Fallout from the subprime lending crisis sweeping the nation has so far left most Hawai'i banks relatively unscathed.

While problems in the nation's credit and mortgage markets have prompted major Mainland banks to write down tens of billions of dollars in securities and loans tied to the subprime mess, local banks tend to be conservative and have made very few subprime loans to local homebuyers.

The one notable exception is Central Pacific Financial Corp., which yesterday said it will take another hit from the downturn in California's real estate market.

The state's fourth largest financial institution said it will set aside $32 million to $34 million during the fourth quarter as a provision for potential loan losses from California homebuilders hard-hit by the subprime crisis.

Central Pacific said it expects to earn 10 cents to 14 cents a share for fourth quarter 2007, which is below analysts' expectations, and would be off from the year-earlier quarter's 61 cents.

Minus the provision, the company said it would have earned between 67 cents and 71 cents for the fourth quarter.

"Along with other financial institutions, we are dealing with deteriorating market conditions and credit weakness in a number of residential tract lending projects we financed in California," said Clint Arnoldus, Central Pacific's president and chief executive officer.

"Our Hawai'i operations are very strong and are showing no signs of being impacted by the events in California right now."

The company will announce its fourth-quarter and year-end results on Jan. 31.

Central Pacific said the fourth-quarter provision involves loans to about 33 homebuilders in California that have been hard-hit by the crisis.

Arnoldus said the bank expects the challenging conditions in California to continue "for the next several quarters" and added that the bank is committing to reducing credit risk in that market.

The bank's total exposure to the California homebuilding segment is about $340 million, which is less than 8.3 percent of Central Pacific's entire loan portfolio of about $4.1 billion.

The news comes after Central Pacific's earnings fell 55.8 percent in third-quarter 2007 from the same quarter a year earlier after it set aside $21.2 million for loan loss provisions.

At the time, Central Pacific downgraded 12 loans totaling $92 million to California homebuilders hard-hit by the subprime meltdown.

Both Bank of Hawaii and First Hawaiian Bank reported increased earnings in the third quarter. First Hawaiian Bank's year-over-year earnings rose 5 percent to $52.3 million in the third quarter, while Bank of Hawaii's rose 1.8 percent to $47.8 million.

Investors have been factoring in the negative news about Central Pacific's subprime lending exposure for some time. Shares closed down 13 cents yesterday at $15.10 on the New York Stock Exchange, and are down nearly 60 percent over the past year.

That compares with a 37 percent decline in the Standard & Poors' Bank Index during the same one-year period. Bank of Hawaii shares, which closed down 52 cents at $45.65 yesterday on the NYSE, are down just 13 percent from a year ago.

First Hawaiian Bank is not publicly traded.

In past quarters, Central Pacific's California operations have enjoyed rapid growth and have accounted for about 20 percent of the company's income.

Central Pacific said it intends to maintain its 25-cent-per-share quarterly dividend and will continue its stock repurchase program.

"The fundamentals and overall safety and soundness of our bank remain strong," Arnoldus said.

Reach Rick Daysog at rdaysog@honoluluadvertiser.com.