First Hawaiian, Inc. Q2 FY2025 earnings call

Local Economy

• Statewide seasonally adjusted unemployment rate was 2.8% in June, lower than the national rate. Visitor arrivals up 2.8% YTD, with spend up 6.5% YTD.

Financial Results

• Net income increased over 23% QoQ, driven by higher net interest and noninterest income, good expense control, lower provision expense, and a California tax law net benefit of $5.1 million.

Balance Sheet

• Solid, well capitalized with ample liquidity; loans and deposits stable; repurchased ~1 million shares at $25 million, with $50 million remaining authorization under the 2025 stock repurchase plan; resumed reinvesting investment portfolio cash flows.

Loans

• Total loans increased $59 million, C&I portfolio up due to dealer floor plan, commercial real estate offset by payoffs; full year loan growth expected low single digits.

Deposits

• Slight increase, public deposits growth offset commercial/retail decline.

Net Interest Income

• Up, NIM up 3 basis points due to lower deposit costs.

Credit

• Strong metrics, low net charge-offs, nonperforming assets up but low loss content.

Total loans increased about $59 million or 0.4% from the prior quarter, with the largest increase in the C&I portfolio due to a $125 million rise in dealer floor plan balances, offset by payoffs from commercial real estate projects. Total deposits slightly increased in the second quarter, with growth in public deposits offsetting declines in commercial and retail deposits. Net interest income was $163.6 million, up $3.1 million from the prior quarter, with the NIM at 3.11% (up 3 basis points). Noninterest income was $54 million, with recurring noninterest income expected to be around $51 million per quarter. Credit metrics showed net charge-offs of $3.3 million QTD, nonperforming assets at 23 basis points of total loans, and an allowance for credit losses provision of $4.5 million with coverage at 1.17% of total loans.

Loan Growth

• Full year loan growth expected in the low single digits.

NIM

• Anticipated to increase a couple of basis points to 3.13% in the third quarter.

Noninterest Income

• Recurring noninterest income expected at $51 million per quarter.

Stock Repurchase

• $50 million remaining authorization under the approved 2025 stock repurchase plan.

Tariff Uncertainty

• Impact on car dealers due to tariff uncertainty.

Loan Mix Timing

• Timing differential in loan mix affecting loan yields.

Consumer Stretch

• Lower-end consumer stretch impacting residential mortgages.

Q: How is the pipeline in terms of C&I and CRE demand?

A: Most C&I growth came in dealer floor plan, which may normalize; commercial real estate had construction loans not extending into mini perms, affecting balances.

Q: How does tariff impact net out with tourism spend?

A: Tariffs mainly impact car dealers' uncertainty, with tourism spend growth outpacing tariff concerns.

Q: Thoughts on M&A and capital priorities?

A: Not adverse to considering options, but no current M&A activity; capital priorities include organic growth, dividend stability, and share repurchases.

Q: What impacted loan yields in Q2?

A: Timing differential due to higher margin loans paying off and being replaced by lower margin loans.

Q: Factors in deposit costs and NIM guidance?

A: Mix issue with loan payoffs and replacements, but NIM expected to increase over time.

Q: Commentary on credit growth in resi mortgages?

A: Consumer stretch at lower end, but portfolio performing as expected with low loss content.

Q: Competition in construction loan takeout?

A: Institutional buyers, not local banks, taking out loans upon construction completion.

Q: Asset growth expectations?

A: Expect balance sheet growth in back half of year, with loan growth anticipated.