Bank's parent sees quarterly profits fall

By David Butts
Advertiser Staff Writer

The parent of Central Pacific Bank reported an 11 percent drop in fourth quarter earnings as the costly battle to take over crosstown rival City Bank cut into its bottom line.

Central Pacific Financial Corp., which offered to buy City Bank in April, said it spent $10.6 million on the takeover effort in 2003, including $500,000 that it counted against profit in the fourth quarter. City Bank has rejected the offer.

Central Pacific also said it used the Act 221 technology investment tax credits to cut its state taxes by $1.4 million in 2003 and 2002. The act allows companies to write off investments in high technology companies. The bank invested in three Hawai'i companies, but declined to name them.

Central Pacific's net income for the three months through Dec. 31 was $9.1 million or 55 cents per share, compared with $10.2 million or 62 cents per share for the fourth quarter of 2002.

Central Pacific executives noted that earnings were up 2 percent for all of 2003, the fifth consecutive year of earnings growth. Net income was $33.9 million in 2003, up from $33.3 million in 2002. Earnings per share increased to $2.07 from $2.04 in 2002.

Clint Arnoldus, chairman, president and CEO, praised the bank's "solid performance in 2003."

The fourth quarter earnings per share beat analysts expectations by a few cents, and Central Pacific's share price rose 68 cents to close at $29.28.

Joe Morford, a bank analyst with RBC Capital Markets, said spending on the takeover bid did not damage the bank's core performance. "In the quarter, Central Pacific still earned a 19 percent return on equity and a 1.7 percent return on assets, and that's still impressive."

Fourth quarter earnings were down in part because the company benefitted a year earlier from a one-time gain of $1.4 million when it curtailed its defined-benefit pension plan, said Neal Kanda, chief financial officer.

Most of the money spent on the merger last year, $9.3 million, was capitalized, meaning it did not count against net earnings but instead counted as future assets. Only $1.3 million of the takeover expense counted against earnings in 2003, the company said.

The company said it expects earnings per share to grow by 5 to 7 percent this year, but that estimate does not include any expenses related to the takeover bid. Kanda said the merger is too fluid to try to predict what it will cost the bank this year.

The merger won federal regulatory approval in December and the state is scheduled to rule on it by Feb. 18. If the state gives its approval, Central Pacific will then need to win a vote of the banks' shareholders to go forward with the deal.

Reach David Butts at 535-2453 or dbutts@honoluluadvertiser.com.