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Central Pacific Financial’s Dividend Hike Signals Resilience in a Challenging Banking Landscape

Isaac LaneWednesday, Apr 23, 2025 10:26 am ET

2min read

Central Pacific Financial Corp. (NYSE: CPF) has declared a quarterly dividend of $0.27 per share for Q1 2025, marking a 3.8% increase from the $0.26 per share paid in 2024. This dividend hike underscores the Hawaii-based bank’s financial strength, as its Q1 results reflect improved net interest margins, robust asset quality, and disciplined capital management. With a dividend payout ratio of just 41.5%, the increase aligns with CPF’s 9-year streak of consecutive dividend growth and positions it as a reliable income play in an otherwise cautious banking sector.

Financial Performance: Strong NIMs and Solid Asset Quality

Central Pacific’s Q1 net income rose to $17.8 million, or $0.65 per share, driven by a 14-basis-point sequential expansion in its net interest margin (NIM) to 3.31%. This improvement stemmed from lower deposit costs—average rates fell 19 basis points to 1.08%—and higher yields on investment securities. Net interest income grew 3.5% quarter-over-quarter to $57.7 million, while nonperforming assets remained negligible at 0.15% of total assets.

The bank’s capital ratios also remained robust, with a total risk-based capital ratio of 15.6% and a common equity tier .1 ratio of 12.4%, well above regulatory requirements. Share repurchases of $2.1 million during the quarter reduced shares outstanding, further boosting shareholder returns.

Dividend Sustainability: A 9-Year Growth Streak

Central Pacific’s dividend history reflects unwavering stability. From late 2022 through 2023, it maintained a quarterly payout of €0.23 (or $0.23 USD), before increasing to $0.26 in 2024 and now to $0.27 in 2025. The payout ratio has averaged around 50% since 2023, well within sustainable limits, and the 2025 dividend yields an annualized 4.18%—nearly triple the 1.557% average for U.S. financial institutions.

Outperforming Peer Challenges

While major banks like JPMorgan and Citigroup reported mixed loan growth and margin pressures in Q1, Central Pacific’s results highlight its niche advantages. Its loan portfolio—though down 1.2% year-over-year—remains stable, and its focus on Hawaii’s resilient economy has insulated it from broader CRE and mortgage lending softness. Deposit costs also fell sharply, with Puerto Rican public deposits dropping 38 basis points, contributing to margin expansion.

Risks on the Horizon

Despite its strengths, CPF faces headwinds. Total deposits fell $48 million in Q1, reflecting industry-wide competition for funding, and loan growth remains tepid. Additionally, the Federal Reserve’s pause in rate hikes may limit future NIM expansion. However, the bank’s low delinquency rate (net charge-offs at 0.20% annualized) and $276.9 million in cash provide a buffer against economic shocks.

Conclusion: A Conservative Income Play with Upside

Central Pacific Financial’s dividend increase to $0.27 signals confidence in its ability to navigate a challenging banking environment. With a payout ratio below 50%, ample capital, and a track record of steady growth, CPF offers a compelling income opportunity. While broader sector risks like flattening NIMs and loan softness persist, the bank’s focus on Hawaii’s stable economy and disciplined balance sheet management position it to sustain dividends and even deliver modest upside. Investors seeking steady returns in a volatile market would do well to consider CPF’s blend of income and resilience.

In sum, CPF’s dividend hike is more than a payout—it’s a testament to its financial discipline and a vote of confidence in its long-term prospects.

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