Central Pacific Financial Corp. — Q1 2024 Form 10-Q
Business context and period: Hawaii-based bank holding company operating Central Pacific Bank, a full-service community bank with 27 branches and 55 ATMs in Hawaii. This unaudited report covers the three months ended March 31, 2024; comparisons are with Q1 2023 unless stated otherwise. Dollar amounts below are in millions unless noted.
Financial performance and condition
| Metric | Q1 2024 / March 31, 2024 | Comparison |
|---|---|---|
| Total revenue (net interest income plus other operating income) | $61.4 | $65.2 in Q1 2023 |
| Net interest income | $50.2 GAAP; $50.4 taxable-equivalent | $54.2 GAAP; $54.4 taxable-equivalent |
| Net interest margin | 2.83% | 3.08% in Q1 2023 |
| Net income / diluted EPS | $12.9 / $0.48 | $16.2 / $0.60 |
| Pre-provision net revenue | $20.9 | $23.1 in Q1 2023 |
| Efficiency ratio | 66.05% | 64.58% in Q1 2023 |
| Annualized ROA / ROE | 0.70% / 10.33% | 0.87% / 13.97% in Q1 2023 |
| Operating cash flow | $17.0 | $18.3 in Q1 2023 |
| Cash and cash equivalents | $312.9 | Down from $522.4 at December 31, 2023 |
| Total assets | $7,410.0 | Down 3.0% from December 31, 2023 |
| Total loans / allowance for credit losses | $5,401.4 / $63.5; allowance equals 1.18% of loans | Loans down 0.7% from year-end |
| Total deposits | $6,618.9 | Down $228.7, or 3.3%, from year-end |
| Long-term debt | $156.2 carrying value | $156.1 at year-end |
| Shareholders’ equity | $507.2; 6.84% of assets | $503.8; 6.59% at year-end |
Material changes and management commentary
- Net interest income fell 7.4% on a taxable-equivalent basis. Higher interest expense—up $11.6 million—more than offset increased interest income. Management attributed the pressure chiefly to higher rates and balances paid on interest-bearing deposits, alongside a shift from demand deposits toward higher-cost savings, money-market and time deposits.
- Other operating income rose 2.1% to $11.2 million, while operating expense declined 3.6% to $40.6 million, mainly from lower salaries, legal and professional services, and software costs. Management cited lower incentive accruals and tighter personnel management.
- Loans declined $37.6 million. Commercial mortgage loans increased $39.4 million, but consumer loans fell $50.2 million; the U.S. Mainland unsecured consumer portfolio is being allowed to run off without new purchases.
- Deposits declined primarily because of planned runoff of $139.1 million in government time deposits that matured, as well as lower demand balances. Core deposits were 89.1% of deposits. Estimated uninsured deposits were 41% of total deposits, or 35% excluding fully collateralized deposits.
- Net charge-offs were $4.5 million, versus $2.3 million in Q1 2023; annualized net charge-offs were 0.34% of average loans versus 0.16%. The $4.1 million loan-loss provision chiefly reflected higher U.S. Mainland unsecured consumer charge-offs and expected ongoing pressure in that segment. Nonperforming assets rose to $10.1 million from $7.0 million at year-end, primarily due to residential mortgage additions described as well-collateralized.
- Cash and cash equivalents declined as the company used excess liquidity to pay off maturing high-cost government time deposits. Management reported $2.42 billion of other available liquidity sources and total available liquidity equal to 118% of uninsured and uncollateralized deposits. The bank had $1.80 billion undrawn on its FHLB line and $241.0 million available at the Federal Reserve Discount Window.
Outlook, risks and unusual items
- The filing gives no specific company earnings, revenue, margin or credit-loss guidance. Management notes that the Federal Reserve held rates steady in January and March 2024; possible rate cuts were conditional on sustained progress toward the inflation target. Rate changes, deposit competition and deposit mix remain important uncertainties.
- Management describes Hawaii’s economy as continuing to recover, but identifies tourism, real estate, construction, and the effects of the Maui wildfires as relevant exposures. Nearly all wildfire-related payment deferrals had returned to current status; two loans totaling $1.3 million remained on deferral at quarter-end.
- Investment securities had substantial unrealized losses at March 31: $115.1 million on available-for-sale securities and $83.3 million on held-to-maturity securities. Management attributed losses primarily to interest rates and market volatility, stated the securities remained investment grade, and said it did not intend to sell them and did not expect to be required to sell before recovery or maturity. AOCI was a loss of $124.3 million.
- Interest-rate sensitivity modeling showed estimated net interest income declines under falling-rate scenarios, including a 4.28% decline for an instantaneous 200-basis-point decrease. Management said modeled exposures were within board-approved policy limits; actual outcomes depend on assumptions about deposit pricing, repricing and customer behavior.
- The company and bank were above applicable well-capitalized regulatory thresholds. The company declared a $0.26-per-share dividend and repurchased $0.9 million of shares; $19.1 million remained under its $20 million repurchase authorization. Future dividends and repurchases are discretionary and subject to legal, regulatory and contractual limits.
- Ordinary-course legal proceedings are not expected by management to have a material adverse effect. The filing reports no material changes to previously disclosed risk factors and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether deposit balances and mix stabilize, including the cost of interest-bearing deposits and the share of uninsured deposits.
- Whether net interest margin and net interest income recover or face further pressure as rates and deposit pricing change.
- Trends in consumer charge-offs, loan-loss provisions, nonaccrual loans and the adequacy of the $63.5 million allowance.
- Liquidity availability under stress and the capacity to meet withdrawals without selling securities carrying significant unrealized losses.
- Hawaii economic conditions, including tourism and real estate performance, and any lasting credit effects from the Maui wildfires.
- Capital levels, dividend capacity, and actual use of the remaining share repurchase authorization.