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First Hawaiian’s earnings rise as margin soars

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  • COURTESY FIRST HAWAIIAN BANK
                                The exterior view of First Hawaiian Bank’s Mililani branch.

    COURTESY FIRST HAWAIIAN BANK

    The exterior view of First Hawaiian Bank’s Mililani branch.

First Hawaiian Bank reported today a strong third quarter as its net interest margin jumped year over year by a staggering amount, loans rose by a double-digit pace from the previous three months, and net income gained 7.4% from the year-earlier period.

Chairman, President and CEO Bob Harrison said the outlook for the state’s largest bank looks promising for the rest of the year.

“We expect to finish 2022 with another strong quarter and our balance sheet is well positioned to perform well in a range of economic outcomes,” he said on a conference call with analysts.

First Hawaiian Inc., the holding company, saw its earnings increase to $69 million, or 54 cents a share, to match analysts’ consensus estimate. The bank’s earnings were up 16.3% from the previous three months, or link quarter, a standard way to measure results for bank analysts.

In the third quarter of 2021, the bank had a net income of $64.3 million, or 50 cents a share.

Fueled by rising interest rates, the bank’s net interest margin, which is the difference between what the bank generates in loans and pays out in deposits, jumped 57 basis points to 2.93% from 2.36% in the year-earlier quarter. Its net interest income soared 22.7% to $162.7 million from the year-earlier quarter.

Chief Risk Officer and interim Chief Financial Officer Ralph Mesick said the bank’s net interest margin should continue to expand in the final quarter of the year.

“While we anticipate deposit cost increases will begin to accelerate in the fourth quarter, the balance sheet remains well positioned to continue to benefit from rising rates and we expect the margin to increase by 10 to 15 basis points in the fourth quarter,” he said on the conference call.

Loans rose 6.7% to $13.7 billion from the year-earlier quarter and jumped 13.2% on an annualized basis from the April-June period. Deposits slipped 0.1% to $22.09 billion from the year-earlier quarter.

With bank officials saying they’re preparing for a recession in 2023, the company set aside $3.2 million for potential loan losses compared with releasing $4 million from its loan-loss reserve in the year-earlier quarter.

“Initially (the loan-loss reserve) was built up because of COVID, and COVID sort of kind of went away, and then some of these other macroeconomic conditions started to come into place,” Mesick said. “We’re looking at sort of absorbing losses that would be indicative to what we saw our peak losses last cycle. So, it’s a healthy reserve and it’s certainly, I think, appropriate for what we see today in the marketplace and what we projected out over the next 12 months.”

Harrison said excluding Paycheck Protection Program loans that the bank’s total loans and leases were up $928 million, or 7.3%, from the start of the year.

“(That is) in line with our full-year outlook of mid-to-high single-digit growth, which remains unchanged,” he said. “As expected, a large portion of the increase in the commercial book was on the mainland where the rebound of loan demand started earlier. Looking forward, the fourth-quarter loan pipeline remains robust, driven primarily by commercial loans in Hawaii and Guam. This should put us at the high end of our original full-year loan growth guidance.”

He said the bank’s residential loan portfolio has been affected by rising mortgage rates.

“Payoffs will come only if someone moves,” Harrison said. “Nobody is going to be refinancing anytime soon. And we’ve seen a real slowdown in that origination, much like the rest of the country. So, what we really see the loan growth is in the commercial side of it.”

The bank kept its quarterly stock dividend at 26 cents a share. It will be payable Dec. 2 to stockholders of record at the close of business Nov. 21. At Friday’s closing price, First Hawaiian’s annualized dividend yield was 4.1%.

First Hawaiian’s stock fell 33 cents to $25.47 after the results were announced.


EARNINGS

Third-quarter net

* $69 million

Year-earlier net

* $64.3 million

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