Earnings call transcript Q4 2022

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Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. And welcome to the Central Pacific Financial Corp. Fourth Quarter 2022 Conference Call.

During today's presentation all parties will be in a listen-only mode.

conference open the questions. presentation, the will for be Following be recorded replay the This www.cpb.bank. being will company's available at on call is completion and for its shortly website after

Morimoto, call Please Officer. ahead, sir. to the Chief go turn to Vice President, like Mr. I'd David Senior Executive Financial over

David Morimoto

Thank and for XXXX Central all Financial Corp. thank for we us as of you, the fourth financial quarter Hannah review results you joining for the Pacific

Hu, Chief morning, this our Arnold Vice Executive Credit Officer, Chief our Anna and me With new Officer. and Martines, Executive and President President

We additional cpb.bank. have relations and in that prepared a at supplemental investor slide is details presentation provides section the website release on our of our available

the During forward-looking call, make may statements. of course today's management

cause these While materially statements those differ are we projectors. that from they believe may results actual reasonable to on assumptions, based involve risks

slide complete our risks discussion refer the statements, please two of our a related of forward-looking For to presentation. to

Arnold and And to our now President call over I'll Martines. turn CEO, the

Arnold Martines

your good Thank Central you, and Crop. Aloha, Pacific David. We morning interest Financial in appreciate everyone.

As results. on Hawaii quarter metrics, market detail to insights we summary additional update and on financial other it fourth a strong start the I'll provide of our as I'll to normally well the and turn and over updates. team an credit as key our Then with do,

the XX% as The and fully improved at the to trend from U.S. Hawaii with about pre-pandemic well The is will the yen a continue tourism holding and of sector Japan country now Japan levels, optimistic visitors are that Mainland. has about continues visitor XX% are levels. arrivals of to up we reopened perform counts recently. from majority of value are pre-pandemic Visitors

slowdown, XX.X% expenditure, occupancy statewide a domestic compared December domestic rate will in projections increase year translate to growth billion in an X.X greater to offset XXXX total daily its in the and XXXX. December, November, visitors. to XX% higher expectations Hotels continue upgraded may the strong, visitors is Hawaii X% potential hotel to and robust spending month demand. at in also $XXX government up slowdown hikes, wage helping Hawaii ago. with visitors for growth global from based a same avoid Hawaii, of in of an which substantial on Japan Japan average totaling The business well in perform

and employment Hawaii's sectors remain housing solid.

was family by Our X.X Hawaii forecasted previous the statewide very million unemployment is total Economic fairly in prices at seasonally in remains Hawaii Organization from a be is Housing adjusted home to X.X% XXXX, price rate XX.X% University year. November, strong of and in with median XXXX, single Research which XXXX. in Oahu the stable at up

We in low more ago. Reflecting believe with to the due Hawaii trend, this healthy home year mortgage of XXXX and cooled strong rates. family compared demand home in in market market of sales to housing The continued national a sales a moderation a was XXXX number XX% down remains have rising as inventory. the single view and

a adoption, the supported a economy This huge Hawaii belief a big experience our strong and to that the CPF home combined U.S. strong the less tourism Overall, by expected is military on optimistic digital ownership, likely and to development. successful Hawaii we is with compared market is remain way our market also we Hawaii to markets. in it growing is focused other presence, and fact that to and downturn strategic remain small remain believe be including Japan business, material most about continue as will pillars,

improved bottom solid line. deposit with in loan XXXX ended We and interest resulted management, an which in results. financial increase growth, and strong our net income, to Moving expense an

sequential quarter. million by increased Our total or portfolio $XXX X.X% loan

prudent and as the X.X%. growth types we across The focus asset or priced all For million was $XXX loan diversified appropriately the on grew growth. loan full XXXX, portfolio year continue by to

we healthy all let that in unsecured and loan In consumer growth have categories outlook except We QX, in loan our runoff strong book a the Mainland, Mainland XXXX consumer. anticipate continued in the in growth we improves. to runoff began overall pipeline said, be loan we portfolio consumer loan unsecured mid until loan digit moderate our percent With will expect XXXX, to expect single range. national economic in which unsecured

us total successful from X.X% During million as in deposits deposits, were acquiring which the or our fourth $XXX and significant costs. borrowings manage we private our quarter enabled quarter, increased to the reduce time funding by

stable to pricing. have While with deposit deposit rates deposit the be tightening us strong past base betas somewhat, and core enables increased consistent cycle. repricing market CPB keep Hawaiian rational on deposit continues to low,

deposits, XXXX, of into retain we strategies to our only deposits share future a needs. garner but not implement larger have Going already core asset to to to fund started

CEO. personally Finally, excited to my in new and anticipate I our I'm smooth talented as team. very start a XXXX and role experienced leadership with President transition

our of in steadfast to meet exceptional broader employees needs of the proud our our and I who Lastly, more the not group could mission customers of community. help be remain

Morimoto, now Financial the call over Officer. to David? Chief I'll our turn David

David Morimoto

Arnold. you, Thank

our earnings quarter. in fourth $X.XX was ratio on per for was equity million X.XX%. Return share. to Net efficiency the $XX.X income our diluted or average on was average Return Turning results. the XX.XX% quarter was XX.X%, assets fourth and

was $XX.X For of $X.XX. million or XXXX year, income full the net EPS

million pre-provision pretax, by year XX% PPP or full XXXX income $XX.X increased excluding year-over-year. income Importantly,

X.XX%. quarter. was by the outpaced three flat interest the loan million Net interest margin sequential points our the funding for and from in margin costs. as by $XX.X When The increase income increase prior basis PPP, in yields net $X.X excluding increased net from and quarter increased our the reported balances the remained impact million fourth at quarter interest

fourth of was basis in quarter. XX cost deposits total points the Our

bearing manage to approximately far repricing continued thus We and segmentation, repricing to XX%. deposit has beta been product our deposit interest

the totally the death Fourth million, quarter which from primarily income certain $X $X.X benefits cost totaling BOLI income expenses in approximately $X.X operating from million operating well included lower million, down was prior prior million $XX.X [ph] quarter, gain. as advertising and higher primarily other market due one-time fourth $XX.X by by The This totaled million the $X increased was as the quarter. million. to driven occupancy income. equity non-recurring decrease quarter by driven higher Other

rate we modestly quarter which efficiency increase run $XX.X million to the we per invest leverage, in lower over Despite in continue expect time. as -- of will people, to a and million XXXX expense that, ratio positive range $XX.X operating Our technology. will drive our facilities

the a exempt effective fourth to rate XX.X% tax income. tax of in as fully result Our higher quarter declined

to expect effective Going tax to XX% the we be range. the XX% in forward, rate

at the share we million a of strong cost an of per remains position quarter, during cost fourth average capital $X.X Our and $XX.XX. for total XXX,XXX repurchase shares

The purchase a XXXX. up to authorization of $XX new approved Board Directors for annual million share of

quarterly of $X.XX cash on be which XXth. Additionally, March our Directors Board a February payable per XXth to shareholders will on of dividend share, of declared record

Anna? Hu, the Credit And over Officer. to Anna call our Chief turn now I'll

Anna Hu

you, Thank David.

Our the fourth remains asset quality solid in quarter.

is portfolio a loan strong with of diversified weighted estate LTV Our with well and XX%. over average real XX% secured

conservative our including loan portfolio and policies, concentration underwriting with tight Hawaii. standards, and LTV is XX% continue We in of our

All meet impacted consumer For exposure with have underwriting could loans by real we commercial Mainland, familiar are and markets to sectors partners. be purchases typically the an our from downturn. are banks participation economic larger our lending loans on we minimal We lending guidelines. credit Mainland are established that the and estate believe and with, commercial U.S. do we

were of loans is just million. total total non-performing $X.X Our unsecured loans. to construction were just and or of loans. our is portfolio At points, portfolio XXst, loans, criticized Total total X% total consumer assets basis X% Mainland December of assets X X.X%

to equates Our were quarter, as basis $X.X loans. annualized net of charge-offs average the million which percent XX fourth a points for

Our provision quarter, for loan recorded allowance outstanding loans. portfolio credit of $X.X and charge-off. million was losses X.XX% for or losses $XX.X due credit the a growth net In fourth we million to

Now, call Arnold. to I'll turn the Arnold? back

Arnold Martines

XXXX, Pacific continue well-positioned great Thank Bank deliver in a strong you, in Anna. we to and had be Central to XXXX. continue performance year

We have team investors. we us to to as disciplined create the shareholder and leadership forward management for risk move value continue our prudent and right

be your questions time, Thank continued happy you you and At this have. any address may organization. to our for in we confidence will support

Operator

[Operator Instructions]

The is question David Feaster Please the from of with proceed. James. first Raymond line

David Feaster

everybody. morning good Hey,

Arnold Martines

David. Hi,

David Feaster

about in in dynamics Hawaii. on Maybe and just talking the maybe of starting the that seeing competitive you're some -- side funding

it rational about we've that's seen historically. and a talked what market, You being more

you -- the fund think your growth updates and deposit Japanese that Just growth and other And loan on talked the about about? curious, growth deposit competitive how the to been on deposit other any working dynamics side. that the you've just And from thoughts initiatives the there? any you tech both on,

Arnold Martines

at we Mostly it way costs I'll in were campaigns the bringing -- then David. while looking better and from at comments wants that costs to time earlier were we look But that deposit in our as to Thanks David offered start is we're rates in were that -- ran And we this wholesale is we well. This have alternatives $XXX to looking Arnold if about QX that, funding The rates the in million. deposit Yeah. we the successful add I borrowings QX. mentioned in and as comments, more the time in general. deposit was increased, I'll at.

mean, yet the seen. As and further movements deposit is continued on yield itself, Fed curve as I impact be market far of to tightening bonds

our environment. obviously, funding we're ensuring actively optimizing that to operating sources this managing So, and we're performance

in core And deposits. course, with garnering focused regard to of where we're focusing, we're more

-- had about a and Our billion about Japan quarter-over-quarter. that well. is We in $X deposits, we're up Japan million $XX development going now was

we that. up as feel good that opportunities earlier, feel bringing from and have is about deposits So, Japan. good about in the in -- we we opening mentioned Japan I

marketplace. positioned challenging And very costs a longer of doing kind term. overall but, job the generally, well managing obviously, So, think, well term, in we're near in environment, teams funding I good

David, you want anything? to add

David Morimoto

a Yeah. cost franchise Maybe low have provides relatively strong to deposit that $X Yeah. billion We're in fortunate just obviously core couple funding. stable, a over points.

CPB, specials in mentioned rate Arnold proactive cycle, to more while using we balances at retain As cost. sensitive in deposit are with some attracting CD reasonable rate balances new the also current

And you in that's we're rate XXXX, linked-quarter implementing deposits strategies then, the or and pretty exclude sequential good deposit were think used environment. annualized, from expect I performance I customer $XX then, million finally, and very X.X% in results. operating think government Those to if cycle XXXX successful this growth, rate deposits what rising grew quarter similar are this similar Our we strategies cycle. pricing we in the that

David Feaster

go sensitivity And as discipline with side, improved NIM maybe No, think -- about assets I think rate about out the you we taking throughout and do look beta how this and just growth of about and a to just we maybe forward, year, trajectory of how kind market talk more course accelerating, you just the the NIM deposit curious rational continue guess, the absolutely. side, year we loan your and context of into are to the the on margin maybe the then, the but trajectory higher. ability yeah. over I'm as and pricing the reprice as defend kind

David Morimoto

David again. kind NIM Yeah. net as of slowing Hey, NIM of Yeah. industry. We a interest we've expansion David. expansion. is forward. now of flattish for guiding seeing the X did quarter been It's XXX velocity Obviously, The the been NIM right sequential throughout to guidance XXX, basis achieve it's has the going core to margin points so

David Feaster

updated makes Swell That are wanted just then, initiative there. we And banking and to service and where thoughts Okay. the on your get the sense.

this Elevate impacts at that expansion on thoughts all? partnership and whether at sale Your point

Arnold Martines

is market. wider invitation only, waitlist an an David. beta do testing. only in like, the platform. to it's really so that -- FinTech customers is a we've there's half operating, first in beginning first turmoil preparing last from over join. do available, we've hundred – market. are half quarters, launch Sure. as We're a pilot test slowed acquisition of but the customers XXXX. little currently the on going Swell actually the Swell There's broader a it But seeing been down question, and we've the been It's what Obviously, to a lot in in it's a bit to as And And of this Good app customer we're it's we're talked we've the result lot a about of several of rollout marketing, the of we year. about inviting the testing. -- Swell -- of in the of currently

for FinTech The not new initiatives. greatest the operating environment is launching

on we're and slowdown happening has The customer the than profitable rather to customers. broad marketplace. We're looking Swell strategy decided what's acquisition. slightly, we've just focused pivoted now for observing So, FinTech in

space. seeing So, we're the for a think rather more than than smaller amount, profitable a a in FinTech broadly customers. thousand we've better millions been looking hundred of unprofitable what And or business customers, model that's we

David Feaster

Yeah.

makes kind that sense. a But non-event? partnership Elevate think at does complete or of of it impact I that all, the is sale

Arnold Martines

Yeah.

that about Dave. Sorry. of, I forgot part

Park Management. to behind Park is is sold Swell. So, as Management Cities Cities to you Elevate money Asset private be looking know, equity the Asset

working has the So, initiative. Swell. Series was to a prior invested in largest Cities the Park And long then Swell the Park with A that history outside of round of Cities Elevate money

Park Cities a So, and Swell, familiar to entity is very Elevate, CPB.

not going So, forward. affect plans it for does Swell the

David Feaster

everybody. Thanks Terrific. Okay.

Arnold Martines

Thanks David.

David Morimoto

Thanks David.

Operator

Thank Liesch with question from is Andrew Piper you, Please Mr. Feaster. next The proceed. Sandler.

Andrew Liesch

morning. Hey, everyone. Good

Arnold Martines

Hi, Andrew.

Andrew Liesch

back want that just from this quarter, did forward? -- I the from here. mix guess, were loan just the kind we campaign. and talk you you get then, How A think and was as And the So think funding mix how to mix the of of it's like it to be CD deposits change? curious going where I'm of -- hi over you to time, CDs going deposit CDs? do successful look bearing about it towards think going lot the to should -- non-interest they is growth at pre-COVID? the weighted was more I match increase

Arnold Martines

this I near right that going saying now. think, market new coming Andrew, is and deposits XX/XX acquisitions, core. by customer top to from mix time Core I'll probably a we're see mainly new just acquisitions, Yeah. start Arnold. term,

see bank that as issue. this is has every near don't this As don't longer term I see manage other I through. earlier, dynamic a -- it us to mentioned term I a and

in future. term. to We'll of journey. be to to we're back But ease in a just a get of I we kind that bit going where get to were think, rates effectively pre-pandemic. as going the the to start Fed's we're going it's little near back And manage

sure wants David to not I'm add anything. if

David Morimoto

XXXX. maybe in percent a DDA, there's a Just additional DDA. interest DDA at lot deposits one of as the total point, of Andrew. obviously are On end

was the So, total of deposits. of XX% pre-pandemic, last year, At it XX%. was end it

to roughly in differential X% pre-pandemic, that's deposits. million, the about $XXX there's So, in $XXX million

lending. We think DDA ratio to pre-pandemic our should baseline due PPP on our higher be than outperformance

$XX that keep of normalization we the doing range. thinking end obviously we're So, DDA can maybe more we're million that we have balances, everything to $XXX or lower and on million to

Andrew Liesch

then, curious is range Gotcha. for to helpful And the that just That's really color. that for the margin XXX quarters or or the to related quarter year? several Thank that is you. for Just what guide, for? your XXX next good

David Morimoto

Obviously, quarters. next for that's things it's an what environment Generally, what we're and next Yeah. That's quarters, looking very operating volatile the for at. the lot is couple we're Andrew. a of couple but can guiding change,

Andrew Liesch

of quarters? sense. Certainly buyback. how active you a guess, of looking repurchases see last or that makes pretty guess at couple be, I active then to pace been intend do reasonable, good to Is I you're the similar And kind how the new that?

David Morimoto

orderly say would million quarter. in dividends. to cash shares XXX I repurchasing $X on been repurchases XXX per Yeah. combined similar. XXX,XXX to about Spending We've about XXX million $X roughly with --

net So been we've that's targeting. roughly that the income XX% return of

Andrew Liesch

I'll my back. for Thanks. is helpful. That all you Gotcha. step questions. Thank really

Arnold Martines

Thanks Andrew.

Operator

[Operator Thank Instructions] Liesch. you, Mr.

is Compass next Hunsicker Point. The question with Laurie proceed. Please from

Laurie Hunsicker

Good Hi. Yeah. morning.

little thought can quantify maybe was December where Just where It as I lot to a I look Swell XXXX, more XXst? when about that back asking circling then, Swell, ramping off Mainland bit David unsecured sounds balances you guess it like of And ceasing what you you on not are does they're talk your of a like? that, consumer. there. in up But were

pilot Thanks. in or us just about help So, testing is this Hawaii, think then that.

Arnold Martines

I start earlier outlook Swell. can and we we is the it consumer Arnold. we to are speak then Good economic turn unsecured until my the outlook, purchases But Mainland he time and consumer, suspending yeah, on mentioned this unsecured -- such in comments, to the over national I'll Laurie, improving. is Mainland So, as David I'll believe morning. that outlook,

So, unsecured. term, suspension pretty near the much of consumer Mainland full

Okay.

whole actually and we market. So well in at. pretty auto acceptable -- still data far as, to risk recession, we're area in loans past, given auto, the points that continuing performed we're but far at as our as an as it it's as -- on believe we very last consumer, there the saw active looking the what in we're Hawaii, the And looking where also be

generally we're the basically auto, So, event, outlook in open improves. on unsecured now suspending we're speaking, to national mainly any consumer, but for until just

it I'll And little to turn over to talk David a bit Swell. about

David Morimoto

Yeah. And when Arnold's on Mainland a Laurie. side, the clarification, talking suspending purchase just about unsecured, that's

Swell. continuing rollout but we're we're suspending gradual So, of and deliberate Swell, not very the

So, you hundred at XX,XXX. balances X,XXX. give are the are we than the aggregate than The year-end than The platform. deposit balances less less an customers to less less have probably idea, -- are in on loan about a

very it's at balances so, nominal this And point.

We first at half all. of some we test to balances anticipate meaningful XXXX, planning marketing do are the be to but in don't the

that's we suspending Swell. so, And not are. where We're

Any -- do follow Swell, any on have you questions up Laurie?

Laurie Hunsicker

Yeah.

we in So, you as in that? XXXX, looking How Are said guess, taking stay are you is, to? it it loans. going obviously I ramp taking you guess think you taking other to out not that words, you to to I thinking to question the you're million? $XX X,XXX it up, $X are at would about million? that you Are what and

David Morimoto

Laurie?

Laurie Hunsicker

Are there? Yeah. you

David Morimoto

Yeah.

Sorry.

Laurie Hunsicker

Hello?

David Morimoto

we Hey, -- Laurie? had

Laurie Hunsicker

I'm Can you hear Yes, here. me?

David Morimoto

Okay.

had in any technical balances end, you. lost but I are to we we our glitch Swell a thought $XX would No. time on exceed not Sorry. say We going soon. that million

Laurie Hunsicker

was for. I what That's Perfect. Perfect. looking

piece, had that XXst? us then, that can I mean, looks it at I helpful. the that your is Okay. you help unsecured what then, That's book million September, consumer of credit you just $XXX pristine $X.XX consumer about, as December consumer. is And think on have And at you Mainland from million, The like much outside of the is consumer it unsecured Mainland the So just in charge-offs. at came us of help what and that million Mainland charge-offs Mainland total? in from were how think of then of Thanks. XXst came how the about, piece? consumer. quarter, Can much December $X.XX million your of $X.XX

Arnold Martines

to Anna to question. respond ask I'll the

Anna Hu

Hi, Laurie. Good morning.

just at So, consumer was for million. unsecured it $XXX our fourth of the quarter, end book about

quarter. that from go did in rest a the really we quarter, the slightly any of need suspend because the for to increase we third XXX was So, we But did about talked we did had place and and couple orders that ahead the at end fulfill. of purchases of additional we

from auto, in our to regards is $XXX home $XXX all consumer. about charge-offs, was With about and to The our improvement $XXX in consumer. $XXX,XXX about about the Mainland breakdown book. Mainland that's the And unsecured consumer in related

Laurie Hunsicker

great. Thank just you. back a That's do Perfect. for going margin, then spot you December? And to margin have David,

David Morimoto

Yes.

XXX, spot were spot quarter. increased to deposit XX points basis yields interest points, was give in color, And XX a while was which loan costs was full is XXX, month-over-month. December which increased little which points December So, the -- December more just to flat then you month-over-month, XX basis bearing basis in

that all that the think provided. flattish is I -- So, data of and we guide of that supportive

Laurie Hunsicker

That's you. leave there. I'll it Thank helpful. Perfect.

Arnold Martines

Laurie. Thanks

Operator

you Hunsicker. There Thank questions waiting additional no at time. Ms. this are

any over for turn call remarks. Arnold will I to further the So, Martines

Arnold Martines

progress. a for We Thanks in look quarter our of future opportunities update lot. to Thank fourth you you call on very XXXX. earnings much to the our participating forward for

Operator

participation. you That your concludes today's call. Thank for

may You disconnect line. now your

Central Pacific Financial (CPF) 25 Jan 232022 Q4 Earnings call transcript