CENTRAL PACIFIC FINANCIAL CORP. REPORTS
FIRST QUARTER 2010 RESULTS
Makes Progress With Recently Launched Recovery Plan
HONOLULU, April 30, 2010 – Central Pacific Financial Corp. (NYSE: CPF), parent company of Central Pacific Bank, today reported an adjusted net loss for the first quarter of 2010 of $57.5 million, or $1.97 per diluted share. The adjusted net loss excludes a non-cash goodwill impairment charge of $102.7 million. Including the goodwill impairment charge, the Company recognized a net loss of $160.2 million, or $5.36 per diluted share, compared to net income of $2.6 million, or $0.03 per diluted share, in the first quarter of 2009 and a net loss of $98.8 million, or $3.33 per diluted share, reported in the fourth quarter of 2009. The goodwill impairment charge had no impact on the Company’s cash flows, tangible equity, o r regulatory capital ratios. As of March 31, 2010, the Company had no goodwill remaining on its books.
As previously announced, in March 2010, the Company appointed John C. Dean, a 29-year banking veteran, as Executive Chairman of the Board of Central Pacific Financial Corp. and Central Pacific Bank and he is acting in such role pending the receipt of regulatory approval. This appointment was part of the implementation of the Company’s previously announced Recovery Plan.
Recovery Plan Progress
The Recovery Plan focuses on serving the Company’s core customers and traditional markets in Hawaii and was designed to improve the Company’s capital position over time. During the first quarter of 2010, the Company executed the following as part of this plan:
| § | Sold investment securities totaling $439.4 million at a net gain of $0.8 million, which reduced total investment securities as a percentage of total assets from 19.0% at December 31, 2009 to 10.1% at March 31, 2010. |
| § | Reduced credit risk exposure in the non-agency MBS and municipal securities portfolios by $52.7 million and $37.3 million, respectively. The Company’s remaining exposure in the non-agency MBS and municipal securities portfolios as of March 31, 2010 were $18 thousand and $0.8 million, respectively. |
| § | Reduced total loans and leases to $2.8 billion at March 31, 2010 from $3.0 billion at December 31, 2009. |
| § | Increased its allowance for loan and lease losses, as a percentage of total loans and leases, to 7.44% at March 31, 2010 from 6.75% at December 31, 2009. In addition, during the first quarter of 2010, the Company recognized total credit costs of $66.5 million, comprised primarily of a provision for loan and lease losses of $58.8 million, foreclosed asset expense of $5.5 million, an increase to the reserve for unfunded commitments of $1.4 million and the write-down of a loan held for sale totaling $0.8 million. Comparatively, credit costs in the fourth quarter of 2009 totaled $109.5 million. |
| § | Recognized net charge-offs totaling $52.5 million, compared to net charge-offs totaling $104.9 million in the fourth quarter of 2009. |
| § | Improved its liquidity position with cash and cash equivalents totaling $865.4 million at March 31, 2010, compared to $488.4 million at December 31, 2009. |
| § | Reported tier 1 risk-based capital, total risk-based capital, and leverage capital ratios as of March 31, 2010 of 8.99%, 10.32%, and 5.78%, respectively, compared to 9.62%, 10.93%, and 6.81%, respectively, as of December 31, 2009. |
| § | Continued to support home ownership in Hawaii by originating $234.2 million in residential mortgage loans. Substantially all of these loans were sold in the secondary market. |
| § | Made progress with its previously announced plans to exit the Mainland market by closing two California loan production offices. The Company has only two loan production offices remaining which are located in San Diego and Newport Beach. The loan production office in Newport Beach is scheduled to be closed later this year. |
| § | In April 2010, initiated steps to reduce operating costs through personnel reductions and completed the previously announced consolidation of two retail branch locations in Honolulu within close proximity of each other. In conjunction with this consolidation, customers are being provided with improved convenience through extended hours at both consolidated branch locations. |
“We have commenced the execution of our Recovery Plan and have taken several key steps toward our goal of restructuring our business model and operating as a more focused, streamlined institution,” said John C. Dean, Executive Chairman of the Board of Central Pacific Financial Corp. and Central Pacific Bank. “Improving asset quality and maintaining strong liquidity remain top priorities for us as we continue to evaluate and pursue alternatives to raise additional capital. As we continue to work through our current challenges, we are encouraged by the progress we have made thus far and are grateful for the loyalty and support demonstrated by our employees, customers, and the local community.”
Earnings Highlights
Net interest income was $35.1 million, compared to $46.5 million in the year-ago quarter and $38.5 million in the fourth quarter of 2009. Net interest income was negatively impacted by the reversal of interest on certain nonaccrual loans totaling $1.6 million during the first quarter of 2010, compared to $1.0 million in the year-ago quarter and $1.9 million in the fourth quarter of 2009. The net interest margin was 3.20%, compared to 3.82% in the year-ago quarter and 3.30% in the fourth quarter of 2009. The sequential-quarter and year-over-year margin compression was the result of lower yields on interest earning assets as the Company continued its efforts to reduce its commercial real estate loan portfolio and maximize balance sheet liquidity. Excluding the effects of interest reversals on nonaccrual loans, the net interest margin was 3.34% for the current quarter, compared to 3.90% in the year-ago quarter and 3.46% in the fourth quarter of 2009.
The provision for loan and lease losses was $58.8 million, compared to $26.8 million in the year-ago quarter and $105.2 million in the fourth quarter of 2009. The substantial decrease from the previous quarter was attributable to slower negative credit migration. Despite the decrease, the provision for loan and lease losses continues to reflect ongoing weakness within the Hawaii and California commercial real estate portfolios.
Other operating income totaled $12.8 million, compared to $15.7 million in the year-ago quarter and $11.7 million in the fourth quarter of 2009. The decrease from the year-ago quarter was primarily due to: (1) the recognition of a $3.6 million gain related to the sale of a parcel of land in the year-ago quarter and (2) lower gains on sales of residential loans of $2.1 million, partially offset by: (1) higher unrealized gains on outstanding interest rate locks of $1.9 million and (2) higher gains on sales of investment securities of $1.0 million. The sequential-quarter increase was primarily due to: (1) higher unrealized gains on outstanding interest rate locks which increased $1.5 million and (2) higher gains on sale s of investment securities of $0.6 million partially offset by lower service charges on deposit accounts of $0.7 million.
Other operating expense totaled $149.2 million, compared to $37.7 million in the year-ago quarter and $43.9 million in the fourth quarter of 2009. The increase from the year-ago quarter reflects: (1) the $102.7 million non-cash goodwill impairment charge, (2) higher foreclosed asset expense of $5.4 million, (3) increased legal and professional services of $2.9 million and (4) higher FDIC insurance expense of $1.6 million. These increases were partially offset by: (1) lower salaries and employee benefits of $1.4 million and (2) lower reserves for unfunded commitments of $0.9 million. The sequential-quarter increase was primarily due to: (1) the $102.7 million non-cash goodwill impairment charge, (2) higher foreclosed asset expense of $4.8 million, (3) increased reserves for unfunded commitments of $1.5 million and (4) increased FDIC insurance expense of $1.1 million. These increases were partially offset by: (1) lower write-downs on loans held for sale of $2.9 million and (2) lower salaries and employee benefits of $1.0 million.
The efficiency ratio was 83.6% (excluding foreclosed asset expense of $5.5 million and the write-down on loans held for sale of $0.8 million), compared with 57.9% in the year-ago quarter (excluding the write-down of loans held for sale totaling $0.4 million and foreclosed asset expense of $0.1 million) and 77.0% (excluding the write-down on loans held for sale of $3.6 million and foreclosed asset expense of $0.7 million) in the fourth quarter of 2009. The sequential quarter increase was the result of: (1) higher reserves for unfunded commitments of $1.5 million, (2) higher FDIC insurance of $1.1 million and (3) lower net interest income of $3.5 million.
The Company has been recognizing a full valuation allowance against its net deferred tax assets, which resulted in no income tax benefits being recognized during the first quarter of 2010.
Balance Sheet Highlights
Total assets at March 31, 2010 were $4.4 billion, compared to $5.4 billion and $4.9 billion at March 31, 2009 and December 31, 2009, respectively.
Total loans and leases at March 31, 2010 were $2.8 billion, compared to $3.8 billion and $3.0 billion at March 31, 2009 and December 31, 2009, respectively. The current quarter decrease was primarily due to a decrease in the mainland loan portfolio totaling $87.9 million and a decrease in the Hawaii construction and commercial real estate loan portfolio totaling $71.5 million. The decreases in these portfolios reflect $36.1 million in loan sales, transfers to loans held for sale totaling $17.7 million, transfers to other real estate owned totaling $15.2 million, as well as paydowns and chargeoffs totaling $90.4 million.
Total deposits at March 31, 2010 were $3.3 billion, compared to $4.0 billion at March 31, 2009 and $3.6 billion at December 31, 2009. Core deposits, which include demand deposits, savings and money market deposits, and time deposits less than $100,000, totaled $2.9 billion at March 31, 2010 and decreased by $104.8 million from a year ago and $77.5 million from December 31, 2009. Interest-bearing demand deposits increased during the current quarter by $42.5 million, while noninterest-bearing demand deposits, savings and money market deposits, and time deposits decreased during the first quarter by $26.5 million, $105.7 million, and $144.3 million, respectively.
Total shareholders’ equity was $172.1 million at March 31, 2010, compared to $657.3 million and $336.0 million at March 31, 2009 and December 31, 2009, respectively.
Asset Quality
Nonperforming assets at March 31, 2010 totaled $493.8 million, or 11.14% of total assets, compared to $499.8 million, or 10.26%, of total assets at December 31, 2009. The sequential-quarter decrease reflects net charge-offs and write-downs, paydowns, and sales of nonperforming assets totaling $46.2 million, $29.3 million, and $36.2 million, respectively. Partially offsetting these reductions were additions of $63.7 million in Hawaii construction loans and $24.2 million in Mainland construction loans.
Loans delinquent for 90 days or more still accruing interest increased from $3.3 million at December 31, 2009, to $7.0 million at March 31, 2010. In addition, loans delinquent for 30 days or more still accruing interest decreased from $51.5 million at December 31, 2009 to $29.7 million at March 31, 2010.
Net loan charge-offs in the first quarter of 2010 totaled $52.5 million, compared to $24.3 million in the year-ago quarter and $104.9 million in the fourth quarter of 2009.
The allowance for loan and lease losses as a percentage of total loans and leases was 7.44% at March 31, 2010, compared to 6.75% at December 31, 2009. The increase was attributable to the decrease in the loan portfolio and the $58.8 million provision for loan and lease losses, offset by net loan charge-offs totaling $52.5 million.
Hawaii Construction and Commercial Real Estate Loans
At March 31, 2010, Hawaii construction and commercial real estate loans (excluding owner-occupied loans) totaled $853.5 million, Hawaii construction and commercial real estate loans held for sale totaled $15.1 million, and Hawaii construction and commercial real estate foreclosed properties totaled $1.4 million. The Company’s total exposure to this sector decreased by $75.7 million from December 31, 2009, primarily due to loan sales of $28.1 million, charge-offs and write-downs of $40.2 million, sales of foreclosed properties totaling $5.0 million, and paydowns.
Hawaii construction and commercial real estate loans (excluding owner-occupied loans) represented 30.0% and 30.7% of total loans and leases at March 31, 2010, and December 31, 2009, respectively. Of the $853.5 million balance in the Hawaii construction and commercial real estate portfolio, the allowance for loan and lease losses established for these loans was $74.2 million at March 31, 2010, or 8.7%, of the total outstanding balance.
Nonperforming assets related to this sector totaled $291.7 million at March 31, 2010, or 6.58%, of total assets. This balance was comprised of 65 loans totaling $275.2 million at March 31, 2010, three loans held for sale totaling $15.1 million and one foreclosed property totaling $1.4 million. Nonperforming assets related to this sector totaled $276.9 million at December 31, 2009.
Mainland Construction and Commercial Real Estate Loans
At March 31, 2010, mainland construction and commercial real estate loans (excluding owner-occupied loans) totaled $595.0 million, mainland construction and commercial real estate loans held for sale totaled $12.7 million, and mainland construction and commercial real estate foreclosed properties totaled $28.3 million. This portfolio consisted of $424.8 million in California and $170.2 million in other Western states. The Company’s total exposure to this sector decreased by $71.2 million from December 31, 2009, primarily due to sales of portfolio loans totaling $15.2 million, charge-offs and write-downs of $19.8 million, sales of loans held for sale totaling $7.2 million, sales of foreclosed properties totaling $2.4 milli on, and paydowns.
Mainland construction and commercial real estate loans (excluding owner-occupied loans) represented 20.9% and 22.4% of total loans and leases at March 31, 2010, and December 31, 2009, respectively. Of the $595.0 million balance in the mainland construction and commercial real estate portfolio, the allowance for loan and lease losses established for these loans was $80.6 million at March 31, 2010, or 13.5%, of the total outstanding balance.
Nonperforming assets related to this sector totaled $165.6 million at March 31, 2010, or 3.73%, of total assets. This balance was comprised of 33 loans totaling $124.6 million, four loans held for sale totaling $12.7 million, and 11 foreclosed properties totaling $28.3 million. Nonperforming assets related to this sector totaled $183.3 million at December 31, 2009.
Capital Levels
At March 31, 2010, the Company’s Tier 1 risk-based capital, total risk-based capital, and leverage capital ratios were 8.99%, 10.32%, and 5.78%, respectively, compared to 9.62%, 10.93%, and 6.81%, respectively, at December 31, 2009.
Non-GAAP Financial Measures
This press release contains certain references to financial measures that have been adjusted to exclude certain expenses and other specified items. These financial measures differ from comparable measures calculated and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) in that they exclude unusual or non-recurring charges, losses, credits or gains. This press release identifies the specific items excluded from the comparable GAAP financial measure in the calculation of each non-GAAP financial measure. Management believes that financial presentations excluding the impact of these items provide useful supplemental information that is important to a proper understanding of the Company’s core business results by investors. These presentations should not be viewed as a substitute for results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP financial measures presented by other companies.
Conference Call
The Company’s management will host a conference call today at 1:00 p.m. Eastern Time (7:00 a.m. Hawaii Time) to discuss the quarterly results. Individuals are encouraged to listen to the live webcast of the presentation by visiting the investor relations page of the Company's website at http://investor.centralpacificbank.com. Alternatively, investors may participate in the live call by dialing 1-800-860-2442. A playback of the call will be available through May 31, 2010 by dialing 1-877-344-7529 (passcode: 439714) and on the Company's website.
About Central Pacific Financial Corp.
Central Pacific Financial Corp. is a Hawaii-based bank holding company with $4.4 billion in assets. Central Pacific Bank, its primary subsidiary, operates 35 branches and approximately 100 ATMs throughout Hawaii. For additional information, please visit the Company’s website at http://www.centralpacificbank.com.
