CENTRAL PACIFIC FINANCIAL CORP
For the period ended Dec 31, 2024. Filed Feb 26, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Feb 26, 2025
CPF$38.30-0.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-02-21.
0000701347-24-000006
Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-02-26.
0000701347-25-000007
Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 289 previous paragraphs and 294 current paragraphs.
143 unchanged; 112 reworded; 33 added; 34 removed; 0 previous and 6 current paragraphs rearranged.
Tables are not compared: 23 previous and 29 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (33)
Current report
•Results in 2024 were impacted by a pre-tax loss on sales of investment securities of $9.9 million related to an investment securities portfolio repositioning ("Repositioning Loss") and pre-tax expenses related to our evaluation and assessment of a strategic opportunity of $3.1 million ("Strategic Expense").
Current report
•Excluding the Repositioning Loss and Strategic Expense, non-GAAP adjusted net income was $63.4 million, or $2.34 per diluted common share in 2024. (See Tables 3-8 for reconciliations of the adjusted non-GAAP financial measures.)
Current report
•We recorded return on average assets ("ROA") and return on average shareholders' equity ("ROE") ratios of 0.72% and 10.25%, respectively, in 2024, compared to ROA and ROE ratios of 0.78% and 12.38%, respectively, in 2023. Excluding the Repositioning Loss and Strategic Expense, adjusted ROA and ROE ratios (non-GAAP) was 0.86% and 12.10%, respectively, in 2024, compared to adjusted ROA and ROE ratios (non-GAAP) of 0.78% and 12.24%, respectively, in 2023. (See Table 7 - Adjusted Return on Average Assets and Adjusted Return on Average Shareholders' Equity for a reconciliation of the non-GAAP adjusted ROA and ROE.)
Current report
•Our loan portfolio declined by $106.1 million, or 2.0% in 2024, primarily due to run-off of our consumer loan portfolio of $120.0 million.
Current report
•Total deposits declined by $203.6 million, or 3.0% in 2024, primarily due to the run-off of high-cost government time deposits of $271.5 million. Our core deposit portfolio grew by $54.0 million, or 0.9%.
Current report
The Company does not have any other active BaaS initiatives, but continues to evaluate potential future BaaS opportunities.
Current report
We recorded a provision for credit losses of $9.8 million in 2024, compared to a provision of $15.7 million in 2023. The lower provision for credit losses was primarily due to improvements in the economic forecast and movements in loan balances by segment, combined with an overall loan balance decline during the year.
Current report
Other operating expense increased by $8.4 million from 2023 to 2024. The increase was primarily due to higher salaries and employee benefits of $3.9 million, expenses related to our evaluation and assessment of a strategic opportunity in 2024 of $3.1 million, and higher directors' deferred compensation plan expenses of $1.2 million. These increases were partially offset by a non-recurring charge of $2.3 million related to the early termination of a branch lease in 2023. Significant fluctuations in directors' deferred compensation plan expenses are primarily due to volatility in the equity markets. See Table 10 - Components of Other Operating Expense for more information.
Current report
The increase in taxable-equivalent interest income in 2024 from 2023 was primarily due to an increase in the average yields earned on loans and investment securities of 40 bps and 33 bps, resulting in higher interest income of approximately $21.5 million and $4.9 million, respectively. The increase in the average yield earned on investment securities was partially attributable to income of $2.6 million from the aforementioned interest rate swap that became effective on March 31, 2024. In addition, increases in the average balance and average yield earned on interest-bearing deposits in other financial institutions resulted in higher interest income of approximately $4.4 million. These increases were partially offset by decreases in the average loans and investment securities balances of $150.5 million and $39.1 million, respectively, resulting in lower interest income of approximately $6.6 million and $0.8 million, respectively.
Current report
Due to the high interest rate environment, the average rate paid on interest-bearing deposits of 1.79% in 2024 increased by 47 bps from 2023, resulting in an increase in interest expense of approximately $23.3 million. Increases in the average balance and average rate paid on long-term debt of $7.3 million and 1 bps, respectively, resulted in a total increase in interest expense of approximately $0.4 million.
Current report
To supplement our consolidated financial information, the Company uses certain non-GAAP financial measures, which are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures. The Company believes these non-GAAP financial measures provide useful information to investors and others, which excludes transactions that are not meaningful in comparison to our past operating performance or not reflective of ongoing financial results. The Company believes that these measures offer a supplemental measure for period-to-period comparisons and can be used to evaluate our historical and prospective financial performance. These non-GAAP financial measures may not be comparable to similarly entitled measures reported by other companies.
Current report
The following reconciling adjustments from GAAP or reported financial measures to non-GAAP adjusted financial measures are limited to:
Current report
(i) pre-tax loss on sales of investment securities related to an investment portfolio repositioning of $9.9 million and $1.9 million in the fourth quarter of 2024 and fourth quarter of 2023, respectively,
Current report
(ii) pre-tax expenses related to the evaluation and assessment of a strategic opportunity of $3.1 million in the third quarter of 2024,
Current report
(iii) pre-tax gain on sale of a real estate office property of $5.1 million in the fourth quarter of 2023,
Current report
(iv) pre-tax branch lease termination expense of $2.3 million in the fourth quarter of 2023,
Current report
(v) pre-tax gain on sale of Visa Class B stock of $8.5 million in the second quarter of 2022, and
Current report
(vi) pre-tax loss on the termination and settlement of the Company's defined benefit pension plan of $4.9 million in the second quarter of 2022.
Current report
Management does not consider these transactions to be representative of the Company's core operating performance. The income tax effect was calculated assuming a 23% effective tax rate.
Current report
Table 3. Non-GAAP Financial Measures
Current report
The following table presents a reconciliation of the Company's adjusted net income and adjusted diluted EPS, which excludes the aforementioned reconciling adjustments, for the periods presented:
Current report
Table 4. Adjusted Net Income and Diluted Earnings per Share
Current report
Table 5. Adjusted Pre-Provision Net Revenue
Current report
Table 6. Adjusted Efficiency Ratio
Current report
The following table presents a calculation of our adjusted ROA and adjusted ROE for the periods presented:
Current report
The following table presents a calculation of our tangible common equity ("TCE") ratio and adjusted TCE ratio as of the dates presented:
Current report
Table 8. Adjusted Tangible Common Equity Ratio
Current report
The increase in total other operating expense in 2024, compared to 2023, was primarily due to expenses related to a strategic opportunity in 2024 of $3.1 million, higher salaries and employee benefits of $3.9 million, amortization and impairment of intangible assets of $1.4 million, and higher directors' deferred compensation plan expenses of $1.2 million. These increases were partially offset by a non-recurring charge of $2.3 million related to the early termination of a branch lease in 2023. Significant fluctuations in directors' deferred compensation plan expenses are primarily due to volatility in the equity markets.
Current report
Commercial and Industrial
Current report
Other consumer loans of $35.5 million at December 31, 2024 increased by $1.6 million, or 4.7%, from December 31, 2023 of $33.9 million, which decreased by $1.3 million, or 3.8%, from $35.2 million at December 31, 2022.
Current report
In the fourth quarter of 2024, the Company executed an investment portfolio repositioning of its AFS investment securities portfolio. The Company sold 24 lower-yielding AFS investment securities with a book value of $106.5 million and received proceeds of $96.6 million, which resulted in gross realized losses of $9.9 million. No gross gains were realized on the sale. The securities sold had a weighted average yield of 2.1% and a weighted average duration of 3.6 years. With the proceeds, the Company purchased higher-yielding AFS investment securities totaling $101.6 million with a weighted average yield of 4.9% and a weighted average duration of 4.1 years. The Company estimates the transaction will result in a prospective annual increase to net interest income of $2.7 million and net interest margin of 4 bps beginning in 2025. The earn-back period is estimated to be approximately 3.5 years.
Current report
The Company's deposit portfolio is diversified and long-tenured as it is built upon a business model based on long-term customer relationships. Approximately 53% of deposit customers have been banking with the Company for more than 10 years.
Current report
In January 2023, the Company’s Board of Directors approved a new authorization to repurchase up to $25 million of its common stock from time to time in the open market or in privately negotiated transactions (the "2023 Repurchase Plan"), pursuant to a newly authorized share repurchase program. The 2023 Repurchase Plan replaced and superseded in its entirety the share repurchase plan previously approved by the Board of Directors. The Company's 2023 Repurchase Plan was subject to a one-year expiration. Following the regional bank failures occurring in March 2023, the Company significantly reduced its volume of share repurchases to strengthen capital and liquidity considering the elevated market risks.
Removed paragraphs (34)
Previous report
The year 2023 proved to be a challenging operating environment with the failures of certain significant regional banks in the first half of 2023, stock market volatility caused by fears of a national economic recession, and a significant rise in market interest rates combined with an inverted yield curve. Additionally, the August 2023 wildfires in Maui have had a direct, significant impact on the State of Hawaii.
Previous report
•We recorded pre-provision net revenue ("PPNR") of $92.5 million, compared to $97.5 million in 2022. (See Table 3 - Pre-Provision Net Revenue for a reconciliation of this non-GAAP financial measure.)
Previous report
•Our loan portfolio declined by $116.5 million, or 2.1% in 2023, primarily due to planned run-off of our U.S. Mainland purchased consumer portfolio, combined with lower origination activity primarily due to the significant rise in market interest rates which began in 2022. Our Hawaii loan portfolio grew by $42.4 million, or 0.9% in 2023.
Previous report
•We realized deposit growth of $111.4 million, or 1.7% in 2023. Our core deposit portfolio declined by $89.0 million, or 1.5% primarily due to the continued migration from demand deposits to time deposits and off-balance sheet money market accounts.
Previous report
On August 8, 2023, a series of wildfires broke out on the Island of Maui, in Kula, Upcountry Maui, Kihei, and most devastatingly in the town of Lahaina. The wildfires took the lives of at least 100 people and destroyed over 2,200 structures, of which approximately 86% were residential homes. The disaster area had more than 800 business establishments with about 7,000 employees.
Previous report
Visitors to Maui decreased by approximately 57% in September 2023 compared to September 2022 and has started to recover as West Maui officially reopened to visitors in early October 2023 and government officials are encouraging travelers to return to Maui, while avoiding the affected area, to support its economic recovery. In December 2023, visitors to Maui were down by approximately 25% compared to December 2022. The unemployment rate for the Island of Maui was 8.4% in September 2023 and has since improved to 5.5% in December 2023.
Previous report
The Company did not sustain any damages to its facilities on Maui. As of December 31, 2023, the Company had approximately $103 million in loans to borrowers in Lahaina, Maui, of which the Company has estimated $90 million were not impacted by the Maui wildfires and $11 million sustained damage but was covered by insurance and/or land.
Previous report
In response to the Maui wildfires, the Company provided three to six months interest and/or principal loan payment deferrals to customers who were directly impacted by the wildfires on a case-by-case basis. The Company granted 146 loan payment deferrals on loan balances totaling $31.6 million as of December 31, 2023.
Previous report
While the Maui wildfires led to significant near term economic losses on the Island of Maui, there may be limited adverse effects on the broader Hawaii economy. Although Maui represents a significant share of Hawaii's tourism, and total visitors to Hawaii have fallen, some would-be visitors to Maui have shifted their travel to the other Hawaiian Islands, such as Oahu, Kauai or Hawaii Island.
Previous report
Due to the current operating environment, the BaaS initiative did not have a material impact on the Company's financial statements in 2023. The Company continues to evaluate potential future BaaS opportunities.
Previous report
On January 1, 2020, the Company adopted Accounting Standards Update ("ASU") 2016-13,“Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which created material changes to the Company’s existing critical accounting policy that existed at December 31, 2019. 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.
Previous report
We recorded a credit to the provision for credit losses of $1.3 million in 2022, compared to a credit of $14.6 million in 2021.
Previous report
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. See Table 6 - Components of Other Operating Income for more information.
Previous report
Other operating expense increased by $2.9 million from 2021 to 2022. 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. The higher pension plan expense is primarily attributable to the termination and settlement of the Company's defined benefit retirement plan resulting in a one-time noncash settlement charge of $4.9 million. See Table 7 - Components of Other Operating Expense for more information.
Previous report
The increase in taxable-equivalent interest income in 2022 from 2021 was primarily due to higher average investment securities balances of $242.6 million, which contributed to an increase in interest income of $4.7 million in 2022, and higher average core loan (or total loans excluding PPP loans) balances of $587.7 million, which contributed to an increase in interest income of $21.2 million. 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. 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.
Previous report
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.
Previous report
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.
Previous report
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.
Previous report
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. 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.
Previous report
Table 3. Pre-Provision Net Revenue
Previous report
Table 4. Reconciliation of Efficiency Ratio
Previous report
Table 5. Other Non-GAAP Financial Measures
Previous report
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. The increase in pension plan and SERP expense was primarily attributable to the aforementioned non-recurring non-cash charge of $4.9 million related to the termination and settlement of the Company's defined benefit retirement plan.
Previous report
Commercial and Industrial - Small Business Administration Payroll Protection Program
Previous report
Paycheck Protection Program ("PPP") loans, which were originated in 2020 and early 2021, are loans to qualified small businesses under the PPP administered by the Small Business Administration ("SBA") under the provisions of the Coronavirus Aid, Relief, and Economic Security Act ("the CARES Act"). Loans covered by the PPP were eligible for loan forgiveness for certain costs incurred related to payroll, group health care benefit costs and qualifying mortgage, rent and utility payments. The PPP loans, regardless of any forgiven amount, is guaranteed by the SBA.
Previous report
Commercial and Industrial - Other
Previous report
Total student loans of $0.5 million at December 31, 2023 decreased by $0.5 million, or 48.9%, from December 31, 2022 of $1.1 million, which decreased by $0.8 million, or 42.9%, from $1.9 million at December 31, 2021.
Previous report
Other consumer loans of $33.4 million at December 31, 2023 decreased by $0.8 million, or 2.4%, from December 31, 2022 of $34.2 million, which decreased by $5.2 million, or 13.1%, from $39.4 million at December 31, 2021.
Previous report
Prior to our adoption of ASU 2022-02, we accounted for a modification to the contractual terms of a loan that resulted in granting a concession to a borrower experiencing financial difficulties as a troubled debt restructuring ("TDR").
Previous report
Loans identified as TDRs prior to our adoption of ASU 2022-02 included in nonperforming assets at December 31, 2023 consisted of five Hawaii residential mortgage loans with a combined principal balance of $0.9 million and a Hawaii consumer loan of $15 thousand. At December 31, 2022, loans identified as TDRs prior to our adoption of ASU 2022-02 included in nonperforming assets consisted of four loans with a principal balance of $1.1 million. There were $2.1 million of loans identified as TDRs prior to our adoption of ASU 2022-02 still accruing interest at December 31, 2023, none of which were more than 90 days delinquent. At December 31, 2022, there were $2.8 million of loans identified as TDRs prior to our adoption of ASU 2022-02 still accruing interest, none of which were more than 90 days delinquent.
Previous report
After experiencing large increases in core deposits in 2020 and 2021 primarily due to the deposit of PPP funds and other government stimulus into both new and existing deposit accounts, during 2022 and 2023, the Company experienced moderation of core deposit balances and continues to experience migration from lower cost demand deposits to higher cost time deposits attributable to the rising interest rate environment. Going forward, the Company is focused on expanding deposit relationships with both commercial and retail customers in the State of Hawaii.
Previous report
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.
Previous report
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").
Previous report
The high profile regional bank failures in the first half of 2023 drove several precautionary actions to ensure adequate liquidity including carrying higher levels of on-balance sheet liquidity, limited portfolio reinvestments, and efficient allocation of collateral to maximize funding sources. The higher level of on balance sheet liquidity was carried through the remainder of
Reworded paragraphs (112)
Previous wording
•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. Our lending activities contribute to a key component of our revenues reported in interest income.
Current wording
•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 homeowners and individuals. Our lending activities contribute to a key component of our revenues reported in interest income.
Previous wording
Despite these challenges, we believe we delivered solid financial performance while managing and mitigating risks that arose in 2023.
Current wording
We believe we delivered solid financial performance while managing and mitigating risks that arose in 2024.
Previous wording
•We recorded net income of $58.7 million, or $2.17 per diluted common share in 2023, compared to $73.9 million, or $2.68 per diluted common share in 2022. Net income in 2023 included a provision for credit losses of $15.7 million, compared to a credit to the provision of $1.3 million in 2022.
Current wording
•We recorded net income of $53.4 million, or $1.97 per diluted common share in 2024, compared to $58.7 million, or $2.17 per diluted common share in 2023. Net income in 2024 included a provision for credit losses of $9.8 million, compared to a credit to the provision of $15.7 million in 2023.
Previous wording
•Asset quality remains strong as our nonperforming assets 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.
Current wording
•Asset quality remains strong as our nonperforming assets totaled $11.0 million, or 0.15% of total assets at December 31, 2024, compared to $7.0 million, or 0.09% of total assets at December 31, 2023.
Previous wording
•Our capital position and consistent profitability allowed us to pay cash dividends of $1.04 per share in 2023. In addition, in 2023 we repurchased an aggregate of 130,010 shares of common stock under our share repurchase program at an aggregate cost of $2.6 million, or an average of $20.24 per share.
Current wording
•Our capital position and consistent profitability allowed us to pay cash dividends of $1.04 per share in 2024. In addition, in 2024 we repurchased an aggregate of 49,960 shares of common stock under our share repurchase program at an aggregate cost of $0.9 million, or an average of $18.92 per share.
Previous wording
The majority of our operations are concentrated in the State of Hawaii. As a result, our performance is significantly influenced by the strength of the real estate markets, the tourism industry and economic environment in Hawaii. Macroeconomic conditions also influence our performance. A favorable business environment is generally characterized by expanding gross state product, low unemployment and rising personal income; while an unfavorable business environment is characterized by the reverse.
Current wording
The majority of our operations are concentrated in the State of Hawaii. As a result, our performance is significantly influenced by the strength of the real estate markets, the tourism industry, and the economic environment and environmental conditions in Hawaii. Macroeconomic conditions also influence our performance. A favorable business environment is generally characterized by expanding gross state product, low unemployment and rising personal income; while an unfavorable business environment is characterized by the reverse.
Previous wording
Prior to the Maui wildfires, Hawaii’s economy continued its recovery from the COVID-19 pandemic. According to the latest available statistics from the Hawaii Tourism Authority ("HTA"), a total of 9.6 million visitors arrived to the Hawaiian Islands in the year ended December 31, 2023, mainly from the U.S. Mainland. This was a 4.4% increase from the 9.2 million visitors in 2022, and represents a recovery of approximately 93% from the 10.4 million visitors during the pre-pandemic and record year in 2019. Japanese visitor arrivals in the year ended December 31, 2023 continued to increase modestly; however, were only at around 36% of pre-pandemic 2019, or around 49% in the month of December 2023 compared to December 2019.
Current wording
According to the latest available statistics from the Hawaii Tourism Authority ("HTA"), a total of 9.69 million visitors arrived to the Hawaiian Islands in the year ended December 31, 2024, mainly from the U.S. Mainland. This was a modest 0.3% increase from the 9.66 million visitors in the year ended December 31, 2023, and represents a recovery of approximately 93.3% from the 10.4 million visitors during the pre-pandemic and record year in 2019. Japanese visitor arrivals in the year ended December 31, 2024 continued to increase modestly; however, were only at around 45.7% of pre-pandemic 2019, or around 51.8% in the month of December 2024 compared to December 2019. Sixteen months after the August 8, 2023 wildfires, visitors to Maui were up 15.3% in December 2024 compared to December 2023, but still down 17.3% from pre-pandemic December 2019. The unemployment rate for the Island of Maui was 8.4% in September 2023 and has since improved to 3.4% in December 2024.
Previous wording
The HTA also reported that total spending by visitors was $20.78 billion in the year ended December 31, 2023, which increased by approximately 5.5% from the $19.70 billion in the year ended December 31, 2022, and increased by approximately 17.3% from $17.72 billion in pre-pandemic 2019. According to a recent report by the State of Hawaii's Department of Business, Economic Development and Tourism ("DBEDT"), total visitor arrivals are expected to increase to approximately 9.8 million in 2024 and visitor spending is expected to be approximately $21.63 billion in 2024.
Current wording
The HTA also reported that total spending by visitors was $20.68 billion in the year ended December 31, 2024, which declined by approximately 0.2% from the $20.73 billion in the year ended December 31, 2023, and increased by approximately 16.7% from $17.72 billion in pre-pandemic 2019. According to a recent report by the State of Hawaii's Department of Business, Economic Development and Tourism ("DBEDT"), total visitor arrivals are expected to increase to approximately 9.9 million in 2025 and visitor spending is expected to be approximately $21.46 billion in 2025.
Previous wording
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.
Current wording
The Department of Labor and Industrial Relations reported that Hawaii's seasonally adjusted annual unemployment rate was 3.0% in the month of December 2024, which fell below the national seasonally adjusted unemployment rate of 4.1%. DBEDT projects Hawaii's seasonally adjusted annual unemployment rate to be around 2.7% in 2025.
Previous wording
Hawaii's economy is measured by the growth of real personal income and real gross state product. DBEDT is expected to report real personal income declined by approximately 1.5% but real gross state product grew by approximately 1.9% for 2023. DBEDT projects real personal income to grow by 1.0% and real gross state product to grow by 1.3% for 2024.
Current wording
Hawaii's economy is measured by the growth of real personal income and real gross state product. DBEDT is expected to report real personal income grew by approximately 2.8% but real gross state product grew by approximately 1.6% for 2024. DBEDT projects real personal income to grow by 1.6% and real gross state product to grow by 2.0% for 2025.
Previous wording
Real estate lending is a primary focus for us, including residential mortgage and commercial mortgage loans. As a result, we are dependent on the strength of Hawaii's real estate market. According to the Honolulu Board of Realtors, the median resale price for a single-family home on Oahu fell just short of $1 million in December 2023. For the year ended December 31, 2023, the median price for a single-family home on Oahu was $1,050,000, representing a decrease of 5.0% from the median resale price of $1,105,000 for the year ended December 31, 2022. The median resale price for condominiums on Oahu was $508,500 for the year ended December 31, 2023, representing a decrease of 0.3% from the median resale price of $510,000 for the year ended December 31, 2022. Oahu unit sales volume decreased by 26.3% for single-family homes, and decreased by 28.0% for condominiums in 2023 from 2022 due to the significant rise in mortgage interest rates.
Current wording
Real estate lending is one of the primary focuses for us, including residential mortgage and commercial mortgage loans. As a result, we are dependent on the strength of Hawaii's real estate market. The Hawaii housing market continues to experience solid prices, increased sales activity, strong demand and low inventory. According to the Honolulu Board of Realtors, the median price for a single-family home on Oahu was $1,100,000 for the year ended December 31, 2024, representing an increase of 4.8% from the median resale price of $1,050,000 for the year ended December 31, 2023. The median resale price for condominiums on Oahu was $515,000 for the year ended December 31, 2024, representing an increase of 1.3% from the median resale price of $508,500 for the year ended December 31, 2023. Oahu unit sales volume increased by 9.1% for single-family homes, and decreased by 2.5% for condominiums in 2024 from 2023.
Previous wording
If the residential and commercial real estate markets we have exposure to deteriorate, our results of operations would be negatively impacted. See the "Overview of Results of Operations—Concentrations of Credit Risk" section for a further discussion on how a deteriorating real estate market, combined with the concentration risk within our portfolio, could have a significant negative impact on our asset quality and credit losses.
Current wording
If the residential and commercial real estate markets we have exposure to deteriorate, our results of operations could be negatively impacted. See the "Overview of Results of Operations—Concentrations of Credit Risk" section for a further discussion on how a deteriorating real estate market, combined with the concentration risk within our portfolio, could have a significant negative impact on our asset quality and credit losses.
Previous wording
In an effort to rein in inflation, the FRB aggressively increased interest rates since the first quarter of 2022 when the Federal Funds Rate target was 0.00% to 0.25%. Since then, the FRB has raised the Federal Funds Rate by more than five percentage points, to the current 5.25% to 5.50%, a 22-year high. In January 2024, the FRB kept the Federal Funds Rate target steady for the fourth consecutive meeting and policymakers indicated that there may be three rate cuts of quarter percentage point increments in 2024, but it will not occur until they are confident that inflation is moving sustainably towards 2%.
Current wording
In an effort to rein in inflation, the FRB aggressively increased interest rates since the first quarter of 2022 when the Federal Funds Rate target range was 0.00% to 0.25%. Since then, the FRB has raised the Federal Funds Rate by more than five percentage points, up to a 22-year high, 5.25% to 5.50%. The Federal Funds Rate remained at that level until September 2024. At the September 2024 Federal Open Market Committee ("FOMC") meeting, the FOMC lowered interest rates by 50 bps to 4.75% to 5.00%, as they gained greater confidence that inflation is moving sustainably towards its 2% target. In November and December 2024, the FOMC lowered interest rates by an additional 25 bps each to a target range of 4.25% to 4.50% at the end of 2024.
Previous wording
In addition to the impacts from changes in monetary policy, other economic conditions may impact financial results in future periods. Loan demand, deposit growth, provision for credit losses, asset quality, noninterest income and noninterest expense are all affected by changes in economic conditions. Inflationary concerns, labor shortages, changes to the political and regulatory environment, including geopolitical conflicts, supply chain disruptions and the possibility of future bank failures, could adversely impact the economy, which could negatively impact our financial results as well as our customers’ creditworthiness. In light of these potential issues, we continue to monitor our liquidity. Refer to "Part II, Item 7 - Liquidity and Borrowing Arrangements" for discussion.
Current wording
In addition to the impacts from changes in monetary policy, other economic conditions may impact financial results in future periods. Loan demand, deposit growth, provision for credit losses, asset quality, noninterest income and noninterest expense are all affected by changes in economic conditions. Inflationary concerns, labor shortages, changes to the political and regulatory environment, including geopolitical conflicts, supply chain disruptions and the possibility of future bank failures, could adversely impact the economy, which could negatively impact our financial results as well as our customers’ creditworthiness. In light of these potential issues, we continue to monitor our liquidity. Refer to "Part II, Item 7 - Liquidity Risk and Borrowing Arrangements" for discussion.
Previous wording
Beginning in March 2023, the banking industry experienced significant volatility as a result of high-profile regional bank failures, which resulted in industry-wide concerns related to liquidity, deposit outflows, unrealized or unrecognized losses on investment securities and impacting consumer confidence in the banking industry. As a result, the Company took a number of preemptive actions during the first half of 2023, which included pro-active outreach to clients and other liquidity contingency planning actions, such as maximizing funding sources and increased liquidity monitoring in response to these recent developments.
Current wording
Beginning in March 2023, the banking industry experienced significant volatility as a result of high-profile regional bank failures, which resulted in industry-wide concerns related to liquidity, deposit outflows, unrealized or unrecognized losses on investment securities and weaker consumer confidence in the banking industry. As a result, the Company took a number of preemptive actions during the first half of 2023, which included pro-active outreach to clients and other liquidity contingency planning actions, such as maximizing funding sources and increased liquidity monitoring in response to these developments.
Previous wording
Despite industry and market volatility, we believe the Company’s balance sheet and liquidity position remained solid. The Company's total deposits of $6.85 billion increased by $111.4 million during the year ended December 31, 2023. The Company's deposit portfolio is diversified and long-tenured and approximately 65% of total deposits were FDIC-insured or collateralized as of December 31, 2023. The Company had $522.4 million in cash on its balance sheet and approximately $2.45 billion in total other liquidity sources, including available borrowing capacity and unpledged investment securities as of December 31, 2023. Total available sources of liquidity as a percentage of uninsured and uncollateralized deposits was approximately 125% as of December 31, 2023.
Current wording
The industry volatility stabilized in 2024 and we believe the Company’s balance sheet and liquidity position remained solid. The Company had $380.9 million in cash on its balance sheet and approximately $2.49 billion in total other liquidity sources, including available borrowing capacity and unpledged investment securities as of December 31, 2024. Total available sources of liquidity as a percentage of uninsured and uncollateralized deposits was approximately 113% as of December 31, 2024. We believe the Company's deposit portfolio is diversified and long-tenured and approximately 62% of total deposits were FDIC-insured or collateralized as of December 31, 2024.
Previous wording
The Company’s capital remained strong with the leverage, tier 1 risk-based capital, total risk-based capital, and common equity tier 1 capital ratios of 8.8%, 12.4%, 14.6%, and 11.4%, respectively, as of December 31, 2023, all exceeding "well-capitalized" regulatory standards.
Current wording
The Company’s capital remained strong with the leverage, tier 1 risk-based capital, total risk-based capital, and common equity tier 1 capital ratios of 9.3%, 13.2%, 15.4%, and 12.3%, respectively, as of December 31, 2024, all exceeding "well-capitalized" regulatory standards.
Previous wording
In January 2022, the Company announced the launch of a new BaaS initiative with the goal of expanding the Company both in and beyond Hawaii by investing in or collaborating with fintech companies. In the first quarter of 2022, the Company made a $2.0 million minority equity investment in Swell Financial, Inc. ("Swell"), a new fintech company. During the fourth quarter of 2022, Swell launched a consumer banking application that combined checking, credit and more into one integrated account, and the Bank served as the bank sponsor. As a result of a variety of adverse factors affecting Swell’s business and its strategy, the portfolio of Swell Cash and Credit accounts, which were immaterial, were closed in June 2023 and the Bank is no longer serving as the bank sponsor of Swell. As discussed in Note 6 - Investments in Unconsolidated Entities in the accompanying notes to the consolidated financial statements in this report, the Company entered into a transaction with Swell in the third quarter of 2023 whereby Swell repurchased the Company’s entire preferred and common stock equity investment in exchange for $0.5 million in cash, certain intellectual property rights and a platform usage fee agreement related to products that may be launched by Swell or its affiliates in the future (not to exceed $1.5 million in value). The Company cannot provide any assurance that the platform usage fees will be collected.
Current wording
In January 2022, the Company announced the launch of a new BaaS initiative with the goal of expanding the Company both in and beyond Hawaii by investing in or collaborating with fintech companies. In the first quarter of 2022, the Company made a $2.0 million minority equity investment in Swell Financial, Inc. ("Swell"), a new fintech company. During the fourth quarter of 2022, Swell launched a consumer banking application that combined checking, credit and more into one integrated account, and the Bank served as the bank sponsor. As a result of a variety of adverse factors affecting Swell’s business and its strategy, the portfolio of Swell Cash and Credit accounts, which were immaterial, were closed in June 2023 and the Bank is no longer serving as the bank sponsor of Swell.
Previous wording
Accounting estimates are deemed critical when a different estimate could have reasonably been used or where changes in the estimate are reasonably likely to occur from period to period and would materially impact our consolidated financial statements as of or for the periods presented. Management has discussed the development and selection of the critical accounting policy and estimate noted below with the Audit Committee of the Board of Directors, and the Audit Committee has reviewed the accompanying disclosures.
Current wording
Accounting estimates are deemed critical when a different estimate could have reasonably been used or where changes in the estimate are reasonably likely to occur from period to period and would materially impact our consolidated financial statements as of or for the periods presented. Management has discussed the development and selection of the critical accounting policy and estimate noted below with the Audit Committee of the Board of Directors, and the Audit Committee has reviewed the accompanying disclosures. 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.
Previous wording
In 2022, we recognized net income of $73.9 million, or EPS of $2.68, compared to net income of $79.9 million, or EPS of $2.83, in 2021. Our ROA and ROE for 2022 was 1.01% and 15.47%, respectively, compared to 1.13% and 14.38%, respectively, in 2021.
Current wording
In 2024, we recognized net income of $53.4 million, or fully diluted earnings per share ("EPS") of $1.97, compared to net income of $58.7 million, or EPS of $2.17, in 2023. Our ROA and ROE for 2024 was 0.72% and 10.25%, respectively, compared to 0.78% and 12.38%, respectively, in 2023.
Previous wording
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.
Current wording
Net interest income increased by $1.7 million from 2023 to 2024, primarily driven by higher average yields earned on loans and investment securities, partially offset by higher average rates paid on interest-bearing deposits.
Previous wording
In 2023, we recognized net income of $58.7 million, or fully diluted earnings per share ("EPS") of $2.17, compared to net income of $73.9 million, or EPS of $2.68, in 2022. Our ROA and ROE for 2023 was 0.78% and 12.38%, respectively, compared to 1.01% and 15.47%, respectively, in 2022.
Current wording
In 2023, we recognized net income of $58.7 million, or EPS of $2.17, compared to net income of $73.9 million, or EPS of $2.68, in 2022. Our ROA and ROE for 2023 was 0.78% and 12.38%, respectively, compared to 1.01% and 15.47%, respectively, in 2022.
Previous wording
We recorded a provision for credit losses of $15.7 million in 2023, compared to a credit to the provision of $1.3 million in 2022. The increase in the provision for credit losses reflects higher charge-offs of our U.S. Mainland unsecured consumer loan portfolio, and the outlook for continued pressure on the national consumer segment.
Current wording
We recorded a provision for credit losses of $15.7 million in 2023, compared to a credit of $1.3 million in 2022. The increase in the provision for credit losses reflects higher charge-offs of our U.S. Mainland unsecured consumer loan portfolio, and the outlook for continued pressure on the national consumer segment.
Previous wording
Other operating income decreased by $1.3 million from 2022 to 2023. The decrease in other operating income was primarily due to the gain on sale of Visa Class B common stock of $8.5 million recorded in 2022, combined with a loss on sale of investment securities of $2.1 million recorded in 2023 primarily due to an investment securities portfolio repositioning completed in the fourth quarter of 2023, and lower mortgage banking income primarily attributable to lower origination activity due to the significant rise in market interest rates which began in 2022. These negative variances were partially offset by a gain on sale of a real estate office property of $5.1 million completed in the fourth quarter of 2023, higher income from bank-owned life insurance and higher other service charges and fees. The higher income from bank-owned life insurance was primarily attributable to stock market volatility and was partially offset by higher deferred compensation expense included in salaries and employee benefits and other expenses in other operating expense. See Table 6 - Components of Other Operating Income for more information.
Current wording
Other operating income decreased by $1.3 million from 2022 to 2023. The decrease in other operating income was primarily due to the gain on sale of Visa Class B common stock of $8.5 million recorded in 2022, combined with a loss on sale of investment securities of $2.1 million recorded in 2023 primarily due to an investment securities portfolio repositioning completed in the fourth quarter of 2023, and lower mortgage banking income primarily attributable to lower origination activity due to the significant rise in market interest rates which began in 2022. These negative variances were partially offset by a gain on sale of a real estate office property of $5.1 million completed in the fourth quarter of 2023, higher income from bank-owned life insurance and higher other service charges and fees. See Table 9 - Components of Other Operating Income for more information.
Previous wording
Other operating expense decreased by $1.8 million from 2022 to 2023. The decrease was primarily due to lower salaries and employee benefits expense and lower pension plan and Supplemental Executive Retirement Plans ("SERP") expense (included in other) attributable to a non-recurring non-cash charge of $4.9 million related to the termination and settlement of the Company's defined benefit retirement plan during the second quarter of 2022, partially offset by higher computer software expense, a non-recurring charge of $2.3 million related to the early termination of a lease (included in other), higher FDIC insurance assessment (included in other), higher directors' deferred compensation plan expense (included in other) and higher net occupancy expense. See Table 7 - Components of Other Operating Expense for more information.
Current wording
Other operating expense decreased by $1.8 million from 2022 to 2023. The decrease in other operating expense was primarily due to lower salaries and employee benefits expense and lower pension plan and Supplemental Executive Retirement Plans ("SERP") expense (included in other) attributable to a non-recurring non-cash charge of $4.9 million related to the termination and settlement of the Company's defined benefit retirement plan during the second quarter of 2022, partially offset by higher computer software expense, a non-recurring charge of $2.3 million related to the early termination of a lease, higher FDIC insurance assessment, higher directors' deferred compensation plan expense and higher net occupancy expense. See Table 10 - Components of Other Operating Expense for more information.
Previous wording
The following table sets forth information concerning average interest-earning assets and interest-bearing liabilities and the yields and rates thereon. 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 - Analysis of Changes in Net Interest Income (Taxable-Equivalent) presents an analysis of changes in components of net interest income between years. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (i) changes in volume and (ii) changes in rates. The change in volume is calculated as change in average balance, multiplied by prior period average yield/rate. The change in rate is calculated as change in average yield/rate, multiplied by current period volume. The change in interest income not solely due to change in volume or change in rate has been allocated proportionately to change in volume and change in average rate.
Current wording
The following table sets forth information concerning average interest-earning assets and interest-bearing liabilities and the yields and rates thereon. Net interest income, when annualized and 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 - Analysis of Changes in Net Interest Income (Taxable-Equivalent) presents an analysis of changes in components of net interest income between years. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (i) changes in volume and (ii) changes in rates. The change in volume is calculated as change in average balance, multiplied by prior period average yield/rate. The change in rate is calculated as change in average yield/rate, multiplied by current period volume. The change in interest income not solely due to change in volume or change in rate has been allocated proportionately to change in volume and change in average rate.
Previous wording
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. The decrease in net interest income for 2023 was primarily due to increases in average balances and average rates paid on interest-bearing deposits and long-term debt, partially offset by increases in average balances and average yields earned on loans and interest-bearing deposits in other financial institutions.
Current wording
Net interest income (expressed on a taxable-equivalent basis) totaled $212.4 million in 2024, which increased by $1.6 million, or 0.8%, from $210.8 million in 2023, which decreased by $5.6 million, or 2.6%, from net interest income of $216.4 million recognized in 2022. The increase in net interest income in 2024 was primarily due to increases in the average yield earned on interest-earning assets, partially offset by increases in average rates paid on interest-bearing deposits. The increase was partially offset by decreases in the average loans and investment securities balances.
Previous wording
Average yields earned on our interest-earning assets increased by 62 basis points ("bps") in the year ended December 31, 2023, from the year ended December 31, 2022. The increase in average yields earned on interest-earning assets in 2023 was primarily attributable to the 64 bps increase in average yields earned on loans, the 442 bps increase in average yields earned on interest-bearing deposits in other financial institutions, and the 15 bps increase in average yields earned on investment securities.
Current wording
The average yield earned on our interest-earning assets in the year ended December 31, 2024 increased by 39 basis points ("bps") from the year ended December 31, 2023. The increase in the average yield earned on interest-earning assets in 2024 was primarily attributable to the increases in average yields earned on loans and investment securities of 40 bps and 33 bps, respectively.
Previous wording
Average rates paid on our interest-bearing liabilities in the year ended December 31, 2023 increased by 109 bps from the year ended December 31, 2022. The increase in average rates paid on our interest-bearing liabilities in 2023 was primarily due to increases in average rates paid on interest-bearing deposits and long-term debt of 107 bps and 114 bps, respectively, attributable to the significant increase in market interest rates which began in 2022.
Current wording
The average rate paid on our interest-bearing liabilities in the year ended December 31, 2024 increased by 44 bps from the year ended December 31, 2023. The increase in the average rate paid on our interest-bearing liabilities in 2024 was primarily due to increases in average rates paid on interest-bearing deposits and long-term debt of 49 bps and 70 bps, respectively, attributable to the significant increase in market interest rates which began in 2022.
Previous wording
In 2021, the Company sold $279.4 million in available-for-sale investment securities as part of an investment portfolio rebalancing strategy. The Company received $279.5 million in gross proceeds and reinvested the proceeds in $284.9 million in higher yield investment securities with an average yield of 1.64% and a weighted average life of 6.6 years. 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.
Current wording
In the fourth quarter of 2024, the Company sold $106.5 million in available-for-sale investment securities as part of an investment portfolio repositioning strategy. The Company received $96.6 million in gross proceeds and reinvested the proceeds in $101.6 million in higher yield investment securities with a weighted average yield of 4.9% and a weighted average life of 4.1 years. The investment securities sold had a weighted average yield of 2.2% and a weighted average life of 3.6 years. There were no gross realized gains on the sales of the investment securities. Gross realized losses on the sales of the investment securities were $9.9 million. The specific identification method was used as the basis for determining the cost of all securities sold.
Previous wording
In the fourth quarter of 2023, the Company sold $30.0 million in available-for-sale investment securities as part of an investment portfolio restructuring strategy. The Company received $28.1 million in gross proceeds and reinvested the proceeds in $28.3 million in higher yield investment securities with an average yield of 5.68% and a weighted average duration of 2.5 years. The investment securities sold had an average yield of 3.25% and a weighted average duration of 3.4 years. There were no gross realized gains on the sales of the investment securities. Gross realized losses on the sales of the investment securities were $1.9 million. The specific identification method was used as the basis for determining the cost of all securities sold.
Current wording
In the fourth quarter of 2023, the Company sold $30.0 million in available-for-sale investment securities as part of an investment portfolio repositioning strategy. The Company received $28.1 million in gross proceeds and reinvested the proceeds in $28.3 million in higher yield investment securities with a weighted average yield of 5.68% and a weighted average duration of 2.5 years. The investment securities sold had a weighted average yield of 3.25% and a weighted average duration of 3.4 years. There were no gross realized gains on the sales of the investment securities. Gross realized losses on the sales of the investment securities were $1.9 million. The specific identification method was used as the basis for determining the cost of all securities sold.
Previous wording
In the first quarter of 2022, the Company entered into a forward starting interest rate swap on certain municipal debt securities with a notional amount of $115.5 million. 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.
Current wording
In the first quarter of 2022, the Company entered into a forward starting interest rate swap on certain municipal debt securities with a notional amount of $115.5 million. The swap became effective on March 31, 2024. The Company pays the counterparty a fixed rate of 2.095% and receives a floating rate based on the Federal Funds effective rate. This transaction has a maturity date of March 31, 2029.
Previous wording
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. 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.
Current wording
Interest income expressed on a taxable-equivalent basis of $306.8 million in 2024 increased by $23.3 million, or 8.2%, from the $283.4 million earned in 2023, which increased by $49.9 million, or 21.4%, from the $233.5 million earned in 2022.
Previous wording
The increase in taxable-equivalent interest income in 2023 from 2022 was primarily due to increases in average yields earned on loans of 64 bps and average loan balances of $210.0 million, resulting in higher interest income of approximately $35.1 million and $7.9 million, respectively. In addition, the average yields earned on interest-bearing deposits in other financial institutions and investment securities increased by 442 bps and 15 bps, respectively, resulting in higher interest income of approximately $5.9 million and $2.3 million, respectively. These increases were partially offset by a decrease in average investment securities balances of $98.9 million, resulting in lower interest income of approximately $2.0 million.
Current wording
The increase in taxable-equivalent interest income in 2023 from 2022 was primarily due to increases in the average yield earned on loans of 64 bps and the average loans balance of $210.0 million, resulting in higher interest income of approximately $35.1 million and $7.9 million, respectively. In addition, the average yields earned on interest-bearing deposits in other financial institutions and investment securities increased by 442 bps and 15 bps, respectively, resulting in higher interest income of approximately $5.9 million and $2.3 million, respectively. These increases were partially offset by a decrease in the average investment securities balance of $98.9 million, resulting in lower interest income of approximately $2.0 million.
Previous wording
In 2023, interest expense was $72.7 million which represented an increase of $55.6 million, or 325.1%, compared to interest expense of $17.1 million in 2022, which was an increase of $9.4 million, or 121.6%, compared to $7.7 million in 2021.
Current wording
In 2024, interest expense was $94.4 million which represented an increase of $21.7 million, or 29.9%, compared to interest expense of $72.7 million in 2023, which was an increase of $55.6 million, or 325.1%, compared to $17.1 million in 2022.
Previous wording
Due to the rising interest rate environment, the average rates paid on interest-bearing deposits of 1.32% in 2023 increased by 107 bps from 2022, resulting in an increase in interest expense of approximately $48.0 million. Average interest-bearing deposit balances increased by $379.1 million, resulting in an increase in interest expense of approximately $3.8 million. Increases in average balances and average rates paid on long-term debt of $43.2 million and 114 bps, respectively, resulted in an total increase in interest expense of approximately $3.7 million.
Current wording
The average rate paid on interest-bearing deposits of 1.32% in 2023 increased by 107 bps from 2022, resulting in an increase in interest expense of approximately $48.0 million. The average interest-bearing deposit balance in 2023 increased by $379.1 million from 2022, resulting in an increase in interest expense of approximately $3.8 million. Increases in the average balance and average rate paid on long-term debt of $43.2 million and 114 bps, respectively, resulted in a total increase in interest expense of approximately $3.7 million in 2023 from 2022.
Previous wording
Our net interest margin was 2.94%, 3.09% and 3.18% in 2023, 2022 and 2021, respectively. The decrease in our net interest margin in 2023 from 2022 was primarily due to the increases in average rates paid on interest-bearing deposits and long-term debt, which outpaced the increases in average yields earned on loans, interest-bearing deposits in other financial institutions and investment securities.
Current wording
Our net interest margin was 3.01%, 2.94% and 3.09% in 2024, 2023 and 2022, respectively. The increase in our net interest margin in 2024 from 2023 was primarily due to the increases in the average yields earned on loans and investment securities, partially offset by increases in the average rates paid on interest-bearing deposits and long-term debt.
Previous wording
The Company believes that Pre-Provision Net Revenue ("PPNR"), a non-GAAP financial measure, is useful as a tool to help evaluate the ability to provide for credit costs through operations. The following table sets forth a reconciliation of the Company's PPNR for each of the periods presented:
Current wording
The Company believes that Pre-Provision Net Revenue ("PPNR"), a non-GAAP financial measure, is useful as a tool to help evaluate the ability to provide for credit costs through operations. The following table sets forth a reconciliation of the Company's PPNR and adjusted PPNR, which excludes the aforementioned reconciling adjustments, for the periods presented:
Previous wording
A key measure of operating efficiency tracked by the Company is the efficiency ratio, which is calculated by dividing total other operating expenses by total pre-provision revenue (net interest income plus other operating income). 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. The following table sets forth a reconciliation to our efficiency ratio for each of the periods presented:
Current wording
A key measure of operating efficiency tracked by the Company is the efficiency ratio, which is calculated by dividing total other operating expenses by total pre-provision revenue (net interest income plus total other operating income). The Company believes that the efficiency ratio, a non-GAAP financial measure, provides useful supplemental information that is important to a proper understanding of its business results and operating efficiency. 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. The following table sets forth a reconciliation to our efficiency ratio and adjusted efficiency ratio, which excludes the aforementioned reconciling adjustments, for the periods presented:
Previous wording
Our efficiency ratio increased to 63.95% in 2023, compared to 63.00% in 2022 and 64.16% in 2021. The increase in our efficiency ratio in 2023 compared to 2022, was primarily driven by the aforementioned decreases in net interest income and other operating income, offset by the decrease in other operating expense.
Current wording
The Company's efficiency ratio increased to 68.91% in 2024, compared to 63.95% in 2023 and 63.00% in 2022. The increase in our efficiency ratio in 2024 compared to 2023, was primarily driven by the aforementioned increases in other operating expense, combined with a decrease in other operating income, offset by an increase in net interest income.
Showing the first 40 of 112 pairs. Open the source sections for the rest.
Rearranged current paragraphs (6)
Current report — wording carried from elsewhere
As discussed in Note 6 - Investments in Unconsolidated Entities in the accompanying notes to the consolidated financial statements in this report, the Company entered into a transaction with Swell in the third quarter of 2023 whereby Swell repurchased the Company’s entire preferred and common stock equity investment in exchange for $0.5 million in cash, certain intellectual property rights and a platform usage fee agreement related to products that may be launched by Swell or its affiliates in the future (not to exceed $1.5 million in value). During the fourth quarter of 2024, the Company determined that the carrying value of the intangible assets would not be recoverable. As a result, the Company recorded impairment of $1.3 million on the intangible assets. The carrying value of the intangible assets was zero as of December 31, 2024.
Current report — wording carried from elsewhere
Other operating income decreased by $7.9 million from 2023 to 2024. The decrease in other operating income was primarily due to a loss on sale of investment securities of $9.9 million related to an investment portfolio repositioning completed in the fourth quarter of 2024, compared to a loss of $2.1 million primarily due to an investment portfolio repositioning completed in 2023. In addition, the Company recognized a gain on sale of a real estate office property of $5.1 million in 2023. These decreases were partially offset by higher other service charges and fees of $2.0 million and higher income from bank-owned life insurance of $1.7 million, The higher income from bank-owned life insurance was primarily attributable to stock market volatility and higher death benefit income, and was partially offset by higher deferred compensation expense included in salaries and employee benefits and other expenses in other operating expense. See Table 9 - Components of Other Operating Income for more information.
Current report — wording carried from elsewhere
The decrease in our net interest margin in 2023 from 2022 was primarily due to the increases in the average rate paid on interest-bearing deposits and long-term debt, which outpaced the increases in average yields earned on loans, interest-bearing deposits in other financial institutions and investment securities.
Current report — wording carried from elsewhere
The decrease in other operating income in 2023 from 2022 was primarily due to a non-recurring $8.5 million gain on sale of Class B common stock of Visa, Inc. ("Visa") recorded in the second quarter of 2022. Due to transfer restrictions on the Visa Class B common stock and the lack of a readily determinable fair value, the investment was carried at the Company's zero cost basis, therefore the entire net proceeds from the sale of $8.5 million were recorded as a gain on sale of investment securities. These decreases were also due to an investment portfolio repositioning completed in the fourth quarter of 2023 resulting in a
Current report — wording carried from elsewhere
$0.5 million. During 2022, we recognized a credit to the Provision of $1.3 million, which included a credit to the Provision for off-balance sheet credit exposures of $1.6 million, offset by a Provision for loans of $0.3 million.
Current report — wording carried from elsewhere
No gross gains were realized on the sale. With the proceeds, the Company purchased higher yielding AFS investment securities totaling $28.3 million with a weighted average yield of 5.68% and a weighted average duration of 2.5 years.