Central Pacific Financial Corp. Reports $9.0 Million Fourth Quarter Earnings

HONOLULU, Jan. 30, 2014 /PRNewswire/ -- Central Pacific Financial Corp. (NYSE: CPF), parent company of Central Pacific Bank (the "Bank"), today reported net income for the fourth quarter of 2013 of $9.0 million, or $0.21 per diluted share, compared to net income in the fourth quarter of 2012 of $12.4 million, or $0.29 per diluted share, and net income in the third quarter of 2013 of $10.2 million, or $0.24 per diluted share. For the year ended December 31, 2013, the Company's net income was $170.8 million, or $4.04 per diluted share, compared to net income of $47.4 million, or $1.13 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 $51.0 million, or $1.21 per diluted share.

"We remain on track with our business plan and are pleased to report another solid earnings performance for the quarter," said John C. Dean, President and Chief Executive Officer. "We are encouraged by the improving market conditions in Hawaii, which contributed to our strong loan growth and improved net interest margin."

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 or about March 17, 2014 to shareholders of record at the close of business on February 28, 2014. This represents the third consecutive quarterly cash dividend.

Significant Highlights and Fourth Quarter Results

• Reported twelfth consecutive profitable quarter since the Company's recapitalization, with net income of $9.0 million, compared to net income in the third quarter of 2013 of $10.2 million.
• Increased the loans and leases portfolio by $146.3 million to $2.63 billion at December 31, 2013, compared to $2.48 billion at September 30, 2013.
• Improved our net interest margin from 3.19% in the third quarter of 2013 to 3.29% in the fourth quarter of 2013.
• Increased total deposits by $29.9 million to $3.94 billion at December 31, 2013, compared to $3.91 billion at September 30, 2013.
• Recorded a provision for loan and lease losses of $0.8 million, compared to a credit to the provision for loan and lease losses of $3.2 million recorded in the third quarter of 2013.
• Reduced nonperforming assets by $12.2 million to $46.8 million at December 31, 2013 from $59.0 million at September 30, 2013.
• The ALLL, as a percentage of total loans and leases, decreased to 3.27% at December 31, 2013, compared to 3.43% at September 30, 2013.  The Company's ALLL, as a percentage of nonperforming assets, increased to 183.80% at December 31, 2013 from 144.33% at September 30, 2013 and the Company's ALLL, as a percentage of nonaccrual loans, increased to 206.62% at December 31, 2013 from 159.94% at September 30, 2013.
• Maintained a strong capital position with Tier 1 risk-based capital, total risk-based capital, and leverage capital ratios of 20.25%, 21.52%, and 13.64%, respectively, as of December 31, 2013, compared to 21.30%, 22.58%, and 13.96%, respectively, as of September 30, 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 fourth quarter of 2013 was $35.5 million, compared to $29.4 million in the year-ago quarter and $33.8 million in the third quarter of 2013.  Net interest margin was 3.29%, compared to 3.00% in the year-ago quarter and 3.19% in the third quarter of 2013. The sequential quarter increase in net interest income and net interest margin was primarily due to an overall increase in the Company's interest earning assets, including a net increase of $114.1 million in its average loan portfolio, partially offset by a net decrease of $36.8 million in its average investment securities portfolio and an increase in the taxable equivalent yield on the investment securities portfolio to 2.43% in the fourth quarter of 2013, compared to 2.18% in the third quarter of 2013.

The provision for loan and lease losses for the fourth quarter of 2013 was $0.8 million, compared to a credit to the provision for loan and lease losses of $2.3 million in the year-ago quarter and a credit of $3.2 million in the third quarter of 2013.

Other operating income for the fourth quarter of 2013 totaled $12.2 million, compared to $16.9 million in the year-ago quarter and $11.9 million in the third quarter of 2013. The decrease from the year-ago quarter was primarily due to lower net gains on sales of residential mortgage loans of $4.5 million and lower gains on sales of foreclosed assets of $3.8 million, partially offset by lower unrealized losses on loans held for sale and interest rate locks of $1.4 million, a gain on the extinguishment of trust preferred debt of $1.0 million, and higher investment securities gains of $0.5 million. The sequential quarter increase was primarily due to a gain on the extinguishment of trust preferred debt of $1.0 million and higher investment securities gains of $0.5 million, partially offset by lower unrealized gains on loans held for sale and interest rate locks of $1.2 million.

Other operating expense for the fourth quarter of 2013 totaled $35.3 million, compared to $36.1 million in the year-ago quarter and $36.5 million in the third quarter of 2013.  The decrease from the year-ago quarter was primarily due to lower legal and professional services of $1.5 million, and lower amortization of intangible assets of $1.3 million, partially offset by higher salaries and employee benefits of $2.5 million. The sequential quarter decrease was primarily attributable to a premium paid on the repurchase of preferred stock of two subsidiaries in the third quarter of 2013 of $1.9 million and lower legal and professional services of $0.5 million, partially offset by higher salaries and employee benefits of $1.2 million. Salaries and employee benefits in the current quarter included severance, early retirement and retention benefits, which were related to our previously announced efficiency initiative that included a voluntary early retirement program and a reduction of select positions totaling $1.8 million, compared to $1.3 million in the previous quarter. There will be additional expenses related to this initiative in 2014 as some employees must render service through 2014 as a condition to receiving their benefits.

The efficiency ratio for the fourth quarter of 2013 was 72.50% (excluding amortization expense related to certain intangible assets totaling $0.7 million, gains on sales of investment securities of $0.5 million, net gains on sales of foreclosed assets of $0.1 million, and foreclosed asset expense of $43,000), compared to 81.70% in the year-ago quarter (excluding net gains on sales of foreclosed assets of $3.8 million,  amortization expense related to certain intangible assets totaling $0.7 million, and foreclosed asset expense of $0.4 million) and 78.02% in the third quarter of 2013 (excluding amortization expense related to certain intangible assets totaling $0.7 million, net gains on sales of foreclosed assets of $0.3 million, and foreclosed asset income of $12,000).

In the fourth quarter of 2013, the Company recorded income tax expense of $2.6 million, compared to income tax expense of $2.2 million in the third quarter of 2013. As of December 31, 2013, the Company's net deferred tax assets totaled $138.1 million.

Balance Sheet Highlights

Total assets at December 31, 2013 of $4.74 billion increased by $369.6 million from December 31, 2012, and decreased by $4.6 million from September 30, 2013.

Total loans and leases at December 31, 2013 of $2.63 billion increased by $426.7 million and $146.3 million from December 31, 2012 and September 30, 2013, respectively.  The increase in total loans and leases from the third quarter of 2013 was due to an increase in the consumer, residential mortgage, commercial, and construction and development loan portfolios of $85.1 million, $42.3 million, $30.5 million, and $2.4 million, respectively, offset by a decrease in the commercial mortgage loan and leases portfolios of $13.7 million and $0.3 million, respectively.

Total deposits at December 31, 2013 were $3.94 billion, and increased by $255.4 million and $29.9 million from December 31, 2012 and September 30, 2013, respectively.  Core deposits, which include demand deposits, savings and money market deposits, and time deposits less than $100,000, totaled $3.09 billion at December 31, 2013.  This represents an increase of $86.6 million from a year ago and a decrease of $11.0 million from September 30, 2013.  Changes in total deposits during the quarter included an increase in time deposits and noninterest-bearing demand deposits of $33.4 million and $12.8 million, respectively, offset by a decrease in interest-bearing demand deposits and savings and money market deposits of $10.8 million and $5.5 million, respectively.

Total shareholders' equity was $658.8 million at December 31, 2013, compared to $504.8 million and $653.5 million at December 31, 2012 and September 30, 2013, respectively.

Asset Quality

Nonperforming assets at December 31, 2013 totaled $46.8 million, or 0.99% of total assets, compared to $59.0 million, or 1.24% of total assets at September 30, 2013.  The sequential-quarter change reflects net decreases in U.S. Mainland construction and development assets of $12.0 million, Hawaii residential mortgage assets of $0.8 million, Hawaii construction and development assets of $0.5 million, and U.S. Mainland commercial mortgage assets of $0.1 million, partially offset by a net increase in Hawaii commercial mortgage assets of $1.4 million.

Loans delinquent for 90 days or more still accruing interest totaled $15,000 at December 31, 2013, compared to $37,000 at September 30, 2013.  In addition, loans delinquent for 30 days or more still accruing interest totaled $7.2 million at December 31, 2013, compared to $3.7 million at September 30, 2013.

Net charge-offs in the fourth quarter of 2013 totaled $0.1 million, compared to net recoveries of $1.8 million in the fourth quarter of 2012, and net recoveries of $1.3 million in the third quarter of 2013.

The ALLL, as a percentage of total loans and leases, was 3.27% at December 31, 2013, compared to 3.43% at September 30, 2013.  The ALLL, as a percentage of nonperforming assets, was 183.80% at December 31, 2013, compared to 144.33% at September 30, 2013.  The ALLL, as a percentage of nonaccrual loans, was 206.62% at December 31, 2013, compared to 159.94% at September 30, 2013.

Capital Levels

At December 31, 2013, the Company's Tier 1 risk-based capital, total risk-based capital, and leverage capital ratios were 20.25%, 21.52%, and 13.64%, respectively, compared to 21.30%, 22.58%, and 13.96%, respectively, at September 30, 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 (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://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 February 28, 2014 by dialing 1-877-344-7529 (passcode: 10039122) 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 112 ATMs in the state of Hawaii, as of December 31, 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.

SOURCE Central Pacific Financial Corp.