First Hawaiian, Inc. Aktie

Thank you for standing by, and welcome to the First Hawaiian, Inc. Third Quarter 2026 Earnings Conference Call. [Operator Instructions] 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 third 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 1 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 GAAP measurements.

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

Thank you, Kevin. Appreciate everybody joining us today. Turning to Slide 2. I'll start by providing an update on the acquisition. As you can see from the slide, we're making good progress obtaining the necessary regulatory and shareholder approvals. The next major milestones are the shareholder special meetings on October 29 and obtaining final regulatory approvals. Integration planning is going well, and we continue to expect to close this quarter. We will provide updates throughout the process.

Now a quick overview of the local economy. It's been a challenging year as the state deals with dual headwinds of both higher energy costs and an unusually active storm season. In spite of that, the economy continues to grow, albeit at a slower pace. Statewide unemployment rate was relatively stable at 2.8% for September compared to the national unemployment rate of 4.2% for the same month. Visitor industry continues to be resilient. Total visitor arrivals were up 1.8% compared to last year, primarily due to visitors from the Mainland U.S. and Japan. Year-to-date spending through August was $15.2 billion, up 4.1% for the comparable period in 2025. The housing market remains stable. Median single-family home price on Oahu was $1.1 million in September, down 3.9% from last year. The condo prices remained stable at $523,000, up 2.8% from 2025.

Turning to Slide 3. Our results for the quarter reflect the continued solid performance by the team. Net interest income increased, deposit costs declined, while deposit balances grew, and the margin increased 5 basis points. Net interest income was in line with expectations and noninterest expenses came in below expectations, excluding merger-related costs and a tax settlement expense. The $24.3 million tax settlement expense stemmed from a settlement with the State of California on tax liabilities resulting from our 2016 separation from BNP Paribas. The aforementioned tax settlement also resulted in a $31 million tax benefit in the third quarter. Overall, credit quality remains good, but we did have some noise in our credit metrics this quarter, and Lea will provide more details when she goes over that later.

Turning to Slide 4. The balance sheet remains solid. We continue to be well capitalized with ample liquidity. Balance sheet remains asset sensitive and well positioned to benefit from a higher-for-longer rate scenario. During the quarter, we did not repurchase any shares.

Turning to Slide 5. Total loans declined $115 million in the quarter. Decline was primarily due to unexpected CRE loan payoffs, a slight decline in dealer floor plan balances and runoff in the residential loan portfolio. As an example, we did have one large CRE loan that was paid off unexpectedly being refinanced by a mainland lender that offered very aggressive pricing, and I think that's a reflection of the credit quality of the portfolio as well as demand. Payoffs were more heavily weighted towards the end of the quarter as average balances in Q3 were slightly higher than the previous quarter.

Now I'll turn it over to Jamie.

Thanks, Bob. Turning to Slide 6. Total deposits were up about $50 million, while our total cost of deposits fell by 3 basis points in the third quarter. Increased commercial and public operating deposit balances were partially offset by a decline in retail deposits, and our noninterest-bearing deposit ratio was 32%.

On Slide 7, net interest income was $174.1 million, $3.1 million more than the prior quarter. The increase in NII was driven by the increase in the margin, along with the higher average loan balances in the quarter. The NIM in the third quarter was 3.30%, up 5 basis points linked quarter, with both asset yields and funding costs helping to drive that NIM accretion.

Turning to Slide 8. Noninterest income was $56.1 million, in line with our outlook. Noninterest expense in the third quarter was $160 million. The quarter included $6.7 million of merger-related costs and, as Bob mentioned, also included a $24.3 million expense related to a California tax settlement agreement related to our 2016 IPO. This expense was more than offset by the $31 million tax benefit that we recognized as part of that settlement. Excluding these items, operating expenses were well within our expectations.

And now I'll turn it over to Lea.

Thank you, Jamie. Moving to Slide 9. While we had some noise in the third quarter, the overall loan portfolio remains healthy. Asset quality remains strong, and the portfolios continue to perform within our expectations. Our risk appetite has not changed. We continue to manage our portfolio such that asset quality remains within our risk appetite as demonstrated by historical norms. This slide summarizes some of the drivers behind the changes in some of the key credit measures this quarter.

Third quarter net charge-offs were $21.9 million or 60 basis points of total loans and leases. This was primarily driven by a $12.5 million partial charge-off of our participated loan on an office building located in downtown Seattle. This loan was originated in 2019 and performed well through COVID but has struggled due to the shifting economics associated with the city's contraction in office demand and higher-for-longer interest rates. We believe that this is an isolated situation. Our downtown Seattle office portfolio consists of only one other loan, which continues to perform and is backed by a very strong sponsor with whom we have partnered for many years. Our year-to-date annualized net charge-off rate is 29 basis points.

Criticized assets increased by 72 basis points in the third quarter. This increase was primarily the result of 4 non-office commercial real estate loan downgrades. It is important to note that while the credit review process resulted in these downgrades, we believe that the actual loss content is limited. The bank recorded a $20.3 million provision in the third quarter. The increased provision expense was driven by the office charge-off and the CRE loan downgrades. The allowance for credit losses decreased by $4 million to $164 million with a coverage ratio of 1.14% of total loans and leases.

Nonperforming assets and loans 90 days or more past due were 45 basis points of total loans and leases at the end of the third quarter. This increase was primarily related to operational issues arising out of the recent outsourcing of our residential mortgage servicing as well as the previously mentioned charged-off office loan as the portion that was not charged off was placed on nonaccrual. Since the end of the quarter, 40% of these residential mortgage loans have been brought current, and we are confident that we will be able to resolve the remaining population in good order.

Turning to Slide 10, you can see a summary of our key credit metrics.

And now I'll turn it back over to Bob.

Thank you, Lea. On Slide 11, we have our updated outlook for our key performance drivers. We obviously didn't get the loan growth we expected in the third quarter. So we're reducing our full year loan outlook to 1% to 2% growth, down from 3% to 4% growth. Our asset-sensitive balance sheet continues to benefit from the higher interest rate environment. So we expect NIM in the fourth quarter to be between 3.34% to 3.35%, which increases our full year NIM outlook to 3.26% to 3.27%. Our outlook for noninterest income remains about $220 million for the full year.

Expenses, excluding merger-related costs and tax expense in the third quarter related to that settlement, is expected to come in lower than previously -- than we previously thought, and our full year outlook is now in the $510 million to $515 million range. The effective tax rate should remain unchanged, and we're expecting approximately $25 million in merger-related costs in the fourth quarter.

Now we'd be happy to take your questions.

[Operator Instructions] Our first question for today comes from the line of Andrew Terrell from Stephens.

Maybe if I could just start on the loan growth. It looks like the expectations of, if I'm kind of reading it right, for kind of pretty flat loans, maybe up a little bit in the fourth quarter. Can you just talk us through kind of the pipelines today, opportunities you're seeing for growth out there right now?

Yes, Andrew, Bob answering your question. Yes. No, the pipeline is still there. We still have quite a bit of loans in process. It's really the continuing battle of things getting paid off. So it's really -- that's the balance between a solid pipeline and looking over our shoulder a little bit for things that are unexpected.

Okay. And if I could ask just on the margin. I appreciate the guidance for the fourth quarter. There's, I think, a pretty wide range out there in terms of estimates for 2027 margin right now. Could you just talk to us when you put TriCo in the fold, and I know it may be tough to put a finger on, but can you just talk us through the general expectation of what kind of pro forma margin is? I don't know the best way to slice it, but just trying to tighten up the maybe expectations a little.

Andrew, it's Jamie. I appreciate the question, and I understand why you'd ask it. That's kind of hard for me to answer at the moment for sure. I can speak to our margin. We continue to see the effects of fixed-rate cash flow repricing on our balance sheet. It's about $400 million or so a quarter. And spread in this past quarter was about 170. So we think the spread is maybe 160 to 170 kind of going forward on that. And of course, that depends on Fed rate increases or not.

And just a reminder, we expect, generally speaking, if there's a Fed rate increase in a prior quarter, we would expect a couple of basis points of margin accretion based on that. And then with the fixed rate cash flow repricing and then just general repricing on the balance sheet, we would expect another couple of basis points or so just if rates remain flat. So yes, that's what I got for you today.

And Andrew, this is Bob again. Just a little more color on the loan side. We are seeing a still solid pipeline for CRE. Just to break it down a little bit, the residential continue to run off given the rate outlook, it's going to be difficult to see residential activity really picking up. But we are seeing CRE still being strong. And typically -- we don't know if it's going to come through. But typically, at the end of the year, you do see an increase in dealer floor plan balances. So that if we follow the usual norm, it should be an okay fourth quarter, but we did adjust our guidance to take into account what happened in the third quarter.

And our next question comes from the line of David Feaster from Raymond James.

I just wanted to start on the funding side. You've got a huge advantage being in Hawaii and the kind of the closed-loop nature of that market. Funding costs have continued to come down. I'm just kind of curious, the competitive landscape here as rates are going higher, do you have more funding cost leverage left? Or do you think we're kind of at a trough here?

David, it's Jamie. I think we're kind of at a trough in this quarter. I think this is probably as low as it's going to be, especially given the rate outlook that we've seen. Of course, that can change. Competitive pressures here in Hawaii continue to be muted, let's call it. All the large 4 banks here are -- we're all in the same boat in terms of loans-to-deposit ratio and things like that. So the competition is about kind of what it always has been. So rates up, I think, will kind of drive sort of, let's call it, CD repricing slightly higher because of that. And then we have our normal competition and where we're competitive with each other around client acquisition.

So we're probably at a trough now. I guess the best way to describe it is we think maybe interest-bearing deposit betas somewhere in the 40% ratio in totality, where in total deposit betas will be like 30 or so, some 30 basis points or something like that.

Okay. Terrific. And then, I mean, just looking at TriCo, I mean, they had a pretty solid quarter, right? And I'm just kind of curious as you guys are working together, getting prepared for the closing, still expecting to close by year-end. I guess, as you've got to know their team more, like how is lockups going? How are you preparing for the integration and conversion? Just kind of any updates on -- because I mean, like that, I think, is one of the bigger risks with the deal, right, is just the execution of integrating this and getting that done smoothly. Could you just touch on some of the things that you're working on to prepare for that and make it a smooth transition as possible?

Sure, David, this is Bob. Happy to answer that question. Yes, we're very focused on that. We're working very closely with them. Jamie is actually heading our Integration Management Office. Peter Wiese, their CFO, is heading it on their side. They're working closely on organizing the teams to get ready for post closing, whenever that happens, should be fourth quarter, as we've talked about. So that's happening. We've reached out to a number of their people. The vast majority are staying on with us. There are 1, maybe 2 that are not, and that's not unexpected. But really, we're excited to be working with them. And so far, really working closely together to see how we can get that done.

We totally agree with you. The execution risk is what we're completely focused on, and that's what matters, and that's why we're spending a lot of time on it. Exchanging visits between TriCo to First Hawaiian and First Hawaiian employees going up to TriCo, everybody getting to know each other, really spending the time so that when we do close, we can really hit the ground running to make this work.

Got it. And then maybe just kind of following up on that. When I talk to investors, one of the biggest concerns that they have is, I guess, can you let TriCo be TriCo? Because TriCo -- as we talked about, this is a merger of 2 really good banks, right? And TriCo is performing very well. How do you think about letting -- just the integration as -- 2 separate banks run in 2 separate markets. Kind of how do you think about letting them do what they do versus what are you going to bring in-house and maybe change some of what they do? I'm just kind of curious, how do you think about that whole concept?

Yes. Rick and I have spent a lot of time talking about that. It is the most important thing to get right, so to speak. Of course, you need to do the core conversion, you need to do all those other things. But the really long-term value comes from letting TriCo be TriCo and us supporting them with their customers and in their markets. And if there's things we can learn from them, we will. If there are things they can learn from us, I'm sure they're open to that. I know they are because we've talked about it. So execution will prove that, and we just need to get through that, but that is a top priority for both Rick and myself and both sets of management teams as well. It's not just the 2 folks at the top. It's really both sets of management teams thinking and working the same way.

And our next question comes from the line of Anthony Elian from JPMorgan.

Slide 6, you call out -- you saw some nice growth in commercial deposits from 2Q. Can you give us some more color on what drove that and how you're thinking about commercial deposit and overall deposit growth going forward?

Yes. Tony, it's Jamie. So I would call that sort of normal flows that we saw in the quarter on the commercial side. Same kind of thing on the retail side, some sort of what I'll call like normal outflows. Typically, what we have in the fourth quarter is inflows across most -- across both retail and commercial for sure. Sometimes we see that in public, but that's a little more event-driven. I would say if you look to our past fourth quarter growth guide, those are kind of like where we usually come in, in the fourth quarter. I hesitate -- I kind of always say this, we hesitate to call it seasonal because we're not sure what really drives it. It just seems to happen for us in the fourth quarter every year. So we would expect some deposit growth in the quarter.

And then my follow-up on credit. Can you give us some more color on other office or CRE loans you may be taking a closer look at, your level of confidence that 3Q is just a one-off quarter in terms of the migration you saw and any additional credit reviews you're doing?

Tony, this is Bob. Maybe I'll start and then hand it off to Lea. I think it maybe is worth taking a second on the office building in Seattle. That's a key market that we've known for a long time. It was a 2-bank deal with a very strong agent, very strong sponsor at the time. It's still 75% occupied by a federal agency that's paying its rent. It's just downtown Seattle, if you haven't been there, is challenged right now. And the office market is severely impacted on that. So that's why we consider that one really a one-off. Having said that, we like to tell all the information we can as soon as we can. So just like we did during COVID, we've been doing deep dives throughout the whole portfolio, and that's what led to some of the regrades. But maybe I'll turn it over to Lea for any other comments she has.

No, I think we all understand that the high interest rates have stayed around a lot longer than we thought. And a lot of these loans were put on in a different interest rate environment. So we've been watching very carefully what's been happening to these properties. And by and large, we're very comfortable. We remain comfortable. When we enter these deals, we know that potentially there could be some downside, and that's why we have to be very careful about who we choose to participate with, who we choose as our sponsors. We don't have very much in Mainland office. It's not one of the portfolios that we are actively expanding. I think the other portions of our portfolios that we advertise as our core, those are still very strong. So -- yes.

Does that answer your question, Tony?

It does.

And our next question comes from the line of Matthew Clark from Piper Sandler.

Just rounding out the deposit cost conversation, do you have the spot rate at the end of September to give us some visibility?

Yes, it was 117 basis points, same as it was for the quarter.

Okay. Great. And then on the $400 million of cash flows on the asset side, can you split that between loans and securities and the related spread pickup between the 2 that we should assume? I know it's going to get a little fuzzy with TriCo, but that would be helpful.

Yes. So roughly, let's call it, $250 million in -- on the loan side and $150 million on the securities side in the, let's call it, 110 basis points spread on the loans and maybe 200 basis points or so on the securities at this moment.

Okay. Great. And then just on the downgrade of the 4 CRE loans, can you just provide a little more color there? It sounds like it's rate-related, but the size of each of those credits, the types of properties and kind of the outlook for each of those credits?

So 3 of the downgrades came out of the national SNC exam. 2 are portfolio loans, which are multifamily properties in multiple areas. They were entered into several years ago in 2020, again, in a different rate environment. And again, not an area that we are -- not a type of asset that we have actively grown in many, many years. We went into it because we were looking for a little more diversification. We don't really have many of those assets left.

But we look closely at the loss content, and we think whatever provisions we've made are appropriate for that, Matt.

Great. And can you remind us of the size of your SNC portfolio and the percentage that's criticized?

So C&I SNC is the credit-only pieces. So the pieces that we bought on the secondary, that's $275 million in outstanding and everything is pass rated, except for we have an $11.6 million unfunded commitment, and that's special mention. But everything else is pass.

Any CRE SNCs?

So we have CRE SNCs. I don't...

We might have to get back to you at that number, Matt.

Yes.

And our next question comes from the line of Janet Lee from TD Cowen.

On the lending front, it looks like C&I was down, most of it from the lower dealer flooring. Is the expectation that C&I can still grow from here but then being partially offset by still elevated CRE payoffs? Or some of your peers have been talking about how the CRE payoffs may moderate a little bit because of higher rates? Or do you see activity declining on either side CRE or C&I in terms of the demand?

Well, Janet, this is Bob. I think that part of that is much of our C&I historically, the volatility is driven by dealer floor plan, and that comes and goes depend on what's happening in the market. Obviously, rates being up, dealers are going to do their best to manage their inventory. A little slower economy should lead to higher floor plan balances as cars don't move as quick. So those are both kind of offsetting. So it's not an easy answer one way or the other. The balances typically do go up in the fourth quarter. We have been onboarding a new client or 2 every quarter or so. So you have some natural growth in the portfolio as well. But it really is hard to predict exactly the rate of flow of what the balances are going to be.

The only thing we do control is getting out there and working with new customers, potential prospects and converting those. And so that's how we take charge of that portfolio. Broadly, in the market for our C&I and unfunded lines, the utilization has been within a few basis points about the same throughout the year. So there might be bumps up or down, but we really haven't seen a sustained growth in working capital borrowings as an example. So does that answer your question?

Yes, it does. Jamie, just a follow-up to your beta comment, 40%-ish on interest-bearing and 30 basis points -- sorry, 30% on total deposit beta. Is that just for legacy First Hawaiian? Or does that include TriCo?

Yes. Good question, Janet. That was just us. That's just legacy First Hawaiian.

How would that change with TriCo, if at all?

Hard to know or say at this point. I think once we finally get closed and we can -- we'll be working together between now and then, we'll figure out how all of our strategies will interact and how this will all work out together. But for now, it's kind of hard to say other than that we think very highly of how TriCo has managed their deposit costs over a very long period of time. And we would imagine that we're both going to continue to manage our costs in the same way that we do today or in very similar ways.

And our next question comes from the line of Andrew Liesch from StoneX.

So I recognize that you didn't buy back any stock this quarter. Looking into next year, deal has closed, capital ratios [indiscernible] still be pretty solid. I mean how are you viewing capital -- or the buyback at that point? I mean your capital ratio should be really strong here after the deal closes.

Yes. So this is Bob. It's certainly something that we've done consistently for a long time ever since we went public, and we did pause it for the transaction. The expectation would be that as we put the 2 organizations together and have the combined balance sheet, we see a lot of accretion, we see a lot of profitability that will add to that. And so together, that would certainly be something we would look to. We still have authorization to do buybacks. So all of that's on the table. It's just a little bit early to decide how much and when.

Got it. And then with the new Basel III rules, still expecting maybe 100 basis points to CET1?

Yes, that would be our expectation around that.

And our next question comes from the line of Meghan Lynch from KBW.

So sort of with TriCo coming on, I was sort of wondering back to loan growth and your outlook. Is there any interest or thoughts about reducing the Mainland participation book? Or like how are you sort of thinking of your mix as you are -- become one with TriCo?

Meghan, this is Bob. That's certainly something we're looking at and talking to the TriCo team about. Obviously, we'd always rather to have a full relationship with whoever we're doing business with and not have just a lending relationship, and that -- the combination of the 2 of us will allow us to build out the relationship with existing customers of ours that are today lending only or lending and cards only. So that will benefit, I think, across the board. And although we're both very liquid, if we have the opportunity to take some of that liquidity and capital and put it towards broader relationships, we'll certainly do that and over time, do less of the credit-only type of lending.

Okay. Awesome. That was helpful. And then on the systems conversion, have you decided which platform the combined bank will use?

We haven't really talked about that yet. We're in discussions. We're continuing to think that second half of next year is when we'll have our conversion. The teams are working very well together right now. Very excited about watching the relationships between TriCo and us develop inside the IMO offices. As Bob mentioned earlier, having people back and forth, getting to know each other a lot better. We feel really good about the way that this partnership is developing, and we still continue to be very excited about the strategic nature of this deal, and we know they feel the same way as well.

And this is Bob. Specific to your question, though, we're not ready to announce that at this point.

All right. Got it. And then just one more. Could you provide a spot NIM?

Yes, it was 3.33% in September.

[Operator Instructions] Our next question comes from the line of Jared Shaw from Barclays.

This is [ John ] on for Jared. I guess maybe building on the last couple of questions. As you've gotten to know TriCo more and more of the frontline employees there, have you thought more about the balance of the combined company between California and Hawaii and any areas of lending that they're focused on that you think are worth investing in post deal close?

Yes, this is Bob. We're certainly having a lot of conversations about that. There's a couple of things that they do that we have not done historically, just lack of availability. One is oil and gas and the other is more agriculture and agriculture-related lending. They do a great job in those spaces, and we're certainly going to support them if there's opportunity to grow there, that we would certainly look to grow in that. A couple of things that we do that maybe we can take over there and see if the opportunity exists. We know the hospitality business very, very well. And again, that's going to be some of that cross-fertilization between the 2 teams to see how we can learn off each other, lean in and grow the combined bank.

Okay. Great. And then I guess leading into the deal close and after, I guess, are there any deposit promos or anything you're doing on the deposit side to make sure you retain those balances over the next like 6 to 12 months?

Well, we will be looking at all of that stuff over time. I think maybe the right way to think about it is there won't -- there's no branch overlap. So no branch closures. If you're a California customer of TriCo, you're going to continue to walk into the same branch you always walked into, with the same people and your same favorite teller that you always got to talk to. So there's -- that sort of disruption would be very much minimized. And the disruption will come around the time of say, probably conversion. So we've got some time to think about that, but we will be very, very focused on retaining customers to the best of our abilities, obviously, in California and here in Hawaii, like we always do. I think customer retention is something we always think about, and we'll continue to think about that in the next phase here.

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.

Thank you. 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.

Thank you for standing by, and welcome to the First Hawaiian, Inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions] 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 1 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 GAAP 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, I would like to start with my excitement about our recently announced deal with TriCo Bancshares, and I'm looking forward to working with the TriCo team to build a leading Pacific banking franchise.

Starting with the local economy. Statewide unemployment 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 remains 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 2. 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 3. 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 4. Total loans grew $137 million in the quarter or about 3.6% on an annualized basis. Growth was led by C&I and CRE loans, partially offset by payoffs in the construction portfolio and lower residential loans as payoffs exceeded production. The $98 million increase in C&I 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 5. Our total cost of deposits fell by 2 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 noninterest-bearing deposit ratio was 32%.

On Slide 6, net interest income was $171 million, $3.5 million more than the prior quarter. The NIM in the second quarter was 3.25%, up 6 basis points from the primary -- excuse me, 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 7. Noninterest income was $60.3 million, primarily due to higher BOLI income, an excise tax refund and higher swap fees. Noninterest 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 on integration. And now I'll turn that over to Lea.

Thank you, Jamie. Moving to Slide 8. 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, Lea. Going to Slide 9, 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 noninterest income remains unchanged at about $220 million for the year. And finally, we expect reported expenses to be between $515 million 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 Bancshares, which is expected to close near the end of the year. Given that we recently announced the transaction, we don't have any new information at this time besides what we presented on our July 23 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.

And our first question for today comes from the line of Kelly Motta from KBW.

Maybe to kick it off on what you're seeing on the deposit side. The decline in 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 shape up here as we look to the back half of the year?

Yes, Kelly, thanks. it's Jamie. 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 not about loss of relationships or anything. And the time deposits related to those were kind of just -- 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 declined 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, we see that a lot on the commercial side where balances kind of build through the third and fourth quarter.

So yes, I think from a deposit perspective, we're happy with where we're at. The teams are doing a great job out there getting involved with their customers and retaining them. And this is not -- none of these declines were like losses of customers or anything like that. I think it was just more flows 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. Hawaii has historically been structurally just more rational market. So wondering if you could offer any color both on loan pricing and deposit pricing as to how those are coming in and what you expect here with the Fed on hold or potentially get a hike here?

Yes. We are seeing the same type of competition that we've always seen. And so as -- you described it as rational, that works for me. I think that there hasn't really been any change in that. But with the Fed on hold and maybe looking higher, there's a decent chance that we're kind of at the bottom in terms of deposit cost 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. It was -- 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?

Kelly, this is Bob. We still see a very robust pipeline in both C&I and CRE. The CRE is, again, mostly construction and some of that turns into permanent. For the C&I, we're really seeing strength in the dealer side. So not only our 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 to slow given the rate environment. So we probably won't see much in residential.

And our next question comes from the line of Anthony Elian from JPMorgan.

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'd 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. So as we've described a number of times, roughly $400 million a quarter. We think that, that spread in Q2 was about 140 basis points on the roll-on, roll-off. And we think somewhere in the neighborhood of 140 basis points to 150 basis points is depending on the mix of those cash flows that come off the balance sheet. We think that will continue to play out for that -- 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?

Tony, this is Bob. 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 is unlikely.

And our next question comes from the line of Andrew Terrell from Stephens.

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?

Yes. A couple of things, Andrew. We're going to continue to hire people. We want to make sure we're continue to keep our loan pipelines robust. We want to make sure we have folks out there to -- 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 were -- 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'll see it in -- 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 the -- which meeting do you have the hike in the guidance? And are you able 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 that square -- square our models with the guide?

Yes. So I think the right way to think about your last question there is that we have $6 billion or so of assets that will reprice immediately upon an increase based on SOFR roughly. And then we have $3.5 billion to $4 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. Just trying to -- which part of the -- which Fed meeting did you have in the guide?

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

And our next question comes from the line of Jared Shaw from Barclays.

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. I mean is that -- what's sort of driving do you think the increased traffic from there?

Yes. I don't have a precise answer, but just talking to people in the industry, you're just seeing the 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 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 it's difficult. JPY 160-plus exchange rate is not easy for them.

Yes. Okay. 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 into BOLI?

Yes. 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 BOLI 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 may change to reflect the bigger presence in the Mainland? And going forward, I guess, how long -- 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 3 members of their team joining our senior management team. Rick Smith, Dan Bailey and Peter Wiese. And as far as my time, I've been on the Federal Advisory Council now for 3 years. I'll be rolling off. So that's 4 to 6 trips a year to the West Coast, to the East Coast. So those trips will probably be redirected to California, but it will be pretty much the same as it is now, I would think.

And our next question comes from the line of Tim Mitchell from Raymond James.

This is Tim on for David. Just one question on the deal. So how has reception been from the TriCo bankers and clients since you guys announced the deal? And kind of what has 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 -- maybe more independently than we see in most bank mergers, just kind of given the unique nature of the transaction?

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

Yes. We're still doing the outreach, and 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 of weeks from now to meet many of their employees I haven't already met, and I'm looking forward to doing that.

And our next question comes from the line of Andrew Liesch from StoneX Group.

Just to put a fine point on the fee income guide. Does this imply like a step down towards like $54 million or $53 million for the next 2 quarters?

I think that's -- so we always struggle with this one, Andrew, right? So 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 like 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 -- onetime 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 will be sometimes 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. 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. I guess has that started to rebuild with deposits coming back in? Just trying to get a sense on what average earning assets should shake out for the third quarter.

Yes. 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 like cash, right? We still expect to see some pretty good loan growth in the back half of the year. So probably we'll run the cash balances at about this $1 billion level.

And our next question comes from the line of Matthew Clark from Piper Sandler.

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

It was 1.21%.

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 kind of still working through that, but would love to hear where you expect a bulk of that to come from.

Yes. 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.

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.

Good day, and thank you for standing by. Welcome to the First Hawaiian, Inc. Q1 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Kevin Haseyama, Investor Relations Manager.

Thank you, Josh, and thank you, everyone, for joining us as we review our financial results for the first 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 1 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 GAAP measurements.

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

Thank you, everyone, for joining us today. I want to start by sharing our support for the communities impacted by the recent flooding in Hawaii from the Kona Low storms and Typhoon Sinlaku and Guam and Saipan. It's really important for us to support our communities, and we are actively providing relief and support to help our customers and those affected in the relative communities.

Moving on to an outlook. The statewide unemployment rate remained relatively stable at 2.2% in January. That compares to the national rate at 4.3% for the same month. Through February, total visitor arrivals were up 7.1% compared to last year, primarily due to more visitors from the U.S. Mainland and Japan. Year-to-date spending through February was $4.2 billion, up 14.8% compared to 2025 levels for the same period.

At this point, it's too soon to know how tourism and the local economy might be impacted by the recent global events. The housing market remains stable with the median single-family home sales price on Oahu in March at $1.2 million, up 3.4% from the prior year. And the median condo sales price on Oahu in March was $510,000, up 2% from the prior year.

Turning to Slide 2. We had a strong start to the year. Loans and deposits grew, credit quality remained solid, and we remained well capitalized. Our return on average tangible assets of 1.2% and return on average tangible equity of 15.3% for the first quarter. The effective tax rate for the first quarter was 22.5%.

Turning to Slide 3. The balance sheet remains solid as we continue to be well capitalized with ample liquidity. We remain asset sensitive and well positioned to benefit from a higher for longer rate scenario. During the quarter, we repurchased about 1.3 million shares at a cost of $32 million.

Turning to Slide 4. Total loans grew over $128 million in the quarter, up 3.6% on an annualized basis. We had good growth in CRE and C&I loans, partially offset by runoff in residential loan portfolio and payoffs in the construction loan portfolio. Some of the growth in the CRE portfolio and decline in the construction portfolio were due to completed construction projects converting to permanent financing.

Now I'll turn it over to Jamie.

Thanks, Bob. Turning to Slide 5. We delivered solid deposit momentum in the quarter with total deposits increasing by $262 million, driven primarily by growth in public operating balances. Retail and commercial deposits were modestly higher and importantly, did not experience the typical seasonal outflows we have seen at the start of prior years, which we view as a positive signal. Public deposits increased $244 million, reflecting higher operating account balances. We continue to see meaningful improvement in funding costs with the total cost of deposits declining 7 basis points to 1.22%.

Our noninterest-bearing deposit ratio remained healthy at 31%, reinforcing the strength and stability of our core funding base.

On Slide 6, net interest income for the quarter was $167.5 million, down $2.8 million from the prior quarter. Net interest margin was 3.19%, a decline of 2 basis points sequentially. This reflects the full quarter impact of the December rate cut. As we look ahead, we expect the balance sheet repricing story to continue throughout the year.

Turning to Slide 7. Noninterest income totaled $52.8 million for the quarter. The decline from last quarter was primarily attributed to lower BOLI income and swap fee activity, which we view as timing related rather than structural.

Noninterest expense was $127.9 million, and there were no material unusual or nonrecurring items in the quarter. Our expense profile remains well controlled and aligned with our full year outlook.

With that, I'll turn it over to Lea to review our credit performance.

Thank you, Jamie. Moving to Slide 8. The bank continued to maintain its strong credit performance and healthy credit metrics in the first quarter. Credit risk remains low, stable and well within our expectations. Overall, we're not observing any broad signs of weakness across either the consumer or commercial books. Criticized assets decreased by 21 basis points and nonperforming assets and loans 90 days or more past due were 30 basis points of total loans and leases, down 1 basis point from the prior quarter, resulting from a decrease in dealer flooring nonaccruals.

Quarter-to-date net charge-offs were $4.9 million or 14 basis points of average loans and leases, unchanged from the fourth quarter. The bank recorded a $5 million provision in the first quarter. The allowance for credit losses increased by just under $1 million to $169 million with a coverage ratio of 1.17% of total loans and leases. We believe that we are conservatively reserved and ready for a wide range of outcomes.

Thanks, Lea. Turning to Slide 9. We have updated our outlook for key performance drivers. We continue to expect full year loan growth to be in the 3% to 4% range. With the markets now expecting no rate cuts this year, we have revised our full year NIM outlook to be in the 3.22% to 3.23% range. We expect second quarter NIM to be up 2 to 3 basis points from the first quarter.

Our outlook for noninterest income remains about $220 million for the year. And finally, we expect expenses to gradually increase throughout the year, and we continue to forecast full year expenses will be about $520 million.

That concludes our prepared remarks, and now we'd be happy to take your questions.

[Operator Instructions] Our first question comes from Anthony Elian with JPMorgan.

Jamie, on the outlook, the drivers of the 2 to 3 basis point sequential increase in NIM in 2Q, could you help us unpack that a little bit? What's driving that the range for full year moving higher? And is that entirely coming from no rate cuts this year?

The right answer to that is the balance sheet repricing story that we've had and seen for the last year or two. So again, just to remind everybody, we have about $400 million of fixed rate cash flows that come off every quarter that get repriced at about a 155 basis point spread higher on a weighted average basis between loans and securities.

And so Tony, that's really the driver as we go forward, right? So we still are an asset-sensitive balance sheet. So we will see a decline in NIM if there is a rate cut in any given quarter, but then the balance sheet repricing dynamics after that will sort of drive the NIM higher as we go forward.

And then on expense, so you reiterated the outlook of $520 million for the full year, but I think 1Q came in a little bit lower than what we were expecting, which would imply a pretty good pickup over the course of the year. Is that the right way to think about it? And what are the areas driving the increase in expense?

Yes. I mean it's going to be kind of broad-based, Tony, in terms of the areas. Hopefully, we'll get some more salary expense in there, as we've talked about, we're looking to hire folks -- talented folks to come over and drive revenues for us. So hopefully, that's where we'll see much of that pickup. But generally broad-based, and I think you are thinking about it correctly in terms of a little pickup and a ramp as we get throughout the year.

Our next question comes from Jared Shaw with Barclays.

When you look at the growth, C&I growth has been pretty good. Any specific drivers sort of underpinning that? And can you update us on your appetite for Mainland expansion? Any of the hires, Jamie, that you're talking about, should we think are coming maybe off island?

Yes, Jared, let me -- this is Bob. Let me start with the loan outlook. Really, the $71 million in C&I growth for the quarter, about $24 million of that was dealer floor plan and the rest were draws on existing lines of credit, both local companies and mainland companies. So it was really pretty broad-based. Good growth in dealer flooring, which we appreciate. So we look at that for the rest of the year as being an opportunity along with commercial real estate to continue to grow.

On the hiring, yes, we're looking for people all over. Of course, we would strongly prefer to hire here locally. But if we are unable to do so, depending on that, we would look to the Mainland.

On the floor planning, are you seeing utilization get back to more normal levels? I know it was pretty low for a while. Or is that growth coming from expanding the network?

We added a new dealer relationship during the quarter, but that wasn't all of it. I think it was a little bit of utilization. So a mix of both.

Okay. And then maybe separately, the securities yields are still pretty low. And with the capital -- the extra capital you have, would you consider sort of just putting on more of a classical leverage play here or utilize some of the extra deposit growth on securities and sort of prefund some of that cash flow that's going to be coming off? Or should we really just think that you're going to be reinvesting cash flows as they happen?

Yes, Jared, I think the answer to that is the latter piece of that. We're just going to be reinvesting cash flows as they come off. No plans to do any sort of restructuring or anything at the moment. And again, at the moment, no plans to expand the size of the securities portfolio either. So for now, it's just going to be that just cash flows coming off and we'll reinvest them.

Our next question comes from David Feaster with Raymond James.

I wanted to touch on maybe the competitive side. You kind of got a unique perspective. Just kind of curious maybe if you could touch on the competitive dynamics, both comparing and contrasting the Mainland versus Hawaii. Are you starting to see competition shift from just pricing to more pushing on structures and standards? Just kind of curious what you're seeing on that front.

Yes, David, this is Bob. Maybe I'll start off on that. the competitive nature, we really haven't seen -- it's always been a little bit more competitive -- put it this way, cyclically competitive on pricing. So now we're getting a little bit more competitive on price, both primarily on the Mainland, but a little bit here. It's always been a bit more competitive on price in Hawaii, given the various banks' low loan-to-deposit ratios. Everybody's got liquidity they're looking to put to work here in Hawaii. So that's always been an issue here.

We are seeing it kind of cycle down slightly in our Mainland markets. A little bit of that is, say, multifamily construction was higher on a spread 1.5 years ago than it is today. So I think that kind of speaks to that. The other thing we're seeing are the larger banks are taking bigger pieces of deals. And so there's less available. So there is a little bit more competition for deals themselves as some of the larger banks are increasing their hold levels. Does that address your question?

Yes. No, that's helpful. And then I appreciate -- you guys reiterated the fee income guide. I was just hoping you could walk through some of the business lines and kind of some of the underlying trends and some of the puts and takes that you're seeing there.

Maybe I'll start on the wealth side. We're continuing to see really good interactions between our customers and our wealth advisers. So that business has continued to grow year after year for many years now. And so I think that's been a nice opportunity. The fees associated with our credit card business have been pretty stable. There's movement quarter-to-quarter, a little stronger in Q4, a little less in Q1. But that's pretty standard as far as what we would expect in that business. Jamie, anything you would add to that?

Yes. I guess the only thing to add is there's a portion of our BOLI that is market-driven. And so that can be somewhat volatile, and we saw that a little bit here at the end of the first quarter with the market kind of underperforming, let's call it. And so we took less fees related to that.

And then swap fee income in our loan book can kind of also be sort of cyclical, just depending on what kind of lending we're doing in a particular quarter and what our customers want. So I think combine those couple of things with all of what Bob mentioned, I think, is where you get to on the fee guide.

Okay. And then maybe just touching on the funding side. I mean you've had a lot of success. This quarter was great, a lot of benefit from public funds this quarter. I was hoping you could touch on maybe some competition on the funding side and just how you think about gaining share and driving market share growth on the deposit front? And what's going to be the key drivers of that? Do you see more opportunity on the commercial or the retail side? Just kind of curious some of the funding trends you're seeing.

Yes. For that and most of the -- well, virtually all of our deposits are here in market in our [indiscernible] is just day in, day out getting out there and meeting with customers and prospects and trying to show them the different products and services we offer and see how we can make that work for them. So it really is a ground game, I would call it, more than anything else. There's no -- there's not a lot of magic to it where it would change quarter-over-quarter. But certainly, our folks are out there and trying to meet with customers, both on the consumer, small business and larger business side.

Our next question comes from Kelly Motta with KBW.

Maybe on capital, really solid here. I apologize if it was asked already, but have you guys done any work on the proposed capital changes and the potential impact to your ratios here?

Yes. We've done a little bit of work on it. We think that it could possibly add maybe like 1% CET1 to our capital levels. But again, proposed and we're not going to change our capital allocation strategy or our plans based on that. But if it goes through the way it is, we think it's about a 1% add.

Got it. That's really helpful. And then otherwise, I mean, you've been very consistent here with the share repurchase. It seems like that's probably even with the growth having picked up, probably a good expectation. But I wanted to hear your thoughts on how you're thinking about that.

Yes, Kelly, I think you summarized it pretty well for us. Maybe we can hire you to do that again. Yes. No, I think you nailed it, yes.

Yes. So we have the $200 million allocation, and we used $34 million in Q1. And so it's not set for -- timing-wise, it's not set for a particular year. And so we're just looking at what makes sense going forward.

Yes. And just to be clear, the amount of the authorization was $250 million.

Got it. That's -- that's really helpful. And then otherwise, I mean, credit looks [indiscernible] anything to know any -- anything you're watching or pulling away from?

I don't think anything we're pulling away from just given the uncertainty in the environment, the volatility, the recent natural disaster events that have happened in our footprint. We're just watching certain portfolios very carefully, but we haven't really seen anything so far.

Our next question comes from Andrew Terrell with Stephens.

I wanted to go back a little bit on the margin. I hear you on the near-term guidance and kind of full year guide. The majority of what underpins that is some of the fixed repricing. Can you just talk about, is there any level of benefit you'd expect or work to do on the deposit base as you move throughout the year? Just absent rate cuts, do you feel like you've kind of fully exhausted the ability to reprice lower? Any other tweaks you could look to make on the funding side?

So there's still some ability to work on that, in particular, with CD pricing, kind of what sort of rolls over every quarter. We've seen a pretty significant decline in sort of the competitive environment around those from, say, a year or so ago. So we could still see some benefit from that perspective.

The March deposit number, Andrew, was [ 1.20% ] so a little bit lower than what we had in the quarter. So maybe there's still like you can see the sort of dynamics of the CD repricing around that. So I wouldn't expect it to go too much lower with rates staying the same in totality in terms of deposit costs. But the guide for the year on the NIM is inclusive of any sort of rate actions we might take on the deposit side as well as the repricing story.

Yes. Yes. Okay. And then last quarter, you talked about -- I think you gave -- I forget the specific dollar amount of the fixed cash flows for the year, but roll-off yield 4%, new asset yield 5.5%. There's obviously been a lot of rate volatility throughout the first quarter and I'm not asking for a total crystal ball, but do you feel like 5.5% blended new asset yield is still kind of a fair assumption based on what you're seeing for loan origination yields and where you're buying securities at today?

Yes, I think so. I mean it's going to depend quarter-to-quarter based on what type of lending activity we do in any given quarter, right? If it's -- if activity is primarily in lower spread things, then it might be a little bit lower than that. But for the year, I think $150 million is a good number and that $400 million per quarter of cash flows coming off and repricing still is a good number.

Got it. Okay. And if I could ask just one last one. I think we started talking more about Mainland M&A interest last year, some of you guys. And I just wondered if anything's changed there. Can you maybe rehash any willingness or kind of appetite or your view of the M&A market as it stands right now?

Yes. This is Bob. No updates. We're still talking to people to see if there's things that might make sense, but we haven't really changed our profile or what we're looking for. We're really looking for a good fit, first and foremost, and then take it from there.

Our next question comes from Matthew Clark with Piper Sandler.

Just a couple of follow-ups here on the cash flows on the asset side. Can you -- I know it's $400 million a quarter, but can you give us a split between loans and securities on average and those -- we can guesstimate the rates, but I'm just trying to forecast those individual yields.

Yes. Yes. So I guess the right way to think about it is for the year, we expected $600 million of cash flows coming off the securities portfolio. So that leaves $1 billion in cash flows from the loans. And that spread of 150 that we talked about is inclusive of the roll-off and roll-on yields. So in the quarter, we added in the securities portfolio in the 4.90% range of yield and a little bit higher than that, 6.20% or so on our loan yields. So yes, that's -- I think that gives you what you need there, Matthew.

Okay. Great. And then just to drill into the CDs, same kind of question. How much do you have coming due here in 2Q and roll-off and roll-on rates?

Yes. So Q2, we're going to have about $1 billion come due. That's currently somewhere in the neighborhood of like a [ 290 ] or so CD rate. And then I think that will roll over something in like a [ 250 ] weighted average range or something like that.

Hard to tell for sure because some folks roll into promos and some folks roll into rack rate. So don't know for sure around that. But again, right, I think if you back into the margin guidance that we've given, you can kind of get your way what you need on the CD side of things.

Yes. Okay. Yes, I'm kind of getting to a NIM that's a little bit above what you're forecasting for 2Q. So thank you.

Thank you. I would now like to turn the call back over to Kevin Haseyama for any closing 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. This concludes the conference. Thank you for your participation. You may now disconnect.

Hello, and welcome to the 2026 First Hawaiian, Inc. Annual Meeting of Stockholders. Please note that this meeting is being recorded. [Operator Instructions]

[Foreign Language] and good morning, everyone. I am Bob Harrison, Chairman, President and CEO of First Hawaiian, Inc. It's my pleasure to welcome you, and thank you for attending our Annual Meeting of Stockholders. The meeting is now called to order.

Each of you should have already have received a copy of the proxy materials and/or a notice of availability of proxy materials. Copy of our proxy materials are available online at http://proxy.fhb.com and a link to our proxy materials is on the top right of your screen on this virtual annual meeting site.

The agenda and rules of conduct for today's meeting are available and can be viewed at our virtual meeting site by clicking on the documents tab at the top right of your screen. Should you have any questions that you would like to ask or comments that you would like to make? Or should you have any questions for the company's auditors? You may submit those questions or comments at any time by clicking on the Questions box to the right of your screen, typing your question or comment into the text box and then click in to submit button.

Please note that in the interest of all stockholders, we will only address those questions that are relevant to the business of this meeting.

I've received an affidavit from the Secretary that the proxy materials and or notice of availability of proxy materials were mailed on or about March 12, 2026 to each stockholder of record at the close of business on February 27, 2026. I therefore declare that the annual meeting has been duly called.

The Board of Directors previously appointed Marianela Patterson of the Equiniti Trust Company the company's transfer agent to serve as Inspector of Election. Marianela has taken a oath to faithfully and impartially perform her duty. At least the majority of the outstanding shares of common stock entitled to vote represented in person or by proxy constitutes a quorum at a meeting of stockholders. The secretary informs me that at least the majority of the outstanding shares of common stock are represented at the meeting in person or by proxy. A quorum is therefore present, and the annual meeting may proceed to transact business. The polls for voting on all matters are now open. If you have not already voted and would like to vote at the annual meeting or if you would like to change your vote, you may click on the link entitled Vote My Shares on the top right of your screen any time.

Rather than take each proposal separately, I will read all the proposals, and then we will entertain questions and have discussions on all the proposals. The first proposal to be considered is the election of 8 officers to serve until the 2027 Annual Meeting of Stockholders. The Board of Directors has nominated Tertia Freas, Michael Fujimoto, James Moffatt, Mark Mugiishi, Kelly Thompson, Vanessa Washington, Scott Wo and myself. Each of the nominees is presently a director of First Hawaiian, Inc. No nominations may be made at this meeting. Information about the principal occupations of the nominees, our service to First Hawaiian, Inc and First Hawaiian Bank and other relevant information is contained in our proxy statement.

Second vote is an advisory vote on the compensation of our named executive officers as disclosed in the proxy statement.

The third and final proposal is the ratification of appointment of Deloitte & Touche LLP to serve as the independent registered public accounting firm for our fiscal year ending December 31, 2026. James Oliver and Dane Maehara representing Deloitte & Touche are here today to answer any questions. It is now time for discussion of this -- on this proposal as well as the 2 prior proposals. In addition, at this time, we will also submit any questions for the Deloitte representatives.

I will now pause for a moment to allow stockholders to submit questions. We'll continue to pause briefly to allow stockholders to submit questions.

Thank you. Mr. Secretary, have any questions been submitted?

None.

None, thank you. We will now vote on the proposals. Please remember that you do not need to vote at this meeting if you have already voted via the Internet, by telephone or by returning your proxy card, unless you want to change your vote. Until the polls close, you may revoke or change your vote on any matter. However, once the polls are closed, no proxies or votes, the revocations or changes will be accepted. If you have not already voted and would like to vote at the annual meeting, you should click on the link entitled Vote My Shares at the top right of your screen. The polls will close in 1 minute. Please submit your votes at this time and we will continue the meeting in 1 minute. We'll continue to pause briefly to give stockholders time to vote.

[Voting]

The polls are now closed. Secretary has provided a preliminary report that shows that Tertia Freas, Michael Fujimoto, James Moffatt, Mark Mugiishi, Kelly Thompson, Vanessa Washington, Scott Wo and I have been elected as directors to serve until the 2027 Annual Meeting of Stockholders. In addition, the preliminary report shows that a majority of the stockholders have voted on an advisory basis in favor of the compensation of our named executive officers as disclosed in the proxy statement and the proposal to ratify the appointment of Deloitte & Touche LLP to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2026, has been approved. I'd like to thank everyone for attending. The meeting is adjourned.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Good day and thank you for standing by. Welcome to the First Hawaiian, Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kevin Haseyama, Investor Relations. Please go ahead.

Thank you, Kevin, and thank you, everyone, for joining us as we review our financial results for the fourth quarter of 2025. With me today are Bob Harrison, Chairman, President and CEO; Jamie Moses, Chief Financial Officer; and Lee 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 1 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 GAAP measurements. And now I'll turn the call over to Bob.

Hello, everyone. Thank you for joining us today. I'll start with some local economic highlights. The state unemployment rate continued to fall and was at 2.2% in November compared to the national unemployment rate of 4.5%. Through November, total visitor arrivals were down 0.2% compared to last year, primarily due to fewer visitors from Canada. Japan remained a bright spot, up 2.8% on a year-to-date basis. However, year-to-date spending through November was $19.6 billion, up about 6% compared to the same period of last year. Housing market remains stable with the median single-family home price on Oahu in December was $1.1 million, up 4.3% from the prior year. The medium condo sales price on a long in December was $512,000, down 5.2% from last year.

Turning to Slide 2. We had another strong quarter. Our NIM expanded Net interest income grew, expenses were well contained and credit quality remained strong. Our profitability measures remained solid with return on average tangible equity of 15.8% in the fourth quarter and 16.3% for the full year. The effective tax rate in the fourth quarter was 24.8%. This was due to the reversal of our previously cure tax benefit. We expect the effective tax rate to return to about 23.2% going forward. Turning to Slide 3. Balance sheet remains solid. We continue to be well capitalized with ample liquidity. We had good growth in C&I loans as well as retail and commercial deposits. During February, we repurchased about 1 million shares, which used the remaining $26 million of our $100 million purchase authorization for 2025. Our new stock repurchase authorization is for $250 million. And unlike prior authorization, the current authorization is not for a specific time frame.

Turning to Slide 4. Total loans grew $183 million in the quarter or 5.2% on an annualized basis. We had good growth in C&I loans primarily due to draws on existing lines as well as the addition of a new auto dealer customer. The CRE growth and decline in construction was primarily due to a couple of construction deals that were converted from construction to CRE. Outside of those conversions, balances in both portfolios were relatively flat. Now I'll turn it over to Jamie.

Thanks, Bob. Turning to Slide 5. We saw good growth in retail and commercial deposits, while a lot of the public operating deposits that came in during the third quarter flowed out in the fourth quarter as we expected. Retail and commercial deposits increased $233 million, while public deposits declined by $447 million. That dynamic resulted in a net increase in deposits of $214 million in the fourth quarter. The total cost of deposits fell by 9 basis points to 1.29% and our noninterest-bearing deposit ratio was 32%. On Slide 6, Net interest income was $170.3 million, $1 million higher than the prior quarter. The NIM in the fourth quarter was 3.21%, up 2 basis points compared to the prior quarter. The increase in the margin was primarily driven by lower deposit costs and the full quarter benefit of the borrowing that matured in September, partially offset by lower loan yields. The exit NIM for the month of December was 3.21%.

Turning to Slide 7. Noninterest income was $55.6 million. Noninterest expense in the fourth quarter was $125.1 million. And now I'll turn it over to Lea.

Thank you, Jamie. Moving to Slide 8. The bank continues to maintain its strong credit performance and healthy credit metrics. Credit risk remains low, stable and well within our expectations. Overall, we're not observing any broad signs of weakness across either the consumer or commercial books. Classified assets decreased by 7 basis points, while special mention assets increased by 16 basis points. Quarter-to-date net charge-offs were $5 million or 14 basis points of total loans and leases. Year-to-date net charge-offs were $16.3 million. Our annual net charge-off rate was 11 basis points, unchanged from the third quarter. Nonperforming assets and 90-day past due loans were 31 basis points of total loans and leases at the end of the fourth quarter, up 5 basis points from the prior quarter, primarily driven by a single relationship.

Moving to Slide 9, we show our fourth quarter allowance for credit losses broken out by disclosure segments. The bank recorded a $7.7 million provision in the fourth quarter. The asset ACL increased by $3.2 million to $168.5 million with coverage increasing to 118 basis points of total loans and leases. We believe that we continue to be conservatively reserved and ready for a wide range of outcomes.

And now I'll turn it back over to Bob.

Thanks, Lea. Turning to Slide 10. We have summarized our current full year 2026 outlook for some of our key earnings drivers. Starting with loans, we expect full year loan growth to be 3% to 4% range. The growth will be driven primarily by CRE and C&I loans. We anticipate that the full year NIM will be in the 3.16% to 3.18% range. We continue to expect tailwinds from fixed asset repricing and with additional Fed rate cuts and a decreasing deposit beta will remain headwinds. We expect noninterest income to be stable and to come in at about $220 million for the year. And finally, we expect expenses to be about $520 million in 2026.

That concludes our prepared remarks and now we'll be happy to take your questions.

[Operator Instructions] Our first question comes from David Feaster with Raymond James.

I wanted to start on the loan growth. It was really encouraging to see some of the trends that you guys had and especially to see the C&I growth. I was hoping to maybe just get some color on, I guess, first of all, how pipelines are shaping up? And how much of the growth in C&I was increasing utilization versus new relationship growth? Just kind of some of the underlying trends you're seeing there. And then just some commentary too, on mainland versus Hawaii as well.

Sure. Great question. Thanks, David. This is Bob. So on the loan growth, when we looked at it, it really was more -- as far as what happened in the quarter. It wasn't quite what we thought it would be. We had some payoffs in the CRE portfolio that we anticipated to come in later, which is why we didn't quite hit the number we had talked about on the third quarter call. But having said that, it really was pretty broad-based in local, primarily in some mainland draws underlines and then a new dealer relationship helped out as well. We'll see more of that, I think, in the quarters to come. So as we look forward, we're really looking towards as far as the pipeline of multifamily is still there. We're very, very busy and. And of course, when you book those deals, it will take a while for them to fund, we're still a little bit outrunning the payoffs that happened in that gap period we talked about on the last call of SVB kind of slowing down production for a while a couple of years ago. So that's behind us mostly in the first half of the year, and we expect the second half of the year to start to see more normalized growth in the CRE on the Mainland. We are still seeing activity here in Hawaii, a good amount of the activity this past quarter in Q4 was Hawaii-based but not exclusively. Does that cover what you're thinking about?

That's extremely helpful. And could you maybe talk about the -- payoffs and paydowns have been a real headwind in the industry. Could you maybe touch on what led to maybe some of the payoffs and paydowns coming sooner than expected? And as you think about your outlook that you guys have laid out for loan growth, does that contemplate a continuation of payoffs and pay downs? Or is that a risk that you all are concerned about? Just kind of curious your thoughts on that side.

Sure. I think there's 2 pieces to that. The first piece are the payoffs coming sooner than we expected. They have been a bit this year. I think all the permanent lenders are just as hungry for assets as the banks are. And so they're coming in maybe a little bit earlier than normal, not like we saw a few years ago when they were coming in before properties were even completed construction. But maybe before full stabilization, you're seeing permanent lenders come in on some of those multifamily projects. So that's kind of a men up the calendar a bit but not really a big difference. The paydowns in the industry, as we talked about before, I think we're in that belly of the part of the curve that -- where deals didn't get done a couple of years ago, after the concerns about liquidity with SVB, First Republic, Signature, et cetera. So we think that should be kind of burning through in the first half of this year and the back half of the year, that should give but there is still a high desire for assets out there and a good quality assets, which are the ones we like to fund, people are looking for that.

Okay. And then maybe just shifting to the side of the balance sheet. I mean core deposit for instance has been really good. It's not -- you already have a low cost of deposits and you're continuing to take it down further, A lot of the NIM expansion that we've seen has come from reduction in funding costs. I know your margin guide has, I think, 2 cuts in there. As you think about margin expansion going forward, is on the funding cost side and the back producing really the tailwind there. And just how is the to reducing deposit costs thus far. Like have you seen any attrition or much pushback as you work through that?

So Dave, you kind of cut out there a little bit, but I'm going to answer the question as I think you asked it. And then you can let me know if I missed something for you. I think the margin guide reflects both an ability to continue to cut deposit rates when the Fed cuts as well as that fixed asset repricing that we continue to talk about, and we've seen those trends over time. We think the beta is probably going to be a little bit lower go forward than where we were before. So fourth quarter interest-bearing deposit beta around 35%. And we would anticipate with 2 rate cuts that the interest-bearing deposit beta on that somewhere between 30% and 35%. So less than where we've been, but still pretty healthy for now at least. And then on the fixed asset repricing side, we kind of summarize that for you. So inclusive of all of the paydowns in the securities portfolio as well as fixed rate cash flows coming out of the loan portfolio. We think that's about $400 million a quarter or so with about 150 basis point repricing accretion on that. So we -- all of those things suppose a particular set of loan growth and obviously the way that the pace and timing of Fed rate cuts will impact that as well. But yes, that's kind of where we're at on the NIM.

Our next question comes from Andrew Terrell with Stephens.

Just to start and just to clarify, the $385 million of fixed cash flows, that's on a quarterly basis, so kind of checks with the -- I think we've talked about like $1.5 billion in the past on an annual basis?

Yes. That was the fourth quarter to be very specific, Andrew, Yes.

We did put that in the deck. Clarify that was in the quarter and not some of the annual assumptions we had in there in the rest of that page. Thank you for clarifying.

Yes. No worries. Could you maybe help me just bifurcating that out a little bit? And I think we have a good sense of relative dollars on other side that you've given. But just -- I want to talk about maybe spread competition you're seeing for new assets today. How much in marginal pickup would you expect from securities cash flow versus where loans are running off versus where you're kind of able to reprice that today? Just we've heard a lot on competition recently from other banks, and I'm curious if you're seeing the same thing on new loan growth

Yes, I would say that there is some spread competition. We've definitely seen that. We still think it's 180, 200 basis points on the securities portfolio, and that's that's pretty fixed. That's pretty well known. And so again, that's about $600 million for the next year and then about $1 billion on the loan portfolio. So a little bit less than that, maybe 100 basis points, somewhere like 80, 100 basis points pickup on the loans versus the $200 million or so on the securities.

Yes. Okay. And then on the -- just on the full year loan growth guide of 3% to 4%. It sounds like you might expect some payoffs maybe in the first part of the year, but then better on the second half of the year. And I guess the question is, is it fair to think you could start at the low end or even below the guide in terms of loan growth and then it picks up throughout the year? Or should we just think about it as kind of ratable 3% to 4% throughout the year?

Yes. I think it's not so much more payoffs than the first half of the year. I think it's a normal payoff activity. There's just were fewer loans that are going -- that were done 1.5 years, 2 years ago that are going to be funding now. So it's really less of the new production from that multifamily portfolio, and that should be through that back half of the year. So yes, a fair assumption that it should be probably lower in the first half and a pickup in the second half.

Our next question comes from Janet Lee with TD Cowen.

To clarify on your deposit beta expectations for 30% to 35% and after 2 cuts. So I see 40 -- if my calculation is correct I think I see 47% interest-bearing deposit beta for fourth quarter. So starting in the first or second quarter, does that step down at 30% to 35%? Is that the right way to interpret?

Yes. I think that's the right way to interpret it is that the interest-bearing deposit beta is going to step down over time. But we're -- I think we're okay with -- like with the 2 rate cuts, it should be -- it should continue to be close to what we've had in the past.

And that goes to -- we've got a very low deposit cost. So at some point, you just can't keep cutting rates, even though rates are coming down.

Yes, definitely. And for the expenses. You've had, I guess, 2 years of flattish expense growth. It looks like it's going up about 4%, 5%. Is there -- is this just a normal adjacent of expense? Or are you hiring a little more in 2026? Or I mean it's a pretty specific number for the expense guide. How should we think about potentially you beat 520 or coming in above how should we think about your expense trajectory?

Yes. Great question, Janet. Let me kind of back up a little bit and tell you one of the primary reasons why we've been able to hold costs down in the last year or 2 has been we're still going out and trying to hire people. Just to answer that part of your question, it's difficult to find the people we want to hire. So we haven't been able to staff all the people we want. But the reason for our good expense control over the last couple of years has been some of the investments we weighed in the past in technology enabled us to exit higher cost delivery, whatever it was, higher cost ways of doing business as we've brought things in-house.

And so that's really been a huge help for us over the last couple of years as we've terminated expensive vendor relationships and been able to take that in-house. So -- we -- our rate of growth has been increasing over the last couple of years but it's been held down by our ability to reduce costs in other areas so far expense base. So as go forward into 2026, we see that most of that we've captured still be a little bit of it. And we will go back to a little bit more of a normalized expense growth number.

Our next question comes from Kelly Motta with KBW.

On capital return and the buyback, you've been pretty diligent with executing the $100 million you had for 2025. And you noted the 250 doesn't have any time period associated with it. I'm just wondering your appetite for continuing on at a similar pace here and how you're thinking through that versus some other maybe M&A aspects of the capital.

Thanks, Kelly. I think that we have a pretty good appetite to continue the pace that we had set last year. I think there always will be other considerations as well. There will be some -- potentially some opportunism baked into the program that we've set out but we haven't really made any firm commitment, I would say, internally, even around exactly the pace and timing of the share buyback other than that we recognize we have plenty of capital to do any number of things with, I think that Obviously, organic growth is what we're really looking for. And then the share buyback is a way for us to return some of that capital. So I think it's kind of a combination of all the things that we are looking at and that will determine that sort of pace.

And just to add to Jamie's comments. We've messaged for a couple of years now a 12% CET1 target, and we're certainly well above that at 13 plus. So I think this larger buyback capacity, it's just an acknowledgment of that and it just gives us flexibility to bring it back closer to what we had targeted -- or what we had messaged in the past. .

Our next question comes from Matthew Clark with Piper Sandler.

Can we get the spot rate on deposits at the end of the year?

Spot rate on deposits at the end of the year, 124 in December.

Okay. In December or at the end of December? .

It -- that's December. I'm not sure my calculus is good enough to give you that derivative at the moment.

Okay. Just wondering if it was lower at the end of the year. Okay. And then on the -- on expenses, as sort of -- for the first quarter, can you remind us how the seasonality works, whether or not it's more in the first quarter or second or a combination of both? Just trying to get a sense for the run rate to start the year.

Yes. For the most part, the expenses are pretty flat throughout the year. We do see a pickup a little bit in the first quarter. You can see that in our numbers last year and the year before, and then they kind of declined a little bit from that. But in general, I think we're thinking about it pretty flat at the moment.

Okay. Okay. And then just your updated thoughts on Mainland M&A any discussions you've been having and whether or not things are more active? And maybe just remind us what your ideal target would look like? .

Yes. No, we're -- as Jamie mentioned, our focus is still on growing our core business, but still an option for us to consider for M&A. Some of the things we've talked about in the past, just to reiterate, we'd be looking for a strong management team, will stick around, be good partners with us. obviously, a disciplined lending culture, which is similar to the way we look at the business, strong deposit franchise. And I guess it's a little more touchy feely, but we want it well managed. We're not looking for fixer upper if we were looking to partner with somebody. And just for location, west of the Rockies is more what we're familiar with as an organization and where we've had people on the ground and where we have have a lot of relations already. And as far as size, probably somewhere between $2 million and $15 million would be the range.

Our next question comes from Anthony Elian with JPMorgan.

On deposits, Jamie, how are you thinking about balances in 1Q? If I look at your past couple of 1Qs, you typically see a seasonal decline.

Yes. I think that's fair. Again, that's probably something that we should expect in the first quarter. And then in totality, throughout the year, I think we're sort of mostly focused on what we can do with commercial and retail deposits. And so we're expecting kind of low single digits on that for the for the entire year. And then for us, it's tough in totality, the public deposits that we have, the kind of fluctuate, generally speaking, quarter-by-quarter, week by week even. But I think those -- in general, we should probably see some normal like state, like a GSP type increase for those things. So I think that's how we're thinking about balances.

Okay. And then on the full year NIM guide of $3.16 to $3.18, so that's a pretty tight range. Do you expect each quarter to be within that range this year?

Probably -- that's maybe a little -- taken a little too far. But I think it's going to -- it really will depend on the amount of rate cuts that we see and the timing of those and whether they're 25, or whether they're 50. So this contemplate sort of a May, September version of that. And so I guess that's how I'd answer it.

Any direction for the 1Q NIM, specifically relative to the $321 million you printed for 4Q?

Yes. I think we think it's going to come down a little bit. We had 2 cuts -- 2 rate cuts in the quarter, obviously, 1 in December. So we think it's probably going to come down a few basis points off of the December number.

Our next question comes from Timur Braziler with Wells Fargo.

Maybe just going back to the loan growth and trying to bifurcate how much of it is expected to come from some of the increased draws on production in years past versus what the opportunity to kind of reengage on the Midland with seemingly some better momentum starting there.

Timur, I'm not sure 100% I understand your question, but there has been -- for our existing lines, it's a little hard to predict with our larger corporate and commercial customers exactly when an opportunity to come up that they need to fund versus their line versus new production. We are seeing while still continued activity here in Hawaii for sure and in Guam, there's just a broader economic base on the West Coast where we operate, and there's a lot of opportunities up there. So we're continuing to pursue new dealer opportunities as well as commercial real estate opportunities on the Mainland U.S., primarily on the West Coast. So I don't have a breakdown for you per se, but I guess that's broadly how we're looking at it.

Okay. And maybe another way of asking that, just if you can kind of frame the opportunity set of -- I think you had mentioned the multifamily production that was booked 12, 18, 24 months ago that is going to start funding up, just how much of an opportunity that's going to be?

Yes. I don't have that number handy, but we can look into that.

Okay. And then during the prepared remarks, you had made a comment that you had a couple of construction deals that were converted to commercial real estate. I'm just wondering, is that pretty normal to have kind of the construction piece of it and then do the permanent financing in-house? Like is that a pretty normal kind of continuation for you guys?

It depends on the sector. For customers kind of within the footprint, that is very normal. For the multifamily construction activity we're doing primarily in the Mainland on the West Coast, but it's not. And so it wasn't those deals. It was really more of our other customers within the footprint. So it really depends on the customer segment, if that's normal or not.

Okay. Got it. And then just last for me. The C&I yields held up really well this quarter. I'm just wondering, is that kind of new production maybe offsetting some of the decline in the variable rate portfolio? Or maybe just kind of talk me through internally, if you were maybe surprised or that was kind of an expected decline within the C&I book because it seemed to hold up pretty well relative to the type of decline we saw during the 2024 rate cutting cycle.

I think a little bit -- well, I'm not -- I don't have a perfect answer for you, but given that the draws were under existing lines, so I think that speaks to why the rate -- the yield didn't change as much in the fourth quarter. I think if you go back to, right, when the pandemic happened, you had a lot of backup lines with very highly rated customers that just had lower pricing at the time. And so when they were drawing that pricing structurally in those agreements was lower than more of our "normal base." -- but I need to do more analysis to make certain of that.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Kevin 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.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.

Thank you for standing by, and welcome to the First Hawaiian, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Kevin Haseyama, Investor Relations Manager. Please go ahead, sir.

Thank you, Jonathan, and thank you, everyone, for joining us as we review our financial results for the third quarter of 2025. With me today are Bob Harrison, Chairman, President and CEO; Jamie Moses, CFO; and Lee 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 our Slide 1 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 GAAP measurements. And now I'll turn the call over to Bob.

Hello, everyone. Thank you, and thanks for joining us today, and I'll start by giving a quick overview of the local economy. The state unemployment rate continued to drift lower and was at 2.7% in August compared to the national unemployment rate of 4.3%. Through August, total visitor arrivals were up 0.7% compared to last year as strength in the U.S. Mainland arrivals more than offset weaknesses in Japanese and Canadian arrivals.

Year-to-date, visitor spending was $4.6 billion, up 4.5% compared to the same period of last year. The housing market remains stable. The median single-family sales price on Oahu was $1.2 million in September, up 3.8% from last year. The median condo sales price on Oahu for September was $509,000, down 1.7% from the prior year.

Before we move on, I wanted to discuss the federal government shutdown, and it's too early to measure the full impact on the Hawaii economy, but with a large civilian federal workforce, we expect that many families will begin to face financial hardship. Through the Hawaii Bankers Association, all the local banks have asked affected families to contact their local bank to discuss available relief measures.

Turning to Slide 2. We had another strong quarter as net income increased compared to the second quarter. The improvement relative to the prior quarter was driven by higher net interest and noninterest income, partially offset by a higher effective tax rate. As you might recall, our second quarter results included the impact from a change in California tax law, which resulted in a net benefit of $5.1 million last quarter. The effective tax rate in the third quarter returned to a more normalized 23.2%.

Turning to Slide 3. The balance sheet remains solid as we continue to be well capitalized with ample liquidity. We held the investment portfolio relatively flat and loans declined by $223 million. Average deposits were higher during the quarter, and we saw a surge at the end of the quarter due to inflows in public operating accounts, and Jamie will cover this in more detail in a little bit. We also repaid the $250 million FHLB advance that matured in September. And during the quarter, we repurchased about 965,000 shares at a total cost of $24 million. We have $26 million of remaining authorization under the approved 2025 stock repurchase plan.

Turning to Slide 4. Total loans declined by about $223 million in the quarter. The decline was primarily in C&I. Dealer flooring balances fell by $146 million and paydown on lines of credit by several Hawaii corporate borrowers added about $130 million to the decline in the C&I balances. We're seeing strong originations so far in the fourth quarter and expect to end the year about flat to year-end 2024.

Now I'll turn it over to Jamie.

Thanks, Bob. Turning to Slide 5. Total deposits increased about $500 million in the third quarter. Commercial deposits increased $135 million and were partially offset by a $43 million decline in retail deposits in the quarter. The decline in retail deposits seems to be largely due to seasonality, where we have seen a pattern of declining balances in the third quarter, followed by growth in the fourth quarter. Total public deposits increased by $406 million, and all of that growth was in operating accounts. There was no change in the balance of public time deposits. In the fourth quarter, we expect seasonal increases in both retail and commercial deposits, while seeing outflows in public deposits. The total cost of deposits fell by 1 basis point and the ratio of noninterest-bearing deposits to total deposits was a strong 33%.

On Slide 6, net interest income was $169.3 million, $5.7 million higher than the prior quarter. The NIM in the second -- third quarter was 3.19%, up 8 basis points compared to the prior quarter. The increase in the margin was primarily driven by higher asset yields as well as some nonrecurring items such as loan fees. The run rate NIM for the month of September was 3.16%, and we continue to expect positive NIM momentum in the fourth quarter, and our current thinking is that the margin will advance a few basis points from the September NIM. This guidance reflects the impact of our fourth quarter loan and deposit outlook and additional 25 basis point rate cuts in both October and December.

Turning to Slide 7. Noninterest income was $57.1 million in the quarter. Noninterest income benefited from higher BOLI income due to favorable market movements and swap income. We continue to expect the normalized run rate of noninterest income will be about $54 million per quarter. There were no unusual expense items in the third quarter. And based on our year-to-date expenses, we now expect that full year expenses will come in below our most recent outlook of $506 million. And now I'll turn it over to Lee.

Thank you, Jamie. Moving to Slide 8. The bank continued to maintain its strong credit performance and healthy credit metrics in the third quarter. Credit risk remains low, stable and well within our expectations. We are not observing any broad signs of weakness across either the consumer or commercial books. Classified assets increased $30.1 million due primarily to a single borrower, who is a long-time customer that we know well and are continuing to work closely with. Quarter-to-date net charge-offs were $4.2 million or 12 basis points of total loans and leases.

Year-to-date net charge-offs were $11.3 million. Our annualized year-to-date net charge-off rate was 11 basis points or 1 basis point higher than in the second quarter. NPAs and 90-day past due loans were 26 basis points at the end of the third quarter, up 3 basis points from the prior quarter, resulting from a slight increase in nonaccruals.

Moving to Slide 9. We show our third quarter allowance for credit losses broken out by disclosure segment. The bank recorded a $4.5 million provision in the third quarter. The asset ACL decreased by $2.6 million to $165.30 million with coverage remaining at 117 basis points of total loans and leases. We believe that we continue to be conservatively reserved and prepared for a wide range of outcomes. And now we would be very happy to take your questions.

[Operator Instructions] Our first question comes from the line of David Feaster from Raymond James.

I wanted to talk on just kind of the growth outlook. I mean, obviously, we've had some dealer floor plan with a headwind, some just natural declines in C&I. I was hoping you could first maybe touch on kind of how the pipeline is shaping up, demand that you're seeing and other opportunities that you'd be interested in helping accelerate organic growth, whether it's -- is there any appetite for full purchases or C&Is?

Just kind of curious kind of your thoughts on, again, what are you seeing now in the pipeline and demand and organic growth and other opportunities to accelerate that?

David, this is Bob. I'll maybe start off, hand off to Jamie. So yes, the third quarter was a little unusual in that we saw some pretty significant paydowns in dealer floor plan. Part of that was one of our customers sold several franchises. So that impacted that negatively.

But overall, we're still very bullish in that business. We're seeing very strong production in the pipeline. There are some of that's already closed for the fourth quarter. Some of that's C&I, a lot of that is CRE. So we think we're going to have a very strong fourth quarter. And as we look to the future, we have considered pool purchases, but maybe I'll ask Jamie to just comment on that.

Yes. Thanks, Bob. I think we're looking at just in totality, as Bob said, I think we're looking at being able to get back to flat at the end of '25, roughly to where we were at the end of '24, which speaks to the strength of the pipeline that we see today. But to the broader question of pools and purchases, I think we always look at things. And to the extent that we feel like we have some level of expertise or knowledge in particular areas, we look maybe to carve out things that we have expertise in.

So for example, maybe like a residential pool of Hawaii loans, right, might be something where we would think the long and hard about purchasing or if there are opportunities around properties in Hawaii that we might look at as well. So for the most part, we see where that we want to grow loans, but we're really looking for areas where we have some sort of expertise or niche knowledge around in order to be able to do that.

Okay. That's helpful. And then maybe just -- I mean, the core deposit growth was tremendous. I was hoping you could maybe touch on a bit. You talked on some continued growth in core deposits. Obviously, there's some seasonality that you alluded to. But could you talk about where you're having success driving core deposit growth? And then just, again, the good and the bad of that is we built liquidity. Like how do you think about deploying some of that liquidity in the coming months?

Yes. Thanks, Dave. So I guess we're going to expect that our deposit total balance is probably going to be like roughly flat at the end of the year to where we are today. And that mix is going to shift a little bit from -- we expect to see some of our public deposits kind of run out here in the fourth quarter, but sort of replaced by retail and commercial deposits.

So where we're having success really is our retail teams and our commercial teams are really out there and really talking to our customers and doing a really good job of maintaining, strengthening relationships in the community. And I think we're really trying to focus on that relationship activity. And so we've had a lot of success with that, and that's due to the efforts of our retail and commercial teams primarily out here on the ground.

And to add to Jamie's answer, as far as the liquidity that we have, we have been -- we are no longer letting the investment portfolio run down. So we're holding that flat. So we have kind of restarted some purchases after a number of years of letting it run down. So we're keeping that relatively flat with similar duration and very similar categories of securities that we're looking at to purchase.

Okay. That's helpful. And then maybe just last 1 for me. I appreciate the margin commentary I mean, look, you're naturally rate sensitive just given the strength of your core deposit base and the floating rate nature of some of your loans. Just kind of curious I mean there's a lot of moving parts in here, right? You got liquidity deployment and all -- there's a lot of moving parts. But I'm just kind of curious, first, how do you think about managing deposit costs as the Fed cuts?

And then just given the tailwinds from back book repricing, remixing and some of the liquidity deployment that we're talking about, do you think that we can see the margin continue to expand even with Fed cuts next year?

I think Dave, that depends kind of on the timing and the magnitude of those cuts. I think that would -- that is ultimately by the end of the year, it could be a challenge to see NIM expansion at the end of the year. But for now, I think, for now...

End of the year and then 2026.

That's right. Yes. But for now, what we see is that we have sufficient loan growth and sufficient loan growth just sort of cover this, right? So we're still -- we're looking at -- we're looking at $1 billion of cash flows over the next 12 months. At like -- we'll call that like a 125 basis point spread right now to loans that we're putting back on the books.

And we have a 200 to 250 basis point spread on the investment portfolio, right now that we're sort of -- that we're keeping flat. So there are a lot of underlying dynamics. And of course, those spreads will decrease, right, the more the Fed decreases as well. But I think the trajectory for now looks like we can still support increasing expansion of the margin. But of course, there will be a natural spot.

I think that's maybe like 1% or so from now. So 4 to 5 rate cuts, something like that. There'll be a natural floor to our ability to drive out further decreases in the deposit book. So good and bad news, right? We got a great deposit base, but it can only go so low, right? There's a floor on that. And so I think there is opportunity to continue to expand the NIM. And again, I think that is going to be largely dependent on our ability to generate loans.

And our next question comes from the line of Charlie Driscoll from KBW.

This is Charlie on for Kelly Motta, if you could remind us of your capital priorities, how you're viewing the buyback? And from an a perspective, the environment is obviously heating up. Just remind us of your strategy on that front?

Yes. Thanks, Charlie. So the capital priorities continue to be the same. We'd love to -- we're doing all the loans that fit our credit box and profile. We want to do all those that we can -- and we have a share buyback authority of $100 million. You see that we've done $74 million so far, and the rest of that is going to depend on, I'll call it, market conditions for sure.

And I think the dividend is pretty good yields kind of a place. And also just in terms of the ratio of earnings that we pay out is relatively high. So probably not going to see an increase in the dividend or anything like that as part of that at the moment.

That's helpful. And then I guess, like circling back to the deposit rate conversation. The pricing has been rational and anticipating some cuts, like we've been hearing some changes in expectations from bank. Maybe just put some numbers around how you're thinking about betas on the way down?

Yes. So Charlie, we tend to talk about it as beta on our rate-sensitive portfolio. So we continue to have roughly $4.5 billion rate-sensitive deposit portfolio. We've been very successful in -- with past rate cuts. We're talking maybe 90%, 95% betas on that portfolio relative to a Fed rate cut. We think that we're -- that drives a little bit lower and it gets successively lower for each rate cut that we have, but I think right now, I think about maybe like a 90% beta on the next rate cut, 88% on the next 1 after that, 85%, something like that.

So we -- we still think we have a range there where we can drive deposit costs lower of course, when the Fed cuts rates as well. So it's a decreasing ability to do that for sure, but still relatively high at the moment.

Great. And then I guess, just like a little bit of detail with the margin expansion and the 50 bps of additional costs, are you assuming any loan purchases in that or...

No loan purchases in that. That's just what we're looking at in terms of looking at our pipelines and talking with the teams over the past month or so, we just expect to have really strong loan growth here in the fourth quarter.

And our next question comes from the line of Anthony Elian from JPMorgan.

Jamie, just a follow-up on NIM. Just a follow-up on NIM. Slide 5 to 6, you saw a really nice tailwind from loan repricing and looks like every 1 of your loan yields increased from the prior quarter. I'm just wondering how much of a tailwind is left from loan repricing, maybe in 4Q and beyond, just given the outlook for rate cuts on the forward curve?

Yes. So I think there's still a tailwind there. I guess I'll start with that. But then as we look out, we have $1 billion of fixed rate cash flows coming off of the portfolio over the next 12 months. And right now, we think that, that's repricing higher at like a 125 basis point spread at the moment. So there's still a pretty significant tailwind there.

Now the 125 basis points, that's an average. And more the Fed cuts, the tighter that spread gets for sure. But there is still an ability to reprice those cash flows higher. On the investment portfolio, where we're seeing $500 million to $600 million of runoff over the next 12 months, we're getting like a 225 to 250 basis point spread on those purchases.

So there's still a really significant sort of balance sheet role impact that we're seeing. That should be a tailwind not only in the fourth quarter, but into the first and second quarters as well. Now again, all of this is dependent upon being able to replace those cash flows with loan growth.

And we think we can do that. but it will be dependent upon that sort of loan growth trajectory. And to the extent that we don't get the loan growth, we would consider other things we would consider maybe increasing the size of the investment portfolio. It's not our preferred option. But there are things that we would do to manage the balance sheet and to try to manage that NIM to continued expansion or at least sort of trying to keep it flat as we get those third and fourth and fifth anticipated rate cuts.

Okay. And then my follow-up, I think you pointed to $54 million of fee income in 4Q. Just what are the areas or headwinds you expect to decline this quarter? Is it just the 2 items you call out on Slide 7.

Yes. I think that's right, Tony. Yes. It's not really headwinds. It's just we kind of got some good positive surprises here in the third quarter and wouldn't necessarily expect that to continue into the fourth.

Yes. And to add to that, we have been kind of messaging more in the 51% to 52% range. And now just given the strength of the overall fee business, we're moving that up to 54% as kind of our expected run rate.

And our next question comes from the line of Matthew Clark from Piper Sandler.

Just to close out the NIM discussion, do you have the spot rate on deposits at the end of September?

That was 136 basis points end of September.

Okay. And then the negative migration you saw in substandard this quarter. Can you just speak to what drove that increase?

So it's primarily that single loan to our long-time customers. And we're not really worried about loss or anything like that. We work closely with the customer. We just feel it's prudent to continue to update the ratings as we see the financials.

Okay. I may have missed it, but the type of customer and the situation there?

We didn't share that one, Matt. So we'd rather not. It's a small town.

Understood. And then just on the capital question. I don't think you finished up on the M&A piece. But -- and again, I may have missed it, but just any updated comment on M&A discussions you might be having, whether or not things have changed materially since last quarter.

No, unchanged. We're still open to talking to people and we certainly consider the right opportunity, but no change from previous guidance and discussion.

[Operator Instructions] Our next question comes from the line of Timur Braziler from Wells Fargo.

Jamie, your comment on total deposits, I want to make sure I heard that right. Is it flat for 4Q or flat for the year?

It's flat third quarter to fourth quarter. So we expect public to run out in the fourth quarter a little bit, while we increased retail and commercial.

And then maybe back to Matt's last question. Just more specifically, Mainland M&A. It sounds like that's been something that's at least on the table more recently? Just is that still the case? And maybe just remind us if that is the case, kind of what you'd be looking at as far as criteria goes?

No change to what I said. Timur, I think the only thing would be it would only be mainland M&A for us because with our HHI market share here, there's nothing we'd be able to do in Hawaii. So but no change. We're certainly open to talking to people and would consider the right opportunity.

Okay. That's a good point. And then, Bob, your starting comment on expecting many families will face potentially some real hard ships here from a prolonged government shutdown. I guess that comment and then looking at the last few UHERO report, which is calling for a mild recession over the course of the next year. I mean is that any different really from kind of the operating trends on the island over these last couple of years?

Does that change the way that you guys are thinking about the local economy and, I guess, more pointed just how much of that is already factored in, in the reserving that you have, particularly on the consumer side.

Yes. Maybe I'll start and ask Lee, if she has any additional comments. Really no change. We think that the local economy is resilient. I mean people are not the first time this has happened. It's been a little while since there's been a shutdown that's affected salaries and all that. But we just want to make sure, and that's why we want to do it with all the banks here. I want to make sure we're open and people know they can approach us if there's a need. But we've had just very few inquiries, Lee, maybe if you have any additional comments.

Not really. We haven't really seen any effects in the credit metrics yet. And -- but we're always cautious and we always take it into consideration, when we try to figure out what the right valuation is for the ACL.

And on that, I mean, to speak to consumer credit metrics. Lee did mentioned it earlier, but the 2 that tend to pop up soonest is credit cards and indirect and they're doing quite well. So really no -- nothing observable at this point, Timur.

And our next question comes from the line of Jared Shaw from Barclays.

Everybody. Following up on that, when you look at the impact of federal spending apart from military in Hawaii. Do you -- are you concerned at all that it could be impacted by reshifting of federal priorities? Or is it still pretty heavily defense focused. So while we're dealing with the shutdown now, you still feel that's not going to change the long-term contribution of federal government spending into Hawaii?

Yes, Jared, this is Bob. Totally agree. The long-term trend is defense focused, and it's going to be very strong. I'm heading down to Guam for next week, and the spend there is phenomenal and the projects on deck here are very, very strong. So we're not expecting that our core federal employee workforce is pretty stable.

The largest employer being the Pearl Harbor and naval shipyard, which is -- and has been identified as a key resource in the Navy. So really stable to improving, I guess, would be the long-term view.

Okay. And then in conversations with your floor plan dealers, what's their expectation for sort of auto sale volume going into the next year? Are they -- are they thinking that there's going to be a slowdown in purchase activity? And is that incrementally, I guess, better for you with floor plans if inventories stay around longer?

Certainly, we have really great customers with strong credit, so we'd love to see higher balances with those same customers. The discussions haven't been as much around next year. It's really been more topical about tariffs and the impacts of tariffs and different manufacturers are picking up some of the impacts of those additional costs.

Others, I think we'll start based on the conversations we're having, we'll start to soon start passing those through to customers. And so there's a fair amount of uncertainty still on the end impact of the tariffs that started at the beginning of this year and what consumers will do with potentially higher price points and how that will affect demand.

If it slows down demand, maybe not in the next year, but even into the fourth quarter first and second quarters of 2026. That would definitely help us.

Okay. And then just finally for me. Have you seen any change in sort of pricing behavior from some of the change in ownership of other Hawaii competitors over the last year. It sounded like earlier in the year, there wasn't really any big change, but are you seeing any change in how they're approaching pricing in the markets?

Yes. We haven't seen any change in the market as far as competitive dynamics or pricing.

And our next question comes from the line of Janet Lee from TD Securities.

Hello. Going back to M&A, just quickly, I know you guys touched upon it just a few times on this call. But can you remind us what is your stance -- what is your current stance on that M&A -- potential M&A opportunity if you are looking to -- you're considering opportunities? Like what would be -- what would make sense in the Mainland?

Really nothing to add to our earlier comments, I guess the only thing would be in the Western states. It's not that we're going to go center or East. But it's just -- we're open to talking to people and we're considering the right opportunity and really nothing more to share than that at this time.

Okay. Got it. Fair. I think people are entertaining the idea of resi mortgage coming back if the rate comes down to the 5 handle, is was that something that would be helpful to your market or perhaps not because it's more of a supply issue. How should I think about the positive impact from that point on your resi?

Yes, Janet, it's a good question. I think that the lower the rates go, just the more activity you will see. You are correct that there is some sort of supply constraints around that for sure. But I think it will be helpful for balances. I think that there's -- that there should be some good opportunities there.

So yes, I mean, I think, ultimately, for the mortgage business, in particular, if you -- if the rates go a little bit lower, we could see some increased activity in that area, and that should be constructive.

Got it. And apologies if this was already covered, but the paydown on $130 million of paydown on corporate lines, is that -- was that just seasonality that is coming back or just one-off? Or is it really a big quarter for paydowns?

No, it wasn't necessarily seasonally. These were earlier draws for specific things, and now that that's done, they're getting repaid. It's it was odd in that several happened in the same quarter, but there is nothing unusual about the borrowing and repayment. It's just -- just all kind of lend -- the draws weren't in the same quarter, but the paydowns were. So that's why we didn't call it out on the way up, but we're calling it out when it got repaid.

[Operator Instructions] And 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.

Thank you. 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.