Central Pacific Financial Corp. Revises its Previously Announced Allowance for Loan and Lease Losses

FOURTH QUARTER NET INCOME EXPECTED TO BE REVISED UP TO $10.3 MILLION

PR Newswire

HONOLULU, Feb. 6, 2014 /PRNewswire/ -- Central Pacific Financial Corp. (CPF), parent company of Central Pacific Bank (the "Bank"), revised its previously announced results of operations because it has determined that certain third party market data applied in the calculation of its allowance for loan and lease losses ("ALLL") was not updated based on recently available data. As a result of this error, its fourth quarter 2013 net income is expected to be $10.3 million, or $0.24 per diluted share, compared to $9.0 million, or $0.21 per diluted share, previously announced on January 30, 2014.  Net income for the year ended December 31, 2013 is expected to increase to $172.1 million, or $4.07 per diluted share.

The Company issued the revision upon further review of the calculation of its ALLL.  The failure to update certain third party market data applied in the methodology to reflect the most recently available data resulted in the previously reported provision for loan and lease losses of $0.8 million. Applying the updated third party market data, the provision for loan and lease losses is expected to improve to a credit of $1.3 million in the fourth quarter of 2013. Management is assessing the implications of the identified error on the Company's internal controls over financial reporting.  In addition to completing the final items for the year end audit of the Company's consolidated financial statements, the Company's auditor, KPMG LLP, is conducting a further review of the ALLL.  The Company anticipates that KPMG's review will be completed by the end of February 2014.  There can be no assurance that such review will not result in further revisions to the announced results of operations for the fourth quarter and full year ended December 31, 2013.

Revised financial highlights are included in this release.

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.

About Central Pacific Financial Corp.

Central Pacific Financial Corp. is a Hawaii-based bank holding company with approximately $4.7 billion in assets.  Central Pacific Bank, its primary subsidiary, operates 35 branches and 112 ATMs in the state of Hawaii, as of December 31, 2013.  For additional information, please visit the Company's website at http://www.centralpacificbank.com.

Forward-Looking Statements

This document may contain forward-looking statements.  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 "expects," "believes," "plans," "anticipates," "should," 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 expectations for a variety of reasons. For further information on factors that could cause actual results to materially differ from expectations, 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.





CENTRAL PACIFIC FINANCIAL CORP.  AND SUBSIDIARIES


Financial Highlights - December 31, 2013


(Unaudited)


















Three Months Ended




Year Ended






December 31,




December 31,




(in thousands, except per share data)

2013


2012




2013


2012


















INCOME STATEMENT













Net income

$     10,295


$      12,410




$    172,075


$     47,421




Per common share data:














Basic earnings per share

0.24


0.30




4.10


1.14





Diluted earnings per share 

0.24


0.29




4.07


1.13





Cash dividends declared

0.08


-




0.16


-


















PERFORMANCE RATIOS













Return on average assets (1)

0.87

%

1.16

%


3.73

%

1.13

%


Return on average shareholders' equity (1)

6.22


9.81




27.70


9.81




Net income to average tangible shareholders' equity (1) 

6.35


10.13




28.34


10.17




Efficiency ratio (2)

72.50


81.70




74.97


78.89




Net interest margin (1)

3.29


3.00




3.19


3.10


























December 31,




REGULATORY CAPITAL RATIOS







2013


2012




Central Pacific Financial Corp.














Tier 1 risk-based capital 







20.30

%

22.54

%



Total risk-based capital







21.57


23.83





Leverage capital







13.68


14.32


















Central Pacific Bank 














Tier 1 risk-based capital 







19.63

%

21.47

%



Total risk-based capital







20.90


22.75





Leverage capital







13.22


13.65
























December 31,


%










2013


2012


Change


BALANCE SHEET













Total assets







$ 4,741,198


$ 4,370,368


8.5

%

Loans and leases







2,630,601


2,203,944


19.4


Net loans and leases







2,546,781


2,107,531


20.8


Deposits







3,936,173


3,680,772


6.9


Total shareholders' equity







660,113


504,822


30.8


Book value per common share







15.68


12.06


30.0


Tangible book value per common share







15.37


11.69


31.5


Market value per common share







20.08


15.59


28.8


Tangible common equity ratio (3)







13.69

%

11.24

%

21.8






CENTRAL PACIFIC FINANCIAL CORP.  AND SUBSIDIARIES


Financial Highlights - December 31, 2013


(Unaudited)


















Three Months Ended




Year Ended






December 31,


%


December 31,


%




2013


2012


Change


2013


2012


Change


SELECTED AVERAGE BALANCES













Total assets

$ 4,746,897


$  4,293,042


10.6

%

$ 4,610,822


$ 4,207,655


9.6

%

Interest-earning assets

4,368,386


3,983,983


9.6


4,235,052


3,898,677


8.6


Loans and leases, including loans held for sale

2,553,574


2,172,818


17.5


2,394,955


2,130,758


12.4


Other real estate

5,166


28,692


(82.0)


7,767


46,913


(83.4)


Deposits

3,928,031


3,596,155


9.2


3,804,662


3,532,318


7.7


Interest-bearing liabilities

3,152,826


2,879,056


9.5


3,061,652


2,868,352


6.7


Total shareholders' equity

662,106


505,805


30.9


621,282


483,435


28.5


























(in thousands, except per share data)


















December 31,


%










2013


2012


Change


NONPERFORMING ASSETS













Nonaccrual loans (including loans held for sale)







$      41,588


$     79,332


(47.6)

%

Other real estate







5,163


10,686


(51.7)



Total nonperforming assets







46,751


90,018


(48.1)


Loans delinquent for 90 days or more (still accruing interest)






15


503


(97.0)


Restructured loans (still accruing interest)







23,273


31,760


(26.7)



Total nonperforming assets, loans delinquent for 90 days or more (still accruing interest)









 and restructured loans (still accruing interest)





$      70,039


$    122,281


(42.7)














































Three Months Ended




Year Ended






December 31,


%


December 31,


%




2013


2012


Change


2013


2012


Change


Loan charge-offs

$       4,503


$        4,098


9.9

%

$      12,616


$     17,429


(27.6)

%

Recoveries

4,428


5,866


(24.5)


11,333


10,634


6.6



Net loan charge-offs (recoveries)

$            75


$       (1,768)


(104.2)


$        1,283


$       6,795


(81.1)


Net loan charge-offs (recoveries) to average loans (1)

0.01

%

(0.33)

%


0.05

%

0.32

%






CENTRAL PACIFIC FINANCIAL CORP.  AND SUBSIDIARIES


Financial Highlights - December 31, 2013


(Unaudited)






















December 31,












2013


2012




ASSET QUALITY RATIOS













Nonaccrual loans (including loans held for sale) to total loans and leases and loans held for sale

1.57

%

3.54

%


Nonperforming assets to total assets






0.99


2.06




Nonperforming assets, loans delinquent for 90 days or more (still accruing interest) and restructured loans







(still accruing interest) to total loans and leases, loans held for sale & other real estate


2.64


5.43




Allowance for loan and lease losses to total loans and leases





3.19


4.37




Allowance for loan and lease losses to nonaccrual loans (including loans held for sale)


201.55


121.53




Allowance for loan and lease losses to nonperforming assets





179.29


107.10


















(1)

Annualized



























(2)

The efficiency ratio is a non-GAAP financial measure which should be read and used in conjunction with the Company's GAAP financial information. Comparison of our efficiency ratio with those of other companies may not be possible because other companies may calculate the efficiency ratio differently. Our efficiency ratio is derived by dividing other operating expense (excluding amortization, impairment and write-down of intangible assets, goodwill, loans held for sale and foreclosed assets, loss on early extinguishment of debt, loss on investment transaction and loss on sale of commercial real estate loans) by net operating revenue (net interest income on a taxable equivalent basis plus other operating income before securities transactions and gains on sale of foreclosed assets).  See Reconciliation of Non-GAAP Financial Measures.
















(3)

The tangible common equity ratio is a non-GAAP financial measure which should be read and used in conjunction with the Company's  GAAP financial information. Comparison of our tangible common equity ratio with those of other companies may not be possible because other companies may calculate the tangible common equity ratio differently. Our tangible common equity ratio is derived by dividing common shareholders' equity, less intangible assets (excluding mortgage servicing rights (MSRs)) by total assets, less intangible assets (excluding MSRs).


 

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

Reconciliation of Non-GAAP Financial Measures

(Unaudited)
















Quarter Ended


Quarter Ended


Quarter Ended


(Dollars in thousands, except per share data)

December 31, 2013


September 30, 2013


December 31, 2012









Efficiency Ratio







Total other operating expenses

$          35,271


$            36,512


$          36,066


Less:







   Amortization of other intangible assets

668


669


669


   Foreclosed asset expense

43


(12)


364


   Write down of assets

-


-


-


Adjusted other operating expenses

$          34,560


$            35,855


$          35,033









Net interest income (tax equivalent)

$          36,031


$            34,305


$          29,910


Total other operating income

12,173


11,930


16,803


Less:







   Net gains on sales of foreclosed assets

56


276


3,834


   Net gains on sales of investment securities

482


-


-


Adjusted other operating income

$          47,666


$            45,959


$          42,879









Efficiency ratio

72.50

%

78.02

%

81.70

%








Tangible Common Equity Ratio

December 31, 2013


December 31, 2012




Total shareholders' equity

$         660,113


$           504,822




Less: Other intangible assets

(12,704)


(15,378)




Tangible common equity

647,409


489,444











Total assets

4,741,198


4,370,368




Less: Other intangible assets

(12,704)


(15,378)




Tangible assets

4,728,494


4,354,990




Tangible common equity / Tangible assets

13.69

%

11.24

%


 

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)




















 December 31, 


 September 30, 


 December 31, 

(In thousands, except share data)







2013


2013


2012













ASSETS












Cash and due from banks






$

45,092

$

59,400

$

56,473

Interest-bearing deposits in other banks






4,256


37,499


120,902

Investment securities:












  Trading







-


-


-

  Available for sale







1,407,999


1,501,948


1,536,745

  Held to maturity (fair value of $238,705 at December 31, 2013,







       $245,519 at September 30, 2013 and $162,528 at December 31, 2012)

252,047


255,663


161,848

      Total investment securities







1,660,046


1,757,611


1,698,593













Loans held for sale







12,370


12,437


38,283

Loans and leases







2,630,601


2,484,318


2,203,944

  Less allowance for loan and lease losses






83,820


85,228


96,413

      Net loans and leases







2,546,781


2,399,090


2,107,531













Premises and equipment, net







49,039


48,151


48,759

Accrued interest receivable







14,072


13,765


13,896

Investment in unconsolidated subsidiaries






9,127


18,558


10,975

Other real estate







5,163


5,761


10,686

Mortgage servicing rights







20,079


20,249


22,121

Other intangible assets







12,704


13,372


15,378

Bank-owned life insurance







149,604


148,903


147,411

Federal Home Loan Bank stock







46,193


46,626


47,928

Other assets







166,672


163,061


31,432

      Total assets






$

4,741,198

$

4,744,483

$

4,370,368













LIABILITIES AND EQUITY












Deposits:












  Noninterest-bearing demand






$

891,017

$

878,262

$

843,292

  Interest-bearing demand







728,619


739,421


672,838

  Savings and money market







1,207,016


1,212,488


1,186,011

  Time







1,109,521


1,076,093


978,631

      Total deposits







3,936,173


3,906,264


3,680,772













Short-term borrowings







8,015


28,000


-

Long-term debt







92,799


108,268


108,281

Other liabilities







44,037


48,415


66,536

      Total liabilities







4,081,024


4,090,947


3,855,589













Equity:












  Preferred stock, no par value, authorized 1,100,000 shares;








        issued and outstanding none at December 31, 2013, September 30, 2013,





        and December 31, 2012







-


-


-

  Common stock, no par value, authorized 185,000,000 shares;







        issued and outstanding 42,107,633 shares at December 31, 2013, 42,091,180





        shares at September 30, 2013 and 41,867,046 shares at December 31, 2012

784,547


784,473


784,512

  Surplus







75,498


73,735


70,567

  Accumulated deficit







(184,087)


(191,014)


(349,427)

  Accumulated other comprehensive loss






(15,845)


(13,718)


(830)

      Total shareholders' equity







660,113


653,476


504,822

Non-controlling interest







61


60


9,957

      Total equity







660,174


653,536


514,779













      Total liabilities and equity






$

4,741,198

$

4,744,483

$

4,370,368

 

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)
















Three Months Ended


Year Ended




December 31,


September 30,


December 31,


December 31,

(In thousands, except per share data)


2013


2013


2012


2013


2012













Interest income:











  Interest and fees on loans and leases

$

27,117

$

26,414

$

23,387

$

104,479

$

97,029

  Interest and dividends on investment











     securities:











        Taxable interest


8,980


8,114


6,959


31,498


28,803

        Tax-exempt interest


992


992


965


4,051


2,312

        Dividends


7


5


5


23


16

  Interest on deposits in other banks


25


21


73


203


285

  Dividends on Federal Home Loan Bank stock


12


12


-


24


-













      Total interest income


37,133


35,558


31,389


140,278


128,445













Interest expense:











  Interest on deposits:











    Demand


90


91


81


349


339

    Savings and money market


231


227


223


894


1,006

    Time



651


671


784


2,801


3,688

  Interest on short-term borrowings


3


3


-


6


-

  Interest on long-term debt


662


795


911


3,119


3,701













      Total interest expense


1,637


1,787


1,999


7,169


8,734













      Net interest income


35,496


33,771


29,390


133,109


119,711

Provision (credit) for loan and lease losses


(1,333)


(3,189)


(2,283)


(11,310)


(18,885)













      Net interest income after provision











           for loan and lease losses


36,829


36,960


31,673


144,419


138,596













Other operating income:











  Service charges on deposit accounts


2,091


1,776


1,648


7,041


8,367

  Other service charges and fees


4,643


4,931


4,454


18,547


17,569

  Income from fiduciary activities


748


724


669


2,855


2,599

  Equity in earnings of unconsolidated subsidiaries

57


513


188


790


574

  Fees on foreign exchange


160


149


104


508


551

  Investment securities gains


482


-


-


482


789

  Income from bank-owned life insurance


841


611


625


2,333


2,899

  Loan placement fees


162


81


143


570


690

  Net gains on sales of residential loans


1,494


1,476


6,011


9,986


17,095

  Net gains on sales of foreclosed assets


56


276


3,890


8,584


4,999

  Other



1,439


1,393


(873)


3,249


4,611













      Total other operating income


12,173


11,930


16,859


54,945


60,743













Other operating expense:











  Salaries and employee benefits


20,350


19,167


17,833


76,294


69,344

  Net occupancy 


3,672


3,802


3,761


14,323


13,920

  Equipment


888


952


958


3,676


3,966

  Amortization of other intangible assets


1,424


1,637


2,689


7,418


10,179

  Communication expense


796


907


886


3,523


3,428

  Legal and professional services


1,684


2,155


3,189


8,094


13,824

  Computer software expense


1,397


1,056


1,109


4,579


3,961

  Advertising expense


525


601


884


2,666


3,516

  Foreclosed asset expense


43


(12)


420


1,036


6,887

  Write down of assets


-


-


-


-


2,586

  Other



4,492


6,247


4,393


17,927


20,307













      Total other operating expense


35,271


36,512


36,122


139,536


151,918













  Income before income taxes


13,731


12,378


12,410


59,828


47,421

Income tax expense (benefit)


3,436


2,174


-


(112,247)


-

      Net income

$

10,295

$

10,204

$

12,410

$

172,075

$

47,421













Per common share data:











  Basic earnings per share

$

0.24

$

0.24

$

0.30

$

4.10

$

1.14

  Diluted earnings per share 


0.24


0.24


0.29


4.07


1.13

  Cash dividends declared


0.08


0.08


-


0.16


-













Basic weighted average shares outstanding


42,040


42,028


41,766


41,961


41,720

Diluted weighted average shares outstanding


42,536


42,421


42,183


42,317


42,084

 

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

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




















































Three Months Ended


Three Months Ended


Year Ended


Year Ended

(Dollars in thousands)


December 31, 2013


December 31, 2012


December 31, 2013


December 31, 2012





Average

Average




Average

Average




Average

Average




Average

Average







Balance

Yield/Rate


Interest


Balance

Yield/Rate


Interest


Balance

Yield/Rate


Interest


Balance

Yield/Rate


Interest
























Assets:





















Interest earning assets:






















Interest-bearing deposits in other banks

$      39,316

0.25

%

$        25


$    115,841

0.25

%

$        73


$      81,249

0.25

%

$        203


$    114,438

0.25

%

$       285


Taxable investment securities, excluding





















   valuation allowance


1,551,844

2.32


8,987


1,489,529

1.87


6,964


1,534,136

2.05


31,521


1,521,164

1.89


28,819


Tax-exempt investment securities,






















   excluding valuation allowance


177,135

3.44


1,526


157,536

3.77


1,485


177,510

3.51


6,232


83,663

4.25


3,557


Loans and leases, including loans held for sale

2,553,574

4.23


27,117


2,172,818

4.29


23,387


2,394,955

4.36


104,479


2,130,758

4.55


97,029


Federal Home Loan Bank stock


46,517

0.10


12


48,259

-


-


47,202

0.05


24


48,654

-


-



Total interest earning assets


4,368,386

3.44


37,667


3,983,983

3.20


31,909


4,235,052

3.36


142,459


3,898,677

3.33


129,690

Nonearning assets


378,511





309,059





375,770





308,978





Total assets


$ 4,746,897





$ 4,293,042





$ 4,610,822





$ 4,207,655



























Liabilities & Equity:





















Interest-bearing liabilities:






















Interest-bearing demand deposits


$    726,449

0.05

%

$        90


$    648,630

0.05

%

81


$    708,658

0.05

%

$        349


$    615,960

0.05

%

$       339


Savings and money market deposits


1,218,088

0.08


231


1,178,745

0.08


223


1,191,919

0.07


894


1,163,963

0.09


1,006


Time deposits under $100,000


272,051

0.42


285


308,619

0.52


405


285,042

0.46


1,301


326,288

0.59


1,937


Time deposits $100,000 and over


839,198

0.17


366


634,748

0.24


379


769,672

0.19


1,500


652,339

0.27


1,751


Short-term borrowings


4,239

0.32


3


32

0.63


-


1,988

0.32


6


11

0.67


-


Long-term debt


92,801

2.83


662


108,282

3.34


911


104,373

2.99


3,119


109,791

3.37


3,701



Total interest-bearing liabilities


3,152,826

0.21


1,637


2,879,056

0.28


1,999


3,061,652

0.23


7,169


2,868,352

0.30


8,734

Noninterest-bearing deposits


872,245





825,413





849,371





773,768




Other liabilities


59,659





72,807





73,040





72,131





Total liabilities


4,084,730





3,777,276





3,984,063





3,714,251




Shareholders' equity


662,106





505,805





621,282





483,435




Non-controlling interest


61





9,961





5,477





9,969





Total equity


662,167





515,766





626,759





493,404





Total liabilities & equity


$ 4,746,897





$ 4,293,042





$ 4,610,822





$ 4,207,655



























Net interest income





$ 36,030





$ 29,910





$ 135,290





$120,956















































Net interest margin



3.29

%



3.00

%



3.19

%



3.10

%

 

Rates

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