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What changed in CENTRAL PACIFIC FINANCIAL CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of CENTRAL PACIFIC FINANCIAL CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+559 added−553 removedSource: 10-K (2024-02-21) vs 10-K (2023-02-24)

Top changes in CENTRAL PACIFIC FINANCIAL CORP's 2023 10-K

559 paragraphs added · 553 removed · 391 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

73 edited+14 added−34 removed108 unchanged
Biggest changeIn particular, the proposed rules would generally apply four tests for banks over $2 billion in assets, including our Bank: a retail lending test; a retail services and products test; a community development financing test and a community development services test.
Biggest changeFor banks with total assets in excess of $2 billion, which includes our Bank, the Bank’s CRA evaluation will be based on four tests: (i) retail lending; (ii) retail services and products (including digital delivery systems for banks with more than $10 billion in assets or banks which request consideration of such systems); (iii) community development (CD) financing; and (iv) CD services.
Bank Holding Company Regulation As contained in both federal and state banking laws and regulations, a wide range of requirements and restrictions apply to bank holding companies and their subsidiaries which: • require regular periodic reports and such additional reports of information as the Federal Reserve may require; • require bank holding companies to meet or exceed minimum capital requirements (see the "Capital Adequacy Requirements" section above and the "Capital Resources" section in the MD&A); • require that bank holding companies serve as a source of financial and managerial strength to subsidiary banks and commit resources as necessary to support each subsidiary bank.
Bank Holding Company Regulation As contained in both federal and state banking laws and regulations, a wide range of requirements and restrictions apply to bank holding companies and their subsidiaries which may: • require regular periodic reports and such additional reports of information as the Federal Reserve may require; • require bank holding companies to meet or exceed minimum capital requirements (see the "Capital Adequacy Requirements" section above and the "Capital Resources" section in the MD&A); • require that bank holding companies serve as a source of financial and managerial strength to subsidiary banks and commit resources as necessary to support each subsidiary bank.
If, as a result of an examination, the DFI or the FDIC should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, market sensitivity, or other aspects of the bank's operations are unsatisfactory or that the bank or its management is violating or has violated any law or regulation, the DFI and the FDIC , and separately the FDIC as insurer of the bank's deposits, have residual authority to: • require affirmative action to correct any conditions resulting from any violation or practice; • direct an increase in capital and the maintenance of higher specific minimum capital ratios, which may preclude the bank from being deemed well capitalized and restrict its ability to accept certain brokered deposits; • restrict the bank's growth geographically, by products and services, or by mergers and acquisitions, including bidding in FDIC receiverships for failed banks; • enter into or issue informal or formal enforcement actions, including required Board resolutions, memoranda of understanding, written agreements and consent or cease and desist orders or prompt corrective action orders to take corrective action and cease unsafe and unsound practices; • require prior approval of senior executive officer or director changes; remove officers and directors and assess civil monetary penalties; and • terminate FDIC insurance, revoke the charter and/or take possession of and close and liquidate the bank or appoint the FDIC as receiver, which for a Hawaii state-chartered bank would result in a revocation of its charter.
If, as a result of an examination, the DFI or the FDIC should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, market sensitivity, or other aspects of the Bank's operations are unsatisfactory or that the Bank or its management is violating or has violated any law or regulation, the DFI and the FDIC , and separately the FDIC as insurer of the Bank's deposits, have residual authority to: • require affirmative action to correct any conditions resulting from any violation or practice; • direct an increase in capital and the maintenance of higher specific minimum capital ratios, which may preclude the Bank from being deemed well-capitalized and restrict its ability to accept certain brokered deposits; • restrict the Bank's growth geographically, by products and services, or by mergers and acquisitions, including bidding in FDIC receiverships for failed banks; 11 • enter into or issue informal or formal enforcement actions, including required board resolutions, memoranda of understanding, written agreements and consent or cease and desist orders or prompt corrective action orders to take corrective action and cease unsafe and unsound practices; • require prior approval of senior executive officer or director changes; remove officers and directors and assess civil monetary penalties; and • terminate FDIC insurance, revoke the charter and/or take possession of and close and liquidate the Bank or appoint the FDIC as receiver, which for a Hawaii state-chartered bank would result in a revocation of its charter.
An institution that has (i) experienced rapid growth in CRE lending, (ii) notable exposure to a specific type of CRE, (iii) total reported loans for construction, land development, and other land representing 100% or more of the institution’s total risk-based capital, or (iv) total CRE loans representing 300% or more of the institution’s total risk-based capital, and the outstanding balance of the institutions CRE portfolio has increased by 50% or more in the prior 36 months, may be identified for further supervisory analysis of the level and nature of its CRE concentration risk.
An institution that has (i) experienced rapid growth in CRE lending, (ii) notable exposure to a specific type of CRE, (iii) total reported loans for construction, land development, and other land representing 100% or more of the institution’s total risk-based capital, or (iv) total CRE loans representing 300% or more of the institution’s total risk-based capital, and the outstanding balance of the institutions CRE 15 portfolio has increased by 50% or more in the prior 36 months, may be identified for further supervisory analysis of the level and nature of its CRE concentration risk.
Specific federal and state laws and regulations which are applicable to banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, the timing of the availability of deposited funds, their activities relating to dividends, investments, loans, the nature and amount of collateral for certain loans, servicing and foreclosing on loans, transactions with affiliates, 12 officers, directors and other insiders, borrowings, capital requirements, certain check-clearing activities, branching, and mergers and acquisitions.
Specific federal and state laws and regulations which are applicable to banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, the timing of the availability of deposited funds, their activities relating to dividends, investments, loans, the nature and amount of collateral for certain loans, servicing and foreclosing on loans, transactions with affiliates, officers, directors and other insiders, borrowings, capital requirements, certain check-clearing activities, branching, and mergers and acquisitions.
Bank holding companies that elect and retain "financial holding company" status pursuant to the Gramm-Leach-Bliley Act of 1999 ("GLBA") may engage in these non-banking activities and broader securities, insurance, merchant banking and other activities that are determined to be "financial in nature" or are incidental or complementary to activities that are financial in nature without prior Federal Reserve approval.
Bank holding companies that elect and retain "financial holding company" status pursuant to the Gramm-Leach-Bliley Act of 1999 ("GLBA") may engage in these non-banking activities and broader securities, insurance, merchant banking and other activities that are determined to be "financial in nature" or are incidental or 10 complementary to activities that are financial in nature without prior Federal Reserve approval.
Continual learning and career development are advanced through ongoing development conversations and annual performance reviews with employees, internally developed training programs, conferences, and other training events that employees are encouraged to attend in connection with their job duties. Additionally, w e invest in continual learning and development through tuition reimbursement for courses, degree programs and fees paid for certifications.
Continual learning and career development are advanced through ongoing development conversations and annual performance reviews with employees, internally developed training programs, conferences, and other training events that employees are encouraged to attend in connection with their job duties. Additionally, w e invest in continual learning and development through tuition reimbursement for courses or degree programs, and fees paid for certifications.
Banks with less than $10 billion in assets, including the bank, will continue to be examined for compliance by their primary federal banking agency. The CFPB has finalized a number of significant rules which impact nearly every aspect of the lifecycle of a residential mortgage loan.
Banks with less than $10 billion in assets, including the Bank, will continue to be examined for compliance by their primary federal banking agency. 14 The CFPB has finalized a number of significant rules which impact nearly every aspect of the lifecycle of a residential mortgage loan.
The risk-based capital ratio is determined by classifying assets and certain off-balance sheet financial instruments into weighted categories, with higher levels of capital being required for those categories perceived as representing greater risks 7 and dividing its qualifying capital by its total risk-adjusted assets and off-balance sheet items.
The risk-based capital ratio is determined by classifying assets and certain off-balance sheet financial instruments into weighted categories, with higher levels of capital being required for those categories perceived as representing greater risks and dividing its qualifying capital by its total risk-adjusted assets and off-balance sheet items.
We also cannot predict whether or when regulatory requirements may be reduced or eliminated and the overall affect such reduction or elimination may have on the Company and the bank. Regulatory Agencies Central Pacific Financial Corp. is a legal entity separate and distinct from its subsidiaries.
We also cannot predict whether or when regulatory requirements may be reduced or eliminated and the overall affect such reduction or elimination may have on the Company and the Bank. 6 Regulatory Agencies Central Pacific Financial Corp. is a legal entity separate and distinct from its subsidiaries.
In October 2022, in order to increase the likelihood that the reserve ratio would be restored to at least 1.35% by the statutory deadline of September 30, 2029, the FDIC increased the initial base deposit insurance 13 assessment rate schedules uniformly by 2 basis points.
In October 2022, in order to increase the likelihood that the reserve ratio would be restored to at least 1.35% by the statutory deadline of September 30, 2029, the FDIC increased the initial base deposit insurance assessment rate schedules uniformly by 2 basis points.
Brokered Deposits The FDIC limits the ability to accept brokered deposits to those insured depository institutions that are well-capitalized. Institutions that are less than well capitalized cannot accept, renew or roll over any brokered deposit unless they have applied for and been granted a waiver by the FDIC.
Brokered Deposits The FDIC limits the ability to accept brokered deposits to those insured depository institutions that are well-capitalized. Institutions that are less than well-capitalized cannot accept, renew or roll over any brokered deposit unless they have applied 9 for and been granted a waiver by the FDIC.
Central Pacific Bank, as a Hawaii state-chartered bank, is subject to primary supervision, periodic examination and regulation by the DFI and FDIC and is also subject to certain regulations promulgated by the Consumer Financial Protection Bureau ("CFPB"), Federal Trade Commission ("FTC"), and FRB.
Central Pacific Bank, as a Hawaii state-chartered bank, is subject to primary supervision, periodic examination and regulation by the DFI and FDIC. The Company is also subject to certain regulations promulgated by the Consumer Financial Protection Bureau ("CFPB"), Federal Trade Commission ("FTC"), and FRB.
These risk-weighted assets are used to calculate the following minimum capital ratios for the Company and the bank: • Tier 1 Leverage Ratio , equal to the ratio of Tier 1 capital to quarterly average assets (net of goodwill, certain other intangible assets and certain other deductions). • Common Equity Tier 1 ("CET1") Risk-Based Capital Ratio , equal to the ratio of CET1 capital to risk-weighted assets.
These risk-weighted assets are used to calculate the following minimum capital ratios for the Company and the Bank: 7 • Tier 1 Leverage Ratio , equal to the ratio of Tier 1 capital to quarterly average assets (net of goodwill, certain other intangible assets and certain other deductions). • Common Equity Tier 1 ("CET1") Risk-Based Capital Ratio , equal to the ratio of CET1 capital to risk-weighted assets.
Within the time period required by the SEC and NYSE, we will post on our website any amendment to the Code of Business Conduct and Ethics and any waiver applicable to our senior financial officers, as defined by the SEC, and our executive officers or directors.
Within the time period required by the SEC and NYSE, we will post on our website any amendment to the Code of Conduct and Ethics and any waiver applicable to our senior financial officers, as defined by the SEC, and our executive officers or directors.
Depending on the bank's capital ratios, the agencies' regulations define five categories in which an insured depository institution will be placed: well-capitalized, adequately capitalized, under-capitalized, significantly under-capitalized, and critically under-capitalized.
Depending on a bank's capital ratios, the agencies' regulations define five categories in which an insured depository institution will be placed: well-capitalized, adequately capitalized, under-capitalized, significantly under-capitalized, and critically under-capitalized.
At each successive lower capital category, an insured bank is subject to more restrictions, including restrictions on the bank's activities, operational practices or the ability to pay dividends or executive bonuses.
At each successive lower capital category, an insured bank is subject to more restrictions, including restrictions on a bank's activities, operational practices or the ability to pay dividends or executive bonuses.
The table below summarizes the capital requirements that the Company and the bank must satisfy to avoid limitations on capital distributions and certain discretionary bonus payments (i.e., the required minimum capital ratios plus the Capital Conservation Buffer): Minimum Basel III Regulatory Capital Ratio Plus Capital Conservation Buffer CET1 risk-based capital ratio 7.0 % Tier 1 risk-based capital ratio 8.5 % Total risk-based capital ratio 10.5 % As of December 31, 2022, the Company and the bank are well-capitalized for regulatory purposes.
The table below summarizes the capital requirements that the Company and the Bank must satisfy to avoid limitations on capital distributions and certain discretionary bonus payments (i.e., the required minimum capital ratios plus the Capital Conservation Buffer): Minimum Basel III Regulatory Capital Ratio Plus Capital Conservation Buffer CET1 risk-based capital ratio 7.0 % Tier 1 risk-based capital ratio 8.5 % Total risk-based capital ratio 10.5 % 8 As of December 31, 2023, the Company and the Bank are well-capitalized for regulatory purposes.
In addition, our website includes information concerning purchases and sales of our equity securities by our executive officers and directors, as well as disclosure relating to certain non-GAAP financial measures (as defined in the SEC's Regulation G) that we may make public orally, telephonically, by webcast, by broadcast or by similar means from time to time. 18
In addition, our website includes information concerning purchases and sales of our equity securities by our executive officers and directors, as well as disclosure relating to certain non-GAAP financial measures (as defined in the SEC's Regulation G) that we may make public orally, telephonically, by webcast, by broadcast or by similar means from time to time. 17
Our Subsidiaries Central Pacific Bank is the wholly-owned principal subsidiary of Central Pacific Financial Corp. As of December 31, 2022, other wholly-owned subsidiaries include CPB Capital Trust IV and CPB Statutory Trust V. In January 2020, the bank acquired a 50% ownership interest in a mortgage loan origination and brokerage company, Oahu HomeLoans, LLC.
Our Subsidiaries Central Pacific Bank is the wholly-owned principal subsidiary of Central Pacific Financial Corp. As of December 31, 2023, other wholly-owned subsidiaries include CPB Capital Trust IV and CPB Statutory Trust V. In January 2020, the Bank acquired a 50% ownership interest in a mortgage loan origination and brokerage company, Oahu HomeLoans, LLC.
We refer to Central Pacific Bank herein as "our bank" or "the bank." Through our bank and its subsidiaries, we offer full-service commercial banking with 27 bank branches and 64 ATMs located throughout the state of Hawaii. Our administrative and main offices are located in Honolulu and we have 19 branches on the island of Oahu.
We refer to Central Pacific Bank herein as "our Bank" or "the Bank." Through our Bank and its subsidiaries, we offer full-service commercial banking with 27 bank branches and 58 ATMs located throughout the State of Hawaii. Our administrative and main offices are located in Honolulu and we have 19 branches on the island of Oahu.
Our Market Area and Competition Based on deposit market share among FDIC-insured financial institutions in Hawaii, Central Pacific Bank was the fourth-largest depository institution in the state as of December 31, 2022. The banking and financial services industry in the state of Hawaii generally, and particularly in our target market areas, is highly competitive.
Our Market Area and Competition Based on deposit market share among FDIC-insured financial institutions in Hawaii, Central Pacific Bank was the fourth-largest depository institution in the state as of December 31, 2023. The banking and financial services industry in the State of Hawaii generally, and particularly in our target market areas, is highly competitive.
Included within the order is a sweeping recommendation that the Attorney General, in consultation with the heads of the FRB, FDIC and Office of the Comptroller of the Currency ("OCC") review current practices and adopt a plan within 180 days for the “revitalization” of bank merger oversight to provide more extensive scrutiny of mergers.
Included within the order is a sweeping recommendation that the Attorney General, in consultation with the heads of the FRB, FDIC and Office of the Comptroller of the Currency ("OCC") review current practices and adopt a plan for the “revitalization” of bank merger oversight to provide more extensive scrutiny of mergers.
The Company elected this option. 10 Volcker Rule In December 2013, the federal bank regulatory agencies adopted final rules that implement a part of the Dodd-Frank Act commonly referred to as the "Volcker Rule." Under these rules and subject to certain exceptions, banking entities are restricted from engaging in activities that are considered proprietary trading and from sponsoring or investing in certain entities, including hedge or private equity funds that are considered "covered funds." Notwithstanding these provisions, in July 2019, the federal bank regulatory agencies finalized a rule which provides that community banks with $10 billion or less in total consolidated assets and total trading assets and liabilities of 5 percent or less of total consolidated assets, such as the bank, are excluded from the Volcker Rule.
Volcker Rule In December 2013, the federal bank regulatory agencies adopted final rules that implement a part of the Dodd-Frank Act commonly referred to as the "Volcker Rule." Under these rules and subject to certain exceptions, banking entities are restricted from engaging in activities that are considered proprietary trading and from sponsoring or investing in certain entities, including hedge or private equity funds that are considered "covered funds." Notwithstanding these provisions, in July 2019, the federal bank regulatory agencies finalized a rule which provides that community banks with $10 billion or less in total consolidated assets and total trading assets and liabilities of 5 percent or less of total consolidated assets, such as the Bank, are excluded from the Volcker Rule.
In November 2021, the federal banking agencies adopted a final rule, with compliance required by May 1, 2022, that requires banking organizations to notify their primary banking regulator within 36 hours of determining that a “computer-security incident” has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the banking organization’s ability to carry out banking operations or deliver banking products and services to a material portion of its customer base, its businesses and operations that would result in material loss, or its operations that would impact the stability of the United States.
In November 2021, the federal banking agencies adopted a final rule, with compliance required by May 1, 2022, that requires banking organizations to notify their primary banking regulator within 36 hours of determining that a "computer-security incident" has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the banking organization’s ability to carry out banking operations or deliver banking products and services to a material portion of its customer base, its businesses and operations that would result in material loss, or its operations that would impact the stability of the United States.
If the Federal Reserve were to apply the same or a very similar well-capitalized standard to bank holding companies as that applicable to the bank, the Company's capital ratios as of December 31, 2022 would exceed such revised well-capitalized standard.
If the Federal Reserve were to apply the same or a very similar well-capitalized standard to bank holding companies as that applicable to the Bank, the Company's capital ratios as of December 31, 2023 would exceed such revised well-capitalized standard.
As of December 31, 2022, the bank’s construction, land development, and other land loans represented less than 100% of its total risk-based capital. As of December 31, 2022, the bank's total CRE loans represented less than 300% of its total risk-based capital and has increased by less than 50% from the prior 36 months.
As of December 31, 2023, the Bank’s construction, land development, and other land loans represented less than 100% of its total risk-based capital. As of December 31, 2023, the Bank's total CRE loans represented less than 300% of its total risk-based capital and has increased by less than 50% from the prior 36 months.
Also posted on our website and available in print upon request to our Investor Relations Department, are the charters for our Audit Committee, Compensation Committee and Corporate Governance Committee, as well as our Corporate Governance Guidelines and Code of Business Conduct and Ethics.
Also posted on our website and available in print upon request to our Investor Relations Department, are the charters for our Audit Committee, Compensation Committee and Governance Committee, as well as our Corporate Governance Guidelines and 16 Code of Conduct and Ethics.
In periodic examinations, the DFI, FDIC, and FRB assesses our financial condition, capital resources, asset quality, management, earnings prospects, liquidity, market sensitivity and other aspects of our operations. These bodies also determine whether our management is effectively managing the bank and the holding company and whether we are in compliance with all applicable laws or regulations.
During periodic examinations, the DFI, FDIC, and FRB assess our financial condition, capital resources, asset quality, management, earnings prospects, liquidity, market sensitivity and other aspects of our operations. These bodies also determine whether our management is effectively managing the Bank and the holding company, and whether we are in compliance with all applicable laws or regulations.
If the Company were to cross the $10 billion or more asset threshold, its compliance costs and regulatory requirements, would increase. In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms (the standards are commonly referred to as “Basel IV”).
As the Company approaches and if it were to cross the $10 billion or more asset threshold, its compliance costs and regulatory requirements may increase. In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms (the standards are commonly referred to as “Basel IV”).
A portion of our first residential mortgage loan originations are sold in the secondary market and a portion is put into our loan portfolio. (2) Commercial, Financial and Agricultural Lending. Loans in this category consist primarily of term loans and lines of credit to small and middle-market businesses and professionals in the state of Hawaii.
A portion of our first residential mortgage loan originations are sold in the secondary market and a portion is put into our loan portfolio. (2) Commercial and Industrial Lending. Loans in this category consist primarily of term loans and lines of credit to small and middle-market businesses and professionals in the State of Hawaii.
In such a situation, the subsidiary bank will be required by the bank's federal regulator to take "prompt corrective action" (see the "Prompt Corrective Action Provisions" section above); • limit dividends payable to shareholders and restrict the ability of bank holding companies to obtain dividends or other distributions from their subsidiary banks; • require a bank holding company to terminate an activity or terminate control of or liquidate or divest certain subsidiaries, affiliates or investments if the Federal Reserve believes the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness or stability of any bank subsidiary; • require the prior approval for changes in senior executive officers or directors and prohibit golden parachute payments, including change in control agreements, or new employment agreements with such payment terms, which are contingent upon termination when a bank holding company is deemed to be in troubled condition; • regulate provisions of certain bank holding company debt, including the authority to impose interest ceilings and reserve requirements on such debt and require prior approval to purchase or redeem securities in certain situations; • require prior approval for the acquisition of 5% or more of the voting stock of a bank or bank holding company by bank holding companies or other acquisitions and mergers with other banks or bank holding companies and require the regulators to consider certain competitive, management, financial, and anti-money laundering compliance impact on the U.S.; and • require prior notice and/or prior approval of the acquisition of control of a bank or a bank holding company by a shareholder or individuals acting in concert with ownership or control of 10% of the voting stock being a presumption of control. 11 Change in Bank Control Federal law and regulation set forth the types of transactions that require prior notice under the Change in Bank Control Act (“CIBCA”).
In such a situation, a subsidiary bank will be required by their federal regulator to take "prompt corrective action" (see the "Prompt Corrective Action Provisions" section above); • limit dividends payable to shareholders and restrict the ability of bank holding companies to obtain dividends or other distributions from their subsidiary banks; • require a bank holding company to terminate an activity or terminate control of or liquidate or divest certain subsidiaries, affiliates or investments if the Federal Reserve believes the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness or stability of any bank subsidiary; • require the prior approval for changes in senior executive officers or directors and prohibit golden parachute payments, including change in control agreements, or new employment agreements with such payment terms, which are contingent upon termination when a bank holding company is deemed to be in troubled condition; • regulate provisions of certain bank holding company debt, including the authority to impose interest ceilings and reserve requirements on such debt and require prior approval to purchase or redeem securities in certain situations; • require prior approval for the acquisition of 5% or more of the voting stock of a bank or bank holding company by bank holding companies or other acquisitions and mergers with other banks or bank holding companies and require the regulators to consider certain competitive, management, financial, and anti-money laundering compliance impact on the U.S.; and • require prior notice and/or prior approval of the acquisition of control of a bank or a bank holding company by a shareholder or individuals acting in concert with ownership or control of 10% of the voting stock being a presumption of control.
At December 31, 2022, the average employee has 9 years of service and 35% of our current staff had been with us for ten years or more. Available Information Our internet website can be found at www.cpb.bank.
At December 31, 2023, the average employee had 9 years of service and 35% of our current staff had been with us for ten years or more. Available Information Our internet website can be found at www.cpb.bank.
The Capital Conservation Buffer is calculated as a ratio of CET1 capital 8 to risk-weighted assets, and it effectively increases the required minimum risk-based capital ratios. The Capital Conservation Buffer requirement is now at its fully phased-in level of 2.5%.
The Capital Conservation Buffer is calculated as a ratio of CET1 capital to risk-weighted assets, and it effectively increases the required minimum risk-based capital ratios. The Capital Conservation Buffer requirement is now at its fully phased-in level of 2.50%.
However, approximately 76% of our loan portfolio at December 31, 2022 consisted of real estate-related loans, including residential mortgage loans, home equity loans, commercial mortgage loans and construction loans. See "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Loan Portfolio." Our business activities are focused primarily in Hawaii.
However, approximately 78% of our loan portfolio at December 31, 2023 consisted of real estate-related loans, including residential mortgage loans, home equity loans, commercial mortgage loans and construction loans. See "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Loan Portfolio." Our business activities are focused primarily in Hawaii.
Under the Basel framework, as amended, these standards will generally be effective on January 1, 2023, with an aggregate output floor phasing in through January 1, 2028. Under the current U.S. capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and not to the Company and the bank.
Under the Basel framework, as amended, these standards became effective on January 1, 2023, with an aggregate output floor phasing in through January 1, 2028. Under the current U.S. capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and not to the Company and the Bank.
Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of internet banking, 14 mobile banking and other technology-based products and services by us and our customers. See Item 1A.
Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of internet banking, mobile banking and other technology-based products and services by us and our customers.
On an ongoing basis, we further promote the health and wellness of our employees by strongly encouraging work-life balance, offering flexible work schedules including hybrid and remote, keeping the employee portion of health care premiums to a minimum and sponsoring various wellness programs. 17 Employee retention helps us operate efficiently and achieve one of our business objectives, which is being an exceptional service provider.
We promote the health and wellness of our employees by strongly encouraging work-life balance, offering flexible work schedules including hybrid and remote, keeping the employee portion of health care premiums to a minimum and sponsoring various wellness programs. Employee retention helps us operate efficiently and achieve one of our business objectives, which is being an exceptional service provider.
At December 31, 2022, our workforce was over 90% ethnically diverse (non-Caucasian or two or more races) and 66% female, with 57% of all management staff having a supervisory role being female. We encourage and support the growth and development of our employees and, wherever possible, seek to fill positions by promotion and transfer from within the organization.
At December 31, 2023, our workforce was over 90% ethnically diverse (non-Caucasian or two or more races) and 64% female, with 53% of all management staff having a supervisory role being female. We encourage and support the growth and development of our employees and, wherever possible, seek to fill positions by promotion and transfer from within the organization.
For a tabular presentation of the Company’s and the bank’s capital ratios as of December 31, 2022, see Note 25 - Parent Company and Regulatory Restrictions to the Consolidated Financial Statements under "Part II, Item 8. Financial Statements and Supplementary Data".
For a tabular presentation of the Company’s and the Bank’s capital ratios as of December 31, 2023, see Note 22 - Parent Company and Regulatory Restrictions to the Consolidated Financial Statements under "Part II, Item 8. Financial Statements and Supplementary Data".
As of December 31, 2022, the bank did not have any deposit liabilities categorized as brokered deposits.
As of December 31, 2023, the Bank did not have any deposit liabilities categorized as brokered deposits.
CET1 capital primarily includes common stockholders' equity subject to certain regulatory adjustments and deductions, including with respect to goodwill, intangible assets and certain deferred tax assets. Certain of these adjustments and deductions were subject to phase-in periods. Hybrid securities, such as trust preferred securities, generally are excluded from being counted as Tier 1 capital.
CET1 capital primarily includes common stockholders' equity subject to certain regulatory adjustments and deductions, including with respect to goodwill, intangible assets and certain deferred tax assets. Hybrid securities, such as trust preferred securities, generally are excluded from being counted as Tier 1 capital.
OFAC publishes lists of specially designated targets and countries. We are responsible for, among other things, blocking accounts of, and transactions with, such targets and countries, prohibiting unlicensed trade and financial transactions with them and reporting blocked transactions after their occurrence.
We are responsible for, among other things, blocking accounts of, and transactions with, such targets and countries, prohibiting unlicensed trade and financial transactions with them and reporting blocked transactions after their occurrence.
We will continue to evaluate the impact of any changes to bank and holding company regulations and their impact to our financial condition, results of operations, and/or liquidity, which cannot be predicted at this time.
We are continuing to evaluate the impact of these changes to bank and holding company regulations and their impact to our financial condition, results of operations, and/or liquidity, which cannot be predicted at this time.
Our underwriting policies and practices generally requires net cash flow from the property to cover the debt service while maintaining an appropriate amount of reserves and permits consideration of liquidation of the collateral as a secondary source of repayment. 5 (4) Construction Lending. Construction land development and other land loans encompasses the financing of residential and commercial construction projects.
Our underwriting policies and practices generally requires net cash flow from the property to cover the debt service while maintaining an appropriate amount of reserves and permits consideration of liquidation of the collateral as a secondary source of repayment. (4) Construction Lending.
Operations and Consumer Compliance Laws The bank must comply with numerous federal and state anti-money laundering and consumer protection and privacy statutes and implementing regulations, including the USA Patriot Act of 2001, GLBA, the Bank Secrecy Act, the Foreign Account Tax Compliance Act, the CRA, the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act, the Equal Credit Opportunity Act, the Truth in Lending Act, the Fair Housing Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the National Flood Insurance Act, and various federal and state privacy protection laws, including the Telephone Consumer Protection Act and the CAN-SPAM Act.
Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations. 13 Operations and Consumer Compliance Laws The Bank must comply with numerous federal and state anti-money laundering and consumer protection and privacy statutes and implementing regulations, including the USA Patriot Act of 2001, GLBA, the Bank Secrecy Act, the Foreign Account Tax Compliance Act, the CRA, the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act, the Equal Credit Opportunity Act, the Truth in Lending Act, the Fair Housing Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the National Flood Insurance Act, and various federal and state privacy protection laws, including the Telephone Consumer Protection Act and the CAN-SPAM Act.
When we refer to "Central Pacific Financial Corp.," "CPF" or to the holding company, we are referring to the parent company on a standalone basis.
When we refer to "the Company," "we," "us" or "our," we mean Central Pacific Financial Corp. and its subsidiaries on a consolidated basis. When we refer to "Central Pacific Financial Corp.," "CPF" or to the holding company, we are referring to the parent company on a standalone basis.
At December 31, 2022, we employed 781 persons, 735 on a full-time basis and 46 on a part-time basis. We are not a party to any collective bargaining agreement.
At December 31, 2023, we employed 737 persons, 696 on a full-time basis and 41 on a part-time basis. We are not a party to any collective bargaining agreement.
(5) Consumer Lending. Loans in this category are generally either unsecured or secured by personal assets, such as automobiles, and the average loan size is generally small.
Loans in this category consist of construction, land development, and other land loans for residential and commercial construction projects. (5) Consumer Lending. Loans in this category are generally either unsecured or secured by personal assets, such as automobiles, and the average loan size is generally small.
We continue to believe there will be an increased focus on regulatory compliance, supervision and examination during the remainder of President Biden’s term of office. Capital Adequacy Requirements Bank holding companies and banks are subject to various regulatory capital requirements administered by state and federal banking agencies.
We continue to believe there will be an increased focus on regulatory compliance, supervision and examination in 2024. Capital Adequacy Requirements Bank holding companies and banks are subject to various regulatory capital requirements administered by state and federal banking agencies, including the Basel III Capital Rule.
In April 2020, the Federal Reserve adopted a final rule to revise its regulations related to determinations of whether a company has the ability to exercise a controlling influence over another company for purposes of the BHCA. The final rule expands and codifies the presumptions for use in such determinations.
The applicable regulations also provide for certain other "rebuttable" presumptions of control. In April 2020, the Federal Reserve adopted a final rule to revise its regulations related to determinations of whether a company has the ability to exercise a controlling influence over another company for purposes of the BHCA.
The impact of Basel IV on us will depend on the manner in which it is implemented by the federal bank regulators.
The impact of any changes to capital requirements and calculations and implementation of Basel IV on us will depend on the manner in which it is implemented by the federal bank regulators.
During 2016, as required by the Dodd-Frank Act, the federal bank regulatory agencies and the SEC proposed revised rules on incentive-based payment arrangements at specified regulated entities having at least $1 billion of total assets. These proposed rules have not been finalized.
During 2016, as required by the Dodd-Frank Act, the federal bank regulatory agencies and the SEC proposed revised rules on incentive-based payment arrangements at specified regulated entities having at least $1 billion of total assets. In October 2022, the SEC adopted final rules implementing the incentive-based compensation recovery (clawback) provisions of the Dodd-Frank Act.
Central Pacific Bank also owns 50% of Gentry HomeLoans, LLC, Haseko HomeLoans, LLC and Island Pacific HomeLoans, LLC, which are accounted for under the cost method and are included in unconsolidated entities in the Company's consolidated balance sheets. 6 The Company sponsors the Central Pacific Foundation, which is not consolidated in the Company's financial statements.
In March 2022, Oahu HomeLoans, LLC was terminated. Central Pacific Bank also owns 50% of Gentry HomeLoans, LLC, Haseko HomeLoans, LLC and Island Pacific HomeLoans, LLC, which are accounted for under the cost method and are included in unconsolidated entities in the Company's consolidated balance sheets.
Cybersecurity Federal regulators have issued multiple statements regarding cybersecurity stating that financial institutions need to design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institution.
The Company has adopted an NYSE compliant clawback policy which is included with this Annual Report of Form 10-K as an exhibit. 12 Cybersecurity Federal regulators have issued multiple statements regarding cybersecurity stating that financial institutions need to design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institution.
The CRA further requires the agencies to take a financial institution’s record of meeting its community credit needs into account when evaluating applications for, among other things, domestic branches, consummating mergers or acquisitions or holding company formations.
The CRA further requires the agencies to take a financial institution’s record of meeting its community credit needs into account when evaluating applications for, among other things, domestic branches, consummating mergers or acquisitions or holding company formations. On October 24, 2023, the OCC, FDIC, and FRB issued a final rule intended to modernize and strengthen regulations implementing the CRA.
In addition, the Company is also subject to the accounting oversight and corporate governance requirements of the Sarbanes-Oxley Act of 2002, including, among other things, required executive certification of financial presentations, requirements for board audit committees and their members, and disclosure of controls and procedures and establishment and testing on internal control over financial reporting.
The Company is also subject to the accounting oversight and corporate governance requirements of the Sarbanes-Oxley Act of 2002. Requirements include, but are not limited to: executive certifications of financial presentations, requirements for board audit committees and their members, disclosure of controls and procedures, and establishment and testing of internal controls over financial reporting.
In order to compete with the other financial services providers in the state of Hawaii, we principally rely upon personal relationships between customers and our officers, directors and employees, and specialized services tailored to meet the needs of our customers and the communities we serve.
Some of these competitors are much larger by total assets and capitalization, and have greater access to capital markets. 5 In order to compete with the other financial services providers in the State of Hawaii, we principally rely upon personal relationships between customers and our officers, directors and employees, and specialized services tailored to meet the needs of our customers and the communities we serve.
The federal banking agencies also may require banks and bank holding companies subject to enforcement actions to maintain capital ratios in excess of the minimum ratios otherwise required to be deemed well capitalized, in which case institutions may no longer be deemed to be well capitalized and may therefore be subject to certain restrictions on items such as brokered deposits. 9 The Coronavirus Aid, Relief, and Economic Security Act In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law on March 27, 2020 to provide national emergency economic relief measures.
The federal banking agencies also may require banks and bank holding companies subject to enforcement actions to maintain capital ratios in excess of the minimum ratios otherwise required to be deemed well-capitalized, in which case institutions may no longer be deemed to be well-capitalized and may therefore be subject to certain restrictions on items such as brokered deposits.
The Federal Reserve also has rules governing routing and exclusivity that require issuers to offer two unaffiliated networks for routing transactions on each debit or prepaid product. 16 Currently, we qualify for the small issuer exemption from the interchange fee cap, which applies to any debit card issuer that, together with its affiliates, has total assets of less than $10 billion as of the end of the previous calendar year.
Currently, we qualify for the small issuer exemption from the interchange fee cap, which applies to any debit card issuer that, together with its affiliates, has total assets of less than $10 billion as of the end of the previous calendar year.
We derive our income primarily from interest and fees on loans, interest on investment securities and fees received in connection with deposit and other services. Our major operating expenses are the interest paid by our bank on deposits and borrowings, salaries and employee benefits and general operating expenses. Our bank relies substantially on a foundation of locally generated deposits.
Our major operating expenses are the interest paid by our Bank on deposits and borrowings, salaries and employee benefits and general operating expenses. Our Bank relies substantially on a foundation of locally generated deposits.
Risk Factors for a further discussion of risks related to cybersecurity. Office of Foreign Assets Control ("OFAC") Regulation The U.S. Treasury Department’s Office of Foreign Assets Control, or OFAC, administers and enforces economic and trade sanctions against targeted foreign countries and regimes, under authority of various laws, including designated foreign countries, nationals and others.
Treasury Department’s Office of Foreign Assets Control, or OFAC, administers and enforces economic and trade sanctions against targeted foreign countries and regimes, under authority of various laws, including designated foreign countries, nationals and others. OFAC publishes lists of specially designated targets and countries.
Other states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements.
State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations, including California and New York. Other states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements.
We expect this trend of state-level activity in those areas to continue, and are continually monitoring developments in the states in which our customers are located in or in which we conduct business. In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to store sensitive data.
Many states have also recently implemented or modified their data breach notification and data privacy requirements. We expect this trend of state-level activity in those areas to continue, and are continually monitoring developments in the states in which our customers are located in or in which we conduct business.
By codifying the presumptions, the final rule provides greater transparency on the types of relationships that the Federal Reserve generally views as supporting a facts and circumstances determination that one company controls another company. The Federal Reserve’s final rule applies to questions of control under the BHCA, but does not extend to CIBCA or applicable provisions of Hawaii law.
The final rule expands and codifies the presumptions for use in such determinations. By codifying the presumptions, the final rule provides greater transparency on the types of relationships that the Federal Reserve generally views as supporting a facts and circumstances determination that one company controls another company.
Our bank's deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") up to applicable limits. The bank is not a member of the Federal Reserve System. Our loans include commercial loans, construction loans, commercial and residential mortgage loans and consumer loans.
Our Bank's deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") up to applicable limits. The Bank is not a member of the Federal Reserve System. 4 We derive our income primarily from interest and fees on loans, interest on investment securities and fees received in connection with deposit and other services.
Notwithstanding the strength of our defensive measures, the threat from cyber-attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures.
We employ a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats. Notwithstanding the strength of our defensive measures, the threat from cyber-attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures.
The increase in assessment rates are effective as of January 1, 2023 and is applicable beginning with the first quarterly assessment period of 2023. If there are additional bank or financial institution failures or if the FDIC otherwise determines or if our asset size or risk of default increases, we may be required to pay higher FDIC premiums.
The Bank will not incur the additional aggregate assessment as its uninsured deposits as of December 31, 2022 were less than the $5 billion deduction. If there are additional bank or financial institution failures or if the FDIC otherwise determines or if our asset size or risk of default increases, we may be required to pay higher FDIC premiums.
Pursuant to CIBCA and Regulation Y, any person (acting directly or indirectly) that seeks to acquire control of a bank or its holding company must provide prior notice to the Federal Reserve. A “person” includes an individual, bank, corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, or any other form of entity.
Change in Bank Control Federal law and regulation set forth the types of transactions that require prior notice under the Change in Bank Control Act (“CIBCA”). Pursuant to CIBCA and Regulation Y, any person (acting directly or indirectly) that seeks to acquire control of a bank or its holding company must provide prior notice to the Federal Reserve.
A person acquires "control" of a banking organization whenever the person acquires ownership, control, or the power to vote 25 percent or more of any class of voting securities of the institution. The applicable regulations also provide for certain other "rebuttable" presumptions of control.
A “person” includes an individual, bank, corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, or any other form of entity. A person acquires "control" of a banking organization whenever the person acquires ownership, control, or the power to vote 25 percent or more of any class of voting securities of the institution.
We provide financial results based on a fiscal year ending December 31 as a single reportable segment.
We provide financial results based on a fiscal year ending December 31 as a single reportable segment. As of December 31, 2023, we had total assets of $7.64 billion, total loans of $5.44 billion, total deposits of $6.85 billion and shareholders' equity of $503.8 million.
We employ an in-depth, layered, defensive approach that leverages people, processes and technology to manage and maintain cybersecurity controls. We employ a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats.
In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to store sensitive data. We employ an in-depth, layered, defensive approach that leverages people, processes and technology to manage and maintain cybersecurity controls.
We operate four branches on the island of Maui, two branches on the island of Hawaii and two branches on the island of Kauai. In 2021, the Company consolidated a traditional branch on Oahu with other existing nearby branches. With the continued successful customer migration to digital banking services, we consolidated three additional branches in 2022.
We operate four branches on the island of Maui, two branches on the island of Hawaii and two branches on the island of Kauai.
Removed
As of December 31, 2022, we had total assets of $7.43 billion, total loans of $5.56 billion, total deposits of $6.74 billion and shareholders' equity of $452.9 million. 4 When we refer to "the Company," "we," "us" or "our," we mean Central Pacific Financial Corp. and its subsidiaries on a consolidated basis.
Added
Central Pacific Bank is a full-service commercial bank offering 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.
Removed
At the same time, we are continuing to invest in select strategic branch locations, including acquiring real estate and developing fully modernized branches utilizing the concepts we created in our RISE2020 headquarter building revitalization. Central Pacific Bank is a full-service commercial bank offering a broad range of banking products and services, including accepting time and demand deposits and originating loans.
Added
The Company sponsors the Central Pacific Foundation, which is not consolidated in the Company's financial statements.
Removed
Some of these competitors are much larger by total assets and capitalization, and have greater access to capital markets.
Added
In July 2023, the FRB, OCC and FDIC proposed significant changes to the current Basel III capital rules which replaces the advanced approaches risk weighted assets framework with a new enhanced risk-based framework and requires banking organizations with $100 billion in assets to calculate their regulatory capital using more enhanced requirements applicable to even larger organizations.
Removed
In March 2022, Oahu HomeLoans, LLC was terminated.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeFailure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our financial condition and results of operations. 23 If we are unable to effectively manage the composition and risk of our investment securities portfolio, which we expect will continue to comprise a significant portion of our earning assets, our net interest income and net interest margin could be adversely affected.
Biggest changeFrom time to time, we may reposition our assets and liabilities to reduce our net interest income volatility. Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our financial condition and results of operations.
In addition to governmental supervision and regulation, we are subject to changes in other federal and state laws, including changes in tax laws, which could materially affect us and the banking industry generally. We are subject to the rules and regulations of the FRB, the FDIC and the DFI, and certain rules and regulations promulgated by the CFPB.
In addition to governmental supervision and regulation, we are subject to changes in other federal and state laws, including changes in tax laws, which could materially affect us and generally affect the banking industry. We are subject to the rules and regulations of the FRB, the FDIC and the DFI, and certain rules and regulations promulgated by the CFPB.
If we fail to comply with federal and state regulations, the regulators may limit our activities or growth, impose fines on us or in the case of our bank regulators, ultimately require our bank to cease its operations.
If we fail to comply with federal and state regulations, the regulators may limit our activities or growth, impose fines on us or in the case of our regulators, ultimately require our Bank to cease its operations.
The administration of existing capital adequacy laws as well as adoption of new laws and regulations relating to capital adequacy, or more expansive or aggressive interpretations of existing laws and regulations, could have a material adverse effect on our business, liquidity, financial condition and results of operations and could substantially restrict our ability to pay dividends, repurchase any of our capital stock, or pay executive bonuses.
The administration of existing capital adequacy laws as well as the adoption of new laws and regulations relating to capital adequacy, or more expansive or aggressive interpretations of existing laws and regulations, could have a material adverse effect on our business, liquidity, financial condition and results of operations and could substantially restrict our ability to pay dividends, repurchase any of our capital stock, or pay executive bonuses.
Additionally, holders of common stock are subject to the prior dividend and liquidation rights of any holders of our preferred stock that may be outstanding from time to time. The Board of Directors is authorized to cause us to issue additional classes or series of preferred stock without any action on the part of our stockholders.
Additionally, common stock holders are subject to the prior dividend and liquidation rights of any preferred stock holders that may be outstanding from time to time. The Board of Directors is authorized to cause us to issue additional classes or series of preferred stock without any action on the part of our stockholders.
Defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. There is no assurance that any such losses would not materially and adversely affect our results of operations.
Defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry have generally led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. There is no assurance that any such losses would not materially and adversely affect our results of operations.
Among the factors that could affect our stock price are: • failure to comply with all of the requirements of any governmental orders or agreements we may become subject to and the possibility of resulting action by the regulators; • deterioration of asset quality; • the incurrence of losses; • actual or anticipated quarterly fluctuations in our operating results and financial condition; • changes in revenue or earnings/losses estimates or publication of research reports and recommendations by financial analysts; • failure to meet analysts' revenue or earnings/losses estimates; • speculation in the press or investment community; • strategic actions by us or our competitors, such as mergers, acquisitions, restructurings, changes in products or markets, or public offerings; • additions or departures of key personnel; • actions by institutional shareholders; • fluctuations in the stock price and operating results of our competitors; • future sales of other equity or debt securities, including our common stock; 30 • general market conditions and, in particular, developments related to market conditions for the financial services industry; • proposed or adopted regulatory changes or developments; • breaches in our security systems and loss of customer data; • anticipated or pending investigations, proceedings or litigation that involve or affect us; or • domestic and international economic factors unrelated to our performance.
Among the factors that could affect our stock price are: • failure to comply with all of the requirements of any governmental orders or agreements we may become subject to and the possibility of resulting action by the regulators; • deterioration of asset quality; • the incurrence of losses; • actual or anticipated quarterly fluctuations in our operating results and financial condition; • changes in revenue or earnings/losses estimates or publication of research reports and recommendations by financial analysts; • failure to meet analysts' revenue or earnings/losses estimates; • speculation in the press or investment community; • strategic actions by us or our competitors, such as mergers, acquisitions, restructurings, changes in products or markets, or public offerings; • additions or departures of key personnel; • actions by institutional shareholders; • fluctuations in the stock price and operating results of our competitors; • future sales of other equity or debt securities, including our common stock; • general market conditions and, in particular, developments related to market conditions for the financial services industry; • proposed or adopted regulatory changes or developments; • breaches in our security systems and loss of customer data; • anticipated or pending investigations, proceedings or litigation that involve or affect us; or • domestic and international economic factors unrelated to our performance.
Management makes various assumptions and judgments about the collectability of our loan portfolio, which are regularly reevaluated and are based in part on: • current economic conditions and their estimated effects on specific borrowers; • an evaluation of the existing relationships among loans, potential credit losses and the present level of the allowance for credit losses; • results of examinations of our loan portfolios by regulatory agencies; and • management's internal review of the loan portfolio.
Management makes various assumptions and judgments about the collectability of our loan portfolio, which are regularly reevaluated and are based in part on: • current and forecasted economic conditions and their estimated effects on specific borrowers; • an evaluation of the existing relationships among loans, potential credit losses and the present level of the allowance for credit losses; • results of examinations of our loan portfolios by regulatory agencies; and • management's internal review of the loan portfolio.
As a result, natural disasters and other severe weather occurrences such as tsunamis, volcanic eruptions, hurricanes and earthquakes and other adverse external events, including the effects of any pandemic viruses or diseases (such as the COVID-19 pandemic), could have a significant effect on our ability to conduct our business and adversely affect the tourism and visitor industry in the state of Hawaii.
As a result, natural disasters and other severe weather occurrences such as tsunamis, volcanic eruptions, hurricanes, wildfires and earthquakes and other adverse external events, including the effects of any pandemic viruses or diseases (such as the COVID-19 pandemic), could have a significant effect on our ability to conduct our business and adversely affect the tourism and visitor industry in the State of Hawaii.
In addition, our bank regulators may hold us responsible for the activities of our bank partners with respect to various aspects of the marketing or administration of their programs, which may result in increased operational and compliance costs for us or potentially compliance violations as a result of BaaS partner activities, any of which could have a material adverse effect on our financial condition or results of operations.
In addition, our regulators may hold us responsible for the activities of our partners with respect to various aspects of the marketing or administration of their programs, which may result in increased operational and compliance costs for us or potentially compliance violations as a result of BaaS partner activities, any of which could have a material adverse effect on our financial condition or results of operations.
Collectively, these provisions of our restated articles of incorporation and bylaws and applicable federal and state law may prevent a merger or acquisition that would be attractive to shareholders, limit the ability of another party to acquire a significant block of our common stock, and could limit the price investors would be willing to pay in the future for our common stock.
Collectively, these provisions of our restated articles of incorporation and bylaws in addition to applicable federal and state law may prevent a merger or acquisition that would be attractive to shareholders, limit the ability of another party to acquire a significant block of our common stock, and could limit the price investors would be willing to pay in the future for our common stock.
Frequent or rapid changes in procedures, methodologies, systems, personnel and technology exacerbate the challenges of developing and maintaining a system of internal controls and can increase the cost and level of effort to develop and maintain such systems. Changes in our accounting policies or in accounting standards could materially affect how we report our financial results and condition.
Frequent or rapid changes in procedures, methodologies, systems, personnel and technology exacerbate the challenges of developing and maintaining a system of internal controls and can increase the cost and level of effort to develop and maintain such systems. 26 Changes in our accounting policies or in accounting standards could materially affect how we report our financial results and condition.
Regardless of whether these claims and legal actions are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to us, they may result in significant financial liability and/or adversely affect the market perception of us and our products and services, as well as impact customer demand for our products and services.
Regardless of whether these claims and legal actions are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to us, they may result in significant financial liability and/or adversely affect the market perception of us and our products and services, as well as 29 impact customer demand for our products and services.
In particular, both federal and state law limit the acquisition of ownership of certain percentage thresholds of our common stock without providing prior notice to the regulatory agencies and obtaining prior regulatory approval or non-objection or being able to rely on an exemption from such acquisition. See the "Supervision and Regulation" section.
In particular, both federal and state law limit the ownership acquisition for certain percentage thresholds of our common stock without providing prior notice to the regulatory agencies, obtaining prior regulatory approval or non-objection, or being able to rely on an exemption from such acquisition. See the "Supervision and Regulation" section.
Our ability to continue to attract these deposits 19 and other funding sources is subject to variability based upon a number of factors including volume and volatility in the securities' markets, our financial condition, our credit rating and the relative interest rates that we are prepared to pay for these liabilities.
Our ability to continue to attract these deposits and other funding sources is subject to variability based upon a number of factors including volume and volatility in the securities' markets, our financial condition, our credit rating and the relative interest rates that we are prepared to pay for these liabilities.
Other economic conditions that affect our financial performance include short-term and long-term interest rates, the prevailing yield curve, inflation (which we are currently experiencing) and price levels (particularly for real estate), monetary policy, 20 unemployment and the strength of the domestic economy as a whole.
Other economic conditions that affect our financial performance include short-term and long-term interest rates, the prevailing yield curve, inflation (which we are currently experiencing) and price levels (particularly for real estate), monetary policy, unemployment and the strength of the domestic economy as a whole.
We are also subject to the provisions of the Hawaii Control Share Acquisitions Act which prohibits the consummation of a “control share acquisition” (with threshold ranges starting at 10% and set at 10% intervals up to a majority) unless approved by our shareholders or otherwise exempt.
We are also subject to the provisions of the Hawaii Control Share Acquisitions Act, which prohibits the consummation of a “control share acquisition” (with 30 threshold ranges starting at 10% and set at 10% intervals up to a majority) unless approved by our shareholders or otherwise exempt.
Such events could affect the ability of our borrowers to repay their outstanding loans, impair the value of collateral 32 securing our loans, cause significant property damage, result in loss of revenue, adversely impact our deposit base and/or cause us to incur additional expenses.
Such events could affect the ability of our borrowers to repay their outstanding loans, impair the value of collateral securing our loans, cause significant property damage, result in loss of revenue, adversely impact our deposit base and/or cause us to incur additional expenses.
Our business and operations are sensitive to business and economic conditions globally and domestically. Adverse economic and business conditions in the U.S. generally, and in our market areas, in particular, could reduce our growth rate, affect our borrowers' ability to repay their loans and, consequently, adversely affect our financial condition and performance.
Our business and operations are sensitive to business and economic conditions globally and domestically. Adverse economic and business conditions in the U.S. generally, and in our market areas, in particular, could reduce our growth rate, affect our 20 borrowers' ability to repay their loans and, consequently, adversely affect our financial condition and performance.
Failure to successfully attract and retain qualified personnel, or keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.
Failure to successfully attract and retain qualified personnel, or keep pace with 31 technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.
Accordingly, effectively managing our investment securities portfolio to generate interest income while managing the composition and risks (including credit, interest rate and liquidity) associated with that portfolio, including the mix of government agency and non-agency securities, remains important.
Accordingly, effectively managing our investment 23 securities portfolio to generate interest income while managing the composition and risks (including credit, interest rate and liquidity) associated with that portfolio, including the mix of government agency and non-agency securities, remains important.
In particular, our success has been and continues to be highly dependent upon the abilities of key executives, including our President and Chief Executive Officer, our Senior Executive Vice President and Chief Financial Officer, and our other executive officers and certain other employees.
In particular, our success has been and continues to be highly dependent upon the abilities of key executives, including our 32 President and Chief Executive Officer, our Senior Executive Vice President and Chief Financial Officer, and our other executive officers and certain other employees.
Although we have developed, and continue to invest in, systems and processes that are designed to detect and prevent data security breaches and cyber-attacks and periodically test our security, we may fail to anticipate or adequately mitigate breaches of security or experience data privacy 26 breaches that could result in loss of business to us and/or clients, damage to our reputation, the incurrence of additional expenses, disruption to our business, our inability to grow our online services or other businesses, additional regulatory scrutiny or penalties, including resulting violations of law (whether federal or one or more various states) or our exposure to civil litigation and possible financial liability — any of which could have a material adverse effect on our business, financial condition and results of operations.
Although we have developed, and continue to invest in, systems and processes that are designed to detect and prevent data security breaches and cyber-attacks and periodically test our security, we may fail to anticipate or adequately mitigate breaches of security or experience data privacy breaches that could result in loss of business to us and/or our clients, damage to our reputation, incurrence of additional expenses, disruption to our business, our inability to grow our online services or other businesses, additional regulatory scrutiny or penalties, including resulting violations of law (whether federal or in one or more states) or our exposure to civil litigation and possible financial liability — any of which could have a material adverse effect on our business, financial condition and, results of operations.
Any financial liability or reputational damage could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations.
Any financial liability or reputational damage could have a material adverse effect on our business and in turn, could have a material adverse effect on our financial condition and results of operations.
A substantial decline in residential real estate values in the markets in which we 22 originated such loans could increase the risk of such consequences.
A substantial decline in residential real estate values in the markets in which we originated such loans could increase the risk of such consequences.
In addition, we are subject to the rules and regulation of 28 the NYSE and the SEC and are subject to enforcement actions and other punitive actions by these agencies.
In addition, we are subject to the rules and regulation of the NYSE and the SEC and are subject to enforcement actions and other punitive actions by these agencies.
Ratings assigned by ratings agencies to us, our affiliates or our securities may impact the decision of certain customers, orinstitutions in particular, to do business with us. A rating downgrade or a negative rating could adversely affect our deposits, our ability to access the capital markets on favorable terms and our business relationships.
Ratings assigned by ratings agencies to us, our affiliates or our securities may impact the decision of certain customers, or institutions in particular, to do business with us. A rating downgrade or a negative rating could adversely affect our deposits, our ability to access the capital markets on favorable terms and our business relationships.
If our borrowers experience financial difficulty, or if property values securing our real estate loans decline, we will incur elevated credit costs due to the composition and concentration of our loan portfolio, which will have an adverse effect on our financial condition and results of operations. Our real estate loan operations have a considerable effect on our results of operations.
If our borrowers experience financial difficulty, or if property values securing our real estate loans decline, we will incur elevated credit costs due to the composition and concentration of our loan portfolio, which will have an adverse effect on our financial condition and results of operations.
See Note 1 - Summary of Significant Accounting Policies to the Consolidated Financial Statements under "Part II, Item 8. Financial Statements and Supplementary Data." Our commercial, financial and agricultural loan and commercial real estate loan portfolios expose us to risks that may be greater than the risks related to our other loans.
See Note 1 - Summary of Significant Accounting Policies to the Consolidated Financial Statements under "Part II, Item 8. Financial Statements and Supplementary Data." Our commercial and industrial loan and commercial real estate loan portfolios expose us to risks that may be greater than the risks related to our other loans.
Our loan portfolio includes commercial, financial and agricultural loans and commercial real estate loans, which are secured by commercial real estate, including but not limited to, structures and facilities to support activities designated as multi-family residential properties, industrial, warehouse, general office, retail, health care and religious dwellings.
Our loan portfolio includes commercial and industrial loans and commercial real estate loans, which are secured by commercial real estate, including but not limited to, structures and facilities to support activities designated as multi-family residential properties, industrial, warehouse, general office, retail, health care and religious dwellings.
Natural disasters and other external events (including pandemic viruses or disease) could have a material adverse affect on our financial condition and results of operations. Our branch offices as well as a substantial majority of our loan portfolio is in the state of Hawaii.
Natural disasters and other external events (including pandemic viruses or disease) could have a material adverse effect on our financial condition and results of operations. Our branch offices as well as a substantial majority of our loan portfolio is in the State of Hawaii.
Because we are a holding company with no significant operations other than our bank, we depend upon dividends from our bank for a substantial portion of our revenues and our liquidity, including as the source of funds for payment of interest and principal on our holding company debt obligations.
Because we are a holding company with no significant operations other than our Bank, we depend upon dividends from our Bank for a substantial portion of our revenue and our liquidity, including as the source of funds for payment of interest and principal on our holding company debt obligations.
In a rising interest rate environment, as we are currently experiencing, there is potential for decreased demand for our loan products, an increase in our cost of funds, and the curtailment of economic recovery.
In a high interest rate environment, as we are currently experiencing, there is potential for decreased demand for our loan products, an increase in our cost of funds, and the curtailment of economic recovery.
In addition, any capital loans we make to the bank are subordinate in right of payment to depositors and to certain other indebtedness of the bank. 24 We rely on dividends from our subsidiary for most of our revenue.
In addition, any capital loans we make to the Bank are subordinate in right of payment to depositors and to certain other indebtedness of the Bank. We rely on dividends from our subsidiary for most of our revenue and liquidity.
Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of investments or loans, and other sources would have a substantial negative effect on our liquidity which could affect or limit our ability to satisfy our obligations and our ability to grow profitability at the same rate.
An inability to raise funds through deposits, borrowings, the sale of investments or loans, and other sources would have a substantial negative effect on our liquidity which could affect or limit our ability to satisfy our obligations and our ability to grow profitability at the same rate.
Accordingly, charge-offs on commercial, financial and agricultural and commercial real estate loans may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios. In addition, these loans expose a lender to greater credit risk than loans secured by residential real estate.
Accordingly, charge-offs on commercial and industrial and commercial real estate loans may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios. In addition, these loans expose a lender to greater credit risk than loans secured by residential real estate.
Even if these claims and legal actions do not result in a financial liability or reputational damage, defending these claims and actions have resulted in, and will continue to result in, increased legal and professional services costs, which adds to our noninterest expense and negatively impacts our operating results.
Even if these claims and legal actions do not result in a financial liability or reputational damage, defending these claims and actions have resulted in, and will continue to result in, increased legal and professional services costs, which adds to our noninterest expense and negatively impacts our results of operations.
Commercial, financial and agricultural and commercial real estate loans carry more risk as compared to other types of lending, because they typically involve larger loan balances often concentrated with a single borrower or groups of related borrowers.
Commercial and industrial and commercial real estate loans carry more risk as compared to other types of lending, because they typically involve larger loan balances often concentrated with a single borrower or groups of related borrowers.
Declines in housing prices and the supply of existing houses for sale could cause residential developers who are our borrowers to suffer losses on their projects and encounter difficulty in repaying their loans. We cannot assure you that we will have an adequate allowance for credit losses to cover future losses.
Declines in housing prices and the supply of existing houses for sale could cause residential developers who are our borrowers to suffer losses on their projects and encounter difficulty in repaying their loans. We cannot provide assurance that we will have an adequate allowance for credit losses to cover future losses.
While we believe 21 that our allowance for credit losses is appropriate to cover expected losses, we cannot assure you that we will not increase the allowance for credit losses further or that regulators will not require us to increase the allowance for credit losses which could have a material adverse effect on our net income and financial condition.
While we believe 21 that our allowance for credit losses is appropriate to cover expected losses, we cannot provide assurance that we will not increase the allowance for credit losses further or that regulators will not require us to increase the allowance for credit losses which could have a material adverse effect on our net income and financial condition.
Our common stock is not insured and you could lose the value of your entire investment. An investment in our common stock is not a deposit and is not insured against loss by the government or any governmental agency. Risks Related to Technology We continually encounter technological change.
Our common stock is not insured and shareholders could lose the value of their entire investment. An investment in our common stock is not a deposit and is not insured against loss by the government or any governmental agency. Risks Related to Technology We continually encounter technological change.
These include, among other things, the authorization to issue "blank check" preferred stock by action of the Board of Directors acting alone, thus without obtaining shareholder approval. In addition, applicable provisions of federal and state law require regulatory approval in connection with certain acquisitions of our common stock and super-majority voting provisions in connection with certain transactions.
This includes the authorization to issue "blank check" preferred stock by action of the Board of Directors acting alone without obtaining shareholder approval among other things. In addition, applicable provisions of federal and state law require regulatory approval in connection with certain acquisitions of our common stock and super-majority voting provisions in connection with certain transactions.
This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. As a result, you may not be able to resell your common stock at or above the price you pay or at the time(s) you otherwise may desire. The soundness of other financial institutions could adversely affect us.
This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. As a result, shareholders may not be able to resell their common stock at or above the price they pay or at the time they otherwise may desire. The soundness of other financial institutions could adversely affect us.
Unexpected deterioration in the credit quality of our commercial or commercial real estate loan portfolios would require us to increase our provision for credit losses, which would reduce our profitability and could materially adversely affect our business, financial condition, results of operations and prospects.
Unexpected deterioration in the credit quality of our commercial or commercial real estate loan portfolios would require us to increase our provision for credit losses, which would reduce our profitability and could materially adversely affect our business, financial condition, results of operations and prospects. Furthermore, such deterioration could require us to raise additional capital.
The strategy of offering BaaS has been adopted by other institutions with which we compete. Other online banking operations as well as the online banking programs of other banks have instituted BaaS strategies similar to ours. As a consequence, we anticipate that we will encounter competition in this area currently and in the future.
The strategy of offering BaaS has been adopted by other institutions with which we compete. Other banks and institutions have instituted BaaS strategies similar to ours. As a consequence, we anticipate that we will encounter competition in this area currently and in the future.
In addition, if we were to grow beyond $10 billion in assets, we would be subject to enhanced CFPB examination and our compliance costs would increase. We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.
In addition, as we approach, and if we were to exceed $10 billion in assets, we may be subject to enhanced CFPB examination and our compliance costs would increase. We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.
Approximately 76% of our loan portfolio as of December 31, 2022 was comprised of loans primarily collateralized by real estate, with the significant majority of these loans concentrated in Hawaii.
Approximately 78% of our loan portfolio as of December 31, 2023 was comprised of loans primarily collateralized by real estate, with the significant majority of these loans concentrated in Hawaii.
There is a risk that our BaaS partners may change their strategic focus or business model; these changes could impact the Company’s business arrangement with our BaaS partners and may adversely impact the Company's financial projections and financial returns on our BaaS programs.
There is a risk that our BaaS partners may change their strategic focus or business model; these changes could impact the Company’s business arrangements that we may enter into with our BaaS partners and may adversely impact the Company's financial projections and financial returns on our BaaS programs.
These areas include: • the capital that must be maintained; • the kinds of activities that can be engaged in; • the kinds and amounts of investments that can be made; • the locations of offices; • insurance of deposits and the premiums that we must pay for this insurance; • procedures and policies we must adopt; • conditions and restrictions on our executive compensation; and • how much cash we must set aside as reserves for deposits.
These areas include: • capital that must be maintained; • types of activities that can be engaged in; 28 • types and amounts of investments that can be made; • locations of offices; • insurance of deposits and the premiums that must be paid for this insurance; • procedures and policies must be paid; • conditions and restrictions on our executive compensation; and • how much cash must be set aside as reserves for deposits.
Hawaii law only permits the bank to pay dividends out of retained earnings as defined under Hawaii banking law ("Statutory Retained Earnings"), which differs from GAAP retained earnings. As of December 31, 2022, the bank had Statutory Retained Earnings of $145.7 million. In addition, regulatory authorities could limit the ability of the bank to pay dividends to CPF.
Hawaii law only permits the Bank to pay dividends out of retained earnings as defined under Hawaii banking law ("Statutory Retained Earnings"), which differs from GAAP retained earnings. As of December 31, 2023, the Bank had Statutory Retained Earnings of $169.1 million. In addition, regulatory authorities could limit the ability of the Bank to pay dividends to CPF.
Managing reputational risk is important to attracting and maintaining customers, investors and employees Threats to our reputation can come from many sources, including adverse sentiment about financial institutions generally, negative sentiment about our business including our BaaS initiatives, unethical practices, employee mistakes, misconduct or fraud, failure to deliver minimum standards of service or quality, failure of any product or service offered by us to meet our customers’ expectations, compliance deficiencies, government investigations, litigation, and questionable, unlawful or fraudulent activities of our partners, contract counterparties, employees or customers.
Threats to our reputation can come from many sources, including adverse sentiment about financial institutions generally, negative sentiment about our business, unethical practices, employee mistakes, misconduct or fraud, failure to deliver minimum standards of service or quality, failure of any product or service offered by us to meet our customers’ expectations, compliance deficiencies, government investigations, litigation, and questionable, unlawful or fraudulent activities of our partners, contract counterparties, employees or customers.
Statutes and regulations affecting our business may be changed at any time and the interpretation of these statutes and regulations by examining authorities may also change. In addition, regulations may be adopted that increase expenses associated with running our business and adversely affect our earnings.
Statutes and regulations affecting our business as well as the interpretation of these statutes and regulations by examining authorities may be subject to change at any time. In addition, regulations may be adopted that increase expenses associated with running our business and adversely affect our earnings.
As a result, our business, financial condition and results of operations could be materially adversely affected. Failure to maintain effective internal control over financial reporting or disclosure controls and procedures could adversely affect our ability to report our financial condition and results of operations accurately and on a timely basis.
Failure to maintain effective internal control over financial reporting or disclosure controls and procedures could adversely affect our ability to report our financial condition and results of operations accurately and on a timely basis.
The stock market generally may experience significant volatility. In addition, the trading volume in our common stock may fluctuate more than usual and cause significant price variations to occur. Accordingly, the common stock that you purchase may trade at a price lower than that at which they were purchased.
The stock market generally may experience significant volatility. In addition, the trading volume in our common stock may fluctuate more than usual and cause significant price variations to occur. Accordingly, the common stock that is purchased by individual shareholders may trade at a price lower than when they were purchased.
Increased regulatory capital requirements (and the associated compliance costs), which have been adopted by federal banking regulators, impose additional capital requirements on our business.
Increased regulatory capital requirements and the associated compliance costs that were adopted by federal banking regulators, impose additional capital requirements on our business.
Borrowings under this arrangement are through the Federal Reserve's primary facility under the borrower-in-custody program. The duration of borrowings from the Federal Reserve discount window are generally for a very short period, usually overnight. In the event that these outside sources of liquidity become unavailable to us, we will need to seek additional sources of liquidity, including selling assets.
The duration of borrowings from the Federal Reserve discount window are generally for a very short period, usually overnight. In the event that these outside sources of liquidity become unavailable to us, we will need to seek additional sources of liquidity, including selling assets.
We constantly monitor our activities with respect to liquidity and evaluate closely our utilization of our cash assets; however, there can be no assurance that our liquidity or the cost of funds to us may not be materially and adversely impacted as a result of economic, market, or operational considerations that we may not be able to control.
We cannot provide assurance that we will be able to sell assets at a level to allow us to repay borrowings or meet our liquidity needs. 24 We constantly monitor our activities with respect to liquidity and evaluate closely our utilization of our cash assets; however, there can be no assurance that our liquidity or the cost of funds to us may not be materially and adversely impacted as a result of economic, market, or operational considerations that we may not be able to control.
Accordingly, the occurrence of any such natural disasters, severe weather events, or other occurrences over which we have no control could have a material adverse effect on our business, which, in turn, could adversely affect our financial condition and results of operations. 33 ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Accordingly, the occurrence of any such natural disasters, severe weather events, or other occurrences over which we have no control could have a material adverse effect on our business, which, in turn, could adversely affect our financial condition and results of operations. Climate change could have a material adverse effect on us and our customers.
Our primary sources of interest income include interest on loans, as well as interest earned on investment securities. Interest earned on investment securities represented 13.4% of our interest income in the year ended December 31, 2022, as compared to 11.2% of our interest income in the year ended December 31, 2021.
Interest earned on investment securities represented 11.2% of our interest income in the year ended December 31, 2023, as compared to 13.4% of our interest income in the year ended December 31, 2022.
We also own several of our branch locations. For any real property that we may possess, there is a risk that hazardous or toxic substances could be found on these properties.
We also own several of our branch locations and are building new branch locations in the State of Hawaii. For any real property that we may possess, there is a risk that hazardous or toxic substances could be found on these 27 properties.
More generally, publicized information concerning security and cyber-related problems and other data privacy breaches could inhibit the use or growth of digital or web-based applications or solutions as a means of conducting commercial or retail transactions. Such publicity may also cause damage to our reputation as a financial institution.
More generally, publicized information concerning security and cyber-related problems and other data privacy breaches could inhibit the use or growth of digital or web-based applications or solutions as a means of conducting commercial or retail transactions.
As of December 31, 2022, we had (i) $50.0 million in face amount of trust preferred securities outstanding and accrued and unpaid dividends thereon of $0.2 million and (ii) $55.0 million in principal amount of subordinated notes outstanding and accrued and unpaid interest thereon of $0.4 million.
As of December 31, 2023, we had (i) $50.0 million in face amount of trust preferred securities outstanding with accrued and unpaid dividends thereon of $0.2 million, (ii) $55.0 million in principal amount of subordinated notes outstanding with accrued and unpaid interest thereon of $0.4 million and (iii) $50.0 million in FHLB long-term advances outstanding with accrued and unpaid dividends thereon of $6 thousand.
Our operations are subject to extensive federal, state and local environmental statutes, rules and regulations. Compliance with these legal requirements require us to incur costs for, among other things, installation and operation of pollution control equipment, emissions monitoring and fees, remediation and permitting at our branches and other facilities.
Compliance with these legal requirements require us to incur costs for, installation and operation of pollution control equipment, emissions monitoring and fees, remediation and permitting at our branches and other facilities, among other things.
Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than we can. 27 Our ability to compete successfully depends on a number of factors, including, among other things: • the ability to develop, maintain and build upon long-term customer relationships based on top quality service, high ethical standards and safe, sound assets; • the ability to expand our market position; • the scope, relevance and pricing of products and services offered to meet customer needs and demands; • the rate at which we introduce new products and services relative to our competitors; • customer satisfaction with our level of service; and • industry and general economic trends.
Our ability to compete successfully depends on a number of factors, including, among other things: • the ability to develop, maintain and build upon long-term customer relationships based on top quality service, high ethical standards and safe, sound assets; • the ability to expand our market position; • the scope, relevance and pricing of products and services offered to meet customer needs and demands; • the rate at which we introduce new products and services relative to our competitors; • customer satisfaction with our level of service; and • industry and general economic trends.
As such, common stock will rank junior to all current and future indebtedness and other non-equity claims on us with respect to assets available to satisfy claims against us, including in the event of our liquidation.
As such, common stock will rank junior to all current and future indebtedness and other non-equity claims on us with respect to assets available to satisfy claims against us, including in the event of our liquidation. CPF, the Bank, and our other subsidiaries may incur additional indebtedness from time to time and may increase our aggregate level of outstanding indebtedness.
Our agreements with our partners will also have varying terms and may be terminated by the parties under certain circumstances. If our BaaS partners are not successful in achieving customer acceptance of their programs or terminate the agreements before the end of their respective terms, our revenue under the various agreements may be limited or may cease altogether.
If our BaaS partners are not successful in achieving customer acceptance of their programs or terminate the 25 agreements before the end of their respective terms, our revenue under the various agreements may be limited or may cease altogether.
Unlike larger national or other regional banks that are more geographically diversified, our business and operations are closely tied to the Hawaii market. The Hawaii economy relies on tourism, real estate, government and other service-based industries.
Difficult economic and market conditions in Hawaii would result in significant adverse effects on us because of the geographic concentration of our business. Unlike larger national or other regional banks that are more geographically diversified, our business and operations are closely tied to the Hawaii market. The Hawaii economy relies on tourism, real estate, government and other service-based industries.
Our results of operations have been, and in future periods, will continue to be significantly impacted by the economy in Hawaii, and to a lesser extent, other markets we are exposed to including California.
Credit Risks A large percentage of our loans are collateralized by real estate and deterioration in the real estate market may adversely affect our financial results. Our results of operations have been, and in future periods, will continue to be significantly impacted by the economy in Hawaii, and to a lesser extent, other markets we are exposed to including California.
Negative publicity regarding our business, employees, partners, contracting counterparties, employees or customers, with or without merit, may result in the loss of customers, investors and employees, costly litigation, a decline in revenues and increased governmental scrutiny and regulation. 25 Consumer protection initiatives related to the foreclosure process could materially affect our ability as a creditor to obtain remedies.
Negative publicity regarding our business, employees, partners, contracting counterparties, employees or customers, with or without merit, may result in the loss of customers, investors and employees, costly litigation, a decline in revenues and increased governmental scrutiny and regulation.
If we issue preferred shares in the future that have a preference over our common stock with respect to the payment of dividends or upon liquidation, or if we issue preferred shares with voting rights that dilute the voting power of the common stock, then the rights of holders of our common stock or the market price of our common stock could be adversely affected. 31 There is a limited trading market for our common stock and as a result, you may not be able to resell your shares at or above the price you pay for them at the time you otherwise may desire.
If we issue preferred shares in the future that have a preference over our common stock with respect to the payment of dividends or upon liquidation, or if we issue preferred shares with voting rights that dilute the voting power of the common stock, then the rights of holders of our common stock or the market price of our common stock could be adversely affected.
If we suffer greater losses than we are projecting, our financial condition and results of operations would be adversely affected. Our ability to maintain adequate sources of funding and liquidity and required capital levels may be negatively impacted by uncertainty in the economic environment which may, among other things, impact our ability to satisfy our obligations.
Our ability to maintain adequate sources of funding and liquidity and required capital levels may be negatively impacted by uncertainty in the economic environment which may, among other things, impact our ability to satisfy our obligations. Liquidity is essential to our business.
We cannot provide any assurance that we will continue to pay dividends to our shareholders. Operational Risks Our agreements with BaaS partners may produce limited revenue and may expose us to liability for compliance violations by BaaS partners and may require additional resources to review and monitor performance by our BaaS partners.
Risks Related to the Operation of Our Business Agreements with BaaS partners that we may enter into may produce limited revenue and may expose us to liability for compliance violations by BaaS partners and may require additional resources to review and monitor performance by our BaaS partners.
We previously announced the launch of our BaaS initiative with the goal of expanding our services in Hawaii and on the U.S. Mainland by collaborating with and investing in fintech companies.
We previously announced the launch of our BaaS initiative with the goal of expanding our services in Hawaii and on the U.S. Mainland by collaborating with and investing in fintech companies. We may enter into agreements with other BaaS partners pursuant to which we will provide certain banking services for the BaaS partner customers.
In the event of a default with respect to any of these loans, amounts received upon sale of the collateral may be insufficient to recover outstanding principal and interest on the loan. Our allowance for credit loss methodology resulted in a credit to our provision for credit losses but the credit provision may not continue.
In the event of a default with respect to any of these loans, amounts received upon sale of the collateral may be insufficient to recover outstanding principal and interest on the loan. Our real estate loan operations have a considerable effect on our results of operations.
While we currently believe our repurchase risk is low, it is possible that requests to repurchase loans could occur in the future and such requests may have a material adverse effect on our financial condition and results of operations. Our Banking-as-a-Service ("BaaS") collaboration agreements may expose us to credit risk. In connection with our collaboration with Swell Financial, Inc.
While we currently believe our repurchase risk is low, it is possible that requests to repurchase loans could occur in the future and such requests may have a material adverse effect on our 22 financial condition and results of operations. Consumer protection initiatives related to the foreclosure process could materially affect our ability as a creditor to obtain remedies.
In addition, increased regulatory capital requirements as well as our financial condition could require us to raise additional capital which would dilute our existing shareholders at the time of such capital issuance. 29 Costs of compliance with environmental laws and regulations are significant, and the cost of compliance with new environmental laws, including limitations on emissions relating to climate change, could adversely affect our financial condition and results of operations.
In addition, increased regulatory capital requirements as well as our financial condition could require us to raise additional capital, which would dilute our existing shareholders at the time of such capital issuance.
Credit Risks A large percentage of our loans are collateralized by real estate and any deterioration in the real estate market may result in additional losses and adversely affect our financial results.
Credit Risks • A large percentage of our loans are collateralized by real estate and deterioration in the real estate market may adversely affect our financial results. • Our real estate loan operations have a considerable effect on our results of operations. • Provisions for credit losses and charge-offs of additional loans in the future, could adversely affect our results of operations. • Our allowance for credit losses may not be sufficient to cover actual credit losses, which could adversely affect our results of operations.
We may enter into agreements with other BaaS partners pursuant to which we will provide certain banking services for the BaaS partner customers. Ensuring contractual and regulatory compliance with these agreements will require additional internal and external resources which will increase our compliance costs and could adversely affect our business.
Ensuring contractual and regulatory compliance with these agreements will require additional internal and external resources which will increase our compliance costs and could adversely affect our business. Our agreements with our partners will also have varying terms and may be terminated by the parties under certain circumstances.
The manner in which these issues are ultimately resolved could impact our foreclosure procedures, which in turn could adversely affect our business, financial condition or results of operations. Our deposit customers may pursue alternatives to deposits at our bank or seek higher yielding deposits causing us to incur increased funding costs.
The manner in which these issues are ultimately resolved could impact our foreclosure procedures, which in turn could adversely affect our business, financial condition or results of operations. Banking-as-a-Service ("BaaS") collaboration agreements that we may enter into may expose us to credit risk.
Losses associated with the LOC accounts (or the portfolios of other third parties with whom we enter into comparable BaaS relationships) in such circumstances could have a material adverse effect on our net income, results of operations and financial condition.
However, there is a risk that our partners will be unable to meet their obligations under the agreements. Losses associated with the loans or lines of credit accounts related to BaaS relationships that we may enter into, could have a material adverse effect on our net income, results of operations and financial condition.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn 2021, we acquired title to land in Kahului, Maui where the Company intends to build its new branch and regional office. In 2022, we acquired title to land in Lihue, Kauai and Honolulu, Oahu where the Company intends to build new branches. We occupy or hold leases for approximately 40 other properties including office space for our remaining branches.
Biggest changeITEM 2. PROPERTIES We hold title to the land and building in Honolulu, Hawaii where our Main branch office and headquarters are located, as well as other branch and operations offices throughout the State of Hawaii. In addition, we occupy or hold leases for approximately 30 other properties including office space for our remaining branches.
These leases expire on various dates through 2045 and generally contain renewal options for periods ranging from 5 to 15 years. For additional information relating to lease rental expense and commitments as of December 31, 2022, see Note 18 - Operating Leases to the Consolidated Financial Statements under "Part II, Item 8. Financial Statements and Supplementary Data."
For additional information relating to properties we own or lease and the related lease rental expense and commitments as of December 31, 2023, see Note 5 - Premises and Equipment and Note 15 - Operating Leases to the Consolidated Financial Statements under "Part II, Item 8. Financial Statements and Supplementary Data."
Removed
ITEM 2. PROPERTIES We hold title to the land and building in which our Main branch office and headquarters, Hilo branch office, Kailua-Kona branch office, Pearl City branch office, Kaneohe branch office and certain operations offices are located. We also hold title to a portion of the land on which our operations center is located.
Added
These leases expire on various dates through 2045 and generally contain renewal options for periods ranging from 5 to 15 years.
Removed
The remaining portion of the land where our operations center is located is leased, as are all remaining branch and support office facilities. We also own four floors of a commercial office condominium in downtown Honolulu where certain bank training classes are held and residential mortgage sales and operations are located.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS Certain claims and lawsuits have been filed or are pending against us arising in the ordinary course of business. In the opinion of management, all such matters are of a nature that, if disposed of unfavorably, would not have a material adverse effect on our consolidated results of operations or financial position.
Biggest changeITEM 3. LEGAL PROCEEDINGS Certain claims and lawsuits arising in the ordinary course of business have been filed or are pending against us. In the opinion of management, all such matters are of a nature that, if disposed of unfavorably, would not have a material adverse effect on our consolidated results of operations or financial position.
See Note 22 - Contingent Liabilities and Other Commitments to the Consolidated Financial Statements under "Part II, Item 8. Financial Statements and Supplementary Data."
See Note 19 - Contingent Liabilities and Other Commitments to the Consolidated Financial Statements under "Part II, Item 8. Financial Statements and Supplementary Data."

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIssuer Purchases of Equity Securities Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Programs Maximum Number of Shares that May Yet Be Purchased Under the Program Dollar Value of Shares Purchased as Part of Publicly Announced Programs Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program October 1-31, 2022 89,500 $ 20.68 89,500 — $ 1,851,114 $ 13,340,754 November 1-30, 2022 87,284 20.41 87,284 — 1,781,145 11,559,609 December 1-31, 2022 64,419 20.04 64,419 — 1,290,818 10,268,791 Total 241,203 20.41 241,203 — $ 4,923,077 10,268,791 Information relating to compensation plans under which equity securities of the Registrant are authorized for issuance is set forth under "Part III, Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters."
Biggest changeThese purchases were not included within the Company's publicly announced share repurchase program. Information relating to compensation plans under which equity securities of the Registrant are authorized for issuance is set forth under "Part III, Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters."
Under the terms of our trust preferred securities and subordinated notes, our ability to pay dividends with respect to common stock would be restricted if our obligations under our trust preferred securities and subordinated notes were not current. Our obligations on our outstanding trust preferred securities and subordinated notes are current as of December 31, 2022.
Under the terms of our trust preferred securities and subordinated notes, our ability to pay dividends with respect to common stock would be restricted if our obligations under our trust preferred securities and subordinated notes were not current. Our obligations on our outstanding trust preferred securities and subordinated notes are current as of December 31, 2023.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the NYSE under the ticker symbol "CPF." Set forth below is a line graph comparing the cumulative total stockholder return on the Company's common stock, based on the market price of the common stock and assuming reinvestment of dividends, with the Russell 2000 Index and the Standard and Poor's ("S&P") SmallCap 600 Commercial Bank Index for the five year period commencing December 31, 2017 and ending December 31, 2022.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the NYSE under the ticker symbol "CPF." Set forth below is a line graph comparing the cumulative total stockholder return on the Company's common stock, based on the market price of the common stock and assuming reinvestment of dividends, with the Russell 2000 Index and the Standard and Poor's ("S&P") SmallCap 600 Commercial Bank Index for the five year period commencing December 31, 2018 and ending December 31, 2023.
Issuer Purchases of Equity Securities On January 25, 2022, the Company's Board of Directors approved a share repurchase authorization of up to $30.0 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 program (the "2022 Repurchase Plan").
Issuer Purchases of Equity Securities On January 30, 2024, the Company's Board of Directors approved a new share repurchase authorization of up to $20 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").
The graph assumes the investment of $100 on December 31, 2017.
The graph assumes the investment of $100 on December 31, 2018.
As of December 31, 2022, the bank had Statutory Retained Earnings of $145.7 million. In addition, the bank's regulators could impose limitations or conditions on the bank's ability to pay dividends to the Company. See "Part I, Item 1. Business — Supervision and Regulation — Regulatory Actions" for a discussion on regulatory restrictions.
As of December 31, 2023, the Bank had Statutory Retained Earnings of $169.1 million. In addition, the Bank's regulators could impose limitations or conditions on the Bank's ability to pay dividends to the Company which would adversely impact the ability of the Company to pay dividends to our shareholders. See "Part I, Item 1.
In January 2023, we announced a new $25.0 million repurchase program which replaces the 2022 Repurchase Plan. We cannot provide any assurance as to whether or not we will continue to repurchase common stock under our share repurchase program.
During the year ended December 31, 2023, we repurchased 130,010 shares of common stock, at an aggregate cost of $2.6 million under our 2023 Repurchase Plan. We cannot provide any assurance as to whether or not we will continue to repurchase common stock under any share repurchase program.
Indexed Total Annual Return (as of December 31, 2022) December 31, Index 2017 2018 2019 2020 2021 2022 Central Pacific Financial Corp. $ 100.00 $ 84.01 $ 105.32 $ 71.10 $ 109.34 $ 82.28 Russell 2000 Index 100.00 88.99 111.70 134.00 153.85 122.41 S&P 600 Banks Index 100.00 90.15 108.69 95.59 129.76 119.53 As of February 7, 2023, there were 2,966 shareholders of record, excluding individuals and institutions for which shares were held in the names of nominees and brokerage firms. 35 Dividends Dividends are payable at the discretion of the Board of Directors and there can be no assurance that the Board of Directors will continue to pay dividends at the same rate, or at all, in the future.
Indexed Total Annual Return (as of December 31, 2023) December 31, Index 2018 2019 2020 2021 2022 2023 Central Pacific Financial Corp. $ 100.00 $ 125.37 $ 84.64 $ 130.15 $ 97.94 $ 100.77 Russell 2000 Index 100.00 125.53 150.58 172.90 137.56 160.85 S&P SmallCap 600 Bank Index 100.00 120.57 106.04 143.94 132.60 130.34 As of January 31, 2024, there were 2,868 shareholders of record, excluding individuals and institutions for which shares were held in the names of nominees and brokerage firms. 36 Dividends Dividends are payable at the discretion of the Board of Directors and are subject to the restrictions under the 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 trust preferred securities and subordinated notes.
Removed
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 trust preferred securities and subordinated notes.
Added
There can be no assurance that the Board of Directors will continue to pay dividends at the same rate, or at all, in the future.
Removed
During the three months and year ended December 31, 2022, the Company repurchased 241,203 shares and 868,613 shares of common stock, respectively, at an aggregate cost of $4.9 million and $20.7 million, respectively, under the Company's 2022 Repurchase Plan. As of December 31, 2022, $10.3 million remained available for repurchase under the Company's 2022 Repurchase Plan.
Added
Business — Supervision and Regulation — Regulatory Actions" for a discussion on regulatory restrictions.
Added
The 2024 Repurchase Plan replaces and supersedes in its entirety the share repurchase program previously approved by the Company’s Board of Directors. We did not repurchase any shares of our common stock under our publicly announced share repurchase program during the three months ended December 31, 2023.
Added
Issuer Purchases of Equity Securities Period Total Number of Shares Purchased [1] Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Programs Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program October 1-31, 2023 — $ — — $ 23,382,807 November 1-30, 2023 882 17.81 — 23,382,807 December 1-31, 2023 — — — 23,382,807 Total 882 17.81 — 23,382,807 [1] During the three months ended December 31, 2023, 882 shares were acquired from employees in connection with income tax withholding obligations related to the vesting of restricted stock and/or performance stock units.

Item 7. Management's Discussion & Analysis

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

219 edited+85 added−104 removed67 unchanged
Biggest changeNonperforming Assets, Past Due and Restructured Loans (Dollars in thousands) December 31, 2022 December 31, 2021 Nonaccrual loans (1) Commercial, financial and agricultural - Other $ 297 $ 183 Real estate: Residential mortgage 3,808 4,623 Home equity 570 786 Consumer 576 289 Total nonaccrual loans 5,251 5,881 Other real estate owned ("OREO") Real estate: Residential mortgage — — Total OREO — — Total nonperforming assets 5,251 5,881 Accruing loans delinquent for 90 days or more (1) Commercial, financial and agricultural - Other 39 945 Real estate: Residential mortgage 559 — Home equity — 44 Consumer 1,240 374 Total accruing loans delinquent for 90 days or more 1,838 1,363 Restructured loans still accruing interest (1) Real estate: Residential mortgage 1,845 3,768 Commercial mortgage 886 1,043 Consumer 62 92 Total restructured loans still accruing interest 2,793 4,903 Total NPAs, accruing loans delinquent for 90 days or more and restructured loans still accruing interest $ 9,882 $ 12,147 61 (Dollars in thousands) December 31, 2022 December 31, 2021 Ratios: Nonaccrual loans as a percentage of loans 0.09 % 0.12 % Total NPAs as a percentage of loans and OREO 0.09 0.12 Total NPAs and accruing loans delinquent for 90 days or more as a percentage of loans and OREO 0.13 0.14 Total NPAs, accruing loans delinquent for 90 days or more and restructured loans still accruing interest as a percentage of loans and OREO 0.18 0.24 Classified assets and OREO to tier 1 capital and ACL 6.25 6.42 Year-to-date changes in NPAs: Balance at beginning of year $ 5,881 $ 6,192 Additions 6,774 7,462 Reductions: Payments (2,410) (3,112) Return to accrual status (1,677) (1,358) Charge-offs, valuation and other adjustments (3,317) (3,303) Total reductions (7,404) (7,773) Balance at end of year $ 5,251 $ 5,881 (1) Section 4013 of the CARES Act and the revised Interagency Statement are being applied to loan modifications related to the COVID-19 pandemic as eligible and applicable.
Biggest changeNonperforming Assets, Past Due and Restructured Loans (Dollars in thousands) December 31, 2023 December 31, 2022 Nonaccrual loans (1) Commercial and industrial: Other $ 432 $ 297 Real estate: Residential mortgage 4,962 3,808 Home equity 834 570 Commercial mortgage 77 — Consumer 703 576 Total nonaccrual loans 7,008 5,251 Other real estate owned ("OREO") Total other real estate owned ("OREO") — — Total nonperforming assets ("NPAs") 7,008 5,251 Accruing loans delinquent for 90 days or more Commercial and industrial: SBA PPP — 13 Other — 26 Real estate: Residential mortgage — 559 Home equity 229 — Consumer 1,083 1,240 Total accruing loans delinquent for 90 days or more 1,312 1,838 Total NPAs and accruing loans delinquent for 90 days or more $ 8,320 $ 7,089 (Dollars in thousands) December 31, 2023 December 31, 2022 Ratios: Ratio of nonaccrual loans to total loans 0.13 % 0.09 % Ratio of NPAs and accruing loans delinquent for 90 days or more to total loans and OREO 0.15 0.13 Ratio of classified assets and OREO to tier 1 capital and ACL 3.41 6.25 Year-to-date changes in NPAs: Balance at beginning of year $ 5,251 $ 5,881 Additions 12,861 6,774 Reductions: Payments (6,781) (2,410) Return to accrual status (570) (1,677) Charge-offs, valuation and other adjustments (3,753) (3,317) Total reductions (11,104) (7,404) Balance at end of year $ 7,008 $ 5,251 Nonperforming assets, which includes nonaccrual loans, nonperforming loans classified as held for sale, if any, and other real estate owned, totaled $7.0 million, or 0.09% of total assets at December 31, 2023, compared to $5.3 million, or 0.07% of total assets at December 31, 2022.
Other operating income increased by $4.9 million from 2021 to 2022. The increase in other operating income was primarily due to the gain on sale of Visa Class B common stock and higher service charges on deposit accounts, partially offset by lower mortgage banking income and lower income from bank-owned life insurance.
Other operating income increased by $4.9 million from 2021 to 2022. The increase in other operating income was primarily due to due to the gain on sale of Visa Class B common stock and higher service charges on deposit accounts, partially offset by lower mortgage banking income and lower income from bank-owned life insurance.
All loan requests considered by us should be for a clearly defined legitimate 50 purpose with a determinable primary source, as well as alternate sources of repayment. All loans should be supported by appropriate documentation including, current financial statements, credit reports, collateral information, asset verification, tax returns, title reports, and appraisals (where appropriate).
All loan requests considered by us should be for a clearly defined legitimate purpose with a determinable primary repayment source, as well as alternate sources of repayment. All loans should be 50 supported by appropriate documentation including, current financial statements, credit reports, collateral information, asset verification, tax returns, title reports, and appraisals (where appropriate).
During 2021, we recognized a credit to the Provision of $14.6 million, which included a credit to the Provision for loans of $14.3 million, a credit to the Provision for accrued interest receivable of $0.2 million and a credit to the Provision for off-balance sheet credit exposures of $0.1 million.
During 2021, we recognized a credit to the Provision of $14.6 million, which included a credit to the Provision for loans of $14.3 million, a credit to the Provision for off-balance sheet credit exposures of $0.1 million and a credit to the Provision for accrued interest receivable of $0.2 million.
The decrease in shareholders' equity from December 31, 2021 to December 31, 2022 was primarily attributable to other comprehensive loss of $136.0 million, cash dividends paid of $28.5 million and the repurchase of 868,613 shares of our common stock for a total cost of $20.7 million, under our stock repurchase program, partially offset by net income of $73.9 million.
The decrease in shareholders' equity from December 31, 2021 to December 31, 2022 was primarily attributable to other comprehensive loss of $136.0 million, cash dividends paid of $28.5 million, and the repurchase of 868,613 shares of our 66 common stock for a total cost of $20.7 million, under our stock repurchase program, partially offset by net income of $73.9 million.
The interest paid on such deposits has a significant impact on our interest expense, an important factor in determining our earnings. In addition, fees and service charges on deposit accounts contribute to our revenues. Additionally, we offer wealth management products and services, such as non-deposit investment products, annuities, insurance, investment management, asset custody and general consultation and planning services.
The interest paid on such deposits has a significant impact on our interest expense, an important factor in determining our earnings. In addition, fees and service charges on deposit accounts contribute to our revenues. Additionally, we offer wealth management products and services, such as non-deposit investment products, annuities, investment management, asset custody and general consultation and planning services.
Interest rate risk arises when rate-sensitive assets and rate-sensitive liabilities mature or reprice during different periods or in differing amounts. In the normal course of business, we are subjected to interest rate risk through the activities of making loans and taking deposits, as well as from our investment securities portfolio and other interest-bearing funding sources.
Interest rate risk arises when rate-sensitive assets and rate-sensitive liabilities mature or reprice during different periods or in differing amounts. In the normal course of business, we are subjected to interest rate risk through the activities of making loans and taking deposits, as well as from our investment 69 securities portfolio and other interest-bearing funding sources.
In January 2021, the Board of Directors approved termination of, and authorized Company management to commence taking actions to terminate, the Company's defined benefit retirement plan. Final settlement occurred during the second quarter of 2022. As of December 31, 2022, the Company has no further defined benefit retirement plan liability or ongoing pension expense recognition.
In January 2021, the Board of Directors approved termination of, and authorized Company management to commence taking actions to terminate, the Company's defined benefit retirement plan. Final settlement occurred during the second quarter of 2022. The Company has no further defined benefit retirement plan liability or ongoing pension expense recognition as of December 31, 2023.
Loans secured by commercial property carry a greater risk than loans secured by residential property due to operating income risk. Operating income risk is the risk that the borrower will be unable to generate sufficient cash flow from the operation of the property. The commercial real estate market and interest rate conditions through economic cycles will impact risk levels.
Loans secured by commercial property carry a greater risk than loans secured by residential property due to 54 operating income risk. Operating income risk is the risk that the borrower will be unable to generate sufficient cash flow from the operation of the property. The commercial real estate market and interest rate conditions through economic cycles will impact risk levels.
Our policy with respect to commercial mortgages is that loans be made for sound purposes, have a definite source and/or plan of repayment established at inception, and be backed up by reliable secondary sources of repayment and satisfactory collateral 54 with good marketability.
Our policy with respect to commercial mortgages is that loans be made for sound purposes, have a definite source and/or plan of repayment established at inception, and be backed up by reliable secondary sources of repayment and satisfactory collateral with good marketability.
The decrease in our net interest margin in 2022 from 2021 was primarily due to the lower recognition of net loan fees related to loans originated and forgiven 45 under the PPP, combined with higher rates paid on interest-bearing deposits and borrowings.
The decrease in our net interest margin in 2022 from 2021 was primarily due to the lower recognition of net loan fees related to loans originated and forgiven under the PPP, combined with higher rates paid on interest-bearing deposits and borrowings.
We utilize internal auditors and independent audit firms to test key controls of 70 operational processes and to audit information systems, compliance management programs, loan programs and trust services. The key to managing transaction risk is in the design, documentation and implementation of well-defined procedures and controls.
We utilize internal auditors and independent audit firms to test key controls of operational processes and to audit information systems, compliance management programs, loan programs and trust services. The key to managing transaction risk is in the design, documentation and implementation of well-defined procedures and controls.
Another measure is the comparison of the actual results of previous strategic initiatives against the expected results established prior to implementation of each strategy. 71 Asset/Liability Management and Interest Rate Risk Our earnings and capital are sensitive to risk of interest rate fluctuations.
Another measure is the comparison of the actual results of previous strategic initiatives against the expected results established prior to implementation of each strategy. Asset/Liability Management and Interest Rate Risk Our earnings and capital are sensitive to risk of interest rate fluctuations.
We stratify the loan portfolio into homogeneous groups of loans that possess similar loss potential characteristics and calculate the net amount expected to be collected over the 40 life of the loans to estimate the expected credit losses in the loan portfolio.
We stratify the loan portfolio into homogeneous groups of loans that possess similar loss potential characteristics and calculate the net amount expected to be collected over the life of the loans to estimate the expected credit losses in the loan portfolio.
The Company will pay the counterparty a fixed rate of 2.095% and will receive a 44 floating rate based on the Federal Funds effective rate. This transaction has an effective date of March 31, 2024 and a maturity date of March 31, 2029.
The Company will pay the counterparty a fixed rate of 2.095% and will receive a floating rate based on the Federal Funds effective rate. This transaction has an effective date of March 31, 2024 and a maturity date of March 31, 2029.
The increase was primarily due to higher pension expense (included in other) and higher computer software expense, partially offset by lower directors' deferred compensation plan expense (included in other), lower salaries and employee benefits expense, and lower advertising expense.
The increase in other operating expense was primarily due to higher pension plan expense (included in other) and higher computer software expense, partially offset by lower directors' deferred compensation plan expense (included in other), lower salaries and employee benefits expense, and lower advertising expense.
These increases were partially offset by the aforementioned decline in PPP net interest income and loan fees from $26.4 million in 2021 to $3.6 million in 2022.
These increases were partially offset by the decline in PPP net interest income and loan fees from $26.4 million in 2021 to $3.6 million in 2022.
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. 42 Table 1.
The change in 42 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 rate. Table 1.
The decline in the ratio of shareholders' equity to total assets from 2021 to 2022 was primarily due to unrealized losses on available-for-sale investment securities recorded in accumulated other comprehensive loss during the year ended December 31, 2022 due to market volatility and the rising interest rate environment.
The decline in our ratio of shareholders' equity to total assets from 2021 to 2022 was primarily attributable to unrealized losses on available-for-sale investment securities recorded in accumulated other comprehensive loss during the year ended December 31, 2022 due to market volatility and the rising interest rate environment.
Time deposits in amounts of $250,000 and greater are generally considered to be more price-sensitive than relationship-based and are thus given less focus in our marketing and sales efforts. The following table sets forth the composition of our deposits by category as of the dates indicated. Table 17.
Time deposits in amounts of $250,000 and greater are generally considered to be more price-sensitive than relationship-based and are thus given less focus in our marketing and sales efforts. The following table sets forth the composition of our deposits by category as of the dates indicated. Table 18.
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. Table 3.
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 remaining components of off-balance sheet arrangements, primarily interest rate options and forward interest rate contracts related to our mortgage banking activities, are not expected to have a material impact on our consolidated financial position or results of operations. 73
The remaining components of off-balance sheet arrangements, primarily interest rate options and forward interest rate contracts related to our mortgage banking activities, are not expected to have a material impact on our consolidated financial position or results of operations. 71
The average loan size is generally small and risk is diversified among many borrowers. Our policy is to utilize credit-scoring systems for most of our consumer loans, which offer the ability to modify credit exposure based on our risk tolerance and loss experience.
The average loan size is generally small and risk is diversified among many borrowers. Our policy is to utilize credit-scoring systems for most of our consumer loans, which offer the ability to manage credit exposure based on our risk tolerance and loss experience.
Effective January 1, 2020 through December 31, 2022, the significant accounting policy which we believe to be the most critical in preparing our consolidated financial statements is the determination of the allowance for credit losses on loans.
Effective January 1, 2020 through December 31, 2023, the significant accounting policy which we believe to be the most critical in preparing our consolidated financial statements is the determination of the allowance for credit losses on loans.
In January 2022, the Company’s Board of Directors approved a new authorization to repurchase up to $30 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 program (the "2022 Repurchase Plan").
In January 2022, the Company’s Board of Directors approved an authorization to repurchase up to $30 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 program (the "2022 Repurchase Plan").
Contractual obligations in Table 20 - Contractual Obligations do not include off-balance sheet arrangements. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees written, forward foreign exchange contracts, forward interest rate contracts and interest rate swaps and options.
Contractual obligations in Table 21 - Contractual Obligations do not include off-balance sheet arrangements. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees written, forward foreign exchange contracts, forward interest rate contracts and interest rate swaps and options.
Our methodology for determining the adequacy of the ACL and Provision for loans takes into account many factors, including the level and trend of nonperforming and potential problem loans, net charge-off experience, current repayment by borrowers, fair value of collateral securing specific loans, changes in lending and underwriting standards and general economic factors, nationally and in the markets we serve.
Our methodology for determining the adequacy of the ACL and Provision for loans takes into account many factors, including the level and trend of nonperforming and potential problem loans, net charge-off experience, current repayment by borrowers, prepayment assumptions, fair value of collateral 57 securing specific loans, changes in lending and underwriting standards and general economic factors, nationally and in the markets we serve.
Financial Statements and Supplementary Data." In the unlikely event that we must satisfy a significant amount of outstanding commitments to extend credit, liquidity will be adversely impacted, as will credit risk.
Financial Statements and Supplementary Data." In the unlikely event that we must satisfy a significant amount of outstanding commitments to extend credit, liquidity may be adversely impacted, as may credit risk.
Our consumer lines of credit use a qualifying payment based on a percentage of the credit limit that exceeds the actual required fully indexed interest rate payment calculation . 56 The following table sets forth the maturity distribution and sensitivities of the loan portfolio to changes in interest rates at December 31, 2022.
Our consumer lines of credit use a qualifying payment based on a percentage of the credit limit that exceeds the actual required fully indexed interest rate payment calculation . The following table sets forth the maturity distribution and sensitivities of the loan portfolio to changes in interest rates at December 31, 2023.
As of December 31, 2022, the valuation allowance on our net deferred tax assets ("DTA") totaled $3.4 million, which related to our DTA from net apportioned net operating loss ("NOL") carryforwards for California state income tax purposes as we do not expect to generate sufficient income in California to utilize the DTA.
As of December 31, 2023, the valuation allowance on our net deferred tax assets ("DTA") totaled $4.4 million, which related to our DTA from net apportioned net operating loss ("NOL") carryforwards for California state income tax purposes as we do not expect to generate sufficient income in California to utilize the DTA.
These instruments and the related off-balance sheet exposures are discussed in detail in Note 23 - Financial Instruments With Off-Balance Sheet Risk to the Consolidated Financial Statements under "Part II, Item 8.
These instruments and the related off-balance sheet exposures are discussed in detail in Note 20 - Financial Instruments With Off-Balance Sheet Risk to the Consolidated Financial Statements under "Part II, Item 8.
These instruments and the related off-balance sheet exposures are discussed in detail in Note 23 - Financial Instruments With Off-Balance Sheet Risk to the Consolidated Financial Statements under "Part II, Item 8.
These instruments and the related off-balance sheet exposures are discussed in detail in Note 20 - Financial Instruments With Off-Balance Sheet Risk to the Consolidated Financial Statements under "Part II, Item 8.
Financial Statements and Supplementary Data." Operating leases represent leases on bank premises as discussed in Note 18 - Operating Leases to the Consolidated Financial Statements under "Part II, Item 8.
Financial Statements and Supplementary Data." Operating leases represent leases on bank premises as discussed in Note 15 - Operating Leases to the Consolidated Financial Statements under "Part II, Item 8.
Our products and services consist primarily of the following: • Loans : Our loans consist of commercial, financial and agricultural, commercial mortgage, and construction loans to small and medium-sized companies, business professionals, and real estate investors and developers, as well as residential mortgage, home equity and consumer loans to local homeowners and individuals.
Our products and services consist primarily of the following: • Loans : Our loans consist of commercial and industrial, commercial mortgage, and construction loans to small and medium-sized companies, business professionals, and real estate investors and developers, as well as residential mortgage, home equity, and consumer loans to local homeowners and individuals.
Loan Portfolio Our lending activities are focused on commercial, financial and agricultural loans, commercial mortgages, and construction loans to small and medium-sized companies, business professionals, and real estate investors and developers, as well as residential mortgages, home equity and consumer loans to local home-buyers and individuals.
Loan Portfolio Our lending activities are focused on commercial and industrial loans, commercial mortgages, and construction loans to small and medium-sized companies, business professionals, and real estate investors and developers, as well as residential mortgages, home equity and consumer loans to local home-buyers and individuals.
The general underwriting guidelines require analysis and documentation to include among other things, overall credit worthiness of borrower, guarantor support, use of funds, loan term, minimum equity, loan-to-value standards, repayment terms, sources of repayment, covenants, pricing, collateral, insurance, and documentation standards.
The general underwriting guidelines require analysis and documentation to include among other things, overall creditworthiness of borrower, guarantor support, use of funds, loan term, minimum equity, loan-to-value standards, repayment terms, sources of repayment, covenants, pricing, collateral, insurance, and documentation standards.
In addition to the external interest rate environment, the overall direction and magnitude of rate movements in our deposit base will largely depend on the level of deposit growth we need to maintain adequate liquidity and competitive pricing considerations. Contractual Obligations The following table sets forth our material contractual obligations (excluding deposit liabilities) as of December 31, 2022. Table 20.
In addition to the external interest rate environment, the overall direction and magnitude of rate movements in our deposit base will largely depend on the level of deposit growth we need to maintain adequate liquidity and competitive pricing considerations. 65 Contractual Obligations The following table sets forth our material contractual obligations (excluding deposit liabilities) as of December 31, 2023.
Management has discussed the development and selection of the critical accounting policy and estimates noted below with the Audit Committee of the Board of Directors, and the Audit Committee has reviewed the accompanying disclosures.
Management has discussed the development and selection of the critical accounting policy and estimate noted below with the Audit Committee of the Board of Directors, and the Audit Committee has reviewed the accompanying disclosures.
Management believes that the efficiency ratio provides useful supplemental information that is important to a proper understanding of the company's core business results by investors. Our efficiency ratio should not be viewed as a substitute for results determined in accordance with GAAP, nor is it necessarily comparable to the efficiency ratio presented by other companies.
The Company believes that the efficiency ratio provides useful supplemental information that is important to a proper understanding of its core business results by investors. The Company's efficiency ratio should not be viewed as a substitute for results determined in accordance with GAAP, nor is it necessarily comparable to the efficiency ratio presented by other companies.
See Table 4 - Components of Other Operating Income for more information. Other operating expense increased by $2.9 million from 2021 to 2022.
See Table 6 - Components of Other Operating Income for more information. Other operating expense increased by $2.9 million from 2021 to 2022.
The increase in commercial mortgage balances in 2022 was primarily due to increased demand from both new and existing customers. Consumer Loans The following table sets forth the major components of our consumer loan portfolio as of the dates indicated. Table 10.
The increase in commercial mortgage balances in 2023 was primarily due to increased demand from both new and existing customers. Consumer Loans The following table sets forth the major components of our consumer loan portfolio as of the dates indicated. Table 11.
Nonperforming Assets, Accruing Loans Delinquent for 90 Days or More, Restructured Loans Still Accruing Interest The following table sets forth nonperforming assets ("NPAs"), accruing loans delinquent for 90 days or more and restructured loans still accruing interest as of the dates indicated. Table 14.
Nonperforming Assets, Accruing Loans Delinquent for 90 Days or More, Restructured Loans Still Accruing Interest The following table sets forth nonperforming assets ("NPAs"), accruing loans delinquent for 90 days or more and restructured loans still accruing interest as of the dates indicated. 59 Table 15.
Analysis of the appropriateness of the ACL for loans is performed quarterly to coincide with financial disclosure to the public and to the regulatory agencies and is governed by a Board-approved policy and methodology. 58 The following table sets forth certain information with respect to the ACL for loans as of the dates or for the periods indicated. Table 12.
Analysis of the appropriateness of the ACL for loans is performed quarterly to coincide with financial disclosure to the public and to the regulatory agencies and is governed by a Board of Directors-approved policy and methodology. The following table sets forth certain information with respect to the ACL for loans as of the dates or for the periods presented.
In addition, the average yield earned on investment securities and the average normalized yield on core loans (or total loans excluding PPP) increased by 17 bp and 15 bp, respectively, which increased interest income by approximately $2.5 million and $15.2 million, respectively.
In addition, the average yield earned on investment securities and the average normalized yield on core loans (or total loans excluding PPP) increased by 17 bps and 15 bps, respectively, which increased interest income by approximately $2.5 million and $8.0 million, respectively.
Financial Statements and Supplementary Data." SERP obligations include obligations under our Supplemental Executive Retirement Plans, which are discussed in Note 16 - Pension Plans to the Consolidated Financial Statements under "Part II, Item 8.
Financial Statements and Supplementary Data." SERP obligations include obligations under our Supplemental Executive Retirement Plans, which are discussed in Note 14 - Retirement Benefits to the Consolidated Financial Statements under "Part II, Item 8.
Commercial, Financial and Agricultural - Other Loans in this category consist primarily of term loans and lines of credit to small and middle-market businesses and professionals.
Commercial and Industrial - Other Loans in this category consist primarily of term loans and lines of credit to small and middle-market businesses and professionals.
The notes are redeemable at our option on any interest payment date on or after November 1, 2025. The subordinated notes totaled $54.3 million as of December 31, 2022, and includes $0.7 million in debt issuance costs, which are being amortized over the expected life.
The notes are redeemable at our option on any interest payment date on or after November 1, 2025. The subordinated notes totaled $54.6 million as of December 31, 2023, and includes $0.4 million in debt issuance costs, which are being amortized over the expected life.
The outstanding principal balance of loans with interest reserves was $68.6 million at December 31, 2022, compared to $51.3 million in the prior year, while remaining interest reserves was $10.5 million, or 15.3% of the outstanding principal balance of loans with interest reserves at December 31, 2022, compared to $5.2 million, or 10.1% of the outstanding principal balance of loans with interest reserves at December 31, 2021.
The outstanding principal balance of loans with interest reserves was $100.9 million at December 31, 2023, compared to $68.6 million in the prior year, while remaining interest reserves was $10.2 million, or 10.1% of the outstanding principal balance of loans with interest reserves at December 31, 2023, compared to $10.5 million, or 15.3% of the outstanding principal balance of loans with interest reserves at December 31, 2022.
Interest Income Our primary sources of interest income include interest on loans, which represented 85.8%, 88.4%, and 87.4% of taxable-equivalent interest income in 2022, 2021 and 2020, respectively, as well as interest earned on investment securities, which represented 13.8%, 11.4% and 12.4% of taxable-equivalent interest income, respectively.
Interest Income Our primary sources of interest income include interest on loans, which represented 85.8%, 85.8%, and 88.4% of taxable-equivalent interest income in 2023, 2022 and 2021, respectively, as well as interest earned on investment securities, which represented 11.5%, 13.8% and 11.4% of taxable-equivalent interest income, respectively.
The alternate rate scenarios typically assume rates move up or down 100 bp in either a gradual (defined as the stated change over a 12-month period in equal increments) or an instantaneous, parallel fashion.
The alternate rate scenarios assume rates move up or down 100 and 200 bps in either a gradual (defined as the stated change over a 12-month period in equal increments) or an instantaneous, parallel fashion.
Net interest income is our primary source of earnings and is derived primarily from the difference between the interest we earn on loans and investments and the interest we pay on deposits and borrowings.
Net interest income is our primary source of earnings and is derived primarily from the difference between the interest income we earn on loans and investment securities, and the interest expense we pay on deposits and borrowings.
Net of this valuation allowance, the Company's net DTA totaled $48.5 million as of December 31, 2022, compared to a net DTA of $25.8 million as of December 31, 2021, and is included in other assets in the Company's consolidated balance sheets.
Net of this valuation allowance, the Company's net DTA totaled $29.5 million as of December 31, 2023, compared to a net DTA of $48.5 million as of December 31, 2022, and is included in other assets in the Company's consolidated balance sheets.
These increases were partially offset by lower mortgage banking income of $3.9 million and lower income from bank-owned life insurance ("BOLI") of $1.6 million. The lower mortgage banking income was primarily attributable to fewer loans sold as a result of the increases in interest rates in 2022.
These increases were partially offset by lower mortgage banking income of $3.9 million and lower income from BOLI of $1.6 million. The lower mortgage banking income was primarily attributable to fewer loans sold as a result of the increase in interest rates.
The 2022 Repurchase Plan replaced and superseded in its entirety the 2021 Repurchase Plan. In 2022, 868,613 shares of common stock, at a cost of $20.7 million, were repurchased under the Company's share repurchase programs. A total of $10.3 million remained available for repurchase under the 2022 Repurchase Plan at December 31, 2022.
In 2022, 868,613 shares of common stock, at a cost of $20.7 million, were repurchased under the Company's share repurchase programs. A total of $10.3 million remained available for repurchase under the 2022 Repurchase Plan at December 31, 2022.
In 2022, the increases in the average rates paid on interest-bearing deposits of 16 bp, FHLB advances and other short-term borrowings of 254 bp, and long-term debt of 78 bp, contributed to the increase in interest expense in 2022 from 2021 of $7.5 million, $0.9 million, and $0.8 million, respectively.
Average rates paid on interest-bearing deposits, FHLB advances and other short-term borrowings and long-term debt in 2022 increased by 16 bps, 254 bps and 78 bps, respectively, from 2021, which contributed to increases in interest expense of $7.5 million, $0.9 million, and $0.8 million, respectively.
This reserve balance of $0.2 million was reversed during the second quarter of 2021 due to the significant decline in loans on active forbearance or deferral and the Company no longer has a reserve on accrued interest receivable as of December 31, 2021 or 2022.
This reserve balance of $0.2 million was reversed during the second quarter of 2021 due to the significant decline in loans on active forbearance or deferral and the Company did not have a reserve on accrued interest receivable as of December 31, 2021, 2022 or 2023.
In January 2021, the Company’s Board of Directors approved a repurchase plan of up to $25 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 program (the "2021 Repurchase Plan").
In January 2024, the Company’s Board of Directors approved a new authorization to repurchase of up to $20 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 program.
With an average loan origination size of approximately $0.6 million, marketable collateral and a stable Hawaii residential real estate market, credit losses on residential mortgage loans have been minimal during the past several years.
With an average loan origination size of approximately $0.6 million, marketable collateral and a stable Hawaii residential real estate market, credit losses on residential mortgage loans have historically been minimal.
Our strategy for generating commercial loans has traditionally relied upon teams of commercial real estate and commercial banking officers organized by geographical and industry lines who are responsible for client prospecting and business development.
Our strategy for generating commercial loans has traditionally relied upon teams of commercial real estate and commercial banking officers who are responsible for client prospecting and business development.
Those attributes include, but are not limited to the following: (i) credit score, (ii) credit limit amount, and (iii) debt-to-income ratio. Loans totaled $5.56 billion at December 31, 2022, which increased by $453.8 million, or 8.9%, from the $5.10 billion at December 31, 2021, which increased by $137.5 million, or 2.8%, from the $4.96 billion held at December 31, 2020.
Those attributes include, but are not limited to the following: (i) credit score, (ii) credit limit amount, and (iii) debt-to-income ratio. Loans totaled $5.44 billion at December 31, 2023, which decreased by $116.5 million, or 2.1%, from the $5.56 billion at December 31, 2022, which increased by $453.8 million, or 8.9%, from the $5.10 billion held at December 31, 2021.
Mainland unsecured consumer loans under forward flow purchase agreements with outstanding balances totaling $54.8 million for $53.2 million, reflecting a net discount of $1.6 million. 55 Other revolving credit plans loans include extensions of credit to individuals and totaled $80.4 million at December 31, 2022, which increased by $1.7 million, or 2.1%, from December 31, 2021 of $78.7 million, which increased by $3.7 million, or 4.9%, from $75.0 million at December 31, 2020.
Mainland unsecured consumer loans under forward flow purchase agreements with outstanding balances totaling $199.8 million for $190.2 million, reflecting a net discount of $9.6 million. 55 Other revolving credit plans loans include extensions of credit to individuals and totaled $100.3 million at December 31, 2023, which increased by $19.9 million, or 24.8%, from December 31, 2022 of $80.4 million, which increased by $1.7 million, or 2.1%, from $78.7 million at December 31, 2021.
The Company's ratio of classified assets and other real estate owned to tier 1 capital and the ACL decreased from 6.42% at December 31, 2021 to 6.25% at December 31, 2022. 62 Investment Portfolio The following table sets forth the amounts and distribution of investment securities held as of the dates indicated. Table 15.
The Company's ratio of classified assets and other real estate owned to tier 1 capital and the ACL decreased from 6.25% at December 31, 2022 to 3.41% at December 31, 2023. Investment Portfolio The following table sets forth the amounts and distribution of investment securities held as of the dates indicated. Table 16.
Maturity Distribution of Investment Portfolio Portfolio Type and Maturity Grouping Carrying Value Weighted Average Yield (1) (Dollars in thousands) Held-to-maturity portfolio: Debt securities - States and political subdivisions: After ten years $ 41,840 2.26 % Total debt securities - States and political subdivisions 41,840 2.26 Residential mortgage-backed securities - U.S. government-sponsored entities ("GSEs"): After ten years 623,043 1.93 Total residential mortgage-backed securities - U.S.
Maturity Distribution of Investment Portfolio 62 Portfolio Type and Maturity Grouping Carrying Value Weighted Average Yield (1) (Dollars in thousands) Held-to-maturity portfolio: Debt securities - States and political subdivisions: After ten years $ 41,959 2.26 % Total debt securities - States and political subdivisions 41,959 2.26 Residential mortgage-backed securities - U.S. government-sponsored entities ("GSEs"): After ten years 590,379 1.92 Total residential mortgage-backed securities - U.S.
The investment securities sold had an average yield of 1.13% and a weighted average life of 2.6 years. Gross realized gains and losses on the sale of the investment securities were $1.1 million and $1.0 million, respectively. The specific identification method was used as the basis for determining the cost of all securities sold.
The investment securities sold had an average yield of 0.35% and a weighted average life of 2.0 years. Gross realized gains and losses on the sales of the investment securities were $3.4 million and $3.2 million, respectively. The specific identification method was used as the basis for determining the cost of all securities sold.
Excluding the PPP net interest income and net loan fees of $3.6 million, $26.4 million, and $12.2 million in the years ended December 31, 2022, 2021, and 2020, respectively, our net interest margin was 3.05%, 2.96%, and 3.29% in the years ended December 31, 2022, 2021, and 2020, respectively.
Excluding the PPP net interest income and net loan fees of $0.1 million, $3.6 million, and $26.4 million in the years ended December 31, 2023, 2022 and 2021, respectively, our net interest margin was 2.94%, 3.05%, and 2.96% in the years ended December 31, 2023, 2022 and 2021, respectively.
Commercial mortgage balances as of December 31, 2022 totaled $1.36 billion, increasing by $142.9 million, or 11.7%, from the $1.22 billion held at December 31, 2021, which increased by $63.9 million, or 5.5%, from the $1.16 billion held at December 31, 2020.
Commercial mortgage balances as of December 31, 2023 totaled $1.38 billion, increasing by $19.8 million, or 1.5%, from the $1.36 billion held at December 31, 2022, which increased by $142.9 million, or 11.7%, from the $1.22 billion held at December 31, 2021.
Table 8. Loans by Geographic Distribution December 31, 2022 December 31, 2021 (Dollars in thousands) Hawaii U.S. Mainland Total Hawaii U.S.
Table 9. Loans by Geographic Distribution December 31, 2023 December 31, 2022 (Dollars in thousands) Hawaii U.S. Mainland Total Hawaii U.S.
Non-GAAP Financial Measures To supplement our consolidated financial statements presented in accordance with GAAP, the Company also uses non-GAAP financial measures in addition to our GAAP results. The Company believes non-GAAP financial measures may provide useful information for evaluating our cash operating performance, ability to service debt, compliance with debt covenants and measurement against competitors.
Non-GAAP Financial Measures The Company also uses non-GAAP financial measures in addition to our GAAP results in order to provide useful information for evaluating our cash operating performance, ability to service debt, compliance with debt covenants and measurement against competitors.
Net interest income increased by $4.5 million from 2021 to 2022, primarily driven by higher average loans and investment securities balances and higher yields earned on interest-earning assets, partially offset by lower net interest income and fees on PPP loans, combined with higher deposit and borrowing costs due to the increase in interest rates in 2022.
Net interest income increased by $4.5 million from 2021 to 2022, primarily driven by higher average loans and investment securities balances and higher average yields earned on interest-earning assets, partially offset by lower net interest income and fees on the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP") loans, combined with higher average interest-bearing deposit and borrowing costs due to the increase in market interest rates which began in 2022.
Total other operating expense of $166.0 million in 2022 increased by $2.9 million, or 1.8%, from total operating expense of $163.0 million in 2021, which increased by $11.3 million, or 7.5%, compared to 2020. 48 The increase in total other operating expense in 2022, compared to 2021, was primarily due to higher pension plan and SERP expenses of $4.1 million, higher computer software expense of $1.5 million, and higher net occupancy expense of $0.8 million, partially offset by lower directors' deferred compensation plan expenses of $2.3 million, lower salaries and employee benefits of $1.4 million, and lower advertising expense of $1.3 million.
The increase in total other operating expense in 2022, compared to 2021, was primarily due to a higher pension plan and SERP expenses of $4.1 million, higher computer software expense of $1.5 million, and higher net occupancy expense of $0.8 million, partially offset by lower directors' deferred compensation plan expenses of $2.3 million, lower salaries and employee benefits of $1.4 million, and lower advertising expense of $1.3 million.
Our foreign credit exposure as of December 31, 2022 and December 31, 2021 was minimal and did not exceed 1% of total assets. Maturities and Sensitivities of Loans to Changes in Interest Rates At December 31, 2022, all PPP loans were fixed-rate. Commercial, financial and agricultural loans, excluding PPP loans, were 52.6% fixed-rate and 47.4% variable-rate.
Our foreign credit exposure as of December 31, 2023 and December 31, 2022 was minimal and did not exceed 1% of total assets. Maturities and Sensitivities of Loans to Changes in Interest Rates At December 31, 2023, all PPP loans were fixed-rate. Commercial and industrial loans, excluding PPP loans, were 52.0% fixed-rate and 48.0% variable-rate.
Net interest income (expressed on a taxable-equivalent basis) totaled $216.4 million in 2022, which increased by $4.8 million, or 2.3%, from $211.6 million in 2021, which increased by $13.3 million, or 6.7%, from net interest income of $198.3 million recognized in 2020.
Net interest income (expressed on a taxable-equivalent basis) totaled $210.8 million in 2023, which decreased by $5.6 million, or 2.6%, from $216.4 million in 2022, which increased by $4.8 million, or 2.3%, from net interest income of $211.6 million recognized in 2021.
Interest income expressed on a taxable-equivalent basis of $233.5 million in 2022 increased by $14.2 million, or 6.5%, from the $219.3 million earned in 2021, which increased by $6.2 million, or 2.9%, from the $213.1 million earned in 2020.
Interest income expressed on a taxable-equivalent basis of $283.4 million in 2023 increased by $49.9 million, or 21.4%, from the $233.5 million earned in 2022, which increased by $14.2 million, or 6.5%, from the $219.3 million earned in 2021.
Consistent with our focus of being a Hawaii-based bank, 82.7% of our loan portfolio was concentrated in the Hawaii market while 17.3% was concentrated in the U.S. Mainland as of December 31, 2022. As of December 31, 2021, 86.3% and 13.7% were concentrated in the Hawaii market and U.S. Mainland, respectively.
Consistent with our focus of being a Hawaii-based bank, 85.2% of our loan portfolio was concentrated in the Hawaii market while 14.8% was concentrated in the U.S. Mainland as of December 31, 2023. As of December 31, 2022, 82.7% and 17.3% of our loan portfolio was concentrated in the Hawaii market and U.S. Mainland, respectively.
Net interest income, when expressed as a percentage of average interest-earning assets, is referred to as "net interest margin." Interest income, which includes loan fees and resultant yield information, is expressed on a taxable-equivalent basis using a federal statutory tax rate of 21%. Table 2 presents an analysis of changes in components of net interest income between years.
Net interest income, when expressed as a percentage of average interest-earning assets, is referred to as "net interest margin." Interest income, which includes loan fees and resultant yield information, is expressed on a taxable-equivalent basis using a federal statutory tax rate of 21%.
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 investment securities, as well as secondary funding sources such as the FHLB, secured repurchase agreements and the Federal Reserve discount window, available to meet our liquidity needs.
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 FHLB, secured repurchase agreements and the Federal Reserve discount window, and the Bank Term Funding Program ("BTFP") which is scheduled to cease making new loans on March 11, 2024.
Nonperforming assets at December 31, 2022 were comprised entirely of nonaccrual loans totaling $5.3 million, none of which were loans classified as held for sale.
Nonperforming assets at December 31, 2023 were comprised entirely of nonaccrual loans totaling $7.0 million, none of which were loans classified as held for sale.
During 2021 we repurchased approximately 2.5% of our common stock outstanding at December 31, 2020. When expressed as a percentage of total assets, shareholders' equity was 6.1% at December 31, 2022, compared to 7.5% at December 31, 2021 and 8.3% at December 31, 2020.
During 2022, the Company repurchased approximately 3.1% of its common stock outstanding at December 31, 2021. When expressed as a percentage of total assets, shareholders' equity was 6.6% at December 31, 2023, compared to 6.1% at December 31, 2022 and 7.5% at December 31, 2021.
Fluctuations in the directors' deferred compensation expense are primarily due to volatility in the equity markets.
Significant fluctuations in directors' deferred compensation plan expenses are primarily due to volatility in the equity markets.
The Department of Labor and Industrial Relations reported that Hawaii's seasonally adjusted annual unemployment rate was 3.2% in the month of December 2022, The unemployment rate of 3.2% in December 2022 fell below the national seasonally adjusted unemployment rate of 3.5%. UHERO projects Hawaii's seasonally adjusted annual unemployment rate to be around 3.6% in 2023.
The Department of Labor and Industrial Relations reported that Hawaii's seasonally adjusted annual unemployment rate was 2.9% in the month of December 2023. The unemployment rate of 2.9% in December 2023 fell below the national seasonally adjusted unemployment rate of 3.7%. DBEDT projects Hawaii's seasonally adjusted annual unemployment rate to be around 2.8% in 2024.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeManagement's Discussion and Analysis of Financial Condition and Results of Operations—Asset/Liability Management and Interest Rate Risk" and in Note 24 - Fair Value of Financial Assets and Financial Liabilities to the Consolidated Financial Statements under "Part II, Item 8. Financial Statements and Supplementary Data." 74
Biggest changeManagement's Discussion and Analysis of Financial Condition and Results of Operations—Asset/Liability Management and Interest Rate Risk" and in Note 21 - Fair Value of Financial Assets and Financial Liabilities to the Consolidated Financial Statements under "Part II, Item 8. Financial Statements and Supplementary Data." 72

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