First Hawaiian Inc. Reports Mixed Third Quarter Results Amid Economic Changes

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First Hawaiian Inc. Reports Mixed Third Quarter Results Amid Economic Changes

First Hawaiian Inc. (NASDAQ: FHB) held its earnings call for the third quarter of 2024, showcasing a mixed financial performance amidst Hawaii's resilient economy with a low unemployment rate of 2.9%. Despite a decline in tourism, the bank reported a rise in net interest income to $156.7 million and stable credit quality. Credit volumes fell due to unexpected repayments, and deposits slightly decreased.

The bank plans to resume share buybacks with an authorization of $40 million for 2024 and anticipates growth opportunities in commercial real estate and dealer inventory financing. Fee income, particularly from loans and credit card fees, remains strong, and the bank expects to maintain non-interest-bearing deposits at pre-pandemic levels.

Key Points:

  • First Hawaiian Inc.’s total loans and deposits showed a decline, but net interest income increased.
  • The bank maintains strong credit quality and capital levels and plans to resume share buybacks.
  • While growth is anticipated in commercial real estate and dealer inventory financing, weaknesses in consumer sectors are expected.
  • Fee income is robust, supporting a projected income of $50 million from loan and credit card fees in the fourth quarter.
  • Security yields slightly decreased, and classified assets rose, but no broad adverse trends were observed.

Company Outlook: The bank expects a modest decline in net interest margin in the fourth quarter. Growth opportunities are primarily seen in commercial real estate and dealer inventory financing. Management targets to keep non-interest-bearing deposits around 34%, consistent with pre-pandemic levels.

Negative Highlights:

  • Tourism in Hawaii experienced a slight decline, with reduced visitor numbers and spending.
  • Unexpected loan repayments led to a decrease in total loan volume.
  • Deposits decreased due to a decline in public deposits, although commercial deposits rose.

Positive Highlights:

  • Hawaii's economy shows resilience with a low unemployment rate.
  • Net interest income increased, and the bank released $3.8 million from tax reserves.
  • Strong capital levels will support the resumption of share buybacks.

Underperforming Targets:

  • The bank faces competitive pressure on loan growth, especially in inventory financing.
  • The security portfolio yields slightly decreased due to minimal variable-rate loans.

Q&A Highlights: Management discussed the impact of interest rate hikes and proactive deposit acquisition strategies. The reserve increase was linked more to low FICO scores and environmental factors than specific portfolio concerns. Expense growth is expected to be in line with industry norms, notably lower than in previous years.

In summary, First Hawaiian Inc. is navigating a challenging economic environment with cautious optimism, leveraging its strong capital position and fee income to balance pressures on loan growth and security yields. The bank's strategic focus on specific growth sectors and efficient management of assets and liabilities positions it well against potential challenges in the upcoming quarters.

InvestingPro Predictions: First Hawaiian Inc. (NASDAQ: FHB) continues to demonstrate financial resilience in a challenging economic environment. According to InvestingPro's data, the bank's market capitalization stands at $3.06 billion, reflecting its significant presence in Hawaii's banking sector. The company’s P/E ratio of 13.81 indicates it is trading at a reasonable valuation relative to its earnings, which may be attractive to value-focused investors.

One of the key strengths highlighted by InvestingPro Tips is that First Hawaiian has sustained dividend payments for nine consecutive years. This consistent dividend history aligns with the bank's strong capital levels and plans to resume share buybacks mentioned in the earnings call. The current dividend yield of 4.34% may be particularly attractive for income-focused investors in the prevailing market environment.

Despite the challenges mentioned regarding loan growth, InvestingPro data shows that First Hawaiian reported a profitable $802.87 million in revenue over the past twelve months. This profitability is indicative of the analysts' expectations that the company will remain profitable this year, as supported by an InvestingPro Tip. The bank’s ability to generate profits despite economic difficulties showcases its operational efficiency and robust market position in Hawaii.

It is noteworthy that InvestingPro provides 14 additional tips for First Hawaiian Inc., offering deeper insights for investors seeking to make informed decisions regarding this stock.