First Hawaiian(FHB)2024-07-26 18:55Financial Data and Key Metrics - Net interest income was 1.6 million from the prior quarter, primarily due to lower average balances of cash and investment securities [8] - Noninterest expenses were 125 million [9] - Noninterest income was 400,000 from the prior quarter, with quarterly noninterest income expected to be in the 50 million range [30] - Total deposits decreased by 216 million decline in total public deposits [100] - The cost of deposits increased by 5 basis points to 170 basis points, compared to a 9 basis point increase in the first quarter [100] Business Line Data and Key Metrics - Total loans grew by 39.7 million over the prior quarter, driven by draws on existing construction loans and new leasing opportunities [27] - Commercial and industrial (C&I) production increased by about 150 million in dealer floorplan loans, partially offset by paydowns and payoffs of other C&I loans [27] - Consumer loan balances declined due to runoff in the indirect auto portfolio [27] - Commercial real estate (CRE) represents approximately 30% of total loans and leases, with strong credit quality and manageable loan-to-value (LTV) ratios [12] Market Data and Key Metrics - Hawaii's unemployment rate was 2.9% in June, compared to the national rate of 4.1% [4] - The median sales price for a single-family home on Oahu was 530,000, down 3.9% from last year [5] - Total visitor arrivals were down 4.1% and spending was down 4.9% compared to 2023 levels, primarily due to a drop in visitors to Maui [25] Company Strategy and Industry Competition - The company expects low-single-digit loan growth for the full year, with production weighted towards the fourth quarter [7] - The company plans to continue running down securities balances and rotating them into loan growth [55] - The company is considering restarting share buybacks in the second half of the year, as capital levels continue to build [74] Management Commentary on Operating Environment and Future Outlook - The company believes the trends seen in the second quarter position it well for a strong second half of the year [26] - The company expects the net interest margin (NIM) to remain relatively flat in the third quarter, with an upward trend supported by balance sheet repricing dynamics, though the timing and pace of rate cuts will impact the absolute level [8] - The company is confident that deposit outflows have stabilized and expects the worst of the shift from noninterest-bearing to interest-bearing deposits to be over [48] Other Important Information - The company sold two criticized shared national credit (SNC) loans at par for a total of 0.25 million donation to Maui, which was matched by the Federal Home Loan Bank for a total of $1 million [43] Q&A Session Summary Question: Loan growth outlook and how the company plans to achieve low-single-digit growth in the second half [15] - The company expects loan production to pick up in the second half, driven by construction loan draws and new leasing opportunities, with less paydown activity compared to the first half [16] Question: Impact of potential Fed rate cuts on net interest income (NII) and NIM [18] - The company expects NIM to decline in the quarter of a rate cut but believes the underlying balance sheet dynamics will support an upward trend in NIM over time, even with rate cuts [53] Question: Core deposit trends and stabilization [48] - The company saw most deposit outflows occur in the first part of the quarter, with the magnitude of noninterest-bearing deposit migration slowing compared to the first quarter, giving confidence in stabilization [48] Question: Securities portfolio yield and potential restructuring [54] - The company plans to continue running down securities balances and rotating them into loan growth, rather than pursuing portfolio restructuring [55] Question: Housing market and HELOC portfolio performance [58] - The housing market remains strong, with limited supply and high demand, leading to stable credit quality in the HELOC portfolio [58][59] Question: Capital return plans, including buybacks and dividends [64] - The company is comfortable with its current dividend payout ratio of around 50% and plans to restart buybacks in the second half of the year [74] Question: Dealer floorplan loan trends and sustainability [69] - The company expects dealer floorplan loan balances to continue rebuilding as inventory levels increase, though there may be some volatility [87] Question: Balance sheet size and funding strategy [71] - The company expects deposit runoff to slow, allowing securities portfolio runoff to fund loan growth without needing external funding [72]