First Hawaiian, Inc. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Local Economic Highlights: State unemployment rate fell to 2.2% in November vs national 4.5%; visitor arrivals down 0.2% yr-to-date through Nov, but Japan up 2.8%; housing market stable with median single-family home price on Oahu up 4.3% in Dec 2025, median condo sales price down 5.2% from last year.
• Financial Performance: Strong quarter with NIM expansion, net interest income growth, well-contained expenses, and strong credit quality. Return on average tangible equity was 15.8% in Q4 and 16.3% for full year. Effective tax rate in Q4 was 24.8% due to reversal of prior tax benefit, expected to return to ~23.2% going forward.
• Balance Sheet: Solid balance sheet, well capitalized with ample liquidity. Good growth in C&I loans, retail and commercial deposits. Repurchased about 1 million shares in February, using remaining $26 million of $100 million purchase authorization for 2025, and new $250 million stock repurchase authorization with no specific time frame.

Segment Performance

• Loans: Total loans grew $183 million in the quarter, or 5.2% on an annualized basis. C&I loans had good growth due to draws on existing lines and a new auto dealer customer. CRE growth and construction decline were due to conversion of some construction deals to CRE.
• Deposits: Retail and commercial deposits increased $233 million, while public deposits declined by $447 million, resulting in a net increase in deposits of $214 million in the fourth quarter. The total cost of deposits fell by 9 basis points to 1.29%, and the noninterest-bearing deposit ratio was 32%.
• Net Interest Income: Net interest income was $170.3 million, $1 million higher than the prior quarter. The NIM in the fourth quarter was 3.21%, up 2 basis points compared to the prior quarter.
• Noninterest Income/Expense: Noninterest income was $55.6 million, and noninterest expense in the fourth quarter was $125.1 million.
• Credit Quality: Classified assets decreased by 7 basis points, special mention assets increased by 16 basis points. Quarter-to-date net charge-offs were $5 million or 14 basis points of total loans and leases, annual net charge-off rate was 11 basis points unchanged from the third quarter.

Guidance

• Loans: Expect full year loan growth to be in the 3% to 4% range, driven primarily by CRE and C&I loans.
• NIM: Anticipate full year NIM to be in the 3.16% to 3.18% range, with tailwinds from fixed asset repricing and headwinds from additional Fed rate cuts and decreasing deposit beta.
• Noninterest Income: Expect noninterest income to be stable and come in at about $220 million for the year.
• Expenses: Expect expenses to be about $520 million in 2026.

Risks

• Interest Rate Fluctuations: Impact on loan yields and deposit costs.
• Economic Environment: Changes in local and national economic conditions affecting visitor arrivals, housing market, and loan demand.
• Competition: Potential impact on deposit gathering and loan pricing from other financial institutions.

Question and Answer

Q: David Feaster wanted to get color on loan growth pipelines, how much C&I growth was from increasing utilization vs new relationship growth and commentary on Mainland vs Hawaii.

A: Bob Harrison said loan growth wasn't as expected due to some payoffs in CRE portfolio, but was broad-based locally with some mainland draws and a new dealer relationship. Looking forward, pipeline of multifamily still there, expecting more normalized growth in CRE on Mainland in second half of year with activity in Hawaii too.

Q: David Feaster asked about payoffs and paydowns being a headwind and if outlook contemplates continuation.

A: Bob Harrison said payoffs coming sooner than expected due to permanent lenders being hungry for assets, paydowns in industry should burn through in first half of year with high desire for quality assets.

Q: Andrew Terrell asked about $385 million fixed cash flows and spread competition for new assets.

A: James Moses said there is spread competition, with 180-200 basis points pickup on securities portfolio and 80-100 basis points on loans vs securities.

Q: Janet Lee clarified deposit beta expectations and expense guide.

A: James Moses said interest-bearing deposit beta will step down, Robert Harrison said expense growth held down by technology investments and difficulty in hiring, expecting more normalized expense growth in 2026.

Q: Kelly Motta asked about capital return and buyback appetite.

A: James Moses said appetite to continue pace set in 2025, with other considerations and opportunism in buyback program.

Q: Matthew Clark asked about deposit seasonality and Mainland M&A.

A: James Moses said seasonal decline expected in first quarter, Robert Harrison said focus on core business but open to M&A, looking for strong management, disciplined lending culture, strong deposit franchise, and specific location and size range.

Q: Anthony Elian asked about deposit balances in 1Q and NIM guide.

A: James Moses said seasonal decline expected in 1Q, James Moses said 1Q NIM expected to come down a few basis points from Dec number.

Q: Timur Braziler asked about loan growth bifurcation and construction deals converted to CRE.

A: Robert Harrison said hard to break down loan growth by existing lines vs new production, said conversion of construction deals to CRE depends on customer segment.