Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2026
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-14585
FIRST HAWAIIAN, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
99-0156159
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
999 Bishop Street, 29th Floor
Honolulu, HI
96813
(Address of Principal Executive Offices)
(Zip Code)
(808) 525-7000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Trading Symbol(s)
Name of each exchange on which registered:
Common Stock, par value $0.01 per share
FHB
NASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☒
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 121,648,973 shares of Common Stock, par value $0.01 per share, were outstanding as of April 21, 2026.
TABLE OF CONTENTS
INDEX
Part I Financial Information
Page No.
Item 1.
Financial Statements (unaudited)
2
Consolidated Statements of Income for the three months ended March 31, 2026 and 2025
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2026 and 2025
3
Consolidated Balance Sheets as of March 31, 2026 and December 31, 2025
4
Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2026 and 2025
5
Consolidated Statements of Cash Flows for the three months ended March 31, 2026 and 2025
6
Notes to Consolidated Financial Statements (unaudited)
7
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
47
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
80
Item 4.
Controls and Procedures
Part II Other Information
Legal Proceedings
Item 1A.
Risk Factors
Item 5.
Other Information
81
Item 6.
Exhibits
82
Exhibit Index
Signatures
83
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST HAWAIIAN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
(dollars in thousands, except per share amounts)
2026
2025
Interest income
Loans and lease financing
$
186,389
192,102
Available-for-sale investment securities
14,884
13,150
Held-to-maturity investment securities
15,063
16,647
Other
13,362
13,251
Total interest income
229,698
235,150
Interest expense
Deposits
62,064
71,709
Short-term borrowings
—
2,599
104
316
Total interest expense
62,168
74,624
Net interest income
167,530
160,526
Provision for credit losses
5,000
10,500
Net interest income after provision for credit losses
162,530
150,026
Noninterest income
Service charges on deposit accounts
8,156
7,535
Credit and debit card fees
15,083
14,474
Other service charges and fees
13,784
12,167
Trust and investment services income
9,146
9,370
Bank-owned life insurance
4,091
4,371
Investment securities gains, net
37
2,559
2,523
Total noninterest income
52,819
50,477
Noninterest expense
Salaries and employee benefits
64,090
60,104
Contracted services and professional fees
13,964
14,839
Occupancy
7,816
8,100
Equipment
14,781
13,871
Regulatory assessment and fees
3,248
3,823
Advertising and marketing
2,252
2,179
Card rewards program
8,404
7,919
13,330
12,725
Total noninterest expense
127,885
123,560
Income before provision for income taxes
87,464
76,943
Provision for income taxes
19,680
17,695
Net income
67,784
59,248
Basic earnings per share
0.55
0.47
Diluted earnings per share
Basic weighted-average outstanding shares
122,457,604
126,281,802
Diluted weighted-average outstanding shares
123,345,708
127,166,932
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
Other comprehensive (loss) income, net of tax:
Net change in investment securities
(4,686)
30,052
Net change in cash flow derivative hedges
79
173
Other comprehensive (loss) income
(4,607)
30,225
Total comprehensive income
63,177
89,473
CONSOLIDATED BALANCE SHEETS
December 31,
(dollars in thousands, except share amount)
Assets
Cash and due from banks
225,727
228,734
Interest-bearing deposits in other banks
1,493,421
1,249,018
Investment securities:
Available-for-sale, at fair value (amortized cost: $2,270,792 as of March 31, 2026 and $2,246,716 as of December 31, 2025)
2,080,004
2,076,233
Held-to-maturity, at amortized cost (fair value: $3,074,133 as of March 31, 2026 and $3,188,775 as of December 31, 2025)
3,480,022
3,533,082
Loans held for sale
1,370
Loans and leases
14,440,835
14,312,529
Less: allowance for credit losses
169,318
168,468
Net loans and leases
14,271,517
14,144,061
Premises and equipment, net
302,807
303,496
Accrued interest receivable
77,286
77,641
514,069
513,182
Goodwill
995,492
Mortgage servicing rights
4,470
4,638
Other assets
819,733
828,305
Total assets
24,264,548
23,955,252
Liabilities and Stockholders' Equity
Deposits:
Interest-bearing
14,257,290
13,968,376
Noninterest-bearing
6,520,063
6,547,292
Total deposits
20,777,353
20,515,668
Retirement benefits payable
98,220
99,052
Other liabilities
621,215
571,167
Total liabilities
21,496,788
21,185,887
Commitments and contingent liabilities (Note 11)
Stockholders' equity
Common stock ($0.01 par value; authorized 300,000,000 shares; issued/outstanding: 142,627,813 / 121,648,973 as of March 31, 2026; issued/outstanding: 142,184,584 / 122,689,256 as of December 31, 2025)
1,426
1,422
Additional paid-in capital
2,580,501
2,576,540
Retained earnings
1,114,759
1,078,885
Accumulated other comprehensive loss, net
(372,747)
(368,140)
Treasury stock (20,978,840 shares as of March 31, 2026 and 19,495,328 shares as of December 31, 2025)
(556,179)
(519,342)
Total stockholders' equity
2,767,760
2,769,365
Total liabilities and stockholders' equity
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three Months Ended March 31, 2026
Accumulated
Additional
Common Stock
Paid-In
Retained
Comprehensive
Treasury
(dollars in thousands, except share amounts)
Shares
Amount
Capital
Earnings
Loss
Stock
Total
Balance as of December 31, 2025
122,689,256
Cash dividends declared ($0.26 per share)
(31,900)
Equity-based awards
267,455
3,961
(10)
(4,588)
(633)
Common stock repurchased
(1,307,738)
(32,000)
Stock repurchase excise tax
(249)
Other comprehensive loss, net of tax
Balance as of March 31, 2026
121,648,973
Three Months Ended March 31, 2025
Income (Loss)
Balance as of December 31, 2024
126,422,898
1,417
2,560,380
934,048
(463,994)
(414,365)
2,617,486
(32,868)
244,045
4,028
(91)
(3,997)
(56)
(974,345)
(25,000)
(183)
Other comprehensive income, net of tax
Balance as of March 31, 2025
125,692,598
1,421
2,564,408
960,337
(433,769)
(443,545)
2,648,852
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion, net
8,369
8,405
Deferred income tax provision
11,216
6,359
Stock-based compensation
3,965
4,032
Other (gains) losses
(33)
23
Originations of loans held for sale
(6,426)
(4,048)
Proceeds from sales of loans held for sale
7,783
2,438
Net gains on investment securities
(37)
Premiums paid on cash flow hedges
(2,161)
Amortization of premiums on cash flow hedges
342
Change in assets and liabilities:
Net increase in other assets
(8,928)
(18,704)
Net increase (decrease) in other liabilities
72,804
(31,499)
Net cash provided by operating activities
159,715
36,717
Cash flows from investing activities
Available-for-sale securities:
Proceeds from maturities and principal repayments
74,473
62,537
Proceeds from calls and sales
11,300
36,835
Purchases
(109,510)
Held-to-maturity securities:
63,801
70,468
Proceeds from calls
1,280
3,375
Other investments:
Proceeds from sales
2,507
415
(23,373)
(7,117)
Loans:
Net (increase) decrease in loans and leases resulting from originations and principal repayments
(119,693)
120,825
Purchases of loans
(9,973)
(3,995)
Proceeds from bank-owned life insurance
3,245
694
Purchases of bank-owned life insurance
(40)
Purchases of premises, equipment and software
(4,296)
(8,100)
(54)
Net cash (used in) provided by investing activities
(110,333)
275,937
Cash flows from financing activities
Net increase (decrease) in deposits
261,685
(106,400)
Dividends paid
(33,083)
Stock tendered for payment of withholding taxes
Net cash provided by (used in) financing activities
192,014
(168,265)
Net increase in cash and cash equivalents
241,396
144,389
Cash and cash equivalents at beginning of period
1,477,752
1,170,190
Cash and cash equivalents at end of period
1,719,148
1,314,579
Supplemental disclosures
Interest paid
66,168
82,175
Noncash investing and financing activities:
Operating lease right-of-use assets obtained in exchange for new lease obligations
1,132
Obligation to fund low-income housing partnerships
41,121
Stock repurchase excise tax settled in subsequent period
249
183
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
First Hawaiian, Inc. (“FHI” or the “Parent”), a bank holding company, owns 100% of the outstanding common stock of First Hawaiian Bank (“FHB” or the “Bank”), its only direct, wholly owned subsidiary. FHB offers a comprehensive suite of banking services to consumer and commercial customers, including loans, deposit products, wealth management, insurance, trust, retirement planning, credit card and merchant processing services.
The accompanying unaudited interim consolidated financial statements of First Hawaiian, Inc. and Subsidiary (the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.
The accompanying unaudited interim consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.
In the opinion of management, all adjustments, which consist of normal recurring adjustments necessary for a fair presentation of the interim period consolidated financial information, have been made. Results of operations for interim periods are not necessarily indicative of results to be expected for the entire year. Intercompany account balances and transactions have been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s best knowledge of current events, actual results may differ from these estimates.
Recent Accounting Pronouncements
The following Accounting Standards Updates (“ASUs”) have been issued by the Financial Accounting Standards Board (“FASB”) and are applicable to the Company in future reporting periods.
In November 2024, the FASB issued ASU No. 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU requires public companies to disclose, in the notes to financial statements, specified information about certain costs and expenses at each interim and annual reporting period which include, for example, employee compensation, depreciation, and intangible asset amortization. In addition, certain expense amounts already required to be disclosed under current GAAP will need to be presented within the same disclosure as the other disaggregation requirements prescribed by this ASU. Public entities will also be required to disclose: (1) a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively and (2) the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. The FASB also issued ASU No. 2025-01 in January 2025 to clarify that the effective date of ASU No. 2024-03 for public entities is for annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Further, ASU No. 2024-03 is applied prospectively to financial statements issued for reporting periods beginning after the effective date, meaning that the disclosures required under ASU No. 2024-03 do not need to be included in the financial statements for reporting periods beginning before the effective date that are presented for comparative purposes. Early adoption is permitted. The Company is in the process of evaluating the impact that this new guidance may have on the Company’s consolidated financial statements.
In September 2025, the FASB issued ASU No. 2025-06, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. This ASU intends to improve the operability of internal-use software accounting guidance by removing all references to software development project stages so that the guidance is neutral to different software development methods. Under current accounting principles, entities are required to capitalize development costs incurred for internal-use software depending on the nature of the costs and the project stage during which they occur. With the removal of software development project stages, the amendments in this ASU require that an entity start capitalizing software costs when both of these conditions are met: (1) management has authorized and committed to funding the software project and (2) it is probable that the project will be completed and the software will be used to perform the function intended (referred to as the “probable-to-complete recognition threshold,” which also takes into consideration whether there is significant uncertainty associated with the development activities of the software (referred to as “significant development uncertainty”)). This ASU is effective for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period and application of the new guidance can be done prospectively, retrospectively, or through a modified prospective transition approach. The Company is in the process of evaluating the impact that this new guidance may have on the Company’s consolidated financial statements.
In November 2025, the FASB issued ASU No. 2025-08, Financial Instruments – Credit Losses (Topic 326): Purchased Loans, which amends the guidance in Accounting Standards Codification (“ASC”) Topic 326 on the accounting for certain purchased loans. Under this ASU, entities must account for acquired loans (excluding credit cards) that meet certain criteria at acquisition (“purchased seasoned loans”) by recognizing them at their purchase price plus an allowance for expected credit losses (known as the “gross-up approach”). Purchased seasoned loans are defined as either: (1) non-PCD loans (loans that were not purchased with credit deterioration) that are obtained in a business combination, or (2) non-PCD loans that (a) are obtained in an asset acquisition or upon consolidation of a variable interest entity that is not a business and (b) are acquired more than 90 days after their origination date by a transferee that was not involved in their origination. This ASU also introduces an accounting policy election related to the subsequent measurement of expected credit losses for entities that use a method other than a discounted cash flow analysis to estimate credit losses on purchased seasoned loans. If this accounting policy is elected, entities can use the amortized cost basis of the asset to subsequently measure their allowance for credit losses. This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company is in the process of evaluating the impact that this new guidance may have on the Company’s consolidated financial statements.
In November 2025, the FASB issued ASU No. 2025-09, Derivatives and Hedging (Topic 815): Hedge Accounting Improvements. This ASU amends certain aspects of the existing hedge accounting guidance in ASC Topic 815 by enabling entities to apply hedge accounting to a greater number of highly effective economic hedges in the following five areas: (1) similar risk assessment for cash flow hedges, (2) hedging forecasted interest payments on choose-your-rate debt instruments, (3) cash flow hedges of nonfinancial forecasted transactions, (4) net written options as hedging instruments, and (5) foreign-currency-denominated debt instrument as hedging instrument and hedged item (dual hedge). This ASU is effective for annual reporting periods beginning after December 15, 2026, and interim periods within those annual reporting periods. Early adoption is permitted. The Company is in the process of evaluating the impact that this new guidance may have on the Company’s consolidated financial statements.
2. Investment Securities
As of March 31, 2026 and December 31, 2025, investment securities consisted predominantly of the following investment categories:
Debt securities – includes debt securities issued by U.S. government agencies.
Mortgage-backed securities – includes securities backed by notes or receivables secured by mortgage assets with cash flows based on actual or scheduled payments.
Collateralized mortgage obligations – includes securities backed by a pool of mortgages with cash flows distributed based on certain rules rather than pass through payments.
8
Collateralized loan obligations – includes structured debt securities backed by a pool of loans, consisting of primarily non-investment grade broadly syndicated corporate loans with additional credit enhancement. These are floating rate securities that have an investment grade rating of AA or better.
Debt securities issued by states and political subdivisions – includes general obligation bonds issued by state and local governments.
As of March 31, 2026 and December 31, 2025, the Company’s investment securities were classified as either available-for-sale or held-to-maturity. Amortized cost, gross unrealized holding gains and losses and fair value of available-for-sale and held-to-maturity investment securities as of March 31, 2026 and December 31, 2025 were as follows:
March 31, 2026
December 31, 2025
Amortized
Unrealized
Fair
Cost
Gains
Losses
Value
Mortgage-backed securities:
Residential - Government agency
26,878
365
(1,207)
26,036
30,948
498
(1,079)
30,367
Residential - Government-sponsored enterprises
899,849
671
(66,876)
833,644
933,206
3,115
(58,106)
878,215
Commercial - Government agency
233,600
(47,614)
185,986
237,192
(46,015)
191,177
Commercial - Government-sponsored enterprises
41,690
(1,019)
40,671
42,798
(1,199)
41,599
Commercial - Non-agency
232,722
379
(121)
232,980
128,464
589
(39)
129,014
Collateralized mortgage obligations:
Government agency
446,893
331
(40,366)
406,858
461,160
1,756
(36,640)
426,276
Government-sponsored enterprises
327,806
296
(35,662)
292,440
336,451
847
(34,302)
302,996
Collateralized loan obligations
61,354
35
61,389
76,497
92
76,589
Total available-for-sale securities
2,270,792
2,077
(192,865)
2,246,716
6,897
(177,380)
Government agency debt securities
46,001
(3,757)
42,244
46,182
(3,235)
42,947
36,471
(4,864)
31,607
37,081
(4,462)
32,619
85,343
(12,152)
73,191
86,681
(10,661)
76,020
30,173
(7,770)
22,403
30,796
(7,537)
23,259
1,082,275
(117,027)
965,248
1,088,838
227
(95,314)
993,751
807,986
(100,230)
707,756
823,423
(84,609)
738,814
1,336,672
(155,059)
1,181,613
1,365,087
(135,145)
1,229,942
Debt securities issued by states and political subdivisions
55,101
(5,030)
50,071
54,994
(3,571)
51,423
Total held-to-maturity securities
(405,889)
3,074,133
(344,534)
3,188,775
Accrued interest receivable related to available-for-sale investment securities was $5.1 million and $5.5 million as of March 31, 2026 and December 31, 2025, respectively. Accrued interest receivable related to held-to-maturity investment securities was $6.4 million and $6.1 million as March 31, 2026 and December 31, 2025, respectively. Accrued interest receivable is recorded separately from the amortized cost basis of investment securities on the Company’s unaudited interim consolidated balance sheets.
Proceeds from calls of investment securities were $12.6 million and $40.2 million for the three months ended March 31, 2026 and 2025, respectively. There were no sales of investment securities for both the three months ended March 31, 2026 and 2025.
9
Interest income from taxable investment securities was $26.8 million and $26.7 million, respectively, for the three months ended March 31, 2026 and 2025. Interest income from non-taxable investment securities was $3.1 million for both the three months ended March 31, 2026 and 2025.
The amortized cost and fair value of debt securities issued by government agencies and states and political subdivisions, non-agency mortgage-backed securities and collateralized loan obligations as of March 31, 2026, by contractual maturity, are shown below. Mortgage-backed securities and collateralized mortgage obligations issued by government agencies and government-sponsored enterprises are disclosed separately in the table below as remaining expected maturities will differ from contractual maturities as borrowers have the right to prepay obligations.
Available-for-sale securities
Due in one year or less
Due after one year through five years
75,117
75,492
Due after five years through ten years
61,050
61,085
Due after ten years
157,909
157,792
294,076
294,369
Total mortgage-backed securities
1,202,017
1,086,337
Total collateralized mortgage obligations
774,699
699,298
Held-to-maturity securities
62,230
57,687
38,872
34,628
101,102
92,315
1,234,262
1,092,449
2,144,658
1,889,369
At March 31, 2026, pledged securities totaled $4.5 billion, of which $2.3 billion was pledged to secure borrowing capacity, $2.1 billion was pledged to secure public deposits and $38.5 million was pledged to secure other financial transactions. At December 31, 2025, pledged securities totaled $4.2 billion, of which $2.4 billion was pledged to secure borrowing capacity, $1.8 billion was pledged to secure public deposits and $52.6 million was pledged to secure other financial transactions.
10
The Company held no securities of any single issuer, other than debt securities issued by government agencies and government-sponsored enterprises, which were in excess of 10% of stockholders’ equity as of March 31, 2026 and December 31, 2025.
The following tables present the unrealized gross losses and fair values of securities in the available-for-sale portfolio by length of time that the 154 and 137 individual securities in each category have been in a continuous loss position as of March 31, 2026 and December 31, 2025, respectively. The unrealized losses on available-for-sale investment securities were attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities.
Time in Continuous Loss as of March 31, 2026
Less Than 12 Months
12 Months or More
Fair Value
7,968
(3,867)
199,973
(63,009)
516,484
716,457
43,588
(491)
84,154
(39,875)
274,801
358,955
(693)
38,649
(34,969)
224,188
262,837
Total available-for-sale securities with unrealized losses
(5,172)
366,364
(187,693)
1,250,098
1,616,462
Time in Continuous Loss as of December 31, 2025
8,304
(509)
70,705
(57,597)
545,262
615,967
14,475
287,275
18,296
(34,119)
232,210
250,506
(731)
103,476
(176,649)
1,305,827
1,409,303
At March 31, 2026 and December 31, 2025, the Company did not have any available-for-sale securities with the intent to sell and determined it was more likely than not that the Company would not be required to sell the securities prior to recovery of the amortized cost basis. As the Company had the intent and ability to hold the remaining available-for-sale securities in an unrealized loss position as of March 31, 2026 and December 31, 2025, each security with an unrealized loss position in the above tables has been further assessed to determine if a credit loss exists. As of March 31, 2026 and December 31, 2025, the Company did not expect any credit losses in its available-for-sale debt securities and no credit losses were recognized on available-for-sale securities during the three months ended March 31, 2026 and for the year ended December 31, 2025.
11
As of March 31, 2026 and December 31, 2025, the Company’s investment securities were comprised primarily of debt securities, mortgage-backed securities and collateralized mortgage obligations issued by U.S. government agencies and government-sponsored enterprises, with under 7% of the investment securities comprised of collateralized loan obligations rated AA or better, obligations issued by local state and political subdivisions rated AA or better and non-agency commercial mortgage-backed securities rated AAA. For investment securities issued by the U.S. government, its agencies and government-sponsored enterprises, management has concluded that the long history with no credit losses from these issuers indicates an expectation that nonpayment of the amortized cost basis is zero, and these securities are explicitly or implicitly fully guaranteed by the U.S. government. The U.S. government can print its own currency and its currency is routinely held by central banks and other major financial institutions. The dollar is used in international commerce, and commonly is viewed as a reserve currency, all of which qualitatively indicates that historical credit loss information should be minimally affected by current conditions and reasonable and supportable forecasts. For collateralized loan obligations, debt securities issued by local state and political subdivisions and non-agency commercial mortgage-backed securities, these securities are investment grade and highly rated and carry either sufficient credit enhancement or days cash on hand to support timely payments of principal and interest. As a result, the Company does not expect any future payment defaults and has not recorded an allowance for credit losses for its available-for-sale and held-to-maturity debt securities as of March 31, 2026 or December 31, 2025.
3. Loans and Leases
As of March 31, 2026 and December 31, 2025, loans and leases were comprised of the following:
Commercial and industrial
2,241,882
2,171,333
Commercial real estate
4,715,741
4,590,326
Construction
769,302
808,275
Residential:
Residential mortgage
4,063,933
4,096,300
Home equity line
1,176,228
1,178,527
Total residential
5,240,161
5,274,827
Consumer
1,030,002
1,025,838
Lease financing
443,747
441,930
Total loans and leases
Outstanding loan balances are reported net of deferred loan costs and fees of $55.0 million and $53.9 million at March 31, 2026 and December 31, 2025, respectively.
Accrued interest receivable related to loans and leases was $65.7 million and $65.9 million as of March 31, 2026 and December 31, 2025, respectively, and is recorded separately from the amortized cost basis of loans and leases on the Company’s unaudited interim consolidated balance sheets.
As of March 31, 2026, residential real estate loans and commercial real estate loans totaling $5.2 billion were pledged to collateralize the Company’s borrowing capacity at the Federal Home Loan Bank of Des Moines (“FHLB”), and consumer, commercial and industrial, commercial real estate, residential real estate loans and pledged securities totaling $3.9 billion were pledged to collateralize the borrowing capacity at the Federal Reserve Bank of San Francisco (“FRB”). As of December 31, 2025, residential real estate loans and commercial real estate loans totaling $4.9 billion were pledged to collateralize the Company’s borrowing capacity at the FHLB, and consumer, commercial and industrial, commercial real estate, residential real estate loans and pledged securities totaling $4.0 billion were pledged to collateralize the borrowing capacity at the FRB. Residential real estate loans collateralized by properties that were in the process of foreclosure totaled $8.3 million and $5.2 million as of March 31, 2026 and December 31, 2025, respectively.
12
In the course of evaluating the credit risk presented by a customer and the pricing that will adequately compensate the Company for assuming that risk, management may require a certain amount of collateral support. The type of collateral held varies, but may include accounts receivable, inventory, land, buildings, equipment, income-producing commercial properties and residential real estate. The Company applies the same collateral policy for loans whether they are funded immediately or on a delayed basis. The loan and lease portfolio is principally located in Hawaii and, to a lesser extent, on the U.S. Mainland, Guam and Saipan. The risk inherent in the portfolio depends upon both the economic stability of the state or territories, which affects property values, and the financial strength and creditworthiness of the borrowers.
4. Allowance for Credit Losses
The Company maintains the allowance for credit losses for loans and leases (the “ACL”) that is deducted from the amortized cost basis of loans and leases to present the net carrying value of loans and leases expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amount of loans and leases. While management utilizes its best judgment and information available, the ultimate appropriateness of the ACL is dependent upon a variety of factors beyond the Company’s control, including the performance of the Company’s loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.
The Company also maintains an estimated reserve for unfunded commitments included in other liabilities on the unaudited interim consolidated balance sheets. The reserve for unfunded commitments is reduced in the period in which the off-balance sheet financial instruments expire, loan funding occurs, or is otherwise settled.
The Company’s methodology is more fully described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, which should be read in conjunction with these unaudited interim consolidated financial statements as of and for the three months ended March 31, 2026.
Rollforward of the Allowance for Credit Losses
The following presents the activity in the ACL by class of loans and leases for the three months ended March 31, 2026 and 2025:
Commercial Lending
Residential Lending
Commercial
Home
and
Real
Lease
Residential
Equity
Industrial
Estate
Financing
Mortgage
Line
Allowance for credit losses:
Balance at beginning of period
20,833
38,757
7,605
2,778
36,384
15,192
46,919
Charge-offs
(2,625)
(4,844)
(7,469)
Recoveries
266
13
39
2,248
2,569
Provision (benefit)
5,416
(792)
(365)
(49)
1,007
(503)
1,036
5,750
Balance at end of period
23,890
37,965
7,240
2,732
37,404
14,728
45,359
16,332
40,624
8,570
2,269
39,230
10,205
43,163
160,393
(1,459)
(14)
(5,025)
(6,498)
403
251
20
64
1,979
2,717
2,716
(1,505)
941
75
(4,876)
15
12,634
10,000
17,992
39,370
9,511
2,344
34,374
10,270
52,751
166,612
Rollforward of the Reserve for Unfunded Commitments
The following presents the activity in the Reserve for Unfunded Commitments for the three months ended March 31, 2026 and 2025:
Reserve for unfunded commitments:
7,859
1,220
9,772
44
16,771
31
35,697
(560)
(100)
250
(7)
(340)
(750)
7,299
1,120
10,022
16,431
38
34,947
8,112
1,003
7,818
15,893
18
32,847
714
132
(239)
84
(212)
21
500
8,826
1,135
7,579
87
15,681
33,347
Credit Quality Information
The Company performs an internal loan review and grading or scoring procedures on an ongoing basis. The review provides management with periodic information as to the quality of the loan portfolio and effectiveness of the Company’s lending policies and procedures. The objective of the loan review and grading or scoring procedures is to identify, in a timely manner, existing or emerging credit quality issues so that appropriate steps can be initiated to avoid or minimize future losses.
Loans and leases subject to grading primarily include: commercial and industrial loans, commercial real estate loans, construction loans and lease financing. Other loans subject to grading include installment loans to businesses or individuals for business and commercial purposes, overdraft lines of credit, commercial credit cards, and other credits as may be determined. Credit quality indicators for internally graded loans and leases are generally updated on an annual basis or on a quarterly basis for those loans and leases deemed to be of potentially higher risk.
An internal credit risk rating system is used to determine loan grade and is based on borrower credit risk and transactional risk. The loan grading process is a mechanism used to determine the risk of a particular borrower and is based on the following factors of a borrower: character, earnings and operating cash flow, asset and liability structure, debt capacity, management and controls, borrowing entity, and industry and operating environment.
Pass – “Pass” (uncriticized) loans and leases, are not considered to carry greater than normal risk. The borrower has the apparent ability to satisfy obligations to the Company, and therefore no loss in ultimate collection is anticipated.
Special Mention – Loans and leases that have potential weaknesses deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for assets or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.
Substandard – Loans and leases that are inadequately protected by the current financial condition and paying capacity of the obligor or by any collateral pledged. Loans and leases so classified must have a well-defined weakness or weaknesses that jeopardize the collection of the debt. They are characterized by the distinct possibility that the bank may sustain some loss if the deficiencies are not corrected.
Doubtful – Loans and leases that have weaknesses found in substandard borrowers with the added provision that the weaknesses make collection of debt in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
14
Loss – Loans and leases classified as loss are considered uncollectible and of such little value that their continuance as an asset is not warranted. This classification does not mean that the loan or lease has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future.
Loans that are primarily monitored for credit quality using FICO scores include: residential mortgage loans, home equity lines and consumer loans. FICO scores are calculated primarily based on a consideration of payment history, the current amount of debt, the length of credit history available, a recent history of new sources of credit and the mix of credit type. FICO scores are updated on a monthly, quarterly or bi-annual basis, depending on the product type.
The amortized cost basis by year of origination and credit quality indicator of the Company’s loans and leases as of March 31, 2026 was as follows:
Revolving
Loans
Converted
Term Loans
to Term
Amortized Cost Basis by Origination Year
2024
2023
2022
Prior
Cost Basis
Commercial and Industrial
Risk rating:
Pass
39,118
287,976
121,084
59,643
88,428
360,068
1,084,181
29,066
2,069,564
Special Mention
460
3,650
2,733
1,690
2,286
1,404
13,343
Substandard
717
405
7,603
19,234
32,253
60,212
Other (1)
14,670
15,797
8,089
4,154
3,116
1,754
51,183
98,763
Total Commercial and Industrial
54,248
308,140
131,906
65,892
101,433
382,176
1,169,021
Current period gross charge-offs
46
708
1,861
2,625
Commercial Real Estate
245,499
732,845
290,053
415,324
728,453
1,987,673
98,893
6,790
4,505,530
678
1,659
50,911
72,086
3,035
128,369
224
5,514
737
57,133
16,863
1,251
81,722
120
Total Commercial Real Estate
245,723
296,245
417,720
836,497
2,076,742
103,179
8,033
101,880
256,657
79,748
193,998
37,280
37,491
715,087
27,979
904
1,634
8,395
5,881
4,878
2,098
1,764
682
25,332
Total Construction
9,667
110,275
262,538
84,626
224,075
39,948
38,173
Lease Financing
68,176
65,980
80,294
87,568
38,834
97,878
438,730
355
392
4,072
368
185
4,625
Total Lease Financing
84,366
88,291
39,056
Total Commercial Lending
377,814
1,217,240
775,055
656,529
1,201,061
2,596,744
1,310,373
35,856
8,170,672
(continued)
Residential Mortgage
FICO:
740 and greater
55,081
194,338
141,798
177,437
445,925
2,310,043
3,324,622
680 - 739
5,446
21,151
18,967
25,654
55,761
260,895
387,874
620 - 679
158
6,936
2,095
5,513
24,724
74,911
114,337
550 - 619
713
1,186
3,099
19,617
24,615
Less than 550
1,960
885
2,980
13,897
19,722
No Score (3)
8,064
5,077
5,352
15,747
51,351
85,591
Other (2)
2,541
20,241
7,176
11,124
13,352
44,311
8,427
107,172
Total Residential Mortgage
63,226
250,730
177,786
227,151
561,588
2,775,025
Home Equity Line
927,710
353
928,063
179,282
1,553
180,835
42,052
407
42,459
13,280
821
14,101
9,946
71
10,017
753
Total Home Equity Line
1,173,023
3,205
Total Residential Lending
1,181,450
Consumer Lending
33,204
101,067
58,946
38,378
41,556
17,925
95,475
91
386,642
24,220
80,977
43,398
24,700
20,837
10,393
86,290
534
291,349
15,474
45,858
17,506
9,762
10,820
6,119
51,631
824
157,994
1,090
12,576
8,565
5,877
6,434
4,201
17,550
906
57,199
203
4,779
4,993
3,216
3,499
2,786
6,156
528
26,160
2,494
940
35,918
39,551
4,503
1,498
65,106
71,107
Total Consumer Lending
76,685
250,700
133,412
81,964
83,146
42,928
358,126
3,041
680
778
582
370
593
1,645
196
4,844
Total Loans and Leases
517,725
1,718,670
1,086,253
965,644
1,845,795
5,414,697
2,849,949
42,102
380
1,301
3,506
7,469
16
The amortized cost basis by year of origination and credit quality indicator of the Company’s loans and leases as of December 31, 2025 was as follows:
2021
321,132
120,082
61,358
99,174
150,013
228,890
1,007,162
14,182
2,001,993
3,790
825
1,900
1,940
341
841
3,819
13,456
746
7,827
19
20,435
38,466
67,861
19,067
9,027
5,046
3,560
1,081
1,164
49,078
88,023
344,735
129,934
68,672
112,501
151,454
251,330
1,098,525
170
775
547
2,800
4,731
732,672
288,924
389,773
735,412
566,285
1,525,374
115,640
6,881
4,360,961
681
37,667
43,819
41,393
21,317
1,314
146,191
5,547
529
59,126
989
16,109
751
83,051
123
295,152
427,969
838,357
608,667
1,562,923
117,705
82,330
218,505
106,890
192,608
77,380
47,078
26,917
751,708
27,972
121
28,093
7,773
8,300
4,760
4,019
160
1,872
686
27,570
90,103
226,805
111,650
224,599
77,540
49,975
27,603
122,978
80,669
89,475
43,015
9,087
91,109
436,333
556
42
598
4,379
408
212
4,999
85,048
90,439
43,269
662
1,290,488
736,939
698,730
1,218,726
846,748
1,955,337
1,243,833
21,063
8,011,864
832
5,393
17
196,591
146,779
188,885
455,130
881,320
1,479,533
3,348,238
21,211
19,044
26,493
57,219
94,557
171,825
390,349
7,054
2,100
5,535
24,857
23,888
51,817
115,251
721
1,188
3,126
6,334
14,464
25,833
1,968
887
3,000
4,653
9,415
19,923
8,082
5,093
5,384
15,829
9,523
44,549
88,460
20,152
7,771
11,625
13,530
13,640
32,144
9,384
108,246
253,090
183,476
239,997
572,691
1,033,915
1,803,747
939,884
1,068
940,952
171,306
1,520
172,826
40,928
637
41,565
13,464
843
14,307
8,069
8,140
1,174,388
4,139
30
1,183,772
113,519
65,981
42,560
49,118
20,240
4,462
102,761
110
398,751
86,088
47,861
28,552
24,684
10,429
2,974
87,662
288,779
44,816
20,455
11,809
11,804
5,695
2,379
50,406
963
148,327
9,253
8,439
6,414
7,503
3,497
2,004
16,764
54,706
2,491
4,263
3,213
3,809
1,948
1,287
5,745
23,254
1,775
40
22
36,868
156
38,871
4,536
1,009
67,058
73,150
262,478
147,004
92,588
96,923
42,356
14,137
367,264
3,088
802
1,693
1,873
947
2,425
8,367
872
19,473
1,806,056
1,067,419
1,031,315
1,888,340
1,923,019
3,773,221
2,794,869
28,290
803
3,326
2,468
2,420
1,354
5,225
8,428
24,896
There were no loans and leases graded as Doubtful or Loss as of both March 31, 2026 and December 31, 2025.
Past-Due Status
The Company continually updates its aging analysis for loans and leases to monitor the migration of loans and leases into past due categories. The Company considers loans and leases that are delinquent for 30 days or more to be past due. As of March 31, 2026 and December 31, 2025, the aging analysis of the amortized cost basis of the Company’s past due loans and leases was as follows:
Past Due
Loans and
Greater
Leases Past
Than or
Due 90 Days
30-59
60-89
Equal to
or More and
Days
90 Days
Total Loans
Still Accruing
Current
and Leases
Interest
5,792
116
4,707
10,615
2,231,267
715
313
926
628
1,867
4,713,874
1,863
723
1,065
3,651
765,651
691
443,056
9,064
6,901
8,628
24,593
4,039,340
5,631
1,119
5,638
12,388
1,163,840
13,533
3,096
3,619
20,248
1,009,754
3,620
36,196
12,881
24,976
74,053
14,366,782
4,344
3,009
7,756
685
11,450
2,159,883
318
798
436
1,252
4,589,074
3,485
804,790
135
570
735
441,195
18,387
6,522
8,133
33,042
4,063,258
55
5,928
1,642
12,448
1,166,079
13,935
3,995
2,984
20,914
1,004,924
44,612
19,963
18,751
83,326
14,229,203
3,357
Nonaccrual Loans and Leases
The Company generally places a loan or lease on nonaccrual status when management believes that collection of principal or interest has become doubtful or when a loan or lease becomes 90 days past due as to principal or interest, unless it is well secured and in the process of collection. The Company charges off a loan or lease when facts indicate that the loan or lease is considered uncollectible.
The amortized cost basis of loans and leases on nonaccrual status as of March 31, 2026 and December 31, 2025 and the amortized cost basis of loans and leases on nonaccrual status with no ACL as of March 31, 2026 and December 31, 2025 were as follows:
Nonaccrual
With No
Allowance
for Credit Losses
969
4,960
2,324
2,952
1,627
1,788
8,170
17,665
1,685
11,624
Total Nonaccrual Loans and Leases
14,775
39,680
8,805
2,397
3,007
734
5,703
16,423
856
10,271
10,583
41,028
For the three months ended March 31, 2026, the Company recognized interest income of $0.1 million on nonaccrual loans and leases and for the three months ended March 31, 2025, the Company recognized interest income of $0.4 million on nonaccrual loans and leases. Furthermore, for both the three months ended March 31, 2026 and 2025, the amount of accrued interest receivables written off by reversing interest income was $0.3 million.
Collateral-Dependent Loans and Leases
Collateral-dependent loans and leases are those for which repayment (on the basis of the Company’s assessment as of the reporting date) is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. As of March 31, 2026 and December 31, 2025, the amortized cost basis of collateral-dependent loans were $41.5 million and $37.7 million, respectively. As of March 31, 2026, these loans were primarily collateralized by residential real estate property, commercial real estate property and borrower assets. Of the $41.5 million collateral-dependent loans as of March 31, 2026, $20.9 million were secured by collateral whose fair values were below the amortized cost basis of the loan, and the fair value of collateral on the remaining collateral-dependent loans were significantly in excess of their amortized cost basis. As of December 31, 2025, these loans were primarily collateralized by residential real estate property, commercial real estate property and borrower assets and the fair value of collateral on substantially all collateral-dependent loans were significantly in excess of their amortized cost basis.
Loan Modifications to Borrowers Experiencing Financial Difficulty
Commercial and industrial loans with a borrower experiencing financial difficulty may be modified through interest rate reductions, term extensions, and converting revolving credit lines to term loans. Modifications of commercial real estate and construction loans with a borrower experiencing financial difficulty may involve reducing the interest rate for the remaining term of the loan or extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk. Modifications of construction loans with a borrower experiencing financial difficulty may also involve extending the interest-only payment period. Interest continues to accrue on the missed payments and as a result, the effective yield on the loan remains unchanged. Modifications of residential real estate loans with a borrower experiencing financial difficulty may be comprised of loans where monthly payments are lowered to accommodate the borrowers' financial needs for a period of time, including extended interest-only periods and reamortization of the balance. Modifications of consumer loans with a borrower experiencing financial difficulty may involve interest rate reductions and term extensions.
Loans modified with a borrower experiencing financial difficulty, whether in default or not, may already be on nonaccrual status and in some cases, partial charge-offs may have already been taken against the outstanding loan balance. Loans modified with a borrower experiencing financial difficulty are evaluated for impairment. As a result, this may have a financial effect of impacting the specific ACL associated with the loan. An ACL for impaired commercial loans, including commercial real estate and construction loans, is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or if the loan is collateral-dependent, the estimated fair value of the collateral, less any selling costs. An ACL for impaired residential real estate loans is measured based on the estimated fair value of the collateral, less any selling costs. Management exercises significant judgment in developing these estimates.
The following tables present, by class of financing receivable and type of modification granted, the amortized cost basis as of March 31, 2026 and 2025, related to loans modified to borrowers experiencing financial difficulty during the three months ended March 31, 2026 and 2025, respectively:
Interest Rate Reduction
March 31, 2025
% of Total Class
Cost Basis(1)
of Financing Receivable
372
0.04
%
0.06
n/m
n/m – Represents less than 0.01% of total class of financing receivable.
Term Extension
171
10,584
1,347
0.03
267
509
12,014
0.08
Other-Than-Insignificant Payment Delay
0.02
The following tables describe, by class of financing receivable and type of modification granted, the financial effect of the modifications made to borrowers experiencing financial difficulty during the three months ended March 31, 2026 and 2025, respectively:
Financial Effect
Reduced weighted-average contractual interest rate by 15.49%.
Reduced weighted-average contractual interest rate by 13.20%.
Added a weighted-average 4.9 years to the life of loans.
Added a weighted-average 0.4 years to the life of loans.
Added a weighted-average 0.3 years to the life of loans.
Added a weighted-average 2.0 years to the life of loans.
Added a weighted-average 5.0 years to the life of loans.
Added a weighted-average 4.4 years to the life of loans.
Deferred a weighted-average of $209 thousand in loan payments.
The following table presents, by class of financing receivable and type of modification granted, the amortized cost basis, as of March 31, 2026 and 2025, of loans that had a payment default during the three months ended March 31, 2026 and 2025, respectively, and were modified in the 12 months before default to borrowers experiencing financial difficulty. The Company is reporting these defaulted loans based on a payment default definition of 30 days past due:
Amortized Cost Basis of Modified Loans That Subsequently Defaulted(1)
Interest RateReduction
519
73
312
219
410
786
406
Performance of the loans that are modified to borrowers experiencing financial difficulty is monitored to understand the effectiveness of the Company’s modification efforts. As of March 31, 2026 and 2025, the aging analysis of the amortized cost basis of the performance of loans that have been modified in the last 12 months related to borrowers experiencing financial difficulty was as follows:
Greater Than
or Equal to
30-59 Days
60-89 Days
495
25
520
580
1,100
2,847
3,114
98
58
56
1,321
1,533
860
985
1,903
4,748
6,651
10,813
2,352
155
41
294
1,359
1,653
18,021
18,315
The Company had commitments to extend credit, standby letters of credit, and commercial letters of credit totaling $6.8 billion and $6.9 billion as of March 31, 2026 and December 31, 2025, respectively. Of the $6.8 billion at March 31, 2026, there were no commitments to lend additional funds to borrowers experiencing financial difficulty for which the Company had modified the terms of the loans in the form of an interest rate reduction, term extension, or other-than-insignificant payment delay during the three months ended March 31, 2026. Of the $6.9 billion at December 31, 2025, there were no commitments to lend additional funds to borrowers experiencing financial difficulty for which the Company had modified the terms of the loans in the form of an interest rate reduction, term extension or other-than-insignificant payment delay during the year ended December 31, 2025.
Foreclosed Property
As of both March 31, 2026 and December 31, 2025, there were no residential real estate properties held from foreclosed residential mortgage loans.
5. Other Assets
Bank-Owned Life Insurance
During 2025, the Company entered into noncash exchanges of certain bank-owned life insurance (“BOLI”) policies in accordance with Internal Revenue Code (“IRC”) Section 1035. Cash surrender value of $0.1 million was transferred into new policies during the three months ended March 31, 2025. No gain or loss was recognized as part of this exchange. There were no policies exchanged during the three months ended March 31, 2026.
Mortgage Servicing Rights
Mortgage servicing activities include collecting principal, interest, tax and insurance payments from borrowers while accounting for and remitting payments to investors, taxing authorities and insurance companies. The Company also monitors delinquencies and administers foreclosure proceedings.
Mortgage loan servicing income is recorded in noninterest income as a part of other service charges and fees and amortization of the servicing assets is recorded in noninterest income as part of other income. The Company’s maximum potential exposure to repurchases is limited to the unpaid principal amount of residential real estate loans serviced for others, which were $1.1 billion as of both March 31, 2026 and December 31, 2025. Servicing fees include contractually specified fees, late charges and ancillary fees and was $0.7 million and $0.8 million for the three months ended March 31, 2026 and 2025, respectively.
Amortization of mortgage servicing rights (“MSRs”) were $0.2 million for both three months ended March 31, 2026 and 2025. The estimated future amortization expenses for MSRs over the next five years are as follows:
Estimated
Amortization
Under one year
630
One to two years
Two to three years
493
Three to four years
437
Four to five years
387
The details of the Company’s MSRs are presented below:
Gross carrying amount
70,142
70,096
Less: accumulated amortization
65,672
65,458
Net carrying value
The following table presents changes in amortized MSRs for the three months ended March 31, 2026 and 2025:
Three Months Ended March 31,
5,078
Originations
50
(214)
(202)
4,926
Fair value of amortized MSRs at beginning of period
12,364
13,404
Fair value of amortized MSRs at end of period
12,016
13,357
MSRs are evaluated for impairment if events and circumstances indicate a possible impairment. No impairment of MSRs was recorded for the three months ended March 31, 2026 and 2025.
The quantitative assumptions used in determining the lower of cost or fair value of the Company’s MSRs as of March 31, 2026 and December 31, 2025 were as follows:
Weighted
Range
Average
Conditional prepayment rate
6.33
-
7.13
6.90
6.31
7.00
6.83
Life in years (of the MSR)
6.12
7.05
6.88
6.18
7.09
6.93
Weighted-average coupon rate
3.77
4.10
3.84
Discount rate
10.37
10.45
10.40
The sensitivities surrounding MSRs are expected to have an immaterial impact on fair value.
Low-Income Housing Tax Credit Investments
The Company has a limited partnership interest or is a member in a limited liability company (“LLC”) in several low-income housing partnerships. These partnerships or LLCs provide funds for the construction and operation of apartment complexes that provide affordable housing to that segment of the population with lower family income. If these developments successfully attract a specified percentage of residents falling in that lower income range, state and/or federal income tax credits are made available to the partners or members. The tax credits are generally recognized over 5 or 10 years. In order to continue receiving the tax credits each year over the life of the partnership or LLC, the low-income residency targets must be maintained.
The Company generally accounts for its interests in these low-income housing partnerships using the proportional amortization method. The Company had $293.4 million and $302.3 million in affordable housing and other tax credit investment partnership interests as of March 31, 2026 and December 31, 2025, respectively, included in other assets on the unaudited interim consolidated balance sheets. The amount of amortization of such investments reported in the provision for income taxes was $8.9 million and $7.6 million during the three months ended March 31, 2026 and 2025, respectively. The affordable housing tax credits and other benefits recognized were $12.0 million and $9.6 million during the three months ended March 31, 2026 and 2025, respectively, and were included in the provision for income taxes on the unaudited interim consolidated statements of income and net income on the unaudited interim consolidated statements of cash flows.
Unfunded commitments to fund these investments were $133.8 million and $153.3 million as of March 31, 2026 and December 31, 2025, respectively. These unfunded commitments are unconditional and legally binding and are recorded in other liabilities in the unaudited interim consolidated balance sheets.
6. Transfers of Financial Assets
The Company’s transfers of financial assets with continuing interest may include pledges of collateral to secure public deposits and repurchase agreements, FHLB and FRB borrowing capacity and interest rate derivatives.
24
For public deposits and repurchase agreements, the Company enters into bilateral agreements with the entity to pledge investment securities as collateral in the event of default. The right of setoff for a repurchase agreement resembles a secured borrowing, whereby the collateral pledged by the Company would be used to settle the fair value of the repurchase agreement should the Company be in default. The counterparty has the right to sell or repledge the investment securities. The Company is required by the counterparty to maintain adequate collateral levels. In the event the collateral fair value falls below stipulated levels, the Company will pledge additional investment securities. For transfers of assets with the FHLB and the FRB, the Company enters into bilateral agreements to pledge loans and/or securities as collateral to secure borrowing capacity. For interest rate derivatives, the Company enters into bilateral agreements to pledge collateral when either party is in a negative fair value position to mitigate counterparty credit risk. Counterparties to certain interest rate derivatives, the FHLB and the FRB do not have the right to sell or repledge the collateral.
The carrying amounts of the assets pledged as collateral to secure public deposits, borrowing arrangements and other transactions as of March 31, 2026 and December 31, 2025 were as follows:
Public deposits
2,079,528
1,791,182
Federal Home Loan Bank
5,160,631
4,891,682
Federal Reserve Bank
3,938,897
3,970,029
11,179,056
10,652,893
As of March 31, 2026 and December 31, 2025, the borrowing capacity with the FHLB was $3.5 billion and $3.3 billion, respectively. The FHLB borrowing capacity was secured by commercial real estate and residential real estate loan collateral as of both March 31, 2026 and December 31, 2025. As of both March 31, 2026 and December 31, 2025, the Company had an undrawn line of credit of $3.3 billion, available from the FRB. The borrowing capacity with the FRB was secured by consumer, commercial and industrial, commercial real estate, residential real estate loans and pledged securities as of both March 31, 2026 and December 31, 2025.
As the Company did not enter into reverse repurchase agreements or repurchase agreements, no collateral was accepted as of March 31, 2026 and December 31, 2025. In addition, no debt was extinguished by in-substance defeasance.
7. Deposits
As of March 31, 2026 and December 31, 2025, deposits were categorized as interest-bearing or noninterest-bearing as follows:
U.S.:
12,755,217
12,502,417
5,715,258
5,794,973
Foreign:
1,502,073
1,465,959
804,805
752,319
The following table presents the maturity distribution of time certificates of deposit as of March 31, 2026:
Under
$250,000
or More
Three months or less
683,932
632,255
1,316,187
Over three through six months
808,110
560,723
1,368,833
Over six through twelve months
368,712
256,876
625,588
19,987
6,542
26,529
15,870
957
16,827
8,693
6,567
15,260
8,780
10,197
Thereafter
178
1,025
1,203
1,914,262
1,466,362
3,380,624
Time certificates of deposit in denominations of $250,000 or more, in the aggregate, were $1.5 billion as of both March 31, 2026 and December 31, 2025. Overdrawn deposit accounts are classified as loans and totaled $10.9 million and $3.2 million as of March 31, 2026 and December 31, 2025, respectively.
8. Accumulated Other Comprehensive Loss
Accumulated other comprehensive income (loss) is defined as the revenues, expenses, gains and losses that are included in comprehensive income (loss), but excluded from net income. The Company’s significant items of accumulated other comprehensive income (loss) are pension and other benefits, net unrealized gains or losses on investment securities and net unrealized gains or losses on cash flow derivative hedges. The Company utilizes a security-by-security approach to releasing income tax effects from accumulated other comprehensive loss.
Changes in accumulated other comprehensive income (loss) for the three months ended March 31, 2026 and 2025 are presented below:
Income
Tax
Pre-tax
Benefit
Net of
(Expense)
Accumulated other comprehensive loss at December 31, 2025
(502,104)
133,964
Three months ended March 31, 2026
Unrealized net losses arising during the period
(20,305)
5,417
(14,888)
Reclassification of net losses to net income:
Amortization of unrealized holding losses on held-to-maturity securities
13,914
(3,712)
10,202
(6,391)
1,705
Cash flow derivative hedges:
(45)
Amounts excluded from the assessment of hedge effectiveness
154
(42)
112
109
(30)
Other comprehensive loss
(6,282)
1,675
Accumulated other comprehensive loss at March 31, 2026
(508,386)
135,639
26
Accumulated other comprehensive loss at December 31, 2024
(632,793)
168,799
Three months ended March 31, 2025
Unrealized net gains arising during the period
31,363
(8,365)
22,998
9,657
(2,576)
7,081
Reclassification of net gains to net income:
(27)
40,983
(10,931)
236
(63)
Other comprehensive income
41,219
(10,994)
Accumulated other comprehensive loss at March 31, 2025
(591,574)
157,805
The following table summarizes changes in accumulated other comprehensive income (loss), net of tax, for the periods indicated:
Pensions
Available-for-Sale
Held-to-Maturity
Cash Flow
Investment
Derivative
Benefits
Securities
Hedges
(4,290)
(125,007)
(238,300)
(543)
(139,895)
(228,098)
(464)
(1,879)
(193,529)
(268,501)
(85)
22,971
(170,558)
(261,420)
88
9. Regulatory Capital Requirements
Federal and state laws and regulations limit the amount of dividends the Company may declare or pay. The Company depends primarily on dividends from FHB as the source of funds for the Company’s payment of dividends.
The Company and the Bank are subject to various regulatory capital requirements imposed by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s operating activities and financial condition. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of its assets and certain off-balance sheet items. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios of Common Equity Tier 1 (“CET1”) capital, Tier 1 capital and total capital to risk-weighted assets, as well as a minimum leverage ratio.
27
The table below sets forth those ratios at March 31, 2026 and December 31, 2025:
First Hawaiian
Minimum
Well-
First Hawaiian, Inc.
Bank
Capitalized
Ratio
Ratio(1)
March 31, 2026:
Common equity tier 1 capital to risk-weighted assets
2,140,581
13.12
2,131,966
13.07
4.50
6.50
Tier 1 capital to risk-weighted assets
6.00
8.00
Total capital to risk-weighted assets
2,344,459
14.37
2,335,873
14.32
10.00
Tier 1 capital to average assets (leverage ratio)
9.21
9.17
4.00
5.00
December 31, 2025:
2,142,013
13.17
2,129,855
13.10
2,345,269
14.42
2,333,149
14.35
9.27
9.22
Federal regulations require a 2.5% capital conservation buffer designed to absorb losses during periods of economic stress. The capital conservation buffer is composed entirely of CET1, on top of these minimum risk weighted asset ratios, effectively resulting in minimum ratios of (i) 7% CET1 to risk-weighted assets, (ii) 8.5% Tier 1 capital to risk-weighted assets, and (iii) 10.5% total capital to risk-weighted assets. As of March 31, 2026, under the bank regulatory capital guidelines, the Company and Bank were both classified as well-capitalized. Management is not aware of any conditions or events that have occurred since March 31, 2026, to change the capital adequacy category of the Company or the Bank.
In January 2026, the Company announced a stock repurchase program for up to $250.0 million of its outstanding common stock during 2026. Under this plan, the Company repurchased 1,307,738 shares at a total cost of $32.0 million during the three months ended March 31, 2026. The timing and exact amount of stock repurchases, if any, will be subject to management’s discretion and various factors, including the Company’s capital position and financial performance, as well as market conditions. The stock repurchase program may be suspended, terminated or modified at any time for any reason.
In April 2026, the Company’s Board of Directors declared a quarterly cash dividend of $0.26 per share on our outstanding shares. The dividend is to be paid on May 29, 2026 to shareholders of record at the close of business on May 18, 2026.
10. Derivative Financial Instruments
The Company enters into derivative contracts primarily to manage its interest rate risk, as well as for customer accommodation purposes. Derivatives used for risk management purposes consist of interest rate floors, swaps, and collars that are designated as either a fair value hedge or a cash flow hedge. The derivatives are recognized on the unaudited interim consolidated balance sheets as either assets or liabilities at fair value. Derivatives entered into for customer accommodation purposes consist of various free-standing interest rate derivative products and foreign exchange contracts. The Company is party to master netting arrangements with its financial institution counterparties; however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes.
28
The following table summarizes the notional amounts and fair values of derivatives held by the Company as of March 31, 2026 and December 31, 2025:
Notional
Asset
Liability
Derivatives(1)
Derivatives(2)
Derivatives designated as hedging instruments:
Interest rate swaps
59,063
6,958
60,000
7,470
Interest rate collars
100,000
59
Interest rate floors
600,000
3,638
300,000
1,665
Derivatives not designated as hedging instruments:
2,821,533
5,103
(5,103)
3,018,578
12,328
(12,328)
Visa derivative
66,118
(2,300)
69,748
Foreign exchange contracts
470
807
Certain interest rate derivatives noted above, are cleared through clearinghouses, rather than directly with counterparties. Those transactions cleared through a clearinghouse require initial margin collateral and variation margin payments depending on the contracts being in a net asset or liability position. As of both March 31, 2026 and December 31, 2025, the amount of initial margin cash collateral posted by the Company was nil. As of both March 31, 2026 and December 31, 2025, the variation margin was nil.
As of March 31, 2026, the Company pledged nil in cash and received $16.7 million in cash as collateral for interest rate derivatives. As of December 31, 2025, the Company pledged nil in cash and received $10.5 million in cash as collateral for interest rate derivatives. As of March 31, 2026 and December 31, 2025, the cash collateral includes the excess initial margin for interest rate derivatives cleared through clearinghouses and cash collateral for interest rate derivatives with financial institution counterparties.
As of March 31, 2026 and December 31, 2025, the Company received $26.1 million and $22.5 million, respectively, in securities collateral for interest rate derivatives, which is held in a custodial account and is not recorded on the Company’s unaudited interim consolidated balance sheets.
Fair Value Hedges
To manage the risk related to the Company’s net interest margin, interest rate swaps are utilized to hedge certain fixed-rate loans. These swaps have maturity, amortization and prepayment features that correspond to the loans hedged and are designated and qualify as fair value hedges. Any gain or loss on the swaps, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, is recognized in current period earnings.
At March 31, 2026 and December 31, 2025, the Company carried one interest rate swap with a notional amount of $59.1 million and $60.0 million, respectively, which was designated and qualified as a fair value hedge for a commercial and industrial loan. As of March 31, 2026 and December 31, 2025, the interest rate swap had a positive fair value of $7.0 million and $7.5 million, respectively. The swap matures in 2041. The Company received a USD Federal Funds floating rate and paid a fixed rate of 2.07%.
29
The following table shows the gains and losses recognized in income related to derivatives in fair value hedging relationships for the three months ended March 31, 2026 and 2025:
Gains (losses) recognized in
the consolidated statements
of income line item
Gains (losses) on fair value hedging relationships recognized in interest income:
Recognized on interest rate swap
(512)
Recognized on hedged item
514
As of March 31, 2026 and December 31, 2025, the following amounts were recorded in the unaudited interim consolidated balance sheets related to the cumulative basis adjustments for fair value hedges:
Cumulative Amount of Fair Value
Hedging Adjustment Included in the
Carrying Amount of the Hedged Asset
Line item in the consolidated balance sheets in which the hedged item is included
52,068
52,491
(6,995)
(7,509)
Cash Flow Hedges
The Company utilized interest rate collars to manage interest rate risk and protect against downside risk in yields associated with interest payments received on a pool of floating-rate assets. The floating-rate index of the collars (Secured Overnight Financing Rate, or “SOFR”) corresponds to the floating-rate nature of the interest receipts being hedged (based on SOFR). Interest rate collars involve the payments of variable-rate amounts if the collar index exceeds the cap strike rate on the contract and receipts of variable-rate amounts if the collar index falls below the floor strike rate on the contract. No payments are required if the collar index falls between the cap and floor rates. By hedging with interest rate collars, the Company mitigates the adverse impact on interest income associated with possible future decreases in interest rates.
As of March 31, 2026 and December 31, 2025, the Company carried one interest rate collar with a notional amount of $100.0 million. As of March 31, 2026, the interest rate collar had a positive fair value of nil. As of December 31, 2025, the interest rate collar had a positive fair value of $0.1 million. The collar matures in 2027. The interest rate collar had a floor strike rate of 2.00% and a cap strike rate of 5.64%.
The Company also utilized interest rate floors to manage interest rate risk and protect against downside risk in yields associated with interest payments received on a pool of floating-rate assets. The floating-rate index of the floors (SOFR) correspond to the floating-rate nature of the interest receipts being hedged (based on SOFR). An interest rate floor involves the receipt of variable-rate amounts if the floor index falls below the floor strike rate on the contract. No payments are received if the floor index is above the floor strike rate. By hedging with interest rate floors, the Company mitigates the adverse impact on interest income associated with possible future decreases in interest rates.
As of December 31, 2025, the Company carried three interest rate floors with notional amounts totaling $300.0 million and a positive fair value of $1.7 million. These interest rate floors were executed between April and September 2025 and will mature in 2028. The Company paid premiums totaling $2.9 million. These interest rate floors have floor strike rates ranging from 2.95% to 3.00%.
During the three months ended March 31, 2026, the Company executed three additional interest rate floors with notional amounts totaling $300.0 million and paid premiums totaling $2.2 million. These interest rate floors have a floor strike rate of 3.00% and will mature in 2029. As such, as of March 31, 2026, the Company carried six interest rate floors with notional amounts totaling $600.0 million and a positive fair value of $3.6 million.
The interest rate collars and floors are designated and qualify as cash flow hedges. To the extent that the hedge is considered highly effective, the gain or loss on the interest rate collars and floors is reported as a component of other comprehensive income (“OCI”) and reclassified out of accumulated other comprehensive income (“AOCI”) into earnings in the same period that the hedged transaction affects earnings.
The assessment of hedge effectiveness excludes the initial time value of the interest rate floors at inception and on an ongoing basis. This initial time value is recognized as an adjustment to OCI, with an offset to interest income, over the life of the floors through an amortization approach.
The following table summarizes the effect of cash flow hedging relationships for the three months ended March 31, 2026 and 2025:
Pretax net gains (losses) recognized in OCI - included component
Pretax net gains (losses) recognized in OCI - excluded component
(188)
Total pretax net gains (losses) recognized in OCI on cash flow derivative hedges
(233)
Pretax net losses (gains) reclassified from AOCI into income - included component(1)
Pretax net losses (gains) reclassified from AOCI into income - excluded component(1)
Total pretax net losses (gains) reclassified from AOCI into income(1)
(1) Losses (gains) are reclassified from AOCI into interest income from loans and lease financing.
The estimated net amount to be reclassified within the next 12 months out of AOCI into earnings is $1.7 million as a decrease to interest income from loans and lease financing. As of March 31, 2026, the maximum length of time over which forecasted transactions are hedged is approximately three years.
Free-Standing Derivative Instruments
For the derivatives that are not designated as hedges, changes in fair value are reported in current period earnings. The following table summarizes the impact on pretax earnings of derivatives not designated as hedges, as reported on the unaudited interim consolidated statements of income for the three months ended March 31, 2026 and 2025:
Net losses recognized
in the consolidated statements
Derivatives Not Designated As Hedging Instruments:
Other noninterest income
(11)
(971)
(1,292)
(6)
As of March 31, 2026, the Company carried multiple interest rate swaps with notional amounts totaling $2.8 billion, all of which were related to the Company’s customer swap program, with a positive fair value of $5.1 million and a negative fair value of $5.1 million. The Company received floating rates ranging from 3.67% to 6.67% and paid fixed rates ranging from 2.39% to 6.67%. The swaps mature between May 2026 and October 2043. As of December 31, 2025, the Company carried multiple interest rate swaps with notional amounts totaling $3.0 billion, all of which were related to the Company’s customer swap program, with a positive fair value of $12.3 million and a negative fair value of $12.3 million. The Company received floating rates ranging from 3.87% to 6.87% and paid fixed rates ranging from 2.39% to 6.67%. These swaps resulted in net interest expense of nil during both the three months ended March 31, 2026 and 2025.
The Company’s customer swap program is designed by offering customers a variable-rate loan that is swapped to fixed-rate through an interest rate swap. The Company simultaneously executes an offsetting interest rate swap with a swap dealer. Upfront fees on the dealer swap are recorded in other noninterest income and totaled $0.1 million and $0.5 million for the three months ended March 31, 2026 and 2025, respectively.
Visa Class B Restricted Shares
In 2016, the Company recorded a $22.7 million net realized gain related to the sale of 274,000 Visa Class B restricted shares. Concurrent with the sale of the Visa Class B restricted shares, the Company entered into a funding swap agreement with the buyer that requires payment to the buyer in the event Visa reduces each member bank’s Class B conversion rate to unrestricted Class A common shares. During 2018 through 2023, Visa funded its litigation escrow account, thereby reducing each member bank’s Class B conversion rate to unrestricted Class A common shares from 1.6483 to 1.5875. Under the terms of the funding swap agreement, the Company will make monthly payments to the buyer based on Visa’s Class A stock price and the number of Visa Class B restricted shares that were sold until the date on which the covered litigation is settled. In April 2024, Visa, Inc. commenced an initial exchange offer (“Visa Exchange Offer”) for all of its outstanding Class B shares (subsequently renamed as “Class B-1 shares”), of which the buyer elected and Visa, Inc. accepted. The buyer received a combination of Visa Class B-2 shares and Visa Class C shares in exchange for the 274,000 Class B-1 shares previously owned by the Company. Visa Class B-2 shares and Visa Class C shares have a current conversion rate to Class A common shares of 1.5075 and 4.0000, respectively. The Company took this exchange into consideration when valuing the derivative liability (“Visa derivative”) at March 31, 2026 and December 31, 2025. The Visa derivative of $2.3 million was included in the unaudited interim consolidated balance sheets at both March 31, 2026 and December 31, 2025, to provide for the fair value of this liability. There were no sales of these shares prior to 2016. See “Note 15. Fair Value” for more information.
Counterparty Credit Risk
By using derivatives, the Company is exposed to counterparty credit risk if counterparties to the derivative contracts do not perform as expected. If a counterparty fails to perform, the Company’s counterparty credit risk is equal to the amount reported as a derivative asset, net of cash or other collateral received, and net of derivatives in a loss position with the same counterparty to the extent master netting arrangements exist. The Company minimizes counterparty credit risk through credit approvals, limits, monitoring procedures, executing master netting arrangements and obtaining collateral, where appropriate. Counterparty credit risk related to derivatives is considered in determining fair value.
The Company’s interest rate derivative agreements include bilateral collateral agreements with collateral requirements, which begin with exposures in excess of $0.3 million. For each counterparty, the Company reviews the interest rate derivative collateral daily. Collateral for customer interest rate derivative agreements, calculated as the pledged asset less loan balance, requires valuation of the pledged asset. Counterparty credit risk adjustments of nil were recognized during both the three months ended March 31, 2026 and 2025.
Credit-Risk Related Contingent Features
Certain of the Company’s derivative contracts contain provisions whereby if the Company’s credit rating were to be downgraded by certain major credit rating agencies as a result of a merger or material adverse change in the Company’s financial condition, the counterparty could require an early termination of derivative instruments. The aggregate fair value of all derivative instruments with such credit-risk related contingent features that are in a net liability position was nil at both March 31, 2026 and December 31, 2025, for which the Company posted nil in collateral in the normal course of business. If the Company’s credit rating had been downgraded as of March 31, 2026 and December 31, 2025, the Company may have been required to settle the contracts in an amount equal to their fair value.
11. Commitments and Contingent Liabilities
Contingencies
Various legal proceedings are pending or threatened against the Company. After consultation with legal counsel, management does not expect that the aggregate liability, if any, resulting from these proceedings would have a material effect on the Company’s unaudited interim consolidated financial position, results of operations or cash flows.
Financial Instruments with Off-Balance Sheet Risk
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby and commercial letters of credit which are not reflected in the unaudited interim consolidated financial statements.
32
Unfunded Commitments to Extend Credit
A commitment to extend credit is a legally binding agreement to lend funds to a customer, usually at a stated interest rate and for a specified purpose. Commitments are reported net of participations sold to other institutions. Such commitments have fixed expiration dates and generally require a fee. The extension of a commitment gives rise to credit risk. The actual liquidity requirements or credit risk that the Company will experience is expected to be lower than the contractual amount of commitments to extend credit because a significant portion of those commitments are expected to expire without being drawn upon. Certain commitments are subject to loan agreements containing covenants regarding the financial performance of the customer that must be met before the Company is required to fund the commitment. The Company uses the same credit policies in making commitments to extend credit as it does in making loans. In addition, the Company manages the potential credit risk in commitments to extend credit by limiting the total amount of arrangements, both by individual customer and in the aggregate, by monitoring the size and expiration structure of these portfolios and by applying the same credit standards maintained for all of its related credit activities. Commitments to extend credit are reported net of participations sold to other institutions of $50.8 million and $86.4 million at March 31, 2026 and December 31, 2025, respectively.
Standby and Commercial Letters of Credit
Standby letters of credit are issued on behalf of customers in connection with contracts between the customers and third parties. Under standby letters of credit, the Company assures that the third parties will receive specified funds if customers fail to meet their contractual obligations. The credit risk to the Company arises from its obligation to make payment in the event of a customer’s contractual default. Standby letters of credit are reported net of participations sold to other institutions of $6.3 million at both March 31, 2026 and December 31, 2025. The Company also had commitments for commercial and similar letters of credit. Commercial letters of credit are issued specifically to facilitate commerce whereby the commitment is typically drawn upon when the underlying transaction between the customer and a third-party is consummated. The maximum amount of potential future payments guaranteed by the Company is limited to the contractual amount of these letters. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held supports those commitments for which collateral is deemed necessary. The commitments outstanding as of March 31, 2026 have maturities ranging from April 2026 to June 2028. Substantially all fees received from the issuance of such commitments are deferred and amortized on a straight-line basis over the term of the commitment.
Financial instruments with off-balance sheet risk at March 31, 2026 and December 31, 2025 were as follows:
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit
6,537,861
6,635,946
Standby letters of credit
252,745
252,166
Commercial letters of credit
9,625
2,040
Guarantees
The Company sells residential mortgage loans in the secondary market primarily to the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation that may potentially require repurchase under certain conditions. This risk is managed through the Company’s underwriting practices. The Company services loans sold to investors and loans originated by other originators under agreements that may include repurchase remedies if certain servicing requirements are not met. This risk is managed through the Company’s quality assurance and monitoring procedures. Management does not anticipate any material losses as a result of these transactions.
Foreign Exchange Contracts
The Company has forward foreign exchange contracts that represent commitments to purchase or sell foreign currencies at a future date at a specified price. The Company’s utilization of forward foreign exchange contracts is subject to the primary underlying risk of movements in foreign currency exchange rates and to additional counterparty risk should its counterparties fail to meet the terms of their contracts. Forward foreign exchange contracts are utilized to mitigate the Company’s risk to satisfy customer demand for foreign currencies and are not used for trading purposes. See “Note 10. Derivative Financial Instruments” for more information.
33
Reorganization Transactions
On April 1, 2016, a series of reorganization transactions were undertaken to facilitate FHI’s initial public offering. In connection with the reorganization transactions, FHI distributed its interest in BancWest Holding Inc. (“BWHI”), including Bank of the West (“BOW”), to BNP Paribas (“BNPP”) so that BWHI was held directly by BNPP. As a result of the reorganization transactions that occurred on April 1, 2016, various tax or other contingent liabilities could arise related to the business of BOW, or related to the Company’s operations prior to the reorganization transactions when it was known as BancWest Corporation, including its then wholly owned subsidiary, BOW. The Company is not able to determine the ultimate outcome or estimate the amounts of these contingent liabilities, if any, at this time.
12. Revenue from Contracts with Customers
Revenue Recognition
In accordance with Topic 606, Revenue from Contracts with Customers, revenues are recognized when control of promised goods or services is transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services that are promised within each contract and identifies those that contain performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Disaggregation of Revenue
During the quarter ended December 31, 2025, the Company realigned its internal organizational and management reporting structure. As a result of this change, the Company reduced its reportable operating segments from three to two. The Company’s reportable segments are now Retail Banking and Commercial Banking. Activities previously reported within the Treasury and Other segment are now included in Corporate/Other, as Treasury exists to support the Company’s operating segments. The change in reportable segments reflects how the Company’s chief operating decision maker currently evaluates performance and allocates resources. In addition, during the third quarter of 2025, the Company made changes to the internal measurement of segment operating profits for the purpose of evaluating segment performance and resource allocation. The Company has reported its selected financial information using the new loan and deposit balance alignments and using two reportable operating segments for the three months ended March 31, 2026. The Company has recast the selected financial information for the three months ended March 31, 2025 in order to conform with the current presentation. See “Note 16. Reportable Operating Segments” for more information.
34
The following table summarizes the Company’s revenues, which includes net interest income on financial instruments and noninterest income, disaggregated by type of service and business segments and Corporate/Other, for the periods indicated:
Retail
Corporate/
Consolidated
Banking
Net interest income (expense)(1)
130,120
43,967
(6,557)
6,679
1,331
146
13,506
14,509
10,381
621
550
11,552
337
1,808
3,005
Not in scope of Topic 606(1)
1,596
1,338
3,517
6,451
28,139
18,604
6,076
Total revenue
158,259
62,571
(481)
220,349
126,456
45,938
(11,868)
6,364
1,064
107
12,930
974
13,904
8,844
574
515
9,933
202
1,437
952
2,591
1,871
1,750
3,523
7,144
26,651
17,755
6,071
153,107
63,693
(5,797)
211,003
For the three months ended March 31, 2026 and 2025, substantially all of the Company’s revenues under the scope of Topic 606 were related to performance obligations satisfied at a point in time.
The following is a discussion of revenues within the scope of Topic 606.
Service Charges on Deposit Accounts
Service charges on deposit accounts relate to fees generated from a variety of deposit products and services rendered to customers. Charges include, but are not limited to, overdraft fees, non-sufficient fund fees, dormant fees and monthly service charges. Such fees are recognized concurrent with the event on a daily basis or on a monthly basis depending upon the customer’s cycle date.
Credit and Debit Card Fees
Credit and debit card fees primarily represent revenues earned from interchange fees, ATM fees and merchant processing fees. Interchange and network revenues are earned on credit and debit card transactions conducted with payment networks. ATM fees are primarily earned as a result of surcharges assessed to non-FHB customers who use an FHB ATM. Merchant processing fees are primarily earned on transactions in which FHB is the acquiring bank. Such fees are generally recognized concurrently with the delivery of services on a daily basis.
Trust and Investment Services Fees
Trust and investment services fees represent revenue earned by directing, holding and managing customers’ assets. Fees are generally computed based on a percentage of the previous period’s value of assets under management. The transaction price (i.e., percentage of assets under management) is established at the inception of each contract. Trust and investment services fees also include fees collected when the Company acts as agent or personal representative and executes security transactions, performs collection and disbursement of income, and completes investment management and other administrative tasks.
Other Fees
Other fees primarily include revenues generated from wire transfers, lockboxes, bank issuance of checks and insurance commissions. Such fees are recognized concurrent with the event or on a monthly basis.
Contract Balances
A contract liability is an entity’s obligation to transfer goods or services to a customer for which the entity has received consideration (or the amount is due) from the customer. The Company received signing bonuses from three vendors in prior years, which are being amortized over the term of the respective contracts. As of March 31, 2026 and December 31, 2025, the Company had contract liabilities of $1.1 million and $1.3 million, respectively, which it expects to recognize over the remaining term of the respective contracts with the vendors. For the three months ended March 31, 2026, the Company’s recognized revenues increased and contract liabilities decreased by approximately $0.2 million due to the passage of time. For the three months ended March 31, 2025, the Company’s recognized revenues increased and contract liabilities decreased by approximately $0.3 million due to the passage of time. There were no changes in contract liabilities due to changes in transaction price estimates.
A contract asset is the right to consideration for transferred goods or services when the amount is conditioned on something other than the passage of time. As of March 31, 2026 and December 31, 2025, there were no material receivables from contracts with customers or contract assets recorded on the Company’s unaudited interim consolidated balance sheets.
Except for the contract liabilities noted above, the Company did not have any significant performance obligations as of March 31, 2026 and December 31, 2025. The Company also did not have any material contract acquisition costs or use any significant judgments or estimates in recognizing revenue for financial reporting purposes.
13. Earnings per Share
For the three months ended March 31, 2026 and 2025, the Company made no adjustments to net income for the purpose of computing earnings per share and there were 258,000 and 184,000 antidilutive securities, respectively. For the three months ended March 31, 2026 and 2025, the computations of basic and diluted earnings per share were as follows:
(dollars in thousands, except shares and per share amounts)
Numerator:
Denominator:
Basic: weighted-average shares outstanding
Add: weighted-average equity-based awards
888,104
885,130
Diluted: weighted-average shares outstanding
36
14. Noninterest Income and Noninterest Expense
Benefit Plans
The following table sets forth the components of net periodic benefit cost for the Company’s pension and postretirement benefit plans for the three months ended March 31, 2026 and 2025:
Income line item where recognized in
Pension Benefits
Other Benefits
the consolidated statements of income
Service cost
169
Interest cost
Other noninterest expense
1,712
1,880
225
Expected return on plan assets
(831)
(876)
Recognized net actuarial loss (gain)
278
383
(218)
(301)
Total net periodic benefit cost
1,159
1,387
209
93
Leases
The Company recognized operating lease income related to lease payments of $1.7 million and $1.6 million for the three months ended March 31, 2026 and 2025, respectively. In addition, the Company recognized $1.5 million of lease income related to variable lease payments for both the three months ended March 31, 2026 and 2025.
15. Fair Value
The Company determines the fair values of its financial instruments based on the requirements established in Accounting Standards Codification Topic 820 (“Topic 820”), Fair Value Measurements, which provides a framework for measuring fair value under GAAP and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Topic 820 defines fair value as the exit price, the price that would be received for an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date under current market conditions.
Fair Value Hierarchy
Topic 820 establishes three levels of fair values based on the markets in which the assets or liabilities are traded and the reliability of the assumptions used to determine fair value. The levels are:
Topic 820 requires that the Company disclose estimated fair values for certain financial instruments. Financial instruments include such items as investment securities, loans, deposits, interest rate and foreign exchange contracts, swaps and other instruments as defined by the standard. The Company has an organized and established process for determining and reviewing the fair value of financial instruments reported in the Company’s financial statements. The fair value measurements are reviewed to ensure they are reasonable and in line with market experience in similar asset and liability classes.
Additionally, the Company may be required to record at fair value other assets on a nonrecurring basis, such as collateral-dependent loans, other real estate owned, other customer relationships, and other intangible assets. These nonrecurring fair value adjustments typically involve the application of lower-of-cost-or-fair-value accounting or write-downs of individual assets.
Disclosure of fair values is not required for certain items such as lease financing, obligations for pension and other postretirement benefits, premises and equipment, prepaid expenses, deposit liabilities with no defined or contractual maturity, and income tax assets and liabilities.
Reasonable comparisons of fair value information with that of other financial institutions cannot necessarily be made because the standard permits many alternative calculation techniques, and numerous assumptions have been used to estimate the Company’s fair values.
Valuation Techniques Used in the Fair Value Measurement of Assets and Liabilities Carried at Fair Value
For the assets and liabilities measured at fair value on a recurring basis (categorized in the valuation hierarchy table below), the Company applies the following valuation techniques:
Available-for-sale debt securities are recorded at fair value on a recurring basis. Fair value measurement is based on quoted prices, including estimates by third-party pricing services, if available. If quoted prices are not available, fair values are measured using proprietary valuation models that utilize market observable parameters from active market makers and inter-dealer brokers whereby securities are valued based upon available market data for securities with similar characteristics. Management reviews the pricing information received from the Company’s third-party pricing service to evaluate the inputs and valuation methodologies used to place securities into the appropriate level of the fair value hierarchy and transfers of securities within the fair value hierarchy are made if necessary. On a monthly basis, management reviews the pricing information received from the third-party pricing service which includes a comparison to non-binding third-party broker quotes, as well as a review of market-related conditions impacting the information provided by the third-party pricing service. Management also identifies investment securities which may have traded in illiquid or inactive markets by identifying instances of a significant decrease in the volume or frequency of trades, relative to historical levels, as well as instances of a significant widening of the bid-ask spread in the brokered markets. The Company’s third-party pricing service has also established processes for the Company to submit inquiries regarding quoted prices. Periodically, the Company will challenge the quoted prices provided by the third-party pricing service. The Company’s third-party pricing service will review the inputs to the evaluation in light of the new market data presented by the Company. The Company’s third-party pricing service may then affirm the original quoted price or may update the evaluation on a going forward basis. The Company classifies all available-for-sale securities as Level 2.
Derivatives
Most of the Company’s derivatives are traded in over-the-counter markets where quoted market prices are not readily available. For those derivatives, the Company measures fair value on a recurring basis using proprietary valuation models that primarily use market observable inputs, such as yield curves, and option volatilities. The fair value of derivatives includes values associated with counterparty credit risk and the Company’s own credit standing. The Company classifies these derivatives, included in other assets and other liabilities, as Level 2.
Concurrent with the sale of the Visa Class B restricted shares, the Company entered into an agreement with the buyer that requires payment to the buyer in the event Visa reduces each member bank’s Class B conversion rate to unrestricted Class A common shares. During 2018 through 2023, Visa funded its litigation escrow account, thereby reducing each member bank’s Class B conversion rate to unrestricted Class A common shares from 1.6483 to 1.5875. As a result of the Visa Exchange Offer, the buyer held a combination of Visa Class B-2 shares and Visa Class C shares, of which the Visa derivative’s notional is based on. Visa Class B-2 shares and Visa Class C shares have a current conversion rate to Class A common shares of 1.5075 and 4.0000, respectively. The Visa derivative of $2.3 million was included in the unaudited interim consolidated balance sheets at both March 31, 2026 and December 31, 2025, to provide for the fair value of this liability. The potential liability related to this funding swap agreement was determined based on management’s estimate of the timing and the amount of Visa’s litigation settlement and the resulting payments due to the counterparty under the terms of the contract. As such, the funding swap agreement is classified as Level 3 in the fair value hierarchy. The significant unobservable inputs used in the fair value measurement of the Company’s funding swap agreement are the potential future changes in the Class B-2 conversion rate, expected term and growth rate of the market price of Visa Class A common shares. Material increases (or decreases) in any of those inputs may result in a significantly higher (or lower) fair value measurement.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis as of March 31, 2026 and December 31, 2025 are summarized below:
Fair Value Measurements as of March 31, 2026
Quoted Prices in
Significant
Active Markets for
Identical Assets
Observable
Unobservable
(Level 1)
Inputs (Level 2)
Inputs (Level 3)
Residential - Government agency(1)
Residential - Government-sponsored enterprises(1)
Other assets(2)
2,007
15,713
17,720
Liabilities
Other liabilities(3)
(7,403)
2,090,614
2,090,321
Fair Value Measurements as of December 31, 2025
595
21,522
22,117
(14,628)
2,085,427
2,083,722
For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of March 31, 2026 and December 31, 2025, the significant unobservable inputs used in the fair value measurements were as follows:
Quantitative Information about Level 3 Fair Value Measurements at March 31, 2026
Fair value
Valuation Technique
Unobservable Input
Collateral-dependent loans
11,868
Financial Statement Values
Discounts to reflect estimated selling costs
0% - 50%
Discounted Cash Flow
Expected Conversion Rate - 1.5075(1)
1.3787-1.5075
Expected Term - 6 months(2)
n/m(2)
Growth Rate - 33%(3)
4% - 50%
Quantitative Information about Level 3 Fair Value Measurements at December 31, 2025
13,608
Expected Conversion Rate - 1.5108(1)
1.3848-1.5108
Growth Rate - 13%(3)
-11% - 28%
Changes in Fair Value Levels
For the three months ended March 31, 2026 and 2025, there were no transfers between fair value hierarchy levels.
The changes in Level 3 liabilities measured at fair value on a recurring basis for the three months ended March 31, 2026 and 2025 are summarized below:
Visa Derivative
Balance as of January 1,
Total net losses included in other noninterest income
Settlements
971
1,292
Balance as of March 31,
Total net losses included in net income attributable to the change in unrealized losses related to liabilities still held as of March 31,
Assets and Liabilities Carried at Other Than Fair Value
The following tables summarize for the periods indicated the estimated fair value of the Company’s financial instruments that are not required to be carried at fair value on a recurring basis, excluding leases and deposit liabilities with no defined or contractual maturity.
Fair Value Measurements
Active Markets
for Identical
Inputs
Book Value
Assets (Level 1)
(Level 3)
Financial assets:
Cash and cash equivalents
Investment securities held-to-maturity
Loans(1)
13,997,088
13,463,830
Financial liabilities:
Time deposits(2)
3,365,037
1,376
13,870,599
13,356,550
3,370,133
3,356,533
Unfunded loan and lease commitments and letters of credit are not included in the tables above. As of March 31, 2026 and December 31, 2025, the Company had $6.8 billion and $6.9 billion, respectively, of unfunded loan and lease commitments and letters of credit. The Company believes that a reasonable estimate of the fair value of these instruments is the carrying value of deferred fees plus the related reserve for unfunded commitments, which totaled $48.8 million and $49.7 million at March 31, 2026 and December 31, 2025, respectively. No active trading market exists for these instruments, and the estimated fair value does not include value associated with the borrower relationship. The Company does not estimate the fair values of certain unfunded loan and lease commitments that can be canceled by providing notice to the borrower. As Company-level data is incorporated into the fair value measurement, unfunded loan and lease commitments and letters of credit are classified as Level 3.
Valuation Techniques Used in the Fair Value Measurement of Assets and Liabilities Carried at the Lower of Cost or Fair Value
The Company applies the following valuation techniques to assets measured at the lower of cost or fair value:
MSRs are carried at the lower of cost or fair value and are therefore subject to fair value measurements on a nonrecurring basis. The fair value of MSRs is determined using models which use significant unobservable inputs, such as estimates of prepayment rates, the resultant weighted average lives of the MSRs and the option-adjusted spread levels. Accordingly, the Company classifies MSRs as Level 3.
Collateral-dependent loans are those for which repayment is expected to be provided substantially through the operation or sale of the collateral. These loans are measured at fair value on a nonrecurring basis using collateral values as a practical expedient. The fair values of collateral are primarily based on real estate appraisal reports prepared by third-party appraisers less estimated selling costs. The Company may also use another available source of collateral assessment, such as purchase offers, letters of intent, or broker price opinions, to determine a reasonable estimate of the fair value of the collateral. The fair value of other collateral such as business assets is typically ascertained by assessing inventory listings and borrower’s financial statements less estimated selling costs. The Company measures the estimated credit losses on collateral-dependent loans by performing a lower of cost or fair value analysis. If the estimated credit losses are determined by the value of the collateral, the net carrying amount is adjusted to fair value on a nonrecurring basis as Level 3 by recognizing an ACL.
Other real estate owned
The Company values these properties at fair value at the time the Company acquires them, which establishes their new cost basis. After acquisition, the Company carries such properties at the lower of cost or fair value less estimated selling costs on a nonrecurring basis. Fair value is measured on a nonrecurring basis using collateral values as a practical expedient. The fair values of collateral for other real estate owned are primarily based on real estate appraisal reports prepared by third-party appraisers less disposition costs and are classified as Level 3.
Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis
The Company may be required to record certain assets at fair value on a nonrecurring basis in accordance with GAAP. These assets are subject to fair value adjustments that result from the application of lower of cost or fair value accounting or write-downs of individual assets to fair value.
The following table provides the level of valuation inputs used to determine each fair value adjustment and the fair value of the related individual assets or portfolio of assets with fair value adjustments on a nonrecurring basis as of March 31, 2026 and December 31, 2025:
Level 1
Level 2
Level 3
Total expected credit losses recognized on collateral-dependent loans were $2.4 million for the three months ended March 31, 2026. The Company recognized a reduction in expected credit losses on collateral-dependent loans of $0.4 million for the three months ended March 31, 2025.
16. Reportable Operating Segments
The Company’s reportable segments are based on the manner in which management organizes the business for making operating decisions and assessing performance. These segments reflect how discrete financial information is currently evaluated by the chief operating decision maker and how performance is assessed and resources are allocated. The Company’s internal management process measures the performance of these business segments. This process, which is not necessarily comparable with similar information for any other financial institution, uses various techniques to assign balance sheet and income statement amounts to the business segments, including allocations of income, expense, the provision for credit losses and capital. This process is dynamic and requires certain allocations based on judgment and other subjective factors. Unlike financial accounting, there is no comprehensive authoritative guidance for management accounting that is equivalent to GAAP.
During the quarter ended December 31, 2025, the Company realigned its internal organizational and management reporting structure. As a result of this change, the Company reduced its reportable operating segments from three to two. The Company’s reportable segments are now Retail Banking and Commercial Banking. Activities previously reported within the Treasury and Other segment are now included in Corporate/Other, as Treasury exists to support the Company’s operating segments. The change in reportable segments reflects how the Company’s chief operating decision maker currently evaluates performance and allocates resources. In addition, during the third quarter of 2025, the Company made changes to the internal measurement of segment operating profits for the purpose of evaluating segment performance and resource allocation. The primary reason for the change was to align loan and deposit balances within the business segment that directly manages them. Specifically, certain loan and deposit balances previously included as part of the Retail Banking and Commercial Banking segments were reclassified among the segments and what is now Corporate/Other. The reallocation of select loan and deposit balances affected net interest income, net interest income after provision for credit losses, provision for income taxes, net income and segment earning assets. The Company has reported its selected financial information using the new loan and deposit balance alignments and using two reportable operating segments for the three months ended March 31, 2026. The Company has recast the selected financial information for the three months ended March 31, 2025 in order to conform with the current presentation.
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 Corporate/Other.
The Company allocates the provision for credit losses from Corporate/Other (which includes activity within the Company’s support units) to the Retail Banking and Commercial Banking business segments. These allocations are based on direct costs incurred by the Retail Banking and Commercial Banking business segments.
Noninterest income and expense includes allocations from support units to the business segments. These allocations are based on actual usage where practicably calculated or by management’s estimate of such usage. Income tax expense is allocated to each business segment as well as Corporate/Other based on the consolidated effective income tax rate for the period shown.
Business Segments
Retail Banking
Retail Banking offers a broad range of financial products and services to consumers and small businesses. Loan and lease products offered include residential and commercial mortgage loans, home equity lines of credit and loans, automobile loans and leases, secured and unsecured lines of credit, installment loans and small business loans and leases. Deposit products offered include checking, savings, and time deposit accounts. Retail Banking also offers wealth management services. Products and services from Retail Banking are delivered to customers through 49 banking locations throughout the State of Hawaii, Guam and Saipan.
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Commercial Banking
Commercial Banking offers products that include corporate banking related products, commercial real estate loans, commercial lease financing, secured and unsecured lines of credit, automobile loans and auto dealer financing, business deposit products and credit cards. Commercial lending and deposit products are offered primarily to middle-market and large companies locally, nationally and internationally.
Corporate/Other
Corporate/Other includes activity within the support units of the Company and not associated with a segment. One such area is Treasury, which includes activities surrounding the management of interest-bearing deposits, investment securities, federal funds sold and purchased, government deposits, short- and long-term borrowings and bank-owned properties (and these assets’ and liabilities’ related interest income and expense). The primary sources of noninterest income are from bank-owned life insurance, net gains from the sale of investment securities, foreign exchange income related to customer driven cross-border wires for business and personal reasons and management of bank-owned properties. The net residual effect of the transfer pricing of assets and liabilities is included in Corporate/Other, along with the elimination of intercompany transactions.
Other organizational units within Corporate/Other (such as Technology, Operations, Credit and Risk Management, Human Resources, Finance, Administration, Marketing and Corporate and Regulatory Administration) provide a wide range of support to the Company’s reportable segments. Expenses incurred by these support units are charged to the business segments through an internal cost allocation process.
The following tables present selected business segment and Corporate/Other financial information for the periods indicated.
84,013
102,426
43,259
Intersegment interest allocations (1)
(62,601)
(72,158)
134,759
21,412
30,268
178,018
(44,207)
(15,019)
(2,942)
(62,168)
152,915
28,718
(181,633)
108,708
13,699
(184,575)
Net interest income (expense)
(Provision) benefit for credit losses
(2,470)
(3,280)
750
(5,000)
Net interest income (expense) after (provision) benefit for credit losses
127,650
40,687
(5,807)
(26,522)
(5,011)
(32,557)
(64,090)
(2,671)
(4,019)
(7,274)
(13,964)
(7,982)
(486)
652
(7,816)
(1,445)
(476)
(12,860)
(14,781)
(8,404)
Other segment items (2)
(37,950)
(1,881)
21,001
(18,830)
(76,570)
(20,277)
(31,038)
(127,885)
Income (loss) before (provision) benefit for income taxes
79,219
39,014
(30,769)
(Provision) benefit for income taxes
(19,144)
(7,633)
7,097
(19,680)
Net income (loss)
60,075
31,381
(23,672)
Other Segment Disclosures:
Depreciation and amortization (3)
1,530
4,049
5,625
Segment earning assets(4)
7,162,606
7,281,120
7,077,744
21,521,470
45
81,052
110,630
43,468
(60,204)
(79,935)
140,139
20,848
30,695
183,607
(52,253)
(16,413)
(5,958)
(74,624)
157,861
31,656
(189,517)
105,608
15,243
(195,475)
(4,691)
(5,309)
(500)
(10,500)
Net interest income (expense) after provision for credit losses
121,765
40,629
(12,368)
(24,612)
(4,791)
(30,701)
(60,104)
(3,053)
(3,870)
(7,916)
(14,839)
(7,295)
(495)
(310)
(1,395)
(449)
(12,027)
(13,871)
(7,919)
(36,770)
(2,247)
20,290
(18,727)
(73,125)
(19,771)
(30,664)
(123,560)
75,291
38,613
(36,961)
(17,860)
(7,867)
8,032
(17,695)
57,431
30,746
(28,929)
1,048
68
4,412
5,528
7,066,392
7,230,624
6,687,631
20,984,647
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q, including the documents incorporated by reference herein, contains, and from time to time our management may make, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would,” “annualized” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. Statements that are not historical or current facts, are forward-looking statements, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.
A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including the following: the geographic concentration of our business, current and future market and economic conditions generally or in Hawaii, Guam and Saipan in particular, including inflationary pressures and interest rate environment; our dependence on the real estate markets in which we operate; concentrated exposures to certain asset classes and individual obligors; the effect of changes in interest rates on our business, including our net interest income, net interest margin, the fair value of our investment securities, and our mortgage loan originations, mortgage servicing rights and mortgage loans held for sale; the future value of the investment securities that we own; the possibility of a deterioration in credit quality in our portfolio; the possibility we might underestimate the credit losses inherent in our loan and lease portfolio; our ability to attract and retain customer deposits; our inability to receive dividends from our bank, pay dividends to our common stockholders and satisfy obligations as they become due; our access to sources of liquidity and capital to address our liquidity needs; our ability to attract and retain skilled employees or changes in our management personnel; our ability to maintain our Bank's reputation; the failure to properly use and protect our customer and employee information and data; the possibility of employee misconduct or mistakes; the actual or perceived soundness of other financial institutions; the effectiveness of our risk management and internal disclosure controls and procedures; our ability to keep pace with technological changes; any failure or interruption of our information and communications systems; our ability to effectively compete with other financial services companies and the effects of competition in the financial services industry on our business; our ability to identify and address cybersecurity risks; the occurrence of fraudulent activity or effect of a material breach of, or disruption to, the security of any of our or our vendors’ systems; the development and use of AI; our ability to successfully develop and commercialize new or enhanced products and services; changes in the demand for our products and services; risks associated with the sale of loans and with our use of appraisals in valuing and monitoring loans; the possibility that actual results may differ from estimates and forecasts; fluctuations in the fair value of our assets and liabilities and off-balance sheet exposures; the effects of the failure of any component of our business infrastructure provided by a third party; the potential for environmental liability; the risk of being subject to litigation and the outcome thereof; the impact of, and changes in, applicable laws, regulations and accounting standards and policies; possible changes in trade, monetary and fiscal policies of, and other activities undertaken by, governments, agencies, central banks and similar organizations, including trade and other geopolitical tensions resulting from conflicts in the Middle East, the imposition of tariffs and tightening of export control regulations; the effects of severe weather, geopolitical instability, including war, terrorist attacks, pandemics or other severe health emergencies and natural disasters and other external events; the potential impact of climate change; our ability to maintain consistent growth, earnings and profitability; our likelihood of success in, and the impact of, litigation or regulatory actions; our ability to continue to pay dividends on our common stock; contingent liabilities and unexpected tax liabilities that may be applicable to us as a result of the Reorganization Transactions; and damage to our reputation from any of the factors described above.
The foregoing factors should not be considered an exhaustive list and should be read together with the risk factors and other cautionary statements included in our Annual Report on Form 10-K for the year ended December 31, 2025. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by applicable law.
Company Overview
FHI is a bank holding company, which owns 100% of the outstanding common stock of FHB, its only direct, wholly owned subsidiary. FHB was founded in 1858 under the name Bishop & Company and was the first successful banking partnership in the Kingdom of Hawaii and the second oldest bank formed west of the Mississippi River. The Bank operates its business through two operating segments: Retail Banking and Commercial Banking. All other activities, including Treasury, are reported in Corporate/Other.
References to “we,” “our,” “us,” or the “Company” refer to the Parent and its subsidiary that are consolidated for financial reporting purposes.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements of the Company reflect the results of operations, financial position and cash flows of FHI and its wholly owned subsidiary, FHB. All significant intercompany accounts and transactions have been eliminated in consolidation.
The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and accompanying notes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect normal recurring adjustments necessary for a fair presentation of the results for the interim periods.
The accompanying unaudited interim consolidated financial statements of the Company should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 and filed with the U.S. Securities and Exchange Commission (the “SEC”).
Hawaii Economy
Hawaii’s economy continues to remain resilient in an environment facing challenges, including from: high consumer prices and housing affordability, both of which are expected to continue with the gradual pass-through of tariffs and the ongoing conflict with Iran; a steady out-migration of its population; adverse weather events, such as the Kona Low storms, alongside rising insurance costs; and slower economic growth with a 1.7% forecasted increase in the real gross domestic product for Hawaii in 2026 as compared to a 2.2% forecasted increase for the United States overall in 2026. Recent geopolitical developments, including the conflicts in the Middle East, elevate uncertainty.
Despite these challenges, according to the State of Hawaii Department of Business, Economic Development and Tourism, the statewide seasonally adjusted unemployment rate was 2.3% at February 28, 2026, which is lower than the national seasonally adjusted unemployment rate of 4.4%.
Tourism also remains stable, with the average daily domestic passenger counts for the three months ended March 31, 2026 six percent higher than the average daily domestic passenger counts during the three months ended March 31, 2025, according to the Hawaii Tourism Authority. Hawaii’s economy depends significantly on conditions of the U.S. economy and key international economies, particularly Japan, and the broader demand for travel of these key markets. International visitor arrivals have not yet recovered to pre-pandemic arrival levels and demand for tourism could be negatively impacted by increasing fuel prices.
48
The local Oahu housing market, particularly condominiums, continues to experience some softening as compared to previous years primarily due to continued high interest rates and prices. According to the Honolulu Board of Realtors, the volume of single-family home sales increased by 10.9%, while condominium sales decreased by 3.6%, in each case when comparing the three months ended March 31, 2026 with the same period in 2025. The median price of a single-family home sold on Oahu during the first three months of 2026 was $1,180,000, an increase of 2.6% compared to the same period in 2025. The median price of a condominium sold on Oahu during the first three months of 2026 was $510,000, equivalent to the median price during the same period in 2025. As of March 31, 2026, months of inventory of single-family homes and condominiums on Oahu were approximately 2.8 and 6.3 months, respectively, as compared to 3.3 and 6.2 months, respectively, as of March 31, 2025.
Selected Financial Data
Our financial highlights for the periods indicated are presented in Table 1:
Financial Highlights
Table 1
For the Three Months Ended
(dollars in thousands, except per share data)
Income Statement Data:
Dividends declared per share
0.26
Dividend payout ratio
47.27
55.32
Other Financial Information / Performance Ratios(1):
Net interest margin
3.19
3.08
Efficiency ratio
57.77
58.22
Return on average total assets
1.14
1.01
Return on average tangible assets (non-GAAP)(2)
1.19
1.05
Return on average total stockholders' equity
9.86
9.09
Return on average tangible stockholders' equity (non-GAAP)(2)
15.33
14.59
Noninterest expense to average assets
2.15
2.10
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Balance Sheet Data:
Investment securities available-for-sale
Allowance for credit losses for loans and leases
Book value per share
22.75
22.57
Tangible book value per share (non-GAAP)(2)
14.57
14.46
Asset Quality Ratios:
Non-accrual loans and leases / total loans and leases
0.27
0.29
Allowance for credit losses for loans and leases / total loans and leases
1.17
1.18
Net charge-offs / average total loans and leases(3)
0.14
0.11
Capital Ratios:
Common Equity Tier 1 Capital Ratio
Tier 1 Capital Ratio
Total Capital Ratio
Tier 1 Leverage Ratio
Total stockholders' equity to total assets
11.41
11.56
Tangible stockholders' equity to tangible assets (non-GAAP)(2)
7.62
7.73
The following table provides a reconciliation of these non-GAAP financial measures with their most closely related GAAP measures for the periods indicated:
GAAP to Non-GAAP Reconciliation
Table 2
Average total stockholders' equity
2,788,826
2,641,978
Less: average goodwill
Average tangible stockholders' equity
1,793,334
1,646,486
Average total assets
24,083,280
23,890,459
Average tangible assets
23,087,788
22,894,967
Return on average total stockholders' equity(a)
Return on average tangible stockholders' equity (non-GAAP)(a)
Return on average total assets(a)
Return on average tangible assets (non-GAAP)(a)
As of
Less: goodwill
Tangible stockholders' equity
1,772,268
1,773,873
Tangible assets
23,269,056
22,959,760
Shares outstanding
Tangible stockholders' equity to tangible assets (non-GAAP)
Tangible book value per share (non-GAAP)
51
Net income was $67.8 million for the three months ended March 31, 2026, an increase of $8.5 million or 14% as compared to the same period in 2025. Basic earnings per share was $0.55 for the three months ended March 31, 2026, an increase of $0.08 or 17% as compared to the same period in 2025. Diluted earnings per share was $0.55 for the three months ended March 31, 2026, an increase of $0.08 or 17% as compared to the same period in 2025. The increase in net income was primarily due to a $7.0 million increase in net interest income, a $5.5 million decrease in the provision for credit losses (the “Provision”) and a $2.3 million increase in noninterest income. This was partially offset by a $4.3 million increase in noninterest expense and a $2.0 million increase in the provision for income taxes.
Our return on average total assets was 1.14% for the three months ended March 31, 2026, an increase of 13 basis points from the same period in 2025, and our return on average total stockholders’ equity was 9.86% for the three months ended March 31, 2026, an increase of 77 basis points for the same period in 2025. Our return on average tangible assets was 1.19% for the three months ended March 31, 2026, an increase of 14 basis points from the same period in 2025, and our return on average tangible stockholders’ equity was 15.33% for the three months ended March 31, 2026, an increase of 74 basis points from the same period in 2025. Our efficiency ratio was 57.77% for the three months ended March 31, 2026 compared to 58.22% for the same period in 2025.
Our results for the three months ended March 31, 2026 were highlighted by the following:
For the three months ended March 31, 2026, we continued to maintain high levels of liquidity and adequate reserves for credit losses. We also remained well-capitalized. Common Equity Tier 1 (“CET1”) was 13.12% as of March 31, 2026, a decrease of 5 basis points from December 31, 2025. The decrease in CET1 was primarily due to common stock repurchased and dividends declared and paid to the Company’s stockholders and an increase in risk-weighted assets, partially offset by earnings for the three months ended March 31, 2026.
52
●
Total stockholders’ equity was $2.8 billion as of March 31, 2026 and December 31, 2025. Earnings of $67.8 million for the period were offset by repurchases of common stock of $32.0 million, dividends of $31.9 million declared and paid to the Company’s stockholders and other comprehensive loss, net of tax, of $4.6 million during the three months ended March 31, 2026.
Analysis of Results of Operations
Net Interest Income
For the three months ended March 31, 2026 and 2025, average balances, related income and expenses, on a fully taxable-equivalent basis, and resulting yields and rates are presented in Table 3. An analysis of the change in net interest income, on a fully taxable-equivalent basis, is presented in Table 4.
53
Average Balances and Interest Rates
Table 3
Income/
Yield/
(dollars in millions)
Balance
Expense
Rate
Earning Assets
Interest-Bearing Deposits in Other Banks
1,455.0
13.2
3.68
1,171.1
12.8
4.44
Available-for-Sale Investment Securities
Taxable
2,050.7
14.9
2.91
1,891.4
2.79
Non-Taxable
0.8
4.86
1.4
5.52
Held-to-Maturity Investment Securities
2,916.5
12.0
1.64
3,164.0
13.6
1.72
592.6
3.5
2.39
599.0
3.7
2.51
Total Investment Securities
5,560.6
30.4
2.19
5,655.8
30.5
2.16
Loans Held for Sale
0.9
5.87
0.3
6.28
Loans and Leases(1)
2,170.6
30.8
5.75
2,196.8
33.6
6.20
4,608.4
65.0
5.72
4,420.1
66.5
6.10
775.5
12.4
6.48
937.0
15.4
6.67
4,081.8
41.0
4.02
4,150.3
40.9
3.94
1,175.4
13.7
4.71
1,149.8
13.1
4.61
1,034.5
20.0
7.84
1,019.5
18.9
7.53
443.2
4.1
3.75
436.5
4.3
3.99
14,289.4
187.0
5.29
14,310.0
192.7
5.44
Other Earning Assets
26.7
0.1
2.52
32.0
0.4
5.48
Total Earning Assets(2)
21,332.6
230.7
4.37
21,169.2
236.4
4.51
Cash and Due from Banks
226.4
235.9
Other Assets
2,524.3
2,485.4
Total Assets
24,083.3
23,890.5
Interest-Bearing Liabilities
Interest-Bearing Deposits
Savings
6,404.5
1.20
6,232.5
21.3
1.38
Money Market
4,358.9
19.8
1.84
3,922.2
23.0
2.38
Time
3,381.3
23.4
2.80
3,317.1
27.4
3.36
Total Interest-Bearing Deposits
14,144.7
62.1
1.78
13,471.8
71.7
Other Short-Term Borrowings
250.0
2.6
4.22
Other Interest-Bearing Liabilities
12.5
3.40
27.5
4.67
Total Interest-Bearing Liabilities
14,157.2
62.2
13,749.3
74.6
2.20
168.5
161.8
Interest Rate Spread(3)
2.59
2.31
Net Interest Margin(4)
Noninterest-Bearing Demand Deposits
6,478.9
6,882.2
Other Liabilities
658.4
617.0
Stockholders' Equity
2,788.8
2,642.0
Total Liabilities and Stockholders' Equity
54
Analysis of Change in Net Interest Income
Table 4
Compared to March 31, 2025
Volume
Total (1)
Change in Interest Income:
2.8
(2.4)
1.1
0.6
1.7
(1.0)
(0.6)
(1.6)
(0.2)
(0.1)
Loans and Leases
(0.4)
(2.8)
(4.3)
(1.5)
(2.6)
(3.0)
(0.7)
(0.3)
(5.5)
(5.7)
Total Change in Interest Income
(8.3)
Change in Interest Expense:
0.5
(2.9)
2.4
(5.6)
(3.2)
(4.6)
(4.0)
(13.1)
(9.6)
Other Short-term Borrowings
(1.3)
Total Change in Interest Expense
2.1
(14.5)
(12.4)
Change in Net Interest Income
6.2
6.7
Net interest income, on a fully taxable-equivalent basis, was $168.5 million for the three months ended March 31, 2026, an increase of $6.7 million or 4% compared to the same period in 2025. Our net interest margin was 3.19% for the three months ended March 31, 2026, an increase of 11 basis points from the same period in 2025. The increase in net interest income, on a fully taxable-equivalent basis, was primarily due to lower deposit funding and borrowing costs and higher average balances on our interest-bearing deposits in other banks, partially offset by lower earning asset yields driven by lower yields in our loan and lease portfolio during the three months ended March 31, 2026, compared to the same period in 2025. Deposit funding costs were $62.1 million for the three months ended March 31, 2026, a decrease of $9.6 million or 13% compared to the same period in 2025, primarily due to a decrease in interest rates. Rates paid on our interest-bearing deposits were 1.78% for the three months ended March 31, 2026, a decrease of 38 basis points compared to the same period in 2025, primarily due to rate decreases. Total borrowing costs were nil for the three months ended March 31, 2026, a decrease of $2.6 million compared to the same period in 2025. $250.0 million of FHLB advances matured during the third quarter of 2025. For the three months ended March 31, 2026, the average balance on our interest-bearing deposits in other banks was $1.5 billion, an increase of $283.9 million or 24% compared to the same period in 2025. The yield on our loan and lease portfolio was 5.29% for the three months ended March 31, 2026, a decrease of 15 basis points as compared to the same period in 2025, primarily due to decreases in yields from our adjustable-rate commercial real estate, commercial and industrial and construction loans, which are typically based on the SOFR.
The Federal Reserve influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions. Our loan portfolio is affected by changes in the prime interest rate. The prime rate decreased by75 basis points in 2025 to end the year at 6.75%, where it remained as at the end of the first quarter of 2026. As noted above, our loan portfolio is also impacted by changes in the SOFR. At March 31, 2026, the one-month and three-month CME Term SOFR interest rates were 3.66% and 3.68%, respectively. At March 31, 2025, the one-month and three-month CME Term SOFR interest rates were 4.32% and 4.29%, respectively. The target range for the federal funds rate, which is the cost of immediately available overnight funds, decreased 75 basis points in 2025 to end the year at 3.50% to 3.75%, where it remains as at March 31, 2026. There continues to be uncertainty in the changing market and economic conditions.
Provision for Credit Losses
The Provision was $5.0 million for the three months ended March 31, 2026, a decrease of $5.5 million or 52% compared to the same period in 2025. The decrease was primarily due to decreases in the provision for consumer loans, construction loans and home equity lines and the provision for unfunded commercial and industrial and commercial real estate commitments. This was partially offset by increases in the provision for residential mortgage loans, commercial and industrial loans and commercial real estate loans and the provision for unfunded construction commitments. We recorded net charge-offs of loans and leases of $4.9 million and $3.8 million for the three months ended March 31, 2026 and 2025, respectively. This represented net charge-offs of 0.14% and 0.11% of average loans and leases, on an annualized basis, for the three months ended March 31, 2026 and 2025, respectively. The ACL was $169.3 million as of March 31, 2026, an increase of $0.9 million or 1% from December 31, 2025 and represented 1.17% of total outstanding loans and leases as of March 31, 2026, compared to 1.18% of total outstanding loans and leases as of December 31, 2025. The reserve for unfunded commitments was $34.9 million as of March 31, 2026, compared to $35.7 million as of December 31, 2025. The Provision is recorded to maintain the ACL and the reserve for unfunded commitments at levels deemed adequate by management based on the factors noted in the “Risk Governance and Quantitative and Qualitative Disclosures About Market Risk — Credit Risk” section of this MD&A.
Noninterest Income
Table 5 presents the major components of noninterest income for the three months ended March 31, 2026 and 2025:
Table 5
Dollar
Percent
Change
609
1,617
(224)
(2)
(280)
2,342
n/m – Denotes a variance that is not a meaningful metric to inform the change in noninterest income for the three months ended March 31, 2026 to the same period in 2025.
Total noninterest income was $52.8 million for the three months ended March 31, 2026, an increase of $2.3 million or 5% as compared to the same period in 2025.
Service charges on deposit accounts were $8.2 million for the three months ended March 31, 2026, an increase of $0.6 million or 8% as compared to the same period in 2025. This increase was primarily due to a $0.5 million increase in overdraft and checking account fees.
Credit and debit card fees were $15.1 million for the three months ended March 31, 2026, an increase of $0.6 million or 4% as compared to the same period in 2025. This increase was primarily due to a $0.6 million increase in interchange settlement fees, a $0.4 million decrease in network association dues and a $0.3 million increase in merchant service revenues, partially offset by a $0.7 million decrease in ATM interchange and surcharge fees.
Other service charges and fees were $13.8 million for the three months ended March 31, 2026, an increase of $1.6 million or 13% as compared to the same period in 2025. This increase was primarily due to a $1.7 million increase in fees from annuities and securities.
Trust and investment services income was $9.1 million for the three months ended March 31, 2026, a decrease of $0.2 million or 2% as compared to the same period in 2025.
BOLI income was $4.1 million for the three months ended March 31, 2026, a decrease of $0.3 million or 6% as compared to the same period in 2025.
Other noninterest income was $2.6 million for the three months ended March 31, 2026, a minimal change as compared to the same period in 2025.
Noninterest Expense
Table 6 presents the major components of noninterest expense for the three months ended March 31, 2026 and 2025:
Table 6
Percentage
3,986
(875)
(284)
(4)
910
(575)
(15)
485
605
4,325
Total noninterest expense was $127.9 million for the three months ended March 31, 2026, an increase of $4.3 million or 4% as compared to the same period in 2025.
Salaries and employee benefits expense was $64.1 million for the three months ended March 31, 2026, an increase of $4.0 million or 7% as compared to the same period in 2025. This increase was primarily due to a $1.9 million increase in base salaries and related payroll taxes, a $1.4 million increase in incentive compensation and a $0.5 million increase in group health plan costs.
Contracted services and professional fees were $14.0 million for the three months ended March 31, 2026, a decrease of $0.9 million or 6% as compared to the same period in 2025. This decrease was primarily due to a $1.0 million decrease in outside services, primarily attributable to technology-related projects, marketing and new customer services.
Occupancy expense was $7.8 million for the three months ended March 31, 2026, a decrease of $0.3 million or 4% as compared to the same period in 2025.
Equipment expense was $14.8 million for the three months ended March 31, 2026, an increase of $0.9 million or 7% as compared to the same period in 2025. This increase was primarily due to a $0.5 million increase in furniture and equipment depreciation and a $0.4 million increase in technology-related amortization and licensing and maintenance fees.
57
Regulatory assessment and fees were $3.2 million for the three months ended March 31, 2026, a decrease of $0.6 million or 15% as compared to the same period in 2025. This decrease was primarily due to a decrease in the FDIC insurance assessment. During 2023, the FDIC approved a final rule for a special assessment to replenish the deposit insurance fund following bank failures occurring earlier in the year. As a result, the Company previously recorded a related loss of $16.3 million in the fourth quarter of 2023. During the first quarter of 2024, the FDIC issued a notice that the original loss estimate related to the 2023 bank failures was subsequently increased and that this increase would result in an additional assessment expense to affected institutions. As a result, we recorded a net expense related to the additional special assessment of $3.5 million for the year ended December 31, 2024. In December 2025, the FDIC reduced the rate at which the assessment is collected for the eighth quarter of the collection period, with an invoice payment date of March 30, 2026, from 3.36 basis points to 2.97 basis points. We recorded a reduction in the expense related to the additional special assessment of $2.6 million in 2025 and $0.2 million in the first quarter of 2026.
Advertising and marketing expense was $2.3 million for the three months ended March 31, 2026, an increase of $0.1 million or 3% as compared to the same period in 2025.
Card rewards program expense was $8.4 million for the three months ended March 31, 2026, an increase of $0.5 million or 6% as compared to the same period in 2025. This increase was primarily due to a $0.4 million increase in interchange fees paid to our credit card partners and a $0.2 million increase in priority rewards card redemptions.
Other noninterest expense was $13.3 million for the three months ended March 31, 2026, an increase of $0.6 million or 5% as compared to the same period in 2025. This increase was primarily due to a $0.7 million increase in charitable contributions and a $0.2 million increase in brokers fees, partially offset by a $0.3 million decrease in software amortization expense.
Provision for Income Taxes
The provision for income taxes was $19.7 million (reflecting an effective tax rate of 22.50%) for the three months ended March 31, 2026, compared with a provision for income taxes of $17.7 million (reflecting an effective tax rate of 23.00%) for the same period in 2025. The change in the effective tax rate was partially due to an increase in tax credits for the three months ended March 31, 2026.
Analysis of Business Segments
Our business segments are Retail Banking and Commercial Banking, with all other activities, including Treasury, reported in Corporate/Other. Table 7 summarizes net income (loss) from our business segments and Corporate/Other for the three months ended March 31, 2026 and 2025. Additional information about operating segment performance and Corporate/Other is presented in “Note 16. Reportable Operating Segments” contained in our unaudited interim consolidated financial statements.
During the quarter ended December 31, 2025, we realigned our internal organizational and management reporting structure. As a result of this change, we reduced our reportable operating segments from three to two. Our reportable segments are now Retail Banking and Commercial Banking. Activities previously reported within the Treasury and Other segment are now included in Corporate/Other, as Treasury exists to support our operating segments. The change in reportable segments reflects how our chief operating decision maker currently evaluates performance and allocates resources. In addition, during the third quarter of 2025, we made changes to the internal measurement of segment operating profits for the purpose of evaluating segment performance and resource allocation. The primary reason for the change was to align loan and deposit balances within the business segment that directly manages them. Specifically, certain loan and deposit balances previously included as part of the Retail Banking and Commercial Banking segments were reclassified among the segments and what is now Corporate/Other. The reallocation of select loan and deposit balances affected net interest income, net interest income after provision for credit losses, provision for income taxes, net income and segment earning assets. We have reported our selected financial information using the new loan and deposit balance alignments and using two reportable operating segments for the three months ended March 31, 2026. Prior-period segment information has been recast to conform to the current presentation.
Business Segments and Corporate/Other Net Income (Loss)
Table 7
Consolidated Total
Retail Banking. Our Retail Banking segment includes the financial products and services we provide to consumers and small businesses. Loan and lease products offered include residential and commercial mortgage loans, home equity lines of credit and loans, automobile loans and leases, secured and unsecured lines of credit, installment loans and small business loans and leases. Deposit products offered include checking, savings and time deposit accounts. Our Retail Banking segment also includes our wealth management services. Products and services from Retail Banking are delivered to customers through 49 banking locations throughout the State of Hawaii, Guam and Saipan.
Net income for the Retail Banking segment was $60.1 million for the three months ended March 31, 2026, an increase of $2.6 million or 5% as compared to the same period in 2025. The increase in net income for the Retail Banking segment was primarily due to a $3.7 million increase in net interest income, a $2.2 million decrease in the Provision, and a $1.5 million increase in noninterest income, partially offset by a $3.4 million increase in noninterest expense and a $1.3 million increase in the provision for income taxes. The increase in net interest income was primarily due to higher deposit spreads and higher loan spreads. The decrease in the Provision allocated to the Retail Banking segment was primarily due to decreases in the provision for consumer loans, partially offset by increases in the provision for residential loans. The increase in noninterest income was primarily due to an increase in other service charges and fees. The increase in noninterest expense was primarily due to an increase in salaries and employee benefits expense, an increase in occupancy expense and higher overall expenses that were allocated to the Retail Banking segment. The increase in the provision for income taxes was primarily due to the increase in pretax income.
Commercial Banking. Our Commercial Banking segment includes our corporate banking related products, commercial real estate loans, commercial lease financing, secured and unsecured lines of credit, automobile loans and auto dealer financing, business deposit products and credit cards. Commercial lending and deposit products are offered primarily to middle-market and large companies locally, nationally and internationally.
Net income for the Commercial Banking segment was $31.4 million for the three months ended March 31, 2026, an increase of $0.6 million or 2% as compared to the same period in 2025. The increase in net income for the Commercial Banking segment was primarily due to a $2.0 million decrease in the Provision, a $0.8 million increase in noninterest income and a $0.2 million decrease in the provision for income taxes, partially offset by a $2.0 million decrease in net interest income and a $0.5 million increase in noninterest expense. The decrease in the Provision allocated to the Commercial Banking segment was primarily due to decreases in the provision for consumer loans, partially offset by increases in the provision for residential loans. The increase in noninterest income was primarily due to an increase in credit and debit card fees and an increase in service charges on deposit accounts. The decrease in the provision for income taxes was primarily due to an increase in tax credits. The decrease in net interest income was primarily due to lower deposit spreads and lower loan and lease spreads, partially offset by higher average deposit balances and higher average loan balances. The increase in noninterest expense was primarily due to higher card reward program expense and higher salaries and employee benefits expense, partially offset by higher overall credits that were allocated to the Commercial Banking segment.
Analysis of Financial Condition
Liquidity and Capital Resources
Liquidity refers to our ability to maintain cash flow that is adequate to fund operations and meet present and future financial obligations through either the sale or maturity of existing assets or by obtaining additional funding through liability management. We consider the effective and prudent management of liquidity to be fundamental to our health and strength. Our objective is to manage our cash flow and liquidity reserves so that they are adequate to fund our obligations and other commitments on a timely basis and at a reasonable cost.
Liquidity is managed to ensure stable, reliable and cost-effective sources of funds to satisfy demand for credit, deposit withdrawals and investment opportunities. Funding requirements are impacted by loan originations and refinancings, deposit balance changes, liability issuances and settlements and off-balance sheet funding commitments. We consider and comply with various regulatory and internal guidelines regarding required liquidity levels and periodically monitor our liquidity position in light of the changing economic environment and customer activity. Based on periodic liquidity assessments, we may alter our asset, liability and off-balance sheet positions. The Company’s Asset Liability Management Committee (“ALCO”) monitors sources and uses of funds and modifies asset and liability positions as liquidity requirements change. This process, combined with our ability to raise funds in money and capital markets and through private placements, provides flexibility in managing the exposure to liquidity risk.
Immediate liquid resources are available in cash, which is primarily on deposit with the Federal Reserve Bank of San Francisco (“FRB”). As of March 31, 2026 and December 31, 2025, cash and cash equivalents were $1.7 billion and $1.5 billion, respectively. Potential sources of liquidity also include investment securities in our available-for-sale portfolio and held-to-maturity portfolio. As of both March 31, 2026 and December 31, 2025, the carrying values of our available-for-sale investment securities and held-to-maturity investment securities were $2.1 billion and $3.5 billion, respectively. As of March 31, 2026 and December 31, 2025, we maintained additional liquidity primarily in collateralized mortgage obligations issued by Ginnie Mae, Fannie Mae and Freddie Mac and mortgage-backed securities issued by Ginnie Mae, Freddie Mac, Fannie Mae, Municipal Housing Authorities and non-agency entities. As of March 31, 2026, our available-for-sale investment securities portfolio was comprised of securities with a weighted average life of approximately 4.4 years and our held-to-maturity investment securities portfolio was comprised of securities with a weighted average life of approximately 6.9 years. These funds offer substantial resources to meet either new loan demand or to help offset reductions in our deposit funding base as they provide quick sources of liquidity by pledging to obtain secured borrowings and repurchase agreements or sales of our available-for-sale securities portfolio. Liquidity is further enhanced by our ability to pledge loans to access secured borrowings from the Federal Home Loan Bank of Des Moines (“FHLB”) and the FRB. As of March 31, 2026, we have borrowing capacity of $3.5 billion from the FHLB and $3.3 billion from the FRB based on the amount of collateral pledged.
Our core deposits have historically provided us with a long-term source of stable and relatively lower cost of funding. Our core deposits, defined as all deposits exclusive of time deposits exceeding $250,000, totaled $19.3 billion and $19.1 billion as of March 31, 2026 and December 31, 2025, respectively, which represented 93% of our total deposits as of both March 31, 2026 and December 31, 2025. These core deposits are normally less volatile, often with customer relationships tied to other products offered by the Company; however, deposit levels could decrease if interest rates increase significantly or if corporate customers increase investing activities, including alternative investment options, that reduce deposit balances.
The Company’s routine funding requirements are expected to consist primarily of general corporate needs and capital to be returned to our shareholders. We expect to meet these obligations from dividends paid by the Bank to the Parent. Additional sources of liquidity available to us include selling residential real estate loans in the secondary market, taking out short- and long-term borrowings and issuing long-term debt and equity securities.
Our material cash requirements from our current and long-term contractual obligations have not changed materially since previously reported as of December 31, 2025. We believe that our existing cash, cash equivalents, investments, and cash expected to be generated from operations, are still sufficient to meet our cash requirements within the next 12 months and beyond.
Potential Demands on Liquidity from Off-Balance Sheet Arrangements
We have off-balance sheet arrangements, such as variable interest entities, guarantees, and certain financial instruments with off-balance sheet risk, that may affect the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
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Variable Interest Entities
We hold interests in several unconsolidated variable interest entities (“VIEs”). These unconsolidated VIEs are primarily low-income housing tax credit investments in partnerships and limited liability companies. Variable interests are defined as contractual ownership or other interests in an entity that change with fluctuations in an entity’s net asset value. The primary beneficiary consolidates the VIE. Based on our analysis, we have determined that the Company is not the primary beneficiary of these entities. As a result, we do not consolidate these VIEs. Unfunded commitments to fund these low-income housing tax credit investments were $133.8 million and $153.3 million as of March 31, 2026 and December 31, 2025, respectively.
We sell residential mortgage loans on the secondary market, primarily to Fannie Mae or Freddie Mac. The agreements under which we sell residential mortgage loans to Fannie Mae or Freddie Mac contain provisions that include various representations and warranties regarding the origination and characteristics of the residential mortgage loans. Although the specific representations and warranties vary among investors, insurance or guarantee agreements, they typically cover ownership of the loan, validity of the lien securing the loan, the absence of delinquent taxes or liens against the property securing the loan, compliance with loan criteria set forth in the applicable agreement, compliance with applicable federal, state and local laws and other matters. The unpaid principal balance of our portfolio of residential mortgage loans sold was $1.1 billion as of both March 31, 2026 and December 31, 2025. The agreements under which we sell residential mortgage loans require delivery of various documents to the investor or its document custodian. Although these loans are primarily sold on a non-recourse basis, we may be obligated to repurchase residential mortgage loans or reimburse investors for losses incurred if a loan review reveals that underwriting and documentation standards were potentially not met in the origination of those loans. Upon receipt of a repurchase request, we work with investors to arrive at a mutually agreeable resolution. Repurchase demands are typically reviewed on an individual loan by loan basis to validate the claims made by the investor to determine if a contractually required repurchase event has occurred. We manage the risk associated with potential repurchases or other forms of settlement through our underwriting and quality assurance practices and by servicing mortgage loans to meet investor and secondary market standards. For the three months ended March 31, 2026, there were no residential mortgage loan repurchases and there were no pending repurchase requests.
In addition to servicing loans in our portfolio, substantially all of the loans we sell to investors are sold with servicing rights retained. We also service loans originated by other mortgage loan originators. As servicer, our primary duties are to: (1) collect payments due from borrowers; (2) advance certain delinquent payments of principal and interest; (3) maintain and administer any hazard, title or primary mortgage insurance policies relating to the mortgage loans; (4) maintain any required escrow accounts for payment of taxes and insurance and administer escrow payments; and (5) foreclose on defaulted mortgage loans, or loan modifications or short sales. Each agreement under which we act as servicer generally specifies a standard of responsibility for actions taken by the Company in such capacity and provides protection against expenses and liabilities incurred by the Company when acting in compliance with the respective servicing agreements. However, if we commit a material breach of obligations as servicer, we may be subject to termination if the breach is not cured within a specified period following notice. The standards governing servicing and the possible remedies for violations of such standards vary by investor. These standards and remedies are determined by servicing guides issued by the investors as well as the contract provisions established between the investors and the Company. Remedies could include repurchase of an affected loan. For the three months ended March 31, 2026, we had no repurchase requests related to loan servicing activities, nor were there any pending repurchase requests as of March 31, 2026.
Although to-date repurchase requests related to representation and warranty provisions and servicing activities have been limited, it is possible that requests to repurchase mortgage loans may increase in frequency as investors more aggressively pursue all means of recovering losses on their purchased loans. However, as of March 31, 2026, management believes that this exposure is not material due to the historical level of repurchase requests and loss trends and thus has not established a liability for losses related to mortgage loan repurchases. As of March 31, 2026, 99% of our residential mortgage loans serviced for investors were current. We maintain ongoing communications with investors and continue to evaluate this exposure by monitoring the level and number of repurchase requests as well as the delinquency rates in loans sold to investors.
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The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby and commercial letters of credit which are not reflected in the consolidated financial statements.
See “Note 11. Commitments and Contingent Liabilities” contained in our unaudited interim consolidated financial statements for more information on our financial instruments with off-balance sheet risk.
Investment Securities
Table 8 presents the estimated fair value of our available-for-sale investment securities portfolio and amortized cost of our held-to-maturity investment securities portfolio as of March 31, 2026 and December 31, 2025:
Table 8
62
Table 9 presents the maturity distribution at amortized cost and weighted-average yield to maturity of our investment securities portfolio as of March 31, 2026:
Maturities and Weighted-Average Yield on Securities(1)
Table 9
1 Year or Less
After 1 Year - 5 Years
After 5 Years - 10 Years
Over 10 Years
Yield
As of March 31, 2026
Residential - Government agency(2)
17.7
5.34
9.2
2.83
26.9
4.49
26.0
Residential - Government-sponsored enterprises(2)
618.3
1.50
281.6
4.55
899.9
2.46
833.6
Commercial - Government agency(2)
0.7
2.53
203.1
1.90
29.7
1.79
233.5
1.89
186.0
Commercial - Government-sponsored enterprises(2)
33.3
1.88
7.7
1.02
41.7
40.7
74.8
5.53
157.9
5.13
232.7
5.26
233.0
Collateralized mortgage obligations(2):
1.77
333.9
2.65
112.4
2.77
446.9
2.68
406.9
1.3
1.36
202.2
1.94
124.3
2.37
327.8
292.4
6.38
61.1
5.80
61.4
Total available-for-sale securities as of March 31, 2026
35.9
1,458.0
2.13
619.0
3.76
2,270.8
2.78
2,080.0
24.3
1.33
21.7
46.0
1.58
42.2
Mortgage-backed securities(2):
36.5
31.6
85.3
73.2
14.3
2.24
15.9
30.2
2.00
22.4
393.0
1.62
495.5
2.04
193.7
1,082.2
965.2
29.9
1.31
743.8
1.40
34.3
1.23
808.0
1.39
707.8
218.2
1.75
1,099.6
1.46
2.33
1,336.7
1.52
1,181.6
Debt securities issued by state and political subdivisions
37.9
17.2
2.45
55.1
2.27
50.1
Total held-to-maturity securities as of March 31, 2026
655.4
1.67
2,538.8
285.8
2.41
3,480.0
3,074.1
The carrying value of our investment securities portfolio was $5.6 billion as of March 31, 2026, a decrease of $49.3 million or 1% compared to December 31, 2025. The lower balances in investment securities were driven by payments and maturities during the three months ended March 31, 2026, which were placed into cash. Our available-for-sale investment securities are carried at fair value with changes in fair value reflected in other comprehensive income (loss) or through the Provision. Our held-to-maturity investment securities are carried at amortized cost.
As of March 31, 2026, we maintained all of our investment securities in either the available-for-sale category (recorded at fair value) or the held-to-maturity category (recorded at amortized cost) in the unaudited interim consolidated balance sheets, with $2.8 billion invested in collateralized mortgage obligations issued by Ginnie Mae, Fannie Mae and Freddie Mac. Our investment securities portfolio also included $2.6 billion in mortgage-backed securities issued by Ginnie Mae, Freddie Mac, Fannie Mae, Municipal Housing Authorities and non-agency entities, $61.4 million in collateralized loan obligations, $55.1 million in debt securities issued by states and political subdivisions and $46.0 million in debt securities issued by government agencies (U.S. International Development Finance Corporation bonds).
We continually evaluate our investment securities portfolio in response to established asset/liability management objectives, changing market conditions that could affect profitability and the level of interest rate risk to which we are exposed. These evaluations may cause us to change the level of funds we deploy into investment securities and change the composition of our investment securities portfolio.
Gross unrealized gains in our investment securities portfolio were $2.1 million and $7.1 million as of March 31, 2026 and December 31, 2025, respectively. Gross unrealized losses in our investment securities portfolio were $598.8 million and $521.9 million as of March 31, 2026 and December 31, 2025, respectively. The higher overall unrealized loss position was primarily due to changes in the market value of the securities.
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For our available-for-sale investment securities, we conduct a regular assessment of our investment securities portfolio to determine whether any securities are impaired. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through the allowance for credit losses is recognized in other comprehensive income. For the three months ended March 31, 2026, we did not record any credit losses related to our available-for-sale investment securities portfolio.
For our held-to-maturity investment securities, we utilize the Current Expected Credit Loss (“CECL”) approach to estimate lifetime expected credit losses. Substantially all of our held-to-maturity securities are issued by the U.S. government, its agencies and government-sponsored enterprises. These securities have a long history of no credit losses and carry the explicit or implicit guarantee of the U.S. government. Therefore, as of March 31, 2026, we did not record an allowance for credit losses related to our held-to-maturity investment securities portfolio.
We are required to hold non-marketable equity securities, comprised of FHLB stock, as a condition of our membership in the FHLB system. Our FHLB stock is accounted for at cost, which equals par or redemption value. As of both March 31, 2026 and December 31, 2025, we held $10.1 million in FHLB stock which is recorded as a component of other assets in our unaudited interim consolidated balance sheets.
See “Note 2. Investment Securities” contained in our unaudited interim consolidated financial statements for more information on our investment securities portfolio.
Table 10 presents the composition of our loan and lease portfolio by major categories as of March 31, 2026 and December 31, 2025:
Table 10
Total loans and leases were $14.4 billion as of March 31, 2026, an increase of $128.3 million or 1% from December 31, 2025. The increase in total loans and leases was due to increases in commercial real estate loans, commercial and industrial loans, consumer loans and lease financing, partially offset by decreases in construction loans and residential real estate loans.
Commercial and industrial loans are made primarily to corporations, middle market and small businesses for the purpose of financing equipment acquisition, expansion, working capital and other general business purposes. We also offer a variety of automobile dealer flooring lines to our customers in Hawaii and California to assist with the financing of their inventory. Commercial and industrial loans were $2.2 billion as of March 31, 2026, an increase of $70.5 million or 3% from December 31, 2025.
Commercial real estate loans are secured by first mortgages on commercial real estate at loan to value (“LTV”) ratios generally not exceeding 75% and a minimum debt service coverage ratio of 1.20 to 1. The commercial properties are predominantly apartments, neighborhood and grocery anchored retail, industrial, office, and to a lesser extent, specialized properties such as hotels. The primary source of repayment for investor property and owner occupied property is cash flow from the property and operating cash flow from the business, respectively. Commercial real estate loans were $4.7 billion as of March 31, 2026, an increase of $125.4 million or 3% from December 31, 2025.
Construction loans are for the purchase or construction of a property for which repayment will be generated by the property. Loans in this portfolio are primarily for the purchase of land, as well as for the development of commercial properties, single family homes and condominiums. We classify loans as construction until the completion of the construction phase. Following construction, if a loan is retained by the Bank, the loan is reclassified to the commercial real estate or residential real estate classes of loans. Construction loans were $769.3 million as of March 31, 2026, a decrease of $39.0 million or 5% from December 31, 2025. This decrease was primarily due to payoffs and construction loans reclassified to commercial real estate loans during the quarter ended March 31, 2026.
Residential real estate loans are generally secured by 1-4 unit residential properties and are underwritten using traditional underwriting systems to assess the credit risks and financial capacity and repayment ability of the consumer. Decisions are primarily based on LTV ratios, debt-to-income (“DTI”) ratios, liquidity and credit scores. LTV ratios generally do not exceed 80%, although higher levels are permitted with mortgage insurance. We offer fixed rate mortgage products and variable rate mortgage products including home equity lines of credit. We offer variable rate mortgage products based on SOFR with interest rates that are subject to change every six months after the third, fifth, seventh or tenth year, depending on the product. Variable rate residential mortgage loans are underwritten at fully-indexed interest rates. We generally do not offer interest-only, payment-option facilities, or any product with negative amortization. Residential real estate loans were $5.2 billion as of March 31, 2026, a decrease of $34.7 million or 1% from December 31, 2025.
Consumer loans consist primarily of open- and closed-end direct and indirect credit facilities for personal, automobile and household purchases as well as credit card loans. We seek to maintain reasonable levels of risk in consumer lending by following prudent underwriting guidelines, which include an evaluation of personal credit history, cash flow and collateral values based on existing market conditions. Consumer loans were $1.0 billion as of March 31, 2026, an increase of $4.2 million or less than 1% from December 31, 2025.
Lease financing consists of commercial single investor leases and leveraged leases. Underwriting of new lease transactions is based on our lending policy, including but not limited to an analysis of customer cash flows and secondary sources of repayment, including the value of leased equipment, the guarantors’ cash flows and/or other credit enhancements. No new leveraged leases are being added to the portfolio and all remaining leveraged leases are running off. Lease financing was $443.7 million as of March 31, 2026, an increase of $1.8 million or less than 1% from December 31, 2025.
See “Note 3. Loans and Leases” and “Note 4. Allowance for Credit Losses” contained in our unaudited interim consolidated financial statements and the discussion in “Analysis of Financial Condition — Allowance for Credit Losses” of this MD&A for more information on our loan and lease portfolio.
The Company’s loan and lease portfolio includes adjustable-rate loans, primarily tied to CME Term SOFR, Prime and SOFR, hybrid-rate loans, for which the initial rate is fixed for a period from one year to as much as ten years, and fixed rate loans, for which the interest rate does not change through the life of the loan or the remaining life of the loan. Table 11 presents the recorded investment in our loan and lease portfolio as of March 31, 2026 by rate type:
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Loans and Leases by Rate Type
Table 11
Adjustable Rate
CME
Hybrid
Fixed
SOFR
Prime
Term SOFR
32,841
315,082
767,017
781,382
1,896,322
21,184
324,376
421,079
490,936
2,342,816
1,028,035
4,282,866
139,807
293,068
94,147
35,445
545,537
21,488
696,617
3,970
68,715
2,854
121,285
12,979
62,074
74,588
273,780
700,253
3,089,900
291
974,479
201,458
13,270
274,071
1,674,732
3,291,358
790
328,720
3,457
333,027
695,910
3,644
669,412
1,183,453
3,717,444
1,908,950
7,482,903
1,840,758
5,117,174
% by rate type at March 31, 2026
100
Tables 12 and 13 present the geographic distribution of our loan and lease portfolio as of March 31, 2026 and December 31, 2025:
Geographic Distribution of Loan and Lease Portfolio
Table 12
U.S.
Guam &
Foreign &
Hawaii
Mainland(1)
Saipan
1,002,157
1,080,839
146,309
12,577
2,543,069
1,763,313
409,359
340,890
408,138
20,274
3,902,198
2,560
159,175
1,125,356
50,872
5,027,554
210,047
677,399
32,069
317,025
3,509
249,313
175,609
18,825
9,840,382
3,462,528
1,121,839
16,086
Percentage of Total Loans and Leases
68%
24%
7%
1%
100%
Table 13
979,948
1,031,600
146,817
12,968
2,509,943
1,678,871
401,512
359,263
426,842
22,170
3,940,165
2,575
153,560
1,129,433
49,094
5,069,598
202,654
671,811
35,426
314,681
3,920
246,502
176,946
18,482
9,837,065
3,352,260
1,106,316
16,888
69%
23%
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Our lending activities are concentrated primarily in Hawaii. However, we also have lending activities on the U.S. mainland, Guam and Saipan. Our commercial lending activities on the U.S. mainland include automobile dealer flooring activities in California, participation in the Shared National Credits Program and selective commercial real estate projects based on existing customer relationships. Our lease financing portfolio includes commercial leveraged and single investor lease financing activities both in Hawaii and on the U.S. mainland. However, no new leveraged leases are being added to the portfolio and all remaining leveraged leases are running off. Our consumer lending activities are concentrated primarily in Hawaii and, to a smaller extent, in Guam and Saipan.
Table 14 presents the contractual maturities of our loan and lease portfolio by major categories and the sensitivities to changes in interest rates as of March 31, 2026:
Maturities for Loan and Lease Portfolio(1)
Table 14
Due in One
Due After One
Due After Five
Due After
Year or Less
to Five Years
to Fifteen Years
Fifteen Years
866,244
1,007,222
271,163
97,253
1,095,611
2,150,258
1,462,974
6,898
291,078
373,044
76,420
28,760
8,807
58,483
384,450
3,612,193
23,537
75,275
80,862
996,554
32,344
133,758
465,312
4,608,747
86,810
696,781
246,411
19,129
216,993
97,722
109,903
2,391,216
4,578,056
2,620,002
4,851,561
Total of loans and leases with:
Adjustable interest rates
2,200,786
3,441,371
1,596,313
244,433
Hybrid interest rates
60,306
127,939
95,658
1,556,855
Fixed interest rates
130,124
1,008,746
928,031
3,050,273
Credit Quality
We perform an internal loan review and grading or scoring procedures on an ongoing basis. The review provides management with periodic information as to the quality of the loan portfolio and effectiveness of our lending policies and procedures. The objective of the loan review and grading or scoring procedures is to identify, in a timely manner, existing or emerging credit quality issues so that appropriate steps can be initiated to avoid or minimize future losses.
For purposes of managing credit risk and estimating the ACL, management has identified three portfolio segments (commercial, residential and consumer) that we use to develop our systematic methodology to determine the ACL. The categorization of loans for the evaluation of credit risk is specific to our credit risk evaluation process and these loan categories are not necessarily the same as the loan categories used for other evaluations of our loan portfolio. See “Note 4. Allowance for Credit Losses” contained in our unaudited interim consolidated financial statements for more information about our approach to estimating the ACL.
The following tables and discussion address non-performing assets and loans and leases that are 90 days past due but are still accruing interest.
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Non-Performing Assets and Loans and Leases Past Due 90 Days or More and Still Accruing Interest
Table 15 presents information on our non-performing assets and accruing loans and leases past due 90 days or more as of March 31, 2026 and December 31, 2025:
Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More
Table 15
Non-Performing Assets
Non-Accrual Loans and Leases
Commercial Loans:
Total Commercial Loans
10,391
14,334
Residential Loans:
Total Residential Loans
29,289
26,694
Total Non-Accrual Loans and Leases
Total Non-Performing Assets
Accruing Loans and Leases Past Due 90 Days or More
Total Accruing Loans and Leases Past Due 90 Days or More
Ratio of Non-Accrual Loans and Leases to Total Loans and Leases
Ratio of Non-Performing Assets to Total Loans and Leases and OREO
Ratio of Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More to Total Loans and Leases and OREO
0.30
0.31
Table 16 presents the activity in Non-Performing Assets (“NPAs”) for the three months ended March 31, 2026 and 2025:
Table 16
20,679
Additions
4,041
3,187
Reductions
Payments
(3,016)
(2,272)
Return to accrual status
(526)
(1,010)
Charge-offs/write-downs
(1,847)
(396)
Total Reductions
(5,389)
(3,678)
20,188
The level of NPAs represents an indicator of the potential for future credit losses. NPAs consist of non-accrual loans and leases and other real estate owned (“OREO”). Changes in the level of non-accrual loans and leases typically represent increases for loans and leases that reach a specified past due status, offset by reductions for loans and leases that are charged-off, paid down, sold, transferred to held for sale classification, transferred to OREO or are no longer classified as non-accrual because they have returned to accrual status as a result of continued performance and an improvement in the borrower’s financial condition and loan repayment capabilities.
Total NPAs were $39.7 million as of March 31, 2026, a decrease of $1.3 million or 3% from December 31, 2025. The ratio of our NPAs to total loans and leases and OREO was 0.27% as of March 31, 2026, a decrease of 2 basis points from December 31, 2025.
The largest component of our NPAs is typically residential mortgage loans. The level of these NPAs can remain elevated due to a lengthy judicial foreclosure process in Hawaii. As of March 31, 2026, residential mortgage non-accrual loans were $17.7 million, an increase of $1.2 million or 8% from December 31, 2025. This increase was due to additions in residential mortgage loans totaling $2.1 million, partially offset by returns to accrual status of $0.5 million and payments of $0.4 million. As of March 31, 2026, our residential mortgage non-accrual loans were comprised of 58 loans with a weighted average current LTV ratio of 54%, compared to 59 loans with a weighted average LTV ratio of 52% as of December 31, 2025.
As of March 31, 2026, home equity line non-accrual loans were $11.6 million, an increase of $1.4 million or 13% from December 31, 2025. This increase was due to additions in home equity lines totaling $1.9 million, partially offset by payments of $0.5 million.
As of March 31, 2026, commercial and industrial non-accrual loans were $5.0 million, a decrease of $3.8 million or 44% from December 31, 2025. This decrease was due to payments of $2.0 million and charge-offs of $1.8 million.
As of March 31, 2026, commercial real estate non-accrual loans were $3.0 million, a decrease of $0.1 million or 2% from December 31, 2025, primarily due to payments of $0.1 million.
As of both March 31, 2026 and December 31, 2025, construction non-accrual loans were $1.8 million.
OREO represents property acquired as the result of borrower defaults on loans. OREO is recorded at fair value, less estimated selling costs, at the time of foreclosure. On an ongoing basis, properties are appraised as required by market conditions and applicable regulations. As of both March 31, 2026 and December 31, 2025, there was no OREO held.
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 $4.3 million as of March 31, 2026, an increase of $1.0 million or 29% from December 31, 2025. This increase was due to increases in consumer loans of $0.6 million and commercial and industrial loans of $0.4 million that were past due 90 days or more and still accruing interest.
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Allowance for Credit Losses for Loans and Leases & Reserve for Unfunded Commitments
Table 17 presents an analysis of our ACL for the periods indicated:
Allowance for Credit Losses and Reserve for Unfunded Commitments
Table 17
Balance at Beginning of Period
204,165
193,240
Loans and Leases Charged-Off
Total Loans and Leases Charged-Off
Recoveries on Loans and Leases Previously Charged-Off
269
654
Total Recoveries on Loans and Leases Previously Charged-Off
Net Loans and Leases Charged-Off
(4,900)
(3,781)
Balance at End of Period
204,265
199,959
Components:
Allowance for Credit Losses
Reserve for Unfunded Commitments
Total Allowance for Credit Losses and Reserve for Unfunded Commitments
Average Loans and Leases Outstanding
14,289,418
14,309,998
Ratio of Net Loans and Leases Charged-Off to Average Loans and Leases Outstanding(1)
Ratio of Allowance for Credit Losses for Loans and Leases to Loans and Leases Outstanding
Ratio of Allowance for Credit Losses for Loans and Leases to Non-accrual Loans and Leases
4.27x
8.25x
Tables 18 and 19 present the allocation of the ACL by loan and lease category, in both dollars and as a percentage of total loans and leases outstanding as of March 31, 2026 and December 31, 2025:
Allocation of the Allowance for Credit Losses by Loan and Lease Category
Table 18
Allocated
Loan
ACL as
category as
% of loan or
% of total
lease
loans and
category
leases
1.07
15.52
0.81
32.66
0.94
5.33
0.62
3.07
Total commercial
71,827
0.88
56.58
0.92
28.14
1.25
8.15
52,132
0.99
36.29
4.40
100.00
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Table 19
0.96
15.17
0.84
32.07
5.65
0.63
3.09
69,973
0.87
55.98
0.89
28.62
1.29
8.23
51,576
0.98
36.85
4.57
7.17
Table 20 presents the net charge-offs (recoveries) to average loans and leases by category during the three months ended March 31, 2026 and 2025:
Net Charge-Offs (Recoveries) to Average Loans and Leases By Category(1)
Table 20
0.44
0.19
(0.02)
0.12
(0.01)
1.21
As of March 31, 2026, the ACL was $169.3 million or 1.17% of total loans and leases outstanding, compared with an ACL of $168.5 million or 1.18% of total loans and leases outstanding as of December 31, 2025. The reserve for unfunded commitments was $34.9 million as of March 31, 2026, compared to $35.7 million as of December 31, 2025.
Net charge-offs of loans and leases were $4.9 million or 0.14% of total average loans and leases, on an annualized basis, for the three months ended March 31, 2026, compared to net charge-offs of $3.8 million or 0.11% for the three months ended March 31, 2025. Net charge-offs in our commercial lending portfolio were $2.4 million and $0.8 million for the three months ended March 31, 2026 and 2025, respectively. Net recoveries in our residential lending portfolio were $0.1 million for both the three months ended March 31, 2026 and 2025. Net charge-offs in our consumer lending portfolio were $2.6 million and $3.0 million for the three months ended March 31, 2026 and 2025, respectively. Net charge-offs in our consumer portfolio segment include those related to credit cards, automobile loans, installment loans and small business lines of credit and reflect the inherent risk associated with these loans.
Although we determine the amount of each component of the ACL separately, the ACL as a whole was considered appropriate by management as of March 31, 2026 and December 31, 2025. Furthermore, as of March 31, 2026, the ACL was considered adequate based on our ongoing analysis of estimated expected credit losses, credit risk profiles, current economic outlook, coverage ratios and other relevant factors. The ACL anticipates cyclical losses consistent with a recession and includes a qualitative overlay for potential macroeconomic impacts. We will continue to monitor factors that drive expected credit losses including the uncertainty of the economy, inflation and geopolitical instability. See “Note 4. Allowance for Credit Losses” contained in our unaudited interim consolidated financial statements for more information on the ACL.
Goodwill was $995.5 million as of both March 31, 2026 and December 31, 2025. Our goodwill originated from the acquisition of the Company by BNP Paribas in December of 2001. Goodwill generated in that acquisition was recorded on the balance sheet of the Bank as a result of push down accounting treatment, and remains on our unaudited interim consolidated balance sheets.
The Company’s policy is to assess goodwill for impairment at the reporting unit level on an annual basis or between annual assessments if a triggering event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Impairment is the condition that exists when the carrying amount of a reporting unit exceeds its fair value. There was no impairment in our goodwill for the three months ended March 31, 2026. Future events, including geopolitical concerns, inflation concerns, global supply chain issues, and other factors affecting the economy, that could cause a significant decline in our expected future cash flows or a significant adverse change in our business or the business climate may necessitate taking charges in future reporting periods related to the impairment of our goodwill.
Other assets were $819.7 million as of March 31, 2026, a decrease of $8.6 million or 1% from December 31, 2025. The decrease in other assets was primarily due to decreases of $13.9 million in suspense and clearing accounts, $8.9 million in current tax receivables and deferred tax assets, $8.9 million in low-income housing tax credit (“LIHTC”) investments and $7.7 million in interest rate swap agreements. This was partially offset by an increase of $28.7 million in prepaid assets.
Deposits are the primary funding source for the Bank and are acquired from a broad base of local markets, including both individual and corporate customers. We obtain funds from depositors by offering a range of deposit types, including demand, savings, money market and time.
Table 21 presents the composition of our deposits as of March 31, 2026 and December 31, 2025:
Table 21
Demand
5,951,527
5,721,098
3,861,943
3,832,783
2,941,747
2,948,536
Foreign(1):
614,665
587,775
448,531
456,587
438,877
421,597
Total Deposits(2)
Total deposits were $20.8 billion as of March 31, 2026, an increase of $261.7 million from December 31, 2025. The increase in deposit balances stemmed primarily from a $209.8 million increase in public savings deposit balances and a $47.5 million increase in non-public savings deposit balances.
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As of March 31, 2026 and December 31, 2025, the amount of deposits that exceeded FDIC insurance limits were estimated to be $10.4 billion, or 50% of total deposits, and $10.1 billion, or 49% of total deposits, respectively. At March 31, 2026 and December 31, 2025, the Company had $1.1 billion and $839.5 million, respectively, of public deposits, all of which were fully collateralized with investment securities. As of both March 31, 2026 and December 31, 2025, the amount of deposits excluding public deposits that exceeded FDIC insurance limits were estimated to be $9.3 billion, or 45% of total deposits. As of March 31, 2026 and December 31, 2025, deposit accounts above $250,000 were $12.1 billion and $11.9 billion, respectively. Deposit balances over $250,000 in corporate operating accounts were $2.1 billion as of both March 31, 2026 and December 31, 2025.
Table 22 presents the estimated amount of time deposits that were in excess of the FDIC insurance limit, further segregated by time remaining until maturity, as of March 31, 2026:
Uninsured Time Deposits
Table 22
560,068
472,588
232,783
Over twelve months
15,254
Total(1)
1,280,693
Pension and Postretirement Plan Obligations
We have a noncontributory qualified defined benefit pension plan, an unfunded supplemental executive retirement plan (“SERP”), a directors’ retirement plan (a non-qualified pension plan for eligible directors) and a postretirement benefit plan providing life insurance and healthcare benefits that we offer to our directors and employees, as applicable. The noncontributory qualified defined benefit pension plan, the unfunded supplemental executive retirement plan and the directors’ retirement plan are all frozen to new participants. On March 11, 2019, the Company’s board of directors approved an amendment to the SERP to freeze the SERP. As a result of such amendment, effective July 1, 2019, there are no new accruals of benefits, including service accruals. To calculate annual pension costs, we use the following key variables: (1) size of the employee population, length of service and estimated compensation increases; (2) actuarial assumptions and estimates; (3) expected long-term rate of return on plan assets; and (4) discount rate.
Pension and postretirement benefit plan obligations, net of pension plan assets, were $86.3 million as of March 31, 2026, a decrease of $0.6 million from December 31, 2025. This decrease was due to payments of $2.0 million, partially offset by net periodic benefit costs for the three months ended March 31, 2026 of $1.4 million.
See “Note 14. Noninterest Income and Noninterest Expense” contained in our unaudited interim consolidated financial statements for more information on our pension and postretirement benefit plans.
The bank regulators currently use a combination of risk-based ratios and a leverage ratio to evaluate capital adequacy. The Company and the Bank are subject to the federal bank regulators’ final rules implementing Basel III and various provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Capital Rules”).
The Capital Rules, among other things impose a capital measure called CET1, to which most deductions/adjustments to regulatory capital must be made. In addition, the Capital Rules specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain specified requirements.
Under the Capital Rules, the minimum capital ratios are as follows:
The Capital Rules also require a 2.5% capital conservation buffer designed to absorb losses during periods of economic stress. The capital conservation buffer is composed entirely of CET1, on top of these minimum risk weighted asset ratios, effectively resulting in minimum ratios of (i) 7% CET1 to risk-weighted assets, (ii) 8.5% Tier 1 capital to risk-weighted assets, and (iii) 10.5% total capital to risk-weighted assets.
As of March 31, 2026, the Company’s capital levels remained characterized as “well-capitalized” under the Capital Rules. The Company’s regulatory capital ratios, calculated in accordance with the Capital Rules, are presented in Table 23 below. There have been no conditions or events since March 31, 2026 that management believes have changed either the Company’s or the Bank’s capital classifications. CET1 was 13.12% as of March 31, 2026, a decrease of 5 basis points from December 31, 2025. The decrease in CET1 was primarily due to common stock repurchased and dividends declared and paid to the Company’s stockholders and an increase in risk-weighted assets, partially offset by earnings for the three months ended March 31, 2026.
FHI's Regulatory Capital
Table 23
Less:
Tax credit carryforward
4,434
Common Equity Tier 1 Capital and Tier 1 Capital
Add:
Qualifying allowance for credit losses and reserve for unfunded commitments
203,878
203,256
Total Capital
Risk-Weighted Assets
16,309,889
16,259,605
FHI's Key Regulatory Capital Ratios
Total stockholders’ equity was $2.8 billion as of March 31, 2026, a decrease of $1.6 million from December 31, 2025. The decrease in stockholders’ equity was primarily due to common stock repurchased of $32.0 million and dividends declared and paid to the Company’s stockholders of $31.9 million and other comprehensive income, net of tax, of $4.6 million, primarily due to changes in our investment securities portfolio. This was partially offset by earnings for the three months ended March 31, 2026 of $67.8 million.
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Future Application of Accounting Pronouncements
For a discussion of the expected impact of accounting pronouncements recently issued but not adopted by us as of March 31, 2026, see “Note 1. Organization and Basis of Presentation — Recent Accounting Pronouncements” to the unaudited interim consolidated financial statements for more information.
Risk Governance and Quantitative and Qualitative Disclosures About Market Risk
Managing risk is an essential part of successfully operating our business. Management believes that the most prominent risk exposures for the Company are credit risk, market risk, liquidity risk management, capital management and operational risk. See “Analysis of Financial Condition — Liquidity and Capital Resources” and “— Capital” sections of this MD&A for further discussions of liquidity risk management and capital management, respectively.
Credit Risk
Credit risk is the risk that borrowers or counterparties will be unable or unwilling to repay their obligations in accordance with the underlying contractual terms. We manage and control credit risk in the loan and lease portfolio by adhering to well-defined underwriting criteria and account administration standards established by management. Written credit policies document underwriting standards, approval levels, exposure limits and other limits or standards deemed necessary and prudent. Portfolio diversification at the obligor, industry, product, and/or geographic location levels is actively managed to mitigate concentration risk. In addition, credit risk management includes an independent credit review process that assesses compliance with commercial, real estate and consumer credit policies, risk ratings and other critical credit information. In addition to implementing risk management practices that are based upon established and sound lending practices, we adhere to sound credit principles. We understand and evaluate our customers’ borrowing needs and capacity to repay, in conjunction with their character and history.
Management has identified three categories of loans that we use to develop our systematic methodology to determine the ACL: commercial, residential and consumer.
Commercial lending is further categorized into four distinct classes based on characteristics relating to the borrower, transaction and collateral. These classes are: commercial and industrial, commercial real estate, construction and lease financing. Commercial and industrial loans are primarily for the purpose of financing equipment acquisition, expansion, working capital and other general business purposes by medium to larger Hawaii based corporations, as well as U.S. mainland and international companies. Commercial and industrial loans are typically secured by non-real estate assets whereby the collateral is trading assets, enterprise value or inventory. As with many of our customers, our commercial and industrial loan customers are heavily dependent on tourism, government expenditures and real estate values. Commercial real estate loans are secured by real estate, including but not limited to structures and facilities to support activities designated as retail, health care, general office space, warehouse and industrial space. Our Bank’s underwriting policy generally requires that net cash flows from the property be sufficient to service the debt while still maintaining an appropriate amount of reserves. Commercial real estate loans in Hawaii are characterized by having a limited supply of real estate at commercially attractive locations, long delivery time frames for development and high interest rate sensitivity. Our construction lending portfolio consists primarily of land loans, single family and condominium development loans. Financing of construction loans is subject to a high degree of credit risk given the long delivery time frames for such projects. Construction lending activities are underwritten on a project financing basis whereby the cash flows or lease rents from the underlying real estate collateral or the sale of the finished inventory is the primary source of repayment. Market feasibility analysis is typically performed by assessing market comparables, market conditions and demand in the specific lending area and general community. We require presales of finished inventory or preleasing requirements prior to loan funding. However, because this analysis is typically performed on a forward looking basis, real estate construction projects typically present a higher risk profile in our lending activities. Lease financing activities include commercial single investor leases and leveraged leases used to purchase items ranging from computer equipment to transportation equipment. Underwriting of new leasing arrangements typically includes analyzing customer cash flows, evaluating secondary sources of repayment, such as the value of the leased asset, the guarantors’ net cash flows as well as other credit enhancements provided by the lessee.
Residential lending is further categorized into the following classes: residential mortgages (loans secured by 1-4 family residential properties and home equity loans) and home equity lines of credit. Our Bank’s underwriting standards typically require LTV ratios of not more than 80%, although higher levels are permitted with accompanying mortgage insurance. First mortgage loans secured by residential properties generally carry a moderate level of credit risk, with an average loan size of approximately $391,000 at March 31, 2026. Residential mortgage loan production is added to our loan portfolio or is sold in the secondary market, based on management’s evaluation of our liquidity, capital and loan portfolio mix as well as market conditions. Changes in interest rates, the economic environment and other market factors have impacted, and will likely continue to impact, the marketability and value of collateral and the financial condition of our borrowers which impacts the level of credit risk inherent in this portfolio, although we remain in a supply constrained housing environment in Hawaii. Geographic concentrations exist for this portfolio as nearly all residential mortgage loans and home equity lines of credit are for residences located in Hawaii, Guam or Saipan. These island locales are susceptible to a wide array of potential natural disasters including, but not limited to, hurricanes, floods, tsunamis and earthquakes. We offer home equity lines of credit with variable rates; fixed rate lock options may be available post-closing. The qualifying debt payments for all lines are underwritten at 0.95% of the credit line amount. Our procedures for underwriting home equity lines of credit include an assessment of an applicant’s overall financial capacity and repayment ability. Decisions are primarily based on repayment ability via debt-to-income ratios, LTV ratios and an evaluation of credit history.
Consumer lending is further categorized into the following classes of loans: credit cards, automobile loans and other consumer-related installment loans. Consumer loans are either unsecured or secured by the borrower’s personal assets. The average loan size is generally small, and risk is diversified among many borrowers. We offer a wide array of credit cards for business and personal use. In general, our customers are attracted to our credit card offerings on the basis of price, credit limit, reward programs and other product features. Credit card underwriting decisions are generally based on repayment ability of our borrower via DTI ratios, credit bureau information, including payment history, debt burden and credit scores, such as FICO, and analysis of financial capacity. Automobile lending activities include loans and leases secured by new or used automobiles. We originate the majority of our automobile loans and leases on an indirect basis through selected dealerships. Our procedures for underwriting automobile loans include an assessment of an applicant’s overall financial capacity and repayment ability, credit history and the ability to meet existing obligations and payments on the proposed loan or lease. Although an applicant’s creditworthiness is the primary consideration, the underwriting process also includes a comparison of the value of the collateral security to the proposed loan amount. We require borrowers to maintain full coverage automobile insurance on automobile loans and leases, with the Bank listed as either the loss payee or additional insured. Installment loans consist of open and closed end facilities for personal and household purchases. We seek to maintain reasonable levels of risk in installment lending by following prudent underwriting guidelines which include an evaluation of personal credit history and cash flow.
Market Risk
Market risk is the potential of loss arising from changes in interest rates, foreign exchange rates, equity prices and commodity prices, including the correlation among these factors and their volatility. When the value of an instrument is tied to such external factors, the holder faces market risk. We are exposed to market risk primarily from interest rate risk, which is defined as the risk of loss of net interest income or net interest margin because of changes in interest rates.
The potential cash flows, sales or replacement value of many of our assets and liabilities, especially those that earn or pay interest, are sensitive to changes in the general level of interest rates. In the banking industry, changes in interest rates can significantly impact earnings and the safety and soundness of an entity.
Interest rate risk arises primarily from our core business activities of extending loans and accepting deposits. This occurs when our interest earning loans and interest-bearing deposits mature or reprice at different times, on a different basis or in unequal amounts. Interest rates may also affect loan demand, credit losses, mortgage origination volume, pre- payment speeds and other items affecting earnings.
Many factors affect our exposure to changes in interest rates, such as general economic and financial conditions, customer preferences, historical pricing relationships and repricing characteristics of financial instruments. Our earnings are affected not only by general economic conditions, but also by the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve. The monetary policies of the Federal Reserve can influence the overall growth of loans, investment securities and deposits and the level of interest rates earned on assets and paid for liabilities.
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Market Risk Measurement
We primarily use net interest income simulation analysis to measure and analyze interest rate risk. We run various hypothetical interest rate scenarios and compare these results against a measured base case scenario. Our net interest income simulation analysis incorporates various assumptions, which we believe are reasonable but which may have a significant impact on results. These assumptions include: (1) the timing of changes in interest rates, (2) shifts or rotations in the yield curve, (3) re-pricing characteristics for market rate sensitive instruments on and off-balance sheet, (4) differing sensitivities of financial instruments due to differing underlying rate indices and (5) varying loan prepayment speeds for different interest rate scenarios. Because of limitations inherent in any approach used to measure interest rate risk, simulation results are not intended as a forecast of the actual effect of a change in market interest rates on our results but rather as a means to better plan and execute appropriate asset liability management strategies to manage our interest rate risk.
Table 24 presents, for the 12 months subsequent to March 31, 2026 and December 31, 2025, an estimate of the changes in net interest income that would result from ramps (gradual changes) and shocks (immediate changes) in market interest rates, moving in a parallel fashion over the entire yield curve, relative to the measured base case scenario. Ramp scenarios assume interest rates move gradually in parallel across the yield curve relative to the base case scenario. Shock scenarios assume an immediate and sustained parallel shift in interest rates across the entire yield curve, relative to the base case scenario. The base case scenario assumes that the balance sheet and interest rates are generally unchanged. We evaluate the sensitivity by using a static forecast, where the balance sheets as of March 31, 2026 and December 31, 2025 are held constant.
Net Interest Income Sensitivity Profile - Estimated Percentage Change Over 12 Months
Table 24
Static Forecast
Gradual Change in Interest Rates (basis points)
+200
3.8
+100
1.9
1.8
+50
1.0
(50)
(0.9)
(1.9)
(1.8)
Immediate Change in Interest Rates (basis points)
7.0
6.3
3.2
1.6
(3.3)
The table above shows the effects of a simulation which estimates the effect of a gradual and immediate sustained parallel shift in the yield curve of −100, −50, +50, +100 and +200 basis points in market interest rates over a 12-month period on our net interest income.
Currently, our interest rate profile, assuming a constant balance sheet, is such that we project net interest income will benefit from higher interest rates as our assets would reprice faster and to a greater degree than our liabilities, while in the case of lower interest rates, our assets would reprice downward and to a greater degree than our liabilities. Other factors such as changes in balance sheet composition or deposit rate behavior could result in a change in repricing sensitivity.
Under the static balance sheet forecast as of March 31, 2026, our net interest income sensitivity profile is slightly higher in higher interest rate scenarios compared to similar forecasts as of December 31, 2025. The sensitivity outcome described above is primarily due to the impact of holding a larger federal funds position as of March 31, 2026 as compared with December 31, 2025.
The comparisons above provide insight into the potential effects of changes in interest rates on net interest income. The Company believes that its approach to interest rate risk has appropriately considered its susceptibility to both rising and falling rates and has adopted strategies which minimize the impact of such risks.
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We also have longer term interest rate risk exposures which may not be appropriately measured by net interest income simulation analysis. We use market value of equity (“MVE”) sensitivity analysis to study the impact of long-term cash flows on earnings and capital. MVE involves discounting present values of all cash flows of on-balance sheet and off-balance sheet items under different interest rate scenarios. The discounted present value of all cash flows represents our MVE. MVE analysis requires modifying the expected cash flows in each interest rate scenario, which will impact the discounted present value. The amount of base case measurement and its sensitivity to shifts in the yield curve allow management to measure longer term repricing option risk in the balance sheet.
Limitations of Market Risk Measures
The results of our simulation analyses are hypothetical, and a variety of factors might cause actual results to differ substantially from what is depicted. For example, if the timing and magnitude of interest rate changes differ from those projected, our net interest income might vary significantly. Non parallel yield curve shifts such as a flattening or steepening of the yield curve or changes in interest rate spreads would also cause our net interest income to be different from that depicted. An increasing interest rate environment could reduce projected net interest income if deposits and other short-term liabilities re-price faster than expected or faster than our assets re-price. Actual results could differ from those projected if we grow assets and liabilities faster or slower than estimated if we experience a net outflow of deposits or if our mix of assets and liabilities otherwise changes. For example, while we maintain relatively high levels of liquidity, a faster than expected withdrawal of deposits out of the bank may cause us to seek higher cost sources of funding. Actual results could also differ from those projected if we experience substantially different prepayment speeds in our loan portfolio than those assumed in the simulation analyses. Finally, these simulation results do not consider all the actions that we may undertake in response to potential or actual changes in interest rates, such as changes to our loan, investment, deposit, funding or hedging strategies.
Market Risk Governance
We seek to achieve consistent growth in net interest income and capital while managing volatility arising from changes in market interest rates. The objective of our interest rate risk management process is to increase net interest income while operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity.
To manage the impact on net interest income, we manage our exposure to changes in interest rates through our asset and liability management activities within guidelines established by our ALCO and approved by our board of directors. The ALCO has the responsibility for approving and ensuring compliance with the ALCO management policies, including interest rate risk exposures. The objective of our interest rate risk management process is to maximize net interest income while operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity.
Through review and oversight by the ALCO, we attempt to engage in strategies that neutralize interest rate risk as much as possible. Our use of derivative financial instruments, as detailed in “Note 10. Derivative Financial Instruments” to the unaudited interim consolidated financial statements, has generally been limited. This is due to natural on balance sheet hedges arising out of offsetting interest rate exposures from loans and investment securities with deposits and other interest-bearing liabilities. In particular, the investment securities portfolio is utilized to manage the interest rate exposure and sensitivity to within the guidelines and limits established by the ALCO. We utilize natural and offsetting economic hedges in an effort to reduce the need to employ off-balance sheet derivative financial instruments to hedge interest rate risk exposures. Expected movements in interest rates are also considered in managing interest rate risk. Thus, as interest rates change, we may use different techniques to manage interest rate risk.
Management uses the results of its various simulation analyses to formulate strategies to achieve a desired risk profile within the parameters of our capital and liquidity guidelines.
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Operational Risk
Operational risk is the risk of loss arising from inadequate or failed processes, people or systems, external events (such as natural disasters), or compliance, reputational or legal matters, including the risk of loss resulting from fraud, litigation and breaches in data security. Operational risk is inherent in all of our business ventures and the management of that risk is important to the achievement of our objectives. We have a framework in place that includes the reporting and assessment of any operational risk events, and the assessment of our mitigating strategies within our key business lines. This framework is implemented through our policies, processes and reporting requirements. We measure and report operational risk using the seven operational risk event types projected by the Basel Committee on Banking Supervision in Basel II: (1) external fraud; (2) internal fraud; (3) employment practices and workplace safety; (4) clients, products and business practices; (5) damage to physical assets; (6) business disruption and system failures; and (7) execution, delivery and process management. Our operational risk review process is also a core part of our assessment of material new products or activities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Governance and Quantitative and Qualitative Disclosures About Market Risk.”
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2026. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2026.
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 March 31, 2026 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company operates in a highly regulated environment. From time to time, the Company is party to various litigation matters incidental to the conduct of our business. We are not presently party to any legal proceedings the resolution of which we believe would have a material adverse effect on our business, prospects, financial condition, liquidity, results of operation, cash flows or capital levels.
ITEM 1A. RISK FACTORS
Item 1A of Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on February 27, 2026 contains a discussion of our risk factors. Except to the extent that additional factual information disclosed in this Quarterly Report on Form 10-Q relates to such risk factors, there are no material changes from the risk factors as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides certain information with respect to our purchases of shares of the Company’s common stock during the three months ended March 31, 2026:
Issuer Purchases of Equity Securities
Total Number of
Approximate Dollar
Shares Purchased
Value of Shares
Total Number
as Part of Publicly
that May Yet Be
of Shares
Price Paid
Announced Plans or
Purchased Under the
Period
Purchased1
per Share
Programs2
Plans or Programs2
January 1, 2026 through January 31, 2026
250,000,000
February 1, 2026 through February 28, 2026
127,771
26.40
March 1, 2026 through March 31, 2026
1,355,741
24.50
1,307,738
218,000,022
1,483,512
24.66
ITEM 5. OTHER INFORMATION
During the three months ended March 31, 2026, none of the Company’s directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company’s securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement,” as defined in Item 408(c) of Regulation S-K.
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 Number
31.1
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Amended, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Amended, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
Cover Page Interactive Data File – the cover page XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101)
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: May 4, 2026
By:
/s/ Robert S. Harrison
Robert S. Harrison
Chairman of the Board, President and Chief Executive Officer
(Principal Executive Officer)
/s/ James M. Moses
James M. Moses
Vice Chairman and Chief Financial Officer