First Hawaiian(US:FHB)2024-01-26 20:24Financial Data and Key Metrics Changes - The company reported a return on average tangible assets of 0.81% and a return on average tangible common equity of 13.66% [68] - The CET1 ratio was 12.39% and the total capital ratio was 13.57% [68] - Total deposit balances declined by $179 million, primarily due to a $584 million decrease in public deposits [72] - The total cost of deposits increased by 16 basis points to 156 basis points [72] - Net interest income decreased by $5.4 million to $151.8 million, with a net interest margin decline of 5 basis points to 2.81% [79] Business Line Data and Key Metrics Changes - Commercial criticized assets increased to 1.2% of total loans and leases, while classified assets fell to 19 basis points [75] - Period end loans and leases were $14.4 billion, with growth in C&I loans driven by dealer flooring [77] - Non-interest income was $58.3 million, an increase of $12.3 million from the prior quarter, influenced by non-recurring items [73] Market Data and Key Metrics Changes - The unemployment rate in Hawaii remained low at 2.9%, compared to the national rate of 3.7% [64] - Visitor arrivals in Hawaii were 5% higher than the previous year, with significant recovery in the Maui visitor industry [65] - The median sales price for single-family homes on Oahu was approximately $1 million, down 5% from December 2022 [66] Company Strategy and Development Direction - The company is focused on enhancing its strategy across three pillars: data, technology, and people, with significant investments in AI and digital offerings [8][56] - The company plans to reduce high-cost deposit balances and improve net interest margin through strategic balance sheet actions [69][88] - The company aims to maintain strong capital levels while cautiously considering share repurchase opportunities in 2024 [42] Management's Comments on Operating Environment and Future Outlook - Management believes that net interest margin has bottomed out and expects improvements as higher-cost deposits are reduced [67][88] - The company anticipates low-single digit loan growth for 2024, facing headwinds from weak demand for residential loans [71] - Management expressed confidence in the credit quality of the portfolio, despite some modest deterioration observed [81] Other Important Information - The company sold $526 million of low-yielding investment securities at a loss of $40 million, intending to use the proceeds to reduce high-cost deposits [69] - The company expects non-interest income to stabilize around $49 million to $50 million per quarter in 2024 [73] - The bank's commercial real estate exposure remains well diversified and of high quality, with office exposures manageable at 5.2% of total loans [84] Q&A Session Summary Question: What is the outlook for net interest margin as the Fed starts to cut rates? - Management indicated that they expect net interest margin to continue to grind higher, supported by the dynamics of the balance sheet and the runoff of the securities portfolio [96] Question: Can you provide context on commercial and retail deposit rates during the rising rate cycle? - Management noted that they have defined deposit customer segments and expect to reduce deposit rates in line with market trends when rates start to fall [10] Question: What are the expectations for credit normalization over the next two years? - Management is closely monitoring credit quality, particularly in commercial real estate, and has not observed significant weakness in the portfolio [50][81]