CENTRAL PACIFIC FINANCIAL CORP

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

•the impact of potential future Banking-as-a-Service ("BaaS") initiatives; and

Previous wording

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

Current wording

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

Previous wording

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

Current wording

We refer to Central Pacific Bank herein as "our Bank" or "the Bank," and when we say "the Company," "we," "us" or "our," we mean the holding company on a consolidated basis with the Bank and our other consolidated subsidiaries.

Previous wording

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

Current wording

Central Pacific Bank is a full-service community bank with 27 branches and 55 ATMs located throughout the State of Hawaii as of March 31, 2025.

Previous wording

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

Current wording

The Company identified a significant accounting policy, which involves a higher degree of judgment and complexity in making certain estimates and assumptions that affect amounts reported in our consolidated financial statements. As of March 31, 2025 and December 31, 2024, the significant accounting policy that we believed to be the most critical in preparing our consolidated financial statements is the determination of the allowance for credit losses ("ACL") on loans. This is further described in Note 1 - Summary of Significant Accounting Policies included in the accompanying notes to the consolidated financial statements, Note 1 - Summary of Significant Accounting Policies included in the accompanying notes to the consolidated financial statements for the year ended December 31, 2024, and the section titled "Critical Accounting Policies and Use of Estimates" in Management's Discussion and Analysis of Financial Condition and Operating Results included in the Company's 2024 Annual Report on Form 10-K.

Previous wording

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

Current wording

Net income for the three months ended March 31, 2025 was $17.8 million, or $0.65 per diluted share, compared to net income of $12.9 million, or $0.48 per diluted share for the three months ended March 31, 2024.

Previous wording

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

Current wording

During the three months ended March 31, 2025, the Company recorded a provision for credit losses of $4.2 million, compared to a provision of $3.9 million during the three months ended March 31, 2024. The increase in the provision was primarily driven by the macro-economic forecast used in our current expected credit losses model.

Previous wording

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

Current wording

The Company's pre-provision net revenue ("PPNR"), a non-GAAP financial measure which excludes the provision for credit losses and income tax expense from net income, for the three months ended March 31, 2025 was $26.7 million, compared to $20.9 million for the three months ended March 31, 2024. See the following section titled "Non-GAAP Financial Measures" for reconciliation of PPNR.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

The higher PPNR in the first quarter of 2025 was primarily due to higher net interest income of $7.5 million compared to the year-ago period. The higher net interest income was primarily due to higher average yields earned on interest-earning assets, combined with lower average rates paid on interest-bearing deposits.

Previous wording

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

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.

Previous wording

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

Current wording

The following table sets forth a reconciliation to our efficiency ratio for the periods presented:

Previous wording

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

Current wording

The improvement in the efficiency ratio in the first quarter of 2025, compared to the same year-ago period, was primarily due to higher net interest income, offset by higher other operating expense.

Previous wording

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

Current wording

The following table presents our tangible common equity ("TCE") ratio, a non-GAAP financial measure, which is calculated by dividing tangible common equity by tangible assets, as of the dates presented:

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, 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.

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

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

Current wording

According to preliminary statistics from the Hawaii Tourism Authority ("HTA"), a total of 1.55 million visitors arrived to the Hawaiian Islands during the two months ended February 28, 2025, mainly from the U.S. Mainland, up 1.0% from 1.54 million visitors in the same prior year period, but down 2.9% from 1.60 million visitors in the same period in the pre-pandemic and record year in 2019. The recovery of visitors from Japan remains slow and has continued to be offset by the strength of domestic travel. Average daily census visitors from Japan were down approximately 6.3% during the two months ended February 28, 2025 compared to the same prior year period, and were down by approximately 56.3% from the same period in 2019.

Previous wording

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

Current wording

Total spending for visitors arriving in the two months ended February 28, 2025 was $3.62 billion, up 4.5% from $3.47 billion in the same period last year, and up by 20.5% from $3.01 billion in the same period in 2019.

Previous wording

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

Current wording

According to a February 2025 report by the University of Hawaii Economic Research Organization ("UHERO"), total visitor arrivals by air are expected to be approximately 9.94 million in 2025, which is an increase of approximately 2.6% from 9.69 million in 2024. Visitor spending is expected to modestly decline by approximately 0.2% to $20.55 billion in 2025 from $20.58 billion in 2024.

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 September 2024, compared to 3.0% in the month of September 2023 and the national seasonally adjusted unemployment rate of 4.1% in the month of September 2024. UHERO projects Hawaii's seasonally adjusted annual unemployment rate to remain low at approximately 3.0% in 2024.

Current wording

The Department of Labor and Industrial Relations reported that Hawaii's seasonally adjusted annual unemployment rate was 2.9% in the month of March 2025, compared to 3.0% in the month of March 2024 and the national seasonally adjusted unemployment rate of 4.2% in the month of March 2025. UHERO projects Hawaii's seasonally adjusted annual unemployment rate to remain low at approximately 3.4% in 2025.

Previous wording

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

Current wording

Hawaii's economy is measured by the growth of real personal income and real gross state product. UHERO projects real personal income to grow by 0.7% and real gross state product to grow by 1.6% in 2025.

Previous wording

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

Current wording

Real estate lending is one of the primary focuses for the Company, including residential mortgage and commercial mortgage loans. As a result, the Company is dependent on the strength of Hawaii's real estate market. The Hawaii housing market overall remained strong in the first quarter of 2025 despite some mixed results. According to the Honolulu Board of Realtors, sales of Oahu single-family homes in the three months ended March 31, 2025 were down 4.0%, while sales of Oahu condominiums were up 0.4% from the same prior year period. The Oahu single-family home median price in the three months ended March 31, 2025 rose by 7.5% to $1.15 million from $1.07 million in the same prior year period. The Oahu condominium median price in the three months ended March 31, 2025 rose by 1.0% to $510,000 from $505,000 in the same prior year period.

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, up to a 22-year high, 5.25% to 5.50% in July 2023. The Federal Funds rate remained at that level until September 2024. At the September 2024 Federal Open Market Committee ("FOMC") meeting, the FOMC lowered interest rates by 50 bps to 4.75% to 5.00%, as they gained greater confidence that inflation is moving sustainably towards its 2% target.

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. In 2025, the FOMC has kept the Federal Funds Rate unchanged through its March 2025 meeting.

Previous wording

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

Current wording

A comparison of net interest income and net interest margin on a taxable-equivalent basis for the three months ended March 31, 2025 and 2024 is presented below. Net interest margin is defined as annualized net interest income, on a taxable-equivalent basis using a federal statutory tax rate of 21%, as a percentage of average interest earning assets.

Previous wording

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

Current wording

Net interest income (expressed on a taxable-equivalent basis) was $57.9 million for the first quarter of 2025, representing an increase of $7.5 million, or 14.9% from $50.4 million in the year-ago quarter. The increase in net interest income from the year-ago quarter was primarily due to lower average interest-bearing deposit balances and lower average rates paid on interest-bearing deposits, combined with higher average yields earned on interest earning assets. These positive variances were partially offset by a decline in average loans.

Previous wording

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

Current wording

Taxable-equivalent interest income was $77.4 million for the first quarter of 2025, representing an increase of $2.8 million, or 3.8%, from $74.6 million in the year-ago quarter. The increase during the first quarter of 2025, compared to the year-ago quarter was primarily attributable to an increase in average yield earned on loans of 21 basis points ("bp" or "bps"), resulting in an increase in interest income of approximately $2.5 million and an increase in average yield earned on investment securities of 63 bps, resulting in an increase in interest income of approximately $2.4 million. The increase in the average yield earned on investment securities was primarily attributable to the investment securities portfolio repositioning completed in the fourth quarter of 2024, combined with income of $0.7 million from an interest rate swap that became effective on March 31, 2024. These increases were partially offset by decreases in the average balance and average yield earned on interest-bearing deposits in other financial institutions resulting in an decrease in interest income of approximately $1.4 million, and a decrease in average loan balances of $88.9 million, resulting in a decrease in interest income of approximately $1.2 million.

Previous wording

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

Current wording

Interest expense was $19.5 million for the first quarter of 2025, representing a decrease of $4.7 million, or 19.4%, from $24.2 million in the year-ago quarter. Average interest-bearing deposits decreased by $91.2 million, resulting in a decrease in interest expense of approximately $2.3 million. In addition, average rates paid on interest-bearing deposits of 1.48% decreased by 34 bps from the year-ago quarter, resulting in a decrease in interest expense of approximately $2.1 million.

Previous wording

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

Current wording

Our net interest margin of 3.31% for the first quarter of 2025 increased by 48 bps from 2.83% in the year-ago quarter. The increase in net interest margin for the first quarter of 2025 was primarily attributable to increases in average yields earned on loans and investment securities, combined with the decrease in average rates paid on interest-bearing deposits.

Previous wording

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

Current wording

For the first quarter of 2025, total other operating income was $11.1 million, which decreased by $0.1 million, or 1.3%, from $11.2 million in the year-ago quarter. The decrease was primarily due to lower income from bank-owned life insurance ("BOLI") of $1.0 million, partially offset by higher other service charges and fees of $0.5 million, and income from fiduciary activities of $0.2 million. The lower income from BOLI was primarily attributable to volatile equity market returns and their impact on corporate-owned life insurance ("COLI") policies used to hedge deferred compensation expense.

Previous wording

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

Current wording

For the first quarter of 2025, total other operating expense was $42.1 million, which increased by $1.5 million, or 3.7%, from $40.6 million in the year-ago quarter. The increase was primarily due to higher salaries and employee benefits of $1.1 million, legal and professional services of $0.5 million, and computer software of $0.4 million, partially offset by lower directors' deferred compensation plan expense of $0.4 million. The lower directors' deferred compensation plan expense were partially attributable to volatile equity market returns and are hedged with COLI policies, reported together with income from BOLI.

Previous wording

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

Current wording

The Company's net deferred tax assets ("DTA"), net of valuation allowance, totaled $12.5 million and $17.8 million as of March 31, 2025 and December 31, 2024, respectively, and was included in other assets on our consolidated balance sheets.

Previous wording

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

Current wording

The valuation allowance on our net deferred tax assets ("DTA") as of March 31, 2025 and December 31, 2024 totaled $3.1 million, which related entirely to our DTA from net apportioned net operating loss ("NOL") carryforwards for California state income tax purposes, as the Company does not expect to generate sufficient income in California to utilize the DTA.

Previous wording

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

Current wording

Investment securities totaled $1.37 billion as of March 31, 2025, which increased by $35.5 million, or 2.7%, from $1.33 billion as of December 31, 2024. The increase in the investment securities portfolio reflected purchases of $40.8 million and an increase in the market valuation on the AFS portfolio of $16.8 million, partially offset by principal runoff of $22.2 million.

Previous wording

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

Current wording

Loans, net of deferred costs, totaled $5.33 billion as of March 31, 2025, which increased marginally by $1.7 million, or 0.03%, from $5.33 billion as of December 31, 2024. The increase was primarily due to increases in commercial mortgage of $51.8 million, commercial and industrial of $27.7 million, and construction of $14.9 million. These increases were partially offset by decreases in consumer of $48.6 million, residential mortgage of $22.3 million, and home equity of $21.7 million.

Previous wording

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

Current wording

The Hawaii loan portfolio decreased by $44.5 million, or 1.0%, from December 31, 2024. The decrease reflected decreases in consumer of $54.8 million, residential mortgage of $22.3 million, and home equity of $21.7 million. These decreases were partially offset by increases in commercial and industrial of $30.9 million, construction of $13.9 million, and commercial mortgage of $9.5 million. During the three months ended March 31, 2025, the Company identified and reclassified $58.3 million in Hawaii consumer loans to the Hawaii commercial and industrial loan category as the loans' structure and characteristics more closely aligned with loans in the commercial and industrial category.

Previous wording

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

Current wording

Nonperforming assets totaled $11.1 million, or 0.15% of total assets as of March 31, 2025, compared to $11.0 million, or 0.15% of total assets as of December 31, 2024. The increase in nonperforming assets from December 31, 2024 was primarily attributable to additions to nonaccrual loans totaling $2.4 million, partially offset by $0.6 million in repayments of nonaccrual loans, $0.6 million in loans returned to accrual status and $1.2 million in net charge-offs, valuation and other adjustments.