HONOLULU, July 28, 2016 /PRNewswire/ -- Central Pacific Financial Corp. (NYSE: CPF), (the "Company"), today reported net income for the second quarter of 2016 of $12.1 million, or $0.39 per diluted share, compared to net income in the second quarter of 2015 of $12.3 million, or $0.39 per diluted share, and net income in the first quarter of 2016 of $11.2 million, or $0.35 per diluted share.

"We continued to realize solid core earnings for the quarter, primarily driven by the strong growth in our loan portfolio," said Catherine Ngo, President and Chief Executive Officer.  "We are pleased to be in a position to continue to return excess capital to our shareholders with the increase in our quarterly cash dividend and our ongoing stock repurchase program."

On July 27, 2016, the Company's Board of Directors declared a quarterly cash dividend of $0.16 per share on the Company's outstanding common shares. This represents a 14.3% increase from the $0.14 dividend paid in the second quarter of 2016. The dividend will be payable on September 15, 2016 to shareholders of record at the close of business on August 31, 2016.

During the second quarter of 2016, the Company repurchased 259,200 shares of common stock at a total cost of $5.8 million. The average cost per share was $22.36. During the six months ended June 30, 2016, the Company repurchased a total of 492,922 shares of common stock, or approximately 1.6% of its common stock outstanding as of December 31, 2015 for a total cost of $10.5 million. The Company's remaining repurchase authority under its common stock repurchase program at June 30, 2016 was $19.5 million.

Since reinstating quarterly cash dividends in 2013, the Company has returned over $300 million in cash to its shareholders, in the form of cash dividends totaling $55.0 million, and through the repurchase of 11,661,423 shares of common stock at a total cost of $245.3 million, excluding fees and expenses.

Significant Highlights and Second Quarter Results

• Reported net income of $12.1 million, compared to net income in the second quarter of 2015 of $12.3 million and net income in the first quarter of 2016 of $11.2 million.
• Loans and leases increased by $397.9 million, or 13.2% from the prior year period, and increased by $95.0 million, or 2.9%, during the quarter to $3.40 billion at June 30, 2016, with growth in our commercial mortgage, residential mortgage, and consumer loan portfolios of $69.5 million, $42.6 million, and $16.9 million, respectively, partially offset by a decrease in the commercial loan portfolio of $31.0 million.
• Total deposits increased by $222.8 million, or 5.3% from the prior year period, but decreased by $91.5 million, or 2.0% during the quarter to $4.41 billion at June 30, 2016. Core deposits increased by $196.5 million, or 5.8% from the prior year period, but decreased by $90.8 million, or 2.5% during the quarter to $3.57 billion at June 30, 2016.
• Net interest income increased to $39.6 million from $37.3 million in second quarter of 2015 and $39.2 million in the first quarter of 2016. Reported a net interest margin of 3.29%, compared to 3.32% in the prior year period and 3.33% in the first quarter of 2016.
• Recorded a credit to the provision for loan and lease losses of $1.4 million in the second quarter of 2016, compared to a credit of $7.3 million in the second quarter of 2015 and a credit of $0.7 million in the first quarter of 2016.
• Reported an efficiency ratio of 66.69% in the second quarter of 2016, compared to 71.47% in the second quarter of 2015 and 66.58% in the first quarter of 2016.
• Nonperforming assets decreased by $1.0 million to $14.9 million, or 0.28% of total assets at June 30, 2016, from $15.9 million, or 0.30% of total assets at March 31, 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 10.8%, 14.6%, 15.9%, and 12.5%, respectively, as of June 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 10.2%, 13.8%, 15.1%, and 13.8%, respectively, as of June 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 second quarter of 2016 was $39.6 million, compared to $37.3 million in the year-ago quarter and $39.2 million in the first quarter of 2016.  Net interest margin was 3.29%, compared to 3.32% in the year-ago quarter and 3.33% in the first quarter of 2016. The increase in net interest income from the year-ago quarter was primarily attributable to average loan portfolio balances increasing by $396.2 million. This increase was partially offset by a 6 basis point decrease in average yields earned on loan portfolio balances, combined with a 5 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 increase in net interest income was primarily attributable to average loan portfolio balances increasing by $118.5 million. In addition, total average interest-bearing deposits declined by $31.2 million. The sequential quarter decrease in the net interest margin was primarily attributable to a 9 basis point decrease in average yields earned on investment securities portfolio balances due to higher premium amortization on mortgage backed securities.

In the second quarter of 2016, a credit to the provision for loan and lease losses of $1.4 million was recorded, compared to a credit of $7.3 million in the year-ago quarter and a credit of $0.7 million in the first quarter of 2016.

Other operating income for the second quarter of 2016 totaled $11.7 million, compared to $8.1 million in the year-ago quarter and $10.2 million in the first quarter of 2016. The increase from the year-ago quarter was primarily due to investment securities losses of $1.9 million recorded in the year-ago quarter, and higher income from bank-owned life insurance of $0.8 million recorded in the current quarter. The investment securities losses recorded in the year-ago quarter was attributable to the sale of $119.4 million in available-for-sale securities which were sold as part of an investment portfolio repositioning designed to improve profitability. The higher income from bank-owned life insurance was primarily attributable to death benefit proceeds of $0.5 million received in the current quarter. The sequential quarter increase was primarily due to higher income from bank-owned life insurance of $0.6 million, higher net gain on sales of residential mortgage loans of $0.4 million, and higher other service charges and fees of $0.3 million. The higher net gain on sales of residential mortgage loans was attributable to a $64.7 million increase in residential mortgage origination volume compared to the prior quarter.

Other operating expense for the second quarter of 2016 totaled $34.2 million, compared to $32.5 million in the year-ago quarter and $32.9 million in the first quarter of 2016. The increase from the year-ago quarter was primarily attributable to higher salaries and employee benefits of $2.7 million and higher amortization of mortgage servicing rights of $0.9 million. The higher salaries and employee benefits in the current quarter was primarily attributable to a one-time reversal of an accrual totaling $2.4 million in the year-ago quarter related to a former executive officer's retirement benefits which were not paid. The higher amortization of mortgage servicing rights was primarily attributable to the decline in long-term market interest rates experienced near the end of the quarter. These increases were partially offset by a $2.0 million charitable contribution to the Central Pacific Bank Foundation (included in other) in the year-ago quarter. The sequential quarter increase was primarily due to higher salaries and employee benefits of $0.9 million, a lower credit to the reserve for residential mortgage loan repurchase losses of $0.3 million (included in other), and higher amortization of mortgage servicing rights and net occupancy expense of $0.2 million each. Salaries and employee benefits in the second quarter of 2016 included a $0.4 million increase in our accrual related to our current year incentive compensation plan, while salaries and benefits in the first quarter of 2016 included a $0.5 million reversal of our accrual related to our 2015 incentive compensation plan. These higher expenses were partially offset by lower computer software expense of $0.5 million and lower advertising expense of $0.2 million.

The efficiency ratio for the second quarter of 2016 was 66.69%, an improvement from 71.47% in the year-ago quarter and consistent with 66.58% in the first 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 increase in other operating expenses was largely offset by higher net interest income and higher other operating income.

In the second quarter of 2016, the Company recorded income tax expense of $6.3 million, compared to income tax expense of $7.9 million in the year-ago quarter and $6.1 million in the first quarter of 2016. The effective tax rate for the second quarter of 2016 was 34.3%, compared to 39.2% in the year-ago quarter and 35.2% in the first quarter of 2016. The sequential quarter decline in the effective tax rate was primarily attributable to the $0.5 million in death benefit proceeds from bank-owned life insurance which is tax-exempt. The decrease from the year-ago quarter was primarily driven by $0.6 million in additional tax expense incurred in the second quarter of 2015 due to the redemption of FHLB stock. As of June 30, 2016, the Company's net deferred tax assets totaled $58.3 million, compared to $94.2 million and $67.9 million at June 30, 2015 and March 31, 2016, respectively. The decrease in the net deferred tax assets is primarily due to utilization of net operating loss carryforwards to offset taxable income.

Balance Sheet Highlights

Total assets at June 30, 2016, of $5.28 billion increased by $315.1 million from June 30, 2015, and increased by $40.8 million from March 31, 2016.

Total loans and leases at June 30, 2016 of $3.40 billion increased by $397.9 million and $95.0 million from June 30, 2015 and March 31, 2016, respectively.  The increase in total loans and leases from June 30, 2015 was primarily due to an increase in the commercial, construction, residential mortgage, commercial mortgage, and consumer loan portfolios of $4.5 million, $14.9 million, $149.8 million, $147.4 million, and $83.1 million, respectively. The increase in total loans and leases from the first quarter of 2016 was primarily due to an increase in the residential mortgage, commercial mortgage, and consumer loan portfolios of $42.6 million, $69.5 million, and $16.9 million, respectively, partially offset by a decrease in the commercial and construction loan portfolios of $31.0 million and $2.9 million, respectively.

Total deposits at June 30, 2016 of $4.41 billion increased by $222.8 million from June 30, 2015, but decreased by $91.5 million from March 31, 2016.  Core deposits, which include demand deposits, savings and money market deposits, and time deposits less than $100,000, totaled $3.57 billion at June 30, 2016.  This represents an increase of $196.5 million from June 30, 2015 but a decrease of $90.8 million from March 31, 2016.  Changes in total deposits from June 30, 2015 included net increases in savings and money market deposits of $110.0 million, noninterest-bearing demand deposits of $72.2 million, interest-bearing demand deposits of $38.7 million, and time deposits $100,000 and over of $26.3 million, offset by a decrease in time deposits less than $100,000 of $24.4 million. Changes in total deposits during the quarter included net decreases in savings and money market deposits of $94.4 million and interest-bearing demand deposits of $3.3 million, offset by net decreases in time deposits $100,000 and over of $0.7 million, time deposits less than $100,000 of $5.0 million, and noninterest-bearing demand deposits of $11.9 million.

Total shareholders' equity was $517.6 million at June 30, 2016, compared to $488.8 million and $509.4 million at June 30, 2015 and March 31, 2016, respectively. The sequential quarter increase reflects net income of $12.1 million and an increase in unrealized gains on investment securities of $5.9 million, partially offset by repurchases of common stock under the Company's common stock repurchase program of $5.8 million and common stock dividends paid of $4.4 million.

Asset Quality

Nonperforming assets at June 30, 2016 totaled $14.9 million, or 0.28% of total assets, compared to $32.1 million, or 0.65% of total assets at June 30, 2015, and $15.9 million, or 0.30% of total assets at March 31, 2016.  The sequential-quarter decrease in nonperforming assets reflects the return of two Hawaii commercial mortgage loans to accrual status totaling $3.7 million and the sale of two Hawaii residential mortgage assets totaling $0.9 million, partially offset by the addition of nine Hawaii residential mortgage loans totaling $3.9 million to nonaccrual status.

Loans delinquent for 90 days or more still accruing interest totaled $0.3 million at June 30, 2016, compared to $45 thousand and $0.8 million at June 30, 2015 and March 31, 2016, respectively.  In addition, loans delinquent for 30 days or more still accruing interest totaled $4.1 million at June 30, 2016, compared to $2.8 million at June 30, 2015 and $7.4 million at March 31, 2016.

Net charge-offs in the second quarter of 2016 totaled $3 thousand, compared to net recoveries of $2.8 million in the second quarter of 2015, and net charge-offs of $0.4 million in the first quarter of 2016.

The ALLL, as a percentage of total loans and leases, was 1.79% at June 30, 2016, compared to 2.23% at June 30, 2015 and 1.88% at March 31, 2016.  The ALLL, as a percentage of nonperforming assets, was 407.62% at June 30, 2016, compared to 208.43% at June 30, 2015 and 389.80% at March 31, 2016.  The ALLL, as a percentage of nonaccrual loans, was 437.94% at June 30, 2016, compared to 249.44% at June 30, 2015 and 423.24% at March 31, 2016.

Capital Levels

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.  At March 31, 2016, the Company's leverage capital, tier 1 risk-based capital, total risk-based capital, and common equity tier 1 ratios were 10.8%, 14.5%, 15.8%, 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 August 28, 2016 by dialing 1-877-344-7529 (passcode: 10089321) 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 103 ATMs in the state of Hawaii, as of June 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

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SOURCE Central Pacific Financial Corp.