Central Pacific Financial Corp: Form 10-Q for the period ended Sep 30, 2025

Forward-Looking Statements and Factors that Could Affect Future Results

Certain statements contained in this quarterly report on Form 10-Q that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"), notwithstanding that such statements are not specifically identified. In addition, certain statements may be contained in our future filings with the U.S. Securities and Exchange Commission ("SEC"), in press releases and in oral and written statements made by us or with our approval that are not statements of historical fact and constitute forward-looking statements within the meaning of the Act.

Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, capital expenditures, 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 or 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," "aim," "seek," "expect," "intend," "forecast," "hope," "target," "continue," "remain," "estimate," "will," "should," "may," and other similar expressions are intended to identify forward-looking statements, although such terminology is not the exclusive means of doing so.

While we believe that our forward-looking statements and their underlying assumptions are reasonably based, such statements are inherently subject to risks and uncertainties that may cause actual results to differ materially from expectations. Factors that may lead to such differences include, but are not limited to:

• the persistence or resurgence of current inflationary pressures in the United States and our market areas, and their effect on market interest rates, economic conditions, and credit quality;
• the impact of the current U.S. administration's economic policies, including potential international tariffs, and other cost-cutting initiatives;
• disruptions in the economy, including the effects of government shutdown(s) and supply chain disruptions;
• labor contract disputes, and potential strikes impacting both the U.S. National and Hawaii economies;
• adverse trends in the real estate or construction industries, including rising inventory levels or declining property values;
• deterioration in borrowers' financial performance leading to increased loan delinquencies, asset quality issues, or loan losses;
• the impact of local, national, and international economic conditions and natural disasters (such as wildfires, volcanic eruptions, hurricanes, tsunamis, storms, or earthquakes) on our markets and major industries within Hawaii;
• weakness in domestic economic conditions, including higher unemployment levels, instability in the financial industry, deterioration in the real estate markets, and declines in consumer or business confidence;
• revisions to estimates of reserve requirements under applicable regulatory and accounting standards;
• the adverse effects of bank failures on customer confidence, deposit behavior, liquidity and regulatory responses;
• the adverse effects of pandemics, epidemics, and other public health emergencies, including their impact on Hawaii's tourism and construction sectors, and on our borrowers, customers, vendors, and employees;
• the impact of legislative and regulatory developments, including the Dodd-Frank Act, changing capital and consumer protection rules, and new regulations affecting our operations and competitiveness;
• legal and regulatory proceedings, including actual or threatened litigation and the efforts of governmental and regulatory exams and orders, as well as the costs of ongoing or potential compliance efforts;
• the effects of accounting standard changes adopted by regulatory agencies, the Public Company Accounting Oversight Board ("PCAOB"), or the Financial Accounting Standards Board ("FASB"), and the cost and resources associated with implementation;
• changes in trade, tariff, monetary, or fiscal policies and laws, including actions by the Board of Governors of the Federal Reserve System (the "FRB" or the "Federal Reserve");
• increased competition among financial institutions, and other financial service providers;
• market volatility and monetary fluctuations, including the transition away from the London Interbank Offered Rate Index;
• declines in our market capitalization or changes in the price of the Company's common stock;
• the effects and cost of acquisitions, dispositions, or strategic transactions we may make or evaluate;
• political instability, acts of war, terrorism, or other geopolitical conflicts;
• shifts in consumer spending, borrowings, and savings behaviors;
• technological changes and developments;
• cybersecurity incidents, data privacy breaches, or fraud involving us or third-party vendors;
• deficiencies in our internal controls over financial reporting or disclosure controls, and our ability to remediate them;
• our ability to achieve efficiency ratio improvement goals;
• our ability to attract and retain key personnel;
• changes in our personnel, organization, compensation and benefit plans;
• risks related to the United States fiscal debt, deficit and budget uncertainties; and
• our success at managing the risks involved in the foregoing items.

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

Overview

Central Pacific Financial Corp. ("CPF"), a Hawaii corporation and registered bank holding company under the Bank Holding Company Act of 1956, as amended (the "BHC Act"), was organized on February 1, 1982. CPF serves as the bank holding company for its principal subsidiary, Central Pacific Bank, which was incorporated in its present form in the State of Hawaii on March 16, 1982, following a holding company reorganization. The Bank's predecessor entity was originally incorporated in the State of Hawaii on January 15, 1954.

CPF reports financial results on a fiscal year ending December 31 and operates as a single reportable segment: banking operations.

Throughout this document, "Central Pacific Bank" is referred to as "our Bank" or "the Bank," and "the Company," "we," "us," or "our," refers to Central Pacific Financial Corp. on a consolidated basis, including the Bank and other consolidated subsidiaries.

As of September 30, 2025, Central Pacific Bank operated 27 branches and 55 ATMs across the State of Hawaii, offering full-service community banking.

The Bank was founded by World War II veterans who, despite returning home as war heroes, were not afforded the same banking opportunities in Hawaii. In response, they established the Bank to serve individuals and small businesses in Hawaii that lacked access to financial services at the time. This legacy continues to shape our mission to deliver exceptional customer service and tailored financial products that meet our customers' needs, including:

• Loans: The Company's loan portfolio includes commercial and industrial loans, commercial mortgages, and construction loans to small and medium-sized businesses, professionals, and real estate investors and developers. The Company also offers residential mortgages, home equity loans, and consumer loans to individuals and homeowners. Lending activities represent a core source of interest income, which is a key driver of our overall revenue. The Company aims to maintain a strong and diversified loan portfolio, primarily in Hawaii, with selective expansion into mainland markets.
• Deposits: The Company offers a comprehensive suite of deposit products and services including checking, savings, and time deposit accounts, as well as cash management solutions and digital banking capabilities. The Company's extensive

branch and ATM network across the State of Hawaii supports convenient access for its customers. The interest paid on deposits is a key component of interest expense, which significantly influences overall earnings. In addition, fees and service charges on deposit accounts, along with card interchange contribute meaningfully to non-interest revenue.

• Wealth Management: The Company offers non-deposit investment products, annuities, investment management, trust custody, estate planning, and financial advisory services.

Our foundational principles are based on continuing to be a leading bank for small businesses, a professional and reliable resource to meet Hawaii’s housing needs, and also serve as a bridge between Hawaii and Japan. Through a legacy of strong connections with Japan, including individuals, businesses and several regional banks, we continue to service the needs and promote ongoing activities primarily through deposit product offerings and two-way referrals of other products and services.

Basis of Presentation

This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying unaudited consolidated financial statements under "Part I, Item 1. Financial Statements." The following discussion should also be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2024 filed with the U.S. Securities and Exchange Commission (the "SEC") on February 26, 2025, including the "Risk Factors" disclosed therein.

Critical Accounting Policies and Use of Estimates

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

Accounting estimates are deemed critical when a different estimate could reasonably have been used or where changes in the estimate are reasonably likely to occur from period-to-period and would materially impact the consolidated financial statements as of or for the periods presented.

Management has reviewed the development and selection of the critical accounting estimates noted below with the Audit Committee of the Board of Directors, and the Audit Committee has also reviewed the accompanying disclosures.

Management has identified the determination of the allowance for credit losses ("ACL") on loans as a critical accounting policy as of September 30, 2025 and December 31, 2024. This policy requires significant judgment and involves inherent complexity. Additional information regarding this policy is provided in Note 1 - Summary of Significant Accounting Policies included in the accompanying notes to the consolidated financial statements, as well as in Note 1 and the section titled "Critical Accounting Policies and Use of Estimates" within Management's Discussion and Analysis of Financial Condition and Operating Results in the Company's 2024 Annual Report on Form 10-K.

Financial Summary

For the three months ended September 30, 2025, the Company reported net income of $18.6 million, or $0.69 per diluted share, compared to net income of $13.3 million, or $0.49 per diluted share for the same period in 2024. For the nine months ended September 30, 2025 net income was $54.6 million, or $2.01 per diluted share, compared to net income of $42.1 million, or $1.55 per diluted share for the nine months ended September 30, 2024.

During the three months ended September 30, 2025, the Company recorded a provision for credit losses of $4.2 million, compared to a provision of $2.8 million during the same period in 2024. During the nine months ended September 30, 2025, the Company recorded a provision for credit losses of $13.3 million, compared to a provision of $9.0 million during the nine months ended September 30, 2024. The increase in the provision was primarily driven by an increase in loans, changes in the macro-economic forecast used in the current expected credit losses model, along with higher off-balance sheet credit exposure related to new unfunded construction loan commitments.

The Company's pre-provision net revenue ("PPNR"), a non-GAAP financial measure that excludes the provision for credit losses and income tax expense from net income, was $27.8 million for the three months ended September 30, 2025, compared to $19.9 million for the same period in 2024. The Company's PPNR for the nine months ended September 30, 2025 was

$83.4 million, compared to $63.6 million for the nine months ended September 30, 2024. See the following section titled "Non-GAAP Financial Measures" for reconciliation of PPNR.

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

Non-GAAP Financial Measures

To supplement its consolidated financial information, the Company utilizes certain non-GAAP financial measures. These measures are not intended to be considered in isolation or as a substitute for comparable GAAP results. The Company believes these non-GAAP financial measures provide meaningful insight to investors and other stakeholders in understanding its financial performance and position, by excluding certain transactions that may be non-recurring, non-operational, or not indicative of ongoing results. The Company believes that these non-GAAP measures offer a useful perspective for evaluating performance trends over time and are intended to support period-to-period comparisons. The Company believes they are valuable tools for both investors and management in assessing historical results and forecasting future performance.

Non-GAAP financial measures may not be comparable to similarly entitled measures reported by other companies. The following reconciling adjustments from GAAP to non-GAAP adjusted financial measures are limited to: (1) net pre-tax expenses of $1.5 million related to the consolidation of the Company's former Operations Center into its main headquarters during the three months ended September 30, 2025, and (2) pre-tax expenses of $3.1 million related to the evaluation and assessment of a strategic opportunity during the three months ended September 30, 2024.

Management does not consider these transactions to be representative of the Company's core operating performance. The related income tax effects were calculated using an assumed effective tax rate of 23%.

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Adjusted Net Income and Diluted Earnings per Share

The following table presents a reconciliation of the Company's non-GAAP adjusted net income and adjusted diluted EPS for the periods presented, excluding the reconciling adjustments discussed above:

(dollars in thousands, except per share data)

50

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

The following table presents a calculation of the Company's non-GAAP adjusted ROA and adjusted ROE for the periods presented, excluding the reconciling adjustments discussed above:

(dollars in thousands)

Pre-Provision Net Revenue

PPNR is a non-GAAP financial measure that excludes provision for credit losses and income tax expense from net income. The Company believes PPNR is a useful tool for evaluating its ability to generate earnings from operations before accounting for credit costs. The following table presents a reconciliation of the Company's non-GAAP PPNR and adjusted PPNR, excluding the reconciling adjustments discussed above, for the periods presented:

(dollars in thousands)

The increase in PPNR in the third quarter of 2025 and nine months ended September 30, 2025 was primarily driven by higher net interest income of $7.5 million and $22.8 million, respectively, compared to the same prior-year periods. The higher net interest income was largely attributable to higher average yields earned on interest-earning assets, combined with lower average rates paid on interest-bearing deposits.

Efficiency Ratio

A key measure of operating efficiency monitored by the Company is the efficiency ratio, which is derived from GAAP-based amounts. It is calculated by dividing total other operating expenses by total pre-provision revenue (defined as net interest income plus total other operating income). The Company believes that the efficiency ratio, a non-GAAP financial measure, provides a useful supplemental metric that enhances understanding of its business performance and operating efficiency. However, this ratio should not be viewed as a substitute for GAAP results and may not be comparable to similarly titled measures reported by other companies. The following table presents the Company's efficiency ratio and adjusted efficiency ratio for the periods presented:

(dollars in thousands)

The improvements in the efficiency ratio in the third quarter of 2025 and nine months ended September 30, 2025, compared to the same periods in 2024, was primarily driven by higher net interest income and other operating income, which more than offset the increase in other operating expense.

Tangible Common Equity Ratio

The tangible common equity ("TCE") ratio, a non-GAAP financial measure, is calculated by dividing tangible common equity by tangible assets. The following table presents the Company's TCE ratio and adjusted TCE ratio as of the dates presented:

(dollars in thousands)

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Material Trends

Our operations are primarily concentrated in the State of Hawaii, making our performance highly sensitive to local economic, environmental, and industry-specific conditions—particularly those affecting real estate, tourism, and broader macroeconomic trends. A favorable business climate in Hawaii is typically characterized by expanding gross state product, low unemployment and rising personal income, while an unfavorable climate reflects the opposite.

Tourism Trends

According to preliminary data from the Hawaii Tourism Authority ("HTA"), 6.6 million visitors arrived in the Hawaiian Islands during the eight months ended August 31, 2025, an increase of 0.7% from 6.5 million visitors during the same period in 2024, but a decline of 7.0% compared to 7.1 million in the pre-pandemic peak year of 2019. Visitor arrivals from Japan continue to lag, with average daily census figures down 2.5% year-over-year and 54.6% below 2019 levels. However, strong domestic travel has helped offset this shortfall, mainly from the U.S. Mainland.

Visitor spending totaled $14.62 billion in the eight months ended August 31, 2025, up 4.5% from $14.00 billion in the same period in 2024, and 21.3% higher than the $12.06 billion in the same period in 2019.

According to a September 2025 forecast report by the University of Hawaii Economic Research Organization ("UHERO"), Hawaii's tourism sector will experience a modest decline. Total visitor arrivals by air are expected to decline by approximately 1.3% to 9.58 million in 2025, down from 9.71 million in 2024. Visitor spending is also expected to decline by approximately 1.4% to $20.19 billion in 2025, down from $20.48 billion in 2024. While early-year gains, especially on Maui, offered some optimism, the sector now faces mounting challenges including sharp declines in international arrivals, particularly from Japan and Canada, driven by weaker foreign currencies, reduced airlift, and soft booking trends. Additionally, domestic travel demand is expected to weaken due to rising costs and economic uncertainty. Federal policy disruptions, such as high U.S. import tariffs, sweeping federal layoffs, and volatile immigration and fiscal policies, have further undermined consumer confidence and global travel sentiment, compounding the sector’s struggles. A full recovery in visitor arrivals is not expected until 2028.

Labor Market and Economic Indicators

The Department of Labor and Industrial Relations reported that Hawaii's seasonally adjusted annual unemployment rate was 2.7% in August 2025, slightly lower than 3.0% in August 2024 and well below the national seasonally adjusted unemployment rate of 4.3%. UHERO forecasts Hawaii's seasonally adjusted annual unemployment rate to remain steady at 3.0% for the full year 2025.

UHERO's September 2025 forecast projects a challenging economic outlook for Hawaii through the remainder of the year, with a mild recession expected. Key drivers include weakening U.S. and global conditions, declining tourism—especially from international markets—and stalled job growth. Inflation is anticipated to rise due to tariff impacts, while construction remains the only major source of economic strength. Real personal income is forecast to grow modestly by 1.3% in 2025, while real gross state product is projected to increase by 1.7% in 2025. These projections assume continued high tariffs, federal spending cuts, and no immediate U.S. recession, though downside risks remain elevated due to policy uncertainty and global economic fragility.

Real Estate Market

Real estate lending, particularly residential and commercial mortgage loans, is a core focus of the Company. Consequently, our performance is closely tied to the health of Hawaii's real estate market. Despite mixed results, Hawaii's housing market remained resilient in the nine months ended September 30, 2025. According to the Honolulu Board of Realtors, sales of Oahu single-family homes rose 0.8%, while Oahu condominium sales fell 3.0% in the nine months ended September 30, 2025, compared to the same period in 2024. The median sale price of Oahu single-family homes increased 4.1% to $1.15 million in the nine months ended September 30, 2025, compared to $1.1 million in the same period in 2024. The median sale price of Oahu condominiums declined by 1.0% to $505,000 in the nine months ended September 30, 2025, compared to $510,000 in the same period in 2024.

Interest Rate Environment

Changes in monetary policy, particularly interest rate movements, can significantly impact operations by affecting: (i) interest income on loans and investment securities, (ii) interest expense on deposits and borrowings, (iii) loan origination and deposit acquisition, and (iv) the fair value of our assets and liabilities, among other factors.

To combat inflation, the FRB raised the Federal Funds rate from a target range of 0.00% to 0.25% in early 2022 to a 22-year high of 5.25% to 5.50% by mid-2023. The rate remained unchanged until September 2024, when the Federal Open Market Committee ("FOMC") initiated a series of rate cuts, lowering the target range to 4.25% to 4.50% by year-end 2024.

In September 2025, the FOMC implemented its first rate cut of the year, reducing the target range by 25 basis points ("bps") to 4.00% to 4.25%. This decision was driven by signs of a weakening labor market and moderated economic growth, despite inflation remaining above the Fed’s 2% target. The FOMC also signaled the possibility of two additional rate cuts before year-end 2025, contingent on evolving economic conditions.

Results of Operations

Net Interest Income and Net Interest Margin

A comparison of net interest income and net interest margin on a taxable-equivalent basis for the three and nine months ended September 30, 2025 and 2024 is presented below. Net interest margin is calculated as annualized net interest income, adjusted to a taxable-equivalent basis using a federal statutory tax rate of 21%, expressed as a percentage of average interest-earning assets.

(dollars in thousands)

Net interest income (expressed on a taxable-equivalent basis) was $61.5 million for the third quarter of 2025, an increase of $7.5 million, or 13.9% from $54.0 million for the same quarter of 2024. The increase was primarily driven by higher average yields earned on loans and investment securities, which significantly increased interest income, combined with lower average interest-bearing deposit balances and lower average rates paid on interest-bearing deposits, which reduced interest expense. These positive variances were partially offset by declines in the average balance and average yield earned on interest-bearing deposits in other financial institutions, which reduced interest income.

Interest Income

Taxable-equivalent interest income was $80.1 million for the third quarter of 2025, an increase of $2.1 million, or 2.7%, from $78.0 million for the same quarter in 2024. The increase was primarily attributable to an increase in average yield earned on loans of 12 bps, resulting in an increase in interest income of approximately $1.7 million, and an increase in average yield earned on investment securities of 26 bps, resulting in an increase in interest income of approximately $1.0 million. 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 a decrease in interest income of approximately $0.9 million.

Interest Expense

Interest expense was $18.7 million for the third quarter of 2025, a decrease of $5.4 million, or 22.4%, from $24.0 million for the same quarter in 2024. The decrease was primarily attributable to a decrease in average interest-bearing deposits of $72.5 million, resulting in a decrease in interest expense of approximately $1.4 million, a 39 bps decrease in the average rate paid on interest-bearing deposits to 1.43% resulting in a decrease in interest expense of approximately $3.6 million, and a $0.4 million reduction in interest expense on long-term debt, primarily due to the payoff of a $25.0 million FHLB advance during the first quarter of 2025.

Net Interest Margin

Net interest margin was 3.49% for the third quarter of 2025, an increase of 42 bps from 3.07% for the same quarter in 2024. The increase in net interest margin was primarily due to increases in average yields earned on loans and investment securities, combined with the decrease in the average rate paid on interest-bearing deposits. These positive variances were partially offset by a decline in the average yield earned on interest-bearing deposits in other financial institutions.

(dollars in thousands)

Net interest income (expressed on a taxable-equivalent basis) was $179.4 million for the nine months ended September 30, 2025, an increase of $22.9 million or 14.7% from $156.4 million for the same period in 2024. The increase from the same period in 2024 was primarily due to higher average yields earned on loans and investment securities, which significantly increased interest income, combined with lower average interest-bearing deposit balances and lower average rates paid on interest-bearing deposits, which significantly reduced interest expense. These positive variances were partially offset by a decline in average loan balances which reduced interest income, combined with declines in the average balance and average yield earned on interest-bearing deposits in other financial institutions, which also reduced interest income.

Interest Income

Taxable-equivalent interest income was $235.9 million for the nine months ended September 30, 2025, an increase of $7.2 million, or 3.2%, from $228.6 million for the same period in 2024. The increase was primarily attributable to an increase in the average yield earned on loans of 16 bps, resulting in an increase in interest income of approximately $6.3 million, and an increase in the average yield earned on investment securities of 41 bps, resulting in an increase in interest income of approximately $4.6 million. The increase in the average yield earned on investment securities was partially attributable to an investment portfolio repositioning completed during the fourth quarter of 2024, in which the Company sold lower-yielding available-for-sale debt securities with a book value of $106.5 million and reinvested proceeds in $101.6 million of higher-yielding debt securities. In addition, the Company recorded income from an interest rate swap that became effective on March 31, 2024 of $2.1 million in the nine months ended September 30, 2025, compared to $1.9 million in the same period in 2024. These increases were partially offset by a decrease in average loan balances of $54.8 million, resulting in a decrease in interest income of approximately $2.0 million, and decreases in the average balance and average yield earned on interest-bearing deposits in other financial institutions of $41.4 million and 103 bps, respectively, resulting in a decrease in interest income of approximately $3.0 million.

Interest Expense

Interest expense was $56.5 million for the nine months ended September 30, 2025, a decrease of $15.7 million, or 21.7%, from $72.2 million in the same period in 2024. The decrease was primarily attributable to a decrease in the average rate paid on interest-bearing deposits of 38 bps to 1.44%, resulting in a decrease in interest expense of approximately $9.2 million, and a decrease in average interest-bearing deposit balances of $80.9 million, resulting in a decrease in interest expense of approximately $5.5 million.

Net Interest Margin

Net interest margin was 3.41% for the nine months ended September 30, 2025, an increase of 46 bps from 2.95% in the same period in 2024. As previously discussed, the increase in net interest margin was primarily attributable to increases in average yields earned on loans and investment securities, combined with a decline in average rates paid on interest-bearing deposits and long-term debt.

Rate-Volume Analysis

For each category of interest-earning assets and interest-bearing liabilities, changes in interest income or expense are analyzed based on two factors: (i) changes in average balances (volume) and (ii) changes in weighted average interest rates (rate). The change in volume is calculated by multiplying the change in average balance by the prior period's average yield or rate. The change in rate is calculated by multiplying the change in average yield or rate by current period's average balance. Any residual change in interest income or expense not solely attributable to volume or rate is allocated proportionately between the two.

(dollars in thousands)

Other Operating Income

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

(dollars in thousands)

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Total other operating income for the third quarter of 2025 was $13.5 million, which increased by $0.8 million, or 6.1%, from $12.7 million in same quarter in 2024. The increase was primarily driven by higher investment services income, included in other service charges and fees, of $0.5 million.

(dollars in thousands)

Total other operating income for the nine months ended September 30, 2025 was $37.6 million, which increased by $1.5 million, or 4.2%, from $36.1 million for the same period in 2024. The increase was primarily due to higher other service charges and fees, which increased by $1.1 million, largely due to higher investment services fees of $0.8 million and ATM and debit card fees of $0.4 million, and higher income from fiduciary activities, which increased by $0.3 million.

Other Operating Expense

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

(dollars in thousands)

Total other operating expense for the third quarter of 2025 was $47.0 million, which increased by $0.3 million, or 0.7%, from $46.7 million for the same quarter in 2024. The increase was primarily driven by higher salaries and employee benefits of $2.5 million, computer software of $0.6 million, and $1.5 million in expenses related to the consolidation of the Company's former Operations Center into its main headquarters. The higher salaries and employee benefits was primarily attributable to higher incentive accruals. These increases were partially offset by $3.1 million in expenses related to the evaluation and assessment of a strategic opportunity in the same period in 2024, and lower directors' deferred compensation expense of $0.8 million.

(dollars in thousands)

Total other operating expense for the nine months ended September 30, 2025 was $133.0 million, which increased by $4.6 million, or 3.6%, from $128.4 million for the same period in 2024. The increase was primarily driven by higher salaries and employee benefits of $5.0 million, computer software expense of $1.9 million, $1.5 million in expenses related to the consolidation of the Company's former Operations Center into its main headquarters, and legal and professional services of $1.1 million. The higher salaries and employee benefits was largely attributable to higher incentive accruals. These increases were partially offset by $3.1 million in expenses related to the evaluation and assessment of a strategic opportunity in the same period in 2024, and lower directors' deferred compensation plan expense of $1.1 million.

Income Taxes

The Company recorded income tax expense of $5.1 million for the third quarter of 2025, compared to $3.8 million for the same quarter in 2024. For the nine months ended September 30, 2025, the Company recorded income tax expense of $15.5 million, compared to $12.6 million for the same period in 2024.

The effective tax rate ("ETR") for the third quarter of 2025 was 21.44%, compared to 22.03% for the same quarter in 2024. The ETR for the nine months ended September 30, 2025 was 22.07%, compared to 23.00% for the same period in 2024.

The increase in income tax expense for the three and nine months ended September 30, 2025 was primarily attributable to higher pre-tax income compared to the same periods in 2024. The decrease in the effective tax rate in the three and nine months ended September 30, 2025 was mainly driven by the recognition of higher low-income housing tax credits, along with the tax benefit associated with the donation of real estate in connection with the consolidation of the Company's Operations Center in the third quarter of 2025.

The Company's net deferred tax assets ("DTA"), net of valuation allowance, totaled $18.5 million as of September 30, 2025, compared to $17.8 million as of December 31, 2024. These amounts were included in other assets on the Company's consolidated balance sheets.

The valuation allowance on the Company's net DTA totaled $3.1 million as of September 30, 2025, and $3.1 million as of December 31, 2024. The valuation allowance related entirely to DTAs arising from apportioned net operating loss ("NOL") carryforwards for California state income tax purposes, as the Company does not expect to generate sufficient taxable income in California to utilize these DTAs.

Financial Condition

Total assets were $7.42 billion as of September 30, 2025, a decrease of $50.6 million, or 0.7%, from $7.47 billion as of December 31, 2024. The decrease was primarily driven by reductions in interest-bearing deposits in other financial institutions, total deposits, and long-term borrowings, partially offset by increases in loans and FRB stock.

Investment Securities

Investment securities totaled $1.33 billion as of September 30, 2025, a decrease of $5.0 million, or 0.4%, from $1.33 billion as of December 31, 2024. The decrease in the investment securities portfolio reflected principal runoff of $88.7 million, partially offset by net purchases of $49.1 million, and a $34.6 million increase in the market valuation of the AFS portfolio.

Loans

The Company strategically supplements its Hawaii loan portfolio by selectively pursuing commercial, commercial real estate, and consumer loan opportunities on the U.S. Mainland. This approach supports growth, enhances geographic, asset class and rate type diversification, generally provides higher yields, while maintaining the Company's disciplined credit standards and underwriting practices.

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

(dollars in thousands)

Loans, net of deferred costs, totaled $5.37 billion as of September 30, 2025, an increase of $34.4 million, or 0.6%, from $5.33 billion as of December 31, 2024. The increase was primarily driven by increases in commercial mortgage loans of $112.5 million, construction loans of $72.4 million, and commercial and industrial loans of $1.9 million. These increases were partially offset by decreases in home equity loans of $66.1 million, residential mortgage loans of $53.0 million, and consumer loans of $33.4 million.

The Hawaii loan portfolio decreased by $100.7 million, or 2.2%, from December 31, 2024. The decrease was primarily due to decreases in home equity loans of $66.1 million, residential mortgage loans of $53.0 million, and consumer loans of $51.6 million. These decreases were partially offset by increases in commercial and industrial loans of $34.6 million, construction loans of $30.9 million, and commercial mortgage loans of $4.5 million.

During the three months ended March 31, 2025, the Company reclassified $58.3 million of Hawaii consumer loans to the Hawaii commercial and industrial loan class, based on the loans' structure and characteristics, which more closely aligned with commercial and industrial lending criteria.

The U.S. Mainland loan portfolio increased by $135.1 million, or 18.0%, from December 31, 2024. The increase was primarily driven by increases in commercial mortgage loans of $108.0 million, construction loans of $41.5 million, and consumer loans of $18.3 million, partially offset by a decrease in commercial and industrial loans of $32.8 million. During the nine months ended September 30, 2025, the Company purchased $99.6 million in U.S. Mainland consumer automobile loan portfolios.

Maturity Distribution and Sensitivities of Loans to Changes in Interest Rates

The following table sets forth the maturity distribution and sensitivities of the loan portfolio to changes in interest rates at September 30, 2025. Maturities are based on contractual maturity dates and do not factor in principal amortization.

(dollars in thousands)

65

Nonperforming Assets and Accruing Loans 90+ Days Past Due

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

(dollars in thousands)

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

(dollars in thousands)

Nonperforming assets totaled $14.3 million, or 0.19% of total assets as of September 30, 2025, compared to $11.0 million, or 0.15% of total assets as of December 31, 2024. The increase in nonperforming assets was primarily driven by additions to nonaccrual loans totaling $9.1 million, partially offset by $1.5 million in repayments, $2.2 million in loans returned to accrual status, and $2.1 million in net charge-offs, valuation adjustments and other reductions.

Criticized loans increased by $62.3 million from December 31, 2024 to $95.1 million, or 1.8% of the total loan portfolio, as of September 30, 2025 . Within criticized loans, special mention loans increased by $24.4 million to $33.0 million, or 0.6% of the total loan portfolio and classified loans increased by $37.9 million to $62.1 million, or 1.2% of the total loan portfolio. The increase in criticized loans was primarily due to the downgrade of a commercial real estate participation loan to special mention and an owner-occupied commercial real estate loan to classified during the second quarter of 2025. Both loans remain performing and are adequately collateralized.

The Company's ratio of classified assets and other real estate owned to Tier 1 capital plus the ACL was 7.86% as of September 30, 2025, which increased from 3.17% as of December 31, 2024.

Allowance for Credit Losses

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

(dollars in thousands)

The Company's ACL on loans totaled $60.4 million as of September 30, 2025, compared to $59.2 million as of December 31, 2024 and $61.6 million as of September 30, 2024.

During the three months ended September 30, 2025, the Company recorded a provision for credit losses on loans of $3.4 million and net charge-offs of $2.7 million. During the same period in 2024, the Company recorded a provision of $3.0 million and net charge-offs of $3.6 million.

For the nine months ended September 30, 2025, the Company recorded a provision for credit losses on loans of $11.2 million and net charge-offs of $9.9 million. During the same period in 2024, the Company recorded a provision of $9.6 million and net charge-offs of $11.9 million.

The ACL as a percentage of total loans was 1.13% as of September 30, 2025, compared to 1.11% as of December 31, 2024 and, 1.15% as of September 30, 2024.

In accordance with U.S. GAAP, loans held for sale and other real estate owned are excluded from the Company's ACL assessment.

The following table presents the allocation of the ACL by loan class as of the dates indicated. The Company applies specific allocations to individually evaluated loans and general allocations to loan classes based on management's assessment of credit risk and estimated loss rates.

(dollars in thousands)

The following table presents the ratio of annualized net charge-offs (recoveries) to average loans by loan class for the periods presented:

Deposits

The Company's deposit portfolio is well-diversified and reflects a long-standing commitment to relationship-based banking. As of September 30, 2025, approximately 53% of deposit customers have maintained accounts with the Bank for over 10 years, underscoring the stability and loyalty of the customer base.

While the Company's deposit-gathering efforts are primarily focused in Hawaii, its strategy also extends beyond local markets. Through established relationships with Japanese regional banks, corporations, and non-resident alien individuals, the Bank continues to attract U.S. dollar deposits from international sources. These relationships support deposit growth and diversification while aligning with the Company’s prudent risk management practices.

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

(dollars in thousands)

68

Total deposits were $6.58 billion as of September 30, 2025, a decrease of $66.3 million, or 1.0%, from $6.64 billion as of December 31, 2024. The decrease was primarily driven by decreases in savings and money market deposits of $36.3 million, time deposits up to $250,000 of $39.4 million, and other time deposits greater than $250,000 of $42.4 million. These decreases were partially offset by increases in noninterest-bearing demand deposits of $14.7 million, and government time deposits of $35.0 million. The Company did not hold any wholesale, brokered, or listing service deposits as of September 30, 2025.

Core deposits, which we define as demand deposits, savings and money market deposits, and time deposits up to $250,000, totaled $5.98 billion as of September 30, 2025, a decrease of $59.0 million, from $6.04 billion as of December 31, 2024. Core deposits represented 90.9% of total deposits as of September 30, 2025, compared to 90.9% as of December 31, 2024.

The average cost of total deposits was 102 bps in the third quarter of 2025, compared to 132 bps in the same quarter in 2024. For the nine months ended September 30, 2025, the average cost of total deposits was 104 bps, compared to 133 bps during the same period in 2024.

All deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC. Estimated uninsured deposits totaled $2.80 billion, or 43% of total deposits, as reported in the Company's FDIC Call Report as of September 30, 2025, compared to $2.82 billion, or 42% of total deposits as of December 31, 2024.

Fully collateralized deposits totaled approximately $305.6 million as of September 30, 2025, compared to $282.3 million as of December 31, 2024. Excluding fully collateralized deposits, estimated uninsured deposits totaled $2.49 billion, or 38% of total deposits as of September 30, 2025, compared to $2.54 billion, or 38% of total deposits as of December 31, 2024.

The following table presents the remaining maturity of time deposits in excess of the FDIC insurance limit of $250,000 as of September 30, 2025:

(dollars in thousands)

Capital Resources

The Company conducts ongoing assessments of its capital adequacy, evaluating projected sources and uses of capital in conjunction with the size and quality of its assets, anticipated business performance, changes in monetary and fiscal policy, and regulatory capital requirements. As part of this process, the Board of Directors regularly reviews the Company’s capital position—including the call and maturity dates of existing capital instruments—to determine whether additional capital should be raised (via debt or equity) or whether capital may be returned to shareholders through dividends or share repurchases.

Common Equity

Total shareholders' equity was $588.1 million as of September 30, 2025, compared to $538.4 million as of December 31, 2024. The change in total shareholders' equity was primarily attributable to net income of $54.6 million and other comprehensive income of $22.4 million for the nine months ended September 30, 2025, partially offset by cash dividends paid of $21.9 million, and the repurchase of $7.0 million in common stock under the Company's stock repurchase programs.

The ratio of total shareholders' equity to total assets was 7.92% as of September 30, 2025, compared to 7.21% as of December 31, 2024. Book value per share was $21.86 as of September 30, 2025, compared to $19.89 as of December 31, 2024.

Holding Company Capital Resources

Under the Dodd-Frank Act, CPF is required to serve as a source of financial strength to the Bank. CPF is responsible for meetings its own obligations, including payments on its junior subordinated debentures that fund trust preferred securities and subordinated notes.

CPF relies on dividends from the Bank to meet its obligations. On a stand-alone basis, CPF had an available cash balance of $19.2 million as of September 30, 2025, compared to $23.0 million as of December 31, 2024.

As a Hawaii state-chartered bank, the Bank may only pay dividends to the extent it has Statutory Retained Earnings, as defined under Hawaii banking law, which differs from GAAP retained earnings. The Bank had Statutory Retained Earnings of $229.9 million as of September 30, 2025, compared to $196.8 million as of December 31, 2024.

Dividends are subject to the discretion of the Board of Directors and may be restricted by federal and Hawaii state laws, regulatory guidance from the FRB, and covenants set forth in various agreements the Company is a party to, including covenants set forth in our junior subordinated debentures and subordinated notes. There is no assurance that dividends will continue at the current rate or at all.

Share Repurchases

In January 2025, the Company’s Board of Directors authorized a new share repurchase program (the "2025 Repurchase Plan") allowing the Company to repurchase up to $30.0 million of its common stock in open market or privately negotiated transactions. The 2025 Repurchase Plan replaced the prior repurchase authorization in its entirety.

During the nine months ended September 30, 2025, the Company repurchased 258,648 shares of common stock at an aggregate cost of $7.0 million under the 2025 Repurchase Plan. As of September 30, 2025, $23.0 million remained available for repurchase under the plan.

Trust Preferred Securities

As of September 30, 2025, the Company maintained two statutory trusts, CPB Capital Trust IV ("Trust IV") and CPB Statutory Trust V ("Trust V"), which issued a combined $50.0 million in floating rate trust preferred securities. These securities, along with the underlying junior subordinated debentures and the common securities issued by the trusts, are redeemable in whole or in part on any interest payment date for Trust IV and V, or at any time in whole but not in part within 90 days following the occurrence of certain events.

On July 3, 2023, following the cessation of the LIBOR benchmark rate on June 30, 2023, the Company amended the debt agreements for Trust IV and Trust V to adopt the CME Term Secured Overnight Financing Rate ("SOFR") plus a tenor spread adjustment. Under Accounting Standards Codification ("ASC") 848, these modifications were accounted for as a continuation of the existing contracts. The $30.0 million in floating rate trust preferred securities of Trust IV now bear interest at the three-month CME Term SOFR plus a tenor spread adjustment of 0.26% plus 2.45%. The $20.0 million in floating rate trust preferred securities of Trust V now bear interest at the three-month CME Term SOFR plus a tenor spread adjustment of 0.26% plus 1.87%.

The Company provides a full and unconditional guarantee of each trust’s obligations related to its trust preferred securities. Subject to certain exceptions and limitations, the Company may defer interest payments on the subordinated debentures for up to 20 consecutive quarters without default or penalty.

Subordinated Notes

On October 20, 2020, the Company completed a $55.0 million private placement of ten-year fixed-to-floating rate subordinated notes, which was used to support regulatory capital ratios and for general corporate purposes. These notes were subsequently exchanged for registered notes with identical terms at the end of the fourth quarter of 2020.

The notes bear a fixed interest rate of 4.75% for the first five years through November 1, 2025, after which the interest rate resets quarterly to the then current three-month SOFR, as published by the Federal Reserve Bank of New York, plus 4.56%, for the remaining five years. The subordinated notes are callable on any quarterly interest payment date on or after November 1, 2025. On September 11, 2025, the Company provided notice to the trustee of its plan for full redemption of the subordinated notes, at par, on November 1, 2025. Holders of the subordinated notes were subsequently notified on October 1, 2025.

As of September 30, 2025, the subordinated notes had a carrying value of $55.0 million, net of unamortized debt issuance costs of $20 thousand that is being amortized through November 1, 2025.

Regulatory Capital Ratios

The Company and the Bank are subject to regulatory capital requirements administered by federal banking agencies. These requirements include both quantitative measures, based on assets, liabilities, and certain off-balance-sheet exposures calculated under regulatory accounting principle, and qualitative assessments by regulators. For banks, capital adequacy is also governed by prompt corrective action regulations. Failure to meet minimum capital requirements may result in regulatory enforcement actions.

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

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

For a further discussion of regulatory capital requirements for the Company and the Bank and the effect of forthcoming changes in required regulatory capital ratios, see the discussion in the "Business — Supervision and Regulation" section of the Company's 2024 Form 10-K.

The following table presents the regulatory capital ratios for the Company and the Bank, as well as the minimum capital adequacy requirements applicable to all financial institutions, as of the dates presented. As of September 30, 2025 and December 31, 2024, the leverage capital, tier 1 risk-based capital, total risk-based capital, and CET1 risk-based capital ratios for both the Company and the Bank exceeded the thresholds required for a "well-capitalized" designation under applicable regulations.

(dollars in thousands)

[1] Under the Basel III Capital Rules, the Company and the Bank must also maintain a 2.5% Capital Conservation Buffer ("CCB") to avoid becoming subject to restrictions on capital distributions and certain discretionary bonus payments to management. The CCB is calculated as a ratio of CET1 capital to risk-weighted assets, and effectively increases the required minimum risk-based capital ratios. As of September 30, 2025 and December 31, 2024, the Company and the Bank's risk-based capital exceeded the required CCB.

Market Risk

Market risk represents the potential for loss in financial instruments arising from adverse changes in market rates and prices, including interest rates, foreign exchange rates, commodity prices, and equity prices. The Company's primary market risk exposure is interest rate risk, which arises when rate-sensitive assets and rate-sensitive liabilities mature or reprice during different periods or in differing amounts.

Asset/Liability Management and Interest Rate Risk

The Company's earnings and capital are sensitive to interest rate fluctuations. Interest rate risk is inherent in the Company’s core activities, including loan origination, deposit gathering, investment portfolio management, and other interest-bearing funding sources. Asset/liability management seeks to align the maturities and repricing characteristics of rate-sensitive assets and liabilities to achieve financial objectives while managing risk.

The Company’s Asset/Liability Management Policy is designed to optimize the risk-adjusted return to shareholders while maintaining consistently acceptable levels of liquidity, interest rate risk and capital adequacy. The Asset/Liability Management Committee ("ALCO") oversees interest rate risk utilizing a detailed and dynamic earnings and capital simulation model that evaluates earnings and capital under various interest rate scenarios and balance sheet forecasts.

Earnings sensitivity is typically measured by estimated changes in net interest income ("NII") under different rate scenarios. Capital sensitivity is typically measured through an Economic Value of Equity ("EVE") analysis which monitors the impact of the durations of rate sensitive assets and liabilities. The EVE analysis simulates the cash flows for all on- and off- balance sheet instruments under different rate scenarios which are then discounted to determine a present value for each scenario. The net present value of our assets and liabilities represents the EVE for each scenario. The EVE results for each scenario are then compared to the base scenario to determine the Company’s sensitivities to longer term rate exposures. The results of the analyses are shared with the Board of Directors and informs strategic actions to mitigate and optimize our risk position and profitability. Adverse interest rate risk exposures are managed through the shortening or lengthening of the duration of assets and liabilities.

The ALCO simulation model used to measure and manage interest rate risk exposures includes both dynamic and static balance sheet and rate scenarios. The dynamic model scenarios provide an enhanced view that enables management and the Board of Directors to have a realistic view of the expected impact to earnings and capital from forecasted non-parallel movements in interest rates as well as balance sheet changes. On the other hand, static rate scenarios are a measurement of embedded interest rate risk in the balance sheet as of a point in time and incorporate various hypothetical interest rate scenarios that may include gradual or immediate parallel rate changes. The static scenarios have the benefit of comparability over time, as well as against other financial institutions, but are not intended to represent management's forecast. Both dynamic and static model simulations include the use of a number of key modeling assumptions including prepayment speeds, pricing spreads of assets and liabilities, deposit decay rates and the timing and magnitude of deposit rate changes in relation to changes in the overall level of interest rates. The assumptions are typically based on analyses of institution specific actual historical data and trends. Market information is also incorporated where relevant and appropriate. Assumptions are periodically reviewed and updated by ALCO. During periods of increased market volatility, assumptions will be reviewed more frequently. While management believes the assumptions are reasonable, actual behaviors and results may likely differ.

The following table presents the Company's static net interest income sensitivity analysis as of the dates presented. The simulations estimate net interest income assuming no balance sheet growth under a flat interest rate scenario. The net interest income sensitivity is measured as the change in net interest income in alternate interest rate scenarios as a percentage of the flat rate scenario. Alternate rate scenarios assume rates move up or down 100 bps, 200 bps or 300 bps in either a gradual (defined as the stated change over a 12-month period in equal increments) or an instantaneous, parallel fashion. The results indicate that the Company’s balance sheet is relatively well-positioned against movements in interest rates and remains within ALCO Policy risk limits that have been approved by the Board of Directors.

Liquidity and Borrowing Arrangements

The Company's objective in managing liquidity is to maintain a prudent balance between sources and uses of funds in order to economically meet the cash requirements of customers for loans and deposit withdrawals, while also supporting lending and investment opportunities as they arise. Liquidity is monitored daily in relation to changes in loan and deposit balances to ensure optimal utilization, maintenance of adequate levels of readily marketable assets, and access to reliable short-term funding sources.

To support this objective, the Company performs regular liquidity stress testing under a range of scenarios to evaluate its ability to withstand potential liquidity stress events. Forecasts of Company cash flows are updated and analyzed periodically, and more frequently during periods of elevated liquidity risk.

Historically, core deposits have provided us a stable and low-cost funding base, although they remain subject to competitive pressures in the Company's market. A significant portion of deposits are granular, long-tenured, and relationship-based. In addition to core deposits, the Company also has access to a variety of other short-term and long-term funding sources, including proceeds from maturities of our loans and investment securities, as well as secondary funding sources available to meet our liquidity needs, such as the FHLB, secured repurchase agreements, and the Federal Reserve discount window.

As of September 30, 2025, the Company had $309.9 million in cash on its balance sheet and approximately $2.33 billion in total other liquidity sources, including available borrowing capacity and unpledged investment securities. Refer to Note 8 - Short-Term Borrowings and Long-Term Debt in the accompanying notes to the consolidated financial statements in this report for information on the Company's borrowing arrangements.

Information regarding our material contractual obligations is provided in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2024. There have been no material changes in our cash requirements from known contractual and other obligations since December 31, 2024.

For quantitative and qualitative disclosures regarding market risks, refer to "Market Risk" and "Asset/Liability Management and Interest Rate Risk" of Part I, Item 2, "Management’s Discussion and Analysis of Financial Condition and Results of Operations."

Evaluation of Disclosure Controls and Procedures

As of the end of the reporting period, and in accordance with Rule 13a-15 of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), the Company's management, including the principal executive officer and principal financial officer, conducted an evaluation of the design and effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on this evaluation, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the period covered by this report that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

There have been no material changes from the Risk Factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC on February 26, 2025, except as described below:

The financial services industry and broader economy may be subject to new or changing government policy, legislation and regulation, or the prolonged effects of a government shutdown.

Our success depends, to a certain extent, upon local, national and global economic and political conditions, as well as governmental monetary, trade and interest rate policies. The current U.S. administration has and continues to implement significant and rapid changes in federal government operations and policies, including international trade policies, which may impact economic stability, the financial markets and the financial services industry broadly. In addition, the inability to successfully resolve budget disputes in Congress has led to a federal government shutdown, which could be prolonged. Conditions such as an economic recession, stagflation, rising unemployment, and the effects of tariffs, trade wars, government shutdowns, inflationary prices, tax law changes and other factors beyond our control may adversely affect the local and national economy, our asset quality, deposit levels, loan demand, demand for our products and services and the ability to manage costs associated with employees and vendors. The occurrence of any of the foregoing events could have a material adverse effect on our business, financial condition or results of operations.