CENTRAL PACIFIC FINANCIAL CORP. REPORTS $9.2 MILLION
SECOND QUARTER EARNINGS
HONOLULU, HI, July 24, 2014 – Central Pacific Financial Corp. (NYSE: CPF), parent company of Central Pacific Bank (the “Bank”), today reported net income for the second quarter of 2014 of $9.2 million, or $0.25 per diluted share, compared to net income in the second quarter of 2013 of $14.3 million, or $0.34 per diluted share, and net income in the first quarter of 2014 of $9.8 million, or $0.23 per diluted share.
In July 2014, the Company’s Board of Directors declared a quarterly cash dividend of $0.10 per share on the Company’s outstanding common shares, an increase from $0.08 per share in the second quarter of 2014. The dividend will be payable on or about September 15, 2014 to shareholders of record at the close of business on August 29, 2014. This represents the fifth consecutive quarterly cash dividend.
“We are pleased with another quarter of solid financial performance,” said John C. Dean, Chairman and CEO. “As a result of our earnings consistency and strong capital position, we repurchased approximately 15% of our common stock outstanding since the beginning of the year and increased our dividend per share by 25% from the previous quarterly dividend.”
Significant Highlights and Second Quarter Results
| § | Completed repurchase agreements with our two largest shareholders to privately purchase 1,391,089 shares of common stock from each at a purchase price of $20.20 per share for a total cost of $56.2 million, excluding fees and expenses. In the first quarter of 2014, 3,405,888 shares of common stock were repurchased through a tender offer. |
| § | Authorized an additional repurchase and retirement of up to $30.0 million of the Company’s outstanding common stock. A total of $3.4 million in common stock was repurchased in the second quarter of 2014 under this repurchase program. |
| § | Reported net income of $9.2 million, compared to net income in the first quarter of 2014 of $9.8 million. |
| § | Increased the loans and leases portfolio by $96.7 million to $2.79 billion at June 30, 2014, compared to $2.70 billion at March 31, 2014. |
| § | Improved our net interest margin to 3.35% in the second quarter of 2014 from 3.31% in the first quarter of 2014. |
| § | Increased total deposits by $16.8 million to $4.00 billion at June 30, 2014, compared to $3.99 billion at March 31, 2014. |
| § | Recorded a provision for loan and lease losses of $2.0 million in the second quarter of 2014, compared to a credit of $1.3 million in the first quarter of 2014. |
| § | Nonperforming assets decreased by $11.9 million to $42.1 million at June 30, 2014 from $54.0 million at March 31, 2014. |
| § | The allowance for loan and lease losses (“ALLL”), as a percentage of total loans and leases, decreased to 2.99% at June 30, 2014, compared to 3.08% at March 31, 2014. The Company’s ALLL, as a percentage of nonperforming assets, increased to 198.47% at June 30, 2014 from 153.87% at March 31, 2014 and the Company’s ALLL, as a percentage of nonaccrual loans, increased to 226.72% at June 30, 2014 from 168.97% at March 31, 2014, as a result of a decline in nonperforming assets. |
| § | Maintained a strong capital position with Tier 1 risk-based capital, total risk-based capital, and leverage capital ratios of 17.06%, 18.33%, and 11.64%, respectively, as of June 30, 2014, compared to 18.63%, 19.90%, and 12.62%, respectively, as of March 31, 2014. 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 second quarter of 2014 was $35.9 million, compared to $33.2 million in the year-ago quarter and $35.8 million in the first quarter of 2014. Net interest margin was 3.35%, compared to 3.23% in the year-ago quarter and 3.31% in the first quarter of 2014. The sequential quarter increase in net interest margin was primarily due to growth in our average loan portfolio of $97.1 million and a reduction in our average investment securities portfolio of $147.3 million. The taxable equivalent yield on the investment securities portfolio decreased to 2.60% in the current quarter, compared to 2.62% last quarter. The taxable equivalent yield on the loan portfolio remained unchanged from the first quarter of 2014 of 4.07%.
The provision for loan and lease losses for the second quarter of 2014 was $2.0 million, compared to a credit to the provision for loan and lease losses of $0.2 million in the year-ago quarter and a credit of $1.3 million in the first quarter of 2014. The provision for loan and lease losses was primarily attributable to net loan charge-offs of $1.6 million and the $96.7 million increase in our loans and leases portfolio.
Other operating income for the second quarter of 2014 totaled $12.0 million, compared to $17.8 million in the year-ago quarter and $10.1 million in the first quarter of 2014. The decrease from the year-ago quarter was primarily due to the sale of a foreclosed property in the second quarter of 2013 at a gain of $7.2 million and lower net gains on sales of residential mortgage loans of $1.7 million, partially offset by higher unrealized gains on loans held for sale and interest rate locks of $1.3 million. The sequential quarter increase was primarily due to higher unrealized gains on loans held for sale and interest rate locks of $0.5 million, higher net gains on sales of foreclosed assets of $0.4 million, and income recovered on nonaccrual loans previously written-off of $0.4 million.
Other operating expense for the second quarter of 2014 totaled $32.9 million, compared to $35.0 million in the year-ago quarter and $31.9 million in the first quarter of 2014. The decrease from the year-ago quarter was primarily attributable to lower salaries and employee benefits of $1.7 million, lower provision for losses on residential mortgage loan repurchases of $1.1 million, lower amortization of intangible assets of $0.8 million, and lower foreclosed asset expense of $0.7 million, partially offset by a higher provision for unfunded loan commitments of $1.3 million, higher computer software expense of $0.4 million, and higher legal and professional services of $0.3 million. The sequential quarter increase was primarily attributable to a higher provision for unfunded loan commitments of $0.8 million, higher legal and professional services of $0.4 million, and the reversal of interest on income tax contingencies in the first quarter of 2014 of $0.4 million, partially offset by lower salaries and employee benefits of $0.9 million and a lower provision for losses on residential mortgage loan repurchases of $0.6 million.
The efficiency ratio for the second quarter of 2014 and in the year-ago quarter was 68.65%, compared to 69.50% in the first quarter of 2014.
In the second quarter of 2014, the Company recorded income tax expense of $3.9 million, compared to an income tax expense of $1.9 million in the year-ago quarter and income tax expense of $5.5 million in the first quarter of 2014. Income tax expense in the second quarter of 2014 included a credit true-up adjustment of $0.5 million. Excluding this adjustment the effective tax rate for the quarter was 33.9%. As of June 30, 2014, the Company’s net deferred tax assets totaled $114.6 million.
Balance Sheet Highlights
Total assets at June 30, 2014 of $4.73 billion increased by $21.0 million from June 30, 2013, and decreased by $99.7 million from March 31, 2014.
Total loans and leases at June 30, 2014 of $2.79 billion increased by $421.1 million and $96.7 million from June 30, 2013 and March 31, 2014, respectively. The increase in total loans and leases from the first quarter of 2014 was due to an increase in the residential mortgage, consumer, commercial mortgage, and construction and development loan portfolios of $46.8 million, $27.3 million, $14.2 million, and $13.2 million, respectively, offset by a decrease in the commercial loan and leases portfolios of $3.5 million and $1.3 million, respectively.
Total deposits at June 30, 2014 were $4.00 billion, and increased by $146.9 million and $16.8 million from June 30, 2013 and March 31, 2014, respectively. Core deposits, which include demand deposits, savings and money market deposits, and time deposits less than $100,000, totaled $3.19 billion at June 30, 2014. This represents an increase of $149.5 million and $19.4 million from a year ago and from March 31, 2014, respectively. Changes in total deposits during the quarter included net increases in noninterest-bearing demand deposits, and interest-bearing demand deposits of $23.5 million and $12.1 million, respectively, offset by net decreases in time deposits and savings and money market deposits of $9.6 million and $9.2 million, respectively.
Total shareholders’ equity was $564.6 million at June 30, 2014, compared to $642.0 million and $608.4 million at June 30, 2013 and March 31, 2014, respectively. The sequential quarter decrease is due primarily to the completion of the aforementioned repurchase agreements with each of our two largest shareholders totaling $56.2 million, repurchases of $3.4 million in common stock under the Company’s stock repurchase program, and cash dividends paid of $2.9 million, partially offset by an increase in unrealized gains on investment securities of $10.3 million and net income of $9.2 million in the current quarter.
Asset Quality
Nonperforming assets at June 30, 2014 totaled $42.1 million, or 0.89% of total assets, compared to $54.0 million, or 1.12% of total assets at March 31, 2014. The sequential-quarter change reflects net decreases in U.S. Mainland commercial mortgage assets of $7.2 million, Hawaii residential mortgage assets of $3.4 million, U.S. Mainland constructions assets of $0.6 million, and Hawaii commercial assets of $0.4 million.
Loans delinquent for 90 days or more still accruing interest totaled $119,000 at June 30, 2014, compared to $30,000 at March 31, 2014. In addition, loans delinquent for 30 days or more still accruing interest totaled $1.8 million at June 30, 2014, compared to $4.8 million at March 31, 2014.
Net charge-offs in the second quarter of 2014 totaled $1.6 million, compared to net recoveries of $0.5 million in the second quarter of 2013, and net recoveries of $0.7 million in the first quarter of 2014.
The ALLL, as a percentage of total loans and leases, was 2.99% at June 30, 2014, compared to 3.08% at March 31, 2014. The ALLL, as a percentage of nonperforming assets, was 198.47% at June 30, 2014, compared to 153.87% at March 31, 2014. The ALLL, as a percentage of nonaccrual loans, was 226.72% at June 30, 2014, compared to 168.97% at March 31, 2014.
Capital Levels
At June 30, 2014, the Company’s Tier 1 risk-based capital, total risk-based capital, and leverage capital ratios were 17.06%, 18.33%, and 11.64%, respectively, compared to 18.63%, 19.90%, and 12.62%, respectively, at March 31, 2014. The decline in the Company’s capital levels from the sequential quarter was primarily the result of the repurchases of our common stock in the repurchase agreements and our stock buyback program described above. The Company’s capital ratios continue to exceed 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 1-888-505-7644. A playback of the call will be available through August 29, 2014 by dialing 1-877-344-7529 (passcode: 10048413) and on the Company's website.
About Central Pacific Financial Corp.
Central Pacific Financial Corp. is a Hawaii-based bank holding company with approximately $4.7 billion in assets. Central Pacific Bank, its primary subsidiary, operates 37 branches and 113 ATMs in the state of Hawaii, as of June 30, 2014. For additional information, please visit the Company’s website at http://www.centralpacificbank.com.
