First Hawaiian Bank’s credit and margins drive earnings

Jan. 28 (Reuters) – First Hawaiian Inc., the holding company of the state’s largest bank, rose 5.2% on Friday after reporting sharply improved interest rate margins and strong credit growth.

First Hawaiian Inc., the holding company of the state’s largest bank, saw shares rise 5.2% on Friday after reporting sharply improved interest margins and strong credit growth.

The company grew its earnings by 39.6% to $79.6 million, or 62 cents a share, beating analysts’ consensus estimate of 58 cents a share. In the year-ago quarter, First Hawaiian posted earnings of $57 million, or 44 cents a share.

In the fourth quarter, the bank accrued $3 million for potential loan losses after not accruing in the year-ago quarter.

“We ended the year on a very good quarter,” said Bob Harrison, chairman, president and CEO of First Hawaiian, on a earnings call with analysts. “The net income grew. … The credits grew. … Net interest income continued to increase … while noninterest income returned to normal levels and noninterest expenses stabilized.”

Loans rose 8.7% from the year-ago quarter to $14.09 billion and rose 2.9% — fueled by auto loan financing — compared to the third quarter at an annualized rate of 11.6%. Excluding Paycheck Protection Program loans, total loans and leases increased $1.3 billion, or 10.4%, in 2022 from 2021.

“We expect full-year 2023 credit growth to be in the mid-single digits,” Harrison said.

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

First Hawaiian’s new chief financial officer, Jamie Moses, said the increase in net interest income in the third quarter was “primarily due to higher yields and loan balances, partially offset by higher deposit costs from higher yields on loans, cash and investment securities and partially offset by higher Deposit interest offset.”

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

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

Deposits were $21.69 billion, down 0.6% from the year-ago quarter and down 1.8% from the third quarter.

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

The bank kept its quarterly stock dividend at 26 cents per share and said it would be payable on March 3 to shareholders of record at the close of business on February 17. At Friday’s close, First Hawaiian’s annualized dividend yield was 3.9%.

First Hawaiian has also implemented a stock buyback program to buy back up to $40 million of its stock in 2023.

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