CENTRAL PACIFIC FINANCIAL CORP (CPF) stock intrinsic value fair value estimate & owner earnings analysis

Central Pacific Financial is the holding company for Central Pacific Bank, a Hawaii community bank with about $7.4 billion in assets, $6.6 billion of deposits (91.7% of them core deposits) and roughly $5.3 billion of loans. About 84% of loans are in Hawaii and 16% on the U.S. Mainland, and 80% of loans are secured by real estate. Earnings therefore depend on Hawaii real estate, on tourism and on the spread between what the bank earns on loans and pays on deposits. In 2025 the bank earned $77.5 million ($2.86 per diluted share), up from $53.4 million ($1.97) in 2024, which was held back by a $9.9 million loss on repositioning the bond portfolio. Net income in the first half of 2026 was $41.5 million versus $36.0 million a year earlier. Asset quality is clean: problem assets are $14.4 million, 0.19% of assets. Core capital (CET1) is 12.7%, and there is no goodwill on the balance sheet. How we measure earnings. For a bank we start with operating cash flow and take out timing items from other assets and liabilities, stock compensation, maintenance capital spending, and the loan-loss provision (credit costs are a recurring cost of lending, so we do not add them back). Interest is a normal operating cost of a bank, so no debt is subtracted. On that basis owner earnings per share were: 2018 $3.20, 2019 $1.91, 2020 $0.09 (pandemic-year credit provisions of $42 million plus $26 million of building and technology spending), 2021 $3.27, 2022 $3.00, 2023 $2.08, 2024 $1.96 and 2025 $2.21. We anchor on the median of 2018 to 2025, $2.14, which keeps the 2020 stress year in the window and drops 2017, when a one-time tax-law change distorted cash flow. 2025 owner earnings rose about 12% from 2024; we assume only 3% for year one. Owner earnings run below reported profit in 2025 ($2.21 versus $2.86) because we strip out about $15.6 million of timing benefit from other assets and liabilities and count capital spending and stock compensation as real costs. Our earlier estimates were built on a different basis and are not comparable with these figures. Base case, $39.40 per share. Earnings of about $2.21 in year one, then growing 1% a year for nine more years, after which they stay flat at about $2.41 per share. The only growth credited is the shrinking share count: diluted shares fell from 32.7 million in 2015 to 27.0 million in 2025, about 1.8% a year, paid for from the bank's own cash, including through 2020. We credit just 1%, and the 788,000 shares bought back in 2025 at an average of $29.60 show the program is active. We give no credit for loan growth (loans actually shrank 0.8% in 2025), margin expansion or a stronger Hawaii economy. Flat earnings after year 10 rest on a deposit franchise with 91.7% core deposits and a record of profit in every year of the past decade. The 2024 and 2025 figures also cover the funding-cost squeeze of 2023 to 2024. Bull case, $52.61 per share. The bank's own repricing levers execute well: low-yielding bonds and fixed-rate loans keep rolling off (the bank received over $115 million of securities maturities and calls in 2025) and are reinvested at higher yields, as first-half 2026 profit growth of about 15% already suggests. Owner earnings reach $2.50, $2.90 and $3.00 per share in years one to three, which is where the bank earned in 2021 and 2022, then grow 1.8% a year from share repurchases (the long-run pace). One 2020-style stress year (earnings of $1.00 per share) is included in year six. Earnings then stay flat at about $3.40. Bear case, $10.07 per share. This is a full credit cycle modelled on the bank's own 2009 experience: net charge-offs were 6.47% of average loans, the loan book fell from $4.0 billion to $3.1 billion, problem assets reached 10.65% of assets and equity fell from $526 million to $357 million; the bank later needed a $325 million private placement in 2011. We put the same downturn on today's book beginning in year three: credit losses of 6.47% of loans in year three (about $342 million), half that rate in year four (about $152 million) and a quarter in year five (about $71 million), with pre-provision earnings falling about 15% to roughly $59 million a year. The cumulative loss of about $388 million takes equity from $593 million to about $205 million. We assume a recapitalization of about $299 million at 60% of the remaining book value (about $4.71 per share), giving new investors about 71% of the company. The shrunken bank (loans about 21% smaller) then earns about $44 million a year, worth about $737 million at year five, of which today's holders keep 29%. Adding $3.93 of earnings from the first two years, the case is worth $10.07. Because this is a bank, borrowings are the raw material of the business and nothing is subtracted for them; the bank repaid $80 million of long-term debt in 2025, leaving $76.5 million of trust-preferred debt. This case is below tangible book value of $22.47 per share, as the loss in the cycle consumes it. Stress-testing. The best fact against the bear case is credit quality today (problem assets at 0.19% of assets versus 10.65% in 2009; the 2020 shock produced a provision of only $42 million), but we keep the full 2009 depth because a single-state, real-estate-secured, tourism-linked bank has already been through it once. The best fact for the base case is that the 2018 to 2025 median earnings level was held through 2020 and the 2023 to 2024 squeeze. Margin-of-safety price, $21.00. We are reasonably sure of the earnings level (eight-year median $2.14, with 2022 to 2025 between $1.96 and $3.00) but not of the credit cycle: the worst plausible outcome is a Hawaii real estate and tourism downturn of 2009 depth, which Hawaii's own forecasters do not predict (they expect arrivals to fall 1.3% and visitor spending 2.4% in 2026 as a cyclical dip). Liquidity is 116% of uninsured deposits, but 42% of deposits are uninsured, and 80% of loans are real estate, so the bank would survive such a downturn only with heavy dilution, as the bear case shows. If we are wrong about earnings (for example 2024's $1.96 is the true level) or about the pace of share repurchases, the shares are still worth the mid-$30s on the base-case path; if wrong about credit, closer to $10. The price assumes a holding period of about three years. Over that period the bank pays a $1.09 dividend, which is about 5% a year on $21, and the anchor earnings equal about 10% of the price, and $21 is just below tangible book value. A higher price leaves too little cushion for the credit outcome. From $21, if the shares are merely worth $33 in three years, dividends plus appreciation imply roughly 21% a year. Could not be reconciled: in 2024 the bank spent $3.1 million evaluating an unnamed strategic opportunity, and the filings do not say what became of it.