Central Pacific Financial Corp. (NYSE:CPF) Q2 2022 Earnings Conference Call July 27, 2022 1:00 PM ET
Company Participants
David Morimoto – Senior Executive Vice President, Chief Financial Officer
Paul Yonamine – Chairman & CEO, CPF; Executive Chairman
Catherine Ngo – Executive Vice Chair, CPF & CPB
Arnold Martines – President & Chief Operating Officer
Anna Hu – Executive Vice President and Chief Credit Officer
Conference Call Participants
David Feaster – Raymond James
Andrew Leach – Piper Sandler
Laurie Hunsicker – Compass Point
Operator
Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Central Pacific Financial Corp. Second Quarter 2022 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.cpb.bank.
I’d like to turn the call over to Mr. David Morimoto, Senior Executive Vice President, Chief Financial Officer. Please go ahead.
David Morimoto
Thank you, Joe [ph], and thank you all for joining us. As we review the financial results of the second quarter of 2022 for Central Pacific Financial Corp. With me this morning are Paul Yonamine, Chairman and Chief Executive Officer; Catherine Ngo, Executive Vice Chair; Arnold Martines, President & Chief Operating Officer; and Anna Hu, Executive Vice President and Chief Credit Officer. We have prepared a supplemental slide presentation that provides additional details on our 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 to differ 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 and CEO, Paul Yonamine.
Paul Yonamine
Thank you, David. And good morning everyone. And as always, we appreciate your interest in Central Pacific Financial Corp. I’ll start this morning with an update on the Hawaii market and then turn it over to the team to share our strong second quarter financial results as well as other key updates. The Hawaii economy has successfully recovered from the pandemic and has an excellent outlook. Despite national economic sentiment declining recently.
It is important to note that the Hawaii market is highly unique and has historically proven to be resilient during periods of national economic stress. The Hawaii economy is robust and we believe will continue to perform well despite what happens in the broader mainland economy.
Starting with the tourism sector, month to date, July 2022, average air arrival counts are exceeding 90% of pre-pandemic levels from 2019. Even with significantly fewer international flights, it is projected that Japanese arrivals will continue to rise over the rest of this year and next. Visitor spending is strong, with $1.56 billion total for the month of May, which was an increase of 10.6% compared to the same month in 2019.
Hotel performance continues to improve with total statewide hotel occupancy at 74% and an average daily rate of $340 in May. Hawaii’s employment and housing metrics are solid as well. Our statewide unemployment rate was at 4.3% in June 2022 and is forecasted by the University of Hawaii Economic Research Organization to fall to 2.9% in 2023. The housing market in Hawaii remains very strong, with the Oahu Median single family home price at $1.1 million in June 2022, which is up 12% from the previous year.
Other factors contributing to a favorable Hawaii economic outlook include a significant increase expected in Department of Defense Military spending, which is already the second largest sector of Hawaii’s economy, with $7.7 billion in annual spending in 2020. Additionally, Honolulu’s $9 billion plus rail construction project continues to move forward with construction of the first phase completed and expected to be operational by year end.
Finally, $600 million in state funding was recently awarded for Native Hawaiian housing, which will lead to significant home construction over the next five years. Lastly with the possibility of a national economic recession increasing, it is important to note that the Hawaii economy whether the great financial recession better than most state. Hawaii, single family median home price fell 11% between 2008 and 2011 compared to a 24% decline nationally.
Additionally, Hawaii’s unemployment rate peaked at 7% in 2009, whereas nationally it rose to 10% during the same time period. With Hawaii’s continued strength, we anticipate Hawaii will again outperform the rest of the nation during this cycle.
Now, I’ll turn it over to Catherine, our Executive Vice Chair to provide additional updates on our company. Catherine?
Catherine Ngo
Thank you, Paul. Following on to Paul’s remarks with Hawaii’s economic strength and our solid balance sheet, we believe Central Pacific is well positioned for potential economic downturn. Our asset quality continues to be very strong, with non-performing assets to total assets remaining at 7 basis points as of June 30.
Additionally, total criticize loans are less than 2% of total loans. Our net charge offs remain low at $1 million for the second quarter. Another key point to note is that our loan portfolio today is much more diversified across product lines and industries compared to our portfolio prior to the great recession. Additionally, our construction portfolio was nearly 30% of total loans in 2008 compared to just 3% of total loans today. We have maintained solid risk management discipline and are committed to supporting our clients and community.
Next, I’d like to share the really great news that was announced last month, we were pleased and honored to be named the number one best bank in Hawaii by Forbes for 2022. The ratings were based on an independent survey of consumer satisfaction in the areas of digital and brand service, overall customer service and trust in our institution. Just 2.7% of all banks in the nation’s made the list for best in state ranking.
This recognition is a reflection of the hard work that our team of dedicated employees perform each and every day to serve our customer and community needs.
I’d like now to turn the call over to Arnold Martines, our President and Chief Operating Officer. Arnold?
Arnold Martines
Thank you, Catherine, in the second quarter through our successful business development efforts. Our total loan portfolio increased by 127 million, or 2.5%, sequential quarter, and 10% on an annualized basis. The growth was broad-based across most loan types, except for the CNI portfolio, which included decreases in PPP loans as that portfolio continues to wind down. We were successful and continues to grow our residential mortgage and home equity portfolios by nearly 40 million during the quarter. Despite the rising rate environment due to our strength in the purchase market, and key relationships with our real estate joint venture companies.
During the second quarter, we continued our mainland diversification strategy with purchases of select consumer, unsecured, and auto portfolios from our established partners. The purchases during the quarter were all within our established credit criteria, and had a weighted average FICO score of 735. Our net rolled in mainland consumer purchase loans was 46 million in the second quarter. As of June 30, total mainland consumer unsecured, and auto purchase loans were approximately 7% of total loans.
We also continue to selectively participate in mainland commercial real estate, or CNI loans. Our teams are focused on specific mainland markets, primarily on the West Coast, where we have built considerable experience and expertise. We believe these opportunities complement our Hawaii franchise nicely as it provides diversification and typically higher yields, while fitting within our risk guidelines. We continue to target our total main and loan portfolio at approximately 15% of total loans.
We have a healthy loan pipeline and with our strong sales management discipline, and outstanding team or relationship managers, we are expecting our positive long growth trends to continue throughout the remainder of 2022. During the second quarter, core deposits grew $35 million or 0.6% from the prior quarter. Additionally, our average cost of total deposits in the second quarter held steady at just six basis points. Finally, Japan continues to be a key strategic focus area for us given our strong relationships there. We have restarted travel to Japan for business development, and will continue to visit regularly. Our Japan marketing efforts are doing well with our new Japanese website driving a significant increase in views. And soon we will be launching our online banking service in Japanese to further attract Japan customers to our bank.
Our initiatives are driving success, with an increase in our deposits from the Japan market, as well as a solid pipeline of opportunities. I’ll now turn the call over to David Morimoto, our Chief Financial Officer. David?
David Morimoto
Thank you, Arnold. During the second quarter, we were able to successfully execute on a number of initiatives that positively impact shareholder value, including terminating and settling our defined benefit pension plan, which resulted in a one-time settlement charge of $4.9 million. Following the settlement, the company has no further defined benefit, pension plan liability or ongoing pension expense recognition, which will save us about $700,000 annually.
Also during the second quarter, we sold all of our Visa Class B shares for a gain on sale of $8.5 million. On the branch and real estate front, we consolidated two of our smaller branches into nearby locations, bringing our total branch count as of June 30 to 28 branches. Another branch is scheduled to be consolidated into a nearby location in the third quarter. We are also implementing other efficiency initiatives using technology and workflow automation that will allow us to scale our business while driving positive operating leverage. Finally, our Banking-as-a-Service FinTech strategy continues to progress well, and we are on track for the Swell app public launch later this quarter. We look forward to providing additional updates in the near future.
Turning now to our financial results, net income for the second quarter was $17.6 million or $0.64 per diluted share. Return on average assets was 0.96% and return on average equity was 14.93%. The efficiency ratio was 64.7% in the second quarter. Net interest income for the second quarter was $53 million, which increased by $2 million from the prior quarter, primarily due to an increase in loan balances and yields.
The net interest margin increased to 3.05% compared to 2.97% in the prior quarter. Normalizing for the impact of PPP in both quarters, net interest income increased by $3 million and the net interest margin increased 13 basis points sequential quarter. With our asset sensitive balance sheet, we are starting to see the favorable impact of the rising rate environment. We anticipate that our margin will trend up further in the second half of this year as loan yields rise, and we manage our deposit pricing, which has historically had low beta repricing.
Second quarter other operating income was $17.1 million and included the one-time gain on sale of our Visa Class B shares. During the quarter, there was also a loss of bank owned life insurance due to significant market volatility during the quarter, we have certain company owned life insurance policies use to hedge our deferred compensation plans. Therefore, we also had an offsetting negative deferred compensation expense in other operating expenses.
Other operating expense for the second quarter was $45.3 million, which included the one-time settlement charge on our defined benefit pension plan. Our other operating expense lines trended back up slightly after being seasonally low in the first quarter. Going forward, we expect that quarterly recurring total other operating expense will be in the $41 million to $43 million range. At June 30, our allowance for credit losses was $65.2 million, or 1.23% of outstanding loans. In the second quarter, we recorded a $1 million provision for credit losses due to loan portfolio growth, and net charge-offs.
The effective tax rate increased slightly to 26% in the second quarter, as a result of less tax exempt BOLI income. Going forward, we expect the effective tax rate to be in the 25% to 26% range. Our capital position remains strong. And during the second quarter, we repurchased 174,000 shares, at a total cost of $4.2 million or an average cost per share of $24.18.
Additionally, our Board of Directors declared a quarterly cash dividend of $0.26 per share, which will be payable on September 15 to shareholders of record on August 31st. And I will return the call to Paul.
Paul Yonamine
Thank you, David. To conclude Central Pacific had another solid quarter and continues to be well positioned in all key areas including liquidity, sensitivity, capital and asset quality, the environment continues to evolve rapidly but with our asset sensitive balance sheet, high quality loan and investment portfolio, as well as our strong capital base, we expect to continue to deliver strong performance, we have a differentiated strategy that will enable us to expand and diversify our franchise, making us a leader in our market. On behalf of our management team and employees, I’d like to personally thank you for your continued support and confidence in our organization. At this time, we’ll be happy to address any questions you may have. Thank you, back to you.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] So our first question comes from David Feaster from Raymond James, your line is now open, David.
David Feaster
Hey, good morning everybody.
Paul Yonamine
Hey, David.
David Morimoto
Good morning, David.
David Feaster
I just wanted to start on deposits, it’s great to see the continued non-interest bearing growth. Just curious any commentary you might have on the deposit front and trends you’re seeing whether you’re starting to see some more rate pressures, obviously I mean, the Hawaiian economy tends to be much more rational. And then just any commentary on how you think about your ability to continue to drive core deposit growth and fund your loan growth with core deposits?
Paul Yonamine
Hi, David. Thanks, this is Paul Yonamine. And I’ll have maybe David Morimoto chime in as well. But we’re very focused on making sure that we maintain our low cost deposit base, we’re going to really stay focused on our digital offering. And we’re hoping that a lot of our business development trips to Japan and trying to get more Japanese corporate and individual depositors here, which will naturally be low cost. These are two key strategies for us right now. We’re not taking the higher costs government deposit route just yet, I think we have a very robust deposit pipeline.
David Morimoto
Yes, and David, maybe I’ll just add. The loan to deposit ratio is still at a attractive 80%. So we do have room to continue to grow loans while managing our deposit costs. In the first half of the year, we saw some good opportunities for loan growth, and we took advantage of that. And that’s what you saw with loan growth outpacing deposit growth. We believe there as Paul mentioned, we believe there’s some great opportunities to grow core deposits to our digital strategies in Hawaii, on the Mainland and in Japan.
David Feaster
Got it, that makes sense. And then touching on the organic growth outlook, could you maybe just touch a bit on demand, you talked about some of the economic trends in Hawaii, but just curious where you’re seeing the most opportunities, how pipelines are trending, whether this quarter maybe saw some pull forward of demand, just given rising rates. And then just any thoughts on an organic growth outlook and the appetite to continue to supplement organic growth with pool purchases looking forward?
Arnold Martines
Yes, hi, David, this is Arnold, you know we are pretty optimistic about long growth going into the second half of the year. Our pipelines fairly robust. Particularly, we’re seeing a, continue to see a lot of activity in the commercial real estate area, as well as resi. Although we’ve seen somewhat of a drying up of the refi activity, we still see a nice pipeline in the purchase segment of resi. And we will continue to work with our established partners on the mainland, on the consumer front, particularly in the auto category.
So our expectation for the second half of the year is really, we feel very good upon it. Pipeline looks really, really healthy.
David Feaster
Okay, that makes sense. And then just switching gears to the expenses. Appreciate the third quarter guidance. Could you maybe just walk through some of the puts and takes with what’s driving expense growth and where you’re expecting growth? Obviously, there’s a lot of investments, also inflationary pressures, just I was hoping you might be able to walk us through some of the drivers and how much of the growth might be from swell, as that launch is approaching near at the end of the third quarter?
David Morimoto
Yes. Hey, David. It’s David. Again, the first quarter was seasonally low. We did see some slight uptick in other operating expenses in the second quarter. And again, we’re guiding to roughly $41 million to $43 million per quarter for the next several quarters. And the reason it’s slightly higher, that guide is slightly higher than the normalized second quarter is a result of deferred comp. So again, the deferred comp plan had a rough above second quarter. And that was, so it, deferred comp expense was lower than normal. And that was also reflected in the wholly income and other operating income section. So again, overall, we’re guiding to roughly 41 to 43. I think if you take it for the full year, it’s going to be roughly 2% to 3% over 2021 is just what we’ve been consistently guiding towards.
Paul Yonamine
So let me — hi, David, this is Paul. And let me just add to that. Now, again, on the swell investment, we are counting for our investments under the cost method of accounting. We — our equity stake is 19.9%, or voting share position and 4.9%. So, you know, even if there were unexpected losses within the swell organization, we will not be picking that up on our income statement.
That’s one thing on well, just another thing to add to what David mentioned, is that, you know, we’ve been very pleased with our ability on cost control. And I think it shows the most on our headcount. Right now. We are at a very low headcount level, from, say, the past four years or so. And so, we’ve had a lot of rigor in making sure that despite inflationary pressures that we stay on top of cost control.
David Feaster
Absolutely. You guys have done a great job. Appreciate you all. Thank you so much.
Paul Yonamine
Thank you David.
Operator
Thank you. our next question comes from Andrew Leach from Piper Sandler. Your line is now open.
Andrew Leach
Thanks. Hey, everyone. Good morning.
Paul Yonamine
Hi, Andrew.
Andrew Leach
David just question on the securities portfolio. Was there any migration from AFS held the maturity this quarter?
David Morimoto
Yes, hey Andrew. We did move 330 million from AFS to HTM in the first quarter, and then you’re correct in the second quarter, we moved an additional 400 million. I think it was done in early May. So today we’re roughly, I think today we’re roughly about 57% AFS, 43% HTM.
Andrew Leach
Okay, and how should we look at the size of the securities portfolio going forward? Sounds like they got some pretty good opportunities for both loan and deposit growth. So do you think it’s going to stay around this size right here, just kind of trying to get a handle on the balance sheet makeup right now?
David Morimoto
Yes. Again, the investment portfolio is kind of the offset, right. So it’s the reserve of liquidity. So it’s going to be a function of what we see with net loan and net deposit growth on a quarterly basis. Depending on what we see on those two fronts, we’ll increase or decrease the investment portfolio accordingly.
Andrew Leach
Got you. All right, that’s helpful. And then with the deposit beta staying low, and the improvements in loan yields, that you’re seeing is, would it be a reasonable to expect another 13 basis point increase in the margin this quarter. Just given that we had a 75 basis point rate hike last month? And you’re looking like that for today as well?
David Morimoto
Yes, Andrew. Again, obviously, a lot of things in play, but with the June 75, and the additional 75, likely today, we are guiding to a similar sequential quarter increase in the coordination. So plus 10 to 15 basis points sequential quarter.
Andrew Leach
Got it. Make sense. Is there any pressure on deposit cost that you’ve ever seen?
David Morimoto
We obviously saw did not see it in the second quarter. We were able to hold deposit rates flat with the 75 basis points in June and additional 75 in July, we are starting to see some movement in deposit. Deposit rates deposit costs, which is expected. But again, we think we have quite a bit of room with total deposit costs at six basis points.
Andrew Leach
Certainly. All right. Thanks for taking the questions. I’ll step back.
David Morimoto
Thanks, Andrew.
Operator
[Operator Instructions]. Now our next question comes from Laurie Hunsicker from Compass Point. Your line is now open, Laurie.
Laurie Hunsicker
Great. Hi, thanks. Good morning. I was hoping to go back to some comments you made in your prepared remarks. And Arnold, I think I think you we’re speaking I just want to make sure I heard this, right. You plan to have 15% of your loan book and mainland loans. Is that correct?
Paul Yonamine
Yes, Laurie good morning. No, so it’s been consistent throughout the quarters in the past. We target around 15% of main — maintenance and total loans. So, and that’s a combination of consumer CRE, and it’s nicks. So that’s our target 50% of total loans on the mainland.
Laurie Hunsicker
Okay, great. And maybe you can comment about that. Because I know your mainland auto was running about 2%. Your mainland unsecured was about 4% of loans, and then your mainland snip was like 2% or 3%. So maybe I’m missing the credit or perhaps can you refresh us on what those actual balances are? Maybe starting with the snick what’s Hawaii, what’s mainland, and I don’t know if this is for you or for Anna or David. But if you can just help us maybe on some of those balances. And then same thing. Yes, go ahead.
David Morimoto
No, so Laurie. Yes. I think Anna can help with that information for you. Anna?
Anna Hu
Okay, so Laurie. Yes, this is Anna starting with I guess your question on mainland nick. Our total mainland nick is bringing about 184 million. For the Hawaii it’s about $77 million. So I totaled the portfolio, yes. Okay, go ahead.
Laurie Hunsicker
I was going to say on the commercial real estate?
Anna Hu
Okay, going to commercial real estate. Yes, our total commercial real estate on the mainland is about $309 million. So that represents about just under 6% of our total loan portfolio.
Laurie Hunsicker
Got it. Okay, and then your Consumer Mainland?
Anna Hu
Consumer Mainland is $378 million.
Laurie Hunsicker
Okay, and sorry. And what piece of that is Auto versus Mainland unsecured?
Anna Hu
Okay, so Mainland Auto is $126 million.
Laurie Hunsicker
Okay.
Anna Hu
And then Mainland unsecured is $252 million.
Laurie Hunsicker
$252 million, okay. And then just more broadly, when you think about areas that you’re going to focus on growth, in terms of that target of 15% target, is that across the board you’re going to be taking it up sort of at closed rate or how do you think about that?
Paul Yonamine
You’re referring to how the percentages will change to the total portfolio, Laurie?
Laurie Hunsicker
Yes.
Paul Yonamine
Okay, yes. So I’d say that it’s going to stay early around the percentages that, we have today, it’s pretty much stayed around there. In the past as well, we try to manage between the three product categories and sure that we maintain kind of the same amount of exposures.
Laurie Hunsicker
Got it, got it. And then just staying on lens, can you just give us a refresh in terms of where you are on office exposure, what that total looks like any color you can give us around office or so, Office Mainland versus Office Hawaii and then same question, I guess on leverage loans and not just leverage loans. Where you are on that?
Anna Hu
Okay, sure. This is Anna, Laurie. So for Office, on our total commercial mortgage book it is running about $189 million. So that represents about 15% of that commercial mortgage book and about 3.6% of our total portfolio. So the weighted average LTV on that entire book is 57%. And then breaking it down into yes.
Laurie Hunsicker
No, please go ahead.
Anna Hu
Okay, I was going to break it down into Hawaii and Mainland for you. So for Office, the Hawaii portion is $110 million. And that represents about 8% of our total book, our total commercial mortgage book, I should say. And then about 2.1% of our total loan with a weighted average LTV of 62%.
Laurie Hunsicker
62, okay, perfect.
Anna Hu
And then yes going up to Mainland then the balance is $79 million. And that’s about 6% of our total commercial mortgage book, 1.5% of our total loan with a weighted average LTV of 49%.
Laurie Hunsicker
Okay, and then on the leverage loan side, give a refresh on that?
Anna Hu
Sure, on our leverage loans, it’s relatively small, it’s about $30 billion as of June 30. That represents about 0.6% of our total loan book.
Laurie Hunsicker
Great, maybe just that’s super helpful. Thank you. Thank you for all of the color. And maybe just circling back on this 12 Elevate, as you think to start this and I guess Paul this is more question for you, I know this target a 650 average FICO as we’ve seen some banks pulled back from this type of lending. Is there any plans to sort of tweak that and I definitely appreciate that you’re going to start small, fold it and watch it. But is there any thought about moving up the FICO chain as you start this? Are you still thinking about the same, you would be targeting on average 650 FICO, how do you think about that?
Paul Yonamine
Yes, thank you. Thanks, Laurie and I may have been remiss in not commenting on this in the past, but I am on the Swell board, by the way. And so I’m very proactive in all of the discussions at the Swell level. And naturally, Anna, who’s here today was instrumental in creating their credit policy, and I am as a board member, and also as a bank sponsor, we will make sure that there is adherence to our credit policy. And so that might be a little bit different with some of the other FinTech companies out there in their relationship with the banks.
And thanks for bringing up that point on FICO scores, because our plan over the next two to three quarters is to limit our exposure at about $8 million. And as we’ve said all along, we’re going to start small, we’re going to take a look at KPI dashboard on a daily basis, and make sure that we iterate, we pivot and we can very well adjust FICO scores or any other criteria as we see fit, especially if it starts to exceed 6% default rate, where Elevate is essentially giving us a preferred security interest. And that deposit that will be made to CPB. So we were protected on defaults to 6% and we’ll manage it accordingly.
So, if at any time we see those defaults exceeding 6%, we’re going to pivot on a lot of our lending criteria. That makes sense?
Laurie Hunsicker
Okay, and so you’re still though, I mean, yes, it does make sense. And definitely, I hear you, but I think also I remain concerned, Elevate has a market cap of $60 million. And so I guess it does bag a bigger question of, if it stays within those parameters, and then you grow it, I mean I guess just circling back to FICO, the 650 FICO is that still unchanged in terms of your average target or have you moved the needle at all on that?
Paul Yonamine
Yes, and that’s not really the target per se, but that’s a minimum threshold that we plan to start off the process again to really start small and iterate. And if that 650 starts, and we start to see a lot of defaults, Laurie, obviously, we’re going to ratchet it up, and we have all of the authority and ability to do so, I think the key is going to be around execution. And this is where myself on the board, taking a look at the KPI dashboard on a daily basis. And really our ability to execute, I think in the last four years, and this sounds rather self fulfilling, but whether it be rise 2020, or the guidance we’ve been giving to the street, or PPP loans, we’ve executed and this is not going to be any different.
We as a management team will make sure that we’re not going to be betting our franchise on some disaster out in the Mainland on going with consumer on secured. So, you have our assurance on that.
Laurie Hunsicker
Okay, okay. David, maybe just last question, if we could go back to expenses. I just want to make sure that I understand this. So you had two branches, obviously that closed in the quarter. Were there one-time branch closure costs in that number in that other expense number? And if so, what were they or maybe they were in occupancy, I’m not sure.
David Morimoto
Yes, Laurie, there was one-time branch closure expenses of about $300,000 in the second quarter.
Laurie Hunsicker
About $300,000. Okay, so I guess so if I’m netting out your defined benefit, I’m netting out the branch closures, I mean, we’re basically at $40 million on a quarterly run rate which is pretty substantially below your guide of $41 million to $43 million. So can you help us think a little bit and I realized somebody already touched on this in their Q&A too. But can you just help us think about where you’re actually spending money, especially as you’ve got another branch that’s consolidating in 3Q, is where’s that plan coming from or how we should be thinking about that in terms of our line items? Thanks so much.
David Morimoto
Yes, in that guide, Laurie, there is an assumption of a normalization of deferred comp expense and BOLI income. So in the second quarter, our normal bank owned life insurance earned about $0.5 million, but the deferred comp hedge BOLI loss above $1.5 million. So there was about $1.5 million in reduced other operating income and reduced other operating expense.
So in that guide, there is an assumption that the equity markets stabilize and deferred comp expense returns to a more normal run rate. So that’s probably the biggest delta to the numbers you’re talking about.
Laurie Hunsicker
Got it, got it. Okay, great. I’ll leave it there. Thanks for taking my questions.
Paul Yonamine
Thanks, Laurie. Great, thank you.
Operator
That concludes the Q&A session on today’s call. I will now refer you back to Paul Yonamine for further remarks.
Paul Yonamine
Great, thanks. Thank you very much everyone for participating in our earnings call for the second quarter of 2022. We look forward to future opportunities to update you on our progress. Thank you.
Operator
That concludes today’s Central Pacific Financial Corp’s second quarter earnings call. You may now disconnect your line to end.
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