Earnings call transcript Q2 2023

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Operator

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

Second Quarter 2023 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

ahead. the now Investor to go like would conference Relations to Please Haseyama, I Kevin hand over today, your Manager. speaker

Kevin Haseyama

for Thank joining Financial you, for Quarter Second XXXX. the thank Shannon, you, Results us we review and as our of everyone,

With Nakamura, CEO; Officer. Chief Moses, me Harrison, Financial Chief and are President Bob Risk Officer; today Chairman, James and Lea

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

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

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

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

Bob Harrison

morning, was Lea of Treasurer. holding the and Lea confident Officer Chief do I'm recently Officer she'll banking I'm pleased variety Risk new promoted bank, of Good to after welcome her XX years Risk in has over in positions Deputy a Chief Nakamura. role. experience, everyone. including Lea great to and

million price a year. median X.X% March has for on last visitor I'll start single-family X.X% The well. economy in The X.X% stable. May than visitor XXXX. Total economy. market in below statewide at which May the with XXX,XXX was spend $XXX,XXX, price condos than of remained was May, was arrivals XXXX. on of do median Japanese than rate XX,XXX which May Oahu XXXX to is June than June rate higher 'XX overview seasonally-adjusted unemployment the June, The X%, is levels. of was X.X%. sales Oahu local The $X.X home was XX% $X.X arrival XX% for continues in below or lower Hawaii billion, Visitor national an the In arrivals number. housing sales were

second overview was million quarter results. X. $XX.X share. of Net give Slide our or I'll $X.XX to Turning an per income

remained As continue loans we grew, to quality capital and excellent. credit grow

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

maintain the the CETX total maintained at levels to ratio $X.XX. quarterly Board capital continue of and dividend XX.XX%. of strong The We XX.XX% with capital

Turning X. to Slide

remains second down excess calmed industry This liquidity the quarter, $XXX sheet us disruptions higher-cost banking solid. over balance the a enabled as Our little In brought the some borrowings. our to we by million short-term reduce in recent down.

a strong We liquidity have continue to position.

investment deposits. of as available which month $X.X of duration our our flows June stable $XX about at from over X.X and years, The total was liquidity portfolio billion, uninsured of expected. per was portfolio XX, million remained non-public As XXX% had were the we cash

$XX.X million Turning of to $XXX CRE. the And the X. credits. were national during of In to the an X% shared increase Period-end construction leases were QX. Slide billion, or end million we completed approximately million of from $XX non-relationship loans also $XXX exited about quarter, second loans of and quarter, converted

that mid be range. loan the in We will full low continue to believe to single-digit year growth

Jamie. Now to turn I'll over it

Jamie Moses

everyone. morning, good and Bob, Thanks,

$XX.X about X. about million Commercial balances by the in X.X% quarter $XXX retail retail or by $XXX deposits Slide to deposit quarter. Total commercial at declined or $XXX million declined to million. by X% Turning and decreased deposits second declined The balances and by billion million end. $XXX

deposit which in partially $XXX are excuse million balances me, million, by deposits On a balances X.X%. $XXX the decline million time year-to-date by basis, down retail Public time grew quarter, was balances. -- as public increased by operating $XXX a in offset deposit or and public commercial

quarter basis deposit paid quarter, mix and an shift points to basis of increase higher cost of linked rate points in the to total in rates Our XXX due second XX deposits higher was accounts. the

million quarter costs, $X.X Turning yields. the higher to margin declined points decrease XX.X% XX% to Throughout asset offset primarily the million. partially Slide The $XXX.X funding and net basis on higher prior interest-bearing from X. was total the to deposits by income by Net declined due on Similarly, quarter, deposits. by betas to of XX interest cumulative X.XX%. were the the second end interest

we the forward, migration. XX will repricing NIM decline points basis Looking by anticipate in continued and quarter due deposit to the third that XX to

along income decline million $X.X On quarter, prior was was lower The primarily BOLI Slide a credit X, this debit due and card quarter. from fee the income noninterest $XX.X with decline lower to income. million

BOLI expenses quarter. million a prior X% benefit. $X driven included higher salaries $X.X of increase million $X.X million, a First million separation or increase and than quarter included by and severance income in in was The $XXX.X the benefits, million payments. debt Expenses $X.X were which

overall expect outlook. our to be original expenses line in with annual We our

Now I'll to Lea. turn over it

Lea Nakamura

Thank you, Jamie.

charge-off down quarter points X. one. rate assets maintained loans basis quarter. and second days prior was or basis than points, were the net past the end the credit higher Slide in quarter basis point to Non-performing from The Moving of strong two Year-to-date basis quarter credit XX bank annualized X were two, performance X in more at its metrics $X.X and million, our XX due XX healthy and points quarter. charge-offs

points the for due points at XX million XX basis a Criticized quarter two, the The leases. the to at $XX.X and points from loans total quarter. prior assets with increased at XX days $X and leases mention to basis XX basis assets unchanged special total points, past of of loans recorded classified provision bank XX were million or end Loans XX of and basis quarter. assets

Slide to Moving X.

qualitative with qualitative disclosure equity. this in for resulting potential loan our growth factors, cyclical the and offsetting leases. impacts including forward roll model. recession the $XXX.X of $X.X for from reserve quarter, home and outlook for reserve segments. allowance allowance This increased consistent the economic an overlay unfunded not increase improved The in loss and to includes level We marginally was increased $XX.X have for loans captured losses of X.XX% a base allowance to at total The million macroeconomic unchanged million. construction and million. commitments by and credit quarter equates a on The anticipates overlay the The

Slide XX. to The XX% overall this outstandings. our CRE represents of of remains credit This snapshot good. Downtown portfolio sorry, second The a office of to loans actively was plan. credit our two exposure. is quality primarily in a of about One and being very portfolio due Turning in consists the and the office the quarter portfolio provide handful we comfortable overall total -- CRE loan criticized is increase properties Honolulu small are resolved. loan current of with loan loans. in We

located is process. sales and going through in The other Los Angeles loan the is Downtown

that a expect on loan. recovery We full

continue rates, monitor and the recessionary credit We headwinds. implications this to given closely segment, of higher tightening

Bob Harrison

Okay. Thank and Lea. you, Jamie

to questions. Now take I'll we'll happy happy be -- your be

Operator

[Operator you. of comes question the Instructions] JPMorgan. Thank line Alexopoulos Steven first from Our with

line Your is open. now

Steven Alexopoulos

Hi, everyone.

Bob Harrison

Good morning, Steve.

Jamie Moses

Hey, Steve.

Steven Alexopoulos

saw I noninterest-bearing are how another the want abating? you industry I'm the quarter? of pace this there was of did curious, so the where any there deposits, quarter trend outflows, to and start, And signs outflows strong but on the through

Jamie Moses

in this I is, we hard basis, a kind relative is think so say the It's that far, through we've sure. what at seen by way that months data, outflow on QX. less And to somewhat. look of for it quarter saw that the what mean the than I abating suggest we what we been, three has would

a drawing going think what of graph So if looking at start you're seen. you're you're the you and have trend think that line, we've if that's -- I at so far deposits to flatten where been in a see out, drawing I least quarter

Steven Alexopoulos

we so you've margin then, That's quarter. And little helpful. coming thought a quarter, this got than the what on worse Okay. basis the points into XX bit

on line but pretty going bottom talked to stability you're to down what I we Now quarter? we close But to the be like do the know if curious, once the roll XX% saying starting think give some through? getting I'm guidance. trend you you it's to that on might longer-term I you NIB feel get but outflows, we're you contingent know do after third XX%, is about, flat don't just

Jamie Moses

rates think it And we out, sort all at the point. do obviously, the forward somewhere probably that's And I do bottom and where probably that's what us. We of fourth quarter that's of of that stable But outlook bottoms with that. the see happens like guidance. given this think in upon that. Fed sort a contingent entirely about our and Steve, for

about how planning So and that's we're thinking we're it forward. how of kind going

Steven Alexopoulos

second not continue. pointing expecting you're had about But That conversions on I'm X% reiterating, I sounds good digit, running I'm not least expecting because then the that's higher loan have half. very surprised comps you're you you're good. tougher just And growth, growth. I momentum, you to mid-single-digit are Bob, to year-over-year. Thanks. a mid-single at the good more momentum so to strong decree, surprised not know the you're a because little to heard which low

Bob Harrison

Yeah. tough Steve. It's a one,

going completing off. commercial a number have We and to are real get projects of paid estate that

So a swimming commercial are origination, a number fair still next -- this number little your but upstream in bit, on that. meaning to fair we quarter and we're point, seeing quarter to real a fine, been has the QX And QX, estate of payoffs.

balance And so a is there there.

Steven Alexopoulos

the you it. for good an how Got growth there? much Just versus now be called do saw dealer out saw room a dealer. still that historical? you sit there in balances improvement might I And wondering Where

Bob Harrison

XXXX know million we're I year-end. the hundred somewhere, I but have that here still several below

and XXXX, we I million today, $XXX where Jamie? or in are take, think it was give

Jamie Moses

I may -- million. just it think just be right under XXX -- $XXX it's under around

probably think worth I have there, Bob said, of there's think good So couple million -- at given yeah, right, hundred historicals. I dollars we there's of I least a -- as think a Steve, probably room

Bob Harrison

back is huge it's than that does But probably not. do to we question availability lines amount number the The article Street difference XXXX. feel it you on and with that given that. yesterday we way have tend an are I agree The to our probably but Journal ended probably has before? in not Wall today, customers, saying a was the the is, to new the industry where higher don't I changed. go saw And we of it where is,

Steven Alexopoulos

questions. Okay. Thanks for my answering

Operator

you. Thank

line Our next question of Raymond with Feaster James. David comes from the

is line open. Your now

David Feaster

morning, everybody. Hi. Good

Bob Harrison

Dave. Hey,

David Feaster

then up just to roll curious, to How And your have maybe new off commentary and well rates you about yield Maybe stuff. tends be expected following maybe where rates? I'm quantify the as just maturities upcoming on loan six much roll-off where or next you months in repricing for are? XX add-on that the as to us? could

Jamie Moses

you clarify, to are -- just securities you're loans? or about Dave, talking So

David Feaster

Loans.

Jamie Moses

Got it.

Okay. Yeah.

adding on so essentially way. question the are But -- sort the guidance. pricing, you're a to high that, at, to market -- a rates we a seeing, little be the commercial better to the very to trying today. we're we'll buyer's mean in a in still they've it what residential seeing get is amount seeing we're We're Xs the I bit it is moment. of what different right? seller's than ask more Xs But you We're been right? I all were NIM sort general, guidance portfolio Those today asking past. than and -- That's -- in you're structure appreciate the those And call think rather fair a of adds A sort for the of are we here, So in I NIM low little of a the ability totality. dictate are where So past, in higher now I side, on right? trying -- the really us think so bit versus seeing sort credit market to a like few to mortgages. NIM of at to the of roll-on

David Feaster

share new good interest-bearing clients? to on trying seeing take and just kind acquire money NIM coin, on-core out ultimately, stabilize, on the new continue you as are guess And And are how to figure is maybe I'm we to other core of where terrific. deposit then the going the that? on new Where on going? of forward, And is account the yields That's any the growth look front, to thoughts deposit where does forward? like strategy side deposits? growth So drive I opportunities what

Bob Harrison

Dave. A Yeah. questions in of there, number

a pick let of off couple me So them.

going on after all, I in like of First been accounts accounts. your -- think most very That's actively successful. new coverage, new accounts, new deposit banks we're

month, not value the to -- mobile but this in offering different marketing, We're We month next our ways, in customer. are later of this or a -- trying month do more that to August. upgrading next actually number just

all been I so those successful. And things, think that's

really trying deposit. that to account core type So grow operating of

we're move after side business. On To think back -- on Jamie's and of to People is of balance. it's time, is much very the more being kind more low for gone as we're lending We've more going rates sustainable periods is more seeing what with long how terms seen disciplined been dear, point, that's levels. interesting. and aggressive and now I very a liquidity rates of really

we exactly $XXX love active for the lending see indirect very business. example, We we've For last almost accretive just been million was make that We didn't but there it not the for time, four-plus it in been period. something being down for That time. just a line a years. in sense It's have the long while. didn't at item over

Jamie's to side, on out a starting market you're And there. commercial Now see more point, the especially to that. reasonable

David Feaster

on? guess, -- you -- are That's -- deposit new just seeing, and I then costs where deposit coming interest-bearing

Jamie Moses

different that we're relationships in day, balances have turning so new relationships is have. this every really part sheet. and trying especially general, it's of different and rates balance on, the trying we have, tough into on it's our seen every to taking at that because do existing right? to out we question not and runoff of go right, of side on care we're some really customers. through what And we offer customers customers a why are that of then we acquiring -- trying is, they we're on -- reason day, moment, that things, sort on at Dave, you've right? offering the new -- of types not grab the In customers And those that that's -- for it's So liquid the So come we're focused promotional

core that of sheet, that care those been here kind of run balance it's we're And a taking kind so a extent off for -- while sort deposits thinking not our that the letting to relationship has the while, of of of some some customers. of

their customers, being best So rates yields a some there and -- tough getting, of liquid it's -- obviously it's a are kind in question exception our customers portfolios. that higher say,

customers Our there in that's nature course, things rates. are that as of lower well. less getting account and upon size And best dependent of

that it's So the current of balance managing continued the have, side that kind the the managing relationships of we and acquisition both sheet entire relationships have. we a management on and

Bob Harrison

going balance sheet. that of to it's We we're talked and the balance rest about this taking question just kind customers, getting larger the personal close end our I starting Dave, really earlier a year to we Steve, of commercial ago, now start for early, the care and of getting on through them from that, the We're think.

David Feaster

side, to up guess of seeing -- business, are That's seeing some how the Where Hawaii? to Where demand I great. expect your is on you risk-adjusted you had from are returns? clients? you I'm Bob, how opportunities? And where versus paramount pulling of But you with loan much growth would peg, your the if come maybe still Mainland good folks you from open your following other where and some -- back curious on and being for being you just commentary liquidity are

Bob Harrison

about Yeah. question. with Mainland of of right maybe the on our We're XX% now. I'll the loans start that end

in As although Hawaii about a that we've go would it or percentage point previous keeping than little up pace, bit assumed we talked the so. is sooner loans, calls,

coming than see back ago. The a are the on Mainland. seem Mainland to a is because balances seeing California ahead stronger little bringing the couple do up the be manufacturers supply. But the that We foreign will of on Hawaii. dealer we back the in manufacturers be larger portfolio here weeks of in on That domestic bit

that's think helpful. been So I

will that. want all they -- to year-end manufacturers closer I think the be to be other the on by where

plan as to the by is the year-end rebalance whatever normal far new floor new as that So outstandings. -- will

here as On better commercial Jamie's side, estate Hawaii as that's pricing, to better the point, both structure, real in the well on Mainland.

more So business, particular, can't we are, transaction higher really open be get you which if were better a we for you're structured but going to and pricing.

home not is slower surprisingly, than its the bit looking we're balance on be so bit, to cards will equity, think, it's I going will consumer should be the credit side, think But at slow, slow commercial a own. I down residential, hold And that. side. a Where

David Feaster

That's helpful. Thank you.

Operator

you. Thank

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

line is open. now Your

Kelly Motta

apologize. for Hi. I Thanks question. the

already been really Joining pretty apologize good you're a the But have of side? expenses challenging the doing has this if you've at But a you've know range for additional margin attention lot this any job little that is expense it there point? bit level the I of have you Thanks. bang-up already you're still that still within this like looking the is a for. with term, there. look discussing expenses kind looking least so a late, with at seems range I as near room And same asked. we been and headwinds directing for been been of ahead, just on that

Bob Harrison

Bob. Hey on Kelly, focused we're this always Yes, is expenses.

clearly other Getting people. We like our have been more, in and places a been investing has challenge. our good technology people many

we That, technology. really like think our investment, is a much long-term made we adjustments So have there.

now we're gotten our closer status turn benefits level, I'll that that of on maybe expenses. more to and quo over Jamie. we've salary I type a on But So a kind there, think to of being broader

Jamie Moses

investments Yeah. is had into about think that I knew XXXX, rest be Thanks, that digital the we or on on to we not offerings, this still those of make operational whether the year. or investments the like back we sort to is the stuff for NIM feel of lower in this to of going that -- to year, side I year coming things need in efficiencies, think that it for house. And half to mean, way the improve of improve to Kelly. the make our certain we

we be. we're upfront we guide think still our going on that that's year is gave where -- the still So to

pretty of at we year were are expenses on this looking are said, were tight sort expenses, managing I what we non-strategic. As would call, but how those, always we that Bob

to trend an were we're then heading after on season expense right from continue So feeling we perspective that now. and things need that, that strongly we year. into we'll -- And budgeting the this we're

but to So we'll give really not the sort into obviously that, of moment. be at looking at guidance XXXX any

Kelly Motta

And Got final it. for question me. a maybe

six in kind said deals. I of you remarks, or some about something think club exiting prepared your Mainland

As going what's to for where appetite is on you coming loan the from, growth Mainland? ahead to continued growth look the be

Bob Harrison

that as I Kelly, at it's look questions. different Yeah. really almost two --

to they there just think of they really -- we And as value why relationships. do really in the is to whether possibly I relationships weren't capital, And our can. as home, mainland. relationships, are Hawaii, scarcity focus the well, deals. on as those look we're that and credit-only -- and those we want here is were exited relationships also relationships clearly of much US we we we have liquidity in which at wanted we and And

add is than and So of is. it where value maybe focus where can there's more really credit just we relationship as opposed where on a a to domicile more the

Kelly Motta

Got Thanks it. Appreciate so it. much.

Operator

Thank you.

the next of Sandler with Andrew O'Neill. question comes from Liesch line Our

line is Your open. now

Andrew Liesch

everyone. Hi,

couple $XX to like is items million, still income be $XX non-interest million Just thinking range for a me. should The housekeeping of the we about? right

Jamie Moses

You got it.

Andrew Liesch

where that for using was And we rate tax slightly Got below quarters was a What forecasting. on the I should it. then front? of couple be

Jamie Moses

is number on I a to think XX% rate. tax the good XX.X%

Andrew Liesch

Got you. you. Thank

You've everything else I ask wanted covered to about.

Jamie Moses

Thank Andrew. Andrew. you, right All

Operator

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

is line open. Your now

Jared Shaw

the my sales, national taking they shared this a discussion, or that? starting that were natural on were for were you back going those runoffs? credit was loss with Maybe or the those questions. talked Thanks there everybody. about exits to if quarter, And Hey, sales --

Bob Harrison

question, were good par. at They but -- were They Jared. sales,

Jared Shaw

loans. in talked then criticized commentary, And about the the you Okay. office

exposure was on LA, that was quarter I your Can -- them update think non-Hawaii Downtown West were had thought said geographically? you more they an Downtown. you not said one but we just looks office like your LA and -- office of I talked, you current last that office LA give what

Bob Harrison

in We to LA. West both of said rest quarter correct. we the loan are they one last had now, LA the and what Downtown said we Connecting right in were majority

Downtown what's LA. being really is loan resolved this So in one

credit as far the primarily we West are gateway what which broader from tenants. hasn't talked really changed is office, As of last time our it cities on those Coast, about several

a lease a individuals the very net set it be so in really are a into that support that couple tied to the worth up And we're loan, comfortable is but strong past. specific high credit is or And have very it's with tenant. -- shown that

popped we're comfortable being So the rest they're of addressed. with two very the up office and These portfolio.

Jared Shaw

when seems very I this sectors? employment growth guess, would for And in trends were guess, and know, I in I how Slide home be about equity, higher lost good and very provision and -- higher you square the strong at Okay, don't residential, content does little, with terms construction driving that in projects valuations thanks. it in and need then point. look like the the I X of and Hawaii What's for what those construction provision very there the at talking

Lea Nakamura

So I can This answer that. Lea. is

the in the metrics first market more to with the So interest still a -- our respect took under in with into they're construction, construction did what NOIs really today, And in little the it cap rates was are we and actually we it second multifamily look really quarter construction of and portfolios. but is year on re-underwrote as about CRE like rates. construction, deep we second investor would current portfolios still uncertainty to good was months. both and dive bit and have quarter, and the Mainland what a based -- respect or the quarter And where XX the the a to we

at the teaser and rates. And utilization then there with equity, off we large the the was it -- about pool, looked the very were they respect we where home coming to sub-pool looked portfolio, was at of

the bit will just there's these loans the particular little a expense in interest that of And increase about concern be facing. so

to just So about it's said not a anything economy. the subpockets. we've specific it's contrast -- think these It's I before in don't

Bob Harrison

forgot entire I in re-underwrote excellent Current mention we quarter. Jared, million investor anything over anything. portfolio over stress point we are current and $X an -- quarter rates, that second CRE up at balance to the cap really CRE regrade during looking the -- rates, the -- didn't and what risks during is, brings Lea the the And earlier, interest

Lea Nakamura

Right.

Bob Harrison

to -- ourselves two did we So comfortable. that that's feel in make just quarters basically row, a

Jared Shaw

the And are before Or then rates that are rates? loans of to on at Thanks. are to on negotiated rolling -- coming construction at Great. current permanent? rate those the they permanent, coming those those hikes? go prior prior on sort on lower from Are market rates when

Bob Harrison

Most of all rates. that the construction loans. I any fixed are can't think

So they're floating all rates.

Now when those rates spread were all more the that a the are my at as was or comments, floating today on would on put be difference But in rates. from there little months today is earlier they XX floating versus XX something ago. than is, put

Jared Shaw

ballpark and Okay. to the when looking a of we is sort be good I you XX%, And of on at? terminal appreciate for then deposits interest-bearing look me, finally questions, taking sort beta at

Jamie Moses

either Part on Jared. that with happens that looks. the that depending okay, deposits, funding issue can it or we're balance the right, right, that's depends extent deposits, with think sheet with is I on what sort really how right, of change, beta borrowings that of the to

number an So okay to I use. think that's

up going right, the quarter. we dependent -- And see sorry, -- that's sort half year, how the of I think be back and throughout number an now. we end again, just to what how funding go going the moves to we're and that again, for balance sheet. that's as upon, okay And that's quarter use to of

Jared Shaw

much. Great. Thanks very

Operator

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

Bob Harrison

call like comment. today, Bob. happy wish a I'd all last welcome, birthday Kevin? one that. second and earnings is This have Jamie I to and

Kevin Haseyama

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

Operator

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

disconnect. now may You

First Hawaiian (FHB) 28 Jul 232023 Q2 Earnings call transcript