Good day, ladies and gentlemen. Thank you for standing by and welcome to the Central Pacific Financial Corp Second Quarter 2017 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.centralpacificbank.com. I'd like to turn the call over to Mr. David Morimoto, Executive Vice President and Chief Financial Officer and Treasurer. Please go ahead sir.

Thank you, Brendan and thank you all for joining us as we review our financial results for the second quarter of 2017. With me this morning are Catherine Ngo, President and Chief Executive Officer and Anna Hu, Executive Vice President and Chief Credit Officer. 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 risks related to forward-looking statements, please refer to our recent filings with the SEC. And now I’ll turn the call over to Catherine.

Thank you David and good morning everyone. We are pleased to report on another solid quarter of financial performance with net income of $12 million and diluted earnings per share of $0.39. Net income for the quarter included a significant credit to the provision for loan losses which was offset by one time loss realized from repositioning our securities investment portfolio for improved deals in the longer-term and higher income taxes. David will provide more details later in this call. Loan growth continued at a stable rate with increases of $46 million or 1.3% on a sequential quarter basis. The primary drivers of loan growth from the previous quarter was the residential mortgage, home equity, and consumer auto loan portfolios. On a year-over-year basis loans increased by $187.8 million or 5.5%. From a year ago Hawaii loan balances increased by 8.6% while Mainland loan balances declined by 14.4%. Deposit growth continued to be very strong, increases of $108.9 million or 2.3% on a sequential quarter basis and $481.2 million or 10.9% year-over-year. Our continued focus on building and strengthening customer relationships has resulted in a equally strong core deposit growth of $132.7 million or 3.5% over the previous and $370.4 million or 10.4% over the same period last year. The primary driver of our deposit growth was the non-interest bearing demand deposit portfolio. Asset quality remained strong at a more normalized level with non-performing assets at 0.16% of total assets. We continue to be adequately reserved for future loan losses with our HML [ph] at 1.5% of total loans and leases. The Board of Directors for both our holding company and bank subsidiary has expanded from 10 to 11 members in June of this year with the addition of Paul Yonamine. Paul was born and raised in Hawaii and presently…

Thank you Catherine. Net income for the second quarter of 2017 was $12.0 million or $0.39 per diluted share compared to net income of $13.1 million or $0.42 per diluted share reported last quarter. As mentioned by Catherine there were two large non-recurring items that negatively impacted our second quarter results. Firstly during the second quarter we executed an investment portfolio repositioning strategy where we sold roughly 98 million of available for sale securities and reinvested a similar amount in slightly longer duration higher yielding securities. While the overall reinvestment had a slightly longer duration it included a barbell strategy that will outperform in a flattening yield curve environment. The repositioning incurred a $1.6 million pretax loss and will increase prospective annual net interest income by roughly $0.7 million. Secondly our second quarter income tax expense included a onetime increase of $0.9 million related to the payout of a former executive's supplemental executive retirement plan. Return on average assets in the second quarter was 0.88% and return on average equity was 9.32%. Net interest income increased by 0.4 million sequential quarter and our reported net interest margin declined by 1 basis points to 3.29%. The sequential quarter comparisons were impacted by 0.4 million and 0.9 million in net interest recoveries on non-accrual loans recognized in the second and first quarters of 2017 respectively. Excluding loan interest recoveries, the normalized second quarter NIM was 3.25% as compared to the normalized first quarter NIM of 3.22%. During the second quarter we rerecorded a credit to the provision for loan and lease losses of $2.3 million compared to a credit of $0.1 million reported in the prior quarter. Net charge off in the second quarter totaled $0.3 million as compared to net charge off of $1.2 million in the prior quarter. At June 30th our allowance for loan and lease losses was $52.8 million or 1.47% of outstanding loans and leases. Second quarter 2017 other operating income totaled $7.9 million and was negatively impacted by the previously mentioned investment portfolio repositioning. Other operating expense for the second quarter totaled $32.3 million. The reported efficiency ratio for the second quarter was 65.3%. Normalizing for the non-recurring investment portfolio repositioning and net interest recoveries would result in a normalized efficiency ratio for the second quarter of 63.8%. In the second quarter, our effective tax rate was 38.2% and was inflated by the previously mentioned payout. We expect our normalized effective tax rate to approximate 34% to 36% going forward. During the second quarter of 2017, we repurchased roughly 249,000 shares of common stock at an average cost per share of $30.89. We've also repurchased an additional 71,000 shares month-to-date in July at an average cost of $31.53. That completes the financial summary and now I will return the call to Catherine.

Thank you David. Through the first half of the year we remained on track with our 2017 business plans which has resulted in building our core deposit base and generating quality credits. Our continued focus going forward will be on enhancing our customers experience, strengthening customer relationships, growing quality assets, and improving operational efficiencies. I would like to take this opportunity to thank our employees, customers, and shareholders for their continued support and confidence in our organization as we work towards achieving our 2017 goals. At this time we will be happy to address any questions you may have. Thank you.

[Operator Instructions]. The first question comes from Brett Rabatin with Piper Jaffray. Go ahead.

Hi, good morning everyone.

Good morning Brett.

First, I guess I was just curious, can you talk about the mortgage banking results in the quarter, how many loans you sold, and then just thinking about the outlook for the back half of the year in terms of production, sales, and kind of how you see your gain on sale margin is trending?

Sure, let turn that question over to David on the details.

Hey Brett, for the second quarter we originated roughly 170 million during the second quarter which was about 20% sequential quarter increase over the first quarter. If you recall the first quarter was slightly down quarter from the fourth quarter. Fourth quarter was a quarter when we had a few projects complete. So we did have a nice increase relative to the second quarter just relative to the first quarter excuse me.

Okay, but the gain on sale margins is -- a little bit off relative to 1Q, can you maybe talk about is that a function of the refi purchase mix and what do you think about the back half of the year?

The gain on sale margins in the second quarter did show a slight decrease and there was a function of what we put into the portfolio and a function of the loans, the amount of loans that were sold surfacing the lease.

Okay and then just thinking about the margin going forward and your cost structure, I noticed the jumbo CD cost was up 19 basis points linked quarter, can you talk about how you're thinking about the deposit betas and what you're doing to manage cost of funds and then if the margin kind of remained stable at these levels based on what you see you’re pricing?

That’s a lot of questions Brett. We will start up with the overall margin, I think the guidance for the margin remains unchanged for the prior quarter. We do expect to be able to keep the margin in the 3.20 to 3.30 range. You did point out the increase in the cost of live CDs and that portfolio has a relatively high beta. Fortunately it’s a relatively small portfolio and again as Catherine mentioned we did have nice growth in non-interest bearing delayed balances during the quarter. As far as deposit betas, I think that guidance is still the same. I think the core deposit beta is roughly about 15% and the total deposit beta is just under 30%.

Okay, great, appreciate the color.

Thanks Brett.

Our next question comes from Aaron Deer with Sandler O'Neill & Partners. Go ahead.

Hi, good morning everyone, it's actually Alex Morris on for Aaron.

Good morning Alex.

Good morning, just kind of follow-up question on the margin. I understand that guidance here are sticking on the 3.20 to 3.30. Just wondering if in the third quarter might we see some pull through benefit on the securities repositioning, I guess a better way to ask that was that positioning done beginning kind of middle or end of the quarter?

Yes, I think it was done obviously in the middle of the quarter Alex and it should benefit us prospectively by about a basis point on the NIM.

Okay, that's great, thank you. And then just looking into the back half the year, I mean you guys showed good growth in the single family book particularly in the second quarter, do you expect the kind of residential book to be a strong performer in the back half of the year as well or got any idea of what the geography of loan growth should look like in the back half of the year?

Let me take that one Alex. So we do expect good growth in the residential mortgage portfolio in the second half. Among other things we have a condo tower here that we will be closing in the fourth quarter and we have a nice percentage of the mortgages on the sale of the units in that condo building. And then as far as overall loan growth for the second half of the year we continue to be optimistic about the mid single-digit full year loan growth across all of our asset classes. And I will say that the first month of the quarter we are off to a very nice start.

That’s great to hear, thanks a lot. And then just one kind of last question, the little uptick we saw in the commercial mortgage on the mainland, was that a kind of an existing client that you guys have worked for and worked with in the past or any explanation or color there?

Sure, that is close to $10 million in the commercial mortgage portfolio with financing for existing customer -- actually a customer that has been with us for more than 10 years.

Okay, that's great. Thanks for answering all my questions.

Certainly.

Our next question comes from Jackie Bohlen with KBW. Go ahead.

Hi, good morning everyone. Also in the mainland portfolio, the auto loan that were purchased in the quarter what rates are those at?

The second quarter is about 26.6 million in purchase auto, weighted average rate was in the 4.6% range.

But it was purchased at a premium on a net basis Jackie. I want to say it was in the mid 2s.

Mid 2s? Okay, and is that just to help keep that portfolio relatively flattish?

Yes, as we stated before we will probably need to keep to mainland exposure relatively flat as we continue to ramp up the Hawaii portfolio. But overtime it will decline overtime over the longer term but in the near-term we probably got to keep it flat and as you know the auto portfolio amortizes quickly so it’s a battle to keep it flat.

Now I understand. Okay and realizing that we're in a changing environment and things change but sometimes on a daily basis do you foresee any potential future repositioning in the securities portfolio or did what you did in the quarter kind of take care of everything?

Yeah Jackie, as you know we have a asset liability committee that reduced the balance sheet positioning on an ongoing basis. So we periodically see opportunities to reposition. At this time there are no further plans to reposition but again it changes with the market conditions.

Okay. And understanding that it was a smaller piece of the portfolio, in the quarter did that have much of an impact on overall portfolio duration?

On the overall it was very small. So it was 100 auto to 1.5 billion. On that piece we did extend duration slightly but as discussed it was -- it extended durations slightly but it was a barbell strategy where that included full rate securities so it did change the risk profile of that portion of the portfolio. So what we sold had really exposure to the intermediate part of the yield curve on a fixed rate basis. And what we repurchased was fully rate securities on a front and longer duration securities on fixed rate securities on the longer end. So it does perform. It change the risk profile to perform better in a flattening yield curve environment.

Okay, thanks David. That's very helpful and that's all I have thank you.

Thanks Jackie.

Our next question comes from Laurie Hunsicker with Compass Point. Go ahead

Yes, hi, good morning. Just wondered if we could stay on loans here, do you have an update as to where your snick was and then what the breakdown between Hawaii and mainland is?

Snick portfolio number is $104 million on the mainland and then David…

It is about 45 in Hawaii.

Okay, and then just the home equity, can you comment a little bit about that. That's really strong annualized growth this quarter, to tell you're thinking about that and was any of that purchased?

The home equity portfolio is all originated here by our lenders in Hawaii and it continues to be a focus for the company as we think about our deepening customer relationship here. So some are referrals from our branches and some from our home mortgage loan consultants in our mortgage division.

Okay and the 26% annualized growth could we expect it to continue at a similar clip?

I would say that we are hopeful that we will be able to do that as we continue to focus on deepening our relationship particularly and in that portfolio.

Okay and then just going over something that Brett touched on, as we look at your jumbo deposit costs they were up 19 basis points this quarter, they were up sharply last quarter too. How should we be thinking about that portfolio going forward, I mean that portfolio as a percentage drops, just linked quarter 22 down to 20 are we going to expect to continue to see that run down and what is your goal on that?

Let me turn that over to David. David?

Hey Laurie, the large percentage of the jumbo time deposit portfolio is public deposits. So that’s a portfolio that has a relatively short duration and its pretty market based, and that’s really what drives the high data. So that portfolio will continue to the extent that the Fed continues to tighten that portfolio well we will reprice to market pretty quickly. So as far as going forward we have the ability to manage the size of that portfolio. That’s still on the pricing but we have the ability to manage the size of that portfolio and that’s really going to be a function of what we can accomplish on the core deposit front. So on the second quarter we had exceptional performance on the core deposit front and that did allow us to shrink the public deposit portfolio slightly.

Okay, and so just again as we think about where the time deposits may fit and particularly going into potentially another rate hike at the end of the year, I mean could we expect to see that line item at some point be down 16% to 17% of your total deposits assuming that the growth is there on the core size, is that reasonable?

Yes, Laurie it’s going to be a function of what we’re able to accomplish on the core side. That’s correct.

Okay and then I know I ask you this every quarter but, as we think about your loan loss provisioning obviously your credit is now pristine, your reserves to loan sitting at 147 but you had a very big loan provision reversal. I mean if we think about the provision build is it possible that starts occurring in the third quarter and then if you can just sort of refresh us a little bit what you’re thinking on a reserves to loans as a target?

Sure Laurie, I am going to turn that question over to Anna.

Good morning Laurie.

Hey, good morning Anna.

We are expecting normalizing, buying anything with significant recoveries in the coming quarters. Let’s say that we don’t set a target level as you know and really we will continue to analyze our loan portfolio mix, asset quality, as well as the economy to determine what that means their level will be on a quarterly basis going forward.

Okay, that's great. Just last question, internal control in your remediation plan, can you just give us an update there? Thanks.

Yes, we are good execute on our remediation plan and we don’t anticipate fully remediating the material weakness as we do have some key controls that are annual controls. So those will be performed and tested at year end.

Okay, so full resolution probably be spring of next year assuming all goes as planned?

Correct.

Okay, great, thanks. I'll leave it there.

[Operator Instructions]. We have a follow up question from Brett Rabatin with Piper Jaffray. Please go ahead.

Hi, I just wanted to ask on the expenses, just thinking about the increase in personal cost this quarter, is that a good run rate going forward? And then are you doing anything else expense wise or do you have anything that you are needing to invest in technology, etc that might change things in the back half?

I’ll take that question Brett. So with regards to the other operating expense lines, it continue to think about $31 million to $33 million on a quarterly basis. And then specifically on your question on compensation expense, it should be in the range of $17.5 million to $18.5 million. In the second quarter we have a couple of things that bumped up that compensation line. So the first is we did have the effect of the merit increases for all of our employees in the second quarter and further there was a onetime adjustment to our incentive compensation accrual.

Okay, so no role change to the guidance on expenses for the year and doesn’t feel like we need to do anything else that would change the path of that?

That’s correct. And the guidance I just gave is where we expect to be for the next couple of quarters.

Okay, and then just last question around the loan portfolio yields. I'm just curious that origination you're putting on I don’t know if you have that analysis that shows quarter-by-quarter but are you been able to originate loans at better yields in the portfolio, can you give us any color on where things might trend post the Juvenile?

Sure, I will turn that question over to David.

Hey Brett, the second quarter was actually a good quarter on that front. New volumes, loan origination we got average new volume yield square roughly in the 390 range which is very close to the overall portfolio and yield went up to 95. So that's the closest we have been in this rate cycle. However, I will say that new loan origination yields tend to be a little volatile. It does bounce around a bit. So I think it is a little early to say that we get a drop here but the second quarter was a good quarter.

Okay, great. Thanks for the color.

This concludes our question-and-answer session. I would like to turn the conference back over to Ms. Catherine Ngo, President and Chief Executive Officer for any closing remarks.

Thank you very much for participating in our earnings call for the second quarter of 2017. We look forward to future opportunities to update you on our progress.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.