FOURTH QUARTER EARNINGS
Diluted earnings per share of $0.37 in the fourth quarter of 2014
Board of Directors declares cash dividend of $0.12 per share
Board of Directors increases share repurchase authorization by $25.0 million
HONOLULU, HI, January 29, 2015 – Central Pacific Financial Corp. (NYSE: CPF), parent company of Central Pacific Bank (the “Bank”), today reported net income for the fourth quarter of 2014 of $13.3 million, or $0.37 per diluted share, compared to net income in the fourth quarter of 2013 of $10.3 million, or $0.24 per diluted share, and net income in the third quarter of 2014 of $8.2 million, or $0.23 per diluted share. For the year ended December 31, 2014, the Company’s net income was $40.5 million, or $1.07 per diluted share, compared to net income of $172.1 million, or $4.07 per diluted share in the previous year. Net income for the year ended December 31, 2013 included a non-cash income tax benefit of $119.8 million in the first quarter of 2013 related to the reversal of a significant portion of a valuation allowance established against the Company’s net deferred tax assets during the third quarter of 2009. Excluding this income tax benefit, net income for the year ended December 31, 2013 was $52.3 million, or $1.24 per diluted share.
“We ended the year with continued meaningful gains in loans and deposits, an expanding net interest margin, as well as improvement in our credit quality,” said John C. Dean, Chairman and CEO. “We are pleased with the progress made throughout 2014 and believe we are well positioned for continued growth in the coming year.”
In January 2015, the Company’s Board of Directors declared a quarterly cash dividend of $0.12 per share on the Company’s outstanding common shares, a 20% increase from $0.10 per share in the fourth quarter of 2014. The dividend will be payable on March 16, 2015 to shareholders of record at the close of business on February 27, 2015. This represents the seventh consecutive quarterly cash dividend.
During the fourth quarter of 2014, the Company repurchased 676,354 shares of common stock at a total cost of $13.0 million under its share repurchase program. The average cost was $19.28 per share repurchased.
In January 2015, the Company’s Board of Directors increased the authorization under the share repurchase program by an additional $25.0 million. This authorization, combined with the previously announced authorization of $30.0 million, brings the total repurchase authority to $55.0 million. From January 2 through January 28, 2015, the Company repurchased an additional 473,829 shares of common stock at an average cost of $19.64 per share repurchased. Remaining buyback authority under the share repurchase program was $29.2 million at January 28, 2015.
Significant Highlights and Fourth Quarter Results
| § | Reported net income of $13.3 million, compared to net income in the third quarter of 2014 of $8.2 million. |
| § | Increased the loans and leases portfolio by $57.4 million to $2.93 billion at December 31, 2014, compared to $2.87 billion at September 30, 2014. |
| § | Increased total deposits by $62.2 million to $4.11 billion at December 31, 2014, compared to $4.05 billion at September 30, 2014. |
| § | Increased the net interest margin to 3.33% at December 31, 2014, compared to 3.30% at September 30, 2014. |
| § | Recorded a credit to the provision for loan and lease losses of $5.4 million in the fourth quarter of 2014, compared to a credit to the provision for loan and lease losses of $1.7 million in the third quarter of 2014. |
| § | Nonperforming assets decreased by $3.3 million to $42.0 million at December 31, 2014 from $45.3 million at September 30, 2014. |
| § | Maintained a strong capital position with Tier 1 risk-based capital, total risk-based capital, and leverage capital ratios of 16.97%, 18.24%, and 12.03%, respectively, as of December 31, 2014, compared to 17.19%, 18.46%, and 11.87%, respectively, as of September 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 fourth quarter of 2014 was $36.2 million, compared to $35.5 million in the year-ago quarter and in the third quarter of 2014. Net interest margin was 3.33%, compared to 3.29% in the year-ago quarter and 3.30% in the third quarter of 2014. The sequential quarter increase in net interest income and net interest margin was primarily due to a $65.3 million increase in higher-yielding average loans and leases. The taxable equivalent yield on the investment securities portfolio increased to 2.64% in the current quarter, compared to 2.57% last quarter. The taxable equivalent yield on the loans and leases portfolio decreased to 3.94% in the current quarter from 3.96% last quarter.
In the fourth quarter of 2014, we recorded a credit to the provision for loan and lease losses of $5.4 million, compared to a credit of $1.3 million in the year-ago quarter and a credit of $1.7 million in the third quarter of 2014. The credit to the provision for loan and lease losses was primarily attributable to improving trends in credit quality.
Other operating income for the fourth quarter of 2014 totaled $10.2 million, compared to $12.2 million in the year-ago quarter and $11.5 million in the third quarter of 2014. The decrease from the year-ago quarter was primarily due to a gain on the early extinguishment of trust preferred debt of $1.0 million and investment securities gains of $0.5 million recorded in the fourth quarter of 2013. The sequential quarter decrease was primarily due to a partial recovery of a previous counterparty loss on a financing transaction of $0.6 million recorded in the third quarter of 2014 and lower net gains on sales of residential mortgage loans of $0.3 million.
Other operating expense for the fourth quarter of 2014 totaled $32.7 million, compared to $35.3 million in the year-ago quarter and $35.2 million in the third quarter of 2014. The decrease from the year-ago quarter was primarily attributable to lower salaries and employee benefits of $2.9 million, partially offset by higher reserves for unfunded loan commitments of $0.4 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 $1.8 million in severance, early retirement, and retention expenses related to this initiative, compared to a credit of $0.3 million in the current quarter. The sequential quarter decrease was primarily attributable to Waikiki branch consolidation and relocation costs of $1.3 million recorded last quarter and lower foreclosed asset expense of $1.1 million, partially offset by higher salaries and employee benefits of $0.9 million. Salaries and employee benefits in the current quarter included additional accruals for restricted stock awards and incentive compensation totaling $1.3 million.
The efficiency ratio for the fourth quarter of 2014 was 70.59%, compared to 73.99% in the year-ago quarter and 75.00% in the third quarter of 2014. The efficiency ratio in the third quarter of 2014 was significantly impacted by the aforementioned branch consolidation and relocation costs and significant foreclosed asset expenses during the quarter.
In the fourth quarter of 2014, the Company recorded income tax expense of $5.8 million, compared to an income tax expense of $3.4 million in the year-ago quarter and income tax expense of $5.2 million in the third quarter of 2014. The effective tax rate for the fourth quarter of 2014 was 30.3%, compared to 38.9% in the third quarter of 2014. Our income tax expense and effective tax rate in the fourth quarter of 2014 was impacted by solar tax credits of $0.4 million and a credit true-up adjustment of our net deferred tax assets of $0.5 million. Our income tax expense and effective tax rate in the third quarter of 2014 increased due to a 2013 income tax return true-up adjustment of $0.9 million which was primarily related to a premium paid on the repurchase of preferred stock of two subsidiaries. As of December 31, 2014, the Company’s net deferred tax assets totaled $104.4 million.
Balance Sheet Highlights
Total assets at December 31, 2014 of $4.85 billion increased by $111.8 million from December 31, 2013, and increased by $102.7 million from September 30, 2014.
Total loans and leases at December 31, 2014 of $2.93 billion increased by $301.6 million and $57.4 million from December 31, 2013 and September 30, 2014, respectively. The increase in total loans and leases from the third quarter of 2014 was primarily due to an increase in the residential mortgage and commercial and industrial loan portfolios of $30.5 million and $21.4 million, respectively.
Total deposits at December 31, 2014 were $4.11 billion, and increased by $174.1 million and $62.2 million from December 31, 2013 and September 30, 2014, respectively. Core deposits, which include demand deposits, savings and money market deposits, and time deposits less than $100,000, totaled $3.31 billion at December 31, 2014. This represents an increase of $212.9 million and $29.3 million from a year ago and from September 30, 2014, respectively. Changes in total deposits during the quarter included net increases in noninterest-bearing demand deposits, time deposits, and savings and money market deposits of $38.1 million, $25.1 million, and $13.0 million, respectively, offset by a net decrease in interest-bearing demand deposits of $14.1 million.
Total shareholders’ equity was $568.0 million at December 31, 2014, compared to $660.1 million and $569.0 million at December 31, 2013 and September 30, 2014, respectively. The sequential quarter decrease is due primarily to repurchases of $13.0 million in common stock under the Company’s stock repurchase program, partially offset by net income of $13.3 million in the current quarter.
Asset Quality
Nonperforming assets at December 31, 2014 totaled $42.0 million, or 0.87% of total assets, compared to $45.3 million, or 0.95% of total assets at September 30, 2014. The sequential-quarter change in nonperforming assets reflects a net decrease in U.S. Mainland commercial and industrial assets of $2.5 million, Hawaii construction and development assets of $1.1 million, and Hawaii commercial mortgage assets of $0.4 million, partially offset by a net increase in Hawaii residential mortgage assets of $0.9 million.
Loans delinquent for 90 days or more still accruing interest totaled $77,000 at December 31, 2014, compared to $62,000 at September 30, 2014. In addition, loans delinquent for 30 days or more still accruing interest totaled $5.8 million at December 31, 2014, compared to $4.1 million at September 30, 2014.
Net charge-offs in the fourth quarter of 2014 totaled $3.4 million, compared to net charge-offs of $0.1 million in the fourth quarter of 2013, and net recoveries of $1.0 million in the third quarter of 2014. Net charge-offs during the fourth quarter of 2014 included charge-offs of two U.S. Mainland commercial and industrial loans to a single borrower on nonaccrual status totaling $2.5 million.
The ALLL, as a percentage of total loans and leases, was 2.53% at December 31, 2014, compared to 2.88% at September 30, 2014. The ALLL, as a percentage of nonperforming assets, was 176.14% at December 31, 2014, compared to 182.90% at September 30, 2014. The ALLL, as a percentage of nonaccrual loans, was 189.42% at December 31, 2014, compared to 198.67% at September 30, 2014.
Capital Levels
At December 31, 2014, the Company’s Tier 1 risk-based capital, total risk-based capital, and leverage capital ratios were 16.97%, 18.24%, and 12.03%, respectively, compared to 17.19%, 18.46%, and 11.87%, respectively, at September 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 (8:00 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 February 28, 2015 by dialing 1-877-344-7529 (passcode: 10059029) and on the Company's website.
About Central Pacific Financial Corp.
Central Pacific Financial Corp. is a Hawaii-based bank holding company with approximately $4.85 billion in assets. Central Pacific Bank, its primary subsidiary, operates 36 branches and 110 ATMs in the state of Hawaii, as of December 31, 2014. For additional information, please visit the Company’s website at http://www.centralpacificbank.com.
