cpf-20251231
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2025
or
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission file number: 001-31567
Central Pacific Financial Corp.
(Exact name of registrant as specified in its charter)
220 South King Street, Honolulu, Hawaii96813
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code:
(808) 544-0500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, No Par Value CPF New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes oNoý
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes oNoý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesý No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yesý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer x Accelerated Filer o
Non-Accelerated Filer o Smaller Reporting Company ☐
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐No☒
As of June 30, 2025, the aggregate market value of the common stock held by non-affiliates of the registrant was approximately $735,757,000. As of February 13, 2026, the number of shares of common stock of the registrant outstanding was 26,289,976 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement for the 2026 annual meeting of shareholders are incorporated by reference into Part III of this annual report on Form 10-K to the extent stated herein. The proxy statement will be filed within 120 days after the end of the fiscal year covered by this annual report on Form 10-K.
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CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES
Form 10-K
Table of Contents
Page
Part I.
Item 1 Business 3
Item 1A Risk Factors 19
Item 1B Unresolved Staff Comments 35
Item 1C Cybersecurity 35
Item 2 Properties 36
Item 3 Legal Proceedings 37
Item 4 Mine Safety Disclosures 37
Part II.
Item 7A Quantitative and Qualitative Disclosures About Market Risk 79
Item 8 Financial Statements and Supplementary Data 80
Item 9A Controls and Procedures 148
Item 9B Other Information 148
Item 9C Disclosure Regarding Foreign Jurisdictions That Prevent Inspections 148
Part III.
Item 10 Directors, Executive Officers and Corporate Governance 149
Item 11 Executive Compensation 149
Item 14 Principal Accountant Fees and Services 149
Part IV.
Item 15 Exhibits and Financial Statement Schedules 150
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PART I
ITEM 1. BUSINESS
General
Central Pacific Financial Corp. is a Hawaii corporation and a registered bank holding company under the Bank Holding Company Act of 1956, as amended (the "BHC Act"). CPF was organized on February 1, 1982, and serves as the holding company for its principal subsidiary, Central Pacific Bank. The Bank was incorporated in its present form in the State of Hawaii on March 16, 1982, following a holding company reorganization. Its predecessor entity was originally incorporated in the State of Hawaii on January 15, 1954.
CPF reports financial results on a fiscal year ending December 31, and operates as a single reportable segment: banking operations.
Throughout this document, "Central Pacific Bank" is referred to as "our Bank" or "the Bank" and "the Company," "we," "us" or "our," refers to Central Pacific Financial Corp. on a consolidated basis. The terms "Central Pacific Financial Corp.," "CPF," or "the holding company", refers to the parent company on a standalone basis.
Branch Network
Through our Bank and its subsidiaries, we provide full-service commercial banking through 27 bank branches and 55 ATMs located across the State of Hawaii. Our administrative and main offices are located in Honolulu, and we operate 20 branches on the island of Oahu. In addition, we have four branches on Maui, two on Hawaii Island, and one on Kauai.
Products and Services
Central Pacific Bank offers a full range of deposit and lending products and services to consumer and business customers. These include accepting demand, money market, savings, and time deposits, as well as originating commercial and industrial, construction, commercial real estate, residential mortgage, home equity, and consumer loans. We also offer cash management, digital banking, fiduciary and investment management services. Our Bank's deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") up to applicable limits. The Bank became a member of the Federal Reserve System ("Federal Reserve") in January 2025, making the Federal Reserve Bank ("FRB") its primary federal regulator.
Financial Performance Drivers
We derive income primarily from interest and fees on loans, interest and dividends on investment securities, and fees related to deposit and other services. Major operating expenses include interest paid on deposits and borrowings, salaries and employee benefits, and general operating costs. Our relationship-based Hawaii retail and small business deposits provide stable, low-cost funding to support balance sheet growth and margin optimization. We seek to diversify funding sources through strategic partnerships with customers in Japan and Korea.
Lending Activities
Through our Bank, we concentrate our lending activities in five principal areas:
(1)Residential Mortgage Lending. Includes fixed-rate and adjustable-rate loans primarily secured by single-family, owner-occupied residences in Hawaii, as well as home equity lines of credit and loans. We typically require loan-to-value ratios of not more than 80%, although higher levels are permitted with mortgage insurance. Changes in interest rates, economic conditions, and other market factors impact collateral values and borrower financial condition, affecting credit risk. A portion of our first mortgage originations are sold in the secondary market, while the remainder is retained in our loan portfolio.
(2)Commercial and Industrial Lending. Consists primarily of term loans and lines of credit to small and middle-market businesses and professionals in Hawaii. Operating cash flow from the borrower's business is typically the primary source of repayment, but our underwriting generally requires additional collateral, such as real estate and business assets, and personal guarantees where possible to mitigate risk.
(3)Commercial Mortgage Lending. Includes loans secured by commercial real estate, such as multi-family residential properties, industrial facilities, warehouses, offices, retail spaces, healthcare facilities, hotels, and religious dwellings.
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Underwriting generally requires net cash flow from the property to cover the debt service while maintaining reserves, with liquidation of collateral considered as a secondary source of repayment.
(4)Construction Lending. Includes loans for construction, land development, and other land loans for residential and commercial projects.
(5)Consumer Lending. Includes loans that are generally unsecured or secured by personal assets, such as automobiles, with relatively small average loan sizes.
Our Heritage
Central Pacific Bank was founded by World War II veterans who, despite returning home as war heroes, faced limited banking opportunities in Hawaii. In response, they established the Bank to serve individuals and small businesses that lacked access to financial services at the time. This commitment to creating opportunity and serving our community continues in the present day as we strive to deliver exceptional customer service and tailored financial products to meet the unique needs of our customers and the communities we serve.
Our Strategic Focus
Our strategic focus is to be a top-performing bank that consistently delivers superior financial results, operational excellence, and shareholder returns across economic cycles. To drive growth, diversify our balance sheet, and strengthen resilience, we focus on markets and niche segments that differentiate our Bank. These include small businesses and homeowners in Hawaii, strategic partnerships with financial institutions in Japan and Korea, U.S. Mainland lending to diversify our loan portfolio and manage interest rate risk, and the integration of Wealth Management to provide a full spectrum of services to meet client needs.
Our strategy is financially driven and supported by a customer-centric approach, built on the following core elements: (i) stable, low-cost funding; (ii) disciplined credit selection; (iii) thoughtful diversification; (iv) capital optimization and shareholder returns; and (v) prudent risk and capital management.
Employees and Workforce
We believe the success of our business is largely due to the quality of our employees, the development of their full potential, and our ability to provide timely and meaningful rewards to our employees. At December 31, 2025, we employed 763 individuals, including 722 full-time and 41 part-time employees. We are not a party to any collective bargaining agreements.
We actively encourage and support employee growth and development by prioritizing internal promotions and transfers wherever possible. Continuous learning and career development are advanced through a combination of formal processes, internally developed programs, and external learning opportunities, including:
•Continuous performance development and annual reviews;
•A culture‐ and people‐focused training program for new managers designed to strengthen leadership capabilities, employee engagement, and effective people management practices;
•A comprehensive sales and technical training framework that aligns product, sales, and technical training programs under a unified, enterprise‐wide structure to support consistent skill development and performance standards;
•Internally developed training programs, conferences, and other job-related learning opportunities;
•Tuition reimbursement for approved courses or degree programs, as well as payment of fees paid for professional certifications;
•Participation in external leadership development programs such as the Pacific Coast Banking School, through which a cohort of two to three high-potential employees attends annually; and
•CPB Toastmasters, which supports employees developing public speaking, communication and leadership skills.
The safety, health, and wellness of our employees remain a top priority. We promote work-life balance through flexible work arrangements, comprehensive health care benefits, and sponsor various wellness programs.
Employee retention is critical to our efficiency and commitment to exceptional service. We believe our strong core values, focus on employee well-being, career support, and competitive compensation and benefits, including health insurance and retirement savings plans, aids in retention of our top-performing employees. In addition to base salary, our compensation program includes variable pay (e.g., commission, incentive, bonus) designed to motivate and reward high performance that
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aligns with our corporate strategy and business objectives. At December 31, 2025, the employee average tenure was 9 years and 33% of our staff had been with us for 10 years or more.
Our Market Area and Competition
Our operations, like those of other financial institutions in our market, are significantly influenced by economic conditions in Hawaii, particularly the strength of the real estate market and the tourism industry, as well as the fiscal and regulatory policies of federal and state governments and the authorities that regulate financial institutions.
Based on deposit market share among FDIC-insured financial institutions in Hawaii, Central Pacific Bank is ranked as the fourth-largest depository institution in the state as of December 31, 2025.
The banking and financial services industry in Hawaii, particularly within our target market areas, is highly competitive. We compete for loans, deposits, and customers with a broad range of financial service providers, including commercial and savings banks, securities and brokerage firms, financial technology ("fintech") companies, mortgage companies, insurance companies, finance companies, credit unions, and other non-bank financial service providers. This competition also includes online mortgage lenders and brokers operating through digital platforms.
To differentiate ourselves in this competitive environment, we emphasize strong personal relationships between our customers and our officers, directors, and employees, as well as specialized services designed to meet the unique needs of our customers and the communities we serve. We believe our competitive advantage lies in offering flexibility, superior customer service, competitive pricing, robust digital banking capabilities, and locally-focused promotional activities.
For further discussion of factors affecting our operations see, "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
Business Concentrations
No individual or single group of related accounts is considered material in relation to the assets or deposits of our Bank, or in the overall business of the Company. Approximately 80% of our loan portfolio at December 31, 2025 consisted of real estate-related loans, including residential mortgage loans, home equity loans, commercial mortgage loans, and construction loans. See "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Loan Portfolio."
Our business activities are concentrated primarily in Hawaii. Consequently, our financial condition and results of operations are closely tied to the economic trends in Hawaii, particularly in the commercial and residential real estate markets. During periods of economic strength, real estate markets typically perform well; during periods of economic weakness, they are adversely affected.
Our Subsidiaries
Central Pacific Bank is the wholly-owned principal subsidiary of Central Pacific Financial Corp. As of December 31, 2025, other wholly-owned subsidiaries include CPB Capital Trust IV and CPB Statutory Trust V.
Central Pacific Bank owns 50% of One Hawaii HomeLoans, LLC ("One Hawaii"). One Hawaii was inactive in 2024 and 2025 and will be accounted for as a variable interest entity and consolidated into the Company's financial statements when activity begins.
Central Pacific Bank also owns 50% of Gentry HomeLoans, LLC, Haseko HomeLoans, LLC, and Island Pacific HomeLoans, LLC, which are accounted for under the cost method and reported as investments in unconsolidated entities in the Company's consolidated balance sheets.
The Company sponsors the Central Pacific Bank Foundation, which is not consolidated in the Company's financial statements.
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Supervision and Regulation
General
The Company and the Bank are subject to extensive regulation and oversight by federal and state laws and regulatory agencies. These regulations are designed to protect depositors, the FDIC deposit insurance fund, borrowers, and to promote the stability of the United States of America ("U.S.") banking system.
The following discussion summarizes certain statutes and regulations applicable to us; it is not exhaustive and is qualified in its entirety by reference to the actual laws and regulations. We cannot predict if or when new legislation will be enacted or new regulations or guidance will be issued, nor the impact such changes may have on community banks generally or on our financial condition and results of operations. Future developments could increase or decrease the cost of doing business, limit or expand permissible activities or alter the competitive landscape among banks, savings associations, credit unions, and other financial institutions. Similarly, we cannot predict whether regulatory requirements will be reduced or eliminated or the overall effect such changes may have on the Company and the Bank.
Regulatory Oversight
Central Pacific Financial Corp. is a separate legal entity from its subsidiaries and serves as the bank holding company for Central Pacific Bank. CPF is regulated under the BHC Act and is subject to inspection, examination, and supervision by the FRB. CPF is also governed by Hawaii's Code of Financial Institutions and overseen by the Hawaii Division of Financial Institutions ("DFI").
As a publicly traded company, CPF is subject to disclosure and reporting requirements under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as administered by the U.S. Securities and Exchange Commission ("SEC"). Our common stock is listed on the New York Stock Exchange ("NYSE") under the symbol "CPF," and we comply with NYSE listing standards. We are also subject to the corporate governance and accounting requirements of the Sarbanes-Oxley Act of 2002, which include executive certifications of financial statements, audit committees requirements, disclosure of controls and procedures, and the establishment and testing of internal controls over financial reporting.
Central Pacific Bank is a Hawaii state-chartered bank with deposits insured by the FDIC. On January 24, 2025, the Bank became a member of the Federal Reserve System, making the FRB its primary federal regulator. Previously, the Bank was regulated primarily by the FDIC. Upon joining the Federal Reserve System, the Bank subscribed to Federal Reserve Bank capital stock equal to 6% of its capital and surplus.
As a Hawaii state-chartered bank, the Bank is subject to extensive federal and state laws and regulations governing permissible activities, investments, reserves against deposits, funds availability, dividends, lending practices, collateral requirements, loan servicing and foreclosure, transactions with affiliates and insiders, borrowings, capital standards, check-clearing, branching, and mergers and acquisitions.
The Company is also subject to regulations issued by the Consumer Financial Protection Bureau ("CFPB"), Federal Trade Commission ("FTC"), and FRB. During periodic examinations, the DFI and FRB assess our financial condition, capital resources, asset quality, management, earnings prospects, liquidity, market sensitivity, and other aspects of our operations. These agencies also evaluate management effectiveness and compliance with applicable laws or regulations.
Regulatory Enforcement Authority
Federal and Hawaii regulators have broad discretion in supervising and enforcing banking laws, including examination policies, asset classification standards, and requirements for adequate loan loss reserves. To promote safety and soundness, these
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agencies have adopted guidelines designed to identify and address potential risks before an institution's capital becomes impaired. These guidelines establish operational and managerial standards in areas such as:
1.Internal controls, information systems, and audit processes;
2.Loan documentation and credit underwriting;
3.Interest-rate management;
4.Asset growth and quality; and
5.Compensation, fees, and benefits.
Further, the regulatory agencies have adopted safety and soundness guidelines for asset quality and for evaluating and monitoring earnings to ensure that earnings are sufficient for the maintenance of adequate capital and reserves.
If an examination reveals deficiencies in financial condition, capital resources, asset quality, earnings prospects, management, liquidity, market sensitivity, or compliance with laws and regulations, the FRB, DFI, and the FDIC have authority to:
•Require corrective action for violations or unsafe practices;
•Direct increases in capital and impose higher minimum capital ratios, which may limit acceptance of brokered deposits;
•Restrict growth, including geographic expansion, new products, mergers and acquisitions;
•Issue informal or formal enforcement actions, such as memoranda of understanding, written agreements, consent orders, cease-and-desist orders, or prompt corrective action directives;
•Require prior approval for changes in senior executive officers or directors; remove officers and directors; and assess civil monetary penalties; and
•Terminate FDIC insurance, revoke the charter and/or take possession of and close and liquidate the Bank or appoint a receiver, which for a Hawaii state-chartered bank would result in a revocation of its charter.
Legislative and Regulatory Developments
Federal banking agencies have authority to issue regulations and guidelines to ensure safety and soundness of banks and the stability of the U.S. banking system. Changes in administration can influence regulatory priorities, including rulemaking, supervision, examination, and enforcement. While future changes may occur, the scope and impact of such changes cannot currently be determined.
Capital Adequacy Requirements
Bank holding companies and banks are subject to regulatory capital requirements administered by federal and state banking agencies, including the Basel III Capital Rule. These rules establish minimum risk-based and leverage capital ratios designed to ensure the safety and soundness of financial institutions.
The FRB monitors the Company's capital adequacy on a consolidated basis, and the Bank's capital adequacy is supervised by its federal and state regulators, including the FRB and the DFI. Both the Company and the Bank must comply with Basel III minimum risk-based and leverage capital requirements and the Capital Conservation Buffer.
These requirements implement international Basel III standards in the United States, and certain provisions of the Dodd-Frank Act. Regulators may require higher capital levels than the minimums based on an institution's size, complexity or risk profile.
Overview of Risk-Based Capital Guidelines
Under Basel III, capital requirements vary based on the risk profile of both on-balance sheet assets (such as loans) and off-balance sheet exposures (such as commitments, letters of credit, and recourse arrangements). Risk-based capital ratios are calculated by assigning risk weights to assets and certain off-balance sheet items, then dividing qualifying capital by total risk-weighted assets, with higher-risk categories requiring higher levels of capital.
Institutions engaged in significant trading activity may also be subject to the market risk capital guidelines, which incorporate additional market and interest rate risk components.
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Minimum Capital Ratios
Under Basel III, the Company's and the Bank's on-balance sheet assets, certain exposures, and eligible off-balance sheet items are assigned risk weights to determine risk-weighted assets. These risk-weighted assets are used as the denomimator to calculate the following minimum capital ratios:
•Tier 1 Leverage Ratio: Tier 1 capital divided by quarterly average assets (net of goodwill, other intangible assets, and certain other deductions).
•Common Equity Tier 1 ("CET1") Risk-Based Capital Ratio: CET1 capital divided by risk-weighted assets. CET1 capital primarily includes common stockholders' equity, subject to certain regulatory adjustments. The Bank elected to exclude accumulated other comprehensive income from regulatory capital. This election was made in order to avoid significant variations in our levels of capital depending upon the impact of interest rate fluctuations on the fair value of our Bank’s available-for-sale securities portfolio.
•Tier 1 Risk-Based Capital Ratio: Tier 1 capital divided by risk-weighted assets. Tier 1 capital includes CET1 capital, perpetual preferred stock, and certain qualifying capital instruments. Hybrid securities, such as trust preferred securities, are generally excluded from Tier 1 capital; however, for bank holding companies with less than $15 billion in total consolidated assets, certain trust preferred securities are grandfathered for inclusion in Tier 1 capital.
•Total Risk-Based Capital Ratio: Total capital (CET1 capital, Tier 1 capital, and Tier 2 capital) divided by risk-weighted assets. Tier 2 capital includes qualifying subordinated debt and allowance for credit losses. Tier 2 capital also includes, among other things, certain trust preferred securities.
For Prompt Corrective Action purposes applicable to insured depository institutions, an institution is "well‐capitalized" if it meets all of the following thresholds and is not subject to a relevant regulatory order:
•Tier 1 Leverage Ratio ≥ 5.0%
•CET1 Risk‐Based Capital Ratio ≥ 6.5%
•Tier 1 Risk‐Based Capital Ratio ≥ 8.0%
•Total Risk‐Based Capital Ratio ≥ 10.0%
The Federal Reserve has not updated its well‐capitalized standard for bank holding companies to fully reflect Basel III; therefore, the PCA “well‐capitalized” thresholds above are those applied to the insured depository institution level under current rules. Our capital ratios as of December 31, 2025, exceed these thresholds. Regulators may require capital levels above minimums based on prevailing economic conditions or our specific risk profile.
Consequences of Non-Compliance
Failure to meet minimum or well-capitalized standards could trigger mandatory and discretionary regulatory actions, including restrictions on dividends, capital distributions, and regulatory approvals. Such actions could materially affect our operations and financial condition.
Capital Conservation Buffer
In addition to minimum capital ratios, Basel III requires a Capital Conservation Buffer of 2.50% above the minimum CET1 ratio to avoid restrictions on capital distributions and certain discretionary bonuses. The Capital Conservation Buffer effectively raises the required risk-based capital ratios. The Tier 1 Leverage Ratio is not impacted by the Capital Conservation Buffer, meaning an institution may be considered well-capitalized while failing to meet the Capital Conservation Buffer requirements.
The table below summarizes the capital requirements that the Company and the Bank must satisfy to avoid limitations on capital distributions and certain discretionary bonus payments (i.e., the required minimum capital ratios plus the Capital Conservation Buffer):
Minimum Basel III Regulatory Capital Ratio Plus Capital Conservation Buffer
CET1 risk-based capital ratio 7.0 %
Tier 1 risk-based capital ratio 8.5 %
Total risk-based capital ratio 10.5 %
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As of December 31, 2025, the Company and the Bank were well-capitalized for regulatory purposes. For a detailed tabular presentation of the Company’s and the Bank’s capital ratios as of December 31, 2025, see Note 23 - Parent Company and Regulatory Restrictions to the Consolidated Financial Statements under "Part II, Item 8. Financial Statements and Supplementary Data".
Basel IV and U.S. Implementation
In December 2017, the Basel Committee published standards described as the finalization of Basel III post-crisis regulatory reforms, commonly referred to as "Basel IV." These standards revise the Basel Committee's standardized approach for credit risk (including recalibrating risk weights and introducing new capital requirements for certain "unconditionally cancellable commitments," such as unused credit card lines of credit), and establishes a new standardized approach for operational risk capital.
Under the Basel framework, as amended, these standards became effective on January 1, 2023, with an aggregate output floor phasing in through January 1, 2028. Under the current U.S. capital rules, operational risk capital requirements and capital floors apply only to advanced approaches institutions, and therefore do not apply to the Company and the Bank.
In July 2023, the FRB, OCC, and FDIC proposed significant changes to the current Basel III capital rules. These proposals would replace the advanced approaches risk-weighted assets framework with a new enhanced risk-based framework and require banking organizations with $100 billion or more in assets to calculate regulatory capital using more stringent requirements applicable to even larger organizations.
The impact of any changes to capital requirements, calculations, and implementation of Basel IV on the Company will depend on how these standards are adopted by U.S. federal banking regulators.
Prompt Corrective Action Provisions
The Federal Deposit Insurance Act requires federal banking regulators to take "prompt corrective action" when a depository institution fails to meet certain capital adequacy standards. Such actions may include, among other measures, requiring the institution to submit and implement an acceptable capital restoration plan.
Federal regulations establish five capital categories for insured depository institutions: well-capitalized, adequately capitalized, under-capitalized, significantly under-capitalized, and critically under-capitalized.
As an institution's capital category declines, it becomes subject to progressively more stringent restrictions and requirements, which may include limitations on permitted activities, operational practices, asset growth, and the ability to pay dividends or executive bonuses, as well as increased regulatory oversight.
In addition, an institution that is classified as well-capitalized, adequately capitalized, or under-capitalized may, upon notice and an opportunity for a hearing, be treated as though it were in the next lower capital category if its primary regulator determines that an unsafe or unsound condition or practice warrants such treatment.
To be considered well-capitalized, the Bank must now maintain a CET1 ratio of 6.5%, a Tier 1 capital ratio of at least 8%, a total capital ratio of at least 10%, and a leverage ratio of at least 5%.
Regulators may also require banks and bank holding companies that are subject to enforcement actions to maintain capital ratios above the minimum well-capitalized thresholds. In such cases, an institution may lose its well-capitalized designation and become subject to restrictions, including limitations on accepting brokered deposits.
Volcker Rule
In December 2013, federal banking agencies adopted final rules implementing the Volker Rule, a provision of the Dodd-Frank Act. Subject to certain exceptions, these rules prohibit banking entities from engaging in proprietary trading and from sponsoring or investing in certain entities, including hedge funds and private equity funds classified as "covered funds."
In July 2019, regulators finalized a rule exempting community banks with $10 billion or less in total consolidated assets and total trading assets and liabilities of 5% or less of total consolidated assets (and which is not controlled by a company whose
total assets and total trading assets and liabilities are in excess of such amounts), from the Volcker Rule. The Bank qualifies for this exemption.
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Brokered Deposits
The FDIC restricts the acceptance of brokered deposits to institutions that are well-capitalized. Institutions that are less than well-capitalized may not accept, renew, or roll over brokered deposits without an FDIC waiver. As of December 31, 2025, the Bank was well-capitalized and had no restrictions on accepting brokered deposits.
Bank Holding Company Regulation
Federal and state banking laws impose a broad range of requirements and restrictions on bank holding companies and their subsidiaries. These may include:
•Reporting Requirements: Submission of regular periodic reports and any additional information requested by the Federal Reserve;
•Capital Requirements: Compliance with minimum capital requirements (see the "Capital Adequacy Requirements" section above and the "Capital Resources" section in the MD&A);
•Source of Strength Doctrine: Bank holding companies must serve as a source of financial and managerial strength for subsidiary banks and provide necessary resources. If a subsidiary bank fails to maintain adequate capital, regulators may require "prompt corrective action" (see the "Prompt Corrective Action Provisions" section above);
•Dividend Restrictions: Limitation on dividends payable to shareholders and restrictions on obtaining dividends or other distributions from subsidiary banks;
•Risk Mitigation: Authority to require termination of activities or divestiture of subsidiaries, affiliates or investments deemed to pose significant risk to the safety, soundness or stability of any bank subsidiary;
•Management Oversight: Prior approval for changes in senior executive officers or directors; prohibition of golden parachute payments and certain employment agreements when the company is in troubled condition;
•Debt Regulation: Oversight of certain debt provisions, including interest ceilings, reserve requirements, and prior approval for purchasing or redeeming securities in specific circumstances;
•Acquisition Approvals: Prior regulatory approval is required to acquire 5% or more of voting stock of a bank or bank holding company, as well as for mergers or acquisitions, which are evaluated based on competitive (anti-trust), financial, and managerial considerations; and
•Control Presumptions: Prior notice or approval for acquiring control of a bank or bank holding company, with ownership or control of 10% of voting stock generally presumed to constitute control.
Change in Bank Control
Under the Change in Bank Control Act (“CIBCA”) and Regulation Y, any person seeking to acquire control of a bank or its holding company must provide prior notice to the Federal Reserve. A "person" includes individuals and entities such as corporations, partnerships, trusts, and joint venture. Control is generally defined as ownership, control, or the power to vote 25% or more of any class of voting securities. Regulations also establish rebuttable presumptions of control.
Other Restrictions on the Company's Activities
Bank holding companies (BHCs) may engage in non-banking activities deemed "closely related to banking" under section 4(c)(8) of the Bank Holding Company Act, subject to Federal Reserve approval or prior notice. Companies that elect and maintain "financial holding company" status under the Gramm-Leach-Bliley Act of 1999 ("GLBA") may engage in broader activities, including securities, insurance, and merchant banking, without prior approval. To qualify, the bank holding company and its depository institution subsidiaries must be well-capitalized, well managed, and in satisfactory compliance with the Community Reinvestment Act ("CRA").
Failure to maintain these standards or correct any deficiencies within prescribed timeframes may result in divestiture of subsidiary banks or the termination of nonconforming activities. The Company has not elected financial holding company status, and neither the Company nor the Bank engages in any activities classified by the Federal Reserve as non-banking or financial in nature.
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Dividends and Stock Repurchases
The Company may be limited in its ability to pay dividends or repurchase its stock by the Federal Reserve, including if doing so would be an unsafe or unsound banking practice. When a bank holding company intends to declare or pay a dividend that could raise safety and soundness concerns, it generally will be required to inform and consult with the Federal Reserve in advance. It is the policy of the Federal Reserve that a bank holding company should generally pay dividends on common stock only out of earnings, and only if prospective earnings retention is consistent with the company’s capital needs and overall current and prospective financial condition. Additionally, bank holding companies should inform and consult with the Federal Reserve in advance of declaring and paying a dividend that exceeds earnings for the period for which the dividend is being paid.
According to guidance from the Federal Reserve, a bank holding company’s dividend policies will be assessed against, among other things, its ability to achieve applicable capital ratio requirements. If a bank holding company does not achieve applicable capital ratio requirements, it may not be able to pay dividends. Subject to regulatory and statutory restrictions, including restrictions under applicable Hawaii law and federal regulation, future cash dividends by the Company will depend upon management's assessment of future capital requirements, contractual restrictions and other factors. The Company cannot provide any assurance that it will continue to pay any dividends on its common stock.
A bank holding company may be required to give the Federal Reserve prior written notice before purchasing or redeeming its equity securities if the gross consideration for the purchase or redemption, when aggregated with the net consideration paid by the bank holding company for all such purchases or redemptions during the preceding 12 months, is equal to 10.00% or more of the bank holding company’s consolidated net worth. The Federal Reserve may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any law, regulation, Federal Reserve order, or any condition imposed by or written agreement with the Federal Reserve. However, this prior notice requirement does not apply to any bank holding company that meets certain “well-capitalized” and “well-managed” standards and is not the subject of any unresolved supervisory issues.
In addition, a bank holding company is required to consult with the Federal Reserve before redeeming certain tier 1 and tier 2 capital instruments. To qualify as additional tier 1 capital, redemption or repurchase of the capital instrument requires prior approval of the Federal Reserve. Similarly, to qualify as tier 2 capital, redemption of the instrument prior to maturity or repurchase requires the prior approval of the Federal Reserve. Further, a bank holding company is required to consult with the Federal Reserve before redeeming any equity or other capital instrument included in Tier 1 or Tier 2 capital prior to stated maturity if such redemption could have a material effect on the level or composition of the organization’s capital base.
On January 27, 2026, the Company's Board of Directors authorized a share repurchase plan (the "2026 Repurchase Plan"), permitting the repurchase of up to $55.0 million of the Company's common stock. Repurchases may be made from time to time in the open market or through privately negotiated transactions. The 2026 Repurchase Plan replaced and superseded in its entirety the share repurchase program previously approved by the Company’s Board of Directors. During the year ended December 31, 2025, the Company repurchased 788,261 shares of common stock, at an aggregate cost of $23.3 million under the Company's 2025 Repurchase Plan. The Company cannot provide any assurance that it will continue to repurchase any shares of its common stock. The Company is also subject to applicable limitations on its ability to pay dividends and make distributions under applicable provisions of Hawaii law.
The Bank is a legal entity that is separate and distinct from its holding company. The Company relies on dividends received from the Bank for use in the operation of the Company and the ability of the Company to pay dividends to shareholders. Future cash dividends by the Bank will also depend upon management’s assessment of future capital requirements, contractual restrictions, and other factors. Current capital rules may restrict dividends by the Bank if the additional capital conservation buffer is not achieved. See section entitled “—Capital Adequacy Requirements” for further discussion. The ability of the Bank to declare a cash dividend to the Company is subject to applicable federal and Hawaii law. Subject to regulatory and statutory restrictions, including restrictions under applicable Hawaii law and federal regulation, future cash dividends by the Bank will depend upon management's assessment of future capital requirements, contractual restrictions and other factors. The Company cannot provide any assurance that the Bank will be able to continue to pay dividends to the Company.
FRB, FDIC and DFI Enforcement Authority
The federal and Hawaii regulatory structure gives the bank regulatory agencies extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. The regulatory agencies have adopted guidelines to assist in identifying and addressing potential safety and soundness concerns before an institution's capital becomes impaired. The guidelines establish operational and managerial standards generally relating to: (1) internal controls, information systems,
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and internal audit systems; (2) loan documentation; (3) credit underwriting; (4) interest-rate exposure; (5) asset growth and asset quality; and (6) compensation, fees, and benefits. Further, the regulatory agencies have adopted safety and soundness guidelines for asset quality and for evaluating and monitoring earnings to ensure that earnings are sufficient for the maintenance of adequate capital and reserves. If, as a result of an examination, the DFI or the FRB should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, market sensitivity, or other aspects of the Bank's operations are unsatisfactory or that the Bank or its management is violating or has violated any law or regulation, the DFI and the FRB, and separately the FDIC as insurer of the Bank's deposits, have residual authority to:
•require affirmative action to correct any conditions resulting from any violation or practice;
•direct an increase in capital and the maintenance of higher specific minimum capital ratios, which may preclude the Bank from being deemed well-capitalized and restrict its ability to accept certain brokered deposits;
•restrict the Bank's growth geographically, by products and services, or by mergers and acquisitions, including bidding in FDIC receiverships for failed banks;
•enter into or issue informal or formal enforcement actions, including required board resolutions, memoranda of understanding, written agreements and consent or cease and desist orders or prompt corrective action orders to take corrective action and cease unsafe and unsound practices;
•require prior approval of senior executive officer or director changes; remove officers and directors and assess civil monetary penalties; and
•terminate FDIC insurance, revoke the charter and/or take possession of and close and liquidate the Bank or appoint the FDIC as receiver, which for a Hawaii state-chartered bank would result in a revocation of its charter.
Mergers and Acquisitions
In 2024, the OCC and FDIC issued policy statements which conveyed a heightened level of scrutiny for bank merger and acquisition activity. Following the election of President Trump, in May 2025 the FDIC rescinded its 2024 policy statement on bank merger review and instead reverted to prior guidance from 1998. Similarly, the OCC issued an interim final rule that rescinded its 2024 policy statement and reinstated regulatory provisions allowing for automatic expedited processing for certain eligible mergers and acquisitions. Subsequently, President Trump executed a resolution, which, among other things, prevents an agency from reissuing a substantially similar rule. Accordingly, with the FDIC and OCC reinstating pre-2024 policies, we believe applicants have a more predictable merger approval path for qualifying transactions. The FRB has not issued new merger and acquisition regulations or policy statements but has recently approved a number of larger acquisitions. The full impact of the election of President Trump on bank mergers and acquisition policy has yet to be fully determined.
In September, 2024, the Department of Justice ("DOJ") announced that it withdrew its 1995 Bank Merger Guidelines and, instead, for purposes of evaluating the competitive impact of bank mergers, will rely on its 2023 Merger Guidelines which apply to all industries. For banks considering combinations where there may be even a remote possibility of antitrust concerns under the 2023 Merger Guidelines, the DOJ will review "market realities" in analyzing the competitive effects of a particular transaction.
While branch deposit concentration may be one area of focus, i.e. traditional Herfindahl Hirschman Index (HHI) analysis for deposit concentration utilizing the 2023 Merger Guideline baselines, the DOJ will drill down into the products and services that a bank merger may affect prior to fully assessing the impact of a combination. This type of analysis may involve a more robust review of the competitive landscape (i.e., the impact of credit unions and other non-bank competitors), and a closer analysis of interest rates, types of mortgages and other loans offered, quality of service and convenience at branch locations, the types of customers served, and the unique needs in a particular bank market for bespoke financing.
Deposit Insurance
The FDIC is an independent federal agency that insures deposits at federally insured banks and savings institutions through the Deposit Insurance Fund (the "DIF"), up to prescribed statutory limits. The FDIC also promotes the safety and soundness of the banking and savings industries.
The Dodd-Frank Act revised the FDIC's authority over DIF management by establishing requirements for the Designated Reserve Ratio ("DRR"), calculated as the DIF balance divided by estimated insured deposits, and by redefining the assessment base used to calculate quarterly assessments. FDIC assessments are determined based on an institution's asset size and relative risk of default, as measured by regulatory capital ratios and other supervisory factors. We generally have limited ability to influence the premiums required for FDIC insurance.
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The FDIC has set the DRR at 2.00%. In October 2022, to ensure the reserve ratio would reach at least 1.35% by the statutory deadline of September 30, 2029, the FDIC increased the initial base deposit insurance assessment rate schedules uniformly by 2 basis points. The increase in assessment rates became effective January 1, 2023, beginning with the first quarterly assessment period of 2023.
Additionally, in November 2023, the FDIC finalized a special assessment to recover losses to the DIF resulting from the closures of Silicon Valley Bank and Signature Bank. The special assessment equals approximately 13.4 basis points annually, based on an institution's uninsured deposits as of December 31, 2022, after applying a $5 billion deduction. The assessment will be collected over eight quarterly periods. The Bank will not incur this additional assessment because its uninsured deposits as of December 31, 2022, were below the $5 billion threshold.
Future failures of financial institutions, increases in our asset size or risk profile, or other FDIC determinations could result in higher FDIC premiums. Any such increases may materially and adversely affect our earnings and could negatively impact the value or market for our common stock.
Incentive Compensation
Regulatory guidance applicable to all banking organizations requires that incentive compensation policies align with safety and soundness principles.Institutions must ensure that compensation programs:
1.Provide incentives that appropriately balance risk and reward and do not encourage imprudent risk-taking,
2.Are compatible with effective controls and risk management, and
3.Are supported by strong corporate governance, including active oversight by the board of directors.
Monitoring methods should be commensurate with the size and complexity of the organization and its use of incentive compensation.
As required by the Dodd-Frank Act, federal banking agencies and the SEC proposed revised rules in 2016 governing incentive-based payment arrangements at regulated entities with at least $1 billion of total assets. In October 2022, the SEC adopted final rules implementing the incentive-based compensation recovery ("clawback") provisions of the Dodd-Frank Act. In response, the NYSE adopted new clawback listing standards applicable to the Company. We have implemented an NYSE-compliant clawback policy, which is included as an exhibit to this Annual Report on Form 10-K.
Cybersecurity
Federal regulators have issued guidance requiring financial institutions to implement layered security controls and robust cyber risk management processes. Institutions must address risks associated with compromised customer credentials, including reliable authentication for customers accessing internet-based services.
Management is also expected to maintain comprehensive business continuity planning to ensure rapid recovery and resumption of operations following a cyberattack involving destructive malware. This includes processes for restoring data, rebuilding network capabilities, and recovering business operations if the institution or its critical service providers are impacted.
State regulators have become increasingly active in establishing privacy and cybersecurity standards, with states such as California and New York implementing detailed requirements, including mandatory cybersecurity programs and data encryption standards. Many states have also adopted or updated data breach notification and privacy laws. We expect this trend to continue and actively monitor developments in states where we operate or serve customers.
In November 2021, federal banking agencies adopted a final rule, requiring banking organizations to notify their primary regulator within 36 hours of determining that a "computer-security incident" has materially disrupted or is reasonably likely to disrupt banking organizations, delivery of services to a material portion of customers, or operations that could result in material loss or impact U.S. financial stability. Failure to comply may result in regulatory sanctions, including financial penalties.
In July 2023, the SEC adopted rules requiring registrants to disclose material cybersecurity incidents experienced and provide annual disclosures regarding cybersecurity risk management, strategy and governance. These rules supersede prior interpretive guidance issued in February 2018, and are in addition to existing state and federal banking notification requirements.
We rely on electronic communications and information systems to conduct our operations and to store sensitive data. Our cybersecurity program employs a layered, defense-in-depth approach leveraging people, processes and technology to manage
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and maintain cybersecurity controls. We utilize preventative and detective tools to monitor, block, and alert on suspicious activity, including advanced persistent threats.
Despite these measures, cybersecurity threats remain pervasive, sophisticated, and rapidly evolving. While we have not experienced a significant compromise, data loss, or material financial impact to date, our systems, and those of our customers and third-party service providers, are under constant threat. Risks related to cybersecurity are expected to remain high due to the increasing complexity of attacks and the growing use of internet and mobile banking services.
See "Risk Factors" under Part I, Item 1A of this report for a further discussion of risks related to cybersecurity and "Cybersecurity" under Part I, Item 1C for a further discussion of our cybersecurity risk management, strategy and governance.
Office of Foreign Assets Control ("OFAC") Regulation
The U.S. Treasury Department’s Office of Foreign Assets Control ("OFAC") administers and enforces economic and trade sanctions against targeted foreign countries, regimes, and individuals under various laws. OFAC publishes lists of specially designated nationals and countries, and financial institutions are responsible for:
•Blocking accounts and transactions involving designated parties;
•Prohibiting unlicensed trade and financial transactions; and
•Reporting blocked transactions after they occur.
Failure to comply with OFAC requirements can result in serious financial, legal and reputational consequences, including regulatory actions that may prevent or prohibit mergers and acquisitions. Regulatory authorities have imposed cease-and-desist orders and civil money penalties on institutions found in violation of these obligations.
Operations and Consumer Compliance Laws
The Bank is subject to numerous federal and state laws and regulations governing anti-money laundering, consumer protection, and privacy, including:
•Anti-Money Laundering and Privacy Laws: USA Patriot Act of 2001, GLBA, Bank Secrecy Act, Foreign Account Tax Compliance Act, and the Anti-Money Laundering Act of 2020 (“AMLA”).
•Consumer Protection Laws: CRA, Fair Debt Collection Practices Act, Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act, Equal Credit Opportunity Act, Truth in Lending Act, Fair Housing Act, Home Mortgage Disclosure Act, Real Estate Settlement Procedures Act, and National Flood Insurance Act.
•Privacy and Marketing Laws: Telephone Consumer Protection Act, CAN-SPAM Act, and various state privacy and data protection statutes.
Noncompliance with these laws can result in lawsuits, administrative penalties, fines, reimbursements, and other enforcement actions. The Company and the Bank are also subject to federal and state laws prohibiting unfair or deceptive practices, misleading advertising. and unfair competition. Recent joint regulatory pronouncements have emphasized the importance of managing operational and compliance risks associated with Banking-as-a-Service ("BaaS") relationships.
These laws impose disclosure and reporting requirements and govern how financial institutions interact with customers when accepting deposits, originating loans, servicing and collecting loans, foreclosing, and providing other services. Failure to comply may result in injunctions, civil or criminal penalties, punitive damages, and loss of contractual rights.
The Anti-Money Laundering Act of 2020 ("AMLA"), which amends the Bank Secrecy Act of 1970 (“BSA”), was enacted in January 2021. The AMLA is intended to be a comprehensive reform and modernization to U.S. bank secrecy and anti-money laundering laws. Among other things, it codifies a risk-based approach to anti-money laundering compliance for financial institutions; requires the development of standards for evaluating technology and internal processes for BSA compliance; expands enforcement- and investigation-related authority, including increasing available sanctions for certain BSA violations and instituting BSA whistleblower incentives and protections.
The BSA, as amended by the USA PATRIOT Act, and its implementing regulations and other laws and regulations that impose anti-money laundering obligations require financial institutions to, among other duties, implement and maintain an effective AML/CFT compliance program and to file reports, such as suspicious activity reports and currency transaction reports. Our
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federal and state banking regulators, FinCEN, and other government agencies are authorized to impose significant civil money penalties for violations of the BSA and its implementing regulations and other applicable anti-money laundering requirements.
A continued focus of governmental policy relating to financial institutions in recent years has been combating money laundering and terrorist financing. The USA PATRIOT Act amended the BSA to broaden the application of anti-money laundering regulations to apply to additional types of financial institutions, such as broker-dealers, investment advisors, and insurance companies, and strengthened the ability of the U.S. government to help prevent, detect and prosecute international money laundering and the financing of terrorism. The principal provisions of Title III of the USA PATRIOT Act require that regulated financial institutions, including banks: (i) establish an AML/CFT compliance program that includes training and audit components; (ii) comply with regulations regarding the verification of the identity of any person seeking to open an account; (iii) take additional required precautions with non-U.S. owned accounts; and (iv) perform certain verification and certification of money laundering risk for their foreign correspondent banking relationships. Failure of a financial institution to comply with the BSA’s requirements could have serious legal and reputational consequences for the institution. The federal banking agencies examine the institution for compliance with the BSA and its implementing regulations and we continue to monitor and augment, where necessary, our AML/CFT compliance program. The federal banking agencies will also consider compliance with the BSA and its implementing regulations when reviewing merger and acquisition proposals. Failure to comply with the BSA and its implementing regulations can result in a federal banking agency imposing cease and desist and other regulatory orders and civil money penalties against a bank. The Bank has augmented its AML/CFT compliance systems and procedures to meet the requirements of the BSA and its implementing regulations and will continue to revise and update its compliance policies, procedures, and controls to reflect changes required by law.
The CRA encourages insured depository institutions to help meet the credit needs of their communities, including low- and moderate-income neighborhoods, consistent with safe and sound banking practices. CRA performance is considered when evaluating applications for branches, mergers, acquisitions, or holding company formations.
The Bank received an "Outstanding" rating in the FDIC's 2022 CRA Performance Evaluation, which measures lending, investment, and service activities supporting community needs.
On October 24, 2023, the OCC, FDIC, and FRB jointly issued a final rule intended to modernize and strengthen regulations implementing the CRA. The final rule would have revised the framework used to evaluate how banks help meet the credit needs of their communities, particularly for institutions with total assets in excess of $2 billion, including the Bank.
Under the 2023 final rule, banks with total assets in excess of $2 billion would have been evaluated under a multi-test framework consisting of the following components:
1.Retail lending;
2.Retail services and products (including consideration of digital delivery systems for banks with more than $10 billion in assets or banks that request such consideration);
3.Community development ("CD") financing; and
4.CD services.
The final rule also contemplated the application of weighted scoring across these test components when assigning an overall CRA rating. Alternatively, qualifying institutions could elect to be evaluated under a regulator‐approved strategic plan. In addition, banks above the $2 billion asset threshold would have been subject to expanded and revised data collection, recordkeeping, and reporting requirements. The rule further provided that an institution’s CRA rating could be adversely affected by evidence of illegal or discriminatory credit practices.
The 2023 CRA final rule was scheduled to take effect on April 1, 2024, with staggered compliance dates for various provisions, including the new performance tests, data collection requirements, and the establishment of revised retail lending assessment areas. However, the rule is currently subject to a preliminary injunction that stays its effective and implementation dates, and the federal banking agencies are not applying its provisions.
Accordingly, the federal banking agencies continue to examine and assess banks’ CRA performance under the CRA regulations originally adopted in 1995 and in effect as of March 29, 2024. On July 16, 2025, the OCC, FDIC, and FRB issued a joint notice of proposed rulemaking to rescind the 2023 CRA final rule and formally restore the prior CRA regulatory framework with certain conforming and technical amendments. Until that rulemaking process is completed, the 1995 CRA regulations remain applicable.
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Consumer Financial Protection Bureau ("CFPB")
The Dodd-Frank Act established the CFPB as an independent entity with broad rule making, supervisory and enforcement authority over consumer financial products and services, including deposit products, residential mortgages, home equity loans, and credit cards. The CFPB’s functions include investigating consumer complaints, conducting market research, issuing regulations, and enforcing compliance related to consumer financial products and services. CFPB regulations and guidance, including supervision and examination, apply to all covered persons and banks with $10 billion or more in assets. Banks with less than $10 billion in assets, including the Bank, will remain subject to compliance examinations by their primary federal banking regulator. However, the CFPB may include its own examiners in regulatory examinations by a smaller institution’s principal regulators and may require smaller institutions to comply with certain CFPB reporting requirements. In addition, regulatory positions taken by the CFPB and administrative and legal precedents established by CFPB enforcement activities, including in connection with supervision of larger bank holding companies and banks, could influence how the Federal Reserve and FDIC apply consumer protection laws, and regulations to financial institutions that are not directly supervised by CFPB. The precise effect of the CFPB’s consumer protection activities on the Company and the Bank cannot be determined with certainty.
The CFPB finalized numerous rules impacting nearly every aspect of the residential mortgage loan lifecycle. These rules implement the Dodd-Frank Act amendments to the Equal Credit Opportunity Act, Truth in Lending Act, and Real Estate Settlement Procedures Act. Among other requirements, banks originating residential mortgage loans must:
1.Develop and implement procedures to ensure compliance with the "ability-to-repay" test and determine whether a loan qualifies as a "qualified mortgage", in which case a rebuttable presumption exists that the creditor extending the loan has satisfied the ability-to-repay test;
2.Implement new or revised disclosures, policies, and procedures for originating and servicing mortgages, including, but not limited to, pre-loan counseling, early intervention with delinquent borrowers, and specific loss mitigation procedures for loans secured by a borrower's principal residence;
3.Comply with additional restrictions on mortgage loan originator hiring and compensation;
4.Comply with new disclosure requirements and standards for appraisals and certain financial products; and
5.Maintain escrow accounts for higher-priced mortgage loans for extended periods.
The review of products and practices to prevent unfair, deceptive or abusive acts or practices ("UDAAP") has been a focus of the CFPB, and of banking regulators more broadly. In addition, the Dodd-Frank Act provides the CFPB with broad supervisory, examination and enforcement authority over various consumer financial products and services, including the ability to require reimbursements and other payments to customers for alleged violations of UDAAP and other legal requirements and to impose significant penalties, as well as injunctive relief that prohibits lenders from engaging in allegedly unlawful practices. The CFPB also has the authority to obtain cease and desist orders providing for affirmative relief or monetary penalties. The Dodd-Frank Act does not prevent states from adopting stricter consumer protection standards. CFPB and state regulation of financial products and potential enforcement actions could also adversely affect the Bank’s business, financial condition or results of operations.
Privacy and Information Sharing
The federal bank regulators have adopted rules limiting the ability of banks and other financial institutions to disclose non-public information about consumers to unaffiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a non-affiliated third party. These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications. Consumers also have the option to direct banks and other financial institutions not to share information about transactions and experiences with affiliated companies for the purpose of marketing products or services.
In California, consumer privacy rights have been further bolstered by the enactment of the California Consumer Privacy Act (“CCPA”) and the California Privacy Rights Act (CPRA). The CCPA and CPRA create new consumer rights, impose additional obligations on businesses that collect personal information from California consumers, and create a new enforcement agency called the California Privacy Protection Agency. In particular, The CCPA and CPRA introduces four new consumer rights, including (1) the right to correction, meaning that users can request to have their personal information corrected; (2) the right to opt-out of automated decision making, meaning that California residents can say 'no' to their personal information being used in profiling for behavioral advertisement online; (3) the right to know about automated decision making; and (4) the right
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to limit use of sensitive personal information. These two statutes also significantly expand the types of consumer data subject to privacy restrictions and increase the potential penalties for any violations.
Durbin Amendment and Interchange Fees
Under the Durbin Amendment to the Dodd-Frank Act, the Federal Reserve adopted rules establishing standards for assessing whether the interchange fees that may be charged with respect to certain electronic debit transactions are "reasonable and proportional" to the costs incurred by issuers for processing such transactions. Interchange fees, or "swipe" fees, are charges that merchants pay to us and other card-issuing banks for processing electronic payment transactions.
Under the final rules, the maximum permissible interchange fee for banks with assets in excess of $10 billion is capped at 21 cents plus 5 basis points of the transaction value for most debit interchange transactions. The Federal Reserve also adopted a rule to allow a debit card issuer to recover one cent per transaction for fraud prevention purposes if the issuer complies with certain fraud-related requirements required by the Federal Reserve. The Federal Reserve also has rules governing routing and exclusivity that require issuers to offer two unaffiliated networks for routing transactions on each debit or prepaid product.
In October 2023, the Federal Reserve issued a proposal under which the maximum permissible interchange fee for an electronic debit transaction would be the sum of 14.4 cents per transaction and 4 basis points multiplied by the value of the transaction. Furthermore, the fraud-prevention adjustment would increase from a maximum of 1 cent to 1.3 cents per debit card transaction. The proposal would adopt an approach for future adjustments to the interchange fee cap which would occur every other year based on issuer cost data gathered by the Federal Reserve from large debit card issuers. The comment period for this proposal ended in May 2024. The extent to which any such proposed changes in permissible interchange fees will impact our future revenues is uncertain.
Currently, the Bank qualifies for the small issuer exemption from the interchange fee cap, which applies to any debit card issuer that, together with its affiliates, has total assets of less than $10 billion as of the end of the previous calendar year. The Bank will become subject to the interchange fee cap beginning July 1 of the year following the point at which its total assets reach or exceeds $10 billion. Reliance on the small issuer exemption does not exempt us from federal regulations prohibiting network exclusivity arrangements or from routing restrictions.
Commercial Real Estate Concentration Limits
In December 2006, federal banking regulators issued guidance titled "Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices" to address increasing concentrations in commercial real estate ("CRE") and construction loans. Subsequently, in December 2015, the federal bank agencies issued additional guidance titled "Statement on Prudent Risk Management for Commercial Real Estate Lending." Together, these guidelines outline the criteria used by regulators to identify institutions that may be exposed to heightened CRE concentration risk.
An institution may be subjected to further supervisory review if it has:
1.Experienced rapid growth in CRE lending,
2.Significant exposure to a specific type of CRE,
3.Total reported loans for construction, land development, and other land representing 100% or more of the institution’s total risk-based capital, or
4.Total CRE loans representing 300% or more of the institution’s total risk-based capital, and the outstanding balance of the institutions CRE portfolio has increased by 50% or more in the prior 36 months.
As of December 31, 2025, the Bank’s construction, land development, and other land loans represented less than 100% of its total risk-based capital. As of December 31, 2025, the Bank's total CRE loans represented less than 300% of its total risk-based capital and has increased by less than 50% from the prior 36 months.
Changes in Federal, State, or Local Tax Laws
We are subject to changes in federal and applicable state tax laws and regulations that may impact our effective tax rates. Changes in these tax laws may be retroactive to previous periods and as a result could impact our current and future financial performance.
For example, the Tax Cuts and Jobs Act of 2017 resulted in a reduction of our federal tax rate from a minimum of 35% in 2017 to 21% beginning in 2018, which favorably impacted our earnings. Conversely, this legislation also enacted limitations on
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certain deductions, including the deduction of FDIC deposit insurance premiums, which partially offset the expected increase in net earnings from the lower tax rate.
On August 16, 2022, the Inflation Reduction Act of 2022 (the "IRA") was enacted into law. The IRA, among other things, imposes a non-deductible 1% excise tax on the aggregate fair market value of stock repurchased by certain public companies, if any, including the Company, occurring after December 31, 2022.
The foregoing description of the impact of changes in federal and applicable state tax laws on us should be read in conjunction with Note 16 - Income Taxes of the notes to Consolidated Financial Statements for more information.
Future Legislation and Regulation
Congress and state legislatures may enact, modify, or repeal laws governing the regulation of the financial services industry.In addition, federal and state regulatory agencies periodically propose and adopt regulatory changes or modify the manner in which existing regulations are interpreted or enforced.
The substance and impact of pending or future legislation or regulation, or the application thereof, cannot be predicted. However, enactment of proposed legislation (or modification or repeal of existing legislation) could have the following impact:
•Restructure the regulatory framework under which the Company and Bank operate;
•Significantly increase its costs;
•Impede the efficiency of its internal business processes;
•Require the Bank to increase its regulatory capital;
•Necessitate changes to its business strategy;
•Limit its ability to pursue business opportunities in an efficient manner.
Any of these outcomes could adversely, and possibly materially, affect the Company’s business, financial condition, results of operations, or prospects.
Available Information
Our website, www.cpb.bank, provides access to our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all related amendments to those reports as soon as reasonably practicable after such materials are electronically filed with or furnished to the SEC. Copies of the Company's filings with the SEC may also be obtained directly from the SEC's website at www.sec.gov. These documents may also be obtained in print upon request to our Investor Relations Department.
Also posted on our website and available in print upon request to our Investor Relations Department, are the charters for our Audit Committee, Compensation Committee and Governance Committee, as well as our Corporate Governance Guidelines and Code of Conduct and Ethics. Within the time period required by the SEC and NYSE, we will post on our website any amendment to the Code of Conduct and Ethics and any waiver applicable to our senior financial officers, as defined by the SEC, and our executive officers or directors. In addition, our website includes information concerning purchases and sales of our equity securities by our executive officers and directors, as well as disclosure relating to certain non-GAAP financial measures (as defined in the SEC's Regulation G) that we may make public orally, telephonically, by webcast, by broadcast or by similar means from time to time.
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ITEM 1A.RISK FACTORS
Our business faces significant risks, including credit, market/liquidity, operational, legal/regulatory and strategic/reputation risks. The factors described below may not be the only risks we face and are not intended to serve as a comprehensive listing or be applicable only to the category of risk under which they are disclosed. The risks described below are generally applicable to more than one of the following categories of risks. Additional risks that we do not yet know of or that we currently think are immaterial may also impair our business operations. If any of the events or circumstances described in the following factors actually occurs, our business, financial condition and/or results of operations could be materially and adversely affected.
Risk Factors Summary
This summary provides an overview of the risks we face. The following risks have been grouped by categories and are not in order of significance or probability of occurrence.
Risks Related to General Economic Conditions
•Difficult economic and market conditions in Hawaii would result in significant adverse effects on us because of the geographic concentration of our business.
•The fiscal, monetary and regulatory policies of the federal government and its agencies could have a material adverse effect on our results of operations.
•The financial services industry and broader economy may be subject to new or changing government policy, legislation and regulation, or the prolonged effects of a government shutdown.
•Negative developments in the global and U.S. economies could have an adverse effect on us.
•Negative developments affecting the banking industry, such as bank failures or concerns involving liquidity, may have a material adverse effect on the Company’s operations.
Risks Related to Credit
•Our real estate loan operations have a considerable effect on our results of operations.
•A large percentage of our loans are collateralized by real estate and deterioration in the real estate market may adversely affect our financial results.
•Provisions for credit losses and charge-offs of additional loans in the future, could adversely affect our results of operations.
•Our allowance for credit losses may not be sufficient to cover actual credit losses, which could adversely affect our results of operations. Additional credit losses may occur in the future and may occur at a rate greater than we have experienced to date.
•Our commercial and industrial, and commercial real estate loan portfolios expose us to risks that may be greater than the risks related to our other loans.
•We may incur future losses in connection with certain representations and warranties we have made with respect to mortgages that we have sold in the secondary market.
•Consumer protection initiatives related to the foreclosure process could materially affect our ability as a creditor to obtain remedies.
•Changes to, or limitations on our ability to participate in, the programs and guidelines of government-sponsored entities could adversely affect our mortgage origination and secondary‐market activities.
•Banking-as-a-Service ("BaaS") collaboration agreements that we may enter into may expose us to credit risk.
Risks Related to Interest Rates and Liquidity
•Our business is subject to interest rate risk and fluctuations in interest rates may adversely affect our earnings.
•If we are unable to effectively manage the composition and risk of our investment securities portfolio, which we expect will continue to comprise a significant portion of our earning assets, our net interest income and net interest margin could be adversely affected.
•The high interest rate environment has decreased the market value of the Company's fixed-rate investment securities and loan portfolios, and the Company would realize losses if we were required to sell such securities or loans to meet liquidity needs.
•Our ability to maintain adequate sources of funding and liquidity and required capital levels may be negatively impacted by uncertainty in the economic environment which may, among other things, impact our ability to satisfy our obligations.
•We rely on the mortgage secondary market for some of our revenue and liquidity.
•We are required to act as a source of financial and managerial strength for our Bank.
•We rely on dividends from our subsidiary for most of our revenue and liquidity.
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Risks Related to the Operation of Our Business
•Managing reputational risk is important to attracting and maintaining customers, investors and employees.
•Our deposit customers may pursue alternatives to deposits at our Bank or seek higher yielding deposits causing us to incur increased funding costs.
•Failure to manage our growth may adversely affect our performance.
•Failure to maintain effective internal control over financial reporting or disclosure controls and procedures could adversely affect our ability to report our financial condition and results of operations completely, accurately and timely.
•Changes in our accounting policies or in accounting standards could materially affect how we report our financial results and condition.
•Financial services companies depend on the accuracy and completeness of information about customers and counterparties.
•We operate in a highly competitive industry and market area.
•We are subject to environmental liability risk associated with our bank branches and any real estate collateral we acquire upon foreclosure.
•Our business could be adversely affected by unfavorable actions from rating agencies.
•Our operational risks include risks associated with third-party vendors and other financial institutions.
•Significant increases in residential home insurance premiums and overall challenges in obtaining homeowners insurance generally may negatively impact the residential real estate market.
Risks Related to Legal, Compliance and Regulatory Matters
•Governmental regulation and regulatory actions against us may impair our operations or restrict our growth.
•We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.
•Regulatory capital standards impose enhanced capital adequacy requirements on us.
•Costs of compliance with environmental laws and regulations are significant, and the cost of compliance with potential new environmental laws, including limitations on emissions relating to climate change, could adversely affect our financial condition and results of operations.
•We are subject to various legal claims and litigation.
Risks Related to an Investment in the Company's Securities
•The market price of our common stock could decline.
•Anti-takeover provisions in our restated articles of incorporation and bylaws and applicable federal and state law may limit the ability of another party to acquire us or a significant block of common stock, which could cause our stock price to decline.
•Our common stock is equity and therefore is subordinate to our subsidiaries' indebtedness and preferred stock.
•There is a limited trading market for our common stock and as a result, shareholders may not be able to resell their shares at or above the price they pay for them or at the time they otherwise may desire.
•The soundness of other financial institutions could adversely affect us.
•Our common stock is not insured and shareholders could lose the value of their entire investment.
Risks Related to Technology
•We continually encounter technological change including developments in artificial intelligence.
•The occurrence of fraudulent activity, data privacy breaches, failures of our information security controls or cybersecurity-related incidents could have a material adverse effect on our business, financial condition and results of operations.
General Risk Factors
•We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects.
•Natural disasters and other external events (including pandemic viruses or disease) could have a material adverse effect on our financial condition and results of operations.
•Climate change could have a material adverse effect on us and our customers.
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Risks Related to General Economic Conditions
Difficult economic and market conditions in Hawaii would result in significant adverse effects on us because of the geographic concentration of our business.
Unlike larger national or other regional banks that are more geographically diversified, our business and operations are closely tied to the Hawaii market. The Hawaii economy relies on tourism, real estate, government and other service-based industries. Declines in tourism, fluctuations in foreign exchange rates, increases in energy costs, the availability of affordable air transportation, adverse weather and natural disasters, and local budget issues impact consumer and corporate spending. As a result, such events may contribute to the deterioration in Hawaii's general economic condition, which could adversely impact us and our borrowers.
In addition, the high concentration of Hawaii real estate loans in our portfolio, combined with the deterioration in these sectors caused by an economic downturn, could have in the future a significantly more adverse impact on our operating results than many other banks across the nation. If our borrowers experience financial difficulty, or if property values securing our real estate loans decline, we will incur elevated credit costs due to the composition and concentration of our loan portfolio, which will have an adverse effect on our financial condition and results of operations.
The fiscal, monetary and regulatory policies of the federal government and its agencies could have a material adverse effect on our results of operations.
The FRB regulates the supply of money and credit in the U.S. Its policies determine, in large part, the cost of funds for lending and investing, and the return earned on those loans and investments, both of which, affect the net interest margin. It also can materially decrease the value of financial assets we hold, such as debt securities.
Our net interest income and net interest margin may be negatively impacted during periods of rate tightening due to pressure on our funding costs, particularly if we are unable to realize higher rates on our assets at a pace that matches that of the funding. Additionally, during periods of rate easing, our asset yields are expected to decline and the pace at which we are able to reduce our funding costs may be impacted by competitive and liquidity pressures. Changes in the slope of the yield curve, which represents the spread between short-term and long-term interest rates, could also reduce our net interest income and net interest margin. Historically, the yield curve is upward sloping, meaning short-term rates are lower than long-term rates. When the yield curve flattens or inverts, our net interest income and net interest margin could decrease as our cost of funds increases relative to the yield we can earn on our assets.
In a high interest rate environment, as we are currently experiencing, there is potential for decreased demand for our loan products, an increase in our cost of funds, and the curtailment of economic recovery.
Changes in FRB policies and our regulatory environment are beyond our control, and we are unable to predict what changes may occur or the manner in which any future changes may affect our business, financial condition and results of operation.
The financial services industry and broader economy may be subject to new or changing government policy, legislation and regulation, or the prolonged effects of a government shutdown.
Our success depends, to a certain extent, upon local, national and global economic and political conditions, as well as governmental monetary, trade and interest rate policies. The current U.S. administration has and continues to implement significant and rapid changes in federal government operations and policies, including international trade policies, which may impact economic stability, the financial markets and the financial services industry broadly. In addition, the inability to successfully resolve budget disputes in Congress has led to federal government shutdowns, which could be prolonged. Conditions such as an economic recession, stagflation, rising unemployment, and the effects of tariffs, trade wars, government shutdowns, inflationary prices, tax law changes and other factors beyond our control may adversely affect the local and national economy, our asset quality, deposit levels, loan demand, demand for our products and services and the ability to manage costs associated with employees and vendors. The occurrence of any of the foregoing events could have a material adverse effect on our business, financial condition or results of operations.
Negative developments in the global and U.S. economies could have an adverse effect on us.
Our business and operations are sensitive to business and economic conditions globally and domestically. Adverse economic and business conditions in the U.S. generally, and in our market areas, in particular, could reduce our growth rate, affect our borrowers' ability to repay their loans and, consequently, adversely affect our financial condition and performance. Other
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economic conditions that affect our financial performance include short-term and long-term interest rates, the prevailing yield curve, inflation (which we are currently experiencing) and price levels (particularly for real estate), monetary policy, unemployment and the strength of the domestic economy as a whole. Unfavorable market conditions can result in a deterioration in the credit quality of our borrowers and the demand for our products and services, an increase in the number of loan delinquencies, defaults and charge-offs, additional provisions for credit losses, adverse asset values and an overall material adverse effect on the quality of our loan portfolio. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence; limitations on the availability or increases in the cost of credit and capital; increases in inflation or interest rates; high unemployment; natural disasters; or a combination of these or other factors.
Negative developments affecting the banking industry, such as bank failures or concerns involving liquidity, may have a material adverse effect on the Company’s operations.
High-profile bank failures in the first half of 2023, and the resulting media coverage, caused general uncertainty and concern regarding the liquidity adequacy of the banking industry and in particular, regional and community banks like the Company. Uncertainty and concern may be compounded by the reach and depth of media attention, including social media, and its ability to disseminate concerns or rumors about these kinds of events or other similar risks, and may have in the past and may in the future lead to market-wide liquidity problems and concerns from the Company's own customer base. These bank failures underscore the importance of maintaining diversified sources of funding as key measures to ensure the safety and soundness of a financial institution. As a result, market conditions and other external factors may impact the competitive landscape for deposits in the banking industry and could have a material, adverse impact on the Company's liquidity and results of operations. While the Department of the Treasury, the Federal Reserve, and the FDIC took steps to ensure that depositors of these recently failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will continue to be successful in restoring customer confidence in the banking industry.
Risks Related to Credit
Our real estate loan operations have a considerable effect on our results of operations.
The performance of our real estate loans depends on a number of factors, including the continued strength of the real estate markets in which we operate. The strength of the real estate market and the results of our operations could be negatively affected by an economic downturn.
In addition, declines in the market for commercial property could cause some of our borrowers to suffer losses on their projects, which would negatively affect our financial condition, results of operations and prospects. Declines in housing prices and the supply of existing houses for sale could cause residential developers who are our borrowers to suffer losses on their projects and encounter difficulty in repaying their loans. We cannot provide assurance that we will have an adequate allowance for credit losses to cover future losses. If we suffer greater losses than we are projecting, our financial condition and results of operations would be adversely affected.
A large percentage of our loans are collateralized by real estate and deterioration in the real estate market may adversely affect our financial results.
Our results of operations have been, and will continue to be significantly impacted by the economy in Hawaii, and to a lesser extent, other markets we are exposed to including California. Approximately 80% of our loan portfolio as of December 31, 2025 was comprised of loans primarily collateralized by real estate, with the significant majority of these loans concentrated in Hawaii.
Deterioration of the economic environment in Hawaii, California or other markets we are exposed to, domestic or foreign, including a decline in the real estate market and single-family home resales or a material external shock, may significantly impair the value of our collateral and our ability to sell the collateral upon foreclosure. In the event of a default with respect to any of these loans, amounts received upon sale of the collateral may be insufficient to recover outstanding principal and interest on the loan.
Provisions for credit losses and charge-offs of additional loans in the future, could adversely affect our results of operations.
For the year ended December 31, 2025, we recorded $15.7 million in provision for credit losses. As a result of a variety of factors, including a decline in local, national or international economic conditions, it is possible that we may experience deterioration in credit quality and material credit losses and in turn, increases to our provision for credit losses. Because we
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have a significant amount of real estate loans, decreases in real estate values could adversely affect the value of property used as collateral for our loans. If that were to occur, we may have to record additional provisions for credit losses which would have an adverse impact on our net income, financial condition and capital ratios.
Our allowance for credit losses may not be sufficient to cover actual credit losses, which could adversely affect our results of operations. Additional credit losses may occur in the future and may occur at a rate greater than we have experienced to date.
As a lender, we are exposed to the risk that our loan customers may not repay their loans according to their terms and that the collateral or guarantees securing these loans may be insufficient to assure repayment. The underwriting and credit monitoring policies and procedures that we have adopted to address this risk may not prevent unexpected losses that could have a material adverse effect on our business, financial condition, results of operations and cash flows. We maintain an allowance for credit losses to provide for loan defaults and non-performance, which also includes increases for new loan growth. While we believe that our allowance for credit losses is appropriate to cover expected losses, we cannot provide assurance that we will not increase the allowance for credit losses further or that regulators will not require us to increase the allowance for credit losses which could have a material adverse effect on our net income and financial condition.
Management makes various assumptions and judgments about the collectability of our loan portfolio, which are regularly reevaluated and are based in part on:
•current and forecasted economic conditions and their estimated effects on specific borrowers;
•an evaluation of the existing relationships among loans, potential credit losses and the present level of the allowance for credit losses;
•results of examinations of our loan portfolios by regulatory agencies; and
•management's internal review of the loan portfolio.
In determining the size of the allowance for credit loss, we rely on an analysis of our loan portfolio, our experience and a third-party economic forecast. If our assumptions prove to be incorrect, our current allowance for credit losses may not be sufficient to cover the losses.
In addition, third parties, including our federal and state regulators, periodically evaluate the adequacy of our allowance for credit losses and may communicate with us concerning the methodology or judgments that we have raised in determining the allowance for credit losses. As a result of this input, we may be required to assign different grades to specific credits, increase our provision for credit losses, and/or recognize further loan charge offs which could have a material adverse effect on our net income and financial condition. See Note 1 - Summary of Significant Accounting Policiesto the Consolidated Financial Statements under "Part II, Item 8. Financial Statements and Supplementary Data."
Our commercial and industrial, and commercial real estate loan portfolios expose us to risks that may be greater than the risks related to our other loans.
Our loan portfolio includes commercial and industrial loans and commercial real estate loans, which are secured by commercial real estate, including but not limited to, structures and facilities to support activities designated as multi-family residential properties, industrial, warehouse, general office, retail, health care and religious dwellings. Commercial and industrial and commercial real estate loans carry more risk as compared to other types of lending, because they typically involve larger loan balances often concentrated with a single borrower or groups of related borrowers. Accordingly, charge-offs on commercial and industrial and commercial real estate loans may be larger on a per loan basis than those incurred with our residential or consumer loan portfolios. In addition, these loans expose a lender to greater credit risk than loans secured by residential real estate. The payment experience on commercial real estate loans that are secured by income producing properties are typically dependent on the successful operation of the related real estate property and thus, may subject us to adverse conditions in the real estate market or to the general economy. The collateral securing these loans typically cannot be liquidated as easily as residential real estate. If we foreclose on these loans, our holding period for the collateral typically is longer than residential properties because there are fewer potential purchasers of the collateral.
Unexpected deterioration in the credit quality of our commercial or commercial real estate loan portfolios would require us to increase our provision for credit losses, which would reduce our profitability and could materially adversely affect our business, financial condition, results of operations, and prospects. Furthermore, such deterioration could require us to raise additional capital.
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In addition, federal and state banking regulators may require banks with higher levels of commercial real estate loans to implement more stringent underwriting, internal controls, risk management policies and portfolio stress testing, as well as possibly higher levels of allowances for credit losses and capital levels as a result of commercial real estate lending growth and exposures.
We may incur future losses in connection with certain representations and warranties we have made with respect to mortgages that we have sold in the secondary market.
In connection with the sale of mortgage loans into the secondary market, we make representations and warranties, which, if breached, may require us to repurchase such loans, substitute other loans or indemnify the purchasers of such loans for actual losses incurred in respect to such loans. A substantial decline in residential real estate values in the markets in which we originated such loans could increase the risk of such consequences. While we currently believe our repurchase risk is low, it is possible that requests to repurchase loans could occur in the future and such requests may have a material adverse effect on our financial condition and results of operations.
Consumer protection initiatives related to the foreclosure process could materially affect our ability as a creditor to obtain remedies.
We generally use the judicial foreclosure process which can be very lengthy. Consumer protection initiatives or regulations on mortgage loan modification programs and loss mitigation practices could impact our foreclosure procedures, which in turn could adversely affect our business, financial condition, or results of operations.
Changes to, or limitations on our ability to participate in, the programs and guidelines of government-sponsored entities could adversely affect our mortgage origination and secondary‐market activities.
Our ability to originate and sell residential mortgage loans depends on maintaining approvals and eligibility with government-sponsored entities ("GSE"), as well as on the continued availability of their programs and secondary‐market liquidity. Changes in these entities’ roles, guidelines, guarantee structures, or pricing including modifications to credit standards, servicing requirements, or agency fees, could reduce demand for our mortgage products, increase our operational or compliance costs, or limit our ability to sell loans on acceptable terms. Any material reduction in access to these programs or adverse changes in their requirements could negatively affect our mortgage origination volume, secondary‐market execution, and related revenue.
Banking-as-a-Service ("BaaS") collaboration agreements that we may enter into may expose us to credit risk.
Future BaaS collaboration agreements may include loan or line of credit arrangements with our potential partners and may also include various loss sharing agreements, as they have in the past. We typically will require guarantees and/or collateral to protect the Bank against credit risk. However, there is a risk that our partners will be unable to meet their obligations under the agreements.
Losses associated with the loans or lines of credit accounts related to BaaS relationships that we may enter into, could have a material adverse effect on our net income, results of operations, and financial condition.
Risks Related to Interest Rates and Liquidity
Our business is subject to interest rate risk and fluctuations in interest rates may adversely affect our earnings.
The majority of our assets and liabilities are monetary in nature and subject to risk from changes in interest rates. Like most financial institutions, our earnings and profitability depend significantly on our net interest income, which is the difference between interest income on interest-earning assets, such as loans and investment securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings. We expect that we will periodically experience "gaps" in the interest rate sensitivity of our assets and liabilities, meaning that either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa. If market interest rates should move contrary to our position, this "gap" will work against us and our earnings may be negatively affected. We are unable to predict or control fluctuations of market interest rates, which are affected by many factors, including the following:
•inflation;
•recession;
•market conditions;
•changes in unemployment;
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•the money supply;
•international disorder and instability in domestic and foreign financial markets; and
•governmental actions.
Our asset/liability management strategy may not be able to control our risk from changes in market interest rates and it may not be able to prevent changes in interest rates from having a material adverse effect on our results of operations and financial condition. From time to time, we may reposition our assets and liabilities to reduce our net interest income volatility. Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our financial condition and results of operations.
If we are unable to effectively manage the composition and risk of our investment securities portfolio, which we expect will continue to comprise a significant portion of our earning assets, our net interest income and net interest margin could be adversely affected.
Our primary sources of interest income include interest on loans, as well as interest earned on investment securities. Interest earned on investment securities represented 13.3% of our interest income in the year ended December 31, 2025, as compared to 11.7% of our interest income in the year ended December 31, 2024. Accordingly, effectively managing our investment securities portfolio to generate interest income while managing the composition and risks (including credit, interest rate and liquidity) associated with that portfolio, including the mix of government agency and non-agency securities, remains important. If we are unable to effectively manage our investment securities portfolio or if the interest income generated by our investment securities portfolio declines, our net interest income and net interest margin could be adversely affected.
The high interest rate environment has decreased the market value of the Company’s fixed-rate investment securities and loan portfolios, and the Company would realize losses if we were required to sell such securities or loans to meet liquidity needs.
As a result of inflationary pressures and the resulting rapid increases in interest rates initiated by the Federal Reserve, the market values of the Company's fixed-rate investment securities and loan portfolios have declined significantly. While the Company does not currently intend to sell these securities or loans to meet liquidity needs, if the Company were required to sell such securities or loans to meet liquidity needs, it could incur losses, which could impair the Company’s capital, financial condition, and results of operations, thereby negatively impacting our profitability. While the Company has taken actions to maximize its funding sources, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs. Furthermore, there is no guarantee that government programs or the Company's other borrowing facilities will be effective in addressing the Company's liquidity needs as they arise.
Our ability to maintain adequate sources of funding and liquidity and required capital levels may be negatively impacted by uncertainty in the economic environment which may, among other things, impact our ability to satisfy our obligations.
Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of investments or loans, and other sources would have a substantial negative effect on our liquidity which could affect or limit our ability to satisfy our obligations and our ability to grow profitability at the same rate. Our access to funding sources in amounts adequate to finance our activities on terms that are acceptable to us could be impaired by factors that affect us specifically, the financial services industry, or the economy in general. Factors that could detrimentally impact our access to liquidity sources include concerns regarding deterioration in our financial condition, increased regulatory actions against us and a decrease in the level of our business activity as a result of a downturn in the markets in which our loans or deposits are concentrated. Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial industry in light of the past turmoil faced by banking organizations and the credit markets. In addition, our financial flexibility could be constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates.
The management of liquidity risk is critical to the management of our business and our ability to service our customer base. In managing our balance sheet, our primary source of funding is customer deposits. Our ability to continue to attract these deposits and other funding sources is subject to variability based upon a number of factors including volume and volatility in the securities' markets, our financial condition, our credit rating and the relative interest rates that we are prepared to pay for these liabilities. The availability and level of deposits and other funding sources is highly dependent upon the perception of the liquidity and creditworthiness of the financial institution. Perception can change quickly in response to market conditions or circumstances unique to a particular company. Concerns about our past and future financial condition or concerns about our
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credit exposure to other parties could adversely impact our sources of liquidity, financial position, including regulatory capital ratios, results of operations and our business prospects.
If our level of deposits were to materially decrease, we would need to raise additional funds by increasing the interest that we pay on certificates of deposits or other depository accounts, seek other debt or equity financing or draw upon our available lines of credit. We rely on commercial and retail deposits, and to a lesser extent, advances from the Federal Home Loan Bank of Des Moines ("FHLB") and the Federal Reserve discount window, to fund our operations. Although we have historically been able to replace maturing deposits and advances as necessary, we might not be able to replace such funds in the future if, among other things, our results of operations or financial condition, or the results of operations or financial condition of the FHLB, were to change.
Our line of credit with the FHLB serves as a primary outside source of liquidity. The Federal Reserve discount window also serves as an additional outside source of liquidity. Borrowings under this arrangement are through the Federal Reserve's primary facility under the borrower-in-custody program. The duration of borrowings from the Federal Reserve discount window are generally for a very short period, usually overnight. In the event that these outside sources of liquidity become unavailable to us, we will need to seek additional sources of liquidity, including selling assets. We cannot provide assurance that we will be able to sell assets at a level to allow us to repay borrowings or meet our liquidity needs.
We constantly monitor our activities with respect to liquidity, and evaluate our utilization of our cash assets closely; however, there can be no assurance that our liquidity or the cost of funds to us may not be materially and adversely impacted as a result of economic, market, or operational considerations that we may not be able to control.
We rely on the mortgage secondary market for some of our revenue and liquidity.
We originate and sell residential mortgage loans. We rely on Federal National Mortgage Association ("Fannie Mae"), Federal Home Loan Mortgage Corporation ("Freddie Mac"), and other purchasers to purchase first mortgage loans in order to reduce our credit and interest rate risks, and provide funding for additional loans we desire to originate. We cannot provide assurance that these purchasers will not materially limit their purchases from us due to capital constraints or other factors, including, with respect to Fannie Mae and Freddie Mac, a change in the criteria for conforming loans. In addition, various proposals have been made to reform the U.S. residential mortgage finance market, including the role of Fannie Mae and Freddie Mac. The exact effects of any such reforms are not yet known, but may limit our ability to sell conforming loans to Fannie Mae or Freddie Mac. In addition, mortgage lending is highly regulated, and our inability to comply with all federal and state regulations, and investor guidelines regarding the origination, underwriting, documentation, and servicing of mortgage loans may also impact our ability to continue selling mortgage loans. If we are unable to continue to sell loans in the secondary market, our ability to fund, and thus originate, additional mortgage loans may be adversely affected, which could have a material adverse effect on our business, financial condition, or results of operations.
We are required to act as a source of financial and managerial strength for our Bank.
We are required to act as a source of financial and managerial strength to the Bank. We may be required to commit additional resources to the Bank at times when we may not be in a financial position to provide such resources or when it may not be in our, or our shareholders’ best interests to do so. Providing such support is more likely during times of financial stress for us and the Bank, which may make any capital we are required to raise to provide such support more expensive than it might otherwise be. In addition, any capital loans we make to the Bank are subordinate in right of payment to depositors and to certain other indebtedness of the Bank.
We rely on dividends from our subsidiary for most of our revenue and liquidity.
Because we are a holding company with no significant operations other than our Bank, we depend upon dividends from our Bank for a substantial portion of our revenue and our liquidity, including as the source of funds for payment of interest and principal on our holding company debt obligations.
Hawaii law only permits the Bank to pay dividends out of retained earnings as defined under Hawaii banking law ("Statutory Retained Earnings"), which differs from GAAP retained earnings. As of December 31, 2025, the Bank had Statutory Retained Earnings of $234.7 million. In addition, regulatory authorities could limit the ability of the Bank to pay dividends to CPF. The inability to receive dividends from the Bank could have a material adverse effect on our financial condition, results of operations, and prospects.
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Our ability to pay cash dividends to our shareholders is subject to restrictions under federal and Hawaii law, including restrictions imposed by the FRB and covenants set forth in various agreements we are a party to, including covenants set forth in our subordinated debentures. We cannot provide any assurance that we will continue to pay dividends to our shareholders.
Risks Related to the Operation of Our Business
Managing reputational risk is important to attracting and maintaining customers, investors and employees.
Threats to our reputation can come from many sources, including adverse sentiment about financial institutions generally, negative sentiment about our business, unethical practices, employee mistakes, misconduct or fraud, failure to deliver minimum standards of service or quality, failure of any product or service offered by us to meet our customers’ expectations, compliance deficiencies, government investigations, security breaches, litigation, and questionable, unlawful or fraudulent activities of our partners, contract counterparties, employees or customers. We have policies and procedures in place to protect our reputation and promote ethical conduct, but these policies and procedures may not be fully effective to address reputational threats in all circumstances. Negative publicity regarding our business, employees, partners, contracting counterparties, employees or customers, with or without merit, may result in the loss of customers, investors and employees, costly litigation, a decline in revenues and increased governmental scrutiny, and regulation.
Our deposit customers may pursue alternatives to deposits at our Bank or seek higher yielding deposits causing us to incur increased funding costs.
Checking and savings account balances and other forms of deposits can decrease when our deposit customers perceive alternative investments, such as the stock market or other non-depository investments, as providing superior expected returns or seek to spread their deposits over several banks to maximize FDIC insurance coverage. Furthermore, technology and other changes have made it more convenient for the Bank's customers to transfer funds into alternative investments including products offered by other financial institutions or non-bank service providers. Increases in short-term interest rates could increase transfers of deposits to higher yielding deposits. Efforts and initiatives that we undertake to retain and increase deposits, including deposit pricing, can increase our costs. When the Bank's customers move money out of bank deposits in favor of alternative investments, or into higher yielding deposits, or spread their accounts over several banks, we can lose a relatively inexpensive source of funds, thus increasing our funding costs.
Failure to manage our growth may adversely affect our performance.
Our financial performance and profitability depend on our ability to manage past and possible future growth. Continued organic growth and any future acquisitions or dispositions we may make or evaluate may result in additional expenses, and involve issues with operations, integration, regulatory, management and other issues that could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Failure to maintain effective internal control over financial reporting or disclosure controls and procedures could adversely affect our ability to report our financial condition and results of operations completely, accurately, and timely.
A failure to maintain effective internal control over financial reporting or disclosure controls and procedures could adversely affect our ability to report our financial results completely, accurately, and timely, which could result in a loss of investor confidence in our financial reporting or adversely affect our access to sources of liquidity. Furthermore, because of the inherent limitations of any system of internal control over financial reporting, including the possibility of human error, the circumvention or overriding of controls and fraud may not prevent or detect all misstatements, even with effective internal controls. Frequent or rapid changes in procedures, methodologies, systems, personnel and technology exacerbate the challenges of developing and maintaining a system of internal controls and can increase the cost and level of effort to develop and maintain such systems.
Changes in our accounting policies or in accounting standards could materially affect how we report our financial results and condition.
Periodically the Financial Accounting Standards Board ("FASB") and the SEC change the financial accounting and reporting standards that govern the preparation of our financial statements. As a result of changes to financial accounting or reporting standards, whether promulgated or required by the FASB or other regulators, we could be required to change certain assumptions or estimates that we have previously used in preparing our financial statements, which could adversely affect our
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business, financial condition, and results of operations. See Note 1 - Summary of Significant Accounting Policies to the Consolidated Financial Statements under "Part II, Item 8. Financial Statements and Supplementary Data."
Financial services companies depend on the accuracy and completeness of information about customers and counterparties.
In deciding whether to extend credit or enter into other transactions, we rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports and other financial information. We may also rely on representations of those customers, counterparties or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate or misleading financial statements, credit reports or other financial information could have a material adverse impact on our business and, in turn, our financial condition, and results of operations.
We operate in a highly competitive industry and market area.
We face substantial competition in all areas of our operations from a variety of different competitors, many of which are larger and may have more financial resources. Such competitors primarily include national, regional, and community banks within the various markets in which we operate. Additionally, various out-of-state banks conduct business in our market areas. We also face competition from many other types of financial institutions, including without limitation, savings banks, credit unions, finance companies, and financial service providers, such as mortgage providers and brokers, operating via the internet and other technology platforms, brokerage firms, insurance companies, factoring companies, and other financial intermediaries.
Many of our competitors are significantly larger than we are in terms of total assets and capitalization and have greater access to capital markets. In addition, some competitors are subject to less regulatory oversight than we are, which may enable them to price loans and deposits more aggressively. We expect competitive pressures to remain intense, driven primarily by technological advances and continued consolidation within the financial services industry.
The rapid growth of digital wallets, fintech payment platforms, and alternative payment systems may disintermediate our banking relationships with customers, reduce our transaction‐based revenue, and increase operational risks. Technological developments have also lowered barriers to entry in our local market by enabling banks to expand their geographic reach through internet‐based services and allowing non‐depository institutions, including fintech companies, to offer products and services that have traditionally been provided by banks. We seek to remain competitive across our service areas by offering competitive interest rates on deposit products and loans.
The financial services industry could become even more competitive as a result of legislative, regulatory, and technological changes, as well as continued consolidation. Banks, securities firms, and insurance companies may merge under the umbrella of a financial holding company, enabling them to offer a broad array of financial services, including banking, securities underwriting, insurance (both agency and underwriting), and merchant banking. Technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Many of our competitors have fewer regulatory constraints and may have lower cost structures. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, offer a broader range of products and services, as well as more favorable pricing, than we can.
Our ability to compete successfully depends on a number of factors, including, among others:
•the ability to develop, maintain, and build upon long-term customer relationships based on top-quality service, high ethical standards, and safe, sound assets;
•the ability to expand our market position;
•the scope, relevance, and pricing of products and services offered to meet customer needs and demands;
•the rate at which we introduce new products and services relative to our competitors;
•customer satisfaction with our level of service; and
•industry and general economic trends.
Failure to perform in any of these areas could significantly weaken our competitive position and adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our financial condition and results of operations.
In addition, the soundness of our financial condition may affect our competitiveness. Customers may decide not to do business with the Bank if they perceive our financial condition to be less favorable that that of our competitors.
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We are subject to environmental liability risk associated with our bank branches and any real estate collateral we acquire upon foreclosure.
During the ordinary course of business, we may foreclose on and take title to properties securing certain loans that we have originated or acquired. We also own several of our branch locations and are building new branch locations in the State of Hawaii. For any real property that we may possess, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage and costs of complying with applicable environmental regulatory requirements. Failure to comply with such requirements can result in penalties. Environmental laws may require us to incur substantial expenses and may materially reduce the affected property's value or limit our ability to use, sell, or lease the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our business, financial condition or results of operations.
Our business could be adversely affected by unfavorable actions from rating agencies.
Credit ratings assigned by ratings agencies to us, our affiliates, or our securities, may impact the decision of certain customers, or institutions in particular, to do business with us. A rating downgrade or a negative rating could adversely affect our deposits, our ability to access the capital markets on favorable terms and our business relationships.
Our operational risks include risks associated with third-party vendors and other financial institutions.
We rely upon certain third-party vendors to provide products and services necessary to maintain our day-to-day operations, including, providing the core processing system that services the Bank, as well as data processing and storage, online and mobile banking interfaces and services, internet connections, telecommunications, and network access. Accordingly, our operations are exposed to the risk that these vendors might not perform in accordance with applicable contractual arrangements or service level agreements, as the vendors may experience service outages, cybersecurity attacks, data breaches, or other events that may impair their ability to provide fully functioning systems or other services. The failure of an external vendor to perform in accordance with applicable contractual arrangements or service level agreements could be disruptive to our operations and could have a material adverse effect on our business, financial condition, or results of operations, and/or damage our reputation. Further, third-party vendor risk management continues to be an area of high regulatory focus. Failure to follow applicable regulatory guidance in this area could expose us to regulatory actions.
The ongoing operation of many financial institutions may be closely interrelated as a result of credit, trading, execution of transactions, or other relationships between the institutions. As a result, concerns about, or a default or threatened default by, one institution could lead to significant market-wide liquidity and credit problems, losses or defaults by other institutions. This risk may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges with which we interact on a daily basis, and, therefore, could adversely affect us. Any of these operational or other risks could materially adversely affect our business, financial condition and results of operations.
Significant increases in residential home insurance premiums and overall challenges in obtaining homeowners insurance generally may negatively impact the residential real estate market.
We originate a significant amount of residential mortgage loans. Recent natural disasters locally and nationally, including fires in Maui and California, as well as flooding in other parts of the United States, have caused home insurers to significantly increase their premiums on homeowner’s insurance and/or eliminate or limit the availability of certain insurance products, including homeowners and condo insurance. If prospective or existing customers are unable to obtain homeowners insurance or the cost of such insurance becomes prohibitively expensive, the market for our residential mortgage loans and real estate valuations will be reduced, therefore loan-to-value ratios could be negatively impacted and our financial condition and results of operations would be adversely affected.
Risks Related to Legal, Compliance and Regulatory Matters
Governmental regulation and regulatory actions against us may impair our operations or restrict our growth.
As a regulated financial institution, we are subject to significant governmental supervision and regulation. These regulations affect our lending practices, capital structure, investment practices, partnerships, dividend policy and growth, among other things. Statutes and regulations affecting our business as well as the interpretation of these statutes and regulations by
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examining authorities may be subject to change at any time. In addition, regulations may be adopted that increase expenses associated with running our business and adversely affect our earnings.
There can be no assurance that such statutes and regulations, any changes thereto or to their interpretation will not adversely affect our business. In particular, these statutes and regulations, and any changes thereto, could subject us to additional costs (including legal and compliance costs), limit the types of financial services and products we may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things. In addition to governmental supervision and regulation, we are subject to changes in other federal and state laws, including changes in tax laws, which could materially affect us and generally affect the banking industry. We are subject to the rules and regulations of the FRB, the FDIC and the DFI, and certain rules and regulations promulgated by the CFPB. In addition, we are subject to the rules and regulation of the NYSE and the SEC, and are subject to enforcement actions and other punitive actions by these agencies. If we fail to comply with federal and state regulations, the regulators may limit our activities or growth, impose fines on us or in the case of our regulators, ultimately require our Bank to cease its operations. Bank regulations can hinder our ability to compete with financial services companies that are not regulated in the same manner or are less regulated. Federal and state bank regulatory agencies regulate many aspects of our operations. These areas may include:
•capital that must be maintained;
•types of activities that can be engaged in;
•types and amounts of investments that can be made;
•locations of offices;
•insurance of deposits and the premiums that must be paid for this insurance;
•procedures and policies;
•conditions and restrictions on our executive compensation; and
•how much cash must be set aside as reserves.
In addition, bank regulatory authorities may bring enforcement actions against banks and bank holding companies, including the Company and the Bank, for unsafe or unsound practices in the conduct of their businesses or for violations of any law, rule or regulation. Enforcement actions against us, including any condition imposed in writing by the appropriate bank regulatory agency or any written agreement with the authority, could include a federal conservatorship or receivership for the Bank, the issuance of additional orders that could be judicially enforced, the imposition of civil monetary penalties, the issuance of directives to enter into a strategic transaction, whether by merger or otherwise, with a third-party, the termination of insurance of deposits, the issuance of removal and prohibition orders against institution-affiliated parties, and the enforcement of such actions through injunctions or restraining orders. In addition, as we approach, and if we were to exceed $10 billion in assets, we may be subject to enhanced CFPB examination and our compliance costs would increase.
We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.
The Bank Secrecy Act, the USA PATRIOT Act of 2001, and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate. The federal Financial Crimes Enforcement Network is authorized to impose significant civil money penalties for violations of those requirements and has engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration, and Internal Revenue Service. We are also subject to increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control and compliance with the Foreign Corrupt Practices Act. If our policies, procedures and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could materially and adversely affect our business, financial condition, and results of operations.
Regulatory capital standards impose enhanced capital adequacy requirements on us.
Federal banking regulators adopted regulatory capital standards that impose additional capital requirements on us, and increase our associated compliance costs. The administration of existing capital adequacy laws as well as the adoption of new laws and regulations relating to capital adequacy, or more expansive or aggressive interpretations of existing laws and regulations, could have a material adverse effect on our business, liquidity, financial condition and results of operations and could substantially restrict our ability to pay dividends, repurchase our capital stock, or pay executive bonuses. In addition, increased regulatory
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capital requirements as well as our financial condition could require us to raise additional capital, which could dilute our existing shareholders at the time of such capital issuance.
Costs of compliance with environmental laws and regulations are significant, and the cost of compliance with potential new environmental laws, including limitations on emissions relating to climate change and disclosure requirements, could adversely affect our financial condition and results of operations.
Our operations are subject to extensive federal, state and local environmental statutes, rules and regulations. Compliance with these legal requirements could require us to incur costs for, installation and operation of pollution control equipment, emissions monitoring and fees, remediation and permitting at our branches and other facilities, among other things. These expenditures and other costs associated with compliance have been significant in the past and may increase in the future, which could have an adverse effect on our financial condition and results of operations.
We are subject to various legal claims and litigation.
From time to time, customers, employees and others whom we do business with, or are regulated by, as well as our shareholders, can make claims and take legal action against us. Regardless of whether these claims and legal actions are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to us, they may result in significant financial liability and/or adversely affect the market perception of us and our products and services, as well as impact customer demand for our products and services. Any financial liability or reputational damage could have a material adverse effect on our business and in turn, could have a material adverse effect on our financial condition and results of operations. Even if these claims and legal actions do not result in a financial liability or reputational damage, defending these claims and actions have resulted in, and will continue to result in, increased legal and professional services costs, which adds to our noninterest expense and negatively impacts our results of operations.
Risks Related to an Investment in the Company's Securities
The market price of our common stock could decline.
The trading price of our common stock may fluctuate widely as a result of a number of factors, many of which are outside our control. In addition, the stock market is subject to fluctuations in the share prices and trading volumes that affect the market prices of the shares of many companies. These broad market fluctuations could adversely affect the market price of our common stock. Among the factors that could affect our stock price are:
•failure to comply with all of the requirements of any governmental orders or agreements we may become subject to and the possibility of resulting action by the regulators;
•deterioration of asset quality;
•the incurrence of losses;
•actual or anticipated quarterly fluctuations in our operating results and financial condition;
•changes in revenue or earnings/losses estimates or publication of research reports and recommendations by financial analysts;
•failure to meet analysts' revenue or earnings/losses estimates;
•speculation in the press or investment community;
•strategic actions by us or our competitors, such as mergers, acquisitions, restructurings, changes in products or markets, or public offerings;
•additions or departures of key personnel;
•actions by institutional shareholders;
•fluctuations in the stock price and operating results of our competitors;
•future sales of other equity or debt securities, including our common stock;
•general market conditions and, in particular, developments related to market conditions for the financial services industry;
•proposed or adopted regulatory changes or developments;
•breaches in our security systems and loss of customer data;
•anticipated or pending investigations, proceedings or litigation that involve or affect us; or
•domestic and international economic factors unrelated to our performance.
The stock market generally may experience significant volatility. In addition, the trading volume in our common stock may fluctuate more than usual and cause significant price variations to occur. Accordingly, the common stock that is purchased by individual shareholders may trade at a price lower than when they were purchased. Volatility in the market price of our
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