Press Release

HONOLULU, Oct. 24, 2018 /PRNewswire/ -- Central Pacific Financial Corp. (NYSE: CPF), (the "Company"), today reported net income in the third quarter of 2018 of $15.2 million, or diluted earnings per share ("EPS") of $0.52, compared to net income in the third quarter of 2017 of $11.8 million, or EPS of $0.39, and net income in the second quarter of 2018 of $14.2 million, or EPS of $0.48.

"We are pleased to report another quarter of solid financial performance highlighted by strong loan growth and improved efficiency," said Paul Yonamine, Chairman and Chief Executive Officer. "The continued improvement in the efficiency ratio is reflective of the execution of our strategic initiatives and the continued great work of our employees," said Catherine Ngo, President.

In October 2018, the Company's Board of Directors declared a quarterly cash dividend of $0.21 per share on its outstanding common shares. The dividend will be payable on December 17, 2018 to shareholders of record at the close of business on November 30, 2018.

During the third quarter of 2018, the Company repurchased 235,043 shares of common stock, at a total cost of $6.7 million, or an average cost per share of $28.43. During the nine months ended September 30, 2018, the Company has repurchased 849,290 shares of common stock, or approximately 2.8% of its common stock outstanding as of December 31, 2017. Total cost of the shares repurchased during the nine months ended September 30, 2018 was $24.8 million, or an average cost per share of $29.16. The Company's remaining repurchase authority under its common stock repurchase program at September 30, 2018 is $28.7 million. During the nine months ended September 30, 2018, the Company returned $42.8 million in capital to its shareholders through cash dividends and share repurchases.

Earnings Highlights
Net interest income for the third quarter of 2018 was $43.3 million, compared to $42.0 million in the year-ago quarter and $42.7 million in the previous quarter. Net interest margin for the third quarter of 2018 was 3.20%, compared to 3.25% in the year-ago quarter and 3.20% in the previous quarter. The increase in net interest income from the year-ago and sequential quarters was primarily due to growth in the loan portfolio, combined with increases in the yield earned on the loan and investment securities portfolios. These increases were partially offset by higher deposit and borrowing costs attributable to the recent increases in the federal funds rate, which also resulted in the decline in the net interest margin from the year-ago quarter.

To improve net interest income and net interest margin, the Company announced in October 2018 that it submitted a notice to redeem, in whole and at par, $20 million of floating rate trust preferred securities and the underlying floating rate junior subordinated debentures, which are reported as long-term debt on the Company's balance sheet with a current interest rate of 5.18%. The redemption is pursuant to the optional prepayment provisions of the indenture and is scheduled to occur on December 17, 2018.

Other operating income for the third quarter of 2018 totaled $10.8 million, compared to $9.6 million in the year-ago quarter and $9.6 million in the previous quarter. The increase from the year-ago quarter was primarily due to income recovered on nonaccrual loans previously charged-off of $0.4 million (included in other), higher net gains on sales of residential mortgage loans of $0.4 million (included in mortgage banking income), and higher income from fiduciary activities of $0.2 million. The sequential quarter increase was primarily due to death benefit income of $0.4 million (included in income from bank-owned life insurance), higher income recovered on nonaccrual loans previously charged-off of $0.3 million (included in other), and higher service charges on deposit accounts of $0.2 million.

Other operating expense for the third quarter of 2018 totaled $34.1 million, which increased from $33.5 million in the year-ago quarter and increased from $33.7 million in the previous quarter. The increase from the year-ago quarter was primarily due to higher salaries and employee benefits of $0.9 million, primarily attributable to the increase in the Company's starting pay rate effective January 1, 2018. The sequential quarter increase was primarily due to higher computer software expense of $0.4 million.

The efficiency ratio for the third quarter of 2018 was 63.05%, compared to 64.99% in the year-ago quarter and 64.48% in the previous quarter. The improvements in the efficiency ratio from the year-ago and sequential quarters were primarily due to the aforementioned improvements in net interest income and other operating income, partially offset by higher other operating expenses in the current quarter compared to the year-ago and sequential quarters.

In the third quarter of 2018, the Company recorded income tax expense of $4.9 million, compared to $6.4 million in the year-ago quarter and $3.8 million in the previous quarter. The effective tax rate for the third quarter of 2018 was 24.3%, compared to 35.0% in the year-ago quarter and 21.2% in the previous quarter. The decline in income tax expense and effective tax rate in the current quarter compared to the year-ago quarter was primarily due to the enactment of H.R.1, commonly referred to as the Tax Cuts and Jobs Act. Income tax expense in the second quarter of 2018 included a one-time estimated benefit of $0.6 million to income tax expense due to a tax accounting method change strategy.

Balance Sheet Highlights
Total assets at September 30, 2018 of $5.73 billion increased by $159.4 million, or 2.9% from September 30, 2017, and increased by $47.1 million, or 0.8% from June 30, 2018.

Total loans and leases at September 30, 2018 of $3.98 billion increased by $341.7 million, or 9.4% and $96.4 million, or 2.5% from September 30, 2017 and June 30, 2018, respectively. The increase in total loans and leases from September 30, 2017 was primarily attributable to strong organic growth in the Hawaii loan portfolios (excluding the Hawaii construction loan portfolio) totaling $289.6 million, combined with increases in the U.S. mainland commercial, financial and agricultural and commercial mortgage loan portfolios of $49.8 million and $48.5 million, respectively, partially offset by reductions in the Hawaii construction loan portfolio of $29.0 million and the U.S. mainland consumer loan portfolio of $16.5 million. The increase in total loans and leases from the second quarter of 2018 was primarily due to strong organic growth in the Hawaii loan portfolios totaling $87.3 million, combined with an increase in the U.S. mainland commercial, financial and agricultural loan portfolio of $26.7 million, partially offset by a decrease in the U.S mainland consumer loan portfolio of $16.5 million.

Total deposits at September 30, 2018 of $5.00 billion increased by $76.2 million, or 1.5% from September 30, 2017, and increased by $24.6 million, or 0.5% from June 30, 2018.  Core deposits, which include demand deposits, savings and money market deposits, and time deposits less than $100,000, totaled $4.02 billion at September 30, 2018.  This represents an increase of $61.8 million, or 1.6% from September 30, 2017, and an increase of $21.1 million, or 0.5% from June 30, 2018. The Company's loan-to-deposit ratio was 79.5% at September 30, 2018, compared to 73.8% at September 30, 2017 and 78.0% at June 30, 2018.

Asset Quality
Nonperforming assets at September 30, 2018 totaled $3.0 million, or 0.05% of total assets, compared to $6.0 million, or 0.11% of total assets at September 30, 2017, and $3.5 million, or 0.06% of total assets at June 30, 2018.

Loans delinquent for 90 days or more still accruing interest totaled $0.3 million at September 30, 2018, compared to $0.4 million and $0.6 million at September 30, 2017 and June 30, 2018, respectively.

Net charge-offs in the third quarter of 2018 totaled $1.3 million, compared to net charge-offs of $1.5 million in the year-ago quarter, and net charge-offs of $1.6 million in the previous quarter.

In the third quarter of 2018, the Company recorded a credit to the provision for loan and lease losses of $0.1 million, compared to a credit of $0.1 million in the year-ago quarter and a debit to the provision of $0.5 million in the previous quarter. The allowance for loan and lease losses, as a percentage of total loans and leases at September 30, 2018 was 1.18%, compared to 1.41% at September 30, 2017 and 1.24% at June 30, 2018.

Capital
Total shareholders' equity was $478.2 million at September 30, 2018, compared to $509.8 million and $480.7 million at September 30, 2017 and June 30, 2018, 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, 2018, the Company's leverage capital, tier 1 risk-based capital, total risk-based capital, and common equity tier 1 ratios were 10.3%, 14.2%, 15.4%, and 12.0%, respectively, compared to 10.3%, 14.4%, 15.7%, and 12.2%, respectively, at June 30, 2018.

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 24, 2018 by dialing 1-877-344-7529 (passcode: 10125425) and on the Company's website.

About Central Pacific Financial Corp.
Central Pacific Financial Corp. is a Hawaii-based bank holding company with approximately $5.7 billion in assets.  Central Pacific Bank, its primary subsidiary, operates 35 branches and 78 ATMs in the state of Hawaii, as of September 30, 2018.  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 or actions 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, volcanoes, 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;  the impact of regulatory action on the Company and Central Pacific Bank and legislation affecting the financial services industry; failure to maintain effective internal control over financial reporting or disclosure controls and procedures; 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 the Tax Cuts and Jobs Act; 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, including fintech businesses; 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; changes in our capital position; our ability to attract and retain skilled directors, 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 and 10-K/A 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.