First Hawaiian, Inc. Aktie

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.

Thank you for standing by, and welcome to the First Hawaiian Bank Inc., Second 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 second quarter of 2025. 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 recently -- to the most directly comparable GAAP measurements.

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

Thank you for joining us today. I'll start by giving a quick overview of the local economy. Statewide seasonally adjusted unemployment rate continued to drift lower and was 2.8% in June, compared to the national unemployment rate of 4.1%. Through May, total visitor arrivals were up 2.8% compared to last year as the strength in U.S. Mainland arrivals more than offset weakness in the Japanese and Canadian markets.

Year-to-date, spending was $9 billion, up 6.5% compared to 2024. Interesting to note, we went back and looked, and for the first 5 months of 2019 to the first 5 months of 2025, visitor arrivals are down still 3.9%, but the spend is up over 24%. So while there has been a few less visitors, the spend is up substantially.

Turning to Slide 2. We had a very strong second quarter. Our net income increased over 23% compared to the prior quarter. The improvements in our results compared to the last quarter were broad-based driven by higher net interest and noninterest income, good expense control and lower provision expense. Our results also include the impact from a change in California tax law that resulted in a net benefit of $5.1 million.

Turning to Slide 3. The balance sheet remains solid. We continue to be well capitalized with ample liquidity. Loans and deposits were stable during the quarter, and we repurchased about 1 million shares at a total cost of $25 million. We had $50 million of remaining authorization under the approved 2025 stock repurchase plan. We resumed reinvesting the investment portfolio cash flows in the second quarter and we plan on maintaining the portfolio balance at its current level.

Turning to Slide 4. Total loans increased about $59 million or 0.4% from the prior quarter. The largest increase was in the C&I portfolio, which was primarily due to $125 million increase in dealer floor plan balances. This was largely offset by payoffs from several completed construction projects in our commercial real estate portfolio.

Looking forward, we expect full year loan growth will be in the low single digits. And now I'll turn it over to Jamie.

Thanks, Bob. Turning to Slide 5. Total deposits increased slightly in the second quarter as growth in public deposits more than offset the decline in commercial and retail deposits. On the retail side, they were down $23 million in the quarter and commercial deposits were down $127 million. The decline in commercial deposits was due to the normal operational fluctuations that we see in that book. Total public deposits increased by $166 million, all in operating accounts. There was no change in the balance of public time deposits. Total deposit costs fell by 4 basis points in the quarter and our noninterest-bearing deposit ratio remained at 34%.

On Slide 6, we see that net interest income was $163.6 million, $3.1 million higher than the prior quarter and the NIM was 3.11% million up 3 basis points compared to the prior quarter. The increase in the margin was driven entirely by lower deposit costs, primarily due to CD repricing. While we didn't see the anticipated benefit from fixed asset repricing in the second quarter, the underlying balance sheet dynamics driving the NIM remain intact, and we anticipate that the NIM in the third quarter will increase a couple of basis points to 3.13%.

On to Slide 7, where noninterest income was $54 million in the quarter and benefited from a few items that went our way. We continue to expect that recurring piece of noninterest income will be about $51 million per quarter. Expenses were better than expected in the first half of the year, but we expect them to tick up just a bit in the back half. We think expenses in the third quarter will be up around 2% on a linked quarter basis and that full year expenses will be better than originally expected at around $506 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. We are not observing any broad signs of weakness across either the consumer or commercial portfolios. Classified assets increased by $31.6 million on the quarter. These loans are well secured and we continue to work closely with the borrowers.

Quarter-to-date net charge-offs were $3.3 million or 9 basis points. Year-to-date, net charge-offs were $7.1 million. Our annual year-to-date net charge-off rate was 10 basis points, 1 basis point lower than in the first quarter. Nonperforming assets and loans 90 days or more past due comprised of 23 basis points of total loans and leases at the end of the second quarter, up 6 basis points from the prior quarter, resulting from an uptick in nonaccruals. Most of these were residential loans with low loan-to-value ratios, so we feel that the loss content in these loans is very low.

Moving to Slide 9. We show our second quarter allowance for credit losses broken out by disclosure segments. The bank recorded a $4.5 million provision in the second quarter. The asset ACL increased by $1.2 million to $167.8 million, with coverage remaining flat at 1.17% of total loans and leases. We believe that we continue to be conservatively reserved and ready for a wide range of outcomes.

Let me now turn the call back to Bob for any closing remarks.

Thank you, Jamie, and Lea. Now I'd be happy to take your questions.

And our first question for today comes from the line of Liam Coohill from Raymond James.

This is Liam on for David. Just wanted to start out with C&I driving growth in the quarter and taking into account the low single-digit outlook moving forward, how is the pipeline in terms of C&I? And is that the largest contributor? And I'm also curious on the CRE side, are we seeing increasing demand from those borrowers? Appreciate any color you might have.

Sure. No, good question. Most of the C&I growth came in our dealer floor plan, and we have seen that pretty much continue to normalize back to what we had thought it would. So right about $600 million -- let's see, no, $786 million for the quarter, at the end of the quarter, and that's up about $125 million from the previous quarter. So that moves up and down. There's -- car sales have slowed a little bit, but still, there's uncertainty out there with respect to tariffs.

So I think that's just -- we don't know exactly what's going to happen with those balances, but we don't think they'll move around a whole lot. As it relates to commercial real estate, the thing there was that we had thought some of the commercial construction loans were going to extend into mini perms, and they didn't, which is a sign of very good credit quality, but on the other hand, it's a bit of a challenge for balances.

So we still have a lot of those loans that are funding. That work is still going on. It's a little bit harder to predict when those will get paid off. So we changed our guidance a bit from low to mid-single digits to low single digits for the full year, just in anticipation of that.

I appreciate that. And you touched on tariff impact [indiscernible], how have you been seeing that net out with the improvement in tourism spend on the islands? Do you think it's kind of a wash between the 2 factors? Or has that increased tourism spend kind of outpaced tariff concerns at this stage and [indiscernible] any softness of concerns versus last quarter?

Really no change. And the only impact we really see for tariffs is the uncertainty it gives our car dealers. They're still not exactly sure what those tariffs will be. I don't think it's had much of an impact on tourism. Japanese and Canadian tourism is down. I think primarily for the Japanese, it's a little bit slower economy and their exchange rate is still fairly weak for them. But U.S. West and all of the Continental U.S. has been strong, and that's what led to the increase in arrivals and almost certainly the increase in spend.

Great. And just last one for me. We did see the repurchases of some shares in the quarter. Just wondering what your capital priorities are at this stage as we move into the back half of the year?

Yes. I mean I think our -- the capital priorities remain the same. We'd love to deploy that in organic growth areas. I want to make sure our dividend is stable. And the third option there is the share repurchases. And so I think that's where we're going to end up deploying more of our repurchase authority in the back half of the year. And so I think that's probably where we'll end up on that.

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

Maybe just to piggyback off of the last question around capital priorities. I mean, so I'm looking back, your capital position is stronger than it's been in a while. You've got a lot of capital the loan growth outlook is maybe a little bit lower following this quarter. I'm curious how these things play together into your thought process on M&A and whether M&A makes more sense for you guys at this juncture? And maybe if you could just kind of update us on your thought process there and if it does or doesn't make sense for you?

Sure. This is Bob. I think that's something we always look at. We're not adverse to considering options, but we don't have anything we're looking at currently, but we're always out there talking to people as far as potentials for doing things with our capital.

We're very comfortable with the capital levels. It's a little bit higher than we had guided to in years past. It was closer to 12%. We have increased the allowance. We do think there will be a rotation as Jamie was getting to out of securities and back into lending. And when that happens, that can eat up the capital fairly quickly. So we want to make sure we maintain enough capital for loan growth.

Yes. Makes sense. And maybe just one for Jamie. Going back to the comments around the margin, and I appreciate the guidance for 3Q. That's helpful. What impacted or anything we should be aware of that impacted loan yields in the second quarter and kind of mitigated what I thought would be a little bit better in kind of fixed repricing. Just any color you can provide on the underlying dynamics there would be helpful.

Yes. So I think, Andrew, it was really a mix issue. So we -- you see in the materials, we had sort of large payoffs in the construction book and increases in the C&I book. And so there was just this timing, I'll call it a timing differential, where we had higher margin loans pay off and they were replaced by relatively lower margin loans in the book.

And so it was really a mix issue there. I think in totality, that story still remains the same that the fixed rate cash flow is coming off the books replaced by higher-yielding assets in general will drive the NIM higher over time. Just kind of a weird quarter in terms of the mix of those things at the moment.

Understood. And if I could sneak one more in. I think you talked about $51 million of fee income is kind of a core number it seems like the kind of credit and debit card fees and service charges that were both up this quarter. It seems like there's normally a carryforward of strength in kind of the third quarter there as well. So I'm hoping just to clarify any -- is that kind of just like what you view as core longer term? How should we think about third quarter on fee income?

Yes. I think fee income in the third quarter is somewhere in that $5 million, $52 million range. I mean, I think that's probably where we'll be. We have -- from time to time, we have a lot of things that happen from a, let's call it, a markets perspective, where we have to revalue pension obligations, BOLI obligations, that kind of thing.

So when the market is up quarter-over-quarter, we have small pops in these numbers. And so we had a number of, like, let's call it, onesie-twosies type things happen in this quarter in the $2 million-ish range that we know happen, right? These things happen for us from time to time. It's just hard to predict when they'll happen. So that $5 million $52 million range, I think, is probably a good number for where we'll be in the third quarter.

And our next question comes from the line of Kelly Motta from KBW.

With regards to the tax rate, I see your [DTA up] this quarter that you called out in the release. Jamie, can you provide an updated outlook on what this tax law change does to your tax rate outlook for this year and beyond?

Yes, you got it, Kelly. So where normally we would say we would outlook at like 23% for our effective tax rate. The outlook for the rest of the year is 23.2% on that tax rate.

Okay. So fairly immaterial, got it. Okay. And moving on the deposit costs. You've done such a great job getting your deposit costs down in the first round of rate cuts. It seems like there's a declining benefit after future cuts. But when those do come, wondering how you're thinking about deposit betas on the next round of cuts. You are asset sensitive, but that would be a nice offset.

Yes. So we have talked in the past about declining betas related to tax cuts. I don't think we're fully there yet at the moment. I think we probably have a few more rounds available to us before that starts to become a real issue. I would say that from the perspective of a rate cut, if we were a 95 beta or so on our rate-sensitive deposits over the last 2 cuts, that maybe drops to 90 or so over the next couple of cuts.

So we still feel pretty strongly that we'll be able to pass through a large portion of those cuts to those rate-sensitive customers. But after maybe another 1% or so, the beta will decline over time on that. So I think 90% is an okay number for the next 1 or 2.

Great. Got it. And then last for me, just a higher picture question. Loan growth this quarter, really nice C&I, but you had the construction paydowns. It seems like the outlook is a little bit lower than at the start of the year, still quite good. As you look ahead kind of more broadly speaking, what you think are the main factors that would get increased activity among your client base to really pick up? And over the longer term what's a more normalized growth rate? Do you think more mid-single digits would be something that could be achievable longer term with these -- without the payoff headwinds? Thank you.

Yes, Kelly, This is Bob. I'm a little reluctant to look out longer term, just as most banks were following the economies of the areas we're in. So that's kind of making a bigger forecast that I'm comfortable with. But just to talk maybe a little more specifically about what happened this quarter, one of the reasons we lowered our guidance, just a tad was that we had thought some of these construction loans were going to go into mini perm and if the takeout market is as strong as it is and they're getting paid off, that does affect that.

How much will U.S. floor plan continue to grow? Hard to tell. But pre-COVID, I think we're at $859 million in total and now we're $786 million. So we're getting close to what pre COVID numbers were. So the amount of increase will likely slow down. So it's really the interplay between those 2. The teams are out there. They're calling on people. There's good pipelines developing, but it's just hard to, at this point, put that into a number between now and year-end other than what we've done in the past year, and I don't think we'd be comfortable commenting.

Got it. Maybe just last follow-up on those construction loans getting taken out. Where are you seeing the most competition coming in? Is it from the local banks in Hawaii getting more aggressive on pricing, larger insurance companies, large banks?

No, this is -- yes, this is the end of construction where normally pre-COVID, you get taken out right away. And then sometimes post-COVID, it hangs around in mini-perm for a little while, which is always a feature of those loans. Now we're seeing more of a return to normalcy with institutional buyers, sometimes insurance companies, sometimes others taking out those loans upon completion of construction. It was never really designed to be a permanent loan for us. So it's not other local banks.

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

Maybe just on the commercial loan growth that you're putting on, what are -- what are you seeing for spreads on C&I right now? Is that staying stable? Or are you seeing some compression with competition?

Jerry, this is Jamie. They're staying pretty stable. I think in totality, we have -- with the weighted average roll-on is in mid- to upper 6s in totality in the books. So -- but mostly stable, I would say, the spreads.

Okay. And then can you just walk through a little bit on the investment securities with the decline in yield this quarter? And you talked about sort of reinvesting some of those cash flows. What are you purchasing in terms of yield and duration? And should we expect to see some recovery in the securities yield? Or is it staying lower here?

Yes. No, you should expect maybe 2.25% pickup in the -- on the things that we're putting back on versus the roll-off. So what's rolling off is about 2% in that book, and we're going to be putting on maybe somewhere between 4% and 4.25%. And so that keeping the duration a little bit -- keeping the duration sort of same, flat in the book. And we're replacing cash flows that roll off with same type of assets that we -- that are rolling off. So mortgage securities with -- that are good structures and have either through collateral features or structured features that sort of give us a tight prepay window. So in that 5 duration area.

Okay. All right. And then this commentary on credit. I know we're talking about low numbers. But when you look at sort of the growth in resi mortgage nonperformers, over the last few quarters, that's been pretty big compared to where you've been before. What's driving that weakness? I know that there's probably not a lot of loss content there. But is that -- what's sort of driving the underlying concern with the consumer on those?

Jared, this is Bob. Maybe I'll start and then Lea can add some comments. The consumer at the, say, the lower end is getting a little stretched. Their savings as they accumulated during COVID have gone away and it's just getting a little bit tougher. Lea, I think you'd mentioned on collateral, but anything you want to add?

No, not really. I mean the portfolio is performing as we expected. So we were pleased for a very long time the performance. And we continue to be very pleased and confident with the portfolio.

Yes. For a very long time, we had 0. So anything above 0 is going to look like a big number. But -- look, we're not concerned about it from a loss perspective, as I think Lea mentioned.

And our next question comes from the line of Timur Braziler from Wells Fargo.

Maybe just keeping to the line of commentary on credit, the increase in commercial criticized assets. Can you just help us reconcile kind of that increasing trend versus still really strong level of charge-offs? And how do you see that ultimately playing out? Do you think that is going to somehow correlate to maybe an uptick in charge-off activity again off of a really low base? Or do you think that ultimately, they just end up curing themselves?

For the most part, they will end up curing themselves. We already know of 2 that -- well, one paid off right after the end of the quarter and then there's another one that we expect to pay off. And as you mentioned, right, the base is so low that you just have 1 loan move in and it moves significantly as a percentage. So again, we don't go into these without some expectation that some will have troubles. But when you stay close to the borrower, you can be confident that you'll come out very satisfactorily. So...

And then -- sorry, go ahead.

No. We are confident in our book. The book is strong.

Okay. And maybe following up on the completed construction loans being refi-ed away? I'm just trying to get the magnitude here of what's coming due from a construction completion standpoint? And then similarly on the CRE side for those resets that are approaching, I'm just wondering if you're seeing an increased level of competition from some of those potentially being refi-ed away as well here?

Yes, Tim, I don't have the specific numbers of what's coming up. We had 3 loans pay off in the quarter, which kind of led to that paydown for several, actually. As far as -- we are not seeing additional competition on as far as refinancing. As far as new deals coming forward, pricing had expanded a bit during COVID. It's coming back a little bit more to pre-COVID spreads, but it's still solid and I think appropriate for the risks that we're underwriting.

Okay. And then maybe just tying in some of the payoff activity, the fact that the floor plan book here is reaching a level of stabilization and your comments around the bond book reaching a level of stabilization. Is the expectation here that we start seeing asset growth or just given some of the dynamics, assets likely remain somewhat stagnant here for at least the near term?

Yes. Tim, yes, I think maybe we'll see some balance sheet growth. We're going to keep the bond book stable where it's at, and we should see some loan growth in the back half of the year. So I would expect a larger balance sheet by year-end.

And some of -- just to add to Jim's comments, some of the things that have been a drag over the last several years, our indirect book pre-COVID was well over $1 billion, $1 billion, $1.1 billion, now $600 million. So over the -- whatever it is, 5.5 years gone down by $500-plus million. That's now stabilized. So the market is reasonable. And so we don't have that headwind now. Little bit of a headwind in residential lending as I think, for all the banks here in a way, but just not a lot of new volume as things mature. But on the commercial side, to Jamie's point, we're optimistic there's deals out there, and we're looking at them and feel pretty good about the pipeline.

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.