First Hawaiian Bank’s loans and margins boost earnings

First Hawaiian Inc., the holding company of the state’s largest bank, saw its shares soar 5.2% Friday after reporting greatly improved interest margins and strong loan growth.

The company boosted its earnings 39.6% to $79.6 million, or 62 cents a share, to beat analysts’ consensus estimate of 58 cents a share. In the year-earlier quarter, First Hawaiian had earnings of $57 million, or 44 cents a share.

In the fourth quarter the bank set aside $3 million for potential loan losses after not taking any provisions in the year-earlier quarter.

“We ended the year with a very good quarter,” First Hawaiian Chairman, President and CEO Bob Harrison said on an earnings conference call with analysts. “Net income grew. … Loans grew. … Net interest income continued to increase … while noninterest income returned to normalized levels and non­interest expenses stabilized.”

Loans jumped 8.7% to $14.09 billion from the year- earlier quarter and rose 2.9% — boosted by auto loan financing — from the third quarter for an annualized rate of 11.6%. Excluding Paycheck Protection Program loans, total loans and leases were up $1.3 billion, or 10.4%, in 2022 from 2021.

“We expect loan growth to be in the midsingle-digit range for full-year 2023,” Harrison said.

The bank’s net interest income, which is the difference between what the bank generates in loans and pays out in deposits, soared 25.1% to $171.8 million from the year-earlier quarter. First Hawaiian’s net interest margin improved by 77 basis points to 3.15% in the fourth quarter from 2.38% in the year-earlier period and increased by 22 basis points from the third quarter.

First Hawaiian’s new Chief Financial Officer Jamie Moses said the increase in net interest income from the third quarter “was primarily due to higher yields and balances on loans, partially offset by higher deposit costs. The net interest margin (increase was) … driven by higher yields on loans, cash and investment securities and was partially offset by higher rates on deposits.”

Moses said on the conference call that he expects the bank’s net interest margin to increase by 45 basis points in the first quarter from the fourth quarter.

First Hawaiian’s noninterest income, which includes service charges and fees, rose 15.8% to $48.2 million.

Deposits slipped 0.6% to $21.69 billion from the year- earlier quarter and declined 1.8% from the third quarter.

For the year, First Hawaiian’s earnings were virtually flat at $265.7 million from 2021, but that included $39 million that the bank released from its loan-loss reserve in 2021 and added to its income statement. In 2022 the bank set aside $1.4 million for potential loan losses.

The bank kept its quarterly stock dividend at 26 cents a share and said it will be payable March 3 to stockholders of record at the close of business Feb. 17. At Friday’s closing price, First Hawaiian’s annualized dividend yield was 3.9%.

First Hawaiian also adopted a stock repurchase program to buy back up to $40 million of its stock during 2023.

Shares of the company ended the day up $1.31 at $26.75.