First Hawaiian Inc (FHB) Q2 2025 Earnings Call Highlights: Strong Net Income Growth and ...
Net Interest Income: $163.6 million, $3.1 million higher than the prior quarter.
Net Interest Margin (NIM): 3.11%, up 3 basis points from the prior quarter.
Total Loans: Increased by $59 million or 0.4% from the prior quarter.
Total Deposits: Increased slightly, with public deposits up by $166 million.
Non-Interest Income: $54 million for the quarter.
Expenses: Expected to be around $506 million for the full year.
Provision for Credit Losses: $4.5 million in the second quarter.
Allowance for Credit Losses (ACL): $167.8 million, with coverage at 1.17% of total loans and leases.
Net Charge-Offs: $3.3 million for the quarter, 9 basis points.
Non-Performing Assets: 23 basis points of total loans and leases, up 6 basis points from the prior quarter.
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Release Date: July 25, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
First Hawaiian Inc (NASDAQ:FHB) reported a strong second quarter with net income increasing over 23% compared to the prior quarter.
The company experienced broad-based improvements driven by higher net interest and non-interest income, good expense control, and lower provision expense.
Total loans increased by $59 million, with significant growth in the C&I portfolio due to a $125 million increase in dealer floor plan balances.
The balance sheet remains solid with ample liquidity, and the company is well-capitalized.
First Hawaiian Inc (NASDAQ:FHB) repurchased about 1 million shares at a total cost of $25 million, with $50 million of remaining authorization under the 2025 stock repurchase plan.
Negative Points
Retail and commercial deposits declined by $23 million and $127 million respectively, due to normal operational fluctuations.
Non-performing assets and loans 90 days or more past due increased by 6 basis points from the prior quarter.
The company adjusted its full-year loan growth guidance from low to mid-single digits to low single digits.
There is uncertainty in the market due to tariffs, affecting car dealers and potentially impacting future balances.
The consumer at the lower end is experiencing financial strain, with savings accumulated during COVID-19 diminishing.
Q & A Highlights
Q: How is the pipeline in terms of C&I, and is that the largest contributor to growth? Are we seeing increasing demand from CRE borrowers? A: Most C&I growth came from dealer floor plans, which have normalized. The balance was $786 million at the end of the quarter, up $125 million. Car sales have slowed, and there's uncertainty with tariffs. In CRE, some construction loans were expected to extend into mini perms but didn't, indicating good credit quality. We adjusted our guidance to low single digits for full-year growth.
Q: How have tariffs impacted tourism spend on the islands? A: Tariffs mainly create uncertainty for car dealers, with little impact on tourism. Japanese and Canadian tourism is down due to economic factors and exchange rates, but US mainland arrivals have been strong, leading to increased arrivals and spending.
Q: What are your capital priorities moving into the back half of the year? A: Our capital priorities remain focused on organic growth, maintaining a stable dividend, and share repurchases. We plan to deploy more of our repurchase authority in the latter half of the year.
Q: How does your capital position influence your M&A strategy? A: We are open to M&A opportunities but are not actively pursuing any. Our capital levels are higher than past guidance, and we anticipate a rotation from securities to lending, which will utilize capital.
Q: What impacted loan yields in the second quarter, and what are the expectations for the third quarter? A: The mix of loans impacted yields, with higher-margin construction loans being replaced by lower-margin C&I loans. We expect the NIM to increase slightly in the third quarter as fixed-rate cash flows are replaced by higher-yielding assets.
Q: Can you provide an updated outlook on your tax rate following the recent tax law change? A: The effective tax rate for the rest of the year is expected to be 23.2%, which is fairly immaterial compared to previous guidance.
Q: How are you managing deposit costs, and what are your expectations for deposit betas with future rate cuts? A: We have managed to reduce deposit costs effectively. We anticipate deposit betas to decline slightly with future rate cuts, maintaining a strong ability to pass through cuts to rate-sensitive customers.
Q: What factors could drive increased loan activity among your client base? A: The outlook is influenced by economic conditions. Construction loans are being taken out by institutional buyers, and dealer floor plans are nearing pre-COVID levels. We are optimistic about the commercial pipeline but cautious about making long-term forecasts.
Q: What is driving the increase in residential mortgage non-performers, and is there concern about consumer credit? A: The increase is due to consumers at the lower end being stretched as COVID savings diminish. However, the portfolio is performing as expected, and we are not concerned about significant losses.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
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