Central Pacific Financial Corp., continuing to reduce its exposure to the slumping California real estate market, posted its third straight profitable quarter and originated a record $597.5 million in residential mortgage loans in its core Hawaii market.

The parent of Central Pacific Bank said yesterday that first-quarter net income soared 58.6 percent to $2.6 million, or 3 cents a share, from $1.7 million, or 6 cents a share, in the year-earlier quarter. The earnings included a tax benefit of $2.2 million associated with the settlement of a state tax contingency item.

However, earnings per share last quarter were lower than a year ago because of $1.9 million that Central Pacific had to pay the U.S. Treasury as part of a 5 percent preferred stock dividend associated with the bank's participation in the Capital Purchase Program of the federal Troubled Assets Relief Program, commonly referred to as TARP. The $1.9 million was not available for common stock.

Central Pacific, which suspended its dividend after the fourth quarter to preserve capital, said heavy refinancing activity led to the record number of residential mortgage loans. Those loans were up 61.9 percent from the year-earlier quarter and were just more than double the amount in the fourth quarter of 2008.

The bank also received a boost from a 5.9 percent increase in deposits.

Revenue, though, fell 4.6 percent to $62.2 million from $65.1 million.

“;As we navigate through this challenging economic downturn, we are encouraged by the progress we have made in strengthening our liquidity, capital and franchise for the long term,”; said Ronald Migita, chairman, president and chief executive of Central Pacific. “;We continue to actively manage our loan portfolio and credit risk.”;

Brett Rabatin, senior research analyst of Birmingham, Ala.-based Sterne Agee, expressed concern over the bank's credit situation.

“;They continue to have high charge-offs, which is mostly a reflection of a high level of nonaccrual loans and, to a large degree, continuing issues in their mainland portfolio,”; he said.

“;However, you could glean some positives from the quarter. First, the tangible equity ratio (an equity ratio frequently used by investors) improved, and, secondly, they continue to work down not only their overall mainland portfolio, but the residential construction-related portfolio, mostly on the mainland.”;

Central Pacific set aside $26.8 million last quarter for potential loan losses due to the ongoing weakness in the California and Hawaii real estate markets. The amount was roughly the same as the $26.7 million set aside in the fourth quarter and down from $34.3 million in the first quarter of 2008. In the last seven quarters, Central Pacific has set aside $247.9 million for potential loan losses.

Net loan charge-offs in the first quarter were $24.3 million compared with $54.2 million in the year-earlier quarter.

Nonperforming assets rose 34.7 percent to $159.9 million from $118.8 million in the year-earlier quarter, with nonaccrual loans rising 22.8 percent to $143.4 million.

Central Pacific's mainland commercial real estate and construction loans totaled $970.9 million in the quarter compared with $975.6 million at the end of the fourth quarter. The mainland commercial and construction loans represented 25.3 percent of the bank's total loans and leases.