Yahoo Finance

David Morimoto

Thank you, Arnold. Starting off the year, I'm excited to share CPB once again was honored by the Small Business Administration as the SBA lender of the Year Category 2, marking our 16th year receiving this award. CPB was founded on the principle of helping all of Hawaii's people achieve their financial aspirations, and we continue to honor our beginnings with a focus on small businesses.
I am proud of our employees who are committed to helping our customers succeed each and every day. Driving revenue growth is a key focus for us, and we remain cautiously optimistic for the remainder of 2025. We will continue to focus on growing our CPB market share in Hawaii, and supplementing that with targeted lending opportunities in Mainland markets.
We have a strong team of relationship bankers and continue to successfully add talent that will help us drive revenue growth in Hawaii and the Mainland. In the first quarter, our loan portfolio increased by $1.7 million sequential quarter, which was the first quarterly increase in two years.
First quarter growth was led by Mainland and Hawaii commercial mortgage and Hawaii construction lending. Our team continues to concentrate on building a healthy loan pipeline and serving our clients' needs as they continue to navigate the current market environment. We are optimistic that net loan growth will continue to pick up this year. However, we remain nimble as we learn how the macro environment impacts national and local economies.
Our total deposits at the end of the first quarter declined by $48 million from the prior quarter. On an average balance basis, total deposits increased by $14 million with an increase in average non-time deposits of $78 million quarter-over-quarter. Despite some volatility impacting period ends, overall, we continue to grow our deposit relationships and average balances.
I'll now turn the call over to Diana, who will provide an update on our financials. Diana?

Diana Matsumoto

Thanks, David. Turning to our earnings results, we are pleased to share that our performance metrics continue to trend positively and towards our financial targets. Net income for the first quarter was $17.8 million or $0.65 per diluted share.
Return on average assets was 0.96%, and return on average equity was 13.04%. Our efficiency ratio was 61.2%, which is the best we posted since the fourth quarter of 2022. Net interest income for the first quarter was $57.7 million, which increased by $1.9 million or 3.5% from the prior quarter.
Net interest margin was 3.31% in the first quarter, up 14 basis points on a sequential quarter basis. Our NIM has expanded every quarter for the last four quarters, which reflects our continued disciplined approach to pricing and balance sheet management.
The net interest income and NIM expansions were primarily driven by a reduction in our funding costs from deposits combined with a higher average yield earned on investment securities. Total cost of deposits decreased by 13 basis points from the prior quarter to 1.08% in the first quarter. The higher average yield on investment securities can be attributed to our investment portfolio repositioning we completed last quarter.
Total other operating income was $11.1 million and total other operating expense was $42.1 million in the first quarter. Due to market volatility, our bully income and our deferred compensation expenses decrease during the quarter. To the extent market volatility continues, we'll continue to have some variability in these line items.
Additionally, as we continue our focus on efficiencies, we are in the process of consolidating our office space into our main headquarters in downtown Honolulu. With this move, we anticipate that we will exit our current operations center building and recognize a one-time pre-tax write-off of $2 million to $2.5 million in the second or third quarter.
Going forward, we expect to realize total annual savings from reduced lease, operating, and maintenance expenses of approximately $1 million. Our effective tax rate was 21.2% in the first quarter, which is in the range that we communicated on our last call and consistent with historical trends.
During the first quarter, we repurchased about 77,000 shares of common stock at a total cost of $2.1 million or $27.09 per share. Additionally, in the second quarter to date through April 16, we have repurchased approximately 86,000 shares at an average price of $24.70 per share. Finally, our Board of Directors declared a quarterly cash dividend of $0.27 per share, which will be payable on June 16 to shareholders of record on May 30.
I'll now turn the call over to Ralph.

Ralph Mesick

Thank you, Diana. Our asset quality remained healthy in the first quarter. Net charge-offs were $2.6 million or 20 basis points annualized on average loans. This represents a 9 basis point decrease from the prior quarter. The decrease came from lower charge-offs on the consumer and CNI loans.
Non-performing assets were $11.1 million or 15 basis points of total assets at quarter end, flat from the prior quarter. Criticized loans also remain near cyclical low levels at 82 basis points of total loans, up 20 basis points quarter-on-quarter. Past two loans, 90 plus days were flat compared to the prior quarter, just 1 basis point of total loans.
Our allowance for credit loss was $60.5 million or 1.13% of outstanding loans, up 2 basis points. The provision expense was $4.2 million. In the quarter, we added $3.9 million to the allowance and an additional $300,000 to the reserve for unfunded commitments. The higher allowance was primarily driven by a more conservative macroeconomic outlook. Supporting this allowance, we also maintain a strong level of capital.
Total risk-based capital was 15.6% at the end of the first quarter. At these levels, the bank can readily absorb the financial impacts resulting from a period of prolonged stress. Looking ahead, We'll continue to rely on a well-tested management approach that considers risks through a cycle, anticipates a range of outcomes, and builds a margin of safety to deal with adverse conditions.
With that, let me turn the call back to Arnold.

Arnold Martines

Thank you, Ralph. In summary, we had a solid first quarter to kick off 2025. We are focused on supporting our clients and the community and driving value to our shareholders. We are prepared to navigate through these uncertain times. And we thank all of you for your continued support and confidence in our organization. At this time we will be happy to address any questions you may have.

Question and Answer Session

Operator

(Operator instructions)
David Feaster, Raymond James.

David Feaster

Hey, good morning, everybody.

Arnold Martines

Hi David.

David Feaster

Obviously, there's a lot of volatility uncertainty in the market today. I want to just start on the loan growth side. I mean, obviously, again, there's a lot of chaos out there. Curious how your clients are responding to that. How is the pipeline trending and just, it sounds like you're optimistic about growth, just maybe, where do you see most opportunities to drive growth?

Arnold Martines

David, do you want to take that call? I mean that question.

David Morimoto

Yeah, sure. Hey David, yeah, obviously there is a lot of uncertainty. We're in touch with all of our large borrowers and -- potential borrowers in our pipeline. And while there remains a lot of volatility, certain transactions are likely to get postponed. We remain cautiously optimistic on the future. And we are reiterating our full year loan guidance of low to mid single digit loan growth for the full year.
That growth, I'm sorry, David, that growth is likely to be focused in the commercial areas. So it's going to be CNI and commercial mortgage and also construction. Those are the probably the growth areas for the next several quarters.

David Feaster

Okay, that's terrific. And then I know this is a hard question to answer, but look, it's, I'm just curious how do you think about potential impacts on your clients from these, the trade wars, the tariffs, in those. As you dig into the book, what segments are you expecting to be most impacted and, just kind of how are you approaching this at this point? I mean, it's maybe it's kind of a wait and see approach, but I'm just kind of curious your thoughts.

Arnold Martines

Ralph, you want to take that question?

Ralph Mesick

Sure. Hi, David. I think the outlook really has shifted this quarter, but when we look at our portfolio, talking with, and first off, looking at, industries that probably are more impacted, they probably represent about 10% of our total loan book. So we're talking about accommodation, restaurant, wholesale and retail trades.
And I think, from our perspective today, we believe that our customers are going to be able to deal with some level of short term turbulence in the marketplace. We know the policy actions. These are discretionary actions, and we do believe that they're not intended to damage the economy. So we think that there's going to be some turbulence in the short term, but we believe that our our customers are going to be able to sort of deal with that.
And I think over the longer term, we do have a playbook for stress events, and we've kind of pulled out that playbook. We've looked at the portfolio. We're pretty confident we can deal with, a large level of stress and we are having these conversations with clients and we will calibrate to events as they develop.

David Feaster

Okay, that's helpful. And then the last one for me. Deposit performance, you guys have done a great job on the deposit side. How -- could you touch on maybe the competitive landscape for funding on the islands, your ability to drive core deposit growth going forward, and I mean, look, you're sitting here at, just barely over 100 basis points of deposit costs. I mean, is there much deposit cost leverage to drive that margin expansion or is it primarily going to be loan growth and and repricing there that's going to be driving it?

Arnold Martines

Diana can answer that question.

Diana Matsumoto

Hi David, thanks for the question. On the deposit side, I'd say we're very pleased with our performance. Our average balances were up for the quarter with a favorable mix shift as we grew average core deposits, including demand deposits, while we let some CDs run off.
Our teams have been doing a really good job and remain very focused on growing core deposits. As far as the cost, we're also pleased with the deposit costs trend down, and my expectation is that our funding costs should continue to trend down, but more gradually if the Fed is on hold.
The market for pricing, deposit pricing, here continues to be very rational. Our deposit pricing betas have been generally as expected, and I'd say that our pricing strategies and continued discipline have worked very well.

David Feaster

Yeah, that's helpful. Thanks everybody.

Arnold Martines

Thanks, David.

Operator

Andrew Liesch, Piper Sandler.

Andrew Liesch

Hi, good morning, everyone. Just stick it on the margin here. I'm curious if you had what the margi was in the month of March?

Arnold Martines

Diana?

Diana Matsumoto

Hi Andrew. Yes, for the month of March, our margin was 3.37%.

Andrew Liesch

Okay. So, I mean, you're starting off here in the second quarter 6 basis points higher. Is that a good jumping off point or do there some other puts and takes, that may make that not generate that much expansion.

Diana Matsumoto

Yeah, Andrew, I'd say, overall we're quite pleased with our continued NIM expansion, which was driven by our lowering our funding costs, the investment securities repositioning, as well as overall favorable mixed shifts and positive fixed asset repricing. Going forward, our NIM, I would expect it to continue to expand.
Our guidance is for an increase of approximately 4 to 7 basis points next quarter. This assumes that the Fed is on hold in May and we continue to have a relatively flat yield curve. To the extent we get additional Fed cuts later this year, those will benefit our NIM further as our deposits still have some downward repricing ability, and then, as always a steeper yield curve will be helpful as well.

Andrew Liesch

Certainly. Do you have handy what the the average yield on new loan production was during the quarter?

Diana Matsumoto

Yes, I do. It was about 7.2%. That is the new loan yield in the first quarter.

Andrew Liesch

Got it. Very helpful. And obviously you have like a couple one-time items, the market adjustments that bully and compensation costs. But do you -- would you expect that those line items kind of right size themselves to be in line with your your prior guidance ahead of on the expense side the the cost saves from the rationalization of the real estate?

Diana Matsumoto

Yes, Andrew, so that's correct. We had some volatility this quarter with the bully and our deferred compensation expense. And, but on the expense side overall, our objective continues to be driving positive operating leverage, and we believe we'll be successful at that this year. So our guidance remains the same for the near term. So our quarterly other operating expense guide continues to be $42.5 million to $43.5 million. Per quarter.

Andrew Liesch

Got it. And then the cost saves from that real estate rationalization, are those going to be reinvested into the franchise somewhere, or should that result in a slightly lower run rate?

Diana Matsumoto

We are continuing to make some investments in our people and our technology, and those things will create efficiencies throughout our processes. So with that said, we may see some expenses rise slightly in the short term, and that would be offsetting the savings from the office consolidation.

Andrew Liesch

Awesome That -- you've covered everything that I had asked. Thanks so much. I'll step back.

Arnold Martines

Thanks, Andrew.

Operator

(Operator instructions)
David Feaster, Raymond James.

David Feaster

Hey, I just wanted to follow up maybe on the capital side. I mean, we bought some stock back in the first quarter, obviously been active here in the second quarter. You guys kind of bottom, you guys have done a great job. Curious just how do you think about capital priorities today? I mean, obviously the stocks still attractive, potential securities, restructurings, just kind of curious, how do you think about the opportunities that lie ahead.

Diana Matsumoto

Hey David. Overall our capital position continues to be strong and healthy, and we have flexibility. As we noted previously, we are on the higher end of our target ranges for our capital ratios. So we are evaluating how we can best optimize capital and deploy capital while continuing to monitor the economic outlook and adjusting as appropriate. So our capital priorities include continuing to pay our quarterly cash dividend with about a 40% payout ratio.
After that, we plan to use capital for organic balance sheet growth, and share repurchases also continue to make sense as we noted, we have resumed share repurchases and with the overall market being down, we view it as an opportunity. But with that said, we'll continue to evaluate the operating environment, especially with the recent heightened uncertainty and volatility, and we will make our capital decisions based on the outlook.

David Feaster

Okay. All right, that's helpful. Thanks everybody.

Arnold Martines

Thanks David.

Operator

I will turn the call back over to Diana Matsumoto for closing remarks.

Diana Matsumoto

Thank you very much for participating in our earnings call for the first quarter of 2025. We look forward to sharing our progress with you next quarter. Thank you.

Operator

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