Good day. Thank you for standing by. Welcome to the First Hawaiian, Inc, Second Quarter 2023 Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one 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. Please go ahead. Thank you, Shannon, thank you everyone for joining us as we review our financial results for the second quarter of 2023. With me today are Robert Harrison, Chairman, President, and CEO, James Moses, Chief Financial Officer, and Lea Nakamura, Chief Risk Officer. We have prepared a slide presentation that we will refer to in our remarks today. The presentation is available for downloading and viewing on our website at fhb.com in the Investor Relations section. During today's call, we will be making forward-looking statements, please refer to slide 1 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. Now I'll turn the call over to Robert Harrison. Good morning, everyone. I'm pleased to welcome Lea Nakamura. Lea Nakamura was recently promoted to Chief Risk Officer after holding a variety of positions in the bank, including Deputy Chief Risk Officer and Treasurer. Lea has over 30 years of banking experience, and I'm confident she'll do great in her new role. I'll start with an overview of the local economy. The Hawaii economy continues to do well. The statewide seasonally adjusted unemployment rate in June was 3%, which is lower than the national rate of 3.6%. Total visitor arrivals were 802,000 in May, which is 5.4% the May 2019 arrival number. Japanese visitor arrivals at 34,000 was 70% below the May 2019 levels. Visitor spend in March was $1.7 billion, 19% higher than May 2019. The housing market has remained stable. In June, the median sales price for a single-family home on Oahu was $1.1 million, or 4.5% June of last year. The median sales price for condos on Oahu was $510,000, 4.5% below 2022. Turning to slide two, I'll give an overview of our second quarter results. Net income was $62.4 million, or $0.49 per share. As loans grew, we continued to grow capital and credit quality remained excellent. Our return on average tangible assets was 1.05%, and our return on average tangible common equity was 18.57%. We continue to maintain strong capital levels with the CET1 ratio of 12.05 and total capital of 13.17%. The board maintained the quarterly dividend at $0.26. Turning to slide 3, our balance sheet remains solid. In the second quarter, we brought down our excess liquidity by a little over $300 million as the recent disruption in the banking industry calmed down. This enabled us to reduce some higher-cost, short-term borrowings. We continue to have a strong liquidity position. As of June 30th, our total available liquidity was $8.6 billion, which was over 100% of uninsured, non-public deposits. The duration of our investment portfolio remains stable at 5.5 years, and cash flows from the portfolio were about $60 million per month, as we had expected. Turning to slide 4, period-end loans and leases were $14.4 billion, an increase of $142 million, or 1% from the end of Q1. In the second quarter, about $130 million of completed construction loans were converted to CRE. During the quarter, we also exited approximately $55 million of non-relationship shared national credits. We continue to believe that full-year loan growth will be in the low to mid-single digit range. Now I'll turn it over to James Moses. Thanks, Robert Harrison, and good morning, everyone. Turning to slide five. Total deposit balances decreased by $203 million, or 1% to $21.1 billion at quarter end. The retail and commercial deposits declined by $664 million, or 3.4% in the second quarter. Commercial deposits declined by about $450 million, and retail balances declined by about $214 million. On a year-to-date basis, retail and commercial deposits are down $964 million or 4.9%. Public deposit balances increased by $461 million in the quarter as public time deposit balances grew by $555 million, which was partially offset by a decline in public operating balances. Our total cost of deposits was 111 basis points in the second quarter, an increase of 29 basis points linked quarter due to higher rates paid and the shift in mix to higher rate deposit accounts. Turning to Slide 6. Net interest income declined by $7.3 million from the prior quarter to $159.9 million. The decrease was primarily due to higher funding costs, partially offset by higher asset yields. Similarly, the net interest margin declined by 20 basis points to 2.91%. Throughout the end of the second quarter, the cumulative betas were 34.5% on interest-bearing deposits and 21% on total deposits. Looking forward, we anticipate that the NIM will decline by 15-20 basis points in the third quarter due to continued repricing and deposit migration. On Slide 7, non-interest income was $47.3 million this quarter, a $1.7 million decline from the prior quarter. The decline was primarily due to lower BOLI income, along with lower credit and debit card fee income. First quarter BOLI income included a $2 million debt benefit. Expenses were $120.9 million, $2.3 million or 2% higher than the prior quarter. The increase in expenses was driven by a $1.9 million increase in salaries and benefits, which included $2.9 million of separation and severance payments. We expect our overall annual expenses to be in line with our original outlook. Now I'll turn it over to Lea Nakamura. Thank you, James Moses. Moving to Slide 8. The bank maintained its strong credit performance and healthy credit metrics in the second quarter. Annualized quarter two charge-off rate was 10 basis points, 1 basis point higher than in quarter one. Non-performing assets and loans 90 days or more past due were 11 basis points at the end of quarter two, down 2 basis points from the prior quarter. Criticized assets increased to 93 basis points, with special mention assets at 52 basis points and classified assets at 41 basis points of total loans and leases. The bank recorded a $5 million provision for the quarter. Loans 30 to 89 days past due were $40.8 million, or 28 basis points of total loans and leases at the end of quarter two, unchanged from the prior quarter. Moving to Slide 9. We have a roll forward of the allowance for the quarter by disclosure segment. The reserve increased marginally this quarter, resulting from offsetting factors, including loan growth and improved economic outlook, and an increase in the qualitative overlay on construction and home equity. The allowance for credit loss increased $1.5 million to $148.6 million. This level equates to 1.03% of total loans and leases. The reserve for unfunded commitments was unchanged at $36.2 million. The allowance anticipates cyclical losses consistent with a recession and includes a qualitative overlay for potential macroeconomic impacts not captured in our base model. Turning to Slide 10, we provide a snapshot of our CRE exposure. CRE represents about 30% of our total loan portfolio outstandings. The overall credit quality of this portfolio remains very good. The increase in criticized office loans in the second quarter was primarily due to 2 loans. 1 loan consists of a handful of small office properties in downtown Honolulu and is being actively resolved. This loan is current, and we are comfortable with the plan. The other loan is located in downtown Los Angeles and is going through the sales process. We expect a full recovery on that loan. We continue to closely monitor this segment, given the implications of higher rates, credit tightening, and recessionary headwinds. Okay, well, thank you, James Moses and Lea Nakamura. Now we'll be happy to take your questions. Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Steven Alexopoulos with JP Morgan. Your line is now open. Hi, everyone. Morning, Steven Alexopoulos Hey, Steven Alexopoulos. I want to start. On the non-interest-bearing deposits, there was another quarter where you and the industry saw strong outflows. I'm curious, how did this trend through the quarter, and are there any signs of the pace of outflows abating? It's hard to say for sure. I would suggest the way that we look at the data, we think that it is abating somewhat. What I mean by that is, so far what we've seen this quarter has been on a relative basis, less outflow than what we saw through the three months in Q2. I think if you're drawing, if you're looking at a graph of where deposits have been going and you're drawing a trend line, I think you start to see that flatten out at least so far in the quarter, that's what we've seen. Okay, that's helpful. On the margin then, so you're down 20 basis points this quarter, a little bit worse than what we thought coming into the quarter. Now you're saying down 15-20. I'm curious, I know you don't give longer-term guidance, but do you feel like we're getting pretty close to the bottom once we roll through? I know it's going to be contingent on what you just talked about, but if that trend lines aren't a flat on the NIB outflows, do you think we might get some stability after the third quarter? I do think that and o bviously, Steven Alexopoulos that's entirely contingent upon what happens with the Fed and rates and all that. We do see that sort of the bottom of our guidance. We think that's probably about where it bottoms out, given sort of a stable forward outlook at this point. That's probably like somewhere in the fourth quarter for us. That's, that's kind of how we're thinking about it and how we're, you know, planning going forward. That sounds good. Then just on loan growth. I heard you, Robert Harrison, the reiterating the low to mid-single digit, which I'm a little surprised because you're running about 8% higher than year-over-year. I know the comps are tougher because you had a very strong second half, but you're not expecting, in fact, good momentum, good convergence to create. You're not expecting more momentum to continue. I'm surprised you're not at least pointing to mid-single digit growth. Thanks. Yeah, it, it's a tough one, Steven Alexopoulos. Alexopoulos. We have a number of commercial real estate projects that are, you know, completing and going to get paid off. A little bit, we're swimming upstream on that. O rigination, to your point, has still been fine, but we are seeing in the next quarter to a fair number this quarter, meaning Q3 and Q4, a fair number of commercial real estate payoffs. There is a balance there. Got it. I saw you called out that you saw a good growth in the dealer. Where do dealer balances sit now versus historical? Just wondering how much room there might be for still an improvement there. I have that here somewhere, but I know we're still $several hundred million below the 2019 year-end. I think it was $850, give or take, at 2019, and where are we at today, James Moses? Yeah, I think it's just under, it might be right under $ 700. Steven Alexopoulos I think there's probably a good, as Robert Harrison said, I think there's probably at least $a couple million worth of room there, given historicals. The question is, Does it go back to the way it was before? Y ou probably saw an article on The Wall Street Journal yesterday saying, probably not. I tend to agree with that. The industry has changed, but I do feel that the, the new number is, given that we don't have a huge difference in the amount of lines and availability to our customers, is higher than where we are today, but it's probably not where we ended in 2019. Okay. Thanks for answering my questions. Thank you. Our next question comes from the line of David Feaster with Raymond James. Your line is now open. Hey, good morning, everybody. Hey, David Feaster. Maybe just following up on your commentary about, the upcoming maturities and stuff. I'm just curious, could you quantify that for us? How, how much you have, expected to roll off maybe in the next 6-12 months, where roll-off rates are, and then where, you know, maybe repricing tends to be, or as well as new loan yield add-on rates? So, David Feaster, just, just to clarify, you're talking about securities or loans? Loans. Got it. Okay. S o I think what you're really asking is, is essentially a NIM question here. That's what you're trying to get at. I appreciate you trying to ask it a different way, but t he NIM guidance is the NIM guidance. We're, we're seeing which, we'll call it like, adds to the portfolio in totality. We're seeing sort of on the commercial side, a little bit higher in sort of the low 7s. On the we're still adding to a very few amount of, residential, mortgages. Those are sort of high 6s now versus where they've been in the past. Those are sort of the, those are sort of the roll-on, roll-on rates, at the moment. To be fair to all that, we're seeing in general, we're seeing a better ability for us to dictate pricing, structure, and credit, today than we were, in the past. A little bit more of a buyer's market, rather than a seller's market today. That's terrific. And ultimately, what I'm trying to figure out is where does the core NIM stabilize? A s we look forward. Maybe on the other side of the coin, I guess on the deposit front how is new account growth going? Where are you seeing good opportunities to take share and acquire new clients? Then just any thoughts on core deposit growth going forward, the strategy to continue to drive that, and where new money yields are o n interest-bearing deposits? A number of questions in there, David Feaster. Feaster. Let me pick off a couple of them. First of all, on new accounts, new deposit accounts, I think most banks in your coverage, we're very actively going after new accounts. That's been successful. We are trying to do that in a number of different ways, not just marketing, but more value to the customer. We're upgrading our mobile offering this month, later this month or next, actually next month in August. A ll those things, I think that's been successful. Really trying to grow that core operating account type of deposit. On the lending side, it's very interesting. To James Moses's point, is being much more disciplined on how we're going after business. We've seen rates and terms move back to what I think is more sustainable levels. People with being very aggressive in low rates for long periods of time, that's kind of gone now as liquidity is more dear, and we're really seeing more of a balance. For example, we have not been very active in indirect lending for the last, gosh, 4+ years. T hat line item is down almost exactly $300 million over that period, we just didn't see it being accretive at the time. We love the business. It's something we've been in for a long time, but it just didn't make sense there for a while. Now you're starting to see that, and especially to James Moses's point on the commercial side, a more reasonable market out there. T hen just where are you seeing, I guess, new interest-bearing deposit costs coming on? So it's a tough question because they come on at different, different rates for different types of customers that we have. In general David Feaster, what we're trying to do is we are trying every day, we're trying to go out and grab new customers. That's not at the moment, that's not really through some promotional offer that we're really offering on, especially on liquid side of things. This is part of the reason why you've seen the runoff in balances that we had. Every day, we're focused on acquiring new customers and turning those customers into relationships, and then taking care of the existing relationships that we have on our balance sheet. To the extent that it's not a relationship that has been here for a while, we're kind of thinking, letting some of those deposits kind of run off the balance sheet while taking care of our core customers. I t's a tough question. Some customers, obviously, our best customers are getting, say, higher exception rates and yields in their liquid portfolios. Our less best customers are getting lower rates. Of course, that's dependent upon, account size and things of that nature in there as well. It's a continued management of managing the entire balance sheet and managing the relationships that we have both on the acquisition side and the current relationships that we have. We talked about this starting a year ago, David Feaster, that for our larger balance commercial and personal customers, we really started taking care of them early, and now it's going through the rest of the balance sheet. We're getting to the earlier question from Steven Alexopoulos. Alexopoulos. We're getting close to the end on that, I think. That's great. Maybe following up on some of your commentary on the loan side, Robert Harrison, I'm just curious, with liquidity being paramount and some other folks pulling back and you still being open for business, where are you seeing good risk-adjusted returns? H ow is demand from your clients? Where are you seeing opportunities? I guess if you had to peg, how much of your growth would you expect to come from the mainland versus Hawaii? I'll start maybe with the end of that question. We're right about 24% of our loans on the mainland now. As we've talked about in previous calls, we assume that would go up a little bit sooner than the Hawaii, loans, although it is keeping pace, percentage point or so. We are seeing the dealer balances because the portfolio is larger on the mainland. That will be a little bit stronger on the mainland than here in Hawaii. We do see that coming back. Up in California, a couple of weeks ago, the domestic manufacturers seemed to be ahead of the foreign manufacturers on bringing back supply. I think that's been helpful. I think all the manufacturers by year-end will be closer to where they want to be on that. That will rebalance to whatever the new normal is by year-end as far as floor plan outstandings. On the commercial real estate side, to James Moses's point, better pricing, better structure, that's both here in Hawaii as well as on the mainland. I f you're open for business, which we're going to be more particular, but you really can't get a better structured transaction at higher pricing, and so we're looking at that. Where it's going to be slow, not surprisingly, is residential. Home equity will slow down a bit. Credit cards on balance should hold its own, but the consumer side, it will be a bit slower than the commercial side. That's helpful. Thank you. Thank you. Our next question comes from the line of Kelly Motta with KBW. Your line is now open. Hi, thanks for the question. I apologize for joining a little bit late, so I apologize if this has been already asked. It seems like you're doing a pretty bang-up job with expenses that have been really within the range you've been looking for. Just with the challenging, headwinds for margin that you've been discussing, at least near term is there any additional room on the expense side? I know you're already directing a lot of attention there. A s we look ahead, is this still a good range and still looking for the same kind of level of expenses that you have, at this point? Thanks. Kelly Motta, it's Bob. W e're always focused on expenses. We have been investing more, clearly in our technology and our people. G etting good people, like many other places, ha been a challenge, so we have made adjustments there. That we think is really a long-term investment, much like our technology. N ow that we've kind of gotten there, I think we're closer to being more of a status quo on our salary and benefits type expenses. On a broader level, maybe I'll turn that over to James Moses. Thanks, Kelly Motta. I mean, I think the way to think about it for the rest of this year is that coming into 2023, we knew that we had to make certain investments to improve our digital offerings, to improve things on that side, the operational efficiencies, that sort of stuff, in the house. Whether or not the NIM's going to be lower or in the back half of the year, we still feel like we need to make those investments for this year. Our guide on the year that we gave upfront we still think that's where we're going to be. As Robert Harrison said, we are always looking at expenses, but we were pretty tight this year on how we were managing those, what I would call, expenses that are non-strategic. We're feeling strongly that we need to continue the trends that we were on, from an expense perspective this year. After that we're heading into budgeting season and things right now we'll obviously be looking at that, but not ready to give any guidance sort of into 2024 at the moment. Got it. Maybe a final question for me. I think in your prepared remarks, you said something about exiting some SNCs, or mainland, kind of club deals. As you look ahead to where loan growth is going to be coming from, what's the appetite for, continued growth on the mainland? Kelly Motta, this really, I look at that as almost two different questions. I think there's clearly why we exited those relationships. They weren't relationships, they were just credit-only deals. We're really, as we look at the scarcity and value of liquidity and capital, we really wanted to focus on relationships. Whether those relationships are here in Hawaii, which is our home, and we want to do as much of that as we possibly can. We also have relationships in the US mainland. It really is more of a focus on where we can add value and where there's more than maybe just a credit relationship, as opposed to where the domicile is. Got it. Appreciate it. Thanks so much. Thank you. Our next question comes from the line of Andrew Liesch with Piper Sandler. Your line is now open. Hi, everyone. Just a couple, housekeeping items for me. The non-interest income is like $47 million-$48 million, still the right range to be thinking about? You got it. Got it. You know, the tax rate for a couple of quarters was slightly below where I was forecasting. What should we be using on that front? I think 24-24.5% is a good, is a good number on the tax rate. Gotcha. Thank you. You've covered everything else I wanted to ask about. All right, Andrew Liesch. Liesch. Thank you. Thank you, Andrew Liesch. Thank you. As a reminder, to ask a question at this time, please press star one one on your touchtone telephone. Our next question comes from the line of Jared Shaw with Wells Fargo Securities. Your line is now open. Hey, everybody. Thanks for taking the questions. Maybe starting with, or going back to the Shared National Credit discussion. The exits that you talked about this quarter, were those sales or were those natural runoffs? If they were sales, was there a loss on that? They were, g ood question, Jared Shaw. Shaw. They were sales, but at par. Okay. Then in the commentary, you talked about the office criticized loans. I think you had said that they were that one of them was downtown LA, but I thought last quarter we talked, or you, you'd said that your LA office was more West LA and not downtown. Can you just give an update on what your non Hawaii office current office exposure looks like geographically? Connecting what we said last quarter to what we said right now, they were both correct. We have one loan in downtown LA, and the majority of the rest are in West LA W hat's really being resolved is this one loan in downtown LA a s far as broader office, it really hasn't changed from what we talked about last time. It's primarily those gateway cities on the West Coast, several of which are credit tenants, and so the lease is set up to be, you know, it's a loan, but it really is tied into a specific credit tenant. We're very comfortable with that or a couple that are to very high net worth individ`uals that have shown strong support in the past. We're very comfortable with the rest of the office portfolio. These two popped up, and they're being addressed. Okay, thanks. Then when I look at slide 9 and the growth in the provision for construction and home equity, I don't know, I guess, how does that square with, what you were talking about in terms of very good employment trends and very strong valuations? It seems like construction projects and residential, there'd be very little, I guess, loss content in Hawaii at this point. What's driving the need for higher provision in those sectors? I can answer that. This is Lea Nakamura. With respect to construction, what we did in both the first quarter and the second quarter is we took a deep dive into our investor CRE and construction portfolios. In the second quarter, we actually re-underwrote the portfolios based on current NOIs and interest rates and cap rates. It really was, with respect to construction, it really was more about the mainland multifamily, where they're still under construction and the metrics are still good today, but we had a little bit of uncertainty as to what the market would look like in 1 year or 18 months. Then with respect to home equity, it was about, we looked at the portfolio, and we looked at the pool, the subpool, where there was very large utilization, and they were coming off of the teaser rates. There's just a little bit of concern about the increase in the interest expense that these particular loans will be facing. It's not a specific, I don't think it's in contrast to anything we've said before about the economy. It's just these sub-pockets. Yeah, Lea Nakamura brings up an excellent point I forgot to mention earlier, Jared Shaw, that, you know, we reunderwrote the entire investor CRE portfolio over anything over $5 million in balance during the quarter, during the second quarter. Current interest rates, current cap rates, really looking at what the risks are and the stresses. We didn't regrade anything. Right. we did that basically 2 quarters in a row, just to make ourselves feel comfortable. Great, thanks. Then on the construction loans that are rolling on to permanent, are those rates negotiated from prior s ort of prior, before the rate hikes, or are those coming on at lower rates, or are those coming on at current market rates when they go to permanent? Most all the construction loans, I can't think of any that are fixed rates, so they're all floating rates. The difference in those floating rates from when they were put on versus something that would be put on today is, is my earlier comments, is a little more spread today than there was 12 or 18 months ago. All those are at floating rates. Okay. Then finally, for me, and I appreciate you taking the questions. When we look at sort of terminal beta on interest-bearing deposits, is 45% sort of a good ballpark to be looking at? I think that's okay, Jared Shaw. Shaw. P art of the issue with that is it really depends on what happens with deposits. To the extent that we're funding the balance sheet with either borrowings or deposits. T hat data sort of can change. Depending on how that looks. I think that's an okay number to use. I think that's an okay number to use for now. W e're going to see how that moves as we go throughout the quarter. Again, Oh, sorry, quarter in the back half of the year, and that's just going to be sort of dependent upon, again, how we end up funding the balance sheet. Great. Thanks very much. Thank you. I'm currently showing no further questions at this time. I'd like to hand the call back over to Kevin Haseyama for closing remarks. I have one last comment. This is Robert Harrison I'd like to wish James Moses a happy birthday today. Welcome. Thank you. Second earnings call and all that. Kevin Haseyama? Thanks, everyone. We appreciate your interest in First Hawaiian, and please feel free to contact me if you have any additional questions. Thanks again for joining us, and enjoy the rest of your day. This concludes today's conference call. Thank you for participating. You may now disconnect.