Central Pacific Financial Corp. (CPF) Earnings

Management highlights

- **Overall Financial and Strategic Performance** • Q2 2026 delivered strong results with solid profitability, disciplined balance sheet management, growth in average earning assets, a stable core funding base, and expanded net interest margin • The company retains its strategic focus on becoming a high-performing bank delivering sustainable, growing returns to shareholders, building momentum through the first half of 2026 • Recognized as the highest-ranked Hawaii company on Time Magazine's America's Best Companies 2026 list, with additional recognition from Forbes, reflecting customer trust and employee commitment aligned with the company's founding mission - **Market and Operating Environment** • Hawaii's economy remains resilient, with steady performance from the visitor industry and promising growth in visitor arrivals from the US East Coast and Japan; Hawaii unemployment holds at a low 2.5% • The company continues ongoing investment in talent and technology (including automation and data infrastructure) to drive future operating efficiency, with a company-wide focus on generating positive operating leverage - **Balance Sheet and Credit Operations** • Q2 loan growth was muted due to scheduled loan closings shifting to Q3 and expected commercial real estate (CRE) loan payoffs; loan production was well-diversified across commercial and retail lending, with the majority originated in Hawaii • The company prioritizes disciplined growth, active balance sheet management, and consistent sales focus on new customer acquisition and expanding primary customer relationships • Asset quality remains strong, with stable trends and no evidence of broad-based portfolio weakness; the increase in criticized loans is tied to a small number of Hawaii-based credits that are well-collateralized and actively managed • Capital position remains very healthy, supporting organic growth, a strong balance sheet, capital returns to shareholders, and flexibility to pursue market opportunities

Guidance

- Full year 2026 net interest income guidance is maintained at a 4% to 6% increase over 2025 - Management expects NIM to remain relatively steady to slightly rising in the second half of 2026, holding in the high 350 basis point range - Full year 2026 other operating expense growth guidance is maintained at 2.5% to 3.5% over 2025, with the baseline 2025 non-interest expense set at ~$177 million, after adjusting for 2025 non-recurring items - Full year 2026 loan and deposit growth is expected to remain in the low single-digit range, with stronger loan growth projected for the second half of 2026 compared to the first half - The company's target loan-to-deposit ratio range is 80% to 85%; the current 79% ratio is at the lower end of the target, leaving room for balanced growth - Management expects deposit costs to remain fairly steady in the second half of 2026, assuming the Federal Reserve holds interest rates steady

Segment performance

Central Pacific Financial Corp operates as a single-line regional banking business, with performance broken out by balance sheet and income categories: 1. Net income: $20.8 million, representing a 19% increase year-over-year on a diluted per-share basis; 2. Net interest income: $62.8 million, with net interest margin (NIM) of 3.57% (up 4 basis points from the prior quarter); 3. Other operating income: $14.6 million, up $3 million from the prior quarter, driven by market-linked BOLI income; 4. Other operating expense: $46.2 million, up $2.5 million quarter-over-quarter, driven by higher salaries/benefits and market performance-linked compensation; 5. Total loans: Ended the quarter flat at $5.3 billion, with average loan balances increasing by $33 million quarter-over-quarter; average loan portfolio yield rose 3 basis points to 4.96%; 6. Total deposits: Remained largely unchanged at $6.7 billion, with core deposits representing over 90% of total deposits, and total deposit costs holding steady at 90 basis points quarter-over-quarter; 7. Asset quality: Non-performing assets totaled $16.5 million (22 basis points of total assets); net charge-offs were 20 basis points of average loans; allowance for credit losses increased to $60.6 million (1.14% of total loans); 8. Capital ratios: Common Equity Tier 1 (CET1) ratio was 12.7%, and total risk-based capital ratio was 14.8% at quarter end.

Risks & headwinds

- Management is monitoring external risks including ongoing geopolitical conflict and its potential impact on oil prices and broader inflation - Loan pricing competition in the Hawaii market has compressed spreads, limiting potential NIM expansion - A small number of Hawaii-based credits were downgraded this quarter, driven by weaknesses including a borrower ownership dispute and guarantor financial distress; while no material losses are expected, these credits are being actively monitored - Broader macroeconomic uncertainty could impact loan performance and funding conditions, though management notes the company's strong capital position and reserves provide a buffer against unexpected volatility - Intensifying deposit competition on the US mainland could eventually spill over to Hawaii, though the local market remains more rational than mainland markets currently

Analyst Q&A

• Q: How has deposit competition evolved in Hawaii compared to the competitive mainland market, and what has deposit growth looked like year-to-date? /

  A: Deposit competition in Hawaii has remained consistent and is significantly more rational than on the mainland, due to a smaller, more concentrated set of competitors. Year-to-date total deposit growth is close to $90 million, with strong first quarter growth offset by slower growth in the second quarter, and management expects this steady growth trajectory to continue.

• Q: What factors limit more aggressive NIM expansion, and why is guidance only for flat to modest NIM growth? What balance sheet optimization is being considered? /

  A: Management prioritizes balancing loan growth with maintaining a strong margin. While deposit pricing remains rational with little expected pressure, loan pricing competition has compressed spreads in the market. The current target of stable NIM in the high 350 basis point range still gives the firm flexibility to capitalize on future growth opportunities as they arise.

• Q: Why does management expect stronger second half loan growth, and what is supporting that outlook? /

  A: Q2 generated almost $70 million in new construction loan originations that will not fund and contribute to the loan balance until the second half of 2026. The company also holds a solid overall commercial pipeline, and has implemented new retail portfolio initiatives to slow runoff of the existing portfolio, all of which combine to support stronger back half growth.

• Q: What caused the uptick in downgraded and criticized loans this quarter, and what is the expected loss risk from these credits? /

  A: Downgrades were driven by weaknesses in a small number of Hawaii-based credits, the largest being a $20 million real estate loan where the ownership group has a dispute and the principal guarantor faces financial distress. Downgrades reflect higher estimated default probability, not expected loss; the loan has a 1.27x debt service coverage ratio, 57% loan-to-value, and diversified third-party leases, so no material loss is expected currently.