First Hawaiian (NASDAQ:FHB) executives highlighted fourth-quarter 2025 net interest margin expansion, loan and deposit growth, and what they described as continued strong credit quality, while also laying out a 2026 outlook that assumes modest loan growth and a slightly lower net interest margin. Management also discussed capital return priorities following completion of a 2025 share repurchase program and the authorization of a larger, open-ended buyback.
Local economic backdrop and quarterly performance
Chairman, President and CEO Bob Harrison opened the call with an update on Hawaii’s economy, noting the state unemployment rate fell to 2.2% in November versus 4.5% nationally. Through November, total visitor arrivals were down 0.2% year-to-date, which Harrison attributed primarily to fewer visitors from Canada, while Japan was “a bright spot,” up 2.8% year-to-date. Visitor spending through November totaled $19.6 billion, up about 6% from the prior year.
On results, Harrison said the company posted “another strong quarter,” pointing to net interest margin (NIM) expansion, growth in net interest income, contained expenses, and strong credit quality. He said return on average tangible equity was 15.8% in the fourth quarter and 16.3% for the full year.
Management also addressed taxes. Harrison said the effective tax rate in the fourth quarter was 24.8% due to the reversal of a previously accrued tax benefit, and said the company expects the effective tax rate to return to about 23.2% going forward.
Balance sheet trends: loan and deposit growth
Harrison said the balance sheet remained “solid,” with the company “well-capitalized with ample liquidity.” Total loans grew $183 million in the quarter, or 5.2% on an annualized basis. He attributed commercial and industrial (C&I) growth primarily to draws on existing lines and the addition of a new auto dealer customer.
Harrison said commercial real estate (CRE) growth and a decline in construction loans largely reflected construction loans that converted to CRE, adding that outside of those conversions, balances in both portfolios were relatively flat.
Chief Financial Officer Jamie Moses said the bank saw good growth in retail and commercial deposits, while public operating deposits that arrived in the third quarter flowed out in the fourth quarter “as we expected.” Moses said retail and commercial deposits increased $233 million, public deposits declined $447 million, and total deposits increased $214 million in the quarter.
Moses said the total cost of deposits fell 9 basis points to 1.29%, and that non-interest-bearing deposits represented 32% of deposits. In response to a question later in the call, Moses said the deposit “spot rate” for the month of December was 1.24%.
Net interest income and margin drivers
Moses reported net interest income of $170.3 million, up $1 million from the prior quarter. The fourth-quarter NIM was 3.21%, up 2 basis points sequentially. He attributed the improvement primarily to lower deposit costs and the full-quarter benefit of borrowing that matured in September, partially offset by lower loan yields. He also said the “exit” NIM for December was 3.21%.
During Q&A, management discussed expectations for deposit pricing and margin trends. Moses said the NIM outlook reflects both the ability to cut deposit rates as the Federal Reserve cuts and “fixed asset repricing” tailwinds, while acknowledging potential headwinds from additional Fed cuts and a “decreasing deposit beta.” He said the bank’s interest-bearing deposit beta was around 35% in the fourth quarter, and under an assumption of two rate cuts, management anticipates an interest-bearing deposit beta between 30% and 35%.
Asked about the trajectory of margin in early 2026, Moses said he expects first-quarter NIM to come down “a little bit” from the 3.21% level, citing rate cuts in the fourth quarter including one in December. He said the company’s full-year NIM guide contemplates a scenario with cuts around May and September, with the timing and size of cuts as key swing factors.
Credit quality and reserves
Chief Risk Officer Lea Nakamura said the bank continued to show “strong credit performance” with credit risk “low, stable, and well within our expectations.” She said the company was not observing broad signs of weakness across consumer or commercial portfolios.
Nakamura said classified assets decreased by 7 basis points while special mention assets increased by 16 basis points. Net charge-offs were $5 million in the quarter, or 14 basis points of total loans and leases, and $16.3 million year-to-date. She said the annual net charge-off rate was 11 basis points, unchanged from the third quarter.
Non-performing assets and 90-day past due loans were 31 basis points of total loans and leases at quarter-end, up 5 basis points from the prior quarter, which Nakamura said was primarily driven by a single relationship.
The bank recorded a $7.7 million provision in the fourth quarter. Nakamura said the allowance for credit losses increased by $3.2 million to $168.5 million, with coverage rising to 118 basis points of total loans and leases. She said management believes the bank remains “conservatively reserved.”
Capital return, outlook, and themes from Q&A
Harrison said the company repurchased about 1 million shares during the quarter, using the remaining $26 million of its $100 million 2025 repurchase authorization. He said the board approved a new $250 million share repurchase authorization that, unlike the prior program, is not tied to a specific timeframe.
When asked about buyback pace and other uses of capital, management said it has an appetite to continue at a similar pace but emphasized flexibility and the priority of organic growth. Harrison added that the company has previously communicated a 12% CET1 target and said it is “well above that at +13%,” characterizing the larger authorization as a way to maintain flexibility to move closer to the targeted level.
Management’s full-year 2026 outlook included:
- Loan growth: 3% to 4%, driven primarily by CRE and C&I
- Net interest margin: 3.16% to 3.18% for the full year
- Non-interest income: stable at about $220 million
- Expenses: about $520 million
In discussing loan growth, Harrison said fourth-quarter trends were “pretty broad-based,” including both Hawaii and some mainland activity, and noted that certain CRE payoffs occurred earlier than expected. He said permanent lenders have been “hungry for assets,” occasionally refinancing multifamily projects before full stabilization. Looking ahead, he said the multifamily pipeline remains active, though funding can lag origination, and suggested growth may be lower in the first half of 2026 before improving in the second half as production normalizes.
On expenses, management said recent cost control benefited from past technology investments and bringing services in-house after terminating expensive vendor relationships. Harrison said 2026 reflects a more “normalized expense growth” after much of that benefit has been captured, while also noting the bank continues trying to hire but has found it difficult to staff all desired roles.
Management also addressed M&A, saying the focus remains on core business growth but acquisitions remain an option. Harrison reiterated past criteria: a strong management team, disciplined lending culture, a strong deposit franchise, and a well-managed institution, with geography “west of the Rockies” and a size range of roughly $2 billion to $15 billion in assets.
About First Hawaiian (NASDAQ:FHB)
First Hawaiian, Inc is the oldest and largest bank in Hawaii, operating as the bank holding company for First Hawaiian Bank. Established in 1858, the company offers a full suite of financial services to individual, business and institutional clients. Its product portfolio includes consumer and commercial lending, deposit accounts, treasury and cash management, foreign exchange and trade finance, as well as wealth management and trust services.
First Hawaiian serves customers through an extensive network of branches, ATMs and digital channels across the Hawaiian Islands, Guam, Saipan and American Samoa.
