Q1 2025 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 Corp First quarter 2025 conference call. During today's presentation, all parties will do in listen only mode. Following the presentation, the conference will be open for questions.
Speaker Change: This call is being recorded and will be available for replay, shortly after its completion on the company's website at www.cpb.bank
Speaker Change: I'd like to turn the call over to Ms. Dayna Matsumoto, EVP, Chief Financial Officer. Please go ahead.
Speaker Change: Thank you, Kate, and thank you all for joining us as we review the financial results of the first quarter of 2025 for Central Pacific Financial Corp.
Speaker Change: With me this morning are Arnold Martinez, Chairman, President and Chief Executive Officer, David Morimoto, Vice Chairman and Chief Operating Officer.
Speaker Change: Ralph Measick, Senior Executive Vice President and Chief Risk Officer, and Anna Hu, Executive Vice President and Chief Credit Officer.
Speaker Change: We have prepared a supplemental slide presentation that provides additional details on our earnings release and is available in the Investor Relations section of our website at cpb.bank.
Speaker Change: 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.
Speaker Change: For a complete discussion of the risks related to our four-looking statement, 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 Martinez.
Arnold Martinez: Thank you, Dayna, and Aloha everyone. We appreciate your interest in Central Pacific Financial Corp, and we are pleased to share our latest updates and results with you.
Arnold Martinez: Before I provide a market update for the state of Hawaii and we dive into our results, let me start with sharing our recent leadership appointments that went into effect on March
Arnold Martinez: David Morimoto has been appointed as Vice-Termin and Chief Operating Officer.
Arnold Martinez: David has been with us for over 30 years and has broad extensive experience in the banking industry.
Arnold Martinez: In his new role, David will oversee all frontline revenue areas.
Speaker Change: With that change, Dayna Matsumoto has been appointed Executive Vice President and Chief Financial Officer taking David's previous role. Dayna has been with us for nearly 20 years with prior leadership in our Treasury and Controller areas.
Speaker Change: These plan transitions recognized the valuable contributions David and Dayna have made while aligning our executive team to the bank's future strategic, financial and business objectives.
Speaker Change: Our financial Q1 results were solid across the board and continued to trend favorably.
Speaker Change: All of these results reflect our focus on optimizing our balance sheet and executing on our strategies.
Speaker Change: We know we are in a time of market and economic uncertainty, we are confident that we will be able to effectively navigate to the changes that impact our industry and our customers and remain focused on delivering strong results regardless of external factors.
Speaker Change: and his forecasted to exceed 14 billion, a substantial increase from the prior years high of 11.8 billion.
Speaker Change: Total visitor spending per day was up 6.3% from the same period the prior year and up 20.5% from 2019.
Speaker Change: The recovery of visitors from Japan remains slow and is continued to be offset by the strength of domestic travel.
Speaker Change: Travel to Maui, showed signs of improvement year over year with an increase of 13.3% for average daily census visitor arrivals, but it's still recovering from the 2023 Maui
in the area of Hawaii real estate.
Speaker Change: The market remains strong overall in the first quarter, despite some mixed trends. Single family home prices on Oahu reached a new record high in February , and remained at similar levels in March at 1.16 million median sales price.
Speaker Change: Home sales for the month of March dipped 10.4% for single-family homes, but went up 7.3% for condos compared to the same month of the prior year.
Speaker Change: Active inventory of housing listings is starting to build, which boasts well for the industry and state.
Speaker Change: The state economy has proven to be resilient in the past and was forecasted earlier this year to grow modestly However, we continue to monitor the potential impacts from the policies of the current administration and are prepared to devicate any uncertainties in the operating environment.
I'll now turn the call over to David.
David Morimoto: Thank you, Arnold. Starting off the year, I'm excited to share CPP once again was honored by the Small Business Administration as the SBA Lender of the Year Category 2, marking our 16th year receiving this award.
David Morimoto: CPP was founded on the principle of helping all of Hawaii's people achieve their financial aspirations and we continue to honor our beginnings with a focus on small businesses.
David Morimoto: I am proud of our employees who are committed to helping our customers succeed each and every day.
David Morimoto: Driving revenue growth is a key focus for us and we remain cautiously optimistic for the remainder of 2025.
David Morimoto: We will continue to focus on growing our CPB market share in Hawaii and supplementing that with targeted lending opportunities in mainland markets.
David Morimoto: We have a strong team of relationship bankers and continue to successfully add talent that will help us drive revenue growth in Hawaii and the mainland.
David Morimoto: First quarter growth was led by mainland and Hawaii commercial mortgage and Hawaii construction
David Morimoto: Our team continues to concentrate on building a healthy loan pipeline and serving our clients' needs as they continue to navigate the current market environment.
David Morimoto: We are optimistic that net loan growth will continue to pick up this year.
David Morimoto: However, we remain nimble as we learn how the macro environment impacts national and local economies.
David Morimoto: Despite some volatility impacting period ends, overall we continue to grow our deposit relationship and average balances.
David Morimoto: I'll now turn the call over to Dayna who will provide an update on our financials. Dayna? Thanks, David. Turning to our earnings results, we are pleased to share that our performance metrics continue to trend positively and towards our financial target.
Dayna Matsumoto: Net income for the first quarter was $17.8 million or $65 per diluted share. Return on average assets was 0.96% and return on average equity was 13.04%.
Dayna Matsumoto: Our efficiency ratio was 61.2%, which is the best we posted since the fourth quarter of 2022.
Dayna Matsumoto: Our name has expanded every quarter for the last four quarters, which reflects our continued disciplined approach to pricing and balance sheet management.
Dayna Matsumoto: The net interest income and NIM expansions were primarily driven by a reduction in our funding costs from deposits combined with a higher average yield turned on investment
Dayna Matsumoto: The higher average yield on investment securities and be attributed to our investment portfolio repositioning, we completed last quarter.
Dayna Matsumoto: Due to market volatility, our boldly income and our deferred compensation expenses decrease during the quarter. Through the extent market volatility continues, we'll continue to have some variability in these line items.
Dayna Matsumoto: Additionally, as we continue our focus on efficiencies, we are in the process of consolidating our office space into our main headquarters in downtown Honolulu. With this move, we anticipate that we will exit our current operations center building and recognize a one-time pre-tax write-off of two to $2.5 million in the second or third quarter.
Dayna Matsumoto: Going forward, we expect to realize total annual savings from reduced lease, operating and maintenance expenses of approximately $1 million.
Dayna Matsumoto: Our effective tax rate was 21.2% in the first quarter, which is in the range that we communicated on our last call and consistent with historical trends.
Dayna Matsumoto: During the first quarter we repurchased about 77,000 shares of common stock at a total cost of $2.1 million or $27.9 per share.
Dayna Matsumoto: Additionally, in the second quarter to date through April 16, we have repurchased approximately 86,000 shares at an average price of $24.70 per share.
Dayna Matsumoto: Finally, our Board of Directors declared a quarterly cash dividend of 27 cents per share, which will be payable on June 16th to shareholders of record on May 30th.
I'll now turn the call over to Ralph.
Ralph: Thank you, Dayna. Our asset quality remained healthy in the first quarter and net charge drops were $2.6 million or 20 basis points annualized on average loans.
Ralph: Violence. This represents a nine basis point decreased from the prior quarter. The decrease came from lower charge-offs on the consumer in C&I loans.
Ralph: Non-performing assets were 11.1 million dollars or 15 basis points of total assets at quarter
Ralph: Criticized loans also remain near cyclical low levels at 82 basis points of total loans, up 20 basis points of quarter on quarter, past due loans 90 plus days of flat compared to the prior quarter, just one basis point of total loans.
Ralph: Our allowance for credit loss was $60.5 million, or 1.13% of outstanding loans, up to basis points.
The provision expense was $4.2 million.
Ralph: In the quarter, we added $3.9 million to the allowance and an additional $300,000 to the reserve for unfunded commitments.
Ralph: Supporting this allowance we also maintain a strong level of capital. Global risk-based capital was 15.6% at the end of the first quarter.
With that, let me turn the call back to Arnold.
Arnold Martinez: Thank you, Ralph. In summary, we had a solid first quarter to kick off 2025. We are focused on supporting our clients and the community in driving value to our shareholders.
Arnold Martinez: We are prepared to navigate through these uncertain times, and we thank all of you for your continued support and confidence in our organization. At this time we will be happy to address any questions you may have.
Arnold Martinez: At this time, I would like to remind everyone in order to ask a question, press R, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of David Feaster with Damien Jean. Please go ahead.
Hey, good morning, everybody. Hi, David.
Alma.
Speaker Change: Obviously there's a lot of volatility uncertainty in the market today.
Speaker Change: Day. I want to just start on the lone gross side. I mean, obviously, again, there's a lot of chaos out there. Curious how your clients are responding to that? How is the pipeline trending and just, you know, it sounds like you're optimistic about growth.
Speaker Change: just maybe, where do you see most opportunities to drive growth?
Speaker Change: David, you want to take that call? I may have a question.
Speaker Change: Yeah, sure. Hey, David. Yeah, obviously there is a lot of uncertainty. We're in touch with all of our large borrowers and potential borrowers in our pipeline.
and while there remains a lot of volatility,
Speaker Change: You know, certain transactions are likely to get postponed. We remain cautiously optimistic on the future and you know we are reiterating our full year loan guidance of low to mid single digit loan growth for the full year. Thank you very much.
Okay.
Speaker Change: That growth, David, I'm sorry, David, that growth is likely to be focused in the commercial areas. So it's going to be C and I and commercial mortgage and also construction. Those are probably the growth areas for the next several corners.
Okay, okay, that's terrific [inaudible]
Speaker Change: and then I know this is a hard question to answer, but look, I'm just curious how do you think about potential impacts on your clients from these, the trade wars, the tariffs in Doge, you know, as you dig into the book, what segments are you expecting to be most impacted and
Speaker Change: You know, just kind of, how are you approaching this at this point? I mean, it's maybe it's kind of a wait and see approach, but I'm just kind of curious your thoughts.
Ralph, you want to take that question?
Ralph: Sure. Hi, David. You know what? I think the outlook really has shifted this quarter, but when we look at our portfolio, you know, talking with and first off looking at industries that probably are more impacted, they probably represent about 10%.
Dayna Matsumoto: of our total loan book. So we're talking about, you know, accommodation, restaurant, wholesale, and retail trades.
Dayna Matsumoto: and I think over the longer term, we do have a playbook for stress events.
Okay.
That's helpful.
Speaker Change: And then last one for me, you know, deposit performance. You guys have done a great job on the deposit side.
Dean, I can answer that question.
Dayna Matsumoto: Hi, David. Thanks for the question. On the deposit side, I'd say we're very pleased with our performance. Our average balances were up for the quarter with a favorable mixed shift as we grew average court deposit, including demand deposit.
Dayna Matsumoto: while we let some CDs run off. Our teams have been doing a really good job and remain very focused on growing core deposits.
I'm.
Dayna Matsumoto: The market for pricing, deposit pricing here continues to be very rational. Our deposit pricing betas have been generally as expected and I'd say that our pricing strategies and continued discipline have worked very well.
Okay, that's helpful. Thanks, everybody.
Thanks, David.
Speaker Change: Your next question comes from the line of Andrew Liesch with Piper Sandler, please go ahead.
Andrew Leach: Good morning everyone. Just stick it on the margin here. I'm curious if you had what the margin was in the month of March.
Dayna.
Dayna Matsumoto: Hi Andrew, yes, for the month of March our margin was 3.37%
Speaker Change: Okay, so, I mean, you're just starting off here in the second quarter, six basis points higher. Is that a good jumping off point or do there are some other puts and takes that may make that, uh,
Speaker Change: Going forward, our NIM, I would expect it to continue to expand. Our guidance is for an increase of approximately four to seven basis points next quarter. This assumes that the Fed is on hold in May and we continue to have a relatively flat yield curve.
Speaker Change: Until the extent we get additional Fed cuts, a later this year, those will benefit our them further as their deposits still have some downward repricing ability.
Speaker Change: and then as always a steeper yield curve will be helpful as well.
Speaker Change: Certainly. Do you have handy with the the average yield on new loan traction was during the quarter?
Speaker Change: Yes, I do. It was about 7.2% as a new loany out in the first quarter.
Got it. Very helpful.
Speaker Change: But would you expect that those line items kind of right size themselves to be in line with your prior guidance ahead of on the expense side that the cost is from the rationalization of the real state?
Speaker Change: and but on the expense side overall, our objective continues to be driving positive operating leverage.
Speaker Change: and we believe will be successful at that this year. So our guidance remains the same for the near term. So our quarterly other operating expense guide is continues to be 42.5 to 43.5
per quarter.
Speaker Change: Got it. And then the cost saves from that real estate rationalization. Are those going to be reinvested into the franchise somewhere or should that result in a slightly lower run rate?
Speaker Change: So with that said, we may see some expenses rise slightly in the short term and that would be offsetting the savings from the office consolidation.
Speaker Change: Awesome. That you covered everything that I had to ask. Thanks so much, I'll step back.
Thanks, Andrew.
David Pfister: Your next question comes from the line of David Feaster with Raymond James, please go ahead.
David Pfister: Hi, I'm just wanted to follow up maybe on on the Capitol side. I mean, we bought some stock back in the first quarter. Obviously been active here in the second quarter. You guys kind of bottom thick. You guys have done a great job. Curious just how do you think about capital priorities today? I mean, obviously the stocks are attractive, you know, potential securities, restructuring is just kind of curious. How do you think about the opportunities that lie ahead?
David Pfister: So we are evaluating how we can best optimize capital and deploy capital while continuing to monitor the economic outlook and adjusting as appropriate.
David Pfister: As we noted, we have resumed share repurchases and with the overall market being down we view it as an opportunity.
Thanks, David.
Speaker Change: I will turn the call back over to Dayna Matsumoto for closing remarks.
Dayna Matsumoto: Thank you very much for participating in our earnings call for the first quarter of 2025. We look forward to sharing our progress with you next quarter.
David Morimoto, Central Pacific Financial Corp
Speaker Change: Andrew Liesch, David Morimoto, Central Pacific Financial Corp Andrew Liesch, David Morimoto, Central Pacific Financial Corp