Press Release

HONOLULU, Oct. 29, 2015 /PRNewswire/ -- Central Pacific Financial Corp. (NYSE: CPF), parent company of Central Pacific Bank (the "Bank"), today reported net income for the third quarter of 2015 of $12.2 million, or $0.38 per diluted share, compared to net income in the third quarter of 2014 of $8.2 million, or $0.23 per diluted share, and net income in the second quarter of 2015 of $12.3 million, or $0.39 per diluted share. Net income in the nine months ended September 30, 2015 was $34.9 million, or $1.06 per diluted share, compared to net income in the nine months ended September 30, 2014 of $27.2 million, or $0.71 per diluted share.

"Our positive performance trend continued in the third quarter, with strong growth in loans and deposits, increase in net interest income, further strengthening in asset quality, and our continued progress in realizing operating efficiencies in our organization," said Catherine Ngo, President and Chief Executive Officer. "As a result of our strong financial performance in 2015 and our confidence in our future performance, we increased our quarterly dividend and declared a special cash dividend."

On October 28, 2015, the Company's Board of Directors declared a quarterly cash dividend of $0.14 per share on the Company's outstanding common shares. This represents a 16.7% increase from the previous quarter. Also on October 28, 2015, the Company's Board of Directors approved an additional special cash dividend of $0.32 per share. Both dividends will be payable on December 15, 2015 to shareholders of record at the close of business on November 30, 2015.

During the third quarter of 2015, the Company repurchased a total of 172,100 shares of common stock, at a total cost of $4.0 million under its share repurchase program. The average cost was $23.29 per share repurchased. During the nine months ended September 30, 2015, we have repurchased approximately 11.7% of our common stock outstanding as of December 31, 2014.

Since reinstating our quarterly cash dividends in 2013, we have returned a total of $31.9 million in cash dividends to our shareholders and have repurchased 11,168,501 shares of our common stock at a total cost of $234.8 million, excluding fees and expenses.

Significant Highlights and Third Quarter Results

• Reported net income of $12.2 million, compared to net income in the second quarter of 2015 of $12.3 million.
• Increased the loans and leases portfolio by $95.4 million, or 3.2%, to $3.10 billion at September 30, 2015, compared to $3.01 billion at June 30, 2015.
• Increased total deposits by $48.2 million to $4.23 billion at September 30, 2015, compared to $4.18 billion at June 30, 2015. Increased core deposits by $24.7 million to $3.40 billion at September 30, 2015, compared to $3.38 billion at June 30, 2015.
• Reported net interest income of $37.8 million, compared to $37.3 million in the second quarter of 2015. Reported a net interest margin of 3.31%, compared to 3.32% in the second quarter of 2015.
• Recorded a credit to the provision for loan and lease losses of $3.6 million in the third quarter of 2015, compared to a credit to the provision for loan and lease losses of $7.3 million in the second quarter of 2015.
• Improved our efficiency ratio from 71.47% in the second quarter of 2015 to 67.55% in the third quarter of 2015.
• Nonperforming assets decreased by $18.1 million to $14.0 million at September 30, 2015 from $32.1 million at June 30, 2015.
• Maintained a strong capital position with leverage capital, tier 1 risk-based capital, total risk-based capital, and common equity tier 1 ratios of 10.87%, 15.00%, 16.27%, and 13.32%, respectively, as of September 30, 2015.  The Company's capital ratios continue to be well in excess of the minimum levels required for a "well-capitalized" regulatory designation under Basel III.

Earnings Highlights
Net interest income for the third quarter of 2015 was $37.8 million, compared to $35.5 million in the year-ago quarter and $37.3 million in the second quarter of 2015.  Net interest margin was 3.31%, compared to 3.30% in the year-ago quarter and 3.32% in the second quarter of 2015. The sequential quarter increase in net interest income was primarily attributable to our average loan portfolio balances increasing by $89.2 million. In addition, the taxable equivalent yield on our investment securities portfolio increased to 2.58% in the current quarter from 2.56% last quarter. These increases were partially offset by lower loan fees and prepayment income of $0.4 million. In addition, the taxable equivalent yield on the loans and leases portfolio decreased to 3.91% in the current quarter from 3.97% last quarter. Rates paid on total deposits remained unchanged from last quarter of 0.08%.

In the third quarter of 2015, we recorded a credit to the provision for loan and lease losses of $3.6 million, compared to a credit of $1.7 million in the year-ago quarter and a credit of $7.3 million in the second quarter of 2015. The credit to the provision for loan and lease losses was primarily attributable to improving trends in credit quality, and net recoveries of $3.4 million during the quarter.

Other operating income for the third quarter of 2015 totaled $9.8 million, compared to $11.5 million in the year-ago quarter and $8.1 million in the second quarter of 2015. The decrease from the year-ago quarter was primarily due to lower unrealized gains on loans held for sale and interest rate locks of $0.7 million (included in other), a partial recovery of a previous counterparty loss on a financing transaction of $0.2 million (included in other) recorded in the current quarter, compared to $0.6 million recorded in the year-ago quarter, and lower income received on bank-owned life insurance of $0.4 million. The sequential quarter increase was primarily due to investment securities losses of $1.9 million recorded last quarter, partially offset by lower unrealized gains on loans held for sale and interest rate locks of $0.4 million (included in other) this quarter.

Other operating expense for the third quarter of 2015 totaled $32.2 million, compared to $35.2 million in the year-ago quarter and $32.5 million in the second quarter of 2015. The decrease from the year-ago quarter was primarily attributable to lower foreclosed asset expense of $1.4 million, costs related to the consolidation and relocation of our two Waikiki branches of $1.3 million (included in other) recorded in the year-ago quarter, a reversal of reserves for residential mortgage loan repurchase losses of $0.9 million (included in other) recorded in the current quarter, compared to an increase to the reserve of $0.2 million recorded in the year-ago quarter, and lower net occupancy expense of $0.5 million. These decreases were partially offset by higher salaries and employee benefits of $0.6 million and higher computer software expense of $0.6 million. The sequential quarter decrease was primarily due to reversal of reserves for residential mortgage loan repurchase losses of $0.9 million in the current quarter and lower foreclosed asset expense of $0.3 million, partially offset by a higher reserve for unfunded commitments of $0.5 million. The sequential quarter decrease also includes a $2.0 million contribution to the Central Pacific Bank Foundation ("CPB Foundation") (included in other) recorded last quarter, offset by higher salaries and employee benefits of $2.0 million. The higher salaries and employee benefits was primarily attributable to a one-time reversal of an accrual for a former executive officer's retirement benefits of $2.4 million recorded last quarter, partially offset by a reversal of amortization of unvested stock awards related to a former executive of $0.4 million recorded in the current quarter.

The efficiency ratio for the third quarter of 2015 was 67.55%, compared to 75.00% in the year-ago quarter and 71.47% in the second quarter of 2015. The efficiency ratio in the third quarter of 2014 was primarily impacted by foreclosed asset expenses of $1.4 million and the costs related to the consolidation and relocation of our Waikiki branches of $1.3 million noted above. The efficiency ratio in the second quarter of 2015 was primarily impacted by the investment securities losses of $1.9 million and the CPB Foundation charitable contribution of $2.0 million, offset by the salaries and employee benefits accrual reversal of $2.4 million noted above.

In the third quarter of 2015, the Company recorded income tax expense of $6.9 million, compared to income tax expense of $5.2 million in the year-ago quarter and $7.9 million in the second quarter of 2015. The effective tax rate for the third quarter of 2015 was 36.1%, compared to 38.9% in the year-ago quarter and 39.2% in the second quarter of 2015. Our income tax expense and effective tax rate in the third quarter of 2014 was impacted by a 2013 income tax return true-up adjustment of $0.9 million. Our income tax expense and effective tax rate in the second quarter of 2015 was impacted by $0.6 million in additional income tax expense resulting from the reduction in deferred tax liabilities related to the redemption of Federal Home Loan Bank of Des Moines ("FHLB Des Moines") membership stock during the quarter. As of September 30, 2015, the Company's net deferred tax assets totaled $84.2 million.

Balance Sheet Highlights
Total assets at September 30, 2015 of $5.02 billion increased by $271.6 million from September 30, 2014, and increased by $54.0 million from June 30, 2015.

Total loans and leases at September 30, 2015 of $3.10 billion increased by $226.7 million and $95.4 million from September 30, 2014 and June 30, 2015, respectively.  The increase in total loans and leases from the second quarter of 2015 was primarily due to an increase in the commercial mortgage, residential mortgage, consumer, and commercial loan portfolios of $41.8 million, $33.3 million, $23.0 million, and $6.9 million, respectively, partially offset by a decrease in the construction loan and lease portfolios of $8.2 million and $1.5 million, respectively.

Total deposits at September 30, 2015 of $4.23 billion increased by $182.4 million from September 30, 2014, and increased by $48.2 million from June 30, 2015.  Core deposits, which include demand deposits, savings and money market deposits, and time deposits less than $100,000, totaled $3.40 billion at September 30, 2015.  This represents an increase of $124.5 million and $24.7 million from a year ago and from June 30, 2015, respectively.  Changes in total deposits during the quarter included net increases in noninterest-bearing demand deposits, savings and money market deposits, and time deposits of $32.3 million, $22.3 million, and $15.4 million, respectively, offset by a decrease in interest-bearing demand deposits of $21.9 million.

Total shareholders' equity was $503.3 million at September 30, 2015, compared to $569.0 million and $488.8 million at September 30, 2014 and June 30, 2015, respectively. The sequential quarter increase reflects net income of $12.2 million in the current quarter and a $7.6 million change in unrealized gains on investment securities, offset by repurchases of $4.0 million in common stock, excluding fees and expenses, under the Company's stock repurchase program, and common stock dividends paid of $3.8 million.

Asset Quality
Nonperforming assets at September 30, 2015 totaled $14.0 million, or 0.28% of total assets, compared to $32.1 million, or 0.65% of total assets at June 30, 2015.  The sequential-quarter change in nonperforming assets reflects net decreases in Hawaii commercial mortgage assets of $13.6 million and Hawaii residential mortgage assets of $4.3 million.

Loans delinquent for 90 days or more still accruing interest totaled $0.1 million at September 30, 2015, compared to $45,000 at June 30, 2015.  In addition, loans delinquent for 30 days or more still accruing interest totaled $3.1 million at September 30, 2015, compared to $2.8 million at June 30, 2015.

Net recoveries in the third quarter of 2015 totaled $3.4 million, compared to net recoveries of $1.0 million in the third quarter of 2014, and net recoveries of $2.8 million in the second quarter of 2015. Net recoveries during the third quarter of 2015 included the recovery of a Hawaii commercial mortgage loan totaling $3.1 million.

The ALLL, as a percentage of total loans and leases, was 2.15% at September 30, 2015, compared to 2.23% at June 30, 2015.  The ALLL, as a percentage of nonperforming assets, was 475.99% at September 30, 2015, compared to 208.43% at June 30, 2015.  The ALLL, as a percentage of nonaccrual loans, was 551.32% at September 30, 2015, compared to 249.44% at June 30, 2015.

Capital Levels
At September 30, 2015, the Company's leverage capital, tier 1 risk-based capital, total risk-based capital, and common equity tier 1 ratios were 10.87%, 15.00%, 16.27%, and 13.32%, respectively.  At June 30, 2015, the Company's leverage capital, tier 1 risk-based capital, total risk-based capital, and common equity tier 1 ratios were 10.47%, 14.47%, 15.73%, and 13.08%, respectively. The Company's capital ratios continue to exceed the levels required to be considered a "well-capitalized" institution for regulatory purposes under Basel III, and expects to remain above those levels following the declaration and payment of the quarterly and special cash dividends.

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 29, 2015 by dialing 1-877-344-7529 (passcode: 10075007) and on the Company's website.

About Central Pacific Financial Corp.
Central Pacific Financial Corp. is a Hawaii-based bank holding company with approximately $5.0 billion in assets.  Central Pacific Bank, its primary subsidiary, operates 36 branches and 103 ATMs in the state of Hawaii, as of September 30, 2015.  For additional information, please visit the Company's website at http://www.centralpacificbank.com.

Forward-Looking Statements
This document may contain forward-looking statements concerning projections of revenues, income/loss, earnings/loss per share, capital expenditures, dividends, capital structure, or other financial items, plans and objectives of management for future operations, future economic performance, or any of the assumptions underlying or relating to any of the foregoing.  Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts, and may include the words "believes," "plans," "expects," "anticipates," "forecasts," "intends," "hopes," "should," "estimates," or words of similar meaning.  While the Company believes that our forward-looking statements and the assumptions underlying them are reasonably based, such statements and assumptions are by their nature subject to risks and uncertainties, and thus could later prove to be inaccurate or incorrect.  Accordingly, actual results could materially differ from projections for a variety of reasons, to include, but not limited to:  the effect of, and our failure to comply with any regulatory orders we are or may become subject to; oversupply of inventory and adverse conditions in the Hawaii and California real estate markets and any weakness in the construction industry;  adverse changes in the financial performance and/or condition of our borrowers and, as a result, increased loan delinquency rates,  deterioration in asset quality, and losses in our loan portfolio; the impact of local, national, and international economies and events (including political events, acts of war or terrorism, natural disasters such as wildfires, tsunamis and earthquakes) on the Company's business and operations and on tourism, the military and other major industries operating within the Hawaii market and any other markets in which the Company does business; deterioration or malaise in economic conditions, including destabilizing factors in the financial industry and deterioration of the real estate market, as well as the impact from any declining levels of consumer and business confidence in the state of the economy in general and in financial institutions in particular;  our ability to continue making progress on our recovery plan; 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 legal proceedings or regulatory or other governmental inquiries and proceedings and the resolution thereof, and the results of regulatory examinations or reviews;  the effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Board of Governors of the Federal Reserve System; inflation, interest rate, securities market and monetary fluctuations;  negative trends in our market capitalization and adverse changes in the price of the Company's common shares; changes in consumer spending, borrowings and savings habits; technological changes and developments; changes in the competitive environment among financial holding companies and other financial service providers; 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 any of the foregoing items.For further information on factors that could cause actual results to materially differ from projections, please see the Company's publicly available Securities and Exchange Commission filings, including the Company's Form 10-K for the last fiscal year and, in particular, the discussion of "Risk Factors" set forth therein. The Company does not update any of its forward-looking statements except as required by law.