Central Pacific Financial Corp. (CPF), the parent company of Central Pacific Bank, has demonstrated its resilience in the face of economic challenges, delivering solid financial results in the first quarter of 2024. With a strong focus on diversification, consistent underwriting standards, and a commitment to serving its local community, the company has positioned itself for continued success.

Financials

In the first quarter of 2024, Central Pacific Financial Corp. reported net income of $12.9 million, or $0.48 per diluted share. This performance translated to a return on average assets of 0.70% and a return on average equity of 10.33%. The company's efficiency ratio for the quarter stood at 66.05%.

For the full year 2023, the company reported annual net income of $58.7 million, annual revenue of $329.3 million, annual operating cash flow of $105.1 million, and annual free cash flow of $92.5 million.

Loan Portfolio and Asset Quality

Central Pacific Financial Corp.'s total loan portfolio decreased by $37.6 million, or 0.7%, in the first quarter of 2024, primarily due to planned runoff in the Mainland consumer loan portfolio, partially offset by growth in the Hawaii commercial real estate portfolio. The company's loan pipeline for the second quarter and beyond remains healthy, and management is taking a balanced approach to loan growth.

The company's asset quality remained strong, with nonperforming assets at $10.1 million, or 0.14% of total assets, as of March 31, 2024. Criticized loans decreased to $30.4 million, or 0.56% of total loans, reflecting a downward trend over the past three quarters. Net charge-offs were $4.5 million, or 0.34% of average loans on an annualized basis, a decrease of 7 basis points from the previous quarter.

Deposit and Funding Dynamics

Central Pacific Financial Corp.'s total deposit portfolio decreased by $228.7 million, or 3.3%, in the first quarter of 2024, primarily due to a $139 million decrease in high-cost government time deposits. The company's focus on managing growth and cost of deposits has been a key priority, as it seeks to balance the need for liquidity and profitability.

The company's net interest margin was 2.83% in the first quarter of 2024, down only 1 basis point sequentially. Management expects the net interest margin to expand modestly in the coming quarters, with the full effect of the interest rate swap on $115 million of municipal securities adding approximately $1 million in pre-tax income quarterly.

Business Overview

Central Pacific Financial Corp. is a Hawaii-based bank holding company that serves the local community through its subsidiary, Central Pacific Bank. The bank operates 27 branches and 55 ATMs throughout the state, offering a range of traditional deposit and lending products, as well as fiduciary and investment management services.

The company's lending portfolio is diversified, with a focus on commercial and industrial loans, real estate loans (including construction, residential mortgage, home equity, and commercial mortgage), and consumer loans. The bank's lending strategy emphasizes consistent underwriting standards, strong collateral, and expertise in stable segments and industries.

In addition to its lending activities, Central Pacific Financial Corp. generates revenue from various fee-based services, including mortgage banking, service charges on deposit accounts, other service charges and fees, income from fiduciary activities, and income from bank-owned life insurance.

Geographical Breakdown and Outlook

The majority of Central Pacific Financial Corp.'s operations are concentrated in the State of Hawaii, which has experienced a resilient economic recovery despite the challenges posed by the COVID-19 pandemic and the recent Maui wildfires. The company's performance is significantly influenced by the strength of the real estate markets, economic environment, and environmental conditions in Hawaii.

According to the University of Hawaii Economic Research Organization (UHERO), Hawaii's total visitor arrivals by air are expected to reach approximately 9.8 million in 2024, an increase of 2.0% from 2023. Visitor spending is forecasted to decline by 1.9% to $20.31 billion in 2024. The state's seasonally adjusted annual unemployment rate is projected to remain low at approximately 2.7% in 2024.

In the real estate market, the Oahu single-family home median price rose by 4.4% to $1.07 million in the first quarter of 2024, while the Oahu condominium median price increased by 1.0% to $505,000 during the same period. The demand for housing remains strong, with a 7.4% increase in active inventory for single-family homes in March 2024.

Management Guidance and Outlook

Central Pacific Financial Corp. management has provided guidance for the remainder of 2024. The company expects its net interest margin to be in the range of 2.90% to 3.00%, an improvement from the 2.83% reported in the first quarter. Net interest income is projected to be in the range of $50 million to $52 million per quarter.

The company's effective tax rate is expected to remain in the 23% to 25% range going forward. Management remains focused on maintaining strong asset quality, with a continued emphasis on diversification, consistent underwriting standards, and a focus on stable segments and industries.

Risks and Challenges

While Central Pacific Financial Corp. has demonstrated resilience, the company is not immune to the broader economic and market conditions that can impact its performance. Factors such as interest rate fluctuations, the ongoing recovery from the COVID-19 pandemic, the effects of the Maui wildfires, and potential changes in the competitive landscape could all pose risks to the company's future success.

Additionally, the company's concentration in the Hawaii market exposes it to the unique economic and environmental challenges faced by the state, including the potential impact of natural disasters and changes in the tourism industry, which is a significant driver of the local economy.

Conclusion

Central Pacific Financial Corp. has navigated the economic headwinds with a steady hand, delivering solid financial results in the first quarter of 2024. The company's focus on diversification, consistent underwriting standards, and commitment to serving its local community have positioned it well for continued success. With a healthy loan pipeline, strong asset quality, and a disciplined approach to deposit and funding management, Central Pacific Financial Corp. appears poised to capitalize on the opportunities that lie ahead in the Hawaii market.