Earnings call transcript Q1 2023

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Operator

Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Central Pacific Financial Corp.

First Quarter 2023 Conference Call. [Operator Instructions]. This call is being recorded and will be available for replay shortly after its completion on the company's website at www.cpb.bank.

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

David Morimoto

of Pacific all Credit and we morning Officer; results quarter and review you are Officer. the for Thank for and Executive financial for joining Arnold Martines, Anna the Chief me Hu, Corp. Chief With Financial us President as XXXX this Central Executive first President Vice

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

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

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

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

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

Arnold Martines

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

Hawaii turn updates. to with indicating we continues. do, credit arrivals on tourism I'll start visitor with financial key our well detail the metrics is performing team industry levels, update Hawaii year-to-date an at to and as I'll the as market, the provide pre-pandemic insights on over other As The recovery then and additional well normally it

daily to well from XX%, of year February same to $XXX, XX% occupancy hotel ago. a as decline in visitor from increase totaling with of average the visitor Hotels an total offset in year of at in increasing that will Japanese up rate modestly levels. progresses, slight majority a and February, only pre-pandemic at improvement compared the but we'll which Hawaii continued perform in international about continue The statewide this continue U.S. XXXX. to in visitor help robust, visitors an anticipate expected be an We remained Mainland. ago, X% spending is Hawaii month see from U.S. arrivals year are up the $X.XX market, billion X/X arrivals. to of in XX%

and housing Hawaii's employment solid sectors remain and stable.

was Labor in Year-over-year statewide have market was seasonally still adjusted X%. our rate of industry statewide a rate. the Our increased sectors with unemployment jobs payroll shortage with line in certain which of by or service XX,XXX conditions overall dealing national February, despite normalized, unemployment at workers. X.X% nonfarm

prices improved with single-family Housing short new very Hawaii price remained the condo compared $X.X March. Oahu sales up strong month-over-month price median million, but March, in to record home in in fell the sales to of median volumes a Home setting $XXX,XXX back and XXXX.

of continued Hawaii in we market sales While remains housing moderation to continue the very inventory. prices, activity compared slowdown rest U.S. optimism the gives whole, for while a healthy the the the and a nation has to experience a Hawaii low year. potential to of continue in healthier and monitor some Overall, us market with strong we demand impacts Mainland, which outlook as this

industry want last occurred liquidity, the banks, month few that and impacting that a regional events strong has to Given reiterate capital CPF credit. large I

long Our is diversified and deposit portfolio tenured.

model relationships longer-term sensitive. and sticky rate customer business are Our less on based that is

with XX deposits customers with more of for relationship CPB years. approximately having billion CPB than has XX% in $X.X our been

portfolios. Additionally, inflow to of net FDIC we've XX% or collateralized. diversify are March since our as customers And experienced a the deposits deposits insured modest look deposit

and industry settle making prudently while focused the remain As liquidity, we growth carefully situation continues to on asset down, decisions.

pillars remain any on manage steps our and strategic taking emerging nimble to will while Going continue risks. to forward, we focus

to of to our gone transition proud every Finally, smoothly, customers who and exceptional our serve day continue up our step the community. employees leadership of and I'm has team

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

David Morimoto

Arnold. you, Thank

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

Our balances the relatively remained in loan quarter. deposit and first stable

On pricing loans the ensuring structure. we the on put selective thoughtful balance appropriate side, sheet, we lending and are and about more

the also economic We unsecured loan improves. let a prudent to until outlook measure continue consumer as Mainland portfolio the national runoff

Overall, loan operating is new remain and continue percent to moderate in that, for loan we year Having low the of growth the full our evolves. as advantage opportunities to in XXXX, to look range. said we plan growth and nimble single-digit will guidance the take environment

deposit roughly early in despite where quarter were the keeping We stable quarter, by in some total month deposits of the seasonal January. $XXX in successful outflows first million balances declined

Importantly, $XXX the X. $XXX million during of total million of growth total deposits since net a increased deposit March by month March, with

from deposit relationships. of benefit was built to core upon continues and a portfolio years that stable granular CPB many

We enhance our execute core further to position. strategies to gain upon continue larger funding of a deposits share to liquidity and market

income was basis decreased first points for higher quarter. and was net $X.X X sequential from in decline by due the quarter interest million quarter, interest $XX.X Net prior funding The a margin the first the million quarter, of to costs. primarily X.XX%

the the basis quarter, by interest recoveries net interest nonrecurring prior X declined Excluding in points. margin

Our points total of increased cost to basis the quarter. first XX deposits in

on margin, to put While XX%. reasonable a our some starting been interest-bearing has deposit is deposit pricing our interest net beta cycle-to-date managed pressure to repricing

the the other quarter. quarter operating $X.X greater amount million in totaled expenses BOLI prior fourth increase nonrecurring first benefits. quarter the primarily the decreased First by operating quarter, of quarter, was million due income $X.X which of including million, $XX an million from from $XX.X Other to a prior

approximately million. included quarter occupancy advertising totaling $X onetime prior The lower costs and

quarter expenses FDIC Additionally, and the higher software included assessment. current insurance computer

to rate a first effective XX.X% result as Our in of quarter adjustments. compensation declined discrete stock the tax

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

repurchased remained million we share $X.X average an position of $XX.XX. shares of strong. or cost first total cost quarter, at the a per capital XXX,XXX And Our during

due mid-March, we to share the suspended repurchases operating environment. temporarily In evolving

quarterly $X.XX payable on Finally, our shareholders declared on cash record June share, of May Board of a will Directors which be XX per of to dividend XX.

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

Anna Hu

you, David. Thank

loans of assets X at nonperforming also decreasing remained X.X% points Delinquencies points loans. quarter the low at to total first of loans. with of just total criticized quality remained unchanged basis asset X basis Our and assets solid in total

with industry loans. exposure at U.S. total by X% sector Our at is type just of construction loan the of total low loan portfolio and loans XX% well to and diversified Mainland

consumer of loans. secured split and is total and XX% auto, a weighted of The the loan-to-value with Over estate XX%. evenly home X% Mainland improvement portfolio total real portfolio between loans of unsecured roughly loan average is

has at of of average average Our office commercial sector months real XX% weighted office X.X% to loan-to-value by and a low XX estate portfolio loans. maturity. with is diversified total portfolio The exposure weighted

loans including being make. are continue our concentration loan-to-value policy, and more standards tight and We conservative with in underwriting the selective we

for our and points basis which that equates into we normal to percent The the to quarter, as unsecured had XX portfolio due of charge-offs built return. a the in levels to $X.X loans. were charge-offs increase the came net seasoning million of consumer from Mainland slight first net expected loss primarily annualized Our average portfolio

Mainland million did The by new add decreased purchases. unsecured the portfolio significant in consumer run quarter off first the and $XX let as not portfolio we

allowance was $XX.X or X.XX% outstanding for credit Our million of losses loans.

primarily for recorded to In the we provision first charge-offs. loans, net $X.X credit due losses on quarter, a million

quarter. $X.X credit commitments losses recorded million for we for the $X.X provision total a during million of unfunded a for provision Additionally,

strong positions perform to risk many external the years continue us to and we sustain may maintained now despite management challenges Overall, have culture come. well, for that that

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

Arnold Martines

have Central you, solid liquidity, summary, Anna. Pacific credit. to capital continues Thank and In

leadership navigate our value well our and investors. maintain Our as customers to our create we positioned, balance to and the shareholder sheet will current environment our is experienced for and team community commitment continue the more

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

Operator

[Operator Instructions].

comes Feaster James. Our the with question first of line from David Raymond

David Feaster

happened of seen of I'm continued of portfolio. or I you you're saw It all of it other lot in pretty migration the sounds some average the as period the good like you you growth? the see throughout walk or But just plays trends noninterest-bearing quarter. flows looking some of in just throughout And flows. deposit kind expecting at wanted on Obviously, Have of maybe migration even the looks versus a out? you're like seeing to we end, continued kind curious, just what through kind growth March. this that could some maybe start like like some deposit saw quarter. to stabilization

Arnold Martines

David, I'm respond your to question. Morimoto let David going to

David Morimoto

the X, during and the roughly as outflows remarks, million. million on touched outflows the month and $XX total the day early importantly, prepared additional we during deposits a year on in think normal of -- failure, Silicon number by $XXX here. March deposit in total of coming that's since roughly the There deposits important before the $XXX that's off And David, Valley January, were February outflows million. saw basis, I grew But we seasonal another March, end.

a higher I of at we're shift, institutions, you're mix we're occurring shift mix other think out there that's and interest-bearing there products, the obviously, customers far As is into DDA what as wherever our possible. is accommodating seeing seeing what noninterest-bearing

I is we're about a of At DDA XX%. of percent deposits the of back deposit you XXXX mix think the David, the the at as if shift, X/XX, was thinking way to XX%. pre-pandemic, go end it end was

program, how here. in X% thinking still during kind $XXX because pandemic is some we're of than shift. be to loan had mix hoping million that there's room mix the continued PPP another the with decline. So less going the success deposit maybe it's that's of we That for that about We're the but

David Feaster

Okay.

So migration like account is the market that. from just or -- It's characterization? fair going bond or bank really it's the anything a of outside to outflows versus that

David Morimoto

the is rate rate As doing the are segmentation, we're utilized mix providing the options strategy during last this I majority much the deposit kind And customer options. higher-yielding say environment, discussed the for of that right? customers shift, for of is strategy strategy, pretty we same segmentation looking rising would throughout environment. that it we've product

strategies it XXXX similar -- expect and were cycle think during we our I XXXX, pricing results here. that positive was the successful, to

David Feaster

the Could -- still could maybe growth? talked just yields, of that are landscape at growth. you slowing new loan the could could loan are support returns single-digit yields about point? risk-adjusted for pulse at kind you gears trending, I demand is side. you point? about that's And and guess, where helpful. good seeing and low How maybe about you That's new then the pushing competitive on what just to the of that talk And And talk segments this loan deposits higher switching you this clients island? your Okay.

Arnold Martines

can bit this about our we origination an existing return, outlook. focused the we risk-adjusted start, are appropriate loan we David, current ensuring obviously, continue and little be and Arnold. is decisions, on in our selective more we're a environment have But Maybe being make yields. And then I'll relationships. Yes. economic David the talk that loans given to

the for next do With quarters. is that we see in said, we Construction still loan here the few demand robust. opportunities Hawaii, space CRE pretty see CRE, still being

that. that seeing And in to small be So think focus first of pretty to our on that area I quarter is to optimistic for over of the in. really, is perspective we're And be very relationship-based further with I a about a what as reason our we be you're future. tends course, an on mean growth business from small results our in good risk-adjusted the the see business, market time, well space focus that because as continues

-- So maybe comment yields. David me let to but ask on

David Morimoto

Arnold. Thanks, Yes.

the about X.XX%. yield during new just average quarter, David, So weighted was fourth the loan

to Arnold So it deposit to as the market we continuing We're expecting mentioned, increase, operating for and right? we're actually with And interest environment. returns are look continue it obviously, to to current continuing rates appropriate -- risk-adjusted in is increasing look along rates.

David Feaster

you And benign. helpful. relatively asset more maybe That's on quality on I'm just mean touch touching just the still if then could I and curious things broadly, Okay. maybe -- are elevated. outlook for the also and But standards charge-offs anything the were you're watching segment, like anything that, honing you're credit consumer in broader how closely. or specifically that tightening maybe on front.

some about seasoning nonaccruals. we an loans the but and of consumer the delinquent taking in also increase portfolio, did talked You consumer see in

again, more quality that just in curious And if specifically then, on I'm dynamics you the asset of on broadly. could consumer. honing some elaborate maybe

Arnold Martines

Yes.

continuation me we're respond overall, very let have is But of David, with just your specific quality. questions. Anna the some Arnold. this pleased of I'll that strong So to asset say

Anna Hu

of a right, the we smaller you're to are delinquencies and small and, then, to the focus where we continuing specifically pickup business market in the So on seeing extent, a are course, charge-offs. consumer market

note too are do the consumer But did it You charge-offs Mainland is unsecured elevated really the in I due first to that see portfolio. to want quarter, there expected.

price we we out During our certain within underwriting, and expectations. level expectations, have of are a did and well those charge-off

standards, we selective real continue staying our standards. as conservative estate, that the disciplined. in Arnold terms go-forward basis, not of our for to, It has And spoke commercial at underwriting to our exceeded concentration being doing. limits, looking on very loans stick conservative And requirements very just to we're a underwriting loan-to-value

Operator

line Piper of Liesch Our next the question with Andrew comes from Sandler.

Andrew Liesch

of -- competitive more that I Just loan in be strong, curious on portfolio could here, you plan also to maybe growth the is not going the going as If may the a given size forward. is that think as growth. or to loan securities not securities front, be need maybe just invest for deposit there funding that

Arnold Martines

let me have David respond Andrew, your question. to

David Morimoto

that a it's largely near I we'll fund investment of currently portfolio XX% is And roughly Andrew, mode, runoff investment likely to opportunities. Yes. the in think, assets, to portfolio stay using the The roughly, to of flow cash $XX loan in be is million asset in XX% likely of XX% quarter. runoff, higher-yielding total term range.

that, said deposit always seeing strategy be of function we're the will a portfolio will loan nimble side. with the be on what investment it Having flows and and

So that flows, to deposit in the variances the loan some extent and strategy there's for buffer that. be cash the will investment

Andrew Liesch

right. to -- to do of into is margin the That's core be then basis kind And think that number quarter? points. going about? All all that throwing of it. right X thinking Or about you that just basis compression helpful. Is that through the sort down is accelerate this Got

David Morimoto

interest we're Right X.XX% now, X.XX% to margin. guiding on to net

stated, is balance continuation to sheet risk interest an standpoint. balance as margin. I -- So relatively our on we rate think important are what's we've guiding sheet consistently well from of there the is matched But compression a net interest slight our

And don't margin. net interest in so the we have swings large

as So last we significant net at saw did interest the wasn't institutions. we year, see other some rise in maybe margin as some but it

So of similarly, downside, don't the the magnitude same of on I declines. type anticipate

Operator

a time. pass Martines, Feaster line are question David James. waiting CEO this Arnold conference with Raymond I at back any We have President follow-up to the no and -- from There apologies. the for like questions would to additional do of

David Feaster

Right.

this core just just I a Obviously, seasonal one question run So if seasonally side. wanted quarter do we is on maybe of some good to impacts, think is exclude rate? you more the But what quarter. a ask curious, the expense higher

pandemic, expense the again, And how build-out. then and branches revenue given and guys just the realized you your middle of just a expenses how going tech saving potential lot opportunities about do expense you you've given the some you of cut think spend environment. the I challenges? in just just think save know of about few a I'm the just opportunities and, forward curious given inflationary challenging operating the

David Morimoto

David, I'll Yes. David. it's take question. that

at other $XX of But operating to guiding environment, you expense quarterly, taking said, cognizant operating hard is and million we're total management other $XX we're million. expense, a The opportunities. as to look efficiency operating the

see we'll the in how quarters. plays so And that out coming

range. efficiency the of opportunities that revenue challenges expense will end to look for operating keep the other And on that the extent to and persist, lower need we hopefully

David Feaster

then build. was capital nice And it the Okay. to see

the it program. still You at Or seems especially interested real alleviated. on seemingly about have maybe repurchases you repurchases prepared remarks pausing -- in capital it as liquidity Are point. fears on the the on thoughts in Are settled are for temporarily overall buyback all the this down, just return things And fears, again? like you pause? touched

David Morimoto

we'll they're banks, operating relatively our Yes, cheap will through and appropriate the a management the and like environment. situation the it's is David. blackout, and decisions. But on pause But the buyback stock, the evaluate at environment, insider now. cheap, the make the challenging all Obviously, then they're we're operating ultimate right time earnings

is we we're strong, what beyond operating cash to the strength going our is sheet at be that going we're environment. sheet that And we'll deployment a to the we strength I a that once able through quarterly may to think difficult capital And balance need, stability And customers comfortable is and now. options paramount our balance then right for we're we're dividend. the ensure do what have that assist sheet such take look and balance community our

David Feaster

quick the update then get one, expanding last initiative. just maybe you still planning Not Swell time on an could to the us you environment? huge the a in the And the give on And with update we given thought obviously, short I process any contribution, on just that program. Okay. but changes talked, to Last just broader a were just wanted that? the run,

David Morimoto

continues David. Swell its to Sure, work model. business on

public strategies we've And previously, marketing it's So customer spot hasn't generate acquisition. actually out as But the It its yet. different different trying strategies, is discussed profitable it's it found customer sweet acquisition. in today. to

on we're to such So spot as point, their Swell continuing it's sweet And go-forward their at can work them can sponsor will the immaterial we they'll we're CPB the be some results, our and grow and with environment conducive and still grow. that bank find to hopeful that strategy.

until it's very that, going to slow things, because of operating environment. prudent going thing until But do. that's think the we the I find And those to be

David Feaster

BOLI you that on movements obviously good Okay. another side, some and quarter. And were of there makes Yes, then fees the sense. touched the is

you core run kind curious fee income of about how a think Just rate.

David Morimoto

Total BOLI to has income then just Yes. quarter. programs. deferred other been that comp And operating is specifically $XX roughly volatile a more on line million the of because the line, be going

programs. life our We a acts have comp employee-deferred director-deferred as hedge insurance corporate-owned comp that for and

and So on and piece I But core the the the equity it'll probably from and performance market based deviate that is benefits. say piece, quarterly number up $XXX,XXX BOLI COLI down would that debt goes markets. with equity about potential

Operator

question-and-answer the now CEO, to to remarks. pass and President Martines, like would That any session. for I conference Arnold concludes back the closing

Arnold Martines

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

Operator

Central That Financial Pacific concludes Corp. the

you hope Call. rest enjoy First day. all your the Quarter of XXXX Conference I

your disconnect lines. now may You

Central Pacific Financial (CPF) 26 Apr 232023 Q1 Earnings call transcript