KBRA Affirms Ratings for Central Pacific Financial Corp.

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Honolulu, Hawaii-based Central Pacific Financial Corp. (NYSE: CPF) ("Central Pacific" or "the company"). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for its main subsidiary, Central Pacific Bank. The Outlook for all long-term ratings is Stable.

Central Pacific’s ratings are supported by its best-in-class deposit franchise, which includes a favorable mix and cost, adequate liquidity management, a conservative risk-based capital position, solid earnings with improving trends, and sound credit quality metrics. Offsetting factors include concentration risks in the loan portfolio (residential mortgage: 47% of total loans as of 2Q25) and geographic exposure (the majority of the balance sheet tied to Hawaii). Nonetheless, CPF’s entrenched market position, meaningful deposit market share, and the relatively durable housing dynamics, including limited affordability and constrained supply, provide stabilizing support to those factors.

The Hawaiian banking market is highly concentrated, with the top four local banks controlling ~92% of deposits; Central Pacific Bank holds a 12% share, ranking fourth. Management characterizes the market as deposit-rich but asset-generation poor, resulting in slower loan growth compared to much of the U.S. As such, the limited loan growth opportunities allow for CPF to reflect a funding mix almost entirely concentrated in core deposits. Combined with a strong deposit mix, including ~30% in NIB accounts as of 2Q25, has facilitated some of the lowest deposit costs in the KBRA rated universe (total cost of 1.02% during 2Q25), and even below larger local peers. Although CPF maintained a neutral interest rate risk positioning, the company experienced NIM pressure following the rapid rate increases in 2022–2023. That said, profitability has since improved, aided by Fed cuts in 2H24, with NIM now at its highest level in over a decade (~3.5% during 2Q25). Returns compare favorably to the rated peer average, with ROA again approaching 1.0%. We also note respectable revenue diversity, with fee income between 15%–20% of total revenues, largely from durable sources. Looking ahead, CPF anticipates further NIM tailwinds from recent Fed cuts, continued loan growth, and back-book loan and securities repricing.

Recent challenges in the mainland unsecured consumer book have been addressed (through portfolio run off), while other credit metrics remain solid despite modest tourism headwinds from reduced Japanese visitors and the Maui wildfires. CPF’s continued expansion into U.S. mainland lending — a segment that was problematic in the global financial crisis — is being pursued more conservatively under industry veterans, with disciplined underwriting and partnerships with larger lenders. Over time, management expects this concentration to increase from the 15% of total loans level toward 20%-22%. As it currently stands, Central Pacific's NPAs, NCOs, and criticized loans remain at comfortable levels. Moving forward, we believe there is the potential for continued outperformance given that the loan portfolio is largely concentrated in its high-quality residential mortgage book, which reflects an average LTV around the high-50% level and super-prime FICOs. Moreover, the exposure to investor CRE, including more troubled sectors like office, remains below similarly rated peers.

Core capital ratios remain healthy, with the CET1 ratio (12.6% as of 2Q25) outpacing peers from retained earnings and modest balance sheet growth in recent years. The TCE ratio (7.7%) has improved but still trails peers, reflecting lingering negative AOCI pressure from its longer-duration bond portfolio. Moving forward, the continued upward trend in capital metrics should likely persist given the measured loan growth and manageable capital deployment through share buybacks and dividends (payout ratio of 40% during 2Q25). 

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