CPB Inc. posts
another record profit

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By Dave Segal
dsegal@starbulletin.com

High-flying CPB Inc., brought down to earth by a stunning 13.7 percent drop in its stock price yesterday, responded to the selloff by issuing its second-quarter earnings a day early and posting a 12th consecutive quarter of record earnings.

The parent of Central Pacific Bank, whose stock began this month at $45.95 and up 56.2 percent for the year, fell $5.01 to $31.50 yesterday after a big institutional shareholder apparently unloaded a big block of shares. The stock rebounded 55 cents today to $32.05 and is now up 9 percent this year.

"Price movement from (yesterday's) unusual trading activity is not consistent with our financial performance or conditions," said Clint Arnoldus, CPB's chairman, president and chief executive. "We understand that this activity is a one-time transaction by an institutional shareholder whose investment style was converted to match a stock index of which we are not a member. Our second-quarter results demonstrate we continue to build shareholder value."

CPB's net income, boosted by strong deposit growth, improved asset quality and net interest margin expansion, increased 33 percent to $7.7 million, or 94 cents a share, from $5.8 million, or 69 cents a share. The record string of earnings includes one-time tax credits during the last two quarters of 2001 that inflated profits. The quarterly record streak strips away those nonrecurring credits to normalize comparisons.

The company, which earlier this month attracted its first analyst coverage (a "buy" rating from Jeff Davis of Midwest Research), saw total assets grow 7.7 percent to $1.9 billion from $1.8 billion a year ago. Total loans increased 1.6 percent to $1.28 billion from $1.26 billion. Total deposits increased 10.8 percent to $1.6 billion from $1.4 billion. Noninterest-bearing deposits rose 18 percent to $252 million from $214 million.

"The increase in noninterest-bearing deposits is indicative of the success of our sales efforts to acquire new banking relationships," Arnoldus said.

CPB's return on average equity, the most common financial performance benchmark in the banking industry, increased to 19.64 percent from 15.23 percent a year ago. Return on average assets, which measures how hard the assets are working, rose to 1.63 percent from 1.25 percent. The company lowered its provision for loan losses to $300,000 from $900,000.

Net interest margin expansion increased to 5.06 percent from 4.60 percent a year ago as a result of declining interest rates.

The bank's asset quality improved as nonperforming assets declined 47 percent to $3.2 million, or 0.17 percent of total assets, from $6.1 million, or 0.34 percent a year ago.