Central Pacific Financial Corp. Reports Earnings Of $4.3 Million For The Fourth Quarter And $41.2 Million For The 2017 Year

HONOLULU, Jan. 24, 2018 /PRNewswire/ -- Central Pacific Financial Corp. (NYSE: CPF), (the "Company"), today reported net income in the fourth quarter of 2017 of $4.3 million, or diluted earnings per share ("EPS") of $0.14, compared to net income in the fourth quarter of 2016 of $12.2 million, or EPS of $0.39, and net income in the third quarter of 2017 of $11.8 million, or EPS of $0.39. 

Net income in the fourth quarter of 2017 included an estimated one-time, non-cash charge to income tax expense of $7.4 million, representing a ($0.25) decrease in EPS, due to the revaluation of the Company's net deferred tax assets resulting from the reduction in the corporate Federal income tax rate in connection with the enactment of the Tax Cuts and Jobs Act ("Tax Reform").

Net income in the year ended December 31, 2017 totaled $41.2 million, or EPS of $1.34, compared to net income in the year ended December 31, 2016 of $47.0 million, or EPS of $1.50.

"We are pleased to have ended the year with strong loan and core deposit growth, as well as year-over-year increases in net interest income and net interest margin,"  said Catherine Ngo, President and Chief Executive Officer.  "While we recorded a one-time adjustment in the valuation of our net deferred tax assets in the quarter, we look forward to the positive impact of a reduced corporate income tax rate in the coming year."

In January 2018, the Company's Board of Directors declared a quarterly cash dividend of $0.19 per share on its outstanding common shares. This represents a 5.6% increase from the $0.18 paid during the quarter. The dividend will be payable on March 15, 2018 to shareholders of record at the close of business on February 28, 2018.

In November 2017, the Company's Board of Directors authorized an increase in its common stock repurchase program authority by an additional $50 million. This amount is an addition to the $30 million in planned repurchases authorized earlier in the year. During the fourth quarter of 2017, the Company repurchased 167,000 shares of common stock at a total cost of $5.3 million, or an average cost per share of $31.47. During the year ended December 31, 2017, the Company repurchased 864,483 shares of common stock, or approximately 2.8% of its common stock outstanding as of December 31, 2016. Total cost of the shares repurchased during the year ended December 31, 2017 was $26.6 million, or an average cost per share of $30.72. The Company's remaining repurchase authority under its common stock repurchase program at December 31, 2017 is $53.5 million.

Earnings Highlights
Net interest income for the fourth quarter of 2017 was $42.8 million, compared to $39.7 million in the year-ago quarter and $42.0 million in the previous quarter. Net interest margin was 3.27%, increased from 3.22% in the year-ago quarter and increased from 3.25% in the previous quarter. The increases in net interest income and net interest margin from the year-ago and sequential quarters were 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 higher time deposits cost attributable to the recent increases in the federal funds rate.

Other operating income for the fourth quarter of 2017 totaled $9.0 million, compared to $13.8 million in the year-ago quarter and $9.6 million in the previous quarter. The decrease from the year-ago quarter was primarily due to a $3.5 million gain on the sale of the Company's fee interest in a former branch location recorded in the year-ago quarter, combined with lower net gains on sales of residential mortgage loans of $1.1 million (included in mortgage banking income) recorded in the current quarter. The sequential quarter decrease was primarily due to lower commissions on sales of investment services and insurance of $0.5 million (included in other service charges and fees), combined with lower death benefit income of $0.4 million (included in income from bank-owned life insurance).

Other operating expense for the fourth quarter of 2017 totaled $34.5 million, which decreased from $37.5 million in the year-ago quarter and increased from $33.5 million in the previous quarter. The decrease from the year-ago quarter was primarily due to lower salaries and employee benefits of $2.5 million, combined with a $0.7 million charge (included in other) related to the early termination of a lease recognized in the year-ago quarter. The decrease in salaries and employee benefits was primarily attributable to the recognition of $3.8 million in net actuarial losses recorded in the year-ago quarter related to the execution of a defined benefit pension plan de-risking strategy whereby the Company purchased non-participating annuity contracts to settle the pension obligation for a portion of its plan participants. This decrease was partially offset by $0.8 million in special, one-time bonuses given to all employees, with the exception of executives on its managing committee, in the fourth quarter of 2017. The sequential quarter increase was primarily due to higher salaries and employee benefits of $0.6 million, primarily attributable to the aforementioned bonuses, combined with higher advertising expense of $0.4 million and higher legal and professional expense of $0.2 million, partially offset by lower entertainment and promotions expense of $0.4 million (included in other). The higher entertainment and promotions expense recorded in the previous quarter was primarily attributable to a core deposit gathering campaign.

The efficiency ratio for the fourth quarter of 2017 was 66.54%, compared to 70.08% in the year-ago quarter and 64.99% in the previous quarter. The decrease in the efficiency ratio from the year-ago quarter was primarily due to the aforementioned $3.8 million in net actuarial losses and the $0.7 million charge related to the early termination of a lease recognized in the year-ago quarter, combined with the improvement in net interest income, partially offset by the aforementioned $3.5 million gain on the sale of the Company's fee interest in a former branch location recorded in the year-ago quarter. The increase in the efficiency ratio compared to the previous quarter was due to the aforementioned lower other operating income and higher other operating expenses, offset by the improvement in net interest income.

In the fourth quarter of 2017, the Company recorded income tax expense of $13.3 million, compared to $6.4 million in the year-ago quarter and $6.4 million in the previous quarter. The effective tax rate for the fourth quarter of 2017 was 75.6%, compared to 34.5% in the year-ago quarter and 35.0% in the previous quarter. The income tax expense and effective tax rate in the fourth quarter of 2017 were negatively impacted by the aforementioned estimated one-time, non-cash charge of $7.4 million related to Tax Reform.

Balance Sheet Highlights
Total assets at December 31, 2017 of $5.62 billion increased by $239.5 million, or 4.4% from December 31, 2016, and increased by $54.5 million, or 1.0% from September 30, 2017.

Total loans and leases at December 31, 2017 of $3.77 billion increased by $245.7 million, or 7.0% and $134.2 million, or 3.7% from December 31, 2016 and September 30, 2017, respectively.  The increase in total loans and leases from December 31, 2016 was primarily attributable to strong organic growth in the Hawaii loan portfolios, combined with increases in the U.S. mainland commercial mortgage and automobile portfolios, partially offset by reductions in the Hawaii construction and other consumer loan portfolios and the U.S. mainland commercial and other consumer loan portfolios. The increase in total loans and leases from the third quarter of 2017 was primarily due to strong organic growth in the Hawaii loan portfolios, combined with increases in the U.S. mainland commercial mortgage, automobiles, and commercial loan portfolios, partially offset by reductions in the Hawaii construction and the U.S. mainland other consumer loan portfolios.

Total deposits at December 31, 2017 of $4.96 billion increased by $348.2 million, or 7.6% from December 31, 2016, and increased by $28.9 million, or 0.6% from September 30, 2017.  Core deposits, which include demand deposits, savings and money market deposits, and time deposits less than $100,000, totaled $3.99 billion at December 31, 2017.  This represents an increase of $277.7 million, or 7.5% from December 31, 2016, and an increase of $35.9 million, or 0.9% from September 30, 2017.

Asset Quality
Nonperforming assets at December 31, 2017 totaled $3.6 million, or 0.06% of total assets, compared to $9.2 million, or 0.17% of total assets at December 31, 2016, and $6.0 million, or 0.11% of total assets at September 30, 2017.

Loans delinquent for 90 days or more still accruing interest totaled $0.6 million at December 31, 2017, compared to $1.4 million and $0.4 million at December 31, 2016 and September 30, 2017, respectively.

Net charge-offs in the fourth quarter of 2017 totaled $1.0 million, compared to net charge-offs of $0.1 million in the year-ago quarter, and net charge-offs of $1.5 million in the previous quarter. Charge-offs remained relatively unchanged from the year-ago and previous quarters. The variances in net charge-offs from the year-ago and previous quarters were primarily due to the level of recoveries in each of the respective periods.

In the fourth quarter of 2017, the Company recorded a credit to the provision for loan and lease losses of $0.2 million, compared to a credit of $2.6 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 December 31, 2017 was 1.33%, compared to 1.61% at December 31, 2016 and 1.41% at September 30, 2017.

Capital
Total shareholders' equity was $500.0 million at December 31, 2017, compared to $504.7 million and $509.8 million at December 31, 2016 and September 30, 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 December 31, 2017, the Company's leverage capital, tier 1 risk-based capital, total risk-based capital, and common equity tier 1 ratios were 10.4%, 14.7%, 15.9%, and 12.4%, respectively, compared to 10.6%, 15.1%, 16.3%, and 12.8%, respectively, at September 30, 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 (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://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 February 24, 2018 by dialing 1-877-344-7529 (passcode: 10116271) 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 $5.6 billion in assets.  Central Pacific Bank, its primary subsidiary, operates 35 branches and 79 ATMs in the state of Hawaii, as of December 31, 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 or actions 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 the Tax Cuts and Jobs Act; 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 directors, 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.