CPF Central Pacific Financial Corp.

Management Discussion

• Net interest income, when annualized and expressed as a percentage of average interest earning assets, is referred to as "net interest margin." Interest income, which includes loan fees and resultant yield information, is expressed on a taxable equivalent basis using a federal statutory tax rate of 21% for the three and six months ended June 30, 2019 and 2018. A comparison of net interest income on a taxable-equivalent basis ("net interest income") for the three and six months ended June 30, 2019 and 2018 is set forth below.
• Net interest income (expressed on a taxable-equivalent basis) was $45.6 million for the three months ended June 30, 2019, representing an increase of 6.2% from $42.9 million in the three months ended June 30, 2018. Net interest income (expressed on a taxable-equivalent basis) was $90.9 million for the six months ended June 30, 2019, representing an increase of 6.4% from $85.5 million in the six months ended June 30, 2018. The increase in the three and six months ended June 30, 2019 was primarily attributable to a significant increase in average loans and leases balances funded by runoff of the investment
• securities portfolio, combined with higher yields earned on the loans and leases and investment securities portfolios. In addition, average government time deposits (included in time deposits $100,000 and over) declined significantly. Partially offsetting this decrease were increases in rates paid on interest-bearing deposits and short-term borrowings, primarily attributable to the 25 basis point increases in the Federal Funds rate in each of the four quarters of 2018, combined with a significant increase in short-term borrowings.