CPF 10-Q Quarterly Report Sept. 30, 2024

CENTRAL PACIFIC FINANCIAL CORP

10-Ks and 10-Qs

10-Q	Quarter ended Sept. 30, 2025
10-Q	Quarter ended June 30, 2025
10-Q	Quarter ended March 31, 2025
10-K	Fiscal year ended Dec. 31, 2024
10-Q	Quarter ended Sept. 30, 2024
10-Q	Quarter ended June 30, 2024
10-Q	Quarter ended March 31, 2024
10-K	Fiscal year ended Dec. 31, 2023
10-Q	Quarter ended Sept. 30, 2023
10-Q	Quarter ended June 30, 2023
10-Q	Quarter ended March 31, 2023
10-K	Fiscal year ended Dec. 31, 2022
10-Q	Quarter ended Sept. 30, 2022
10-Q	Quarter ended June 30, 2022
10-Q	Quarter ended March 31, 2022
10-K	Fiscal year ended Dec. 31, 2021
10-Q	Quarter ended Sept. 30, 2021
10-Q	Quarter ended June 30, 2021
10-Q	Quarter ended March 31, 2021
10-K	Fiscal year ended Dec. 31, 2020
10-Q	Quarter ended Sept. 30, 2020
10-Q	Quarter ended June 30, 2020
10-Q	Quarter ended March 31, 2020
10-K	Fiscal year ended Dec. 31, 2019
10-Q	Quarter ended Sept. 30, 2019
10-Q	Quarter ended June 30, 2019
10-Q	Quarter ended March 31, 2019
10-K	Fiscal year ended Dec. 31, 2018
10-Q	Quarter ended Sept. 30, 2018
10-Q	Quarter ended June 30, 2018
10-Q	Quarter ended March 31, 2018
10-K	Fiscal year ended Dec. 31, 2017
10-Q	Quarter ended Sept. 30, 2017
10-Q	Quarter ended June 30, 2017
10-Q	Quarter ended March 31, 2017
10-K	Fiscal year ended Dec. 31, 2016
10-Q	Quarter ended Sept. 30, 2016
10-Q	Quarter ended June 30, 2016
10-Q	Quarter ended March 31, 2016
10-K	Fiscal year ended Dec. 31, 2015
10-Q	Quarter ended Sept. 30, 2015
10-Q	Quarter ended June 30, 2015
10-Q	Quarter ended March 31, 2015
10-K	Fiscal year ended Dec. 31, 2014
10-Q	Quarter ended Sept. 30, 2014
10-Q	Quarter ended June 30, 2014
10-Q	Quarter ended March 31, 2014
10-K	Fiscal year ended Dec. 31, 2013
10-Q	Quarter ended Sept. 30, 2013
10-Q	Quarter ended June 30, 2013
10-Q	Quarter ended March 31, 2013
10-K	Fiscal year ended Dec. 31, 2012
10-Q	Quarter ended Sept. 30, 2012
10-Q	Quarter ended June 30, 2012
10-Q	Quarter ended March 31, 2012
10-K	Fiscal year ended Dec. 31, 2011
10-Q	Quarter ended Sept. 30, 2011
10-Q	Quarter ended June 30, 2011
10-Q	Quarter ended March 31, 2011
10-K	Fiscal year ended Dec. 31, 2010
10-Q	Quarter ended Sept. 30, 2010
10-Q	Quarter ended June 30, 2010
10-Q	Quarter ended March 31, 2010
10-K	Fiscal year ended Dec. 31, 2009

PROXIES

DEF 14A	Filed on April 24, 2025
DEF 14A	Filed on March 7, 2025
DEF 14A	Filed on April 25, 2024
DEF 14A	Filed on March 8, 2024
DEF 14A	Filed on March 6, 2023
DEF 14A	Filed on April 21, 2022
DEF 14A	Filed on Feb. 28, 2022
DEF 14A	Filed on March 10, 2021
DEF 14A	Filed on March 9, 2020
DEF 14A	Filed on March 8, 2019
DEF 14A	Filed on March 12, 2018
DEF 14A	Filed on March 10, 2017
DEF 14A	Filed on March 1, 2016
DEF 14A	Filed on Feb. 27, 2015
DEF 14A	Filed on March 7, 2014
DEF 14A	Filed on March 4, 2013
DEF 14A	Filed on Feb. 29, 2012
DEF 14A	Filed on March 4, 2011
DEF 14A	Filed on March 29, 2010

cpf-20240930

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 September 30, 2024

☐ 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)


Hawaii						99-0212597
(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 class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, No Par Value

CPF

New 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 October 18, 2024 was 27,064,501 shares.

Table of Contents

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

Form 10-Q

Table of Contents


		Page

Part I.	Financial Information	3

Item 1.	Financial Statements (Unaudited)

	Consolidated Balance Sheets - September 30, 2024 and December 31, 2023	3

	Consolidated Statements of Income - Three and nine months ended September 30, 2024 and 2023	4

	Consolidated Statements of Comprehensive Income - Three and nine months ended September 30, 2024 and 2023	5

	Consolidated Statements of Changes in Equity - Three and nine months ended September 30, 2024 and 2023	6

	Consolidated Statements of Cash Flows - Nine months ended September 30, 2024 and 2023	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	44

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	70

Item 4.	Controls and Procedures	70

Part II.	Other Information	71

Item 1.	Legal Proceedings	71

Item 1A.	Risk Factors	71

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71

Item 5.	Other Information	71

Item 6.	Exhibits	72

Signatures		73

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)	September 30, 2024		December 31, 2023
Assets
Cash and due from financial institutions	$	100,064	$	116,181
Interest-bearing deposits in other financial institutions	226,505		406,256
Investment securities:
Available-for-sale debt securities, at fair value	723,453		647,210
Held-to-maturity debt securities, at amortized cost; fair value of: $ 546,990 at September 30, 2024 and $ 565,178 at December 31, 2023	606,117		632,338

Total investment securities	1,329,570		1,279,548
Loans held for sale	1,609		1,778
Loans	5,342,609		5,438,982
Less: allowance for credit losses	( 61,647 )		( 63,934 )
Loans, net of allowance for credit losses	5,280,962		5,375,048
Premises and equipment, net	104,575		96,184
Accrued interest receivable	23,942		21,511
Investment in unconsolidated entities	54,836		41,546

Mortgage servicing rights, net	8,513		8,696

Bank-owned life insurance	175,914		170,706
Federal Home Loan Bank of Des Moines ("FHLB") stock	6,929		6,793
Right-of-use lease assets	32,192		29,720
Other assets	69,819		88,829
Total assets	$	7,415,430	$	7,642,796
Liabilities
Deposits:
Noninterest-bearing demand	$	1,838,009	$	1,913,379
Interest-bearing demand	1,255,382		1,329,189
Savings and money market	2,336,323		2,209,733
Time	1,153,299		1,395,291
Total deposits	6,583,013		6,847,592

Long-term debt, net of unamortized debt issuance costs of $ 263 at September 30, 2024 and $ 445 at December 31, 2023	156,284		156,102
Lease liabilities	33,807		30,634

Accrued interest payable	12,980		18,948
Other liabilities	85,621		85,705
Total liabilities	6,871,705		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 September 30, 2024 and December 31, 2023	—		—
Common stock, no par value, authorized 185,000,000 shares; issued and outstanding: 27,064,501 at September 30, 2024 and 27,045,033 at December 31, 2023	404,494		405,439
Additional paid-in capital	104,794		102,982
Retained earnings	138,951		117,990
Accumulated other comprehensive loss	( 104,514 )		( 122,596 )


Total equity	543,725		503,815
Total liabilities and equity	$	7,415,430	$	7,642,796

See accompanying notes to consolidated financial statements.

Table of Contents

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands, except per share data)	2024		2023		2024		2023
Interest income:
Interest and fees on loans	$	65,469	$	62,162	$	192,710	$	180,886
Interest and dividends on investment securities:
Taxable investment securities	8,975		7,016		24,652		21,497
Tax-exempt investment securities	551		709		1,804		2,226

Interest on deposits in other financial institutions	2,775		2,412		8,589		3,566
Dividend income on FHLB stock	127		113		384		369
Total interest income	77,897		72,412		228,139		208,544
Interest expense:
Interest on deposits:
Demand	484		460		1,473		1,234
Savings and money market	10,235		6,464		27,655		14,520
Time	11,040		11,268		36,203		26,464
Interest on short-term borrowings	—		—		1		1,139
Interest on long-term debt	2,287		2,292		6,848		6,329
Total interest expense	24,046		20,484		72,180		49,686
Net interest income	53,851		51,928		155,959		158,858
Provision for credit losses	2,833		4,874		9,008		11,045
Net interest income after provision for credit losses	51,018		47,054		146,951		147,813
Other operating income:
Mortgage banking income	822		765		2,475		1,981
Service charges on deposit accounts	2,167		2,193		6,405		6,441
Other service charges and fees	5,947		5,203		17,077		15,182
Income from fiduciary activities	1,447		1,234		4,331		3,623
Income from bank-owned life insurance	1,897		379		4,653		2,855
Net loss on sales of investment securities	—		( 135 )		—		( 135 )



Other	454		408		1,158		1,544
Total other operating income	12,734		10,047		36,099		31,491
Other operating expense:
Salaries and employee benefits	22,299		19,015		64,280		61,886
Net occupancy	4,612		4,725		13,809		13,509
Computer software	4,590		4,473		13,258		13,700
Legal and professional services	2,460		2,359		7,286		7,714
Equipment	972		1,112		2,977		2,990
Advertising	889		968		2,704		2,843
Communication	740		809		2,234		2,378



Other	10,125		6,150		21,866		16,601
Total other operating expense	46,687		39,611		128,414		121,621
Income before income taxes	17,065		17,490		54,636		57,683
Income tax expense	3,760		4,349		12,569		13,880
Net income	$	13,305	$	13,141	$	42,067	$	43,803
Per common share data:
Basic earnings per share	$	0.49	$	0.49	$	1.55	$	1.62
Diluted earnings per share	$	0.49	$	0.49	$	1.55	$	1.62

Basic weighted average shares outstanding	27,064,035		27,042,762		27,054,737		27,022,141
Diluted weighted average shares outstanding	27,194,625		27,079,484		27,137,985		27,081,541

See accompanying notes to consolidated financial statements.

Table of Contents

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2024		2023		2024		2023
Net income	$	13,305	$	13,141	$	42,067	$	43,803
Other comprehensive income (loss), net of tax:
Net change in fair value of available-for-sale investment securities	19,942		( 18,061 )		15,036		( 12,880 )
Amortization of unrealized losses on investment securities transferred to held-to-maturity	1,413		1,488		3,993		4,164
Net change in fair value of derivatives	( 3,177 )		2,313		( 946 )		3,190
Supplemental Executive Retirement Plans	( 1 )		( 12 )		( 1 )		( 37 )
Total other comprehensive income (loss), net of tax	18,177		( 14,272 )		18,082		( 5,563 )
Comprehensive income (loss)	$	31,482	$	( 1,131 )	$	60,149	$	38,240

See accompanying notes to consolidated financial statements.

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 Capital		Retained Earnings		Accum. Other Comp. Loss		Total
	(dollars in thousands, except per share data)
Balance at December 31, 2023	27,045,033	$	—	$	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, 2024	27,042,326	—		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 compensation	21,318	—		—		1,031		—		—		1,031

Balance at June 30, 2024	27,063,644	$	—	$	404,494	$	104,161	$	132,683	$	( 122,691 )	$	518,647
Net income	—	—		—		—		13,305		—		13,305
Other comprehensive income	—	—		—		—		—		18,177		18,177
Cash dividends declared ($ 0.26 per share)	—	—		—		—		( 7,037 )		—		( 7,037 )


Share-based compensation	857	—		—		633		—		—		633

Balance at September 30, 2024	27,064,501	$	—	$	404,494	$	104,794	$	138,951	$	( 104,514 )	$	543,725


	Common Shares Outstanding	Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings		Accum. Other Comp. Loss		Total
	(dollars in thousands, except per share data)
Balance at December 31, 2022	27,025,070	$	—	$	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 compensation	82,235	—		—		( 158 )		—		—		( 158 )

Balance at March 31, 2023	27,005,545	—		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 compensation	63,997	—		—		809		—		—		809

Balance at June 30, 2023	27,045,792	$	—	$	405,511	$	101,997	$	104,046	$	( 135,275 )	$	476,279
Net income	—	—		—		—		13,141		—		13,141
Other comprehensive loss	—	—		—		—		—		( 14,272 )		( 14,272 )
Cash dividends declared ($ 0.26 per share)	—	—		—		—		( 7,031 )		—		( 7,031 )

Common stock repurchased and retired and other related costs	( 4,500 )	—		( 72 )		—		—		—		( 72 )
Share-based compensation	1,877	—		—		553		—		—		553

Balance at September 30, 2023	27,043,169	$	—	$	405,439	$	102,550	$	110,156	$	( 149,547 )	$	468,598

See accompanying notes to consolidated financial statements.

Table of Contents

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,
(dollars in thousands)	2024		2023
Cash flows from operating activities:
Net income	$	42,067	$	43,803
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	9,008		11,045
Depreciation and amortization of premises and equipment	5,133		5,204
Loss on disposal of premises and equipment	55		9

Cash flows from operating leases	( 4,246 )		( 3,950 )

Amortization of mortgage servicing rights	583		538
Net amortization and accretion of premium/discounts on investment securities	1,558		2,385
Share-based compensation	1,812		1,204
Net loss (gain) on sales of investment securities	—		135
Net gain on sales of residential mortgage loans	( 923 )		( 565 )
Proceeds from sales of loans held for sale	47,771		30,143
Originations of loans held for sale	( 46,679 )		( 28,473 )
Equity in losses of and distributions from unconsolidated entities	24		56

Net increase in cash surrender value of bank-owned life insurance	( 4,653 )		( 3,203 )
Deferred income tax expense	13,369		8,955
Net tax expense (benefit) from share-based compensation	191		( 20 )
Net change in other assets and liabilities	( 858 )		16,234
Net cash provided by operating activities	64,212		83,500
Cash flows from investing activities:
Proceeds from maturities of and calls on available-for-sale investment securities	38,819		44,812

Purchases of investment securities available-for-sale	( 95,533 )		( 19,057 )
Proceeds from sale of investment securities	—		1,405
Proceeds from maturities of and calls on held-to-maturity investment securities	30,987		29,823

Net repayments of loans	111,592		46,520
Purchases of loan portfolios	( 27,115 )		( 19,659 )
Proceeds from sales of loans originated for investment	—		9,629

Purchases of bank-owned life insurance	( 2,803 )		—
Proceeds from bank-owned life insurance death benefits	2,248		2,627

Net purchases of premises, equipment and land	( 13,579 )		( 10,969 )
Net return of capital from unconsolidated entities	—		495
Contributions to unconsolidated entities	( 17,930 )		( 395 )
Net sales of FHLB stock	( 136 )		( 1,849 )
Net cash provided by investing activities	26,550		83,382
Cash flows from financing activities:
Net (decrease) increase in deposits	( 264,579 )		138,522
Net decrease in FHLB advances and other short-term borrowings	—		( 5,000 )
Proceeds from long-term debt	—		50,000

Cash dividends paid on common stock	( 21,106 )		( 21,085 )
Repurchases of common stock and other related costs	( 945 )		( 2,632 )

Net cash (used in) provided by financing activities	( 286,630 )		159,805
Net (decrease) increase in cash and cash equivalents	( 195,868 )		326,687
Cash and cash equivalents at beginning of period	522,437		112,044
Cash and cash equivalents at end of period	$	326,569	$	438,731

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited)


	Nine Months Ended September 30,
(dollars in thousands)	2024		2023
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	78,148	$	37,673
Income taxes	—		7,316


Supplemental disclosure of non-cash information:





Lease liabilities arising from obtaining right-of-use lease assets	6,187		—
Amortization of unrealized losses on investment securities transferred to held-to-maturity at fair value	5,425		3,644

See accompanying notes to consolidated financial statements.

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.

Table of Contents

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

Commercial and industrial loans - SBA Paycheck Protection Program loans

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

Commercial and industrial loans - Others

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

Construction loans

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

Commercial real estate loans - Multi-family

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

Commercial real estate loans - Others

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

Residential mortgage loans

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

Home equity lines of credit

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

Consumer loans - Other revolving

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

Table of Contents

Consumer loans - Non-revolving

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

Purchased consumer loans

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

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

Expected Credit Loss Methodology

Historical Look-Back Period

Economic Forecast Length

Reversion Method

Loan Segment

After

June 30, 2023

June 30, 2023
and Prior

Commercial and industrial - SBA PPP

Zero Loss

2008 to present

One year

One year
(straight-line
basis)

Commercial and industrial - All others

DCF

PD/LGD

Construction

DCF

PD/LGD

Commercial real estate - Multi-family

DCF

PD/LGD

Commercial real estate - All others

DCF

PD/LGD

Residential mortgage

DCF

Loss-Rate Migration

Home equity

DCF

Loss-Rate Migration

Consumer - Other revolving

DCF

Loss-Rate Migration

Consumer - Non-revolving

DCF

Loss-Rate Migration

Consumer - Purchased portfolios

WARM

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.

Table of Contents

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

Discounted Cash Flow

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

Remaining Life or Weighted Average Remaining Maturity

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

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

Probability of Default/Loss Given Default

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

Loss-Rate Migration

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

Other

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

Impact of Recently Issued Accounting Pronouncements on Future Filings

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

Table of Contents

2. INVESTMENT SECURITIES

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


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		ACL
(dollars in thousands)
September 30, 2024
Available-for-sale:
Debt securities:
States and political subdivisions	$	147,833	$	18	$	( 24,670 )	$	123,181	$	—
Corporate securities	35,373		—		( 2,819 )		32,554		—
U.S. Treasury and other government-sponsored entities and agencies	59,632		1,323		( 1,725 )		59,230		—

Mortgage-backed securities:
Residential - U.S. government-sponsored entities and agencies	433,493		857		( 48,054 )		386,296		—
Residential - Non-government agencies	18,085		471		( 722 )		17,834		—
Commercial - U.S. government-sponsored entities and agencies	101,018		425		( 12,414 )		89,029		—
Commercial - Non-government agencies	15,331		5		( 7 )		15,329		—
Total available-for-sale investment securities	$	810,765	$	3,099	$	( 90,411 )	$	723,453	$	—


	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value		ACL
(dollars in thousands)
September 30, 2024
Held-to-maturity:
Debt securities:
States and political subdivisions	$	42,013	$	—	$	( 7,283 )	$	34,730	$	—



Mortgage-backed securities:
Residential - U.S. government-sponsored entities and agencies	564,104		63		( 51,907 )		512,260		—



Total held-to-maturity investment securities	$	606,117	$	63	$	( 59,190 )	$	546,990	$	—


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		ACL
(dollars in thousands)
December 31, 2023
Available-for-sale:
Debt securities:
States and political subdivisions	$	156,432	$	13	$	( 29,810 )	$	126,635	$	—
Corporate securities	35,731		—		( 4,317 )		31,414		—
U.S. Treasury and other government-sponsored entities and agencies	28,105		33		( 1,941 )		26,197		—

Mortgage-backed securities:
Residential - U.S. government-sponsored entities and agencies	441,898		95		( 63,607 )		378,386		—
Residential - Non-government agencies	19,322		366		( 980 )		18,708		—
Commercial - U.S. government-sponsored entities and agencies	58,318		—		( 7,404 )		50,914		—
Commercial - Non-government agencies	15,144		—		( 188 )		14,956		—
Total available-for-sale investment securities	$	754,950	$	507	$	( 108,247 )	$	647,210	$	—

Table of Contents


	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value		ACL
(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 agencies	590,379		61		( 60,515 )		529,925		—



Total held-to-maturity investment securities	$	632,338	$	61	$	( 67,221 )	$	565,178	$	—

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

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

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

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

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

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


(dollars in thousands)	Amortized Cost		Fair Value		Weighted Average Yield (1)
Available-for-sale:
Debt securities:
Due in one year or less	$	4,287	$	4,300	5.88	%
Due after one year through five years	58,844		56,071		2.78
Due after five years through ten years	58,523		57,627		3.92
Due after ten years	121,184		96,967		2.43
Mortgage-backed securities:
Residential - U.S. government-sponsored entities and agencies	433,493		386,296		2.27
Residential - Non-government agencies	18,085		17,834		5.59
Commercial - U.S. government-sponsored entities and agencies	101,018		89,029		2.73
Commercial - Non-government agencies	15,331		15,329		4.55
Total available-for-sale securities	$	810,765	$	723,453	2.67	%

Table of Contents


(dollars in thousands)	Amortized Cost		Fair Value		Weighted Average Yield (1)
Held-to-maturity:
Debt securities:



Due after ten years	$	42,013	$	34,730	2.26	%
Mortgage-backed securities:
Residential - U.S. government-sponsored entities and agencies	564,104		512,260		1.90



Total held-to-maturity securities	$	606,117	$	546,990	1.92	%

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

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

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

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

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


	Less Than 12 Months				12 Months or Longer				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
September 30, 2024
Available-for-sale:
Debt securities:
States and political subdivisions	$	4,600	$	( 33 )	$	111,552	$	( 24,637 )	$	116,152	$	( 24,670 )
Corporate securities	—		—		32,554		( 2,819 )		32,554		( 2,819 )
U.S. Treasury and other government-sponsored entities and agencies	1,308		( 26 )		14,498		( 1,699 )		15,806		( 1,725 )

Mortgage-backed securities:
Residential - U.S. government-sponsored entities and agencies	23,295		( 183 )		329,454		( 47,871 )		352,749		( 48,054 )
Residential - Non-government agencies	—		—		7,992		( 722 )		7,992		( 722 )
Commercial - U.S. government-sponsored entities and agencies	1,275		( 107 )		68,444		( 12,307 )		69,719		( 12,414 )
Commercial - Non-government agencies	—		—		5,425		( 7 )		5,425		( 7 )
Total	$	30,478	$	( 349 )	$	569,919	$	( 90,062 )	$	600,397	$	( 90,411 )

Table of Contents


	Less Than 12 Months				12 Months or Longer				Total
(dollars in thousands)	Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses
September 30, 2024
Held-to-maturity:
Debt securities:
States and political subdivisions	$	—	$	—	$	34,730	$	( 7,283 )	$	34,730	$	( 7,283 )



Mortgage-backed securities:
Residential - U.S. government-sponsored entities and agencies	—		—		504,405		( 51,907 )		504,405		( 51,907 )



Total	$	—	$	—	$	539,135	$	( 59,190 )	$	539,135	$	( 59,190 )


	Less Than 12 Months				12 Months or Longer				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized 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 agencies	2,893		( 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 agencies	6,467		( 1 )		44,447		( 7,403 )		50,914		( 7,404 )
Commercial - Non-government agencies	9,663		( 130 )		5,293		( 58 )		14,956		( 188 )
Total	$	19,557	$	( 219 )	$	588,097	$	( 108,028 )	$	607,654	$	( 108,247 )


	Less Than 12 Months				12 Months or Longer				Total
(dollars in thousands)	Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses		Fair Value		Unrecognized 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 agencies	8,853		( 33 )		512,378		( 60,482 )		521,231		( 60,515 )



Total	$	8,853	$	( 33 )	$	547,631	$	( 67,188 )	$	556,484	$	( 67,221 )

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

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

Table of Contents

these securities before recovery of its amortized cost basis that may be at maturity. Therefore, the Company has not recorded an ACL on these securities and the unrecognized or unrealized losses on these securities have not been recognized into income.

3. LOANS AND CREDIT QUALITY

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


(dollars in thousands)	September 30, 2024		December 31, 2023



Commercial and industrial	$	599,556	$	576,038
Real estate:
Construction	158,523		185,994
Residential mortgage	1,897,526		1,927,206
Home equity	695,175		734,500
Commercial mortgage	1,472,230		1,384,579
Consumer	520,014		630,898

Gross loans	5,343,024		5,439,215
Deferred fees and costs, net	( 415 )		( 233 )
Total loans, net of deferred fees and costs	$	5,342,609	$	5,438,982

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

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

The Company did no t transfer any other loans to the held for sale category during the three and nine months ended September 30, 2024 and 2023 and did not sell any other loans originally held for investment during the three and nine months ended September 30, 2024 and 2023.

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


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

Table of Contents


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

Foreclosure Proceedings

The Company did no t own any foreclosed properties as of September 30, 2024 and December 31, 2023. The Company did not sell any foreclosed properties during the three and nine months ended September 30, 2024 and 2023.

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

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

Nonaccrual and Past Due Loans

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


(dollars in thousands)	Accruing Loans 30 - 59 Days Past Due		Accruing Loans 60 - 89 Days Past Due		Accruing Loans 90+ Days Past Due		Nonaccrual Loans		Total Past Due and Nonaccrual		Loans Not Past Due		Total Loans		Nonaccrual Loans With No ACL
September 30, 2024



Commercial and industrial	$	1,924	$	688	$	—	$	376	$	2,988	$	596,459	$	599,447	$	—
Real estate:
Construction	—		—		—		—		—		158,126		158,126		—
Residential mortgage	—		1,990		13		9,680		11,683		1,886,236		1,897,919		9,680
Home equity	387		254		135		915		1,691		695,432		697,123		915
Commercial mortgage	203		—		—		—		203		1,470,107		1,470,310		—
Consumer	4,644		1,667		481		626		7,418		512,266		519,684		—

Total	$	7,158	$	4,599	$	629	$	11,597	$	23,983	$	5,318,626	$	5,342,609	$	10,595


(dollars in thousands)	Accruing Loans 30 - 59 Days Past Due		Accruing Loans 60 - 89 Days Past Due		Accruing Loans 90+ Days Past Due		Nonaccrual Loans		Total Past Due and Nonaccrual		Loans Not Past Due		Total Loans		Nonaccrual 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 mortgage	3,082		2,140		—		4,962		10,184		1,917,605		1,927,789		4,855
Home equity	804		400		229		834		2,267		734,257		736,524		834
Commercial mortgage	—		—		—		77		77		1,382,825		1,382,902		77
Consumer	5,677		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

Table of Contents

Collateral-Dependent Loans

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


(dollars in thousands)	Secured by 1-4 Family Residential Properties		Secured by Nonfarm Nonresidential Properties		Total		Allocated ACL
September 30, 2024

Real estate:

Residential mortgage	$	9,679	$	—	$	9,679	$	—
Home equity	915		—		915		—



Total	$	10,594	$	—	$	10,594	$	—


(dollars in thousands)	Secured by 1-4 Family Residential Properties		Secured by Nonfarm Nonresidential Properties		Total		Allocated ACL
December 31, 2023

Real estate:

Residential mortgage	$	6,450	$	—	$	6,450	$	47
Home equity	834		—		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 d uring the three and nine months ended September 30, 2024, t he Company has not had any material modifications to loans either individually or in the aggregate for borrowers experiencing financial difficulty.

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

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

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

Credit Quality Indicators

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

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

Table of Contents

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

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

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

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

Table of Contents

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 Origination												Amortized Cost of Revolving Loans
September 30, 2024	2024		2023		2022		2021		2020		Prior				Total
















Commercial and industrial:
Risk Rating
Pass	$	125,093	$	56,889	$	75,837	$	71,370	$	26,287	$	149,077	$	88,324	$	592,877
Special Mention	—		587		297		2,579		—		—		—		3,463
Substandard	2,380		236		58		121		—		312		—		3,107


Subtotal	127,473		57,712		76,192		74,070		26,287		149,389		88,324		599,447
Construction:
Risk Rating
Pass	6,508		19,346		47,954		35,859		13,342		35,117		—		158,126




Subtotal	6,508		19,346		47,954		35,859		13,342		35,117		—		158,126
Residential mortgage:
Risk Rating
Pass	55,009		92,858		261,649		596,350		400,545		480,913		—		1,887,324

Substandard	—		—		1,599		294		1,862		6,840		—		10,595


Subtotal	55,009		92,858		263,248		596,644		402,407		487,753		—		1,897,919
Home equity:
Risk Rating
Pass	1,231		11,997		29,158		18,224		7,611		24,418		603,434		696,073

Substandard	—		—		—		—		—		915		135		1,050


Subtotal	1,231		11,997		29,158		18,224		7,611		25,333		603,569		697,123
Commercial mortgage:
Risk Rating
Pass	122,037		95,562		238,401		225,176		112,347		657,231		5,911		1,456,665
Special Mention	—		623		—		1,438		—		5,185		—		7,246
Substandard	—		—		—		1,088		—		5,311		—		6,399


Subtotal	122,037		96,185		238,401		227,702		112,347		667,727		5,911		1,470,310
Consumer:
Risk Rating
Pass	32,636		91,838		192,185		103,112		24,048		19,153		55,605		518,577

Substandard	20		40		254		175		35		578		5		1,107


Subtotal	32,656		91,878		192,439		103,287		24,083		19,731		55,610		519,684
Total	$	344,914	$	369,976	$	847,392	$	1,055,786	$	586,077	$	1,385,050	$	753,414	$	5,342,609

Table of Contents


(dollars in thousands)	Amortized Cost of Term Loans by Year of Origination												Amortized Cost of Revolving Loans
December 31, 2023	2023		2022		2021		2020		2019		Prior				Total
















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
Substandard	37		1,189		576		662		571		7,026		50		10,111


Subtotal	83,370		83,838		81,043		33,493		42,733		160,910		90,320		575,707
Construction:
Risk Rating
Pass	8,434		52,596		69,203		18,878		2,136		31,090		2,778		185,115
Special Mention	—		—		404		—		—		—		—		404



Subtotal	8,434		52,596		69,607		18,878		2,136		31,090		2,778		185,519
Residential mortgage:
Risk Rating
Pass	101,473		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


Subtotal	101,473		267,371		609,947		415,361		145,130		388,507		—		1,927,789
Home equity:
Risk Rating
Pass	12,229		32,208		19,589		8,766		6,372		17,379		638,917		735,460

Substandard	—		—		—		—		66		998		—		1,064


Subtotal	12,229		32,208		19,589		8,766		6,438		18,377		638,917		736,524
Commercial mortgage:
Risk Rating
Pass	96,479		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


Subtotal	96,479		256,660		205,520		115,055		124,745		578,132		6,311		1,382,902
Consumer:
Risk Rating
Pass	88,593		261,752		144,341		36,431		27,970		10,538		59,130		628,755

Substandard	58		231		205		87		83		1,084		10		1,758

Loss	—		—		—		—		—		28		—		28
Subtotal	88,651		261,983		144,546		36,518		28,053		11,650		59,140		630,541
Total	$	390,636	$	954,656	$	1,130,252	$	628,071	$	349,235	$	1,188,666	$	797,466	$	5,438,982


(dollars in thousands)	Gross Charge-Offs by Year of Origination
Nine Months Ended September 30, 2024	2024		2023		2022		2021		2020		Prior		Total



Commercial and industrial	$	69	$	150	$	241	$	203	$	33	$	1,168		$	1,864
Real estate:

Residential mortgage	—		—		175		—		—		208			383


Consumer	75		518		7,944		3,243		408		951			13,139

Gross charge-offs	$	144	$	668	$	8,360	$	3,446	$	441	$	2,327		$	15,386


(dollars in thousands)	Gross Charge-Offs by Year of Origination
Nine Months Ended September 30, 2023	2023		2022		2021		2020		2019		Prior		Total



Commercial and industrial	$	143	$	239	$	145	$	—	$	265	$	751		$	1,543





Consumer	4		4,988		4,158		871		627		621			11,269

Gross charge-offs	$	147	$	5,227	$	4,303	$	871	$	892	$	1,372		$	12,812

Table of Contents

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

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


(dollars in thousands)	Real Estate
Three Months Ended September 30, 2024	Commercial and Industrial		Construction		Residential Mortgage		Home Equity		Commercial Mortgage		Consumer		Total
Beginning balance	$	7,071	$	3,798	$	15,389	$	3,829	$	17,337	$	14,801	$	62,225


Provision (credit) for credit losses on loans	617		( 1,230 )		1,052		( 1,360 )		1,204		2,757		3,040
Subtotal	7,688		2,568		16,441		2,469		18,541		17,558		65,265
Charge-offs	( 663 )		—		( 99 )		—		—		( 3,956 )		( 4,718 )
Recoveries	158		—		8		—		—		934		1,100
Net (charge-offs) recoveries	( 505 )		—		( 91 )		—		—		( 3,022 )		( 3,618 )
Ending balance	$	7,183	$	2,568	$	16,350	$	2,469	$	18,541	$	14,536	$	61,647


(dollars in thousands)	Real Estate
Three Months Ended September 30, 2023	Commercial and Industrial		Construction		Residential Mortgage		Home Equity		Commercial Mortgage		Consumer		Total
Beginning balance	$	6,946	$	3,654	$	12,233	$	3,965	$	17,365	$	19,686	$	63,849


Provision (credit) for credit losses on loans	( 330 )		953		1,727		( 913 )		1,738		1,351		4,526
Subtotal	6,616		4,607		13,960		3,052		19,103		21,037		68,375
Charge-offs	( 402 )		—		—		—		—		( 4,710 )		( 5,112 )
Recoveries	261		1		10		—		—		982		1,254
Net (charge-offs) recoveries	( 141 )		1		10		—		—		( 3,728 )		( 3,858 )
Ending balance	$	6,475	$	4,608	$	13,970	$	3,052	$	19,103	$	17,309	$	64,517


(dollars in thousands)	Real Estate
Nine Months Ended September 30, 2024	Commercial and Industrial		Construction		Residential Mortgage		Home Equity		Commercial Mortgage		Consumer		Total
Beginning balance	$	7,181	$	4,004	$	14,626	$	3,501	$	17,543	$	17,079	$	63,934


Provision (credit) for credit losses on loans	1,488		( 1,436 )		2,082		( 1,038 )		998		7,515		9,609
Subtotal	8,669		2,568		16,708		2,463		18,541		24,594		73,543
Charge-offs	( 1,864 )		—		( 383 )		—		—		( 13,139 )		( 15,386 )
Recoveries	378		—		25		6		—		3,081		3,490
Net (charge-offs) recoveries	( 1,486 )		—		( 358 )		6		—		( 10,058 )		( 11,896 )
Ending balance	$	7,183	$	2,568	$	16,350	$	2,469	$	18,541	$	14,536	$	61,647


(dollars in thousands)	Real Estate
Nine Months Ended September 30, 2023	Commercial and Industrial		Construction		Residential Mortgage		Home Equity		Commercial Mortgage		Consumer		Total
Beginning balance	$	6,824	$	2,867	$	11,804	$	4,114	$	17,902	$	20,227	$	63,738


Provision (credit) for credit losses on loans	558		1,740		2,096		( 1,077 )		1,201		5,758		10,276
Subtotal	7,382		4,607		13,900		3,037		19,103		25,985		74,014
Charge-offs	( 1,543 )		—		—		—		—		( 11,269 )		( 12,812 )
Recoveries	636		1		70		15		—		2,593		3,315
Net (charge-offs) recoveries	( 907 )		1		70		15		—		( 8,676 )		( 9,497 )
Ending balance	$	6,475	$	4,608	$	13,970	$	3,052	$	19,103	$	17,309	$	64,517

Table of Contents

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2024		2023		2024		2023
Beginning balance	$	3,312	$	3,664	$	3,706	$	3,243


(Credit) provision for off-balance sheet credit exposures	( 207 )		348		( 601 )		769
Ending balance	$	3,105	$	4,012	$	3,105	$	4,012

5. INVESTMENTS IN UNCONSOLIDATED ENTITIES

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


(dollars in thousands)	September 30, 2024		December 31, 2023
Investments in low-income housing tax credit partnerships, net of amortization	$	51,152	$	37,838
Investments in common securities of statutory trusts	1,547		1,547
Investments in affiliates	87		111
Other	2,050		2,050
Total	$	54,836	$	41,546

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

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


(dollars in thousands)
Year Ending December 31,	LIHTC		Other		Total
2024 (remainder)	$	1,406	$	803	$	2,209
2025	10,519		—		10,519
2026	7,564		—		7,564
2027	36		—		36
2028	30		—		30
2029	36		—		36
Thereafter	386		—		386
Total unfunded commitments	$	19,977	$	803	$	20,780

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2024		2023		2024		2023
Proportional amortization method:
Amortization expense recognized in income tax expense	$	1,012	$	714	$	2,372	$	2,142
Tax credits recognized in income tax expense	1,155		891		2,756		2,675

Table of Contents

In 2021, the Company committed $ 2.0 million to the JAM FINTOP Banktech Fund, L.P. The Company does not have the ability to exercise significant influence over the JAM FINTOP Banktech Fund, L.P. and the investment does not have a readily determinable fair value. As a result, the Company determined that the cost method of accounting for the investment was

appropriate. The Company had $ 0.8 million and $ 1.0 million in unfunded commitments related to the investment as of September 30, 2024 and December 31, 2023, respectively, which was included in other liabilities in the Company's consolidated balance sheets.

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

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

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

6. MORTGAGE SERVICING RIGHTS

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


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

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


(dollars in thousands)
Balance at December 31, 2023	$	8,696
Additions	400
Amortization	( 583 )
Balance at September 30, 2024	$	8,513

Balance at December 31, 2022	$	9,074
Additions	261
Amortization	( 538 )
Balance at September 30, 2023	$	8,797

Table of Contents

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


(dollars in thousands)	September 30, 2024			December 31, 2023
Fair market value, beginning of year	$	12,185		$	12,061
Fair market value, end of period	11,637			12,185
Weighted average discount rate	9.5		%	9.5		%
Weighted average prepayment speed assumption	11.4			11.2

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

7. DERIVATIVES

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

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

Interest Rate Lock and Forward Sale Commitments

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

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

Risk Participation Agreements

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

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

Table of Contents

Back-to-Back Swap Agreements

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

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

Interest Rate Swap

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

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

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

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


Derivative Financial Instruments Not Designated as Hedging Instruments		Asset Derivatives				Liability Derivatives
		Fair Value at				Fair Value at
(dollars in thousands)	Balance Sheet Location	September 30, 2024		December 31, 2023		September 30, 2024		December 31, 2023
Interest rate lock and forward sale commitments	Other assets / other liabilities	$	—	$	—	$	2	$	34

Back-to-back swap agreements	Other assets / other liabilities	2,875		3,547		2,875		3,547

Derivative Financial Instruments Designated as Hedging Instruments

Asset Derivatives

Liability Derivatives

Fair Value at

(dollars in thousands)

Balance Sheet Location

September 30,
2024

December 31,
2023

September 30,
2024

December 31,
2023

Interest rate swap

Other assets / other liabilities

5,202

6,440

—

Table of Contents

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

Derivative Financial Instruments
Not Designated as Hedging Instruments

Location of Gain (Loss)
Recognized in
Earnings on Derivatives

Amount of Gain (Loss)
Recognized in
Earnings on Derivatives

(dollars in thousands)

Three Months Ended September 30, 2024

Interest rate lock and forward sale commitments

Mortgage banking income

Loans held for sale

Other income

Three Months Ended September 30, 2023

Interest rate lock and forward sale commitments

Mortgage banking income

( 16 )

Loans held for sale

Other income

Back-to-back swap agreements

Other service charges and fees

Derivative Financial Instruments
Not Designated as Hedging Instruments

Location of Gain (Loss)
Recognized in
Earnings on Derivatives

Amount of Gain (Loss)
Recognized in
Earnings on Derivatives

(dollars in thousands)

Nine Months Ended September 30, 2024

Interest rate lock and forward sale commitments

Mortgage banking income

Back-to-back swap agreements

Other service charges and fees

Nine Months Ended September 30, 2023

Interest rate lock and forward sale commitments

Mortgage banking income

( 8 )

Loans held for sale

Other income

Back-to-back swap agreements

Other service charges and fees

Derivative Financial Instruments
Designated as Hedging Instruments

Location of Gain (Loss)
Recognized in
Earnings on Derivatives

Amount of Gain (Loss)
Recognized in
Earnings on Derivatives

(dollars in thousands)

Three Months Ended September 30, 2024

Interest rate swap

Interest income

1,148

Three Months Ended September 30, 2023

Interest rate swap

Interest income

( 121 )

Derivative Financial Instruments
Designated as Hedging Instruments

Location of Gain (Loss)
Recognized in
Earnings on Derivatives

Amount of Gain (Loss)
Recognized in
Earnings on Derivatives

(dollars in thousands)

Nine Months Ended September 30, 2024

Interest rate swap

Interest income

1,924

Nine Months Ended September 30, 2023

Interest rate swap

Interest income

( 180 )

Table of Contents

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


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

8. SHORT-TERM BORROWINGS AND LONG-TERM DEBT

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


(dollars in thousands)	September 30, 2024		December 31, 2023




Long-term debt:
Federal Home Loan Bank long-term advances	$	50,000	$	50,000
Subordinated debentures	51,547		51,547
Subordinated notes, net of unamortized debt issuance costs	54,737		54,555
Total	$	156,284	$	156,102

Federal Home Loan Bank Advances and Other Borrowings

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

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

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

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

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

Table of Contents

Subordinated Debentures

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


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

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

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

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)

Description

September 30, 2024

December 31, 2023

Interest Rate

October 2020 Private Placement

55,000

4.75 % for the first five years. Resets quarterly thereafter to the then current three-month SOFR plus 456 basis points.

Table of Contents

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

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

9. REVENUE FROM CONTRACTS WITH CUSTOMERS

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


	Three Months Ended September 30, 2024						Three Months Ended September 30, 2023
(dollars in thousands)	In-Scope		Out-of-Scope		Total		In-Scope		Out-of-Scope		Total
Other operating income:
Mortgage banking income	$	352	$	470	$	822	$	216	$	549	$	765
Service charges on deposit accounts	2,167		—		2,167		2,193		—		2,193
Other service charges and fees	5,234		713		5,947		4,874		329		5,203
Income from fiduciary activities	1,447		—		1,447		1,234		—		1,234
Income from bank-owned life insurance	—		1,897		1,897		—		379		379
Net (losses) gains on sales of investment securities	—		—		—		—		( 135 )		( 135 )



Other	—		454		454		—		408		408
Total other operating income	$	9,200	$	3,534	$	12,734	$	8,517	$	1,530	$	10,047


	Nine Months Ended September 30, 2024						Nine Months Ended September 30, 2023
(dollars in thousands)	In-Scope		Out-of-Scope		Total		In-Scope		Out-of-Scope		Total
Other operating income:
Mortgage banking income	$	626	$	1,849	$	2,475	$	541	$	1,440	$	1,981
Service charges on deposit accounts	6,405		—		6,405		6,441		—		6,441
Other service charges and fees	15,252		1,825		17,077		13,655		1,527		15,182
Income from fiduciary activities	4,331		—		4,331		3,623		—		3,623
Income from bank-owned life insurance	—		4,653		4,653		—		2,855		2,855
Net (losses) gains on sales of investment securities	—		—		—		—		( 135 )		( 135 )



Other	—		1,158		1,158		—		1,544		1,544
Total other operating income	$	26,614	$	9,485	$	36,099	$	24,260	$	7,231	$	31,491

10. SHARE-BASED COMPENSATION

Restricted and Performance Stock Units

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

Table of Contents

The following table presents the activities of RSUs and PSUs for the nine months ended September 30, 2024:


(dollars in thousands, except per share data)	Shares	Weighted Average Grant Date Fair Value Per Share		Fair Value of RSUs and PSUs That Vested During the Period
Non-vested RSUs and PSUs, beginning of period	224,579	$	24.76
Changes during the period:
Granted	137,911	19.41
Forfeited	( 1,648 )	20.59
Vested	( 75,113 )	23.73		$	1,466
Non-vested RSUs and PSUs, end of period	285,729	22.48

11. SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS

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

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

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2024		2023		2024		2023
Interest cost	$	107	$	112	$	323	$	336
Amortization of net actuarial gain	—		( 19 )		—		( 57 )
Amortization of net transition obligation	—		2		—		6


Net periodic benefit cost	$	107	$	95	$	323	$	285

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

12. OPERATING LEASES

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

Table of Contents

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


	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2024			2023			2024			2023
Lease cost:
Operating lease cost	$	1,605		$	1,285		$	4,345		$	3,937
Variable lease cost	484			918			2,346			2,740
Less: Sublease income	—			—			—			( 34 )
Total lease cost	$	2,089		$	2,203		$	6,691		$	6,643

Other information:
Operating cash flows from operating leases	$	( 1,564 )		$	( 1,258 )		$	( 4,246 )		$	( 3,950 )
Weighted-average remaining lease term - operating leases	10.53 years			10.85 years			10.53 years			10.85 years
Weighted-average discount rate - operating leases	4.04		%	3.96		%	4.04		%	3.96		%

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


(dollars in thousands)	Undiscounted Cash Flows		Lease Liability Discount on Cash Flows		Lease Liability
Year Ending December 31,
2024 (remainder)	$	1,297	$	319	$	978
2025	5,166		1,180		3,986
2026	5,125		1,032		4,093
2027	4,333		891		3,442
2028	3,486		776		2,710
2029	3,083		677		2,406
Thereafter	19,201		3,009		16,192
Total	$	41,691	$	7,884	$	33,807

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2024		2023		2024		2023
Total rental income recognized	$	519	$	497	$	1,539	$	1,622

Table of Contents

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


(dollars in thousands)
Year Ending December 31,
2024 (remainder)	$	315
2025	1,207
2026	1,074
2027	1,017
2028	608
2029	553
Thereafter	1,294
Total	$	6,068

13. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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


(dollars in thousands)	Before Tax		Tax Effect		Net of Tax
Three Months Ended September 30, 2024
Net change in fair value of investment securities:
Net unrealized gains on AFS investment securities arising during the period	$	27,092	$	7,150	$	19,942

Amortization of unrealized losses on investment securities transferred to HTM	1,920		507		1,413
Net change in fair value of investment securities	29,012		7,657		21,355

Net change in fair value of derivatives:
Net unrealized losses arising during the period	( 4,317 )		( 1,140 )		( 3,177 )

Net change in fair value of derivatives	( 4,317 )		( 1,140 )		( 3,177 )

SERP:

Amortization of net actuarial gain	( 2 )		( 1 )		( 1 )



SERP	( 2 )		( 1 )		( 1 )

Other comprehensive income	$	24,693	$	6,516	$	18,177

Table of Contents


(dollars in thousands)	Before Tax		Tax Effect		Net of Tax
Three Months Ended September 30, 2023
Net change in fair value of investment securities:
Net unrealized losses on AFS investment securities arising during the period	$	( 24,729 )	$	( 6,569 )	$	( 18,160 )
Reclassification adjustments from AOCI realized in net income	135		36		99
Amortization of unrealized losses on investment securities transferred to HTM	2,026		538		1,488
Net change in fair value of investment securities	( 22,568 )		( 5,995 )		( 16,573 )

Net change in fair value of derivatives:
Net unrealized gains arising during the period	3,151		838		2,313

Net change in fair value of derivatives	3,151		838		2,313

SERP:

Amortization of net actuarial gain	( 19 )		( 7 )		( 12 )
Amortization of net transition obligation	2		2		—


SERP	( 17 )		( 5 )		( 12 )

Other comprehensive loss	$	( 19,434 )	$	( 5,162 )	$	( 14,272 )


(dollars in thousands)	Before Tax		Tax Effect		Net of Tax
Nine Months Ended September 30, 2024
Net change in fair value of investment securities:
Net unrealized gains on AFS investment securities arising during the period	$	20,427	$	5,391	$	15,036

Amortization of unrealized losses on investment securities transferred to HTM	5,425		1,432		3,993
Net change in fair value of investment securities	25,852		6,823		19,029

Net change in fair value of derivatives:
Net unrealized losses arising during the period	( 1,286 )		( 340 )		( 946 )

Net change in fair value of derivatives	( 1,286 )		( 340 )		( 946 )

SERP:

Amortization of net actuarial gain	( 2 )		( 1 )		( 1 )



SERP	( 2 )		( 1 )		( 1 )

Other comprehensive income	$	24,564	$	6,482	$	18,082

Table of Contents


(dollars in thousands)	Before Tax		Tax Effect		Net of Tax
Nine Months Ended September 30, 2023
Net change in fair value of investment securities:
Net unrealized losses on AFS investment securities arising during the period	$	( 17,675 )	$	( 4,696 )	$	( 12,979 )
Reclassification adjustments from AOCI realized in net income	135		36		99
Amortization of unrealized losses on investment securities transferred to HTM	5,670		1,506		4,164
Net change in fair value of investment securities	( 11,870 )		( 3,154 )		( 8,716 )

Net change in fair value of derivatives:
Net unrealized gains arising during the period	$	4,329	$	1,139	$	3,190

Net change in fair value of derivatives	4,329		1,139		3,190

SERP:

Amortization of net actuarial gain	( 58 )		( 17 )		( 41 )
Amortization of net transition obligation	6		2		4


SERP	( 52 )		( 15 )		( 37 )

Other comprehensive loss	$	( 7,593 )	$	( 2,030 )	$	( 5,563 )

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


(dollars in thousands)	Investment Securities		Derivatives		SERP		AOCI
Three Months Ended September 30, 2024
Balance at beginning of period	$	( 130,248 )	$	7,260	$	297	$	( 122,691 )




Other comprehensive income (loss) before reclassifications	19,942		( 3,177 )		—		16,765
Reclassification adjustments from AOCI	1,413		—		( 1 )		1,412
Total other comprehensive income (loss)	21,355		( 3,177 )		( 1 )		18,177

Balance at end of period	$	( 108,893 )	$	4,083	$	296	$	( 104,514 )


(dollars in thousands)	Investment Securities		Derivatives		SERP		AOCI
Three Months Ended September 30, 2023
Balance at beginning of period	$	( 141,252 )	$	5,522	$	455	$	( 135,275 )





Other comprehensive income (loss) before reclassifications	( 18,160 )		2,313		—		( 15,847 )
Reclassification adjustments from AOCI	1,587		—		( 12 )		1,575
Total other comprehensive income (loss)	( 16,573 )		2,313		( 12 )		( 14,272 )

Balance at end of period	$	( 157,825 )	$	7,835	$	443	$	( 149,547 )

Table of Contents


(dollars in thousands)	Investment Securities		Derivatives		SERP		AOCI
Nine Months Ended September 30, 2024
Balance at beginning of period	$	( 127,922 )	$	5,029	$	297	$	( 122,596 )





Other comprehensive income (loss) before reclassifications	15,036		( 946 )		—		14,090
Reclassification adjustments from AOCI	3,993		—		( 1 )		3,992
Total other comprehensive income (loss)	19,029		( 946 )		( 1 )		18,082

Balance at end of period	$	( 108,893 )	$	4,083	$	296	$	( 104,514 )


(dollars in thousands)	Investment Securities		Derivatives		SERP		AOCI
Nine Months Ended September 30, 2023
Balance at beginning of period	$	( 149,109 )	$	4,645	$	480	$	( 143,984 )





Other comprehensive income (loss) before reclassifications	( 12,979 )		3,190		—		( 9,789 )
Reclassification adjustments from AOCI	4,263		—		( 37 )		4,226
Total other comprehensive income (loss)	( 8,716 )		3,190		( 37 )		( 5,563 )

Balance at end of period	$	( 157,825 )	$	7,835	$	443	$	( 149,547 )

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


	Amount Reclassified from AOCI				Affected Line Item in the Statement Where Net Income is Presented
(dollars in thousands)	Three Months Ended September 30,
Details about AOCI Components	2024		2023
Sale of AFS investment securities:
Realized loss on sale of AFS investment securities	$	—	$	135	Net loss on sale of investment securities
Tax effect	—		( 36 )		Income tax benefit
Net of tax	—		99

Amortization of unrealized losses on investment securities transferred to HTM:
Amortization	1,920		2,026		Interest and dividends on investment securities
Tax effect	( 507 )		( 538 )		Income tax benefit
Net of tax	1,413		1,488

SERP:
Amortization of net actuarial gain	( 2 )		( 19 )		Other operating expense - other
Amortization of net transition obligation	—		2		Other operating expense - other


Total before tax	( 2 )		( 17 )
Tax effect	1		5		Income tax expense
Net of tax	( 1 )		( 12 )

Total reclassification adjustments from AOCI for the period, net of tax	$	1,412	$	1,575

Table of Contents


	Amount Reclassified from AOCI				Affected Line Item in the Statement Where Net Income is Presented
(dollars in thousands)	Nine Months Ended September 30,
Details about AOCI Components	2024		2023
Sale of AFS investment securities:
Realized loss on sale of AFS investment securities	$	—	$	135	Net loss on sale of investment securities
Tax effect	—		( 36 )		Income tax benefit
Net of tax	—		99

Amortization of unrealized losses on investment securities transferred to HTM:
Amortization	5,425		5,670		Interest and dividends on investment securities
Tax effect	( 1,432 )		( 1,506 )		Income tax benefit
Net of tax	3,993		4,164

SERP:
Amortization of net actuarial gain	( 2 )		( 58 )		Other operating expense - other
Amortization of net transition obligation	—		6		Other operating expense - other


Total before tax	( 2 )		( 52 )
Tax effect	1		15		Income tax expense
Net of tax	( 1 )		( 37 )

Total reclassification adjustments from AOCI for the period, net of tax	$	3,992	$	4,226

14. EARNINGS PER SHARE

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands, except per share data)	2024		2023		2024		2023
Net income	$	13,305	$	13,141	$	42,067	$	43,803

Weighted average common shares outstanding - basic	27,064,035		27,042,762		27,054,737		27,022,141
Dilutive effect of employee stock options and awards	130,590		36,722		83,248		59,400
Weighted average common shares outstanding - diluted	27,194,625		27,079,484		27,137,985		27,081,541

Basic earnings per share	$	0.49	$	0.49	$	1.55	$	1.62
Diluted earnings per share	$	0.49	$	0.49	$	1.55	$	1.62

Anti-dilutive employee stock options and awards	—		23,830		62		24,281

15. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

Disclosures about Fair Value of Financial Instruments

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

Short-Term Financial Instruments

The carrying values of short-term financial instruments are deemed to approximate fair values. Such instruments are considered readily convertible to cash and include cash and due from financial institutions, interest-bearing deposits in other financial

Table of Contents

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 int erest rate risks inherent in the Company's various loan types and are derived from available market information, as well as specific borrower information. The weighted average discount rate used in the valuation of loans was 6.28 % and 6.86 % as of September 30, 2024 and December 31, 2023, respectively . In accordance with ASU 2016-01, the fair values of loans are measured based on the notion of exit price.

Loans Held for Sale

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

Deposit Liabilities

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

Long-Term Debt

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

Derivatives

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

Off-Balance Sheet Financial Instruments

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

Limitations

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

Table of Contents

nature and involve uncertainties and matters of significant judgment. Changes in assumptions could significantly affect the estimates.

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


					Fair Value Measurement Using
(dollars in thousands)	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2024
Financial assets:
Cash and due from financial institutions	$	100,064	$	100,064	$	100,064	$	—	$	—
Interest-bearing deposits in other financial institutions	226,505		226,505		226,505		—		—
Investment securities	1,329,570		1,270,443		36,453		1,226,934		7,056
Loans held for sale	1,609		1,609		—		1,609		—
Loans	5,342,609		5,023,606		—		—		5,023,606



Accrued interest receivable	23,942		23,942		489		4,054		19,399

Financial liabilities:
Deposits:
Noninterest-bearing demand	1,838,009		1,838,009		1,838,009		—		—
Interest-bearing demand and savings and money market	3,591,705		3,591,705		3,591,705		—		—
Time	1,153,299		1,146,531		—		—		1,146,531

Long-term debt	156,284		150,081		—		—		150,081
Accrued interest payable	12,980		12,980		123		—		12,857


							Fair Value Measurement Using
(dollars in thousands)	Notional Amount		Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2024
Off-balance sheet financial instruments:
Commitments to extend credit	$	1,267,835	$	—	$	1,244	$	—	$	1,244	$	—
Standby letters of credit and financial guarantees written	2,807		—		42		—		42		—

Derivatives:
Interest rate lock commitments	1,585		( 2 )		( 2 )		—		( 2 )		—

Risk participation agreements	35,395		—		—		—		—		—
Back-to-back swap agreements:
Assets	50,426		2,875		2,875		—		—		2,875
Liabilities	( 50,426 )		( 2,875 )		( 2,875 )		—		—		( 2,875 )
Interest rate swap agreements	115,545		5,202		5,202		—		—		5,202

Table of Contents


					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 institutions	406,256		406,256		406,256		—		—
Investment securities	1,279,548		1,212,388		—		1,205,238		7,150
Loans held for sale	1,778		1,778		—		1,778		—
Loans	5,438,982		5,089,292		—		—		5,089,292



Accrued interest receivable	21,511		21,511		342		4,043		17,126

Financial liabilities:
Deposits:
Noninterest-bearing demand	1,913,379		1,913,379		1,913,379		—		—
Interest-bearing demand and savings and money market	3,538,922		3,538,922		3,538,922		—		—
Time	1,395,291		1,385,473		—		—		1,385,473

Long-term debt	156,102		153,073		—		—		153,073
Accrued interest payable	18,948		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 written	3,301		—		50		—		50		—

Derivatives:
Interest rate lock commitments	1,807		( 34 )		( 34 )		—		( 34 )		—

Risk participation agreements	36,022		—		—		—		—		—
Back-to-back swap agreements:
Assets	51,059		3,547		3,547		—		—		3,547
Liabilities	( 51,059 )		( 3,547 )		( 3,547 )		—		—		( 3,547 )
Interest rate swap agreements	115,545		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

Table of Contents

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 Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2024
Available-for-sale securities:
Debt securities:
States and political subdivisions	$	123,181	$	—	$	116,843	$	6,338
Corporate securities	32,554		—		32,554		—
U.S. Treasury and other government-sponsored entities and agencies	59,230		36,453		22,777		—

Mortgage-backed securities:
Residential - U.S. government-sponsored entities and agencies	386,296		—		386,296		—
Residential - Non-government agencies	17,834		—		17,116		718
Commercial - U.S. government-sponsored entities and agencies	89,029		—		89,029		—
Commercial - Non-government agencies	15,329		—		15,329		—

Total available-for-sale investment securities	723,453		36,453		679,944		7,056



Derivatives:
Interest rate lock commitments	( 2 )		—		( 2 )		—



Interest rate swap agreements	5,202		—		—		5,202
Total derivatives	5,200		—		( 2 )		5,202
Total	$	728,653	$	36,453	$	679,942	$	12,258

Table of Contents


			Fair Value at Reporting Date Using
(dollars in thousands)	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
Available-for-sale securities:
Debt securities:
States and political subdivisions	$	126,635	$	—	$	120,199	$	6,436
Corporate securities	31,414		—		31,414		—
U.S. Treasury and other government-sponsored entities and agencies	26,197		—		26,197		—

Mortgage-backed securities:
Residential - U.S. government-sponsored entities and agencies	378,386		—		378,386		—
Residential - Non-government agencies	18,708		—		17,994		714
Commercial - U.S. government-sponsored entities and agencies	50,914		—		50,914		—
Commercial - Non-government agencies	14,956		—		14,956		—

Total available-for-sale investment securities	647,210		—		640,060		7,150



Derivatives:
Interest rate lock commitments	( 34 )		—		( 34 )		—



Interest rate swap agreements	6,440		—		—		6,440
Total derivatives	6,406		—		( 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 Subdivisions		Residential - Non-Government Agencies		Interest Rate Swap Agreements		Total
Balance at December 31, 2023	$	6,436	$	714	$	6,440	$	13,590
Principal payments received	( 163 )		( 18 )		—		( 181 )
Unrealized net gain (loss) included in other comprehensive income	65		22		( 1,238 )		( 1,151 )

Balance at September 30, 2024	$	6,338	$	718	$	5,202	$	12,258

Balance at December 31, 2022	$	6,584	$	684	$	5,986	$	13,254
Principal payments received	( 172 )		( 17 )		—		( 189 )
Unrealized net gain (loss) included in other comprehensive income	( 49 )		4		4,149		4,104

Balance at September 30, 2023	$	6,363	$	671	$	10,135	$	17,169

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

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

Table of Contents

The significant unobservable input used in the fair value measurement of the Company's interest rate swap is the weighted-average discount rate. The weighted average discount rate utilized was 3.42 % and 3.34 % as of September 30, 2024 and December 31, 2023, respectively.

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

16. LEGAL PROCEEDINGS

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

Table of Contents

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

Forward-Looking Statements and Factors that Could Affect Future Results

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

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

• the effects of inflation and interest rate fluctuations;

• the adverse effects of recent bank failures and the potential impact of such developments on customer confidence, deposit behavior, liquidity and regulatory responses thereto;

• the adverse effects of the COVID-19 pandemic virus (and its variants) and other pandemic viruses on local, national and international economies, including, but not limited to, the adverse impact on tourism and construction in the State of Hawaii, our borrowers, customers, third-party contractors, vendors and employees, as well as the effects of government programs and initiatives in response thereto;

• supply chain disruptions;

• labor contract disputes and potential strikes impacting both the U.S. National and Hawaii economies;

• the increase in inventory or adverse conditions in the real estate market and deterioration in the construction industry;

• adverse changes in the financial performance and/or condition of our borrowers and, as a result, increased loan delinquency rates, deterioration in asset quality, and losses in our loan portfolio;

• the impact of local, national, and international economies and events (including natural disasters such as wildfires, volcanic eruptions, hurricanes, tsunamis, storms, and earthquakes) on the Company's business and operations and on tourism, the military, and other major industries operating within the Hawaii market and any other markets in which the Company does business;

• deterioration or malaise in domestic economic conditions, including any destabilization in the financial industry and deterioration of the real estate market, as well as the impact of declining levels of consumer and business confidence in the state of the economy in general and in financial institutions in particular;

• changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements;

• the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), changes in capital standards, other regulatory reform and federal and state legislation, including but not limited to regulations promulgated by the Consumer Financial Protection Bureau (the "CFPB"), government-sponsored enterprise reform, and any related rules and regulations which affect our business operations and competitiveness;

• the costs and effects of legal and regulatory developments, including legal proceedings and lawsuits we are or may become subject to, or regulatory or other governmental inquiries and proceedings and the resolution thereof, the results of regulatory examinations or reviews and the effect of, and our ability to comply with, any regulations or regulatory orders or actions we are or may become subject to, and the effect of any recurring or special FDIC assessments;

Table of Contents

• the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board ("PCAOB"), the Financial Accounting Standards Board ("FASB") and other accounting standard setters and the cost and resources required to implement such changes;

• the effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Board of Governors of the Federal Reserve System (the "FRB" or the "Federal Reserve");

• securities market and monetary fluctuations, including the impact resulting from the elimination of the London Interbank Offered Rate Index;

• negative trends in our market capitalization and adverse changes in the price of the Company's common stock;

• the effects of any acquisitions or dispositions we may make or evaluate, and the costs associated with any potential or actual acquisition or disposition, including re-engagement in any potential acquisition process;

• political instability;

• acts of war or terrorism;

• changes in consumer spending, borrowings and savings habits;

• technological changes and developments;

• cybersecurity and data privacy breaches and the consequence therefrom;

• failure to maintain effective internal control over financial reporting or disclosure controls and procedures;

• our ability to address deficiencies in our internal controls over financial reporting or disclosure controls and procedures;

• changes in the competitive environment among financial holding companies and other financial service providers;

• our ability to successfully implement our initiatives to lower our efficiency ratio;

• our ability to attract and retain key personnel;

• changes in our personnel, organization, compensation and benefit plans;

• our ability to successfully implement and achieve the objectives of our Banking-as-a-Service ("BaaS") initiatives , including adoption of the initiatives by customers and risks faced by any of our bank collaborations including reputational and regulatory risk; and

• our success at managing the risks involved in the foregoing items.

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

Overview

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

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

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

Basis of Presentation

Management's discussion and analysis of financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements under "Part I, Item 1. Financial Statements (Unaudited)." The following

Table of Contents

discussion should also be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2023 filed with the U.S. Securities and Exchange Commission (the "SEC") on February 21, 2024, including the “Risk Factors” set forth therein.

Critical Accounting Policies and Use of Estimates

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

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

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

Financial Summary

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

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

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

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

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

Table of Contents

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
Return on average assets	0.72		%	0.70		%	0.76		%	0.78		%
Return on average shareholders’ equity	10.02			10.95			10.91			12.33

Basic earnings per share	$	0.49		$	0.49		$	1.55		$	1.62
Diluted earnings per share	0.49			0.49			1.55			1.62

Non-GAAP Financial Measures

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

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
Financial Measures:
Net income	$	13,305		$	13,141		$	42,067		$	43,803
Diluted earnings per share	$	0.49		$	0.49		$	1.55		$	1.62
Pre-provision net revenue (non-GAAP)	$	19,898		$	22,364		$	63,644		$	68,728
Return on average assets	0.72		%	0.70		%	0.76		%	0.78		%
Return on average shareholders' equity	10.02		%	10.95		%	10.91		%	12.33		%
Efficiency ratio (non-GAAP)	70.12		%	63.91		%	66.86		%	63.89		%
As of September 30, 2024 and 2023:
Tangible common equity ratio (non-GAAP)	7.31		%	6.12		%

Adjusted Financial Measures (Non-GAAP):
Adjusted net income	$	15,667		$	13,141		$	44,429		$	43,803
Adjusted diluted earnings per share	$	0.58		$	0.49		$	1.64		$	1.62
Adjusted pre-provision net revenue (non-GAAP)	$	22,966		$	22,364		$	66,712		$	68,728
Adjusted return on average assets	0.85		%	0.70		%	0.80		%	0.78		%
Adjusted return on average shareholders' equity	11.75		%	10.95		%	11.51		%	12.33		%
Adjusted efficiency ratio (non-GAAP)	65.51		%	63.91		%	65.26		%	63.89		%
As of September 30, 2024 and 2023:
Adjusted tangible common equity ratio (non-GAAP)	7.34		%	6.12		%

Table of Contents

Adjusted Net Income and Diluted Earnings per Share

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands, except per share data)	2024		2023		2024		2023
GAAP net income	$	13,305	$	13,141	$	42,067	$	43,803
Add: Pre-tax expenses related to a strategic opportunity	3,068		—		3,068		—
Less: Income tax effects (assumes 23% ETR)	(706)		—		(706)		—
Expenses related to a strategic opportunity, net of tax	2,362		—		2,362		—
Adjusted net income (non-GAAP)	$	15,667	$	13,141	$	44,429	$	43,803

Diluted weighted average shares outstanding	27,194,625		27,079,484		27,137,985		27,081,541

GAAP diluted EPS	$	0.49	$	0.49	$	1.55	$	1.62
Add: Expenses related to a strategic opportunity, net of tax	0.09		—		0.09		—
Adjusted diluted EPS (non-GAAP)	$	0.58	$	0.49	$	1.64	$	1.62

Adjusted Pre-Provision Net Revenue

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2024		2023		2024		2023
GAAP net income	$	13,305	$	13,141	$	42,067	$	43,803
Add: Income tax expense	3,760		4,349		12,569		13,880
Pre-tax income	17,065		17,490		54,636		57,683
Add: Provision (credit) for credit losses	2,833		4,874		9,008		11,045
PPNR (non-GAAP)	19,898		22,364		63,644		68,728
Add: Pre-tax expenses related to a strategic opportunity	3,068		—		3,068		—
Adjusted PPNR (non-GAAP)	$	22,966	$	22,364	$	66,712	$	68,728

The higher adjusted PPNR in the third quarter of 2024 was primarily due to higher net interest income of $1.9 million compared to the year-ago period. The higher net interest income was primarily due to higher average yields earned on interest-earning assets, which outpaced the higher average rates paid on interest-bearing deposits.

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

Adjusted Efficiency Ratio

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

Table of Contents

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


	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2024			2023			2024			2023
Total other operating expense	$	46,687		$	39,611		$	128,414		$	121,621
Less: Pre-tax expenses related to a strategic opportunity	(3,068)			—			(3,068)			—
Adjusted total other operating expense (non-GAAP)	$	43,619		$	39,611		$	125,346		$	121,621

Net interest income	$	53,851		$	51,928		$	155,959		$	158,858
Total other operating income	12,734			10,047			36,099			31,491
Total revenue	$	66,585		$	61,975		$	192,058		$	190,349

Efficiency ratio (non-GAAP)	70.12		%	63.91		%	66.86		%	63.89		%
Less: Pre-tax expenses related to a strategic opportunity	(4.61)			—			(1.60)			—
Adjusted efficiency ratio (non-GAAP)	65.51		%	63.91		%	65.26		%	63.89		%

Our adjusted efficiency ratio increased to 65.51% in the third quarter of 2024, compared to 63.91% in the year-ago quarter.

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

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

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

Table of Contents

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

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


	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2024			2023			2024			2023
Average assets	$	7,347,403		$	7,510,537		$	7,378,479		$	7,472,890
Add: Expenses related to a strategic opportunity, net of tax	2,362			—			787			—
Adjusted average assets (non-GAAP)	$	7,349,765		$	7,510,537		$	7,379,266		$	7,472,890

ROA (GAAP net income divided by average assets)	0.72		%	0.70		%	0.76		%	0.78		%
Add: Expenses related to a strategic opportunity, net of tax	0.13			—			0.04			—
Adjusted ROA (non-GAAP)	0.85		%	0.70		%	0.80		%	0.78		%

Average shareholders' equity	$	530,928		$	480,118		$	513,914		$	473,856
Add: Expenses related to a strategic opportunity, net of tax	2,362			—			787			—
Adjusted average shareholders' equity (non-GAAP)	$	533,290		$	480,118		$	514,701		$	473,856

ROE (GAAP net income divided by average shareholders' equity)	10.02		%	10.95		%	10.91		%	12.33		%
Add: Expenses related to a strategic opportunity, net of tax	1.73			—			0.60			—
Adjusted ROE (non-GAAP)	11.75		%	10.95		%	11.51		%	12.33		%

Adjusted Tangible Common Equity Ratio

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


(dollars in thousands)	September 30, 2024			September 30, 2023
TCE (non-GAAP)	$	542,335		$	467,114
Add: Expenses related to a strategic opportunity, net of tax	2,362			—
Adjusted TCE (non-GAAP)	$	544,697		$	467,114

Tangible assets (non-GAAP)	$	7,414,040		$	7,636,440
Add: Expenses related to a strategic opportunity, net of tax	2,362			—
Adjusted tangible assets (non-GAAP)	$	7,416,402		$	7,636,440

TCE ratio (non-GAAP)	7.31		%	6.12		%
Add: Expenses related to a strategic opportunity, net of tax	0.03		%	—		%
Adjusted TCE ratio (non-GAAP)	7.34		%	6.12		%

Material Trends

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

Table of Contents

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

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

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

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

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

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

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

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

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

Results of Operations

Net Interest Income and Net Interest Margin

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

Table of Contents


(dollars in thousands)	Three Months Ended September 30,
	2024						2023						Variance
	Average Balance		Average Yield/ Rate		Interest Income/ Expense		Average Balance		Average Yield/ Rate		Interest Income/ Expense		Average Balance		Average Yield/ Rate		Interest Income/ Expense
Assets
Interest earning assets:
Interest-bearing deposits in other financial institutions	$	203,657	5.42	%	$	2,775	$	177,780	5.38	%	$	2,412	$	25,877	0.04	%	$	363
Investment securities:
Taxable (1)	1,340,347		2.68		8,975		1,354,039		2.07		7,016		(13,692)		0.61		1,959
Tax-exempt (1) (2)	141,168		1.98		697		149,824		2.40		897		(8,656)		(0.42)		(200)
Total investment securities	1,481,515		2.61		9,672		1,503,863		2.10		7,913		(22,348)		0.51		1,759
Loans, including loans held for sale	5,330,810		4.89		65,469		5,507,248		4.49		62,162		(176,438)		0.40		3,307
FHLB stock	6,928		7.31		127		10,975		4.09		113		(4,047)		3.22		14
Total interest earning assets	7,022,910		4.43		78,043		7,199,866		4.01		72,600		(176,956)		0.42		5,443
Noninterest-earning assets	324,493						310,671						13,822
Total assets	$	7,347,403					$	7,510,537					$	(163,134)

Liabilities and Equity
Interest-bearing liabilities:
Interest-bearing demand deposits	$	1,267,135	0.15	%	$	484	$	1,339,294	0.14	%	$	460	$	(72,159)	0.01	%	$	24
Savings and money market deposits	2,298,853		1.77		10,235		2,209,835		1.16		6,464		89,018		0.61		3,771
Time deposits up to $250,000	534,497		3.15		4,238		449,844		2.33		2,637		84,653		0.82		1,601
Time deposits over $250,000	647,728		4.18		6,802		844,842		4.05		8,631		(197,114)		0.13		(1,829)
Total interest-bearing deposits	4,748,213		1.82		21,759		4,843,815		1.49		18,192		(95,602)		0.33		3,567


Long-term debt	156,247		5.82		2,287		156,005		5.83		2,292		242		(0.01)		(5)
Total interest-bearing liabilities	4,904,460		1.95		24,046		4,999,820		1.63		20,484		(95,360)		0.32		3,562
Noninterest-bearing deposits	1,787,209						1,894,256						(107,047)
Other liabilities	124,806						136,343						(11,537)
Total liabilities	6,816,475						7,030,419						(213,944)


Total equity	530,928						480,118						50,810
Total liabilities and equity	$	7,347,403					$	7,510,537					$	(163,134)

Net interest income					$	53,997					$	52,116					$	1,881

Interest rate spread			2.48	%					2.38	%					0.10	%

Net interest margin			3.07	%					2.88	%					0.19	%

(1) At amortized cost.
(2) Includes taxable-equivalent adjustment using a federal statutory tax rate of 21%.

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

Interest Income

Taxable-equivalent interest income was $78.0 million for the third quarter of 2024, representing an increase of $5.4 million, or 7.5%, from $72.6 million in the year-ago quarter. The increase during the third quarter of 2024, compared to the year-ago quarter was primarily attributable to an increase in average yield earned on loans of 40 basis points ("bp" or "bps"), resulting in an increase in interest income of approximately $5.3 million and an increase in average yield earned on investment securities of 51 bps, resulting in an increase in interest income of approximately $1.9 million, combined with increases in the average

Table of Contents

balance and average yield earned on interest-bearing deposits in other financial institutions resulting in an increase in interest income of approximately $0.4 million. The increase in the average yield earned on investment securities was partially attributable to income of $1.1 million from an interest rate swap that became effective on March 31, 2024. These increases were partially offset by decreases in average loans and investment securities balances of $176.4 million and $22.3 million, respectively, resulting in decreases in interest income of approximately $2.0 million and $0.1 million, respectively.

Interest Expense

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

Net Interest Margin

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

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

Table of Contents


(dollars in thousands)	Nine Months Ended September 30,
	2024						2023						Variance
	Average Balance		Average Yield/ Rate		Interest Income/ Expense		Average Balance		Average Yield/ Rate		Interest Income/ Expense		Average Balance		Average Yield/ Rate		Interest Income/ Expense
Assets
Interest earning assets:
Interest-bearing deposits in other financial institutions	$	210,464	5.45	%	$	8,589	$	91,202	5.23	%	$	3,566	$	119,262	0.22	%	$	5,023
Investment securities:
Taxable (1)	1,333,394		2.47		24,652		1,376,294		2.08		21,497		(42,900)		0.39		3,155
Tax-exempt (1) (2)	142,085		2.14		2,284		151,611		2.48		2,818		(9,526)		(0.34)		(534)
Total investment securities	1,475,479		2.43		26,936		1,527,905		2.12		24,315		(52,426)		0.31		2,621
Loans, including loans held for sale	5,372,247		4.79		192,710		5,525,476		4.37		180,886		(153,229)		0.42		11,824
FHLB stock	6,885		7.43		384		11,687		4.21		369		(4,802)		3.22		15
Total interest earning assets	7,065,075		4.32		228,619		7,156,270		3.90		209,136		(91,195)		0.42		19,483
Noninterest-earning assets	313,404						316,620						(3,216)
Total assets	$	7,378,479					$	7,472,890					$	(94,411)

Liabilities and Equity
Interest-bearing liabilities:
Interest-bearing demand deposits	$	1,279,256	0.15	%	$	1,473	$	1,373,831	0.12	%	$	1,234	$	(94,575)	0.03	%	$	239
Savings and money market deposits	2,246,478		1.64		27,655		2,188,585		0.89		14,520		57,893		0.75		13,135
Time deposits up to $250,000	544,823		3.22		13,125		394,464		1.88		5,544		150,359		1.34		7,581
Time deposits over $250,000	714,763		4.31		23,078		775,615		3.61		20,920		(60,852)		0.70		2,158
Total interest-bearing deposits	4,785,320		1.82		65,331		4,732,495		1.19		42,218		52,825		0.63		23,113

FHLB advances and other short-term borrowings	22		5.60		1		31,182		4.88		1,139		(31,160)		0.72		(1,138)
Long-term debt	156,188		5.86		6,848		146,513		5.78		6,329		9,675		0.08		519
Total interest-bearing liabilities	4,941,530		1.95		72,180		4,910,190		1.35		49,686		31,340		0.60		22,494
Noninterest-bearing deposits	1,793,854						1,957,267						(163,413)
Other liabilities	129,181						131,577						(2,396)
Total liabilities	6,864,565						6,999,034						(134,469)


Total equity	513,914						473,856						40,058
Total liabilities and equity	$	7,378,479					$	7,472,890					$	(94,411)

Net interest income					$	156,439					$	159,450					$	(3,011)

Interest rate spread			2.37	%					2.55	%					(0.18)	%

Net interest margin			2.95	%					2.98	%					(0.03)	%

(1) At amortized cost.
(2) Includes taxable-equivalent adjustment using a federal statutory tax rate of 21%.

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

Interest Income

Taxable-equivalent interest income was $228.6 million for the nine months ended September 30, 2024, representing an increase of $19.5 million, or 9.3%, from $209.1 million in the year-ago period. The increase was primarily attributable to increases in average yields earned on loans and investment securities of 42 bps and 31 bps, respectively, resulting in increases in interest income of approximately $16.9 million and $3.5 million, respectively. The increase in the average yield earned on investment

Table of Contents

securities was partially attributable to income of $1.9 million from an interest rate swap that became effective on March 31, 2024. In addition, the increase in average balance and yield earned on interest-bearing deposits in other financial institutions of $119.3 million and 22 bps, respectively, resulted in an increase in interest income of approximately $5.0 million. These increases were partially offset by a decrease in average loan balances of $153.2 million during the nine months ended September 30, 2024, compared to the year-ago period, resulting in a decrease in interest income of approximately $5.0 million.

Interest Expense

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

Net Interest Margin

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

Rate-Volume Analysis

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

Table of Contents


	Three Months Ended September 30, 2024 Compared To September 30, 2023				Nine Months Ended September 30, 2024 Compared To September 30, 2023
	Increase (Decrease) Due to:				Increase (Decrease) Due to:
(dollars in thousands)	Volume		Rate		Net Change		Volume		Rate		Net Change

Interest earning assets:
Interest-bearing deposits in other financial institutions	$	343	$	20	$	363	$	4,676	$	347	$	5,023
Investment securities:
Taxable (1)	(71)		2,030		1,959		(680)		3,835		3,155
Tax-exempt (1) (2)	(52)		(148)		(200)		(175)		(359)		(534)
Total investment securities	(123)		1,882		1,759		(855)		3,476		2,621
Loans, including loans held for sale	(1,993)		5,300		3,307		(5,040)		16,864		11,824
FHLB stock	(41)		55		14		(152)		167		15
Total interest earning assets	(1,814)		7,257		5,443		(1,371)		20,854		19,483




Interest-bearing liabilities:
Interest-bearing demand deposits	(18)		42		24		(77)		316		239
Savings and money market deposits	258		3,513		3,771		389		12,746		13,135
Time deposits up to $250,000	497		1,104		1,601		2,116		5,465		7,581
Time deposits over $250,000	(2,036)		207		(1,829)		(1,632)		3,790		2,158
Total interest-bearing deposits	(1,299)		4,866		3,567		796		22,317		23,113

FHLB advances and other short-term borrowings	—		—		—		(1,138)		—		(1,138)
Long-term debt	(1)		(4)		(5)		424		95		519
Total interest-bearing liabilities	(1,300)		4,862		3,562		82		22,412		22,494

Net interest income	$	(514)	$	2,395	$	1,881	$	(1,453)	$	(1,558)	$	(3,011)

(1) At amortized cost.
(2) Includes taxable-equivalent adjustment using a federal statutory tax rate of 21%.

Other Operating Income

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


	Three Months Ended September 30,
(dollars in thousands)	2024		2023		$ Change		% Change
Other operating income:
Mortgage banking income	$	822	$	765	$	57	7.5	%
Service charges on deposit accounts	2,167		2,193		(26)		-1.2
Other service charges and fees	5,947		5,203		744		14.3
Income from fiduciary activities	1,447		1,234		213		17.3
Income from bank-owned life insurance	1,897		379		1,518		400.5
Net loss on sales of investment securities	—		(135)		135		-100.0



Other:
Equity in earnings of unconsolidated entities	7		13		(6)		-46.2

Income recovered on previously charged-off loans	52		48		4		8.3
Other recoveries	19		34		(15)		-44.1
Unrealized gains on loans held for sale	17		4		13		325.0
Commissions on sale of checks	74		77		(3)		-3.9


Other	285		232		53		22.8
Total other operating income	$	12,734	$	10,047	$	2,687	26.7

Table of Contents

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


	Nine Months Ended September 30,
(dollars in thousands)	2024		2023		$ Change		% Change
Other operating income:
Mortgage banking income	$	2,475	$	1,981	$	494	24.9	%
Service charges on deposit accounts	6,405		6,441		(36)		-0.6
Other service charges and fees	17,077		15,182		1,895		12.5
Income from fiduciary activities	4,331		3,623		708		19.5
Income from bank-owned life insurance	4,653		2,855		1,798		63.0
Net loss on sales of investment securities	—		(135)		135		-100.0



Other:
Equity in earnings of unconsolidated entities	(24)		(12)		(12)		100.0

Income recovered on previously charged-off loans	147		385		(238)		-61.8
Other recoveries	63		156		(93)		-59.6
Unrealized gains on loans held for sale	—		3		(3)		-100.0
Commissions on sale of checks	221		237		(16)		-6.8


Other	751		775		(24)		-3.1
Total other operating income	$	36,099	$	31,491	$	4,608	14.6

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

Table of Contents

Other Operating Expense

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


	Three Months Ended September 30,
(dollars in thousands)	2024		2023		$ Change		% Change
Other operating expense:
Salaries and employee benefits	$	22,299	$	19,015	$	3,284	17.3	%
Net occupancy	4,612		4,725		(113)		-2.4
Computer software	4,590		4,473		117		2.6
Legal and professional services	2,460		2,359		101		4.3
Equipment	972		1,112		(140)		-12.6
Advertising	889		968		(79)		-8.2
Communication	740		809		(69)		-8.5



Other:
SERP expense	107		95		12		12.6

Charitable contributions	182		103		79		76.7
FDIC insurance assessment	871		1,019		(148)		-14.5
Miscellaneous loan expenses	283		354		(71)		-20.1
ATM and debit card expenses	910		874		36		4.1
Armored car expenses	432		569		(137)		-24.1
Entertainment and promotions	534		450		84		18.7
Stationery and supplies	170		204		(34)		-16.7
Directors’ fees and expenses	281		308		(27)		-8.8
Directors' deferred compensation plan expense	1,196		113		1,083		958.4

Strategic expenses	3,068		—		3,068		N.M.



Loss (gain) on disposal of fixed assets	38		(4)		42		-1,050.0
Loss on sale of loans	—		197		(197)		-100.0

Other	2,053		1,868		185		9.9
Total other operating expense	$	46,687	$	39,611	$	7,076	17.9

Not meaningful ("N.M.")

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

Table of Contents


	Nine Months Ended September 30,
(dollars in thousands)	2024		2023		$ Change		% Change
Other operating expense:
Salaries and employee benefits	$	64,280	$	61,886	$	2,394	3.9	%
Net occupancy	13,809		13,509		300		2.2
Computer software	13,258		13,700		(442)		-3.2
Legal and professional services	7,286		7,714		(428)		-5.5
Equipment	2,977		2,990		(13)		-0.4
Advertising	2,704		2,843		(139)		-4.9
Communication	2,234		2,378		(144)		-6.1



Other:
SERP expense	323		285		38		13.3

Charitable contributions	510		394		116		29.4
FDIC insurance assessment	2,752		3,126		(374)		-12.0
Miscellaneous loan expenses	992		946		46		4.9
ATM and debit card expenses	2,681		2,520		161		6.4
Armored car expenses	1,373		1,278		95		7.4
Entertainment and promotions	1,368		1,321		47		3.6
Stationery and supplies	552		641		(89)		-13.9
Directors’ fees and expenses	882		978		(96)		-9.8
Directors' deferred compensation plan expense	1,538		(279)		1,817		-651.3

Strategic expenses	3,068		—		3,068		N.M.



Loss (gain) on disposal of fixed assets	54		(2)		56		-2,800.0
Loss on sale of loans	—		197		(197)		-100.0

Other	5,773		5,196		577		11.1
Total other operating expense	$	128,414	$	121,621	$	6,793	5.6

Not meaningful ("N.M.")

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

Income Taxes

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

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

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

Table of Contents

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

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

Financial Condition

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

Investment Securities

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

Table of Contents

Loans

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


(dollars in thousands)	September 30, 2024		December 31, 2023		$ Change		% Change
Hawaii:



Commercial and industrial	$	411,209	$	421,736	$	(10,527)	(2.5)	%
Real estate:
Construction	134,043		163,337		(29,294)		(17.9)
Residential mortgage	1,897,919		1,927,789		(29,870)		(1.5)
Home equity	697,123		736,524		(39,401)		(5.3)
Commercial mortgage	1,157,625		1,063,969		93,656		8.8
Consumer	277,849		322,346		(44,497)		(13.8)

Total loans	4,575,768		4,635,701		(59,933)		(1.3)
Less: ACL	(47,789)		(48,189)		400		(0.8)
Loans, net of ACL	$	4,527,979	$	4,587,512	$	(59,533)	(1.3)

U.S. Mainland:



Commercial and industrial	$	188,238	$	153,971	$	34,267	22.3
Real estate:
Construction	24,083		22,182		1,901		8.6


Commercial mortgage	312,685		318,933		(6,248)		(2.0)
Consumer	241,835		308,195		(66,360)		(21.5)

Total loans	766,841		803,281		(36,440)		(4.5)
Less: ACL	(13,858)		(15,745)		1,887		(12.0)
Loans, net of ACL	$	752,983	$	787,536	$	(34,553)	(4.4)

Total:



Commercial and industrial	$	599,447	$	575,707	$	23,740	4.1
Real estate:
Construction	158,126		185,519		(27,393)		(14.8)
Residential mortgage	1,897,919		1,927,789		(29,870)		(1.5)
Home equity	697,123		736,524		(39,401)		(5.3)
Commercial mortgage	1,470,310		1,382,902		87,408		6.3
Consumer	519,684		630,541		(110,857)		(17.6)

Total loans	5,342,609		5,438,982		(96,373)		(1.8)
Less: ACL	(61,647)		(63,934)		2,287		(3.6)
Loans, net of ACL	$	5,280,962	$	5,375,048	$	(94,086)	(1.8)

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

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

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

Table of Contents

Nonperforming Assets and Accruing Loans 90+ Days Past Due

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


(dollars in thousands)	September 30, 2024			December 31, 2023			$ Change		% Change
Nonperforming Assets ("NPAs")
Nonaccrual loans:



Commercial and industrial	$	376		$	432		$	(56)	(13.0)	%
Real estate:

Residential mortgage	9,680			4,962			4,718		95.1
Home equity	915			834			81		9.7
Commercial mortgage	—			77			(77)		(100.0)
Consumer	626			703			(77)		(11.0)

Total nonaccrual loans	11,597			7,008			4,589		65.5













Other real estate owned ("OREO")	—			—			—		N.M.
Total NPAs	11,597			7,008			4,589		65.5

Accruing Loans 90+ Days Past Due




Real estate:

Residential mortgage	13			—			13		N.M.
Home equity	135			229			(94)		(41.0)

Consumer	481			1,083			(602)		(55.6)

Total accruing loans 90+ days past due	629			1,312			(683)		(52.1)

Total NPAs and accruing loans 90+ days past due	$	12,226		$	8,320		$	3,906	46.9

Ratio of nonaccrual loans to total loans	0.22		%	0.13		%			0.09	%
Ratio of NPAs to total assets	0.16			0.09					0.07

Ratio of NPAs and accruing loans 90+ days past due to total loans and OREO	0.23			0.15					0.08
Ratio of classified assets and OREO to tier 1 capital and ACL	2.93			3.41					(0.48)

Not meaningful ("N.M.")

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


(dollars in thousands)
Balance at December 31, 2023	$	7,008
Additions	10,196
Reductions:
Payments	(1,228)
Return to accrual status	(579)

Charge-offs, valuation and other adjustments	(3,800)
Total reductions	(5,607)
Net increase	4,589
Balance at September 30, 2024	$	11,597

Nonperforming assets totaled $11.6 million, or 0.16% of total assets at September 30, 2024, compared to $7.0 million, or 0.09% of total assets at December 31, 2023. The increase in nonperforming assets from December 31, 2023 was primarily attributable to additions to nonaccrual loans totaling $10.2 million, partially offset by $1.2 million in repayments of nonaccrual loans,

Table of Contents

$0.6 million in loans returned to accrual status and $3.8 million in net charge-offs, valuation and other adjustments. The majority of the nonaccrual loans are in the residential mortgage category which are well-collateralized with strong loan-to-value ratios.

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

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

Allowance for Credit Losses

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


	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2024			2023			2024			2023
Allowance for Credit Losses:
Balance at beginning of period	$	62,225		$	63,849		$	63,934		$	63,738



Provision (credit) for credit losses on loans	3,040			4,526			9,609			10,276

Charge-offs:



Commercial and industrial	(663)			(402)			(1,864)			(1,543)
Real estate:

Residential mortgage	(99)			—			(383)			—


Consumer	(3,956)			(4,710)			(13,139)			(11,269)

Total charge-offs	(4,718)			(5,112)			(15,386)			(12,812)

Recoveries:



Commercial and industrial	158			261			378			636
Real estate:
Construction	—			1			—			1
Residential mortgage	8			10			25			70
Home equity	—			—			6			15

Consumer	934			982			3,081			2,593

Total recoveries	1,100			1,254			3,490			3,315
Net charge-offs	(3,618)			(3,858)			(11,896)			(9,497)


Balance at end of period	$	61,647		$	64,517		$	61,647		$	64,517

Average loans, net of deferred fees and costs	$	5,330,810		$	5,507,248		$	5,372,247		$	5,525,476
Ratio of annualized net charge-offs to average loans	0.27		%	0.28		%	0.30		%	0.23		%
Ratio of ACL to total loans	1.15		%	1.17		%	1.15		%	1.17		%

Ratio of ACL to nonaccrual loans	532		%	970		%	532		%	970		%

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

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

Table of Contents

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

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

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

Deposits

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


(dollars in thousands)	September 30, 2024		December 31, 2023		$ Change		% Change
Noninterest-bearing demand deposits	$	1,838,009	$	1,913,379	$	(75,370)	(3.9)	%
Interest-bearing demand deposits	1,255,382		1,329,189		(73,807)		(5.6)
Savings and money market deposits	2,336,323		2,209,733		126,590		5.7
Time deposits up to $250,000	536,316		533,898		2,418		0.5
Core deposits	5,966,030		5,986,199		(20,169)		(0.3)
Other time deposits greater than $250,000	492,221		486,812		5,409		1.1
Government time deposits	124,762		374,581		(249,819)		(66.7)

Total time deposits greater than $250,000	616,983		861,393		(244,410)		(28.4)
Total deposits	$	6,583,013	$	6,847,592	$	(264,579)	(3.9)

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

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

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

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

Table of Contents

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


(dollars in thousands)	September 30, 2024
Remaining maturity:
Three months or less	$	333,726
Over three through twelve months	271,845
Over one year through three years	10,912
Over three years	500
Total	$	616,983

Capital Resources

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

Common Equity

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

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

Holding Company Capital Resources

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

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

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

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

Share Repurchases

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

Table of Contents

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

Trust Preferred Securities

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

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

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

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

Subordinated Notes

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

Regulatory Capital Ratios

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

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

General capital adequacy regulations adopted by the FRB and FDIC require an institution to maintain minimum leverage capital, tier 1 risk-based capital, total risk-based capital, and common equity tier 1 ("CET1") capital ratios. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set

Table of Contents

individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios. For a further discussion of capital requirements for the Company and the Bank and the effect of forthcoming changes in required regulatory capital ratios, see the discussion in the "Business — Supervision and Regulation" sections of our 2023 Form 10-K.

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


	Actual				Minimum Required for Capital Adequacy Purposes				Minimum Required to be Well Capitalized
(dollars in thousands)	Amount		Ratio		Amount		Ratio [1]		Amount		Ratio
Central Pacific Financial Corp.
September 30, 2024
Leverage capital	$	698,312	9.5	%	$	295,022	4.0	%	N/A		N/A
CET1 risk-based capital	648,312		12.1		240,780		4.5		N/A		N/A
Tier 1 risk-based capital	698,312		13.1		321,040		6.0		N/A		N/A
Total risk-based capital	818,063		15.3		428,054		8.0		N/A		N/A


December 31, 2023
Leverage capital	$	676,536	8.8	%	$	305,843	4.0	%	N/A		N/A
CET1 risk-based capital	626,536		11.4		246,457		4.5		N/A		N/A
Tier 1 risk-based capital	676,536		12.4		328,609		6.0		N/A		N/A
Total risk-based capital	799,175		14.6		438,146		8.0		N/A		N/A


Central Pacific Bank
September 30, 2024
Leverage capital	$	724,934	9.8	%	$	294,454	4.0	%	$	368,068	5.0	%
CET1 risk-based capital	724,934		13.6		240,211		4.5		346,972		6.5
Tier 1 risk-based capital	724,934		13.6		320,281		6.0		427,042		8.0
Total risk-based capital	789,685		14.8		427,042		8.0		533,802		10.0


December 31, 2023
Leverage capital	$	704,512	9.2	%	$	305,375	4.0	%	$	381,719	5.0	%
CET1 risk-based capital	704,512		12.9		245,926		4.5		355,227		6.5
Tier 1 risk-based capital	704,512		12.9		327,902		6.0		437,203		8.0
Total risk-based capital	772,151		14.1		437,203		8.0		546,503		10.0

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

Market Risk

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

Table of Contents

Asset/Liability Management and Interest Rate Risk

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

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

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

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

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


	September 30, 2024				December 31, 2023
	Estimated Net Interest Income Sensitivity				Estimated Net Interest Income Sensitivity
Rate Change	Gradual		Instantaneous		Gradual		Instantaneous
+300 bps	2.20	%	1.97	%	1.69	%	2.51	%
+200 bps	1.38	%	1.40	%	1.00	%	1.61	%
+100bps	0.59	%	0.74	%	0.39	%	0.68	%
-100bps	(1.31)	%	(2.00)	%	(1.26)	%	(1.73)	%
-200 bps	(2.78)	%	(4.19)	%	(2.53)	%	(3.59)	%
-300 bps	(4.31)	%	(6.85)	%	(3.86)	%	(5.65)	%

Table of Contents

Liquidity and Borrowing Arrangements

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

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

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

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

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

Table of Contents

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

T here 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.

Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

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

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

Issuer Purchases of Equity Securities

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

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

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


	Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased [1]	Average Price Paid per Share		Total Shares Purchased as Part of Publicly Announced Programs	Maximum Dollar Value of Shares That May Yet Be Purchased Under the Program
July 1-31, 2024	—	$	—	—	$	19,054,953
August 1-31, 2024	415	25.79		—	19,054,953
September 1-30, 2024	—	—		—	19,054,953
Total	415	$	25.79	—	19,054,953

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

Item 5. Other Information

Rule 10b5-1 Trading Arrangements

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

Table of Contents

Item 6. Exhibits


Exhibit No.						Document















31.1						Rule 13a-14(a) Certification of Chief Executive Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 *

31.2						Rule 13a-14(a) Certification of Chief Financial Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 *

32.1						Section 1350 Certification of Chief Executive Officer in accordance with Section 906 of the Sarbanes-Oxley Act of 2002 **

32.2						Section 1350 Certification of Chief Financial Officer in accordance with Section 906 of the Sarbanes-Oxley Act of 2002 **

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.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		CENTRAL PACIFIC FINANCIAL CORP.



Date:	October 30, 2024	/s/ Arnold D. Martines
		Arnold D. Martines
		Chairman, President and Chief Executive Officer
		(Principal Executive Officer)

		/s/ David S. Morimoto
		David S. Morimoto
		Senior Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

TABLE OF CONTENTS

Part I. Financial Information Item 1. Financial Statements Item 2. Management's Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II. Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 5. Other Information Item 6. Exhibits

Exhibits

31.1 Rule13a-14(a)Certification of Chief Executive Officer in accordance with Section302 of the Sarbanes-Oxley Act of 2002 * 31.2 Rule13a-14(a)Certification of Chief Financial Officer in accordance with Section302 of the Sarbanes-Oxley Act of 2002 * 32.1 Section1350 Certification of Chief Executive Officer in accordance with Section906 of the Sarbanes-Oxley Act of 2002 ** 32.2 Section1350 Certification of Chief Financial Officer in accordance with Section906 of the Sarbanes-Oxley Act of 2002 **

CPF 10-Q Quarter ended Sept. 30, 2024

Exhibits