CPF’s net drops 10.6%
but beats estimates

2003 was the fifth straight year
of record earnings for the bank

Central Pacific Financial Corp., entrenched in a hostile takeover attempt of its downtown rival, said yesterday that net income fell 10.6 percent last quarter.

However, the bank's net income of $9.1 million, or 55 cents a share, still beat analysts' consensus estimate of 53 cents, according to Thomson Financial. The period represented the company's highest profits of the year, but the fourth quarter of 2002 saw earnings of $10.2 million, or 62 cents a share, aided by two $1.4 million nonrecurring benefits.

"It was a solid quarter," said Neal Kanda, chief financial officer of Central Pacific. "The (comparative) fourth quarter of 2002 had the nonrecurring benefits and was well above the trend of the other quarters."

For the year, Central Pacific's earnings grew 2 percent to $33.9 million, or $2.07 a share, from $33.3 million, or $2.04 a share, a year ago. The full-year total represented a fifth straight year of record earnings.

Central Pacific forecast that earnings-per-share growth, which was up 1.5 percent in 2003, would grow between 5 percent and 7 percent this year.

In 2002, Central Pacific had earnings in the first three quarters of the year of $7.5 million, $7.7 million and $7.9 million, respectively, before making $10.2 million in the fourth quarter. The bank realized a $1.4 million nonrecurring benefit by curtailing its noncontributory pension plan (it still offers retirement and incentive compensation plans) and also getting a $1.4 million tax benefit from Act 221, which provides tax credits for investment in Hawaii high-tech companies.

Last year, the bank had quarterly earnings of $8.6 million, $8 million, $8.3 million before the $9.1 million gain in the most recent results.

Kanda said that even though the 2 percent full-year increase wasn't representative of previous years' gains, the bank was impacted last year by such things as the interest rate environment, competition, product and service expansion, and merger expenses.

"We're investing in the future," he said about the product and service expansion. "It's a start-up part of our business ... and it drags earnings down a little bit."

Clint Arnoldus, the chairman, president and chief executive officer of Central Pacific, reiterated the bank's intention to continue in its quest to acquire City Bank parent CB Bancshares Inc.

Central Pacific's offer, initially valued last April at $285 million, or $70 a share for each share of CB stock, was worth $304 million, or a split-adjusted $69.13 a share, at yesterday's close.

Analyst Joe Morford, who covers Central Pacific for RBC Capital Markets, gave the bank's fourth-quarter performance a mixed review.

"The results of 55 cents beat us and consensus by a couple of pennies, but the upside came from security gains ($788,000) and a lower tax rate on an operating basis," said Morford, who has a "sector perform" rating on the stock. "On a sequential quarter basis (fourth quarter compared to the third quarter), the results look to be a bit below our expectations. Revenues were pretty sluggish while loans and deposits grew only modestly."

As of Dec. 31, Central Pacific had total assets of $2.2 billion, a 7 percent increase from $2 billion a year ago. Total loans gained 11.8 percent to $1.5 billion from $1.3 billion. And total deposits grew 6.8 percent to $1.8 billion from $1.6 billion.

Central Pacific's net interest margin, which reflects the difference of what a bank pays depositors and what it brings in from loans, dropped to 4.5 percent from 5.1 percent a year ago.

The return on equity ratio, a measure of how well it used reinvested earnings to generate additional earnings, fell to 19 percent from 23.7 percent. The return on assets ratio, which indicates how many dollars of profits it achieves for each dollar of assets it controls, fell to 1.7 percent from 2.1 percent. The efficiency ratio, which measures in percentages how much it costs the bank to make a dollar of revenue, worsened to 56.3 percent from 52.6 percent.

Central Pacific, which won't have to account for much of its merger expenses until it either completes or calls off the deal, said it incurred $1.3 million in expenses associated with the merger last year and a $1 million increase in advertising costs.


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