Mortgage banking income powers Central Pacific Bank earnings

Central Pacific Bank, fresh off the unveiling of its newly renovated downtown headquarters building, continued its momentum by trouncing analysts’ fourth-quarter earnings estimates as its mortgage banking income soared.

The state’s fourth-largest bank said an increase in
refinancings, and fees collected from mortgage sales, more than tripled its mortgage banking income from the year-earlier quarter to
a record $5.4 million from $1.4 million. It gained 25.1% from $4.3 million in the third quarter.

“It was a record quarter for mortgage banking income for the company,” Central Pacific Chief Financial Officer David Morimoto said in a phone interview ahead of the company’s earnings report due out today. “We looked as far back as the financial crisis. It is attributed to the hard work of the mortgage banking team working very long hours seven days a week to help customers with refinancings to reduce our customers’ mortgage loan rates and improve their financial position.”

He said the results were a function of the hard work of the team combined with the lower market interest rates.

“We make about $6-7 million in a normal year, and in the fourth quarter we made $5.4 million,” Morimoto said. “So that kind of puts it in perspective. The biggest driver of the $5.4 million was gains on sales of mortgages to Fannie Mae and Freddie Mac.”

Parent company Central Pacific Financial Corp.’s
net income fell 14.3% to $12.2 million, or 43 cents a share, to easily beat analysts’ forecast of 35 cents
a share. A year earlier
Central Pacific earned
$14.2 million, or 50 cents a share. The fourth-quarter earnings were nearly double the $6.9 million earned in the third quarter.

The bank set aside
$4.5 million for potential loan losses to bring the amount added to its reserve for the year to
$39.1 million. But the loan-loss provision by the bank was the smallest of any of
its four quarters in 2020.
In the fourth quarter of
2019, the bank recorded
a loan-loss provision of
just $2.1 million.

“It was a strong quarter and a strong year, given COVID and given that 2020 was a year of investment for us,” Central Pacific President Catherine Ngo said in an interview. “Our credit quality metrics continue to be strong, and in the quarter we saw a further decline on loan forbearances or deferrals, which is an indicator of credit quality.”

Ngo said a significant component in calculating the amount of the loan-loss provision is the economic forecast.

“Per the economic forecast, we’re cautiously
optimistic we’ll see improvement in the coming year, but it might be in the latter half of the year,” she said. “With the rollout of the vaccine and herd immunity, we’ll see an uptick in visitor arrivals, and, as we know, a significant component of our economy is the level of visitor spending.”

For the year, Central
Pacific ‘s net income fell 36.1% to $37.3 million,
or $1.32 a share, from
$58.3 million, or $2.03 a share, in 2019.

Loans rose 11.6% to
$4.96 billion from $4.45 billion, driven by the origination of Paycheck Protection Program loans that totaled a net $416.4 million. The bank said loans on forbearance or deferral declined by 58.7% to $120.2 million, or 2.4% of the total loan portfolio, as of Dec. 31, compared with $290.8 million, or 5.8% of
the total loan portfolio, as
of Sept. 30.

Deposits rose 13.2% to $5.8 billion.

Assets rose 9.7% to
$6.59 billion.

The bank also approved a new share repurchase authorization of up to $25 million following a year in which nearly all banks across the country suspended their stock buyback programs due to the COVID-19 pandemic. The bank’s existing $30 million authorization expired
Dec. 31.

In addition, Central Pacific declared a quarterly dividend of 23 cents a share that will be payable March 15 to shareholders of record at the close of…