First Hawaiian, Inc.

Thank you for standing by and welcome to the first Hawaiian, Inc. second quarter 2026 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 1-1 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Kevin Haseyama, Senior Vice President, Strategic Planning and Investor Relations. Please go ahead, sir.

Thank you, Jonathan. And thank you, everyone, for joining us as we review our financial results for the second quarter of 2026. With me today are Bob Harrison, Chairman, President, and CEO, Jamie Moses, Chief Financial Officer, and Lea 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'd like to focus on our strong second quarter results on today's call, but first would like to start with my excitement about our recently announced deal with Trico Bank Shares. And I'm looking forward to working with the Trico team to build a leading Pacific banking franchise. Starting with the local economy, Statewide employment rate remained relatively stable at 2.5% in May compared to the national unemployment rate of 4.3%. Through May, total visitor arrivals were up 2.9% compared to last year, primarily due to more visitors from the U.S. mainland and Japan. Year-to-date spending through May was $9.7 billion, up 7.5% compared to 2025 levels. The housing market remained stable. Median single-family home sales price on Oahu in June was $1.2 million, up 10.4% from the prior year. And the median condo sales price on Oahu in June was $528,000, up 3.5% from the prior year. Turning to slide two, we had a strong start to the year. Loans grew. Retail and commercial deposits were down slightly as expected. Credit quality remains solid and we remain well capitalized. Our profitability measures remain strong with a return on average tangible assets of 1.28% and a return on average tangible equity of 16.34% for the quarter. The effective tax rate in the second quarter was 22.9%. Turning to slide three, the balance sheet remains solid. We continue to be well capitalized with ample liquidity. Cash balances were lower in Q2, primarily due to the decline in public deposit balances. Based on our current outlook, we expect to maintain cash balances around this level for the rest of the year. The balance sheet remains asset sensitive and well positioned to benefit from a higher for longer rate scenario. During the quarter, we did not purchase any shares. Turning to slide four, total loans grew $137 million in the quarter, or about 3.6% on an annualized basis. Growth was led by CNI and CRE loans, partially offset by payoffs in the construction portfolio and lower residential loans, as payoffs exceeded production. The $98 million increase in CNI balances was primarily driven by growth in dealer flooring, as well as our Hawaii corporate portfolio. Completed construction projects led to the conversion of $95 million of construction loan balances to CRE loans. Now I'll turn it over to Jamie.

Thanks, Bob. Turning to slide five, our total cost of deposits fell by two basis points in the second quarter. Total deposits were down $623 million, with most of that decline due to outflows of public deposits. Retail deposits were essentially flat in the second quarter, while commercial deposits were down about $156 million. This decline was consistent with our expectations of seasonal volatility in that segment. Public deposits were down $467 million. The majority of this decline was in the operating accounts, while public time deposits were down by $115 million. That was also expected as we had elevated balances at the end of Q1. The remaining balance of public time deposits is only $9 million. Finally, our non-interest bearing deposit ratio was 32%. On slide six, net interest income was $171 million, $3.5 million more than the prior quarter. The NIM in the second quarter was 3.25%, up six basis points from the prior quarter. That was primarily due to deposit mix changes and repricing, higher loan and security yields, and lower cash balances. Turning to slide seven, non-interest income was $60.3 million, primarily due to higher BOLI income An excise tax refund and higher swap fees. Non-interest expense in the second quarter was $130.4 million. The quarter included $4.2 million of expenses related to the Trico transaction. Now we expect to incur more of those expenses in the back half of the year as we move to close and integration. And now I'll turn that over to Leigh.

Thank you, Jamie. Moving to slide eight, the bank continued to maintain its strong credit performance and healthy credit metrics in the second quarter. The reduction in the allowance for credit losses, both on a nominal and coverage basis, was driven primarily by a material decrease in classified assets. And with that, I'll turn it back over to Bob.

Thank you, Leigh. Going to slide nine, we have updated outlook for our key performance drivers. We continue to expect full-year loan growth to be in the 3% to 4% range. With the markets now expecting one rate increase later this year, we have revised our full-year NIM outlook to be in the 3.24 to 3.25% range. We also expect the third quarter NIM to be about 3.27%. Our outlook for non-interest income remains unchanged at about $220 million for the year. And finally, we expect reported expenses to be between $515 and $520 million, excluding expenses related to the TRICO transaction. In closing, we had another good quarter. The bank continues to perform well and credit quality is still strong. We're very excited about our partnership with Trico Bank Shares, which is expected to close near the end of the year. Given that we recently announced a transaction, we don't have any new information at this time besides what we presented on our July 23rd investor call. We are focused on the work needed to be done to complete it. and we'll continue to keep investors informed through our public filings and communications. Now we are happy to take your questions.

Certainly, and our first question for today comes from the line of Kelly Matta from KBW. Your question, please.

Hey, thank you for the question. Maybe to kick it off on what you're seeing on the deposit side, the kind of deposits as you noted was mostly on the government deposits. I know some of them are CDs and some might be more operating accounts. Can you discuss kind of what you saw there and then otherwise the core trends of retail and commercial, what those trends were and kind of how you're seeing activity, you know, shape up here as we look to the back half of the year?

Yeah, Kelly. Thanks. This is Jamie. you know the government deposits were elevated I'll call it at the end of Q1 in our operating accounts and so we kind of expected that decline to happen there this was you know this was not about loss of relationships or anything and the the time deposits related to you know related to those were kind of just you know they they left they rolled off our balance sheet and I think our partners on the municipal side found better ways to invest that money off of our balance sheet, which is fine with us as well. When we go towards the retail and commercial side of things, we have this seasonality, I'll call it, where we kind of decline deposits in the first half of the year and then we'll expect to have those deposits increase in the back half of the year just from a seasonality perspective. For some reason, you know, we see that a lot on the commercial side where balances kind of build through the third and fourth quarter. So, yeah, I think from a deposit perspective, we're happy with where we're at. The teams are doing a great job out there, you know, getting involved with their customers and retaining them. And, you know, none of these declines were like, you know, losses of customers or anything like that. I think it was just more more flows that we that we saw than anything else.

Got it. That's helpful. And maybe you could speak to pricing competition on both sides of the balance sheet. You know, Hawaii is historically been structurally just more rational market. So wondering if you could offer any color both on on loan pricing and deposit pricing as to how those are coming in and what you expect here. You know, if the With the Fed on hold or potentially get a get a hike here? Thanks.

Yeah, you know, we are seeing the same type of competition that we've always seen. And so as you know, you described it as rational. That's that works for me. I think I think that there hasn't really been any change in that. But with the Fed on hold and maybe looking looking higher. There's a decent chance that we're kind of at the bottom in terms of deposit costs in totality on our side of things. I think peers on the mainland, you've seen a little bit of a different reaction. I think it's a lot more competitive there, and so maybe you see some deposit costs rising there. For us, maybe we're going to keep it flat, maybe up a little bit as we go forward, but The competition is basically staying the same here, I would say, on the deposit side.

Got it. That's helpful. Maybe last question for me. You had some nice loan growth, reiterated the outlook. As you look ahead, how are pipelines and what areas do you see informing the back half of the year growth? Thanks.

Kelly, this is Bob. We still see a very robust pipeline in both the CNI and CRE. The CRE is, again, mostly construction, and some of that turns into permanent. For the CNI, we're really seeing strength in the dealer side. So not only are existing customers growing their balances incrementally, but also working on a couple of new customer relationships. So that's where we're really seeing it. The residential side continues slow given the rate environment, so we probably won't see much in residential.

Great. Thank you so much. I'll step back.

Thank you. And our next question comes from the line of Anthony Elion from JP Morgan. Your question, please.

Hi, everyone. On the NIM outlook, Jamie, you lifted the range by a few basis points. I think you said you're now including a hike and 2Q NIM came in better than you guided to. Anything else you point us to for the higher range for the full year?

No, I think that really describes it, Tony. The balance sheet repricing dynamics continue to exist here. As we've described a number of times, roughly $400 million a quarter. We think that spread in Q2 was about 140 basis points on the roll-on, roll-off. We think somewhere in the neighborhood of $140 to $150 is depending on the mix of those cash flows that come off the balance sheet. We think that will continue to play out from that perspective. So I think it really is just a change in outlook on the macro side of things that's driving an update to our NIM.

Okay. And then on capital, you didn't buy back any shares in 2Q, but your CET1 is still above 13%. How should we think about buybacks as you work through the Trico deal close? Thank you.

Tony, this is Bob. Good morning. You know, we're probably not going to do buybacks throughout the rest of the year. Of course, that could change. We have the authorization. But as we go into the transaction, go through the regulatory process, it's unlikely.

Thank you.

Thank you. And our next question comes from the line of Andrew Terrell from Stevens. Your question, please.

Hey, good morning. Just one quick one for me. You guys have done a great job on expenses so far this year. If I look at just the midpoint of the full year guide, it kind of implies you step up to like a 130-ish, maybe a little north expense run rate in the back half of the year. I just wanted to run that kind of run rate by you. And if that is the case, what kind of drives the expense pickup in the back half of the year?

Yeah, a couple things, Andrew. We're going to continue to hire people. We want to make sure we continue to keep our loan pipelines robust. We want to make sure we have folks out there, investments that we're making in people to grow the balance sheet on the one hand. And then we also have some projects and things like that that that won't finalize until the back half of the year. And so then these expenses capitalize and go and then start to show up when they finish up. So you're going to see it, you know, you'll see it on the salary side, but then also like on the professional services and IT side of things as well.

Okay, great. And actually, while I've got you on the margin, can you just remind us which Which meeting do you have the hike in the guidance in? And are you going to quantify just the sensitivity of the balance sheet in terms of like what a 25 basis point rate hike does to the margin versus with the square models with the guide?

Yep. So I think the right way to think about your last question there is that we have, you know, $6 billion or so of assets that will reprice immediately. upon an increase based on SOFR, roughly. And then we have three and a half to four billion of liabilities that we would expect that would reprice somewhat immediately around that. So from an NII perspective, I think that's probably the right way to think about it for an increase in 25 basis points. And then, I'm sorry, Andrew, I can't remember the first part of your question.

No, I think that covers it. Which Fed meeting did you have on that card?

No, I think it's in the fourth quarter. I think early in the fourth quarter is when we had it.

Okay, awesome. Thank you so much.

Thank you. And our next question comes from the line of Jared Shaw from Barclays. Your question, please.

Hey there. Good morning. I guess actually just one comment, Bob, at the beginning you said you saw an increase in tourism from Japan. I guess with the currency rate here being so low, I guess that's encouraging. What sort of driving do you think the increased traffic from there?

I don't have a precise answer, but just talking to people in the industry, you're just seeing more enthusiasm, I guess, for the economy over there, and there's still people that have means to travel and I guess they're just decided to stop waiting and start traveling but you know it's incremental off of a lower base so we're not anywhere near the pre-COVID number but we're up from the bottom that we had hit and that's every additional traveler from Japan is welcome because they're just very good travelers and guests and they really enjoy Hawaii so Yeah, it's difficult. 160 plus exchange rate is not easy for them.

Yeah. Okay, thanks. And then on BOLI, you called out the BOLI increase. Is that a death benefit or is that just a result of sort of your higher deployed capital on the BOLI?

Yeah, thanks, Jared. So what that is, is we still have a component of our BOLI product that is sensitive to actual markets. And so we write it up and we write it down depending on how markets are going. And so that was a market impact on our bully this quarter.

Okay. And then finally, I guess just as you're doing more work on the deal, have you given any thought to how your management structure works? may change to reflect the bigger presence in the mainland. And going forward, I guess, how much time do you think, Bob, you're going to be spending sort of off-island versus before?

People accuse me of not being here enough already. We have three members of their team joining our senior management team, Rick Smith, Dan Bailey, and Peter Weiss. And as far as My time, you know, I've been on the Federal Advisory Council now for three years. I'll be rolling off. So that's four to six trips a year to the West Coast or East Coast. So those trips will probably be redirected to California. But, you know, it'll be pretty much the same as it is now, I would think.

Okay. Thanks a lot.

Thank you. And our next question comes from the line of Tim Mitchell from Raymond James. Your question, please.

Hey, good morning, everyone. This is Tim on for David. One question on the deal. So, you know, how has reception been from the Trico bankers and clients since you guys announced the deal? And kind of what is your messaging been to them? And similar to Jared's question, like, what is your plan as it relates to letting that team operate more independently than we see in most bank mergers, just kind of given the unique nature of the transaction? Thank you.

Thanks for the question. Some of this, a good amount of this will be in the proxy, but just to maybe cover what we talked about last week, one of the reasons we like Trico so much is they have a strong management team, and we're planning on keeping most of them there. We're there to support them. We're here to learn from each other, but they have a great bank and they run it well, so that's what we're leveraging. Okay, great.

And then, you know, just kind of on the earlier point of that question, you know, reception from, you know, conversations with bankers and clients since the deal was announced. Do you have any update to that?

Yeah, we're still doing the outreach. And, you know, we can talk about that, I think, better at a later date. But I'll be up there in a few more weeks, a couple weeks from now to meet many of their employees I haven't already met. And I'm looking forward to doing that.

Awesome. Thanks, Jake. My question is,

Thank you. And our next question comes from the line of Andrew Leach from Stonex Group. Your question, please.

Hey, everyone. Good morning. Just to put a fine point on the fee income guide, does this imply like a step down toward like $54 or $53 million for the next two quarters?

You know, I think...

We always struggle with this one, Andrew, because we have these things that show up every now and then, so hard to forecast the timing of those things. I think when you look at what we had in the first quarter and what we had here in the second quarter, you come pretty close to about what we've been expecting for the full year guide of $220 million. And so I wouldn't categorize it as a step down or anything like that. I would just categorize it as it's hard to forecast some of these one-off, one-time things that seem to happen at different points in the year. So I think we generally think our number is about $55 million a quarter, and there'll be some times when things show up and kick that up a little bit, and sometimes things don't appear and kick that down a little bit.

Got it. All right. That makes sense. You know, just on the size of the average earning assets here going forward, you started the quarter with less cash on hand or interest-bearing cash as you did the prior quarter. Has that started to rebuild with deposits coming back in? Just trying to get a sense of what average earning assets should shake out for the third quarter.

Yeah, no, I think we're probably going to run the cash at about where we're at, where you saw it at the end of the second quarter. So I think in general, what you're going to see is just a slightly smaller asset size, but that's based on the cash, right? We still expect to see some pretty good loan growth in the back half of the year. So probably run the cash balances at about this billion dollar level.

Got it. That covers all my questions. Thanks so much.

Thank you. And our next question comes from the line of Matthew Clark from Piper Sandler. Your question, please.

Hey, good morning, everyone. I heard your commentary on deposit costs, but just wondered what the spot rate was at the end of June.

It was 121.

Okay.

Got it.

Got it. Okay. And then... Just maybe since everything else has been asked, I think, just back to the merger, any update on the 25% cost savings target? I'm assuming you're still working through that, but would love to hear where you expect a bulk of that to come from.

Yeah, I mean, I think we kind of covered that on the deal announcement call. No real update on that. 25% remains the target, and we feel comfortable that we'll be able to get there through a variety of ways. So we're just very excited to get working with our partners over there at Trico.

Fair enough. Thanks.

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Kevin Haseyama for any further 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, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.