Bank of Hawaii Corporation
10/28/2025 | Press release | Distributed by Public on 10/28/2025 04:04
Quarterly Report for Quarter Ending September 30, 2025 (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 2025, including comparisons of year-to-year performance, trends, and updates from the Company's most recent 10-K filing. Discussion and analysis of our 2024 fiscal year, as well as the year-to-year comparison between fiscal years 2024 and 2023, 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, 2024, filed with the SEC on March 4, 2025.
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 because of 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 (including the current federal government shutdown), 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, including as a result of the federal government shutdown, 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) Negative public opinion could damage our reputation and adversely impact our earnings and liquidity (28) We are subject to certain litigation, and our expenses related to this litigation may adversely affect our results; (29) Our performance depends on attracting and retaining key employees and skilled personnel to operate our business effectively; (30) The soundness of other financial institutions may adversely impact our financial condition or results of operations; (31) We have experienced increases in FDIC insurance assessments; and (32) Significant changes to the size, structure, powers and operations 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.
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, including our Quarterly Report on Form 10-Q for the quarter ended March 31, 2025. 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, 2024. There have been no significant changes in the Company's application of critical accounting estimates since December 31, 2024.
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
As of September 30, 2025, Hawai'i's economy continues to show resilience despite broader national and global uncertainties. While tourism has softened, the sector remains a vital contributor to the state's recovery, with domestic travel helping to offset slower international arrivals. Construction activity remains strong, supported by public infrastructure investment and rebuilding efforts, and continues to provide stability across the labor market. Inflationary pressures and changes to federal support programs present challenges, but ongoing state-level initiatives and a diversified economic base are expected to help mitigate their impact. Although job growth has moderated and federal employment reductions are underway, Hawai'i's unemployment rate has been lower relative to national levels. Hawai'i's unemployment rate was 2.7% in August 2025, which was below the U.S. unemployment rate of 4.3%.
For the first nine months of 2025, the median price of single-family home and condominium sales on Oahu increased by 4.1% and decreased by 1.0%, respectively, compared to the same period in 2024. The volume of single-family homes sales on Oahu increased 0.8% and condominium sales decreased 3.0% compared to the same period in 2024. Inventory of single-family homes and condominiums on Oahu was 3.4 months and 6.4 months, respectively, for the third quarter of 2025.
Earnings Summary
Net income for the third quarter of 2025 was $53.3 million, an increase of $13.0 million, or 32%, compared to the same period in 2024. Diluted earnings per common share was $1.20 for the third quarter of 2025, an increase of $0.27, or 29%, compared to the same period in 2024.
•The return on average common equity for the third quarter of 2025 was 13.59% compared with 11.50% in the same quarter of 2024.
•Net interest income for the third quarter of 2025 was $136.7 million, an increase of 16% compared to the same period last year.
•Net interest margin was 2.46% in the third quarter of 2025, an increase of 28 basis points from the same period in 2024.
•The provision for credit losses for the third quarter of 2025 and 2024 was $2.5 million and $3.0 million, respectively.
•Noninterest income was $46.0 million in the third quarter of 2025, an increase of 2% compared to the same period last year.
•Noninterest expense was $112.4 million in the third quarter of 2025, an increase of 5% compared to the same period last year.
•The effective tax rate for the third quarter of 2025 was 21.3% compared with 23.3% compared to the same period last year.
The balance sheet remained stable during the third quarter of 2025. Compared to December 31, 2024, we experienced a modest decline in loans, while investments and deposits increased.
•Total assets were $24.0 billion as of September 30, 2025, an increase of 1.8% from December 31, 2024.
•Total loans and leases were $14.0 billion as of September 30, 2025, a decrease of 0.4% from December 31, 2024.
•The allowance for credit losses on loans and leases was $148.8 million as of September 30, 2025, a decrease from December 31, 2024. The ratio of the allowance for credit losses to total loans and leases outstanding was 1.06% at the end of the quarter, flat from December 31, 2024.
•Net loan and lease charge-offs during the third quarter of 2025 were $2.6 million or 7 basis points annualized of total average loans and leases outstanding. Net loan and lease charge-offs for the third quarter of 2025 were
comprised of charge-offs of $4.0 million partially offset by recoveries of $1.4 million. Compared to the same quarter of 2024, net loan and lease charge-offs decreased by $1.3 million or 4 basis points annualized on total average loans and leases outstanding.
•Total non-performing assets ("NPAs") were $16.9 million as of September 30, 2025, down $2.4 million from December 31, 2024. NPAs were 12 basis points of total loans and leases and foreclosed real estate at the end of the quarter, down 2 basis points from December 31, 2024.
•The investment securities portfolio was $7.6 billion as of September 30, 2025, an increase of 4.3% from December 31, 2024. The investment portfolio remains largely comprised of securities issued by U.S. government agencies and U.S. government-sponsored enterprises. Floating rate securities represented 19.3% of the investment securities portfolio as of September 30, 2025, compared to 16.5% as of December 31, 2024.
•Total deposits were $21.1 billion as of September 30, 2025 and $20.6 billion as of December 31, 2024.
•Total shareholders' equity was $1.8 billion as of September 30, 2025, an increase of 7.4% from December 31, 2024.
•No shares of common stock were repurchased under the share repurchase program in the third quarter of 2025. Total remaining buyback authority under the share repurchase program was $126.0 million at September 30, 2025.
•The Company's Board of Directors declared a quarterly cash dividend of $0.70 per share on the Company's outstanding common shares. The dividend will be payable on December 12, 2025 to shareholders of record at the close of business on November 28, 2025.
•On October 3, 2025, the Company announced that the Board of Directors declared quarterly dividend payments of $10.94 per share, equivalent to $0.2735 per depositary share, on its preferred stock, Series A, and $20.00 per share, equivalent to $0.5000 per depositary share, on its preferred stock, Series B. The depositary shares representing the Series A Preferred Stock and Series B Preferred Stock are traded on the NYSE under the symbol "BOH.PRA" and "BOH.PRB", respectively. The dividends on the Series A Preferred Stock and Series B Preferred Stock will be payable on November 3, 2025 to shareholders of record of the preferred stock as of the close of business on October 17, 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.
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Average Balances and Interest Rates - Taxable-Equivalent Basis ¹
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Table 1 | ||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2025 | Three Months Ended September 30, 2024 | Nine Months Ended September 30, 2025 | Nine Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| (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 | $ | 744.3 | $ | 8.2 | 4.31 | % | $ | 667.8 | 9.0 | 5.27 | % | $ | 533.5 | $ | 17.5 | 4.32 | % | $ | 530.0 | $ | 21.3 | 5.28 | % | ||||||||||||||||||||||||
| Investment Securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Available-for-Sale | |||||||||||||||||||||||||||||||||||||||||||||||
| Taxable | 3,157.8 | 29.3 | 3.70 | 2,430.0 | 23.0 | 3.80 | 2,979.8 | 80.2 | 3.59 | 2,373.1 | 66.4 | 3.73 | |||||||||||||||||||||||||||||||||||
| Non-Taxable | 32.4 | 0.5 | 5.98 | 11.8 | 0.2 | 6.63 | 27.0 | 1.2 | 5.85 | 5.0 | 0.2 | 5.59 | |||||||||||||||||||||||||||||||||||
| Held-to-Maturity | |||||||||||||||||||||||||||||||||||||||||||||||
| Taxable | 4,363.9 | 19.2 | 1.76 | 4,735.5 | 21.0 | 1.77 | 4,457.6 | 59.0 | 1.77 | 4,832.9 | 64.4 | 1.78 | |||||||||||||||||||||||||||||||||||
| Non-Taxable | 33.8 | 0.2 | 2.10 | 34.4 | 0.2 | 2.10 | 34.0 | 0.5 | 2.10 | 34.6 | 0.5 | 2.10 | |||||||||||||||||||||||||||||||||||
| Total Investment Securities | 7,587.9 | 49.2 | 2.59 | 7,211.7 | 44.4 | 2.46 | 7,498.4 | 140.9 | 2.51 | 7,245.6 | 131.5 | 2.42 | |||||||||||||||||||||||||||||||||||
| Loans Held for Sale | 1.6 | 0.0 | 5.92 | 3.8 | 0.1 | 6.13 | 2.0 | 0.1 | 5.89 | 2.5 | 0.1 | 6.16 | |||||||||||||||||||||||||||||||||||
|
Loans and Leases 3
|
|||||||||||||||||||||||||||||||||||||||||||||||
| Commercial Mortgage | 4,016.3 | 54.3 | 5.36 | 3,744.6 | 52.0 | 5.51 | 4,018.9 | 160.5 | 5.34 | 3,728.3 | 153.9 | 5.52 | |||||||||||||||||||||||||||||||||||
| Commercial and Industrial | 1,600.7 | 20.5 | 5.09 | 1,665.3 | 22.6 | 5.42 | 1,657.1 | 62.9 | 5.07 | 1,673.6 | 67.1 | 5.36 | |||||||||||||||||||||||||||||||||||
| Construction | 394.4 | 7.3 | 7.32 | 357.3 | 7.1 | 7.95 | 366.6 | 20.0 | 7.28 | 329.0 | 19.0 | 7.71 | |||||||||||||||||||||||||||||||||||
| Commercial Lease Financing | 93.0 | 1.0 | 4.11 | 59.6 | 0.4 | 2.58 | 92.5 | 2.8 | 4.00 | 59.1 | 1.0 | 2.25 | |||||||||||||||||||||||||||||||||||
| Residential Mortgage | 4,638.1 | 46.7 | 4.02 | 4,593.7 | 46.4 | 4.03 | 4,627.2 | 137.1 | 3.95 | 4,613.0 | 137.0 | 3.96 | |||||||||||||||||||||||||||||||||||
| Home Equity | 2,129.6 | 23.9 | 4.46 | 2,206.9 | 22.4 | 4.04 | 2,141.8 | 69.7 | 4.35 | 2,229.5 | 65.3 | 3.91 | |||||||||||||||||||||||||||||||||||
| Automobile | 706.9 | 9.5 | 5.35 | 795.7 | 9.4 | 4.72 | 729.7 | 28.3 | 5.18 | 813.3 | 27.5 | 4.51 | |||||||||||||||||||||||||||||||||||
| Other | 403.0 | 7.7 | 7.63 | 386.9 | 6.9 | 7.13 | 397.0 | 22.3 | 7.52 | 391.0 | 20.2 | 6.91 | |||||||||||||||||||||||||||||||||||
| Total Loans and Leases | 13,982.0 | 170.9 | 4.86 | 13,810.0 | 167.2 | 4.82 | 14,030.8 | 503.6 | 4.80 | 13,836.8 | 491.0 | 4.74 | |||||||||||||||||||||||||||||||||||
| Other | 65.3 | 1.1 | 6.54 | 63.2 | 0.9 | 6.43 | 65.2 | 3.2 | 6.64 | 62.6 | 3.1 | 6.61 | |||||||||||||||||||||||||||||||||||
| Total Earning Assets | 22,381.1 | 229.4 | 4.08 | 21,756.5 | 221.7 | 4.06 | 22,129.9 | 665.3 | 4.01 | 21,677.5 | 647.0 | 3.98 | |||||||||||||||||||||||||||||||||||
| Non-Earning Assets | 1,613.9 | 1,582.0 | 1,614.8 | 1,577.9 | |||||||||||||||||||||||||||||||||||||||||||
| Total Assets | $ | 23,995.0 | $ | 23,338.5 | $ | 23,744.7 | $ | 23,255.4 | |||||||||||||||||||||||||||||||||||||||
| Interest-Bearing Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest-Bearing Deposits | |||||||||||||||||||||||||||||||||||||||||||||||
| Demand | $ | 3,781.0 | $ | 7.8 | 0.81 | % | $ | 3,775.6 | $ | 8.9 | 0.94 | % | $ | 3,753.3 | $ | 22.4 | 0.80 | % | $ | 3,776.1 | $ | 25.4 | 0.90 | % | |||||||||||||||||||||||
| Savings | 8,831.0 | 50.6 | 2.28 | 8,402.9 | 55.7 | 2.63 | 8,652.4 | 146.0 | 2.25 | 8,264.9 | 157.1 | 2.54 | |||||||||||||||||||||||||||||||||||
| Time | 3,057.6 | 26.2 | 3.40 | 3,008.7 | 31.5 | 4.17 | 3,048.4 | 80.4 | 3.53 | 3,008.6 | 94.2 | 4.18 | |||||||||||||||||||||||||||||||||||
| Total Interest-Bearing Deposits | 15,669.6 | 84.6 | 2.14 | 15,187.2 | 96.1 | 2.52 | 15,454.1 | 248.8 | 2.15 | 15,049.6 | 276.7 | 2.46 | |||||||||||||||||||||||||||||||||||
| Securities Sold Under Agreements to Repurchase | 50.0 | 0.5 | 3.89 | 100.5 | 1.0 | 3.87 | 58.8 | 1.7 | 3.88 | 124.2 | 3.6 | 3.82 | |||||||||||||||||||||||||||||||||||
| Other Debt | 558.3 | 6.0 | 4.23 | 560.1 | 5.9 | 4.24 | 564.9 | 17.8 | 4.23 | 561.3 | 17.8 | 4.25 | |||||||||||||||||||||||||||||||||||
| Total Interest-Bearing Liabilities | 16,277.9 | 91.1 | 2.22 | 15,847.8 | 103.0 | 2.59 | 16,077.8 | 268.3 | 2.23 | 15,735.1 | 298.1 | 2.53 | |||||||||||||||||||||||||||||||||||
| Net Interest Income | $ | 138.3 | $ | 118.7 | $ | 397.0 | $ | 348.8 | |||||||||||||||||||||||||||||||||||||||
| Interest Rate Spread | 1.86 | 1.47 | 1.78 | 1.45 | |||||||||||||||||||||||||||||||||||||||||||
| Net Interest Margin | 2.46 | 2.18 | 2.39 | 2.15 | |||||||||||||||||||||||||||||||||||||||||||
| Noninterest-Bearing Demand Deposits | 5,398.7 | 5,297.2 | 5,359.9 | 5,412.6 | |||||||||||||||||||||||||||||||||||||||||||
| Other Liabilities | 569.8 | 571.6 | 597.2 | 615.1 | |||||||||||||||||||||||||||||||||||||||||||
| Shareholders' Equity | 1,748.6 | 1,621.9 | 1,709.8 | 1,492.6 | |||||||||||||||||||||||||||||||||||||||||||
| Total Liabilities and Shareholders' Equity | $ | 23,995.0 | $ | 23,338.5 | $ | 23,744.7 | $ | 23,255.4 | |||||||||||||||||||||||||||||||||||||||
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 $1.7 million and $4.8 million for the three and nine months ended September 30, 2025, respectively, and $1.0 million and $2.5 million for the three and nine months ended September 30, 2024, 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 | ||||||||||||||||||||||
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Three Months Ended September 30, 2025
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Nine Months Ended September 30, 2025
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Compared to September 30, 2024
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Compared to September 30, 2024
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| (dollars in millions) |
Volume 1
|
Rate 1
|
Total |
Volume 1
|
Rate 1
|
Total | |||||||||||||||||
| Change in Interest Income: | |||||||||||||||||||||||
| Cash and Cash Equivalents | $ | 1.0 | $ | (1.8) | $ | (0.8) | $ | 0.1 | $ | (3.9) | $ | (3.8) | |||||||||||
| Investment Securities | |||||||||||||||||||||||
| Available-for-Sale | |||||||||||||||||||||||
| Taxable | 6.8 | (0.5) | 6.3 | 16.3 | (2.5) | 13.8 | |||||||||||||||||
| Non-Taxable | 0.3 | 0.0 | 0.3 | 1.0 | 0.0 | 1.0 | |||||||||||||||||
| Held-to-Maturity | |||||||||||||||||||||||
| Taxable | (1.6) | (0.2) | (1.8) | (5.0) | (0.4) | (5.4) | |||||||||||||||||
| Non-Taxable | 0.0 | - | 0.0 | 0.0 | - | 0.0 | |||||||||||||||||
| Total Investment Securities | 5.5 | (0.7) | 4.8 | 12.3 | (2.9) | 9.4 | |||||||||||||||||
| Loans Held for Sale | (0.1) | 0.0 | (0.1) | 0.0 | 0.0 | 0.0 | |||||||||||||||||
| Loans and Leases | |||||||||||||||||||||||
| Commercial Mortgage | 3.7 | (1.4) | 2.3 | 11.7 | (5.1) | 6.6 | |||||||||||||||||
| Commercial and Industrial | (0.8) | (1.3) | (2.1) | (0.6) | (3.6) | (4.2) | |||||||||||||||||
| Construction | 0.8 | (0.6) | 0.2 | 2.1 | (1.1) | 1.0 | |||||||||||||||||
| Commercial Lease Financing | 0.5 | 0.1 | 0.6 | 1.4 | 0.4 | 1.8 | |||||||||||||||||
| Residential Mortgage | 0.4 | (0.1) | 0.3 | 0.4 | (0.3) | 0.1 | |||||||||||||||||
| Home Equity | (0.8) | 2.3 | 1.5 | (2.7) | 7.1 | 4.4 | |||||||||||||||||
| Automobile | (1.1) | 1.2 | 0.1 | (3.0) | 3.8 | 0.8 | |||||||||||||||||
| Other | 0.3 | 0.5 | 0.8 | 0.3 | 1.8 | 2.1 | |||||||||||||||||
| Total Loans and Leases | 3.0 | 0.7 | 3.7 | 9.6 | 3.0 | 12.6 | |||||||||||||||||
| Other | 0.1 | 0.1 | 0.2 | 0.1 | 0.0 | 0.1 | |||||||||||||||||
| Total Change in Interest Income | 9.5 | (1.7) | 7.8 | 22.1 | (3.8) | 18.3 | |||||||||||||||||
| Change in Interest Expense: | |||||||||||||||||||||||
| Interest-Bearing Deposits | |||||||||||||||||||||||
| Demand | 0.0 | (1.1) | (1.1) | (0.2) | (2.8) | (3.0) | |||||||||||||||||
| Savings | 2.7 | (7.8) | (5.1) | 7.1 | (18.2) | (11.1) | |||||||||||||||||
| Time | 0.6 | (5.9) | (5.3) | 1.2 | (15.0) | (13.8) | |||||||||||||||||
| Total Interest-Bearing Deposits | 3.3 | (14.8) | (11.5) | 8.1 | (36.0) | (27.9) | |||||||||||||||||
| Securities Sold Under Agreements to Repurchase | (0.5) | 0.0 | (0.5) | (2.0) | 0.1 | (1.9) | |||||||||||||||||
| Other Debt | 0.0 | 0.1 | 0.1 | 0.1 | (0.1) | 0.0 | |||||||||||||||||
| Total Change in Interest Expense | 2.8 | (14.7) | (11.9) | 6.2 | (36.0) | (29.8) | |||||||||||||||||
| Change in Net Interest Income | $ | 6.7 | $ | 13.0 | $ | 19.7 | $ | 15.9 | $ | 32.2 | $ | 48.1 | |||||||||||
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, 2025 increased by $624.6 million or 3% and $452.4 million or 2%, respectively, compared to the same periods in 2024. These increases were due to increases in the average balances of available-for-sale investment securities and commercial mortgage loans. As compared to the same periods last year, yields on our investment securities portfolio increased by 13 and 9 basis points during the three
and nine months ended September 30, 2025, respectively, primarily due to the amortization of lower yielding investments being reinvested into new investments at higher current interest rates. This increase was partially offset by lower income earned from interest rate swaps that hedge a portion of our available-for-sale ("AFS") securities portfolio. As compared to the same periods last year, yields on our loan and lease portfolio increased by 4 and 6 basis points during the three and nine months ended September 30, 2025, respectively, primarily due to higher rates on home equity lines and automobile loans originated, partially offset by the payoffs of higher yielding commercial mortgage and commercial and industrial loans.
The average balance of our interest-bearing liabilities for the three and nine months ended September 30, 2025 increased by $430.1 million or 3% and $342.7 million or 2%, respectively, compared to the same periods in 2024 primarily due to an increase in savings deposits. As compared to the same periods last year, the cost of our interest-bearing liabilities decreased by 37 and 30 basis points during the three and nine months ended September 30, 2025, respectively, primarily due to a decrease in the prevailing interest rate environment, which was driven by 125 basis points of interest rate cuts by the Federal Open Market Committee from September 2024 through September 2025.
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) | 2025 | 2024 | Dollar Change | Percent Change | 2025 | 2024 | Dollar Change | Percent Change | |||||||||||||||||||||
| Fees, Exchange, and Other Service Charges | $ | 15,219 | $ | 14,945 | $ | 274 | 1.8 | % | $ | 44,039 | $ | 42,837 | $ | 1,202 | 2.8 | % | |||||||||||||
| Trust and Asset Management | 12,598 | 11,916 | 682 | 5.7 | 36,436 | 35,328 | 1,108 | 3.1 | |||||||||||||||||||||
| Service Charges on Deposit Accounts | 8,510 | 8,075 | 435 | 5.4 | 24,888 | 23,752 | 1,136 | 4.8 | |||||||||||||||||||||
| Bank-Owned Life Insurance | 3,681 | 3,533 | 148 | 4.2 | 11,006 | 10,285 | 721 | 7.0 | |||||||||||||||||||||
| Annuity and Insurance | 1,095 | 1,460 | (365) | (25.0) | 4,087 | 4,089 | (2) | - | |||||||||||||||||||||
| Mortgage Banking | 906 | 1,188 | (282) | (23.7) | 2,743 | 3,167 | (424) | (13.4) | |||||||||||||||||||||
| Investment Securities Losses, Net | (1,945) | (1,103) | (842) | 76.3 | (4,678) | (4,201) | (477) | 11.4 | |||||||||||||||||||||
| Other Income | 5,902 | 5,096 | 806 | 15.8 | 16,298 | 14,225 | 2,073 | 14.6 | |||||||||||||||||||||
| Total Noninterest Income | $ | 45,966 | $ | 45,110 | $ | 856 | 1.9 | % | $ | 134,819 | $ | 129,482 | $ | 5,337 | 4.1 | % | |||||||||||||
Investment securities losses increased by $0.8 million or 76.3% in the third quarter of 2025 compared to the same period last year, primarily due to higher fees paid to counterparties for Visa Class B share conversion rate expense during the third quarter of 2025. In October 2025, we initiated the process of repositioning a portion of our AFS securities. As a result, we expect to realize a loss on the sale of certain securities during the quarter ending December 31, 2025 that is expected to range from $16 million to $17 million.
Other income increased by $0.8 million or 15.8% in the third quarter of 2025 compared to the same period last year, primarily due to an increase in customer derivative transactions during the quarter. Other income increased by $2.1 million or 14.6% for the first nine months of 2025 compared to the same period last year, primarily due to an increase in customer derivative transactions, a gain on sale of an other real estate owned ("OREO") property, and the recovery of a previously charged-off bank-owned life insurance policy.
On October 1, 2025, we sold the economic interests of our merchant services portfolio. As a result of this transaction, we will recognize a one-time gain of approximately $18 million during the quarter ending December 31, 2025. The noninterest income generated from our merchant services portfolio during the three and nine months ended September 30, 2025 was $3.1 million and $8.7 million, respectively. These amounts were recognized in Fees, Exchange, and Other Service Charges.
Annuity and insurance decreased by $0.4 million or 25.0% in the third quarter of 2025 compared to the same period last year, primarily due to the onboarding of our new broker-dealer service provider during the quarter.
Mortgage banking decreased by $0.3 million or 23.7% in the third quarter of 2025 compared to the same period last year, primarily due to a decrease in the amount of loans sold to third parties.
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) | 2025 | 2024 | Dollar Change | Percent Change | 2025 | 2024 | Dollar Change | Percent Change | |||||||||||||||||||||
| Salaries | $ | 40,428 | $ | 38,993 | $ | 1,435 | 3.7 | % | $ | 118,314 | $ | 115,686 | $ | 2,628 | 2.3 | % | |||||||||||||
| Incentive Compensation | 4,280 | 5,086 | (806) | (15.8) | 14,920 | 11,285 | 3,635 | 32.2 | |||||||||||||||||||||
| Retirement and Other Benefits | 3,895 | 3,692 | 203 | 5.5 | 12,850 | 11,952 | 898 | 7.5 | |||||||||||||||||||||
| Share-Based Compensation | 3,979 | 3,364 | 615 | 18.3 | 11,148 | 10,459 | 689 | 6.6 | |||||||||||||||||||||
| Medical, Dental, and Life Insurance | 3,908 | 3,512 | 396 | 11.3 | 12,055 | 9,935 | 2,120 | 21.3 | |||||||||||||||||||||
| Payroll Taxes | 2,998 | 2,839 | 159 | 5.6 | 10,762 | 10,639 | 123 | 1.2 | |||||||||||||||||||||
| Separation Expense | 2,091 | 161 | 1,930 | 1198.8 | 3,546 | 1,428 | 2,118 | 148.3 | |||||||||||||||||||||
| Commission Expense | 1,326 | 979 | 347 | 35.4 | 3,502 | 2,490 | 1,012 | 40.6 | |||||||||||||||||||||
| Total Salaries and Benefits | 62,905 | 58,626 | 4,279 | 7.3 | 187,097 | 173,874 | 13,223 | 7.6 | |||||||||||||||||||||
| Net Occupancy | 10,932 | 10,806 | 126 | 1.2 | 31,990 | 31,821 | 169 | 0.5 | |||||||||||||||||||||
| Net Equipment | 10,285 | 10,120 | 165 | 1.6 | 30,454 | 30,578 | (124) | (0.4) | |||||||||||||||||||||
| Data Processing | 5,603 | 4,712 | 891 | 18.9 | 16,326 | 14,227 | 2,099 | 14.8 | |||||||||||||||||||||
| Professional Fees | 4,022 | 4,725 | (703) | (14.9) | 12,549 | 14,331 | (1,782) | (12.4) | |||||||||||||||||||||
| FDIC Insurance | 3,508 | 3,355 | 153 | 4.6 | 8,790 | 14,139 | (5,349) | (37.8) | |||||||||||||||||||||
| Other Expense: | |||||||||||||||||||||||||||||
| Advertising | 2,059 | 2,168 | (109) | (5.0) | 6,098 | 5,802 | 296 | 5.1 | |||||||||||||||||||||
| Merchant Transaction and Card Processing Fees | 1,737 | 1,702 | 35 | 2.1 | 5,163 | 5,012 | 151 | 3.0 | |||||||||||||||||||||
| Delivery and Postage Services | 1,664 | 1,709 | (45) | (2.6) | 5,009 | 5,090 | (81) | (1.6) | |||||||||||||||||||||
| Mileage Program Travel | 1,048 | 1,079 | (31) | (2.9) | 3,154 | 3,212 | (58) | (1.8) | |||||||||||||||||||||
| Broker's Charges | 706 | 562 | 144 | 25.6 | 1,956 | 1,373 | 583 | 42.5 | |||||||||||||||||||||
| Other | 7,918 | 7,528 | 390 | 5.2 | 25,043 | 22,718 | 2,325 | 10.2 | |||||||||||||||||||||
| Total Other Expense | 15,132 | 14,748 | 384 | 2.6 | 46,423 | 43,207 | 3,216 | 7.4 | |||||||||||||||||||||
| Total Noninterest Expense | $ | 112,387 | $ | 107,092 | $ | 9,958 | 9.3 | % | $ | 333,629 | $ | 322,177 | $ | 27,891 | 8.7 | % | |||||||||||||
Total salaries and benefits expense increased by $4.3 million or 7.3% in the third quarter of 2025 compared to the same period last year, primarily due to increases in base salaries and separation expense, partially offset by lower incentive compensation. Total salaries and benefits expense increased by $13.2 million or 7.6% for the first nine months of 2025, compared to the same period last year, primarily due to increases in base salaries, incentive compensation, medical, dental, and life insurance and separation expense.
Data processing fees increased by $0.9 million or 18.9% in the third quarter of 2025 and by $2.1 million or 14.8% for the first nine months of 2025 compared to the same periods last year, primarily due to an increase in data service fees, our online banking platform, and an increase in debit card transactions.
Professional fees decreased by $0.7 million or 14.9% in the third quarter of 2025 and by $1.8 million or 12.4% for the first nine months of 2025 compared to the same periods last year, primarily due to a decrease in consulting and outsourcing costs incurred.
FDIC insurance expense decreased by $5.3 million or 37.8% for the first nine months of 2025 compared to the same period last year, primarily due to a partial recovery of the FDIC special assessment in 2025.
Other expense increased by $2.3 million or 10.2% for the first nine months of 2025 compared to the same period last year, primarily due to an increase in operational losses, telephone charges, and travel expenses.
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) | 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Provision for Income Taxes | $ | 14,409 | $ | 12,278 | $ | 39,388 | $ | 35,475 | |||||||||
| Effective Tax Rates | 21.3 | % | 23.3 | % | 21.4 | % | 24.2 | % | |||||||||
The provision for income taxes was $14.4 million in the third quarter of 2025, an increase of $2.1 million compared to the same period in 2024. The effective tax rate for the third quarter of 2025 was 21.3%, a decrease from 23.3% for the same period in 2024. The lower effective tax rate in the third quarter of 2025 compared to the same period in 2024 was primarily due to a decrease in tax expense from discrete items and an increase in tax-exempt investment income.
The provision for income taxes was $39.4 million in the first nine months of 2025, an increase of $3.9 million compared to the same period in 2024. The effective tax rate for the first nine months of 2025 was 21.4%, a decrease from 24.2% for the same period in 2024. The lower effective tax rate for the first nine months of 2025 compared to the same period in 2024 was due to a decrease in tax expense from discrete items and an increase in tax-exempt investment income.
In July 2025, the One Big Beautiful Bill Act ("OBBA") was enacted, permanently extending several tax provisions originally introduced under the 2017 Tax Cuts and Jobs Act that were set to expire at the end of 2025. The OBBA also introduces changes to certain U.S. corporate tax rules, most of which take effect in 2026. We have evaluated the impact of the OBBA and do not expect any material changes to our effective tax rate or results of operations.
Analysis of Unaudited Statements of Condition
Investment Securities
The carrying value of our investment securities portfolio was $7.6 billion and $7.3 billion as of September 30, 2025 and December 31, 2024, respectively. The increase was primarily due to the purchase of $738.1 million in available-for-sale investment securities during the nine months ended September 30, 2025, of which $333.7 million were floating rate securities. The increase was partially offset by the amortization of existing securities. Floating rate securities represented 19.3% of the investment securities portfolio, measured by par value, as of September 30, 2025, compared to 16.5% as of December 31, 2024.
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, 2025, 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 $0.8 billion as of September 30, 2025 and $1.1 billion as of December 31, 2024. 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 are being amortized over the estimated remaining life of the securities as an adjustment of yield and recognized as a reduction of interest income. The unamortized balance of these losses was $160.5 million and $177.9 million as of September 30, 2025 and December 31, 2024, respectively. See Note 2 Investment Securitiesand Note 7 Accumulated Other Comprehensive Income to the unaudited Consolidated Financial Statements for more information. In October 2025, we initiated the process of repositioning a portion of our AFS securities. As a result, we expect to realize a loss on the sale of certain securities during the quarter ending December 31, 2025 that is expected to range from $16 million to $17 million.
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, 2025 | December 31, 2024 | Dollar Change | Percent Change | |||||||||||||||||||
| Commercial | |||||||||||||||||||||||
| Commercial Mortgage | $ | 4,040,711 | $ | 4,020,622 | $ | 20,089 | 0.5 | % | |||||||||||||||
| Commercial and Industrial | 1,581,232 | 1,705,133 | (123,901) | (7.3) | |||||||||||||||||||
| Construction | 380,944 | 308,898 | 72,046 | 23.3 | |||||||||||||||||||
| Lease Financing | 92,213 | 90,756 | 1,457 | 1.6 | |||||||||||||||||||
| Total Commercial | 6,095,100 | 6,125,409 | (30,309) | (0.5) | |||||||||||||||||||
| Consumer | |||||||||||||||||||||||
| Residential Mortgage | 4,685,214 | 4,628,283 | 56,931 | 1.2 | |||||||||||||||||||
| Home Equity | 2,129,599 | 2,165,514 | (35,915) | (1.7) | |||||||||||||||||||
| Automobile | 699,244 | 764,146 | (64,902) | (8.5) | |||||||||||||||||||
| Other | 412,422 | 392,628 | 19,794 | 5.0 | |||||||||||||||||||
| Total Consumer | 7,926,479 | 7,950,571 | (24,092) | (0.3) | |||||||||||||||||||
| Total Loans and Leases | $ | 14,021,579 | $ | 14,075,980 | $ | (54,401) | (0.4) | % | |||||||||||||||
Total loans and leases as of September 30, 2025 decreased by $54.4 million or 0.4% from December 31, 2024 due to reductions in both our commercial and consumer loans.
Commercial loans and leases as of September 30, 2025 decreased by $30.3 million or 0.5% from December 31, 2024, primarily due to a decline in commercial and industrial loans, which decreased by $123.9 million or 7.3% largely as a result of paydowns. This was partially offset by construction loans, which increased by $72.0 million or 23.3%, primarily due to increased construction activity during the year. Consumer loans and leases as of September 30, 2025 decreased by $24.1 million or 0.3% from December 31, 2024, primarily due to paydowns in our home equity portfolio and a slowdown in production for our automobile loans. This was partially offset by residential mortgage loans, which increased by $56.9 million or 1.2%, primarily due to a decrease in the amount of loans sold to third parties during the nine months ended September 30, 2025.
Table 6a presents an additional breakdown of the Company's commercial mortgage portfolio.
| Commercial Mortgage Breakdown | Table 6a | ||||||||||||||||||||||
| September 30, 2025 | December 31, 2024 | ||||||||||||||||||||||
| (dollars in thousands) | Amount | Percent of Total | % Owner Occupied | Amount | Percent of Total | % Owner Occupied | |||||||||||||||||
| Multi-family | $ | 1,013,811 | 25 | % | - | % | $ | 1,025,247 | 25 | % | - | % | |||||||||||
| Industrial | 735,926 | 18 | 40 | 724,645 | 18 | 42 | |||||||||||||||||
| Lodging | 684,507 | 17 | - | 676,350 | 17 | - | |||||||||||||||||
| Retail | 690,878 | 17 | 3 | 704,780 | 18 | 3 | |||||||||||||||||
| Office | 343,417 | 9 | 21 | 371,474 | 9 | 20 | |||||||||||||||||
|
Other 1
|
572,172 | 14 | 23 | 518,126 | 13 | 26 | |||||||||||||||||
| Total Commercial Mortgage | $ | 4,040,711 | 100 | % | 13 | % | $ | 4,020,622 | 100 | % | 13 | % | |||||||||||
1.Amount includes unamortized loan origination fees.
Table 7 presents the composition of our loan and lease portfolio by geographic area and by major categories.
| Geographic Distribution of Loan and Lease Portfolio | Table 7 | |||||||||||||||||||||||||||||||
| (dollars in thousands) |
Hawai'i
|
U.S. Mainland 1
|
Guam | Other Pacific Islands | Total | |||||||||||||||||||||||||||
| September 30, 2025 | ||||||||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||||||||
| Commercial Mortgage | $ | 3,611,818 | $ | 253,670 | $ | 174,800 | $ | 423 | $ | 4,040,711 | ||||||||||||||||||||||
| Commercial and Industrial | 1,368,505 | 135,520 | 66,132 | 11,075 | 1,581,232 | |||||||||||||||||||||||||||
| Construction | 380,944 | - | - | - | 380,944 | |||||||||||||||||||||||||||
| Lease Financing | 91,912 | - | 301 | - | 92,213 | |||||||||||||||||||||||||||
| Total Commercial | 5,453,179 | 389,190 | 241,233 | 11,498 | 6,095,100 | |||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||
| Residential Mortgage | 4,607,506 | 5,409 | 72,024 | 275 | 4,685,214 | |||||||||||||||||||||||||||
| Home Equity | 2,085,655 | 38 | 43,906 | - | 2,129,599 | |||||||||||||||||||||||||||
| Automobile | 557,335 | - | 110,810 | 31,099 | 699,244 | |||||||||||||||||||||||||||
| Other | 355,938 | - | 54,221 | 2,263 | 412,422 | |||||||||||||||||||||||||||
| Total Consumer | 7,606,434 | 5,447 | 280,961 | 33,637 | 7,926,479 | |||||||||||||||||||||||||||
| Total Loans and Leases | $ | 13,059,613 | $ | 394,637 | $ | 522,194 | $ | 45,135 | $ | 14,021,579 | ||||||||||||||||||||||
| Percentage of Total Loans and Leases | 93 | % | 3 | % | 4 | % | 0 | % | 100 | % | ||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||||||||
| Commercial Mortgage | $ | 3,534,658 | $ | 297,758 | $ | 187,777 | $ | 429 | $ | 4,020,622 | ||||||||||||||||||||||
| Commercial and Industrial | 1,493,386 | 139,968 | 62,824 | 8,955 | 1,705,133 | |||||||||||||||||||||||||||
| Construction | 308,898 | - | - | - | 308,898 | |||||||||||||||||||||||||||
| Lease Financing | 90,260 | - | 496 | - | 90,756 | |||||||||||||||||||||||||||
| Total Commercial | 5,427,202 | 437,726 | 251,097 | 9,384 | 6,125,409 | |||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||
| Residential Mortgage | 4,553,553 | 5,469 | 68,932 | 329 | 4,628,283 | |||||||||||||||||||||||||||
| Home Equity | 2,119,548 | 41 | 45,925 | - | 2,165,514 | |||||||||||||||||||||||||||
| Automobile | 601,359 | - | 125,331 | 37,456 | 764,146 | |||||||||||||||||||||||||||
| Other | 336,718 | - | 47,279 | 8,631 | 392,628 | |||||||||||||||||||||||||||
| Total Consumer | 7,611,178 | 5,510 | 287,467 | 46,416 | 7,950,571 | |||||||||||||||||||||||||||
| Total Loans and Leases | $ | 13,038,380 | $ | 443,236 | $ | 538,564 | $ | 55,800 | $ | 14,075,980 | ||||||||||||||||||||||
| Percentage of Total Loans and Leases | 93 | % | 3 | % | 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.
Our commercial and consumer lending activities are concentrated primarily in Hawai'i and the West Pacific. 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 8 presents the major components of other assets.
| Other Assets | Table 8 | |||||||||||||||||||||||||
| (dollars in thousands) | September 30, 2025 | December 31, 2024 | Dollar Change | Percent Change | ||||||||||||||||||||||
| Low-Income Housing and Other Equity Investments | $ | 216,333 | $ | 233,202 | $ | (16,869) | (7.2) | % | ||||||||||||||||||
| Deferred Tax Assets and Tax Receivable | 159,586 | 172,499 | (12,913) | (7.5) | ||||||||||||||||||||||
| Derivative Financial Instruments | 104,111 | 161,473 | (57,362) | (35.5) | ||||||||||||||||||||||
| Federal Home Loan Bank of Des Moines Stock | 34,750 | 34,750 | - | - | ||||||||||||||||||||||
| Federal Reserve Bank Stock | 30,651 | 30,339 | 312 | 1.0 | ||||||||||||||||||||||
| Prepaid Expenses | 24,075 | 22,623 | 1,452 | 6.4 | ||||||||||||||||||||||
| Deferred Compensation Plan Assets | 15,277 | 18,155 | (2,878) | (15.9) | ||||||||||||||||||||||
| Accounts Receivable | 15,029 | 16,981 | (1,952) | (11.5) | ||||||||||||||||||||||
| Foreclosed Real Estate | 125 | 2,657 | (2,532) | (95.3) | ||||||||||||||||||||||
| Other | 43,364 | 44,279 | (915) | (2.1) | ||||||||||||||||||||||
| Total Other Assets | $ | 643,301 | $ | 736,958 | $ | (93,657) | (12.7) | % | ||||||||||||||||||
Derivative financial instruments decreased by $57.4 million or 35.5% due to changes in interest rates from December 2024 to September 2025, decreasing the valuation of customer swaps and fair value hedges. Deferred compensation plan assets decreased by $2.9 million or 15.9%, primarily due to distributions from the executive deferred compensation plan in 2025. Foreclosed real estate decreased by 2.5 million or 95.3%, primarily due to the sale of foreclosed properties during the nine months ended September 30, 2025. Accounts receivable decreased by $2.0 million or 11.5%, primarily due to changes in accruals and timing of payments.
Deposits
Table 9 presents the composition of our deposits by major customer categories.
| Deposits | Table 9 | |||||||||||||||||||||||||
| (dollars in thousands) | September 30, 2025 | December 31, 2024 | Dollar Change | Percent Change | ||||||||||||||||||||||
| Consumer | $ | 10,393,932 | $ | 10,397,777 | $ | (3,845) | - | % | ||||||||||||||||||
| Commercial | 8,348,396 | 8,299,590 | 48,806 | 0.6 | ||||||||||||||||||||||
| Public and Other | 2,338,341 | 1,935,670 | 402,671 | 20.8 | ||||||||||||||||||||||
| Total Deposits | $ | 21,080,669 | $ | 20,633,037 | $ | 447,632 | 2.2 | % | ||||||||||||||||||
Total deposits were $21.1 billion as of September 30, 2025, an increase of $447.6 million or 2.2% from December 31, 2024. Consumer deposits decreased by $3.8 million due to decreases of $101.2 million in interest-bearing deposits and $58.3 million in time deposits, partially offset by increases of 149.4 million in savings deposits and $6.3 million in non-interest bearing deposits. Commercial deposits increased by $48.8 million primarily from increases of $69.1 million in interest-bearing deposits, partially offset by a decrease of $20.3 million in non-interest bearing deposits. Public and other deposits increased by $402.7 million due to an increase of $411.3 million in interest-bearing deposits, partially offset by a decrease of $8.6 million in non-interest bearing deposits.
Table 10 presents the composition of our savings deposits.
| Savings Deposits | Table 10 | |||||||||||||||||||||||||
| (dollars in thousands) | September 30, 2025 | December 31, 2024 | Dollar Change | Percent Change | ||||||||||||||||||||||
| Money Market | $ | 3,396,404 | $ | 3,430,047 | $ | (33,643) | (1.0) | % | ||||||||||||||||||
| Regular Savings | 5,418,047 | 4,934,869 | 483,178 | 9.8 | ||||||||||||||||||||||
| Total Savings Deposits | $ | 8,814,451 | $ | 8,364,916 | $ | 449,535 | 5.4 | % | ||||||||||||||||||
The increase in Regular Savings was primarily due to increases in consumer deposits of $162.4 million, public deposits of $295.7 million, and commercial deposits of $25.1 million. The decrease in Money Market was primarily due to decreases in commercial deposits of $20.7 million and consumer deposits of $13.0 million.
Table 11 presents the maturity distribution of the estimated uninsured time deposits.
| Maturity Distribution of Estimated Uninsured Time Deposits | Table 11 | |||||||||||||||||||
| (dollars in thousands) |
September 30, 2025
|
December 31, 2024
|
Change | |||||||||||||||||
| Remaining maturity: | ||||||||||||||||||||
| Three months or less | $ | 817,093 | $ | 635,812 | $ | 181,281 | ||||||||||||||
| After three through six months | 352,526 | 365,354 | (12,828) | |||||||||||||||||
| After six through twelve months | 305,785 | 524,286 | (218,501) | |||||||||||||||||
| After twelve months | 177,147 | 102,795 | 74,352 | |||||||||||||||||
| Total | $ | 1,652,551 | $ | 1,628,247 | $ | 24,304 | ||||||||||||||
Estimated uninsured deposits are calculated pursuant to regulatory guidance and reported in our Call Report and include deposits collateralized by government-backed securities and intercompany deposits of wholly-owned subsidiaries. Table 12 presents a reconciliation of our estimated uninsured deposits as reported in our Call Report to our adjusted uninsured deposits. We believe the adjusted uninsured deposits reconciliation provides useful information about our deposits at risk.
| Uninsured Deposits Reconciliation | Table 12 | |||||||||||||
| (dollars in thousands) |
September 30, 2025 1
|
December 31, 2024 2
|
||||||||||||
| Estimated Uninsured Deposits, as Reported in our Call Report | $ | 10,092,260 | $ | 9,754,299 | ||||||||||
| Less: | ||||||||||||||
| Deposits Collateralized by Government-Backed Securities | (2,205,398) | (1,794,050) | ||||||||||||
| Intercompany Deposits of Wholly-Owned Subsidiaries | (122,510) | (121,932) | ||||||||||||
| Other | (109,607) | (110,995) | ||||||||||||
| Adjusted Uninsured Deposits | $ | 7,654,745 | $ | 7,727,322 | ||||||||||
1Balances presented as of September 30, 2025 are preliminary.
2Balances presented as of December 31, 2024 were revised to reflect changes made in our Call Report.
Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase were $50.0 million and $100.0 million as of September 30, 2025 and December 31, 2024, respectively. In February 2025, a private institution exercised its right to call on a repurchase agreement with a balance of $50.0 million, resulting in its termination. As of September 30, 2025, our remaining repurchase agreement was at a fixed interest rate of 3.89% with a remaining maturity of 4.13 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.
Other Debt
Table 13 presents the composition of our other debt.
| Other Debt | Table 13 | |||||||||||||||||||
| (dollars in thousands) | September 30, 2025 | December 31, 2024 | Dollar Change | |||||||||||||||||
| Federal Home Loan Bank of Des Moines Advances | $ | 550,000 | $ | 550,000 | $ | - | ||||||||||||||
| Finance Lease Obligations | 8,201 | 8,274 | (73) | |||||||||||||||||
| Total | $ | 558,201 | $ | 558,274 | $ | (73) | ||||||||||||||
Analysis of Business Segments
Our business segments are defined as Consumer Banking, Commercial Banking, and Treasury and Other.
Table 14 summarizes net income from our business segments. Additional information about segment performance is presented in Note 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) | 2025 | 2024 |
Dollar Change
|
Percent Change
|
2025 | 2024 |
Dollar Change
|
Percent Change
|
||||||||||||||||||||||||||||||||||||||||||
| Consumer Banking | $ | 29,918 | $ | 32,993 | $ | (3,075) | (9.3) | % | $ | 89,107 | $ | 97,086 | $ | (7,979) | (8.2) | % | ||||||||||||||||||||||||||||||||||
| Commercial Banking | 33,091 | 28,929 | 4,162 | 14.4 | 95,474 | 87,784 | 7,690 | 8.8 | ||||||||||||||||||||||||||||||||||||||||||
| Total | 63,009 | 61,922 | 1,087 | 1.8 | 184,581 | 184,870 | (289) | (0.2) | ||||||||||||||||||||||||||||||||||||||||||
| Treasury and Other | (9,664) | (21,564) | 11,900 | 55.2 | (39,614) | (74,038) | 34,424 | 46.5 | ||||||||||||||||||||||||||||||||||||||||||
| Consolidated Total | $ | 53,345 | $ | 40,358 | $ | 12,987 | 32.2 | % | $ | 144,967 | $ | 110,832 | $ | 34,135 | 30.8 | % | ||||||||||||||||||||||||||||||||||
Consumer Banking
Net income decreased by $3.1 million or 9% in the third quarter of 2025 compared to the same period last year, primarily due to an increase in noninterest expense and a decrease in net interest income. This was partially offset by a decrease in the provision for loan losses. Noninterest expense increased by $2.4 million or 3%, primarily due to higher salaries and benefits expense, mobile and online banking platform costs, and allocated administrative and support unit costs. Net interest income decreased by $2.0 million or 2%, primarily due to lower deposit spreads on higher deposit balances. The provision for loan losses decreased by $0.5 million or 16%, primarily due to lower net charge-offs in the auto loan portfolio.
Net income decreased by $8.0 million or 8% in the first nine months of 2025 compared to the same period last year, primarily due to a decrease in net interest income and an increase in noninterest expense. This was partially offset by an increase in noninterest income. Net interest income decreased by $6.2 million or 2%, primarily due to lower deposit spreads on higher deposit balances. Noninterest expense increased by $5.9 million or 2%, primarily due to higher salaries and benefits expense, mobile and online banking platform costs, operational losses, card production costs, and allocated administrative and support unit costs. Noninterest income increased by $1.6 million or 2%, primarily due to increases in trust and asset management income, monthly service fees, and credit card commissions, partially offset by a decrease in mortgage banking income.
Commercial Banking
Net income increased by $4.2 million or 14% in the third quarter of 2025 compared to the same period last year, primarily due to an increase in net interest income and noninterest income, partially offset by an increase in noninterest expense. Net interest income increased by $3.6 million or 7%, primarily due to an increase in loan balances, primarily in commercial mortgages, as well as a net increase in allocated interest income related to increases in balances and spreads on interest-bearing and savings deposits, partially offset by a decline in noninterest-bearing deposits. Noninterest income increased by $1.8 million or 23%, primarily due to higher customer derivative program revenue, merchant revenue, loan and commitment fees, and analyzed deposit account fees. Noninterest expense increased by $0.4 million or 2%, primarily due to higher allocated administrative, support unit and branch expenses, professional fees, and data processing, partially offset by lower equipment expense and fewer operational losses in the period.
Net income increased by $7.7 million or 9% in the first nine months of 2025 compared to the same period last year, primarily due to an increase in net interest income and noninterest income, partially offset by an increase in noninterest expense. Net interest income increased by $10.8 million or 7%, primarily due to an increase in loan balances, primarily in commercial mortgages, as well as a net increase in allocated interest income related to increases in balances and spreads on interest-bearing and savings deposits, partially offset by a decline in noninterest-bearing deposit balances. Noninterest income increased by $2.2 million or 10%, primarily due to higher customer derivative program revenue, merchant revenue, loan and commitment fees, analyzed deposit account fees and a one-time gain on sale of leased assets. Noninterest expense increased by $2.3 million or 4%, primarily due to higher allocated administrative, support unit and branch expenses, professional, data processing, and merchant transaction fees, partially offset by lower salaries and benefits, occupancy and equipment expenses, and fewer operational losses in the period.
Treasury and Other
Net loss decreased by $11.9 million or 55% in the third quarter of 2025 compared to the same period last year, primarily due to a decrease in net interest expense and an increase in noninterest income, partially offset by an increase in the provision for credit losses. Net interest expense decreased by $17.4 million or 56%, primarily due to a decrease in funding costs reflecting the current lower rate environment. Noninterest income decreased by $0.6 million or 20%, primarily due to an increase in
investment securities losses. 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 $34.4 million or 46% in the first nine months of 2025 compared to the same period last year, primarily due to a decrease in net interest expense and an increase in noninterest income, partially offset by an increase in noninterest expense and provision for credit losses. Net interest expense decreased by $41.2 million or 70%, primarily due to lower funding costs and an increase in interest income from higher asset yields. Noninterest income increased by $1.6 million or 19%, primarily due to increases in other income and bank-owned life insurance income. 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, 2025 | December 31, 2024 | Change | |||||||||||||||||
| Non-Performing Assets | ||||||||||||||||||||
| Non-Accrual Loans and Leases | ||||||||||||||||||||
| Commercial | ||||||||||||||||||||
| Commercial Mortgage | $ | 2,498 | $ | 2,450 | $ | 48 | ||||||||||||||
| Commercial and Industrial | 3,506 | 4,627 | (1,121) | |||||||||||||||||
| Total Commercial | 6,004 | 7,077 | (1,073) | |||||||||||||||||
| Consumer | ||||||||||||||||||||
| Residential Mortgage | 5,628 | 5,052 | 576 | |||||||||||||||||
| Home Equity | 5,107 | 4,514 | 593 | |||||||||||||||||
| Total Consumer | 10,735 | 9,566 | 1,169 | |||||||||||||||||
| Total Non-Accrual Loans and Leases | 16,739 | 16,643 | 96 | |||||||||||||||||
| Foreclosed Real Estate | 125 | 2,657 | (2,532) | |||||||||||||||||
| Total Non-Performing Assets | $ | 16,864 | $ | 19,300 | $ | (2,436) | ||||||||||||||
| Accruing Loans and Leases Past Due 90 Days or More | ||||||||||||||||||||
| Consumer | ||||||||||||||||||||
| Residential Mortgage | $ | 7,456 | $ | 3,984 | $ | 3,472 | ||||||||||||||
| Home Equity | 2,765 | 2,845 | (80) | |||||||||||||||||
| Automobile | 525 | 776 | (251) | |||||||||||||||||
| Other | 578 | 677 | (99) | |||||||||||||||||
| Total Consumer | 11,324 | 8,282 | 3,042 | |||||||||||||||||
| Total Accruing Loans and Leases Past Due 90 Days or More | $ | 11,324 | $ | 8,282 | $ | 3,042 | ||||||||||||||
| Total Loans and Leases | $ | 14,021,579 | $ | 14,075,980 | $ | (54,401) | ||||||||||||||
| Ratio of Non-Accrual Loans and Leases to Total Loans and Leases | 0.12 | % | 0.12 | % | - | % | ||||||||||||||
| Ratio of Non-Performing Assets to Total Loans and Leases and Foreclosed Real Estate | 0.12 | % | 0.14 | % | (0.02) | % | ||||||||||||||
| Ratio of Non-Performing Assets to Total Assets | 0.07 | % | 0.08 | % | (0.01) | % | ||||||||||||||
| Ratio of Commercial Non-Performing Assets to Total Commercial Loans and Leases and Commercial Foreclosed Real Estate | 0.10 | % | 0.12 | % | (0.02) | % | ||||||||||||||
| Ratio of Consumer Non-Performing Assets to Total Consumer Loans and Leases and Consumer Foreclosed Real Estate | 0.14 | % | 0.15 | % | (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 | 0.20 | % | 0.20 | % | - | % | ||||||||||||||
| Changes in Non-Performing Assets | ||||||||||||||||||||
| Balance as of December 31, 2024 | $ | 19,300 | ||||||||||||||||||
|
Additions1
|
6,690 | |||||||||||||||||||
| Reductions | ||||||||||||||||||||
| Payments | (3,440) | |||||||||||||||||||
| Return to Accrual Status | (1,139) | |||||||||||||||||||
| Sales of Foreclosed Real Estate | (2,748) | |||||||||||||||||||
|
Charge-offs/Write-downs1
|
(1,799) | |||||||||||||||||||
| Total Reductions | (9,126) | |||||||||||||||||||
| Balance as of September 30, 2025 | $ | 16,864 | ||||||||||||||||||
1Excludes loans that are fully charged-off and placed on non-accrual status during the same period.
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, 2025 were $16.7 million, an increase of $0.1 million or 1% from December 31, 2024 primarily due to increases in home equity and residential mortgage partially offset by a decline in commercial and industrial. Residential mortgage non-accrual loans increased by $0.6 million or 11% from December 31, 2024. As of September 30, 2025, our residential mortgage non-accrual loans were comprised of 18 loans with a weighted average current loan-to-value ratio of 73.3%. Home equity non-accrual loans increased by $0.6 million or 13% from December 31, 2024. As of September 30, 2025, our home equity non-accrual loans were comprised of 54 loans with a weighted average current loan-to-value ratio of 52.2%. Commercial and industrial non-accrual loans decreased by $1.1 million or 24% from December 31, 2024, primarily due to the partial charge-off of a significant loan.
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 $0.1 million as of September 30, 2025 compared to $2.7 million as of December 31, 2024. The decrease was due to the sale of foreclosed properties during the nine months ended September 30, 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 $11.3 million as of September 30, 2025, a $3.0 million or 37% increase from December 31, 2024. The increase was primarily in our residential mortgage portfolio. 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) | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
| Balance at Beginning of Period | $ | 150,128 | $ | 151,155 | $ | 150,649 | $ | 152,429 | ||||||||||||||||||
| Loans and Leases Charged-Off | ||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||
| Commercial and Industrial | (171) | (1,021) | (1,776) | (2,256) | ||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||
| Residential Mortgage | - | - | - | (48) | ||||||||||||||||||||||
| Home Equity | (28) | (125) | (258) | (362) | ||||||||||||||||||||||
| Automobile | (1,368) | (1,651) | (4,372) | (3,794) | ||||||||||||||||||||||
| Other | (2,392) | (2,539) | (7,273) | (7,461) | ||||||||||||||||||||||
| Total Loans and Leases Charged-Off | (3,959) | (5,336) | (13,679) | (13,921) | ||||||||||||||||||||||
| Recoveries on Loans and Leases Previously Charged-Off | ||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||
| Commercial and Industrial | 98 | 66 | 253 | 445 | ||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||
| Residential Mortgage | 58 | 48 | 80 | 153 | ||||||||||||||||||||||
| Home Equity | 177 | 318 | 485 | 615 | ||||||||||||||||||||||
| Automobile | 559 | 552 | 1,749 | 1,559 | ||||||||||||||||||||||
| Other | 490 | 522 | 1,514 | 1,645 | ||||||||||||||||||||||
| Total Recoveries on Loans and Leases Previously Charged-Off | 1,382 | 1,506 | 4,081 | 4,417 | ||||||||||||||||||||||
| Net Charged-Off - Loans and Leases | (2,577) | (3,830) | (9,598) | (9,504) | ||||||||||||||||||||||
| Provision for Credit Losses: | ||||||||||||||||||||||||||
| Loans and Leases | 2,812 | 3,684 | 9,848 | 10,432 | ||||||||||||||||||||||
| Unfunded Commitments | (312) | (684) | (848) | (3,032) | ||||||||||||||||||||||
| Total Provision for Credit Losses | 2,500 | 3,000 | 9,000 | 7,400 | ||||||||||||||||||||||
| Balance at End of Period | $ | 150,051 | $ | 150,325 | $ | 150,051 | $ | 150,325 | ||||||||||||||||||
| Components | ||||||||||||||||||||||||||
| Allowance for Credit Losses - Loans and Leases | $ | 148,778 | $ | 147,331 | $ | 148,778 | $ | 147,331 | ||||||||||||||||||
| Reserve for Unfunded Commitments | 1,273 | 2,994 | 1,273 | 2,994 | ||||||||||||||||||||||
| Total Reserve for Credit Losses | $ | 150,051 | $ | 150,325 | $ | 150,051 | $ | 150,325 | ||||||||||||||||||
| Average Loans and Leases Outstanding | $ | 13,982,003 | $ | 13,809,977 | $ | 14,030,773 | $ | 13,836,760 | ||||||||||||||||||
| Ratio of Net Loans and Leases Charged-Off to Average Loans and Leases Outstanding (annualized) | 0.07 | % | 0.11 | % | 0.09 | % | 0.09 | % | ||||||||||||||||||
|
Ratio of Allowance for Credit Losses to Loans and Leases Outstanding 1
|
1.06 | % | 1.06 | % | 1.06 | % | 1.06 | % | ||||||||||||||||||
1The numerator comprises the Allowance for Credit Losses - Loans and Leases.
Allowance for Credit Losses (the "Allowance")
As of September 30, 2025, the Allowance was $148.8 million or 1.06% of total loans and leases outstanding compared with an Allowance of $148.5 million or 1.06% of total loans and leases outstanding December 31, 2024. The Allowance as of September 30, 2025 and December 31, 2024, includes a qualitative overlay to account for economic uncertainty and downside risk of a recession.
Net charge-offs on loans and leases for the three and nine months ended September 30, 2025 were $2.6 million or 0.07% and $9.6 million or 0.09%, respectively of total average loans and leases on an annualized basis, compared to $3.8 million or 0.11% and $9.5 million or 0.09% of total average loans and leases on an annualized basis for the three and nine months ended September 30, 2024, respectively.
Reserve for Unfunded Commitments
The Unfunded Reserve was $1.3 million as of September 30, 2025, a decrease of $0.8 million or 40% from December 31, 2024, primarily due to lower unfunded commitments in our construction portfolio. The reserve for unfunded commitments is recorded in other liabilities in the unaudited consolidated statements of condition.
Provision for Credit Losses
For the nine months ended September 30, 2025,the provision for credit losses was $9.0 million, compared to $7.4 million for the same respective period last year. The increase in the provision for credit losses for the nine months ended September 30, 2025 was primarily due to a smaller recapture in the reserve for unfunded commitments, which was driven by a smaller change in our unfunded commitment balance.
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. Our investment securities portfolio is also subject to significant interest rate risk.
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 potential outcomes to frame our risk exposures. We pay particular attention to the +/-200 basis point shock sensitivities, as we believe they represent a more realistic range of rate movements that could occur in the near to medium term. As of September 30, 2025, we remained within applicable guidelines 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 deposits, 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, 2025, 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. The models' forecast results are periodically 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, 2025 and December 31, 2024, 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, 2025 | December 31, 2024 | ||||||||||||||||||||||||
| Immediate Change in Interest Rates (basis points) | ||||||||||||||||||||||||||
| +400 | $ | 17,359 | 2.9 | % | $ | 31,028 | 5.6 | % | ||||||||||||||||||
| +300 | 15,780 | 2.7 | 25,281 | 4.6 | ||||||||||||||||||||||
| +200 | 12,918 | 2.2 | 18,783 | 3.4 | ||||||||||||||||||||||
| +100 | 8,127 | 1.4 | 10,393 | 1.9 | ||||||||||||||||||||||
| -100 | (4,423) | (0.7) | (13,029) | (2.3) | ||||||||||||||||||||||
| -200 | (11,626) | (2.0) | (27,883) | (5.0) | ||||||||||||||||||||||
| -300 | (23,736) | (4.0) | (43,536) | (7.8) | ||||||||||||||||||||||
| -400 | (65,241) | (11.0) | (65,753) | (11.8) | ||||||||||||||||||||||
Based on our net interest income simulation as of September 30, 2025, net interest income is expected to increase as interest rates rise. Rising interest rates would drive higher rates on floating rate loans, interest rate swaps and investment securities, as well as higher reinvestment rates on loan and investment securities cashflows. However, lower interest rates would likely cause an initial decline in net interest income as lower rates would lead to lower yields on loans, swaps, and investment securities, as well as drive higher premium amortization on existing investment securities. Based on our net interest income simulation as of September 30, 2025, NII sensitivity to changes in interest rates for the twelve months subsequent to September 30, 2025 declined in both rising rates and falling rates compared to the sensitivity profile for December 31, 2024. These NII sensitivity changes are attributable to an $800 million reduction in the notional amount of active pay-fixed swaps, resulting in an increase in fixed rate asset exposure.
To analyze the impact of changes in interest rates in a more realistic manner, we also simulate non-parallel interest rate scenarios. These scenarios help to isolate the sensitivity of earnings to various points on the yield curve. Based upon our interest rate simulations, the Company is exposed to movements in both the short and long-end of the yield curve. A movement higher or lower in the short-end of the yield curve would lead to floating-rate assets immediately repricing, while
liability funding would react on a lag. Thus, net interest income may decrease from the base case in the near term if short-term rates were to decrease, although would benefit if short-term rates were to increase and liabilities maintained their ability to lag market rate increases. A movement higher or lower in the long end of the yield curve would lead to assets repricing over time given ongoing cash flows from maturities and prepayments of investment securities and loans. Net interest income may decrease from the base case should long-term rates decline from their current levels, although would benefit if long-term rates were to increase.
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, 2025 | December 31, 2024 | ||||||||||||||||||||||||
| Immediate Change in Interest Rates (basis points) | ||||||||||||||||||||||||||
| +400 | $ | (614,852) | (20.8) | % | $ | (1,032,211) | (29.1) | % | ||||||||||||||||||
| +300 | (473,539) | (16.0) | (763,479) | (21.5) | ||||||||||||||||||||||
| +200 | (322,710) | (10.9) | (496,443) | (14.0) | ||||||||||||||||||||||
| +100 | (163,839) | (5.5) | (238,689) | (6.7) | ||||||||||||||||||||||
| -100 | 190,113 | 6.4 | 177,198 | 5.0 | ||||||||||||||||||||||
| -200 | 358,939 | 12.1 | 274,546 | 7.7 | ||||||||||||||||||||||
| -300 | 353,049 | 11.9 | 294,363 | 8.3 | ||||||||||||||||||||||
| -400 | 223,931 | 7.6 | (99,219) | (2.8) | ||||||||||||||||||||||
Compared to December 31, 2024, EVE sensitivity decreased in the rising rate scenarios and increased in the falling rate scenarios. We implemented new deposit pricing and attrition models during the period, which updated the repricing beta and average life assumptions, and lowered deposit account duration compared to the prior deposit models. This is partially offset by a reduction in the notional balance of active pay-fixed interest rate swaps. These factors resulted in generally lower liability duration, partially offset by higher asset duration, resulting in improved EVE modeling results.
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, 2025, 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, 2025, we had pledged loans to the FHLB and had remaining borrowing capacity of $1.8 billion. The ratio of readily available liquidity to adjusted uninsured deposits was 134% at September 30, 2025, compared to 116% at December 31, 2024. The increase in the readily available liquidity to adjusted uninsured deposits ratio was due to an increase in cash and cash equivalents.
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, 2025, 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, 2025, cash and cash equivalents were $1.0 billion, the carrying value of our AFS investment securities was $3.3 billion, and total deposits were $21.1 billion. As of September 30, 2025, our AFS investment securities portfolio was comprised of securities with an average base duration of approximately 2.94 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 regulation intended to ensure capital adequacy. As of September 30, 2025, the Company's capital levels remained characterized as "well-capitalized." There have been no conditions or events since September 30, 2025, 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, 2025 and December 31, 2024.
| Regulatory Capital and Ratios | Table 18 | |||||||||||||
| (dollars in thousands) | September 30, 2025 | December 31, 2024 | ||||||||||||
|
Regulatory Capital 1
|
||||||||||||||
| Total Common Shareholders' Equity | $ | 1,446,183 | $ | 1,322,774 | ||||||||||
| Adjustments: | ||||||||||||||
| CECL Transitional Amount | - | 2,375 | ||||||||||||
| Goodwill, Net of Deferred Tax Liabilities | (28,746) | (28,746) | ||||||||||||
| Postretirement Benefit Liability | 22,699 | 23,396 | ||||||||||||
| Net Unrealized Losses on Investment Securities | 253,552 | 319,993 | ||||||||||||
| Other | 9,097 | 9,097 | ||||||||||||
| Common Equity Tier 1 Capital | 1,702,785 | 1,648,889 | ||||||||||||
| Preferred Stock, Net of Issuance Cost | 336,101 | 336,101 | ||||||||||||
| Tier 1 Capital | 2,038,886 | 1,984,990 | ||||||||||||
| Allowable Reserve for Credit Losses | 150,051 | 148,634 | ||||||||||||
| Total Regulatory Capital | $ | 2,188,937 | $ | 2,133,624 | ||||||||||
| Risk-Weighted Assets | $ | 14,215,866 | $ | 14,225,908 | ||||||||||
| Key Regulatory Capital Ratios | ||||||||||||||
| Common Equity Tier 1 Capital Ratio | 11.98 | % | 11.59 | % | ||||||||||
| Tier 1 Capital Ratio | 14.34 | 13.95 | ||||||||||||
| Total Capital Ratio | 15.40 | 15.00 | ||||||||||||
| Tier 1 Leverage Ratio | 8.44 | 8.31 | ||||||||||||
1Regulatory capital ratios as of September 30, 2025 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, 2025, shareholders' equity was $1.8 billion, an increase of $123.4 million or 7.4% from December 31, 2024. For the first nine months of 2025, the increase was attributed to net income of $145.0 million, other comprehensive income of $67.1 million, share-based compensation of $11.7 million, and common stock issued under purchase and equity compensation plans of $3.9 million were offset by cash dividends declared of $84.7 million on common shares, cash dividends declared of $15.8 million on preferred shares, and common stock repurchased of $3.7 million related to taxes withheld for share-based compensation.
No shares of common stock were repurchased under the share repurchase program in the third quarter of 2025. From the beginning of our share repurchase program in July 2001 through September 30, 2025, we repurchased a total of 58.2 million shares of our common stock and returned a total of $2.4 billion to our shareholders at an average cost of $41.24 per share. Remaining buyback authority under our share repurchase program was $126.0 million as of September 30, 2025. 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 2025, 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 dividend will be payable on November 3, 2025, to shareholders of record of the preferred stock at the close of business on October 17, 2025.
In October 2025, 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 12, 2025, to shareholders of record of the common stock at the close of business on November 28, 2025.
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, 2024.
Bank of Hawaii Corporation published this content on October 28, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on October 28, 2025 at 10:05 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]