$	22,079.2

Interest-Bearing Liabilities
Interest-Bearing Deposits
Demand	$	4,286.0	$	1.4		0.13	%	$	4,707.1	$	0.7		0.06	%	$	4,459.9	$	2.6		0.08	%	$	4,450.6	$	2.0		0.06	%
Savings		7,962.0		6.6		0.33			7,687.0		1.8		0.09			7,733.3		9.5		0.16			7,414.6		5.0		0.09
Time		1,146.9		2.3		0.79			1,267.0		1.4		0.44			1,023.6		4.1		0.53			1,437.1		5.3		0.49
Total Interest-Bearing Deposits		13,394.9		10.3		0.30			13,661.1		3.9		0.11			13,216.8		16.2		0.16			13,302.3		12.3		0.12
Short-Term Borrowings		4.9		0.1		3.17			—		—		—			23.9		0.2		1.05			0.8		—		0.09
Securities Sold Under Agreements to Repurchase		425.5		2.7		2.52			547.8		3.4		2.45			441.1		8.3		2.48			572.7		10.4		2.40
Other Debt		10.3		0.2		7.05			10.4		0.2		7.04			10.3		0.6		7.05			33.5		0.8		3.03
Total Interest-Bearing Liabilities		13,835.6		13.3		0.38			14,219.3		7.5		0.21			13,692.1		25.3		0.25			13,909.3		23.5		0.22
Net Interest Income			$	142.0						$	127.3						$	400.6						$	371.6
Interest Rate Spread						2.46	%						2.24	%						2.38	%						2.30	%
Net Interest Margin						2.60	%						2.32	%						2.47	%						2.37	%
Noninterest-Bearing Demand Deposits		7,468.8							6,812.7							7,404.5							6,316.8
Other Liabilities		463.5							362.9							420.9							389.5
Shareholders’ Equity		1,367.9							1,598.1							1,441.7							1,463.6
Total Liabilities and Shareholders’ Equity	$	23,135.8						$	22,993.0						$	22,959.2						$	22,079.2

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

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

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

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Analysis of Change in Net Interest Income - Taxable-Equivalent Basis							Table 2
	Nine Months Ended September 30, 2022
	Compared to September 30, 2021
(dollars in millions)	Volume ¹			Rate ¹			Total
Change in Interest Income:
Funds Sold	$	(0.8	)	$	3.2		$	2.4
Investment Securities
Available-for-Sale
Taxable		(3.0	)		6.6			3.6
Non-Taxable		(0.3	)		(0.1	)		(0.4	)
Held-to-Maturity
Taxable		9.9			4.6			14.5
Non-Taxable		(0.2	)		(0.1	)		(0.3	)
Total Investment Securities		6.4			11.0			17.4
Loans Held for Sale		(0.4	)		0.1			(0.3	)
Loans and Leases
Commercial and Industrial		1.3			2.0			3.3
Paycheck Protection Program		(22.6	)		5.1			(17.5	)
Commercial Mortgage		10.8			6.0			16.8
Construction		(1.5	)		1.5			—
Commercial Lease Financing		(0.1	)		(0.1	)		(0.2	)
Residential Mortgage		5.7			(3.3	)		2.4
Home Equity		9.4			(2.2	)		7.2
Automobile		1.3			(1.3	)		—
Other ²		2.0			(3.1	)		(1.1	)
Total Loans and Leases		6.3			4.6			10.9
Other		0.1			0.3			0.4
Total Change in Interest Income		11.6			19.2			30.8

Change in Interest Expense:
Interest-Bearing Deposits
Demand		—			0.6			0.6
Savings		0.2			4.3			4.5
Time		(1.6	)		0.4			(1.2	)
Total Interest-Bearing Deposits		(1.4	)		5.3			3.9
Short-Term Borrowings		0.2			—			0.2
Securities Sold Under Agreements to Repurchase		(2.5	)		0.4			(2.1	)
Other Debt		(0.8	)		0.6			(0.2	)
Total Change in Interest Expense		(4.5	)		6.3			1.8

Change in Net Interest Income	$	16.1		$	12.9		$	29.0

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

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

Net Interest Income

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

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

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Yields on our investment securities portfolio increased by 31 basis points in the third quarter of 2022 and by 17 basis points in the first nine months of 2022 compared to the same periods in 2021. Yields on our commercial and industrial loans increased by 78 basis points in the third quarter of 2022 compared to the same period in 2021 and by 20 basis points in the first nine months of 2022 compared to the same period in 2021 due to the higher interest rate environment. Contractual yields on Paycheck Protection Program loans are fixed at 1%, however, effective yield varies based on processing fee income being accelerated due to loans being forgiven by the Small Business Administration (“SBA”) ahead of maturity. Yields on our commercial mortgage loans increased by 80 basis points in the third quarter of 2022 and by 27 basis points in the first nine months of 2022 compared to the same periods in 2021 primarily due to the higher interest rate environment and an interest recovery in the second quarter of 2022. Yields on our construction loans increased by 143 basis points in the third quarter of 2022 and by 79 basis points in the first nine months of 2022 compared to the same periods in 2021 due to the higher interest rate environment and the payoff of lower yielding loans compared to new loans being booked. Yields on our residential mortgage loans increased by 3 basis point in the third quarter of 2022 compared to the same period in 2021. Yields on our residential mortgage loans decreased by 10 basis points in the first nine months of 2022 compared to the same period in 2021 primarily due to pay downs of higher rate loans. Yields on our home equity loans increased by 7 basis points in the third quarter of 2022 compared to the same period in 2021 due to the higher interest rate environment. Yields on our home equity loans decreased by 18 basis points in the first nine months of 2022 compared to the same period in 2021 primarily due to new loans booked at lower yields while higher yielding loans continue to pay off.

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

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

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

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

Noninterest Income

Table 3 presents the components of noninterest income.

Noninterest Income																Table 3
	Three Months Ended September 30,									Nine Months Ended September 30,
(dollars in thousands)	2022			2021			Change			2022			2021			Change
Trust and Asset Management	$	10,418		$	11,415		$	(997	)	$	33,151		$	34,375		$	(1,224	)
Mortgage Banking		1,002			3,136			(2,134	)		4,989			12,056			(7,067	)
Service Charges on Deposit Accounts		7,526			6,510			1,016			22,107			18,703			3,404
Fees, Exchange, and Other Service Charges		13,863			13,604			259			41,008			41,018			(10	)
Investment Securities Gains (Losses), Net		(2,147	)		(1,259	)		(888	)		(4,987	)		(39	)		(4,948	)
Annuity and Insurance		1,034			735			299			2,695			2,348			347
Bank-Owned Life Insurance		2,486			1,897			589			7,493			5,877			1,616
Other Income		(3,522	)		5,340			(8,862	)		9,913			14,441			(4,528	)
Total Noninterest Income	$	30,660		$	41,378		$	(10,718	)	$	116,369		$	128,779		$	(12,410	)

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

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

Service charges on deposit accounts increased by $1.0 million or 16% in the third quarter of 2022 and by $3.4 million or 18% for the first nine months of 2022 compared to the same periods in 2021. These increases were primarily due to an increase in overdraft fees compared to the same periods in 2021.

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

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

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

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

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

Noninterest Expense

Table 4 presents the components of noninterest expense.

Noninterest Expense												Table 4
	Three Months Ended September 30,							Nine Months Ended September 30,
(dollars in thousands)	2022		2021		Change			2022		2021		Change
Salaries	$	37,792	$	34,676	$	3,116		$	109,445	$	99,658	$	9,787
Incentive Compensation		5,885		4,677		1,208			18,069		15,763		2,306
Share-Based Compensation		3,558		3,335		223			11,319		9,093		2,226
Commission Expense		1,005		1,772		(767	)		3,878		6,807		(2,929	)
Retirement and Other Benefits		4,448		4,746		(298	)		13,177		15,552		(2,375	)
Payroll Taxes		2,826		2,825		1			10,804		9,819		985
Medical, Dental, and Life Insurance		2,605		3,222		(617	)		8,430		8,850		(420	)
Separation Expense		1,819		1,194		625			2,509		3,317		(808	)
Total Salaries and Benefits		59,938		56,447		3,491			177,631		168,859		8,772
Net Occupancy		10,186		3,079		7,107			29,942		17,216		12,726
Net Equipment		9,736		8,924		812			28,432		26,598		1,834
Data Processing		4,616		4,722		(106	)		13,783		15,601		(1,818	)
Professional Fees		3,799		2,948		851			10,599		9,468		1,131
FDIC Insurance		1,680		1,594		86			4,772		4,917		(145	)
Other Expense:
Advertising		2,376		2,736		(360	)		7,429		7,066		363
Delivery and Postage Services		1,596		1,363		233			4,890		4,704		186
Broker's Charges		837		980		(143	)		3,551		2,467		1,084
Merchant Transaction and Card Processing Fees		1,538		1,424		114			4,475		3,781		694
Mileage Program Travel		1,185		1,340		(155	)		3,537		3,708		(171	)
Other		8,262		10,962		(2,700	)		23,521		27,526		(4,005	)
Total Other Expense		15,794		18,805		(3,011	)		47,403		49,252		(1,849	)
Total Noninterest Expense	$	105,749	$	96,519	$	9,230		$	312,562	$	291,911	$	20,651

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

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

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

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

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

Total other expense decreased by $3.0 million or 16% in the third quarter of 2022 and by $1.8 million or 4% for the first nine months of 2022 compared to the same periods in 2021. These decreases were primarily due to early termination costs incurred, $3.8 million in the third quarter of 2021 and $7.0 million in the first nine months of 2021 related to the prepayment of repurchase agreements.

Provision for Income Taxes

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

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

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

The provision for income taxes was $47.1 million for the first nine months of 2022, an increase of $13.7 million compared to the same period in 2021. The effective tax rate for the first nine months of 2022 was 22.27%, down from 23.43% for the same period in 2021. The lower effective tax rate for the first nine months of 2022 compared to 2021 was primarily due to the aforementioned lower pretax book income and tax benefit from early buyouts of our equity interest in leverage leases.

Analysis of Statements of Condition

Investment Securities

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

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

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

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

Loans and Leases

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

Loan and Lease Portfolio Balances					Table 6
(dollars in thousands)	September 30, 2022		December 31, 2021		Change
Commercial
Commercial and Industrial	$	1,368,966	$	1,361,921	$	7,045
Paycheck Protection Program		22,955		126,779		(103,824	)
Commercial Mortgage		3,591,943		3,152,130		439,813
Construction		236,498		220,254		16,244
Lease Financing		73,989		105,108		(31,119	)
Total Commercial		5,294,351		4,966,192		328,159
Consumer
Residential Mortgage		4,585,723		4,309,602		276,121
Home Equity		2,185,484		1,836,588		348,896
Automobile		820,640		736,565		84,075
Other ¹		435,408		410,129		25,279
Total Consumer		8,027,255		7,292,884		734,371
Total Loans and Leases	$	13,321,606	$	12,259,076	$	1,062,530

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

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

Commercial loans and leases as of September 30, 2022, increased by $328.2 million or 7% from December 31, 2021. Commercial and industrial loans remained relatively unchanged from December 31, 2021. PPP loans decreased by $103.8 million, or 82% from December 31, 2021, primarily due to forgiveness payments received from the SBA. Commercial mortgage loans increased by $439.8 million or 14% from December 31, 2021, primarily due to demand from new and existing customers. Construction loans increased by $16.2 million or 7% from December 31, 2021, primarily due to an increase in construction activity in our market. Lease financing decreased by $31.1 million, or 30% from December 31, 2021, primarily due to an $11 million early buyout and paydowns.

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

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

Geographic Distribution of Loan and Lease Portfolio									Table 7
(dollars in thousands)	Hawaii		U.S. Mainland ¹		Guam		Other Pacific Islands		Total
September 30, 2022
Commercial
Commercial and Industrial	$	1,174,306	$	111,772	$	76,629	$	6,259	$	1,368,966
Paycheck Protection Program		18,892		2,984		526		553		22,955
Commercial Mortgage		3,099,822		284,658		207,463		—		3,591,943
Construction		236,498		—		—		—		236,498
Lease Financing		67,281		3,415		3,293		—		73,989
Total Commercial		4,596,799		402,829		287,911		6,812		5,294,351
Consumer
Residential Mortgage		4,509,005		—		76,137		581		4,585,723
Home Equity		2,137,274		48		48,162		—		2,185,484
Automobile		618,651		—		157,845		44,144		820,640
Other²		369,253		—		53,826		12,329		435,408
Total Consumer		7,634,183		48		335,970		57,054		8,027,255
Total Loans and Leases	$	12,230,982	$	402,877	$	623,881	$	63,866	$	13,321,606
December 31, 2021
Commercial
Commercial and Industrial	$	1,146,593	$	141,643	$	68,934	$	4,751	$	1,361,921
Paycheck Protection Program		111,457		10,842		1,586		2,894		126,779
Commercial Mortgage		2,758,641		158,192		235,297		—		3,152,130
Construction		220,254		—		—		—		220,254
Lease Financing		68,757		32,695		3,656		—		105,108
Total Commercial		4,305,702		343,372		309,473		7,645		4,966,192
Consumer
Residential Mortgage		4,232,834		—		76,022		746		4,309,602
Home Equity		1,794,330		58		42,200		—		1,836,588
Automobile		547,660		—		151,722		37,183		736,565
Other ²		346,625		—		48,490		15,014		410,129
Total Consumer		6,921,449		58		318,434		52,943		7,292,884
Total Loans and Leases	$	11,227,151	$	343,430	$	627,907	$	60,588	$	12,259,076

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

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

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

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Other Assets

Table 8 presents the major components of other assets.

Other Assets					Table 8
(dollars in thousands)	September 30, 2022		December 31, 2021		Change
Federal Home Loan Bank of Des Moines and Federal Reserve Bank Stock	$	36,959	$	36,624	$	335
Derivative Financial Instruments		38,256		42,011		(3,755	)
Low-Income Housing and Other Equity Investments		164,881		136,647		28,234
Deferred Compensation Plan Assets		44,182		56,411		(12,229	)
Prepaid Expenses		21,318		17,670		3,648
Accounts Receivable		22,895		13,323		9,572
Deferred Tax Assets		187,119		42,276		144,843
Other		41,350		39,765		1,585
Total Other Assets	$	556,960	$	384,727	$	172,233

Total other assets increased by $172.2 million or 45% from December 31, 2021. This increase was due to a $144.8 million increase in deferred tax assets, primarily due to temporary differences between financial reporting and income tax basis of unrealized losses on investment securities.

Deposits

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

Deposits					Table 9
(dollars in thousands)	September 30, 2022		December 31, 2021		Change
Consumer	$	10,507,946	$	10,438,844	$	69,102
Commercial		8,841,781		8,641,932		199,849
Public and Other		1,539,046		1,279,332		259,714
Total Deposits	$	20,888,773	$	20,360,108	$	528,665

Total deposits were $20.9 billion as of September 30, 2022, an increase of $528.7 million or 3% from December 31, 2021. Consumer deposits increased by $69.1 million or 1% primarily due to a $92.8 million increase in time deposits, partially offset by $23.7 million decrease in core deposits. Commercial deposits increased by $199.8 million or 2% due to an increase in core deposits of $189.2 million and $10.6 million in time deposits. In addition, public and other deposits increased by $259.7 million or 20% due to an increase in public time deposits of $131.5 million and $128.2 million in core deposits.

Table 10 presents the composition of our savings deposits.

Savings Deposits					Table 10
(dollars in thousands)	September 30, 2022		December 31, 2021		Change
Money Market	$	2,891,391	$	2,529,985	$	361,406
Regular Savings		5,062,615		4,926,180		136,435
Total Savings Deposits	$	7,954,006	$	7,456,165	$	497,841

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

Maturity Distribution of Estimated Uninsured Time Deposits					Table 11
(dollars in thousands)	September 30, 2022		December 31, 2021		Change
Remaining maturity:
Three months or less	$	167,133	$	220,045	$	(52,912	)
After three through six months		346,305		93,514		252,791
After six through twelve months		192,985		137,514		55,471
After twelve months		84,379		74,133		10,246
Total	$	790,802	$	525,206	$	265,596

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

Securities Sold Under Agreements to Repurchase

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

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

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

Other Debt

Table 13 presents the composition of our other debt.

Other Debt					Table 13
(dollars in thousands)	September 30, 2022		December 31, 2021		Change
Finance Lease Obligations		10,319		10,391		(72	)
Total	$	10,319	$	10,391	$	(72	)

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Analysis of Business Segments

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

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

Business Segment Net Income								Table 14
	Three Months Ended September 30,					Nine Months Ended September 30,
(dollars in thousands)	2022			2021		2022		2021
Consumer Banking	$	24,110		$	23,495	$	57,127	$	62,981
Commercial Banking		28,993			31,739		88,763		91,426
Total		53,103			55,234		145,890		154,407
Treasury and Other		(302	)		6,819		18,607		35,128
Consolidated Total	$	52,801		$	62,053	$	164,497	$	189,535

Consumer Banking

Net income increased by $0.6 million or 3% in the third quarter of 2022 compared to the same period in 2021 primarily due to an increase in net interest income, partly offset by an increase in noninterest expense. The increase in net interest income was primarily due to higher deposit margins and higher deposit and loan balances, partly offset by lower loan margins. The increase in noninterest expense was primarily due to higher allocated expenses related to support units, higher salaries and benefits expense, and higher occupancy expense.

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

Commercial Banking

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

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

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

Treasury and Other

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

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

Corporate Risk Profile

Credit Risk

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

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

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

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

Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More							Table 15
(dollars in thousands)	September 30, 2022			December 31, 2021			Change
Non-Performing Assets
Non-Accrual Loans and Leases
Commercial
Commercial and Industrial	$	49		$	243		$	(194	)
Commercial Mortgage		3,396			8,205			(4,809	)
Total Commercial		3,445			8,448			(5,003	)
Consumer
Residential Mortgage		4,945			3,305			1,640
Home Equity		4,438			4,881			(443	)
Total Consumer		9,383			8,186			1,197
Total Non-Accrual Loans and Leases		12,828			16,634			(3,806	)
Foreclosed Real Estate		1,040			2,332			(1,292	)
Total Non-Performing Assets	$	13,868		$	18,966		$	(5,098	)
Accruing Loans and Leases Past Due 90 Days or More
Consumer
Residential Mortgage	$	3,279		$	3,159		$	120
Home Equity		1,061			3,456			(2,395	)
Automobile		467			729			(262	)
Other ¹		513			426			87
Total Consumer		5,320			7,770			(2,450	)
Total Accruing Loans and Leases Past Due 90 Days or More	$	5,320		$	7,770		$	(2,450	)
Restructured Loans on Accrual Status and Not Past Due 90 Days or More	$	44,641		$	60,519		$	(15,878	)
Total Loans and Leases	$	13,321,606		$	12,259,076		$	1,062,530
Ratio of Non-Accrual Loans and Leases to Total Loans and Leases		0.10	%		0.14	%		(0.04	)%
Ratio of Non-Performing Assets to Total Loans and Leases and Foreclosed Real Estate		0.10	%		0.15	%		(0.05	)%
Ratio of Non-Performing Assets to Total Assets		0.06	%		0.07	%		(0.01	)%
Ratio of Commercial Non-Performing Assets to Total Commercial Loans and Leases and Commercial Foreclosed Real Estate		0.07	%		0.17	%		(0.10	)%
Ratio of Consumer Non-Performing Assets to Total Consumer Loans and Leases and Consumer Foreclosed Real Estate		0.13	%		0.14	%		(0.01	)%
Ratio of Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More to Total Loans and Leases and Foreclosed Real Estate		0.14	%		0.22	%		(0.08	)%
Changes in Non-Performing Assets
Balance as of December 31, 2021	$	18,966
Additions		5,025
Reductions
Payments		(7,447	)
Return to Accrual Status		(1,383	)
Sales of Foreclosed Real Estate		(1,292	)
Charge-offs/Write-downs		(1	)
Total Reductions		(10,123	)
Balance as of September 30, 2022	$	13,868

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

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

Residential mortgage non-accrual loans were $4.9 million as of September 30, 2022, an increase of $1.6 million or 50% from December 31, 2021. As of September 30, 2022, our residential mortgage non-accrual loans were comprised of 17 loans with a weighted average current loan-to-value ratio of 58%.

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

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

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

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

Loans Modified in a Troubled Debt Restructuring					Table 16
(dollars in thousands)	September 30, 2022		December 31, 2021		Change
Commercial
Commercial and Industrial	$	6,921	$	18,722	$	(11,801	)
Commercial Mortgage		6,593		11,777		(5,184	)
Total Commercial		13,514		30,499		(16,985	)
Consumer
Residential Mortgage		15,417		16,102		(685	)
Home Equity		4,650		4,877		(227	)
Automobile		12,846		16,148		(3,302	)
Other¹		1,870		2,331		(461	)
Total Consumer		34,783		39,458		(4,675	)
Total	$	48,297	$	69,957	$	(21,660	)

¹	Comprised of other revolving credit and installment financing.

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Reserve for Credit Losses

Table 17 presents the activity in our reserve for credit losses.

Reserve for Credit Losses										Table 17
	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2022			2021			2022			2021
Balance at Beginning of Period	$	154,098		$	186,371		$	164,297		$	221,303
Loans and Leases Charged-Off
Commercial
Commercial and Industrial		(147	)		(196	)		(729	)		(900	)
Consumer
Residential Mortgage		—			(197	)		(80	)		(316	)
Home Equity		—			(289	)		(90	)		(412	)
Automobile		(794	)		(576	)		(3,481	)		(3,894	)
Other ¹		(1,924	)		(2,187	)		(5,739	)		(8,523	)
Total Loans and Leases Charged-Off		(2,865	)		(3,445	)		(10,119	)		(14,045	)
Recoveries on Loans and Leases Previously Charged-Off
Commercial
Commercial and Industrial		45			118			465			374
Consumer
Residential Mortgage		156			173			1,130			1,609
Home Equity		367			216			1,298			1,276
Automobile		441			943			1,864			3,034
Other ¹		709			802			2,098			2,459
Total Recoveries on Loans and Leases Previously Charged-Off		1,718			2,252			6,855			8,752
Net Charged-Off - Loans and Leases		(1,147	)		(1,193	)		(3,264	)		(5,293	)
Net Charged-Off - Accrued Interest Receivable		—			(70	)		(47	)		(502	)
Provision for Credit Losses:
Loans and Leases		(929	)		(11,272	)		(8,121	)		(43,039	)
Accrued Interest Receivable		—			(703	)		(367	)		(1,531	)
Unfunded Commitments		905			1,575			429			3,770
Total Provision for Credit Losses		(24	)		(10,400	)		(8,059	)		(40,800	)
Balance at End of Period	$	152,927		$	174,708		$	152,927		$	174,708
Components
Allowance for Credit Losses - Loans and Leases	$	146,436		$	167,920		$	146,436		$	167,920
Allowance for Credit Losses - Accrued Interest Receivable		—			667			—			667
Reserve for Unfunded Commitments		6,491			6,121			6,491			6,121
Total Reserve for Credit Losses	$	152,927		$	174,708		$	152,927		$	174,708
Average Loans and Leases Outstanding	$	13,126,717		$	11,958,321		$	12,709,045		$	12,002,426
Ratio of Net Loans and Leases Charged-Off to Average Loans and Leases Outstanding (annualized)		0.03	%		0.04	%		0.03	%		0.06	%
Ratio of Allowance for Credit Losses to Loans and Leases Outstanding ²		1.10	%		1.39	%		1.10	%		1.39	%

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

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

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Allowance for Credit Losses - Loans and Leases

As of September 30, 2022, the Allowance was $146.4 million or 1.10% of total loans and leases outstanding (1.12% excluding PPP loans), compared with an Allowance of $157.8 million or 1.29% of total loans and leases outstanding (1.30% excluding PPP loans) as of December 31, 2021. The decrease in the Allowance and the ratio of Allowance to loans and leases outstanding was primarily due to management’s best estimate of losses over the life of loans and leases in our portfolio in accordance with the CECL approach, including the improved near term economic outlook associated with the return of international visitors.

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

Reserve for Unfunded Commitments

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

Provision for Credit Losses

For the first nine months of 2022, the Provision for Credit Losses was a net benefit of $8.0 million compared to a net benefit of $40.8 million during the same period in 2021. The decrease in the net benefit was primarily due to a lower reduction in the Allowance for Credit Losses – Loans and Leases for the first nine months of 2022 compared to the same period in 2021.

Market Risk

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

Our primary market risk exposure is interest rate risk.

Interest Rate Risk

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

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

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

•

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

•

changing product pricing strategies;

•

modifying characteristics of the investment securities portfolio; and

•

using derivative financial instruments.

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

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

We utilize net interest income simulations to analyze income sensitivities to changes in interest rates. Table 18 presents, as of September 30, 2022, and December 31, 2021, an estimate of the change in net interest income that would result from a gradual and immediate change in interest rates, moving in a parallel shock over the entire yield curve, relative to the measured base case scenario. The base case scenario assumes the statement of condition and interest rates are generally unchanged. Based on our net interest income simulation as of September 30, 2022, net interest income is expected to increase as interest rates rise. Rising interest rates would drive higher rates on loans and investment securities, as well as induce a slower pace of premium amortization on certain securities within our investment portfolio. However, lower interest rates would likely cause a decline in net interest income as lower rates would lead to lower yields on loans and investment securities, as well as drive higher premium amortization on existing investment securities. Based on our net interest income simulation as of September 30, 2022, net interest income sensitivity to changes in interest rates as of September 30, 2022, was less sensitive in comparison to the sensitivity profile as of December 31, 2021.

Net Interest Income Sensitivity Profile									Table 18
	Impact on Future Annual Net Interest Income
(dollars in thousands)	September 30, 2022					December 31, 2021
Gradual Change in Interest Rates (basis points)
+200	$	19,622		3.3	%	$	29,697			6.1	%
+100		9,653		1.6			15,306			3.1
-100		(7,366	)	(1.3	)		(8,922	)		(1.8	)
Immediate Change in Interest Rates (basis points)
+200	$	41,824		7.1	%	$	68,037			14.0	%
+100		21,030		3.6			38,361			7.9
-100		(16,714	)	(2.9	)		(30,511	)		(6.3	)

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

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Other Market Risks

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

Liquidity Risk Management

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

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

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

We continued our focus on maintaining a strong liquidity position throughout the first nine months of 2022. As of September 30, 2022, cash and cash equivalents were $655.6 million, the fair value of our available-for-sale investment securities was $2.4 billion, and total deposits were $20.9 billion as of September 30, 2022.

Capital Management

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

The Company and the Bank are each subject to regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements could cause certain mandatory and discretionary actions by regulators that, if undertaken, would likely have a material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative and qualitative measures. These measures were established by regulation intended to ensure capital adequacy. Capital ratios are calculated using the regulatory capital rule that allows a five-year transition period related to the adoption of CECL. As of September 30, 2022, the Company’s capital levels remained characterized as “well-capitalized”. There have been no conditions or events since September 30, 2022, that management believes have changed either the Company’s or the Bank’s capital classifications. The Company’s regulatory capital ratios are presented in Table 19 below.

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Table 19 presents our regulatory capital and ratios as of September 30, 2022, and December 31, 2021.

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

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

²Regulatory capital ratios as of September 30, 2022 are preliminary.

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

Remaining buyback authority under our share repurchase program was $50.9 million as of September 30, 2022. The actual amount and timing of future share repurchases, if any, will depend on market and economic conditions, regulatory rules, applicable SEC rules, and various other factors.

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

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

Regulatory Initiatives Affecting the Banking Industry

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

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

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

Operational Risk

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

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

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

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

Off-Balance Sheet Arrangements

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

Credit Commitments and Contractual Obligations

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

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

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

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Part II - Other Information

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

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

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

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

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

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

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

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Item 6. Exhibits

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

Exhibit Index

Exhibit Number

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

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

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

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

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

4.2		Form Depository Receipt (included in Exhibit 4.1)

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

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

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

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

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

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

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Signatures

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

Date:	October 26, 2022		Bank of Hawaii Corporation

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

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