FIRST HAWAIIAN, INC. (FHB)

CIK: 0000036377. SIC: 6022 State Commercial Banks. Latest 10-K as of: 2026-02-27.

SIC breadcrumb: Finance, Insurance, And Real Estate > Depository Institutions > SIC 6022 State Commercial Banks

SEC company page: https://www.sec.gov/edgar/browse/?CIK=36377. Latest filing source: 0001104659-26-021544.

Selected Fundamentals

Metric	Value	Unit	FY	Filed
Revenue	880,788,000	USD	2025	2026-02-27
Net income	276,266,000	USD	2025	2026-02-27
Assets	23,955,252,000	USD	2025	2026-02-27

Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-02-27. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0000036377.json. Derived margins are computed from the extracted annual SEC facts.

Flow metrics use full-year FY periods from 10-K/10-K/A filings; balance-sheet metrics use FY-end instants. Missing metrics are omitted rather than fabricated.

Metric	2016	2017	2018	2019	2020	2021	2022	2023	2024	2025
Revenue			745,311,000	765,935,000	733,114,000	715,475,000	793,074,000	836,942,000	808,541,000	880,788,000
Net income	230,178,000	183,682,000	264,394,000	284,392,000	185,754,000	265,735,000	265,685,000	234,983,000	230,129,000	276,266,000
Diluted EPS	1.65	1.32	1.93	2.13	1.43	2.05	2.08	1.84	1.79	2.20
Assets	19,661,829,000	20,549,461,000	20,695,678,000	20,166,734,000	22,662,831,000	24,992,410,000	24,577,223,000	24,926,474,000	23,828,186,000	23,955,252,000
Liabilities	17,185,344,000	18,016,910,000	18,170,839,000	17,526,476,000	19,918,727,000	22,335,498,000	22,308,218,000	22,440,408,000	21,210,700,000	21,185,887,000
Stockholders' equity	2,476,485,000	2,532,551,000	2,524,839,000	2,640,258,000	2,744,104,000	2,656,912,000	2,269,005,000	2,486,066,000	2,617,486,000	2,769,365,000
Net margin			35.47%	37.13%	25.34%	37.14%	33.50%	28.08%	28.46%	31.37%

Financial Charts

Quarterly

Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-05-04. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0000036377.json.

Flow metrics use discrete quarter-length periods from 10-Q/10-Q/A filings. Q4 revenue and net income are derived only when annual FY and nine-month YTD facts exist for the same fiscal year; derived Q4 values are labeled. EPS Q4 is not derived.

Quarter	End Date	Revenue	Net Income	Diluted EPS	Method
2022-Q2	2022-06-30			0.46	reported discrete quarter
2022-Q3	2022-09-30			0.54	reported discrete quarter
2023-Q1	2023-03-31			0.52	reported discrete quarter
2023-Q2	2023-06-30	207,287,000	62,442,000	0.49	reported discrete quarter
2023-Q3	2023-09-30	203,245,000	58,221,000	0.46	reported discrete quarter
2023-Q4	2023-12-31	210,140,000	47,502,000		derived Q4 = FY annual - nine-month YTD
2024-Q1	2024-03-31	205,798,000	54,220,000	0.42	reported discrete quarter
2024-Q2	2024-06-30	204,619,000	61,921,000	0.48	reported discrete quarter
2024-Q3	2024-09-30	209,995,000	61,492,000	0.48	reported discrete quarter
2024-Q4	2024-12-31	188,129,000	52,496,000		derived Q4 = FY annual - nine-month YTD
2025-Q1	2025-03-31	211,003,000	59,248,000	0.47	reported discrete quarter
2025-Q2	2025-06-30	217,541,000	73,247,000	0.58	reported discrete quarter
2025-Q3	2025-09-30	226,391,000	73,840,000	0.59	reported discrete quarter
2025-Q4	2025-12-31	225,853,000	69,931,000		derived Q4 = FY annual - nine-month YTD
2026-Q1	2026-03-31	220,349,000	67,784,000	0.55	reported discrete quarter

Quarterly Charts

Macro Cross-References

CPIAUCSL - Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
UNRATE - Unemployment Rate
FEDFUNDS - Federal Funds Effective Rate
CES0500000003 - Average Hourly Earnings of All Employees, Total Private
DFEDTARU - Federal Funds Target Range - Upper Limit
DFEDTARL - Federal Funds Target Range - Lower Limit
DGS3MO - Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
DGS2 - Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
DGS10 - Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
DGS30 - Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
T10Y2Y - 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
CPILFESL - Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
CPIUFDSL - Consumer Price Index for All Urban Consumers: Food
CPIENGSL - Consumer Price Index for All Urban Consumers: Energy
CUSR0000SAH1 - Consumer Price Index for All Urban Consumers: Shelter
PCEPI - Personal Consumption Expenditures: Chain-type Price Index
PCEPILFE - Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
PPIACO - Producer Price Index by Commodity: All Commodities
T10YIE - 10-Year Breakeven Inflation Rate
U6RATE - Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
PAYEMS - All Employees, Total Nonfarm
CIVPART - Labor Force Participation Rate
EMRATIO - Employment-Population Ratio
UNEMPLOY - Unemployed
CE16OV - Employment Level
ICSA - Initial Claims
JTSJOL - Job Openings: Total Nonfarm
JTSQUR - Quits: Total Nonfarm
GDPC1 - Real Gross Domestic Product
A191RL1Q225SBEA - Real Gross Domestic Product: Percent Change from Preceding Period
INDPRO - Industrial Production: Total Index
TCU - Capacity Utilization: Total Index
HOUST - New Privately-Owned Housing Units Started: Total Units
PERMIT - New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
RSAFS - Advance Retail Sales: Retail Trade
PCE - Personal Consumption Expenditures
DSPIC96 - Real Disposable Personal Income
PSAVERT - Personal Saving Rate
M2SL - M2
BOPGSTB - U.S. International Trade in Goods and Services: Balance
MSPUS - Median Sales Price of Houses Sold for the United States
HSN1F - New One Family Houses Sold: United States
RHORUSQ156N - Homeownership Rate in the United States
TTLCONS - Total Construction Spending: Total Construction in the United States
RRVRUSQ156N - Rental Vacancy Rate in the United States
TOTALSL - Total Consumer Credit Owned and Securitized
REVOLSL - Revolving Consumer Credit Owned and Securitized
DRCCLACBS - Delinquency Rate on Credit Card Loans, All Commercial Banks
GDP - Gross Domestic Product
GPDI - Gross Private Domestic Investment
GCE - Government Consumption Expenditures and Gross Investment
PCEC - Personal Consumption Expenditures
NETEXP - Net Exports of Goods and Services
GFDEBTN - Federal Debt: Total Public Debt
GFDEGDQ188S - Federal Debt: Total Public Debt as Percent of Gross Domestic Product
FYFSD - Federal Surplus or Deficit
FGRECPT - Federal Government Current Receipts
FGEXPND - Federal Government: Current Expenditures
MANEMP - All Employees, Manufacturing
USCONS - All Employees, Construction
USTRADE - All Employees, Retail Trade
USFIRE - All Employees, Financial Activities
USGOVT - All Employees, Government
AWHAETP - Average Weekly Hours of All Employees, Total Private
DGORDER - Manufacturers' New Orders: Durable Goods
NEWORDER - Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft
BUSINV - Total Business Inventories
EXPGS - Exports of Goods and Services
IMPGS - Imports of Goods and Services
IR - Import Price Index (End Use): All Commodities
PPIFIS - Producer Price Index by Commodity: Final Demand

Latest quarter (10-Q)

Latest 10-Q source: 0001104659-26-054867.

Extracted between Part I Item 2 and the next Item 3/4 or Part II heading after HTML sanitization. Confidence: high. Filing date: 2026-05-04. Report date: 2026-03-31.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Cautionary Note Regarding Forward-Looking Statements



This Quarterly Report on Form 10-Q, including the documents incorporated by reference herein, contains, and from time to time our management may make, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would,” “annualized” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. Statements that are not historical or current facts, are forward-looking statements, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.



A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including the following: the geographic concentration of our business, current and future market and economic conditions generally or in Hawaii, Guam and Saipan in particular, including inflationary pressures and interest rate environment; our dependence on the real estate markets in which we operate; concentrated exposures to certain asset classes and individual obligors; the effect of changes in interest rates on our business, including our net interest income, net interest margin, the fair value of our investment securities, and our mortgage loan originations, mortgage servicing rights and mortgage loans held for sale; the future value of the investment securities that we own; the possibility of a deterioration in credit quality in our portfolio; the possibility we might underestimate the credit losses inherent in our loan and lease portfolio; our ability to attract and retain customer deposits; our inability to receive dividends from our bank, pay dividends to our common stockholders and satisfy obligations as they become due; our access to sources of liquidity and capital to address our liquidity needs; our ability to attract and retain skilled employees or changes in our management personnel; our ability to maintain our Bank's reputation; the failure to properly use and protect our customer and employee information and data; the possibility of employee misconduct or mistakes; the actual or perceived soundness of other financial institutions; the effectiveness of our risk management and internal disclosure controls and procedures; our ability to keep pace with technological changes; any failure or interruption of our information and communications systems; our ability to effectively compete with other financial services companies and the effects of competition in the financial services industry on our business; our ability to identify and address cybersecurity risks; the occurrence of fraudulent activity or effect of a material breach of, or disruption to, the security of any of our or our vendors’ systems; the development and use of AI; our ability to successfully develop and commercialize new or enhanced products and services; changes in the demand for our products and services; risks associated with the sale of loans and with our use of appraisals in valuing and monitoring loans; the possibility that actual results may differ from estimates and forecasts; fluctuations in the fair value of our assets and liabilities and off-balance sheet exposures; the effects of the failure of any component of our business infrastructure provided by a third party; the potential for environmental liability; the risk of being subject to litigation and the outcome thereof; the impact of, and changes in, applicable laws, regulations and accounting standards and policies; possible changes in trade, monetary and fiscal policies of, and other activities undertaken by, governments, agencies, central banks and similar organizations, including trade and other geopolitical tensions resulting from conflicts in the Middle East, the imposition of tariffs and tightening of export control regulations; the effects of severe weather, geopolitical instability, including war, terrorist attacks, pandemics or other severe health emergencies and natural disasters and other external events; the potential impact of climate change; our ability to maintain consistent growth, earnings and profitability; our likelihood of success in, and the impact of, litigation or regulatory actions; our ability to continue to pay dividends on our common stock;  contingent liabilities and unexpected tax liabilities that may be applicable to us as a result of the Reorganization Transactions; and damage to our reputation from any of the factors described above.

47

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, 2025. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by applicable law.



Company Overview



FHI is a bank holding company, which owns 100% of the outstanding common stock of FHB, its only direct, wholly owned subsidiary. FHB was founded in 1858 under the name Bishop & Company and was the first successful banking partnership in the Kingdom of Hawaii and the second oldest bank formed west of the Mississippi River. The Bank operates its business through two operating segments: Retail Banking and Commercial Banking. All other activities, including Treasury, are reported in Corporate/Other.



References to “we,” “our,” “us,” or the “Company” refer to the Parent and its subsidiary that are consolidated for financial reporting purposes.



Basis of Presentation



The accompanying unaudited interim consolidated financial statements of the Company reflect the results of operations, financial position and cash flows of FHI and its wholly owned subsidiary, FHB. All significant intercompany accounts and transactions have been eliminated in consolidation.



The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and accompanying notes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect normal recurring adjustments necessary for a fair presentation of the results for the interim periods.



The accompanying unaudited interim consolidated financial statements of the Company should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 and filed with the U.S. Securities and Exchange Commission (the “SEC”).



Hawaii Economy



Hawaii’s economy continues to remain resilient in an environment facing challenges, including from: high consumer prices and housing affordability, both of which are expected to continue with the gradual pass-through of tariffs and the ongoing conflict with Iran; a steady out-migration of its population; adverse weather events, such as the Kona Low storms, alongside rising insurance costs; and slower economic growth with a 1.7% forecasted increase in the real gross domestic product for Hawaii in 2026 as compared to a 2.2% forecasted increase for the United States overall in 2026. Recent geopolitical developments, including the conflicts in the Middle East, elevate uncertainty.



Despite these challenges, according to the State of Hawaii Department of Business, Economic Development and Tourism, the statewide seasonally adjusted unemployment rate was 2.3% at February 28, 2026, which is lower than the national seasonally adjusted unemployment rate of 4.4%.



Tourism also remains stable, with the average daily domestic passenger counts for the three months ended March 31, 2026 six percent higher than the average daily domestic passenger counts during the three months ended March 31, 2025, according to the Hawaii Tourism Authority. Hawaii’s economy depends significantly on conditions of the U.S. economy and key international economies, particularly Japan, and the broader demand for travel of these key markets. International visitor arrivals have not yet recovered to pre-pandemic arrival levels and demand for tourism could be negatively impacted by increasing fuel prices.



48

Table of Contents

The local Oahu housing market, particularly condominiums, continues to experience some softening as compared to previous years primarily due to continued high interest rates and prices. According to the Honolulu Board of Realtors, the volume of single-family home sales increased by 10.9%, while condominium sales decreased by 3.6%, in each case when comparing the three months ended March 31, 2026 with the same period in 2025. The median price of a single-family home sold on Oahu during the first three months of 2026 was $1,180,000, an increase of 2.6% compared to the same period in  2025. The median price of a condominium sold on Oahu during the first three months of 2026 was $510,000, equivalent to the median price during the same period in 2025. As of March 31, 2026, months of inventory of single-family homes and condominiums on Oahu were approximately 2.8 and 6.3 months, respectively, as compared to 3.3 and 6.2 months, respectively, as of March 31, 2025.



Selected Financial Data



Our financial highlights for the periods indicated are presented in Table 1:



















Financial Highlights









Table 1





For the Three Months Ended







March 31, 



(dollars in thousands, except per share data)

  

2026



2025



Income Statement Data:















Interest income



$

229,698



$

235,150



Interest expense





62,168





74,624



Net interest income





167,530





160,526



Provision for credit losses





5,000





10,500



Net interest income after provision for credit losses





162,530





150,026



Noninterest income





52,819





50,477



Noninterest expense





127,885





123,560



Income before provision for income taxes





87,464





76,943



Provision for income taxes





19,680





17,695



Net income



$

67,784



$

59,248



Basic earnings per share



$

0.55



$

0.47



Di

[Excerpt truncated for page length; source filing is linked above.]

Latest 10-K MD&A

Extracted between Item 7 and the next Item 7A/8 heading after HTML sanitization. Confidence: high. Filing date: 2026-02-27. Report date: 2025-12-31.

ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K, 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: the geographic concentration of our business; current and future market and economic conditions generally or in Hawaii, Guam and Saipan in particular, including inflationary pressures and interest rate environment; our dependence on the real estate markets in which we operate; concentrated exposures to certain asset classes and individual obligors; the effect of changes in interest rates on our business, including our net interest income, net interest margin, the fair value of our investment securities, and our mortgage loan originations, mortgage servicing rights and mortgage loans held for sale; the future value of the investment securities that we own; the possibility of a deterioration in credit quality in our portfolio; the possibility we might underestimate the credit losses inherent in our loan and lease portfolio; our ability to attract and retain customer deposits; our inability to receive dividends from our Bank, pay dividends to our common stockholders and satisfy obligations as they become due; our access to sources of liquidity and capital to address our liquidity needs; our ability to attract and retain skilled employees or changes in our management personnel; our ability to maintain our Bank's reputation; the failure to properly use and protect our customer and employee information and data; the possibility of employee misconduct or mistakes; the actual or perceived soundness of other financial institutions; the effectiveness of our risk management and internal disclosure controls and procedures; our ability to keep pace with technological changes; any failure or interruption of our information and communications systems; our ability to effectively compete with other financial services companies and the effects of competition in the financial services industry on our business; our ability to identify and address cybersecurity risks; the occurrence of fraudulent activity or effect of a material breach of, or disruption to, the security of any of our or our vendors’ systems; the development and use of AI; our ability to successfully develop and commercialize new or enhanced products and services; changes in the demand for our products and services; risks associated with the sale of loans and with our use of appraisals in valuing and monitoring loans; the possibility that actual results may differ from estimates and forecasts; fluctuations in the fair value of our assets and liabilities and off-balance sheet exposures; the effects of the failure of any component of our business infrastructure provided by a third-party; the potential for environmental liability; the risk of being subject to litigation and the outcome thereof; the impact of, and changes in, applicable laws, regulations and accounting standards and policies; possible changes in trade, monetary and fiscal policies of, and other activities undertaken by, governments, agencies, central banks and similar organizations; the effects of severe weather, geopolitical instability, including war, terrorist attacks, pandemics or other severe health emergencies and natural disasters and other external events; the potential impact of climate change; our ability to maintain consistent growth, earnings and profitability; our likelihood of success in, and the impact of, litigation or regulatory actions; our ability to continue to pay dividends on our common stock; contingent liabilities and unexpected tax liabilities that may be applicable to us as a result of the Reorganization Transactions; and damage to our reputation from any of the factors described above.



48

Table of Contents

The foregoing factors should not be considered an exhaustive list and should be read together with the other cautionary statements set forth under “Item 1A. Risk Factors” in this Annual Report on Form 10-K. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by applicable law.



Company Overview



FHI, a bank holding company, owns 100% of the outstanding common stock of FHB. 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.

As of December 31, 2025, we were the largest full-service bank headquartered in Hawaii as measured by loans and leases and net income. As of December 31, 2025, we had $14.3 billion of gross loans and leases. We also generated $276.3 million of net income or diluted earnings per share of $2.20 for the year ended December 31, 2025. We operate our business through two operating segments: Retail Banking and Commercial Banking. All other activities, including Treasury, are reported in Corporate/Other. See “Note 22. Reportable Operating Segments” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information.

Hawaii Economy



Hawaii’s economy as a whole experienced mixed economic conditions during the year ended December 31, 2025. Although the economy remains resilient and maintains a lower unemployment rate than the country as a whole, the State continues to endure high consumer prices and housing affordability challenges, which are expected to continue with the gradual pass-through of tariffs, as well as a steady out-migration of its population. According to the State of Hawaii Department of Business, Economic Development and Tourism, the statewide seasonally adjusted unemployment rate was 2.2% at December 31, 2025, lower than the national seasonally adjusted unemployment rate of 4.4%.



Domestic visitor arrivals for the state remain stable, with the average daily domestic passenger counts for the year ended December 31, 2025 being relatively similar to the average daily domestic passenger counts during the year ended December 31, 2024, according to the Hawaii Tourism Authority. More generally, Hawaii’s economy depends significantly on conditions of the U.S. economy and key international economies, particularly Japan. International visitor arrivals have not yet recovered to pre-pandemic arrival levels.



The local Oahu housing market continues to experience some softening as compared to previous years primarily due to increased interest rates. According to the Honolulu Board of Realtors, the volume of single-family home sales increased by 3.5%, while condominium sales decreased by 1.1%, in each case when comparing the year ended December 31, 2025 with the same period in 2024. The median price of a single-family home sold on Oahu in 2025 was $1,139,000, an increase of 3.5% compared to 2024. The median price of a condominium sold on Oahu in 2025 was $507,000, a decrease of 1.5% compared to 2024. As of December 31, 2025, months of inventory of single-family homes and condominiums on Oahu were approximately 2.6 and 5.9 months, respectively, as compared to 2.9 and 5.2 months, respectively, as of December 31, 2024.





49

Table of Contents

Selected Financial Data:



Our financial highlights for the years indicated are presented in Table 1:

























Financial Highlights













Table 1





For the Year Ended





December 31, 

(dollars in thousands, except per share data)

  

2025

    

2024

2023

Income Statement Data:





















Interest income



$

951,303



$

980,044



$

923,579



Interest expense





287,561





357,306





287,452



Net interest income





663,742





622,738





636,127



Provision for credit losses





27,200





14,750





26,630



Net interest income after provision for credit losses





636,542





607,988





609,497



Noninterest income





217,046





185,803





200,815



Noninterest expense





499,345





501,189





501,138



Income before provision for income taxes





354,243





292,602





309,174



Provision for income taxes





77,977





62,473





74,191



Net income



$

276,266



$

230,129



$

234,983



Basic earnings per share



$

2.21



$

1.80



$

1.84



Diluted earnings per share



$

2.20



$

1.79



$

1.84



Basic weighted-average outstanding shares





124,793,785





127,702,573





127,567,547



Diluted weighted-average outstanding shares





125,509,146





128,325,865





127,915,873



Dividends declared per share



$

1.04



$

1.04



$

1.04



Dividend payout ratio





47.27

%  



58.10

%



56.52

%

Performance Ratios:





















Net interest margin





3.15

%  



2.95

%



2.92

%

Efficiency ratio





56.43

%  



61.57

%



59.48

%

Return on average total assets





1.16

%  



0.96

%



0.95

%

Return on average tangible assets (non-GAAP)(1)





1.21

%  



1.00

%



0.99

%

Return on average total stockholders' equity





10.26

%  



9.00

%



10.01

%

Return on average tangible stockholders' equity (non-GAAP)(1)





16.27

%  



14.74

%



17.39

%

Noninterest expense to average assets





2.09

%  



2.09

%



2.04

%























December 31, 

(dollars in thousands, except per share data)

  

2025



2024



Balance Sheet Data:















Cash and cash equivalents



$

1,477,752



$

1,170,190



Investment securities available-for-sale





2,076,233





1,926,516



Investment securities held-to-maturity





3,533,082





3,790,650



Loans and leases





14,312,529





14,408,258



Allowance for credit losses for loans and leases





168,468





160,393



Goodwill





995,492





995,492



Total assets





23,955,252





23,828,186



Total deposits





20,515,668





20,322,216



Short-term borrowings





—





250,000



Total liabilities





21,185,887





21,210,700



Total stockholders' equity





2,769,365





2,617,486



Book value per share



$

22.57



$

20.70



Tangible book value per share (non-GAAP)(1)



$

14.46



$

12.83



















Asset Quality Ratios:















Non-accrual loans and leases / total loans and leases





0.29

%



0.14

%

Allowance for credit losses for loans and leases / total loans and leases





1.18

%



1.11

%

Net charge-offs / average total loans and leases





0.11

%



0.10

%





50

Table of Contents





















December 31, 

Capital Ratios:

  

2025



2024



Common Equity Tier 1 Capital Ratio



  

13.17

%

  

12.80

%

Tier 1 Capital Ratio





13.17

%



12.80

%

Total Capital Ratio





14.42

%



13.99

%

Tier 1 Leverage Ratio





9.27

%



9.14

%

Total stockholders' equity to total assets





11.56

%



10.98

%

Tangible stockholders' equity to tangible assets (non-GAAP)(1)





7.73

%



7.10

%

(1)

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.







51

Table of Contents

The following table provides a reconciliation of these non-GAAP financial measures with their most closely related GAAP measures for the years indicated:

























GAAP to Non-GAAP Reconciliation

















Table 2







For the Year Ended







December 31, 

(dollars in thousands)

  

2025

    

2024

    

2023

Income Statement Data:





















Net income



$

276,266



$

230,129



$

234,983

























Average total stockholders' equity



$

2,693,446



$

2,557,215



$

2,346,713



Less: average goodwill





995,492





995,492





995,492



Average tangible stockholders' equity



$

1,697,954



$

1,561,723



$

1,351,221

























Average total assets



$

23,917,443



$

23,996,723



$

24,625,445



Less: average goodwill





995,492





995,492





995,492



Average tangible assets



$

22,921,951



$

23,001,231



$

23,629,953

























Return on average total stockholders' equity





10.26

%  



9.00

%  



10.01

%

Return on average tangible stockholders' equity (non-GAAP)





16.27

%  



14.74

%  



17.39

%























Return on average total assets





1.16

%  



0.96

%  



0.95

%  

Return on average tangible assets (non-GAAP)





1.21

%  



1.00

%  



0.99

%  

























December 31,

(dollars in thousands, except per share data)



2025

    

2024

    

Balance Sheet Data:















Total stockholders' equity



$

2,769,365



$

2,617,486



Less: goodwill





995,492





995,492



Tangible stockholders' equity



$

1,773,873



$

1,621,994



















Total assets



$

23,955,252



$

23,828,186



Less: goodwill





995,492





995,492



Tangible assets



$

22,959,760



$

22,832,694



















Shares outstanding





122,689,256





126,422,898



















Total stockholders' equity to total assets





11.56

%



10.98

%

Tangible stockholders' equity to tangible assets (non-GAAP)





7.73

%



7.10

%

















Book value per share



$

22.57



$

20.70



Tangible book value per share (non-GAAP)



$

14.46



$

12.83





Financial Highlights



Net income was $276.3 million for the year ended December 31, 2025, an increase of $46.1 million or 20% as compared to 2024. Basic earnings per share was $2.21 for the year ended December 31, 2025, an increase of $0.41 or 23% as compared to 2024. Diluted earnings per share was $2.20 for the year ended December 31, 2025, an increase of $0.41 or 23% as compared to 2024. The increase in net income was primarily due to a $41.0 million increase in net interest income, a $31.2 million increase in noninterest income and a $1.8 million decrease in noninterest expense. This was partially offset by a $15.5 million increase in the provision for income taxes and a $12.5 million increase in the provision for credit losses (the “Provision”).



52

Table of Contents

Net income was $230.1 million for the year ended December 31, 2024, a decrease of $4.9 million or 2% as compared to 2023. Basic earnings per share was $1.80 for the year ended December 31, 2024, a decrease of $0.04 or 2% as compared to 2023. Diluted earnings per share was $1.79 for the year ended December 31, 2024, a decrease of $0.05 or 3% as compared to 2023.The decrease in net income was primarily due to a $15.0 million decrease in noninterest income and a $13.4 million decrease in net interest income. This was partially offset by an $11.9 million decrease in the Provision and an $11.7 million decrease in the provision for income taxes.



Our return on average total assets was 1.16% for the year ended December 31, 2025, an increase of 20 basis points as compared to 2024, and our return on average total stockholders’ equity was 10.26% for the year ended December 31, 2025, an increase of 126 basis points as compared to 2024. Our return on average tangible assets was 1.21% for the year ended December 31, 2025, an increase of 21 basis points as compared to 2024, and our return on average tangible stockholders’ equity was 16.27% for the year ended December 31, 2025, an increase of 153 basis points as compared to 2024, due to higher net income, offset by an increase in average tangible stockholders’ equity. Our efficiency ratio was 56.43% for the year ended December 31, 2025 as compared to 61.57% in 2024. Return on average tangible assets and return on average tangible stockholders’ equity are non-GAAP financial measures. For a reconciliation to the most directly comparable GAAP financial measures for return on average tangible assets and return on average tangible stockholders’ equity, see Table 2, GAAP to Non-GAAP Reconciliation.



Our return on average total assets was 0.96% for the year ended December 31, 2024, an increase of one basis point as compared to 2023, and our return on average total stockholders’ equity was 9.00% for the year ended December 31, 2024, a decrease of 101 basis points as compared to 2023. Our return on average tangible assets was 1.00% for the year ended December 31, 2024, an increase of one basis point as compared to 2023, and our return on average tangible stockholders’ equity was 14.74% for the year ended December 31, 2024, a decrease of 265 basis points as compared to 2023, due to an increase in average tangible stockholders’ equity, which resulted in part from a decrease in net unrealized losses in our investment securities portfolio, and lower net income. Our efficiency ratio was 61.57% for the year ended December 31, 2024 as compared to 59.48% in 2023. Return on average tangible assets and return on average tangible stockholders’ equity are non-GAAP financial measures. For a reconciliation to the most directly comparable GAAP financial measures for return on average tangible assets and return on average tangible stockholders’ equity, see Table 2, GAAP to Non-GAAP Reconciliation.



Our results for the December 31, 2025 were highlighted by the following:



●

Net interest income was $663.7 million for the year ended December 31, 2025, an increase of $41.0 million or 7% as compared to 2024. Our net interest margin was 3.15% for the year ended December 31, 2025, an increase of 20 basis points as compared to 2024. The increase in net interest income was primarily due to lower deposit funding costs, higher average balances on our interest-bearing deposits in other banks and lower borrowing costs, partially offset by lower rates on our earning assets driven by lower yields in our loan and lease portfolio, and lower average balances in our investment securities portfolio.



●

The Provision was $27.2 million for the year ended December 31, 2025, an increase of $12.5 million or 84% as compared to 2024. The increase in the Provision was primarily due to increases in the provision for home equity lines, commercial and industrial loans, construction loans, commercial real estate loans and lease financing and the provision for unfunded construction, home equity line, commercial real estate and commercial and industrial commitments. This was partially offset by decreases in the provision for residential mortgage loans and consumer loans. 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 $217.0 million for the year ended December 31, 2025, an increase of $31.2 million or 17% as compared to 2024. The increase was primarily due to $26.2 million of net losses on the sale of investment securities in 2024, a $7.3 million increase in other service charges and fees and a $2.8 million increase in bank-owned life insurance (“BOLI”) income, partially offset by a $2.6 million decrease in credit and debit card fees, a $1.6 million decrease in other noninterest income and a $1.4 million decrease in trust and investment services income.



53

Table of Contents

●

Noninterest expense was $499.3 million for the year ended December 31, 2025, a decrease of $1.8 million as compared to 2024. The decrease in noninterest expense was primarily due to an $8.6 million decrease in other noninterest expenses and a $7.0 million decrease in regulatory assessment and fees, partially offset by a $10.3 million increase in salaries and employee benefits expense, a $2.4 million increase in equipment expense and a $1.3 million increase in occupancy expense.



Our results for the December 31, 2024 were highlighted by the following:



●

Net interest income was $622.7 million for the year ended December 31, 2024, a decrease of $13.4 million or 2% as compared to 2023. Our net interest margin was 2.95% for the year ended December 31, 2024, an increase of three basis points as compared to 2023. The decrease in net interest income was primarily due to higher deposit funding costs and lower average balances in our investment securities portfolio, partially offset by higher rates on our earning assets driven by higher yields in our loan and lease portfolio, higher average balances on our interest-bearing deposits in other banks and lower borrowing costs.



●

The Provision was $14.8 million for the year ended December 31, 2024, a decrease of $11.9 million as compared to 2023. The decrease in the Provision was primarily due to decreases in the provision for construction loans, commercial real estate loans and home equity lines and the provision for unfunded commercial and industrial, construction, home equity line and commercial real estate commitments. This was partially offset by increases in the provision for consumer loans, commercial and industrial loans and residential mortgage loans. 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 $185.8 million for the year ended December 31, 2024, a decrease of $15.0 million or 7% as compared to 2023. The decrease was primarily due to a $26.2 million net loss on the sale of investment securities and a $1.0 million decrease in other noninterest income, partially offset by an $8.6 million increase in other services charges and fees, a $2.5 million increase in BOLI income and a $1.4 million increase in service charges on deposits accounts.



●

Noninterest expense was $501.2 million for the year ended December 31, 2024, an increase of $0.1 million as compared to 2023. The increase in noninterest expense was primarily due to a $9.8 million increase in salaries and employee benefits expense, an $8.8 million increase in equipment expense and a $2.2 million increase in card rewards program expense. This was partially offset by a $13.0 million decrease in regulatory assessment and fees, a $5.5 million decrease in contracted services and professional fees, a $1.7 million decrease in other noninterest expense and a $0.6 million decrease in occupancy expense.



Balance sheet highlights consisted of the following:



●

Total loans and leases were $14.3 billion as of December 31, 2025, a decrease of $95.7 million or 1% as compared to December 31, 2024. This decrease was primarily due to decreases in construction loans, commercial and industrial loans and residential real estate loans, partially offset by an increase in commercial real estate loans.



●

The ACL was $168.5 million as of December 31, 2025, an increase of $8.1 million or 5% from December 31, 2024. The ratio of our ACL to total loans and leases outstanding was 1.18% as of December 31, 2025, an increase of seven basis points compared to December 31, 2024. 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.

54

Table of Contents

●

Our investment portfolio is comprised of 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, Municipal Housing Authorities and non-agency entities. The total carrying value of our investment securities portfolio was $5.6 billion as of December 31, 2025, a decrease of $107.9 million or 2% from December 31, 2024. The lower balances in investment securities were driven by payments and maturities during December 31, 2025, which were placed into cash.



●

Total deposits were $20.5 billion as of December 31, 2025, an increase of $193.5 million or 1% from December 31, 2024. This increase was primarily due to a $287.5 million increase in savings deposit balances, a $262.0 million increase in money market deposit balances and a $71.8 million increase in time deposit balances, partially offset by a $427.9 million decrease in demand deposit balances.



●

Total stockholders’ equity was $2.8 billion as of December 31, 2025, an increase of $151.9 million or 6% from December 31, 2024. This increase was primarily due to earnings for the year ended December 31, 2025 of $276.3 million and other comprehensive income, net of tax, of $95.9 million, primarily due to changes in our investment securities portfolio, partially offset by dividends declared and paid to the Company’s stockholders of $129.9 million and common stock repurchased of $100.0 million.



Analysis of Results of Operations



Net Interest Income



For the years ended December 31, 2025, 2024, and 2023, 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.

55

Table of Contents

























































Average Balances and Interest Rates

















































Table 3





Year Ended



Year Ended



Year Ended







December 31, 2025



December 31, 2024



December 31, 2023







Average



Income/



Yield/



Average



Income/



Yield/



Average



Income/



Yield/



(dollars in millions)

    

Balance

  

Expense

  

Rate

    

Balance

  

Expense

  

Rate

Balance

  

Expense

  

Rate

Earning Assets

    





    





    





    





    





    



  





    





    



  

Interest-Bearing Deposits in Other Banks



$

1,313.6



$

56.5





4.30

%  

$

900.8



$

47.3



5.25

%

$

512.3



$

26.5



5.18

%

Available-for-Sale Investment Securities





















































Taxable





1,929.6





54.0





2.80





2,090.0





54.2



2.60





2,871.8





73.8



2.57



Non-Taxable





1.2





0.1





5.25





1.5





0.1



5.45





10.2





0.6



5.55



Held-to-Maturity Investment Securities





















































Taxable





3,067.9





52.2





1.70





3,321.6





56.6



1.70





3,579.0





60.7



1.70



Non-Taxable





596.3





14.1





2.37





602.6





15.6



2.58





607.7





15.9



2.61



Total Investment Securities





5,595.0





120.4





2.15





6,015.7





126.5



2.10





7,068.7





151.0



2.14



Loans Held for Sale





0.4





—





6.00





1.3





0.1



6.02





0.4





—



6.63



Loans and Leases(1)





















































Commercial and industrial





2,190.6





134.3





6.13





2,172.4





148.6



6.84





2,182.3





141.0



6.46



Commercial real estate





4,473.9





272.0





6.08





4,310.1





282.3



6.55





4,257.9





266.0



6.25



Construction





883.1





58.9





6.67





985.4





73.5



7.46





877.7





62.1



7.08



Residential:





















































Residential mortgage





4,102.9





162.6





3.96





4,220.2





163.4



3.87





4,308.0





156.4



3.63



Home equity line





1,161.8





54.4





4.68





1,162.9





51.0



4.39





1,131.1





39.3



3.47



Consumer





1,018.5





77.5





7.61





1,051.5





73.4



6.98





1,178.6





71.5



6.07



Lease financing





433.8





17.1





3.94





410.3





16.3



3.98





330.7





14.1



4.26



Total Loans and Leases





14,264.6





776.8





5.45





14,312.8





808.5



5.65





14,266.3





750.4



5.26



Other Earning Assets





32.7





1.7





5.17





53.6





3.1



5.88





104.3





1.3



1.20



Total Earning Assets(2)





21,206.3





955.4





4.51





21,284.2





985.5



4.63





21,952.0





929.2



4.23



Cash and Due from Banks





230.6

















238.3















265.1













Other Assets





2,480.5

















2,474.2















2,408.3













Total Assets



$

23,917.4















$

23,996.7













$

24,625.4



































































Interest-Bearing Liabilities





















































Interest-Bearing Deposits





















































Savings



$

6,275.4



$

84.2





1.34

%  

$

5,990.7



$

91.6



1.53

%

$

6,124.7



$

71.5



1.17

%

Money Market





3,942.2





91.1





2.31





4,064.0





117.8



2.90





3,869.1





86.1



2.22



Time





3,357.4





104.0





3.10





3,324.8





126.3



3.80





3,040.0





100.6



3.31



Total Interest-Bearing Deposits





13,575.0





279.3





2.06





13,379.5





335.7



2.51





13,033.8





258.2



1.98



Federal Funds Purchased





—





—





—





—





—



—





17.2





0.8



4.45



Other Short-Term Borrowings





176.0





7.4





4.22





424.9





20.0



4.70





261.9





13.0



4.98



Long-Term Borrowings





—





—





—





—





—



—





261.6





12.5



4.78



Other Interest-Bearing Liabilities





18.0





0.9





4.72





29.6





1.6



5.39





57.1





3.0



5.15



Total Interest-Bearing Liabilities





13,769.0





287.6





2.09





13,834.0





357.3



2.58





13,631.6





287.5



2.11



Net Interest Income









$

667.8















$

628.2













$

641.7







Interest Rate Spread(3)

















2.42

%  













2.05

%













2.12

%

Net Interest Margin(4)

















3.15

%  













2.95

%













2.92

%

Noninterest-Bearing Demand Deposits





6,814.4

















6,994.5















8,126.4













Other Liabilities





640.6

















611.0















520.7













Stockholders' Equity





2,693.4

















2,557.2















2,346.7













Total Liabilities and Stockholders' Equity



$

23,917.4















$

23,996.7













$

24,625.4













(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 $4.1 million, $5.4 million and $5.6 million for the years ended December 31, 2025, 2024 and 2023, respectively.

(3)

Interest rate spread is the difference between the average yield on earning assets and the average rate paid on interest-bearing liabilities, on a fully taxable-equivalent basis.

(4)

Net interest margin is net interest income, on a fully taxable-equivalent basis, divided by average total earning assets.



56

Table of Contents







































Analysis of Change in Net Interest Income



































Table 4





Year Ended December 31, 2025



Year Ended December 31, 2024





Compared to December 31, 2024



Compared to December 31, 2023

(dollars in millions)

  

Volume

  

Rate

  

Total(1)

  

Volume

  

Rate

  

Total(1)

Change in Interest Income:





































Interest-Bearing Deposits in Other Banks



$

18.9



$

(9.7)



$

9.2



$

20.4



$

0.4



$

20.8

Available-for-Sale Investment Securities





































Taxable





(4.3)





4.1





(0.2)





(20.4)





0.8





(19.6)

Non-Taxable





—





—





—





(0.5)





—





(0.5)

Held-to-Maturity Investment Securities





































Taxable





(4.4)





—





(4.4)





(4.1)





—





(4.1)

Non-Taxable





(0.2)





(1.3)





(1.5)





(0.1)





(0.2)





(0.3)

Total Investment Securities





(8.9)





2.8





(6.1)





(25.1)





0.6





(24.5)

Loans Held for Sale





(0.1)





—





(0.1)





0.1





—





0.1

Loans and Leases





































Commercial and industrial





1.2





(15.5)





(14.3)





(0.7)





8.3





7.6

Commercial real estate





10.4





(20.7)





(10.3)





3.3





13.0





16.3

Construction





(7.2)





(7.4)





(14.6)





7.9





3.5





11.4

Residential:





































Residential mortgage





(4.6)





3.8





(0.8)





(3.2)





10.2





7.0

Home equity line





—





3.4





3.4





1.1





10.6





11.7

Consumer





(2.4)





6.5





4.1





(8.2)





10.1





1.9

Lease financing





1.0





(0.2)





0.8





3.2





(1.0)





2.2

Total Loans and Leases





(1.6)





(30.1)





(31.7)





3.4





54.7





58.1

Other Earning Assets





(1.1)





(0.3)





(1.4)





(0.9)





2.7





1.8

Total Change in Interest Income





7.2





(37.3)





(30.1)





(2.1)





58.4





56.3







































Change in Interest Expense:





































Interest-Bearing Deposits





































Savings





4.2





(11.6)





(7.4)





(1.6)





21.7





20.1

Money Market





(3.4)





(23.3)





(26.7)





4.5





27.2





31.7

Time





1.2





(23.5)





(22.3)





10.0





15.7





25.7

Total Interest-Bearing Deposits





2.0





(58.4)





(56.4)





12.9





64.6





77.5

Federal Funds Purchased





—





—





—





(0.4)





(0.4)





(0.8)

Other Short-Term Borrowings





(10.7)





(1.9)





(12.6)





7.7





(0.7)





7.0

Long-Term Borrowings





—





—





—





(6.3)





(6.2)





(12.5)

Other Interest-Bearing Liabilities





(0.5)





(0.2)





(0.7)





(1.5)





0.1





(1.4)

Total Change in Interest Expense





(9.2)





(60.5)





(69.7)





12.4





57.4





69.8

Change in Net Interest Income



$

16.4



$

23.2



$

39.6



$

(14.5)



$

1.0



$

(13.5)

(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 $667.8 million for the year ended December 31, 2025, an increase of $39.6 million or 6% as compared to 2024. Our net interest margin was 3.15% for the year ended December 31, 2025, an increase of 20 basis points as compared to 2024. The increase in net interest income, on a fully taxable-equivalent basis, was primarily due to lower deposit funding costs, higher average balances on our interest-bearing deposits in other banks and lower borrowing costs. This was partially offset by lower rates on our earning assets driven by lower yields in our loan and lease portfolio and lower average balances in our investment securities portfolio. Deposit funding costs were $279.3 million for the year ended December 31, 2025, a decrease of $56.4 million or 17% compared to 2024, primarily due to a decrease in interest rates. Rates paid on our interest-bearing deposits were 206 basis points for the year ended December 31, 2025, a decrease of 45 basis points compared to 2024, primarily due to rate decreases. For the year ended December 31, 2025, the average balance of our interest-bearing deposits in other banks was $1.3 billion, an increase of $412.8 million or 46% compared to the same period in 2024. Total borrowing costs were $7.4 million for the year ended December 31, 2025, a decrease of $12.6 million or 63% compared to 2024. $250.0 million of FHLB advances matured during the third quarter of 2025. Yields on our loans and leases were 5.45% for the year ended December 31, 2025, a decrease of 20 basis points as compared to 2024, primarily due to decreases in yields from our adjustable-rate commercial real estate and commercial and industrial loans, which are typically based on the SOFR. For the year ended December 31, 2025, average balances on our investment securities portfolio was $5.6 billion, a decrease of $420.7 million or 7% compared to 2024, primarily due to payments and maturities of securities during the period.



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Net interest income, on a fully taxable-equivalent basis, was $628.2 million for the year ended December 31, 2024, a decrease of $13.5 million or 2% as compared to 2023. Our net interest margin was 2.95% for the year ended December 31, 2024, an increase of three basis points as compared to 2023. The decrease in net interest income, on a fully taxable-equivalent basis, was primarily due to higher deposit funding costs and lower average balances in our investment securities portfolio. This was partially offset by higher rates on our earning assets driven by higher yields in our loan and lease portfolio, higher average balances on our interest-bearing deposits in other banks and lower borrowing costs. Deposit funding costs were $335.7 million for the year ended December 31, 2024, an increase of $77.5 million or 30% compared to 2023, primarily due to an increase in interest rates. Rates paid on our interest-bearing deposits were 251 basis points for the year ended December 31, 2024, an increase of 53 basis points compared to 2023, primarily due to rate increases. For the year ended December 31, 2024, average balances on our investment securities portfolio was $6.0 billion, a decrease of $1.1 billion or 15% compared to 2023, primarily due to payments, maturities and restructuring of securities during the period. Yields on our loans and leases were 5.65% for the year ended December 31, 2024, an increase of 39 basis points as compared to 2023, driven by higher average yields on our adjustable-rate loans, runoff of lower fixed-rate loans and higher rates on new loan originations during the period. For the year ended December 31, 2024, the average balance of our interest-bearing deposits in other banks was $900.8 million, an increase of $388.5 million or 76% compared to the same period in 2023. Total borrowing costs were $20.0 million for the year ended December 31, 2024, a decrease of $6.3 million or 24% compared to 2023. During the third quarter of 2024, $500.0 million of FHLB advances matured and a new $250.0 million short-term FHLB advance was taken.  



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 began in 2023 at 7.50% and increased a total of 100 basis points (25 basis points each in February, March, May and July) to end the year at 8.50%. During 2024, the prime rate decreased a total of 100 basis points (50 basis points in September, and 25 basis points in both November and December) to end the year at 7.50%. In 2025, the prime rate decreased 75 basis points (25 basis points each in September, October and December) to end the year at 6.75%. Our loan portfolio is also impacted by changes in the SOFR. At December 31, 2025, the one-month and three-month CME Term SOFR interest rates were 3.70% and 3.66%, respectively. At December 31, 2024, the one-month and three-month CME Term SOFR interest rates were 4.33% and 4.31%, respectively. At December 31, 2023, the one-month and three-month CME Term SOFR interest rates were 5.35% and 5.33%, respectively. The target range for the federal funds rate, which is the cost of immediately available overnight funds, began in 2023 at 4.25% to 4.50%, and increased a total of 100 basis points to end the year at 5.25% to 5.50%. During 2024, the federal funds rate decreased a total of 100 basis points to end the year at 4.25% to 4.50%. In 2025, the federal funds rate decreased 75 basis points to end the year at 3.50% to 3.75%.



Provision for Credit Losses



The Provision was $27.2 million for the year ended December 31, 2025, compared to a Provision of $14.8 million in 2024. For the year ended December 31, 2025, the Provision included $24.4 million in provision for credit losses for loans and leases, compared to $17.5 million in provision for credit losses for loans and leases in 2024, and $2.9 million in provision for credit losses for the reserve for unfunded commitments, compared to a negative $2.8 million in provision for credit losses for the reserve for unfunded commitments in 2024. The increase in the Provision was primarily due to increases in the provision for home equity lines, commercial and industrial loans, construction loans, commercial real estate loans and lease financing and the provision for unfunded construction, home equity line, commercial real estate and commercial and industrial commitments. This was partially offset by decreases in the provision for residential mortgage loans and consumer loans. We recorded net charge-offs of $16.3 million and $13.6 million for the years ended December 31, 2025 and 2024, respectively. This represented net charge-offs of 0.11% and 0.10% of total average loans and leases for the years ended December 31, 2025 and 2024, respectively. The ACL was $168.5 million and $160.4 million as of December 31, 2025 and 2024, respectively, and represented 1.18% of total outstanding loans and leases as of December 31, 2025, compared to 1.11% of total outstanding loans and leases as of December 31, 2024. The reserve for unfunded commitments was $35.7 million as of December 31, 2025, compared to $32.8 million as of December 31, 2024. 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.



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Noninterest Income



Table 5 presents the major components of noninterest income for the years ended December 31, 2025, 2024 and 2023:















































Noninterest Income











Table 5





Year Ended December 31, 



Change





Change



(dollars in thousands)

  

2025

  

2024

  

2023

    



2025

vs.

2024

    



2024

vs.

2023



Service charges on deposit accounts



$

31,636



$

31,090



$

29,647



$

546



2

%



$

1,443



5

%

Credit and debit card fees





61,807





64,401





63,888





(2,594)



(4)







513



1



Other service charges and fees





53,153





45,862





37,299





7,291



16







8,563



23



Trust and investment services income





36,941





38,306





38,449





(1,365)



(4)







(143)



—



Bank-owned life insurance





20,613





17,861





15,326





2,752



15







2,535



17



Investment securities (losses) gains, net





37





(26,171)





792





26,208



n/m







(26,963)



n/m



Other





12,859





14,454





15,414





(1,595)



(11)







(960)



(6)



Total noninterest income



$

217,046



$

185,803



$

200,815



$

31,243



17

%



$

(15,012)



(7)

%

n/m – Denotes a variance that is not a meaningful metric to inform the change in noninterest income from the year ended December 31, 2025 to the same period in 2024 and from the year ended December 31, 2024 to the same period in 2023.



Total noninterest income was $217.0 million for the year ended December 31, 2025, an increase of $31.2 million or 17% as compared to 2024. Total noninterest income was $185.8 million for the year ended December 31, 2024, a decrease of $15.0 million or 7% as compared to 2023.



Service charges on deposit accounts were $31.6 million for the year ended December 31, 2025, an increase of 0.5 million or 2% as compared to 2024. This increase was primarily due to a $1.1 million increase in account analysis service charges, partially offset by a $0.3 million decrease in overdraft and checking account fees and a $0.2 million decrease in ATM interchange fees from customers. Service charges on deposit accounts were $31.1 million for the year ended December 31, 2024, an increase of $1.4 million or 5% as compared to 2023. This increase was primarily due to a $2.6 million increase in account analysis service charges, partially offset by a $1.2 million decrease in overdraft and checking account fees.



Credit and debit card fees were $61.8 million for the year ended December 31, 2025, a decrease of $2.6 million or 4% as compared to 2024. This decrease was primarily due to a $3.1 million decrease in interchange settlement fees and a $0.8 million decrease in ATM interchange and surcharge fees, partially offset by a $1.3 million increase in merchant service revenues. Credit and debit card fees were $64.4 million for the year ended December 31, 2024, an increase of $0.5 million or 1% as compared to 2023. This increase was primarily due to a $2.6 million increase in debit card interchange fees, a $1.9 million decrease in network association dues and a $1.4 million increase in interchange settlement fees, partially offset by a $3.2 million decrease in ATM interchange and surcharge fees, a $1.3 million decrease in merchant service revenues and a $0.6 million decrease in rental fees from credit card terminals.



Other service charges and fees were $53.2 million for the year ended December 31, 2025, an increase of $7.3 million or 16% as compared to 2024. This increase was primarily due to a $7.3 million increase in fees from annuities and securities and a $0.8 million increase in fees from standby letters of credit arrangements, partially offset by a $0.3 million decrease in service fees related to participation loans, a $0.2 million decrease in online banking fees and a $0.2 million decrease in insurance income. Other service charges and fees were $45.9 million for the year ended December 31, 2024, an increase of $8.6 million or 23% as compared to 2023. This increase was primarily due to a $6.9 million increase in fees from annuities and securities, a $0.3 million increase in safe deposit box rental fees, a $0.3 million increase in miscellaneous service fees, a $0.3 million increase in cash management service fees, a $0.3 million increase in insurance income and a $0.3 million increase in fees from standby letters of credit arrangements.



Trust and investment services income was $36.9 million for the year ended December 31, 2025, a decrease of $1.4 million or 4% as compared to 2024. This decrease was primarily due to a $2.4 million decrease in investment management fees and a $0.5 million decrease in irrevocable trust fees, partially offset by a $0.6 million increase in business cash management fees, a $0.4 million increase in pension plan fees and a $0.3 million increase in money market fund management fees. Trust and investment services income was $38.3 million for the year ended December 31, 2024, a decrease of $0.1 million as compared to 2023.



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BOLI income was $20.6 million for the year ended December 31, 2025, an increase of $2.8 million or 15% as compared to 2024. This increase was due to a $4.7 million increase in BOLI earnings, partially offset by a $2.0 million decrease in death benefit proceeds from life insurance policies. BOLI income was $17.9 million for the year ended December 31, 2024, an increase of $2.5 million or 17% as compared to 2023. This increase was due to a $3.0 million increase in BOLI earnings, partially offset by a $0.4 million decrease in death benefit proceeds from life insurance policies.



Net gains on the sale of investment securities were nil for the year ended December 31, 2025. Net losses on the sale of investment securities were $26.2 million for the year ended December 31, 2024, an increase in net losses of $27.0 million as compared to the same period in 2023. The net losses were primarily due to the investment portfolio restructuring and sale of investment securities resulting in a realized loss of $26.2 million for the year ended December 31, 2024.



Other noninterest income was $12.9 million for the year ended December 31, 2025, a decrease of $1.6 million or 11% as compared to 2024. This decrease was primarily due to a $3.7 million decrease in insurance proceeds received during 2025 as compared to 2024 and a $1.6 million excise tax refund received during the year ended December 31, 2024. This was partially offset by a $1.6 million increase in customer-related interest rate swap fees, a $1.1 million decrease in net losses recognized in income related to derivative contracts and a $1.0 million increase in volume-based incentives. Other noninterest income was $14.5 million for the year ended December 31, 2024, a decrease of $1.0 million or 6% as compared to 2023. This decrease was primarily due to a $7.9 million gain on the sale of a bank property in 2023 and a $1.2 million decrease in volume-based incentives. This was partially offset by $4.1 million in insurance proceeds received during the year ended December 31, 2024, a $1.6 million excise tax refund received during the year ended December 31, 2024, a $1.5 million decrease in net losses recognized in income related to derivative contracts and a $0.5 million decrease in interest paid on collateral payments related to derivative instruments.



Noninterest Expense



Table 6 presents the major components of noninterest expense for the years ended December 31, 2025, 2024 and 2023:















































Noninterest Expense







































Table 6





Year Ended December 31, 



Change





Change



(dollars in thousands)

  

2025

  

2024

  

2023

    



2025

vs.

2024

    



2024

vs.

2023



Salaries and employee benefits



$

245,906



$

235,565



$

225,755



$

10,341



4

%



$

9,810



4

%

Contracted services and professional fees





60,297





60,912





66,423





(615)



(1)







(5,511)



(8)



Occupancy





30,224





28,971





29,608





1,253



4







(637)



(2)



Equipment





56,292





53,902





45,109





2,390



4







8,793



19



Regulatory assessment and fees





12,080





19,091





32,073





(7,011)



(37)







(12,982)



(40)



Advertising and marketing





8,573





7,719





7,615





854



11







104



1



Card rewards program





33,363





33,831





31,627





(468)



(1)







2,204



7



Other





52,610





61,198





62,928





(8,588)



(14)







(1,730)



(3)



Total noninterest expense



$

499,345



$

501,189



$

501,138



$

(1,844)



—

%



$

51



—

%



Total noninterest expense was $499.3 million for the year ended December 31, 2025, a decrease of $1.8 million as compared to 2024. Total noninterest expense was $501.2 million for the year ended December 31, 2024, an increase of $0.1 million as compared to 2023.



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Salaries and employee benefits expense was $245.9 million for the year ended December 31, 2025, an increase of $10.3 million or 4% as compared to 2024. This increase was primarily due to a $10.7 million increase in incentive compensation, a $2.4 million increase in base salaries and related payroll taxes and a $0.5 million increase in group health plan costs. This was partially offset by a $2.0 million increase in payroll and benefit costs being deferred as loan origination costs, a $0.6 million decrease in state unemployment tax expense, a $0.3 million decrease in nonrecurring separation agreements and severance costs and a $0.3 million decrease in adjustments made to the deferred compensation plan as a result of market conditions. Salaries and employee benefits expense was $235.6 million for the year ended December 31, 2024, an increase of $9.8 million or 4% as compared to 2023. This increase was primarily due to a $9.7 million increase in incentive compensation, a $1.8 million increase in retirement plan expenses, a $1.2 million decrease in payroll and benefit costs being deferred as loan origination costs and a $1.0 million increase in group health plan costs. This was partially offset by a $1.1 million decrease in other compensation, primarily related to a decrease in nonrecurring separation agreements and severance costs, partially offset by adjustments made to the deferred compensation plan as a result of market conditions, a $0.9 million decrease in employee overtime pay expense, a $0.9 million decrease in state unemployment tax expense and a $0.6 million decrease in temporary help expenses.



Contracted services and professional fees were $60.3 million for the year ended December 31, 2025, a decrease of $0.6 million or 1% as compared to 2024. This decrease was primarily due to a $1.1 million decrease in outside services, primarily attributable to technology-related projects, marketing and new customer services, and a $0.7 million decrease in audit, legal and consultant fees, partially offset by a $1.2 million increase in contracted data processing expenses. Contracted services and professional fees were $60.9 million for the year ended December 31, 2024, a decrease of $5.5 million or 8% as compared to 2023. This decrease was primarily due to a $4.3 million decrease in outside services, primarily attributable to technology-related projects, marketing and new customer services, a $0.6 million decrease in contracted data processing expenses and a $0.6 million decrease in audit, legal and consultant fees.



Occupancy expense was $30.2 million for the year ended December 31, 2025, an increase of $1.3 million or 4% as compared to 2024. This increase was primarily due to a $1.6 million increase in building depreciation, partially offset by a $0.4 million decrease in utilities expense. Occupancy expense was $29.0 million for the year ended December 31, 2024, a decrease of $0.6 million or 2% as compared to 2023. This decrease was primarily due to a $0.5 million increase in net sublease rental income and a $0.3 million decrease in building depreciation, partially offset by a $0.4 million increase in lease-related insurance expense.



Equipment expense was $56.3 million for the year ended December 31, 2025, an increase of $2.4 million or 4% as compared to 2024. This increase was primarily due to a $2.0 million increase in technology-related amortization and licensing and maintenance fees and a $0.6 million increase in furniture and equipment depreciation, partially offset by a $0.3 million decrease in other furniture and equipment expense. Equipment expense was $53.9 million for the year ended December 31, 2024, an increase of $8.8 million or 19% as compared to 2023. This increase was primarily due to an $8.0 million increase in technology-related amortization and licensing and maintenance fees, a $0.5 million increase in furniture and equipment depreciation and a $0.3 million increase in other furniture and equipment expense.



Regulatory assessment and fees were $12.1 million for the year ended December 31, 2025, a decrease of $7.0 million or 37% as compared to 2024. Regulatory assessment and fees were $19.1 million for the year ended December 31, 2024, a decrease of $13.0 million or 40% as compared to 2023. In October 2022, the FDIC adopted a final rule to increase the initial base deposit insurance assessment rate schedules by 2 basis points beginning with the first quarterly assessment period of 2023. In May 2023, the FDIC issued a notice of proposed rulemaking for a special assessment to replenish the deposit insurance fund following the 2023 bank failures. In November 2023, the FDIC approved a final rule to implement the special assessment and we recorded a $16.3 million expense in December 2023. During the first quarter of 2024, the FDIC issued a notice that the original loss estimate related to the 2023 bank failures was subsequently increased and that this increase would result in an additional assessment expense to affected institutions. As a result, we recorded a net expense related to the additional special assessment of $3.5 million for the year ended December 31, 2024. In December 2025, the FDIC reduced the rate at which the assessment is collected for the eighth quarter of the collection period, with an invoice payment date of March 30, 2026, from 3.36 basis points to 2.97 basis points. We recorded a reduction in the expense related to the additional special assessment of $2.6 million in 2025 to bring the net loss to $0.9 million as of December 31, 2025.



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Advertising and marketing expense was $8.6 million for the year ended December 31, 2025, an increase of $0.9 million or 11% as compared to 2024. This increase was primarily due to a $0.9 million increase in advertising costs. Advertising and marketing expense was $7.7 million for the year ended December 31, 2024, an increase of $0.1 million or 1% as compared to 2023.



Card rewards program expense was $33.4 million for the year ended December 31, 2025, a decrease of $0.5 million or 1% as compared to 2024. This decrease was primarily due to a $0.4 million decrease in priority rewards card redemptions. Card rewards program expense was $33.8 million for the year ended December 31, 2024, an increase of $2.2 million or 7% as compared to 2023. This increase was primarily due to a $1.6 million increase in credit card cash reward redemptions and a $1.6 million increase in interchange fees paid to our credit card partners, partially offset by a $0.7 million decrease in priority rewards card redemptions and a $0.3 million decrease in international transaction fees.



Other noninterest expense was $52.6 million for the year ended December 31, 2025, a decrease of $8.6 million or 14% as compared to 2024. This decrease was primarily due to a $4.6 million decrease in operational losses and other charge-offs, a $3.8 million decrease in expense due to adjustments to certain liabilities assumed as a result of the Reorganization Transactions, a $1.1 million decrease in costs associated with a fund acquired by the Company and a $0.6 million decrease in pension-related expenses. This was partially offset by a $1.0 million increase in charitable contributions and donations and a $0.7 million increase in brokers fees. Other noninterest expense was $61.2 million for the year ended December 31, 2024, a decrease of $1.7 million or 3% as compared to 2023. This decrease was primarily due to a $3.3 million decrease in operational losses and other charge-offs, a $2.1 million decrease in charitable contributions, a $1.0 million decrease in pension-related expenses, a $0.8 million decrease in losses incurred due to natural disasters and a $0.6 million decrease in business privilege tax expense. This was partially offset by a $3.8 million increase in expense due to adjustments to certain liabilities assumed as a result of the Reorganization Transactions, a $1.0 million increase in brokers fees, a $0.6 million increase in costs associated with a fund acquired by the Company and a $0.6 million increase in other tax expense.



Provision for Income Taxes



The provision for income taxes was $78.0 million (reflecting an effective tax rate of 22.01%) for the year ended December 31, 2025, compared with a provision for income taxes of $62.5 million (reflecting an effective tax rate of 21.35%) in 2024. On July 4, 2025, President Trump signed and enacted the One Big Beautiful Bill Act (“OBBBA”) into law. Its enactment did not have a material impact to our income tax expense or effective tax rate. This legislation made significant changes to the energy credit provisions which may impact the Company’s ability to originate solar leases in the future. Additional information about the provision for income taxes is presented in “Note 15. Income Taxes” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data.



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Analysis of Business Segments



Our business segments are Retail Banking and Commercial Banking, with all other activities, including Treasury, reported in Corporate/Other. Table 7 summarizes net income (loss) from our business segments and Corporate/Other for the years ended December 31, 2025, 2024 and 2023. Additional information about operating segment performance and Corporate/Other is presented in “Note 22. Reportable Operating Segments” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data.



During the quarter ended December 31, 2025, we realigned our internal organizational and management reporting structure. As a result of this change, we reduced our reportable operating segments from three to two. Our reportable segments are now Retail Banking and Commercial Banking. Activities previously reported within the Treasury and Other segment are now included in Corporate/Other, as Treasury exists to support our operating segments. The change in reportable segments reflects how our chief operating decision maker currently evaluates performance and allocates resources. In addition, during the third quarter of 2025, we made changes to the internal measurement of segment operating profits for the purpose of evaluating segment performance and resource allocation. The primary reason for the change was to align loan and deposit balances within the business segment that directly manages them. Specifically, certain loan and deposit balances previously included as part of the Retail Banking and Commercial Banking segments were reclassified among the segments and what is now Corporate/Other. The reallocation of select loan and deposit balances affected net interest income, net interest income after provision for credit losses, provision for income taxes, net income and segment earning assets. We have reported our selected financial information using the new loan and deposit balance alignments and using two reportable operating segments for the year ended December 31, 2025. Prior-period segment information has been recast to conform to the current presentation.

























Business Segments and Corporate/Other Net Income (Loss)

















Table 7







Year Ended December 31, 



(dollars in thousands)



2025



2024



2023

Retail Banking



$

250,528



$

227,860



$

173,565



Commercial Banking





130,015





142,995





104,706



Corporate/Other





(104,277)





(140,726)





(43,288)



Consolidated Total



$

276,266



$

230,129



$

234,983





Retail Banking.  Our Retail Banking segment includes the financial products and services we provide to consumers and small businesses. Loan and lease products offered include residential and commercial mortgage loans, home equity lines of credit and loans, automobile loans and leases, secured and unsecured lines of credit, installment loans, and small business loans and leases. Deposit products offered include checking, savings and time deposit accounts. Our Retail Banking segment also includes our wealth management services. Products and services from Retail Banking are delivered to customers through 49 banking locations throughout the State of Hawaii, Guam and Saipan.



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Table of Contents

Net income for the Retail Banking segment was $250.5 million for the year ended December 31, 2025, an increase of $22.7 million or 10% as compared to 2024. The increase in net income for the Retail Banking segment was primarily due to a $24.8 million increase in net interest income, a $5.6 million increase in noninterest income and a $4.3 million decrease in noninterest expense, partially offset by a $9.0 million increase in the provision for income taxes and a $3.1 million increase in the Provision. The increase in net interest income was primarily due to higher deposit spreads and loan spreads. The increase in noninterest income was primarily due to an increase in other service charges and fees, partially offset by a decrease in trust and investment services income. The decrease in noninterest expense was primarily due decreases in regulatory assessments and fees and operational losses and other charge-offs. The increase in the provision for income taxes was primarily due to the increase in pretax income, partially offset by the allocation of the remeasurement of the California deferred tax assets. The increase in the Provision allocated to the Retail Banking segment was primarily due to increases in the provision for home equity lines, commercial and industrial loans, construction loans, commercial real estate loans and lease financing. The increase in total earning assets for the Retail Banking segment was primarily due to increases in our commercial loan and consumer loan portfolios, partially offset by a decrease in our residential real estate loan portfolio.



Net income for the Retail Banking segment was $227.9 million for the year ended December 31, 2024, an increase of $54.3 million or 31% as compared to 2023. The increase in net income for the Retail Banking segment was primarily due to a $47.2 million increase in net interest income, a $9.2 million decrease in noninterest expense, a $8.4 million increase in noninterest income and a $1.6 million decrease in the Provision, partially offset by a $12.1 million increase in the provision for income taxes. The increase in net interest income was primarily due to higher deposit and loan spreads.  The decrease in noninterest expense was primarily due to lower overall expenses that were allocated to the Retail Banking segment and a decrease in regulatory assessments and fees, partially offset by increases in salaries and employee benefits expense and brokers fees. The increase in noninterest income was primarily due to increases in other service charges and fees and service charges on deposit accounts. The decrease in the Provision was primarily due to a decrease in our provision for credit losses for loans and leases allocated to the Retail Banking segment. The increase in the provision for income taxes was primarily due to the increase in pretax income. The decrease in total earning assets for the Retail Banking segment was primarily due to a decrease in our residential real estate loan portfolio.



Commercial Banking.  Our Commercial Banking segment includes our corporate banking related products, commercial real estate loans, commercial lease financing, secured and unsecured lines of credit, automobile loans and auto dealer financing, business deposit products and credit cards. Commercial lending and deposit products are offered primarily to middle-market and large companies locally, nationally and internationally.



Net income for the Commercial Banking segment was $130.0 million for the year ended December 31, 2025, a decrease of $13.0 million or 9% as compared to 2024. The decrease in net income for the Commercial Banking segment was primarily due to a $23.0 million decrease in net interest income, a $3.8 million increase in the Provision and a $1.1 million decrease in noninterest income, partially offset by a $10.6 million decrease in noninterest expense and a $4.4 million decrease in the provision for income taxes. The decrease in net interest income was primarily due to lower loan and lease spreads and deposits spreads, partially offset by higher average deposit balances. The increase in the Provision allocated to the Commercial Banking segment was primarily due to increases in the provision for home equity lines, commercial and industrial loans, construction loans, commercial real estate loans and lease financing.  The decrease in noninterest income was primarily due to a decrease in credit and debit card fees and an excise tax refund and insurance proceeds received in 2024, partially offset by increases in customer-related interest rate swap fees, volume-based incentives and service charges on deposit accounts. The decrease in noninterest expense was primarily due to higher overall credits that were allocated to the Commercial Banking segment and a decrease in regulatory assessment and fees. The decrease in the provision for income taxes was primarily due to the decrease in pretax income, in addition to the allocation of the remeasurement of the California deferred tax assets. The decrease in total earning assets for the Commercial Banking segment was primarily due to a decrease in our commercial loan portfolio.



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Net income for the Commercial Banking segment was $143.0 million for the year ended December 31, 2024, an increase of $38.3 million or 37% as compared to 2023. The increase in net income for the Commercial Banking segment was primarily due to a $22.3 million decrease in noninterest expense, an $11.5 million increase in net interest income, a $5.8 million decrease in the Provision and a $4.1 million increase in noninterest income, partially offset by a $5.4 million increase in the provision for income taxes. The decrease in noninterest expense was primarily due to lower overall expenses that were allocated to the Commercial Banking segment, a one-time settlement expense in connection to a lawsuit against the Company incurred in 2023 and a decrease in regulatory assessment and fees, partially offset by an increase in card reward expenses. The increase in net interest income was primarily due to higher deposit spreads and average balances, partially offset by lower loan and lease spreads. The decrease in the Provision was primarily due to a decrease in our provision for credit losses for loans and leases allocated to the Commercial Banking segment. The increase in noninterest income was primarily due to an excise tax refund received in 2024, in addition to increases in credit and debit card fees, other service charges and fees and service charges on deposit accounts, partially offset by a decrease in volume-based incentives. The increase in the provision for income taxes was primarily due to the increase in pretax income. The increase in total earning assets for the Commercial Banking segment was primarily due to increases in our commercial loan and lease financing portfolios, partially offset by a decrease in our consumer loan portfolio.





Analysis of Financial Condition



Liquidity and Capital Resources



Liquidity refers to our ability to maintain cash flow that is adequate to fund operations and meet present and future financial obligations through either the sale or maturity of existing assets or by obtaining additional funding through liability management. We consider the effective and prudent management of liquidity to be fundamental to our health and strength. Our objective is to manage our cash flow and liquidity reserves so that they are adequate to fund our obligations and other commitments on a timely basis and at a reasonable cost.



Liquidity is managed to ensure stable, reliable and cost-effective sources of funds to satisfy demand for credit, deposit withdrawals and investment opportunities. Funding requirements are impacted by loan originations and refinancings, deposit balance changes, liability issuances and settlements and off-balance sheet funding commitments. We consider and comply with various regulatory and internal guidelines regarding required liquidity levels and periodically monitor our liquidity position in light of the changing economic environment and customer activity. Based on periodic liquidity assessments, we may alter our asset, liability and off-balance sheet positions. The Company’s Asset Liability Management Committee (“ALCO”) monitors sources and uses of funds and modifies asset and liability positions as liquidity requirements change. This process, combined with our ability to raise funds in money and capital markets and through private placements, provides flexibility in managing the exposure to liquidity risk.



Immediate liquid resources are available in cash which is primarily on deposit with the Federal Reserve Bank of San Francisco (the “FRB”). As of December 31, 2025 and 2024, cash and cash equivalents were $1.5 billion and $1.2 billion, respectively. Potential sources of liquidity also include investment securities in our available-for-sale portfolio and held-to-maturity portfolio. The carrying values of our available-for-sale investment securities and held-to-maturity investment securities were $2.1 billion and $3.5 billion as of December 31, 2025, respectively. The carrying values of our available-for-sale investment securities and held-to-maturity investment securities were $1.9 billion and $3.8 billion as of December 31, 2024, respectively. As of December 31, 2025 and 2024, 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, Municipal Housing Authorities and non-agency entities. As of December 31, 2025, our available-for-sale investment securities portfolio was comprised of securities with a weighted average life of approximately 4.7 years and our held-to-maturity investment securities portfolio was comprised of securities with a weighted average life of approximately 7.3 years. These funds offer substantial resources to meet either new loan demand or to help offset reductions in our deposit funding base as they provide quick sources of liquidity by pledging to obtain secured borrowings and repurchase agreements or sales of our available-for-sale securities portfolio. Liquidity is further enhanced by our ability to pledge loans to access secured borrowings from the FHLB and the FRB. As of December 31, 2025, we have borrowing capacity of $3.3 billion from the FHLB and $3.3 billion from the FRB based on the amount of collateral pledged.



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Our core deposits have historically provided us with a long-term source of stable and relatively lower cost of funding. Our core deposits, defined as all deposits exclusive of time deposits exceeding $250,000, totaled $19.1 billion and $19.0 billion as of December 31, 2025 and 2024, respectively, which represented 93% of our total deposits as of both December 31, 2025 and 2024. These core deposits are normally less volatile, often with customer relationships tied to other products offered by the Company; however, deposit levels could decrease if interest rates increase significantly or if corporate customers increase investing activities, including alternative investment options, that reduce deposit balances.



Our material cash requirements from our current and long-term contractual obligations as of December 31, 2025 are summarized in the following table:



































Contractual Obligations





























Table 8





Less Than











After







(dollars in thousands)

  

One Year

  

1 - 3 Years

  

4 - 5 Years

  

5 Years

  

Total

Contractual Obligations































Time certificates of deposits



$

3,290,420



$

49,637



$

28,873



$

1,203



$

3,370,133

Noncancelable operating leases





8,384





10,599





9,127





56,023





84,133

Other postretirement benefit contributions





1,327





3,073





3,323





8,759





16,482

Affordable housing commitments





83,294





67,477





796





1,735





153,302

Total Contractual Obligations



$

3,383,425



$

130,786



$

42,119



$

67,720



$

3,624,050



Commitments to extend credit, standby letters of credit and commercial letters of credit do not necessarily represent future cash requirements in that these commitments often expire without being drawn upon; therefore, these items, which totaled $6.9 billion and $6.0 billion as of December 31, 2025 and 2024, respectively, are not included in the table above. See the discussion of these credit and contractual commitments in “Note 17. Commitments and Contingent Liabilities” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data.



Other postretirement benefit contributions in the table above represent the minimum expected contribution to the postretirement benefit plan. Actual contributions may differ from these estimates. Excluded from the table above is our pension benefit obligations. We comply with the minimum funding requirements, and we anticipate making future benefit contributions of $0.2 million related to the pension benefit plans during the year ending December 31, 2026. Additional information on these benefit plans can be found in “Note 14. Benefit Plans” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data.



Our liability for unrecognized tax benefits (“UTBs”) as of December 31, 2025 and 2024 was $211.2 million and $206.4 million, respectively. The increase in UTBs was primarily due to additions related to previously identified tax positions. We are unable to reasonably estimate the period of cash settlement with the respective taxing authority. As a result, our liability for UTBs is not disclosed in the table above.



In addition to the commitments specifically noted in the table above, we enter into a number of purchase obligations that arise from agreements to purchase goods or services in the ordinary course of business. These primarily consist of service agreements for various systems and applications supporting bank operations, including the systems and applications in the Bank’s core system. Some of these contracts are renewable or cancellable annually or in shorter time intervals. To secure favorable pricing concessions, we may also commit to contracts that may extend several years.



Other material cash requirements may also include general corporate operating activities, stock repurchases, 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. We believe that our existing cash, cash equivalents, investments, and cash expected to be generated from operations, are still sufficient to meet our cash requirements within the next 12 months and beyond.



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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 were $153.3 million and $98.7 million as of December 31, 2025 and 2024, respectively.



Guarantees



We sell residential mortgage loans in 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 December 31, 2025 and 2024, the unpaid principal balance of our portfolio of residential mortgage loans sold was $1.1 billion and $1.3 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 year ended December 31, 2025, 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 year ended December 31, 2025, we had no repurchase requests related to loan servicing activities, nor were there any pending repurchase requests as of December 31, 2025.



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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 December 31, 2025, 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 December 31, 2025, 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 17. Commitments and Contingent Liabilities” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information on our financial instruments with off-balance sheet risk.



Investment Securities



Table 9 presents the estimated fair value of our available-for-sale investment securities portfolio and amortized cost of our held-to-maturity investment securities portfolio as of December 31, 2025 and 2024:

















Investment Securities











Table 9





December 31, 

(dollars in thousands)



2025



2024

Government agency debt securities



$

—



$

8,147

Mortgage-backed securities:













Residential - Government agency





30,367





35,859

Residential - Government-sponsored enterprises





878,215





738,113

Commercial - Government agency





191,177





196,125

Commercial - Government-sponsored enterprises





41,599





44,908

Commercial - Non-agency





129,014





22,083

Collateralized mortgage obligations:













Government agency





426,276





397,124

Government-sponsored enterprises





302,996





310,682

Collateralized loan obligations





76,589





173,475

Total available-for-sale securities



$

2,076,233



$

1,926,516















Government agency debt securities



$

46,182



$

49,267

Mortgage-backed securities:













Residential - Government agency





37,081





40,888

Residential - Government-sponsored enterprises





86,681





92,573

Commercial - Government agency





30,796





31,009

Commercial - Government-sponsored enterprises





1,088,838





1,114,549

Collateralized mortgage obligations:













Government agency





823,423





907,565

Government-sponsored enterprises





1,365,087





1,500,212

Debt securities issued by states and political subdivisions





54,994





54,587

Total held-to-maturity securities



$

3,533,082



$

3,790,650



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Table 10 presents the maturity distribution at amortized cost and weighted-average yield to maturity of our investment securities portfolio as of December 31, 2025:





























































Maturities and Weighted-Average Yield on Securities(1)





Table 10





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 December 31, 2025

























































Available-for-sale securities

























































Mortgage-backed securities:

























































Residential - Government agency(2)



$

—



—

%

$

21.6



5.20

%

$

9.3



2.83

%

$

—



—

%

$

30.9



4.48

%

$

30.3

Residential - Government-sponsored enterprises(2)





—



—





627.5



1.41





305.7



4.57





—



—





933.2



2.44





878.2

Commercial - Government agency(2)





0.8



2.53





206.5



1.89





29.9



1.79





—



—





237.2



1.88





191.2

Commercial - Government-sponsored enterprises(2)





25.5



2.15





16.4



1.06





0.9



5.29





—



—





42.8



1.80





41.6

Commercial - Non-agency





—



—





74.8



5.60





—



—





53.7



5.57





128.5



5.59





129.0

Collateralized mortgage obligations(2):

























































Government agency





0.2



1.50





170.5



2.93





290.5



2.53





—



—





461.2



2.68





426.3

Government-sponsored enterprises





—



—





210.0



1.93





126.4



2.35





—



—





336.4



2.09





303.0

Collateralized loan obligations





—



—





0.3



5.81





76.2



5.91





—



—





76.5



5.91





76.6

Total available-for-sale securities as of December 31, 2025



$

26.5



2.16

%

$

1,327.6



2.06

%

$

838.9



3.53

%

$

53.7



5.57

%

$

2,246.7



2.69

%

$

2,076.2

Held-to-maturity securities

























































Government agency debt securities



$

—



—

%

$

—



—

%

$

24.3



1.33

%

$

21.9



1.85

%

$

46.2



1.58

%

$

43.0

Mortgage-backed securities(2):

























































Residential - Government agency





—



—





—



—





—



—





37.1



2.16





37.1



2.16





32.6

Residential - Government-sponsored enterprises





—



—





—



—





71.8



1.60





14.9



1.55





86.7



1.59





76.0

Commercial - Government agency





—



—





14.3



2.24





16.5



1.78





—



—





30.8



1.99





23.3

Commercial - Government-sponsored enterprises





—



—





398.1



1.62





489.9



2.04





200.8



2.76





1,088.8



2.02





993.8

Collateralized mortgage obligations(2):

























































Government agency





—



—





—



—





744.6



1.41





78.8



1.35





823.4



1.40





738.8

Government-sponsored enterprises





—



—





192.2



1.77





1,154.1



1.47





18.8



2.33





1,365.1



1.52





1,229.9

Debt securities issued by state and political subdivisions





—



—





—



—





37.8



2.20





17.2



2.45





55.0



2.27





51.4

Total held-to-maturity securities as of December 31, 2025



$

—



—

%

$

604.6



1.69

%

$

2,539.0



1.58

%

$

389.5



2.29

%

$

3,533.1



1.67

%

$

3,188.8

(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 carrying value of our investment securities portfolio was $5.6 billion as of December 31, 2025, a decrease of $107.9 million or 2% compared to December 31, 2024. The lower balances in investment securities were driven by payments and maturities during December 31, 2025, which were placed into cash. Our available-for-sale investment securities are carried at fair value with changes in fair value reflected in other comprehensive income (loss) or through the Provision. Our held-to-maturity investment securities are carried at amortized cost.



As of December 31, 2025, we maintained all of our investment securities in either the available-for-sale category (recorded at fair value) or the held-to-maturity category (recorded at amortized cost) in the consolidated balance sheets, with $2.9 billion invested in collateralized mortgage obligations issued by Ginnie Mae, Fannie Mae and Freddie Mac. Our investment securities portfolio also included $2.5 billion in mortgage-backed securities issued by Ginnie Mae, Fannie Mae, Freddie Mac and Municipal Housing Authorities and non-agency entities, $76.6 million in collateralized loan obligations, $55.0 million in debt securities issued by states and political subdivisions and $46.2 million in debt securities issued by government agencies (U.S. International Development Finance Corporation bonds).



We continually evaluate our investment securities portfolio in response to established asset/liability management objectives, changing market conditions that could affect profitability and the level of interest rate risk to which we are exposed. These evaluations may cause us to change the level of funds we deploy into investment securities and change the composition of our investment securities portfolio.



Gross unrealized gains in our investment securities portfolio were $7.1 million and $0.6 million as of December 31, 2025 and 2024, respectively. Gross unrealized losses in our investment securities portfolio were $521.9 million and $792.7 million as of December 31, 2025 and 2024. The lower overall unrealized loss position was primarily due to paydowns in our investment securities portfolio and changes in market value of the securities.



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For our available-for-sale investment securities, we conduct a regular assessment of our investment securities portfolio to determine whether any securities are impaired. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through the allowance for credit losses is recognized in other comprehensive income. For the years ended December 31, 2025 and 2024, we did not record any credit losses related to our available-for-sale investment securities portfolio.



For our held-to-maturity investment securities, we utilize the Current Expected Credit Loss (“CECL”) approach to estimate lifetime expected credit losses. Substantially all of our held-to-maturity securities are issued by the U.S. government, its agencies and government-sponsored enterprises. These securities have a long history of no credit losses and carry the explicit or implicit guarantee of the U.S. government. Therefore, as of December 31, 2025 and 2024, we did not record an allowance for credit losses related to our held-to-maturity investment securities portfolio.



We are required to hold non-marketable equity securities, comprised of FHLB stock, as a condition of our membership in the FHLB system. Our FHLB stock is accounted for at cost, which equals par or redemption value. As of December 31, 2025 and 2024, we held $10.1 million and $21.4 million in FHLB stock, respectively, which is recorded as a component of other assets in our consolidated balance sheets.



See “Note 3. Investment Securities” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information on our investment securities portfolio.



Loans and Leases



Table 11 presents the composition of our loan and lease portfolio by major categories as of December 31, 2025 and 2024:

















Loans and Leases











Table 11





December 31, 

(dollars in thousands)

  

2025

  

2024

Commercial and industrial



$

2,171,333



$

2,247,428

Commercial real estate





4,590,326





4,463,992

Construction





808,275





918,326

Residential:













Residential mortgage





4,096,300





4,168,154

Home equity line





1,178,527





1,151,739

Total residential





5,274,827





5,319,893

Consumer





1,025,838





1,023,969

Lease financing





441,930





434,650

Total loans and leases



$

14,312,529



$

14,408,258



Total loans and leases were $14.3 billion as of December 31, 2025, a decrease of $95.7 million or 1% from December 31, 2024, with decreases in construction loans, commercial and industrial loans and residential real estate loans, partially offset by increases in commercial real estate loans, lease financing and consumer loans.



Commercial and industrial loans are made primarily to corporations, middle market and small businesses for the purpose of financing equipment acquisition, expansion, working capital and other general business purposes. We also offer a variety of automobile dealer flooring lines to our customers in Hawaii and California to assist with the financing of their inventory. Commercial and industrial loans were $2.2 billion as of December 31, 2025, a decrease of $76.1 million or 3% from December 31, 2024.



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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 the operating cash flow from the business, respectively. Commercial real estate loans were $4.6 billion as of December 31, 2025, an increase of $126.3 million or 3% from December 31, 2024.



Construction loans are for the purchase or construction of a property for which repayment will be generated by the property. Loans in this portfolio are primarily for the purchase of land, as well as for the development of commercial properties, single family homes and condominiums. We classify loans as construction until the completion of the construction phase. Following construction, if a loan is retained by the Bank, the loan is reclassified to the commercial real estate or residential real estate classes of loans. Construction loans were $808.3 million as of December 31, 2025, a decrease of $110.1 million or 12% from December 31, 2024. This decrease was primarily due to construction loans reclassified to commercial real estate loans during the year ended December 31, 2025.



Residential real estate loans are generally secured by 1-4 unit residential properties and are underwritten using traditional underwriting systems to assess the credit risks and financial capacity and repayment ability of the consumer. Decisions are primarily based on LTV ratios, debt-to-income (“DTI”) ratios, liquidity and credit scores. LTV ratios generally do not exceed 80%, although higher levels are permitted with mortgage insurance. We offer fixed rate mortgage products and variable rate mortgage products including HELOC. We offer these variable rate mortgage products based on SOFR with interest rates that are subject to change every six months after the third, fifth, seventh or tenth year, depending on the product. Variable rate residential mortgage loans are underwritten at fully-indexed interest rates. We generally do not offer interest-only, payment-option facilities, or any product with negative amortization. Residential real estate loans were $5.3 billion as of December 31, 2025, a decrease of $45.1 million or 1% from December 31, 2024.



Consumer loans consist primarily of open- and closed-end direct and indirect credit facilities for personal, automobile and household purchases as well as credit card loans. We seek to maintain reasonable levels of risk in consumer lending by following prudent underwriting guidelines, which include an evaluation of personal credit history, cash flow and collateral values based on existing market conditions. Consumer loans were $1.0 billion as of December 31, 2025, an increase of $1.9 million or less than 1% from December 31, 2024.



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 $441.9 million as of December 31, 2025, an increase of $7.3 million or 2% from December 31, 2024.



See “Note 4. Loans and Leases” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data 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.



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The Company’s loan and lease portfolio includes adjustable-rate loans, primarily tied to CME Term SOFR, Prime and SOFR, hybrid rate loans, for which the initial rate is fixed for a period from one year to as much as ten years, and fixed rate loans, for which the interest rate does not change through the life of the loan or the remaining life of the loan. Table 12 presents the recorded investment in our loan and lease portfolio as of December 31, 2025:





























































Loans and Leases by Rate Type









Table 12





December 31, 2025













Adjustable Rate





































CME















Hybrid



Fixed









(dollars in thousands)

  

Treasury

  

SOFR

  

Prime

  

Term SOFR

  

Other

  

Total

  

Rate

  

Rate

  

Total



Commercial and industrial



$

—



$

2,537



$

320,692



$

770,582



$

757,236



$

1,851,047



$

21,493



$

298,793



$

2,171,333



Commercial real estate





—





428,851





479,273





2,222,582





1,034,598





4,165,304





136,877





288,145





4,590,326



Construction





—





80,706





51,889





573,394





25,301





731,290





4,132





72,853





808,275



Residential:

























































Residential mortgage





2,836





123,319





15,541





63,767





75,113





280,576





686,210





3,129,514





4,096,300



Home equity line





—





—





912





—





—





912





970,618





206,997





1,178,527



Total residential





2,836





123,319





16,453





63,767





75,113





281,488





1,656,828





3,336,511





5,274,827



Consumer





852





—





337,146





—





3,467





341,465





1,036





683,337





1,025,838



Lease financing





—





—





—





—





—





—





—





441,930





441,930



Total loans and leases



$

3,688



$

635,413



$

1,205,453



$

3,630,325



$

1,895,715



$

7,370,594



$

1,820,366



$

5,121,569



$

14,312,529





























































% by rate type at December 31, 2025





1

%



4

%



8

%



25

%



13

%



51

%



13

%



36

%



100

%



Tables 13 and 14 present the geographic distribution of our loan and lease portfolio as of December 31, 2025 and 2024:



































Geographic Distribution of Loan and Lease Portfolio





























Table 13





December 31, 2025











U.S.



Guam &



Foreign &







(dollars in thousands)

  

Hawaii

  

Mainland(1)

  

Saipan

  

Other

  

Total

Commercial and industrial



$

979,948



$

1,031,600



$

146,817



$

12,968



$

2,171,333

Commercial real estate





2,509,943





1,678,871





401,512





—





4,590,326

Construction





359,263





426,842





22,170





—





808,275

Residential:































Residential mortgage





3,940,165





2,575





153,560





—





4,096,300

Home equity line





1,129,433





—





49,094





—





1,178,527

Total residential





5,069,598





2,575





202,654





—





5,274,827

Consumer





671,811





35,426





314,681





3,920





1,025,838

Lease financing





246,502





176,946





18,482





—





441,930

Total Loans and Leases



$

9,837,065



$

3,352,260



$

1,106,316



$

16,888



$

14,312,529

Percentage of Total Loans and Leases





69%





23%





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.



72

Table of Contents

































Geographic Distribution of Loan and Lease Portfolio





























Table 14





December 31, 2024











U.S.



Guam &



Foreign &







(dollars in thousands)

  

Hawaii

  

Mainland(1)

  

Saipan

  

Other

  

Total

Commercial and industrial



$

923,762



$

1,205,251



$

103,726



$

14,689



$

2,247,428

Commercial real estate





2,532,545





1,537,878





393,569





—





4,463,992

Construction





365,346





526,674





26,306





—





918,326

Residential:































Residential mortgage





4,017,261





2,631





148,262





—





4,168,154

Home equity line





1,106,228





259





45,252





—





1,151,739

Total residential





5,123,489





2,890





193,514





—





5,319,893

Consumer





672,202





36,956





311,281





3,530





1,023,969

Lease financing





236,827





181,904





15,919





—





434,650

Total Loans and Leases



$

9,854,171



$

3,491,553



$

1,044,315



$

18,219



$

14,408,258

Percentage of Total Loans and Leases





68%





24%





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, Guam and Saipan.



Table 15 presents the contractual maturities of our loan and lease portfolio by major categories and the sensitivities to changes in interest rates as of December 31, 2025:



































Maturities for Loan and Lease Portfolio(1)





























Table 15





December 31, 2025





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



$

819,191



$

961,863



$

295,538



$

94,741



$

2,171,333

Commercial real estate





1,086,348





2,102,810





1,394,215





6,953





4,590,326

Construction





278,811





343,472





157,753





28,239





808,275

Residential:































Residential mortgage





10,776





54,786





381,893





3,648,845





4,096,300

Home equity line





22,214





83,560





83,882





988,871





1,178,527

Total residential





32,990





138,346





465,775





4,637,716





5,274,827

Consumer





94,299





702,036





229,503





—





1,025,838

Lease financing





21,209





217,226





95,506





107,989





441,930

Total Loans and Leases



$

2,332,848



$

4,465,753



$

2,638,290



$

4,875,638



$

14,312,529

































Total of loans and leases with:































Adjustable interest rates



$

2,166,399



$

3,315,763



$

1,642,674



$

245,758



$

7,370,594

Hybrid interest rates





55,487





138,186





94,874





1,531,819





1,820,366

Fixed interest rates





110,962





1,011,804





900,742





3,098,061





5,121,569

Total Loans and Leases



$

2,332,848



$

4,465,753



$

2,638,290



$

4,875,638



$

14,312,529

(1)

Based on contractual maturities, including extension and renewal options that are not unconditionally cancellable by the Company.



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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. See “Note 5. Allowance for Credit Losses” in the notes to consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information about our credit quality indicators.



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 5. Allowance for Credit Losses” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information about our approach to estimating the ACL.



The following tables and discussion address non-performing assets and loans and leases that are 90 days past due but are still accruing interest.



Non-Performing Assets and Loans and Leases Past Due 90 Days or More and Still Accruing Interest



Table 16 presents information on our Non-Performing Assets (“NPAs”) and Accruing Loans and Leases Past Due 90 Days or More as of December 31, 2025 and 2024:



















Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More











Table 16





December 31, 



(dollars in thousands)

  

2025



2024



Non-Performing Assets















Non-Accrual Loans and Leases















Commercial Loans:















Commercial and industrial



$

8,805



$

329



Commercial real estate





3,007





411



Construction





1,788





—



Lease financing





734





—



Total Commercial Loans





14,334





740



Residential Loans:















Residential mortgage





16,423





12,768



Home equity line





10,271





7,171



Total Residential Loans





26,694





19,939



Total Non-Accrual Loans and Leases





41,028





20,679



Total Non-Performing Assets



$

41,028



$

20,679



















Accruing Loans and Leases Past Due 90 Days or More















Commercial Loans:















Commercial and industrial



$

318



$

1,432



Construction





—





536



Total Commercial Loans





318





1,968



Residential mortgage





55





1,317



Consumer





2,984





2,734



Total Accruing Loans and Leases Past Due 90 Days or More



$

3,357



$

6,019



















Total Loans and Leases



$

14,312,529



$

14,408,258



















Ratio of Non-Accrual Loans and Leases to Total Loans and Leases





0.29

%



0.14

%

Ratio of Non-Performing Assets to Total Loans and Leases and OREO





0.29

%



0.14

%

Ratio of Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More to Total Loans and Leases and OREO





0.31

%



0.19

%



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Table of Contents

Table 17 presents the activity in NPAs for the years ended December 31, 2025 and 2024:

















Non-Performing Assets











Table 17





Year Ended December 31, 

(dollars in thousands)

  

2025

  

2024

Balance at beginning of year



$

20,679



$

18,595

Additions





37,440





14,734

Reductions













Payments





(12,958)





(8,835)

Return to accrual status





(3,149)





(2,811)

Sales of other real estate owned





—





(75)

Charge-offs/write-downs





(984)





(929)

Total Reductions





(17,091)





(12,650)

Balance at end of year



$

41,028



$

20,679



The level of NPAs represents an indicator of the potential for future credit losses. NPAs consist of non-accrual loans and leases and 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 $41.0 million as of December 31, 2025, an increase of $20.3 million or 98% from December 31, 2024. The ratio of our NPAs to total loans and leases and OREO was 0.29% as of December 31, 2025, an increase of 15 basis points from December 31, 2024. The increase in total NPAs was primarily due to an $8.5 million increase in commercial and industrial loans, $3.7 million increase in residential mortgage loans, $3.1 million increase in home equity lines, $2.6 million increase in commercial real estate loans and a $1.8 million increase in construction loans.



The largest component of our NPAs continues to be residential mortgage loans. The level of these NPAs remains elevated due to a lengthy judicial foreclosure process in Hawaii. As of December 31, 2025, residential mortgage non-accrual loans were $16.4 million, an increase of $3.7 million or 29% from December 31, 2024. This increase was due to additions in residential mortgage loans of $11.5 million, partially offset by $5.0 million in payments and $2.8 million in returns to accrual status. As of December 31, 2025, our residential mortgage non-accrual loans were comprised of 59 loans with a weighted average current loan-to-value (“LTV”) ratio of 52%.



Home equity line non-accrual loans were $10.3 million as of December 31, 2025, an increase of $3.1 million or 43% from December 31, 2024. This increase was due to additions in home equity lines of $6.2 million, partially offset by payments of $2.7 million, returns to accrual status of $0.3 million and charge-offs of $0.1 million.



As of December 31, 2025, commercial and industrial non-accrual loans were $8.8 million, an increase of $8.5 million from December 31, 2024. This increase was due to additions in commercial and industrial loans of $13.2 million, partially offset by payments of $4.3 million and charge-offs of $0.4 million.



As of December 31, 2025, commercial real estate non-accrual loans were $3.0 million, an increase of $2.6 million from December 31, 2024. This increase was due to additions in commercial real estate loans of $3.0 million, partially offset by payments of $0.4 million.



As of December 31, 2025, construction non-accrual loans were $1.8 million, an increase of $1.8 million or 100% from December 31, 2024. This increase was due to additions in construction loans of $2.2 million, partially offset by payments of $0.4 million.



OREO represents property acquired as a 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. There was no OREO held as of December 31, 2025 and 2024.



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.

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Table of Contents



Loans and leases past due 90 days or more and still accruing interest were $3.4 million as of December 31, 2025, a decrease of $2.7 million or 44% as compared to December 31, 2024. This decrease was due to decreases in residential mortgage loans of $1.3 million, commercial and industrial loans of $1.1 million and construction loans of $0.5 million, partially offset by an increase in consumer loans of $0.2 million that were past due 90 days or more and still accruing interest as of December 31, 2025.



Allowance for Credit Losses for Loans and Leases & Reserve for Unfunded Commitments



Table 18 presents an analysis of our ACL for the years ended December 31, 2025 and 2024:



















Allowance for Credit Losses and Reserve for Unfunded Commitments











Table 18





December 31, 

(dollars in thousands)

  

2025



2024



Balance at Beginning of Year



$

193,240



$

192,138



Loans and Leases Charged-Off















Commercial Loans:















Commercial and industrial





(4,731)





(3,615)



Commercial real estate





—





(400)



Lease financing





(662)





—



Total Commercial Loans





(5,393)





(4,015)



Home equity line





(30)





—



Consumer





(19,473)





(18,002)



Total Loans and Leases Charged-Off





(24,896)





(22,017)



Recoveries on Loans and Leases Previously Charged-Off















Commercial Loans:















Commercial and industrial





1,202





919



Commercial real estate





251





—



Total Commercial Loans





1,453





919



Residential Loans:















Residential mortgage





157





119



Home equity line





149





274



Total Residential Loans





306





393



Consumer





6,862





7,057



Total Recoveries on Loans and Leases Previously Charged-Off





8,621





8,369



Net Loans and Leases Charged-Off





(16,275)





(13,648)



Provision for Credit Losses





27,200





14,750



Balance at End of Year



$

204,165



$

193,240



Components:















Allowance for Credit Losses



$

168,468



$

160,393



Reserve for Unfunded Commitments





35,697





32,847



Total Allowance for Credit Losses and Reserve for Unfunded Commitments



$

204,165



$

193,240



Average Loans and Leases Outstanding



$

14,264,604



$

14,312,759



Ratio of Net Loans and Leases Charged-Off to Average Loans and Leases Outstanding(1)





0.11

%



0.10

%

Ratio of Allowance for Credit Losses for Loans and Leases to Loans and Leases Outstanding





1.18

%



1.11

%

Ratio of Allowance for Credit Losses for Loans and Leases to Non-accrual Loans and Leases





4.11x





7.76x





76

Table of Contents

Tables 19 and 20 present the allocation of the ACL by loan category, in both dollars and as a percentage of total loans and leases outstanding, as of December 31, 2025 and 2024:





















Allocation of the Allowance for Credit Losses by Loan and Lease Category













Table 19





December 31, 2025











Allocated



Loan













ACL as



category as













% of loan or



% of total













lease



loans and



(dollars in thousands)

  

Amount



category



leases



Commercial and industrial



$

20,833



0.96

%

15.17

%

Commercial real estate





38,757



0.84



32.07



Construction





7,605



0.94



5.65



Lease financing





2,778



0.63



3.09



Total commercial





69,973



0.87



55.98



Residential mortgage





36,384



0.89



28.62



Home equity line





15,192



1.29



8.23



Total residential





51,576



0.98



36.85



Consumer





46,919



4.57



7.17



Total



$

168,468



1.18

%

100.00

%





















Allocation of the Allowance for Credit Losses by Loan and Lease Category













Table 20





December 31, 2024











Allocated



Loan













ACL as



category as













% of loan or



% of total













lease



loans and



(dollars in thousands)



Amount



category



leases



Commercial and industrial



$

16,332



0.73

%

15.60

%

Commercial real estate





40,624



0.91



30.98



Construction





8,570



0.93



6.37



Lease financing





2,269



0.52



3.02



Total commercial





67,795



0.84



55.97



Residential mortgage





39,230



0.94



28.93



Home equity line





10,205



0.89



7.99



Total residential





49,435



0.93



36.92



Consumer





43,163



4.22



7.11



Total



$

160,393



1.11

%

100.00

%



Table 21 presents the net charge-offs (recoveries) to average loans and leases by category during the years ended December 31, 2025 and 2024:



















Net Charge-Offs (Recoveries) to Average Loans and Leases By Category











Table 21





December 31, 





  

2025

  

2024

  

Commercial and industrial





0.16

%



0.12

%

Commercial real estate





(0.01)





0.01



Construction





—





—



Lease financing





0.15





—



Total commercial





0.05





0.04



Residential mortgage





—





—



Home equity line





(0.01)





(0.02)



Total residential





(0.01)





(0.01)



Consumer





1.24





1.04



Total loans and leases





0.11

%



0.10

%

77

Table of Contents



As of December 31, 2025, the ACL was $168.5 million or 1.18% of total loans and leases outstanding, compared with an ACL of $160.4 million or 1.11% of total loans and leases outstanding as of December 31, 2024. The reserve for unfunded commitments was $35.7 million as of December 31, 2025, compared to $32.8 million as of December 31, 2024.



Net charge-offs of loans and leases were $16.3 million or 0.11% of total average loans and leases for the year ended December 31, 2025, compared to $13.6 million or 0.10% for 2024. Net charge-offs in our commercial lending portfolio were $3.9 million for the year ended December 31, 2025, compared to net charge-offs of $3.1 million for 2024. Net recoveries in our residential lending portfolio were $0.3 million for the year ended December 31, 2025, compared to net recoveries of $0.4 million for 2024. Net charge-offs in our consumer lending portfolio were $12.6 million for the year ended December 31, 2025, compared to net charge-offs of $10.9 million for 2024. Net charge-offs in our consumer portfolio segment include those related to credit card, automobile loans, installment loans and small business lines of credit and reflect the inherent risk associated with these loans.



Although we determine the amount of each component of the ACL separately, the ACL as a whole was considered appropriate by management as of December 31, 2025 and 2024. Furthermore, as of December 31, 2025, the ACL was considered adequate based on our ongoing analysis of estimated expected credit losses, credit risk profiles, current economic outlook, coverage ratios and other relevant factors. The ACL anticipates cyclical losses consistent with a recession and includes a qualitative overlay for macroeconomic uncertainties. We will continue to monitor factors that drive expected credit losses including the uncertainty of the economy, inflation and geopolitical instability.



See “Note 5. Allowance for Credit Losses” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information on the ACL.



Goodwill



Goodwill was $995.5 million as of both December 31, 2025 and 2024. Our goodwill originated from the acquisition of the Company by BNPP 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. The Company performed its annual assessment of the criteria included in Accounting Standards Codification (“ASC”) Topic 350, Intangibles – Goodwill and Other, and based on such assessment, the Company concluded that there was no impairment in our goodwill for the year ended December 31, 2025. Future events, including volatility in domestic and global markets, geopolitical concerns, inflation concerns, global supply chain issues, and other factors affecting the economy, that could cause a significant decline in our expected future cash flows or a significant adverse change in our business or the business climate may necessitate taking charges in future reporting periods related to the impairment of our goodwill.



Other Assets



Other assets were $828.3 million as of December 31, 2025, a decrease of $3.7 million from December 31, 2024. This decrease was due to a $29.7 million decrease in prepaid expenses, a $23.2 million decrease in current tax receivables and deferred tax assets, an $11.3 million decrease in FHLB stock and a $4.8 million decrease in software and nondepreciable assets, partially offset by a $66.8 million increase in affordable housing and other tax credit investment partnership interests.



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.

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Table 22 presents the composition of our deposits as of December 31, 2025 and December 31, 2024:

















Deposits











Table 22





December 31, 

(dollars in thousands)

2025

2024

U.S.:













Demand



$

5,794,973



$

6,169,833

Savings





5,721,098





5,498,043

Money Market





3,832,783





3,636,586

Time





2,948,536





2,878,968

Foreign(1):













Demand





752,319





805,315

Savings





587,775





523,321

Money Market





456,587





390,748

Time





421,597





419,402

Total Deposits(2)



$

20,515,668



$

20,322,216

(1)

Foreign deposits were comprised of Guam and Saipan deposit accounts.

(2)

Public deposits were $839.5 million as of December 31, 2025, an increase of $80.3 million or 11% compared to December 31, 2024.



Total deposits were $20.5 billion as of December 31, 2025, an increase of $0.2 billion or 1% from December 31, 2024. The increase in deposit balances stemmed primarily from a $249.1 million increase in non-public money market deposit balances, a $183.2 million increase in non-public savings deposit balances, a $104.3 million increase in public savings deposit balances and a $95.8 million increase in non-public time deposit balances. These increases were partially offset by a $415.0 million decrease in non-public demand deposit balances.



As of December 31, 2025 and 2024, the amount of deposits that exceeded FDIC insurance limits were estimated to be $10.1 billion, or 49% of total deposits, and $9.9 billion, or 49% of total deposits, respectively. At December 31, 2025 and 2024, the Company had $839.5 million and $759.2 million, respectively, of public deposits, all of which were fully collateralized with investment securities. As of December 31, 2025 and 2024, the amount of deposits excluding public deposits that exceeded FDIC insurance limits were estimated to be $9.3 billion, or 45% of total deposits, and $9.2 billion, or 45% of total deposits, respectively. As of December 31, 2025 and 2024, deposits accounts above $250,000 were estimated to be $11.9 billion and $11.6 billion, respectively. As of both December 31, 2025 and 2024, deposit balances over $250,000 in corporate operating accounts were estimated to be $2.1 billion.



Table 23 presents the amount of time deposits that were in excess of the FDIC insurance limit, further segregated by time remaining until maturity, as of December 31, 2025:











Uninsured Time Deposits





Table 23

(dollars in thousands)

  



December 31, 2025

Three months or less



$

701,006

Over three through six months





372,012

Over six through twelve months





183,619

Over twelve months





16,252

Total(1)



$

1,272,889

(1)

Includes $133.0 million in public time deposits that are fully collateralized with investment securities.



Short-term Borrowings



As of December 31, 2025, the Company held no short-term borrowings. As of December 31, 2024, the Company’s short-term borrowings consisted of a $250.0 million short-term FHLB fixed-rate advance with a weighted average interest rate of 4.16% that matured in September 2025.



As of December 31, 2025 and 2024, the Company had a remaining line of credit of $3.3 billion and $2.8 billion, respectively, available from the FHLB. The FHLB borrowing capacity was secured by commercial real estate and residential real estate loan collateral as of both December 31, 2025 and 2024.

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Pension and Postretirement Plan Obligations



We have a qualified noncontributory defined benefit pension plan, an unfunded supplemental executive retirement plan for certain key executives (“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 qualified noncontributory defined benefit pension plan, the SERP and the directors’ retirement plan are all frozen plans to new participants. In March 2019, the Company’s board of directors approved an amendment to the SERP to freeze the SERP, which became effective on July 1, 2019. As a result of the amendment, since the effective date, there have not been any, and there will be no, new accruals of benefits, including service accruals. Existing benefits under the SERP, as of the effective date of the amendment described above, will otherwise continue in accordance with the terms of the SERP. 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 $87.0 million as of December 31, 2025, an increase of $1.0 million or 1% from December 31, 2024. The balance as of December 31, 2025 included retirement benefits payable of $99.1 million for the Company’s underfunded plans, partially offset by pension plan assets for overfunded plans, recorded as a component of other assets on the consolidated balance sheets, of $12.1 million.



See “Note 14. Benefit Plans” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information on our pension and postretirement benefit plans.



Capital



The Company and the Bank are subject to the Capital Rules, which implemented the Basel Committee on Banking Supervision’s December 2010 final capital framework for strengthening international capital standards, known as Basel III, and various provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Capital Rules require bank holding companies and their bank subsidiaries to maintain substantially more capital than previously required, with a greater emphasis on common equity. The Capital Rules, among other things, (i) impose a capital measure called CET1, (ii) specify that Tier 1 capital consists of CET1 and ‘‘Additional Tier 1 capital’’ instruments meeting specified requirements, (iii) define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iv) expand the scope of the deductions/adjustments to capital as compared to existing regulations.



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.



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As of December 31, 2025, our capital levels remained characterized as “well capitalized” under the Capital Rules. The Company’s regulatory capital ratios, calculated in accordance with the Capital Rules, are presented in Table 24 below. See “Note 12. Regulatory Capital Requirements” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information. There have been no conditions or events since December 31, 2025 that management believes have changed either the Company’s or the Bank’s capital classifications.



















FHI's Regulatory Capital











Table 24





December 31, 



(dollars in thousands)

  

2025



2024



Stockholders' Equity



$

2,769,365



$

2,617,486



Less:















Goodwill





995,492





995,492



Accumulated other comprehensive loss, net





(368,140)





(463,994)



Tax credit carryforward





—





2,050



Common Equity Tier 1 Capital and Tier 1 Capital



$

2,142,013



$

2,083,938



Add:















Qualifying allowance for credit losses and reserve for unfunded commitments





203,256





193,240



Total Capital



$

2,345,269



$

2,277,178



Risk-Weighted Assets



$

16,259,605



$

16,281,101



















FHI's Key Regulatory Capital Ratios















Common Equity Tier 1 Capital Ratio





13.17

%



12.80

%

Tier 1 Capital Ratio





13.17

%



12.80

%

Total Capital Ratio





14.42

%



13.99

%

Tier 1 Leverage Ratio





9.27

%



9.14

%



Total stockholders’ equity was $2.8 billion as of December 31, 2025, an increase of $151.9 million or 6% from December 31, 2024. The increase in stockholders’ equity was primarily due to earnings for the year ended December 31, 2025 of $276.3 million and other comprehensive income, net of tax, of $95.9 million, primarily due to changes in our investment securities portfolio. This was partially offset by dividends declared and paid to the Company’s stockholders of $129.9 million and common stock repurchased of $100.0 million.



In January 2025, the Company announced a stock repurchase program for up to $100.0 million of its outstanding common stock during 2025. Under this plan, the Company repurchased 4,020,554 shares at a total cost of $100.0 million during 2025. In January 2026, the Company announced a stock repurchase program for up to $250.0 million of its outstanding common stock. The timing and exact amount of stock repurchases, if any, will be subject to management’s discretion and various factors, including the Company’s capital position and financial performance, as well as market conditions. The stock repurchase program may be suspended, terminated or modified at any time for any reason.



In January 2026, the Company’s Board of Directors declared a quarterly cash dividend of $0.26 per share on our outstanding shares. The dividend is to be paid on February 27, 2026 to shareholders of record at the close of business on February 13, 2026.



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Critical Accounting Policies



Our consolidated financial statements were prepared in accordance with GAAP and follow general practices within the industries in which we operate. The most significant accounting policies we follow are presented in “Note 1. Organization and Summary of Significant Accounting Policies” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data. Application of these principles requires us to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Most accounting policies are not considered by management to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical in the preparation of the consolidated financial statements. These factors include among other things, whether the policy requires management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. The accounting policies which we believe to be most critical in preparing our consolidated financial statements are those that are related to the determination of the ACL and fair value estimates.



Allowance for Credit Losses



Management’s evaluation of the adequacy of the ACL is often the most critical of accounting estimates for a financial institution. Our determination of the amount of the ACL is a critical accounting estimate as it requires significant reliance on the accuracy of credit risk ratings on individual borrowers, the use of estimates and significant judgment as to the amount and timing of expected future cash flows on impaired loans, significant reliance on estimated loss rates on portfolios and consideration of our evaluation of macro-economic factors and trends. While our methodology involves estimating an ACL for each of our commercial, residential real estate and consumer portfolio segments, the entire ACL is available to absorb credit losses in the total loan and lease portfolio.



The ACL is a valuation account that is deducted from the amortized cost basis of loans and leases to present the net amount expected to be collected from loans and leases. Loans and leases are charged-off against the ACL when management believes the loan or lease balance is deemed uncollectible. Recoveries do not exceed the aggregate of amounts previously charged-off. Changes in the ACL and, therefore, in the related Provision, can materially affect net income. In applying the judgment and review required to determine the ACL, management considers changes in economic conditions, customer behavior, and collateral value, among other factors. Economic factors or business decisions may affect the composition and mix of the loan and lease portfolio, causing management to increase or decrease the ACL.



The following are some of the significant judgments and inherent limitations which affect the estimate of the ACL:



●

The Accuracy of Internal Credit Risk Ratings, Monitoring of Loans Past Due and Delinquency Trends. The ACL related to our commercial portfolio segment is generally most sensitive to the accuracy of internal credit risk ratings assigned to each borrower. Commercial loan risk ratings are evaluated based on each situation by experienced senior credit officers and are subject to periodic review by an internal team of credit specialists.

●

Data. We have applied considerable judgments about the sufficiency and applicability of our internal data to provide an accurate view of historical loss information. For each of our portfolio segments we have examined between 14 and 18 years of historical data. For many of our residential real estate and consumer loan classes, we have assumed that the historical loss period observed is sufficient to capture a full credit loss cycle and that the credit loss exposures observed over this historical loss period are representative of those for which we will be making estimates of future expected credit losses under CECL. In making this assumption, we have relied on the fact that the historical loss period for the vast majority of our different loan portfolio segments incorporated the most recent observed recessionary period as well as the subsequent period of sustained recovery and growth.

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●

Reasonable and Supportable Forecast Period. For contractual periods which extend beyond the one-year reasonable and supportable forecast period, management elected an immediate reversion to the mean approach. Management will continue to assess whether a one-year reasonable and supportable forecast period is appropriate. Changes to the economic environment and uncertainty with regards to the timing and extent of an economic recovery may result in management decreasing or increasing the current reasonable and supportable forecast period.

●

Economic Adjustments over the Reasonable and Supportable Forecast Period. The Company uses a multi-variable regression model to estimate the impact of Management’s economic outlook over the reasonable and supportable forecast period. The model uses economic forecasts as the input and outputs modifiers that adjust the long-run default/loss rates. The Company’s economic forecast framework allows management to use judgment in selecting the economic model input and output.

●

Qualitative Adjustments. For risks not captured in the long-run default/loss rates or in the economic forecast model, the Company applies segment or account level dollar adjustments. These adjustments are estimated based on the best information available as of the reporting date and may include, as appropriate, overlays to account for macroeconomic uncertainties, adjustments for model limitations, regulatory determinants, overlays for natural disasters, and other events such as the COVID-19 pandemic and the Maui wildfires.

●

Identification and Measurement of Individually Assessed Loans, including Loans Modified with a Borrower Experiencing Financial Difficulty. Our experienced senior credit officers may consider a loan impaired based on their evaluation of current information and events, including loans modified with a borrower experiencing financial difficulty. The measurement of impairment is typically based on an analysis of the present value of expected future cash flows or fair value of collateral less estimated selling costs. The development of these expectations requires significant management judgment and estimation.

The ACL for loans and leases was $168.5 million as of December 31, 2025, which represented an increase of $8.1 million, compared to the ACL for loans and leases of $160.4 million as of December 31, 2024. The reserve for unfunded commitments was $35.7 million as of December 31, 2025, which represented an increase of $2.9 million, compared to the reserve for unfunded commitments of $32.8 million as of December 31, 2024. The ACL for loans and leases and the reserve for unfunded commitments was considered adequate based on our ongoing analysis of estimated expected credit losses, credit risk profiles, current economic outlook, coverage ratios and other relevant factors. The ACL anticipates cyclical losses consistent with a recession and includes a qualitative overlay for macroeconomic uncertainties. We will continue to monitor factors that drive expected credit losses including the uncertainty of the economy, inflation and geopolitical instability.



To illustrate the sensitivity of the Company’s ACL model to credit quality, we downgraded the internal credit risk ratings on commercial loans by one grade and reduced FICO scores on retail loans by ten points. Downgrading 1% of our commercial portfolio would increase the ACL at December 31, 2025 by approximately $1.0 million, and reducing FICO scores on the entire retail portfolio would increase the ACL at December 31, 2025 by approximately $3.8 million. These sensitivity analyses are hypothetical and have been provided only to indicate the potential impact that changes in internal credit risk ratings and FICO scores may have on the ACL estimate, with all other inputs remaining constant.



See “Note 5. Allowance for Credit Losses” in the notes to the consolidated financial statements included in Item 8. Financial Statement and Supplementary Data and “Analysis of Financial Condition — Allowance for Credit Losses for Loans and Leases & Reserve for Unfunded Commitments” for more information on the ACL.



Fair Value Measurements



Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market inputs. For financial instruments that are traded actively and have quoted market prices or observable market inputs, there is minimal subjectivity involved in measuring fair value. However, when quoted market prices or observable market inputs are not fully available, significant management judgment may be necessary to estimate fair value. In developing our fair value measurements, we maximize the use of observable inputs and minimize the use of unobservable inputs.



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The fair value hierarchy defines Level 1 valuations as those based on quoted prices, unadjusted, for identical instruments traded in active markets. Level 2 valuations are those based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active or model-based valuation techniques for which all significant assumptions are observable in the market. Level 3 valuations are based on model-based techniques that use at least one significant assumption not observable in the market, or significant management judgment or estimation, some of which may be internally developed.



Financial assets that are recorded at fair value on a recurring basis include available for sale investment securities and derivative financial instruments. As of December 31, 2025 and 2024, $2.1 billion or 9% and $1.9 billion or 8%, respectively, of our total assets consisted of financial assets recorded at fair value on a recurring basis and most of these financial assets consisted of available for sale investment securities measured using information from a third-party pricing service. These investments in debt securities and mortgage backed securities were classified in Level 2 of the fair value hierarchy. Financial liabilities that were recorded at fair value on a recurring basis were comprised of derivative financial instruments. As of December 31, 2025 and 2024, $14.6 million or less than 1% and $8.4 million or less than 1%, respectively, of our total liabilities, consisted of financial liabilities recorded at fair value on a recurring basis. As of December 31, 2025 and 2024, $12.3 million and $6.1 million, respectively, was classified in Level 2 of the fair value hierarchy. As of both December 31, 2025 and 2024, $2.3 million was classified in Level 3 of the fair value hierarchy. As of December 31, 2025 and 2024, the liability which was classified in Level 3 of the fair value hierarchy was related to the sale of our Visa Class B restricted shares in 2016. We recorded a derivative liability which requires payment to the buyer of the Visa Class B restricted shares in the event Visa further reduces the conversion rate to its publicly traded Visa Class A shares.



Our third-party pricing service makes no representations or warranties that the pricing data provided to us is complete or free from errors, omissions or defects. As a result, we have processes in place to monitor and periodically review the information provided to us by our third-party pricing service:



(1)

Our third-party pricing service provides us with documentation by asset class of inputs and methodologies used to value securities. We review this documentation to evaluate the inputs and valuation methodologies used to place securities into the appropriate level of the fair value hierarchy. This documentation is periodically updated by our third-party pricing service. Accordingly, transfers of securities within the fair value hierarchy are made if deemed necessary.



(2)

On a monthly basis, management reviews the pricing information received from our third-party pricing service. This review process includes a comparison to non-binding third-party broker quotes, as well as a review of market related conditions impacting the information provided by our third-party pricing service. We also identify investment securities which may have traded in illiquid or inactive markets by identifying instances of a significant decrease in the volume or frequency of trades relative to historic levels, as well as instances of a significant widening of the bid ask spread in the brokered markets.



(3)

Our third-party pricing service has also established processes for us to submit inquiries regarding quoted prices. Periodically, we will challenge the quoted prices provided by our third-party pricing service. Our third-party pricing service will review the inputs to the evaluation in light of the new market data presented by us. Our third-party pricing service may then affirm the original quoted price or may update the evaluation on a going forward basis.



Based on the composition of our investment securities portfolio, we believe that we have developed appropriate internal controls and performed appropriate due diligence procedures to prevent or detect material misstatements by our third-party pricing service. See “Note 21. Fair Value” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information on our use of fair value estimates.



Future Application of Accounting Pronouncements



For a discussion of the expected impact of accounting pronouncements recently issued but not adopted by us as of December 31, 2025, see “Note 1. Organization and Summary of Significant Accounting Policies — Recent Accounting Pronouncements” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data for more information.



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Table of Contents

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” 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 typically require presales of finished inventory or preleasing requirements prior to loan funding. However, because this analysis is typically performed on a forward-looking basis, real estate construction projects typically present a higher risk profile in our lending activities. Lease financing activities include commercial single investor leases and leveraged leases used to purchase items ranging from computer equipment to transportation equipment. Underwriting of new leasing arrangements typically includes analyzing customer cash flows, evaluating secondary sources of repayment, such as the value of the leased asset, the guarantors’ net cash flows as well as other credit enhancements provided by the lessee.



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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 $392,000 as of December 31, 2025. Residential mortgage loan production is added to our loan portfolio or is sold in the secondary market, based on management’s evaluation of our liquidity, capital and loan portfolio mix as well as market conditions. Changes in interest rates, the economic environment and other market factors have impacted, and will likely continue to impact, the marketability and value of collateral and the financial condition of our borrowers which impacts the level of credit risk inherent in this portfolio, although we remain in a supply constrained housing environment in Hawaii. Geographic concentrations exist for this portfolio as nearly all residential mortgage loans and home equity lines of credit are for residences located in Hawaii, Guam or Saipan. These island locales are susceptible to a wide array of potential natural disasters including, but not limited to, hurricanes, floods, tsunamis and earthquakes. We offer home equity lines of credit with variable rates; fixed rate lock options may be available post-closing.  The qualifying debt payments for all lines are underwritten at 0.95% of the credit line amount. Our procedures for underwriting home equity lines of credit include an assessment of an applicant’s overall financial capacity and repayment ability. Decisions are primarily based on repayment ability via debt-to-income ratios, LTV ratios and an evaluation of credit history.



Consumer lending is further categorized into the following classes of loans: credit cards, automobile loans and other consumer-related installment loans. Consumer loans are either unsecured or fully secured by the borrower’s personal assets, including cash. 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, and credit scores. 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 ability to repay.



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 U.S. interest rates. In the banking industry, changes in interest rates can significantly impact earnings and the safety and soundness of an entity.



Interest rate risk arises primarily from our core business activities of extending loans and accepting deposits. This occurs when our interest earning loans and interest-bearing deposits mature or reprice at different times, on a different basis or in unequal amounts. Interest rates may also affect loan demand, credit losses, mortgage origination volume, pre- payment speeds and other items affecting earnings.



Many factors affect our exposure to changes in interest rates, such as general economic and financial conditions, customer preferences, historical pricing relationships and repricing characteristics of financial instruments. Our earnings are affected not only by general economic conditions, but also by the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve. The monetary policies of the Federal Reserve can influence the overall growth of loans, investment securities and deposits and the level of interest rates earned on assets and paid for liabilities.



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Market Risk Measurement



We primarily use net interest income simulation analysis to measure and analyze interest rate risk. We run various hypothetical interest rate scenarios and compare these results against a measured base case scenario. Our net interest income simulation analysis incorporates various assumptions, which we believe are reasonable but which may have a significant impact on results. These assumptions include: (1) the timing of changes in interest rates, (2) shifts or rotations in the yield curve, (3) re-pricing characteristics for market rate sensitive instruments on and off-balance sheet, (4) differing sensitivities of financial instruments due to differing underlying rate indices and (5) varying loan prepayment speeds for different interest rate scenarios. Because of limitations inherent in any approach used to measure interest rate risk, simulation results are not intended as a forecast of the actual effect of a change in market interest rates on our results but rather as a means to better plan and execute appropriate asset liability management strategies to manage our interest rate risk.

 

Table 25 presents, for the twelve months subsequent to December 31, 2025 and 2024, 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 December 31, 2025 and 2024 are held constant.



























Net Interest Income Sensitivity Profile - Estimated Percentage Change Over 12 Months





Table 25







Static Forecast





Static Forecast







December 31, 2025



December 31, 2024



Gradual Change in Interest Rates (basis points)























+200









3.5

%







3.1

%

+100









1.8









1.6



+50









0.9









0.8



(50)









(0.9)









(0.8)



(100)









(1.8)









(1.6)



























Immediate Change in Interest Rates (basis points)







  









  





+200









6.3

%







6.2

%

+100









3.2









3.2



+50









1.6









1.6



(50)









(1.6)









(1.6)



(100)









(3.2)









(3.3)





The table above shows the effects of a simulation which estimates the effect of a gradual and immediate sustained parallel shift in the yield curve of −100, −50, +50, +100 and +200 basis points in market interest rates over a twelve-month period on our net interest income.



Currently, our interest rate profile, assuming a constant balance sheet, is such that we project net interest income will benefit from higher interest rates as our assets would reprice faster and to a greater degree than our liabilities, while in the case of lower interest rates, our assets would reprice downward and to a greater degree than our liabilities. Other factors such as changes in balance sheet composition or deposit rate behavior could result in a change in repricing sensitivity.





Under the static balance sheet forecast as of December 31, 2025, our net interest income sensitivity profile is slightly higher in higher interest rate scenarios compared to similar forecasts as of December 31, 2024. The sensitivity outcomes described above are primarily due to the impact of holding a larger federal funds position as of December 31, 2025 as compared with December 31, 2024.



The comparisons above provide insight into the potential effects of changes in interest rates on net interest income. The Company believes that its approach to interest rate risk has appropriately considered its susceptibility to both rising and falling rates and has adopted strategies which minimize the impact of such risks.



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We also have longer term interest rate risk exposures which may not be appropriately measured by net interest income simulation analysis. We use market value of equity (“MVE”) sensitivity analysis to study the impact of long-term cash flows on earnings and capital. MVE involves discounting present values of all cash flows of on-balance sheet and off-balance sheet items under different interest rate scenarios. The discounted present value of all cash flows represents our MVE. MVE analysis requires modifying the expected cash flows in each interest rate scenario, which will impact the discounted present value. The amount of base case measurement and its sensitivity to shifts in the yield curve allow management to measure longer term repricing option risk in the balance sheet.



Limitations of Market Risk Measures



The results of our simulation analyses are hypothetical, and a variety of factors might cause actual results to differ substantially from what is depicted. For example, if the timing and magnitude of interest rate changes differ from those projected, our net interest income might vary significantly. Non-parallel yield curve shifts such as a flattening or steepening of the yield curve or changes in interest rate spreads would also cause our net interest income to be different from that depicted. An increasing interest rate environment could reduce projected net interest income if deposits and other short-term liabilities re-price faster than expected or faster than our assets re-price. Actual results could differ from those projected if we grow assets and liabilities faster or slower than estimated, if we experience a net outflow of deposits or if our mix of assets and liabilities otherwise changes. For example, while we maintain relatively high levels of liquidity, a faster than expected withdrawal of deposits out of the bank may cause us to seek higher cost sources of funding. Actual results could also differ from those projected if we experience substantially different prepayment speeds in our loan portfolio than those assumed in the simulation analyses. Finally, these simulation results do not consider all the actions that we may undertake in response to potential or actual changes in interest rates, such as changes to our loan, investment, deposit, funding or hedging strategies.



Market Risk Governance



We seek to achieve consistent growth in net interest income and capital while managing volatility arising from changes in market interest rates. The objective of our interest rate risk management process is to increase net interest income while operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity.



To manage the impact on net interest income, we manage our exposure to changes in interest rates through our asset and liability management activities within guidelines established by our ALCO and approved by our board of directors. The ALCO has the responsibility for approving and ensuring compliance with the ALCO management policies, including interest rate risk exposures. The objective of our interest rate risk management process is to maximize net interest income while operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity.



Through review and oversight by the ALCO, we attempt to engage in strategies that neutralize interest rate risk as much as possible. Our use of derivative financial instruments, as detailed in “Note 16. Derivative Financial Instruments” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data, has generally been limited. This is due to natural on balance sheet hedges arising out of offsetting interest rate exposures from loans and investment securities with deposits and other interest-bearing liabilities. In particular, the investment securities portfolio is utilized to manage the interest rate exposure and sensitivity to within the guidelines and limits established by the ALCO. We utilize natural and offsetting economic hedges in an effort to reduce the need to employ off-balance sheet derivative financial instruments to hedge interest rate risk exposures. Expected movements in interest rates are also considered in managing interest rate risk. Thus, as interest rates change, we may use different techniques to manage interest rate risk.



Management uses the results of its various simulation analyses to formulate strategies to achieve a desired risk profile within the parameters of our capital and liquidity guidelines.



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Operational Risk



Operational risk is the risk of loss arising from inadequate or failed processes, people or systems, external events (such as natural disasters), or compliance, reputational or legal matters, including the risk of loss resulting from fraud, litigation and breaches in data security. Operational risk is inherent in all of our business ventures and the management of that risk is important to the achievement of our objectives. We have a framework in place that includes the reporting and assessment of any operational risk events, and the assessment of our mitigating strategies within our key business lines. This framework is implemented through our policies, processes and reporting requirements. We measure and report operational risk using the seven operational risk event types projected by the Basel Committee on Banking Supervision in Basel II: (1) external fraud; (2) internal fraud; (3) employment practices and workplace safety; (4) clients, products and business practices; (5) damage to physical assets; (6) business disruption and system failures; and (7) execution, delivery and process management. Our operational risk review process is also a core part of our assessment of material new products or activities.