nCino, Inc. (NCNO) Q4 2022 Earnings Call Transcript
Central Pacific Financial (CPF) Q1 2022 Earnings Call Transcript
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Central Pacific Financial ( CPF -0.44% )
Q1 2022 Earnings Call
Apr 20, 2022, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to the Central Pacific Financial Corp. first quarter 2022 conference call. [Operator instructions] 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, executive vice president, chief financial officer. Please go ahead.

David MorimotoChief Financial Officer

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 chair; Arnold Martines, president and chief operating officer; and Anna Hu, executive vice president and chief credit officer. We have prepared a supplemental side 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 two of our presentation. And now I’ll turn the call over to our chairman and CEO, Paul Yonamine.

Paul YonamineChairman and Chief Executive Officer

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. 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, giving us a great opportunity to further build banking relationships and engagement. 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. 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 with 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 will be unique in the market in that it addresses a large, underserved group in the U.S. that we call Strivers.

At the same time, we continued discussions with several other potential fintech partners for future banking and service expansion. We are seeing growing interest in this area, but we are being selective in who we collaborate with as we are focused on profitable and sustainable business models for both parties involved. 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 initiatives that will be developed throughout this year and other back-office efficiency and automation initiatives. Next here to talk about the Hawaii economy and our strong position here is Catherine Ngo, our executive vice chair.

Catherine?

Catherine NgoExecutive Vice Chairman

Thank you, Paul. I’ll start by giving an update on the Hawaii environment. Along with most of the nations, Hawaii removed nearly all COVID-related restrictions during the first quarter and pleased to be returning to a sense of normalcy. Our Safe Travels programs that require people entering the state to be fully vaccinated and 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 arrival count surpassed pre-pandemic levels in April 2019 despite limited international visitors. 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 tourism economy was 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 with Golden Week coming up in a couple of weeks, we are anticipating an increase in Japanese visitors. 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 to more than 4.1% in March 2022. The housing market employee 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% from the previous year.

Overall, Hawaii economy remains on track for recovery. Our asset quality continues to be very strong as nonperforming assets is seven basis points of total assets until March 31. Additionally, full criticized loans were only 1.5% of total loans. Finally, during the quarter, we had net charge-offs of just $400,000.

I’d like to now turn the call over to Arnold Martines, our president and chief operating officer. Arnold?

Arnold MartinesPresident and Chief Operating Officer

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 net growth in 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. CPB originated more SBA 7a loans in 2021 than the other major Hawaii banks combined.

We are pleased to support Hawaii’s 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 purposes with our established vendors to strategically complement and diversify our portfolio. The purchases during this quarter were all within our established credit limit and had a weighted average FICO score of 73. Our net growth in Mainland consumer purchases, purchase loans was $42 million in the first quarter.

As of March 31, total Mainland consumer unsecured and auto purchase loans grew 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 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.

Finally, after experiencing significant core deposit inflows in 2021, during the first quarter, we had slight run-off with core deposits decreasing by $37 million or 0.6% from the prior quarter. Additionally, our average cost of total deposits in the first quarter were steady at just six basis points. I’ll now turn the call over to David Morimoto, our chief financial officer. David?

David MorimotoChief Financial Officer

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.

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 nonrecurring 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 recoveries was 2.85% compared to 2.87% in the prior quarter. Our balance sheet remains 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.

Other operating expense for the first quarter was $38.2 million, which was a decrease from the prior quarter, which included several, large onetime 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. 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 for the three branch consolidations is estimated at $0.9 million. 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. 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 provision for credit losses due to continued improvements in the economic forecast and our loan portfolio. The effective tax rate decreased slightly to 23.7% in the first quarter. Way 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 moves into a larger unrealized loss position, which is reflected in accumulated other comprehensive income in total shareholders’ equity on our balance sheet.

To mitigate further portfolio 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 swaps on an additional $115 million of investment securities. 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. I’ll now return the call to Paul.

Paul YonamineChairman and Chief Executive Officer

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.

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 will be happy to address any questions you may have. Thank you. Back to you, Lydia.

Questions & Answers:

Operator

[Operator instructions] Our first question today comes from David Feaster of Raymond James. Your line is now open.

David FeasterRaymond James — Analyst

Hey. Good morning, everybody.

Paul YonamineChairman and Chief Executive Officer

Hey.

David FeasterRaymond James — Analyst

I wanted to touch on the growth outlook. Could you maybe walk us through some of the drivers that you’re expecting with regards to the accelerating loan growth commentary that you had in the prepared remarks, what segments you’re seeing the most strength? How much you expect to come from Hawaii versus the U.S. mainland? And then just whether you’re expecting any additional loan purchases to supplement the organic growth?

Paul YonamineChairman and Chief Executive Officer

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 ask Arnold Martines to take that question.

Arnold?

Arnold MartinesPresident and Chief Operating Officer

Yes. Thanks, Paul. And good morning, David. So we’re 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. 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. With regard to residential, I think we all know that the interest rates have increased and that 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 that’s going to dry up. And so, for resi, we’re looking at — we’re looking probably in the near term, normalized levels of production for — in the $150 million to $160 million range. And we’re optimistic about that just because of our purchase market strength.

As you know, David, we have joint ventures with developers, as well as a pretty strong position with the realtor market here in Hawaii. So all in all, I mean, we are still affirming mid- to high single-digit growth for loans this year.

David FeasterRaymond James — Analyst

OK. That’s helpful. And does that include any additional purchases in that?

Arnold MartinesPresident and Chief Operating Officer

Yes, we’re absolutely going to be including more purchases. The purchases is really — I know that it’s 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 loans and unsecured loans going forward to the extent that we believe that it helps to augment the diversification in our loan portfolio, as well as yield.

David FeasterRaymond James — Analyst

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 the 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, and cross-selling initiatives thus far would be helpful.

Arnold MartinesPresident and Chief Operating Officer

Sure. David. So with regard to deposits, actually, we had some — a few larger deposits related to a few customers that came in, in the fourth quarter. We actually thought it was going to leave 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 and while we’ll have to see how the market dynamics play out this year, we’re still anticipating mid-single-digit growth in deposits. With regard to Shaka, it’s probably still too early for us to talk about balances just because — as you know, as we onboard and activate these almost 4,000 customers that opened up accounts, and Paul mentioned earlier, about 60% of those customers are new to the bank. As we work with them to activate their account in debit card usage, direct deposits, ACH-type transactions utilizing the accounts for mobile deposits, etc., we’re going to start to see some of those balances increase over time.

I will just say that I’m pretty pleased that we are pretty pleased with the progress we’ve made. At this point, I can say that all the accounts that we have, we — 70% are fairly active meaning, and we define active by having multiple type transactions, whether it’s debit card, direct deposit, using a person-to-person type payments functionality. So good progress, more to come in future quarters.

David FeasterRaymond James — Analyst

That’s terrific. And then, maybe just touching on the Banking-as-a-Service initiative. Could you just walk through maybe the time line 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 YonamineChairman and Chief Executive Officer

Sure, David. So we’re very pleased with the progress we’re making on banking — in our Banking-as-a-Service initiative, especially around our investment and our sponsorship with Swell based out in Colorado. And the mobile app, the application and architecture continues to be built on. It’s so far on time, on schedule.

And we’re hoping to see a launch this summer. We’ve had an opportunity in the past several months to take a really hard look at the 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 Park 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.

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 how CPB will be able to iterate and learn and test as we start to scale it. David?

David MorimotoChief Financial Officer

Yes. 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, it’s the product. But Elevate is doing the underwriting for the Swell Credit unsecured lines. But what’s unique is Elevate is providing Central Pacific with a credit guarantee. So Elevate is sort of being 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. So again, we think we negotiated something unique, Elevate is providing a 100% credit guarantee, they are also providing a cash deposit that will sit 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 YonamineChairman and Chief Executive Officer

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 Swell. It is treated under the cost method of accounting on our books. We’ve 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’s 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 — so that’s the 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 FeasterRaymond James — Analyst

That’s helpful. Thank you.

Operator

Our next question comes from Andrew Liesch of Piper Sandler. Your line is open, Andrew.

Andrew LieschPiper Sandler — Analyst

Hi. Good morning, everyone. Just want to talk about the margin here. You mentioned a little bit as sensitive.

But maybe some more detail there with this is 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 betas or any sort of loan pricing, maybe if we get another 50 basis points shortly thereafter?

David MorimotoChief Financial Officer

Yes. Andrew, it’s David. As we stated, the balance sheet is slightly asset sensitive, 100-basis-point shock, net interest income increases by roughly 5%. Obviously, there’s a lot of assumptions embedded in there, the largest theme, the modeling of the indeterminate maturity deposits.

We think we may be a little bit conservative on the modeling there. We’re modeling a 20 — a weighted average of 20% deposit beta, and we’re hopeful that we don’t need to reprice that quickly, especially in the early goings of the rate increases.

Andrew LieschPiper Sandler — Analyst

Got it. OK. 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 this $1.2 million or so that you had in the first quarter for gain on sale through the fees in that number going forward?

Paul YonamineChairman and Chief Executive Officer

Yes, 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 gain on sale probably coming down a bit, maybe to the $800,000 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 the course as we all know, residential mortgages is one of the assets that when rates decline, it prepays rather quickly. So one of the most negatively convexed 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 it’s kind of trying to stay the course, 50-50.

Andrew LieschPiper Sandler — Analyst

Right. Right. OK. That’s it for me.

I’ll step back in the queue. Thanks.

Operator

Thank you. [Operator instructions] Our next question today comes from Laurie Hunsicker of Compass Point. Please go ahead.

Laurie HunsickerCompass Point Research and Trading — Analyst

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 SNC book, both Hawaii-based and Mainland-based and how you’re thinking about growing that?

Arnold MartinesPresident and Chief Operating Officer

Hi, Laurie. This is Arnold. Good morning.

Laurie HunsickerCompass Point Research and Trading — Analyst

Yeah, Arnold.

Arnold MartinesPresident and Chief Operating Officer

Good morning, Laurie. I would say that we do have some transactions in the pipeline for SNC. We’re looking selectively with regard to how we can grow the SNC portfolio over the year while balancing other product categories, in other loan categories. As of the end of the first quarter, we’re about $156 million in SNC.

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 deals.

Laurie HunsickerCompass Point Research and Trading — Analyst

Got it. OK. I just wanted to make sure I heard that right. You said you were $166 million, total.

Is that correct?

Arnold MartinesPresident and Chief Operating Officer

$156 million.

Laurie HunsickerCompass Point Research and Trading — Analyst

$156 million. OK. So that’s down pretty sharply. I had you guys at $192 million at the end of the year.

Is that —

Paul YonamineChairman and Chief Executive Officer

Laurie, I think the $156 million is just the Mainland. I think that other number you just referenced is the combination of Mainland and Hawaii. I can circle back with you on the details.

Laurie HunsickerCompass Point Research and Trading — Analyst

Perfect. Perfect. OK. And then, on consumer side —

Arnold MartinesPresident and Chief Operating Officer

Sorry, let me clarify. So Mainland is $156 million, and Hawaii is $58 million.

Laurie HunsickerCompass Point Research and Trading — Analyst

$58 million. OK. That’s helpful. OK.

So, wow, wow. So that grew pretty sharply. OK. And then, on the consumer side, and obviously, you’ve got a lot going in.

I do want to follow up on Swell. But can you help us think about — 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 just how are you thinking about that specific bucket or buckets?

Anna HuExecutive Vice President and Chief Credit Officer

Hi, Laurie. This is Anna. The bucket for the consumer is primarily in our unsecured consumer. There is a piece coming from the Mainland purchase portfolio.

And I will say that for first quarter, Mainland comprised about 41% of that charge-off amount, fairly small and about 59% coming from the Hawaii consumer book.

Laurie HunsickerCompass Point Research and Trading — Analyst

OK. OK. And certainly, I mean, your 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 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 YonamineChairman and Chief Executive Officer

Yes. Well, to — this is Paul, Laurie. So it comprises $1.5 million in what we refer as sweat 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 incorporated the entity.

So in total, it’s $2 million.

Laurie HunsickerCompass Point Research and Trading — Analyst

Got it. Got it. OK. 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 buckets are going to break, how you’re thinking about that?

Paul YonamineChairman and Chief Executive Officer

Sure. Yes. So we’ve had an extensive discussion with our board. We want to take a very risk-adjusted approach in how we launch 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’ll be able to, again, iterate, learn, make adjustments. We’ll have weekly dashboards to look at the 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 this current year. And going forward, we’ll see how things play out this current year in. 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 HunsickerCompass Point Research and Trading — Analyst

Yes. No, I love hearing you’re going slow. And are you still targeting FICO scores in the range of 650? Or do you have a refresh on that for the $8 million?

Paul YonamineChairman and Chief Executive Officer

Yes. So Laurie, again, we’re not going subprime at all. We’re going near prime and above. But — and I only hesitate to talk about FICO scores because Elevate has a very robust credit analysis approach and where they utilize 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 near prime and above, which we call the Strivers group. And we think that there’s a huge market opportunity in the Mainland U.S. So once again, I don’t really want to pigeonhole ourselves with one particular FICO score.

Laurie HunsickerCompass Point Research and Trading — Analyst

OK. OK. I mean, I guess, I would just say that people obviously break differently and their definition of subprime tend to be very, very conservative. I think anything south of 6-6 is subprime, but I understand where you’re coming from with near-prime.

I mean, I guess, some of my concern is that Elevate is all of $90 million in 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 loans, isn’t — I mean, there’s potential risk there. So I guess I guess maybe, Paul, if you can help us understand a little bit if the $8 million performs as you expect it to then what is the projection for what you potentially would do in 2023? I mean, right now, our number drives off of 2023. And so, I’m just trying to understand that a little bit.

Paul YonamineChairman and Chief Executive Officer

Sure. 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 6% credit default deposits from them with a 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. Now, this is an area, as we go after the Strivers market. This has 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. I also want to just mention that I think for most community banks today, you have to get into this 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. As far as 2023 is concerned, 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 HunsickerCompass Point Research and Trading — Analyst

OK. That’s great. I appreciate all the color. Just one more question.

David, over to you, noninterest income. Can you just refresh us a little bit on your NSF fees, how you’re thinking about that going forward as that obviously is a little bit of an industry hot button.

David MorimotoChief Financial Officer

Sure, 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 from — 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. 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 HunsickerCompass Point Research and Trading — Analyst

Great. Thanks for taking my questions.

David MorimotoChief Financial Officer

Thanks, Laurie. 

Operator

We have a follow-up question from Andrew Liesch. Please go ahead.

Andrew LieschPiper Sandler — Analyst

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.

What should we be thinking about for the buyback here, a similar pace to what we’ve seen in the last couple of quarters? Or how do you think we should adjust our outlook there?

David MorimotoChief Financial Officer

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 or 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 plan.

Andrew LieschPiper Sandler — Analyst

OK. Very helpful. Thanks for taking the follow-up. 

David MorimotoChief Financial Officer

Thanks, Andrew.

Operator

And finally, we have a follow-up from David Feaster. Your line is open.

David FeasterRaymond James — Analyst

Hey, thanks. Just wanted to follow up on Laurie’s line of questioning, just kind of getting the full — taking the — on the fee income front, taking that kind of $800,000 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 MorimotoChief Financial Officer

Yes, David, it’s David. The first quarter was a down quarter. We talked about mortgage banking income and then also the BOLI. We have some BOLI policies that are unwrapped 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 fee 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 is Paul mentioned that we are working on some other Banking-as-a-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 FeasterRaymond James — Analyst

Great. That’s helpful. Thanks, everybody.

Operator

We have no further questions in the queue. So I’d like to turn the call back to Paul Yonamine for closing remarks.

Paul YonamineChairman and Chief Executive Officer

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

[Operator signoff]

Duration: 46 minutes

Call participants:

David MorimotoChief Financial Officer

Paul YonamineChairman and Chief Executive Officer

Catherine NgoExecutive Vice Chairman

Arnold MartinesPresident and Chief Operating Officer

David FeasterRaymond James — Analyst

Andrew LieschPiper Sandler — Analyst

Laurie HunsickerCompass Point Research and Trading — Analyst

Anna HuExecutive Vice President and Chief Credit Officer

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