Central Pacific Financial Corp. Reports $18.0 Million First Quarter Earnings And Increases Cash Dividend

HONOLULU, April 28, 2021 /PRNewswire/ -- Central Pacific Financial Corp. (NYSE: CPF) (the "Company"), parent company of Central Pacific Bank (the "Bank"), today reported net income in the first quarter of 2021 of $18.0 million, or fully diluted earnings per share ("EPS") of $0.64, compared to net income in the first quarter of 2020 of $8.3 million, or EPS of $0.29, and net income in the fourth quarter of 2020 of $12.2 million, or EPS of $0.43.

"Central Pacific Financial Corp.'s first quarter 2021 results are the highest quarterly pre-tax income we have reported since 2007. With this strong start to 2021, combined with the Hawaii economy continuing to recover, we are pleased to announce an increase to our quarterly cash dividend," said Paul Yonamine, Chairman and Chief Executive Officer. "We believe our RISE2020 investments have positioned us well, and we remain highly committed to continuing to deliver results and achievement of our financial targets."

"In the first quarter, we continued to provide significant support for small businesses with the origination of over 3,600 Paycheck Protection Program ("PPP") loans totaling over $290 million," said Catherine Ngo, President. "At the same time, we have maintained solid liquidity, capital and asset quality positions."

On April 27, 2021, the Company's Board of Directors declared a quarterly cash dividend of $0.24 per share on its outstanding common shares. This represents a 4.3% increase from the dividend paid of $0.23 per share in the first quarter of 2021 and will be payable on June 15, 2021 to shareholders of record at the close of business on May 28, 2021. On January 26, 2021, the Company's Board of Directors approved a new share repurchase authorization of up to $25 million of its common stock. The Company did not repurchase any shares during the first quarter of 2021.

Earnings Highlights
Net interest income for the first quarter of 2021 was $49.8 million, compared to $47.8 million in the year-ago quarter and $51.5 million in the previous quarter. Net interest margin for the first quarter of 2021 was 3.19%, compared to 3.43% in the year-ago quarter and 3.32% in the previous quarter. The sequential quarter decrease in net interest income and net interest margin is primarily due to a decrease in net interest income and net loan fees on PPP loans, combined with decreases in yields earned on the Company's loan and investment securities portfolios. Net interest income for the first quarter of 2021 included $5.2 million in net interest income and net loan fees on PPP loans, which are accreted into income over the term of the loans and accelerated when the loans are forgiven or paid-off, compared to $6.3 million in the previous quarter. During the first quarter, approximately $100.6 million in PPP loans were forgiven which resulted in the immediate recognition of $2.4 million in net loan fees, compared to approximately $118.9 million in PPP loans which were forgiven in the previous quarter and resulted in the immediate recognition of $3.0 million in net loan fees. Net deferred fees on PPP loans totaled $20.3 million and $9.6 million at March 31, 2021 and  December 31, 2020, respectively. Additional information on average balances, interest income and expenses and yields and rates is presented in Table 5.

Other operating income for the first quarter of 2021 totaled $10.7 million, compared to $8.9 million in the year-ago quarter and $14.1 million in the previous quarter. The decrease in other operating income from the previous quarter was primarily due to the lower mortgage banking income of $2.5 million, combined with lower income from bank-owned life insurance of $0.4 million. Additional information on other operating income is presented in Tables 3 and 4.

Other operating expense for the first quarter of 2021 totaled $37.8 million, compared to $34.4 million in the year-ago quarter and $44.7 million in the previous quarter. Other operating expense in the previous quarter was elevated due to $5.9 million in nonrecurring expenses, which included:  employee incentives and other benefit programs of $2.0 million, branch consolidation costs of $1.3 million, litigation settlements of $0.8 million, Federal Home Loan Bank ("FHLB") advance prepayment fee $0.7 million, loss on disposal of fixed assets of $0.6 million and other nonrecurring expenses totaling $0.5 million. In addition, in the first quarter of 2021 the Company deferred $0.8 million in salaries and employee benefits related to the origination of PPP loans. These decreases in other operating expense from the previous quarter were partially offset by higher advertising expense of $0.9 million in the first quarter of 2021. Additional information on other operating expense is presented in Tables 3 and 4.

The efficiency ratio for the first quarter of 2021 was 62.54%, compared to 60.73% in the year-ago quarter and 68.20% in the previous quarter. The decrease in the efficiency ratio from the previous quarter was primarily due to the aforementioned nonrecurring items in other operating expense recorded in the previous quarter.

In the first quarter of 2021, the Company recorded income tax expense of $5.5 million, compared to $2.8 million in the year-ago quarter and $3.8 million in the previous quarter. The effective tax rate for the first quarter of 2021 was 23.2%, compared to 25.3% in the year-ago quarter and 23.7% in the previous quarter.

Balance Sheet Highlights
Total assets at March 31, 2021 of $6.98 billion increased by $870.7 million, or 14.3% from March 31, 2020, and increased by $384.7 million, or 5.8% from December 31, 2020.

Total loans at March 31, 2021 of $5.14 billion increased by $625.9 million, or 13.9% from March 31, 2020, and increased by $173.7 million, or 3.5% from December 31, 2020. The sequential quarter increase in total loans was primarily due to increases in PPP loans of $181.4 million, construction loans of $12.6 million, home equity loans of $8.2 million and commercial mortgage loans of $8.0 million, partially offset by decreases in other commercial loans of $30.9 million. Excluding PPP loans, total loans decreased slightly by $7.7 million, or 0.2% from the previous quarter. In the first quarter of 2021, the Company originated $292.7 million in PPP loans, which were offset by paydowns of PPP loans totaling $100.6 million. Loans by geographic distribution are summarized in Table 6.

Total deposits at March 31, 2021 of $6.21 billion increased by $1.07 billion, or 20.9% from March 31, 2020, and increased by $412.8 million, or 7.1% from December 31, 2020. The sequential quarter increase in total deposits was primarily attributable to the deposit of PPP funds and other government stimulus, and included increases in noninterest-bearing demand deposits of $280.2 million, interest-bearing demand deposits of $62.7 million, and savings and money market deposits of $72.3 million. These increases were offset by a decrease in total time deposits of $2.3 million. Core deposits, which include demand deposits, savings and money market deposits, and time deposits up to $250,000, totaled $5.55 billion at March 31, 2021. This represents an increase of $1.14 billion, or 25.9% from March 31, 2020, and an increase of $410.3 million, or 8.0% from December 31, 2020. The Company's loan-to-deposit ratio was 82.8% at March 31, 2021, compared to 87.9% at March 31, 2020 and 85.7% at December 31, 2020. Deposit balances are summarized in Table 7.

Asset Quality
Nonperforming assets at March 31, 2021 totaled $7.2 million, or 0.10% of total assets, compared to $3.6 million, or 0.06% of total assets at March 31, 2020, and $6.2 million, or 0.09% of total assets at December 31, 2020.

Loans delinquent for 90 days or more still accruing interest totaled $4.8 million at March 31, 2021, compared to $1.6 million and $0.8 million at March 31, 2020 and December 31, 2020, respectively. Additional information on nonperforming assets, past due and restructured loans is presented in Table 8.

Loans on payment forbearance or deferrals granted to borrowers impacted by the COVID-19 pandemic declined significantly to $39.5 million or 0.8% of the total loan portfolio (or 0.9% excluding PPP loans), as of March 31, 2021, compared to $120.2 million or 2.4% of the total loan portfolio (or 2.6% excluding PPP loans), as of December 31, 2020. Additional information on loans on payment forbearance or deferrals is presented in Table 10.

Net charge-offs in the first quarter of 2021 totaled $0.7 million, compared to net charge-offs of $1.2 million in the year-ago quarter, and net charge-offs of $1.8 million in the previous quarter.

In the first quarter of 2021, the Company recorded a credit to the provision for credit losses on loans of $0.8 million, compared to a provision of $11.1 million in the year-ago quarter and a provision of $4.9 million in the previous quarter. The credit to the provision for credit losses in the first quarter of 2021 included a credit to the provision for credit losses on loans of $1.0 million, offset by a provision for credit losses on off-balance sheet credit exposures of $0.2 million. The credit to the provision for credit losses on loans in the first quarter of 2021 was driven by an improved economic forecast as the State recovers from the COVID-19 pandemic. The allowance for credit losses, as a percentage of total loans at March 31, 2021 was 1.59%, compared to 1.32% at March 31, 2020 and 1.68% at December 31, 2020. Excluding the PPP loans, the allowance for credit losses, as a percentage of total loans at March 31, 2021 was 1.80%, compared to 1.83% at December 31, 2020. Additional information on the allowance for credit losses is presented in Table 9.

Capital
Total shareholders' equity was $542.9 million at March 31, 2021, compared to $533.8 million and $546.7 million at March 31, 2020 and December 31, 2020, 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 March 31, 2021, the Company's leverage capital, tier 1 risk-based capital, total risk-based capital, and common equity tier 1 ratios were 8.9%, 13.1%, 15.4%, and 12.0%, respectively, compared to 8.8%, 12.9%, 15.2%, and 11.8%, respectively, at December 31, 2020.

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.cpb.bank. Alternatively, investors may participate in the live call by dialing 1-877-505-7644. A playback of the call will be available through May 28, 2021 by dialing 1-877-344-7529 (passcode: 10155139) and on the Company's website. Information which may be discussed in the conference call is provided in an earnings supplement presentation on the Company's website at http://ir.cpb.bank.

About Central Pacific Financial Corp.
Central Pacific Financial Corp. is a Hawaii-based bank holding company with approximately $7.0 billion in assets.  Central Pacific Bank, its primary subsidiary, operates 31 branches and 69 ATMs in the state of Hawaii, as of March 31, 2021.  For additional information, please visit the Company's website at http://www.cpb.bank.

Forward-Looking Statements
This document may contain forward-looking statements concerning: projections of revenues, expenses, income or loss, earnings or loss per share, capital expenditures, the payment or nonpayment of dividends, capital position, credit losses, net interest margin or other financial items; statements of plans, objectives and expectations of Central Pacific Financial Corp. or its management or Board of Directors, including those relating to business plans, use of capital resources, products or services and regulatory developments and regulatory actions; statements of future economic performance including anticipated performance results from our RISE2020 initiative; or any statements of the assumptions underlying or relating to any of the foregoing. Words such as "believes," "plans," "anticipates," "expects," "intends," "forecasts," "hopes," "targeting," "continue," "remain," "will," "should," "estimates," "may" and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

While we believe 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 differ materially from those statements or projections for a variety of reasons, including, but not limited to: the adverse effects of the COVID-19 pandemic virus on local, national and international economies, including, but not limited to, the adverse impact on tourism and construction in the State of Hawaii, our borrowers, customers, third-party contractors, vendors and employees as well as the effects of government programs and initiatives in response to COVID-19; the impact of our participation in the Paycheck Protection Program ("PPP") and fulfillment of government guarantees on our PPP loans; the increase in inventory or adverse conditions in the real estate market and deterioration 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 natural disasters such as wildfires, volcanic eruptions, hurricanes, tsunamis, storms, earthquakes and pandemic virus and disease, including COVID-19) 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 domestic economic conditions, including any destabilization in the financial industry and deterioration of the real estate market, as well as the impact of declining levels of consumer and business confidence in the state of the economy in general and in financial institutions in particular; 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 (the "Dodd-Frank Act"), changes in capital standards, other regulatory reform and federal and state legislation, including but not limited to regulations promulgated by the Consumer Financial Protection Bureau (the "CFPB"), government-sponsored enterprise reform, and any related rules and regulations which affect 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, the results of regulatory examinations or reviews and the effect of, and our ability to comply with, any regulatory orders or actions we are or may become subject to; ability to successfully implement our initiatives to lower our efficiency ratio; 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 (the "FRB" or the "Federal Reserve"); inflation, interest rate, securities market and monetary fluctuations, including the anticipated replacement of the London Interbank Offered Rate ("LIBOR") Index and the impact on our loans and debt which are tied to that index; negative trends in our market capitalization and adverse changes in the price of the Company's common stock; political instability; acts of war or terrorism;  pandemic virus and disease, including COVID-19; changes in consumer spending, borrowings and savings habits; failure to maintain effective internal control over financial reporting or disclosure controls and procedures; cybersecurity and data privacy breaches and the consequence therefrom; the ability to address deficiencies in our internal controls over financial reporting or disclosure controls and procedures; 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 ("FASB") and other accounting standard setters and the cost and resources required to implement such changes; our ability to attract and retain key personnel; changes in our organization, compensation and benefit plans; and our success at managing the risks involved in the foregoing items.

For further information with respect to factors that could cause actual results to materially differ from the expectations or projections stated in the forward-looking statements, 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. We urge investors to consider all of these factors carefully in evaluating the forward-looking statements contained in this Form 8-K. Forward-looking statements speak only as of the date on which such statements are made. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which such statements are made, or to reflect the occurrence of unanticipated events except as required by law.

SOURCE Central Pacific Financial Corp.

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