Earnings call transcript Q4 2022

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Operator

Good day, and thank you for standing by. Welcome to the First Hawaiian Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kevin Haseyama, Investor Relations Manager. ahead. go Please

Kevin Haseyama

President, and we Shannon, quarter everyone, joining Mesick, Harrison, for XXXX. Financial Moses, Thank and Officer; our thank financial as Ralph Chairman, Bob are review me Risk fourth CEO; results us Jamie With Chief Officer. you, Chief today you and for of the

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

During will we today's statements. call, forward-looking making be

refer to We most this the non-GAAP please The non-GAAP Slide So, these safe X to to harbor may financial directly for comparable statement. presentation appendix certain of measurements our contains GAAP reconciliations also measurements. discuss financial measures.

And now, I'll turn the call over to Bob.

Robert Harrison

like CFO, a to our I'd Jamie to last wealth the for his by morning, to record contributions proven us brings excited bank. everyone. Jamie wanted to year joined He banking financial I to new acting Jamie extend experience over of and CFO welcome special as until Mesick the in thanks track us. And welcoming Ralph start We're Moses. management. Good also

Now, a economy December, to to in Hawaii statewide economy. remained brief local In XX.X% rate arrival fell the well. historical X.X%, Total to on unemployment rate below national levels visitor last The November the November of of slightly year, arrivals do total, unemployment continues X.X%. of update of Japanese grew compared visitor below in XXXX at XXX,XXX X.X% XXXX. below arrivals. the the X.X% November

on sales $X unchanged condos In price levels. remained Oahu Despite sales was just The than over overall the family the billion, number gradual was a housing XXX,XXX, return over November year. up XXXX. on of previous XX.X% We price visitors arrivals, higher from year million, for market Median Oahu was X.X% continue more in of Japanese a lower has to normalized for December, $X.X to stable. the November single before. home visitors tend median expect the

quarter results. to XX.X $X.XX as with income Turning returned net was stabilized. non-interest to grew, levels very a and million Slide good while normalized to grew X. year increase Loans share. to the ended interest on net per We fourth continued income our non-interest quarter expenses or Comment income

Our average return assets and tangible tangible equity X.XX%, on was on average was common XX.XX%. return

quarterly capital We levels ratio with $XX adopted CETX XX.XX%. XX.XX% continue $X.XX, a and program of of XXXX. share capital strong million a maintain and for dividend the to The Board total of maintained repurchase

sensitive X, remains perform to very within continues the portfolio billion repricing days. loan It balance to moderately Turning X.X Slide or well. of XX sheet asset with XX% about the

about the to runoff. continue cash deposit started million, where at funded cash portfolio we ended and We $XXX with cash and use equivalents year loan $X.X to We compared year the the at investment excess and growth billion.

The per remained investment for portfolio the quarter was stable XX month. X.X the at flows cash million about portfolio from years duration and

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

$XXX which end in million growth increase period increase to a due to XX.X end to other related was X, of dealer About X.X% leases Slide million in QX. or dealer $XX C&I Turning the loans million primarily the flooring of were an of to in loans. $XXX half increase $XXX increase due loans, million billion, from was and

loans XXXX, up or and total all X.X For of billion were X.X%. leases

loans, $X.X billion loans or and were XX.X%. Excluding PPP leases up total

range XXXX. in the be to growth mid-single-digit loan expect for We full-year

I'll over Now, Jamie. it to turn

Jamie Moses

Bob, good Thanks, morning, and everyone.

balances by $XX.X $XXX commercial about accounts. at and coming deposits billion retail most Turning commercial stable Commercial from or were to declining Slide deposit million. $XXX by declined Retail X, by deposits while only decrease of relatively $XX decreased million balances with declined to million deposit that $XXX quarter-end. million, X.X%

five decline of were half total of largest over the for million, accounted almost part commercial from normal all accounts business and $XXX outflows The operations.

increase Our prior total points consistent of our basis quarter cost XX of stable. fourth to an in remain on expectations. and and quarter, the points accounts was XX from deposits with checking basis RAC the rates continue savings

to by interest partially on X.XX%, was costs. Turning was securities increased deposits. XX offset yields cash Slide loans, and X, rates yields to The quarter loans, deposit over driven partially higher balances to higher net income increased margin million. on by $X.X net million higher X.X% $XXX.X and interest or and by due offset points The prior on basis investment to higher increase the by primarily

seen acceleration The on which be is interest bearing quarter beta, fourth the XX% deposits. in in deposit costs can about

bearing on XX% bearing to deposits. to was beta beta expectations continue and within the about interest full of about our interest cumulative cycle be Our deposits that expect date XX% will we on

first we interest forward, net points the by basis expect Looking points quarter. basis increase margin in X to X to

be QX, million, X, $XXX.X higher level annualized $XX.X $X.X million volatility fourth the prior subsided fourth in unchanged Using X% the from essentially quarter. third the quarter quarter. non-interest quarter we due to On market improvement new that income expense BOLI as X.X% the XXXX expenses was our the the a full-year number. a were Expenses expect approximately baseline, income to than will over as to in normalized quarter. non-interest million of The to Slide was increase return fourth

If expenses number. to annually, you of impact to to exclude the million fourth X.X% million fee, increase higher $X the be be approximately XXXX that which estimate expect $X FDIC X% of than we to quarter we assessment the annualized

Ralph. to Now, I'll turn over it

Ralph Mesick

Thank you, Jamie.

pass of points than X XXXX. was loans end the basis basis the rate The bank were quarter. Net to XX point annual XX-day from million XX%, our up X points, year-end. basis down were X. through year-over-year X or almost our strong charge-off Moving and charge-offs were and points metrics by enjoyed asset XXXX lower quality $X.X in net performance NPAs at QX, in basis good in credit Slide prior

the quarter basis past million points the $XX loans to than higher or X to of continue $X The bank basis million assets of Criticized XX end at and QX, points. total basis points XX quarter. a points were X finally, And quarter. for recorded XX due the decline to dropping leases provision XX the basis over loans prior days

to decreased roll improvements million in an the loan see Slide Moving the X.XX% segments. quarter allowance you $X.X undrawn loss $XXX.X level million to portfolio were for credit increase the reserve $X.X all based to forward for unfunded of quarter million. this commitments on allowance for for million a needs exposures. The The loans. by $XX.X equates to growth increased of X, profile. by risk again disclosure offset Reserve The in

with anticipates overlay a captured allowance in consistent session model. include every not macroeconomic losses The impacts and base qualitative cyclical for potential our

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

Robert Harrison

you, Thank Welcome add. Thank Jamie. Kevin? else you, any questions. Nothing Ralph. to

Operator

with Thank Steven you. Our comes [Operator Morgan. Instructions] first Alexopoulus J.P. the line question of from

now Your open. line is

Steven Alexopoulus

everybody. Hi,

Robert Harrison

Steve. Hi,

Jamie Moses

Hi, Steve.

Steven Alexopoulus

the deposits, start, you how XXXX? bearing the I XX% appreciate loan mid-single-digit, by I about appreciate I year? full about outlook want quarter the in outlook growth terms think cycle talk cost so the of deposit of do but deposits, fourth to beta the interest the you of can And for on

Jamie Moses

Steve? Yes. Good is This Jamie. Well, isn't the that's it question, morning.

macro if described. probably And we'll consistent that's go that some then that in rates second going see to – to we'll that they we it continues we see probably deposit here said, the be with beta on they up first think if that I increase, I [indiscernible] entirely in don't, what see dependent think costs or stabilization quarter.

So, there anything Bob? else

Robert Harrison

care that will still margin that really of on close competitive. Yes. the maintain taking see our stayed where That we the a of decent rates, them making where beginning and depending we're throughout we cycle. rates continue very with of the goes No, can customers to we're sure just comfortable from and side pressure but consumer the on on deposit we cycle, to and a don't lot that

Steven Alexopoulus

know can you right, on still used lot because have ratio room growth? talk cash, And of guys about part very the XXXX deposit thinking you low? loan then a you side, of obviously is the How loan about fund the are to to that that, growth

Robert Harrison

slow have million for of we the portfolio that it we're been take in the off care you amount, of us range to funding still all and not might the start good deposit I with million little not That's also the but future start XX allows but think only if that fund XXXX. should a if certainly a growth, of investment run that XXX we'll at month, that plus a as of flows run-off investment bit, the loan happen.

Steven Alexopoulus

keep could to to asking bearing are rate. non-interest chasing is outflows, us? that We're Where non-interest way a Can a move sense. be what get some question. there to? of seeing on better customers know risk? portion higher And that for mix I we or trying cash We're of bearing could quantify a Okay. the size investing same you then the

Robert Harrison

Steve, with precise same going through we're Yes, you you. we honest analysis, don't be that have answer to for totally

have the some We moved the markets had of that money sheet, in balance money seen offer customers. been that we to on that

haven't hasn't construction lot the money relationships leave, in We that companies that to of So, had project title bank normal sort seen in balance deposits, of sense.” our we customer it on or a a but “left parked sheet thing. addition

without you So, relationships. customer parts to that? lot would big Jaime anything there's a seeing or add of a that Ralph, of moving in But change

Jamie Moses

No, I think you've nailed it, Bob.

I from under non-interest to likely suppose I just interest so, bearing will we if mean, look at to bearing total deposits we accounts. see are or to to back continue – the XX% bearing of think kind And were, I history, non-interest migration deposits. go you some

that what on that. we it think I really think or mean, mean, if long cycle about this how better migration, of I you slightly maybe think depends could is I lasts. that, So, I see sort than maybe

Steven Alexopoulus

great the job taking thanks did they're position. congrats my for Ralph Jamie, And questions. Okay. for you. a waiting on while

Jamie Moses

Thanks Steve.

Robert Harrison

Steve. Thanks

Operator

Thank you.

from Our Andrew of next with Sandler. comes the question Piper Liesch line

is line open. Your now

Andrew Liesch

Jamie. morning, good Hi, everyone. Hey,

Jamie Moses

Andrew. Hi,

Andrew Liesch

is like more get months? think going but on the out top then there do could little come sounds margin we rate few depending here expansion that it's or quarter, in here some on you this from what there to benefit the Question hikes, still bit next

Jamie Moses

where guidance if in if of maybe terms Yes, to are see aren't, we there is there I little think that there. a more could we're the then more to of NIM. the QX on some good be, the at hikes, expect sort And range accretion we guidance rate bit pretty

we Fed and do think forecasting is this our catches of the right, things. what is again, sort on how those to going balance up all sheet, So,

think there Fed if about room is improvement X%, think to X% but we for more So, I good we some hikes. see I feel rate

Andrew Liesch

it. helpful. That’s Got

Robert Harrison

to do rates rates. where We now are [indiscernible] interest relative deposit

So, close their in value we on relationship up. We've pretty making take feel there as don't of we and the to see a with saying our this and the they customers that. sure been is catch care that bank

Andrew Liesch

the loan that are going guess, mid-single-digits, year? of how cadence Got – I How quarter? flooring you. the growth how the And throughout customers the this dealer then pipeline on is much to what telling transpire you? is for looking the is

Robert Harrison

Yes.

at we up increase as see versus XXX, a in the [ph], for going December increase accretion and saw, little higher flooring unstuck than buying in the that XXXX, dealer but fourth to there's so million book $XX As we're us left and year [$XXX] XXXX it in become above up you think going ended don't by month bit think quarter at a strong with $XXX slowdown right there activity any to quarter, still I about lines was dealer consumer. go just at in we will but about to flooring, continue it million I that million a had been that fourth supply XXX way be

headwind So, refinance market residential. tailwind has I kind will flooring. a in us That's dealer in be, think against of up essentially The ended. a certainly for there

a existing As on know, that customers. are as activity equity relationships have in we little we home loans, we but as seeing far are with we new slower in all growth seeing lines bit based

we that more So, is of the those estate probably some that still active, in in I market over saw one commercial we and remains not still at think level and are The same XXXX. real that takes. but the control puts have and we're

Andrew Liesch

That's it. back. guys. step color. Got so I'll great Thanks much

Operator

you. Thank

the question Motta Kelly from Our comes next line with KBW. of

Your line is now open.

Kelly Motta

follow-up morning. Hi, loan you to Jamie, it's side. call. And good would on nice have the I thought the growth on I

guidance growth Hawaii any on terms loan in on you could mainland? versus growth If mid-single-digit what provide further of outlook the in your incorporates

Jamie Moses

Yes.

have seen weighted about, then increase, activity the is XXXX talked mainland. more we we've but the heavily As Hawaii towards

still will it a mix think be between I So, continue two. to the

floor plan, most the the On QX growth was that of dealer mainland. in in

on more we've have now of We in the our lines mainland talked as previous calls. about

our little of our bit primarily to of large will amount dealer be customers. growth, ratio customers versus as and weighted heavily a Hawaii a there's but mainland more lines floor Hawaii, far it as So, mainland plan because a towards

will that I So, think happen.

On well. at Hawaii, are in the we commercial we on here transactions real look them still estate, but still seeing mainland as

I continue a up bit, So, might mix as dramatically think go the little so. to but portfolio, mainland as the far not

Kelly Motta

like I would expense guidance. That's helpful. turn to to Thanks. back the

think pressures just can other if is seeing? the next the efficiencies? find areas there where, And you walk what any look and you that a through said run conversely, into step-up areas I Part XXX maybe which was about of million the out, called beyond you is improvement of XXX year you're quarterly you FDIC, quarter. rate, where some on certainly we don’t of, control kind which of you implies can to which from this you but of million parts know and

Jamie Moses

is Yes. Hi, Kelly. This Jamie.

looking that to be and trying we always some can. we'll improve think at wherever I efficiencies

the to pressure is I environment. of business. X% transformation undergoing. now. think that normalized of with is, inflationary which we kind of in continuing behind reflective seeing, to that invest part this and sort Continuing in X.X% to us think pretty Core digital we're is, make the we're that I for we're sure guidance And want the inflation the think I most

Now, the bring going us. is all to really options that looking advantage that to of we're take

So, the I guide number. good a think is

difference Of of don't to see we'll X% looking, course, of be but at inclusive I the this point. always much FDIC X.X% off

Kelly Motta

the Thanks it. step help. Got for much I'll back. so

Operator

the Shaw Wells Jared with line Our Instructions] you. of from [Operator Fargo Securities. question comes next Thank

now line Your is open.

Jared Shaw

there Jamie, a little good enjoy morning. than New better colder congratulations. Hey, weather Hope England, the you it's today. here

Jamie Moses

Jared. Thanks,

Jared Shaw

in the construction like at construction up the or up, to? production sort funding a, loan that from of And Maybe production environment of lower at or rates seeing funding rate the just looking – funding the loan pipeline when at you looking new on is terms rates? what you side, then prior are at is rates look what specifically

Robert Harrison

I'll maybe to Ralph Bob it. start. on ask This Jared, some and is comments have

loans. increase rate. the seen think in construction have in And XXX% We also those are increase much of pretty floating I margin in rate because an

So, that. in margin and seen we rate both increase on absolute have an

tailwind. a So, that's nice been

seen coupon have increase entire in We average quarter-over-quarter portfolio. nice the weighted across our loan

And to anything so, Ralph add else you maybe was there that? would

Ralph Mesick

we a would some point not in we're cycle No, the think really. improvement I the mean, in I at anticipate margins. where

Robert Harrison

Jared? question, your answer that Did

Jared Shaw

– going make incremental to but yes, Yes, that sure that loans, you loans drag it maybe construction see Yes… know prior, in I to of was weren't just good. wanted construction all loan just on we a good. We earlier floating that yield from funding is

Robert Harrison

[Indiscernible] increases. but because higher rates of just at in they're coming rate margin,

Jared Shaw

quarter a heavily still at what counterintuitive growing the that weighted Yes. to the seeing are a color more think banks continues with what the to guess give be just some move? just other little And some driving ratio, you lower? the in ratio that model the scenario? on baseline downside that drive Moody's decline looking color you're and this then we're from ACL allowance, I to behind little a more can that's I to

Ralph Mesick

I Ralph. is look at actually is the it you reflective our say, really of our model, think I current Yes, conditions quarter. current model, base would that and Jared, this risk when this improved portfolio of rating actually

of an bit heavily our U.S. economic unemployment anticipation unemployment in in a – Hawaii, far As lower outlook, here economic modifier pretty the is little on the that's based as mainland. rate than

a portfolio. think with reduction ending bit more did up in quarter, I qualitative a slight stress we fact, the side, on In the this put little still

our provisioned having would are I what for that, said Now recession. think be we

one-year peak [GXT] than the the I basis XX our which a probably during points. about expected little was our calculate portfolio, think higher it's we loss loss, bit when think [ph] against I

Jared Shaw

active finally that of Okay. the And should that then thinking the the earlier something is and how just timing Xx? be we for on fairly we pace should me authorization, buyback in year you're think or about with

Robert Harrison

to out mix we're over risk That's Jamie. is start weighted drag. at QX in very looking We I'll obviously And of that is and higher lower XX%. Jared. good capital changes of CETX more had guide loans. Bob, of securities risk much and into that loan maybe weighted Yes, growth turn still This really a some

– we still but working on we're our what that. in didn't CETX that's QX, So, increase to target

a expansion add really profitability the to I authorization, based bit use date peg But anything we're year a hard Jamie, is with slower that that? to that on looking think would to point with increased the be. little to along some we be that loan on margin will growth that when into the forecasting at which

Jamie Moses

it I capital it, opportunism sort dependent I down, of Bob. combination upon a think it's Yes. and of No, ratios you our mean, I got think where boils like go.

wouldn't to even So, it throughout yes, expect the be I year.

Jared Shaw

you. Thank Okay.

Operator

Thank you.

Our next the Laurie question of Compass comes Point. line Hunsicker with from

open. now is line Your

Laurie Hunsicker

Hi. Thanks, want to welcome. And good just Jamie, morning. I stay

Jamie Moses

you. Thank

Laurie Hunsicker

can back how in on big to us what million added You've just what's go XXX is the about circling the terms coming in then of split a plan, to? California? So, to the terms you you the think what's lot. that dealer floor And are coupon? on going remind can portfolio the help us loans new And of

Robert Harrison

decline. don't me of that customers. Yes. lines difference and think the I and don't available Maybe with ask have some go I dealer ins but in back we been and huge the some jump it's on to a I'll in of increases significant floor start-off our out a to difference There's plan, to help details, dollar XXXX. real [indiscernible] amount Ralph and outs

outside other business a selling customers of our the change of been hasn't of actually our there but big network, commitments. to or customers Some total their in

over constant has pretty the stayed the Hawaii in amount the – in California. stayed years, been Hawaii in growth mix while The

have on from the comment to was relative our in mentioned I lines. in Ralph percentage. I'll the ask of California look Hawaii. I quarter, it percentage that It was draws lines California. are you to as under million] a XXX [XXX [ph] fourth much California growth were don't the of earlier, when at in second, and but that So, the higher million

backlog of [ph] getting in the are [Technical more of hard delivered a and that thing, Difficulty] So, tell. [cars] sort Hawaii to that

What total I the is To see see have into XXXX, as greater earlier, we what [Technical outstanding’s we on is, the relative I might about the you'll mentioned Difficulty] completely at to go XXXX, think the than is will off could question $XXX we're really increase $XXX substantial today. where were we we I think but million we in see I XXXX. some less in end of don't million get are outstanding we of think total. growth

the a Clearly have down production that are have have out figuring although issues manufacturers are more is our pretty to that chips a been slightly, and available, cars that good backlog are people not yet delivered. of still lot ordered we dealers demand

I really the or it's and pick So, and get up do to commitments supply that that's around existing XXXX, people specifics based to be somebody else. to you we're they've just reservation any growth follow going when think add? to our hard Ralph, the on customers. could in see have you do car flex, unlock but lines But All going us delivered cars made healthy give

Ralph Mesick

Hawaii numbers. about just the you XXX Yes. million, is Guam The XXX about give and million. I’ll to portfolio, mainland

came Bob of that most the So, mentioned, mainland. growth, had as in

Laurie Hunsicker

And just coming remind Got can on now? then there? you loans the us what coupons are it. right Any Perfect.

Robert Harrison

by it a plus, over… customer, is LIBOR we're varies and everything plus X% margin SOFR plus, but Generally,

Ralph Mesick

today. [XXX] About [ph]

Laurie Hunsicker

Perfect. Thank you. Thank you.

transaction? for X.X your you about moment, funding are then obviously some the that much thinking the increase side versus goes? time public book just where is you back funds, had how of second to how the And that going a there billion, And in Okay.

Jamie Moses

Yes.

rest accounts. side, was just public time the and under billion on a the was demand savings So, and

say, Laurie. I think to it's hard –

any that that to, the use plug that by we to markets we balance holes sheet think loan public quite terms aren't securities I kind the there fill of or in portfolio on that filled we growth run-off. need will of fill

is and growth going our be deposits. entirely to So, gather on loan other that sort dependent our number to ability of

how of about we're now. kind that's So, right thinking it

Laurie Hunsicker

spot your And us you’ve Ralph, perfect. or for where is share Jamie you December, with margin then if Okay, got can that?

Jamie Moses

it December was – was [ph]. it December, [XXX] for So,

Laurie Hunsicker

then How forward was that , X.X upsized questions [ph]m looking little had comment we item two perfect. know benefit] the think us the Can last lumpy, can BOLI [XXX] an quarter the and statement. million you moving? there just you of income okay, a secondly, any help there in then sort I that that, And think bit BOLI about and about should line? tax on rate, market is but was line [ph] in or you the [death

Jamie Moses

sure. Yes,

kind in other in market there, forward and will run line, the where rate, normalized then to that it no benefit] BOLI as, sorry. think [death Laurie we on was back And was your that So, of we a that driven. [ph] see go was tax yes, question,

lower is a think come fourth XX%. we're the tax through of XXXX. sort guidance We to for expecting good had but So, reduced quarter that some here credits in level, rate we tax that our XX%

Laurie Hunsicker

Great. question. Thanks taking Perfect. for my

Jamie Moses

Laurie. Thanks,

Operator

Thank you.

Our KBW. from Kelly a follow-up Motta next is with question

Your line is now open.

Kelly Motta

Hi. for jump Thanks back in. me letting

was the one. to X%. a Just real X% just you – guide Can X% X.X% to or expense quick

We trust just a correctly. and I sure things I to have so don't have the make want transcript, I live number different

Jamie Moses

here Well, up versus appreciate we you definitely trusting a transcript. following

to So, about X% X.X%.

Kelly Motta

it. Thanks much. Appreciate so Perfect.

Jamie Moses

All right, Kelly.

Operator

hand to questions Kevin this Haseyama like time. for currently Thank over showing at the to I'm no I'd back you. remarks. call And further closing

Kevin Haseyama

interest Thank me for your to Thanks appreciate rest feel joining you of if additional you, the First again us free Please your in day. We contact have any questions. Shannon. Hawaiian. enjoy and

Operator

call. conference participating. for today's Thank you concludes This

You may now disconnect.

First Hawaiian (FHB) 27 Jan 232022 Q4 Earnings call transcript