Earnings call transcript: Central Pacific Financial beats Q4 2024 EPS forecast

Central Pacific Financial Corp (NYSE:CPF) reported its fourth-quarter 2024 earnings, surpassing analyst expectations with an earnings per share (EPS) of $0.70, compared to the forecasted $0.58. The company reported actual revenue of $58.4 million, which fell short of the anticipated $66.2 million. Following the earnings announcement, CPF’s stock price increased by 2.26%, closing at $29.44. With a market capitalization of $815 million, CPF maintains a moderate P/E ratio of 15.2x and offers a compelling dividend yield of 3.67%. InvestingPro data reveals that 2 analysts have recently revised their earnings expectations upward for the upcoming period.

Key Takeaways

• Central Pacific Financial’s EPS exceeded forecasts by 20.7%.
• Revenue missed expectations, reflecting challenges in market conditions.
• Stock price rose by 2.26% post-earnings announcement.
• The company expects loan growth in 2025, driven by commercial real estate.
• Hawaii’s economic conditions remain resilient, supporting CPF’s outlook.

Company Performance

Central Pacific Financial demonstrated robust performance in Q4 2024, with net income reaching $11.3 million, or $0.42 per diluted share. For the full year, the net income was $53.4 million, translating to $1.97 per diluted share. Adjusted figures showed a full-year net income of $63.4 million, or $2.34 per diluted share. The company’s net interest margin improved to 3.17%, supported by strategic investment portfolio repositioning.

Financial Highlights

• Revenue: $58.4 million, below the forecast of $66.2 million.
• EPS: $0.70, exceeding the forecast of $0.58.
• Net interest margin: 3.17%, up 10 basis points sequentially.
• Core deposit growth: $74.2 million.

Earnings vs. Forecast

Central Pacific Financial’s EPS of $0.70 significantly outperformed the forecasted $0.58, marking a positive earnings surprise of 20.7%. However, revenue fell short of expectations, coming in at $58.4 million against a forecast of $66.2 million, indicating potential challenges in revenue generation.

Market Reaction

Following the earnings release, CPF’s stock rose by 2.26%, reflecting investor optimism about the company’s earnings performance despite the revenue miss. The stock’s increase positions it closer to its 52-week high of $33.25, suggesting strong market confidence. According to InvestingPro analysis, CPF has delivered an impressive 59.7% return over the past year and has maintained dividend payments for 13 consecutive years. The company’s current valuation appears to be near its Fair Value, based on comprehensive analysis available in the InvestingPro Research Report, which provides detailed insights for over 1,400 US stocks.

Outlook & Guidance

Looking ahead, Central Pacific Financial anticipates loan growth in 2025, particularly in the commercial and commercial real estate sectors. The company projects an effective tax rate of 21-23% and operating expenses between $42.5 million and $43.5 million. Executives expressed cautious optimism about further margin expansion beyond 3.3%. InvestingPro subscribers can access detailed financial health metrics, which currently show a FAIR overall rating with particularly strong scores in profitability and price momentum. Additional ProTips and comprehensive analysis are available for subscribers looking to make informed investment decisions.

Executive Commentary

CEO Arno Martinez remarked, "We are entering 2025 with confidence and optimism," highlighting the company’s strategic positioning. CFO David Morimoto added, "We’re cautiously optimistic that the margin will be higher," indicating potential financial improvements.

Risks and Challenges

• Potential revenue generation challenges as seen in Q4 2024 results.
• Economic fluctuations in Hawaii could impact future growth.
• Rising interest rates may affect loan demand and profitability.
• Competitive pressures in the financial sector.
• Regulatory changes following CPF’s status as a Fed member bank.

Q&A

During the earnings call, analysts inquired about the expected loan growth drivers, to which executives pointed to commercial and commercial real estate segments. The company also addressed questions regarding deposit performance, emphasizing proactive market strategies and maintained loan pricing discipline.

Full transcript - Central Pacific Financial Corp (CPF) Q4 2024:

Dustin, Conference Call Moderator: Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the Central Pacific Financial Corp. Fourth Quarter twenty twenty four Conference Call. During today’s presentation, all parties will be in a listen only mode. Following the presentation, the conference will be open for questions.

This call is being recorded and will be available for replay shortly after its completion on the company’s website at www.tpb.bank. I would now like to turn the call over to Ms. Dana Matsumoto, Group SVP Director, Finance and Accounting. Please go ahead.

Dana Matsumoto, Group SVP Director, Finance and Accounting, Central Pacific Financial Corp: Thank you, Dustin, and thank you all for joining us as we review the financial results of the and full year of 2024 for Central Pacific Financial Corp. With me this morning are Arno Martinez, Chairman, President, and Chief Executive Officer David Morimoto, Senior Executive Vice President and Chief Financial Officer Ralph Miesick, 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 cpd.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 Chairman, President and CEO, Arnold Martinez.

Arno Martinez, Chairman, President, and Chief Executive Officer, Central Pacific Financial Corp: Thank you, Dana, and thank you, everyone, for joining us today. We appreciate your interest in Central Pacific Financial Corp, and we are pleased to share our latest updates and results with you. In the through our team’s strong execution and diligent oversight, we once again achieved meaningful NIM expansion and core deposit growth. At the same time, we continue to maintain strong liquidity, asset quality and capital positions. In the we began to see loan opportunities pick up, and we are on track for growth in 2025.

We completed an investment portfolio repositioning in the which impacted our current quarter results but will lead to significant income accretion in 2025 and beyond. David will cover this transaction in more detail shortly. Overall, we had a strong year in 2024, and I’m proud of our team’s accomplishments. We are entering 2025 with confidence and optimism for another strong year. Let me next provide an update on the Hawaii market.

Overall, the economy continues to expand at a modest pace and remains resilient. We continue to see significant strength in construction and military spending, while the tourism sector is expected to slightly improve in 2025. The Hawaii construction industry continues to grow and is being led by residential and government construction. The total value of construction in 2024 based on the first half of the year annualized would exceed $13,000,000,000 a meaningful increase from the prior year’s high of $1,180,000,000,0.0 Construction payroll jobs reached 43000 in October 2024, a new record for Hawaii. In the area of tourism, in the month of November 2024, total statewide visitor arrivals were up 5.3% and visitor spending was up 2% from the prior year.

This was the fourth consecutive month with year over year growth in both visitor arrivals and spending. The recovery of visitors from Japan continues to be slow, but fortunately was offset by stronger U. S. Visitor arrivals. At this point, we are uncertain what the impact on visitor arrivals will be from the LA wildfires, but we continue to pray for the people of Southern California infected by this tragedy.

Maui’s recovery and rebuilding continues but will be a long process. The good news is that Maui has regained more than half of the jobs lost to the twenty twenty three wildfires. However, visitor arrivals and housing needs continue to be challenges. Rebuilding efforts will provide a boost to the economy over time, and the state remains committed to supporting Maui in building a stronger island for the future. Hawaii’s state wide seasonally adjusted unemployment rate remained very low at 3% in Dec.

0 and continued to outperform the national unemployment rate of 4.1%. Hawaii real estate values remained strong and ended 2024 very high. The Wahhabi median single family home price was $1,050,000,.00 in the month of Dec. 0, reflecting a year over year increase of 5.8%. Home sales for the month were up 25.3% for single family homes and up 18.8 for condos compared to the prior year.

Home inventories generally are increasing and we anticipate that the positive momentum will continue into 2025. Overall, while some economic uncertainty exists, Hawaii’s economy has proven to be resilient and is positioned to continue to modestly grow in 2025, which would translate to increased growth opportunities for Central Pacific as well. I’ll now turn the call over to David.

David Morimoto, Senior Executive Vice President and Chief Financial Officer, Central Pacific Financial Corp: Thank you, Orta. Turning to our earnings results. Net income for the was $1,130,000,0.0 or $0,.42 per diluted share. As Arnaud noted, our results were impacted by an investment portfolio repositioning completed in the We sold $10,650,000,0.0 in securities and recognized a pretax loss of $990,000,0.0 The proceeds were reinvested at current market yields, which were approximately two eighty basis points higher than the yields on the securities sold. The transaction is projected to increase prospective annualized net interest income by $270,000,0.0 and net interest margin by 4 basis points.

Excluding the investment securities loss, adjusted net income was $19,000,000 or $0.7 per diluted share. For the full year 2024, net income was $5,340,000,0.0 or $1,.97 per diluted share. Excluding the investment securities loss in the and the strategic opportunity expenses in the adjusted full year 2024 net income was $6,340,000,0.0 or $2,.34 per diluted share. In the the pace of our loan portfolio decline slowed with a sequential quarter decrease of 9800000.0 or 0.2%. Our loan pipeline and demand have increased in recent months and we believe we are positioned to produce net loan growth in 2025.

Our total deposit portfolio grew by $61,000,000 which included core deposit growth of 74200000.0 offset by lower reliance on government CEs. The deposit mix again shifted favorably with demand deposits increasing by $5,090,000,0.0 in the Net interest income for the was $5,580,000,0.0 and increased by 1900000.0 from the prior quarter. The net interest margin was 3.17%, up 10 basis points on a sequential quarter basis. Total (EPA:TTEF) cost of deposits decreased by 11 basis points to 1.21% in the The net interest income and NIM expansion were primarily driven by a reduction in our funding costs, while earning asset yields remained fairly stable, a reflection of our disciplined approach to pricing and spread management. Other operating income for the quarter was $260,000,0.0 and was impacted by investment repositioning loss of $990,000,0.0 The adjusted other operating income excluding the loss was $1,250,000,0.0 Other operating expense totaled $4,420,000,0.0 in the and reflects the decline from the which included the $310,000,0.0 expenses related to the strategic opportunity.

Additionally, expenses included a $140,000,0.0 impairment charge on intangible assets. The intangible assets were related to the Svelte fintech app that the company developed in 2022. Our effective tax rate was 15.4% in the and benefited from a true up to low income housing tax credits. We believe the effective tax rate will be in the 21% to 23% range going forward, which is more consistent with historical trends. We did not repurchase any shares in the Our Board of Directors declared a quarterly cash dividend of $0,.27 per share, an increase of $0,.01 or 3.8% from the prior quarter.

The dividend will be payable on March ’17 to shareholders of record on February ’28. Additionally, our board approved a new share repurchase authorization for up to $30,000,000 in 2025. The increase in the dividend and share repurchase authorization reflects our strengthening outlook for earnings and capital. I’ll now turn the call over to Ralph.

Ralph Miesick, Senior Executive Vice President and Chief Risk Officer, Central Pacific Financial Corp: Thank you, David, and good morning, everyone. Our bank continued to enjoy strong asset quality and acceptable credit costs in the Net charge offs were $380,000,0.0 or 29 basis points on annualized average loans. This represents a 2 basis point increase from the prior quarter. The increase came from losses on 2 credits in the C and I segment totaling $600,000 These losses were attributed to idiosyncratic events and excluding them, net charge offs for the would have declined to $320,000,0.0 We continue to see consumer net charge offs trend lower this quarter. Non performing assets were $11,000,000 or 15 basis points of total assets at quarter end, a slight decrease in the prior quarter.

Past due loans ninety days plus were just 1 basis point of total loans and the level of criticized loans remained flat at 62 basis points. Our allowance for credit loss was $5,920,000,0.0 or 1.11% of outstanding loans. In the our provision expense was $800,000 In the quarter, we added 1400000.0 to the allowance with that increase partly offset by a reduction of $600,000 in the amount reserved for unfunded commitment. Supporting the allowance, we hold a strong level of capital. Total risk based capital was a healthy 15.4% at the end of the This provides a meaningful capital cushion above regulatory thresholds for a well capitalized bank.

As highlighted in the presentation, the loan portfolio as of quarter end was balanced and diversified across customer, product, industry, collateral types and geography with no outsized exposures in higher risk segments. I should note that there are none of the loans secured by properties in Southern California were in areas impacted by the recent wildfires. Finally, I want to share that Central Pacific Bank recently became a Fed member bank effective Jan. 24, 2025. With this, our primary bank regulator changed from the FDIC to the FRB.

We believe this reflects a natural step as we continue to position the bank for future growth. And with that, let me turn the call back to Arnaud.

Arno Martinez, Chairman, President, and Chief Executive Officer, Central Pacific Financial Corp: Thank you, Ralph. In summary, we had a solid core in a 2024 year. We are excited for the outlook in 2025 and are focused on supporting our clients and the community in driving value to our shareholders. 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.

Dustin, Conference Call Moderator: Thank And our first question comes from the line of David Feaster from Raymond (NSE:RYMD) James.

David Morimoto, Senior Executive Vice President and Chief Financial Officer, Central Pacific Financial Corp: The line is open.

David Feaster, Analyst, Raymond James: Hi, good morning, everybody.

Arno Martinez, Chairman, President, and Chief Executive Officer, Central Pacific Financial Corp: Hi, David.

David Morimoto, Senior Executive Vice President and Chief Financial Officer, Central Pacific Financial Corp: Good morning, David.

David Feaster, Analyst, Raymond James: I just wanted to follow-up on some of your commentary in the prepared remarks. You talked about loan growth opportunities picking up. That’s extremely encouraging. I was hoping you could expand on that. How much of that is increased activity from your bankers in just being proactive versus increased demand?

And just hoping you could touch on sentiment, where you’re seeing the most opportunity and just how you think about organic growth this year?

Arno Martinez, Chairman, President, and Chief Executive Officer, Central Pacific Financial Corp: Yes. Thanks, David. This is Arnold. Yes. You’re right.

We did we are optimistic about loan growth. We saw a pickup in loan growth in the and we believe that momentum is going to continue to 2025. Our pipeline for is very healthy. I think our team has been very proactive in being out there in the market. We’ve also recently added additional lending team members from within the market that we believe will augment the overall growth plans for this year.

So yes, so maybe we’re pretty optimistic about 2025.

David Feaster, Analyst, Raymond James: Could you just I mean, that’s great. So, how do you think about the pace of growth? What do you see some of the key drivers of that?

Arno Martinez, Chairman, President, and Chief Executive Officer, Central Pacific Financial Corp: So, we will see growth in the commercial and the commercial real estate segments. That’s where we see fairly healthy demand, and that’s going to translate primarily for the growth that we’re going to see. We’re doing some consumer purchases on the auto side, but primarily, the growth is going to come from organic growth from C and I and from CRE. Okay. And

David Feaster, Analyst, Raymond James: then on the other side of the coin, your deposit performance was extremely impressive. To see NIB growth at that pace is definitely an exception to the rule. Where are you seeing opportunity to drive that growth? And then just touching on the competitive landscape for deposits, client reception to reduce deposit costs. Just kind of curious what you’re seeing on

Dustin, Conference Call Moderator: that side.

Arno Martinez, Chairman, President, and Chief Executive Officer, Central Pacific Financial Corp: I’m going to turn the call over to Dave and Dave can respond to your question on deposits.

David Morimoto, Senior Executive Vice President and Chief Financial Officer, Central Pacific Financial Corp: Hey, David. Good morning. Yeah. We likewise were very pleased with the team’s performance on deposits, you know, being able to grow core deposits while also reducing overall total deposit costs was a great outcome. 1 thing to note on the especially in the DDA growth area, we did benefit from some seasonal DDA deposits in the totaling roughly $40,000,000 But other than that, it’s been a lot of blocking and tackling.

The teams have been doing a great job utilizing our market position. And we’ve been able to move some new relationships to CPB. Bottom line, we’re very pleased with the increase in core deposits and a lot of basis points increase in total deposit costs.

David Feaster, Analyst, Raymond James: That’s terrific. And just last 1 from me. How do you think about expenses? Obviously, we’ve got a pretty decent visibility into and improving NII trajectory, with growth potentially accelerating margin expansion. How much of that do you think flows to the bottom line?

Are you contemplating potentially accelerating some investments to further support growth? Or kind of curious how you think about expenses and potential positive operating leverage?

David Morimoto, Senior Executive Vice President and Chief Financial Officer, Central Pacific Financial Corp: Yes. That’s the objective. That’s always been the objective, right, David? It’s a positive operating leverage. We’re going to see it in 2025.

On the OE side, I think the near term guidance is probably the 42.5 to 43.5 range. And I think if you run that through for the year, I think it’s a slight increase to normalized 2025. But we do we will grow revenues faster than expenses.

David Feaster, Analyst, Raymond James: Terrific. Thanks, everybody.

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

Dustin, Conference Call Moderator: And our next question comes from the line of Andrew Liesch from Piper Sandler. Your line is open.

Andrew Liesch, Analyst, Piper Sandler: Hi, everyone. Thanks. Hi, everyone. Good morning.

David Morimoto, Senior Executive Vice President and Chief Financial Officer, Central Pacific Financial Corp: Hi, Andrew.

Andrew Liesch, Analyst, Piper Sandler: Just a question around the margin here. Obviously, some great expansion in the quarter, good performance there. And you spoke in the past about maybe the longer term range being, call it, between like 2.83.3%. But with the expansion you just saw and the benefit from the securities repositioning, I mean, do you think you could get above 3.3 here later on this year?

David Morimoto, Senior Executive Vice President and Chief Financial Officer, Central Pacific Financial Corp: Yes, Drew. It’s David. Yes, we’re cautiously optimistic that that range will be proven conservative. We’re very pleased, second consecutive quarter of greater than 3.5% sequential quarter NII increase and second consecutive quarter of 10 basis points of NIM expansion. And we the jumping off point for the is quite positive.

The Dec. 0 month to date NIM was actually $3,.29 loan yield was $4,.95 and total deposit cost was down to 1.14 So, everything trending in the right direction. Team is prepared to continue to execute on what we’ve been doing and we’re cautiously optimistic that the margin will be higher.

Andrew Liesch, Analyst, Piper Sandler: Got it. That’s really helpful. The average loan yield then up 4 basis points compared to the quarterly average. Have the rate cuts had much of an effect on any asset classes? It just seems like that this is more positive than I’ve heard elsewhere on loan repricing.

Maybe you can talk about what sort of repricing characteristics you have coming up?

David Morimoto, Senior Executive Vice President and Chief Financial Officer, Central Pacific Financial Corp: Yes. I think we’ve been fortunate that we’ve been able to maintain the pricing discipline. We’ve been very focused on that. So in the we were able to actually increase some of our loan pricing. And the portfolio was relatively on the lower side to begin with, right?

So the new volume yield on the loan portfolio was averaged out to seven forty Got it.

Andrew Liesch, Analyst, Piper Sandler: Yes, that’s really helpful. I guess then on the deposit side, I know there’s a lot of good competition in the state among all the banks, but even do you think there might be some pull through from the Fed rate cuts, the full quarter effect on the funding cost side? Or do you think competition might limit that improvement?

David Morimoto, Senior Executive Vice President and Chief Financial Officer, Central Pacific Financial Corp: Yes. I think while we had 2 great quarters on net interest income and net interest margin, they were accomplished quite differently, right? The was largely on the asset side of the balance sheet. The was largely on the liability side of the balance sheet. I think going forward, we’ll continue to see net interest margin expansion, but it’s likely to be a little more balanced.

So we do think we’re going to see opportunities continued opportunities on the funding side. But we think there’s going to be opportunities on the asset side also. And again, the total deposit cost was down to 114 in the month of Dec. 0.

Andrew Liesch, Analyst, Piper Sandler: Yes. Awesome. Great to hear that. All right. You’ve covered all my other questions.

I’ll step back. Thanks.

Arno Martinez, Chairman, President, and Chief Executive Officer, Central Pacific Financial Corp: Thanks, Andrew. Thanks, Andrew.

Dustin, Conference Call Moderator: Thank you. Our next question comes back to the line of David Thieser from Raymond James.

David Morimoto, Senior Executive Vice President and Chief Financial Officer, Central Pacific Financial Corp: Sir, the line is open.

David Feaster, Analyst, Raymond James: Hi. Just a couple of other follow ups. I was hoping you could touch on credit. I appreciate your commentary on two’s idiosyncratic C and I issues. I was hoping you could just give a little bit more color on that and what you’re seeing on credit broadly.

And then just in the consumer book, that book’s continued to run down. Do you think we’re through the worst of it? Just kind of curious what you’re seeing there too.

Ralph Miesick, Senior Executive Vice President and Chief Risk Officer, Central Pacific Financial Corp: David, this is Ralph. The couple of situations that we talked about, 1 off situations, 1 included a small loss on a performing SNIC loan that we had sold. And then the other 1 was related to a business principal that passed away. So those types of things, they come up from time to time, but that was quite unusual. I think when we look at the consumer charge offs, we’re down for the quarter.

We had some issues with a 2022 vintage that represented some more of the loss that we saw in 2025. But actually, we’ve come down from that. The peak losses probably occurred in the And even past due trends are improving. And then when you kind of look at the NPAs, 90% of that is secured by 1 to 4 single family residences. So I think they’re well margin to ensure eventual principal repayment.

And then I think if we kind of look forward and we look at kind of the forward indicators of credit risk, the level of NPAs, the past dues 90 and the criticized loans, what you’re seeing is a pretty positive trend. So I think that bodes well for kind of our near term credit costs and our budget expectations for 2025.

David Feaster, Analyst, Raymond James: Okay. That’s great. And then I was just hoping to touch on capital priorities. You got a really strong balance sheet. You got the dividend increase this quarter, the new buyback authorization.

You’ve been active restructuring securities. You kind of did a little bit of everything, right, and organic growth is coming. I’m just curious, your plans as we look forward, what’s most interesting to you and plans for deploying capital?

David Morimoto, Senior Executive Vice President and Chief Financial Officer, Central Pacific Financial Corp: Hey, David. It’s David. Yes, capital ratios have been building and are quite healthy today, higher end of our target ranges. So as far as our capital priorities, we’ll continue to pay our quarterly cash dividend, which we just increased to 0.27 per share, roughly a 40% payout ratio. The remaining 60% will be used to support organic balance sheet growth, open market share repurchases, potential additional balance sheet repositioning and or M and A.

Obviously, we like our current capital flexibility and we evaluate it on an ongoing basis. So, kind of long winded way of not really addressing your questions directly. It is somewhat of an ongoing analysis, right, based on the operating environment and the equity market.

David Feaster, Analyst, Raymond James: For sure. Terrific. Thanks, everybody.

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

Dustin, Conference Call Moderator: Thank you. Seeing as there are no more questions in the queue, that concludes our question and answer session. I would now like to turn the call back over to Ms. Dana Montemata for closing remarks.

Dana Matsumoto, Group SVP Director, Finance and Accounting, Central Pacific Financial Corp: Thank you very much for participating in our earnings call for the We look forward to sharing our progress with you next quarter. Thank you.

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