Q2 2024 First Hawaiian Inc Earnings Call

Good day and thank you for standing by.

Unknown Executive: Order 2024 Earnings Conference Call. At this time, all participants are in a listening mode. After the speaker's presentation, there will be a question-and-answer session.

Operator: 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 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kevin Haseyama, Investor Relations Manager. Please go ahead.

Speaker Change: Welcome to the First Hawaiian Second Quarter 2024 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.

Unknown Executive: To ask a question during the session, you will need to press star one one on your telephone. You will then hear an audit made a message advising your hand is raised. To withdraw your question, please press star one one again.

Kevin Haseyama: To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kevin Haseyama, Investor Relations Manager. Please go ahead. Thank you.

Unknown Executive: Please be advised that today's conference is being recorded.

Kevin Haseyama: I want to like to hand the conference over to your speaker today, Kevin Haseyama, Investor Relations Manager. Please go ahead.

Kevin Haseyama: Thank you, Shannon. And thank you, everyone, for joining us as we review our financial results for the second quarter of 2024. With me today are Bob Harrison, Chairman, President, and CEO; Jamie Moses, Chief Financial Officer; and Lea Nakamura, Chief Risk Officer. We have prepared a slide presentation that we will refer to in our remarks today. The presentation is available for downloading and viewing on our website at FHB.com in the investor relations section.

Robert Harrison: Thank you, Shannon, and thank you, everyone, for joining us as we review our financial results for the second quarter of 2024.

Kevin Haseyama: Thank you, Shannon, and thank you, everyone, for joining us as we review our financial results for the second quarter of 2024. With me today are Bob Harrison, Chairman, President, and CEO , Jamie Moses, Chief Financial Officer, and Lea Nakamura, Chief Risk Officer.

Kevin Haseyama: With me today are Bob Harrison, Chairman, President and CEO; Jamie Moses, Chief Financial Officer; and Lea Nakamura, Chief Risk Officer. We have prepared a slide presentation that we will refer to in our remarks today. The presentation is available for downloading and viewing on our website at php.com in the Investor Relations section. During today's call, we will 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 reconciliation of these non-GAAP financial measurements to the most directly comparable GAAP measurements.

Kevin Haseyama: We have prepared a slide presentation that we will refer to in our remarks today. The presentation is available for downloading and viewing on our website at FHB.com in the Investor Relations section.

Kevin Haseyama: During today's call, we will be making forward-looking statements, so please refer to slide 1 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'll turn the call over to Bob.

Kevin Haseyama: During today's call, we will be making forward-looking statements, so please refer to slide one for our Safe Harbor Statement.

Kevin Haseyama: 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.

Robert Harrison: And now I'll turn the call over to Bob.

Robert Scott Harrison: Morning, everyone. I'll start by giving a quick overview of the local economy. Hawaii's economy continues to perform well, the state unemployment rate has remained low, tourism is steady, and we enjoy a healthy construction industry. The Statewide Seasonally Adjusted Unemployment Rate for June was 2.9%, compared to the national rate of 4.1%. Through May, total visitor arrivals were down 4.1 percent and spending was down 4.9 percent compared to 2023 levels. The year-over-year decline was primarily due to the drop in visitors to Mount Fuji.

Robert Harrison: Hi everyone, I'll start by giving a quick overview of the local economy. Why economy continues to perform well, the state unemployment rate has remained low, tourism and steady, and we enjoy a healthy construction industry. Statewide seasonally adjusted unemployment rate for June was 2.9 percent, compared to the national rate of 4.1 percent.

Kevin Haseyama: And now I'll turn the call over to Bob.

Bob: Good morning, everyone. I'll start by giving a quick overview of the local economy.

Bob: Hawaii economy continues to perform well, the state unemployment rate has remained low, tourism is steady, and we enjoy a healthy construction industry.

Bob: Statewide Seasonally Adjusted Unemployment Rate for June was 2.9% compared to the national rate of 4.1%.

Robert Harrison: Through May, total visitor arrivals were down 4.1 percent, and spending was down 4.9 percent compared to 2023 levels. The year-over-year decline was primarily due to the drop in visitors to Maui. On a year-to-date basis, Kauai and Hawaii Island also saw small declines in arrivals. Japanese visitors continue to return to Hawaii, but the numbers remain well below pre-pandemic levels.

Bob: Through May, total visitor arrivals were down 4.1% and spending was down 4.9% compared to 2023 levels.

Bob: The year-over-year decline was primarily due to the drop in visitors to Maui.

Robert Scott Harrison: On a year-to-day basis, Kauai and Hawaii Island also saw small declines in arrivals. Japanese visitors continue to return to Hawaii, but the numbers remain well below pre-pandemic levels. The housing market has remained relatively stable despite reduced activity levels. In June, the median sales price for a single-family home on Oahu was $1.1 million, 6.7% higher than March of this year. The median sales price for condos on Oahu was $530,000, 3.9% below last year.

Bob: On a year-to-day basis, Kauai and Hawaii Island also saw small declines in arrivals.

Bob: Japanese visitors continue to return to Hawaii, but the numbers remain well below pre-pandemic levels.

Robert Harrison: The housing market has remained relatively stable despite reduced activity levels. In June, the median sales price, median sales price, for a single-family home, on a Wahoo was $1.1 million, $6.7 percent higher than March of this year. The median sales price for Congress on a Wahoo was 530,000, 3.9 percent below last year.

Speaker Change: The housing market has remained relatively stable despite reduced activity levels.

Speaker Change: In June , the median sales price for a single-family home on Oahu was $1.1 million, 6.7 percent higher than March of this year.

Speaker Change: The median sales price for condos on Oahu was $530,000, 3.9% below last year.

Robert Harrison: Turning the site to a given overview of our second quarter results. Overall, we're very pleased with our strong financial performance. We had good loan production, improving deposit trends, and a well-controlled cost of deposits at 1.7 percent. Credit quality remained excellent, and several key credit metrics improved in the quarter. Our results also benefited from solid non-interest income and good expense discipline.

Robert Scott Harrison: Turning to slide two, I'll give an overview of our second quarter results. Overall, we're very pleased with our strong financial performance. We had good loan production, improving deposit trends, and a well-controlled cost of deposits at 1.7%. Credit quality remained excellent, and several key credit metrics improved in the quarter. Our results also benefited from solid non-interest income and good expense discipline. Additionally, we believe that the trends we saw in the quarter put us in a good position for a strong second half of the year.

Speaker Change: Turning to slide two, I'll give an overview of our second quarter results.

Speaker Change: Overall, we're very pleased with our strong financial performance.

Speaker Change: We had good loan production, improving deposit trends, and a well-controlled cost of deposits at 1.7%.

Speaker Change: Credit quality remained excellent, and several key credit metrics improved in the quarter.

Speaker Change: Our results also benefited from solid non-interest income and good expense discipline.

Robert Harrison: Additionally, we believe that the trends we saw in the quarter put us in a good position for a strong second half of the year.

Speaker Change: Additionally, we believe that the trends we saw in the quarter put us in a good position for a strong second half of the year.

Robert Harrison: Turning to slide three, the balance sheet remains a source of strength. We continued to use the runoff and the investment portfolio to fund loan growth and reduce high-cost deposits. We also maintain ample liquidity.

Robert Scott Harrison: Turning to slide three, the balance sheet remains a source of strength. We continue to use the runoff in the investment portfolio to fund loan growth and reduce high-cost deposits. We have also maintained ample liquidity, and our deposit mix continues to show signs of stability. The ratio of non-interest-bearing deposits to total deposits was unchanged from the prior quarter at 34%. We remain well capitalized, and our capital levels continue to grow during the quarter. Turning it to slide four.

Speaker Change: Turning to slide three, the balance sheet remains a source of strength.

Speaker Change: We continued to use the runoff in the investment portfolio to fund loan growth and reduce high-cost deposits.

Robert Harrison: Our deposit makes continued to show signs of stability. The ratio of non-interest bearing deposits to total deposits was unchanged from the prior quarter at 34%. We remain well capitalized, and our capital levels continued to grow during the quarter.

Speaker Change: We also maintained ample liquidity.

Speaker Change: Our deposit mix continued to show signs of stability. The ratio of non-interest bearing deposits to total deposits was unchanged from the prior quarter at 34%.

Speaker Change: We remain well-capitalized, and our capital levels continue to grow during the quarter.

Robert Harrison: Turning to slide 4, total loans grew by 39.7 million over the prior quarter. Overall, we had good production in several areas, led by draws on existing construction loans and new leasing opportunities. CNI production was driven by an increase of about 150 million in dealer flooring loans. This was partially offset by paydowns and payoffs of other CNI loans.

Robert Scott Harrison: Total loans grew by $39.7 million over the prior quarter. Overall, we had good production in several areas, led by draws on existing construction loans and new leasing opportunities. C&I production was driven by an increase of about $150 million in dealer flooring losses, although this was partially offset by paydowns and payoffs of other CNILS. In particular, we sold two criticized SNCC loans at par that totaled $27.5 million. The decline in consumer loan balances was due to runoff in the indirect auto portfolio. Looking forward, the pipeline is strong, and we think production will pick up in the second half of the year, weighted towards the fourth quarter. The outlook for the full year is low single-digit loan rates.

Speaker Change: Turning to slide four, total loans grew by $39.7 million over the prior quarter.

Speaker Change: Overall, we had good production in several areas led by draws on existing construction loans and new leasing opportunities.

Speaker Change: C&I production was driven by an increase of about $150 million in dealer flooring loans.

Speaker Change: This was partially offset by paydowns and payoffs of other C&I loans.

Robert Harrison: In particular, we sold two criticized nick loans at par that totaled $27.5 million.

Speaker Change: In particular, we sold two criticized NIC loans at par that totaled $27.5 million.

Robert Harrison: The decline in the consumer loan balances was due to runoff in the indirect auto portfolio. Looking forward, the pipeline is strong and we think the production will pick up in the second half of the year, weighted towards the fourth quarter. Our outlook for the full year is low single-digit loan growth.

Speaker Change: The decline in the consumer loan balances was due to runoff in the indirect auto portfolio.

Speaker Change: Looking forward, the pipeline is strong, and we think that production will pick up in the second half of the year, weighted towards the fourth quarter.

Jamie Moses: Now turn it over to Jamie.

James M. Moses: Now I'll turn it over to Jamie.

Speaker Change: Outlook for the full year is Low Single-Digit Long Road.

James M. Moses: Thanks, Bob. Turning to slide 5, total deposits were down $351 million, driven by a $216 million decline in total public deposits. Overall results in the second quarter continued to demonstrate the strength of our deposit franchise as we saw several positive trends that should put us in a good position for the second half of the year. The migration of non-interest bearing deposits to higher cost accounts slowed in the quarter, and the ratio of non-interest bearing deposits to total deposits remained a solid 34%, unchanged from the prior quarter.

Jamie Moses: Turning to slide 5, total deposits were down $351 million, driven by a $216 million decline in total public deposits. Overall results in the second quarter continued to demonstrate the strength of our deposit franchise, as we saw several positive trends that should put us in a good position for the second half of the year. The migration of non-interest bearing deposits to higher cost accounts slowed in the quarter, and the ratio of non-interest bearing deposits to total deposits remain a solid 34%, unchanged from the prior quarter. This favorable deposit mix contributed to our low 170 basis point total cost of deposits, which increased only five basis points links quarter as compared to nine basis point increase in the first quarter.

Speaker Change: Now I'll turn it over to Jamie.

Jamie: Thanks Bob. Turning to slide 5, total deposits were down $351 million, driven by a $216 million decline in total public deposits.

Jamie: Overall results in the second quarter continued to demonstrate the strength of our deposit franchise as we saw several positive trends that should put us in a good position for the second half of the year.

Jamie: The migration of non-interest-bearing deposits to higher-cost accounts slowed in the quarter, and the ratio of non-interest-bearing deposits to total deposits remained a solid 34 percent unchanged from the prior quarter.

James M. Moses: This favorable deposit mix contributed to our low 170 basis point total cost of deposits, which increased only five basis points in the second quarter as compared to a nine basis point increase in the first quarter. Overall, deposit pricing in the local market has remained rational, and we anticipate that these trends will continue to support our performance in the second quarter. On slide six, we see that net interest income was $152.9 million, $1.6 million lower than the prior quarter.

Jamie: This favorable deposit mix contributed to our low 170 basis point total cost of deposits, which increased only 5 basis points links quarter as compared to 9 basis point increase in the first quarter.

Jamie Moses: Overall deposit pricing in the local market has remained rational, and we anticipate that these trends will continue to support our performance in the second half.

Jamie: Overall, deposit pricing in the local market has remained rational, and we anticipate that these trends will continue to support our performance in the second half.

Jamie Moses: On slide 6, we see that net interest income was $152.9 million, $1.6 million lower than the prior quarter. The decline was primarily due to a lower average balances of cash and investment securities than the prior quarter. The margin was up one basis point. The benefits from asset repricing, changes in balance sheet mix, and a maturing swap were partially offset by higher deposit costs.

Jamie: On slide 6, we see that net interest income was $152.9 million, $1.6 million lower than the prior quarter. The decline was primarily due to lower average balances of cash and investment securities than the prior quarter.

James M. Moses: The decline was primarily due to lower average balances of cash and investment securities than the prior quarter. However, the margin was up one basis point as the benefits of asset repricing, changes in balance sheet mix, and a maturing swap were partially offset by higher deposit costs. Looking forward, we expect the NIM in the third quarter to be relatively flat. We continue to believe that the balance sheet repricing dynamics support an upward trend for the NIM, but the timing and pace of rate cuts will impact that absolute level.

Jamie: The margin was up one basis point as the benefits from asset repricing, changes in balance sheet mix and a maturing swap were partially offset by higher deposit costs.

Jamie Moses: Looking forward, we expect the NIM in the third quarter to be relatively flatish. We continue to believe that the balance sheet reprising dynamics support an upward trend for the NIM. But the timing and pace of rate cuts will impact that absolute level.

Jamie: Looking forward, we expect the NIM in the third quarter to be relatively flattish.

Jamie: We continue to believe that the balance sheet repricing dynamics support an upward trend for the NIM, but the timing and pace of rate cuts will impact that absolute level.

Jamie Moses: Turning to slide 7, non-interest income was $51.8 million, about $400,000 more than the prior quarter. Non-interest income in both the first and second quarters of this year included about $2 million of various insurance proceeds.

James M. Moses: Turning to slide 7, non-interest income was $51.8 million, about $400,000 more than the prior quarter. Non-interest income in both the first and second quarters of this year included about two million dollars of various insurance proceeds. So we continue to expect quarterly non-interest income to be in the $49 to $50 million range. Non-interest expenses were $6.7 million lower than the prior quarter. I have now recalled that first quarter expenses included the $4.1 million FDIC special assessment. We continue to expect our quarterly expense run rate to be in the $125 million range. And now, I'll turn it over to Lea.

Jamie: Turning to slide 7, non-interest income was $51.8 million, about $400,000 more than the prior quarter.

Jamie: Non-interest income in both the first and second quarters of this year included about $2 million of various insurance proceeds.

Jamie Moses: So we continue to expect quarterly non-interest income to be in the $49 to $50 million range. Non-interest expenses were $6.7 million lower than the prior quarter. I have now recalled that first quarter expenses included the $4.1 million FDIC special assets.

Jamie: So we continue to expect quarterly non-interest income to be in the $49-$50 million range.

Jamie: Non-interest expenses were $6.7 million lower than the prior quarter. Now recall that first quarter expenses included the $4.1 million FDIC special assessment.

Jamie Moses: International. We continue to expect our quarterly expense run rate to be in the $125 million range.

Jamie: We continue to expect our quarterly expense run rate to be in the $125 million range.

Lea Nakamura: And now I'll turn it over to Lee.

Lea M. Nakamura: Turning to slide 8, our overall credit quality remained excellent, and we saw improvement in a number of key credit metrics compared to the prior quarter. As Bob mentioned on a previous slide, we sold two criticized SNCC Lowe's at par for a total of $27.5 million in the second quarter. This action was part of our continuous credit monitoring and management process, and we currently do not see any areas of credit concern in the portfolio.

Lea Nakamura: Turning to slide eight, our overall credit quality remained excellent, and we saw improvement in a number of key credit metrics compared to the prior quarter.

Jamie: And now I'll turn it over to Lea. Thank you, Jamie.

Lea: Turning to slide 8, our overall credit quality remained excellent and we saw improvement in a number of key credit metrics compared to the prior quarter.

Lea Nakamura: As Bob mentioned on a previous slide, we sold two criticized six lows at bar for a total of $27.5 million in the second quarter. This action was part of our continuing credit monitoring and management process. And we currently do not see any areas of credit concern in the portfolio.

Lea: As Bob mentioned on a previous slide, we sold two criticized SNCC loans at BAR for a total of $27.5 million in the second quarter. This action was part of our continuous credit monitoring and management process, and we currently do not see any areas of credit concern in the portfolio.

Lea Nakamura: Moving to slide nine, we show our first quarter allowance for credit losses broken out by disclosure segments. The coverage ratio remained unchanged at 1.12%. We continue to stress test the portfolio and believe that we remain well covered.

Lea M. Nakamura: Moving to slide 9, we show our first quarter allowance for credit losses broken out by disclosure segment. The coverage ratio remained unchanged at 1.12%. We continue to stress test the portfolio and believe that we remain well covered. Turning to slide 10, we provide an updated snapshot of our CRE exposure. CRE represents approximately 30% of total loans and leases. Credit quality remains strong, with LTVs manageable, and criticized loans continuing to comprise a very small portion of the portfolio. Let me now turn the call back to Bob for any closing remarks.

Speaker Change: Moving to slide 9, we show our first quarter allowance for credit losses broken out by disclosure segments. The coverage ratio remained unchanged at 1.12%. We continue to stress test the portfolio and believe that we remain well covered.

Lea Nakamura: Turning to slide 10, we provide an updated snapshot of our series exposure.

Speaker Change: Turning to slide 10, we provide an updated snapshot of our CRE exposure. CRE represents approximately 30% of total loans and leases.

Lea Nakamura: CRE represents approximately 30% of total lows and leases. Credit quality remains strong, with LTV's manageable and criticized loans continuing to comprise a very small portion of the portfolio.

Bob: Credit quality remains strong, with LTVs manageable and criticized loans continuing to comprise a very small portion of the portfolio. Let me now turn the call back to Bob for any closing remarks.

Robert Harrison: Let me now turn the call back to Bob for any closing remarks.

Robert Scott Harrison: Thank you, Lea. Thank you, Jamie.

Robert Harrison: Thank you, Lee. Thank you, Jamie. All in all, we had a good quarter. We saw some very positive trends that will drive our performance in the second half of the year. Loan production is picking up deposits and deposit costs are stabilizing. Credit quality remains excellent. Expenses are well managed, and not an interest income is stable.

Robert Scott Harrison: All in all, we had a good quarter. We saw some very positive trends that will drive our performance in the second half of the year. Loan production is picking up. Deposits and deposit costs are stabilizing. Credit quality remains excellent, expenses are well managed, and non-interest income is stable. Now, we'd be happy to take your questions. Thanks.

Bob: Thank you, Lea. Thank you, Jamie. All in all, we had a good quarter. We saw some very positive trends that will drive our performance in the second half of the year.

Speaker Change: Loan production is picking up, deposits and deposit costs are stabilizing.

Speaker Change: Credit quality remains excellent, expenses are well managed, and non-interest income is stable.

Unknown Executive: Now we'd be happy to take your questions.

Operator: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from the line of Steven Alexopoulos from J.P. Morgan. Your line is now open.

Unknown Executive: Thank you. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again.

Speaker Change: Now we'd be happy to take your questions.

Speaker Change: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced.

Steven Alexopoulos: Our first question comes from the line of Steven Alexopoulos with Jake Morgan. Your line is now open.

Speaker Change: To withdraw your question, please press star 11 again.

Speaker Change: Our first question comes from the line of Steven Alexopoulos with J.P. Morgan. Your line is now open.

Steven Alexopoulos: Hi, everybody. I want to start. So Bob, on the loan outlook, you're sticking with low single digit. You're basically flat right now where you are at your end by my map. You need 300, 400 million of growth to get to low single digit in the second half.

Steven A. Alexopoulos: I want to start, so Bob, on the loan outlook, you're sticking with low single digits. You're basically flat right now where you were at your end. By my math, you need $300,000,000-$400,000,000 of growth to get to low single digits in the second half. Walk us through how you'll get there, like what will change that dramatically versus the first half.

Steven A. Alexopoulos: Hi everybody

Speaker Change: I want to start, so, Bob, on the loan outlook, you're sticking with low single digit, you're basically flat right now where you are at your end, by my math, you need 300, 400 million of growth to get to low single digit in the second half.

Robert Harrison: Can you walk us through how you'll get there, like what will change that dramatically versus the first half? Yeah, we saw some paydowns in the first half that we don't anticipate in the second half. That's part of it. You know, we're not swimming upstream as much. We think that the rate of indirect runoff was slow. For residential, we think that will continue to be a challenge, candidly. You know, so we're not expecting much change there from what we saw in the first half.

Speaker Change: Could you walk us through how you'll get there, like what will change that dramatically versus the first half?

Robert Scott Harrison: Yeah, we saw some paydowns in the first half that we don't expect in the second half. That's part of it. You know, we're not swimming upstream as much. We think that the rate of indirect runoff was slow.

Bob: Yeah, we saw some paydowns in the first half that we don't anticipate in the second half. That's part of it You know, we're not swimming upstream as much

Robert Scott Harrison: For residential, we think that will continue to be a challenge, candidly. You know, so we're not expecting much change there from what we saw in the first half. But on the commercial and CNI side, there's a number of transactions that are in the pipeline that we think are going to meaningfully add to our balances. You've also seen some of the comeback in dealer floor plan loans. Those are somewhat volatile, but you know, that is seemingly coming back.

Speaker Change: We think that the rate of indirect runoff was slow.

Bob: For residential, we think that will continue to be a challenge, candidly, you know, so we're not expecting much change there from what we saw in the first half. But on the commercial and CNI side, there's a number of transactions that are in the pipeline that we think are going to meaningfully add to our balances.

Robert Harrison: But on the commercial and CNI side, there's a number of transactions that are in the pipeline that we think are going to meaningfully add to our balances. You've also seen some of the come back in dealer floor plan loans. Those are some of volatile, but that is seemingly coming back.

Bob: You've also seen, you know, some of the comeback in dealer floor plan loans, those are somewhat volatile, but, you know, that is seemingly coming back.

Robert Harrison: If you kid with Kevin and Jamie, say it enough times, eventually it'll be true, which happens to be the case this quarter. But I think those are the real key areas.

Robert Scott Harrison: I kid with Kevin and Jamie. If you say it enough times, eventually it'll be true, which happened, you know, to be the case this quarter. But I think those are the really key areas, C&I, CRE, less so on the consumer side.

Speaker Change: It's like a kid with Kevin and Jamie, you say it enough times, eventually it'll be true, which happens to be the case this quarter. But I think those are the really key areas, C&I, CRE, less so on the consumer side.

Robert Harrison: CNI, CRE, less so on the consumer side.

Robert Scott Harrison: Got it. Bob, could you help us understand, so if you look at the paydowns that occurred in the first half, just so we see what you're looking at, and why you're confident they're not going to happen again in the second half? Is it just the maturities you had in the first half, and you don't have the same degree in the second half? Just help us understand what gives you the confidence on the paydown side.

Steven Alexopoulos: Bob, can you help us understand?

Steven Alexopoulos: So if you look at the paydowns that occurred in the first half, just so we see what you're looking at, why you're confident they're not going to repeat it in the second half.

Speaker Change: Got it. Bob, could you help us understand, so if you look at the paydowns that occurred in the first half, just so we see what you're looking at.

Robert Harrison: Is it just maturities you had in the first half, and you don't have the same degree in the second half? Just help us understand what gives you the confidence on the paydowns.

Speaker Change: Why you're confident they're not going to repeat again the second half, is it just maturities you had in the first half and you don't have the same degree in the second half? Just help us understand what gives you the confidence on the paydown side.

Robert Harrison: site. Yeah, we saw several loans pay off on the construction site in the first half. One of those we liked, which was just quarter, we talked about it on the last call, was at $24.5 million. Substantor multifamily deal that paid off, you know, that was sooner than expected, but welcome. The couple deals we just sold at par; you know, we're not looking to prune the portfolio anymore at this time. So that is again helpful. We're not expecting too much in the way of construction completion during the second half of the year, so that continued build is, you know, the draws come in over the next six months will be helpful.

Robert Scott Harrison: Yeah, we saw several loans pay off on the construction side in the first half. One of those we liked, which was this quarter, we talked about it on the last call, was that $24.5 million substandard multifamily deal that paid off. That was sooner than expected but welcome. The couple of deals we just sold at PAR, we're not looking to prune the portfolio anymore at this time. So that is, again, helpful. Construction completion during the second half of the year, so that continued build as the draws come in over the next six months will be helpful. So those are really the things, Steve.

Bob: Yeah, we saw several loans pay off on the construction side in the first half. One of those we liked, which was this quarter, we talked about it on the last call, was that

Speaker Change: 24 and a half million dollar.

Speaker Change: Substandard

Speaker Change: multifamily deal that paid off, you know, that was sooner than expected, but welcome.

Speaker Change: The couple deals we just sold at PAR, you know, we're not looking to prune the portfolio anymore at this time.

Speaker Change: So that is, again, helpful. We're not expecting too much in the way of...

Speaker Change: construction completion during the second half of the year so that that continued build is, you know, the draws come in over the next six months.

Robert Harrison: So those are really the things, Steve.

Robert Harrison: The wild card is still a little bit the dealer floor plan. It's hard to predict exactly what those balances will be. Right.

Robert Scott Harrison: The wild card is still a little bit the dealer floor plan. It's hard to predict exactly what those balances will be.

Speaker Change: will be helpful. So those are really the things, Steve. The wild card is still a little bit the dealer floor plan. It's hard to predict exactly what those balances will be.

Steven A. Alexopoulos: Right, okay. And then on the margin and the NII outlook, so it looks like, based on the inflation data today, we will very likely get a rate cut in September. Help us think through, you know, what your updated thoughts are on, you know, NIM, can you grow NIM, hold NIM flat with cuts, and can you grow net interest income, which is probably even more important, and the backdrop of the Fed cutting rates, I don't know, once per quarter or something.

Steven Alexopoulos: Okay. And then on the margin and I outlook, so it looks like based on the inflation day today, we will very likely get a rate cut in September. Help us think through, you know, what your updated thoughts are on, you know, can you grow, name, hold them flat with cuts and can you grow net interest income, which is probably even more important. And the backdrop of the Fed cutting rates, I don't know, once per quarter or something like that.

Speaker Change: Right.

Speaker Change: Okay, and then on the margin and NII outlook, so it looks like, based on the inflation data today, we will very likely get a rate cut in September . Help us think through, you know, what your updated thoughts are on

Speaker Change: Can you grow NIM, hold NIM flat with cuts, and can you grow net interest income, which is probably even more important, in the backdrop of the Fed cutting rates, I don't know, once per quarter or something like that?

Robert Harrison: Yeah, that's a great, great question, Steve. So from a, from a NIMM perspective, I guess I would say that we can, we expect the trajectory of the NIMM to continue to rise. But if there is a rate cut, just on an absolute level, the NIMM will decline in the quarter that there is a rate cut. You know, we still do have a slightly asset sensitive balance sheet. And we'd also expect one month so far to lower itself in anticipation of rate cuts as well. So, you know, repricing of loans happens slightly ahead of the repricing of deposits.

Robert Scott Harrison: Yeah, that's a great question, Steve. So from a NIM perspective, I guess I would say that we expect the trajectory of the NIM to continue to rise, but if there is a rate cut, just on an absolute level, NIM will decline in the quarter that there is a rate cut. We still do have a slightly asset-sensitive balance sheet, and you'd also expect one month's SOFR to lower itself in anticipation of rate cuts as well.

Speaker Change: That's a great, great question, Steve. So from a NIM perspective, I guess I would say that that we can, we expect

Speaker Change: the trajectory of the NIMH to continue to rise.

Speaker Change: But if there is a rate cut just on an absolute level, the NIM will decline in the quarter that there is a rate cut. You know, we still do have

Robert Scott Harrison: So repricing of loans happens slightly ahead of the repricing of deposits, and so you'll see a small decline in the NIM based on that. But then the underlying dynamics of the balance sheet should allow us to actually increase NIM even under the backdrop of rate cuts, but at lower absolute levels.

Speaker Change: A Slightly Asset-Sensitive Balance Sheet.

Speaker Change: And you'd also expect one month SOFR to lower itself in anticipation of rate cuts as well. So, you know, repricing of loans happens slightly ahead of the repricing of deposits. And so you'll see a small decline in the NIM based on that. But then the underlying dynamics of the balance sheet should allow us to actually increase NIM even through the backdrop of rate cuts, but at, you know, lower absolute levels.

Robert Harrison: And so you'll see a small decline in the NIMM based on that, but then the underlying dynamics of the balance sheet should allow us to actually increase NIMM even through the backdrop of a, of rate cuts, but at, you know, lower absolute levels.

Robert Harrison: Okay, and what about your ability to grow net interest income? Right, so net interest income, that's, yeah, sorry about that, Steve. So the, that will be dependent upon long growth, you know, continued rotation out of securities and into loans.

Steven A. Alexopoulos: Okay, and what about your ability to grow net interest income?

Robert Scott Harrison: Right, so net interest income, that's, yeah, sorry about that Steve, so that will be dependent upon loan growth. Continued rotation out of securities and into loans could help us grow NII, but, you know, on an apples-to-apples basis, NII would decline in that scenario. And just to add to that, Jamie's comments, which I agree with 100%, is that the stabilization of our deposit balances is a big part of that as well. And at some point, if they start going the other way, which they haven't yet, you know, that would certainly be helpful.

Speaker Change: Okay, and what about your ability to grow net interest income?

Speaker Change: Right, so net interest income, that's, yeah, sorry about that Steve, so that will be dependent upon loan growth, you know, continued rotation out of securities and into loans, that could help us grow NII, but, you know, on an apples-to-apples basis, the NII would decline in that scenario.

Robert Harrison: That could help us grow NII, but, you know, on an Apple's apples basis, the NII would decline in that scenario. And just to add to that, the Jamie's comments, which I grew with 100%, is, you know, the stabilization of our deposit balances is a big part of that as well. But at some point, they start going the other way, which they haven't yet. You know, that would certainly be helpful.

Jamie: And just to add to that, to Jamie's comments, which I agree with 100%, is the stabilization of our deposit balances is a big part of that as well.

Speaker Change: And at some point, if they start going the other way, which they haven't yet, you know, that would certainly be helpful.

Steven Alexopoulos: Okay, and then thank you.

Steven A. Alexopoulos: And then, thank you. Just finally, on the securities portfolio, the yield really jumps out quite a bit because of how low it is. And I know you're not reinvesting there, which is a factor, but still 6 billion of securities or so. Have you guys looked into or seen quite a few banks for portfolio restructuring so that you have the capital to pick up yield? What are your thoughts there? Thanks.

Steven Alexopoulos: Just finally, on the securities portfolio, the yield really jumps out quite a bit how low it is. And I know you're not reinvesting there, which is a factor, but still six billion out securities or so.

Speaker Change: And then, thank you, just finally, on the securities portfolio, the yield...

Speaker Change: really jumps out quite a bit how low it is. And I know you're not reinvesting there, which is a factor, but still 6 billion of securities or so. Have you guys looked into or seen quite a few banks to portfolio restructuring to you have the capital to pick up yield?

Robert Harrison: Have you guys looked into or seen quite a few banks to portfolio restructuring to, you have the capital to pick up? Guild. What are your thoughts there?

Robert Harrison: Thanks. Yeah, thanks, Steve. So, you know, we're aware we've seen we've seen people do that out in the marketplace. You know, we did that a little bit in the fourth quarter of last year. But, you know, we continue to think that the right move here is to sort of, you know, continue to run the securities balances down, you know, and just try to rotate that into a long growth at the moment. So, you know, we're aware we kind of weigh the costs and benefits of that. You know, we understand why people do it. We under, you know, we understand the the reasonings behind it.

Robert Scott Harrison: Yeah, yeah, thanks, Steve. So, you know, we're aware, we've seen, we've seen people do that out in the marketplace. We did that a little bit in the fourth quarter of last year. But, you know, we continue to think that the right move here is to sort of, you know, continue to run the securities balances down, and just try to rotate that into loan growth at the moment. So, you know, we're aware; we kind of weigh the costs and benefits of that.

Speaker Change: What are your thoughts there?

Speaker Change: Yeah, thanks, Steve. So, you know, we're aware we've seen we've seen people do that out in the marketplace, you know, we did that a little bit in the fourth quarter of last year. But, you know, we continue to think that the right move here is to sort of.

Speaker Change: You know, continue to run the security balances down.

Speaker Change: You know and just try to rotate that into loan growth at the moment So, you know, we're aware we kind of weigh the costs and benefits of that You know, we understand why people do it. We under you know, we understand the the reasonings behind it, but you know at the moment We're comfortable with how we're managing it, which is to just continue to run securities down and try to rotate that into loan growth

Robert Scott Harrison: You know, we understand why people do it; we underwrite, you know, we understand the reasoning behind it. But, you know, at the moment, we're comfortable with how we're managing it, which is to just continue to run securities down and try to rotate that into loan growth.

Robert Harrison: But, you know, at the moment, we're comfortable with how we are managing it, which is to just continue to run securities down and try to rotate that into a long growth.

Robert Scott Harrison: Steve, there's one clarification we want to make with you as well, that on the million dollar donation in Maui, along with the Federal Home Loan Bank, that did come from the bank, as it has to in that situation, but they triple matched us, so we put in a quarter million, and they put in 750,000, so the total is a million dollars. So just to give you that additional detail. Oh, God, I've got it. Oh my!

Robert Harrison: Steve, there's one clarification we want to make with you as well that on the million dollar donation of Maui that along with the federal home loan bank that did come from the bank is it has to in that situation, but they triple matched us. So, we put in a quarter million, and they put in 750,000. So, the total is a million. So, just to give you that additional detail. Got it. Okay.

Steve: And Steve, there was one clarification we wanted to make with you as well, that on the million dollar donation in Maui, along with the Federal Home Loan Bank, that did come from the bank, as it has to in that situation, but they...

Steve: Triple matched us, so we put in a quarter million and they put in 750,000, so the total is a million. So just to give you that additional detail. Got it, got it. Okay, thank you. Alright, thanks for taking my questions.

Steven A. Alexopoulos: Got it, got it. Okay, thank you. Alright, thanks for taking my questions.

Steven Alexopoulos: Thank you. All right. Thanks for taking my questions. Thank you.

David Feaster: Our next question comes from the line of David Feaster with Raymond James. She'll let us know open.

Operator: Our next question comes from the line of David Feaster with Raymond James. Your line is now open.

Speaker Change: Thank you. Our next question comes from the line of David Feaster with Raymond James. Your line is now open.

David Pipkin Feaster: Hey, good morning, everybody. I just wanted to dig into maybe some of the core deposit trends. You laid out some of the dynamics that we saw in the quarter, public funds moving out, some of the pressures on retail and commercial deposits. But I was hoping you could maybe talk about some of the movement that you saw throughout the quarter, you know, kind of from early in the quarter through quarter end. And what gives you confidence that things are stabilizing?

David Feaster: All right.

Robert Harrison: Good morning, everybody. I just wanted to dig into maybe some of the quarter positive trends. You laid out some of the dynamics that we saw in the quarter, public funds moving out some of the pressures on retail and commercial deposits. But I was hoping you could maybe talk to about some of the movement that you saw throughout the quarter, you know, kind of from early in the quarter through quarter and and what gives you confidence that that things are are stabilizing. Thanks, Dave. So we saw most of the deposit outflow happen in the first part of the quarter.

David Pipkin Feaster: Good morning, everybody.

David Pipkin Feaster: I just wanted to dig into maybe some of the core deposit trends. You laid out some of the dynamics that we saw in the core of public funds moving out.

David Pipkin Feaster: some of the pressures on retail and commercial deposits. But I was hoping you could maybe talk to about some of the movement that you saw throughout the quarter, you know, kind of from early in the quarter through quarter end, and what gives you confidence that things are stabilizing?

Robert Scott Harrison: Thanks, Dave. So we saw most of the deposit outflow happen in the first part of the quarter. Now, you know, we saw the same thing in the first quarter as well. But the overall magnitude of the change, in particular on the non-interest-bearing deposit side, was significantly less in Q2 than it was in Q1. And so, you know, we continue to be cautious around that. But, you know, we think that the magnitude of the deposit shift, changing the way it did, really makes us hopeful for the rest of the year.

Speaker Change: Thanks, Dave. So we saw

Speaker Change: We saw most of the deposit outflow happen in the...

Robert Harrison: Now, you know, we saw the same thing in the first quarter as well. But the overall magnitude of the change in particular, I'm not interested bearing deposit side was significantly less in Q2 than it was in Q1. And so, you know, we continue to be cautious around that. But, you know, we think that the magnitude of the deposit shift. Changing the way it did is really, you know, makes us hopeful for the rest of the year. It gives us some confidence that we think that those dynamics are slowing, for sure. And again, when you think about this in the context of the greater economy and rate cuts looming, we think that, you know, we think that the kind of the worst is over in terms of folks shifting out of non-interest bearing into interest-bearing deposits.

Speaker Change: first part of the quarter. Now, you know, we saw the same thing in first quarter as well. But the overall magnitude of the change, in particular, a non-interest bearing deposit side, was significantly less in Q2 than it was in Q1.

Speaker Change: And so, you know, we continue to be cautious around that, but, you know, we think that the magnitude of the deposit shift.

Speaker Change: Changing the way it did is really, you know, makes us hopeful for the rest of the year. It gives us some confidence that we think that those dynamics are slowing for sure. And again, when you think about

Robert Scott Harrison: It gives us some confidence that we think that those dynamics are slowing for sure. And again, when you think about this in the context of the greater economy and rate cuts looming, we think that, you know, we think that the kind of worst is over in terms of folks shifting out of non-interest bearing into interest bearing.

Speaker Change: This in the context of the greater economy and rate cuts looming, we think that, you know, we think that the kind of the worst is over in terms of folks shifting out of non-interest bearing into interest bearing deposits.

David Feaster: All right, that's that's great color.

Robert Scott Harrison: All right, that's that's a great color. And then, maybe, somewhat of a difficult question to answer, because there are a lot of moving parts. But I'm just curious, how do you think about the size of the balance sheet going forward? Obviously, we talked about loan growth, and it's improving, and maybe to the extent that we do get core deposit growth, would you expect to reduce higher-cost funding and use securities cash flows to fund growth, and the balance sheet maybe remain relatively stable or even decline? I am just kind of curious; how do you think about it?

Robert Harrison: And then maybe somewhat of a difficult question to answer, because there are a lot of moving parts. But I'm just curious, how do you think about the size of the balance sheet going forward? Obviously, we talked about, you know, long growth improving. And maybe to the extent that we do get core deposit growth, would you expect to reduce higher-cost funding and use securities cash flows to fund growth and the balance sheet maybe remain relatively stable or even decline? I just kind of curious, how do you think about it?

Speaker Change: All right, that's that's great color. And then maybe somewhat of a difficult question to answer because there are a lot of moving parts, but

Speaker Change: I'm just curious, how do you think about the size of the balance sheet going forward? Obviously, we talked about...

Speaker Change: you know, loan growth improving. And maybe to the extent that we do get core deposit growth, would you expect to

Speaker Change: to reduce higher cost funding and use securities cash flows to fund growth and the balance sheet maybe remain relatively stable or even decline. I'm just kind of curious, how do you think about it?

Jamie Moses: Yeah, Dave, maybe I'll start, then hand it off to Jamie. So we see that shrinkage slowing is deposit runoff is slowing, and that's a really drives it for us. You know, we are in a situation with 70% longer deposit ratio where we're stretching and doing outside funding, you know, market-based funding to be able to fund long growth. So, as the securities portfolio runs off and the deposit is stabilized, that should give us a floor on really where the balance sheet is at. But Jamie, anything you'd add to that?

Robert Scott Harrison: Yeah, Dave, maybe I'll start and then hand it off to Jamie. So we see that the shrinkage is slowing because deposit runoff is slowing. And that's what really drives it for us. You know, we aren't in a situation with a 70% loan-to-deposit ratio where we're stretching and doing outside funding, you know, market-based funding to be able to fund loan growth. So as the securities portfolio runs off, and the deposits stabilize, that should give us a floor on really where the balance sheet is at.

Speaker Change: Yeah, Dave, maybe I'll start and then hand it off to Jamie. So we see that that shrinkage slowing, as deposit runoff is slowing, and that's what really drives it for us.

Dave: You know, we aren't in a situation with 70% loan to deposit ratio where we're stretching and doing outside funding, you know, market-based funding to be able to fund loan growth.

Dave: So, as the securities portfolio runs off and the deposits stabilize, that should give us a floor on really where the balance sheet is at. But Jamie, anything you'd add to that? Yeah, no, I think you said it really well, Bob.

James M. Moses: But Jamie, anything you'd add to that? Yeah, no. I think you said it really well, Bob. Okay.

Jamie Moses: Yeah, no, I think you said it really well about it. Okay.

David Pipkin Feaster: Okay, okay, that makes sense. And then last one for me, I just wanted to touch on the HELOC side.

David Feaster: Okay, that makes sense.

Robert Harrison: And then last one for me, just want to touch on the Hewock side. Look, that's the largest portion of your MPAs. I just wanted to get a sense of what you're seeing in that book. It may be how do you think about the mortgage portfolio as well? And I know you mentioned that things are stable, but just any thoughts on the housing market more broadly.

Speaker Change: Okay, okay, that makes sense. And then last one for me, just wanted to touch on the HELOC side. Look, that's the largest portion of your MPAs. I just wanted to get a sense of what you're seeing in that book. It may be, how do you think about the mortgage portfolio as well? And I know you mentioned that things are stable, but just any thoughts on the housing market more broadly?

Robert Scott Harrison: Look, that's the largest portion of your MPAs. I just wanted to get a sense of what you're seeing in that book. It may be, how do you think about the mortgage portfolio as well? And I know you mentioned that things are stable, but just any thoughts on the housing market more broadly.

Robert Harrison: Maybe I'll start and see if Lee has any comments to add. You know, the housing market is just so strong here. It's really, you know, we saw pricing continue to move up. There's very little supply coming out market. What is out there is still getting multiple, multiple bids. So, we're not seeing the need to really, any of the borrowers to discount.

Robert Scott Harrison: Maybe I'll start and see if Lee has any comments to add. You know, the housing market is just so strong here. It's really, you know, we saw Pricing continued to move up, and there's very little supply coming on the market. What is out there is still getting multiple, multiple bids. So we're not seeing the need for any of the borrowers to really discount. So we're not seeing that as an issue, but specific to the HELOC, I'll defer to Lea.

Speaker Change: Maybe I'll start and see if Lea has any comments to add. You know, the housing market is just so strong here. It's really, you know, we saw

Lea: Pricing continued to move up. There's very little supply coming on market. What is out there is still getting multiple, multiple bids, so we're not seeing the need to really, any of the borrowers to discount. So we're not seeing that as an issue, but specific to the HELOC, I'll defer to Lea.

Lea Nakamura: So, we're not seeing that as an issue, but specific to the Hewock, I'll defer to Lee. As far as criticality, we continue to monitor it closely, but we're not seeing anything within the portfolio that we feel is outside of what we would normally expect. But at this point, we're quite comfortable still with the portfolio and how it's performing. But, you know, it's not easy out there, you know. Unemployment is low, but it's still we live in a high cost state, and, you know, that's the balance. There's still some stress in a number of people's daily lives for income.

Lea M. Nakamura: As far as credit quality is concerned, we continue to monitor it closely, but we're not seeing anything within the portfolio that we feel is outside of what we would normally expect. So at this point, we're quite comfortable with the portfolio and how it's performing.

Lea: As far as credit quality, we continue to monitor it closely, but we're not seeing anything within the portfolio that we feel is outside of what we would normally expect, but at this point we're quite comfortable still with the portfolio and how it's performing.

Robert Scott Harrison: Yeah, but, you know, it's not easy out there, unemployment is low, but it's still, we live in a high-cost state, and, you know, that's the balance that there's still some stress and a number of people. Daily Lives for Income.

Lea: Yeah, but you know, it is, it's not easy out there, you know, unemployment is low, but it's still, we live in a high cost state and you know, that's the balance that there's still some stress. It...

Lea: and a number of people.

Robert Harrison: Yeah. Okay. We'll work. All right. Yep.

David Pipkin Feaster: Go lower. Yep. Thanks, everybody.

Lea: Daily Lives for INCO.

Unknown Executive: Thanks, everybody. Thank you.

Speaker Change: Okay, all right, yep, thanks everybody.

Andrew Liesch: Our next question comes from the line of Andrew Leish with Piper Sandler. Your line is now open.

Operator: Our next question comes from the line of Andrew Liesch with Piper Sandler. Your line is now open.

Andrew Brian Liesch: Thank you. Our next question comes from the line of Andrew Liesch with Piper Sandler. Your line is now open.

Andrew Brian Liesch: Hey guys, good morning. Question on capital here. It continues to build these last several quarters now above the CET1 ratio at 12% that you've been targeting over the long term. So what are your thoughts on the buyback, and then the dividend has been at this level for some time. Just curious sort of capital return thoughts.

Andrew Liesch: Hey, guys. Good morning. Question on capital here. It continues to build these last several quarters. Now, above the CET1 ratio, it's 12% that you've been targeting over the long term. So, what are your thoughts on the buy back? And then the dividend has been at this level for some time. So, curious sort of the capital return thoughts. Yeah. Thank you, Andrew. Great question. You know, maybe starting with the dividend, you know, we had started out when the public almost eight years ago to the day now that the relatively high dividend payout of roughly 50%. And so we're still at that, you know, 50, 54%, 55%; we're very comfortable with.

Andrew Brian Liesch: Hey guys, good morning.

Speaker Change: Unknown Speaker This has been a presentation of the U.S. Department of State.

Speaker Change: Question on capital here. It continues to build these last several quarters now above the CET-1 ratio at 12% that you've been targeting over the long term. So what are your thoughts on the buyback and then the dividend has been at this level for some time. Just curious sort of capital return thoughts.

Robert Scott Harrison: Yeah, thank you, Andrew. Great question.

Robert Scott Harrison: You know, maybe starting with the dividend, we had started out when we went public almost eight years ago to the day now with a relatively high dividend payout of roughly 50%. And so we're still at that, you know, 50, 54%, 55%. We're very comfortable with it. We think that's a very solid payout.

Speaker Change: Yeah, thank you, Andrew. Great question. You know, maybe starting with the dividend, you know, we had started out when we were public almost eight years ago to the day now, that with a relatively high dividend payout of roughly 50%.

Speaker Change: And so we're still at that, you know, 50, 54%, 55%. We're very comfortable with we think that's a very solid payout. We'll certainly look at that as as income grows over time.

Robert Harrison: We think that's a very solid payout. We'll certainly look at that as income grows over time.

Robert Harrison: But we are going to start looking in the second half of the year that I think we talked about earlier for restarting the buybacks. There's still people out there, you know. Well, name names, but there's still people out there. There's still, you know, doing marks and looking at us kind of oddly, in my opinion, but I won't delve into that. So we still think of the prudent time to have adequate capital, but at some point in the second half of the year, you can look to us to restart the buybacks. Project.

Robert Scott Harrison: We'll certainly look at that as income grows over time. But we are going to start looking in the second half of the year, as I think we talked about earlier, about restarting the buybacks. There are still people out there. I won't name names, but there are still people out there that are still, you know, doing marks and looking at us, kind of oddly, in my opinion, but I won't delve into that. So we still think it is a prudent time to have adequate capital. But at some point in the second half of the year, you can look to us to restart the buyback.

Speaker Change: But we are going to start looking in the second half of the year, as I think we talked about earlier, for restarting the buybacks. There's still people out there, I won't name names, but there's still people out there that are still, you know, doing marks and looking at us.

Speaker Change: kind of oddly, in my opinion, but I won't delve into that. So we still think it's a prudent time to have adequate capital. But at some point in the second half of the year, you can look to us to restart the buybacks.

Andrew Liesch: Got it.

Andrew Brian Liesch: Got it. All right. That's helpful. And then among your deposit commentary earlier, sorry if I missed it, but the public funds, is that reduction there just planned just because you don't necessarily need that funding? And I guess how do you think those funds will trend over the balance of the year, with any seasonality?

Andrew Liesch: All right, that's helpful.

Jamie Moses: And then among your deposit commentary earlier, sorry if I missed it, but the public funds, is that the reduction there just plans because you don't necessarily need that funding? And I guess how do you think those trends, how those funds will trend over the balance of the year with any seasonality? Yeah, Andrew, Jamie, so the public, most of that decline in public deposits was in public time deposits, which is what we use to sort of fund any gaps that we find on the balance sheet that we give them point in time. And so we would continue to see; we would expect to continue to see that decline over time.

Speaker Change: Got it. All right. That's helpful. And then among your deposit commentary earlier, sorry if I missed it, but the public funds, is that reduction there?

Speaker Change: is that just a plan just because you don't necessarily need that funding, and I guess how do you think those funds will trend over the balance of the year with any seasonality?

James M. Moses: Yeah, Andrew, this is Jamie. So the public, most of that decline in public deposits was in public time deposits, which is what we use to sort of fund any gaps that we find on the balance sheet at any given point in time. And so we would continue to see, we would expect to continue to see that decline over time. And in terms of seasonality, I don't, you know, we don't see much in the way of seasonality in the other operating public accounts. It's much more of, you know, inflows and outflows based on whatever operations are happening at the time with those, you know, with those entities.

Jamie: Yeah, Andrew, this is Jamie. So the public, most of that decline in public deposits was in public time deposits, which is what we use to sort of fund any gaps that we find on the balance sheet at any given point in time.

Andrew Brian Liesch: And so we would continue to see, we would expect to continue to see that decline over time. And in terms of seasonality, I don't, you know, we don't see, don't see much in the way of seasonality in the other operating public accounts. It's much more of, you know, inflows and outflows based on whatever operations are happening at the time.

Jamie Moses: And in terms of seasonality, I don't, you know, we don't see, don't see much in the way of seasonality in the other operating public accounts. It's much more of, you know, inflows and outflows based on whatever operations are happening at the time, you know, with those, you know, with those entities. Got it. Very helpful. Thanks for taking the questions here.

Andrew Brian Liesch: Got it. Very helpful. Thanks for taking the questions here. I'll step back.

Andrew Brian Liesch: You know, with those, you know, with those entities.

Andrew Liesch: I'll step back. Thank you.

Speaker Change: Got it. Very helpful. Thanks for taking the questions here. I'll step back.

Operator: Thank you. As a reminder to ask a question at this time, please press star 11 on your touchtone telephone. Our next question comes from the line of Kate Ashley with KBW. Your line is now open.

Unknown Executive: As a reminder to ask a question at this time, please press star 11 or your touchstone telephone.

Speaker Change: Thank you. As a reminder to ask a question at this time, please press star 1-1 on your touchtone telephone.

Kate Ashley: Our next question comes from the line of Kate Ashley with KBW. Your line is now open.

Speaker Change: Our next question comes from the line of Kate Ashley with KBW. Your line is now open.

Kate Ashley: Hi, this is Kate on behalf of Kelly Motta. Okay. Okay. Just back on the margin, so it came in a bit better than you'd expected last quarter. I was just wondering if you could walk us through any differences from what you were initially expecting versus what we saw.

Kate Ashley: This is Kate on for Kelly Mata. So just back on the margin, so came in a bit better than you'd expected last quarter. I was just wondering if you could walk us through any differences from what you're initially expecting versus what we saw. Yeah, I think, you know, the last, last quarter, we talked about, you know, slowing, non-interest bearing deposit in my grade. And generally speaking, I would say that was the thing that came in better than what we had modeled through the range of outcomes that we were giving as forming our guidance. And so that was the thing that kind of came in better for us than anticipated.

Kate Ashley: Hi, this is Kate on for Kelly Motta.

Kate Ashley: and Kevin Haseyama. Thank you. Thank you.

Speaker Change: Just to back on the margin, so came in a bit better than you'd expected last quarter, I was just wondering if you could walk us through any differences from what you were initially expecting versus what we saw.

James M. Moses: Yeah, I think, you know, the last quarter we talked about slowing non-interest-bearing deposit migration, and generally speaking, I would say that was the thing that came in better than what we had modeled through the range of outcomes that we were giving as forming our guidance. And so that was the thing that kind of came in better for us than anticipated.

Speaker Change: Yeah, I think, you know, the last quarter we talked about

Speaker Change: you know, slowing non interest bearing deposit migration.

Speaker Change: And generally speaking, I would say that was the thing that came in better than what we had modeled through the range of outcomes that we were giving as forming our guidance.

James M. Moses: And so, you know, that still continues to inform the guide as we go forward. That will be, the pace of non-interest-bearing deposit inflows and outflows will really determine sort of the shape of the NIM along with loan growth. And of course, if, you know, rate cuts happen, that will impact it as well.

Robert Harrison: And so, you know, that still continues to inform the guide as we go forward. That will be, you know, the pace of non-interest bearing deposit inflows and outflows will really determine sort of the shape of the name along with long growth. And of course, if you know, rate cuts happen, that will impact as well. Great.

Speaker Change: That was the thing that kind of came in better for us than anticipated. And so, you know, that still continues to inform the guide as we go forward. That will be, you know, the pace of non-interest bearing deposit inflows and outflows will really determine sort of the shape of the NIM along with loan growth. And of course, if, you know, rate cuts happen.

Kate Ashley: Great, that's helpful. Thank you. Thank you.

Robert Harrison: That's helpful.

Unknown Executive: Thank you.

Speaker Change: That will impact it as well.

Speaker Change: Great, that's helpful. I'll step back. Thank you.

Timur Braziler: Our next question comes from the line of teamer Braviller with Wells Fargo Security. She'll let us open.

Operator: Our next question comes from the line of Timur Braziler with Wells Fargo Security. Your line is now open.

Speaker Change: Thank you. Our next question comes from the line of Timur Braziler with Wells Fargo Security. Your line is now open.

Timur Braziler: Hi, good morning. Good morning. I'm just curious what the pace of bond repricing is over the next couple of quarters. And if you can give us a sense of kind of the runoff rate for what's coming to us.

Timur Felixovich Braziler: I'm just curious what the pace of bond repricing is over the next couple of quarters and if you can give us a sense of the kind of runoff rate for what's coming.

Timur Felixovich Braziler: Hi, good morning.

Timur Felixovich Braziler: Good morning. Good morning.

Timur Felixovich Braziler: I'm just curious what the pace of bond repricing is over the next couple of quarters. And if you can give us a sense of the runoff rate for what's coming down.

James M. Moses: Are you specifically talking about the securities portfolio, Timur? Yeah, yeah, yeah. So we have about We're running off about 15 million a month or so in the securities book. So that's a $600 million total throughout the year. And those are coming off, you know, in that 215 to 225 range, depending on the bond, the runoff is roughly in line with what the portfolio yield is.

Jamie Moses: Are you, you're specifically talking about the security portfolio, teamer. Yeah. So we have about, we're running off at about 50 million a month or so. In the securities book. So that's a $600 million total throughout the year. And those are coming off, you know, in that two 15 to 25 range, you know, depending on the, depending on the bond. The runoff is roughly in line with what the portfolio yields.

Speaker Change: Are you, you're specifically talking about the Securities Portfolio, Timur?

Speaker Change: Yeah.

Speaker Change: Yeah, yeah, so we have about, we're running off at about $15 million a month or so in the securities book.

Speaker Change: So that's a $600 million total throughout the year, and those are coming off, you know, in that $215, $225 range, you know, depending on the bond. The runoff is roughly in line with what the portfolio yield is.

Robert Harrison: is. And then maybe looking at the link order increase in dealer floor plan.

Timur Felixovich Braziler: And then maybe looking at the link order increase in dealer floor plans. I mean, that was a nice little bump there, but your comments maybe suggest that one quarter doesn't make a trend. Can you just maybe give us a sense of what's going on within that industry and why maybe the results this quarter don't portend to a rebound in that space?

Speaker Change: And then maybe looking at the link order increase in dealer floor plan, I mean, that was a nice little bump there, but your comments.

Robert Harrison: I mean, it was a nice little bump there, but your comments maybe suggest that one quarter doesn't make a trend. Can you just maybe give us a sense of what's going on within that industry and why maybe the results this quarter don't port them to a rebound in that space. Well, we think there is this Bob, so we think there's going to be a natural rebuilding over time. I mean the dealers were able to have a very attractive environment there for a while with very high demand and low supply. And now we're seeing demand moderate a bit, and supply increase.

Speaker Change: maybe suggest that one quarter don't make a trend. Can you just maybe give us a sense of what's going on within that industry and why maybe the the results this quarter don't portend to a rebound in that space?

Robert Scott Harrison: We think there's going to be a natural rebuilding over time. Dealers were able to have a very attractive environment there for a while with very high demand and low supply, and now we're seeing demand moderate a bit and supply increase, so that's why you're starting to see inventories rebuild on the lot. There are some specific manufacturers, specific things that we could go into, but I think more broadly, it really is that as the economy slows and people slow down their willingness and ability to buy cars, and production continues to improve after all the slowdowns that we saw in the pandemic, that's why you're seeing balances kind of come back, and balances for us come back as inventory levels increase.

Speaker Change: We think there's going to be a natural rebuilding over time.

Timur Felixovich Braziler: Okay, and I guess why you made that statement? Why don't you think this trend is sustainable? Why do you think there's still a little bit of volatility?

Speaker Change: Dealers were able to

Speaker Change: have very attractive environment there for a while with very high demand and low supply. And now we're seeing demand moderate a bit and supply increase.

Robert Harrison: So that's why you're starting to see inventory is rebuilt on the lot. There's some specific, you know, manufacturers specific things that we could go into, but I think more broadly, it really is that as the economy slows and people slow down on their willingness and ability to buy cars, and production continues to improve after all the slowdowns that we saw in the pandemic, that that's why you're seeing balances kind of come back. Balances for us come back as inventory levels increase.

Speaker Change: So that's why you're starting to see inventories rebuild on the lot.

Speaker Change: There's some specific, you know, manufacturers.

Speaker Change: specific things that we could go into but I think you know more broadly it really is that that as the economy slows and people slow down on their

Speaker Change: Willingness and ability to buy cars and production continues to improve after all the slowdowns that we saw in the pandemic that That's why you're seeing balances kind of come back

Speaker Change: Balances for us come back as inventory levels increase.

Robert Harrison: Okay, and I guess why would that statement, why don't you think this trend is sustainable? Why do you think there's still a little bit of volatility? Well, you know, it just is they is the various manufacturers have not put a lot of programs out there just because they enjoyed, you know, very solid margins. And so, as inventory has built up and some of the various manufacturers' lines, I think there will be pressure, and we're starting to hear that.

Speaker Change: Okay and I guess why with that statement why don't you think this trend is sustainable? Why do you think there's still a little bit of volatility?

Robert Scott Harrison: Well, I, you know, it just is, is they, the various manufacturers have not put a lot of programs out there just because they enjoyed, you know, very solid margins. And so as inventory has built up in some of the various manufacturers' lines, I think there will be pressure, and we're starting to hear that. I'll be up in California next week to meet with our customers up there. There will be pressure on the manufacturers to create incentive programs to help the dealers move inventory.

Robert Scott Harrison: Oh, I

Speaker Change: Well, I, you know, it just is, is they, the various manufacturers have not put a lot of programs out there.

Speaker Change: just because they enjoyed, you know, very solid margins. And so as inventory has built up and some of the various manufacturers lines, I think there will be pressure and we're starting to hear that. I'll be up in California next week to meet with our customers up there.

Robert Harrison: I'll be up in California next week to meet with our customers up there. There will be pressure on the manufacturers to create incentive programs to help the dealers move inventory. And that's kind of the normal cycle. It just comes and goes, and it's that kind of give and take, that kind of back to the pre-COVID normalcy. And we will have to find out where that leaves us as far as inventory balances on a new run rate basis. Got it.

Speaker Change: There will be pressure on the manufacturers to create incentive programs to help the dealers move inventory, and that's kind of the normal cycle. It just, you know, it just comes and goes, and it's that kind of give and take it kind of back to the pre-COVID

Robert Scott Harrison: And that's kind of the normal cycle. It just, you know, just comes and goes. And it's that kind of give and take that kind of returns to the pre-COVID normalcy. And we will have to find out where that leaves us as far as inventory balances on a new run rate basis.

Speaker Change: Normalcy, and we will have to find out where that leaves us as far as inventory balances on a new run rate basis.

Timur Felixovich Braziler: Got it. And then just last for me looking at slide 10, multifamily criticized, you had mentioned that the loan discussed last quarter, that substandard loan, had been paid off, but it looks like the criticized balances there actually ticked up a little bit, so there's something backfilling that sale. And just maybe talk more broadly about what you're seeing with

Robert Harrison: And then just last for me looking at slide 10 multi-family criticize. You had mentioned that the loan discussed last quarter, that sub-patterned loan had been paid off, but it looks like the criticized balances there actually ticked up a little bit.

Speaker Change: Got it. And then just last for me, looking at slide 10.

Speaker Change: multifamily criticized. You had mentioned that the loan discussed last quarter, that substandard loan had been paid off, but it looks like the the criticized balances there actually ticked up a little bit. Did something backfill that sale? And just maybe talk more broadly about what you're seeing within that multifamily space.

Lea Nakamura: Did something backfill that sale and just maybe talk more broadly about what you're seeing within that multi-family space? Yeah, I think if you go back a couple more pages, you'll see that it was the one that paid off as multi-family construction. And so that that went to zero. What page was that, Lee? The solutions in the appendix. Construction, but the change in the multi-family criticize is mostly the denominator actually went down slightly. So there was no change. in the actual numerator or the amount of criticize. The percentage just changed slightly because of the denominator decreasing slightly on the quarter.

Robert Scott Harrison: Yeah, I think if you go back a couple more pages, you'll see that it was the one that paid off was multifamily construction, and so that went to zero. What page was that, Lea?

Speaker Change: Yeah, I think if you go back a couple more pages, you'll see that it was a, the one that paid off was multifamily construction.

Speaker Change: And so that went to zero. What page was that, Lea?

Lea M. Nakamura: Questions in the appendix, the slide is on slide 16, construction. But the change in the multifamily criticize is mostly because the denominator actually went down slightly. So there was no change. In the actual numerator, or the amount of criticism, the percentage just changed slightly because of the denominator decreasing slightly on the quarter. Yes, and the payoff is shown on the slide.

Lea: Questions in the appendix

Speaker Change: Unknown Speaker .

Speaker Change: construction but the change in the multifamily criticize is mostly the denominator actually went down slightly so there was no change

Speaker Change: In the actual numerator, or the amount of criticized, the percentage just changed slightly because

Robert Scott Harrison: And the payoff is shown on slide 16, Timur.

Timur Braziler: And the payoff is shown on slide 16, Timur. Got it.

Speaker Change: of the denominator decreasing slightly on the quarter.

Speaker Change: And the payoff is shown on slide 16, Timur.

Unknown Executive: Great. Thanks for the questions.

Unknown Executive: Thank you.

Operator: Thank you. And I'm currently showing no further questions at this time. I'd like to hand the call back over to Kevin Haseyama for closing remarks.

Timur Felixovich Braziler: Got it. Great. Thanks for the question.

Unknown Executive: And I'm currently showing no further questions at this time.

Kevin Haseyama: I like to hand the call back over to Kevin Haseyama for closing remarks. 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 have a good weekend.

Speaker Change: Thank you. And I'm currently showing no further questions at this time. I'd like to hand the call back over to Kevin Haseyama for closing remarks.

Kevin Haseyama: 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 have a good weekend.

Kevin Haseyama: We appreciate your interest in First Hawaiian and please feel free to contact me if you have any additional questions.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

Unknown Executive: This concludes today's conference call. Thank you for your participation.

Kevin Haseyama: Thanks again for joining us and have a good weekend.

Unknown Executive: You may now disconnect. You

Speaker Change: This concludes today's conference call. Thank you for your participation. You may now disconnect.