First Hawaiian, Inc.

good day and thank you for standing by welcome to the first hawaiian inc q1 2026 earnings conference call at this time all participants are in a listen-only mode please be advised that today's conference is being recorded after the speaker's presentation there will be a question and answer session to ask a question please press star 1 1 on your telephone and wait for your name to be announced to withdraw your question please press star 1 1 again I would now like to hand the conference over to your speaker today, Kevin Haseyama, Investor Relations Manager.

Thank you, Josh, and thank you, everyone, for joining us as we review our financial results for the first quarter of 2026. With me today are Bob Harrison, Chairman, President, and CEO, Jamie Moses, Chief Financial Officer, and Lee Nakamura, Chief Risk Officer. We have prepared a slide presentation that we will refer to in our remarks today. The presentation is available for downloading and viewing on our website at fhb.com in the investor relations section. During today's call, we will be making forward-looking statements, so please refer to slide one for our safe harbor statement. We may also discuss certain non-GAAP financial measures. The appendix to this presentation contains reconciliations of these non-GAAP financial measurements to the most directly comparable gap measurements. And now I'll turn the call over to Bob.

Thank you, everyone, for joining us today. I wanted to start by sharing our support for the communities impacted by the recent flooding in Hawaii from the Kono Lo storms and Typhoon Sinlaku in Guam and Saipan. It's really important for us to support our communities, and we are actively providing relief and support to help our customers and those affected in the relative communities. Moving on to an outlook, the statewide unemployment rate remained relatively stable at 2.2% in January. That compares to the national rate at 4.3% for the same month. Through February, total visitor arrivals were up 7.1% compared to last year, primarily due to more visitors from the US mainland and Japan. Year-to-date spending through February was $4.2 billion, of 14.8% compared to 2025 levels for the same period. At this point, it's too soon to know how tourism and the local economy might be impacted by the recent global events. The housing market remains stable, with the median single-family home sales price on Oahu in March at $1.2 million, up 3.4% from the prior year, and the median condo sales price on Oahu in March was $510,000, up 2% from the prior year. Turning to slide two, we had a strong start to the year. Loans and deposits grew, credit quality remained solid, and we remained well capitalized. Our return on average tangible assets of 1.2% and return on average tangible equity of 15.3% for the first quarter. The effective tax rate for the first quarter was 22.5%. Turning to slide three, the balance sheet remains solid as we continue to be well capitalized with ample liquidity. We remain asset sensitive and well positioned to benefit from a higher for longer rate scenario. During the quarter, we repurchased about 1.3 million shares at a cost of $32 million. Turning to slide four, total loans grew over $128 million in the quarter, up 3.6% on an annualized basis. We had good growth in CRE and CNI loans, partially offset by runoff in residential loan portfolio and payoffs in the construction loan portfolio. Some of the growth in the CRE portfolio and decline in construction portfolio were due to completed construction projects converting to permanent financing. Now I'll turn it over to Jamie.

Thanks, Bob. Turning to slide five, we delivered solid deposit momentum in the quarter, with total deposits increasing by $262 million, driven primarily by growth in public operating balances. Retail and commercial deposits were modestly higher and, importantly, did not experience the typical seasonal outflows we have seen at the start of prior years, which we view as a positive signal. Public deposits increased $244 million, reflecting higher operating account balances. We continue to see meaningful improvement in funding costs, with the total cost of deposits declining seven basis points to 1.22%. Our non-interest-bearing deposit ratio remained healthy at 31%, reinforcing the strength and stability of our core funding base. On slide six, net interest income for the quarter was $167.5 million, down $2.8 million from the prior quarter. Net interest margin was 3.19%, a decline of two basis points sequentially. This reflects the full quarter impact of the December rate cut. As we look ahead, we expect the balance sheet repricing story to continue throughout the year. Turning to slide seven, non-interest income totaled $52.8 million for the quarter. The decline from last quarter was primarily attributed to lower BOLI income and swap fee activity, which we view as timing related rather than structural. Non-interest expense was $127.9 million, and there were no material, unusual, or non-recurring items in the quarter. Our expense profile remains well-controlled and aligned with our full-year outlook. With that, I'll turn it over to Leigh to review our credit performance.

Thank you, Jamie. Moving to slide eight, the bank continued to maintain its strong credit performance and healthy credit metrics in the first quarter. Credit risk remains low, stable, and well within our expectations. Overall, we're not observing any broad signs of weakness across either the consumer or commercial books. Criticized assets decreased by 21 basis points, and nonperforming assets and loans 90 days or more past due were 30 basis points of total loans and leases, down one basis point from the prior quarter, resulting from a decrease in dealer flooring non-accruals. Quarter-to-date net charge-offs were $4.9 million, or 14 basis points of average loans and leases, unchanged from the fourth quarter. The bank recorded a $5 million provision in the first quarter. The allowance for credit losses increased by just under $1 million to $169 million with a coverage ratio of 1.17% of total loans and leases. We believe that we are conservatively reserved and ready for a wide range of outcomes.

Thanks, Lee. Turning to slide nine, we have updated our outlook for key performance drivers. We continue to expect full year loan growth to be in the 3% to 4% range. With the markets now expecting no rate cuts this year, we have revised our full year NIM outlook to be in the 3.22 to 3.23 range. We expect second quarter NIM to be up two to three basis points from the first quarter. Our outlook for non-interest income remains about $220 million for the year. And finally, we expect expenses to gradually increase throughout the year, and we continue to forecast full-year expenses will be about $520 million. That concludes our prepared remarks, and now we'd be happy to take your questions.

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. One moment for questions. Our first question comes from Anthony Elion with JP Morgan. You may proceed.

Great. Thanks. Jamie, on the outlook, the drivers of the two to three basis points sequential increase in NIM and 2Q, could you help us unpack that a little bit? What's driving that in the range for a full year moving higher, and is that entirely coming from no rate cuts this year?

Hi, Tony. Good morning. The right answer to that is the balance sheet repricing story that we've had and seen for the last year or two. So again, just to remind everybody, we have about $400 million of fixed rate cash flows that come off every quarter that get repriced at about a 155 basis point spread higher on a weighted average basis between loans and securities. And so, Tony, that's really the driver as we go forward, right? So, you know, we still are an asset-sensitive balance sheet, so we will see a decline in NIM if there is a rate cut in any given quarter, but then the balance sheet repricing dynamics after that will sort of drive the NIM higher as we go forward.

Thank you. And then on expense, so you reiterated the outlook of 520 for the full year, but I think 1Q came in a little bit lower than what we were expecting, which would imply a pretty could pick up over the course of the year. Is that the right way to think about it, and what are the areas driving the increase in expense? Thank you.

Yeah, I mean, it's going to be kind of broad-based, Tony, in terms of the areas. Hopefully, we'll get some more salary expense in there, right, as we've talked about. We're looking to hire folks, talented folks, to come over and drive revenues for us. So hopefully that's where we'll see much of that pickup. But generally broad-based, and I think you are thinking about it correctly in terms of a little pickup and a ramp as we get throughout the year. Thank you.

Thank you.

Our next question comes from Jared Shaw with Barclays. You may proceed.

Hey, thanks. Good morning.

Good morning.

You know, when you look at the growth, CNI growth has been pretty good. Any specific drivers sort of underpinning that? And can you update us on your appetite for mainland expansion? Any of the hires, Jamie, that you're talking about should we think are coming maybe off island?

Yeah, Jared, let me start with the loan outlook. You know, really the $71 million in C&I growth for the quarter, about $24 million of that was dealer floor plan, and the rest were draws on existing lines of credit, both local companies and mainland companies. So it was really pretty broad-based. Good growth in dealer flooring, which we appreciate. So we look at that for the rest of the year as being an opportunity, along with commercial real estate, to continue to grow. On the hiring, yeah, we're looking for people all over. Of course, we would strongly prefer to hire here locally, but if we are unable to do so, depending on that, we would look to the mainland.

On the floor planning, are you seeing utilization get back to more normal levels? I know it was pretty low for a while, or is that growth coming from expanding the network?

We added a a new dealer relationship during the quarter, but that wasn't all of it. I think it was a little bit of utilization, so a mix of both.

Okay. And then maybe separately, the securities yields are still pretty low, and with the capital, the extra capital you have, would you consider sort of just putting on more of a classical leverage play here or utilize some of the extra deposit growth on securities and sort of pre-fund some of that that cash flow that's going to be coming off? Or should we really just think that you're going to be reinvesting cash flows as they happen?

Yeah, Jared, I think the answer to that is the latter piece of that. We're just going to be reinvesting cash flows as they come off. No plans to do any sort of restructuring or anything at the moment. And again, at the moment, no plans to expand the size of the securities portfolio either. So And, you know, for now, it's just going to be that, you know, just cash flows coming off and we'll reinvest them.

Great. Thank you. Thank you. Our next question comes from David Feaster with Raymond James. You may proceed.

Hey, good morning, everybody.

Morning, Dave.

I wanted to touch on maybe the competitive side. side. You kind of got a unique perspective. Just kind of curious, maybe if you could touch on the competitive dynamics, both comparing and contrasting the mainland versus Hawaii. Are you starting to see competition shift from just pricing to more pushing on structures and standards? Just kind of curious what you're seeing on that front.

Yeah, Davis, Bob, maybe I'll start off on that. The Yeah, the competitive nature, we really haven't seen, it's always been a little bit more competitive, put it this way, cyclically competitive on pricing. So now we're getting a little bit more competitive on price, both primarily on the mainland, but a little bit here. It's always been a bit more competitive on price in Hawaii, given the various banks, low loan to deposit ratios. Everybody's got liquidity they're looking to put to work here in Hawaii. So that's always been an issue here. We are seeing a kind of, cycle down slightly in our mainland markets. A little bit of that is, say, multifamily construction was higher on a spread a year and a half ago than it is today. So I think that kind of speaks to that. The other thing we're seeing are the larger banks are taking bigger pieces of deals. And so there's less available. So there is a little bit more competition for deals themselves. as some of the larger banks are increasing their hold levels. Does that address your question?

Yeah, no, that's helpful. And then, you know, appreciate the, you know, you guys reiterated the, the, um, fee income guide. I was just hoping you could walk through some of the business lines and kind of some of the underlying trends, um, and, uh, some of the puts and takes that you're seeing, seeing there.

Maybe I'll start on the wealth side. We're continuing to see really, uh, get interactions between our customers and our wealth advisors. So that business has continued to grow year after year for many years now. And so I think that's been a nice opportunity. The fees associated with our credit card business have been pretty stable. There's movement quarter to quarter, a little stronger in Q4, a little less in Q1. But that's pretty standard as far as what we would expect in that business.

Jamie, anything you would add to that? Yeah, I guess the only thing to add is there's a portion of our BOLI that is market-driven, and so that can be somewhat volatile. And we saw that a little bit here at the end of the first quarter with the market kind of underperforming, let's call it. And so less fees are related to that. And then swap fee income in our loan book can kind of also be sort of cyclical, just depending on, you know, what kind of lending we're doing in a particular quarter and, you know, what our customers want. So, you know, I think combine those couple things with all of what Bob mentioned, I think, is where you get to on the fee guide.

Okay. And then maybe just touching on the funding side, I mean, you've had a lot of success. You know, this quarter was great. A lot of benefit from public funds this quarter. I was hoping you could touch on maybe some competition on the funding side and just how you think about gaining share and driving market share growth on the deposit front and what's going to be the key drivers of that. Do you see more opportunity on the commercial or the retail side? Just kind of curious some of the funding trends you're seeing.

Yeah, for that and most of, well, virtually all of our deposits are share in market and our, you know, is just a, day in, day out, getting out there and meeting with customers and prospects and trying to show them the different products and services we offer and see how we can make that work for them. So it really is a ground game, I would call it, more than anything else. There's not a lot of magic to it where it would change quarter over quarter, but certainly our folks are out there and trying to meet with customers, both on the consumer, small business, the larger business side.

All right. Thank you.

Thank you. Our next question comes from Kelly Motto with KBW. You may proceed.

Hey, good morning. Thanks for the question. You know, maybe on capital, really, really solid here. I apologize if it was asked already, but have you guys done any work on the proposed capital changes and the potential impact to your ratios here?

Yeah, we've done a little bit of work on it. We think that it could possibly add maybe like 1% CET1 to our capital levels. But again, proposed and we're not going to change our capital allocation strategy or our plans based on that. But if it goes through the way it is, we think it's about a 1% add.

Got it. That's really helpful. And then otherwise, I mean, you've been very consistent here with the share repurchase. It seems like that's probably, even with the growth having picked up, probably a good expectation. But I wanted to hear your thoughts on how you're thinking about that. Thank you.

Yeah, Kelly, I think you summarized it pretty well for us. Maybe we can hire you to do that again. Yeah, no, I think you nailed it, yeah.

Yeah, and, you know, so we have the $200 million allocation, and we used $34 million in Q1, and so it's not set for timing-wise. It's not set for a particular year, and so we're just looking at what makes sense and going for it.

Yeah, and just to be clear, the amount of the authorization was $250 million.

Got it. That's... That's really helpful. And then otherwise, I mean, credit looks precede anything you're watching or pulling away from. Thanks.

I don't think anything we're pulling away from. Just given the uncertainty in the environment, the volatility, the recent natural disaster events that have happened in our footprint, we're just watching certain portfolios very carefully. But we haven't really seen anything so far.

Got it. Thank you so much for the time. I'll step back.

Thank you. Our next question comes from Andrew Terrell with Stevens. You may proceed.

Hey, good morning. Good morning. I wanted to go back a little bit on the margin. You know, I hear you on the near-term guide and kind of full-year guide. The majority of what underpins that is some of the fixed repricing. Can you just talk about, is there any level of benefit you'd expect or work to do on the deposit base as you move throughout the year? Just to have some rate cuts, do you feel like you've kind of fully exhausted the ability to reprice lower? Any other tweaks you could look to make on the funding side?

So there's still some ability to work on that, in particular with CD pricing, you know, kind of, you know, what sort of rolls over every quarter. You know, we've seen a pretty significant decline in sort of the competitive environment around those from, say, a year or so ago. So we could still see some benefit from that perspective. The March deposit number, Andrew, was 120. a little bit lower than what we had in the quarter. You can see the dynamics of the CD repricing around that. I wouldn't expect it to go too much lower with rates staying the same in totality in terms of deposit costs, but the guide for the year on the NIM is inclusive of any rate actions we might take on the deposit side as well as the repricing story.

Yep. Yep. Okay. And then, you know, last quarter you talked about, I think you gave, I forget the specific dollar amount of the fixed cash flows for the year, but roll-off yield 4%, new asset yield 5.5%. There's obviously been a lot of rate volatility throughout the first quarter and I'm not asking for a total crystal ball, but do you feel like, you know, 5.5% blended new asset yield is, you know, still kind of fair assumption based on what you're seeing for, you know, loan origination yields and where you're buying securities at today?

Yeah, I think so. I mean, it's going to depend quarter to quarter based on, you know, what type of lending activity we do in any given quarter, right? If it's, you know, if activity is primarily in, you know, lower spread things, then it might be a little bit lower than that. But, you know, for the year, I think 150 is a good number in that 400 million per quarter of cash flows coming off and repricing still is a good number.

Got it. Okay. Thanks. And if I could ask just one last one. You know, I think we started talking more about mainland M&A interest last year, some with you guys. And, you know, I just wondered if anything's changed there. Could you maybe, you know, rehash any willingness or kind of appetite or your view of the M&A market as it stands right now?

Yeah, this is Bob. No updates. You know, we're still talking to people, see if there's things that might make sense. But we haven't really changed our profile or what we're looking for. We're really looking for a good fit first and foremost, and then take it from there.

Great. Thank you for taking the questions.

Thank you. And as a reminder, to ask a question, please press star 1-1 on your telephone. Our next question comes from Matthew Clark with Piper Sandler. You may proceed.

Hey, good morning. Good morning. Just a couple follow-ups here on the cash flows, on the asset side. I know it's $400 million a quarter, but can you give us a split between loans and securities on average and those – we can guesstimate the rates, but I'm just trying to forecast those individual yields.

Yeah, yeah. I guess the right way to think about it is for the year we expected $600 million of cash flows coming off the securities portfolio. So that leaves a billion in cash flows from the loans. And that spread of $150 that we talked about is inclusive of the other roll-off and roll-on yields. So in the quarter, um we added um in the securities portfolio you know in the in the 490 uh range um of yield um and uh a little bit higher than that you know 620 or so um on our uh on our loan yields um so yeah that's i think um i think that gets you what you need there matthew okay great and then just uh

Drill into the CDs, same kind of question, you know, how much do you have come and do here in 2Q and roll off and roll on rates?

Yeah, so Q2, we're going to have about a billion dollars come due. That's currently somewhere in the neighborhood of like a 290 or so CD rates. And then, you know, I think that'll roll over something like in like a 250 weighted average range or something like that.

Okay, perfect. Thank you.

Hard to tell for sure because some folks roll into promos and some folks roll into RAC rates. So don't know for sure around that. But, you know, again, right, I think if you back into the margin guidance that we've given, you can kind of get your way what you need on the CD side of things.

Yeah, okay. Yeah, I'm kind of getting to a name that's a little bit above what you're forecasting for 2Q, so thank you.

Thank you. I would now like to turn the call back over to Kevin Haseyama for any closing remarks.

We appreciate your interest in First Hawaiian, and please feel free to contact me if you have any additional questions. Thanks again for joining us, and have a good weekend.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.