Central Pacific Bank logs 15th straight profit

The consolidation of two Wai­kiki branches and another one-time expense item dragged down Central Pacific Bank’s earnings in the July-September period even as loans rose by double digits for the sixth straight quarter.

Central Pacific Financial Corp., holding company for the state’s fourth-largest bank, said net income in the third quarter fell 19.3 percent to $8.2 million, or 23 cents a share, from $10.2 million, or 24 cents a share, in the year-earlier quarter. It was the 15th straight profitable quarter for the bank following $703.1 million in losses from 2008 to 2010.

"It was a good quarter, another quarter of profitability," Central Pacific Chairman and Chief Executive Officer John Dean said Tuesday. "We’re right on our (turnaround) plan if you look at our performance on a core basis."

Excluding one-time items, the bank’s core earnings were down 7.6 percent to $9.7 million from $10.5 million in the year-earlier quarter.

Shares of Central Pacific, which is due to formally release its earnings before the market opens Wednesday, rose 44 cents, or 2.4 percent, to $18.59 Tuesday on the New York Stock Exchange.

Last month Central Pacific consolidated its two Wai­­kiki branches — at the Wai­­kiki Hyatt and the Waikiki Shopping Plaza — and opened a new location next to the Wai­­kiki Trade Center at 333 Seaside Ave. The branch consolidation and relocation resulted in expenses of $1.3 million that reduced earnings per share by 3 cents.

"If you looked at where our main branch was in Wai­kiki, it was in the far end near the park at the Hyatt hotel," Dean said. "And the other branch, which was relatively close to it, was very small in terms of doing business. So we relocated more centrally in Wai­kiki, and we are already pleased with the results. It’s a better located facility and has better parking and better ingress. There’s a one-time cost that will impact us, but there will be cost savings as we move forward as a result of the consolidation and the move."

Central Pacific also made an adjustment that resulted in a $900,000 expense on its 2013 tax return associated with real estate investment trusts. That change reduced earnings by 3 cents a share.

On the positive side, Central Pacific recovered $600,000 — an earnings benefit of 2 cents a share — as a creditor in Lehman Brothers’ 2008 bankruptcy.

The bank also returned to its income statement $1.7 million last quarter that it had set aside for potential loan losses. The credit wasn’t as substantial as a year ago when the bank returned $3.2 million to its income statement for similar reasons.

All of Hawaii’s banks that have reported so far this quarter have showed loan growth, and Central Pacific was no different.

The bank is enlarging its loan portfolio again following the real estate meltdown of 2007-2009, which rippled through the bank until the end of 2010. Central Pacific, which was near collapse, recapitalized itself with $345 million from investors and shareholders under the leadership of Dean, a turnaround specialist hired in March 2010. Last quarter loans jumped 15.7 percent to $2.9 billion from $2.5 billion.

"The loan growth was pretty balanced," said Lance Mizu­moto, co-president and chief banking officer. "We saw growth in our residential mortgage area, our commercial loan side, our consumer loan portfolio and on the commercial real estate side. Long term, this type of double-digit growth is not sustainable, but near term, it will probably be high single- to low double-digit growth. We’re optimistic given the strength of the Hawaii economy and feel encouraged by the prospect of strong loan growth."

Central Pacific also continued improving the quality of its loans as well. At the end of last quarter, it had $406 million in outstanding loans on the mainland, with $14.4 million 90 days or more delinquent. In Hawaii the bank had $2.5 billion in loans, with $30.9 million of those similarly delinquent.

Overall the bank’s nonperforming assets fell 23.3 percent to $45.3 million from $59 million in the year-earlier quarter. The bank had $496 million in nonperforming assets when Dean took over the reins in the first quarter of 2010.

Net interest margin — the spread between the bank’s loan and deposit rates — rose to 3.3 percent last quarter from 3.19 percent in the third quarter of 2013. Net interest income rose 5.2 percent to $35.5 million from $33.8 million, while deposits edged up 3.6 percent to $4 billion from $3.9 billion.

Noninterest income, which includes service charges and fees, fell 3.9 percent to $11.5 million from $11.9 million primarily due to unrealized gains on loans held for sale and interest rate locks of $100,000 in the quarter compared with $1 million in the year-earlier period.

Assets remained virtually flat at $4.75 billion.