Q2 2026 Central Pacific Financial Corp Earnings Call

July 24, 2026

Speaker #2: Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Central Pacific Financial Corp. Q2 2026 earnings call. During today's presentation, all parties will be in a listen-only mode.

Operator 3: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Central Pacific Financial Corp Q2 2026 earnings call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. 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. Gerald Rabago, Senior Strategic Financial Officer. Please go ahead.

Operator: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Central Pacific Financial Corp Q2 2026 Earnings Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. 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. Jayrald Rabago, Senior Strategic Financial Officer. Please go ahead.

Speaker #2: Following the presentation, the conference will be open for questions. This call is being recorded and will be available for replay shortly after its completion on the company's website at www.cpbbank.bank.

Speaker #2: I'd like to turn the call over to Mr. Gerald Robago, Senior Strategic Financial Officer. Please go ahead.

Speaker #3: Thank you, Erica, and thank you all for joining us today as we review Central Pacific Financial Corp.'s financial results for Q2 2026.

Jayrald Rabago: Thank you, Erica, and thank you all for joining us today as we review Central Pacific Financial Corp's financial results of Q2 2026. Joining me this morning are Arnold Martines, Chairman, President, and Chief Executive Officer. David Morimoto, Vice Chair and Chief Operating Officer. Ralph Mesick, Vice Chair, and Dayna Matsumoto, Executive Vice President and Chief Financial Officer. Before we begin, I would like to remind everyone that a copy of our earnings release and supplemental slides are available on our investor relations website at ir.cpb.bank. During today's call, management may make forward-looking statements. These statements are based on current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. For a complete discussion of these risks related to our forward-looking statements, please refer to slide two of our presentation.

Speaker #3: Joining me this morning are Arnold Martines, Chairman, President, and Chief Executive Officer; David Morimoto, Vice Chair and Chief Operating Officer; Ralph Mesick, Vice Chair; and Dayna Matsumoto, Executive Vice President and Chief Financial Officer.

Speaker #3: Before we begin, I would like to remind everyone that a copy of our earnings release and supplemental slides are available on our investor relations website at ir.cpb.bank.

Speaker #3: During today's call, management may make forward-looking statements. These statements are based on current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially.

Speaker #3: For a complete discussion of these risks related to our forward-looking statements, please refer to Slide 2 of our presentation. With that, I will now turn the call over to our Chairman, President, and CEO, Arnold Martines.

Jayrald Rabago: With that, I will now turn the call over to our Chairman, President, and CEO, Arnold Martines.

Speaker #4: Thank you, Gerald, and aloha to everyone joining us today. We are pleased to report on a strong Q2. We maintained solid profitability and continued to manage our balance sheet with discipline.

Arnold Martines: Thank you, Gerald, and aloha to everyone joining us today. We are pleased to report on a strong Q2. We maintained solid profitability and continued to manage our balance sheet with discipline. We grew average earning assets, maintained a stable core funding base, and expanded our net interest margin. Our strategic focus remains on being a high-performing bank that delivers sustainable, growing returns. In H1, we continued to build momentum to drive results that positions us well for the future. Our success reflects the strength of our relationship-focused banking model. We continue to serve Hawaii's people, small businesses, and local communities with a focus on long-term relationships, exceptional customer experiences, and disciplined execution.

Arnold Martines: Thank you, Jayrald, and [Foreign language] to everyone joining us today. We are pleased to report on a strong Q2. We maintained solid profitability and continued to manage our balance sheet with discipline. We grew average earning assets, maintained a stable core funding base, and expanded our net interest margin. Our strategic focus remains on being a high-performing bank that delivers sustainable, growing returns. In H1, we continued to build momentum to drive results that positions us well for the future. Our success reflects the strength of our relationship-focused banking model. We continue to serve Hawaii's people, small businesses, and local communities with a focus on long-term relationships, exceptional customer experiences, and disciplined execution.

Speaker #4: We grew average earning assets, maintained a stable core funding base, and expanded our net interest margin. Our strategic focus remains on being a high-performing bank that delivers sustainable, growing returns.

Speaker #4: In the first half of the year, we continued to build momentum to drive results that positioned us well for the future. Our success reflects the strength of our relationship-focused banking model.

Speaker #4: We continue to serve Hawaii's people, small businesses, and local communities with a focus on long-term relationships, exceptional customer experiences, and disciplined execution. We were honored to be the highest-ranked company in Hawaii on America's Best Companies 2026 list, published by TIME Magazine, and also recognized by Forbes as the best bank in Hawaii for the third consecutive year.

Arnold Martines: We were honored to be the highest-ranked company in Hawaii on America's Best Employers 2026 list, published by Time Magazine and also recognized by Forbes as the best bank in Hawaii for the third consecutive year. These recognitions reflect the trust of our customers and the commitment of our employees. It is meaningful because it ties directly to our founding mission and the relationships we work to earn every day. We continue to invest in our business in the areas of talent and technology, including automation and data that supports future operating efficiencies. At the same time, we are also executing on disciplined expense management and thoughtful allocation of resources across the organization. Overall, we remain focused on continuing to generate positive operating leverage. Turning to the broader environment, Hawaii's economy remains resilient.

Speaker #4: These recognitions reflect the trust of our customers and the commitment of our employees. It is meaningful because it ties directly to our founding mission, and the relationships we work to earn every day.

Speaker #4: We continue to invest in our business in the areas of talent and technology, including automation and data, that support future operating efficiencies. At the same time, we are also executing on disciplined expense management and thoughtful allocation of resources across the organization.

Speaker #4: Overall, we remain focused on continuing to generate positive operating leverage. Turning to the broader environment, Hawaii's economy remains resilient. The visitor industry continues to be steady, and we have recently seen promising increases in visitors from the US East and Japan markets.

Arnold Martines: The visitor industry continues to be steady. We have recently seen promising increases in visitors from the US East and Japan markets. Unemployment remains low at just 2.5%. Construction employment has increased, government contract awards continue to rise, supported by public projects and military spending. We continue to monitor external risks, including the geopolitical conflict and its impact on oil prices and inflation. Our customers are resilient, and we have not seen any significant impacts. We will remain vigilant and committed to supporting our customers and community. With that, I will turn the call over to Dayna.

Speaker #4: Unemployment remains low at just 2.5%. Construction employment has increased, and government contract awards continue to rise, supported by public projects and military spending.

Speaker #4: We continue to monitor external risks, including the geopolitical conflict and its impact on oil prices and inflation. Our customers are resilient, and we have not seen any significant impacts.

Speaker #4: But we will remain vigilant and committed to supporting our customers and community. With that, I will turn the call over to Dayna.

Speaker #2: Thank you, Arnold. For Q2, net income was $20.8 million, or $0.80 per diluted share, which is a meaningful 19 percent increase from the year-ago period on a diluted share basis.

Dayna Matsumoto: Thank you, Arnold. For the Q2, net income was $20.8 million, or $0.80 per diluted share, which is a meaningful 19% increase from the year-ago period on a diluted share basis. Return on average assets was 1.12%. Return on average equity was 13.94%. Net interest income totaled $62.8 million. Net interest margin increased by four basis points to 3.57%. We were successful in growing average loan and securities balances while also increasing earning asset yields. At the same time, funding costs remained stable. Our strong net interest margin provides us with flexibility as we continue to execute on our strategies and navigate market dynamics. With that said, we generally expect our NIM to remain relatively steady to a slight rise in the H2 of the year.

Speaker #2: Return on average assets was 1.12 percent, and return on average equity was 13.94 percent. Net interest income totaled $62.8 million, and net interest margin increased by 4 basis points to 3.57 percent.

Speaker #2: We were successful in growing average loan and securities balances, while also increasing earning asset yields. At the same time, funding costs remained stable. Our strong net interest margin provides us with flexibility as we continue to execute on our strategies and navigate market dynamics.

Speaker #2: With that said, we generally expect our NIM to remain relatively steady to a slight rise in the second half of the year. Backbook asset repricing remains beneficial, but has moderated, and we expect our deposit costs to remain fairly steady, assuming the Fed is on hold.

Dayna Matsumoto: Backbook asset repricing remains beneficial but has moderated. We expect our deposit costs to remain fairly steady, assuming the Fed is on hold. Our guidance for full-year net interest income remains at a 4% to 6% increase over the prior year. Our balance sheet sensitivity is relatively neutral to slightly asset sensitive. Our NII and NIM is well-positioned for a potential Fed rate hike, although we do not expect it to have a significant impact this year. Total other operating income was $14.6 million, up $3 million from the prior quarter. The increase was primarily driven by BOLI income that is tied to market performance. Excluding that item, our core fee income lines are relatively stable quarter-over-quarter. Total other operating expense was $46.2 million, up $2.5 million.

Speaker #2: Our guidance for full-year net interest income remains at a 4% to 6% increase over the prior year. Our balance sheet sensitivity is relatively neutral to slightly asset-sensitive; therefore, our NII and NIM are well positioned for a potential Fed rate hike, although we do not expect it to have a significant impact this year.

Speaker #2: Total other operating income was $14.6 million, up $3 million from the prior quarter. The increase was primarily driven by BOLI income that is tied to market performance.

Speaker #2: Excluding that item, our core fee income lines are relatively stable quarter over quarter. Total other operating expense was $46.2 million, up $2.5 million. The increase was primarily driven by higher salaries and employee benefits due to higher deferred compensation expense, also related to the strong market performance.

Dayna Matsumoto: The increase was primarily driven by higher salaries and employee benefits due to higher deferred compensation expense, also related to the strong market performance. For the full year, we expect our other operating expense to grow by 2.5% to 3.5%, no change from what we've shared previously. We paid a Q2 dividend of $0.29 per share. With our continued strong earnings, our board declared a Q3 dividend of $0.30 per share, an increase of 3.4%. We repurchased approximately 322,000 shares for a total of $11.3 million. We have $33.2 million of remaining available under our share repurchase program as of quarter end. We continue to have a very healthy capital position and remain committed to deploying capital in ways that enhance long-term value.

Speaker #2: For the full year, we expect our other operating expense to grow by 2.5 to 3.5 percent, no change from what we've shared previously. We paid a Q2 dividend of $0.29 per share, and with our continued strong earnings, our board declared a Q3 dividend of $0.30 per share, an increase of 3.4 percent.

Speaker #2: We repurchased approximately 322,000 shares for a total of $11.3 million. We have $33.2 million remaining available under our share repurchase program as of quarter-end.

Speaker #2: We continue to have a very healthy capital position and remain committed to deploying capital in ways that enhance long-term value. This includes supporting organic growth, maintaining a strong balance sheet, returning capital through dividends and share repurchases, and preserving flexibility to respond to market opportunities.

Dayna Matsumoto: This includes supporting organic growth, maintaining a strong balance sheet, returning capital through dividends and share repurchases, and preserving flexibility to respond to market opportunities. I will now turn the call over to David.

Speaker #2: I will now turn the call over to David.

Speaker #4: Thank you, Dayna. Total loans ended the quarter relatively flat at $5.3 billion, with average loan balances increasing quarter over quarter by $33 million. Q2 loan growth was impacted due to several loan closings moving to the third quarter, coupled with expected CRE loan payoffs.

David Morimoto: Thank you, Dayna. Total loans ended the quarter relatively flat at $5.3 billion, with average loan balances increasing quarter over quarter by $33 million. Q2 loan growth was impacted due to several loan closings moving to Q3, coupled with expected CRE loan payoffs. Q2 loan production by type was well diversified among commercial and retail lending, and the majority of the production came from Hawaii. Looking forward, we continue to see opportunities in select mainland markets and expect greater fundings in H2 of the year. Average loan portfolio yield in Q2 was 4.96%, compared to 4.93% in the prior quarter. The increase in yield was primarily due to higher new production loan yields versus runoff yields. Total deposits remained largely unchanged at $6.7 billion. Core deposits represent over 90% of total deposits, with continued growth in non-interest bearing and relationship-based accounts.

Speaker #4: Q2 loan production by type was well diversified among commercial and retail lending, and the majority of the production came from Hawaii. Looking forward, we continue to see opportunities in select mainland markets and expect greater fundings in the second half of the year.

Speaker #4: Average loan portfolio yield in Q2 was 4.96%, compared to 4.93% in the prior quarter. The increase in yield was primarily due to higher new production loan yields versus runoff yields.

Speaker #4: Total deposits remained largely unchanged at $6.7 billion. Core deposits represent over 90 percent of total deposits, with continued growth in non-interest-bearing and relationship-based accounts.

Speaker #4: Total deposit costs remain unchanged quarter over quarter at an attractive 90 basis points. Looking ahead, we continue to expect loan and deposit growth in the low single-digit range for the full year.

David Morimoto: Total deposit costs remain unchanged quarter over quarter at an attractive 90 basis points. Looking ahead, we continue to expect loan and deposit growth in the low single digit range for the full year. As we move into H2 of 2026, we are prioritizing disciplined growth and balance sheet management, along with a consistent sales focus on new customer acquisition and increasing primary relationships. With that, I'll turn the call over to Ralph.

Speaker #4: As we move into the second half of 2026, we are prioritizing disciplined growth in balance sheet management, along with a consistent sales focus on new customer acquisition and increasing primary relationships.

Speaker #4: With that, I'll turn the call over to Ralph.

Speaker #5: Thank you, David. Asset quality was strong at quarter-end. Nonperforming assets were $16.5 million, or 22 basis points of total assets, while net charge-offs were 20 basis points of average loans.

Ralph Mesick: Thank you, David. Asset quality was strong at quarter end. Non-performing assets were $16.5 million, or 22 basis points of total assets, while net charge-offs were 20 basis points of average loans. Past due trends are stable, and we are not seeing evidence of broad-based weakness across the portfolio. Criticized loans increased to 234 basis points of total loans, driven primarily by a small number of Hawaii-based credits. These loans are well collateralized and actively managed. Our focus remains on disciplined underwriting, risk-adjusted pricing, and maintaining portfolio diversification. Provision expense totaled $4.4 million, including $3.3 million added to the allowance and $1.1 million added to the reserve for unfunded commitments. The increase was driven primarily by more conservative economic assumptions and commitment growth rather than deterioration in the loan portfolio.

Speaker #5: Past-due trends are stable, and we are not seeing evidence of broad-based weakness across the portfolio. Criticized loans increased to 234 basis points of total loans, driven primarily by a small number of Hawaii-based credits.

Speaker #5: These loans are well collateralized and actively managed. Our focus remains on disciplined underwriting, risk-adjusted pricing, and maintaining portfolio diversification. Provision expense totaled $4.4 million, including $3.3 million added to the allowance and $1.1 million added to the reserve for unfunded commitments.

Speaker #5: The increase was driven primarily by more conservative economic assumptions and commitment growth, rather than deterioration in the loan portfolio. As a result, the allowance increased slightly to $60.6 million, or 1.14 percent of loans, compared to 1.13 percent in the first quarter. The strength of the balance sheet, combined with strong credit performance and reserve levels, continues to support a robust capital position.

Ralph Mesick: As a result, the allowance increased slightly to $60.6 million, or 1.14% of loans, compared to 1.13% in Q1. The strength of the balance sheet, combined with strong credit performance and reserve levels, continues to support a robust capital position. We entered the quarter with a 12.7% CET1 ratio and a 14.8% total risk-based capital ratio, providing flexibility to support growth, maintain strong reserves, invest prudently across the balance sheet, and continue returning capital to shareholders. Overall, we remain constructive as our balance sheet is well-positioned, loss reserves are appropriate, and capital levels provide a cushion to absorb any uncertainty in the environment. I will turn things over to Arnold now for some closing comments.

Speaker #5: We entered the quarter with a 12.7 percent CET1 ratio and a 14.8 percent total risk-based capital ratio, providing flexibility to support growth, maintain strong reserves, invest prudently across the balance sheet, and continue returning capital to shareholders.

Speaker #5: Overall, we remain constructive, as our balance sheet is well-positioned, loss reserves are appropriate, and capital levels provide cushions to absorb any uncertainty in the environment.

Speaker #5: I'll turn things over to Arnold now for some closing comments.

Speaker #6: Thank you, Ralph. To summarize, the second quarter was a strong quarter. We delivered solid earnings, maintained credit quality, thoughtfully managed loan and deposit growth, and continued to operate from a position of capital strength.

Arnold Martines: Thank you, Ralph. To summarize, Q2 was a strong quarter. We delivered solid earnings, maintained credit quality, thoughtfully managed loans and deposits growth, and continued to operate from a position of capital strength. I want to thank our employees across the state for their continued commitment to our customers and our communities. It is that commitment that makes results like this possible. We are happy to answer your questions at this time.

Speaker #6: I want to thank our employees across the state for their continued commitment to our customers and our communities. It is that commitment that makes results like this possible.

Speaker #6: We are happy to answer your questions at this time.

Speaker #1: We will now begin the Q&A session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press *1 to raise your hand.

Operator 3: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of David Feaster with Raymond James. Your line is open. Please go ahead.

Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of David Feaster with Raymond James. Your line is open. Please go ahead.

Speaker #1: To withdraw your question, press *1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

Speaker #1: If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of David Easton with Raymond James.

Speaker #1: Your line is open. Please go ahead.

Speaker #3: Hi. Good morning, everybody.

David Feaster: Hi. Good morning, everybody.

Speaker #6: Good morning, David.

Arnold Martines: Good morning, David.

Speaker #3: I wanted to start—maybe let's touch on the deposit front. I mean, obviously, if you've listened to any of these conference calls, everybody's talking about intensifying deposit competition on the mainland.

David Feaster: I wanted to start, maybe let's touch on the deposit front. Obviously, if you've listened to any of these conference calls, everybody's talking about intensifying deposit competition on the mainland. Curious what you're seeing in the islands. How is the competitive landscape? Obviously, it's relatively insulated, and it's historically been more rational. Is that the same case? Just kind of curious where marginal funding costs are locally and just kind of what you're seeing on the funding side.

Speaker #3: Curious what you're seeing in the islands. How is the competitive landscape? Obviously, it's relatively insulated, and it's historically been more rational. Is that still the case?

Speaker #3: I'm just kind of curious where marginal funding costs are locally, and what you're seeing on the funding side.

Speaker #4: Hey, David. It's David Morimoto. I think the deposit competition in Hawaii has remained rather consistent. It is somewhat more rational than on the mainland, where there's a larger number of competitors.

David Morimoto: Hey, David. It's David Morimoto. I think the deposit competition in Hawaii has remained rather consistent. It is somewhat more rational than on the mainland, where there's a larger number of competitors. Having said that, we have been pleased with our deposit performance year to date. We did have a strong Q1 that was slightly offset by lesser growth in the Q2. On a combined basis, total deposit growth was up close to $90 million year to date. We're pleased with that level of growth, and we expect it to continue.

Speaker #4: Having said that, we have been pleased with our deposit performance year to date. We did have a strong first quarter that was slightly offset by lesser growth in the second quarter.

Speaker #4: But on a combined basis, total deposit growth was up close to $90 million year to date, so we're pleased with that level of growth.

Speaker #4: And we expect it to continue.

Speaker #3: Okay, that's helpful. And then, maybe I just wanted to—let's touch on some of the puts and takes on the margin guidance: flat to modestly higher.

David Feaster: Okay. That's helpful. Then, let's touch on some of the puts and takes on the margin guidance. Flat to modestly higher. I know there's a lot of embedded expansion just as you reprice lower yielding assets. Sounds like there might not be a ton of funding cost leverage left. Curious, what's holding you back from expanding more and keeps it flattish? Then whether you're considering any other balance sheet optimization opportunities to maybe help expand the margin more.

Speaker #3: I know there's a lot of embedded expansion just as you reprice lower-yielding assets. It sounds like there might not be a ton of funding cost leverage left.

Speaker #3: Curious, what's holding you back from expanding more and keeps it flattish? And then, are you considering any other balance sheet optimization opportunities to maybe help expand the margin more?

Speaker #2: Yeah. Hi, David, this is Dayna. Thanks for the question. On the margin, let me start by saying we are very focused on maintaining a strong margin.

Dayna Matsumoto: Yeah. Hi, David. This is Dayna. Thanks for the question. On the margin, let me start by saying we are very focused on maintaining a strong margin. At the same time, though, we do balance growth and margin. As far as pricing competition, loan pricing continues to be fairly competitive in the Hawaii market. We have seen some spreads compress. On the deposit side, pricing continues to be pretty rational, and we're not expecting a ton of pressure there. Therefore, we expect our NIM to remain relatively stable in the high 350s, and I feel like that gives us a good ability to take advantage of opportunities that arise.

Speaker #2: At the same time, though, we do balance growth and margin. As far as pricing competition, loan pricing continues to be fairly competitive in the Hawaii market.

Speaker #2: We have seen some spreads compress. On the deposit side, pricing continues to be pretty rational, and we're not expecting a ton of pressure there.

Speaker #2: And so, we expect our NIM to remain relatively stable in the high 350s. I feel like that gives us a good ability to take advantage of opportunities that arise.

Speaker #3: Okay. And maybe just digging in a bit to the underlying dynamics in loans for the quarter. It sounds like there was some slippage into the third quarter, just given higher, as well as some higher prepays.

David Feaster: Okay. Maybe just digging in a bit into the underlying dynamics in loans on the quarter, it sounds like there was some slippage into Q3 as well as some higher prepays. How were originations this quarter, and how's the pipeline shaping up? I want to understand what gives you confidence that growth is going to accelerate. It sounds like you're thinking about leaning maybe into the mainland more. Just kind of curious what's giving you confidence there, and does that guidance contemplate continued elevated payoffs?

Speaker #3: How were originations this quarter, and how's the pipeline shaping up? And I just want to understand what gives you confidence that growth is going to accelerate.

Speaker #3: It sounds like you're thinking about leaning maybe into the mainland more. Just kind of curious, what's giving you confidence there? And does that guidance contemplate continued elevated payoffs?

Speaker #4: David, it's David again. Looking forward, we are confident that second-half loan growth will be stronger than what we saw in the first quarter. One thing to start off with is, during the second quarter, we did originate almost $70 million in new construction loans that obviously didn't really benefit us in the second quarter, but they will benefit us going forward.

David Morimoto: David, it's David again. Looking forward, we are confident that H2 loan growth will be stronger than what we saw in Q1. One thing to start off with is, during Q2, we did originate almost $70 million in new construction loans that obviously didn't really benefit us in Q2, but they will benefit us going forward. We do have a decent amount of commercial construction loan fundings that will help drive loan growth in H2 of the year. Additionally, we do have a solid commercial pipeline that we've built. It's a little lumpier than we would expect, and the timing of closings will be critical with the pipeline. Additionally, we have implemented a couple initiatives on the Hawaii retail portfolio.

Speaker #4: So, we do have a decent amount of commercial construction loan fundings that will help drive loan growth in the back half of the year.

Speaker #4: Additionally, we do have a solid commercial pipeline that we've built. It's a little lumpier than we would expect, and that's why the timing of closings will be critical with the pipeline.

Speaker #4: Additionally, we have implemented a couple of initiatives on the Hawaii retail portfolio. These initiatives are designed not to eliminate or grow the portfolio, but to slow the amount of runoff in the commercial portfolio.

David Morimoto: These initiatives are designed to not eliminate or grow the portfolio, but slow the amount of runoff in the commercial portfolio. I think when you put all of that together, that's why we have confidence for stronger growth in H2 of the year.

Speaker #4: So, I think when you put all of that together, that's why we have confidence for stronger growth in the second half of the year.

Speaker #3: Got it. Thank you.

David Feaster: Got it. Thank you.

Speaker #1: The next question comes from the line of Matthew Clark with Piper Sandler. Your line is open. Please go ahead.

Operator 3: The next question comes from the line of Matthew Clark with Piper Sandler. Your line is open. Please go ahead.

Operator: The next question comes from the line of Matthew Clark with Piper Sandler. Your line is open. Please go ahead.

Speaker #5: Hey. Good morning.

Matthew Clark: Hey, good morning.

Speaker #6: Good morning, Matthew.

David Morimoto: Morning, Matthew.

Speaker #5: I'm just on that last comment. David, I think you mentioned that you expect loan growth to be stronger than the first quarter, or do you mean the first half, in the second half?

Matthew Clark: Just on those last comments. David, I think you mentioned that you expect loan growth to be stronger than the Q1, or do you mean the H1 in the H2?

Speaker #4: Yeah. Yeah. First half, Matthew.

David Morimoto: Yeah. H1, Matthew.

Speaker #5: First half, okay, got it. And then on that $70 million of — sorry, on that $70 million of new commitments on the construction side, could you give us the weighted average rate on that?

Matthew Clark: H1. Okay. Got it. Then, sorry, on that $70 million of new commitments on the construction side, could you give us a weighted average rate on that? Just trying to get a sense for-

Speaker #5: Just trying to get a sense for it.

Speaker #4: Matthew, they were primarily multifamily construction on the mainland, and I would say that the spreads— they're floating at SOFR in the low 200s.

David Morimoto: Matthew, they were primarily multifamily construction on the mainland. I would say that the spreads, they're floating at SOFR in the low 200s.

Speaker #5: Okay. Got it. Sounds good. And then, maybe for Dayna, my typical question on deposit cost—the spot rate at the end of June?

Matthew Clark: Okay. Got it. Sounds good. Then maybe for Dayna, my typical question on deposit costs, the spot rate at the end of June?

Speaker #2: Yeah. Hey, Matthew. The spot rate on total deposits was 90 basis points, so pretty stable there.

Dayna Matsumoto: Yeah. Hey, Matthew. The spot rate on total deposits was 90 basis points, so pretty stable there.

Speaker #5: Okay, great. And then, maybe just on the uptick in non-performers—I know it's tiny, but I guess any incremental increase makes a minor difference.

Matthew Clark: Okay, great. Okay. Then maybe just on the uptick in non-performers, I know it's tiny. I guess any incremental increases makes a minor difference. Just curious on getting some more color on the uptick in non-accruals and the increase in classified, just more about what caused them to migrate and the outlook there.

Speaker #5: So just curious on getting some more color on the uptick in non-accruals and the increase in classified, just more about what caused them to migrate and the outlook there.

Speaker #4: Sure. Matthew, this is Ralph. I think maybe first, I'll put it into some context in terms of how we risk rate credits.

Ralph Mesick: Sure, Matthew. This is Ralph. I think maybe first I kind of put it into some context in terms of how we risk rate credits. Our risk rating system is driven by a probability of default, not expected loss. This quarter, we identified several credits that had potential or defined weaknesses that could have an impact with regard to default probabilities. That was the nature of the downgrade. The largest credit was a $20 million real estate loan. The ownership group is having a dispute, and the principal guarantor has some financial difficulties, and that was the primary reason why it was downgraded. It's a real estate loan, Hawaii-based. The debt service coverage of the loan is about 1.27 times. Third-party lease is pretty diversified, and the loan to value is 57%. We don't see any kind of loss content there.

Speaker #4: So our risk rating system is driven by a probability of default, not expected loss. This quarter, we identified several credits that had potential or defined weaknesses that could have an impact with regard to default probabilities.

Speaker #4: So, that was the nature of the downgrade. The largest credit was a $20 million real estate loan. The ownership group is having a dispute, and the principal guarantor has some financial difficulties.

Speaker #4: And that was the primary reason why it was downgraded. It's a real estate loan, Hawaii-based. The debt service coverage of the loan is about 1.27 times, third-party leases, pretty diversified.

Speaker #4: And the loan-to-value is 57%, so we don't see any kind of loss content there. And the downgrades, as I said, really reflect more of a default risk than an expectation of loss.

Ralph Mesick: The downgrades, as I said, really reflect more kind of a default risk than an expectation of loss.

Speaker #5: Great. Thanks. And then last one for me, just on expenses, maybe for Dana, her operating expenses. You're tracking call it 180 I'm sorry, 180 million for the year, if you just annualize well, a little bit higher than that for the full year, which doesn't get you to two and a half to three and a half percent increase.

Matthew Clark: Great. Thanks. Last one for me, just on expenses, maybe for Dayna, or operating expenses. You're tracking, call it, $180 million for the year. If you just annualize Well, a little bit higher than that for the full year, which doesn't get you to 2.5% to 3.5% increase. I guess maybe wanted to confirm the baseline you're using for 2025 in terms of non-interest expense, and then where the increase might be coming from after we've reset for the BOLI this quarter.

Speaker #5: I just wanted to confirm the baseline you're using for 2025 in terms of non-interest expense, and then where the increase might be coming from after we reset for the BOLA this quarter.

Speaker #2: Yeah. Hey, Matthew. I will say, yeah, as far as our guidance range of two and a half to three and a half percent, our latest forecast is probably on the lower end of that range, just to give you an idea there.

Dayna Matsumoto: Yeah. Hey, Matthew. I will say, as far as our guidance range of 2.5% to 3.5%, our latest forecast is probably on the lower end of that range, just to give you an idea there. In H2, we do expect some expenses to rise due to certain projects going live. We have a CRM system as well as a new branch system and some data platforms. Those are related to ongoing investments in our business. Beyond that, it's just going to be probably a function of timing of certain expenses.

Speaker #2: And in the second half of the year, we do expect some expenses to rise due to certain projects going live. We have a CRM system, as well as a new branch system and some data platforms.

Speaker #2: Those are related to ongoing investments in our business. And beyond that, it's just going to be, probably, a function of timing of certain expenses.

Speaker #5: Okay. And the baseline you're using for last year—do you have it offhand?

Matthew Clark: Okay. The baseline you're using for last year, if you had it offhand?

Speaker #2: Yeah, Matthew, so there was a little bit of non-recurring last year. So the baseline I'm using is about $177 million.

Dayna Matsumoto: Yeah.

Matthew Clark: Is it one-

Dayna Matsumoto: There was a little bit of non-recurring last year, so the baseline I'm using is about 177. $177 million.

Speaker #5: Yep, that's what I thought. Okay, thank you.

Matthew Clark: Okay. Yep, that's what I thought. Okay, thank you.

Speaker #2: Sure.

Dayna Matsumoto: Sure.

Speaker #1: The next question comes from the line of Andrew Leish with StoneX Group. Your line is open. Please go ahead. So sorry—Andrew, give me one second.

Operator 3: The next question comes from the line of Andrew Leach with StoneX Group. Your line is open. Please go ahead. Sorry, Andrew. Give me one second. I will re-line you up in the queue. Andrew, your line is open. Go ahead.

Operator: The next question comes from the line of Andrew Leach with StoneX Group. Your line is open. Please go ahead. Sorry, Andrew. Give me one second. I will re-line you up in the queue. Andrew, your line is open. Go ahead.

Speaker #1: I will re-line you up in the queue. Andrew, your line is open. Go ahead.

Speaker #3: Great, thank you. Just on the pace of the share repurchases, should we expect a similar pace going forward here?

Andrew Leach: Great. Thank you. Just the pace on the share repurchases, should we expect a similar pace going forward here?

Andrew Liesch: Great. Thank you. Just the pace on the share repurchases, should we expect a similar pace going forward here?

Speaker #2: Hey, Andrew. It's Dayna. I would say that we do generally plan to return capital at a similar pace as we did this past quarter, through dividends and share repurchases.

Dayna Matsumoto: Hey, Andrew. It's Dayna. I would say that we do generally plan to return capital at a similar pace as we did this past quarter through dividends and share repurchases. As always, the amount that we buy back each quarter, it is dynamic and considers a number of factors, including loan growth, the environment, and risks, as well as our valuation. Generally speaking, I'd expect it to be a similar amount.

Speaker #2: But as always, the amount that we buy back each quarter is dynamic and considers a number of factors, including loan growth, the environment, and risks, as well as our valuation.

Speaker #2: But generally speaking, I’d expect it to be a similar amount.

Speaker #3: Got it. Very helpful. My other questions have been asked and answered. I'll step back. Thanks.

Andrew Leach: Got it. Very helpful. All my other questions have been asked and answered. I'll step back. Thanks.

Andrew Liesch: Got it. Very helpful. All my other questions have been asked and answered. I'll step back. Thanks.

Speaker #6: Thanks, Andrew.

Arnold Martines: Thanks, Andrew.

Speaker #1: The next question comes from Kelly Moda with KBW. Your line is open. Please go ahead.

Operator 3: The next question comes from Kelly Motta with KBW. Your line is open. Please go ahead.

Operator: The next question comes from Kelly Motta with KBW. Your line is open. Please go ahead.

Speaker #7: Hey, thanks for letting me on. Maybe on the deposits—you have a lot of room on your balance sheet, and you have some nice cash flows coming off the securities portfolio sale.

Kelly Motta: Hey, thanks for letting me on. Maybe on the deposits, you have a lot of room on your balance sheet. You have some nice cash flows coming off the securities portfolio sale. With the 79% loan-to-deposit ratio and your expectation for kind of a pickup in growth here for the H2, how are you thinking about funding? Would you expect, based on your pipelines, a commensurate amount of deposits, or are you still thinking some kind of grow into your loan-to-deposit ratio and commentary on where you'd like to bring that? Thank you.

Speaker #7: With the 79% loan-to-deposit ratio and your expectation for a pickup in growth here for the back half of the year, how are you thinking about funding?

Speaker #7: Would you expect, based on your pipeline, a commensurate amount of deposits? Are we still thinking some kind of grow-in to your loan-to-deposit ratio, and do you have any commentary on where you'd like to bring that?

Speaker #7: Thank you.

Speaker #2: Hi, Kelly. It's Dayna. Yeah. Starting with the loan-to-deposit ratio, at June 30, I think it was about 79%. I'd say that's on the lower end of our target.

Dayna Matsumoto: Hi, Kelly. It's Dayna. Yeah, starting with the loan-to-deposit ratio. At 30 June, I think it was about 79%. I'd say that's on the lower end of our target. We typically target about 80% to 85% on the loan-to-deposit ratio. I think there's some room there. Our average earning asset growth, it really will depend on loan growth and our continued focus on optimizing and there may be some mix shift in there as well.

Speaker #2: We typically target about 80 to 85 percent on the loan-to-deposit ratio, so I think there's some room there. And we're always looking to optimize the balance sheet and our average earning asset growth.

Speaker #2: It really will depend on loan growth and our continued focus on optimizing, and there may be some mix shift in there as well.

Speaker #7: Got it. That's really helpful. And I'm sorry to circle back on this, but I just want to make sure I understand your expense commentary correctly. I appreciate the jumping-off point.

Kelly Motta: Got it. That's really helpful. I'm sorry to circle back on this, but I just want to understand your expense commentary correctly. I appreciate the jumping-off point. Can you clarify whether or not that includes the equity gains that impacted incentive comp this quarter for 2026? I just want to make sure I'm modeling appropriately ahead.

Speaker #7: Can you clarify whether or not that includes the equity gains that impacted incentive comp this quarter for 2026? I just want to make sure I'm modeling appropriately ahead.

Speaker #2: Yes, Kelly, that does include the higher deferred compensation expense this quarter. But I am assuming for the back half of the year that we'll see some normalization there.

Dayna Matsumoto: Yes, Kelly, that does include the higher deferred compensation expense this quarter. I am assuming for the back half of the year that we'll see some normalization there.

Speaker #7: Great. And as you noted, investing in some of these technologies and systems is something that you ultimately hope is helping to drive greater efficiencies ahead.

Kelly Motta: Great. As you noted, investing in some of these technology and systems is something that you ultimately hope is helping to drive greater efficiencies ahead. Could you share so far any latest use cases or what you're seeing based on the changes made so far and what you're most excited for or looking to do as we look ahead here? Thank you.

Speaker #7: Can you share any of the latest use cases you're seeing so far, based on the changes made, and what you're most excited for or looking to do as we look ahead?

Speaker #7: Thank you.

Speaker #5: Yeah, Kelly, if you're talking about AI, I think right now we're really taking a measured approach. So we don't really intend to overstate what we can deliver, but we're aiming not to be a laggard or trying to lead on that.

Arnold Martines: Yeah, Kelly. If you're talking about AI, I think right now we're really taking a measured approach. We don't really intend to overstate what we can deliver, but we're aiming not to be a laggard or trying to lead on that. Today, right now, really, we're focused on building out the data infrastructure and some of the guardrails. Because the technology's evolving, we want to make smaller investments. We want near-term paybacks. Most of the applications are around workflows, whether it be assembling credit information, drafting routine documentation, supporting the AML reviews, or automating certain types of risk reporting. We really want to retain employee judgment and approval authority over this. We want to be very clear on what kind of data we're looking at. Then we're really trying to work with, I'd say, more established providers than trying to develop our own tools right now.

Speaker #5: Today, right now, really, we're kind of focused on building out the data infrastructure and some of the guardrails. Because the technology is evolving, we want to make smaller investments.

Speaker #5: We want kind of near-term paybacks, and most of the applications are around workflows—whether it be assembling credit information, drafting routine documentation, supporting the AML reviews, or automating certain types of risk reporting.

Speaker #5: We really want to retain employee judgment and approval authority over this. We want to be very clear on what kind of data we're looking at.

Speaker #5: And then we're really trying to work with, I'd say, more established providers than trying to develop our own tools right now.

Speaker #7: Yep, got it. Thank you so much. I appreciate all the color. I'll step back.

Kelly Motta: Yep. Got it. Thank you so much. Appreciate all the color. I'll step back.

Speaker #1: If you would like to ask a question, please press star one to raise your hand. There are no further questions at this time. I will now hand the call back to Mr. Gerald Robago for closing remarks.

Operator 3: If you would like to ask a question, please press star one to raise your hand. There are no further questions at this time. I will now hand the call back to Mr. Jayrald Rabago for closing remarks.

Operator: If you would like to ask a question, please press star one to raise your hand. There are no further questions at this time. I will now hand the call back to Mr. Jayrald Rabago for closing remarks.

Speaker #6: Thank you, everyone, for joining us today and for your continued interest in Central Pacific Financial Corp. We look forward to updating you again next quarter.

Jayrald Rabago: Thank you everyone for joining us today and for your continued interest in Central Pacific Financial Corp. We look forward to updating you again next quarter. Thank you.

Speaker #6: Thank you.

Speaker #1: This concludes today's call. Thank you for attending. You may now disconnect.

Operator 3: This concludes today's call. Thank you for attending. You may now disconnect.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

Operator 1: This event has now concluded. Thank you for joining Central Pacific Financial Corp Q2 2026 earnings. The line will disconnect automatically.

Q2 2026 Central Pacific Financial Corp Earnings Call

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