Press Release

HONOLULU, July 24, 2019 /PRNewswire/ -- Central Pacific Financial Corp. (NYSE: CPF) (the "Company"), parent company of Central Pacific Bank, today reported net income in the second quarter of 2019 of $13.5 million, or diluted earnings per share ("EPS") of $0.47, compared to net income in the second quarter of 2018 of $14.2 million, or EPS of $0.48, and net income in the first quarter of 2019 of $16.0 million, or EPS of $0.55. Net income in the six months ended June 30, 2019 totaled $29.6 million, or  EPS of $1.03, compared to net income in the six months ended June 30, 2018 of $28.5 million, or EPS of $0.95.

"The second quarter results were highlighted by solid loan and core deposit growth and excellent asset quality. In our 65^th Anniversary year, we are excited to launch RISE2020, a company-wide initiative that we believe will take Central Pacific Bank to a new level of customer experience and financial performance," said Paul Yonamine, Chairman and Chief Executive Officer.

"RISE2020 includes a number of initiatives and investments to build a better bank to meet the changing needs of our customers," said Catherine Ngo, President.

RISE2020 includes initiatives in the following key areas of opportunity: Digital Banking, Revenue Enhancements, Branch Transformation and Operational Excellence.  RISE2020 will provide Central Pacific Bank with best-in class products and services in several strategic areas.  The Company anticipates investing roughly $40 million in RISE2020 and expects the initiative to lead to enhanced profitability that will result in a 15% return on average shareholders' equity and a 57% efficiency ratio by the end of 2022.  The second quarter of 2019 included roughly $1.0 million of RISE2020-related expense. The Company will share more on RISE2020 on today's conference call and in future quarters.

On July 23, 2019, 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 September 16, 2019 to shareholders of record at the close of business on August 30, 2019.

In June 2019, the Company's Board of Directors authorized the repurchase of up to $30 million of its common stock from time to time in the open market or in privately negotiated transactions, pursuant to a newly authorized share repurchase program (the "Repurchase Plan"). The Repurchase Plan replaces and supersedes in its entirety the share repurchase program previously approved by the Company's Board of Directors, which had $6.8 million in remaining repurchase authority. During the second quarter of 2019, the Company repurchased 213,700 shares of common stock, at a total of $6.2 million, or an average cost per share of $29.22. During the six months ended June 30, 2019, the Company repurchased 490,700 shares of common stock, or approximately 1.7% of its common stock outstanding as of December 31, 2018. Total cost of the shares repurchased during the six months ended June 30, 2019 was $14.0 million, or an average cost per share of $28.43. The Company's remaining repurchase authority under the Repurchase Plan at June 30, 2019 is $29.9 million. During the six months ended June 30, 2019, the Company returned $26.6 million in capital to its shareholders through cash dividends and share repurchases.

Earnings Highlights
Net interest income for the second quarter of 2019 was $45.4 million, compared to $42.7 million in the year-ago quarter and $45.1 million in the previous quarter. Net interest margin for the second quarter of 2019 was 3.33%, compared to 3.20% in the year-ago quarter and 3.34% in the previous quarter. The increases in net interest income from the year-ago and sequential quarters were primarily due to growth in the loan portfolio, combined with higher yields earned on the loan portfolio in the second quarter of 2019. In addition, the Company recorded non-recurring interest recoveries of $0.5 million and $0.3 million in the second and first quarters of 2019, respectively. These increases were partially offset by lower interest and dividends on investment securities due to the planned runoff of our investment securities portfolio, combined with higher deposit and borrowing costs from the year-ago and sequential quarters.

Other operating income for the second quarter of 2019 totaled $10.1 million, compared to $9.6 million in the year-ago quarter and $11.7 million in the previous quarter. The increase from the year-ago quarter was primarily due to higher income from bank-owned life insurance of $0.4 million and higher commissions and fees on investment services of $0.3 million (included in other service charges and fees), partially offset by higher amortization of mortgage servicing rights of $0.2 million (included in mortgage banking income). The increase in income from bank-owned life insurance from the year-ago quarter was primarily attributable to death benefit income of $0.1 million recorded in the current quarter, combined with fluctuations in the equity markets. The decrease from the previous quarter was primarily due to the conversion of MasterCard Class B common stock received during their initial public offering to Class A common stock and immediate sale of the converted shares resulting in a gain of $2.6 million (included in other) in the previous quarter, partially offset by higher commissions and fees on investment services of $0.5 million (included in other service charges and fees) in the current quarter.

Other operating expense for the second quarter of 2019 totaled $36.1 million, which increased from $33.6 million in the year-ago quarter and increased from $34.3 million in the previous quarter. The increase from the year-ago quarter was primarily due to higher salaries and employee benefits of $1.8 million, higher entertainment and promotions expense of $0.7 million (included in other) and higher computer software expense of $0.3 million. These negative variances were partially offset by lower amortization of core deposit premium of $0.7 million, as the intangible asset was fully amortized as of September 30, 2018. The increase from the previous quarter was primarily due to higher salaries and employee benefits of $0.7 million, combined with higher entertainment and promotions expense of $0.8 million (included in other). The higher salaries and employee benefits compared to the year-ago and previous quarters was partially attributable to the addition of positions in strategic areas and higher commissions, combined with annual merit increases effective in the second quarter of 2019. The higher entertainment and promotions expense compared to the year-ago and previous quarters was primarily attributable to expenses related to a recent core deposit gathering campaign.

The efficiency ratio for the second quarter of 2019 was 65.09%, compared to 64.26% in the year-ago quarter and 60.49% in the previous quarter. The efficiency ratio in the previous quarter was positively impacted by the aforementioned MasterCard stock gain.

In the second quarter of 2019, the Company recorded income tax expense of $4.4 million, compared to $3.9 million in the year-ago quarter and $5.1 million in the previous quarter. The effective tax rate for the second quarter of 2019 was 24.6%, compared to 21.7% in the year-ago quarter and 24.2% in the previous quarter. Income tax expense in the year-ago quarter included a one-time estimated income tax benefit of $0.6 million related to a tax accounting method change strategy that allows the deduction for certain expenses to be accelerated for income tax purposes.

Balance Sheet Highlights
Total assets at June 30, 2019 of $5.92 billion increased by $238.5 million, or 4.2% from June 30, 2018, and increased by $78.7 million, or 1.3% from March 31, 2019.

Total loans at June 30, 2019 of $4.25 billion increased by $365.5 million, or 9.4%, and $145.5 million, or 3.5% from June 30, 2018 and March 31, 2019, respectively. The year-over-year and sequential quarter increases in total loans were driven by broad-based growth in all loan categories.

Total deposits at June 30, 2019 of $4.98 billion remained relatively unchanged from June 30, 2018, and increased by $28.7 million, or 0.6% from March 31, 2019.  The sequential quarter increase in total deposits was primarily attributable to an increase in interest-bearing demand deposits of $37.4 million, savings and money market deposits of $11.0 million and other time deposits greater than $250,000 of $17.6 million, partially offset by a decrease in government time deposits of $25.7 million. Core deposits, which include demand deposits, savings and money market deposits, and time deposits less than $100,000, totaled $4.10 billion at June 30, 2019.  This represents an increase of $102.8 million, or 2.6% from June 30, 2018, and $38.5 million, or 0.9% from March 31, 2019. The Company's loan-to-deposit ratio was 85.3% at June 30, 2019, compared to 78.0% at June 30, 2018 and 82.9% at March 31, 2019.

Asset Quality
Nonperforming assets at June 30, 2019 declined to $1.3 million, or 0.02% of total assets, compared to $3.5 million, or 0.06% of total assets at June 30, 2018, and $3.3 million, or 0.06% of total assets at March 31, 2019.

Loans delinquent for 90 days or more still accruing interest totaled $0.3 million at June 30, 2019, compared to $0.6 million and $0.2 million at June 30, 2018 and March 31, 2019, respectively.

Net charge-offs in the second quarter of 2019 totaled $0.4 million, compared to net charge-offs of $1.6 million in the year-ago quarter, and net charge-offs of $1.9 million in the previous quarter.

In the second quarter of 2019, the Company recorded a provision for loan and lease losses of $1.4 million, compared to a provision of $0.5 million in the year-ago quarter and a provision of $1.3 million in the previous quarter. The increases in the provision from the year-ago and sequential quarters were primarily due to growth in our loan portfolio. The allowance for loan and lease losses, as a percentage of total loans and leases at June 30, 2019 was 1.14%, compared to 1.24% at June 30, 2018 and 1.15% at March 31, 2019.

Capital
Total shareholders' equity was $515.7 million at June 30, 2019, compared to $480.7 million and $502.6 million at June 30, 2018 and March 31, 2019, 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 June 30, 2019, the Company's leverage capital, tier 1 risk-based capital, total risk-based capital, and common equity tier 1 ratios were 9.5%, 12.7%, 13.9%, and 11.6%, respectively, compared to 9.5%, 13.0%, 14.1%, and 11.8%, respectively, at March 31, 2019.

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 August 24, 2019 by dialing 1-877-344-7529 (passcode: 10133440) and on the Company's website. Information which may be discussed in the conference call regarding RISE2020 is provided on the investor relations page of 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 $5.9 billion in assets.  Central Pacific Bank, its primary subsidiary, operates 35 branches and 78 ATMs in the state of Hawaii, as of June 30, 2019.  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 including anticipated performance results from our RISE2020 initiative, 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," "targeting," "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; our ability to successfully implement our RISE2020 initiative; 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, including changes 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 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.