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

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

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, 2004, the aggregate market value of the common stock held by non-affiliates of the registrant was approximately $386,789,000.

        As of February 28, 2005, the number of shares of common stock of the registrant outstanding was 28,270,840 shares.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the registrant's proxy statement for the 2005 annual meeting of shareholders are incorporated by reference into Part II of this Annual Report on Form 10-K to the extent stated herein. The proxy statement will be filed within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

PART I

Forward-Looking Statements

        We have included or incorporated by reference in this Annual Report on Form 10-K, and from time to time our management may make, statements that may constitute "forward-looking statements" within the meaning of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts but instead represent only our belief regarding future events, many of which, by their nature, are inherently uncertain and outside of our control. These statements include statements other than historical information or statements of current condition and may relate to our future plans and objectives and results, among other things, and may also include our belief regarding the effect of various legal proceedings, as set forth under "Legal Proceedings" in Part I, Item 3 of this Annual Report on Form 10-K, as well as statements about the objectives and effectiveness of our liquidity policies and statements about trends in our businesses, as set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of this Annual Report on Form 10-K. It is possible that our actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Important factors that could cause actual results to differ from those in the forward-looking statements include, among others, those discussed under "Business—Factors That May Affect Our Business" in Part I, Item 1 of this Annual Report on Form 10-K.

ITEM 1. BUSINESS

General

        Central Pacific Financial Corp. is a Hawaii corporation and a bank holding company registered under the Bank Holding Company Act of 1956, as amended. Our principal business is to serve as a holding company for our bank subsidiary, Central Pacific Bank. Pursuant to a Plan of Reorganization and Agreement of Merger, our company was organized on February 1, 1982 to serve as a holding company for our subsidiary, Central Pacific Bank. Central Pacific Bank was incorporated in its present form in the State of Hawaii on March 16, 1982 in connection with the holding company reorganization, and its predecessor entity was incorporated in the State of Hawaii on January 15, 1954. On September 15, 2004, we completed a merger with CB Bancshares, Inc. CB Bancshares' subsidiaries, which became our wholly-owned subsidiaries, included City Bank, CB Bancshares' banking subsidiary, among others. In February 2005, Central Pacific Bank merged with City Bank, with Central Pacific Bank as the surviving entity. We refer to Central Pacific Bank herein as our bank or the bank and when we say "we," "our or the "Company, we mean the holding company on a consolidated basis with the bank and our other consolidated subsidiaries. When we refer to "Central Pacific Financial Corp." or to the holding company, we are referring to the parent company on a standalone basis.

        Through our bank, we offer full-service commercial banking, with thirty-seven bank branches and 95 ATMs located throughout the State of Hawaii. Our administrative and main offices are located in Honolulu, and we have thirty other branches on the island of Oahu. In addition, we operate three branches on the island of Maui, one branch on the island of Kauai and two branches on the island of Hawaii. We also have five loan production offices serving customers in California and Washington. Our bank's deposits are insured by the Federal Deposit Insurance Corporation, or the FDIC, up to applicable limits. The bank is not a member of the Federal Reserve System.

        Our bank is a full-service community bank offering a broad range of banking products and services including accepting time and demand deposits and originating loans, including commercial loans, real estate and construction loans, consumer loans and mortgage loans. We derive our income primarily from interest on commercial real estate loans, commercial loans, residential mortgage loans and construction loans and, to a lesser extent, on interest on investment securities and fees received in

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connection with deposit services as well as other services offered. Our major operating expenses are the interest paid by our bank on deposits and borrowings, salaries and employee benefits and general operating expenses. Our bank relies on a foundation of locally generated deposits. Our operations, like those of other financial institutions that operate in our market, are significantly influenced by economic conditions in Hawaii, including the strength of the real estate market, and the fiscal and regulatory policies of the federal and state government and the regulatory authorities that govern financial institutions. For more information about the regulation of our holding company and bank, see "—Supervision and Regulation."

        We are committed to maintaining a premier, relationship-based community bank in Hawaii that serves the needs of small to medium-sized businesses and the owners and employees of those businesses. In addition, we are expanding our loan growth opportunities and providing geographic diversification of our credit risk through our loan production offices in California and Washington. The strategy for serving our target markets is the delivery of a finely-focused set of value-added products and services that satisfy the primary needs of our customers, emphasizing superior service and relationships as opposed to transaction volume.

The Merger

        On September 15, 2004, we completed our merger with CB Bancshares, Inc., the former holding company for City Bank. As a result, City Bank became our wholly owned subsidiary. We merged our two banking subsidiaries, Central Pacific Bank and City Bank, on February 22, 2005. Central Pacific Bank is the surviving entity, as well as our brand name going forward. Concurrently, we integrated the information technology platforms used by Central Pacific Bank and City Bank.

        In connection with the merger of Central Pacific Bank and City Bank, we consolidated 9 branches on February 22, 2005. Taking into account the Wailuku, Maui branch we opened in February, our total branch count has been reduced from 45 at December 31, 2004 to 37. In addition, our headquarters have been consolidated into Central Pacific Financial Corp.'s existing headquarters.

        Following the completion of the merger, we implemented a Voluntary Separation Program, or VSP, which was offered to certain employees of both merging organizations. The VSP consisted of a monetary compensation package for those employees that decided to voluntarily terminate their relationship with us. As of December 31, 2004, 102 employees had decided to participate in the VSP. We expect the VSP to be fully implemented in the second quarter of 2005.

        In connection with the merger, we issued 11.9 million shares of our common stock and paid $88.9 million in cash for total merger consideration of $423.1 million, based on our stock price as of September 15, 2004. Our merger with CB Bancshares was accounted for under the purchase method of accounting, and CB Bancshares' results are included in our consolidated financial statements from September 15, 2004.

Our Services

        We offer a full range of banking services and products to small and medium-sized businesses, professionals and individuals. We provide our customers with an array of commercial and consumer loan products, including commercial real estate and construction loans, residential mortgage loans, commercial loans and lines of credit, and consumer loans and lines of credit.

        Through our bank, we concentrate our lending activities in three principal areas:

(1)

Commercial Real Estate and Construction Lending. Loans in this category consist primarily of loans secured by commercial real estate, including, but not limited to, structures and facilities to support

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activities designated as industrial, warehouse, general office, retail, health care, religious and multi-family dwellings. Also included in this category are loans to finance the construction of the aforementioned types of commercial real estate. Our underwriting policy generally requires net cash flow from the property to cover the debt service while maintaining an appropriate amount of reserve. Additionally, liquidation of the collateral is available as a secondary source of repayment.

In addition to our branches throughout Hawaii, we operate five loan production offices in California and Washington that are staffed by experienced relationship officers formerly from in-state banks. The loans originated in these loan production offices are commercial real estate and construction loans.

(2)

Residential Mortgage Lending. Residential mortgage loans include both fixed- and adjustable-rate loans primarily secured by single-family owner-occupied residences. We typically require maximum loan-to-value ratios of 80%, although higher levels are permitted with accompanying mortgage insurance. We emphasize residential mortgage loans for owner-occupied primary residences and do 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 requires strong underwriting standards and diligent monitoring and handling of problems that may arise.

(3)

Commercial Lending and Leasing. Loans in this category consist primarily of term loans, lines of credit and equipment leases 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 our underwriting policy and practice generally require 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.

        In addition, we offer deposit products and services including checking, savings and time deposits, cash management and internet banking services.

Our Market Area and Competition

        Based on deposit market share among FDIC-insured financial institutions in Hawaii, we were the fourth-largest depository institution in the State of Hawaii at December 31, 2004, with more than $3.3 billion in deposits, representing a 14% market share.

        First Hawaiian Bank, the Hawaii-based subsidiary bank of Bancwest Corporation, had $7.1 billion in domestic deposits at year-end 2004, or approximately 30% deposit market share in the State of Hawaii. Bank of Hawaii, the largest subsidiary of Bank of Hawaii Corporation, had $6.9 billion in domestic deposits at year-end 2004, representing approximately 29% of the deposits in the State of Hawaii. American Savings Bank, a subsidiary of Hawaiian Electric Industries, Inc., held $4.3 billion in deposits at year-end 2004, or approximately 19% of the deposits in the State of Hawaii.

        The banking and financial services industry in the State of Hawaii generally, and in our 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

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consolidation among financial services providers. We compete for loans, 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 and have greater access to capital markets.

        In order to compete with the other financial services providers in the State of Hawaii, we principally rely upon local promotional activities, personal relationships between customers and our officers, directors and employees, and specialized services tailored to meet the needs of our customers and the communities we serve. We remain competitive by offering flexibility and superior service levels, coupled with competitive interest rates and pricing.

        Our mainland loan production offices in California and Washington likewise face formidable competition in the commercial real estate lending sector. Competitors range from large national banks, including Wells Fargo Bank, Bank of America, Washington Mutual, and US Bancorp, to regional and community banks. Nonbanks, including brokerage firms, conduits and insurance companies, also compete for commercial real estate lending business. This competition has resulted in aggressive pricing and the easing of underwriting standards in these markets. To mitigate these competitive pressures and credit risks, we rely upon our teams of experienced commercial real estate lenders and a lending approach which targets clients with solid track records, substantial net worth and adequate liquidity.

Business Concentrations

        No individual or single group of related accounts is considered material in relation to the assets or deposits of our bank, or in relation to the overall business of the Company. However, approximately 75% of our loan portfolio held for investment at December 31, 2004 consisted of real estate-related loans, including construction loans, commercial real estate mortgage loans and residential mortgage loans. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition—Loan Portfolio." Moreover, our business activities are currently focused primarily in Hawaii, California and Washington, with the majority of our business concentrated in Hawaii. Consequently, our results of operations and financial condition are affected by the general trends in the Hawaii, California and Washington economies and, in particular, the commercial and residential real estate markets.

Our Subsidiaries

        On September 15, 2004, we completed our merger with CB Bancshares, Inc. CB Bancshares' subsidiaries, which became our wholly-owned subsidiaries, included City Bank, Datatronix Financial Services, Inc. and O.R.E., Inc. (dissolved effective December 31, 2004). In February 2005, Central Pacific Bank merged with City Bank, with Central Pacific Bank as the surviving entity. Datatronix offers item processing services to banks, thrifts, credit unions and other financial institutions in Hawaii and California.

        Other wholly-owned subsidiaries include CPB Capital Trust I, CPB Capital Trust II, CPB Statutory Trust III, CPB Capital Trust IV, CPB Statutory Trust V, CB Technology, Inc., ISL Capital Corporation, CPB Real Estate, Inc. ("CPBREI") and Citibank Properties, Inc. ("CPI").

        Our bank also owns 50% of Pacific Access Mortgage, LLC, a Hawaii limited liability corporation.

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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 Bank Insurance Fund and not for the benefit of our shareholders. Set forth below is a summary description of the material laws and regulations that relate to our operations. The description is qualified in its entirety by reference to the applicable laws and regulations.

Central Pacific Financial Corp.

        We are a registered bank holding company subject to regulation under the Bank Holding Company Act. We file with the Federal Reserve Board periodic reports and such additional information as the Federal Reserve Board may require. The Federal Reserve Board conducts examinations of us.

        Under Federal Reserve Board regulations, a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. We are also required by the Federal Reserve Board to maintain certain levels of capital. 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 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 the Federal Reserve Board's regulations or both.

        The Federal Reserve Board may require us 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 our banking subsidiary. Under certain circumstances, we must file written notice and obtain approval from the Federal Reserve Board prior to purchasing or redeeming our equity securities.

        We are required to obtain the prior approval of the Federal Reserve Board 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 approval of the Federal Reserve Board is also required for a merger or consolidation with another bank holding company.

        We are prohibited by the Bank Holding Company Act, 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 our subsidiaries. However, subject to the prior notice or approval of the Federal Reserve Board, we may engage in any, or acquire shares of companies engaged in, activities that are deemed by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.

        We are also a "financial institution holding company" as contemplated by Hawaii law. As such, we are subject to examination by, and may be required to file reports with, the Hawaii Commissioner of Financial Institutions.

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Central Pacific Bank

        Central Pacific Bank, as a Hawaii-chartered bank, is subject to primary supervision, periodic examination, and regulation by the Hawaii Commissioner of Financial Institutions and the FDIC. The bank is also subject to 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 its operations are unsatisfactory or that it or its management 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 its growth, to assess civil monetary penalties, to remove officers and directors, and ultimately to terminate its deposit insurance, which for a Hawaii-chartered bank would result in a revocation of its charter. The Hawaii Commissioner of Financial Institutions separately enjoys many of the same remedial powers.

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 (such as cash), to 100% or more for assets with relatively high credit risk.

        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 average assets, referred to as the leverage ratio. For a banking organization to qualify as "well-capitalized," the leverage ratio must generally be 5% at a minimum. 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 Federal Reserve Board guidelines apply to us while the FDIC guidelines apply to Central Pacific Bank.

        As of December 31, 2004, our capital ratios and the capital ratios of Central Pacific Bank exceeded the minimum thresholds for a "well-capitalized" institution. City Bank, which was merged into Central Pacific Bank on February 22, 2005, maintained Tier 1 and leverage capital ratios that exceeded the thresholds for a "well-capitalized" institution and its total risk based capital ratio

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exceeded the threshold for an "adequately-capitalized" institution. The following table sets forth actual and required capital ratios as of December 31, 2004:

        The failure of our bank or us to maintain adequate capital could result in mandatory restrictions or prohibitions on our activities, including the ability to pay dividends.

USA PATRIOT Act of 2001

        We and our bank are subject to the USA PATRIOT Act of 2001, or the USA Patriot Act. Title III of the USA Patriot Act substantially broadens the scope of U.S. anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations, defining new crimes and related penalties, and expanding the extra-territorial jurisdiction of the United States. The U.S. Treasury Department, or the Treasury, has issued a number of implementation regulations, which apply various requirements of the USA Patriot Act to financial institutions, and with which our bank must comply. These regulations also impose new obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing.

        Failure of a financial institution to comply with the USA Patriot Act's requirements could have serious legal and reputational consequences for the institution. We have adopted appropriate policies, procedures and controls to address compliance with the requirements of the USA Patriot Act under the

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existing regulations and will continue to revise and update its policies, procedures and controls to reflect changes required by the USA Patriot Act and the Treasury's regulations.

Employees

        At February 28, 2005, we employed 923 persons, 858 on a full-time basis and 65 on a part-time basis. We are not a party to any collective bargaining agreement.

Factors That May Affect Our Business

        The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently deem immaterial, also may become important factors that affect us. If any of these risks occurs, our business, financial condition or results of operations could be materially and adversely affected.

        The costs of integrating our operations with CB Bancshares may be greater than we have anticipated, which could adversely affect our business and results of operations.

        We completed our merger with CB Bancshares on September 15, 2004. The aggregate costs of our merger with CB Bancshares may be greater than we have anticipated. We incurred charges to operations in the third and fourth fiscal quarters of 2004 to reflect costs associated with integrating our business and our operations with those of CB Bancshares. In addition, we will incur additional material charges in subsequent quarters to reflect additional costs associated with the merger. If these aggregate costs are greater than anticipated, they could adversely affect our business, results of operations and financial condition.

        Future results of the combined company may materially differ from the pro forma financial information previously disclosed.

        Future results of the combined company may be materially different from our expectations and the pro forma financial information statements previously disclosed, which only show a combination of our historical results with those of CB Bancshares. Merger-related charges may be higher or lower than we have estimated, depending upon how costly or difficult it is to integrate our two companies. Furthermore, these charges may decrease capital of the combined company that could be used for profitable, income-earning investments in the future.

        We may not realize the cost savings we have projected within the time periods we have projected, or to the full extent of our projections.

        We projected cost savings from the merger of $13 million in 2005, with $19 million fully phased in by 2006. Some assumptions on which we based our projections are no longer consistent with our business plan. For example, when we projected cost savings we expected to realize from the merger, we assumed that we would close CB Bancshares' loan production offices in California. However, we have subsequently decided to retain and expand such loan production offices. In addition, other assumptions on which we based our projections have become inapplicable. Accordingly, we may not achieve the cost savings we have projected or achieve them in a timely fashion.

        Integration of City Bank and Central Pacific Bank may prove more difficult or less advantageous than we anticipate.

        We merged City Bank and Central Pacific Bank and their operating systems on February 22, 2005. We may encounter unforeseen difficulties in integrating the banks, which could make the integration more costly than expected and adversely affect our business and results of operations. In addition, the consolidation of branches accompanying the merger of the banks may result in the loss of significant

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customer deposits and revenues. If the loss of customer deposits and revenues from branch consolidations exceeds our expectations, our business and results of operations could be harmed.

        Operations in our mainland loan production offices have positively affected our results of operations, and sustaining these operations and growing loans may be more difficult than we expect, which could adversely affect our results of operations.

        Sustaining the expansion of loan production on the mainland depends on a number of factors, including the continued strength of the mainland real estate markets. The strength of these real estate markets could be negatively affected by anticipated increases in interest rates and any economic downturn, and our results of operation could be negatively impacted.

        Because we have a limited operating history with respect to our California and Washington loan production offices, it is more difficult to predict our future prospects and financial performance, which may impair our ability to manage our business and your ability to assess our prospects.

        CB Bancshares commenced operations in its California loan production offices in the first quarter of 2003, and we commenced operations in our Washington loan production office in the fourth quarter of 2004. Consequently, our mainland offices have a limited history upon which we can rely in planning and making decisions that will affect our future operating results.

        The loans made by our mainland loan production offices in California and Washington are generally unseasoned, and defaults on such loans would adversely affect our financial condition, results of operations and prospects.

        At December 31, 2004, loans originated in our California and Washington loan production offices amounted to approximately $415.8 million, or 13% of our total loan portfolio. In light of the limited operating history of our mainland loan production offices described in the previous risk factor, all of those loans were originated after January 1, 2003. The payment on such loans is typically dependent on the cash flows generated by the projects, which are affected by the supply and demand for commercial property within the relative market. If the market for commercial property experiences a decline in demand, commercial borrowers may suffer losses on their projects and be unable to repay their loans. Defaults on these loans would negatively affect our financial condition, results of operations and prospects.

        The loans made by our mainland loan production offices in California and Washington are concentrated among a limited number of customers in California and Washington, and difficulty with a customer or loss of a customer could affect our results of operations and our ability to grow loans and deposits in the mainland.

        Our mainland operations are dependent on a concentration of loans with a small number of key customers with whom individuals on our mainland loan staff have built strong relationships. Such a concentration of borrowers carries certain risks. Among other things, financial difficulty at one mortgaged real property could cause a borrower to defer maintenance at another mortgaged real property in order to satisfy current expenses with respect to the troubled mortgaged real property. A borrower could attempt to avert foreclosure on one mortgaged real property by filing a bankruptcy petition that might have the effect of interrupting monthly payments for an indefinite period on all of the related mortgage loans. In addition, disruption of a lending customer relationship could adversely affect our ability to introduce the customer to our deposit products. Furthermore, the average size of loans in our mainland portfolio, especially those originated in Southern California, is larger than that of loans in our Hawaii portfolio, and such larger average loan size could make potential losses related to concentration risk more severe.

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        Loan growth from our mainland operations is dependent on relationships between certain key customers and our current mainland loan staff who in turn have forged relationships with certain key members of our management team, and the departure of these individuals could adversely affect our business.

        Our mainland operations are dependent on the relationships with customers built by our experienced teams of lenders, many of whom have worked with each other and with key individuals on our senior management team for more than 10 years. If some or all of our mainland loan officers, or the members of our senior management staff who coordinate mainland operations, were to leave our company, it could adversely affect the expansion of our mainland operations and our ability to grow loans.

        Changes in economic conditions, in particular an economic slowdown in Hawaii, California or Washington, could hurt our business materially.

        Our business is directly affected by factors such as economic, political and market conditions, broad trends in industry and finance, legislative and regulatory changes, changes in government monetary and fiscal policies and inflation, all of which are beyond our control. Deterioration in economic conditions, in particular an economic slowdown in Hawaii, California or Washington, could result in the following consequences, any of which could hurt our business materially:

•

loan delinquencies may increase;



•

problem assets and foreclosures may increase;



•

demand for our products and services may decline;



•

low cost or non-interest bearing deposits may decrease; and



•

collateral for loans made by us, especially real estate, may decline in value, in turn reducing customers' borrowing power, and reducing the value of assets and collateral associated with our existing loans.

        A large percentage of our loans are collateralized by real estate, and an adverse change in the real estate market may result in losses and adversely affect our profitability.

        Approximately 75% of our loan portfolio as of December 31, 2004 was comprised of loans collateralized by real estate. An adverse change in the economy affecting real estate values generally or in our primary markets specifically could significantly impair the value of our collateral and our ability to sell the collateral upon foreclosure. In the event of a default with respect to any of these loans, amounts received upon sale of the collateral may be insufficient to recover outstanding principal and interest on the loan. As a result, our profitability could be negatively impacted by an adverse change in the real estate market.

        Our business is subject to interest rate risk and fluctuations in interest rates may adversely affect our earnings.

        The majority of our assets and liabilities are monetary in nature and subject to risk from changes in interest rates. Like most financial institutions, our earnings and profitability depend significantly on our net interest income, which is the difference between interest income on interest-earning assets, such as loans and investment securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings. We expect that we will periodically experience "gaps" in the interest rate sensitivities of our assets and liabilities, meaning that either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa. If market interest rates should move contrary to our position, this "gap" will work against us, and our earnings may be

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negatively affected. In light of our current volume and mix of interest-earning assets and interest-bearing liabilities, our interest rate spread could be expected to increase during periods of rising interest rates and, conversely, to decline during periods of falling interest rates. We are unable to predict or control fluctuations of market interest rates, which are affected by many factors, including the following:

•

inflation;



•

recession;



•

changes in unemployment;



•

the money supply; and



•

international disorder and instability in domestic and foreign financial markets.

        Our asset-liability management strategy may not be able to control our risk from changes in market interest rates, and it may not be able to prevent changes in interest rates from having a material adverse effect on our results of operations and financial condition.

        Our allowance for loan and lease losses may not be sufficient to cover actual loan losses, which could adversely affect our results of operations.

        As a lender, we are exposed to the risk that our loan customers may not repay their loans according to their terms and that the collateral securing the payment of these loans may be insufficient to assure repayment. We may experience significant loan losses that could have a material adverse effect on our operating results. Management makes various assumptions and judgments about the collectibility of our loan portfolio, which are based, in part, on:

•

current economic conditions and their estimated effects on specific borrowers;



•

an evaluation of the existing relationships among loans, potential loan losses and the present level of the allowance;



•

results of examinations of our loan portfolios by regulatory agencies; and



•

management's internal review of the loan portfolio.

        We maintain an allowance for loan and lease losses in an attempt to cover loan losses inherent in our loan portfolio. Additional loan losses will likely occur in the future and may occur at a rate greater than we have experienced to date. In determining the size of the allowance, we rely on an analysis of our loan portfolio, our experience and our evaluation of general economic conditions. While we are not currently aware of any fact or circumstance that would cause our allowance to be inadequate, if our assumptions prove to be incorrect, our current allowance may not be sufficient. In addition, adjustments may be necessary to allow for unexpected volatility or deterioration in the local or national economy. Material additions to the allowance would materially decrease our net income. In addition, federal regulators periodically review our allowance for loan and lease losses and may require us to increase our provision for loan and lease losses or recognize further loan charge-offs, based on judgments different than those of our management. Any increase in our allowance or loan charge-offs as required by these regulatory agencies could have a material adverse effect on our results of operations.

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        An interruption in or breach in security of our information systems may result in a loss of customer business.

        We rely heavily on communications and information systems to conduct our business. Any failure or interruptions or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposits, servicing or loan origination systems. The occurrence of any failures or interruptions could result in a loss of customer business and have a material adverse effect on our results of operations and financial condition.

Governmental regulation may impair our operations or restrict our growth.

        We are subject to significant governmental supervision and regulation. These regulations are intended primarily for the protection of depositors. Statutes and regulations affecting our 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 our business. In addition to governmental supervision and regulation, we are subject to changes in other federal and state laws, including changes in tax laws, which could materially affect the banking industry. We are subject to the rules and regulations of the Federal Reserve Board. If we fail to comply with federal and state bank regulations, the regulators may limit our activities or growth, fine or ultimately put us out of business. Banking laws and regulations change from time to time. Bank regulations can hinder our 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 our operations. These areas include:

•

the capital we must maintain;



•

the kinds of activities we can engage in;



•

the kinds and amounts of investments we can make;



•

the locations of offices;



•

how much interest we can be pay on demand deposits;



•

insurance of deposits and the premiums that we must pay for this insurance; and



•

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

Certifications

        The Company has filed the required certifications under Section 302 of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1 and 31.2 to this annual report on Form 10-K for the fiscal year ended December 31, 2004. Last year, the Company submitted to the New York Stock Exchange on May 21, 2004 its annual CEO certification regarding the Company's compliance with the NYSE's corporate governance listing standards required by NYSE rule 303A.12. This year, the Company intends to submit to the NYSE its annual CEO certification within 30 days of the Company's annual meeting of shareholders, which is scheduled for April 25, 2005.

Available Information

        Our internet site can be found at www.centralpacificbank.com. Our 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

12

be found on our internet site as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Copies of the Company's filings with the SEC may also be obtained directly from the SEC's website at www.sec.gov. These documents may also be obtained in print upon request by our shareholders to our Investor Relations Department.

        Also posted on our website, and available in print upon request of any shareholder to our Investor Relations Department, are the charters for our Audit Committee, our Compensation Committee and our Corporate Governance and Nominating Committee, as well as our Corporate Governance Guidelines and our Codes of Business Conduct and Ethics. Within the time period required by the SEC and the New York Stock Exchange, we will post on our website any amendment to the Codes of Business Conduct and Ethics and any waiver applicable to our senior financial officers, as defined by the SEC, and our executive officers or directors. In addition, our website includes information concerning purchases and sales of our equity securities by our executive officers and directors, as well as disclosure relating to certain non-GAAP financial measures (as defined in the SEC's Regulation G) that we may make public orally, telephonically, by webcast, by broadcast or by similar means from time to time.

        Our Investor Relations Department can be contacted at: (808) 544-0618. Our principal office is located at 220 South King Street, Honolulu, Hawaii 96813, and our telephone number is (808) 544-0500.

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ITEM 2. PROPERTIES

        We hold title to the land and building in which our headquarters, Kaimuki branch office, Hilo branch office, Kailua-Kona branch office and certain operations offices are located. We also hold title to the buildings in which our Moiliili, McCully, Kalihi and Beretania branch offices and operations center are located, and a portion of land on which the Moiliili branch office is located. The remaining lands on which the Moiliili branch and all of the land on which the McCully, Kalihi and Beretania branch offices and operations center are located are leased.

        We occupy 46 other properties including our remaining branch offices, the 9 branch offices that were consolidated on February 22, 2005, 2 data processing centers and 5 loan production offices. These leases expire on various dates through 2038 and generally contain renewal options for periods ranging from 5 to 15 years. For additional information relating to lease rental expense and commitments, see Note 17 to the Consolidated Financial Statements.

ITEM 3. LEGAL PROCEEDINGS

        We are party to ordinary routine litigation incidental to our business, none of which do we consider to be material.

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

        No matters were submitted to our shareholders for a vote during the fourth quarter of 2004.

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PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

        Our common stock is traded on the New York Stock Exchange, or NYSE, under the ticker symbol "CPF". As of December 31, 2004, there were 4,528 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 our common stock, as reported by the NYSE, for each full quarterly period within 2003 and 2004.

Market Prices

Dividends

        We have paid regular quarterly cash dividends since 1988. During 2003 and 2004, dividends of $0.16 per share of common stock were declared and paid during each quarter. The holders of our common stock share proportionately on a per share basis in all dividends and other distributions declared by our board of directors. We expect to continue to pay regular quarterly cash dividends. However, since substantially all of the funds available for the payment of dividends are derived from our bank, future dividends will depend upon our bank's earnings, financial condition and capital needs, applicable governmental policies and regulations and such other matters as our board of directors may deem to be appropriate.

        Our ability to pay cash dividends is further subject to our continued payment of interest that we owe on our junior subordinated debentures. As of December 31, 2004, we had approximately $108 million of our junior subordinated debentures outstanding. We have the right to defer payment of interest on the junior subordinated debentures for a period not exceeding 20 consecutive quarters. If we defer, or fail to make, interest payments on the junior subordinated debentures, or if we fail to comply with certain covenants under the related indentures, we will be prohibited, subject to certain exceptions, from paying cash dividends on our common stock until we pay all deferred interest and resume interest payments on the junior subordinated debentures and until we comply with the covenants under the related indentures.

        Our ability to pay dividends is also limited by certain restrictions imposed on Hawaii corporations. We may pay dividends out of funds legally available at such times as our board of directors determines are appropriate.

Issuer Purchases of Equity Securities

        We did not purchase any of our equity securities during the fourth quarter of 2004.

Information relating to compensation plans under which equity securities of the Registrant are authorized for issuance is set forth in Part III, Item 12 of this Annual Report on Form 10-K.

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ITEM 6. SELECTED FINANCIAL DATA

        The following table sets forth selected financial information for each of the years in the five-year period ended December 31, 2004. This data should be read in conjunction with our audited consolidated financial statements as of December 31, 2004 and 2003 and for each of the years in the three-year period ended December 31, 2004 and related Notes to Consolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary 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 for the years ended December 31, 2001 and 2000 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

Introduction

        We are a bank holding company that, through our banking subsidiary, Central Pacific Bank, offers full service commercial banking in the state of Hawaii. In addition, we have five loan production offices serving customers in California and Washington.

        Our products and services focus on two areas:

•

Loans: we focus our lending activities on commercial, commercial mortgage and construction loans to small and medium-sized companies, business professionals and real estate developers. Our lending activities contribute to a key component of our revenues—interest income.



•

Deposits: we strive to provide exceptional customer service and products that meet our customers' needs, like our Exceptional Account and Totally Free Checking, and raising funds through our deposit accounts enables us to support our lending activities. The interest paid on such deposits has a significant impact on our interest expense, an important factor in determining our revenues. In addition, fees and service charges on deposit accounts contribute to our revenues.

        In addition, we offer wealth management products and services such as non-deposit investment products, annuities, insurance, investment management, asset custody and general consultation and planning services.

        In this discussion, we have included statements that may constitute "forward-looking statements" within the meaning of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts but instead represent only our beliefs regarding future events, many of which, but their nature, are inherently uncertain and beyond our control. These statements relate to our future plans and objectives, among other things. By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results may differ, possibly materially, from the results indicated in the forward-looking statements. Important factors that could, among others, cause our results to differ, possibly materially, from those indicated in the forward-looking statements are discussed above under "Business—Factors that May Affect Our Business" in Part I, Item 1 of this Annual Report on Form 10-K.

Executive Overview

        The completion of our merger with CB Bancshares on September 15, 2004 affected our performance in 2004 in several ways. First, we incurred nonrecurring merger expenses of $9.3 million in 2004. Second, from September 15, 2004, income from CB Bancshares operations was included in our results. Third, we issued 11.9 million shares of our common stock in connection with the merger. In addition, we incurred in 2004 and will continue to incur other costs associated with the merger, including amortization of core deposit premium and interest expense on trust preferred securities issued to finance the acquisition.

        In connection with our integration with CB Bancshares, we incurred charges to operations in the third and fourth quarters of 2004, and will incur additional charges in connection with our integration. With the merger of Central Pacific Bank and CB Bancshares' former banking subsidiary, City Bank, in February 2005, the integration of our operations is taking shape. We expect that we will begin to realize synergies in 2005 and continue to realize them in 2006. However, the integration of the banks may prove to be more costly than we anticipated or may result in the loss of customer deposits and revenues in excess of what we have projected. In addition, we have revised some of the assumptions on which we based our projections of cost savings, and some of them have become inapplicable or

17

inconsistent with our current business plan. For a further discussion of these trends and other factors affecting our business, see "Business—Factors that May Affect Our Business" in Part I, Item 1 of this Annual Report on Form 10-K.

        Aside from the merger, we experienced loan growth of $260.2 million and deposit growth of $198.6 million in 2004. At the same time, we maintained our credit quality standards and kept our net interest margin relatively stable, at 4.51% in 2004 compared to 4.79% in 2003.

Business Environment

        The majority of our operations are concentrated in the State of Hawaii. Accordingly, our business is affected by conditions in the banking industry and economic conditions in Hawaii. A favorable business environment is generally characterized by expanding gross state product, low unemployment and rising personal income.

        Economic conditions in Hawaii improved in 2004. Tourism is one of the largest industries in Hawaii, and according to the Hawaii Department of Business Economic Development & Tourism, or the DBEDT, total visitor arrivals for 2004 increased by 8.3% over 2003. The DBEDT also reported that Hawaii's unemployment rate was 3.0% in December 2004, compared to 4.4% in December 2003. On the national level, the unemployment rate was 5.4% in December 2004, compared to 5.7% in December 2003. The DBEDT projects strong Gross State Product growth averaging 5.1% per annum from 2005 to 2007. Gross State Product, as calculated by the DBEDT, is defined as the sum of value added from all industries in the state, with an industry's "value added" equivalent to its gross input, which includes sales or receipts and other operating income, commodity taxes and inventory change, minus its intermediate inputs, which include consumption of goods and services purchased from other industries or imported. The DBEDT also reported that Hawaii's personal income increased 6.0% in 2004, compared to 4.7% in 2003, and projects personal income growth averaging 5.6% per annum from 2005 to 2007.

        One area in which we focus our lending activity is commercial real estate and construction lending, and accordingly, the health of those industries has an effect on our business. As of September 30, 2004, the number of construction jobs in Hawaii grew by 5.5% from September 30, 2003, according to the DBEDT, and from January 2004 through November 2004, the number of private building permits issued increased by approximately 15.2% over the same period in 2003, according to the DBEDT.

Critical Accounting Policies and Use of 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 our consolidated financial statements as of or for the periods presented. Management has discussed the development and selection of the critical accounting estimates noted below with the Audit Committee of the Board of Directors, and the Audit Committee has reviewed the accompanying disclosures.

        Allowance for Loan and Lease Losses.    We maintain the allowance for loan and lease losses, or the Allowance, at an amount we expect to be sufficient to absorb probable losses inherent in our 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, we perform a migration analysis and consider 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

18

historical loan loss experience. Estimated loss rates are determined by loan category and risk profile, and an overall required Allowance is calculated. Based on our estimate of the level of Allowance required, a provision for loan and lease losses, or the Provision, is recorded to maintain the Allowance at an appropriate level. Since we cannot predict with certainty the amount of loan charge-offs that will be incurred, and because the eventual level of loan charge-offs is impacted by numerous conditions beyond our control, a range of loss estimates could reasonably have been used to determine the Allowance and Provision.

        Defined Benefit Retirement Plan.    Defined benefit plan obligations and related assets of our defined benefit retirement plan are presented in Note 15 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, we utilize 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, 2004, we used a weighted-average discount rate of 6.00% and an expected long-term rate of return on plan assets of 8.00%, which affected the amount of pension liability recorded as of year-end 2004 and the amount of pension expense to be recorded in 2005. At December 31, 2003, a weighted-average discount rate of 6.25% and an expected long-term rate of return on plan assets of 7.00% were used in determining the pension liability recorded as of year-end 2003 and the amount of pension expense recorded in 2004. 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 2005, 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 2005 pension expense by $58,000 and year-end 2004 pension liability by $697,000, while a 0.25% change in the asset return rate would impact 2005 pension expense by $60,000.

        Goodwill and Other Intangible Assets.    We recognized goodwill of $284.7 million in connection with the merger with CB Bancshares. In accordance with SFAS 142, goodwill is not amortized but is to be reviewed at least annually for impairment, and when significant events occur or circumstances change which might cause an impairment of goodwill. An impairment loss is recorded when the carrying amount of goodwill exceeds the fair value of the goodwill. Because the merger with CB Bancshares occurred during 2004, and because we determined that no events or changes in circumstances occurred that would indicate a possible impairment of goodwill, no impairment analysis was performed. Had such an analysis been performed as of or prior to December 31, 2004, and had such analysis indicated an impairment in the fair value of goodwill, the impairment would have been recorded as a charge against earnings.

        A core deposit premium of $51.8 million was also recorded in conjunction with the CB Bancshares merger, and such premium is being amortized on an accelerated basis over a 10-year period. In establishing the value assigned and the amortization period to be used, we considered numerous factors including the expected rate of runoff of the acquired deposits, historical and future expected interest rates, projected costs to maintain the deposit base and the cost of obtaining alternate funding. Had those assumptions differed, the value assigned to the core deposit premium might have been increased or decreased, and the amortization period could have been lengthened or shortened. For example, an increase in the value assigned would have resulted in a higher level of amortization expense and a lower value assigned to goodwill. A longer amortization period would have resulted in reduced amortization expense. We are in the process of finalizing a third-party valuation of the core deposit

19

premium which, when completed, could result in a change in the premium value and/or a change in the amortization period.

Overview of Results of Operations

        Net income in 2004 of $37.4 million increased by $3.5 million or 10.2% over the $33.9 million earned in 2003, which increased by $0.7 million or 2.0% over the $33.3 million earned in 2002. Diluted earnings per share of $1.87 in 2004 decreased by 9.7% from the $2.07 per share earned in 2003, which increased by 1.5% over earnings of $2.04 per share in 2002. Cash dividends declared in 2004 of $0.64 per share was consistent with dividends declared in 2003, which increased by 60.0% over the $0.40 per share declared in 2002. Return on average assets was 1.25% in 2004, a decrease from 1.64% in 2003 and 1.74% in 2002. Return on average equity of 12.37% decreased from 18.33% in 2003 and 20.55% in 2002. Our efficiency ratio, which measures operating expenses as a percentage of total revenue, was 60.57% in 2004 compared to 52.97% in 2003 and 53.02% in 2002. The significant items affecting the comparability of the years' performance include $9.3 million and $1.4 million in nonrecurring merger-related expenses incurred in 2004 and 2003, respectively, and a $1.4 million gain on curtailment of pension obligation recognized in 2002. The earnings and performance ratios for 2004 reflect the impact of the merger, including the incremental earnings of CB Bancshares since the effective date of the merger, September 15, 2004, as well as the issuance of 11.9 million shares of common stock, net amortization of core deposit premium and other purchase accounting valuation adjustments, and interest expense on trust preferred securities issued to finance the acquisition. 2003's earnings improvement reflected double-digit loan growth, a decline in net interest margin, a low level of Provision, and moderate increases in other operating income and other operating expenses.

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%.

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

(1)

At amortized cost.

(2)

Includes nonaccrual loans.

21

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

        Net interest income, which is our primary source of earnings, totaled $122.6 million in 2004, an increase of $30.5 million or 33.1% over the $92.1 million recognized 2003, which increased by $1.5 million or 1.6% over the $90.7 million earned in 2002. The increases in net interest income reflected the impact of the CB Bancshares merger, as well as increases in average loan and investment securities balances, which were partially offset by declines in average yields on interest earning assets during the period. While market interest rates increased during the second half of 2004, competitive loan pricing pressure within the local market resulted in lower loan yields in 2004.

Interest Income

        Interest income of $152.8 million in 2004 increased by $40.5 million or 36.1% from $112.3 million in 2003, which decreased by $7.8 million or 6.5% to $112.3 million from $120.1 million in 2002. As depicted in Table 2, the increase in interest income is due largely to the increase in average loan and investment securities balances, offset by a decline in average loan yields. Aggressive pricing by other major banks in the Hawaii market resulted in reduced spreads on both new and existing loans. Average interest earning assets of $2.7 billion increased by $796.9 million or 41.4% due primarily to an increase in average taxable investment securities of $158.2 million or 35.5% and loans of $612.6 million or 44.6%. Average investment securities increases are attributed to the investment securities acquired in the CB Bancshares merger and several capital market leveraging strategies employed in 2004. Increases in average loans reflect the impact of loans acquired in the CB Bancshares merger, as well as organic loan growth, particularly in the commercial real estate portfolio, as supplemented by the purchase of approximately $76 million in seasoned Hawaii-based commercial real estate loans. In 2003, the net decrease in interest income compared to 2002 was the result of declining asset yields, partially offset by increased loan and investment securities volumes. 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. During those periods, however, the

22

yield on total interest earning assets decreased to 5.62% in 2004 from 5.84% in 2003 and 6.77% in 2002 in line with the decline in market interest rates. The yield on loans, the largest component of interest earning assets, declined by 40 basis points in 2004 following a 79-basis point decline in 2003. Conversely, the yield on total investment securities improved by 14 basis points in 2004 after declining by 149 basis points in 2003. As market interest rates have increased during 2004 and are expected to continue to increase in 2005, management expects that average interest earning asset yields will begin to improve in 2005.

Interest Expense

        Interest expense of $30.2 million in 2004 increased by $10.0 million or 49.8% compared to $20.2 million in 2003, which decreased by $9.3 million or 31.6% from $29.5 million in 2002. Increases in average interest-bearing liabilities in 2004 and 2003 contributed to the increase in interest expense in 2004, while a decline in average interest rates from 2002 to 2003 was the dominant factor in the decline in interest expense in that period. Average interest-bearing deposits of $1.83 billion in 2004 increased by $448.2 million or 32.4% over 2003's $1.38 billion, which increased by $85.0 million or 6.5% compared to 2002. The increase in average interest-bearing deposits is attributed to the deposits acquired in the CB Bancshares merger and growth in commercial and retail deposits generated through sales and referral campaigns. The average rate paid on those deposits decreased by 12 basis points in 2004 after a 75-basis point decline in 2003. Average long-term debt in 2004 increased by $192.9 million or 116.0% compared to 2003, contributing to a $6.9 million or 119.3% increase in related interest expense.

Net Interest Margin

        With a decline in average yield on interest earning assets and an increase in the average rate on interest-bearing liabilities, net interest margin of 4.51% declined by 28 basis points in 2004 compared to 2003. In 2003, the decline in average yields on interest earning assets exceeded the decline in average rates on interest-bearing liabilities, resulting in a 32-basis point decline in net interest margin from 5.11% in 2002 to 4.79% in 2003. We expect rates on interest-bearing liabilities to increase in 2005, although the magnitude of the rate increase will depend largely on competitive pricing within the Hawaii market.

        Based on our expectations for loan and deposit growth and the expected average yields and rates thereon, net interest margin is projected to improve slightly in 2005 to between 4.55% and 4.60%. Our ability to generate continued growth in loans, which typically bring higher yields than other interest earning assets, and the ability to fund that asset growth with relatively low-cost core deposits, will directly impact future net interest margins and net interest income.

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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 $22.0 million in 2004 increased by $6.2 million or 39.1% over the $15.8 million earned in 2003. Increases were achieved in all major categories of other operating income in 2004 due in part to the CB Bancshares merger, as well as growth in trust business and deposit service charges. Income from fiduciary activities increased by $431,000 or 24.0% due largely to organic growth in our trust services, service charges on deposits increased by $2.6 million or 57.1% due to a combination of the increase in deposits as a result of the merger and increased volume of fee-based services, other service charges and fees increased by $1.8 million or 35.2% due mainly to the merger and gains on sales of loans increased by $850,000 or 106.1% as a result of $0.6 million in gains recognized on the bulk sale of $65 million in residential mortgages in 2004. Investment securities transactions resulted in a net loss of $19,000 recognized in 2004, compared to net gains of $956,000 recognized on a higher volume of sales in 2003.

        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. 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. A $1.4 million gain on curtailment of pension obligation was recorded in 2002.

        Total other operating income expressed as a percentage of average assets was 0.73% in 2004, 0.77% in 2003 and 0.80% in 2002. We have historically underperformed relative to our peers in the level of other operating income as a percentage of average assets, and recent initiatives have been directed to improving that performance in the coming years. Expansion of wealth management services, the introduction of new deposit products and product enhancements and a more significant mortgage banking business are expected to generate higher levels of other operating income in 2005.

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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 $86.1 million in 2004 increased by $30.6 million or 55.0% compared to 2003. Nonrecurring merger-related expenses of $9.3 million in 2004 and the inclusion of CB Bancshares' operating expenses beginning September 15, 2004 contributed to the increased level of operating expenses. Salaries and employee benefits of $43.3 million increased by $14.0 million or 48.0%, reflecting $4.0 million in nonrecurring merger-related severance and executive retention payments and $8.8 million due to the inclusion of CB Bancshares expenses effective September 15, 2004. Legal and other professional service fees in 2004 increased by $5.4 million or 168.3% compared to 2003 due largely to $3.0 million in nonrecurring merger integration consulting and audit fees, as well as consulting and audit fees incurred to comply with certification requirements for internal control over financial reporting. Core deposit premium amortization of $2.6 million was recognized in 2004, and increases in other major expense components such as net occupancy, equipment and computer services resulted from the inclusion of CB Bancshares operating expenses following the merger.

        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, partially offset by increases in salaries related to increases in staffing in our financial services and wealth 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 in 2003 increased by $1.7 million due to $0.6 million in nonrecurring merger-related expenses and $1.1 million in expenses incurred to promote our brand and highlight our 50^th anniversary. Included in legal and other professional services in 2003 are $0.7 million in nonrecurring merger-related expenses. In 2002, we recorded a $1.1 million interest accrual on a state tax assessment, which is currently under appeal, in other operating expense.

        Total other operating expense expressed as a percentage of average assets was 2.87% in 2004, 2.69% in 2003 and 2.87% in 2002. 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, excluding investment securities gains and losses). Our efficiency

25

ratio in 2004 was 60.57%, compared to 52.97% in 2003 and 53.02% in 2002. Nonrecurring merger-related expenses incurred in 2004 of $9.3 million contributed 0.31% to the operating expense to average assets ratio and 6.57% to the efficiency ratio. We believe our ratios will improve in the near future as we realize cost synergies expected from the merger. We have estimated cost synergies of $13 million in 2005 and $19 million in 2006, which will be partially offset by merger integration costs expected to be incurred in the first three quarters of 2005. We have targeted achieving an efficiency ratio of 50%, a level that compares favorably with high-performing commercial banks in our asset-size peer group, following the complete integration of operations.

Income Taxes

        Income tax expense totaled $16.6 million in 2004, $15.7 million in 2003 and $15.0 million in 2002. The effective tax rate was 30.7% in 2004, 31.6% in 2003 and 31.0% in 2002. We recorded net reductions in taxes of $1.6 million in 2004 and $1.4 million 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.

Financial Condition

        Total assets of $4.65 billion at December 31, 2004 represented an increase of $2.48 billion or 114.3% over the $2.17 billion at year-end 2003. Loans totaled $3.10 billion at year-end 2004, an increase of $1.66 billion or 114.8% over 2003. Total deposits of $3.33 billion represented an increase of $1.57 billion or 89.8% over the $1.75 billion held at year-end 2003. Shareholders' equity of $567.9 million represented an increase of $373.3 million or 191.8%. The merger, which was accounted for using the purchase method, added $2.06 billion in assets, $1.40 billion in loans, $1.38 billion in deposits and $345.6 million in shareholders' equity as of September 15, 2004, the effective date of the merger. The accounting for the merger is discussed in Note 2 to the Consolidated Financial Statements.

Loan Portfolio

        Total loans of $3.10 billion at December 31, 2004 represented an increase of $1.66 billion or 114.8% over the $1.44 billion held at year-end 2003, which increased by $153.3 million or 11.9% over the $1.29 billion held at year-end 2002. Of the increase in 2004, $1.40 billion can be attributed to the CB Bancshares merger, with $260.2 million in net loan growth excluding the merger. We focus our lending activities on commercial, commercial mortgage and construction loans to small and middle-market companies, business professionals and real estate developers. In 2003, we also experienced a significant increase in residential mortgage lending due to refinancing activity and increased residential sales throughout the State of Hawaii. Our strategy for generating new loans relies upon teams of highly qualified and motivated commercial real estate and commercial banking officers organized by geographical and industry lines who are responsible for client prospecting and business development. We have established five loan production offices in California and Washington staffed by experienced lenders with established client relationships in their respective markets. The expansion of lending activities in these markets augments our lending activities in Hawaii to supplement our growth opportunities and improve the diversification of our loan portfolio.

        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.

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        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 our 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 $270.5 million or 95.4% to $554.0 million at year-end 2004 following a $20.8 million increase in 2003. In addition to the impact of the CB Bancshares merger, the increases in commercial loans 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. We have 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 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.

        Construction loans of $361.3 million at year-end 2004 increased by $220.8 million or 157.2% over the $140.5 million held at year-end 2003, which increased by $22.6 million compared to year-end 2002. The increase in loan volume is attributable to increased development activity in Hawaii, as well as the impact of the CB Bancshares merger in 2004. In addition, construction loans 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.

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

Table 6. Mortgage Loan Portfolio Composition