Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the Central Pacific Financial Corp. 4th quarter 2024 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.

Thank you, Dustin, and thank you all for joining us as we review the financial results of the fourth quarter and full year of 2024 for Central Pacific Financial Court. With me this morning are Arnold Martinez, Chairman, President, and Chief Executive Officer, David Morimoto, Senior Executive Vice President and Chief Financial Officer, Ralph Misik, Senior Executive Vice President and Chief 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 cpb.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 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.

Thank you, Dana, and thank you, everyone, for joining us today. We appreciate your interest in Central Plains, and we are pleased to share our latest updates and results with you. In the fourth quarter, through our team's strong execution and diligent oversight, we once again achieved meaningful name expansion and core deposit growth. At the same time, we continue to maintain strong liquidity, asset quality, and capital positions. In the fourth quarter, 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 fourth quarter, 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 billion a meaningful increase from the prior year's high of 11.8 billion construction payroll jobs reached 43 000 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, it 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 impacted 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 2023 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 and building a stronger island for the future. Hawaii's statewide seasonally adjusted unemployment rate remained very low at 3% in December and continued to outperform the national unemployment rate of 4.1%. Hawaii real estate values remained strong and ended 2024 very high. The Oahu median single-family home price was $1.05 million in the month of December, 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 it 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. Now I'll turn the call over. Thank you, Arno.

Turning to our earnings results, net income for the fourth quarter was $11.3 million, or 42 cents per diluted share. As Arno noted, our results were impacted by an investment portfolio repositioning completed in the fourth quarter. We sold 106.5 million in securities and recognized a pre-tax loss of 9.9 million dollars. The proceeds were reinvested at current market yields which were approximately 280 basis points higher than the yields on the security sold. The transaction is projected to increase prospective annualized net interest income by $2.7 million and net interest margin by four basis points. Excluding the investment securities loss, adjusted fourth quarter net income was $19 million or 70 cents per diluted share. For the full year 2024, net income was $53.4 million, or $1.97 per diluted share. Excluding the investment securities loss in the fourth quarter and the strategic opportunity expenses in the third quarter, adjusted full year 2024 net income was $63.4 million, or $2.34 per diluted share. In the fourth quarter, the pace of our loan portfolio decline slowed with a sequential quarter decrease of $9.8 million, 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 million, which included core deposit growth of $74.2 million, offset by a lower reliance on government CDEs. The deposit mix again shifted favorably, with demand deposits increasing by $50.9 million in the fourth quarter. Net interest income for the fourth quarter was $55.8 million and increased by $1.9 million from the prior quarter. The net interest margin was 3.17%, up 10 basis points on a sequential quarter basis. Total cost of deposits decreased by 11 basis points to 1.21% in the fourth quarter. 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 $2.6 million and was impacted by the investment repositioning loss of $9.9 million. dollars the adjusted other operating income excluding the loss was 12.5 million dollars other operating expense totaled 44.2 million dollars in the fourth quarter and reflects a decline from the third quarter which included the 3.1 million expenses related to the strategic opportunity additionally fourth quarter expenses included a 1.5 1.4 million dollar impairment charge on intangible assets the intangible assets were related to the swell fintech app that the company developed in 2022 our effective tax rate was 15.4 percent in the fourth quarter 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 percent range going forward which is more consistent with historical trends we did not repurchase any shares in the fourth quarter our board of directors declared a quarterly cash dividend of 27 cents per share an increase of one cent or 3.8 percent 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 million 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.

Thank you, David, and good morning, everyone. Our bank continued to enjoy strong asset quality and acceptable credit costs in the fourth quarter of 2024. Net charge-offs were $3.8 million, or 29 basis points, on annualized average loans. This represents a two-basis point increase from the prior quarter. The increase came from losses on two credits in the cni segment totaling six hundred thousand dollars these losses were attributed to idiosyncratic events and excluding them net charge-offs for the fourth quarter would have declined to 3.2 million dollars we continue to see consumer net charge-offs trend lower this quarter non-performing assets were 11 million dollars or 15 basis points of total assets at quarter end a slight decrease in the prior quarter past two loans 90 days plus for just one basis point of total loan and the level of criticized loans remained flat 62 basis points our allowance for credit loss was 59.2 million dollars or 1.11 percent of outstanding loans in the fourth quarter our provision expense was eight hundred thousand dollars in the quarter we added 1.4 million dollars to the allowance with that increase part partly offset by a reduction of six hundred thousand dollars in the amount reserved for unfunded commitment supporting the allowance we hold a strong level of capital total risk-based capital with a healthy 15.4 percent at the end of the fourth quarter 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 type 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 january 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 arnold thank you ralph in summary we had a solid core fourth quarter in a 2024 year we were 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. As a reminder, if you'd like to ask a question, please press star and the number one on your telephone keypad.

And our first question comes from the line of David Feaster from Raymond James. the lens hey good morning everybody hey good morning david i just wanted to follow up on your commentary in the preparing remarks you know you talked about loan growth opportunities picking up that's that's extremely encouraging i was hoping you could expand on that you know how much of that is you know increased activity from your bankers and just being proactive versus increased demand. And, you know, just hoping you could touch on, you know, sentiment, where you're seeing the most opportunity, and just how you think about organic growth this year.

Yeah, thanks, David. This is Arnold. Yeah, you know, you're right. You know, we did, we are optimistic about loan growth. We saw pickup in loan growth in the fourth quarter. And we believe that momentum is going to continue through 2025. Our pipeline for Q1 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, yeah, so David Rowe, we're pretty optimistic about 2025.

Could you just – I mean, that's great. So how do you think about the pace of growth? You know, what do you see some of the key drivers of that?

So, you know, we will see growth in the commercial and the commercial real estate segments. That's where we see, you know, fairly healthy demand. and that's going to translate, you know, 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, you know, organic growth from CNI and from CRE.

Okay. And then on the other side of the coin, And your deposit performance was extremely impressive. You know, to see NIV growth at that pace is definitely an exception to the rule. Where are you seeing opportunity to drive that growth? You know, and then just touching on the competitive landscape for deposits, you know, client reception to reduce deposit costs. Just kind of curious what you're seeing on that side.

I'm going to turn the call over to David. David can respond to your question on deposits.

Hey, David. 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. One thing to note on the fourth quarter, especially in the DDA growth area, we did benefit from some seasonal DDA deposits in the fourth quarter. totaling roughly 40 million dollars but other than that it's been a lot of blocking and tackling you know the teams have been doing a great job you know 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 decrease in total deposit costs.

That's terrific. And, you know, just the last one for me, how do you think about expenses? Obviously, we've got a pretty decent visibility in improving NII trajectory, you know, with growth, potentially accelerating margin expansion. How much of that do you think flows to the bottom line? You know, are you contemplating, you know, potentially accelerating some investments to further support growth? Or just kind of curious how you think about expenses and potential positive operating Yeah.

Yeah, that's the objective. that's always been the objective right david is a positive operating leverage we're going to see it in 2025. on the oe side you know i think the near-term guidance is probably the 42.5 to 43.5 range um yeah and i think if you you run that through for the year i think it's a slight increase to normalize 2025. But we will grow revenues faster than expenses.

Terrific. Thanks, everybody. Thanks, David. Thank you, David.

Thank you. And again, if you'd like to ask a question, please press star and the number one on your telephone keypad. And our next question comes from the line of Andrew Leach from Piper Sandler.

Line's open. Hi, Andrew. 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 280 and 330. But with the expansion you just saw and the benefit from the securities repositioning. I mean, do you think you get above 330 here later on this year?

Yeah, David. Yeah, we're consciously 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, you know, the jumping-off point for the first quarter is quite positive. The December month-to-date NIM was actually $329, loan yield was $495, and total deposit cost was down to $114. So everything's 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.

Got it. That's really helpful. The average loan yield then up four 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.

Yeah, I think we've been fortunate that we've been able to maintain the pricing discipline. You know, we've been very focused on that. So, you know, in the fourth quarter, we were able to actually increase some of our loan pricing. And, you know, the portfolio was relatively low on the lower side to begin with, right? So the fourth quarter new volume yield on the loan portfolio was averaged out to 740, which when the portfolio is down at 4% range, right, or high fours, it's accretive.

Got it.

Yeah, 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 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?

Yeah, I think, you know, while we had two great quarters on net interest income and net interest margin, they were accomplished quite differently, right? the third quarter was largely on um you know the asset side of the balance sheet the fourth quarter was largely on the liability side of the balance sheet i think going forward um we'll continue to see that 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 um but we 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 December.

Yeah, awesome. Great to hear that. All right, you've covered all my other questions. I'll step back. Thanks.

Thanks, Andrew. Thank you.

Our next question comes back to the line of David Feasar from Raymond James. Sir, the line's open.

Hi. Just a couple other follow-ups um you know i was hoping you could touch on on credit you know appreciate your commentary on two idiosyncratic cni issues just 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 you know that books continue to run down um do you think we're through the worst of it just kind of curious what you're seeing there too david this is ralph you know the couple of situations that we talked about, one-off situations, one included a small loss on a performing SNCC loan that we had sold.

And then the other one was related to a business principal that passed away. So, you know, those types of things, you know, they come up from time to time, but that was, you know, quite unusual. I think when we look at the consumer charge-offs, you know, we're down for the quarter. You know, we had some issues with a 2022 vintage that represented, you know, some um more of the loss that we saw in 2025 but actually we've come down from that uh the peak loss has probably occurred in the fourth quarter of 2023 and um and you know even in the past due trends are improving and then when you kind of look at the uh npas you know um you know 90 of that is secured by one to four single family uh uh residences so i think uh they're well margin to ensure you know eventual principal repayment and then i think if we kind of look forward and we look at kind of the four indicators of credit risk you know the level of npas the past

news 90 days and the criticized loans uh what you're seeing is a pretty positive trend so i think that bodes well for kind of our you know near-term credit costs and and our budget expectations for 2025. okay that's great and then i was just hoping to touch on capital priorities you got a you know really strong balance sheet you know you got the dividend increase this quarter the new buyback authorization you've been active restructuring securities you've kind of done a little bit of everything right and organic growth's coming i'm just curious your plans as we look forward what's most interesting to you and and plans for deploying capital okay david i saw david um yes uh 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 27 cents per share roughly a 40 percent payout ratio the remaining 60 will be used to support organic balance sheet growth open market share repurchases potential additional balance sheet positioning and or mna um you know obviously we like our current capital flexibility and we evaluate it on an ongoing basis so kind of long-winded of not way of not really addressing your questions directly but i think you it is somewhat of a ongoing analysis right based on the operating environment and the equity market. For sure.

Terrific. Thanks, everybody. Thanks, David.

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 Montemaro for closing remarks.

Thank you very much for participating in our earnings call for the fourth quarter of 2024. We look forward to sharing our progress with you next quarter. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining.

You may now disconnect.