FHB - Earnings call transcript Q2 2022

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Operator

Good day and thank you for standing by. Welcome to the First Hawaiian Inc.

Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. advised conference be being Please Instructions] that is today’s recorded. [Operator the now to like would conference to Manager. I Relations hand over Investor Kevin Haseyama, yours. is floor The

Kevin Haseyama

Thank and of Interim XXXX. us me for Officer today financial you, and Harrison, you CFO. Ralph With for we Chairman, Mesick, Bob President Risk results quarter review our and Carmen. joining second the are thank CEO; And as everyone Chief

available today. for we that and We have The refer in website presentation our slide is the section. our prepared on will remarks in Investor downloading to viewing presentation fhb.com a at Relations

During forward-looking And discuss contains Bob. now, to these call non-GAAP to Harbor refer today’s measurements. appendix non-GAAP will the call, our over the to We reconciliations of most Statement. we The be presentation certain statements, so Safe this measurements for GAAP one making I financial financial please comparable also turn directly may will measures. slide to

Bob Harrison

normalized local start tourism Good Hawaii strong XXX,XXX over XXXX. industry. only will June below June, arrivals. the nationally. considering levels. significant upside rate compared morning, XXXX represents were return the to everyone. In in This were economy was I in Japanese a June, by arrivals to statewide update. more from recovery the XX% Total arrivals X.X% visitors X.X% A to compared continues total, unemployment XX% the June of result to The in benefit the Japanese X.X%, brief when visitor giving

more visitors the which what fewer is spend with is year, up spend. everyone Importantly, XX% than last over the higher wants,

higher. kept home last sales with were demand, have market, accounts down XX% June, XX% $X.X single median slowdown family housing rates sales continued While In lack the of was have of supply stable. the million prices price from year interest in

income. two, on of $X.X and net had interest revenue income to $XX.X Pre-provision reporting Turning net $X.XX. higher up million quarter a EPS quarter-over-quarter of strong we net slide million was

common loans tangible maintained $X.XX. positioned average capitalized. the both Our equity balance at return was deposits and rising for had sheet well well the is and the Board on dividend in and We and growth rates XX.XX% good remains

During XXX,XXX back. more finally, converted average new an make $X successfully I over to for to repurchased an a core our years detail we on comments the loans the and on sheet started shares $XX.XX important provide of And want we operating price digital our million. and on quarter, couple step transformation then we deposits. a few have of balance system, at

saw asset rotation a and sheet, on which nice balance to slide growth good three, a we the remains Turning sensitive.

sensitive We are $XX.X XX% grew mix improved highly The in has rate responsive been X.X% well with asset fed liquid to assets with to remains loans. of the billion business XX portfolio capitalized our yielding within re-pricing cash quarter very of and very by $X.X hikes. to the recent Total second deployment and sheet the or into billion asset balance loan support higher about the days. It objectives. the

steady cash remains XX.X% from investment position excess flows the liquidity strong, balances and Our ratio, very the loan-to-deposit with portfolio. cash

The million $XXX end the of future The to of portfolio the rates. the at years flows X.X to portfolio have $XXX and has liquidity volatile XXXX. continue stable at month from per of investment loan fund from million to period performed the Cash interest growth. We per month. quarter is between this unchanged during duration has ample second remained well portfolio year-end run

ratio and with of to after the end $X.X share levels We AOCI common an reduce roughly Net was the adjustments. dividend held billion Tier ratio $X payments maintain of strong volatility repurchases. capital X AOCI reclassify equity to and The at flat quarter quarter, capital was was book we XX.X% maturity the associated to portfolio to continued at securities total the billion. to adjustment, In the elected accounting XX.XX%.

an $XX.X $XXX to million and were loans end or increase of leases X.X% end four, slide of period QX. Turning billion, from the

loans, million, portfolios all with prior home growth quarter. compared the $XXX increased X.X% Excluding increases and PPP We CRE, experienced loans by to leases equity. the total in residential and in largest C&I,

year-to-date the the leases toward increase X.X%. loans demand in expected, skewed earlier. mainland commercial markets, On and the loan million started $XXX or rebound up are As book where our of total a basis,

X.X% loans, leases unchanged. year in remains total growth, $XXX of outlook mid-to-high full PPP line Excluding our and up are with which or loans million single-digit

increase was less $XX.X deposits, Turning partially increase than to driven time Non-public account result The of $XX quarter That $XXX offset operating decline to X%. increase billion about balances. a five, slide or end. $XXX X.X% $XXX million a million public by by balances deposits. in deposits deposit a at million million $XXX million or public was increased by in in declined

over quarter. higher flows of options deposit cost course more year, X than We growth, cash normal have variety at prior a Our than the deposits around basis remained higher of variability low loan fund a but including the X balance. basis of the anticipate to points points,

Ralph Now, the will balance to I turn statement and sheet. it cover income over to

Ralph Mesick

you, Bob. Thank

interest slide to six, over the to increase income quarter $XXX.X increased interest the sensitive Moving balance in see benefited rates. you sheet asset prior $XX.X our that from million. Net million

-- of was rates. fees sheet it X.X%. loan securities days, well and interest of on points fees unamortized yields our from PPP positioned to will XX to Since The million. balance income portfolio of balance loan rising net interest XX% on a and in material XX re-prices deminimis, remains the to basis loans, forward. The benefit $XX.X increased balances. margin increase and going have due is interest higher the NIM higher loan net interest, XX% the impact primarily Excluding At increased as PPP average

increase quarter. points XX basis third basis the by We expect NIM to points the to in XX

BOLI stable continue income market of million and income volatility. to Turning revenue investment remained prior by to be this based trust in impacted negatively non-interest the well, continued $X.X spite $XX.X do Activity BOLI was the volatility slide seven, and over a million to quarter, income services volatility levels increase quarter. and million yields per to bond our line per markets. to quarter This in to with million quarter. of million $XX expectation in to income return expect us quarter $X equity When $XX historical of per we put per $X.X quarter. would million subsides, this

us Going core increased to as system and slide the related recent $X.X we higher fees. by this of merit was capitalized implementation of have built the a increased $X.X conversion. million million, core the with the of start the been in the expected full Equipment been impact contract. help were a reduction quarter project ramp-up $XXX.X million temporary million of and related saw services Contracted in up primarily conversion most system to to non-recurring into than $X.X eight. the to services Non-interest million, prior was ahead and costs support These increases, core related salaries expense of Most the consulting expenses largely system the costs expenses. increases quarter. $X.X to Compensation May through new increase hiring the new increase due guidance. had related the

outlook. inflationary million increase and adjustments largest we between conversion half per $XXX Looking the be original higher The this anticipate the additional compensation $XXX costs. per drivers post-core than will expenses our year, and quarter quarter, million of behind due ahead slightly to are higher second that to costs

credit. nine, slide comments will I to make a few on Turning

net strong. In charge-offs Asset lower quality $X.X million, QX. remained than were $XXX,XXX QX, about

XX at Our line to at net X.XX% By basis past due related basis level saw $XX.X loans from of a loans mid-July, to of with year-to-date improvement cleared, prior three dues points due of at million for the the quarter. changes QX we conversion. assets significant were Loans XX operational than as half were days the rate leases is bringing basis X.XX% or past end past implemented reported the we Bank last in levels X the decline, QX. XX the total annualized past XX-day $X over recorded saw total lower low quarter. remained years. charge-off and Criticized asset the to some flat the points, dues provision the The end a to loans points as of at the first QX. of of with elevated from we quarter and rates us dropping NPAs being nearly XX end The in continued in the billion back the days quarter. of

The Moving PPP loans. a reserve $XX loss level by of to for million. you quarter to equates roll million net for and for The slide see XX, forward unfunded the X.XX% the million. commitments was X.XX% allowance loans of of all disclosure $XXX.X decreased to $X.X The allowance credit segments.

to have macroeconomic levels reserve they moved reopening, uncertainties. account decreased as elevated post-pandemic through the While the remain for we

closing for Bob me turn the to back call Let now remarks.

Bob Harrison

Thanks, Ralph.

good summarize, arrivals volatility the national a of credit excellent the the experienced have XXXX well Hawaii visitor second summer this Bank, we and is have growth balance So At that economy, the outlook has well. to with capital spite of economy the local a sheet and for as in and liquidity, we for good quality. positioned beyond strong good is doing in half

Now, we would be your questions. happy to take

Operator

Alexopoulus ahead. you. Morgan. first Please comes Instructions] from Steven Thank J.P. with go question [Operator Our

Steven Alexopoulus

everybody. Hi,

Bob Harrison

Hey, Steve.

Ralph Mesick

morning, Good Steve.

Steven Alexopoulus

I like start on side. to the deposit

out words, was deposit where in the other that Curious, in backdrop side? public off. just it flow competing deposits So the running deposits are growth from or in you quarter strong other coming the guys just Banks the reported was showing in many intentional, in for market you there related were

Bob Harrison

Steve. start will add Ralph and it I to ask to Maybe Yeah.

-- operating but time decrease account. in normal So got and us. Hawaii down movement. account, balances of nothing on have balance DDA went it IPC public just over with slight quarter, had all sheet in there and more quite The the the deposits public a been have than they the a substantial primarily consumer for State see the did operating increase the depository we is, deposits, saw there at just We some was but money the we we time

Steven Alexopoulus

Okay. That’s help…

Ralph Mesick

lot… a have don’t We

Steven Alexopoulus

helpful. That’s

okay. probably So --

So…

Ralph Mesick

Go ahead.

Steven Alexopoulus

funding … the if rest of growth the it at moving think it’s think low. pretty plan do pretty you loan to see deposit loan you ratio or you to do you steady? look do about the the loan-to-deposit ratio, How hold up we year, for the

Bob Harrison

think it should we So up. be moving

a We have higher than of on sheet normal. lot cash balance

$X.X would higher we higher and than about than billion, right that’s it’s and think yeah, normally I pre-pandemic levels. certainly

loans into being of portfolio the $XXX cash roll out million there So fund off rotation the month. and able it with of investment a of obviously, starts plus with, then that to

Steven Alexopoulus

Got you.

the prior of quarter. that cycle? similar then guide do still third Okay. That’s you margin, helpful. underneath assuming through NIM expect this I for cycle guide beta as the beta the NIM on the appreciate What’s the and deposit are the the And you

Ralph Mesick

a we about this deposit Steve, beta. are Yeah. XX% is Right assuming Ralph. now

Steven Alexopoulus

Got you.

to any the And cycle. Okay. change through the

it it’s the time would to similar think the cycle? last about I be last

Ralph Mesick

last the the of to and similar liquidity being probably just right to it a has at in do looking lot cycle level market… with this are we now now in of marketplace Right Yeah. that local the

Steven Alexopoulus

Got you.

Ralph Mesick

particularly. …

Steven Alexopoulus

helpful. on And updates just, Thanks. search? Okay. the CFO That’s any finally,

Bob Harrison

meant to Yeah. No. as mention that, And appreciate we I Ralph really Interim. continuing

haven’t Korn working are We we But with are identify still very hard that to candidate. Ferry the done make working happen. that yet. right them But to we with

Steven Alexopoulus

Thanks my for taking all questions. Okay.

Bob Harrison

you. Thank

Operator

you. Thank please. One question for our moment next

Feaster question have David Raymond Please from We James. with a go ahead.

David Feaster

everybody. Good Hey. morning,

Bob Harrison

David. morning, Good

Ralph Mesick

Hi, David.

David Feaster

you take just trying think from off couple XX, But given margin that just up some about to got guess you are maybe higher the appetite so, and as strength expansion, rate are, to huge play lock franchise. managing extremely would approach if your there to in another and benefit did for higher amount question, your But had table, you the guys of -- any is quarters be? obviously sensitivity, I you Look, deposit some and have sensitivity you should over next we is guys rate just of natural look to through. rate the of on margin doing to and continue a model rates, core all sensitive, business what sensitivity which following rates the the continuing

Ralph Mesick

Dave, I Yeah. This start. Steve will -- is Ralph.

the right think balance now about sheet. think when I we

on third and working with being the in program, have just second just client sheet straight swap three derivatives; activities. hedging balance the one securities levers; the being being portfolio; clients We

doing we in callers. any at past probably either into have a at ease bit received market, try at right some look probably we also the fixed we positioning, maybe and or we little and quarter -- then the would of of, now, looked swaps looking a will changing we wouldn’t to swaps the of done think time I kind have

David Feaster

Okay.

is closely back Okay. and And is there more phenomenal curious think you asset am right as step maybe to on look, then credit what concern? macro how the any watching maybe And more got -- hearing are given you level, there a your do more hear But still just the of just of you you and/or a maybe guys change look pulse are signs just your clients, that are broadly, margin starting quality, high then you volatile now, about to economy seeing, that you anything touching asset any clients, trepidation, investing pretty quality. is are of conservative have you you at and they in credit type I the anything just approach from and a are bit on the are uncertainty?

Bob Harrison

Yeah.

off Let Bob to is me it This Ralph. maybe start. and hand

So tangible yet evidence. seen indications we any haven’t

to and it collections where lending question, consumer if have credit that’s looking More As broadly, push in you, Ralph we the projects locally, invest. hasn’t blip mentioned seen a remarks, addressed. nothing button answer consumer on as we have we are it yet. we continuing Ralph, is, But, and weakness we the foresee in you But cards on comments. over were to the one just that any see in what seen that have we indirect on saw to of locally his other a people generally, But, we of happened -- little in turn portfolio couple here been side, pause at. your mainland have

Ralph Mesick

we CECL front opportunity with was I pandemic Yeah. that, to purpose. for think, I that just really the had load, good would say the and

portfolio, dive. today. we into lot then opportunity look think expectation take as deep we real the a really I a the the the we So at reserve to of embedded had have when of stress well And

in given the the So we see feel going where we have situation I good that, to would most would current what I And think pretty say about the is probably portfolio. stress we overlay reserve, think loans. again, support the we as I any be a I to have taken at small we big see And there. and smaller consumer look think, business stress we pretty

David Feaster

from core changes. could the And you there’s job operational last And initiatives of the one next me, just maybe about the you the Okay. phenomenal partnerships have just you this, with what you front, docket, curious the a some interested of on just some that benefits might just investments then talk conversion then next other or tech are tech any on completed, immediate what’s upcoming on done curious be front? whether up mentioned and

Bob Harrison

Dave. to off, we thought I going quarter were get a

So, we had to answer that question.

David Feaster

pretty lately? What have you done

Bob Harrison

has of That’s exactly. the on out still that -- so throughout primarily of next our core the and rest as follow there’s aggressive our and for executing and some coming. said project that things of agenda, pretty Dods, What’s bits manual through, us No. we on on a year, we that are number have and roadmap happened the to the going that. COO laid this a working we of next year stuff lot are has was that We and It Chris be for through. to working automate mostly processes I a

some they kind don’t those in answer through getting the last fully we flight candidly that when giving a are conversion up of more well. mind, and core rather the when as are you break next people quarter pieces are more than a really little of and of of bit just I’d today, If picking the

David Feaster

talk to or don’t Are it more we is internal growth initiatives outward efficiency about want or at again yet? improvement just maybe looking it

Bob Harrison

forward efficient conversion we enhance we on one has example, It’s the that that’s that, the and but in same our going that’s And at to were account going things opening. of just enhance continuing able are what to with provide convenience what with be we we we are to both. customer. we is always the more core at to in, we to got time, of be an further online over example the time. but benefits spending doing, have Clearly, for more trying looking And and time doing be one core are more the are conversion the are for

David Feaster

everybody. Thanks Correct.

Operator

for our question. next moment One

with is go Please question Sandler. ahead. Andrew next from Liesch Our Piper

Andrew Liesch

Hey. everyone. Good morning,

Bob Harrison

Good morning.

Andrew Liesch

today, the then be would to appreciated? Is fit the commercial growth the weighted towards I guidance pipeline real the more also follow-up but makeup of in on guess, it C&I does are seeing you any around comments how still Just want intact, flow and still and and what seems dealer pipeline. in the loan estate what’s book

Bob Harrison

Andrew, what commercial pipeline I quarter. quarter of as Sure. we Maybe this is, my pretty but still pipeline bit the estate on is remarks saw, will that Bob. take start of this -- more mix then probably good end. in a Hawaii, in, comments. growth, mentioned forward I to are seeing the question this for ask off, as most mainland see a the Ralph to Hawaii in we you that additional heavy we heavier We real What was quarter, saw -- strong saw, bag a mainland to for but are quarter going we little the add

We of HELOC. are residential expecting on along to that’s with still some growth, C&I some still see

the for some recovery this see of I volume XXXX, out the dealer eking continued coming think is year that. to be or some manufacturers, closer it’s in up honest. year-end don’t to maybe will we For into see been to gains quarter-after-quarter still starting and broad-based

to Ralph that. anything would you So add

Ralph Mesick

Not really. No.

Andrew Liesch

And is in local the HELOC, that the that is residential Got the then you. or mainland? in

Bob Harrison

Yeah.

within products footprint. our those doing only are We geographic

Andrew Liesch

Okay. That’s right. right. All

You back. have step Thanks. all other covered will my questions. I

Bob Harrison

Thank you.

Operator

our you. Thank next question moment for please. One

question from with Kelly KBW. next comes Motta Our

Kelly Motta

side, what this the to for of if Hi. wondering NIM I back you remind Good deposits question. the as inflow right the sheet can could and so the if maybe are could public get morning. outflows us to deposit assumes book, as NIM deposit just had public those you guidance -- in seasonality, just balance much quarter, the if big Thank of terms If circle sized? maybe either you of I the obviously seasonality, curious re-pricing well of your of the you

Ralph Mesick

them and should -- is would are to public we is I it’s we classes into the of help put to just really deposits, do, operating are some they Ralph. Yeah. would investments that have accounts. say would been probably some investments but them they this the the which balance during hard that off forward say -- to asset or sheet. are that state to get I short-term range, predict working money say, probably, anticipate try leverage to a alternative will pandemic, keep us I with in They going what

just think I to going anticipate getting So space. I when you take itself, stick. given to probably the at and loss can balance some going run-off protect and the this to sheet time position, and margin. securities assets. level And cash fund that’s quality given to time our of growth the don’t We We the at high think probably given the public look fund deposit

NIM So guidance I feel pretty now. think right the about we good

Kelly Motta

for Thanks. and maybe asked Okay. questions Thanks been my then that. most And have answered. lastly, of

buyback on repurchase your for the Just the appetite wondering this in quarter. share forward? that further is about I Thanks. market the going back am

Bob Harrison

Yeah. Kelly, Bob. this is

shareholders capital So very to to probably keep to dividend. us, that’s is that’s important return something strong our

our One anticipating higher issues maybe looking quarter equity our common at even of call X. we about, as Tier internal retained this is, for and talked loan growth we quarter fourth I and believe last guide XX% of have the the

regularly to until for we get the capital. that really feel that do to good strong will now, growth looking focusing the be, muted we a certainly is capital growing loans maintain year, with a retain amount want in because make chunk for are on of least quarter for So be maybe we probably will good and of at Later but to this better sure we change, at with and we we the quality a supporting going will buybacks be and that going see loan level.

Kelly Motta

Thanks Got so me. it. That’s all from much.

Bob Harrison

Yeah.

You bet.

Operator

One moment for question. you. our next right. Thank All

Hunsicker We Please go have with ahead. from Laurie Point. a question Compass

Laurie Hunsicker

Thanks. Yeah. Hi. morning. Good

Bob Harrison

morning. Good

Laurie Hunsicker

margins. fees are to is that am XX-basis-point your about for asking on margin. guide, margin. In PPP feel other question points on all like I we have looking I basis X words, XX-basis-point core But Ralph, a the back going ex-PPP. to I

you or thinking at that? are point as that XXX So XXX you the starting how are thinking about headline,

Ralph Mesick

Yeah.

I think contributor to would be PPP. be the points forward. small is basis going pretty going XX of PPP

Bob Harrison

That’s up to XXX.

Ralph Mesick

Yeah.

Bob Harrison

Yeah.

be would to up that So XXX…

Laurie Hunsicker

Up to XXX.

Bob Harrison

Yeah. Laurie. …

Laurie Hunsicker

Right. that Right. And aware look PPP as at. I I am

Okay.

clarify. to Just wanted

on thinking overdraft NSF anything And and assume that? Okay. are income, fees then non-interest guide, you or did in that of to your how about terms change

Bob Harrison

this the to flat, in So We that years see going be of have our Bob. -- are last that’s have seen is area. as couple results and to growth we reported not over think going you down much been

that. we see So income. for touched a volatility is, of not normalized on I income as on really return bit we market think, BOLI are Ralph more a a this What relying dampens is, non-interest

Laurie Hunsicker

so probably to or? NSF your Yes. X I in helpful. going address you and overdraft something that Right. appreciate that. to That’s X.X. fee are then But XXXX is

Ralph Mesick

that’s Well, something…

Laurie Hunsicker

it Is something…

Bob Harrison

and we that. lot Obviously nationally are happening on following that

looking are yet we But alternatives. like isn’t are at recreate at decisions structure any changes. is it. We as but to far changing Candidly core and that, be during we certainly we potential made the haven’t conversion any it as are the time looking

Laurie Hunsicker

Got it. it. Got

appreciate should expense expenses Okay. be growth you driving on obviously expenses, there, help but us parts year, into thinking had XXXX? then think your this of with higher how we about guide about moving that, lot your you can a And I

Bob Harrison

Certainly, right Yeah. will far for a a we later little have outlook Laurie, gave to that we are really the guide two quarters, out till for That’s $XXX but to the an with to comfortable Bob million Ralph the of this year next now. for wait is again. us million in XXXX. $XXX get

Laurie Hunsicker

Okay.

categories loan Hawaii office, look us remind versus based? question I like Can warning with leverage had just lending. what starting us refresh well on Okay. mainland you your the give And you just flash, as light just on based to was a then can what’s us refresh and as last two those

Bob Harrison

balance about call $X is CRE. Total Sure. $XXX Happy balance a million. that is under small office small million, We too. about being of that third

$XXX owner that exposure Hawaii with million partly $XXX which of mainland is across et with of includes that’s small that classified. pools et cetera. transactions being lot that loans. evolving about occupied, collateral use is is portfolio less mixed lot of million about in multiple $XXX so Guam cetera. and concentration, So in tenant properties, million, very $XX a we The and often loans all a exposure small million Of balance that of $X.X have The million, balance about is collateralization,

So small number. very, very

Moving to...

Laurie Hunsicker

Okay.

Bob Harrison

Go ahead.

Laurie Hunsicker

have an on you Did LTV that?

Ralph Mesick

don’t classifieds think what I really, We take approach are at loan really that’s better to look the the they are think and is a about $X.X million.

Laurie Hunsicker

Okay.

Ralph Mesick

Yeah.

Bob Harrison

Yeah. this we that. looking the are And at risk, the rollover yeah, all then, concentration, always the at tenancy, and stressing looking the of

So space. with we within and in an also reserve CRE comfortable that very we the are then have overlay our

seeing markets. any within our stresses maybe may here we but a don’t some that up, lot For of that today, of see potential come it

there’s using commitments, which EBITDA to is times are about included that definition, million the as a know, are piggyback in which some portfolio, we $XX I And off OCC rated. line of over to you for outstanding is, $XXX have think, mean, of off past metric we million all XXXX our and leverage I snick definition leverage loans, not end to a and of, X well. data this that over sell time -- commitments just trying and debt as did remind Moving at quarter not you common that’s so we debt to

took So number we that XXXX. down really in

Laurie Hunsicker

Great. Thanks color. for the

Operator

to final Haseyama questions I going his to further the Thank in queue. back thoughts. you. for And am it not any am Mr. showing turn I

Kevin Haseyama

us in contact questions. additional appreciate We if you interest Hawaiian nice please have any weekend. joining me your to First Thanks feel and for and Carmen. again Thanks have free a

Operator

participating Thank conference for disconnect. now you you you. And Thank call. today’s concludes may this and

First Hawaiian (FHB) 30 Jul 222022 Q2 Earnings call transcript