BOH - Earnings call transcript Q2 2019 | Bank of Hawaii Corporation

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Operator

Good day, ladies and gentlemen and welcome to the Bank of Hawaii Corporation Second Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference, Cindy Wyrick, Director of Investor Relations.

You may begin.

Cindy Wyrick

Thank you, GG. good and everyone morning, afternoon. Good joining Thank the as review today results you for for financial XXXX. the we of us second quarter

me Dean Chairman, our Joining Risk our CEO, Sellers. is Ho; Peter Officer, President Mary Chief and Shigemura; and Officer, our Chief Financial today

contain materially our of get will differ assumptions results those there a let variety are that now, like conference started, And the I may statements. we call to remind you reasonable, forward-looking Before today’s projected. And turn while reasons actual Ho. that over from me call some we believe would Peter to are the

Peter Ho

We and Hello good our Cindy. today. financial financial We Thanks very good Thanks, XXXX. for overall joining second us had morning, everyone. the results performance. with pleased for were of quarter

remains Expenses liquidity controlled. And quality levels strong. asset well solid. our remained were capital and Our

at with total the $XX.X good to the X.X%. compared deposits quarter of Our Compared increased up and loans. billion, both billion second quarter, quarter grew previous in last previous up X.X% with from were year, growth the loans Deposits of the X% with last up the $XX.X quarter end second year, X%. quarter total consumer the from and to the end increased commercial loans

me our our Dean asset Dean? some financial Now, quality. then with let will on ask on comment to performance details and additional you provide Mary this quarter

Dean Shigemura

second million per $XX.X quarter share the or Thank you, share per $XX.X and per previous Peter. or Net the quarter, $X.XX XXXX. million share $X.XX was the income to quarter in $XX.X for of compared or second in million $X.XX

the XX.XX%. XX.XX%, our assets during efficiency the ratio X.XX%, return equity on was to on and Our improved second quarter return was

was XXXX. previous quarter the the the to the reported the net rate decline points interest the million the in million the interest $XXX.X for second income with X equal quarter of of first reflects margin in environment. on Net year. X.XX%, net was basis XXXX basis compared million, Our quarter second second same second and the quarter in of of $XXX.X XXXX interest interest in margin quarter The and a the in down lower impact margin the last $XXX.X quarter in from quarter

current we net margin quarter. second of in anticipate environment, the challenging the the Given as rate the the second interest half be will that the year same approximately

As a credit Mary provision $X we will discuss recorded quarter. this million of later,

in banking XXXX. seasonal per million approximately quarter than XXXX, the fees. second mortgage impact customer and during Non-interest second negative the third the levels $X.X one-time in the were quarter $XX.X to income a revenue, a second second $XX.X ratio. during other previous no a last significant same compared of quarter related $XX.X derivative of XXXX, year. increased in were of second quarter growth a in quarter million administrator. of million of insurance XXXX no in to There Non-interest non-interest to quarter with of higher in half first There XXXX. through quarter of the XXXX, and $XX.X during $XX.X adjustment offered XXXX party Non-interest XXXX the quarter quarter annual included The last the the with activity included be increases. of of second or $XX.X merit items quarter quarter related products year. Visa significant during previous million increase in expense second $XX tax the we expect the $X XXXX same income currently in change the the million and quarter in conversion the the commission in items B million increase million of the to a the income revenue compared during reflects million second of million totaled of non-interest quarter income We service Class Non-interest in

to seasonal revenue expenses The approximately included variable increased expenses sales higher $X.X of also and included payroll XXXX XXXX volume. second of the Non-interest of million. quarter related first expense quarter in

year be to people. above approximately to of XXXX, year and full is of continued million. to XXXX technology, second volume expect due we the non-interest of in higher adjusted compensation to primarily the level our growth facilities investments The For in and our expenses X% expected of expenses expense $XXX greater the X% relates half increased

quarter the tax quarter compared of Effective XX.XX% XX.XX% with last second and year. previous XXXX was during same quarter rate the during XX.XX% for the

exercise of remain tax at $X.X quarter benefit the included early tax of effective approximately first rate of for buyout currently expect remainder to to million an XX%. our related The of XXXX XXXX a the We option.

was Our up investment at growth the quarter, billion deposit exceeded of end the $X.X to due strong growth portfolio during quarter. slightly second loan the that

$X.X last during available $X $XXX million portfolio duration quarter was X.X quarter, of billion to decrease The portfolio for previous for proceeds the the maturity sold held second total and and $X.X the portfolio the of positive securities approximately offset investment is XXXX. primarily from Subsequently in small at part of X.X amortization The by duration reduction differential end premiums in million year. on mortgage-backed higher million from sale. approximately as years reinvestment of The was quarter a to $X.X The portfolio quarter sale for during basis second – X.X securities. was the the XX the the years purchased securities was reinvested, these of for gain. quarter During the million, reclassified in attributable partially maturity the was and amortization points. securities in amortization to available of resulting the in in of down municipal previous held same years. quarter securities Premium were were the repositioning, to of a the duration the

$X.XX quarter. shareholder’s to end Our second at billion equity increased the the of

was Our Tier ratio X.XX%. and X our capital leverage Tier was XX.XX% X

of of a total $XX.X or out million. We dividends XX,XXX repurchased Board XXXX. our declared $XX.X and million total million. a paid a an And repurchased XX% share July common of of we July Xst XXX,XXX for finally, in income the quarter, shares second the additional XXth, $X.XX stock net quarter dividend cost for of between per third During shares and $X.X at of

to Sellers. Now call turn will the Mary over I

Mary Sellers

Residential the charge-offs primarily of you, second Thank quarter and in this million Net X.XX% the basis prior million million X.XX% loans quarter X.XX% the to basis million loans million of the end the $X.X year. the the of the XX net in days accounted leases for to quarter still XXXX, Guam Loans second more the end of at non-accrual or in $XX.X at outstanding with basis total. off or quarter million and or in commercial charge-offs the quarter. up compared quarter annualized or on totaled average Dean. XXXX, mortgage past the second and end accruing and of second $X.X the that first one quarter annualized at points Non-performing assets of the end totaled compared and total year-over-year. placed or XX million the due $X.X up loans million of quarter XX XXXX. increase was driven or million of XX of loans days customers The XX second $XX.X in to assist due last from end quarter at $X.X non-accrual of with quarter quarter, past $X.X not XXXX, totaled of $X.X of first down the points was million, first at more $XX.X of or our for mortgage exposure from Restructured were million as $XX.X points of annualized or $XX.X for $X.X million modified the customer included loans XXXX. flat million or interests and $XX.X

of million – totaled the million, and second end for allowance the the the quarter quarter. lease loan for At first $X.X the $XXX.X up from quarter, losses first

net in reserve the million, growth. well in the period X $X at of The quality credit the the of quarter, basis strength and was total was a XXXX. X% for million the the $X.X quarter, ratio asset this million of down points Given basis at point economy allowance of leases mix end as linked The to second over XXXX $X.X of total commitments the the first period down was of and loans recorded. provision year-over-year. X loan allowance reflects Hawaii charge-offs quarter unchanged from company’s unfunded continued end and the for quarter the The the as and of

I’ll to the turn back now Peter. call

Peter Ho

Thanks, Great. economy perform continues to Hawaii The reasonably. Mary.

same in low a decline was June continue tight. of five X.X% arrivals Visitor in compared for to in a of with spending X.X% XXXX rate level Even unemployment very seeing sales-off real period increase X.X% Oahu XXXX. the compared total statewide estate XXXX. relatively was residential with mixed same the bag, growth the pricing Our spend, in compared months we’re to still of X.X% bit visitor remaining with first the the rate inventory and arrivals, remains flat, bit, and in the up to but period a daily down were nationally. the a unemployment

X.X six down were months first XX same X.X condominium sales volume condominium. of of months of with Oahu condominiums. for declined single-family of decreased months The half Once on was with home first X.X%. the on for median XX for and X.X% end and single-family of X.X% days the For XXXX, compared a of prices for days down sales a X.X% the sales period sales market volume XXXX. prices, the inventory for the The quarter were home XXXX in of at first median home days single-family a XXXX and half on Oahu during the the median

be to today, for again and us respond joining we’d your to questions. happy now Thanks

Operator

of from our Lynch. from Ebrahim [Operator America Poonawala question Instructions] first Bank And Merrill is

now is line Your open.

Ebrahim Poonawala

Good morning, guys.

Peter Ho

Good morning.

Ebrahim Poonawala

XQ. terms I what margin wondering rates could margin change in you in question the you stay pace cost half stable points back expect around And making the well as – quarter? you’re So interest the first expect interest cutting if in the the the outlook, around deposits half relative assumptions X to tell the us the the basis we If second saw in you Fed mentioned back to what in of relative that you guidance? to as just that bearing of of in was

Dean Shigemura

or second. we the in September the Yes, at built perhaps end cuts rate around and have two with each of month this November right being the the meeting first XX now,

So that’s guidance margin. in included on the the

deposit the what you see basis, looked June we was of – on increases. decelerated a terms In monthly in that data our our look of when at of terms at we did monthly if kind the pricing, the

And that. kind the higher, the the of effect currently more start expect in that confidence of is of of an down were little gives we actions which deposits do the start So to expensive later and that to some taking year. we’ve flatten having out some we been to we’re going us rates bit continue that deposit a turning and – is

Ebrahim Poonawala

yes, just fairly than defendable actually take, lead margin In to forward, more this just think next it get step pressure talk around the was we next the take you – quarter give you rate where can cuts this the curve a that’s is if if points year? wondering that more the Like I like meaningful the over just guide could the second just in or do was yield compression margin two helpful. year? you to over if that around

Dean Shigemura

rates further, It probably would affect margin be a does have lower. guidance. Fed would our cut probably the If that

also could In in market somewhat. just margin local the deposit addition to affect general competition the

Ebrahim Poonawala

guess just market to of loan one looking approach I how Peter seeing expectations I growth the moving obviously, your the troubling on in terms appreciate you’re And would just means growth it. just if you’re But at to Got both of around credit around quality, front? credit. and and just outlook anything that credit thoughts just

Peter Ho

ever that a flattening think think, somewhat different growth I and that people what a expansion. national beginning growth Ebrahim. clearly, environmentally not verge really is of reporting XX-year we’re I perspective forward beginning to the of see would a Well, basis on say from reflective from slightly the a I look out signs of so lot

But is in that’s happening visitor what’s on there forward at that into the frankly, performance. point in clear anticipate market pretty And this at that’s when performance, alarm view think cause don’t cycle. housing we How price point are is that broader bit. translating for I would happening what’s we So you flattening there. a growth look in industry, our out the what our

the in with to think the we growth very I range loan upper However, still comfortable single-digit in feel and the growth, range. idea deposit call of mid-single-digit mid it

point. pretty us think Our front-line at just and with that pipelines this and view have forecasts our confident people, discussions in I

credit way terms very But the and In good consumer nicely. mentioned, smaller with The credit standards. that trending off I quality, our would but still now. the The credit environment is side Mary of we looks beginning still situation of historical not commercial would spotless that as it’s pretty I right side, to describe good pristine, completely very still say that one commercial see by are clients. some is

Ebrahim Poonawala

Got for my taking it. Thanks questions.

Peter Ho

Yes.

Operator

Thank you.

is Davidson. Our from Rulis next from question D.A. Jeff

now is line open. Your

Jeffrey Rulis

Good Thanks. morning.

Peter Ho

Good morning, Jeff.

Jeffrey Rulis

balance were of down about kind of the trust Just to pieces line. I talk quarter just quarter, to within Maybe up million fee on the plus last mortgage year? you million to lightens the million. contributors. guiding. believe are maybe $XX up income had maybe a the, and side million the the $XX put question quarter, on $XX back down this $XX you that that a the Obviously, then heavier over back What guided

Peter Ho

Jeff, moving around has bit. asking The thanks Yes, for been and number question. a the

I obviously, a one-time at way fee generated insurance with levels. non-interest very best by to pleased kind that $X.X the QX bit in were to is probably income million income business. levels QX, it think the our off – place buoyed we non-interest up of we’re income look

say you is probably is got level dramatically. mortgage $XX great but to a were really maybe we’re rates And benefits pretty the in late we and that and not the really back has commercial to plus think the we’ve when dollar we’re out, standpoint. but on going we category, positive. QX of, with quarter. moving QX QX maybe second the as we’ve of that at of but and which refi The early upper Dean finally, I kind where kind if have forward So in think levels standpoint, business nestle between experienced from swap to QX, a at been in still that that tax probably in was been seasonal call a I’ll bloom strong second the, very the with with opportunity that million we what side, us QX. seasonal volumes I’d that from quarter as not of QX product continued our We going level experienced has get going anticipate great story income, realms for of not the fell would same the the that it

Jeffrey Rulis

And happening on spending kind also broad again numbers. it. if I guess of visitor Thank the spending would kind you this if if words spending around, is would great. down do a mix tooth think side? know of Okay, being the macro you. in I factor that’s kind is of of visitor product a then Peter, alluded wrap you’ve or don’t what could just what trend of that helpful. on you recovery the that of a long kind know is to on of be you I a don’t That

Peter Ho

sure. Yes,

on touched thinking that we’re about. lot you of I think Jeff, a items So, the

on of also I it the coming that, year-to-date May negative a plus XX%. of recognize that X% and to down the but great, have XXXX think was comp doesn’t a XX% was year-to-date look comp the face plus X% think performance we that XXXX of on on to it’s heels I year-to-date is expenditures comp May understand that

everyone what on a lot would side, flattening just arrival think numbers. the a and and spending lift high So explain lot and friends that within industry I We’ve A occurring. of which out asking our pretty been level. getting recent doing pretty the talking agree we’re a the skew yes, think versus helps things to does here up, the we’re into to research the from market flattening as I more recently visitor what’s numbers of some budget we’re is see happening the to they of

category of choosing or kind Japanese begins pressure to price both pricing might Europe If better trending and point at the upward is point you thing fortunate just own for us to right yen been visitors, And of against to and meet little and been have look again now. down here problem, and some kind between a of if the look a But price then a there that at and our bias individuals’ know our a the American of marketplace. relative on euro, some is there bit Japanese the at for to U.S. wonderful that tangentially a in pricing of that’s is visitor the of the visitors to points, ADRs finally, dollar economy. you resistance late, and industry relative the be euro, you expanding Hawaii. occurring sentiment in Europe

seeing So, concerned side, putting but don’t a at the this we’re all I expenditure think together, terribly anyone’s flattening on that point.

hows understand whys of kind of we think I those and the inputs.

Jeff Rulis

Got it, thoughts. Appreciate Peter. your

Peter Ho

Yeah.

Operator

Thank you.

from is question from next O’Neill. Sandler Aaron Deer Our

line Your open. now is

Aaron Deer

Good morning, everyone.

Peter Ho

Aaron.

Aaron Deer

back Just curious, just there a but that’s in quick loss just color content? loan situation what the was in question, CRE like to give potential one-off the terms going any Guam, Mary, of can you issue, it sounds

Mary Sellers

Well, the potential customer, I above It any our portfolio of LTV XX%. don’t was to see assets. get tenured on in and couple a tried long a has a is content, loss rents. over market He transaction invested

that some is now additional to he and deal to assets some some to he think liquidity. and create sold see lease-up starting I beginning with

we’re So, I good in think a spot.

Aaron Deer

what accomplished the I Dean, maybe in convexity changed the that’s you Okay, what around Can natures other of a the that as portfolio result, repositioning for what a of of as was or was terms and in terms was you’re the through result? hoping but of that size didn’t catch reposition the details. those great. just portfolio, in your heard then, And walk commentary all the again,

Dean Shigemura

Yeah.

about held available portfolio, to to timing worth $X did around that reinvested on net to some from So, we million the maturity and did of was on for sold the sale of billion interest that But and That’s mid-June. the and we gain help we move the should going did, net to you and going us $XXX securities us after proceeds. worth forward. color side small a securities probably give income just

Aaron Deer

Okay.

can securities in on So, the that some stuff? had but that modest Was this missed find negative modest legacy I maybe on you of guys related the the guess, to investment I release, loss B the I of it, Class spend. sort

Dean Shigemura

Yeah.

continues. that So,

the pay sold. shares say fees about So, I to that would $XXX,XXX due Visa was we the on that roughly we

Aaron Deer

Okay.

taking for Thanks great. that’s Okay, questions. my

Dean Shigemura

Yes.

Operator

Thank you.

Our from next question KBW. from is Wooten Luke

now is line Your open.

Luke Wooten

Good Hi. guys. morning,

the kind to of into dig want margin. Just

more little loan see, guys bit had about you wanted talked see just of rate you toward the kind just year? a to back Just of know what hear, half the I’m the portfolio and how of coming you how the impacts that cuts. that assumptions I wanted guys to the of kind for in

Dean Shigemura

Yes.

have already we XX% reduced. what loan and down book I basis XX% do of rate call has So, been of about it been a call LIBOR have rates and some our that coming floating on would

and rate would that’s prime that then all do side provided. And the I terms readjusted our kind base that So, on be can of but in factored we whatever is guidance into loans deposit offsetting lower the rates. lower, of

Luke Wooten

that’s was seasonally demand Thank public the thought deposits. other and you. that then a there And stronger demand Okay, said it just for the on I helpful. balances, public

in wanted much the right deposits, of now? hear public time is kind that Just is to how what

Dean Shigemura

is about time. $XXX It’s little public over million

Luke Wooten

Okay.

Dean Shigemura

$XXX It quarter-over-quarter. $XXX million increased by about Yes, million.

Luke Wooten

back. questions, I’ll Got step that’s my Thank all it. you. And

Peter Ho

Luke. you, Thank

Operator

you. Thank

is question Laurie next Hunsicker from Point. Our from Compass

line now open. is Your

Laurie Hunsicker

in just net morning. interest how Can you the I wondered amortization income. Good Yes, premium much was tell quarter? hi. us this Thanks.

Dean Shigemura

$X.X Yes, premium was million. amortization so the

change municipal the our due lot amortization to of in that also the of sale However, just securities. of a was need to amount of the clarify some

Laurie Hunsicker

okay. it, Got

Dean Shigemura

The by caused decrease was that.

Laurie Hunsicker

Okay.

I reported back should about if down of out, strip like that margin points looks you premium the How XX half X. was So the core I year? then thinking we be was versus down then your basis mean in

Dean Shigemura

and of impacted some SBA’s that. Well, rates end kind of the the it to the would be did some But toward do of we will tail be interest by terms mortgage-backed rate sensitivity the quarter. dependent, in of the securities sales but of

municipal the just securities. in see may sale to amortization some decrease the due still you of So the

Laurie Hunsicker

great. helpful. Okay, That’s

And have a Mary, loan specific $X this. on comment Okay. in loss can just might the then, and you million? CRE Guam I Was there the missed reserve provision, for

Mary Sellers

wasn’t. there No,

to We loan have a on appraisals. updated that’s value XX% and based

the the we in increase portfolio growth quarter. no So driving increase loss in in there, the was see really reserve our for

Laurie Hunsicker

loan okay. your when Got think certainly at this said X% super And And quarter, it, annualized. I you mid-single-digit. look I strong then had growth

the kind thinking how we thinking How as we not credit completely the So of spotless. with should we about that? your about in pristine, year be should back but marry provision loan loss that about of if comments be half

Mary Sellers

within what till Well, point, fairly performance, I with on that our a credit think consistently to be right what factor comes growth which the is in loan benign portfolios point. Really we you’re of this Laurie. growth has coupled been see

Laurie Hunsicker

per Okay. Am still probably low that’s probably right that’s the tracking outside that’s of quarter that But maybe good I million thinking way? range $X if a about in event so credit or level. a the

Peter Ho

are kind Laurie, it’s yes, your to provisions comments got Peter, Well, look back oriented – forward-looking. the definition and be has Yes. backward, so of by it’s

think based for So our quarter at going where what to of provision trend, decision historic as would ultimate good end be up, see this on next got we directionally sense based you end but a pretty the the have on I is well.

Laurie Hunsicker

not and if in no items elevated, to you that but little obviously, there offering On can the that a income had $X.XXX bit there know I Okay. mentioned was seemed was you anything talk million? significant other non-interest about just

Peter Ho

other, the in. swap where is In other it that’s comes revenue

Laurie Hunsicker

And what this quarter? it. Got revenue swap was the

Peter Ho

It’s million. about $X

Laurie Hunsicker

how number? there you $XX directional I million which obviously range were. guide. that, forward are then looking that And expense, then to can would little a on just the be extrapolating that your It’s spend or up guess Is per sort about doing non-interest of just a number you Okay. we that off where thinking maybe Dean, in is NIM, quarter, I bit help mishear me plus running from I like comments on should did your be

Dean Shigemura

at higher the end. Well, the be million would $XX

on a have when to quarter board X% the investments number took do joined in year-end So the technology the We we do for facilities. quarter second there have fourth us projects, in mentioned – that lot just a continue that I we noisy and I have if in half, of coming executives like addition true-ups. in our us being guess are you a to of do

Laurie Hunsicker

Okay, that’s you. I there. helpful. will it leave Thank

Dean Shigemura

Thank you.

Operator

Thank questions. Instructions] I you. no to Cindy the [Operator like At call am remarks. this showing over further I Wyrick closing would time, for back turn to

Cindy Wyrick

you I continued would joining all to in like interest thank for of us again Bank today your and for Hawaii. of

As free topics if a you contact the have me always, clarification further Thanks on additional of and again, need great today. questions please to feel any or day. everyone discussed have

Operator

conference. gentlemen, your thank today’s and program. you concludes Ladies participation in for This the

You disconnect. may now

Bank of Hawaii (BOH) 22 Jul 192019 Q2 Earnings call transcript