Q3 2024 First Hawaiian Inc Earnings Call
Thanks, David It's Jamie.
Duane: So we continue to see about a $400 million per quarter of fixed rate cash flows coming off the books.
Duane: And so you know that that repricing dynamic there so that's coming off let's say.
Duane: The 4.5% range or so new loans coming on with the rate cuts maybe in the six 5% to 7% range something like that.
Duane: In total I think that's probably the way to think about that in Q4 that dynamic itself is probably two to three basis points to the to the good for the NIM.
Duane: In Q4.
Duane: So.
Speaker Change: What's the dynamics there we think.
Speaker Change: When we when we really look at it our guidance is based off of another rate cut in November.
Speaker Change: And then we have the similar dynamics of that $6 billion of loans that repriced based off of that and about $4 5 billion of deposits that will reprice off of any sort of rate cut news as well. So we're getting to like maybe a two basis point decline in in Q4 on the NIM.
Speaker Change: Okay.
Speaker Change: Perfect and then.
Speaker Change: Then.
Speaker Change: Maybe just touching on your ability exclusive of those index deposits.
How are the conversations.
Speaker Change: You are having with repricing deposits lower.
Speaker Change: Kind of the new add on rate for new.
New deposit growth and is there any other ways to maybe help accelerate the margin side I mean.
Speaker Change: With rates coming down is there any change in the appetite for securities restructuring or anything like that.
Speaker Change: Maybe I'll start on that Dave and hand, it over to Jamie So.
Dave: On the on the way up we're very clear with our deposit customers that we were going to give them the full benefit of rate increases basically immediately.
Dave: On the way down we've adjusted Accordingly, and so those are the conversations we've been having with them over the last couple of years.
Dave: It's really borne out in.
Dave: Really transparent with folks and walking them through that so as far as onboarding new deposits of course, we're always trying to onboard new relationships, which includes operating accounts.
Dave: People's personal accounts. So there is an element of noninterest bearing and that along with interest bearing.
But to further your question, maybe I'll turn it over to Jamie, Yes, I think Bob summarized the deposit piece of that pretty well.
Dave: <unk>.
Jamie So: Those deposits are not specifically indexed but that's the expectation of our customers I think the teams have been really.
Jamie So: Good really proactive talking to them and everybody seems to understand sort of what the deal is on those and so I think that that.
Jamie So: That's been a good story for us for sure.
Speaker Change: And then in terms of securities restructure.
Speaker Change: See others do that we understand why they do it.
Speaker Change: <unk>.
Speaker Change: From my perspective, I think the share buyback.
Speaker Change: This quarter is probably.
Speaker Change: Sort of a better use of I don't know reduction in capital. If you want to think about a risk securities restructure that way I would think maybe thats, a better way to return capital to shareholders.
Speaker Change: At least this quarter and we'll continue to look at those things, but with a trajectory of continued declines in rates.
Speaker Change: Maybe we'd rather just have that accretion to tangible book value on the securities portfolio rather than try to.
Speaker Change: Remix it or do something different on the asset liability side.
I think that makes a lot of sense. Thanks, everybody.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Andrew Liesch of Piper Sandler question. Please Andrew.
Andrew Liesch: Hey, everyone. Good morning, Thanks for taking the questions.
Andrew Liesch: Want to just a question on the on the provision in the quarter and it looks like you build the reserve for the consumer in the home equity book, just curious what might be behind that doesn't sound like there's anything concerning so curious on the reserve build.
Speaker Change: I don't think it was particularly about consumer.
Speaker Change: You know FICO scores did go marginally lower but.
Speaker Change: We actually have some.
We have some key.
Speaker Change: Okay.
Speaker Change: Right.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: We're not actually not concerned about our home equity position.
Speaker Change: Oh yeah.
Speaker Change: To add to <unk> comments I think it's.
Speaker Change: We're very well scary little portfolio. So it's really not that emphasis we do our modeling we thought it was appropriate.
Speaker Change: Tweak some of the some of the coefficients as we've looked at that and.
It's how it ended up.
Speaker Change: Primarily quantitative side, but theres also a qualitative side to the model.
Speaker Change: Got it.
Speaker Change: Helpful and then.
Speaker Change: Jamie the $500 million of expenses for the full year I would assume that includes the $3 $8 million tax reversal in this quarter.
Speaker Change:
Speaker Change: I guess then if you if you look at how are you.
Speaker Change: We'll give more detailed guidance on the January call, but if you just look at the natural rate of expense growth.
Speaker Change: Given a lot of the investments that you've made lately I mean, just what do you think a better or a natural expense growth rate is.
Speaker Change: With all these investments now.
Speaker Change: That's a good question Andrew.
Speaker Change: We're in the budget process right now.
Right that's right.
Andrew Liesch: Got it.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: For us that weren't there before and so that we think are sort of natural growth rate of expenses is much more in line with what you would consider.
Speaker Change: What a normal banking industry growth rate. So we expect to be kind of in line with with that on a go forward basis in general.
And.
Speaker Change: So that's pretty significantly lower than the 556% that we've seen over the past two or three years.
Speaker Change: Got it.
Speaker Change: Good to hear thanks for taking the questions I will step back.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Jared Shaw of Barclays. Your line is open Jared.
Jared Shaw: Thanks, Good morning.
Maybe just.
Jared Shaw: Coming back to the.
Jared Shaw: The loan growth in the payoff activity you discussed this this quarter.
Jared Shaw: What's really driving that is that are you seeing other banks.
Jared Shaw: Taking.
Jared Shaw: Coming in and being aggressive for customers, what's sort of driving the elevated level of paydown payoff activity, especially on the C&I side.
Jared Shaw: Sure. Thanks, Joe. Good question. This is Bob So what happened there is a couple of deals.
Jared Shaw: Painted with others and we were.
Jared Shaw: The lead on in the floor plan area in the mainland.
Jared Shaw: Yes, maybe our pricing was a little bit higher as a group than someone else that came in and replace it. So it was really a more aggressive mainland lender in this one.
Jared Shaw: Pretty broadly syndicated 45 bank deal so we weren't the lead but.
Jared Shaw: That's what happens sometimes we're big.
Big Boys and girls.
Jared Shaw: You just have to be competitive in the market.
Jared Shaw: This is a very high quality names names for all that.
Jared Shaw: That's just the way it goes so maybe some sub segments of what we're doing this more competition, but nothing.
Jared Shaw: Nothing that doesn't make sense is just you know.
Jared Shaw: That's what happened on Sunday.
Speaker Change: Okay got it and then when you when you call out sort of the ability or the the outlook for floor plan growth.
Speaker Change: I'm, assuming that's sort of self originated versus participation and that is that okay.
Speaker Change: And are you able or is that just getting bigger with existing customers or are you actively out trying to take market share or are you expanding sort of the geographic footprint of that business.
Speaker Change: Not not expanding the geographic footprint, but new customers as well.
Speaker Change: Some new customers and some additional lines of existing customers.
Speaker Change: Okay. So a mix of all I'm not sure.
Speaker Change: A big question, but it is truly a mix of both got it got it okay and then in terms of the buyback.
Speaker Change: Yes.
Speaker Change: How aggressive should we think you are with.
Speaker Change: Whittling away at that that existing authorization.
Speaker Change: Should we be looking at.
Speaker Change: Near term.
<unk> target or what what's going to be the driving.
Factor on the pace of the buyback.
Speaker Change: Well, we have the as we've mentioned earlier in the year authorization for the $40 million and we expect that's where we'll stay.
Speaker Change: Okay.
Speaker Change: Okay. So what sets once that's done then not looking to reload it.
Speaker Change: For 2024, we tend to look at it okay.
Speaker Change: Yeah.
Speaker Change: Do it annually, so thats our annual outlook.
Speaker Change: That's part of our planning process for 2025, as we certainly looked at capital levels in the past, we talked about a minimum 4% CET one and clearly we are above that so that's part of the discussion we're having internally and we will have with the board and the various regulators.
Speaker Change: Got it thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line.
Speaker Change: Kelly Martha.
Speaker Change: Okay.
Speaker Change: Please go ahead.
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Speaker Change: Dynamics that Bob talked about in <unk> and also when we consider the positive operating leverage scenario right that you just brought up.
The challenge for a spread based bank is that when you expect rates to go down.
Speaker Change: We have a.
Speaker Change: Probably an expectation.
Speaker Change: On that net interest income is going to go down as well, which creates challenges around positive operating leverage as you know.
Speaker Change: As part of the reason for the question I'm sure.
Speaker Change: And so we're going to do everything that we can to try to minimize that drop in margin.
Speaker Change: Going to try to grow loans prudently manage our balance sheet as well as possible and be very proactive on the on the funding side as well.
Speaker Change: Try to extend our advantages that we have.
Speaker Change: In our markets to be able to to be able to do that and to try to create that positive operating leverage that youre talking about so.
Speaker Change: In a down rate environment.
Speaker Change: Tough in general probably to do that but I think.
Speaker Change: Think we're in a good position to be able to take advantage of all of our market.
And where we're at and so I.
Speaker Change: I think it's I think we're well positioned.
Speaker Change: To perform pretty well next year.
Thank you Jamie that's really helpful and I believe in your prepared remarks, you talked about some exception pricing where are you where you know maybe a pretty generous on the way up or more generous on the way up with.
Speaker Change: Operating free and Conversely, yet.
Speaker Change: Hum pretty ample room tech hardware with rate cuts.
Yeah.
Speaker Change: I apologize I may have missed it but have you have you quantified it all the magnitude of that piece of the deposit portfolio.
Speaker Change: Yeah, Yeah, we have so that's about that's about $4 $5 billion of deposits that is not directly tied to an index, but that we control the pricing on and with the with the expectation that we'll be able to drive that pricing down along with the with the fed rate cuts.
We we we priced those customers and those deposits up on the way up and we felt pretty strongly that we'll be able to.
Speaker Change: Price goes down.
Speaker Change: When rates when rates go down as well.
Speaker Change: Got it maybe maybe a final one for me.
Speaker Change: Fee income came in.
Speaker Change: Really really strong in this quarter it looks like there was particularly strong uptick in credit and debit card fees.
As well as <unk>.
Speaker Change: I'm a bit of an increase in Bali.
Speaker Change: So I was hoping you could give some color around that.
Speaker Change: The drivers of that if there was any.
Only death benefits in there it looks like that number has jumped around a little.
Speaker Change: Yeah, No no death benefits in the quarter, that's sort of market.
Speaker Change: And generally speaking when rates drop we'll kind of get a pop.
Speaker Change: In that line.
Speaker Change: So in the fourth quarter, depending on what happens we have we're sort of expecting that to be kind of flat.
Speaker Change: And so with that I think no I think we're probably 50 plus million.
Speaker Change: In the fourth quarter in fee income.
Speaker Change: Somewhere in that 50, 50 to $50 million to $51 million, probably that you know we're seeing some good growth in particular in the card portfolio that you noted and so on.
Speaker Change: We've seen.
Speaker Change: So darrin, we probably continue do you expect that to happen.
Speaker Change: Great. Thank you.
Speaker Change: Guys ill step back.
Thank you.
Speaker Change: Our next question.
Speaker Change: It comes from the line.
Yeah.
Speaker Change: Anthony Elian of Jpmorgan. Please go ahead Anthony.
Anthony Elian: Hi, everyone. Just a few follow up questions from me.
Anthony Elian: Back to the pay offs do you have in dollars how much the pay offs weighed on your loan growth in the third quarter and dollars.
Speaker Change: Don't have that on the spot.
Speaker Change: I don't have the people.
Jamie So: Yes, Jamie.
Jamie So: Get into yes, we can get it for you, it's probably in the neighborhood of 90% $95 million something like that.
Jamie So: It's probably the unexpected pay off number that we saw.
Jamie So: Okay got it and then my follow up.
Speaker Change: Slide six you can call out the noninterest bearing remaining stable from.
The prior quarter. It is is this do you think the bottom for non interest bearing deposits as a percentage of total or do you think there could be some continued declines from here and the percentage. Thank you.
Yes, yes.
Speaker Change: Thanks, So the percentage has been pretty stable now for the last couple of quarters last couple of quarters last six months or so.
Speaker Change: So good trends there.
Speaker Change: We're hopeful that that's the case and we hope that as we as we move forward, we're able to take.
Speaker Change: Take market share in those areas and it looks like part of part of deposit gathering is in that non interest bearing space. So we're hoping that we can sort of stem that number and keep that in that 34% range. That's about where we were I think ahead of the 2019 ahead of the pandemic. So.
Speaker Change: It seems like a decent spot to think about it that way.
Speaker Change: So yes, I think that's the.
Speaker Change: That's our outlook, we don't know for sure, but the trending has been good in that direction.
Speaker Change: Thank you.
Speaker Change: Thank you again to ask a question. Please press star one one on your telephone again Thats Star one one to ask a question.
Speaker Change: Our next question comes from the line of Tomorrow.
Speaker Change: Presuming of Wells Fargo Securities. Please go ahead.
Speaker Change: Hi, good morning, everyone.
Speaker Change: Good morning, just maybe.
Speaker Change: Sorry to keep.
Speaker Change: Following up on this but just maybe the expectation for loan growth versus <unk>.
Speaker Change: Hey, Al Qaeda and I guess, the the fixed rate loan.
Speaker Change: Kind of repricing schedule.
How much could that be impacted by payoffs cadence or those kind of mutually exclusive or are you expecting that everything that rolls off is brought back on at that incremental.
200, 250 basis points of spread or is there some risk to that dynamic of payoffs elevated.
Speaker Change: Yeah. Thanks team.
Speaker Change: So.
That 400 $400 million cash flow forecast it would be sort of independent of these I'll call them unexpected payoffs that we that we see.
Speaker Change: So there there is there would be risk to that number if there were more unexpected large payoffs.
Speaker Change: It happened in the fourth quarter.
Speaker Change: Of course, there are unexpected for a reason and so.
We arent forecasting that.
But that full cash flow of repricing that we talked about $400 million in the quarter.
Speaker Change: We would expect that to.
Speaker Change: You assume were flat in loans for the quarter, we would expect that to be re price up to that to 250 basis point level or so.
Speaker Change: Got it and then.
Speaker Change: I think it will be advanced.
Speaker Change: That was rolled into that $250 million, what was the rate on that.
Speaker Change: 414, I think was the exact exact rate on that so there is.
Speaker Change: When we think about.
Speaker Change: That maturing advance.
Speaker Change: Thinking about asset liability management.
Speaker Change: Well as sort of.
Speaker Change: Income dynamics and what other opportunities there are in the market for funding.
Speaker Change: As well as our liquidity metrics.
Speaker Change: Of course, if you have a you have.
Speaker Change: Sure.
Speaker Change: Term associated with it that athletes <unk> borrowing and so that helped.
Speaker Change: Helps our liquidity metrics as well.
Speaker Change: And last one on the margin for me just looking at the securities yields linked quarter.
Speaker Change: Those stepped down a decent amount in <unk> I'm just wondering what the dynamic is there and how we should think about the roll off roll on.
Speaker Change: The cash flows going forward.
Speaker Change: Yes, so in the in the Securities portfolio, we do have a small amount of floating rate loans.
Speaker Change: There so maybe that's like a 600 million $700 million or so and so when when rates when rates drop you will see a small dynamic.
Speaker Change: In there as well so that's that.
Speaker Change: Three to four basis point drop in the quarter that you see.
Speaker Change: Generally speaking we are not reinvesting in the in the portfolio at this time so.
Speaker Change: If rates continue to go down you'll probably youre likely to see the rate in that securities portfolio to go down.
Speaker Change: Well, however rate when those loans when those securities come off in that 175, 2% range every quarter, we don't have to fund those with.
Speaker Change: For four or 5% <unk> fundings for example, so so theres a theres a positive income dynamic associated with just running off that portfolio.
Speaker Change: Great and then just last question from me maybe for Lee just it looks like classified assets.
Speaker Change: We're a little bit higher <unk> versus second quarter, or just any kind of color on what drove the increase in classified assets.
Speaker Change: So it was primarily in multifamily.
Speaker Change: <unk>.
Speaker Change: And it was really just a handful of performing loans. These are actually well collateralized, but you know in this rate environment. They don't really have the level of cash flows that we would prefer to see.
Speaker Change: But we don't actually believed that these loans are indicative of any kind of trend in the portfolio.
Speaker Change: No loans are performing.
Speaker Change: Great. Thank you for the question.
Speaker Change: Thank you I would now like to turn the conference back.
Okay Sir.
Speaker Change: 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: This concludes today's conference call. Thank you for participating you may now disconnect.
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Speaker Change: Thanks.
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