First Hawaiian(US:FHB)2020-10-24 01:34Financial Data and Key Metrics Changes - The third quarter pretax pre-provision net revenue increased by 11.3% over the second quarter to $91.3 million [11] - Net interest income rose to $134 million, a $6.2 million increase from the prior quarter [31] - Noninterest income was $48.9 million, $3.2 million higher than the previous quarter [33] - The total cost of deposits declined by six basis points to 13 basis points, contributing to a 12 basis point improvement in net interest margin [12] Business Line Data and Key Metrics Changes - Period-end loans and leases decreased by $264 million or 1.9% to $13.5 billion [28] - Consumer and commercial deposits increased by $166 million, while public deposits decreased by $630 million [30] - Mortgage loan originations exceeded $300 million in the quarter, driven by low rates and an active residential real estate market [29] Market Data and Key Metrics Changes - The unemployment rate in Hawaii remained high at 15.1% in September, but the reopening of the economy and the pre-travel testing program initiated on October 15 are expected to aid recovery [8][18] - Visitor arrivals to Hawaii ranged from 2,000 to 4,000 per day following the reopening, which is crucial for the tourism-dependent economy [8] Company Strategy and Development Direction - The company is focusing on careful balance sheet management and improving asset quality while navigating the challenges posed by the pandemic [11] - The bank has begun reopening branches, with four branches remaining closed permanently, and has launched an online mortgage origination portal [9][10] - The strategy includes managing higher-risk credits and supporting borrowers through the PPP loan forgiveness process [10][20] Management's Comments on Operating Environment and Future Outlook - Management expressed a cautious outlook on the economy, indicating that it is still early days for recovery in Hawaii, particularly for the tourism sector [34] - The economic forecast projects local unemployment to average in the low teens, with a 12% drop in real GDP expected for 2020 [18] - Management remains comfortable with the current allowance for credit loss, despite uncertainties in the consumer segment [50][55] Other Important Information - The provision for credit loss was $5.1 million for the quarter, significantly down from $55.4 million in Q2, reflecting improved asset quality [15] - The bank has a qualitative overlay amounting to about 20% of the reserve, primarily attributed to COVID-19 [19] Q&A Session Summary Question: How did the visitor numbers compare to initial expectations? - Management indicated that expectations were low, and the gradual increase in visitors allows for adjustments in processes as the holiday season approaches [36] Question: What supports the net interest margin guidance for Q4? - Management noted potential pressures on the asset side but indicated that lower interest expenses and a slight reduction in deposit costs could stabilize the net interest margin [38][40] Question: Is the worst of credit costs behind? - Management expressed that while they are comfortable with the current allowance, uncertainties remain, particularly regarding consumer credit performance [55] Question: What drove the strong credit results this quarter? - Management highlighted that the return to payment has been better than expected, aided by government stimulus, and they are monitoring the consumer segment closely [51][58] Question: What is the status of the PPP forgiveness process? - Management reported that they have submitted over 100 applications but have not yet received feedback, indicating that the process is still ongoing and complex [72]