HONOLULU, October 30, 2007 – Central Pacific Financial Corp. (NYSE: CPF), parent company of Central Pacific Bank, today reported net income for the third quarter of 2007 of $9.1 million, or $0.30 per diluted share, compared to $20.6 million, or $0.67 per diluted share, reported in the third quarter of 2006 and $21.0 million, or $0.68 per diluted share, reported in the second quarter of 2007.
“In light of the significant and rapid deterioration in the California residential construction market, combined with our commitment to proactively manage credit risk, we downgraded several loans which resulted in a provision for loan losses of $21.2 million in the quarter,” said Clint Arnoldus, President and Chief Executive Officer.
Third Quarter Highlights
| § | Loans and leases increased by $307.5 million, or 8.2% from a year ago. |
| § | Provision for loan and lease losses of $21.2 million. |
| § | Deposits increased by $160.3 million, or 4.2% from a year ago. |
| § | Opened our 39th branch in Pearl Highlands. |
Earnings Highlights
Net interest income for the third quarter of 2007 was $52.8 million, compared to $53.1 million in the year-ago quarter and $52.9 million in the second quarter of 2007. The net interest margin for the current quarter was 4.29%, compared to 4.54% in the year-ago quarter and 4.36% in the second quarter of 2007. The year-over-year compression in our net interest margin was primarily attributable to our increased funding costs resulting from a shift in the composition of our deposit base from lower-rate demand, money market, and savings accounts into higher-rate time deposit accounts. The sequential-quarter compression was primarily attributable to lower yields on our interest earning assets.
The provision for loan and lease losses in the third quarter of 2007 was $21.2 million, compared to $0.3 million in the year-ago quarter and $1.0 million in the second quarter of 2007. The current quarter increase was directly attributable to the aforementioned downgrades of 12 loans totaling $92.0 million with exposure to the California residential construction market.
Other operating income totaled $11.8 million for the third quarter of 2007, compared to $10.5 million in the year-ago quarter and $11.5 million in the second quarter of 2007. The increase from the year-ago quarter was primarily due to increased income from bank-owned life insurance of $0.8 million and higher gains on sales of loans of $0.4 million.
The sequential-quarter increase was primarily due to higher income from bank-owned life insurance of $0.7 million, offset by lower gains on sales of loans of $0.3 million.
Other operating expense for the third quarter of 2007 was $31.6 million, compared to $31.2 million in the year-ago quarter and $31.3 million in the second quarter of 2007. The increase from the year-ago quarter was primarily due to increased charges related to our reserves for unfunded commitments totaling $1.2 million and higher amortization expense related to high-technology investments of $0.3 million, offset by lower salaries and employee benefits of $1.2 million. The sequential-quarter increase was primarily due to increased charges related to our reserves for unfunded commitments totaling $0.7 million, offset by lower salaries and employee benefits of $0.6 million.
The Company’s efficiency ratio for the third quarter of 2007 was 47.27%, compared with 47.03% for both the year-ago quarter and the second quarter of 2007. The current quarter increase was primarily attributable to the higher operating expense items discussed above.
The effective tax rate was 23.01% for the third quarter of 2007, compared to 35.86% in the year-ago quarter and 34.51% in the second quarter of 2007. The current quarter decrease was due to the disproportionate recognition of federal and state tax credits compared to taxable income.
Balance Sheet Highlights
Total assets of $5.6 billion at September 30, 2007 increased by $268.7 million, or 5.0%, from a year ago and by $84.0 million, or 1.5%, from June 30, 2007.
Total loans and leases of $4.1 billion at September 30, 2007 increased by $307.5 million, or 8.2%, from a year ago and by $135.5 million, or 3.4%, from June 30, 2007. Our Hawaii lending operations accounted for approximately 65% of the current quarter’s loan growth, while our mainland loan production offices contributed the remaining 35%.
Total deposits of $3.9 billion at September 30, 2007 increased by $160.3 million, or 4.2%, from a year ago and by $27.4 million, or 0.7%, from June 30, 2007. Current quarter increases in time deposits of $30.5 million and noninterest-bearing demand deposits of $6.8 million were offset by decreases in interest-bearing demand deposits of $3.0 million and savings and money market deposits of $7.0 million.
“In an effort to drive deposit growth, we recently opened our 39th branch in Pearl Highlands and introduced an innovative new product called Choice Checking,” commented Arnoldus. “Choice Checking is a checking account that allows customers to earn a CD-like interest rate if certain requirements are met, including direct deposit, using a check card to pay for daily purchases, and making payments online. In addition, there are no minimum balance requirements, no monthly service fees, and surcharge fees charged by ATMs nationwide are reimbursed.”
Shareholders’ equity of $744.0 million at September 30, 2007 increased by $21.0 million from a year ago and decreased by $9.6 million from June 30, 2007.
Stock Repurchase Plan
In April 2007, the Company announced that its Board of Directors authorized the repurchase of up to 600,000 shares of the Company’s common stock. In July 2007, the Company’s Board of Directors approved a new stock repurchase plan authorizing the Company to repurchase up to an additional 1,500,000 shares. Through the third quarter of 2007, the Company repurchased 917,700 shares under these plans.
Asset Quality
Net loan charge-offs in the third quarter of 2007 totaled $0.1 million, compared to net loan charge-offs of $0.6 million in the year-ago quarter and $0.2 million in the second quarter of 2007.
At September 30, 2007, nonperforming assets totaled $30.8 million, or 0.55%, of total assets, compared to $8.0 million, or 0.15%, of total assets at September 30, 2006 and $1.4 million, or 0.02%, of total assets at June 30, 2007. The sequential-quarter increase in nonperforming assets was primarily attributable to three California land loans totaling $29.6 million.
Loans delinquent for 90 days or more of $0.9 million declined by $1.9 million, or 67.9%, from a year ago, and increased by $0.6 million, or 173.3%, from June 30, 2007.
The allowance for loan and lease losses as a percentage of total loans and leases was 1.78% at September 30, 2007, compared to 1.40% a year ago and 1.31% at June 30, 2007. The current quarter increase was directly attributable to the increased provision for loan and lease losses.
Business and Earnings Outlook
Based on current and anticipated economic and business conditions, management forecasts diluted earnings per share for 2007 in the range of $2.31 to $2.36.
Conference Call Information
Central Pacific Financial Corp. will conduct a conference call today at 4:00 p.m. Eastern Time (10:00 a.m. Hawaii Time) to discuss the quarterly results. To participate in the conference call, please dial 1-888-233-7976 or visit the investor relations page of the Company’s website at http://investor.centralpacificbank.com. A playback of the call will be available through November 6, 2007 by dialing 1-888-203-1112 (passcode: 8163476) and on the Company’s website.
About Central Pacific Financial Corp.
Central Pacific Financial Corp. is the fourth largest financial institution in Hawaii with more than $5.6 billion in assets. Central Pacific Bank, its primary subsidiary, operates 39 branches and more than 90 ATMs throughout Hawaii. For additional information, please visit our website at http://www.centralpacificbank.com.
This document may contain forward-looking statements concerning projections of revenues, income, earnings per share, capital expenditures, dividends, capital structure, or other financial items, concerning plans and objectives of management for future operations, concerning future economic performance, or concerning any of the assumptions underlying or relating to any of the foregoing. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts, and may include the words “believes”, “plans”, “intends”, “expects”, “anticipates”, “forecasts” or words of similar meaning. While we believe that our forward-looking statements and the assumptions underlying them are reasonably based, such statements and assumptions are by their nature subject to risks and uncertainties, and thus could later prove to be inaccurate or incorrect. Accordingly, actual results could materially differ from projections for a variety of reasons, to include, but not limited to: the impact of local, national, and international economies and events, including natural disasters, on the Company’s business and operations and on tourism, the military, and other major industries operating within the Hawaii market and any other markets in which the Company does business; the impact of legislation affecting the banking industry; the impact of competitive products, services, pricing, and other competitive forces; movements in interest rates; loan delinquency rates and changes in asset quality generally; and the price of the Company’s stock. For further information on factors that could cause actual results to materially differ from projections, please see the Company’s publicly available Securities and Exchange Commission filings, including the Company’s Form 10-K for the last fiscal year. The Company does not update any of its forward-looking statements.
