Central Pacific's earnings miss estimates

Central Pacific Financial Corp. boosted its earnings 14.2 percent in the second quarter but missed analysts' earnings estimates as loan growth from mainland operations slowed.

The parent of Honolulu's Central Pacific Bank said yesterday that two-thirds of its 15.1 percent increase in loans came from Hawaii, a sharp contrast from the first quarter, when all of its loan growth came from outside the state.

Net income rose to $20.4 million, or 66 cents a share, compared with $17.9 million, or 58 cents a share, a year earlier. The bank capitalized on a $500,000 tax benefit from the resolution of an Internal Revenue Service audit that added between 1 and 2 cents a share to Central Pacific's net income. The bank also had posted merger-related expenses of $500,000 in the second quarter of 2005.

The bank's earnings per share came in below the estimate of 68 cents a share by six analysts surveyed by Thomson Financial. The miss would have been 3 to 4 cents without the tax benefit. Shares fell $2.09, or 5.4 percent, to $36.67 yesterday on the New York Stock Exchange.

"The shortfall stemmed primarily from weak balance sheet growth and lower-than-expected fee income," RBC Capital Markets analyst Joe Morford said in a research note yesterday. "On an operating basis, they missed our estimate by 3 to 4 cents and revenues (net interest income and noninterest income) were down 1 percent from the first quarter. That was disappointing."

Central Pacific, the state's fourth-largest bank in terms of assets, reaffirmed its previous earnings guidance for 2006 operating earnings per share to increase 7 to 10 percent over 2005.

"We believe we are well-positioned to achieve our strategic goals and to continue our strong financial performance," said Clint Arnoldus, president and chief executive of Central Pacific.

Net interest income, which reflects the difference between what the bank pays depositors and what it brings in from loans, rose 7.5 percent to $52.2 million from $48.5 million a year ago. However, Central Pacific's net interest margin declined to 4.56 percent from 4.65 percent as customers switched to higher-paying certificates of deposit and incurred longer-term debt.

Noninterest income, which includes revenue from service charges and fees, rose 24.5 percent to $11 million from $8.8 million. The increase stemmed primarily from an increase in service charge fee income and residential loan sale activity from Central Pacific HomeLoans, which was acquired last August.

Loan sales, which allow a bank to manage risk by selling loans to other parties, fell nearly 45 percent from the first quarter, Morford noted.

"Core trends remain lackluster, and we believe the stock is fairly valued at current levels," he said.

Overall, the bank's loans and leases were $3.7 billion at the end of the second quarter, a gain from $3.2 billion a year ago.

Deposits rose 4.5 percent to $3.7 billion from $3.5 billion a year earlier.

Assets grew 7.6 percent to $5.3 billion from $4.9 billion a year ago.

Nonperforming assets declined 37.8 percent to $10 million, or 0.19 percent of total assets, compared with $16.1 million, or 0.33 percent of total assets a year ago.

Central Pacific's return-on-assets ratio, which indicates how many dollars of profit it achieves for each dollar of assets it controls, rose to 1.57 percent from 1.49 percent.

Its return-on-equity ratio, a measure of how well it used reinvested earnings to generate additional earnings, increased to 11.71 percent from 10.95 percent.

The bank's efficiency ratio, which measures how much it costs Central Pacific to make a dollar of revenue, worsened to 47.76 percent in the second quarter from 46.45 percent a year ago but improved from 50.42 percent from the first quarter of this year.