Central Pacific Financial Corp. Reports Results For First Quarter 2020

HONOLULU, April 22, 2020 /PRNewswire/ -- Central Pacific Financial Corp. CPF (the "Company"), parent company of Central Pacific Bank, today reported net income in the first quarter of 2020 of $8.3 million, or fully diluted earnings per share ("EPS") of $0.29, compared to net income in the first quarter of 2019 of $16.0 million, or EPS of $0.55, and net income in the fourth quarter of 2019 of $14.2 million, or EPS of $0.50. On January 1, 2020, the Company adopted the current expected credit losses ("CECL") accounting standard and, as a result, recorded increases of $3.6 million to the allowance for credit losses on loans and $0.7 million to the reserve for off-balance sheet credit exposures, that was offset in retained earnings and net deferred tax assets. During the first quarter of 2020, the Company recorded total credit loss expense under CECL, which includes the provisions for credit losses and off-balance sheet credit exposures, of $11.1 million which impacted our first quarter operating results.

"The Company is highly focused on navigating the current challenges brought on by the COVID-19 pandemic. While we expect to see an adverse impact to our earnings in the near term, we are confident that we have the right leadership, solid balance sheet and strong risk management to manage well through the situation," said Paul Yonamine, Chairman and Chief Executive Officer.

"We continue to live out the Bank's legacy by supporting our customers and the community during this unprecedented time. Through the hard work of our employees, we are assisting families and small businesses in Hawaii with various programs that we believe will help them weather the storm currently faced," said Catherine Ngo, President.

During the first quarter of 2020, the Company repurchased 206,802 shares of common stock, or approximately 0.7% of its common stock outstanding as of December 31, 2019. Total cost of the shares repurchased during the first quarter of 2020 totaled $4.7 million, or an average cost per share of $22.96. In March 2020, the Company temporarily suspended its share repurchase program due to uncertainty during the current COVID-19 pandemic.

On April 21, 2020, the Company's Board of Directors declared a quarterly cash dividend of $0.23 per share on its outstanding common shares. The dividend will be payable on June 15, 2020 to shareholders of record at the close of business on May 29, 2020.

Earnings Highlights

Net interest income for the first quarter of 2020 was $47.8 million, compared to $45.1 million in the year-ago quarter and $47.9 million in the previous quarter. Net interest margin for the first quarter of 2020 was 3.43%, compared to 3.34% in the year-ago quarter and 3.43% in the previous quarter. The increases in net interest income and net interest margin from the year-ago quarter were primarily due to growth in the loan portfolio, combined with lower rates paid on interest-bearing liabilities. The decline in rates paid on interest-bearing liabilities is primarily attributable to the five rate cuts by the Federal Reserve from August 2019 through March 2020. Net interest income and net interest margin were stable on a sequential quarter basis as there were offsetting decreases in both yields earned on interest-earning assets and rates paid on interest-bearing liabilities.

Other operating income for the first quarter of 2020 totaled $8.9 million, compared to $11.7 million in the year-ago quarter and $9.8 million in the previous quarter. The decrease from the year-ago quarter was primarily due to a $2.6 million gain on the sale of MasterCard Class B common stock in the year-ago quarter, combined with lower mortgage banking income of $1.2 million and lower income from bank-owned life insurance of $1.0 million. These decreases were partially offset by $1.3 million in income related to an interest rate swap (included in other service charges and fees). The decrease from the previous quarter was primarily due to lower mortgage banking income of $1.1 million, combined with lower income from bank-owned life insurance of $0.6 million, partially offset by the $1.3 million in income related to an interest rate swap (included in other service charges and fees). The lower mortgage banking income compared to the year-ago and sequential quarters was primarily due to higher amortization of mortgage servicing rights of $1.1 million and $0.8 million, respectively, primarily attributable to the recent decline in market interest rates. The lower income from bank-owned life insurance compared to the year-ago and sequential quarters was primarily attributable to volatility in the equity markets. This included a loss on corporate-owned life insurance, which had an offsetting decrease in the Company's deferred compensation expense due to the market movements during the quarter.

Other operating expense for the first quarter of 2020 totaled $36.2 million, which increased from $34.3 million in the year-ago quarter and remained unchanged from $36.2 million in the previous quarter. The increase from the year-ago quarter was primarily due to a higher provision for off-balance sheet credit exposures of $1.6 million related to the new CECL methodology, combined with higher salaries and employee benefits of $0.5 million and higher legal and professional services of $0.5 million, primarily attributable to our RISE2020 initiative. These increases were partially offset by a $1.5 million credit related to the fair value of our directors' deferred compensation obligation (included in other) primarily attributable to the volatility in the equity markets. The aforementioned $1.5 million credit related to the fair value of our directors' deferred compensation obligation (included in other) and lower salaries and employee benefits of $0.9 million during the current quarter, were partially offset by a higher provision for off-balance sheet credit exposures of $2.0 million and higher advertising expenses of $0.6 million compared to the previous quarter. The lower salaries and employee benefits during the current quarter was primarily attributable to lower employee deferred compensation expense due to volatility in the equity markets, combined with a true-up of the Company's incentive compensation plan accrual for 2019 recorded in the previous quarter.

The efficiency ratio for the first quarter of 2020 was 63.90%, compared to 60.49% in the year-ago quarter and 62.81% in the previous quarter.

In the first quarter of 2020, the Company recorded income tax expense of $2.8 million, compared to $5.1 million in the year-ago quarter and $5.2 million in the previous quarter. The effective tax rate for the first quarter of 2020 was 25.3%, compared to 24.2% in the year-ago quarter and 26.7% in the previous quarter.

Balance Sheet Highlights

Total assets at March 31, 2020 of $6.11 billion increased by $267.2 million, or 4.6% from March 31, 2019, and increased by $95.9 million, or 1.6% from December 31, 2019.

Total loans at March 31, 2020 of $4.51 billion increased by $410.4 million, or 10.0%, and $62.5 million, or 1.4% from March 31, 2019 and December 31, 2019, respectively. The year-over-year increase in total loans were driven by broad-based growth in almost all loan categories. The sequential quarter increase in total loans was primarily due to increases in all loan categories except consumer loans, which declined by $9.7 million.

Total deposits at March 31, 2020 of $5.14 billion increased by $187.9 million, or 3.8% from March 31, 2019, and increased by $16.0 million, or 0.3% from December 31, 2019.  The sequential quarter increase in total deposits was primarily attributable to the increases in savings and money market deposits of $93.3 million. This increase was offset by decreases in noninterest-bearing demand deposits of $20.0 million, interest-bearing demand deposits of $24.5 million and total time deposits of $32.7 million. Core deposits, which include demand deposits, savings and money market deposits, and time deposits less than $100,000, totaled $4.30 billion at March 31, 2020.  This represents an increase of $244.5 million, or 6.0% from March 31, 2019, and $45.4 million, or 1.1% from December 31, 2019. The Company's loan-to-deposit ratio was 87.9% at March 31, 2020, compared to 82.9% at March 31, 2019 and 86.9% at December 31, 2019.

Asset Quality

Nonperforming assets at March 31, 2020 totaled $3.6 million, or 0.06% of total assets, compared to $3.3 million, or 0.06% of total assets at March 31, 2019, and $1.7 million, or 0.03% of total assets at December 31, 2019. The increase in nonperforming assets was primarily due to the addition of $1.8 million of residential mortgage and home equity loans in non-accrual loans.

Loans delinquent for 90 days or more still accruing interest totaled $1.6 million at March 31, 2020, compared to $0.2 million and $1.0 million at March 31, 2019 and December 31, 2019, respectively.

Net charge-offs in the first quarter of 2020 totaled $1.2 million, compared to net charge-offs of $1.9 million in the year-ago quarter, and net charge-offs of $2.3 million in the previous quarter.

In the first quarter of 2020, the Company recorded a provision for credit losses on loans of $9.3 million, compared to a provision of $1.3 million in the year-ago quarter and a provision of $2.1 million in the previous quarter. In addition, the Company recorded a provision for off-balance sheet credit exposures (included in other operating expense) of $1.8 million, compared to a provision of $0.2 million in the year-ago quarter and a credit to the provision of $0.2 million in the previous quarter. The increases in the provisions for credit losses and off-balance sheet credit exposures from the year-ago and sequential quarters were primarily due to the incorporation of life of loan estimated losses under CECL and economic forecasts that anticipate deterioration due to the COVID-19 pandemic. The allowance for credit losses, as a percentage of total loans at March 31, 2020 was 1.32%, compared to 1.15% at March 31, 2019 and 1.08% at December 31, 2019.

Capital

Total shareholders' equity was $533.8 million at March 31, 2020, compared to $502.6 million and $528.5 million at March 31, 2019 and December 31, 2019, 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 March 31, 2020, the Company's leverage capital, tier 1 risk-based capital, total risk-based capital, and common equity tier 1 ratios were 9.5%, 12.3%, 13.4%, and 11.3%, respectively, compared to 9.5%, 12.6%, 13.6%, and 11.5%, respectively, at December 31, 2019.

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 May 22, 2020 by dialing 1-877-344-7529 (passcode: 10142273) and on the Company's website. Information which may be discussed in the conference call is provided in an earnings supplement presentation 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 $6.1 billion in assets.  Central Pacific Bank, its primary subsidiary, operates 35 branches (13 of which are temporarily closed to protect the health and well-being of the Company's employees and customers from COVID-19) and 75 ATMs in the state of Hawaii, as of March 31, 2020.  For additional information, please visit the Company's website at http://www.cpb.bank.

Forward-Looking Statements

This document may contain forward-looking statements concerning: projections of revenues, expenses, income or loss, earnings or loss per share, capital expenditures, the payment or nonpayment of dividends, capital position, net interest margin or other financial items; statements of plans, objectives and expectations of Central Pacific Financial Corp. or its management or Board of Directors, including those relating to business plans, use of capital resources, products or services and regulatory developments and regulatory actions; statements of future economic performance including anticipated performance results from our RISE2020 initiative; or any statements of the assumptions underlying or relating to any of the foregoing. Words such as "believes," "plans," "anticipates," "expects," "intends," "forecasts," "hopes," "targeting," "continue," "remain," "will," "should," "estimates," "may" and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

While we believe 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 differ materially from those statements or projections for a variety of reasons, including, but not limited to: the adverse effects of the COVID-19 pandemic virus on local, national and international economies, including, but not limited to, the adverse impact on tourism and construction in the State of Hawaii, our borrowers, customers, third-party contractors, vendors and employees as well as the effects of government programs and initiatives in response to COVID-19; the increase in inventory or adverse conditions in the real estate market and deterioration 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; our ability to successfully implement our RISE2020 initiative; the impact of local, national, and international economies and events (including natural disasters such as wildfires, volcanic eruptions, hurricanes, tsunamis, storms, earthquakes and pandemic virus and disease, including COVID-19) 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 domestic economic conditions, including any destabilization in the financial industry and deterioration of the real estate market, as well as the impact of declining levels of consumer and business confidence in the state of the economy in general and in financial institutions in particular; 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 (the "Dodd-Frank Act"), changes in capital standards, other regulatory reform and federal and state legislation, including but not limited to regulations promulgated by the Consumer Financial Protection Bureau (the "CFPB"), government-sponsored enterprise reform, and any related rules and regulations which affect 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, the results of regulatory examinations or reviews and the effect of, and our ability to comply with, any regulatory orders or actions we are or may become subject to; ability to successfully implement our initiatives to lower our efficiency ratio; 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 (the "FRB" or the "Federal Reserve"); inflation, interest rate, securities market and monetary fluctuations, including the anticipated replacement of the London Interbank Offered Rate ("LIBOR") Index and the impact on our loans and debt which are tied to that index; negative trends in our market capitalization and adverse changes in the price of the Company's common stock; political instability; acts of war or terrorism;  pandemic virus and disease, including COVID-19; changes in consumer spending, borrowings and savings habits; failure to maintain effective internal control over financial reporting or disclosure controls and procedures; cybersecurity and data privacy breaches and the consequence therefrom; the ability to address deficiencies in our internal controls over financial reporting or disclosure controls and procedures; 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 ("FASB") and other accounting standard setters and the cost and resources required to implement such changes; our ability to attract and retain key personnel; changes in our organization, compensation and benefit plans; and our success at managing the risks involved in the foregoing items.

For further information with respect to factors that could cause actual results to materially differ from the expectations or projections stated in the forward-looking statements, 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. We urge investors to consider all of these factors carefully in evaluating the forward-looking statements contained in this Form 8-K. Forward-looking statements speak only as of the date on which such statements are made. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events except as required by law.

 

 

 

 

 

 

 

 

 

 

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SOURCE Central Pacific Financial Corp.