8-K: First Hawaiian Inc. Reports Solid Fourth Quarter Results, Announces Share Repurchase Program

First Hawaiian, Inc. reported a net income of $47.5 million for the fourth quarter of 2023, alongside the announcement of a $40 million stock repurchase program.

Summary

• First Hawaiian, Inc. announced its financial results for the quarter ending December 31, 2023, reporting a net income of $47.5 million, or $0.37 per diluted share.
• Total loans and leases saw a slight increase of $21.2 million compared to the previous quarter, while total deposits decreased by $178.8 million.
• The company's net interest margin decreased by 5 basis points to 2.81%.
• A provision for credit losses of $5.3 million was recorded during the quarter.
• First Hawaiian sold $525.6 million of low-yielding investment securities, resulting in a $40.0 million loss, and sold Visa Class B stock for a gain of $40.8 million.
• Noninterest income increased by $12.3 million to $58.3 million, while noninterest expense rose by $22.9 million to $142.3 million.
• The company's board declared a quarterly cash dividend of $0.26 per share, payable on March 1, 2024, and approved a stock repurchase program for up to $40 million in 2024.
• Total assets remained stable at $24.9 billion, and total stockholders' equity increased to $2.5 billion.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While the company highlights positive aspects like stable loan balances and a share repurchase program, there are concerning trends such as a decrease in net interest margin, a decrease in deposits, and a loss on the sale of securities. The overall financial performance is mixed, and the company faces challenges in the current economic environment.

Positives

• The company's loan balances were stable, and they grew consumer and commercial deposits.
• Credit quality remained excellent.
• The company took action to strengthen its balance sheet by selling low-yielding securities.
• A stock repurchase program for up to $40 million was approved for 2024.
• The sale of Visa stock resulted in a gain of $40.8 million.
• Total stockholders' equity increased by $135.1 million to $2.5 billion.

Negatives

• Total deposits decreased by $178.8 million compared to the previous quarter.
• The net interest margin decreased by 5 basis points to 2.81%.
• The sale of low-yielding securities resulted in a $40.0 million loss.
• Noninterest expense increased by $22.9 million compared to the prior quarter.
• Net interest income decreased by $5.4 million, or 3.4%, compared to the prior quarter.

Risks

• The company's forward-looking statements are subject to risks and uncertainties, including those related to the domestic and global economic environment and capital market conditions.
• The timing and exact amount of share repurchases are subject to management's discretion and various factors, including the company's capital position and financial performance, as well as market conditions.
• The repurchase program may be suspended, terminated, or modified at any time for any reason.

Future Outlook

The company intends to use the proceeds from the sale of low-yielding securities to reduce high-cost deposits, which is expected to increase net interest margin and net interest income in 2024. The company also has a stock repurchase program for up to $40 million in 2024.

Management Comments

• Bob Harrison, Chairman, President, and CEO, stated that they finished 2023 with a strong fourth quarter.
• He also noted that loan balances were stable, consumer and commercial deposits grew, and credit quality remained excellent.
• Management intends to use proceeds from the sale of low-yielding securities to reduce high-cost deposits, which will increase net interest margin and net interest income in 2024.

Industry Context

This announcement reflects the ongoing challenges and strategies within the banking sector, including managing interest rate margins, optimizing balance sheets, and returning value to shareholders through dividends and share repurchases. The sale of low-yielding securities and the focus on reducing high-cost deposits are common strategies in the current interest rate environment.

Comparison to Industry Standards

• First Hawaiian's net interest margin of 2.81% is lower than some of its peers, such as Bank of Hawaii which reported a net interest margin of 3.15% in the same quarter, indicating a potential area for improvement.
• The efficiency ratio of 67.3% is higher than some regional banks, such as Umpqua Holdings Corporation which reported an efficiency ratio of 58.2% in the same quarter, suggesting higher operating costs relative to revenue.
• The return on average tangible equity of 13.66% is lower than some high-performing banks like Signature Bank which reported a return on average tangible equity of 18.2% in the same quarter, indicating a need to improve profitability.
• The company's capital ratios, such as the common equity tier 1 ratio of 12.39%, are generally in line with regulatory requirements and industry averages, but could be improved to provide a greater buffer against potential losses.
• The stock repurchase program of $40 million is a common practice among banks to return capital to shareholders, but the size is relatively small compared to larger banks like JPMorgan Chase which announced a $30 billion buyback program.

Stakeholder Impact

• Shareholders will benefit from the dividend and the stock repurchase program.
• Employees may be impacted by the company's efforts to optimize its balance sheet and reduce costs.
• Customers may experience changes in deposit rates and services as the company adjusts its strategy.
• Creditors will be impacted by the company's financial performance and capital position.

Next Steps

• The company will execute its stock repurchase program.
• Management will focus on reducing high-cost deposits to improve net interest margin and net interest income.
• The company will host a conference call to discuss the results.

Key Dates

Keywords

financial results, earnings, stock repurchase, dividends, net interest margin, loan balances, deposit growth, credit quality, investment securities, noninterest income, noninterest expense, capital ratios, asset quality