Press Release

HONOLULU, Jan. 31, 2013 /PRNewswire/ -- Central Pacific Financial Corp. (NYSE: CPF), parent company of Central Pacific Bank (the "Bank"), today reported net income for the fourth quarter of 2012 of $12.4 million, or $0.29 per diluted share, compared to net income in the fourth quarter of 2011 of $12.1 million, or $0.29 per diluted share, and net income in the third quarter of 2012 of $10.7 million, or $0.26 per diluted share.  For the year ended December 31, 2012, the Company's net income was $47.4 million, a 30% increase over net income of $36.6 million in the previous year. On a diluted per share basis, net income was $1.13 and $3.31 for 2012 and 2011, respectively.  Net income per diluted share in 2011 included the impact of a one-time accounting adjustment from the previously reported exchange of the Company's preferred stock issued to the U.S. Department of Treasury for common stock as part of its recapitalization. 

"We are pleased at the progress our Company continued to make in 2012," said John C. Dean, President and Chief Executive Officer.  "The 30% increase in net income, year over year, is a reflection of significant improvements in our credit risk profile.  In addition, we were also encouraged by the fact that we enjoyed strong growth in both loans and core deposits during the quarter."

Significant Highlights and Fourth Quarter Results

• Reported eighth consecutive profitable quarter since the company's recapitalization with net income of $12.4 million, compared to net income of $10.7 million in the third quarter of 2012.
• For the seventh consecutive quarter, the Company did not incur credit costs as it reduced its allowance for loan and lease losses (ALLL) by an amount greater than net foreclosed asset expense, write-downs of loans held for sale and changes to the reserve for unfunded commitments.  The reduction in the ALLL resulted in a credit to the provision for loan and lease losses of $2.3 million, compared to a credit of $5.0 million for the third quarter of 2012.
• Reduced nonperforming assets by $50.3 million to $90.0 million at December 31, 2012 from $140.3 million at September 30, 2012.
• The ALLL, as a percentage of total loans and leases, decreased to 4.37% at December 31, 2012, compared to 4.59% at September 30, 2012.  In addition, the Company's ALLL, as a percentage of nonperforming assets, increased significantly to 107.10% at December 31, 2012 from 69.08% at September 30, 2012 and the Company's ALLL, as a percentage of nonaccrual loans, increased to 121.53% at December 31, 2012 from 104.30% at September 30, 2012.
• Increased the loans and leases portfolio by $93.8 million to $2.20 billion at December 31, 2012, compared to $2.11 billion at September 30, 2012.
• Increased total deposits by $59.2 million to $3.68 billion at December 31, 2012, compared to $3.62 billion at September 30, 2012.
• Maintained a strong capital position with Tier 1 risk-based capital, total risk-based capital, and leverage capital ratios of 22.54%, 23.83%, and 14.32%, respectively, as of December 31, 2012, compared to 23.34%, 24.63%, and 14.06%, respectively, as of September 30, 2012.  The Company's capital ratios continue to be well in excess of the minimum levels required for a "well-capitalized" regulatory designation.

Earnings Highlights
Net interest income for the fourth quarter of 2012 was $29.4 million, compared to $30.8 million in the year-ago quarter and $29.6 million in the third quarter of 2012.  Net interest margin was 3.00%, compared to 3.25% in the year-ago quarter and 3.02% in the third quarter of 2012. The decrease in both net interest income and the net interest margin from both the year-ago and sequential quarters was primarily due to lower yields on the Company's interest-earning assets resulting from the continuing lower interest rate environment.

The provision for loan and lease losses for the fourth quarter of 2012 was a credit of $2.3 million, compared to a credit of $11.2 million in the year-ago quarter and a credit of $5.0 million in the third quarter of 2012.  The credit to the provision for loan and lease losses was the result of continued improvement in the Company's credit risk profile, as evidenced by the previously mentioned decrease in nonperforming assets and further reductions in the historical quarterly charge-off data used to calculate the ALLL.

Other operating income for the fourth quarter of 2012 totaled $13.0 million, compared to $15.2 million in the year-ago quarter and $15.9 million in the third quarter of 2012. The decrease from the year-ago quarter was primarily due to lower rental income from foreclosed properties of $1.9 million, lower unrealized gains on interest rate locks of $1.1 million, lower investment securities gains of $1.0 million, lower service charges on deposit accounts of $0.8 million and lower income from bank-owned life insurance of $0.5 million, partially offset by higher gains on sales of residential mortgage loans of $2.3 million. The sequential quarter decrease was primarily due to lower unrealized gains on interest rate locks of $2.1 million, lower investment securities gains of $0.8 million, lower rental income from foreclosed properties of $0.6 million and lower service charges on deposit accounts of $0.5 million, partially offset by higher gains on sales of residential mortgage loans of $1.3 million.

Other operating expense for the fourth quarter of 2012 totaled $32.3 million, compared to $45.2 million in the year-ago quarter and $39.8 million in the third quarter of 2012.  The decrease from the year-ago quarter was primarily due to lower net credit-related charges (which includes changes in the reserve for unfunded commitments, write-downs of loans held for sale and foreclosed asset expense) of $9.2 million, lower charitable contributions of $3.1 million and a lower provision for repurchased residential mortgage loans of $1.5 million. The sequential quarter decrease was primarily attributable to lower net credit-related charges of $9.9 million, partially offset by a lower credit to the provision for repurchased residential mortgage loans of $0.7 million and higher salaries and employee benefits of $0.6 million.

The efficiency ratio for the fourth quarter of 2012 was 81.7% (excluding foreclosed asset income of $3.5 million, and amortization expense related to certain intangible assets totaling $0.7 million), compared to 92.0% in the year-ago quarter (excluding foreclosed asset expense of $3.0 million and amortization expense related to certain intangible assets totaling $0.7 million) and 78.51% (excluding foreclosed asset expense of $2.9 million, loss on sale of loans held for sale of $0.8 million and amortization expense related to certain intangible assets totaling $0.7 million) in the third quarter of 2012.

The Company continues to recognize a full valuation allowance against its net deferred tax assets and did not record any net income tax benefit or expense during the fourth quarter of 2012.

Balance Sheet Highlights
Total assets at December 31, 2012 of $4.37 billion increased by $237.5 million and $60.8 million from December 31, 2011 and September 30, 2012, respectively.

Total loans and leases at December 31, 2012 of $2.20 billion increased by $139.5 million and $93.8 million from December 31, 2011 and September 30, 2012, respectively.  The increase in total loans and leases from the third quarter of 2012 was due to an increase in the residential mortgage, commercial and consumer loan portfolios of $50.0 million, $34.8 million and $20.0 million, respectively, partially offset by a decrease in the construction and development, leases and commercial mortgage loan portfolios of $8.1 million, $1.6 million and $1.3 million, respectively.

Total deposits at December 31, 2012 were $3.68 billion, compared to $3.44 billion and $3.62 billion at December 31, 2011 and September 30, 2012, respectively.  Core deposits, which include demand deposits, savings and money market deposits, and time deposits less than $100,000, totaled $3.01 billion at December 31, 2012.  This represents an increase of $220.4 million from a year ago and an increase of $63.3 million from September 30, 2012.  Changes in total deposits during the quarter included an increase in non-interest bearing demand deposits, interest-bearing demand deposits and savings and money market deposits of $39.5 million, $24.5 million and $8.8 million, respectively, offset by a decrease in time deposits of $13.7 million.

Total shareholders' equity was $504.8 million at December 31, 2012, compared to $456.4 million and $501.0 million at December 31, 2011 and September 30, 2012, respectively.

Asset Quality
Nonperforming assets at December 31, 2012 totaled $90.0 million, or 2.06% of total assets, compared to $140.3 million, or 3.26% of total assets at September 30, 2012.  The sequential-quarter change reflects net decreases in Hawaii construction and development assets of $33.9 million, Mainland construction and development assets of $9.0 million, Hawaii residential mortgage assets of $6.5 million, Mainland commercial mortgage assets of $0.4 million, Hawaii commercial mortgage assets totaling $0.3 million, Hawaii lease assets of $0.2 million and Hawaii commercial assets of $0.1 million.

Loans delinquent for 90 days or more still accruing interest totaled $0.5 million at both December 31, 2012 and September 30, 2012.  In addition, loans delinquent for 30 days or more still accruing interest totaled $10.4 million at December 31, 2012, compared to $5.7 million at September 30, 2012.

Net recoveries in the fourth quarter of 2012 totaled $1.8 million, compared to net charge-offs of $10.1 million and $1.9 million in the year-ago quarter and third quarter of 2012, respectively.

The ALLL, as a percentage of total loans and leases, was 4.37% at December 31, 2012, compared to 4.59% at September 30, 2012.  The ALLL, as a percentage of nonperforming assets, was 107.10% at December 31, 2012, compared to 69.08% at September 30, 2012.  The ALLL, as a percentage of nonaccrual loans, was 121.53% at December 31, 2012, compared to 104.30% at September 30, 2012. 

Capital Levels
At December 31, 2012, the Company's Tier 1 risk-based capital, total risk-based capital, and leverage capital ratios were 22.54%, 23.83%, and 14.32%, respectively, compared to 23.34%, 24.63%, and 14.06%, respectively, at September 30, 2012.  The Company's capital ratios continue to exceed the levels required to be considered a "well-capitalized" institution for regulatory 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 12:00 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://investor.centralpacificbank.com.  Alternatively, investors may participate in the live call by dialing 1-888-317-6016.  A playback of the call will be available through February 28, 2013 by dialing 1-877-344-7529 (passcode: 10023257) and on the Company's website.

About Central Pacific Financial Corp.
Central Pacific Financial Corp. is a Hawaii-based bank holding company with approximately $4.37 billion in assets.  Central Pacific Bank, its primary subsidiary, operates 34 branches and 116 ATMs in the state of Hawaii, as of December 31, 2012.  For additional information, please visit the Company's website at http://www.centralpacificbank.com.

Forward-Looking Statements
This document may contain forward-looking statements concerning projections of revenues, income/loss, earnings/loss per share, capital expenditures, dividends, capital structure, or other financial items, plans and objectives of management for future operations, future economic performance, or any of the assumptions underlying or relating to any of the foregoing.  Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts, and may include the words "believes," "plans," "expects," "anticipates," "forecasts," "intends," "hopes," "should," "estimates," or words of similar meaning.  While the Company believes that our forward-looking statements and the assumptions underlying them are reasonably based, such statements and assumptions are by their nature subject to risks and uncertainties, and thus could later prove to be inaccurate or incorrect.  Accordingly, actual results could materially differ from projections for a variety of reasons, to include, but not limited to:  the effect of, and our failure to comply with all of the requirements of, the Memorandum of Understanding with the Federal Deposit Insurance Corporation ("FDIC") and the Hawaii Division of Financial Institutions ("DFI"), effective May 5, 2011, the Written Agreement with the Federal Reserve Bank of San Francisco and DFI, dated July 2, 2010, and any further regulatory orders we are or may become subject to; our ability to continue making progress on our recovery plan; oversupply of inventory and adverse conditions in the Hawaii and California real estate markets and recurring weakness in the construction industry;  adverse changes in the financial performance and/or condition of our borrowers and, as a result, increased loan delinquency rates, further deterioration in asset quality and further losses in our loan portfolio; the impact of local, national, and international economies and events (including political events, acts of war or terrorism, natural disasters such as wildfires, tsunamis and earthquakes) on the Company's business and operations and on tourism, the military and other major industries operating within the Hawaii market and any other markets in which the Company does business; deterioration or malaise in economic conditions, including the continued destabilizing factors 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;  the impact of regulatory action on the Company and Central Pacific Bank and legislation affecting the banking industry; changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act, other regulatory reform, and any related rules and regulations on our business operations and competitiveness; the costs and effects of legal and regulatory developments, including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews;  the effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rate, securities market and monetary fluctuations;  negative trends in our market capitalization and adverse changes in the price of the Company's common shares; changes in consumer spending, borrowings and savings habits; technological changes; changes in the competitive environment among financial holding companies and other financial service providers; the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; our ability to attract and retain skilled executives and employees; changes in our organization, compensation and benefit plans; and our success at managing the risks involved in the foregoing items.