Charlie Driscoll

Charles Driscoll asked for expectations regarding terminal betas for deposits, whether total or interest-bearing, and sought updated thoughts on downward repricing, including sizing the impact of interest rate cuts on CDs and indexed deposits. He also inquired about the company's M&A strategy, specifically their preference for target size and whether they prioritize acquisitions within their existing footprint or in adjacent markets.

Answer

CFO Stefan Chkautovich advised that an overall deposit beta of around 40% would be a good figure for modeling purposes. Chairman and CEO Greg Steffens stated that while they prefer M&A within their footprint, they would definitely consider opportunities in adjacent markets. He emphasized that each potential deal is evaluated individually based on the underlying performance of the bank, its growth potential, and its contribution to overall shareholder return, determining who they more aggressively pursue.

Charlie Driscoll from Keefe, Bruyette & Woods asked about the bank's funding strategy for near-term growth and whether it would continue to rely heavily on CDs. He also requested specifics on the rates of maturing CDs versus replacement rates and inquired about the M&A environment and the company's current stance on share buybacks.

Answer

Matt Funke, President and Chief Administrative Officer, stated that the bank expects to be less aggressive on the CD side and that growth will be less heavily weighted towards CDs than in prior years. Stefan Chkautovich, EVP & CFO, specified that CDs maturing over the next year average a 4.24% rate and are being replaced at around 4.0%. On capital allocation, he noted that while M&A discussions are increasing, the company currently believes a potential M&A deal could have a shorter earn-back period than share repurchases at current valuations.

Charlie Driscoll, on for Kelly Moffer, asked about the bank's funding strategy for near-term growth, specifics on maturing CD rates, the M&A environment, and the company's perspective on share buybacks.

Answer

President and CAO Matt Funke stated that future growth would be less reliant on CDs due to the bank's strong current funding position. EVP & CFO Stefan Chkautovich specified that CDs maturing over the next year have an average rate of 4.24% and are being replaced at approximately 4.0%. He also noted that while M&A discussions are increasing, the company currently views a potential transaction as having a shorter earn-back period than share repurchases.

Charlie Driscoll from Keefe, Bruyette & Woods Inc. asked First Hawaiian to reiterate its capital priorities, including its current view on share buybacks and its M&A strategy, particularly given the heating M&A environment. Driscoll also sought more detail on deposit rate pricing in Hawaii, specifically asking for quantitative expectations regarding deposit betas on the way down in anticipation of Fed rate cuts. Finally, he inquired if the margin expansion guidance, assuming 50 basis points of additional cuts, included any loan purchases.

Answer

Vice Chairman and CFO Jamie Moses stated that capital priorities remain consistent: maximizing loans within the credit box, utilizing the remaining $26 million share buyback authority based on market conditions, and maintaining the dividend at its current yield due to a relatively high payout ratio. Regarding deposit betas, Moses indicated a roughly 90% beta on the $4.5 billion rate-sensitive deposit portfolio for the next Fed cut, decreasing to 88% and 85% for subsequent cuts, suggesting continued ability to lower deposit costs. He clarified that the margin expansion guidance for the fourth quarter does not assume any loan purchases, relying solely on strong anticipated organic loan growth from current pipelines.

Charlie Driscoll questioned the strategy for deploying the company's increasing cash balances, asking if they were being held as dry powder for Q4 or for other uses. He also asked about the outlook for expense management heading into 2026, considering potential growth and the recent team liftout.

Answer

President and CEO David Brager and EVP and CFO Allen Nicholson explained that cash balances are maintained for seasonal Q4 dairy increases, year-end deposit outflows, and potential bond market investments. Brager stated that expense management would remain tight, with low single-digit growth expected and continued investment in technology infrastructure and automation.

Charlie Driscoll asked about the continued build-up of cash balances, seeking an updated message on potential deployment areas, whether it's dry powder for a seasonally strong Q4, or other utilization plans. He also inquired about the outlook for expense management heading into 2026, considering potential growth and the recent team liftout.

Answer

EVP and CFO Allen Nicholson explained that cash balances prepare for a large Q4 dairy increase and year-end deposit outflows for tax and bonuses. He added that the bank would evaluate bond yields for potential investment, especially if the Fed continues to cut rates. President and CEO David Brager stated that expense management would continue to be very close, with expectations for low single-digit growth, noting that Q3 includes annual salary increases, and the primary investment area remains technology infrastructure and automation.

Charlie Driscoll, on behalf of Keefe, Bruyette & Woods, asked about the sustainability of the strong organic loan growth momentum and specifically sought details on the growth outlook for the equipment finance portfolio.

Answer

Chief Lending Officer Mike McCuen acknowledged a potential summer slowdown but expects activity to remain strong into Q4. Regarding equipment finance, CEO Thomas Michael Price explained that as a relatively new business, its high growth rate was expected but will likely flatten as the initial five-year loans begin to mature in about a year. McCuen added that the portfolio's credit quality is strong and it enhances existing client relationships by providing new financing options.

Charlie Driscoll of Keefe, Bruyette & Woods (KBW) asked for confirmation that the second quarter's expense level is a good run rate, sought an update on the Cash Connect insurance recovery and its broader profitability trends, and inquired about the longer-term margin outlook into 2026.

Answer

EVP & CFO David Burg confirmed that Q2 expenses, excluding a one-time $1.6 million insurance recovery in Cash Connect, represent a good run rate. He stated that WSFS will continue to invest in talent and technology for long-term growth. Regarding Cash Connect, Burg noted that profitability is improving toward a high-single-digit margin, with a goal of reaching the teens, driven by pricing actions and the benefit of rate cuts. For 2026, Burg declined to give specific guidance but reiterated the company's goal to perform in the top quintile of peers and drive ROA higher, supported by fee business growth.

Charlie Driscoll, representing Kelly Mosser of Keefe, Bruyette & Woods, Inc., questioned the production ramp-up of new lending teams, the potential for future team lift-outs, and the outlook for loan yields absent any Fed rate cuts.

Answer

President & CEO Bryan D. McDonald reported that both the new construction and Spokane teams are performing well and meeting expectations, and the bank remains open to further lift-outs. Both McDonald and EVP & CFO Donald Hinson affirmed that loan yields are expected to continue rising, driven by new loans originating at higher rates (6.8%) than the current portfolio average (5.5%) and the repricing of existing loans.

Charlie Driscoll from Keefe, Bruyette & Woods asked for details on the 2Unify platform launch, market reception, and its financial model (fee income vs. balance sheet). He also inquired about the current M&A environment and the bank's criteria for potential partners.

Answer

Chairman & CEO Timothy Laney described the 2Unify launch as a successful 'soft opening' with positive feedback. He clarified that 2Unify is designed to be an information and membership fee-based business, not a heavy balance sheet play, leveraging partnerships for services like credit and payments. On M&A, Laney reiterated the bank's consistent focus on culture, growth markets, and strong financial accretion, but declined to comment on specific current conversations.

Charlie Driscoll from Keefe, Bruyette & Woods asked for details on the recent launch of the 2Unify platform, including market reception and the nature of its partnerships. He also sought to clarify whether 2Unify is primarily a fee-income generator or a balance-sheet-focused initiative. Additionally, he inquired about the current M&A environment and the bank's criteria for potential partners.

Answer

Chairman & CEO, Timothy Laney, described the 2Unify launch as a successful 'soft opening,' emphasizing its intuitive interface and robust security. He positioned 2Unify as a future information company focused on a membership-fee model for a full ecosystem of small business services, rather than a significant balance sheet play. On M&A, Mr. Laney reiterated the bank's consistent strategy of focusing on culture, growth markets, and strong earnings accretion, but declined to comment on specific current conversations.

Charlie Driscoll from Keefe, Bruyette & Woods inquired about the recent launch of the 2Unify platform, its market reception, and the nature of its partnership with NAV. He also sought to clarify if 2Unify is primarily a fee-income generator or a balance sheet play and asked about the current M&A environment.

Answer

Chairman & CEO Timothy Laney described the 2Unify launch as a successful 'soft opening,' emphasizing positive user feedback and robust security. He detailed a long-term vision for 2Unify to become an information-focused company with a membership-fee model, rather than a balance-sheet-intensive business. On M&A, Mr. Laney reiterated the company's consistent criteria focused on culture, growth markets, and strong earnings accretion, but declined to comment on specific current discussions.

Charlie Driscoll from Keefe, Bruyette & Woods asked about the competitive landscape for deposit funding and betas heading into 2025, the anticipated expense impact from crossing the $10 billion asset threshold (Durbin Amendment), and the role of M&A in the bank's capital strategy.

Answer

President Aldis Birkans noted the bank's ability to manage Cambr deposits and achieve core deposit growth. CEO Tim Laney added that the bank has delayed a roughly $5 million annual Durbin impact but plans to grow past the $10 billion threshold in 2025, absorbing the cost with organic growth. Mr. Laney also clarified that while the bank is prepared for the regulatory crossover and open to M&A, a potential deal would be driven by strategic fit, not just diluting the Durbin impact.