CENTRAL PACIFIC FINANCIAL CORPCPF
CENTRAL PACIFIC FINANCIAL CORP Fair Value Disclosure
21. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
Disclosures about Fair Value of Financial Instruments
Fair value estimates, methods and assumptions are set forth below for our financial instruments.
Short-Term Financial Instruments
The carrying values of short-term financial instruments are considered to approximate fair values, as they are readily convertible to cash . These instruments include cash and due from financial institutions, interest-bearing deposits in other financial institutions, accrued interest receivable, the majority of FHLB advances and other short-term borrowings, and accrued interest payable.
Investment Securities
Fair values of investment securities are determined using market price quotations provided by third-party pricing services, which apply pricing models supported by current market data. Where quoted market prices are unavailable, fair values are based on comparable securities.
Loans
Fair values of loans are estimated using discounted cash flows models applied to portfolios of loans with similar financial characteristics including the type of loan, interest terms, and repayment history. Cash flows are discounted using estimated market rates that reflect credit and interest rate risks. These rates are derived from market data and borrower-specific information. The weighted-average discount rate used in the valuation of loans was 6.33% and 7.07% as of December 31, 2025 and 2024, respectively. Fair value measurements are based on the exit price notion in accordance with ASU 2016-01.
Loans Held for Sale
Fair values of loans classified as held for sale are generally based upon quoted prices for similar assets in active markets, acceptance of firm offer letters with agreed upon purchase prices, discounted cash flow models that take into account market observable assumptions, or independent appraisals of the underlying collateral securing the loans.
Loans transferred from held-for-investment to held-for-sale are reported at fair value, net of estimated selling costs on the Company's consolidated balance sheets.
Mortgage Servicing Rights
MSRs are initially recorded at fair value determined by a discounted cash flow model prepared by a third-party service provider using market-based assumptions at origination. Subsequent impairment assessments are performed at each reporting period and use current market assumptions. Key assumptions include mortgage prepayment speeds, discount rates, servicing income, and costs. These inputs are subjective and require management judgment. Changes in assumptions are made to reflect evolving market trends and loan product types.
MSRs are classified as Level 3 assets in the fair value hierarchy due to significant unobservable inputs. The Company’s valuation techniques rely on discounted cash flow models reflecting expected cash flows, prepayment behavior, and cost structures. Fair value measurements and related assumptions are reviewed periodically and validated against market data and third-party valuations.
Deposit Liabilities
For deposits with no stated maturity, such as noninterest-bearing demand deposits, interest-bearing demand deposits, and savings and money market accounts, fair value equals the carrying amount representing the amount payable on demand.
For time deposits, fair value is estimated by discounting future cash flows using rates currently offered for FHLB advances of similar remaining maturities. The weighted-average discount rate used in the valuation of time deposits was 3.81% and 4.50% as of December 31, 2025 and 2024, respectively.
Long-Term Debt
Fair values of long-term debt are estimated by discounting scheduled cash flows over the contractual borrowing period using estimated market rates for similar borrowing arrangements. The weighted-average discount rate used in the valuation of long-term debt was 6.12% and 6.68% as of December 31, 2025 and 2024, respectively.
Derivatives
Fair values of derivative financial instruments are based upon current market values, when available. If there are no relevant comparable values, fair values are based on pricing models using current assumptions for forward sale commitments, interest
rate lock commitments, risk participation agreements, back-to-back swap agreements, and interest rate swaps.
Off-Balance Sheet Financial Instruments
Fair values of off-balance sheet financial instruments are estimated based on the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties, current settlement values or quoted market prices of comparable instruments.
Limitations
Fair value estimates are made at a specific point in time and are based on relevant market conditions and available financial instrument information. These estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument. Because no market exists for a significant portion of our financial instruments, fair value estimates are based on judgments and assumptions regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates cannot be determined with precision as they are inherently subjective in nature and involve uncertainties and matters of significant judgment. Changes in assumptions could significantly impact the estimates.
Fair value estimates are limited to existing on- and off-balance sheet financial instruments and do not include the estimated value of future business or non-financial assets and liabilities such as deferred tax assets and premises and equipment.
Fair Value Measurements
The Company classifies its financial assets and liabilities measured at fair value into a three-level hierarchy, based on the markets in which the financial assets and liabilities are traded and the reliability of the assumptions used to determine fair value as follows:
•Level 1 — Fair value is based on quoted prices (unadjusted) for identical assets or liabilities traded in active markets. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.
•Level 2 — Fair value is based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-based valuation techniques for which all significant assumptions are observable in the market.
•Level 3 — Fair value is determined by using model-based techniques that rely on significant assumptions not observable in the market. These unobservable assumptions reflect the Company's own estimates of assumptions that market participants would use in pricing the asset or liability. Techniques may include the use of discounted cash flow models and other similar methods that require the use of significant judgment or estimation.
Fair value is measured based on the price that the Company would expect to receive if an asset were sold, or the price that it would expect to pay to transfer a liability in an orderly transaction between market participants at the measurement date. The
Company prioritizes the use of observable inputs and minimizes the reliance on unobservable inputs when developing fair value estimates.
Fair value measurements are used to record adjustments to certain financial assets and liabilities and to determine fair value disclosures. Available-for-sale investment securities and derivatives are recorded at fair value on a recurring basis. From time to time, the Company may be required to record other financial assets at fair value on a nonrecurring basis such as loans held for sale, collateral dependent loans and mortgage servicing rights. These nonrecurring fair value adjustments typically involve application of the lower of cost or fair value accounting or write-downs of individual assets.
Fair Value Hierarchy Transfers
During the year ended December 31, 2025, the Company transferred its back-to-back swaps from Level 3 to Level 2 of the fair value hierarchy due to a change in valuation methodology. There were no other transfers of financial assets and liabilities into or out of Level 3 of the fair value hierarchy during the year ended December 31, 2025.
During the year ended December 31, 2024, the Company transferred an interest rate swap from Level 3 to Level 2 of the fair value hierarchy. The transfer was due to a change in the methodology used.
Recurring and Nonrecurring Fair Value Measurements
The Company uses fair value measurements to record adjustments to certain financial assets and liabilities and to determine fair value disclosures. Available-for-sale securities and derivatives are recorded at fair value on a recurring basis. Periodically, the Company may be required to record other financial assets, such as loans held for sale, individually evaluated loans, mortgage servicing rights, and other real estate owned, at fair value on a nonrecurring basis. These nonrecurring fair value adjustments typically involve application of lower of cost or fair value accounting, or write-downs of individual assets.
| Fair Value Measurement Using | |||||||||||||||||||||||||||||
| (Dollars in thousands) | Carrying Amount | Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||||||||
| Cash and due from financial institutions | $ | 88,200 | $ | 88,200 | $ | 88,200 | $ | — | $ | — | |||||||||||||||||||
| Interest-bearing deposits in other financial institutions | 290,453 | 290,453 | 290,453 | — | — | ||||||||||||||||||||||||
| Investment securities | 1,310,603 | 1,244,057 | 61,291 | 1,176,050 | 6,716 | ||||||||||||||||||||||||
| Loans held for sale | 1,084 | 1,084 | — | 1,084 | — | ||||||||||||||||||||||||
| Loans | 5,289,096 | 5,016,971 | — | — | 5,016,971 | ||||||||||||||||||||||||
| Mortgage servicing rights | 8,672 | 11,301 | — | — | 11,301 | ||||||||||||||||||||||||
| Accrued interest receivable | 23,559 | 23,559 | 651 | 4,075 | 18,833 | ||||||||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||||||||
| Deposits: | |||||||||||||||||||||||||||||
| Noninterest-bearing demand | 1,891,198 | 1,891,198 | 1,891,198 | — | — | ||||||||||||||||||||||||
| Interest-bearing demand and savings and money market | 3,734,629 | 3,734,629 | 3,734,629 | — | — | ||||||||||||||||||||||||
| Time | 983,937 | 978,868 | — | — | 978,868 | ||||||||||||||||||||||||
| Long-term debt | 76,547 | 73,579 | — | — | 73,579 | ||||||||||||||||||||||||
| Accrued interest payable | 7,068 | 7,068 | 102 | — | 6,966 | ||||||||||||||||||||||||
| Fair Value Measurement Using | |||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | Notional Amount | Carrying Amount | Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||||||||||||||
| Off-balance sheet financial instruments: | |||||||||||||||||||||||||||||||||||
| Commitments to extend credit | $ | 1,337,099 | $ | — | $ | 1,063 | $ | — | $ | 1,063 | $ | — | |||||||||||||||||||||||
| Standby letters of credit and financial guarantees written | 2,624 | — | 39 | — | 39 | — | |||||||||||||||||||||||||||||
| Derivatives: | |||||||||||||||||||||||||||||||||||
| Forward sale commitments | 1,095 | (4) | (4) | — | (4) | — | |||||||||||||||||||||||||||||
| Risk participation agreements | 52,435 | (3) | (3) | — | (3) | — | |||||||||||||||||||||||||||||
| Back-to-back swap agreements: | |||||||||||||||||||||||||||||||||||
| Assets | 60,660 | 3,045 | 3,045 | — | 3,045 | — | |||||||||||||||||||||||||||||
| Liabilities | (60,660) | (3,045) | (3,045) | — | (3,045) | — | |||||||||||||||||||||||||||||
| Interest rate swap agreements | 114,580 | 4,163 | 4,163 | — | 4,163 | — | |||||||||||||||||||||||||||||
| Fair Value Measurement Using | |||||||||||||||||||||||||||||
| (Dollars in thousands) | Carrying Amount | Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||||||||
| Cash and due from financial institutions | $ | 77,774 | $ | 77,774 | $ | 77,774 | $ | — | $ | — | |||||||||||||||||||
| Interest-bearing deposits in other financial institutions | 303,167 | 303,167 | 303,167 | — | — | ||||||||||||||||||||||||
| Investment securities | 1,334,588 | 1,244,339 | 59,498 | 1,177,994 | 6,847 | ||||||||||||||||||||||||
| Loans held for sale | 5,662 | 5,662 | — | 5,662 | — | ||||||||||||||||||||||||
| Loans | 5,332,852 | 4,916,765 | — | — | 4,916,765 | ||||||||||||||||||||||||
| Mortgage servicing rights | 8,473 | 12,387 | — | — | 12,387 | ||||||||||||||||||||||||
| Accrued interest receivable | 23,378 | 23,378 | 462 | 4,607 | 18,309 | ||||||||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||||||||
| Deposits: | |||||||||||||||||||||||||||||
| Noninterest-bearing demand | 1,888,937 | 1,888,937 | 1,888,937 | — | — | ||||||||||||||||||||||||
| Interest-bearing demand and savings and money market | 3,667,889 | 3,667,889 | 3,667,889 | — | — | ||||||||||||||||||||||||
| Time | 1,087,185 | 1,079,275 | — | — | 1,079,275 | ||||||||||||||||||||||||
| Long-term debt | 156,345 | 153,760 | — | — | 153,760 | ||||||||||||||||||||||||
| Accrued interest payable | 10,051 | 10,051 | 113 | — | 9,938 | ||||||||||||||||||||||||
| Fair Value Measurement Using | |||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | Notional Amount | Carrying Amount | Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||||||||
| Off-balance sheet financial instruments: | |||||||||||||||||||||||||||||||||||
| Commitments to extend credit | $ | 1,219,537 | $ | — | $ | 1,167 | $ | — | $ | 1,167 | $ | — | |||||||||||||||||||||||
| Standby letters of credit and financial guarantees written | 2,702 | — | 41 | — | 41 | — | |||||||||||||||||||||||||||||
| Derivatives: | |||||||||||||||||||||||||||||||||||
| Interest rate lock commitments | 469 | (4) | (4) | — | (4) | — | |||||||||||||||||||||||||||||
| Forward sale commitments | 4,909 | 46 | 46 | — | 46 | — | |||||||||||||||||||||||||||||
| Risk participation agreements | 35,183 | — | — | — | — | — | |||||||||||||||||||||||||||||
| Back-to-back swap agreements: | |||||||||||||||||||||||||||||||||||
| Assets | 50,202 | 3,840 | 3,840 | — | — | 3,840 | |||||||||||||||||||||||||||||
| Liabilities | (50,202) | (3,840) | (3,840) | — | — | (3,840) | |||||||||||||||||||||||||||||
| Interest rate swap agreements | 115,545 | 8,382 | 8,382 | — | 8,382 | — | |||||||||||||||||||||||||||||
The following tables present the fair value of assets and liabilities measured on a recurring basis as of the dates presented:
| Fair Value at Reporting Date Using | |||||||||||||||||||||||
| (Dollars in thousands) | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||
| December 31, 2025 | |||||||||||||||||||||||
| Available-for-sale investment securities: | |||||||||||||||||||||||
| Debt securities: | |||||||||||||||||||||||
| States and political subdivisions | $ | 117,041 | $ | — | $ | 110,993 | $ | 6,048 | |||||||||||||||
| U.S. Treasury obligations and direct obligations of U.S Government agencies | 100,025 | 61,291 | 38,734 | — | |||||||||||||||||||
| Collateralized loan obligations | 40,827 | 40,827 | — | ||||||||||||||||||||
| Mortgage-backed securities: | |||||||||||||||||||||||
| Residential - U.S. government-sponsored entities and agencies | 407,053 | — | 407,053 | — | |||||||||||||||||||
| Residential - Non-government agencies | 15,363 | — | 14,695 | 668 | |||||||||||||||||||
| Commercial - U.S. government-sponsored entities and agencies | 67,903 | — | 67,903 | — | |||||||||||||||||||
| Total investment securities | 748,212 | 61,291 | 680,205 | 6,716 | |||||||||||||||||||
| Derivatives: | |||||||||||||||||||||||
| Forward sale commitments | (4) | — | (4) | — | |||||||||||||||||||
| Interest rate swap agreements | 4,163 | — | 4,163 | — | |||||||||||||||||||
| Risk participation agreements | (3) | — | (3) | — | |||||||||||||||||||
| Back-to-back swap agreements: | |||||||||||||||||||||||
| Assets | 3,045 | — | 3,045 | — | |||||||||||||||||||
| Liabilities | (3,045) | — | (3,045) | — | |||||||||||||||||||
| Total derivatives | 4,156 | — | 4,156 | — | |||||||||||||||||||
| Total | $ | 752,368 | $ | 61,291 | $ | 684,361 | $ | 6,716 | |||||||||||||||
| Fair Value at Reporting Date Using | |||||||||||||||||||||||
| (Dollars in thousands) | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| Available-for-sale investment securities: | |||||||||||||||||||||||
| Debt securities: | |||||||||||||||||||||||
| States and political subdivisions | $ | 116,833 | $ | — | $ | 110,668 | $ | 6,165 | |||||||||||||||
| U.S. Treasury obligations and direct obligations of U.S Government agencies | 81,200 | 59,498 | 21,702 | — | |||||||||||||||||||
| Collateralized loan obligations | 31,140 | 31,140 | — | ||||||||||||||||||||
| Mortgage-backed securities: | |||||||||||||||||||||||
| Residential - U.S. government-sponsored entities and agencies | 414,471 | — | 414,471 | — | |||||||||||||||||||
| Residential - Non-government agencies | 16,926 | — | 16,244 | 682 | |||||||||||||||||||
| Commercial - U.S. government-sponsored entities and agencies | 67,161 | — | 67,161 | — | |||||||||||||||||||
| Commercial - Non-government agencies | 9,927 | — | 9,927 | — | |||||||||||||||||||
| Total investment securities | 737,658 | 59,498 | 671,313 | 6,847 | |||||||||||||||||||
| Derivatives: | |||||||||||||||||||||||
| Interest rate lock commitments | (4) | — | (4) | — | |||||||||||||||||||
| Forward sale commitments | 46 | — | 46 | — | |||||||||||||||||||
| Interest rate swap agreements | 8,382 | — | 8,382 | — | |||||||||||||||||||
| Back-to-back swap agreements: | |||||||||||||||||||||||
| Assets | 3,840 | — | — | 3,840 | |||||||||||||||||||
| Liabilities | (3,840) | — | — | (3,840) | |||||||||||||||||||
| Total derivatives | 8,424 | — | 8,424 | — | |||||||||||||||||||
| Total | $ | 746,082 | $ | 59,498 | $ | 679,737 | $ | 6,847 | |||||||||||||||
The following table presents changes in Level 3 financial assets and liabilities measured at fair value on a recurring basis for the
periods presented:
| Available-For-Sale Debt Securities: | |||||||||||||||||
| (Dollars in thousands) | States and Political Subdivisions | Residential - Non-Government Agencies | Total | ||||||||||||||
| Balance as of December 31, 2023 | $ | 6,436 | $ | 714 | $ | 7,150 | |||||||||||
| Principal payments received | (241) | (24) | (265) | ||||||||||||||
| Unrealized net loss included in other comprehensive loss | (30) | (8) | (38) | ||||||||||||||
| Balance as of December 31, 2024 | 6,165 | 682 | 6,847 | ||||||||||||||
| Principal payments received | (248) | (25) | (273) | ||||||||||||||
| Unrealized net (loss) gain included in other comprehensive income | 131 | 11 | 142 | ||||||||||||||
| Balance as of December 31, 2025 | $ | 6,048 | $ | 668 | $ | 6,716 | |||||||||||
The following table presents quantitative information about recurring Level 3 fair value measurements at December 31, 2025 and 2024:
| (Dollars in thousands) | Fair Value | Valuation Technique(s) | Unobservable Input(s) | Weighted Average | |||||||||||||||||||
December 31, 2025 | |||||||||||||||||||||||
| States and Political Subdivisions | $ | 6,048 | Discounted cash flow | Discount rate | 5.92 | % | |||||||||||||||||
| Residential - Non-Government Agencies | 668 | Discounted cash flow | Discount rate | 5.92 | % | ||||||||||||||||||
December 31, 2024 | |||||||||||||||||||||||
| States and Political Subdivisions | 6,165 | Discounted cash flow | Discount rate | 6.22 | % | ||||||||||||||||||
| Residential - Non-Government Agencies | 682 | Discounted cash flow | Discount rate | 6.22 | % | ||||||||||||||||||
The Company estimates the fair value of Level 3 financial assets and liabilities using a discounted cash flow model that calculates the present value of estimated future principal and interest payments. Based on this methodology, the estimated aggregate fair value of Level 3 financial assets and liabilities measured at fair value on a recurring basis was $6.7 million and $6.8 million as of December 31, 2025 and 2024, respectively.
Within the state and political subdivisions available-for-sale debt securities category, the Company holds two mortgage revenue bonds issued by the City and County of Honolulu with an aggregate fair value of $6.0 million and $6.2 million at December 31, 2025 and 2024, respectively. Within the residential non-government agency available-for-sale debt securities category, the Company holds two mortgage-backed bonds issued by Habitat for Humanity with an aggregate fair value of $0.7 million and $0.7 million at December 31, 2025 and 2024, respectively.
The weighted-average discount rate is the primary unobservable input used in the fair value measurement of available-for-sale debt securities. As of December 31, 2025 and 2024, the weighted-average discount rate utilized was 5.92% and 6.22%, respectively, which was derived by incorporating a credit spread over the FHLB Fixed-Rate Advance curve. Significant increases (decreases) in the weighted-average discount rate could result in a significantly lower (higher) fair value measurement.
There were no financial assets or liabilities measured on a nonrecurring basis as of December 31, 2025 and 2024.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 21, 2024 | |
| 2022 | Feb 24, 2023 | |
| 2021 | Feb 23, 2022 | |
| 2020 | Feb 23, 2021 | |
| 2019 | Feb 25, 2020 | |
| 2018 | Feb 28, 2019 | |
| 2017 | Feb 28, 2018 | |
| 2016 | Mar 1, 2017 | |
| 2015 | Feb 25, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.