Q1 2021 Central Pacific Financial Corp Earnings Call
Good afternoon, ladies and gentlemen, thank you for standing by and welcome to Central Pacific Financial Corp, first quarter 2021 conference call.
During todays presentation, all parties will be in a listen only mode. Following the presentation the call.
France will be opened for questions. This call is being recorded and will be available for replay shortly after its completion on the company's website at www, that's cheap P b that bank.
Like the turn the call over to Mr. David David Morimoto Executive Vice President Chief Financial Officer. Please go ahead.
Thank you.
And thank you all for joining us as we review financial results for the first quarter of 2021 for a central Pacific Financial Corp.
With me this morning, our polyol.
Chairman and Chief Executive Officer, Catherine NGO President.
Arnold of Martinez Executive Vice President and Chief Banking Officer, and out of his executive Vice President and Chief Credit Officer.
We have prepared a slide presentation that we will refer to in our remarks today. The presentation is available in the Investor Relations section of our website at TPB.
During the course of on todays call management May make forward looking statements. While we believe these statements are based on a reasonable assumption they involve risk that may cause actual results to differ materially from those projected.
For a complete discussion on the risk related to our forward looking statements. Please refer to slide two of our presentation.
And now I will turn the call over to Paul Thank.
Thank you David and good morning.
Everyone as always we appreciate your interest in Central Pacific Financial Corp. In the first quarter of 2021 Central Pacific completed several key milestones we completed a REIT in 2020 initiatives, which included the revitalization of our central Pacific part of the lobby.
On banking enhancements and other revenue and efficiency initiatives. Additionally, as we continue our commitment to the best in class digital banking technology in the first quarter, we implemented further upgrades and enhancements of our consumer online and mobile banking.
And we launched our new small business online banking.
Further this quarter, we launched a new online platform, our opening consumer deposit account the consumer term law.
During the first quarter Central Pacific stepped up again to support a small business community by originating over 3600, PPP loans totaling over $290 million.
We're proud of our hard working team of employees that have enabled us to accomplish the milestones and the result.
We continue to be a highly focused on building upon the success and achieving our financial targets.
Our financial results of the first quarter were very strong.
Highest quarterly pretax income since 2007.
We also continue to have solid asset quality liquidity and capital.
Based on a strong result, and financial position our board of directors the increased our quarterly cash dividend the 24 cents per share.
Like to now turn the call over to Catherine to provide an update on our state of the company's pandemic status Kathryn.
Thank you Paul.
The state of Hawaii is making progress towards economic recovery of unemployment rate declined 9% in March and while still elevated significantly down from a peak of 22% in April of last year on.
Tourism industry is returning with a safe travel a program running well and the potential for a vaccine passport program starting in the late summer.
Is it a horizon have recently been averaging nearly 20000 per day or about two third of pre pandemic levels.
Real estate in Hawaii continues to be extremely strong with the median price for a single family home on Oahu, hitting a record high of $950000 of March.
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The state of Hawaii continues to have a very low COVID-19 infection rate with the lowest the case rate in the nation on a per capita basis.
A vaccination progress at both a quite good with over 30% of a resident fully vaccinated or at least putting a eight state of the nation.
With the strong that this day.
<unk> continued a fully reopen.
A central Pacific, where a D and essential service and therefore, our employees are given access to the COVID-19 vaccination, starting in March and many of them fully vaccinated.
I'd like to turn the call over now the Arnold Martinez.
I can give vice president and Chief Banking Officer Arnold. Thank you Catherine and the first quarter of our total portfolio decreased by 174 million, primarily due to the new round of PPP loans originations net.
I'll keep it all on originations we grew our commercial construction commercial mortgage and home equity portfolio, which was offset by declines in a commercial and industrial residential mortgage and consumer loans.
A new round of a PPP loan origination Q1 required off the ship resources and attention to supporting our business customers with respect to draw a PPP applications and.
In Q1, we processed over 3600 <unk>.
On the totaling over 290 billion.
Which represented over 50% loans, we've funded in 2020.
Concurrently R&D continued to assist our existing PDP borrowers.
By the gives you on the FTE, resulting in approximately 100 million.
A lot.
To date inclusive of forgiveness application, it's a process in 2020 and through March 31.
We have processed over 3600 forgiveness application, resulting in a 234 million in PPP loan Paydowns.
Our team continues to engage in support of our small business customers.
The.
With a broader banking product and service offerings to date, we have expanded banking relationships the approximately 20% of the new two CBB small business customers.
For a deposit through the first quarter decreased by 400 annually or about 8% sequentially.
Which was supported by a PPP loan funding and other of the government business.
Additionally, our cost of the total deposits declined by three basis points on the prior quarter.
Hum.
The two six basis points.
And the economic recoveries of Hawaii extraction, our bankers will continue to engage and support our customers.
The all of a healthy pipeline of new business for the bank.
Now I would like to turn the call over to art.
The Vice President and Chief Credit Officer provide details of our credit portfolio risk management activities.
Yeah.
Thank you Arnaud.
March 31st a loan portfolio totaled $5 $1 billion, and 53% consumer and a 47% of commercial.
On at least 78% of the total loan portfolio, excluding PPP balances is real estate secured.
At quarter end of the total balance of loans on the payment deferrals declined significantly by $87 million sequential quarter of $39 $5 million narrowed by 9% of the total loan portfolio. Excluding P. P. P Valley.
Additional payment deferral of work provided on residential loans kind of consumer loans.
We anticipate continuing to provide us a sense through the payment plan and non modification over the next several months.
We had no payment deferrals in our commercial real estate and commercial and industrial loan portfolio at quarter end.
Auto loans on payment deferral further declined to $32 $5 million on Saturday.
Right.
During the quarter criticized loans declined by $10 $5 million sequential quarter to 181 $7 million, a 4% of the total loan portfolio, excluding the P. P P balances.
Special mention loans declined by $14 $7 million 127 $8 million on.
Two 8% of the total loans portfolio, excluding P. P P balances.
Classified loans increased by $4 $2 million at $53 $9 million, a one 2% of the total amount.
On our polyol, excluding PPP balance.
The decrease in special mention loans, primarily due to volume.
Upgraded as a result of in person and a borrower's operating performance.
The increase in classified loans are primarily due to residential and several of them.
We continue to monitor a bar and a high risk industries of foodservice on accommodation or $44 million.
Special mention and $8 million and training.
Approximately 27% of tunnel as Sean mentioned balances and 8% of total classified balances also let me see PPP loans.
Additional details on our high risk industries.
[laughter].
And those rated special mention a classified can be found on slide 11, 13 and 14.
Overall, our asset quality remains strong and we expect to see continued improvement in our loan portfolio.
I'll now turn the call over to David Barter model, our executive Vice President and Chief Financial Officer.
And then.
Okay. Thank you Adam.
Net income for the first quarter was $18 million or 64 cents per diluted share.
Return on the average assets in the first quarter was 1.07% and return on average equity was 13.07%.
Net net net interest income for the first quarter was $49 8 million, which decreased from the prior quarter, primarily due to less recognition of PPP D. A.
Due to lower forgiveness.
Net interest income included $5 $2 million on PCP net interest income and net loan fees compared to $6 3 million in the prior quarter.
At March 31st on earned net PPP or round, one of two was $5 $8 million.
On the floor round three once a <unk> $5 million.
The net interest margin decrease of $3, one 9% in the first quarter compared to $3 32 in the prior quarter the.
The decrease was due to the lower PPP fee income recognition as well as lower loan yields the net interest margin normalized for PPP was 312% in the first quarter compared to $3 one seven in the prior quarter.
First quarter of other operating income total $10 $7 million compared to $14 1 million in the prior quarter.
The decrease was primarily due to lower mortgage banking income of $2 5 million and lower income from bank on life insurance of zero point $4 million.
Other operating expense for the first quarter was $37 $8 million, which was a decrease of $6 8 million compared to the prior quarter.
The prior quarter included one time expenses totaling $5 9 million.
The in the current quarter zero point $8 million, a PPP loan origination costs were a deferred from salaries and benefits.
The efficiency ratio decreased to 62, 5% in the first quarter compared to 68, 2% of the prior quarter, primarily due to the onetime expenses in the prior quarter.
Net charge offs of the first quarter total of zero $7 million.
Compared to net charge offs of one 8 million in the prior quarter.
At March 31 of our allowance for credit losses was 81 $6 million or 180% of outstanding loans, excluding the PPP loans.
This compares to 183%.
As of the prior quarter end.
In the first quarter, we recorded a zero point $8 million of credit to the provision for credit losses due to improvements in the economic forecast utilized in our CFO methodology.
The effective tax rate was 23, 2% in the first quarter, a slight decline from the prior quarter as we recognized the benefit of Florida capital loss carry backs.
Going forward, we expect the.
The tax rate to the end of 24% to 26% range.
Our liquidity and capital position remains strong and we continue to perform robust stress testing.
Finally, as Paul noted earlier, our board of directors declared a quarterly cash dividend of <unk> 24 per share, which was the increase from the 23 cents in the prior quarter.
Thanks, and now I'll return the call to Paul.
Thank you, David and summary, Central Pacific has a solid.
Financial credit liquidity and capital position and we continue to make positive forward progress on a strategy.
Further we remain committed to providing support to our employees customers and the community as we progress through the economic recovery.
On behalf of of our management team of employees. Thank you for your continued support and confidence in our organization at this time, we'll be happy to address any questions. You may have thank you.
We will now begin the question and answer the question to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time of a pause momentarily to assemble a roster.
Our first question is from David from Raymond James Go ahead.
Hi, Good morning, everybody Hey, David.
I just wanted to start out on growth it sounds like you know the.
The PPP program, where it was a distraction in the quarter just just curious how originations have trended how the pipeline's shaken a shaping up heading into the into the second quarter and then.
Just you.
You know, maybe where youre seeing demand on any kind of a pulse of the client the.
Customer.
David.
Before I pass it on there our R&R.
Our non Martina is our chief banking officer.
Just also as you probably know first quarter is always.
Slow start quarter to begin with but despite all of that again the whole team working hard on the PPP loans I think BBB continues to win the oil and recognition of the community. We continue to bring them over a new accounts into the bank and what I can tell you.
We have been in previous call.
We're still very committed the Ms business.
High single digit growth on loans for the balance of the year, but let me am Arnold on perhaps a little bit more about our pipeline and some other detail Arno, yes. Thanks, Tom Thanks, Paul.
We feel very good about our pipeline pipelines really healthy, particularly in the.
Our CRE area a rent the residential production in the first quarter was really strong as you mentioned.
The overall.
Oh.
Outlook for all of our portfolio with regard to CRE Randy a law.
Looking at the starting.
We see the market conditions, improving a weird.
Looking at the starting our consumer lending in the.
Hawaii, our small business lending, we feel pretty good.
Moving into the year that we're going on.
A piece of nice.
Loan growth.
As we progress through the course.
Okay. That's helpful and I guess what was it.
In that pipeline how much of this you talked about the new customer acquisition from PPP.
Do you have any sense of how much of a new quiet acquisitions on the new hires.
And the PPP program because of just increased.
You know the sentiment among your investor base.
The improved economic outlook.
Yes, so on the on the PDP.
Non customer conversion as you guys. As you know we did we just did a.
Great job last year with the PPP.
And all of the.
The new client net.
We were able to bring in Florida.
We've already converted about 20% of those customers to CBD and that and that's the trend.
<unk> leading to.
Deposit growth.
On the $45 million to $60 million range for us.
Yeah.
A very focused at birth.
On converting more of these customers throughout this year and I do believe.
To your point that moving to see some nice new customer acquisition as a result, some really really nice.
Is this for the bank and the.
It is a good Paul.
Let me just kind of chime in as well so I think in this first quarter, we've seen a lot of new accounts as a result of a lot of of the PPP work that Arnold a reference and we've definitely seen.
As a result of that and now as we continue to harvest things on the economy. Returning a were quite hopeful that we'll be seeing some growth in other areas of banking so a.
I think again.
Right on course.
Okay. That's good color and then I guess as with all of this excess liquidity. It sounds like organic growth has come in but just any thoughts on potential loan purchases. The supplement the organic growth and then I guess just taking it all together I guess you know how do you think about the the core NIM going forward do you think we can.
And kind of stay on that three of five 315 realm.
Net where we're kind of approaching a trough as growth accelerates.
On an earning asset mix improves a bit.
Did you mean, the stock purchase stock repurchase of the loan purchase.
One pool of purchase Alright, David do you want to take that yeah.
So as you know, but based on a cash tissue, we always consider on the.
The mainland some mainland purchases portfolio of purchases to augment our Hawaii originations.
That's always an option that will will there be a ourselves of the.
The risk reward opportunity is there a relative to what we're seeing locally.
So that is always available and then the second part of your question on the net interest margin core net interest margin ex.
Excluding PPP.
The guidance remains the same consistent with prior quarter that you mentioned the $3 five 350 net of PPP, we're still a whole pool that we can have the net interest margin the core net interest margin trough.
All in a.
Middle of this year.
Just to give you a little more color so the the rig.
Ported NIM was down 13 basis points, we told we disclose that eight basis points of that was related to less PPP fee income due to a slower forgiveness.
The remaining by about one to two basis points of that is due to excess liquidity on the balance sheet. So really the balance sheet, we pricing is down to a three to four basis point sequential quarter. So we're getting close.
Okay, that's great color thanks, everybody.
Thank you David.
The next question is from Brad Jackie Bohlen from K B W. Go ahead.
Hi, good morning, everyone.
Good day starts.
And then.
Balance sheet management as it relates to capital I mean, obviously, you're having tremendous deposit growth and that's increasing the balance sheet. So just wondering how.
How youre thinking about that number one and on number two if it had any impact on no share repurchases in the quarter or if there were other factors at play out of that.
Hey Kids all day.
David Yes.
Obviously a.
Very strong deposit growth deposit and loan growth.
As you can tell of the deposit growth exceeded it goes beyond just the PPP.
The deposits PPP loan origination deposit so there was definitely some organic deposit growth at a.
All reference to.
All of that plays into the capital of decision making.
Even with a balance sheet being where it is just shy of north of 7 billion. We still believe we have some excess capital.
And we are looking to restart a report.
Just fine.
Hey.
Yes.
The greed too which is utilized is going to be.
Management's discretion, obviously, it's going to be a function of share price.
Our outlook for the balance sheet point all of it but we are thinking.
Of note the ourselves of that opportunity that that lever on a capital management going forward, we are getting more comfortable with the economic outlook.
Hi, Jonathan This is Paul I'll, just add to that.
On the Spike in tourism has really kicked in.
The spring break price.
I mean, it was still.
What the flow and so you know a lot of the economic indicators for Hawaii, a very positive now but that was really just within the last month or so so.
So looking forward a David mentioned.
Repurchases are definitely back on the table.
And just wanted to add that color.
Okay, great. That's good color that it's the only within the last month that things are looking more positive.
Just you know in terms of flow and I realize this is probably next to impossible to predict but.
I know in the past, we've talked about the potential for PPP.
Part of that outflows to mirror, a PPP loan forgiveness, obviously with the new stimulus. It makes it challenging the kind of look at those trends.
But just wondering if you're seeing the anticipated outflow that you might've expected or if those deposits are proving to be a little stickier.
Yes, Jack is the darnall.
We're seeing some nice organic growth.
Obviously, some outflows in the in the deposit portfolio given that the small business, they're going to spend some of the money.
But no we are seeing some nice really nice organic growth.
I would say that.
This is a real rough rough number of but in Q1.
Probably looking at a weird.
Thinking it's about a 170 million roughly on all of those because the mine piece and so we feel pretty good about the the difference being a really strong.
Well again, a small gain momentum for us, although I will say as a caveat there will continue to be some outflows in the coming quarters given given the.
And the expectation that people will continue spending money and obviously some of the stimulus money will.
So a lot of as well.
Okay. So it sounds like then and obviously you know I'm looking at on an absolute basis deposits up 7%, but it sounds like that's a factor of some outflows related to 2020, a PPP, obviously inflows from 'twenty to 'twenty, one PPP, but also some quite organic growth as you convert some of those 2020 customers over against COVID-19.
License yet.
That's a let up.
That's correct.
Jackie the all again, we are we are still a looking forward to mid single digit growth in deposits for the year, So and now with the economy coming back hopefully.
The businesses will further stimulate them and we can work from there.
Okay.
Great. Thank you everyone.
Thank you.
If you have a question. Please press Star then one.
Our next question is from Andrew Liesch from Piper Sandler go ahead.
Hi, good morning, everyone. Good morning.
D a.
The follow up question on the the mortgage perhaps the news that was pretty strong at the $300 million.
It looked like the portfolio declined in the mortgage banking revenue.
A decline as well on is a little bit short of my forecast I guess, what some of the the trends youre seeing on the mortgage front the gain on sale number come back I got a portfolio of more of the residential production, where a how does that all shake out.
Yeah, Andrew this is Arnold.
Hum.
Clearly as you know the gain on sale of a function of what we sell versus what the portfolio.
In looking at the Q2.
The overall of the production is gonna be a really strong we're looking at.
260 to 70 million production.
As far as gain on sale were probably looking into a one and a half the 3 million range.
But again you know it's a function of.
Of what we what we decide to a portfolio versus what we sell a.
Based on what we're seeing in the marketplace and our views of the of the future.
Got it what what are you seeing on a gain on sales spreads of those narrowed at all.
The spreads on.
All of ours are starting to normalize.
So we are seeing some normalization in the in the spreads and true okay.
Great. That's helpful and then a member of a slate of expenses on the <unk>.
Quite nicely on a core basis, obviously some of that was from the deferred comp but.
Is this a good if I add that back in maybe 38 and a half million. It is this a good run rate to use them going forward or the.
Think of expenses could could rise from here as the economic activity comes back to when you have more a customer transactions.
Yes, we can.
Continue to guide to a 39% of $41 million.
Yeah.
I have to say that no one thing we've done during the pandemic as.
Demonstrated on a lot of a restraint on how we spend.
Whether it be on head count.
The other expenses.
But we're still in line with the $39 million to $41 million.
Got it.
That's really helpful.
Covered all my other questions. Thanks, so much I'll step back thank you.
Our next question is from Laurie Hunsicker from Compass point go ahead.
Yeah, Hey, thanks, good morning.
I mean, I'm just down to one one question, obviously noticed the and I know Cory deferrals.
Fabulous I just want to confirm the.
To the extent that loans have returned to partial payment of meaning there are interest only deferrals are those included in the deferral number.
Yeah. So on.
Well the numbers that are down to $39 5 million is primarily non non forbearance, so loans that have reinstated a return.
Our non and that number is that the question you're asking here.
No. So if you've got alone that was previously on deferral and now it's back on it but its interest only is that interest only on deferral or is that no longer counted in the Pearl and your card.
Yeah, it's no longer counted.
It wouldn't be part of interest sounds like the okay. So just so I'm clear interest on lease are no longer counted on deferrals.
Correct.
Okay. Okay. That's.
That's it thank you very much.
Lori Thanks Laurie.
Yeah.
This concludes our question and answer session I would like to turn the conference back over to Paul No not by me.
For closing remarks thank.
Thank you for the call you on the meaning.
Thank you very much everyone for participating in our earnings call for the first quarter of 2021, we look forward to the future opportunities. The update you on a progress. Thank you.
The conference has now concluded. Thank you for attending to the presentation you may now disconnect.