Bank of Hawaii Corporation

04/27/2026 | Press release | Distributed by Public on 04/27/2026 14:04

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis ("MD&A") of Financial Condition and Results of Operations
The following MD&A is intended to help the reader understand the Company and its operations and is focused on our financial results for the first quarter of 2026, including comparisons of year-to-year performance, trends, and updates from the Company's most recent 10-K filing. Discussion and analysis of our 2025 fiscal year, as well as the year-to-year comparison between fiscal years 2025 and 2024, are included in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations," of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, filed with the SEC on February 24, 2026.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts and may include statements concerning, among other things, the anticipated economic and business environment in our service area and elsewhere, credit quality and other financial and business matters in future periods, our future results of operations and financial position, our business strategy and plans and our objectives and future operations. Words such as "believes," "anticipates," "expects," "intends," "targeted," and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. We also may make forward-looking statements in our other documents filed with or furnished to the U.S. Securities and Exchange Commission (the "SEC"). In addition, our senior management may provide forward-looking statements orally to analysts, investors, representatives of the media and others. Given these risks and uncertainties, you should not place undue reliance on any forward-looking statement as a prediction of our actual results.
Our forward-looking statements are based on numerous assumptions, any of which could prove to be inaccurate, and actual results may differ materially from those projected due to global economic conditions and a variety of risks and uncertainties, including, but not limited to: (1) Our business is sensitive to regional business and economic conditions, in particular those of Hawaiʻi, Guam and other Pacific Islands; (2) Our loan portfolio is largely secured by real estate, and a downturn in the real estate market may adversely affect our results of operations; (3) Significant changes to the size, structure, powers and operations of the federal government, the effects of any prolonged shutdown of the federal government, changes to U.S. economic policies, and uncertainties regarding the potential for these changes may cause economic disruptions that could, in turn, adversely impact our business, results of operations and financial condition; (4) A sustained period of high inflation could pose a risk to local economies and the financial performance of the Bank; (5) Climate change and the governmental responses to it could have a material adverse impact on the Bank and its customers; (6) Disruptions, instability and failures in the banking industry may negatively impact us; (7) Any reduction in defense spending by the federal government in the state of Hawaiʻi could adversely impact the economy in Hawaiʻi and the Pacific Islands; (8) Changes in interest rates could adversely impact our results of operations and capital; (9) Our allowance for credit losses may prove to be insufficient to absorb losses or appropriately reflect, at any given time, the inherent risk of loss in our loan portfolio; (10) Consumer protection initiatives and court decisions related to the foreclosure process affect our remedies as a creditor; (11) Changes in the capital markets could materially affect the level of assets under management and the demand for our other fee-based services; (12) The Parent's liquidity is dependent on dividends from the Bank; (13) There can be no assurance that the Parent will continue to declare cash dividends; (14) Fiscal and monetary policy changes may significantly impact our profitability and liquidity; (15) Legislation and regulatory initiatives affecting the financial services industry, including new interpretations, restrictions and requirements, could detrimentally affect the Company's business; (16) Changes in income tax laws and interpretations, or in accounting standards, could materially affect our financial condition or results of operations; (17) A failure in or breach of our operational systems, information systems, or infrastructure, or those of our third-party vendors and other service providers, may result in financial losses, loss of customers, or damage to our reputation; (18) An interruption or breach in security of our information systems or those related to merchants and third-party vendors, including as a result of cyber-attacks, could disrupt our business, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, or result in financial losses; (19) Our mortgage banking income may experience significant volatility; (20) Our mortgage loan servicing business may be impacted if we do not meet our obligations, or if servicing standards change; (21) Risks related to representation and warranty provisions may impact our mortgage loan servicing business; (22) Risks relating to residential mortgage loan servicing activities may adversely affect our results; (23) The requirement to record certain assets and liabilities at fair value may adversely affect our financial results (24) Natural disasters and adverse weather in Hawaiʻi and the Pacific Islands may negatively affect real estate property values and our operations (25) Competition may adversely affect our business; (26) Our future performance will depend on our ability to respond timely to technological change; (27) The development and use of AI present risks and challenges that may adversely impact our business; (28) Negative public opinion could damage our reputation and adversely impact our earnings and liquidity (29) We are subject to certain litigation, and our expenses related to this litigation may adversely affect our results; (30) Our performance depends on attracting and retaining key employees and skilled personnel to operate our business
effectively; (31) The soundness of other financial institutions may adversely impact our financial condition or results of operations; and (32) We have experienced increases in FDIC insurance assessments.
The risks and uncertainties that could cause actual results to differ materially from our historical experience and our expectations and projections include but are not limited to those described in Item 1A. "Risk Factors," Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in our most recent Annual Report on Form 10-K and in subsequent SEC filings. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as otherwise may be required by the federal securities laws.
Investor Announcements
Investors and others should note that the Company intends to announce financial and other information to the Company's investors using the Company's investor relations website at https://ir.boh.com, social media channels, press releases, and public conference calls and webcasts, all for purposes of complying with the Company's disclosure obligations under Regulation FD. Accordingly, investors should monitor these channels, as information is updated, and new information is posted.
Critical Accounting Estimates
Our Unaudited Consolidated Financial Statements were prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and follow general practices within the industries in which we operate. Application of GAAP requires us to make estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Most accounting estimates are not considered by management to be critical accounting estimates. Critical accounting estimates are those estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. In determining which accounting estimates are critical accounting estimates, we consider, among other things, whether the application of GAAP requires management to make difficult, subjective, and complex judgments about matters that are inherently uncertain and whether it is likely that materially different results would be reported under different conditions or different assumptions. The accounting estimates that we believe are most critical in preparing our Consolidated Financial Statements are presented in the section titled "Critical Accounting Estimates" in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2025. There have been no significant changes in the Company's application of critical accounting estimates since December 31, 2025.
Overview
We are a regional financial services company serving businesses, consumers, and governments in Hawai'i, Guam, and other Pacific Islands. Our principal operating subsidiary, the Bank, was founded in 1897.
Our business strategy is to use our unique market knowledge, prudent management discipline and brand strength to deliver exceptional value to our stakeholders. Our business plan is balanced between growth and risk management while maintaining flexibility to adjust to economic changes. We will continue to focus on providing customers with best-in-class service and an innovative mix of products and services. We will also remain focused on delivering strong financial results while maintaining prudent risk and capital management strategies and affirming our commitment to support our local communities.
Hawai'i Economy
As of March 31, 2026, Hawai'i's economy continues to experience slow and uneven growth amid lingering uncertainty. Tourism conditions have stabilized but remain soft, with visitor volumes flat overall as continued weakness in most international markets offsets a modest recovery from Japan. Visitor spending has been supported by higher per-visitor expenditures, particularly from U.S. mainland travelers, even as arrivals lag. Construction continues to provide a key source of stability, driven by elevated federal and military infrastructure projects and Maui rebuilding activity, although growth is expected to slow from recent highs. Labor market conditions have improved modestly following federal workforce reductions, and Hawai'i's unemployment rate remains historically low at 2.6% in January 2026, well below the national level of 4.3%. Inflationary pressures persist as the pass-through effect of tariffs and tariff uncertainty, as well as the impact of recent military conflict on gasoline and electricity, continues to affect consumer prices. Recent Kona low storm events have also resulted in localized economic stress, with related impacts still evolving. Hawai'i's economy is expected to expand at a modest pace in 2026, constrained by ongoing federal policy uncertainty and a gradual recovery in tourism, but with
uncertainty due to the impact on travel of higher jet fuel prices and other increased travel costs and potential erosion of consumer confidence negatively impacting middle-class tourism demand.
For the first three months of 2026, the median price of single-family home sales on Oahu increased by 2.6% while the median price of condominiums remained flat compared to the same period in 2025. The volume of single-family homes sales on Oahu increased 10.9% and condominium sales decreased 3.6% compared to the same period in 2025. Inventory of single-family homes and condominiums on Oahu was 2.8 months and 6.3 months, respectively, for the first quarter of 2026.
Earnings Summary
Net income for the first quarter of 2026 was $57.4 million, an increase of $13.4 million, or 31%, compared to the same period in 2025. Diluted earnings per common share was $1.30 for the first quarter of 2026, an increase of $0.33, or 34%, compared to the same period in 2025.
•The return on average common equity for the first quarter of 2026 was 13.90% compared with 11.80% in the same period last year.
•Net interest income for the first quarter of 2026 was $151.0 million, an increase of 20% compared to the same period last year.
•Net interest margin was 2.74% in the first quarter of 2026, an increase of 42 basis points from the same period last year.
•The provision for credit losses for the first quarter of 2026 and 2025 was $1.8 million and $3.3 million, respectively.
•Noninterest income was $41.3 million in the first quarter of 2026, a decrease of 6% compared to the same period last year.
•Noninterest expense was $116.1 million in the first quarter of 2026, an increase of 5% compared to the same period last year.
•The effective tax rate for the first quarter of 2026 was 22.9% compared with 21.7% for the same period last year.
•Total assets were $23.9 billion as of March 31, 2026, a decrease of 1.1% from December 31, 2025.
•Total loans and leases were $14.2 billion as of March 31, 2026, an increase of 0.8% from December 31, 2025.
•The allowance for credit losses on loans and leases was $147.0 million as of March 31, 2026, an increase of $0.2 million from December 31, 2025. The ratio of the allowance for credit losses to total loans and leases outstanding was 1.04% at the end of the quarter, unchanged from December 31, 2025.
•Net loan and lease charge-offs during the first quarter of 2026 were $1.1 million or 3 basis points annualized of total average loans and leases outstanding. Net loan and lease charge-offs for the first quarter of 2026 were comprised of charge-offs of $4.1 million partially offset by recoveries of $3.0 million. Compared to the same quarter of 2025, net loan and lease charge-offs decreased by $3.3 million. Net loan and lease charge-offs to average loans and leases outstanding during the first quarter of 2026 was 0.03% compared to 0.13% in the same period last year.
•Total non-performing assets ("NPAs") were $12.1 million as of March 31, 2026, down $2.1 million from December 31, 2025. NPAs were 9 basis points of total loans and leases and foreclosed real estate at the end of the quarter, down 1 basis point from December 31, 2025.
•The investment securities portfolio was $7.9 billion as of March 31, 2026, an increase of 1.7% from December 31, 2025. The investment portfolio remains largely comprised of securities issued by U.S. government agencies and U.S. government-sponsored enterprises.
•Total deposits were $21.0 billion as of March 31, 2026 and $21.2 billion as of December 31, 2025.
•Total shareholders' equity was $1.9 billion as of March 31, 2026 and December 31, 2025.
•During the three months ended March 31, 2026, we repurchased 194,096 shares of common stock at an average cost per share of $77.84 and a total cost of $15.1 million under the share repurchase program. Total remaining buyback authority under the share repurchase program was $105.9 million at March 31, 2026.
•We maintained a quarterly dividend of $0.70 per common share during the three months ended March 31, 2026 and 2025.
Analysis of Unaudited Statements of Income
Average balances, related income and expenses, and resulting yields and rates are presented in Table 1. An analysis of the change in net interest income, on a taxable-equivalent basis, is presented in Table 2.
Average Balances and Interest Rates - Taxable-Equivalent Basis ¹
Table 1
Three Months Ended March 31, 2026 Three Months Ended March 31, 2025
(dollars in millions) Average Balance
Income/Expense 2
Yield/Rate Average Balance
Income/Expense 2
Yield/Rate
Earning Assets
Cash and Cash Equivalents $ 372.5 $ 3.3 3.58 % $ 500.0 5.5 4.37 %
Investment Securities
Available-for-Sale
Taxable 3,598.1 34.2 3.82 2,790.3 24.1 3.47
Non-Taxable 32.1 0.4 5.07 21.3 0.3 5.68
Held-to-Maturity
Taxable 4,175.4 18.4 1.76 4,548.6 20.2 1.77
Non-Taxable 33.5 0.2 2.10 34.1 0.2 2.09
Total Investment Securities 7,839.1 53.2 2.72 7,394.3 44.8 2.43
Loans Held for Sale 3.6 0.1 5.22 2.3 0.0 6.06
Loans and Leases 3
Commercial Mortgage 4,220.6 54.1 5.19 4,015.2 52.5 5.30
Commercial and Industrial 1,583.4 18.7 4.79 1,703.7 21.3 5.06
Construction 215.7 3.4 6.46 338.5 6.0 7.22
Commercial Lease Financing 86.9 0.9 4.29 91.1 0.9 3.83
Residential Mortgage 4,781.9 47.8 4.00 4,616.7 44.8 3.88
Home Equity 2,103.1 23.6 4.55 2,154.4 22.5 4.23
Automobile 684.6 9.4 5.57 752.6 9.3 5.02
Other 407.7 7.8 7.76 390.0 7.1 7.41
Total Loans and Leases 14,083.9 165.7 4.75 14,062.2 164.4 4.72
Other 81.9 1.3 6.31 65.1 1.1 6.67
Total Earning Assets 22,381.0 223.6 4.03 22,023.9 215.8 3.95
Non-Earning Assets 1,534.3 1,614.2
Total Assets $ 23,915.3 $ 23,638.1
Interest-Bearing Liabilities
Interest-Bearing Deposits
Demand $ 3,839.0 $ 6.6 0.69 % $ 3,773.4 $ 7.1 0.76 %
Savings 8,668.4 38.7 1.81 8,544.5 47.1 2.23
Time 2,753.6 19.6 2.89 3,037.3 27.5 3.67
Total Interest-Bearing Deposits 15,261.0 64.9 1.72 15,355.2 81.7 2.16
Securities Sold Under Agreements to Repurchase 50.0 0.5 3.89 76.7 0.7 3.88
Other Debt 560.9 5.8 4.23 578.2 6.1 4.24
Total Interest-Bearing Liabilities 15,871.9 71.2 1.82 16,010.1 88.5 2.24
Net Interest Income $ 152.4 $ 127.3
Interest Rate Spread 2.21 1.71
Net Interest Margin 2.74 2.32
Noninterest-Bearing Demand Deposits 5,654.4 5,314.3
Other Liabilities 521.8 638.1
Shareholders' Equity 1,867.2 1,675.6
Total Liabilities and Shareholders' Equity $ 23,915.3 $ 23,638.1
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 $1.4 million and $1.5 million for the three months ended March 31, 2026 and 2025, respectively.
3Non-performing loans and leases are included in the respective average loan and lease balances.
Analysis of Change in Net Interest Income - Taxable-Equivalent Basis Table 2
Three Months Ended March 31, 2026
Compared to March 31, 2025
(dollars in millions)
Volume 1
Rate 1
Total
Change in Interest Income:
Cash and Cash Equivalents $ (1.2) $ (0.9) $ (2.1)
Investment Securities
Available-for-Sale
Taxable 7.5 2.6 10.1
Non-Taxable 0.1 0.0 0.1
Held-to-Maturity
Taxable (1.6) (0.1) (1.7)
Non-Taxable 0.0 - 0.0
Total Investment Securities 6.0 2.5 8.5
Loans Held for Sale 0.0 0.0 0.0
Loans and Leases
Commercial Mortgage 2.7 (1.2) 1.5
Commercial and Industrial (1.5) (1.1) (2.6)
Construction (2.0) (0.6) (2.6)
Commercial Lease Financing 0.0 0.1 0.1
Residential Mortgage 1.6 1.4 3.0
Home Equity (0.5) 1.6 1.1
Automobile (0.9) 1.0 0.1
Other 0.3 0.4 0.7
Total Loans and Leases (0.3) 1.6 1.3
Other 0.4 (0.3) 0.1
Total Change in Interest Income 4.9 2.9 7.8
Change in Interest Expense:
Interest-Bearing Deposits
Demand 0.2 (0.7) (0.5)
Savings 0.6 (9.0) (8.4)
Time (2.4) (5.5) (7.9)
Total Interest-Bearing Deposits (1.6) (15.2) (16.8)
Securities Sold Under Agreements to Repurchase (0.3) 0.0 (0.3)
Other Debt (0.2) 0.0 (0.2)
Total Change in Interest Expense (2.1) (15.2) (17.3)
Change in Net Interest Income $ 7.0 $ 18.1 $ 25.1
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 months ended March 31, 2026 increased by $357.1 million or 2% compared to the same period last year. The increase was primarily due to an increase in the average balance of available-for-sale investment securities. As compared to the same period last year, yields on our investment securities portfolio increased by 29 basis points during the three months ended March 31, 2026 primarily due to the amortization of lower yielding
investments being reinvested into new investments at higher current interest rates, as well as the impact of the repositioning of a portion of our AFS securities portfolio in the fourth quarter of 2025, which resulted in a higher-yielding securities mix. As compared to the same period last year, yields on our loan and lease portfolio increased by 3 basis points during the three months ended March 31, 2026. The increase primarily reflects the continued amortization of lower-yielding loans along with the origination of new loans at higher prevailing interest rates. This benefit was partially offset by lower income from interest rate swaps and the repricing of certain variable-rate loans following recent Federal Reserve rate cuts.
The average balance of our interest-bearing liabilities for the three months ended March 31, 2026 decreased by $138.2 million or 1% compared to the same period in 2025 primarily due to a decrease in time deposits. As compared to the same period last year, the cost of our interest-bearing liabilities decreased by 42 basis points during the three months ended March 31, 2026 primarily due to a decrease in the prevailing interest rate environment, which was driven by 175 basis points of interest rate cuts by the Federal Open Market Committee from September 2024 through December 2025.
Noninterest Income
Table 3 presents the components of noninterest income.
Noninterest Income Table 3
Three Months Ended March 31,
(dollars in thousands) 2026 2025 Dollar Change Percent Change
Trust and Asset Management $ 12,445 $ 11,741 $ 704 6.0 %
Fees, Exchange, and Other Service Charges 10,928 14,437 (3,509) (24.3)
Service Charges on Deposit Accounts 8,440 8,259 181 2.2
Bank-Owned Life Insurance 4,147 3,611 536 14.8
Annuity and Insurance 1,469 1,555 (86) (5.5)
Mortgage Banking 876 988 (112) (11.3)
Investment Securities Losses, Net (1,272) (1,607) 335 20.8
Other Income 4,299 5,074 (775) (15.3)
Total Noninterest Income $ 41,332 $ 44,058 $ (2,726) (6.2) %
Fees, exchange, and other service charges decreased by $3.5 million or 24% in the first quarter of 2026 compared to the same period last year, primarily due to lower merchant income following the sale of our merchant services portfolio in the fourth quarter of 2025.
Bank-owned life insurance increased by $0.5 million or 15% in the first quarter of 2026 compared to the same period last year, primarily due to an increase in death benefits received.
Other income decreased by $0.8 million or 15% in the first quarter of 2026 compared to the same period last year. This decrease was primarily due to an insurance settlement recognized in the first quarter of 2025 and lower foreign exchange volumes during the first quarter of 2026.
Noninterest Expense
Table 4 presents the components of noninterest expense.
Noninterest Expense Table 4
Three Months Ended March 31,
(dollars in thousands) 2026 2025 Dollar Change Percent Change
Salaries $ 38,990 $ 38,242 $ 748 2.0 %
Share-Based Compensation 7,282 3,501 3,781 108.0
Incentive Compensation 6,083 5,573 510 9.2
Payroll Taxes 5,321 4,766 555 11.6
Retirement and Other Benefits 4,597 5,061 (464) (9.2)
Medical, Dental, and Life Insurance 4,222 4,537 (315) (6.9)
Commission Expense
1,213 1,123 90 8.0
Separation Expense
749 81 668 824.7
Total Salaries and Benefits 68,457 62,884 5,573 8.9
Net Occupancy 10,782 10,559 223 2.1
Net Equipment 10,611 10,192 419 4.1
Data Processing 5,581 5,267 314 6.0
Professional Fees 4,226 4,264 (38) (0.9)
FDIC Insurance 2,719 1,642 1,077 65.6
Other Expense:
Advertising 2,681 2,163 518 23.9
Delivery and Postage Services
1,717 1,680 37 2.2
Mileage Program Travel
1,050 1,061 (11) (1.0)
Broker's Charges
580 599 (19) (3.2)
Merchant Transaction and Card Processing Fees
61 1,741 (1,680) (96.5)
Other 7,606 8,407 (801) (9.5)
Total Other Expense 13,695 15,651 (1,956) (12.5)
Total Noninterest Expense $ 116,071 $ 110,459 $ 5,612 5.1 %
Total salaries and benefits expense increased by $5.6 million or 8.9% in the first quarter of 2026 compared to the same period last year, primarily due to an increase in share-based compensation related to the accelerated vesting of restricted stock awards pursuant to the retirement provisions of performance-based restricted stock awards granted in 2024 and 2025, as well as increases in base salaries and separation expense. These increases were partially offset by decreases in retirement and other benefits expense and medical, dental, and life insurance expense.
FDIC insurance expense increased by $1.1 million or 65.6% for the first quarter of 2026 compared to the same period last year, primarily due to a partial recovery of the FDIC special assessment in 2025, partially offset by a lower FDIC assessment rate in the current period.
Total other expense decreased by $2.0 million or 12.5% for the first quarter of 2026 compared to the same period last year, primarily due to lower merchant transaction and card processing fees following the sale of our merchant services portfolio in the fourth quarter of 2025. This was partially offset by an increase in advertising expense.
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 March 31,
(dollars in thousands) 2026 2025
Provision for Income Taxes $ 17,069 $ 12,171
Effective Tax Rates 22.91 % 21.67 %
The provision for income taxes was $17.1 million in the first quarter of 2026, an increase of $4.9 million compared to the same period in 2025. The effective tax rate for the first quarter of 2026 was 22.9%, an increase from 21.7% for the same period in 2025. The higher effective tax rate in the first quarter of 2026 compared to the same period last year was primarily due to an increase in nondeductible compensation and an increase in tax expense from discrete items.
Analysis of Unaudited Statements of Condition
Cash and Cash Equivalents
Cash and cash equivalents were $425.1 million as of March 31, 2026, a decrease of $521.4 million or 55.1% from the prior year. The decrease was primarily due to an increase in our investment portfolio.
Investment Securities
The carrying value of our investment securities portfolio was $7.9 billion and $7.8 billion as of March 31, 2026 and December 31, 2025, respectively. The increase was primarily due to the purchase of $372.2 million in available-for-sale investment securities during the three months ended March 31, 2026. The increase was partially offset by the amortization of existing securities.
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 March 31, 2026, the issuers of these securities carry credit ratings equivalent to those of the U.S. Government, reflecting the explicit and/or implicit guarantees provided.
Net unrealized losses in our AFS and HTM investment securities were $777.3 million as of March 31, 2026 and $739.8 million as of December 31, 2025. In addition, we transferred AFS investment securities to the HTM category in 2022. At the time of transfer, these securities had a fair value of $1.3 billion. The unrealized losses at the time of transfer remain in accumulated other comprehensive income and are amortized over the estimated remaining life of the securities through an adjustment to the effective yield of the HTM portfolio. The unamortized balance of these losses was $149.7 million and $155.0 million as of March 31, 2026 and December 31, 2025, respectively. See Note 7 Accumulated Other Comprehensive Income to the unaudited Consolidated Financial Statements for more information.
Loans and Leases
Table 6 presents the composition of our loan and lease portfolio by major categories.
Loan and Lease Portfolio Balances Table 6
(dollars in thousands) March 31, 2026 December 31, 2025 Dollar Change Percent Change
Commercial
Commercial Mortgage $ 4,341,448 $ 4,205,791 $ 135,657 3.2 %
Commercial and Industrial 1,575,207 1,584,245 (9,038) (0.6)
Construction 204,993 208,584 (3,591) (1.7)
Lease Financing 84,651 88,303 (3,652) (4.1)
Total Commercial 6,206,299 6,086,923 119,376 2.0
Consumer
Residential Mortgage 4,800,256 4,775,502 24,754 0.5
Home Equity 2,095,521 2,114,809 (19,288) (0.9)
Automobile 680,570 690,376 (9,806) (1.4)
Other 410,165 414,440 (4,275) (1.0)
Total Consumer 7,986,512 7,995,127 (8,615) (0.1)
Total Loans and Leases $ 14,192,811 $ 14,082,050 $ 110,761 0.8 %
Total loans and leases as of March 31, 2026 increased by $110.8 million or 0.8% from December 31, 2025, primarily due to growth in our commercial loans. This was partially offset by decreases in our consumer loans.
Commercial loans and leases as of March 31, 2026 increased by $119.4 million or 2.0% from December 31, 2025, primarily due to an increase in our commercial mortgage portfolio, which increased by $135.7 million or 3.2% largely as a result of new originations. This was partially offset by paydowns in our commercial and industrial portfolio. Consumer loans and leases as of March 31, 2026 decreased by $8.6 million or 0.1% from December 31, 2025, primarily due to paydowns in our home equity portfolio and reduced demand for automobile loans. This was partially offset by an increase in our residential mortgage loans, which increased by $24.8 million or 0.5% primarily due to increased production.
Table 7 presents an additional breakdown of the Company's commercial mortgage portfolio.
Commercial Mortgage Breakdown
Table 7
March 31, 2026 December 31, 2025
(dollars in thousands) Amount Percent of Total % Owner Occupied Amount Percent of Total % Owner Occupied
Multi-family $ 1,224,045 28 % - % $ 1,203,151 29 % - %
Industrial 802,818 18 37 776,260 18 38
Retail 730,155 17 3 696,492 17 3
Lodging 646,154 15 - 649,196 15 -
Office 331,433 8 21 336,144 8 22
Other 1
606,843 14 20 544,548 13 23
Total Commercial Mortgage $ 4,341,448 100 % 12 % $ 4,205,791 100 % 12 %
1.Amount includes unamortized loan origination fees.
Table 8 presents the geographic distribution of our loan and lease portfolio.
Geographic Distribution of Loan and Lease Portfolio
Table 8
(dollars in thousands)
Hawai'i
U.S. Mainland 1
Guam Other Pacific Islands Total
March 31, 2026
Commercial
Commercial Mortgage $ 3,927,797 $ 243,316 $ 169,917 $ 418 $ 4,341,448
Commercial and Industrial 1,355,980 136,786 62,567 19,874 1,575,207
Construction 204,993 - - - 204,993
Lease Financing 84,400 - 251 - 84,651
Total Commercial 5,573,170 380,102 232,735 20,292 6,206,299
Consumer
Residential Mortgage 4,723,056 5,368 71,592 240 4,800,256
Home Equity 2,049,510 36 45,975 - 2,095,521
Automobile 541,997 - 110,879 27,694 680,570
Other 354,892 - 53,162 2,111 410,165
Total Consumer 7,669,455 5,404 281,608 30,045 7,986,512
Total Loans and Leases $ 13,242,625 $ 385,506 $ 514,343 $ 50,337 $ 14,192,811
Percentage of Total Loans and Leases 93 % 3 % 4 % 0 % 100 %
December 31, 2025
Commercial
Commercial Mortgage $ 3,788,244 $ 244,812 $ 172,315 $ 420 $ 4,205,791
Commercial and Industrial 1,370,467 135,563 63,498 14,717 1,584,245
Construction 208,584 - - - 208,584
Lease Financing 88,027 - 276 - 88,303
Total Commercial 5,455,322 380,375 236,089 15,137 6,086,923
Consumer
Residential Mortgage 4,699,089 5,388 70,767 258 4,775,502
Home Equity 2,070,246 37 44,526 - 2,114,809
Automobile 548,585 - 112,084 29,707 690,376
Other 358,190 - 54,030 2,220 414,440
Total Consumer 7,676,110 5,425 281,407 32,185 7,995,127
Total Loans and Leases $ 13,131,432 $ 385,800 $ 517,496 $ 47,322 $ 14,082,050
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 9 presents the major components of other assets.
Other Assets
Table 9
(dollars in thousands) March 31, 2026 December 31, 2025 Dollar Change Percent Change
Low-Income Housing and Other Equity Investments $ 215,321 $ 224,714 $ (9,393) (4.2) %
Deferred Tax Assets and Tax Receivable 137,489 138,350 (861) (0.6)
Derivative Financial Instruments 104,426 99,581 4,845 4.9
Federal Home Loan Bank of Des Moines Stock 34,750 34,750 - -
Federal Reserve Bank Stock 30,901 30,770 131 0.4
Prepaid Expenses 26,967 24,156 2,811 11.6
Accounts Receivable
16,344 15,569 775 5.0
Deferred Compensation Plan Assets
12,392 15,959 (3,567) (22.4)
Foreclosed Real Estate 295 295 - -
Other 53,952 47,877 6,075 12.7
Total Other Assets $ 632,837 $ 632,021 $ 816 0.1 %
Prepaid expenses increased by $2.8 million or 12%, primarily due to changes in accruals and timing of payments. Deferred compensation plan assets decreased by $3.6 million or 22%, primarily due to distributions from the executive deferred compensation plan during the three months ended March 31, 2026. Other assets increased by $6.1 million or 13%, primarily driven by improved funded status of the Company's defined benefit pension plans.
Deposits
Table 10 presents the composition of our deposits by major customer categories.
Deposits
Table 10
(dollars in thousands) March 31, 2026 December 31, 2025 Dollar Change Percent Change
Consumer $ 10,530,223 $ 10,466,617 $ 63,606 0.6 %
Commercial 8,340,279 8,597,265 (256,986) (3.0)
Public and Other 2,087,428 2,124,613 (37,185) (1.8)
Total Deposits $ 20,957,930 $ 21,188,495 $ (230,565) (1.1) %
Total deposits were $21.0 billion as of March 31, 2026, a decrease of $230.6 million or 1.1% from December 31, 2025. Consumer deposits increased by $63.6 million due to increases of $66.8 million in savings deposits, $30.5 million in non-interest bearing deposits, and $11.6 million in interest-bearing demand deposits, partially offset by a decrease of $45.3 million in time deposits. Commercial deposits decreased by $257.0 million due to decreases of $153.5 million in savings deposits, $126.8 million in non-interest bearing deposits, and $14.7 million in time deposits, partially offset by an increase of $38.1 million in interest-bearing demand deposits. Public and other deposits decreased by $37.2 million due to a decrease of $82.1 million in interest-bearing demand deposits and noninterest-bearing deposits, partially offset by increases of $29.5 million in saving deposits and $15.4 million in time deposits.
Table 11 presents the composition of our savings deposits.
Savings Deposits
Table 11
(dollars in thousands) March 31, 2026 December 31, 2025 Dollar Change Percent Change
Regular Savings $ 5,521,442 5,383,975 137,467 2.6 %
Money Market 3,162,433 3,357,115 (194,682) (5.8)
Total Savings Deposits $ 8,683,875 $ 8,741,090 $ (57,215) (0.7) %
The increase in Regular Savings was primarily due to increases in consumer deposits of $71.6 million, commercial deposits of $36.3 million, and public deposits of $29.5 million. The decrease in Money Market was primarily due to decreases in commercial deposits of $189.8 million and consumer deposits of $4.8 million.
Table 12 presents the maturity distribution of the estimated uninsured time deposits.
Maturity Distribution of Estimated Uninsured Time Deposits
Table 12
(dollars in thousands)
March 31, 2026
December 31, 2025
Change
Remaining maturity:
Three months or less $ 648,587 $ 613,444 $ 35,143
After three through six months 303,832 396,599 (92,767)
After six through twelve months 349,771 320,938 28,833
After twelve months 89,717 86,151 3,566
Total $ 1,391,907 $ 1,417,132 $ (25,225)
Uninsured amounts are estimated based on the portion of account balances in excess of FDIC insurance limits.
Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase were $50.0 million as of both March 31, 2026 and December 31, 2025. As of March 31, 2026, our remaining repurchase agreement was at a fixed interest rate of 3.89% with a remaining maturity of 3.6 years. Our repurchase agreement was accounted for as a collateralized financing arrangement (i.e., a secured borrowing) and not as a sale and subsequent repurchase of securities. Our remaining repurchase agreement with a private institution may be terminated at earlier specified dates by either the private institution or the Company. See Note 6 Securities Sold Under Agreements to Repurchase to the unaudited Consolidated Financial Statements for more information.
Other Debt
Table 13 presents the composition of our other debt.
Other Debt Table 13
(dollars in thousands) March 31, 2026 December 31, 2025 Dollar Change
Federal Home Loan Bank of Des Moines Advances $ 550,000 $ 550,000 $ -
Finance Lease Obligations 8,150 8,176 (26)
Total $ 558,150 $ 558,176 $ (26)
Analysis of Business Segments
Our business segments are defined as Consumer Banking, Commercial Banking, and Treasury and Other.
Table 14 summarizes net income (loss) from our business segments. Additional information about segment performance is presented in Note 9 Business Segments to the unaudited Consolidated Financial Statements.
Business Segment Net Income Table 14
Three Months Ended March 31,
(dollars in thousands) 2026 2025
Dollar Change
Percent Change
Consumer Banking $ 31,900 $ 29,452 $ 2,448 8.3 %
Commercial Banking 39,066 31,689 7,377 23.3
Total 70,966 61,141 9,825 16.1
Treasury and Other (13,534) (17,156) 3,622 21.1
Consolidated Total $ 57,432 $ 43,985 $ 13,447 30.6 %
Consumer Banking
Net income increased by $2.4 million or 8% in the first quarter of 2026 compared to the same period last year, primarily due to an increase in net interest income and a decrease in the provision for credit losses. This was partially offset by an increase in noninterest expense. Net interest income increased by $10.7 million or 11%, primarily due to higher deposit spreads on higher deposit balances. The provision for credit losses decreased by $0.6 million or 18%, primarily due to lower net charge-offs in the auto loan portfolio. Noninterest expense increased by $7.9 million or 9%, primarily due to higher allocated administrative and support unit costs and higher salaries & benefits expense.
Commercial Banking
Net income increased by $7.4 million or 23% in the first quarter of 2026 compared to the same period last year, primarily due to an increase in net interest income and a decrease in noninterest expense, partially offset by a decrease in noninterest income. Net interest income increased by $8.1 million or 15%, primarily due to higher average deposit balances and spreads, which increased segment net interest income under our funds transfer pricing methodology, partially offset by lower loan balances. Noninterest income decreased by $3.5 million or 46%, primarily due to a reduction in merchant revenue following the sale of the Bank's merchant services portfolio in the fourth quarter of 2025, lower loan and commitment fees, and reduced gains on sale of leased assets, partially offset by an increase in account analysis fees. Noninterest expense decreased by $2.9 million or 15%, primarily due to lower merchant transaction processing fees, salaries and benefits, equipment expenses, and allocated administrative, support unit and treasury expenses, partially offset by increases in data processing, customer derivative broker charges, and allocated branch expenses.
Treasury and Other
Net loss decreased by $3.6 million or 21% in the first quarter of 2026 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 and an increase in noninterest expense. Net interest expense decreased by $6.4 million or 25%, primarily due to an increase in interest income from higher earning asset balances and yields. Noninterest income increased by $0.9 million or 30%, primarily due to an increase in BOLI and COLI income and a decrease in investment securities losses. Noninterest expense increased by $0.6 million or 14%, primarily due to higher salaries and benefits expense. 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) March 31, 2026 December 31, 2025 Change
Non-Performing Assets
Non-Accrual Loans and Leases
Commercial
Commercial Mortgage $ - $ 2,085 $ (2,085)
Commercial and Industrial 1,860 1,940 (80)
Total Commercial 1,860 4,025 (2,165)
Consumer
Residential Mortgage 5,410 5,382 28
Home Equity 4,525 4,469 56
Total Consumer 9,935 9,851 84
Total Non-Accrual Loans and Leases 11,795 13,876 (2,081)
Foreclosed Real Estate 295 295 -
Total Non-Performing Assets $ 12,090 $ 14,171 $ (2,081)
Accruing Loans and Leases Past Due 90 Days or More
Consumer
Residential Mortgage $ 10,733 $ 8,834 $ 1,899
Home Equity 1,556 2,152 (596)
Automobile 672 520 152
Other 764 753 11
Total Consumer 13,725 12,259 1,466
Total Accruing Loans and Leases Past Due 90 Days or More $ 13,725 $ 12,259 $ 1,466
Total Loans and Leases $ 14,192,811 $ 14,082,050 $ 110,761
Ratio of Non-Accrual Loans and Leases to Total Loans and Leases 0.08 % 0.10 % (0.02) %
Ratio of Non-Performing Assets to Total Loans and Leases and Foreclosed Real Estate 0.09 % 0.10 % (0.01) %
Ratio of Non-Performing Assets to Total Assets 0.05 % 0.06 % (0.01) %
Ratio of Commercial Non-Performing Assets to Total Commercial Loans and Leases and Commercial Foreclosed Real Estate 0.03 % 0.07 % (0.04) %
Ratio of Consumer Non-Performing Assets to Total Consumer Loans and Leases and Consumer Foreclosed Real Estate 0.13 % 0.13 % - %
Ratio of Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More to Total Loans and Leases and Foreclosed Real Estate 0.18 % 0.19 % (0.01) %
Changes in Non-Performing Assets
Balance as of December 31, 2025 $ 14,171
Additions1
1,010
Reductions
Payments (2,744)
Return to Accrual Status (341)
Charge-offs/Write-downs1
(6)
Total Reductions (3,091)
Balance as of March 31, 2026 $ 12,090
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 March 31, 2026 were $11.8 million, a decrease of $2.1 million or 15% from December 31, 2025 primarily due to a $2.1 million payoff of a commercial mortgage in the first quarter of 2026. As of March 31, 2026, our residential mortgage non-accrual loans were comprised of 16 loans with a weighted average current loan-to-value ratio of 69%. As of March 31, 2026, our home equity non-accrual loans were comprised of 55 loans with a weighted average current loan-to-value ratio of 42%.
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 $0.3 million as of March 31, 2026 and December 31, 2025.
Loans and Leases Past Due 90 Days or More and Still Accruing Interest
Loans and leases past due 90 days or more and still accruing interest were $13.7 million as of March 31, 2026, a $1.5 million or 12% increase from December 31, 2025. The increase was primarily in our residential mortgage portfolio, partially offset by a decrease in our home equity 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 March 31,
(dollars in thousands) 2026 2025
Balance at Beginning of Period $ 148,403 $ 150,649
Loans and Leases Charged-Off
Commercial
Commercial and Industrial (230) (1,399)
Consumer
Residential Mortgage (15) -
Home Equity (6) (75)
Automobile (1,417) (1,751)
Other (2,394) (2,484)
Total Loans and Leases Charged-Off (4,062) (5,709)
Recoveries on Loans and Leases Previously Charged-Off
Commercial
Commercial Mortgage
1,617 -
Commercial and Industrial 53 77
Consumer
Residential Mortgage 11 11
Home Equity 137 128
Automobile 579 633
Other 590 457
Total Recoveries on Loans and Leases
2,987 1,306
Net Charged-Off - Loans and Leases (1,075) (4,403)
Provision for Credit Losses:
Loans and Leases 1,271 3,582
Unfunded Commitments 479 (332)
Total Provision for Credit Losses 1,750 3,250
Balance at End of Period $ 149,078 $ 149,496
Components
Allowance for Credit Losses - Loans and Leases $ 146,962 $ 147,707
Reserve for Unfunded Commitments 2,116 1,789
Total Reserve for Credit Losses $ 149,078 $ 149,496
Average Loans and Leases Outstanding $ 14,083,875 $ 14,062,173
Ratio of Net Loans and Leases Charged-Off to Average Loans and Leases Outstanding (annualized) 0.03 % 0.13 %
Ratio of Allowance for Credit Losses to Loans and Leases Outstanding 1
1.04 % 1.05 %
1The numerator comprises the Allowance for Credit Losses - Loans and Leases.
Allowance for Credit Losses (the "Allowance")
As of March 31, 2026, the Allowance was $147.0 million or 1.04% of total loans and leases outstanding compared with an Allowance of $146.8 million or 1.04% of total loans and leases outstanding as of December 31, 2025.
Net charge-offs on loans and leases for the three months ended March 31, 2026 and 2025 were $1.1 million or 0.03% and $4.4 million or 0.13%, respectively, of total average loans and leases on an annualized basis.
Reserve for Unfunded Commitments
The Unfunded Reserve was $2.1 million as of March 31, 2026, an increase of $0.5 million or 29% from December 31, 2025, primarily due to higher unfunded commitments in our commercial and industrial portfolio. The reserve for unfunded commitments is recorded in other liabilities in the unaudited consolidated statements of condition.
Provision for Credit Losses
For the three months ended March 31, 2026, the provision for credit losses was $1.8 million, compared to $3.3 million for the same respective period last year. The decrease in the provision for credit losses was primarily due to a $1.6 million recovery of a commercial mortgage loan in the first quarter of 2026.
Market Risk
Market risk is the potential of loss arising from adverse changes in interest rates and prices. We are exposed to market risk as a consequence of the normal course of conducting our business activities. Our market risk management process involves measuring, monitoring, controlling, and mitigating risks that can significantly impact our consolidated statements of income and condition. In this management process, we balance market risks with expected returns to enhance earnings performance while managing volatility to an acceptable level.
Our primary market risk exposure is interest rate risk.
Interest Rate Risk
The objective of our interest rate risk management process is to optimize net interest income while operating within acceptable limits. This involves balancing expected returns with potential earnings and price volatility due to changes in interest rates over short-term, medium-term, and long-term time horizons, while maintaining adequate levels of funding and liquidity. The potential cash flows, sales, or replacement value of many of our assets and liabilities, especially those that earn or pay interest, are sensitive to changes in interest rates. This interest rate risk arises primarily from our core business activities of extending loans and accepting deposits.
We utilize two management guidelines to measure our interest rate risk exposure: 1) net interest income ("NII") sensitivity, and 2) economic value of equity ("EVE") sensitivity. NII and EVE sensitivities measure the estimated percentage change in forward looking net-interest income and economic value, respectively, under instantaneous parallel shocks of the yield curve ranging from -400 basis points to +400 basis points. We measure NII sensitivity over two successive 12-month periods to evaluate interest rate risk over short-term and medium-term time horizons. EVE sensitivity, which captures the present value of all on and off-balance sheet positions, measures interest rate risk over a long-term time horizon. The results are measured relative to established limits and early warning indicators that ensure that fluctuation in income and valuation in both up and down rate shocks remain within levels approved by the Asset and Liability Management Committee ("ALCO") and the Board of Directors. While we recognize that instantaneous parallel shocks of the entire yield curve are unrealistic, we believe that the application of immediate shocks provides us with a sufficient range of sensitivities to frame our risk exposures. We pay particular attention to the rate shock sensitivities within the range of +/-200 basis points, as we believe this range represents the highest probability of rate movements that could occur in the near to medium term. As of March 31, 2026, 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 deposit balances, which generally have an indeterminate life. Historically, our deposit base consists primarily of core consumer and commercial deposit relationships. While we strive to position our
balance sheet to organically reduce volatility in earnings and valuation, primarily through our funding and investment portfolio positioning, as well as product pricing strategies, we have also established a hedging program designed to allow us to adjust the duration of our earning assets synthetically. As of March 31, 2026, our hedging program consisted primarily of pay-fixed interest rate swaps. As interest rates change, we may use different instruments to manage interest rate risk, including caps, floors, swaptions and other commonly utilized derivative instruments. See Note 10 Derivative Financial Instruments to the unaudited Consolidated Financial Statements.
A key element in our ongoing process to measure and monitor interest rate risk is the utilization of an asset/liability simulation model. This model attempts to capture the dynamic nature of assets and liabilities in various interest rate environments. It estimates and measures our balance sheet sensitivity to changes in interest rates. Given the structure of our balance sheet, model results are particularly sensitive to changes in prepayment rates on mortgage-related assets and the repricing behavior of interest-bearing deposits. We utilize a model to estimate the prepayment behavior of our mortgage-related assets, which considers the characteristics of the underlying mortgage loans, including rate (used to gauge refinance incentive), seasoning or age, and seasonality. The model's forecasted results are regularly tested against historical prepayment behavior and is, in the ordinary course, recalibrated if the difference between actual and projected prepayments exceed established guidelines. Separate models are utilized to project interest-bearing deposit repricing behavior and deposit account attrition and average lives in various interest rate environments. These models were developed based upon our historical behavior over several interest rate cycles and are periodically updated. The models' forecast results are tested against historical results and have been and may continue to be recalibrated.
We utilize net interest income simulations to analyze short-term income sensitivities to changes in interest rates. Table 17a presents as of March 31, 2026 and December 31, 2025, an estimate of the change in net interest income over the next twelve months that would result from an immediate change in interest rates, moving in a parallel fashion over the entire yield curve, relative to the measured base case scenario. The base case scenario assumes the consolidated statements of condition and interest rates are generally unchanged.
Net Interest Income Sensitivity Profile Table 17a
Impact on Future Annual Net Interest Income
(dollars in thousands) March 31, 2026 December 31, 2025
Immediate Change in Interest Rates (basis points)
+400 $ 8,747 1.4 % $ 32,646 5.2 %
+300 9,487 1.5 27,489 4.4
+200 8,481 1.3 20,696 3.3
+100 4,901 0.8 11,458 1.8
-100 (3,115) (0.5) (8,525) (1.4)
-200 (9,701) (1.5) (20,383) (3.3)
-300 (34,182) (5.3) (48,664) (7.8)
-400 (72,707) (11.3) (86,935) (13.9)
Based on our net interest income simulation as of March 31, 2026, 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 March 31, 2026, NII sensitivity to changes in interest rates for the twelve months subsequent to March 31, 2026 declined in both rising rates and falling rates compared to the sensitivity profile for December 31, 2025. These NII sensitivity changes are attributable to balance sheet mix changes and a $300 million net reduction in the notional amount of active pay-fixed swaps, resulting in an increase in fixed rate asset exposure.
To alternatively analyze the impact of changes in interest rates, 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) March 31, 2026 December 31, 2025
Immediate Change in Interest Rates (basis points)
+400 $ (716,862) (21.4) % $ (676,020) (21.0) %
+300 (548,121) (16.4) (519,819) (16.2)
+200 (368,772) (11.0) (353,098) (11.0)
+100 (183,575) (5.5) (177,928) (5.5)
-100 198,841 5.9 196,634 6.1
-200 356,871 10.7 356,504 11.1
-300 327,536 9.8 315,375 9.8
-400 76,828 2.3 106,004 3.3
Compared to December 31, 2025, EVE sensitivity is mostly unchanged in the rising rate scenarios and slightly lower in the falling rate scenarios. The reduction in the notional balance of active pay-fixed interest rate swaps did not have a significant impact on EVE sensitivity.
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 March 31, 2026, we had pledged loans and investment securities to the Federal Reserve Discount Window and had remaining borrowing capacity of $7.8 billion. We are also a member of the FHLB. As of March 31, 2026, we had pledged loans to the FHLB and had remaining borrowing capacity of $2.2 billion.
In addition, we utilize our investment securities portfolio as collateral to secure deposits of public entities as well as repurchase agreements with private institution counterparties. The high-quality nature of our investment securities portfolio, which consists primarily of government and agency securities, facilitates the use of these assets for pledging purposes.
Other sources of liquidity also include investment securities in our AFS securities portfolio and our ability to sell loans in the secondary market. Our core deposits have historically provided us with a long-term source of stable and relatively low-cost source of funding. Additional funding is also available through the issuance of long-term debt or equity.
General market and economic conditions will impact our ability to borrow funds from external sources, as well as the cost of such borrowing both in terms of rate, as well as haircuts on collateral pledged to support such borrowings. Although a significant portion of our investment securities were in an unrealized loss position as of March 31, 2026, we believe we have sufficient access to various forms of liquidity that would alleviate the need to liquidate these investment securities and realize the losses.
We continued our focus on maintaining a strong liquidity position. As of March 31, 2026, cash and cash equivalents were $425.1 million, the carrying value of our AFS investment securities was $3.7 billion, and total deposits were $21.0 billion. As of March 31, 2026, our AFS investment securities portfolio was comprised of securities with an average base duration of approximately 3.14 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 March 31, 2026, the Company's capital levels remained characterized as "well-capitalized." There have been no conditions or events since March 31, 2026, that management believes have changed either the Company's or the Bank's capital classifications. The Company's regulatory capital ratios are presented in Table 18 below.
Table 18 presents our regulatory capital and ratios as of March 31, 2026 and December 31, 2025.
Regulatory Capital and Ratios Table 18
(dollars in thousands) March 31, 2026 December 31, 2025
Regulatory Capital 1
Total Common Shareholders' Equity $ 1,509,563 $ 1,506,212
Adjustments:
Goodwill, Net of Deferred Tax Liabilities (28,746) (28,746)
Deferred Tax Assets from Tax Credit Carryforwards (2,264) (2,191)
Postretirement Benefit Liability 20,031 20,253
Net Unrealized Losses on Investment Securities 2
227,186 224,185
Other 9,097 9,097
Common Equity Tier 1 Capital 1,734,867 1,728,810
Preferred Stock, Net of Issuance Cost 336,101 336,101
Tier 1 Capital 2,070,968 2,064,911
Allowable Reserve for Credit Losses 149,078 148,404
Total Regulatory Capital $ 2,220,046 $ 2,213,315
Risk-Weighted Assets $ 14,382,622 $ 14,246,238
Key Regulatory Capital Ratios
Common Equity Tier 1 Capital Ratio 12.06 % 12.14 %
Tier 1 Capital Ratio 14.40 14.49
Total Capital Ratio 15.44 15.54
Tier 1 Leverage Ratio 8.62 8.57
1Regulatory capital ratios as of March 31, 2026 are preliminary.
2Includes unrealized gains and losses related to the Company's reclassification of AFS investment securities to the HTM category.
Shareholders' Equity
As of March 31, 2026, shareholders' equity was $1.9 billion, an increase of $3.4 million or 0.2% from December 31, 2025. The increase was attributed to net income of $57.4 million, share-based compensation of $7.5 million, and common stock issued under purchase and equity compensation plans of $1.2 million were offset by other comprehensive loss of $2.8 million, cash dividends declared of $28.3 million on common shares, cash dividends declared of $5.3 million on preferred shares, common stock repurchased under the share repurchase program of $15.1 million, and common stock repurchased of $11.3 million related to taxes withheld for share-based compensation.
During the three months ended March 31, 2026, we repurchased 194,096 shares of common stock at an average cost per share of $77.84 and total cost of $15.1 million under the share repurchase program. Remaining buyback authority under our share repurchase program was $105.9 million as of March 31, 2026. 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 April 2026, the Parent's Board of Directors declared quarterly dividend payments of its Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, of $10.94 per share, equivalent to $0.2735 per depositary share and its Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series B, of $20.00 per share, equivalent to $0.5000 per depositary share. The dividends on the Series A Preferred Stock and Series B Preferred Stock will be payable on May 1, 2026, to shareholders of record at the close of business on April 16, 2026.
In April 2026, the Parent's Board of Directors declared a quarterly cash dividend of $0.70 per share on the Parent's outstanding common shares. The dividend will be payable on June 12, 2026, to shareholders of record of the common stock at the close of business on May 29, 2026.
Operational Risk
Operational risk represents the risk of loss resulting from our operations, including, but not limited to, the risk of fraud by employees or persons outside the Company, errors relating to transaction processing and technology, failure to adhere to compliance requirements, and the risk of cyber attacks. We are also exposed to operational risk through our outsourcing
arrangements, and the effect that changes in circumstances or capabilities of our outsourcing vendors can have on our ability to continue to perform operational functions necessary to our business. The risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards, adverse business decisions or their implementation, and customer attrition due to potential negative publicity. Operational risk is inherent in all business activities, and management of this risk is important to the achievement of Company goals and objectives.
Our Operational Risk and Compliance Committee (the "ORC") provides oversight and assesses the most significant operational risks including cybersecurity risks facing the Company. We have developed a framework that provides for a centralized operating risk management function through the ORC, supplemented by business unit responsibility for managing operational risks specific to their business units. Our internal audit department also validates the system of internal controls through ongoing risk-based audit procedures and reports on the effectiveness of internal controls to executive management and the Audit Committee of the Board of Directors.
We continuously strive to strengthen our system of internal controls to improve the oversight of operational risk. While our internal controls have been designed to minimize operational risks, there is no assurance that business disruption or operational losses will not occur. On an ongoing basis, management reassesses operational risks, implements appropriate process changes, and invests in enhancements to our systems of internal controls.
Off-Balance Sheet Arrangements, Credit Commitments, and Contractual Obligations
Off-Balance Sheet Arrangements
We hold interests in several unconsolidated variable interest entities ("VIEs"). These unconsolidated VIEs are primarily low-income housing partnerships. Variable interests are defined as contractual ownership or other interests in an entity that change with fluctuations in an entity's net asset value. The primary beneficiary consolidates the VIE. We have determined that the Company is not the primary beneficiary of these entities. As a result, we do not consolidate these VIEs.
Credit Commitments and Contractual Obligations
Our credit commitments and contractual obligations have not changed materially since previously reported in our Annual Report on Form 10-K for the year ended December 31, 2025.
Bank of Hawaii Corporation published this content on April 27, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on April 27, 2026 at 20:04 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]