CPB earns $3.1M, omits dividend


POSTED: Friday, January 30, 2009

Central Pacific Financial Corp. posted its second consecutive profitable quarter but suspended its cash dividend indefinitely today while increasing the amount of money it was setting aside to cover potential loan losses.




Fourth-quarter net

$3.1 million


Year-earlier loss


$44.5 million


Ronald Migita, chairman, president and chief executive of Central Pacific Bank's parent, said the decision to eliminate the dividend “;is a prudent measure that will enable us to preserve capital and better meet the needs of our customers.”;

“;It was a difficult decision and not something we take lightly,”; he said. “;But we have to consider the environment we're operating in, and it required we make some really tough decisions.”;

The bank, which reported a fourth-quarter profit today of $3.1 million, slashed its dividend 60 percent at the end of the second quarter to 10 cents a share from 25 cents a share. Central Pacific's dividend was yielding an annualized 5.9 percent prior to today's action.

Earlier this month, Central Pacific, which has been aggressively reducing its exposure to the sagging California residential construction market, issued $135 million in senior preferred stock in connection with the bank's participation in the U.S. Treasury's Capital Purchase Program.

The preferred stock has an annual dividend of 5 percent during the first five years.

Related warrants to buy approximately 1.6 million shares of the company's common stock also were issued to the U.S. Treasury.

“;We're using the new capital to provide additional resources to support our lending activities for our commercial and retail customers here in Hawaii in the three areas of small-business lending, low-income housing and residential mortgage financing,”; Central Pacific Chief Financial Officer Dean Hirata said.

Central Pacific, which had a $3 million profit in the third quarter, still finished the year deeply in the red with a net loss of $138.4 million compared with a net profit of $5.8 million in 2007.

The state's fourth-largest bank in terms of assets had earnings per share in the fourth quarter of 11 cents a share to easily beat analysts' estimates of a loss of 1 cent a share.

In the year-earlier quarter, Central Pacific had a net loss of $44.5 million, or $1.51 a share. Last quarter included a solar-equipment income tax benefit of $7.4 million on a pretax loss of $4.3 million.

Central Pacific's loss in the fourth quarter of 2007 included an after-tax non-cash goodwill impairment charge of $48 million stemming from the diminished value associated with its 2004 buyout of rival City Bank.

Central Pacific's year-end exposure to the California residential construction market totaled $71 million, including $55.6 million in the loan portfolio,

$10.5 million classified as held for sale and two foreclosed properties totaling $4.9 million. The bank's California exposure at the end of the third quarter was $95.4 million.

“;As prudent bankers, we're continually evaluating our portfolio whether it's in California or Hawaii,”; Migita said. “;To make a prediction on how much we're going to cut down or reduce is a constant evaluation. We're looking at our reserve requirements and the conditions of customers and looking at what we can anticipate in the future because the future is unstable.”;

Migita acknowledged that the Hawaii market continues to reflect a slowdown “;as evidenced by all the numbers we see in visitor arrivals, construction spending and lower retail sales.”;

“;As far as a lag between here and the California market, I think there's a lag as the figures for Hawaii reflect a continual slowdown,”; Migita added. “;In comparison, though, the Hawaii market appears to have held up a little better.”;

The bank's fourth-quarter revenue rose 3.4 percent to $66 million from $63.9 million while full-year revenue slipped 0.4 percent to $256.8 million from $257.7 million.

Central Pacific said it was increasing its provision for loan and lease losses in the fourth quarter to $26.7 million from $22.9 million in the third quarter due to the “;challenging economic conditions and the continued softening of the California and Hawaii real estate markets.”;

The bank set aside $28.2 million in the fourth quarter of 2007.

In the last six quarters, Central Pacific has set aside $221.1 million for potential loan losses.

Net loan charge-offs in the fourth quarter were $7 million, resulting in the bank's allowance for loan and lease losses to increase by nearly $20 million. Central Pacific had net charge-offs a year ago of $8.7 million.

Total assets in the quarter fell 4.4 percent to $5.4 billion from $5.7 billion a year ago.

Total loans and leases decreased 2.7 percent to $4 billion from $4.1 billion.

And total deposits slipped 2.3 percent to $3.9 billion from $4 billion.

Net interest income, which reflects the difference from what the bank pays its depositors and what it brings in from loans, fell 6.4 percent to $49.1 million from $52.5 million. The net interest margin dropped to 4.03 percent from 4.15 percent.

Noninterest income, which includes service charges and fees, jumped 48.6 percent to $16.9 million from $11.4 million due to higher unrealized gains on outstanding interest rate locks on residential mortgage loans totaling $2.2 million, higher noncash gains related to the ineffective portion of a cash-flow hedge totaling $2 million, and a $1.7 million loss recognized in the year-ago quarter in connection with an investment portfolio repositioning.

Total nonperforming assets jumped 133.6 percent to $143.8 million from $61.5 million.