$10.7 MILLION NET INCOME
HONOLULU, HI, October 25, 2012 – Central Pacific Financial Corp. (NYSE: CPF), parent company of Central Pacific Bank (the “Bank”), today reported net income for the third quarter of 2012 of $10.7 million, or $0.26 per diluted share, compared to net income in the third quarter of 2011 of $11.6 million, or $0.28 per diluted share, and net income in the second quarter of 2012 of $10.8 million, or $0.26 per diluted share.
“We are pleased with the significant and consistent progress of our company, which is reflected in a seventh consecutive quarter of profitability since our recapitalization,” said John C. Dean, President and Chief Executive Officer. “Continued improvement in our credit risk profile evidenced by a significant decrease in our nonperforming assets and stable growth in our core deposits have contributed to another solid performance in the third quarter.”
Significant Highlights and Third Quarter Results
| § | Reported seventh consecutive profitable quarter since the company’s recapitalization with net income of $10.7 million, compared to net income of $10.8 million in the second quarter of 2012. |
| § | For the sixth 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 changes to the reserve for unfunded commitments. The reduction in the ALLL resulted in a credit to the provision for loan and lease losses of $5.0 million, compared to a credit of $6.6 million for the second quarter of 2012. |
| § | Reduced nonperforming assets by $30.0 million to $140.3 million at September 30, 2012 from $170.3 million at June 30, 2012. |
| § | The ALLL, as a percentage of total loans and leases, decreased to 4.59% at September 30, 2012, compared to 4.94% at June 30, 2012. In addition, the Company had an ALLL, as a percentage of nonperforming assets, of 69.08% at September 30, 2012, compared to 60.95% at June 30, 2012. |
| § | Increased the loans and leases portfolio by $9.0 million to $2.11 billion at September 30, 2012, compared to $2.10 billion at June 30, 2012. |
| § | Completed an investment portfolio repositioning to reduce net interest income volatility and enhance the potential for prospective earnings and an improved net interest margin. Sold $124.7 million in available-for-sale investment securities with an average yield of 0.60% and reinvested the proceeds in $133.2 million of similarly typed investment securities with an average yield of 1.88%. The new securities were classified in the held-to-maturity portfolio and a pre-tax gain of $0.7 million was realized on the transaction. |
| § | Increased total deposits by $59.3 million to $3.62 billion at September 30, 2012, compared to $3.56 billion at June 30, 2012. |
| § | Maintained a strong capital position with Tier 1 risk-based capital, total risk-based capital, and leverage capital ratios of 23.34%, 24.63%, and 14.06%, respectively, as of September 30, 2012, compared to 23.04%, 24.32%, and 14.12%, respectively, as of June 30, 2012. The Company’s capital ratios continue to be well in excess of the minimum levels required for a “well-capitalized” regulatory designation. |
Earnings Highlights
Net interest income for the third quarter of 2012 was $29.6 million, compared to $29.8 million in the year-ago quarter and $30.3 million in the second quarter of 2012. Net interest margin was 3.02%, compared to 3.05% in the year-ago quarter and 3.17% in the second quarter of 2012. The decrease in both net interest income and the net interest margin from both the year-ago and sequential quarters was primarily due to lower yields on the Company’s interest-earning assets resulting from the continuing lower interest rate environment.
The provision for loan and lease losses for the third quarter of 2012 was a credit of $5.0 million, compared to a credit of $19.1 million in the year-ago quarter and a credit of $6.6 million in the second quarter of 2012. The credit to the provision for loan and lease losses was the result of continued improvement in the Company’s credit risk profile, as evidenced by the previously mentioned decrease in nonperforming assets and further reductions in the historical quarterly charge-off data used to calculate the ALLL.
Other operating income for the third quarter of 2012 totaled $15.9 million, compared to $11.5 million in the year-ago quarter and $13.6 million in the second quarter of 2012. The increase from the year-ago quarter was primarily due to higher gains on sales of residential mortgage loans of $3.5 million, higher rental income from foreclosed properties of $1.1 million and higher investment securities gains of $0.8 million, partially offset by lower service charges on deposit accounts of $0.4 million. The sequential quarter increase was primarily due to higher gains on sales of residential mortgage loans of $1.3 million and higher investment securities gains of $0.8 million.
Other operating expense for the third quarter of 2012 totaled $39.8 million, compared to $48.8 million in the year-ago quarter and $39.7 million in the second quarter of 2012. The decrease from the year-ago quarter was primarily due to a one-time loss on the early extinguishment of debt recorded in the third quarter of 2011 of $6.2 million, lower charitable contributions of $5.0 million, a lower provision for repurchased residential mortgage loans of $2.5 million, and an accrual of a $1.2 million settlement of a class action lawsuit recorded in the third quarter of 2011. These decreases were partially offset by higher net credit-related charges (which includes changes in the reserve for unfunded commitments, write-downs of loans held for sale and foreclosed asset expense) of $5.4 million, higher salaries and employee benefits of $1.4 million and higher amortization expense related to the Company’s mortgage servicing rights of $1.0 million. The sequential quarter increase was primarily attributable to higher net credit-related charges of $4.8 million, partially offset by an accrual of $1.8 million related to the settlement of a legal proceeding against the Company recorded in the second quarter of 2012 and lower legal and professional services of $1.0 million.
The efficiency ratio for the third quarter of 2012 was 78.51% (excluding foreclosed asset expense of $2.9 million, loss on sale of loans held for sale of $0.8 million and amortization expense related to certain intangible assets totaling $0.7 million), compared to 99.11% in the year-ago quarter (excluding the loss on early extinguishment of debt of $6.2 million, foreclosed asset expense of $0.8 million and amortization expense related to certain intangible assets totaling $0.7 million) and 80.41% (excluding foreclosed asset expense of $2.6 million and amortization expense related to certain intangible assets totaling $1.6 million) in the second quarter of 2012.
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 third quarter of 2012.
Balance Sheet Highlights
Total assets at September 30, 2012 of $4.31 billion increased by $190.5 million and $82.5 million from September 30, 2011 and June 30, 2012, respectively.
Total loans and leases at September 30, 2012 of $2.11 billion increased by $50.7 million and $9.0 million from September 30, 2011 and June 30, 2012, respectively. The increase in total loans and leases from the second quarter of 2012 was due to an increase in the consumer, commercial and residential mortgage loan portfolios of $15.1 million, $13.7 million and $7.9 million, respectively, partially offset by a decrease in the commercial mortgage, construction and development and leases portfolios of $23.8 million, $2.2 million and $1.8 million, respectively.
Total deposits at September 30, 2012 were $3.62 billion, compared to $3.35 billion and $3.56 billion at September 30, 2011 and June 30, 2012, respectively. Core deposits, which include demand deposits, savings and money market deposits, and time deposits less than $100,000, totaled $2.94 billion at September 30, 2012. This represents an increase of $206.5 million from a year ago and an increase of $61.5 million from June 30, 2012. Changes in total deposits during the quarter included an increase in non-interest bearing demand deposits, interest-bearing demand deposits and savings and money market deposits of $34.8 million, $21.7 million and $16.1 million, respectively, offset by a decrease in time deposits of $13.3 million.
Total shareholders’ equity was $501.0 million at September 30, 2012, compared to $440.9 million and $480.5 million at September 30, 2011 and June 30, 2012, respectively.
Asset Quality
Nonperforming assets at September 30, 2012 totaled $140.3 million, or 3.26% of total assets, compared to $170.3 million, or 4.03% of total assets at June 30, 2012. The sequential-quarter decrease reflects net decreases in Hawaii construction and development assets totaling $10.7 million, Hawaii residential mortgage assets totaling $8.7 million, Mainland construction and development assets totaling $4.2 million, Mainland commercial mortgage assets totaling $3.4 million, Hawaii commercial mortgage assets totaling $2.9 million and Hawaii commercial assets totaling $0.1 million.
Loans delinquent for 90 days or more still accruing interest totaled $0.5 million at September 30, 2012 and June 30, 2012. In addition, loans delinquent for 30 days or more still accruing interest totaled $5.7 million at September 30, 2012, compared to $3.8 million at June 30, 2012.
Net charge-offs in the third quarter of 2012 totaled $1.9 million, compared to $4.4 million in the year-ago quarter and $3.9 million in the second quarter of 2012.
The ALLL, as a percentage of total loans and leases, was 4.59% at September 30, 2012, compared to 4.94% at June 30, 2012. The ALLL, as a percentage of nonperforming assets, was 69.08% at September 30, 2012, compared to 60.95% at June 30, 2012.
Capital Levels
At September 30, 2012, the Company’s Tier 1 risk-based capital, total risk-based capital, and leverage capital ratios were 23.34%, 24.63%, and 14.06%, respectively, compared to 23.04%, 24.32%, and 14.12%, respectively, at June 30, 2012. The Company’s capital ratios continue to exceed the minimum levels required by both the Memorandum of Understanding between the Bank and its regulators and the levels required to be considered a “well-capitalized” institution for regulatory purposes.
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 November 26, 2012 by dialing 1-877-344-7529 (passcode: 10019312) and on the Company's website.
About Central Pacific Financial Corp.
Central Pacific Financial Corp. is a Hawaii-based bank holding company with approximately $4.31 billion in assets. Central Pacific Bank, its primary subsidiary, operates 34 branches and 117 ATMs in the state of Hawaii, as of September 30, 2012. For additional information, please visit the Company’s website at http://www.centralpacificbank.com.
