Q3 2023 Central Pacific Financial Corp Earnings Call
Good afternoon, ladies and gentlemen, thank you for standing by and welcome to the centric Central Pacific Financial Corporation third quarter, 2023 conference call.
During todays presentation, all parties will be in a listen only mode.
Following the presentation the conference 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 Dot C. P B Dot bank.
I'd like to turn the call over to MS. Dana Matsumoto group's senior Vice President and director of Finance and accounting. Please go ahead.
Thank you Abby and thank you all for joining us as we review the financial results of the third quarter of 2023 for Central Pacific Financial Corp. With me. This morning are our known Martinez, President and Chief Executive Officer, David Morimoto, Senior Executive Vice President and Chief Financial Officer.
And Anna Hu, Executive Vice President and Chief Credit Officer.
We have prepared a supplemental slide presentation that provides additional details on our release and is available in the Investor Relations section of our web site at C. P. B Dot think.
During the course of todays call management may make forward looking statements. While we believe these statements are based on reasonable assumptions. They involve risks that may cause actual results to differ materially from those projected.
For a complete discussion of the risks related to our forward looking statements. Please refer to slide two of our presentation.
And now I'll turn the call over to our President and CEO are known Martinez.
Thank you Dana and Aloha everyone.
We appreciate your interest in Central Pacific Financial Corp.
As we normally do I'll start with an update on the Hawaii market.
Then I'll turn it over to the team to provide additional detail and insights on our financial and credit metrics as well as other key updates.
The wildfire in Lahaina Maui in August was devastating and I wanted to first thank our employees customers and all of you.
<unk> support.
While it will be a long road to recovery.
Louis is strong and resilient.
Central Pacific Bank is committed to servicing and supporting our Maui community through the forest.
We were fortunate that are behind our branch was impacted by the fires and reopened in late August which enabled us to help meet the needs of the community.
The Hawaii tourism industry has been affected by the Maui wildfires with a significant drop in visitor arrivals to Maui in August compared to a year ago.
With government officials now encouraging visitors back to Maui.
We hope the negative impacts will be short lived and Malawi visitor counts will return to normal.
Fortunately, we continue to see increases in visitors to the other islands and overall the Hawaii economy is expected to have limited impact.
In the month of August a total of 769000 visitors came to the state of Hawaii, which was down 7% from a year ago and 83% of pre pandemic levels.
Total visitor spending was 1.58 billion in August down nine.
Percent from a year ago and up 5% from August 2019.
Total statewide hotel occupancy in August was 74% down.
Down 3% from a year ago with an average daily rate of $370 down 4% from a year ago.
Hawaii statewide seasonally adjusted unemployment rate continued to decline the two 8% in September and is outperforming the national unemployment rate of three 8%.
Year over year statewide nonfarm payroll increased by 6600 jobs or one 1%.
Unemployment claims on Maui have surged following the fires, but is expected to gradually recede with government leaders focused on supporting businesses and reopening areas of west Maui unaffected by the fires.
I'll start.
Restart the island's economy.
Real estate values in Hawaii continued to hold up firmly.
Wahoo median single family home price remains at $1 1 million.
And the median condo sales price was 533000 in September.
While home sales volumes continue to be down year over year. There is still a strong demand and limited inventory with property staying on the market for a median of 20 days.
47% of single family homes sold at or above our original asking price in September.
An indication of the sustained demand and strength of Hawaii real estate real estate, despite mortgage rates, reaching levels higher than we've seen in the last 20 years.
Strong construction activity in Hawaii continues to drive economic growth.
Our Governor recently issued an emergency proclamation on housing that will help accelerate housing development.
The lack of inventory and affordable housing in the state.
Additionally, major infrastructure improvement projects as well as large federal military projects.
<unk> to be on the roadmap for the state.
On top of this Malawi reconstruction efforts will be a priority and the state will need to balance construction worker demand and a likely increase in construction costs.
In the third quarter, we continue our focus on growing relationship based deposits.
I am pleased that we were once again successful in growing total deposits.
As part of our strong risk management focus we continue to moderate loan growth, but with that said our loan portfolio of churn is resulting in favorable repricing and deposit costs continue to be managed at levels lower than our peers.
I'll now turn the call over to David Morimoto, Our Chief Financial Officer, David.
Thank you Arnold.
Turning to our earnings results net income for the third quarter was $13 1 million or <unk> 49 per diluted share.
Turn on average assets was 0.70%.
Return on average equity was 10, 95%.
And our efficiency ratio was $63 91%.
During the third quarter, we continued to strengthen our balance sheet and liquidity positions with a quarter end cash position in excess of $400 million.
In total deposit growth of $69 million.
Average total deposit balances also grew by $63 million.
Quarter.
Our loan portfolio remained relatively flat during the quarter as we selectively grew certain portfolios with appropriate risk reward opportunities and continue to add other portfolio has run off.
We remain on hold with our mainland unsecured consumer portfolio as we continue to monitor the national economic outlook and the ongoing performance of consumer lending.
We remain nimble and well positioned for future opportunities when the operating environment improves.
Net interest income for the third quarter was $51 9 million and decreased by zero point $8 million from the prior quarter, primarily due to higher funding costs.
The quarter over quarter decrease in net interest income continues to narrow as assets re price up in the pace of deposit cost increases subsides.
The net interest margin was 288% in the third quarter.
Decline of eight basis points sequential quarter.
Our total cost of deposits was 108 basis points in the third quarter and our cycle to date total deposit repricing beta was 21% which remains within our expectations.
With the current higher for longer interest rate forecast.
Fix we see float interest rate swaps that we put on last year continues to increase in value and will support our future earnings.
The swap payments will begin on March 31, 2024, and it is currently 340 basis points in the money on a notional balance of $115 5 million.
Third quarter other operating income was $10 million, which decreased by zero point $4 million from the prior quarter, primarily due to lower boldly income driven by equity market volatility and offset by lower deferred compensation expense.
Other operating.
<unk> expenses totaled 39 6 million in the third quarter, a decrease of zero point $3 million from the prior quarter.
The decrease was primarily due to lower salaries and employee benefits related to deferred compensation as well as the ongoing management of our FTE count.
Our effective tax rate was 24, 9% in the third quarter and we continue to expect it to be in the 24, 25% range.
Forward.
Our board of directors declared a quarterly cash dividend of <unk> 26 per share, which will be payable on December 15th to shareholders of record on November 30th.
Operator: Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the Central Pacific Financial Corporation 3rd quarter 2023 conference call. During today's presentation, all parties will be in a listen only mode.
Operator: Following the presentation, the conference will be open for questions. This call is being recorded and will be available for replay shortly after its completion on the company's website at www.cpb.bank.
During the third quarter, we repurchased a nominal 4500 shares at a weighted average price of $16 seven.
And now I'll turn the call over to Anna Hu, Our Chief Credit Officer Anna.
Thank you David our asset quality remained strong in the third quarter with nonperforming assets at nine basis points of total assets.
And criticized loans at 1.09% of total loans.
Dayna Matsumoto: I'd like to turn the call over to Ms. Dayna Matsumoto, Group Senior Vice President and Director of Finance and Accounting. Please go ahead. Thank you Abby and thank you all for joining us as we review the financial results of the third quarter of 2023 for Central Pacific Financial Corp.
The loan portfolio continues to be well diversified by loan type and industry sector over.
Over 75% of the loan portfolio is real estate secured with a weighted average loan to value of 60%.
Our commercial real estate portfolio represents 25% of total loans and is diversified across all asset types with 5% of this portfolio maturing over the next 12 months.
Arnold Martines: With me this morning are our known Martinez President and Chief Executive Officer, David Morimoto, Senior Executive Vice President and Chief Financial Officer, and Anna Hu, Executive Vice President and Chief Credit Officer. We have prepared a supplemental slide presentation that provides additional details on our release and is available in the Investor Relations section of our website at www.cpb.bank. During the course of today's call, management may make forward-looking statements. While we believe these statements are based on reasonable assumptions, they involve risks that may cause actual results to differ materially from those projected. For a complete discussion of the risks related to our forward-looking statements, please refer to slide 2 of our presentation.
Our CRE office and retail exposure remains low at three 5% and four 5% of total loans respectively.
The office portfolio has a weighted average loan to value of 55% and 73 weighted average months maturity.
Retail portfolio has a weighted average loan to value of 65% and 64 weighted average maturity.
The U S mainland loan portfolio declined in the third quarter to 16% of total loans.
Which included a continued decrease in the mainland consumer portfolio to $345 million or 6% of total loans as of September 30th.
Arnold Martines: And now I'll turn the call over to our President and CEO, our known Martinez. Thank you Dana and Aloha everyone. We appreciate your interest in Central Pacific Financial Corp. As we normally do, I'll start with an update on the Hawaii market, then I'll turn it over to the team, provide additional detail and insights on our financial and credit metrics, as well as other key updates. The wildfire in Lahaina Maui in August was devastating, and I want to first thank our employees, customers, and all of you for your continued support.
Our loan exposure to the Lahaina Maui area with a manageable $111 million or 2% of total loans before the wildfires in August.
Since then balances has paid down slightly to $107 million or one 9% of total loans.
We estimate that $78 million of the total Lahaina Maui loans outstanding was.
It was not impacted by the fires as of September 30th.
Additional updates continue to be collected from our borrowers.
Insurance FEMA and unemployment benefit assistance processing also continue.
Arnold Martines: While it will be a long road to recovery, Maui is strong and resilient. Central Pacific Bank is committed to servicing and supporting our Maui community to the fullest. We were fortunate that our Lahaina branch was unimpacted by the fires and reopened late August which enabled us to help meet the needs of the community. The Hawaii tourism industry has been affected by the Maui wildfires, with a significant drop in visitor arrivals to Maui in August compared to a year ago.
To support our borrowers we have provided three to six months loan payment deferrals and have granted total deferrals on 142 loans totaling $32 $7 million in balances.
Overall at this time, we do not anticipate material credit impacts in the Maui.
Arnold Martines: With government officials now encouraging visitors back to Maui, we hope the negative impacts will be short lived, and Maui visitor counts will return to normal. Fortunately, we continue to see increases in visitors to the other islands and overall the Hawaii state economy is expected to have limited impact. In the month of August, a total of 769,000 visitors came to the state of Hawaii, which was down 7% from a year ago, and 83% of pre-pandemic levels.
[laughter] wildfire and we will continue to monitor the situation.
Net charge offs were $3 9 million for the third quarter.
Equates to 28 basis points annualized as a percent of average loans.
The increase in net charge offs were primarily from our mainland unsecured consumer portfolio, which has lower recoveries.
We believe the losses are leveling off due to the seasoning of the portfolio and the performance remains within our original expectations.
Arnold Martines: Total visitor spending was 1.58 billion in August, down 9% from a year ago, and up 5% from August 2019. Total statewide hotel occupancy in August was 74% down 3% from a year ago, with an average daily rate of $370 down 4% from a year ago. A wide statewide seasonally adjusted unemployment rate continued to decline to 2.8% in September and is outperforming the national unemployment rate of 3.8%. Year over year, statewide non-form payroll increased by 6,600 jobs or 1.1%.
Our allowance for credit losses was $64 5 million or $1, one 7% of outstanding loans.
In the third quarter, we recorded a <unk> 5 million provision for credit losses.
Loans, primarily due to net charge offs.
Additionally, a zero point $4 million provision for unfunded commitments for a total provision for credit losses of $4 9 million during the quarter.
Overall.
Given our strong risk management culture, and history of conservative underwriting policies.
Loan portfolio remains well positioned to withstand the near term pressures from the environment.
We continue to monitor the economic environment closely and are being selective and thoughtful about the loans, we are adding to our portfolio now.
Now I'll turn the call back to Arnold.
Arnold Thank you Anna in summary, we continue to execute on our strategies as we navigate the current environment.
Our liquidity capital and credit remained solid and our teams continue to be focused on building relationships and serving our community.
Arnold Martines: Unemployment claims on Maui have surged following the fires, but is expected to gradually recede with government leaders focused on supporting businesses and reopening areas of West Maui unaffected by the fires to help restart the island's economy. Real estate values in Hawaii continue to hold up firmly. The Oahu median single-family home price remains at 1.1 million, and the median condo sales price was 533,000 in September. While home sales volumes continue to be down year over year, there is still strong demand and limited inventory with properties staying on the market for a median of 20 days.
Thank you for your continued support and confidence in our organization.
At this time, we will be happy to address any questions you may have.
Thank you.
If you would like to ask a question press Star then the number one on your telephone keypad.
Pressing star one a second time will remove your line from Q.
And we will pause for just a moment to compile the Q&A roster.
And we will take our first question from Andrew <unk> with Piper Sandler Your line is open.
Hey, good morning, everyone.
I wanted to take a look at the margin here.
Kind of right in line with.
Arnold Martines: 47% of single-family homes sold at or above original asking price in September, an indication of the sustained demand and strength of Hawaii real estate, despite mortgage rates reaching levels higher than we've seen in the last few years. Strong construction activity Hawaii continues to drive economic growth. Our governor recently issued an emergency proclamation on housing that will help accelerate housing development to address the lack of inventory and affordable housing in the state.
The guidance, you're still thinking that between.
380 is a good place to be here before maybe it bottoms out and maybe stabilizes next year.
Andrew This is Arnold, but ill just say good morning to you and then I'll pass it onto David.
Thanks, Doug.
Hey, Andrew.
Yes, yes, we are pleased with the margin performance within management's prior guidance I think the guidance for the next couple of quarters.
We are lowering the guidance range by a nickel or so $2 75 to $2 85 range, but where.
Arnold Martines: Additionally, major infrastructure improvement projects as well as large federal military projects continue to be on the roadmap for the state. On top of this, Maui reconstruction efforts will be a priority, and the state will need to balance construction worker demand and a likely increase in construction costs. In the third quarter, we continue our focus on growing relationship-based deposits, and I'm pleased that we were once again successful in growing total deposits. As part of our strong risk management focus, we continue to moderate loan growth, but with that said, our loan portfolio churn is resulting in favorable repricing and deposit costs continue to be managed at levels lower than our peers.
Cautiously optimistic that we can stay above $2 80.
And then as far as.
The trough in the NIM I think if.
The fed.
Stands Pat in the fourth quarter.
We're projecting the NIM trough, probably in the first quarter. If there is additional tightening.
That may get pushed out to the second quarter. So first half of 2024.
For the NIM.
Got it is it just.
Liabilities repricing faster than you when in fact, pushing down the NIM guide.
Yes, it's just it's being cautious again, it's being cautious and were hopeful that we can stay above 280.
Got it alright.
And then.
David Morimoto: I'll now turn the call over to David Morremoto, our chief financial officer. David? Thank you, Arnold. Turning to our earnings results. Net income for the third quarter was 13.1 million or 49 cents per diluted share. Director. Return on average assets was 0.70%. Return on average equity was 10.95% and our efficiency ratio was 63.91%. During the third quarter we continued to strengthen our balance sheet and liquidity positions with a quarter end cash position in excess of $400 million and total deposit growth of $69 million.
Loan growth.
Balances stable or you guys have been talking about stable balances for a while stable is that kind of the right place to look at it here continued payouts of the mainland book based on good at pretty good production locally in Hawaii.
I guess, how is the pipeline for the Hawaii production and is that going to be sufficient enough to offset those pay downs.
Yes, Andrew this is arnell, yes, youre right, we are continuing to moderate loan growth, we're being very selective.
David mentioned it in his prepared comments.
That we're looking for risk reward balance in this environment.
I would just add that.
David Morimoto: Average total deposit balance is also grew by $63 million sequential quarter. Our loan portfolio remained relatively flat during the quarter as we selectively grew certain portfolios with appropriate risk reward opportunities and continue to let other portfolios run off. We remain on hold with our mainland unsecured consumer portfolio as we continue to monitor the national economic outlook and ongoing performance of consumer lending.
Despite the fact that were remaining flattish I guess in loan growth, we do have about $150 million to $170 million of churn every quarter and we are replacing that with <unk>.
Market rate.
Loans.
Think the repricing from that aspect as well as just overall repricing of our loan portfolio.
He will help us over the next few quarters.
And iron ore if I, if I may add.
Andrew to give you some color new loan yields in the third quarter, our weighted average was seven 5% and that compares to the portfolio yield of four five so significant upward repricing similar in the investment portfolio new investment yields.
David Morimoto: We remain nimble and well-positioned for future opportunities when the operating environment improves. Net interest income for the third quarter was 51.9 million and decreased by 0.8 million from the prior quarter primarily due to higher funding costs. The quarter over quarter decrease in net interest income continues to narrow as assets reprice up and the pace of deposit cost increases upside. The net interest margin was 2.88% in the third quarter, a decline of eight basis points sequential quarter.
Opportunities to the extent, we're reinvesting is roughly 6% versus the portfolio investment yield of 210.
As Arnold mentioned nice nice repricing opportunities in the asset side of the balance sheet.
Got it.
Very helpful. Thanks for taking the questions here I will step back.
Thank you Andrew.
David Morimoto: Our total cost of deposits was 108 basis points in the third quarter and our cycle to date total deposit repricing beta was 21%, which remains within our expectations. With the current higher for longer interest rate forecast, the pay fix we see flow interest rate swap that we put on last year continues to increase in value and will support our future earnings. The swap payments will begin on March 31, 2024 and it is currently 340 basis points in the money on a notional balance of $115.5 million.
And we will take our next question from David Feaster with Raymond James Your line is open.
Hey, good morning, everybody.
Good morning, David.
Maybe just kind of following up.
On the higher for longer environment, I'm curious, how you think about balance sheet management.
Assuming we stay here and are higher for longer environment, you guys built some liquidity this quarter.
And I appreciate the margin discussion in the short run but.
Assuming we see.
<unk> stabilized in the first quarter hit that trough again, assuming we stay in this higher for longer type of environment. How do you think about the.
The pace of margin expansion.
David Morimoto: Third quarter other operating income was $10 million, which decreased by 0.4 million from the prior quarter primarily due to lower boldly income driven by equity market volatility and offset by lower deferred compensation expense. Other operating expenses totaled $39.6 million in the third quarter, a decrease of 0.3 million from the prior quarter. The decrease was primarily due to lower salaries and employee benefits related to deferred compensation as well as the ongoing management of our FTE account. Our effective tax rate was 24.9% in the third quarter and we continue to expect it to be in the 24.25% range. Point 4. Court.
Given the repricing dynamics that you talked about hopefully stabilizing funding costs.
Yeah, Hey, David.
David.
Yes, I think I think the margin expansion would be.
Moderator to begin with but.
But I think the wildcard there will be our ability to stabilize.
Deposit deposit balances and have it start to grow more consistently and.
Starting to see growth in more core deposit.
Deposit categories.
So if we can stay stabilize and start growing core deposits that may give us the opportunity to grow that to grow the loan portfolio a little more.
Returning to more normal type of loan growth and that will help the NIM expand so a lot of it depends on what happens on the liability side.
David Morimoto: Our Board of Directors declared a quarterly cash dividend of 26 cents per share, which will be payable on December 15th through shareholders of record on November 30th.
And Thats, maybe let's dig into that just could you talk about some of the trends that youre seeing on the core funding side, obviously, we're seeing more migration.
David Morimoto: During the third quarter, we repurchased a nominal 4,500 shares at a weighted average price of $16.7.
But I'd just be curious some of the underlying trends that are happening there how new core deposit pricing is just how you think about deposit balances going forward.
Anna Hu: And now I'll turn the call over to Anna Hu, Achieve Credit Officer. Thank you, David. Our asset quality remains strong in the third quarter with non-performing assets at nine basis points of total assets and criticized loans at 1.09 percent of total loans. Our loan portfolio continues to be well diversified by loan type and industry sectors. Over 75 percent of the loan portfolio is real estate secured with a weighted average loan to value of 60 percent.
In your conversations with clients and your.
Focus on gaining gaining share.
Yes.
Like the industry.
Ben.
Yes.
The deposit remix has continued.
The positive there is we see the rate of change.
Anna Hu: Our commercial real estate portfolio represents 25 percent of total loans and is diversified across all asset types with 5 percent of this portfolio maturing over the next 12 months. Our CRE office and retail exposure remains low at 3.5 percent and 4.5 percent of total loans respectively. The office portfolio has a weighted average loan to value of 55 percent and 73 weighted average months to maturity. The retail portfolio has a weighted average loan to value of 65 percent and 64 weighted average months to maturity.
Starting to moderate starting to slow.
DDA balances as a percent of total are returning back to 2019 levels.
So the risk of <unk>.
Migration is diminishing and.
I think that's what gives it gives us some some.
Cautious optimism on the net interest margin.
As far as deposit flows.
It is like like everywhere the battle for core deposits is real.
We are grateful that.
We have great customer relationships and we've been fortunate to deepen some of those relationships, while we have been able.
Anna Hu: The U.S, mainland loan portfolio declined in the third quarter to 16 percent of total loans which included a continued decrease in the mainland consumer portfolio to $345 million or 6 percent of total loans as of September 30th. Our loan exposure to the Lahina Maui area was a manageable $111 million or 2 percent of total loans before the wildfires in August. Since then, balances have paid down slightly to $107 million or 1.9 percent of total loans.
Are you able to grow some new relationships and we expect that to continue.
Okay. That's helpful and maybe just touching on the credit front.
You talked about.
Some of the stabilization it sounds like in the consumer book I'm just curious.
I know you guys sold some loans in the quarter just curious how you think about managing.
Credit and asset quality are there any additional loan sales that you're expecting and then just as.
Anna Hu: We estimate that $78 million of the total Lahina Maui loans outstanding was not impacted by the fires as of September 30th. Additional updates continue to be collected from our borrowers. Insurance, FEMA, and unemployment benefit assistance processing also continues. To support our borrowers, we have provided three to six month loan payment deferrals and have granted total deferrals on 142 loans totaling 32.7 million in balances.
As you look more broadly into your portfolio what are you watching more closely in gist.
Anything, causing you concern and your thoughts on proactively managing credit going forward.
David we'll turn to Ana to respond to your question Hi, David This is Donna.
So with regards to a brighter.
Outlook, we continue to focus on consumer we have been focused on watching the mainland consumer performance, but we're also watching the Hawaii performance.
Anna Hu: Overall, at this time, we do not anticipate material credit impact on the Maui wildfire and will continue to monitor the situation. Next charge off for $3.9 million for the third quarter, which equates to 28 basis points annualized as a percent of average loans. The increase in net charge off for primarily from our mainland unsecured consumer portfolio, which has lower recoveries. We believe the losses are leveling off due to the seasoning of the portfolio and the performance remains within our original ex.
There is also the Lahaina Maui wildfire in which we are continuing to work with our customers.
Not expecting significant impact there.
Watching with regards to the return of tourism.
And just the general.
Outlook for that island, specifically with me Heights that consumer portfolio. The rest of the portfolio continues to do well we are not in.
Staring with any aspects of the different product types that we currently have.
Yes.
Overall that yes, the focus is really on consumer both mainland and Hawaii.
Anna Hu: Foundation. Our allowance for credit losses was $64.5 million or $1.17% of outstanding loans. In the third quarter, we recorded a $4.5 million provision for credit losses on loans primarily due to net charge-off. Additionally, a $0.4 million provision for unfunded commitment for a total provision for credit losses of $4.9 million during the quarter. Overall, our given our strong risk management culture and history of conservative underwriting policies, our loan portfolio remains well positioned to withstand the near-term pressures from the environment.
Okay.
Thank you.
Yeah.
And there are no further questions at this time, so I will now turn the call back to Mr. Arnold Martinez for closing remarks.
Thank you Abbe and thank you very much everyone else for participating in our earnings call for the third quarter of 2023, we look forward to future opportunities to update you on our progress.
And ladies and gentlemen, this concludes today's call and we thank you for your participation you may now disconnect.
[music].
Anna Hu: We continue to monitor the economic environment closely and are being selective and thoughtful about the loans we're adding to our portfolio.
Yes.
[music].
Yeah.
Arnold Martines: Now, I'll turn the call back to Arnold. Arnold? Thank you, Anna.
Okay.
[music].
Arnold Martines: In summary, we continue to execute on our strategies as we navigate the current environment. Our liquidity capital and credit remain solid and our teams continue to be focused on building relationships and serving our community. Thank you for your continued support and confidence in our organization.
Yes.
[music].
Yes.
Yeah.
[music].
Arnold Martines: At this time, we will be happy to address any questions you may have. Thank you.
Operator: If you would like to ask a question, press star in the number one on your telephone keypad. Pressing star one, a second time, we'll remove your line from Q. And we will pause for just a moment to compile the Q and A roster.
Thanks.
Okay.
Yes.
[music].
Okay.
Okay.
Andrew Beesh: And we will take our first question from Andrew Beesh with Piper Sandler. Your line is open. Hey, good morning, everyone. I want to take a look at the margin here, kind of right in line with the guidance. Just still thinking that between North and 380 is a good place to be here before. Maybe it bottoms out and maybe stabilizes next year.
Okay.
Yes.
[music].
Arnold Martines: Andrew, this is Arnold, but I'll just say good morning to you and I'll pass it on to David. Thanks, Arnold. Hey, Andrew. Yeah, we are pleased with the margin performance, you know, right within management's prior guidance. I think the guidance for the next couple quarters, you know, we're lowering the guidance range by a nickel, so 275 to 285 range, but we're you know, cautiously optimistic that we can stay above 280. And then as far as, you know, the trough in the name, you know, I think if the Fed stands Pat in the fourth quarter, where we're projecting the name trough, probably in the first quarter.
Arnold Martines: If there is additional tightening, that may get pushed out to the second quarter. So first half of 2024 trough for the name. Got it. Is it just liabilities repricing faster than you've any thought to shing down the name guide? Yeah, it's just, it's being cautious. Again, it's being cautious and we're hopeful that we can stay above 280. Party. Got it. All right. And then on long growth, balance is stable. You guys will tell you what stable balance is for a while, stable-ish.
Arnold Martines: Is that kind of the right place to look at it here? Continue to pay off of the mainland book. You're right. We are continuing to moderate long growth. We're being very selective. Again, David mentioned it in his prepared comments that we're looking for risk-reward balance in this environment. I would just add that despite the fact that we're remaining flatish, I guess, in long growth, we do have about 150 to 170 million of turn every quarter, and we are replacing that with market rate loans.
Arnold Martines: So I think the repricing from that aspect, as well as just the overall repricing of our loan portfolio, will help us over the next few quarters. And Arnold, if I may add, Andrew, to give you some color, new loan yields in the third quarter, weighted average was seven and a half percent, and that compares to the portfolio yield of four and a half. So significant upward repricing similar in the investment portfolio, new investment yields opportunities to the extent where we are investing is roughly six percent versus the portfolio investment yield of four and a half. So as Arnold mentioned, nice, nice repricing opportunities in the asset side of the balance sheet. Got it. That's very helpful. Thanks for taking the question, I will step back. Thank you, Andrew.
David Feaster: And we will take our next question from David Feister with Raymond James. Your line is open. Hey, good morning, everybody. Morning, David, maybe just kind of falling up on the higher for longer environment. I'm curious, how do you think about balance sheet management, assuming we stay here in a higher for longer environment? You guys built some liquidity this quarter and appreciate the margin discussion in the short run. But, you know, assuming we, you know, stabilized in the first quarter, hit that trough.
David Feaster: Again, assuming we stay in this higher for longer type of environment, how do you think about the pace of margin expansion, given the repricing dynamics that you talked about, and hopefully stabilizing funding costs. Yeah, hey, David, it's on David. Yeah, I think I think the margin expansion would be moderate to begin with. But I think the wild card there will be our ability to stabilize deposit, you know, deposit balances and have it start to grow more consistently.
David Feaster: And start to see growth in more core deposit deposit categories. So if we can stabilize and start growing core deposits, that may give us the opportunity to grow the bit grow the loan portfolio a little more, you know, returning to more normal type of loan growth. And that will help the name expand. So a lot of it depends on what happens on the liability.
David Morimoto: Corp, David Morimoto, Central Pacific Financial Corp Corp, David Morimoto, Central Pacific Financial Corp, David Morimoto, Central Pacific Financial Corp, David Morimoto, Central Pacific Financial Corp, David Morimoto, Central Pacific Financial Corp, David Morimoto, Central Pacific Financial Corp, David Morimoto,[inaudible] Well, look for that island specifically with regards to our consumer portfolio. The rest of the portfolio continues to do well. We are not concerned with any aspects of the different product types that we currently have. So overall, yeah, the focus is really on consumer, both mainland and Hawaii. Okay. Terrific.
David Morimoto: Thank you.
Arnold Martines: And there are no further questions at this time, so I will now turn the call back to Mr. Arnold Martines for closing remarks. Thank you, Abby. And thank you very much everyone else for participating in our earnings call for the third quarter of 2023.
Operator: We look forward to future opportunities to update you on our progress. And ladies and gentlemen, this concludes today's call and we thank you for your participation. You may now disconnect.