Q3 2021 First Hawaiian Inc Earnings Call

October 22, 2021

Good day, and thank you for standing by and welcome to the first Hawaiian Inc. third quarter 2021 earnings conference call.

At this time all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session you will need to press star one on your telephone.

To ask a question during the session you will need to best Star one on your telephone.

If you require any further assistance please press star zero. I would now like to hand the conference over to Kevin Haseyama Investor Relations manager. Please go ahead.

I would now like to hand, the conference over to Kevin have Yammer Investor Relations manager. Please go ahead.

Thank you Ashley. Thank you everyone for joining us as we review our financial results for the third quarter of 2021. With me today are Bob Harrison, Chairman, President and CEO, Ravi Mallela, CFO, and Ralph Mesick, Chief Risk Officer.

Thank you everyone for joining us.

Our financial results for the third quarter of 2021.

With me today are Bob Harrison, Chairman, President and CEO, Ravi <unk>, CFO, and Ralph music Chief Risk Officer.

We have prepared a slide presentation that we'll refer to in our remarks today. The presentation is available for downloading and viewing on our website at [inaudible] in the Investor Relations section.

We review website at <unk> Dot com in the Investor Relations section.

During today's call, we'll be making forward looking statements. So please refer to slide one for our Safe Harbor statement. We may also discuss certain non-GAAP financial measures. The appendix to this presentation contains reconciliations of these non-GAAP financial measurements to the most directly comparable GAAP measurements. And now I will turn the call over to Bob. Thank you Kevin. Good morning, everybody. Thank you for joining us today. I'd like to start with an update on the Covid situation here in Hawaii. If you turn to slide two.

On a with the most directly comparable GAAP measurements and now I will turn the call over to Bob.

Thank you Kevin Good morning, everybody. Thank you for joining us today I'd like to start with an update on the Covid situation here in Hawaii, If you turn to slide two.

Like many places the health of our economy is directly related to our ability to control the virus and we've done quite a good job on that with over 70% of the population fully vaccinated. And impressive 92% of the population over age 12 has had at least one shot. We did have a surge in late August and early September related to the Delta variant as you can see on the lower left there. As for the most part come down and our new case counts are dramatically lower. A lot of capacity in the hospitals, so a lot of concern about that. And the Governor has announced that we're going to be fully welcoming back visitors starting on November 1st.

The virus and we've done quite a good job on that with over 70% of the population fully vaccinated.

Impressive 92% of the population over age 12 has had at least one shot.

We did have a surge in late August and early September.

Related to the Delta area as you can see on the lower left there.

As for the most part come down and our new case counts are dramatically lower.

A lot of capacity in the hospitals, so a lot of concern about that.

And the Governor has announced that we're going to be fully welcoming back visitors starting on November one.

And really in talking to controlling all the mayors both here on Oahu in the neighbour Islands, all of our elected officials are very focused on keeping Hawaii opened for tourism and we expect to see the numbers starting to increase and we've actually started to see a bit of an increase in daily arrivals starting this month. So as the restrictions start to come off in two years start to return. We expect more of a normalized economy as we come into the holiday season. Turning to slide three. Total loans grew net of PPP Paydowns and our results were solid in the quarter. Despite all the noise of the Delta variant. Deposits continued to grow in all segments. Noninterest income and expenses were stable. Credit quality remained excellent and a diluted earnings per share was 50 cents.

Controlling all the mayors both here on Oahu in the neighbor Islands all of our elected officials are very focused on keeping Hawaii opened for tourism and we expect to see the numbers starting to increase and we've actually started to see a bit of an increase in daily arrivals starting this month.

So as the restrictions start to come off in two years start to return.

We expect more of a normalized economy as we come into the holiday season.

Turning to slide three.

Total loans grew net of PPP Paydowns and our results were solid in the quarter. Despite all the noise of the Delta area.

<unk> continued to grow in all segments.

Noninterest income and expenses were stable.

Credit quality remained excellent and a diluted earnings per share was <unk> 50.

And the board maintains a dividend of 26 cents per share. During the quarter, we also repurchased $21.6 million of common stock under our current repurchase program. And with that I'll turn it over to Robin to go over the financials. Thank you Bob. Turning to slide four period end loans and leases were $12.8 billion. Down $269 million from the end of Q2. Excluding the impact of PPP loans, total loans increased by $39 million. We had some good activity in several areas the dealer flooring remained a headwind declining another $103 million. Excluding the impacts of PPP repayments and dealer flooring balances.

During the quarter, we also repurchased $21 $6 million of common stock under our current repurchase program.

And with that I'll turn it over to Robin to go over the financials.

Thank you Bob.

Turning to slide four period end loans and leases were $12 8 billion down.

Down $269 million from the end of Q2.

Excluding the impact of PPP loans total loans.

Just by $39 million.

We had some good activity in several areas the dealer flooring remained a headwind declining another $103 million.

Excluding the impacts of PTP repayments and dealer flooring balances.

Total loans grew about $142 million in the third quarter. Growth was driven by increases in residential, commercial real estate and home equity. Looking ahead to the fourth quarter, we're expecting net growth in loan balances, but because of the delayed recovery and dealer flooring, we now expect total loan balances ex PPP to be flat to up 1% for the year. Turning to slide five. Total deposit balances ended the quarter at $22.1 billion. A $1.3 billion increase versus the prior quarter. This increase was driven by a $782 million increase in public deposits. And a $503 million increase in consumer and commercial deposits. The increase in public deposits was almost entirely an operating account balances. Our cost of deposits fell one basis point to six basis points in the quarter. Turning to slide six net interest income was $132.6 million. A $1.1 million increase versus the prior quarter.

Increased $1 million in.

In the third quarter.

Growth was driven by increases in residential <unk>.

Commercial real estate and home equity.

Looking ahead to the fourth quarter, we're expecting net growth in loan balances, but because of the delayed recovery and dealer flooring, we now.

Now expect total loan balances ex PPP.

To be flat to up 1% for the year.

Turning to slide five.

Total deposit balances ended the quarter at $22 1 billion.

A $1 3 billion increase versus the prior.

40%.

This increase was driven by a $782 million increase in public deposits.

And a $503 million increase in consumer and commercial deposits.

The increase in public deposits was almost entirely an operating account balances.

Our cost of deposits fell one basis point to six basis points in the quarter.

Turning to slide six net interest income was $132 6 million.

A $1 1 million increase versus the prior quarter.

The increase in net interest income was primarily due to higher average balances of investment securities and higher cash balances. Net interest margin was 2.36% a 10 basis point decrease from the previous quarter. In Q4, excluding the impact of excess liquid and PPP loan forgiveness, we expect our net interest margin to decline 2 to 4 basis points. Turning to slide seven noninterest income in Q3 was $50.1 million. $733000 increase over the previous quarter. Liquidity noninterest income in the third quarter included a $2.3 million fully death benefit. Noninterest expenses were $101 million. A $1.6 million increase versus the prior quarter and. And the efficiency ratio was 55, 1%. And now I'll turn. I'll turn it over to Ralph to go over asset quality. Thank you Ravi.

Net income was primarily due to higher average balances of investment securities and higher cash balances.

Net interest margin was 236% a 10 basis point decrease from the previous quarter.

In Q4, excluding the impact of excess liquid.

And PPP loan forgiveness, we expect our net interest margin to decline, 2% to four basis points.

Turning to slide seven noninterest income in Q3 was $50 1 million.

$733000 increase over the previous quarter.

Liquidity noninterest income in the third quarter included a $2 3 million fully death benefit.

Noninterest expenses were $101 million.

A $1 $6 million increase versus the prior quarter and.

And the efficiency ratio was 55, 1%.

And now I'll turn.

I'll turn it over to Ralph to go over asset quality. Thank you Ravi.

Turn to slide eight I want to provide a few comments on asset quality. We continue to see good credit performance realized credit costs remain low and we released provision again this quarter. Net charge offs were $602000 in Q3. Annualized net charge off rate at six basis points year to date. Other than the levels, we saw in the prior two years. NPA and 90 day past due loans were marginally down this quarter to 11 basis points, a one basis point decrease from the prior quarter. Criticized assets increased during the quarter moving from 2.51% of total loans in Q2 to 2.98%. Loans 30 to 89 days past due increased 13 basis points to 35 basis points at the end of Q3, the increase was attributed to the delay in the closing of an extension of a single CRM loan. Moving to slide nine. You see a roll forward of the allowance for the quarter by disclosure segments. The allowance for credit loss decreased by about $7.9 million to $161.2 million at the end of the quarter.

We continue to see good credit performance realized credit costs remain low and we released provision again this quarter.

Net charge offs were $602000 in.

Turning to fee.

Annualized net charge off rate at six basis points year to date.

Other than the levels, we saw in the prior two years.

NPA and 90 day past due loans were marginally down this quarter to 11 basis points, a one basis point decrease from the prior quarter.

Criticized assets.

Q3 during the quarter moving from 251% of total loans in Q2 to $2 98%.

Loans 30 to 89 days past due increased 13 basis points to 35 basis points at the end of Q3 the increase.

It was attributed to the delay in the closing of an extension of a single CRM.

Increased.

Moving to slide nine.

You see a roll forward of the allowance for the quarter by disclosure segments.

The allowance for credit loss decreased by about $7 9 million to 161.

$2 million at the end of the quarter.

This level equates to about 1.2% of all loans and 1.31% net of PPP loans. Our reserve for unfunded commitments increased by $3.3 million to $32.5 million. In Q3, we recorded a $7.3 million release against the allowance due to balanced. And some improvement in consumer FIFO.

Loan percent of all loans and $1 three 1% net of PPP loans.

Our reserve for unfunded commitments increased by $3 3 million.

$32 5 million.

In Q3, we recorded a $7 3 million release against the allowance due to balanced.

And some improvement in consumer FIFO.

Our outlook for the economy was unchanged.

We anticipate the recovery started mid year will continue but still maintain a COVID-19 related overlay given uncertainties that could result in higher credit losses.

These uncertainties include the effects of the new virus mutations on travel and leisure activity. As well as the impact of monetary and fiscal actions let. Let me now turn the call over to Bob.

Change leisure activity.

Well as the impact of monetary and fiscal actions let.

Let me now turn the call basketball.

This was another solid quarter credit quality remained excellent and we are continuing our investment in technology to improve our digital capabilities and our customer experience. And our balance sheet is well positioned for rising rates. And with that I'd like to open it up and take your questions.

And our balance sheet.

<unk> is well positioned for rising rates.

And with that I'd like to open it up and take your questions.

As a reminder to ask a question you will need to press star one on your telephone.

So the jewelry a question for Keith.

Your first question comes from the line. Ebrahim Poonawala with Bank of America. Your line is open. Good morning. On loan growth you mentioned Ben full year update ex PPP, just give us a sense of one Bob do you think the dealer finance book has bottomed out year? Just the piece of where you see it going back to next year understanding that all of the supply chain issues may not be resolved. What was this book at the peak of pre-pandemic?

<unk> is from the line.

Ebrahim <unk> with Bank of America. Your line is open.

Yeah.

Good morning.

I guess just go.

Yes.

On loan growth you mentioned.

Comes from Ben full.

Full year update ex PPP, just give us a sense of one Bob do you think the dealer finance book has bottomed out.

<unk>.

Just the fee itself.

You see it going back to next year understanding that all of the supply chain issues may not be resolved.

This book at the peak.

Yes.

Just a guess.

A reference point of how large this can go back again. If you could start there. Sure. Thanks. Good question and in fact saw some good news today on automotive news at our dealer team shared with us the head of Gms North America. Business said they're, making good progress on shipping pick up so. Mary will start with our high margin vehicles. They are away from there but these are very big companies and there's certainly working nonstop day and night to straighten out the supply chain. Our peak I'm not sure about but kind of the latest normal number would be the end of 2019, and our dealer flooring balances were $860 million plus a little bit. And now we're substantially less $176 million. So there is quite a bit of room. Just this year, we're down $460 million in balances. Year to date.

Point of how large this can go back again.

If you could start there.

Sure. Thanks Phebe.

Good question and in fact saw some good news today on automotive news at our.

Dealer team shared with us the head of Gms.

We've got North America.

Business said theyre, making good progress on shipping pick up so.

Mary will start with our high margin vehicles.

They are away from there but.

These are very big companies and Theres, certainly working nonstop day and night to straighten out the supply chain.

Our.

Our peak.

<unk> not sure about but kind of the latest normal number would be the end of 2019, and our dealer flooring balances were $860 million plus a little bit.

And now we're substantially less $176 million. So there is quite a bit of room. Just this year, we're down $460 million in balances.

Year to date.

You can't really pick the bottom on this we had thought it would have already started to increase a bit obviously supply chain issues didn't allow that to happen. So we'll be watching this along with everybody else, but hopefully the car manufacturers will start to be able to produce in volume and there is still gonna be backlog. As they worked through that with people that have purchased cars in advance. So it will take a little bit longer to see the balances in the flooring line start to increase. We're seeing even in this article today, how the head of GM was saying that they would like to see their inventory and their dealer network increase so. All those signs point to increased production and we'll just see how we'll have to wait and see how that plays out in timing. More broadly in loan activity were seeing mainline activity being fairly strong. Our C&I usage for revolving lines has stabilized over the last few months. So that's. It doesn't seem to be pulling us down anymore and residential has been strong. Kind of just an anecdote for this quarter that we're in now there is a couple of large projects here.

To be able to produce in volume and there is still.

<unk> backlog.

As they worked through that with people that have purchased cars in advance. So it will take a little bit longer to see the balances in the flooring line start to increase.

We're seeing even in this article today, how the head of GM, let's say that they would like to see their inventory and their dealer network increase so.

We're going to be able those signs point to increased production and we'll just see how we'll have to wait and see how that plays out in timing.

More broadly in loan loan activity were seeing mainline activity being fairly strong.

Our C&I usage for revolving lines has stabilized over the last few months. So that's.

It doesn't seem to be pulling us down anymore and residential has been strong.

Kind of just an anecdote for this quarter that we're in now there is a couple of large projects here on.

On [Aloha] that will finish and so we will see commercial real estate construction balances decline, but those will be more than made up for.

If you take out loans that we're doing on the residential side on those same projects so there'll be some moving around.

We see during the quarter, but it seems like we're at a bottom with some potential upside, but we'll just have to wait and see primarily on the flooring business and see how soon that comes back.

Thanks, Bob and just couldn't.

Biodiesel economic activity can you provide some color on slide two around Covid and the restrictions you might have? Where you think we are in terms of normalcy hospitality sector. When you think about the holiday season going into the winter? Are we all there? Are we going to be at least 80% of capacity in terms of how many of the hotels would have been fully open? Just give us some perspective on that. Yes, I certainly can't predict what the holidays will bring but the normal shoulder season, which is what we're in right now September into October we always see a drop off. Tourist arrivals from summer into the fall. And then typically it builds back in the holidays as people take their vacations.

So just how.

Where you think we are in terms of normalcy hospitality sector. When you think about the holiday season going into the winter Avi all data are we going to be at least 80% of capacity.

In terms of.

Joe.

How many of the hotels would have been fully open just give us some perspective on that.

Yes, I certainly can't predict what the holidays will bring but the normal shoulder season, which is what we're in right now September into October we always see a drop off.

Tourist arrivals from summer into the fall.

And then typically it builds back in the holidays as people take their vacations.

I can't think of any hotels that are still closed I think everybody is trying to open.

Certainly the major ones and they're adjusting their staffing depended on what occupancy is so everybody is ready and we'll just.

Have to wait and see as we've talked about in previous conversations. Many many families come to Hawaii every holiday season, and we will just have to wait and see if they come this year and choose to travel.

But I think the hotel rooms are.

Booked it just have to see if people show up.

Got it.

And just one last question if I can sneak one for Ravi.

What's the what was the end of period balance on PPP at the end of 3Q and how much in fees is left to be recognized?

And we have we have about a little over $500 million in terms of remaining balances and sorry I missed the second part of the question there.

Part.

What are the fees stay to PPP that thank you that $500 million balance. It's $14.4 million. And safe to assume that you expect the next two quarters most of that gets forgiven.

What are the few stay to PPP that thank you that $500 million diamonds.

It's $14.4 million.

And safe to assume that you expect the next two quarters most of that gets forgiven.

Yes, I think if we look at next quarter I think.

The question a couple of quarters.

Good reflection of the pace, we've been moving at so I think over the next two quarters, we should be through the majority of it.

Got it thanks for taking my questions.

Your next question comes from Steven Alexopoulos.

The last of Jpmorgan. Your line is open.

Hi, everyone.

Good morning, good morning.

I wanted to start and drill down a little bit on C&I.

If we take PPP loans and dealer loans. So we put those aside can you talk about the change you saw in the C&I pipeline in the quarter any notable.

With the increase in commitments and what was line utilization.

No you said it was stable.

Ralph do you have the line utilization number yes.

Just a shade over 20% and I think what we saw pre COVID-19 it was probably around 30% probably gone down.

And to the mid teens.

Promote point so.

Sorry to come back a bit there.

Yes.

We're seeing some activity in the corporate area not a huge amount, but we are seeing some activity in that area, but it's been muted.

We haven't.

Notably in.

We've seen a couple of payoffs just not that we want to them, but it's just that the transactions have occurred that.

They went to capital markets or mergers and acquisitions in that portfolio, but it's been fairly stable we haven't seen.

A huge amount of new growth.

A modest amount, but I think that.

Don't see it as very well see if we will see what the next few months, bringing us dealmaking typically starts in the beginning of the year, but we will just have to wait and see.

Okay.

That's helpful.

And then maybe for Ravi you have you built a pretty sizable cash position here and it looks like the guidance youre expecting more deposits.

That market than loan growth over the near term now that rates have moved up a bit has this changed your appetite should we expect more of our liquidity to move into the securities book or do you anticipate this cash balance building further here.

We've as you know.

Looking at the data we've grown that securities portfolio.

Pause about a $1 billion this quarter.

Pretty close to $8 billion, we certainly look at the balance sheet in totality and we'd love to see loan growth kind of help us with those liquidity levels that we have currently but it will have to take it.

Piece by piece and I think we're probably feeling.

The comfortable with our level of securities at this stage so.

I think as we start to see some of that liquidity get deployed.

We'd like to see those balances come down but at this point. We feel comfortable with our securities level plus or minus. A little bit, but we're going to have to work through that liquidity over time.

We feel comfortable with our securities level plus or minus.

A little bit, but we're going to have to work through that liquidity.

<unk> per time.

Okay. It is Bob Steve the only thing I would add to that is you saw a large increase in the public operating accounts, is that a relationship with the various municipalities in the state has been very fluid just the amount of cash they have coming in and going out is hard to predict.

The various municipalities in the state has been very fluid just the amount of cash they have coming in and going out is.

<unk> hard to predict.

Got you. Okay, and then Bob just a final one.

Just about every banks talking about wage pressure here and I haven't been paying a lot of attention to the situation in Hawaii, but is that a pressure point and could this impact your expense growth over the next year.

Great question Stephen.

The same some of the same issues here, we did see our jobless rate ticked down yesterday. So it went from 7% down to six 6%. So there is still some people looking for jobs, but theres still a lot of activity out there are a lot of people trying to hire so there is.

Some wage pressure.

As we've been going through that quite frankly over the last year plus in our business. So I'm not going to say, we won't face it but.

It is hard to predict exactly what that would be going forward.

Okay.

Okay. Thanks for all the color.

Your next question comes from David.

Third with Raymond James Your line is open.

Hey, good morning, everybody.

Morning appointment.

I just wanted to you saw some nice growth in CRE in the quarter I'm, just curious, maybe where youre seeing strength.

And maybe if you could compare and contrast.

Yeah.

Yes, the mainland and Hawaii markets and just also just maybe.

<unk>.

Give us a pulse of the competitive dynamics that you're seeing we hear a lot more competition from a pricing standpoint, but also seeing some on structure and standards as well just just curious what youre seeing in CRE.

Maybe this is Bob David maybe I'll start and ask Rob to add some comments.

We've continued to see pressure here in Hawaii on pricing, we haven't seen it too much on the structure.

It's been much more active in the mainland primarily the west coast, where we have relationships with.

Some direct.

And a lot of relationships with other banks and it just seems to be quite active that people are doing transactions up there that we've been able to participate in.

I expect we'll see more volume here over time, but there will be some headwinds as I mentioned earlier with a couple of large projects here paid off in Q4 on the CRE construction side, but we're.

Relation thing you'd add to that no.

I would say that on the mainland.

We've seen pretty good activity right now.

Most of what we're doing there is sort of institutional quality type real estate institutional type players. So I think in terms of.

Weakening of terms of it's not as big of an issue as it would be maybe in.

We are updating our loan market.

Okay. That's helpful.

And then maybe just touching on fee income and getting some of your thoughts on the puts and takes there just on card fees, which have been pretty much recovered back to where we were in the trust.

Department and the.

Small you're seeing there and then just I appreciate the color on the bowl benefit but has seen several other banks add the ball you just curious your appetite.

Boy here too.

Please go ahead, so I think maybe I'll just take them in pieces. David. This is Ravi. It's been nice to see the credit card and debit card fee income pick up as we've seen quite a bit of activity here over the summer we saw I'd just characterize it as a small dip. As a result of as Bob mentioned sort of going into the shoulder season, and maybe a little bit of impact of the delta virus. The activity, but again strong numbers, there and we expect.

It's been.

Trends, you've been nice to see the credit card and debit card fee income pick up as we've seen quite a bit of activity here over the summer we saw I'd just characterize it as a small dip.

As a result of as Bob mentioned sort of going into the shoulder season, and maybe a little bit of impact of the delta virus.

The activity, but again strong numbers, there and we expect.

That's a trend pretty consistently with what we will hopefully see in the rest of the year and the vacation season.

Say with trust and investment income, it's been very strong and very stable and I would say the core pieces of income coming.

And the investment income side has been really from.

Recurring revenue sources, which has been a good sort of solid consistent place of growth for us and I'd say, the last year year, and a half just talking a little bit about fully.

From our perspective, we're <unk>.

Probably from a.

From the travel perspective.

At the top end for the amount of fully that we can have in our portfolio. So we don't expect to add to the bully portfolio itself, but we expect it to perform pretty well over time.

And pretty consistently at least in this environment.

Okay. That's helpful. That's great color.

And then just last one for me.

Asset quality has been phenomenal and you guys do a great job there just wanted to touch on.

The modest uptick I mean, it's small but just the uptick in criticized in past due balances and and your just thoughts on overall asset quality here.

This is Ralph.

The increase in the criticized loans up $62 million and really that was around I think about five credits shared national credits that got downgraded during the exams that are conducted at the agent banks. We look at those credits, we don't see much loss potential.

Okay.

These have really good financial flexibility sound businesses. And I think it really sort of a different different perspective, maybe that the regulators had from the banks. So nothing I don't think really happening there I think the trends that we've seen kind of continued to improve.

And I think it really sort of a different different perspective, maybe that the regulators had from the banks.

So nothing I don't think really happening there I think the trends that we've seen kind of continued to improve.

And then on the pass through side that was.

That kind of an administrative delinquency on one loan and we are at 35 basis points. So just one volume could create quite a bit of a change in the statistics.

One volume could create.

A bit of a change in that.

In the statistics.

Was there anything within those five credits that was a trends are.

Similar industries or was it just kind of one.

It's really another kind of in the high risk high risk areas actually the trends are probably improving so it was.

The regulators come in and.

They look at those those deals in Europe.

They were downgraded to special mention which essentially means there's potential weakness and I think not.

Certainly a well defined weakness and again, we downgraded those credits we have.

Reserve for those credits so we're pretty comfortable with the.

The asset quality picture right now.

Okay. That's helpful. Thank you.

And our next question comes from Andrew Liesch.

Not necessarily Piper Sandler your line is open.

Good morning, everyone.

Good morning.

Just wanted to touch on unexpected here.

Pretty well controlled.

I know you pushed out the timing of the conversion in the next year it sounds like there might be some inflationary pressures, but.

With pressures, but.

How should we be looking at the expense base in expense growth for next year? I think you're guiding to 7% for '21 which all seems reasonable, but how should we look at it going into next year.

Andrew This is Ravi I'll comment a little bit on that typically we don't provide 2022.

Generic piece yet.

But I'll make some comments about sort of what how we see the future.

In terms of our expense profile and Bob will Bob alluded to sort of inflationary pressure that we've seen.

Particularly in wages in particular in some very specific categories that are high in demand. So.

I think we've talked about this in the past our continuing investment in technology. So a big part of our goals for the future and we continue we're going to continue to invest in technology to be competitive.

Our goals for the future and we continue we're going to continue to invest in technology to be competitive.

Another area just to talk about is just the core I think we will see as we get closer and closer.

That's one of the implementation of core <unk>.

The training cost Dev team will continue on and when we eventually go live we will see that the capitalization of the development costs start to roll into the expense line in the form of amortization.

Of the core itself.

Some.

<unk>, two circling or not guidance, but just some color on where we think things are going for the future.

Got it makes sense there.

Any timing that you can provide on the on the conversion.

Andrew This is Bob we're looking at the first half of next year is still trying to pull that in.

Guidance, feeling very good about where we're at but.

Since we've delayed it we don't want to.

Jinx ourselves.

These two specific but we're feeling very good about where we're at and the progress were made and we didn't want to do it in the fourth quarter candidly because it just didn't seem like a good idea relative to year end.

Understandable.

Sent there and then.

Just with the rapid deposit growth.

Some of it's obviously public funds that May go the other direction at some point, but that puts some pressure on capital ratios how should we be looking at the buyback I know you guys said.

Wanted to be consistent with share repurchases.

Thanks Hudson you, how should we be looking at that.

Asset growth versus versus the buyback right now.

Yes, maybe I can start on this Bob.

As Ravi if he has any comments as well.

We're looking at in our budgeting process clearly we're hopeful that.

We will see loan growth.

But come back in next year with just some of the lines of credit that we have both to our corporate customers and certainly our Florida line customers.

That amount of capital that we're holding above our target will kind of get absorbed into the loans portfolio through risk weighted assets and that planning process, where you look at our profitability we know that.

We've been very steady capital return bank and that's , something that's very important to us, certainly the dividend is critically important to us or we're not seeing any changes in that and we'll just have to decide how much capital we'll have left after we are investing in our technology.

How much capital we'll have left after we are investing in our technology.

Look to maintain the share repurchase program, but we don't have.

The idea at this point, what the level would be were looking out on that Ravi.

Didn't have anything to add.

Got it okay. Thank you for taking the question and I'll step back.

Yeah.

Again, if you would like to ask a question. Please press star one on your.

Telephone.

Your next question comes from Jared Shaw with Wells Fargo. Your line is open.

Hey, good morning, guys. Thanks for taking the questions good morning. Shifting looking at loan growth to hit that target for the 1% SPPP growth this year it seems like you're seeing a ramp up in fourth quarter, how should we be thinking about residential mortgages as part of that? You have certainly grown as a percentage of the overall portfolio is that going to be a bigger part of of the lending story going forward? Yes, Jeremy good morning. Certainly for the fourth quarter, we're going to see a bump in residential for no other reason other than those there's actually three large projects completing.

Shifting looking at them.

At loan growth to hit that target for the 1%.

Any <unk> growth this year it seems like we'd be.

You're seeing a ramp up in fourth quarter, how should we be thinking about residential mortgages as part of that.

You have certainly grown as a percentage of the overall portfolio is that going to be a bigger part of of the lending story going forward.

Yes, Jeremy good morning. This is.

<unk>, certainly a FERC fourth quarter, we're going to see.

Bump in residential for no. Other reason other than those there's actually three large projects completing that.

And that actually has a couple of them in escrow now as far as the residential loans we have approved for customers that will be closing in the next several weeks as these projects are completed. So that by itself will be a pretty significant boost on top of the normal volume that goes through so like many places we're seeing a little bit of a slowdown in refinance. Pick up other than these projects completed and new purchases, but in addition to that.

<unk> projects are completed.

So that by itself will be a pretty significant boost on top of the normal volume that goes through so like many places we're seeing a little bit of a slowdown in refinance.

I'll pick up.

Other than these projects completed and new purchases, but in addition to that.

We have this kind of special one off situations with these three projects completed so residential should be quite strong in Q4.

Okay.

Thanks, and then shifting to the reopening of the state, you touched on a little bit of the labor market, but is there enough labor capacity and state to handle a full reopening or will that require and maybe some return of people that may have left let the state at the beginning of COVID? To be honest I don't have a great answer for you on that is to be determined we had our unemployment rate Kevin was it 2% or something before. The low point and now we're at 6.6, 2-2.5 below 3% and now we're at 6.6%. So there is still quite a few workers out there that are looking for jobs and will that be sufficient to absorb the demand. The return to tourism.

Touched on a little bit of the labor market, but is there enough labor capacity and state too.

As those to handle a full reopening or will that require and maybe some.

Some return of people that may have left let the state at the beginning of Covid.

To be honest I don't have a great answer for you on that is to be determined we had our unemployment rate Kevin was it 2% or something.

The low point and now we're at 6622 and a half below 3% and now we're at six 6%. So there is still quite a few workers out there that are looking for jobs and will that be sufficient to absorb the demand.

The return to tourism.

I don't know to be candid with you.

Okay.

And then just finally for me. When youre looking at the NIM guidance.

When youre looking at the NIM guidance.

And you're, saying that excluding the excess liquidity, what is the excess liquidity that we should be thinking of at this point?

It all depends.

Our value.

Yes.

It's hard to say I think.

Last quarter, it was about eight basis points impact of excess liquidity.

If we start to see some of those as Bob mentioned those public deposits move off certainly the impact of excess liquidity coming from that part of.

Just started the deposit base will will decline.

But we've also seen pretty good strong growth in commercial and consumer deposits. So it will really depend on what happens in the next quarter or two.

Okay. Thanks, Thanks, a lot.

Your.

That question comes from Laurie Hunsicker with Compass point your line is open.

Great. Thanks, good morning.

Good morning Laurie.

I Wonder if you could just give us a little color that $2.1 million in litigation cost what that was.

Yeah, I can touch.

Nick This is Bob good morning Laurie.

That's just a commercial dispute we had with the vendor.

We didn't feel they are performing to our expectations and so unfortunately got it too.

Litigation, but.

Should have that resolved we're hopeful very soon.

Okay, and then when I look at that.

On the other other expense line of $16 tomorrow, or even building out that $2 one.

Yes.

Hello. Hi was there any other one-time items in that bucket to think about? Nothing specific Laurie I mean, a lot of small little things. In particular couple of catch up items that we had but nothing specific. Okay, and then I guess the color to think about where that line with Brian is it kind of closer to $13 million quarter give or take. Or how should we think about that? Yes. Hard to say. Say there's a lot of sort of small items that are in that line. I think 13 isn't such a bad number.

In that bucket.

<unk>.

Nothing specific Laurie I mean, a lot of small little things.

Yeah.

In particular couple of catch up items that we had but nothing specific.

Okay, and then I guess the color to think about where that line with Brian is it kind of on.

That's about a $13 million quarter.

Perhaps you will think about that.

Yes.

Hard to say.

Say theres a lot of.

Sort of small items that are in that line.

I think 13 isn't such a such.

In terms of what we expect it to be but it will just depend on sort of onetime items that might show up in the quarter itself.

Okay great.

And then.

How should we be thinking about that.

Yes.

I think barring anything else that happens out there with respect to policy.

<unk> relatively consistent with where we are maybe trending a little bit downward we continue to.

To engage in low income housing tax credit says.

Opportunity to manage our effective tax rate and so as we sort of roll into new opportunities. There, we'll start to see that tick down a little bit but that takes time as we build that portfolio.

Okay, Great and then last question for me deferrals.

Carl.

In Uruguay.

And.

I'm, hoping you can give us the number that we think probably over last quarter and 35 million.

David Limbaugh.

Yes, I think what's left now Laurie this is Ralph is about $16 million.

You can't have a split in terms of commercial versus what [inaudible]? Yes, I don't but it's almost exclusively residential mortgage.

You bet.

Tom.

Uh huh.

Commercial.

Yes, I don't but its almost exclusively.

Residential mortgage.

Perfect. Okay. Thank you very much. And there are no further questions at this time. I will now turn it over to Kevin. Thank you we appreciate your interest in first Hawaiian and please feel free to contact me if you have any additional questions. Thanks again for joining us and enjoy the rest of your day. This concludes today's conference call. You may now disconnect.

And there are no further questions at this time.

I will now turn it over to Kevin.

Thank you we appreciate.

Your interest in first Hawaiian and please feel free to contact me if you have any additional questions.

Thanks, again for joining us and enjoy the rest of your day.

This concludes today's conference call you.

Disconnect.

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Yes.

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Yes.

Okay.

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May not.

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Yes.

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Good day and thank you for standing by welcome to the first Hawaiian Inc. Third quarter 2021 earnings conference call at.

At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

To ask a question during the session you will need to best Star one on your telephone.

If you require any further assistance please press star zero.

I would now like to hand, the conference over to Kevin have Yammer Investor Relations manager. Please go ahead.

Thank you Ashley and thank you everyone for joining us as we review our financial results for the third quarter of 2021.

With me today are Bob Harrison, Chairman, President and CEO.

Robbie Modelo, <unk>, CFO, and Ralph music Chief Risk Officer.

We have prepared a slide presentation that we referred to in our remarks today. The presentation is available for downloading and viewing on our website at <unk> Dot com in the Investor Relations section.

Thank you Kevin Good morning, everybody. Thank you for joining us today.

To start with an update on the Covid situation here in Hawaii, If you turn to slide two.

Like many places the health of our economy is directly related to our ability to control the virus and we've done quite a good job on that with over 70% of the population fully vaccinated.

An impressive 92% of the population over age 12 has had at least one shot.

We did have a surge in late August and early September related to the Delta variant as you can see on the lower left there.

That is the most part come down and our new case counts are dramatically lower.

A lot of capacity in the hospitals, so not concerned about that.

And the Governor has announced that we're going to be fully welcoming back visitors starting on November one.

And really in talking to all the mayors both here on Oahu in the neighbor Islands all of our elected officials, they're very focused on keeping Hawaii opened for tourism and we expect to see the numbers starting to increase and we've actually started to see a bit of an increase in daily arrivals starting this month.

So as the restrictions start to come off in two years start to return we expect more of a normalized economy as we come into the holiday season.

Turning to slide three total loans grew net of PPP Paydowns and our results were solid in the quarter. Despite all the noise of the Delta area.

Deposits continue to grow in all segments.

Noninterest income and expenses were stable.

Credit quality remained excellent and a diluted earnings per share was <unk> 50.

And the board maintains a dividend <unk> 26 per share.

During the quarter, we also repurchased $21 $6 million of common stock under our current repurchase program.

And with that I'll turn it over to Robin to go over the financials.

Thank you Bob turning to slide four period end loans and leases were $12 8 billion.

Down $269 million from the end of Q2.

Excluding the impact of PPP loans total loans increased by $39 million.

<unk> had some good activity in several areas the dealer flooring remained a headwind declining another $103 million.

Excluding the impacts of PPP repayments and dealer flooring balances.

Total loans grew about $142 million in the third quarter.

Growth was driven by increases in residential.

Commercial real estate and home equity.

Looking ahead to the fourth quarter, we're expecting net growth in loan balances, but because of the delayed recovery and dealer flooring. We now expect total loan balances ex PPP.

To be flat to up 1% for the year.

Turning to slide five.

Total deposit balances ended the quarter at $22 $1 billion, a $1 3 billion increase versus the prior quarter.

This increase was driven by a $782 million increase in public deposits.

And a $503 million increase in consumer and commercial deposits.

The increase in public deposits was almost entirely an operating account balances.

Our cost of deposits fell one basis point to six basis points in the quarter.

Turning to slide six net interest income was $132 $6 million.

$1 1 million increase versus the prior quarter.

The increase in net interest income was primarily due to higher average balances of investment securities and higher cash balances.

Net interest margin was 236% a 10 basis point decrease from the previous quarter.

In Q4, excluding the impact of excess liquidity and PPP loan forgiveness, we expect our net interest margin to decline, 2% to four basis points.

Turning to slide seven noninterest income in Q3 was $50 1 million.

A $733000 increase over the previous quarter.

Noninterest income in the third quarter included a $2 3 million boldly death benefit.

Noninterest expenses were $101 million.

A $1 $6 million increase versus the prior quarter.

And the efficiency ratio was 55, 1%.

And now I'll turn it turn it over to Ralph to go over asset quality. Thank you.

Ravi.

You could turn to slide eight I want to provide a few comments on asset quality.

We continue to see good credit performance realized credit cost remain low and we released provision again this quarter.

Net charge offs were $602000 in Q3.

Annualized net charge off rate is at six basis points year to date.

Lower than the levels, we saw in the prior two years.

NPA and 90 day past due loans were marginally down this quarter to 11 basis points, a one basis point decrease from the prior quarter.

Criticized assets increased during the quarter moving from $2 five 1% of total loans in Q2 to $2 98%.

Loans 30 to 89 days past due increased 13 basis points to 35 basis points at the end of Q3 the.

The increase was attributed to the delay in the closing of an extension of a single CRE loan.

Moving to slide nine.

You see a roll forward of the allowance for the quarter by disclosure segments.

The allowance for credit loss decreased by about $7 9 million to 161.

$2 million at the end of the quarter.

This level equates to about $1, two 6% of all loans and 131% net of PPP loans.

Our reserve for unfunded commitments increased by $3 3 million to $32 $5 million.

In Q3, we recorded a $7 3 million release against the allowance due to balance changes and some improvement in consumer FIFO loss.

Our outlook for the economy was unchanged.

We anticipate the recovery started mid year will continue but still maintain a COVID-19 related overlay given uncertainties that could result in higher credit losses.

These uncertainties include the effects of the new virus mutations on travel and leisure activity as well as the impact of monetary and fiscal actions.

Let me now turn the call back to Bob.

Thank you Rob this was another solid quarter credit quality remained excellent.

We're continuing our investment in technology to improve our digital capabilities and our customer experience. And our balance sheet is well positioned for rising rates. And with that I'd like to open it up and take your questions.

And our balance sheet is well positioned for rising rates.

And with that I'd like to.

Open it up and take your questions.

As a reminder.

To ask a question you will need to press star one on your telephone.

Jordan question Ross.

Yes.

Your first question comes from the line of Ebrahim Poonawala with Bank of America. Your line is open.

Ebrahim <unk> with Bank of America. Your line is open.

Good morning. I guess just go. Yes. On loan growth you mentioned for the full year of data SPPP, just give us a sense of what Bob do you think the dealer finance book has bottomed out year? And just the fee itself, where you see it going back to next year understanding that all of the supply chain issues may not be resolved what was this book at the peak of pre-pandemic? Just a guess. A reference point of how large this can go back again. Maybe if you could start there.

I guess just go.

Yes.

On loan growth you mentioned.

For the full year of data ex PPP, just give us a sense of what Bob do you think the dealer finance book has bottomed out.

And just.

Just the fee itself, where you see it going back to next year understanding that all of the supply chain issues may not be resolved what was this book at the peak of pre pandemic.

Just a guess.

Glen.

Defense point of how large this can go back again.

Maybe if you could start there.

Sure. Thanks Phebe.

Good question and in fact saw some good news today on automotive news at our dealer team shared with us the head of North America business said they're making good progress on shipping pickups, so they're going to start with a high margin vehicles and work their way from there but these are very big companies and they are certainly working nonstop day and night to stay now the supply chain. Our peak I'm not sure about but kind of the latest normal number would be the end of 2019, and our dealer flooring balances were $860 million plus a little bit.

Business said theyre, making good progress on shipping pickups, so they're going to start with a high margin vehicles and work their way from there but.

These are very big companies and they are certainly working nonstop day and night to stay.

Right now the supply chain.

R R.

Our peak I'm not sure about but kind of the latest normal number would be the end of 2019, and our dealer flooring balances were $860 million plus a little bit.

And now were substantially less than a $176 million. So there is quite a bit of room. Just this year, we're down $460 million in balances year to date.

There is still going to be a backlog.

As they work through that with people that have purchased cars in advance. So it will take a little bit longer to see the balances in the flooring lines start to increase.

You are seeing even in this article today, how the head of GM saying that they would like to see their inventory and their dealer network increase so all of those signs point to increased production and we'll just see how, we'll have to wait and see how that plays out in timing. More broadly in loan loan activity were seeing mainland activity being fairly strong. Our C&I usage for revolving lines has stabilized over the last few months. So that's. Doesn't seem to be pulling us down anymore and residential has been strong.

More broadly in loan loan activity were seeing mainland activity being fairly strong.

Our C&I usage for revolving lines has stabilized over the last few months. So that's.

Doesn't seem to be pulling us down anymore and residential has been strong.

It kind of just an anecdote for this quarter that we're in now there is a couple of large projects you are on. A wahoo that will finish and so we will see commercial real estate construction balances decline, but those will be more than made up for by the take out loans that we're doing on the residential side on those same projects. So there'll be some moving around of Lucy during the quarter, but it seems like we're at a bottom with some potential upside, but we'll just have to. A wait and see primarily the flooring business and see how soon that comes back.

A wahoo that will finish and so we will see commercial real estate construction balances decline, but those will be more than made up for by the take out loans that we're doing on the residential side on those same projects. So there'll be some moving around of Lucy during the quarter, but it seems like we're at a bottom with some potential upside, but we'll just have to.

A wait and see primarily the flooring business and see how soon that comes back.

Thanks, Bob and just in terms of economic activity you provide some color on slide two around COVID-19 and the restrictions.

Give us a sense of just how.

Where you think Riyadh in terms of normalcy hospitality sector. When you think about the holiday season going into the winter Avi all data are we going to be at least 80% capacity.

Terms of.

How many of the hotels would have been fully open just give us some perspective on that.

Yes, I certainly can't predict what the holidays will bring but the normal shoulder season, which is what we're in right now September into October we always see a drop off in tourist arrivals from summer into the fall and then typically it builds back in the holidays as people take their vacations.

I can't think of any hotels that are still closed I think everybody who's tried to open.

Certainly the major ones and they're adjusting their staffing depending on what occupancy is so everybody is ready and we will just have to wait and see as we've talked about on previous conversations. Many many families come to Hawaii every holiday season, and we will just have to wait and see if they come this year and choose to travel.

But I think the hotel rooms are booked.

Booked.

Have to see if people show up.

Got it and just one last question if I can sneak one for Ravi.

What's the what was the end of period balance on PPP at the end of <unk> and how much in fees is left to be recognized.

And we have we have.

A little over $500 million in terms of remaining balances and sorry, if I missed the second part of your question there.

What are the fee is tied to Pvp detlef, Thank you that $500 million islands.

$14 4 million.

And safe to assume that you expect the next two three quarters most of that gets forgiven.

Yes, I think if we look at next quarter I think the last couple of quarters.

Good reflection of the pace, we've been moving at so I think over the next two quarters, we should be through the majority of it.

Got it thanks for taking my questions.

Your next question comes from Steven Alexopoulos with Jpmorgan. Your line is open.

Everyone.

Good morning, good morning.

I wanted to start and then drill down a little bit on C&I.

Take PPP loans and dealer loans. So we put those aside can you talk about the change you saw in the C&I pipeline in the quarter any notable increase in commitments and what was line utilization.

No you said it was stable.

The line utilization number yes it was.

Just a shade over 20% and I think what we saw pre COVID-19. It was probably around 30% probably gone down into the mid <unk>.

<unk>.

At the low point, so it started to come back a bit there.

Okay.

Yes.

We're seeing some activity in the corporate area not a huge amount overseeing some activity in that area, but it is.

Been muted.

We haven't seen.

We've seen a couple of payoffs just not that we want to them, but it's just that the transactions have occurred that either they went to capital markets or mergers and acquisitions in that portfolio, but it's been fairly stable we haven't seen.

A huge amount of new growth a modest amount, but I think that market is very well see if we will see what the next few months bring us dealmaking typically starts in the beginning of the year, but we'll just have to wait and see okay.

That's helpful.

Then maybe for Ravi.

<unk> built a pretty sizable cash position here and it looks like the guidance youre expecting more deposit and loan growth over the near term now that rates have moved up a bit has this changed your appetite should we expect more of that liquidity to move into the securities book or do you anticipate this cash balance building further here.

I know, we've as you know.

Just looking at the data we've grown that securities portfolio about $1 billion this quarter.

Pretty close to $8 billion.

Certainly look at the balance sheet in totality, and we'd love to see loan growth kind of help us with those liquidity levels that we have currently but it will have to take it.

Piece by piece and I think we're probably feeling pretty comfortable with our level of securities at this stage I.

I think as we start to see some of that liquidity gets deployed.

Nice to see those balances come down but at this point.

Feel comfortable with our securities level plus or minus.

Little bit, but we're going to have to work through that liquidity over time.

Okay. It is Bob Steve the only thing I would add to that is you saw a large increase in the public operating accounts is that debt that.

Our relationship with the.

The various municipalities in the state has been very fluid just the amount of cash they have coming in and going out is hard to predict.

Got you, Okay, and then Bob just a final one.

<unk>.

Yeah, Great question, Steve and we're seeing the same some of the same issues here, we did see our jobless rate ticked down yesterday. So it went from 7% six 6%. So there is still some people looking for jobs, but theres still a lot of activity out there are a lot of people trying to hire so there is some.

Some wage pressure and we've been going through that quite frankly over the last year plus in our business. So I'm not going to say, we won't face it but.

It is hard to predict exactly what that would be going forward.

Yes.

Okay. Thanks for all the color.

Your next question comes from David.

Feaster with Raymond James Your line is open.

Hey, good morning, everybody.

Good morning appointment.

I just wanted to you saw some nice growth in CRE in the quarter I'm, just curious, maybe where youre seeing strength in.

Maybe if you could compare and contrast.

U S mainland in the Hawaiian market and just.

Also just.

<unk>.

Maybe this is Bob Dave and maybe I'll start and ask Ralph add some comments.

We've continued to see pressure here in Hawaii on pricing, we haven't seen it too much on structure.

It's been much more active in the mainland primarily the west coast, where we have relationships with.

Some direct relationships and a lot of relations with other banks and it just seems to be quite active that people are doing transactions up there that we've been able to participate in.

I expect we'll see more volume here over time, but there will be some headwinds as I mentioned earlier with a couple of large projects here paid off in Q4 on the CRE construction side, but we're up anything you'd add to that.

I would say that on the mainland where we've seen pretty good activity right now.

Most of what we're doing there is sort of institutional quality real estate institutional type players. So I think in terms of.

Weakening of terms, if not as big of an issue as it would be maybe in the smaller loan market.

Okay. That's helpful.

And then maybe just touching on fee income and getting some of your thoughts on the puts and takes there just on card fees, which have been pretty much recovered back to where we were in the trust.

Department and the trends Youre seeing there and then just I appreciate the color on the bowl benefit but have seen several other banks add the ball you just curious your appetite for boy here too.

Yeah.

Please go ahead, so I think maybe I'll just take them in pieces. David This is Robert.

I think it's been.

It's been nice to see the credit card and debit card fee income pick up as we've seen quite a bit.

Activity here over the summer we saw I'd just characterize it as a small dip as.

As a result of as Bob mentioned sort of going into the shoulder season, and maybe a little bit of impact of the delta virus and activity, but again strong numbers, there and we expect that.

That's a trend pretty consistently with what we will hopefully see in the rest of the year and the vacation season, I'd say with trust and investment income, it's been very strong and very stable and I would say the core pieces of income coming from the trust and investment income side has been really from.

Recurring revenue sources, which has been a good sort of solid consistent place of growth for us and.

And I'd say, the last year year, and a half just talking a little bit about bowley from our perspective.

From a capital perspective.

At the top end for the amount of quality that we can have in our portfolio. So we don't expect to add to the bully portfolio itself, but we expect it to perform pretty well over time.

And pretty consistently at least in this environment.

Okay. That's helpful. That's great color.

And then just last one for me.

Sure.

Asset quality has been phenomenal you guys do a great job there just wanted to touch on.

The modest uptick I mean, it's small but just the uptick in criticized in past due balances and and your just thoughts on overall asset quality here.

Sure Dave.

This is Ralph.

We look at those credits, we don't see much loss potential. There. These companies have really good financial flexibility sound businesses, and I think it really sort of a different different perspective, maybe that the regulators had from the banks.

So nothing I don't think really happening there I think the trends that we've seen kind of continued to improve.

And then on the pass through side that was really kind of an administrative delinquency on one loan and we're at 35 basis points. So just.

One banca create quite a quite a bit of a change in that in the statistics.

Was there anything within those five credits that was a trend.

Similar industries or was it just kind of one offs.

They're kind of in the high.

A high risk high risk areas actually the trends are probably improving so it was.

But the regulators come in.

Annually and they look at those those deals.

Yes.

They were downgraded to special mention which essentially means there's potential weakness and I think not necessarily a well defined weakness and again, we downgraded those credits.

Reserve for those credits so we're pretty comfortable with the.

The asset quality picture right now.

Okay. That's helpful. Thank you.

And our next question comes from Andrew Liesch with Piper Sandler Your line is open.

Good morning, everyone.

Good morning, good morning.

Just wanted to touch on unexpected this here.

Pretty well controlled.

And I know you pushed out the timing of the conversion in the next year it sounds like there might be some inflationary pressures but.

How should we be looking at the expense base in expense growth for next year. I think you were guiding to 7% for 'twenty, one, which all seems reasonable.

Should we look at it going into next year.

Andrew This is Ravi I'll comment a little bit on that.

<unk>, we don't provide 2022 guidance yet.

But I'll make some comments about sort of what how we see the future.

In terms of our expense profile and Bob will Bob alluded to sort of inflationary pressure that we've seen.

Particularly in wages in particular in some very specific categories that are high in demand. So that's one area I think we've talked about this in the past our continuing investment in technology. So I think part of our.

Our goals for the future and we continue we're going to continue to invest in technology to be competitive.

Another area just to talk about is just the core I think we will see as we get closer and closer to the implementation of core training cost down and we will continue on.

When we eventually go live we will see that the capitalization of the development costs start to roll into the expense line in the form of amortization of.

Of the core itself and that's some guidance or not guidance, but just some color on where we think things are going for the future.

Got it makes sense is there.

Any timing that you can provide on the on the conversion.

Andrew This is Bob we're looking at.

First half of next year is still in trying to pull that and we're feeling very good about where we're at but.

Since we've delayed it we don't want to.

Thanks ourselves.

These two specific but we're feeling very good about where we're at and the progress <unk> made and we didn't want to do it in the fourth quarter candidly because it just didn't seem like a good idea relative to year end.

Understandable.

It makes sense there.

Then.

Just with the rapid deposit growth.

Some of it's obviously public funds that May go the other direction at some point, but that puts some pressure on capital ratios how should we be looking at the buyback I know you guys have wanted to be consistent with share repurchases, but Hudson how should we be looking at that.

Asset growth versus versus the buyback right now.

Yes, maybe I can start on this Bob.

It's Ravi if he has any comments as well it's something we're looking at in our budgeting process clearly we're hopeful that.

We will see loan growth.

Come back in next year with just some of the lines of credit that we have both to our corporate customers and certainly our Florida line customers.

The amount of capital that we're holding above our target will kind of get absorbed into the loans portfolio through risk weighted assets.

That planning process, we're going to look at our profitability. We know that we have been very steady capital return bank and Thats something thats very important to US certainly the dividend is critically important to us or we're not seeing any changes in that and we'll just have to decide.

How much capital we'll have left after we are investing in our technology.

Look to maintain the share repurchase program, but we don't have any idea at this point, so whats the level would be or what we're looking at on that Robert.

Don't have anything to add.

Got it okay. Thank you for taking the questions and I'll step back.

Again, if you would like to ask a question. Please press star one on your telephone.

Your next question comes from Jared Shaw with Wells Fargo. Your line is open.

Hey, good morning, guys. Thanks for taking the questions. Good morning, maybe shifting looking at them at.

That loan growth to hit that target for the for the 1% ex GP growth this year it seems like.

You're seeing a ramp up in fourth quarter.

Should we be thinking about rest of the mortgages.

Part of that.

That's certainly growing as a percentage of the overall portfolio is that going to be a bigger part of of the lending story going forward.

Yes Martin.

This is Bob certainly a FERC fourth quarter, we're going to see.

Bump in residential for no. Other reason other than those there's actually three large projects completing that.

And that actually has a couple of them in escrow now as far as the residential loans. We've approved for customers that will be closing in the next several weeks as those projects are completed.

So that by itself will be a pretty significant boost on top of the normal volume that goes through so like many places we're seeing a little bit of a slowdown in refinance.

Pick up.

Other than these projects completed and new purchases, but in addition to that.

We have this kind of special one off situations with these three projects completed so residential should be quite strong in Q4.

Okay.

Thanks, and then shifting to the reopening of the state you touched on a little bit of a labor market, but is there enough.

Capacity in state to sort of handle a full reopening or will that require and maybe some <unk>.

Some return of people that may have left let the state at the beginning of Covid.

To be honest I don't have a great answer for you on that is to be determined we had our unemployment rate Kevin was it 2% or something before.

At the low point.

Now, we're at 6622 and a half below 3% and now we're at six 6%. So there's still quite a few workers out there that are looking for jobs and will that be sufficient to absorb the demand.

The return to tourism I don't know to be candid with you.

Okay.

And then just finally for me.

Looking at the NIM guidance Rob.

And youre, saying that excluding the excess liquidity, what what is the excess liquidity that we should be thinking of at this point.

And all of the largest dollar value that yeah.

It's hard to say I think.

Last quarter. It was about eight basis points impact of excess liquidity, if we start to see some of those as Bob mentioned those public deposits move off.

Certainly the impact of excess liquidity coming from that part of that part of the deposit base will will decline.

But we've also seen pretty good strong growth in commercial and consumer deposits.

Really depend on what happens in the next quarter or two.

Okay. Thanks, Thanks, a lot.

Okay.

Your next question comes from Laurie Hunsicker with Compass point Your line is open.

Great. Thanks, good morning.

Alright.

I Wonder if you could just give us a little color that $2 1 million in litigation costs, what that was.

Yeah, I can touch on that as Bob morning, Laurie.

Commercial dispute we had with the vendor.

We didn't feel they are performing to our expectations and so.

You got it to <unk>.

Litigation, but.

We should have that resolved we're hopeful very soon.

Okay, and then when I look at that that other other expense line of $16 2 million, even backing out that $2 one at scale.

Hi was there any other one time items.

In that bucket.

Think about.

Nothing specific Laurie.

Sort of small little things.

In particular couple of catch up items that we had but nothing specific.

Okay, and then I guess quickly on to think about where that line with Brian is it the Nirvana Carlsberg with Goldman Sachs.

<unk> million a quarter give or take.

Perhaps you can think about that.

It's hard to say there is a lot of.

Sort of small items that are in that line.

I think <unk>.

<unk> isn't such a.

Such a bad number in terms of what we expect it to be but it will just depend on sort of onetime items that might show up in the quarter itself.

Okay great.

And then.

Tax rate, how should we be thinking about that for next year.

I think barring anything else that happens out there with respect to policy I think relatively consistent with where we are maybe trending a little bit downward. We continue to engage in low income housing tax credits as an opportunity to manage our effective tax rate and so as we.

Sort of roll into new opportunities there, we'll start to see that tick down a little bit but that takes time as we build that portfolio.

Okay, Great and then last question for me deferrals I can see a doctor.

Okay.

When youre blocker.

I was hoping you might normally think probably over last quarter and 35 million.

Johan.

Okay.

Yes, I think whats left now Laurie this is Ralph is about $16 million.

Okay.

Okay great.

Uh huh.

Commercial.

And I don't but its almost exclusively.

Residential mortgage.

Perfect. Okay. Thank you very much.

There are no further questions at this time I will now turn it over to Kevin at the AMA.

Thank you. We appreciate your interest in first Hawaiian and please feel free to contact me. If you have any additional questions. Thanks again for joining us and enjoy the rest of your day.

This concludes today's conference call you may now disconnect.

Q3 2021 First Hawaiian Inc Earnings Call

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