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.
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.
The new digital platforms have been very well received by the market with an Apple mobile app rating of 4.8 out of 5.
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.
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.
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.
In the third quarter, we were able to grow our loan portfolio by $27 million despite the tough operating environment.
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.
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.
At September 30, the loan portfolio totaled $5.03 billion with 54% consumer and 46% commercial.
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.
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.
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.
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.
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%.
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 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.
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.
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.
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.

Summary:
Net income for the third quarter of 2020 was $6.9 million or $0.24 per diluted share.