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Section 1: 8-K (8-K)

Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C.  20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
 
Date of report (Date of earliest event reported):

January 30, 2019
 
 
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Central Pacific Financial Corp.
(Exact name of registrant as specified in its charter)
 
Hawaii
 
001-31567
 
99-0212597
(State or other jurisdiction
 
(Commission
 
(I.R.S. Employer
of incorporation)
 
File Number)
 
Identification No.)
 
220 South King Street, Honolulu, Hawaii
 
96813
(Address of principal executive offices)
 
(Zip Code)
 
(808) 544-0500
(Registrant’s telephone number, including area code)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
o
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
 
o
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
 
o
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
 
o
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o




ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
 
On January 30, 2019, Central Pacific Financial Corp. issued a press release regarding its results of operations and financial condition for the quarter ended December 31, 2018. A copy of the press release is furnished herewith as Exhibit 99.1.
 
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
 
(d)
 
Exhibits
 
 
99.1

 





SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
Central Pacific Financial Corp.
 
 
(Registrant)
 
 
 
 
 
 
 
 
 
Date:
January 30, 2019
/s/ David S. Morimoto
 
 
David S. Morimoto
 
 
Executive Vice President and Chief Financial Officer


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Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit

Exhibit 99.1
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FOR IMMEDIATE RELEASE
 
 
 
 
Investor Contact:
Ian Tanaka
Media Contact:
Wayne Kirihara
 
VP, Treasury Manager
 
EVP, Chief Marketing Officer
 
(808) 544-3646
 
(808) 544-3687
 
ian.tanaka@centralpacificbank.com
 
wayne.kirihara@centralpacificbank.com
 
NEWS RELEASE
 
 
 
 
 

CENTRAL PACIFIC FINANCIAL CORP. REPORTS EARNINGS OF $15.8 MILLION
FOR THE FOURTH QUARTER AND $59.5 MILLION FOR THE 2018 YEAR


•
Net income of $15.8 million, or fully diluted EPS of $0.54 for the fourth quarter, representing an increase of 268.3% and 285.7%, respectively, from the year-ago quarter.

•
Net income of $59.5 million, or fully diluted EPS of $2.01 for the year, representing an increase of 44.4% and 50.0%, respectively, from last year.

•
ROA of 1.10% and ROE of 12.90% for the fourth quarter. ROA of 1.05% and ROE of 12.22% for the year.

•
Total loans increased by $100.3 million in the fourth quarter, or 2.5% sequentially and 8.2% year-over-year.

•
Net interest margin increased by 8 basis points in the fourth quarter and 1 basis point from the year-ago quarter.


HONOLULU, HI, January 30, 2019 – Central Pacific Financial Corp. (NYSE: CPF), (the "Company"), today reported net income in the fourth quarter of 2018 of $15.8 million, or diluted earnings per share ("EPS") of $0.54, compared to net income in the fourth quarter of 2017 of $4.3 million, or EPS of $0.14, and net income in the third quarter of 2018 of $15.2 million, or EPS of $0.52. Net income in the fourth quarter of 2017 included an estimated one-time, non-cash charge to income tax expense of $7.4 million, representing a $0.25 decrease in EPS, due to the revaluation of the Company's net deferred tax assets ("DTA") resulting from the reduction in the corporate Federal income tax rate in connection with the enactment of H.R.1, commonly referred to as the Tax Cuts and Jobs Act ("Tax Reform"). Net income for the year ended December 31, 2018 totaled $59.5 million, or diluted EPS of $2.01, compared to net income for the year ended December 31, 2017 of $41.2 million, or EPS of $1.34.

"We had a strong end to the year with significant loan growth and both ROA and ROE improvements. We plan to carry this momentum into 2019 as we drive forward our strategic initiatives to continue to enhance shareholder value." said Paul Yonamine, Chairman and Chief Executive Officer. "Strong loan growth has been a consistent driver of our performance throughout the year while our asset quality remained strong. Our solid financial performance in 2018 is reflective of the excellent team effort and dedication from our employees." said Catherine Ngo, President.




Central Pacific Financial Corp. Reports Earnings of $15.8 Million for the Fourth Quarter and $59.5 Million for the 2018 Year
Page 2


In January 2019, 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 March 15, 2019 to shareholders of record at the close of business on February 28, 2019.

During the fourth quarter of 2018, the Company repurchased 305,867 shares of common stock, at a total cost of $8.1 million, or an average cost per share of $26.35. During the year ended December 31, 2018, the Company repurchased 1,155,157 shares of common stock, or approximately 3.8% of its common stock outstanding as of December 31, 2017. Total cost of the shares repurchased during the year ended December 31, 2018 was $32.8 million, or an average cost per share of $28.42. The Company's remaining repurchase authority under its common stock repurchase program at December 31, 2018 is $20.7 million. During the year ended December 31, 2018, the Company returned $57.0 million in capital to its shareholders through cash dividends and share repurchases.

Earnings Highlights
Net interest income for the fourth quarter of 2018 was $44.7 million, compared to $42.8 million in the year-ago quarter and $43.3 million in the previous quarter. Net interest margin for the fourth quarter of 2018 was 3.28%, compared to 3.27% in the year-ago quarter and 3.20% in the previous quarter. The increases in net interest income and net interest margin from the year-ago and sequential quarters were primarily due to growth in the loan portfolio, combined with increases in the yields earned on the loan and investment securities portfolios. In addition, the Company received $0.5 million in interest recoveries on nonaccrual loans during the current and year-ago quarters, compared to $0.2 million in the previous quarter. These increases were partially offset by higher deposit and borrowing costs from the year-ago period, primarily attributable to the recent increases in the federal funds rate. Rates paid on total interest-bearing deposits remained relatively flat from the previous quarter.

To improve net interest income and net interest margin, on December 17, 2018 and January 7, 2019, the Company redeemed in whole and at par, $20 million on each date (for an aggregate of $40 million) of floating rate trust preferred securities and the underlying floating rate junior subordinated debentures. The subordinated debentures were reported as long-term debt on the Company's balance sheet with a weighted average interest rate of 5.24%. After the redemptions, the Company has a total of $50 million of floating rate trust preferred securities and underlying floating rate junior subordinated debentures remaining, reported as long-term debt with a current weighted average interest rate of 5.01%.

Other operating income for the fourth quarter of 2018 totaled $9.4 million, compared to $9.0 million in the year-ago quarter and $10.8 million in the previous quarter. The increase from the year-ago quarter was primarily due to higher commissions and fees on investment services of $0.6 million (included in other service charges and fees) and lower amortization of mortgage servicing rights of $0.3 million (included in mortgage banking income). These increases were partially offset by a loss on sale of investment securities of $0.3 million in the current quarter, combined with a gain on sale of investment securities of $0.2 million in the year ago quarter, and lower income from bank-owned life insurance of $0.4 million. The sequential quarter decrease was primarily due to lower income from bank-owned life insurance of $0.8 million, lower income recovered on nonaccrual loans previously charged-off of $0.3 million (included in other), and the aforementioned loss on sale of investment securities of $0.3 million recorded during the quarter. The lower income from bank-owned life insurance was primarily attributable to the decline in the stock market during the fourth quarter, combined with death benefit income of $0.4 million recorded in the previous quarter.

Other operating expense for the fourth quarter of 2018 totaled $33.6 million, which decreased from $34.4 million in the year-ago quarter and decreased from $34.0 million in the previous quarter. The decrease from the year-ago and sequential quarters were primarily due to lower amortization of core deposit premium of $0.7 million as the intangible asset was fully amortized as of last quarter-end, or September 30, 2018. In addition, the Company recorded a net credit to the reserves for residential mortgage repurchase losses and unfunded loan commitments totaling $0.6 million (included in other) in the current quarter, compared to a net increase to the reserves totaling $0.1 million and $0.3 million (included in other) in the year-ago and previous quarters, respectively.

The efficiency ratio for the fourth quarter of 2018 was 62.21%, compared to 66.32% in the year-ago quarter and 62.84% 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 expense.

In the fourth quarter of 2018, the Company recorded income tax expense of $6.0 million, compared to $13.4 million in the year-ago quarter and $5.0 million in the previous quarter. The effective tax rate for the fourth quarter of 2018 was 27.6%, compared to 75.7% in the year-ago quarter and 24.7% in the previous quarter. As previously discussed, income tax expense and effective tax rate in the fourth quarter of 2017 was impacted by the enactment of Tax Reform.
 



Central Pacific Financial Corp. Reports Earnings of $15.8 Million for the Fourth Quarter and $59.5 Million for the 2018 Year
Page 3


Balance Sheet Highlights
Total assets at December 31, 2018 of $5.81 billion increased by $183.3 million, or 3.3% from December 31, 2017, and increased by $78.4 million, or 1.4% from September 30, 2018.
 
Total loans and leases at December 31, 2018 of $4.08 billion increased by $307.8 million, or 8.2% and $100.3 million, or 2.5% from December 31, 2017 and September 30, 2018, respectively. The increase in total loans and leases from December 31, 2017 was primarily attributable to strong organic growth in the Hawaii loan portfolios totaling $274.3 million, combined with a net increase in the U.S. mainland loan portfolios totaling $33.7 million. The increase in total loans and leases from the third quarter of 2018 was primarily due to strong organic growth in the Hawaii loan portfolios (excluding the Hawaii construction loan portfolio) totaling $88.3 million, combined with a net increase in the U.S. mainland loan portfolios totaling $13.6 million.
 
Total deposits at December 31, 2018 of $4.95 billion decreased by $9.9 million, or 0.2% from December 31, 2017, and decreased by $57.2 million, or 1.1% from September 30, 2018.  The year-over-year and sequential quarter declines in total deposits were primarily attributable to decreases in government time deposits of $55.8 million and $65.1 million, respectively. Core deposits, which include demand deposits, savings and money market deposits, and time deposits less than $100,000, totaled $4.02 billion at December 31, 2018.  This represents an increase of $24.7 million, or 0.6% from December 31, 2017, and remained relatively unchanged from September 30, 2018. The Company's loan-to-deposit ratio was 82.5% at December 31, 2018, compared to 76.1% at December 31, 2017 and 79.5% at September 30, 2018. During the quarter, short-term and long-term Federal Home Loan Bank borrowings increased to replace government time deposits and fund loan growth.

Asset Quality
Nonperforming assets at December 31, 2018 totaled $2.7 million, or 0.05% of total assets, compared to $3.6 million, or 0.06% of total assets at December 31, 2017, and $3.0 million, or 0.05% of total assets at September 30, 2018.

Loans delinquent for 90 days or more still accruing interest totaled $0.5 million at December 31, 2018, compared to $0.6 million and $0.3 million at December 31, 2017 and September 30, 2018, respectively.
 
Net recoveries in the fourth quarter of 2018 totaled $2.5 million, compared to net charge-offs of $1.0 million in the year-ago quarter, and net charge-offs of $1.3 million in the previous quarter. Net recoveries in the fourth quarter of 2018 included a $4.5 million recovery on a U.S. mainland land loan.

In the fourth quarter of 2018, the Company recorded a credit to the provision for loan and lease losses of $1.4 million, compared to a credit of $0.2 million in the year-ago quarter and a credit of $0.1 million in the previous quarter. The aforementioned $4.5 million recovery contributed to the credit to the provision for loan and lease losses in the current quarter. The allowance for loan and lease losses, as a percentage of total loans and leases at December 31, 2018 was 1.17%, compared to 1.33% at December 31, 2017 and 1.18% at September 30, 2018.
 
Capital
Total shareholders' equity was $491.7 million at December 31, 2018, compared to $500.0 million and $478.2 million at December 31, 2017 and September 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 December 31, 2018, the Company's leverage capital, tier 1 risk-based capital, total risk-based capital, and common equity tier 1 ratios were 9.9%, 13.5%, 14.7%, and 11.9%, respectively, compared to 10.3%, 14.2%, 15.4%, and 12.0%, respectively, at September 30, 2018. The decline in the ratios was primarily due to the aforementioned redemption of $20 million in floating rate trust preferred securities and the underlying floating rate junior subordinated debentures which was treated as capital.




Central Pacific Financial Corp. Reports Earnings of $15.8 Million for the Fourth Quarter and $59.5 Million for the 2018 Year
Page 4


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 (8:00 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 March 2, 2019 by dialing 1-877-344-7529 (passcode: 10127971) and on the Company's website.

About Central Pacific Financial Corp.
Central Pacific Financial Corp. is a Hawaii-based bank holding company with approximately $5.8 billion in assets.  Central Pacific Bank, its primary subsidiary, operates 35 branches and 78 ATMs in the state of Hawaii, as of December 31, 2018.  For additional information, please visit the Company's website at http://www.centralpacificbank.com.

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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



Central Pacific Financial Corp. Reports Earnings of $15.8 Million for the Fourth Quarter and $59.5 Million for the 2018 Year
Page 5


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 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.



CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES
 
Financial Highlights
 
(Unaudited)
TABLE 1
 
 
 
Three Months Ended
 
Year Ended
(Dollars in thousands,
 
Dec 31,
 
Sep 30,
 
Jun 30,
 
Mar 31,
 
Dec 31,
 
Dec 31,
except for per share amounts)
 
2018
 
2018
 
2018
 
2018
 
2017
 
2018
 
2017
CONDENSED INCOME STATEMENT
 
 

 
 

 
 
 
 
 
 

 
 

 
 

Net interest income
 
$
44,679

 
$
43,325

 
$
42,672

 
$
42,322

 
$
42,824

 
$
172,998

 
$
167,703

Provision (credit) for loan and lease losses
 
(1,386
)
 
(59
)
 
532

 
(211
)
 
(186
)
 
(1,124
)
 
(2,674
)
Net interest income after provision (credit) for loan and lease losses
 
46,065

 
43,384

 
42,140

 
42,533

 
43,010

 
174,122

 
170,377

Total other operating income
 
9,400

 
10,820

 
9,630

 
8,954

 
9,043

 
38,804

 
36,496

Total other operating expense [1]
 
33,642

 
34,025

 
33,611

 
33,404

 
34,397

 
134,682

 
131,073

Income before taxes [1]
 
21,823

 
20,179

 
18,159

 
18,083

 
17,656

 
78,244

 
75,800

Income tax expense [1]
 
6,031

 
4,986

 
3,935

 
3,806

 
13,368

 
18,758

 
34,596

Net income
 
15,792

 
15,193

 
14,224

 
14,277

 
4,288

 
59,486

 
41,204

Basic earnings per common share
 
$
0.54

 
$
0.52

 
$
0.48

 
$
0.48

 
$
0.14

 
$
2.02

 
$
1.36

Diluted earnings per common share
 
0.54

 
0.52

 
0.48

 
0.48

 
0.14

 
2.01

 
1.34

Dividends declared per common share
 
0.21

 
0.21

 
0.21

 
0.19

 
0.18

 
0.82

 
0.70

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PERFORMANCE RATIOS
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Return on average assets (ROA) [2]
 
1.10
%
 
1.06
%
 
1.00
%
 
1.01
%
 
0.31
%
 
1.05
%
 
0.75
%
Return on average shareholders’ equity (ROE) [2]
 
12.90

 
12.54

 
11.83

 
11.60

 
3.35

 
12.22

 
8.03

Return on average tangible shareholders’ equity (ROTE) [2]
 
12.90

 
12.55

 
11.85

 
11.64

 
3.37

 
12.24

 
8.08

Average shareholders’ equity to average assets
 
8.53

 
8.49

 
8.49

 
8.73

 
9.12

 
8.56

 
9.32

Efficiency ratio [1] [3]
 
62.21

 
62.84

 
64.26

 
65.15

 
66.32

 
63.59

 
64.19

Net interest margin (NIM) [2]
 
3.28

 
3.20

 
3.20

 
3.21

 
3.27

 
3.22

 
3.28

Dividend payout ratio [4]
 
38.89

 
40.38

 
43.75

 
39.58

 
128.57

 
40.80

 
52.24

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SELECTED AVERAGE BALANCES
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Average loans and leases, including loans held for sale
 
$
4,022,376

 
$
3,941,511

 
$
3,836,739

 
$
3,789,338

 
$
3,719,684

 
$
3,898,250

 
$
3,622,033

Average interest-earning assets
 
5,451,052

 
5,418,924

 
5,376,115

 
5,334,276

 
5,279,360

 
5,395,477

 
5,182,832

Average assets
 
5,739,228

 
5,709,825

 
5,663,697

 
5,638,205

 
5,605,728

 
5,688,076

 
5,511,006

Average deposits
 
4,938,560

 
5,063,061

 
5,041,164

 
5,000,108

 
4,936,743

 
5,010,698

 
4,849,153

Average interest-bearing liabilities
 
3,769,920

 
3,802,028

 
3,776,053

 
3,746,012

 
3,686,222

 
3,773,647

 
3,631,886

Average shareholders’ equity
 
489,510

 
484,737

 
480,985

 
492,184

 
511,277

 
486,841

 
513,416

Average tangible shareholders' equity
 
489,510

 
484,391

 
479,959

 
490,453

 
508,886

 
486,071

 
510,029


CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES
 
Financial Highlights
 
(Unaudited)
TABLE 1 (CONTINUED)
 
 
Dec 31,
 
Sep 30,
 
Jun 30,
 
Mar 31,
 
Dec 31,
(dollars in thousands)
 
2018
 
2018
 
2018
 
2018
 
2017
REGULATORY CAPITAL
 
 
 
 
 
 
 
 
 
 
Central Pacific Financial Corp.
 
 
 
 
 
 
 
 
 
 
Leverage capital
 
$
570,260

 
$
590,627

 
$
586,799

 
$
579,221

 
$
578,607

Tier 1 risk-based capital
 
570,260

 
590,627

 
586,799

 
579,221

 
578,607

Total risk-based capital
 
619,419

 
639,157

 
636,755

 
629,179

 
628,068

Common equity tier 1 capital
 
500,260

 
500,627

 
496,799

 
489,221

 
490,861

Central Pacific Bank
 
 
 
 
 
 
 
 
 
 
Leverage capital
 
533,166

 
571,949

 
569,128

 
568,409

 
565,412

Tier 1 risk-based capital
 
533,166

 
571,949

 
569,128

 
568,409

 
565,412

Total risk-based capital
 
582,325

 
620,479

 
619,084

 
618,240

 
614,732

Common equity tier 1 capital
 
533,166

 
571,949

 
569,128

 
568,409

 
565,412

 
 
 
 
 
 
 
 
 
 
 
REGULATORY CAPITAL RATIOS
 
 
 
 
 
 
 
 
 
 
Central Pacific Financial Corp.
 
 
 
 
 
 
 
 
 
 
Leverage capital ratio
 
9.9
%
 
10.3
%
 
10.3
%
 
10.3
%
 
10.4
%
Tier 1 risk-based capital ratio
 
13.5

 
14.2

 
14.4

 
14.5

 
14.7

Total risk-based capital ratio
 
14.7

 
15.4

 
15.7

 
15.8

 
15.9

Common equity tier 1 capital ratio
 
11.9

 
12.0

 
12.2

 
12.3

 
12.4

Central Pacific Bank
 
 
 
 
 
 
 
 
 
 
Leverage capital ratio
 
9.3

 
10.0

 
10.0

 
10.1

 
10.1

Tier 1 risk-based capital ratio
 
12.7

 
13.8

 
14.0

 
14.3

 
14.4

Total risk-based capital ratio
 
13.8

 
15.0

 
15.3

 
15.5

 
15.6

Common equity tier 1 capital ratio
 
12.7

 
13.8

 
14.0

 
14.3

 
14.4

 
 
Dec 31,
 
Sep 30,
 
Jun 30,
 
Mar 31,
 
Dec 31,
(dollars in thousands, except for per share amounts)
 
2018
 
2018
 
2018
 
2018
 
2017
BALANCE SHEET
 
 

 
 

 
 
 
 
 
 

Loans and leases
 
$
4,078,366

 
$
3,978,027

 
$
3,881,581

 
$
3,816,146

 
$
3,770,615

Total assets
 
5,807,026

 
5,728,640

 
5,681,519

 
5,651,287

 
5,623,708

Total deposits
 
4,946,490

 
5,003,680

 
4,979,099

 
4,980,431

 
4,956,354

Long-term debt
 
122,166

 
92,785

 
92,785

 
92,785

 
92,785

Total shareholders’ equity
 
491,725

 
478,151

 
480,668

 
484,108

 
500,011

Total shareholders’ equity to total assets
 
8.47
%
 
8.35
%
 
8.46
%
 
8.57
%
 
8.89
%
Tangible common equity to tangible assets [5]
 
8.47
%
 
8.35
%
 
8.45
%
 
8.54
%
 
8.86
%
 
 
 
 
 
 
 
 
 
 
 
ASSET QUALITY
 
 

 
 

 
 

 
 

 
 

Allowance for loan and lease losses
 
$
47,916

 
$
46,826

 
$
48,181

 
$
49,217

 
$
50,001

Non-performing assets
 
2,737

 
3,026

 
3,509

 
3,438

 
3,626

Allowance to loans and leases outstanding
 
1.17
%
 
1.18
%
 
1.24
%
 
1.29
%
 
1.33
%
Allowance to non-performing assets
 
1,750.68
%
 
1,547.46
%
 
1,373.07
%
 
1,431.56
%
 
1,378.96
%
 
 
 
 
 
 
 
 
 
 
 
PER SHARE OF COMMON STOCK OUTSTANDING
 
 

 
 

 
 

 
 

 
 

Book value per common share
 
$
16.97

 
$
16.34

 
$
16.30

 
$
16.30

 
$
16.65

Tangible book value per common share
 
16.97

 
16.34

 
16.28

 
16.25

 
16.59

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
[1] Financial information for prior quarters has been revised to reflect the reclassification of amortization of investments in low-income housing tax credit (LIHTC) partnerships from total other operating expense to income tax expense, in connection with a change in accounting policy adopted in the fourth quarter of 2018 related to the Company's investments in LIHTC partnerships.
[2] ROA, ROE and ROTE are annualized based on a 30/360 day convention. Annualized net interest income and expense in the NIM calculation are based on the day count interest payment conventions at the interest-earning asset or interest-bearing liability level (i.e. 30/360, actual/actual).
[3] Efficiency ratio is defined as total operating expense divided by total revenue (net interest income and total other operating income).
[4] Dividend payout ratio is defined as dividends declared per share divided by diluted earnings per share.
[5] The tangible common equity ratio is a non-GAAP measure which should be read in conjunction with the Company’s GAAP financial information. Comparison of our ratio with those of other companies may not be possible because other companies may calculate the ratio differently. See Reconciliation of Non-GAAP Financial Measures in Table 2.
 



CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES
 
Reconciliation of Non-GAAP Financial Measures
 
(Unaudited)
TABLE 2
 
The following table sets forth a reconciliation of our tangible common equity ratio for each of the dates indicated:

 
 
December 31,
 
September 30,
 
June 30,
 
March 31,
 
December 31,
(Dollars in thousands)
 
2018
 
2018
 
2018
 
2018
 
2017
Tangible Common Equity Ratio:
 
 

 
 

 
 
 
 
 
 

Total shareholders’ equity
 
$
491,725

 
$
478,151

 
$
480,668

 
$
484,108

 
$
500,011

Less: Other intangible assets
 
—

 
—

 
(669
)
 
(1,337
)
 
(2,006
)
Tangible common equity
 
$
491,725

 
$
478,151

 
$
479,999

 
$
482,771

 
$
498,005

 
 
 
 
 
 
 
 
 
 
 
Total assets
 
$
5,807,026

 
$
5,728,640

 
$
5,681,519

 
$
5,651,287

 
$
5,623,708

Less: Other intangible assets
 
—

 
—

 
(669
)
 
(1,337
)
 
(2,006
)
Tangible assets
 
$
5,807,026

 
$
5,728,640

 
$
5,680,850

 
$
5,649,950

 
$
5,621,702

 
 
 
 
 
 
 
 
 
 
 
Tangible common equity to tangible assets
 
8.47
%
 
8.35
%
 
8.45
%
 
8.54
%
 
8.86
%




CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES
 
Consolidated Balance Sheets
 
(Unaudited)
TABLE 3
 
 
 
Dec 31,
 
Sep 30,
 
Jun 30,
 
Mar 31,
 
Dec 31,
(Dollars in thousands, except share data)
 
2018
 
2018
 
2018
 
2018
 
2017
ASSETS
 
 

 
 

 
 
 
 
 
 

Cash and due from financial institutions
 
$
80,569

 
$
82,668

 
$
75,547

 
$
59,905

 
$
75,318

Interest-bearing deposits in other financial institutions
 
21,617

 
7,051

 
13,948

 
5,875

 
6,975

Investment securities:
 
 
 
 
 
 

 
 

 
 
Available-for-sale debt securities, at fair value [1]
 
1,205,478

 
1,233,002

 
1,279,969

 
1,326,092

 
1,304,066

Held-to-maturity debt securities, at fair value of: $144,272 at December 31, 2018, $146,466 at September 30, 2018, $152,330 at June 30, 2018, $171,399 at March 31, 2018, and $189,201 at December 31, 2017
 
148,508

 
152,852

 
158,156

 
177,078

 
191,753

Equity securities, at fair value [1]
 
826

 
885

 
844

 
753

 
825

Total investment securities
 
1,354,812

 
1,386,739

 
1,438,969

 
1,503,923

 
1,496,644

Loans held for sale
 
6,647

 
4,460

 
9,096

 
7,492

 
16,336

Loans and leases
 
4,078,366

 
3,978,027

 
3,881,581

 
3,816,146

 
3,770,615

Less allowance for loan and lease losses
 
47,916

 
46,826

 
48,181

 
49,217

 
50,001

Loans and leases, net of allowance for loan and lease losses
 
4,030,450

 
3,931,201

 
3,833,400

 
3,766,929

 
3,720,614

Premises and equipment, net
 
45,285

 
46,184

 
47,004

 
47,436

 
48,348

Accrued interest receivable
 
17,000

 
16,755

 
16,606

 
16,070

 
16,581

Investment in unconsolidated subsidiaries
 
14,008

 
15,283

 
9,362

 
6,478

 
7,088

Other real estate owned
 
414

 
414

 
595

 
595

 
851

Mortgage servicing rights
 
15,596

 
15,634

 
15,756

 
15,821

 
15,843

Core deposit premium
 
—

 
—

 
669

 
1,337

 
2,006

Bank-owned life insurance
 
157,440

 
157,085

 
156,945

 
156,611

 
156,293

Federal Home Loan Bank stock
 
16,645

 
10,965

 
10,246

 
9,007

 
7,761

Other assets
 
46,543

 
54,201

 
53,376

 
53,808

 
53,050

Total assets
 
$
5,807,026

 
$
5,728,640

 
$
5,681,519

 
$
5,651,287

 
$
5,623,708

LIABILITIES AND EQUITY
 
 

 
 

 
 

 
 

 
 

Deposits:
 
 

 
 

 
 

 
 

 
 

Noninterest-bearing demand
 
$
1,436,967

 
$
1,403,534

 
$
1,365,010

 
$
1,349,029

 
$
1,395,556

Interest-bearing demand
 
954,011

 
935,130

 
952,991

 
946,464

 
933,054

Savings and money market
 
1,448,257

 
1,503,465

 
1,502,284

 
1,533,483

 
1,481,876

Time
 
1,107,255

 
1,161,551

 
1,158,814

 
1,151,455

 
1,145,868

Total deposits
 
4,946,490

 
5,003,680

 
4,979,099

 
4,980,431

 
4,956,354

Federal Home Loan Bank advances and other short-term borrowings
 
197,000

 
105,000

 
87,000

 
56,000

 
32,000

Long-term debt
 
122,166

 
92,785

 
92,785

 
92,785

 
92,785

Other liabilities
 
49,645

 
49,024

 
41,967

 
37,963

 
42,534

Total liabilities
 
5,315,301

 
5,250,489

 
5,200,851

 
5,167,179

 
5,123,673

Equity:
 
 

 
 

 
 

 
 

 
 

Preferred stock, no par value, authorized 1,000,000 shares; issued and outstanding none at: December 31, 2018, September 30, 2018, June 30, 2018, March 31, 2018, and December 31, 2017
 
—

 
—

 
—

 
—

 
—

Common stock, no par value, authorized 185,000,000 shares; issued and outstanding: 28,967,715 at December 31, 2018, 29,270,398 at September 30, 2018, 29,489,954 at June 30, 2018, 29,707,122 at March 31, 2018, and 30,024,222 at December 31, 2017
 
470,660

 
478,721

 
485,402

 
493,794

 
503,988

Additional paid-in capital
 
88,876

 
87,939

 
86,949

 
86,497

 
86,098

Accumulated deficit
 
(51,718
)
 
(61,406
)
 
(70,435
)
 
(78,454
)
 
(89,036
)
Accumulated other comprehensive income (loss)
 
(16,093
)
 
(27,103
)
 
(21,248
)
 
(17,729
)
 
(1,039
)
Total shareholders' equity
 
491,725

 
478,151

 
480,668

 
484,108

 
500,011

Non-controlling interest
 
—

 
—

 
—

 
—

 
24

Total equity
 
491,725

 
478,151

 
480,668

 
484,108

 
500,035

Total liabilities and equity
 
$
5,807,026

 
$
5,728,640

 
$
5,681,519

 
$
5,651,287

 
$
5,623,708

 
 
 
 
 
 
 
 
 
 
 
[1] Financial information for prior quarters has been revised to reflect the impact of the adoption of ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.
 
 
 
 
 
 
 
 
 
 
 



CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES
 
Consolidated Statements of Income
 
(Unaudited)
TABLE 4
 
 
Three Months Ended
 
Year Ended
 
 
Dec 31,
 
Sep 30,
 
Jun 30,
 
Mar 31,
 
Dec 31,
 
Dec 31,
(Dollars in thousands, except per share data)
 
2018
 
2018
 
2018
 
2018
 
2017
 
2018
 
2017
Interest income:
 
 

 
 

 
 
 
 
 
 

 
 

 
 

Interest and fees on loans and leases
 
$
42,836

 
$
40,531

 
$
38,699

 
$
37,390

 
$
37,447

 
$
159,456

 
$
144,224

Interest and dividends on investment securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Taxable investment securities
 
8,451

 
8,490

 
8,717

 
8,843

 
8,777

 
34,501

 
33,933

Tax-exempt investment securities
 
910

 
920

 
933

 
933

 
955

 
3,696

 
3,874

Dividend income on investment securities
 
17

 
26

 
3

 
15

 
13

 
61

 
49

Interest on deposits in other financial institutions
 
55

 
109

 
117

 
84

 
58

 
365

 
356

Dividend income on Federal Home Loan Bank stock
 
70

 
60

 
40

 
45

 
26

 
215

 
126

Total interest income
 
52,339

 
50,136

 
48,509

 
47,310

 
47,276

 
198,294

 
182,562

Interest expense:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Interest on deposits:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Demand
 
180

 
181

 
193

 
180

 
170

 
734

 
641

Savings and money market
 
579

 
593

 
459

 
369

 
302

 
2,000

 
1,099

Time
 
4,567

 
4,744

 
4,034

 
3,425

 
2,967

 
16,770

 
9,457

Interest on short-term borrowings
 
999

 
146

 
48

 
43

 
97

 
1,236

 
183

Interest on long-term debt
 
1,335

 
1,147

 
1,103

 
971

 
916

 
4,556

 
3,479

Total interest expense
 
7,660

 
6,811

 
5,837

 
4,988

 
4,452

 
25,296

 
14,859

Net interest income
 
44,679

 
43,325

 
42,672

 
42,322

 
42,824

 
172,998

 
167,703

Provision (credit) for loan and lease losses ("Provision")
 
(1,386
)
 
(59
)
 
532

 
(211
)
 
(186
)
 
(1,124
)
 
(2,674
)
Net interest income after Provision
 
46,065

 
43,384

 
42,140

 
42,533

 
43,010

 
174,122

 
170,377

Other operating income:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Mortgage banking income (refer to Table 5)
 
1,770

 
1,923

 
1,775

 
1,847

 
1,531

 
7,315

 
6,962

Service charges on deposit accounts
 
2,237

 
2,189

 
1,977

 
2,003

 
2,130

 
8,406

 
8,468

Other service charges and fees
 
3,426

 
3,286

 
3,377

 
3,034

 
2,532

 
13,123

 
11,518

Income from fiduciary activities
 
1,113

 
1,159

 
1,017

 
956

 
935

 
4,245

 
3,674

Equity in earnings of unconsolidated subsidiaries
 
82

 
71

 
37

 
43

 
214

 
233

 
602

Fees on foreign exchange
 
197

 
220

 
277

 
211

 
135

 
905

 
529

Net gains (losses) on sales of investment securities
 
(279
)
 
—

 
—

 
—

 
230

 
(279
)
 
(1,410
)
Income from bank-owned life insurance
 
243

 
1,055

 
501

 
318

 
614

 
2,117

 
3,388

Loan placement fees
 
215

 
115

 
220

 
197

 
170

 
747

 
536

Net gains on sales of foreclosed assets
 
—

 
—

 
—

 
—

 
—

 
—

 
205

Other (refer to Table 5)
 
396

 
802

 
449

 
345

 
552

 
1,992

 
2,024

Total other operating income
 
9,400

 
10,820

 
9,630

 
8,954

 
9,043

 
38,804

 
36,496

Other operating expense:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Salaries and employee benefits
 
19,053

 
19,011

 
18,783

 
18,505

 
18,759

 
75,352

 
72,286

Net occupancy
 
3,649

 
3,488

 
3,360

 
3,266

 
3,418

 
13,763

 
13,571

Equipment
 
1,079

 
1,048

 
1,044

 
1,068

 
1,007

 
4,239

 
3,785

Amortization of core deposit premium
 
—

 
669

 
668

 
669

 
668

 
2,006

 
2,674

Communication expense
 
863

 
903

 
746

 
898

 
924

 
3,410

 
3,659

Legal and professional services
 
2,212

 
1,528

 
1,769

 
1,821

 
2,091

 
7,330

 
7,724

Computer software expense
 
2,597

 
2,672

 
2,305

 
2,267

 
2,404

 
9,841

 
9,192

Advertising expense
 
834

 
612

 
617

 
612

 
1,000

 
2,675

 
2,408

Foreclosed asset expense
 
37

 
212

 
31

 
294

 
28

 
574

 
151

Other (refer to Table 5) [1]
 
3,318

 
3,882

 
4,288

 
4,004

 
4,098

 
15,492

 
15,623

Total other operating expense [1]
 
33,642

 
34,025

 
33,611

 
33,404

 
34,397

 
134,682

 
131,073

Income before income taxes [1]
 
21,823

 
20,179

 
18,159

 
18,083

 
17,656

 
78,244

 
75,800

Income tax expense [1]
 
6,031

 
4,986

 
3,935

 
3,806

 
13,368

 
18,758

 
34,596

Net income
 
$
15,792

 
$
15,193

 
$
14,224

 
$
14,277

 
$
4,288

 
$
59,486

 
$
41,204

Per common share data:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Basic earnings per share
 
$
0.54

 
$
0.52

 
$
0.48

 
$
0.48

 
$
0.14

 
$
2.02

 
$
1.36

Diluted earnings per share
 
0.54

 
0.52

 
0.48

 
0.48

 
0.14

 
2.01

 
1.34

Cash dividends declared
 
0.21

 
0.21

 
0.21

 
0.19

 
0.18

 
0.82

 
0.70

Basic weighted average shares outstanding
 
29,033,261

 
29,297,465

 
29,510,175

 
29,807,572

 
30,027,366

 
29,409,683

 
30,400,511

Diluted weighted average shares outstanding
 
29,217,480

 
29,479,812

 
29,714,942

 
30,041,351

 
30,271,910

 
29,609,907

 
30,638,140

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
[1] Financial information for prior quarters has been revised to reflect the reclassification of amortization of investments in LIHTC partnerships from total other operating expense to income tax expense, in connection with a change in accounting policy adopted in the fourth quarter of 2018 related to the Company's investments in LIHTC partnerships.



CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES
 
Other Operating Income and Other Operating Expense - Detail
 
(Unaudited)
TABLE 5

The following table sets forth the components of mortgage banking income for the periods indicated:

 
 
Three Months Ended
 
Year Ended
 
 
Dec 31,
 
Sep 30,
 
Jun 30,
 
Mar 31,
 
Dec 31,
 
December 31,
(Dollars in thousands)
 
2018
 
2018
 
2018
 
2018
 
2017
 
2018
 
2017
Mortgage banking income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan servicing fees
 
$
1,290

 
$
1,269

 
$
1,289

 
$
1,311

 
$
1,316

 
$
5,159

 
$
5,337

Amortization of mortgage servicing rights
 
(446
)
 
(519
)
 
(437
)
 
(457
)
 
(745
)
 
(1,859
)
 
(2,288
)
Net gains on sales of residential mortgage loans
 
1,072

 
1,082

 
959

 
972

 
968

 
4,085

 
4,069

Unrealized gains (losses) on loans-held-for-sale and interest rate locks
 
(146
)
 
91

 
(36
)
 
21

 
(8
)
 
(70
)
 
(156
)
Total mortgage banking income
 
$
1,770

 
$
1,923

 
$
1,775

 
$
1,847

 
$
1,531

 
$
7,315

 
$
6,962

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

The following table sets forth the components of other operating income - other for the periods indicated:

 
 
Three Months Ended
 
Year Ended
 
 
Dec 31,
 
Sep 30,
 
Jun 30,
 
Mar 31,
 
Dec 31,
 
December 31,
(Dollars in thousands)
 
2018
 
2018
 
2018
 
2018
 
2017
 
2018
 
2017
Other operating income - other:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income recovered on nonaccrual loans previously charged-off
 
$
99

 
$
395

 
$
130

 
$
96

 
$
156

 
$
720

 
$
767

Other recoveries
 
25

 
101

 
49

 
46

 
26

 
221

 
149

Commissions on sale of checks
 
79

 
79

 
84

 
86

 
83

 
328

 
341

Other
 
193

 
227

 
186

 
117

 
287

 
723

 
767

Total other operating income - other
 
$
396

 
$
802

 
$
449

 
$
345

 
$
552

 
$
1,992

 
$
2,024

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

The following table sets forth the components of other operating expense - other for the periods indicated:

 
 
Three Months Ended
 
Year Ended
 
 
Dec 31,
 
Sep 30,
 
Jun 30,
 
Mar 31,
 
Dec 31,
 
December 31,
(Dollars in thousands)
 
2018
 
2018
 
2018
 
2018
 
2017
 
2018
 
2017
Other operating expense - other:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Charitable contributions
 
$
138

 
$
166

 
$
131

 
$
200

 
$
165

 
$
635

 
$
593

FDIC insurance assessment
 
427

 
437

 
434

 
434

 
438

 
1,732

 
1,724

Miscellaneous loan expenses
 
339

 
403

 
324

 
299

 
288

 
1,365

 
1,144

ATM and debit card expenses
 
613

 
686

 
698

 
648

 
495

 
2,645

 
1,961

Armored car expenses
 
238

 
185

 
233

 
166

 
241

 
822

 
873

Entertainment and promotions
 
445

 
185