First Hawaiian, Inc. — Q1 2024 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2024, compared with Q1 2023; balance-sheet figures are compared with December 31, 2023. First Hawaiian is a bank holding company whose wholly owned bank provides retail, commercial, and other banking services, primarily in Hawaii.
Financial performance
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Interest income | $245.0 million | $213.5 million |
| Interest expense | $90.5 million | $46.3 million |
| Net interest income | $154.4 million | $167.2 million; down $12.8 million (8%) |
| Net interest margin | 2.91% | 3.11%; down 20 basis points |
| Noninterest income | $51.4 million | $49.0 million; up 5% |
| Noninterest expense | $128.8 million | $118.6 million; up 9% |
| Provision for credit losses | $6.3 million | $8.8 million |
| Net income / diluted EPS | $54.2 million / $0.42 | $66.8 million / $0.52; net income and EPS down 19% |
| Efficiency ratio | 62.15% | 54.46% |
| Return on average assets / equity | 0.90% / 8.73% | 1.10% / 11.78% |
Management attributed lower net interest income mainly to higher deposit funding costs and lower average investment securities balances, partly offset by higher loan yields and increased interest-bearing deposits at other banks. The average rate paid on interest-bearing deposits rose to 2.54% from 1.38%; deposit interest expense increased 94% to $84.1 million.
Balance sheet, liquidity, and capital
- Assets: $24.28 billion at March 31, down from $24.93 billion at year-end. Loans and leases were $14.32 billion, down $33.3 million; investment securities totaled about $6.15 billion, down $149.4 million.
- Deposits: $20.67 billion, down $663.2 million (3%) from year-end. Core deposits were $19.2 billion, or 93% of deposits. Estimated deposits above FDIC insurance limits were $10.1 billion, or 49% of total deposits.
- Cash and funding: Cash and cash equivalents ended the quarter at $1.27 billion, versus $1.74 billion at year-end. The company had $500 million of short-term FHLB advances, due September 2024, and reported available borrowing capacity of $2.9 billion from the FHLB and $3.2 billion from the Federal Reserve.
- Cash flow: Operating activities provided $66.6 million; investing activities provided $166.7 million; financing activities used $699.0 million, primarily reflecting the $663.2 million deposit decline and $33.2 million in dividends paid. Cash and cash equivalents decreased $465.6 million.
- Equity and regulatory capital: Stockholders’ equity was $2.51 billion, up $27.7 million. CET1 was 12.55%, total capital 13.75%, and Tier 1 leverage 8.80%; the company and bank were classified as well-capitalized.
- Credit quality: Allowance for credit losses was $159.8 million, or 1.12% of loans, versus $156.5 million, or 1.09%, at year-end. Net charge-offs were $3.8 million, equal to an annualized 0.11% of average loans, versus $3.2 million and 0.09% a year earlier. Nonaccrual loans and leases were $18.0 million, or 0.13% of loans.
Material changes and notable items
- Interest expense rose $44.2 million year over year, more than offsetting $31.4 million of additional interest income. Loan yields increased, while average securities balances declined.
- Noninterest expense increased $10.2 million. This included a $4.1 million additional FDIC special assessment recorded in Q1 following an updated estimate related to 2023 bank failures, and higher technology equipment expense.
- Noninterest income included $2.2 million of property insurance proceeds related to the Lahaina branch destroyed in the 2023 Maui wildfires. No gain or loss was recognized on the exchange of $65.3 million of bank-owned life insurance policies.
- Gross unrealized losses in the investment securities portfolio were $824.8 million, up from $770.2 million at year-end, primarily reflecting higher market interest rates. Management reported no expected credit losses on these securities and stated it did not expect to need to sell available-for-sale securities before recovery of amortized cost.
- In January, the company authorized up to $40 million of share repurchases during 2024; none had been made by March 31. The board declared a $0.26-per-share quarterly dividend in April, payable May 31, 2024.
Outlook, risks, and contingencies
No specific earnings, margin, or loan-growth guidance is provided. Management said it believes existing cash, investments, and cash expected from operations are sufficient for requirements over the next 12 months and beyond, and reported maintaining high liquidity and adequate credit reserves.
Management highlighted uncertainty around the Maui wildfire recovery. Real-estate-secured loans in the fire zones totaled approximately $102 million; recovery, rebuilding timelines, insurance proceeds, government assistance, and Maui tourism remain uncertain. Other key risks include deposit retention and funding costs, interest-rate changes, real-estate and geographic concentration, credit deterioration, liquidity access, cybersecurity and operational disruptions, regulation, and severe weather or geopolitical events. Management’s interest-rate simulation estimated that an immediate parallel 200-basis-point rise would increase net interest income 6.1% over 12 months, while a 100-basis-point decline would reduce it 3.2%; actual results may differ materially.
The company reported $6.5 billion of commitments to extend credit and letters of credit. Legal proceedings were not expected to have a material effect, although management recorded a settlement expense relating to a lawsuit without a clear amount specified in the filing. Historical reorganization-related contingent liabilities remain unquantified. Disclosure controls were assessed as effective, and no material changes in internal control were reported.
Important facts for investors to verify
- Whether deposit balances and funding costs stabilize, particularly given the $663.2 million quarterly deposit decline and 49% estimated uninsured-deposit share.
- How unrealized securities losses, including losses in the held-to-maturity portfolio, may affect liquidity or capital if asset sales become necessary.
- Whether loan performance, charge-offs, and the allowance—especially in consumer, construction, and commercial real estate lending—develop as expected.
- The financial and credit effects of the Maui wildfires and the timing of the $500 million FHLB advance maturity.
- Future earnings impacts from deposit repricing, the FDIC assessment, technology spending, and the company’s authorized repurchases and dividend.