Earnings call transcript: Central Pacific Financial beats Q1 2025 EPS forecast

Central Pacific Financial Corp (CPF) reported better-than-expected earnings for Q1 2025, with earnings per share (EPS) of $0.65, surpassing the forecasted $0.63. The company’s revenue reached $68.8 million, exceeding the anticipated $66.73 million. Following these results, CPF’s stock price increased by 1.42% in pre-market trading, reflecting positive investor sentiment. According to InvestingPro data, the company maintains a healthy P/E ratio of 13.54 and offers an attractive dividend yield of 4.13%, having maintained dividend payments for 13 consecutive years.

Key Takeaways

• Central Pacific Financial exceeded both EPS and revenue forecasts for Q1 2025.
• The company’s net interest margin improved to 3.31%, marking a sequential increase.
• CPF’s stock price rose by 1.42% following the earnings announcement.

Company Performance

Central Pacific Financial Corp demonstrated solid performance in Q1 2025, with a net income of $17.8 million, translating to $0.65 per diluted share. The company’s return on average assets and equity stood at 0.96% and 13.04%, respectively, indicating strong profitability. CPF’s efficiency ratio improved to 61.2%, the best since Q4 2022, highlighting effective cost management. InvestingPro analysis shows two analysts have revised their earnings upward for the upcoming period, suggesting continued momentum. For deeper insights into CPF’s financial health and growth potential, explore the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

Financial Highlights

• Revenue: $68.8 million, up from the forecasted $66.73 million.
• Earnings per share: $0.65, exceeding the forecast of $0.63.
• Net interest income: $57.7 million, a 3.5% increase quarter-over-quarter.
• Net interest margin: 3.31%, up 14 basis points sequentially.
• Total cost of deposits: Decreased to 1.08%, down 13 basis points.

Earnings vs. Forecast

Central Pacific Financial’s actual EPS of $0.65 surpassed the forecasted $0.63, a positive surprise of approximately 3.17%. The company’s revenue also exceeded expectations by $2.07 million, or about 3.1%. This marks a continuation of CPF’s trend of outperforming market expectations.

Market Reaction

Following the earnings release, CPF’s stock price increased by 1.42%, reflecting investor confidence in the company’s financial health and strategic direction. The stock’s performance is notable given its position within a 52-week range, with a high of $33.25 and a low of $19.46, indicating room for further growth. With a market capitalization of $718.57 million and a Fair Value assessment from InvestingPro suggesting the stock is slightly undervalued, CPF presents an interesting opportunity for value-focused investors. The company maintains a "FAIR" Financial Health Score of 2.22, reflecting stable operational performance.

Outlook & Guidance

Looking ahead, Central Pacific Financial projects low to mid-single-digit loan growth for 2025 and anticipates an expansion in net interest margin by 4 to 7 basis points in the next quarter. The company remains focused on core deposit growth and is cautiously optimistic about future revenue growth.

Executive Commentary

CEO Arnaud Martinez stated, "We are prepared to navigate through these uncertain times," emphasizing the company’s resilience. CFO Diana Matsumoto highlighted, "Our NIM has expanded every quarter for the last four quarters," reflecting consistent financial improvement. COO David Morimoto expressed, "We remain cautiously optimistic on the future," signaling confidence in CPF’s strategic initiatives.

Risks and Challenges

• Potential impacts of trade policies on the loan portfolio.
• Decline in total deposits by $48 million at quarter-end.
• Macroeconomic pressures, including fluctuating interest rates and economic uncertainties.

Q&A

During the earnings call, analysts inquired about the potential effects of trade policies on CPF’s loan portfolio, the company’s deposit cost strategies, and the potential for margin expansion. CPF confirmed its continued focus on commercial lending and outlined strategies to manage deposit costs effectively.

Full transcript - Central Pacific Financial Corp (CPF) Q1 2025:

Conference 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.

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.

Diana Matsumoto, Executive Vice President, Chief Financial Officer, Central Pacific Financial Corp: 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.

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.

Arnaud Martinez, Chairman, President and Chief Executive Officer, Central Pacific Financial Corp: 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.

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.

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.

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.

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.

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 and Chief Operating Officer, Central Pacific Financial Corp: 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.

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.

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.

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

Diana Matsumoto, Executive Vice President, Chief Financial Officer, Central Pacific Financial Corp: 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.

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.

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.

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.

I’ll now turn the call over to Ralph.

Ralph Miesek, Senior Executive Vice President and Chief Risk Officer, Central Pacific Financial Corp: 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.

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.

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.

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

Arnaud Martinez, Chairman, President and Chief Executive Officer, Central Pacific Financial Corp: 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.

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

David Pfister, Analyst, Raymond James: 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.

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?

Arnaud Martinez, Chairman, President and Chief Executive Officer, Central Pacific Financial Corp: David, you wanna take that call? I mean, that question.

David Morimoto, Vice Chairman and Chief Operating Officer, Central Pacific Financial Corp: Yeah. Sure. Hey hey, David. Yeah. Obviously, there is a lot of uncertainty.

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.

Andrew Liesch, Analyst, Piper Sandler: Okay.

David Morimoto, Vice Chairman and Chief Operating Officer, Central Pacific Financial Corp: 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 Pfister, Analyst, Raymond James: 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?

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.

Arnaud Martinez, Chairman, President and Chief Executive Officer, Central Pacific Financial Corp: Ralph, do want to take that question?

Ralph Miesek, Senior Executive Vice President and Chief Risk Officer, Central Pacific Financial Corp: 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.

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.

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 Pfister, Analyst, Raymond James: 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.

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?

Arnaud Martinez, Chairman, President and Chief Executive Officer, Central Pacific Financial Corp: Dana can answer that question.

Diana Matsumoto, Executive Vice President, Chief Financial Officer, Central Pacific Financial Corp: 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.

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 Pfister, Analyst, Raymond James: Okay. That’s helpful. Thanks, everybody.

Arnaud Martinez, Chairman, President and Chief Executive Officer, Central Pacific Financial Corp: Thanks, David.

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

Andrew Liesch, Analyst, Piper Sandler: 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.

Arnaud Martinez, Chairman, President and Chief Executive Officer, Central Pacific Financial Corp: Dana?

Diana Matsumoto, Executive Vice President, Chief Financial Officer, Central Pacific Financial Corp: Hi, Andrew. Yes. For the month of March, our margin was 3.37%.

Andrew Liesch, Analyst, Piper Sandler: 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?

Diana Matsumoto, Executive Vice President, Chief Financial Officer, Central Pacific Financial Corp: 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.

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, Analyst, Piper Sandler: Certainly. Do you have handy what the average yield on new loan production was during the quarter?

Diana Matsumoto, Executive Vice President, Chief Financial Officer, Central Pacific Financial Corp: Yes, I do. It was about 7.2%. This is a new loan yield in the first quarter.

Andrew Liesch, Analyst, Piper Sandler: 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?

Diana Matsumoto, Executive Vice President, Chief Financial Officer, Central Pacific Financial Corp: 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.

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

Andrew Liesch, Analyst, Piper Sandler: 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?

Diana Matsumoto, Executive Vice President, Chief Financial Officer, Central Pacific Financial Corp: 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, Analyst, Piper Sandler: Awesome. That you’ve covered everything that I had to ask. Thanks so much. I’ll step back. Thanks,

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

David Pfister, Analyst, Raymond James: 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.

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?

Diana Matsumoto, Executive Vice President, Chief Financial Officer, Central Pacific Financial Corp: 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.

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 Pfister, Analyst, Raymond James: Okay. All right. That’s helpful. Thanks, everybody.

Arnaud Martinez, Chairman, President and Chief Executive Officer, Central Pacific Financial Corp: Thanks, David.

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

Diana Matsumoto, Executive Vice President, Chief Financial Officer, Central Pacific Financial Corp: 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.

Conference Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.

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