Central Pacific posts 14.5% quarterly gain

Mainland lending makes up most of the bank's loan growth

Central Pacific Financial Corp. said yesterday net income rose 14.5 percent in the third quarter as loans from its mainland operations picked up again, contributing three-quarters of the bank's loan growth.

In the second quarter, two-thirds of its loan growth came from Hawaii.

The parent of Central Pacific Bank, the state's fourth-largest bank in terms of assets, matched analysts' earnings-per-share expectations by posting record net income of $20.6 million, or 67 cents a share, compared with $18 million, or 58 cents a share, a year earlier. The third quarter of 2005 included a merger-related expense of $2.1 million associated with the bank's 2005 acquisition of Hawaii HomeLoans, now called Central Pacific HomeLoans.

Central Pacific also forecast that its earnings per share for full-year 2006 would come in at a range of $2.62 to $2.67.

"We are pleased that we have achieved solid growth in loans and deposits over the past year, while at the same time maintaining a strong credit discipline and a stable net interest margin," said Clint Arnoldus, president and chief executive of Central Pacific.

Central Pacific's loans and leases increased 11.8 percent last quarter to $3.8 billion from $3.4 billion a year ago.

Brett Rabatin, an analyst for Nashville, Tenn.-based FTN MidWest Research, said it's not surprising that Central Pacific would focus its loan growth on the mainland.

"I think Hawaii's loan growth is somewhat slowing, or at least some of the components of the loan growth is slowing," he said. "So I'm not surprised to see Central Pacific mainly focused on its mainland operations. It's a larger economy and they can be over on the mainland and pick and choose select credits they're interested in doing, what makes sense from a risk perspective."

Rabatin said Central Pacific's net income was in line with his expectations and, given Bank of Hawaii Corp.'s earnings report on Monday, it appears that Hawaii banks are doing as well or better than their mainland counterparts.

"Both Bank of Hawaii and Central Pacific had pretty good net interest income growth this quarter relative to the second quarter, did a good job of managing their expenses, and their profitability is high," he said. "The banks, though, would prefer to have a steep yield curve (instead of the current inverse situation in which short-term rates are higher than long-term rates). The caveat now is that it's tough deposit gathering for all banks to offset that."

Central Pacific's deposits last quarter grew 9 percent to $3.8 billion from $3.5 billion. The bank, which ranks behind First Hawaiian Bank, Bank of Hawaii and American Savings Bank in terms of assets, boosted its assets 6.7 percent to $5.4 billion from $5 billion a year ago.

Net interest income, which reflects the difference between what it pays depositors and what it brings in from loans, gained 7.1 percent to $53.1 million from $49.6 million. However, its net interest margin declined to 4.56 percent from 4.6 percent a year earlier as customers sought out higher-yielding accounts such as money-market funds and certificates of deposit.

Noninterest income, which includes revenue generated from service charges and fees, fell 8.1 percent to $10.5 million from $11.5 million a year earlier primarily due to a decrease in residential loan activity. In addition, mortgage origination activity for the third quarter declined by about 20 percent from the second quarter and is expected to remain at the current level for the remainder of this year, Central Pacific said.

Central Pacific improved its asset quality as nonperforming assets decreased 42.9 percent to $8 million from $14 million a year ago and loans delinquent for 90 days or more plunged 72.5 percent to $2.8 million from $10.2 million.

The bank's return-on-assets ratio, which indicates how many dollars of profit it achieves for each dollar of assets it controls, rose to 1.56 percent compared with 1.46 percent a year earlier. Excluding the merger-related expenses in the third quarter of 2005, CPF's return-on-assets ratio fell to 1.56 percent from 1.63 percent.

Central Pacific's return-on-equity ratio, or earnings divided by shareholder equity, increased to 11.52 percent from 10.79 percent. But excluding the merger-related expenses from the year earlier, the return-on-equity ratio fell to 11.52 from 12.06 percent.