Central Pacific Financial Corporation 2026 Q3 Earnings Call

Please go ahead. Thank you, Erica, and thank you all for joining us today to review Central Pacific Financial Corp's financial results for the third quarter of 2026.

Joining me this morning are Arnold Martines, Chairman, President, and Chief Executive Officer. David Morimoto, Vice Chair and Chief Operating Officer. Ralph Mesick, Vice Chair. Dayna Matsumoto, Executive Vice President and Chief Financial Officer, and Anna Hu, Executive Vice President and Chief Credit Officer. Before we begin, I would like to remind everyone that our earnings release and supplemental slides are available on our investor relations website at ir.cpb.bank. During today's call, management may make forward-looking statements. These statements are based on current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially. For a complete discussion of these risks, please refer to slide 2 of our presentation.

With that, I will turn the call over to our Chairman, President, and CEO, Arnold Martines.

Thank you, Jayrald, and aloha to everyone joining us today. We delivered solid third quarter results driven by higher net interest income, disciplined expense management, and continued balance sheet strength. Our net interest margin expanded, supported by higher earning asset yields and stable deposit costs. Diluted earnings per share rose 21% compared with last year's third quarter results, which were adjusted to exclude one-time expenses. Our performance reflects the resilience of our relationship-focused banking model and provides a sound foundation as we move into the fourth quarter. Our strategy remains focused on delivering sustainable returns as a high-performing bank while supporting our customers, communities, and shareholders. We continue to invest in talent, automation, and data capabilities to support future operating efficiencies. At the same time, continued productivity gains and thoughtful resource allocation are helping us generate positive operating leverage.

Turning to the broader environment, Hawaii's economy remains resilient despite slower growth in recent months due to storm-related travel disruptions. Through the first eight months of 2026, visitor arrivals increased 1.8% and spending rose 4.1% compared with the prior year. Hawaii's unemployment rate remained low at 2.8% in September compared with 4.2% nationally. Statewide non-farm employment increased by 1,300 jobs year-over-year, including 700 jobs added in the construction industry, which continues to be a bright spot in the Hawaii economy. We continue to monitor external risks, including the geopolitical conflict and effects on oil prices, inflation, and visitors to our state, as well as impacts from the elevated storm activity Hawaii is experiencing this year. We are committed to supporting our community as restoration and cleanup efforts continue. Overall, the impacts were fortunately isolated, and we don't see any material impacts on our business or our customers.

With that, I will turn the call over to Dayna.

Thank you, Arnold. We are pleased to report another solid quarter of earnings, reflecting the continued execution and diligence of our teams. For the third quarter, net income was $22.8 million, or $0.88 per diluted share, compared with $20.8 million or $0.80 per diluted share in the prior quarter. Return on average assets was 1.22%, and return on average equity was 15.28%. Our profitability metrics continue to trend favorably in line with our focus on high performance. Net interest income totaled $64.5 million for the quarter, up $1.6 million, or 2.6% from the prior quarter, and up $3.2 million, or 5.2% from the year-ago quarter. Net interest margin increased five basis points from the prior quarter and 13 basis points from the year-ago quarter to 3.62%. A sequential quarter increase in net interest income and margin was primarily driven by higher yields on loans and investment securities.

Average loan yield increased five basis points to 5.01%, while the average rate paid on total deposits remained stable at 90 basis points. We continue to benefit from earning asset repricing and disciplined funding management. Our balance sheet sensitivity position is neutral to slightly asset sensitive. Therefore, we are well-positioned in the current rate environment. Fed rate hikes are modestly favorable as we've reduced our fixed rate asset exposures, and we expect deposit pricing and betas to remain manageable. For the fourth quarter, we expect NIM to be in the mid 3.60% range. Total other operating income was $12.4 million for the quarter, compared with $14.6 million in the prior quarter. The sequential decrease was primarily due to a $2.4 million decline in our bank-owned life insurance income related to continued equity market volatility.

Total other operating expense was $44.8 million for the quarter, compared with $46.2 million in the prior quarter. The sequential quarter decrease was primarily attributable to a $1.2 million reduction in salaries and employee benefits and a $1.0 million reduction in other expenses, both related to lower deferred compensation expenses driven by market volatility and offset by lower BOLI income. The efficiency ratio improved to 58.3% from 59.6% in the prior quarter and continues to drive towards high performance with our ongoing focus on positive operating leverage. During the quarter, we repurchased approximately 294,000 shares for $11.2 million at an average price of about $38 per share. At quarter end, $22 million remained available under our share repurchase authorization. Given our strong earnings, the board increased the fourth quarter cash dividend by 3.3% to $0.31 per share.

We continue to maintain a healthy capital position and remain committed to optimizing capital to enhance long-term shareholder value. I will now turn the call over to Ralph.

Thank you, Dayna. We continue to focus our lending activities on strengthening the earnings profile of the bank while maintaining pricing and credit discipline. We target good quality credit and emphasize sponsorship, structure, and returns over volume. Total loans ended the quarter at $5.31 billion, up approximately $5 million from the prior quarter, and down approximately $54 million from a year ago. Average loans were essentially unchanged at $5.3 billion. While overall balances were relatively stable, portfolio mix continued to evolve, improving our interest rate position of our balance sheet. As we've seen in previous quarters, growth in variable rate commercial mortgage and construction lending is replacing lower yielding fixed rate residential mortgage, consumer, and home equity loans. Funded production excluding revolving activity totaled approximately $229 million against $204 million of runoff.

New production carried a weighted average rate of 6.26%, compared with 5.72% on runoff balances, resulting in positive spread replacement. From a geographic perspective, third quarter production was about 50% from Hawaii and 50% from the mainland. At quarter end, mainland loans represented 18% of total balances. Mainland balances increased by approximately $50 million during the quarter, while Hawaii balances declined by approximately $45 million. In Hawaii, our emphasis remains on relationship-based lending that supports building deeper customer relationships. These types of relationships generate operating accounts and treasury management services, as well as personal banking opportunities. On the mainland, we continue to selectively deploy excess funding, which will enhance portfolio diversification and increase risk-adjusted returns. Looking ahead, we are encouraged by pipeline activity. We have approximately $224 million in loan volume across 71 opportunities in the processing stages scheduled for fourth quarter closings.

I would emphasize that this represents scheduled pipeline activity rather than a forecast. The actual pull-through and timing of closings may differ, but we've booked more than a third of that production in dollars during the month of October. Finally, we're well aware of the uncertainty and headwinds impacting the local and national economy, but continue to be biased toward business development and growth. We'll be intentional and disciplined in this pursuit, allocating capital to opportunities that strengthen the earnings power of the bank and the resilience of our balance sheet. With that, I'll turn the call over to David.