Q3 2024 Central Pacific Financial Corp Earnings Call
Speaker Change: Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the Central Pacific Financial Corps 3rd quarter of 2004 conference call. During today's presentation, all parties soon will be in the listen-all demod. Following the presentation, the conference will be open for questions.
Speaker Change: Discolyce being recorded and will be available for replay. For the after-its completion in the company website at www.cpb.bank, I'd like to turn the call over to Mr. Matsumoto. Group SVP, Director, Finance and Accounting. Please go ahead.
Mr. Matsumoto: Thank you, John, and thank you all for joining us as we review the financial results of the third quarter of 2024 for Central Pacific Financial Court.
Speaker Change: With me this morning are our known Martinez, Chairman, President and Chief Executive Officer, David Morimoto, Senior Executive Vice President and Chief Financial Officer.
Speaker Change: Anna Hu, Executive Vice President and Chief Credit Officer, and Ralph Misek who recently joined us as Senior Executive Vice President and Chief Risk Officer.
Speaker Change: 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 cpb.bink.
Speaker Change: During the course of today's call, management may make for 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.
Speaker Change: For a complete discussion of the rest related to our forward-looking statements, please refer to slide two of our presentation.
Speaker Change: And now I'll turn the call over to our chairman, president and CEO, Arnold Martines.
Arnold Martines: Thank you, Dayna and Aloha, everyone.
Arnold Martines: We appreciate your interest in Central Pacific financial core and we are pleased to share our latest updates and results with you.
Arnold Martines: Let me start by introducing Ralph Misek, which joined our Executive Team, a Senior Executive Vice President and Chief Risk Officer.
Arnold Martines: With nearly 40 years of broad experience in the financial services in the...
Arnold Martines: History, here in Hawaii, Ralph's expertise will be invaluable in managing the risk and regulatory environment as we continue to grow into the future.
Arnold Martines: Shifting now to the third quarter.
Arnold Martines: We continue to achieve improvement in key areas of our balance sheet.
Arnold Martines: with meaningful name expansion and quality positive growth, as well as continued strongly quickly, equity, acid quality and capital positions.
Arnold Martines: given the broader economic and rate of farming.
Arnold Martines: Long-grown remain challenged, but with great starting to move down, we see positive trends developing.
Arnold Martines: Our results this quarter included 3.1 million in pre-tax expenses.
Arnold Martines: Related to our evaluation and assessment of a strategic opportunity.
Arnold Martines: While the parties are no longer currently engaged in discussions
Arnold Martines: We remain interested in the opportunity under the right terms and conditions.
Arnold Martines: Overall, our car trends are favorable, and we remain confident in future growth opportunities.
Arnold Martines: An our ability to successfully navigate and capitalize on the changing economic landscape.
Arnold Martines: During the quarter, we also opened a new state-of-the-art branch in Kahalui, Maui.
Arnold Martines: The branch is well equipped to serve the consumer and business needs of the Maori community.
Arnold Martines: and will create ongoing opportunities for growth in this key market as we look to expand our presence on the Navy Islands.
Arnold Martines: We continue to monitor the market conditions in Hawaii and remain optimistic about the resilience of our local economy.
Arnold Martines: Hawaii is expected to have stable growth with continued strength in the construction industry.
Arnold Martines: and the TURISM sector.
Arnold Martines: The Hawaii Construction Industry generated 11.8 billion in 2023.
Arnold Martines: A 10% increase for the prior year.
Arnold Martines: In the first seven months of 2024, the value of private building permits increased 19% and the number of residential units authorized were over 50% compared to the prior year.
Arnold Martines: On the visitor front, year to date through August.
Arnold Martines: Total Statewide visitor arrivals were down 2.2% from the prior year and were about 92% of pre-pandemic levels in 2019.
Arnold Martines: Visitors from Japan were up 38% from a year ago, yet remained about 45% of the first 8 months in 2019.
Arnold Martines: For the island of Maui, total visitors year to day through August were about 83% of the prior year.
Arnold Martines: A wise state wide, seasonally adjusted unemployment rate remained very low at 2.9% in September
Arnold Martines: and continues to all perform the National Onent Climate Rate of 4.1%.
Arnold Martines: Hawaii Real Estate values remained strong.
Arnold Martines: The Oahu Median Single Family Home Price was 1.1 million in September.
Arnold Martines: Refacting a year over year increase of 6%.
Arnold Martines: Home sales volumes here to date were up 5.8% for single-family homes.
Arnold Martines: A down 5.6% for candles compared to the prior year.
Arnold Martines: With home and Ventaries increasing.
Arnold Martines: I'm buying with a gradual decline in mortgage rates
Arnold Martines: More buyers who are on the sidelines may be encouraged to re-enter the housing market.
Arnold Martines: Overall, a Y's economy is robust and well positioned for strong growth in the coming years.
Speaker Change: I'll now turn the call over to David Morimoto, our Chief Financial Officer. David?
David Morimoto: Thank you, Arnold. Turning to our earnings results, that in comfort of the third quarter was 13.3 million or 49 cents per diluted share.
Speaker Change: Excluding the 3.1 million in pre-tax expenses related to the strategic opportunity.
Speaker Change: Net Income and diluted EPS were 15.7 million and 58 cents respectively.
Speaker Change: In the third quarter, total loan portfolio decreased by 41 million or 0.8% sequential quarter.
Speaker Change: Girls continues to come from commercial real estate and CNI portfolios, offset by runoff in the other loan types.
Our total deposit portfolio remain relatively flat sequential quarter.
Speaker Change: Importantly, we did see a favorable deposit mix shift with a reduction in our higher cost of a moment times the deposit of $69 million offset by an increase in court deposits and other time deposits.
Speaker Change: Average balances of non-interpreying, day to day deposits were fairly flat, sequential quarter, and remains at 28% of total deposits.
Speaker Change: Net Interest income for the third quarter was 53.9 million dollars and increased by 1.9 million from the prior quarter.
Speaker Change: The net interest margin was 3.07% up 10 basis points sequential quarter.
Speaker Change: The net interest income and near-mix pension were driven by the increase in yields on our investment securities and low-one portfolios.
Speaker Change: While our pasta funds remain relatively stable.
Total costs are the positive, decreased by one basis point to 1.32% in the third quarter.
Speaker Change: Other operating income for the quarter increase to $12.7 million, primarily due to a higher bank owned life insurance income.
Oli income is impacted by equity market fluctuations and is typically offset by higher deferred compensation expenses.
Speaker Change: The normalized runway on total other app reading come is approximately $12 million quarterly.
Other operating expense, totaled 46.7 million in the third quarter, which included the 3.1 million in expenses related to the strategic opportunity.
Additionally, salaries and benefits and directors deferred compensation expenses were hired during the quarter, primarily due to timing and market fluctuations.
The normalized runway on total other operating expense is approximately $42 million, quarterly.
Speaker Change: Our effective tax rate was 22% in the third quarter.
and benefit it from higher tax exempt, Bowley income and more low income housing tax credit.
We believe the effective tax rate will be in the 22 to 24% range going forward.
Speaker Change: We did not report just any shares in the third quarter.
Speaker Change: Our Board of Directors declared a quarterly cash dividend of 26 cents per share, which will be payable on December 16.
Who share hold as a record on November 29th.
I'll now turn the call over to Ralph Misek, our Chief Risk Officer. Thank you, David.
Ralph Misek: Let me start by expressing my gratitude to everyone here at CPB for welcome me to the bank.
I'm particularly thankful for Anna Hu's support and partnership in the risk organization. I've known Anna for a long time and she's an exceptional banker. We're lucky to have her serving as the Bank's Chief Credit Officer. I look forward to working with her and the rest of the management team.
Ralph Misek: and we build our capacity to grow thoughtfully and intentionally.
Speaker Change: With that, let me turn your attention to our slides covering credit and make a few comments.
Our bank continues to enjoy strong acid quality and acceptable credit cost going into the final month of 2024.
Speaker Change: For the third quarter, the banks net charge offs with $3.6 million, or $27 basis points annualized on average loans.
Speaker Change: This represents a one-basic point decrease from the prior quarter.
Speaker Change: Non-performing assets were $11.6 million or 16 basis points of total assets at quarter-end, a slight increase from the prior quarter. The increase was related to just a few residential mortgages.
placed on Nonacrule. The classification of these loans related to bar specific life events rather than issues that might suggest broader systemic concerns.
Asked du Lones 90 days plus still three basis points from the prior quarter to just one basis point.
and Criticized Commercial Loans were 62 basis points down 4 basis points.
Speaker Change: Our allowance for credit loss was $61.6 million, or $1.15% of outstanding loans. In the third quarter, our provision expense was $2.8 million.
Representing a $3 million ad to the allowance, offset by a reduction in amounts reserved for unfunded commitment.
Speaker Change: of about $200,000.
Speaker Change: Supporting the allowance, we hold a strong level of capital that serves as an additional backstop.
Total risk-based capital was a healthy 15.3% at the end of the third quarter, and we maintain a meaningful cushion above regulatory thresholds for a well-capitalized bank.
Speaker Change: Finally, it's highlighted in the appendix to our presentation. The loan portfolio as a quarter an was balanced in the diversified across customer product, industry, collateral and geography, with no outsized exposures in higher risk segments.
With that, let me turn the call back to Arnold.
Thank you Ralph, in summary we had a strong chord third quarter and we remain committed to navigating the existing market conditions effectively while supporting our clients and the community in driving value to our shareholders.
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.
Speaker Change: Ladies and gentlemen, we will now begin our question in answer session. If you have doubt in and would like to ask a question please press star, fold by the number one on your telephone keypad.
If you would like to withdraw your question, think to press star one again. If you are called upon to ask your question and are listening to the allowed speaker on your device, please speak up your handset and ensure that your phone is not on mute. Then ask in your question. Thank you.
Your first question comes from the line of David Fister from Raymond James. Please go ahead.
David Fister: Good morning everybody!
Good morning. Morning. I wanted to touch on on the one side. You know, just kind of looking at the decline in loans. It's pretty broad based. I'm curious.
David Fister: I want you to be a man driven, maybe less appetite for growth and just a timing issue. Just kind of curious how the pipeline is shaping up and your thoughts on the long growth side going forward.
David Fister: Your hi, David. This is Arnold. I'll respond to that question.
It basically is a demand issue with the rates being high at this point. We have seen for the...
David Fister: the whole year, kind of muted Londyman. It's more that than it is us being being proactive or being more cautious about Londgroat.
David Fister: With that said, I'll say that we believe and we know that as rage declined.
going forward. There is a...
Pent up the man out there. There are folks on the sideline.
David Fister: Waiting for Rage to come down to move forward with projects.
You know, as I mentioned earlier in the prepared comments
David Fister: Building permits are up year over year. That signals that there's projects in the pipeline. And so we're optimistic for future quarters, especially going into an extra that we'll start to see an update.
David Fister: in Londyman, assuming that the FADs continue to reduce the rate.
David Fister: Episode 2
Episode 2
Speaker Change: Student comes from the line of Andrew Lish from Piper Center. Please go ahead.
Hey, good morning. Thanks for taking the question.
Speaker Change: On the good expansion here on the margin, we'll take me to the swap helped out a little bit. I guess what's the right Brennerate going forward and I got one of those lines like, what are you seeing on the deposit competition out in the state?
David Fister: David.
Andrew, it's a David. I'll start on that question. Yeah, we were pleased with the...
Net interest margin, Net interest income, Sequential Quarter expansion.
About roughly 2-3rds, maybe 70% of that was organic, just the impact of repricing on assets and liabilities. So, you know, that's positive for the goal forward NIM forecast. Right now we're forecasting NIM.
In the next quarter or two in the three ten to three twenty range.
So we are positive on net interest income, net interest margin.
On the positive flows, again, the story there has been positive. If we've been tracking...
The average balance is quarterly average balances of non-introspectarian DDA and our introspectarian interest paying checking accounts, Ipka.
and those are true court deposits and we have about 3 billion in average balances there and what we've been seeing is that the quarterly...
David Fister: Drawed on on those balances have been diminishing quarter after quarter and in the third quarter the average balances were roughly flat-ish So we're hopeful that we can turn the corner there and start growing those balances in future in the future quarters
Speaker Change: Got it. And then, have you seen locally any improvement in the positive rates and other some sort of increase in credit unions that have been offering higher rates than other banks. But some of the curious what you've seen from the competition standpoint.
Speaker Change: Yeah, as you would expect Andrew, it's been, it's been, you know, banks have been responding to the 50-b's point right right by the Fed.
So for ourselves, our current promotional CD, we have a CD promo at 375. You know, that definitely has come down roughly the equivalent of 50 basis points.
Speaker Change: Gotcha, very helpful. And then is there anything, uh, just on that strategic opportunity? Is there anything you can point to about why you are no longer currently engaged in discussions?
Andrew, this is Arnold. Unfortunately, we remained, you know, at this point we cannot comment on this further.
Speaker Change: and we just can't comment for a lot of...
Thanks for taking the questions and I'll be other guidance. I'll step back.
Speaker Change: Again, if you would like to ask a question, please press star, fold by the number one on your telephone keypad.
Our first, our next question comes from the line of David Fister from Raymond James. Please go ahead.
David Fister: Hey, just kind of falling up on the capital side, you know, you guys have been focused on preserving capital in the short run.
and you know, with talk stall and like we kind of talked about the press release. Is there any change in your appetite for buybacks or other capital deployment opportunities? Just kind of curious how you think about that.
Speaker Change: [inaudible]
Speaker Change: Being at 7.3% today, you know, I think we are open to share repurchases. But like we always said, it's a function of, you know, the market.
But it is something that we will consider as one of the uses of capital going forward.
Speaker Change: We're currently target the K1 leverage ratio.
like in a range of 8 to 10 percent, we're at 9 and a half. So we are inching towards the higher end of that range. So there is an opportunity to utilize capital and it's just a function of what options we have for the excess capital going forward.
Speaker Change: Ok.
Speaker Change: Okay, that's all for now.
Speaker Change: and then sorry I got disconnected but maybe hop him back to the loan and loan gross side. I'm curious where are you seeing new production yields today?
Where do you have in the most success driving growth, I guess, as you think about the pipeline and then...
Where, you know, I just, could you touch on like the repricing dynamics in the loan portfolio in the next, you know, 12 months or so and kind of how roll-off rates are relative to that on rates.
Speaker Change: In the third quarter, we did average new volume loan yields were about 7.75%.
As compared to portfolio in the 490s, so that there was a nice repricing of just runoff, replacing runoff.
and we would think that the new volume yields would come down a little in future quarters. So maybe it's closer to 7 and a quarter or 7%.
But we still think there would be a nice incremental pick-up from portfolio yields as it repriced.
and that's one of the first.
Speaker Change: And then as far as the growth opportunities I think it would be similar to what you saw in the third quarter. I think the growth opportunities remain in the commercial sector, commercial real estate and CNI.
Speaker Change: Ok.
and then just, you know, as you, you know, you kind of touched on the margin a bit, but I mean with some pretty material positive repricing opportunities obviously and
and seemingly being able to react to the positive sign. I'm curious, how do you think about the trajectory?
As you think about the margin, it's even more rate cuts around the horizon. You're naturally rate sensitive, right? Just given the nature of your balance sheet. Just kind of curious, how do you think about the trajectory, you know, contemplating, you know, maybe some lag impact in the positive pricing and some of those types of things?
I know you said we're slightly ascensitive. I think over the last year we've become more neutral. So right now the balance sheet is pretty neutral to interest rate risk.
Speaker Change: But we do see that there is an opportunity to move the net and it's just margin back towards, you know, where we've been in the past, so we've been in the 330 range, there definitely is room to get back to that type of level.
Speaker Change: Good night.
Speaker Change: Okay, all right, thanks everybody.
Thank you, David.
As there are no more further questions at this time I would like to turn the call back over to the Central Pacific team for closing remarks.
Thank you very much for participating in our earnings call for the third quarter of 2024. We look forward to sharing our progress with you next quarter. Thank you.
Speaker Change: That concludes today's video. Thank you all for joining. You may now disconnect.