Central Pacific Financial Corp. (NYSE:CPF) Q1 2024 Earnings Call Transcript April 24, 2024
Central Pacific Financial Corp. misses on earnings expectations. Reported EPS is $0.00048 EPS, expectations were $0.45. CPF isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Central Pacific Financial Corp. First Quarter 2024 Conference Call. During today’s presentation all participants will be in listen mode only. Following the presentation the conference will be open for the questions. 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. Dayna Matsumoto, Group Senior Vice President and Director of Finance and Accounting. Please go ahead.
Dayna Matsumoto: Thank you, Eli, and thank you all for joining us as we review the financial results of the first quarter of 2024 and for Central Pacific Financial Corp. With me this morning are Arnold Martines, President and Chief Executive Officer; David Morimoto, Senior Executive Vice President and Chief Financial Officer; and Anna Hu, Executive Vice President and Chief Credit Officer. We have prepared a supplemental slide presentation that provides additional details on our 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.
For a complete discussion of the risks related to our forward-looking statements, please refer to Slide 2 of our presentation. And now I’ll turn the call over to our President and CEO, Arnold Martines.
Arnold Martines : Thank you, Dayna, and hello, everyone. We appreciate your interest in Central Pacific Financial Corp. and we are pleased to share our latest updates and results with you. We had a special start to 2024. First, with the celebration of our 70th anniversary in mid-February, where we took time to honor our founding. As many of you know, our bank was started by World War II Nisei veterans to help the underserved in Hawaii. We celebrated this special occasion with our many long-standing loyal customers and employees. Consistent with our founders’ mission in March, we were recognized for the 15 time as SBA Lender of the Year Hawaii District. We are all very proud to continue the legacy. Our financial results in the first quarter reflect our positioning to optimize performance in the coming quarters.
We believe we are well positioned with strong liquidity, asset quality and capital and a healthy pipeline. The team will provide additional detail and insights on our first quarter financial performance. But as usual, let me start with an update on the Hawaii market. The Hawaii economy continues proved to be resilient despite headwinds that have impacted recovery. In the month of February, total statewide visitor arrivals measured by the average daily census due to the leap day was about 3% down from the prior year and about 95% of pre-pandemic 2019. Visitors from Japan continues to increase, up 77% from a year ago yet remained about 48% of the same month in 2019. As it relates to Maui, total visitors in February were about 78% in the prior year as recovery following the wildfires continues.
Total statewide hotel occupancy in March was 75%, down 1.9% from a year ago with an average daily rate of $384, down 0.9% from a year ago. Hawaii’s statewide seasonally adjusted unemployment rate was 3.1% in March and continues to outperform the national unemployment rate of 3.9%. The University of Hawaii Economic Research Organization forecast, the state and unemployment rate to remain very low at 2.7% in 2024. In the area of Hawaii real estate values, the Oahu median single-family home price increased back up to $1.1 million, and the median condo sales price was $500,000 in March. Home sales volumes in the first quarter were up 6.1% for single-family homes, but down 7.1% for condos compared to the prior year. With the demand for housing remaining strong, it is welcoming to see inventory levels increasing with a 7.4% increase in active inventory for single-family homes in March.
Overall, we remain optimistic about Hawaii’s economic outlook. Although the impacts from the Maui wildfires have slowed our recovery in the near-term, we are getting closer before recovery. In addition, government and military contracts in Hawaii are at all-time highs with $5 billion in total contracts awarded in 2023. With all of that said, the latest forecast is for the total state economy to continue to grow modestly in 2024. I’ll now turn the call over to David Morimoto, our Chief Financial Officer. David?
David Morimoto : Thank you, Arnold. Turning to our earnings results. Net income for the first quarter was $12.9 million or $0.48 per diluted share. Return on average assets was 0.70%. Return on average equity was 10.33% and our efficiency ratio was 66%. In the first quarter, our total loan portfolio decreased by $37.6 million or 0.7% sequential quarter, primarily due to planned runoff in the Mainland consumer loan portfolio and partially offset by growth in our Hawaii received float swap on $115 million of municipal securities started on March 31 and at current rates adds approximately $1 million in pretax income quarterly. We believe our NIM has bottomed and will expand modestly in the coming quarters. First quarter other operating income was $11.2 million, which normalized following the non-recurring gain on office sale and investment portfolio restructuring loss in the fourth quarter.
Other operating expenses totaled $40.6 million in the first quarter, also normalizing after we took the charge on the early branch lease termination in the fourth quarter of last year. Our effective tax rate was 23.5% and we believe will continue to be in the 23% to 25% range going forward. During the first quarter, we repurchased 49,960 shares at a total cost of $900,000. Our Board of Directors declared a quarterly cash dividend of $0.26 per share, which will be payable on June 17 to shareholders of record on May 31. I’ll now turn the call over to Anna Hu, our Chief Credit Officer. Anna?
Anna Hu : Thank you, David. Our asset quality remained strong in the first quarter with favorable trends in criticized loans and net charge-offs. Non-performing assets increased slightly due to one-off residential mortgage loan situation. However, we are well collateralized and are not anticipating any losses. Our lending and credit risk strategy continues to be based on diversification, consistent underwriting standards, supported by strong collateral and a focus on stable segments and industries that we have solid expertise in. Nearly 80% of the loan portfolio is real estate secured with a weighted average loan-to-value of 63%. Our commercial real estate portfolio represents 26% of total loans and is diversified across all asset types with 7% of outstanding balances in this portfolio maturing in the remainder of 2024.
Our commercial real estate office and retail exposure remains low at 3.4% and 5.4% of total loans, respectively. The office portfolio has a weighted average loan-to-value of 56% and 71 weighted average months to maturity. The retail portfolio has a weighted average loan-to-value of 65% and 59 weighted average months to maturity. Our Maui related loan deferrals have nearly all returned to regular payment status with just two loans remaining on deferral with a total principal balance of $1.3 million. The U.S. Mainland consumer loan portfolio continued to run off to $274 million or 5.1% of total loans as of March 31 and compared to $429 million a year ago. Non-performing assets were $10.1 million or 0.14% of total assets, an increase of $3.1 million from the prior quarter, primarily due to residential mortgage loans that moved into non-accrual status.
A majority of these loans are well seasoned with strong loan-to-value. Criticized loans decreased to $30.4 million or 0.56% of total loans a decrease of 36 basis points from the previous quarter and continues a downward trend over the last three quarters. Net charge-offs were $4.5 million for the first quarter or 0.34% of average loans on an annualized basis. This reflects a 7 basis point decrease from the previous quarter. Our allowance for credit losses was $63.5 million or 1.18% of outstanding loans. In the first quarter, we recorded a $4.1 million provision for credit losses on loans primarily due to net charge-offs. Additionally, we recorded a $0.2 million credit to the provision for unfunded commitments for a total provision for credit losses of $3.9 million during the quarter.
Overall, our credit quality remains strong and we continue to monitor the economic environment closely. Now I’ll turn the call back to Arnold. Arnold?
Arnold Martines : Thank you, Anna. In summary, we believe that with our exceptional team, combined with our strong liquidity, capital and credit positions, we are well positioned for success. I want to thank you for your continued support and confidence in our organization. At this time, we will be happy to address any questions you may have. Thank you.
See also 10 Stocks You Should Not Buy According to Jim Cramer and 15 Best Eventbrite Alternatives for Registration & Ticketing.
To continue reading the Q&A session, please click here.