Financial Performance - Net income for Q2 2019 was $13.5 million, or $0.47 per diluted share, compared to $14.2 million, or $0.48 per diluted share in Q2 2018[191]. - For the six months ended June 30, 2019, net income was $29.6 million, or $1.03 per diluted share, compared to $28.5 million, or $0.95 per diluted share in the same period of 2018[191]. - The return on average assets for 2019 was 0.92%, down from 1.00% in 2018, while the return on average shareholders' equity was 10.73% in 2019, down from 11.83% in 2018[192]. - The company recorded income tax expenses of $4.4 million and $9.5 million for the three and six months ended June 30, 2019, respectively, compared to $3.9 million and $7.7 million in the same prior year periods[237]. Operational Initiatives - The company plans to invest approximately $40 million in the RISE2020 initiative, which aims to enhance customer experience and drive long-term growth[205]. - RISE2020 is expected to increase annual operating expenses by approximately $7 million when fully implemented by the start of 2021[205]. - The company expects its efficiency ratio to be in the 63-65% range in 2019 and 2020, targeting a 15% return on average shareholders' equity by the end of 2022[205]. Asset and Liability Management - Total assets increased to $5,856,465,000 from $5,663,697,000, reflecting a growth of 3.4%[211]. - Total equity grew to $504,749,000 from $480,985,000, indicating an increase of 4.3%[211]. - Total interest-bearing liabilities increased to $3,897,619,000, compared to $3,776,053,000, marking a rise of 3.2%[211]. - Total loans and leases, including loans held for sale, reached $4,171,558,000, an increase of 8.7% from $3,836,739,000[211]. Interest Income and Expenses - Net interest income rose to $45,594,000, up from $42,920,000, representing an increase of 6.2%[211]. - The interest rate spread improved to 3.07%, up by 0.06% compared to the previous period[211]. - Interest expense for the three months ended June 30, 2019, was $8.7 million, an increase of 49.5% from the same period in 2018[219]. - The net interest margin improved to 3.33%, up by 0.13% from the previous period[211]. Market Conditions - Hawaii's unemployment rate was 2.8% in June 2019, compared to 2.4% in June 2018, remaining below the national average of 3.7%[199]. - Visitor arrivals in Hawaii increased by 4.2% to 5.2 million in the first half of 2019, but visitor spending decreased by 2.0% to $8.9 billion[197]. - The median sales price for single-family homes on Oahu was $775,000 in the first half of 2019, a decrease of 0.5% from the same period in 2018[200]. Nonperforming Assets and Loan Quality - Total nonperforming assets decreased to $1.258 million at June 30, 2019, down from $2.737 million at December 31, 2018, representing a reduction of 54.0%[253]. - Nonaccrual loans totaled $982 thousand at June 30, 2019, a decrease of 57.7% from $2.323 million at December 31, 2018[253]. - The allowance for loan and lease losses was $48.267 million at June 30, 2019, compared to $47.916 million at December 31, 2018, reflecting a provision of $1.404 million for the three months ended June 30, 2019[257]. Shareholder Returns - The Company declared a cash dividend of $0.23 per share on July 23, 2019, a 9.5% increase from the previous year's dividend of $0.21 per share[269]. - The Company repurchased approximately 1.7% of its common stock outstanding as of December 31, 2018, totaling 490,700 shares at a cost of $14.0 million in the first half of 2019[265][272]. - The Company has $29.9 million remaining available for repurchase under its newly authorized share repurchase program as of June 30, 2019[272]. Risk Management - The primary market risk exposure for the company is interest rate risk, managed through asset/liability management strategies[294]. - Interest rate risk sensitivity analysis indicated a potential increase in net interest income of 1.54% with a 100 basis point increase in rates and a decrease of 4.24% with a 100 basis point decrease[285][286]. - The simulation model used to measure interest rate risk indicates that the mix of rate-sensitive assets and liabilities would not exceed established policy limits for net interest income fluctuations[295].

Financial Data and Key Metrics Changes - Net income for Q2 2019 was $13.5 million or $0.47 per diluted share, down from $16.0 million or $0.55 per diluted share in the previous quarter [15] - Return on average assets was 0.92% and return on average equity was 10.73% [15] - Net interest income increased by $0.3 million to $45.4 million, with a stable net interest margin at 3.33% [16] - Other operating income decreased to $10.1 million from $11.7 million in the prior quarter [17] - Other operating expenses rose to $36.1 million from $34.3 million, driven by higher salaries and promotions [18] - The efficiency ratio for Q2 was 65.1%, reflecting RISE-related investments [18] Business Line Data and Key Metrics Changes - Total loans increased by $146 million or 3.5% quarter-over-quarter and by $366 million or 9.4% year-over-year [12] - Loan growth was strong across all categories, with residential mortgages up by $65 million, commercial mortgages by $35 million, and commercial and industrial loans by $24 million [12] - Core deposits increased by $39 million from the previous quarter and by $103 million year-over-year [13] Market Data and Key Metrics Changes - The loan-to-deposit ratio was 85% at the end of Q2 [14] - Competition for deposit gathering remains sharp, with a successful consumer Exceptional Checking account campaign executed in Q2 [14] Company Strategy and Development Direction - The company introduced the RISE2020 initiative, focusing on digital banking, revenue enhancement, branch transformation, and operational excellence [6][10] - RISE2020 aims to invest approximately $40 million, with an expected annual operating expense increase of $7 million when fully implemented [10] - The company targets a 15% return on shareholders' equity and a 57% efficiency ratio by the end of 2022 [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's growth and profitability while improving asset quality and maintaining a strong capital position [20] - The company is optimistic about the RISE2020 initiative's potential to enhance shareholder returns and meet changing market needs [20] Other Important Information - The Board authorized a new share repurchase plan of up to $30 million, with approximately 214,000 shares repurchased at an average cost of $29.22 during Q2 [19] - The effective tax rate was 24.7% in Q2, with expectations of 24% to 26% going forward [18] Q&A Session Summary Question: Can you elaborate on the RISE2020 initiatives and how they differ from previous technology initiatives? - Management highlighted that RISE2020 focuses on advancing digital banking technology and utilizing cloud technologies to differentiate from competitors [23] Question: What are the expectations for noninterest expenses over the next 12 to 18 months? - Management guided for other operating expenses in the second half of 2019 to be in the $34 million to $36 million range, with an increase expected in 2020 [28] Question: What is the outlook for net interest margin given the changing rate environment? - The company maintains a net interest margin guidance of 3.25% to 3.35%, assuming two Fed rate cuts in the second half of 2019 [30] Question: How is the company planning to capture business in Japan? - Management discussed alliances with Japanese regional banks and the potential for growth in deposits and loans from Japanese investors [37] Question: What was the success of the core deposit campaign? - The campaign raised between $30 million to $40 million, which is expected to lead to further product and service relationships with customers [44]

Part I. Financial Information [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Unaudited Q1 2019 financial statements report **$5.84 billion** in total assets and **$16.0 million** net income, incorporating new lease and hedging accounting standards [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to **$5.84 billion** by March 31, 2019, with liabilities at **$5.34 billion** and shareholders' equity growing to **$502.6 million** Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | | :--- | :--- | :--- | | **Total Assets** | **$5,841,352** | **$5,807,026** | | Net loans and leases | $4,054,304 | $4,030,450 | | Total investment securities | $1,320,360 | $1,354,812 | | **Total Liabilities** | **$5,338,714** | **$5,315,301** | | Total deposits | $4,948,128 | $4,946,490 | | **Total Shareholders' Equity** | **$502,638** | **$491,725** | - The company adopted a new lease accounting standard (ASU 2016-02), resulting in the recognition of a Right of use lease asset of **$54.8 million** and a corresponding Lease liability of **$54.9 million** as of March 31, 2019[9](index=9&type=chunk)[37](index=37&type=chunk) [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) Q1 2019 net income increased to **$16.0 million**, fueled by a 6.6% rise in net interest income to **$45.1 million** and a **$2.6 million** gain from MasterCard stock sale Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Q1 2019 (in thousands) | Q1 2018 (in thousands) | | :--- | :--- | :--- | | Net Interest Income | $45,113 | $42,322 | | Provision (credit) for loan and lease losses | $1,283 | $(211) | | Total other operating income | $11,673 | $8,954 | | **Net Income** | **$16,037** | **$14,277** | | **Diluted EPS** | **$0.55** | **$0.48** | - Other operating income in Q1 2019 was significantly boosted by a **$2.6 million** gain from the sale of MasterCard stock, which was carried at a zero cost basis[58](index=58&type=chunk)[212](index=212&type=chunk) [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Q1 2019 comprehensive income reached **$27.3 million**, a significant improvement from a prior-year loss, driven by **$16.0 million** net income and **$11.2 million** in other comprehensive income Comprehensive Income (Loss) (in thousands) | Component | Q1 2019 (in thousands) | Q1 2018 (in thousands) | | :--- | :--- | :--- | | Net Income | $16,037 | $14,277 | | Other comprehensive income (loss), net of tax | $11,238 | $(14,715) | | **Comprehensive income (loss)** | **$27,275** | **$(438)** | [Consolidated Statements of Changes in Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Equity) Shareholders' equity increased to **$502.6 million** by March 31, 2019, driven by **$16.0 million** net income and **$11.2 million** other comprehensive income, partially offset by dividends and repurchases - Key changes in equity for Q1 2019 included net income of **$16.0 million**, other comprehensive income of **$11.2 million**, cash dividends of **$6.1 million**, and the repurchase and retirement of 277,000 shares for **$7.7 million**[18](index=18&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash and cash equivalents decreased by **$4.0 million** in Q1 2019, with **$25.9 million** from operations, **$20.9 million** from investing, and **$50.7 million** used in financing activities Net Cash Flow Summary (in thousands) | Activity | Q1 2019 (in thousands) | Q1 2018 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $25,883 | $29,884 | | Net cash (used in) provided by investing activities | $20,851 | $(78,693) | | Net cash (used in) provided by financing activities | $(50,741) | $32,296 | | **Net (decrease) in cash and cash equivalents** | **$(4,007)** | **$(16,513)** | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail significant accounting policies, including 2019 adoption of ASU 2016-02 for leases (**$55.9 million** impact) and ASU 2017-12 for hedging (**$144.3 million** reclassification), and prepare for CECL adoption - Effective January 1, 2019, the company adopted ASU 2016-02 (Leases), recognizing a right-of-use lease asset and corresponding liability of **$55.9 million**[37](index=37&type=chunk) - Effective January 1, 2019, the company adopted ASU 2017-12 (Hedging), transferring its entire held-to-maturity investment portfolio with a fair value of **$144.3 million** to the available-for-sale category[38](index=38&type=chunk) - The company is preparing for the adoption of the Current Expected Credit Loss (CECL) standard (ASU 2016-13) effective January 1, 2020, which is expected to have a significant impact on processes for calculating credit loss reserves[39](index=39&type=chunk)[41](index=41&type=chunk)[42](index=42&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes Q1 2019 net income of **$16.0 million** to higher net interest income and a MasterCard stock sale gain, with net interest margin at **3.34%** and total assets at **$5.84 billion** [Financial Summary and Material Trends](index=39&type=section&id=Financial%20Summary%20and%20Material%20Trends) Q1 2019 net income was **$16.0 million** (**$0.55** diluted EPS), reflecting Hawaii's economy with 2.6% visitor arrival growth but 6.3% spending decrease, and a low 2.8% unemployment rate Q1 Financial Performance | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net Income | $16.0M | $14.3M | | Diluted EPS | $0.55 | $0.48 | | Return on average assets | 1.10% | 1.01% | | Return on average shareholders' equity | 12.97% | 11.60% | - Hawaii's economy continues to grow, but at a slower pace. Tourism remains a key driver, with visitor arrivals up **2.6%** but spending down **6.3%** in Q1 2019 compared to the prior year[187](index=187&type=chunk)[190](index=190&type=chunk) [Results of Operations](index=41&type=section&id=Results%20of%20Operations) Q1 2019 net interest income (tax-equivalent) rose 6.5% to **$45.3 million**, expanding net interest margin to **3.34%**, with other operating income surging 30.4% to **$11.7 million** due to a MasterCard stock sale gain - Net interest margin increased to **3.34%** in Q1 2019 from **3.21%** in Q1 2018, as the 35 basis point increase in average yields on interest-earning assets outpaced the 31 basis point increase in rates on interest-bearing liabilities[203](index=203&type=chunk)[208](index=208&type=chunk) - Other operating income increased by **$2.7 million** (**30.4%**) year-over-year, primarily due to a **$2.6 million** gain on the sale of MasterCard stock and a **$0.6 million** increase in income from bank-owned life insurance[212](index=212&type=chunk) - The efficiency ratio improved to **60.49%** in Q1 2019 from **65.15%** in Q1 2018, positively impacted by higher revenue, including the gain on the sale of MasterCard stock[217](index=217&type=chunk) [Financial Condition](index=45&type=section&id=Financial%20Condition) Total assets grew to **$5.84 billion** by March 31, 2019, with net loans and leases at **$4.10 billion**, stable deposits at **$4.95 billion**, and nonperforming assets remaining low at **0.08%** Loan Portfolio Composition (in thousands) | Loan Category | March 31, 2019 (in thousands) | Dec 31, 2018 (in thousands) | | :--- | :--- | :--- | | Commercial, financial & agricultural | $566,795 | $581,660 | | Residential mortgage | $1,451,794 | $1,428,205 | | Commercial mortgage | $1,058,006 | $1,040,278 | | Consumer | $487,813 | $492,206 | | **Total loans and leases** | **$4,101,571** | **$4,078,366** | - Nonperforming assets increased to **$3.3 million** at March 31, 2019, from **$2.7 million** at year-end 2018. The ratio of nonperforming assets to total loans and OREO remained low at **0.08%**[231](index=231&type=chunk)[233](index=233&type=chunk) - The allowance for loan and lease losses as a percentage of total loans decreased to **1.15%** at March 31, 2019, from **1.17%** at December 31, 2018, reflecting the credit quality of the portfolio and economic conditions[237](index=237&type=chunk)[238](index=238&type=chunk) [Capital Resources and Liquidity](index=51&type=section&id=Capital%20Resources%20and%20Liquidity) The company maintained strong capital, exceeding 'well capitalized' minimums, with a **8.60%** tangible common equity ratio, repurchasing 277,000 shares for **$7.7 million**, and redeeming **$20.0 million** in trust preferred securities Regulatory Capital Ratios (Company) | Ratio | March 31, 2019 | Minimum for Adequacy | | :--- | :--- | :--- | | CET1 risk-based capital | 11.8% | 4.5% | | Tier 1 risk-based capital | 13.0% | 6.0% | | Total risk-based capital | 14.1% | 8.0% | | Leverage capital | 9.5% | 4.0% | - In Q1 2019, the company repurchased 277,000 shares of common stock for **$7.7 million**. As of March 31, 2019, **$13.0 million** remained under the stock repurchase plan[253](index=253&type=chunk) - The company redeemed **$20.0 million** in floating rate trust preferred securities of CPB Capital Trust II on January 7, 2019[257](index=257&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=55&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages interest rate risk, its primary market risk, with ALCO projecting a **1.77%** NII increase for a +100 bp rate shift and a **4.24%** NII decrease for a -100 bp shift Net Interest Income Sensitivity Analysis (as of March 31, 2019) | Rate Change | Estimated NII Sensitivity (1-Year Horizon) | | :--- | :--- | | +100 bp | +1.77% | | -100 bp | -4.24% | [Item 4. Controls and Procedures](index=55&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of the reporting period, with no material changes to internal control over financial reporting during Q1 2019 - Based on an evaluation as of the end of the reporting period, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[281](index=281&type=chunk) - No material changes to the company's internal control over financial reporting occurred during the first quarter of 2019[282](index=282&type=chunk) Part II. Other Information [Item 1A. Risk Factors](index=56&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the company's 2018 Annual Report on Form 10-K were reported - No material changes from the Risk Factors disclosed in the 2018 Form 10-K were reported[285](index=285&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=56&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In Q1 2019, the company repurchased 277,000 common shares for **$7.7 million**, with **$13.0 million** remaining available under the stock repurchase plan Issuer Purchases of Equity Securities (Q1 2019) | Period | Total Shares Purchased | Average Price Paid per Share ($) | | :--- | :--- | :--- | | January 2019 | 110,500 | $25.98 | | February 2019 | 71,000 | $29.50 | | March 2019 | 95,500 | $28.73 | | **Total** | **277,000** | **$27.83** | - As of March 31, 2019, approximately **$13.0 million** remained available for repurchase under the company's stock repurchase plan[287](index=287&type=chunk) [Item 6. Exhibits](index=57&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ý Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2018 or o 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) Hawaii 99-0212597 (State or other jurisdiction of incorporation or organi ...