Central Pacific Financial Q1 2025 Earnings Report

Central Pacific Financial EPS Results

• Actual EPS: $0.65
• Consensus EPS: $0.63
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: $0.48

Central Pacific Financial Revenue Results

• Actual Revenue: $68.80 million
• Expected Revenue: $68.93 million
• Beat/Miss: Missed by -$135.00 thousand
• YoY Revenue Growth: N/A

Central Pacific Financial Announcement Details

• Quarter: Q1 2025
• Date: 4/23/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, April 23, 2025
• Conference Call Time: 2:00PM ET

Central Pacific Financial (NYSE:CPF) operates as the bank holding company for Central Pacific Bank that provides a range of commercial banking products and services to businesses, professionals, and individuals in the United States. It offers various deposit products and services, including checking, savings and time deposits, cash management and digital banking, trust, and retail brokerage services, as well as money market accounts and certificates of deposit. The company also provides various lending activities, such as commercial, commercial and residential mortgage, home equity, and consumer loans; and other products and services comprising debit cards, internet and mobile banking, cash management services, full-service ATMs, safe deposit boxes, international banking services, night depository facilities, foreign exchange, and wire transfers. In addition, it offers wealth management products and services that include non-deposit investment products, annuities, insurance, investment management, asset custody and general consultation, and planning services. The company was founded in 1954 and is headquartered in Honolulu, Hawaii.

Central Pacific Financial Q1 2025 Earnings Call Transcript

Key Takeaways

• Announced leadership transitions: David Morimoto was appointed Vice Chairman & COO overseeing frontline revenue, and Diana Matsumoto was promoted to Executive Vice President & CFO.
• Delivered solid Q1 results with net income of $17.8 million, net interest income of $57.7 million, a 3.31% NIM, and an efficiency ratio of 61.2%—the best since Q4 2022.
• Achieved first sequential loan growth in two years (+$1.7 million), led by Mainland and Hawaii commercial mortgage and construction lending, and reiterated low-to-mid single-digit loan growth guidance for 2025.
• Grew average core deposits by $78 million quarter-over-quarter, reduced deposit costs to 1.08%, and expect funding costs to trend down further if the Fed remains on hold.
• Maintained strong asset quality with flat nonperforming assets and a 1.13% allowance for credit losses, while returning capital through share repurchases, a $0.27 quarterly dividend, and robust 15.6% risk-based capital.

Presentation

[Operator]

Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Central Pacific Financial Corp. First Quarter twenty twenty five Conference Call. During today's presentation, all parties will be in listen only mode. Following the presentation, the conference will be opened for questions.

[Operator]

This call is being recorded and will be available for replay shortly after its completion on the company's website at www.cpb.bank. I'd like to turn the call over to Ms. Diana Matsumoto, EVP, Chief Financial Officer. Please go ahead.

[Dayna Matsumoto, EVP & CFO at Central Pacific Financial]

Thank you, Kate, and thank you all for joining us as we review the financial results of the first quarter of twenty twenty five for Central Pacific Financial Corp. With me this morning are Arnaud Martinez, Chairman, President and Chief Executive Officer David Morimoto, Vice Chairman and Chief Operating Officer Ralph Miesek, Senior Executive Vice President and Chief Risk Officer and Anna Hu, Executive Vice President and Chief Credit Officer. We have prepared a supplemental slide presentation that provides additional details on our earnings release and is available in the Investor Relations section of our website at cpb.bank. During the course of today's call, management may make forward looking statements. While we believe these statements are based on reasonable assumptions, they involve risks that may cause actual results to differ materially from those projected.

[Dayna Matsumoto, EVP & CFO at Central Pacific Financial]

For a complete discussion of the risks related to our forward looking statements, please refer to Slide two of our presentation. And now I'll turn the call over to our Chairman, President and CEO, Arnaud Martinez.

[Arnold Martines, Chairman, President & CEO at Central Pacific Financial]

Thank you, Dana, and aloha, everyone. We appreciate your interest in Central Pacific Financial Corp, and we are pleased to share our latest updates and results with you. Before I provide a market update for the state of Hawaii and we dive into our results, let me start with sharing our recent leadership appointments that went into effect on March 1. David Morimoto has been appointed as Vice Chairman and Chief Operating Officer. David has been with us for over thirty years and has broad extensive experience in the banking industry.

[Arnold Martines, Chairman, President & CEO at Central Pacific Financial]

In his new role, David will oversee all frontline revenue areas. With that change, Dana Matsumoto has been appointed Executive Vice President and Chief Financial Officer, taking David's previous role. Dana has been with us for nearly twenty years with prior leadership in our treasury and controller areas. These planned transitions recognize the valuable contributions David and Dana have made while aligning our executive team to the bank's future strategic, financial and business objectives. Our financial Q1 results were solid across the board and continue to trend favorably.

[Arnold Martines, Chairman, President & CEO at Central Pacific Financial]

We achieved meaningful NIM and net interest income expansion. We maintained strong capital, liquidity and asset quality, which positions us well for any economic challenges that may occur in the future. All of these results reflect our focus on optimizing our balance sheet and executing on our strategies. We know we are in a time of market and economic uncertainty. We are confident that we will be able to effectively navigate through the changes that impact our industry and our customers and remain focused on delivering strong results regardless of external factors.

[Arnold Martines, Chairman, President & CEO at Central Pacific Financial]

The Hawaii construction industry continues to grow and is being led by residential and government construction. The total value of construction in 2024 for the first ten months of the year increased an impressive 20.3% compared to the same period in 2023 and is forecasted to exceed $14,000,000,000 a substantial increase from the prior year's high of $11,800,000,000 On the tourism front, through February, average daily census statewide visitor arrivals were up 1.9% from the prior year and down 4.3% from 2019. Total visitor spending per day was up 6.3% from the same period the prior year and up 20.5% from 2019. The recovery of visitors from Japan remains slow and has continued to be offset by the strength of domestic travel. Travel to Maui showed signs of improvement year over year with an increase of 13.3% for average daily census visitor arrivals, but is still recovering from the twenty twenty three Maui wildfires.

[Arnold Martines, Chairman, President & CEO at Central Pacific Financial]

Hawaii statewide seasonally adjusted unemployment rate remained very low at 2.9% in March and continued to outperform the national unemployment rate of 4.2%. In the area of Hawaii real estate, the market remained strong overall in the first quarter despite some mixed trends. Single family home prices on Oahu reached a new record high in February and remained at similar levels in March at $1,160,000 median sales price. Home sales for the month of March dipped 10.4 for single family homes, but went up 7.3% for condos compared to the same month of the prior year. Active inventory of housing listings is starting to build, which bodes well for the industry and state.

[Arnold Martines, Chairman, President & CEO at Central Pacific Financial]

The state's economy has proven to be resilient in the past and was forecasted earlier this year to grow modestly. However, we continue to monitor the potential impacts from the policies of the current administration and are prepared to navigate any uncertainties in the operating environment. I'll now turn the call over to David.

[David Morimoto, Vice Chairman & COO at Central Pacific Financial]

Thank you, Arnold. Starting off the year, I'm excited to share CPB once again was honored by the Small Business Administration as the SBA lender of the year category two, marking our sixteenth year receiving this award. CPB was founded on the principle of helping all of Hawaii's people achieve their financial aspirations, and we continue to honor our beginnings with a focus on small businesses. I am proud of our employees who committed to helping our customers succeed each and every day. Driving revenue growth is a key focus for us, and we remain cautiously optimistic for the remainder of 2025.

[David Morimoto, Vice Chairman & COO at Central Pacific Financial]

We will continue to focus on growing our CPB market share in Hawaii and supplementing that with targeted lending opportunities in Mainland markets. We have a strong team of relationship bankers and continue to successfully add talent that will help us drive revenue growth in Hawaii and The Mainland. In the first quarter, our loan portfolio increased by $1,700,000 sequential quarter, which was the first quarterly increase in two years. First quarter growth was led by Mainland and Hawaii commercial mortgage and Hawaii construction lending. Our team continues to concentrate on building a healthy loan pipeline and serving our clients' needs as they continue to navigate the current market environment.

[David Morimoto, Vice Chairman & COO at Central Pacific Financial]

We are optimistic that net loan growth will continue to pick up this year. However, we remain nimble as we learn how the macro environment impacts national and local economies. Our total deposits at the end of the first quarter declined by $48,000,000 from the prior quarter. On an average balance basis, total deposits increased by $14,000,000 with an increase in average non time deposits of $78,000,000 quarter over quarter. Despite some volatility impacting period ends, overall, we continue to grow our deposit relationships and average balances.

[David Morimoto, Vice Chairman & COO at Central Pacific Financial]

I'll now turn the call over to Dana, who will provide an update on our financials. Dana?

[Dayna Matsumoto, EVP & CFO at Central Pacific Financial]

Thanks, David. Turning to our earnings results, we are pleased to share that our performance metrics continue to trend positively and towards our financial targets. Net income for the first quarter was $17,800,000 or $0.65 per diluted share. Return on average assets was 0.96% and return on average equity was 13.04%. Our efficiency ratio was 61.2, which is the best we posted since the fourth quarter of twenty twenty two.

[Dayna Matsumoto, EVP & CFO at Central Pacific Financial]

Net interest income for the first quarter was $57,700,000 which increased by $1,900,000 or 3.5% from the prior quarter. Net interest margin was 3.31% in the first quarter, up 14 basis points on a sequential quarter basis. Our NIM has expanded every quarter for the last four quarters, which reflects our continued disciplined approach to pricing and balance sheet management. The net interest income and NIM expansions were primarily driven by a reduction in our funding costs from deposits, combined with a higher average yield earned on investment securities. Total cost of deposits decreased by 13 basis points from the prior quarter to 1.08% in the first quarter.

[Dayna Matsumoto, EVP & CFO at Central Pacific Financial]

The higher average yield on investment securities can be attributed to our investment portfolio repositioning we completed last quarter. Total other operating income was $11,100,000 and total other operating expense was $42,100,000 in the first quarter. Due to market volatility, our BOLI income and our deferred compensation expenses decreased during the quarter. To the extent market volatility continues, we'll continue to have some variability in these line items. Additionally, as we continue our focus on efficiencies, we are in the process of consolidating our office space into our main headquarters in Downtown Honolulu.

[Dayna Matsumoto, EVP & CFO at Central Pacific Financial]

With this move, we anticipate that we will exit our current Operations Center building and recognize a onetime pretax write off of $2,000,000 to $2,500,000 in the second or third quarter. Going forward, we expect to realize total annual savings from reduced lease, operating and maintenance expenses of approximately $1,000,000 Our effective tax rate was 21.2% in the first quarter, which is in the range that we communicated on our last call and consistent with historical trends. During the first quarter, we repurchased about 77,000 shares of common stock at a total cost of $2,100,000 or $27.9 per share. Additionally, in the second quarter to date through April 16, we have repurchased approximately 86,000 shares at an average price of $24.7 per share. Finally, our Board of Directors declared a quarterly cash dividend of $0.27 per share, which will be payable on June 16 to shareholders of record on May 30.

[Dayna Matsumoto, EVP & CFO at Central Pacific Financial]

I'll now turn the call over to Ralph.

[Ralph Mesick, Senior EVP & Chief Risk Officer at Central Pacific Financial]

Thank you, Dana. Our asset quality remained healthy in the first quarter. Net charge offs were $2,600,000 or 20 basis points annualized on average loans. This represents a nine basis point decrease from the prior quarter. The decrease came from lower charge offs on the consumer and C and I loans.

[Ralph Mesick, Senior EVP & Chief Risk Officer at Central Pacific Financial]

Non performing assets were $11,100,000 or 15 basis points of total assets at quarter end, flat from the prior quarter. Criticized loans also remained near cyclical low levels at 82 basis points of total loans, up 20 basis points quarter on quarter. Past due loans, ninety plus days were flat compared to the prior quarter, just one basis point of total loans. Our allowance for credit loss was $60,500,000 or 1.13% of outstanding loans, up two basis points. The provision expense was $4,200,000 In the quarter, we added $3,900,000 to the allowance and an additional $300,000 to the reserve for unfunded commitments.

[Ralph Mesick, Senior EVP & Chief Risk Officer at Central Pacific Financial]

The higher allowance was primarily driven by a more conservative macroeconomic outlook. Supporting this allowance, we also maintain a strong level of capital. Total risk based capital was 15.6% at the end of the first quarter. At these levels, the bank can readily absorb the financial impacts resulting from a period of prolonged stress. Looking ahead, we'll continue to rely on a well tested management approach that considers risks through a cycle, anticipates a range of outcomes and builds a margin of safety to deal with adverse conditions.

[Ralph Mesick, Senior EVP & Chief Risk Officer at Central Pacific Financial]

With that, let me turn the call back to Arnold.

[Arnold Martines, Chairman, President & CEO at Central Pacific Financial]

Thank you, Ralph. In summary, we had a solid first quarter to kick off 2025. We are focused on supporting our clients and the community and driving value to our shareholders. We are prepared to navigate through these uncertain times and we thank all of you for your continued support and confidence in our organization. At this time, we will be happy to address any questions you may have.

[Operator]

Your first question comes from the line of David Pfister with Raymond James. Please go ahead.

[David Feaster, Director - Banking at Raymond James Financial]

Good morning, everybody. Hi, David. Obviously, there's a lot of volatility and uncertainty in the market today. I wanted to just start on the loan growth side. I mean, obviously, again, there's a lot of chaos out there.

[David Feaster, Director - Banking at Raymond James Financial]

Curious how your clients are responding to that? How is the pipeline trending? And just, you know, it it sounds like you're optimistic about growth. Just maybe where do you see most opportunities to drive growth?

[Arnold Martines, Chairman, President & CEO at Central Pacific Financial]

David, you wanna take that call? I mean, that question.

[David Morimoto, Vice Chairman & COO at Central Pacific Financial]

Yeah. Sure. Hey hey, David. Yeah. Obviously, there is a lot of uncertainty.

[David Morimoto, Vice Chairman & COO at Central Pacific Financial]

We're in touch with all of our large borrowers and, you know, potential borrowers in our pipeline. And while there there remains a lot of volatility, you know, certain transactions are likely to get postponed. We remain cautiously optimistic on the future. And, you know, we are reiterating our full year loan guidance of, low to mid single digit loan growth for the full year.

[David Feaster, Director - Banking at Raymond James Financial]

Okay.

[David Morimoto, Vice Chairman & COO at Central Pacific Financial]

That that growth date, David, I'm sorry, David. That growth is likely to be focused in the commercial areas. So it's gonna be C and I and commercial mortgage and also construction. Those those are the prob probably the growth areas for the next several quarters.

[David Feaster, Director - Banking at Raymond James Financial]

Okay. Okay. That's terrific. And then I know this is a hard question to answer, but, you know, look, it's I'm just curious how you think about potential impacts on your clients from these the trade wars, the tariffs in Doge. As you dig into the book, what segments are you expecting to be most impacted?

[David Feaster, Director - Banking at Raymond James Financial]

And just kind of how are you approaching this at this point? I mean, it's maybe it's kind of a wait and see approach, but I'm just kind of curious your thoughts.

[Arnold Martines, Chairman, President & CEO at Central Pacific Financial]

Ralph, do want to take that question?

[Ralph Mesick, Senior EVP & Chief Risk Officer at Central Pacific Financial]

Sure. Hi, David. I think the outlook really has shifted this quarter. But when we look at our portfolio, talking with and first off, looking at industries that probably are more impacted, they probably represent about 10% of our total loan book. So we're talking about accommodation, restaurant, wholesale and retail trades.

[Ralph Mesick, Senior EVP & Chief Risk Officer at Central Pacific Financial]

And I think from our perspective today, we believe that our customers are going to be able to deal with some level of short term turbulence in the marketplace. We know the policy actions, these are discretionary actions, we do believe that not intended to damage the economy. So we think that there's going be some turbulence in the short term, but we believe that our customers are going to be able to sort of deal with that. And I think over the longer term, you know, we we do have a playbook for stress events, and and, you know, we've kinda pulled out that playbook. We've looked at the portfolio.

[Ralph Mesick, Senior EVP & Chief Risk Officer at Central Pacific Financial]

We're pretty confident we can deal with a, you know, a large level of stress. And, you know, we we are having these conversations with clients, and and and we will calibrate to, you know, events as as they develop.

[David Feaster, Director - Banking at Raymond James Financial]

Okay. That's helpful. And then last one for me, deposit performance, you guys have done a great job on the deposit side. Could you touch on maybe the competitive landscape for funding on the islands, your ability to drive core deposit growth going forward. And I mean, you're sitting here at just barely over 100 basis points of deposit costs.

[David Feaster, Director - Banking at Raymond James Financial]

I mean, is there much deposit cost leverage to drive that margin expansion? Or is it primarily going to be loan growth and repricing there that's going to be driving it?

[Arnold Martines, Chairman, President & CEO at Central Pacific Financial]

Dana can answer that question.

[Dayna Matsumoto, EVP & CFO at Central Pacific Financial]

Hi, David. Thanks for the question. On the deposit side, I'd say we're very pleased with our performance. Our average balances were up for the quarter with a favorable mix shift as we grew average core deposits, including demand deposits, while we let some CDs run off. Our teams have been doing a really good job and remain very focused on growing core deposits.

[Dayna Matsumoto, EVP & CFO at Central Pacific Financial]

As far as the cost, we're also pleased with the deposit cost trend down. And my expectation is that our funding cost should continue to trend down, but more gradually if the Fed is on hold. The the market for pricing, deposit pricing, you know, here continues to be very rational. Our deposit pricing betas have been generally as expected, and I'd say that our pricing strategies and continued discipline have worked very well.

[David Feaster, Director - Banking at Raymond James Financial]

Okay. That's helpful. Thanks, everybody.

[Arnold Martines, Chairman, President & CEO at Central Pacific Financial]

Thanks, David.

[Operator]

Your next question comes from the line of Andrew Liesch with Piper Sandler. Please go ahead.

[Andrew Liesch, Managing Director at Piper Sandler Companies]

Hi. Good morning, everyone. Just thinking on the margin here, I'm curious if you had what the margin was in the month of March.

[Arnold Martines, Chairman, President & CEO at Central Pacific Financial]

Dana?

[Dayna Matsumoto, EVP & CFO at Central Pacific Financial]

Hi, Andrew. Yes. For the month of March, our margin was 3.37%.

[Andrew Liesch, Managing Director at Piper Sandler Companies]

Okay. So I mean, you're just starting off here in the second quarter '6 basis points higher. Is that a good jumping off point? Or do there are some other puts and takes that may make that generate that much expansion?

[Dayna Matsumoto, EVP & CFO at Central Pacific Financial]

Yes. Andrew, I'd say, overall, we're quite pleased with our continued NIM expansion, which was driven by lowering our funding costs, the investment securities repositioning as well as overall favorable mix shift and positive fixed asset repricing. Going forward, our NIM, I would expect it to continue to expand. Our guidance is for an increase of approximately four to seven basis points next quarter. This assumes that the Fed is on hold in May and we continue to have a relatively flat yield curve.

[Dayna Matsumoto, EVP & CFO at Central Pacific Financial]

To the extent we get additional Fed cuts later this year, those will benefit our NIM further as our deposits still have some downward repricing ability. And then, as always, a steeper yield curve will be helpful as well.

[Andrew Liesch, Managing Director at Piper Sandler Companies]

Certainly. Do you have handy what the average yield on new loan production was during the quarter?

[Dayna Matsumoto, EVP & CFO at Central Pacific Financial]

Yes, I do. It was about 7.2%. This is a new loan yield in the first quarter.

[Andrew Liesch, Managing Director at Piper Sandler Companies]

Got it. Very helpful. And obviously, you have like the couple of onetime items, the market adjustments that it BOLI and compensation costs. But do you would you expect that those line items kind of rightsize themselves to be in line with your prior guidance ahead of on the expense side, cost saves from the rationalization of the real estate?

[Dayna Matsumoto, EVP & CFO at Central Pacific Financial]

Yes, Andrew. So that's correct. We had some volatility this quarter with the BOLI and our deferred compensation expense. And but on the expense side overall, our objective continues to be driving positive operating leverage, and we believe we'll be successful at that this year. So our guidance remains the same for the near term.

[Dayna Matsumoto, EVP & CFO at Central Pacific Financial]

So our quarterly other operating expense guide is continues to be 42,500,000 to $43,500,000 per quarter.

[Andrew Liesch, Managing Director at Piper Sandler Companies]

Got it. Then the cost saves from that real estate rationalization, are those going be reinvested into the franchise somewhere? Or should that result in a slightly lower run rate?

[Dayna Matsumoto, EVP & CFO at Central Pacific Financial]

We are continuing to make some investments in our people and our technology, and those things will create efficiencies throughout our processes. So with that said, we may see some expenses rise slightly in the short term, and that would be offsetting the savings from the office consolidation.

[Andrew Liesch, Managing Director at Piper Sandler Companies]

Awesome. That you've covered everything that I had to ask. Thanks so much. I'll step back. Thanks,

[Operator]

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

[David Feaster, Director - Banking at Raymond James Financial]

Hi. Just wanted to follow-up maybe on the capital side. I mean, we bought some stock back in the first quarter, obviously been active here in the second quarter. You guys kind of bottom tick. You guys have done a great job.

[David Feaster, Director - Banking at Raymond James Financial]

Curious, just how do you think about capital priorities today? I mean, the stock is still attractive, potential securities restructurings. Just kind of curious, how do you think about the opportunities that lie ahead?

[Dayna Matsumoto, EVP & CFO at Central Pacific Financial]

Hey, David. Overall, our capital position continues to be strong and healthy, and we have flexibility. As we noted previously, we are on the higher end of our target ranges for our capital ratios. So we are evaluating how we can best optimize capital and deploy capital while continuing to monitor the economic outlook and adjusting as appropriate. So our capital priorities include continuing to pay our quarterly cash dividend with about a 40% payout ratio.

[Dayna Matsumoto, EVP & CFO at Central Pacific Financial]

After that, we plan to use capital for organic balance sheet growth and share repurchases also continue to make sense. As we noted, we have resumed share repurchases. And with the overall market being down, we view it as an opportunity. But with that said, we'll continue to evaluate the operating environment, especially with the recent heightened uncertainty and volatility, and we will make our capital decisions based on the outlook.

[David Feaster, Director - Banking at Raymond James Financial]

Okay. All right. That's helpful. Thanks, everybody.

[Arnold Martines, Chairman, President & CEO at Central Pacific Financial]

Thanks, David.

[Operator]

I will turn the call back over to Dana Matsumoto for closing remarks.

[Dayna Matsumoto, EVP & CFO at Central Pacific Financial]

Thank you very much for participating in our earnings call for the first quarter of twenty twenty five. We look forward to sharing our progress with you next quarter. Thank you.

[Operator]

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Participants

Executives

• Dayna Matsumoto, EVP & CFO
• Arnold Martines, Chairman, President & CEO
• David Morimoto, Vice Chairman & COO
• Ralph Mesick, Senior EVP & Chief Risk Officer

Analysts

• David Feaster, Director - Banking at Raymond James Financial
• Andrew Liesch, Managing Director at Piper Sandler Companies