# BANK OF HAWAII CORP (BOH) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from BANK OF HAWAII CORP's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/46195/000095017024023196/boh-20231231.htm
Accession: 0000950170-24-023196
Filing date: 2024-02-29
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/BOH/
All MD&A years: /company/BOH/mda/
Previous year: /company/BOH/mda/fy2022/ (FY 2022)
Next year: /company/BOH/mda/fy2024/ (FY 2024)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following MD&A is intended to help the reader understand the Company and its operations and is focused on our fiscal 2023 and 2022 financial results, including comparisons of year-to-year performance between these years. Discussion and analysis of our 2021 fiscal year, as well as the year-to-year comparison between fiscal 2022 and 2021, are included "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 1, 2023.

Forward-Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts and may include statements concerning, among other things, the anticipated economic and business environment in our service area and elsewhere, credit quality and other financial and business matters in future periods, our future results of operations and financial position, our business strategy and plans and our objectives and future operations. We also may make forward-looking statements in our other documents filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”). In addition, our senior management may provide forward-looking statements orally to analysts, investors, representatives of the media and others. Our forward-looking statements are based on numerous assumptions, any of which could prove to be inaccurate, and actual results may differ materially from those projected because of a variety of risks and uncertainties, including, but not limited to: (1) general economic conditions either nationally, internationally, or locally may be different than expected, and particularly, any event that negatively impacts the tourism industry in Hawaii; (2) the compounding effects of the COVID-19 pandemic, including reduced tourism in Hawaii, the duration and scope of government mandates or other limitations of or restrictions on travel, volatility in the international and national economy and credit markets, inflation, worker absenteeism, quarantines or other travel or health-related restrictions, the length and severity of the COVID-19 pandemic, the pace of recovery following the COVID-19 pandemic, and the effect of government, business and individual actions intended to mitigate the effects of the COVID-19 pandemic; (3) changes in market interest rates that may affect credit markets and our ability to maintain our net interest margin; (4) changes in our credit quality or risk profile that may increase or decrease the required level of our reserve for credit losses; (5) the impact of legislative and regulatory initiatives, particularly the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018; (6) changes to the amount and timing of proposed common stock repurchases; (7) unanticipated changes in the securities markets, public debt markets, and other capital markets in the U.S. and internationally, including, without limitation, the elimination of the London Interbank Offered Rate (“LIBOR”) as a benchmark interest rate; (8) changes in fiscal and monetary policies of the markets in which we operate; (9) the increased cost of maintaining or the Company’s ability to maintain adequate liquidity and capital, based on the requirements adopted by the Basel Committee on Banking Supervision and U.S. regulators; (10) changes in accounting standards; (11) changes in tax laws or regulations, including Public Law 115-97, commonly known as the Tax Cuts and Jobs Act, or the interpretation of such laws and regulations; (12) any failure in or breach of our operational systems, information systems or infrastructure, or those of our merchants, third party vendors and other service providers; (13) any interruption or breach of security of our information systems resulting in failures or disruptions in customer account management, general ledger processing, and loan or deposit systems; (14) natural disasters, public unrest or adverse weather, public health, disease outbreaks, and other conditions impacting us and our customers’ operations or negatively impacting the tourism industry in Hawaii; (15) competitive pressures in the markets for financial services and products; (16) actual or alleged conduct which could harm our reputation; and (17) the impact of litigation and regulatory investigations of the Company, including costs, expenses, settlements, and judgments. Words such as “believes,” “anticipates,” “expects,” “intends,” “targeted,” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

Given these risks and uncertainties, you should not place undue reliance on any forward-looking statement as a prediction of our actual results. The risks and uncertainties that could cause actual results to differ materially from our historical experience and our expectations and projections include but are not limited to those described in Item 1A, “Risk Factors,” Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in our most recent Annual Report on Form 10-K and in subsequent SEC filings. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as otherwise may be required by the federal securities laws.

21

Table of Contents

Critical Accounting Policies

Our Consolidated Financial Statements were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and follow general practices within the industries in which we operate. The most significant accounting policies we follow are presented in Note 1 to the Consolidated Financial Statements. Application of these principles requires us to make estimates, assumptions, and judgments that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Most accounting policies are not considered by management to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical in the preparation of the Consolidated Financial Statements. These factors include among other things, whether the policy requires management to make difficult, subjective, and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. The accounting policies which we believe to be most critical in preparing our Consolidated Financial Statements are those that are related to the determination of the reserve for credit losses, fair value estimates, and income taxes.

Reserve for Credit Losses

A consequence of lending activities is that we may incur credit losses. The amount of such losses will vary depending upon the risk characteristics of the loan and lease portfolio as affected by economic conditions.

The reserve for credit losses consists of the allowance for credit losses (the “Allowance”) and the reserve for unfunded commitments (the “Unfunded Reserve”). Accounting policies related to the reserve for credit losses are considered to be critical as these policies involve considerable subjective judgment and estimation by management. These policies are in accordance with Accounting Standards Codification (“ASC”) Topic 326 (“ASC 326”) Financial Instruments - Credit Losses. In the case of loans, the allowance for credit losses is a contra-asset valuation account, calculated in accordance with ASC 326, that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. In the case of off-balance-sheet credit exposures, the allowance for credit losses is a liability account, calculated in accordance with ASC 326, reported as a component of other liabilities in our consolidated balance sheets.

The estimate of expected credit losses is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is generally the starting point for estimating expected credit losses. We then consider whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period from which historical experience was used. These adjustments can include accounting for new or discontinued products, changes in our portfolio composition, delinquency trends, and with forecasted economic conditions including but not limited to unemployment, real estate market conditions (e.g. prices, sales activity and inventory), visitor arrivals, and the continued uncertainty of other global economic impact. The Unfunded Reserve represents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit and standby letters of credit. The Unfunded Reserve is determined by estimating future draws and applying the expected loss rates on those draws. However, a liability is not recognized for commitments unconditionally cancellable by the Company.

The historical loss experience for the commercial portfolio segment is primarily determined using a Cohort method. This method pools loans into groups (“cohorts”) sharing similar risk characteristics based on product and risk ratings, and tracks each cohort’s historical net charge-offs to calculate a historical loss rate. The historical loss rates for each cohort are then averaged to calculate an overall historical loss rate which is applied to current loan balances to arrive at the quantitative baseline portion of the Allowance for most of the commercial portfolio segment.

The historical loss experience for the consumer portfolio segment is primarily determined using a Vintage method. This method measures historical loss behavior in the form of a historical loss rate for homogenous loan pools that originate in the same period, known as a vintage. The historical loss rates are then applied to origination loan balances by vintage to determine the quantitative baseline portion of the Allowance for most of the consumer portfolio segment. The homogenous loan pools are segmented according to similar risk characteristics (e.g., residential mortgage, home equity) and may be sub-segmented further based on historical loss behavior. For example, we sub-segment residential mortgages by geography and home equity by lien position.

The Unfunded Reserve is determined by estimating future draws and applying the expected loss rates on those draws. Future draws are based on historical averages of utilization rates (i.e., the likelihood of draws taken). To estimate future draws on unfunded balances, current utilization rates are compared to historical utilization rates. If current utilization rates are below historical utilization rates, the rate difference is applied to the committed balance to estimate the future draw. Expected loss rates are estimated using the loss rates calculated for the corresponding loan category in the Allowance. For the commercial portfolio,

22

Table of Contents

the historical loss rates were calculated utilizing the Cohort methodology, while the consumer portfolio utilized the Vintage methodology.

We also consider qualitative adjustments to the quantitative baseline such as the impact of current environmental factors at the reporting date that did not exist over the period from which historical experience was used. Relevant factors include, but are not limited to, concentrations of credit risk, such as geographic, large borrower, industry; and economic trends and conditions, such as Hawaii unemployment, real estate prices and market conditions, and visitor arrivals. We also consider changes in underwriting standards, experience and depth of lending staff, trends in delinquencies, and the level of criticized loans.

We also incorporate a reasonable and supportable (“R&S”) loss forecast period, which is currently one year, to account for the effect of forecasted economic conditions and other factors on the performance of the loan portfolios, which could differ from historical loss experience. We also perform asset quality reviews which includes a review of forecasted gross charge-offs and recoveries, nonperforming assets, criticized loans and leases, and risk rating migration. The results of the asset quality review are used to consider qualitative adjustments to the quantitative baseline. After the one-year R&S loss forecast period, this adjustment assumes an immediate reversion to historical loss rates for the remaining expected life of the loan.

The company utilizes the University of Hawaii Economic Research Organization (“UHERO”) macroeconomic forecast that is updated quarterly based on economic conditions and events. The forecast includes various economic variables for Hawaii such as gross domestic product (“GDP”), unemployment rate, visitor arrivals, residential real estate market conditions, personal income, and inflation rate. We also utilize other third party macroeconomic forecast tools to provide broader US economic variables such as interest rates.

The reserve for credit losses is generally sensitive to economic conditions and assumptions given the impact for potential losses for the consumer portfolio and risk rating migration for the commercial portfolio. For the consumer portfolio, as an example, an increase in the forecasted Hawaii unemployment rate could lead to an increase in the rate of delinquencies and consequently charge-offs for consumer borrowers. For the Allowance at December 31, 2023, a 25 basis point increase in the forecasted Hawaii unemployment rates would have increased the quantitative component of the Allowance for consumer loans by an estimated $1.4 million. For the commercial portfolio, the impact of adverse changes in economic conditions on borrowers will vary, and generally evaluated on a case-by-case basis to include the borrower’s existing financial capacity. Borrowers that would be most adversely impacted are identified as having the potential for migrating from a Pass to a Classified risk rating. For the Allowance at December 31, 2023, a 50 basis point increase in the percentage of commercial loans risk rated as Classified would increase the quantitative component of the Allowance for commercial loans by an estimated $1.9 million. This sensitivity analysis is hypothetical and provided only to indicate the potential impact changes in economic conditions and assumptions may have on the Allowance estimate. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others.

Fair Value Measurements

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

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

Financial assets that are recorded at fair value on a recurring basis include available-for-sale investment securities, loans held for sale, mortgage servicing rights, investments related to deferred compensation arrangements, and derivative financial instruments. As of December 31, 2023, and December 31, 2022, $2.5 billion or 11% and $2.9 billion or 12%, respectively, of our total assets consisted of financial assets recorded at fair value on a recurring basis and most of these financial assets consisted of available-for-sale investment securities measured using information from a third party pricing service. These investments in debt securities and mortgage-backed securities were all classified in either Levels 1 or 2 of the fair value hierarchy. Financial liabilities that are

23

Table of Contents

recorded at fair value on a recurring basis are comprised of derivative financial instruments. As of December 31, 2023, and December 31, 2022, $143.9 million and $168.0 million, respectively, or less than 1% of our total liabilities consisted of financial liabilities recorded at fair value on a recurring basis.

As of December 31, 2023, and December 31, 2022, Level 3 financial assets recorded at fair value on a recurring basis were $0.8 million and $46.6 million, respectively, or less than 1% of our total assets, and were comprised primarily of derivative financial instruments. As of December 31, 2023 and December 31, 2022, Level 3 financial liabilities recorded at fair value on a recurring basis were $0 and $168.0 million, respectively.

Our third party pricing service makes no representations or warranties that the pricing data provided to us is complete or free from errors, omissions, or defects. As a result, we have processes in place to monitor and periodically review the information provided to us by our third party pricing service such as: 1) Our third party pricing service provides us with documentation by asset class of inputs and methodologies used to value securities. We review this documentation to evaluate the inputs and valuation methodologies used to place securities into the appropriate level of the fair value hierarchy. This documentation is periodically updated by our third party pricing service. Accordingly, transfers of securities within the fair value hierarchy are made if deemed necessary. 2) On a quarterly basis, management also selects a sample of securities priced by the Company’s third party pricing service and reviews the significant assumptions and valuation methodologies used by the pricing service with respect to those securities. The information provided is comprised of market reference data, which may include reported trades; bids, offers, or broker-dealer dealer quotes; benchmark yields and spreads; as well as other reference data as appropriate. Periodically, based on these reviews, management determines whether the current placement of the security in the fair value hierarchy is appropriate or whether transfers may be warranted. 3) On a quarterly basis, management reviews the pricing information received from our third party pricing service. This review process includes a comparison to a second source. 4) Our third party pricing service has also established processes for us to submit inquiries regarding quoted prices. Periodically, we will challenge the quoted prices provided by our third party pricing service. Our third party pricing service will review the inputs to the evaluation in light of the new market data presented by us. Our third party pricing service may then affirm the original quoted price or may update the evaluation on a going forward basis. Generally, we do not adjust the price from the third party service provider. 5) On an annual basis, we obtain and review the third party’s most recently issued Service Organization Controls report related to controls placed in operation and tests of operating effectiveness, to update our understanding of the third party pricing service’s control environment.

See Note 21 to the Consolidated Financial Statements for more information on our fair value measurements.

Income Taxes

We determine our liabilities for income taxes based on current tax regulations and interpretations in tax jurisdictions where our income is subject to taxation. Currently, we file tax returns for federal, six state and local domestic jurisdictions, and three foreign jurisdictions. In estimating income taxes payable or receivable, we assess the relative merits and risks of the appropriate tax treatment considering statutory, judicial, and regulatory guidance in the context of each tax position. Accordingly, previously estimated liabilities are regularly reevaluated and adjusted through the provision for income taxes. Changes in the estimate of income taxes payable or receivable occur periodically due to changes in tax rates, interpretations of tax law, the status of examinations being conducted by various taxing authorities, and newly enacted statutory, judicial and regulatory guidance that impact the relative merits and risks of each tax position. These changes, when they occur, may affect the provision for income taxes as well as current and deferred income taxes, and may be significant to our statements of income and condition.

Management's determination of the realization of net deferred tax assets is based upon management's judgment of various future events and uncertainties, including the timing, character and amount of future income, as well as the implementation of various tax planning strategies to maximize realization of the deferred tax assets. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. As of December 31, 2023, and December 31, 2022, we carried a valuation allowance of $6.7 million and $6.2 million, respectively, related to our deferred tax assets established in connection with our low-income housing investments.

We are also required to record a liability, referred to as an unrecognized tax benefit ("UTB"), for the entire amount of benefit taken in a prior or future income tax return when we determine that a tax position has a less than 50% likelihood of being accepted by the taxing authority. As of December 31, 2023, and December 31, 2022, our liabilities for UTBs were $3.7 million.

In 2023, the Company recognized federal and State of Hawaii investment tax credits from energy investments. The Company uses the deferral method of accounting for its investment tax credit with the benefit recognized in the provision for income taxes. These credits reduced the Company's provision for income taxes by $1.1 million, 1.0 million, $2.1 million in 2023, 2022, and 2021, respectively.

24

Table of Contents

Overview

We are a regional financial services company serving businesses, consumers, and governments in Hawaii, Guam, and other Pacific Islands. Our principal operating subsidiary, the Bank, was founded in 1897.

Our business strategy is to use our unique market knowledge, prudent management discipline and brand strength to deliver exceptional value to our stakeholders. Our business plan is balanced between growth and risk management while maintaining flexibility to adjust to economic changes. We will continue to focus on providing customers with best-in-class service and an innovative mix of products and services. We will also remain focused on continuing to deliver strong financial results while maintaining prudent risk and capital management strategies as well as our commitment to support our local communities.

Maui Wildfires

On August 8, 2023, wildfires broke out in West Maui destroying the historic town of Lahaina as well as structures and farmland in Kula in Upcountry Maui and North Kihei. Roughly 2,200 structures were lost in the fire, 86% of which were homes. In support of those impacted by the Maui wildfires, Bank of Hawai'i Foundation donated $100,000 to Hawai'i Community Foundation's Maui Strong Fund and we continue to offer various relief loan repayment options to affected residents and businesses.

As of December 31, 2023, loans to our customers impacted by the Maui wildfires represented $154.9 million or 1% of our total loan portfolio, of which $144.0 million is secured and $10.9 million is unsecured. Exposures within the fire impacted zone decreased 8.5% from the previous quarter and our estimated potential loss remains at approximately $11.0 million.

Four months after the wildfires, there remains a great deal of uncertainty surrounding Maui’s recovery including the speed and timing of cleanup work, the extent and duration of support programs, how quickly displaced residents can move from hotels to permanent housing, and the amount of time and resources required for rebuilding. Bank of Hawai‘i remains committed to supporting the Maui community and will continue to closely monitor the impact on our customers.

Hawaii Economy

The initial adverse economic effects of the Maui wildfires have been somewhat smaller than feared but uncertainties remain about the progress of future recovery. As Maui rebuilds, spillovers to construction elsewhere in the state will be felt, Maui’s visitor industry and housing will continue to be impacted, and there will be an ongoing strain on County and State finances.

Due to the Maui wildfires, overall visitor counts to the State of Hawaii dipped below pre-pandemic levels. However, the Maui visitor industry has been recovering faster than anticipated and visitors to the rest of Hawaii reached record levels as travelers redirected their plans to other islands. Due to the weak yen, the Japanese visitor market continues to recover slowly. Considering ongoing recovery efforts on Maui, visitor arrivals to Hawaii are expected to remain flat in 2024 before returning to expected moderate growth in 2025.

Employment recovery on Maui has been more rapid than expected. Overall, the economic environment in Hawaii continues to show continued improvement with the unemployment rate falling from 3.3% in December 2022 to 2.9% in December 2023, which was below the U.S. unemployment rate of 3.7%. For the State overall, job growth is expected to slow throughout 2024; however, rebuilding on Maui is expected to push the need for construction workers and labor to record levels. Construction in other counties will have to compete for resources potentially causing delays in some planned public and private sector projects and likely leading to upward pressure on costs.

High interest rates have slowed the home resale market both because of the cost of first-time home purchases and the “lock-in effect” of the low rates many homeowners have on their current mortgage. While sales volume fell year-over-year given the sharp rise in interest rates, home prices remained relatively stable and months of inventory remained relatively low. The volume of single-family home sales on Oahu decreased 26.3% in 2023 compared to 2022, while the volume of condominium sales on Oahu decreased 28.0% in 2023 compared to 2022. The median price of single-family home sales on Oahu decreased by 5.0% in 2023 compared to 2022, while the condominium sales price on Oahu decreased by 0.3% in 2023 compared to 2022. As of December 31, 2023, months of inventory of single-family homes and condominiums on Oahu was 2.8 months and 3.2 months, respectively, compared to 2.1 months and 2.2 months as of December 31, 2022.

25

Table of Contents

Earnings Summary

Net income for 2023 was $171.2 million, a decrease of $54.6 million or 24% compared to 2022. Diluted earnings per common share were $4.14 in 2023, a decrease of $1.34 or 24% compared to 2022. Our return on average assets was 0.71% in 2023, a decrease of 27 basis points from 2022, and our return on average shareholders’ equity was 12.63% in 2023, compared to 16.10% in 2022.

•
The return on average common equity for 2023 was 13.89% compared to 17.83% in 2022.

•
Net interest income was $497.0 million in 2023, a decrease of $43.5 million compared to 2022. The decrease was primarily due to higher funding costs, partially offset by higher earning asset yields. The net interest margin was 2.24% in 2023, a decrease of 26 basis points from 2022.

•
Noninterest income was $176.6 million in 2023, an increase of 12% from 2022.

•
Noninterest expense was $437.5 million in 2023, an increase of 5% compared to 2022

•
The effective tax rate for 2023 was 24.62% compared with 22.31% in 2022.

In 2023, we focused on strengthening our balance sheet, which we believe will position us well to deliver strong results in 2024.

•
Total non-performing assets were $11.7 million as of December 31, 2023, a decrease of $0.9 million from December 31, 2022. Non-performing assets as a percentage of total loans and leases and foreclosed real estate were 0.08% at December 31, 2023, a decrease of 1 basis point from 2022.

•
Net loan and lease charge-offs in 2023 were $7.8 million or 6 basis points of total average loans and leases outstanding. Net loan and lease charge-offs in 2023 were comprised of charge-offs of $15.0 million partially offset by recoveries of $7.2 million. Compared to 2022, net loan and lease charge-offs increased by $2.7 million or 2 basis points on total average loans and leases outstanding.

•
The allowance for credit losses on loans and leases was $146.4 million as of December 31, 2023, an increase of $2.0 million from December 31, 2022. The ratio of the allowance for credit losses to total loans and leases outstanding was 1.05% at December 31, 2023, down 1 basis point from December 31, 2022.

•
Total assets were $23.7 billion as of December 31, 2023, an increase of 1% from December 31, 2022.

•
The investment securities portfolio was $7.4 billion as of December 31, 2023, a decrease of $0.9 billion or 10% from December 31, 2022. The portfolio remains largely comprised of securities issued by U.S. government agencies and U.S. government-sponsored enterprises.

•
Total loans and leases were $14.0 billion as of December 31, 2023, an increase of 2% from December 31, 2022.

•
Total deposits were $21.1 billion as of December 31, 2023, an increase of 2% from December 31, 2022.

•
Total shareholders’ equity was $1.4 billion as of December 31, 2023, an increase of 7% from December 31, 2022.

•
150,000 shares of common stock were repurchased under the share repurchase program in 2023. Total remaining buyback authority under the share repurchase program was $126.0 million as of December 31, 2023.

•
The Company’s Board of Directors declared a quarterly cash dividend of $0.70 per share on the Company’s outstanding common shares. The dividend will be payable on March 14, 2024 to shareholders of record at the close of business on February 29, 2024.

26

Table of Contents

Analysis of Statements of Income

Average balances, related income and expenses, and resulting yields and rates, on a taxable-equivalent basis, are presented in Table 1. An analysis of the change in net interest income, on a taxable-equivalent basis, is presented in Table 2.

[[GREPCENT_TABLE]]
[["Average Balances and Interest Rates \u2013 Taxable-Equivalent Basis","","Table 1"],["","","2023","","","2022"],["(dollars in millions)","","Average Balance","","","Income/ Expense","","","Yield/ Rate","","","Average Balance","","","Income/ Expense","","","Yield/ Rate"],["Earning Assets"],["Interest-Bearing Deposits in Other Banks","","$","3.5","","","$","0.1","","","","2.44","%","","$","3.0","","","$","-","","","","1.05","%"],["Funds Sold","","","540.4","","","","28.3","","","","5.24","","","","260.5","","","","4.3","","","","1.64"],["Investment Securities"],["Available-for-Sale"],["Taxable","","","2,631.0","","","","93.4","","","","3.55","","","","3,644.2","","","","70.5","","","","1.93"],["Non-Taxable","","","6.1","","","","0.2","","","","4.06","","","","4.0","","","","0.1","","","","2.92"],["Held-to-Maturity"],["Taxable","","","5,173.9","","","","92.2","","","","1.78","","","","4,750.0","","","","80.9","","","","1.70"],["Non-Taxable","","","35.1","","","","0.7","","","","2.10","","","","35.6","","","","0.7","","","","2.10"],["Total Investment Securities","","","7,846.1","","","","186.5","","","","2.38","","","","8,433.8","","","","152.2","","","","1.80"],["Loans Held for Sale","","","3.0","","","","0.2","","","","6.16","","","","6.9","","","","0.3","","","","3.70"],["Loans and Leases 1"],["Commercial and Industrial","","","1,497.1","","","","74.0","","","","4.94","","","","1,349.3","","","","46.2","","","","3.42"],["Paycheck Protection Program","","","14.1","","","","0.2","","","","1.63","","","","44.0","","","","2.7","","","","6.07"],["Commercial Mortgage","","","3,776.2","","","","197.0","","","","5.22","","","","3,420.1","","","","121.9","","","","3.56"],["Construction","","","262.1","","","","16.0","","","","6.09","","","","232.6","","","","10.6","","","","4.56"],["Commercial Lease Financing","","","63.7","","","","0.8","","","","1.30","","","","88.5","","","","1.3","","","","1.49"],["Residential Mortgage","","","4,690.5","","","","168.9","","","","3.60","","","","4,484.2","","","","147.4","","","","3.29"],["Home Equity","","","2,268.0","","","","78.2","","","","3.45","","","","2,072.2","","","","62.1","","","","3.00"],["Automobile","","","866.1","","","","31.8","","","","3.67","","","","786.1","","","","25.4","","","","3.23"],["Other 2","","","413.8","","","","25.3","","","","6.12","","","","419.5","","","","23.0","","","","5.49"],["Total Loans and Leases","","","13,851.6","","","","592.2","","","","4.28","","","","12,896.5","","","","440.6","","","","3.42"],["Other","","","78.3","","","","5.1","","","","6.51","","","","40.5","","","","1.2","","","","3.01"],["Total Earning Assets 3","","","22,322.9","","","","812.4","","","","3.64","","","","21,641.2","","","","598.6","","","","2.77"],["Cash and Due from Banks","","","292.1","","","","","","","","","","237.4"],["Other Assets","","","1,339.2","","","","","","","","","","1,128.1"],["Total Assets","","$","23,954.2","","","","","","","","","$","23,006.7"],["Interest-Bearing Liabilities"],["Interest-Bearing Deposits"],["Demand","","$","3,978.7","","","$","27.0","","","","0.68","%","","$","4,377.1","","","$","6.1","","","","0.14","%"],["Savings","","","8,018.4","","","","137.4","","","","1.71","","","","7,767.7","","","","22.9","","","","0.30"],["Time","","","2,424.8","","","","86.4","","","","3.56","","","","1,135.5","","","","10.7","","","","0.94"],["Total Interest-Bearing Deposits","","","14,421.9","","","","250.8","","","","1.74","","","","13,280.3","","","","39.7","","","","0.30"],["Funds Purchased","","","18.5","","","","0.9","","","","4.79","","","","18.5","","","","0.4","","","","2.26"],["Short-Term Borrowings","","","114.0","","","","5.7","","","","5.01","","","","58.6","","","","2.1","","","","3.53"],["Securities Sold Under Agreements to Repurchase","","","530.9","","","16.3","","","","3.07","","","","479.8","","","12.6","","","","2.63"],["Other Debt","","","921.8","","","39.7","","","","4.30","","","","42.4","","","2","","","","4.82"],["Total Interest-Bearing Liabilities","","","16,007.1","","","","313.4","","","","1.96","","","","13,879.6","","","","56.8","","","","0.41"],["Net Interest Income","","","","","$","499.0","","","","","","","","","$","541.8"],["Interest Rate Spread","","","","","","","","","1.68","%","","","","","","","","","2.36","%"],["Net Interest Margin","","","","","","","","","2.24","%","","","","","","","","","2.50","%"],["Noninterest-Bearing Demand Deposits","","","5,990.5","","","","","","","","","","7,270.4"],["Other Liabilities","","","601.1","","","","","","","","","","454.2"],["Shareholders\u2019 Equity","","","1,355.5","","","","","","","","","","1,402.5"],["Total Liabilities and Shareholders\u2019 Equity","","$","23,954.2","","","","","","","","","$","23,006.7"]]
[[/GREPCENT_TABLE]]

1.
Non-performing loans and leases are included in the respective average loan and lease balances. Income, if any, on such loans and leases is recognized on a cash basis.

1.
Comprised of other consumer revolving credit, installment, and consumer lease financing.

2.
Interest income includes taxable-equivalent basis adjustments, based upon a federal statutory tax rate of 21% of $2.0 million and $1.3 million for the years ended December 31, 2023, and December 31, 2022, respectively.

27

Table of Contents

[[GREPCENT_TABLE]]
[["Analysis of Change in Net Interest Income \u2013 Taxable-Equivalent Basis","","","Table 2"],["","","Year Ended December 31, 2023 Compared to 2022"],["(dollars in millions)","","Volume 1","","","Rate 1","","","Total"],["Change in Interest Income:"],["Interest-Bearing Deposits in Other Banks","","$","0.1","","","$","-","","","$","0.1"],["Funds Sold","","","7.9","","","","16.1","","","","24.0"],["Investment Securities"],["Available-for-Sale"],["Taxable","","","(23.7",")","","","46.6","","","","22.9"],["Non-Taxable","","","0.1","","","","-","","","","0.1"],["Held-to-Maturity"],["Taxable","","","7.4","","","","3.9","","","","11.3"],["Total Investment Securities","","","(16.2",")","","","50.5","","","","34.3"],["Loans Held for Sale","","","(0.2",")","","","0.1","","","","(0.1",")"],["Loans and Leases"],["Commercial and Industrial","","","5.5","","","","22.3","","","","27.8"],["Paycheck Protection Program","","","(1.2",")","","","(1.3",")","","","(2.5",")"],["Commercial Mortgage","","","13.8","","","","61.3","","","","75.1"],["Construction","","","1.5","","","","3.9","","","","5.4"],["Commercial Lease Financing","","","(0.4",")","","","(0.1",")","","","(0.5",")"],["Residential Mortgage","","","7.0","","","","14.5","","","","21.5"],["Home Equity","","","6.2","","","","9.9","","","","16.1"],["Automobile","","","2.7","","","","3.7","","","","6.4"],["Other 2","","","(0.3",")","","","2.6","","","","2.3"],["Total Loans and Leases","","","34.8","","","","116.8","","","","151.6"],["Other","","","1.7","","","","2.2","","","","3.9"],["Total Change in Interest Income","","","28.1","","","","185.7","","","","213.8"],["Change in Interest Expense:"],["Interest-Bearing Deposits"],["Demand","","","(0.6",")","","","21.5","","","","20.9"],["Savings","","","0.8","","","","113.7","","","","114.5"],["Time","","","21.8","","","","53.9","","","","75.7"],["Total Interest-Bearing Deposits","","","22.0","","","","189.1","","","","211.1"],["Funds Purchased","","","-","","","","0.5","","","","0.5"],["Short-Term Borrowings","","","2.5","","","","1.1","","","","3.6"],["Securities Sold Under Agreements to Repurchase","","","1.4","","","","2.3","","","","3.7"],["Other Debt","","","37.9","","","","(0.2",")","","","37.7"],["Total Change in Interest Expense","","","63.8","","","","192.8","","","","256.6"],["Change in Net Interest Income","","$","(35.7",")","","$","(7.1",")","","$","(42.8",")"]]
[[/GREPCENT_TABLE]]

1.
The change in interest income and expense that are not solely due to changes in volume or rate has been allocated on a pro-rata basis to the volume and rate columns.

2.
Comprised of other consumer revolving credit, installment, and consumer lease financing.

Net Interest Income

Net interest income is affected by the size and mix of our balance sheet components as well as the spread between interest earned on assets and interest paid on liabilities. Net interest margin is defined as net interest income, on a taxable-equivalent basis, as a percentage of average earning assets.

Yields on our earning assets increased by 87 basis points in 2023 compared to 2022 primarily due to the higher rate environment.

Yields on our investment securities portfolio increased by 58 basis points due to the higher rate environment and slower prepayments. Yields on our funds sold increased by 360 basis points also due to higher rates. Yields on our loan and lease portfolio increased by 86 basis points primarily due to an increase in yields on our floating rate loan portfolio and higher rates on loans that originated during the period and the interest income from interest rate swaps that were used to manage our exposure to changes in fair value of our fixed rate loans.

28

Table of Contents

Interest rates paid on our interest-bearing liabilities increased by 155 basis points in 2023 compared to 2022. The interest rates on savings deposits increased by 141 basis points during 2023 compared to 2022. Interest rates paid on time deposits increased by 262 basis points during 2023 compared to 2022. The rates paid on our securities sold under agreements to repurchase increased by 44 basis points compared to 2022. Increases to our funding costs are primarily due to the higher interest rate environment and increased Federal Home Loan Bank advances.

The average balances of our earning assets increased by $0.7 billion or 3% in 2023 compared to 2022 primarily due to an increase in the average balances of our loan and lease portfolio. The average balances of our investment securities decreased by $0.6 billion or 7% in 2023 compared to 2022 primarily due to $159.1 million of investment securities sold in the third quarter of 2023 and cashflows from the portfolio not being reinvested into securities. The average balance of total loan and leases increased by $955.1 million in 2023 compared to 2022 due to growth in our commercial mortgage, residential mortgage, and home equity loan portfolios. The average balance of our commercial mortgage portfolio increased by $356.1 million or 10% in 2023 compared to 2022 as a result of continued demand from new and existing customers. The average balance of our residential mortgage portfolio increased by $206.3 million or 5% in 2023 compared to 2022 primarily due to loan originations partially offset by lower payoff activities. The average balance of our home equity portfolio increased by $195.8 million or 9% in 2023 compared to 2022 mainly due to growth driven by ongoing promotions of our SmartRefi program.

The average balances of our interest-bearing liabilities increased by $2.1 billion or 15% in 2023 compared to 2022 primarily due to increased time deposits and borrowings from the FHLB. The average balances of our core interest-bearing deposit products decreased by $147.7 million or 1% in 2023 compared to 2022 as customers moved their funds into higher rate time deposits. The average balances of our interest-bearing deposits increased by $1.1 billion or 9% in 2023 compared to 2022 primarily due to increased time deposits. The average balance of our time deposits increased by $1.3 billion or 114% in 2023 compared to 2022 as customers moved their funds into higher yielding deposit products as a result of the higher rate environment. The average balances of our securities sold under agreements to repurchase increased by $51.1 million or 11% in 2023 compared to 2022. The increase was due to $300.0 million in repurchase agreements originated in late 2022, offset by terminations of $575 million in the third quarter of 2023. The average balance of our other debt, which was comprised primarily of FHLB advances, increased by $879.4 million in 2023 compared to 2022, primarily due to FHLB advances originated during 2023.

Noninterest Income

Table 3 presents the major components of noninterest income for 2023 and 2022.

[[GREPCENT_TABLE]]
[["Noninterest Income","","Table 3"],["","","Year Ended December 31,","","","Dollar Change","","","Percent Change"],["(dollars in thousands)","","2023","","","2022","","","2023 to 2022"],["Trust and Asset Management","","$","43,597","","","$","43,803","","","$","(206",")","","","(0",")%"],["Mortgage Banking","","","4,255","","","","5,980","","","","(1,725",")","","","(29",")"],["Service Charges on Deposit Accounts","","","31,116","","","","29,620","","","","1,496","","","","5"],["Fees, Exchange, and Other Service Charges","","","55,556","","","","54,914","","","","642","","","","1"],["Investment Securities Losses, Net","","","(11,455",")","","","(6,111",")","","","(5,344",")","","","87"],["Annuity and Insurance","","","4,736","","","","3,782","","","","954","","","","25"],["Bank-Owned Life Insurance","","","11,643","","","","9,968","","","","1,675","","","","17"],["Other","","","37,161","","","","15,585","","","","21,576","","","","138"],["Total Noninterest Income","","$","176,609","","","$","157,541","","","$","19,068","","","","12","%"]]
[[/GREPCENT_TABLE]]

Mortgage banking income is highly influenced by mortgage interest rates, the housing market, the amount of our loan sales, and our valuation of mortgage servicing rights. Mortgage banking income decreased by $1.7 million or 29% in 2023 compared to 2022. This decrease was primarily due to the $1.8 million impairment recovery in 2022.

Investment securities losses increased by $5.3 million in 2023 compared to 2022. The increase was primarily due to $4.6 million net losses on sales of investment securities. Although the Company had the ability to hold its investment securities until maturity, during 2023, it made the strategic decision to reduce the size of its AFS portfolio by selling various corporate and municipal bonds which resulted in a realized loss of $4.6 million.

Bank-owned life insurance increased by $1.7 million or 17% in 2023 compared to 2022 primarily due to an increase in death benefits received in 2023.

29

Table of Contents

Other noninterest income increased by $21.6 million or 138% in 2023 compared to 2022. This increase was primarily due to a $14.7 million gain on the extinguishment of repurchase agreements in 2023 combined with a $6.9 million loss on the sale of leased assets that was recognized in the prior year.

Noninterest Expense

Table 4 presents the major components of noninterest expense for 2023 and 2022.

[[GREPCENT_TABLE]]
[["Noninterest Expense","","Table 4"],["","","Year Ended December 31,","","","Dollar Change","","","Percent Change"],["(dollars in thousands)","","2023","","","2022","","","2023 to 2022"],["Salaries and Benefits:"],["Salaries","","$","154,497","","","$","146,840","","","$","7,657","","","","5","%"],["Incentive Compensation","","","13,339","","","","23,425","","","","(10,086",")","","","(43",")"],["Share-Based Compensation","","","14,770","","","","15,220","","","","(450",")","","","(3",")"],["Commission Expense","","","2,798","","","","4,708","","","","(1,910",")","","","(41",")"],["Retirement and Other Benefits","","","15,707","","","","17,242","","","","(1,535",")","","","(9",")"],["Payroll Taxes","","","14,677","","","","13,395","","","","1,282","","","","10"],["Medical, Dental, and Life Insurance","","","12,767","","","","11,958","","","","809","","","","7"],["Separation Expense","","","5,524","","","","2,482","","","","3,042","","","","123"],["Total Salaries and Benefits","","","234,079","","","","235,270","","","","(1,191",")","","","(1",")"],["Net Occupancy","","","39,924","","","","39,441","","","","483","","","","1"],["Net Equipment","","","40,251","","","","38,374","","","","1,877","","","","5"],["Data Processing","","","18,836","","","","18,362","","","","474","","","","3"],["Professional Fees","","","17,459","","","","14,557","","","","2,902","","","","20"],["FDIC Insurance","","","28,313","","","","6,546","","","","21,767","","","","333"],["Other Expense:"],["Delivery and Postage Services","","","6,656","","","","6,606","","","","50","","","","1"],["Mileage Program Travel","","","4,381","","","","4,591","","","","(210",")","","","(5",")"],["Merchant Transaction and Card Processing Fees","","","6,509","","","","6,005","","","","504","","","","8"],["Advertising","","","8,171","","","","9,976","","","","(1,805",")","","","(18",")"],["Amortization - Solar Energy Partnership Investments","","","777","","","","1,189","","","","(412",")","","","(35",")"],["Other","","","32,162","","","","34,348","","","","(2,186",")","","","(6",")"],["Total Other Expense","","","58,656","","","","62,715","","","","(4,059",")","","","(6",")"],["Total Noninterest Expense","","$","437,518","","","$","415,265","","","$","22,253","","","","5","%"]]
[[/GREPCENT_TABLE]]

30

Table of Contents

Total salaries and benefits decreased by $1.2 million or 1% in 2023 compared to 2022 primarily due to a decrease in incentive compensation coupled with a decrease in commission expense and retirement and other benefits. These decreases were offset by an increase in base salaries, payroll taxes, and separation expense.

Professional fees expense increased by $2.9 million or 20% in 2023 compared to 2022 primarily due to an increase in legal fees coupled with an increase in outsourcing various administrative and support functions.

FDIC insurance increased by $21.8 million or 333% in 2023 compared to 2022 primarily due to a $14.7 million charge due to an industry-wide FDIC special assessment and an increase in the initial base deposit insurance assessment rate. In November 2023, the FDIC issued a final rule to implement a special assessment to recover the losses to the Deposit Insurance Fund arising from the protection of uninsured depositors following the closures of Silicon Valley Bank, Signature Bank and First Republic Bank. The special assessment will be collected at an annual rate of approximately 13.4 basis points to an assessment base that would equal an Insured Depository Institution’s estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion, and will be paid in eight quarterly installments beginning in the second quarter of 2024. In February 2024, we received notification from the FDIC that the estimated loss attributable to the protection of uninsured depositors at Silicon Valley Bank and Signature Bank is $20.4 billion, an increase of approximately $4.1 billion from the estimate of $16.3 billion described in the final rule. The FDIC plans to provide institutions subject to the special assessment an updated estimate of each institution’s quarterly and total special assessment expense with its first quarter 2024 special assessment invoice, to be released in June 2024.

Income Taxes

Table 5 presents our provision for income taxes and effective tax rates for 2023 and 2022:

[[GREPCENT_TABLE]]
[["Provision for Income Taxes and Effective Tax Rates","Table 5"],["(dollars in thousands)","","Provision for Income Taxes","","","Effective Tax Rates"],["2023","","$","55,914","","","","24.62","%"],["2022","","$","64,830","","","","22.31","%"]]
[[/GREPCENT_TABLE]]

The provision for income taxes was $55.9 million in 2023, a decrease of $8.9 million compared to 2022. The higher effective tax rate in 2023 compared to 2022 was primarily due to a decrease in tax benefits from tax-advantaged investments in 2023.

31

Table of Contents

Analysis of Business Segments

Our business segments are Consumer Banking, Commercial Banking, and Treasury and Other. Table 6 summarizes net income from our business segments for 2023 and 2022. Additional information about segment performance is presented in Note 13 to the Consolidated Financial Statements.

[[GREPCENT_TABLE]]
[["Business Segment Net Income","","","","","Table 6"],["","","Year Ended December 31,"],["(dollars in thousands)","","2023","","","2022 1"],["Consumer Banking","","$","132,641","","","$","88,364"],["Commercial Banking","","","128,545","","","","124,157"],["Total","","","261,186","","","","212,521"],["Treasury and Other","","","(89,984",")","","","13,283"],["Consolidated Total","","$","171,202","","","$","225,804"]]
[[/GREPCENT_TABLE]]

1.
Certain prior period information has been reclassified to conform to current presentation.

Consumer Banking

Net income increased by $44.3 million or 50% in 2023 compared to 2022, primarily due to an increase in net interest income. This was partially offset by increases in noninterest expense and the provision for credit losses. The increase in net interest income was primarily due to higher deposit spreads and higher loan balances, partially offset by lower loan spreads and lower deposit balances. The increase in noninterest expense is primarily due to higher allocated expense related to the FDIC special assessment recorded in the fourth quarter of 2023. The increase in the provision for credit losses was primarily due to higher net charge-offs in the installment loan portfolio, and lower recoveries in the residential mortgage and home equity portfolios.

Commercial Banking

Net income increased by $4.4 million or 4% in 2023 compared to 2022 primarily due to an increase in net interest income and noninterest income, partially offset by an increase in noninterest expense, and an increased tax provision. The increase in interest income is primarily due to higher spreads on noninterest bearing deposits, along with larger average balances on time deposits and commercial mortgage loans. The increase in net interest income was partially offset by decreased spreads on commercial and industrial and construction loans, as well as interest bearing deposit and savings spreads. The increase in noninterest income is primarily due to a one-time pre-tax charge of $6.9 million in the third quarter of 2022 related to our agreement to sell assets which terminated certain leveraged leases, along with increases in merchant income, and fees earned on money market sweep balances. The increase was partially offset by a decrease in account analysis, loan fees, letters of credit, and customer derivative program revenue. The increase in noninterest expense was driven by increased salaries and benefits, merchant transaction fees, broker charges related to customer derivative program revenue, and higher allocated expenses from support units.

Treasury and Other

Net income decreased by $103.3 million in 2023 compared to 2022 primarily due to lower net interest income and higher noninterest expense, partially offset by higher noninterest income. Provision for credit losses in 2023 was $14.1 million higher than in 2022, as 2022 included $12.9 million in provision recovery resulting from higher provision expense taken during COVID-19. Net interest income decreased by $123.1 million in 2023 from 2022 as a result of higher deposit spreads, partially offset by higher loan spreads. Noninterest income in 2023 was $12.0 million higher than 2022, primarily as a result of a $7.8 million gain on debt extinguishment. Noninterest expense in 2023 was $5.2 million higher than 2022. This increase is primarily due to early termination costs incurred in the third and fourth quarter of 2022. The provision for income taxes in this business segment represents the residual amount to arrive at the total tax expense for the Company.

32

Table of Contents

Analysis of Statements of Condition

Investment Securities

Table 7 presents the maturity distribution at amortized cost, weighted-average yield to maturity, and fair value of our investment securities.

[[GREPCENT_TABLE]]
[["Maturities and Average Yield on Securities","","Table 7"],["(dollars in millions)","1 Year or Less","","Weighted Average Yield","","","After 1 Year-5 Years","","Weighted Average Yield","","","After 5 Years-10 Years","","Weighted Average Yield","","","Over 10 Years","","Weighted Average Yield","","","Total","","Weighted Average Yield","","","Fair Value"],["As of December 31, 2023"],["Available-for-Sale 1"],["Debt Securities Issued by the U.S. Treasury and Government Agencies 2","$","1.3","","","1.7","%","","$","222.0","","","2.9","%","","$","\u2014","","","0.0","%","","$","\u2014","","","0.0","%","","$","223.3","","","2.8","%","","$","212.6"],["Debt Securities Issued by States and Political Subdivisions","","0.3","","","2.7","","","","6.1","","","2.2","","","","67.0","","","2.1","","","","\u2014","","","\u2014","","","","73.4","","","2.1","","","","63.8"],["Debt Securities Issued by U.S. Government-Sponsored Enterprises","","\u2014","","","0.5","","","","1.6","","","1.5","","","","\u2014","","","\u2014","","","","\u2014","","","\u2014","","","","1.6","","","1.5","","","","1.5"],["Debt Securities Issued by Corporations","","\u2014","","","\u2014","","","","239.7","","","4.2","","","","466.3","","","5.1","","","","\u2014","","","\u2014","","","","706.0","","","4.8","","","","657.7"],["Mortgage-Backed Securities 2"],["Residential - Government Agencies","","1.8","","","3.7","","","","131.7","","","3.0","","","","580.4","","","2.4","","","","\u2014","","","\u2014","","","","713.9","","","2.5","","","","629.3"],["Residential - U.S. Government- Sponsored Enterprises","","0.8","","","2.3","","","","327.0","","","1.5","","","","490.5","","","1.9","","","","\u2014","","","\u2014","","","","818.3","","","1.8","","","","709.1"],["Commercial - Government Agencies","","\u2014","","","\u2014","","","","151.1","","","2.7","","","","6.4","","","2.5","","","","\u2014","","","\u2014","","","","157.5","","","2.7","","","","134.9"],["Total Mortgage-Backed Securities","","2.6","","","3.3","","","","609.8","","","2.2","","","","1,077.3","","","2.2","","","","\u2014","","","\u2014","","","","1,689.7","","","2.2","","","","1,473.3"],["Total Available-for-Sale","$","4.2","","","2.7","%","","$","1,079.2","","","2.8","%","","$","1,610.6","","","3.0","%","","$","\u2014","","","0.0","%","","$","2,694.0","","","2.9","%","","$","2,408.9"],["Held-to-Maturity"],["Debt Securities Issued by the U.S. Treasury and Government Agencies","$","\u2014","","","0.0","%","","$","82.2","","","1.2","%","","$","49.5","","","1.5","%","","$","\u2014","","","0.0","%","","$","131.7","","","1.3","%","","$","116.5"],["Debt Securities Issued by Corporations","","0.7","","","1.8","","","","\u2014","","","\u2014","","","","10.8","","","1.6","","","","\u2014","","","\u2014","","","","11.5","","","1.6","","","","9.5"],["Mortgage-Backed Securities 2"],["Residential - Government Agencies","","5.6","","","2.3","","","","102.4","","","2.8","","","","1,566.1","","","1.5","","","","\u2014","","","\u2014","","","","1,674.1","","","1.6","","","","1,408.6"],["Residential - U.S. Government- Sponsored Enterprises","","0.5","","","1.6","","","","85.4","","","2.3","","","","2,278.8","","","1.9","","","","379.4","","","1.9","","","","2,744.1","","","1.9","","","","2,374.1"],["Commercial - Government Agencies","","3.5","","","2.5","","","","262.3","","","1.4","","","","135.3","","","1.5","","","","34.8","","","1.7","","","","435.9","","","1.5","","","","344.9"],["Total Mortgage-Backed Securities","","9.6","","","2.4","","","","450.1","","","1.9","","","","3,980.2","","","1.7","","","","414.2","","","1.9","","","","4,854.1","","","1.7","","","","4,127.6"],["Total Held-to-Maturity","$","10.3","","","2.3","%","","$","532.3","","","1.8","%","","$","4,040.5","","","1.7","%","","$","414.2","","","1.9","%","","$","4,997.3","","","1.7","%","","$","4,253.6"],["Total Investment Securities"],["As of December 31, 2023","$","14.5","","","","","$","1,611.5","","","","","$","5,651.1","","","","","$","414.2","","","","","$","7,691.3","","","","","$","6,662.5"],["As of December 31, 2022","$","29.4","","","","","$","1,564.0","","","","","$","6,595.6","","","","","$","397.5","","","","","$","8,586.5","","","","","$","7,460.2"]]
[[/GREPCENT_TABLE]]

1
Weighted-average yields on investment securities available-for-sale are based on amortized cost.

2
Information for mortgage-backed securities and small business administration securities reflect weighted average life, including anticipated future prepayments.

As of December 31, 2023, our investment securities portfolio was comprised of securities with an average base duration of approximately 5.45 years.

We continually evaluate our investment securities portfolio in response to established asset/liability management objectives, changing market conditions that could affect profitability, and level of interest rate risk to which we are exposed. These evaluations may cause us to change the level of funds deployed into investment securities, change the composition of our investment securities portfolio, and change the proportion of investments made into the available-for-sale and held-to-maturity investment categories.

Mortgage-backed securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac continue to be the largest concentrations in the portfolio. As of December 31, 2023, these mortgage-backed securities were all AAA-rated, with a low probability of a change in their credit ratings in the near future. As of December 31, 2023, our available-for-sale investment securities portfolio was comprised of securities with an average base duration of approximately 3.83 years.

Gross unrealized gains in our investment securities portfolio were $0.7 million as of December 31, 2023, and $1.9 million as of December 31, 2022. Gross unrealized losses in the investment securities portfolio were $1.0 billion as of December 31, 2023, and $1.1 billion as of December 31, 2022. The overall decrease in net unrealized losses was primarily due to prepayments and sale of securities in the third quarter of 2023.

The gross unrealized loss positions were primarily related to mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss. Total gross unrealized losses were primarily attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities. We do not intend to sell the investment securities that were in an unrealized loss position and it is not more likely than not that we will be required to sell the investment securities before recovery of their amortized cost basis, which may be at maturity.

See Note 3 to the Consolidated Financial Statements for more information.

33

Table of Contents

The Company’s corporate bond holdings as of December 31, 2023, had a fair value of $667.2 million. Of this total, $4.1 million or 1% was fully guaranteed by the Export-Import Bank of the United States, an agency of the U.S. government, and $8.8 million or 1% was fully guaranteed by the U.S. government acting through the U.S. Agency for International Development. Of the remaining $654.3 million of corporate bonds, all were credit-rated A- or better by at least one nationally recognized statistical rating organization.

Loans and Leases

Table 8 presents the composition of our loan and lease portfolio by major categories.

[[GREPCENT_TABLE]]
[["Loans and Leases","","","","","","","","","","","","","","Table 8"],["","","December 31,"],["(dollars in thousands)","","2023","","","2022","","","2021","","","2020","","","2019"],["Commercial"],["Commercial and Industrial","","$","1,652,699","","","$","1,389,066","","","$","1,361,921","","","$","1,357,610","","","$","1,379,152"],["Paycheck Protection Program","","","11,369","","","","19,579","","","","126,779","","","","517,683","","","","\u2014"],["Commercial Mortgage","","","3,749,016","","","","3,725,542","","","","3,152,130","","","","2,854,829","","","","2,518,051"],["Construction","","","304,463","","","","260,825","","","","220,254","","","","259,798","","","","194,170"],["Lease Financing","","","59,939","","","","69,491","","","","105,108","","","","110,766","","","","122,454"],["Total Commercial","","","5,777,486","","","","5,464,503","","","","4,966,192","","","","5,100,686","","","","4,213,827"],["Consumer"],["Residential Mortgage","","","4,684,171","","","","4,653,072","","","","4,309,602","","","","4,130,513","","","","3,891,100"],["Home Equity","","","2,264,827","","","","2,225,950","","","","1,836,588","","","","1,604,538","","","","1,676,073"],["Automobile","","","837,830","","","","870,396","","","","736,565","","","","708,800","","","","720,286"],["Other 1","","","400,712","","","","432,499","","","","410,129","","","","395,483","","","","489,606"],["Total Consumer","","","8,187,540","","","","8,181,917","","","","7,292,884","","","","6,839,334","","","","6,777,065"],["Total Loans and Leases","","$","13,965,026","","","$","13,646,420","","","$","12,259,076","","","$","11,940,020","","","$","10,990,892"]]
[[/GREPCENT_TABLE]]

1.
Comprised of other revolving credit, installment, and lease financing.

Total loans and leases were $14.0 billion as of December 31, 2023. This represents a $318.6 million or 2% increase from December 31, 2022, primarily due to growth in the commercial loan and lease portfolio.

The commercial loan and lease portfolio is comprised of commercial and industrial loans, Paycheck Protection Program loans, commercial mortgages, construction loans, and lease financing. Commercial and industrial loans are made primarily to corporations, middle market, and small businesses for the purpose of financing equipment acquisitions, expansion, working capital, and other general business purposes. Paycheck Protection Program loans provided cash flow assistance to small businesses affected by economic conditions as a result of the COVID-19 pandemic. Commercial mortgages and construction loans are offered to real estate investors, developers, and builders primarily domiciled in Hawaii. Commercial mortgages are secured by first mortgages on commercial real estate at loan-to-value ratios generally not exceeding 75%. The commercial properties are predominantly multifamily, industrial and retail centers that are primarily grocery or drug store-anchored, and to a lesser extent, specialized properties such as hotels. The primary source of repayment for investor property is cash flow from the property and for owner-occupied property is the operating cash flow from the business.

Construction loans are made for the purchase or construction of a property for which repayment will be generated by the property. We classify loans as construction until the completion of the construction phase. Following construction, if a loan is retained, the loan is reclassified to the commercial mortgage category. Lease financing consists of sales-type leases used by commercial customers to finance capital purchases. Although our primary market is Hawaii, the commercial portfolio contains loans to some borrowers based on the U.S. Mainland, including some Shared National Credits, which have a business connection to Hawaii or are associated with a Hawaii customer relationship.

Commercial loans and leases were $5.8 billion as of December 31, 2023, an increase of $313.0 million or 6% from December 31, 2022. Commercial and industrial loans increased by $263.6 million or 19% from December 31, 2022 primarily due to higher corporate demand for funding from new and existing customers. Paycheck Protection Program loans decreased by $8.2 million or 42% from December 31, 2022, primarily due to paydowns. Commercial mortgage loans increased by $23.5 million or 1% from December 31, 2022, primarily due to continued demand from new and existing customers. Construction loans increased by $43.6 million or 17% from December 31, 2022, primarily due to demand from new and existing customers offset by paydowns and loans converted to commercial mortgages. Lease financing decreased by $9.6 million or 14% from December 31, 2022, primarily due to paydowns.

34

Table of Contents

The consumer loan and lease portfolio is comprised of residential mortgage loans, home equity lines and loans, indirect auto loans and leases, and other consumer loans including personal credit lines and direct installment loans. These products are generally offered in the geographic markets we serve. Although we offer a variety of products, our residential mortgage loan portfolio is primarily comprised of fixed-rate loans concentrated in Hawaii. We also offer a variety of home equity lines and loans, which are primarily secured by first lien mortgages on residential property of the borrower. Automobile lending activities include loans and leases secured by new or used automobiles. We originate automobile loans and leases on an indirect basis through selected dealerships. Direct installment loans are generally unsecured and are primarily used for personal expenses or for debt consolidation.

Consumer loans and leases were $8.2 billion as of December 31, 2023, and remained relatively unchanged from December 31, 2022. Residential mortgage loans increased by $31.1 million or 1% from December 31, 2022. While production has decreased significantly due to the higher rate environment, overall loan balances increased primarily due to a shift in consumer preference to lower adjustable rate mortgages for new home purchases over fixed rate mortgages. Home equity increased by $38.9 million or 2% from December 31, 2022, as production continued to exceed payoffs and amortization despite lower production levels. Automobile loans decreased by $32.6 million or 4% from December 31, 2022 due to a decrease in production from a rising rate environment. Other consumer loans decreased by $31.8 million or 7% from December 31, 2022, due to a slowdown in installment loan originations and continued paydown of installment loans and automobile loans and leases.

See Note 4 to the Consolidated Financial Statements and the “Corporate Risk Profile – Credit Risk” section of MD&A for more information on our loan and lease portfolio.

35

Table of Contents

Table 9 presents the geographic distribution of our loan and lease portfolio.

[[GREPCENT_TABLE]]
[["Geographic Distribution of Loan and Lease Portfolio","","","","","","","","","Table 9"],["","","December 31, 2023"],["(dollars in thousands)","","Hawaii","","","U.S. Mainland 1","","","Guam","","","Other Pacific Islands","","","Total"],["Commercial"],["Commercial and Industrial","","$","1,422,819","","","$","142,264","","","$","71,576","","","$","16,040","","","$","1,652,699"],["Paycheck Protection Program","","","9,192","","","","1,522","","","","318","","","","337","","","","11,369"],["Commercial Mortgage","","","3,270,239","","","","288,174","","","","190,165","","","","438","","","","3,749,016"],["Construction","","","304,463","","","","\u2014","","","","\u2014","","","","\u2014","","","","304,463"],["Lease Financing","","","59,152","","","","\u2014","","","","787","","","","\u2014","","","","59,939"],["Total Commercial","","","5,065,865","","","","431,960","","","","262,846","","","","16,815","","","","5,777,486"],["Consumer"],["Residential Mortgage","","","4,606,763","","","","3,467","","","","73,504","","","","437","","","","4,684,171"],["Home Equity","","","2,216,554","","","","44","","","","48,229","","","","\u2014","","","","2,264,827"],["Automobile","","","648,937","","","","\u2014","","","","146,885","","","","42,008","","","","837,830"],["Other 2","","","343,054","","","","\u2014","","","","48,020","","","","9,638","","","","400,712"],["Total Consumer","","","7,815,308","","","","3,511","","","","316,638","","","","52,083","","","","8,187,540"],["Total Loans and Leases","","$","12,881,173","","","$","435,471","","","$","579,484","","","$","68,898","","","$","13,965,026"],["Percentage of Total Loans and Leases","","","92","%","","","3","%","","","4","%","","","0","%","","","100","%"]]
[[/GREPCENT_TABLE]]

1.
For secured loans and leases, classification as U.S. Mainland is made based on where the collateral is located. For unsecured loans and leases, classification as U.S. Mainland is made based on the location where the majority of the borrower’s business operations are conducted.

2.
Comprised of other revolving credit, installment, and lease financing.

Our commercial and consumer lending activities are concentrated primarily in Hawaii and the Pacific Islands. Our commercial loan and lease portfolio to borrowers based on the U.S. Mainland includes participation in Shared National Credits.

Table 10 presents a maturity distribution for selected loan categories.

[[GREPCENT_TABLE]]
[["Maturities for Selected Loan Categories 1","Table 10"],["","","December 31, 2023"],["(dollars in thousands)","","Due in One Year or Less","","","Due After One to Five Years","","","Due After Five to Ten Years","","","Due After Ten to Fifteen Years","","","Due After Fifteen Years","","","Total","","","Variable Rate Loans","","","Fixed Rate Loans"],["Commercial"],["Commercial and Industrial","","$","543,874","","","$","378,938","","","$","399,177","","","$","148,285","","","$","182,425","","","$","1,652,699","","","$","1,189,921","","","$","462,778"],["Paycheck Protection Program","","","\u2014","","","","11,369","","","","\u2014","","","","\u2014","","","","\u2014","","","","11,369","","","","\u2014","","","","11,369"],["Commercial Mortgage","","","283,581","","","","1,361,882","","","","1,936,444","","","","164,014","","","","3,095","","","","3,749,016","","","","2,324,803","","","","1,424,213"],["Construction","","","86,009","","","","81,317","","","","30,559","","","","20,911","","","","85,667","","","","304,463","","","","239,224","","","","65,239"],["Lease Financing","","","3,274","","","","43,693","","","","12,972","","","","\u2014","","","","\u2014","","","","59,939","","","","\u2014","","","","59,939"],["Total Commercial","","","916,738","","","","1,877,199","","","","2,379,152","","","","333,210","","","","271,187","","","","5,777,486","","","","3,753,948","","","","2,023,538"],["Consumer"],["Residential Mortgage","","","310","","","","36,525","","","","90,643","","","","309,572","","","","4,247,121","","","","4,684,171","","","","669,918","","","","4,014,253"],["Home Equity","","","3,415","","","","7,721","","","","49,619","","","","416,864","","","","1,787,208","","","","2,264,827","","","","1,136,737","","","","1,128,090"],["Automobile","","","12,181","","","","555,716","","","","269,933","","","","\u2014","","","","\u2014","","","","837,830","","","","\u2014","","","","837,830"],["Other 2","","","52,159","","","","270,480","","","","78,073","","","","\u2014","","","","\u2014","","","","400,712","","","","36,917","","","","363,795"],["Total Consumer","","","68,065","","","","870,442","","","","488,268","","","","726,436","","","","6,034,329","","","","8,187,540","","","","1,843,572","","","","6,343,968"],["Total Loans and Leases","","$","984,803","","","$","2,747,641","","","$","2,867,420","","","$","1,059,646","","","$","6,305,516","","","$","13,965,026","","","$","5,597,520","","","$","8,367,506"]]
[[/GREPCENT_TABLE]]

1.
Based on contractual maturities.

2.
Comprised of other revolving credit, installment, and lease financing.

Goodwill

Goodwill was $31.5 million as of December 31, 2023, and December 31, 2022. As of December 31, 2023, based on our qualitative assessment, there were no reporting units where we believed it was more likely than not that the fair value of a reporting unit was less than its carrying amount, including goodwill. See Note 1 to the Consolidated Financial Statements for more information on our goodwill impairment policy.

36

Table of Contents

Other Assets

Other assets were $639.5 million as of December 31, 2023, an increase of $65.5 million or 11% from December 31, 2022. The increase resulted from various items. Derivative financial instruments increased by $47.4 million due to the conversion of our interest rate swap portfolio from LIBOR to CME Term SOFR. Collateral payments received for our LIBOR swap portfolio were considered legal settlements of the derivatives' exposure in accordance with the rules of the central clearinghouses that were used for settlement purposes. These payments were required to be presented as a contra asset, which reduced the balance of our derivative financial instruments. Currently, our CME Term SOFR swaps are not clearable via a central clearinghouse. Thus, collateral payments received are treated as collateral rather than legal settlements of the derivatives' exposure and are presented in Other Liabilities in the consolidated statements of condition. Low-income housing and other equity investments increased by $33.6 million due to new projects, partially offset by amortization of existing investments. Federal Home Loan Bank of Des Moines stock increased by $9.2 million due to increase of activity-based stock. In 2023, we restructured investments held by the deferred compensation plan. As a result, $43.5 million of plan assets were classified as Bank-Owned Life Insurance in the Consolidated Statements of Condition as of December 31, 2023. See Note 7 to the Consolidated Financial Statements for more information on the composition of our other assets.

Deposits

Table 11 presents the components of our deposits by major customer categories as of December 31, 2023, and December 31, 2022.

[[GREPCENT_TABLE]]
[["Deposits","","Table 11"],["","","December 31,"],["(dollars in thousands)","","2023","","","2022"],["Consumer","","$","10,319,809","","","$","10,304,335"],["Commercial","","","8,601,224","","","","8,569,670"],["Public and Other","","","2,134,012","","","","1,741,691"],["Total Deposits","","$","21,055,045","","","$","20,615,696"]]
[[/GREPCENT_TABLE]]

Total deposits were $21.1 billion as of December 31, 2023, a $439.3 million or 2% increase from December 31, 2022. This increase was primarily due to an increase in public and other deposits. Consumer and commercial deposits remained relatively unchanged from December 31, 2022. Public and other deposits increased by $392.3 million or 23% due to an increases of $299.2 million in core deposits and $93.1 million in time deposits.

Table 12 presents the components of our savings deposits as of December 31, 2023, and December 31, 2022.

[[GREPCENT_TABLE]]
[["Savings Deposits","","Table 12"],["","","December 31,"],["(dollars in thousands)","","2023","","","2022"],["Money Market","","$","3,258,631","","","$","3,101,594"],["Regular Savings","","","4,930,841","","","","4,860,816"],["Total Savings Deposits","","$","8,189,472","","","$","7,962,410"]]
[[/GREPCENT_TABLE]]

Table 13 presents the maturity distribution of the estimated uninsured time deposits as of December 31, 2023, and December 31, 2022.

[[GREPCENT_TABLE]]
[["Maturity Distribution of Estimated Uninsured Time Deposits","","Table 13"],["","","December 31,"],["(dollars in thousands)","","2023","","","2022"],["Remaining maturity:"],["Three months or less","","$","663,342","","","$","715,224"],["After three through six months","","","382,684","","","","180,933"],["After six through twelve months","","","236,205","","","","242,426"],["After twelve months","","","483,841","","","","115,335"],["Total","","$","1,766,072","","","$","1,253,918"]]
[[/GREPCENT_TABLE]]

37

Table of Contents

Estimated uninsured time deposits increased $512.2 million from December 31, 2022, primarily due to higher interest rates attracting more time deposits. Uninsured amounts are estimated based on the portion of account balances in excess of FDIC insurance limits.

Estimated uninsured deposits as calculated pursuant to regulatory guidance and reported in our Call Report include deposits that were collateralized by government-backed securities and intercompany deposits of wholly-owned subsidiaries. The table below presents a reconciliation of our estimated uninsured deposits reported in our Call Report to our adjusted uninsured deposits. We believe the adjusted uninsured deposits provides useful information about our overall credit risk related to our customers’ deposits.

[[GREPCENT_TABLE]]
[["Uninsured Deposits Reconciliation","","","","","Table 13a"],["","","December 31,"],["(dollars in thousands)","","2023","","","2022"],["Estimated Uninsured Deposits, as Reported in our Call Report","","$","11,012,425","","","$","10,486,438"],["Less:"],["Deposits Collateralized by Government-Backed Securities","","","(2,038,011",")","","","(1,630,468",")"],["Intercompany Deposits of Wholly-Owned Subsidiaries","","","(69,399",")","","","(63,132",")"],["Other","","","(34,340",")","","","(4,309",")"],["Adjusted Uninsured Deposits","","$","8,870,675","","","$","8,788,529"]]
[[/GREPCENT_TABLE]]

Securities Sold Under Agreements to Repurchase

Table 14 presents the composition of our securities sold under agreements to repurchase.

[[GREPCENT_TABLE]]
[["Securities Sold Under Agreements to Repurchase","","","","","Table 14"],["","","December 31,"],["(dollars in thousands)","","2023","","","2022"],["Private Institutions","","$","150,000","","","$","725,000"],["Government Entities","","","490","","","","490"],["Total Securities Sold Under Agreements to Repurchase","","$","150,490","","","$","725,490"]]
[[/GREPCENT_TABLE]]

Securities sold under agreements to repurchase as of December 31, 2023, decreased by $575.0 million or 79% from December 31, 2022. Some of our repurchase agreements with private institutions may be terminated at earlier specified dates by the private institution or in some cases by either the private institution or the Company. If all such agreements were to terminate at the earliest possible date, the weighted-average maturity for our repurchase agreements with private institutions would be 0.6 years. Each of our repurchase agreements is accounted for as collateralized financing arrangement (i.e., secured borrowing) and not as a sale and subsequent repurchase of securities. See Note 9 Securities Sold Under Agreements to Repurchase for more information.

Other Debt

Other debt was $560.2 million as of December 31, 2023, an increase of $149.9 million or 37% from December 31, 2022. In 2023, we added a net $550.0 million of FHLB advances with a weighted-average interest rate of 4.13% and maturity dates ranging from 2026 to 2028. As of December 31, 2023, our available capacity under our line of credit with the FHLB was $2.5 billion.

Pension and Postretirement Plan Obligations

Retirement benefits payable were $23.7 million as of December 31, 2023, a $3.3 million or 12% decrease from December 31, 2022. Our pension and postretirement benefit obligations and net periodic benefit cost are actuarially determined based on a number of key assumptions, including the discount rate, the expected return on plan assets, and the health-care cost trend rate. The accounting for pension and postretirement benefit plans reflect the long-term nature of the obligations and the investment horizon of the plan assets. The decrease in retirement benefits payable was primarily due to the improvement of the funded status of the pension plan due to better than expected return on investment assets.

38

Table of Contents

The discount rate is used to determine the present value of future benefit obligations and the net periodic benefit cost. The discount rate used to value the present value of future benefit obligations as of each year-end is the rate used to estimate the net periodic benefit cost for the following year. Table 15 presents a sensitivity analysis of a 25 basis point change in discount rates to the pension and postretirement benefit plan’s net periodic benefit cost and benefit obligations:

[[GREPCENT_TABLE]]
[["Discount Rate Sensitivity Analysis","","","","","","","","","","","","","","","Table 15"],["","","","","","","","","Impact of"],["","","Base Discount Rate","","","Discount Rate 25 Basis Point Increase","","","Discount Rate 25 Basis Point Decrease"],["(dollars in thousands)","","Pension Benefits","","","Postretirement Benefits","","","Pension Benefits","","","Postretirement Benefits","","","Pension Benefits","","","Postretirement Benefits"],["2023 Net Periodic Benefit Cost","","","5.51","%","","","5.58","%","","$","25","","","$","(49",")","","$","(30",")","","$","49"],["Benefit Plan Obligations as of December 31, 2023","","","5.44","%","","","5.51","%","","","(1,536",")","","","(588",")","","","1,566","","","","603"],["Estimated 2024 Net Periodic Benefit Cost","","","5.44","%","","","5.51","%","","","18","","","","(52",")","","","(23",")","","","52"]]
[[/GREPCENT_TABLE]]

See Note 14 to the Consolidated Financial Statements for more information on our pension and postretirement benefit plans.

Contractual Obligations

The Company has various contractual obligations that affect its cash flows and liquidity. Our non-cancelable operating leases and finance lease obligations are primarily related to branch premises, equipment, and a portion of the Company’s headquarters’ building with lease terms extending through 2052. 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. Pension and postretirement benefit contributions represent the minimum expected contribution to the unfunded non-qualified pension plan and postretirement benefit plan. Actual contributions may differ from these estimates. For information regarding material contractual obligations, please see Note 14 Employee Benefits, Note 18 Affordable Housing Projects Tax Credit Partnerships, Note 19 Securities Sold Under Agreements to Repurchase, Note 20 Commitments, Contingencies, and Guarantees, and Note 23 Leases in the Notes to the Consolidated Financial Statements.

Foreign Activities

Cross-border outstandings are defined as loans (including accrued interest), acceptances, interest-bearing deposits with other banks, other interest-bearing investments, and any other monetary assets which are denominated in dollars or other non-local currency. As of December 31, 2023 and December 31, 2022, we did not have cross-border outstandings to any foreign country which exceeded 0.75% of our total assets.

Corporate Risk Profile

Managing risk is an essential part of successfully operating our business. Management believes that the most prominent risk exposures for the Company are credit risk, market risk, liquidity risk management, capital management, and operational risk.

Credit Risk

Credit risk is the risk that borrowers or counterparties will be unable or unwilling to repay their obligations in accordance with the underlying contractual terms. We manage and control credit risk in the loan and lease portfolio by adhering to well-defined underwriting criteria and account administration standards established by management. Written credit policies document underwriting standards, approval levels, exposure limits, and other guidelines deemed necessary and prudent. Portfolio exposure at the obligor, industry, product, and/or geographic location levels is actively monitored to manage concentration risk. Furthermore, credit risk management also includes an independent credit review process that assesses compliance with commercial and consumer credit policies, risk ratings, and other critical credit information. In addition to utilizing risk management practices that are based upon established and sound lending practices, we adhere to Regulatory Safety and Soundness credit standards. This includes understanding and evaluating our customers’ borrowing needs and capacity to repay, in conjunction with specific risks in their line of business, economic factors, character and history.

Commercial and industrial loans are made primarily for the purpose of financing equipment acquisition, expansion, working capital, and other general business purposes. Lease financing primarily consists of sales-type leases to finance capital purchases ranging from computer equipment to transportation equipment. The credit decisions for these transactions are based upon an assessment of the overall financial capacity of the applicant. A determination is made as to the applicant’s ability to repay in accordance with the proposed terms as well as an overall assessment of the risks involved. In addition to an evaluation of the applicant’s financial condition, a determination is made of the probable adequacy of the primary and secondary sources of

39

Table of Contents

repayment, such as additional collateral or personal guarantees, to be relied upon in the transaction. Credit agency reports of the applicant’s credit history supplement the analysis of the applicant’s and/or Guarantor’s creditworthiness.

Commercial mortgages and construction loans are offered to real estate investors, developers, builders, and owner-occupants primarily domiciled in Hawaii. These loans are secured by first mortgages on real estate at loan-to-value (“LTV”) ratios deemed appropriate based on the property type, location, overall quality, and sponsorship. Generally, these LTV ratios do not exceed 75%. The commercial properties are predominantly multifamily, industrial, retail centers that are primarily grocery or drug store anchored, and, to a lesser extent, more specialized properties such as hotels. Commercial mortgage and construction loans are substantially secured by properties located in Hawaii.

Commercial mortgage loans are underwritten based on the economic fundamentals of the property and the creditworthiness of the borrower. In evaluating a proposed commercial mortgage loan, we primarily emphasize the ratio of the property’s projected net cash flows to the loan’s debt servicing requirement. The debt service coverage ratio normally is not less than 125% and it is computed after deducting for a vacancy factor and property expenses as appropriate. In addition, a personal guarantee of the loan or a portion thereof is sometimes required from the principal(s) of the borrower. We typically require title insurance insuring the priority of our lien, fire, and extended coverage casualty insurance, and flood insurance, if appropriate, in order to protect our security interest in the underlying property. In addition, business interruption insurance or other insurance may be required. Owner-occupant commercial mortgage loans are underwritten based upon the cash flow of the business provided that the real estate asset is utilized in the operation of the business. Real estate is evaluated independently as a secondary source of repayment. As noted above, LTV ratios generally do not exceed 75%, which are based on regulatory-compliant appraisals that we obtain for the underlying properties.

Construction loans are underwritten against projected cash flows derived from rental income, business income from an owner-occupant, or the sale of the property to an end-user. We may mitigate the risks associated with these types of loans by requiring fixed-price construction contracts, performance and payment bonding, controlled disbursements, and pre-sale contracts or pre-lease agreements.

We offer a variety of first lien and second lien mortgage loans to consumers within our markets with first lien residential mortgages comprising our largest loan category. These loans are secured by a primary residence, secondary residence, or investor property and are underwritten to assess the credit risks and financial capacity and repayment ability of the applicant. 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 variable rate mortgage loans with interest rates that are subject to change every six months after the third, fifth, seventh, or tenth year, depending on the product and are based on the Secured Overnight Financing Rate (“SOFR”). Variable rate mortgage loans are underwritten at fully-indexed interest rates. We do not offer payment-option facilities, sub-prime or Alt-A loans, or any product with negative amortization. We selectively offer interest-only mortgage loans to private banking clients.

Home equity lines and loans are secured primarily by a first lien mortgage, or a second lien mortgage on a primary residence, secondary residence, or investor property. The underwriting terms for the home equity product generally permits borrowing availability, in the aggregate, up to 80% of the value of the collateral property for primary residence and up to 75% of the value of the collateral property for second residence or investor at the time of origination. We offer fixed and variable rate home equity loans, with variable rate loans underwritten at fully-indexed interest rates. Our procedures for underwriting home equity loans include an assessment of an applicant’s overall financial capacity and repayment ability. Decisions are primarily based on LTV ratios, DTI ratios, liquidity and credit scores. Maximum loan amounts and LTVs are determined by collateral value and customer segment.

Automobile lending activities include loans and leases secured by new or used automobiles, and leases secured by new automobiles. We originate automobile loans on an indirect basis through selected dealerships in Hawaii, Guam and Saipan, and we originate automobile leases on an indirect basis through selected dealerships in Hawaii. Our procedures for underwriting automobile loans and leases include an assessment of an applicant’s overall financial capacity and repayment ability. Although an applicant’s creditworthiness is the primary consideration, the underwriting process also includes a comparison of the value of the automobile collateral to the proposed loan amount. We require borrowers to maintain full coverage automobile insurance on automobile loans and leases, with the Bank listed as either the loss payee or additional insured.

40

Table of Contents

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

Table 16 presents a five-year history of non-performing assets and accruing loans and leases past due 90 days or more.

[[GREPCENT_TABLE]]
[["Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More","","","Table 16"],["","","December 31,"],["(dollars in thousands)","","2023","","","2022","","","2021","","","2020","","","2019"],["Non-Performing Assets"],["Non-Accrual Loans and Leases"],["Commercial"],["Commercial and Industrial","","$","39","","","$","37","","","$","243","","","$","441","","","$","830"],["Commercial Mortgage","","","2,884","","","","3,309","","","","8,205","","","","8,527","","","","9,244"],["Total Commercial","","","2,923","","","","3,346","","","","8,448","","","","8,968","","","","10,074"],["Consumer"],["Residential Mortgage","","","2,935","","","","4,239","","","","3,305","","","","3,223","","","","4,125"],["Home Equity","","","3,791","","","","4,022","","","","4,881","","","","3,958","","","","3,181"],["Total Consumer","","","6,726","","","","8,261","","","","8,186","","","","7,181","","","","7,306"],["Total Non-Accrual Loans and Leases","","","9,649","","","","11,607","","","","16,634","","","","16,149","","","","17,380"],["Foreclosed Real Estate","","","2,098","","","","1,040","","","","2,332","","","","2,332","","","","2,737"],["Total Non-Performing Assets","","$","11,747","","","$","12,647","","","$","18,966","","","$","18,481","","","$","20,117"],["Accruing Loans and Leases Past Due 90 Days or More"],["Consumer"],["Residential Mortgage","","","3,814","","","","2,429","","","","3,159","","","","5,274","","","","1,839"],["Home Equity","","","1,734","","","","1,673","","","","3,456","","","","3,187","","","","4,125"],["Automobile","","","399","","","","589","","","","729","","","","925","","","","949"],["Other 1","","","648","","","","683","","","","426","","","","1,160","","","","1,493"],["Total Consumer","","","6,595","","","","5,374","","","","7,770","","","","10,546","","","","8,406"],["Total Accruing Loans and Leases Past Due 90 Days or More","","$","6,595","","","$","5,374","","","$","7,770","","","$","10,546","","","$","8,406"],["Restructured Loans on Accrual Status and Not Past Due 90 Days or More","","$","28,651","","","$","43,658","","","$","60,519","","","$","68,065","","","$","63,103"],["Total Loans and Leases","","$","13,965,026","","","$","13,646,420","","","$","12,259,076","","","$","11,940,020","","","$","10,990,892"],["Ratio of Non-Accrual Loans and Leases to Total Loans and Leases","","","0.07","%","","","0.09","%","","","0.14","%","","","0.14","%","","","0.16","%"],["Ratio of Non-Performing Assets to Total Loans and Leases and Foreclosed Real Estate","","","0.08","%","","","0.09","%","","","0.15","%","","","0.15","%","","","0.18","%"],["Ratio of Non-Performing Assets to Total Assets","","","0.05","%","","","0.05","%","","","0.08","%","","","0.09","%","","","0.11","%"],["Ratio of Commercial Non-Performing Assets to Total Commercial Loans and Leases and Commercial Foreclosed Real Estate","","","0.05","%","","","0.06","%","","","0.17","%","","","0.18","%","","","0.24","%"],["Ratio of Consumer Non-Performing Assets to Total Consumer Loans and Leases and Consumer Foreclosed Real Estate","","","0.11","%","","","0.11","%","","","0.14","%","","","0.14","%","","","0.15","%"],["Ratio of Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More to Total Loans and Leases and Foreclosed Real Estate","","","0.13","%","","","0.13","%","","","0.22","%","","","0.24","%","","","0.26","%"]]
[[/GREPCENT_TABLE]]

1.
Comprised of other revolving credit, installment, and lease financing.

Table 17 presents the activity in Non-Performing Assets (“NPAs”) for 2023:

[[GREPCENT_TABLE]]
[["(dollars in thousands)","","Table 17"],["Balance at Beginning of Year","","$","12,647"],["Additions","","","5,669"],["Reductions"],["Payments","","","(4,039",")"],["Return to Accrual Status","","","(2,520",")"],["Charge-offs/Write-downs","","","(10",")"],["Total Reductions","","","(6,569",")"],["Balance at End of Year","","$","11,747"]]
[[/GREPCENT_TABLE]]

NPAs consist of non-accrual loans and leases and foreclosed real estate. Changes in the level of non-accrual loans and leases typically are caused by loans and leases that reach a specified past due status, offset by reductions for loans and leases that are charged-off, paid down, sold, transferred to foreclosed real estate, or are no longer classified as non-accrual because they have returned to accrual status.

Residential mortgage non-accrual loans decreased by $1.3 million or 31% from December 31, 2022. As of December 31, 2023, our residential mortgage non-accrual loans were comprised of 16 loans with a weighted average current loan-to-value of 59%.

41

Table of Contents

Foreclosed real estate represents property acquired as the result of borrower defaults on loans. Foreclosed real estate is recorded at fair value, less estimated selling costs, at the time of foreclosure. On an ongoing basis, properties are appraised as required by market conditions and applicable regulations. Foreclosed real estate was $2.1 million as of December 31, 2023.

If interest due on the balances of all non-accrual loans as of December 31, 2023 had been accrued under the original terms, approximately $0.9 million in total interest income would have been recorded in 2023.

Loans and Leases Past Due 90 Days or More and Still Accruing Interest

Loans and leases in this category are 90 days or more past due, as to principal or interest, and are still accruing interest because they are well-secured and in the process of collection. Loans and leases past due 90 days or more and still accruing interest were $6.6 million as of December 31, 2023, a $1.2 million or 23% increase from December 31, 2022. This increase was primarily in our residential mortgage and home equity portfolios.

42

Table of Contents

Reserve for Credit Losses

The reserve for credit losses consists of the Allowance and the Unfunded Reserve. Table 18 presents the activity in the Company’s reserve for credit losses for the years ended December 31:

[[GREPCENT_TABLE]]
[["Reserve for Credit Losses","","","","","","","","","","Table 18"],["(dollars in thousands)","","2023","","2022","","2021","","2020","","2019"],["Balance at Beginning of Period","","$151,247","","$164,297","","$221,303","","$116,849","","$113,515"],["CECL Adoption (Day 1) Impact","","\u2014","","\u2014","","\u2014","","(5,072)","","\u2014"],["Loans and Leases Charged-Off"],["Commercial"],["Commercial and Industrial","","(987)","","(925)","","(1,117)","","(1,697)","","(1,122)"],["Commercial Mortgage","","\u2014","","\u2014","","\u2014","","\u2014","","(1,616)"],["Consumer"],["Residential Mortgage","","(6)","","(80)","","(316)","","(204)","","(112)"],["Home Equity","","(82)","","(100)","","(417)","","(397)","","(900)"],["Automobile","","(5,247)","","(4,652)","","(4,939)","","(6,496)","","(7,130)"],["Other 1","","(8,645)","","(7,585)","","(10,530)","","(12,244)","","(13,075)"],["Total Loans and Leases Charged-Off","","(14,967)","","(13,342)","","(17,319)","","(21,038)","","(23,955)"],["Recoveries on Loans and Leases Previously Charged-Off"],["Commercial"],["Commercial and Industrial","","350","","552","","506","","2,288","","1,513"],["Commercial Mortgage","","\u2014","","\u2014","","\u2014","","40","","\u2014"],["Consumer"],["Residential Mortgage","","489","","1,193","","2,467","","1,292","","1,927"],["Home Equity","","1,073","","1,500","","1,666","","2,892","","2,339"],["Automobile","","2,782","","2,276","","3,510","","3,775","","2,961"],["Other 1","","2,455","","2,702","","3,205","","3,613","","2,549"],["Total Recoveries on Loans and Leases Previously Charged-Off","","7,149","","8,223","","11,354","","13,900","","11,289"],["Net Charged-Off - Loans and Leases","","(7,818)","","(5,119)","","(5,965)","","(7,138)","","(12,666)"],["Net Charged-Off - Accrued Interest Receivable","","\u2014","","(131)","","(541)","","\u2014","","\u2014"],["Provision for Credit Losses 2"],["Loans and Leases","","9,782","","(8,263)","","(52,466)","","115,100","","16,000"],["Accrued Interest Receivable 3","","\u2014","","(283)","","(1,745)","","2,700","","\u2014"],["Unfunded Commitments 4","","(782)","","746","","3,711","","(1,136)","","\u2014"],["Total Provision for Credit Losses","","9,000","","(7,800)","","(50,500)","","116,664","","16,000"],["Balance at End of Period","","$152,429","","$151,247","","$164,297","","$221,303","","$116,849"],["Components"],["Allowance for Credit Losses - Loans and Leases","","$146,403","","$144,439","","$157,821","","$216,252","","$110,027"],["Allowance for Credit Losses - Accrued Interest Receivable 3","","\u2014","","\u2014","","414","","2,700","","\u2014"],["Reserve for Unfunded Commitments 4","","6,026","","6,808","","6,062","","2,351","","6,822"],["Total Reserve for Credit Losses","","$152,429","","$151,247","","$164,297","","$221,303","","$116,849"],["Average Loans and Leases Outstanding","","$13,851,551","","$12,896,510","","$12,023,669","","$11,592,093","","$10,688,424"],["Ratio of Net Loans and Leases Charged-Off to Average Loans and Leases Outstanding","","0.06%","","0.04%","","0.05%","","0.06%","","0.12%"],["Ratio of Allowance for Credit Losses to Loans and Leases Outstanding 5","","1.05%","","1.06%","","1.29%","","1.81%","","1.00%"]]
[[/GREPCENT_TABLE]]

1.
Comprised of other revolving credit and installment financing.

2.
Certain prior period information has been reclassified to conform to current presentations.

3.
On December 31, 2020, the Company established a reserve on accrued interest receivable related to loans in which interest payment forbearances were granted to borrowers impacted by the COVID-19 pandemic. The reserve was recorded as a contra-asset against accrued interest receivable with the offset to provision for credit losses. In 2022, the reserve on accrued interest receivable was fully released.

4.
The reserve for unfunded commitments is separately recorded in other liabilities in the consolidated statements of condition. For the years ended December 31, 2022 and 2021, the offsetting provision was recorded in provision for credit losses in the consolidated statements of income. In previous reporting periods, the offsetting provision was recorded in other noninterest expense.

5.
The numerator comprises the Allowance for Credit Losses - Loans and Leases.

43

Table of Contents

Allowance for Credit Losses

Table 19 and 20 presents the allocation of the Allowance by loan and lease category.

[[GREPCENT_TABLE]]
[["Allocation of Allowance for Credit Losses","","","","","","","","","","","","","","Table 19"],["","","December 31,"],["(dollars in thousands)","","2023","","","2022","","","2021","","","2020","","","2019"],["Commercial"],["Commercial and Industrial","","$","34,036","","","$","24,283","","","$","27,650","","","$","43,092","","","$","29,281"],["Commercial Mortgage","","","32,646","","","","32,588","","","","29,997","","","","31,723","","","","38,335"],["Construction","","","5,090","","","","4,223","","","","4,311","","","","5,417","","","","4,840"],["Lease Financing","","","2,302","","","","2,806","","","","2,992","","","","4,615","","","","1,345"],["Total Commercial","","","74,074","","","","63,900","","","","64,950","","","","84,847","","","","73,801"],["Consumer"],["Residential Mortgage","","","19,452","","","","17,079","","","","20,721","","","","32,643","","","","6,366"],["Home Equity","","","14,317","","","","16,654","","","","18,924","","","","37,987","","","","9,777"],["Automobile","","","18,799","","","","21,566","","","","25,018","","","","28,822","","","","9,269"],["Other 1","","","19,761","","","","25,240","","","","28,208","","","","31,953","","","","10,814"],["Total Consumer","","","72,329","","","","80,539","","","","92,871","","","","131,405","","","","36,226"],["Total Allocation of Allowance for Credit Losses","","$","146,403","","","$","144,439","","","$","157,821","","","$","216,252","","","$","110,027"]]
[[/GREPCENT_TABLE]]

1
Comprised of other revolving credit, installment, and lease financing.

[[GREPCENT_TABLE]]
[["Allocation of Allowance as Percent of Loan or Lease Category","","Table 20"],["","","December 31,"],["","","2023","","2022","","2021","","2020","","2019"],["","","Alloc. Allow. as % of loan or lease category","","Loan category as % of total loans and leases","","","Alloc. Allow. as % of loan or lease category","","Loan category as % of total loans and leases","","","Alloc. Allow. as % of loan or lease category","","Loan category as % of total loans and leases","","","Alloc. Allow. as % of loan or lease category","","Loan category as % of total loans and leases","","","Alloc. Allow. as % of loan or lease category","","Loan category as % of total loans and leases"],["Commercial"],["Commercial and Industrial","","2.05","%","11.91","%","","1.72","%","10.32","%","","1.86","%","12.14","%","","2.30","%","15.70","%","","2.12","%","12.55","%"],["Commercial Mortgage","","0.87","","26.85","","","0.87","","27.30","","","0.95","","25.71","","","1.11","","23.91","","","1.52","","22.91"],["Construction","","1.67","","2.18","","","1.62","","1.91","","","1.96","","1.80","","","2.09","","2.18","","","2.49","","1.77"],["Lease Financing","","3.84","","0.43","","","4.04","","0.51","","","2.85","","0.86","","","4.17","","0.93","","","1.10","","1.11"],["Total Commercial","","1.28","","41.37","","","1.17","","40.04","","","1.31","","40.51","","","1.66","","42.72","","","1.75","","38.34"],["Consumer"],["Residential Mortgage","","0.42","","33.55","","","0.37","","34.10","","","0.48","","35.15","","","0.79","","34.59","","","0.16","","35.40"],["Home Equity","","0.63","","16.22","","","0.75","","16.31","","","1.03","","14.98","","","2.37","","13.44","","","0.58","","15.25"],["Automobile","","2.24","","6.00","","","2.48","","6.38","","","3.40","","6.01","","","4.07","","5.94","","","1.29","","6.55"],["Other 1","","4.93","","2.86","","","5.84","","3.17","","","6.88","","3.35","","","8.08","","3.31","","","2.21","","4.46"],["Total Consumer","","0.88","","58.63","","","0.98","","59.96","","","1.27","","59.49","","","1.92","","57.28","","","0.53","","61.66"],["Total","","1.05","%","100.00","%","","1.06","%","100.00","%","","1.29","%","100.00","%","","1.81","%","100.00","%","","1.00","%","100.00","%"]]
[[/GREPCENT_TABLE]]

1
Comprised of other revolving credit, installment, and lease financing.

44

Table of Contents

Allowance for Credit Losses – Loans and Leases

As of December 31, 2023, the Allowance was $146.4 million or 1.05% of total loans and leases outstanding compared with an Allowance of $144.4 million or 1.06% of total loans and leases outstanding as of December 31, 2022. The Allowance reflects management’s best estimate of losses over the life of loans and leases in our portfolio in accordance with the CECL approach. The Allowance and the Ratio of Allowance for Credit Losses to Loans and Leases Outstanding was stable compared with 2022.

Net charge-offs of loans and leases were $7.8 million or 0.06% of total average loans and leases in 2023 compared to $5.1 million or 0.04% of total average loans and leases in 2022. Net charge-offs in our consumer portfolios were $7.2 million in 2023 compared to $4.7 million in 2022. This increase was primarily reflected in our other and automobile portfolio. Net charge-offs in our commercial portfolios were $0.6 million in 2023 compared to $0.4 million in 2022. This increase was primarily reflected in our commercial and industrial portfolio

The allocation of the Allowance to our commercial portfolio segment increased by $10.2 million or 16% from December 31, 2022. This increase was primarily due to a $9.8 million increase in the Allowance allocated to the commercial and industrial portfolio. The increase is primarily due to the impact of an increase in criticized balances and qualitative adjustments related to potential additional risk rating migration caused by economic conditions on Maui following the August wildfires.

The allocation of the Allowance to our consumer portfolio segment decreased by $8.2 million or 10% from December 31, 2022. This reduction was primarily due to a $2.8 million decrease in the Allowance allocated to the automobile portfolio and a $5.5 million decrease in the Allowance allocated to the other portfolio. The reductions were primarily due to lower loss forecasts, due to low production and improved UHERO unemployment rate forecast for the State of Hawaii.

See Note 4 to the Consolidated Financial Statements for more information on the Allowance and credit quality indicators.

Reserve for Unfunded Commitments

The Unfunded Reserve was $6.0 million as of December 31, 2023, and $6.8 million as of December 31, 2022, a decrease of $0.8 million, which was primarily due to the impact of slightly lower historical loss rates and increased average utilization rates in the commercial and industrial portfolio.

Provision for Credit Losses

The provision for credit losses was a net expense of $9.0 million in 2023 and a net benefit of $7.8 million in 2022. The increase in the provision was primarily due to reduction in the allowance for credit losses in 2022 and higher net charge-offs in 2023.

Other Credit Risks

In the normal course of business, we serve the needs of state and political subdivisions in multiple capacities, including traditional banking products such as deposit services, and by investing in municipal debt securities. The carrying value of our municipal debt securities was $63.8 million as of December 31, 2023, and $95.3 million as of December 31, 2022. We also maintained investments in corporate bonds with a carrying value of $669.2 million as of December 31, 2023, and $811.7 million as of December 31, 2022. We are exposed to credit risk in these investments should the issuer of a security be unable to meet its financial obligations. This may result in the issuer failing to make scheduled interest payments and/or being unable to repay the principal upon maturity.

Our use of derivative financial instruments exposes the Company to counterparty credit risk. See Note 17 to the Consolidated Financial Statements for more information.

Market Risk

Market risk is the potential of loss arising from adverse changes in interest rates and prices. We are exposed to market risk as a consequence of the normal course of conducting our business activities. Our market risk management process involves measuring, monitoring, and mitigating risks that can significantly impact our statements of income and condition. In this management process, market risks are balanced with expected returns in an effort to enhance earnings performance, while managing volatility to an acceptable level.

Our primary market risk exposure is interest rate risk.

45

Table of Contents

Interest Rate Risk

The objective of our interest rate risk management process is to optimize net interest income while operating within acceptable limits that balance expected return with potential earnings and price volatility that may arise due to changes in interest rates over short-term, medium-term, and long-term time horizons while maintaining adequate levels of funding and liquidity. The potential cash flows, sales, or replacement value of many of our assets and liabilities, especially those that earn or pay interest, are sensitive to changes in the general level of interest rates. This interest rate risk arises primarily from our core business activities of extending loans and accepting deposits. Our investment securities portfolio is also subject to significant interest rate risk.

We utilize two management guidelines to measure our interest rate risk exposure to fluctuations in interest rates: 1) net interest income (“NII”) sensitivity, and 2) economic value of equity (“EVE”) sensitivity. NII and EVE sensitivities measure the estimated percentage change in forward looking net-interest income and economic value, respectively, under instantaneous parallel shocks of the yield curve that range from -400 basis points to +400 basis points. NII sensitivity is measured over two successive 12-month periods and thus evaluates interest rate risk over short-term and medium-term time horizons, while EVE sensitivity, which captures the present value of all on and off balance sheet positions, measures interest rate risk over a long-term time horizon. The results are measured relative to established limits and early warning indicators that ensure that fluctuation in income and valuation in both up and down rate shocks remain within levels approved by the Asset and Liability Management Committee (“ALCO”) and the Board of Directors. While we recognize that instantaneous parallel shocks of the entire yield curve are unrealistic, we believe that the application of immediate shocks provides us with a sufficient range of potential outcomes to frame our risk exposures. We pay particular attention to the +/-200 basis point shock sensitivities, as we believe they represent a more realistic range of rate movements that could occur in the near to medium term. For the year ended December 31, 2023, we remained within applicable guidelines for such scenarios.

The ALCO, which is comprised of members of executive management, utilizes several techniques to manage interest rate risk, which include:

•
adjusting the balance sheet mix or altering the interest rate characteristics of assets and liabilities;

•
changing product pricing strategies;

•
modifying characteristics, including mix and duration, of the investment securities portfolio; and

•
using derivative financial instruments.

Changes in interest rates may have a material impact on earnings and valuation as a result of balance sheet cash flow, maturity structure and repricing frequency. The investment portfolio and loan portfolio has significant repricing volumes and cash flows from maturities and paydowns, providing us with the opportunity to redeploy funds in order to respond to changes in the rate environment. These assets are primarily funded by deposit balances, which have an indeterminate life. Historically, our deposit base has consisted primarily of core consumer and commercial deposit relationships. While we strive to position our balance sheet to organically reduce volatility in earnings and valuation, primarily through our funding and investment portfolio positioning, as well as product pricing strategies, we have also established a hedging program designed to allow us to adjust the duration of our earning assets synthetically. As of December 31, 2023, our hedging program consisted primarily of pay-fixed interest rate swaps. As interest rates change, we may use different instruments to manage interest rate risk, including caps, floors, swaptions and other commonly utilized derivative instruments. See Note 11 to the Consolidated Financial Statements.

A key element in our ongoing process to measure and monitor interest rate risk is the utilization of an asset/liability simulation model that attempts to capture the dynamic nature of assets and liabilities in various interest rate environments. This model is used to estimate and measure our balance sheet sensitivity to changes in interest rates. Given the structure of our balance sheet, model results are particularly sensitive to changes in prepayment rates on mortgage-related assets and interest-bearing deposit repricing behavior. We utilize a model to estimate the prepayment behavior of our mortgage-related assets, which considers the characteristics of the underlying mortgage loans, including rate (used to gauge refinance incentive), seasoning or age, and seasonality. The model’s forecasted results are regularly tested against historical prepayment behavior and is, in the ordinary course, recalibrated if the difference between actual and projected prepayments exceed established guidelines. Separate models are utilized to project interest-bearing deposit repricing behavior in various interest rate environments. These models were developed based upon our historical repricing behavior over several interest rate cycles. The models’ forecast results are periodically tested against historical pricing and have been and may continue to be recalibrated.

We utilize net interest income simulations to analyze short-term income sensitivities to changes in interest rates. Table 21A presents, for the twelve months subsequent to December 31, 2023, and December 31, 2022, an estimate of the change in net interest income that would result from a gradual and immediate change in interest rates, moving in a parallel fashion over the

46

Table of Contents

entire yield curve, relative to the measured base case scenario. The base case scenario assumes the statement of condition and interest rates are generally unchanged.

[[GREPCENT_TABLE]]
[["Net Interest Income Sensitivity Profile","","","","","","","","Table 21A"],["","","Impact on Future Annual Net Interest Income"],["(dollars in thousands)","","December 31, 2023","","","December 31, 2022"],["Immediate Change in Interest Rates (basis points)"],["+400","","$","109,909","","","","21.6","%","","$","43,864","","","","7.5","%"],["+300","","","85,238","","","","16.7","","","","32,989","","","","5.7"],["+200","","","59,228","","","","11.6","","","","22,100","","","","3.8"],["+100","","","31,961","","","","6.3","","","","11,627","","","","2.0"],["-100","","","(33,605",")","","","(6.6",")","","","(8,659",")","","","(1.5",")"],["-200","","","(64,601",")","","","(12.7",")","","","(20,051",")","","","(3.4",")"],["-300","","","(95,971",")","","","(18.8",")","","","(35,230",")","","","(6.0",")"],["-400","","","(129,431",")","","","(25.4",")","","","(50,426",")","","","(8.7",")"]]
[[/GREPCENT_TABLE]]

Based on our net interest income simulation as of December 31, 2023, net interest income is expected to increase as interest rates rise. Rising interest rates would drive higher rates on floating rate loans and investment securities, as well as higher reinvestment rates on loan and investment securities cashflows. However, lower interest rates would likely cause a decline in net interest income as lower rates would lead to lower yields on loans and investment securities, as well as drive higher premium amortization on existing investment securities. Based on our net interest income simulation as of December 31, 2023, NII sensitivity to changes in interest rates for the twelve months subsequent to December 31, 2023, was more sensitive in comparison to the sensitivity profile for the twelve months subsequent to December 31, 2022. Year-over-year NII sensitivity increased due to the addition of pay-fixed interest rate swaps, partially offset by an increase in deposit sensitivity. To analyze the impact of changes in interest rates in a more realistic manner, non-parallel interest rate scenarios are also simulated. These non-parallel interest rate scenarios indicate that net interest income may decrease from the base case scenario should the yield curve flatten or become more inverted for a period of time. Conversely, if the yield curve were to steepen, net interest income may increase.

The following table presents an estimate of the change in EVE that would result from an immediate change in interest rates, moving in a parallel fashion over the entire yield curve, relative to the measured base case scenario. Similar to the sensitivity profile above, the base case scenario assumes the statement of condition and interest rates are generally unchanged.

[[GREPCENT_TABLE]]
[["Economic Value of Equity Sensitivity Profile","","","","","","","","Table 21B"],["","","Impact on Economic Value of Equity"],["(dollars in thousands)","","December 31, 2023","","","December 31, 2022"],["Immediate Change in Interest Rates (basis points)"],["+400","","$","(852,829",")","","","(30.1",")%","","$","(1,037,871",")","","","(33.4",")%"],["+300","","","(624,395",")","","","(22.1",")","","","(779,383",")","","","(25.1",")"],["+200","","","(396,259",")","","","(14.0",")","","","(517,641",")","","","(16.6",")"],["+100","","","(180,902",")","","","(6.4",")","","","(255,839",")","","","(8.2",")"],["-100","","","136,083","","","","4.8","","","","197,923","","","","6.4"],["-200","","","188,466","","","","6.7","","","","254,443","","","","8.2"],["-300","","","42,697","","","","1.5","","","","111,788","","","","3.6"],["-400","","","(235,282",")","","","(8.3",")","","","(155,757",")","","","(5.0",")"]]
[[/GREPCENT_TABLE]]

EVE sensitivity year-over-year was largely unchanged, despite the higher rate environment, as the addition of pay-fixed swaps helped to offset the sensitivity of fixed-rate assets in up rate shock environments.

Other Market Risks

In addition to interest rate risk, we are exposed to other forms of market risk in our normal business transactions. Foreign currency and foreign exchange contracts expose us to a small degree of foreign currency risk. These transactions are primarily executed on behalf of customers. Our trust and asset management income is at risk to fluctuations in the market values of underlying assets, particularly debt and equity securities. Also, our share-based compensation expense is dependent on the fair value of our stock options, restricted stock units, and restricted stock at the date of grant. The fair value of stock options, restricted stock units, and restricted stock is impacted by the market price of the Parent’s common stock on the date of grant and is at risk to changes in equity markets, general economic conditions, and other factors.

Liquidity Risk Management

The objective of our liquidity risk management process is to manage cash flow and liquidity in an effort to provide continuous access to sufficient, reasonably priced funds. Funding requirements are impacted by loan originations and refinancings, deposit

47

Table of Contents

balance changes, liability issuances and settlements, and off-balance sheet funding commitments. We consider and comply with various regulatory guidelines regarding required liquidity levels and regularly monitor our liquidity position in light of the changing economic environment and customer activity. Based on periodic liquidity assessments, we may alter our asset, liability, and off-balance sheet positions. The ALCO monitors sources and uses of funds and modifies asset and liability positions as liquidity requirements change. This process, combined with our ability to raise funds in money and capital markets and through private placements, provides flexibility in managing the exposure to liquidity risk.

We maintain access to ample sources of readily available contingent liquidity. As of December 31, 2023, we had pledged loans and investment securities to the Federal Reserve Discount Window and the Bank Term Funding Program (“BTFP”) and had remaining borrowing capacity of $6.4 billion. The BTFP enables depository institutions to pledge eligible investment securities, primarily government and agency securities, to the Federal Reserve with borrowing capacity based upon the par value, not the fair value, of collateral. Although the BTFP is set to expire in March 2024, we have not accessed the facility and the investment securities pledged under the BTFP are eligible for pledging to the Federal Reserve Discount Window. As a result, we expect the expiration of the BTFP will not have a significant impact on our available liquidity. We are also a member of the Federal Home Loan Bank (“FHLB”) Des Moines. As of December 31, 2023, we had remaining borrowing capacity of $2.5 billion.

In addition, we utilize our investment securities portfolio as collateral to secure deposits of public entities as well as repurchase agreements with private institution counterparties. The high-quality nature of our investment securities portfolio, which consists primarily of government and agency securities, facilitates the use of these assets for pledging purposes.

Other sources of liquidity also include investment securities in our available-for-sale securities portfolio and our ability to sell loans in the secondary market. Our core deposits have historically provided us with a long-term source of stable and relatively low-cost source of funding. Additional funding is also available through the issuance of long-term debt or equity.

General market and economic conditions will impact our ability to borrow funds from external sources, as well as the cost of such borrowing both in terms of rate as well as haircuts on collateral pledged to support such borrowings. Although a significant portion of our investment securities were in an unrealized loss position as of December 31, 2023, we believe we have sufficient access to various forms of liquidity that would alleviate the need to liquidate these investment securities and realize the losses.

We continued our focus on maintaining a strong liquidity position throughout 2023. As of December 31, 2023, cash and cash equivalents were $1.0 billion, the carrying value of our available-for-sale investment securities was $2.4 billion, and total deposits were $21.1 billion. As of December 31, 2023, our available-for-sale investment securities portfolio was comprised of securities with an average base duration of approximately 3.83 years.

Capital Management

We actively manage capital, commensurate with our risk profile, to enhance shareholder value. We also seek to maintain capital levels for the Company and the Bank at amounts in excess of the regulatory “well-capitalized” thresholds. Periodically, we may respond to market conditions by implementing changes to our overall balance sheet positioning to manage our capital position.

The Company and the Bank are each subject to regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements could cause certain mandatory and discretionary actions by regulators that, if undertaken, would likely have a material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative and qualitative measures. These measures were established by regulation intended to ensure capital adequacy. Capital ratios are calculated using the regulatory capital rule that allows a five-year transition period related to the adoption of CECL. As of December 31, 2023, the Company’s capital levels remained characterized as “well-capitalized.” There have been no conditions or events since December 31, 2023, that management believes have changed either the Company’s or the Bank’s capital classifications. The Company’s regulatory capital ratios are presented in Table 22 below.

48

Table of Contents

Table 22 presents a five-year history of activities and balances in our capital accounts, along with key capital ratios.

[[GREPCENT_TABLE]]
[["Shareholders\u2019 Equity and Regulatory Capital","","","","","","","","","","","Table 22"],["","","December 31,"],["(dollars in thousands)","","2023","","","2022","","","2021","","","2020","","","2019"],["Change in Shareholders' Equity"],["Net Income","","$","171,202","","","$","225,804","","","$","253,372","","","$","153,804","","","$","225,913"],["Cash Dividends Paid on Common Shares","","","(111,795",")","","","(112,557",")","","","(110,633",")","","","(107,434",")","","","(105,478",")"],["Cash Dividends Paid on Preferred Shares","","","(7,877",")","","","(7,877",")","","","(2,975",")","","","\u2014","","","","\u2014"],["Dividend Reinvestment Program","","","4,535","","","","4,680","","","","4,835","","","","5,012","","","","5,039"],["Preferred Stock Issued, Net","","","\u2014","","","","\u2014","","","","175,487","","","","\u2014","","","","\u2014"],["Common Stock Repurchased","","","(14,290",")","","","(55,063",")","","","(31,258",")","","","(18,006",")","","","(137,649",")"],["Other 1","","","55,472","","","","(349,603",")","","","(51,724",")","","","54,299","","","","30,807"],["Increase (Decrease) in Shareholders' Equity","","$","97,247","","","$","(294,616",")","","$","237,104","","","$","87,675","","","$","18,632"],["Regulatory Capital"],["Total Common Shareholders' Equity","","$","1,238,756","","","$","1,141,508","","","$","1,436,124","","","$","1,374,507","","","$","1,286,832"],["Add: CECL Transitional Amount","","","4,749","","","","7,124","","","","9,498","","","","23,750","","","","\u2014"],["Less: Goodwill, Net of Deferred Tax Liabilities","","","28,746","","","","28,746","","","","28,747","","","","28,718","","","","28,718"],["Postretirement Benefit Liability Adjustments","","","(23,261",")","","","(25,078",")","","","(33,496",")","","","(43,250",")","","","(38,757",")"],["Net Unrealized Gains (Losses) on Investment Securities","","","(373,427",")","","","(409,579",")","","","(32,886",")","","","51,072","","","","7,645"],["Other","","","(198",")","","","(198",")","","","(198",")","","","(198",")","","","(198",")"],["Common Equity Tier 1 Capital","","","1,611,645","","","","1,554,741","","","","1,483,455","","","","1,361,915","","","","1,289,424"],["Preferred Stock, Net of Issuance Cost","","","175,487","","","","175,487","","","","175,487","","","","\u2014","","","","\u2014"],["Tier 1 Capital","","","1,787,132","","","","1,703,228","","","","1,658,942","","","","1,361,915","","","","1,289,424"],["Allowable Reserve for Credit Losses","","","148,400","","","","145,202","","","","153,001","","","","141,869","","","","116,849"],["Total Regulatory Capital","","$","1,935,532","","","$","1,848,430","","","$","1,811,943","","","$","1,503,784","","","$","1,406,273"],["Risk-Weighted Assets","","$","14,226,780","","","$","14,238,798","","","$","12,236,805","","","$","11,295,077","","","$","10,589,061"],["Key Regulatory Capital Ratios"],["Common Equity Tier 1 Capital Ratio","","","11.33","%","","","10.92","%","","","12.12","%","","","12.06","%","","","12.18","%"],["Tier 1 Capital Ratio","","","12.56","","","","12.15","","","","13.56","","","","12.06","","","","12.18"],["Total Capital Ratio","","","13.60","","","","13.17","","","","14.81","","","","13.31","","","","13.28"],["Tier 1 Leverage Ratio","","","7.51","","","","7.37","","","","7.32","","","","6.71","","","","7.25"]]
[[/GREPCENT_TABLE]]

1.
Includes unrealized gains and losses on investment securities, minimum pension liability adjustments, and common stock issuances under share-based compensation and related tax benefits.

As of December 31, 2023, shareholders’ equity was $1.4 billion, an increase of $97.2 million or 7% from December 31, 2022. For 2023, net income of $171.2 million, other comprehensive income of $38.0 million, share-based compensation of $15.7 million, and common stock issuances of 6.4 million were offset by cash dividends of $111.8 million paid on common stock shares, common stock repurchases of $14.3 million, and cash dividends of $7.9 million paid on preferred stock shares. In 2023, included in the amount of common stock repurchased were 150,000 shares repurchased under our share repurchase program. These shares were repurchased at an average cost per share of $65.69 and a total cost of $9.9 million. From the beginning of our share repurchase program in July 2001 through December 31, 2023, we repurchased a total of 58.2 million shares of common stock and returned a total of nearly $2.4 billion to our common shareholders at an average cost of $41.24 per share.

Remaining buyback authority was $126.0 million as of December 31, 2023. The actual amount and timing of future share repurchases, if any, will depend on market and economic conditions, regulatory rules, applicable SEC rules, and various other factors.

In January 2024, the Parent’s Board of Directors declared the quarterly dividend of its Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, of $10.94 per share, equivalent to $0.2735 per depositary share. The dividend was paid on February 1, 2024, to shareholders of record of the preferred stock at the close of business on January 16, 2024.

In January 2024, the Parent’s Board of Directors declared the quarterly cash dividend of $0.70 per share on the Parent’s outstanding common shares. The dividend will be payable on March 14 2024, to shareholders of record at the close of business on February 29, 2024.

49

Table of Contents

Regulatory Initiatives Affecting the Banking Industry

Basel III

Under final FRB and FDIC approved rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks minimum requirements increased for both the quantity and quality of capital held by the Company. The Basel III capital standards substantially revised the risk-based capital requirements applicable to bank holding companies and their depository institution subsidiaries, including the definitions and the components of Tier 1 capital and Total Capital, the method of evaluating risk-weighted assets, institution of a capital conservation buffer, and other matters affecting regulatory capital ratios. Strict eligibility criteria for regulatory capital instruments were also implemented under the rules.

The phase-in period for the final rules became effective for the Company on January 1, 2015, with full compliance with all of the final rules’ requirements phased in over a multi-year schedule, which were fully implemented on January 1, 2019. As of December 31, 2023, the Company’s capital levels remained characterized as “well-capitalized” under the new rules.

Management continues to monitor regulatory developments and their potential impact to the Company’s liquidity requirements.

Stress Testing

Enactment of the Economic Growth, Regulatory Relief, and Consumer Protection Act in May 2018 significantly altered several provisions of the Dodd-Frank Act, including how stress tests are run. Bank holding companies with total assets of less than $100 billion, such as the Company, are no longer subject to company-run stress testing requirements in section 165(i)(2) of the Dodd-Frank Act, including publishing a summary of results. At this time, the Company continues to run internal stress tests as a component of our comprehensive risk management and capital planning process.

Operational Risk

Operational risk represents the risk of loss resulting from our operations, including, but not limited to, the risk of fraud by employees or persons outside the Company, errors relating to transaction processing and technology, failure to adhere to compliance requirements, and the risk of cyber attacks. We are also exposed to operational risk through our outsourcing arrangements, and the effect that changes in circumstances or capabilities of our outsourcing vendors can have on our ability to continue to perform operational functions necessary to our business. The risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards, adverse business decisions or their implementation, and customer attrition due to potential negative publicity. Operational risk is inherent in all business activities, and management of this risk is important to the achievement of Company goals and objectives.

Our Operational Risk Committee (the “ORC”) provides oversight and assesses the most significant operational risks facing the Company. We have developed a framework that provides for a centralized operating risk management function through the ORC, supplemented by business unit responsibility for managing operational risks specific to their business units. Our internal audit department also validates the system of internal controls through ongoing risk-based audit procedures and reports on the effectiveness of internal controls to executive management and the Audit and Risk Committee of the Board of Directors.

We continuously strive to strengthen our system of internal controls to improve the oversight of operational risk. While our internal controls have been designed to minimize operational risks, there is no assurance that business disruption or operational losses will not occur. On an ongoing basis, management reassesses operational risks, implements appropriate process changes, and invests in enhancements to our systems of internal controls.

Guarantees

We pool Federal Housing Administration (“FHA”) insured and U.S. Department of Veterans Affairs (“VA”) guaranteed residential mortgage loans for sale to Ginnie Mae. We also sell residential mortgage loans in the secondary market to Fannie Mae. The agreements under which we sell residential mortgage loans to Ginnie Mae or Fannie Mae and the insurance or guaranty agreements with the FHA and VA contain provisions that include various representations and warranties regarding the origination and characteristics of the residential mortgage loans. Although these loans are primarily sold on a non-recourse basis, we may be obligated to repurchase residential mortgage loans or reimburse the respective investor if it is found that required documents were not delivered or were defective.

We also service substantially all of the loans we sell to investors in the secondary market. Each agreement under which we act as servicer generally specifies a standard of responsibility for our actions and provides protection against expenses and liabilities incurred by us when acting in compliance with the respective servicing agreements. However, if we commit a material breach of obligations as servicer, we may be subject to various penalties which may include the repurchase of an affected loan or a reimbursement to the respective investor.

50

Table of Contents

Selected Quarterly Consolidated Financial Data

Table 23 presents our selected quarterly financial data for 2023 and 2022.

[[GREPCENT_TABLE]]
[["Condensed Statements of Income","","","","","","","","","","","","","","","","","","Table 23"],["","","Three Months Ended","","","Three Months Ended"],["","","2023","","","2022"],["(dollars in thousands, except per share amounts)","","Dec 31","","","Sep 30","","","Jun 30","","","Mar 31","","","Dec 31","","","Sep 30","","","Jun 30","","","Mar 31"],["Interest Income","","$","210,347","","","$","211,945","","","$","199,751","","","$","188,332","","","$","172,313","","","$","154,918","","","$","139,562","","","$","130,573"],["Interest Expense","","","94,562","","","","91,008","","","","75,403","","","","52,377","","","","31,575","","","","13,263","","","","6,660","","","","5,310"],["Net Interest Income","","","115,785","","","","120,937","","","","124,348","","","","135,955","","","","140,738","","","","141,655","","","","132,902","","","","125,263"],["Provision for Credit Losses","","","2,500","","","","2,000","","","","2,500","","","","2,000","","","","200","","","","\u2014","","","","(2,500",")","","","(5,500",")"],["Investment Securities Gains (Losses), Net","","","(1,619",")","","","(6,734",")","","","(1,310",")","","","(1,792",")","","","(1,124",")","","","(2,147",")","","","(1,295",")","","","(1,545",")"],["Noninterest Income","","","43,902","","","","57,068","","","","44,565","","","","42,529","","","","42,296","","","","32,807","","","","43,453","","","","45,096"],["Noninterest Expense","","","115,962","","","","105,601","","","","104,036","","","","111,919","","","","102,703","","","","105,749","","","","102,939","","","","103,874"],["Income Before Provision for Income Taxes","","","39,606","","","","63,670","","","","61,067","","","","62,773","","","","79,007","","","","66,566","","","","74,621","","","","70,440"],["Provision for Income Taxes","","","9,210","","","","15,767","","","","15,006","","","","15,931","","","","17,700","","","","13,765","","","","17,759","","","","15,606"],["Net Income","","$","30,396","","","$","47,903","","","$","46,061","","","$","46,842","","","$","61,307","","","$","52,801","","","$","56,862","","","$","54,834"],["Preferred Stock Dividends","","","1,969","","","","1,969","","","","1,969","","","","1,969","","","","1,969","","","","1,969","","","","1,969","","","","1,969"],["Net Income Available to Common Shareholders","","$","28,427","","","$","45,934","","","$","44,092","","","$","44,873","","","$","59,338","","","$","50,832","","","$","54,893","","","$","52,865"],["Per Common Share"],["Basic Earnings Per Common Share","","$","0.72","","","$","1.17","","","$","1.12","","","$","1.14","","","$","1.51","","","$","1.28","","","$","1.38","","","$","1.33"],["Diluted Earnings Per Common Share","","$","0.72","","","$","1.17","","","$","1.12","","","$","1.14","","","$","1.50","","","$","1.28","","","$","1.38","","","$","1.32"],["Dividends Declared Per Common Share","","$","0.70","","","$","0.70","","","$","0.70","","","$","0.70","","","$","0.70","","","$","0.70","","","$","0.70","","","$","0.70"],["Performance Ratios"],["Net Income to Average Total Assets (ROA)","","","0.51","%","","","0.78","%","","","0.77","%","","","0.80","%","","","1.05","%","","","0.91","%","","","1.00","%","","","0.97","%"],["Net Income to Average Shareholders\u2019 Equity (ROE)","","","8.86","","","","13.92","","","","13.55","","","","14.25","","","","18.91","","","15.31","","","","16.40","","","","14.18"],["Net Income to Average Common Equity (ROCE)","","","9.55","","","","15.38","","","","14.95","","","","15.79","","","","21.28","","","16.98","","","","18.19","","","","15.44"],["Efficiency Ratio 1","","","73.36","","","","61.66","","","","62.07","","","","63.34","","","","56.46","","","","61.37","","","","58.80","","","","61.53"],["Net Interest Margin 2","","","2.13","","","","2.13","","","","2.22","","","","2.47","","","","2.60","","","","2.60","","","","2.47","","","","2.34"]]
[[/GREPCENT_TABLE]]

1
The efficiency ratio is defined as noninterest expense divided by total revenue (net interest income and noninterest income).

2
The net interest margin is defined as net interest income, on a taxable-equivalent basis, as a percentage of average earning assets.

Fourth Quarter Results and Other Matters

Net Income Available for Common Shareholders

Net income available for common shareholders for the fourth quarter of 2023 was $28.4 million, a decrease of $30.9 million or 52% compared to the fourth quarter of 2022. Diluted earnings per common share were $0.72 for the fourth quarter of 2023, a decrease of $0.78 or 52% compared to the fourth quarter of 2022.

Net Interest Income

Net interest income, on a taxable-equivalent basis, for the fourth quarter of 2023 was $115.8 million, a decrease of $25.0 million or 18% compared to the fourth quarter of 2022. This decrease was primarily due to increase in savings and time deposit interest expense, partially offset by an increase in commercial and consumer loan interest income. Net interest margin was 2.13% for the fourth quarter of 2023, a decrease of 47 basis points compared to the fourth quarter of 2022, primarily due to increased rates on deposits and borrowings partially offset by higher yields in our investment securities and loans portfolio.

Provision for Credit Losses

The provision for credit losses for the fourth quarter of 2023 was a net expense of $2.5 million compared to $0.2 million in the fourth quarter of 2022, while recording a net charge-off of loans and leases of $1.7 million in the fourth quarter of 2023 compared to $1.9 million in the fourth quarter of 2022. The increase in the provision is primarily due to an increase in the loan portfolio.

Noninterest Income

Noninterest income, excluding net losses on sales of investment securities, was $43.9 million in the fourth quarter of 2023, an increase of $1.6 million or 4% compared to the fourth quarter of 2022. This increase was primarily due to a $0.7 million increase

51

Table of Contents

in BOLI income from an increase in the portfolio, increases in trust and asset management fees, and service charges on deposit accounts.

Noninterest Expense

Noninterest expense was $116.0 million in the fourth quarter of 2023, an increase of $13.3 million or 13% compared to the fourth quarter of 2022. This increase was primarily due to a $14.7 million industry wide FDIC special assessment, and increased salaries, partially offset by decreases in corporate incentive plans, medical and dental, and retirement benefits expense.

Provision for Income Taxes

The provision for income taxes was $9.2 million in the fourth quarter of 2023, a decrease of $8.5 million or 48% compared to the fourth quarter of 2022. The effective tax rate for the fourth quarter of 2023 was 23.3% compared with an effective tax rate of 22.4% for the fourth quarter of 2022, a 9 basis point increase. The effective tax rate increase was primarily due to a decrease in tax benefits from tax-advantage investments in 2023.

Common Stock Repurchase Program

In the fourth quarter of 2023, there were no repurchased shares of our common stock under our share repurchase program. See Note 11 to the Consolidated Financial Statements for more information related to our common stock repurchase program.