Bank of Hawaii Corporation

Q4 2021 Earnings Conference Call

1/24/2022

spk_0: the day and thank you for standing by a welcome to the bank us allies corporation fourth quarter two thousand twenty one earnings conference call at this time all participants are in listen only mode after the presentation there will be a question and answer session to participate during the session you will need to press star one on your telephone please be advised that today's conference is being recorded if you required any further assistance distress died zero i will now like to hand the gone friends over to do now he got please go ahead
spk_1: thank you carmen and good morning good afternoon everyone thank you for joining us today on the call with me this morning is our chairman president and ceo peter hope our chief financial officer dnc camera and achieve with officer married seller before we get started let me remind you that had a conference call will contain some forward looking statements and well we believe our assumptions are reasonable there are a variety of raven the actual results may differ materially than those that are provided from during the call we are will be referencing a slide presentation as well as a earnings really a copy of the presentation annually are available on her website the oh it's not come under investor relations and i'll i to turn the call over to feed or home
spk_2: great they could you know that good morning or good afternoon everyone thinks tree interest in bag boy so i think we started their we finish off he or scuse me with though the pretty solid quarter that there were please share with you or next few moments are all began as usual by giving you just a backdrop on the local marketplace and economy or ben affleck call over every day or getting the financials i will finish off with the mary on the credit side arm while i'll tell you that was very good right now and should be a pretty sure record and will be happy to take care with a person to falsely have some so next lives you look at them the slide unemployment our to see here is a nice steady improvement in the unemployment rate from the what was very distressed level back in april twenty twenty assists unemployment now coming in at about six percent or most recently in november and the forecast generally i should continue improvements as as move out for masoli the impacts said both adults and on the clan viruses or variants a on the next slides he real estate was a very good story in the islands and twenty twenty one this is allahu only information the labour islands malley quite a big island or trending similarly other for twenty twenty one you see that on a lot of things how we homes had had a had a near record yeah your clothes sales of almost eighteen percent median sales price or up nineteen point three percent nine hundred ninety thousand dollars for the year i'd note that we pierce the million dollar level for a median single family home sales prices in december twenty twenty one and they see down and days on markets said just as effective proxy for him and tory looking what we're pretty tight the condominium side of their opponents was as good not quite as good as single families but volumes up fifty three percent for the year prices of line percent and inventory levels similarly constrain as a single family home mortgages i'll finish with a little discussion on the visitor industry i hear you see daily arrivals in the grey bars or and grey lines that's twenty nineteen in the dark blue that's our performance over twenty twenty one and and i think the to take away his here are that a of x any extreme the surge situation of israel market performed exceptionally well so deep into the summer call it the other july ish timeframe we almost reached jackson we did reach parity in terms of arrivals with that twenty nine two levels which is really quite remarkable given that we still really haven't seen the resumption of international travel yet deeper into the fourth quarter towards a christmas a general christmas but this was holiday season was a good one for the islands but but we have been impacted out of late over the past months or so by on the probably see how that read aspersion about poem or as as we get into i'm into more serves like environments of so our hope for twenty two is that will be certainly less less impact in by surges as well as we hope to begin seeing return of the international traveler force the back half of next year and so most folks that i talked to within the industry i feel pretty good they they felt great about of the holiday season great eighty hours great occupancy fair amount of optimism looking into twenty two again a lot of that predicated on the return of the international visitors towards the back after the year or but a lot of sense that domestic visitors are are are are eager to travel eager to travel to hawaii and increasingly used to just operating in editors this says as viral environment so that's that's it for me on color from the marketplace and millimeter in the column or to deep deep
spk_3: thank you peter wilt core customers we made solid in the fourth quarter or loans net of ppp waivers increased by three hundred and twenty seven million or two point eight percent link quarter and by seven hundred ten million you have a year or six point two percent leavers on t v ppp loan slow than the fourth quarter and balances decline by one hundred forty two million one hundred twenty seven million and ppp loans remained at the end of the year that interesting come in the fourth quarter was one hundred and twenty six point four million included in the fourth quarter net interest income was a one time reduction of nine hundred thousand for an adjustment to deferred mortgage loan feeds in the third and fourth quarters total ppp loan interest income which includes normal interest and amortize and accelerated loan fees for seven point nine million five point seven million respectively adjusting for the one time charge and total ppp loan interest income the fourth quarters corn net interest income was one hundred and twenty one point five million of two point six million or two point two percent link quarter driven by strong long grove acid shift from investments to higher yielding loans and repricing of our like
spk_4: abilities
spk_3: discontinued the upward trend and cornet interest income experienced in a third quarter are strong and stable the a strong stable days of low cost deposits we mean it readily available source of liquidity and will enable us to like rising rates and continue growing our net interest income ninety four percent of our deposits are from core commercial and consumer customers and increase from ninety one percent at the end of twenty twenty
spk_5: on a year a year comparison or non interest bearing demand balances increase twenty six point five percent and comprise thirty six percent of our total deposits
spk_3: in addition less rate sensitive operating account balances as represented by total non interest bearing and interest bearing demand that counts are nearly sixty percent of all deposits in contrast or time deposit balances decreased by forty percent and now represent five percent of total deposits photo deposit cause dropped one basis point six basis points in the quarter are low cost core deposits in combination with a balance sheets acid sensitivity the loan to deposit racial sixty percent and strong cashflow positions as well to take advantage of rising rates while maintaining current income and funding sources for continued growth the thirty five percent of our laws that are floating largest a blurry loans provide additional rate sensitivity in addition or investment portfolio generates more than five hundred million dollars of for quarter of cashflow available to be reinvested at higher rates and twenty twenty one make of away achieved record net income of two hundred and fifty three point four million dollars and record earnings per common sheriff six dollars and twenty five cents that income for the fourth quarter was sixty three point eight million and one dollar fifty five cents per common share that interesting come in the fourth quarter was one hundred twenty six point four million as discussed earlier adjusting for interesting come on ppp loans and that one time assessment to the fourth quarters net interest income cornet interest income increased two point six million or two point two percent link quarter driven by so encore long old we mix of assets into higher earning loans from investments continued repricing of liabilities as mary will discuss later we recorded a negative provision for credit losses of nine point seven million this quarter an interest income totaled forty two point six million in the fourth quarter of one point two million from the third quarter the increase was due to higher deposit fees service tigers and other transaction fees from increased economic activity we expect the first quarter is not interesting comp will be approximately the same as the fourth quarter an increase to approximately forty four million by the end of the year mortgage banking income is expected to be lord you to higher interest rates and law again on sale spread offset by improving service charges and transaction fees throughout the year nani to sixpence in the fourth quarter total one hundred one point seven million up from ninety six point five million and a third quarter included in the fourth quarter expenses was a one time one point two million charged for an additional employee benefit that increased advocation carry over limits the third quarter included several one time items including a three a six point three million benefit from the sale of property three point eight million charge for repo early termination costs and one point two million charge an extraordinary severance costs for net reduction at one point three million in expenses adjusting for these items and both quarters normalized managers expenses in the fourth quarter was one one hundred million point five one hundred point five million an increase of two point seven million over the last quarter the main drivers of the increase were higher medical insurance costs and incentive a medical costs have increased and are trending toward pre pandemic historic norms and set of accruals increasing quarter to bring the full year and senate's back to twenty nineteen levels comparing the four year twenty twenty one normalized expenses to the p pandemic you have twenty nine nineteen we continue to demonstrate expense discipline normalized expenses between twenty nineteen and twenty twenty one where of sixteen million or two point one percent analyze less than that two point eight percent analyze inflation rate over that period to provide some additional clarion our thinking about those normalize expenses and twenty twenty one normalize expenses were three hundred and ninety million after testing for three point seven million and expenses from one time items these one time items included seven million of early termination costs for repos three million for extraordinary severance expenses one point nine million related to our mass issuance of contactless debit cards and the app from mentioned one point two million tied for the increase in our vacation or all over partially offset by nine point four million benefit from the cell of to properties normalize expenses and twenty nineteen with three hundred and seventy four million after adjusting for five point three million of one point of one time costs comprised of a six million dollar increase in legal read in the legal reserve and six hundred thousand and one time up losses and impairments partially offset by six hundred thousand benefit from the cell of property and benefit of in huh
spk_5: your thousand from the one time excise tax refund
spk_3: continue the expense discipline kept our combined core in volume related expenses flat to slightly lower and they increase and normalized expenses between twenty nineteen and twenty twenty one are primarily driven by significant strategic innovation investments that a resulting in balance sheet growth and mark market share grow in twenty twenty two were continuing with our strategic innovation investments with an additional two point eight percent of total expenses to further our market share and revenue growth we expect court spencer's will increase approximately two point three percent expenses will also increase point eight percent from an additional one time inflation adjustment of two point five percent to our normal and annual married increases reflecting the higher cost of living the experienced by employees together with the continued strategic inhibition investments the expect total expenses will increase five point nine percent over twenty twenty one it's normalized expenses of three hundred and ninety million as a reminder in the first quarter we estimate that the seasonal payroll tax and benefit expenses related to the payment of annual and centers will be approximately three million compared with the approximately two million and a first quarter of twenty twenty one i return on assets in the fourth quarter was one point one two percent return on common equity with seventeen point four percent now efficiency ratio of sixty point one eight percent or nexus just margin in the fourth quarter was two point three four percent increase of two basis points from the third quarter the increase in the margin during the fourth quarter reflects a more favorable balance sheet next driven by strong longed for longer old partially offset by law ppp loan waivers excluding total ppp loan interest income and the one time charge for the deferred mortgage loan fee mentioned earlier the core margin was two point two four percent an increase of seventy six points linked quarter excluding the impact of ppp loan interest income week we expect continued improvement in core margin with increases of three to five basis points for quarter twenty twenty two two two continued loan and deposit grow and higher interest rates our capital level remain strong and is well positioned to support continued girl r c t one at total recipes capital ratios were twelve point one two percent and fourteen point eight one percent respectively with a healthy access above minimum well capitalized requirements during the fourth quarter we paid out twenty eight million or forty five percent of net income available to comment shareholders and dividends and two million dollars and preferred stock dividends we we purchased eighty seven thousand shares of common stock for a total of seven point three million dollars
spk_6: and finally a boy declared a dividend of seventy cents for common shared for the first quarter of twenty twenty two
spk_7: now turn to call over to marry think again credit metrics remain very strong for the fourth quarter net learn and least charge offs or seven hundred thousand or two basis points and your life compared with that try to after of one point two million or for basis points in the third quarter and net recovery have three hundred thousand in the fourth quarter of twenty twenty nine performing assets totaled nineteen million or the team basis points down one point six million or two basis points from the third quarter and flat year over year luntz delinquent thirty days or more were twenty point five million or twenty three basis points at the end of the clerk quarter flat piddling period and down eight million or eight basis points here have a year and criticise long exposure represented two point two three percent of total land down eleven basis points peddling period and down forty basis as points from the fourth quarter of twenty twenty as been noted we recorded a negative british and per credit losses of nine point seven million this quarter this included a negative provision to the allowance for credit losses on line and pieces of nine point four million which with net charge offs of seven hundred thousand reduce the allowance two hundred and fifty seven point eight million one point two nine percent of total loans and leases or one point three percent that a ppp balances the decrease in the allowance reflects the most recent years hero economic outlook and for caspar market coupled with their credit risk profile the allowance continues to provide for the uncertainty and potential down risk associated with the pandemic at year end customer loan balances on to pearl were down ninety eight percent from their peak two point four percent have turtle allowance esa recall given we had the capacity to do so we elected to partner with their customers and provide extended relief primarily to print what the pearls unload march and real estate adoption center the lounge remaining under for are secured with our commercial the deferrals having a weighted average loan to value at fifty one percent
spk_2: and our consumer to pearls having a weighted average learned the value of sixty six percent a hundred percent of our commercial and continue to pay interest and i returned to payment performance remained strong with less than one percent of these customers delinquent thirty days or more on now turn the call back to peter
spk_0: great thank you marry am so that's are prepared remarks were happy to answer whatever questions you folks may have thank you as a reminder to ask a question simply press star wanna your telephone to withdraw their question press the pound or has key
spk_8: we have a question from can and do nice fleets piper sandler you're lining up and hi good morning everyone
spk_3: added on dean question on the margin guidance read a five deaths per quarter i'm assuming higher rate how many rate hikes to that the assuming that forecast
spk_9: yeah we were so three rate hikes starting in march
spk_3: and then in
spk_10: on the long as you know looking at about two percent ten year
spk_11: god okay
spk_8: on that's helpful and then i'm flying nine be adjustable
spk_12: make that ten percent of the loan portfolio i guess what's that timing of that repricing is it after ninety days six month how does that break out
spk_3: it it's
spk_8: it varies of does over several years but the average is roughly about three years and it's about four hundred million two years and less
spk_13: oh god
spk_3: got a man i guess similar question on the pitch freight longer and how many of those that fifty five percent how many that rabbit read prices in the first year
spk_14: ah that's embedded in the cash flow so that's of thou i would estimate about
spk_8: ah the to but to the about of one and a half billion
spk_15: but again billion
spk_16: got it
spk_8: i'm in then i just don't play for case a question on that the fee income guide or this quarter building than forty four million and a fourth quarter that ah a similar level to the total reported though the forty two point six million including the securities the net lot and securities or or or three
spk_0: he be back matt out
spk_17: that could you repeat that a young ha or that know the reportage the income number for the fourth quarter with forty two point six point lead and he said but for the first quite something similar is that the number we should be using the forty two point six yes yes sire again ah got it odd that that covers on my question thanks so much that you
spk_18: i next question cause i'm kelly more time with kbw your nanny helping
spk_3: i think he sounds so much of a question on i think our kids p piggyback off a bomb answers question on the nam i'm just wondering and the the call the cops and the beta and better than that about how many and rate hi fi think i me to come through and kill and eat you get an impact to ah your deposit caught to given that are like
spk_2: companies time a like that yeah i would say that the the we we have it the a modeled as the i'm the overall be as are about twenty percent over those complete cycle
spk_19: and just given our construction of our deposit be going to be lagging initially out of the gate self is probably towards the middle part of the or anything but will be seen by deposit increases now after the second rate hike
spk_20: yeah i'd say i just tend to dad to to deal but they're they're they're probably several layers too large deposit baylor so number one
spk_2: you know i think everyone recognizes that away as one of the best or to lower the federal deposit marketplaces in the country as that's going to give us some stickiness art or center are competitive said the other thing i point to is that we that in our our loans a deposit ratio now sits and sixty percent so you know we always want to be competitive we always want to maintain market share but there's at least as of right now no compelling need to build our even meal coal deposits per se
spk_17: as a that going to than that obviously plan to our pricing decisions and then finally when you look at the composition of our deposit base
spk_21: yeah i think care ninety five percent of of the bases sam core checking and savings and them and a similar number are and can consumer and commercial versus public
spk_2: types of client basis so that bad to that will help us maintain pricing over of the intermediate term i think the key so much for all the color of to follow up on the deposit on the roll off that happened this corner how much of that well maybe season all burqas on in a part of your effort to roll out me from iraq alone yield hours a week we are
spk_17: and we aren't intending to bring down the public book as rates rise but the
spk_0: the two hundred ninety eight million that rolled off in public was mostly and transactional we had some be have had a tax payments that were the came in at the end of the prior quarter that left shortly after in the fourth quarter and those types of transaction so that wow i would characterize that for your question as more seasoned old and than structural
spk_22: gotta that super helpful outset that think and actually the question yoakam thank you a sorry minority the have a question simply press star one on your telephone
spk_23: i next question is some laurie him to car with compass point your lanny so thin
spk_3: they have thank the morning no hundred and dean as if you could pick and back to thank the really appreciate how you laid out everything and you laid out for that a for have thought and i guess as we roll forward and we think about plenty plenty three i think month defensive driving up a target mouth and twenty twenty three are we up the you go back
spk_24: asked to on my mother and plumber growth that we've been yale and plan and i'm empire has should be thinking about that another word you can be back that you two and a half percent tiger or are you more apt to repeat that that five point nine percent growth in your opinion and twenty twenty two
spk_2: yeah so it and twenty twenty three and we we haven't spent much time there but in looking at how we broke down twenty two you know the two point three percent is is seems to be a reasonable starting point by we also are intending to continue with our strategic investments in into twenty three yet what may i'd add add to the with with the is shared the i would say that our expense build for twenty two is really three pieces right it's a core component of two point four percent which it frankly is on the high five for us as i think reflexes kind of inflationary pressures on all different types of of expenses both personal and otherwise and then we also built into this year a a decision to on a one time basis plus up our overall employee base by two and a half percent so our married for the year of our normal merits call it to and a half percent we made the decision to plus up another two and a half percent a good
spk_21: of our employees and twenty twenty two of five percent married increase for for obvious reasons right me we just think with inflation being a real number out there we as one are our people to be in as been shape as possible fiscally a we do not intend to do that again next year we don't we hope that the how
spk_19: after do that again next generation say i and that's worth in a call at seventy four basis points on the five point nine percent increase
spk_2: and then from an initiative standpoint we got a pretty aggressive slash healthy
spk_25: agenda on initiatives and and may all their what i'm what i'm really super excited about as they all are types of spam that can get into the revenue and value and experience has for experience bloodstream pretty quickly
spk_2: so there's not a whole lot of infrastructure built in the as is rob how the application types of things and that two point eight percent our ten point nine million is a i would say that's on the heavy side out i think we're going to continue to have an issue to spend and twenty three but probably not had that same way and if we do have had that same of or higher it certainly will be substantiated by operating performers that we see it in real time right so i guess if i reversed that out what would i would say is that probably twenty three expenses he gonna lose the seventy four bases point been that one time inflation plus up right
spk_26: and initiatives are going to come in it and i have to a third less
spk_2: core maybe hopefully we on depending what inflation does a call at two point four percent fall that flat i think we end up with call it up however that they a estimated him back of the on below twenty three of college three and three quarters to form a quarter percent increase or something for the are similar i bet that make sense to
spk_3: yet a very helpful and then you do you have any branch rationalization plans for next year the year after her you thinking about that
spk_2: yeah we we took a big one last year so that you recall last year he took a five point two million dollar charge to close out our supermarket branches which were good performers but there were highly transactional and as more of our customers have moved the digital channels stadium they became an hour i'm super flaws but not as necessary is as previously historically right and so that basically that five million dollar charge equates to roughly five million dollars savings annually and that was in the bloodstream for twenty one day a partially and twenty twenty and in the rest of it and twenty two twenty twenty one
spk_23: that was a big chunk i would say there are opportunities on the margin for further branch rationalization but i think we're we're getting close to being comfortable with a square footage we've been out there right now
spk_3: that that say there are just overall efficiency of opportunities in the branches through
spk_26: and just ways to digitize vs being physically present those types of things i think that number of efficiency efforts across your is nation and an external to the branches
spk_23: they have been on the in question you have obviously i'm in allow it doesn't seem santa noisy in it came in at twenty two percent the for your has to be thinking about twenty twenty two
spk_3: yeah the tax i would say it's gonna be out of twenty three percent as a estimate
spk_22: anything else that's awful and then this last question and i just wanted some plan thickness and my seven where you lay out the tpp
spk_27: how much said that seven point nine million the a vpn comic newman and that their quarter was from and ppp game and i'm assuming a seven point nine included and just when the that interesting com a just wondering what the actual game he swears and then how much as i mean and on the unamortized pm
spk_28: so in the third quarter of was five for the i think you're talking about the accelerated components and that five point nine million in the third quarter four point nine million in the fourth quarter and then we have two point four million
spk_1: or great thanks for taking my question
spk_0: boy
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only. Earnings Call, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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