Central Pacific Financial posts gain
The CPB parent cites solid loan and deposit growth, strong asset quality and improved expense control
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Central Pacific Financial Corp., citing solid loan and deposit growth, strong asset quality and improved expense control, said yesterday that net income rose 2.8 percent in the second quarter.
Net income was $21 million, or 68 cents a share, compared with $20.4 million, or 66 cents a share, a year earlier. Analysts were expecting 67 cents a share.
Revenue rose 2 percent to $64.4 million from $63.1 million a year ago.
The parent of Central Pacific Bank also reaffirmed its previously lowered full-year earnings-per-share guidance of $2.75 to $2.85 a share.
Clint Arnoldus, president and chief executive of Central Pacific, also stressed that the bank is not exposed to the subprime residential lending meltdown that has forced many borrowers with risky credit nationwide to fall behind on their payments.
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Central Pacific Financial Corp.'s net income rose 2.8 percent in the second quarter as a pickup in deposit activity and solid loan growth helped the bank exceed analysts' expectations.
The state's fourth-largest bank in terms of assets also reaffirmed its previously lowered full-year earnings-per-share guidance of $2.75 to $2.85 a share. That forecast had been reduced after the first quarter from a range of $2.80 to $2.90 after deposits flattened and loan growth slowed.
But both those areas met with Central Pacific's expectations last quarter as the bank earned $21 million, or 68 cents a share, compared with $20.4 million, or 66 cents a share, in the second quarter of 2006. Analysts were expecting 67 cents a share.
Revenue rose 2 percent to $64.4 million from $63.1 million a year ago.
The bank also showed improvement in managing its expenses as its efficiency ratio, which measures in percentages how much it costs the bank to make a dollar of revenue, improved to 47.03 percent from 47.76 percent.
Central Pacific President and Chief Executive Clint Arnoldus, who has seen the company's stock lose about 25 percent of its value since hitting an all-time high of $40.50 in late February, stressed that the bank is not exposed to the subprime residential lending meltdown plaguing many financial institutions nationwide.
During the peak of the housing boom, lenders made so-called subprime loans to borrowers with poor or limited credit histories, and those borrowers have since fallen behind on their payments as their adjustable rates have been reset higher.
"We think it's important to differentiate us in the market," Arnoldus said. "A lot of the swings in the stock activity has been because of news that has been affecting that subprime market. We just wanted to assure the market we didn't have any exposure in that area. In a market with this emotion, it happens regularly that we all get put in the same basket."
Central Pacific said the bank's deposit base has stabilized following a period in which depositors were shifting their money in search of higher-yielding returns.
Total deposits increased 6.8 percent to $3.9 billion from $3.7 billion a year earlier.
"We are challenged by the overall interest rate environment with the flat yield curve and the impact on our net interest margin," Hirata said. "But we feel the margin has stabilized at these levels specifically due to our overall funding costs. Looking at the overall composition of our deposit base, we feel that some of the shift that we saw last quarter has stabilized this (third) quarter."
The net interest margin, which reflects the difference between what Central Pacific pays depositors and what it brings in from loans, decreased to 4.36 percent from 4.57 percent a year ago.
Net interest income gained 1.4 percent to $52.9 million from $52.2 million a year ago.
Noninterest income, which includes income from bank-owned life insurance, service charges and fees, and loan placement fees, gained 5.3 percent to $11.5 million from $11 million a year ago.
Total loans and leases gained 6.7 percent to $3.9 billion from $3.7 billion as the bank's Hawaii lending operations accounted for about 70 percent of the loan growth.
"Our strategy in going to the mainland was to get a diversified source of earnings so we could always have a predictable revenue stream," Arnoldus said. "At any time, Hawaii can be up or down and California can be the same, so the net of them leaves us with a stable predictable level."
Nonperforming assets were $1.4 million, or 0.02 percent of total assets, compared with $10 million, or 0.19 percent of total assets a year ago.
Total assets rose 5.2 percent to $5.6 billion from $5.3 billion a year ago.