CPF
#Good day, ladies and gentlemen.
Thank you for standing by, and welcome to the Central Pacific Financial Corp.
2017 First Quarter Earnings Conference Call and Webcast.
(Operator Instructions) This call is being recorded and will be available for replay shortly after its completion on the company's website at www.centralpacificbank.com.
I would now like to turn the call over to <UNK> <UNK>, Executive Vice President and Chief Financial Officer.
Please go ahead, sir.
Thank you, William, and thank you all for joining us as we review our financial results for the first quarter of 2017.
With me this morning are <UNK> <UNK>, President and Chief Executive Officer; and <UNK> <UNK>, Executive Vice President and Chief Credit Officer.
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 risks related to forward-looking statements, please refer to our recent filings with the SEC.
And now, I'll turn the call over to <UNK>.
Thank you, <UNK>, and good morning, everyone.
Net income for the first quarter of 2017 was $13.1 million or $0.42 per share compared to net income of $12.2 million or $0.39 per share reported last quarter.
Return on average assets in the first quarter was 0.96%, and return on average equity was 10.24%.
Net interest income increased by $1.6 million in sequential quarter and our net interest margin rose by 8 basis points to 3.30%.
The sequential quarter increases in net interest income and net interest margin were primarily the result of $1 million in interest recoveries on nonaccrual loans and a $0.7 million decrease in premium amortization on investment securities.
Excluding the nonrecurring loan interest recoveries, the normalized first quarter 2017 net interest margin was 3.22%.
During the first quarter, we recorded a credit to the provision for loan and lease losses of $0.1 million compared to a credit of $2.6 million recorded in the prior quarter.
Net charge-offs in the first quarter totaled $1.2 million.
At March 31, our allowance for loan and lease losses was $55.4 million or 1.56% of outstanding loans and leases.
First quarter 2017 other operating income totaled $10 million.
The first quarter results included $0.6 million in debt benefit income on bank-owned life insurance.
Other operating expense for the first quarter totaled $31.5 million.
The reported efficiency ratio for the first quarter was 61.4%.
Normalizing for the nonrecurring loan interest recoveries and bank-owned life insurance proceeds would result in efficiency ratio for the first quarter of 63.3%.
In the first quarter, our effective tax rate was 34.2% versus 34.5% in the fourth quarter.
We expect our normalized effective tax rate to approximate 34% to 36% going forward.
During the first quarter of 2017, we repurchased 113,750 shares of common stock at an average cost per share of $31.03.
We've also repurchased an additional 60,000 shares of common stock month-to-date in April at an average cost of $29.94.
That completes the financial summary.
And now, I'll return the call to <UNK>.
Thank you, <UNK>.
I believe we are well-positioned to sustain our financial performance with a clearly defined business plan for 2017, as with the continued focus on strengthening customer relationships, growing quality assets and improving operational efficiencies.
I would like to take this opportunity to thank our employees, customers and shareholders for their continued support and confidence in our organization as we work towards achieving our 2017 goals.
At this time, we will be happy to address any questions you may have.
So I'll start at a high level, and then, turn it to <UNK> for some detail.
But as far as what you can expect to see in the coming quarters, I would plan on, quarterly, $31 million to $33 million for other op expense.
Yes.
I can answer that, Aaron.
The first quarter, it was a clean quarter, so the $31.5 million was a clean number.
However, there were some expenses that came in a little lumpy like, say, advertising expense.
That line was a little light in the first quarter.
So that's why we're sticking with the guidance of $31 million to $33 million.
And I think, for the full year, it's going to probably work out to something relatively flat to the normalized full year 2016 number.
<UNK>.
Yes, as you know, the balance sheet is positioned in a relative ---+ in a slightly asset-sensitive fashion, so we do expect some benefit from the rising rate environment.
It's been rather muted as a result of ---+ we have seen some deposit cost increases, so we do have some short-term CDs that have been repricing rather quickly.
But we do expect some flow through on the interest-earning asset side to help us going forward.
Yes, we did have a large customer deposit.
So the government balances were relatively flat sequential quarter, but we did have a good relationship that we've been working with, and they did bring in a sizable CD deposit at relatively reasonable cost.
Sure.
So <UNK>, this is <UNK>.
The growth in the first quarter was strong in our Hawaii portfolio.
So if you look at the lines in the Hawaii portfolio, we saw growth at virtually across all asset classes.
And so for the quarter, we saw a, for Hawaii, we saw a 1.4% growth, but that was offset by a decline in our mainland portfolio, and the primary driver for the decline in the mainland portfolio was in the C&I line.
As far as for the year, we continue to see good loan demand here in Hawaii, so I would expect to see that continued kind of growth at the pace that we saw in Q1.
As far as the mainland portfolio goals, we do expect as there are paydowns in the SNCs and other purchase portfolios, we will look at opportunities to replace that rundown.
So by the end of the year, you still will see that mainland portfolio in the 11% range.
So this is <UNK> again, <UNK>.
The resi production in Q1 was in the $140 million range.
We do expect that production level to increase in the second quarter, it would probably be more in the $175 million to $200 million range.
And as far as the gain on sale, in Q1, it was about $1.3 million, and then, for the second quarter, I would see that moving up to the $1.7 million range.
That's correct, Jackie.
Jackie, this is <UNK>.
I would say that, yes, we have hit an inflection point.
We have, obviously, in the many several quarters in the past years, have made large provision credit.
We are expecting going forward for this to be normalized and, of course, at some point, to start seeing additions again to the provision reserve.
Thank you, William, and thanks to all for participating in our earnings call for the first quarter of 2017.
We look forward to future opportunities to update you on our progress.
