Business Context and Reporting Period
Company: First Hawaiian, Inc. (FHB)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 2024
Business Overview: A bank holding company operating primarily in Hawaii, Guam, and Saipan through three segments: Retail Banking, Commercial Banking, and Treasury and Other. The company offers a comprehensive suite of banking services including loans, deposits, wealth management, and insurance.
Key Financial Metrics
| Metric | Q2 2024 (3 Months) | Q2 2023 (3 Months) | YTD 2024 (6 Months) | YTD 2023 (6 Months) |
|---|---|---|---|---|
| Net Income | $61.9 million | $62.4 million | $116.1 million | $129.3 million |
| Diluted EPS | $0.48 | $0.49 | $0.91 | $1.01 |
| Net Interest Income | $152.9 million | $159.9 million | $307.3 million | $327.2 million |
| Net Interest Margin | 2.92% | 2.91% | 2.91% | 3.01% |
| Noninterest Income | $51.8 million | $47.3 million | $103.1 million | $96.4 million |
| Noninterest Expense | $122.1 million | $120.9 million | $250.9 million | $239.4 million |
| Provision for Credit Losses | $1.8 million | $5.0 million | $8.1 million | $13.8 million |
| Total Assets | $24.0 billion | $24.9 billion (Dec 31, 2023) | N/A | |
| Total Loans & Leases | $14.4 billion | $14.4 billion (Dec 31, 2023) | N/A | |
| Total Deposits | $20.3 billion | $21.3 billion (Dec 31, 2023) | N/A | |
| Allowance for Credit Losses (ACL) | $160.5 million | $156.5 million (Dec 31, 2023) | N/A | |
| Stockholders' Equity | $2.55 billion | $2.49 billion (Dec 31, 2023) | N/A |
Material Changes vs. Prior Period
- Net Income Decline: Net income decreased 1% quarter-over-quarter and 10% year-over-year (YTD). The decline was driven by a $7.1 million decrease in net interest income (Q2) and a $19.9 million decrease (YTD), primarily due to higher deposit funding costs.
- Net Interest Margin (NIM): NIM remained relatively stable at 2.92% for Q2 2024 (up 1 basis point YoY) but declined to 2.91% YTD (down 10 basis points YoY). Higher yields on loans (5.67% Q2) were offset by significantly higher deposit costs (2.58% Q2 vs. 1.82% Q2 2023).
- Provision for Credit Losses: The provision decreased significantly by 64% in Q2 and 41% YTD compared to 2023, reflecting improved credit quality and lower expected losses.
- Expense Growth: Noninterest expense increased 1% in Q2 and 5% YTD. Key drivers included a $5.9 million increase in equipment expense (YTD) and a $4.4 million increase in regulatory assessments (YTD), partially offset by lower contracted services.
- Deposit Outflow: Total deposits decreased by $1.0 billion (5%) from year-end 2023, driven by declines in demand and savings deposits, partially offset by growth in money market accounts.
Guidance, Outlook, and Risks
- Capital Position: The company remains "well-capitalized" with a Common Equity Tier 1 (CET1) ratio of 12.73% as of June 30, 2024, well above the 7.0% minimum requirement including the conservation buffer.
- Dividends: A quarterly cash dividend of $0.26 per share was declared in July 2024. The company has a $40.0 million stock repurchase program authorized for 2024, with no shares repurchased as of June 30, 2024.
- Maui Wildfire Impact: Outstanding real estate-secured loans in Maui fire zones totaled approximately $98 million. Management notes significant uncertainty regarding borrower recovery and rebuilding timelines, though insurance coverage is generally required.
- Interest Rate Risk: The company is asset-sensitive; net interest income is projected to benefit from rising rates under static balance sheet assumptions. However, deposit mix changes have slightly reduced sensitivity compared to year-end 2023.
- LIBOR Transition: The company has fully transitioned commercial loans and investment securities to SOFR. Residential adjustable-rate mortgages are expected to fully transition off LIBOR by Q4 2024.
Investor Verification Checklist
- Deposit Cost Trajectory: Verify if deposit funding costs (currently 2.58%) will stabilize or continue to rise, as this is the primary pressure on Net Interest Income.
- Maui Exposure: Monitor updates on the $98 million loan exposure in Maui fire zones and the adequacy of insurance recoveries.
- Noninterest Expense Control: Assess the sustainability of equipment and regulatory fee increases, which drove the 5% YTD expense growth.
- Loan Growth: Confirm if the flat loan portfolio ($14.4 billion) will see growth in construction and commercial sectors to offset runoff in consumer and residential loans.
- Stock Repurchase Activity: Watch for execution of the $40 million authorized buyback program, which has seen no activity in the first half of 2024.