Q2 2019 Earnings Call
Hi, Jane now that by higher amortization of premiums on mortgage backed securities.
Reinvestment differential for securities purchased during the second quarter was a positive 52 basis points.
The duration of the total portfolio was 3.2 years at the end of the second quarter of 2019.
The duration of the held to maturity portfolio was 3.5 years and the duration for the available for sale portfolio was 2.8 years.
Our shareholders equity increased $1.29 billion at the end of the second quarter.
Our tier one capital was 12.46% and our tier one leverage ratio was 7.36%.
During the second quarter, we paid out $26.6 million or 47% of net income in dividends and repurchased 433400 shares of common stock for a total of $34.9 million.
We repurchased an additional 84000 shares between July Onest and July 19 at a total cost of $6.9 million.
And finally, our board declared a dividend of 65 cents per share for the third quarter of 2019.
Now I will turn the call over to Mary sellers. Thank you Dean net charge offs for the second quarter totaled 2.4 million or <unk>, 0.09% annualized of total average loans and leases outstanding as compared with net charge offs of $3.7 million or <unk>, 0.14% annualized in the first quarter of 2019 and $3.3 million or 0.13% annualized in the second quarter of 2018.
Nonperforming assets were 21.8 million or 20 basis points at the end of the second quarter up from $17.9 million or 17 basis points at the end of the first quarter of 2019 and up from $15.2 million or 15 basis points at the end of the second quarter of last year.
The increase for the quarter was primarily driven off $5.5 million in commercial mortgage she exposure to one customer in Guam that was placed on non accrual this quarter.
Loans past, due 90 days or more and still accruing interest totaled $6.4 million compared with $6.1 million at the end of the first quarter of 2019 and $13.3 million at the end of the second quarter of 2018.
Restructured loans not included in non accrual loans or loans past due 90 days or more totaled $48.6 million flat with the prior quarter and down $1.6 million year over year residential mortgage loans modified to assist our customers accounted for $20.4 million of the total.
At the end of the second quarter, the allowance for loan and lease losses totaled $107.7 million up $1.7 million for the first quarter from the first quarter, given net charge offs of $2.4 million a credit provision of $4 million was recorded.
The ratio of the allowance to total loans and leases was 1% at the end of the quarter down one basis points for the linked period and down eight basis points year over year.
The allowance reflects the continued strength in the company's asset quality and the Hawaii economy over this period as well as the mix and loan growth. The total reserve for unfunded commitments was $6.8 million at the end of the quarter unchanged from the first quarter of 2019 and second quarter of 2018.
Ill now turn the call back to the.
Great. Thanks, Barry.
The Hawaii economy continues to perform reasonably.
Our statewide unemployment rate in June was 2.8% and remains very low compared to the unemployment rate of 3.7% nationally.
Visitor arrivals continue to increase and for the first five months of 2019.
3.8% compared to the same period in 2018.
Even with the growth in arrivals were seeing a decline in daily spend the total visitor spending down 3.1% compared with the same period in 2018.
Wahoo residential real estate was a bit of a mixed bag with sales off a bit pricing relatively flat for the inventory levels still remaining tight.
For the first six months of 2019, the volume of single family home sales on Oahu decreased 3.7% and median sales prices were down 0.5% compared with the same period in 2018.
The volume of condominium sales during the first half of 2019 on Oahu declined 8.8% with median sales prices.
Down 1.4%.
Once of inventory at the end of the quarter were 3.6 months for single family homes, and 3.9 months for condominiums.
The median days on market for the first half of 2019 was 23 days for single family homes, and 27 days for a condominium.
Thanks, again for joining us today, and now we'd be happy to respond to your questions.
Ladies and gentlemen at this time if you have a question. Please press. The Star then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key to prevent any background noise. Please place your line on mute. Once your question has been stated and our first question is from Ebrahim Poonawala from Bank of America Merrill Lynch. Your line is now open.
Good morning, guys.
Morning.
So just first question on the margin outlook. You mentioned you expect the margin in the back half to Steve Steve will limit this to Q.
Hello.
Wondering if you could.
Tell us what assumptions, you're making on the fit.
Cutting interest rates in the back half in that guidance and as well as what you expect until because the pace of change in the cost of interest bearing deposits are relative to the nine basis points that we saw in this quarter.
Yes, so right now we have two rate cuts built in 25 each.
At the end of this month being the first and perhaps around September with the November meeting with a second.
So thats thats.
Included in the guidance on the margin.
In terms of the deposit pricing.
Well, we did see on a monthly basis, if you look at our.
When we looked at our monthly data that June was the kind of decelerated in terms of the increases so that kind of gives us a little bit of confidence that some of the actions. We have been currently taking which is to.
Reduce some of the higher more expensive deposits is having an effect and we're going to continue that.
And we expect that the deposit rates will start to flatten out and start turning down later in the year.
Yes.
Yes that that's 18 I was just wondering if you take that a step forward well do you think the margin just give or take it on this.
Well it was in the second quarter, you fairly defendable, if we get more than just to lead costs over the next year.
If you could just talk like the pressure point on the gold that could actually lead to more meaningful margin compression over the next year.
If the fed does cut rates further.
That would have a probably a low affect our margin guidance it would probably be lower.
In addition to.
General.
Deposit competition in the local market could also affect the margin somewhat.
Got it and I guess just moving.
Two largest growth outlook and.
Just credit quality means obviously goes to one credit.
Correct.
Peter would appreciate just your thoughts on how you're looking at the market and told the board approach of loan growth expectations that on that and if you're seeing anything settling on the credit front.
Well I think that the.
The forward look.
From a growth perspective.
His beginning diverge ever so slightly Abraham.
I would say that environmentally clearly we're beginning to see signs I think not different from what a lot of people are reporting on a national basis of growth flattening out and really somewhat reflective of a tenure expansion.
So I don't think that there is cause for alarm there, but when you look at housing.
Pricepoint performance, what's happening on our visitor industry.
What's happening in the broader market is pretty clear that that we are flattening out a bit and frankly, that's what we would anticipate at this point of the cycle.
How that's translating into our forward view on growth performance. However.
I think we still feel very comfortable.
With the idea of loan growth in the mid to upper single digit range and deposit growth call. It the mid single digit range.
Our our pipelines and forecasts and just discussions with our frontline people I think that was pretty confident in that view at this point.
In terms of credit quality.
I would say that still.
Pretty pristine.
But not completely spotless is the way that I would describe.
The credit environment right now the consumer side.
It's still trending.
Very nicely the commercial side still looks good and very good by historical standards, but but as Mary mentioned, we are beginning to see that that that one off credit situation with with some of our smaller commercial clients.
Got it thanks for taking my questions.
Thank you. Our next question is from Jeff Rulis from D.A. Davidson. Your line is now open.
Thanks, Good morning.
Hi, Jeff.
Just a question on the.
On the fee income line I believe you had guided last quarter to 42 million a quarter.
You put up 45, plus this quarter, then add back down to 43, maybe just talk about the pieces that are kind of guiding obviously, maybe mortgage and the trust side or were were heavier contributors what.
Within that Bakken down to 43.
Maybe lightens up over the balance of the year.
Yeah, Yeah, Jeff.
And thanks for asking the question.
The number has been moving around a bit.
I think probably the best place to the way to look at it.
Is obviously, we're very pleased with Q2.
Noninterest income levels Q1, non interest income levels were or were buoyed up a bit by a million for in.
In kind of one time fee income that we generated offer insurance business. So if you were to back that out kind of I think were dean's going with kind of the 43 plus level is.
We think that we're probably going to nestle moving forward in between Q1 and Q2.
From a dollar level standpoint.
You know the.
The re Fi.
Boomlet ill call. It that we've we've experienced of late.
Has been has been positive we still have great volumes on the mortgage side.
But maybe not as strong as what we experienced early in the second quarter with when rates really fell pretty dramatically.
Yes, Q3, and four were not going to get the seasonal benefits of.
Of our Tam seasonal tax business that we got into the second quarter.
And finally, I'd say that the the swap income.
Which has been a great story for us from a commercial standpoint.
But it was probably a really at the at the very upper wrongs in Q2, and we would anticipate continued opportunity with that with that product category, but maybe not at the same levels of Q2.
Okay. That's great. Thank you.
And then.
Peter just I guess on the broad.
Kind of visitor spending numbers.
I don't know if you kind of alluded to it I don't know if this is a product of a.
Again, a macro trend of long into 2000 a recovery.
That spending being.
Down is that also a factor of kind of visitor mix kind of what would you.
Get wrapped words around what do you think's happened on the spending side that would yeah.
Sure. So Jim I think you I think you touched on.
In a lot of the the the items that were thinking about.
You know I think it's it's.
To understand the year to date performance on expenditures of down 3% on the face of it doesn't look great, but I think we we also have to recognize that that 3% negative comp is coming on the heels of a 2018.
May year to date comp that was plus 11% and a may year to date 2017 comp that was plus 10%.
So yeah, we are flattening out we are flattening out from a pretty I think whatever one would would agree is a pretty high level.
We have been doing a lot of asking and research and and just talking to our friends here within the industry.
Recently, and they see they see some things occurring.
You know that a lot of the lift that we're getting into the market.
Of recent.
Is it does skew more to the budget side, which I think helps to explain what's happening on the.
The arrival numbers versus the the visitor spending numbers.
If you look at the.
If you look at the U.S. dollar relative to the Euro of late and if you look at the Japanese yen relative to the euro.
There is a little bit of a pricing bias against us for both Japanese visitors and American visitors.
Choosing between Europe , or Hawaii, Europe is just trending to a better price point right now.
And then finally and kind of again in the category of you know.
Kind of a fortunate individuals problem.
Our 80 ours.
Have been expanding and Thats been a wonderful thing for for the visitor industry and tangentially down to you know our own economy.
But that that upward pressure on price points, you know at some point begins to meet pricing resistance and there is some sentiment that that might be occurring here in the marketplace. So.
Putting all that together.
What were seeing a flattening on the expenditure side.
But I don't think anyone's terribly concerned at this point I think we understand kind of the housing wise of those of those inputs.
Got it appreciate your thoughts.
Yep.
Thank you. Our next question is from Aaron Deer from Sandler O'neill. Your line is now open.
Hi, good morning, everyone.
Just quick question going back to the.
The CRM lawn and Guam.
Mary just curious it sounds like Thats, just a one off issue, but any color you can give in terms of what the situation was there a potential loss content.
Well I don't see any potential loss content, our LTV on the transaction is 60%. It was a long tenor customer was a portfolio of assets Keith over invested in a comfortable and tried to get above market rents.
I think he's beginning to deal with that now and starting to see some lease up any sold some additional assets to create some liquidity. So I think we're in a good spot.
Okay, that's great.
And then.
Dino if I heard your commentary around the.
Repositioning the portfolio, but didn't didn't catch all those details can maybe walk through again, just what the size of the repositioning wasn't and what was accomplished as a result in terms of what you're hoping for.
In terms of the convexity or or.
Other in nature is that one of the portfolios that was changed as a result.
Yes, so we did.
And just to give you some color on the timing was it around mid June .
But we did.
Move a billion dollars worth of securities from held to maturity to the available for sale portfolio.
And.
After that we sold about 570 $580 million with the securities and reinvested the proceeds.
That's probably going to that that didnt get us a small gain.
And should help us on the net interest income side going forward.
Okay.
In the city.
I guess, maybe I can find this in the release I missed it but didnt.
Modest negative that you guys had on the.
A modest loss on investment Securities Fund was that related to some of the legacy class B stuff, yes, so that that's continuing though.
I would say about roughly 900000.
Was due to the visa fees that we pay on this the shares that we sold.
Okay.
Okay. That's great. Thanks for taking my questions.
Okay.
Thank you.
Our next question is from Luke Walton from KBW. Your line is now open.
Hi, good morning, guys.
Just wanted to kind of dig into the margin just a little bit more just kind of wanted to see I know you guys talked about what you guys had for the assumptions of the rate cuts and just kind of wanted to hear how that impacts the loan portfolio and how you see that coming in towards towards the back half of the year.
Yeah. So we do have about.
20 call it 25% of our loan book on what I would call a floating rate.
Basis and.
Some of that has already been.
Coming down on LIBOR rates have been.
We do so our.
Prime in base rate.
Loans would would be readjusted, lower but thats all factored into the guidance that I provided.
And then kind of offsetting that is whatever we can do on the deposit side in terms of lower rates.
Okay. That's helpful. Thank you and then.
Just on the I saw the public and other balances. It said that there was a seasonally stronger.
Demand for the public demand deposits.
Just kind of wanted to hear what the what's how much is in that is public time deposits right now.
Its about little over 700 million is.
Public time.
Okay.
Yes 732 million.
Okay increased by about a 100 million quarter over quarter.
Gotcha.
And Thats all my questions I'll step back thank you.
Thank you.
Thank you. Our next question is from Laurie Hunsicker from Compass point. Your line is now open.
Hi, Thanks, good morning.
And I just wondered in the net interest income can you tell us how much was premium amortization this quarter.
Yes, so the premium amortization was 5.8 million.
However, just need to also clarify that lot of the change in the amount of the amortization was due to the sale of some of our.
Municipal Securities.
Got it okay. So the decrease was was caused by that.
Okay. So I mean, if I strip that out then your core margin.
Looks like was down.
10 basis points versus your reported was down eight how.
How should we be thinking about premium man in the back half of the year.
The it.
Well it will be rate dependent but in terms of.
Kind of the sensitivity to interest rates. So the mortgage backed securities and some Sps would be impacted by that but we did do some of the sales towards the tail end of the quarter. So you may see still some decrease in the amortization just due to the sale of the municipal securities.
Okay, Great. That's helpful. Okay, and then Mary can you just comment on loan loss provision and I might have missed this was there a specific reserve for that that Guam Cree.
And the $4 million no. There wasn't we have 60% loan to value and that's based on updated appraisals. So we see no loss there really driving the increase in the reserve was increasing growth in our portfolio for the quarter got it Okay and then certainly when I look at your your loan growth. This quarter, you know super strong 8% annualized.
And I think you had said mid single digits. So how should we be thinking about loan loss provision.
In the back half of the year, if we kind of marry that with your.
Your comments about you know credit is pristine, but not completely spotless, how should we be thinking about that.
Well I think youre right on point, Lori really there'd be a factor of what our loan growth is the portfolios that growth comes in.
Coupled with what we see within credit performance, which has been fairly consistently benign. So at this point.
Okay, but if that's tracking you know maybe still in that in the low 4 million range or so per quarter, that's probably.
Outside of that a credit event.
That's probably a good level my thinking about that all right way.
Yes, well its or its Peter it's it's.
Yes, so your comments are kind of backward.
You know look back oriented and the provision by definition has got to be finding date. So based on what you know are based on our historic trend.
I think you've got a pretty good sense for Directionally, where the provision would end up but but the ultimate decision is going to be based on what we see at the end of next quarter as well.
Sure Okay onto non interest income.
And I know that you had mentioned there was no significant items, obviously, but the other either.
Seemed a little bit elevated can you just talk about if there was anything I'm not well bring in that 6.385 million.
In other other is the swap revenue that's where it.
Comes in.
Got it and what was the strike the swap revenues this quarter.
It's about.
It's about 2 million.
Okay.
And then.
I guess onto your comments on mint noninterest expense.
Dan maybe you can just help me a little bit just sort of extrapolating off your forward guide.
It's looking like that number would be then running you know in the 94 plus million dollar range per quarter.
Which is obviously up from where we were is there is there a directional spend that you're doing or.
Did I Miss hear that how should I be thinking about that number.
Well the 94 would be at the higher end. So if you took I guess a 3%.
They're in the second half we do continue to have investments like I mentioned in a lot of projects technology and the facilities, we do have.
A number of executives that are coming on board that have joined us.
In addition to the fourth quarter, just being for us a noisy quarter.
When we do our year end true ups.
Okay.
That's helpful I'll leave it there thank you.
Q.
Thank you as a reminder, ladies and gentlemen, if you have a question. Please press the star and the number one key on your Touchtone telephone.
Yeah.
At this time I'm showing no further questions I would like to turn the call back over to Cindy Wyrick for closing remarks.
I'd like to thank all of you for joining US again today and for your continued interest in bank of Hawaii as always please feel free to contact me. If you have additional questions or need further clarification on any of the topics discussed today. Thanks again, everyone and have a great day.
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program you may now disconnect.
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