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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

FORM 10-Q

(Mark One)

☒      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

or

☐         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from               to              

Commission File Number: 001-31567

CENTRAL PACIFIC FINANCIAL CORP.
(Exact name of registrant as specified in its charter)

Hawaii99-0212597
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
 
220 South King Street, Honolulu, Hawaii 96813
(Address of principal executive offices) (Zip code)
 
(808) 544-0500
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, No Par ValueCPFNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer☐Accelerated filer ☒
Non-accelerated filer ☐
Smaller reporting company 
☐
Emerging growth company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of registrant's common stock, no par value, on July 22, 2024 was 27,063,644 shares.

Table of Contents
CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES
Form 10-Q

Table of Contents
 Page
 

2
Table of Contents
PART I.   FINANCIAL INFORMATION

Item 1. Financial Statements

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)

As of
(dollars in thousands)June 30,
2024		December 31,
2023
Assets  
Cash and due from financial institutions$103,829 $116,181 
Interest-bearing deposits in other financial institutions195,062 406,256 
Investment securities:
Available-for-sale debt securities, at fair value676,719 647,210 
Held-to-maturity debt securities, at amortized cost; fair value of: $528,088 at June 30, 2024 and $565,178 at December 31, 2023
615,867 632,338 
Total investment securities1,292,586 1,279,548 
Loans held for sale3,950 1,778 
Loans5,383,644 5,438,982 
Less: allowance for credit losses(62,225)(63,934)
Loans, net of allowance for credit losses5,321,419 5,375,048 
Premises and equipment, net100,646 96,184 
Accrued interest receivable23,184 21,511 
Investment in unconsolidated entities40,155 41,546 
Mortgage servicing rights, net8,636 8,696 
Bank-owned life insurance173,716 170,706 
Federal Home Loan Bank of Des Moines ("FHLB") stock6,925 6,793 
Right-of-use lease assets32,081 29,720 
Other assets84,763 88,829 
Total assets$7,386,952 $7,642,796 
Liabilities  
Deposits:  
Noninterest-bearing demand$1,847,173 $1,913,379 
Interest-bearing demand1,283,669 1,329,189 
Savings and money market2,234,111 2,209,733 
Time1,217,502 1,395,291 
Total deposits6,582,455 6,847,592 
Long-term debt, net of unamortized debt issuance costs of $324 at June 30, 2024 and $445 at December 31, 2023
156,223 156,102 
Lease liabilities33,422 30,634 
Accrued interest payable14,998 18,948 
Other liabilities81,207 85,705 
Total liabilities6,868,305 7,138,981 
Contingent liabilities and other commitments (see Note 16)
Equity  
Preferred stock, no par value, authorized 1,000,000 shares;
issued and outstanding: none at June 30, 2024 and December 31, 2023
— — 
Common stock, no par value, authorized 185,000,000 shares;
issued and outstanding: 27,063,644 at June 30, 2024 and 27,045,033 at December 31, 2023
404,494 405,439 
Additional paid-in capital104,161 102,982 
Retained earnings132,683 117,990 
Accumulated other comprehensive loss(122,691)(122,596)
Total equity518,647 503,815 
Total liabilities and equity$7,386,952 $7,642,796 

See accompanying notes to consolidated financial statements.
3
Table of Contents

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

Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands, except per share data)2024202320242023
Interest income:    
Interest and fees on loans$64,422 $60,455 $127,241 $118,724 
Interest and dividends on investment securities:
Taxable investment securities8,466 7,145 15,677 14,481 
Tax-exempt investment securities598 727 1,253 1,517 
Interest on deposits in other financial institutions2,203 877 5,814 1,154 
Dividend income on FHLB stock151 120 257 256 
Total interest income75,840 69,324 150,242 136,132 
Interest expense:    
Interest on deposits:    
Demand490 411 989 774 
Savings and money market8,977 4,670 17,420 8,056 
Time12,173 8,932 25,163 15,196 
Interest on short-term borrowings1 378 1 1,139 
Interest on long-term debt2,278 2,199 4,561 4,037 
Total interest expense23,919 16,590 48,134 29,202 
Net interest income51,921 52,734 102,108 106,930 
Provision for credit losses 2,239 4,319 6,175 6,171 
Net interest income after provision for credit losses49,682 48,415 95,933 100,759 
Other operating income:    
Mortgage banking income1,040 690 1,653 1,216 
Service charges on deposit accounts2,135 2,137 4,238 4,248 
Other service charges and fees5,869 4,994 11,130 9,979 
Income from fiduciary activities1,449 1,068 2,884 2,389 
Income from bank-owned life insurance1,234 1,185 2,756 2,476 
Other394 361 704 1,136 
Total other operating income12,121 10,435 23,365 21,444 
Other operating expense:    
Salaries and employee benefits21,246 20,848 41,981 42,871 
Net occupancy4,597 4,310 9,197 8,784 
Computer software4,381 4,621 8,668 9,227 
Legal and professional services2,506 2,469 4,826 5,355 
Equipment995 932 2,005 1,878 
Advertising901 942 1,815 1,875 
Communication657 791 1,494 1,569 
Other5,868 4,990 11,741 10,451 
Total other operating expense41,151 39,903 81,727 82,010 
Income before income taxes20,652 18,947 37,571 40,193 
Income tax expense4,835 4,472 8,809 9,531 
Net income$15,817 $14,475 $28,762 $30,662 
Per common share data:    
Basic earnings per share$0.58 $0.54 $1.06 $1.14 
Diluted earnings per share$0.58 $0.53 $1.06 $1.13 
Basic weighted average shares outstanding27,053,549 27,024,043 27,050,037 27,011,659 
Diluted weighted average shares outstanding27,116,349 27,071,478 27,106,267 27,090,258 

See accompanying notes to consolidated financial statements.
4
Table of Contents

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

Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands)2024202320242023
Net income$15,817 $14,475 $28,762 $30,662 
Other comprehensive income (loss), net of tax:
Net change in fair value of available-for-sale investment securities274 (6,025)(4,906)5,181 
Amortization of unrealized losses on investment securities transferred to held-to-maturity1,374 1,451 2,580 2,676 
Net change in fair value of derivatives(16)2,040 2,231 877 
Supplemental Executive Retirement Plans— (13)— (25)
Total other comprehensive income (loss), net of tax1,632 (2,547)(95)8,709 
Comprehensive income$17,449 $11,928 $28,667 $39,371 

See accompanying notes to consolidated financial statements.
5
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 

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 

See accompanying notes to consolidated financial statements.
6
Table of Contents

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

Six Months Ended June 30,
(dollars in thousands)20242023
Cash flows from operating activities:  
Net income$28,762 $30,662 
Adjustments to reconcile net income to net cash provided by operating activities: 
Provision for credit losses6,175 6,171 
Depreciation and amortization of premises and equipment3,454 3,376 
Loss on disposal of premises and equipment16 9 
Cash flows from operating leases(2,682)(2,692)
Amortization of mortgage servicing rights370 356 
Net amortization and accretion of premium/discounts on investment securities1,099 1,602 
Share-based compensation1,179 651 
Net gain on sales of residential mortgage loans(748)(296)
Proceeds from sales of loans held for sale36,620 14,486 
Originations of loans held for sale(38,044)(15,678)
Equity in losses of unconsolidated entities31 25 
Distributions from unconsolidated entities— 44 
Net increase in cash surrender value of bank-owned life insurance(2,756)(2,622)
Deferred income tax expense1,165 11,225 
Net tax expense (benefit) from share-based compensation128 (15)
Net change in other assets and liabilities8,177 963 
Net cash provided by operating activities42,946 48,267 
Cash flows from investing activities:  
Proceeds from maturities of and calls on available-for-sale investment securities25,495 28,515 
Purchases of investment securities available-for-sale(62,336)(14,907)
Proceeds from maturities of and calls on held-to-maturity investment securities19,545 18,148 
Net repayments of loans59,444 48,382 
Purchases of loan portfolios(12,384)(19,659)
Purchases of bank-owned life insurance(2,502)— 
Proceeds from bank-owned life insurance death benefits2,248 2,453 
Net purchases of premises, equipment and land(7,932)(8,270)
Contributions to unconsolidated entities(7,787)(75)
Net purchases of FHLB stock(132)(1,814)
Net cash provided by investing activities13,659 52,773 
Cash flows from financing activities:  
Net (decrease) increase in deposits(265,137)69,514 
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(14,069)(14,054)
Repurchases of common stock and other related costs(945)(2,560)
Net cash (used in) provided by financing activities(280,151)97,900 
Net (decrease) increase in cash and cash equivalents(223,546)198,940 
Cash and cash equivalents at beginning of period522,437 112,044 
Cash and cash equivalents at end of period$298,891 $310,984 


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

Six Months Ended June 30,
(dollars in thousands)20242023
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest$52,084 $22,540 
Income taxes— 3,806 
Supplemental disclosure of non-cash information:
Lease liabilities arising from obtaining right-of-use lease assets5,029 — 
Amortization of unrealized losses on investment securities transferred to held-to-maturity at fair value3,505 3,644 

See accompanying notes to consolidated financial statements.
7
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.

8
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.

9
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.

10
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 Other 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.

11
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 June 30, 2024 and December 31, 2023 are as follows:

Amortized CostGross Unrealized GainsGross Unrealized LossesFair ValueACL
(dollars in thousands)
June 30, 2024
Available-for-sale:    
Debt securities:    
States and political subdivisions$151,771 $3 $(30,299)$121,475 $— 
Corporate securities35,492 — (4,029)31,463 — 
U.S. Treasury and other government-sponsored entities and agencies55,662 147 (2,078)53,731 — 
Mortgage-backed securities:    
Residential - U.S. government-sponsored entities and agencies416,128 50 (62,224)353,954 — 
Residential - Non-government agencies18,454 135 (1,141)17,448 — 
Commercial - U.S. government-sponsored entities and agencies98,346 — (14,834)83,512 — 
Commercial - Non-government agencies15,269 — (133)15,136 — 
Total available-for-sale investment securities$791,122 $335 $(114,738)$676,719 $— 

Amortized CostGross Unrecognized GainsGross Unrecognized LossesFair ValueACL
(dollars in thousands)
June 30, 2024
Held-to-maturity:
Debt securities:
States and political subdivisions$42,002 $— $(8,138)$33,864 $— 
Mortgage-backed securities:
Residential - U.S. government-sponsored entities and agencies573,865 — (79,641)494,224 — 
Total held-to-maturity investment securities$615,867 $— $(87,779)$528,088 $— 

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 $— 

12
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 six months ended June 30, 2024, the Company recorded income from the interest rate swap of $0.9 million and $0.8 million, respectively, in interest income on taxable investment securities on the Company's consolidated statements of income.

During the three and six months ended June 30, 2024, the Company recorded a total of $1.9 million and $3.5 million, respectively, in amortization of unrecognized losses on the aforementioned investment securities transferred from AFS to HTM. During the three and six months ended June 30, 2023, the Company recorded a total of $2.0 million and $3.6 million, respectively, in amortization of unrecognized losses on the aforementioned 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 $4.3 million and $4.0 million as of June 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 June 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$1,361 $1,357 2.67 %
Due after one year through five years53,764 49,405 2.74 
Due after five years through ten years63,131 60,566 4.00 
Due after ten years124,669 95,341 2.44 
Mortgage-backed securities:
Residential - U.S. government-sponsored entities and agencies416,128 353,954 2.21 
Residential - Non-government agencies18,454 17,448 4.56 
Commercial - U.S. government-sponsored entities and agencies98,346 83,512 2.75 
Commercial - Non-government agencies15,269 15,136 5.07 
Total available-for-sale securities$791,122 $676,719 2.63 %

13
(dollars in thousands)Amortized CostFair Value
Weighted Average Yield (1)
Held-to-maturity:  
Debt securities:
Due after ten years$42,002 $33,864 2.26 %
Mortgage-backed securities:  
Residential - U.S. government-sponsored entities and agencies573,865 494,224 1.92 
Total held-to-maturity securities$615,867 $528,088 1.94 %

(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 six months ended June 30, 2024 and 2023.

Investment securities with carrying values totaling $758.9 million and $990.4 million at June 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 June 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 229 and 208 AFS investment securities which were in an unrealized loss position, without an ACL, at June 30, 2024 and December 31, 2023, respectively. There were a total of 83 and 82 HTM investment securities which were in an unrecognized loss position, without an ACL, at June 30, 2024 and December 31, 2023, respectively.

Less Than 12 Months12 Months or LongerTotal
(dollars in thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
June 30, 2024
Available-for-sale:
Debt securities:      
States and political subdivisions$8,438 $(109)$110,179 $(30,190)$118,617 $(30,299)
Corporate securities— — 31,463 (4,029)31,463 (4,029)
U.S. Treasury and other government-sponsored entities and agencies26,659 (195)15,239 (1,883)41,898 (2,078)
Mortgage-backed securities:      
Residential - U.S. government-sponsored entities and agencies19,271 (181)325,104 (62,043)344,375 (62,224)
Residential - Non-government agencies5,437 (101)7,826 (1,040)13,263 (1,141)
Commercial - U.S. government-sponsored entities and agencies22,917 (1,234)60,595 (13,600)83,512 (14,834)
Commercial - Non-government agencies— — 15,136 (133)15,136 (133)
Total$82,722 $(1,820)$565,542 $(112,918)$648,264 $(114,738)

14
Less Than 12 Months12 Months or LongerTotal
(dollars in thousands)Fair ValueUnrecognized LossesFair ValueUnrecognized LossesFair ValueUnrecognized Losses
June 30, 2024
Held-to-maturity:
Debt securities:
States and political subdivisions$— $— $33,864 $(8,138)$33,864 $(8,138)
Mortgage-backed securities:
Residential - U.S. government-sponsored entities and agencies8,048 (76)486,176 (79,565)494,224 (79,641)
Total$8,048 $(76)$520,040 $(87,703)$528,088 $(87,779)

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 June 30, 2024 and December 31, 2023, and it is unlikely that the Company will be required to sell these
15
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)June 30, 2024December 31, 2023
Commercial and industrial$585,048 $576,038 
Real estate:
Construction171,918 185,994 
Residential mortgage1,912,753 1,927,206 
Home equity704,836 734,500 
Commercial mortgage1,467,273 1,384,579 
Consumer542,241 630,898 
Gross loans5,384,069 5,439,215 
Deferred fees and costs, net(425)(233)
Total loans, net of deferred fees and costs$5,383,644 $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 $17.7 million and $17.1 million at June 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.

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

The following tables present loans purchased by class for 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.

Three Months Ended June 30, 2024Three Months Ended June 30, 2023
(dollars in thousands)U.S. Mainland Consumer - UnsecuredU.S. Mainland Consumer - AutomobileTotalU.S. Mainland Consumer - UnsecuredU.S. Mainland Consumer - AutomobileTotal
Purchases:
Outstanding balance$— $12,384 $12,384 $152 $— $152 
Premium— 247 247 — — — 
Purchase price$— $12,631 $12,631 $152 $— $152 

Six Months Ended June 30, 2024Six Months Ended June 30, 2023
U.S. Mainland Consumer - UnsecuredU.S. Mainland Consumer - AutomobileTotalU.S. Mainland Consumer - UnsecuredU.S. Mainland Consumer - AutomobileTotal
Purchases:
Outstanding balance$— $12,384 $12,384 $3,932 $15,159 $19,091 
Premium— 247 247 — 568 568 
Purchase price$— $12,631 $12,631 $3,932 $15,727 $19,659 

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Foreclosure Proceedings

The Company did not own any foreclosed properties as of June 30, 2024 and December 31, 2023. The Company had $3.9 million and $2.3 million of residential mortgage loans collateralized by residential real estate property that were in the process of foreclosure at June 30, 2024 and December 31, 2023, respectively. The Company had $0.1 million in commercial real estate loans in the process of foreclosure at June 30, 2024 and December 31, 2023.

The Company did not sell any foreclosed properties during the three and six months ended June 30, 2024 and 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
June 30, 2024       
Commercial and industrial$597 $183 $— $355 $1,135 $583,721 $584,856 $— 
Real estate:  
Construction— — — — — 171,522 171,522 — 
Residential mortgage626 1,352 1,273 7,991 11,242 1,901,935 1,913,177 7,991 
Home equity2,001 — 135 1,247 3,383 703,428 706,811 1,247 
Commercial mortgage— — — 77 77 1,465,293 1,465,370 77 
Consumer4,891 1,525 896 587 7,899 534,009 541,908 — 
Total$8,115 $3,060 $2,304 $10,257 $23,736 $5,359,908 $5,383,644 $9,315 

(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 

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:

17
(dollars in thousands)Secured by
1-4 Family
Residential
Properties		Secured by
Nonfarm
Nonresidential
Properties		TotalAllocated
ACL
June 30, 2024
Real estate:
Residential mortgage$9,435 $— $9,435 $— 
Home equity1,247 — 1,247 — 
Commercial mortgage— 77 77 — 
Total$10,682 $77 $10,759 $— 

(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 six months ended June 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 June 30, 2024, compared to $0.9 million at December 31, 2023. There were $2.0 million of TDRs that were still accruing interest at June 30, 2024, compared to $2.1 million at December 31, 2023. None of the TDRs still accruing interest at June 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.

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
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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
June 30, 202420242023202220212020PriorTotal
Commercial and industrial:
Risk Rating
Pass$82,768 $66,377 $80,033 $74,516 $28,777 $152,988 $91,260 $576,719 
Special Mention— 33 3,775 2,910 — — — 6,718 
Substandard— 93 37 141 557 591 — 1,419 
Subtotal82,768 66,503 83,845 77,567 29,334 153,579 91,260 584,856 
Construction:
Risk Rating
Pass791 13,053 52,375 60,724 13,376 31,203 — 171,522 
Subtotal791 13,053 52,375 60,724 13,376 31,203 — 171,522 
Residential mortgage:
Risk Rating
Pass37,641 95,295 264,381 602,347 404,839 498,253 — 1,902,756 
Special Mention— — — — — 247 — 247 
Substandard— — 1,697 646 1,868 5,963 — 10,174 
Subtotal37,641 95,295 266,078 602,993 406,707 504,463 — 1,913,177 
Home equity:
Risk Rating
Pass661 11,619 30,352 18,589 7,880 25,505 610,823 705,429 
Substandard— — — — — 1,247 135 1,382 
Subtotal661 11,619 30,352 18,589 7,880 26,752 610,958 706,811 
Commercial mortgage:
Risk Rating
Pass106,586 95,806 238,556 200,970 113,069 689,968 6,561 1,451,516 
Special Mention— 624 — 1,450 — 5,254 — 7,328 
Substandard— — — 1,097 — 5,429 — 6,526 
Subtotal106,586 96,430 238,556 203,517 113,069 700,651 6,561 1,465,370 
Consumer:
Risk Rating
Pass16,203 91,475 212,509 115,566 27,775 24,351 52,545 540,424 
Substandard— 48 160 205 15 1,056 — 1,484 
Subtotal16,203 91,523 212,669 115,771 27,790 25,407 52,545 541,908 
Total$244,650 $374,423 $883,875 $1,079,161 $598,156 $1,442,055 $761,324 $5,383,644 

(dollars in thousands)Gross Charge-Offs by Year of Origination
Six Months Ended June 30, 202420242023202220212020PriorTotal
Commercial and industrial$19 $74 $204 $184 $13 $707 $1,201 
Real estate:
Residential mortgage— — 76 — — 208 284 
Consumer5 392 5,460 2,318 283 725 9,183 
Gross charge-offs$24 $466 $5,740 $2,502 $296 $1,640 $10,668 

20
(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
Six Months Ended June 30, 202320232022202120202019PriorTotal
Commercial and industrial$— $212 $88 $— $207 $634 $1,141 
Consumer— 2,745 2,730 345 409 330 6,559 
Gross charge-offs$— $2,957 $2,818 $345 $616 $964 $7,700 

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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 June 30, 2024Commercial and IndustrialConstructionResidential MortgageHome EquityCommercial MortgageConsumerTotal
Beginning balance$7,008 $3,619 $16,026 $3,733 $17,004 $16,142 $63,532 
Provision (credit) for credit losses on loans452 179 (362)96 333 1,750 2,448 
Subtotal7,460 3,798 15,664 3,829 17,337 17,892 65,980 
Charge-offs(519)— (284)— — (4,345)(5,148)
Recoveries130 — 9 — — 1,254 1,393 
Net (charge-offs) recoveries(389)— (275)— — (3,091)(3,755)
Ending balance$7,071 $3,798 $15,389 $3,829 $17,337 $14,801 $62,225 

(dollars in thousands)Real Estate
Three Months Ended June 30, 2023Commercial and IndustrialConstructionResidential MortgageHome EquityCommercial MortgageConsumerTotal
Beginning balance$7,131 $3,087 $11,813 $4,037 $17,472 $19,559 $63,099 
Provision (credit) for credit losses on loans52 567 413 (87)(107)3,297 4,135 
Subtotal7,183 3,654 12,226 3,950 17,365 22,856 67,234 
Charge-offs(362)— — — — (3,873)(4,235)
Recoveries125 — 7 15 — 703 850 
Net (charge-offs) recoveries(237)— 7 15 — (3,170)(3,385)
Ending balance$6,946 $3,654 $12,233 $3,965 $17,365 $19,686 $63,849 

(dollars in thousands)Real Estate
Six Months Ended June 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 loans871 (206)1,030 322 (206)4,758 6,569 
Subtotal8,052 3,798 15,656 3,823 17,337 21,837 70,503 
Charge-offs(1,201)— (284)— — (9,183)(10,668)
Recoveries220 — 17 6 — 2,147 2,390 
Net (charge-offs) recoveries(981)— (267)6 — (7,036)(8,278)
Ending balance$7,071 $3,798 $15,389 $3,829 $17,337 $14,801 $62,225 

(dollars in thousands)Real Estate
Six Months Ended June 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 loans888 787 369 (164)(537)4,407 5,750 
Subtotal7,712 3,654 12,173 3,950 17,365 24,634 69,488 
Charge-offs(1,141)— — — — (6,559)(7,700)
Recoveries375 — 60 15 — 1,611 2,061 
Net (charge-offs) recoveries(766)— 60 15 — (4,948)(5,639)
Ending balance$6,946 $3,654 $12,233 $3,965 $17,365 $19,686 $63,849 

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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 June 30,Six Months Ended June 30,
(dollars in thousands)2024202320242023
Beginning balance$3,521 $3,480 $3,706 $3,243 
(Credit) provision for off-balance sheet credit exposures(209)184 (394)421 
Ending balance$3,312 $3,664 $3,312 $3,664 

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)June 30, 2024December 31, 2023
Investments in low-income housing tax credit partnerships, net of amortization$36,478 $37,838 
Investments in common securities of statutory trusts1,547 1,547 
Investments in affiliates80 111 
Other2,050 2,050 
Total$40,155 $41,546 

The Company had commitments to fund low-income housing tax credit ("LIHTC") partnerships totaling $47.8 million as of June 30, 2024 and December 31, 2023. Unfunded commitments related to LIHTC partnerships totaled $14.3 million and $22.0 million at June 30, 2024 and December 31, 2023, respectively, and are included in other liabilities in the Company's consolidated balance sheets. The investments are accounted for under the proportional amortization method and are 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 June 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)$9,696 $903 $10,599 
20254,248 — 4,248 
202626 — 26 
202726 — 26 
202820 — 20 
202927 — 27 
Thereafter286 — 286 
Total unfunded commitments$14,329 $903 $15,232 

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

Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands)2024202320242023
Proportional amortization method:
Amortization expense recognized in income tax expense$674 $714 $1,360 $1,428 
Tax credits recognized in income tax expense801 892 1,601 1,784 

23
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 $0.9 million and $1.0 million in unfunded commitments related to the investment as of June 30, 2024 and December 31, 2023, respectively, which was recorded in other liabilities.

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 June 30, 2024 and December 31, 2023. The intangible assets, net of accumulated amortization, totaling $1.4 million and $1.5 million are included in other assets on the Company's consolidated balance sheet as of June 30, 2024 and December 31, 2023, respectively.

6. MORTGAGE SERVICING RIGHTS

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

(dollars in thousands)
Balance at December 31, 2023$8,696 
Additions310 
Amortization(370)
Balance at June 30, 2024$8,636 
Balance at December 31, 2022$9,074 
Additions125 
Amortization(356)
Balance at June 30, 2023$8,843 

Income generated as the result of new MSR is reported as gains on sales of loans and totaled $0.2 million and $0.3 million for the three and six months ended June 30, 2024, respectively, compared to $0.1 million and $0.1 million for the three and six months ended June 30, 2023, respectively.

Amortization of mortgage servicing rights totaled $0.2 million and $0.4 million for the three and six months ended June 30, 2024, respectively, compared to $0.2 million and $0.4 million for the three and six months ended June 30, 2023, respectively.

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)June 30, 2024December 31, 2023
Fair market value, beginning of year$12,185 $12,061 
Fair market value, end of period12,151 12,185 
Weighted average discount rate9.5 %9.5 %
Weighted average prepayment speed assumption11.0 11.2 
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The following table presents carrying values and accumulated amortization related to MSR as of the dates presented:

 June 30, 2024December 31, 2023
(dollars in thousands)Gross
Carrying
Value		Accumulated
Amortization		Net
Carrying
Value		Gross
Carrying
Value		Accumulated
Amortization		Net
Carrying
Value
Mortgage servicing rights$70,050 $(61,414)$8,636 $69,740 $(61,044)$8,696 

The following table presents the estimated amortization expense for the remainder of fiscal year 2024, the next five succeeding fiscal years, and all years thereafter, based on MSR held as of June 30, 2024:

(dollars in thousands)
Year Ending December 31,
2024 (remainder)$418 
2025893 
2026803 
2027719 
2028642 
2029563 
Thereafter4,598 
Total$8,636 

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 June 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 $2.8 million and $1.8 million of mortgage loans at June 30, 2024 and December 31, 2023, respectively. The Company was not a party to any forward sale commitments on mortgage loans at June 30, 2024 and December 31, 2023.
25

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 $35.6 million and $36.0 million at June 30, 2024 and December 31, 2023, respectively. The fair value of the RPAs was insignificant to the consolidated financial statements at June 30, 2024 and December 31, 2023.

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 $50.6 million and $51.1 million at June 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 $14.4 million and $9.6 million in counter-party cash collateral related to the back-to-back swap agreements at June 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 June 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 six months ended June 30, 2024, the Company recorded income from the interest rate swap of $0.9 million and $0.8 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 LocationJune 30,
2024		December 31,
2023		June 30,
2024		December 31,
2023
Interest rate lock and forward sale commitmentsOther assets / other liabilities$1 $— $4 $34 
Back-to-back swap agreementsOther assets / other liabilities4,237 3,547 4,237 3,547 
26
Derivative Financial Instruments Designated as Hedging InstrumentsAsset DerivativesLiability Derivatives
Fair Value atFair Value at
(dollars in thousands)Balance Sheet LocationJune 30,
2024		December 31,
2023		June 30,
2024		December 31,
2023
Interest rate swapOther assets / other liabilities$9,304 $6,440 $— $— 

27
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 June 30, 2024  
Interest rate lock and forward sale commitmentsMortgage banking income$(4)
Back-to-back swap agreementsOther service charges and fees— 
Three Months Ended June 30, 2023 
Interest rate lock and forward sale commitmentsMortgage banking income16 
Loans held for saleOther income(4)
Back-to-back swap agreementsOther service charges and fees35 
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)
Six Months Ended June 30, 2024 
Interest rate lock and forward sale commitmentsMortgage banking income$31 
Loans held for saleOther income(17)
Back-to-back swap agreementsOther service charges and fees80 
Six Months Ended June 30, 2023 
Interest rate lock and forward sale commitmentsMortgage banking income8 
Loans held for saleOther income(1)
Back-to-back swap agreementsOther service charges and fees35 
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 June 30, 2024
Interest rate swapInterest income$884 
Three Months Ended June 30, 2023
Interest rate swapInterest income(116)
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)
Six Months Ended June 30, 2024
Interest rate swapInterest income$776 
Six Months Ended June 30, 2023
Interest rate swapInterest income(59)

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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)June 30, 2024December 31, 2023
Investment securities, available-for-sale:
Carrying Amount of the Hedged Assets$89,600 $90,636 
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets(9,848)(6,817)

8. SHORT-TERM BORROWINGS AND LONG-TERM DEBT

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 $1.87 billion line of credit as of June 30, 2024, compared to $1.93 billion at December 31, 2023. At June 30, 2024, $1.74 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 June 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 June 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 $79.0 million as of June 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 June 30, 2024 and December 31, 2023 were secured by certain real estate loans with a carrying value of approximately $3.14 billion and $3.16 billion, respectively.

The Bank had additional unused borrowings available at the Federal Reserve Discount Window of $238.3 million and $285.8 million at June 30, 2024 and December 31, 2023, respectively. Certain commercial and commercial real estate loans with a par value totaling $131.8 million and $135.1 million at June 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 $190.6 million and $196.7 million as of June 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 June 30, 2024 and December 31, 2023.

Subordinated Debentures

The following table present's 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 TrustJune 30, 2024December 31, 2023Interest Rate
Trust IV$30,928 $30,928 
Three-month CME Term SOFR + tenor spread adjustment of 0.26% + 2.45%
Trust V20,619 20,619 
Three-month CME Term SOFR + tenor spread adjustment of 0.26% + 1.87%
Total$51,547 $51,547 

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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)
DescriptionJune 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.

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, net of unamortized debt issuance costs of $0.3 million, at June 30, 2024.

30
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 June 30, 2024Three Months Ended June 30, 2023
(dollars in thousands)In-ScopeOut-of-ScopeTotalIn-ScopeOut-of-ScopeTotal
Other operating income:
Mortgage banking income$202 $838 $1,040 $174 $516 $690 
Service charges on deposit accounts2,135 — 2,135 2,137 — 2,137 
Other service charges and fees5,348 521 5,869 4,402 592 4,994 
Income from fiduciary activities1,449 — 1,449 1,068 — 1,068 
Income from bank-owned life insurance— 1,234 1,234 — 1,185 1,185 
Other— 394 394 — 361 361 
Total other operating income$9,134 $2,987 $12,121 $7,781 $2,654 $10,435 


Six Months Ended June 30, 2024Six Months Ended June 30, 2023
(dollars in thousands)In-ScopeOut-of-ScopeTotalIn-ScopeOut-of-ScopeTotal
Other operating income:
Mortgage banking income$274 $1,379 $1,653 $325 $891 $1,216 
Service charges on deposit accounts4,238 — 4,238 4,248 — 4,248 
Other service charges and fees10,018 1,112 11,130 8,781 1,198 9,979 
Income from fiduciary activities2,884 — 2,884 2,389 — 2,389 
Income from bank-owned life insurance— 2,756 2,756 — 2,476 2,476 
Other— 704 704 — 1,136 1,136 
Total other operating income$17,414 $5,951 $23,365 $15,743 $5,701 $21,444 


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.

31
The following table presents the activities of RSUs and PSUs for the six months ended June 30, 2024:

(dollars in thousands, except per share data)SharesWeighted Average Grant Date Fair ValueFair 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(73,841)23.75 $1,433 
Non-vested RSUs and PSUs, end of period287,001 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 $9.3 million at June 30, 2024 and December 31, 2023.

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

Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands)2024202320242023
Interest cost$108 $112 $216 $224 
Amortization of net actuarial gain— (19)— (38)
Amortization of net transition obligation— 2 — 4 
Net periodic benefit cost$108 $95 $216 $190 

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 June 30,Six Months Ended June 30,
(dollars in thousands)2024202320242023
Lease cost:
Operating lease cost$1,437 $1,327 $2,740 $2,652 
Variable lease cost927 934 1,862 1,822 
Less: Sublease income— (17)— (34)
Total lease cost$2,364 $2,244 $4,602 $4,440 
Other information:
Operating cash flows from operating leases$(1,425)$(1,302)$(2,682)$(2,692)
Weighted-average remaining lease term - operating leases 10.87 years10.98 years10.87 years10.98 years
Weighted-average discount rate - operating leases4.09 %3.96 %4.09 %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 June 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)$2,443 $644 $1,799 
20254,499 1,179 3,320 
20264,441 1,050 3,391 
20274,428 915 3,513 
20283,611 794 2,817 
20293,144 688 2,456 
Thereafter18,965 2,839 16,126 
Total $41,531 $8,109 $33,422 

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 June 30,Six Months Ended June 30,
(dollars in thousands)2024202320242023
Total rental income recognized$511 $563 $1,020 $1,125 

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The following table presents estimated lease payments, based on the Company's leases as lessor as of June 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)$644 
20251,157 
20261,015 
2027960 
2028608 
2029553 
Thereafter1,293 
Total $6,230 

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 June 30, 2024   
Net change in fair value of investment securities:   
Net unrealized gains on AFS investment securities arising during the period$370 $96 $274 
Amortization of unrealized losses on investment securities transferred to HTM1,867 493 1,374 
Net change in fair value of investment securities2,237 589 1,648 
Net change in fair value of derivatives:
Net unrealized losses arising during the period(22)(6)(16)
Net change in fair value of derivatives(22)(6)(16)
Other comprehensive income$2,215 $583 $1,632 

(dollars in thousands)Before TaxTax EffectNet of Tax
Three Months Ended June 30, 2023   
Net change in fair value of investment securities:   
Net unrealized losses on AFS investment securities arising during the period$(8,204)$(2,179)$(6,025)
Amortization of unrealized losses on investment securities transferred to HTM1,976 525 1,451 
Net change in fair value of investment securities(6,228)(1,654)(4,574)
Net change in fair value of derivatives:
Net unrealized gains arising during the period2,777 737 2,040 
Net change in fair value of derivatives2,777 737 2,040 
SERP:   
Amortization of net actuarial gain(20)(5)(15)
Amortization of net transition obligation2 — 2 
SERP(18)(5)(13)
Other comprehensive loss$(3,469)$(922)$(2,547)

34

(dollars in thousands)Before TaxTax EffectNet of Tax
Six Months Ended June 30, 2024   
Net change in fair value of investment securities:   
Net unrealized losses on AFS investment securities arising during the period$(6,665)$(1,759)$(4,906)
Amortization of unrealized losses on investment securities transferred to HTM3,505 925 2,580 
Net change in fair value of investment securities(3,160)(834)(2,326)
Net change in fair value of derivatives:
Net unrealized gains arising during the period3,031 800 2,231 
Net change in fair value of derivatives3,031 800 2,231 
Other comprehensive loss$(129)$(34)$(95)

(dollars in thousands)Before TaxTax EffectNet of Tax
Six Months Ended June 30, 2023   
Net change in fair value of investment securities:   
Net unrealized gains on AFS investment securities arising during the period$7,054 $1,873 $5,181 
Amortization of unrealized losses on investment securities transferred to HTM3,644 968 2,676 
Net change in fair value of investment securities10,698 2,841 7,857 
Net change in fair value of derivatives:
Net unrealized gains arising during the period$1,178 $301 $877 
Net change in fair value of derivatives1,178 301 877 
SERP:   
Amortization of net actuarial gain(39)(10)(29)
Amortization of net transition obligation4 — 4 
SERP(35)(10)(25)
Other comprehensive income$11,841 $3,132 $8,709 


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 June 30, 2024   
Balance at beginning of period$(131,896)$7,276 $297 $(124,323)
Other comprehensive income (loss) before reclassifications274 (16)— 258 
Reclassification adjustments from AOCI1,374 — — 1,374 
Total other comprehensive income (loss)1,648 (16)— 1,632 
Balance at end of period$(130,248)$7,260 $297 $(122,691)

35
(dollars in thousands)Investment SecuritiesDerivativesSERPAOCI
Three Months Ended June 30, 2023   
Balance at beginning of period$(136,678)$3,482 $468 $(132,728)
Other comprehensive income (loss) before reclassifications(6,025)2,040 — (3,985)
Reclassification adjustments from AOCI1,451 — (13)1,438 
Total other comprehensive income (loss)(4,574)2,040 (13)(2,547)
Balance at end of period$(141,252)$5,522 $455 $(135,275)

(dollars in thousands)Investment SecuritiesDerivativesSERPAOCI
Six Months Ended June 30, 2024   
Balance at beginning of period$(127,922)$5,029 $297 $(122,596)
Other comprehensive income (loss) before reclassifications(4,906)2,231 — (2,675)
Reclassification adjustments from AOCI2,580 — — 2,580 
Total other comprehensive income (loss)(2,326)2,231 — (95)
Balance at end of period$(130,248)$7,260 $297 $(122,691)

(dollars in thousands)Investment SecuritiesDerivativesSERPAOCI
Six Months Ended June 30, 2023   
Balance at beginning of period$(149,109)$4,645 $480 $(143,984)
Other comprehensive income (loss) before reclassifications5,181 877 — 6,058 
Reclassification adjustments from AOCI2,676 — (25)2,651 
Total other comprehensive income (loss)7,857 877 (25)8,709 
Balance at end of period$(141,252)$5,522 $455 $(135,275)


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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 June 30,
Details about AOCI Components20242023
Amortization of unrealized losses on investment securities transferred to HTM:
Amortization$1,867 $1,976 Interest and dividends on investment securities
Tax effect(493)(525)Income tax benefit
Net of tax1,374 1,451 
SERP:   
Amortization of net actuarial gain— (20)Other operating expense - other
Amortization of net transition obligation— 2 Other operating expense - other
Total before tax— (18)
Tax effect— 5 Income tax expense
Net of tax— (13)
Total reclassification adjustments from AOCI for the period, net of tax$1,374 $1,438 

Amount Reclassified from AOCIAffected Line Item in the Statement Where Net Income is Presented
(dollars in thousands)Six Months Ended June 30,
Details about AOCI Components20242023
Amortization of unrealized losses on investment securities transferred to HTM:
Amortization$3,505 $3,644 Interest and dividends on investment securities
Tax effect(925)(968)Income tax benefit
Net of tax2,580 2,676 
SERP:   
Amortization of net actuarial gain— (39)Other operating expense - other
Amortization of net transition obligation— 4 Other operating expense - other
Total before tax— (35)
Tax effect— 10 Income tax expense
Net of tax— (25)
Total reclassification adjustments from AOCI for the period, net of tax$2,580 $2,651 
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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 June 30,Six Months Ended June 30,
(dollars in thousands, except per share data)2024202320242023
Net income$15,817 $14,475 $28,762 $30,662 
Weighted average common shares outstanding - basic27,053,549 27,024,043 27,050,037 27,011,659 
Dilutive effect of employee stock options and awards62,800 47,435 56,230 78,599 
Weighted average common shares outstanding - diluted27,116,349 27,071,478 27,106,267 27,090,258 
Basic earnings per share$0.58 $0.54 $1.06 $1.14 
Diluted earnings per share$0.58 $0.53 $1.06 $1.13 
Anti-dilutive employee stock options and awards2,917 60,627 1,890 25,671 

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 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 7.14% and 6.86% as of June 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 the fair values of Hawaii and U.S. Mainland construction and commercial real estate loans, if any, net of estimated selling costs on our consolidated balance sheets.

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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 5.47% and 5.48% as of June 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 6.82% and 6.83% as of June 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 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,
39
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)
June 30, 2024     
Financial assets:     
Cash and due from financial institutions$103,829 $103,829 $103,829 $— $— 
Interest-bearing deposits in other financial institutions195,062 195,062 195,062 — — 
Investment securities1,292,586 1,204,807 30,117 1,167,742 6,948 
Loans held for sale3,950 3,950 — 3,950 — 
Loans5,383,644 4,943,289 — — 4,943,289 
Accrued interest receivable23,184 23,184 341 4,130 18,713 
Financial liabilities:     
Deposits:     
Noninterest-bearing demand1,847,173 1,847,173 1,847,173 — — 
Interest-bearing demand and savings and money market3,517,780 3,517,780 3,517,780 — — 
Time1,217,502 1,207,020 — — 1,207,020 
Long-term debt156,223 150,309 — — 150,309 
Accrued interest payable14,998 14,998 109 — 14,889 

   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)
June 30, 2024     
Off-balance sheet financial instruments: 
Commitments to extend credit$1,227,966 $— $1,164 $— $1,164 $— 
Standby letters of credit and financial guarantees written3,514 — 53 — 53 — 
Derivatives:
Interest rate lock commitments2,753 (3)(3)— (3)— 
Risk participation agreements35,605 — — — — — 
Back-to-back swap agreements:
Assets50,645 4,237 4,237 — — 4,237 
Liabilities(50,645)(4,237)(4,237)— — (4,237)
Interest rate swap agreements115,545 9,304 9,304 — — 9,304 
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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)
June 30, 2024    
Available-for-sale securities:    
Debt securities:    
States and political subdivisions$121,475 $— $115,221 $6,254 
Corporate securities31,463 — 31,463 — 
U.S. Treasury and other government-sponsored entities and agencies53,731 30,117 23,614 — 
Mortgage-backed securities:    
Residential - U.S. government-sponsored entities and agencies353,954 — 353,954 — 
Residential - Non-government agencies17,448 — 16,754 694 
Commercial - U.S. government-sponsored entities and agencies83,512 — 83,512 — 
Commercial - Non-government agencies15,136 — 15,136 — 
Total available-for-sale investment securities676,719 30,117 639,654 6,948 
Derivatives:
Interest rate lock commitments(3)— (3)— 
Interest rate swap agreements9,304 — — 9,304 
Total derivatives9,301 — (3)9,304 
Total$686,020 $30,117 $639,651 $16,252 

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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(120)(12)— (132)
Unrealized net gain (loss) included in other comprehensive income(62)(8)2,864 2,794 
Balance at June 30, 2024$6,254 $694 $9,304 $16,252 
  
Balance at December 31, 2022$6,584 $684 $5,986 $13,254 
Principal payments received(114)(11)— (125)
Unrealized net gain included in other comprehensive income1,129 41 1,119 2,289 
Balance at June 30, 2023$7,599 $714 $7,105 $15,418 

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 $16.3 million and $13.6 million as of June 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 6.54% and 6.12% as of June 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 4.07% and 3.34% as of June 30, 2024 and December 31, 2023, respectively.

There were no financial assets or liabilities measured on a nonrecurring basis as of June 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;
•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;
•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;
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•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;
•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 55 ATMs located throughout the State of Hawaii as of June 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 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.

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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 June 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 June 30, 2024 was $15.8 million, or $0.58 per diluted share, compared to net income of $14.5 million, or $0.53 per diluted share for the three months ended June 30, 2023.

Net income for the six months ended June 30, 2024 was $28.8 million, or $1.06 per diluted share, compared to net income of $30.7 million, or $1.13 per diluted share for the six months ended June 30, 2023.

During the three months ended June 30, 2024, the Company recorded a provision for credit losses of $2.2 million, compared to a provision of $4.3 million during the three months ended June 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 in the current quarter.

During the six months ended June 30, 2024, the Company recorded a provision for credit losses of $6.2 million, compared to a provision of $6.2 million during the six months ended June 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, for the three months ended June 30, 2024 was $22.9 million, compared to $23.3 million for the three months ended June 30, 2023.

The Company's PPNR for the six months ended June 30, 2024 was $43.7 million, compared to $46.4 million for the six months ended June 30, 2023. See the following section titled "Non-GAAP Financial Measures" for reconciliation of PPNR.

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 June 30,Six Months Ended June 30,
 2024202320242023
Return on average assets0.86 %0.78 %0.78 %0.82 %
Return on average shareholders’ equity12.42 12.12 11.38 13.03 
Basic earnings per share$0.58 $0.54 $1.06 $1.14 
Diluted earnings per share0.58 0.53 1.06 1.13 

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Non-GAAP Financial Measures

The Company uses certain non-GAAP financial measures in addition to our GAAP results to provide useful information for evaluating our cash operating performance, ability to service debt, compliance with debt covenants and measurement against competitors. 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.

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 for the periods presented:

Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands)2024202320242023
Net income$15,817 $14,475 $28,762 $30,662 
Add: Income tax expense4,835 4,472 8,809 9,531 
Pre-tax income20,652 18,947 37,571 40,193 
Add: Provision (credit) for credit losses2,239 4,319 6,175 6,171 
PPNR
$22,891 $23,266 $43,746 $46,364 

The lower PPNR in the three and six months ended June 30, 2024 was primarily due to lower net interest income of $0.8 million and $4.8 million, respectively, compared to the year-ago periods. The lower net interest income was primarily due to higher average balances and rates paid on interest-bearing deposits, which outpaced the higher average yields earned on loans and investment securities.

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).

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

Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands)2024202320242023
Total other operating expense$41,151 $39,903 $81,727 $82,010 
Net interest income$51,921 $52,734 $102,108 $106,930 
Total other operating income12,121 10,435 23,365 21,444 
Total revenue$64,042 $63,169 $125,473 $128,374 
Efficiency ratio64.26 %63.17 %65.14 %63.88 %

Our efficiency ratio increased to 64.26% in the second quarter of 2024, compared to 63.17% in the year-ago quarter.
For the six months ended June 30, 2024, our efficiency ratio increased to 65.14%, compared to 63.88% in the year-ago period.

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

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

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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.

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 June 2024, average daily visitors to Maui were down by approximately 22% compared to June 2023. The unemployment rate for the Island of Maui was 8.4% in September 2023 and has since improved to 3.1% in June 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 June 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 4.8 million visitors arrived to the Hawaiian Islands during the six months ended June 30, 2024, mainly from the U.S. Mainland, compared to 5.0 million in the same prior year period and 5.2 million from the same period in the pre-pandemic and record year in 2019. Average daily visitors from Japan were up approximately 59% during the five months ended May 31, 2024 compared to the same prior year period, but were down by approximately 56% from the same period in 2019.

Total spending for visitors arriving in the six months ended June 30, 2024 was $10.26 billion, down 4.8% from $10.78 billion in the same period last year, and up by 15.9% from $8.86 billion in the six months ended June 30, 2019.

According to a May 2024 report by the University of Hawaii Economic Research Organization ("UHERO"), total visitor arrivals by air are expected to be approximately 9.8 million in 2024, which is an increase of approximately 1.9% from 9.6 million last year. Visitor spending is expected to decline approximately 4.2% to $19.84 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 June 2024, compared to 2.8% in the month of June 2023 and the national seasonally adjusted unemployment rate of 4.1% in the month of June 2024. UHERO projects Hawaii's seasonally adjusted annual unemployment rate to remain low at approximately 3.1% 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 and prices, there continues to be strong demand and low inventory. According to the Honolulu Board of Realtors, sales of Oahu single-family homes in the six months ended June 30, 2024 were up 6.7%, while sales of Oahu condominiums were down 5.8% from the same prior year period. The Oahu single-family home median price in the six months ended June 30, 2024 rose by 3.3% to $1.09 million from $1.05 million in the same prior year period. The Oahu condominium median price in the six months ended June 30, 2024 rose by 2.0% to $510,000 from $500,000 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 0.9% and real gross state product to grow by 1.5% in 2024.

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Table of Contents
Results of Operations

Net Interest Income

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. A comparison of net interest income on a taxable-equivalent basis for the three and six months ended June 30, 2024 and 2023 is presented below.

(dollars in thousands)Three Months Ended June 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$162,393 5.46 %$2,203 $69,189 5.08 %$877 $93,204 0.38 %$1,326 
Investment securities:
Taxable (1)1,335,100 2.54 8,466 1,379,319 2.07 7,145 (44,219)0.47 1,321 
Tax-exempt (1)142,268 2.13 757 151,979 2.42 920 (9,711)(0.29)(163)
Total investment securities1,477,368 2.50 9,223 1,531,298 2.11 8,065 (53,930)0.39 1,158 
Loans, including loans held for sale5,385,829 4.80 64,422 5,543,398 4.37 60,455 (157,569)0.43 3,967 
FHLB stock6,925 8.71 151 11,721 4.10 120 (4,796)4.61 31 
Total interest earning assets7,032,515 4.34 75,999 7,155,606 3.89 69,517 (123,091)0.45 6,482 
Noninterest-earning assets306,199   308,023   (1,824) 
Total assets$7,338,714   $7,463,629   $(124,915) 
Liabilities and Equity
Interest-bearing liabilities:         
Interest-bearing demand deposits$1,273,901 0.15 %$490 $1,367,878 0.12 %$411 $(93,977)0.03 %$79 
Savings and money market deposits2,221,754 1.63 8,977 2,172,680 0.86 4,670 49,074 0.77 4,307 
Time deposits up to $250,000555,809 3.29 4,548 390,961 1.82 1,770 164,848 1.47 2,778 
Time deposits over $250,000703,280 4.36 7,625 790,864 3.63 7,162 (87,584)0.73 463 
Total interest-bearing deposits4,754,744 1.83 21,640 4,722,383 1.19 14,013 32,361 0.64 7,627 
FHLB advances and other short-term borrowings66 5.60 1 29,791 5.09 378 (29,725)0.51 (377)
Long-term debt156,188 5.86 2,278 155,946 5.65 2,199 242 0.21 79 
Total interest-bearing liabilities4,910,998 1.96 23,919 4,908,120 1.36 16,590 2,878 0.60 7,329 
Noninterest-bearing deposits1,788,023  1,952,267  (164,244)
Other liabilities130,186   125,531   4,655  
Total liabilities6,829,207   6,985,918   (156,711) 
Total equity509,507   477,711   31,796  
Total liabilities and equity$7,338,714   $7,463,629   $(124,915) 
Net interest income  $52,080   $52,927   $(847)
Interest rate spread2.38 %2.53 %(0.15)%
Net interest margin 2.97 %  2.96 %  0.01 % 
(1)  At amortized cost.

Net interest income (expressed on a taxable-equivalent basis) was $52.1 million for the second quarter of 2024, representing a decrease of $0.8 million, or 1.6% from $52.9 million in the year-ago quarter. The decrease in net interest income from the year-ago quarter was primarily due to an increase in interest expense of $7.3 million, which was attributable to increases in average balances and average rates paid on interest-bearing deposits, combined with decreases in average investment securities and loans balances. The increases in average balances and average rates paid on interest-bearing deposits reflected the shift in the
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deposit portfolio composition from demand to higher cost savings and money market and time deposits. These negative variances were partially offset by increases in average balances and yields earned on interest-bearing deposits in other financial institutions, combined with increases in average yields earned on investment securities and loans.

Interest Income

Taxable-equivalent interest income was $76.0 million for the second quarter of 2024, representing an increase of $6.5 million, or 9.3%, from $69.5 million in the year-ago quarter. The increase during the second quarter of 2024, compared to the year-ago quarter was primarily attributable to an increase in average yield earned on loans of 43 basis points ("bp" or "bps"), resulting in an increase in interest income of approximately $5.7 million and an increase in average yield earned on investment securities of 39 bps, resulting in an increase in interest income of approximately $1.4 million, combined with increases in the average balance and average yield earned on interest-bearing deposits in other financial institutions resulting in an increase in interest income of approximately $1.3 million. These increases were partially offset by decreases in average loans and investment securities balances of $157.6 million and $53.9 million, respectively, resulting in decreases in interest income of approximately $1.7 million and $0.3 million, respectively.

Interest Expense

Interest expense was $23.9 million for the second quarter of 2024, representing an increase of $7.3 million, or 44.2%, from $16.6 million in the year-ago quarter. Due to the high interest rate environment, average rates paid on interest-bearing deposits of 1.83% increased by 64 bps from the year-ago quarter, resulting in an increase in interest expense of approximately $7.6 million.
Net Interest Margin

Our net interest margin of 2.97% for the second quarter of 2024 increased by 1 bp from 2.96% in the year-ago quarter. The increase in net interest margin for the second 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, to the current 5.25% to 5.50%, a 22-year high. The FRB kept the Federal Funds Rate target steady during the most recent meeting in June 2024, as well as the prior meetings in 2024. Policymakers signaled that rates could begin to decline in the future, however it likely will not occur until they are confident that inflation is moving sustainably towards 2%.

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(dollars in thousands)Six Months Ended June 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$213,905 5.47 %$5,814 $47,195 4.93 %$1,154 $166,710 0.54 %$4,660 
Investment securities:
Taxable investment securities (1)1,329,879 2.36 15,677 1,387,606 2.09 14,481 (57,727)0.27 1,196 
Tax-exempt investment securities (1)142,549 2.23 1,586 152,520 2.52 1,920 (9,971)(0.29)(334)
Total investment securities1,472,428 2.34 17,263 1,540,126 2.13 16,401 (67,698)0.21 862 
Loans, including loans held for sale5,393,193 4.74 127,241 5,534,741 4.32 118,724 (141,548)0.42 8,517 
FHLB stock6,863 7.49 257 12,049 4.26 256 (5,186)3.23 1 
Total interest earning assets7,086,389 4.26 150,575 7,134,111 3.85 136,535 (47,722)0.41 14,040 
Noninterest-earning assets307,799 319,642 (11,843)
Total assets$7,394,188 $7,453,753 $(59,565)
Liabilities and Equity
Interest-bearing liabilities:
Interest-bearing demand deposits$1,285,383 0.15 %$989 $1,391,386 0.11 %$774 $(106,003)0.04 %$215 
Savings and money market deposits2,220,002 1.58 17,420 2,177,783 0.75 8,056 42,219 0.83 9,364 
Time deposits up to $250,000550,044 3.25 8,887 366,316 1.60 2,907 183,728 1.65 5,980 
Time deposits over $250,000748,649 4.37 16,276 740,428 3.35 12,289 8,221 1.02 3,987 
Total interest-bearing deposits4,804,078 1.82 43,572 4,675,913 1.04 24,026 128,165 0.78 19,546 
FHLB advances and other short-term borrowings33 5.60 1 47,031 4.88 1,139 (46,998)0.72 (1,138)
Long-term debt156,159 5.87 4,561 141,689 5.75 4,037 14,470 0.12 524 
Total interest-bearing liabilities4,960,270 1.95 48,134 4,864,633 1.21 29,202 95,637 0.74 18,932 
Noninterest-bearing deposits1,797,212 1,989,295 (192,083)
Other liabilities131,392 129,152 2,240 
Total liabilities6,888,874 6,983,080 (94,206)
Total equity505,314 470,673 34,641 
Total liabilities and equity$7,394,188 $7,453,753 $(59,565)
Net interest income$102,441 $107,333 $(4,892)
Interest rate spread2.31 %2.64 %(0.33)%
Net interest margin2.90 %3.02 %(0.12)%
(1)  At amortized cost.

Net interest income (expressed on a taxable-equivalent basis) was $102.4 million for the six months ended June 30, 2024, representing a decrease of 4.6% from $107.3 million in the six months ended June 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-bearing deposits in other financial institutions, loans and investment securities.

Interest Income

Taxable-equivalent interest income was $150.6 million for the six months ended June 30, 2024, representing an increase of $14.0 million, or 10.3%, from $136.5 million in the year-ago period. The increase was primarily attributable to increases in average yields earned on loans of 42 bps, resulting in an increase in interest income of approximately $11.5 million. In addition, the increase in average balance and yield earned on interest-bearing deposits in other financial institutions of $166.7 million and 54 bps, respectively, resulted in an increase in interest income of approximately $4.7 million. These increases were partially
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offset by a decrease in average loan balances of $141.5 million during the six months ended June 30, 2024, compared to the year-ago period, resulting in a decrease in interest income of approximately $3.0 million.

Interest Expense

Interest expense was $48.1 million for the six months ended June 30, 2024, which increased by $18.9 million, or 64.8%, from $29.2 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 78 bps and average interest-bearing deposit balances increased by $128.2 million from the year-ago period, resulting in increases in interest expense of approximately $17.8 million and $1.7 million, respectively.

Net Interest Margin

Our net interest margin of 2.90% for the six months ended June 30, 2024 decreased by 12 bps from 3.02% in the year-ago period. As previously discussed, the decrease in net interest margin for the six months ended June 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-bearing deposits in other financial institutions, loans and investment securities.

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.

Three Months Ended June 30, 2024
Compared To June 30, 2023		Six Months Ended June 30, 2024
Compared To June 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$1,173 $153 $1,326 $4,085 $575 $4,660 
Investment securities:
Taxable investment securities (1)(231)1,552 1,321 (602)1,798 1,196 
Tax-exempt investment securities (1)(59)(104)(163)(126)(208)(334)
Total investment securities(290)1,448 1,158 (728)1,590 862 
Loans, including loans held for sale(1,744)5,711 3,967 (3,004)11,521 8,517 
FHLB stock(49)80 31 (110)111 1 
Total interest earning assets(910)7,392 6,482 243 13,797 14,040 
Interest-bearing liabilities:
Interest-bearing demand deposits(26)105 79 (55)270 215 
Savings and money market deposits104 4,203 4,307 158 9,206 9,364 
Time deposits up to $250,000746 2,032 2,778 1,463 4,517 5,980 
Time deposits over $250,000(805)1,268 463 139 3,848 3,987 
Total interest-bearing deposits19 7,608 7,627 1,705 17,841 19,546 
FHLB advances and other short-term borrowings(377)— (377)(1,138)— (1,138)
Long-term debt3 76 79 427 97 524 
Total interest-bearing liabilities(355)7,684 7,329 994 17,938 18,932 
Net interest income$(555)$(292)$(847)$(751)$(4,141)$(4,892)
(1)  At amortized cost.

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Other Operating Income

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

 Three Months Ended June 30,
(dollars in thousands)20242023$ Change% Change
Other operating income:
Mortgage banking income$1,040 $690 $350 50.7 %
Service charges on deposit accounts2,135 2,137 (2)-0.1 
Other service charges and fees5,869 4,994 875 17.5 
Income from fiduciary activities1,449 1,068 381 35.7 
Income from bank-owned life insurance1,234 1,185 49 4.1 
Other: 
Equity in earnings of unconsolidated entities49 (53)102 -192.5 
Income recovered on previously charged-off loans43 49 (6)-12.2 
Other recoveries20 24 (4)-16.7 
Unrealized gains (losses) on loans held for sale(17)(4)(13)325.0 
Commissions on sale of checks69 80 (11)-13.8 
Other230 265 (35)-13.2 
Total other operating income$12,121 $10,435 $1,686 16.2 

For the second quarter of 2024, total other operating income was $12.1 million, which increased by $1.7 million, or 16.2%, from $10.4 million in the year-ago quarter. The increase was primarily due to higher other service charges and fees of $0.9 million, mortgage banking income of $0.4 million and income from fiduciary activities of $0.4 million.

 Six Months Ended June 30,
(dollars in thousands)20242023$ Change% Change
Other operating income:
Mortgage banking income$1,653 $1,216 $437 35.9 %
Service charges on deposit accounts4,238 4,248 (10)-0.2 
Other service charges and fees11,130 9,979 1,151 11.5 
Income from fiduciary activities2,884 2,389 495 20.7 
Income from bank-owned life insurance2,756 2,476 280 11.3 
Other:
Equity in earnings of unconsolidated entities(31)(25)(6)24.0 
Income recovered on previously charged-off loans95 337 (242)-71.8 
Other recoveries44 122 (78)-63.9 
Unrealized gains (losses) on loans held for sale(17)(1)(16)1,600.0 
Commissions on sale of checks147 160 (13)-8.1 
Other466 543 (77)-14.2 
Total other operating income$23,365 $21,444 $1,921 9.0 

For the six months ended June 30, 2024, total other operating income was $23.4 million, which increased by $1.9 million, or 9.0%, from $21.4 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 $1.2 million, income from fiduciary activities of $0.5 million, mortgage banking income of $0.4 million and income from bank-owned life insurance of $0.3 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 six months ended June 30, 2024 was primarily attributable to volatile equity market returns and their impact on corporate-owned life insurance policies used to hedge deferred compensation expense.

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Other Operating Expense

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

Three Months Ended June 30,
(dollars in thousands)20242023$ Change% Change
Other operating expense:
Salaries and employee benefits$21,246 $20,848 $398 1.9 %
Net occupancy4,597 4,310 287 6.7 
Computer software4,381 4,621 (240)-5.2 
Legal and professional services2,506 2,469 37 1.5 
Equipment995 932 63 6.8 
Advertising901 942 (41)-4.4 
Communication657 791 (134)-16.9 
Other:
SERP expense108 95 13 13.7 
Charitable contributions129 93 36 38.7 
FDIC insurance assessment922 1,021 (99)-9.7 
Miscellaneous loan expenses434 310 124 40.0 
ATM and debit card expenses847 859 (12)-1.4 
Armored car expenses458 361 97 26.9 
Entertainment and promotions428 329 99 30.1 
Stationery and supplies210 144 66 45.8 
Directors’ fees and expenses263 315 (52)-16.5 
Directors' deferred compensation plan expense (credit)204 (172)376 -218.6 
Loss on disposal of fixed assets13 — 13 N.M.
Other1,852 1,635 217 13.3 
Total other operating expense$41,151 $39,903 $1,248 3.1 
Not meaningful ("N.M.")

For the second quarter of 2024, total other operating expense was $41.2 million, which increased by $1.2 million, or 3.1%, from $39.9 million in the year-ago quarter. The increase was primarily due to higher salaries and employee benefits of $0.4 million, directors' deferred compensation plan expense of $0.4 million and net occupancy of $0.3 million.

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Six Months Ended June 30,
(dollars in thousands)20242023$ Change% Change
Other operating expense:
Salaries and employee benefits$41,981 $42,871 $(890)-2.1 %
Net occupancy9,197 8,784 413 4.7 
Computer software8,668 9,227 (559)-6.1 
Legal and professional services4,826 5,355 (529)-9.9 
Equipment2,005 1,878 127 6.8 
Advertising1,815 1,875 (60)-3.2 
Communication1,494 1,569 (75)-4.8 
Other:
SERP expense216 190 26 13.7 
Charitable contributions328 291 37 12.7 
FDIC insurance assessment1,881 2,107 (226)-10.7 
Miscellaneous loan expenses709 592 117 19.8 
ATM and debit card expenses1,771 1,646 125 7.6 
Armored car expenses941 709 232 32.7 
Entertainment and promotions834 871 (37)-4.2 
Stationery and supplies382 437 (55)-12.6 
Directors’ fees and expenses601 670 (69)-10.3 
Directors' deferred compensation plan expense (credit)342 (392)734 -187.2 
Loss on disposal of fixed assets16 2 14 700.0 
Other3,720 3,328 392 11.8 
Total other operating expense$81,727 $82,010 $(283)-0.3 

For the six months ended June 30, 2024, total other operating expense was $81.7 million and decreased by $0.3 million, or 0.3%, from $82.0 million in the same year-ago period. The decrease was primarily due to lower salaries and employee benefits of $0.9 million, computer software expense of $0.6 million and legal and professional services of $0.5 million, partially offset by higher directors' deferred compensation plan expense of $0.7 million compared to the same year-ago period. The lower salaries and employee benefits was primarily attributable to tighter management of personnel count.

Income Taxes

The Company recorded income tax expense of $4.8 million for the second quarter of 2024, compared to $4.5 million in the same year-ago period. The effective tax rate for the second quarter of 2024 was 23.41%, compared to 23.60% in the same year-ago period.

The Company recorded income tax expense of $8.8 million for the six months ended June 30, 2024, compared to $9.5 million in the same year-ago period. The effective tax rate for the six months ended June 30, 2024 was 23.45%, compared to 23.71% in the same year-ago period.

The decrease in the effective tax rate for the three and six months ended June 30, 2024 was primarily attributable to higher tax-exempt BOLI income compared to the same year-ago period, and lower pre-tax income compared to the same year-ago period.

The Company's net deferred tax assets ("DTA"), net of valuation allowance, totaled $28.2 million and $29.5 million at June 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 rose in 2022 due to unrealized losses on investment securities.

The valuation allowance on our net deferred tax assets ("DTA") at June 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.

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Financial Condition

Total assets were $7.39 billion at June 30, 2024 and decreased by $255.8 million, or 3.3%, from $7.64 billion at December 31, 2023, as excess liquidity was used to pay off high-cost government time deposits that matured during the six months ended June 30, 2024.

Investment Securities

Investment securities totaled $1.29 billion at June 30, 2024, which increased by $13.0 million, or 1.0%, from $1.28 billion at December 31, 2023. The increase in the investment securities portfolio reflected purchases of $62.3 million, partially offset by principal runoff of $46.1 million and a market valuation reduction on the AFS portfolio of $3.2 million.


Loans

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

(dollars in thousands)June 30,
2024		December 31,
2023		$ Change% Change
Hawaii:    
Commercial and industrial$415,538 $421,736 $(6,198)(1.5)%
Real estate:
Construction147,657 163,337 (15,680)(9.6)
Residential mortgage1,913,177 1,927,789 (14,612)(0.8)
Home equity706,811 736,524 (29,713)(4.0)
Commercial mortgage1,150,703 1,063,969 86,734 8.2 
Consumer287,295 322,346 (35,051)(10.9)
Total loans4,621,181 4,635,701 (14,520)(0.3)
Less: ACL(47,902)(48,189)287 (0.6)
Loans, net of ACL$4,573,279 $4,587,512 $(14,233)(0.3)
U.S. Mainland:    
Commercial and industrial$169,318 $153,971 $15,347 10.0 
Real estate:
Construction23,865 22,182 1,683 7.6 
Commercial mortgage314,667 318,933 (4,266)(1.3)
Consumer254,613 308,195 (53,582)(17.4)
Total loans762,463 803,281 (40,818)(5.1)
Less: ACL(14,323)(15,745)1,422 (9.0)
Loans, net of ACL$748,140 $787,536 $(39,396)(5.0)
Total:    
Commercial and industrial$584,856 $575,707 $9,149 1.6 
Real estate:
Construction171,522 185,519 (13,997)(7.5)
Residential mortgage1,913,177 1,927,789 (14,612)(0.8)
Home equity706,811 736,524 (29,713)(4.0)
Commercial mortgage1,465,370 1,382,902 82,468 6.0 
Consumer541,908 630,541 (88,633)(14.1)
Total loans5,383,644 5,438,982 (55,338)(1.0)
Less: ACL(62,225)(63,934)1,709 (2.7)
Loans, net of ACL$5,321,419 $5,375,048 $(53,629)(1.0)

Loans, net of deferred costs, totaled $5.38 billion at June 30, 2024, which decreased by $55.3 million, or 1.02%, from $5.44 billion at December 31, 2023. The decrease was primarily due to decreases in consumer of $88.6 million, home equity of
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$29.7 million, residential mortgage loans of $14.6 million, and construction of $14.0 million. These decreases were partially offset by increases in commercial mortgage of $82.5 million and commercial and industrial of $9.1 million.

The Hawaii loan portfolio decreased by $14.5 million, or 0.3%, from December 31, 2023. The decrease reflected decreases in consumer of $35.1 million, home equity of $29.7 million, construction of $15.7 million, residential mortgage of $14.6 million and commercial and industrial of $6.2 million. These decreases were partially offset by an increase in commercial mortgage of $86.7 million.

The U.S. Mainland loan portfolio decreased by $40.8 million, or 5.1% from December 31, 2023. The decrease was primarily attributable to a decrease in consumer loans of $53.6 million, as the Company continued its strategy to let the US. Mainland consumer loan portfolio to runoff with minimal purchases in the current quarter. The decrease was partially offset by an increase in commercial and industrial loans of $15.3 million.

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)June 30,
2024		December 31,
2023		$ Change% Change
Nonperforming Assets ("NPAs")  
Nonaccrual loans:  
Commercial and industrial$355 $432 $(77)(17.8)%
Real estate:
Residential mortgage7,991 4,962 3,029 61.0 
Home equity1,247 834 413 49.5 
Commercial mortgage77 77 — — 
Consumer587 703 (116)(16.5)
Total nonaccrual loans10,257 7,008 3,249 46.4 
Other real estate owned ("OREO")— — — N.M.
Total NPAs10,257 7,008 3,249 46.4 
Accruing Loans 90+ Days Past Due
Real estate:
Residential mortgage1,273 — 1,273 N.M.
Home equity135 229 (94)(41.0)
Consumer896 1,083 (187)(17.3)
Total accruing loans 90+ days past due2,304 1,312 992 75.6 
Total NPAs and accruing loans 90+ days past due$12,561 $8,320 $4,241 51.0 
Ratio of nonaccrual loans to total loans0.19 %0.13 %0.06 %
Ratio of NPAs to total assets0.14 0.09 0.05 
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 ACL2.78 3.41 (0.63)
Not meaningful ("N.M.")

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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 
Additions6,712 
Reductions: 
Payments(626)
Return to accrual status(225)
Charge-offs, valuation and other adjustments(2,612)
Total reductions(3,463)
Net increase3,249 
Balance at June 30, 2024$10,257 

Nonperforming assets totaled $10.3 million, or 0.14% of total assets at June 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 $6.7 million, partially offset by $0.6 million in repayments of nonaccrual loans, $0.2 million in loans returned to accrual status and $2.6 million in net charge-offs, valuation and other adjustments. The additional nonaccrual loans in the residential mortgage category are well-collateralized.

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

In response to the Maui wildfires in August 2023, 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. The loan payment deferrals were not considered more than minor and thus were not reportable as loan modifications to borrowers facing financial difficulty. As of June 30, 2024, all of the loan deferrals have returned to payment status.

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").

Loans identified as TDRs prior to our adoption of ASU 2022-02 included in nonperforming assets at June 30, 2024 and December 31, 2023 consisted of five Hawaii loans with a combined principal balance of $0.8 million and $0.9 million, respectively. There were $2.0 million of loans identified as TDRs prior to our adoption of ASU 2022-02 still accruing interest at June 30, 2024, none of which were more than 90 days delinquent. At December 31, 2023, there were $2.1 million of loans identified as TDRs prior to our adoption of ASU 2022-02 still accruing interest, none of which were more than 90 days delinquent.

Criticized loans at June 30, 2024 declined by $14.8 million from December 31, 2023 to $35.3 million, or 0.7% of the total loan portfolio. Special mention loans declined by $10.5 million to $14.3 million, or 0.3% of the total loan portfolio. Classified loans declined by $4.3 million to $21.0 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 2.78% at June 30, 2024, which decreased from 3.41% at December 31, 2023.

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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 June 30,Six Months Ended June 30,
(dollars in thousands)2024202320242023
Allowance for Credit Losses:
Balance at beginning of period$63,532 $63,099 $63,934 $63,738 
Provision (credit) for credit losses on loans2,448 4,135 6,569 5,750 
Charge-offs:
Commercial and industrial(519)(362)(1,201)(1,141)
Real estate:
Residential mortgage(284)— (284)— 
Consumer(4,345)(3,873)(9,183)(6,559)
Total charge-offs(5,148)(4,235)(10,668)(7,700)
Recoveries:
Commercial and industrial130 125 220 375 
Real estate:
Residential mortgage9 7 17 60 
Home equity— 15 6 15 
Consumer1,254 703 2,147 1,611 
Total recoveries1,393 850 2,390 2,061 
Net charge-offs(3,755)(3,385)(8,278)(5,639)
Balance at end of period$62,225 $63,849 $62,225 $63,849 
Average loans, net of deferred fees and costs$5,385,829 $5,543,398 $5,393,193 $5,534,741 
Ratio of annualized net charge-offs to average loans0.28 %0.24 %0.31 %0.20 %
Ratio of ACL to total loans1.16 %1.16 %1.16 %1.16 %
Ratio of ACL to nonaccrual loans607 %577 %607 %577 %

Our ACL totaled $62.2 million at June 30, 2024, compared to $63.9 million at December 31, 2023 and $63.8 million at June 30, 2023.

During the second quarter of 2024, we recorded a provision for credit losses on loans of $2.4 million and net charge-offs of $3.8 million. During the six months ended June 30, 2024, we recorded a provision for credit losses on loans of $6.6 million and net charge-offs of $8.3 million.

The decrease in the provision for credit losses on loans during the second quarter of 2024, compared to the same year-ago period, 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 current quarter. The increase in the provision for credit losses on loans during the six months ended June 30, 2024, compared to the same year-ago period, was primarily due to higher charge-offs of our U.S. Mainland unsecured consumer loan portfolio.

Our ratio of ACL to total loans was 1.16% at June 30, 2024, compared to 1.18% at December 31, 2023 and 1.16% at June 30, 2023.

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

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Deposits

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

(dollars in thousands)June 30,
2024		December 31,
2023		$ Change% Change
Noninterest-bearing demand deposits$1,847,173 $1,913,379 $(66,206)(3.5)%
Interest-bearing demand deposits1,283,669 1,329,189 (45,520)(3.4)
Savings and money market deposits2,234,111 2,209,733 24,378 1.1 
Time deposits up to $250,000547,212 533,898 13,314 2.5 
Core deposits5,912,165 5,986,199 (74,034)(1.2)
Government time deposits193,833 374,581 (180,748)(48.3)
Other time deposits greater than $250,000476,457 486,812 (10,355)(2.1)
Total time deposits greater than $250,000670,290 861,393 (191,103)(22.2)
Total deposits$6,582,455 $6,847,592 $(265,137)(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 50% of deposit customers have been banking with us for more than 10 years.

Our total deposits of $6.58 billion at June 30, 2024 decreased by $265.1 million, or 3.9%, from total deposits of $6.85 billion at December 31, 2023. The decreases in government time deposits of $180.7 million, noninterest-bearing demand deposits of $66.2 million, interest-bearing demand deposits of $45.5 million and other time deposits greater than $250,000 of $10.4 million were partially offset by increases in savings and money market deposits of $24.4 million, and time deposits up to $250,000 of $13.3 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 six months ended June 30, 2024.

Our core deposits, which we define as demand deposits, savings and money market deposits, and time deposits up to $250,000, totaled $5.91 billion at June 30, 2024 and decreased by $74.0 million, from $5.99 billion at December 31, 2023. Core deposits as a percentage of total deposits was 89.8% at June 30, 2024, compared to 87.4% at December 31, 2023. Our average cost of total deposits was 132 bps during the six months ended June 30, 2024, compared to 72 bps during the same year-ago period.

The Company had estimated uninsured deposits of $2.72 billion, or 41% of total deposits as of June 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 $352.7 million and $536.3 million as of June 30, 2024 and December 31, 2023, respectively. The Company's estimated uninsured deposits, excluding fully collateralized deposits, totaled $2.37 billion, or 36% of total deposits as of June 30, 2024, compared to the estimated $2.37 billion, or 35% of total deposits as of December 31, 2023.

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

(dollars in thousands)June 30, 2024
Remaining maturity:
Three months or less$399,181 
Over three through twelve months265,394 
Over one year through three years5,215 
Over three years500 
Total$670,290 

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
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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 $518.6 million at June 30, 2024, compared to $503.8 million at December 31, 2023. The change in total shareholders' equity was primarily attributable to net income of $28.8 million, partially offset by cash dividends declared of $14.1 million, the repurchase of $0.9 million in shares of our common stock under our stock repurchase programs, and other comprehensive loss of $0.1 million in the six months ended June 30, 2024.

Our total shareholders' equity to total assets ratio was 7.02% at June 30, 2024, compared to 6.59% at December 31, 2023. Our book value per share was $19.16 and $18.63 at June 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 $24.8 million and $22.1 million as of June 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 $180.7 million and $169.1 million as of June 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 of 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.

During the six months ended June 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 June 30, 2024, $19.1 million remained available for repurchase under the Company's 2024 Repurchase Plan.

Trust Preferred Securities

As of June 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%.
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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 456 bps. The subordinated notes had a carrying value of $54.7 million at June 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 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 June 30, 2024 and December 31, 2023, were above the levels required for a "well capitalized" regulatory designation.

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 ActualMinimum Required
for Capital Adequacy
Purposes		Minimum Required
to be
Well Capitalized
(dollars in thousands)AmountRatioAmount
Ratio [1]
AmountRatio
Central Pacific Financial Corp.      
June 30, 2024      
Leverage capital$691,278 9.3 %$298,529 4.0 %N/AN/A
Tier 1 risk-based capital691,278 12.8 323,154 6.0 N/AN/A
Total risk-based capital811,814 15.1 430,873 8.0 N/AN/A
CET1 risk-based capital641,278 11.9 242,366 4.5 N/AN/A
December 31, 2023      
Leverage capital$676,536 8.8 %$305,843 4.0 %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
CET1 risk-based capital626,536 11.4 246,457 4.5 N/AN/A
Central Pacific Bank      
June 30, 2024      
Leverage capital$715,128 9.6 %$298,017 4.0 %$372,521 5.0 %
Tier 1 risk-based capital715,128 13.3 322,360 6.0 429,813 8.0 
Total risk-based capital780,664 14.5 429,813 8.0 537,266 10.0 
CET1 risk-based capital715,128 13.3 241,770 4.5 349,223 6.5 
December 31, 2023      
Leverage capital$704,512 9.2 %$305,375 4.0 %$381,719 5.0 %
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 
CET1 risk-based capital704,512 12.9 245,926 4.5 355,227 6.5 

[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.

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
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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 other financial institutions but are not intended to represent management’s forecast. 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 or 200 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.

June 30, 2024December 31, 2023
Estimated Net Interest Income SensitivityEstimated Net Interest Income Sensitivity
Rate ChangeGradualInstantaneousGradualInstantaneous
+300 bps0.05 %(0.88)%1.69 %2.51 %
+200 bps(0.14)%(0.57)%1.00 %1.61 %
+100bps(0.19)%(0.28)%0.39 %0.68 %
-100bps0.69 %(1.14)%(1.26)%(1.73)%
-200 bps(1.66)%(2.60)%(2.53)%(3.59)%
-300 bps(2.69)%(4.25)%(3.86)%(5.65)%

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
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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 June 30, 2024, the Company had $298.9 million in cash on its balance sheet and approximately $2.56 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 121%. 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 June 30, 2024, the Company did not repurchase any shares of common stock under the Company's share repurchase program.

As of June 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
April 1-30, 2024— $— — $19,054,953 
May 1-31, 20241,031 21.29 — 19,054,953 
June 1-30, 2024— — — 19,054,953 
Total1,031 $21.29 — 19,054,953 

[1] During the three months ended June 30, 2024, 1,031 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 June 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.
 (Registrant)
  
  
Date:July 31, 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)

70

Exhibit 31.1
 
Rule 13a-14(a) Certification of Chief Executive Officer in
Accordance with Section 302 of the Sarbanes-Oxley Act of 2002
 
I, Arnold D. Martines, President and Chief Executive Officer of Central Pacific Financial Corp. (the “Company”), certify that:
 
(1)I have reviewed this quarterly report on Form 10-Q of the Company;
 
(2)Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

(3)Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report;

(4)The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(e)) for the Company and we have:
 
(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this quarterly report based on such evaluation; and

(d)disclosed in this quarterly report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
 
(5)The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
 
(a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
 
Date:July 31, 2024/s/ Arnold D. Martines
 Arnold D. Martines
 Chairman,
President and Chief Executive Officer
(Principal Executive Officer)

Exhibit 31.2
 
Rule 13a-14(a) Certification of Chief Financial Officer in
Accordance with Section 302 of the Sarbanes-Oxley Act of 2002
 
I, David S. Morimoto, Senior Executive Vice President and Chief Financial Officer of Central Pacific Financial Corp. (the “Company”), certify that:
 
(1)I have reviewed this quarterly report on Form 10-Q of the Company;
 
(2)Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

(3)Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this quarterly report;

(4)The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(e)) for the Company and we have:
 
(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this quarterly report based on such evaluation; and

(d)disclosed in this quarterly report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
 
(5)The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
 
(a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
 
Date:July 31, 2024/s/ David S. Morimoto
 David S. Morimoto
 Senior Executive Vice President and Chief Financial Officer
 (Principal Financial and Accounting Officer)

Exhibit 32.1
 
Section 1350 Certification of Chief Executive Officer in
Accordance with Section 906 of the Sarbanes-Oxley Act of 2002
 
In connection with the Quarterly Report of Central Pacific Financial Corp. (the “Company”) on Form 10-Q for the period ended June 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Arnold D. Martines, President and Chief Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
 
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company.
 
Date:July 31, 2024/s/ Arnold D. Martines
 Arnold D. Martines
 Chairman,
President and Chief Executive Officer
(Principal Executive Officer)
 
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
 
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

Exhibit 32.2
 
Section 1350 Certification of Chief Financial Officer in
Accordance with Section 906 of the Sarbanes-Oxley Act of 2002
 
In connection with the Quarterly Report of Central Pacific Financial Corp. (the “Company”) on Form 10-Q for the period ended June 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David S. Morimoto, Senior Executive Vice President and Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
 
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2)The information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company.
 
Date:July 31, 2024/s/ David S. Morimoto
 David S. Morimoto
 Senior Executive Vice President and Chief Financial Officer
 (Principal Financial and Accounting Officer)
 
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
 
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.