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FIRST HAWAIIAN, INC.

FIRST HAWAIIAN, INC.FHBEarnings & Financial Report

Nasdaq · Financials · State Commercial Banks

First Hawaiian, Inc. is a bank holding company headquartered in Honolulu, Hawaiʻi. Its principal subsidiary, First Hawaiian Bank, founded in 1858, is Hawaiʻi’s oldest and largest financial institution headquartered in Honolulu at the First Hawaiian Center. The bank has 57 branches throughout Hawaiʻi, three in Guam and one in Saipan. It offers banking services to consumer and commercial customers, including deposit products, lending services and wealth management, insurance, private banking an...

What changed in FIRST HAWAIIAN, INC.'s 10-K — 2022 vs 2023

Top changes in FIRST HAWAIIAN, INC.'s 2023 10-K

469 paragraphs added · 443 removed · 370 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

29 edited+21 added−7 removed156 unchanged
In addition, the Company’s ability to continue to compete effectively also depends in large part on its ability to attract new employees and retain and motivate existing employees, while managing compensation and other costs. 3 Table of Contents Organizational History and Structure In August 2016, FHI completed our initial public offering (“IPO”), and shares of FHI’s common stock began trading on the NASDAQ Global Select Market (“NASDAQ”) under the ticker symbol “FHB”.
In addition, the Company’s ability to continue to compete effectively also depends on its ability to attract new employees and retain and motivate existing employees, while managing compensation and other costs. 3 Table of Contents Organizational History and Structure In August 2016, FHI completed our initial public offering (“IPO”), and shares of FHI’s common stock began trading on the NASDAQ Global Select Market (“NASDAQ”) under the ticker symbol “FHB”.
On April 1, 2016, BNPP effected a series of reorganization transactions (“Reorganization Transactions”), as a part of which we amended our certificate of incorporation to change our name to First Hawaiian, Inc., with First Hawaiian Bank remaining our only direct wholly owned subsidiary. In February 2019, BNPP fully exited its ownership interest in FHI common stock.
On April 1, 2016, BNPP effected a series of reorganization transactions (“Reorganization Transactions”), as a part of which we amended our certificate of incorporation to change our name to First Hawaiian, Inc., with First Hawaiian Bank remaining our only direct wholly owned subsidiary. In February 2019, BNPP fully exited its ownership position in FHI common stock.
As of December 31, 2022, 63% of our employees were women, 54% of all management positions were held by women, and 86% of our workforce were ethnically diverse. Health, Safety and Wellness We recognize that each employee’s benefit needs may differ and have designed our benefits program to be flexible.
As of December 31, 2023, 63% of our employees were women, 54% of all management positions were held by women, and 86% of our workforce were ethnically diverse. Health, Safety and Wellness We recognize that each employee’s benefit needs may differ and have designed our benefits program to be flexible.
Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these requirements. In January 2021, the Anti-Money Laundering Act of 2020 (“AMLA”), which amends the BSA, was enacted. The AMLA is intended to comprehensively reform and modernize U.S. anti-money laundering laws.
Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these requirements. 14 Table of Contents In January 2021, the Anti-Money Laundering Act of 2020 (“AMLA”), which amends the BSA, was enacted. The AMLA is intended to comprehensively reform and modernize U.S. anti-money laundering laws.
In addition, the FDIC is authorized to conduct examinations of and require reporting by FDIC-insured institutions. On October 18, 2022, the FDIC adopted a final rule to increase initial base deposit insurance assessment rates by 2 basis points, beginning in the first quarterly assessment period of 2023.
In addition, the FDIC is authorized to conduct examinations of and require reporting by FDIC-insured institutions. On October 18, 2022, the FDIC adopted a final rule that increased initial base deposit insurance assessment rates by 2 basis points, beginning in the first quarterly assessment period of 2023.
Our innovative talent development and employee learning courses are woven into our strategy and corporate culture. As of the date of this report, we offer 12 leadership development programs in total and over 90 professional development courses for employees through an Online Learning Center.
Our innovative talent development and employee learning courses are woven into our strategy and corporate culture. As of the date of this report, we offer 12 leadership development programs in total and over 20,000 professional development courses for employees through an Online Learning Center.
Financial Statements and Supplementary Data for more information. Human Capital Resources ​ As of December 31, 2022, we had over 2,000 employees, which included full time employees, part time employees and temporary employees, primarily located in our key markets of Hawaii, Guam and Saipan. As of December 31, 2022, the average tenure of employees at our Company is 11.8 years.
Financial Statements and Supplementary Data for more information. Human Capital Resources ​ As of December 31, 2023, we had over 2,000 employees, which included full time employees, part time employees and temporary employees, primarily located in our key markets of Hawaii, Guam and Saipan. As of December 31, 2023, the average tenure of employees at our Company is 11.5 years.
Among other things, these standards revise the Basel Committee’s standardized approach for credit risk (including recalibrating risk weights and introducing new capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card and home equity lines of credit) and provide a new standardized approach for operational risk capital.
Among other things, these standards revise the Basel Committee’s standardized approach for credit risk (including recalibrating risk weights and introducing new capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card and home equity lines of credit) and provide a new standardized approach for operational risk capital. Under the current U.S.
See “— Prompt Corrective Action Framework” above. If an institution fails to comply with such an order, the bank regulator may seek to enforce such order in judicial proceedings and to impose civil money penalties. 10 Table of Contents Deposit Insurance FDIC Insurance Assessments.
See “— Prompt Corrective Action Framework” above. If an institution fails to comply with such an order, the bank regulator may seek to enforce such order in judicial proceedings and to impose civil money penalties. Deposit Insurance FDIC Insurance Assessments.
Our commitment to diversity and inclusion starts at the top with a diverse board. As of the date of this report, the FHI Board of Directors includes three women, representing 30% of directors, and six ethnically diverse individuals, representing 60% of directors.
Our commitment to diversity and inclusion starts at the top with a diverse board. As of the date of this report, the FHI Board of Directors includes three women, representing 33% of directors, and six ethnically diverse individuals, representing 67% of directors.
As of December 31, 2022, FHB is the largest full-service bank headquartered in Hawaii as measured by assets, loans, deposits and net income. As of December 31, 2022, we had $24.6 billion of assets, $14.1 billion of gross loans and leases, $21.7 billion of deposits and $2.3 billion of stockholders’ equity.
As of December 31, 2023, FHB is the largest full-service bank headquartered in Hawaii as measured by assets, loans, deposits and net income. As of December 31, 2023, we had $24.9 billion of assets, $14.4 billion of gross loans and leases, $21.3 billion of deposits and $2.5 billion of stockholders’ equity.
As of December 31, 2022, the Company’s CET1 capital ratio and Tier 1 capital ratio were each 11.82%, its total capital ratio was 12.92%, and its Tier 1 leverage ratio was 8.11%, in each case calculated under the Capital Rules. For more information on the Company’s and the Bank’s capital ratios, see “Item 7.
As of December 31, 2023, the Company’s CET1 capital ratio and Tier 1 capital ratio were each 12.39%, its total capital ratio was 13.57%, and its Tier 1 leverage ratio was 8.64%, in each case calculated under the Capital Rules. For more information on the Company’s and the Bank’s capital ratios, see “Item 7.
Under CFPB rules relating to residential mortgage loans, banks are required to: (i) develop and implement procedures to ensure compliance with a “reasonable ability to repay” test and identify whether a loan meets a new definition for a “qualified mortgage”, in which case a rebuttable presumption exists that the creditor extending the loan has satisfied the reasonable ability to repay test; (ii) implement disclosures, policies and procedures for originating and servicing mortgages including, but not limited to, integrated loans estimate and closing disclosures, pre-loan counseling, early intervention with delinquent borrowers and specific loss mitigation procedures for loans secured by a borrower’s principal residence; (iii) comply with additional restrictions on mortgage loan originator hiring and compensation; (iv) comply with disclosure requirements and standards for appraisals and certain financial products; and (v) maintain escrow accounts for higher-priced mortgage loans for a longer period of time.
Under CFPB rules relating to residential mortgage loans, banks are required to: (i) develop and implement procedures to ensure compliance with a “reasonable ability to repay” test and identify whether a loan meets a new definition for a “qualified mortgage”, in which case a rebuttable presumption exists that the creditor extending the loan has satisfied the reasonable ability to repay test; (ii) implement disclosures, policies and procedures for originating and servicing mortgages including, but not limited to, integrated loans estimate and closing disclosures, pre-loan counseling, early intervention with delinquent borrowers and specific loss mitigation procedures for loans secured by a borrower’s principal residence; (iii) comply with additional restrictions on mortgage loan originator hiring and compensation; (iv) comply with disclosure requirements and standards for appraisals and certain financial products; and (v) maintain escrow accounts for higher-priced mortgage loans for a longer period of time. 12 Table of Contents On October 19, 2023, the CFPB proposed a new rule that would require a provider of payment accounts or products, such as a bank, to make data available to consumers upon request regarding the products or services they obtain from the provider.
Safety and Soundness Standards The FDIA requires the federal bank regulators to prescribe standards, by regulations or guidelines, relating to internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, stock valuation and compensation, fees and benefits, and such other operational and managerial standards as the agencies deem appropriate.
The FDIA imposes no such restrictions on a bank that is well capitalized. 10 Table of Contents Safety and Soundness Standards The FDIA requires the federal bank regulators to prescribe standards, by regulations or guidelines, relating to internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, stock valuation and compensation, fees and benefits, and such other operational and managerial standards as the agencies deem appropriate.
We generated $265.7 million of net income or diluted earnings per share of $2.08 per share for the year ended December 31, 2022. Through the Bank, we operate a network of 51 branches in Hawaii (46 branches), Guam (3 branches) and Saipan (2 branches).
We generated $235.0 million of net income or diluted earnings per share of $1.84 per share for the year ended December 31, 2023. Through the Bank, we operate a network of 50 branches in Hawaii (45 branches), Guam (3 branches) and Saipan (2 branches).
Many of the statutory provisions in the AMLA will require additional rulemakings, reports and other measures, and the impact of the AMLA will depend on, among other things, rulemaking and implementation guidance. 13 Table of Contents Office of Foreign Assets Control (“OFAC”) Regulation The U.S.
The priorities include corruption, cybercrime, terrorist financing, fraud, transnational crime, drug trafficking, human trafficking, and proliferation financing. Many of the statutory provisions in the AMLA will require additional rulemakings, reports and other measures, and the impact of the AMLA will depend on, among other things, rulemaking and implementation guidance. Office of Foreign Assets Control (“OFAC”) Regulation The U.S.
A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations if a critical service provider of the institution falls victim to this type of cyberattack.
A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations if a critical service provider of the institution falls victim to this type of cyberattack. The Bank has adopted an information security program that has been approved by its board of directors and reviewed by its regulators.
The excess compensation would be based on the amount the executive officer would have received had the incentive-based compensation been determined using the restated financials.
The excess compensation would be based on the amount the executive officer would have received had the incentive-based compensation been determined using the restated financials. NASDAQ’s listing standards pursuant to the SEC’s rule became effective October 2, 2023.
The final rule requires the exchanges to propose conforming listing standards and requires the standards to become effective no later than November 28, 2023. 14 Table of Contents Future Legislation and Regulation Congress may enact, modify or repeal legislation from time to time that affects the regulation of the financial services industry, and state legislatures may enact, modify or repeal legislation from time to time affecting the regulation of financial institutions chartered by or operating in those states.
Future Legislation and Regulation Congress may enact, modify or repeal legislation from time to time that affects the regulation of the financial services industry, and state legislatures may enact, modify or repeal legislation from time to time affecting the regulation of financial institutions chartered by or operating in those states.
The Dodd-Frank Act does not prevent states from adopting stricter consumer protection standards. State regulation of financial products and potential enforcement actions could also adversely affect the Company’s business, financial condition or results of operations.
State regulation of financial products and potential enforcement actions could also adversely affect the Company’s business, financial condition or results of operations.
Financial Statements and Supplementary Data. 9 Table of Contents An institution that is categorized as undercapitalized, significantly undercapitalized or critically undercapitalized is required to submit an acceptable capital restoration plan to its appropriate federal bank regulator.
Management’s Discussion and Analysis of Financial Condition — Capital” and “Note 12. Regulatory Capital Requirements” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data. An institution that is categorized as undercapitalized, significantly undercapitalized or critically undercapitalized is required to submit an acceptable capital restoration plan to its appropriate federal bank regulator.
Failure to comply with consumer protection requirements may also result in significant reputational harm as well as failure to obtain any required bank regulatory approval for merger or acquisition transactions the Company may wish to pursue or the Company’s prohibition from engaging in such transactions even if approval is not required. 11 Table of Contents The CFPB is a federal agency with broad rulemaking, supervisory and enforcement powers under federal consumer financial protection laws and has examination and enforcement authority over banks with assets of $10 billion or more, as well as their affiliates.
Failure to comply with consumer protection requirements may also result in significant reputational harm as well as failure to obtain any required bank regulatory approval for merger or acquisition transactions the Company may wish to pursue or the Company’s prohibition from engaging in such transactions even if approval is not required.
The Bank has adopted an information security program that has been approved by its board of directors and reviewed by its regulators. 12 Table of Contents In November 2021, the federal bank regulatory agencies issued a final rule regarding notification requirements for banking organizations related to significant computer security incidents.
In November 2021, the federal bank regulatory agencies issued a final rule regarding notification requirements for banking organizations related to significant computer security incidents.
As of December 31, 2022, the Bank met all capital ratio requirements to be well-capitalized with both a CET1 capital ratio and a Tier 1 capital ratio of 11.71%, total capital ratio of 12.81% and Tier 1 leverage ratio of 8.04%, in each case calculated under the Capital Rules.
As of December 31, 2023, the Bank met all capital ratio requirements to be well-capitalized with both a CET1 capital ratio and a Tier 1 capital ratio of 12.30%, total capital ratio of 13.48% and Tier 1 leverage ratio of 8.57%, in each case calculated under the Capital Rules. 9 Table of Contents The FDIA’s prompt corrective action provisions apply only to depository institutions such as the Bank, and not to bank holding companies.
The Volcker Rule The Dodd-Frank Act and the implementing regulations of the federal regulators generally prohibit banks and their affiliates from engaging in proprietary trading and investing in and sponsoring hedge funds and private equity funds (the “Volcker Rule”).
The total of the assessments for the Bank is estimated at $16.3 million, and such amount was recorded as an expense in the quarter of adoption (the quarter ending December 31, 2023). 11 Table of Contents The Volcker Rule The Dodd-Frank Act and the implementing regulations of the federal regulators generally prohibit banks and their affiliates from engaging in proprietary trading and investing in and sponsoring hedge funds and private equity funds (the “Volcker Rule”).
The effects on FHB of any potential change to the FDIC’s CRA rules will depend on the final form of any FDIC rulemaking. Financial Privacy and Cybersecurity The federal bank regulators have adopted rules limiting the ability of banks and other financial institutions to disclose non-public information about consumers to unaffiliated third parties.
Most provisions of the final rule will become effective on January 1, 2026, and the data reporting requirements will become effective on January 1, 2027. 13 Table of Contents Financial Privacy and Cybersecurity The federal bank regulators have adopted rules limiting the ability of banks and other financial institutions to disclose non-public information about consumers to unaffiliated third parties.
Capital Rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and not to the Company or the Bank. The impact of these standards on the Company and the Bank will depend on the manner in which they are implemented by the federal bank regulators.
Capital Rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and not to the Company or the Bank. On July 27, 2023, the federal banking regulators proposed revisions to the Capital Rules to implement the Basel Committee’s 2017 standards and make other changes to the Capital Rules.
In May 2022, the OCC, the Federal Reserve and the FDIC jointly issued a proposed rule to modernize federal bank regulators’ regulations implementing the CRA.
In October 2023, the OCC, the Federal Reserve and the FDIC jointly issued a final rule to modernize the federal bank regulators’ regulations implementing the CRA. The final rule introduces new tests under which the performance of banks with over $2 billion in assets will be assessed.
The proposed rule would adjust CRA evaluations based on bank size and type, with many of the proposed changes applying only to banks with over $2 billion in assets and several applying only to banks with over $10 billion in assets, such as the Bank.
The new rule also includes data collection and reporting requirements, some of which are applicable only to banks with over $10 billion in assets, such as the Bank.
Removed
The Basel framework contemplates that these standards generally will be effective on January 1, 2023, with an aggregate output floor phasing in through January 1, 2028. The federal bank regulators have not yet proposed rules implementing these standards. Under the current U.S.
Added
The proposal introduces revised credit risk, equity risk, operational risk, credit valuation adjustment risk and market risk requirements, among other changes.
Removed
The FDIA’s prompt corrective action provisions apply only to depository institutions such as the Bank, and not to bank holding companies.
Added
However, the revised capital requirements of the proposed rule would not apply to FHI or the Bank because they have less than $100 billion in total consolidated assets and trading assets and liabilities below the threshold for market risk requirements.
Removed
Management’s Discussion and Analysis of Financial Condition — Capital” and “Note 12. Regulatory Capital Requirements” in the notes to the consolidated financial statements included in Item 8.
Added
On November 16, 2023, the FDIC finalized a rule that imposes special assessments to recover the losses to the deposit insurance fund (“DIF”) resulting from the FDIC’s use, in March 2023, of the systemic risk exception to the least-cost resolution test under the Federal Deposit Insurance Act in connection with the receiverships of Silicon Valley Bank and Signature Bank.
Removed
The FDIA imposes no such restrictions on a bank that is well capitalized.
Added
The FDIC estimated in approving the rule that those assessed losses total approximately $16.3 billion. The rule provides that this loss estimate will be periodically adjusted, which will affect the amount of the special assessment.
Removed
The rule was effective April 1, 2022, with compliance required by May 1, 2022.
Added
Under the rule, the assessment base is the estimated uninsured deposits that an insured depository institution (“IDI”) reported in its December 31, 2022 Call Report, excluding the first $5 billion in estimated uninsured deposits.
Removed
In March 2022, the SEC proposed new rules that would require registrants, such as FHI, to (i) report material cybersecurity incidents on Form 8-K, (ii) include updated disclosure in Forms 10-K and 10-Q of previously disclosed cybersecurity incidents, and disclose previously undisclosed, individually immaterial incidents when a determination is made that they have become material on an aggregated basis, (iii) disclose cybersecurity policies and procedures and governance practices, including at the board and management levels, in Form 10-K and (iv) disclose the board of directors’ cybersecurity expertise.
Added
The special assessments will be collected at an annual rate of approximately 13.4 basis points per year (3.36 basis points per quarter) over eight quarters in 2024 and 2025, with the first assessment period beginning January 1, 2024.
Removed
The priorities include corruption, cybercrime, terrorist financing, fraud, transnational crime, drug trafficking, human trafficking, and proliferation financing.
Added
Because the estimated loss pursuant to the systemic risk determination will be periodically adjusted, the FDIC retains the ability to cease collection early, extend the special assessment collection period and impose a final shortfall special assessment on a one-time basis. The Company expects the special assessments to be tax deductible.
Added
The CFPB is a federal agency with broad rulemaking, supervisory and enforcement powers under federal consumer financial protection laws and has examination and enforcement authority over banks with assets of $10 billion or more, as well as their affiliates.
Added
Any such data provider would also have to make such data available to third parties, with the consumer’s express authorization and through an interface that satisfies formatting, performance and security standards, for the purpose of such third parties providing the consumer with financial products or services requested by the consumer.
Added
Data that would be required to be made available under the rule would include transaction information, account balance, account and routing numbers, terms and conditions, upcoming bill information, and certain account verification data.
Added
The proposed rule is intended to give consumers control over their financial data, including with whom it is shared, and encourage competition in the provision of consumer financial products or services.
Added
For banks that hold between $850 million and $50 billion in total assets, compliance with the proposed rule’s requirements would be required approximately two and a half years after adoption of the final rule. In October 2023, the Federal Reserve proposed amendments to its rules on interchange fees.
Added
Interchange fees, or “swipe” fees, are charges that merchants pay to card-issuing banks, such as FHB, for processing electronic payment transactions. The current interchange fee limitations establish a maximum possible fee for many types of debit interchange transactions that is equal to no more than 21 cents per transaction plus five basis points multiplied by the value of the transaction.
Added
The proposed changes would establish a maximum permissible interchange fee of no more than 14.4 cents per transaction plus four basis points multiplied by the value of the transaction. The current rules allow a debit card issuer to recover one cent per transaction for fraud prevention purposes if the issuer complies with certain fraud-related requirements.
Added
Under the proposed changes, the fraud prevention adjustment would be increased to 1.3 cents per transaction. The proposed rule would also establish an automatic update of the interchange fee cap every other year based on a survey of debit card issuers.
Added
On January 17, 2024, the CFPB proposed significant reforms to the regulatory framework governing overdraft practices applicable to banks such as FHB that have more than $10 billion in assets. The proposed rule would modify or eliminate several long-standing exclusions from requirements generally applicable to consumer credit that previously exempted certain overdraft practices.
Added
The proposal would also generally require banks to restructure many overdraft fees, overdraft lines of credit, and other overdraft practices as separate consumer credit accounts that would be subject to those requirements.
Added
These changes to the regulatory framework could result in the Bank, among other things, facing higher compliance costs in charging overdraft fees, experiencing a decreased ability to recover amounts extended as overdraft protection, reducing the availability of overdraft protection, and/or charging lower overdraft fees. The Dodd-Frank Act does not prevent states from adopting stricter consumer protection standards.
Added
The Company’s clawback policy adopted in accordance with these listing standards is included as Exhibit 97.1. 15 Table of Contents Climate-Related and Other ESG Developments In recent years, federal, state and international lawmakers and regulators have increased their focus on financial institutions’ and other companies’ risk oversight, disclosures and practices in connection with climate change and other environmental, social and governance (“ESG”) matters.
Added
For example, on March 21, 2022, the SEC issued a proposed rule on the enhancement and standardization of climate-related disclosures for investors. The proposed rule would require public issuers, including the Company, to significantly expand the scope of climate-related disclosures in their SEC filings.
Added
The SEC has also announced plans to propose rules to require enhanced disclosure regarding human capital management and board diversity for public issuers.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

77 edited+26 added−9 removed193 unchanged
BWHI is required to pay us for any unexpected income tax liabilities that arise in connection with the Reorganization Transactions.
BWHI is required to pay us for any unexpected income tax liabilities that arise in connection with the Reorganization Transactions.
Our stock price may fluctuate significantly in response to a variety of factors including, among other things: ​ ● Actual or anticipated variations in our results of operations; ​ ● Recommendations or research reports about us or the financial services industry in general published by securities analysts; ​ ● The failure of securities analysts to cover, or continue to cover, us; ​ ● Operating and stock price performance of other companies that investors deem comparable to us; ​ ● News reports relating to trends, concerns and other issues in the financial services industry; ​ ● Future sales of our common stock; ​ ● Departure of our management team or other key personnel; ​ ● New technology used, or services offered, by competitors; ​ ● Significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors; ​ ● Changes or proposed changes in laws or regulations, or differing interpretations thereof affecting our business, or enforcement of these laws and regulations; ​ ● Litigation and governmental investigations; and ​ ● Geopolitical conditions such as acts or threats of terrorism or military conflicts. ​ If any of the foregoing occurs, it could cause our stock price to fall and may expose us to litigation that, even if our defense is successful, could distract our management and be costly to defend.
Our stock price may fluctuate significantly in response to a variety of factors including, among other things: ​ ● Actual or anticipated variations in our results of operations; ​ ● Recommendations or research reports about us or the financial services industry in general published by securities analysts; ​ ● The failure of securities analysts to cover, or continue to cover, us; ​ ● Operating and stock price performance of other companies that investors deem comparable to us; ​ ● News reports relating to trends, concerns and other issues in the financial services industry; ​ ● Future sales of our common stock; ​ ● Departure of our management team or other key personnel; ​ ● New technology used, or services offered, by competitors; ​ ● Significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors; ​ ● Changes or proposed changes in laws or regulations, or differing interpretations thereof affecting our business, or enforcement of these laws and regulations; ​ ● Litigation and governmental investigations; and ​ ● Geopolitical conditions such as acts or threats of terrorism or military conflicts and government shutdowns. ​ If any of the foregoing occurs, it could cause our stock price to fall and may expose us to litigation that, even if our defense is successful, could distract our management and be costly to defend.
This could have a material adverse effect on our business, financial condition or results of operations. ​ The occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents could have a material adverse effect on our business, financial condition or results of operations. ​ As a financial institution, we are susceptible to fraudulent activity, information security breaches and cybersecurity-related incidents that may be committed against us or our clients, which may result in financial losses or increased costs to us or our clients, disclosure or misuse of our information or our client information, misappropriation of assets, privacy breaches against our clients, litigation or damage to our reputation.
This could have a material adverse effect on our business, financial condition or results of operations. ​ The occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents could have a material adverse effect on our business, financial condition or results of operations. ​ As a financial institution, we are susceptible to fraudulent activity, information security breaches and cybersecurity-related incidents that may be committed against us or our clients, which may result in financial losses or increased costs to us or our clients, disclosure, loss or misuse of our information or our client information, misappropriation of assets, privacy breaches against our clients, litigation or damage to our reputation.
However, in the event that BWHI does not satisfy its payment obligations, we could be subject to significantly higher federal and/or state and local income tax liabilities than currently anticipated. ​ Risks Related to Our Common Stock • Our stock price may be volatile, and you could lose part or all of your investment as a result. • Future sales and issuances of our common stock, including sales as part of our equity-based compensation plans, could result in dilution of the percentage ownership of our stockholders and could lower our stock price. • Certain banking laws and certain provisions of our certificate of incorporation may have an anti-takeover effect. ​ 17 Table of Contents Market Risks ​ Our business may be adversely affected by conditions in the financial markets and economic conditions generally and in Hawaii, Guam and Saipan in particular. ​ We provide banking and financial services to customers primarily in Hawaii, Guam and Saipan.
However, in the event that BWHI does not satisfy its payment obligations, we could be subject to significantly higher federal and/or state and local income tax liabilities than currently anticipated. ​ Risks Related to Our Common Stock • Our stock price may be volatile, and you could lose part or all of your investment as a result. • Future sales and issuances of our common stock, including sales as part of our equity-based compensation plans, could result in dilution of the percentage ownership of our stockholders and could lower our stock price. • Certain banking laws and certain provisions of our certificate of incorporation may have an anti-takeover effect. ​ 18 Table of Contents Market Risks ​ Our business may be adversely affected by conditions in the financial markets and economic conditions generally and in Hawaii, Guam and Saipan in particular. ​ We provide banking and financial services to customers primarily in Hawaii, Guam and Saipan.
Some of these parties have in the past been the target of security breaches and cyberattacks, and because the transactions involve third parties and environments such as the point of sale that we do not control or secure, future security breaches or cyberattacks affecting any of these third parties could impact us through no fault of our own, and in some cases we may have exposure and suffer losses for breaches or attacks relating to them. ​ 25 Table of Contents Information pertaining to us and our customers is maintained, and transactions are executed, on networks and systems maintained by us, our customers and certain of our third-party partners, such as our online banking or reporting systems.
Some of these parties have in the past been the target of security breaches and cyberattacks, and because the transactions involve third parties and environments such as the point of sale that we do not control or secure, future security breaches or cyberattacks affecting any of these third parties could impact us through no fault of our own, and in some cases we may have exposure and suffer losses for breaches or attacks relating to them. ​ 26 Table of Contents Information pertaining to us and our customers is maintained, and transactions are executed, on networks and systems maintained by us, our customers and certain of our third-party partners, such as our online banking or reporting systems.
Our failure to comply with any applicable laws or regulations, or regulatory policies and interpretations of such laws and regulations, in some cases, even if such noncompliance was inadvertent, could result in sanctions by regulatory agencies, civil money penalties, related litigation by private plaintiffs, or damage to our reputation, all of which could have a material adverse effect our business, financial condition or results of operations. ​ 31 Table of Contents We expect that our business will remain subject to extensive regulation and supervision and that the level of scrutiny and the enforcement environment may fluctuate over time, based on numerous factors, including changes in the United States presidential administration or one or both houses of Congress and public sentiment regarding financial institutions (which can be influenced by scandals and other incidents that involve participants in the financial services industry).
Our failure to comply with any applicable laws or regulations, or regulatory policies and interpretations of such laws and regulations, in some cases, even if such noncompliance was inadvertent, could result in sanctions by regulatory agencies, civil money penalties, related litigation by private plaintiffs, or damage to our reputation, all of which could have a material adverse effect our business, financial condition or results of operations. ​ We expect that our business will remain subject to extensive regulation and supervision and that the level of scrutiny and the enforcement environment may fluctuate over time, based on numerous factors, including changes in the United States presidential administration or one or both houses of Congress and public sentiment regarding financial institutions (which can be influenced by scandals and other incidents that involve participants in the financial services industry).
A deterioration in credit quality of such obligors, could result in losses and/or adversely affect our ability to rehypothecate or otherwise use those securities or obligations for liquidity purposes. ​ We might underestimate the credit losses inherent in our loan and lease portfolio and have credit losses in excess of the amount we reserve for loan and lease losses. ​ We maintain an allowance for credit losses (“ACL”), which is a reserve established through a provision for credit losses (the “Provision”) charged to expense representing management’s best estimate of inherent losses within our existing portfolio of loans and leases.
A deterioration in credit quality of such obligors, could result in losses and/or adversely affect our ability to rehypothecate or otherwise use those securities or obligations for liquidity purposes. ​ We might underestimate the credit losses inherent in our loan and lease portfolio and have credit losses in excess of the amount we reserve for loan and lease losses. ​ We maintain an allowance for credit losses (“ACL”), which is a reserve established through a provision for credit losses (the “Provision”) charged to expense representing management’s best estimate of lifetime expected credit losses within our existing portfolio of loans and leases.
Additionally, because of the complexity inherent in these approaches, misunderstanding or misuse of their outputs could similarly result in suboptimal decision-making. ​ ​ 24 Table of Contents The appraisals and other valuation techniques we use in evaluating and monitoring loans secured by real property, OREO and repossessed personal property may not accurately describe the net value of the asset. ​ In considering whether to make a loan secured by real property, we generally require an appraisal of the property.
Additionally, because of the complexity inherent in these approaches, misunderstanding or misuse of their outputs could similarly result in suboptimal decision-making. ​ ​ 25 Table of Contents The appraisals and other valuation techniques we use in evaluating and monitoring loans secured by real property, OREO and repossessed personal property may not accurately describe the net value of the asset. ​ In considering whether to make a loan secured by real property, we generally require an appraisal of the property.
Defense of our reputation, trademarks and other intellectual property, including through litigation, could result in costs that could have a material adverse effect on our business, financial condition or results of operations. ​ 23 Table of Contents We may not be able to attract and retain key personnel and other skilled employees. ​ Our success depends, in large part, on the skills of our management team and our ability to retain, recruit and motivate key officers and employees.
Defense of our reputation, trademarks and other intellectual property, including through litigation, could result in costs that could have a material adverse effect on our business, financial condition or results of operations. 24 Table of Contents ​ We may not be able to attract and retain key personnel and other skilled employees. ​ Our success depends, in large part, on the skills of our management team and our ability to retain, recruit and motivate key officers and employees.
A failure to maintain current technology and business processes could cause disruptions in our operations or cause our products and services to be less competitive, all of which could have a material adverse effect on our business, financial condition or results of operations. ​ Legal, Regulatory and Compliance Risks ​ The banking industry is highly regulated, and the regulatory framework, together with any future legislative or regulatory changes, may have a significant adverse effect on our operations. ​ The banking industry is extensively regulated and supervised under both federal and state laws and regulations that are intended primarily for the protection of depositors, customers, federal deposit insurance funds and the banking system as a whole, not for the protection of our stockholders and creditors other than insured depositors.
A failure to maintain current technology and business processes could cause disruptions in our operations or cause our products and services to be less competitive, all of which could have a material adverse effect on our business, financial condition or results of operations. ​ 32 Table of Contents Legal, Regulatory and Compliance Risks ​ The banking industry is highly regulated, and the regulatory framework, together with any future legislative or regulatory changes, may have a significant adverse effect on our operations. ​ The banking industry is extensively regulated and supervised under both federal and state laws and regulations that are intended primarily for the protection of depositors, customers, federal deposit insurance funds and the banking system as a whole, not for the protection of our stockholders and creditors other than insured depositors.
A severe downturn in the economy generally, in our markets specifically or affecting the business and assets of individual customers would generate increased charge-offs and a need for higher reserves. While we believe that our ACL was adequate as of December 31, 2022, there is no assurance that it will be sufficient to cover all incurred credit losses.
A severe downturn in the economy generally, in our markets specifically or affecting the business and assets of individual customers would generate increased charge-offs and a need for higher reserves. While we believe that our ACL was adequate as of December 31, 2023, there is no assurance that it will be sufficient to cover all incurred credit losses.
Such events and long-term shifts may also have a significant impact on our customers, which could amplify credit risk by diminishing borrowers’ repayment capacity or collateral values, and other businesses and counterparties with whom we transact, which could have a broader impact on the economy, supply chains and distribution networks. ​ Climate change may also result in new and/or more stringent regulatory requirements for the Company, which could materially affect the Company’s results of operations by requiring the Company to take costly measures to comply with any new laws or regulations related to climate change that may be forthcoming.
Such events and long-term shifts may also have a significant impact on our customers, which could amplify credit risk by diminishing borrowers’ repayment capacity or collateral values, and other businesses and counterparties with whom we transact, which could have a broader impact on the economy, supply chains and distribution networks. ​ 39 Table of Contents Climate change may also result in new and/or more stringent regulatory requirements for the Company, which could materially affect the Company’s results of operations by requiring the Company to take costly measures to comply with any new laws or regulations related to climate change that may be forthcoming.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us, which could have a material adverse effect on our business, financial condition or results of operations. ​ Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities. ​ We are subject to various privacy, information security and data protection laws, including requirements concerning security breach notification, and we could be negatively impacted by these laws.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us, which could have a material adverse effect on our business, financial condition or results of operations. ​ 36 Table of Contents Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities. ​ We are subject to various privacy, information security and data protection laws, including requirements concerning security breach notification, and we could be negatively impacted by these laws.
We may be required to reduce the value of any loans we mark held for sale as a result, which could have a material adverse effect on our business, financial condition or results of operations. ​ 27 Table of Contents Our operations could be interrupted if certain external vendors on which we rely experience difficulty, terminate their services or fail to comply with banking laws and regulations. ​ We depend, to a significant extent, on relationships with third-party service providers that provide services, primarily information technology services, that are critical to our operations.
We may be required to reduce the value of any loans we mark held for sale as a result, which could have a material adverse effect on our business, financial condition or results of operations. ​ Our operations could be interrupted if certain external vendors on which we rely experience difficulty, terminate their services or fail to comply with banking laws and regulations. ​ We depend, to a significant extent, on relationships with third-party service providers that provide services, primarily information technology services, that are critical to our operations.
These adjustments could have a material adverse effect on our business, financial condition or results of operations. ​ 22 Table of Contents Liquidity Risks ​ Loss of deposits could increase our funding costs. ​ Like many banking companies, we rely on customer deposits to meet a considerable portion of our funding, and we continue to seek customer deposits to maintain this funding base.
These adjustments could have a material adverse effect on our business, financial condition or results of operations. ​ 23 Table of Contents Liquidity Risks ​ Loss of deposits could increase our funding costs. ​ Like many banking companies, we rely on customer deposits to meet a considerable portion of our funding, and we continue to seek customer deposits to maintain this funding base.
Given that we derive a portion of our income from leasing space in our principal office building and that a large concentration of our employees is located in our principal office building, depending on the intensity and longevity of the event, a catastrophic event impacting our Honolulu office building, including a terrorist attack, extreme weather event or other hostile or catastrophic event, could negatively affect our business and reputation and could have a material adverse effect on our business, financial condition or results of operations. ​ ​ 36 Table of Contents Climate change could have a material negative impact on us and our customers. ​ Our business, as well as the operations and activities of our customers, could be negatively impacted by climate change.
Given that we derive a portion of our income from leasing space in our principal office building and that a large concentration of our employees is located in our principal office building, depending on the intensity and longevity of the event, a catastrophic event impacting our Honolulu office building, including a terrorist attack, extreme weather event or other hostile or catastrophic event, could negatively affect our business and reputation and could have a material adverse effect on our business, financial condition or results of operations. ​ ​ Climate change could have a material negative impact on us and our customers. ​ Our business, as well as the operations and activities of our customers, could be negatively impacted by climate change.
Our failure to comply with privacy, data protection and information security laws could result in potentially significant regulatory or governmental investigations or actions, litigation, fines, sanctions and damage to our reputation, which could have a material adverse effect on our business, financial condition or results of operations. ​ 34 Table of Contents Differences in regulation can affect our ability to compete effectively. ​ The content and application of laws and regulations applicable to financial institutions vary according to the size of the institution, the jurisdictions in which the institution is organized and operates and other factors.
Our failure to comply with privacy, data protection and information security laws could result in potentially significant regulatory or governmental investigations or actions, litigation, fines, sanctions and damage to our reputation, which could have a material adverse effect on our business, financial condition or results of operations. ​ Differences in regulation can affect our ability to compete effectively. ​ The content and application of laws and regulations applicable to financial institutions vary according to the size of the institution, the jurisdictions in which the institution is organized and operates and other factors.
Other regulation has reduced the regulatory burden of large bank holding companies, and raised the asset thresholds at which more onerous requirements apply, which could cause certain large bank holding companies with less than $250 billion in total consolidated assets, which were previously subject to more stringent enhanced prudential standards, to become more competitive or to pursue expansion more aggressively. ​ Our use of third-party vendors and our other ongoing third-party business relationships are subject to increasing regulatory requirements and attention. ​ We regularly use third-party vendors as part of our business.
Other regulation has reduced the regulatory burden of large bank holding companies, and raised the asset thresholds at which more onerous requirements apply, which could cause certain large bank holding companies with less than $250 billion in total consolidated assets, which were previously subject to more stringent enhanced prudential standards, to become more competitive or to pursue expansion more aggressively. ​ 37 Table of Contents Our use of third-party vendors and our other ongoing third-party business relationships are subject to increasing regulatory requirements and attention. ​ We regularly use third-party vendors as part of our business.
Interest rates are volatile and highly sensitive to many factors that are beyond our control, such as economic conditions, inflationary trends, changes in government spending and debt issuances and policies of various governmental and regulatory agencies, and, in particular the monetary policy of the Federal Open Market Committee of the Federal Reserve System (the “FOMC”). ​ Interest rates in the United States fell dramatically during the first quarter of 2020 and remained low through 2021, which adversely affected our net interest income.
Interest rates are volatile and highly sensitive to many factors that are beyond our control, such as economic conditions, inflationary trends, changes in government spending and debt issuances and policies of various governmental and regulatory agencies, and, in particular the monetary policy of the Federal Open Market Committee of the Federal Reserve System (the “FOMC”). ​ 21 Table of Contents Interest rates in the United States fell dramatically during the first quarter of 2020 and remained low through 2021, which adversely affected our net interest income.
General market fluctuations, industry factors and general economic and political conditions and events — such as economic slowdowns or recessions, interest rate changes or credit loss trends — could also cause our stock price to decrease regardless of operating results. ​ 38 Table of Contents Future sales and issuances of our common stock, including sales as part of our equity-based compensation plans, could result in dilution of the percentage ownership of our stockholders and could lower our stock price. ​ The market price of our common stock could decline as a result of sales of a large number of shares of our common stock or from the perception that such sales could occur.
General market fluctuations, industry factors and general economic and political conditions and events — such as economic slowdowns or recessions, interest rate changes or credit loss trends — could also cause our stock price to decrease regardless of operating results. ​ Future sales and issuances of our common stock, including sales as part of our equity-based compensation plans, could result in dilution of the percentage ownership of our stockholders and could lower our stock price. ​ The market price of our common stock could decline as a result of sales of a large number of shares of our common stock or from the perception that such sales could occur.
Our failure to adequately implement risk management policies, procedures and controls could adversely affect our ability to increase this portfolio going forward and could result in an increased rate of delinquencies in, and increased losses from, this portfolio. ​ 19 Table of Contents Concentrated exposures to certain asset classes and individual obligors may unfavorably impact our operations. ​ We have naturally developed concentrated exposures to those asset classes and industries in which we have specific knowledge or competency, such as commercial real estate lending and dealer financing.
Our failure to adequately implement risk management policies, procedures and controls could adversely affect our ability to increase this portfolio going forward and could result in an increased rate of delinquencies in, and increased losses from, this portfolio. ​ Concentrated exposures to certain asset classes and individual obligors may unfavorably impact our operations. ​ We have naturally developed concentrated exposures to those asset classes and industries in which we have specific knowledge or competency, such as commercial real estate lending and dealer financing.
In addition, employee errors, such as inadvertent use or disclosure of confidential information, calculation errors, mistakes in addressing communications or data inputs, errors in developing, implementing or applying information technology systems or simple errors in judgment, could also have similar adverse effects. ​ 26 Table of Contents We may be adversely affected by changes in the actual or perceived soundness or condition of other financial institutions. ​ Financial services institutions may be interconnected as a result of trading, investment, liquidity management, clearing, counterparty and other relationships.
In addition, employee errors, such as inadvertent use or disclosure of confidential information, calculation errors, mistakes in addressing communications or data inputs, errors in developing, implementing or applying information technology systems or simple errors in judgment, could also have similar adverse effects. ​ We may be adversely affected by changes in the actual or perceived soundness or condition of other financial institutions. ​ Financial services institutions may be interconnected as a result of trading, investment, liquidity management, clearing, counterparty and other relationships.
Failure to successfully manage these risks in the development and implementation of new lines of business or offerings of new products, product enhancements or services could have a material adverse effect on our business, financial condition or results of operations. ​ We have dealer-centric automotive finance businesses, and a change in the key role of dealers within the automotive industry or our ability to maintain or build relationships with them could have an adverse effect on our business, results of operations, financial condition, or prospects. ​ Our automotive finance business depends on the continuation of the key role of dealers within the automotive industry, the maintenance of our existing relationships with dealers, and our creation of new relationships with dealers.
Failure to successfully manage these risks in the development and implementation of new lines of business or offerings of new products, product enhancements or services could have a material adverse effect on our business, financial condition or results of operations. ​ 31 Table of Contents We have dealer-centric automotive finance businesses, and a change in the key role of dealers within the automotive industry or our ability to maintain or build relationships with them could have an adverse effect on our business, results of operations, financial condition, or prospects. ​ Our automotive finance business depends on the continuation of the key role of dealers within the automotive industry, the maintenance of our existing relationships with dealers, and our creation of new relationships with dealers.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Cautionary Note Regarding Forward-Looking Statements.” ​ 15 Table of Contents Summary of Risk Factors The following is a summary of the most significant risks and uncertainties that we believe could adversely affect our business, financial condition or results of operations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Cautionary Note Regarding Forward-Looking Statements.” ​ 16 Table of Contents Summary of Risk Factors The following is a summary of the most significant risks and uncertainties that we believe could adversely affect our business, financial condition or results of operations.
For a discussion of the expected impact of accounting pronouncements recently issued but not adopted by us as of December 31, 2022, 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.
For a discussion of the expected impact of accounting pronouncements recently issued but not adopted by us as of December 31, 2023, 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.
See “Liquidity Risks – Our liquidity is dependent on dividends from First Hawaiian Bank” for additional information on our reliance on dividends paid to us by the Bank. ​ 32 Table of Contents Rulemaking changes implemented by the CFPB have in the past resulted and may in the future result in higher regulatory and compliance costs that may adversely affect our results of operations. ​ The CFPB is a federal agency responsible for implementing, examining and enforcing compliance with federal consumer financial protection laws.
See “Liquidity Risks – Our liquidity is dependent on dividends from First Hawaiian Bank” for additional information on our reliance on dividends paid to us by the Bank. ​ Rulemaking changes implemented by the CFPB have in the past resulted and may in the future result in higher regulatory and compliance costs that may adversely affect our results of operations. ​ The CFPB is a federal agency responsible for implementing, examining and enforcing compliance with federal consumer financial protection laws.
Other provisions of federal, state or local tax law may establish similar liability for other matters, including laws governing tax qualified pension plans, as well as other contingent liabilities. ​ Risks Related to Our Common Stock ​ Our stock price may be volatile, and you could lose part or all of your investment as a result. ​ Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find attractive.
Other provisions of federal, state or local tax law may establish similar liability for other matters, including laws governing tax qualified pension plans, as well as other contingent liabilities. ​ 40 Table of Contents Risks Related to Our Common Stock ​ Our stock price may be volatile, and you could lose part or all of your investment as a result. ​ Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find attractive.
We may not be able to compete successfully with other financial institutions in our markets, and we may have to pay higher interest rates to attract deposits, accept lower yields to attract loans and pay higher wages for new employees, resulting in lower net interest margins and reduced profitability. ​ 29 Table of Contents Many of our non-bank competitors are not subject to the same extensive regulations that govern our activities and may have greater flexibility in competing for business.
We may not be able to compete successfully with other financial institutions in our markets, and we may have to pay higher interest rates to attract deposits, accept lower yields to attract loans and pay higher wages for new employees, resulting in lower net interest margins and reduced profitability. ​ Many of our non-bank competitors are not subject to the same extensive regulations that govern our activities and may have greater flexibility in competing for business.
The emergence, adoption and evolution of new technologies that do not require intermediation, including distributed ledgers such as digital assets and blockchain, as well as advances in robotic process automation, could significantly affect the competition for financial services.
The emergence, adoption and evolution of new technologies that do not require intermediation, including distributed ledgers such as digital assets and blockchain, as well as advances in robotic process automation or AI, could significantly affect the competition for financial services.
Our inability to comply with all federal and state regulations and investor guidelines regarding the origination, underwriting documentation and servicing of mortgage loans may impact our ability to sell mortgage loans in the future. ​ In addition, we must report as held for sale any loans which we have undertaken to sell, whether or not a purchase agreement for the loans has been executed.
Our inability to comply with all federal and state regulations and investor guidelines regarding the origination, underwriting documentation and servicing of mortgage loans may impact our ability to sell mortgage loans in the future. ​ 28 Table of Contents In addition, we must report as held for sale any loans which we have undertaken to sell, whether or not a purchase agreement for the loans has been executed.
In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet which may result in our reporting materially different results than would have been reported under a different alternative. ​ Certain accounting policies are critical to presenting our financial condition and results of operations.
In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet which may result in our reporting materially different results than would have been reported under a different alternative. ​ 29 Table of Contents Certain accounting policies are critical to presenting our financial condition and results of operations.
Our inability to manage our growth successfully or to continue to expand into new markets could have a material adverse effect on our business, financial condition or results of operations. ​ We operate in a highly competitive industry and market area. ​ We operate in the highly competitive financial services industry and face significant competition for customers from financial institutions located both within and beyond our principal markets.
Our inability to manage our growth successfully or to continue to expand into new markets could have a material adverse effect on our business, financial condition or results of operations. ​ 30 Table of Contents We operate in a highly competitive industry and market area. ​ We operate in the highly competitive financial services industry and face significant competition for customers from financial institutions located both within and beyond our principal markets.
In addition, a single event or issue may give rise to numerous and overlapping investigations and proceedings, including by multiple federal and state regulators and other governmental authorities. ​ In the normal course of business, from time to time, we may be named as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with our business activities.
In addition, a single event or issue may give rise to numerous and overlapping investigations and proceedings, including by multiple federal and state regulators and other governmental authorities. ​ 35 Table of Contents In the normal course of business, from time to time, we may be named as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with our business activities.
Business — Supervision and Regulation — Deposit Insurance.” ​ 33 Table of Contents Non-compliance with the USA PATRIOT Act, the Bank Secrecy Act or other laws and regulations could result in fines or sanctions against us. ​ The USA PATRIOT Act of 2001 and the Bank Secrecy Act require financial institutions to design and implement programs to prevent financial institutions from being used for money laundering and terrorist activities.
Business — Supervision and Regulation — Deposit Insurance.” ​ Non-compliance with the USA PATRIOT Act, the Bank Secrecy Act or other laws and regulations could result in fines or sanctions against us. ​ The USA PATRIOT Act of 2001 and the Bank Secrecy Act require financial institutions to design and implement programs to prevent financial institutions from being used for money laundering and terrorist activities.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” for more information. ​ 28 Table of Contents Our internal controls, disclosure controls, processes and procedures, and corporate governance policies and procedures are based in part on certain assumptions and can provide only reasonable (not absolute) assurances that the objectives of the system are met.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” for more information. ​ Our internal controls, disclosure controls, processes and procedures, and corporate governance policies and procedures are based in part on certain assumptions and can provide only reasonable (not absolute) assurances that the objectives of the system are met.
Our real estate loans consist primarily of residential loans, including home equity loans (representing 38% of our total loan and lease portfolio) and commercial and construction loans (representing 35% of our total loan and lease portfolio), with the significant majority of these loans concentrated in Hawaii.
Our real estate loans consist primarily of residential loans, including home equity loans (representing 38% of our total loan and lease portfolio) and commercial and construction loans (representing 37% of our total loan and lease portfolio), with the significant majority of these loans concentrated in Hawaii.
Once we register and issue these shares, their holders will be able to sell them in the public market, subject to applicable transfer restrictions. ​ We cannot predict the size of future issuances or sales of our common stock or the effect, if any, that future issuances or sales of shares of our common stock may have on the market price of our common stock.
Once we register and issue these shares, their holders will be able to sell them in the public market, subject to applicable transfer restrictions. ​ 41 Table of Contents We cannot predict the size of future issuances or sales of our common stock or the effect, if any, that future issuances or sales of shares of our common stock may have on the market price of our common stock.
As a result, these events may contribute to a deterioration in Hawaii’s general economic condition, which, as a result of our geographic concentration, could adversely impact us and our borrowers. ​ Commercial lending represents approximately 53% of our total loan and lease portfolio as of December 31, 2022, and we generally make loans to small to mid-sized businesses whose financial performance depends on the regional economy.
As a result, these events may contribute to a deterioration in Hawaii’s general economic condition, which, as a result of our geographic concentration, could adversely impact us and our borrowers. ​ Commercial lending represents approximately 54% of our total loan and lease portfolio as of December 31, 2023, and we generally make loans to small to mid-sized businesses whose financial performance depends on the regional economy.
Higher capital levels could also lower our return on equity. ​ We may not pay dividends on our common stock in the future. ​ Holders of our common stock are entitled to receive only such dividends as our board of directors may declare out of funds legally available for such payments.
Higher capital levels could also lower our return on equity. ​ 34 Table of Contents We may not pay dividends on our common stock in the future. ​ Holders of our common stock are entitled to receive only such dividends as our board of directors may declare out of funds legally available for such payments.
If this were to occur, our business, results of operations, financial condition, or prospects could be adversely affected. ​ 30 Table of Contents We continually encounter technological change. ​ The financial services industry is continually undergoing rapid technological change with frequent introductions of new, technology-driven products and services.
If this were to occur, our business, results of operations, financial condition, or prospects could be adversely affected. ​ We continually encounter technological change. ​ The financial services industry is continually undergoing rapid technological change with frequent introductions of new, technology-driven products and services.
In addition to the following summary, you should consider the other information set forth in this “Risk Factors” section and the other information contained in this report before investing in our securities. ​ Market Risks • Our business may be adversely affected by conditions in the financial markets and economic conditions generally and in Hawaii, Guam and Saipan in particular. • A sustained period of high inflation could pose a risk to the economy and the financial performance of the Bank. • Our business is significantly dependent on the real estate markets in which we operate, as a significant percentage of our loan portfolio is secured by real estate. • Our business is subject to risk arising from conditions in the commercial real estate market. • Concentrated exposures to certain asset classes and individual obligors may unfavorably impact our operations. • Our business is subject to interest rate risk and fluctuations in interest rates may adversely affect our earnings. • Certain of our businesses, our funding and financial products may be adversely affected by changes or the discontinuance of the London Interbank Offered Rate (“LIBOR”). • The value of the investment securities we own may decline in the future. ​ Credit Risks • Our business, profitability and liquidity may be adversely affected by deterioration in the credit quality of, or defaults by, third parties who owe us money, securities or other assets or whose securities or obligations we hold. • We might underestimate the credit losses inherent in our loan and lease portfolio and have credit losses in excess of the amount we reserve for loan and lease losses. ​ Liquidity Risks • Loss of deposits could increase our funding costs. • Our liquidity is dependent on dividends from First Hawaiian Bank. ​ Operational Risks • Our ability to maintain, attract and retain customer relationships is highly dependent on our reputation. • We may not be able to attract and retain key personnel and other skilled employees. • If our techniques for managing risk are ineffective, we may be exposed to material unanticipated losses. • We are dependent on the use of data and modeling both in our management decision-making generally and in meeting regulatory expectations in particular. • The appraisals and other valuation techniques we use in evaluating and monitoring loans secured by real property, other real estate owned (“OREO”) and repossessed personal property may not accurately describe the net value of the asset. • The occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents could have a material adverse effect on our business, financial condition or results of operations. • Employee misconduct or mistakes could expose us to significant legal liability and reputational harm. • We may be adversely affected by changes in the actual or perceived soundness or condition of other financial institutions. • Consumer protection initiatives related to the foreclosure process could materially affect our ability as a creditor to obtain remedies. • We are subject to a variety of risks in connection with any sale of loans we may conduct. • Our operations could be interrupted if certain external vendors on which we rely experience difficulty, terminate their services or fail to comply with banking laws and regulations. • We depend on the accuracy and completeness of information about customers and counterparties. • Our accounting estimates and risk management processes and controls rely on analytical and forecasting techniques and models and assumptions, and actual results may differ from these estimates. • Changes in our accounting policies or in accounting standards could materially affect how we report our financial results and condition. ​ 16 Table of Contents Strategic Risks • Geographic concentration in our existing markets may unfavorably impact our operations. • We operate in a highly competitive industry and market area. • New lines of business, products, product enhancements or services may subject us to additional risks. • We have dealer-centric automotive finance businesses, and a change in the key role of dealers within the automotive industry or our ability to maintain or build relationships with them could have an adverse effect on our business, results of operations, financial condition, or prospects. • We continually encounter technological change. ​ Legal, Regulatory and Compliance Risks • The banking industry is highly regulated, and the regulatory framework, together with any future legislative or regulatory changes, may have a significant adverse effect on our operations. • We are required to act as a source of financial and managerial strength for our bank in times of stress. • We are subject to capital adequacy requirements and may be subject to more stringent capital requirements. • We may not pay dividends on our common stock in the future. • Rulemaking changes implemented by the CFPB have in the past resulted and may in the future result in higher regulatory and compliance costs that may adversely affect our results of operations. • Litigation and regulatory actions, including possible enforcement actions, could subject us to significant fines, penalties, judgments or other requirements resulting in increased expenses or restrictions on our business activities. • Increases in FDIC insurance premiums may adversely affect our earnings. • Non-compliance with the USA PATRIOT Act, the Bank Secrecy Act or other laws and regulations could result in fines or sanctions against us. • Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities. • Differences in regulation can affect our ability to compete effectively. • Our use of third-party vendors and our other ongoing third-party business relationships are subject to increasing regulatory requirements and attention. • We are subject to environmental liability risk associated with our bank branches and any real estate collateral we acquire upon foreclosure. • We may be subject to litigation risk pertaining to our fiduciary responsibilities. ​ Other Risks Affecting Our Business • The COVID-19 pandemic has adversely affected, and may continue to adversely affect, us and our customers, counterparties, employees, and third-party service providers, and the adverse impacts on our business, financial position, results of operations, and prospects could be significant and are difficult to predict. • Severe weather, hurricanes, tsunamis, natural disasters, pandemics, acts of war or terrorism or other external events could significantly impact our business. • Climate change could have a material negative impact on us and our customers. • We may be subject to unexpected income tax liabilities in connection with the Reorganization Transactions.
In addition to the following summary, you should consider the other information set forth in this “Risk Factors” section and the other information contained in this report before investing in our securities. ​ Market Risks • Our business may be adversely affected by conditions in the financial markets and economic conditions generally and in Hawaii, Guam and Saipan in particular. • A sustained period of high inflation could pose a risk to the economy and the financial performance of the Bank. • Our business is significantly dependent on the real estate markets in which we operate, as a significant percentage of our loan portfolio is secured by real estate. • Our business is subject to risk arising from conditions in the commercial real estate market. • Concentrated exposures to certain asset classes and individual obligors may unfavorably impact our operations. • Our business is subject to interest rate risk and fluctuations in interest rates may adversely affect our earnings. • The value of the investment securities we own may decline in the future. ​ Credit Risks • Our business, profitability and liquidity may be adversely affected by deterioration in the credit quality of, or defaults by, third parties who owe us money, securities or other assets or whose securities or obligations we hold. • We might underestimate the credit losses inherent in our loan and lease portfolio and have credit losses in excess of the amount we reserve for loan and lease losses. ​ Liquidity Risks • Loss of deposits could increase our funding costs. • Our liquidity is dependent on dividends from First Hawaiian Bank. ​ Operational Risks • Our ability to maintain, attract and retain customer relationships is highly dependent on our reputation. • We may not be able to attract and retain key personnel and other skilled employees. • If our techniques for managing risk are ineffective, we may be exposed to material unanticipated losses. • We are dependent on the use of data and modeling both in our management decision-making generally and in meeting regulatory expectations in particular. • The appraisals and other valuation techniques we use in evaluating and monitoring loans secured by real property, other real estate owned (“OREO”) and repossessed personal property may not accurately describe the net value of the asset. • The occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents could have a material adverse effect on our business, financial condition or results of operations. • The development and use of AI present risks and challenges that may adversely impact our business. • Employee misconduct or mistakes could expose us to significant legal liability and reputational harm. • We may be adversely affected by changes in the actual or perceived soundness or condition of other financial institutions. • Consumer protection initiatives related to the foreclosure process could materially affect our ability as a creditor to obtain remedies. • We are subject to a variety of risks in connection with any sale of loans we may conduct. • Our operations could be interrupted if certain external vendors on which we rely experience difficulty, terminate their services or fail to comply with banking laws and regulations. • We depend on the accuracy and completeness of information about customers and counterparties. • Our accounting estimates and risk management processes and controls rely on analytical and forecasting techniques and models and assumptions, and actual results may differ from these estimates. • Changes in our accounting policies or in accounting standards could materially affect how we report our financial results and condition. ​ 17 Table of Contents Strategic Risks • Geographic concentration in our existing markets may unfavorably impact our operations. • We operate in a highly competitive industry and market area. • New lines of business, products, product enhancements or services may subject us to additional risks. • We have dealer-centric automotive finance businesses, and a change in the key role of dealers within the automotive industry or our ability to maintain or build relationships with them could have an adverse effect on our business, results of operations, financial condition, or prospects. • We continually encounter technological change. ​ Legal, Regulatory and Compliance Risks • The banking industry is highly regulated, and the regulatory framework, together with any future legislative or regulatory changes, may have a significant adverse effect on our operations. • Fee revenues from overdraft protection programs constitute a portion of our noninterest income and may be subject to increased supervisory scrutiny. • We are required to act as a source of financial and managerial strength for our bank in times of stress. • We are subject to capital adequacy requirements and may be subject to more stringent capital requirements. • We may not pay dividends on our common stock in the future. • Rulemaking changes implemented by the CFPB have in the past resulted and may in the future result in higher regulatory and compliance costs that may adversely affect our results of operations. • Litigation and regulatory actions, including possible enforcement actions, could subject us to significant fines, penalties, judgments or other requirements resulting in increased expenses or restrictions on our business activities. • Increases in FDIC insurance premiums may adversely affect our earnings. • Non-compliance with the USA PATRIOT Act, the Bank Secrecy Act or other laws and regulations could result in fines or sanctions against us. • Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our business opportunities. • Differences in regulation can affect our ability to compete effectively. • Our use of third-party vendors and our other ongoing third-party business relationships are subject to increasing regulatory requirements and attention. • We are subject to environmental liability risk associated with our bank branches and any real estate collateral we acquire upon foreclosure. • We may be subject to litigation risk pertaining to our fiduciary responsibilities. ​ Other Risks Affecting Our Business • Severe weather, hurricanes, tsunamis, natural disasters, pandemics, acts of war or terrorism or other external events could significantly impact our business. • Climate change could have a material negative impact on us and our customers. • We may be subject to unexpected income tax liabilities in connection with the Reorganization Transactions.
These provisions may effectively inhibit a non-negotiated merger or other business combination, which, in turn could have a material adverse effect on the market price of our common stock. ​ ​ 39 Table of Contents ITEM 1B. UNRESOLVED STAFF COMMENTS ​ Not applicable. ​
These provisions may effectively inhibit a non-negotiated merger or other business combination, which, in turn could have a material adverse effect on the market price of our common stock. ​ ​ ITEM 1B. UNRESOLVED STAFF COMMENTS ​ Not applicable. ​
Declines in the economic conditions in these markets, tourism, fluctuations in the strength of currencies such as the U.S. dollar and the Japanese yen, the inability of the Hawaii economy to absorb continuing construction expansion, increases in levels of underemployment, increases in energy costs, and other inflationary conditions, the availability of affordable air transportation, supply chain disruptions, pandemics or other widespread health emergency (or concerns over the possibility of such an emergency) (including COVID-19), real or threatened acts of war or terrorism, adverse weather, natural disasters and local or national budget issues, among other factors, may impact consumer and corporate spending.
Declines in the economic conditions in these markets, tourism, fluctuations in the strength of currencies such as the U.S. dollar and the Japanese yen, the inability of the Hawaii economy to absorb continuing construction expansion, increases in levels of underemployment, increases in energy costs, and other inflationary conditions, high interest rates, the availability of affordable air transportation, supply chain disruptions, pandemics or other widespread health emergency (or concerns over the possibility of such an emergency), real or threatened acts of war or terrorism, adverse weather, natural disasters and local or national budget issues, among other factors, may impact consumer and corporate spending.
The failure to properly anticipate and address risks associated with these concentrated exposures could have a material adverse effect on our business, financial condition or results of operations. ​ Our business is subject to interest rate risk and fluctuations in interest rates may adversely affect our earnings. ​ Fluctuations in interest rates may negatively impact our banking business and may weaken demand for some of our products.
The failure to properly anticipate and address risks associated with these concentrated exposures could have a material adverse effect on our business, financial condition or results of operations. ​ Our business is subject to interest rate risk and fluctuations in interest rates may adversely affect our earnings. ​ Fluctuations in interest rates have in the past negatively impacted and may in the future negatively impact our banking business and demand for some of our products.
A failure of a significant market participant, or even concerns about a default by such an institution, could lead to significant liquidity problems, losses or defaults by other institutions, which in turn could adversely affect us. ​ We are also subject to the risk that our rights against third parties may not be enforceable in all circumstances or that there is a deterioration in the credit quality of third parties whose securities or obligations we hold, including a deterioration in the value of collateral posted by third parties to secure their obligations to us under derivatives contracts and loan agreements.
A failure of a significant market participant, or even concerns about a default by such an institution, could lead to significant liquidity problems, losses or defaults by other institutions or regulatory responses, including additional special assessments under the FDIA, which in turn could adversely affect us. ​ We are also subject to the risk that our rights against third parties may not be enforceable in all circumstances or that there is a deterioration in the credit quality of third parties whose securities or obligations we hold, including a deterioration in the value of collateral posted by third parties to secure their obligations to us under derivatives contracts and loan agreements.
Additionally, we have cultivated relationships with market leaders that result in relatively larger exposures to select single obligors than would be typical for an institution of our size in a larger operating market. For example, our top five dealer relationships represented approximately 36% of our outstanding dealer flooring commitments as of December 31, 2022.
Additionally, we have cultivated relationships with market leaders that result in relatively larger exposures to select single obligors than would be typical for an institution of our size in a larger operating market. For example, our top five dealer relationships represented approximately 39% of our outstanding dealer flooring commitments as of December 31, 2023.
We have not sought and will not seek any rulings from the IRS or state and local tax authorities regarding our expected tax treatment of the Reorganization Transactions. ​ 37 Table of Contents In addition, under the U.S.
We have not sought and will not seek any rulings from the IRS or state and local tax authorities regarding our expected tax treatment of the Reorganization Transactions. ​ In addition, under the U.S.
Finally, higher rates could result in deposit outflows or higher deposit costs. ​ Our business is significantly dependent on the real estate markets in which we operate, as a significant percentage of our loan portfolio is secured by real estate. ​ As of December 31, 2022, our real estate loans represented approximately $10.3 billion, or 73% of our total loan and lease portfolio.
Finally, higher rates could result in deposit outflows or higher deposit costs. ​ Our business is significantly dependent on the real estate markets in which we operate, as a significant percentage of our loan portfolio is secured by real estate. ​ As of December 31, 2023, our real estate loans represented approximately $10.7 billion, or 75% of our total loan and lease portfolio.
Additionally, financial markets may be adversely affected by the current or anticipated impact of military conflict, including Russia’s ongoing invasion of Ukraine, terrorism or other geopolitical events.
Additionally, financial markets may be adversely affected by the current or anticipated impact of military conflict, including Russia’s ongoing invasion of Ukraine and the conflict in the Middle East, terrorism or other geopolitical events.
Changes in interest rates also have a significant impact on (i) the carrying value of certain assets, including loans, real estate and investment securities, on our balance sheet, and (ii) the level of loan refinancing activity in our portfolio, which impacts the amount of prepayment penalty income we receive on loans we hold.
Changes in interest rates also have a significant impact on (i) the carrying value of certain assets, including loans, real estate and investment securities, on our balance sheet, and may result in material differences between the values of our assets and liabilities, and (ii) the level of loan refinancing activity in our portfolio, which impacts the amount of prepayment penalty income we receive on loans we hold.
As of February 9, 2023, we had a total of 127,685,476 shares of common stock outstanding. ​ We have filed a registration statement to register 6,253,385 shares of our common stock for issuance pursuant to awards granted under the equity incentive and employee stock purchase plans.
As of February 9, 2024 we had a total of 127,622,503 shares of common stock outstanding. ​ We have filed a registration statement to register 6,253,385 shares of our common stock for issuance pursuant to awards granted under the equity incentive and employee stock purchase plans.
In April 2021, our stockholders approved an amendment and restatement of the First Hawaiian, Inc. 2016 Non-Employee Director Plan principally to increase the total number of shares of common stock that may be awarded under that plan by 193,941 shares. We have granted awards covering 2,768,449 shares of our common stock under these plans as of December 31, 2022.
In April 2021, our stockholders approved an amendment and restatement of the First Hawaiian, Inc. 2016 Non-Employee Director Plan principally to increase the total number of shares of common stock that may be awarded under that plan by 193,941 shares. We have granted awards covering 3,335,948 shares of our common stock under these plans as of December 31, 2023.
Our failure to mitigate these risks effectively could have a material adverse effect on our business, financial condition or results of operations. ​ Our business is subject to risk arising from conditions in the commercial real estate market. ​ As of December 31, 2022, our commercial real estate loans represented approximately $4.1 billion or 29% of our total loan and lease portfolio.
Our failure to mitigate these risks effectively could have a material adverse effect on our business, financial condition or results of operations. 20 Table of Contents ​ Our business is subject to risk arising from conditions in the commercial real estate market. ​ As of December 31, 2023, our commercial real estate loans represented approximately $4.3 billion or 30% of our total loan and lease portfolio.
We accept deposits directly from consumer and commercial customers and, as of December 31, 2022, we had $21.7 billion in deposits.
We accept deposits directly from consumer and commercial customers and, as of December 31, 2023, we had $21.3 billion in deposits.
Higher commodity prices, labor shortages and supply chain disruptions, including those resulting from Russia’s ongoing invasion of Ukraine, are also contributing to higher inflation levels, which could, in turn, adversely affect the U.S. economy, the demand for our products and creditworthiness of our borrowers. A sustained period of inflation could impact the Bank in many ways.
Higher commodity prices, labor shortages and supply chain disruptions, including those resulting from Russia’s ongoing invasion of Ukraine and the conflict in the Middle East, are also contributing to higher inflation levels, which could, in turn, adversely affect the U.S. economy, the demand for our products and creditworthiness of our borrowers.
Consistent with industry trends, we may face an increasing number of attempted cyberattacks as we expand our mobile and other internet-based products and services, and we provide more of these services to a greater number of individual customers.
Consistent with industry trends, we may face an increasing number of attempted cyberattacks as we expand our mobile and other internet-based products and services, and we provide more of these services to a greater number of individual customers. The increased use of mobile and cloud technologies can heighten these and other operational risks.
Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our business, financial condition or results of operations. ​ 20 Table of Contents As of December 31, 2022, we had $8.9 billion of noninterest-bearing demand deposits and $12.8 billion of interest-bearing deposits.
Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our business, financial condition or results of operations. ​ As of December 31, 2023, we had $7.6 billion of noninterest-bearing demand deposits and $13.7 billion of interest-bearing deposits.
Higher cost could reduce our profit margins. Aggressive action by monetary authorities to combat inflation could lead to higher rates which could negatively affect economic growth. Higher rates could make less creditworthy customers less able to meet their payment obligations.
A sustained period of inflation could impact the Bank in many ways. Higher cost could reduce our profit margins. Aggressive action by monetary authorities to combat inflation could lead to higher rates which could negatively affect economic growth. Higher rates could make less creditworthy customers less able to meet their payment obligations.
In recent years, commercial real estate markets have been experiencing substantial growth, and increased competitive pressures have contributed significantly to historically low capitalization rates and rising property values. Commercial real estate markets have been particularly impacted by the economic disruption resulting from the COVID-19 pandemic.
In recent years, commercial real estate markets have been experiencing substantial growth, and increased competitive pressures have contributed significantly to historically low capitalization rates and rising property values. Commercial real estate markets have been particularly impacted by the economic disruption resulting from the COVID-19 pandemic and a reduced demand for office space driven by the implications of hybrid work arrangements.
Maintenance of our reputation depends not only on our success in maintaining our service-focused culture and controlling and mitigating the various risks described in this Form 10-K, but also on our success in identifying and appropriately addressing issues that may arise in areas such as potential conflicts of interest, anti-money laundering, customer personal information and privacy issues, customer and other third party fraud, record-keeping, regulatory investigations and any litigation that may arise from any failure or perceived failure on our part to comply with legal and regulatory requirements.
Maintenance of our reputation depends not only on our success in maintaining our service-focused culture and controlling and mitigating the various risks described in this Form 10-K, but also on our success in identifying and appropriately addressing issues that may arise in areas such as potential conflicts of interest, anti-money laundering, customer personal information and privacy issues, customer and other third party fraud, record-keeping, regulatory investigations, any litigation that may arise from any failure or perceived failure on our part to comply with legal and regulatory requirements and ESG matters, including climate risk, hiring practices, the diversity of our work force, and racial and social justice issues involving our personnel, customers and third parties with whom we otherwise do business.
The Federal Reserve raised benchmark interest rates throughout 2022 and may continue to raise interest rates in response to economic conditions, particularly inflationary pressures. When interest rates are increasing, we can generally be expected to earn higher net interest income.
The Federal Reserve raised benchmark interest rates throughout 2022 and 2023 and may continue to raise interest rates, or maintain them at elevated levels by recent historical standards, in response to economic conditions, particularly inflationary pressures. When interest rates are increasing, we can generally be expected to earn higher net interest income.
We may not be able to effectively implement new, technology-driven products and services or implement them as quickly as our competitors do or be successful in marketing these products and services to our customers.
Certain of our competitors have substantially greater resources to invest in technological improvements than we do. We may not be able to effectively implement new, technology-driven products and services or implement them as quickly as our competitors do or be successful in marketing these products and services to our customers.
These island locales are susceptible to a wide array of potential natural disasters including, but not limited to, hurricanes, floods, earthquakes and tsunamis, like the October 2018 super typhoon that struck Saipan causing material damage to the island.
These island locales are susceptible to a wide array of potential natural disasters including, but not limited to, hurricanes, floods, earthquakes and tsunamis, like the May 2023 super typhoon that struck Guam and August 2023 Maui wildfires.
Risks associated with climate change are continuing to evolve rapidly, making it difficult to assess the effects of climate change on the Company, and the Company expects that climate change-related risks will continue to evolve and increase over time. ​ We may be subject to unexpected income tax liabilities in connection with the Reorganization Transactions.
Risks associated with climate change are continuing to evolve rapidly, making it difficult to assess the effects of climate change on the Company, and the Company expects that climate change-related risks will continue to evolve and increase over time.
In the event the Bank is unable to pay dividends to us, we may not be able to service any debt we may incur, pay obligations or pay dividends on our common stock.
Also, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. In the event the Bank is unable to pay dividends to us, we may not be able to service any debt we may incur, pay obligations or pay dividends on our common stock.
The increased use of mobile and cloud technologies can heighten these and other operational risks. ​ We also face risks related to cyberattacks and other security breaches in connection with credit card transactions that typically involve the transmission of sensitive information regarding our customers through various third parties, including merchant acquiring banks, payment processors, payment card networks and our processors.
Further, the use of artificial intelligence (“AI”) by cybercriminals may increase the frequency and severity of cybersecurity attacks against us or our service providers and others on whom we rely. ​ We also face risks related to cyberattacks and other security breaches in connection with credit card transactions that typically involve the transmission of sensitive information regarding our customers through various third parties, including merchant acquiring banks, payment processors, payment card networks and our processors.
Higher funding costs could reduce the Company’s net interest margin and net interest income and could have a material adverse effect on the Company’s business, financial condition, and results of operations. ​ Our liquidity is dependent on dividends from First Hawaiian Bank. ​ We are a legal entity separate and distinct from our banking and other subsidiaries.
Higher funding costs could reduce the Company’s net interest margin and net interest income and could have a material adverse effect on the Company’s business, financial condition, and results of operations.
In addition, changes in key personnel at the agencies that regulate the Company, including the federal banking regulators, may result in differing interpretations of existing rules and guidelines and potentially more stringent enforcement and more severe penalties than previously experienced.
We could face increased scrutiny or be viewed as higher risk by regulators and/or the investor community, which could have a material adverse effect on our business, financial condition and results of operations. ​ In addition, changes in key personnel at the agencies that regulate the Company, including the federal banking regulators, may result in differing interpretations of existing rules and guidelines and potentially more stringent enforcement and more severe penalties than previously experienced.
Because of changing economic and market conditions affecting issuers, we may be required to recognize losses in future periods, which could adversely affect our business, results of operations or financial condition. ​ 21 Table of Contents Credit Risks ​ Our business, profitability and liquidity may be adversely affected by deterioration in the credit quality of, or defaults by, third parties who owe us money, securities or other assets or whose securities or obligations we hold. ​ A number of our products expose us to credit risk.
Additionally, significant unrealized losses could negatively impact market and/or customer perceptions of the Company, which could lead to a loss of depositor confidence and an increase in deposit withdrawals, particularly among those with uninsured deposits. ​ 22 Table of Contents Credit Risks ​ Our business, profitability and liquidity may be adversely affected by deterioration in the credit quality of, or defaults by, third parties who owe us money, securities or other assets or whose securities or obligations we hold. ​ A number of our products expose us to credit risk.
Any future changes in federal and state law and regulations, as well as the interpretations and implementations, or modifications or repeals, of such laws and regulations, could affect us in substantial and unpredictable ways, including those listed above or other ways that could have a material adverse effect on our business, financial condition or results of operations. ​ We are required to act as a source of financial and managerial strength for our bank in times of stress. ​ Under federal law, we are required to act as a source of financial and managerial strength to our bank, and to commit resources to support our bank if necessary.
Any future changes in federal and state law and regulations, as well as the interpretations and implementations, or modifications or repeals, of such laws and regulations, could affect us in substantial and unpredictable ways, including those listed above or other ways that could have a material adverse effect on our business, financial condition or results of operations. 33 Table of Contents ​ Fee revenues from overdraft protection programs constitute a portion of our noninterest income and may be subject to increased supervisory scrutiny. ​ Revenues derived from transaction fees associated with overdraft protection programs offered to our customers are included in noninterest income.
For example, Hawaii law only permits our bank to pay dividends out of retained earnings as defined under Hawaii banking law, which differs from retained earnings calculated under GAAP. Also, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors.
For example, we are subject to regulatory capital requirements which may limit the Bank’s ability to pay dividends to us, and Hawaii law only permits our bank to pay dividends out of retained earnings as defined under Hawaii banking law, which differs from retained earnings calculated under GAAP.
Evolving responses from federal and state governments and other regulators, and our customers or our third-party partners or vendors, to new challenges such as climate change have impacted and could continue to impact the economic and political conditions under which we operate. ​ 18 Table of Contents A sustained period of high inflation could pose a risk to the economy and the financial performance of the Bank. ​ In recent periods, the increase in inflationary conditions accelerated due to, among other factors, global supply chain disruptions, changes in the labor market and geopolitical tensions.
A further downgrade, or a downgrade by other rating agencies, as well as sovereign debt issues facing the governments of other countries, could have a material adverse impact on financial markets and economic conditions in the U.S. and worldwide. ​ A sustained period of high inflation could pose a risk to the economy and the financial performance of the Bank. ​ In recent periods, the increase in inflationary conditions accelerated due to, among other factors, global supply chain disruptions, changes in the labor market and geopolitical tensions.
Sustained adverse effects may also prevent us from satisfying our minimum regulatory capital ratios and other supervisory requirements or result in downgrades in our credit ratings. ​ Severe weather, hurricanes, tsunamis, natural disasters, pandemics, acts of war or terrorism or other external events could significantly impact our business. ​ Severe weather, hurricanes, tsunamis, natural disasters, widespread disease or pandemics or other severe health emergencies, or concerns over the possibility of such an emergency (including the COVID-19 pandemic), acts of war or terrorism or other adverse external events could have a significant impact on our business.
Either of these results may adversely impact demand for our products and services or otherwise have a material adverse effect on our business, financial condition or results of operations. ​ 38 Table of Contents Other Risks Affecting Our Business . ​ Severe weather, hurricanes, tsunamis, natural disasters, pandemics, acts of war or terrorism or other external events could significantly impact our business. ​ Severe weather, hurricanes, tsunamis, natural disasters, widespread disease or pandemics or other severe health emergencies, or concerns over the possibility of such an emergency, acts of war or terrorism or other adverse external events could have a significant impact on our business.
Even the perceived lack of creditworthiness of, or questions about, a counterparty may lead to market-wide liquidity problems and losses or defaults by various institutions.
Even the perceived lack of creditworthiness of, or questions about, a counterparty may lead to market-wide liquidity problems and losses or defaults by various institutions. For example, we could be subject to sudden withdrawals of deposits. Online and mobile banking have made it easier for customers to withdraw their deposits or transfer funds to other accounts with short notice.
If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income.
If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. Because of changing economic and market conditions affecting issuers, we may be required to recognize losses in future periods, which could adversely affect our business, results of operations or financial condition.
In addition, to the extent the Company’s insurance covers aspects of any breach, such insurance may not be sufficient to cover all of the Company’s losses. ​ Employee misconduct or mistakes could expose us to significant legal liability and reputational harm. ​ We are vulnerable to reputational harm because we operate in an industry in which integrity and the confidence of our customers are of critical importance.
Generative AI, if used to perpetrate fraud or launch cyberattacks, could create panic at a particular financial institution or exchange, which could pose a threat to financial stability. 27 Table of Contents ​ Employee misconduct or mistakes could expose us to significant legal liability and reputational harm. ​ We are vulnerable to reputational harm because we operate in an industry in which integrity and the confidence of our customers are of critical importance.
Furthermore, if we fail to offer interest in a sufficient amount to keep these deposits, our core deposits may be reduced, which would require us to obtain funding in other ways or risk slowing our future asset growth. ​ Certain of our businesses, our funding and financial products may be adversely affected by changes or the discontinuance of LIBOR. ​ Our floating-rate funding, certain hedging transactions and certain of the products that we offer, such as floating-rate loans and mortgages, determine the applicable interest rate or payment amount by reference to a benchmark rate, such as LIBOR, or to an index, currency, basket or other financial metric.
Furthermore, if we fail to offer interest in a sufficient amount to keep these deposits, our deposits may be reduced, which would require us to obtain funding in other ways or risk slowing our future asset growth. ​ The value of the investment securities we own may decline in the future. ​ As of December 31, 2023, we owned investment securities with a carrying value of $6.3 billion, which largely consisted of our positions in obligations of the U.S. government and government-sponsored enterprises.
Removed
LIBOR and certain other benchmark rates are the subject of recent national, international, and other regulatory guidance and proposals for reform. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has announced that publication of the most commonly used U.S. Dollar LIBOR settings will cease to be provided or cease to be representative after June 30, 2023.
Added
Evolving responses from federal and state governments and other regulators, and our customers or our third-party partners or vendors, to new challenges such as climate change have impacted and could continue to impact the economic and political conditions under which we operate. ​ 19 Table of Contents In addition, federal budget deficit concerns and the potential for political conflict over legislation to fund U.S. government operations and raise the U.S. government's debt limit may increase the possibility of a default by the U.S. government on its debt obligations, related credit-rating downgrades, or an economic recession in the United States.
Removed
The publication of all other LIBOR settings ceased to be provided or ceased to be representative as of December 31, 2021. The U.S. federal banking agencies have issued guidance strongly encouraging banking organizations to cease using the U.S. Dollar LIBOR as a reference rate in “new” contracts by December 31, 2021 at the latest.

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Item 2. Properties

Properties — owned and leased real estate

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ITEM 2. PROPERTIES ​ Our corporate headquarters and main branch are located at 999 Bishop Street, Honolulu, Hawaii 96813. Inclusive of our main branch, we operated 51 branch offices located on the islands of Oahu, Maui, Hawaii, Kauai, Lanai, Guam and Saipan as of December 31, 2022.
ITEM 2. PROPERTIES ​ Our corporate headquarters and main branch are located at 999 Bishop Street, Honolulu, Hawaii 96813. Inclusive of our main branch, we operated 50 branch offices located on the islands of Oahu, Maui, Hawaii, Kauai, Lanai, Guam and Saipan as of December 31, 2023.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Commitments and Contingent Liabilities” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data. ​ ITEM 4. MINE SAFETY DISCLOSURES ​ Not applicable. ​ ​ 40 Table of Contents PART II ​
Commitments and Contingent Liabilities” in the notes to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data. ​ ITEM 4. MINE SAFETY DISCLOSURES ​ Not applicable. ​ ​ 45 Table of Contents PART II ​

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Item 4. Mine Safety Disclosures 40 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 41 ​ Item 6. ​ Reserved 42 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 43 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 91 Item 8.
Item 4. Mine Safety Disclosures 45 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 46 ​ Item 6. ​ Reserved 47 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 48 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 92 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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These holdings are considered to be held in “street name” through a bank, broker, or other intermediary and in the aggregate, are registered as a single shareholder of record. ​ Purchases of Equity Securities by the Issuer ​ There were no purchases of shares of the Company’s common stock made by or on behalf of us or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934) during the three months ended December 31, 2022. ​ On January 25, 2023, the Company’s Board of Directors adopted a stock repurchase program for up to $40 million of its outstanding common stock during 2023.
These holdings are considered to be held in “street name” through a bank, broker, or other intermediary and in the aggregate, are registered as a single shareholder of record. ​ Purchases of Equity Securities by the Issuer ​ There were no purchases of shares of the Company’s common stock made by or on behalf of us or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934) during the three months ended December 31, 2023. ​ On January 24, 2024, the Company’s Board of Directors adopted a stock repurchase program for up to $40 million of its outstanding common stock during 2024.
The cumulative total return on each investment is as of December 31 of each subsequent five years and assumes reinvestment of dividends. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2017 ​ 2018 ​ 2019 ​ 2020 ​ 2021 ​ 2022 First Hawaiian, Inc.
The cumulative total return on each investment is as of December 31 of each subsequent five years and assumes reinvestment of dividends. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2018 ​ 2019 ​ 2020 ​ 2021 ​ 2022 ​ 2023 First Hawaiian, Inc.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES ​ FHI’s common stock is listed on the NASDAQ under the symbol “FHB” and is quoted daily in leading financial publications. ​ As of February 9, 2023, there were 21 common registered shareholders of record.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES ​ FHI’s common stock is listed on the NASDAQ under the symbol “FHB” and is quoted daily in leading financial publications. ​ As of February 9, 2024, there were 20 common registered shareholders of record.
The graph assumes that $100 was invested at the closing price on December 31, 2017, in our common stock (1) , the S&P 500 Index and the KRX.
The graph assumes that $100 was invested at the closing price on December 31, 2018, in our common stock, the S&P 500 Index and the KRX.
The repurchase program may be suspended, terminated or modified at any time for any reason. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 41 Table of Contents Performance Graph ​ The following graph displays the cumulative total stockholder return on our common stock based on the market price of the common stock compared to the cumulative total returns for the Standard & Poor’s (“S&P”) 500 Index and the KBW Regional Banking Index (“KRX”).
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 46 Table of Contents Performance Graph ​ The following graph displays the cumulative total stockholder return on our common stock based on the market price of the common stock compared to the cumulative total returns for the Standard & Poor’s (“S&P”) 500 Index and the KBW Regional Banking Index (“KRX”).
Removed
Common Stock ​ $ 100.00 ​ $ 79.07 ​ $ 107.37 ​ $ 88.91 ​ $ 106.40 ​ $ 103.13 S&P 500 Index ​ ​ 100.00 ​ ​ 93.76 ​ ​ 120.84 ​ ​ 140.49 ​ ​ 178.27 ​ ​ 143.61 KBW Regional Banking Index ​ ​ 100.00 ​ ​ 80.63 ​ ​ 97.07 ​ ​ 85.33 ​ ​ 113.65 ​ ​ 102.90 ​ (1) The investments in FHI were calculated using a volume weighted average price with a 10-day averaging period with dividends reinvested at the ex-dividend date. ​ The stock performance depicted in the graph above should not be relied upon as indicative of future performance. ​
Added
The repurchase program may be suspended, terminated or modified at any time for any reason. ​ Information relating to compensation plans under which our equity securities are authorized for issuance is presented in Item 12.
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Common Stock ​ $ 100 ​ $ 133 ​ $ 115 ​ $ 138 ​ $ 137 ​ $ 127 S&P 500 Index ​ ​ 100 ​ ​ 131 ​ ​ 156 ​ ​ 200 ​ ​ 164 ​ ​ 207 KBW Regional Banking Index ​ ​ 100 ​ ​ 124 ​ ​ 113 ​ ​ 155 ​ ​ 144 ​ ​ 143 ​ ​ The stock performance depicted in the graph above should not be relied upon as indicative of future performance. ​

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

256 edited+50 added−56 removed178 unchanged
Our net interest margin was 2.78% for the year ended December 31, 2022, an increase of 35 basis points as compared to 2021.
Our net interest margin was 2.78% for the year ended December 31, 2022, an increase of 35 basis points as compared to 2021.
The increase in the Provision was primarily due to higher expected credit losses as a result of the risk of economic recession due to inflation resulting from higher oil prices and the continued impact of the COVID-19 pandemic on Hawaii’s economy, key industries, businesses and our customers.
The increase in the Provision was primarily due to higher expected credit losses as a result of the risk of economic recession due to inflation resulting from higher oil prices and the continued impact of the COVID-19 pandemic on Hawaii’s economy, key industries, businesses and our customers.
Benefit Plans” in the notes to the consolidated financial statements included in Item 8.
Benefit Plans” in the notes to the consolidated financial statements included in Item 8.
Purchase obligations arise from agreements to purchase goods or services that are enforceable and legally binding. Other contracts included in purchase obligations primarily consist of service agreements for various systems and applications supporting bank operations, including the systems and applications in the Bank’s new core system. Postretirement benefit contributions represent the minimum expected contribution to the postretirement benefit plan.
Purchase obligations arise from agreements to purchase goods or services that are enforceable and legally binding. Other contracts included in purchase obligations primarily consist of service agreements for various systems and applications supporting bank operations, including the systems and applications in the Bank’s core system. Postretirement benefit contributions represent the minimum expected contribution to the postretirement benefit plan.
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 independent internal team of credit specialists. ● Data.
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.
Subsequent reversals of goodwill impairment are prohibited. ​ The fair value of our reporting units is estimated using valuation methods based on the market and income approaches: ​ ● The market approach involves the calculation of valuation multiples of comparable public companies (e.g., based on market capitalization, net income, book equity and tangible book equity).
Subsequent reversals of goodwill impairment are prohibited. ​ The fair value of our reporting units is estimated using valuation methods based on the market and income approaches: ​ ● The market approach primarily involves the calculation of valuation multiples of comparable public companies (e.g., based on market capitalization, net income, book equity and tangible book equity).
For the year ended December 31, 2022, we had no repurchase requests related to loan servicing activities, nor were there any pending repurchase requests as of December 31, 2022. ​ Although to date repurchase requests related to representation and warranty provisions and servicing activities have been limited, it is possible that requests to repurchase mortgage loans may increase in frequency as investors more aggressively pursue all means of recovering losses on their purchased loans.
For the year ended December 31, 2023, we had no repurchase requests related to loan servicing activities, nor were there any pending repurchase requests as of December 31, 2023. ​ 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.
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. ​ 87 Table of Contents 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.
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. ​ 88 Table of Contents 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.
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; 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; disruptions resulting from the discontinuance of LIBOR; 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 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; 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 man-made and natural disasters; our ability to maintain consistent growth, earnings and profitability; the impact of the ongoing COVID-19 pandemic and any other pandemic, epidemic or health-related crisis; 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. ​ ​ 43 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.
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 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; 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 man-made natural disasters; our ability to maintain consistent growth, earnings and profitability; the impact of any pandemic, epidemic or health-related crisis; 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.
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, goodwill, fair value estimates, pension and postretirement benefit obligations and income taxes. ​ 81 Table of Contents 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.
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, goodwill, fair value estimates, pension and postretirement benefit obligations and income taxes. ​ 82 Table of Contents 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.
In January 2023, the Company announced a stock repurchase program for up to $40.0 million of its outstanding common stock during 2023. 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.
In January 2024, the Company announced a stock repurchase program for up to $40.0 million of its outstanding common stock during 2024. 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.
We are exposed to market risk primarily from interest rate risk, which is defined as the risk of loss of net interest income or net interest margin because of changes in interest rates. ​ The potential cash flows, sales or replacement value of many of our assets and liabilities, especially those that earn or pay interest, are sensitive to changes in the general level of interest rates.
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.
We believe that our existing cash, cash equivalents, investments, and cash expected to be generated from operations, will be sufficient to meet our cash requirements within the next twelve months and beyond. ​ Potential Demands on Liquidity from Off-Balance Sheet Arrangements ​ We have off-balance sheet arrangements, such as variable interest entities, guarantees, and certain financial instruments with off-balance sheet risk, that may affect the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. ​ ​ Variable Interest Entities ​ We hold interests in several unconsolidated variable interest entities (“VIEs”).
We believe that our existing cash, cash equivalents, investments, and cash expected to be generated from operations, will be sufficient to meet our cash requirements within the next twelve months and beyond. ​ Potential Demands on Liquidity from Off-Balance Sheet Arrangements ​ We have off-balance sheet arrangements, such as variable interest entities, guarantees, and certain financial instruments with off-balance sheet risk, that may affect the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. 67 Table of Contents ​ Variable Interest Entities ​ We hold interests in several unconsolidated variable interest entities (“VIEs”).
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, 2022, we were the largest full-service bank headquartered in Hawaii as measured by assets, loans and leases, deposits and net income.
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, 2023, we were the largest full-service bank headquartered in Hawaii as measured by assets, loans and leases, deposits and net income.
However, as of December 31, 2022, management believes that this exposure is not material due to the historical level of repurchase requests and loss trends and thus has not established a liability for losses related to mortgage loan repurchases. As of December 31, 2022, 99% of our residential mortgage loans serviced for investors were current.
However, as of December 31, 2023, 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, 2023, 99% of our residential mortgage loans serviced for investors were current.
For the years ended December 31, 2022 and 2021, 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.
For the years ended December 31, 2023 and 2022, 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.
From time to time, 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.
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.
Table 7 summarizes net income (loss) from our business segments for the years ended December 31, 2022, 2021 and 2020. Additional information about operating segment performance is presented in “Note 22. Reportable Operating Segments” in the notes to the consolidated financial statements included in Item 8.
Table 7 summarizes net income (loss) from our business segments for the years ended December 31, 2023, 2022 and 2021. Additional information about operating segment performance is presented in “Note 22. Reportable Operating Segments” in the notes to the consolidated financial statements included in Item 8.
The key assumptions with respect to this method are the determination of the free cash flows, discount rate and terminal value. ​ The Company performed its annual quantitative impairment test in accordance with Accounting Standards Codification 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, 2022. ​ 83 Table of Contents Estimating the fair value of a reporting unit requires significant judgment and often involves the use of estimates and assumptions that could have a significant effect on whether or not an impairment charge is recorded and the magnitude of such a charge.
The key assumptions with respect to this method are the determination of the free cash flows, discount rate and terminal value. ​ 84 Table of Contents The Company performed its annual quantitative impairment test in accordance with Accounting Standards Codification 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, 2023. ​ Estimating the fair value of a reporting unit requires significant judgment and often involves the use of estimates and assumptions that could have a significant effect on whether or not an impairment charge is recorded and the magnitude of such a charge.
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 27 presents, for the twelve months subsequent to December 31, 2022 and 2021, an estimate of the changes in net interest income that would result from ramps (gradual changes) and shocks (immediate changes) in market interest rates, moving in a parallel fashion over the entire yield curve, relative to the measured base case scenario.
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, 2023 and 2022, 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.
Our Retail Banking segment includes the financial products and services we provide to consumers, small businesses and certain commercial customers. Loan and lease products offered include residential and commercial mortgage loans, home equity lines of credit and loans, automobile loans and leases, secured and unsecured lines of credit, installment loans, and small business loans and leases.
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.
The Company performed its annual assessment of the criteria included in Accounting Standards Codification 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, 2022.
The Company performed its annual assessment of the criteria included in Accounting Standards Codification 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, 2023.
The stock repurchase program may be suspended, terminated or modified at any time for any reason. ​ In January 2023, the Company’s Board of Directors declared a quarterly cash dividend of $0.26 per share on our outstanding shares.
The stock repurchase program may be suspended, terminated or modified at any time for any reason. ​ In January 2024, the Company’s Board of Directors declared a quarterly cash dividend of $0.26 per share on our outstanding shares.
This was partially offset by a $2.7 million increase in other noninterest income, a $2.4 million increase in credit and debit card fees, a $1.7 million increase in trust and investment services income and a $1.3 million increase in service charges on deposit accounts. ​ 49 Table of Contents ● Noninterest expense was $440.5 million for the year ended December 31, 2022, an increase of $35.0 million or 9% as compared to 2021.
This was partially offset by a $2.7 million increase in other noninterest income, a $2.4 million increase in credit and debit card fees, a $1.7 million increase in trust and investment services income and a $1.3 million increase in service charges on deposit accounts. ​ ● Noninterest expense was $440.5 million for the year ended December 31, 2022, an increase of $35.0 million or 9% as compared to 2021.
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.
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.
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. ​ 84 Table of Contents Financial assets that are recorded at fair value on a recurring basis include available for sale investment securities, and derivative financial instruments.
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.
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. ​ 90 Table of Contents In addition, our business relies upon a large volume of loans, derivative contracts and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR to establish their interest rate and/or value.
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. ​ 91 Table of Contents In addition, our business relied upon a large volume of loans, derivative contracts and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR to establish their interest rate and/or value.
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.
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. 85 Table of Contents ​ 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.
Market feasibility analysis is typically performed by assessing market comparables, market conditions and demand in the specific lending area and general community. We require presales of finished inventory prior to loan funding. However, because this analysis is typically performed on a forward-looking basis, real estate construction projects typically present a higher risk profile in our lending activities.
Market feasibility analysis is typically performed by assessing market comparables, market conditions and demand in the specific lending area and general community. We require presales of finished inventory 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.
Financial Statements and Supplementary Data for more information on the ACL. ​ Goodwill ​ Goodwill was $995.5 million as of both December 31, 2022 and 2021. Our goodwill originated from the acquisition of the Company by BNPP in December of 2001.
Financial Statements and Supplementary Data for more information on the ACL. ​ Goodwill ​ Goodwill was $995.5 million as of both December 31, 2023 and 2022. Our goodwill originated from the acquisition of the Company by BNPP in December of 2001.
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.
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. ​ 68 Table of Contents 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.
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. ​ 61 Table of Contents Immediate liquid resources are available in cash which is primarily on deposit with the Federal Reserve Bank of San Francisco (the “FRB”).
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”).
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.
See “Analysis of Financial Condition — Liquidity” and “—Capital” sections of this MD&A for further discussions of liquidity risk management and capital management, respectively. ​ 87 Table of Contents 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.
Interest rates may also affect loan demand, credit losses, mortgage origination volume, pre- payment speeds and other items affecting earnings. ​ 88 Table of Contents 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.
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.
The Company believes that its approach to interest rate risk has appropriately considered its susceptibility to both rising and falling rates and has adopted strategies which minimize the impact of such risks. ​ We also have longer term interest rate risk exposures which may not be appropriately measured by net interest income simulation analysis.
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. ​ 90 Table of Contents We also have longer term interest rate risk exposures which may not be appropriately measured by net interest income simulation analysis.
The increase in total assets for the Treasury and Other segment was primarily due to increases in our investment securities portfolio and interest-bearing deposits in other banks. ​ ​ 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.
The decrease in total assets for the Treasury and Other segment was primarily due to decreases in our investment securities portfolio and interest-bearing deposits in other banks. ​ ​ 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.
As of December 31, 2022 and 2021, 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.
As of December 31, 2023 and 2022, 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.
The monetary policies of the Federal Reserve can influence the overall growth of loans, investment securities and deposits and the level of interest rates earned on assets and paid for liabilities. ​ Market Risk Measurement ​ We primarily use net interest income simulation analysis to measure and analyze interest rate risk.
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. ​ 89 Table of Contents Market Risk Measurement ​ We primarily use net interest income simulation analysis to measure and analyze interest rate risk.
For all pension and postretirement plan calculations, we use a measurement date of December 31. ​ 85 Table of Contents The expected long-term rate of return was based on a calculated rate of return from average rates of return on various asset classes over a 20-year historical time horizon.
For all pension and postretirement plan calculations, we use a measurement date of December 31. ​ The expected long-term rate of return was based on a calculated rate of return from average rates of return on various asset classes over a 20-year historical time horizon.
As of December 31, 2022 and 2021, cash and cash equivalents were $0.5 billion and $1.3 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 $3.2 billion and $4.3 billion as of December 31, 2022, respectively.
As of December 31, 2023 and 2022, cash and cash equivalents were $1.7 billion and $0.5 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 $2.3 billion and $4.0 billion as of December 31, 2023, respectively.
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. ​ 80 Table of Contents As of December 31, 2022, our capital levels remained characterized as “well capitalized” under the Capital Rules.
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. ​ 81 Table of Contents As of December 31, 2023, our capital levels remained characterized as “well capitalized” under the Capital Rules.
Changes in these factors, as well as downturns in economic or business conditions, including the ongoing impacts of the COVID-19 pandemic, volatility in domestic and global markets, geopolitical concerns, inflation concerns, global supply chain issues, and other factors affecting the economy, that could have a significant adverse impact on the fair value of our reporting units in relation to their carrying amounts and could necessitate taking charges in future reporting periods related to the impairment of our goodwill. ​ Because there was no impairment for the current year ended December 31, 2022, our goodwill balance remained unchanged at December 31, 2022, compared to December 31, 2021. ​ To illustrate a hypothetical sensitivity analysis, a 100-basis point increase in the discount rate assumption across each of the Company’s reporting units would not have resulted in a fair value below the respective reporting unit’s carrying value. ​ See “Note 7.
Changes in these factors, as well as downturns in economic or business conditions, including volatility in domestic and global markets, geopolitical concerns, inflation concerns, global supply chain issues, and other factors affecting the economy, could have a significant adverse impact on the fair value of our reporting units in relation to their carrying amounts and could necessitate taking charges in future reporting periods related to the impairment of our goodwill. ​ Because there was no impairment for the current year ended December 31, 2023, our goodwill balance remained unchanged at December 31, 2023, compared to December 31, 2022. ​ To illustrate a hypothetical sensitivity analysis, a 100-basis point increase in the discount rate assumption across each of the Company’s reporting units would not have resulted in a fair value below the respective reporting unit’s carrying value. ​ See “Note 7.
The overall level of the ACL was commensurate with our stable credit risk profile and the Hawaii economy. ​ 50 Table of Contents ● Our 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 overall level of the ACL was commensurate with our stable credit risk profile, loan portfolio growth and composition and a stable Hawaii economy. 55 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.
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. ​ The Company’s loan and lease portfolio includes adjustable-rate loans, primarily tied to Prime and LIBOR, hybrid rate loans, for which the initial rate is fixed for a period from one year to as much as ten years, and fixed rate loans, for which the interest rate does not change through the life of the loan or the remaining life of the loan.
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. ​ 72 Table of Contents The Company’s loan and lease portfolio includes adjustable-rate loans, primarily tied to SOFR and Prime, 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.
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 $375,000 as of December 31, 2022.
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 $395,000 as of December 31, 2023.
Financial Statements and Supplementary Data for more information on our financial instruments with off-balance sheet risk. ​ 64 Table of Contents 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, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ Investment Securities ​ ​ ​ ​ ​ Table 9 ​ ​ December 31, (dollars in thousands) ​ 2022 ​ 2021 U.S.
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, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ Investment Securities ​ ​ ​ ​ ​ Table 9 ​ December 31, ​ December 31, (dollars in thousands) ​ 2023 ​ 2022 U.S.
As of December 31, 2022 and 2021, the unpaid principal balance of our portfolio of residential mortgage loans sold was $1.4 billion and $1.7 billion, respectively. The agreements under which we sell residential mortgage loans require delivery of various documents to the investor or its document custodian.
As of December 31, 2023 and 2022, the unpaid principal balance of our portfolio of residential mortgage loans sold was $1.3 billion and $1.4 billion, respectively. The agreements under which we sell residential mortgage loans require delivery of various documents to the investor or its document custodian.
The FHLB borrowing capacity was secured by residential real estate loan collateral as of December 31, 2022 and 2021. 79 Table of Contents ​ 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 FHLB borrowing capacity was secured by commercial real estate and residential real estate loan collateral as of December 31, 2023 and residential real estate loan collateral as of December 31, 2022. ​ 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.
This increase was primarily due to an $11.6 million increase in outside services, primarily attributable to technology-related projects, marketing and new customer services, and a $3.2 million increase in audit, legal and consultant fees. This was partially offset by an $8.0 million decrease in contracted data processing expenses.
This decrease was primarily due to a $6.2 million decrease in contracted data processing expenses and a $3.2 million decrease in audit, legal and consultant fees. This was partially offset by a $5.8 million increase in outside services, primarily attributable to technology-related projects, marketing and new customer services.
Financial Statements and Supplementary Data. ​ Other material cash requirements include general corporate operating activities, stock repurchases, and capital to be returned to our shareholders. 62 Table of Contents ​ We expect to meet these obligations from dividends paid by the Bank to the Parent.
Financial Statements and Supplementary Data. ​ Other material cash requirements 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.
We evaluate the sensitivity by using a static forecast, where the balance sheets as of December 31, 2022 and 2021 are held constant. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Interest Income Sensitivity Profile - Estimated Percentage Change Over 12 Months ​ ​ Table 27 ​ ​ ​ Static Forecast ​ ​ Static Forecast ​ ​ ​ December 31, 2022 ​ December 31, 2021 ​ Gradual Change in Interest Rates (basis points) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ +100 ​ ​ ​ ​ 3.2 % ​ ​ ​ 6.1 % +50 ​ ​ ​ ​ 1.6 ​ ​ ​ ​ 3.1 ​ (50) ​ ​ ​ ​ (1.7) ​ ​ ​ ​ (1.4) ​ (100) ​ ​ ​ ​ (3.4) ​ ​ ​ ​ (2.4) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Immediate Change in Interest Rates (basis points) ​ ​ ​ ​ ​ ​ ​ ​ ​ +100 ​ ​ ​ ​ 5.8 % ​ ​ ​ 11.8 % +50 ​ ​ ​ ​ 2.9 ​ ​ ​ ​ 6.0 ​ (50) ​ ​ ​ ​ (3.1) ​ ​ ​ ​ (2.9) ​ (100) ​ ​ ​ ​ (6.3) ​ ​ ​ ​ (5.7) ​ ​ The table above shows the effects of a simulation which estimates the effect of a gradual and immediate sustained parallel shift in the yield curve of −100, −50, +50 and +100 basis points in market interest rates over a twelve-month period on our net interest income. ​ Currently, our interest rate profile is such that we project net interest income will benefit from higher interest rates as our assets would reprice faster and to a greater degree than our liabilities, while in the case of lower interest rates, our assets would reprice downward and to a greater degree than our liabilities. ​ Under the static balance sheet forecast as of December 31, 2022, our net interest income sensitivity profile is lower in higher interest rate scenarios compared to similar forecasts as of December 31, 2021.
We evaluate the sensitivity by using a static forecast, where the balance sheets as of December 31, 2023 and 2022 are held constant. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Interest Income Sensitivity Profile - Estimated Percentage Change Over 12 Months ​ ​ Table 25 ​ ​ ​ Static Forecast ​ ​ Static Forecast ​ ​ ​ December 31, 2023 ​ December 31, 2022 ​ Gradual Change in Interest Rates (basis points) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ +100 ​ ​ ​ ​ 1.9 % ​ ​ ​ 3.2 % +50 ​ ​ ​ ​ 1.0 ​ ​ ​ ​ 1.6 ​ (50) ​ ​ ​ ​ (1.0) ​ ​ ​ ​ (1.7) ​ (100) ​ ​ ​ ​ (2.1) ​ ​ ​ ​ (3.4) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Immediate Change in Interest Rates (basis points) ​ ​ ​ ​ ​ ​ ​ ​ ​ +100 ​ ​ ​ ​ 3.6 % ​ ​ ​ 5.8 % +50 ​ ​ ​ ​ 1.8 ​ ​ ​ ​ 2.9 ​ (50) ​ ​ ​ ​ (2.0) ​ ​ ​ ​ (3.1) ​ (100) ​ ​ ​ ​ (4.0) ​ ​ ​ ​ (6.3) ​ ​ 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 and +100 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.
Actual contributions may differ from these estimates. ​ Our liability for unrecognized tax benefits (“UTBs”) as of December 31, 2022 and 2021 was $206.2 million and $204.1 million, respectively. The increase in UTB 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.
Actual contributions may differ from these estimates. ​ Our liability for unrecognized tax benefits (“UTBs”) as of December 31, 2023 and 2022 was $212.0 million and $206.2 million, respectively. The increase in UTB 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 of December 31, 2022, the Company was “well-capitalized” and met all applicable regulatory capital requirements, including a Common Equity Tier 1 capital ratio of 11.82%, compared to the minimum requirement of 4.50%. For additional discussions regarding our capital and liquidity positions and related risks, refer to the sections titled “Liquidity and Capital Resources” and “Capital” in this MD&A.
As of December 31, 2023, the Company was “well-capitalized” and met all applicable regulatory capital requirements, including a Common Equity Tier 1 capital ratio of 12.39%, compared to the minimum requirement of 4.50%. For additional discussions regarding our capital and liquidity positions and related risks, refer to the sections titled “Liquidity and Capital Resources” and “Capital” in this MD&A.
We seek to maintain reasonable levels of risk in consumer lending by following prudent underwriting guidelines, which include an evaluation of personal credit history, cash flow and collateral values based on existing market conditions. Consumer loans were $1.2 billion as of December 31, 2022, a decrease of $7.0 million or 1% from December 31, 2021.
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 $1.1 billion as of December 31, 2023, a decrease of $113.0 million or 9% from December 31, 2022.
Our regulatory capital ratios, calculated in accordance with the Capital Rules, are presented in Table 26 below.
Our regulatory capital ratios, calculated in accordance with the Capital Rules, are presented in Table 24 below.
Financial Statements and Supplementary Data for more information on income taxes. ​ 86 Table of Contents 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, 2022, see “Note 1.
Financial Statements and Supplementary Data for more information on income taxes. ​ 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, 2023, see “Note 1.
As of December 31, 2022 and 2021, $50.1 million or less than 1% and $6.8 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, 2023 and 2022, $4.6 million or less than 1% and $50.1 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, 2022 and 2021, $3.2 billion or 13% and $8.5 billion or 34%, 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.
As of December 31, 2023 and 2022, $2.3 billion or 9% and $3.2 billion or 13%, 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 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 $0.1 million and $24.6 million as of December 31, 2022 and 2021, respectively.
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 $0.2 million and $0.1 million as of December 31, 2023 and 2022, respectively.
The increase in total NPAs was due to a $3.8 million increase in home equity lines, a $0.5 million increase in residential mortgage loans and a $0.5 million increase in commercial and industrial loans, partially offset by a $0.1 million decrease in OREO. ​ The largest component of our NPAs continues to be residential mortgage loans.
The increase in total NPAs was due to a $3.3 million increase in home equity lines, a $2.2 million increase in commercial real estate loans and a $1.5 million increase in residential mortgage loans, offset by a $0.2 million decrease in commercial and industrial loans and a $0.1 million decrease in OREO. ​ The largest component of our NPAs continues to be residential mortgage loans.
Net charge-offs in our commercial lending portfolio were $1.8 million for the year ended December 31, 2022 compared to net charge-offs of $4.8 million for 2021. Net charge-offs in our residential lending portfolio were $0.1 million for the year ended December 31, 2022 compared to net charge-offs of $0.6 million for 2021.
Net charge-offs in our commercial lending portfolio were $2.6 million for the year ended December 31, 2023 compared to net charge-offs of $1.8 million for 2022. Net recoveries in our residential lending portfolio were $0.4 million for the year ended December 31, 2023 compared to net charge-offs of $0.1 million for 2022.
The Provision is recorded to maintain the ACL at levels deemed adequate to absorb probable credit losses that are expected in our loan and lease portfolio as of the balance sheet date. ​ ● Noninterest income was $179.5 million for the year ended December 31, 2022, a decrease of $5.4 million or 3% as compared to 2021.
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 $179.5 million for the year ended December 31, 2022, a decrease of $5.4 million or 3% as compared to 2021.
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 $93.9 million as of December 31, 2022, a decrease of $25.3 million or 21% from December 31, 2021.
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 $92.8 million as of December 31, 2023, a decrease of $1.1 million or 1% from December 31, 2022.
Unfunded commitments to fund these low-income housing tax credit investments were $47.2 million and $62.6 million as of December 31, 2022 and 2021, respectively. ​ Guarantees ​ We sell residential mortgage loans in the secondary market primarily to Fannie Mae or Freddie Mac.
Unfunded commitments to fund these low-income housing tax credit investments were $80.7 million and $47.2 million as of December 31, 2023 and 2022, respectively. ​ Guarantees ​ We sell residential mortgage loans in the secondary market primarily to Fannie Mae or Freddie Mac.
The lower balances in investment securities were primarily due to maturities and payments during the year ended December 31, 2022, which were used to fund loan growth and offset a decline in deposits. 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.
The lower balances in investment securities were driven by sales, maturities, and payments during the year ended December 31, 2023, which were used to fund loan growth and offset a decline in deposits. 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.
This increase was primarily due to a $1.8 million increase in overdraft and checking account fees, a $1.0 million increase in dormant account fees and a $0.6 million increase in account analysis service charges, partially offset by a $2.0 million decrease in checking account service fees.
This increase was primarily due to a $0.9 million increase in dormant account fees, a $0.7 million increase in account analysis service charges and a $0.6 million increase in overdraft and checking account fees, partially offset by a $1.1 million decrease in checking account service fees.
The dividend is to be paid on March 3, 2023 to shareholders of record at the close of business on February 17, 2023. ​ 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 dividend is to be paid on March 1, 2024 to shareholders of record at the close of business on February 16, 2024. ​ Critical Accounting Policies ​ Our consolidated financial statements were prepared in accordance with GAAP and follow general practices within the industries in which we operate.
Our experienced senior credit officers may consider a loan impaired based on their evaluation of current information and events, including loans modified in a TDR. The measurement of impairment is typically based on an analysis of the present value of expected future cash flows. The development of these expectations requires significant management judgment and estimation.
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. The development of these expectations requires significant management judgment and estimation.
Downgrading 1% of our commercial portfolio would increase the ACL at December 31, 2022 by approximately $1.4 million, and reducing FICO scores on the entire retail portfolio would increase the ACL at December 31, 2022 by approximately $4.0 million.
Downgrading 1% of our commercial portfolio would increase the ACL at December 31, 2023 by approximately $1.3 million, and reducing FICO scores on the entire retail portfolio would increase the ACL at December 31, 2023 by approximately $4.1 million.
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 categories of loans (commercial, residential real estate and consumer) that we use to develop our systematic methodology to determine the ACL.
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.
Net charge-offs in our consumer lending portfolio were $9.3 million for the year ended December 31, 2022 compared to net charge-offs of $7.0 million for 2021.
Net charge-offs in our consumer lending portfolio were $10.0 million for the year ended December 31, 2023 compared to net charge-offs of $9.3 million for 2022.
As of December 31, 2022 and 2021, we maintained our excess liquidity primarily in collateralized mortgage obligations issued by Ginnie Mae, Fannie Mae and Freddie Mac and mortgage-backed securities issued by Ginnie Mae, Fannie Mae, Freddie Mac and Municipal Housing Authorities.
As of December 31, 2023 and 2022, 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.
These adjustments are estimated based on the best information available as of the reporting date and may include, as appropriate, overlays to account for economic related conditions not captured in the economic forecast model but expected to potentially impact losses, adjustments for model limitations, regulatory determinants, overlays for natural disasters, and other events such as the COVID-19 pandemic. 82 Table of Contents ● Identification and Measurement of Individually Assessed Loans, including Loans Modified in a TDR.
These adjustments are estimated based on the best information available as of the reporting date and may include, as appropriate, overlays to account for economic related conditions not captured in the economic forecast model but expected to potentially impact losses, adjustments for model limitations, regulatory determinants, overlays for natural disasters, and other events such as the COVID-19 pandemic and the Maui wildfires. 83 Table of Contents ● Identification and Measurement of Individually Assessed Loans, including Loans Modified with a Borrower Experiencing Financial Difficulty.
The accumulated postretirement benefit obligation for other benefits was $16.4 million as of December 31, 2022, which represented a decrease of $5.0 million, compared to the accumulated postretirement benefit obligation for other benefits of $21.4 million as of December 31, 2021. ​ To illustrate a hypothetical sensitivity analysis, if the discount rate assumption decreased by 100 basis points, the projected benefit obligation for pension benefits and accumulated postretirement benefit obligation for other benefits at December 31, 2022 would increase by approximately $12.1 million and $1.4 million, respectively. ​ See “Note 14.
The accumulated postretirement benefit obligation for other benefits was $16.8 million as of December 31, 2023, which represented an increase of $0.4 million, compared to the accumulated postretirement benefit obligation for other benefits of $16.4 million as of December 31, 2022. ​ To illustrate a hypothetical sensitivity analysis, if the discount rate assumption decreased by 100 basis points, the projected benefit obligation for pension benefits and accumulated postretirement benefit obligation for other benefits at December 31, 2023 would increase by approximately $11.9 million and $1.5 million, respectively. ​ See “Note 14.
We recorded net charge-offs of $11.2 million and $12.5 million for the years ended December 31, 2022 and 2021, respectively. This represented net charge-offs of 0.08% and 0.10% of total average loans and leases for the years ended December 31, 2022 and 2021, respectively.
We recorded net charge-offs of $12.2 million and $11.2 million for the years ended December 31, 2023 and 2022, respectively. This represented net charge-offs of 0.09% and 0.08% of total average loans and leases for the years ended December 31, 2023 and 2022, respectively.
As of December 31, 2022, we have borrowing capacity of $2.5 billion from the FHLB and $1.2 billion from the FRB based on the amount of collateral pledged. ​ Our core deposits have historically provided us with a long-term source of stable and relatively lower cost of funding.
As of December 31, 2023, we have borrowing capacity of $2.5 billion from the FHLB and $3.3 billion from the FRB based on the amount of collateral pledged. ​ 66 Table of Contents Our core deposits have historically provided us with a long-term source of stable and relatively lower cost of funding.
While our methodology in establishing the ACL attributes portions of the ACL to the 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.
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.
As of December 31, 2022 and 2021, $49.3 million and $1.2 million, respectively, was classified in Level 2 of the fair value hierarchy and $0.9 million and $5.5 million, respectively, was classified in Level 3 of the fair value hierarchy.
As of December 31, 2023 and 2022, $2.3 million and $49.3 million, respectively, was classified in Level 2 of the fair value hierarchy and $2.3 million and $0.9 million, respectively, was classified in Level 3 of the fair value hierarchy.
The increase in noninterest income was primarily due to an increase in credit and debit card fees, a tax refund received, an increase in service charges on deposit accounts and vendor bonuses received, partially offset by a decrease in other service charges and fees.
The increase in noninterest income was primarily due to an increase in credit and debit card fees, a tax refund received during the year ended December 31, 2022, an increase in service charges on deposit accounts and vendor bonuses received, partially offset by a decrease in other service charges and fees.
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. ​ 72 Table of Contents Total NPAs were $12.0 million as of December 31, 2022, an increase of $4.7 million or 65% from December 31, 2021.
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 $18.6 million as of December 31, 2023, an increase of $6.6 million or 55% from December 31, 2022.

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