Q4 2019 Earnings Call
for the full 2019
Compared to last year. We improved our net interest income net interest margin non-interest income and efficiency ratio. David will be providing the details of financial highlights later in this call our profitability and strong Capital position enabled us to repurchase 165700 shares of stock during the fourth quarter during the 2019 year. We repurchased 797000 shares for roughly 2.8% of our common stock outstanding as of the end of 2018 combined with cash dividends. We have returned forty eight point five million dollars in capital to our shareholders this page.
We continue to execute with our rise twenty-twenty initiative to enhance customer experience Drive stronger long-term growth and profitability and improved shareholder return and the fourth quarter. We launched our new website under the c p b. Bank domain name and implemented and end and Commercial loan origination system that will drive better efficiency the development of our new online and Mobile Banking platform is progressing well and our employees are excited to Pilot the new life-forms in the first quarter milestones in the areas of branch and ATM modernization were achieved with construction underway and off main branch headquarters and our new ATMs elected.
the boys economy continues to perform well
Annual visitor arrivals set to exceed ten million for the first time ever continued strength in construction activity and the growing importance of the military in Hawaii for the USM indo-pacific strategy at this time. I'll turn it over to Catherine for a balance sheet highlights Catherine.
Thank you. Paul are total assets surpassed the six billion dollar Mark at your end and reflected an increase of 3.5% from the previous year end or 5G composition continues to move in the right direction with growth-focused and loans and core deposits total loans increased by $82 or 1.9% over the previous quarter and buy 371 million dollars or 9.1% year-over-year on a sequential quarter basis increases were led by 43 million month growth in Consumer loans and forty 1 million dollars in growth and resy mortgages on a year-over-year basis. The $371 loan growth was broad-based wage and almost all loan categories.
Quality continue to be strong with non-performing assets of one point seven million dollars which represented a 3 basis points of total assets.
All deposits increased on a sequential quarter basis by 1.6% and year-over-year by 3.5% importantly core deposits contribute all that growth with a sequential quarter increase of $100 or 2.5% led by a 3.7 increase in non-interest-bearing demand balances left over your increase in core deposits of $243 or 6.1% was led by a 10.5% increase in savings and money market balances and the 9.3 in Chrome an interest-bearing demand the increases in core deposits both sequential quarter and year-over-year. We're all set my plan decreases in higher-cost government-owned. No deposit. Our loan-to-deposit ratio was 87% as of the end of the year.
our efforts in
Business Development and targeted deposit Gathering strategies have yielded successful results and deposit growth We are continuing to ramp up these efforts and twenty20 supported by further strengthening of our team and Technology platform at this time. I'll turn the call over to David to review and more detail the highlights of our financial performance David.
Thank you, Catherine. Net income for the fourth quarter of 2019 was 14.2 million or fifty cents per diluted share compared to net income of 14.6 million or 61 cents per diluted share reported last quarter return on average Assets in the fourth quarter was 0.95% and return on average Equity was 10.50% full 2019 year net income was 58.3 million or $2.03 per diluted share compared to net income off 59.5 million or $2.01 per diluted share in the prior-year.
return on average
Set for the 2019 year was 0.99% and return on average Equity was 11.36%
for the full year 2019 pretax pre-provision net revenue total of 84.2 million, which was a year-over-year increase of 7.5 million dollars or 9.2% We are pleased we are able to pull solid 2019 results while investing for our future to our rise twenty-twenty initiative that interest income for the fourth quarter increased by 2.3 million to 47.9 million on a sequential quarter basis and the net interest margin was 3.43% The fourth quarter included one point 1 million dollars in non-recurring interest and dividend income which positively impacted that interesting mm that interest margin.
on a normalized
Just the port quarter net interest margin was 3.34% which represented a 4 basis-point sequential quarter increase.
Sequential quarter normalized net interest margin expansion was driven by increases in average loan balances and decreases in interest-bearing deposit and borrowing costs money during the fourth quarter. We recorded a provision for loan and Lease losses of two point 1 million dollars compared to a provision of one point five million recorded and prior quarter off net charge-offs in the fourth quarter. Total two point three million dollars compared to net charge-offs of one point six million in the prior quarter. The charge is primarily came back from Hawaii consumer loan portfolio.
At December 31st our allowance for loan and Lease losses was 48.0 million or 1.08% of outstanding loans and leases one quarter other operating income total of 9.8 million compared to ten point three million in the prior quarter. The decrease was primarily due to lower Mortgage Banking income.
Other offering the other offering an expense for the fourth quarter was 36.2 million compared to thirty four point nine million in the prior quarter the sequential quarter increasingly driven by higher salaries and employee benefits and higher computer software expense these increases relate to our rise twenty-twenty initiative and also incorrect accruals for incentive compensation. The efficiency ratio was 62.81% in the fourth quarter compared to 62.48% in the prior quarter off.
The effective tax rate increase to 26.7% due to return to provision adjustments or a forward. We expect the same tax rate to be on the 24 the 26% range now, we will return the call back to Paul overall where we are pleased with another solid quarter and the continued positive momentum as we finished off the 2019 year. Our team is working hard to deliver on a rise twenty-twenty commitment, and we look forward to sharing our progress with you over the coming month at this time. We will be happy to address any questions you may have. Thank you. We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you were using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press star wage.
2
At this time, we will pause momentarily to assemble our roster.
The first question comes from Aaron dear Piper Sandler, please. Go ahead. Good morning.
Yeah, I guess I'd like to start on the margins since that was very encouraging results on that this quarter. It's begin first just to confirm that other than than the than the non-recurring item that you highlighted it. There wasn't any other noise that might have benefited that and then looking at the at the asset side of of the the drivers there. Is it your sense that all of the kind of repricing that needs to be done within I guess in particular the loan portfolio also within the Securities book that that's largely played out at this point. Where might we see continued pressure on the on the asset yields.
So, it's David on the first the first part of the question the the non-recurring interest and dividend income. The one point 1 million in the quarter back was the only ugly usual item in the fourth quarter. And then on the assets Sa-Ra pricing questions, you know wage as as is normal, you know, a lot of times the liability side where able to react quicker on the liability side and then the asset side, you know, the the <expletive> side needs to work its way through our portfolio. We don't have a generally as high a percentage of variable rate loans, you know, we we're about five six sixty forty fifty five forty-five 45% variable. So there is the potential for still some down.
I see it on the app.
Inside, but again, we're very pleased with the result of a fourth-quarter. You know, we we had, you know, very good core deposit growth and then we were able to reprogram a liability side of the balance sheet. Well in the fourth quarter
Yeah, it was very impressive particularly in the your overall cost of deposits down quite meaningful either. Is it your sense that that there are two there's more opportunity to bring that down some money. Is that going to be pretty dependent on you know, what market pricing happens for deposits and and then I guess given that you know your outlook for the mortgage overall can it kind of hold in this? Um, you know, I guess what three, you know kind of mid 300s level or you know where your thoughts there.
Yeah, we're sticking to the guidance that we've had on the margin for the last several quarters. So we're sticking to the 3:25 to 335 guidance. We're obviously on the high end of that range on a normalized basis. We do think that there's some opportunities to reprice further but probably not to the same degree. We we saw in the fourth quarter, you know, the last assuming the FED stays these stable today, you know, the lass, uh rate adjustment was in October . So a lot of the pricing on the liability side, has run through but we have we have been able to move a few things. It's just not going to move at the same degree that we saw in the fourth quarter and obviously the other things that really helped them on June was the core deposit growth that Catherine highlighted, you know core deposit growth. I think was up 10% linked quarter. Annualize the DDA growth was a phone number.
Even higher than that on.
So that also helps that's okay. This is Paul enemy. But you know, we're going to continue, you know, a lot of focus and rigor, you know, I am trying to increase cord above this one forward, you know, as we as we make further investments in our rides 20/20 initiative, you know, I think the whole Workforce is really getting focus off, you know, trying to drive core deposits and then, you know naturally latter part of the year, you know, we're hoping to really see our digital platform, lied to again help em and further increase or deposits.
That's great. And then in on the on the loan side, we talked about it in earlier calls in regard to the discipline in on new loans coming on to the book and so in Q4. Our new loans came in at 4.25% average yield, you know in that compares with an overall portfolio yield of 4.20% And so that kind of discipline is instilled in our in all of our officers as they work with finance and we would expect that to to continue age.
that's
Right and then I guess it it just in terms of the the loan growth in the quarter, which was pretty good. Obviously, it looks like um, uh it maybe did some jobs filled the the the consumer bucket. There was wondering what what was that if it was automobiles or student loans and what amount that was during the quarter?
Yeah, I'll take that question. So in the in the fourth quarter, yeah, we did refill the book as we saw pay down and the consumer portfolio on the mainland. So we did home purchases in the fourth quarter and it was a mix of Auto and an unsecured so about even about thirty million in in purchased Auto and then Thirty million in unsecured.
Okay. Thank you. I'll step back.
The next question comes from Lori hunsaker of compass point please. Go ahead. Yeah. Hi. Good morning. Just staying with loans. How should we be thinking about law us personally or Twenty?
Yeah, we for 2020 we're we're guiding to mid-single-digit. It says we said in earlier cause we always hope to exceed the guidance office, but we're we're communicating it single day differently. Okay, great. And then same question on deposits. I mean right now your core deposits are the the most attractively priced and all of Hawaii. I mean the cheapest and so, you know, if we think about your your focus on growth
And and keeping those Trends. How do you how do you look to grow that book?
As far as high-level guidance low to mid-single digits, but again, you know hoping to to exceed guidance and and the way that we're we're going to to do that is wage. And so we talked it earlier calls just looking at our customers, you know, cross-selling into the customer base. We talked about our exceptional account in earlier calls and that will continue to focus given us a relationship-based kind of deposit account and they tend to be higher balances to okay and then was was any of your deposit growth this quarter was it was off from Japanese deposits or if you've if you've got a number on that we've had some ins and outs we've pretty much money and study and the fourth quarter, but I think we're making a lot of great progress in terms of, you know, getting more penetration into a number of new accounts wage.
I personally was in Japan last month. Uh-hum.
I'm being a number of seminars, um, you know, trying to feature investment opportunities in Hawaii and and I can I can tell you that, you know, I believe that we had a number of new prospects that we plan to continue to, you know, stay focused and you know Harvest New Opportunities from this current year.
Okay, great. And then just down to the rise twenty-twenty was hoping you could just refresh Us in terms of of this spend. The last number that I had from you guys for 2020 with 7 million dollars and I didn't know if you had a 21 or if there was a refresh number around that or how we should think about that and then even more broadly how we should think about total non-interest expenses as we've heard from some of the other Hawaii Banks. There's going to be a pretty sharp increase in 2020 and just so how we should think about the expense line. Thanks Lori. It's a David Choi. I think the latter part of your question is exactly how we would we would like to view it. It's really the overall other operating expense because you know rise is just be in part of our our our business going forward. So the guide on the total other operating expense on a quarterly basis is on 36 2:30 a.m.
billion per quarter in
I need 20 having said that you know as as we've mentioned before, you know rise and you know, just just overall business the the business plan also includes, you know, Revenue gains in 2020. So the guide on the efficiency ratio is, you know to to remain in the 63 the 65% range throughout the year great. Thanks so much.
Again, if you have a question, please press * then 1 only touch-tone phone the next question comes from Jackie Bolen, please go ahead.
Hi, good morning, everyone.
Wondering if you might be able to provide any details on Cecil to the extent you're able and if not, just let us know when we might see some of those.
Hey Jackie. Yeah, I see some preparations obviously are proceeding along plan and and and we'll disclose we found to disclose of Cecil range of reserves when we fall at 10 a.m. And they February having said that we do believe the Cecil impact will be manageable and within the range of expectations that we've been seeing for the broader in divorce.
Okay.
Thank you. That's helpful. And then just one last one was everything I had was covered. You know, I know you've had a pretty consistent Capital return strategy, but now that you know, we're starting a new year. Is there any change in that or is it just kind of you know consistent dividend and then consistent level of repurchase activity outside of what you need for internal growth.
Yeah, that that that's exactly right. You know there was a period of time Jackie as you know, where where we had some excess Capital. So we were you know, definitely returning one hundred percent of wage income. We beginning last year. We saw a short of the sort of step back from that. So we definitely are are maintaining the quarterly dividend with a payout ratio and yield compared to our peers and then we're just being a little more opportunistic with the open market share repurchase plan and obviously the board did approve a new $30 million share repurchase plan this month. Okay, great. Thank you. Everything else I have is already covered.
And we have a follow-up from Aaron dear of pepper Sandler, please. Go ahead.
I just a couple of quick housekeeping around us to follow up on when is on the the mortgage revenue is down a bit in the quarter. Just curious if that's just reflects an adjustment to the the MSR and then secondarily the I was wondering what amount if any was there in terms of a benefit from FDIC wage assessment credit and a quarter and if any how much might still be remaining that we might see in the first quarter to of of this year.
I think they're in this is Paul and let me just address first on the on your on your question on mortgages. And on the letter fdid question. I'll have David touch on that wage, you know during the fourth quarter. We were very successful in going ahead with the whole Outsourcing of our mortgage servicing 50 Mi of the devil. And you know, I have to tell you that if you know just like any Outsourcing process. It's always it always takes a Herculean effort. But you know, I think the team did a great job and am you know, the the servicing on going quite well, you know, I have to admit that, you know, when you go through these type of transition sometimes, you know, people stay focused and turn off then externally and so, you know, I think those were some of the Dynamics that occurred in the fourth quarter, but I think we're right back on track, you know in the first quarter of this year and birth
you know if you look at a lot of
The news coverage these days, you know the real estate market in Hawaii still very vibrant, you know through our joint ventures of various real estate companies here and our presence in the market. You know, I feel that we should be performing quite well going forward with the ease of mind that a lot of the servicing will be taken care of by a great operator like GM David I can yeah. Hey Aaron on the small Bank assessment credit. So after the fourth quarter, we have roughly $540,000 in credits remaining. So assuming that the deposit Insurance Fund maintains where the level is currently at is at We would expect zero Deposit Insurance costs in the first quarter and then it would we we'd have some expense in the second quarter probably roughly around 300,000 and then in the back half of the year we get bath.
to paying the full load of
Probably $440,000 per quarter in the back half of the year.
Okay, perfect. Thanks for taking my questions.
I'm sorry.
This concludes our question-and-answer session. I would like to turn the conference back over to Paul you for any closing remarks and thank you everyone for participating in our earnings call for the fourth quarter 2019. We look forward to Future opportunities to update you on our progress. Thank you. The conference has now concluded. Thank you for attending today representation. You may now disconnect.
Dead dead dead.