Central Pacific Financial Corp. (NYSE:CPF) Q1 2022 Earnings Conference Call April 20, 2022 1:00 PM ET
Company Participants
David Morimoto – Executive Vice President & Chief Financial Officer
Paul Yonamine – Chairman and Chief Executive Officer
Catherine Ngo – President
Arnold Martines – Executive Vice President & Chief Banking Officer
Anna Hu – Executive Vice President and Chief Credit Officer.
Conference Call Participants
David Feaster – Raymond James
Andrew Liesch – Piper Sandler
Laurie Hunsicker – Compass Point
Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.
Operator
00:02 Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Central Pacific Financial Corp First Quarter 2022 Conference Call. During today’s prestation all parties will be in listen-only mode. Following the presentation the conference will be opened 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.
00:31 I’d like to turn the call over to Mr. David Morimoto, Executive Vice President, Chief Financial Officer. Please go ahead.
David Morimoto
00:41 Thank you, Lydia. And thank you all for joining us as we review the financial results of the first quarter of 2022 for Central Pacific Financial Corp. With me this morning are Paul Yonamine, Chairman and Chief Executive Officer; Catherine Ngo, Executive Vice Chairman; Arnold Martines, President and Chief Operating Officer; and Anna Hu, Executive Vice President and Chief Credit Officer.
01:11 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 cpf.bank. During the course of today’s call, management may make forward-looking statements, while we believe these statements are based on reasonable assumptions that 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 two of our presentation.
01:45 And now, I’ll turn the call over to our Chairman and CEO, Paul Yonamine.
Paul Yonamine
01:50 Thank you, David, and good morning everyone. As always, we appreciate your interest in Central Pacific Financial Corp. We are pleased today to share our strong first quarter financial results, as well as provide updates on our market and our digital transformation strategy.
02:07 Our Shaka checking digital product launched in Hawaii last November continues to grow in account holders and customer engagement, over 60% of our Shaka customers are now checking account holders to the bank, given us a great opportunity to further build banking relationships and engagement.
02:28 Building upon our successful rebrand in 2021 earlier this month, we launched a new brand campaign called Digital Banking the CPB Way that focuses on our high-tech, high touch business approach in Hawaii, which offers best in class digital technology while providing the exceptional customer service that we are known for. We continue to advance our recently announced Banking-as-a-Service mainland expansion strategy and remain very optimistic about the opportunity.
03:02 The new fintech entity, Swell Financial, which we incubated last year was formed at the beginning of this year. In February, Swell successfully completed a $10 million Series A preferred funding round which CPF also participated in. The Swell money app was an integrated checking and line of credit product is on track to publicly launch in the summer with CPB serving as the bank sponsor utilizing our banking as a service technology platform. We believe Swell’s product unique in the market and that it addresses a large underserved group in the US that we call strivers. At the same time, we continue discussions with several other potential fintech partners for future Banking-as-a-Service expansion. We are seeing growing interest in this area, but we are being selective on who we collaborate with, as we are focused on profitable and sustainable business models for both parties involved.
04:08 Finally, our digital transformation encompasses all areas of our business and we continue to make progress on other digital enhancements such as a new trust management system that went live at the beginning of this year, a new consolidated loan and deposit origination system initiative that will be developed throughout this year, another back-office efficiency and automation initiatives.
04:36 Next here to talk about the Hawaii economy and our strong position here is Catherine Ngo, our Executive Vice-Chair. Catherine?
Catherine Ngo
04:45 Thank you, Paul. I’ll start by giving you an update on the Hawaii environment along with most of the nation, Hawaii removed nearly all COVID-related restrictions during the first quarter and is pleased to be returning to a sense of normalcy. Our Safe Travels program have require people entering the state to be fully vaccinated or have a negative COVID test to avoid quarantine ended in March. With that positive development, we are seeing a continued increase in visitors to the island. Month-to-date April 2022 average air arrivals surpassed pre-pandemic levels of April 2019 despite limited international visitors.
05:26 International visitors to Hawaii have not yet returned in a meaningful way. Historically, pre-pandemic visitors from Japan made up a significant portion of Hawaii’s tourism economy with about 1.6 million Japanese visitors each year, accounting for about 16% of all visitors to the state. Recently, Japan has started to ease quarantine requirements and its Golden Week coming up in a couple of weeks. We are anticipating an increase in Japanese visitors.
05:55 Our company is also starting to resume business travel to Japan and we believe this is an opportunity for us to differentiate the Bank, given our strong strategic relationships. Our statewide unemployment rate continued to decline and went to 4.1% in March 2022. Our housing market in Hawaii remains very strong with our medium single-family home price soaring to a new record high of $1.15 million in March 2022, which is up 21% of the previous year. Overall, Hawaii remained on track to recovery.
06:33 Our asset quality continues to be very strong with non-performing assets of just 7 basis points of total assets as of March 31. Additionally, total criticized loans were only 1.5% of total loans. Finally, during the quarter, we had net charge-offs of just $400,000.
06:51 I’d like to now turn the call over to Arnold Martines, our President and Chief Operating Officer. Arnold?
Arnold Martines
06:57 Thank you, Catherine. In the first quarter, our core loan portfolio increased by $120 million or 2.4% sequential quarter, which was partially offset by PPP forgiveness paydowns of $47 million. The core loan growth was broad based across almost all loan categories. As expected, residential mortgage loan growth slowed during the first quarter due to seasonality and rising interest rates. This was offset by strong [indiscernible] home equity outstanding balances of $39 million. PPP forgiveness continues to progress well with only $44 million remaining on our balance sheet as of March 31. Central Pacific Bank is proud to be recognized as Hawaii’s leader in small business loans with us being named by the SBA Hawaii office as Lender of the Year Category 2 for the 2021 fiscal year.
07:58 CPB originated more SBA 7a loans in 2021 than the other major Hawaii banks combined. We are pleased to support Hawaii small businesses, a strategic pillar for CPB, and continue our mission to empower the people of Hawaii. During the first quarter, we continued consumer unsecured and auto purchases with our established vendors who strategically complement and diversify our portfolio. The purchases during the quarter were all within our established credit limit and had a weighted average FICO score of 73.
08:37 Our net growth in mainland consumer purchase loans was $42 million in the first quarter. As of March 31, total mainland consumer unsecured and auto purchase loans were approximately 6% of total loans, both our mainland and Hawaii consumer portfolios continue to perform well. We anticipate maintaining our total mainland loan portfolio, including commercial and consumer at around its current level in the near-term. With Hawaii’s steady economic recovery, we have a healthy loan pipeline in all loan product categories and we are expecting our loan growth trends to pick up further throughout the remainder of 2022.
09:22 Finally, after experiencing significant card deposit inflows since 2021, during the first quarter we had a slight write-off with core deposits decreasing by $37 million or 0.6% from the prior quarter. Additionally, our average cost of total deposits during the first quarter all steady at just 6 basis points.
09:45 I’ll now turn the call over to David Morimoto, our Chief Financial Officer. David?
David Morimoto
09:52 Thank you, Arnold. Net income for the first quarter was $19.4 million or $0.70 per diluted share, an increase of $1.4 million or $0.06 per diluted share from the same quarter a year ago. Return on average assets in the first quarter was 1.06% and return on average equity was 14.44%. Net interest income for the first quarter was $50.9 million, which decreased by $2.2 million from the prior quarter due to less PPP fee income as the forgiveness process winds down.
10:33 Net interest income included $1.9 million in PPP net interest income and net loan fees compared to $4.7 million in the prior quarter. At March 31 unearned net PPP fees was $1.7 million. Net interest income during the first quarter also included $0.5 million in non-recurring interest recoveries. The net interest margin decreased to 2.97% in the first quarter compared to 3.08% in the prior quarter. The NIM normalized for PPP and interest recovery was 2.85% compared to 2.87% in the prior quarter.
11:19 Our balance sheet remained slightly asset sensitive and we, therefore, anticipate our margin will trend up with further Fed interest rate hikes. First quarter other operating income was $9.6 million compared to $11.6 million in the previous quarter, the decrease was driven by lower mortgage banking and bank-owned life insurance income.
11:44 Other operating expense for the first quarter was $38.2 million, which was a decrease from the prior quarter, which included several large one-time expenses. Additionally, in the first quarter total salaries and benefits trended down due to seasonal and market-related adjustments, including lower commissions and incentive compensation accruals, as well as less deferred compensation expense. Going forward, we expect that quarterly recurring other operating expense will be in the $40 million to $42 million range.
12:23 We are executing on our plan to consolidate three additional branches this year with two scheduled in the second quarter and another in the third quarter. The total go forward annual expense savings from the three branch consolidations is estimated at $0.9 million. The efficiency ratio decreased to 63.2% in the first quarter due to lower other operating expenses. We remain focused on driving positive operating leverage with our strategic initiatives to continue to improve efficiency.
13:03 At March 31, our allowance for credit losses was $64.8 million or 1.26% of outstanding loans, excluding PPP loans. In the first quarter we reported a $3.2 million credit to the provision for credit losses due to continued improvements in the economic forecast and our loan portfolio.
13:29 The effective tax rate decreased slightly to 23.7% in the first quarter. Going forward, we expect the effective tax rate to be in the 24% to 26% range. As a result of market interest rates rising our available for sale investment securities portfolio moved into a larger unrealized loss position, which is reflected in accumulated other comprehensive income in total shareholders equity on our balance sheet.
14:04 To mitigate further portfolio net valuation impact we transferred $330 million in securities to held to maturity during the first quarter. Additionally, we executed on a pay fixed received floating two-year forward-starting interest rate swap on an additional $115 million of investment securities.
14:31 Our capital position remained strong and during the first quarter we repurchased roughly 235,000 shares at a total cost of $6.7 million or an average cost per share of $28.65. Additionally, our Board of Directors declared a quarterly cash dividend of $0.26 per share, which will be payable on June 15 to shareholders of record on May 31.
15:02 I’ll now return the call to Paul.
Paul Yonamine
15:04 Thanks, David. Central Pacific had a solid first quarter and continues to be well-positioned with strong liquidity, capital and asset quality. We continue to execute on our strategic initiatives, and believe that 2022 will be another pivotal year for the company supported by a good economic environment. With much optimism, we are pushing boldly forward on our parallel strategy to continue to grow and expand market share in Hawaii and through our mainland expansion starting with the introduction of Swell.
15:39 On behalf of our management team and employees, I would like to personally 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. Back to you, Lydia.
Question-and-Answer Session
Operator
15:55 Thank you. [Operator Instructions] our first question today comes from David Feaster of Raymond James. Your line is now open.
David Feaster
16:13 Hi, good morning, everybody.
Paul Yonamine
16:15 Hey, David, good morning.
David Feaster
16:17 I just want — I wanted to touch on the growth outlook, could you maybe walk us through some of the drivers that you’re expecting with regard to the accelerating loan growth commentary that you had in the prepared remarks? What segments you’re seeing the most strength? How much you’d expect to come from Hawaii versus the US Mainland? And then just whether you’re expecting any additional loan purchases to supplement the organic growth.
Paul Yonamine
16:40 Sure. I’d be happy to do that, David. And as you can see, we had a pretty respectable first quarter on growth, but let me have Arnold Martines take that question. Arnold?
Arnold Martines
16:53 Yeah. Thanks, Paul and good morning, David. So, we are pretty optimistic about our loan growth for the year. I think the drivers right now for us is going to be construction, commercial mortgages, as well as the consumer book where we’re seeing nice growth on the Hawaii side, but also continuing our purchases on the Mainland with our strategic partners. So, I think those areas are going to drive growth for us this year.
17:32 With regard to residential, I think we all know that the interest rates have increased, that’s certainly has impacted the refi market, that’s basically drying up. I think we saw a tail of that refi market in the first quarter, but we expect as we move forward that’s going to dry up. And so, for refi, we’re looking at – we are looking probably in the near term normalized levels of production [indiscernible] in the $150 million to $160 million range and we are optimistic about that just because of our purchase market strength.
18:14 As you know, David, we have our joint ventures with developers, as well as a pretty strong position with the realtor market here in Hawaii. So all in all, I think we are still affirming mid to high single-digit growth for loans this year.
David Feaster
18:40 Okay. That’s helpful. And does that include any additional purchases in that?
Arnold Martines
18:48 Yes, we are absolutely going to be putting more purchases. Purchases is really — I know that it is purchases, but it has become part of our business model. We continue to look at these partners strategically and we will continue to make purchases for auto — auto loan and unsecured loans going forward to the extent that we believe it helps to augment a diversification in our loan portfolio as well as yield.
David Feaster
19:26 Absolutely. And maybe just switching gears to deposits, could you maybe talk a little bit about your outlook for deposit growth going forward? And maybe, some thoughts into what drove the sequential decline? Was it just seasonal tax payments, PPP usage and again just overall expectation for deposits? And then just a little bit on the Shaka digital account. It’s great to see the continued growth there, but any commentary about how balances are trending in cross-selling initiatives thus far would be helpful?
Arnold Martines
20:02 Yes, sure, David. So with regard to deposits, actually we had a – we had some few larger deposits related to a few customers that came in the fourth quarter, we actually thought it was going to be in the fourth quarter, but it actually carried over to the first quarter. And so, that really was the reason why we had a moderate decrease in deposits. All in all, overall, we’re still seeing a fairly robust activity in deposits. Well, we’ll have to see how the market dynamics plays out this year. We’re still anticipating mid-single-digit growth in deposits.
20:52 With regard to Shaka, it’s probably still too early for us to talk about balances, just because Shaka, as you know as we on boarded [indiscernible] almost 4,000 customers that opened up accounts, as Paul mentioned earlier about 60% of those customers are new to the bank as we work with them to activate their accounts, debit card usage, direct deposit, ACI’s type transactions, utilizing the accounts for mobile deposits, et cetera, we’re going to start to see some of those balances increase over time. But I would just say that I’m pretty pleased — I mean, we are pretty pleased with the progress we’ve made. At this point, I can say that all the accounts that we have 70% are fairly active, and we define active by having multiple types transactions, whether it’s debit card, direct deposit, or using our person-to-person type payment functionality. So, good progress, more to come in future quarters.
David Feaster
22:15 That’s terrific. And then maybe just touching on the banking as a service initiative, could you just walk through maybe the timeline and where we are? We’ve got the funding that was just completed, just curious where we are in the launch? What the next steps are? And then just any expectations that you might have for that program and when we might start seeing some contribution?
Paul Yonamine
22:39 Sure, David. So we’re very pleased with the progress we’re making in our Banking-as-a-Service initiative, especially around our investment in our sponsorship with Swell based out in Colorado. And the mobile app, the application and architecture continues to be built on, it is so far on time, on schedule, and we’re hoping to see a launch this summer.
23:09 We’ve had an opportunity in the past several months to take a really hard look at credit risk. And again, if you recall at our last call — last quarter, we talked about this competitive advantage that we have because of our relationship with management at Swell and also Elevate and now our additional investor called Pearl City management. And I think it’s a lot of that interaction that allows us to be very agile and yet take a very risk-adjusted approach.
23:46 I wanted David to just once again touch on some of the risk-adjusted features that we have been able to institute for our Swell offering, because I think this is a really important point that how CPB will be able to iterate and learn and test as we start to scale it. David?
David Morimoto
24:10 Yeah. Thanks, Paul. So, David, what Paul is referring to is, again, we think we’ve built something rather unique with Swell Financial and with Elevate. So there will be unsecured lines of credit as part of the Swell program, it’s called Swell credit is the product, but Elevate is doing the underwriting for the Swell credit line — unsecured lines. But what’s unique is, Elevate is providing Central Pacific with a credit guarantee, so Elevate is absorbing 100% of the credit losses on the Swell lines of credit and we worked with our accountants to figure out net accounting for the Swell lines of credit. So while the lines of credit will be on Central Pacific’s balance sheet, Central Pacific will not record any net charge-offs and we will not have to provide an allowance for credit losses for those Swell loans.
25:23 So again, we think we negotiated something unique, Elevate is providing 100% credit guarantee. They are also providing a cash deposit that will fit at Central Pacific bank. Again, I think we’ve done something unique and something that is going to be very valuable to Central Pacific moving forward.
Paul Yonamine
25:47 And David, this is Paul again. I just wanted to also add that as we again touched on last quarter, we invested a total of $2 million into the Swell. It is treated under the cost method of accounting on our books. We have been able to demonstrate that we don’t have control of that entity. I’m happy to also report that Swell is beating their expense control, they are coming in less than what we had originally projected. So there is absolutely no issue on the investment amount that we carry on our balance sheet. So again, the net is, we’re very pleased with that progress and that was Swell component, David, and naturally, we also have a number of new fintech partnerships, where we are affiliated with them and we will be working with these fintechs to launch certain services and we can touch on that later if you’re interested. Thank you.
David Feaster
26:51 That’s helpful. Thank you.
Paul Yonamine
26:54 Sure.
Operator
26:55 Our next question comes from Andrew Liesch of Piper Sandler. Your line is open, Andrew.
Andrew Liesch
27:03 Hey, good morning everyone. Just wanted to talk about the margin here, you mentioned a little bit asset sensitive, but maybe some more detail there with this — the expectation that the Fed is going to be raising 50 basis points next month. How do you — is there going to be a benefit right away from that? And what are you expecting with like deposit beta, is there any sort of loan pricing, maybe if we get another 50 basis points shortly thereafter.
David Morimoto
27:40 Yeah. I think [indiscernible] David. So as we’ve stated, the balance sheet is slightly asset sensitive, 100 basis point shock net interest income increases by roughly 5%. Obviously, there is a lot of assumptions embedded in there, the largest being the modeling of the in-determinant, but too early deposits. We think we may be a little bit conservative on the modeling there, we’re modeling a 20 — weighted average of 20% deposit data and we’re hopeful that we don’t need to reprice that quickly, especially in the early goings of the rate increases.
Andrew Liesch
28:28 Got it. Okay, that’s helpful. And then, I guess what — it sounds like the rise in mortgage rates have kind of curtailed production there, but you still have some other tailwinds, how are you balancing, I guess, retaining some of these mortgages on the balance sheet versus selling them is just $1.2 million or so that you had in the first quarter for gain on sale [indiscernible] that number going forward.
Paul Yonamine
29:00 Yeah, Andrew, historically, the company has retained roughly 50% of originations and sold the remaining. We’re trying to stay on that path, it will result in a gain on sale, probably coming down a bit, maybe to $100,000 to $1 million per quarter level, but we’re trying to stay that balance. We’ve discussed about retaining more with mortgage rates now getting above 5%, should we retain more on the balance sheet, but we’re kind of trying to stay at course, as we all know, residential mortgages is one of the assets that we define it prepays rather quickly. So one of the most negative [indiscernible] assets on our balance sheet. So while you may enjoy a 5% yield for a period of time, it can be taken away from you rather quickly. So we are kind of trying to stay at course, 50-50.
Andrew Liesch
30:13 Right. Okay. That’s it from me. I’ll step back in the queue. Thanks.
Operator
30:23 Thank you. [Operator Instructions] Our next question today comes from Laurie Hunsicker of Compass Point. Please go ahead.
Laurie Hunsicker
30:39 Hi, thanks good morning. I was hoping we could just go back to the loan book here, can you refresh us in terms of where you are with your [indiscernible] of Hawaii-based and Mainland based and how you’re thinking about growing that?
Arnold Martines
31:01 Hi, Laurie. This is Arnold. Good morning.
Laurie Hunsicker
31:06 Hi, Arnold.
D. Martines
31:07 Good morning, Laurie. I would say that we do have some transactions in the pipeline for [indiscernible] we’re looking selectively with regard to how we can grow this portfolio over the year while balancing other product categories, other loan categories. As of the end of the first quarter, we were about $156 million, that’s a combination of Hawaii and the Mainland. So I would say, it’s not going to be a large, a big driver for growth, but we would look selectively based on risk and yields.
Laurie Hunsicker
32:03 Got it, okay. I just wanted to make sure I heard that right, you said you were $166 million total, is that correct?
Arnold Martines
32:09 $156 million.
Laurie Hunsicker
32:11 $156 million. Okay. So that’s down pretty sharply. I heard you guys had $192 million at
the end of the year. Is that —
Paul Yonamine
32:21 Laurie, I think the $156 million is just the Mainland, I think that other number you just referenced is a combination of Mainland and Hawaii. I can circle back with you on the detail.
Laurie Hunsicker
32:34 Perfect. Perfect. Okay. And then on the consumer side [Multiple Speakers]
Arnold Martines
32:38 Let me clarify. So Mainland is $156 million and Hawaii is about $58 million.
Laurie Hunsicker
32:48 $58 million, okay, that’s helpful. Okay, so, wow, so that grows pretty sharply. Okay, and then on the consumer side, and obviously you’ve got a lot going and I do want to follow up on Swell, but can you help us think about it. I mean your credit is remarkably clean, the only area really that we’re seeing charge-offs is on the consumer side, which bucket of the consumer are those charge-offs coming from? And how are you thinking about that specific bucket or buckets?
Anna Hu
33:24 Hi, Laurie, this is Anna.
Laurie Hunsicker
33:25 Hi, Anna.
Anna Hu
33:27 The bucket for the consumer is primarily in our unsecured consumer actually coming from the Mainland purchase portfolio. And for first quarter Mainland comprised about 41% of that charge-off amount, fairly small and about 59% coming from the Hawaii consumer book.
Laurie Hunsicker
33:57 Okay. Okay. And certainly your — I mean you’re unsecured consumer book is very, very high FICO versus what you’re planning to do with Swell, Elevate here, can you just give us a refresh? And I have a couple of questions around that. I had heard your initial equity investment in the Swell, Elevate is $1.5 million and I think Paul mentioned $2 million. I don’t know if the $2 million was rounded or if you guys decided to invest another $0.5 million? Do you have any color on that?
Paul Yonamine
34:28 Yeah, the – Well to — this is Paul, Laurie. So it comprises $1.5 million in what we refer to as a Swell equity, a lot of the costs that we incurred while we incubated Swell and there was an additional $0.5 million in cash as we incorporate at the entity, so in total it’s $2 million.
Laurie Hunsicker
34:55 Got it. Got it. Okay, and is there any refresh in terms of how much you plan to put on the book this year? How you’re thinking about it next year in terms of consumer loans?And then also in terms of where the FICO bucket are going to break, how you’re thinking about that?
Paul Yonamine
35:14 Sure. Yeah, so we had an extensive discussion with our Board, we want to take a very risk-adjusted approach on how we launched Swell. And so our budget, our projections, again that was approved by our Board as well is something south of $8 million in terms of loan originations by Swell in this current fiscal year. That represents a cap for us at this time, where we will be able to again iterate, learn, make adjustments, we will have a weekly dashboard to look at their origination, payment, default. And so I think it’s being structured quite well to make sure that we manage credit risk. And that’s the game plan for the current year. And going forward, we’ll see how things play out the current year. As you know, it’s a very dynamic environment today with rates, the war in Ukraine, and so forth and so on, and we have to go slow and iterate and learn.
Laurie Hunsicker
36:30 Yeah, no, I love hearing you’re going so, and are you still targeting FICO scores in the range of 6.50 or do you have a refresh on that for the $8 million.
Paul Yonamine
36:40 Yeah. So, Laurie. We — again, we’re not going subprime at all, we’re growing neoprene and above, but — and I only hesitate to talk about FICO scores, because Elevate has a very robust credit analysis approach and where they utilized 16 different credit factors, and not only that, they have close to over a decade of experience in naturally doing subprime, but this is an endeavor where we are going more neoprene and above, which we call the striver’s group. And we think that there is a huge market opportunity in the Mainland US. So once again, I don’t really want to pigeonhole ourselves with one particular FICO score.
Laurie Hunsicker
37:33 Okay. I mean, I guess, I would just say that people obviously break differently in their definition of subprime, I tend to be very, very conservative, I think anything south of 6.6 is subprime, but I understand where you’re coming from with neoprene. I mean, I guess, some of my concern is that Elevate is all of $90 million of market cap with all of $100 million in tangible common equity, right. So a credit guarantee if you all are putting on a substantial amount of Swell Elevate loan. I mean there is potential risk there, so I guess maybe Paul if you can help us understand a little bit, if $8 million performance as you expect it to then what is the projection for what you potentially would do in 2023. I mean, right now our number drops to 2023 and so I’m just trying to understand that a little bit.
Paul Yonamine
38:31 Sure. So, Laurie. First off, on the credit default swap that David explained earlier. The arrangement that we have with Elevate currently is that they literally put in a deposit with our bank where we have a priority interest in, a preferred interest in. And so regardless of their valuation or their financial condition under the terms of that agreement, we actually secure a 6% credit-default deposit from them with the preferred interest on it. So it’s the perfect scenario for this current year as we again iterate and learn on how we do this.
39:20 Now, this is an area, as we go after the striver’s market, this is not really been widely done by any fintech or financial institution in this manner, and given the existence of weekly dashboards where I will personally be taking a close look at, we will make course corrections and pivot as necessary. So again, I feel that it is a very prudent and risk-adjusted approach that we have in mind today.
39:54 I also want to just mention that, I think for most community banks today you have to get into the field on how we collaborate with fintechs. I think we’re fooling ourselves, because this is the direction the world is going to, even here in Hawaii, and so we’ve been very fortunate again with the relationship with Swell and Elevate that we can really work together and be very transparent with each other and coming up with a really good risk calculated approach.
40:26 As far as 2023 as a concern, I really don’t want to go there yet, Laurie, I believe that we need to have more time as we go live with the Swell platform this summer, and as we iterate and learn we’ll have a better view on how we want to scale it up in 2023 and we’ll be happy to talk about that in subsequent quarters.
Laurie Hunsicker
40:54 Okay, that’s great, I appreciate all the color. And just one more question, David over to you, non-interest income. Can you just refresh us a little bit on your NSF fees? How you’re thinking about that going forward? Is that obviously is a little bit of an industry hot button?
David Morimoto
41:15 Sure, Laurie. NSF fees for CPF, we’re not overly dependent on NSF fee income, last year it totaled $3.7 million and in the first quarter it was $1.1 million, it is ramping up as activity returns to normalcy, but I think relative to some of our peers, we’re less reliant on NSF income. Our strategy going forward is to stay the course for now, we’re obviously watching what’s happening with the CFPB, but what we’ve heard with regard to the CFPB is, their focus on NSF may be misplaced, it’s a feature that consumers like and want and the amount of complaints going into the CFPB are really low relative to other types of complaints.
42:27 So anyway, we’re staying the course for the time being, but we’re watching what’s happening with the CFPB, we’re watching what’s happening with our industry peers.
Laurie Hunsicker
42:37 Great. Thanks for taking my question.
David Morimoto
42:41 Thanks, Laurie.
Operator
42:46 We have a follow-up question from Andrew Liesch. Please go ahead.
Andrew Liesch
42:51 Hey, thanks for taking the follow-up here. Just on the share repurchases and capital right now, obviously, the AOCI had hit the TCE ratio, but the regulatory capital ratios are all pretty strong. So what should we be thinking about for the buyback here, similar pace of what we have seen in the last couple of quarters or how do you think we should adjust our outlook there?
David Morimoto
43:18 Hey Andrew, it’s David. What I’ll say is, we’re obviously committed to the quarterly cash dividend that will continue. The share repurchase plan is going to be a little bit more of a variable. It’s always going to be at management’s discretion, and it’s going to be a function of stock price and our other options — other options for uses of capital. So, I would say it’s going to be a little more flexible than it has been in the past on the repurchase side.
Andrew Liesch
43:55 Okay, very helpful. Thanks for taking the follow-up.
David Morimoto
44:00 Thanks, Andrew.
Operator
44:03 And finally, we have a follow-up from David Feaster. Your line is open.
David Feaster
44:10 Hey, thanks. Just wanted to follow-up on Laurie’s question, just kind of getting the full – taken — on the fee income front taking that kind of $800 million to $1 million on the mortgage side, some of the NSF impacts like you talked about. Just curious, I know you guys have some fee initiatives in place. Just curious how you think about that fee income line as a whole? And how you’d expect the progression over the course of the year?
David Morimoto
44:43 Yeah, David, it’s David here. So the first quarter was a down quarter, we talked about mortgage banking income and also the BOLI. We have some BOLI policies that are on the graph that are impacted by the — what’s happening in the equity and fixed income markets. Going forward, we’re thinking we want to be roughly in the $10 million per quarter range and we do have some key initiatives in the wealth management area. That’s an area that’s been a little difficult with the volatility, but we have some new business development initiatives in the wealth management area, that hopefully can offset the market volatility and actually grow fee income in that area, and then the other thing that’s going on as Paul mentioned that we are working on some other banking as service fintech opportunities, some of those will be fee opportunities versus net interest income opportunities and so we look forward to sharing more on that at the appropriate time in the future.
David Feaster
45:59 All right, that’s helpful. Thanks everybody.
Operator
46:05 Thank you. We have no further questions in the queue. So I’d like to turn the call back to Paul Yonamine for closing remarks.
Paul Yonamine
46:13 Thank you very much for participating in our earnings call for the first quarter of 2022. We look forward to future opportunities to update you on our progress. Thank you.
Operator
46:27 This concludes today’s call. Thank you very much for joining. You may now disconnect your lines.
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