Bank of Hawaii Corporation

10/26/2026 | Press release | Distributed by Public on 10/26/2026 14:54

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis ("MD&A") of Financial Condition and Results of Operations
The following MD&A is intended to help the reader understand the Company and its operations and is focused on our financial results for the third quarter of 2026, including comparisons of year-to-year performance, trends, and updates from the Company's most recent 10-K filing. Discussion and analysis of our 2025 fiscal year, as well as the year-to-year comparison between fiscal years 2025 and 2024, are included in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations," of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, filed with the SEC on February 24, 2026.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts and may include statements concerning, among other things, the anticipated economic and business environment in our service area and elsewhere, credit quality and other financial and business matters in future periods, our future results of operations and financial position, our business strategy and plans and our objectives and future operations. Words such as "believes," "anticipates," "expects," "intends," "targeted," and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. We also may make forward-looking statements in our other documents filed with or furnished to the U.S. Securities and Exchange Commission (the "SEC"). In addition, our senior management may provide forward-looking statements orally to analysts, investors, representatives of the media and others. Given these risks and uncertainties, you should not place undue reliance on any forward-looking statement as a prediction of our actual results.
Our forward-looking statements are based on numerous assumptions, any of which could prove to be inaccurate, and actual results may differ materially from those projected due to global economic conditions and a variety of risks and uncertainties, including, but not limited to: (1) Our business is sensitive to regional business and economic conditions, in particular those of Hawaiʻi, Guam and other Pacific Islands; (2) Our loan portfolio is largely secured by real estate, and a downturn in the real estate market may adversely affect our results of operations; (3) Significant changes to the size, structure, powers and operations of the federal government, the effects of any prolonged shutdown of the federal government, changes to U.S. economic policies, and uncertainties regarding the potential for these changes may cause economic disruptions that could, in turn, adversely impact our business, results of operations and financial condition; (4) A sustained period of high inflation could pose a risk to local economies and the financial performance of the Bank; (5) Climate change and the governmental responses to it could have a material adverse impact on the Bank and its customers; (6) Disruptions, instability and failures in the banking industry may negatively impact us; (7) Any reduction in defense spending by the federal government in the state of Hawaiʻi could adversely impact the economy in Hawaiʻi and the Pacific Islands; (8) Changes in interest rates could adversely impact our results of operations and capital; (9) Our allowance for credit losses may prove to be insufficient to absorb losses or appropriately reflect, at any given time, the inherent risk of loss in our loan portfolio; (10) Consumer protection initiatives and court decisions related to the foreclosure process affect our remedies as a creditor; (11) Changes in the capital markets could materially affect the level of assets under management and the demand for our other fee-based services; (12) The Parent's liquidity is dependent on dividends from the Bank; (13) There can be no assurance that the Parent will continue to declare cash dividends; (14) Fiscal and monetary policy changes may significantly impact our profitability and liquidity; (15) Legislation and regulatory initiatives affecting the financial services industry, including new interpretations, restrictions and requirements, could detrimentally affect the Company's business; (16) Changes in income tax laws and interpretations, or in accounting standards, could materially affect our financial condition or results of operations; (17) A failure in or breach of our operational systems, information systems, or infrastructure, or those of our third-party vendors and other service providers, may result in financial losses, loss of customers, or damage to our reputation; (18) An interruption or breach in security of our information systems or those related to merchants and third-party vendors, including as a result of cyber-attacks, could disrupt our business, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, or result in financial losses; (19) Our mortgage banking income may experience significant volatility; (20) Our mortgage loan servicing business may be impacted if we do not meet our obligations, or if servicing standards change; (21) Risks related to representation and warranty provisions may impact our mortgage loan servicing business; (22) Risks relating to residential mortgage loan servicing activities may adversely affect our results; (23) The requirement to record certain assets and liabilities at fair value may adversely affect our financial results; (24) Natural disasters and adverse weather in Hawaiʻi and the Pacific Islands may negatively affect real estate property values and our operations; (25) Competition may adversely affect our business; (26) Our future performance will depend on our ability to respond timely to technological change; (27) The development and use of AI present risks and challenges that may adversely impact our business; (28) Negative public opinion could damage our reputation and adversely impact our earnings and liquidity; (29) We are subject to certain litigation, and our expenses related to this litigation may adversely affect our results; (30) Our performance depends on attracting and retaining key employees and skilled personnel to operate our business effectively; (31) The soundness of other financial institutions may adversely impact our financial condition or results of operations; and (32) We have experienced increases in FDIC insurance assessments.
The risks and uncertainties that could cause actual results to differ materially from our historical experience and our expectations and projections include but are not limited to those described in Item 1A. "Risk Factors," Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in our most recent Annual Report on Form 10-K and in subsequent SEC filings. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as otherwise may be required by the federal securities laws.
Investor Announcements
Investors and others should note that the Company intends to announce financial and other information to the Company's investors using the Company's investor relations website at https://ir.boh.com, social media channels, press releases, and public conference calls and webcasts, all for purposes of complying with the Company's disclosure obligations under Regulation FD. Accordingly, investors should monitor these channels, as information is updated, and new information is posted.
Critical Accounting Estimates
Our Unaudited Consolidated Financial Statements were prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and follow general practices within the industries in which we operate. Application of GAAP requires us to make estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Most accounting estimates are not considered by management to be critical accounting estimates. Critical accounting estimates are those estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. In determining which accounting estimates are critical accounting estimates, we consider, among other things, whether the application of GAAP requires management to make difficult, subjective, and complex judgments about matters that are inherently uncertain and whether it is likely that materially different results would be reported under different conditions or different assumptions. The accounting estimates that we believe are most critical in preparing our Consolidated Financial Statements are presented in the section titled "Critical Accounting Estimates" in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2025. There have been no significant changes in the Company's application of critical accounting estimates since December 31, 2025.
Overview
We are a regional financial services company serving businesses, consumers, and governments in Hawai'i, Guam, and other Pacific Islands. Our principal operating subsidiary, the Bank, was founded in 1897.
Our business strategy is to use our unique market knowledge, prudent management discipline and brand strength to deliver exceptional value to our stakeholders. Our business plan is balanced between growth and risk management while maintaining flexibility to adjust to economic changes. We will continue to focus on providing customers with best-in-class service and an innovative mix of products and services. We will also remain focused on delivering strong financial results while maintaining prudent risk and capital management strategies and affirming our commitment to support our local communities.
Hawai'i Economy
Hawai'i's near-term economic outlook has weakened due to the combined effects of storm-related disruptions and geopolitical tensions in the Middle East, which have contributed to higher energy prices, elevated inflation, and increased travel costs. An active storm season, including Hurricane Lowell and earlier Kona Low events, disrupted tourism activity, affected local businesses, damaged residential property, and increased recovery costs across the State. International visitor arrivals have also been pressured by higher travel costs and softer demand from certain markets. Despite these headwinds, visitor activity is expected to improve modestly in 2027 as energy prices moderate and storm-related impacts subside. Statewide payroll employment is expected to decline modestly in 2026, reflecting softer labor demand, while the unemployment rate is projected to remain low by historical standards. Construction activity continues to support economic growth, driven by federal military projects, the Honolulu Skyline rail project, the Kapalama port modernization project, and private-sector development. The residential real estate market remains soft, as elevated mortgage rates continue to constrain housing affordability despite generally stable home prices.
For the first nine months of 2026, the median price of single-family home sales on Oahu increased by 3.1% while the median price of condominiums increased by 2.0% compared to the same period in 2025. The volume of single-family homes sales on Oahu increased 5.9% and condominium sales decreased 2.4% compared to the same period in 2025. Inventory of single-family homes and condominiums on Oahu was 3.2 months and 7.0 months, respectively, for the third quarter of 2026.
Earnings Summary
Net income for the third quarter of 2026 was $64.3 million, an increase of $10.9 million, or 20.5%, compared to the same period in 2025. Diluted earnings per common share was $1.49 for the third quarter of 2026, an increase of $0.29, or 24.2%, compared to the same period in 2025.
•The return on average common equity for the third quarter of 2026 was 15.38% compared with 13.59% in the same period last year.
•Net interest income for the third quarter of 2026 was $156.1 million, an increase of 14.2% compared to the same period last year.
•Net interest margin was 2.82% in the third quarter of 2026, an increase of 36 basis points from the same period last year.
•The provision for credit losses for the third quarter of 2026 and 2025 was $2.8 million and $2.5 million, respectively.
•Noninterest income was $42.7 million in the third quarter of 2026, a decrease of 7.1% compared to the same period last year.
•Noninterest expense was $112.3 million in the third quarter of 2026 and remained flat compared to the same period last year.
•The effective tax rate for the third quarter of 2026 was 23.2% compared with 21.3% for the same period last year.
•Total assets were $23.8 billion as of September 30, 2026, a decrease of 1.5% from December 31, 2025.
•Total loans and leases were $14.4 billion as of September 30, 2026, an increase of 2.1% from December 31, 2025.
•The allowance for credit losses on loans and leases was $146.2 million as of September 30, 2026, a decrease of $0.6 million from December 31, 2025. The ratio of the allowance for credit losses to total loans and leases outstanding was 1.02% at the end of the quarter, down 2 basis points from December 31, 2025.
•Net loan and lease charge-offs during the third quarter of 2026 were $3.3 million, comprised of charge-offs of $4.7 million partially offset by recoveries of $1.4 million. Compared to the same quarter of 2025, net loan and lease charge-offs increased by $0.7 million. Net loan and lease charge-offs to average loans and leases outstanding during the third quarter of 2026 was 0.09% compared to 0.07% in the same period last year.
•Total non-performing assets ("NPAs") were $43.4 million as of September 30, 2026, up $29.2 million from December 31, 2025. NPAs were 30 basis points of total loans and leases and foreclosed real estate at the end of the quarter, up 20 basis points from December 31, 2025.
•The investment securities portfolio was $7.5 billion as of September 30, 2026, a decrease of 3.3% from December 31, 2025. The investment portfolio remains largely comprised of securities issued by U.S. government agencies and U.S. government-sponsored enterprises.
•Total deposits were $20.5 billion as of September 30, 2026 and $21.2 billion as of December 31, 2025.
•Total shareholders' equity was $1.8 billion as of September 30, 2026 and $1.9 billion as of December 31, 2025.
•During the three months ended September 30, 2026, we repurchased 255,874 shares of common stock at an average cost per share of $78.96 and a total cost of $20.2 million under the share repurchase program. Total remaining buyback authority under the share repurchase program was $68.7 million at September 30, 2026. In October 2026, the Board of Directors increased the authorization under the share repurchase program by $200 million to $268.7 million.
•We maintained a quarterly dividend of $0.70 per common share during the three months ended September 30, 2026 and 2025.
Analysis of Unaudited Statements of Income
Average balances, related income and expenses, and resulting yields and rates are presented in Table 1. An analysis of the change in net interest income, on a taxable-equivalent basis, is presented in Table 2.
Average Balances and Interest Rates - Taxable-Equivalent Basis ¹
Table 1
Three Months Ended September 30, 2026 Three Months Ended September 30, 2025 Nine Months Ended September 30, 2026 Nine Months Ended September 30, 2025
(dollars in millions) Average Balance
Income/Expense 2
Yield/Rate Average Balance
Income/Expense 2
Yield/Rate Average Balance
Income/Expense 2
Yield/Rate Average Balance
Income/Expense 2
Yield/Rate
Earning Assets
Cash and Cash Equivalents $ 187.7 $ 1.7 3.49 % $ 744.3 $ 8.2 4.31 % $ 251.4 $ 6.7 3.53 % $ 533.5 $ 17.5 4.32 %
Investment Securities
Available-for-Sale
Taxable 3,602.0 36.0 3.99 3,157.8 29.3 3.70 3,623.2 106.3 3.91 2,979.8 80.2 3.59
Non-Taxable 31.6 0.4 5.14 32.4 0.5 5.98 31.8 1.2 5.10 27.0 1.2 5.85
Held-to-Maturity
Taxable 3,995.2 17.3 1.74 4,363.9 19.2 1.76 4,086.7 53.7 1.75 4,457.6 59.0 1.77
Non-Taxable 32.9 0.2 1.92 33.8 0.2 2.10 33.3 0.5 2.04 34.0 0.5 2.10
Total Investment Securities 7,661.7 53.9 2.81 7,587.9 49.2 2.59 7,775.0 161.7 2.77 7,498.4 140.9 2.51
Loans Held for Sale 2.9 0.0 5.83 1.6 0.0 5.92 3.1 0.1 5.71 2.0 0.1 5.89
Loans and Leases 3
Commercial Mortgage 4,393.9 57.1 5.15 4,016.3 54.3 5.36 4,310.4 166.7 5.17 4,018.9 160.5 5.34
Commercial and Industrial 1,656.2 20.6 4.92 1,600.7 20.5 5.09 1,621.7 58.8 4.85 1,657.1 62.9 5.07
Construction 145.7 2.2 6.09 394.4 7.3 7.32 190.1 9.0 6.31 366.6 20.0 7.28
Commercial Lease Financing 83.6 0.9 4.47 93.0 1.0 4.11 85.0 2.8 4.34 92.5 2.8 4.00
Residential Mortgage 4,854.9 50.2 4.13 4,638.1 46.7 4.02 4,816.7 146.9 4.07 4,627.2 137.1 3.95
Home Equity 2,080.5 24.5 4.68 2,129.6 23.9 4.46 2,089.6 72.2 4.62 2,141.8 69.7 4.35
Automobile 670.9 9.7 5.75 706.9 9.5 5.35 677.6 28.7 5.66 729.7 28.3 5.18
Other 419.7 8.2 7.78 403.0 7.7 7.63 412.4 23.9 7.76 397.0 22.3 7.52
Total Loans and Leases 14,305.4 173.4 4.82 13,982.0 170.9 4.86 14,203.5 509.0 4.79 14,030.8 503.6 4.80
Other 83.7 1.5 6.85 65.3 1.1 6.54 82.9 4.1 6.50 65.2 3.2 6.64
Total Earning Assets 22,241.4 230.5 4.13 22,381.1 229.4 4.08 22,315.9 681.6 4.08 22,129.9 665.3 4.01
Non-Earning Assets 1,527.2 1,613.9 1,532.1 1,614.8
Total Assets $ 23,768.6 $ 23,995.0 $ 23,848.0 $ 23,744.7
Interest-Bearing Liabilities
Interest-Bearing Deposits
Demand $ 3,836.6 $ 7.1 0.73 % $ 3,781.0 $ 7.8 0.81 % $ 3,819.1 $ 21.1 0.74 % $ 3,753.3 $ 22.4 0.80 %
Savings 8,798.7 41.5 1.87 8,831.0 50.6 2.28 8,739.5 120.0 1.84 8,652.4 146.0 2.25
Time 2,555.8 17.3 2.69 3,057.6 26.2 3.40 2,671.6 55.5 2.78 3,048.4 80.4 3.53
Total Interest-Bearing Deposits 15,191.1 65.9 1.72 15,669.6 84.6 2.14 15,230.2 196.6 1.73 15,454.1 248.8 2.15
Securities Sold Under Agreements to Repurchase 50.0 0.5 3.89 50.0 0.5 3.89 50.0 1.5 3.89 58.8 1.7 3.88
Other Debt 627.8 6.7 4.19 558.3 6.0 4.23 594.2 18.8 4.20 564.9 17.8 4.23
Total Interest-Bearing Liabilities 15,868.9 73.1 1.83 16,277.9 91.1 2.22 15,874.4 216.9 1.83 16,077.8 268.3 2.23
Net Interest Income $ 157.4 $ 138.3 $ 464.7 $ 397.0
Interest Rate Spread 2.30 % 1.86 % 2.25 % 1.78 %
Net Interest Margin 2.82 % 2.46 % 2.78 % 2.39 %
Noninterest-Bearing Demand Deposits 5,471.3 5,398.7 5,570.5 5,359.9
Other Liabilities 562.1 569.8 537.8 597.2
Shareholders' Equity 1,866.3 1,748.6 1,865.3 1,709.8
Total Liabilities and Shareholders' Equity $ 23,768.6 $ 23,995.0 $ 23,848.0 $ 23,744.7
1Due to rounding, the amounts presented in this table may not tie to other amounts presented elsewhere in this report.
2Interest income includes taxable-equivalent basis adjustments, based upon a federal statutory tax rate of 21%, of $1.3 million and $4.1 million for the three and nine months ended September 30, 2026, respectively, and $1.7 million and $4.8 million for the three and nine months ended September 30, 2025, respectively.
3Non-performing loans and leases are included in the respective average loan and lease balances.
Analysis of Change in Net Interest Income - Taxable-Equivalent Basis Table 2
Three Months Ended September 30, 2026
Nine Months Ended September 30, 2026
Compared to September 30, 2025
Compared to September 30, 2025
(dollars in millions)
Volume 1
Rate 1
Total
Volume 1
Rate 1
Total
Change in Interest Income:
Cash and Cash Equivalents $ (5.2) $ (1.3) $ (6.5) $ (8.0) $ (2.7) $ (10.7)
Investment Securities
Available-for-Sale
Taxable 4.3 2.4 6.7 18.4 7.8 26.2
Non-Taxable 0.0 (0.1) (0.1) 0.2 (0.2) 0.0
Held-to-Maturity
Taxable (1.6) (0.3) (1.9) (4.9) (0.5) (5.4)
Non-Taxable 0.0 0.0 0.0 0.0 0.0 0.0
Total Investment Securities 2.7 2.0 4.7 13.7 7.1 20.8
Loans Held for Sale 0.0 0.0 0.0 0.0 0.0 0.0
Loans and Leases
Commercial Mortgage 5.0 (2.2) 2.8 11.4 (5.2) 6.2
Commercial and Industrial 0.7 (0.7) 0.0 (1.3) (2.8) (4.1)
Construction (4.0) (1.1) (5.1) (8.6) (2.4) (11.0)
Commercial Lease Financing 0.0 0.0 0.0 (0.1) 0.1 0.0
Residential Mortgage 2.2 1.3 3.5 5.7 4.1 9.8
Home Equity (0.6) 1.2 0.6 (1.7) 4.2 2.5
Automobile (0.5) 0.7 0.2 (2.1) 2.5 0.4
Other 0.3 0.2 0.5 0.9 0.7 1.6
Total Loans and Leases 3.1 (0.6) 2.5 4.2 1.2 5.4
Other 0.3 0.1 0.4 0.9 (0.2) 0.7
Total Change in Interest Income 0.9 0.2 1.1 10.8 5.4 16.2
Change in Interest Expense:
Interest-Bearing Deposits
Demand 0.1 (0.8) (0.7) 0.4 (1.8) (1.4)
Savings (0.2) (8.9) (9.1) 1.5 (27.2) (25.7)
Time (3.9) (4.9) (8.8) (9.2) (15.8) (25.0)
Total Interest-Bearing Deposits (4.0) (14.6) (18.6) (7.3) (44.8) (52.1)
Securities Sold Under Agreements to Repurchase - - - (0.3) 0.0 (0.3)
Other Debt 0.8 (0.1) 0.7 0.9 (0.1) 0.8
Total Change in Interest Expense (3.2) (14.7) (17.9) (6.7) (44.9) (51.6)
Change in Net Interest Income $ 4.1 $ 14.9 $ 19.0 $ 17.5 $ 50.3 $ 67.8
1The change in interest income or expense due to both rate and volume has been allocated between the factors in proportion to the relationship of the absolute dollar amounts of the change in each.
Net Interest Income
Net interest income is affected by the size and mix of our balance sheet components as well as the spread between interest earned on assets and interest paid on liabilities. Net interest margin is defined as net interest income, on a taxable-equivalent basis, as a percentage of average earning assets.
The average balance of our earning assets for the three and nine months ended September 30, 2026 decreased by $139.7 million or 1% and increased by $186.0 million or 1%, respectively, compared to the same periods last year. The decrease during the three months ended September 30, 2026 compared to the same period last year was primarily due to a decrease in the average balance of cash and cash equivalents partially offset by an increase in the average balance of total loans and leases. The increase during the nine months ended September 30, 2026 compared to the same period last year was primarily due to an increase in the average balance of available-for-sale investment securities and total loans and leases. As compared to the same periods last year, yields on our investment securities portfolio increased by 22 basis points and 26 basis points during the three and nine months ended September 30, 2026, respectively. These increases were primarily due to the amortization of lower yielding investments being reinvested into new investments at higher current interest rates, as well as the impact of the repositioning of a portion of our AFS securities portfolio in the fourth quarter of 2025, which resulted in a higher-yielding securities mix. As compared to the same periods last year, yields on our loan and lease portfolio decreased by 4 basis points and 1 basis point during the three and nine months ended September 30, 2026, respectively. These decreases were primarily due to a decrease in interest rates that resulted in the repricing of variable-rate commercial loans and the placement of a single commercial mortgage on non-accrual status in the third quarter of 2026. The decrease was partially offset by the continued amortization of lower-yielding loans along with the origination of new loans at higher prevailing interest rates.
The average balance of our interest-bearing deposits for the three and nine months ended September 30, 2026 decreased by $478.5 million or 3% and $223.9 million or 1%, respectively, compared to the same periods last year. As compared to the same periods last year, the cost of our interest-bearing deposits decreased by 42 basis points during both the three and nine months ended September 30, 2026 primarily due to a decrease in the prevailing interest rate environment.
Noninterest Income
Table 3 presents the components of noninterest income.
Noninterest Income Table 3
Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2026 2025 Dollar Change Percent Change 2026 2025 Dollar Change Percent Change
Trust and Asset Management $ 13,420 $ 12,598 $ 822 6.5 % $ 39,577 $ 36,436 $ 3,141 8.6 %
Fees, Exchange, and Other Service Charges 10,839 15,219 (4,380) (28.8) 32,894 44,039 (11,145) (25.3)
Service Charges on Deposit Accounts 9,052 8,510 542 6.4 25,845 24,888 957 3.8
Bank-Owned Life Insurance 3,877 3,681 196 5.3 11,947 11,006 941 8.5
Annuity and Insurance 2,117 1,095 1,022 93.3 5,603 4,087 1,516 37.1
Mortgage Banking 906 906 - - 2,621 2,743 (122) (4.4)
Investment Securities Losses, Net (1,493) (1,945) 452 23.2 (4,052) (4,678) 626 13.4
Other Income 3,988 5,902 (1,914) (32.4) 12,902 16,298 (3,396) (20.8)
Total Noninterest Income $ 42,706 $ 45,966 $ (3,260) (7.1) % $ 127,337 $ 134,819 $ (7,482) (5.5) %
Trust and asset management income is comprised of fees earned from the management and administration of trusts and other customer assets. The management fees are largely based upon the market value of the assets and the fee rate charged to customers. Total trust assets under administration were $14.2 billion and $12.6 billion as of September 30, 2026 and September 30, 2025, respectively. Trust and asset management income increased by $0.8 million or 7% in the third quarter of 2026 and by $3.1 million or 9% for the nine months ended September 30, 2026 compared to the same periods last year, primarily due to the increase in trust assets under management.
Fees, exchange, and other service charges decreased by $4.4 million or 29% in the third quarter of 2026 and by $11.1 million or 25% for the nine months ended September 30, 2026 compared to the same periods last year, primarily due to lower merchant income following the sale of our merchant services portfolio in the fourth quarter of 2025.
Annuity and insurance income increased by $1.0 million or 93% in the third quarter of 2026 and by $1.5 million or 37% for the nine months ended September 30, 2026 compared to the same periods last year, primarily due to higher production resulting from expanded product offerings and improved referral activity during the three and nine months ended September 30, 2026.
Other income decreased by $1.9 million or 32% in the third quarter of 2026 compared to the same period last year, primarily due to lower fee income resulting from a decrease in the volume of customer derivative transactions. Other income decreased by $3.4 million or 21% for the nine months ended September 30, 2026 compared to the same period last year, primarily due to lower fee income resulting from reduced customer derivative transactions and foreign exchange volumes, as well as the absence of a gain on sale of other real estate owned ("OREO") property recognized in the prior year period.
Noninterest Expense
Table 4 presents the components of noninterest expense.
Noninterest Expense Table 4
Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2026 2025 Dollar Change Percent Change 2026 2025 Dollar Change Percent Change
Salaries $ 41,291 $ 40,428 $ 863 2.1 % $ 120,736 $ 118,314 $ 2,422 2.0 %
Medical, Dental, and Life Insurance 5,388 3,908 1,480 37.9 14,453 12,055 2,398 19.9
Retirement and Other Benefits 4,310 3,895 415 10.7 13,262 12,850 412 3.2
Incentive Compensation 3,987 4,280 (293) (6.8) 15,791 14,920 871 5.8
Payroll Taxes 3,049 2,998 51 1.7 11,440 10,762 678 6.3
Share-Based Compensation 2,861 3,979 (1,118) (28.1) 12,640 11,148 1,492 13.4
Commission Expense 1,388 1,326 62 4.7 4,315 3,502 813 23.2
Separation Expense 34 2,091 (2,057) (98.4) 770 3,546 (2,776) (78.3)
Total Salaries and Benefits 62,308 62,905 (597) (0.9) 193,407 187,097 6,310 3.4
Net Equipment 11,307 10,285 1,022 9.9 32,522 30,454 2,068 6.8
Net Occupancy 11,197 10,932 265 2.4 32,847 31,990 857 2.7
Professional Fees 5,571 4,022 1,549 38.5 15,073 12,549 2,524 20.1
Data Processing 5,474 5,603 (129) (2.3) 16,518 16,326 192 1.2
FDIC Insurance 3,004 3,508 (504) (14.4) 8,701 8,790 (89) (1.0)
Other Expense:
Advertising 2,398 2,059 339 16.5 6,773 6,098 675 11.1
Delivery and Postage Services 1,890 1,664 226 13.6 5,463 5,009 454 9.1
Mileage Program Travel 988 1,048 (60) (5.7) 3,038 3,154 (116) (3.7)
Operational Losses 484 674 (190) (28.2) 2,186 3,279 (1,093) (33.3)
Business Development and Travel 612 509 103 20.2 1,807 1,559 248 15.9
Other 7,071 9,178 (2,107) (23.0) 21,226 27,324 (6,098) (22.3)
Total Other Expense 13,443 15,132 (1,689) (11.2) 40,493 46,423 (5,930) (12.8)
Total Noninterest Expense $ 112,304 $ 112,387 $ (83) (0.1) % $ 339,561 $ 333,629 $ 5,932 1.8 %
Total salaries and benefits expense decreased by $0.6 million or 1% in the third quarter of 2026, primarily due to decreases in separation expense, share-based compensation expense, and incentive compensation, partially offset by an increase in medical, dental, and life insurance expense which was driven by higher costs incurred in connection with medical insurance. Total salaries and benefits expense increased by $6.3 million or 3% for the nine months ended September 30, 2026 compared to the same period last year, primarily due to increases in base salaries primarily due to annual merit increases, medical, dental, and life insurance expense, and share-based compensation related to the accelerated vesting during the nine months ended September 30, 2026 of restricted stock awards pursuant to the retirement provisions of performance-based restricted stock awards granted in 2024 and 2025. Medical, dental, and life insurance expense increased by $2.4 million or 20% for the nine months ended September 30, 2026 compared to the same period last year, primarily due to higher costs incurred in connection with medical insurance.
Net equipment expense increased by $1.0 million or 10% in the third quarter of 2026 and by $2.1 million or 7% for the nine months ended September 30, 2026 compared to the same periods last year, primarily due to higher depreciation expense and software license fees and maintenance.
Professional fees increased by $1.5 million or 39% in the third quarter of 2026 and by $2.5 million or 20% for the nine months ended September 30, 2026 compared to the same periods last year, primarily due to an increase in consulting costs incurred.
Total other expense decreased by $1.7 million or 11% in the third quarter of 2026 and by $5.9 million or 13% for the nine months ended September 30, 2026 compared to the same periods last year, primarily due to lower merchant transaction and card processing expenses following the sale of our merchant services portfolio in the fourth quarter of 2025, as well as a decrease in operational losses due to fewer dispute charge-offs.
Provision for Income Taxes
Table 5 presents our provision for income taxes and effective tax rates.
Provision for Income Taxes and Effective Tax Rates Table 5
Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2026 2025 2026 2025
Provision for Income Taxes $ 19,448 $ 14,409 $ 54,835 $ 39,388
Effective Tax Rates 23.24 % 21.27 % 22.82 % 21.37 %
The provision for income taxes was $19.4 million in the third quarter of 2026, an increase of $5.0 million compared to the same period last year. The effective tax rate for the third quarter of 2026 was 23.2%, an increase from 21.3% for the same period last year. The higher effective tax rate for the third quarter of 2026 compared to the same period last year was primarily due to a decrease in tax exempt income and a decrease in tax benefits from discrete items.
The provision for income taxes was $54.8 million in the nine months ended September 30, 2026, an increase of $15.4 million compared to the same period last year. The effective tax rate for the nine months ended September 30, 2026 was 22.8%, an increase from 21.4% for the same period last year. The higher effective tax rate for the nine months ended September 30, 2026 compared to the same period last year was primarily due to higher pretax book income, which reduced the benefit of tax advantaged investments, as well as an increase in non-deductible compensation and a decrease in tax benefits from discrete items.
Analysis of Unaudited Statements of Condition
Cash and Cash Equivalents
Cash and cash equivalents were $442.0 million as of September 30, 2026, a decrease of $504.5 million or 53.3% from the prior year. The decrease was primarily due to a decline in deposits and loan growth during the period.
Investment Securities
The carrying value of our investment securities portfolio was $7.5 billion and $7.8 billion as of September 30, 2026 and December 31, 2025, respectively. The decrease was primarily due to portfolio runoff, including maturities and paydowns, a decline in the fair value of our available-for-sale ("AFS") investment portfolio, partially offset by the purchase of $544.2 million in AFS investment securities during the nine months ended September 30, 2026.
We continually evaluate our investment securities portfolio in conjunction with our response to established asset/liability management objectives, changing market conditions that could affect profitability, and the level of interest rate risk to which we are exposed. These evaluations may cause us to change the level of funds we deploy into investment securities, change the composition of our investment securities portfolio, adjust hedge positions, and change the proportion of investments made into the AFS and held-to-maturity ("HTM") investment categories.
Mortgage-backed securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac represent the largest concentration in our portfolio. As of September 30, 2026, the issuers of these securities carry credit ratings equivalent to those of the U.S. Government, reflecting the explicit and/or implicit guarantees provided.
Net unrealized losses in our AFS and HTM investment securities were $1.0 billion as of September 30, 2026 and $739.8 million as of December 31, 2025. The increase in net unrealized losses was primarily due to changes in interest rates during the nine months ended September 30, 2026. In addition, we transferred AFS investment securities to the HTM category in 2022. At the time of transfer, these securities had a fair value of $1.3 billion. The unrealized losses at the time of transfer remain in accumulated other comprehensive income and are amortized over the estimated remaining life of the securities through an adjustment to the effective yield of the HTM portfolio. The unamortized balance of these losses was $139.3 million and $155.0 million as of September 30, 2026 and December 31, 2025, respectively. See Note 7 Accumulated Other Comprehensive Income to the unaudited Consolidated Financial Statements for more information.
Loans and Leases
Table 6 presents the composition of our loan and lease portfolio by major categories.
Loan and Lease Portfolio Balances Table 6
(dollars in thousands) September 30, 2026 December 31, 2025 Dollar Change Percent Change
Commercial
Commercial Mortgage $ 4,467,245 $ 4,205,791 $ 261,454 6.2 %
Commercial and Industrial 1,652,329 1,584,245 68,084 4.3
Construction 117,919 208,584 (90,665) (43.5)
Lease Financing 81,556 88,303 (6,747) (7.6)
Total Commercial 6,319,049 6,086,923 232,126 3.8
Consumer
Residential Mortgage 4,857,923 4,775,502 82,421 1.7
Home Equity 2,091,468 2,114,809 (23,341) (1.1)
Automobile 671,597 690,376 (18,779) (2.7)
Other 431,299 414,440 16,859 4.1
Total Consumer 8,052,287 7,995,127 57,160 0.7
Total Loans and Leases $ 14,371,336 $ 14,082,050 $ 289,286 2.1 %
Total loans and leases as of September 30, 2026 increased by $289.3 million or 2.1% from December 31, 2025, due to growth in both our commercial and consumer loans.
Commercial loans and leases as of September 30, 2026 increased by $232.1 million or 3.8% from December 31, 2025. The increase was primarily due to growth in our commercial mortgage and commercial and industrial portfolios, which increased by $261.5 million or 6.2% and $68.1 million or 4.3%, respectively. This increase was partially offset by a decrease in our construction portfolio, which decreased by $90.7 million or 43.5%, primarily due to the completion of several construction projects during the nine months ended September 30, 2026. Consumer loans and leases as of September 30, 2026 increased by $57.2 million or 0.7% from December 31, 2025, primarily due to growth in our residential mortgage portfolio, which increased by $82.4 million or 1.7%, largely attributable to growth in residential mortgage loans secured by new condominium units. This was partially offset by paydowns in our home equity and automobile loans portfolios.
Table 7 presents an additional breakdown of the Company's commercial mortgage portfolio.
Commercial Mortgage Breakdown
Table 7
September 30, 2026 December 31, 2025
(dollars in thousands) Amount Percent of Total % Owner Occupied Amount Percent of Total % Owner Occupied
Multi-family $ 1,323,096 30 % - % $ 1,203,151 29 % - %
Industrial 845,354 19 40 776,260 18 38
Retail 762,984 17 3 696,492 17 3
Lodging 623,336 14 - 649,196 15 -
Office 317,903 7 24 336,144 8 22
Other 1
594,572 13 20 544,548 13 23
Total Commercial Mortgage $ 4,467,245 100 % 12 % $ 4,205,791 100 % 12 %
1.Amount includes unamortized loan origination fees.
Table 8 presents the geographic distribution of our loan and lease portfolio.
Geographic Distribution of Loan and Lease Portfolio
Table 8
(dollars in thousands)
Hawai'i
U.S. Mainland 1
Guam Other Pacific Islands Total
September 30, 2026
Commercial
Commercial Mortgage $ 3,874,215 $ 422,560 $ 165,550 $ 4,920 $ 4,467,245
Commercial and Industrial 1,336,004 218,096 66,317 31,912 1,652,329
Construction 117,919 - - - 117,919
Lease Financing 77,153 1,761 2,642 - 81,556
Total Commercial 5,405,291 642,417 234,509 36,832 6,319,049
Consumer
Residential Mortgage 4,781,466 5,325 70,963 169 4,857,923
Home Equity 2,044,491 34 46,943 - 2,091,468
Automobile 539,117 - 105,078 27,402 671,597
Other 373,290 - 49,887 8,122 431,299
Total Consumer 7,738,364 5,359 272,871 35,693 8,052,287
Total Loans and Leases $ 13,143,655 $ 647,776 $ 507,380 $ 72,525 $ 14,371,336
Percentage of Total Loans and Leases 91 % 4 % 4 % 1 % 100 %
December 31, 2025 2
Commercial
Commercial Mortgage $ 3,666,602 $ 361,865 $ 172,338 $ 4,986 $ 4,205,791
Commercial and Industrial 1,358,296 143,658 69,951 12,340 1,584,245
Construction 208,584 - - - 208,584
Lease Financing 84,122 2,194 1,987 - 88,303
Total Commercial 5,317,604 507,717 244,276 17,326 6,086,923
Consumer
Residential Mortgage 4,699,089 5,388 70,767 258 4,775,502
Home Equity 2,070,246 37 44,526 - 2,114,809
Automobile 548,585 - 109,983 31,808 690,376
Other 358,190 - 48,511 7,739 414,440
Total Consumer 7,676,110 5,425 273,787 39,805 7,995,127
Total Loans and Leases $ 12,993,714 $ 513,142 $ 518,063 $ 57,131 $ 14,082,050
Percentage of Total Loans and Leases 92 % 4 % 4 % 0 % 100 %
1For secured loans and leases, classification is made based on where the collateral is located. For unsecured loans and leases, classification is made based on the location where the majority of the borrower's business operations are conducted.
2Certain prior period information has been reclassified to conform to the current year presentation.
Our commercial and consumer lending activities are concentrated primarily in Hawai'i. Our commercial loan and lease portfolio to borrowers based on the U.S. Mainland includes participation in shared national credits for customers whose operations and assets extend beyond Hawai'i.
Other Assets
Table 9 presents the major components of other assets.
Other Assets
Table 9
(dollars in thousands) September 30, 2026 December 31, 2025 Dollar Change Percent Change
Low-Income Housing Investments $ 196,532 $ 224,714 $ (28,182) (12.5) %
Deferred Tax Assets and Tax Receivable 165,510 138,350 27,160 19.6
Derivative Financial Instruments 154,815 99,581 55,234 55.5
Federal Home Loan Bank of Des Moines Stock 48,025 34,750 13,275 38.2
Federal Reserve Bank Stock 31,195 30,770 425 1.4
Prepaid Expenses 28,801 24,156 4,645 19.2
Accounts Receivable
18,345 15,569 2,776 17.8
Deferred Compensation Plan Assets
13,114 15,959 (2,845) (17.8)
Foreclosed Real Estate 171 295 (124) (42.0)
Other 51,800 47,877 3,923 8.2
Total Other Assets $ 708,308 $ 632,021 $ 76,287 12.1 %
Low-income housing investments decreased by $28.2 million or 13% due to the amortization of existing investments. Deferred tax assets and tax receivable increased by $27.2 million or 20% primarily due to book-to-tax differences related to an increase in unrealized losses on investment securities during the nine months ended September 30, 2026. Derivative financial instruments increased by $55.2 million or 55%, primarily due to increasing fair values of our interest rate swaps impacted by prevailing interest rates. Federal Home Loan Bank of Des Moines stock increased by $13.3 million or 38% primarily due to an increase in overnight borrowings.
Deposits
Table 10 presents the composition of our deposits by major customer categories.
Deposits
Table 10
(dollars in thousands) September 30, 2026 December 31, 2025 Dollar Change Percent Change
Consumer $ 10,432,007 $ 10,466,617 $ (34,610) (0.3) %
Commercial 7,977,291 8,597,265 (619,974) (7.2)
Public and Other 2,072,260 2,124,613 (52,353) (2.5)
Total Deposits $ 20,481,558 $ 21,188,495 $ (706,937) (3.3) %
Total deposits were $20.5 billion as of September 30, 2026, a decrease of $706.9 million or 3.3% from December 31, 2025. Commercial deposits decreased by $620.0 million due to decreases of $334.4 million in noninterest-bearing demand deposits, $272.6 million in savings deposits, and $36.9 million in interest-bearing demand deposits, partially offset by an increase of $23.9 million in time deposits.
Table 11 presents the composition of our savings deposits.
Savings Deposits
Table 11
(dollars in thousands) September 30, 2026 December 31, 2025 Dollar Change Percent Change
Regular Savings $ 5,540,591 $ 5,383,975 $ 156,616 2.9 %
Money Market 3,054,441 3,357,115 (302,674) (9.0)
Total Savings Deposits $ 8,595,032 $ 8,741,090 $ (146,058) (1.7) %
The increase in Regular Savings was primarily due to increases in consumer deposits of $122.4 million, public deposits of $23.0 million, and commercial deposits of $11.2 million. The decrease in Money Market was primarily due to decreases in commercial deposits of $283.9 million and consumer deposits of $18.8 million.
Table 12 presents the maturity distribution of the estimated uninsured time deposits.
Maturity Distribution of Estimated Uninsured Time Deposits
Table 12
(dollars in thousands)
September 30, 2026
December 31, 2025
Change
Remaining maturity:
Three months or less $ 754,718 $ 613,444 $ 141,274
After three through six months 264,838 396,599 (131,761)
After six through twelve months 355,525 320,938 34,587
After twelve months 19,760 86,151 (66,391)
Total $ 1,394,841 $ 1,417,132 $ (22,291)
Uninsured amounts are estimated based on the portion of account balances in excess of FDIC insurance limits.
Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase were $50.0 million as of both September 30, 2026 and December 31, 2025. As of September 30, 2026, our remaining repurchase agreement was at a fixed interest rate of 3.89% with a remaining maturity of 3.13 years. Our repurchase agreement was accounted for as a collateralized financing arrangement (i.e., a secured borrowing) and not as a sale and subsequent repurchase of securities. Our remaining repurchase agreement with a private institution may be terminated at earlier specified dates by either the private institution or the Company. See Note 6 Securities Sold Under Agreements to Repurchase to the unaudited Consolidated Financial Statements for more information.
Other Debt
Table 13 presents the composition of our other debt.
Other Debt Table 13
(dollars in thousands) September 30, 2026 December 31, 2025 Dollar Change
Federal Home Loan Bank of Des Moines ("FHLB") Term Advances $ 500,000 $ 550,000 $ (50,000)
Short-Term Borrowings 345,000 - 345,000
Finance Lease Obligations 8,098 8,176 (78)
Total $ 853,098 $ 558,176 $ 294,922
Other debt was $853.1 million as of September 30, 2026, an increase of $294.9 million from the prior year. The increase was primarily due to $345.0 million in overnight borrowings from the Federal Home Loan Bank of Des Moines, to provide short-term funding to facilitate loan and deposit activity. This increase was partially offset by the maturity of a $50.0 million FHLB term advance in May 2026. As of September 30, 2026, our available borrowing capacity under our line of credit with the FHLB was $2.1 billion.
Analysis of Business Segments
Our business segments are defined as Consumer Banking, Commercial Banking, and Treasury and Other.
Table 14 summarizes net income (loss) from our business segments. Additional information about segment performance is presented in Note 9 Business Segments to the unaudited Consolidated Financial Statements.
Business Segment Net Income Table 14
Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2026 2025
Dollar Change
Percent Change
2026 2025
Dollar Change
Percent Change
Consumer Banking $ 39,879 $ 29,918 $ 9,961 33.3 % $ 110,038 $ 89,107 $ 20,931 23.5 %
Commercial Banking 37,474 33,091 4,383 13.2 113,999 95,474 18,525 19.4
Total 77,353 63,009 14,344 22.8 224,037 184,581 39,456 21.4
Treasury and Other (13,095) (9,664) (3,431) (35.5) (38,548) (39,614) 1,066 2.7
Consolidated Total $ 64,258 $ 53,345 $ 10,913 20.5 % $ 185,489 $ 144,967 $ 40,522 28.0 %
Consumer Banking
Net income increased by $10.0 million or 33% in the third quarter of 2026 compared to the same period last year, primarily due to increases in net interest income and noninterest income, partially offset by increases in noninterest expense and the provision for loan losses. Net interest income increased by $16.5 million or 17%, primarily due to higher deposit spreads on savings and interest-bearing checking balances. Noninterest income increased by $2.1 million or 6%, primarily due to higher annuity and insurance fees, trust and asset management fees, and investment advisor fees, partially offset by lower debit card income. Noninterest expense increased by $4.5 million or 5%, primarily due to higher administrative and support unit costs and higher salaries and benefits expenses.
Net income increased by $20.9 million or 23% in the first nine months of 2026 compared to the same period last year, primarily due to increases in net interest income and noninterest income, partially offset by an increase in noninterest expense. Net interest income increased by $41.6 million or 13%, primarily due to higher deposit spreads on savings and interest-bearing checking balances. Noninterest income increased by $4.3 million or 4% primarily due to higher trust and asset management fees, annuity and insurance fees, and overdraft fees. These increases were partially offset by lower debit card income and credit card commissions. Noninterest expense increased by $16.6 million or 6%, primarily due to higher administrative and support unit costs and higher salaries and benefits expense.
Commercial Banking
Net income increased by $4.4 million or 13% in the third quarter of 2026 compared to the same period last year, primarily due to an increase in net interest income and a decrease in noninterest expense, partially offset by a decrease in noninterest income. Net interest income increased by $9.1 million or 17%, primarily due to higher spreads on deposits, which increased segment net interest income under our funds transfer pricing methodology, and average balances on interest bearing and noninterest bearing demand deposits, commercial and industrial loans, and commercial mortgages. These increases were partially offset by declines in construction loan balances, savings and time deposits, and lower loan spreads. Noninterest income decreased by $5.2 million or 54%, primarily due to a reduction in merchant revenue following the sale of the Bank's merchant services portfolio in the fourth quarter of 2025, lower customer derivative program revenue, loan fees, and money market fund shareholder servicing fees, partially offset by increased account analysis fees. Noninterest expense decreased by $2.2 million or 11%, primarily due to lower merchant transaction processing fees, salaries and benefits, professional fees, and administrative and support unit costs, and treasury expenses. These decreases were partially offset by increases in equipment and branch expenses.
Net income increased by $18.5 million or 19% in the first nine months of 2026 compared to the same period last year, primarily due to an increase in net interest income and a decrease in noninterest expense, partially offset by a decrease in noninterest income. Net interest income increased by $25.7 million or 14%, primarily due to higher spreads on deposits, which increased segment net interest income under our funds transfer pricing methodology, as well as higher average balances in interest bearing and noninterest bearing demand deposits and commercial mortgages. These increases were partially offset by lower commercial and industrial and construction loan balances, along with declines in savings and time deposits. Noninterest income decreased by $10.9 million or 47%, primarily due to a reduction in merchant revenue following the sale of the Bank's merchant services portfolio in the fourth quarter of 2025, as well as lower customer derivative program revenue, loan fees, gains on sale of leased assets, and money market fund shareholder servicing fees. These decreases were partially offset by increased account analysis and letters of credit fees. Noninterest expense decreased by $8.0 million or 14%, primarily due to lower merchant transaction processing fees, salaries and benefits, professional fees, and administrative, support unit and treasury expenses. These decreases were partially offset by increases in equipment charges, data processing, excise taxes, and branch expense.
Treasury and Other
Net loss increased by $3.4 million or 36% in the third quarter of 2026 compared to the same period last year, primarily due to an increase in net interest expense. Net interest expense increased by $6.2 million or 46%, primarily due to a decline in deposit balances, partially offset by an increase in interest income from higher earning asset yields. The provision for credit losses and income taxes in this business segment represents the residual amounts to arrive at the total amount for the Company.
Net loss decreased by $1.1 million or 3% in the first nine months of 2026 compared to the same period last year, primarily due to a decrease in net interest expense. Net interest expense decreased by $1.2 million or 2%, primarily due to an increase in interest income from higher earning asset yields. The provision for credit losses and income taxes in this business segment represents the residual amounts to arrive at the total amount for the Company.
Corporate Risk Profile
Credit Risk
We actively manage exposures with deteriorating asset quality to reduce levels of potential loss exposure and closely monitor our reserves and capital to address both anticipated and unforeseen issues. Risk management activities include analysis of portfolio segments and stress tests of certain segments to ensure that reserve and capital levels are appropriate. We perform frequent loan and lease-level risk monitoring and risk rating reviews, which provide opportunities for early interventions to allow for credit exits or restructuring, loan and lease sales, and voluntary workouts and liquidations.
Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More
Table 15 presents information on NPAs and accruing loans and leases past due 90 days or more.
Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More Table 15
(dollars in thousands) September 30, 2026 December 31, 2025 Change
Non-Performing Assets
Non-Accrual Loans and Leases
Commercial
Commercial Mortgage $ 32,500 $ 2,085 $ 30,415
Commercial and Industrial 1,622 1,940 (318)
Total Commercial 34,122 4,025 30,097
Consumer
Residential Mortgage 5,068 5,382 (314)
Home Equity 4,051 4,469 (418)
Total Consumer 9,119 9,851 (732)
Total Non-Accrual Loans and Leases 43,241 13,876 29,365
Foreclosed Real Estate 171 295 (124)
Total Non-Performing Assets $ 43,412 $ 14,171 $ 29,241
Accruing Loans and Leases Past Due 90 Days or More
Consumer
Residential Mortgage $ 12,125 $ 8,834 $ 3,291
Home Equity 2,845 2,152 693
Automobile 919 520 399
Other 679 753 (74)
Total Consumer 16,568 12,259 4,309
Total Accruing Loans and Leases Past Due 90 Days or More $ 16,568 $ 12,259 $ 4,309
Total Loans and Leases $ 14,371,336 $ 14,082,050 $ 289,286
Ratio of Non-Accrual Loans and Leases to Total Loans and Leases 0.30 % 0.10 % 0.20 %
Ratio of Non-Performing Assets to Total Loans and Leases and Foreclosed Real Estate 0.30 % 0.10 % 0.20 %
Ratio of Non-Performing Assets to Total Assets 0.18 % 0.06 % 0.12 %
Ratio of Commercial Non-Performing Assets to Total Commercial Loans and Leases and Commercial Foreclosed Real Estate 0.54 % 0.07 % 0.47 %
Ratio of Consumer Non-Performing Assets to Total Consumer Loans and Leases and Consumer Foreclosed Real Estate 0.12 % 0.13 % (0.01) %
Ratio of Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More to Total Loans and Leases and Foreclosed Real Estate 0.42 % 0.19 % 0.23 %
Changes in Non-Performing Assets
Balance as of December 31, 2025 $ 14,171
Additions 34,217
Reductions
Payments (4,056)
Return to Accrual Status (790)
Charge-offs/Write-downs (130)
Total Reductions (4,976)
Balance as of September 30, 2026 $ 43,412
NPAs consist of non-accrual loans and leases and foreclosed real estate. Changes in the level of non-accrual loans and leases typically are caused by loans and leases that reach a specified past due status, offset by reductions for loans and leases that are charged-off, written down, paid down, sold, transferred to foreclosed real estate, or are no longer classified as non-accrual because they have returned to accrual status.
Non-accrual loans and leases as of September 30, 2026 were $43.2 million, an increase of $29.4 million or 212% from December 31, 2025. This increase was primarily due to a commercial mortgage being placed on non-accrual status in the third quarter of 2026 due to borrower specific circumstances on this particular loan that occurred during the quarter and is not believed to represent broader credit deterioration in the loan portfolio. As of September 30, 2026, our residential mortgage non-accrual loans were comprised of 14 loans with a weighted average current loan-to-value ratio of 73%. As of September 30, 2026, our home equity non-accrual loans were comprised of 50 loans with a weighted average current loan-to-value ratio of 52%.
Foreclosed real estate represents property acquired as the result of borrower defaults on loans. Foreclosed real estate is recorded at fair value, less estimated selling costs, at the time of foreclosure. On an ongoing basis, properties are appraised as required by market conditions and applicable regulations. Foreclosed real estate was $0.2 million as of September 30, 2026 compared to $0.3 million as of December 31, 2025.
Loans and Leases Past Due 90 Days or More and Still Accruing Interest
Loans and leases past due 90 days or more and still accruing interest were $16.6 million as of September 30, 2026, a $4.3 million or 35% increase from December 31, 2025. The increase was primarily in our residential mortgage and home equity portfolios due to an increase in delinquencies. This category includes loans and leases that are well-secured and in the process of collection, as well as loans and leases that have not reached the specified past due status to be placed on non-accrual.
Reserve for Credit Losses
Table 16 presents the activity in our reserve for credit losses.
Reserve for Credit Losses Table 16
Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2026 2025 2026 2025
Balance at Beginning of Period $ 149,276 $ 150,128 $ 148,403 $ 150,649
Loans and Leases Charged-Off
Commercial
Commercial and Industrial (168) (171) (783) (1,776)
Consumer
Residential Mortgage (16) - (31) -
Home Equity (253) (28) (478) (258)
Automobile (1,799) (1,368) (4,951) (4,372)
Other (2,477) (2,392) (7,271) (7,273)
Total Loans and Leases Charged-Off (4,713) (3,959) (13,514) (13,679)
Recoveries on Loans and Leases Previously Charged-Off
Commercial
Commercial Mortgage
- - 1,617 -
Commercial and Industrial 41 98 166 253
Consumer
Residential Mortgage 8 58 41 80
Home Equity 58 177 272 485
Automobile 754 559 1,959 1,749
Other 538 490 1,668 1,514
Total Recoveries on Loans and Leases
1,399 1,382 5,723 4,081
Net Charged-Off - Loans and Leases (3,314) (2,577) (7,791) (9,598)
Provision for Credit Losses:
Loans and Leases 2,489 2,812 7,195 9,848
Unfunded Commitments 261 (312) 905 (848)
Total Provision for Credit Losses 2,750 2,500 8,100 9,000
Balance at End of Period $ 148,712 $ 150,051 $ 148,712 $ 150,051
Components
Allowance for Credit Losses - Loans and Leases $ 146,170 $ 148,778 $ 146,170 $ 148,778
Reserve for Unfunded Commitments 2,542 1,273 2,542 1,273
Total Reserve for Credit Losses $ 148,712 $ 150,051 $ 148,712 $ 150,051
Average Loans and Leases Outstanding $ 14,305,379 $ 13,982,003 $ 14,203,547 $ 14,030,773
Ratio of Net Loans and Leases Charged-Off to Average Loans and Leases Outstanding (annualized) 0.09 % 0.07 % 0.07 % 0.09 %
Ratio of Allowance for Credit Losses to Loans and Leases Outstanding 1
1.02 % 1.06 % 1.02 % 1.06 %
1The numerator comprises the Allowance for Credit Losses - Loans and Leases.
Allowance for Credit Losses (the "Allowance")
As of September 30, 2026, the Allowance was $146.2 million or 1.02% of total loans and leases outstanding compared with an Allowance of $146.8 million or 1.04% of total loans and leases outstanding as of December 31, 2025.
Net charge-offs on loans and leases for the three and nine months ended September 30, 2026 were $3.3 million or 0.09% and $7.8 million or 0.07%, respectively of total average loans and leases on an annualized basis, compared to $2.6 million or 0.07% and $9.6 million or 0.09% of total average loans and leases on an annualized basis for the three and nine months ended September 30, 2025, respectively.
Reserve for Unfunded Commitments
The reserve for unfunded commitments was $2.5 million as of September 30, 2026, an increase of $0.9 million or 55% from December 31, 2025, primarily due to higher unfunded commitments in our commercial and industrial portfolio. The reserve for unfunded commitments is recorded in other liabilities in the unaudited consolidated statements of condition.
Provision for Credit Losses
For the three and nine months ended September 30, 2026, the provision for credit losses was $2.8 million and $8.1 million, respectively, compared to $2.5 million and $9.0 million for the same respective periods last year. The increase in the provision for credit losses for the three months ended September 30, 2026 was primarily due to an increase in the reserve for unfunded commitments. The decrease in the provision for credit losses for the nine months ended September 30, 2026 was primarily due to a $1.6 million recovery of a commercial mortgage loan in the first quarter of 2026.
Market Risk
Market risk is the potential of loss arising from adverse changes in interest rates and prices. We are exposed to market risk as a consequence of the normal course of conducting our business activities. Our market risk management process involves measuring, monitoring, controlling, and mitigating risks that can significantly impact our consolidated statements of income and condition. In this management process, we balance market risks with expected returns to enhance earnings performance while managing volatility to an acceptable level.
Our primary market risk exposure is interest rate risk.
Interest Rate Risk
The objective of our interest rate risk management process is to optimize net interest income while operating within acceptable limits. This involves balancing expected returns with potential earnings and price volatility due to changes in interest rates over short-term, medium-term, and long-term time horizons, while maintaining adequate levels of funding and liquidity. The potential cash flows, sales, or replacement value of many of our assets and liabilities, especially those that earn or pay interest, are sensitive to changes in interest rates. This interest rate risk arises primarily from our core business activities of extending loans and accepting deposits.
We utilize two management guidelines to measure our interest rate risk exposure: 1) net interest income ("NII") sensitivity, and 2) economic value of equity ("EVE") sensitivity. NII and EVE sensitivities measure the estimated percentage change in forward looking net-interest income and economic value, respectively, under instantaneous parallel shocks of the yield curve ranging from -400 basis points to +400 basis points. We measure NII sensitivity over two successive 12-month periods to evaluate interest rate risk over short-term and medium-term time horizons. EVE sensitivity, which captures the present value of all on and off-balance sheet positions, measures interest rate risk over a long-term time horizon. The results are measured relative to established limits and early warning indicators that ensure that fluctuation in income and valuation in both up and down rate shocks remain within levels approved by the Asset and Liability Management Committee ("ALCO") and the Board of Directors. While we recognize that instantaneous parallel shocks of the entire yield curve are unrealistic, we believe that the application of immediate shocks provides us with a sufficient range of sensitivities to frame our risk exposures. We pay particular attention to the rate shock sensitivities within the range of +/-200 basis points, as we believe this range represents the highest probability of rate movements that could occur in the near to medium term. As of September 30, 2026, we remained within applicable policy limits for such scenarios.
The ALCO, which is comprised of members of executive management, utilizes several techniques to manage interest rate risk, which include:
•adjusting the balance sheet mix or altering the interest rate characteristics of assets and liabilities;
•changing product pricing strategies;
•modifying characteristics, including mix and duration, of the AFS investment securities portfolio; and
•using derivative financial instruments.
Changes in interest rates may have a material impact on earnings and valuation due to balance sheet cash flow, maturity structure and repricing frequency. The investment portfolio and loan portfolios have significant repricing volumes and cash flows from maturities and paydowns, providing opportunities to redeploy funds in order to respond to changes in the rate environment. These assets are primarily funded by deposit balances, which generally have an indeterminate life. Historically, our deposit base consists primarily of core consumer and commercial deposit relationships. While we strive to position our balance sheet to organically reduce volatility in earnings and valuation, primarily through our funding and investment portfolio positioning, as well as product pricing strategies, we have also established a hedging program designed to allow us to adjust the duration of our earning assets synthetically. As of September 30, 2026, our hedging program consisted primarily of pay-fixed interest rate swaps. As interest rates change, we may use different instruments to manage interest rate risk, including caps, floors, swaptions and other commonly utilized derivative instruments. See Note 10 Derivative Financial Instruments to the unaudited Consolidated Financial Statements.
A key element in our ongoing process to measure and monitor interest rate risk is the utilization of an asset/liability simulation model. This model attempts to capture the dynamic nature of assets and liabilities in various interest rate environments. It estimates and measures our balance sheet sensitivity to changes in interest rates. Given the structure of our balance sheet, model results are particularly sensitive to changes in prepayment rates on mortgage-related assets and the repricing behavior of interest-bearing deposits. We utilize a model to estimate the prepayment behavior of our mortgage-related assets, which considers the characteristics of the underlying mortgage loans, including rate (used to gauge refinance incentive), seasoning or age, and seasonality. The model's forecasted results are regularly tested against historical prepayment behavior and is, in the ordinary course, recalibrated if the difference between actual and projected prepayments exceed established guidelines. Separate models are utilized to project interest-bearing deposit repricing behavior and deposit account attrition and average lives in various interest rate environments. These models were developed based upon our historical behavior over several interest rate cycles and are periodically updated. The models' forecast results are tested against historical results and have been and may continue to be recalibrated.
We utilize net interest income simulations to analyze short-term income sensitivities to changes in interest rates. Table 17a presents as of September 30, 2026 and December 31, 2025, an estimate of the change in net interest income over the next twelve months that would result from an immediate change in interest rates, moving in a parallel fashion over the entire yield curve, relative to the measured base case scenario. The base case scenario assumes the consolidated statements of condition and interest rates are generally unchanged.
Net Interest Income Sensitivity Profile Table 17a
Impact on Future Annual Net Interest Income
(dollars in thousands) September 30, 2026 December 31, 2025
Immediate Change in Interest Rates (basis points)
+400 $ (11,071) (1.7) % $ 32,646 5.2 %
+300 (6,164) (1.0) 27,489 4.4
+200 (2,178) (0.3) 20,696 3.3
+100 (2,132) (0.3) 11,458 1.8
-100 11,205 1.7 (8,525) (1.4)
-200 16,907 2.6 (20,383) (3.3)
-300 (10,621) (1.7) (48,664) (7.8)
-400 (64,455) (10.0) (86,935) (13.9)
Compared with December 31, 2025, the balance sheet became less sensitive to both rising and declining rate environments, reflecting changes in balance sheet composition, a reduction in active pay-fixed interest rate swap positions, and a recalibration of assumptions regarding deposit repricing behavior and asset prepayment behavior.
Management also evaluates non-parallel yield curve scenarios to assess the impact of changes in the shape of the yield curve on earnings and economic value.
Table 17b presents an estimate of the change in EVE that would result from an immediate change in interest rates, moving in a parallel fashion over the entire yield curve, relative to the measured base case scenario. Similar to the sensitivity profile above, the base case scenario assumes the consolidated statements of condition and interest rates are generally unchanged.
Economic Value of Equity Sensitivity Profile Table 17b
Impact on Economic Value of Equity
(dollars in thousands) September 30, 2026 December 31, 2025
Immediate Change in Interest Rates (basis points)
+400 $ (816,922) (24.3) % $ (676,020) (21.0) %
+300 (626,025) (18.7) (519,819) (16.2)
+200 (422,483) (12.6) (353,098) (11.0)
+100 (211,265) (6.3) (177,928) (5.5)
-100 255,594 7.6 196,634 6.1
-200 455,723 13.6 356,504 11.1
-300 440,916 13.1 315,375 9.8
-400 189,870 5.7 106,004 3.3
Compared to December 31, 2025, EVE sensitivity reflected a moderate increase, as changes in balance sheet composition and derivatives activity combined with a recalibration of assumptions regarding deposit repricing behavior and asset prepayment behavior, resulted in a decrease in estimated duration of liabilities.
Other Market Risks
In addition to interest rate risk, we are exposed to other forms of market risk in our normal business transactions. Foreign currency holdings expose us to a small degree of foreign currency risk. Our trust and asset management income are at risk to fluctuations in the market values of underlying assets, particularly debt and equity securities. Also, our share-based compensation expense is dependent on the fair value of our restricted stock units and restricted stock at the date of grant. The fair value of restricted stock units and restricted stock is impacted by the market price of the Parent's common stock on the date of grant and is at risk to changes in equity markets, general economic conditions, and other factors.
Liquidity Risk Management
The objective of our liquidity risk management process is to manage cash flow and liquidity in an effort to provide continuous access to sufficient, reasonably priced funds. Funding requirements are impacted by factors such as loan originations and refinancings, changes in deposit balances, liability issuances and settlements, and off-balance sheet funding commitments. We adhere to various regulatory guidelines regarding required liquidity levels and periodically monitor our liquidity position in light of the changing economic environment and customer activity. Based on periodic liquidity assessments, we may alter our asset, liability, and off-balance sheet positions. The ALCO monitors sources and uses of funds and modifies asset and liability positions as liquidity requirements change. This process, combined with our ability to raise funds in money and capital markets and through private placements, provides flexibility in managing the exposure to liquidity risk.
We maintain access to ample sources of readily available contingent liquidity. As of September 30, 2026, we had pledged loans and investment securities to the Federal Reserve Discount Window and had remaining borrowing capacity of $7.5 billion. We are also a member of the FHLB. As of September 30, 2026, we had pledged loans to the FHLB and had remaining borrowing capacity of $2.1 billion.
In addition, we utilize our investment securities portfolio as collateral to secure deposits of public entities as well as repurchase agreements with private institution counterparties. The high-quality nature of our investment securities portfolio, which consists primarily of government and agency securities, facilitates the use of these assets for pledging purposes.
Other sources of liquidity also include investment securities in our AFS securities portfolio and our ability to sell loans in the secondary market. Our core deposits have historically provided us with a long-term source of stable and relatively low-cost source of funding. Additional funding is also available through the issuance of long-term debt or equity.
General market and economic conditions will impact our ability to borrow funds from external sources, as well as the cost of such borrowing both in terms of rate, as well as haircuts on collateral pledged to support such borrowings. Although a significant portion of our investment securities were in an unrealized loss position as of September 30, 2026, we believe we have sufficient access to various forms of liquidity that would alleviate the need to liquidate these investment securities and realize the losses.
We continued our focus on maintaining a strong liquidity position. As of September 30, 2026, cash and cash equivalents were $442.0 million, the carrying value of our AFS investment securities was $3.5 billion, and total deposits were $20.5 billion. As of September 30, 2026, our AFS investment securities portfolio was comprised of securities with an average base duration of approximately 3.27 years, excluding the impact from our interest rate swaps.
Capital Management
We actively manage capital, commensurate with our risk profile, to enhance shareholder value. We also seek to maintain capital levels for the Company and the Bank at amounts in excess of the regulatory "well-capitalized" thresholds. Periodically, we may respond to market conditions by implementing changes to our overall balance sheet positioning to manage our capital position.
The Company and the Bank are each subject to regulatory capital requirements administered by the federal banking agencies and the Division of Financial Institutions, an agency of the State of Hawai'i Department of Commerce and Consumer Affairs. Failure to meet minimum capital requirements could cause certain mandatory and discretionary actions by regulators that, if undertaken, would likely have a material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative and qualitative measures. These measures were established by regulations intended to ensure capital adequacy. As of September 30, 2026, the Company's capital levels remained characterized as "well-capitalized." There have been no conditions or events since September 30, 2026, that management believes have changed either the Company's or the Bank's capital classifications. The Company's regulatory capital ratios are presented in Table 18 below.
Table 18 presents our regulatory capital and ratios as of September 30, 2026 and December 31, 2025.
Regulatory Capital and Ratios Table 18
(dollars in thousands) September 30, 2026 December 31, 2025
Regulatory Capital 1
Total Common Shareholders' Equity $ 1,481,076 $ 1,506,212
Adjustments:
Goodwill, Net of Deferred Tax Liabilities (28,746) (28,746)
Deferred Tax Assets from Tax Credit Carryforwards (3,567) (2,191)
Postretirement Benefit Liability 19,585 20,253
Net Unrealized Losses on Investment Securities 2
288,068 224,185
Other 9,098 9,097
Common Equity Tier 1 Capital 1,765,514 1,728,810
Preferred Stock, Net of Issuance Cost 336,101 336,101
Tier 1 Capital 2,101,615 2,064,911
Allowable Reserve for Credit Losses 148,712 148,404
Total Regulatory Capital $ 2,250,327 $ 2,213,315
Risk-Weighted Assets $ 14,587,549 $ 14,246,238
Key Regulatory Capital Ratios
Common Equity Tier 1 Capital Ratio 12.10 % 12.14 %
Tier 1 Capital Ratio 14.41 14.49
Total Capital Ratio 15.43 15.54
Tier 1 Leverage Ratio 8.79 8.57
1Regulatory capital ratios as of September 30, 2026 are preliminary.
2Includes unrealized gains and losses related to the Company's reclassification of AFS investment securities to the HTM category.
Shareholders' Equity
As of September 30, 2026, shareholders' equity was $1.8 billion, a decrease of $25.1 million or 1.4% from December 31, 2025. The decrease was attributed to cash dividends declared of $84.1 million on common shares, other comprehensive loss of $63.2 million, common stock repurchased under the share repurchase program of $52.3 million, cash dividends declared of $15.8 million on preferred shares, and common stock repurchased of $12.1 million related to taxes withheld for share-based compensation, partially offset by net income of $185.5 million, share-based compensation of $13.2 million. During the nine months ended September 30, 2026, our other comprehensive loss was $63.2 million compared to other comprehensive income of $67.1 million during the same period last year. This change was primarily due to a decline in the fair value of our AFS investment portfolio caused by the rise in interest rates.
During the nine months ended September 30, 2026, we repurchased 665,965 shares of common stock at an average cost per share of $78.52 and total cost of $52.3 million under the share repurchase program. Remaining buyback authority under our share repurchase program was $68.7 million as of September 30, 2026. In October 2026, the Parent's Board of Directors increased the authorization under the share repurchase program by $200 million, which increased the total remaining buyback authority under the share repurchase program to $268.7 million. The actual amount and timing of future share repurchases, if any, will depend on market and economic conditions, regulatory rules, applicable SEC rules, and various other factors.
In October 2026, the Parent's Board of Directors declared quarterly dividend payments of its Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, of $10.94 per share, equivalent to $0.2735 per depositary share and its Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series B, of $20.00 per share, equivalent to $0.5000 per depositary share. The dividends on the Series A Preferred Stock and Series B Preferred Stock will be payable on November 2, 2026, to shareholders of record at the close of business on October 16, 2026.
In October 2026, the Parent's Board of Directors declared a quarterly cash dividend of $0.70 per share on the Parent's outstanding common shares. The dividend will be payable on December 14, 2026, to shareholders of record of the common stock at the close of business on November 30, 2026.
Operational Risk
Operational risk represents the risk of loss resulting from our operations, including, but not limited to, the risk of fraud by employees or persons outside the Company, errors relating to transaction processing and technology, failure to adhere to compliance requirements, and the risk of cyber attacks. We are also exposed to operational risk through our outsourcing arrangements, and the effect that changes in circumstances or capabilities of our outsourcing vendors can have on our ability to continue to perform operational functions necessary to our business. The risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards, adverse business decisions or their implementation, and customer attrition due to potential negative publicity. Operational risk is inherent in all business activities, and management of this risk is important to the achievement of Company goals and objectives.
Our Operational Risk and Compliance Committee (the "ORC") provides oversight and assesses the most significant operational risks including cybersecurity risks facing the Company. We have developed a framework that provides for a centralized operating risk management function through the ORC, supplemented by business unit responsibility for managing operational risks specific to their business units. Our internal audit department also validates the system of internal controls through ongoing risk-based audit procedures and reports on the effectiveness of internal controls to executive management and the Audit Committee of the Board of Directors.
We continuously strive to strengthen our system of internal controls to improve the oversight of operational risk. While our internal controls have been designed to minimize operational risks, there is no assurance that business disruption or operational losses will not occur. On an ongoing basis, management reassesses operational risks, implements appropriate process changes, and invests in enhancements to our systems of internal controls.
Off-Balance Sheet Arrangements, Credit Commitments, and Contractual Obligations
Off-Balance Sheet Arrangements
We hold interests in several unconsolidated variable interest entities ("VIEs"). These unconsolidated VIEs are primarily low-income housing partnerships. Variable interests are defined as contractual ownership or other interests in an entity that change with fluctuations in an entity's net asset value. The primary beneficiary consolidates the VIE. We have determined that the Company is not the primary beneficiary of these entities. As a result, we do not consolidate these VIEs.
Credit Commitments and Contractual Obligations
Our credit commitments and contractual obligations have not changed materially since previously reported in our Annual Report on Form 10-K for the year ended December 31, 2025.
Bank of Hawaii Corporation published this content on October 26, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on October 26, 2026 at 20:54 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]