Central Pacific’s net falls, but its loans remain solid

Central Pacific Bank said Thursday its loan activity is still performing well despite a nationwide housing slowdown because of the company’s joint ventures with developers and real estate brokerages.

The state’s fourth-largest bank was scheduled to announce today that its third-quarter net income declined 19.7% from the year-earlier quarter but that its loan volume came in at a 9.1% annualized rate and that the bank’s net interest margin improved by 12 basis points to 3.17% from the previous three months.

Central Pacific Financial Corp., the holding company, reported net income of $16.7 million, or 61 cents a share, to beat analysts’ consensus forecast of 60 cents a share. That compares with net income of $20.8 million, or 74 cents a share, in the year-ago period.

“We continued to execute well in the third quarter as reflected in our strong earnings, loan growth and expanding net interest margin,” Chairman and CEO Paul Yonamine said in a statement. “While the broader economy is presenting challenges for the entire financial services industry, Hawaii has outperformed the nation during past recessions.”

Central Pacific’s loans rose to $5.42 billion, up 7.5% from the year-earlier quarter, and increased 2.3% from the previous three months to put the loans on track for an annualized 9.1% gain.

The bank’s net interest margin — the spread between what the bank generates in loans and pays out in deposits — rose 12 basis points to 3.17% over the previous three months but was down 14 basis points from the year-ago quarter. That year-earlier quarter included $8.6 million in net Paycheck Protection Program interest income and fees, compared with $700,000 in the current quarter.

Chief Financial Officer David Morimoto said the year-over-year comparisons for loan growth and net interest margin are skewed because of the impact that the PPP program had on earnings in the third quarter of 2021.

“The higher interest rates have slowed mortgage volumes because there is no refinance activity,” Morimoto said. “It’s really become a purchase market. I believe the Hawaii residential real estate market will fare much better than the mainland as it has in every other downturn. We just have the scarcity factor.

“We’re already seeing some of that in the third-­quarter numbers, where on the mainland, sales volumes and median sales prices are declining. In Hawaii the unit volumes are down versus a year ago, but median sales prices are still increasing — but they’re increasing at a slower rate. “

He said that’s an indication that the Hawaii real estate market will fare better than the rest of the nation.

“I think that plays well for Central Pacific because of our joint ventures with developers and real estate brokerages,” he said. “That’s the purchase activity. Generally, when refi activity declines, Central Pacific outperforms because of our joint ventures.”

Central Pacific kept its quarterly dividend at 26 cents a share. It will be payable Dec. 15 to shareholders of record at the close of business Nov. 30.

The bank’s stock closed Thursday down 67 cents at $21.82 ahead of today’s release of earnings.