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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission file number 0-10777

Central Pacific Financial Corp.
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code:
(808) 544-0500

        Securities registered pursuant to Section 12(b) of the Act:

        Securities registered pursuant to Section 12(g) of the Act:
None

        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. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 or Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý    No o

        As of June 30, 2003, the aggregate market value of the common stock held by non-affiliates of the registrant was approximately $383,487,000.

        As of February 27, 2004, the number of shares of common stock of the registrant outstanding was 16,083,433 shares.

        The following documents are incorporated by reference herein:

PART I

Forward-Looking Statements

        This document contains forward-looking statements. Such statements include, but are not limited to, (i) statements about the benefits of a merger between Central Pacific Financial Corp. ("CPF" or "Company") and CB Bancshares, Inc. ("CBBI"), including future financial and operating results, costs savings and accretion to reported and cash earnings that may be realized from such merger; (ii) statements with respect to CPF's plans, objectives, expectations and intentions and other statements that are not historical facts; and (iii) other statements identified by words such as "believes", "expects", "anticipates", "estimates", "intends", "plans", "targets", "projects" and other similar expressions. These statements are based upon the current beliefs and expectations of CPF's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements.

        The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: (1) the business of CPF and CBBI may not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; (2) expected revenue synergies and cost savings from the merger may not be fully realized or realized within the expected time frame; (3) revenues following the merger may be lower than expected; (4) deposit attrition, operating costs, customer loss and business disruption, including, without limitation, difficulties in maintaining relationships with employees, customers, clients or suppliers, may be greater than expected following the merger; (5) the regulatory approvals required for the merger may not be obtained on the proposed terms; (6) the failure of CPF's and CBBI's shareholders to approve the merger; (7) competitive pressures among depository and other financial institutions may increase significantly and may have an effect on pricing, spending, third-party relationships and revenues; (8) the strength of the United States economy in general and the strength of the Hawaii economy may be different than expected, resulting in, among other things, a deterioration in credit quality or a reduced demand for credit, including the resultant effect on the combined company's loan portfolio and allowance for loan losses; (9) changes in the U.S. legal and regulatory framework; and (10) adverse conditions in the stock market, the public debt market and other capital markets (including changes in interest rate conditions) and the impact of such conditions on the combined company's activities.

        Additional factors that could cause CPF results to differ materially from those described in the forward-looking statements can be found in CPF's reports (such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K) filed with the Securities and Exchange Commission ("SEC") and available at the SEC's Internet web site (www.sec.gov). All subsequent written and oral forward-looking statements concerning the proposed transaction with CBBI or other matters attributable to CPF or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above. CPF does not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statement is made.

        CPF has filed with the SEC an amended registration statement on Form S-4 to register the shares of CPF common stock to be issued in a proposed exchange offer. The registration statement is not final and will be further amended. Subject to future developments, CPF may file proxy statements for solicitation of proxies from CBBI or CPF shareholders, in connection with meetings of such shareholders at a date or dates subsequent hereto and may file a tender offer statement. Investors and security holders are urged to read the registration statement and proxy statements and any other relevant documents (when available), including the tender offer statement if filed, filed with the SEC, as well as any amendments or supplements to those documents, because they contain and will contain important information. Investors and security holders may obtain a free copy of documents filed with

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the SEC at the SEC's Internet web site at (www.sec.gov). Such documents may also be obtained free of charge from CPF by directing such request to: Central Pacific Financial Corp., 220 South King Street, Honolulu, Hawaii 96813, Attention: David Morimoto, (808) 544-0627.

        CPF, its directors and executive officers and certain other persons may be deemed to be "participants" if CPF solicits proxies from CBBI and CPF shareholders. A detailed list of the names, affiliations and interests of the participants in any such solicitation is contained in CPF's definitive proxy revocation statement as filed on May 22, 2003. Information about the directors and executive officers of CPF and their ownership of and interests in CPF stock is set forth in the proxy statement for CPF's 2003 Annual Meeting of Shareholders.

ITEM 1. BUSINESS

General

        The Company, a Hawaii corporation, is a bank holding company registered under the Bank Holding Company Act of 1956, as amended (the "Bank Holding Company Act"). Pursuant to a Plan of Reorganization and Agreement of Merger, the Company was organized on February 1, 1982 to serve as a holding company for its subsidiary, Central Pacific Bank (the "Bank"). The Bank was incorporated in its present form in the State of Hawaii on March 16, 1982 in connection with the holding company reorganization for the Company, and its predecessor entity was incorporated in the State of Hawaii on January 15, 1954. The Bank's deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") up to applicable limits. The Bank is not a member of the Federal Reserve System.

        The Bank owns 100% of the outstanding stock of Central Business Club of Honolulu, Inc., whose principal business is the operation of a private food service facility.

        The Bank also owns 99.8% and the Company owns 0.2% of the outstanding common stock of CPB Real Estate, Inc. ("CPBREI"), a real estate investment trust, which acquires, holds and manages stable, long-term real estate related assets including residential mortgage loans, commercial real estate loans and mortgage-backed securities. In addition to common stock, CPBREI has preferred stock outstanding, consisting of 1,000 shares of Class A preferred stock, 100 shares of Class B preferred stock and 92 shares of Class C preferred stock. At December 31, 2003, the Bank held 876 shares of CPBREI Class A preferred stock and 92 shares of CPBREI Class C preferred stock, and employees or former employees held 124 shares of CPBREI Class A preferred stock. CPBREI, incorporated in March 1998, was established to provide the Company with an alternate means of raising capital and to enhance federal and state tax strategies. The impact of the tax strategies is discussed in Note 16 to the Consolidated Financial Statements.

        In 2003, the Company formed three wholly-owned subsidiaries, CPB Capital Trust I, CPB Capital Trust II, and CPB Statutory Trust III, for the purpose of issuing trust preferred securities. These subsidiaries are discussed in further detail in Note 9 to the Consolidated Financial Statements.

        The Company's internet site can be found at www.centralpacificbank.com. The Company's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports can be found on the Company's internet site as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.

        The principal office of the Company is located at 220 South King Street, Honolulu, Hawaii 96813, and its telephone number is (808) 544-0500.

Banking Services

        The Bank is a full-service commercial bank that has twenty-four banking offices and seventy-eight ATMs located throughout the State of Hawaii as of December 31, 2003. The Bank's administrative and

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main offices are located in Honolulu, and there are eighteen other branches on the island of Oahu. In addition, the Bank operates two branches on the island of Maui, one branch on the island of Kauai and two branches on the island of Hawaii.

        Through its network of banking offices, the Bank emphasizes personalized services and offers a full range of banking services and products to small- and medium-sized businesses, professionals and individuals in Hawaii.

Market Area and Competition

        The Bank competes in the financial services industry. The Hawaii market consists of six commercial banks, three savings banks, one finance company and numerous credit unions.

        Bancwest Corporation had $38.4 billion in assets at year-end 2003. First Hawaiian Bank, the Hawaii-based subsidiary bank, has approximately 24% of the deposits in the State of Hawaii.

        Bank of Hawaii Corporation had $9.5 billion in total assets at year-end 2003. Bank of Hawaii, its largest subsidiary, has approximately 24% of the deposits in the State of Hawaii.

        American Savings Bank, a subsidiary of Hawaiian Electric Industries, Inc., held $6.5 billion in assets at year-end 2003. American Savings Bank has approximately 15% of the deposits in the State of Hawaii.

        Based on total consolidated assets at December 31, 2003, the Company is the third largest bank holding company in the State of Hawaii and the Bank is the third largest commercial bank in the state maintaining approximately 7% of the deposit market share. With $2.2 billion in assets, the Bank is positioned in the market as a local community bank that is large enough to provide a wide range of banking services, yet small enough to deliver personalized service. In order to compete with the other financial services providers in the State of Hawaii, the Bank principally relies upon local promotional activities, personal relationships with its customers established by officers, directors and employees, and specialized services tailored to meet the needs of the communities it serves. The Bank remains competitive with pricing and superior service levels. The Bank also has a strong capital base that can support expansion opportunities that may better serve the community.

        At year-end 2003, personal income levels in Hawaii were forecasted to rise 5.4% above year-end 2002, similar to the growth rate for the entire United States for the comparable period. Through July 2003, Hawaii's population grew by an estimated 1.4% from the same period a year ago, compared to an U.S. Census Bureau estimated 1.0% growth rate for the entire United States. The state's unemployment rate in December 2003 was 3.8%, compared to the 3.6% reported a year ago. The national unemployment rate was 5.4% at December 2003, compared to 5.7% at December 2002. The top five industries in the state, representing approximately 69.7% of total jobs, include: government, food service and accommodation, retail, healthcare, and professional services. The state's housing market, supported by low mortgage interest rates, continues to show strong growth. Residential home sales in 2003 were $3.5 billion, an increase of 35.1% over 2002. The 2003 median sales price for single family homes and condominiums increased by 14.0% and 12.5%, respectively. In 2003, the number of construction jobs grew by 4.6% and the number of building permits increased by approximately 15.6% over the prior year. The state's tourism industry showed slight improvement over 2002. Total visitor days increased by 3.0% and average length of stay increased 3.7%, despite a slight decrease of 0.7% in total visitor arrivals in 2003. Japanese visitor arrivals were down 10.7% in 2003, compared to the 2.9% decrease reported in 2002.

        The banking and financial services industry in the State of Hawaii generally, and in the Bank's target market areas, is highly competitive. The increasingly competitive environment is a result primarily of changes in regulation, changes in technology and product delivery systems, and the accelerating pace of consolidation among financial services providers. The Bank competes for loans,

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deposits, and customers with other commercial banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market funds, credit unions, and other nonbank financial service providers. Many of these competitors are much larger in total assets and capitalization, have greater access to capital markets and offer a broader range of financial services than the Bank.

Economic Conditions, Government Policies, Legislation, and Regulation

        The Company's profitability, like most financial institutions, is primarily dependent on interest rate differentials. In general, the difference between the interest rates paid by the Bank on interest-bearing liabilities, such as deposits and other borrowings, and the interest rates received by the Bank on the Company's interest-earning assets, such as loans extended to its clients and securities held in its investment portfolio, comprise the major portion of the Company's earnings. These rates are highly sensitive to many factors that are beyond the control of the Company and Bank, such as inflation, recession and unemployment. The impact that future changes in domestic and foreign economic conditions might have on the Company and the Bank cannot be predicted.

        The Company's business is also influenced by the monetary and fiscal policies of the federal government and the policies of regulatory agencies, particularly the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). The Federal Reserve Board implements national monetary policies (with objectives such as curbing inflation and combating recession) through its open-market operations in U.S. Government securities by adjusting the required level of reserves for depository institutions subject to its reserve requirements, and by varying the target federal funds and discount rates applicable to borrowings by depository institutions. The actions of the Federal Reserve Board in these areas influence the growth of bank loans, investments, and deposits and also affect interest rates earned on interest-earning assets and paid on interest-bearing liabilities. The nature and impact on the Company of any future changes in monetary and fiscal policies cannot be predicted.

        From time to time, legislation, as well as regulations, are enacted which have the effect of increasing the cost of doing business, limiting or expanding permissible activities, or affecting the competitive balance between banks and other financial services providers. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies, and other financial institutions and financial services providers are frequently made in the U.S. Congress, in the state legislatures, and before various regulatory agencies. This legislation may change banking statutes and the operating environment of the Company and its subsidiaries in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. The Company cannot predict whether any of this potential legislation will be enacted, and if enacted, the effect that it, or any implementing regulations, would have on the financial condition or results of operations of the Company and its subsidiaries. See "ITEM 1. BUSINESS—Supervision and Regulation."

Supervision and Regulation

General

        Bank holding companies and banks are extensively regulated under both federal and state law. This regulation is intended primarily for the protection of depositors and the deposit insurance fund and not for the benefit of shareholders of the Company. Set forth below is a summary description of the material laws and regulations which relates to the operations of the Company. The description is qualified in its entirety by reference to the applicable laws and regulations.

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The Company

        The Company is a registered bank holding company, and subject to regulation and examination by the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended (the "BHCA"). The Company is required to file with the Federal Reserve Board periodic reports and such additional information as the Federal Reserve Board may require.

        The Federal Reserve Board may require the Company to terminate an activity or terminate control of or liquidate or divest certain subsidiaries, affiliates or investments when the Federal Reserve Board believes the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness or stability of any of its banking subsidiaries. The Federal Reserve Board also has the authority to regulate provisions of certain bank holding company debt, including the authority to impose interest ceilings and reserve requirements on such debt. Under certain circumstances, the Company must file written notice and obtain Federal Reserve Board approval prior to purchasing or redeeming its equity securities.

        Further, the Company is required by the Federal Reserve Board to maintain certain levels of capital. See "ITEM 1. BUSINESS.—Supervision and Regulation—Capital Standards."

        The Company is required to obtain prior Federal Reserve Board approval for the acquisition of more than 5% of the outstanding shares of any class of voting securities or substantially all of the assets of any bank or bank holding company. Prior Federal Reserve Board approval is also required for the merger or consolidation of the company and another bank holding company.

        The Company is prohibited by the BHCA, except in certain statutorily prescribed instances, from acquiring direct or indirect ownership or control of more than 5% of the outstanding voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or furnishing services to its subsidiaries. However, subject to the prior Federal Reserve Board approval, the Company may engage in any, or acquire shares of companies engaged in, activities that the Federal Reserve Board deems to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.

        Under Federal Reserve Board regulations, the Company is required to serve as a source of financial and managerial strength to the Company's subsidiary bank and may not conduct operations in an unsafe or unsound manner. In addition, it is the Federal Reserve Board's policy that a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding company's failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the Federal Reserve Board to be an unsafe and unsound banking practice or a violation of Federal Reserve Board regulations or both.

        The Company is also a "financial institution holding company" within the meaning of Section 412:1-109 of the Hawaii Revised Statutes. As such, the Company and the Bank are subject to examination by, and may be required to file reports with, the Hawaii Commissioner of Financial Institutions (the "Commissioner").

        The Company's securities are registered with the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As such, the Company is subject to the information, proxy solicitation, insider trading, corporate governance, and other requirements and restrictions of the Exchange Act.

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The Bank

        As a Hawaii chartered bank, the Bank is subject to primary supervision, periodic examination, and regulation by the Commissioner and the FDIC, as well as certain regulations promulgated by the Federal Reserve Board. If, as a result of an examination of the Bank, the FDIC should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the Bank operations are unsatisfactory or that the Company is violating or has violated any law or regulation, various remedies are available to the FDIC. Such remedies include the power to enjoin "unsafe or unsound" practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in capital, to restrict the Bank's growth, to assess civil monetary penalties, to remove officers and directors, and ultimately to terminate the Bank's deposit insurance, which for a Hawaii-chartered bank, would result in a revocation of the Bank's charter. The Commissioner separately has many of the same remedial powers.

The Sarbanes-Oxley Act of 2002

        On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002. This new legislation addresses accounting oversight and corporate governance matters, including:

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the creation of a five-member oversight board appointed by the SEC that will set standards for accountants and have investigative and disciplinary powers;



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the prohibition of accounting firms from providing various types of consulting services to public clients and requiring accounting firms to rotate partners among public client assignments every five years;



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increased penalties for financial crimes;



•

expanded disclosure of corporate operations and internal controls and required executive certification of financial presentations;



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increased requirements for board audit committees and their members;



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enhanced controls on, and reporting of, insider trading; and



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statutory separations between investment bankers and analysts.

The new legislation and its implementing regulations will result in increased costs of compliance, including certain outside professional costs.

USA Patriot Act of 2001

        The USA Patriot Act of 2001 and its implementing regulations significantly expanded the anti-money laundering and financial transparency laws, including:

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due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-U.S. persons;



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standards for verifying customer identification at account opening and maintaining expanded records;



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rules to promote cooperation among financial institutions, regulators, and law enforcement entities in identifying parties that may be involved in terrorism or money laundering;



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reports by non-financial businesses filed with the U.S. Treasury Department for cash transactions exceeding $10,000; and

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•

suspicious activities reports by securities brokers and dealers if they believe a customer may be violating U.S. laws and regulations.

Fair and Accurate Credit Transactions Act

        In December 2003, President Bush signed into law the Fair and Accurate Credit Transactions Act ("FACT Act") which sets new obligations for financial firms to help deter identity theft and give consumers more control of their credit data. It also reauthorizes a federal ban on state laws that interfere with corporate credit granting and marketing practices. The FRB and the Federal Trade Commission ("FTC") are required to draft regulations to implement the FACT Act. It is not possible at this time to determine the impact of such regulations that are to be drafted; however, the FRB and FTC recently announced that businesses will have until December 1, 2004 to comply with the new initiatives.

Privacy

        Federal banking rules limit the ability of banks and other financial institutions to disclose non-public information about consumers to nonaffiliated third parties. Pursuant to these rules, financial institutions must provide:

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initial notices to customers about their privacy policies, describing the conditions under which they may disclose nonpublic personal information to nonaffiliated third parties and affiliates;



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annual notices of their privacy policies to current customers; and



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a reasonable method for customers to "opt out" of disclosures to nonaffiliated third parties.

These privacy provisions affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. The Company has implemented its privacy policies in accordance with the law.

        On December 22, 2003, the SEC issued the advance notice of proposed rulemaking along with the federal banking agencies and other government agencies seeking comment on whether they should consider amending current regulations "to allow or require financial institutions to provide alternative types of privacy notices, such as a short privacy notice, that would be easier for consumers to understand." The concept release lists more than 40 questions regarding which the agencies seek comment from the public, organized in the following categories: goals of a privacy notice, elements of a privacy notice, language of a privacy notice, format of a privacy notice, mandatory and permissible aspects of a privacy notice, costs and benefits of a short notice, and other categories.

Interagency Guidance on Response Programs to Protect Against Identity Theft

        On August 12, 2003, the federal bank and thrift regulatory agencies requested public comment on proposed guidance that would require financial institutions to develop programs to respond to incidents of unauthorized access to customer information, including procedures for notifying customers under certain circumstances. The proposed guidance:

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interprets previously issued interagency customer information security guidelines that require financial institutions to implement information security programs designed to protect their customers' information; and



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describes the components of a response program and sets a standard for providing notice to customers affected by unauthorized access to or use of customer information that could result in substantial harm or inconvenience to those customers, thereby reducing the risk of losses due to fraud or identity theft.

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The Company is not able at this time to determine the impact of any such proposed guidance on the Company's financial condition or results of operation.

Dividends and Other Transfers of Funds

        Dividends from the Bank constitute the principal source of income to the Company. The Company is a legal entity separate and distinct from the Bank. The Bank is subject to various statutory and regulatory restrictions on its ability to pay dividends to the Company. Under such restrictions, the amount available for payment of dividends to the Company by the Bank totaled $145.4 million at December 31, 2003. In addition, the Commissioner and the FDIC have the authority to prohibit the Bank from paying dividends, depending upon the Bank's financial condition, if such payment is deemed to constitute an unsafe or unsound practice. Compliance with the capital standards set forth by the FDIC or restrictions that are or may be imposed under the prompt corrective action provisions of federal law could limit the amount of dividends that the Bank or Company may pay. The Commissioner may impose similar limitations on the conduct of Hawaii-chartered banks. See "ITEM 1. BUSINESS—Supervision and Regulation—Capital Standards" and "ITEM 1. BUSINESS—Supervision and Regulation—Prompt Corrective Action and Other Enforcement Mechanisms" for further discussion of restrictions on capital distributions.

Transactions with Affiliates

        The Bank is subject to certain restrictions imposed by federal law on any extensions of credit to, or the issuance of a guarantee or letter of credit on behalf of, any affiliates, the purchase of, or investments in, stock or other securities thereof, the taking of such securities as collateral for loans, and the purchase of assets of any affiliates. Such restrictions prevent any affiliates from borrowing from the Company unless the loans are secured by marketable obligations of designated amounts. Further, such secured loans and investments by the Company to or in any affiliate are limited, individually, to 10.0% of the Company's capital and surplus (as defined by federal regulations), and such secured loans and investments are limited, in the aggregate, to 20.0% of the Company's capital and surplus. Some of the entities included in the definition of an affiliate are parent companies, sister banks, sponsored and advised companies, investment companies whereby the bank or its affiliate serves as investment advisor, and financial subsidiaries of the bank. Additional restrictions on transactions with affiliates may be imposed on the Company under the prompt corrective action provisions of federal law. See "ITEM 1. BUSINESS—Supervision and Regulation—Prompt Corrective Action and Other Enforcement Mechanisms."

Capital Standards

        The federal banking agencies have adopted risk-based minimum capital guidelines intended to provide a measure of capital that reflects the degree of risk associated with a banking organization's operations for both transactions reported on the balance sheet as assets and transactions which are recorded as off-balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off-balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk federal banking agencies, to 100% for assets with relatively high credit risk.

        The risk-based capital ratio is determined by classifying assets and certain off-balance sheet financial instruments into weighted categories, with higher levels of capital being required for those categories perceived as representing greater risk. Under the capital guidelines, a banking organization's total capital is divided into tiers. "Tier I capital" consists of (1) common equity, (2) qualifying noncumulative perpetual preferred stock, (3) a limited amount of qualifying cumulative perpetual preferred stock and (4) minority interests in the equity accounts of consolidated subsidiaries (including trust-preferred securities), less goodwill and certain other intangible assets. Not more than 25% of

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qualifying Tier I capital may consist of trust-preferred securities. "Tier II capital" consists of hybrid capital instruments, perpetual debt, mandatory convertible debt securities, a limited amount of subordinated debt, preferred stock that does not qualify as Tier I capital, a limited amount of the allowance for loan and lease losses and a limited amount of unrealized holding gains on equity securities. "Tier III capital" consists of qualifying unsecured subordinated debt. The sum of Tier II and Tier III capital may not exceed the amount of Tier I capital.

        The guidelines require a minimum ratio of qualifying total capital to risk-adjusted assets of 8% and a minimum ratio of Tier 1 capital to risk-adjusted assets of 4%. In addition to the risk-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier 1 capital to total assets, referred to as the leverage ratio. For a banking organization rated in the highest of the five categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier 1 capital to total assets must be 3%. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios. The Company's and Bank's capital ratios compared to the minimum regulatory capital requirements as of December 31, 2003 are discussed in Note 24 to the Consolidated Financial Statements.

        The Federal Reserve has not issued guidance regarding the possible disqualification or limitation of trust preferred securities from Tier 1 capital status notwithstanding recently issued accounting pronouncements impacting trust preferred securities (see Note 25 to the Consolidated Financial Statements). To the extent that these capital instruments are not allowed to be included as Tier 1 capital, the capital position of the Bank could be adversely affected. Trust-preferred securities currently make up 21.4% of the Bank's Tier 1 capital.

Predatory Lending

        The term "predatory lending," much like the terms "safety and soundness" and "unfair and deceptive practices," is far-reaching and covers a potentially broad range of behavior. As such, it does not lend itself to a concise or a comprehensive definition. But typically predatory lending involves at least one, and perhaps all three, of the following elements:

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making unaffordable loans based on the assets of the borrower rather than on the borrower's ability to repay an obligation ("asset-based lending");



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inducing a borrower to refinance a loan repeatedly in order to charge high points and fees each time the loan is refinanced ("loan flipping"); and



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engaging in fraud or deception to conceal the true nature of the loan obligation from an unsuspecting or unsophisticated borrower.

        Federal Reserve Board regulations aimed at curbing such lending significantly widened the pool of high-cost home-secured loans covered by the Home Ownership and Equity Protection Act of 1994, a federal law that requires extra disclosures and consumer protections to borrowers. The following triggers coverage under the Act:

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interest rates for first lien mortgage loans in excess of 8 percentage points above comparable Treasury securities,



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subordinate-lien loans of 10 percentage points above Treasury securities, and



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fees such as optional insurance and similar debt protection costs paid in connection with the credit transaction, when combined with points and fees if deemed excessive.

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In addition, the regulation bars loan flipping by the same lender or loan servicer within a year. Lenders also will be presumed to have violated the law—which says loans shouldn't be made to people unable to repay them—unless they document that the borrower has the ability to repay. Lenders that violate the rules face cancellation of loans and penalties equal to the finance charges paid.

        The Company does not expect these rules and potential state action in this area to have a material impact on the Company or the Bank's financial condition or results of operation.

Prompt Corrective Action and Other Enforcement Mechanisms

        Federal banking agencies possess broad powers to take corrective and other supervisory action to resolve the problems of insured depository institutions, including but not limited to those institutions that fall below one or more prescribed minimum capital ratios. Each federal banking agency has promulgated regulations defining the following five categories in which an insured depository institution will be placed, based on its capital ratios: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. At December 31, 2003, the Bank exceeded the required ratios for classification as "well capitalized."

        An institution that, based upon its capital levels, is classified as well capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions. The federal banking agencies, however, may not treat a significantly undercapitalized institution as critically undercapitalized unless its capital ratio actually warrants such treatment.

        In addition to measures taken under the prompt corrective action provisions, commercial banking organizations may be subject to potential enforcement actions by the federal regulators for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation, or any condition imposed in writing by the agency or any written agreement with the agency. Finally, pursuant to an interagency agreement, the FDIC can examine any institution that has a substandard regulatory examination score or is considered undercapitalized—without the express permission of the institution's primary regulator.

Safety and Soundness Standards

        The federal banking agencies have adopted guidelines designed to assist the federal banking agencies in identifying and addressing potential safety and soundness concerns before capital becomes impaired. The guidelines set forth operational and managerial standards relating to: (i) internal controls, information systems and internal audit systems, (ii) loan documentation, (iii) credit underwriting, (iv) asset growth, (v) earnings, and (vi) compensation, fees and benefits. In addition, the federal banking agencies have also adopted safety and soundness guidelines with respect to asset quality and earnings standards. These guidelines provide six standards for establishing and maintaining a system to identify problem assets and prevent those assets from deteriorating. Under these standards, an insured depository institution should: (i) conduct periodic asset quality reviews to identify problem assets, (ii) estimate the inherent losses in problem assets and establish reserves that are sufficient to absorb estimated losses, (iii) compare problem asset totals to capital, (iv) take appropriate corrective action to resolve problem assets, (v) consider the size and potential risks of material asset concentrations, and (vi) provide periodic asset quality reports with adequate information for management and the board of directors to assess the level of asset risk. These guidelines also set forth standards for evaluating and monitoring earnings and for ensuring that earnings are sufficient for the maintenance of adequate capital and reserves.

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Premiums for Deposit Insurance

        Through the Bank Insurance Fund ("BIF"), the FDIC insures the Bank's customer deposits up to prescribed limits for each depositor. The amount of FDIC assessments paid by each BIF member institution is based on its relative risk of default as measured by regulatory capital ratios and other factors. Specifically, the assessment rate is based on the institution's capitalization risk category and supervisory subgroup category. An institution's capitalization risk category is based on the FDIC's determination of whether the institution is well capitalized, adequately capitalized or less than adequately capitalized. An institution's supervisory subgroup category is based on the FDIC's assessment of the financial condition of the institution and the probability that FDIC intervention or other corrective action will be required.

        FDIC-insured depository institutions pay an assessment rate equal to the rate assessed on deposits insured by the Savings Association Insurance Fund ("SAIF").

        The assessment rate currently ranges from zero to 27 cents per $100 of domestic deposits. The Bank's current assessment rate is zero. The FDIC may increase or decrease the assessment rate schedule on a semi-annual basis. The BIF is required by law to maintain a minimum ratio of 1.25% of insured deposits. Due to continued growth in deposits and some recent bank failures, the BIF is nearing its minimum ratio of 1.25% of insured deposits as mandated by law. If the ratio drops below 1.25%, it is likely the FDIC will be required to assess premiums on all banks. Any increase in assessments or the assessment rate could have a material adverse effect on the Company's earnings, depending on the amount of the increase. Furthermore, the FDIC is authorized to raise insurance premiums under certain circumstances.

        The FDIC is authorized to terminate a depository institution's deposit insurance upon a finding by the FDIC that the institution's financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order or condition enacted or imposed by the institution's regulatory agency. The termination of deposit insurance for one or more of a company's subsidiary depository institutions could have a material adverse effect on the company's earnings, depending on the collective size of the particular institutions involved.

        All FDIC-insured depository institutions must pay an annual assessment to provide funds for the payment of interest on bonds issued by the Financing Corporation, a federal corporation chartered under the authority of the Federal Housing Finance Board. The bonds, commonly referred to as FICO bonds, were issued to capitalize the Federal Savings and Loan Insurance Corporation. The FICO assessment rates for the fourth quarter of fiscal 2003 were 1.54 cents for each $100 of assessable deposits. The FICO assessments are adjusted quarterly to reflect changes in the assessment bases of the FDIC's insurance funds and do not vary depending on a depository institution's capitalization or supervisory evaluations.

Interstate Banking and Branching

        Banks have the ability, subject to certain state restrictions, to acquire by acquisition or merger branches outside its home state. The establishment of new interstate branches is also possible in those states with laws that expressly permit it. Interstate branches are subject to certain laws of the states in which they are located. Competition may increase further as banks branch across state lines and enter new markets.

Community Reinvestment Act and Fair Lending Developments

        The Bank is subject to certain fair lending requirements and reporting obligations involving home mortgage lending operations and Community Reinvestment Act ("CRA") activities. The CRA generally

11

requires the federal banking agencies to evaluate the record of a financial institution in meeting the credit needs of its local communities, including low- and moderate-income neighborhoods. A bank may be subject to substantial penalties and corrective measures for a violation of certain fair lending laws. The federal banking agencies may take compliance with such laws and CRA obligations into account when regulating and supervising other activities. Furthermore, financial institutions are subject to annual reporting and public disclosure requirements for certain written agreements that are entered into between insured depository institutions or their affiliates and non-governmental entities or persons that are made pursuant to, or in connection with, the fulfillment of the CRA.

        On February 6, 2004, the federal banking agencies proposed amendments to the CRA regulations that would:

•

increase the definition of "small institution" from total assets of $250 million to $500 million, without regard to any holding company; and



•

take into account abusive lending practices by a bank or its affiliates in determining a bank's CRA rating.

        A bank's compliance with its CRA obligations is based upon a performance-based evaluation system that bases CRA ratings on an institution's lending service and investment performance. When a bank applies for approval to acquire another bank, the banking regulators will review the assessment of each subsidiary bank of the applicant bank holding company, and such records may be the basis for denying the application. The Bank's most recent CRA exam on August 23, 2002 resulted in a rating of satisfactory.

Federal Reserve System

        The Federal Reserve Board requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts (primarily checking, NOW, and Super NOW checking accounts) and non-personal time deposits. At December 31, 2003, the Bank was in compliance with these requirements.

Nonbank Subsidiaries

        The Company's non-bank subsidiaries, CPF Trust I, CPF Trust II, and CPF Statutory Trust III, are subject to the laws and regulations of both the federal government and the various states in which they conduct business.

Advising Funds

        On January 5, 2004, the Federal banking agencies jointly issued a policy statement on banks and thrifts providing financial support to funds advised by the banking organizations or their affiliates. The policy is addressed primarily to those financial institutions that advise investment funds—including mutual funds, alternative strategy funds, collective investment funds, and other such funds—where the banking organization, its subsidiaries or its affiliates are the investment adviser and receive a fee for their investment advice.

        The policy statement alerts bank management to adopt appropriate policies and procedures designed to ensure that the bank will not:

•

inappropriately place its resources and reputation at risk for the benefit of the funds' investors and creditors;



•

violate applicable legal requirements, including the limits and requirements regarding transactions with affiliates, or any special supervisory condition imposed by the banking agencies; or

12

•

create an expectation that the bank will prop up the advised fund.

        Further, a banking organization is expected to maintain appropriate controls over investment advisory activities that include:

•

establishing alternative sources of emergency support from the parent holding company, non-bank affiliates or external third parties prior to seeking support from the bank;



•

instituting effective policies and procedures for identifying potential circumstances triggering the need for financial support and the process for obtaining such support;



•

implementing effective risk management;.



•

implementing policies and procedures to ensure compliance with disclosure and advertising requirements to clearly differentiate the investments in advised funds from obligations of the bank or insured deposits; and



•

ensuring proper regulatory reporting of contingent liabilities arising out of its investment advisory activities.

        The Company is evaluating the policy statement and will take appropriate actions to comply.

Employees

        At February 27, 2004, the Company employed 506 persons, 468 on a full-time basis and 38 on a part-time basis. The Company is not a party to any collective bargaining agreement.

Factors That May Affect Future Financial Results and Operations or the Value of Company's Common Stock.

        In addition to the other information contained in this report, the following risks may affect the Company. If any of these risks occurs, business, financial condition or operating results of the Company could be adversely affected.

        Changes in market interest rates may adversely affect performance.    The Company's earnings are affected by changing interest rates. Changes in interest rates affect the demand for new loans, the credit profile of existing loans, the rates received on loans and securities and rates paid on deposits and borrowings. The relationship between the rates received on loans and securities and the rates paid on deposits and borrowings is known as interest rate spread. Given the Company's current volume and mix of interest-bearing liabilities and interest-earning assets, its interest rate spread could be expected to increase during times of rising interest rates and, conversely, to decline during times of falling interest rates. Although the Company believes its current level of interest rate sensitivity is reasonable, significant fluctuations in interest rates may have an adverse effect on the Company's business, financial condition and results of operations.

        Deterioration of economic conditions in Hawaii could adversely affect the Company's loan portfolio and reduce the demand for the Company's services.    The Company focuses its business primarily in Hawaii. A deterioration in economic conditions in its market area could have a material adverse impact on the quality of its business. Factors which could impact the Hawaii economy include: declines in the tourism and airline industries, declines in the U.S. mainland and Japan economies, and consequences from national and international political events. An economic slowdown in Hawaii could have the following consequences, any of which could reduce the Company's net income:

•

loan delinquencies may increase;



•

problem assets and foreclosures may increase;



•

claims and lawsuits may increase;

13

•

demand for the Company's products and services may decline; and



•

collateral for loans may decline in value below the principal amount owed by the borrower.

        If a significant number of borrowers, guarantors and related parties fail to perform as required by the terms of their loans, the Company will sustain losses.    A significant source of risk arises from the possibility that losses will be sustained if a significant number of the Company's borrowers, guarantors and related parties fail to perform in accordance with the terms of their loans. The Company has adopted underwriting and credit monitoring procedures and credit policies that management believes are appropriate to minimize this risk. Such policies and procedures include establishing and reviewing the allowance for loan losses, assessing the likelihood of nonperformance, tracking loan performance and diversifying the Company's credit portfolio. These policies and procedures, however, may not prevent unexpected losses that could materially adversely affect the Company's results of operations.

        Loan loss allowances may not cover actual loan losses.    If the Company's actual loan losses exceed the amount the Company has in the allowance for probable losses, it will hurt the Company's business. The Company attempts to limit the risk that borrowers will fail to repay loans by carefully underwriting the loans. Losses nevertheless occur. The Company creates allowances for estimated loan losses in its accounting records. The Company bases these allowances on estimates of the following:

•

industry standards;



•

historical experience with loans;



•

evaluation of current economic conditions;



•

regular reviews of the quality, mix and size of the overall loan portfolio;



•

regular reviews of delinquencies; and



•

the quality of the collateral underlying loans.

        An increase in non-performing assets would reduce the Company's income and increase its expenses.    If the level of non-performing assets rises in the future, it could adversely affect the Company's operating results. Non-performing assets are mainly loans on which the borrowers are not making their required payments. Non-performing assets also include loans that have been restructured to permit the borrower to have smaller payments and real estate that has been acquired through foreclosure of unpaid loans. To the extent that assets are non-performing, the Company has less cash available for lending and other activities.

        If the Company loses key employees, business may suffer.    If the Company lost key employees temporarily or permanently, it could hurt business. The Company could be particularly hurt if its key employees went to work for competitors. The Company's future success depends on the continued contributions of existing senior management personnel.

        Governmental regulation may impair the Company's operations or restrict its growth.    The Company and the Bank are subject to significant governmental supervision and regulation. These regulations are intended primarily for the protection of depositors. Statutes and regulations affecting the Company's business may be changed at any time, and the interpretation of these statutes and regulations by examining authorities may also change. Within the last several years Congress and the President have passed and enacted significant changes to these statutes and regulations. There can be no assurance that such changes to the statutes and regulations or in their interpretation will not adversely affect the Company's business. In addition to governmental supervision and regulation, the Bank is subject to changes in other federal and state laws, including changes in tax laws, which could materially affect the banking industry. The Company is subject to the rules and regulations of the Federal Reserve Board. If the Company fails to comply with federal and state bank regulations, the

14

regulators may limit the Company's activities or growth, fine or ultimately put the Company out of business. Banking laws and regulations change from time to time. Bank regulations can hinder the Company's ability to compete with financial services companies that are not regulated or are less regulated. Federal and state bank regulatory agencies regulate many aspects of the Company's operations. These areas include:

•

the capital that must be maintained;



•

the kinds of activities that can be engaged in;



•

the kinds and amounts of investments that can be made;



•

the locations of offices;



•

how much interest can be paid on demand deposits;



•

insurance of deposits and the premiums that must be paid for this insurance; and



•

how much cash must set be aside as reserves for deposits.

        Competition may adversely affect the Company's performance.    The financial services business in the Company's market areas is highly competitive. It is becoming increasingly competitive due to changes in regulation, technological advances, and the accelerating pace of consolidation among financial services providers. The Bank faces competition both in attracting deposits and in making loans. The Bank competes for loans principally through the interest rates and loan fees the Bank charges and the efficiency and quality of services the Bank provides. Increasing levels of competition in the banking and financial services businesses may reduce the Company's market share or cause the prices it charges for its services to fall. The Company's results may differ in future periods depending upon the nature or level of competition.

        The Company's stock price may be volatile, which could result in substantial losses for the Company's shareholders.    The market price of the Company's common stock could be subject to wide fluctuations in response to a number of factors, including:

•

the amount of common stock outstanding and its trading volume;



•

actual or anticipated changes in the Company's future financial performance;



•

changes in financial estimates of the Company by securities analysts;



•

competitive developments, including announcements by the Company or competitors of new products or services or significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;



•

the operating and stock performance of competitors;



•

changes in interest rates; and



•

additions or departures of key personnel.

ITEM 2. PROPERTIES

        The Bank holds title to the land and building in which the Company's and Bank's headquarters, Kaimuki branch office, Hilo branch office and Kailua-Kona branch office are located. The Bank also holds title to the buildings in which the Moiliili branch office and operations center are located, and a portion of land on which the Moiliili branch office is located. The remaining land on which the Moiliili branch and all of the land on which the operations center are located are leased.

        All other Bank properties are occupied under leases that expire on various dates through 2038. These leases generally contain renewal options for periods ranging from 5 to 15 years. For the year

15

ended December 31, 2003, net rent expense under these leases aggregated $3.7 million. For additional information relating to lease rental expense and commitments, see Note 15 to the Consolidated Financial Statements.

ITEM 3. LEGAL PROCEEDINGS

        Please refer to "ITEM 7. MANAGEMENT'S DISUCSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—Proposed Acquisition of CB Bancshares, Inc." in Part I, Item 7, for information relating to legal proceedings involving matters related to the proposed business combination with CBBI. In addition, the Company is a party to ordinary routine litigation incidental to its business, none of which is considered likely to have a materially adverse effect on the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters were submitted to the Company's shareholders for a vote during the fourth quarter of 2003.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

        The Company's common stock is traded on the New York Stock Exchange under the ticker symbol "CPF". As of December 31, 2003, there were 1,940 shareholders of record, excluding individuals and institutions for which shares were held in the names of nominees and brokerage firms.

        The following table sets forth information on the range of high and low sales prices of the Company's common stock and cash dividends declared as of the dates indicated.

Market Prices and Cash Dividends Declared

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ITEM 6. SELECTED FINANCIAL DATA

(1)

Held-to-maturity securities at amortized cost, available-for-sale securities at fair value.

(2)

Noninterest-bearing demand, interest-bearing demand and savings deposits, and time deposits under $100,000.

(3)

Restated to reflect a two-for-one stock split effected November 8, 2002.

(4)

Efficiency ratio is derived by dividing other operating expense by net operating revenue (net interest income plus other operating income before securities transactions).

(5)

Computed on a taxable equivalent basis.

(6)

Nonperforming assets include nonaccrual loans and other real estate.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Critical Accounting Estimates

        The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires that management make certain judgments and use certain estimates and assumptions that affect amounts reported and disclosures made. Accounting estimates are deemed critical when a different estimate could have reasonably been used or where changes in the estimate are reasonably likely to occur from period to period and would materially impact the Company's consolidated financial statements as of or for the periods presented. Management has discussed the development and selection of the critical accounting estimates discussed below with the audit committee of the Board of Directors, and the audit committee has reviewed the accompanying disclosures.

        Allowance for Loan Losses.    The Company maintains the allowance for loan losses ("Allowance") at an amount sufficient to absorb losses inherent in the Company's loan portfolio based on a projection of probable net loan charge-offs. For loans classified as impaired, an estimated impairment loss is calculated. To estimate net loan charge-offs on other loans, the Company performs a migration analysis and considers other relevant economic conditions and borrower-specific risk characteristics. A migration analysis is a technique used to estimate the probability that a loan will progress through various grades of loan quality and ultimately result in a loan charge-off based on historical loan loss experience. Estimated loss rates are determined by loan category and risk profile, and an overall required Allowance is calculated. Based on management's estimate of the level of Allowance required, a provision for loan losses ("Provision") is recorded to maintain the Allowance at an appropriate level. Since the Company cannot predict with certainty the amount of loan charge-offs that will be incurred, and because the eventual level of loan charge-offs are impacted by numerous conditions beyond the control of the Company, a range of loss estimates could reasonably have been used to determine the Allowance and Provision. For example, based on the results of the migration analysis, estimated loss rates of 0.29% to 0.32% could have been applied to residential mortgage loans. Management applied the highest estimated loss rate within the range, or 0.32%, and followed this approach for all loan categories. Applying the lowest estimated loss rates to all loan categories could have resulted in a $3.0 million reduction in Allowance and Provision.

        Defined Benefit Retirement Plan.    Defined benefit plan obligations and related assets of defined benefit retirement plans are presented in Note 13 to the Consolidated Financial Statements. Plan assets, which consist primarily of marketable equity and debt securities, are typically valued using market quotations. Plan obligations and the annual pension expense are determined by independent actuaries through the use of a number of assumptions. Key assumptions in measuring the plan obligations include the discount rate and the expected long-term rate of return on plan assets. In determining the discount rate, the Company utilizes the yield on high-quality, fixed-income investments currently available with maturities corresponding to the anticipated timing of the benefit payments. Asset returns are based upon the anticipated average rate of earnings expected on the invested funds of the plans. At December 31, 2003, the Company used a weighted-average discount rate of 6.25% and an expected long-term rate of return on plan assets of 7.00%, which affected the amount of pension liability recorded as of year-end 2003 and the amount of pension expense to be recorded in 2004. At December 31, 2002, a weighted-average discount rate of 6.75% and an expected long-term rate of return on plan assets of 9.00% were used in determining the pension liability recorded as of year-end 2002 and the amount of pension expense recorded in 2003. For both the discount rate and the asset return rate, a range of estimates could reasonably have been used which would affect the amount of pension expense and pension liability recorded. An increase in the discount rate or asset return rate would reduce pension expense in 2004, while a decrease in the discount rate or asset return rate would have the opposite effect. A 0.25% change in the discount rate assumption would impact 2004 pension

18

expense by $67,000 and year-end 2003 pension liability by $750,000, while a 0.25% change in the asset return rate would impact 2004 pension expense by $53,000.

Executive Summary

        The year 2003 presented both significant opportunities and successes as well as significant challenges to the Company. The Company and the Bank posted another year of record earnings in 2003 and experienced moderate balance sheet growth. The Company commenced the year with the listing of its common stock on the New York Stock Exchange ("NYSE") and celebrated the event with a market-closing bell-ringing appearance at the NYSE. In April 2003, the Company's shareholders approved the Company's name change from "CPB Inc." to "Central Pacific Financial Corp.". The new name reflects the broader scope of financial services provided to customers and is a more descriptive and recognizable moniker. In keeping with its new name, the Company expanded its menu of financial services offerings with the establishment of a new wealth management division. This new division added asset management services to our existing trust and non-deposit investment services array. The Company has assembled a strong team of dedicated and experienced financial services professional by complementing its experienced banking staff with key hires in its commercial banking and wealth management divisions. Evidencing the success of these efforts, the Company surpassed its loan growth goals in 2003, and posted increases in deposits and all major categories of other operating income, exclusive of the gain on curtailment of pension obligation recognized in 2002. Following an 87% increase in the Company's common stock price in 2002, it increased its dividend rate by 60% in 2003 and achieved a 9.4% increase in common stock price in 2003, resulting in an 11.8% total return to shareholders.

        While enjoying these successes, the Company also faced a number of challenges in 2003. The historically low market interest rate environment created pressure on the Company's net interest income, its primary source of earnings, as loan and investment yields declined at a faster rate than deposit and borrowing rates. Competition within the State of Hawaii has been fierce, with three large financial institutions and numerous smaller banks, thrifts and credit unions striving for growth, resulting in local competitive pricing pressures on top of national market-based interest rate environment. Credit quality, another key performance factor, has been strong during the past year. While net charge-offs and nonperforming assets remained at relatively low levels throughout the year, gross loan losses and year-end nonperforming loans reflected an increase over 2002 levels. Since the public announcement in April 2003 of the Company's desire and intention to acquire CBBI, the two companies have been engaged in contentious proceedings. While the Company continues to believe that the proposed combination would produce positive results for all of its constituencies, including shareholders, customers, employees and the community, the consummation of the proposed combination is subject to a number of conditions. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—Proposed Acquisition of CB Bancshares, Inc." for further discussion of this effort.

        The Company's strategic plan for 2004 and beyond is focused on growth and diversification of earnings. The Company plans to open at least two new branches in 2004, it added dedicated financial services professionals to serve the small business and residential mortgage markets, and it expects the wealth management division to generate at least $1 million in additional non-interest income during 2004. With these investments, coupled with its existing financial services network of people and branches, the Company believes that it is well positioned to achieve continued market share and revenue growth in 2004 and into the future. At the same time, the cost of its investments, the interest rate environment and the competitive landscape will likely result in that growth occurring at lower profit margins, resulting in modest improvement in earnings in 2004.

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Overview of Results

        Net income in 2003 of $33.9 million increased by $0.7 million or 2.0% over the $33.3 million earned in 2002, which increased by $4.6 million or 15.9% over the $28.7 million earned in 2001. Diluted earnings per share of $2.07 in 2003 increased by 1.5% over 2002's earnings of $2.04 per share, which increased by 19.0% over 2001's $1.72 earnings per share. Cash dividends declared in 2003 of $0.64 per share increased by 60.0% over the $0.40 per share declared in 2002, which increased by 17.6% over the $0.34 per share declared in 2001. Return on average assets was 1.64% in 2003, a decrease from 1.74% in 2002, which compared to 1.60% in 2001. Return on average equity of 18.33% in 2003 also decreased from 20.55% in 2002, which increased from 19.34% in 2001. The Company's efficiency ratio, a common banking measure of productivity where a lower ratio indicates a higher level of profitability, improved to 52.97% in 2003 from 53.02% in 2002 and 55.59% in 2001. The significant items affecting the comparability of the years' performance include $1.3 million in expenses incurred in 2003 related to the proposed acquisition of CBBI, a $1.4 million gain on curtailment of pension obligation recognized in 2002, and a $3.8 million federal income tax benefit recognized in 2001. 2003's earnings improvement reflected double-digit loan growth, offset by a decline in net interest margin, a low level of Provision, and moderate increases in other operating income and other operating expenses. The earnings improvement in 2002 can be attributed to double-digit deposit growth, an unusually high net interest margin and a low level of Provision. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION—Results of Operations" for further discussion of the earnings for 2001, 2002 and 2003.

        Total assets of $2.17 billion at December 31, 2003 increased by $141.4 million or 7.0% over the $2.03 billion at year-end 2002. Loans totaled $1.44 billion at year-end 2003, an increase of $153.3 million or 11.9% over 2002. Increases in residential mortgage loans were fueled by heavy refinancing activity during the year as mortgage interest rates dropped to historically low levels. Commercial mortgage lending also increased due to increased construction activity brought about by the low interest rate environment and improving economic conditions. Total deposits of $1.75 billion increased by $112.2 million or 6.8% over the $1.64 billion held at year-end 2002 reflecting increases in business checking accounts and personal savings accounts. Shareholders' equity of $194.6 million increased by $21.2 million or 12.2%. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION—Financial Condition" for further discussion of the key components of the balance sheet and changes in assets, liabilities and shareholders' equity.

Proposed Acquisition of CB Bancshares, Inc.

        On March 17, 2003, the Company presented to senior management of CBBI a proposal to merge the Company and CBBI, and shortly thereafter sent CBBI a letter reiterating the terms of its offer. On April 16, 2003, the Company sent CBBI a new letter setting forth the terms of its offer to merge with CBBI, which were substantially equivalent to the terms in its March offer, and publicly announced that it had made an offer to CBBI that had a value of $70 per share of CBBI common stock (or $67.34 as adjusted for the 10% stock dividend CBBI announced) based on the closing price of the Company's common stock on April 14, with 30% of the consideration consisting of cash and 70% consisting of the Company's common stock. On May 4, 2003, CBBI announced that its board of directors rejected the Company's offer.

        On May 9, 2003, the Company withdrew its original offer and presented a new offer to CBBI with a value of $70.10 per CBBI share (or $63.73 as adjusted for the dividend, consisting of 1.6005 shares of the Company's common stock and $22.27 in cash) based on the closing price of the Company's common stock on May 8, with 35% of the consideration consisting of cash and 65% consisting of the Company's common stock. On May 12, 2003, CBBI announced that its board of directors rejected the Company's new offer.

20

        The Company filed an application and notice with the Federal Reserve Board for approval to acquire control of a majority of the outstanding shares of CBBI common stock. The Federal Reserve Board approved the Company's application, subject to certain restrictions, on December 15, 2003, while the U.S. Department of Justice confirmed that the proposed transaction would not have a significantly adverse effect on competition. As the Federal Reserve Board's approval is scheduled to expire on March 15, 2004, the Company submitted a request on March 1, 2004 for an extension of the deadline for consummation of the proposed transaction. The Company also filed an application to acquire control of CBBI with the Hawaii Commissioner of Financial Institutions, who approved the Company's application on February 3, 2004.

        The CBBI board of directors has taken a number of actions to resist the proposed business combination. The Company is continuing to pursue a business combination with CBBI because the Company believes such a combination will benefit its shareholders and CBBI's shareholders, as well as customers and employees of both companies and the State of Hawaii in general.

        The consummation of the proposed business combination is subject to numerous conditions including, without limitation, satisfaction of the conditions applicable to the regulatory approvals, receipt of required approval of the shareholders of both the Company and CBBI, receipt of either approval of the Company's acquisition of CBBI common stock by CBBI shareholders or approval or exemption of the Company's acquisition by CBBI's board of directors under the Hawaii Control Share Acquisitions statute (or inapplicability or invalidity of that statute), effectiveness of the Company's registration statement on Form S-4, CBBI's 1989 Rights Agreement not having been triggered before August 4, 2003, and inapplicability of CBBI's 2003 Rights Agreement to the transaction.

        Further information relating to the Company's proposed business combination with CBBI can be found in the registration statement on Form S-4, File No. 333-104783, filed by the Company with the SEC on April 28, 2003, and amendments thereto filed on May 5, 2003, May 9, 2003, July 17, 2003, September 5, 2003 and September 19, 2003, respectively (the "Registration Statement").

        CBBI and the Company are parties to ongoing litigation in connection with the proposed business combination. In connection with this litigation, CBBI and the Company have taken the actions described below.

Central Pacific Financial Corp. v. CB Bancshares, Inc. et al.: Civil No. 03-1-1014 VSM

        On May 14, 2003, the Company filed a complaint in the First Circuit of Hawaii against CBBI seeking (i) a declaration that a meeting of CBBI's shareholders called for May 28, 2003 was improper and violated the Hawaii Control Share Acquisition Statute (the "HCSAS"), (ii) that CBBI be enjoined from soliciting or distributing proxy statements in preparation for such meeting, and (iii) that CBBI be enjoined from holding the May 28 meeting.

        By stipulation dated June 25, 2003, this complaint was withdrawn with prejudice.

        On May 20, 2003, prior to the Company's withdrawing its complaint, CBBI filed an answer and counterclaims to the Company's May 14, 2003 complaint. CBBI's counterclaims assert that the Company violated the HCSAS or CBBI bylaws by: (i) entering into a voting agreement with a third party; (ii) entering into that agreement less than 30 days prior to the May 28, 2003 shareholders' meeting; (iii) seeking to cancel the May 28, 2003 meeting and schedule a new meeting; and (iv) noticing the new meeting for June 26, 2003.

        In addition to its counterclaims, on July 21, 2003, CBBI filed a complaint against the Company in the First Circuit of Hawaii. This complaint was largely duplicative of the counterclaims that CBBI filed on May 20, 2003 that contend that the Company violated the HCSAS by entering into a voting agreement with a third party, although the complaint added allegations that the Company had entered into voting agreements with certain other, unnamed shareholders as well. As in the counterclaims,

21

CBBI sought declaratory and injunctive relief to enforce the sanctions in the HCSAS, including an order directing that: (i) the voting rights and transferability of the CBBI shares held by the Company, the third party and the other CBBI shareholders who allegedly entered into agreements with the Company be suspended for one year; and (ii) the CBBI shares held by these entities be subject to redemption at book value.

        On August 18, 2003, the Company filed motions pursuant to Haw. R. Civ. P. 12(c) and 12(b)(6), respectively, for judgment on the pleadings on CBBI's May 20, 2003 counterclaims and to dismiss CBBI's July 21, 2003 complaint with prejudice. These motions came on for hearing on September 29, 2003. The motion for judgment on the pleadings on CBBI's May 20, 2003 counterclaims was denied. The motion to dismiss CBBI's July 21, 2003 complaint was granted but without prejudice for CBBI to amend its counterclaim to reflect the claims in the July 21, 2003 complaint.

        Pursuant to the court's September 29, 2003 ruling, CBBI did file an amended counterclaim on October 31, 2003 to reflect the claims that it had made in its July 21, 2003 complaint. The Company filed a counterclaim to this counterclaim on December 5, 2003 which, as amended on December 18, 2003, alleges that CBBI: (i) tortiously interfered with the Company's agreement with a CBBI shareholder to cooperate with the Company, and (ii) unlawfully sought to buy votes by threatening to redeem its shareholders' shares if they did not vote with CBBI and against the Company's proposal.

        The parties are currently in discovery on this action.

Central Pacific Financial Corp. v. CB Bancshares, Inc. et al.: Civil No. 1560-07 VSM

        On July 30, 2003, the Company filed a complaint in the First Circuit of Hawaii against CBBI and its board of directors ("the "CBBI Board") seeking declaratory and injunctive relief with respect to certain aspects of CBBI's "poison pill" rights agreement and a recent bylaw amendment. The Company alleges that CBBI's poison pill violates Hawaii law and the CBBI Board's fiduciary duties in three respects: First, the term "Person" in the poison pill is broadly defined to include "without limitation, an unincorporated group of person who, by formal or informal agreement or arrangement (whether or not in writing), have embarked on a common purpose or act." When coupled with other portions of the poison pill, this expansive definition gives the CBBI Board the ability to trigger the exercise of the poison pill's rights against a broad spectrum of CBBI's shareholders, not just a potential acquirer. Second, the poison pill contains a "dead hand" provision, which allows only the current directors of CBBI or their designated successors to redeem rights issued under the poison pill. Third, CBBI has amended its poison pill so that the rights may be triggered by the Company receiving "agent designations" that give the Company the right to use shares owned by other shareholders to call, but not vote at, a special shareholders' meeting.

        In addition, the Company alleges that a bylaw that was amended on July 23, 2003 violated Hawaii law and the CBBI Board's fiduciary duties. The bylaw was amended to give the CBBI Board the power to delay a duly-called special shareholders' meeting for 120 days.

        The parties are currently in discovery on this action.

        As of December 31, 2003, the Company capitalized merger-related costs totaling $9.3 million. This amount is reflected as a component of other assets on the consolidated balance sheet. In the event the proposed merger does not occur, all capitalized costs will be expensed. For the year ended December 31, 2003, merger-related expenses totaled $1.3 million and are reflected as a component of other operating expense on the consolidated statement of income.

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Results of Operations

Net Interest Income

        Table 1 sets forth information concerning average interest earning assets and interest-bearing liabilities and the yields and rates thereon. Table 2 presents an analysis of changes in components of net interest income between years. Interest income, which includes loan fees, and resultant yield information presented in the tables and discussed in this section are expressed on a taxable equivalent basis using an assumed income tax rate of 35%.

Table 1. Average Balances, Interest Income and Expense, Yields and Rates (Taxable Equivalent)

(1)

At amortized cost.

(2)

Includes nonaccrual loans.

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Table 2. Analysis of Changes in Net Interest Income (Taxable Equivalent)

        Net interest income, which is the Company's primary source of earnings, totaled $92.1 million in 2003, an increase of $1.5 million or 1.6% over the $90.7 million recognized in 2002, which increased by $10.9 million or 13.6% over the $79.8 million in 2001. The increases in net interest income were due to increases in average loan balances in 2003 and investment securities in 2002 and declines in average rates on interest-bearing liabilities in both 2003 and 2002. During 2003, market interest rates declined to historically low levels. The combination of market interest rate movements and competitive pricing within the local banking arena allowed the Bank to reduce the interest rates paid on deposits but also contributed to a decline in loan yields.

        Interest income of $112.3 million in 2003 decreased by $7.8 million or 6.5% from $120.1 million in 2002, which decreased by $11.1 million or 8.4% from $131.2 million in 2001. As depicted in Table 2, the net decrease in interest income in both 2003 and 2002 was due to incremental interest income attributable to increased volumes offset by the impact of declining yields. Average interest earning assets of $1.92 billion in 2003 increased by $147.9 million or 8.3%, including a $89.1 million increase in average loans and a $85.7 million or 19.0% increase in average investment securities. In 2002, increases of $85.3 million in average investment securities and $14.7 million in average loans contributed to the $99.7 million or 5.9% increase in average interest earning assets. During those periods, however, the yield on total interest earning assets decreased to 5.84% in 2003 from 6.77% in 2002 and 7.83% in 2001 in line with the decline in market interest rates. The yield on loans, the largest component of interest earning assets, declined by 79 basis points in 2003 following a 100-basis point decline in 2002. The yield on investment securities followed a similar trend, decreasing by 149 basis points in 2003 and 97 basis points in 2002. Fees on loans, included in interest income, increased by $1.9 million or 69.1% in 2003 due to fees recognized on higher-than-normal loan prepayments as borrowers refinanced their debt to take advantage of the low interest rate environment. As market interest rates have increased slightly during the second half of 2003, management expects that average interest earning asset yields will begin to improve in 2004.

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        Interest expense of $20.2 million decreased by $9.3 million or 31.6% from $29.5 million in 2002, which decreased by $21.9 million or 42.7% from 2001. While average interest-bearing liabilities increased during the period, the rate of decline in interest rates paid on those liabilities more than compensated for the balance increases, resulting in an overall decrease in interest expense. Average interest-bearing deposits of $1.38 billion increased by $85.0 million or 6.5% in 2003 after increasing by $108.7 million or 9.1% in 2002. The average rate paid on those deposits decreased by 75 basis points in 2003 and 156 basis points in 2002. Average rates on long-term debt also declined by 26 basis points in 2003 after a 163-basis point decline in 2002.

        Because yields on interest earning assets declined to a greater extent than the decline in average rates on interest-bearing liabilities, net interest margin declined by 32 basis points to 4.79% in 2003. In 2002, the Company experienced the opposite situation as funding costs declined at a faster rate than asset yields during the year, resulting in a 35-basis points increase in net interest margin to 5.11% from 4.76% in 2001. The Company expects that market interest rates will increase slightly in 2004, although rates should remain at relatively low levels. Based on its loan and deposit growth assumptions and the expected average yields and rates thereon, net interest margin is projected to decline to the 4.50% to 4.60% range, although net interest income is expected to increase. To mitigate the impact of the projected net interest margin compression, the Company has placed increased emphasis on growth in noninterest-bearing demand deposits in 2004. The Company's ability to generate continued growth in loans, which typically bring higher yields than other interest earning assets, will also have an impact on future net interest margins. The Company expects that local competition for loans and deposits as well as global, national and local political and economic conditions will continue to have a direct impact on asset yields and funding costs, and consequently on the Company's net interest margin in the future.

Other Operating Income

        Table 3 sets forth components of other operating income and the total as a percentage of average assets for the periods indicated.

Table 3. Components of Other Operating Income

        Total other operating income of $15.8 million in 2003 increased by $0.5 million or 3.6% over the $15.3 million earned in 2002, which increased by $1.2 million or 8.3% over the $14.1 million earned in 2001. Excluding the $1.4 million gain on curtailment of pension obligation recorded in 2002, increases were achieved in all major categories of other operating income. A discussion of the curtailment is

25

provided in Note 13 of the Consolidated Financial Statements. Income from fiduciary activities increased by $413,000 or 29.9%, service charges on deposit accounts increased by $250,000 or 5.8%, and other service charges and fees increased by $382,000 or 7.9% in 2003 compared to 2002 due primarily to successful sales of trust, deposit and investment products and services. Investment securities gains of $956,000 were recognized in 2003 compared with $477,000 in 2002 as securities were sold during the second half of 2003 to shorten the average duration of the investment portfolio. Gains on sales of loans increased by $332,000 or 70.8% as a result of increased residential mortgage origination activity experienced in 2003.

        Total other operating income of $15.3 million in 2002 increased by $1.2 million or 8.3% over 2001. The gain on curtailment of pension obligation contributed to the entire increase in other operating income in 2002. Increases in service charges on deposit accounts of $454,000 or 11.8% and other service charges and fees of $752,000 or 18.5% combined to offset the impact of declines in investment securities gains of $918,000 and gains on sales of loans of $456,000.

        Total other operating income, expressed as a percentage of average assets was 0.77% in 2003, 0.80% in 2002, and 0.79% in 2001. The Bank has historically underperformed relative to its peers in the level of other operating income, and attention is being directed to improving that performance in the coming years. The introduction of new deposit products and product enhancements are expected to generate higher levels of service charges on deposits in 2004. Increases in other operating income are also expected from the Bank's new wealth management division, which provides a coordinated platform for providing trust, asset management, investment, annuity and insurance products to its customers.

Other Operating Expense

        Table 4 sets forth components of other operating expense and the total as a percentage of average assets for the periods indicated.

Table 4. Components of Other Operating Expense

        Total other operating expense of $55.6 million in 2003 increased by $0.6 million or 1.0% over the $55.0 million recognized in 2002. Salaries and employee benefits declined by $608,000 or 2.0% due to a $1.4 million decrease in incentive compensation awarded in 2003, offset by increases in salaries related to increases in staffing in our financial services and asset management areas. A $452,000 increase in salaries and benefits deferred as direct loan origination costs also contributed to the decrease in salaries and employee benefits expense. Net occupancy expense increased in 2003 due largely to a decline in rental income earned on bank-owned properties. Advertising expenses increased by

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$1.7 million due to $0.6 million in merger-related expenses and $1.1 million in expenses incurred to promote the Bank's image and highlight the Bank's upcoming 50^th anniversary. Included in legal and other professional services are $0.7 million in merger-related expenses. In 2002, the Company recorded a $1.1 million interest accrual on a state tax assessment, which is currently under appeal, in other operating expense. The Company anticipates a modest increase in total other operating expense in 2004 as it proceeds with its plans to open two new branch offices.

        Total other operating expense of $55.0 million in 2002 increased by $4.3 million or 8.6% over the $50.7 million of expense recognized in 2001. Salaries and employee benefits increased by $2.0 million or 7.3% reflecting increases in defined benefit plan and profit sharing plan expenses as well as increased staffing in financial services sales, private banking and trust units. Other expenses increased by $3.5 million due primarily to a $1.1 million interest accrual on a state tax assessment under appeal, a $725,000 increase in professional fees and $586,000 in amortization expense related to investments in companies providing high-technology state tax credits. The tax credits received resulting from these investments is discussed in below. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—Results of Operations—Income Taxes."

        Total other operating expense, expressed as a percentage of average assets, was 2.69% in 2003, 2.87% in 2002 and 2.82% in 2001. As the Company grows, our ability to contain expenses and achieve greater economies of scale will provide for better operating efficiencies and accordingly, higher earnings. A key measure of operating efficiency tracked by management is the efficiency ratio, which measures operating expense as a percentage of total revenue (net interest income and other operating income). The Company's efficiency ratio in 2003 improved slightly to 52.97% from 53.02% in 2002 and 55.59% in 2001. The Company believes its efficiency ratio will continue to improve in the near future and expects to achieve a ratio below 50%, a level that compares favorably with high-performing commercial banks in our peer group based on asset size.

Income Taxes

        Income tax expense totaled $15.7 million in 2003, $15.0 million in 2002 and $10.1 million in 2001. The effective tax rate was 31.6% in 2003 compared to 31.0% in 2002 and 26.2% in 2001. The Company recorded a $1.4 million net reduction in taxes in both 2003 and 2002 attributable to high-technology state tax credits. The state's high-technology tax credit program offers tax credits for investments in high-technology companies at diminishing levels over a 5-year period. In 2001, the Company recorded a nonrecurring $3.8 million federal income tax benefit related to the carryback of tax-basis capital losses against capital gains recognized in prior years. The capital loss was created from the issuance of preferred stock by CPBREI.

FINANCIAL CONDITION

Loan Portfolio

        Total loans of $1.44 billion at December 31, 2003 increased by $153.3 million or 11.9% over the $1.29 billion held at year-end 2002, which increased by $22.9 million or 1.8% over year-end 2001. The Bank focuses its lending activities on commercial, commercial mortgage and construction loans to small and middle-market companies, business professionals and real estate developers. In 2003, the Bank also experienced a significant increase in residential mortgage lending due to refinancing activity and increased residential sales throughout the State of Hawaii. The Bank's strategy for generating new loans relies upon teams of commercial banking officers organized by geographical and industry lines who are responsible for client prospecting and business development. In addition, the Bank uses television, radio, print and direct mail marketing to generate sales.

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        To manage credit risk (i.e., the inability of borrowers to repay their loan obligations), management analyzes the borrower's financial condition, repayment source, collateral, and other factors that could impact credit quality, such as national and local economic conditions and industry conditions related to respective borrowers.

        Table 5 sets forth information regarding outstanding loans by category as of the dates indicated.

Table 5. Loans by Categories

        Commercial, Financial and Agricultural.    Loans in this category consist primarily of term loans and lines of credit to small and middle-market businesses and professionals located in the State of Hawaii. The borrower's business is typically regarded as the principal source of repayment, although the Bank's underwriting policy and practice generally requires additional sources of collateral, including real estate and other business assets, as well as personal guarantees where possible to mitigate risk. Risks of credit losses are greater in this loan category relative to secured loans, such as commercial and residential mortgages where a greater percentage of the loan amount is usually covered by collateral. Nonetheless, any collateral or personal guarantees obtained on commercial loans can mitigate the increased risk and help to reduce credit losses.

        Commercial loans increased by $20.8 million in 2003 to $283.6 million at year-end 2003 following a $29.1 million increase in 2002. These increases resulted from a greater focus placed on developing banking relationships with small and middle-market companies. Teams of lending and sales personnel focus on marketing loans, deposits and other bank services to existing commercial clients. The Bank has also been successful in hiring experienced personnel with established networks of business contacts to support commercial sales efforts. Sustained long-term growth in this loan category will be dependent upon local economic conditions, interest rate levels, competitive market conditions and other external factors.

        Real Estate—Construction.    Construction loans offered by the Bank include both residential and commercial development projects. Each construction project is evaluated for economic viability, and maximum loan-to-value ratios of 80% on commercial projects and 85% on residential projects are generally required. A construction loan poses higher credit risks than typical secured loans. In addition to the financial strength of the borrower, construction loans have the added element of completion risk, which is the risk that the project will not be completed on time and within budget, resulting in additional costs that could affect the economic viability of the project. Careful consideration of the ability and reputation of the developer and close monitoring of a project during the construction phase by construction lending specialists is required to mitigate the higher level of risk in construction lending.

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        Construction loans of $140.5 million increased by $22.6 million in 2003 after declining by $13.8 million in 2002. Construction loans originated by the Bank tend to be larger in amount and shorter in term than commercial or mortgage loans; thus a higher level of volatility in balances from year to year is expected. The increase in loan volume in 2003 is attributable to increased development activity in the State of Hawaii and attractive financing conditions given the current low interest rate environment.

        Real Estate—Mortgage.    Table 6 sets forth information with respect to the composition of the Bank's Real Estate—Mortgage loan portfolio as of the dates indicated.

Table 6. Mortgage Loan Portfolio Composition

        Real Estate—Mortgage—Residential.    Residential mortgage loans include both fixed- and adjustable-rate loans primarily secured by single-family owner-occupied residences. Maximum loan-to-value ratios of 80% are typically required, although higher levels are permitted with accompanying mortgage insurance. The Bank emphasizes residential mortgage loans for owner-occupied primary residences and does not actively seek loans on high-end residences, vacation homes and investment properties. First mortgage loans secured by residential properties generally carry a moderate level of credit risk. With an average loan size of approximately $200,000, readily marketable collateral and a strong residential real estate market, credit losses on residential mortgages have been minimal during the past two years. However, future changes in interest rates and other market factors can impact the marketability of collateral and thus the level of credit risk inherent in the portfolio. As with all loans, managing credit risk in the residential mortgage market entails strong underwriting standards and diligent monitoring and handling of problems that may arise.

        Residential mortgage loan originations, particularly fixed-rate mortgages, increased significantly in 2003 due to a high volume of refinancing activity. This contributed to an increase in the year-end balance to $391.4 million from $312.6 million at year-end 2002. During 2003, the Bank retained new 15-year fixed-rate mortgages in its loan portfolio, while 30-year fixed rate mortgages were typically sold in the secondary market. Mortgage loans held for sale at December 31, 2003 totaled $6.7 million, virtually unchanged from the year-end 2002 balance. Market interest rates increased slightly during the second half of 2003, resulting in an abrupt decline in mortgage applications. Accordingly, management expects that residential mortgage origination activity in 2004 will be substantially lower than the level experienced in 2003. Home equity lines of credit at December 31, 2003, with maximum loan-to-value ratios of 75%, totaled $59.4 million, decreasing by $7.4 million from year-end 2002 as many borrowers paid off their home equity balances in conjunction with mortgage refinancings.

        Real Estate—Mortgage—Commercial.    Real estate mortgage loans secured by commercial properties comprised more than 50% of the total real estate loan portfolio. The Bank's policy with respect to commercial mortgages is that loans be made for sound purposes, have a definite source

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and/or plan of repayment established at inception, and be backed up by reliable secondary sources of repayment and satisfactory collateral with good marketability. Loans secured by commercial property carry a greater risk than loans secured by residential property due to operating income risk, which is the risk that the borrower will be unable to generate sufficient cash flow from the operation of the property. The commercial real estate market and interest rate conditions through economic cycles will impact risk levels. To mitigate the risks inherent in commercial mortgage lending, the Bank has dedicated experienced commercial mortgage lenders to underwrite and service commercial mortgage loans.

        As of December 31, 2003, commercial mortgage loans totaled $559.0 million, increasing by $18.9 million over the $540.1 million held at year-end 2002. The major components of the portfolio are $159.1 million for warehouses and industrial buildings, and $130.4 million for stores and offices.

        Consumer Loans.    Table 7 sets forth the major components of the Bank's consumer loan portfolio as of the dates indicated.

Table 7. Consumer Loan Portfolio Composition

        For consumer loans, credit risk is managed on a pooled basis. Considerations include an evaluation of the quality, character and inherent risks in the loan portfolio, current and projected economic conditions, and past loan loss experience. Consumer loans represent a moderate credit risk. Loans in this category are either unsecured or secured by personal assets such as automobiles. The average loan size is generally small, and risk is diversified among many borrowers. The Bank utilizes credit-scoring systems for most of its consumer loans, which offer the ability to modify credit exposure based on the Bank's risk tolerance and loss experience.

        Automobile loans, which represented 47.7% of consumer loans outstanding, increased by 39.0% to $32.8 million. Indirect dealer loans totaling $32.3 million comprised the majority of automobile loans. Revolving credit plans, primarily lines of credit to individuals, totaled $25.8 million. With the exception of indirect dealer loans, consumer loans are generally offered as an accommodation to existing customers. As such, the Bank does not anticipate much growth in consumer lending in the future and allocates minimal sales and marketing resources to this area.

Concentrations of Credit Risk

        As of December 31, 2003, approximately 35% of the Company's loans were made to companies in the real estate industry, including real estate investors, developers and rental and leasing companies. Most of these loans are included in the construction and commercial mortgage categories, and to a lesser extent in residential mortgage and commercial loans. There were no other concentrations of loans in any industry classified under the North American Industrial Classification System (the "NAICS") that exceeded 10% of total loans. Loans made to individuals, predominantly residential mortgage and consumer loans, are excluded from the NAICS. The real estate market tends to closely follow broader economic trends, and during periods of economic strength, as we are currently

30

experiencing, the real estate market and the real estate industry typically perform well. However, market interest rates and other economic conditions can have a significant and immediate impact on the real estate industry. Accordingly, the Bank's concentration of lending in the real estate industry creates the risk of adverse portfolio performance, namely delinquencies and loan charge-offs, should the real estate market suffer a downturn.

        Substantially all of the Bank's loans are made to companies and individuals with headquarters in or residing in the State of Hawaii. On occasion, the Bank lends to companies elsewhere in the U.S. where the borrower has ties to Hawaii and participates in loans with banks on the U.S. mainland, primarily on the West Coast. In a few instances, the Bank has also made loans to foreign companies, the majority of which have operations in the State of Hawaii. The concentration of lending activities within the state of Hawaii is consistent with our focus of being a Hawaii-based bank. The Bank's lending activities outside the state help to diversify risk to a limited extent and provide for supplemental growth opportunities. To ensure that risks are properly managed, the Bank carefully selects its participant banking partners based on financial strength, credit profile, similarity of lending philosophy and demonstrated expertise in the respective market. As of December 31, 2003, lending on the U.S. mainland and U.S. territories totaled $137.1 million, including $84.3 million in the state of Washington, increasing from $91.8 million as of year-end 2002. Foreign loans totaled $727,000 and $784,000 at December 31, 2003 and 2002, respectively, and primarily consisted of borrowers in Japan and Canada. The Bank did not have any foreign credit exposure as of December 31, 2003 that exceeded 1% of total assets.

Maturities and Sensitivities of Loans to Changes in Interest Rates

        Table 8 sets forth the maturity distribution of the Bank's loan portfolio at December 31, 2003. Table 9 sets forth the sensitivity of amounts due after one year to changes in interest rates. Both tables exclude real estate loans (other than construction loans) and consumer loans. The proportion of loans maturing within one year increased to 55.6% at year-end 2003, compared to 44.0% at year-end 2002. The shorter maturity of these assets should position the Bank to take advantage of the expected rise in interest rates in the future.

Table 8. Maturity Distribution of Commercial and Construction Loans