Central Pacific Financial (CPF) risk factors, FY2024 10-K

Risks Related to General Economic Conditions

1. 01Difficult economic and market conditions in Hawaii would result in significant adverse effects on us because of the geographic concentration of our business
2. 02The fiscal, monetary and regulatory policies of the federal government and its agencies could have a material adverse effect on our results of operations
3. 03In a high interest rate environment, as we are currently experiencing, there is potential for decreased demand for our loan products, an increase in our cost of funds, and the curtailment of economic recovery
4. 04Negative developments in the global and U.S. economies could have an adverse effect on us
5. 05Negative developments affecting the banking industry, such as bank failures or concerns involving liquidity, may have a material adverse effect on the Company’s operations
6. 06A large percentage of our loans are collateralized by real estate and deterioration in the real estate market may adversely affect our financial results
7. 07The performance of our real estate loans depends on a number of factors, including the continued strength of the real estate markets in which we operate. The strength of the real estate market and the results of our operations could be negatively affected by an economic downturn
8. 08Provisions for credit losses and charge-offs of additional loans in the future, could adversely affect our results of operations
9. 09Our allowance for credit losses may not be sufficient to cover actual credit losses, which could adversely affect our results of operations. Additional credit losses may occur in the future and may occur at a rate greater than we have experienced to date
10. 10In determining the size of the allowance for credit loss, we rely on an analysis of our loan portfolio, our experience and a third-party economic forecast. If our assumptions prove to be incorrect, our current allowance for credit losses may not be sufficient to cover the losses
11. 11Our commercial and industrial loan and commercial real estate loan portfolios expose us to risks that may be greater than the risks related to our other loans
12. 12We may incur future losses in connection with certain representations and warranties we have made with respect to mortgages that we have sold in the secondary market
13. 13Consumer protection initiatives related to the foreclosure process could materially affect our ability as a creditor to obtain remedies
14. 14Banking-as-a-Service ("BaaS") collaboration agreements that we may enter into may expose us to credit risk
15. 15Our business is subject to interest rate risk and fluctuations in interest rates may adversely affect our earnings
16. 16If we are unable to effectively manage the composition and risk of our investment securities portfolio, which we expect will continue to comprise a significant portion of our earning assets, our net interest income and net interest margin could be adversely affected
17. 17The high interest rate environment has decreased the market value of the Company’s fixed-rate investment securities and loan portfolios, and the Company would realize losses if we were required to sell such securities or loans to meet liquidity needs
18. 18Our ability to maintain adequate sources of funding and liquidity and required capital levels may be negatively impacted by uncertainty in the economic environment which may, among other things, impact our ability to satisfy our obligations
19. 19We rely on the mortgage secondary market for some of our revenue and liquidity
20. 20We are required to act as a source of financial and managerial strength for our Bank
21. 21Because we are a holding company with no significant operations other than our Bank, we depend upon dividends from our Bank for a substantial portion of our revenue and our liquidity, including as the source of funds for payment of interest and principal on our holding company debt obligations

Risks Related to the Operation of Our Business

1. 22Managing reputational risk is important to attracting and maintaining customers, investors and employees
2. 23Our deposit customers may pursue alternatives to deposits at our Bank or seek higher yielding deposits causing us to incur increased funding costs
3. 24Failure to manage our growth may adversely affect our performance
4. 25Failure to maintain effective internal control over financial reporting or disclosure controls and procedures could adversely affect our ability to report our financial condition and results of operations accurately and on a timely basis
5. 26Changes in our accounting policies or in accounting standards could materially affect how we report our financial results and condition
6. 27Financial services companies depend on the accuracy and completeness of information about customers and counterparties
7. 28We operate in a highly competitive industry and market area
8. 29We are subject to environmental liability risk associated with our bank branches and any real estate collateral we acquire upon foreclosure
9. 30Our business could be adversely affected by unfavorable actions from rating agencies
10. 31Our operational risks include risks associated with third-party vendors and other financial institutions
11. 32Significant increases in residential home insurance premiums and overall challenges in obtaining home owners insurance generally may negatively impact the residential real estate market
12. 33Agreements with BaaS partners that we may enter into may produce limited revenue and may expose us to liability for compliance violations by BaaS partners and may require additional resources to review and monitor performance by our BaaS partners
13. 34The strategy of offering BaaS has been adopted by other institutions with which we compete and has come under enhanced regulatory scrutiny

Risks Related to Legal, Compliance and Regulatory Matters

1. 35Governmental regulation and regulatory actions against us may impair our operations or restrict our growth
2. 36We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations
3. 37Regulatory capital standards impose enhanced capital adequacy requirements on us
4. 38Costs of compliance with environmental laws and regulations are significant, and the cost of compliance with new environmental laws, including limitations on emissions relating to climate change and disclosure requirements, could adversely affect our financial condition and results of operations
5. 39We are subject to various legal claims and litigation

Risks Related to an Investment in the Company's Securities

1. 40The market price of our common stock could decline
2. 41Anti-takeover provisions in our restated articles of incorporation and bylaws and applicable federal and state law may limit the ability of another party to acquire us or a significant block of common stock, which could cause our stock price to decline
3. 42Our common stock is equity and therefore is subordinate to our subsidiaries' indebtedness and preferred stock
4. 43There is a limited trading market for our common stock and as a result, shareholders may not be able to resell their shares at or above the price they pay for them or at the time they otherwise may desire
5. 44The soundness of other financial institutions could adversely affect us

Risks Related to Technology

1. 45We continually encounter technological change including developments in artificial intelligence
2. 46The occurrence of fraudulent activity, data privacy breaches, failures of our information security controls or cybersecurity-related incidents could have a material adverse effect on our business, financial condition and results of operations
3. 47We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects
4. 48Natural disasters and other external events (including pandemic viruses or disease) could have a material adverse effect on our financial condition and results of operations
5. 49Climate change could have a material adverse effect on us and our customers