An Eye on Earnings Report: First Hawaiian (NASDAQ: FHB)

On Tuesday, Shares of First Hawaiian (NASDAQ: FHB) rose 1.14% to $23.99. The stock traded total volume of 795,461 shares lower than the average volume of 1.30M shares.

First Hawaiian, Inc. (FHB) recently stated financial results for its third quarter ended September 30, 2018.

Earnings Highlights:

Net income for the quarter ended September 30, 2018 was $67.40M, or $0.50 per diluted share, contrast to $69.10M, or $0.50 per diluted share, for the quarter ended June 30, 2018, and $58.40M, or $0.42 per diluted share, for the quarter ended September 30, 2017. Core net income for the quarter ended September 30, 2018 was $70.80M, or $0.52 per diluted share, contrast to $69.70M, or $0.50 per diluted share, for the quarter ended June 20, 2018, and $57.00M, or $0.41 per diluted share, for the quarter ended September 30, 2017.

Net interest income for the quarter ended September 30, 2018 was $141.30M contrast to $141.40M for the quarter ended June 30, 2018, and a boost of $7.90M contrast to $133.30M for the quarter ended September 30, 2017. Net interest income contrast to the second quarter of 2018 was essentially flat, mainly because of higher interest expenses on deposits and borrowings and lower interest income on investments, mostly offset by higher interest income on loans and cash. The second quarter of 2018 included a $1.10M positive premium amortization adjustment that did not recur in the third quarter. Excluding the premium amortization in the second quarter, third quarter net interest income would have been about $10M higher than second quarter net interest income. The increase in net interest income contrast to the third quarter of 2017 was because of higher interest income on earnings assets from higher rates and balances, partially offset by higher interest expenses because of higher rates on deposits and higher balances of term borrowings.

Results for the quarter ended September 30, 2018 included a provision for loan and lease losses of $4.50M contrast to $6.00M in the quarter ended June 30, 2018 and $4.50M in the quarter ended September 30, 2017.

Noninterest income was $47.40M in the quarter ended September 30, 2018, a decrease of $2.40M contrast to noninterest income of $49.80M in the quarter ended June 30, 2018 and a decrease of $2.30M contrast to noninterest income of $49.70M in the quarter ended September 30, 2017. The decrease in noninterest income contrast to the second quarter of 2018 was mainly because of a $3.20M decrease in other income, $0.40M lower credit and debit card fees and $0.20M lower trust and investment services income, partially offset by $1.30M higher income from bank-owned life insurance (“BOLI”). The $3.20M decrease in other income was mainly because of a $1.50M decrease in swap fee income, and a $1.00M decrease in recoveries, as we recognized a gain on sale of leased equipment in the second quarter of 2018.

The decrease in noninterest income contrast to the third quarter of 2017 was mainly because of $3.10M lower other income and $1.00M lower service charges on deposit accounts, partially offset by $1.10M higher other service charges and fees, $0.60M higher income from BOLI, and $0.40M higher credit and debit card fees. Other income in the third quarter of 2017 included a $2.70M gain from the sale of a bank property.

Noninterest expense was $93.10M for the quarter ended September 30, 2018, a boost of $1.30M from $91.90M in the quarter ended June 30, 2018, and a boost of $8.30M from $84.80M in the quarter ended September 30, 2017. The increase in noninterest expense contrast to the second quarter of 2018 was mainly because of $3.70M higher other expense, partially offset by $1.50M lower contracted services and professional fees, and $0.60M lower cards rewards program expenses. Other expense in the third quarter of 2018 included an expense of $4.10M in connection with a contract in principle to resolve a class action lawsuit regarding overdraft fees.

The increase in noninterest expense contrast to the third quarter of 2017 was mainly because of $4.20M higher other expense, $3.30M higher salaries and employee benefits, $0.60M higher contracted services and professional fees, and $0.50M higher occupancy expenses, partially offset by $0.90M lower advertising and marketing expenses. Other expense in the third quarter of 2018 included the aforementioned $4.10M litigation-related expense.

Balance Sheet Highlights:

Total assets were $20.00B at September 30, 2018, contrast to $20.50B at June 30, 2018 and $20.60B at September 30, 2017.

The investment securities portfolio was $4.60B at September 30, 2018, contrast to $4.80B at June 30, 2018 and $5.30B at September 30, 2017.

Total loans and leases were $12.60B at September 30, 2018, unchanged from $12.60B at June 30, 2018 and up $0.50B, or 3.7%, from $12.10B at September 30, 2017. During the quarter ended September 30, 2018, increases in residential, commercial real estate (“CRE”) and consumer loan balances were offset by decreases in commercial and industrial (“C&I”) and construction loan balances. The decreases in C&I and construction loan balances were because of large, unexpected prepayments. The increase in loans and leases contrast to the quarter ended September 30, 2017 was mainly because of increases in residential loans, CRE loans, consumer loans and construction loans, partially offset by a decline in C&I loans and lease financing.

Total deposits were $16.70B at September 30, 2018, a decrease of $0.70B from $17.40B at June 30, 2018, and a decrease of $0.90B, contrast to $17.60B at September 30, 2017. The decrease in deposit balances contrast to the quarter ended June 30, 2018 was mainly because of a $0.60B reduction in public time deposits. The decrease in deposit balances contrast to the quarter ended September 30, 2017 was mainly because of a $1.30B reduction in public time deposits, partially offset by growth in consumer and commercial deposits.

Asset Quality:

The Company’s asset quality remained excellent during the third quarter of 2018. Net charge offs for the quarter ended September 30, 2018 were $3.80M, or 0.12% of average loans and leases on an annualized basis, contrast to $4.00M, or 0.13% of average loans and leases on an annualized basis, for the quarter ended June 30, 2018 and $4.10M, or 0.13% of average loans and leases on an annualized basis for the quarter ended September 30, 2017.

Total non-performing assets were $11.30M, or 0.09% of total loans and leases and other real estate owned, at September 30, 2018, contrast to non-performing assets of $13.80M, or 0.11% of total loans and leases and other real estate owned, at June 30, 2018 and non­-performing assets of $8.40M, or 0.07% of total loans and leases and other real estate owned, at September 30, 2017.

Capital:

During the third quarter of 2018, the Company repurchased about 1.80M shares of FHI common stock from a wholly owned partner of BNPP at a total cost of about $500M.

Total stockholders’ equity was $2.40B at September 30, 2018, contrast to $2.50B at June 30, 2018 and $2.60B at September 30, 2017. The tier 1 leverage, common equity tier 1, and total capital ratios were 8.42%, 12.09% and 13.14%, respectively, at September 30, 2018, contrast with 8.61%, 12.19% and 13.23% at June 30, 2018 and 8.66%, 12.71% and 13.77% at September 30, 2017.

FHB has the market capitalization of $3.25B and its EPS growth ratio for the past five years was -0.30%. The return on assets ratio of the Company was 1.10% while its return on investment ratio stands at 14.70%. Price to sales ratio was 5.19 while 79.70% of the stock was owned by institutional investors.

Grover Beam

Grover Beam has over 14 years experience in the financial services industry giving him a vast understanding of how news affects the financial markets. He is an active day trader spending the majority of her time analyzing earnings reports and watching commodities and derivatives. He has a Masters Degree in Economics from Westminster University with previous roles counting Investment Banking.

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