Executive Summary / Key Takeaways

• First Hawaiian, Inc. (FHB) demonstrates resilient profitability and net interest margin (NIM) expansion, driven by its strong local deposit franchise and disciplined balance sheet management. Net income for Q3 2025 increased 20% year-over-year, reaching $73.84 million, with NIM expanding to 3.19%.
• The company maintains solid credit quality, with credit risk remaining low and stable, despite a slight increase in classified assets attributed to a single borrower. The Allowance for Credit Losses (ACL) stands at $165.30 million, covering 1.17% of total loans and leases.
• FHB is strategically deploying capital through organic loan growth, with expectations to end 2025 flat to year-end 2024 after Q3 declines, and an opportunistic $100 million share repurchase program.
• Hawaii's unique economic dynamics, influenced by tourism and federal spending, present both opportunities and specific risks, including the potential impact of tariffs and federal government shutdowns.
• FHB's competitive advantage is deeply rooted in its extensive local relationships, strong brand, and comprehensive branch network, which enable stable deposit growth and offset scale disadvantages against larger national banks.

First Hawaiian's Enduring Legacy and Market Foundation

First Hawaiian, Inc. (FHI), through its wholly-owned subsidiary First Hawaiian Bank (FHB), stands as a cornerstone of the Hawaiian financial landscape, tracing its origins back to 1858 as Bishop Company. This makes FHB the first successful banking partnership in the Kingdom of Hawaii and the second oldest bank west of the Mississippi River. This deep historical presence underpins its strong brand and extensive customer relationships across Hawaii, Guam, and Saipan, which are critical differentiators in a competitive industry. FHB operates through three core segments: Retail Banking, Commercial Banking, and Treasury and Other, each tailored to serve the unique needs of its diverse customer base.

The Hawaiian economy, while resilient, presents a distinct operating environment. In August 2025, the statewide unemployment rate was 2.7%, significantly below the national average of 4.3%. Tourism, a vital economic pillar, saw total visitor arrivals up 0.7% through August 2025, with spending increasing by 4.5% year-to-date, primarily driven by U.S. Mainland visitors. The local housing market on Oahu shows mixed signals, with the median single-family home price rising 3.8% to $1.2 million in September 2025, while condominium prices softened slightly, decreasing 1.7% to $509,000. These dynamics, coupled with a significant reliance on U.S. federal government spending, including military presence, shape FHB's strategic responses and risk profile.

Technological Edge and Operational Efficiency

FHB leverages its "robust digital banking platform" and ongoing "technology investments" to enhance operational efficiency and customer service. While specific quantifiable metrics for its core differentiated technology are not publicly detailed, management has emphasized a "big tech spend" in previous years, now focusing on "data and analytics" to provide value to front-line staff and customers. These initiatives are strategically aimed at improving internal processes, streamlining customer interactions, and ultimately contributing to better capital efficiency and profitability. The company's commitment to technological advancement, though not always highlighted with specific performance figures, is integral to its long-term strategy and competitive positioning, particularly against larger, more technologically advanced national banks.

In the broader industry, the rise of AI and data centers is creating new demands for infrastructure and power. While not a direct technological differentiator for FHB, this trend could present opportunities for financing related projects. However, it also highlights potential lags in technological innovation compared to national banking giants like JPMorgan Chase or U.S. Bancorp , which possess more extensive R&D capabilities and digital tools. FHB's focus remains on leveraging technology to deepen its local market advantage rather than competing on a national scale for cutting-edge financial technology.

Financial Performance: Resilience Amidst Shifting Tides

First Hawaiian delivered a strong financial performance in the third quarter of 2025, demonstrating resilience in a dynamic economic environment. Net income for the three months ended September 30, 2025, rose by $12.30 million, or 20%, to $73.84 million, compared to the same period in 2024. This growth was primarily fueled by a $12.60 million increase in net interest income, a $3.80 million increase in noninterest income, and a $2.90 million decrease in the provision for credit losses. Basic and diluted earnings per share both increased by $0.11, or 23%, to $0.59.

The company's net interest income (NII) for Q3 2025 reached $169.33 million, an 8% increase year-over-year, with the net interest margin (NIM) expanding by 24 basis points to 3.19%. This expansion was largely driven by lower deposit funding costs and higher average balances on interest-bearing deposits in other banks, partially offset by slightly lower earning asset yields from the loan and lease portfolio. For the nine months ended September 30, 2025, NII was $493.44 million, up 6%, and NIM was 3.13%, up 20 basis points from the prior year. Management noted that the run rate NIM for September 2025 was 3.16%, with expectations for continued positive NIM momentum in Q4 2025, advancing a few basis points from the September figure. This guidance incorporates anticipated Fed rate cuts in October and December 2025.

Deposit dynamics remained a key strength. Total deposits increased by $407.30 million, or 2%, to $20.73 billion as of September 30, 2025, compared to December 31, 2024. This growth was primarily due to a $669.80 million increase in savings deposit balances and an $83.30 million increase in time deposit balances, partially offset by decreases in demand and money market deposits. The total cost of deposits fell by 1 basis point in Q3 2025, and the ratio of noninterest-bearing deposits to total deposits remained robust at 33%. Management expects seasonal increases in retail and commercial deposits in Q4 2025, offsetting public deposit outflows, aiming for roughly flat total deposits by year-end 2025 compared to Q3.

The loan and lease portfolio totaled $14.13 billion as of September 30, 2025, a decrease of $278.90 million, or 2%, from December 31, 2024. This decline was primarily in commercial and industrial (C&I) loans, residential real estate loans, construction loans, and consumer loans. Notably, dealer flooring balances decreased by $146 million, and paydowns on corporate lines of credit contributed $130 million to the C&I decline in Q3 2025. Despite the Q3 decline, management anticipates strong originations in Q4 2025, expecting the full-year loan balance to be approximately flat to year-end 2024.

Noninterest income for Q3 2025 was $57.06 million, an increase of $3.77 million or 7% year-over-year, benefiting from higher Bank-Owned Life Insurance (BOLI) income and swap income. For the nine months ended September 30, 2025, noninterest income was $161.50 million, up 3%. Management expects a normalized run rate of approximately $54 million per quarter for noninterest income. Noninterest expense for Q3 2025 decreased slightly by $0.40 million to $125.74 million. For the nine months ended September 30, 2025, noninterest expense decreased by $2.80 million, or 1%, to $374.24 million. Management now expects full-year expenses to come in below their most recent outlook of $506 million, reflecting disciplined cost control.

Credit Quality: A Prudent Approach to Risk

FHB continues to demonstrate strong credit performance, with credit risk remaining low, stable, and well within expectations. The Allowance for Credit Losses (ACL) for loans and leases stood at $165.27 million as of September 30, 2025, an increase of $4.88 million or 3% from December 31, 2024. This represents 1.17% of total outstanding loans and leases, an increase of six basis points. The provision for credit losses in Q3 2025 was $4.50 million, a decrease of $2.90 million from the same period in 2024. Net charge-offs for Q3 2025 were $4.21 million, or 0.12% of average loans and leases on an annualized basis.

While overall credit quality is robust, classified assets increased by $30.10 million in Q3 2025, primarily due to a single long-time borrower that management is working closely with. Non-accrual loans and leases increased to $30.93 million as of September 30, 2025, from $20.68 million at December 31, 2024. This increase was observed across residential mortgage, home equity line, commercial real estate, commercial and industrial, construction, and consumer loan categories. Management emphasizes that these loans are generally well-secured, and the unrealized losses on available-for-sale investment securities are due to interest rate changes, not credit quality. The ACL incorporates a qualitative overlay for potential macroeconomic impacts, anticipating cyclical losses consistent with a recession.

Capital and Liquidity: Pillars of Stability

FHB maintains a strong capital position, classified as "well-capitalized" under federal bank regulatory guidelines. The Common Equity Tier 1 (CET1) capital ratio was 13.24% as of September 30, 2025, an increase of 44 basis points from December 31, 2024. This improvement was primarily driven by earnings for the nine months ended September 30, 2025, and a decrease in risk-weighted assets, partially offset by dividends and common stock repurchases. Total stockholders' equity increased by $116.40 million, or 4%, to $2.73 billion.

Liquidity management is a fundamental aspect of FHB's operations. The company held $1.86 billion in cash and cash equivalents as of September 30, 2025. Its investment securities portfolio, totaling $5.58 billion, is comprised predominantly of high-grade government agency and government-sponsored enterprise securities, providing substantial liquidity.

FHB also has significant borrowing capacity from the Federal Home Loan Bank (FHLB) and the Federal Reserve Bank (FRB), totaling $3 billion and $3.40 billion, respectively, as of September 30, 2025. The company strategically repaid a $250 million FHLB advance that matured in September 2025, reducing short-term borrowings to nil. FHB's core deposits, representing 93% of total deposits, provide a stable and cost-effective funding source.

Strategic Outlook and Competitive Dynamics

FHB's strategic outlook is anchored in its deep understanding of the Hawaiian market and a disciplined approach to growth and risk management. Management expects full-year loan growth to be in the low single digits, with strong Q4 originations anticipated to offset earlier declines. Net interest margin is projected to continue expanding by a few basis points from the September 2025 run rate of 3.16% in Q4, and approximately three basis points per quarter throughout 2025, assuming Fed rate cuts. Noninterest income is expected to normalize at around $54 million per quarter, and full-year expenses are guided to be below $506 million.

FHB operates in a competitive landscape dominated by a mix of regional and national players. Its primary competitive advantage lies in its "strong regional brand and customer loyalty," cultivated over more than 160 years. This translates into enhanced customer retention, strong pricing power in its local markets, and efficient cross-selling opportunities. The bank's "extensive branch and ATM network" across Hawaii and Guam provides a unique distribution channel, offering greater accessibility and operational efficiency compared to larger national banks like JPMorgan Chase (JPM) or Bank of America (BAC), which may struggle with personalized service at a local level. FHB's "deep understanding of local markets and customer needs," fostered through long-standing relationships, allows for localized underwriting expertise and proactive balance sheet management, giving it an edge over competitors like Bank of Hawaii (BOH) in certain niche segments.

However, FHB faces competitive disadvantages due to its "smaller scale and narrower reach," which limits revenue diversification and increases vulnerability to local economic shifts compared to national banking giants. While FHB has invested in a "robust digital banking platform," it may lag larger competitors like U.S. Bancorp (USB) in the pace of technological innovation and the breadth of advanced digital tools. These factors could hinder its ability to capture market share in rapidly evolving digital banking segments. Regulatory requirements and high capital needs act as significant barriers to entry in the banking industry, protecting FHB's established position but also favoring larger competitors who can navigate these more effectively. The broader industry trend of AI and data center growth, while not a direct threat, could create financing opportunities for FHB but also highlights the need for continued technological investment to remain competitive.

Conclusion

First Hawaiian, Inc. continues to demonstrate a compelling investment thesis, rooted in its enduring presence and deep relationships within the unique Hawaiian market. The company's consistent profitability, marked by robust net interest income growth and expanding margins, reflects disciplined balance sheet management and a strong, low-cost deposit franchise. While facing external economic uncertainties such as tariffs and potential federal government shutdowns, FHB's credit quality remains sound, supported by prudent reserving and close borrower relationships.

FHB's strategic focus on organic loan growth, coupled with opportunistic capital returns through share repurchases, underscores its commitment to shareholder value. Its competitive strength, derived from an unparalleled local brand and extensive network, allows it to effectively counter the scale advantages of national rivals. As FHB moves forward, its ability to leverage technology to further enhance customer experience and operational efficiency, while carefully managing the specific risks and opportunities of its island economy, will be paramount to sustaining its resilient performance and solidifying its enduring island advantage.