Q2 2025 Central Pacific Financial Corp Earnings Call
Unknown Executive: Welcome to the Central Pacific Financial Corp second quarter 2025 conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions.
Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the Central Pacific Financial Corp, second quarter 2025 conference call.
Unknown Executive: This call is being recorded and will be available for replay shortly after its completion on the company's website at www.cpb.bank.
Dayna Matsumoto: I'd like to turn the call over to Ms. Dayna Matsumoto, EVP, Chief Financial Officer. Please go ahead. Thank you, Rebecca, and thank you all for joining us as we review the financial results of the second quarter of 2025 for Central Pacific Financial Corp.
During today's presentation, all parties will be in a listen-only mode. 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.com
Dayna Matsumoto: With me this morning are Arnold Martinez, Chairman, President, and Chief Executive Officer David Morimoto, Vice Chairman and Chief Operating Officer. Ralph Mesick, Senior Executive Vice President and Chief Risk Officer. and Anna Hu, Executive Vice President and Chief Credit.
Arnold Martinez: Thank you, Rebecca, and thank you all for joining us. As we review the financial results of the second quarter of 2025 for Central Pacific Financial court, with me this morning are Arnold Martinez, chairman president and chief executive officer, David Morey, modal Vice, chairman and Chief Operating Officer.
Dayna Matsumoto: We have prepared a supplemental slide. provides additional details on our earnings. and is available in the Investor Relations section of our website at cpb.ca.
Ralph misk, senior Executive Vice, President and chief risk officer and Anna, who Executive Vice President and chief credit officer.
Dayna Matsumoto: During the course of today's call, management may make for the While we believe these statements are based on reasonable They involve risks that may cause actual results.
Arnold Martinez: Hide presentation that provides additional details on our earnings release and is available in the investor relations section of our website at cpb.
Arnold Martinez: During the course of today's call management may make forward-looking statements.
Dayna Matsumoto: for a complete discussion of the risks related to our four I refer to slide two of our And now, I'll turn the call over to our Chairman, President, and CEO, Arnold Martines. Thank you, Dayna, and aloha, everyone.
Arnold Martinez: While we believe these statements are based on reasonable assumptions. They involve risks that may cause actual results to differ materially from those projected.
Arnold Martinez: For a complete discussion of the risks related to our forward-looking statements, please refer to slide 2 of our presentation.
Speaker Change: And now, I'll turn the call over to our chairman president and CEO Arnold Martinez.
Arnold Martines: Before diving into our quarterly results, I'd like to take a moment to proudly share that CPB was named the best bank in Hawaii by Forbes magazine in 2025. This is the fourth consecutive year the bank has made the Forbes. Our second quarter financial results demonstrate the continued strength of our business and ability to execute effectively in a dynamic market environment. The bank's strong asset quality, capital, and liquidity positions will enable us to grow our business by continuing to support the needs of our customers. and the markets we serve.
Arnold Martinez: Thank you, Dana and Aloha, everyone before diving into our quarterly results. I'd like to take a moment to proudly. Share, that cpb was named the best bank in Hawaii by Forbes Magazine, in 2025.
Arnold Martinez: This is the fourth consecutive year, the bank has made the Forbes list.
Arnold Martinez: Our second quarter Financial results, demonstrate the continued strength of our accordingly, our business and ability to execute effectively in a dynamic Market environment.
Arnold Martines: I want to thank our dedicated employees, customers, community, and shareholders for your continued support of our business.
Arnold Martinez: The bank's strong asset quality capital and liquidity. Liquidity positions will enable us to grow our business by continuing to support the needs of our customers and the markets we serve.
Arnold Martines: Turning to our Hawaii market update. The state's economy continues to demonstrate resilience across multiple sectors. Construction Industry remains solid. completed construction in a state reaching $14 billion. Activity in 2025 is expected to show steady growth driven by several major infrastructure and residential developments.
Arnold Martinez: I want to thank our dedicated, employees, customers community, and shareholders for your continued support of our bank.
Arnold Martinez: Earning to our Hawaii market update.
Arnold Martinez: The state's economy continues to damage resilience across multiple sectors.
The construction industry remains solid with completed Construction in the state reaching 14 billion in 2024.
Arnold Martines: Tourism, a key driver of our economy. those encouraging. Through May, year-to-date, visitor arrivals were up 2.8% from the prior year. and down just 3.9%. Total visitor spending was up. 5%. from the same prior year. and up 24.3% from the same period. The majority of the growth is from domestic travel. for the Recovery of Japanese Visitors.
Activity in 2025 is expected to show steady growth driven by several major infrastructure and residential developments.
Arnold Martinez: Tourism, a key driver of our economy shows, encouraging trends.
Arnold Martinez: Through May year to date visitor arrivals or up 2.8% from the prior year and down. Just 3.9% from pre-pandemic 2019.
Arnold Martinez: Total visitor spending was up 6.5% from the same prior year period and up 24.3% from the same period in 2019.
The majority of the growth is from domestic Travelers. While the recovery of Japanese visitors continues to be slow.
Arnold Martines: Hawaii's Statewide Seasonally Adjusted Unemployment very low at 2.8%. continue to outperform the National Unemployment . 1 percent The strong labor market continues to support consumer confidence.
Hawaii Statewide seasonally adjusted unemployment rate remained very low at 2.8% in June
Arnold Martinez: and continue to outperform the national unemployment rate of 4.1%.
Arnold Martinez: The strong labor market continues to support consumer confidence and spending in our local economy.
Arnold Martines: The Hawaii residential real estate market remains steady. Single family home prices in Hawaii rose 0.4%. with a 1.13 million median sales price. Home sales volumes for June, year-to-date, dipped 2.1% for single-family homes. prepared to the same prior The housing supply in Hawaii continues to be tight, but has picked up in recent periods. now has a positive outlook with a number of large housing projects in development.
The Hawaii residential real estate market remains steady.
Arnold Martinez: Single family, home prices in Hawaii, Rose 0.4% in June.
With a 1.13 million median sales price.
Arnold Martinez: Home sales volumes for June year to date zipped 2.1% for single family homes.
Arnold Martinez: And dipped 6% for condos compared to the same prior year period.
Arnold Martines: Looking ahead, we maintain a cautiously optimistic outlook for Hawaii's economy. While we're mindful of potential headwinds from global and domestic economic Hawai'i's fundamental economic drivers remain sound. has proven to be resilient. Overall, we feel good about our core business environment and the opportunity.
Arnold Martinez: The housing Supply in Hawaii, continues to be tight, but has picked up in recent periods. And now has a positive outlook with a number of large housing projects in development.
Arnold Martinez: Looking ahead, we maintain a cautiously optimistic outlook for Hawaii's economy.
Arnold Martinez: While we're mindful of Potential, headwinds from Global and domestic economic conditions.
Arnold Martinez: Hawaii's fundamental economic drivers, remain sound and have proven to be resilient.
David Morimoto: With that said, I'll now turn the call over to David. will talk about our growth strategy and outlook. Thank you, Arnold. Our loan and deposit growth strategy continues to focus on deepening customer relationships and growing market share in Hawaii, in select mainland markets, and in Asia. While growth was muted in the first half of 2025, as anticipated, the outlook for the second half of the year looks favorable. We continue to target low single-digit, full-year growth for both loans and deposits in 2024. In the second quarter, our loan portfolio declined slightly and ended at $5.29 billion.
Overall, we feel good about our Core Business environment, and the opportunities ahead.
Arnold Martinez: With that said, I'll now turn the call over to David. We'll talk about our growth strategy and Outlook David.
Thank you, Arnold.
Our loan and deposit growth strategy, continues to focus on deepening, customer relationships in growing market, share in Hawaii in select Mainland markets and in Asia.
Arnold Martinez: While growth was muted in the first half of 2025 as anticipated.
Arnold Martinez: The outlook for the second half of the year looks favorable.
Arnold Martinez: We continue to Target low single digits full year growth for both loans in the deposits in 2025.
David Morimoto: By segment, growth was achieved in construction and consumer loans, while declines occurred in all other categories. Average yields earned on loans during the second quarter increased to 4.96% from 4.88% in the prior quarter. as we continue to add new loans at current markets. Our loan pipeline remains healthy, including several CRE and construction loans that we are booking in early third quarter, which will provide revenue for the second half of the year. On the deposit front, we ended the second quarter with total deposits of $6.54 billion. which also declined slightly from the prior quarter. The deposit mix continued to shift favorably with an increase in non-interest-bearing DDA deposits.
Arnold Martinez: In the second quarter, our loan portfolio declined slightly and ended at 5.29 billion dollars.
While declines occurred in all other categories.
Average yields earned on loans during the second quarter increased to 4.96%.
From 4.88 in the prior quarter.
Arnold Martinez: as we continue to add new loans at current market rate,
Arnold Martinez: our loan pipeline remains healthy, including several CRA and construction loans that we are booking. It early, third quarter, which will provide Revenue list for the second half of the year.
Arnold Martinez: On the deposit front, we ended the second quarter with total deposits of 6.54 billion dollars.
Arnold Martinez: Which also declined slightly from the prior quarter.
David Morimoto: Our teams remain focused on growing core deposits while managing the cost of funds in this competitive environment. Additionally, our deposit generation initiatives related to Japan and Korea are gaining traction and play a role in our overall growth strategy.
Arnold Martinez: The deposit mix continued to shift favorably with an increase in non-interest bearing DDA deposits.
Our teams remain focused on growing core deposits, while managing the cost of funds in this competitive environment.
Arnold Martinez: Additionally, our deposit generation initiatives related to Japan and Korea are gaining traction and play a role in our overall growth strategy.
Dayna Matsumoto: I'll now turn the call over to Dayna who will provide an update on our financials. Dayna? Thanks, David. Our financial results continue to trend positively for the second quarter of 2025. Starting with our core earnings metrics, we reported net income of $18.3 million, or 67 cents per dilution.
I'll now turn the call over to Dana who will provide an update on our financials Dana.
Dana: Thanks David, our financial results continue to Trend positively for the second quarter of 2025.
Dayna Matsumoto: Turn on Average Assets with 1.0 and Return on Average. we achieved an improved efficiency. as the focus continues to be on driving positive operating Revenue Expansion, Internal Net interest income showed strong performance. Our net interest margin expanded by... Driven by the Loan Portfolio. combined with total deposit cost decline. Our total cost of deposits was just one. We are pleased with our continue to manage our balance while maintaining a disciplined approach. Total other operating income was $13.0 million. There was a $1.9 million increase quarter-over-quarter, primarily due to higher BOLI income resulting Total other operating expense was $43.9 million in the which was an increase of $1.9 million quarter over quarter.
Dana: Starting with our core earnings metrics, we reported net income of 18.3 million or 67 cents per diluted share.
Return on average assets was 1.000% and return on average Equity was 13.04%.
We achieved an improved efficiency ratio of 60.36%. As a focus continues to be on driving positive. Operating leverage through Revenue expansion, internal efficiencies and expense management.
Dana: Net interest income showed strong performance, increasing 3.6% quarter over quarter to 59.8 million.
Dana: Our net interest margin expanded by 13 basis points to 3.44% driven by the loan portfolio yield increasing by 8 basis. Points combined with total deposit costs declining by 6 basis points.
Our total cost of deposits was just 1.02% in the second quarter.
We are pleased with our Nim expansion and continue to M. Manage, our balance sheet in the current rate environment, while maintaining a disciplined approach to pricing.
Dana: Go to other operating income was 13.0 million in the second quarter. There was a 1.9 million increase quarter over quarter primarily due to higher bully income, resulting from Equity market gains.
Dayna Matsumoto: Higher Deferred Compensation. also related. as well as higher computer software. The computer software increase was driven by our new data center, which had offsets in several other expense lines. and was slightly elevated this quarter due to overlap.
Dana: Total other operating expense, was 43.9 million in the second quarter which was an increase of 1.9 million quarter over quarter due to higher deferred compensation. Expense, also related to equity market gains as well as higher computer software expense,
Dana: The computer software increase was driven by our new data center which had offsets in several other expense line items and was slightly elevated. This quarter due to overlap of services during conversions.
Dayna Matsumoto: The exit of our Operations Center building discussed on our prior quarter call is expected to happen by year-end and will result in a one-time pre-tax write-off of $2 to $2.5 million. Going forward, we expect to realize total annual operating and maintenance expenses of approximately $1 million.
Dana: The exit of our operations center building discussed on our prior quarter. Call is expected to happen by year end and will result in a 1-time pre-tax. Write off of 2 to 2.5 million.
Dayna Matsumoto: Our effective tax rate. and is expected to remain in the race. during the second quarter of 2025. Approximately 103,000 shares of common stock. at a total cost.
Dana: Going forward, we expect to realize total annual savings from reduced lease, operating and maintenance expenses of approximately 1 million dollars.
Our effective tax rate was 23.5% in the second quarter and is expected to remain in the range of 22 to 24%.
Dayna Matsumoto: As of June 30, $25.3 million Finally, our Board of Directors declared a quarterly cash 27 cents per share, which will be payable on September 15th to shareholders of record.
Dana: During the second quarter of 2025. We repurchased approximately 103,000 shares of Common Stocks at a total cost of 2.6 million or Twenty 5 dollars per share.
Dana: as of June 30th, 25.3% authorization remains available
Ralph Mesick: I'll now turn the call over to Ralph. Thank you, Dayna. Strong credit performance and asset quality continued in the Credit costs were up within our expected operating and the level of NPAs, past dues, and criticized assets. Net charge-offs were $4.7 million. with 35 basis points annualized on average loans. Increase in net charge-offs this quarter was related to the write-off of a single commercial loan after the borrower lost a legal dispute. effectively ceased. Losses in the consumer book were relatively flat to the prior quarter and down year over year. Non-performing assets were $14.9 million, or 20 basis points of total assets, at quarter end.
Ralph: I'll now turn the call over to Ralph.
Ralph: Thank you, Dana.
Speaker Change: Strong credit performance and asset quality continued in the second quarter.
Speaker Change: Credit costs were up within our expected, operating range, and the level of npa's past dues and criticize assets remain low.
Speaker Change: Net charge offs were 4.7 million or 35 basis points annualized on average loans.
Speaker Change: after the borrower lost a legal dispute and effectively ceased operations,
Speaker Change: Losses, in the consumer book were relatively flat to the prior quarter and down year-over-year.
Ralph Mesick: an increase of five basis points from the prior quarter. The increase came in the residential mortgage and HELOC for Residential mortgages comprise the bulk past due loans, 90 days plus. and represent four basis points of total loan. criticized loans increased to $185,000. but remained at Lola.
Speaker Change: Now.
An increase of 5 basis points from the prior quarter.
Speaker Change: The increase came in the Residential Mortgage and HELOC portfolios.
Residential Mortgages comprised the bulk of our NPA.
Speaker Change: past due loans, 90 days, plus increased 2.1 million
Speaker Change: and represent 4 basis points of total loans.
Ralph Mesick: Part of the enhanced monitoring effort we started a tariff declaration. We downgraded two large loans this quarter. and hotel participants. Owner-Occupied CRE Both loans are performing and adequately collateralized. The provision expense was $5 million. In the quarter, we added $3.8 million to the allowance, an additional $1.2 million to the reserve for unpaid... The higher provision was primarily driven by increases in the construction loan. combined with higher net charge-offs incurred this quarter. We continue to maintain a strong level of. Total risk-based capital was $15. at the end of the second quarter. At these levels, the bank can readily absorb the financial impacts that may result from a period of time.
Criticize loans increase to 180 basis points of total loans, but remained at low levels.
Speaker Change: as part of the enhanced monitoring effort, we implemented at the start of the Tariff declaration, we downgraded 2, large loans, this quarter,
A hotel participation and an owner occupied CRA loan.
Both loans are performing and adequately collateralized.
The provision expense was 5 million. In the quarter, we added 3.8 million to the allowance and additional 1.2 million to the reserved for unfunded commitments.
The higher provision was primarily driven by increases in the construction loan commitment.
Combined with higher net. Charge offs incurred, this quarter
Speaker Change: We continue to maintain a strong level of capital as an additional support.
Speaker Change: Total risk-based Capital was 15.8%.
Speaker Change: at the end of the second quarter,
At these levels, the bank can readily absorb the financial impacts that may result from a period of prolonged stress.
Ralph Mesick: Looking ahead, we will continue to rely on a well-tested management. considers risk through a Participates a range of to build a margin of safety to deal.
Arnold Martines: With that, let me now turn the call back to Arnold. Thank you, Ralph. As we conclude, I want to emphasize the solid performance we've delivered. It demonstrates our ability to optimize performance in a dynamic market environment. I want to express my gratitude to our employees whose voyaging spirit navigates us through these uncertain times. To our customers, thank you for your continued trust and loyalty. and to our shareholders, thank you for your ongoing support and confidence in our strategy and exercise.
Speaker Change: Looking ahead, we will continue to rely on a well-tested management approach that considers risks through a cycle anticipates. A range of outcomes and build a margin of safety to deal with adverse conditions.
Arnold Martinez: With that, let me now turn the call back to Arnold for closing remarks.
Arnold Martinez: Thank you. Ralph, as we conclude, I want to emphasize the solid performance. We've delivered.
It demonstrates our ability to optimize performance in a dynamic Market environment.
Arnold Martinez: I want to express my gratitude to our employees.
Unknown Executive: At this time, we will be happy to address any questions you may have.
Whose voyaging Spirits navigates us to these uncertain times to our customers. Thank you for your continued, trust in loyalty and to our shareholders, thank you for your ongoing support and confidence in our strategy and execution.
Arnold Martinez: At this time, we will be happy to address any questions you may have.
Unknown Executive: At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.
Arnold Martinez: Then the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.
David Feaster: And your first question comes from the line of David Feater with Raymond James. Hey, good morning, everybody. Morning, David.
Speaker Change: And your first question comes from the line of David Peter with Raymond James.
Hey, good morning everybody.
David Feaster: Um, I wanted to start on on the growth side. I mean, it sounds like there's some pretty encouraging trends here heading in the back half of the year, the pipelines healthy, was just kind of curious, maybe what you saw in the quarter? I mean, how's, how's, you know, the pulse of your client? How's demand trending? Or is this is this more of a function of payoffs and paydowns offsetting otherwise? solid origination? So just kind of curious on that just, again, the pulse of the competitive landscape from your perspective.
Speaker Change: Morning, David.
Arnold Martines: Yeah, David, this is Arnold.
Speaker Change: Um, I wanted to start on on the growth side. I mean, it sounds like there's some pretty encouraging Trends here heading into the back half of the year, the pipeline's healthy, um, was just kind of curious, maybe what you saw in the quarter, I mean, how, how is, you know, the pulse of your client house, demand trending or is this, is this more of a function of payoffs and pay Downs? Offsetting otherwise? Uh, solid originations. So just kind of curious on that. Just again, the pulse of the competitive landscape from your perspective.
David Morimoto: Let me just start and I'll turn it over to Dave, David Morimoto for a more color. Yeah, you know, the, the loan growth for the first half was fairly muted, but that's expected given the, you know, the operating environment. The team has done a really good job in working together and engaging, you know, the marketplace and our customers and prospects. And we feel, you know, we feel good about the second half of the year. We are still looking at low single digit percent range growth for the full year. David can talk a little bit about what he's seeing and what we expect in the next quarter.
Speaker Change: Yeah, David this is Arnold. Let me just start and I'll turn it over to Dave. David moramoto for, uh, for more color. Uh, yeah. You know, the, uh,
Speaker Change: The long road for the first half was fairly muted, but that's expected given the, you know, the operating environment. Uh, the team has done a really good job in, uh,
Speaker Change: Working together and engaging, uh, you know, the marketplace and and our customers and Prospects. And we feel, you know, uh, we feel good about the second half of the year. We we are still, uh, looking at low single digit percent range, uh, growth for the full year. Uh, David can talk a little bit about what, what he's seeing and, and what we expect in the next quarter or 2,
David Morimoto: Hey, David. Yeah, in the second quarter, you know, there was the continued runoff of the expected continued runoff of the residential mortgage and HELOC portfolios, and that likely will continue. We did see a few payoffs in the mainland shared national credit portfolio, but that was, you know, that was by design. We had a couple of deals where the deals were recut, and we just chose not to continue participating because we have other growth opportunities, growth levers. On the positive side, we have a robust pipeline, and we had a handful of deals that were expected to close late second quarter that slipped into the third quarter.
David Feaster: And as we mentioned in our prepared remarks, we did close a handful of loans in the first three of July, and we have strong net loan growth already in July that will help revenue growth for the full year, the back half of the year. Okay. Okay, that's helpful.
Speaker Change: Goes not to continue participating, because we have other, uh, growth opportunities growth, levers. Um, on on the positive side, we have a robust Pipeline and we had a handful of deals that were expected to close late. Second quarter, that slipped into the third quarter. And um as we mentioned in our prepared remarks, we did uh close a handful of loans uh in in the first 3 weeks of July and we have strong net loan growth already in July that will help Revenue growth for the full full year. Uh full full year, the back half of the year
Okay.
David Feaster: Um, and then, again, how's, how's, how's this competition? I mean, are you seeing much competition increase? And then again, you know, kind of along the same lines to some degree, I mean, there's been a lot of disruption on the islands recently. I'm just curious how you think about your positioning to to capitalize that maybe gain share and dislocate maybe some talent and clients.
Speaker Change: Okay. Okay, that's helpful. Um, and then again, how how how's how's how's this competition? I mean, are, are you seeing much competition increase? Um, and then again, you know, kind of along the same lines to some degree. I mean there's been a lot of disruption on the islands. Recently, I'm just curious how you think about your positioning to to capitalize that maybe gain share and this dislocate maybe some talent and clients
David Morimoto: Yeah, David, it's David again. On the competition front, you know, there always is, you know, good competition in the local Hawaii banking market. I wouldn't say it's any, you know, stronger or weaker. I think it's been pretty average.
David Morimoto: And then on the second part of the question about the recent changes in the Hawaii banking market, I haven't noticed any change with regard to territorial or American. You know, they remain, you know, solid competitors, but no real change in strategy that I've noticed.
Speaker Change: Yeah, David it's uh, David again on on the competition front. I you know there there are always is um you know good competition in in the local Hawaii banking Market. I wouldn't say it's any any you know stronger or weaker. I think it's pretty pretty.
Speaker Change: Been pretty average.
Speaker Change: And then, on the second part of the question, about the, um, recent changes in the Hawaii banking Market, I haven't noticed any change with regard to, um, territorial or American, you know? They, they remain, you know, solid competitors. But uh, no real change in strategy that I've noticed.
David Feaster: Okay, maybe shifting gears to the other side of the balance sheet, your non-interest bearing deposit growth was extremely impressive. I'm curious, maybe, where do you find that you're having more success driving that? And then, you know, as we think about your margin trajectory over the next couple quarters, how much, you know, how much deposit cost leverage do you have to support that?
Okay.
Speaker Change: Okay.
Um, maybe shifting gears to the other side of the balance sheet. You're, you're, you're not interested in deposit. Growth was extreme. I I was curious. Maybe, where, where do you find that? You're having more success driving that and then you know, as we think about your margin trajectory over the next couple quarters, how much?
David Feaster: Or is it primarily gonna be loan growth and back book or pricing driven as you think about the margin side?
Arnold Martines: Let me, David, let me just start.
Speaker Change: You know, how much deposit costs leverage? Do you have to, to support that? Um, or is it primarily going to be loan growth and back book group pricing driven as you think about the margin side?
Arnold Martines: This is Arnold, and then I'll turn it back over to David. But I just wanted to comment that, you know, I think our team has done a really good job in keeping close to our customers, ensuring that we're meeting the needs of our customers, as well as focusing on prospecting. And we're doing that. in collaboration internally to really manage, you know, manage, you know, the balance between deposit growth and margin. And it shows in our core operating results. So I'm really pleased with that.
Speaker Change: Let me uh David. Let me uh just start. This is Arnold and then I'll turn it back over to David. But I I just wanted to comment that, you know, I think our team has done a really good job in uh, keeping close to our customers. Ensuring that we're meeting the needs of our customers, uh, as well as, uh, focusing on prospecting and, and we're doing that. Uh,
David Morimoto: But David can comment on, you know, kind of what we're looking at and the outlook and kind of what we're seeing that's kind of translating to, you know, our results.
David Morimoto: Yeah, thanks, Arnold. Um, yeah, David, um, we have a good plan to grow core deposits, low cost core deposits. And as every as you know, to grow core deposits, it's really, you know, moving relationships. And so it's really blocking and tackling prospecting. And we're ramping up our efforts on that front. And we're seeing early success. And I think that's what you saw in the second quarter with the positive makeshift in our in our deposit. Okay.
Speaker Change: In collaboration internally to really manage, you know, manage, uh, you know, the, the balance between deposit growth and margin, uh, and it shows in our, uh, core operating results. Uh, so I'm really pleased with that, uh, but David can comment on, you know, kind of what we're looking at and the Outlook and kind of what we're seeing. Uh, that's kind of translating to, uh, you know, uh, our results.
Yeah, thanks Arnold. Um, yeah, David, um, we we, we have a good plan to grow core deposits, low cost core deposits. And as every as as, you know, to grow core deposits. It's it's really um, you know, moving relationships. And so it's it's really blocking and tackling uh prospecting and uh we're ramping up our efforts on that front and we're seeing early success and I think that's what you saw in the second quarter with the uh positive mix shift in our in our deposits.
David Feaster: On the expense side, Dayna, you touched on it a bit. There's some puts and takes there, you know, with the Bolli stuff, the lease savings.
Speaker Change: Okay.
Speaker Change: Um,
Dayna Matsumoto: Could you help us think through maybe what's a good core expense run rate as we look forward, and maybe what are some of the areas that you're investing in? Sure, David, thanks for the question. So on the expense side, yes, we are pretty pleased with our progress on the efficiency ratio and driving positive operating leverage. As we had noted previously, we do continue to invest in the business, including in technology facilities, as well as people, you know, where it makes sense strategically. And those investments are to create efficiency savings and ultimately drive greater revenue. So with all of that said, you know, pulling it together, our near-term guidance for total other operating expense is going to be in the range of $43.5 to $44.5 million per quarter.
On, on the expense side, Dana, you touched on it a bit there. There's some puts and takes their, um, you know, with with the bully stuff. Um, the lease savings I could you help us think through maybe what's a a good core expense run rate as we look forward and maybe what are some of the areas that you're you're investing in
Speaker Change: Sure, David, thanks for the question. Um, so on the expense side, um, yes, we are pretty pleased with our progress on the efficiency ratio and driving positive operating leverage. Um, as we had noted previously, we do continue to invest in the business, um, including in technology facilities, as well as people, you know, where it makes sense, strategically, and those Investments are to create efficiency savings and ultimately Drive greater Revenue.
David Feaster: And that would be excluding any one-time impacts. Okay, that's helpful.
Speaker Change: Um, so with with all of that said, you know, pulling it together, our near-term, guidance, for a total of other operating expenses is going to be in the range of 43.5 to 44.5 million per quarter, and that would be excluding any 1-time impacts.
David Feaster: Um, and then maybe just last one for me, Ralph, you know, circling back to you to get hit the whole team. Um, you know, just your I appreciate your commentary on on the credit side. I'm just curious, maybe high level, you know, we had, you know, had one larger losses quarter, it sounds kind of video syncretic. And it seems like the consumer side is kind of stabilized.
Okay.
The the credit side, I'm just curious maybe high level you know we had you know had 1 larger losses quarter. It sounds kind of video syncing.
Ralph Mesick: I'm just I level, is there anything that you're seeing that's making you a bit nervous or cautious on or just kind of your thoughts on? On the credit side, more broadly. Yeah, David, the uptick in the AQ metrics is really a function of being at a low starting point. I think if you consider the end point, we're well within and then I would not extrapolate the charge off. circumstances around the three credits that we highlighted. And I think that perspective is kind of reflected in. level of expected loss. and I think if you think about those losses based on the composition of We expect credit loss.
And it seems like the consumer side's kind of stabilized. I'm just high level. Is there anything that you're seeing? That's making you a bit nervous, or, or cautious on or just kind of your thoughts on, on the credit side. More, broadly?
Speaker Change: Yeah, David. Um, you know the uptick in the AQ metrics is really a function of being at a low starting point. I think, if you consider the end point where well within our risk appetite and then I I would not extrapolate the charge off or the 2 down grades to be related to anything. Systemic, um, the circumstances around the 3 credits, um that we highlighted were specific to each name.
Speaker Change: Uh and I think that perspective is kind of reflected in the reserve actions. We took this quarter uh the level of expected loss we see in the portfolio is relatively unchanged.
Ralph Mesick: If you look at our incurred losses over the last few years. Unknown Speaker We were higher part of that. Supporter Annualized, but if you back out that one credit, which was unexpected, the incurred loss You know, we're continuing to call on our customers regularly. We are looking at large exposures. I think when you look at those two credits that were That is really a function of the outlook we have today. We've identified some weakness that warrants closer. We've evaluated those loans. well-collateralized. both.
Speaker Change: Uh, and then, I think, if you think about those losses, uh, based on the composition of our loan book, we'd expect credit losses between 25 and 50 basis points. And if you look at our incurred losses, over the last few years, they've run between 10 and 40 basis points. Uh, we were at maybe the higher part of that range, this quarter annualized, uh, but if you back out that 1 Credit which was unexpected, uh, the incurred losses would have been at the lower end of that range.
Speaker Change: Um, you know, we're continuing to call on our customers uh, regularly. Um, we we are looking at large, uh, exposure is very frequently. Uh, I think the cad Cadence has become more rigorous because of where we're at in the cycle. Um, and I think when you look at those 2 credits that were downgraded, um, you know, that, that is really a function of the Outlook we have today. We've identified some weakness that warrants closer attention but we've evaluated those loans for impairments uh and and they're well, collateralized, we don't anticipate any losses and it's important to point out that uh both both credits are performing.
David Feaster: Okay, that's helpful.
Unknown Executive: Thanks, everybody.
Unknown Executive: Thank you, David.
Speaker Change: Okay, that's helpful. Thanks everybody.
Matthew Clark: Your next question comes from the line of Matthew Clark with Piper Sadler.
David: Thank you, David.
Speaker Change: Your next question comes from the line of Matthew Clark with Piper Saddler.
Matthew Clark: Hey, good morning, everyone. Hi, Matthew. Um, Maybe just... starting on the margin, a nice lift there this quarter again. Deposit cost down. Just want to get a sense for exiting the quarter where the spot rate was on deposit costs, if you had it at the end of June. And then if you also had the average margin in the month of June, that would be helpful.
Matthew Clark: Hey, good morning, everyone.
Speaker Change: Hi Matthew.
Matthew Clark: Um,
maybe just
Starting on the the margin, uh, nice lift. Their this quarter again. Um,
deposit cost down, just want to get a sense for, you know, exiting, the quarter where the spot rate was on deposit costs, if you had it at the end of June,
Matthew Clark: And then if you also had the, the average margin in the month of June, uh, that would be helpful.
Dayna Matsumoto: Hi Matthew, it's Dayna. So yeah, I can start with the spot rates. So the spot deposit cost on June 30th, it was $0.99. And then for the month of June, our margin was 3.49.
Dana: Hi Matthew. It's Dana.
Dana: Um, so yeah, I can start with this.
Deposit cost on June 30th, it was 0.98%. Um, and then for the month of June, um, our margin was 3.49%.
Matthew Clark: Okay, great.
Dayna Matsumoto: And then can you remind us what you have coming due on the city repricing side, you know, how much you have over the next couple of quarters that are maturing and, you know, the rates that they're maturing at and where you're offering new cities? Sure. On the CD portfolio, we have about $430 million maturing in the third quarter, and then another about $350 million. This excludes our government. As far as the roll-off rates on a weighted average basis, it's about 3.6%. and our current CD promotional rate that we're offering, it's at 3.4. We continue to have some opportunity to lower our CD costs.
Dana: Okay, great. And then um, can you remind us what you have coming due on the CD?
Dana: Repricing side. You know how much you have over the next couple of quarters that are maturing and
Dana: You know, the rates that they're maturing at and and where you're offering a new cities.
Dana: Sure.
Dana: So on the CD portfolio, we have about 430 million maturing in the third quarter and then another about 350 million, maturing in the fourth quarter.
Dana: This excludes our government CDs. Um as far as the roll off rates on a weighted average basis. It's about 3.6%
Dana: And our current CD promotional rate that we're offering it's at 3.4%. So we we continue to have some um opportunity to lower our CD costs, as those roll over.
Dayna Matsumoto: Okay. And then assuming we get a couple of rate cuts. in the back half of this year. Any thoughts around the beta that you might... realize with those cuts, I mean, your cycle to date data on interest bearing, I think is about 42%. Which is better than It's more than on the way up, I should say. But yeah, just curious how how much of the Fed rate cuts you might be able to pass through on the Sure. When the Fed cuts rates, we believe we can continue to successfully lower our deposit costs with a pretty minimal timing lag.
Dana: okay, and then assuming we get a couple of uh, rate cuts
Dana: in this back half of this year.
Um, any thoughts around the beta that you might?
Dana: Realize with those cuts. I mean, your cycle, the date beta, on interest bearing I think is about 42%.
um, which is better than
Dana: its more than on the way up, I should say. Um, but yeah, just curious how how much of the uh Fed rate Cuts, you might be able to pass through on the deposit side.
Dayna Matsumoto: The deposit pricing market here continues to be pretty rational. As far as the betas... You're correct. So far, it's been about 42% on the total interest bearing deposit. When you look specifically at our more rate-sensitive deposits, the money markets The beta has been close to 100%. So with the upcoming Fed rate cuts, we expect it to be similar on the betas. will continue to be successful with our pricing strategies and continue to do so.
Speaker Change: Sure. Um so when the FED Cuts rates we believe we can continue to successfully lower our deposit costs uh with with a pretty minimal timing lag. Uh the the deposit pricing Market here continues to be pretty rational. Um as far as the, the betas um
Speaker Change: Specifically at our more rate, sensitive deposits, um, the money markets and the CDs, the beta has been close to 100%. Um, so with the upcoming Fed rate Cuts, we expect it to be similar on the betas. Um and we think we'll continue to be successful with our pricing strategies and continued discipline.
Matthew Clark: Great. Okay.
Matthew Clark: Thank you.
Matthew Clark: And then. on the loan yields up. Nicely here, up six basis points, I believe, at least by our calculation. Can you give us a sense for the new loan production, what kind of rates you're getting, maybe on a weighted average basis? Just trying to get a sense for the lift on loan growth.
Great. Okay, thank you. And then
Speaker Change: on the loan yields up, uh,
Speaker Change: Nicely here. Um up 6 6 basis points, I believe.
At least by our calculation. Um,
Speaker Change: Do you have a? Can you give us a sense for the?
Speaker Change: For the new Loan Production, what kind of rates you're getting maybe on a weighted average basis?
David Morimoto: Hey, Matthew, it's David Morimoto. In the second quarter, the weighted average new loan yield was roughly 7.2%, which obviously compares favorably to the portfolio yield that you mentioned is just about 5%. Okay, great. And then on the net charge-offs, I think you mentioned kind of without this one C&I credit, it would have been toward the lower end of the range in terms of net charge-offs, but can you just quantify, I'd have to go back, I can go back to the transcript, but if you could just quantify the amount of net charge-offs associated with that one credit, dollar terms. Yeah, it was about 21 basis points of the amount.
Speaker Change: Just trying to get a sense for the lift on, on the loan growth.
Speaker Change: Hey hey Matthew. It's uh David my Moto um in the second quarter the weighted average new loan yield was roughly 7.2.
Speaker Change: Um, which obviously compares favorably to the portfolio. Yield that you mentioned is just about 5%.
Speaker Change: Okay, great. And then on the net charge offs, um, I think you you mentioned kind of without this 1 C and I
Speaker Change: Credit. It would have been toward the lower end of the range in terms of net, charge us. But can you just quantify? Um, I'd have to go back, I can go back to the transcript, but if you could just quantify the, the amount of, uh, net charge just associated with that 1 Credit dollar terms,
David Morimoto: So if you back that up, we would have been at about 14. Okay, perfect.
Speaker Change: Yeah, it was about, uh, 21 basis points of of the amount.
Speaker Change: So, if you back that out, we would have been at about 14 basis points.
David Morimoto: And then just the increase in criticized, you called out those two credits. I think one was a hotel participation, the other one I can't recall. But can you just give us some more color on what's happening with those two credits and kind of the plan for resolution and timing? Yeah, you know, I want to be as transparent as possible, but I need to be sensitive to the information. Also, I can't really say more. But as I said, we do not expect any losses on these two credits. And we do believe. there will be some. Okay, thank you.
Speaker Change: Okay, perfect.
Speaker Change: Um, and then just the increase in criticized you called out those 2 credits. I think 1 was a hotel participation, the other 1 like I can't recall. But um can you just give us some more color on on, you know what's what's happening with those 2 credits? And
Kind of the plan for resolution and timing.
Speaker Change: Yeah. You know, I I want to be as transparent as possible, but I I need to be sensitive to the information we disclose on these calls. So I I can't really say more than that. And I think it would it would be inappropriate for me to say, you know, provide more details. But as I, as I said, we we do not expect, um, any losses on these 2 credits?
Speaker Change: and, and we do believe that, um, there will be some resolution in the coming couple of quarters
David Morimoto: And then last one for me, just on the on the Mainland SNCC portfolio, can you remind us how large that portfolio is? It's about $403 million, and that's breaking the record. Okay, perfect. Thank you. Thank you, Matthew.
Speaker Change: Okay, thank you and then last 1 for me, just on the on the mainland snyk portfolio. Can you remind us how large that portfolio is?
Speaker Change: Hey, it's about 300.
Speaker Change: And I'm sorry about 403 uh, million dollars.
Speaker Change: And that breaks out.
Speaker Change: Yeah. Roughly um
Speaker Change: 152 million of, that is dni.
Speaker Change: Okay, perfect. Thank you.
Matthew Clark: Thank you. Matthew.
Unknown Executive: Again, if you would like to ask a question, press star 1 on your telephone keypad.
again, if you would like to ask a question press star 1 on your telephone keypad,
Unknown Executive: And at this time, there are no further questions.
Dayna Matsumoto: I will now turn the call back over to Dayna Matsumoto for closing remarks. Thank you very much for participating in our earnings call for the second quarter of 2025. We look forward to sharing our progress with you next quarter. Thank you.
Matthew Clark: And at this time, there are no further questions, I will now turn the call back over to Dana Matsumoto for closing remarks.
Thank you very much for participating in our earnings call. For the second quarter of 2025. We look forward to sharing our progress with you next quarter. Thank you.
Unknown Executive: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Matthew Clark: Ladies and gentlemen, that concludes today's call, thank you all for joining. You may now disconnect