Release Date: July 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Net interest margin and net interest income advanced for the first time in several quarters.
- Credit quality remains strong with a pristine loan portfolio.
- Capital levels significantly improved due to a successful $165 million preferred capital raise.
- Stable deposit levels with non-interest bearing deposits stabilizing at $5.3 billion.
- Hawaiian economy continues to outperform the broader market with stable job conditions and improving visitor spending.
Negative Points
- Visitor market impacted by the tragic fires, with visitor spending and arrivals down in May year-over-year.
- Non-interest income slightly down by $200,000 from the first quarter.
- Expenses increased due to a $2.6 million one-time FDIC special assessment and $800,000 in severance expenses.
- Net income and earnings per common share decreased from the previous quarter.
- Continued pressure on deposit mix and pricing, resulting in slightly higher overall deposit costs.
Q & A Highlights
Q: Dean, on the margin with what looks like peaking deposit costs, your expectation for further earning asset yield repricing. Wanted to get a sense for the margin expectations. I guess if we net maybe the interest recovery out, how do you see the sort of the second half play out?
A: (Dean Shigemura, CFO) We expect very modest flat to slightly higher net interest margin in the second half of the year. Looking at our pricing on the asset side, repricing mix of continuing to occur, and that's about $4.5 million to $5 million per quarter. And then on the deposit side, we still see some assets of some deposit remix occurring. But to the extent that will slow down, we would see a better margin improvement. But right now, it looks to be a modest, very modest increase in margin in the second half.
Q: Are you assuming current expectation on rate cuts or is that in a vacuum? And maybe comment on what rate cuts, what impact that would have if any?
A: (Peter Ho, CEO) We do anticipate rate cuts towards the back half of this year and then into next year, the impact of a 25 basis points reduction. For us, as we look at it reasonably conservatively could be a push. And if we get a little more draconian on the deposit repricing, call it down $1 million plus per quarter. So even with a pretty draconian deposit reprice built into rate reductions, Jeff, we still think NII would be maybe down a little bit. And then as that repricing begins to be a more of a tailwind. We get the benefit of that a couple of quarters out.
Q: Brad, just a couple of questions on credit. We're coming off a real tiny base, but I guess the increase in nonaccruals and the looks like mostly C&I. Any sort of similarities or by industry type there?
A: (S. Bradley Shairson, Chief Risk Officer) No, that's a good observation in that. It's really no loan numbers are coming off such a low number any little movements drive that number a little further either direction that bit of deterioration has just come from a handful of one-off credits, and we're not seeing any negative trends in any particular area. So nothing systemic or broad-based. And we're actively working with our borrowers and we do see opportunities actually over the next several quarters for some re-financings and upgrades as well.
Q: Loan growth, here on the commercial side was pretty solid. Isn't there anything specific you can point to for C&I or CRE with demand?
A: (Peter Ho, CEO) Yeah. You're right. Loan growth was up 0.7% on a linked basis. And headlined by C&I, and it was really kind of a bunch of small stuff, right, Jim. There are nothing in particular, which is a good thing. And then on the CRE side, kind of similarly And I mean, no megadeals, nothing that really drove the needle from a single credit perspective. So just kind of a good all-around effort.
Q: How's the pipeline looking here for the next couple of quarters?
A: (S. Bradley Shairson, Chief Risk Officer) Yeah. Actually, I think pipeline has grown quite nicely since the beginning of the year. And I think we feel pretty good about opportunities on the commercial side on into Q3 and potentially into Q4 at this point.
Q: On consumer loans, I mean, you still see declines in residential home equity auto. Any reason to think that downward trend won't continue?
A: (Peter Ho, CEO) Yeah. So I mean on the on the consumer side, a little bit of a different story. As you can tell from the numbers, I think that resi and home equity is that's going to be rate dependent. And so hopefully, if and as rates come down in that space, it could be at least flattening and hopefully a little bit of an uptick the indirect looks a little bit different. We're seeing a little softness in the marketplace and a good amount of demand or competition, particularly from the the credit union space. So that's been competitively as well as I think, organically a little bit of a tougher situation than previously. And then finally, on the installment side, a little bit of self-inflicted issues there. I think we probably got a little overly conservative on our underwriting and likely we'll be winding that back a little bit as we step forward. So I'm hoping that we'll get at least a kind of a flat result there. So you get all of that. Andrew, both commercial and consumer, and we're hopeful to see modest growth in the back half of this year when you combine commercial and consumer, I mean, nothing, nothing that's takes your breath away, but call it mid lower single digit annualized growth for the back half.
Q: I was hoping to follow up a bit on your fee income outlook for that to grow in the second half of the year. Just wondering where are you seeing good traction on that? Any particular drivers that inform that expectation that we should be keeping in mind?
A: (Dean Shigemura, CFO) It mainly based on market conditions and transaction volumes we see it. Slightly better in the second half of the year. And then actually, there were some seasonal revenue in the second quarter, there were some seasonal impacts. Traditionally or historically, the Merchant Services has a very good first quarter. So it did come down slightly in the second quarter. And it kind of offsetting that in the I was on the trust side, we do have a strong tax quarter in the second quarter as well. So those two kind of offset. So going into this the second half, we do see a trend upwards.
Q: Just some color on your preferred rate that happened late in the quarter. I know that really bolstered your Tier one capital and was oversubscribed. Just I believe in that perspective, you cited potentially stronger asset growth. Just wondering how you're viewing, the capital position and the thought process as to raise capital as you did last quarter?
A: (Peter Ho, CEO) Well, what we saw was an opportunity in the marketplace after a few regionals came in to step in with the preferred raise, similar to the one that we did just over three years ago now, which was which was highly successful. So from an execution standpoint, we felt very confident that we could be successful in this space in the current environment. We move forward. I had great execution underwriters did an exceptional job for us. And really the purpose of the raise was to get our capital levels to the levels that we wish to have them at kind of in one fell swoop, if you will
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
