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目錄

美國
證券交易委員會
華盛頓特區20549

表格 10-Q

(標記一)

      根據1934年證券交易法第13或15(d)條,本季度報告

截至季度結束日期的財務報告2024年9月30日

或者

         根據1934年證券交易法第13或15(d)條的轉型報告

過渡期從                          

委託文件編號:001-39866001-31567

太平洋中央金融公司.
(根據其章程規定的發行人的確切名稱)

夏威夷99-0212597
(設立或組織的其他管轄區域)(納稅人識別號碼)
 
南金街220號, 檀香山, 夏威夷 96813
(主要執行辦事處地址) (郵政編碼)
 
(808) 544-0500
(註冊人的電話號碼,包括區號)

在法案第12(b)條的規定下注冊的證券:
每一類的名稱交易標誌在其上註冊的交易所的名稱
普通股,無面值CPF請使用moomoo賬號登錄查看New York Stock Exchange

請用勾號勾選以下內容:(1)在過去的12個月內(或者c註冊人所需要提交此類報告的更短期限內),c註冊人已經提交了根據1934年證券交易法第13或第15(d)條規定需要提交的全部報告;和(2)c註冊人在過去的90天內一直需要遵守此類提交要求。 沒有

請勾選該註冊機構是否已在前12個月內(或註冊機構被要求提交這些文件的較短期間內)提交了根據S-T法規405條(本章第232.405條)規定提交的所有互動數據文件。 沒有

請用複選標記表示註冊者是否爲大型加速報告人、加速報告人、非加速報告人、較小的報告公司或新興增長公司。請參閱《交易所法》第120億.2條中對"大型加速報告人"、"加速報告人"、"較小的報告公司"和"新興增長公司"的定義。

大型加速存取器加速文件提交人 
非加速歸檔企業
較小的報告公司 
新興成長公司

如果是新興增長企業,請在選擇方框中標明是否選擇不使用根據證券法第13(a)條規定提供的任何新的或修訂的財務會計準則的延長過渡期來符合規定。

根據交易所法規120億.2規定,標記是否爲空殼公司。 是 沒有

2024年10月18日,註冊公司普通股的流通股數量爲 27,064,501股份。


目錄
中央太平洋金融公司及其子公司
10-Q表格

目錄
 
 

2

目錄
第一部分。財務信息

項目1.基本報表

中央太平洋金融公司及其子公司
彙編表格
(未經審計)

截至
(以千美元爲單位) 2020年9月30日
2024
12月31日
2023
資產  
現金和金融機構到期款項$100,064 $116,181 
其他金融機構的利息收入存款226,505 406,256 
投資證券:
按公允價值計算的可供出售債務證券723,453 647,210 
持有到期債務證券,按攤餘成本計量;公允價值爲:$546,990 在2024年9月30日及$565,178在2023年12月31日持有的股份爲9,378,390股。
606,117 632,338 
總投資證券1,329,570 1,279,548 
待售貸款1,609 1,778 
貸款5,342,609 5,438,982 
減:信貸損失準備(61,647)(63,934)
貸款、減免信用損失5,280,962 5,375,048 
資產和設備淨值104,575 96,184 
應計利息應收款23,942 21,511 
對未合併實體的投資54,836 41,546 
淨房貸務服務權8,513 8,696 
銀行擁有的人壽保險175,914 170,706 
得梅因聯邦住房貸款銀行("FHLB")股票6,929 6,793 
租賃權益資產32,192 29,720 
其他69,819 88,829 
總資產$7,415,430 $7,642,796 
負債  
存款:  
非利息-bearing 需求$1,838,009 $1,913,379 
活期存款1,255,382 1,329,189 
儲蓄和貨幣市場2,336,323 2,209,733 
時間1,153,299 1,395,291 
存款總額6,583,013 6,847,592 
長期負債,減去未攤銷發行債務成本 $263 截至2024年9月30日,且$445在2023年12月31日持有的股份爲9,378,390股。
156,284 156,102 
租賃負債33,807 30,634 
應付應計利息12,980 18,948 
其他負債85,621 85,705 
負債合計6,871,705 7,138,981 
應急負債和其他承諾(見附註16)
股權  
優先股,股票的面值,已授權1,000,000股;
已發行股份和流通股份: 截至2024年9月30日和2023年12月31日
  
普通股,股票的面值,已授權185,000,000股;
已發行股份和流通股份: 27,064,501 於2024年9月30日 27,045,033在2023年12月31日持有的股份爲9,378,390股。
404,494 405,439 
額外實收資本104,794 102,982 
保留盈餘138,951 117,990 
累計其他綜合損失(104,514)(122,596)
股東權益總計543,725 503,815 
負債和所有者權益總額$7,415,430 $7,642,796 

有關合並財務報表的附註請參閱。
3

目錄

中央太平洋金融公司及其子公司
綜合損益表
(未經審計)

截至9月30日的三個月截至9月30日的九個月
(以千美元爲單位,除每股數據外)2024202320242023
利息收入:    
貸款利息和費用$65,469 $62,162 $192,710 $180,886 
投資證券的利息和股息:
應稅投資證券8,975 7,016 24,652 21,497 
免稅投資證券551 709 1,804 2,226 
其他金融機構存款利息2,775 2,412 8,589 3,566 
房屋貸款銀行聯邦股票的分紅收入127 113 384 369 
總利息收入77,897 72,412 228,139 208,544 
利息支出:    
存款利息:    
需求484 460 1,473 1,234 
儲蓄和貨幣市場10,235 6,464 27,655 14,520 
時間11,040 11,268 36,203 26,464 
短期借款利息  1 1,139 
長期貸款利息2,287 2,292 6,848 6,329 
總利息支出24,046 20,484 72,180 49,686 
淨利息收入53,851 51,928 155,959 158,858 
信用損失準備2,833 4,874 9,008 11,045 
經計提信貸損失後的淨利息收入51,018 47,054 146,951 147,813 
其他營業收入:    
抵押貸款業務收入822 765 2,475 1,981 
存入資金帳戶的服務費2,167 2,193 6,405 6,441 
其他服務費用和費用5,947 5,203 17,077 15,182 
託管業務的收入1,447 1,234 4,331 3,623 
銀行持有人壽保險收入1,897 379 4,653 2,855 
投資證券銷售淨損失 (135) (135)
其他454 408 1,158 1,544 
其他收入合計12,734 10,047 36,099 31,491 
其他營業支出:    
薪水和員工福利22,299 19,015 64,280 61,886 
淨佔用成本4,612 4,725 13,809 13,509 
計算機-半導體軟件4,590 4,473 13,258 13,700 
法律和專業服務2,460 2,359 7,286 7,714 
設備972 1,112 2,977 2,990 
廣告889 968 2,704 2,843 
通訊740 809 2,234 2,378 
其他10,125 6,150 21,866 16,601 
其他總運營費用46,687 39,611 128,414 121,621 
稅前收入17,065 17,490 54,636 57,683 
所得稅費用3,760 4,349 12,569 13,880 
淨收入$13,305 $13,141 $42,067 $43,803 
每股普通股數據:    
基本每股收益$0.49 $0.49 $1.55 $1.62 
攤薄每股收益$0.49 $0.49 $1.55 $1.62 
加權平均每股基本收益27,064,035 27,042,762 27,054,737 27,022,141 
攤薄加權平均股份數27,194,625 27,079,484 27,137,985 27,081,541 

See accompanying notes to consolidated financial statements.
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Table of Contents

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2024202320242023
Net income$13,305 $13,141 $42,067 $43,803 
Other comprehensive income (loss), net of tax:
Net change in fair value of available-for-sale investment securities19,942 (18,061)15,036 (12,880)
Amortization of unrealized losses on investment securities transferred to held-to-maturity1,413 1,488 3,993 4,164 
Net change in fair value of derivatives(3,177)2,313 (946)3,190 
Supplemental Executive Retirement Plans(1)(12)(1)(37)
Total other comprehensive income (loss), net of tax18,177 (14,272)18,082 (5,563)
Comprehensive income (loss)$31,482 $(1,131)$60,149 $38,240 

See accompanying notes to consolidated financial statements.
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Table of Contents

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)

Common
Shares
Outstanding
Preferred
Stock
Common
Stock
Additional Paid-In CapitalRetained EarningsAccum.
Other
Comp.
Loss
Total
 (dollars in thousands, except per share data)
Balance at December 31, 202327,045,033 $— $405,439 $102,982 $117,990 $(122,596)$503,815 
Net income— — — — 12,945 — 12,945 
Other comprehensive loss— — — — — (1,727)(1,727)
Cash dividends declared ($0.26 per share)
— — — — (7,033)— (7,033)
Common stock repurchased and retired and other related costs(49,960)— (945)— — — (945)
Share-based compensation 47,253 — — 148 — — 148 
Balance at March 31, 202427,042,326 — 404,494 103,130 123,902 (124,323)507,203 
Net income— — — — 15,817 — 15,817 
Other comprehensive income— — — — — 1,632 1,632 
Cash dividends declared ($0.26 per share)
— — — — (7,036)— (7,036)
Share-based compensation21,318 — — 1,031 — — 1,031 
Balance at June 30, 202427,063,644 $— $404,494 $104,161 $132,683 $(122,691)$518,647 
Net income— — — — 13,305 — 13,305 
Other comprehensive income— — — — — 18,177 18,177 
Cash dividends declared ($0.26 per share)
— — — — (7,037)— (7,037)
Share-based compensation857 — — 633 — — 633 
Balance at September 30, 202427,064,501 $— $404,494 $104,794 $138,951 $(104,514)$543,725 

Common
Shares
Outstanding
Preferred
Stock
Common
Stock
Additional Paid-In CapitalRetained EarningsAccum.
Other
Comp.
Loss
Total
 (dollars in thousands, except per share data)
Balance at December 31, 202227,025,070 $— $408,071 $101,346 $87,438 $(143,984)$452,871 
Net income— — — — 16,187 — 16,187 
Other comprehensive income— — — — — 11,256 11,256 
Cash dividends declared ($0.26 per share)
— — — — (7,025)— (7,025)
Common stock repurchased and retired and other related costs(101,760)— (2,205)— — — (2,205)
Share-based compensation82,235 —  (158)— — (158)
Balance at March 31, 202327,005,545 — 405,866 101,188 96,600 (132,728)470,926 
Net income— — — — 14,475 — 14,475 
Other comprehensive loss— — — — — (2,547)(2,547)
Cash dividends declared ($0.26 per share)
— — — — (7,029)— (7,029)
Common stock repurchased and retired and other related costs(23,750)— (355)— — — (355)
Share-based compensation63,997 — — 809 — — 809 
Balance at June 30, 202327,045,792 $— $405,511 $101,997 $104,046 $(135,275)$476,279 
Net income— — — — 13,141 — 13,141 
Other comprehensive loss— — — — — (14,272)(14,272)
Cash dividends declared ($0.26 per share)
— — — — (7,031)— (7,031)
Common stock repurchased and retired and other related costs(4,500)— (72)—  — (72)
Share-based compensation1,877 —  553 — — 553 
Balance at September 30, 202327,043,169 $— $405,439 $102,550 $110,156 $(149,547)$468,598 

See accompanying notes to consolidated financial statements.
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Table of Contents

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Nine Months Ended September 30,
(dollars in thousands)20242023
Cash flows from operating activities:  
Net income$42,067 $43,803 
Adjustments to reconcile net income to net cash provided by operating activities: 
Provision for credit losses9,008 11,045 
Depreciation and amortization of premises and equipment5,133 5,204 
Loss on disposal of premises and equipment55 9 
Cash flows from operating leases(4,246)(3,950)
Amortization of mortgage servicing rights583 538 
Net amortization and accretion of premium/discounts on investment securities1,558 2,385 
Share-based compensation1,812 1,204 
Net loss (gain) on sales of investment securities 135 
Net gain on sales of residential mortgage loans(923)(565)
Proceeds from sales of loans held for sale47,771 30,143 
Originations of loans held for sale(46,679)(28,473)
Equity in losses of and distributions from unconsolidated entities24 56 
Net increase in cash surrender value of bank-owned life insurance(4,653)(3,203)
Deferred income tax expense13,369 8,955 
Net tax expense (benefit) from share-based compensation191 (20)
Net change in other assets and liabilities(858)16,234 
Net cash provided by operating activities64,212 83,500 
Cash flows from investing activities:  
Proceeds from maturities of and calls on available-for-sale investment securities38,819 44,812 
Purchases of investment securities available-for-sale(95,533)(19,057)
Proceeds from sale of investment securities 1,405 
Proceeds from maturities of and calls on held-to-maturity investment securities30,987 29,823 
Net repayments of loans111,592 46,520 
Purchases of loan portfolios(27,115)(19,659)
Proceeds from sales of loans originated for investment 9,629 
Purchases of bank-owned life insurance(2,803) 
Proceeds from bank-owned life insurance death benefits2,248 2,627 
Net purchases of premises, equipment and land(13,579)(10,969)
Net return of capital from unconsolidated entities 495 
Contributions to unconsolidated entities(17,930)(395)
Net sales of FHLB stock(136)(1,849)
Net cash provided by investing activities26,550 83,382 
Cash flows from financing activities:  
Net (decrease) increase in deposits(264,579)138,522 
Net decrease in FHLB advances and other short-term borrowings (5,000)
Proceeds from long-term debt 50,000 
Cash dividends paid on common stock(21,106)(21,085)
Repurchases of common stock and other related costs(945)(2,632)
Net cash (used in) provided by financing activities(286,630)159,805 
Net (decrease) increase in cash and cash equivalents(195,868)326,687 
Cash and cash equivalents at beginning of period522,437 112,044 
Cash and cash equivalents at end of period$326,569 $438,731 


CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)

Nine Months Ended September 30,
(dollars in thousands)20242023
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest$78,148 $37,673 
Income taxes 7,316 
Supplemental disclosure of non-cash information:
Lease liabilities arising from obtaining right-of-use lease assets6,187  
Amortization of unrealized losses on investment securities transferred to held-to-maturity at fair value5,425 3,644 

See accompanying notes to consolidated financial statements.
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Table of Contents

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements of Central Pacific Financial Corp. and Subsidiaries (herein referred to as the "Company," "we," "us," or "our") have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

These interim condensed consolidated financial statements and notes should be read in conjunction with the Company's consolidated financial statements and notes thereto filed on Form 10-K for the fiscal year ended December 31, 2023. In the opinion of management, all adjustments necessary for a fair presentation have been made and include all normal recurring adjustments. Interim results of operations are not necessarily indicative of results to be expected for the year.

Allowance for Credit Losses for Loans

The allowance for credit losses ("ACL") for loans is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on loans. The Company’s policy is to charge off a loan against the ACL during the period in which the loan is deemed to be uncollectible and all interest previously accrued but uncollected, is reversed against current period interest income. Subsequent receipts, if any, are credited first to the remaining principal, then to the ACL for loans as recoveries, and finally to interest income.

The ACL for loans represents management's estimate of all expected credit losses over the expected life of the Company’s loan portfolio as of a given balance sheet date. Management estimates the ACL balance using relevant information available from both internal and external sources, regarding the collectability of cash flows impacted by past events, current conditions, and reasonable and supportable forecasts of future economic conditions. When the Company is unable to forecast future economic events, management may revert to historical information.

The Company's ACL model incorporates a reasonable and supportable forecast period of one year and reverts to historical loss information on a straight-line basis over one year when its forecast is no longer deemed reasonable and supportable. Historical loss experience provides the basis for the Company’s expected credit loss estimate. Adjustments to historical loss information may be made for differences in current loan-specific risk characteristics, such as differences in underwriting standards, portfolio mix, or when historical asset terms do not reflect the contractual terms of the financial assets being evaluated.

The Company's ACL model may also consider other adjustments to address changes in conditions, trends, and circumstances such as local industry changes that could have a significant impact on the risk profile of the loan portfolio and provide for adjustments that may not be reflected or captured in the historical loss data. These factors include: lending policies, imprecision in forecasting future economic conditions, loan profile, lending staff, problem loan trends, loan review, collateral, credit concentration, or other internal and external factors.

The Company uses Moody’s Analytics ("Moody's"), a firm widely recognized and used for its research, analysis, and economic forecasts, for its economic forecast assumptions. The Company generally uses Moody’s most recent Baseline forecast, which is updated at least monthly with a variety of upside and downside economic scenarios and includes both national and Hawaii-specific economic indicators. In addition, the Company uses a qualitative factor for forecast imprecision to account for economic and market volatility or instability.

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Table of Contents
The ACL for loans is measured on a collective or pool basis when similar risk characteristics exist. The following is a description and the risk characteristics of each segment:

Commercial and industrial loans - SBA Paycheck Protection Program loans

Paycheck Protection Program (“PPP”) loans are considered lower risk as they are guaranteed by the Small Business Administration (“SBA”) and may be forgivable in whole or in part in accordance with the requirements of the PPP.

Commercial and industrial loans - Others

Commercial and industrial loans consist primarily of term loans and lines of credit to small- and middle-market businesses and professionals. The predominant risk characteristics of this segment are the cash flows of the business we lend to, global cash flows including guarantor liquidity, as well as economic and market conditions. Although our underwriting policy and practice generally requires secondary sources of support or collateral to mitigate risk, cash flow generated from the borrower’s business is typically regarded as the principal source of repayment.

Construction loans

Construction loans include both residential and commercial development projects. Each construction project is evaluated for economic viability and construction loans pose higher credit risks than typical secured loans. Financial strength of the borrower, completion risk (the risk that the project will not be completed on time and within budget) and geographic location are the predominant risk characteristics of this segment.

Commercial real estate loans - Multi-family

Multi-family mortgage loans can comprise multi-building properties with extensive amenities or a single building with no amenities. The predominant risk characteristic of this segment is operating risk or the ability to generate sufficient rental income from the operation of the property.

Commercial real estate loans - Others

Commercial real estate loans are secured by commercial properties. The predominant risk characteristic of this segment is operating risk, which is the risk that the borrower will be unable to generate sufficient cash flows from the operation of the property. Interest rate conditions and the commercial real estate market through economic cycles also impact risk levels.

Residential mortgage loans

Residential mortgage loans primarily includes fixed-rate or adjustable-rate loans secured by single-family owner-occupied primary residences in Hawaii. Economic conditions such as unemployment levels, future changes in interest rates, Hawaii home prices and other market factors impact the level of credit risk inherent in the portfolio.

Home equity lines of credit

Home equity lines of credit include fixed or floating interest rate loans and are also primarily secured by single-family owner-occupied primary residences in Hawaii. They are underwritten based on a minimum FICO score, maximum debt-to-income ratio, and maximum combined loan-to-value ratio. Home equity lines of credit are monitored based on credit score, delinquency, end of draw period and maturity.

Consumer loans - Other revolving

Other revolving consumer loans consist of unsecured consumer lines of credit. The predominant risk characteristics of this segment relate to current and projected economic conditions, as well as employment and income levels attributed to the borrower.

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Table of Contents
Consumer loans - Non-revolving

Non-revolving consumer loans consist of non-revolving (term) consumer loans, including automobile dealer loans. The predominant risk characteristics of this segment relate to current and projected economic conditions, as well as employment and income levels attributed to the borrower.

Purchased consumer loans

Purchased consumer loans consist of dealer and unsecured consumer loans. Credit risk for purchased consumer loans is managed on a pooled basis. The predominant risk characteristics of this segment include current and projected economic conditions, employment and income levels, and the quality of purchased consumer loans.

The following table presents the Company's loan portfolio segments and the methodology used to measure expected credit losses. The historical look-back period is 2008 to present, economic forecast length is one year and the reversion method is one year (on a straight-line basis) for all segments.

Expected Credit Loss MethodologyHistorical Look-Back Period
Economic Forecast Length
Reversion Method
Loan Segment
After
June 30, 2023
June 30, 2023
and Prior
Commercial and industrial - SBA PPPZero LossZero Loss2008 to presentOne yearOne year
(straight-line
basis)
Commercial and industrial - All othersDCFPD/LGD
ConstructionDCFPD/LGD
Commercial real estate - Multi-familyDCFPD/LGD
Commercial real estate - All othersDCFPD/LGD
Residential mortgageDCFLoss-Rate Migration
Home equityDCFLoss-Rate Migration
Consumer - Other revolvingDCFLoss-Rate Migration
Consumer - Non-revolvingDCFLoss-Rate Migration
Consumer - Purchased portfolios
WARMWARM

During the third quarter of 2023, the Company updated its methodology to measure expected credit losses from the Probability of Default/Loss Given Default ("PD/LGD") or Loss-Rate Migration methods to the Discounted Cash Flow ("DCF") method for all segments except the SBA PPP and purchased consumer loan segments. The Company believes that the DCF methodology has better alignment with the Current Expected Credit Losses ("CECL") standard for forward looking forecasting, while also factoring in more detailed assumptions. At the time of the methodology update, the Company ran the ACL model under both the current and previous methodologies and noted that the changes to the ACL model and the differences in methodologies did not result in a material impact to the Company's financial statements and as a percentage of the ACL. The Company is utilizing an industry leading software platform to perform the DCF analysis using a historical look back period of 2008 to present.

The Company continues to use the Moody's baseline forecast with an economic forecast length of one year and a one-year, straight-line reversion method. We revert to the historical average of the macroeconomic variables being used. Forecast models exclude the post-2019 COVID-19 pandemic period due to abnormal and volatile behavior.

The ACL on the purchased consumer loan portfolios continues to be calculated using the Remaining Life methodology (also known as the Weighted Average Remaining Maturity or "WARM" methodology) as this portfolio is evaluated on a pooled basis. Because SBA PPP loans are guaranteed by the SBA and may be forgivable in whole or in part in accordance with the requirements of the PPP we anticipate zero losses on these loans and accordingly apply a Zero Loss methodology.

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Table of Contents
The following is a description of the methodologies utilized to measure expected credit losses from the third quarter of 2023 to present:

Discounted Cash Flow

The DCF methodology calculates CECL reserves as the difference between the amortized cost of a loan and the discounted expected value of future cash flows. Expected future cash flows are calculated based on assumptions of PD/LGD, prepayments and recovery rates, and are discounted using the loan’s effective interest rate.

Remaining Life or Weighted Average Remaining Maturity

Under the remaining life or WARM methodology, lifetime losses are calculated by determining the remaining life of the loan pool, and then applying a loss rate over this remaining life of the loan. The methodology considers historical loss experience to estimate credit losses for the remaining balance of the loan pool. The calculated loss rate is applied to the contractual term (adjusted for prepayments) to determine the loan pool’s current expected credit losses.

The following is a description of the methodologies utilized to measure expected credit losses as of June 30, 2023 and prior:

Probability of Default/Loss Given Default

The PD/LGD calculation is based on a cohort methodology whereby loans in the same cohort are tracked over time to identify defaults and corresponding losses. PD/LGD analysis requires a portfolio segmented into pools, and we elected to then further sub-segment by risk characteristics such as Risk Rating, loans modified for borrowers experiencing financial difficulty, TDRs prior to the adoption of ASU 2022-02 and nonaccrual status to measure losses accurately. PD measures the count or dollar amount of loans that defaulted in a given cohort. LGD measures the losses related to the loans that defaulted. Total loss rate is calculated using the formula 'PD times LGD'.

Loss-Rate Migration

Loss-rate migration analysis is a cohort-based approach that measures cumulative net charge-offs over a defined time-horizon to calculate a loss rate that will be applied to the loan pool. Loss-rate migration analysis requires the portfolio to be segmented into pools then further sub-segmented by risk characteristics such as days past due, delinquency counters, loans modified for borrowers experiencing financial difficulty, TDRs prior to the adoption of ASU 2022-02 and nonaccrual status to measure loss rates accurately. The key inputs to run a loss-rate migration analysis are the length and frequency of the migration period, the dates for the migration periods to start and the number of migration periods used for the analysis. For each migration period, the analysis will determine the outstanding balance in each segment and/or sub-segment at the start of each period. These loans will then be followed for the length of the migration period to identify the amount of associated charge-offs and recoveries. A loss rate for each migration period is calculated using the formula: net charge-offs over the period divided by beginning loan balance.

Other

Under both the previous and current methodologies utilized to measure expected credit losses, if a loan ceases to share similar risk characteristics with other loans in its segment, it will be moved to a different pool sharing similar risk characteristics. Loans that do not share risk characteristics are evaluated on an individual basis based on the fair value of the collateral or other approaches such as the discounted cash flows methodology. Individually evaluated loans are not included in the collective evaluation.

Impact of Recently Issued Accounting Pronouncements on Future Filings

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures". ASU 2023-09 expands existing income tax disclosures for rate reconciliations by requiring disclosure of certain specific categories in the rate reconciliation, as well as additional qualitative information about the reconciliation, and additional disaggregated information about income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and is to be applied on a prospective basis. The Company does not expect ASU 2023-09 to have a material impact on its consolidated financial statements.

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2. INVESTMENT SECURITIES

The amortized cost, gross unrecognized/unrealized gains and losses, fair value and related ACL on available-for-sale ("AFS") and held-to-maturity ("HTM") debt securities at September 30, 2024 and December 31, 2023 are as follows:

Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValueACL
(dollars in thousands)
September 30, 2024
Available-for-sale:    
Debt securities:    
States and political subdivisions$147,833 $18 $(24,670)$123,181 $ 
Corporate securities35,373  (2,819)32,554  
U.S. Treasury and other government-sponsored entities and agencies59,632 1,323 (1,725)59,230  
Mortgage-backed securities:    
Residential - U.S. government-sponsored entities and agencies433,493 857 (48,054)386,296  
Residential - Non-government agencies18,085 471 (722)17,834  
Commercial - U.S. government-sponsored entities and agencies101,018 425 (12,414)89,029  
Commercial - Non-government agencies15,331 5 (7)15,329  
Total available-for-sale investment securities$810,765 $3,099 $(90,411)$723,453 $ 

Amortized CostGross Unrecognized GainsGross Unrecognized LossesFair ValueACL
(dollars in thousands)
September 30, 2024
Held-to-maturity:
Debt securities:
States and political subdivisions$42,013 $ $(7,283)$34,730 $ 
Mortgage-backed securities:
Residential - U.S. government-sponsored entities and agencies564,104 63 (51,907)512,260  
Total held-to-maturity investment securities$606,117 $63 $(59,190)$546,990 $ 

Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValueACL
(dollars in thousands)
December 31, 2023
Available-for-sale:    
Debt securities:    
States and political subdivisions$156,432 $13 $(29,810)$126,635 $ 
Corporate securities35,731  (4,317)31,414  
U.S. Treasury and other government-sponsored entities and agencies28,105 33 (1,941)26,197  
Mortgage-backed securities: 
Residential - U.S. government-sponsored entities and agencies441,898 95 (63,607)378,386  
Residential - Non-government agencies19,322 366 (980)18,708  
Commercial - U.S. government-sponsored entities and agencies58,318  (7,404)50,914  
Commercial - Non-government agencies15,144  (188)14,956  
Total available-for-sale investment securities$754,950 $507 $(108,247)$647,210 $ 

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Table of Contents
Amortized CostGross Unrecognized GainsGross Unrecognized LossesFair ValueACL
(dollars in thousands)
December 31, 2023
Held-to-maturity:
Debt securities:
States and political subdivisions$41,959 $ $(6,706)$35,253 $ 
Mortgage-backed securities:
Residential - U.S. government-sponsored entities and agencies590,379 61 (60,515)529,925  
Total held-to-maturity investment securities$632,338 $61 $(67,221)$565,178 $ 

During the first quarter of 2022, the Company entered into a forward starting interest rate swap, with a notional amount of $115.5 million, that was designated as a fair value hedge of certain municipal debt securities. The Company pays the counterparty a fixed rate of 2.095% and receives a floating rate based on the Federal Funds effective rate. The fair value hedge became effective on March 31, 2024 and has a maturity date of March 31, 2029.

During the three and nine months ended September 30, 2024, the Company recorded income from the interest rate swap of $1.1 million and $1.9 million, respectively, in interest income on taxable investment securities on the Company's consolidated statements of income.

During the three and nine months ended September 30, 2024, the Company recorded a total of $1.9 million and $5.4 million, respectively, in amortization of unrecognized losses on investment securities transferred from AFS to HTM. During the three and nine months ended September 30, 2023, the Company recorded a total of $2.0 million and $5.7 million, respectively, in amortization of unrecognized losses on investment securities transferred from AFS to HTM.

The Company elected to not measure an estimate of credit losses on accrued interest receivable as the Company writes off any uncollectible accrued interest receivable in a timely manner. Accrued interest receivable on investment securities is reported together with accrued interest receivable on loans and other assets in the consolidated balance sheets.

Accrued interest receivable on investment securities totaled $4.2 million and $4.0 million as of September 30, 2024 and December 31, 2023, respectively.

The amortized cost, estimated fair value and weighted average yield of our AFS and HTM debt securities at September 30, 2024, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.

(dollars in thousands)Amortized CostFair Value
Weighted Average Yield (1)
Available-for-sale:  
Debt securities:
Due in one year or less$4,287 $4,300 5.88 %
Due after one year through five years58,844 56,071 2.78 
Due after five years through ten years58,523 57,627 3.92 
Due after ten years121,184 96,967 2.43 
Mortgage-backed securities:
Residential - U.S. government-sponsored entities and agencies433,493 386,296 2.27 
Residential - Non-government agencies18,085 17,834 5.59 
Commercial - U.S. government-sponsored entities and agencies101,018 89,029 2.73 
Commercial - Non-government agencies15,331 15,329 4.55 
Total available-for-sale securities$810,765 $723,453 2.67 %

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(dollars in thousands)Amortized CostFair Value
Weighted Average Yield (1)
Held-to-maturity:  
Debt securities:
Due after ten years$42,013 $34,730 2.26 %
Mortgage-backed securities:  
Residential - U.S. government-sponsored entities and agencies564,104 512,260 1.90 
Total held-to-maturity securities$606,117 $546,990 1.92 %

(1)Weighted-average yields are computed on an annual basis, and yields on tax-exempt obligations are computed on a taxable-equivalent basis using a federal statutory tax rate of 21%

The Company did not sell any investment securities during the three and nine months ended September 30, 2024. During the three and nine months ended September 30, 2023, the Company sold two AFS commercial mortgage-backed securities issued by non-government agencies. The investment securities had a cost basis of $1.5 million and were sold at a loss of $0.1 million.

Investment securities with carrying values totaling $796.8 million and $990.4 million at September 30, 2024 and December 31, 2023, respectively, were pledged to secure public funds on deposit, Federal Reserve Bank borrowings and other financial transactions.

There were no holdings of investment securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders' equity at September 30, 2024 and December 31, 2023.

The following tables summarize AFS and HTM investment securities, which were in a loss position as of the dates presented, aggregated by major security type and length of time in a continuous loss position. There were a total of 212 and 208 AFS investment securities which were in an unrealized loss position, without an ACL, at September 30, 2024 and December 31, 2023, respectively. There were a total of 82 HTM investment securities which were in an unrecognized loss position, without an ACL, at September 30, 2024 and December 31, 2023.

Less Than 12 Months12 Months or LongerTotal
(dollars in thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
September 30, 2024
Available-for-sale:
Debt securities:      
States and political subdivisions$4,600 $(33)$111,552 $(24,637)$116,152 $(24,670)
Corporate securities  32,554 (2,819)32,554 (2,819)
U.S. Treasury and other government-sponsored entities and agencies1,308 (26)14,498 (1,699)15,806 (1,725)
Mortgage-backed securities:      
Residential - U.S. government-sponsored entities and agencies23,295 (183)329,454 (47,871)352,749 (48,054)
Residential - Non-government agencies  7,992 (722)7,992 (722)
Commercial - U.S. government-sponsored entities and agencies1,275 (107)68,444 (12,307)69,719 (12,414)
Commercial - Non-government agencies  5,425 (7)5,425 (7)
Total$30,478 $(349)$569,919 $(90,062)$600,397 $(90,411)

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Less Than 12 Months12 Months or LongerTotal
(dollars in thousands)Fair ValueUnrecognized LossesFair ValueUnrecognized LossesFair ValueUnrecognized Losses
September 30, 2024
Held-to-maturity:
Debt securities:
States and political subdivisions$ $ $34,730 $(7,283)$34,730 $(7,283)
Mortgage-backed securities:
Residential - U.S. government-sponsored entities and agencies  504,405 (51,907)504,405 (51,907)
Total$ $ $539,135 $(59,190)$539,135 $(59,190)

Less Than 12 Months12 Months or LongerTotal
(dollars in thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
December 31, 2023
Available-for-sale:
Debt securities:      
States and political subdivisions$534 $(1)$114,601 $(29,809)$115,135 $(29,810)
Corporate securities  31,414 (4,317)31,414 (4,317)
U.S. Treasury and other government-sponsored entities and agencies2,893 (87)16,286 (1,854)19,179 (1,941)
Mortgage-backed securities:      
Residential - U.S. government-sponsored entities and agencies  367,887 (63,607)367,887 (63,607)
Residential - Non-government agencies  8,169 (980)8,169 (980)
Commercial - U.S. government-sponsored entities and agencies6,467 (1)44,447 (7,403)50,914 (7,404)
Commercial - Non-government agencies9,663 (130)5,293 (58)14,956 (188)
Total$19,557 $(219)$588,097 $(108,028)$607,654 $(108,247)

Less Than 12 Months12 Months or LongerTotal
(dollars in thousands)Fair ValueUnrecognized LossesFair ValueUnrecognized LossesFair ValueUnrecognized Losses
December 31, 2023
Held-to-maturity:
Debt securities:
States and political subdivisions$ $ $35,253 $(6,706)$35,253 $(6,706)
Mortgage-backed securities:
Residential - U.S. government-sponsored entities and agencies8,853 (33)512,378 (60,482)521,231 (60,515)
Total$8,853 $(33)$547,631 $(67,188)$556,484 $(67,221)

Investment securities in an unrecognized or unrealized loss position are evaluated at least on a quarterly basis, and include evaluating the changes in the investment securities' ratings issued by rating agencies and changes in the financial condition of the issuer. For mortgage-related securities, delinquency and loss information with respect to the underlying collateral, changes in levels of subordination for the Company's particular position within the repayment structure, and remaining credit enhancement as compared to projected credit losses of the security are also evaluated.

The Company has evaluated its AFS and HTM investment securities that are in an unrecognized or unrealized loss position and has determined that the unrecognized or unrealized losses on the Company's investment securities are unrelated to credit quality and primarily attributable to changes in interest rates and volatility in the financial markets since purchase. All of the investment securities in an unrecognized or unrealized loss position continue to be rated investment grade by one or more major rating agencies. The Company does not intend to sell the AFS and HTM securities that were in an unrecognized or unrealized loss position as of September 30, 2024 and December 31, 2023, and it is unlikely that the Company will be required to sell
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these securities before recovery of its amortized cost basis that may be at maturity. Therefore, the Company has not recorded an ACL on these securities and the unrecognized or unrealized losses on these securities have not been recognized into income.

3. LOANS AND CREDIT QUALITY

The following table presents loans by class, excluding loans held for sale, net of deferred fees and costs as of the dates presented:

(dollars in thousands)September 30, 2024December 31, 2023
Commercial and industrial$599,556 $576,038 
Real estate:
Construction158,523 185,994 
Residential mortgage1,897,526 1,927,206 
Home equity695,175 734,500 
Commercial mortgage1,472,230 1,384,579 
Consumer520,014 630,898 
Gross loans5,343,024 5,439,215 
Deferred fees and costs, net(415)(233)
Total loans, net of deferred fees and costs$5,342,609 $5,438,982 

Interest income on loans is accrued at the contractual rate of interest on the unpaid principal balance. Accrued interest receivable on loans totaled $17.5 million and $17.1 million at September 30, 2024 and December 31, 2023, respectively, and was reported together with accrued interest receivable on investment securities and other assets on the consolidated balance sheets. Accrued interest receivable on loans is excluded from the estimate of credit losses.

During the three months ended September 30, 2023, the Company transferred one loan to the loans held for sale category. The loan did not have any credit concerns at the time of transfer and thus was transferred to loans held for sale at its amortized cost of $9.8 million. The loan was sold during the three months ended September 30, 2023 for $9.6 million, or a loss of $0.2 million, which was recorded in other operating expense.

The Company did not transfer any other loans to the held for sale category during the three and nine months ended September 30, 2024 and 2023 and did not sell any other loans originally held for investment during the three and nine months ended September 30, 2024 and 2023.

The following tables present the loan purchase information at the time of purchase by class during the periods presented. None of these loan purchases were categorized as purchased credit deteriorated ("PCD") and there were no loans categorized as PCD during the periods presented. There were no loan purchases made during the three months ended September 30, 2023.

Three Months Ended September 30, 2024
(dollars in thousands)U.S. Mainland Consumer - UnsecuredU.S. Mainland Consumer - AutomobileTotal
Purchases:
Outstanding balance$ $14,731 $14,731 
Premium 921 921 
Purchase price$ $15,652 $15,652 

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Nine Months Ended September 30, 2024Nine Months Ended September 30, 2023
U.S. Mainland Consumer - UnsecuredU.S. Mainland Consumer - AutomobileTotalU.S. Mainland Consumer - UnsecuredU.S. Mainland Consumer - AutomobileTotal
Purchases:
Outstanding balance$ $27,115 $27,115 $3,932 $15,159 $19,091 
Premium 1,168 1,168  568 568 
Purchase price$ $28,283 $28,283 $3,932 $15,727 $19,659 

Foreclosure Proceedings

The Company did not own any foreclosed properties as of September 30, 2024 and December 31, 2023. The Company did not sell any foreclosed properties during the three and nine months ended September 30, 2024 and 2023.

The Company had $3.8 million and $2.3 million of residential mortgage loans collateralized by residential real estate property that were in the process of foreclosure at September 30, 2024 and December 31, 2023, respectively.

The Company did not have any commercial real estate loans in the process of foreclosure at September 30, 2024. The Company had commercial real estate loans totaling $0.1 million in the process of foreclosure at December 31, 2023.

Nonaccrual and Past Due Loans

For all loan types, the Company determines delinquency status by considering the number of days full payments required by the contractual terms of the loan are past due. The following tables present by class, the aging of the recorded investment in past due loans as of the dates presented. The following tables also present the amortized cost of loans on nonaccrual status for which there was no related ACL as of the dates presented:

(dollars in thousands)Accruing
Loans
30 - 59 Days
Past Due
Accruing
Loans
60 - 89 Days
Past Due
Accruing
Loans
90+ Days
Past Due
Nonaccrual
Loans
Total
Past Due
and
Nonaccrual
Loans Not
Past Due
Total LoansNonaccrual
Loans
With
No ACL
September 30, 2024       
Commercial and industrial$1,924 $688 $ $376 $2,988 $596,459 $599,447 $ 
Real estate:  
Construction     158,126 158,126  
Residential mortgage 1,990 13 9,680 11,683 1,886,236 1,897,919 9,680 
Home equity387 254 135 915 1,691 695,432 697,123 915 
Commercial mortgage203    203 1,470,107 1,470,310  
Consumer4,644 1,667 481 626 7,418 512,266 519,684  
Total$7,158 $4,599 $629 $11,597 $23,983 $5,318,626 $5,342,609 $10,595 

(dollars in thousands)Accruing
Loans
30 - 59 Days
Past Due
Accruing
Loans
60 - 89 Days
Past Due
Accruing
Loans
90+ Days
Past Due
Nonaccrual
Loans
Total
Past Due
and
Nonaccrual
Loans Not
Past Due
Total LoansNonaccrual
Loans
With
No ACL
December 31, 2023       
Commercial and industrial$513 $169 $ $432 $1,114 $574,593 $575,707 $ 
Real estate:  
Construction     185,519 185,519  
Residential mortgage3,082 2,140  4,962 10,184 1,917,605 1,927,789 4,855 
Home equity804 400 229 834 2,267 734,257 736,524 834 
Commercial mortgage   77 77 1,382,825 1,382,902 77 
Consumer5,677 2,329 1,083 703 9,792 620,749 630,541  
Total$10,076 $5,038 $1,312 $7,008 $23,434 $5,415,548 $5,438,982 $5,766 
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Collateral-Dependent Loans

A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral, which are individually evaluated to determine expected credit losses. The following tables present the amortized cost basis of collateral-dependent loans by class and the related ACL allocated to these loans as of the dates presented:

(dollars in thousands)Secured by
1-4 Family
Residential
Properties
Secured by
Nonfarm
Nonresidential
Properties
TotalAllocated
ACL
September 30, 2024
Real estate:
Residential mortgage$9,679 $ $9,679 $ 
Home equity915  915  
Total$10,594 $ $10,594 $ 

(dollars in thousands)Secured by
1-4 Family
Residential
Properties
Secured by
Nonfarm
Nonresidential
Properties
TotalAllocated
ACL
December 31, 2023
Real estate:
Residential mortgage$6,450 $ $6,450 $47 
Home equity834  834  
Commercial mortgage 77 77  
Total$7,284 $77 $7,361 $47 

Loan Modifications for Borrowers Experiencing Financial Difficulty

Since the adoption of ASU 2022-02 on January 1, 2023 and during the three and nine months ended September 30, 2024, the Company has not had any material modifications to loans either individually or in the aggregate for borrowers experiencing financial difficulty.

Troubled Debt Restructurings Prior to the Adoption of ASU 2022-02

Prior to our adoption of ASU 2022-02, we accounted for a modification to the contractual terms of a loan that resulted in granting a concession to a borrower experiencing financial difficulties as a troubled debt restructuring ("TDR").

There were $0.8 million of TDRs included in nonperforming assets at September 30, 2024, compared to $0.9 million at December 31, 2023. There were $1.9 million of TDRs that were still accruing interest at September 30, 2024, compared to $2.1 million at December 31, 2023. None of the TDRs still accruing interest at September 30, 2024 and December 31, 2023 were more than 90 days delinquent.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans by credit risk. This analysis includes non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on a quarterly basis. The Company uses the following definitions for risk rating of loans.

Pass. Loans classified as pass are not adversely rated, are contractually current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan agreement.

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Special Mention. Loans classified as special mention, while still adequately protected by the borrower's capital adequacy and payment capability, exhibit distinct weakening trends and/or elevated levels of exposure to external conditions. If left unchecked or uncorrected, these potential weaknesses may result in deteriorated prospects of repayment. These exposures require management's close attention so as to avoid becoming undue or unwarranted credit exposures.

Substandard. Loans classified as substandard are inadequately protected by the borrower's current financial condition and payment capability or of the collateral pledged, if any. These loans have a well-defined weakness or weaknesses that jeopardize the orderly repayment of debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or orderly repayment in full, on the basis of current existing facts, conditions and values, highly questionable and improbable. Possibility of loss is extremely high, but because of certain important and reasonably specific factors that may work to the advantage and strengthening of the exposure, its classification as an estimate loss is deferred until its more exact status may be determined.

Loss. Loans classified as loss are considered to be non-collectible and of such little value that their continuance as bankable assets is not warranted. This does not mean the loan has absolutely no recovery value, but rather it is neither practical nor desirable to defer writing off the loan, even though partial recovery may be obtained in the future. Losses are taken in the period in which they surface as uncollectible.

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The following tables present the amortized cost basis, net of deferred fees and costs, of the Company's loans by class, credit quality indicator and origination year as of the dates presented. Revolving loans converted to term as of and during the periods presented were not material to the total loan portfolio. In addition, the following tables present gross charge-offs of loans by origination year during the periods presented.

(dollars in thousands)Amortized Cost of Term Loans by Year of OriginationAmortized Cost of Revolving Loans
September 30, 202420242023202220212020PriorTotal
Commercial and industrial:
Risk Rating
Pass$125,093 $56,889 $75,837 $71,370 $26,287 $149,077 $88,324 $592,877 
Special Mention 587 297 2,579    3,463 
Substandard2,380 236 58 121  312  3,107 
Subtotal127,473 57,712 76,192 74,070 26,287 149,389 88,324 599,447 
Construction:
Risk Rating
Pass6,508 19,346 47,954 35,859 13,342 35,117  158,126 
Subtotal6,508 19,346 47,954 35,859 13,342 35,117  158,126 
Residential mortgage:
Risk Rating
Pass55,009 92,858 261,649 596,350 400,545 480,913  1,887,324 
Substandard  1,599 294 1,862 6,840  10,595 
Subtotal55,009 92,858 263,248 596,644 402,407 487,753  1,897,919 
Home equity:
Risk Rating
Pass1,231 11,997 29,158 18,224 7,611 24,418 603,434 696,073 
Substandard     915 135 1,050 
Subtotal1,231 11,997 29,158 18,224 7,611 25,333 603,569 697,123 
Commercial mortgage:
Risk Rating
Pass122,037 95,562 238,401 225,176 112,347 657,231 5,911 1,456,665 
Special Mention 623  1,438  5,185  7,246 
Substandard   1,088  5,311  6,399 
Subtotal122,037 96,185 238,401 227,702 112,347 667,727 5,911 1,470,310 
Consumer:
Risk Rating
Pass32,636 91,838 192,185 103,112 24,048 19,153 55,605 518,577 
Substandard20 40 254 175 35 578 5 1,107 
Subtotal32,656 91,878 192,439 103,287 24,083 19,731 55,610 519,684 
Total$344,914 $369,976 $847,392 $1,055,786 $586,077 $1,385,050 $753,414 $5,342,609 

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(dollars in thousands)Amortized Cost of Term Loans by Year of OriginationAmortized Cost of Revolving Loans
December 31, 202320232022202120202019PriorTotal
Commercial and industrial:
Risk Rating
Pass$83,333 $82,649 $77,551 $32,831 $42,162 $152,940 $90,177 $561,643 
Special Mention  2,916   944 93 3,953 
Substandard37 1,189 576 662 571 7,026 50 10,111 
Subtotal83,370 83,838 81,043 33,493 42,733 160,910 90,320 575,707 
Construction:
Risk Rating
Pass8,434 52,596 69,203 18,878 2,136 31,090 2,778 185,115 
Special Mention  404     404 
Subtotal8,434 52,596 69,607 18,878 2,136 31,090 2,778 185,519 
Residential mortgage:
Risk Rating
Pass101,473 266,314 609,648 414,430 144,312 385,452  1,921,629 
Special Mention     268  268 
Substandard 1,057 299 931 818 2,787  5,892 
Subtotal101,473 267,371 609,947 415,361 145,130 388,507  1,927,789 
Home equity:
Risk Rating
Pass12,229 32,208 19,589 8,766 6,372 17,379 638,917 735,460 
Substandard    66 998  1,064 
Subtotal12,229 32,208 19,589 8,766 6,438 18,377 638,917 736,524 
Commercial mortgage:
Risk Rating
Pass96,479 256,660 202,933 115,055 112,578 566,325 6,311 1,356,341 
Special Mention    10,513 9,638  20,151 
Substandard  2,587  1,654 2,169  6,410 
Subtotal96,479 256,660 205,520 115,055 124,745 578,132 6,311 1,382,902 
Consumer:
Risk Rating
Pass88,593 261,752 144,341 36,431 27,970 10,538 59,130 628,755 
Substandard58 231 205 87 83 1,084 10 1,758 
Loss     28  28 
Subtotal88,651 261,983 144,546 36,518 28,053 11,650 59,140 630,541 
Total$390,636 $954,656 $1,130,252 $628,071 $349,235 $1,188,666 $797,466 $5,438,982 

(dollars in thousands)Gross Charge-Offs by Year of Origination
Nine Months Ended September 30, 202420242023202220212020PriorTotal
Commercial and industrial$69 $150 $241 $203 $33 $1,168 $1,864 
Real estate:
Residential mortgage  175   208 383 
Consumer75 518 7,944 3,243 408 951 13,139 
Gross charge-offs$144 $668 $8,360 $3,446 $441 $2,327 $15,386 

(dollars in thousands)Gross Charge-Offs by Year of Origination
Nine Months Ended September 30, 202320232022202120202019PriorTotal
Commercial and industrial$143 $239 $145 $ $265 $751 $1,543 
Consumer4 4,988 4,158 871 627 621 11,269 
Gross charge-offs$147 $5,227 $4,303 $871 $892 $1,372 $12,812 

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4. ALLOWANCE FOR CREDIT LOSSES AND RESERVE FOR OFF-BALANCE SHEET CREDIT EXPOSURES

The following tables present by class, the activities in the ACL for loans during the periods presented:

(dollars in thousands)Real Estate 
Three Months Ended September 30, 2024Commercial and IndustrialConstructionResidential MortgageHome EquityCommercial MortgageConsumerTotal
Beginning balance$7,071 $3,798 $15,389 $3,829 $17,337 $14,801 $62,225 
Provision (credit) for credit losses on loans617 (1,230)1,052 (1,360)1,204 2,757 3,040 
Subtotal7,688 2,568 16,441 2,469 18,541 17,558 65,265 
Charge-offs(663) (99)  (3,956)(4,718)
Recoveries158  8   934 1,100 
Net (charge-offs) recoveries(505) (91)  (3,022)(3,618)
Ending balance$7,183 $2,568 $16,350 $2,469 $18,541 $14,536 $61,647 

(dollars in thousands)Real Estate
Three Months Ended September 30, 2023Commercial and IndustrialConstructionResidential MortgageHome EquityCommercial MortgageConsumerTotal
Beginning balance$6,946 $3,654 $12,233 $3,965 $17,365 $19,686 $63,849 
Provision (credit) for credit losses on loans(330)953 1,727 (913)1,738 1,351 4,526 
Subtotal6,616 4,607 13,960 3,052 19,103 21,037 68,375 
Charge-offs(402)    (4,710)(5,112)
Recoveries261 1 10   982 1,254 
Net (charge-offs) recoveries(141)1 10   (3,728)(3,858)
Ending balance$6,475 $4,608 $13,970 $3,052 $19,103 $17,309 $64,517 

(dollars in thousands)Real Estate
Nine Months Ended September 30, 2024Commercial and IndustrialConstructionResidential MortgageHome EquityCommercial MortgageConsumerTotal
Beginning balance$7,181 $4,004 $14,626 $3,501 $17,543 $17,079 $63,934 
Provision (credit) for credit losses on loans1,488 (1,436)2,082 (1,038)998 7,515 9,609 
Subtotal8,669 2,568 16,708 2,463 18,541 24,594 73,543 
Charge-offs(1,864) (383)  (13,139)(15,386)
Recoveries378  25 6  3,081 3,490 
Net (charge-offs) recoveries(1,486) (358)6  (10,058)(11,896)
Ending balance$7,183 $2,568 $16,350 $2,469 $18,541 $14,536 $61,647 

(dollars in thousands)Real Estate
Nine Months Ended September 30, 2023Commercial and IndustrialConstructionResidential MortgageHome EquityCommercial MortgageConsumerTotal
Beginning balance$6,824 $2,867 $11,804 $4,114 $17,902 $20,227 $63,738 
Provision (credit) for credit losses on loans558 1,740 2,096 (1,077)1,201 5,758 10,276 
Subtotal7,382 4,607 13,900 3,037 19,103 25,985 74,014 
Charge-offs(1,543)    (11,269)(12,812)
Recoveries636 1 70 15  2,593 3,315 
Net (charge-offs) recoveries(907)1 70 15  (8,676)(9,497)
Ending balance$6,475 $4,608 $13,970 $3,052 $19,103 $17,309 $64,517 

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The following table presents the activities in the reserve for off-balance sheet credit exposures, included in other liabilities, during the periods presented. The (credit) provision for off-balance sheet credit exposures is included in the provision for credit losses on the Company's income statement during the periods presented.

Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2024202320242023
Beginning balance$3,312 $3,664 $3,706 $3,243 
(Credit) provision for off-balance sheet credit exposures(207)348 (601)769 
Ending balance$3,105 $4,012 $3,105 $4,012 

5. INVESTMENTS IN UNCONSOLIDATED ENTITIES

The following table presents the components of the Company's investments in unconsolidated entities as of the dates presented:

(dollars in thousands)September 30, 2024December 31, 2023
Investments in low-income housing tax credit partnerships, net of amortization$51,152 $37,838 
Investments in common securities of statutory trusts1,547 1,547 
Investments in affiliates87 111 
Other2,050 2,050 
Total$54,836 $41,546 

The Company had commitments to fund low-income housing tax credit ("LIHTC") partnerships totaling $63.5 million and $47.8 million as of September 30, 2024 and December 31, 2023, respectively. Unfunded commitments related to LIHTC partnerships totaled $20.0 million and $22.0 million at September 30, 2024 and December 31, 2023, respectively, and were included in other liabilities in the Company's consolidated balance sheets. The investments were accounted for under the proportional amortization method and were included in investments in unconsolidated entities in the Company's consolidated balance sheets.

The following table presents the expected payments for the unfunded commitments of LIHTC and other partnerships as of September 30, 2024, for the remainder of fiscal year 2024, the next five succeeding fiscal years, and all years thereafter:

(dollars in thousands)
Year Ending December 31, LIHTCOtherTotal
2024 (remainder)$1,406 $803 $2,209 
202510,519  10,519 
20267,564  7,564 
202736  36 
202830  30 
202936  36 
Thereafter386  386 
Total unfunded commitments$19,977 $803 $20,780 

The following table presents amortization and tax credits recognized associated with our investments in LIHTC partnerships for the periods presented:

Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2024202320242023
Proportional amortization method:
Amortization expense recognized in income tax expense$1,012 $714 $2,372 $2,142 
Tax credits recognized in income tax expense1,155 891 2,756 2,675 
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In 2021, the Company committed $2.0 million to the JAM FINTOP Banktech Fund, L.P. The Company does not have the ability to exercise significant influence over the JAM FINTOP Banktech Fund, L.P. and the investment does not have a readily determinable fair value. As a result, the Company determined that the cost method of accounting for the investment was
appropriate. The Company had $0.8 million and $1.0 million in unfunded commitments related to the investment as of September 30, 2024 and December 31, 2023, respectively, which was included in other liabilities in the Company's consolidated balance sheets.

During the first quarter of 2022, the Company invested $2.0 million in Swell Financial, Inc. ("Swell"). The Company did not have the ability to exercise significant influence over Swell and the investment did not have a readily determinable fair value. As a result, the Company determined that the cost method of accounting for the investment was appropriate.

During the third quarter of 2023, the Company entered into a transaction with Swell whereby Swell repurchased the Company’s entire preferred and common stock equity investment in exchange for $0.5 million in cash and certain intellectual property rights and a platform usage fee agreement related to products that may be launched by Swell or its affiliates in the future (not to exceed $1.5 million in value).

Due to the aforementioned events, the Company performed an impairment analysis and concluded the intellectual property rights and the platform usage fee agreement received in exchange for the Company's investment in Swell were not impaired as of September 30, 2024 and December 31, 2023. The intangible assets, net of accumulated amortization, totaling $1.4 million and $1.5 million as of September 30, 2024 and December 31, 2023, respectively, were included in other assets on the Company's consolidated balance sheets.

6. MORTGAGE SERVICING RIGHTS

Mortgage loans serviced for others are not reported on the Company's consolidated balance sheets. The following table presents mortgage loans serviced for others by investor, which totaled $1.19 billion and $1.22 billion at September 30, 2024 and December 31, 2023, respectively.

(dollars in thousands)September 30, 2024December 31, 2023
Mortgage loan portfolio serviced for:
Federal National Mortgage Association (FNMA)$725,880 $736,042 
Federal Home Loan Mortgage Corporation (FHLMC)462,367 485,270 
Federal Home Loan Banks (FHLB)454 483 
Total loans serviced for others$1,188,701 $1,221,795 

The following table presents changes in mortgage servicing rights ("MSR") for the periods presented:

(dollars in thousands)
Balance at December 31, 2023$8,696 
Additions400 
Amortization(583)
Balance at September 30, 2024$8,513 
Balance at December 31, 2022$9,074 
Additions261 
Amortization(538)
Balance at September 30, 2023$8,797 

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The following table presents the fair market value and key assumptions used in determining the fair market value of MSR as of the dates presented:

(dollars in thousands)September 30, 2024December 31, 2023
Fair market value, beginning of year$12,185 $12,061 
Fair market value, end of period11,637 12,185 
Weighted average discount rate9.5 %9.5 %
Weighted average prepayment speed assumption11.4 11.2 

The Company performs an impairment assessment of its MSR whenever events or changes in circumstance indicate that the carrying value of the MSR may not be recoverable. The Company noted no impairment or triggering events related to its MSR at September 30, 2024.

7. DERIVATIVES

The Company utilizes various designated and undesignated derivative financial instruments to reduce its exposure to movements in interest rates. The Company measures all derivatives at fair value on its consolidated balance sheet. In each reporting period, the Company records the derivative instruments in other assets or other liabilities depending on whether the derivatives are in an asset or liability position. For derivative instruments that are designated as cash flow hedging instruments, the Company records the effective portion of the changes in the fair value of the derivative in accumulated other comprehensive income (loss) ("AOCI"), net of tax, until earnings are affected by the variability of cash flows of the hedged transaction. The Company immediately recognizes the portion of the gain or loss in the fair value of the derivative that represents hedge ineffectiveness in current period earnings. For derivative instruments that are not designated as hedging instruments, changes in the fair value of the derivative are included in current period earnings.

Derivative financial instruments are subject to credit and counterparty risk, which is defined as the risk of financial loss if a borrower or counterparty is either unable or unwilling to repay borrowings or settle transactions in accordance with the underlying contractual terms. Credit and counterparty risks associated with derivative financial instruments are similar to those relating to traditional financial instruments. The Company manages derivative credit and counterparty risk by evaluating the creditworthiness of each borrower or counterparty and requiring collateral where appropriate.

Interest Rate Lock and Forward Sale Commitments

The Company enters into interest rate lock commitments on certain mortgage loans that are intended to be sold. To manage interest rate risk on interest rate lock commitments, the Company also enters into forward loan sale commitments on the loans that are intended to be sold. The interest rate lock and forward loan sale commitments are accounted for as undesignated derivatives and are recorded at their respective fair values in other assets and other liabilities, with changes in fair value recorded in current period earnings. These instruments serve to reduce the Company's exposure to movements in interest rates.

The Company was party to interest rate lock commitments on $1.6 million and $1.8 million of mortgage loans at September 30, 2024 and December 31, 2023, respectively. The Company was not a party to any forward sale commitments on mortgage loans at September 30, 2024 and December 31, 2023.

Risk Participation Agreements

The Company enters into credit risk participation agreements ("RPA") with financial institution counterparties for interest rate swaps related to loans in which it participates. The RPAs entered into by us and a participant bank provide credit protection to the financial institution counterparties should the borrowers fail to perform on their interest rate derivative contracts with the financial institutions. The RPAs are accounted for as undesignated derivatives and are recorded at fair value, with changes in fair value recorded in current period earnings.

The Company was party to RPAs with total notional amounts of $35.4 million and $36.0 million at September 30, 2024 and December 31, 2023, respectively. The fair value of the RPAs was insignificant to the consolidated financial statements at September 30, 2024 and December 31, 2023.

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Back-to-Back Swap Agreements

The Company established a program whereby it originates a variable rate loan and enters into a variable-to-fixed interest rate swap with the customer. The Company also enters into an equal and offsetting swap with a highly rated third-party financial institution. These "back-to-back swap agreements" are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. These back-to-back swap agreements are free-standing derivatives and recorded at fair value on our consolidated balance sheet in other assets or other liabilities.

The Company was party to swap agreements with its borrowers with total notional amounts of $50.4 million and $51.1 million at September 30, 2024 and December 31, 2023, respectively, offset by swap agreements with third party financial institutions with the same total notional amounts. The Company received $9.0 million and $9.6 million in counter-party cash collateral related to the back-to-back swap agreements at September 30, 2024 and December 31, 2023, respectively.

Interest Rate Swap

During the first quarter of 2022, the Company entered into a forward starting interest rate swap, with an effective date of March 31, 2024. This transaction had a notional amount of $115.5 million and was designated as a fair value hedge of certain municipal debt securities. The Company pays the counterparty a fixed rate of 2.095% and receives a floating rate based on the Federal Funds effective rate. The fair value hedge has a maturity date of March 31, 2029.

The interest rate swap is carried on the Company’s consolidated balance sheet at its fair value in other assets (when the fair value is positive) or in other liabilities (when the fair value is negative). The changes in the fair value of the interest rate swap are recorded in interest income. The unrealized gains or losses due to changes in fair value of the hedged debt securities due to changes in benchmark interest rates are recorded as an adjustment to the hedged debt securities and offset in the same interest income line item. At September 30, 2024, the hedge was determined to be effective and the Company expects the hedge to remain effective during the remaining term.

During the three and nine months ended September 30, 2024, the Company recorded income from the interest rate swap of $1.1 million and $1.9 million, respectively.

The following tables present the location of all assets and liabilities associated with our derivative instruments within the consolidated balance sheets as of the dates presented:

Derivative Financial Instruments Not Designated as Hedging InstrumentsAsset DerivativesLiability Derivatives
Fair Value atFair Value at
(dollars in thousands)Balance Sheet LocationSeptember 30,
2024
December 31,
2023
September 30,
2024
December 31,
2023
Interest rate lock and forward sale commitmentsOther assets / other liabilities$ $ $2 $34 
Back-to-back swap agreementsOther assets / other liabilities2,875 3,547 2,875 3,547 
Derivative Financial Instruments Designated as Hedging InstrumentsAsset DerivativesLiability Derivatives
Fair Value atFair Value at
(dollars in thousands)Balance Sheet LocationSeptember 30,
2024
December 31,
2023
September 30,
2024
December 31,
2023
Interest rate swapOther assets / other liabilities$5,202 $6,440 $ $ 

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The following tables present the impact of derivative instruments and their location within the consolidated statements of income for the periods presented:

Derivative Financial Instruments
Not Designated as Hedging Instruments
Location of Gain (Loss)
Recognized in
Earnings on Derivatives
Amount of Gain (Loss)
Recognized in
Earnings on Derivatives
(dollars in thousands)
Three Months Ended September 30, 2024  
Interest rate lock and forward sale commitmentsMortgage banking income$1 
Loans held for saleOther income17 
Three Months Ended September 30, 2023 
Interest rate lock and forward sale commitmentsMortgage banking income(16)
Loans held for saleOther income4 
Back-to-back swap agreementsOther service charges and fees36 
Derivative Financial Instruments
Not Designated as Hedging Instruments
Location of Gain (Loss)
Recognized in
Earnings on Derivatives
Amount of Gain (Loss)
Recognized in
Earnings on Derivatives
(dollars in thousands)
Nine Months Ended September 30, 2024 
Interest rate lock and forward sale commitmentsMortgage banking income$32 
Back-to-back swap agreementsOther service charges and fees80 
Nine Months Ended September 30, 2023 
Interest rate lock and forward sale commitmentsMortgage banking income(8)
Loans held for saleOther income3 
Back-to-back swap agreementsOther service charges and fees71 
Derivative Financial Instruments
Designated as Hedging Instruments
Location of Gain (Loss)
Recognized in
Earnings on Derivatives
Amount of Gain (Loss)
Recognized in
Earnings on Derivatives
(dollars in thousands)
Three Months Ended September 30, 2024
Interest rate swapInterest income$1,148 
Three Months Ended September 30, 2023
Interest rate swapInterest income(121)
Derivative Financial Instruments
Designated as Hedging Instruments
Location of Gain (Loss)
Recognized in
Earnings on Derivatives
Amount of Gain (Loss)
Recognized in
Earnings on Derivatives
(dollars in thousands)
Nine Months Ended September 30, 2024
Interest rate swapInterest income$1,924 
Nine Months Ended September 30, 2023
Interest rate swapInterest income(180)

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The following table presents the amounts recorded on the consolidated balance sheets related to cumulative basis adjustments for fair value hedges as of the periods presented:

Line Item in the Consolidated Balance Sheets


(dollars in thousands)September 30, 2024December 31, 2023
Investment securities, available-for-sale:
Carrying Amount of the Hedged Assets$93,635 $90,636 
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets(5,531)(6,817)

8. SHORT-TERM BORROWINGS AND LONG-TERM DEBT

The following table presents long-term debt, which is based on original maturity and consists of advances under the arrangement with Federal Home Loan Bank of Des Moines, junior subordinated debentures and subordinated notes as of the dates presented:

(dollars in thousands)September 30, 2024December 31, 2023
Long-term debt:
Federal Home Loan Bank long-term advances$50,000 $50,000 
Subordinated debentures51,547 51,547 
Subordinated notes, net of unamortized debt issuance costs54,737 54,555 
Total$156,284 $156,102 

Federal Home Loan Bank Advances and Other Borrowings

The Bank is a member of the Federal Home Loan Bank of Des Moines (the "FHLB") and maintained a $1.85 billion line of credit as of September 30, 2024, compared to $1.93 billion at December 31, 2023. At September 30, 2024, $1.72 billion was undrawn under this arrangement, compared to $1.81 billion at December 31, 2023. There were no short-term borrowings outstanding under this arrangement at September 30, 2024 and December 31, 2023. There were $50.0 million in long-term advances under the FHLB arrangement bearing interest rates between 4.02% and 4.62% at September 30, 2024 and December 31, 2023.

The FHLB provides standby letters of credit on behalf of the Bank to secure certain public deposits. If the FHLB is required to make a payment on a standby letter of credit, the payment amount is converted to an advance at the FHLB. Standby letters of credit under this arrangement that are used to collateralize certain government deposits totaled $83.6 million as of September 30, 2024, compared to $72.0 million as of December 31, 2023. The letters of credit are counted against the total line of credit, the same as the current outstanding debt, to determine the undrawn or total available line of credit.

In accordance with the collateral provisions of the Advances, Security and Deposit Agreement with the FHLB, the FHLB advances and standby letters of credit available at September 30, 2024 and December 31, 2023 were secured by certain real estate loans with a carrying value of approximately $3.12 billion and $3.16 billion, respectively.

The Bank had additional unused borrowings available at the Federal Reserve Discount Window of $242.8 million and $285.8 million at September 30, 2024 and December 31, 2023, respectively. Certain commercial and commercial real estate loans with a par value totaling $130.1 million and $135.1 million at September 30, 2024 and December 31, 2023, respectively, were pledged as collateral on our line of credit with the Federal Reserve. In addition, investment securities with a par value of $187.3 million and $196.7 million as of September 30, 2024 and December 31, 2023, respectively, were pledged to the Federal Reserve in support of the line of credit. The Federal Reserve does not have the right to sell or repledge these loans and investment securities.

The Bank had additional unused and unsecured credit lines available totaling $75.0 million at September 30, 2024 and December 31, 2023.

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Subordinated Debentures

The following table presents the Company's junior subordinated debentures outstanding, which are recorded in long-term debt on the Company's consolidated balance sheets as of the dates presented:

(dollars in thousands)
Name of TrustSeptember 30, 2024December 31, 2023Interest Rate
CPB Capital Trust IV$30,928 $30,928 
Three-month CME Term SOFR + tenor spread adjustment of 0.26% + 2.45%
CPB Statutory Trust V20,619 20,619 
Three-month CME Term SOFR + tenor spread adjustment of 0.26% + 1.87%
Total$51,547 $51,547 

In September 2004, we created a wholly-owned statutory trust, CPB Capital Trust IV ("Trust IV"). Trust IV issued $30.0 million in floating rate trust preferred securities which bore an interest rate of three-month LIBOR plus 2.45% and maturing on December 15, 2034. The principal assets of Trust IV are $30.9 million of the Company's junior subordinated debentures with an identical interest rate and maturity as the Trust IV trust preferred securities. Trust IV issued $0.9 million of common securities to the Company.

In December 2004, we created a wholly-owned statutory trust, CPB Statutory Trust V ("Trust V"). Trust V issued $20.0 million in floating rate trust preferred securities which bore an interest rate of three-month LIBOR plus 1.87% and maturing on December 15, 2034. The principal assets of Trust V are $20.6 million of the Company's junior subordinated debentures with an identical interest rate and maturity as the Trust V trust preferred securities. Trust V issued $0.6 million of common securities to the Company.

On July 3, 2023, after the cessation of the LIBOR benchmark rate on June 30, 2023, the Company amended its Trust IV and Trust V debt agreements to replace the LIBOR-based reference rate with an adjusted CME Term Secured Overnight Financing Rate ("SOFR") plus a tenor spread adjustment. Accounting Standards Codification ("ASC") 848 allows us to account for the modification as a continuation of the existing contract without additional analysis.

The Company is not considered the primary beneficiary of Trusts IV and V. Therefore, the trusts are not considered variable interest entities and are not consolidated in the Company's financial statements. Rather the subordinated debentures are shown as liabilities on the Company's consolidated balance sheets. The Company's investments in the common securities of the trusts are included in investment in unconsolidated entities in the Company's consolidated balance sheets.

The floating trust preferred securities, the junior subordinated debentures that are the assets of Trusts IV and V and the common securities issued by Trusts IV and V are redeemable in whole or in part on any interest payment date on or after December 15, 2009 for Trust IV and V, or at any time in whole but not in part within 90 days following the occurrence of certain events. Our obligations with respect to the issuance of the trust preferred securities constitute a full and unconditional guarantee by the Company of each trust's obligations with respect to its trust preferred securities. Subject to certain exceptions and limitations, we may elect from time to time to defer interest payments on the subordinated debentures, which would result in a deferral of distribution payments on the related trust preferred securities, for up to 20 consecutive quarterly periods without default or penalty.

The subordinated debentures are included in Tier 1 capital, with certain limitations applicable, under regulatory guidelines and interpretations.

Subordinated Notes

The following table presents the Company's subordinated notes outstanding as of the dates presented:

(dollars in thousands)
DescriptionSeptember 30, 2024December 31, 2023Interest Rate
October 2020 Private Placement$55,000 $55,000 
4.75% for the first five years. Resets quarterly thereafter to the then current three-month SOFR plus 456 basis points.

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On October 20, 2020, the Company completed a $55.0 million private placement of ten-year fixed-to-floating rate subordinated notes, which will be used to support regulatory capital ratios and for general corporate purposes. The Company exchanged the privately placed notes for registered notes with the same terms and in the same aggregate principal amount at the end of the fourth quarter of 2020. The subordinated notes bear a fixed interest rate of 4.75% for the first five years through November 1, 2025 and will reset quarterly thereafter for the remaining five years to the then current three-month SOFR, as published by the Federal Reserve Bank of New York, plus 456 basis points.

The subordinated notes are included in Tier 2 capital, with certain limitations applicable, under current regulatory guidelines and interpretations. The subordinated notes had a carrying value of $54.7 million and $54.6 million, net of unamortized debt issuance costs of $0.3 million and $0.4 million at September 30, 2024 and December 31, 2023, respectively.

9. REVENUE FROM CONTRACTS WITH CUSTOMERS

The following table presents the Company's other operating income, segregated by revenue streams that are in-scope and out-of-scope of ASC 606, "Revenue from Contracts with Customers" for the periods presented:

Three Months Ended September 30, 2024Three Months Ended September 30, 2023
(dollars in thousands)In-ScopeOut-of-ScopeTotalIn-ScopeOut-of-ScopeTotal
Other operating income:
Mortgage banking income$352 $470 $822 $216 $549 $765 
Service charges on deposit accounts2,167  2,167 2,193  2,193 
Other service charges and fees5,234 713 5,947 4,874 329 5,203 
Income from fiduciary activities1,447  1,447 1,234  1,234 
Income from bank-owned life insurance 1,897 1,897  379 379 
Net (losses) gains on sales of investment securities    (135)(135)
Other 454 454  408 408 
Total other operating income$9,200 $3,534 $12,734 $8,517 $1,530 $10,047 


Nine Months Ended September 30, 2024Nine Months Ended September 30, 2023
(dollars in thousands)In-ScopeOut-of-ScopeTotalIn-ScopeOut-of-ScopeTotal
Other operating income:
Mortgage banking income$626 $1,849 $2,475 $541 $1,440 $1,981 
Service charges on deposit accounts6,405  6,405 6,441  6,441 
Other service charges and fees15,252 1,825 17,077 13,655 1,527 15,182 
Income from fiduciary activities4,331  4,331 3,623  3,623 
Income from bank-owned life insurance 4,653 4,653  2,855 2,855 
Net (losses) gains on sales of investment securities    (135)(135)
Other 1,158 1,158  1,544 1,544 
Total other operating income$26,614 $9,485 $36,099 $24,260 $7,231 $31,491 

10. SHARE-BASED COMPENSATION

Restricted and Performance Stock Units

Under the Company's 2023 Stock Compensation Plan, the Company awarded restricted stock units ("RSUs") and performance stock units ("PSUs") to certain non-officer directors and senior management personnel. The awards typically vest over a two-, three- or five-year period from the date of grant and are subject to forfeiture until performance and employment targets are achieved. Compensation expense is typically measured as the market price of the stock awards on the grant date, and is recognized over the specified vesting periods.
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The following table presents the activities of RSUs and PSUs for the nine months ended September 30, 2024:

(dollars in thousands, except per share data)SharesWeighted Average Grant Date Fair Value Per ShareFair Value of RSUs and PSUs That Vested During the Period
Non-vested RSUs and PSUs, beginning of period224,579 $24.76 
Changes during the period:  
Granted137,911 19.41 
Forfeited(1,648)20.59 
Vested(75,113)23.73 $1,466 
Non-vested RSUs and PSUs, end of period285,729 22.48 

11. SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS

In 1995, 2001, 2004 and 2006, the Bank established Supplemental Executive Retirement Plans ("SERP"), which provide certain (current and former) officers of the Company with supplemental retirement benefits. On December 31, 2002, the 1995 and 2001 SERP were curtailed. In conjunction with the September 2004 merger with CB Bancshares, Inc. ("CBBI"), the Company assumed CBBI's SERP obligation.

The projected benefit obligation of the unfunded SERP is recorded in other liabilities on the Company's consolidated balance sheets. The projected benefit obligation was $9.2 million and $9.3 million at September 30, 2024 and December 31, 2023, respectively.

The following table presents the components of net periodic benefit cost for the SERP for the periods presented:

Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2024202320242023
Interest cost$107 $112 $323 $336 
Amortization of net actuarial gain (19) (57)
Amortization of net transition obligation 2  6 
Net periodic benefit cost$107 $95 $323 $285 

All components of net periodic benefit cost are included in other operating expenses in the Company's consolidated statements of income.

12. OPERATING LEASES

The Company leases certain land and buildings for its bank branches and ATMs. In some instances, a lease may contain renewal options to extend the term of the lease. Renewal options that are likely to be exercised have been recognized as part of our right-of-use assets and lease liabilities in accordance with ASC 842, "Leases". Certain leases also contain variable payments that are primarily determined based on common area maintenance costs and Hawaii state tax rates. All leases are operating leases and we do not include any short-term leases in the calculation of the right-of-use assets and lease liabilities. The most significant assumption related to the Company’s application of ASC 842 was the discount rate assumption. As most of the Company’s lease agreements do not provide for an implicit interest rate, the Company uses the collateralized interest rate that the Company would have to pay to borrow over a similar term to estimate the Company’s lease liabilities.

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The following table presents total lease cost, cash flow information, weighted-average remaining lease term and weighted-average discount rate for the periods presented:

Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2024202320242023
Lease cost:
Operating lease cost$1,605 $1,285 $4,345 $3,937 
Variable lease cost484 918 2,346 2,740 
Less: Sublease income   (34)
Total lease cost$2,089 $2,203 $6,691 $6,643 
Other information:
Operating cash flows from operating leases$(1,564)$(1,258)$(4,246)$(3,950)
Weighted-average remaining lease term - operating leases 10.53 years10.85 years10.53 years10.85 years
Weighted-average discount rate - operating leases4.04 %3.96 %4.04 %3.96 %

The following table presents a schedule of annual undiscounted cash flows for our operating leases and a reconciliation of those cash flows to the operating lease liabilities as of September 30, 2024, for the remainder of fiscal year 2024, the next five succeeding fiscal years and all years thereafter:

(dollars in thousands)Undiscounted Cash FlowsLease Liability Discount on Cash FlowsLease Liability
Year Ending December 31,
2024 (remainder)$1,297 $319 $978 
20255,166 1,180 3,986 
20265,125 1,032 4,093 
20274,333 891 3,442 
20283,486 776 2,710 
20293,083 677 2,406 
Thereafter19,201 3,009 16,192 
Total $41,691 $7,884 $33,807 

In addition, the Company, as lessor, leases certain properties that it owns. All of these leases are operating leases. The following table presents lease income related to these leases that was recognized for the periods presented:

Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2024202320242023
Total rental income recognized$519 $497 $1,539 $1,622 

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The following table presents estimated lease payments, based on the Company's leases as lessor as of September 30, 2024, for the remainder of fiscal year 2024, the next five succeeding fiscal years, and all years thereafter:

(dollars in thousands)
Year Ending December 31,
2024 (remainder)$315 
20251,207 
20261,074 
20271,017 
2028608 
2029553 
Thereafter1,294 
Total $6,068 

13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following tables present the components of other comprehensive income (loss) for the periods presented:

(dollars in thousands)Before TaxTax EffectNet of Tax
Three Months Ended September 30, 2024   
Net change in fair value of investment securities:   
Net unrealized gains on AFS investment securities arising during the period$27,092 $7,150 $19,942 
Amortization of unrealized losses on investment securities transferred to HTM1,920 507 1,413 
Net change in fair value of investment securities29,012 7,657 21,355 
Net change in fair value of derivatives:
Net unrealized losses arising during the period(4,317)(1,140)(3,177)
Net change in fair value of derivatives(4,317)(1,140)(3,177)
SERP:   
Amortization of net actuarial gain(2)(1)(1)
SERP(2)(1)(1)
Other comprehensive income$24,693 $6,516 $18,177 

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(dollars in thousands)Before TaxTax EffectNet of Tax
Three Months Ended September 30, 2023   
Net change in fair value of investment securities:   
Net unrealized losses on AFS investment securities arising during the period$(24,729)$(6,569)$(18,160)
Reclassification adjustments from AOCI realized in net income135 36 99 
Amortization of unrealized losses on investment securities transferred to HTM2,026 538 1,488 
Net change in fair value of investment securities(22,568)(5,995)(16,573)
Net change in fair value of derivatives:
Net unrealized gains arising during the period3,151 838 2,313 
Net change in fair value of derivatives3,151 838 2,313 
SERP:   
Amortization of net actuarial gain(19)(7)(12)
Amortization of net transition obligation2 2  
SERP(17)(5)(12)
Other comprehensive loss$(19,434)$(5,162)$(14,272)


(dollars in thousands)Before TaxTax EffectNet of Tax
Nine Months Ended September 30, 2024   
Net change in fair value of investment securities:   
Net unrealized gains on AFS investment securities arising during the period$20,427 $5,391 $15,036 
Amortization of unrealized losses on investment securities transferred to HTM5,425 1,432 3,993 
Net change in fair value of investment securities25,852 6,823 19,029 
Net change in fair value of derivatives:
Net unrealized losses arising during the period(1,286)(340)(946)
Net change in fair value of derivatives(1,286)(340)(946)
SERP:  
Amortization of net actuarial gain(2)(1)(1)
SERP(2)(1)(1)
Other comprehensive income$24,564 $6,482 $18,082 

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(dollars in thousands)Before TaxTax EffectNet of Tax
Nine Months Ended September 30, 2023   
Net change in fair value of investment securities:   
Net unrealized losses on AFS investment securities arising during the period$(17,675)$(4,696)$(12,979)
Reclassification adjustments from AOCI realized in net income135 36 99 
Amortization of unrealized losses on investment securities transferred to HTM5,670 1,506 4,164 
Net change in fair value of investment securities(11,870)(3,154)(8,716)
Net change in fair value of derivatives:
Net unrealized gains arising during the period$4,329 $1,139 $3,190 
Net change in fair value of derivatives4,329 1,139 3,190 
SERP:   
Amortization of net actuarial gain(58)(17)(41)
Amortization of net transition obligation6 2 4 
SERP(52)(15)(37)
Other comprehensive loss$(7,593)$(2,030)$(5,563)


The following tables present the changes in each component of accumulated other comprehensive income (loss), net of tax, for the periods presented:

(dollars in thousands)Investment SecuritiesDerivativesSERPAOCI
Three Months Ended September 30, 2024   
Balance at beginning of period$(130,248)$7,260 $297 $(122,691)
Other comprehensive income (loss) before reclassifications19,942 (3,177) 16,765 
Reclassification adjustments from AOCI1,413  (1)1,412 
Total other comprehensive income (loss)21,355 (3,177)(1)18,177 
Balance at end of period$(108,893)$4,083 $296 $(104,514)

(dollars in thousands)Investment SecuritiesDerivativesSERPAOCI
Three Months Ended September 30, 2023   
Balance at beginning of period$(141,252)$5,522 $455 $(135,275)
Other comprehensive income (loss) before reclassifications(18,160)2,313  (15,847)
Reclassification adjustments from AOCI1,587  (12)1,575 
Total other comprehensive income (loss)(16,573)2,313 (12)(14,272)
Balance at end of period$(157,825)$7,835 $443 $(149,547)

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(dollars in thousands)Investment SecuritiesDerivativesSERPAOCI
Nine Months Ended September 30, 2024   
Balance at beginning of period$(127,922)$5,029 $297 $(122,596)
Other comprehensive income (loss) before reclassifications15,036 (946) 14,090 
Reclassification adjustments from AOCI3,993  (1)3,992 
Total other comprehensive income (loss)19,029 (946)(1)18,082 
Balance at end of period$(108,893)$4,083 $296 $(104,514)

(dollars in thousands)Investment SecuritiesDerivativesSERPAOCI
Nine Months Ended September 30, 2023   
Balance at beginning of period$(149,109)$4,645 $480 $(143,984)
Other comprehensive income (loss) before reclassifications(12,979)3,190  (9,789)
Reclassification adjustments from AOCI4,263  (37)4,226 
Total other comprehensive income (loss)(8,716)3,190 (37)(5,563)
Balance at end of period$(157,825)$7,835 $443 $(149,547)


The following tables present the amounts reclassified out of each component of AOCI for the periods presented:

Amount Reclassified from AOCIAffected Line Item in the Statement Where Net Income is Presented
(dollars in thousands)Three Months Ended September 30,
Details about AOCI Components20242023
Sale of AFS investment securities:
Realized loss on sale of AFS investment securities$ $135 Net loss on sale of investment securities
Tax effect (36)Income tax benefit
Net of tax 99 
Amortization of unrealized losses on investment securities transferred to HTM:
Amortization1,920 2,026 Interest and dividends on investment securities
Tax effect(507)(538)Income tax benefit
Net of tax1,413 1,488 
SERP:   
Amortization of net actuarial gain(2)(19)Other operating expense - other
Amortization of net transition obligation 2 Other operating expense - other
Total before tax(2)(17)
Tax effect1 5 Income tax expense
Net of tax(1)(12)
Total reclassification adjustments from AOCI for the period, net of tax$1,412 $1,575 

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Amount Reclassified from AOCIAffected Line Item in the Statement Where Net Income is Presented
(dollars in thousands)Nine Months Ended September 30,
Details about AOCI Components20242023
Sale of AFS investment securities:
Realized loss on sale of AFS investment securities$ $135 Net loss on sale of investment securities
Tax effect (36)Income tax benefit
Net of tax 99 
Amortization of unrealized losses on investment securities transferred to HTM:
Amortization5,425 5,670 Interest and dividends on investment securities
Tax effect(1,432)(1,506)Income tax benefit
Net of tax3,993 4,164 
SERP:   
Amortization of net actuarial gain(2)(58)Other operating expense - other
Amortization of net transition obligation 6 Other operating expense - other
Total before tax(2)(52)
Tax effect1 15 Income tax expense
Net of tax(1)(37)
Total reclassification adjustments from AOCI for the period, net of tax$3,992 $4,226 
14. EARNINGS PER SHARE

The following table presents the information used to compute basic and diluted earnings per share for the periods presented:

Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands, except per share data)2024202320242023
Net income$13,305 $13,141 $42,067 $43,803 
Weighted average common shares outstanding - basic27,064,035 27,042,762 27,054,737 27,022,141 
Dilutive effect of employee stock options and awards130,590 36,722 83,248 59,400 
Weighted average common shares outstanding - diluted27,194,625 27,079,484 27,137,985 27,081,541 
Basic earnings per share$0.49 $0.49 $1.55 $1.62 
Diluted earnings per share$0.49 $0.49 $1.55 $1.62 
Anti-dilutive employee stock options and awards 23,830 62 24,281 

15. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

Disclosures about Fair Value of Financial Instruments

Fair value estimates, methods and assumptions are set forth below for our financial instruments.

Short-Term Financial Instruments

The carrying values of short-term financial instruments are deemed to approximate fair values. Such instruments are considered readily convertible to cash and include cash and due from financial institutions, interest-bearing deposits in other financial
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institutions, accrued interest receivable, the majority of FHLB advances and other short-term borrowings, and accrued interest payable.

Investment Securities

The fair value of investment securities is based on market price quotations received from third-party pricing services. The third-party pricing services utilize pricing models supported with timely market data information. Where quoted market prices are not available, fair values are based on quoted market prices of comparable securities.

Loans

Fair values of loans are estimated based on discounted cash flows of portfolios of loans with similar financial characteristics including the type of loan, interest terms and repayment history. Fair values are calculated by discounting scheduled cash flows through estimated maturities using estimated market discount rates. Estimated market discount rates are reflective of credit and interest rate risks inherent in the Company's various loan types and are derived from available market information, as well as specific borrower information. The weighted average discount rate used in the valuation of loans was 6.28% and 6.86% as of September 30, 2024 and December 31, 2023, respectively. In accordance with ASU 2016-01, the fair values of loans are measured based on the notion of exit price.

Loans Held for Sale

The fair value of loans classified as held for sale are generally based upon quoted prices for similar assets in active markets, acceptance of firm offer letters with agreed upon purchase prices, discounted cash flow models that take into account market observable assumptions, or independent appraisals of the underlying collateral securing the loans. We report loans previously held for investment that were transferred to loans held for sale, if any, at fair value, net of estimated selling costs on our consolidated balance sheets.

Deposit Liabilities

The fair values of deposits with no stated maturity, such as noninterest-bearing demand deposits and interest-bearing demand and savings accounts, for the purposes of this disclosure, are shown to equal the carrying amount which is the amount payable on demand. The fair value of time deposits is estimated by discounting future cash flows using rates currently offered for FHLB advances of similar remaining maturities. The weighted average discount rate used in the valuation of time deposits was 4.75% and 5.48% as of September 30, 2024 and December 31, 2023, respectively.

Long-Term Debt

The fair values of our long-term debt is estimated by discounting scheduled cash flows over the contractual borrowing period at the estimated market rate for similar borrowing arrangements. The weighted average discount rate used in the valuation of long-term debt was 6.15% and 6.83% as of September 30, 2024 and December 31, 2023, respectively.

Derivatives

The fair values of derivative financial instruments are based upon current market values, if available. If there are no relevant comparable values, fair values are based on pricing models using current assumptions for interest rate swaps and options.

Off-Balance Sheet Financial Instruments

The fair values of off-balance sheet financial instruments are estimated based on the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties, current settlement values or quoted market prices of comparable instruments.

Limitations

Fair value estimates are made at a specific point in time based on relevant market and financial instrument information. These estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument. Because no market exists for a significant portion of our financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates cannot be determined with precision as they are subjective in
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nature and involve uncertainties and matters of significant judgment. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of future business and the value of assets and liabilities that are not considered financial instruments. For example, significant assets and liabilities that are not considered financial assets or liabilities include deferred tax assets, premises and equipment and intangible assets.

   Fair Value Measurement Using
(dollars in thousands)Carrying
Amount
Estimated
Fair Value
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
September 30, 2024     
Financial assets:     
Cash and due from financial institutions$100,064 $100,064 $100,064 $ $ 
Interest-bearing deposits in other financial institutions226,505 226,505 226,505   
Investment securities1,329,570 1,270,443 36,453 1,226,934 7,056 
Loans held for sale1,609 1,609  1,609  
Loans5,342,609 5,023,606   5,023,606 
Accrued interest receivable23,942 23,942 489 4,054 19,399 
Financial liabilities:     
Deposits:     
Noninterest-bearing demand1,838,009 1,838,009 1,838,009   
Interest-bearing demand and savings and money market3,591,705 3,591,705 3,591,705   
Time1,153,299 1,146,531   1,146,531 
Long-term debt156,284 150,081   150,081 
Accrued interest payable12,980 12,980 123  12,857 

   Fair Value Measurement Using
(dollars in thousands)Notional
Amount
Carrying
Amount
Estimated
Fair Value
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
September 30, 2024     
Off-balance sheet financial instruments: 
Commitments to extend credit$1,267,835 $ $1,244 $ $1,244 $ 
Standby letters of credit and financial guarantees written2,807  42  42  
Derivatives:
Interest rate lock commitments1,585 (2)(2) (2) 
Risk participation agreements35,395      
Back-to-back swap agreements:
Assets50,426 2,875 2,875   2,875 
Liabilities(50,426)(2,875)(2,875)  (2,875)
Interest rate swap agreements115,545 5,202 5,202   5,202 
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   Fair Value Measurement Using
(dollars in thousands)Carrying
Amount
Estimated
Fair Value
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
December 31, 2023     
Financial assets:     
Cash and due from financial institutions$116,181 $116,181 $116,181 $ $ 
Interest-bearing deposits in other financial institutions406,256 406,256 406,256   
Investment securities1,279,548 1,212,388  1,205,238 7,150 
Loans held for sale1,778 1,778  1,778  
Loans5,438,982 5,089,292   5,089,292 
Accrued interest receivable 21,511 21,511 342 4,043 17,126 
Financial liabilities:     
Deposits:     
Noninterest-bearing demand1,913,379 1,913,379 1,913,379   
Interest-bearing demand and savings and money market3,538,922 3,538,922 3,538,922   
Time1,395,291 1,385,473   1,385,473 
Long-term debt156,102 153,073   153,073 
Accrued interest payable18,948 18,948 85  18,863 

   Fair Value Measurement Using
(dollars in thousands)Notional
Amount
Carrying
Amount
Estimated
Fair Value
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
December 31, 2023
Off-balance sheet financial instruments:      
Commitments to extend credit$1,275,331 $ $1,210 $ $1,210 $ 
Standby letters of credit and financial guarantees written3,301  50  50  
Derivatives:
Interest rate lock commitments1,807 (34)(34) (34) 
Risk participation agreements36,022      
Back-to-back swap agreements:
Assets51,059 3,547 3,547   3,547 
Liabilities(51,059)(3,547)(3,547)  (3,547)
Interest rate swap agreements115,545 6,440 6,440   6,440 

Fair Value Measurements

We group our financial assets and liabilities at fair value into three levels based on the markets in which the financial assets and liabilities are traded and the reliability of the assumptions used to determine fair value as follows:

Level 1 — Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities traded in active markets. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.

Level 2 — Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 — Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in
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pricing the asset or liability. Valuation techniques include use of discounted cash flow models and similar techniques that requires the use of significant judgment or estimation.

We base our fair values on the price that we would expect to receive if an asset were sold, or the price that we would expect to pay to transfer a liability in an orderly transaction between market participants at the measurement date. We also maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements.

We use fair value measurements to record adjustments to certain financial assets and liabilities and to determine fair value disclosures. Available-for-sale securities and derivatives are recorded at fair value on a recurring basis. Periodically, we may be required to record other financial assets at fair value on a nonrecurring basis such as loans held for sale, individually evaluated loans, mortgage servicing rights, and other real estate owned. These nonrecurring fair value adjustments typically involve application of the lower of cost or fair value accounting or write-downs of individual assets.

The following tables present the fair value of financial assets and liabilities measured on a recurring basis as of the dates presented:
  Fair Value at Reporting Date Using
(dollars in thousands)Fair ValueQuoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
September 30, 2024    
Available-for-sale securities:    
Debt securities:    
States and political subdivisions$123,181 $ $116,843 $6,338 
Corporate securities32,554  32,554  
U.S. Treasury and other government-sponsored entities and agencies59,230 36,453 22,777  
Mortgage-backed securities:    
Residential - U.S. government-sponsored entities and agencies386,296  386,296  
Residential - Non-government agencies17,834  17,116 718 
Commercial - U.S. government-sponsored entities and agencies89,029  89,029  
Commercial - Non-government agencies15,329  15,329  
Total available-for-sale investment securities723,453 36,453 679,944 7,056 
Derivatives:
Interest rate lock commitments(2) (2) 
Interest rate swap agreements5,202   5,202 
Total derivatives5,200  (2)5,202 
Total$728,653 $36,453 $679,942 $12,258 

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  Fair Value at Reporting Date Using
(dollars in thousands)Fair ValueQuoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
December 31, 2023    
Available-for-sale securities:    
Debt securities:    
States and political subdivisions$126,635 $ $120,199 $6,436 
Corporate securities31,414  31,414  
U.S. Treasury and other government-sponsored entities and agencies26,197  26,197  
Mortgage-backed securities:    
Residential - U.S. government-sponsored entities and agencies378,386  378,386  
Residential - Non-government agencies18,708  17,994 714 
Commercial - U.S. government-sponsored entities and agencies50,914  50,914  
Commercial - Non-government agencies14,956  14,956  
Total available-for-sale investment securities647,210  640,060 7,150 
Derivatives:
Interest rate lock commitments(34) (34) 
Interest rate swap agreements6,440   6,440 
Total derivatives6,406  (34)6,440 
Total$653,616 $ $640,026 $13,590 

The following table presents changes in Level 3 financial assets and liabilities measured at fair value on a recurring basis for the periods presented:
Available-For-Sale Debt Securities:
(dollars in thousands)States and Political SubdivisionsResidential - Non-Government AgenciesInterest Rate Swap AgreementsTotal
Balance at December 31, 2023$6,436 $714 $6,440 $13,590 
Principal payments received(163)(18) (181)
Unrealized net gain (loss) included in other comprehensive income65 22 (1,238)(1,151)
Balance at September 30, 2024$6,338 $718 $5,202 $12,258 
  
Balance at December 31, 2022$6,584 $684 $5,986 $13,254 
Principal payments received(172)(17) (189)
Unrealized net gain (loss) included in other comprehensive income(49)4 4,149 4,104 
Balance at September 30, 2023$6,363 $671 $10,135 $17,169 

Based on a discounted cash flow model that calculates the present value of estimated future principal and interest payments, the estimated aggregate fair value of Level 3 financial assets and liabilities measured at fair value on a recurring basis was $12.3 million and $13.6 million as of September 30, 2024 and December 31, 2023, respectively.

The weighted-average discount rate was used as the significant unobservable input in the fair value measurement of the available-for-sale debt securities. The weighted average discount rate utilized was 5.72% and 6.12% as of September 30, 2024 and December 31, 2023, respectively, which was derived by incorporating a credit spread over the FHLB Fixed-Rate Advance curve. Significant increases (decreases) in the weighted-average discount rate could result in a significantly lower (higher) fair value measurement.
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The significant unobservable input used in the fair value measurement of the Company's interest rate swap is the weighted-average discount rate. The weighted average discount rate utilized was 3.42% and 3.34% as of September 30, 2024 and December 31, 2023, respectively.

There were no financial assets or liabilities measured on a nonrecurring basis as of September 30, 2024 and December 31, 2023.
16. LEGAL PROCEEDINGS

We are involved in legal proceedings that arise in the ordinary course of our business. The outcome of these matters and the timing of ultimate resolution is inherently difficult to predict. Based on information currently available to us, we do not expect that the ultimate costs to resolve these matters will have a material adverse effect on our financial condition or operations.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements and Factors that Could Affect Future Results

Certain statements contained in this quarterly report on Form 10-Q that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"), notwithstanding that such statements are not specifically identified. In addition, certain statements may be contained in our future filings with the U.S. Securities and Exchange Commission ("SEC"), in press releases and in oral and written statements made by us or with our approval that are not statements of historical fact and constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, capital expenditures, the payment or nonpayment of dividends, capital position, credit losses, and net interest margin or other financial items; (ii) statements of plans, objectives and expectations of Central Pacific Financial Corp. (the "Company") or its management or Board of Directors, including those relating to business plans, use of capital resources, products or services and regulatory developments and regulatory actions; (iii) statements of future economic performance including anticipated performance results from our business initiatives; and (iv) any statements of the assumptions underlying or relating to any of the foregoing. Words such as "believe," "plan," "anticipate," "seek," "expect," "intend," "forecast," "hope," "target," "continue," "remain," "estimate," "will," "should," "may" and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

While we believe that our forward-looking statements and the assumptions underlying them are reasonably based, such statements and assumptions are by their nature subject to risks and uncertainties, and thus could later prove to be inaccurate or incorrect. Accordingly, actual results could differ materially from those statements or projections for a variety of reasons. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

the effects of inflation and interest rate fluctuations;
the adverse effects of recent bank failures and the potential impact of such developments on customer confidence, deposit behavior, liquidity and regulatory responses thereto;
the adverse effects of the COVID-19 pandemic virus (and its variants) and other pandemic viruses on local, national and international economies, including, but not limited to, the adverse impact on tourism and construction in the State of Hawaii, our borrowers, customers, third-party contractors, vendors and employees, as well as the effects of government programs and initiatives in response thereto;
supply chain disruptions;
labor contract disputes and potential strikes impacting both the U.S. National and Hawaii economies;
the increase in inventory or adverse conditions in the real estate market and deterioration in the construction industry;
adverse changes in the financial performance and/or condition of our borrowers and, as a result, increased loan delinquency rates, deterioration in asset quality, and losses in our loan portfolio;
the impact of local, national, and international economies and events (including natural disasters such as wildfires, volcanic eruptions, hurricanes, tsunamis, storms, and earthquakes) on the Company's business and operations and on tourism, the military, and other major industries operating within the Hawaii market and any other markets in which the Company does business;
deterioration or malaise in domestic economic conditions, including any destabilization in the financial industry and deterioration of the real estate market, as well as the impact of declining levels of consumer and business confidence in the state of the economy in general and in financial institutions in particular;
changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements;
the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), changes in capital standards, other regulatory reform and federal and state legislation, including but not limited to regulations promulgated by the Consumer Financial Protection Bureau (the "CFPB"), government-sponsored enterprise reform, and any related rules and regulations which affect our business operations and competitiveness;
the costs and effects of legal and regulatory developments, including legal proceedings and lawsuits we are or may become subject to, or regulatory or other governmental inquiries and proceedings and the resolution thereof, the results of regulatory examinations or reviews and the effect of, and our ability to comply with, any regulations or regulatory orders or actions we are or may become subject to, and the effect of any recurring or special FDIC assessments;
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the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board ("PCAOB"), the Financial Accounting Standards Board ("FASB") and other accounting standard setters and the cost and resources required to implement such changes;
the effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Board of Governors of the Federal Reserve System (the "FRB" or the "Federal Reserve");
securities market and monetary fluctuations, including the impact resulting from the elimination of the London Interbank Offered Rate Index;
negative trends in our market capitalization and adverse changes in the price of the Company's common stock;
the effects of any acquisitions or dispositions we may make or evaluate, and the costs associated with any potential or actual acquisition or disposition, including re-engagement in any potential acquisition process;
political instability;
acts of war or terrorism;
changes in consumer spending, borrowings and savings habits;
technological changes and developments;
cybersecurity and data privacy breaches and the consequence therefrom;
failure to maintain effective internal control over financial reporting or disclosure controls and procedures;
our ability to address deficiencies in our internal controls over financial reporting or disclosure controls and procedures;
changes in the competitive environment among financial holding companies and other financial service providers;
our ability to successfully implement our initiatives to lower our efficiency ratio;
our ability to attract and retain key personnel;
changes in our personnel, organization, compensation and benefit plans;
our ability to successfully implement and achieve the objectives of our Banking-as-a-Service ("BaaS") initiatives, including adoption of the initiatives by customers and risks faced by any of our bank collaborations including reputational and regulatory risk; and
our success at managing the risks involved in the foregoing items.

For further information with respect to factors that could cause actual results to materially differ from the expectations or projections stated in the forward-looking statements, please see the Company's publicly available Securities and Exchange Commission filings, including the Company's Form 10-K for the last fiscal year and in particular, the discussion of "Risk Factors" set forth therein and herein. We urge investors to consider all of these factors carefully in evaluating the forward-looking statements contained in this document. Forward-looking statements speak only as of the date on which such statements are made. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events except as required by law.

Overview

Central Pacific Financial Corp. ("CPF") is a Hawaii corporation and a bank holding company. Our principal business is to serve as a holding company for our bank subsidiary, Central Pacific Bank. We refer to Central Pacific Bank herein as "our Bank" or "the Bank," and when we say "the Company," "we," "us" or "our," we mean the holding company on a consolidated basis with the Bank and our other consolidated subsidiaries.

Central Pacific Bank is a full-service community bank with 27 branches and 56 ATMs located throughout the State of Hawaii as of September 30, 2024.

The Bank offers traditional deposit and lending products and services to consumer and business customers such as accepting demand, money market, savings and time deposits, originating loans, including commercial loans, construction loans, commercial real estate loans, residential mortgage loans, and consumer loans and fiduciary and investment management services.

Basis of Presentation

Management's discussion and analysis of financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements under "Part I, Item 1. Financial Statements (Unaudited)." The following
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discussion should also be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2023 filed with the U.S. Securities and Exchange Commission (the "SEC") on February 21, 2024, including the “Risk Factors” set forth therein.

Critical Accounting Policies and Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP") requires that management make certain judgments and use certain estimates and assumptions that affect amounts reported and disclosures made. Actual results may differ from those estimates and such differences could be material to the financial statements.

Accounting estimates are deemed critical when a different estimate could have reasonably been used or where changes in the estimate are reasonably likely to occur from period-to-period and would materially impact our consolidated financial statements as of or for the periods presented. Management has discussed the development and selection of the critical accounting estimates noted below with the Audit Committee of the Board of Directors, and the Audit Committee has reviewed the accompanying disclosures.

The Company identified a significant accounting policy, which involves a higher degree of judgment and complexity in making certain estimates and assumptions that affect amounts reported in our consolidated financial statements. At September 30, 2024 and December 31, 2023, the significant accounting policy that we believed to be the most critical in preparing our consolidated financial statements is the determination of the allowance for credit losses ("ACL") on loans. This is further described in Note 1 - Summary of Significant Accounting Policies included in the accompanying notes to the consolidated financial statements, Note 1 - Summary of Significant Accounting Policies included in the accompanying notes to the consolidated financial statements for the year ended December 31, 2023, and the section titled "Critical Accounting Policies and Use of Estimates" in Management's Discussion and Analysis of Financial Condition and Operating Results included in the Company's 2023 Annual Report on Form 10-K.

Financial Summary

Net income for the three months ended September 30, 2024 was $13.3 million, or $0.49 per diluted share, compared to net income of $13.1 million, or $0.49 per diluted share for the three months ended September 30, 2023. Net income during the third quarter of 2024 was impacted by $3.1 million in pre-tax expenses related to our evaluation and assessment of a strategic opportunity.

Net income for the nine months ended September 30, 2024 was $42.1 million, or $1.55 per diluted share, compared to net income of $43.8 million, or $1.62 per diluted share for the nine months ended September 30, 2023.

During the three months ended September 30, 2024, the Company recorded a provision for credit losses of $2.8 million, compared to a provision of $4.9 million during the three months ended September 30, 2023. The decrease was primarily due to a decrease in loan balances outstanding and improvements in the Hawaii economic forecast assumptions used in the Company's estimate of the ACL.

During the nine months ended September 30, 2024, the Company recorded a provision for credit losses of $9.0 million, compared to a provision of $11.0 million during the nine months ended September 30, 2023.

The Company's pre-provision net revenue ("PPNR"), a non-GAAP financial measure which excludes the provision for credit losses and income tax expense from net income, for the three months ended September 30, 2024 was $19.9 million, compared to $22.4 million for the three months ended September 30, 2023. The Company's PPNR for the nine months ended September 30, 2024 was $63.6 million, compared to $68.7 million for the nine months ended September 30, 2023. The decrease in PPNR for the three and nine months ended September 30, 2024 is primarily due to the aforementioned expenses related to a strategic opportunity. See the following section titled "Non-GAAP Financial Measures" for reconciliation of PPNR.

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The following table presents annualized returns on average assets ("ROA") and average shareholders' equity ("ROE"), and basic and diluted earnings per share ("EPS") for the periods presented. ROA and ROE are annualized based on a 30/360 day convention.

Three Months Ended September 30,Nine Months Ended September 30,
 2024202320242023
Return on average assets0.72 %0.70 %0.76 %0.78 %
Return on average shareholders’ equity10.02 10.95 10.91 12.33 
Basic earnings per share$0.49 $0.49 $1.55 $1.62 
Diluted earnings per share0.49 0.49 1.55 1.62 

Non-GAAP Financial Measures

The Company uses certain non-GAAP financial measures in addition to our GAAP results to provide useful information which we believe are better indicators of the Company's core activities. This information should be considered as supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be comparable to similarly entitled measures reported by other companies.

The reconciling adjustments from GAAP or reported financial measures to non-GAAP adjusted financial measures are limited to the $3.1 million in pre-tax expenses related to our evaluation and assessment of a strategic opportunity. Management does not consider these expenses to be representative of the Company's core earnings.

Three Months Ended September 30,Nine Months Ended September 30,
2024202320242023
Financial Measures:
Net income$13,305 $13,141 $42,067 $43,803 
Diluted earnings per share$0.49 $0.49 $1.55 $1.62 
Pre-provision net revenue (non-GAAP)$19,898 $22,364 $63,644 $68,728 
Return on average assets0.72 %0.70 %0.76 %0.78 %
Return on average shareholders' equity10.02 %10.95 %10.91 %12.33 %
Efficiency ratio (non-GAAP)70.12 %63.91 %66.86 %63.89 %
As of September 30, 2024 and 2023:
Tangible common equity ratio (non-GAAP)7.31 %6.12 %
Adjusted Financial Measures (Non-GAAP):
Adjusted net income$15,667 $13,141 $44,429 $43,803 
Adjusted diluted earnings per share$0.58 $0.49 $1.64 $1.62 
Adjusted pre-provision net revenue (non-GAAP)$22,966 $22,364 $66,712 $68,728 
Adjusted return on average assets0.85 %0.70 %0.80 %0.78 %
Adjusted return on average shareholders' equity11.75 %10.95 %11.51 %12.33 %
Adjusted efficiency ratio (non-GAAP)65.51 %63.91 %65.26 %63.89 %
As of September 30, 2024 and 2023:
Adjusted tangible common equity ratio (non-GAAP)7.34 %6.12 %

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Adjusted Net Income and Diluted Earnings per Share

The following table presents a reconciliation of the Company's adjusted net income and adjusted diluted EPS for the periods presented:

Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands, except per share data)2024202320242023
GAAP net income$13,305 $13,141 $42,067 $43,803 
Add: Pre-tax expenses related to a strategic opportunity3,068 — 3,068 — 
Less: Income tax effects (assumes 23% ETR)(706)— (706)— 
Expenses related to a strategic opportunity, net of tax
2,362 — 2,362 — 
Adjusted net income (non-GAAP)$15,667 $13,141 $44,429 $43,803 
Diluted weighted average shares outstanding27,194,625 27,079,484 27,137,985 27,081,541 
GAAP diluted EPS$0.49 $0.49 $1.55 $1.62 
Add: Expenses related to a strategic opportunity, net of tax0.09 — 0.09 — 
Adjusted diluted EPS (non-GAAP)$0.58 $0.49 $1.64 $1.62 
Adjusted Pre-Provision Net Revenue

The Company believes that PPNR, a non-GAAP financial measure, is useful as a tool to help evaluate the ability to provide for credit costs through operations. The following table presents a reconciliation of the Company's PPNR and adjusted PPNR for the periods presented:

Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2024202320242023
GAAP net income$13,305 $13,141 $42,067 $43,803 
Add: Income tax expense3,760 4,349 12,569 13,880 
Pre-tax income17,065 17,490 54,636 57,683 
Add: Provision (credit) for credit losses2,833 4,874 9,008 11,045 
PPNR (non-GAAP)
19,898 22,364 63,644 68,728 
Add: Pre-tax expenses related to a strategic opportunity3,068 — 3,068 — 
Adjusted PPNR (non-GAAP)
$22,966 $22,364 $66,712 $68,728 
The higher adjusted PPNR in the third quarter of 2024 was primarily due to higher net interest income of $1.9 million compared to the year-ago period. The higher net interest income was primarily due to higher average yields earned on interest-earning assets, which outpaced the higher average rates paid on interest-bearing deposits.

The lower adjusted PPNR in the nine months ended September 30, 2024 was primarily due to lower net interest income of $2.9 million compared to the year-ago period. The lower net interest income was primarily due to higher average balances and rates paid on interest-bearing deposits driven by the high interest rate environment in 2024, which outpaced the higher average yields earned on loans and investment securities.

Adjusted Efficiency Ratio

The Company believes that the efficiency ratio, a non-GAAP financial measure, provides useful supplemental information that is important to a proper understanding of the Company's business results and operating efficiency, which is calculated by dividing total other operating expense by total revenue (net interest income and total other operating income).

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The following table presents a calculation of our efficiency ratio and adjusted efficiency ratio for the periods presented:

Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2024202320242023
Total other operating expense$46,687 $39,611 $128,414 $121,621 
Less: Pre-tax expenses related to a strategic opportunity(3,068)— (3,068)— 
Adjusted total other operating expense (non-GAAP)$43,619 $39,611 $125,346 $121,621 
Net interest income$53,851 $51,928 $155,959 $158,858 
Total other operating income12,734 10,047 36,099 31,491 
Total revenue$66,585 $61,975 $192,058 $190,349 
Efficiency ratio (non-GAAP)70.12 %63.91 %66.86 %63.89 %
Less: Pre-tax expenses related to a strategic opportunity(4.61)— (1.60)— 
Adjusted efficiency ratio (non-GAAP)65.51 %63.91 %65.26 %63.89 %

Our adjusted efficiency ratio increased to 65.51% in the third quarter of 2024, compared to 63.91% in the year-ago quarter.
For the nine months ended September 30, 2024, our adjusted efficiency ratio increased to 65.26%, compared to 63.89% in the year-ago period.

The higher adjusted efficiency ratio in the third quarter of 2024, compared to the same year-ago period, was due to higher other operating expense, partially offset by higher net interest income and other operating income.

The higher adjusted efficiency ratio in the nine months ended September 30, 2024, compared to the same year-ago period, was due to higher other operating expense and lower net interest income, partially offset by higher other operating income.

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Adjusted Return on Average Assets and Adjusted Return on Average Shareholders' Equity

The following table presents a calculation of our adjusted ROA and adjusted ROE for the periods presented:

Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2024202320242023
Average assets$7,347,403 $7,510,537 $7,378,479 $7,472,890 
Add: Expenses related to a strategic opportunity, net of tax2,362 — 787 — 
Adjusted average assets (non-GAAP)$7,349,765 $7,510,537 $7,379,266 $7,472,890 
ROA (GAAP net income divided by average assets)0.72 %0.70 %0.76 %0.78 %
Add: Expenses related to a strategic opportunity, net of tax0.13 — 0.04 — 
Adjusted ROA (non-GAAP)0.85 %0.70 %0.80 %0.78 %
Average shareholders' equity$530,928 $480,118 $513,914 $473,856 
Add: Expenses related to a strategic opportunity, net of tax2,362 — 787 — 
Adjusted average shareholders' equity (non-GAAP)$533,290 $480,118 $514,701 $473,856 
ROE (GAAP net income divided by average shareholders' equity)10.02 %10.95 %10.91 %12.33 %
Add: Expenses related to a strategic opportunity, net of tax1.73 — 0.60 — 
Adjusted ROE (non-GAAP)11.75 %10.95 %11.51 %12.33 %

Adjusted Tangible Common Equity Ratio

The following table presents a calculation of our tangible common equity ("TCE") ratio and adjusted TCE ratio as of the dates presented:

(dollars in thousands)September 30, 2024September 30, 2023
TCE (non-GAAP)$542,335 $467,114 
Add: Expenses related to a strategic opportunity, net of tax2,362 — 
Adjusted TCE (non-GAAP)$544,697 $467,114 
Tangible assets (non-GAAP)$7,414,040 $7,636,440 
Add: Expenses related to a strategic opportunity, net of tax2,362 — 
Adjusted tangible assets (non-GAAP)$7,416,402 $7,636,440 
TCE ratio (non-GAAP)7.31 %6.12 %
Add: Expenses related to a strategic opportunity, net of tax0.03 %— %
Adjusted TCE ratio (non-GAAP)7.34 %6.12 %

Material Trends

The majority of our operations are concentrated in the State of Hawaii. As a result, our performance is significantly influenced by the strength of the real estate markets, economic environment and environmental conditions in Hawaii. Macroeconomic conditions also influence our performance. A favorable business environment is generally characterized by expanding gross state product, low unemployment and rising personal income, while an unfavorable business environment is characterized by the reverse.

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On August 8, 2023, a series of wildfires broke out on the Island of Maui, in Kula, Upcountry Maui, Kihei, and most devastatingly in the town of Lahaina. The wildfires took the lives of at least 100 people and destroyed over 2,200 structures, of which approximately 86% were residential homes. The disaster area had more than 800 business establishments with about 7,000 employees. The Company did not sustain any damages to its facilities on Maui.

Visitors to Maui decreased by approximately 57% in September 2023 compared to September 2022 but has started to recover at a slow but steady pace as West Maui officially reopened to visitors in early October 2023 and government officials are encouraging travelers to return to Maui, while avoiding the affected area, to support its economic recovery. In August 2024, visitors to Maui were up by approximately 80% compared to August 2023, but still down by 25% from August 2019. The unemployment rate for the Island of Maui was 8.4% in September 2023 and has since improved to 4.0% in September 2024.

In response to the Maui wildfires, the Company provided three to six months interest and/or principal loan payment deferrals to customers who were directly impacted by the wildfires on a case-by-case basis, which have all ended and returned to current payment status as of September 30, 2024.

Despite the Maui wildfires, Hawaii’s economy continued its recovery from the COVID-19 pandemic. According to preliminary statistics from the Hawaii Tourism Authority ("HTA"), a total of 6.5 million visitors arrived to the Hawaiian Islands during the eight months ended August 31, 2024, mainly from the U.S. Mainland, compared to 6.7 million in the same prior year period and 7.1 million from the same period in the pre-pandemic and record year in 2019. Average daily visitors from Japan were up approximately 27% during the eight months ended August 31, 2024 compared to the same prior year period, but were down by approximately 54% from the same period in 2019.

Total spending for visitors arriving in the eight months ended August 31, 2024 was $14.06 billion, down 2.3% from $14.39 billion in the same period last year, and up by 16.6% from $12.06 billion in the eight months ended August 31, 2019.

According to a September 2024 report by the University of Hawaii Economic Research Organization ("UHERO"), total visitor arrivals by air are expected to be approximately 9.7 million in 2024, which is an increase of approximately 0.9% from 9.6 million last year. Visitor spending is expected to decline approximately 4.0% to $19.89 billion in 2024 from last year's record year for visitor spending of $20.71 billion.

The Department of Labor and Industrial Relations reported that Hawaii's seasonally adjusted annual unemployment rate was 2.9% in the month of September 2024, compared to 3.0% in the month of September 2023 and the national seasonally adjusted unemployment rate of 4.1% in the month of September 2024. UHERO projects Hawaii's seasonally adjusted annual unemployment rate to remain low at approximately 3.0% in 2024.

Real estate lending is one of the primary focuses for the Company, including residential mortgage and commercial mortgage loans. As a result, the Company is dependent on the strength of Hawaii's real estate market. While the Hawaii housing market continues to experience some moderation in sales activity, there continues to be strong demand and low inventory. According to the Honolulu Board of Realtors, sales of Oahu single-family homes in the nine months ended September 30, 2024 were up 5.8%, while sales of Oahu condominiums were down 5.6% from the same prior year period. The Oahu single-family home median price in the nine months ended September 30, 2024 rose by 4.8% to $1.10 million from $1.05 million in the same prior year period. The Oahu condominium median price in the nine months ended September 30, 2024 rose by 1.0% to $510,000 from $505,000 in the same prior year period.

Hawaii's economy is measured by the growth of real personal income and real gross state product. UHERO projects real personal income to grow by 1.4% and real gross state product to grow by 1.0% in 2024.

Results of Operations

Net Interest Income and Net Interest Margin

A comparison of net interest income and net interest margin on a taxable-equivalent basis for the three and nine months ended September 30, 2024 and 2023 is presented below. Net interest margin is defined as annualized net interest income, on a taxable-equivalent basis using a federal statutory tax rate of 21%, as a percentage of average interest earning assets.

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(dollars in thousands)Three Months Ended September 30,
20242023Variance
Average
Balance
Average
Yield/
Rate
Interest
Income/
Expense
Average
Balance
Average
Yield/
Rate
Interest
Income/
Expense
Average
Balance
Average
Yield/
Rate
Interest
Income/
Expense
Assets     
Interest earning assets: 
Interest-bearing deposits in other financial institutions$203,657 5.42 %$2,775 $177,780 5.38 %$2,412 $25,877 0.04 %$363 
Investment securities:
Taxable (1)1,340,347 2.68 8,975 1,354,039 2.07 7,016 (13,692)0.61 1,959 
Tax-exempt (1) (2)141,168 1.98 697 149,824 2.40 897 (8,656)(0.42)(200)
Total investment securities1,481,515 2.61 9,672 1,503,863 2.10 7,913 (22,348)0.51 1,759 
Loans, including loans held for sale5,330,810 4.89 65,469 5,507,248 4.49 62,162 (176,438)0.40 3,307 
FHLB stock6,928 7.31 127 10,975 4.09 113 (4,047)3.22 14 
Total interest earning assets7,022,910 4.43 78,043 7,199,866 4.01 72,600 (176,956)0.42 5,443 
Noninterest-earning assets324,493   310,671   13,822  
Total assets$7,347,403   $7,510,537   $(163,134) 
Liabilities and Equity
Interest-bearing liabilities:         
Interest-bearing demand deposits$1,267,135 0.15 %$484 $1,339,294 0.14 %$460 $(72,159)0.01 %$24 
Savings and money market deposits2,298,853 1.77 10,235 2,209,835 1.16 6,464 89,018 0.61 3,771 
Time deposits up to $250,000534,497 3.15 4,238 449,844 2.33 2,637 84,653 0.82 1,601 
Time deposits over $250,000647,728 4.18 6,802 844,842 4.05 8,631 (197,114)0.13 (1,829)
Total interest-bearing deposits4,748,213 1.82 21,759 4,843,815 1.49 18,192 (95,602)0.33 3,567 
Long-term debt156,247 5.82 2,287 156,005 5.83 2,292 242 (0.01)(5)
Total interest-bearing liabilities4,904,460 1.95 24,046 4,999,820 1.63 20,484 (95,360)0.32 3,562 
Noninterest-bearing deposits1,787,209  1,894,256  (107,047)
Other liabilities124,806   136,343   (11,537) 
Total liabilities6,816,475   7,030,419   (213,944) 
Total equity530,928   480,118   50,810  
Total liabilities and equity$7,347,403   $7,510,537   $(163,134) 
Net interest income  $53,997   $52,116   $1,881 
Interest rate spread2.48 %2.38 %0.10 %
Net interest margin 3.07 %  2.88 %  0.19 % 
(1)  At amortized cost.
(2) Includes taxable-equivalent adjustment using a federal statutory tax rate of 21%.

Net interest income (expressed on a taxable-equivalent basis) was $54.0 million for the third quarter of 2024, representing an increase of $1.9 million, or 3.6% from $52.1 million in the year-ago quarter. The increase in net interest income from the year-ago quarter was primarily due to higher average yields earned on interest earning assets, combined with declines in average interest-bearing demand balances and average time deposits over $250,000 balances. These positive variances were partially offset by declines in average investment securities and loans and higher average rates paid on interest-bearing deposits.

Interest Income

Taxable-equivalent interest income was $78.0 million for the third quarter of 2024, representing an increase of $5.4 million, or 7.5%, from $72.6 million in the year-ago quarter. The increase during the third quarter of 2024, compared to the year-ago quarter was primarily attributable to an increase in average yield earned on loans of 40 basis points ("bp" or "bps"), resulting in an increase in interest income of approximately $5.3 million and an increase in average yield earned on investment securities of 51 bps, resulting in an increase in interest income of approximately $1.9 million, combined with increases in the average
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balance and average yield earned on interest-bearing deposits in other financial institutions resulting in an increase in interest income of approximately $0.4 million. The increase in the average yield earned on investment securities was partially attributable to income of $1.1 million from an interest rate swap that became effective on March 31, 2024. These increases were partially offset by decreases in average loans and investment securities balances of $176.4 million and $22.3 million, respectively, resulting in decreases in interest income of approximately $2.0 million and $0.1 million, respectively.

Interest Expense

Interest expense was $24.0 million for the third quarter of 2024, representing an increase of $3.6 million, or 17.4%, from $20.5 million in the year-ago quarter. Due to the high interest rate environment, average rates paid on interest-bearing deposits of 1.82% increased by 33 bps from the year-ago quarter, resulting in an increase in interest expense of approximately $4.9 million. The increase was partially offset by a decrease in average interest-bearing deposits of $95.6 million, resulting in a decrease in interest expense of approximately $1.3 million.
Net Interest Margin

Our net interest margin of 3.07% for the third quarter of 2024 increased by 19 bps from 2.88% in the year-ago quarter. The increase in net interest margin for the third quarter of 2024 was primarily attributable to increases in average yields earned on interest-bearing deposits in other financial institutions, investment securities and loans, which outpaced the increase in average rates paid on interest-bearing deposits.

In an effort to rein in inflation, the FRB aggressively increased interest rates since the first quarter of 2022 when the Federal Funds Rate target was 0.00% to 0.25%. Since then, the FRB has raised the Federal Funds Rate by more than five percentage points, up to a 22-year high, 5.25% to 5.50% in July 2023. The Federal Funds rate remained at that level until September 2024. At the September 2024 Federal Open Market Committee ("FOMC") meeting, the FOMC lowered interest rates by 50 bps to 4.75% to 5.00%, as they gained greater confidence that inflation is moving sustainably towards its 2% target.

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(dollars in thousands)Nine Months Ended September 30,
20242023Variance
Average
Balance
Average
Yield/
Rate
Interest
Income/
Expense
Average
Balance
Average
Yield/
Rate
Interest
Income/
Expense
Average
Balance
Average
Yield/
Rate
Interest
Income/
Expense
Assets
Interest earning assets:
Interest-bearing deposits in other financial institutions$210,464 5.45 %$8,589 $91,202 5.23 %$3,566 $119,262 0.22 %$5,023 
Investment securities:
Taxable (1)1,333,394 2.47 24,652 1,376,294 2.08 21,497 (42,900)0.39 3,155 
Tax-exempt (1) (2)142,085 2.14 2,284 151,611 2.48 2,818 (9,526)(0.34)(534)
Total investment securities1,475,479 2.43 26,936 1,527,905 2.12 24,315 (52,426)0.31 2,621 
Loans, including loans held for sale5,372,247 4.79 192,710 5,525,476 4.37 180,886 (153,229)0.42 11,824 
FHLB stock6,885 7.43 384 11,687 4.21 369 (4,802)3.22 15 
Total interest earning assets7,065,075 4.32 228,619 7,156,270 3.90 209,136 (91,195)0.42 19,483 
Noninterest-earning assets313,404 316,620 (3,216)
Total assets$7,378,479 $7,472,890 $(94,411)
Liabilities and Equity
Interest-bearing liabilities:
Interest-bearing demand deposits$1,279,256 0.15 %$1,473 $1,373,831 0.12 %$1,234 $(94,575)0.03 %$239 
Savings and money market deposits2,246,478 1.64 27,655 2,188,585 0.89 14,520 57,893 0.75 13,135 
Time deposits up to $250,000544,823 3.22 13,125 394,464 1.88 5,544 150,359 1.34 7,581 
Time deposits over $250,000714,763 4.31 23,078 775,615 3.61 20,920 (60,852)0.70 2,158 
Total interest-bearing deposits4,785,320 1.82 65,331 4,732,495 1.19 42,218 52,825 0.63 23,113 
FHLB advances and other short-term borrowings22 5.60 31,182 4.88 1,139 (31,160)0.72 (1,138)
Long-term debt156,188 5.86 6,848 146,513 5.78 6,329 9,675 0.08 519 
Total interest-bearing liabilities4,941,530 1.95 72,180 4,910,190 1.35 49,686 31,340 0.60 22,494 
Noninterest-bearing deposits1,793,854 1,957,267 (163,413)
Other liabilities129,181 131,577 (2,396)
Total liabilities6,864,565 6,999,034 (134,469)
Total equity513,914 473,856 40,058 
Total liabilities and equity$7,378,479 $7,472,890 $(94,411)
Net interest income$156,439 $159,450 $(3,011)
Interest rate spread2.37 %2.55 %(0.18)%
Net interest margin2.95 %2.98 %(0.03)%
(1)  At amortized cost.
(2) Includes taxable-equivalent adjustment using a federal statutory tax rate of 21%.

Net interest income (expressed on a taxable-equivalent basis) was $156.4 million for the nine months ended September 30, 2024, representing a decrease of $3.0 million or 1.9% from $159.5 million in the nine months ended September 30, 2023. The decrease from the year-ago period was primarily due to higher average balances and average rates paid on interest-bearing deposits and long-term debt, combined with a decrease in average loans and investment securities balances. These negative variances were partially offset by increases in average yields earned on interest-earning assets.

Interest Income

Taxable-equivalent interest income was $228.6 million for the nine months ended September 30, 2024, representing an increase of $19.5 million, or 9.3%, from $209.1 million in the year-ago period. The increase was primarily attributable to increases in average yields earned on loans and investment securities of 42 bps and 31 bps, respectively, resulting in increases in interest income of approximately $16.9 million and $3.5 million, respectively. The increase in the average yield earned on investment
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securities was partially attributable to income of $1.9 million from an interest rate swap that became effective on March 31, 2024. In addition, the increase in average balance and yield earned on interest-bearing deposits in other financial institutions of $119.3 million and 22 bps, respectively, resulted in an increase in interest income of approximately $5.0 million. These increases were partially offset by a decrease in average loan balances of $153.2 million during the nine months ended September 30, 2024, compared to the year-ago period, resulting in a decrease in interest income of approximately $5.0 million.

Interest Expense

Interest expense was $72.2 million for the nine months ended September 30, 2024, which increased by $22.5 million, or 45.3%, from $49.7 million in the year-ago period. Due to the high interest rate environment, average rates paid on interest-bearing deposits of 1.82% increased by 63 bps and average interest-bearing deposit balances increased by $52.8 million from the year-ago period, resulting in increases in interest expense of approximately $22.3 million and $0.8 million, respectively.

Net Interest Margin

Our net interest margin of 2.95% for the nine months ended September 30, 2024 decreased by 3 bps from 2.98% in the year-ago period. As previously discussed, the decrease in net interest margin for the nine months ended September 30, 2024 compared to the year-ago period was primarily attributable to the aforementioned increases in average rates paid on interest-bearing deposits and long-term debt, which outpaced the increases in average yields earned on interest-earning assets.

Rate-Volume Analysis

For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (i) changes in average balances (volume) and (ii) changes in weighted average interest rates (rate). The change in volume is calculated as change in average balance, multiplied by prior period average yield/rate. The change in rate is calculated as change in average yield/rate, multiplied by current period volume. The change in interest income not solely due to change in volume or change in rate has been allocated proportionately to change in volume and change in average yield/rate.

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Three Months Ended September 30, 2024
Compared To September 30, 2023
Nine Months Ended September 30, 2024
Compared To September 30, 2023
Increase (Decrease) Due to:Increase (Decrease) Due to:
(dollars in thousands)VolumeRateNet ChangeVolumeRateNet Change
Interest earning assets:
Interest-bearing deposits in other financial institutions$343 $20 $363 $4,676 $347 $5,023 
Investment securities:
Taxable (1)(71)2,030 1,959 (680)3,835 3,155 
Tax-exempt (1) (2)(52)(148)(200)(175)(359)(534)
Total investment securities(123)1,882 1,759 (855)3,476 2,621 
Loans, including loans held for sale(1,993)5,300 3,307 (5,040)16,864 11,824 
FHLB stock(41)55 14 (152)167 15 
Total interest earning assets(1,814)7,257 5,443 (1,371)20,854 19,483 
Interest-bearing liabilities:
Interest-bearing demand deposits(18)42 24 (77)316 239 
Savings and money market deposits258 3,513 3,771 389 12,746 13,135 
Time deposits up to $250,000497 1,104 1,601 2,116 5,465 7,581 
Time deposits over $250,000(2,036)207 (1,829)(1,632)3,790 2,158 
Total interest-bearing deposits(1,299)4,866 3,567 796 22,317 23,113 
FHLB advances and other short-term borrowings— — — (1,138)— (1,138)
Long-term debt(1)(4)(5)424 95 519 
Total interest-bearing liabilities(1,300)4,862 3,562 82 22,412 22,494 
Net interest income$(514)$2,395 $1,881 $(1,453)$(1,558)$(3,011)
(1)  At amortized cost.
(2) Includes taxable-equivalent adjustment using a federal statutory tax rate of 21%.

Other Operating Income

The following tables present components of other operating income for the periods presented:

 Three Months Ended September 30,
(dollars in thousands)20242023$ Change% Change
Other operating income:
Mortgage banking income$822 $765 $57 7.5 %
Service charges on deposit accounts2,167 2,193 (26)-1.2 
Other service charges and fees5,947 5,203 744 14.3 
Income from fiduciary activities1,447 1,234 213 17.3 
Income from bank-owned life insurance1,897 379 1,518 400.5 
Net loss on sales of investment securities— (135)135 -100.0 
Other: 
Equity in earnings of unconsolidated entities13 (6)-46.2 
Income recovered on previously charged-off loans52 48 8.3 
Other recoveries19 34 (15)-44.1 
Unrealized gains on loans held for sale17 13 325.0 
Commissions on sale of checks74 77 (3)-3.9 
Other285 232 53 22.8 
Total other operating income$12,734 $10,047 $2,687 26.7 

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For the third quarter of 2024, total other operating income was $12.7 million, which increased by $2.7 million, or 26.7%, from $10.0 million in the year-ago quarter. The increase was primarily due to higher income from bank-owned life insurance ("BOLI") of $1.5 million, other service charges and fees of $0.7 million, and income from fiduciary activities of $0.2 million. The higher income from BOLI was primarily attributable to volatile equity market returns and their impact on corporate-owned life insurance policies used to hedge deferred compensation expense.

 Nine Months Ended September 30,
(dollars in thousands)20242023$ Change% Change
Other operating income:
Mortgage banking income$2,475 $1,981 $494 24.9 %
Service charges on deposit accounts6,405 6,441 (36)-0.6 
Other service charges and fees17,077 15,182 1,895 12.5 
Income from fiduciary activities4,331 3,623 708 19.5 
Income from bank-owned life insurance4,653 2,855 1,798 63.0 
Net loss on sales of investment securities— (135)135 -100.0 
Other:
Equity in earnings of unconsolidated entities(24)(12)(12)100.0 
Income recovered on previously charged-off loans147 385 (238)-61.8 
Other recoveries63 156 (93)-59.6 
Unrealized gains on loans held for sale— (3)-100.0 
Commissions on sale of checks221 237 (16)-6.8 
Other751 775 (24)-3.1 
Total other operating income$36,099 $31,491 $4,608 14.6 

For the nine months ended September 30, 2024, total other operating income was $36.1 million, which increased by $4.6 million, or 14.6%, from $31.5 million in the year-ago period. The increase from the same year-ago period was primarily due to higher other service charges and fees of $1.9 million, income from BOLI of $1.8 million, income from fiduciary activities of $0.7 million, and mortgage banking income of $0.5 million. The higher other service charges and fees was attributable to higher investment services fees, ATM and debit card fees and fees on foreign exchange. The higher income from BOLI during the nine months ended September 30, 2024 was primarily attributable to volatile equity market returns.

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Other Operating Expense

The following tables present components of other operating expense for the periods presented:

Three Months Ended September 30,
(dollars in thousands)20242023$ Change% Change
Other operating expense:
Salaries and employee benefits$22,299 $19,015 $3,284 17.3 %
Net occupancy4,612 4,725 (113)-2.4 
Computer software4,590 4,473 117 2.6 
Legal and professional services2,460 2,359 101 4.3 
Equipment972 1,112 (140)-12.6 
Advertising889 968 (79)-8.2 
Communication740 809 (69)-8.5 
Other:
SERP expense107 95 12 12.6 
Charitable contributions182 103 79 76.7 
FDIC insurance assessment871 1,019 (148)-14.5 
Miscellaneous loan expenses283 354 (71)-20.1 
ATM and debit card expenses910 874 36 4.1 
Armored car expenses432 569 (137)-24.1 
Entertainment and promotions534 450 84 18.7 
Stationery and supplies170 204 (34)-16.7 
Directors’ fees and expenses281 308 (27)-8.8 
Directors' deferred compensation plan expense1,196 113 1,083 958.4 
Strategic expenses3,068 — 3,068 N.M.
Loss (gain) on disposal of fixed assets38 (4)42 -1,050.0 
Loss on sale of loans— 197 (197)-100.0 
Other2,053 1,868 185 9.9 
Total other operating expense$46,687 $39,611 $7,076 17.9 
Not meaningful ("N.M.")

For the third quarter of 2024, total other operating expense was $46.7 million, which increased by $7.1 million, or 17.9%, from $39.6 million in the year-ago quarter. The increase was primarily due to higher salaries and employee benefits of $3.3 million, $3.1 million in expenses related to our evaluation and assessment of a strategic opportunity, and directors' deferred compensation plan expense of $1.1 million. The higher salaries and employee benefits and directors' deferred compensation plan expense were partially attributable to volatile equity market returns and are consistent with the increase in income from BOLI which is used to hedge the deferred compensation expenses.

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Nine Months Ended September 30,
(dollars in thousands)20242023$ Change% Change
Other operating expense:
Salaries and employee benefits$64,280 $61,886 $2,394 3.9 %
Net occupancy13,809 13,509 300 2.2 
Computer software13,258 13,700 (442)-3.2 
Legal and professional services7,286 7,714 (428)-5.5 
Equipment2,977 2,990 (13)-0.4 
Advertising2,704 2,843 (139)-4.9 
Communication2,234 2,378 (144)-6.1 
Other:
SERP expense323 285 38 13.3 
Charitable contributions510 394 116 29.4 
FDIC insurance assessment2,752 3,126 (374)-12.0 
Miscellaneous loan expenses992 946 46 4.9 
ATM and debit card expenses2,681 2,520 161 6.4 
Armored car expenses1,373 1,278 95 7.4 
Entertainment and promotions1,368 1,321 47 3.6 
Stationery and supplies552 641 (89)-13.9 
Directors’ fees and expenses882 978 (96)-9.8 
Directors' deferred compensation plan expense1,538 (279)1,817 -651.3 
Strategic expenses3,068 — 3,068 N.M.
Loss (gain) on disposal of fixed assets54 (2)56 -2,800.0 
Loss on sale of loans— 197 (197)-100.0 
Other5,773 5,196 577 11.1 
Total other operating expense$128,414 $121,621 $6,793 5.6 
Not meaningful ("N.M.")

For the nine months ended September 30, 2024, total other operating expense was $128.4 million and increased by $6.8 million, or 5.6%, from $121.6 million in the same year-ago period. The increase was primarily due to the aforementioned $3.1 million in expenses related to a strategic opportunity, higher salaries and employee benefits of $2.4 million, and higher directors' deferred compensation plan expense of $1.8 million compared to the same year-ago period. The higher salaries and employee benefits and directors' deferred compensation plan expense were partially attributable to volatile equity market returns and are consistent with the increase in income from BOLI which is used to hedge the deferred compensation expenses. These increases were partially offset by lower computer software expense of $0.4 million, legal and professional services of $0.4 million, and FDIC insurance assessment of $0.4 million.

Income Taxes

The Company recorded income tax expense of $3.8 million for the third quarter of 2024, compared to $4.3 million in the same year-ago period. The effective tax rate ("ETR") for the third quarter of 2024 was 22.03%, compared to 24.87% in the same year-ago period.

The Company recorded income tax expense of $12.6 million for the nine months ended September 30, 2024, compared to $13.9 million in the same year-ago period. The effective tax rate for the nine months ended September 30, 2024 was 23.00%, compared to 24.06% in the same year-ago period.

The decrease in income tax expense and the effective tax rate for the three and nine months ended September 30, 2024 was primarily attributable to higher tax-exempt BOLI income, additional low-income housing tax credits recognized, and lower pre-tax income compared to the same year-ago periods.

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The Company's net deferred tax assets ("DTA"), net of valuation allowance, totaled $22.5 million and $29.5 million at September 30, 2024 and December 31, 2023, respectively, and was included in other assets on our consolidated balance sheets. The decrease in DTA was primarily due to projected utilization of net operating loss carryforwards, which arose in 2022 due to unrealized losses on investment securities.

The valuation allowance on our net deferred tax assets ("DTA") at September 30, 2024 and December 31, 2023 totaled $4.4 million, which related entirely to our DTA from net apportioned net operating loss ("NOL") carryforwards for California state income tax purposes, as the Company does not expect to generate sufficient income in California to utilize the DTA.

Financial Condition

Total assets were $7.42 billion at September 30, 2024 and decreased by $227.4 million, or 3.0%, from $7.64 billion at December 31, 2023, as loans, net of deferred costs, decreased by $96.4 million and excess liquidity was used to pay off high-cost government time deposits that matured during the nine months ended September 30, 2024.

Investment Securities

Investment securities totaled $1.33 billion at September 30, 2024, which increased by $50.0 million, or 3.9%, from $1.28 billion at December 31, 2023. The increase in the investment securities portfolio reflected purchases of $95.5 million and an increase in the market valuation on the AFS portfolio of $25.9 million, partially offset by principal runoff of $71.4 million.


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Loans

The following table presents outstanding loans by category and geographic location as of the dates presented:

(dollars in thousands)September 30,
2024
December 31,
2023
$ Change% Change
Hawaii:    
Commercial and industrial$411,209 $421,736 $(10,527)(2.5)%
Real estate:
Construction134,043 163,337 (29,294)(17.9)
Residential mortgage1,897,919 1,927,789 (29,870)(1.5)
Home equity697,123 736,524 (39,401)(5.3)
Commercial mortgage1,157,625 1,063,969 93,656 8.8 
Consumer277,849 322,346 (44,497)(13.8)
Total loans4,575,768 4,635,701 (59,933)(1.3)
Less: ACL(47,789)(48,189)400 (0.8)
Loans, net of ACL$4,527,979 $4,587,512 $(59,533)(1.3)
U.S. Mainland:    
Commercial and industrial$188,238 $153,971 $34,267 22.3 
Real estate:
Construction24,083 22,182 1,901 8.6 
Commercial mortgage312,685 318,933 (6,248)(2.0)
Consumer241,835 308,195 (66,360)(21.5)
Total loans766,841 803,281 (36,440)(4.5)
Less: ACL(13,858)(15,745)1,887 (12.0)
Loans, net of ACL$752,983 $787,536 $(34,553)(4.4)
Total:    
Commercial and industrial$599,447 $575,707 $23,740 4.1 
Real estate:
Construction158,126 185,519 (27,393)(14.8)
Residential mortgage1,897,919 1,927,789 (29,870)(1.5)
Home equity697,123 736,524 (39,401)(5.3)
Commercial mortgage1,470,310 1,382,902 87,408 6.3 
Consumer519,684 630,541 (110,857)(17.6)
Total loans5,342,609 5,438,982 (96,373)(1.8)
Less: ACL(61,647)(63,934)2,287 (3.6)
Loans, net of ACL$5,280,962 $5,375,048 $(94,086)(1.8)

Loans, net of deferred costs, totaled $5.34 billion at September 30, 2024, which decreased by $96.4 million, or 1.77%, from $5.44 billion at December 31, 2023. The decrease was primarily due to decreases in consumer of $110.9 million, home equity of $39.4 million, residential mortgage of $29.9 million, and construction of $27.4 million. These decreases were partially offset by increases in commercial mortgage of $87.4 million and commercial and industrial of $23.7 million.

The Hawaii loan portfolio decreased by $59.9 million, or 1.3%, from December 31, 2023. The decrease reflected decreases in consumer of $44.5 million, home equity of $39.4 million, construction of $29.3 million, residential mortgage of $29.9 million and commercial and industrial of $10.5 million. These decreases were partially offset by an increase in commercial mortgage of $93.7 million.

The U.S. Mainland loan portfolio decreased by $36.4 million, or 4.5%, from December 31, 2023. The decrease was primarily attributable to a decrease in consumer loans of $66.4 million, as the Company continued its strategy to let the US. Mainland consumer loan portfolio to runoff with minimal purchases year-to-date. The decrease was partially offset by an increase in commercial and industrial loans of $34.3 million.

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Nonperforming Assets and Accruing Loans 90+ Days Past Due

The following table presents nonperforming assets and accruing loans 90+ days past due as of the dates presented:

(dollars in thousands)September 30,
2024
December 31,
2023
$ Change% Change
Nonperforming Assets ("NPAs")  
Nonaccrual loans:  
Commercial and industrial$376 $432 $(56)(13.0)%
Real estate:
Residential mortgage9,680 4,962 4,718 95.1 
Home equity915 834 81 9.7 
Commercial mortgage— 77 (77)(100.0)
Consumer626 703 (77)(11.0)
Total nonaccrual loans11,597 7,008 4,589 65.5 
Other real estate owned ("OREO")— — — N.M.
Total NPAs11,597 7,008 4,589 65.5 
Accruing Loans 90+ Days Past Due
Real estate:
Residential mortgage13 — 13 N.M.
Home equity135 229 (94)(41.0)
Consumer481 1,083 (602)(55.6)
Total accruing loans 90+ days past due629 1,312 (683)(52.1)
Total NPAs and accruing loans 90+ days past due$12,226 $8,320 $3,906 46.9 
Ratio of nonaccrual loans to total loans0.22 %0.13 %0.09 %
Ratio of NPAs to total assets0.16 0.09 0.07 
Ratio of NPAs and accruing loans 90+ days past due to total loans and OREO0.23 0.15 0.08 
Ratio of classified assets and OREO to tier 1 capital and ACL2.93 3.41 (0.48)
Not meaningful ("N.M.")

The following table presents year-to-date activities in nonperforming assets for the period presented:

(dollars in thousands)
Balance at December 31, 2023$7,008 
Additions10,196 
Reductions: 
Payments(1,228)
Return to accrual status(579)
Charge-offs, valuation and other adjustments(3,800)
Total reductions(5,607)
Net increase4,589 
Balance at September 30, 2024$11,597 

Nonperforming assets totaled $11.6 million, or 0.16% of total assets at September 30, 2024, compared to $7.0 million, or 0.09% of total assets at December 31, 2023. The increase in nonperforming assets from December 31, 2023 was primarily attributable to additions to nonaccrual loans totaling $10.2 million, partially offset by $1.2 million in repayments of nonaccrual loans,
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$0.6 million in loans returned to accrual status and $3.8 million in net charge-offs, valuation and other adjustments. The majority of the nonaccrual loans are in the residential mortgage category which are well-collateralized with strong loan-to-value ratios.

Criticized loans at September 30, 2024 declined by $17.1 million from December 31, 2023 to $33.0 million, or 0.6% of the total loan portfolio. Special mention loans declined by $14.1 million to $10.7 million, or 0.2% of the total loan portfolio. Classified loans declined by $3.0 million to $22.3 million, or 0.4% of the total loan portfolio.

The Company's ratio of classified assets and other real estate owned to tier 1 capital and the ACL was 2.93% at September 30, 2024, which decreased from 3.41% at December 31, 2023.

Allowance for Credit Losses

The following table presents certain information with respect to the ACL as of the dates and for the periods presented:

Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2024202320242023
Allowance for Credit Losses:
Balance at beginning of period$62,225 $63,849 $63,934 $63,738 
Provision (credit) for credit losses on loans3,040 4,526 9,609 10,276 
Charge-offs:
Commercial and industrial(663)(402)(1,864)(1,543)
Real estate:
Residential mortgage(99)— (383)— 
Consumer(3,956)(4,710)(13,139)(11,269)
Total charge-offs(4,718)(5,112)(15,386)(12,812)
Recoveries:
Commercial and industrial158 261 378 636 
Real estate:
Construction— — 
Residential mortgage10 25 70 
Home equity— — 15 
Consumer934 982 3,081 2,593 
Total recoveries1,100 1,254 3,490 3,315 
Net charge-offs(3,618)(3,858)(11,896)(9,497)
Balance at end of period$61,647 $64,517 $61,647 $64,517 
Average loans, net of deferred fees and costs$5,330,810 $5,507,248 $5,372,247 $5,525,476 
Ratio of annualized net charge-offs to average loans0.27 %0.28 %0.30 %0.23 %
Ratio of ACL to total loans1.15 %1.17 %1.15 %1.17 %
Ratio of ACL to nonaccrual loans532 %970 %532 %970 %

Our ACL totaled $61.6 million at September 30, 2024, compared to $63.9 million at December 31, 2023 and $64.5 million at September 30, 2023.

During the third quarter of 2024, we recorded a provision for credit losses on loans of $3.0 million and net charge-offs of $3.6 million. During the nine months ended September 30, 2024, we recorded a provision for credit losses on loans of $9.6 million and net charge-offs of $11.9 million.

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The decrease in the provision for credit losses on loans during the three and nine months ended September 30, 2024, compared to the same year-ago periods, was primarily due to a decrease in loan balances outstanding and improvements in the Hawaii economic forecast assumptions used in the Company's estimate of the ACL in the three and nine months ended September 30, 2024.

Our ratio of ACL to total loans was 1.15% at September 30, 2024, compared to 1.18% at December 31, 2023 and 1.17% at September 30, 2023.

In accordance with GAAP, loans held for sale and other real estate assets are not included in our assessment of the ACL.

Deposits

The following table presents the composition of our deposits by category as of the dates presented:

(dollars in thousands)September 30,
2024
December 31,
2023
$ Change% Change
Noninterest-bearing demand deposits$1,838,009 $1,913,379 $(75,370)(3.9)%
Interest-bearing demand deposits1,255,382 1,329,189 (73,807)(5.6)
Savings and money market deposits2,336,323 2,209,733 126,590 5.7 
Time deposits up to $250,000536,316 533,898 2,418 0.5 
Core deposits5,966,030 5,986,199 (20,169)(0.3)
Other time deposits greater than $250,000492,221 486,812 5,409 1.1 
Government time deposits124,762 374,581 (249,819)(66.7)
Total time deposits greater than $250,000616,983 861,393 (244,410)(28.4)
Total deposits$6,583,013 $6,847,592 $(264,579)(3.9)

The Company's deposit portfolio is diversified and long-tenured as it is built upon a business model based on long-term customer relationships. Approximately 52% of deposit customers have been banking with us for more than 10 years.

Our total deposits of $6.58 billion at September 30, 2024 decreased by $264.6 million, or 3.9%, from total deposits of $6.85 billion at December 31, 2023. The decreases in government time deposits of $249.8 million, noninterest-bearing demand deposits of $75.4 million, and interest-bearing demand deposits of $73.8 million were partially offset by increases in savings and money market deposits of $126.6 million, other time deposits greater than $250,000 of $5.4 million, and time deposits up to $250,000 of $2.4 million. Due to the high interest rate environment, we continued to see a shift in the composition of the deposit portfolio from demand deposits to savings and money market and time deposits. The decline in government time deposits was largely due to planned runoff of high-cost government time deposits that matured during the nine months ended September 30, 2024.

Our core deposits, which we define as demand deposits, savings and money market deposits, and time deposits up to $250,000, totaled $5.97 billion at September 30, 2024 and decreased by $20.2 million, from $5.99 billion at December 31, 2023. Core deposits as a percentage of total deposits was 90.6% at September 30, 2024, compared to 87.4% at December 31, 2023. Our average cost of total deposits was 132 bps during the nine months ended September 30, 2024, compared to 84 bps during the same year-ago period.

The Company had estimated uninsured deposits of $2.74 billion, or 42% of total deposits as of September 30, 2024, compared to an estimated $2.91 billion, or 42% of total deposits as of December 31, 2023. The Company had fully collateralized deposits of approximately $305.8 million and $536.3 million as of September 30, 2024 and December 31, 2023, respectively. The Company's estimated uninsured deposits, excluding fully collateralized deposits, totaled $2.44 billion, or 37% of total deposits as of September 30, 2024, compared to the estimated $2.37 billion, or 35% of total deposits as of December 31, 2023.

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The following table presents the amount of time deposits in excess of the FDIC insurance limit of $250,000 by remaining maturity as of September 30, 2024:

(dollars in thousands)September 30, 2024
Remaining maturity:
Three months or less$333,726 
Over three through twelve months271,845 
Over one year through three years10,912 
Over three years500 
Total$616,983 

Capital Resources

In order to ensure adequate levels of capital, we perform ongoing assessment of projected sources and uses of capital in conjunction with an analysis of the size and quality of our assets, the anticipated performance of our business, changes in monetary and fiscal policies, and the level of risk and regulatory capital requirements. As a part of this assessment, the Board of Directors reviews our capital position on an ongoing basis to ensure it is adequate, including, but not limited to, the need for raising additional capital or the ability to return capital to our shareholders, including the ability to declare cash dividends or repurchase our securities.

Common Equity

Our total shareholders' equity was $543.7 million at September 30, 2024, compared to $503.8 million at December 31, 2023. The change in total shareholders' equity was primarily attributable to net income of $42.1 million, partially offset by cash dividends declared of $21.1 million, the repurchase of $0.9 million in shares of our common stock under our stock repurchase programs, and other comprehensive income of $18.1 million in the nine months ended September 30, 2024.

Our total shareholders' equity to total assets ratio was 7.33% at September 30, 2024, compared to 6.59% at December 31, 2023. Our book value per share was $20.09 and $18.63 at September 30, 2024 and December 31, 2023, respectively.

Holding Company Capital Resources

CPF is required to act as a source of strength to the Bank under the Dodd-Frank Act. CPF is obligated to pay its expenses and payments on its junior subordinated debentures which fund payments on the outstanding trust preferred securities and subordinated notes.

CPF relies on the Bank to pay dividends to fund its obligations. In order to meet its ongoing obligations, on a stand-alone basis, CPF had an available cash balance of $23.1 million and $22.1 million as of September 30, 2024 and December 31, 2023, respectively.

As a Hawaii state-chartered bank, the Bank may only pay dividends to the extent it has retained earnings as defined under Hawaii banking law ("Statutory Retained Earnings"), which differs from GAAP retained earnings. The Bank had Statutory Retained Earnings of $190.4 million and $169.1 million as of September 30, 2024 and December 31, 2023, respectively.

Dividends are payable at the discretion of the Board of Directors and there can be no assurance that the Board of Directors will allow the Company to continue to pay dividends at the same rate, or at all, in the future. Our ability to pay cash dividends to our shareholders is subject to restrictions under federal and Hawaii law, including restrictions imposed by the FRB and covenants set forth in various agreements we are a party to, including covenants set forth in our subordinated debentures and subordinated notes.

Share Repurchases

In January 2024, the Company’s Board of Directors approved a new authorization to repurchase up to $20.0 million of its common stock from time to time in the open market or in privately negotiated transactions (the "2024 Repurchase Plan"), pursuant to a newly authorized share repurchase plan. The 2024 Repurchase Plan replaces and supersedes in its entirety the 2023 Repurchase Plan.

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During the nine months ended September 30, 2024, the Company repurchased 49,960 shares of common stock, at an aggregate cost of $0.9 million under the Company's share repurchase program. As of September 30, 2024, $19.1 million remained available for repurchase under the Company's 2024 Repurchase Plan.

Trust Preferred Securities

As of September 30, 2024, the Company has two statutory trusts, CPB Capital Trust IV ("Trust IV") and CPB Statutory Trust V ("Trust V"), which issued a total of $50.0 million in floating rate trust preferred securities. The trust preferred securities, the underlying floating rate junior subordinated debentures that are the assets of Trusts IV and V, and the common securities issued by Trusts IV and V are redeemable in whole or in part on any interest payment date on or after December 15, 2009 for Trust IV and V, or at any time in whole but not in part within 90 days following the occurrence of certain events.

On July 3, 2023, after the cessation of the LIBOR benchmark rate on June 30, 2023, the Company amended its Trust IV and Trust V debt agreements to replace the LIBOR-based reference rate with an adjusted CME Term Secured Overnight Financing Rate ("SOFR") plus a tenor spread adjustment. Accounting Standards Codification ("ASC") 848 allows us to account for the modification as a continuation of the existing contract without additional analysis. The $30.0 million in floating rate trust preferred securities of Trust IV bear an interest rate of three-month CME Term SOFR plus a tenor spread adjustment of 0.26% plus 2.45% and the $20.0 million in floating rate trust preferred securities of Trust V bear an interest rate of three-month CME Term SOFR plus a tenor spread adjustment of 0.26% plus 1.87%.

Our obligations with respect to the issuance of the trust preferred securities constitute a full and unconditional guarantee by the Company of each trust's obligations with respect to its trust preferred securities. Subject to certain exceptions and limitations, we may elect from time to time to defer subordinated debenture interest payments, which would result in a deferral of dividend payments on the related trust preferred securities, for up to 20 consecutive quarterly periods without default or penalty.

The Company determined that its investments in Trust IV and Trust V did not represent a variable interest and therefore the Company was not the primary beneficiary of each of the trusts. As a result, consolidation of the trusts by the Company were not required.

Subordinated Notes

On October 20, 2020, the Company completed a $55.0 million private placement of ten-year fixed-to-floating rate subordinated notes, which was used to support regulatory capital ratios and for general corporate purposes. The Company exchanged the privately placed notes for registered notes with the same terms and in the same aggregate principal amount at the end of the fourth quarter of 2020. The notes bear a fixed interest rate of 4.75% for the first five years through November 1, 2025 and will reset quarterly thereafter for the remaining five years to the then current three-month SOFR, as published by the Federal Reserve Bank of New York, plus 4.56%. The subordinated notes had a carrying value of $54.7 million at September 30, 2024, which was net of unamortized debt issuance costs of $0.3 million that is being amortized over the expected life.

Regulatory Capital Ratios

The Company and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.

Federal banking agencies previously issued an interim final rule that delayed the estimated impact on regulatory capital resulting from the adoption of CECL. The interim final rule provided banking organizations that implement CECL before the end of 2020 the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of capital benefit provided during the initial two-year delay. The federal banking agencies subsequently issued a final rule that made certain technical changes to the interim final rule. The changes in the final rule apply only to those banking organizations that elected the CECL transition relief provided under the rule. The Company elected this option and the transition period ends for the Company on December 31, 2024.

General capital adequacy regulations adopted by the FRB and FDIC require an institution to maintain minimum leverage capital, tier 1 risk-based capital, total risk-based capital, and common equity tier 1 ("CET1") capital ratios. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set
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individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios. For a further discussion of capital requirements for the Company and the Bank and the effect of forthcoming changes in required regulatory capital ratios, see the discussion in the "Business — Supervision and Regulation" sections of our 2023 Form 10-K.

The following table presents the regulatory capital ratios for the Company and the Bank, as well as the minimum capital adequacy requirements applicable to all financial institutions, as of the dates presented. The leverage capital, tier 1 risk-based capital, total risk-based capital, and CET1 risk-based capital ratios for the Company and the Bank as of September 30, 2024 and December 31, 2023, were above the levels required for a "well capitalized" regulatory designation.

 ActualMinimum Required
for Capital Adequacy
Purposes
Minimum Required
to be
Well Capitalized
(dollars in thousands)AmountRatioAmount
Ratio [1]
AmountRatio
Central Pacific Financial Corp.      
September 30, 2024      
Leverage capital$698,312 9.5 %$295,022 4.0 %N/AN/A
CET1 risk-based capital648,312 12.1 240,780 4.5 N/AN/A
Tier 1 risk-based capital698,312 13.1 321,040 6.0 N/AN/A
Total risk-based capital818,063 15.3 428,054 8.0 N/AN/A
December 31, 2023      
Leverage capital$676,536 8.8 %$305,843 4.0 %N/AN/A
CET1 risk-based capital626,536 11.4 246,457 4.5 N/AN/A
Tier 1 risk-based capital676,536 12.4 328,609 6.0 N/AN/A
Total risk-based capital799,175 14.6 438,146 8.0 N/AN/A
Central Pacific Bank      
September 30, 2024      
Leverage capital$724,934 9.8 %$294,454 4.0 %$368,068 5.0 %
CET1 risk-based capital724,934 13.6 240,211 4.5 346,972 6.5 
Tier 1 risk-based capital724,934 13.6 320,281 6.0 427,042 8.0 
Total risk-based capital789,685 14.8 427,042 8.0 533,802 10.0 
December 31, 2023      
Leverage capital$704,512 9.2 %$305,375 4.0 %$381,719 5.0 %
CET1 risk-based capital704,512 12.9 245,926 4.5 355,227 6.5 
Tier 1 risk-based capital704,512 12.9 327,902 6.0 437,203 8.0 
Total risk-based capital772,151 14.1 437,203 8.0 546,503 10.0 

[1] Under the Basel III Capital Rules, the Company and the Bank must also maintain a 2.5% Capital Conservation Buffer ("CCB") to avoid becoming subject to restrictions on capital distributions and certain discretionary bonus payments to management. The CCB is calculated as a ratio of CET1 capital to risk-weighted assets, and effectively increases the required minimum risk-based capital ratios.

Market Risk

Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates/prices such as interest rates, foreign currency rates, commodity prices and equity prices. Our primary market risk exposure is interest rate risk that occurs when rate-sensitive assets and rate-sensitive liabilities mature or reprice during different periods or in differing amounts.
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Asset/Liability Management and Interest Rate Risk

The Company is subject to interest rate risk in the normal course of business through the activities of making loans and taking deposits, as well as from our investment securities portfolio and other interest-bearing funding sources. Our earnings and capital are sensitive to risk of interest rate fluctuations. Asset/liability management attempts to coordinate our rate-sensitive assets and rate-sensitive liabilities to meet our financial objectives. Potentially adverse interest rate risk exposures are managed through the shortening or lengthening of the duration of assets and liabilities.

The Asset/Liability Management Committee ("ALCO") manages interest rate risk utilizing a detailed and dynamic simulation model to analyze earnings and capital in various interest rate scenarios and balance sheet forecasts. Earnings are typically measured by estimated changes in net interest income ("NII") under different rate scenarios. Capital impact is measured through an Economic Value of Equity ("EVE") analysis which monitors the impact of the durations of rate sensitive assets and liabilities. The EVE analysis simulates the cash flows for all on- and off- balance sheet instruments under different rate scenarios which are then discounted to determine a present value for each scenario. The net present value of our assets and liabilities represents the EVE for each scenario. The EVE results for each scenario are then compared to the base scenario to determine the Company’s sensitivities to longer term rate exposures. The results of the analyses are shared with the Board of Directors and informs strategic actions to mitigate and optimize our risk position and profitability.

The ALCO simulation model used to measure and manage interest rate risk exposures includes both dynamic and static balance sheet and rate scenarios. The dynamic model scenarios provide an enhanced view that enables management and the Board of Directors to have a realistic view of the expected impact to earnings and capital from forecasted non-parallel movements in interest rates as well as balance sheet changes. On the other hand, static rate scenarios are a measurement of embedded interest rate risk in the balance sheet as of a point in time and incorporate various hypothetical interest rate scenarios that may include gradual or immediate parallel rate changes. The static scenarios have the benefit of comparability against prior periods and other financial institutions. Both dynamic and static model simulations include the use of a number of key modeling assumptions including prepayment speeds, pricing spreads of assets and liabilities, deposit decay rates and the timing and magnitude of deposit rate changes in relation to changes in the overall level of interest rates. The assumptions are typically based on analyses of institution specific actual historical data and trends. Market information is also incorporated where relevant and appropriate. Assumptions are periodically reviewed and updated by ALCO. During periods of increased market volatility, assumptions will be reviewed more frequently. While management believes the assumptions are reasonable, actual behaviors and results may likely differ.

The following table reflects our static net interest income sensitivity analysis as of the dates presented. The simulations estimate net interest income assuming no balance sheet growth under a flat interest rate scenario. The net interest income sensitivity is measured as the change in net interest income in alternate interest rate scenarios as a percentage of the flat rate scenario. The alternate rate scenarios assume rates move up or down 100 bps, 200 bps or 300 bps in either a gradual (defined as the stated change over a 12-month period in equal increments) or an instantaneous, parallel fashion.

Our Asset/Liability Management Policy seeks to maximize the risk-adjusted return to shareholders while maintaining consistently acceptable levels of liquidity, interest rate risk and capitalization. The ALCO Policy requires that simulated changes in NII should be within certain specified ranges, or steps must be taken to reduce interest rate risk. The net interest income sensitivity table shows that the Company’s balance sheet is relatively well-matched against movements in interest rates and within our ALCO Policy risk limits that have been approved by the Board of Directors.

September 30, 2024December 31, 2023
Estimated Net Interest Income SensitivityEstimated Net Interest Income Sensitivity
Rate ChangeGradualInstantaneousGradualInstantaneous
+300 bps2.20 %1.97 %1.69 %2.51 %
+200 bps1.38 %1.40 %1.00 %1.61 %
+100bps0.59 %0.74 %0.39 %0.68 %
-100bps(1.31)%(2.00)%(1.26)%(1.73)%
-200 bps(2.78)%(4.19)%(2.53)%(3.59)%
-300 bps(4.31)%(6.85)%(3.86)%(5.65)%

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Liquidity and Borrowing Arrangements

Our objective in managing liquidity is to maintain a balance between sources and uses of funds in order to economically meet the cash requirements of customers for loans and deposit withdrawals and participate in lending and investment opportunities as they arise. We monitor our liquidity position in relation to changes in loan and deposit balances on a daily basis to ensure maximum utilization, maintenance of an adequate level of readily marketable assets and access to short-term funding sources.

The high profile regional bank failures in the first half of 2023 drove several precautionary actions to ensure adequate liquidity including carrying higher levels of on-balance sheet liquidity, limited portfolio reinvestments, and efficient allocation of collateral to maximize funding sources. The higher level of on-balance sheet liquidity was carried through the remainder of 2023 and is seen in the financial results. Additionally, the Company performs regular liquidity stress testing under a variety of scenarios to ensure that liquidity is adequate under certain potential liquidity stress events. Further, forecasts of Company cash flows are updated and analyzed periodically and more frequently during periods of elevated liquidity risk.

Core deposits have historically provided us with a sizable source of relatively stable and low cost funds, but are subject to competitive pressure in our market. A significant portion of our deposits are granular, long-tenured, and relationship-based. In addition to core deposit funding, we also have access to a variety of other short-term and long-term funding sources, which include proceeds from maturities of our loans and investment securities, as well as secondary funding sources available to meet our liquidity needs, such as the Federal Home Loan Bank of Des Moines (the "FHLB"), secured repurchase agreements and the Federal Reserve discount window.

As of September 30, 2024, the Company had $326.6 million in cash on its balance sheet and approximately $2.55 billion in total other liquidity sources, including available borrowing capacity and unpledged investment securities. Total available sources of liquidity as a percentage of uninsured and uncollateralized deposits was 118%. Refer to Note 8 - Short-Term Borrowings and Long-Term Debt in the accompanying notes to the consolidated financial statements in this report for information on the Company's borrowing arrangements.

Information regarding our material contractual obligations is provided in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes in our cash requirements from known contractual and other obligations since December 31, 2023.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

For quantitative and qualitative disclosures regarding market risks, refer to "Market Risk" and "Asset/Liability Management and Interest Rate Risk" of Part I, Item 2, "Management’s Discussion and Analysis of Financial Condition and Results of Operations."

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report and pursuant to Rule 13a-15 of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), the Company's management, including the principal executive officer and principal financial officer, conducted an evaluation of the effectiveness and design of the Company's disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based upon that evaluation, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the period covered by this report, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II.   OTHER INFORMATION

Item 1. Legal Proceedings

We are involved in legal proceedings that arise in the ordinary course of our business. The outcome of these matters and the timing of ultimate resolution is inherently difficult to predict. Based on information currently available to us, we do not expect that the ultimate costs to resolve these matters will have a material adverse effect on our financial condition or operations.

Item 1A. Risk Factors

There have been no material changes from the Risk Factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 21, 2024.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

On January 24, 2024, the Company's Board of Directors approved a new share repurchase authorization of up to $20.0 million of its common stock from time to time in the open market or in privately negotiated transactions, pursuant to a newly authorized share repurchase plan (the "2024 Repurchase Plan").

During the three months ended September 30, 2024, the Company did not repurchase any shares of common stock under the Company's share repurchase program.

As of September 30, 2024, $19.1 million in share repurchase authorization remained available for repurchase under the Company's 2024 Repurchase Plan. We cannot provide any assurance as to whether or not we will continue to repurchase common stock under our share repurchase program.

 Issuer Purchases of Equity Securities
Period
Total
Number
of Shares
Purchased [1]
Average
Price Paid
per Share
Total Shares
Purchased as
Part of Publicly
Announced
Programs
Maximum Dollar
Value of
Shares That
May Yet Be
Purchased Under
the Program
July 1-31, 2024— $— — $19,054,953 
August 1-31, 2024415 25.79 — 19,054,953 
September 1-30, 2024— — — 19,054,953 
Total415 $25.79 — 19,054,953 

[1] During the three months ended September 30, 2024, 415 shares were acquired from employees in connection with income tax withholding obligations related to the vesting of restricted stock and/or performance stock units. These purchases were not included within the Company's publicly announced share repurchase program.

Item 5. Other Information

Rule 10b5-1 Trading Arrangements

During the three months ended September 30, 2024, none of the Company’s directors or officers (as defined in Rule 16a-1(f)) adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (in each case, as defined in item 408 of Regulation S-K) for the purchase or sale of the Company's common stock.

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Item 6. Exhibits
 
Exhibit No. Document
  
31.1
31.2
32.1
32.2
101.1
Interactive Data Files pursuant to Rule 405 of Regulation S-T formatted in Inline Extensible Business Reporting Language (“Inline XBRL”) *
104
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101.1)
*Filed herewith.
**Furnished herewith.


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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 CENTRAL PACIFIC FINANCIAL CORP.
 
  
  
Date:October 30, 2024/s/ Arnold D. Martines
 Arnold D. Martines
 
Chairman, President and Chief Executive Officer
 (Principal Executive Officer)
/s/ David S. Morimoto
 David S. Morimoto
 Senior Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

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