FIRST HAWAIIAN, INC. Q1 FY2025 earnings call

Local Economy Overview

• Overall economy stable but uncertain due to international rivals and consumer confidence; statewide unemployment rate stable, visitor arrivals up 1% and spending up 4.5% through Feb, Maui has largest arrivals/spend increase; housing market stable.

Financial Performance Highlights

• Net interest income increased, noninterest income stable, expenses well controlled; NIM up 5 basis points from deposit cost decline and Q4 investment portfolio restructuring; credit quality excellent with reserve addition due to macro uncertainty.

Balance Sheet

• Solid balance sheet, well capitalized and liquid; repurchased ~974,000 shares at $25 million cost, $75 million remaining in stock repurchase plan.

Total loans declined $115 million or 0.8% from the prior quarter, primarily due to commercial real estate loans with scheduled and early payoffs and large credits, while C&I portfolio growth was partially offset by dealer flooring decline of $28 million. Total deposits slightly declined in Q1, with retail deposits increasing $105 million and commercial deposits falling $167 million; total cost of deposits fell by 11 basis points, noninterest bearing deposit ratio was 34%. Net interest income was $160.5 million, $1.8 million higher than prior quarter, NIM increased 5 basis points due to declining deposit costs and Q4 investment portfolio restructuring, and anticipates NIM in Q2 will increase a few basis points to [3.10]. Noninterest income was $50.5 million and noninterest expenses were $123.6 million, full year outlook unchanged. Credit quality excellent: classified assets decreased $3 million, year-to-date net charge offs $3.8 million, net charge-off rate 11 basis points, allowance for credit losses increased $6.2 million to $166.6 million with coverage increasing 6 basis points to 117% of total loans and leases.

Net Interest Margin

• Anticipates NIM in Q2 will increase a few basis points to [3.10], inclusive of expected rate cut in June.

Full Year Outlook

• Full year outlook for noninterest income and noninterest expenses remains the same.

Stock Repurchase

• Remaining authorization of $75 million under 2025 stock repurchase plan.

Economic Uncertainty

• Local economy uncertainty due to international rivals and consumer confidence; tariffs impacting industries and businesses.

Credit and Portfolio Risks

• Potential impacts of tariffs on construction material costs and various C&I businesses; federal spending changes and tourism bookings uncertainty affecting consumer exposure.

Q: I wanted to start on the loan side. How is the pulse of your clients, pipeline shaping up, and decline in CRE this quarter?

A: Average loans for the quarter was up over Q4; decline in CRE was due to normal payoffs and paydowns, not unusual. Pipeline is strong but uncertainty in market.

Q: On the deposit side, how much leverage left to reduce deposit costs?

A: Some ability related to CD repricings in Q2-Q3, but apart from that not much room; getting 20 - 30 basis points spread on CD repricing.

Q: On the expense side, trajectory of expenses and investments?

A: Always invest in business and people, expenses had slowness in Q1 but expect to ramp up over year, committed to guidance, and invest in ROI-generating projects when outlook certain.

Q: Growth in allowance and UHERO impact?

A: Increase in allowance due to quantitative model factors, not just UHERO; hard to say on coverage ratio as multiple factors involved.

Q: Thoughts on dealer floor plan business and tariffs?

A: Dealer floor plan at $661 million, good credit quality; tariffs uncertain, impact on balances unknown but credit teams close to customers.

Q: Deposits seasonal trends and balance sheet growth?

A: Tax implications in Q1 cause deposit draw down, back half of year deposits usually build; average deposits up over Q4, balance sheet size to grow with deposit growth if deposits increase.

Q: Second quarter loan growth and loan portfolios to watch?

A: Hard to say on Q2 loan growth, but staying close to C&I ex-dealer customers; credit and risk teams focus on customer-dependent impacts of tariffs.

Q: Margin, buyback expectations?

A: Spot deposit cost at [1.41], margin in March at [3.10], inclusive of rate cut forecast; buyback program is programmatic, possible acceleration when opportunities arise but likely ~$25 million per quarter.

Q: Margin offset of rate cuts and tax rate?

A: Dependent on loan growth; can fully offset rate cut in quarter if loan growth good, else small decline; tax rate expected to be 23% for the year.

Q: Tariffs impact on Hawaii and consumer exposure?

A: Tariffs could impact construction material costs and various businesses; consumer exposure due to macro factors, but consumers have held up so far.