First Hawaiian, Inc.

Good day and thank you for standing by. Welcome to the first Hawaiian Inc. Q4 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kevin Haseyama, Investor Relations Manager.

Thank you, Josh, and thank you everyone for joining us as we review our financial results for the fourth quarter of 2023. With me today are Bob Harrison, Chairman, President, and CEO, Jamie Moses, Chief Financial Officer, and Lee Nakamura, Chief Risk Officer. We have prepared a slide presentation that we will refer to in our remarks today. presentation is available for downloading and viewing on our website at mhb.com in the investor relations section. During today's call, we will be making forward-looking statements, so please refer to slide one for our safe harbor statement. We may also discuss certain non-GAAP financial measures. The appendix to this presentation contains reconciliations of these non-GAAP financial measurements to the most directly comparable GAAP measurements. And now I'll turn the call over to Bob.

Good morning, everyone. I'll start with a quick overview of the local economy. Overall, Hawaii has been resilient in spite of some headwinds. State payrolls were improving at a modest pace prior to the Maui wildfires, but we're certainly impacted by that disaster. Nevertheless, state unemployment rate remains low. The seasonally adjusted unemployment rate for December was 2.9%. compared to the national unemployment rate of 3.7%. The visitor industry has performed well on a year-to-date basis, with the Maui visitor industry recovering faster than expected and visitors to the rest of the state reaching record levels. Through November, total visitor arrivals were 5% higher than last year and total spend was 6.2% higher. Arrivals from Japan continued to increase with year-to-date arrivals at 506,000, up over 220% from the prior year. The housing market remained relatively stable despite reduced activity. In December, the median sales price for a single-family home on Oahu was right about $1 million, which was 5% below December 2022. Median sales prices for condos on Oahu was 510,000, 1.5% higher than the previous year. Turning to slide two, I'll discuss the highlights of our fourth quarter financial performance. We finished the year with a solid quarter. We continued to grow customer deposits. We believe that net interest margin has bottomed out, and credit quality remains excellent. As I'll cover on the next slide, we took balance sheet actions that are immediately additive to earnings. Our return on average tangible assets was 0.81%, and return on average tangible common equity We continue to maintain strong capital levels with the CET1 ratio of 12.39% and total capital ratio of 13.57%. Turning to slide three, wanted to go over the balance sheet actions we took in the fourth quarter that will reduce earning assets while adding to net interest income. In late December, we sold 526 million of low yielding investment securities We intend to use those proceeds to reduce high-cost deposit balances starting in the first quarter. By eliminating the negative spread from this asset-liability combination, we will improve our net interest margin and generate higher net interest income off lower average earning assets. Capital ratio levels are high and we have ample liquidity, so we continue to look for opportunities to optimize our balance sheet. We plan to bring down our cash levels to a more normalized range of around $500 to $600 million. Separately, following the change visa announced in late 2023 that approved the economics of selling Class B shares, we elected to sell our remaining shares for a gain of about $41 million. The shares were carried on our balance sheet at zero book value. Turning to slide four, Period end loans and leases were $14.4 billion, about $21 million higher than September 30th. We had good growth in CNI loans, primarily driven by growth in dealer flooring. As we had anticipated, decline in CRE loans was primarily due to the payoff of several completed construction projects. While this is a headwind for balances, it speaks to the quality of the projects, strength of the sponsors, and overall credit quality of the portfolio. The decline in consumer loans was primarily an indirect auto. Looking forward to 2024, we expect the full year loan growth rate to be in the low single-digit range. Continued weak demand for residential loans and additional pay downs from our completed construction projects present headwinds to loan growth.