Release Date: October 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Central Pacific Financial Corp (CPF, Financial) achieved meaningful net interest margin (NIM) expansion and core deposit growth in the third quarter.
- The company opened a new state-of-the-art branch in Kahului, Maui, which is expected to create ongoing growth opportunities.
- Hawaii's construction industry showed strong growth, with private building permits increasing by 19% in the first seven months of 2024.
- CPF maintained strong asset quality and capital positions, with a total risk-based capital ratio of 15.3%.
- The company reported a net interest income increase of $1.9 million from the prior quarter, driven by higher yields on investment securities and loan portfolios.
Negative Points
- Loan growth remained challenged due to high interest rates, resulting in a $41 million decrease in the total loan portfolio.
- The company incurred $3.1 million in pretax expenses related to a strategic opportunity that did not materialize.
- Total statewide visitor arrivals in Hawaii were down 2.2% year-to-date through August, impacting the tourism sector.
- Non-performing assets increased slightly to $11.6 million, primarily due to a few residential mortgages on nonaccrual.
- The total deposit portfolio remained relatively flat, with a reduction in higher-cost government time deposits.
Q & A Highlights
Q: Can you explain the decline in loans and how the pipeline is shaping up for future loan growth?
A: Arnold Martines, President and CEO, explained that the decline is primarily demand-driven due to high interest rates, rather than a lack of appetite for growth. There is pent-up demand, and as rates decline, they expect an uptick in loan demand. Building permits are up, indicating projects in the pipeline, which is promising for future quarters.
Q: What is the outlook for net interest margin (NIM) and deposit competition?
A: David Morimoto, CFO, stated that about 70% of the NIM expansion was organic, driven by asset and liability repricing. They forecast NIM in the 3.10% to 3.20% range for the next quarters. Deposit flows have been positive, with core deposits remaining stable, and they hope to grow these balances in future quarters.
Q: Have you seen any changes in deposit rates and competition locally?
A: David Morimoto noted that banks have responded to the Fed's rate cuts, with their promotional CD rates decreasing by about 50 basis points. Competition remains, but they are adjusting rates accordingly.
Q: Can you provide more details on the strategic opportunity and why discussions have ceased?
A: Arnold Martines stated that they cannot comment further on the strategic opportunity at this time.
Q: What is your approach to capital deployment, particularly regarding share repurchases?
A: David Morimoto mentioned that with a tangible capital ratio of 7.3%, they are open to share repurchases, depending on market conditions. They target a Tier 1 leverage ratio of 8% to 10% and are nearing the higher end, allowing for potential capital utilization.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
