Market Overview

Central Pacific Financial Corp. Reports Results For Third Quarter 2020

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HONOLULU, Oct. 28, 2020 /PRNewswire/ -- Central Pacific Financial Corp. (NYSE:CPF) (the "Company"), parent company of Central Pacific Bank, today reported net income in the third quarter of 2020 of $6.9 million, or fully diluted earnings per share ("EPS") of $0.24, compared to net income in the third quarter of 2019 of $14.6 million, or EPS of $0.51, and net income in the second quarter of 2020 of $9.9 million, or EPS of $0.35. Our operating results continue to be impacted by a higher provision for credit loss expense that was driven by the economic forecast under the current COVID-19 pandemic. During the third quarter of 2020, the Company recorded a provision for credit loss expense of $14.7 million, compared to $1.5 million in the third quarter of 2019 and $10.6 million in the second quarter of 2020.

"Central Pacific Financial Corp. continues to perform well with solid pre-tax, pre-provision earnings, strong mortgage banking income and the achievement of our RISE2020 milestones on digital banking," said Paul Yonamine, Chairman and Chief Executive Officer.

"We are actively managing the risks related to the COVID-19 pandemic, including building our credit loss reserves and raising Tier 2 capital through a recent issuance of subordinated debt. The Company is well positioned to continue to be a source of strength and liquidity for our customers, employees and shareholders as we all navigate this difficult economic environment," said Catherine Ngo, President.

On October 20, 2020, the Company completed a $55 million private placement of ten-year fixed-to-floating rate subordinated notes, which will be used to support regulatory capital ratios and for general corporate purposes. The Notes bear a fixed interest rate of 4.75% for the first five years and will reset quarterly thereafter for the remaining five years to the then current three-month Secured Overnight Financing Rate, as published by the Federal Reserve Bank of New York, plus 456 basis points.

On October 27, 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 December 15, 2020 to shareholders of record at the close of business on November 30, 2020.

Earnings Highlights
Net interest income for the third quarter of 2020 was $49.1 million, compared to $45.6 million in the year-ago quarter and $49.3 million in the previous quarter. Net interest margin for the third quarter of 2020 was 3.19%, compared to 3.30% in the year-ago quarter and 3.26% in the previous quarter. The increase in net interest income from the year-ago quarter was primarily due to growth in the loan portfolio, including loans originated under the PPP program, combined with lower rates paid on interest-bearing liabilities, partially offset by lower yields earned on the loan and investment securities portfolios. Net interest income for the third quarter of 2020 included $3.4 million in PPP net interest income and net loan fees, which are accreted into income over the term of the loans and accelerated when the loans are forgiven or paid-off. No PPP loans were forgiven during the third quarter. The declines in net interest margin, yields earned on the loans and investment securities portfolios and rates paid on interest-bearing liabilities from the year-ago and sequential quarters are primarily attributable to the historically low interest rate environment. During the third quarter of 2020, the Company had an average PPP loan balance of $544.7 million, which earned approximately 2.48% in net interest income and net loan fees. PPP loans accounted for approximately 2 basis points of the sequential quarter decrease in net interest margin.

Other operating income for the third quarter of 2020 totaled $11.6 million, which increased from $10.3 million in the year-ago quarter and $10.7 million in the previous quarter, primarily due to strong mortgage banking activity. Mortgage banking income increased by $2.4 million and $0.8 million from the year-ago and previous quarters, respectively. The increase in other operating income from the year-ago quarter was also attributable to higher income from bank-owned life insurance of $0.5 million. These increases were partially offset by lower service charges on deposit accounts of $0.7 million and lower other service charges and fees of $0.5 million, which were primarily attributable to lower transactional activity due to the pandemic. The Company also sold certain investment securities during the quarter at a loss of $0.4 million. The increase in other operating income from the previous quarter was primarily due to the aforementioned higher mortgage banking income, combined with higher other service charges and fees of $0.4 million and higher service charges on deposit accounts of $0.3 million. During the quarter, we reinstated certain service charges that were temporarily suspended in the previous quarter due to the pandemic. These increases were partially offset by the aforementioned loss on the sale of investment securities, combined with lower income from bank-owned life insurance of $0.2 million. The changes in income from bank-owned life insurance compared to the year-ago and previous quarters were primarily attributable to volatility in the equity markets.

Other operating expense for the third quarter of 2020 totaled $37.0 million, which increased from $34.9 million in the year-ago quarter and $36.4 million in the previous quarter. The increase from the year-ago quarter was primarily due to higher FDIC insurance assessment of $0.6 million (included in other), higher computer software expense of $0.4 million, and higher legal and professional services and advertising expenses of $0.3 million each. In addition, the Company recorded a provision for off-balance sheet credit exposures of $0.2 million, compared to a credit for off-balance sheet credit exposures of $0.5 million in the year-ago quarter. The Company also recognized costs totaling $0.3 million (included in other) related to the consolidation of three in-store branches with other existing nearby branches. These in-store branches had a small square footage which did not allow for adequate social distancing and have been closed since March 2020 due to the COVID-19 pandemic. A traditional branch is expected to be consolidated during the fourth quarter of 2020. The increase in other operating expense from the previous quarter was primarily due to higher equipment expense of $0.2 million and higher net occupancy expense of $0.2 million. These increases were partially offset by a lower provision for off-balance sheet credit exposures of $0.4 million and a lower net change in the directors' deferred compensation plan obligation of $0.3 million.

The efficiency ratio for the third quarter of 2020 was 60.93%, compared to 62.48% in the year-ago quarter and 60.76% in the previous quarter.

In the third quarter of 2020, the Company recorded income tax expense of $2.2 million, compared to $4.9 million in the year-ago quarter and $3.0 million in the previous quarter. The effective tax rate for the third quarter of 2020 was 24.3%, compared to 25.2% in the year-ago quarter and 23.0% in the previous quarter.

Balance Sheet Highlights
Total assets at September 30, 2020 of $6.65 billion increased by $671.4 million, or 11.2% from September 30, 2019, and increased by $15.2 million, or 0.2% from June 30, 2020.

Total loans at September 30, 2020 of $5.03 billion increased by $662.8 million, or 15.2%, and $27.2 million, or 0.5% from September 30, 2019 and June 30, 2020, respectively. The year-over-year increase in total loans was driven by the origination of PPP loans totaling $528.6 million, net of deferred fees and costs, combined with increases in residential mortgage loans of $121.3 million, home equity loans of $58.5 million, construction loans of $21.6 million and commercial mortgage loans of $7.4 million, partially offset by decreases in the other commercial and consumer loan portfolios of $48.5 million and $26.0 million, respectively. The sequential quarter increase in total loans was primarily due to increases in home equity loans of $23.1 million, residential mortgage loans of $22.5 million, construction loans of $14.7 million and commercial mortgage loans of $11.1 million, partially offset by decreases in the consumer and other commercial loan portfolios of $26.6 million and $19.8 million, respectively. During the third quarter of 2020, the Company transferred $6.6 million in commercial and commercial real estate loans to a single borrower to loans-held-for-sale. In October 2020, the Company sold the loans at a loss of less than $0.1 million.

Total deposits at September 30, 2020 of $5.68 billion increased by $641.3 million, or 12.7% from September 30, 2019, and decreased by $115.8 million, or 2.0% from June 30, 2020. The deposit of PPP funds into both new and existing deposit accounts largely contributed to the increase in total deposits year-over-year. The sequential quarter decrease in total deposits was primarily attributable to the decreases in noninterest-bearing demand deposits of $88.5 million, savings and money market deposits of $64.6 million and total time deposits of $9.2 million, as some PPP funds were spent by clients during the current quarter. The decrease was offset by an increase in interest-bearing demand deposits of $46.6 million. Core deposits, which include demand deposits, savings and money market deposits, and time deposits less than $100,000, totaled $4.91 billion at September 30, 2020. This represents an increase of $758.1 million, or 18.2% from September 30, 2019, and a decrease of $109.2 million, or 2.2% from June 30, 2020. The Company's loan-to-deposit ratio was 88.6% at September 30, 2020, compared to 86.7% at September 30, 2019 and 86.4% at June 30, 2020.

Asset Quality
Nonperforming assets at September 30, 2020 totaled $13.2 million, or 0.20% of total assets, compared to $1.4 million, or 0.02% of total assets at September 30, 2019, and $4.7 million, or 0.07% of total assets at June 30, 2020. During the third quarter of 2020, the Company had $8.4 million in net additions to nonperforming assets, of which $7.6 million were to two borrowers consisting of commercial and commercial real estate loans that the Company believes are well-secured.

Loans delinquent for 90 days or more still accruing interest totaled $0.9 million at September 30, 2020, compared to $0.2 million and $1.2 million at September 30, 2019 and June 30, 2020, respectively.

Loans on payment forbearance or deferrals granted to borrowers impacted by the COVID-19 pandemic declined significantly to $290.8 million or 5.78% of the total loan portfolio (or 6.46% excluding PPP loans), as of September 30, 2020, compared to $567.9 million or 11.35% of the total loan portfolio (or 12.68% excluding PPP loans), as of June 30, 2020.

Net charge-offs in the third quarter of 2020 totaled $1.3 million, compared to net charge-offs of $1.6 million in the year-ago quarter, and net charge-offs of $2.9 million in the previous quarter.

In the third quarter of 2020, the Company recorded a provision for credit losses on loans of $14.7 million, compared to a provision of $1.5 million in the year-ago quarter and a provision of $10.6 million in the previous quarter. The higher provision for credit losses from the year-ago and sequential quarters was driven by models that utilize Hawaii-specific economic projections from a third party economic forecast. The allowance for credit losses, as a percentage of total loans at September 30, 2020 was 1.60%, compared to 1.10% at September 30, 2019 and 1.35% at June 30, 2020. Excluding the PPP loans, the allowance for credit losses, as a percentage of total loans at September 30, 2020 was 1.79%, compared to 1.50% at June 30, 2020.

Capital
Total shareholders' equity was $543.9 million at September 30, 2020, compared to $525.2 million and $544.3 million at September 30, 2019 and June 30, 2020, 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 September 30, 2020, the Company's leverage capital, tier 1 risk-based capital, total risk-based capital, and common equity tier 1 ratios were 8.8%, 12.8%, 13.9%, and 11.6%, respectively, compared to 8.9%, 12.5%, 13.6%, and 11.4%, respectively, at June 30, 2020.

On October 20, 2020, the Company completed a $55 million private placement of ten-year fixed-to-floating rate subordinated notes, which have been structured to qualify initially as tier 2 capital for the Company for regulatory capital 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 (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 November 28, 2020 by dialing 1-877-344-7529 (passcode: 10149191) 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 $6.6 billion in assets.  Central Pacific Bank, its primary subsidiary, operates 32 branches (four of which remain 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 September 30, 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, credit losses, 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 impact of our participation in the Paycheck Protection Program ("PPP") and fulfillment of government guarantees on our PPP loans; 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 statements are made, or to reflect the occurrence of unanticipated events except as required by law.

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES


Financial Highlights


(Unaudited)

TABLE 1



Three Months Ended


Nine Months Ended

(Dollars in thousands,


September 30,


June 30,


March 31,


December 31,


September 30,


September 30,

except for per share amounts)


2020


2020


2020


2019


2019


2020


2019

CONDENSED INCOME STATEMENT















Net interest income


$

49,120



$

49,259



$

47,830



$

47,934



$

45,649



$

146,209



$

136,140


Provision for credit losses [1]


14,652



10,640



9,329



2,098



1,532



34,621



4,219


Net interest income after provision for credit losses [1]


34,468



38,619



38,501



45,836



44,117



111,588



131,921


Total other operating income


11,563



10,692



8,886



9,768



10,266



31,141



32,033


Total other operating expense


36,972



36,427



36,240



36,242



34,934



109,639



105,389


Income before taxes


9,059



12,884



11,147



19,362



19,449



33,090



58,565


Income tax expense


2,200



2,967



2,821



5,165



4,895



7,988



14,440


Net income


6,859



9,917



8,326



14,197



14,554



25,102



44,125


Basic earnings per common share


$

0.24



$

0.35



$

0.30



$

0.50



$

0.51



$

0.89



$

1.54


Diluted earnings per common share


0.24



0.35



0.29



0.50



0.51



0.89



1.53


Dividends declared per common share


0.23



0.23



0.23



0.23



0.23



0.69



0.67

















PERFORMANCE RATIOS















Return on average assets (ROA) [2]


0.42

%


0.61

%


0.55

%


0.95

%


0.99

%


0.53

%


1.00

%

Return on average shareholders' equity (ROE) [2]


4.99



7.34



6.21



10.70



11.11



6.17



11.58


Average shareholders' equity to average assets


8.36



8.36



8.93



8.87



8.87



8.54



8.67


Efficiency ratio [1] [3]


60.93



60.76



63.90



62.81



62.48



61.82



62.67


Net interest margin (NIM) [2]


3.19



3.26



3.43



3.43



3.30



3.29



3.32


Dividend payout ratio [4]


95.83



65.71



79.31



46.00



45.10



77.53



43.79

















SELECTED AVERAGE BALANCES















Average loans, including loans held for sale


$

5,016,955



$

4,902,905



$

4,462,347



$

4,412,247



$

4,293,455



$

4,794,883



$

4,183,703


Average interest-earning assets


6,160,381



6,073,361



5,621,043



5,595,142



5,527,532



5,952,357



5,492,860


Average assets


6,574,492



6,468,129



6,007,237



5,978,797



5,907,207



6,350,696



5,858,224


Average deposits


5,728,147



5,614,595



5,121,696



4,998,897



4,987,414



5,488,947



4,981,254


Average interest-bearing liabilities


4,118,726



4,082,699



3,917,332



3,947,924



3,920,304



4,039,874



3,880,179


Average shareholders' equity


549,378



540,802



536,721



530,464



524,083



542,326



507,930


 

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES


Financial Highlights


(Unaudited)

TABLE 1 (CONTINUED)



September 30,


June 30,


March 31,


December 31,


September 30,

(dollars in thousands)


2020


2020


2020


2019


2019

REGULATORY CAPITAL











Central Pacific Financial Corp











Leverage capital


$

573,636



$

571,976



$

567,947



$

568,529



$

561,478


Tier 1 risk-based capital


573,636



571,976



567,947



568,529



561,478


Total risk-based capital


623,157



622,393



618,504



617,772



611,076


Common equity tier 1 capital


523,636



521,976



517,947



518,529



511,478


Central Pacific Bank











Leverage capital


559,750



559,461



556,895



556,077



550,913


Tier 1 risk-based capital


559,750



559,461



556,895



556,077



550,913


Total risk-based capital


609,203



609,811



607,402



605,320



600,511


Common equity tier 1 capital


559,750



559,461



556,895



556,077



550,913













REGULATORY CAPITAL RATIOS











Central Pacific Financial Corp











Leverage capital ratio


8.8

%


8.9

%


9.5

%


9.5

%


9.5

%

Tier 1 risk-based capital ratio


12.8



12.5



12.3



12.6



12.6


Total risk-based capital ratio


13.9



13.6



13.4



13.6



13.7


Common equity tier 1 capital ratio


11.6



11.4



11.3



11.5



11.5


Central Pacific Bank











Leverage capital ratio


8.6



8.7



9.3



9.3



9.4


Tier 1 risk-based capital ratio


12.5



12.2



12.1



12.3



12.4


Total risk-based capital ratio


13.6



13.3



13.2



13.4



13.5


Common equity tier 1 capital ratio


12.5



12.2



12.1



12.3



12.4















September 30,


June 30,


March 31,


December 31,


September 30,

(dollars in thousands, except for per share amounts)


2020


2020


2020


2019


2019

BALANCE SHEET











Total loans, net of deferred fees and costs


$

5,030,626



$

5,003,438



$

4,511,998



$

4,449,540



$

4,367,862


Total assets


6,648,142



6,632,972



6,108,548



6,012,672



5,976,716


Total deposits


5,678,929



5,794,685



5,136,069



5,120,023



5,037,659


Long-term debt


101,547



167,491



101,547



101,547



101,547


Total shareholders' equity


543,903



544,271



533,781



528,520



525,227


Total shareholders' equity to total assets


8.18

%


8.21

%


8.74

%


8.79

%


8.79

%












ASSET QUALITY











Allowance for credit losses ("ACL") [1]


$

80,542



$

67,339



$

59,645



$

47,971



$

48,167


Non-performing assets ("NPA")


13,187



4,741



3,647



1,719



1,360


ACL to total loans [1]


1.60

%


1.35

%


1.32

%


1.08

%


1.10

%

ACL to total loans, excluding PPP loans [1]


1.79

%


1.50

%


1.32

%


1.08

%


1.10

%

ACL to non-performing assets [1]


610.77

%


1,420.35

%


1,635.45

%


2,790.63

%


3,541.69

%

NPA to total assets


0.20

%


0.07

%


0.06

%


0.03

%


0.02

%












PER SHARE OF COMMON STOCK OUTSTANDING











Book value per common share


$

19.30



$

19.33



$

18.99



$

18.68



$

18.47















[1] The Company adopted ASU 2016-13, "Financial Instruments-Credit Losses" ("CECL"), effective January 1, 2020 using the modified retrospective approach. Results for the reporting periods beginning after January 1, 2020 are presented under CECL, while prior period amounts continue to be reported under previous GAAP.

[2] ROA, ROE and ROTE are annualized based on a 30/360 day convention. Annualized net interest income and expense in the NIM calculation are based on the day count interest payment conventions at the interest-earning asset or interest-bearing liability level (i.e. 30/360, actual/actual).

[3] Efficiency ratio is defined as total operating expense divided by total revenue (net interest income and total other operating income).

[4] Dividend payout ratio is defined as dividends declared per share divided by diluted earnings per share.

 

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES


Consolidated Balance Sheets


(Unaudited)

TABLE 2



September 30,


June 30,


March 31,


December 31,


September 30,

(Dollars in thousands, except share data)


2020


2020


2020


2019


2019

ASSETS











Cash and due from financial institutions


$

89,665



$

102,132



$

81,972



$

78,418



$

87,395


Interest-bearing deposits in other financial institutions


5,489



41,201



11,021



24,554



7,803


Investment securities:











Available-for-sale debt securities, at fair value


1,166,319



1,168,594



1,184,023



1,126,983



1,186,875


Equity securities, at fair value


1,204



1,209



1,002



1,127



1,058


Total investment securities


1,167,523



1,169,803



1,185,025



1,128,110



1,187,933


Loans held for sale


23,962



10,443



3,910



9,083



7,016


Loans, net of deferred fees and costs


5,030,626



5,003,438



4,511,998



4,449,540



4,367,862


Less allowance for credit losses [1]


80,542



67,339



59,645



47,971



48,167


Loans, net of allowance for credit losses


4,950,084



4,936,099



4,452,353



4,401,569



4,319,695


Premises and equipment, net


61,095



55,032



50,447



46,343



44,095


Accrued interest receivable


21,478



19,590



16,851



16,500



16,220


Investment in unconsolidated subsidiaries


30,239



16,428



16,721



17,115



17,001


Other real estate owned


128





100



164



466


Mortgage servicing rights


12,429



12,771



13,345



14,718



15,058


Bank-owned life insurance


161,743



161,758



159,637



159,656



158,939


Federal Home Loan Bank ("FHLB") stock


17,468



9,229



18,109



14,983



17,183


Right of use lease asset


44,896



50,039



51,198



52,348



52,588


Other assets


61,943



48,447



47,859



49,111



45,324


Total assets


$

6,648,142



$

6,632,972



$

6,108,548



$

6,012,672



$

5,976,716


LIABILITIES AND SHAREHOLDERS' EQUITY











Deposits:











Noninterest-bearing demand


$

1,762,476



$

1,851,012



$

1,430,540



$

1,450,532



$

1,399,200


Interest-bearing demand


1,114,123



1,067,483



1,018,508



1,043,010



998,037


Savings and money market


1,881,104



1,945,744



1,693,280



1,600,028



1,593,738


Time


921,226



930,446



993,741



1,026,453



1,046,684


Total deposits


5,678,929



5,794,685



5,136,069



5,120,023



5,037,659


FHLB advances and other short-term borrowings


206,000





222,000



150,000



205,000


Long-term debt


101,547



167,491



101,547



101,547



101,547


Lease liability


45,355



50,440



51,541



52,632



52,807


Other liabilities


72,369



76,050



63,561



59,950



54,476


Total liabilities


6,104,200



6,088,666



5,574,718



5,484,152



5,451,489


Shareholders' equity:











Preferred stock, no par value, authorized 1,000,000 shares; issued and outstanding:  none at September 30, 2020, June 30, 2020, March 31, 2020, December 31, 2019, and September 30, 2019











Common stock, no par value, authorized 185,000,000 shares; issued and outstanding:  28,179,798 at September 30, 2020, 28,154,159 at June 30, 2020, 28,115,353 at March 31, 2020, 28,289,257 at December 31, 2019, and 28,441,341 at September 30, 2019


442,635



442,699



442,853



447,602



452,278


Additional paid-in capital


94,336



93,007



92,284



91,611



90,604


Accumulated deficit [1]


(16,609)



(16,986)



(20,428)



(19,102)



(26,782)


Accumulated other comprehensive income


23,541



25,551



19,072



8,409



9,127


Total shareholders' equity


543,903



544,271



533,781



528,520



525,227


Non-controlling interest


39



35



49






Total equity


543,942



544,306



533,830



528,520



525,227


Total liabilities and shareholders' equity


$

6,648,142



$

6,632,972



$

6,108,548



$

6,012,672



$

5,976,716













[1] The Company adopted ASU 2016-13, "Financial Instruments-Credit Losses" ("CECL"), effective January 1, 2020 using the modified retrospective approach. Results for the reporting periods beginning after January 1, 2020 are presented under CECL, while prior period amounts continue to be reported under previous GAAP.

 

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES


Consolidated Statements of Income


(Unaudited)

TABLE 3



Three Months Ended


Nine Months Ended



September 30,


June 30,


March 31,


December 31,


September 30,


September 30,

(Dollars in thousands, except per share data)


2020


2020


2020


2019


2019


2020


2019

Interest income:















Interest and fees on loans


$

45,751



$

45,915



$

46,204



$

47,488



$

45,861



$

137,870



$

135,169


Interest and dividends on investment securities:















  Taxable investment securities


5,233



6,310



6,757



6,486



7,178



18,300



22,968


  Tax-exempt investment securities


621



599



668



656



708



1,888



2,388


  Dividend income on investment securities


17



17



17



17



14



51



46


Interest on deposits in other financial institutions


3



3



36



54



33



42



147


Dividend income on FHLB stock


128



106



132



456



186



366



508


  Total interest income


51,753



52,950



53,814



55,157



53,980



158,517



161,226


Interest expense:















Interest on deposits:















  Demand


115



114



176



202



207



405



598


  Savings and money market


417



567



1,118



1,253



1,549



2,102



3,847


  Time


1,284



2,124



3,268



3,653



4,432



6,676



14,391


Interest on short-term borrowings


71



74



508



1,139



1,130



653



3,146


Interest on long-term debt


746



812



914



976



1,013



2,472



3,104


  Total interest expense


2,633



3,691



5,984



7,223



8,331



12,308



25,086


  Net interest income


49,120



49,259



47,830



47,934



45,649



146,209



136,140


Provision for credit losses


14,652



10,640



9,329



2,098



1,532



34,621



4,219


  Net interest income after provision for credit losses


34,468



38,619



38,501



45,836



44,117



111,588



131,921


Other operating income:















Mortgage banking income


4,345



3,566



337



1,410



1,994



8,248



5,275


Service charges on deposit accounts


1,475



1,149



2,050



2,159



2,125



4,674



6,247


Other service charges and fees


3,345



2,916



4,897



4,095



3,894



11,158



11,018


Income from fiduciary activities


1,149



1,270



1,297



1,175



1,126



3,716



3,220


Equity in earnings of unconsolidated subsidiaries


104



104



26



92



86



234



165


Net gain (loss) on sales of investment securities


(352)









36



(352)



36


Income from bank-owned life insurance


1,179



1,424



(19)



594



645



2,584



2,511


Net gain (loss) on sales of foreclosed assets




(6)





(162)



17



(6)



17


Other (refer to Table 4)


318



269



298



405



343



885



3,544


Total other operating income


11,563



10,692



8,886



9,768



10,266



31,141



32,033


Other operating expense:















Salaries and employee benefits


20,729



20,622



20,347



21,207



20,631



61,698



61,083


Net occupancy


3,834



3,645



3,672



3,619



3,697



11,151



10,680


Equipment


1,234



1,043



1,097



1,142



1,067



3,374



3,211


Communication expense


856



774



837



906



1,008



2,467



2,645


Legal and professional services


2,262



2,238



2,028



2,123



1,933



6,528



5,231


Computer software expense


3,114



3,035



2,943



2,942



2,713



9,092



7,870


Advertising expense


1,020



923



1,092



527



711



3,035



2,134


Foreclosed asset expense


6





67



28



15



73



223


Other (refer to Table 4)


3,917



4,147



4,157



3,748



3,159



12,221



12,312


  Total other operating expense


36,972



36,427



36,240



36,242



34,934



109,639



105,389


  Income before income taxes


9,059



12,884



11,147



19,362



19,449



33,090



58,565


Income tax expense


2,200



2,967



2,821



5,165



4,895



7,988



14,440


  Net income


$

6,859



$

9,917



$

8,326



$

14,197



$

14,554



$

25,102



$

44,125


Per common share data:















Basic earnings per share


$

0.24



$

0.35



$

0.30



$

0.50



$

0.51



$

0.89



$

1.54


Diluted earnings per share


0.24



0.35



0.29



0.50



0.51



0.89



1.53


Cash dividends declared


0.23



0.23



0.23



0.23



0.23



0.69



0.67


Basic weighted average shares outstanding


28,060,020



28,040,802



28,126,400



28,259,294



28,424,898



28,075,684



28,575,369


Diluted weighted average shares outstanding


28,111,664



28,095,230



28,277,753



28,448,243



28,602,338



28,172,153



28,762,057

















Note: Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period

 

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES


Other Operating Income and Other Operating Expense - Detail


(Unaudited)

TABLE 4

The following table sets forth the components of other operating income - other for the periods indicated:



Three Months Ended


Nine Months Ended



September 30,


June 30,


March 31,


December 31,


September 30,


September 30,

(Dollars in thousands)


2020


2020


2020


2019


2019


2020


2019

Other operating income - other:















Income recovered on nonaccrual loans previously charged-off


$

47



$

37



$

23



$

80



$

73



$

107



$

240


Other recoveries


22



26



40



36



42



88



94


Commissions on sale of checks


73



56



81



75



75



210



234


Gain on sale of MasterCard stock














2,555


Other


176



150



154



214



153



480



421


  Total other operating income - other


$

318



$

269



$

298



$

405



$

343



$

885



$

3,544

















The following table sets forth the components of other operating expense - other for the periods indicated:



Three Months Ended


Nine Months Ended



September 30,


June 30,


March 31,


December 31,


September 30,


September 30,

(Dollars in thousands)


2020


2020


2020


2019


2019


2020


2019

Other operating expense - other:















Charitable contributions


$

12



$

10



$

187



$

122



$

230



$

209



$

559


FDIC insurance assessment


649



475







5



1,124



868


Miscellaneous loan expenses


497



399



300



361



274



1,196



885


ATM and debit card expenses


573



584



634



672



660



1,791



1,930


Armored car expenses


192



229



294



186



220



715



629


Entertainment and promotions


132



165



280



495



323



577



1,576


Stationery and supplies


226



220



248



305



240



694



744


Directors' fees and expenses


213



196



241



246



242



650



722


Directors' deferred compensation plan expense


(237)



103



(1,483)



148



(155)



(1,617)



413


Provision (credit) for residential mortgage loan repurchase losses














(403)


Provision for off-balance sheet credit exposures


221



573



1,798



(160)



(465)



2,592



189


Branch consolidation costs


321











321




Other


1,118



1,193



1,658



1,373



1,585



3,969



4,200


Total other operating expense - other


$

3,917



$

4,147



$

4,157



$

3,748



$

3,159



$

12,221



$

12,312

















Note: Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period

 

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES


Average Balances, Interest Income & Expense, Yields and Rates (Taxable Equivalent)


(Unaudited)

TABLE 5



Three Months Ended


Three Months Ended


Three Months Ended



September 30, 2020


June 30, 2020


September 30, 2019



Average


Average




Average


Average




Average


Average



(Dollars in thousands)


Balance


Yield/Rate


Interest


Balance


Yield/Rate


Interest


Balance


Yield/Rate


Interest

ASSETS

Interest-earning assets:



















Interest-bearing deposits in other financial institutions


$

12,262



0.09

%


$

3



$

15,777



0.10

%


$

3



$

6,295



2.05

%


$

33


Investment securities, excluding valuation allowance:



















Taxable


1,029,987



2.04



5,250



1,042,441



2.43



6,327



1,093,352



2.63



7,192


Tax-exempt


88,749



3.54



786



100,485



3.02



758



117,784



3.04



896


Total investment securities


1,118,736



2.16



6,036



1,142,926



2.48



7,085



1,211,136



2.67



8,088


Loans, including loans held for sale


5,016,955



3.64



45,751



4,902,905



3.76



45,915



4,293,455



4.25



45,861


Federal Home Loan Bank stock


12,428



4.12



128



11,753



3.62



106



16,646



4.46



186


Total interest-earning assets


6,160,381



3.36



51,918



6,073,361



3.51



53,109



5,527,532



3.90



54,168


Noninterest-earning assets


414,111







394,768







379,675






Total assets


$

6,574,492







$

6,468,129







$

5,907,207

























LIABILITIES AND EQUITY

Interest-bearing liabilities:



















Interest-bearing demand deposits


$

1,092,976



0.04

%


$

115



$

1,056,885



0.04

%


$

114



$

1,002,875



0.08

%


$

207


Savings and money market deposits


1,910,971



0.09



417



1,856,621



0.12



567



1,582,795



0.39



1,549


Time deposits under $100,000


160,634



0.57



232



161,874



0.65



261



167,331



0.69



293


Time deposits $100,000 and over


769,030



0.54



1,052



807,276



0.93



1,863



874,192



1.88



4,139


Total interest-bearing deposits


3,933,611



0.18



1,816



3,882,656



0.29



2,805



3,627,193



0.68



6,188


Federal Home Loan Bank advances and other short-term borrowings


79,984



0.35



71



63,104



0.48



74



191,564



2.34



1,130


Long-term debt


105,131



2.82



746



136,939



2.38



812



101,547



3.96



1,013


Total interest-bearing liabilities


4,118,726



0.25



2,633



4,082,699



0.36



3,691



3,920,304



0.84



8,331


Noninterest-bearing deposits


1,794,536







1,731,939







1,360,221






Other liabilities


111,851







112,687







102,599






Total liabilities


6,025,113







5,927,325







5,383,124






Shareholders' equity


549,378







540,802







524,083






Non-controlling interest


1







2












Total equity


549,379







540,804







524,083






Total liabilities and equity


$

6,574,492







$

6,468,129







$

5,907,207

























Net interest income






$

49,285







$

49,418







$

45,837





















Interest rate spread




3.11

%






3.15

%






3.06

%






















Net interest margin




3.19

%






3.26

%






3.30

%










































 

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES


Average Balances, Interest Income & Expense, Yields and Rates (Taxable Equivalent)


(Unaudited)

TABLE 6



Nine Months Ended


Nine Months Ended



September 30, 2020


September 30, 2019



Average


Average




Average


Average



(Dollars in thousands)


Balance


Yield/Rate


Interest


Balance


Yield/Rate


Interest

ASSETS

Interest-earning assets:













Interest-bearing deposits in other financial institutions


$

13,038



0.43

%


$

42



$

8,540



2.30

%


$

147


Investment securities, excluding valuation allowance:













Taxable


1,033,362



2.37



18,351



1,147,217



2.67



23,014


Tax-exempt


98,153



3.25



2,390



137,750



2.93



3,023


Total investment securities


1,131,515



2.44



20,741



1,284,967



2.70



26,037


Loans, including loans held for sale


4,794,883



3.84



137,870



4,183,703



4.32



135,169


Federal Home Loan Bank stock


12,921



3.78



366



15,650



4.33



508


Total interest-earning assets


5,952,357



3.57



159,019



5,492,860



3.94



161,861


Noninterest-earning assets


398,339







365,364






Total assets


$

6,350,696







$

5,858,224



















LIABILITIES AND EQUITY

Interest-bearing liabilities:













Interest-bearing demand deposits


$

1,054,692



0.05

%


$

405



$

972,316



0.08

%


$

598


Savings and money market deposits


1,806,829



0.16



2,102



1,544,759



0.33



3,847


Time deposits under $100,000


162,255



0.64



777



172,204



0.69



884


Time deposits $100,000 and over


807,346



0.98



5,899



921,003



1.96



13,507


Total interest-bearing deposits


3,831,122



0.32



9,183



3,610,282



0.70



18,836


Federal Home Loan Bank advances and other short-term borrowings


94,248



0.93



653



168,350



2.50



3,146


Long-term debt


114,504



2.88



2,472



101,547



4.09



3,104


Total interest-bearing liabilities


4,039,874



0.41



12,308



3,880,179



0.86



25,086


Noninterest-bearing deposits


1,657,825







1,370,972






Other liabilities


110,669







99,143






Total liabilities


5,808,368







5,350,294






Shareholders' equity


542,326







507,930






Non-controlling interest


2












Total equity


542,328







507,930






Total liabilities and equity


$

6,350,696







$

5,858,224



















Net interest income






$

146,711







$

136,775















Interest rate spread




3.16

%






3.08

%
















Net interest margin




3.29

%






3.32

%






























 

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES


Loans by Geographic Distribution


(Unaudited)

TABLE 7



September 30,


June 30,


March 31,


December 31,


September 30,

(Dollars in thousands)


2020


2020


2020


2019


2019

HAWAII:











Commercial, financial and agricultural:











SBA Paycheck Protection Program


$

485,286



$

483,827



$



$



$


Other


414,754



431,887



454,817



454,582



439,296


Real estate:











Construction


118,247



103,518



100,617



95,854



96,661


Residential mortgage


1,680,060



1,657,558



1,632,536



1,599,801



1,558,735


Home equity


534,056



510,962



504,686



490,734



475,565


Commercial mortgage


914,144



912,422



917,886



909,798



909,987


Consumer


342,203



350,414



367,960



373,451



369,511


Leases










31


Total loans, net of deferred fees and costs


4,488,750



4,450,588



3,978,502



3,924,220



3,849,786


Allowance for credit losses


(71,575)



(59,765)



(51,646)



(42,592)



(42,286)


Loans, net of allowance for credit losses


$

4,417,175



$

4,390,823



$

3,926,856



$

3,881,628



$

3,807,500













U.S. MAINLAND: [1]











Commercial, financial and agricultural:











SBA Paycheck Protection Program


$

43,295



$

42,581



$



$



$


Other


113,316



115,971



120,507



115,722



137,316


Real estate:











Construction











Residential mortgage











Home equity











Commercial mortgage


227,121



217,747



221,251



213,617



223,925


Consumer


158,144



176,551



191,738



195,981



156,835


Leases











Total loans, net of deferred fees and costs


541,876



552,850



533,496



525,320



518,076


Allowance for credit losses


(8,967)



(7,574)



(7,999)



(5,379)



(5,881)


Loans, net of allowance for credit losses


$

532,909



$

545,276



$

525,497



$

519,941



$

512,195













TOTAL:











Commercial, financial and agricultural:











SBA Paycheck Protection Program


$

528,581



$

526,408



$



$



$


Other


528,070



547,858



575,324



570,304



576,612


Real estate:











Construction


118,247



103,518



100,617



95,854



96,661


Residential mortgage


1,680,060



1,657,558



1,632,536



1,599,801



1,558,735


Home equity


534,056



510,962



504,686



490,734



475,565


Commercial mortgage


1,141,265



1,130,169



1,139,137



1,123,415



1,133,912


Consumer


500,347



526,965



559,698



569,432



526,346


Leases










31


Total loans, net of deferred fees and costs


5,030,626



5,003,438



4,511,998



4,449,540



4,367,862


Allowance for credit losses


(80,542)



(67,339)



(59,645)



(47,971)



(48,167)


Loans, net of allowance for credit losses


$

4,950,084



$

4,936,099



$

4,452,353



$

4,401,569



$

4,319,695













[1] U.S. Mainland includes territories of the United States

 

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES


Deposits


(Unaudited)

TABLE 8



September 30,


June 30,


March 31,


December 31,


September 30,

(Dollars in thousands)


2020


2020


2020


2019


2019

Noninterest-bearing demand


$

1,762,476



$

1,851,012



$

1,430,540



$

1,450,532



$

1,399,200


Interest-bearing demand


1,114,123



1,067,483



1,018,508



1,043,010



998,037


Savings and money market


1,881,104



1,945,744



1,693,280



1,600,028



1,593,738


Time deposits less than $100,000


157,051



159,739



162,399



165,755



165,687


Core deposits


4,914,754



5,023,978



4,304,727



4,259,325



4,156,662













Government time deposits


500,762



509,927



523,343



533,088



552,470


Other time deposits $100,000 to $250,000


95,918



96,633



100,047



107,550



103,959


Other time deposits greater than $250,000


167,495



164,147



207,952



220,060



224,568


Total time deposits $100,000 and over


764,175



770,707



831,342



860,698



880,997


Total deposits


$

5,678,929



$

5,794,685



$

5,136,069



$

5,120,023



$

5,037,659


 

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES


Nonperforming Assets, Past Due and Restructured Loans


(Unaudited)

TABLE 9



September 30,


June 30,


March 31,


December 31,


September 30,

(Dollars in thousands)


2020


2020


2020


2019


2019

Nonaccrual loans: [1]











Commercial, financial and agricultural


$

1,536



$

934



$

667



$

467



$


Real estate:











Residential mortgage


4,032



3,215



2,287



979



799


Home equity


533



538



545



92



95


Commercial mortgage


6,889










Consumer


69



54



48



17




Total nonaccrual loans


13,059



4,741



3,547



1,555



894


Other real estate owned ("OREO"):











Real estate:











Residential mortgage


128









302


Home equity






100



164



164


Total OREO


128





100



164



466


Total nonperforming assets ("NPAs")


13,187



4,741



3,647



1,719



1,360


Loans delinquent for 90 days or more still accruing interest: [1]











Real estate:











Residential mortgage


588



726



1,221



724




Consumer


321



444



352