FIRST QUARTER OF 2011
HONOLULU, HI, April 27, 2011 – Central Pacific Financial Corp. (NYSE: CPF), parent company of Central Pacific Bank, today reported net income for the first quarter of 2011 of $4.6 million, compared to net losses in the first and fourth quarters of 2010 of $160.2 million and $2.1 million, respectively. Net income per diluted share for the first quarter of 2011 was $4.58, which included the impact of a one-time accounting adjustment totaling $85.1 million resulting from the exchange of the Company’s preferred stock issued to the U.S. Department of Treasury (the “Treasury”) for common stock as part of its recapitalization. Excluding this one-time adjustment, which did not impact the Company’s reported net income of $4.6 million, the Company’s net income per diluted share for the first quarter of 2011 was $0.18. During the first and fourth quarters of 2010, the Company’s net loss per diluted share was $107.23 and $2.78, respectively.
As previously announced, the Company recently completed the following significant milestones as part of its recapitalization:
| § | On February 18, 2011, successfully completed a $325 million capital raise from accredited investors in a private placement (the “Private Placement”). Concurrently with the completion of the Private Placement, the Company exchanged its Treasury preferred stock for common stock as noted above (the “TARP Exchange”). |
| § | On April 11, 2011, commenced a common stock rights offering of up to $20 million (the “Rights Offering”). Shareholders of record as of the close of business on February 17, 2011 received at no charge transferable rights to purchase up to 2,000,000 newly-issued common shares in the Rights Offering at $10.00 per share. The Rights Offering is expected to be completed on May 6, 2011. |
On April 12, 2011, the Company announced that the registration statement registering the common shares issued to certain investors in the Private Placement was declared effective by the U.S. Securities and Exchange Commission (the “SEC”).
“We are pleased with our first quarter results,” said John C. Dean, President and Chief Executive Officer. “Our return to profitability was the result of lower credit costs driven by continued improvement in our asset quality. With a solid capital foundation in place, we look forward to continuing our long standing commitment of service to our customers and are well positioned for growth in our Hawaii marketplace.”
Significant Highlights and First Quarter Results
| § | Achieved its plan to recapitalize the Company by successfully completing the Private Placement and the TARP Exchange. |
| § | Returned to profitability as the Company recorded quarterly net income of $4.6 million, compared to a net loss of $2.1 million in the fourth quarter of 2010. |
| § | Recognized total credit costs of $1.9 million, compared to $4.6 million in the fourth quarter of 2010. Total credit costs during the first quarter of 2011 included foreclosed asset expense of $2.2 million and write-downs of loans held for sale of $1.6 million, partially offset by a negative provision for loan and lease losses of $1.6 million and a decrease to the reserve for unfunded commitments of $0.3 million. Total credit costs for the fourth quarter of 2010 included a provision for loan and lease losses of $0.4 million, foreclosed asset expense of $4.2 million, and write-downs of loans held for sale of $0.5 million, partially offset by a decrease to the reserve for unfunded commitments of $0.5 million. |
| § | Reduced nonperforming assets by $18.0 million to $284.9 million at March 31, 2011 from $302.8 million at December 31, 2010 primarily through loan pay downs and charge-offs. |
| § | Had an allowance for loan and lease losses, as a percentage of total loans and leases, of 8.61% at March 31, 2011, compared to 8.89% at December 31, 2010. In addition, the Company had an allowance for loan and lease losses, as a percentage of nonperforming assets, of 62.49% at March 31, 2011, compared to 63.69% at December 31, 2010. |
| § | Reduced total outstanding borrowings with the Federal Home Loan Bank of Seattle (the “FHLB”) to $301.0 million at March 31, 2011 from $551.3 million at December 31, 2010. |
| § | Had cash and cash equivalents totaling $601.2 million at March 31, 2011, compared to $790.7 million at December 31, 2010. The Company also lowered its loan-to-deposit ratio to 65.7% at March 31, 2011, from 69.2% at December 31, 2010. The sequential quarter decrease in its cash and cash equivalents despite the completion of the Private Placement was due to the Company investing a portion of its excess liquidity into higher yielding investment securities and reducing its outstanding borrowings with the FHLB as described above. |
| § | Significantly improved its tier 1 risk-based capital, total risk-based capital, and leverage capital ratios as of March 31, 2011 to 21.34%, 22.67%, and 12.64%, respectively, from 7.64%, 8.98%, and 4.42%, respectively, as of December 31, 2010. The Company’s capital ratios now exceed the minimum levels required by the Consent Order dated December 9, 2009 (the “Consent Order”) entered into with the Federal Deposit Insurance Corporation (the “FDIC”) and the Hawaii Division of Financial Institutions (the “DFI”) and are also above the levels required for a “well-capitalized” regulatory designation. |
| § | Continued to support home ownership in Hawaii by originating residential mortgage loans totaling $220.0 million during the quarter. |
Earnings Highlights
Net interest income was $28.2 million, compared to $35.1 million in the year-ago quarter and $27.0 million in the fourth quarter of 2010. The net interest margin was 3.03%, compared to 2.76% in the fourth quarter of 2010 and 3.20% in the year-ago quarter. The Company saw a sequential quarter improvement in its net interest margin as it began to redeploy its excess liquidity into higher yielding investment securities and reduced its borrowing costs following the previously announced prepayment of certain long-term borrowings outstanding with the FHLB totaling $106.7 million with a weighted average interest rate of 4.78% in December 2010. Net interest income reflects the reversal of interest on certain nonaccrual loans totaling $0.3 million during the current quarter, compared to $1.6 million in the year-ago quarter and $0.5 million in the fourth quarter of 2010. Excluding the effects of interest reversals on nonaccrual loans, the net interest margin was 3.07% for the current quarter, compared to 3.34% in the year-ago quarter and 2.81% in the fourth quarter of 2010.
The Company’s provision for loan and lease losses was a credit of $1.6 million in the first quarter of 2011, compared to a charge of $0.4 million in the fourth quarter of 2010 and a charge of $58.8 million in the first quarter of 2010. The decrease was primarily due to continued improvement in the Company’s credit risk profile as evidenced by further declines in nonperforming assets and net charge-offs during the quarter, which is more fully described below.
Other operating income totaled $12.5 million, compared to $12.8 million in the year-ago quarter and $19.9 million in the fourth quarter of 2010. The decrease from the year-ago quarter was primarily due to: (1) lower gains on sales of investment securities of $0.8 million and (2) lower service charges on deposits of $0.6 million, partially offset by an unrealized non-cash gain attributable to a $0.5 million decrease in the fair value of a derivative liability related to an amended warrant held by the Treasury as part of the TARP Exchange. The sequential-quarter decrease was primarily due to: (1) the recognition of a $7.7 million gain on the sale of Kaimuki Plaza in the fourth quarter of 2010 and (2) lower gains on sales of residential mortgage loans of $1.0 million, partially offset by (1) the aforementioned unrealized non-cash gain of $0.5 million, (2) higher income from bank-owned life insurance of $0.5 million and (3) higher unrealized gains on outstanding interest rate locks of $0.4 million.
Other operating expense totaled $37.6 million, compared to $149.2 million in the year-ago quarter and $48.6 million in the fourth quarter of 2010. The decrease from the year-ago quarter reflects: (1) a $102.7 million non-cash goodwill impairment charge recorded in the first quarter of 2010, (2) lower net credit-related charges of $4.2 million and (3) lower legal and professional services of $3.2 million. The sequential quarter decrease reflects: (1) the recognition of a one-time loss totaling $5.7 million attributable to the previously mentioned early extinguishment of certain long-term borrowings with the FHLB during the fourth quarter of 2010, (2) a lower provision for repurchased residential mortgage loans of $4.6 million and (3) lower net credit-related charges of $0.7 million, partially offset by higher salaries and employee benefits of $2.0 million.
The efficiency ratio was 81.2% (excluding foreclosed asset expense of $2.2 million and write-downs of loans held for sale totaling $1.6 million), compared to 83.6% in the year-ago quarter (excluding the non-cash goodwill impairment charge of $102.7 million, foreclosed asset expense of $5.5 million and write-downs of loans held for sale of $0.8 million) and 79.8% (excluding the loss on early extinguishment of debt of $5.7 million, foreclosed asset expense of $4.1 million and write-downs of loans held for sale totaling $0.5 million) in the fourth quarter of 2010.
The Company continues to recognize a full valuation allowance against its net deferred tax assets and did not record any income tax benefit or expense during the first quarter of 2011.
Balance Sheet Highlights
Total assets at March 31, 2011 were $4.0 billion, compared to $4.4 billion and $3.9 billion at March 31, 2010 and December 31, 2010, respectively.
Total loans and leases at March 31, 2011 were $2.1 billion, compared to $2.8 billion and $2.2 billion at March 31, 2010 and December 31, 2010, respectively. The current quarter decrease was primarily due to decreases in the Hawaii construction and commercial mortgage loan portfolios of $58.3 million and the Hawaii commercial loan portfolio of $24.9 million.
Total deposits of $3.1 billion at March 31, 2011 was virtually unchanged from December 31, 2010, compared to $3.3 billion at March 31, 2010. Core deposits, which include demand deposits, savings and money market deposits, and time deposits less than $100,000, totaled $2.7 billion at March 31, 2011. This represents a decrease of $126.1 million from a year ago and a decrease of $48.6 million from December 31, 2010. Significant changes in total deposits during the quarter included a decrease in interest-bearing demand deposits of $111.0 million, while non-interest bearing demand deposits, savings and money market deposits and time deposits increased by $66.3 million, $30.5 million and $26.8 million, respectively.
Total shareholders’ equity was $385.0 million at March 31, 2011, compared to $172.1 million and $66.1 million at March 31, 2010 and December 31, 2010, respectively, and reflects the successful completion of the $325.0 million Private Placement and the TARP Exchange in February 2011.
Asset Quality
Nonperforming assets at March 31, 2011 totaled $284.9 million, or 7.10% of total assets, compared to $302.8 million, or 7.69% of total assets at December 31, 2010. The sequential-quarter decrease was primarily due to loan pay downs and charge-offs and reflects net decreases in the Hawaii construction and development and Hawaii commercial mortgage portfolios totaling $14.4 million and $3.7 million, respectively, partially offset by a net increase in the Hawaii residential mortgage portfolio totaling $1.2 million.
Loans delinquent for 90 days or more still accruing interest decreased from $8.5 million at December 31, 2010 to $0.5 million at March 31, 2011. In addition, loans delinquent for 30 days or more still accruing interest decreased from $38.2 million at December 31, 2010 to $15.5 million at March 31, 2011.
Net loan charge-offs in the first quarter of 2011 totaled $13.3 million, compared to $52.5 million in the year-ago quarter and $25.2 million in the fourth quarter of 2010. Net charge-offs included the following significant amounts: Hawaii construction and development loans totaling $9.5 million, Hawaii residential mortgage loans totaling $1.3 million, and Mainland construction and development loans totaling $1.0 million.
The allowance for loan and lease losses, as a percentage of total loans and leases, was 8.61% at March 31, 2011, compared to 8.89% at December 31, 2010. The allowance for loan and lease losses, as a percentage of nonperforming assets, was 62.49% at March 31, 2011, compared to 63.69% at December 31, 2010.
Construction and Development Loans
At March 31, 2011, the construction and development loan portfolio (excluding owner-occupied loans) totaled $258.2 million, or 12.5%, of the total loan portfolio. Of this amount, $165.0 million were located in Hawaii and $93.2 million were located on the Mainland. This portfolio decreased by $41.7 million from December 31, 2010 and by $480.2 million from March 31, 2010. The sequential quarter decrease was primarily due to loan pay downs and reflects decreases in the Hawaii and Mainland construction and development loan portfolios (excluding owner-occupied loans) of $36.6 million and $5.1 million, respectively.
The allowance for loan and lease losses established for these loans was $53.9 million at March 31, 2011, or 20.9%, of the total outstanding balance, compared to $73.1 million, or 24.4%, of the total outstanding balance at December 31, 2010. Of this amount, $39.4 million related to construction and development loans in Hawaii and $14.5 million related to construction and development loans on the Mainland.
Nonperforming construction and development assets in Hawaii totaled $145.2 million at March 31, 2011, or 3.6%, of total assets. At March 31, 2011, this balance was comprised of portfolio loans totaling $93.5 million, loans held for sale totaling $29.3 million, and foreclosed properties totaling $22.4 million. Nonperforming assets related to this sector totaled $159.3 million at December 31, 2010.
Nonperforming construction and development assets on the Mainland totaled $71.7 million at March 31, 2011, or 1.8%, of total assets. At March 31, 2011, this balance was comprised of portfolio loans totaling $36.8 million, loans held for sale totaling $4.4 million, and foreclosed properties totaling $30.5 million. Nonperforming assets related to this sector totaled $72.1 million at December 31, 2010.
Capital Levels
At March 31, 2011, the Company’s Tier 1 risk-based capital, total risk-based capital, and leverage capital ratios significantly improved to 21.34%, 22.67%, and 12.64%, respectively, compared to 7.64%, 8.98%, and 4.42%, respectively, at December 31, 2010. The Company’s capital ratios now exceed the minimum levels required by the Consent Order and are above the levels required for a “well-capitalized” regulatory designation.
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 1-877-317-6789. A playback of the call will be available through May 31, 2011 by dialing 1-877-344-7529 (passcode: 450252) and on the Company's website.
About Central Pacific Financial Corp.
Central Pacific Financial Corp. is a Hawaii-based bank holding company with $4.0 billion in assets. Central Pacific Bank, its primary subsidiary, operates 34 branches, 120 ATMs, and a residential mortgage subsidiary in the state of Hawaii. For additional information, please visit the Company’s website at http://www.centralpacificbank.com.
