Central Pacific Financial Corp. Q3 FY2025 earnings call

• Arnold Martines expressed gratitude for stakeholders' support and highlighted strong results, deposit and loan growth, margin expansion, operations center consolidation, and a strategic partnership with Kyoto Shinkin Bank.
• David Morimoto discussed balance sheet growth, noting loan and deposit trends, with Mainland showing growth in commercial real estate and construction sectors, and Hawaii having runoff in certain loan types but a healthy pipeline.
• Dayna Matsumoto reported net income of $18.6 million, net interest income growth, net interest margin expansion, guidance for Q4 net interest income and margin, other operating income details, expense guidance, and share repurchase activity.
• Ralph Mesick spoke about credit risk management, strong asset quality, low nonperforming assets and charge-offs, and a strong capital position with total risk-based capital at 15.7%.

In the third quarter, Central Pacific Financial Corp. reported strong results. Loans saw a net growth of $77 million, with deposits increasing by $33 million to $6.6 billion. Net interest income rose 2.5% from the prior quarter to $61.3 million, and the net interest margin expanded 5 basis points to 3.49%. Total other operating income was $13.5 million, up $0.5 million from the previous quarter. Total other operating expenses were $47.0 million, up $3.1 million, including a $1.5 million onetime expense related to office consolidation. The Hawaii loan portfolio had runoff in residential mortgage and home equity, while the Mainland loan portfolio saw growth in commercial mortgage and construction.

• For the fourth quarter, net interest income is guided to $62 million to $63 million with a net interest margin increase of 5 to 10 basis points.
• Total other operating income is normalized to $12 million to $13 million.
• Total other operating expenses are guided to $45 million to $46 million.
• Capital targets: CET1 ratio in the range of 11% to 12% and TCE ratio in the range of 7.5% to 8.5%.

• Risks related to forward-looking statements, including economic headwinds, interest rate volatility, and potential impacts from prolonged stress in the credit cycle. Also, Hawaii's economy softness due to U.S. trade policies poses a risk.
• Credit risk, including potential adverse conditions affecting loan portfolios.

Q: David Feaster from Raymond James asked about the declines in loans in Hawaii, what drives it and confidence in Hawaii growth acceleration, and expense investment.

A: David Morimoto said Hawaii loan declines were due to runoff in residential mortgage and home equity, with hope for improvement as rates moderate and a healthy pipeline. Arnold Martines and Dayna Matsumoto discussed investment in technology, people development, and process automation to drive efficiency.

Q: Matthew Clark from Piper Sandler asked about margin, long-term debt duration, loan growth on Mainland, and SNC exposure.

A: Dayna Matsumoto provided details on long-term debt, David Morimoto talked about Mainland loan growth in industrial and multifamily sectors, and Ralph Mesick gave SNC exposure details.

Q: Kelly Motta from KBW asked about expense compensation related to bonus accruals and capital targets.

A: Dayna Matsumoto said about $1.5 million of the expense increase was related to incentive accruals. She also discussed capital targets, being above the range, and the priority of loan growth with plans for share repurchases based on loan growth and market conditions.