Central Pacific Financial Corp. Reports $12.0 Million Second Quarter 2017 Earnings

HONOLULU, July 26, 2017 /PRNewswire/ -- Central Pacific Financial Corp. (NYSE: CPF), (the "Company"), today reported net income in the second quarter of 2017 of $12.0 million, or diluted earnings per share ("EPS") of $0.39, compared to net income in the second quarter of 2016 of $12.1 million, or EPS of $0.39, and net income in the first quarter of 2017 of $13.1 million, or EPS of $0.42. Net income in the six months ended June 30, 2017 totaled $25.1 million, or EPS of $0.81, compared to net income in the six months ended June 30, 2016 of $23.3 million, or EPS of $0.74.

"We are pleased to report another solid quarter of financial performance," said Catherine Ngo, President and CEO.  "Our continued execution of our business plans resulted in exceptional growth in core deposits, stable net interest margin, and solid asset quality."

In July 2017, the Company's Board of Directors declared a quarterly cash dividend of $0.18 per share on its outstanding common shares. The dividend will be payable on September 15, 2017 to shareholders of record at the close of business on August 31, 2017.

During the second quarter of 2017, the Company repurchased 248,621 shares of common stock at a total cost of $7.7 million, or an average cost per share of $30.89. During the six months ended June 30, 2017, the Company repurchased 362,371 shares of common stock, or approximately 1.2% of its common stock outstanding as of December 31, 2016. Total cost of the shares repurchased during the six months ended June 30, 2017 was $11.2 million, or an average cost per share of $30.93. The Company's remaining repurchase authority under its common stock repurchase program at June 30, 2017 is $18.8 million.

Earnings Highlights

Net interest income for the second quarter of 2017 was $41.6 million, compared to $39.6 million in the year-ago quarter and $41.3 million in the previous quarter. Net interest margin was 3.29%, compared to 3.30% in the previous quarter and remained unchanged from the year-ago quarter. The increase in net interest income from the year-ago quarter was primarily attributable to the growth in the loan and investment securities portfolios, combined with increases in yields earned on the loan and investment securities portfolios. These increases were partially offset by increased funding costs related to time deposits due to the recent increases in the federal funds rate. The sequential quarter increase in net interest income was primarily attributable to the growth in the loan and investment securities portfolios, combined with an increase in yields earned on the investment securities portfolio, partially offset by increased funding costs related to time deposits. Total deposit cost for the quarter ended June 30, 2017 was 0.21%, compared to 0.12% in the year-ago quarter and 0.18% in the previous quarter.

In the second quarter of 2017, the Company completed an investment portfolio repositioning strategy designed to enhance potential prospective earnings and improve net interest margin. In connection with the repositioning, the Company sold $97.7 million in lower-yielding available-for-sale securities, and purchased $97.4 million in higher yielding, longer duration investment securities. The securities sold had a duration of 3.3 and an average yield of 1.91%. Gross proceeds from the sale were immediately reinvested back into securities with a duration of 4.6 and an average yield of 2.57%. Gross realized losses on the sale of the securities were $1.6 million, recorded in other operating income. As a result of the repositioning, net interest income is expected to increase by approximately $0.7 million on an annualized basis.

Other operating income for the second quarter of 2017 totaled $7.9 million, compared to $9.9 million in the year-ago quarter and $10.0 million in the previous quarter. The decrease from the year-ago quarter was primarily due to the aforementioned investment securities loss of $1.6 million in the current quarter, combined with lower income from bank-owned life insurance of $0.6 million and lower income recovered on nonaccrual loans previously charged-off of $0.3 million (included in other income), partially offset by higher mortgage banking income of $0.5 million. The lower income from bank-owned life insurance was primarily attributable to death benefit income totaling $0.5 million received in the year-ago quarter. The sequential quarter decrease was primarily due to the aforementioned investment securities loss of $1.6 million in the current quarter, combined with lower income from bank-owned life insurance of $0.5 million and lower income recovered on nonaccrual loans previously charged-off of $0.5 million (included in other income), partially offset by higher other service charges and fees of $0.3 million. The lower income from bank-owned life insurance was primarily attributable to death benefit income totaling $0.6 million recorded in the previous quarter.

Other operating expense for the second quarter of 2017 totaled $32.3 million, which decreased from $32.5 million in the year-ago quarter but increased from $31.5 million in the previous quarter. The decrease from the year-ago quarter was primarily due to lower net occupancy costs of $0.2 million. The sequential quarter increase was primarily due to higher salaries and employee benefits of $0.6 million and higher legal and professional services of $0.2 million. The increase in salaries and employee benefits in the current quarter was primarily attributable to merit increases and an increase in the accrual related to the 2017 incentive compensation plan.

The efficiency ratio for the second quarter of 2017 was 65.3%, compared to 65.5% in the year-ago quarter and 61.4% in the previous quarter. The efficiency ratio during the current quarter was negatively impacted by the aforementioned investment securities loss of $1.6 million.

In the second quarter of 2017, the Company recorded income tax expense of $7.4 million, compared to $6.3 million in the year-ago quarter and $6.8 million in the previous quarter. The effective tax rate for the second quarter of 2017 was 38.2%, compared to 34.3% in the year-ago quarter and 34.2% in the previous quarter. The effective tax rate in the current quarter was negatively impacted by $0.9 million in additional income tax expense related to a former executive's supplemental executive retirement plan ("SERP") benefit payout and adjustment to the deferred tax asset related to the SERP. The effective tax rates in the year-ago and previous quarters were positively impacted by the aforementioned death benefit proceeds from bank-owned life insurance which is tax-exempt.

Balance Sheet Highlights

Total assets at June 30, 2017 of $5.53 billion increased by $250.2 million, or 4.7% from June 30, 2016, and increased by $90.0 million, or 1.7% from March 31, 2017.

Total loans and leases at June 30, 2017 of $3.59 billion increased by $187.8 million, or 5.5% and $46.0 million, or 1.3% from June 30, 2016 and March 31, 2017, respectively.  The increase in total loans and leases from June 30, 2016 was primarily attributable to strong organic growth in the Hawaii loan portfolios, offset by reductions in the U.S. mainland commercial and other consumer loan portfolios. The increase in total loans and leases from the first quarter of 2017 was primarily due to growth in the Hawaii residential mortgage, home equity, and automobile loan portfolios, combined with the purchase of a U.S. mainland automobile portfolio with a principal balance totaling $25.7 million and growth in the U.S. mainland commercial mortgage loan portfolio. These increases were partially offset by net decreases in the Hawaii commercial mortgage and U.S. mainland other consumer loan portfolios.

Total deposits at June 30, 2017 of $4.89 billion increased by $481.2 million, or 10.9% from June 30, 2016, and increased by $108.9 million, or 2.3% from March 31, 2017.  Core deposits, which include demand deposits, savings and money market deposits, and time deposits less than $100,000, totaled $3.94 billion at June 30, 2017.  This represents an increase of $370.4 million, or 10.4% from June 30, 2016, and an increase of $132.7 million, or 3.5% from March 31, 2017.

Asset Quality

Nonperforming assets at June 30, 2017 totaled $9.0 million, or 0.16% of total assets, compared to $14.9 million, or 0.28% of total assets at June 30, 2016, and $8.8 million, or 0.16% of total assets at March 31, 2017.

Loans delinquent for 90 days or more still accruing interest totaled $0.3 million at June 30, 2017, compared to $0.3 million and $0.2 million at June 30, 2016 and March 31, 2017, respectively.

Net charge-offs in the second quarter of 2017 totaled $0.3 million, compared to net charge-offs of $3 thousand in the year-ago quarter, and net charge-offs of $1.2 million in the previous quarter. Net charge-offs decreased in the current quarter due to higher recoveries. The current quarter included recoveries from three residential mortgage borrowers totaling $0.6 million.

In the second quarter of 2017, the Company recorded a credit to the provision for loan and lease losses of $2.3 million, compared to a credit of $1.4 million in the year-ago quarter and a credit of $0.1 million in the previous quarter. The allowance for loan and lease losses, as a percentage of total loans and leases at June 30, 2017 was 1.47%, compared to 1.79% at June 30, 2016 and 1.56% at March 31, 2017.

Capital

Total shareholders' equity was $512.9 million at June 30, 2017, compared to $517.6 million and $511.5 million at June 30, 2016 and March 31, 2017, respectively.

The Company maintained its strong capital position and its capital ratios continue to exceed the levels required to be considered a "well-capitalized" institution for regulatory purposes under Basel III. At June 30, 2017, the Company's leverage capital, tier 1 risk-based capital, total risk-based capital, and common equity tier 1 ratios were 10.7%, 15.2%, 16.4%, and 12.9%, respectively, compared to 10.7%, 15.2%, 16.5%, and 13.0%, respectively, at March 31, 2017.

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 August 26, 2017 by dialing 1-877-344-7529 (passcode: 10110450) and on the Company's website. Information which may be discussed in the conference call regarding non-GAAP financial performance and reconciliation to GAAP financial performance is provided on the Company's website at http://ir.centralpacificbank.com.

About Central Pacific Financial Corp.

Central Pacific Financial Corp. is a Hawaii-based bank holding company with approximately $5.5 billion in assets.  Central Pacific Bank, its primary subsidiary, operates 35 branches and 84 ATMs in the state of Hawaii, as of June 30, 2017.  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;  the impact of regulatory action on the Company and Central Pacific Bank and legislation affecting the financial services 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, including fintech businesses; 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; changes in our capital position; 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.

 

 

 

 

 

 

 

 

 

 

 

 

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SOURCE Central Pacific Financial Corp.