Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Central Pacific Financial Corp (NYSE:CPF)
Q3 2020 Earnings Call
Oct 28, 2020, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the Central Pacific Financial Corp Third Quarter 2020 Conference Call. [Operator Instructions] This call is being recorded and will be available for replay shortly after its completion on the company's website at www.cpb.bank.

I'd like to turn the call over to Mr. David Morimoto, Executive Vice President, Chief Financial Officer. Please go ahead, sir.

David S. Morimoto -- Executive Vice President, Chief Financial Officer

Thank you, Greg. And thank you all for joining us as we review the financial results of the third quarter of 2020 for Central Pacific Financial Corp. With me this morning are Paul Yonamine, Chairman and Chief Executive Officer; Catherine Ngo, President; Arnold Martines, Executive Vice President and Chief Banking Officer; and Anna Hu, Executive Vice President and Chief Credit Officer.

We have prepared a slide presentation that we will refer to in our remarks today. The presentation is available in the Investor Relations section of our website at cpb.bank.

During the course of today's call, management may make forward-looking statements. While we believe these statements are based on reasonable assumptions, they involve risks that may cause actual results to differ materially from those projected. For a complete discussion of the risks related to our forward-looking statements, please refer to Slide 2 of our presentation.

And now, I'll turn the call over to Paul.

Paul K. Yonamine -- Chairman and Chief Executive Officer, CPF and Executive Chairman, CPB

Thank you, David and good morning everyone. As always, we appreciate your interest in Central Pacific Financial Corp. The state of Hawaii, as well as our company, continues to manage well through the COVID-19 pandemic. While the state of Hawaii experienced an uptick in infections in the late summer, which led to a second government mandated shutdown, the infection rate has recently dropped with the latest seven-day average number of infection and positivity rate of 54 and 2.2%, respectively as of October 26. After several delays to initial targeted days, the state of Hawaii reopened out-of-state tourism on October 15 for visitors that provide evidence of a negative COVID-19 test. This is a key step in the process of Hawaii's economic recovery.

In the first week after reopening, we've been pleasantly surprised by the daily air arrival numbers, which have been in the 5,000 to 8,000 range per day compared to less than 2000 per day since March and 30,000 per day pre-pandemic. Additionally, on October 22, Oahu made progress by moving the Tier 2 of its recovery plan as it met the requirement of having the seven-day average COVID cases at less than 100 and positivity rate of less than 5%. Tier 2 allows Oahu to further reopen certain parts of the economy.

At Central Pacific, we continue to push forward with our key RISE2020 strategy, while at the same time prudently managing through the pandemic. In August, we launched our new online and mobile banking platforms, which includes many industry-leading features and functionality. The new digital platforms have been very well received by the market with an Apple mobile app rating of 4.8 out of 5. Additionally, we continue to replace our entire ATM network and full function machines and implemented this quarter an ATM Hawaii Time cut-off for same-day ATM deposit processing, the latest cut-off time of all banks in the state.

The revitalization of our building headquarters is progressing well and is on track for an opening date in January 2021. We continue to thoroughly review and regularly monitor our loan portfolio to appropriately manage the credit risk in the pandemic environment. During the third quarter, our total balance of loans on payment deferral decreased by nearly 50% as a significant portion resumed payment. At the end of the quarter, our loans on deferral was down to only 6% of total loans, excluding PPP loans.

Last week, we announced that we successfully completed a $55 million private placement subordinated note offering. We believe this will also -- excuse me, we believe this will allow the bank to continue to support our customers and community, while also providing future capital flexibility.

I'd like to now turn the call over to Catherine to share more about our pandemic preparedness plan and the work of our CPB Foundation. Catherine.

A. Catherine Ngo -- President, CPF and President & Chief Executive Officer, CPB

Thank you, Paul. Our pandemic preparedness plan continues to be in place and we have not had any disruption in our business and we have 28 branches open to fully serve our customers. Four more branches remain temporarily closed due to the pandemic. During the third quarter, we consolidated three in-supermarket branches into our larger neighboring branches as the end market branches were too small to allow for adequate social distance. We are on track for consolidating the fourth previously disclosed branch in the fourth quarter.

Much of our back office teams continue to work flexible remote schedules and all employees are required to complete a daily online health questionnaire prior to starting each workday. We believe the actions taken will continue to enable us to provide a safe environment for both our employees and customers.

The CPB Foundation continues to be active in helping the community with relevant and timely program. Third quarter, our foundation was one of the two presenting sponsors of the Made in Hawaii festival, featuring more than 200 Hawaii small businesses and 10,000 products. The festival, previously held at our local Honolulu arena, pivoted quickly to become an online marketplace this year, attracting over 100,000 unique visitors over the three-day launch weekend, contrast to the 60,000 attendees for the festival in person that recorded in earlier years. The online festival enables struggling small businesses to sell their Hawaii-made products year round to a wide base of local, national and international shoppers, bringing in much needed revenue during the current challenging environment, and is a good step forward to economic diversification through exporting. We are glad that our foundation was able to provide support toward this successful initiative.

I'd like to turn the call over now to Arnold Martines, our Executive Vice President and Chief Banking Officer. Arnold?

Arnold D. Martines -- Executive Vice President, Chief Banking Officer

Thank you, Catherine. In the third quarter, we were able to grow our loan portfolio by $27 million despite the tough operating environment. Growth was broad-based, including residential mortgage, home equity, commercial mortgage and construction loans. Growth in these loan categories was partially offset by declines in our consumer and C&I loan portfolio. Driven by a record low interest rate environment, our residential lending team continue to outperform with record levels of production, resulting in $4.3 million in mortgage banking income for the quarter with more than double the income from the same quarter a year ago.

During Q3, our bankers continue to engage our business customers that we assisted through the Paycheck Protection Program. Most importantly, we continue to advocate for the broader business community impacted by COVID-19. We recently launched our PPP forgiveness portal and have begun the process of assisting our customers applying for forgiveness from the FDA. As expected, as businesses spent their PPP funding, we saw a quarter-over-quarter decline in our core deposit balances of $109 million. Despite that, our core deposit balances remain up over $650 million year-to-date. Additionally, our cost of total deposits declined by 7 basis points to 13 basis points.

Providing best-in-class digital technology remains a key priority for us. In Q3, we launched our new consumer mobile platform and are nearly complete with the rollout of our new ATM fee, as Paul mentioned earlier. We are seeing strong adoption and utilization of both digital channels. Our ATM deposit volume has substantially increased from a year earlier due primarily to the enhanced deposit functionality now available through our ATMs, and deposit volume has also increased for our new consumer mobile platform from a year earlier.

As we move into the fourth quarter, our bankers will continue to remain vigilant, given the tough operating environment but laser focused to support our customers by exploring and engaging new opportunities to expand our customer base during this unprecedented time.

Now, I would like to turn the call over to Anna Hu, our Executive Vice President and Chief Credit Officer to provide details on our credit and portfolio risk management activities. Anna?

Anna Hu -- Executive Vice President, Chief Credit Officer

Thank you, Arnold. At September 30, the loan portfolio totaled $5.03 billion with 54% consumer and 46% commercial. During the quarter, we continued monitoring the loan portfolio and provided support to our customers as they navigated through the uncertainty in the marketplace. We assisted our customers in providing a second loan payment deferral if needed, and we were pleased to see a significant number of borrowers resume their monthly payment.

At quarter end, the total balance of loans on payment deferrals declined to $291 million or 6.5% of our total loan portfolio, excluding PPP balances. Our redeferral rate was 31% and was primarily driven by consumer, small business and residential loans. These loans were initially granted a three-months deferral followed by a second three-months deferrals. While a significant number of customers have returned to making loan payments, we expect some consumer customers will require a loan payment modifications due to the continued elevated unemployment rate.

In the commercial and commercial real estate loan portfolio, we provided loan payment deferral for $133 million in total loan balances. The two highest exposures by industry is real estate and rental and leasing, totaling $47 million or 1% of the total loan portfolio, excluding PPP balances, and foodservice totaling $46 million or 1% of the total loan portfolio, excluding PPP balances. The majority of the loans in the real estate category are supported by low loan-to-value ratios and in the foodservice category are supported by owner with good liquidity and access to capital. We expect some of our borrowers will need a loan modification at the end of their second loan payment deferral, which will be evaluated on a case-by-case basis.

Loan payment deferral for our high-risk industries totaled $66 million or 1.5% of the total loan portfolio, excluding PPP balances. Additional details on our loan payment deferrals can be found on Slides 20 and 21.

During the quarter, criticized loans increased by $34 million sequential quarter to $197 million or 4.4% of the total loan portfolio, excluding PPP balances. Special mentioned loans increased by $33 million to $149 million or 3.3% of the total loan portfolio, excluding PPP balances. And classified loans increased by $1.5 million to $48 million or 1.1% of the total loan portfolio, excluding PPP balances. Loan downgrades were the result of our continued assessment of borrower risk, based on the borrower's near-term strategy and outlook, management strength and actions they've taken, overall financial condition, and external funding and [Technical Issues]. Approximately 12% of special mentioned balances and 5% of classified balances also received PPP loans. Additional details on loans rated special mention and classified can be found on Slide 22 and 23.

Overall, we continue to believe our proactive and disciplined approach to credit and our diversified loan portfolio will allow us to remain strong through these unprecedented times.

I'll now turn the call over to David Morimoto, our Executive Vice President and Chief Financial Officer. David?

David S. Morimoto -- Executive Vice President, Chief Financial Officer

Thank you, Anna. Net income for the third quarter of 2020 was $6.9 million or $0.24 per diluted share. Return on average assets in the third quarter was 0.42% and return on average equity was 4.99%. Our earnings continue to be impacted by higher provision for credit loss expense due to the current COVID-19 pandemic. Importantly, the third quarter increase in our provision was largely driven by the economic forecasts and not an increase in actual loan losses. Additionally, our pre-tax, pre-provision earnings for the third quarter was $23.7 million, which increased slightly from the prior quarter.

Net interest income for the third quarter was $49.1 million, which remained relatively flat on a sequential quarter basis. Net interest income included $3.4 million in PPP net interest income and net loan fees. The net interest margin decreased to 3.19% in the third quarter compared to 3.26% in the prior quarter. The decrease was due to lower yielding PPP loans, as well as the lower interest rate environment. The net interest margin normalized for PPP was 3.26% in the third quarter compared to 3.31% in the prior quarter.

Third quarter other operating income totaled $11.6 million compared to $10.7 million in the prior quarter. The increase was primarily due to higher mortgage banking income of $0.8 million. Additionally, in the current quarter, we reinstated certain service charges that were temporarily suspended due to the pandemic. This resulted in an increase in service charges on deposit accounts and other service charges and fees.

Other operating expense for the third quarter was $37.0 million which was an increase of $0.5 million compared to the prior quarter. The increase was driven by increases in several expense line items and also included branch consolidation costs of $0.3 million related to the three in-store branch closures, previously noted.

Net charge-offs in the third quarter totaled $1.3 million compared to net charge-offs of $2.9 million in the prior quarter. The charge-offs primarily came from the consumer loan portfolio and the C&I portfolio. At September 30, our allowance for credit losses was $80.5 million or 1.79% of outstanding loans, excluding PPP loans. This compares to 1.50% as of the prior quarter end.

The efficiency ratio remained relatively steady at 60.9% in the third quarter compared to 60.8% in the prior quarter. The effective tax rate increased to 24.3% in the third quarter due to lower tax-exempt bank-owned life insurance income. Going forward, we expect the effective tax rate to continue to be in the 24% to 26% range.

Our liquidity and capital position remains strong and we continue to perform robust stress testing. The recently completed subordinated note offering strengthens our capital ratios, which further allows us to support our customers and the communities during the pandemic, and positions the company well for the future. The subordinated notes are considered Tier 2 capital and is anticipated to increase our CPF total risk-based capital ratio by approximately 120 basis points. Our Board declared a quarterly cash dividend of $0.23 per share, which will be payable on December 15 to shareholders of record at the close of business on November 30th.

Now, I'll return the call to Paul.

Paul K. Yonamine -- Chairman and Chief Executive Officer, CPF and Executive Chairman, CPB

Thank you, David. In summary, Central Pacific continues to make positive forward progress on our strategies, while at the same time manage well through the COVID-19 pandemic. We have a solid financial credit, liquidity and capital position that enable us to weather the storm. As the economic recovery gradually begins, we remain committed to providing support to our employees, customers and the community.

On behalf of our management team and employees, thank you for your continued support and confidence in our organization. At this time, we will be happy to address any questions you may have. Thank you.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Jackie Bohlen with KBW.

Jackie Bohlen -- KBW -- Analyst

Hi, good morning, everyone. Wanted to start off with balance sheet liquidity management. Against the other trends that we've seen, you did a really great job at managing your cash balances in the quarter and I just wanted to look going forward and see if you think there is any more PPP run-off or other liquidity run-off that you expect. And if you don't see that and you do start to have some sort of a mismatch perhaps between loan and deposit growth, understanding you've got PPP running off, what liquidity management plans are for that?

David S. Morimoto -- Executive Vice President, Chief Financial Officer

Hey, Jackie, it's David. Yeah, I think right now the outlook is that we hope to have the PPP loan forgiveness process. So the reduction in PPP loan balances closely mirror the run down on the PPP balances in our deposits. So that's the current outlook, especially with the recent announcement on accelerated forgiveness for small dollar PPP loans.

Jackie Bohlen -- KBW -- Analyst

Okay. And so, I guess, to the extent that you may have excess liquidity, if that does happen, are you looking at securities reinvestments or would you look to keep that in cash?

David S. Morimoto -- Executive Vice President, Chief Financial Officer

Yeah. Right now the plan, Jackie, is to keep the investment portfolio roughly at its current size, so about $1.1 billion. To the extent we have excess liquidity, we are optimistic that we'll see some net loan growth as the economy starts to rebound. So we are looking cautiously optimistic to see some stronger net loan growth outside of PPP loans. And then obviously, to the extent that we do end up with excess liquidity, it could be put to work in the investment portfolio.

Jackie Bohlen -- KBW -- Analyst

Okay. So, then how are you -- understanding where you're coming from, from a liquidity management position, how are you thinking about the forward margin then just in terms of pressures you might have on earning asset yields and I know that there maybe a little bit, but not a ton of room to continue to drop down deposit costs?

David S. Morimoto -- Executive Vice President, Chief Financial Officer

Yeah, that's the challenge for the banking industry is the net interest margin outlook. So currently, we are projecting a net interest margin range in the 3.10% to 3.20% range for the next couple of quarters, and that incorporates the sub-debt offering and it assumes a conservative reinvestment of the sub-debt proceeds. So that's currently assumed to go into investments. But to the extent that we do see some stronger loan growth, that would help. So it incorporates the sub-debt offering and it also incorporates some continued core net interest margin pressure as a result of the rate environment you referenced, Jackie.

Jackie Bohlen -- KBW -- Analyst

Okay and then looking at the -- sorry, I'm getting a little [Technical Issues] hopefully you can hear me. [Technical Issues] the core loan yield versus where new generation was coming on. So I'm looking at the loan yield ex-PPP and thank you for the data to be able to calculate that. Where are you seeing new originations loan yields versus the portfolio?

David S. Morimoto -- Executive Vice President, Chief Financial Officer

Jackie, in the third quarter, new loan origination yields were roughly 3%. Yeah, I will say that that new loan origination yield is obviously very sensitive to the loan mix. So it does bounce around a little, depending on the mix of new loans in a particular quarter. But in the third quarter, it was roughly 3%.

Paul K. Yonamine -- Chairman and Chief Executive Officer, CPF and Executive Chairman, CPB

Jackie, this is Paul. We're going to have to see how -- with the opening of tourism, what the implications will be to the economy and we're trying to be very cautiously optimistic and we're hoping that there'll be more investments in general, more demand and we're hopeful that that will show up in net interest margin over time.

Jackie Bohlen -- KBW -- Analyst

All right. Great, thank you both for all the added details to some technical questions. I appreciate it.

Paul K. Yonamine -- Chairman and Chief Executive Officer, CPF and Executive Chairman, CPB

Sure. Thank you.

David S. Morimoto -- Executive Vice President, Chief Financial Officer

Thanks, Jackie.

Operator

The next question comes from David Feaster with Raymond James.

David Feaster -- Raymond James -- Analyst

Hey, good afternoon, everybody, or good morning rather. Just following up on the deposit question, do you have an estimate for how much PPP deposits are still sitting in deposit accounts and haven't been spent. And then just how successful have you been thus far in migrating the new PPP clients to the bank? And just how deposits are trending and loan growths trending early in the fourth quarter?

Paul K. Yonamine -- Chairman and Chief Executive Officer, CPF and Executive Chairman, CPB

Hey, David, before we respond to that, can you hear us OK? We are having some audio problems that...

David Feaster -- Raymond James -- Analyst

Yeah, I can hear you.

Paul K. Yonamine -- Chairman and Chief Executive Officer, CPF and Executive Chairman, CPB

Okay, good. I'm going to have Arnold Martines our CBO respond to that. Arnold?

Arnold D. Martines -- Executive Vice President, Chief Banking Officer

Yeah. Hi, good morning, David. So as I mentioned earlier, deposit balances decreased in the third quarter as businesses started to spend their PPP loan proceeds. So, to your question, we -- our expectation is that we're going to still have elevated deposits through the next few quarters as the businesses spend the dollars, but we had made really good progress in being able to engage and convert many of the customers that we assisted on the PPP with -- to the bank with operating accounts. It's really difficult at this point to really determine what the net amount is going to be just because we have inflows and outflows, obviously. But at some point in the future, we probably will be able to provide a little bit more color on that, David.

Paul K. Yonamine -- Chairman and Chief Executive Officer, CPF and Executive Chairman, CPB

David, there were over -- well over 2000 new customers, basically through the PPP process and Arnold and his team, doing a great job, converting many of them to become ongoing customers at the bank. So -- and we have some pretty good successes early on and we're still working on it.

David Feaster -- Raymond James -- Analyst

Okay, that's helpful. And then just kind of taking your commentary about hoping for some loan growth as the economy recovers. I mean, we've got the reopening started, things are trending a bit better than expected early on. Just curious how your -- what your thoughts are on the pulse of the local economy, how your pipeline's trending and just any updates on what you're hearing from clients and customers.

Paul K. Yonamine -- Chairman and Chief Executive Officer, CPF and Executive Chairman, CPB

Sure. So we still see a fair amount of strength in what I would call the non-tourism sector, especially around construction. I mean, we had such a vast shortage of housing even before COVID and that continues. So, for many of the housing developments that are coming online, I mean, it's a very robust market and we're quite pleased of the fact that we continue to be lead takeout lender on a lot of these large housing projects. At the same time, the military sector continues to be very robust with a lot of new investments by the federal government and the Department of Defense here in Hawaii. So, that's ongoing.

Clearly, the reservations and the concerns are somewhat tacked on to the tourism sector and with the opening on October 15, we don't see a huge spread on COVID and we can continue to welcome more tourists in here, by tourists meaning investors, as well. I think we should be able to expect a gradual uptick on opportunities and that's tourism-related as well. That would fare very well for us.

David Feaster -- Raymond James -- Analyst

Okay. That's great color. I appreciate that. And then just last one, you guys have done a great job managing expenses in the face of these revenue headwinds. Just curious whether there's anything more one-time in nature in this that kept it lower and went over that this is a good expense run rate going forward. And then whether the new digital platform, I mean, that's a huge initiative for you all, I know, just whether there is any efficiencies or any potential cost savings coming from that as we go forward.

Paul K. Yonamine -- Chairman and Chief Executive Officer, CPF and Executive Chairman, CPB

The digital platform, David, already as, I think, Arnold and David touched on, we're seeing dramatic change of consumer behavior today. A lot more mobile deposit, a lot more usage of the ATM, definitely people having quite an affinity to our new mobile platform, and we expect that to continue. We're going to be following that closely as to what the implications are, changing consumer behavior and the effectiveness of our digital platform for us to continue to look at our branch network. As Catherine touched on, we closed three in-store branches and we're going to continue taking a hard look at what else we could do, while not inconveniencing our customers, and so that will probably be something out there but we don't have anything on the table today. But we're going to take a hard look at it.

David Feaster -- Raymond James -- Analyst

Okay. All right. Thanks everybody.

Paul K. Yonamine -- Chairman and Chief Executive Officer, CPF and Executive Chairman, CPB

Thank you, David.

Operator

The next question comes from Andrew Liesch with Piper Sandler.

Andrew Liesch -- Piper Sandler -- Analyst

Hey, good morning everyone. I just want to touch on credit here. Saw a little bit of increase in criticized loans, but even that notwithstanding, they're still very low as a percentage of the portfolio, and you did have a little bit of an increase in the provision here. It seems like that's related to those couple commercial borrowers that you mentioned. But, I mean, how are you looking at the allowance from here? You've certainly built the reserve nicely this year as you've got the CECL, and just with some of the qualitative and quantitative overlays. But do you think there is more reserve building to be done or do you think this is kind of a good level of where it could kind of plateau for a while as we move through and the economy rebounds?

David S. Morimoto -- Executive Vice President, Chief Financial Officer

Andrew, it's David. We feel good. We feel good about where -- we feel we are appropriately reserved as of 9/30. The outlook going forward is going to be a function of the economy, the economic forecast, the reopening of tourism and the local economy, and net charge-offs and loan migration. We've -- we feel we are appropriately reserved at 9/30. And then the extent -- to the extent that things trend positively then the reserve coverage level could come down or vice versa, if you were to go the other way, we would be directionally consistent with that. So it's -- yeah, it's hard to give you a precise answer other than to say it's going to be directionally consistent with what we see in the economy and the credit portfolio.

Andrew Liesch -- Piper Sandler -- Analyst

Okay. Understandable. The -- on the deferral slide in the presentation, just referenced the commercial mortgage, construction, C&I loans that you expect 25% to resume regular payments here this quarter. What are the other 75% telling you? Are they -- how do they feel about their situation? Do you think they may need to come back and need more deferral time as we move into next year? Yeah, just curious what the tone of those borrowers is right now.

A. Catherine Ngo -- President, CPF and President & Chief Executive Officer, CPB

Anna?

Anna Hu -- Executive Vice President, Chief Credit Officer

Okay. Hi, Andrew. This is Anna. Yeah. So I think in our residential, our commercial real estate and our C&I book, we are seeing very positive downward trends in customers moving back to payments. We were really focused on is probably the consumer. Again, the unemployment rates in September was about 15% and so there are -- there is some uncertainty around the outlook that we continue to monitor, to watch and then to actively work with our customers as well to provide assistance.

Andrew Liesch -- Piper Sandler -- Analyst

Okay, thanks. And then just on the balance of PPP loans that are remaining or I guess [Phonetic] all of them, what's been the sense that you guys have gotten from the SBA? Sometimes the process is going pretty slowly. But, in speaking with your customers, I mean, how long do you think these loans stick around on the balance sheet before they're repaid and forgiven?

Arnold D. Martines -- Executive Vice President, Chief Banking Officer

Yeah, so, Andrew, this is Arnold. So as I mentioned earlier, we opened our portal just recently, and I'll just give you kind of a flavor. As of October 26, we had 76 loans in our pipeline totaling $20 million submitted to the SBA for forgiveness. And we've had, thus far, four loans for $158,000 approved by the SBA. Our expectation is that we're probably going to see most of the forgiveness happen in 2021, just given what we're seeing as far as the turnaround times and just the activity that's coming through our forgiveness portal.

Andrew Liesch -- Piper Sandler -- Analyst

Okay, thank you. That's good color, I appreciate the answers. I'll step back. Thanks.

Operator

[Operator Instructions] The next question comes from Laurie Hunsicker with Compass Point.

Laurie Hunsicker -- Compass Point -- Analyst

Hi. Thanks, good morning. Just wanted to see with Andrew's question on PPP, can you just remind us, as of September 30, what the net processing fees are remaining on your PPP book?

David S. Morimoto -- Executive Vice President, Chief Financial Officer

Hey, Laurie, it's David.

Laurie Hunsicker -- Compass Point -- Analyst

Hi, David.

David S. Morimoto -- Executive Vice President, Chief Financial Officer

So the total net processing fees were roughly $19 million. And as of 9/30, we still had roughly $15 million to go -- to be earned.

Laurie Hunsicker -- Compass Point -- Analyst

$15 million, perfect, $15 million. Okay, great, thanks. And then can you -- and, David, maybe this is a question for you or for you, Anna, can you give us a little bit of color on the two commercial credits? What types they were?

A. Catherine Ngo -- President, CPF and President & Chief Executive Officer, CPB

Hi, Laurie, this is Catherine. Are you talking about the commercial credits in non-performing?

Laurie Hunsicker -- Compass Point -- Analyst

Yes, I'm sorry, the two commercial relations that's totaling $15 million that you all have said you don't expect to see further loss. But obviously we have movement there. Just wondering what they were and then with that extra piece of $3 million in secured collateral is. Any other color you can give us?

A. Catherine Ngo -- President, CPF and President & Chief Executive Officer, CPB

Yeah, sure. I'll start and then maybe Anna will provide more detail. But, yeah, we did see that $7.6 million [Phonetic] increase in NPAs quarter-over-quarter. And I'll share with you, half of that amount -- real estate secured actually was paid off this past Monday and then the other half -- the other piece is in real estate secured loan on property here in downtown Honolulu and the loan-to-value on that loan is 32%.

Laurie Hunsicker -- Compass Point -- Analyst

And what -- sorry, what type of real estate?

A. Catherine Ngo -- President, CPF and President & Chief Executive Officer, CPB

It's a commercial building in downtown Honolulu.

Laurie Hunsicker -- Compass Point -- Analyst

Okay. So, office. Okay. Okay. And then just maybe some comments, if you have them, your hotel book, just looking at your deferrals, you went from 3.3% at June to 28.8%, which is still remarkably low, remarkably low relative to mainland, remarkably low, just even thinking about the fact that Hawaii isn't open. Can you just help us think about that full $59 million book and where you see that going, what you're expecting in terms of -- as we look forward, is that going to stay at this level? And then also, can you just remind us what your hotel book looks like in terms of just very approximate, properties flagged, the beach front, just any color you can give us would be helpful.

A. Catherine Ngo -- President, CPF and President & Chief Executive Officer, CPB

So, I'll start and then Anna can provide some detail. So in our slide deck, on Slide 16 you see our accommodation book of $59 million that we haven't broken out between the C&I and CRE. The book comprises of a number of hotels with strong flags, so international flags, and then with strong backers. And so, just to give you some color on how we feel about that portfolio, many of the hotels have reopened with the reopening of tourism on October 15. Anecdotally, we're hearing that the owners are pleasantly surprised on the return of tourists. But I have to say, and along the lines of what Paul mentioned earlier, the continued progress will depend on the continued influx of tourists and then our ability to keep the infection rate down here in Hawaii.

Laurie Hunsicker -- Compass Point -- Analyst

And so, is that a six-month deferral then that you all granted? Is that how you're approaching this?

Anna Hu -- Executive Vice President, Chief Credit Officer

This is Anna, it's pretty much still on a three-month by three-month basis.

Laurie Hunsicker -- Compass Point -- Analyst

Okay.

Anna Hu -- Executive Vice President, Chief Credit Officer

So, with regard to the accommodation at $17 million, we actually feel really good about it. Some of those hotels delayed their opening. So we're looking at a November 1 opening for the couple of hotels that are in that category.

Laurie Hunsicker -- Compass Point -- Analyst

Okay. No, I mean it's low considering that Hawaii hasn't been open. Okay. And just, I mean, along those lines, if I'm looking at your total commercial deferrals again, really good improvement here going from 19.5% down to 8%. So can you help us think about -- with your stock trading so just kind of to book, how you're approaching something like potentially a buyback? We're seeing more and more SMID cap banks announce buybacks. Just what are your thoughts? And certainly, you obviously have the sub-debt raise which potentially could also be used to buy back stocks. So maybe if you could help us think about any thoughts around that, Paul or Catherine, that'd be great.

Paul K. Yonamine -- Chairman and Chief Executive Officer, CPF and Executive Chairman, CPB

Let me have David respond to that, Laurie. David?

David S. Morimoto -- Executive Vice President, Chief Financial Officer

Hey, Laurie. Yeah. Again, I think, the Hawaii economic recovery is obviously trailing the Mainland slightly with us just reopening tourism. So we're going to be monitoring the recovery of the local economy as Paul mentioned earlier. And as we gain better visibility on the path forward, we could turn offensive with our robust capital position and with the stock trading at 75% of tangible book value, that's a pretty good opportunity.

Laurie Hunsicker -- Compass Point -- Analyst

Perfect. Thanks for taking my questions.

Paul K. Yonamine -- Chairman and Chief Executive Officer, CPF and Executive Chairman, CPB

Thanks, Laurie.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Paul Yonamine for any closing remarks.

Paul K. Yonamine -- Chairman and Chief Executive Officer, CPF and Executive Chairman, CPB

Okay, great. Thank you very much for participating in our earnings call for the third quarter of 2020. We look forward to future opportunities to update you on our progress. Thank you very much.

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

David S. Morimoto -- Executive Vice President, Chief Financial Officer

Paul K. Yonamine -- Chairman and Chief Executive Officer, CPF and Executive Chairman, CPB

A. Catherine Ngo -- President, CPF and President & Chief Executive Officer, CPB

Arnold D. Martines -- Executive Vice President, Chief Banking Officer

Anna Hu -- Executive Vice President, Chief Credit Officer

Jackie Bohlen -- KBW -- Analyst

David Feaster -- Raymond James -- Analyst

Andrew Liesch -- Piper Sandler -- Analyst

Laurie Hunsicker -- Compass Point -- Analyst

More CPF analysis

All earnings call transcripts

AlphaStreet Logo

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.