First Hawaiian Q1 2025 Earnings Report

First Hawaiian EPS Results

• Actual EPS: $0.47
• Consensus EPS: $0.46
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: $0.42

First Hawaiian Revenue Results

• Actual Revenue: $211.00 million
• Expected Revenue: $210.24 million
• Beat/Miss: Beat by +$760.00 thousand
• YoY Revenue Growth: +2.50%

First Hawaiian Announcement Details

• Quarter: Q1 2025
• Date: 4/23/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, April 23, 2025
• Conference Call Time: 1:00PM ET

First Hawaiian (NASDAQ:FHB) operates as a bank holding company for First Hawaiian Bank that provides a range of banking products and services to consumer and commercial customers in the United States. It operates in three segments: Retail Banking, Commercial Banking, and Treasury and Other. The company offers various deposit products, including checking, savings, and time deposit accounts, and other deposit accounts. It also provides residential and commercial mortgage loans, home equity lines of credit and loans, automobile loans and leases, secured and unsecured lines of credit, installment loans, small business loans and leases, and construction lending, as well as commercial lease and auto dealer financing. In addition, the company offers wealth management, personal installment, individual investment and financial planning, insurance protection, trust and estate, private banking, investment management, retirement planning, and merchant processing services, as well as consumer and commercial credit cards. The company was formerly known as BancWest Corporation and changed its name to First Hawaiian, Inc. in April 2016. First Hawaiian, Inc. was founded in 1858 and is headquartered in Honolulu, Hawaii.

First Hawaiian Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Thank you for standing by and welcome to the First Hawaiian Bank First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during this session, you'll need to press 11 on your telephone. If your question has been answered and you wish to remove yourself from the queue, simply press 11 again.

[Operator]

As a reminder, today's program is being recorded. And now, I'd like to introduce your host for today's program, Jamie Moses, CFO. Please go ahead, sir.

[James Moses, Vice Chairman & CFO at First Hawaiian]

Thank you, Jonathan, and thank you, everyone, for joining us as we review our financial results for the first quarter of twenty twenty five. With me today are Bob Harrison, Chairman, President and CEO and Lee Nakamura, our 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.

[James Moses, Vice Chairman & CFO at First Hawaiian]

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 GAAP measurements. And now, I'll turn the call over to Bob.

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

Hello, everyone. I'll start by giving a quick overview of the local economy. Overall, the Hawaii economy remains stable, but uncertainty is increasing due to recent weakness around international rivals and the lack of clarity about consumer confidence. Statewide seasonally adjusted unemployment rate remained stable in February at 3% compared to the national unemployment rate of 4.1. Through February, total visitor arrivals were up 1% and spending was up 4.5% compared to 2024 levels.

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

Maui has seen the largest increases in arrivals and spend among all the islands. Also, housing market remains stable. Turning to slide two, we continue to perform well in the first quarter. Net interest income increased versus the prior quarter, non interest income was stable, and expenses remained well controlled. Declining deposit costs and the fourth quarter investment portfolio restructuring helped drive a five basis point increase in NIM.

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

And then finally, quality remained excellent and we added to the reserve due to increased macroeconomic uncertainty. Turning to slide three, the balance sheet remains solid and we are well positioned to support our customers. We continue to be well capitalized with ample liquidity. During the first quarter, we repurchased about 974,000 shares at a total cost of $25,000,000 and we have $75,000,000 of remaining authorization under the approved 2025 Stock Repurchase Plan. Turning to slide four, total loans declined $115,000,000 or 0.8% from the prior quarter.

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

The decline was primarily due to commercial real estate loans where we experienced both scheduled and early payoffs and a few large credits. Growth within the C and I portfolio was partially offset by the normal fluctuations in dealer flooring, which declined by $28,000,000 Now I'll turn it over to Jamie.

[James Moses, Vice Chairman & CFO at First Hawaiian]

Thanks, Bob. Turning to slide five. While total deposits declined slightly in the first quarter, we were pleased with the underlying performance of the retail and commercial deposit basis. Retail deposits increased $105,000,000 in the quarter, while commercial deposits more than offset that, falling by $167,000,000 The decline in the commercial book was largely due to normal fluctuations in a few of our larger accounts, but were not reflective of any larger underlying trends. Our total cost of deposits fell by 11 basis points as the benefit from the Q4 rate cuts was fully priced in, as well as the repricing trends from approximately $1,400,000,000 of CDs in the first quarter.

[James Moses, Vice Chairman & CFO at First Hawaiian]

Our non interest bearing deposit ratio remained an enviable 34%. On Slide six, we see how the deposit performance benefited net interest income and the margin in the quarter. Net interest income was $160,500,000 1 point 8 million dollars higher than the prior quarter. The increased NIM in the first quarter was a result of those lower deposit costs and the benefit from the Q4 investment portfolio restructuring, which, taken together, offset some of the effects of the decline in the yield of our floating rate loan portfolio. Looking ahead, the underlying balance sheet dynamics driving the NIM remain intact, and we anticipate that the NIM in the second quarter will increase a few basis points to three ten.

[James Moses, Vice Chairman & CFO at First Hawaiian]

I want to also point out that given the current macro environment, the level of uncertainty around our outlook has increased. Turning to Slide seven, non interest income was $50,500,000 and noninterest expenses were 123,600,000 There were no significant nonrecurring noninterest income or expense items in the quarter, and our full year outlook for both of those lines remains the same. And now I'll turn it over to Leigh.

[Lea Nakamura, Executive VP & Chief Risk Officer of Risk Management Group at First Hawaiian]

Thank you, Jamie. Moving to slide eight, the bank maintains its strong credit performance and healthy credit metrics in the first quarter. Credit risk remains low, stable, and well within our expectations. We're not observing any broad signs of weakness across either the consumer or the commercial books. Classified assets decreased by $3,000,000 due primarily to pay downs.

[Lea Nakamura, Executive VP & Chief Risk Officer of Risk Management Group at First Hawaiian]

Year to date net charge offs were $3,800,000 and our annual year to date net charge off rate was 11 basis points. Non performing assets and ninety day past due loans came in at 17 basis points at the end of the first quarter, down two basis points from the prior quarter. Moving to slide nine, we show our first quarter allowance for credit losses broken out by disclosure segments. The bank recorded a $10,500,000 provision in the first quarter. The asset ACL increased by $6,200,000 to $166,600,000 with coverage increasing six basis points to 117 basis points of total loans and leases.

[Lea Nakamura, Executive VP & Chief Risk Officer of Risk Management Group at First Hawaiian]

The reserve build reflects the more pessimistic forecast available to the economic forecasting component of our CECL model. We believe that we are conservatively reserved and ready for a wide range of outcomes. Let me now turn the call back to Bob for any closing remarks.

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

Thank you, Lee. Thank you, Jamie. Now we'd be happy to answer any questions.

[Operator]

Certainly. Our first question comes from the line of David Feaster from Raymond James. Your question please.

[David Feaster, Director - Banking at Raymond James Financial]

Hi, good morning everybody.

[James Moses, Vice Chairman & CFO at First Hawaiian]

Hey, Dave.

[David Feaster, Director - Banking at Raymond James Financial]

I

[David Feaster, Director - Banking at Raymond James Financial]

wanted to start on on the loan side. You know, appreciate some of the commentary on on in the release and what's what you alluded to, Bob, about, you know, just the strength of the economy. I'm curious, maybe starting with the pulse of your clients, like, how's how is the pulse of your obviously, there's a ton of uncertainty, but just curious again about the pulse of the economy. How's the pipeline shaping up, expectations for pull through, and and just again, how much of that decline in CRE this quarter was driven by that weaker demand or how much was it pay ups and pay downs? Big question, sorry.

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

No, no, that's a great question, Dave. Thank you. Let me start on that. And then if Jamie and Lee have comments, we'll let them certainly join in. Actually, loans for the quarter was up over Q4.

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

So it really was just a few things during the quarter. We participated in a loan that we originated in Q4. We participated out in Q1, just kind of normal stuff. The dealer pay downs is very typical to see a build up at year end and then some of that come off in Q1. And then we had some other pay downs.

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

So there wasn't anything in Q1 that we thought was unusual. We do think that we are seeing the pipeline being pretty strong out there, but there's more uncertainty in the market. You heard that with Lee's comments, modeling is modeling in a little bit more uncertainty. So we think it's fine, but we certainly can't tell what's going to happen at the back half of the year. We think there's opportunity there, everything else being normal.

[David Feaster, Director - Banking at Raymond James Financial]

Okay, that's helpful. And then maybe touching on the other side of the balance sheet, the deposit side. You guys had a lot of success repricing deposits doing some remixing. Obviously, there's some seasonality this quarter. I'm just kind of curious maybe the competitive landscape on the deposit front.

[David Feaster, Director - Banking at Raymond James Financial]

How much leverage is there left for you to continue to reduce deposit costs? Yes, just kind of curious what you're seeing there.

[James Moses, Vice Chairman & CFO at First Hawaiian]

Yes. Hey, David, it's Jamie. I guess what I think is that when we see rates continue to decline, we'll still have opportunities to also bring down those deposit costs as well. We've had a pretty strong beta from a downturn perspective. And I think that that beta begins to decelerate, but still exists.

[James Moses, Vice Chairman & CFO at First Hawaiian]

It's tough go much lower than 143 from this point versus being at 2% or something like that. There's a lot more room from that perspective. And also, we pride ourselves on having full relationships and having really grabbing those operating accounts from folks. And so, having more DDA also limits our ability to reduce rates even further. But I don't think we want to apologize for that.

[James Moses, Vice Chairman & CFO at First Hawaiian]

I think that we have pretty good deposit performance and we're happy with how that's working out for us.

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

Absolutely. Sorry, this is Bob. The only thing I would add to that is we're very pleased with the increase in the retail deposits of $100,000,000 that really shows that we're out there, the teams are out there serving their customers and growing their relationships. There's literally a handful of large commercial accounts that they're all still great customers of ours, it's just the fluctuations at the end of the quarter went negative instead of staying stable or going up. We weren't concerned about the drop on the commercial side either.

[David Feaster, Director - Banking at Raymond James Financial]

Absolutely. So if I'm hearing you, Jamie, exclusive of rate cuts, not a ton of room to wood to chop, if you will, on the deposit cost side.

[James Moses, Vice Chairman & CFO at First Hawaiian]

Yeah. I that's right. There's some ability still related to CD repricings that we have in the second and third quarters. But apart from that, I don't think a whole lot for us to really be able to do there.

[David Feaster, Director - Banking at Raymond James Financial]

Can you remind us what those roll off rates are and where you're pricing new CDs?

[James Moses, Vice Chairman & CFO at First Hawaiian]

Yeah. So it fluctuates a little bit, but we're probably getting 20 to 30 basis points in total spread on that repricing.

[David Feaster, Director - Banking at Raymond James Financial]

Okay. Awesome. And then just the last question I wanted to touch on was on the expense side. You came in better than expected here in the first quarter. Seasonally, there's some headwinds, right, with FICA bonuses, raises, and all that kind of stuff, but still reiterated the guidance at five ten.

[David Feaster, Director - Banking at Raymond James Financial]

Could you just maybe touch on the trajectory over the course of the year, where you're investing in and maybe some projects or just kind of how you think about expenses this year?

[James Moses, Vice Chairman & CFO at First Hawaiian]

Yes. I mean, I think we're always looking to invest in the business and into our people, right? That's an important component to us, maybe the most important component for us. So I think that we just there is some slowness in the first quarter in expenses. And we expect that that should ramp up over the year, but committed to staying within the guidance that we gave.

[James Moses, Vice Chairman & CFO at First Hawaiian]

I think to the extent that there are other opportunities, there's some projects and things that we might put in the queue that can generate ROIs for us in coming years. But we want to make sure that the outlook, we're a little more certain of the outlook before we make those kinds of investments. So it's really a combination of those things. You know, we're gonna keep the guidance the same for now and, you know, there are obviously possible levers, you know, depending on what happens out in the world.

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

Yeah, this is Bob. Maybe just to add a little bit to that. As we've talked about in the past, we kind of did the big tech spend over the last several years. So there's always projects that we're working on and certainly in data and analytics and other areas that we're trying to provide value to the line folks who better do their jobs and take care of their customers. But it's not on the scale that we've had in previous years, which allows us to kind of keep our guidance where it is and work maybe one quarter a little below, but we're still keeping that guidance.

[David Feaster, Director - Banking at Raymond James Financial]

Okay, that's helpful. Thanks everybody.

[Operator]

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

[Jared Shaw, Managing Director at Barclays]

Hey,

[Jared Shaw, Managing Director at Barclays]

good morning.

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

Good morning.

[Jared Shaw, Managing Director at Barclays]

When I'm looking at the growth in the allowance and you mentioned sort of the qualitative overlay there, once if we assume that you hero sort of catches up to the expected slower visitor arrivals, do you just feel like that's that the qualitative overlay is just sort of front loading some of that? Or could we expect to see the ACL ratio go up if the UHERO deteriorates?

[Lea Nakamura, Executive VP & Chief Risk Officer of Risk Management Group at First Hawaiian]

So, it's not the qualitative overlay, it's the quantitative portion of the model that generated that increase. So we do put in more than just you hero, it's a multiple of factors. So it's hard to say what will happen with the coverage ratio.

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

One of the things that actually happened during the quarter was this, Bob, that changed a little bit as we saw better performance on Maui. And so now we're reducing some of that qualitative overlay and other things are kicking in to Lee's point. So there's a lot of different factors in that one.

[Jared Shaw, Managing Director at Barclays]

Okay, all right. That's great, thanks. And then could you just sort of walk through some of your thoughts around the floor plan businesses exposure to tariffs. And if we do end up seeing significantly higher pricing for imported cars, does that how does that sort of impact the dynamic of floor plan either balances or credit or growth there?

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

Sure. No, great question. And we ended the quarter floor plan at $661,000,000 So that's certainly up off the base and well below the all time highs, but business is different now. I guess I would start with the dealers and certainly our dealers are very good business people and we saw this during COVID that they were able to really pivot and move from selling new cars and selling used to doing service and adjusting their cost structure. So from a credit perspective, never say never, but we don't have any concerns out there on the credit.

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

Regarding the balances, that's just going to be a factor of what's happening with tariffs should they be put in place. What we saw and what we're hearing and reading, like everybody else, is that there was some pull through at the end of the third quarter and maybe into April of people maybe doing purchases in anticipation of that and wanting to get the car they wanted now. There's still a lot of uncertainty if the tariffs will stick on which countries they'll be applied. Is it due to subsidiary parts or not? How that works?

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

The other factor we haven't heard anything about is what manufacturers will do to support the dealer network. That's just an unknown. Will they be there to support the dealer network? Will they pass through the costs? All these things are gonna become clearer over the next weeks and months.

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

So we're very comfortable with credit. They're good operators. We'll just have to, on the balances side, we'll just have to see how that plays out to be candid.

[Jared Shaw, Managing Director at Barclays]

Great, thanks a lot, Bob.

[Operator]

Thank you. And our next question comes from the line of Kelly Mata from KBW. Your question, please.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Hey, good morning. Thanks for the question, guys. I think maybe turning to deposits, can you remind us the seasonal trends there and what we should be expecting in the upcoming quarter given whatever line of sight you have into that? Thanks.

[James Moses, Vice Chairman & CFO at First Hawaiian]

Sure. Thanks, Kelly. It's Jamie. So as we would expect, there should be some tax implications in the first quarter as folks pay taxes and so draw down some balances. What we've seen in the past is that really the back half of the year is where the deposits start to build.

[James Moses, Vice Chairman & CFO at First Hawaiian]

What's different is that what's different for us this quarter and what makes it a little bit tough to sort of prognosticate at the moment, is that we did see that really good, increase in retail deposits, in the first quarter. And so, it really kind of just depends on how those sort of trends play out relative to the commercial deposits, right? So, we mentioned earlier, we have some accounts that have large fluctuations on a normal basis. So, kind of depending on where the quarter ends, you know, they're either up or down. But, you know, I think in general, we're seeing good net account growth.

[James Moses, Vice Chairman & CFO at First Hawaiian]

We're seeing good customer growth. And, you know, that's a credit to our retail teams. They're doing a great job out there in the streets just making connections and servicing our customers. So I think that's just part of what we do and we're generally pretty happy with where that's going.

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

Kelly, it's Bob. The only thing I would add to that, to the loans, the average deposits for the quarter were up over the fourth quarter. So this is kind of normal fluctuation and mix. What that tells us about the future is a little less clear given the uncertainty and the market conditions, etcetera. But the economy is still growing, great production by the retail teams to Jamie's point.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Got it, that's helpful. And I guess maybe last question from me. It looks like average cash balances were elevated a bit in the quarter. Tying that in with your commentary just now about deposits potentially being growth being potentially picking up in the back half with seasonal trends. Would you expect the overall size of the balance sheet to grow commensurate with that?

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Or are we still funding some of the potential loan growth with cash flows off the securities book? Just trying to round out to get a good sense of the size of the balance sheet. Thanks.

[James Moses, Vice Chairman & CFO at First Hawaiian]

Yes. That's great, Kelly. Good question. I think the answer is that you actually hit it on the head, is that to the extent that our deposits are growing, the size of our balance sheet will grow along with that. There's a chance that maybe those cash balances were a little bit elevated.

[James Moses, Vice Chairman & CFO at First Hawaiian]

And so the size of the balance sheet may be slightly smaller, but sort of the efficiency of that balance sheet should be better. So in terms of NII, if that's what you're thinking about, I think that's probably exactly the right way to think about it.

[Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)]

Great. Thank you so much for the color today. I will step back. Nice quarter, guys.

[James Moses, Vice Chairman & CFO at First Hawaiian]

Thanks, Kelly.

[Operator]

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

[Anthony Elian, Equity Research – Banks at J.P. Morgan]

Hi, everyone. Just following up on loan growth. Do you think second quarter could be a growth quarter for total loans? And then what are you expecting on a full year basis, still that low to mid single digits range?

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

Morning, Tony, this is Bob. So I guess, well, first of all, start with the full year. We haven't changed our guidance. There's uncertainty out there, but we still think there's an opportunity to get to low to mid single digits depending on what happens to the economy, again subject to tariffs. So the earlier discussion on any impact on the auto dealers, etcetera, but we're still optimistic on that.

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

As far as Q2, it's a little harder to see. There's a number of loans in the pipeline. One thing that uncertainty does create is probably fewer of the construction loans being refinanced, the multifamily primarily, given the takeouts in different markets, CMBS, etcetera, is a little more difficult right now that they might be more likely to move into mini perm. So these are all things we're watching and talking about and talking with our borrowers about, but there is a number of deals in the pipeline. It'll be just hard to pin which quarter we think the growth will be in throughout the rest of the year.

[Anthony Elian, Equity Research – Banks at J.P. Morgan]

Okay. And then my follow-up, you provide good color on the dealer floor plan loan portfolio, not concerned about the credits there. Are there any other loan portfolios more broadly you're maybe paying a closer attention to given the heightened exposure to tariffs, manufacturing, supply chain, anything like that? Anything proactive you're doing now on those portfolios? Thank you.

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

Yeah, great question. The kind of broad base of C and I is something we're also staying close to our customers on, C and I ex dealer, which we talked about earlier. It's just a variety of businesses in there and the impact of what's happening with not so much tariffs writ large and any, we don't have any industries that are directly impacted, but a lot of small businesses are obviously going to be impacted by higher costs associated with goods that are imported from somewhere else. And so that's something that the credit teams on the line are spending a lot of time talking about, just to stay close to those customers. Nothing has surfaced yet to Lee's earlier comments, that is something just to heighten awareness for us.

[James Moses, Vice Chairman & CFO at First Hawaiian]

And Tony, just to add just quickly to that, the credit risk teams, they feel really strongly that the impacts of tariffs and other disruptions is sort of really customer dependent, not necessarily by portfolio. And so this is where it's really helpful that we have such strong relationships with our borrowers that we're able to really be tight with them and really understand their businesses so that we can really understand what those impacts are and work through and with them throughout the course of time.

[Anthony Elian, Equity Research – Banks at J.P. Morgan]

Thank you.

[Operator]

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

[Andrew Terrell, Managing Director at Stephens Inc]

Hey, good morning. Jamie, if I could just start on the margin. Would you happen to have the spot deposit cost at the end of the period and then maybe the margin in the month of March?

[James Moses, Vice Chairman & CFO at First Hawaiian]

Yes. Spot deposit cost was 141,000,000 and the margin in March was $310,000,000

[Andrew Terrell, Managing Director at Stephens Inc]

Got it. Okay.

[James Moses, Vice Chairman & CFO at First Hawaiian]

Embedded in our forecast, right, is that there's going to be a rate cut in June. And so that three ten guidance that I'm giving is inclusive of that as well. And so that's why maybe it seems like it's not expanding off of March. That's the reason is the rate cut in the forecast would offset that.

[Andrew Terrell, Managing Director at Stephens Inc]

Got it. Okay. Yep. That was exactly where I was going next. I appreciate it.

[Andrew Terrell, Managing Director at Stephens Inc]

And then could you just remind us on the buyback? Saw you guys were active this quarter this past quarter. There's obviously a bit of volatility in the market. Just expectations around the buyback moving forward and specifically any interest that may be accelerating the pace of buyback, given some of the volatility we've seen?

[James Moses, Vice Chairman & CFO at First Hawaiian]

Yeah. I think that there's definitely interest when the price is lower. But I think the way to think about it, and the way that we're trying to be real careful and think about it is that this is a program that we have in place, and we're trying to do things very programmatically. That doesn't necessarily mean that there won't be acceleration of the buyback when we see opportunities. But just broad based when we're thinking about it, we're thinking about this not trying to time markets and things like that.

[James Moses, Vice Chairman & CFO at First Hawaiian]

We're really trying to just put this program in place capital to the shareholders. So, it's possible, but I would think that it's more likely the 25 per quarter kind of thing is where we're more, looking at.

[Andrew Terrell, Managing Director at Stephens Inc]

Understood. Okay. Thanks for taking the questions.

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

Yep.

[Operator]

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

[Andrew Liesch, MD & Senior Research Analyst at Piper Sandler Companies]

Thanks. Just a quick question to follow-up on the margin commentary here. So you're going get 3.1% from the second quarter. How quickly can you offset any rate cuts? So if you look out further into the year, is it can you offset the rate cut in the third quarter and keep the margin flat at 3.1 Or is there going to be initial an initial drop?

[Andrew Liesch, MD & Senior Research Analyst at Piper Sandler Companies]

I know you have a fair amount of asset repricing that's still going to be at positive differential. So do you think you can hold the margin flat? Or do you think the margin will be down a quarter?

[James Moses, Vice Chairman & CFO at First Hawaiian]

I think that's going to be dependent upon our loan growth. And so if we're able to grow loans at a very good clip, then there's a chance that we can fully offset that in a quarter. If not, then maybe you'll see a small decline, but then you should continue to see a general march higher when those repricing dynamics continue. So, it's tough to say without knowing all moving parts around that. But as we said, there's opportunities in our rate sensitive deposits, and then we have the CDs that also reprice in the second and third quarter.

[James Moses, Vice Chairman & CFO at First Hawaiian]

So I feel confident that once we hit a rate cut, we reprice things, it's obviously lower, but then we have the ability to then drive it higher. So those fundamentals still remain intact.

[Andrew Liesch, MD & Senior Research Analyst at Piper Sandler Companies]

Got it. Thank you. And then just a follow-up question. What's the tax rate we should be using here?

[James Moses, Vice Chairman & CFO at First Hawaiian]

23%, we think is a good number for the year.

[Andrew Liesch, MD & Senior Research Analyst at Piper Sandler Companies]

Got it. That's, that's all my questions. You've covered everything else. Thanks.

[Operator]

Thank you. And our next question comes from the line of Timur Braziler from Wells Fargo. Your question please.

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

Hi, good morning. Starting big picture for me, just looking at tariffs, I guess, where could tariffs potentially be more multiplicative for Hawaii, given that there's just more stops along the way for things to reach the island? And then Bob, maybe you can help frame the risk both from the tariffs and what's slowing visitor arrivals could portend for the island economy?

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

Yeah, Tim, good morning. Guess broadly from tariffs, Jamie touched on it a bit earlier. We don't have businesses that are doing manufacturing that you're seeing things come in. I guess one of the concerns would be and we didn't touch on this yet, so a very good question would be in construction. Are you seeing higher raw material costs?

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

Or where could that take us? No projects have been canceled by any of our customers. The developers are, of course, working closely with contractors to make sure that the prices are solid before they launch into a project. So that's more of a look forward opportunity that creates a little bit of uncertainty around that. Given the importance and strength of construction in Hawaii, that's maybe the area that you'd look to, but we have some pretty conservative contractors too.

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

I know of one that whenever they bid a job, then they get awarded, they buy all the materials right then to make sure they lock in their costs. So it really depends on the customer and the situation. But clearly, there's a dramatic increase in construction material costs that are some of which are important that could in the future affect construction. That's really the only one. The other point that Jamie made that kind of ties into various C and I loans of customers, resisting close to people on that.

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

Maybe the last thing is, as it affects tourism, think was the last part of your question. There are stories of we haven't seen any evidence of foreign visitors being less willing or more reluctant to travel to The US, which could include Hawaii as well. But we're seeing the tiny bit in the numbers through February, but the numbers haven't come out yet for March and future bookings is anybody's guess. So that's something we're watching closely and staying in close contact with our hospitality customers. Does that answer your question?

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

It does, yeah, thank you.

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

And then I guess just a

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

second for me, looking at the reserve build this quarter, it seems like much of that was driven by the consumer portfolio. I'm just wondering kind of just some broader thoughts around your exposure and just the thought process of building that reserve over these last couple of quarters?

[Lea Nakamura, Executive VP & Chief Risk Officer of Risk Management Group at First Hawaiian]

So it was, again, driven by the economic forecasting model and then how it gets allocated out. I know what slide you're looking at, but how it gets allocated out is then a different methodology. Overall consumer, we haven't seen the kind of deterioration that one might have expected based on the the forecasts that are being fed into the model. So it's performing well for us still. We are concerned about it because, you know, as your questions indicate, you know, Hawaii is vulnerable to tariffs, decreases in federal spending, etcetera.

[Lea Nakamura, Executive VP & Chief Risk Officer of Risk Management Group at First Hawaiian]

But so far, you know, consumers held up even though we're again, another thing to watch very closely. So many different things to watch closely now.

[Robert Harrison, Chairman, President & CEO at First Hawaiian]

Yeah, and maybe it's worth mentioning, thanks Lee, maybe it's worth mentioning on the federal spending. The defense secretary stopped by on his way to Asia, made a very strong statement that Indo Pacific Command is going to remain fully funded given its mission here in The Pacific and all the way through India. That doesn't mean there won't be impacts. There's a number of other things the federal government is looking to reduce costs on that will affect Hawaii, but kind of the largest driver in of itself, which is Department of Defense and the Pacific Command appears to be at least on most recent statements as of whatever it was a week, ten days ago, that won't be subject to any cuts.

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

Great.

[Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo]

Thanks for that.

[Operator]

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to JB Moses, CFO, for any further remarks.

[James Moses, Vice Chairman & CFO at First Hawaiian]

Okay. Thanks, Jonathan. We appreciate your interest in First Hawaiian. And please feel free to contact me or Kevin Haseyama, our Investor Relations Director, if you have any additional questions. Thanks again for joining us, and have a great rest of your week.

[Operator]

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Participants

Executives

• James Moses, Vice Chairman & CFO
• Robert Harrison, Chairman, President & CEO
• Lea Nakamura, Executive VP & Chief Risk Officer of Risk Management Group

Analysts

• David Feaster, Director - Banking at Raymond James Financial
• Jared Shaw, Managing Director at Barclays
• Kelly Motta, Managing Director at Keefe, Bruyette & Woods (KBW)
• Anthony Elian, Equity Research – Banks at J.P. Morgan
• Andrew Terrell, Managing Director at Stephens Inc
• Andrew Liesch, MD & Senior Research Analyst at Piper Sandler Companies
• Timur Braziler, Director - Mid-Cap Bank Equity Research at Wells Fargo