FIRST HAWAIIAN, INC. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ​ Cautionary Note Regarding Forward-Looking Statements ​ This Quarterly Report on Form 10-Q, including the documents incorporated by reference herein, contains, and from time to time our management may make, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would,” “annualized” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. ​ A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including the following: conditions in the financial markets and economic conditions generally and in Hawaii, Guam and Saipan in particular; a sustained period of high inflation; our dependence on the real estate markets in which we operate; risk arising from conditions in the commercial real estate market; concentration of exposures to certain asset classes and individual obligors; interest rate risk and fluctuations in interest rates; changes or the discontinuance of the London Interbank Offered Rate (“LIBOR”); the possibility of a decline in the value of the investment securities we own; the possibility of a deterioration in the credit quality of, or defaults by, third parties who owe us money, securities or other assets or whose securities or obligations we hold; the possibility we might underestimate the credit losses inherent in our loan and lease portfolio; our ability to attract and retain customer deposits; our inability to receive dividends from our bank, our ability to raise additional capital in the future; our ability to maintain, attract and retain customer relationships; our ability to attract and retain key personnel and other skilled employees; the effectiveness of our techniques for managing risk and our use of data and modeling both in our management decision-making generally and in meeting regulatory expectations in particular; the effectiveness of the appraisals and other valuation techniques we use; the occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents; the possibility of employee misconduct or mistakes; changes in the actual or perceived soundness or condition of other financial institutions; consumer protection initiatives related to the foreclosure process; risks in connection with any sale of loans; the possibility that certain external vendors on which we rely experience difficulty, terminate their services or fail to comply with banking laws and regulations; issues regarding the accuracy and completeness of information about customers and counterparties; risks associated with our accounting estimates and risk management processes and controls. changes in our accounting policies or in accounting standards; risks relating to the geographic concentration in our existing markets; risks relating to competition in a highly competitive industry and market area; the possibility that new lines of business, products, product enhancements or services may subject us to additional risks; a change in the key role of dealers within the automotive industry or our ability to maintain or build relationships with them; technological change; future legislative or regulatory change; risks relating to our bank in times of stress; capital adequacy requirements; the possibility that we may not pay dividends on our common stock in the future; the possibility rulemaking changes implemented by the CFPB; the possibility of litigation and regulatory actions; the possibility of increases in FDIC insurance premiums; the risk of non-compliance with the USA PATRIOT Act, the Bank Secrecy Act or other laws and regulations; risks regarding regulations relating to privacy, information security and data protection, and differences in regulation; risks relating to our use of third-party vendors and our other ongoing third-party business relationships; environmental liability risks associated with our bank branches and any real estate collateral we acquire upon foreclosure; the possibility of litigation pertaining to our fiduciary responsibilities; the impact of the ongoing COVID-19 pandemic and any other pandemic, epidemic or health-related crisis; the effects of severe weather, hurricanes, tsunamis, natural disasters, pandemics, acts of war or terrorism or other external events; volatility in our stock price; the possibility of future sales and issuances of our common stock; the possibility of unexpected tax liabilities and unexpected tax liabilities that may be applicable to us as a result of the reorganization transactions to facilitate FHI’s initial public offering; and damage to our reputation from any of the factors described above. 42 Table of Contents The foregoing factors should not be considered an exhaustive list and should be read together with the risk factors and other cautionary statements included in our Annual Report on Form 10-K for the year ended December 31, 2021. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by applicable law. ​ Company Overview ​ FHI is a bank holding company, which owns 100% of the outstanding common stock of FHB, its only direct, wholly owned subsidiary. FHB was founded in 1858 under the name Bishop & Company and was the first successful banking partnership in the Kingdom of Hawaii and the second oldest bank formed west of the Mississippi River. The Bank operates its business through three operating segments: Retail Banking, Commercial Banking and Treasury and Other. ​ References to “we,” “our,” “us,” or the “Company” refer to the Parent and its subsidiary that are consolidated for financial reporting purposes. ​ Basis of Presentation ​ The accompanying unaudited interim consolidated financial statements of the Company reflect the results of operations, financial position and cash flows of FHI and its wholly owned subsidiary, FHB. All significant intercompany accounts and transactions have been eliminated in consolidation. ​ The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and accompanying notes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect normal recurring adjustments necessary for a fair presentation of the results for the interim periods. ​ The accompanying unaudited interim consolidated financial statements of the Company should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and filed with the U.S. Securities and Exchange Commission (the “SEC”). ​ Recent Developments Regarding Hawaii and the Global Economy ​ Overview ​ The COVID-19 pandemic has brought, and continues to bring, unprecedented challenges to businesses and economies around the world. Although Hawaii experienced its peak of positive cases in early January 2022 due to the Delta and Omicron variants, as of April 28, 2022, case counts have significantly dropped and all state-sanctioned COVID-19 restrictions in Hawaii, including travel requirements, were removed at the end of March 2022. ​ Economic uncertainty remains high associated with supply chain and labor shortage concerns, rising inflationary concerns, market volatility, rising oil prices and other geopolitical risks arising from the Russia-Ukraine conflict and additional COVID-19 variants. ​ Hawaii Economy ​ Hawaii’s economy continues to show improvement. The statewide seasonally adjusted unemployment rate was 4.1% in March 2022 compared to 9.0% in March 2021 and 2.6% in March 2020, according to the State of Hawaii Department of Labor and Industrial Relations, while the national seasonally adjusted unemployment rate was 3.6% in March 2022 compared to 6.0% in March 2021 and 4.4% in March 2020. Hawaii’s demand for workers continues to increase and continues to be constrained by a labor shortage that, in many cases, is impeding business activity throughout the State. 43 Table of Contents Domestic visitor arrivals are steadily increasing and are now at pre-pandemic levels, with average daily domestic passenger counts during the first three months of 2022 at approximately 108% of the average daily passenger counts during the first three months of 2019. Prior to the pandemic, tourists from Japan represented a significant portion of international visitors to the state. We may begin to see a gradual increase in Japanese visitors as Japan increased its daily arrivals cap to 10,000 passengers and lifted its quarantine requirement for returning residents who are vaccinated and tested negative for COVID-19. The volume of home sales on Oahu is generally increasing relative to the corresponding period of 2021. For the three months ended March 31, 2022, the volume of single-family home sales decreased slightly by 2.6%, while condominium sales increased by 16.8% compared to the same period in 2021, according to the Honolulu Board of Realtors. The median price of single-family home sales and condominium sales on Oahu was $1,100,000 and $510,000, respectively, or an increase of 20.2% and 12.1%, respectively, for the three months ended March 31, 2022 as compared to the same period in 2021. As of March 31, 2022, months of inventory of single-family homes and condominiums on Oahu remained low at approximately 1.0 and 1.5 months, respectively. Lastly, state general excise and use tax revenues increased by 28.1% for the three months ended March 31, 2022 as compared to the same period in 2021, according to the Hawaii Department of Business, Economic Development & Tourism. Ongoing Impact of the COVID-19 Pandemic ​ In conjunction with Hawaii’s changing guidelines pursuant to COVID-19, our business updated its policies on March 26, 2022. Wearing a mask in our branches, offices and other facilities is no longer required for employees and customers and all branches have discontinued special hours for high-risk individuals and removed social distancing floor markers. We continue to emphasize the importance of good hygiene practices in the workplace and encourage employees to stay up to date with COVID-19 vaccination guidelines, especially as more employees return to working in our physical offices and spaces. ​ With favorable trends and continued improvement in the economic environment in our key markets, we expect that local consumption of goods and services will continue to improve. For our customers that previously entered into payment deferral and forbearance plans, many of them have resumed their normal payments, and we formally ended our consumer COVID-19 modification programs as of April 1, 2022. We also recorded a $5.7 million negative provision for credit losses in 2022. For the quarter ended March 31, 2022, net interest income, before the provision for credit losses, increased by $4.7 million to $133.9 million, compared to the same period in 2021. ​ Nevertheless, the uncertainty of the economy as it is recovering from the pandemic, combined with other factors including, but not limited to, inflation, labor shortages and supply chain disruption, could, despite improvements in the first quarter of 2022, again destabilize the financial markets and geographies in which we operate. The resulting economic pressure on consumers and uncertainty regarding the sustainability of any economic improvements could further impact the creditworthiness of potential and current borrowers. Borrower loan defaults that adversely affect our earnings correlate with deteriorating economic conditions, which, in turn, are likely to impact our borrowers’ creditworthiness and our ability to make loans. ​ Effect of Inflation and Changing Prices ​ The consolidated financial statements and related financial data presented in this Form 10-Q have been prepared according to generally accepted accounting principles in the United States, which require the measurement of financial positions and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. In recent periods, inflation was accelerated due to, among other factors, global supply chain disruptions caused by the pandemic. Higher gasoline and other commodity prices or supply chain disruptions resulting from Russia's invasion of Ukraine are also contributing to higher inflation levels, which could, in turn, adversely affect the U.S. economy, the demand for our products and creditworthiness of our borrowers. ​ Our operating costs have increased as inflationary conditions put upward pressure on the Company’s expenses. As virtually all of our assets and liabilities are monetary in nature, interest rates (which do not necessarily move in the same direction or the same extent as the prices of goods and services) generally have a more significant impact on our performance than do general levels of inflation. Rising interest rates, which are expected to continue to rise, may contribute to increased net interest margins and benefit our net interest income as our assets are expected to reprice faster and to a greater degree than our liabilities. ​ 44 Table of Contents In light of volatility in the capital markets and economic disruptions, we continue to carefully monitor our capital and liquidity positions. As of March 31, 2022, the Company was “well-capitalized” and met all applicable regulatory capital requirements, including a Common Equity Tier 1 capital ratio of 12.27%, compared to the minimum requirement of 4.50%. We continue to maintain high levels of liquidity. For additional discussions regarding our capital and liquidity positions and related risks, refer to the sections titled “Liquidity and Capital Resources” and “Capital” in this MD&A. ​ These and other key factors could impact our profitability in future reporting periods. See Item 1A. Risk Factors, beginning in the section captioned “Summary of Risk Factors,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022. ​ 45 Table of Contents Selected Financial Data ​ Our financial highlights for the periods indicated are presented in Table 1: ​ ​ ​ ​ ​ ​ ​ ​ Financial Highlights ​ ​ ​ Table 1 ​ For the Three Months Ended ​ ​ March 31, ​ (dollars in thousands, except per share data) 2022 ​ 2021 ​ Income Statement Data: ​ ​ ​ ​ ​ ​ Interest income $ 136,621 ​ $ 134,576 ​ Interest expense ​ 2,749 ​ ​ 5,418 ​ Net interest income ​ 133,872 ​ ​ 129,158 ​ Provision for credit losses ​ (5,747) ​ ​ — ​ Net interest income after provision for credit losses ​ 139,619 ​ ​ 129,158 ​ Noninterest income ​ 41,380 ​ ​ 43,868 ​ Noninterest expense ​ 104,042 ​ ​ 96,306 ​ Income before provision for income taxes ​ 76,957 ​ ​ 76,720 ​ Provision for income taxes ​ 19,238 ​ ​ 19,027 ​ Net income $ 57,719 ​ $ 57,693 ​ Basic earnings per share $ 0.45 ​ $ 0.44 ​ Diluted earnings per share $ 0.45 ​ $ 0.44 ​ Basic weighted-average outstanding shares ​ 127,556,242 ​ ​ 129,933,104 ​ Diluted weighted-average outstanding shares ​ 128,121,126 ​ ​ 130,589,878 ​ Dividends declared per share $ 0.26 ​ $ 0.26 ​ Dividend payout ratio ​ 57.78 % ​ 59.09 % Other Financial Information / Performance Ratios (1) : ​ ​ ​ ​ ​ ​ Net interest margin ​ 2.42 % ​ 2.55 % Efficiency ratio ​ 59.04 % ​ 55.53 % Return on average total assets ​ 0.93 % ​ 1.02 % Return on average tangible assets (non-GAAP) (3) ​ 0.97 % ​ 1.07 % Return on average total stockholders' equity ​ 9.19 % ​ 8.58 % Return on average tangible stockholders' equity (non-GAAP) (3) ​ 15.08 % ​ 13.51 % Noninterest expense to average assets ​ 1.68 % ​ 1.70 % ​ ​ ​ ​ ​ (continued) ​ ​ 46 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ (continued) ​ March 31, ​ December 31, ​ (dollars in thousands, except per share data) 2022 ​ 2021 ​ Balance Sheet Data: ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 1,626,160 ​ $ 1,258,469 ​ Investment securities ​ ​ 8,062,384 ​ ​ 8,428,032 ​ Loans and leases ​ ​ 12,891,743 ​ ​ 12,961,999 ​ Allowance for credit losses for loans and leases ​ ​ 150,280 ​ ​ 157,262 ​ Goodwill ​ ​ 995,492 ​ ​ 995,492 ​ Total assets ​ ​ 25,042,720 ​ ​ 24,992,410 ​ Total deposits ​ ​ 22,270,430 ​ ​ 21,816,146 ​ Total liabilities ​ ​ 22,757,571 ​ ​ 22,335,498 ​ Total stockholders' equity ​ ​ 2,285,149 ​ ​ 2,656,912 ​ Book value per share ​ $ 17.90 ​ $ 20.84 ​ Tangible book value per share (non-GAAP) (3) ​ $ 10.10 ​ $ 13.03 ​ ​ ​ ​ ​ ​ ​ ​ ​ Asset Quality Ratios: ​ ​ ​ ​ ​ ​ ​ Non-accrual loans and leases / total loans and leases ​ ​ 0.07 % ​ 0.05 % Allowance for credit losses for loans and leases / total loans and leases ​ ​ 1.17 % ​ 1.21 % Net charge-offs / average total loans and leases (2) ​ ​ 0.08 % ​ 0.10 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, ​ Capital Ratios: 2022 ​ 2021 ​ Common Equity Tier 1 Capital Ratio ​ 12.27 % 12.24 % Tier 1 Capital Ratio ​ ​ 12.27 % ​ 12.24 % Total Capital Ratio ​ ​ 13.48 % ​ 13.49 % Tier 1 Leverage Ratio ​ ​ 7.50 % ​ 7.24 % Total stockholders' equity to total assets ​ ​ 9.13 % ​ 10.63 % Tangible stockholders' equity to tangible assets (non-GAAP) (3) ​ ​ 5.36 % ​ 6.92 % (1) Except for the efficiency ratio, amounts are annualized for the three months ended March 31, 2022 and 2021. ​ (2) Net charge-offs / average total loans and leases is annualized for the three months ended March 31, 2022. ​ (3) Return on average tangible assets, return on average tangible stockholders’ equity, tangible book value per share and tangible stockholders’ equity to tangible assets are non-GAAP financial measures. We compute our return on average tangible assets as the ratio of net income to average tangible assets. We compute our return on average tangible stockholders’ equity as the ratio of net income to average tangible stockholders’ equity. We compute our tangible book value per share as the ratio of tangible stockholders’ equity to outstanding shares. We compute our tangible stockholders’ equity to tangible assets as the ratio of tangible stockholders’ equity to tangible assets. We believe that these financial measures are useful for investors, regulators, management and others to evaluate financial performance and capital adequacy relative to other financial institutions. Although these non-GAAP financial measures are frequently used by shareholders in the evaluation of a company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP. ​ 47 Table of Contents The following table provides a reconciliation of these non-GAAP financial measures with their most closely related GAAP measures for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ GAAP to Non-GAAP Reconciliation ​ ​ ​ ​ Table 2 ​ For the Three Months Ended ​ ​ March 31, ​ (dollars in thousands, except per share data) 2022 ​ 2021 ​ Income Statement Data: ​ ​ ​ ​ ​ ​ Noninterest expense $ 104,042 ​ $ 96,306 ​ ​ ​ ​ ​ ​ ​ ​ Net income $ 57,719 ​ $ 57,693 ​ ​ ​ ​ ​ ​ ​ ​ Average total stockholders' equity $ 2,547,865 ​ $ 2,727,701 ​ Less: average goodwill ​ 995,492 ​ ​ 995,492 ​ Average tangible stockholders' equity $ 1,552,373 ​ $ 1,732,209 ​ ​ ​ ​ ​ ​ ​ ​ Average total assets $ 25,080,453 ​ $ 22,944,699 ​ Less: average goodwill ​ 995,492 ​ ​ 995,492 ​ Average tangible assets $ 24,084,961 ​ $ 21,949,207 ​ ​ ​ ​ ​ ​ ​ ​ Return on average total stockholders' equity (a) ​ 9.19 % ​ 8.58 % Return on average tangible stockholders' equity (non-GAAP) (a) ​ 15.08 % ​ 13.51 % ​ ​ ​ ​ ​ ​ ​ Return on average total assets (a) ​ 0.93 % ​ 1.02 % Return on average tangible assets (non-GAAP) (a) ​ 0.97 % ​ 1.07 % ​ ​ ​ ​ ​ ​ ​ Noninterest expense to average assets (a) ​ 1.68 % ​ 1.70 % ​ ​ ​ ​ ​ ​ ​ ​ ​ As of ​ As of ​ ​ March 31, ​ December 31, ​ (dollars in thousands, except share amount and per share data) 2022 ​ 2021 ​ Balance Sheet Data: ​ ​ ​ ​ ​ ​ Total stockholders' equity $ 2,285,149 ​ $ 2,656,912 ​ Less: goodwill ​ 995,492 ​ ​ 995,492 ​ Tangible stockholders' equity $ 1,289,657 ​ $ 1,661,420 ​ ​ ​ ​ ​ ​ ​ ​ Total assets $ 25,042,720 ​ $ 24,992,410 ​ Less: goodwill ​ 995,492 ​ ​ 995,492 ​ Tangible assets $ 24,047,228 ​ $ 23,996,918 ​ ​ ​ ​ ​ ​ ​ ​ Shares outstanding ​ 127,686,307 ​ ​ 127,502,472 ​ ​ ​ ​ ​ ​ ​ ​ Total stockholders' equity to total assets ​ 9.13 % ​ 10.63 % Tangible stockholders' equity to tangible assets (non-GAAP) ​ 5.36 % ​ 6.92 % ​ ​ ​ ​ ​ ​ ​ Book value per share $ 17.90 ​ $ 20.84 ​ Tangible book value per share (non-GAAP) $ 10.10 ​ $ 13.03 ​ (a) Annualized for the three months ended March 31, 2022 and 2021. ​ Financial Highlights ​ Net income was $57.7 million for the three months ended March 31, 2022, approximately flat as compared to the same period in 2021. Basic and diluted earnings per share were both $0.45 per share for the three months ended March 31, 2022, an increase of $0.01 per share or 2% as compared to the same period in 2021. Net income was impacted by negative provision for credit losses (the “Provision”) of $5.7 million for the three months ended March 31, 2022, compared to a Provision of nil for the three months ended March 31, 2021. The slight change in net income was also due to a $4.7 million increase in net interest income, partially offset by a $7.7 million increase in noninterest expense, a $2.5 million decrease in noninterest income and a $0.2 million increase in the provision for income taxes. ​ 48 Table of Contents Our return on average total assets was 0.93% for the three months ended March 31, 2022, a decrease of nine basis points from the same period in 2021, and our return on average total stockholders’ equity was 9.19% for the three months ended March 31, 2022, an increase of 61 basis points from the same period in 2021. Our return on average tangible assets was 0.97% for the three months ended March 31, 2022, a decrease of 10 basis points from the same period in 2021, and our return on average tangible stockholders’ equity was 15.08% for the three months ended March 31, 2022, an increase of 157 basis points from the same period in 2021. Our efficiency ratio was 59.04% for the three months ended March 31, 2022 compared to 55.53% for the same period in 2021. ​ Our results for the three months ended March 31, 2022 were highlighted by the following: ​ ● Net interest income was $133.9 million for the three months ended March 31, 2022, an increase of $4.7 million or 4% as compared to the same period in 2021. Our net interest margin was 2.42% for the three months ended March 31, 2022, a decrease of 13 basis points as compared to the same period in 2021. The increase in net interest income was primarily due to higher average balances in our investment securities portfolio, lower borrowing costs and lower deposit funding costs, partially offset by lower average balances and yields in a few loan categories during the three months ended March 31, 2022. ​ ● There was a negative Provision of $5.7 million for the three months ended March 31, 2022, compared to a Provision of nil for the same period in 2021. The negative Provision in 2022 was primarily due to the release of the COVID-19 overlay in the residential portfolio, continued improvement in credit quality and moderate improvement in the economic outlook during the first quarter of 2022. The Provision is recorded to maintain the ACL and the reserve for unfunded commitments at levels deemed adequate to absorb lifetime expected credit losses in our loan and lease portfolio and unfunded loan and lease commitments as of the balance sheet date. ​ ● Noninterest income was $41.4 million for the three months ended March 31, 2022, a decrease of $2.5 million or 6% as compared to the same period in 2021. The decrease was primarily due to a $2.8 million decrease in Bank-owned life insurance (“BOLI”) income and a $2.0 million decrease in other noninterest income. This was partially offset by a $0.8 million increase in other service charges and fees, a $0.8 million increase in service charges on deposit accounts, a $0.4 million increase in trust and investment services income and a $0.3 million increase in credit and debit card fees. ​ ● Noninterest expense was $104.0 million for the three months ended March 31, 2022, an increase of $7.7 million or 8% compared to the same period in 2021. The increase in noninterest expense was primarily due to a $4.3 million increase in salaries and employee benefits, a $2.0 million increase in card rewards program expense, a $0.5 million increase in equipment expense, a $0.4 million increase in advertising and marketing expense and a $0.2 million increase in occupancy expense. ​ Hawaii’s economy continues to show improvement as COVID-19 becomes less disruptive. COVID-19 case counts have decreased significantly from the peak of positive cases and state-sanctioned COVID-19 restrictions in Hawaii, including travel restrictions, have been lifted. Visitor arrivals to Hawaii are steadily increasing with domestic visitor arrivals at pre-pandemic levels. Visitor arrivals from Japan, traditionally Hawaii’s largest international market, have been slow to recover, but are expected to strengthen as travel restrictions in Japan begin to ease. ​ We continued to maintain high levels of liquidity and remained well-capitalized as of March 31, 2022. CET1 was 12.27% as of March 31, 2022, an increase of three basis points from December 31, 2021. The increase in CET1 was primarily due to earnings for the three months ended March 31, 2022, including the $5.7 million negative Provision, partially offset by the dividends declared and paid to the Company’s stockholders. ​ ● Total loans and leases were $12.9 billion as of March 31, 2022, a decrease of $70.3 million or 1% from December 31, 2021. The decrease in total loans and leases was primarily due to a decrease in PPP loans, which are included in commercial and industrial loans, and decreases in construction loans and consumer loans, partially offset by increases in commercial real estate loans and residential mortgage loans. ​ 49 Table of Contents ● The ACL was $150.3 million as of March 31, 2022, a decrease of $7.0 million or 4% from December 31, 2021. This decrease was primarily due to the release of the COVID-19 overlay in the residential portfolio, continued improvement in credit quality and moderate improvement in the economic outlook during the first quarter of 2022. The ratio of our ACL to total loans and leases outstanding was 1.17% as of March 31, 2022, a decrease of four basis points compared to December 31, 2021. ​ ● We continued to invest in high-grade investment securities, primarily collateralized mortgage obligations issued by the Government National Mortgage Association (“Ginnie Mae”), the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and mortgage-backed securities issued by Ginnie Mae, Freddie Mac, Fannie Mae and Municipal Housing Authorities. The total fair value of our investment securities portfolio was $8.1 billion as of March 31, 2022, a decrease of $365.6 million or 4% from December 31, 2021. The decrease was primarily due to a lower valuation resulting from higher market interest rates as of March 31, 2022, relative to December 31, 2021, partially offset by purchases as we invested excess liquidity into securities. ​ ● Total deposits were $22.3 billion as of March 31, 2022, an increase of $454.3 million or 2% from December 31, 2021. The increase in total deposits was primarily due to a $371.7 million increase in demand deposit balances and a $200.0 million increase in savings deposit balances, partially offset by a $74.6 million decrease in time deposit balances and a $42.8 million decrease in money market deposit balances. ​ ● Total stockholders’ equity was $2.3 billion as of March 31, 2022, a decrease of $371.8 million or 14% from December 31, 2021. The decrease in stockholders’ equity was primarily due to a net unrealized loss in the fair value of our investment securities, net of tax, of $394.6 million and dividends declared and paid to the Company’s stockholders of $33.2 million, partially offset by earnings for the period of $57.7 million. ​ 50 Table of Contents Analysis of Results of Operations ​ Net Interest Income ​ For the three months ended March 31, 2022 and 2021, average balances, related income and expenses, on a fully taxable-equivalent basis, and resulting yields and rates are presented in Table 3. An analysis of the change in net interest income, on a fully taxable-equivalent basis, is presented in Table 4. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average Balances and Interest Rates ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Table 3 ​ ​ Three Months Ended ​ Three Months Ended ​ ​ ​ March 31, 2022 ​ March 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ Average ​ ​ ​ ​ ​ ​ ​ Average ​ ​ ​ Average ​ Income/ ​ Yield/ ​ Average ​ Income/ ​ Yield/ ​ (dollars in millions) Balance Expense Rate ​ Balance Expense Rate ​ Earning Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-Bearing Deposits in Other Banks ​ $ 1,138.3 ​ $ 0.6 ​ 0.20 % $ 938.7 ​ $ 0.2 ​ 0.10 % Available-for-Sale Investment Securities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Taxable ​ ​ 7,800.3 ​ ​ 29.2 ​ 1.50 ​ ​ 5,949.9 ​ ​ 22.1 ​ 1.49 ​ Non-Taxable ​ ​ 636.7 ​ ​ 3.6 ​ 2.32 ​ ​ 278.0 ​ ​ 1.3 ​ 1.80 ​ Total Available-for-Sale Investment Securities ​ ​ 8,437.0 ​ ​ 32.8 ​ 1.56 ​ ​ 6,227.9 ​ ​ 23.4 ​ 1.50 ​ Loans Held for Sale ​ ​ 1.2 ​ ​ — ​ 2.02 ​ ​ 9.2 ​ ​ 0.1 ​ 2.46 ​ Loans and Leases (1) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial and industrial ​ ​ 1,973.1 ​ ​ 14.6 ​ 3.01 ​ ​ 3,026.7 ​ ​ 20.4 ​ 2.74 ​ Commercial real estate ​ ​ 3,632.2 ​ ​ 25.8 ​ 2.88 ​ ​ 3,385.2 ​ ​ 24.9 ​ 2.98 ​ Construction ​ ​ 766.9 ​ ​ 5.7 ​ 3.03 ​ ​ 746.8 ​ ​ 5.8 ​ 3.16 ​ Residential: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage ​ ​ 4,111.0 ​ ​ 34.8 ​ 3.38 ​ ​ 3,696.1 ​ ​ 34.7 ​ 3.76 ​ Home equity line ​ ​ 891.6 ​ ​ 5.5 ​ 2.48 ​ ​ 822.0 ​ ​ 5.7 ​ 2.80 ​ Consumer ​ ​ 1,218.6 ​ ​ 15.6 ​ 5.19 ​ ​ 1,323.7 ​ ​ 17.7 ​ 5.43 ​ Lease financing ​ ​ 226.2 ​ ​ 1.9 ​ 3.42 ​ ​ 241.8 ​ ​ 1.8 ​ 3.02 ​ Total Loans and Leases ​ ​ 12,819.6 ​ ​ 103.9 ​ 3.27 ​ ​ 13,242.3 ​ ​ 111.0 ​ 3.39 ​ Other Earning Assets ​ ​ 67.1 ​ ​ 0.2 ​ 1.31 ​ ​ 58.0 ​ ​ 0.3 ​ 1.79 ​ Total Earning Assets (2) ​ ​ 22,463.2 ​ ​ 137.5 ​ 2.47 ​ ​ 20,476.1 ​ ​ 135.0 ​ 2.66 ​ Cash and Due from Banks ​ ​ 292.1 ​ ​ ​ ​ ​ ​ ​ 294.0 ​ ​ ​ ​ ​ ​ Other Assets ​ ​ 2,325.2 ​ ​ ​ ​ ​ ​ ​ 2,174.6 ​ ​ ​ ​ ​ ​ Total Assets ​ $ 25,080.5 ​ ​ ​ ​ ​ ​ $ 22,944.7 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-Bearing Liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-Bearing Deposits ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Savings ​ $ 6,668.4 ​ $ 0.5 ​ 0.03 % $ 5,975.1 ​ $ 0.6 ​ 0.04 % Money Market ​ ​ 4,048.9 ​ ​ 0.5 ​ 0.05 ​ ​ 3,530.0 ​ ​ 0.4 ​ 0.05 ​ Time ​ ​ 1,748.5 ​ ​ 1.7 ​ 0.39 ​ ​ 2,288.5 ​ ​ 3.0 ​ 0.53 ​ Total Interest-Bearing Deposits ​ ​ 12,465.8 ​ ​ 2.7 ​ 0.09 ​ ​ 11,793.6 ​ ​ 4.0 ​ 0.14 ​ Long-Term Borrowings ​ ​ — ​ ​ — ​ — ​ ​ 200.0 ​ ​ 1.4 ​ 2.76 ​ Total Interest-Bearing Liabilities ​ ​ 12,465.8 ​ ​ 2.7 ​ 0.09 ​ ​ 11,993.6 ​ ​ 5.4 ​ 0.18 ​ Net Interest Income ​ ​ ​ ​ $ 134.8 ​ ​ ​ ​ ​ ​ $ 129.6 ​ ​ ​ Interest Rate Spread ​ ​ ​ ​ ​ ​ ​ 2.38 % ​ ​ ​ ​ ​ ​ 2.48 % Net Interest Margin ​ ​ ​ ​ ​ ​ ​ 2.42 % ​ ​ ​ ​ ​ ​ 2.55 % Noninterest-Bearing Demand Deposits ​ ​ 9,495.0 ​ ​ ​ ​ ​ ​ ​ 7,709.5 ​ ​ ​ ​ ​ ​ Other Liabilities ​ ​ 571.8 ​ ​ ​ ​ ​ ​ ​ 513.9 ​ ​ ​ ​ ​ ​ Stockholders' Equity ​ ​ 2,547.9 ​ ​ ​ ​ ​ ​ ​ 2,727.7 ​ ​ ​ ​ ​ ​ Total Liabilities and Stockholders' Equity ​ $ 25,080.5 ​ ​ ​ ​ ​ ​ $ 22,944.7 ​ ​ ​ ​ ​ ​ (1) Non-performing loans and leases are included in the respective average loan and lease balances. Income, if any, on such loans and leases is recognized on a cash basis. (2) Interest income includes taxable-equivalent basis adjustments of $1.0 million and $0.4 million for the three months ended March 31, 2022 and 2021 , respectively. ​ 51 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Analysis of Change in Net Interest Income ​ ​ ​ ​ ​ ​ ​ ​ Table 4 ​ ​ Three Months Ended March 31, 2022 ​ ​ Compared to March 31, 2021 (dollars in millions) Volume Rate Total (1) Change in Interest Income: ​ ​ ​ ​ ​ ​ Interest-Bearing Deposits in Other Banks ​ $ 0.1 ​ $ 0.3 ​ $ 0.4 Available-for-Sale Investment Securities ​ ​ ​ ​ ​ ​ ​ ​ ​ Taxable ​ ​ 6.9 ​ ​ 0.2 ​ ​ 7.1 Non-Taxable ​ ​ 1.9 ​ ​ 0.4 ​ ​ 2.3 Total Available-for-Sale Investment Securities ​ ​ 8.8 ​ ​ 0.6 ​ ​ 9.4 Loans Held for Sale ​ ​ (0.1) ​ ​ — ​ ​ (0.1) Loans and Leases ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial and industrial ​ ​ (7.7) ​ ​ 1.9 ​ ​ (5.8) Commercial real estate ​ ​ 1.8 ​ ​ (0.9) ​ ​ 0.9 Construction ​ ​ 0.1 ​ ​ (0.2) ​ ​ (0.1) Residential: ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage ​ ​ 3.8 ​ ​ (3.7) ​ ​ 0.1 Home equity line ​ ​ 0.5 ​ ​ (0.7) ​ ​ (0.2) Consumer ​ ​ (1.4) ​ ​ (0.7) ​ ​ (2.1) Lease financing ​ ​ (0.1) ​ ​ 0.2 ​ ​ 0.1 Total Loans and Leases ​ ​ (3.0) ​ ​ (4.1) ​ ​ (7.1) Other Earning Assets ​ ​ — ​ ​ (0.1) ​ ​ (0.1) Total Change in Interest Income ​ ​ 5.8 ​ ​ (3.3) ​ ​ 2.5 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Change in Interest Expense: ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-Bearing Deposits ​ ​ ​ ​ ​ ​ ​ ​ ​ Savings ​ ​ — ​ ​ (0.1) ​ ​ (0.1) Money Market ​ ​ 0.1 ​ ​ — ​ ​ 0.1 Time ​ ​ (0.6) ​ ​ (0.7) ​ ​ (1.3) Total Interest-Bearing Deposits ​ ​ (0.5) ​ ​ (0.8) ​ ​ (1.3) Long-term Borrowings ​ ​ (0.7) ​ ​ (0.7) ​ ​ (1.4) Total Change in Interest Expense ​ ​ (1.2) ​ ​ (1.5) ​ ​ (2.7) Change in Net Interest Income ​ $ 7.0 ​ $ (1.8) ​ $ 5.2 (1) The change in interest income and expense not solely due to changes in volume or rate has been allocated on a pro-rata basis to the volume and rate columns. ​ Net interest income, on a fully taxable-equivalent basis, was $134.8 million for the three months ended March 31, 2022, an increase of $5.2 million or 4% compared to the same period in 2021. Our net interest margin was 2.42% for the three months ended March 31, 2022, a decrease of 13 basis points from the same period in 2021. The increase in net interest income, on a fully taxable-equivalent basis, was primarily due to higher average balances in our investment securities portfolio, lower borrowing costs and lower deposit funding costs, partially offset by lower average balances and yields in a few loan categories during the three months ended March 31, 2022. PPP loan fees are also accelerated into net interest income upon the forgiveness of PPP loans. Net interest income for the three months ended March 31, 2022 and 2021 included $3.2 million and $5.9 million, respectively, of fees from PPP loans. As of March 31, 2022, there were approximately $2.2 million of additional fees remaining on our PPP loans that had not yet been recognized into income. ​ For the three months ended March 31, 2022, the average balance of our investment securities portfolio was $8.4 billion, an increase of $2.2 billion or 35% compared to the same period in 2021, as we invested our excess liquidity into securities. For the three months ended March 31, 2022, the average balance of our loans and leases was $12.8 billion, a decrease of $422.7 million or 3% compared to the same period in 2021. Yields on our loans and leases were 3.27% for the three months ended March 31, 2022, a decrease of 12 basis points as compared to the same period in 2021, primarily from yield decreases in our residential mortgage and commercial real estate loans. Commercial real estate loans are primarily comprised of adjustable rate loans based on LIBOR. Since late 2021, we have been in the process of transitioning away from LIBOR-based rates. The residential mortgage yield decreased primarily due to the increase in lower fixed rate loans in our portfolio, which are originating at rates lower than the rates of loans being paid down and/or matured. This decrease in our yields was partially offset by an increase in our yields from commercial and industrial loans. Increases in the yield on commercial and industrial loans stemmed from PPP loan fees as these fees were accelerated into income upon the forgiveness of the loans and lower average PPP loan balances. For the three months ended March 31, 2022, the average balance of our total borrowings was nil, a decrease of $200.0 million from the same period in 2021. Deposit funding costs were $2.7 million for the three months ended March 31, 2022, a decrease of $1.3 million or 33% compared to the same period in 2021 primarily due to a decrease 52 Table of Contents in average balances and interest rates. Rates paid on our interest-bearing deposits were nine basis points for the three months ended March 31, 2022, a decrease of five basis points compared to the same period in 2021. ​ The Federal Reserve influences the general market rates of interest, including the deposit and loan rates offered by many financial institutions. Our loan portfolio is affected by changes in the prime interest rate. The prime rate at the start of 2021 was 3.25%. The prime rate increased 25 basis points in March 2022 to 3.50%, where it remained as at the end of the first quarter of 2022. As noted above, our loan portfolio is also impacted by changes in the LIBOR. At March 31, 2022, the one-month and three-month U.S. dollar LIBOR interest rates were 0.45% and 0.96%, respectively, while at March 31, 2021, the one-month and three-month U.S. dollar LIBOR interest rates were 0.11% and 0.19%, respectively. The target range for the federal funds rate, which is the cost of immediately available overnight funds, began 2021 at 0.00% to 0.25%. The target range for the federal funds rate increased 25 basis points in March 2022 to 0.25% to 0.50%, where it remained as at the end of the first quarter of 2022. In March 2022, the Federal Reserve indicated that it expects to increase the targeted federal funds rate through 2022 if inflation pressures remain elevated. ​ Provision for Credit Losses ​ There was a negative Provision of $5.7 million for the three months ended March 31, 2022, compared to a Provision of nil for the same period in 2021. This decrease was primarily due to the release of the COVID-19 overlay in the residential portfolio, continued improvement in credit quality and moderate improvement in the economic outlook during the first quarter of 2022. We recorded net charge-offs of loans and leases of $2.6 million and $4.6 million for the three months ended March 31, 2022 and 2021, respectively. This represented charge-offs of 0.08% and 0.14% of average loans and leases, on an annualized basis, for the three months ended March 31, 2022 and 2021, respectively. The ACL was $150.3 million as of March 31, 2022, a decrease of $7.0 million or 4% from December 31, 2021 and represented 1.17% of total outstanding loans and leases as of March 31, 2022 compared to 1.21% of total outstanding loans and leases as of December 31, 2021. The reserve for unfunded commitments was $29.0 million as of March 31, 2022, compared to $30.3 million as of December 31, 2021. The Provision is recorded to maintain the ACL and the reserve for unfunded commitments at levels deemed adequate by management based on the factors noted in the “Risk Governance and Quantitative and Qualitative Disclosures About Market Risk — Credit Risk” section of this MD&A. ​ Noninterest Income ​ Table 5 presents the major components of noninterest income for the three months ended March 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest Income ​ ​ ​ ​ ​ Table 5 ​ ​ Three Months Ended ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ Dollar ​ Percent ​ (dollars in thousands) 2022 2021 Change Change ​ Service charges on deposit accounts ​ $ 7,501 ​ $ 6,718 ​ $ 783 ​ 12 % Credit and debit card fees ​ ​ 14,850 ​ ​ 14,551 ​ ​ 299 ​ 2 ​ Other service charges and fees ​ ​ 9,654 ​ ​ 8,846 ​ ​ 808 ​ 9 ​ Trust and investment services income ​ ​ 8,883 ​ ​ 8,492 ​ ​ 391 ​ 5 ​ Bank-owned life insurance ​ ​ (417) ​ ​ 2,389 ​ ​ (2,806) ​ n/m ​ Other ​ ​ 909 ​ ​ 2,872 ​ ​ (1,963) ​ (68) ​ Total noninterest income ​ $ 41,380 ​ $ 43,868 ​ $ (2,488) ​ (6) % ​ ​ n/m – Denotes a variance that is not a meaningful metric to inform the change in noninterest income from the three months ended March 31, 2022 to the same period in 2021. ​ Total noninterest income was $41.4 million for the three months ended March 31, 2022, a decrease of $2.5 million or 6% as compared to the same period in 2021. ​ Service charges on deposit accounts were $7.5 million for the three months ended March 31, 2022, an increase of $0.8 million or 12% as compared to the same period in 2021. This increase was primarily due to a $0.5 million increase in overdraft and checking account fees and a $0.2 million increase in account analysis service charges. ​ Credit and debit card fees were $14.9 million for the three months ended March 31, 2022, an increase of $0.3 million or 2% as compared to the same period in 2021. ​ 53 Table of Contents Other service charges and fees were $9.7 million for the three months ended March 31, 2022, an increase of $0.8 million or 9% as compared to the same period in 2021. This increase was primarily due to a $0.9 million increase in fees from annuities and securities. ​ Trust and investment services income was $8.9 million for the three months ended March 31, 2022, an increase of $0.4 million or 5% as compared to the same period in 2021. ​ BOLI income was a negative $0.4 million for the three months ended March 31, 2022, a decrease of $2.8 million as compared to the same period in 2021. This decrease stems from the volatility of the market, which has led to mark-to-market losses in BOLI earnings. ​ Other noninterest income was $0.9 million for the three months ended March 31, 2022, a decrease of $2.0 million or 68% as compared to the same period in 2021. This decrease was primarily due to a $1.5 million increase in net losses recognized on income related to derivative contracts, a $0.9 million decrease in gains on the sale of residential loans to government-sponsored enterprises and a $0.8 million decrease in net mortgage servicing rights income. This was partially offset by a $0.5 million increase in customer-related interest rate swap fees, a $0.3 million increase in debit card merchant discount fees and a $0.3 million increase in market value adjustments on mutual funds purchased. ​ Noninterest Expense ​ Table 6 presents the major components of noninterest expense for the three months ended March 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest Expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Table 6 ​ ​ Three Months Ended ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ Dollar ​ Percentage ​ (dollars in thousands) 2022 2021 Change Change ​ Salaries and employee benefits ​ $ 48,226 ​ $ 43,936 ​ $ 4,290 ​ 10 % Contracted services and professional fees ​ ​ 17,147 ​ ​ 17,188 ​ ​ (41) ​ — ​ Occupancy ​ ​ 7,410 ​ ​ 7,170 ​ ​ 240 ​ 3 ​ Equipment ​ ​ 5,977 ​ ​ 5,491 ​ ​ 486 ​ 9 ​ Regulatory assessment and fees ​ ​ 2,224 ​ ​ 2,034 ​ ​ 190 ​ 9 ​ Advertising and marketing ​ ​ 2,028 ​ ​ 1,591 ​ ​ 437 ​ 27 ​ Card rewards program ​ ​ 6,883 ​ ​ 4,835 ​ ​ 2,048 ​ 42 ​ Other ​ ​ 14,147 ​ ​ 14,061 ​ ​ 86 ​ 1 ​ Total noninterest expense ​ $ 104,042 ​ $ 96,306 ​ $ 7,736 ​ 8 % ​ Total noninterest expense was $104.0 million for the three months ended March 31, 2022, an increase of $7.7 million or 8% as compared to the same period in 2021. ​ Salaries and employee benefits expense was $48.2 million for the three months ended March 31, 2022, an increase of $4.3 million or 10% as compared to the same period in 2021. This increase was primarily due to a $2.5 million decrease in payroll and benefit costs being deferred as loan origination costs, a $2.0 million increase in incentive compensation and a $1.3 million increase in base salaries and related payroll taxes. This was partially offset by a $1.6 million decrease in other compensation, primarily related to an adjustment made to the deferred compensation plan as a result of market conditions and a decrease in commissions. ​ Contracted services and professional fees were $17.1 million for the three months ended March 31, 2022, a minimal change as compared to the same period in 2021. ​ Occupancy expense was $7.4 million for the three months ended March 31, 2022, an increase of $0.2 million or 3% as compared to the same period in 2021. ​ Equipment expense was $6.0 million for the three months ended March 31, 2022, an increase of $0.5 million or 9% as compared to the same period in 2021. This increase was primarily due to a $0.7 million increase in technology-related licensing and maintenance fees. ​ Regulatory assessment and fees were $2.2 million for the three months ended March 31, 2022, an increase of $0.2 million or 9% as compared to the same period in 2021. 54 Table of Contents ​ Advertising and marketing expense was $2.0 million for the three months ended March 31, 2022, an increase of $0.4 million or 27% as compared to the same period in 2021. ​ Card rewards program expense was $6.9 million for the three months ended March 31, 2022, an increase of $2.0 million or 42% as compared to the same period in 2021. This increase was primarily due to a $1.6 million increase in priority rewards card redemptions and a $0.3 million increase in credit card cash reward redemptions. ​ Other noninterest expense was $14.1 million for the three months ended March 31, 2022, an increase of $0.1 million or 1% as compared to the same period in 2021. ​ Provision for Income Taxes ​ The provision for income taxes was $19.2 million (an effective tax rate of 25.00%) for the three months ended March 31, 2022, compared with a provision for income taxes of $19.0 million (an effective tax rate of 24.80%) for the same period in 2021. The increase in the effective tax rate is partially due to nondeductible BOLI losses recognized during the three months ended March 31, 2022. ​ Analysis of Business Segments ​ Our business segments are Retail Banking, Commercial Banking and Treasury and Other. Table 7 summarizes net income from our business segments for the three months ended March 31, 2022 and 2021. Additional information about operating segment performance is presented in “Note 16. Reportable Operating Segments” contained in our unaudited interim consolidated financial statements. ​ The CARES Act, enacted on March 27, 2020, established, among other COVID-19 relief programs, a loan program (the “PPP”) for fully guaranteed loans (which may then be forgiven) to small businesses. In the second quarter of 2021, the Company made changes to the internal measurement of segment operating profits for the purpose of evaluating segment performance and resource allocation. The primary reason for the change was to align PPP loan balances within the business segment that directly manages them. Specifically, PPP loan balances previously included as part of the Retail Banking segment have been reclassified to the Commercial Banking segment. The reallocation of select PPP loan balances affected net interest income, net interest income after provision for credit losses, noninterest expense, provision for income taxes and net income. The Company has reported its selected financial information using the current PPP loan balance alignments for the three months ended March 31, 2022. The Company has restated the selected financial information for the three ended March 31, 2021 in order to conform with the current presentation. ​ ​ ​ ​ ​ ​ ​ ​ Business Segment Net Income ​ ​ ​ ​ ​ Table 7 ​ ​ Three Months Ended ​ ​ March 31, (dollars in thousands) ​ 2022 ​ 2021 Retail Banking ​ $ 36,834 ​ $ 42,484 Commercial Banking ​ ​ 22,527 ​ ​ 25,515 Treasury and Other ​ ​ (1,642) ​ ​ (10,306) Total ​ $ 57,719 ​ $ 57,693 ​ Retail Banking. Our Retail Banking segment includes the financial products and services we provide to consumers, small businesses and certain commercial customers. Loan and lease products offered include residential and commercial mortgage loans, home equity lines of credit and loans, automobile loans and leases, secured and unsecured lines of credit, installment loans and small business loans and leases. Deposit products offered include checking, savings and time deposit accounts. Our Retail Banking segment also includes our wealth management services. ​ Net income for the Retail Banking segment was $36.8 million for the three months ended March 31, 2022, a decrease of $5.7 million or 13% as compared to the same period in 2021. The decrease in net income for the Retail Banking segment was primarily due to a $7.3 million increase in noninterest expense, partially offset by a $2.0 million decrease in the provision for income taxes. The increase in noninterest expense was primarily due to higher overall expenses that were allocated to the Retail Banking segment and an increase in salaries and benefits expense. The decrease in the provision for income taxes was primarily due to the decrease in pretax income. ​ 55 Table of Contents Commercial Banking. Our Commercial Banking segment includes our corporate banking related products, commercial real estate loans, commercial lease financing, secured and unsecured lines of credit, automobile loans and auto dealer financing, business deposit products and credit cards that we provide primarily to middle market and large companies locally, nationally and internationally. ​ Net income for the Commercial Banking segment was $22.5 million for the three months ended March 31, 2022, a decrease of $3.0 million or 12% as compared to the same period in 2021. The decrease in net income for the Commercial Banking segment was primarily due to a $4.0 million increase in noninterest expense and a $3.2 million decrease in net interest income, partially offset by a $2.6 million increase in noninterest income and a $1.1 million decrease in the provision for income taxes. The increase in noninterest expense was primarily due to higher overall expenses that were allocated to the Commercial Banking segment and an increase in card rewards program expense, partially offset by decreases in salaries and benefits expense and contracted services and professional fees. The decrease in net interest income was primarily due to a decrease in interest income and loan fees from PPP loans. The increase in noninterest income was primarily due to increases in vendor bonuses received, debit card merchant discount fees, credit and debit card fees, customer-related interest rate swap fees and other services charges and fees. The decrease in the provision for income taxes was primarily due to the decrease in pretax income. ​ Treasury and Other. Our Treasury and Other segment includes our treasury business, which consists of corporate asset and liability management activities, including interest rate risk management. The assets and liabilities (and related interest income and expense) of our treasury business consist of interest-bearing deposits, investment securities, federal funds sold and purchased, government deposits, short- and long-term borrowings and bank-owned properties. Our primary sources of noninterest income are from bank-owned life insurance, net gains from the sale of investment securities, foreign exchange income related to customer driven currency requests from merchants and island visitors and management of bank-owned properties in Hawaii and Guam. The net residual effect of the transfer pricing of assets and liabilities is included in Treasury and Other, along with the elimination of intercompany transactions. ​ Other organizational units (Technology, Operations, Credit and Risk Management, Human Resources, Finance, Administration, Marketing and Corporate and Regulatory Administration) provide a wide range of support to our other income earning segments. Expenses incurred by these support units are charged to the applicable business segments through an internal cost allocation process. ​ Net loss for the Treasury and Other segment was $1.6 million for the three months ended March 31, 2022, a decrease in loss of $8.7 million or 84% as compared to the same period in 2021. The decrease in net loss for the Treasury and Other segment was primarily due to an $8.3 million increase in net interest income, a $4.9 million decrease in the Provision and a $3.6 million decrease in noninterest expense, partially offset by a $4.8 million decrease in noninterest income and a $3.3 million decrease in the benefit for income taxes. The increase in net interest income was primarily due to higher average balances in our investment securities portfolio. The decrease in the Provision was primarily due to the decrease in the reserve for unfunded commitments. The decrease in noninterest expense was primarily due to higher overall expenses that led to a larger credit allocation to the Treasury and Other segment and a decrease in software amortization. This was partially offset by increases in salaries and benefits expense and contracted services and professional fees, the loss on our funding swap as a result of a 2021 decrease in the conversion rate of our Visa Class B restricted shares sold in 2016, in addition to increases in equipment expense, advertising and marketing expense and regulatory assessment and fees. The decrease in noninterest income was primarily due to a decrease in BOLI income, an increase in net losses on income related to derivative contracts and write-off of a fixed asset. The decrease in the benefit for income taxes was primarily due to the decrease in pretax loss. ​ Analysis of Financial Condition ​ Liquidity and Capital Resources ​ Liquidity refers to our ability to maintain cash flow that is adequate to fund operations and meet present and future financial obligations through either the sale or maturity of existing assets or by obtaining additional funding through liability management. We consider the effective and prudent management of liquidity to be fundamental to our health and strength. Our objective is to manage our cash flow and liquidity reserves so that they are adequate to fund our obligations and other commitments on a timely basis and at a reasonable cost. ​ 56 Table of Contents Liquidity is managed to ensure stable, reliable and cost-effective sources of funds to satisfy demand for credit, deposit withdrawals and investment opportunities. Funding requirements are impacted by loan originations and refinancings, deposit balance changes, liability issuances and settlements and off-balance sheet funding commitments. We consider and comply with various regulatory and internal guidelines regarding required liquidity levels and periodically monitor our liquidity position in light of the changing economic environment and customer activity. Based on periodic liquidity assessments, we may alter our asset, liability and off-balance sheet positions. The Company’s Asset Liability Management Committee (“ALCO”) monitors sources and uses of funds and modifies asset and liability positions as liquidity requirements change. This process, combined with our ability to raise funds in money and capital markets and through private placements, provides flexibility in managing the exposure to liquidity risk. ​ Immediate liquid resources are available in cash, which is primarily on deposit with the Federal Reserve Bank of San Francisco (the “FRB”). As of March 31, 2022 and December 31, 2021, cash and cash equivalents were $1.6 billion and $1.3 billion, respectively. Potential sources of liquidity also include investment securities in our available-for-sale portfolio. The carrying value of our available-for-sale investment securities were $8.1 billion and $8.4 billion as of March 31, 2022 and December 31, 2021, respectively. As of March 31, 2022 and December 31, 2021, we maintained our excess liquidity primarily in collateralized mortgage obligations issued by Ginnie Mae, Fannie Mae and Freddie Mac and mortgage-backed securities issued by Ginnie Mae, Freddie Mac, Fannie Mae and Municipal Housing Authorities. As of March 31, 2022, our available-for-sale investment securities portfolio was comprised of securities with a weighted average life of approximately 5.8 years. These funds offer substantial resources to meet either new loan demand or to help offset reductions in our deposit funding base. Liquidity is further enhanced by our ability to pledge loans to access secured borrowings from the FHLB and the FRB. As of March 31, 2022, we have borrowing capacity of $1.7 billion from the FHLB and $1.3 billion from the FRB based on the amount of collateral pledged. ​ Our core deposits have historically provided us with a long-term source of stable and relatively lower cost of funding. Our core deposits, defined as all deposits exclusive of time deposits exceeding $250,000, totaled $21.5 billion and $21.0 billion as of March 31, 2022 and December 31, 2021, which represented 97% and 96%, respectively, of our total deposits. These core deposits are normally less volatile, often with customer relationships tied to other products offered by the Company; however, deposit levels could decrease if interest rates increase significantly or if corporate customers increase investing activities and reduce deposit balances. ​ The Company’s routine funding requirements are expected to consist primarily of general corporate needs and capital to be returned to our shareholders. We expect to meet these obligations from dividends paid by the Bank to the Parent. Additional sources of liquidity available to us include selling residential real estate loans in the secondary market, taking out short- and long-term borrowings and issuing long-term debt and equity securities. ​ Our material cash requirements from our current and long-term contractual obligations have not changed materially since previously reported as of December 31, 2021. We believe that our existing cash, cash equivalents, investments, and cash expected to be generated from operations, are still sufficient to meet our cash requirements within the next twelve months and beyond. ​ Potential Demands on Liquidity from Off-Balance Sheet Arrangements ​ We have off-balance sheet arrangements, such as variable interest entities, guarantees, and certain financial instruments with off-balance sheet risk, that may affect the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. ​ Variable Interest Entities ​ We hold interests in several unconsolidated variable interest entities (“VIEs”). These unconsolidated VIEs are primarily low-income housing tax credit investments in partnerships and limited liability companies. Variable interests are defined as contractual ownership or other interests in an entity that change with fluctuations in an entity’s net asset value. The primary beneficiary consolidates the VIE. Based on our analysis, we have determined that the Company is not the primary beneficiary of these entities. As a result, we do not consolidate these VIEs. Unfunded commitments to fund these low-income housing tax credit investments have not materially changed since previously reported as of December 31, 2021. ​ 57 Table of Contents Guarantees ​ We sell residential mortgage loans on the secondary market, primarily to Fannie Mae or Freddie Mac. The agreements under which we sell residential mortgage loans to Fannie Mae or Freddie Mac contain provisions that include various representations and warranties regarding the origination and characteristics of the residential mortgage loans. Although the specific representations and warranties vary among investors, insurance or guarantee agreements, they typically cover ownership of the loan, validity of the lien securing the loan, the absence of delinquent taxes or liens against the property securing the loan, compliance with loan criteria set forth in the applicable agreement, compliance with applicable federal, state and local laws and other matters. As of March 31, 2022 and December 31, 2021, the unpaid principal balance of our portfolio of residential mortgage loans sold was $1.6 billion and $1.7 billion, respectively. The agreements under which we sell residential mortgage loans require delivery of various documents to the investor or its document custodian. Although these loans are primarily sold on a non-recourse basis, we may be obligated to repurchase residential mortgage loans or reimburse investors for losses incurred if a loan review reveals that underwriting and documentation standards were potentially not met in the origination of those loans. Upon receipt of a repurchase request, we work with investors to arrive at a mutually agreeable resolution. Repurchase demands are typically reviewed on an individual loan by loan basis to validate the claims made by the investor to determine if a contractually required repurchase event has occurred. We manage the risk associated with potential repurchases or other forms of settlement through our underwriting and quality assurance practices and by servicing mortgage loans to meet investor and secondary market standards. For the three months ended March 31, 2022, there were no residential mortgage loan repurchases and there were no pending repurchase requests. ​ In addition to servicing loans in our portfolio, substantially all of the loans we sell to investors are sold with servicing rights retained. We also service loans originated by other mortgage loan originators. As servicer, our primary duties are to: (1) collect payments due from borrowers; (2) advance certain delinquent payments of principal and interest; (3) maintain and administer any hazard, title or primary mortgage insurance policies relating to the mortgage loans; (4) maintain any required escrow accounts for payment of taxes and insurance and administer escrow payments; and (5) foreclose on defaulted mortgage loans, or loan modifications or short sales. Each agreement under which we act as servicer generally specifies a standard of responsibility for actions taken by the Company in such capacity and provides protection against expenses and liabilities incurred by the Company when acting in compliance with the respective servicing agreements. However, if we commit a material breach of obligations as servicer, we may be subject to termination if the breach is not cured within a specified period following notice. The standards governing servicing and the possible remedies for violations of such standards vary by investor. These standards and remedies are determined by servicing guides issued by the investors as well as the contract provisions established between the investors and the Company. Remedies could include repurchase of an affected loan. For the three months ended March 31, 2022, we had no repurchase requests related to loan servicing activities, nor were there any pending repurchase requests as of March 31, 2022. ​ Although to-date repurchase requests related to representation and warranty provisions and servicing activities have been limited, it is possible that requests to repurchase mortgage loans may increase in frequency as investors more aggressively pursue all means of recovering losses on their purchased loans. However, as of March 31, 2022, management believes that this exposure is not material due to the historical level of repurchase requests and loss trends and thus has not established a liability for losses related to mortgage loan repurchases. As of March 31, 2022, 99% of our residential mortgage loans serviced for investors were current. We maintain ongoing communications with investors and continue to evaluate this exposure by monitoring the level and number of repurchase requests as well as the delinquency rates in loans sold to investors. ​ Financial Instruments with Off-Balance Sheet Risk ​ The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby and commercial letters of credit which are not reflected in the consolidated financial statements. ​ See “Note 11. Commitments and Contingent Liabilities” contained in our unaudited interim consolidated financial statements for more information on our financial instruments with off-balance sheet risk. ​ 58 Table of Contents Investment Securities ​ Table 8 presents the estimated fair value of our available-for-sale investment securities portfolio as of March 31, 2022 and December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ Investment Securities ​ ​ ​ ​ ​ Table 8 ​ March 31, ​ December 31, (dollars in thousands) ​ 2022 ​ 2021 U.S. Treasury and government agency debt securities ​ $ 199,544 ​ $ 192,563 Mortgage-backed securities: ​ ​ ​ ​ ​ ​ Residential - Government agency ​ ​ 122,965 ​ ​ 137,264 Residential - Government-sponsored enterprises ​ ​ 1,362,345 ​ ​ 1,491,100 Commercial - Government agency ​ ​ 333,089 ​ ​ 387,663 Commercial - Government-sponsored enterprises ​ ​ 1,249,834 ​ ​ 1,369,443 Collateralized mortgage obligations: ​ ​ ​ ​ ​ ​ Government agency ​ ​ 2,009,781 ​ ​ 2,079,523 Government-sponsored enterprises ​ ​ 2,509,707 ​ ​ 2,621,044 Collateralized loan obligations ​ ​ 220,884 ​ ​ 105,247 Debt securities issued by states and political subdivisions ​ ​ 54,235 ​ ​ 44,185 Total available-for-sale securities ​ $ 8,062,384 ​ $ 8,428,032 ​ Table 9 presents the maturity distribution at amortized cost and weighted-average yield to maturity of our available-for-sale investment securities portfolio as of March 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Maturities and Weighted-Average Yield on Securities (1) ​ ​ Table 9 ​ ​ 1 Year or Less ​ After 1 Year - 5 Years ​ After 5 Years - 10 Years ​ Over 10 Years ​ Total ​ ​ ​ ​ Weighted ​ ​ ​ Weighted ​ ​ ​ Weighted ​ ​ ​ Weighted ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ Average ​ ​ ​ Average ​ ​ ​ Average ​ ​ ​ Average ​ ​ ​ Average ​ Fair (dollars in millions) Amount Yield ​ Amount Yield ​ Amount Yield ​ Amount Yield ​ Amount Yield ​ Value As of March 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available-for-sale securities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Treasury and government agency debt securities ​ $ 30.2 ​ 0.81 % $ 39.8 ​ 1.33 % $ 80.5 ​ 1.03 % $ 63.1 ​ 1.57 % $ 213.6 ​ 1.21 % $ 199.5 Mortgage-backed securities (2) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential - Government agency ​ ​ — ​ — ​ ​ 34.7 ​ 2.37 ​ ​ 93.4 ​ 2.12 ​ ​ — ​ — ​ ​ 128.1 ​ 2.19 ​ ​ 123.0 Residential - Government-sponsored enterprises ​ ​ — ​ — ​ ​ 1,296.8 ​ 1.41 ​ ​ 153.3 ​ 1.51 ​ ​ — ​ — ​ ​ 1,450.1 ​ 1.42 ​ ​ 1,362.4 Commercial - Government agency ​ ​ 10.1 ​ 3.37 ​ ​ 282.8 ​ 1.88 ​ ​ 66.0 ​ 1.83 ​ ​ — ​ — ​ ​ 358.9 ​ 1.92 ​ ​ 333.1 Commercial - Government-sponsored enterprises ​ ​ — ​ — ​ ​ 140.2 ​ 1.42 ​ ​ 546.6 ​ 1.60 ​ ​ 740.0 ​ 2.19 ​ ​ 1,426.8 ​ 1.88 ​ ​ 1,249.8 Collateralized mortgage obligations (2) : ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Government agency ​ ​ 6.8 ​ 1.70 ​ ​ 1,128.6 ​ 1.64 ​ ​ 948.3 ​ 1.44 ​ ​ 69.5 ​ 1.29 ​ ​ 2,153.2 ​ 1.54 ​ ​ 2,009.8 Government-sponsored enterprises ​ ​ 7.8 ​ 2.14 ​ ​ 999.1 ​ 1.31 ​ ​ 1,713.0 ​ 1.41 ​ ​ — ​ — ​ ​ 2,719.9 ​ 1.38 ​ ​ 2,509.7 Collateralized loan obligations ​ ​ — ​ — ​ ​ — ​ — ​ ​ 97.7 ​ 1.95 ​ ​ 123.9 ​ 1.64 ​ ​ 221.6 ​ 1.78 ​ ​ 220.9 Debt securities issued by state and political subdivisions ​ ​ — ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ 61.0 ​ 2.27 ​ ​ 61.0 ​ 2.27 ​ ​ 54.2 Total available-for-sale securities as of March 31, 2022 ​ $ 54.9 ​ 1.58 % $ 3,922.0 ​ 1.49 % $ 3,698.8 ​ 1.48 % $ 1,057.5 ​ 2.02 % $ 8,733.2 ​ 1.55 % $ 8,062.4 (1) Weighted-average yields were computed on a fully taxable-equivalent basis. (2) Maturities for mortgage-backed securities and collateralized mortgage obligations anticipate future prepayments. ​ The fair value of our available-for-sale investment securities portfolio was $8.1 billion as of March 31, 2022, a decrease of $365.6 million or 4% compared to December 31, 2021. Our available-for-sale investment securities are carried at fair value with changes in fair value reflected in other comprehensive income or through the Provision. ​ As of March 31, 2022, we maintained all of our investment securities in the available-for-sale category recorded at fair value in the unaudited interim consolidated balance sheets, with $4.5 billion invested in collateralized mortgage obligations issued by Ginnie Mae, Fannie Mae and Freddie Mac. Our available-for-sale portfolio also included $3.1 billion in mortgage-backed securities issued by Ginnie Mae, Freddie Mac, Fannie Mae and Municipal Housing Authorities, $220.9 million in collateralized loan obligations, $199.5 million in debt securities issued by the U.S. Treasury and government agencies (US International Development Finance Corporation bonds) and $54.2 million in debt securities issued by states and political subdivisions. ​ We continually evaluate our investment securities portfolio in response to established asset/liability management objectives, changing market conditions that could affect profitability and the level of interest rate risk to which we are exposed. These evaluations may cause us to change the level of funds we deploy into investment securities and change the composition of our investment securities portfolio. ​ 59 Table of Contents Gross unrealized gains in our investment securities portfolio were $0.6 million and $24.6 million as of March 31, 2022 and December 31, 2021, respectively. Gross unrealized losses in our investment securities portfolio were $671.4 million and $157.3 million as of March 31, 2022 and December 31, 2021, respectively. The decrease in unrealized gains and increase in unrealized loss in our investment securities portfolio was primarily due to higher market interest rates as of March 31, 2022, relative to December 31, 2021, resulting in a lower valuation. ​ We conduct a regular assessment of our investment securities portfolio to determine whether any securities are impaired. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and the ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through the ACL is recognized in other comprehensive income. For the three months ended March 31, 2022, we did not record any credit losses related to our investment securities portfolio. ​ We are required to hold non-marketable equity securities, comprised of FHLB stock, as a condition of our membership in the FHLB system. Our FHLB stock is accounted for at cost, which equals par or redemption value. As of both March 31, 2022 and December 31, 2021, we held $10.1 million in FHLB stock, which is recorded as a component of other assets in our unaudited interim consolidated balance sheets. ​ See “Note 2. Investment Securities” contained in our unaudited interim consolidated financial statements for more information on our investment securities portfolio. ​ Loans and Leases ​ Table 10 presents the composition of our loan and lease portfolio by major categories as of March 31, 2022 and December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ Loans and Leases ​ ​ ​ ​ ​ Table 10 ​ ​ March 31, ​ December 31, (dollars in thousands) 2022 2021 Commercial and industrial: ​ ​ ​ ​ ​ ​ Commercial and industrial excluding Paycheck Protection Program loans ​ $ 1,817,346 ​ $ 1,870,657 Paycheck Protection Program loans ​ ​ 106,188 ​ ​ 216,442 Total commercial and industrial ​ ​ 1,923,534 ​ ​ 2,087,099 Commercial real estate ​ ​ 3,759,980 ​ ​ 3,639,623 Construction ​ ​ 708,300 ​ ​ 813,969 Residential: ​ ​ ​ ​ ​ ​ Residential mortgage ​ ​ 4,153,824 ​ ​ 4,083,367 Home equity line ​ ​ 918,101 ​ ​ 876,608 Total residential ​ ​ 5,071,925 ​ ​ 4,959,975 Consumer ​ ​ 1,204,834 ​ ​ 1,229,939 Lease financing ​ ​ 223,170 ​ ​ 231,394 Total loans and leases ​ $ 12,891,743 ​ $ 12,961,999 ​ Total loans and leases were $12.9 billion as of March 31, 2022, a decrease of $70.3 million or 1% from December 31, 2021. The decrease in total loans and leases was primarily due to a decrease in PPP loans, which are included in commercial and industrial loans, and decreases in construction loans and consumer loans, partially offset by increases in commercial real estate loans and residential mortgage loans. ​ Commercial and industrial loans are made primarily to corporations, middle market and small businesses for the purpose of financing equipment acquisition, expansion, working capital and other general business purposes. We also offer a variety of automobile dealer flooring lines to our customers in Hawaii and California to assist with the financing of their inventory. Commercial and industrial loans were $1.9 billion as of March 31, 2022, a decrease of $163.6 million or 8% from December 31, 2021. This decrease was primarily due to a decrease in PPP loans of $110.3 million during the three months ended March 31, 2022. ​ 60 Table of Contents Commercial real estate loans are secured by first mortgages on commercial real estate at loan to value (“LTV”) ratios generally not exceeding 75% and a minimum debt service coverage ratio of 1.20 to 1. The commercial properties are predominantly apartments, neighborhood and grocery anchored retail, industrial, office, and to a lesser extent, specialized properties such as hotels. The primary source of repayment for investor property and owner-occupied property is cash flow from the property and operating cash flow from the business, respectively. Commercial real estate loans were $3.8 billion as of March 31, 2022, an increase of $120.4 million or 3% from December 31, 2021. ​ Construction loans are for the purchase or construction of a property for which repayment will be generated by the property. Loans in this portfolio are primarily for the purchase of land, as well as for the development of commercial properties, single family homes and condominiums. We classify loans as construction until the completion of the construction phase. Following completion of the construction phase, if a loan is retained by the Bank, the loan is reclassified to the commercial real estate or residential real estate classes of loans. Construction loans were $708.3 million as of March 31, 2022, a decrease of $105.7 million or 13% from December 31, 2021. The decrease in construction loans was primarily due to payoffs of several large projects during the three months ended March 31, 2022. ​ Residential real estate loans are generally secured by 1-4 unit residential properties and are underwritten using traditional underwriting systems to assess the credit risks and financial capacity and repayment ability of the consumer. Decisions are primarily based on LTV ratios, debt-to-income (“DTI”) ratios, liquidity and credit scores. LTV ratios generally do not exceed 80%, although higher levels are permitted with mortgage insurance. We offer fixed rate mortgage products and variable rate mortgage products. Since our transition from LIBOR in late 2021, we now offer variable rate mortgage products based on SOFR with interest rates that are subject to change every six months, after the third, fifth, seventh or tenth year, depending on the product. Prior to this, we offered variable rate mortgage products based on LIBOR with interest rates that were subject to change every year after the first, third, fifth or tenth year, depending on the product. Variable rate residential mortgage loans are underwritten at fully-indexed interest rates. We generally do not offer interest-only, payment-option facilities, Alt-A loans or any product with negative amortization. Residential real estate loans were $5.1 billion as of March 31, 2022, an increase of $112.0 million or 2% from December 31, 2021. ​ Consumer loans consist primarily of open- and closed-end direct and indirect credit facilities for personal, automobile and household purchases as well as credit card loans. We seek to maintain reasonable levels of risk in consumer lending by following prudent underwriting guidelines, which include an evaluation of personal credit history, cash flow and collateral values based on existing market conditions. Consumer loans were $1.2 billion as of March 31, 2022, a decrease of $25.1 million or 2% from December 31, 2021. ​ Lease financing consists of commercial single investor leases and leveraged leases. Underwriting of new lease transactions is based on our lending policy, including but not limited to an analysis of customer cash flows and secondary sources of repayment, including the value of leased equipment, the guarantors’ cash flows and/or other credit enhancements. No new leveraged leases are being added to the portfolio and all remaining leveraged leases are running off. Lease financing was $223.2 million as of March 31, 2022, a decrease of $8.2 million or 4% from December 31, 2021. The reduction was reflective of weak demand for new business equipment and vehicles in the Hawaii market coupled with supply chain disruption causing significant delays in deliveries of new orders. ​ See “Note 3. Loans and Leases” and “Note 4. Allowance for Credit Losses” contained in our unaudited interim consolidated financial statements and the discussion in “Analysis of Financial Condition — Allowance for Credit Losses” of this MD&A for more information on our loan and lease portfolio. ​ 61 Table of Contents The Company’s loan and lease portfolio includes adjustable-rate loans, primarily tied to Prime and LIBOR, hybrid-rate loans, for which the initial rate is fixed for a period from one year to as much as ten years, and fixed rate loans, for which the interest rate does not change through the life of the loan. Table 11 presents the recorded investment in our loan and lease portfolio as of March 31, 2022 by rate type: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans and Leases by Rate Type ​ ​ Table 11 ​ ​ March 31, 2022 ​ ​ ​ Adjustable Rate ​ Hybrid ​ Fixed ​ ​ ​ (dollars in thousands) Prime LIBOR Treasury SOFR BSBY Other Total Rate Rate Total ​ Commercial and industrial ​ $ 219,324 ​ $ 932,961 ​ $ — ​ $ 126,399 ​ $ 39,808 ​ $ 70,823 ​ $ 1,389,315 ​ $ 37,922 ​ $ 496,297 ​ $ 1,923,534 ​ Commercial real estate ​ ​ 438,526 ​ ​ 1,721,225 ​ ​ — ​ ​ 241,881 ​ ​ 9,939 ​ ​ 866,210 ​ ​ 3,277,781 ​ ​ 106,634 ​ ​ 375,565 ​ ​ 3,759,980 ​ Construction ​ ​ 119,436 ​ ​ 449,294 ​ ​ 21 ​ ​ — ​ ​ — ​ ​ 27,044 ​ ​ 595,795 ​ ​ 5,683 ​ ​ 106,822 ​ ​ 708,300 ​ Residential: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage ​ ​ 28,367 ​ ​ 159,683 ​ ​ 65,613 ​ ​ 18,050 ​ ​ — ​ ​ 78,899 ​ ​ 350,612 ​ ​ 250,631 ​ ​ 3,552,581 ​ ​ 4,153,824 ​ Home equity line ​ ​ 333,430 ​ ​ — ​ ​ 3,703 ​ ​ — ​ ​ — ​ ​ — ​ ​ 337,133 ​ ​ 580,968 ​ ​ — ​ ​ 918,101 ​ Total residential ​ ​ 361,797 ​ ​ 159,683 ​ ​ 69,316 ​ ​ 18,050 ​ ​ — ​ ​ 78,899 ​ ​ 687,745 ​ ​ 831,599 ​ ​ 3,552,581 ​ ​ 5,071,925 ​ Consumer ​ ​ 286,498 ​ ​ — ​ ​ 995 ​ ​ — ​ ​ 2,926 ​ ​ 3,010 ​ ​ 293,429 ​ ​ 35 ​ ​ 911,370 ​ ​ 1,204,834 ​ Lease financing ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 223,170 ​ ​ 223,170 ​ Total loans and leases ​ $ 1,425,581 ​ $ 3,263,163 ​ $ 70,332 ​ $ 386,330 ​ $ 52,673 ​ $ 1,045,986 ​ $ 6,244,065 ​ $ 981,873 ​ $ 5,665,805 ​ $ 12,891,743 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ % by rate type at March 31, 2022 ​ ​ 11 % ​ 25 % ​ 1 % ​ 2 % ​ 1 % ​ 8 % ​ 48 % ​ 8 % ​ 44 % ​ 100 % ​ Tables 12 and 13 present the geographic distribution of our loan and lease portfolio as of March 31, 2022 and December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Geographic Distribution of Loan and Lease Portfolio ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Table 12 ​ ​ March 31, 2022 ​ ​ ​ ​ ​ U.S. ​ Guam & ​ Foreign & ​ ​ ​ (dollars in thousands) Hawaii Mainland (1) Saipan Other Total Commercial and industrial ​ $ 930,199 ​ $ 873,053 ​ $ 90,894 ​ $ 29,388 ​ $ 1,923,534 Commercial real estate ​ ​ 2,264,146 ​ ​ 1,098,262 ​ ​ 397,379 ​ ​ 193 ​ ​ 3,759,980 Construction ​ ​ 287,022 ​ ​ 414,770 ​ ​ 6,508 ​ ​ — ​ ​ 708,300 Residential: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage ​ ​ 4,014,903 ​ ​ 846 ​ ​ 138,075 ​ ​ — ​ ​ 4,153,824 Home equity line ​ ​ 885,967 ​ ​ — ​ ​ 32,134 ​ ​ — ​ ​ 918,101 Total residential ​ ​ 4,900,870 ​ ​ 846 ​ ​ 170,209 ​ ​ — ​ ​ 5,071,925 Consumer ​ ​ 906,013 ​ ​ 16,915 ​ ​ 280,223 ​ ​ 1,683 ​ ​ 1,204,834 Lease financing ​ ​ 64,628 ​ ​ 144,770 ​ ​ 13,772 ​ ​ — ​ ​ 223,170 Total Loans and Leases ​ $ 9,352,878 ​ $ 2,548,616 ​ $ 958,985 ​ $ 31,264 ​ $ 12,891,743 Percentage of Total Loans and Leases ​ ​ 72% ​ ​ 20% ​ ​ 7% ​ ​ 1% ​ ​ 100% (1) For secured loans and leases, classification as U.S. Mainland is made based on where the collateral is located. For unsecured loans and leases, classification as U.S. Mainland is made based on the location where the majority of the borrower’s business operations are conducted. ​ 62 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Geographic Distribution of Loan and Lease Portfolio ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Table 13 ​ ​ December 31, 2021 ​ ​ ​ ​ ​ U.S. ​ Guam & ​ Foreign & ​ ​ ​ (dollars in thousands) Hawaii Mainland (1) Saipan Other Total Commercial and industrial ​ $ 1,070,206 ​ $ 871,699 ​ $ 112,739 ​ $ 32,455 ​ $ 2,087,099 Commercial real estate ​ ​ 2,226,487 ​ ​ 1,023,018 ​ ​ 389,922 ​ ​ 196 ​ ​ 3,639,623 Construction ​ ​ 340,290 ​ ​ 467,331 ​ ​ 6,348 ​ ​ — ​ ​ 813,969 Residential: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage ​ ​ 3,949,550 ​ ​ 1,054 ​ ​ 132,763 ​ ​ — ​ ​ 4,083,367 Home equity line ​ ​ 845,517 ​ ​ — ​ ​ 31,091 ​ ​ — ​ ​ 876,608 Total residential ​ ​ 4,795,067 ​ ​ 1,054 ​ ​ 163,854 ​ ​ — ​ ​ 4,959,975 Consumer ​ ​ 920,154 ​ ​ 17,278 ​ ​ 290,839 ​ ​ 1,668 ​ ​ 1,229,939 Lease financing ​ ​ 68,246 ​ ​ 148,950 ​ ​ 14,198 ​ ​ — ​ ​ 231,394 Total Loans and Leases ​ $ 9,420,450 ​ $ 2,529,330 ​ $ 977,900 ​ $ 34,319 ​ $ 12,961,999 Percentage of Total Loans and Leases ​ ​ 73% ​ ​ 19% ​ ​ 7% ​ ​ 1% ​ ​ 100% (1) For secured loans and leases, classification as U.S. Mainland is made based on where the collateral is located. For unsecured loans and leases, classification as U.S. Mainland is made based on the location where the majority of the borrower’s business operations are conducted. ​ Our lending activities are concentrated primarily in Hawaii. However, we also have lending activities on the U.S. mainland, Guam and Saipan. Our commercial lending activities on the U.S. mainland include automobile dealer flooring activities in California, participation in the Shared National Credits Program and selective commercial real estate projects based on existing customer relationships. Our lease financing portfolio includes commercial leveraged and single investor lease financing activities both in Hawaii and on the U.S. mainland. However, no new leveraged leases are being added to the portfolio and all remaining leveraged leases are running off. Our consumer lending activities are concentrated primarily in Hawaii and, to a smaller extent, in Guam and Saipan. ​ Table 14 presents the contractual maturities of our loan and lease portfolio by major categories and the sensitivities to changes in interest rates as of March 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Maturities for Loan and Lease Portfolio (1) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Table 14 ​ ​ March 31, 2022 ​ ​ Due in One ​ Due After One ​ Due After Five ​ Due After ​ ​ ​ (dollars in thousands) Year or Less to Five Years to Fifteen Years Fifteen Years Total Commercial and industrial ​ $ 444,201 ​ $ 1,022,223 ​ $ 376,474 ​ $ 80,636 ​ $ 1,923,534 Commercial real estate ​ ​ 171,966 ​ ​ 1,720,724 ​ ​ 1,827,155 ​ ​ 40,135 ​ ​ 3,759,980 Construction ​ ​ 131,283 ​ ​ 406,349 ​ ​ 145,075 ​ ​ 25,593 ​ ​ 708,300 Residential: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage ​ ​ 35,871 ​ ​ 45,454 ​ ​ 479,806 ​ ​ 3,592,693 ​ ​ 4,153,824 Home equity line ​ ​ 15,241 ​ ​ 111,306 ​ ​ 132,454 ​ ​ 659,100 ​ ​ 918,101 Total residential ​ ​ 51,112 ​ ​ 156,760 ​ ​ 612,260 ​ ​ 4,251,793 ​ ​ 5,071,925 Consumer ​ ​ 119,692 ​ ​ 814,998 ​ ​ 235,865 ​ ​ 34,279 ​ ​ 1,204,834 Lease financing ​ ​ 11,753 ​ ​ 90,537 ​ ​ 120,880 ​ ​ — ​ ​ 223,170 Total Loans and Leases ​ $ 930,007 ​ $ 4,211,591 ​ $ 3,317,709 ​ $ 4,432,436 ​ $ 12,891,743 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total of loans and leases with: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Adjustable interest rates ​ $ 726,244 ​ $ 2,907,434 ​ $ 2,208,879 ​ $ 401,508 ​ $ 6,244,065 Hybrid interest rates ​ ​ 28,051 ​ ​ 104,960 ​ ​ 52,603 ​ ​ 796,259 ​ ​ 981,873 Fixed interest rates ​ ​ 175,712 ​ ​ 1,199,197 ​ ​ 1,056,227 ​ ​ 3,234,669 ​ ​ 5,665,805 Total Loans and Leases ​ $ 930,007 ​ $ 4,211,591 ​ $ 3,317,709 ​ $ 4,432,436 ​ $ 12,891,743 (1) Based on contractual maturities, including extension and renewal options that are not unconditionally cancellable by the Company. ​ 63 Table of Contents Credit Quality ​ We perform an internal loan review and grading or scoring procedures on an ongoing basis. The review provides management with periodic information as to the quality of the loan portfolio and effectiveness of our lending policies and procedures. The objective of the loan review and grading or scoring procedures is to identify, in a timely manner, existing or emerging credit quality issues so that appropriate steps can be initiated to avoid or minimize future losses. ​ For purposes of managing credit risk and estimating the ACL, management has identified three portfolio segments (commercial, residential and consumer) that we use to develop our systematic methodology to determine the ACL. The categorization of loans for the evaluation of credit risk is specific to our credit risk evaluation process and these loan categories are not necessarily the same as the loan categories used for other evaluations of our loan portfolio. See “Note 4. Allowance for Credit Losses” contained in our unaudited interim consolidated financial statements for more information about our approach to estimating the ACL. ​ The following tables and discussion address non-performing assets, loans and leases that are 90 days past due but are still accruing interest, impaired loans and loans modified in a TDR. ​ Non-Performing Assets and Loans and Leases Past Due 90 Days or More and Still Accruing Interest ​ Table 15 presents information on our non-performing assets and accruing loans and leases past due 90 days or more as of March 31, 2022 and December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More ​ ​ ​ ​ ​ Table 15 ​ ​ March 31, ​ December 31, ​ (dollars in thousands) 2022 ​ 2021 ​ Non-Performing Assets ​ ​ ​ ​ ​ ​ ​ Non-Accrual Loans and Leases ​ ​ ​ ​ ​ ​ ​ Commercial Loans: ​ ​ ​ ​ ​ ​ ​ Commercial and industrial ​ $ 707 ​ $ 718 ​ Commercial real estate ​ ​ 727 ​ ​ 727 ​ Lease financing ​ ​ 75 ​ ​ — ​ Total Commercial Loans ​ ​ 1,509 ​ ​ 1,445 ​ Residential Loans: ​ ​ ​ ​ ​ ​ ​ Residential mortgage ​ ​ 7,092 ​ ​ 5,637 ​ Total Residential Loans ​ ​ 7,092 ​ ​ 5,637 ​ Total Non-Accrual Loans and Leases ​ ​ 8,601 ​ ​ 7,082 ​ Other Real Estate Owned ("OREO") ​ ​ — ​ ​ 175 ​ Total Non-Performing Assets ​ $ 8,601 ​ $ 7,257 ​ ​ ​ ​ ​ ​ ​ ​ ​ Accruing Loans and Leases Past Due 90 Days or More ​ ​ ​ ​ ​ ​ ​ Commercial Loans: ​ ​ ​ ​ ​ ​ ​ Commercial and industrial ​ $ 591 ​ $ 740 ​ Total Commercial Loans ​ ​ 591 ​ ​ 740 ​ Residential Loans: ​ ​ ​ ​ ​ ​ ​ Residential mortgage ​ ​ 13 ​ ​ 987 ​ Home equity line ​ ​ 2,252 ​ ​ 3,681 ​ Total Residential Loans ​ ​ 2,265 ​ ​ 4,668 ​ Consumer ​ ​ 1,588 ​ ​ 1,800 ​ Total Accruing Loans and Leases Past Due 90 Days or More ​ $ 4,444 ​ $ 7,208 ​ ​ ​ ​ ​ ​ ​ ​ ​ Restructured Loans on Accrual Status and Not Past Due 90 Days or More ​ $ 32,590 ​ $ 34,893 ​ Total Loans and Leases ​ $ 12,891,743 ​ $ 12,961,999 ​ ​ ​ ​ ​ ​ ​ ​ ​ Ratio of Non-Accrual Loans and Leases to Total Loans and Leases ​ ​ 0.07 % ​ 0.05 % Ratio of Non-Performing Assets to Total Loans and Leases and OREO ​ ​ 0.07 % ​ 0.06 % Ratio of Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More to Total Loans and Leases and OREO ​ ​ 0.10 % ​ 0.11 % ​ 64 Table of Contents Table 16 presents the activity in Non-Performing Assets (“NPAs”) for the three months ended March 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ Non-Performing Assets ​ ​ ​ ​ ​ Table 16 ​ ​ Three Months Ended March 31, (dollars in thousands) 2022 2021 Balance at beginning of period ​ $ 7,257 ​ $ 9,082 Additions ​ ​ 2,461 ​ ​ 2,577 Reductions ​ ​ ​ ​ ​ ​ Payments ​ ​ (434) ​ ​ (367) Return to accrual status ​ ​ (278) ​ ​ (226) Sales of other real estate owned ​ ​ (175) ​ ​ — Transfers to loans held for sale ​ ​ — ​ ​ (1,840) Charge-offs/write-downs ​ ​ (230) ​ ​ (118) Total Reductions ​ ​ (1,117) ​ ​ (2,551) Balance at end of period ​ $ 8,601 ​ $ 9,108 ​ The level of NPAs represents an indicator of the potential for future credit losses. NPAs consist of non-accrual loans and leases and other real estate owned (“OREO”). Changes in the level of non-accrual loans and leases typically represent increases for loans and leases that reach a specified past due status, offset by reductions for loans and leases that are charged-off, paid down, sold, transferred to held for sale classification, transferred to OREO or are no longer classified as non-accrual because they have returned to accrual status as a result of continued performance and an improvement in the borrower’s financial condition and loan repayment capabilities. ​ Total NPAs were $8.6 million as of March 31, 2022, an increase of $1.3 million or 19% from December 31, 2021. The ratio of our NPAs to total loans and leases and OREO was 0.07% and 0.06% as of March 31, 2022 and December 31, 2021, respectively. The increase in NPAs during the three months ended March 31, 2022, was due to an increase in residential mortgage non-accrual loans of $1.5 million, partially offset by a decrease in OREO of $0.2 million. ​ The largest component of our NPAs continues to be residential mortgage loans. The level of these NPAs can remain elevated due to a lengthy judicial foreclosure process in Hawaii. As of March 31, 2022, residential mortgage non-accrual loans were $7.1 million, an increase of $1.5 million or 26% from December 31, 2021. This increase was due to additions of residential mortgage non-accrual loans totaling $2.4 million, partially offset by payments of $0.4 million, returns to accrual status of $0.3 million and charge-offs of $0.2 million. As of March 31, 2022, our residential mortgage non-accrual loans were comprised of 36 loans with a weighted average current LTV ratio of 42%. ​ OREO represents property acquired as the result of borrower defaults on loans. OREO is recorded at fair value, less estimated selling costs, at the time of foreclosure. On an ongoing basis, properties are appraised as required by market conditions and applicable regulations. As of March 31, 2022, we did not hold any OREO. As of December 31, 2021, OREO was $0.2 million which comprised of one residential property. ​ Loans and Leases Past Due 90 Days or More and Still Accruing Interest. Loans and leases in this category are 90 days or more past due, as to principal or interest, and are still accruing interest because they are well secured and in the process of collection. ​ Loans and leases past due 90 days or more and still accruing interest were $4.4 million as of March 31, 2022, a decrease of $2.8 million or 38%, as compared to December 31, 2021. This decrease was due to decreases in home equity lines of $1.4 million, residential mortgage loans of $1.0 million, consumer loans of $0.2 million and commercial and industrial loans of $0.2 million that were past due 90 days or more and still accruing interest. ​ Impaired Loans. A loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. For a loan that has been modified in a TDR, the contractual terms of the loan agreement refers to the contractual terms specified by the original loan agreement, not the contractual terms specified by the modified loan agreement. ​ 65 Table of Contents Total impaired loans were $41.4 million and $42.2 million as of March 31, 2022 and December 31, 2021, respectively. These impaired loans had a related ACL of $4.1 million and $4.2 million as of March 31, 2022 and December 31, 2021, respectively. The decrease in impaired loans during the three months ended March 31, 2022 was primarily due to decreases in commercial real estate loans of $0.5 million, consumer loans of $0.5 million and commercial and industrial loans of $0.5 million, partially offset by an increase in residential mortgage loans of $0.6 million. The change in the impaired loans balance includes charge-offs and paydowns. For the three months ended March 31, 2022 and 2021, we recorded charge-offs of $0.8 million and $0.4 million, respectively, related to our total impaired loans. Our impaired loans are considered in management’s assessment of the overall adequacy of the ACL. ​ If interest due on the balances of all non-accrual loans as of March 31, 2022 and 2021 had been accrued under the original terms, approximately $0.1 million in additional interest income would have been recorded during both the three months ended March 31, 2022 and 2021. Actual interest income recorded on these loans was nil for the three months ended March 31, 2022, compared to $0.1 million during the three months ended March 31, 2021. ​ Paycheck Protection Program ​ We participated in the PPP offered by the Small Business Administration (“SBA”). The PPP was intended to help small businesses impacted by the COVID-19 pandemic by providing “fully forgivable” loans to cover payroll expenses, including employee benefits, and can also be used for various other eligible expenses. PPP loans have a fixed interest rate of one percent per annum and a maturity date of up to five years, with the ability to prepay the loan in full without penalty. The first payment is deferred until the date the SBA remits the borrower’s loan forgiveness amount to the Bank, or if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period. Interest will continue to accrue during the initial deferment period. The borrower may apply with the Bank for loan forgiveness of the amount due on the loan in an amount equal to payroll, employee benefits, and other eligible expenses incurred, subject to limitations, in accordance with the PPP and the CARES Act, as amended by the Paycheck Protection Program Flexibility Act of 2020 (the “PPPF Act”) and the Consolidated Appropriations Act – 2021 (the “CAA”). Because the purpose of the PPP is to help small businesses keep their workers employed and paid, if the business spends less than 60% of loan proceeds on payroll costs, uses the loan proceeds for non-payroll costs that are not eligible expenses, or significantly reduces its employee count or compensation levels without qualifying for other exceptions, a portion of the loan will not be forgiven, and the business will be required to repay that portion of the loan to the Bank over the remaining term of the loan. ​ Table 17 presents information on our PPP loans outstanding as of March 31, 2022 and December 31, 2021 to borrowers operating in industries we consider to be the most impacted by the COVID-19 pandemic (“high impact industries”) and all other industries: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ PPP Loans Outstanding to Borrowers by Industry ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Table 17 ​ ​ March 31, 2022 ​ ​ December 31, 2021 ​ ​ ​ Number ​ Amortized ​ ​ Number ​ Amortized ​ (dollars in thousands) of Loans ​ Cost Basis ​ of Loans ​ Cost Basis ​ PPP Loans Outstanding to Borrowers by Industry ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ High Impact Industries: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Food service ​ ​ 112 ​ $ 29,696 ​ ​ ​ 207 ​ $ 61,025 ​ Automobile dealers ​ ​ 5 ​ ​ 3,370 ​ ​ ​ 9 ​ ​ 7,544 ​ Retail ​ ​ 48 ​ ​ 9,196 ​ ​ ​ 98 ​ ​ 13,961 ​ Hospitality/Hotel ​ ​ 22 ​ ​ 16,508 ​ ​ ​ 38 ​ ​ 31,979 ​ Transportation ​ ​ 17 ​ ​ 2,429 ​ ​ ​ 28 ​ ​ 3,408 ​ Total PPP Loans Outstanding to Borrowers Operating in High Impact Industries ​ ​ 204 ​ ​ 61,199 ​ ​ ​ 380 ​ ​ 117,917 ​ All other industries (1) ​ ​ 311 ​ ​ 44,989 ​ ​ ​ 605 ​ ​ 98,525 ​ Total PPP Loans Outstanding (2) ​ ​ 515 ​ $ 106,188 ​ ​ ​ 985 ​ $ 216,442 ​ Total Loans and Leases ​ ​ ​ ​ $ 12,891,743 ​ ​ ​ ​ ​ $ 12,961,999 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Ratio of PPP Loans Outstanding to Borrowers Operating in High Impact Industries to Total Loans and Leases ​ ​ ​ ​ ​ 0.5 % ​ ​ ​ ​ ​ 0.9 % Ratio of PPP Loans Outstanding to Total Loans and Leases ​ ​ ​ ​ ​ 0.8 % ​ ​ ​ ​ ​ 1.7 % (1) “All other industries” represent borrowers that received PPP loans that did not operate in the five high impact industries listed above. At March 31, 2022, this was primarily comprised of the construction, administrative and support services, health care, and wholesale trade industries. At December 31, 2021, this was primarily comprised of the construction, health care, administrative and support services, and arts and entertainment industries. (2) At March 31, 2022, outstanding loan balances are reported net of deferred loan costs and fees of $0.1 million and $2.2 million, respectively. At December 31, 2021, outstanding loan balances are reported net of deferred loan costs and fees of $0.2 million and $5.4 million, respectively. ​ 66 Table of Contents Loans Modified in a Troubled Debt Restructuring ​ Table 18 presents information on loans whose terms have been modified in a TDR as of March 31, 2022 and December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ Loans Modified in a Troubled Debt Restructuring ​ ​ ​ ​ ​ Table 18 ​ ​ March 31, ​ December 31, (dollars in thousands) 2022 2021 Commercial and industrial ​ $ 1,470 ​ $ 1,956 Commercial real estate ​ ​ 6,592 ​ ​ 7,121 Construction ​ ​ 678 ​ ​ 689 Total commercial ​ ​ 8,740 ​ ​ 9,766 Residential mortgage ​ ​ 10,005 ​ ​ 10,828 Total residential ​ ​ 10,005 ​ ​ 10,828 Consumer ​ ​ 15,197 ​ ​ 15,710 Total ​ $ 33,942 ​ $ 36,304 ​ Loans modified in a TDR were $33.9 million as of March 31, 2022, a decrease of $2.4 million or 7% from December 31, 2021. This decrease was primarily due to decreases in residential mortgage loans of $0.8 million, commercial real estate loans of $0.5 million, consumer loans of $0.5 million and commercial and industrial loans of $0.5 million. As of March 31, 2022, $32.6 million or 96% of our loans modified in a TDR were performing in accordance with their modified contractual terms and were on accrual status. ​ Generally, loans modified in a TDR are returned to accrual status after the borrower has demonstrated performance under the modified terms by making six consecutive timely payments. See “Note 4. Allowance for Credit Losses” contained in our unaudited interim consolidated financial statements for more information. ​ ​ 67 Table of Contents Allowance for Credit Losses for Loans and Leases & Reserve for Unfunded Commitments ​ Table 19 presents an analysis of our ACL for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ Allowance for Credit Losses ​ ​ ​ ​ Table 19 ​ Three Months Ended March 31, ​ (dollars in thousands) 2022 ​ 2021 ​ Balance at Beginning of Period $ 157,262 ​ $ 208,454 ​ Loans and Leases Charged-Off ​ ​ ​ ​ ​ ​ Commercial Loans: ​ ​ ​ ​ ​ ​ Commercial and industrial ​ (706) ​ ​ (963) ​ Commercial real estate ​ — ​ ​ (66) ​ Total Commercial Loans ​ (706) ​ ​ (1,029) ​ Residential Loans: ​ ​ ​ ​ ​ ​ Residential mortgage ​ — ​ ​ (98) ​ Home equity line ​ (43) ​ ​ — ​ Total Residential Loans ​ (43) ​ ​ (98) ​ Consumer ​ (4,109) ​ ​ (6,541) ​ Total Loans and Leases Charged-Off ​ (4,858) ​ ​ (7,668) ​ Recoveries on Loans and Leases Previously Charged-Off ​ ​ ​ ​ ​ ​ Commercial Loans: ​ ​ ​ ​ ​ ​ Commercial and industrial ​ 53 ​ ​ 215 ​ Commercial real estate ​ 14 ​ ​ 3 ​ Construction ​ — ​ ​ 166 ​ Total Commercial Loans ​ 67 ​ ​ 384 ​ Residential Loans: ​ ​ ​ ​ ​ ​ Residential mortgage ​ 16 ​ ​ 17 ​ Home equity line ​ 28 ​ ​ 24 ​ Total Residential Loans ​ 44 ​ ​ 41 ​ Consumer ​ 2,148 ​ ​ 2,655 ​ Total Recoveries on Loans and Leases Previously Charged-Off ​ 2,259 ​ ​ 3,080 ​ Net Loans and Leases Charged-Off ​ (2,599) ​ ​ (4,588) ​ Provision for Credit Losses - Loans and Leases ​ (4,383) ​ ​ (3,500) ​ Balance at End of Period $ 150,280 ​ $ 200,366 ​ Average Loans and Leases Outstanding $ 12,819,612 ​ $ 13,242,270 ​ Ratio of Net Loans and Leases Charged-Off to Average Loans and Leases Outstanding (1) ​ 0.08 % ​ 0.14 % Ratio of Allowance for Credit Losses for Loans and Leases to Loans and Leases Outstanding ​ 1.17 % ​ 1.51 % Ratio of Allowance for Credit Losses for Loans and Leases to Non-accrual Loans and Leases ​ 17.47x ​ ​ 22.00x ​ (1) Annualized for the three months ended March 31, 2022 and 2021. ​ Tables 20 and 21 present the allocation of the ACL by loan and lease category, in both dollars and as a percentage of total loans and leases outstanding as of March 31, 2022 and December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allocation of the Allowance for Credit Losses by Loan and Lease Category ​ ​ ​ ​ ​ ​ Table 20 ​ ​ March 31, 2022 ​ ​ ​ ​ ​ Allocated ​ Loan ​ ​ ​ ​ ​ ​ ACL as ​ category as ​ ​ ​ ​ ​ ​ % of loan or ​ % of total ​ ​ ​ ​ ​ ​ lease ​ loans and ​ (dollars in thousands) Amount ​ category ​ leases ​ Commercial and industrial ​ $ 19,160 ​ 1.00 % 14.92 % Commercial real estate ​ ​ 45,238 ​ 1.20 ​ 29.17 ​ Construction ​ ​ 8,908 ​ 1.26 ​ 5.49 ​ Lease financing ​ ​ 1,362 ​ 0.61 ​ 1.73 ​ Total commercial ​ ​ 74,668 ​ 1.13 ​ 51.31 ​ Residential mortgage ​ ​ 30,888 ​ 0.74 ​ 32.22 ​ Home equity line ​ ​ 5,084 ​ 0.55 ​ 7.12 ​ Total residential ​ ​ 35,972 ​ 0.71 ​ 39.34 ​ Consumer ​ ​ 39,640 ​ 3.29 ​ 9.35 ​ Total ​ $ 150,280 ​ 1.17 % 100.00 % ​ 68 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ Allocation of the Allowance for Credit Losses by Loan and Lease Category ​ ​ ​ ​ ​ ​ Table 21 ​ ​ December 31, 2021 ​ ​ ​ ​ ​ Allocated ​ Loan ​ ​ ​ ​ ​ ​ ACL as ​ category as ​ ​ ​ ​ ​ ​ % of loan or ​ % of total ​ ​ ​ ​ ​ ​ lease ​ loans and ​ ​ ​ Amount ​ category ​ leases ​ Commercial and industrial ​ $ 20,080 ​ 0.96 % 16.10 % Commercial real estate ​ ​ 42,951 ​ 1.18 ​ 28.08 ​ Construction ​ ​ 9,773 ​ 1.20 ​ 6.28 ​ Lease financing ​ ​ 1,659 ​ 0.72 ​ 1.79 ​ Total commercial ​ ​ 74,463 ​ 1.10 ​ 52.25 ​ Residential mortgage ​ ​ 34,364 ​ 0.84 ​ 31.50 ​ Home equity line ​ ​ 5,642 ​ 0.64 ​ 6.76 ​ Total residential ​ ​ 40,006 ​ 0.81 ​ 38.26 ​ Consumer ​ ​ 42,793 ​ 3.48 ​ 9.49 ​ Total ​ $ 157,262 ​ 1.21 % 100.00 % ​ Table 22 presents the net charge-offs (recoveries) to average loans and leases by category during the three months ended March 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Charge-Offs (Recoveries) to Average Loans and Leases By Category (1) ​ ​ ​ ​ ​ Table 22 ​ ​ Three Months Ended March 31, ​ ​ 2022 2021 Commercial and industrial ​ ​ 0.13 % ​ 0.10 % Commercial real estate ​ ​ — ​ ​ 0.01 ​ Construction ​ ​ — ​ ​ (0.09) ​ Lease financing ​ ​ — ​ ​ — ​ Total commercial ​ ​ 0.04 ​ ​ 0.04 ​ Residential mortgage ​ ​ — ​ ​ 0.01 ​ Home equity line ​ ​ 0.01 ​ ​ (0.01) ​ Total residential ​ ​ — ​ ​ — ​ Consumer ​ ​ 0.65 ​ ​ 1.19 ​ Total loans and leases ​ ​ 0.08 % ​ 0.14 % (1) Annualized for the three months ended March 31, 2022 and 2021. ​ As of March 31, 2022, the ACL was $150.3 million or 1.17% of total loans and leases outstanding, compared with an ACL of $157.3 million or 1.21% of total loans and leases outstanding as of December 31, 2021. The reserve for unfunded commitments was $29.0 million as of March 31, 2022, compared to $30.3 million as of December 31, 2021. ​ Net charge-offs of loans and leases were $2.6 million or 0.08% of total average loans and leases, on an annualized basis, for the three months ended March 31, 2022, compared to net charge-offs of $4.6 million or 0.14% for the three months ended March 31, 2021. Net charge-offs in our commercial lending portfolio were $0.6 million for both the three months ended March 31, 2022 and 2021. Net charge-offs in our residential lending portfolio were nil and $0.1 million for the three months ended March 31, 2022 and 2021, respectively. Net charge-offs in our consumer lending portfolio were $2.0 million and $3.9 million for the three months ended March 31, 2022 and 2021, respectively. Net charge-offs in our consumer portfolio segment include those related to credit cards, automobile loans, installment loans and small business lines of credit and reflect the inherent risk associated with these loans. ​ The decrease in the ACL was primarily due to the release of the COVID-19 overlay in the residential portfolio and continued improvement in credit quality during the first quarter of 2022. Additionally, the economic outlook moderately improved with downside risks due to inflation and geo-political instability that could impact credit losses. We will continue to closely monitor the uncertainty of the economy as it is recovering from the pandemic. ​ 69 Table of Contents Although we determine the amount of each component of the ACL separately, the ACL as a whole was considered appropriate by management as of March 31, 2022 and December 31, 2021. Furthermore, as of March 31, 2022, while the allocation of our ACL to our residential and consumer portfolio segments was lower as compared to December 31, 2021, the ACL was considered adequate based on our ongoing analysis of estimated expected credit losses, credit risk profiles, current economic outlook, coverage ratios and other relevant factors. We will continue to monitor factors that drive expected credit losses including the uncertainty of the economy as it is recovering from the pandemic and the impact on local businesses and our customers. See “Note 4. Allowance for Credit Losses” contained in our unaudited interim consolidated financial statements for more information on the ACL. ​ Goodwill ​ Goodwill was $995.5 million as of both March 31, 2022 and December 31, 2021. Our goodwill originated from the acquisition of the Company by BNP Paribas in December of 2001. Goodwill generated in that acquisition was recorded on the balance sheet of the Bank as a result of push down accounting treatment, and remains on our consolidated balance sheets. ​ The Company’s policy is to assess goodwill for impairment at the reporting unit level on an annual basis or between annual assessments if a triggering event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Impairment is the condition that exists when the carrying amount of a reporting unit exceeds its fair value. There was no impairment in our goodwill for the three months ended March 31, 2022. Future events, including the ongoing impacts of the COVID-19 pandemic, that could cause a significant decline in our expected future cash flows or a significant adverse change in our business or the business climate may necessitate taking charges in future reporting periods related to the impairment of our goodwill. ​ Other Assets ​ Other assets were $760.8 million as of March 31, 2022, an increase of $117.6 million or 18% from December 31, 2021. This increase was primarily due to a $132.5 million increase in current tax receivables and deferred tax assets, a $34.0 million increase in prepaid assets and a $8.7 million increase in municipal advances. This was partially offset by a $34.8 million decrease in interest rate swap agreements and a $27.2 million decrease in swap collateral receivable. ​ Deposits ​ Deposits are the primary funding source for the Bank and are acquired from a broad base of local markets, including both individual and corporate customers. We obtain funds from depositors by offering a range of deposit types, including demand, savings, money market and time. ​ 70 Table of Contents Table 23 presents the composition of our deposits as of March 31, 2022 and December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ Deposits ​ ​ ​ ​ ​ Table 23 ​ ​ March 31, ​ December 31, (dollars in thousands) 2022 2021 U.S.: ​ ​ ​ ​ ​ ​ Demand ​ $ 8,855,088 ​ $ 8,498,187 Savings ​ ​ 6,406,078 ​ ​ 6,214,566 Money Market ​ ​ 3,723,426 ​ ​ 3,751,054 Time ​ ​ 1,512,849 ​ ​ 1,587,678 Foreign (1) : ​ ​ ​ ​ ​ ​ Demand ​ ​ 910,521 ​ ​ 895,676 Savings ​ ​ 406,680 ​ ​ 398,209 Money Market ​ ​ 266,799 ​ ​ 282,016 Time ​ ​ 188,989 ​ ​ 188,760 Total Deposits (2) ​ $ 22,270,430 ​ $ 21,816,146 (1) Foreign deposits were comprised of Guam and Saipan deposit accounts. (2) Public deposits were $1.1 billion as of March 31, 2022, an increase of $33.7 million or 3% compared to December 31, 2021. ​ Total deposits were $22.3 billion as of March 31, 2022, an increase of $454.3 million or 2% from December 31, 2021. The increase in deposit balances stemmed primarily from a $352.4 million increase in non-public demand deposit balances and a $149.4 million increase in non-public savings deposit balances. These increases were partially offset by a $74.6 million decrease in total time deposit balances. ​ As of March 31, 2022 and December 31, 2021, the Company had $15.1 billion and $14.7 billion, respectively, in uninsured deposits. ​ Table 24 presents the amount of time deposits that were in excess of the FDIC insurance limit, further segregated by time remaining until maturity, as of March 31, 2022: ​ ​ ​ ​ ​ Uninsured Time Deposits ​ ​ Table 24 (dollars in thousands) ​ March 31, 2022 Three months or less ​ $ 249,751 Over three through six months ​ ​ 173,301 Over six through twelve months ​ ​ 578,435 Over twelve months ​ ​ 123,018 Total ​ $ 1,124,505 ​ Pension and Postretirement Plan Obligations ​ We have a noncontributory qualified defined benefit pension plan, an unfunded supplemental executive retirement plan (“SERP”), a directors’ retirement plan (a non-qualified pension plan for eligible directors) and a postretirement benefit plan providing life insurance and healthcare benefits that we offer to our directors and employees, as applicable. The noncontributory qualified defined benefit pension plan, the unfunded supplemental executive retirement plan and the directors’ retirement plan are all frozen to new participants. On March 11, 2019, the Company’s board of directors approved an amendment to the SERP to freeze the SERP. As a result of such amendment, effective July 1, 2019, there are no new accruals of benefits, including service accruals. To calculate annual pension costs, we use the following key variables: (1) size of the employee population, length of service and estimated compensation increases; (2) actuarial assumptions and estimates; (3) expected long-term rate of return on plan assets; and (4) discount rate. ​ Pension and postretirement benefit plan obligations, net of pension plan assets, were $119.2 million as of March 31, 2022, a nominal increase from December 31, 2021. This increase was primarily due to net periodic benefit costs for the three months ended March 31, 2022 of $2.1 million, offset by payments of $2.1 million. ​ See “Note 14. Noninterest Income and Noninterest Expense” contained in our unaudited interim consolidated financial statements for more information on our pension and postretirement benefit plans. ​ 71 Table of Contents Capital ​ The bank regulators currently use a combination of risk-based ratios and a leverage ratio to evaluate capital adequacy. The Company and the Bank are subject to the federal bank regulators’ final rules implementing Basel III and various provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Capital Rules”). ​ The Capital Rules, among other things impose a capital measure called CET1, to which most deductions/adjustments to regulatory capital must be made. In addition, the Capital Rules specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain specified requirements. ​ Under the Capital Rules, the minimum capital ratios are as follows: ​ ● 4.5% CET1 capital to risk-weighted assets, ● 6.0% Tier 1 capital (that is, CET1 capital plus Additional Tier 1 capital) to risk-weighted assets, ● 8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets, and ● 4.0% Tier 1 capital to average quarterly assets. The Capital Rules also require a 2.5% capital conservation buffer designed to absorb losses during periods of economic stress. The capital conservation buffer is composed entirely of CET1, on top of these minimum risk weighted asset ratios, effectively resulting in minimum ratios of (i) 7% CET1 to risk-weighted assets, (ii) 8.5% Tier 1 capital to risk-weighted assets, and (iii) 10.5% total capital to risk-weighted assets. ​ As of March 31, 2022, the Company’s capital levels remained characterized as “well capitalized” under the Capital Rules. Our regulatory capital ratios, calculated in accordance with the Capital Rules, are presented in Table 25 below. There have been no conditions or events since March 31, 2022 that management believes have changed either the Company’s or the Bank’s capital classifications. CET1 was 12.27% as of March 31, 2022, an increase of three basis points from December 31, 2021. The increase in CET1 was primarily due to earnings for the three months ended March 31, 2022, partially offset by the dividends declared and paid to the Company’s stockholders. ​ ​ ​ ​ ​ ​ ​ ​ ​ Regulatory Capital ​ ​ ​ ​ ​ Table 25 ​ ​ March 31, ​ December 31, ​ (dollars in thousands) 2022 ​ 2021 ​ Stockholders' Equity ​ $ 2,285,149 ​ $ 2,656,912 ​ Less: ​ ​ ​ ​ ​ ​ ​ Goodwill ​ ​ 995,492 ​ ​ 995,492 ​ Accumulated other comprehensive (loss) income, net ​ ​ (517,502) ​ ​ (121,693) ​ Tax credit carryforward ​ ​ 1,044 ​ ​ — ​ Common Equity Tier 1 Capital and Tier 1 Capital ​ $ 1,806,115 ​ $ 1,783,113 ​ Add: ​ ​ ​ ​ ​ ​ ​ Qualifying allowance for credit losses and reserve for unfunded commitments ​ ​ 179,238 ​ ​ 182,167 ​ Total Capital ​ $ 1,985,353 ​ $ 1,965,280 ​ Risk-Weighted Assets ​ $ 14,722,840 ​ $ 14,567,961 ​ ​ ​ ​ ​ ​ ​ ​ ​ Key Regulatory Capital Ratios ​ ​ ​ ​ ​ ​ ​ Common Equity Tier 1 Capital Ratio ​ ​ 12.27 % ​ 12.24 % Tier 1 Capital Ratio ​ ​ 12.27 % ​ 12.24 % Total Capital Ratio ​ ​ 13.48 % ​ 13.49 % Tier 1 Leverage Ratio ​ ​ 7.50 % ​ 7.24 % ​ Total stockholders’ equity was $2.3 billion as of March 31, 2022, a decrease of $371.8 million or 14% from December 31, 2021. The decrease in stockholders’ equity was primarily due to a net unrealized loss in the fair value of our investment securities, net of tax, of $394.6 million and dividends declared and paid to the Company’s stockholders of $33.2 million, partially offset by earnings for the period of $57.7 million during the three months ended March 31, 2022. ​ 72 Table of Contents In January 2022, the Company announced a stock repurchase program for up to $75.0 million of its outstanding common stock during 2022. As of March 31, 2022, $75.0 million remained of the $75.0 million total repurchase amount authorized under the stock repurchase program for 2022. The timing and amount of stock repurchases are influenced by various internal and external factors. ​ In April 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.26 per share on our outstanding shares. The dividend will be paid on June 3, 2022 to shareholders of record at the close of business on May 23, 2022. ​ Future Application of Accounting Pronouncements ​ For a discussion of the expected impact of accounting pronouncements recently issued but not adopted by us as of March 31, 2022, see “Note 1. Organization and Basis of Presentation — Recent Accounting Pronouncements” to the unaudited interim consolidated financial statements for more information. ​ Risk Governance and Quantitative and Qualitative Disclosures About Market Risk ​ Managing risk is an essential part of successfully operating our business. Management believes that the most prominent risk exposures for the Company are credit risk, market risk, liquidity risk management, capital management and operational risk. See “Analysis of Financial Condition — Liquidity and Capital Resources” and “—Capital” sections of this MD&A for further discussions of liquidity risk management and capital management, respectively. ​ Credit Risk ​ Credit risk is the risk that borrowers or counterparties will be unable or unwilling to repay their obligations in accordance with the underlying contractual terms. We manage and control credit risk in the loan and lease portfolio by adhering to well-defined underwriting criteria and account administration standards established by management. Written credit policies document underwriting standards, approval levels, exposure limits and other limits or standards deemed necessary and prudent. Portfolio diversification at the obligor, industry, product, and/or geographic location levels is actively managed to mitigate concentration risk. In addition, credit risk management includes an independent credit review process that assesses compliance with commercial, real estate and consumer credit policies, risk ratings and other critical credit information. In addition to implementing risk management practices that are based upon established and sound lending practices, we adhere to sound credit principles. We understand and evaluate our customers’ borrowing needs and capacity to repay, in conjunction with their character and history. ​ Management has identified three categories of loans that we use to develop our systematic methodology to determine the ACL: commercial, residential and consumer. ​ Commercial lending is further categorized into four distinct classes based on characteristics relating to the borrower, transaction and collateral. These classes are: commercial and industrial, commercial real estate, construction and lease financing. Commercial and industrial loans are primarily for the purpose of financing equipment acquisition, expansion, working capital and other general business purposes by medium to larger Hawaii based corporations, as well as U.S. mainland and international companies. Commercial and industrial loans are typically secured by non-real estate assets whereby the collateral is trading assets, enterprise value or inventory. As with many of our customers, our commercial and industrial loan customers are heavily dependent on tourism, government expenditures and real estate values. Commercial real estate loans are secured by real estate, including but not limited to structures and facilities to support activities designated as retail, health care, general office space, warehouse and industrial space. Our Bank’s underwriting policy generally requires that net cash flows from the property be sufficient to service the debt while still maintaining an appropriate amount of reserves. Commercial real estate loans in Hawaii are characterized by having a limited supply of real estate at commercially attractive locations, long delivery time frames for development and high interest rate sensitivity. Our construction lending portfolio consists primarily of land loans, single family and condominium development loans. Financing of construction loans is subject to a high degree of credit risk given the long delivery time frames for such projects. Construction lending activities are underwritten on a project financing basis whereby the cash flows or lease rents from the underlying real estate collateral or the sale of the finished inventory is the primary source of repayment. Market feasibility analysis is typically performed by assessing market comparables, market conditions and demand in the specific lending area and general community. We require presales of finished inventory prior to loan funding. However, because this analysis is typically performed on a forward looking basis, real estate construction projects typically present a higher risk profile in our lending activities. Lease financing activities include commercial single investor leases and leveraged leases used to purchase items ranging from computer 73 Table of Contents equipment to transportation equipment. Underwriting of new leasing arrangements typically includes analyzing customer cash flows, evaluating secondary sources of repayment, such as the value of the leased asset, the guarantors’ net cash flows as well as other credit enhancements provided by the lessee. ​ Residential lending is further categorized into the following classes: residential mortgages (loans secured by 1-4 family residential properties and home equity loans) and home equity lines of credit. Our Bank’s underwriting standards typically require LTV ratios of not more than 80%, although higher levels are permitted with accompanying mortgage insurance. First mortgage loans secured by residential properties generally carry a moderate level of credit risk, with an average loan size of approximately $381,000. Residential mortgage loan production is added to our loan portfolio or is sold in the secondary market, based on management’s evaluation of our liquidity, capital and loan portfolio mix as well as market conditions. Changes in interest rates, the economic environment and other market factors have impacted, and will likely continue to impact, the marketability and value of collateral and the financial condition of our borrowers which impacts the level of credit risk inherent in this portfolio, although we remain in a supply constrained housing environment in Hawaii. Geographic concentrations exist for this portfolio as nearly all residential mortgage loans and home equity lines of credit are for residences located in Hawaii, Guam or Saipan. These island locales are susceptible to a wide array of potential natural disasters including, but not limited to, hurricanes, floods, tsunamis and earthquakes. We offer home equity lines of credit with variable rates; fixed rate lock options may be available post-closing. All lines are underwritten at 2% over the fully indexed rate. Our procedures for underwriting home equity lines of credit include an assessment of an applicant’s overall financial capacity and repayment ability. Decisions are primarily based on repayment ability via debt-to-income ratios, LTV ratios and an evaluation of credit history. ​ Consumer lending is further categorized into the following classes of loans: credit cards, automobile loans and other consumer-related installment loans. Consumer loans are either unsecured or secured by the borrower’s personal assets. The average loan size is generally small and risk is diversified among many borrowers. We offer a wide array of credit cards for business and personal use. In general, our customers are attracted to our credit card offerings on the basis of price, credit limit, reward programs and other product features. Credit card underwriting decisions are generally based on repayment ability of our borrower via DTI ratios, credit bureau information, including payment history, debt burden and credit scores, such as FICO, and analysis of financial capacity. Automobile lending activities include loans and leases secured by new or used automobiles. We originate the majority of our automobile loans and leases on an indirect basis through selected dealerships. Our procedures for underwriting automobile loans include an assessment of an applicant’s overall financial capacity and repayment ability, credit history and the ability to meet existing obligations and payments on the proposed loan or lease. Although an applicant’s creditworthiness is the primary consideration, the underwriting process also includes a comparison of the value of the collateral security to the proposed loan amount. We require borrowers to maintain full coverage automobile insurance on automobile loans and leases, with the Bank listed as either the loss payee or additional insured. Installment loans consist of open and closed end facilities for personal and household purchases. We seek to maintain reasonable levels of risk in installment lending by following prudent underwriting guidelines which include an evaluation of personal credit history and cash flow. ​ In addition to geographic concentration risk, we also monitor our exposure to industry risk. While the Bank, our customers and our results of operations could be adversely impacted by events affecting the tourism industry, we also monitor our other industry exposures, including, but not limited to, our exposures in the oil, gas and energy industries. As of March 31, 2022 and December 31, 2021, we did not have material exposures to customers in the oil, gas and energy industries. ​ Market Risk ​ Market risk is the potential of loss arising from changes in interest rates, foreign exchange rates, equity prices and commodity prices, including the correlation among these factors and their volatility. When the value of an instrument is tied to such external factors, the holder faces market risk. We are exposed to market risk primarily from interest rate risk, which is defined as the risk of loss of net interest income or net interest margin because of changes in interest rates. ​ The potential cash flows, sales or replacement value of many of our assets and liabilities, especially those that earn or pay interest, are sensitive to changes in the general level of interest rates. In the banking industry, changes in interest rates can significantly impact earnings and the safety and soundness of an entity. ​ 74 Table of Contents Interest rate risk arises primarily from our core business activities of extending loans and accepting deposits. This occurs when our interest earning loans and interest-bearing deposits mature or reprice at different times, on a different basis or in unequal amounts. Interest rates may also affect loan demand, credit losses, mortgage origination volume, pre- payment speeds and other items affecting earnings. ​ Many factors affect our exposure to changes in interest rates, such as general economic and financial conditions, customer preferences, historical pricing relationships and repricing characteristics of financial instruments. Our earnings are affected not only by general economic conditions, but also by the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve. The monetary policies of the Federal Reserve can influence the overall growth of loans, investment securities and deposits and the level of interest rates earned on assets and paid for liabilities. ​ Market Risk Measurement ​ We primarily use net interest income simulation analysis to measure and analyze interest rate risk. We run various hypothetical interest rate scenarios and compare these results against a measured base case scenario. Our net interest income simulation analysis incorporates various assumptions, which we believe are reasonable but which may have a significant impact on results. These assumptions include: (1) the timing of changes in interest rates, (2) shifts or rotations in the yield curve, (3) re-pricing characteristics for market rate sensitive instruments on and off-balance sheet, (4) differing sensitivities of financial instruments due to differing underlying rate indices and (5) varying loan prepayment speeds for different interest rate scenarios. Because of limitations inherent in any approach used to measure interest rate risk, simulation results are not intended as a forecast of the actual effect of a change in market interest rates on our results but rather as a means to better plan and execute appropriate asset liability management strategies to manage our interest rate risk. ​ Table 26 presents, for the twelve months subsequent to March 31, 2022 and December 31, 2021, an estimate of the changes in net interest income that would result from ramps (gradual changes) and shocks (immediate changes) in market interest rates, moving in a parallel fashion over the entire yield curve, relative to the measured base case scenario. Ramp scenarios assume interest rates move gradually in parallel across the yield curve relative to the base case scenario. Shock scenarios assume an immediate and sustained parallel shift in interest rates across the entire yield curve, relative to the base case scenario. The base case scenario assumes that the balance sheet and interest rates are generally unchanged. We evaluate the sensitivity by using a static forecast, where the balance sheets as of March 31, 2022 and December 31, 2021 are held constant. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Interest Income Sensitivity Profile - Estimated Percentage Change Over 12 Months ​ ​ Table 26 ​ ​ ​ Static Forecast ​ ​ Static Forecast ​ ​ ​ March 31, 2022 ​ December 31, 2021 ​ Ramp Change in Interest Rates (basis points) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ +100 ​ ​ ​ ​ 5.0 % ​ ​ ​ 6.1 % +50 ​ ​ ​ ​ 2.5 ​ ​ ​ ​ 3.1 ​ (50) ​ ​ ​ ​ (2.4) ​ ​ ​ ​ (1.4) ​ (100) ​ ​ ​ ​ (3.6) ​ ​ ​ ​ (2.4) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Immediate Change in Interest Rates (basis points) ​ ​ ​ ​ ​ ​ ​ ​ ​ +100 ​ ​ ​ ​ 9.8 % ​ ​ ​ 11.8 % +50 ​ ​ ​ ​ 4.9 ​ ​ ​ ​ 6.0 ​ (50) ​ ​ ​ ​ (4.4) ​ ​ ​ ​ (2.9) ​ (100) ​ ​ ​ ​ (6.1) ​ ​ ​ ​ (5.7) ​ ​ The table above shows the effects of a simulation which estimates the effect of a gradual and immediate sustained parallel shift in the yield curve of −100, −50, +50 and +100 basis points in market interest rates over a twelve-month period on our net interest income. ​ Currently, our interest rate profile is such that we project net interest income will benefit from higher interest rates as our assets would reprice faster and to a greater degree than our liabilities, while in the case of lower interest rates, our assets would reprice downward and to a greater degree than our liabilities. ​ 75 Table of Contents Under the static balance sheet forecast as of March 31, 2022, our net interest income sensitivity profile is slightly lower in higher interest rate scenarios compared to similar forecasts as of December 31, 2021. The sensitivity outcomes described above are primarily due to the higher rate environment and lower forecasted prepayments of mortgage assets as of March 31, 2022 as compared with December 31, 2021. ​ The comparisons above provide insight into the potential effects of changes in interest rates on net interest income. The Company believes that its approach to interest rate risk has appropriately considered its susceptibility to both rising and falling rates and has adopted strategies which minimize the impact of such risks. ​ We also have longer term interest rate risk exposures which may not be appropriately measured by net interest income simulation analysis. We use market value of equity (“MVE”) sensitivity analysis to study the impact of long-term cash flows on earnings and capital. MVE involves discounting present values of all cash flows of on-balance sheet and off-balance sheet items under different interest rate scenarios. The discounted present value of all cash flows represents our MVE. MVE analysis requires modifying the expected cash flows in each interest rate scenario, which will impact the discounted present value. The amount of base case measurement and its sensitivity to shifts in the yield curve allow management to measure longer term repricing option risk in the balance sheet. ​ Limitations of Market Risk Measures ​ The results of our simulation analyses are hypothetical, and a variety of factors might cause actual results to differ substantially from what is depicted. For example, if the timing and magnitude of interest rate changes differ from those projected, our net interest income might vary significantly. Non parallel yield curve shifts such as a flattening or steepening of the yield curve or changes in interest rate spreads would also cause our net interest income to be different from that depicted. An increasing interest rate environment could reduce projected net interest income if deposits and other short-term liabilities re-price faster than expected or faster than our assets re-price. Actual results could differ from those projected if we grow assets and liabilities faster or slower than estimated, if we experience a net outflow of deposits or if our mix of assets and liabilities otherwise changes. For example, while we maintain relatively high levels of liquidity, a faster than expected withdrawal of deposits out of the bank may cause us to seek higher cost sources of funding. Actual results could also differ from those projected if we experience substantially different prepayment speeds in our loan portfolio than those assumed in the simulation analyses. Finally, these simulation results do not consider all the actions that we may undertake in response to potential or actual changes in interest rates, such as changes to our loan, investment, deposit, funding or hedging strategies. ​ Market Risk Governance ​ We seek to achieve consistent growth in net interest income and capital while managing volatility arising from changes in market interest rates. The objective of our interest rate risk management process is to increase net interest income while operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity. ​ To manage the impact on net interest income, we manage our exposure to changes in interest rates through our asset and liability management activities within guidelines established by our ALCO and approved by our board of directors. The ALCO has the responsibility for approving and ensuring compliance with the ALCO management policies, including interest rate risk exposures. The objective of our interest rate risk management process is to maximize net interest income while operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity. ​ Through review and oversight by the ALCO, we attempt to engage in strategies that neutralize interest rate risk as much as possible. Our use of derivative financial instruments, as detailed in “Note 10. Derivative Financial Instruments” to the unaudited interim consolidated financial statements, has generally been limited. This is due to natural on balance sheet hedges arising out of offsetting interest rate exposures from loans and investment securities with deposits and other interest-bearing liabilities. In particular, the investment securities portfolio is utilized to manage the interest rate exposure and sensitivity to within the guidelines and limits established by the ALCO. We utilize natural and offsetting economic hedges in an effort to reduce the need to employ off-balance sheet derivative financial instruments to hedge interest rate risk exposures. Expected movements in interest rates are also considered in managing interest rate risk. Thus, as interest rates change, we may use different techniques to manage interest rate risk. ​ Management uses the results of its various simulation analyses to formulate strategies to achieve a desired risk profile within the parameters of our capital and liquidity guidelines. ​ 76 Table of Contents In addition, our business relies upon a large volume of loans, derivative contracts and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR to establish their interest rate and/or value. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has announced that publication of the most commonly used U.S. Dollar LIBOR settings will cease to be provided or cease to be representative after June 30, 2023. The publication of all other LIBOR settings ceased to be provided or ceased to be representative as of December 31, 2021. The U.S. federal banking agencies issued guidance strongly encouraging banking organizations to cease using the U.S. Dollar LIBOR as a reference rate in “new” contracts by December 31, 2021 at the latest. As such, effective December 31, 2021, we have ceased the use of U.S Dollar LIBOR as a reference rate on all new contracts. Although the full impact of alternatives to LIBOR on the valuations, pricing and operation of our financial instruments is not yet known, we have established a working group, consisting of key stakeholders from throughout the Company, to spearhead the continued transition from LIBOR to alternative reference rates. In the United States, LIBOR-priced transactions and products will transfer to the Secured Overnight Financing Rate (“SOFR”), Prime Rate or other similar indices (collectively, “Alternative Rates”). There are risks inherent with the transition to any Alternative Rate as the rate may behave differently than LIBOR in reaction to monetary, market and economic events. ​ Our LIBOR transition plan is organized around key work streams, including work to ensure that our technology systems are prepared for the transition, our loan documents that reference LIBOR-based rates have been appropriately amended to reference other methods of interest rate determinations and internal and external stakeholders are apprised of the transition. We have implemented certain SOFR and BSBY conventions and are in the process of developing other products and transaction agreements that are based on reference rates other than LIBOR. To see the recorded investment in our loan and lease portfolio by rate type, refer to Table 11 in the section titled “Loans and Leases” in this MD&A. ​ For a further discussion of the various risks the Company faces in connection with the expected replacement of LIBOR on its operations, see “Risk Factors—Market Risks—Certain of our businesses, our funding and financial products may be adversely affected by changes or the discontinuance of LIBOR” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022. ​ Operational Risk ​ Operational risk is the risk of loss arising from inadequate or failed processes, people or systems, external events (such as natural disasters), or compliance, reputational or legal matters, including the risk of loss resulting from fraud, litigation and breaches in data security. Operational risk is inherent in all of our business ventures and the management of that risk is important to the achievement of our objectives. We have a framework in place that includes the reporting and assessment of any operational risk events, and the assessment of our mitigating strategies within our key business lines. This framework is implemented through our policies, processes and reporting requirements. We measure and report operational risk using the seven operational risk event types projected by the Basel Committee on Banking Supervision in Basel II: (1) external fraud; (2) internal fraud; (3) employment practices and workplace safety; (4) clients, products and business practices; (5) damage to physical assets; (6) business disruption and system failures; and (7) execution, delivery and process management. Our operational risk review process is also a core part of our assessment of material new products or activities. ​ ​ 77 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ​ See “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Governance and Quantitative and Qualitative Disclosures About Market Risk.” ​