CENTRAL PACIFIC FINANCIAL CORP Q3 FY2024 earnings call

• Introduced Ralph Mesick as Senior Executive Vice President and Chief Risk Officer. - Q3 showed improvement in balance sheet with NIM expansion, core deposit growth, strong liquidity, asset quality, and capital positions. - Loan growth was challenged but positive trends emerging with rate cuts. - $3.1 million in pre-tax expenses related to strategic opportunity, remaining interested under right terms. - Opened a new state-of-the-art branch in Kahului, Maui. - Hawaii economy robust with construction strength, tourism slight weakness, low unemployment, and strong real estate values.

Net income for the third quarter was $13.3 million or $0.49 per diluted share. Excluding $3.1 million in pre-tax expenses related to the strategic opportunity, net income and diluted EPS were $15.7 million and $0.58, respectively. The total loan portfolio decreased by $41 million or 0.8% sequentially, with growth from commercial real estate and C&I portfolios offset by runoff in other loan types. The total deposit portfolio was relatively flat sequentially, but there was a favorable deposit mix shift with a reduction in higher-cost government time deposits of $69 million and an increase in core deposits. Net interest income for the third quarter was $53.9 million, an increase of $1.9 million from the prior quarter, with a net interest margin of 3.07%, up 10 basis points sequentially. Other operating income for the quarter increased to $12.7 million primarily due to higher bank-owned life insurance income, and other operating expense totaled $46.7 million including $3.1 million in expenses related to the strategic opportunity. The loan portfolio as of quarter end was balanced and diversified across various segments with no outsized exposures in higher-risk segments.

• Net interest margin forecasted to be in the 3.10% to 3.20% range in the next quarter or two. - Effective tax rate expected to be in the 22% to 24% range going forward. - Open to share repurchases to improve the tangible capital ratio, targeting Tier 1 leverage ratio in the range of 8% to 10%.

• Forward-looking statements involve risks that may cause actual results to differ materially from projected ones. For a complete discussion of risks related to forward-looking statements, refer to slide 2 of the presentation.

Q: On the loan side, how much of the decline is demand-driven versus timing and thoughts on loan growth pipeline?

A: Arnold Martines stated it's a demand issue due to high rates, but there's pent-up demand with rate cuts and building permits up signaling projects in the pipeline.

Q: On margin run rate and deposit competition?

A: David Morimoto said NIM is forecasted 3.10%-3.20% in next quarters, deposit rates responding to Fed cut with current CD promo at 3.75%.

Q: On strategic opportunity and capital deployment?

A: Arnold Martines couldn't comment further on the strategic opportunity, and David Morimoto mentioned openness to share repurchases to improve tangible capital ratio.

Q: On loan yields, repricing dynamics?

A: David Morimoto said weighted average new volume loan yields were about 7.75% vs portfolio 4.90%, expecting lower new yields in future quarters and growth in commercial sector.