FOURTH CONSECUTIVE PROFITABLE QUARTER
HONOLULU, HI, January 25, 2012 – Central Pacific Financial Corp. (NYSE: CPF), parent company of Central Pacific Bank (the “Bank”), today reported net income for the fourth quarter of 2011 of $12.1 million, or $0.29 per diluted share, compared to a net loss in the fourth quarter of 2010 of $2.1 million, or $2.78 per diluted share, and net income in the third quarter of 2011 of $11.6 million, or $0.28 per diluted share. For the year ended December 31, 2011, the Company’s net income was $36.6 million, or $3.31 per diluted share, compared to a net loss of $251.0 million, or $171.13 per diluted share in the previous year.
"In a year where we believe we have made tremendous progress in executing our recovery plan, we are pleased to end 2011 with our fourth consecutive profitable quarter," said John C. Dean, President and Chief Executive Officer. "As we saw during the year, continued improvement in our credit risk profile and further reductions in our nonperforming assets allowed us to once again meaningfully reduce our allowance for loan and lease losses, which contributed greatly to our profitable quarter."
Significant Highlights and Fourth Quarter Results
| § | Reported fourth consecutive profitable quarter with net income of $12.1 million, compared to net income of $11.6 million in the third quarter of 2011. |
| § | For the third consecutive quarter, the Company did not incur credit costs as it reduced its allowance for loan and lease losses (ALLL) by an amount greater than net foreclosed asset expense, write-downs of loans held for sale and the increase to the reserve for unfunded commitments. The reduction in the ALLL resulted in a credit to the provision for loan and lease losses of $11.2 million, compared to a credit of $19.1 million during the third quarter of 2011. |
| § | Reduced nonperforming assets by $27.7 million to $195.6 million at December 31, 2011 from $223.3 million at September 30, 2011. |
| § | The ALLL, as a percentage of total loans and leases, decreased to 5.91% at December 31, 2011, compared to 6.96% at September 30, 2011. In addition, the Company had an ALLL, as a percentage of nonperforming assets, of 62.42% at December 31, 2011, compared to 64.23% at September 30, 2011. |
| § | Agreed to contribute $3.5 million to the Central Pacific Bank Foundation (the “Foundation”) to continue the Company’s longstanding commitment to support its local communities. During the third quarter of 2011, the Company agreed to contribute $5.0 million to the Foundation. |
| § | Increased Tier 1 risk-based capital, total risk-based capital, and leverage capital ratios as of December 31, 2011 to 22.94%, 24.24%, and 13.78%, respectively, compared to 22.63%, 23.94%, and 13.19%, respectively, as of September 30, 2011. The Company’s capital ratios continue to exceed the minimum levels required to be considered “well-capitalized” for regulatory purposes. |
Earnings Highlights
Net interest income for the fourth quarter of 2011 was $30.8 million, compared to $27.0 million in the year-ago quarter and $29.8 million in the third quarter of 2011. Net interest margin was 3.25%, compared to 2.76% in the year-ago quarter and 3.05% in the third quarter of 2011. The improvement reflects the Company’s continued redeployment of its excess liquidity into higher yielding assets and further declines in its overall funding costs. The current quarter decrease in the Company’s funding costs was largely attributable to the previously reported prepayment of long-term borrowings at the Federal Home Loan Bank of Seattle totaling $120.5 million with a weighted average interest rate of 4.36% during the third quarter of 2011.
The provision for loan and lease losses for the fourth quarter of 2011 was a credit of $11.2 million, compared to a credit of $19.1 million in the third quarter of 2011 and a charge of $0.4 million in the fourth quarter of 2010. The reduction was the result of further improvement in the Company’s credit risk profile as evidenced by continued declines in nonperforming assets during the quarter, which is described more fully below.
Other operating income for the fourth quarter of 2011 totaled $15.2 million, compared to $19.9 million in the year-ago quarter and $11.5 million in the third quarter of 2011. The decrease from the year-ago quarter was primarily due to the recognition of a $7.7 million gain on the sale of a building during the fourth quarter of 2010, partially offset by the recognition of a $1.0 million gain on the sale of investment securities during the fourth quarter of 2011. The sequential-quarter increase was primarily due to higher gains on sales of residential mortgage loans of $2.5 million and the previously mentioned investment securities gain, partially offset by lower unrealized gains on interest rate locks of $1.1 million.
Other operating expense for the fourth quarter of 2011 totaled $45.2 million, compared to $48.6 million in the year-ago quarter and $48.8 million in the third quarter of 2011. The decrease from the year-ago quarter was primarily attributable to a nonrecurring loss on the early extinguishment of debt of $5.7 million recorded in the fourth quarter of 2010, a lower provision for repurchased residential mortgage loans of $4.3 million, and lower FDIC insurance expense of $1.7 million, partially offset by higher salaries and employee benefits of $4.3 million and higher charitable contributions of $3.5 million. The sequential quarter decrease was primarily attributable to a nonrecurring loss on the early extinguishment of debt of $6.2 million recorded in the third quarter of 2011 and lower charitable contributions of $1.6 million, partially offset by higher net credit-related charges (which includes changes in the reserve for unfunded commitments and foreclosed asset expense) of $4.6 million and higher salaries and employee benefits of $1.5 million
The efficiency ratio for the fourth quarter of 2011 was 92.0% (excluding gains on sale of investment securities of $1.0 million and foreclosed asset expense of $3.0 million), compared to 80.0% in the year-ago quarter (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 of $0.5 million) and 99.1% (excluding the loss on early extinguishment of debt of $6.2 million and foreclosed asset expense of $0.8 million) in the third quarter of 2011.
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 fourth quarter of 2011.
Balance Sheet Highlights
Total assets at December 31, 2011 of $4.1 billion increased by $194.8 million and $13.7 million from December 31, 2010 and September 30, 2011, respectively.
Total loans and leases at December 31, 2011 of $2.1 billion decreased by $105.0 million from December 31, 2010 and increased by $5.0 million from September 30, 2011. The increase in total loans and leases from the third quarter of 2011 was primarily due to an increase in the residential mortgage loan portfolio of $39.1 million, partially offset by a decrease in the construction and development portfolio of $35.0 million.
Total deposits at December 31, 2011 were $3.4 billion, compared to $3.1 billion and $3.3 billion at December 31, 2010 and September 30, 2011, respectively. Core deposits, which include demand deposits, savings and money market deposits, and time deposits less than $100,000, totaled $2.8 billion at December 31, 2011. This represents a decrease of $9.9 million from a year ago and an increase of $49.3 million from September 30, 2011. Significant changes in total deposits during the quarter included an increase in non-interest bearing demand deposits, time deposits, savings and money market deposits, and interest bearing demand deposits of $47.5 million, $30.0 million, $14.2 million and $3.7 million, respectively.
Total shareholders’ equity was $456.4 million at December 31, 2011, compared to $66.1 million and $440.9 million at December 31, 2010 and September 30, 2011, respectively.
Asset Quality
Nonperforming assets at December 31, 2011 totaled $195.6 million, or 4.73% of total assets, compared to $223.3 million, or 5.42% of total assets at September 30, 2011. The sequential-quarter decrease in the Company’s nonperforming assets was primarily attributable to loan pay-downs and pay-offs totaling $17.3 million, sales of foreclosed properties totaling $9.0 million, charge-offs totaling $5.2 million, write-downs totaling $2.0 million and transfers of loans back to accrual status totaling $6.2 million. The sequential-quarter decrease reflects net reductions in Hawaii construction and development assets totaling $25.7 million and Hawaii residential mortgage assets totaling $9.0 million, partially offset by net increases in Hawaii commercial mortgage assets totaling $2.3 million and Mainland construction and development assets totaling $1.8 million.
Loans delinquent for 90 days or more still accruing interest totaled $28,000 at December 31, 2011, compared to $0.4 million at September 30, 2011. In addition, loans delinquent for 30 days or more still accruing interest totaled $5.4 million at December 31, 2011, compared to $4.5 million at September 30, 2011.
Net loan charge-offs in the fourth quarter of 2011 totaled $10.1 million, compared to $25.2 million in the year-ago quarter and $4.4 million in the third quarter of 2011. Net charge-offs included the following significant amounts: Mainland construction and development loans totaling $6.6 million and Hawaii construction and development loans totaling $3.4 million.
The ALLL, as a percentage of total loans and leases, was 5.91% at December 31, 2011, compared to 6.96% at September 30, 2011. The ALLL, as a percentage of nonperforming assets, was 62.42% at December 31, 2011, compared to 64.23% at September 30, 2011.
Construction and Development Loans
At December 31, 2011, the construction and development loan portfolio (excluding owner-occupied loans) totaled $148.4 million, or 7.2%, of the total loan portfolio. Of this amount, $74.8 million were located in Hawaii and $73.6 million were located on the Mainland. This portfolio decreased by $32.9 million from September 30, 2011 and by $151.5 million from December 31, 2010. The sequential quarter decrease was attributable to decreases in the Hawaii and Mainland construction and development loan portfolios (excluding owner-occupied loans) of $23.7 million and $9.2 million, respectively.
The ALLL established for these loans was $21.9 million at December 31, 2011, or 14.8%, of the total outstanding balance, compared to $27.3 million, or 15.0%, of the total outstanding balance at September 30, 2011. Of this amount, $12.3 million related to construction and development loans in Hawaii and $9.6 million related to construction and development loans on the Mainland.
Nonperforming construction and development assets in Hawaii totaled $75.1 million at December 31, 2011, or 1.8%, of total assets. At December 31, 2011, this balance was comprised of portfolio loans totaling $22.1 million, loans held for sale totaling $12.4 million and foreclosed properties totaling $40.6 million. Nonperforming assets related to this sector totaled $100.3 million at September 30, 2011.
Nonperforming construction and development assets on the Mainland totaled $48.0 million at December 31, 2011, or 1.2%, of total assets. At December 31, 2011, this balance was comprised of portfolio loans totaling $33.0 million and foreclosed properties totaling $15.0 million. Nonperforming assets related to this sector totaled $46.2 million at September 30, 2011.
Capital Levels
At December 31, 2011, the Company’s Tier 1 risk-based capital, total risk-based capital, and leverage capital ratios were 22.94%, 24.24%, and 13.78%, respectively, compared to 22.63%, 23.94%, and 13.19%, respectively, at September 30, 2011. The Company’s capital ratios continue to exceed the minimum levels required by both the Memorandum of Understanding between the bank and its regulators (the “MOU”) and the levels required to be considered “well-capitalized” for regulatory purposes.
Reverse Split
Except as otherwise specified, the share and per share amounts for historical periods have been restated to give the effect to the Reverse Stock Split effected on February 2, 2011.
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 12:00 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 February 27, 2012 by dialing 1-877-344-7529 (passcode: 10008748) and on the Company's website.
About Central Pacific Financial Corp.
Central Pacific Financial Corp. is a Hawaii-based bank holding company with approximately $4.1 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.
