PR Newswire | Jul 29, 2020 06:31AM EDT

07/29 05:30 CDT

Central Pacific Financial Corp. Reports Results For Second Quarter 2020- Net income of $9.9 million, or fully diluted EPS of $0.35 for the second quarter, compared to net income of $8.3 million, or fully diluted EPS of $0.29 for the first quarter.- Strong pre-tax pre-provision earnings of $23.5 million for the second quarter, compared to $19.4 million in the year-ago quarter and $20.5 million in the first quarter.- Supported over 7,200 small businesses with SBA Paycheck Protection Program ("PPP") loan originations totaling $556.9 million, which largely contributed to the increase in total loans of $491.4 million, or 10.9% sequentially, and $756.3 million, or 17.8% year-over-year.- Core deposits increased by $719.3 million, or 16.7% sequentially, and $925.2 million, or 22.6% year-over-year. The deposit of PPP funds into both new and existing deposit accounts largely contributed to the increase in core deposits.- Cost of average total deposits of 0.20% in the second quarter declined by 16 basis points from the first quarter.- We continue to execute on our RISE2020 initiative while navigating the challenging current landscape.- Board of Directors declared a quarterly cash dividend of $0.23 per share. HONOLULU, July 29, 2020

HONOLULU, July 29, 2020 /PRNewswire/ -- Central Pacific Financial Corp. (NYSE: CPF) (the "Company"), parent company of Central Pacific Bank, today reported net income in the second quarter of 2020 of $9.9 million, or fully diluted earnings per share ("EPS") of $0.35, compared to net income in the second quarter of 2019 of $13.5 million, or EPS of $0.47, and net income in the first quarter of 2020 of $8.3 million, or EPS of $0.29. Our operating results continue to be impacted by a higher provision for credit loss expense due to deteriorating economic conditions brought on by the current COVID-19 pandemic. During the second quarter of 2020, the Company recorded a provision for credit loss expense of $10.6 million, compared to $1.4 million in the second quarter of 2019 and $9.3 million in the first quarter of 2020.

"Central Pacific is strong and well-positioned to manage through the challenging operating environment. Our credit quality, capital and liquidity are solid, which enables us to support our customers and the community during this time of great need," said Paul Yonamine, Chairman and Chief Executive Officer.

"Through the Paycheck Protection Program, we've been able to help save thousands of local jobs in our community. We are proud of our employees that stepped up during this tremendous effort and continue to work diligently to help our customers navigate the current challenges," said Catherine Ngo, President.

On July 28, 2020, 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 15, 2020 to shareholders of record at the close of business on August 31, 2020.

Earnings HighlightsNet interest income for the second quarter of 2020 was $49.3 million, compared to $45.4 million in the year-ago quarter and $47.8 million in the previous quarter. Net interest margin for the second quarter of 2020 was 3.26%, compared to 3.33% in the year-ago quarter and 3.43% in the previous quarter. The increases in net interest income from the year-ago and sequential quarters were due to growth in the loan portfolio, primarily attributable to loans originated under the Paycheck Protection Program ("PPP"), combined with lower rates paid on interest-bearing liabilities, partially offset by lower yields earned on the loan and investment securities portfolios. Net interest income for the second quarter of 2020 included $2.5 million in PPP net interest income and net loan fees, which are accreted into income over the term of the loans and accelerated when the loans are forgiven or paid-off. The declines in net interest margin, yields earned on the loans and investment securities portfolios and rates paid on interest-bearing liabilities from the year-ago and sequential quarters is primarily attributable to the five rate cuts by the Federal Reserve from August 2019 through March 2020. During the quarter, the Company had an average PPP loan balance of $379.9 million, which earned approximately 2.61% in net interest income and net loan fees.

Other operating income for the second quarter of 2020 totaled $10.7 million, compared to $10.1 million in the year-ago quarter and $8.9 million in the previous quarter. The increase in other operating income from the year-ago quarter was primarily due to higher mortgage banking income of $1.9 million and higher income from bank-owned life insurance of $0.5 million. These increases were partially offset by lower other service charges and fees of $1.0 million and lower service charges on deposit accounts of $0.9 million as certain service charges were suspended during the quarter to support our customers through the pandemic. In addition, there was less transactional activity due to the pandemic. The increase in other operating income from the previous quarter was primarily due to higher mortgage banking income of $3.2 million, combined with higher income from bank-owned life insurance of $1.4 million, partially offset by lower other service charges and fees of $2.0 million and lower service charges on deposit accounts of $0.9 million. The lower other charges and fees was primarily due to $1.3 million in income related to an interest rate swap recognized in the previous quarter, combined with the aforementioned suspension of service charges and lower transaction activity. The higher mortgage banking income compared to the year-ago and sequential quarters was primarily due to higher gains on sales of residential mortgage loans of $3.6 million and $3.8 million, respectively, partially offset by higher amortization of mortgage servicing rights of $1.1 million and $0.1 million, respectively, and lower net servicing fees of $0.6 million and $0.2 million, respectively. The higher amortization of mortgage servicing rights was primarily attributable to the recent decline in market interest rates. The higher income from bank-owned life insurance compared to the year-ago and sequential quarters was primarily attributable to current quarter gains in the equity markets.

Other operating expense for the second quarter of 2020 totaled $36.4 million, which increased from $36.1 million in the year-ago quarter and increased from $36.2 million in the previous quarter. The increase from the year-ago quarter was primarily due to higher legal and professional services of $0.5 million and higher computer software expense of $0.5 million, partially offset by lower entertainment and promotions of $0.9 million (included in other). The lower entertainment and promotions was primarily due to expenses related to a core deposit gathering campaign in the year-ago quarter. The increase from the previous quarter was primarily due to higher salaries and employee benefits of $0.3 million and higher legal and professional services of $0.2 million, partially offset by lower advertising expense of $0.2 million.

The efficiency ratio for the second quarter of 2020 was 60.76%, compared to 65.09% in the year-ago quarter and 63.90% in the previous quarter.

In the second quarter of 2020, the Company recorded income tax expense of $3.0 million, compared to $4.4 million in the year-ago quarter and $2.8 million in the previous quarter. The effective tax rate for the second quarter of 2020 was 23.0%, compared to 24.6% in the year-ago quarter and 25.3% in the previous quarter. The decrease in the effective tax rate was primarily due to higher tax-exempt bank-owned life insurance income in the current quarter, compared to the year-ago and sequential quarters.

Balance Sheet HighlightsTotal assets at June 30, 2020 of $6.63 billion increased by $713.0 million, or 12.0% from June 30, 2019, and increased by $524.4 million, or 8.6% from March 31, 2020.

Total loans at June 30, 2020 of $5.00 billion increased by $756.3 million, or 17.8%, and $491.4 million, or 10.9% from June 30, 2019 and March 31, 2020, respectively. The year-over-year increase in total loans was driven by the origination of PPP loans totaling $526.4 million, net of deferred fees and costs, combined with broad-based growth in almost all other loan categories. The sequential quarter increase in total loans was primarily due to PPP loans and an increase in residential mortgage loans of $25.0 million, partially offset by decreases in other commercial and consumer loans.

Total deposits at June 30, 2020 of $5.79 billion increased by $817.8 million, or 16.4% from June 30, 2019, and increased by $658.6 million, or 12.8% from March 31, 2020. The sequential quarter increase in total deposits was primarily attributable to the increases in noninterest-bearing demand deposits of $420.5 million, savings and money market deposits of $252.5 million and interest-bearing demand deposits of $49.0 million. This increase was offset by a decrease in total time deposits of $63.3 million. Core deposits, which include demand deposits, savings and money market deposits, and time deposits less than $100,000, totaled $5.02 billion at June 30, 2020. This represents an increase of $925.2 million, or 22.6% from June 30, 2019, and $719.3 million, or 16.7% from March 31, 2020. The deposit of PPP funds into both new and existing deposit accounts largely contributed to the increase in core deposits. The Company's loan-to-deposit ratio was 86.4% at June 30, 2020, compared to 85.3% at June 30, 2019 and 87.9% at March 31, 2020.

Asset QualityNonperforming assets at June 30, 2020 totaled $4.7 million, or 0.07% of total assets, compared to $1.3 million, or 0.02% of total assets at June 30, 2019, and $3.6 million, or 0.06% of total assets at March 31, 2020. During the second quarter of 2020, the Company had $1.8 million in additions to nonperforming loans.

Loans delinquent for 90 days or more still accruing interest totaled $1.2 million at June 30, 2020, compared to $0.3 million and $1.6 million at June 30, 2019 and March 31, 2020, respectively.

Loan payment forbearances or deferrals were made for borrowers impacted by the COVID-19 pandemic with loan balances totaling $567.9 million or 12.7% of the total loan portfolio, excluding PPP loans, as of June 30, 2020.

Net charge-offs in the second quarter of 2020 totaled $2.9 million, compared to net charge-offs of $0.4 million in the year-ago quarter, and net charge-offs of $1.2 million in the previous quarter.

In the second quarter of 2020, the Company recorded a provision for credit losses on loans of $10.6 million, compared to a provision of $1.4 million in the year-ago quarter and a provision of $9.3 million in the previous quarter. In addition, the Company recorded a provision for off-balance sheet credit exposures (included in other operating expense) of $0.6 million, compared to a provision of $0.5 million in the year-ago quarter and a provision of $1.8 million in the previous quarter. The increase in the provision for credit losses from the year-ago and sequential quarters was primarily due to negative economic conditions brought on by the COVID-19 pandemic. The allowance for credit losses, as a percentage of total loans at June 30, 2020 was 1.35%, compared to 1.14% at June 30, 2019 and 1.32% at March 31, 2020. Excluding the PPP loans, the allowance for credit losses, as a percentage of total loans at June 30, 2020 was 1.50%.

CapitalTotal shareholders' equity was $544.3 million at June 30, 2020, compared to $515.7 million and $533.8 million at June 30, 2019 and March 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 June 30, 2020, the Company's leverage capital, tier 1 risk-based capital, total risk-based capital, and common equity tier 1 ratios were 8.9%, 12.5%, 13.6%, and 11.4%, respectively, compared to 9.5%, 12.3%, 13.4%, and 11.3%, respectively, at March 31, 2020.

Conference CallThe 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 29, 2020 by dialing 1-877-344-7529 (passcode: 10146483) 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.centralpacificbank.com.

About Central Pacific Financial Corp.Central Pacific Financial Corp. is a Hawaii-based bank holding company with approximately $6.6 billion in assets. Central Pacific Bank, its primary subsidiary, operates 35 branches (nine of which are temporarily closed to protect the health and well-being of the Company's employees and customers from COVID-19) and 76 ATMs in the state of Hawaii, as of June 30, 2020. For additional information, please visit the Company's website at http://www.cpb.bank.

Forward-Looking StatementsThis 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 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.

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

Financial Highlights

(Unaudited) TABLE 1



Three Months Ended Six Months Ended

(Dollars in thousands, June 30, March 31, December 31, September 30,June 30, June 30,

except for per share amounts) 2020 2020 2019 2019 2019 2020 2019

CONDENSED INCOME STATEMENT

Net interest income $49,259 $47,830 $47,934 $45,649 $45,378 $97,089 $90,491

Provision for credit losses [1] 10,640 9,329 2,098 1,532 1,404 19,969 2,687

Net interest income after 38,619 38,501 45,836 44,117 43,974 77,120 87,804 provision for credit losses [1]

Total other operating income 10,692 8,886 9,768 10,266 10,094 19,578 21,767

Total other operating expense 36,427 36,240 36,242 34,934 36,107 72,667 70,455

Income before taxes 12,884 11,147 19,362 19,449 17,961 24,031 39,116

Income tax expense 2,967 2,821 5,165 4,895 4,427 5,788 9,545

Net income 9,917 8,326 14,197 14,554 13,534 18,243 29,571

Basic earnings per common $0.35 $0.30 $0.50 $0.51 $0.47 $0.65 $1.03 share

Diluted earnings per common 0.35 0.29 0.50 0.51 0.47 0.65 1.03 share

Dividends declared per 0.23 0.23 0.23 0.23 0.23 0.46 0.44 common share



PERFORMANCE RATIOS

Return on average assets (ROA) 0.61 %0.55 %0.95 %0.99 %0.92 %0.58 %1.01 %[2]

Return on average shareholders' 7.34 6.21 10.70 11.11 10.73 6.77 11.84 equity (ROE) [2]

Average shareholders' equity to 8.36 8.93 8.87 8.87 8.62 8.64 8.57 average assets

Efficiency ratio [1] [3] 60.76 63.90 62.81 62.48 65.09 62.29 62.76

Net interest margin (NIM) [2] 3.26 3.43 3.43 3.30 3.33 3.34 3.33

Dividend payout ratio [4] 65.71 79.31 46.00 45.10 48.94 70.77 42.72



SELECTED AVERAGE BALANCES

Average loans, including loans $4,902,905 $4,462,347 $4,412,247 $4,293,455 $4,171,558 $4,682,626 $4,127,917 held for sale

Average interest-earning assets 6,073,361 5,621,043 5,595,142 5,527,532 5,485,977 5,847,202 5,475,237

Average assets 6,468,129 6,007,237 5,978,797 5,907,207 5,856,465 6,237,592 5,833,326

Average deposits 5,614,595 5,121,696 4,998,897 4,987,414 4,977,781 5,368,056 4,978,124

Average interest-bearing liabilities4,082,699 3,917,332 3,947,924 3,920,304 3,897,619 4,000,016 3,859,784

Average shareholders' equity 540,802 536,721 530,464 524,083 504,749 538,762 499,720

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

Financial Highlights

(Unaudited) TABLE 1 (CONTINUED)



June 30, March 31, December 31, September 30, June 30,

(dollars in thousands) 2020 2020 2019 2019 2019

REGULATORY CAPITAL

Central Pacific Financial Corp

Leverage capital $571,976 $567,947 $568,529 $561,478 $556,403

Tier 1 risk-based capital 571,976 567,947 568,529 561,478 556,403

Total risk-based capital 622,393 618,504 617,772 611,076 606,567

Common equity tier 1 capital 521,976 517,947 518,529 511,478 506,403

Central Pacific Bank

Leverage capital 559,461 556,895 556,077 550,913 544,480

Tier 1 risk-based capital 559,461 556,895 556,077 550,913 544,480

Total risk-based capital 609,811 607,402 605,320 600,511 594,644

Common equity tier 1 capital 559,461 556,895 556,077 550,913 544,480



REGULATORY CAPITAL RATIOS

Central Pacific Financial Corp

Leverage capital ratio 8.9 %9.5 %9.5 %9.5 %9.5 %

Tier 1 risk-based capital ratio 12.5 12.3 12.6 12.6 12.7

Total risk-based capital ratio 13.6 13.4 13.6 13.7 13.9

Common equity tier 1 capital ratio 11.4 11.3 11.5 11.5 11.6

Central Pacific Bank

Leverage capital ratio 8.7 9.3 9.3 9.4 9.3

Tier 1 risk-based capital ratio 12.2 12.1 12.3 12.4 12.5

Total risk-based capital ratio 13.3 13.2 13.4 13.5 13.6

Common equity tier 1 capital ratio 12.2 12.1 12.3 12.4 12.5

June 30, March 31, December 31, September 30, June 30,

(dollars in thousands, except for per share amounts) 2020 2020 2019 2019 2019

BALANCE SHEET

Total loans, net of deferred fees and costs $5,003,438 $4,511,998 $4,449,540 $4,367,862 $4,247,113

Total assets 6,632,972 6,108,548 6,012,672 5,976,716 5,920,006

Total deposits 5,794,685 5,136,069 5,120,023 5,037,659 4,976,849

Long-term debt 167,491 101,547 101,547 101,547 101,547

Total shareholders' equity 544,271 533,781 528,520 525,227 515,695

Total shareholders' equity to total assets 8.21 %8.74 %8.79 %8.79 %8.71 %



ASSET QUALITY

Allowance for credit losses ("ACL") [1] $67,339 $59,645 $47,971 $48,167 $48,267

Non-performing assets 4,741 3,647 1,719 1,360 1,258

ACL to total loans [1] 1.35 %1.32 %1.08 %1.10 %1.14 %

ACL to total loans, excluding PPP loans [1] 1.50 %1.32 %1.08 %1.10 %1.14 %

ACL to non-performing assets [1] 1,420.35 %1,635.45 %2,790.63 %3,541.69 %3,836.80 %



PER SHARE OF COMMON STOCK OUTSTANDING

Book value per common share $19.33 $18.99 $18.68 $18.47 $18.05





[1] The Company adopted ASU 2016-13, "Financial Instruments-Credit Losses" ("CECL"), effective January 1, 2020 using the modified retrospective approach. Results for the reporting periods beginning after January 1, 2020 are presented under CECL, while prior period amounts continue to be reported under previous GAAP.

[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.



CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited) TABLE 2



June 30, March 31, December 31,September 30,June 30,

(Dollars in thousands, except share data) 2020 2020 2019 2019 2019

ASSETS

Cash and due from financial institutions $102,132 $81,972 $78,418 $87,395 $83,534

Interest-bearing deposits in other financial institutions 41,201 11,021 24,554 7,803 15,173

Investment securities:

Available-for-sale debt securities, at fair value 1,168,594 1,184,023 1,126,983 1,186,875 1,254,743

Equity securities, at fair value 1,209 1,002 1,127 1,058 1,034

Total investment securities 1,169,803 1,185,025 1,128,110 1,187,933 1,255,777

Loans held for sale 10,443 3,910 9,083 7,016 6,848

Loans, net of deferred fees and costs 5,003,438 4,511,998 4,449,540 4,367,862 4,247,113

Less allowance for credit losses [1] 67,339 59,645 47,971 48,167 48,267

Loans, net of allowance for credit losses 4,936,099 4,452,353 4,401,569 4,319,695 4,198,846

Premises and equipment, net 55,032 50,447 46,343 44,095 43,600

Accrued interest receivable 19,590 16,851 16,500 16,220 17,260

Investment in unconsolidated subsidiaries 16,428 16,721 17,115 17,001 17,247

Other real estate owned - 100 164 466 276

Mortgage servicing rights 12,771 13,345 14,718 15,058 15,266

Bank-owned life insurance 161,758 159,637 159,656 158,939 158,294

Federal Home Loan Bank ("FHLB") stock 9,229 18,109 14,983 17,183 17,824

Right of use lease asset 50,039 51,198 52,348 52,588 53,678

Other assets 48,447 47,859 49,111 45,324 36,383

Total assets $6,632,972$6,108,548$6,012,672$5,976,716 $5,920,006

LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:

Noninterest-bearing demand $1,851,012$1,430,540$1,450,532$1,399,200 $1,351,190

Interest-bearing demand 1,067,483 1,018,508 1,043,010 998,037 1,002,706

Savings and money market 1,945,744 1,693,280 1,600,028 1,593,738 1,573,805

Time 930,446 993,741 1,026,453 1,046,684 1,049,148

Total deposits 5,794,685 5,136,069 5,120,023 5,037,659 4,976,849

FHLB advances and other short-term borrowings - 222,000 150,000 205,000 221,000

Long-term debt 167,491 101,547 101,547 101,547 101,547

Lease liability 50,440 51,541 52,632 52,807 53,829

Other liabilities 76,050 63,561 59,950 54,476 51,086

Total liabilities 6,088,666 5,574,718 5,484,152 5,451,489 5,404,311

Shareholders' equity:

Preferred stock, no par value, authorized 1,000,000 shares; issued and outstanding: none at June 30, 2020, March 31, - - - - - 2020, December 31, 2019, September 30, 2019, and June 30, 2019

Common stock, no par value, authorized 185,000,000 shares; issued and outstanding: 28,154,159 at June 30, 2020, 28,115,353 at March 31, 2020, 28,289,257 at December 31, 442,699 442,853 447,602 452,278 456,293 2019, 28,441,341 at September 30, 2019, and 28,567,777 at June 30, 2019

Additional paid-in capital 93,007 92,284 91,611 90,604 89,724

Accumulated deficit [1] (16,986) (20,428) (19,102) (26,782) (34,780)

Accumulated other comprehensive income (loss) 25,551 19,072 8,409 9,127 4,458

Total shareholders' equity 544,271 533,781 528,520 525,227 515,695

Non-controlling interest 35 49 - - -

Total equity 544,306 533,830 528,520 525,227 515,695

Total liabilities and shareholders' equity $6,632,972$6,108,548$6,012,672$5,976,716 $5,920,006



[1] The Company adopted ASU 2016-13, "Financial Instruments-Credit Losses" ("CECL"), effective January 1, 2020 using the modified retrospective approach. Results for the reporting periods beginning after January 1, 2020 are presented under CECL, while prior period amounts continue to be reported under previous GAAP.



CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited) TABLE 3



Three Months Ended Six Months Ended

June 30, March 31, December 31,September 30,June 30, June 30,

(Dollars in thousands, except per share data) 2020 2020 2019 2019 2019 2020 2019

Interest income:

Interest and fees on loans $45,915 $46,204 $47,488 $45,861 $45,540 $92,119 $89,308

Interest and dividends on investment securities:

Taxable investment securities 6,310 6,757 6,486 7,178 7,530 13,067 15,790

Tax-exempt investment securities 599 668 656 708 814 1,267 1,680

Dividend income on investment securities 17 17 17 14 14 34 32

Interest on deposits in other financial institutions3 36 54 33 46 39 114

Dividend income on FHLB stock 106 132 456 186 161 238 322

Total interest income 52,950 53,814 55,157 53,980 54,105 106,764 107,246

Interest expense:

Interest on deposits:

Demand 114 176 202 207 199 290 391

Savings and money market 567 1,118 1,253 1,549 1,507 1,685 2,298

Time 2,124 3,268 3,653 4,432 4,867 5,392 9,959

Interest on short-term borrowings 74 508 1,139 1,130 1,123 582 2,016

Interest on long-term debt 812 914 976 1,013 1,031 1,726 2,091

Total interest expense 3,691 5,984 7,223 8,331 8,727 9,675 16,755

Net interest income 49,259 47,830 47,934 45,649 45,378 97,089 90,491

Provision for credit losses 10,640 9,329 2,098 1,532 1,404 19,969 2,687

Net interest income after provision for credit 38,619 38,501 45,836 44,117 43,974 77,120 87,804 losses

Other operating income:

Mortgage banking income 3,566 337 1,410 1,994 1,708 3,903 3,281

Service charges on deposit accounts 1,149 2,050 2,159 2,125 2,041 3,199 4,122

Other service charges and fees 2,916 4,897 4,095 3,894 3,909 7,813 7,124

Income from fiduciary activities 1,270 1,297 1,175 1,126 1,129 2,567 2,094

Equity in earnings of unconsolidated subsidiaries 104 26 92 86 71 130 79

Net gain (loss) on sales of investment securities - - - 36 - - -

Income from bank-owned life insurance 1,424 (19) 594 645 914 1,405 1,866

Net gain (loss) on sales of foreclosed assets (6) - (162) 17 - (6) -

Other (refer to Table 4) 269 298 405 343 322 567 3,201

Total other operating income 10,692 8,886 9,768 10,266 10,094 19,578 21,767

Other operating expense:

Salaries and employee benefits 20,622 20,347 21,207 20,631 20,563 40,969 40,452

Net occupancy 3,645 3,672 3,619 3,697 3,525 7,317 6,983

Equipment 1,043 1,097 1,142 1,067 1,138 2,140 2,144

Communication expense 774 837 906 1,008 903 1,611 1,637

Legal and professional services 2,238 2,028 2,123 1,933 1,728 4,266 3,298

Computer software expense 3,035 2,943 2,942 2,713 2,560 5,978 5,157

Advertising expense 923 1,092 527 711 712 2,015 1,423

Foreclosed asset expense - 67 28 15 49 67 208

Other (refer to Table 4) 4,147 4,157 3,748 3,159 4,929 8,304 9,153

Total other operating expense 36,427 36,240 36,242 34,934 36,107 72,667 70,455

Income before income taxes 12,884 11,147 19,362 19,449 17,961 24,031 39,116

Income tax expense 2,967 2,821 5,165 4,895 4,427 5,788 9,545

Net income $9,917 $8,326 $14,197 $14,554 $13,534 $18,243 $29,571

Per common share data:

Basic earnings per share $0.35 $0.30 $0.50 $0.51 $0.47 $0.65 $1.03

Diluted earnings per share 0.35 0.29 0.50 0.51 0.47 0.65 1.03

Cash dividends declared 0.23 0.23 0.23 0.23 0.23 0.46 0.44

Basic weighted average shares outstanding 28,040,80228,126,40028,259,294 28,424,898 28,546,56428,083,60228,651,852

Diluted weighted average shares outstanding 28,095,23028,277,75328,448,243 28,602,338 28,729,51028,190,13228,847,786



Note: Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period



CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

Other Operating Income and Other Operating Expense - Detail

(Unaudited) TABLE 4



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



Three Months Ended Six Months Ended

June 30,March 31,December 31,September 30,June 30,June 30,

(Dollars in thousands) 2020 2020 2019 2019 2019 2020 2019

Other operating income - other:

Income recovered on nonaccrual loans previously charged-off$37 $23 $80 $ 73 $85 $60 $167

Other recoveries 26 40 36 42 26 66 52

Commissions on sale of checks 56 81 75 75 79 137 159

Gain on sale of MasterCard stock - - - - - - 2,555

Other 150 154 214 153 132 304 268

Total other operating income - other $269 $298 $405 $ 343 $322 $567 $3,201



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



Three Months Ended Six Months Ended

June 30,March 31,December 31,September 30,June 30,June 30,

(Dollars in thousands) 2020 2020 2019 2019 2019 2020 2019

Other operating expense - other:

Charitable contributions $10 $187 $122 $ 230 $175 $197 $329

FDIC insurance assessment 475 - - 5 362 475 863

Miscellaneous loan expenses 399 300 361 274 317 699 611

ATM and debit card expenses 584 634 672 660 620 1,218 1,270

Armored car expenses 229 294 186 220 211 523 409

Entertainment and promotions 165 280 495 323 1,023 445 1,253

Stationery and supplies 220 248 305 240 279 468 504

Directors' fees and expenses 196 241 246 242 238 437 480

Directors' deferred compensation plan expense 103 (1,483) 148 (155) 133 (1,380)568

Provision (credit) for residential mortgage loan repurchase- - - - (403) - (403) losses

Provision for off-balance sheet credit exposures 573 1,798 (160) (465) 487 2,371 654

Other 1,193 1,658 1,373 1,585 1,487 2,851 2,615

Total other operating expense - other $4,147$4,157 $3,748 $ 3,159 $4,929$8,304$9,153



Note: Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

Average Balances, Interest Income & Expense, Yields and Rates (Taxable Equivalent)

(Unaudited) TABLE 5



Three Months Ended Three Months Ended Three Months Ended

June 30, 2020 March 31, 2020 June 30, 2019

Average Average Average Average Average Average

(Dollars in thousands) Balance Yield/RateInterest Balance Yield/RateInterest Balance Yield/RateInterest

ASSETS

Interest-earning assets:

Interest-bearing deposits in $15,777 0.10 % $3 $11,082 1.29 % $36 $8,002 2.34 % $46 other financial institutions

Investment securities, excluding valuation allowance:

Taxable 1,042,441 2.43 6,327 1,027,695 2.64 6,774 1,147,759 2.63 7,544

Tax-exempt 100,485 3.02 758 105,330 3.21 845 142,660 2.89 1,030

Total investment securities 1,142,926 2.48 7,085 1,133,025 2.69 7,619 1,290,419 2.66 8,574

Loans, including loans held for sale4,902,905 3.76 45,915 4,462,347 4.16 46,204 4,171,558 4.37 45,540

Federal Home Loan Bank stock 11,753 3.62 106 14,589 3.61 132 15,998 4.02 161

Total interest-earning assets 6,073,361 3.51 53,109 5,621,043 3.85 53,991 5,485,977 3.97 54,321

Noninterest-earning assets 394,768 386,194 370,488

Total assets $6,468,129 $6,007,237 $5,856,465



LIABILITIES AND EQUITY

Interest-bearing liabilities:

Interest-bearing demand deposits $1,056,8850.04 % $114 $1,013,7950.07 % $176 $962,402 0.08 % $199

Savings and money market deposits 1,856,621 0.12 567 1,651,751 0.27 1,118 1,577,437 0.38 1,507

Time deposits under $100,000 161,874 0.65 261 164,274 0.70 284 173,556 0.70 305

Time deposits $100,000 and over 807,276 0.93 1,863 846,152 1.42 2,984 907,330 2.02 4,562

Total interest-bearing deposits 3,882,656 0.29 2,805 3,675,972 0.50 4,562 3,620,725 0.73 6,573

Federal Home Loan Bank advances and other short-term 63,104 0.48 74 139,813 1.46 508 175,347 2.57 1,123 borrowings

Long-term debt 136,939 2.38 812 101,547 3.62 914 101,547 4.07 1,031

Total interest-bearing liabilities 4,082,699 0.36 3,691 3,917,332 0.61 5,984 3,897,619 0.90 8,727

Noninterest-bearing deposits 1,731,939 1,445,724 1,357,056

Other liabilities 112,687 107,458 97,041

Total liabilities 5,927,325 5,470,514 5,351,716

Shareholders' equity 540,802 536,721 504,749

Non-controlling interest 2 2 -

Total equity 540,804 536,723 504,749

Total liabilities and equity $6,468,129 $6,007,237 $5,856,465



Net interest income $49,418 $48,007 $45,594



Interest rate spread 3.15 % 3.24 % 3.07 %



Net interest margin 3.26 % 3.43 % 3.33 %





CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

Average Balances, Interest Income & Expense, Yields and Rates (Taxable Equivalent)

(Unaudited) TABLE 6



Six Months Ended Six Months Ended

June 30, 2020 June 30, 2019

Average Average Average Average

(Dollars in thousands) Balance Yield/RateInterest Balance Yield/RateInterest

ASSETS

Interest-earning assets:

Interest-bearing deposits in other financial institutions$13,430 0.59 % $39 $9,682 2.38 % $114

Investment securities, excluding valuation allowance:

Taxable 1,035,068 2.53 13,101 1,174,596 2.69 15,822

Tax-exempt 102,907 3.12 1,604 147,899 2.88 2,127

Total investment securities 1,137,975 2.58 14,705 1,322,495 2.71 17,949

Loans, including loans held for sale 4,682,626 3.95 92,119 4,127,917 4.35 89,308

Federal Home Loan Bank stock 13,171 3.61 238 15,143 4.26 322

Total interest-earning assets 5,847,202 3.67 107,101 5,475,237 3.95 107,693

Noninterest-earning assets 390,390 358,089

Total assets $6,237,592 $5,833,326



LIABILITIES AND EQUITY

Interest-bearing liabilities:

Interest-bearing demand deposits $1,035,3400.06 % $290 $956,783 0.08 % $391

Savings and money market deposits 1,754,186 0.19 1,685 1,525,425 0.30 2,298

Time deposits under $100,000 163,074 0.67 546 174,683 0.68 592

Time deposits $100,000 and over 826,714 1.18 4,846 944,796 2.00 9,367

Total interest-bearing deposits 3,779,314 0.39 7,367 3,601,687 0.71 12,648

Federal Home Loan Bank advances and other short-term 101,459 1.15 582 156,550 2.60 2,016 borrowings

Long-term debt 119,243 2.91 1,726 101,547 4.15 2,091

Total interest-bearing liabilities 4,000,016 0.49 9,675 3,859,784 0.88 16,755

Noninterest-bearing deposits 1,588,742 1,376,437

Other liabilities 110,070 97,385

Total liabilities 5,698,828 5,333,606

Shareholders' equity 538,762 499,720

Non-controlling interest 2 -

Total equity 538,764 499,720

Total liabilities and equity $6,237,592 $5,833,326



Net interest income $97,426 $90,938



Interest rate spread 3.18 % 3.07 %



Net interest margin 3.34 % 3.33 %







CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

Loans by Geographic Distribution

(Unaudited) TABLE 7



June 30, March 31, December 31,September 30,June 30,

(Dollars in thousands) 2020 2020 2019 2019 2019

HAWAII:

Commercial, financial and agricultural:

SBA Paycheck Protection Program $483,827 $- $- $- $-

Other 431,887 454,817 454,582 439,296 435,353

Real estate:

Construction 103,518 100,617 95,854 96,661 72,427

Residential mortgage 1,657,558 1,632,536 1,599,801 1,558,735 1,516,936

Home equity 510,962 504,686 490,734 475,565 473,151

Commercial mortgage 912,422 917,886 909,798 909,987 905,479

Consumer 350,414 367,960 373,451 369,511 353,282

Leases - - - 31 52

Total loans, net of deferred fees and costs4,450,588 3,978,502 3,924,220 3,849,786 3,756,680

Allowance for credit losses (59,765) (51,646) (42,592) (42,286) (42,414)

Loans, net of allowance for credit losses $4,390,823$3,926,856$3,881,628$3,807,500 $3,714,266



U.S. MAINLAND: [1]

Commercial, financial and agricultural:

SBA Paycheck Protection Program $42,581 $- $- $- $-

Other 115,971 120,507 115,722 137,316 155,130

Real estate:

Construction - - - - -

Residential mortgage - - - - -

Home equity - - - - -

Commercial mortgage 217,747 221,251 213,617 223,925 187,379

Consumer 176,551 191,738 195,981 156,835 147,924

Leases - - - - -

Total loans, net of deferred fees and costs552,850 533,496 525,320 518,076 490,433

Allowance for credit losses (7,574) (7,999) (5,379) (5,881) (5,853)

Loans, net of allowance for credit losses $545,276 $525,497 $519,941 $512,195 $484,580



TOTAL:

Commercial, financial and agricultural:

SBA Paycheck Protection Program $526,408 $- $- $- $-

Other 547,858 575,324 570,304 576,612 590,483

Real estate:

Construction 103,518 100,617 95,854 96,661 72,427

Residential mortgage 1,657,558 1,632,536 1,599,801 1,558,735 1,516,936

Home equity 510,962 504,686 490,734 475,565 473,151

Commercial mortgage 1,130,169 1,139,137 1,123,415 1,133,912 1,092,858

Consumer 526,965 559,698 569,432 526,346 501,206

Leases - - - 31 52

Total loans, net of deferred fees and costs5,003,438 4,511,998 4,449,540 4,367,862 4,247,113

Allowance for credit losses (67,339) (59,645) (47,971) (48,167) (48,267)

Loans, net of allowance for credit losses $4,936,099$4,452,353$4,401,569$4,319,695 $4,198,846



[1] U.S. Mainland includes territories of the United States

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

Deposits

(Unaudited) TABLE 8



June 30, March 31, December 31,September 30,June 30,

(Dollars in thousands) 2020 2020 2019 2019 2019

Noninterest-bearing demand $1,851,012$1,430,540$1,450,532$1,399,200 $1,351,190

Interest-bearing demand 1,067,483 1,018,508 1,043,010 998,037 1,002,706

Savings and money market 1,945,744 1,693,280 1,600,028 1,593,738 1,573,805

Time deposits less than $100,000 159,739 162,399 165,755 165,687 171,106

Core deposits 5,023,978 4,304,727 4,259,325 4,156,662 4,098,807



Government time deposits 509,927 523,343 533,088 552,470 574,825

Other time deposits $100,000 to $250,000 96,633 100,047 107,550 103,959 105,382

Other time deposits greater than $250,000164,147 207,952 220,060 224,568 197,835

Total time deposits $100,000 and over 770,707 831,342 860,698 880,997 878,042

Total deposits $5,794,685$5,136,069$5,120,023$5,037,659 $4,976,849

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

Nonperforming Assets, Past Due and Restructured Loans

(Unaudited) TABLE 9



June 30, March 31, December 31,September 30,June 30,

(Dollars in thousands) 2020 2020 2019 2019 2019

Nonaccrual loans (including loans held for sale): [1]

Commercial, financial and agricultural $934 $667 $467 $- $-

Real estate:

Residential mortgage 3,215 2,287 979 799 738

Home equity 538 545 92 95 244

Consumer 54 48 17 - -

Total nonaccrual loans 4,741 3,547 1,555 894 982



Other real estate owned ("OREO"):

Real estate:

Residential mortgage - - - 302 276

Home equity - 100 164 164 -

Total OREO - 100 164 466 276

Total nonperforming assets ("NPAs") 4,741 3,647 1,719 1,360 1,258



Loans delinquent for 90 days or more still accruing interest: [1]

Real estate:

Residential mortgage 726 1,221 724 - -

Consumer 444 352 286 235 267

Total loans delinquent for 90 days or more still accruing 1,170 1,573 1,010 235 267 interest



Restructured loans still accruing interest: [1]

Commercial, financial and agricultural 172 113 135 157 178

Real estate:

Residential mortgage 5,290 5,431 5,502 6,717 6,831

Commercial mortgage 1,888 1,709 1,839 1,985 2,097

Consumer 145 - - - -

Total restructured loans still accruing interest 7,495 7,253 7,476 8,859 9,106

Total NPAs and loans delinquent for 90 days or more $13,406 $12,473 $10,205 $10,454 $10,631 and restructured loans still accruing interest



Total nonaccrual loans as a percentage of total loans 0.09 %0.08 %0.03 %0.02 %0.02 %

Total NPAs as a percentage of total loans and OREO 0.09 %0.08 %0.04 %0.03 %0.03 %

Total NPAs and loans delinquent for 90 days or more still 0.12 %0.12 %0.06 %0.04 %0.04 %accruing interest as a percentage of total loans and OREO

Total NPAs and loans delinquent for 90 days or more and restructured loans still accruing interest as a percentage of total 0.27 %0.28 %0.23 %0.24 %0.25 %loans and OREO



Quarter-to-quarter changes in NPAs:

Balance at beginning of quarter $3,647 $1,719 $1,360 $1,258 $3,338

Additions 1,771 2,056 695 112 -

Reductions:

Payments (367) (60) (34) (51) (2,055)

Return to accrual status (123) - - (2) (25)

Sales of NPAs (94) - (302) - -

Charge-offs, valuation and other adjustments (93) (68) - 43 -

Total reductions (677) (128) (336) (10) (2,080)

Balance at end of quarter $4,741 $3,647 $1,719 $1,360 $1,258



[1] Section 4013 of the CARES Act and the revised Interagency Statement are being applied to loan modifications related to the COVID-19 pandemic as eligible and applicable. These loan modifications are not included in the delinquent, nonaccrual or restructured loan balances presented above

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

Allowance for Credit Losses on Loans

(Unaudited) TABLE 10



Three Months Ended Six Months Ended

June 30, March 31, December 31, September 30,June 30, June 30,

(Dollars in thousands) 2020 2020 2019 2019 2019 2020 2019

Allowance for credit losses ("ACL"):

ACL at beginning of period $59,645 $47,971 $48,167 $48,267 $47,267 $47,971 $47,916

Adoption of ASU 2016-13 - 3,566 - - - 3,566 -

Adjusted ACL at beginning of period 59,645 51,537 48,167 48,267 47,267 51,537 47,916



Provision for credit losses 10,640 9,329 2,098 1,532 1,404 19,969 2,687



Charge-offs:

Commercial, financial and agricultural1,103 437 379 797 839 1,540 1,302

Real estate:

Residential mortgage 52 - - - - 52 -

Home equity - - - 5 - - -

Consumer 2,626 2,217 2,723 1,832 1,459 4,843 3,710

Total charge-offs 3,781 2,654 3,102 2,634 2,298 6,435 5,012



Recoveries:

Commercial, financial and agricultural305 342 264 362 315 647 548

Real estate:

Construction - 131 6 6 592 131 598

Residential mortgage 20 181 26 104 372 201 394

Home equity - 31 - 24 9 31 18

Commercial mortgage 1 2 - - 25 3 25

Consumer 509 746 512 506 581 1,255 1,093

Total recoveries 835 1,433 808 1,002 1,894 2,268 2,676

Net charge-offs (recoveries) 2,946 1,221 2,294 1,632 404 4,167 2,336

ACL at end of period $67,339 $59,645 $47,971 $48,167 $48,267 $67,339 $48,267



Average loans, net of deferred $4,902,905 $4,462,347 $4,412,247 $4,293,455 $4,171,558 $4,682,626 $4,127,917 fees and costs



Annualized ratio of net charge- 0.24 %0.11 %0.21 %0.15 %0.04 %0.18 %0.11 %offs to average loans



Ratio of ACL to total loans 1.35 %1.32 %1.08 %1.10 %1.14 %1.35 %1.14 %



Ratio of ACL to total loans, 1.50 %1.32 %1.08 %1.10 %1.14 %1.50 %1.14 %excluding PPP loans

CENTRAL PACIFIC FINANCIAL CORP. AND SUBSIDIARIES

Reconciliation of Non-GAAP Financial Measures

(Unaudited) TABLE 11



The Company believes that pre-tax, pre-provision earnings, a non-GAAP financial measure, is useful as a tool to help evaluate the ability to provide for credit costs through operations. The following table sets forth a reconciliation of our pre-tax pre-provision earnings for each of the dates indicated:



Three Months Ended Six Months Ended

June 30, March 31,December 31,September 30,June 30, June 30,

(Dollars in thousands) 2020 2020 2019 2019 2019 2020 2019

Net income $9,917 $8,326 $ 14,197 $ 14,554 $13,534$18,243$29,571

Add: Income tax expense 2,967 2,821 5,165 4,895 4,427 5,788 9,545

Income before taxes 12,884 11,147 19,362 19,449 17,961 24,031 39,116

Add: Provision for credit losses10,640 9,329 2,098 1,532 1,404 19,969 2,687

Pre-tax pre-provision earnings $23,524$20,476$ 21,460 $ 20,981 $19,365$44,000$41,803

The following table sets forth a reconciliation of the ratios of our allowance for credit losses to total loans and total loans, excluding PPP loans, for each of the dates indicated:



June 30, March 31, December 31, September 30, June 30,

(Dollars in thousands) 2020 2020 2019 2019 2019

Allowance for credit losses ("ACL") $67,339 $59,645 $47,971 $48,167 $48,267



Total loans $5,003,438 $4,511,998 $4,449,540 $4,367,862 $4,247,113

SBA Paycheck Protection Program ("PPP 526,408 - - - - loans")

Total loans, excluding PPP loans $4,477,030 $4,511,998 4,449,540 4,367,862 $4,247,113



Ratio of ACL to total loans 1.35 %1.32 %1.08 %1.10 %1.14 %



Ratio of ACL to total loans, excluding PPP 1.50 %1.32 %1.08 %1.10 %1.14 % loans

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SOURCE Central Pacific Financial Corp.