Central Pacific Financial (US:CPF)2023-07-29 07:19Financial Data and Key Metrics Changes - Net income for Q2 2023 was $14.5 million, or $0.53 per diluted share, with a return on average assets of 0.78% and return on average equity of 12.12% [32] - Net interest income decreased by $1.5 million from the prior quarter to $52.7 million, with a net interest margin of 2.96%, down 12 basis points [12][32] - Total deposits grew by $59 million, including core deposit growth of $10 million, with average total deposit balances increasing by $19 million sequentially [33] Business Line Data and Key Metrics Changes - The loan-to-deposit ratio declined to 81%, with a focus on moderating loan growth and being selective in new portfolio loans [11] - The total Mainland consumer portfolio decreased by $44 million from the prior quarter to $386 million, representing 7% of total loans [36] - Nonperforming assets were at 15 basis points of total assets, with criticized loans at 1.3% of total loans [14] Market Data and Key Metrics Changes - Hawaii's unemployment rate declined to 3% in June, outperforming the national rate of 3.6%, with a year-over-year increase of 17,000 jobs [29] - Visitor spending in Hawaii was robust at $1.69 billion in May, a 19% increase compared to May 2019 [7] - Real estate values remain strong, with the Oahu median single-family home price around $1.1 million [8] Company Strategy and Development Direction - The company is focused on building long-term customer relationships and generating relationship-based deposits, aiming to grow market share [10] - There is a strong emphasis on risk management and selective loan growth, particularly in the small business and construction sectors [52] - The company plans to continue investing in technology to improve efficiency and automate processes [56] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the moderation of deposit costs and the overall economic outlook for Hawaii, projecting avoidance of recession [30] - The company is monitoring the economic environment closely and believes that higher loss levels in the Mainland consumer portfolio are peaking [16][17] - The effective tax rate is expected to remain in the range of 24% to 25% going forward [13] Other Important Information - The company repurchased 23,750 shares at a total cost of $0.4 million, with a quarterly cash dividend of $0.26 per share declared [35] - The allowance for credit losses was $63.8 million, or 1.16% of outstanding loans, with a provision for credit losses of $4.3 million during the quarter [38] Q&A Session Summary Question: How is the pipeline for the rest of the portfolio decline? - Management indicated that the pipeline remains robust, but they are being selective due to the operating environment [21][43] Question: Have expectations changed on where interest-bearing deposit betas will peak? - Management noted that expectations have shifted, with a potential peak now anticipated at around 30% rather than 25% [46] Question: What segments are still providing good risk-adjusted returns? - Management highlighted small business and construction as areas with good risk-adjusted returns, with a focus on maintaining core deposits [52][52] Question: What is the core expense run rate? - Management indicated that a core expense run rate of $39 million to $40 million is appropriate, with a focus on balancing revenue and expenses [55] Question: How do you think net interest margin trends will evolve? - Management expressed cautious optimism for moderation in net interest margin pressure, projecting a range of 2.80% to 2.90% for the next couple of quarters [63]