Our economic news, and other people’s

Alex the Chief Loyalty Officer isn’t burying his face in his paws, but other executives at Central Pacific Bank must be wondering what they did to offend the banking gods.

They made a perfectly sensible strategic decision to both expand and diversify their bank by doing more lending outside Hawaii, specifically in California. Part of their thinking, one assumes, was that if the Hawaii economy went into a slump, any local financial setbacks would be mitigated by business on the mainland.

Only what happened was the opposite.

The Hawaii economy held up very nicely, thank-you very much, while California turned out to be one of the states hardest hit by the subprime mortgage default crisis.

That’s why, just days after glowing reports of Hawaii profits logged by Bank of Hawaii and First Hawaiian Bank, Central Pacific reported Tuesday that its third quarter profit was only about $9 million, half of what Wall Street expected.

Even this isn’t as bad as it sounds: profits fell because the bank made a multimillion-dollar provision for losses, not because of actual losses of that magnitude. In other words, they took a lot of money that in better times would have been profit, and set it aside just in case a lot more loans go south. It’s what banks do.

I’m going to interview CEO Clint Arnoldus on my public television show in a couple weeks and I fully expect him to say that if you broke out the Hawaii operations separately the bottom line would have been somewhat better.

First Hawaiian, by reporting its own operating results, is effectively doing that, since it’s owned by BancWest, which also owns the way bigger Bank of the West and thus has most of its operations on the mainland; and BancWest is in turn owned by Paris-based BNP Paribas, which has its own issues from time to time that don’t even involve the same currency we use.

If you saw my report on Friday’s KGMB9 News at 5, you know where I’m going with this — the Hawaii economy is currently (and often) very different from the mainland economy.

Mainland consumers warmed, probably warmed too much, to adjustable rate mortgages, even subprimes. Many people were aggressively sold mortgages they could never afford. These notes often began with low payments that they could make, but then ballooned to unpayably high rates. A crisis-load of these notes balloon at the end of the year and the mainland economy will be both shaken and stirred by this unless most of these people get serious credit counseling help, and I mean now.

It happened here, too — hundreds of people got into mortgages they can’t afford. But the total percentage of such loans is very small compared to the mainland, because Hawaii consumers, like Hawaii bankers, are more conservative and more suspicious of anything where the price leaps heavenward later.

So far the crisis may actually have been a net benefit to Hawaii. It doesn’t seem to have affected California tourist traffic to Hawaii in any appreciable way. And financial uncertainty has led to lower mortgage rates, perhaps propping up Hawaii home sales by keeping some homes from breaking through the affordability ceiling.

By the way, if you don’t follow stocks or banking closely, Central Pacific Bank is still in good health. All the local banks are.