CENTRAL PACIFIC FINANCIAL CORP. REPORTS $8.2 MILLION
THIRD QUARTER EARNINGS
HONOLULU, HI, October 29, 2014 – Central Pacific Financial Corp. (NYSE: CPF), parent company of Central Pacific Bank (the “Bank”), today reported net income for the third quarter of 2014 of $8.2 million, or $0.23 per diluted share, compared to net income in the third quarter of 2013 of $10.2 million, or $0.24 per diluted share, and net income in the second quarter of 2014 of $9.2 million, or $0.25 per diluted share.
“We are pleased with another quarter of solid earnings performance, after normalizing the non-recurring income and expense items”, said John C. Dean, Chairman and CEO. “Loan and deposit growth continued to be strong as we focused on quality business development in our marketplace.”
In October 2014, the Company’s Board of Directors declared a quarterly cash dividend of $0.10 per share on the Company’s outstanding common shares. The dividend will be payable on or about December 15, 2014 to shareholders of record at the close of business on November 28, 2014. This represents the sixth consecutive quarterly cash dividend.
Significant Highlights and Third Quarter Results
| § | Reported net income of $8.2 million, compared to net income in the second quarter of 2014 of $9.2 million. |
| § | Net income was impacted by several non-recurring items including, branch consolidation and relocation expenses of $1.3 million which reduced earnings per diluted share by $0.03, an income tax expense true-up of $0.9 million which reduced earnings per diluted share by $0.03, and income recovered on a previous counterparty loss of $0.6 million which increased earnings per diluted share by $0.02. |
| § | Increased the loans and leases portfolio by $80.6 million to $2.87 billion at September 30, 2014, compared to $2.79 billion at June 30, 2014. |
| § | Increased total deposits by $45.5 million to $4.05 billion at September 30, 2014, compared to $4.00 billion at June 30, 2014. |
| § | Recorded a credit to the provision for loan and lease losses of $1.7 million in the third quarter of 2014, compared to a provision for loan and lease losses of $2.0 million in the second quarter of 2014. |
| § | Nonperforming assets increased by $3.2 million to $45.3 million at September 30, 2014 from $42.1 million at June 30, 2014. |
| § | The allowance for loan and lease losses (“ALLL”), as a percentage of total loans and leases, decreased to 2.88% at September 30, 2014, compared to 2.99% at June 30, 2014. The Company’s ALLL, as a percentage of nonperforming assets, decreased to 182.90% at September 30, 2014 from 198.47% at June 30, 2014 and the Company’s ALLL, as a percentage of nonaccrual loans, decreased to 198.67% at September 30, 2014 from 226.72% at June 30, 2014, as a result of the increase in nonperforming assets. |
| § | Maintained a strong capital position with Tier 1 risk-based capital, total risk-based capital, and leverage capital ratios of 17.19%, 18.46%, and 11.87%, respectively, as of September 30, 2014, compared to 17.06%, 18.33%, and 11.64%, respectively, as of June 30, 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 third quarter of 2014 was $35.5 million, compared to $33.8 million in the year-ago quarter and $35.9 million in the second quarter of 2014. Net interest margin was 3.30%, compared to 3.19% in the year-ago quarter and 3.35% in the second quarter of 2014. The sequential quarter decrease in net interest margin was primarily due to net recoveries of interest on nonaccrual loans of $0.4 million received last quarter, compared to net reversals of interest on nonaccrual loans of $0.1 million recorded this quarter. The taxable equivalent yield on the investment securities portfolio decreased to 2.57% in the current quarter, compared to 2.60% last quarter. The taxable equivalent yield on the loan portfolio decreased to 3.96% in the third quarter from 4.07% in the second quarter of 2014.
In the third quarter of 2014, we recorded a credit to the provision for loan and lease losses of $1.7 million, compared to a credit to the provision for loan and lease losses of $3.2 million in the year-ago quarter and a provision for loan and lease losses of $2.0 million in the second quarter of 2014. The credit to the provision for loan and lease losses was primarily attributable to net loan recoveries of $1.0 million.
Other operating income for the third quarter of 2014 totaled $11.5 million, compared to $11.9 million in the year-ago quarter and $12.0 million in the second quarter of 2014. The decrease from the year-ago quarter was primarily due to unrealized gains on loans held for sale and interest rate locks of $1.0 million in the third quarter of 2013 compared to $0.1 million in the current quarter, lower other service charges and fees of $0.5 million, and lower equity in earnings of unconsolidated subsidiaries of $0.5 million, partially offset by a partial recovery of a previous counterparty loss on a financing transaction of $0.6 million, and income recovered on nonaccrual loans previously written-off of $0.5 million. The sequential quarter decrease was primarily due to lower net gains on sales of foreclosed assets of $0.4 million, lower equity in earnings of unconsolidated subsidiaries of $0.3 million, and unrealized gains on loans held for sale and interest rate locks of $0.4 million recorded last quarter, compared to $0.1 million in the current quarter, partially offset by higher net gains on sales of residential mortgage loans of $0.5 million and the aforementioned partial recovery of a counterparty loss of $0.6 million.
Other operating expense for the third quarter of 2014 totaled $35.2 million, compared to $36.5 million in the year-ago quarter and $32.9 million in the second quarter of 2014. The decrease from the year-ago quarter was primarily attributable to lower salaries and employee benefits of $2.6 million and a premium paid on the repurchase of preferred stock of our two real estate investment trust subsidiaries in the third quarter of 2013 of $1.9 million, partially offset by higher foreclosed asset expense of $1.4 million and costs related to the consolidation and relocation of our two Waikiki branches of $1.3 million. The lower salaries and employee benefits is primarily due to a staff right-sizing initiative that began in 2013 and included a voluntary early retirement program and a reduction of select positions. In the year-ago quarter there was $1.3 million in severance, early retirement, and retention expenses related to this initiative, compared to $0.3 million in the current quarter. The sequential quarter increase was primarily attributable to higher foreclosed asset expense of $1.4 million and the aforementioned Waikiki branch consolidation and relocation costs of $1.3 million.
The efficiency ratio for the third quarter of 2014 was 75.00%, compared to 79.89% in the year-ago quarter and 68.65% in the second quarter of 2014. The efficiency ratio in the third quarter of 2014 was significantly impacted by the aforementioned non-recurring income and expense items during the quarter.
In the third quarter of 2014, the Company recorded income tax expense of $5.2 million, compared to an income tax expense of $2.2 million in the year-ago quarter and income tax expense of $3.9 million in the second quarter of 2014. The effective tax rate for the third quarter of 2014 was 38.9%. Our income tax expense and effective tax rate was impacted by a 2013 income tax return true-up adjustment of $0.9 million which was primarily related to the aforementioned premium paid on the repurchase of preferred stock of two subsidiaries in the third quarter of 2013 of $1.9 million. As of September 30, 2014, the Company’s net deferred tax assets totaled $110.1 million.
Balance Sheet Highlights
Total assets at September 30, 2014 of $4.75 billion increased by $5.8 million from September 30, 2013, and increased by $22.5 million from June 30, 2014.
Total loans and leases at September 30, 2014 of $2.87 billion increased by $390.4 million and $80.6 million from September 30, 2013 and June 30, 2014, respectively. The increase in total loans and leases from the second quarter of 2014 was due to an increase in the consumer, residential mortgage, commercial and industrial, and construction and development loan portfolios of $38.2 million, $24.9 million, $9.6 million, and $9.4 million, respectively, offset by a decrease in the commercial mortgage loan and leases portfolios of $1.2 million and $0.4 million, respectively.
Total deposits at September 30, 2014 were $4.05 billion, and increased by $141.8 million and $45.5 million from September 30, 2013 and June 30, 2014, respectively. Core deposits, which include demand deposits, savings and money market deposits, and time deposits less than $100,000, totaled $3.28 billion at September 30, 2014. This represents an increase of $172.6 million and $82.7 million from a year ago and from June 30, 2014, respectively. Changes in total deposits during the quarter included net increases in interest-bearing demand deposits, noninterest-bearing demand deposits, and savings and money market deposits of $45.6 million, $33.4 million, and $8.3 million, respectively, offset by a net decrease in time deposits of $41.8 million.
Total shareholders’ equity was $569.0 million at September 30, 2014, compared to $653.5 million and $564.6 million at September 30, 2013 and June 30, 2014, respectively. The sequential quarter increase is due primarily to net income of $8.2 million in the current quarter, partially offset by cash dividends paid of $3.6 million and a decrease in unrealized gains on investment securities of $1.7 million.
Asset Quality
Nonperforming assets at September 30, 2014 totaled $45.3 million, or 0.95% of total assets, compared to $42.1 million, or 0.89% of total assets at June 30, 2014. The sequential-quarter change reflects a net increase in Hawaii commercial mortgage assets of $6.8 million, partially offset by net decreases in Hawaii residential mortgage assets of $1.3 million, Hawaii construction and development assets of $1.1 million, and U.S. Mainland commercial and industrial assets of $0.9 million.
Loans delinquent for 90 days or more still accruing interest totaled $62,000 at September 30, 2014, compared to $119,000 at June 30, 2014. In addition, loans delinquent for 30 days or more still accruing interest totaled $4.1 million at September 30, 2014, compared to $1.8 million at June 30, 2014.
Net recoveries in the third quarter of 2014 totaled $1.0 million, compared to net recoveries of $1.3 million in the third quarter of 2013, and net charge-offs of $1.6 million in the second quarter of 2014.
The ALLL, as a percentage of total loans and leases, was 2.88% at September 30, 2014, compared to 2.99% at June 30, 2014. The ALLL, as a percentage of nonperforming assets, was 182.90% at September 30, 2014, compared to 198.47% at June 30, 2014. The ALLL, as a percentage of nonaccrual loans, was 198.67% at September 30, 2014, compared to 226.72% at June 30, 2014.
Capital Levels
At September 30, 2014, the Company’s Tier 1 risk-based capital, total risk-based capital, and leverage capital ratios were 17.19%, 18.46%, and 11.87%, respectively, compared to 17.06%, 18.33%, and 11.64%, respectively, at June 30, 2014. 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://ir.centralpacificbank.com. Alternatively, investors may participate in the live call by dialing 1-877-505-7644. A playback of the call will be available through November 30, 2014 by dialing 1-877-344-7529 (passcode: 10053680) and on the Company's website.
About Central Pacific Financial Corp.
Central Pacific Financial Corp. is a Hawaii-based bank holding company with approximately $4.8 billion in assets. Central Pacific Bank, its primary subsidiary, operates 36 branches and 111 ATMs in the state of Hawaii, as of September 30, 2014. For additional information, please visit the Company’s website at http://www.centralpacificbank.com.
