Central Pacific Financial Corp. Reports $11.5 Million Third Quarter Earnings

HONOLULU, Oct. 27, 2016 /PRNewswire/ -- Central Pacific Financial Corp. (NYSE: CPF), (the "Company"), today reported net income for the third quarter of 2016 of $11.5 million, or $0.37 per diluted share, compared to net income in the third quarter of 2015 of $12.2 million, or $0.38 per diluted share, and net income in the second quarter of 2016 of $12.1 million, or $0.39 per diluted share.

"Our continued loan and deposit growth and improved asset quality have resulted in another quarter of solid core earnings," said Catherine Ngo, President and CEO.  "We are pleased to be in a position to continue enhancing shareholder value through strong operating performance, coupled with stock repurchases and dividends."

On October 26, 2016, the Company's Board of Directors declared a quarterly cash dividend of $0.16 per share on the Company's outstanding common shares. The dividend will be payable on December 15, 2016 to shareholders of record at the close of business on November 30, 2016.

During the third quarter of 2016, the Company repurchased 144,000 shares of common stock at a total cost of $3.5 million. The average cost per share was $24.60. During the nine months ended September 30, 2016, the Company repurchased a total of 636,922 shares of common stock, or approximately 2.0% of its common stock outstanding as of December 31, 2015 for a total cost of $14.1 million. The Company's remaining repurchase authority under its common stock repurchase program at September 30, 2016 was $15.9 million.

Since reinstating quarterly cash dividends in 2013, the Company has returned $308.8 million in cash to its shareholders, in the form of cash dividends totaling $60.0 million, and through the repurchase of 11,805,423 shares of common stock at a total cost of $248.9 million, excluding fees and expenses.

Significant Highlights and Third Quarter Results

• Reported net income of $11.5 million, compared to net income in the third quarter of 2015 of $12.2 million and net income in the second quarter of 2016 of $12.1 million.
• Loans and leases increased by $338.2 million, or 10.9% from the prior year period, and increased by $35.7 million, or 1.0%, during the quarter to $3.44 billion at September 30, 2016, with growth in our commercial mortgage, home equity, construction, and commercial loan portfolios of $20.1 million, $16.9 million, $9.8 million, and $3.9 million, respectively, partially offset by decreases in the consumer and residential mortgage loan portfolios of $8.3 million and $6.7 million, respectively.
• Total deposits increased by $288.1 million, or 6.8% from the prior year period, and increased by $113.4 million, or 2.6% during the quarter to $4.52 billion at September 30, 2016. Core deposits increased by $219.9 million, or 6.5% from the prior year period, and increased by $48.1 million, or 1.3% during the quarter to $3.62 billion at September 30, 2016.
• Recorded a credit to the provision for loan and lease losses of $0.7 million in the third quarter of 2016, compared to a credit of $3.6 million in the third quarter of 2015 and a credit of $1.4 million in the second quarter of 2016.
• Our efficiency ratio improved to 66.04% in the third quarter of 2016, compared to 67.55% in the third quarter of 2015 and 66.69% in the second quarter of 2016.
• Nonperforming assets decreased by $3.2 million to $11.7 million, or 0.22% of total assets at September 30, 2016, from $14.9 million, or 0.28% of total assets at June 30, 2016.
• Maintained a strong capital position with leverage capital, tier 1 risk-based capital, total risk-based capital, and common equity tier 1 ratios at the holding company of 10.9%, 14.6%, 15.9%, and 12.5%, respectively, as of September 30, 2016. Central Pacific Bank also maintained a strong capital position with leverage capital, tier 1 risk-based capital, total risk-based capital, and common equity tier 1 ratios of 10.6%, 14.1%, 15.3%, and 14.1%, respectively, as of September 30, 2016. The Company and the Bank's capital ratios continue to be in excess of the levels required for a "well-capitalized" regulatory designation under Basel III.

Earnings Highlights
Net interest income for the third quarter of 2016 was $39.4 million, compared to $37.8 million in the year-ago quarter and $39.6 million in the second quarter of 2016.  Net interest margin was 3.25%, compared to 3.31% in the year-ago quarter and 3.29% in the second quarter of 2016. The increase in net interest income from the year-ago quarter was primarily attributable to average loan portfolio balances increasing by $345.1 million. This increase was partially offset by a 16 basis point decrease in average yields earned on investment securities balances, combined with a 6 basis point increase in rates paid on our average total interest-bearing deposits, both of which contributed to the decrease in the net interest margin from the year-ago quarter. The sequential quarter decrease in the net interest income and net interest margin was primarily attributable to a 13 basis point decrease in average yields earned on investment securities portfolio balances due to higher premium amortization on mortgage backed securities. The decrease in net interest income was also attributable to a $30.7 million decrease in average investment securities portfolio balances. These decreases in net interest income were offset by average loan portfolio balances increasing by $38.1 million.

In the third quarter of 2016, a credit to the provision for loan and lease losses of $0.7 million was recorded, compared to a credit of $3.6 million in the year-ago quarter and a credit of $1.4 million in the second quarter of 2016. After this credit, and as discussed below, the allowance for loan and lease losses ("ALLL"), as a percentage of total loans and leases, was 1.73% at September 30, 2016.

Other operating income for the third quarter of 2016 totaled $11.0 million, compared to $9.8 million in the year-ago quarter and $11.7 million in the second quarter of 2016. The increase from the year-ago quarter was primarily due to higher net gains on sales of residential mortgage loans of $0.7 million, combined with unrealized losses on loans held for sale and interest rate locks (included in other) of $0.6 million recorded in the year-ago quarter. The sequential quarter decrease was primarily due to lower income from bank-owned life insurance of $0.7 million, primarily attributable to death benefit proceeds of $0.5 million recorded last quarter.

Other operating expense for the third quarter of 2016 totaled $33.3 million, compared to $32.2 million in the year-ago quarter and $34.2 million in the second quarter of 2016. The increase from the year-ago quarter was primarily attributable to a credit to the reserve for residential mortgage repurchase losses (included in other) of $0.9 million recorded in the year-ago quarter, higher advertising expense of $0.3 million, and higher salaries and employee benefits of $0.3 million. The sequential quarter decrease was primarily due to lower amortization of mortgage servicing rights of $0.7 million and lower salaries and employee benefits of $0.4 million, partially offset by higher advertising expense of $0.3 million.

The efficiency ratio for the third quarter of 2016 was 66.04%, an improvement from 67.55% in the year-ago quarter and consistent with 66.69% in the second quarter of 2016. The decrease in the efficiency ratio from the year-ago quarter was attributable to the growth in net interest income, combined with the increase in other operating income, offset by higher other operating expenses in the current quarter as described above. On a sequential quarter basis, the efficiency ratio remained stable as the improvement in other operating expenses was largely offset by lower net interest income and lower other operating income.

In the third quarter of 2016, the Company recorded income tax expense of $6.4 million, compared to income tax expense of $6.9 million in the year-ago quarter and $6.3 million in the second quarter of 2016. The effective tax rate for the third quarter of 2016 was 35.8%, compared to 36.1% in the year-ago quarter and 34.3% in the second quarter of 2016. The sequential quarter increase in the effective tax rate was primarily attributable to the $0.5 million in death benefit proceeds from bank-owned life insurance received last quarter, which is tax-exempt. As of September 30, 2016, the Company's net deferred tax assets totaled $52.9 million, compared to $84.2 million and $58.3 million at September 30, 2015 and June 30, 2016, respectively. The decrease in the net deferred tax assets is primarily due to utilization of  net operating loss carryforwards to offset taxable income and income tax credit carryforwards.

Balance Sheet Highlights
Total assets at September 30, 2016, of $5.32 billion increased by $298.1 million from September 30, 2015, and increased by $37.0 million from June 30, 2016.

Total loans and leases at September 30, 2016 of $3.44 billion increased by $338.2 million and $35.7 million from September 30, 2015 and June 30, 2016, respectively.  The growth in total loans and leases from September 30, 2015 was primarily due to an increase in the commercial mortgage, home equity, consumer, residential mortgage, and construction loan portfolios of $125.7 million, $75.8 million, $51.8 million, $50.9 million, and $32.8 million, respectively. The growth in total loans and leases from the second quarter of 2016 was primarily due to an increase in the commercial mortgage, home equity, construction, and commercial loan portfolios of $20.1 million, $16.9 million, $9.8 million, and $3.9 million, respectively, partially offset by a decrease in the consumer and residential mortgage loan portfolios of $8.3 million and $6.7 million, respectively.

Total deposits at September 30, 2016 of $4.52 billion increased by $288.1 million from September 30, 2015, and increased by $113.4 million from June 30, 2016.  Core deposits, which include demand deposits, savings and money market deposits, and time deposits less than $100,000, totaled $3.62 billion at September 30, 2016.  This represents an increase of $219.9 million from September 30, 2015 and an increase of $48.1 million from June 30, 2016.  Changes in total deposits from September 30, 2015 included net increases in savings and money market deposits of $96.0 million, noninterest-bearing demand deposits of $81.8 million, time deposits $100,000 and over of $68.2 million, and interest-bearing demand deposits of $63.2 million, offset by a net decrease in time deposits less than $100,000 of $21.1 million. Changes in total deposits during the quarter included net increases in time deposits $100,000 and over of $65.4 million, noninterest-bearing demand deposits of $41.9 million, savings and money market deposits of $8.3 million, and interest-bearing demand deposits of $2.5 million, offset by net decreases in time deposits less than $100,000 of $4.7 million.

Total shareholders' equity was $519.5 million at September 30, 2016, compared to $503.3 million and $517.6 million at September 30, 2015 and June 30, 2016, respectively. The sequential quarter increase reflects net income of $11.5 million, partially offset by common stock dividends paid of $5.0 million, repurchases of common stock under the Company's common stock repurchase program of $3.5 million, and a decrease in unrealized gains on investment securities of $2.0 million.

Asset Quality
Nonperforming assets at September 30, 2016 totaled $11.7 million, or 0.22% of total assets, compared to $14.0 million, or 0.28% of total assets at September 30, 2015, and $14.9 million, or 0.28% of total assets at June 30, 2016.  The sequential-quarter decrease in nonperforming assets reflects payments totaling $2.3 million, the sale of two Hawaii residential mortgage assets totaling $1.0 million and the return of three Hawaii residential mortgage loans totaling $0.4 million and one Hawaii commercial mortgage loan of $0.2 million to accrual status, partially offset by the addition of five Hawaii residential mortgage loans totaling $0.4 million and one Hawaii commercial mortgage loan of $0.2 million to nonaccrual status.

Loans delinquent for 90 days or more still accruing interest totaled $0.4 million at September 30, 2016, compared to $0.1 million and $0.3 million at September 30, 2015 and June 30, 2016, respectively.  In addition, loans delinquent for 30 days or more still accruing interest totaled $5.6 million at September 30, 2016, compared to $3.1 million at September 30, 2015 and $4.1 million at June 30, 2016.

Net charge-offs in the third quarter of 2016 totaled $0.6 million, compared to net recoveries of $3.4 million in the third quarter of 2015, and net charge-offs of $3 thousand in the second quarter of 2016.

The ALLL, as a percentage of total loans and leases, was 1.73% at September 30, 2016, compared to 2.15% at September 30, 2015 and 1.79% at June 30, 2016.  The ALLL, as a percentage of nonperforming assets, was 509.03% at September 30, 2016, compared to 475.99% at September 30, 2015 and 407.62% at June 30, 2016.  The ALLL, as a percentage of nonaccrual loans, was 546.06% at September 30, 2016, compared to 551.32% at September 30, 2015 and 437.94% at June 30, 2016.

Capital Levels
At September 30, 2016, the Company's leverage capital, tier 1 risk-based capital, total risk-based capital, and common equity tier 1 ratios were 10.9%, 14.6%, 15.9%, and 12.5%, respectively.  At June 30, 2016, the Company's leverage capital, tier 1 risk-based capital, total risk-based capital, and common equity tier 1 ratios were 10.8%, 14.6%, 15.9%, and 12.5%, respectively. The Company's capital ratios continue to exceed the levels required to be considered a "well-capitalized" institution for regulatory purposes under Basel III.

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 27, 2016 by dialing 1-877-344-7529 (passcode: 10094342) and on the Company's website.

About Central Pacific Financial Corp.
Central Pacific Financial Corp. is a Hawaii-based bank holding company with approximately $5.3 billion in assets.  Central Pacific Bank, its primary subsidiary, operates 35 branches and 102 ATMs in the state of Hawaii, as of September 30, 2016.  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; 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 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;  our ability to continue making progress on our recovery plan; 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 legal proceedings or regulatory or other governmental inquiries and proceedings and the resolution thereof, 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 and developments; 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 any of 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.