Earnings call transcript Q2 2023

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Operator

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

Second Quarter 2023 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. recorded completion be at on being shortly for www.cpb.bank. is its after the call and available will replay This company's website

Matsumoto, Please go I'd to and the turn ahead. of Group Dayna Director Accounting. like President Senior and call Finance Vice to Ms. over

Dayna Matsumoto

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

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

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

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

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

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

Arnold Martines

interest Hello, your We appreciate Pacific Central you, Dayna. Corp. Thank Financial everyone. in

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

continues with The year to a an Hawaii ago. occupancy up X% hotel spending continue tourism robust, of billion arrivals the in be average visitor well total XXXX. visitors total slightly of perform X% supported to ago just in pre-pandemic year increase state-wide from be daily an at month down in rate U.S. industry June compared Hawaii XX%, $XXX, in Visitor and to to same continues Hotels totaling by from XX% a with under levels. well May, $X.XX

jobs and state-wide in or the Hawaii's payroll increased to rate to is XX,XXX Year-over-year X.X%. unemployment favorable by non-foreign market overall in conditions June seasonally rate are continued of X% decline quite unemployment X.X%. Labor outperforming adjusted national Hawaii.

key a Median The around Home sales $X.X continues Real price estate and the price to was Median June. Single-Family strength. Oahu Condo remains in values be $XXX,XXX in Hawaii million,

home with volumes than on staying and generally market for year-over-year, demand continued there is While strong XX inventory properties sales limited down days. the are less

activity totaled ago are quarter drive continues and for Pearl which is construction Replacement X% and Strong in included to of contracts growth. avoid are economic Government healthier a $X.X firms building Hawaii the the counts significant rest in of up job Shipyard a billion market to recession. to first a in Harbor to projected continues Private XXXX, Project. to Hawaii Overall, Naval X%. the outlook $X.X nation to Hawaii Hawaii year construction awarded permits the a compared billion award compared the up have

from also The based. Hawaii relationship is industry national predominantly the is deposit with diversified differentiated is CPB's portfolio long banking tenured. a that and high-value industry franchise deposit

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

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

of FDIC are XX% Additionally, or our deposits collateralized. insured

with than more grew deposits. banks regional size with doubled During their responsibly challenged portfolio the our surge we the about of US as pandemic, some growth to that deposits deposit compared XX%

in In mix shift the second a we some and continues, quarter, deposits. on deposit growing we total while strong successful focus continued liquidity were

asset to prudently relationship generating our opportunity a make very focused upside on based grow the and with management same time, continue decisions see we remain we strong deposits continue to share. teams growth risk At Our market to focus.

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

David Morimoto

Thank you, Arnold.

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

cash balance and the deposit position excess $XXX modestly portfolios and the with loan declining a investment second quarter in sheet portfolio growth and in strengthened Our position liquidity in our of million.

Our the declined loan-to-deposit quarter. to second ratio XX% in

being structure the loan second ensuring We remain unsecured on monitor selective appropriate growth the loans. continue outlook. continue environment the pricing economic In consumer will look and portfolio portfolio more runoff by new quarter, let evolves. and national as and to opportunities loan the nimble as to operating we moderate Mainland we We for

have million. grew balances on sequential to continuing deposit Deposit quarter. same are period-end grew and new deposit relationships. by by to the at included also total time, $XX portfolio. continues growth and deposit flows $XX our customer $XX begun teams or deposits build CPB granular core to from million, normalize a deposits, On which Average and core of focused million activity total stable highly benefit deposit

first The basis income million. higher was the compared and interest costs. margin second XX was quarter, $XX.X for from quarter, Net due in of to funding second X.XX% by decreased quarter, the by declined reflects primarily which net the million decline million points. quarter $X.X the prior a smaller decrease $X.X to interest quarter-over-quarter a This

XX total cycle-to-date beta which remains XX%, repricing second points deposits is our within was the deposit cost basis in interest-bearing Our of expectations. our quarter and

quarter, a $XX.X operating due income quarter, from million operating the from quarter Other $X.X million other the of activities. prior million, Second decrease totaled in $X.X expenses second by which million $XX.X to was from prior fiduciary quarter. decreased primarily income the lower

salaries to the staffing prudently compensation our decrease The in and lower was expense we environment. manage and operating levels primarily benefits current employee as due

going was XX% rate we continue forward. quarter XX% tax in and second to the be to effective Our it to expect the XX.X% range in

capital, during or the of million cost average of $XX.XX. at $X.X In an of shares cost per the a XX,XXX total share repurchased we second quarter, area

dividend Directors and by of $X.XX capital equity on shareholders position XXst. quarterly remains payable August per Overall, Board cash XXth of shareholders' $XX on strong, declared which be record Our of share, will has a year-to-date. our to September our million grown

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

Anna Hu

David. you, Thank

total at X.X% points loans criticized loans. assets total strong assets with of continue to quality nonperforming We have XX and asset at basis of

an paid in subsequently borrower, off saw two in to assets, to full it we was loans a While which nonperforming in construction were related uptick Hawaii single mid-July.

total loan the portfolio diversified US portfolio XX% to portfolio is of the million at total well we at Mainland industry of a as type of continue total The with June $XXX quarter sector the consumer and or and just low million was X% of continues from X% which as Mainland be construction loans. off. let Our XXth, run total by reduction loans exposure $XX loans to to prior loan

weighted secured Over XX% of estate real average of XX%. is loan a the with loan-to-value portfolio

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

has retail The weighted average portfolio weighted months loan-to-value XX% of and a XX maturity. to average

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

loss expectations portfolio thereafter quarters. Our $X.X unsecured for XX million portfolio. Overall currently quarter, of increase these to as to off basis remain loans. in net leveling annualized percent consumer charge-offs were average levels from subsequent net for of The seasoning higher are we our Mainland consumer which the and with portfolio charge-offs levels points peaking the the in a continued within original our Mainland second due believe the primarily loss equates the came

$XX.X the loans. was quarter, Our a or to credit credit outstanding for we second net million provision loans $X.X for losses X.XX% In losses primarily allowance charge-offs. of on recorded due million

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

our Overall, well strong to portfolio near-term is the the diversified, withstand from and environment. positioned pressures

culture management economic risk the strong environment a and have to are continue closely. We monitoring

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

Arnold Martines

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

your express appreciation employees to to who serve our in I want our organization. current the continued support confidence tirelessly and community. our to Thank continue customers we worked exceptional of my the also As you and to environment, navigate team for

this be we happy At to have. any you address questions time, may will

Operator

of Thank first go from you. line Piper Please comes Liesch Sandler. Your with ahead. Instructions] Andrew [Operator the question

Andrew Liesch

everyone. Hey, good morning,

Arnold Martines

morning, Good Andrew.

David Morimoto

Hey, Andrew.

Anna Hu

Good morning.

Andrew Liesch

to like just I'd a growth here. loan on So bit little talk

quarter? the decline or the down we the pay a assuming that consumer every in pace the Mainland, planned normal should be that is So in like --

Arnold Martines

million quarter. Yes, Andrew, at this $XX million is $XX Arnold. basically, per to looking we're

Andrew Liesch

it. Got

how the of the with You for the portfolio state. the what then economy? in rest positive the decline? be that local offset you're for seeing And Can Okay. pipeline comments had is some pretty

just -- curious So out? shakes like think kind I'm production is strong you enough growth be be loan where those to downs? of it pay to going to offset going Is

Arnold Martines

move being to make overall based We'll environment. growth asset as continues doing pretty deposit pipeline coming what we're forward decisions the given Andrew, the be Yes. more on selective deposit quarters. just we growth we're on but robust, in in and those levels operating the

Andrew Liesch

Got it.

forward? trends maybe you're on -- in came see? here you margin gears some to pressure guess. you're certainly the There's shifting how pressures rate been much Because you do that down. if going some X.XXs, Then how think to higher going do and costs more think real David, Okay. these loans the pay bit of I margin here -- funding

David Morimoto

Yes. second moderate. hoping The change Hey, see Andrew, we're we're rate the costs. in that right? to rise start of monitoring to the closely derivative, in deposit And

starting As remarks, prepared the normalization see we're in deposit to flows. I some mentioned of

quarter. with DDA balances pleased staying are the sequential We stable roughly

moderation pressure the derivative can optimistic changes So on of the again, we margin. will net and we're cautiously start we're hoping that rate second moderate, the some interest -- to see in

the quarters, of conservative is the X.XX% NIM. slightly X.XX% couple on next guide the for So to

Andrew Liesch

Got expectations. where peak? that's interest-bearing expectations it. And line betas you going changed with in Have your you the think your cycle-to-date deposit on to had

David Morimoto

Yes.

where today, Andrew. past, we above in think the it I is was to it going peak thought

transpired than I XX% peaks XX%. that's think at now with everything it rather maybe

Andrew Liesch

I'll for right. Got taking you it. Thank step back. questions. the All

David Morimoto

Andrew. Thanks,

Arnold Martines

Thanks, Andrew.

Operator

ahead. Raymond question Your Feaster David the from line Please next James. of go with comes

David Feaster

morning, Good everybody.

Arnold Martines

Good morning, David.

David Feaster

period, of average that I'm quarter. that the as third been of could have have the the the quarter? staying characterize maybe of I'd the on touch early the deposits was it sounds It trended how for you are like calls pressure costs most the look just what balances you trends in all throughout on on. just I how curious quarter? And what's deposit you trended? early core But might like you seeing at that be seems Similarly, Maybe was read a if hoping noninterest-bearing case on And the flows the versus kind end -- of well. seen. lot in guys deposit I If front. I've

David Morimoto

Hey, David, see Yes, of we it's started as some deposit we flows. moderation David. to mentioned,

entire a deposit up it those as off make then I we generally as little continue flows, we the to occur. bit flows we of quarter-end, quarter-end, there's come is challenged were see approach see betas think optimistic and cautiously shift and deposit of we runoff, and mix So balances and fronts. subsequent with industry to what on DDA on stable start relatively we're both quarter-to-date. And that we'll obviously, The acceleration been the has moderation

David Feaster

And loan I'm or a and the million you And thinking guys about you forward? we've think how that the deposits then built the $XX level? made and just drove we you whole think $XX about growth build deploying you've a headwinds on idea what is the million on core have how in then with this move liquidity going Or just got quarter plans liquidity. the normalized just just again, growth excess from that? consumer front. the liquidity, that -- And driving curious deposit the

David Morimoto

Yes, a during was that build David. and a was purposeful. of liquidity quarter, bit there Yes, little the

amount think in liquidity environment. I the that's on-balance appropriate the sheet current of probably

we've interest wouldn't portfolio. forward. more Arnold looking for income, So growing a net But a just we're it little the as got And from bit Mainland from then realize consumer significantly anticipate I yes, of mentioned, going we there. headwind opportunities on

and We more pipeline loan comfortable the have healthy lean -- deposit we feel we'll that have we into balances. as with a

David Feaster

And I'm where where you still are you seen have ahead. -- go -- sorry,

Arnold Martines

Arnold. David, sorry, this is

really me focus is our small our -- growth. just us the is Let market, of drive on which helping deposit one our that add continued business pillars

the So build good continuing really doing focusing new and deposits. is that job on new in team to core a relationships segment in bring that

David Feaster

And business the talked then curious, The sounds as been kind slowdown still And in now. intentional where fair than good Is selective what characterization, of was you've it maybe in providing especially are originations a pipeline? You small segments a returns commentary, that just helpful. your guess, like was just on consumer slowdown bit from demand. more excluding you returns growth stuff. obviously, a that? still the rather just slowing given the good perspective? That's in the really, the hearing risk-adjusted I But just risk-adjusted about on I'm are seeing your commentary Okay.

Arnold Martines

Yes.

very a believe to healthy things can environment? in that So some get selective -- is the are good we're a -- maybe risk your operating how current David at comment one. looking regard the risk-adjusted exactly segments pipeline, having very that returns of good observation we we're can on being good but and But risk-adjusted That's us seeing with returns.

David Morimoto

small base in type rate Yes. you of Thanks, C&I opportunity. core obviously they get Arnold. Arnold Yes, then loan yields business, a area decent Generally, David, bank deposits. the good We is or bring And the rates. there. also prime as floating -- mentioned,

So off There continues a of decent on of focus construction. floating to spreads. and margins, activity there, of Hawaii that a area continues rates within be the amount to you decent state either with decent sulfur generally be construction again, have

focused So those we're are that the on. areas some of

David Feaster

benefit a wondering guys again, accrual you've And continue same on think just time, sense. think a franchise how Okay. control, revenue That there. for in and if to us core help I'm suspect game at here. run a some invest savings, just, expense expense And headwinds incentive we're you but about, rate? playing about you the there I you long great trying just the got did cost good was one job again, the to because makes could side. then last me,

investments, Just and on have think that horizon? anything might you hires, about curious how additional the you

David Morimoto

that it what deposits. really that's loan opportunities, to but David, need balancing Yes. right? with game, have a balance right? is, we of availability the It's We

prudently. invest were then So -- -- revenue as manage we extent areas, continue side. revenue to to we balancing the help continue we're -- you we key to to and manage continue expenses will but we're in very need the And to to do see that continue say, And headwinds we to that we're that.

definitely we're balancing positive getting back is on expenses, leverage. it revenue focused highly to but a So game between and operating

David Feaster

That's is run $XX this kind expense Okay. And a rate good million helpful. core do run you of rate? think

David Morimoto

Yes.

be I And nimble. to $XX with million think million. to $XX our commitment

that we'll extent environment to remains operating the to manage expenses difficult, So need appropriately.

Arnold Martines

And David, this Arnold. is

as we focused investment that, the add technology. just mentioned more we've on quarters, in previous in me made of we Let harvesting are very that

So there is traction there.

able automate processes. focus to We and on office are being more progress a and in back out to making efficient system building

David Feaster

helpful. Okay. everybody. That's Thanks

Operator

question follow-up Liesch Please go Your Piper ahead. is Andrew Sandler. of next a from

Andrew Liesch

taking follow-up the for Thanks everyone. Hey, here.

about on X% the down Just noninterest income quarter. from prior side,

some think were I those though. of outsized

about Some line those be $XX.X the forward? items. million this of But to going around thinking is right place

David Morimoto

would Andrew, That $XX $XX the Yes. been million there, to guidance have million.

on. spot So you're

Andrew Liesch

Great. Got it.

that ask. asked You've -- Thanks so I've to you've new. else covered wanted much everything

Arnold Martines

Andrew. you, Thank

David Morimoto

Andrew. you, Thank

Operator

There further I no time. the questions Arnold Martines at will turn are to this call for closing remarks.

Arnold Martines

our and quarter Sarah, in much for call very you to second you Thank progress. you, We thank everyone update else opportunities our to XXXX. on the participating forward future of for earnings look

Operator

today's you This joining. for concludes call. Thank conference

your disconnect now may lines. You

Central Pacific Financial (CPF) 26 Jul 232023 Q2 Earnings call transcript