Central Pacific Financial Corp. Reports $14.3 Million Second Quarter Earnings

HONOLULU, July 25, 2013 /PRNewswire/ -- Central Pacific Financial Corp. (NYSE: CPF), parent company of Central Pacific Bank (the "Bank"), today reported net income for the second quarter of 2013 of $14.3 million, or $0.34 per diluted share, compared to net income in the second quarter of 2012 of $10.8 million, or $0.26 per diluted share, and net income in the first quarter of 2013 of $137.3 million, or $3.25 per diluted share.  Net income in the first quarter of 2013 included a non-cash income tax benefit of $119.8 million related to the reversal of a significant portion of a valuation allowance previously established against the Company's net deferred tax assets. Excluding this income tax benefit, net income for the first quarter of 2013 was $17.5 million, or $0.41 per diluted share.

"We are pleased to report another strong quarter of profitability," said John C. Dean, President and Chief Executive Officer.  "While our improved credit risk profile continues to positively impact our financial results, we were especially encouraged by the continuing improvement in our core earnings and our ability to meaningfully grow both loans and deposits during the past few quarters."

In addition, the Company's Board of Directors declared a quarterly cash dividend of $0.08 per share on the Company's outstanding common shares. The dividend will be payable on September 16, 2013 to shareholders of record at the close of business on August 30, 2013.

"As a result of our strong capital position and earnings consistency, we elected to reinstate dividend payments at this time, subject to ongoing Board review," said Dean.  "We greatly appreciate the support and confidence of our shareholders over the past several years."

Significant Highlights and Second Quarter Results

• Reported tenth consecutive profitable quarter since the Company's recapitalization with net income of $14.3 million, compared to net income in the first quarter of 2013 of $17.5 million, excluding the $119.8 million non-cash income tax benefit described above.
• Declared quarterly cash dividend of $0.08 per share on the Company's outstanding common shares payable on September 16, 2013.
• For the ninth consecutive quarter, the Company did not incur credit costs. We recorded a credit to the provision for loan and lease losses of $0.2 million, compared to a credit of $6.6 million for the first quarter of 2013.
• Reduced nonperforming assets by $14.4 million to $60.9 million at June 30, 2013 from $75.3 million at March 31, 2013.
• The ALLL, as a percentage of total loans and leases, decreased to 3.67% at June 30, 2013, compared to 3.82% at March 31, 2013.  In addition, the Company's ALLL, as a percentage of nonperforming assets, increased to 143.05% at June 30, 2013 from 115.27% at March 31, 2013 and the Company's ALLL, as a percentage of nonaccrual loans, increased to 162.95% at June 30, 2013 from 133.06% at March 31, 2013.
• Increased the loans and leases portfolio by $98.5 million to $2.37 billion at June 30, 2013, compared to $2.27 billion at March 31, 2013.
• Increased total deposits by $91.0 million to $3.86 billion at June 30, 2013, compared to $3.76 billion at March 31, 2013.
• Maintained a strong capital position with Tier 1 risk-based capital, total risk-based capital, and leverage capital ratios of 21.55%, 22.83%, and 14.24%, respectively, as of June 30, 2013, compared to 22.16%, 23.43%, and 14.36%, respectively, as of March 31, 2013.  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 2013 was $33.2 million, compared to $30.3 million in the year-ago quarter and $30.7 million in the first quarter of 2013.  Net interest margin was 3.23%, compared to 3.17% in the year-ago quarter and 3.06% in the first quarter of 2013. The sequential quarter increase in net interest income and the net interest margin was primarily due to the recovery of interest on loans previously placed on nonaccrual status totaling $1.7 million and an overall increase in the Company's interest earning assets, including net increases of $98.5 million and $69.4 million in its loan and investment securities portfolios, respectively.

The provision for loan and lease losses for the second quarter of 2013 was a credit of $0.2 million, compared to a credit of $6.6 million in the year-ago quarter and a credit of $6.6 million in the first quarter of 2013.  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 second quarter of 2013 totaled $17.8 million, compared to $13.6 million in the year-ago quarter and $13.0 million in the first quarter of 2013. The increase from the year-ago quarter was primarily due to higher net gains on sales of foreclosed assets of $7.7 million and higher other service charges and fees totaling $0.5 million, partially offset by lower unrealized gains on interest rate locks of $1.5 million, lower rental income from foreclosed properties of $0.8 million, lower service charges on deposit accounts of $0.7 million, lower income from bank-owned life insurance of $0.6 million, and lower net gains on sales of residential mortgage loans of $0.5 million. The sequential quarter increase was primarily due to higher net gains on sales of foreclosed assets of $7.1 million and higher other service charge and fees of $0.3 million, partially offset by lower unrealized gains on interest rate locks of $1.3 million, lower gains on sales of residential mortgage loans of $1.2 million, and lower income from bank-owned life insurance of $0.2 million.

Other operating expense for the second quarter of 2013 totaled $35.0 million, compared to $39.7 million in the year-ago quarter and $32.8 million in the first quarter of 2013.  The decrease from the year-ago quarter was primarily due to lower legal and professional fees of $1.9 million, an accrual totaling $1.8 million related to the settlement of a legal proceeding against the Company recorded in the second quarter of 2012, lower 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 $1.6 million, lower amortization of other intangible assets of $0.9 million, and lower FDIC insurance expense of $0.7 million, partially offset by a higher provision for repurchased residential mortgage loans of $1.7 million, higher salaries and employee benefits of $0.6 million, and higher net occupancy expense of $0.4 million. The sequential quarter increase was primarily attributable to a higher provision for repurchased residential mortgage loans of $1.6 million and higher net credit-related charges of $1.1 million.

The efficiency ratio for the second quarter of 2013 was 76.68% (excluding net gains on sales of foreclosed assets of $7.7 million, foreclosed asset expense of $0.7 million, and amortization expense related to certain intangible assets totaling $0.7 million), compared to 80.41% in the year-ago quarter (excluding foreclosed asset expense of $2.6 million and amortization expense related to certain intangible assets totaling $1.6 million) and 72.74% (excluding foreclosed asset expense of $0.3 million, amortization expense related to certain intangible assets totaling $0.7 million, and net gains on sales of foreclosed assets of $0.6 million) in the first quarter of 2013.

In the second quarter of 2013, the Company recorded income tax expense of $1.9 million, which was attributable to the income tax liability generated from the sale of a foreclosed property at a gain of $7.2 million. In the first quarter of 2013, the Company recorded a non-cash income tax benefit of $119.8 million related to the reversal of a significant portion of a valuation allowance previously established against its net deferred tax assets during the third quarter of 2009. As of June 30, 2013, the Company's net deferred tax assets totaled $144.1 million.

Balance Sheet Highlights
Total assets at June 30, 2013 of $4.7 billion increased by $479.7 million and $125.7 million from June 30, 2012 and March 31, 2013, respectively.

Total loans and leases at June 30, 2013 of $2.4 billion increased by $271.9 million and $98.5 million from June 30, 2012 and March 31, 2013, respectively.  The increase in total loans and leases from the first quarter of 2013 was due to an increase in the residential mortgage, consumer, and commercial mortgage loan portfolios of $60.4 million, $48.0 million, and $0.5 million, respectively, offset by a decrease in the construction and development, leases, and commercial loan portfolios of $8.5 million, $1.5 million, and $0.5 million, respectively.

Total deposits at June 30, 2013 were $3.9 billion, compared to $3.6 billion and $3.8 billion at June 30, 2012 and March 31, 2013, respectively.  Core deposits, which include demand deposits, savings and money market deposits, and time deposits less than $100,000, totaled $3.04 billion at June 30, 2013.  This represents an increase of $162.8 million from a year ago and an increase of $30.7 million from March 31, 2013.  Changes in total deposits during the quarter included an increase in time deposits, interest-bearing demand deposits, savings and money market deposits, and non-interest bearing demand deposits of $47.8 million, $28.2 million, $11.7 million, and $3.3 million, respectively.

Total shareholders' equity was $642.0 million at June 30, 2013, compared to $480.5 million and $650.1 million at June 30, 2012 and March 31, 2013, respectively.

Asset Quality
Nonperforming assets at June 30, 2013 totaled $60.9 million, or 1.29% of total assets, compared to $75.3 million, or 1.64% of total assets at March 31, 2013.  The sequential-quarter change reflects net decreases in Mainland commercial mortgage assets of $6.4 million, Mainland construction and development assets of $3.5 million, Hawaii residential mortgage assets of $2.4 million, Hawaii construction and development assets of $1.3 million, and Hawaii commercial assets of $0.8 million.

Loans delinquent for 90 days or more still accruing interest totaled $17,000 at June 30, 2013.  We did not have any loans delinquent for 90 days or more still accruing interest at March 31, 2013.  In addition, loans delinquent for 30 days or more still accruing interest totaled $1.5 million at June 30, 2013, compared to $8.8 million at March 31, 2013.

Net recoveries in the second quarter of 2013 totaled $0.5 million, compared to net charge-offs of $3.9 million and $3.0 million in the second quarter of 2012 and first quarter of 2013, respectively.

The ALLL, as a percentage of total loans and leases, was 3.67% at June 30, 2013, compared to 3.82% at March 31, 2013.  The ALLL, as a percentage of nonperforming assets, was 143.05% at June 30, 2013, compared to 115.27% at March 31, 2013.  The ALLL, as a percentage of nonaccrual loans, was 162.95% at June 30, 2013, compared to 133.06% at March 31, 2013.

Capital Levels
At June 30, 2013, the Company's Tier 1 risk-based capital, total risk-based capital, and leverage capital ratios were 21.55%, 22.83%, and 14.24%, respectively, compared to 22.16%, 23.43%, and 14.36%, respectively, at March 31, 2013.  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 1-888-317-6016.  A playback of the call will be available through August 27, 2013 by dialing 1-877-344-7529 (passcode: 10030912) 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 35 branches and 117 ATMs in the state of Hawaii, as of June 30, 2013.  For additional information, please visit the Company's website at http://www.centralpacificbank.com.

Forward-Looking Statements
This document may contain forward-looking statements concerning projections of revenues, income/loss, earnings/loss per share, capital expenditures, dividends, capital structure, or other financial items, plans and objectives of management for future operations, future economic performance, or any of the assumptions underlying or relating to any of the foregoing.  Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts, and may include the words "believes," "plans," "expects," "anticipates," "forecasts," "intends," "hopes," "should," "estimates," or words of similar meaning.  While the Company believes that our forward-looking statements and the assumptions underlying them are reasonably based, such statements and assumptions are by their nature subject to risks and uncertainties, and thus could later prove to be inaccurate or incorrect.  Accordingly, actual results could materially differ from projections for a variety of reasons, to include, but not limited to:  the effect of, and our failure to comply with any regulatory orders we are or may become subject to; our ability to continue making progress on our recovery plan; oversupply of inventory and adverse conditions in the Hawaii and California real estate markets and any weakness in the construction industry;  adverse changes in the financial performance and/or condition of our borrowers and, as a result, increased loan delinquency rates,  deterioration in asset quality and further losses in our loan portfolio; the impact of local, national, and international economies and events (including political events, acts of war or terrorism, natural disasters such as wildfires, tsunamis and earthquakes) on the Company's business and operations and on tourism, the military and other major industries operating within the Hawaii market and any other markets in which the Company does business; deterioration or malaise in economic conditions, including destabilizing factors in the financial industry and deterioration of the real estate market, as well as the impact from any declining levels of consumer and business confidence in the state of the economy in general and in financial institutions in particular;  the impact of regulatory action on the Company and Central Pacific Bank and legislation affecting the banking industry; changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act, other regulatory reform, and any related rules and regulations on our business operations and competitiveness; the costs and effects of legal and regulatory developments, including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews;  the effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rate, securities market and monetary fluctuations;  negative trends in our market capitalization and adverse changes in the price of the Company's common shares; changes in consumer spending, borrowings and savings habits; technological changes; changes in the competitive environment among financial holding companies and other financial service providers; the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; our ability to attract and retain skilled executives and employees; changes in our organization, compensation and benefit plans; and our success at managing the risks involved in the foregoing items.For further information on factors that could cause actual results to materially differ from projections, please see the Company's publicly available Securities and Exchange Commission filings, including the Company's Form 10-K for the last fiscal year and, in particular, the discussion of "Risk Factors" set forth therein. The Company does not update any of its forward-looking statements except as required by law.