Central Pacific Financial Q3 Profit Rises as Margin Widens

Central Pacific Financial Corp. reported higher third-quarter profit as wider lending spreads and lower operating expenses improved profitability, while its loan portfolio remained broadly stable. Net income rose to $22.8 million, or $0.88 per diluted share, from $20.8 million, or $0.80 per share, in the second quarter.

The Hawaii-based bank holding company, which trades on the NYSE under the ticker CPF, posted a return on average assets of 1.22% and a return on average equity of 15.28%, up from 1.12% and 13.94%, respectively, in the prior quarter. The company said its results for the three and nine months ended Sept. 30 were not materially affected by items outside the normal course of business.

Margin expansion supports earnings

Net interest income increased 2.6% sequentially and 5.2% from a year earlier to $64.5 million. Net interest margin widened by 5 basis points from the second quarter and 13 basis points year over year to 3.62%.

The improvement reflected higher yields on loans and investment securities, while the total cost of deposits held steady at 0.90%. Loan yields rose 5 basis points sequentially to 5.01%. Average interest-earning assets increased by $29 million during the quarter, and average low-cost, nonmaturity deposits grew by $41 million.

CPF’s non-GAAP efficiency ratio improved to 58.27% from 59.62% in the second quarter. Other operating expenses declined to $44.8 million from $46.2 million, while total revenue—defined as net interest income plus other operating income—was $76.8 million, compared with $77.5 million. Other operating income fell to $12.4 million from $14.6 million, with the quarterly change primarily attributed to bank-owned life insurance income. The provision for credit losses decreased to $1.9 million from $4.4 million.

Loan mix shifts toward commercial real estate

Total loans were $5.31 billion at Sept. 30, up $5 million from the end of the second quarter but down $54 million, or 1%, from a year earlier. The portfolio experienced about $204 million of runoff during the quarter, while new loans carried a weighted-average yield of 6.3%.

Commercial real estate loans increased by $27 million sequentially and $100 million year over year to $1.71 billion. That growth was offset over the 12-month period by declines in residential mortgage and home-equity loans, commercial and industrial loans, and consumer loans. Residential mortgage and home-equity balances fell $80 million year over year to $2.37 billion, while consumer loans declined $43 million to $434 million.

The company has also shifted the portfolio’s rate profile. Fixed-rate loans represented 56% of the total, compared with 62% in 2024, while variable-rate exposure increased to 44% from 38%. About 34%, or $1.8 billion, of the portfolio is scheduled to reprice or mature within one year. Management characterized the balance sheet as neutral to slightly asset-sensitive.

Deposits totaled $6.66 billion at quarter-end. CPF said 57% of deposits were FDIC-insured, rising to 62% when collateralized deposits were included. The bank reported no brokered deposits and limited reliance on public time deposits. More than 95% of its approximately $900 million in certificates of deposit are due to reprice within one year.

Credit quality and capital returns

Asset quality remained within the company’s expected operating range. Nonperforming assets declined to 0.26% of total loans from 0.31% in the second quarter, while criticized loans fell to 1.81% from 2.34%. Annualized net charge-offs remained at 0.20% of average loans. The allowance for credit losses was $59.8 million, equal to 1.13% of total loans.

CPF’s common equity Tier 1 ratio stood at 12.7%, its total capital ratio was 14.8%, and its leverage capital ratio was 9.7% at quarter-end. The non-GAAP tangible common equity ratio decreased to 7.80% from 7.95% in the prior quarter.

The company repurchased 294,110 shares for about $11 million during the quarter, leaving $22 million under its authorization. It also paid a quarterly dividend of $0.30 per share and declared a fourth-quarter dividend of $0.31, a 3.3% sequential increase. Through Sept. 30, CPF had repurchased 4% of its shares and returned 87% of year-to-date earnings to shareholders through dividends and buybacks.

Management’s capital priorities include funding accretive loan growth, maintaining a quarterly dividend with an approximately 40% payout ratio, conducting share repurchases and preserving capital against adverse economic scenarios. Its stated targets are an 11% to 12% CET1 ratio and a tangible common equity ratio of 7.5% to 8.5%.

CPF remains focused on relationship-based deposits in Hawaii, selective lending and investment, and diversification through mainland credit exposure and financial-institution partnerships in Japan and Korea. The company identified inflation, interest-rate changes, deterioration in real estate or borrower performance, regulatory developments, cybersecurity incidents, natural disasters and weakness in Hawaii’s tourism and construction sectors among the factors that could cause actual results to differ from its expectations.