Central Pacific Bank posted strong loan growth and improved margins in the fourth quarter and said it expects Hawaii to hold up better than the rest of the country as the Federal Reserve continues raising interest rates to fight inflation.
The state’s fourth-largest bank was scheduled to announce this morning that its net income declined 9.6% from the year-earlier quarter but that its full-year core earnings jumped 45% over 2021 when Paycheck Protection Program interest income and fees, and changes made to the bank’s loan-loss reserve, are excluded.
“We had a tremendous fourth quarter,” said President and CEO Arnold Martines, who took over as CEO on Jan. 1 for Paul Yonamine, who retired. “It really ended the year well for us. Overall, 2022 turned out to be just an exceptional year for CPB from a performance perspective. … Our strategic pillars continue to be homeownership, small business, digital adoption and Japan market development … and, of course, continuing to stay connected to the community.”
Central Pacific Financial Corp., the holding company, reported net income of $20.2 million, or 74 cents a share, to beat analysts’ consensus estimate of 60 cents a share. That compares with net income of $22.3 million, or 80 cents a share, in the year-ago period.
The net income was affected by $571,000 that the bank set aside last quarter for potential loan losses, compared with a year earlier when CPB released $7.7 million from its loan-loss reserve to its income statement. In addition, the bank generated $100,000 in Paycheck Protection Program interest income and fees last quarter, compared with $4.7 million in the year-earlier period.
For the full year, CPB earnings fell 7.5% to $73.9 million, or $2.68 a share, from $79.9 million, or $2.83 a share, in 2021. However, the $6 million decline in net income was affected by two noncore items: its loan-loss reserve and PPP interest income and fees. In 2022 the bank had $3.6 million in net PPP interest income and fees, compared with $26.4 million for all of 2021 — nearly a $23 million reduction. Also, the bank released to its income statement just $1.3 million from its loan-loss reserve in 2022 after releasing $14.6 million in 2021.
“When you normalize for a change in provision and the change in PPP, if you exclude those two lines and you look at core earnings, the core earnings of the bank increased by $29.1 million, or 45%, year over year,” Chief Financial Officer David Morimoto said. “We think that’s a very impressive point.”
Loans rose 8.9% to $5.56 billion from the year- earlier quarter and rose 2.5% from the third quarter — an annualized increase of 10%.
“We’ve been growing at low double-digit annualized growth rates, and we do anticipate some slowing in 2023 as a result of the operating environment,” Morimoto said. “There’s higher interest rates, so residential mortgage growth is obviously very subdued. We do anticipate some slowing of the national economy, albeit we do expect the Hawaii economy to outperform due to tourism, military and construction.”
The bank’s net interest margin — the spread between what the bank generates in loans and pays out in deposits — improved 9 basis points to 3.17% from 3.08% in the year-earlier quarter. Its net interest income rose 6% to $56.3 million from $53.1 million in the year-earlier quarter.
Martines also said the bank will break ground shortly on a new Kahului branch that will take the place of an existing one. The new branch, at 145 Hookele Street, is less than 2 miles from the old branch at 85 W. Kaahumanu Ave. The new branch is anticipated to open in mid- 2024.
Central Pacific kept its quarterly dividend at 26 cents a share. It will be payable March 15 to shareholders of record at the close of business Feb. 28. The bank also announced that its board authorized the repurchase of up to $25 million of its common stock.
The bank’s shares closed Tuesday down 17 cents at $20.90.
FOURTH-QUARTER NET
$20.2 million
YEAR-EARLIER NET
$22.3 million
