First Hawaiian Bank beat analysts’ earnings estimates but added $20 million to its loan-loss reserves in the fourth quarter as it remained cautious about the near-term outlook for the state’s economy.

The state’s largest bank said today it sees a second-half 2021 recovery but that many uncertainties still exist. The move to increase its reserves ran contrary to many of the large banks on the mainland which in the fourth quarter released some of their funds that had been put aside for potential loan losses.

“The provision addressed some near-term uncertainties we see ahead of the rebound expected in the last half of the year,” First Hawaiian Chief Risk Officer Ralph Mesick said on an earnings conference call with analysts. “Our outlook has been for the last, I’d say, three quarters … that it’s going to be a slow recovery. We were anticipating with the vaccinations that we’ll start to see that recovery happening in the second half of the year.”

Mesick said the bank anticipates it will see further deterioration in payment rates.

“We’re prepared for losses,” he said. “Right now, as we look at the portfolio, look at our larger exposures, our customers seem to be very well positioned to deal with stress. Where it’s less, less visible is really, I would say, in the smaller businesses and maybe some of the landlords to those smaller businesses, how they sort of fare through this. So I think we’re well positioned where we’re at right now. I think we’ve tried to be very realistic about what could happen. But a lot of this is sort of outside of our ability to really forecast.”

First Hawaiian’s $20 million fourth-quarter loan-loss provision was about four times the $5.1 million it set aside in the third quarter and increased the total amount added to its reserves in 2020 to $121.7 million. Banks are required to set aside loans that may become unpayable on their balance sheet to show whether they have enough money to meet depositors’ and regulators’ needs.

The bank said 83% of its COVID-19 loan deferrals have ended, with around 91% of the borrowers having returned to payment and just under 1% of those delinquent. A small portion of borrowers have been offered a second deferral based on additional considerations.

Nearly all of the remaining original deferrals are residential mortgages, with $397 million expired on Jan. 1. About 92% of the residential mortgages that expired on that date have since returned to pay.

First Hawaiian Inc., the holding company for the bank, reported that its net income of $61.7 million fell 9% from $67.8 million in the year-earlier quarter. But the bank’s earnings per share of 47 cents a share easily topped analysts’ consensus estimate of 44 cents, according to research firm Thomson Reuters. A year earlier, First Hawaiian had earnings per share of 52 cents.

For the year, First Hawaiian posted a profit of $185.8 million, or $1.43 a share, compared with $284.4 million, or $2.13 a share, in 2019.

“2020 was a challenging year for Hawaii and our bank,” First Hawaiian Chairman, President and CEO Bob Harrison said on the conference call. “I’m very proud of the way everyone in the organization came together and responded. 2021 will be another challenging year as we continue to navigate the pandemic and its economic and social impacts but we’re very optimistic that things will improve especially in the back half of the year. The COVID situation in Hawaii is stabilized at a controllable level, the vaccine rollout is underway and we’ve seen the unemployment rate drop by over 50% from its peak.”

First Hawaiian said it would maintain its quarterly dividend at 26 cents a share that based on Friday’s closing price equates to an annualized yield of 4.1%. The dividend will be payable March 5 to stockholders of record at the close of business on Feb. 22.

The bank reported that its loans in the fourth quarter inched up 0.5% to $13.28 billion from $13.21 billion in the year-earlier period while deposits jumped 16.9% to $19.23 billion from $16.44 billion.

Chief Financial Officer Ravi Mallela said that this week the bank began taking applications for the second round of Paycheck Protection Program loans. As of the end of the day Wednesday, he said the bank had received 1,781 applications.

“Excluding the impact of PPP loans, we expect loan growth in 2021 to be in the low single-digit range, and we expect demand to pick up in the second half of the year,” he said on the conference call.

Mallela also said that the bank’s expenses will be about 7% higher in 2021 “than the unusually low 2020 levels as activity begins to normalize, and we continue our technology investments.”

First Hawaiian’s stock fell 32 cents to $25.13 after the financial results were released.