First Hawaiian Bank Navigates Shifting Tides: Q4 2025 Shows Strength, 2026 Outlook Cautious Amid Rate Uncertainty
First Hawaiian Bank Navigates Shifting Tides: Q4 2025 Shows Strength, 2026 Outlook Cautious Amid Rate Uncertainty
HONOLULU – First Hawaiian Bank (NASDAQ: FHB) delivered a robust performance to close 2025, buoyed by a resilient local economy and disciplined expense management. However, executives signaled a more measured path ahead for 2026, anticipating the dual impact of expected Federal Reserve rate cuts and a competitive lending environment.
In its fourth-quarter earnings call, CEO Bob Harrison pointed to key strengths: a 2-basis-point sequential increase in the net interest margin (NIM) to 3.21%, annualized loan growth of 5.2%, and what he termed "continued strong credit quality." The bank's return on average tangible equity stood at a healthy 15.8% for the quarter.
The backdrop, Harrison noted, remains favorable. Hawaii's unemployment rate fell to 2.2% in November, significantly below the national average. While total visitor arrivals were slightly down year-to-date, spending surged approximately 6% to $19.6 billion through November, with Japanese tourism providing a "bright spot." The local housing market also showed stability, with Oahu's median single-family home price rising 4.3% year-over-year.
CFO Jamie Moses detailed the financial mechanics, reporting net interest income of $170.3 million. He credited NIM expansion primarily to lower deposit costs, with the total cost of deposits falling to 1.29%. Retail and commercial deposits grew by $233 million, though this was partially offset by an expected outflow of public funds.
The Road Ahead: Margin Pressure and Strategic Flexibility
The outlook for 2026 reflects a shifting monetary landscape. Management guided for modest loan growth and a slightly lower full-year NIM. Moses explained that while the bank can lower deposit rates as the Fed cuts, "fixed asset repricing" provides a tailwind. The key variable, he noted, is the "deposit beta"—the rate at which the bank passes Fed cuts to depositors—which was around 35% in Q4. He anticipates a first-quarter NIM dip from the Q4 peak, with the full-year trajectory heavily dependent on the timing and magnitude of Fed actions.
On capital allocation, the bank completed its $100 million 2025 share repurchase program and announced a new, open-ended $250 million authorization. Harrison emphasized this provides "flexibility" to manage capital levels, reiterating an appetite for buybacks while prioritizing organic growth. The bank's CET1 ratio remains strong at over 13%, above its 12% target.
Credit quality remains a pillar of strength. Chief Risk Officer Lea Nakamura reported "low, stable" risk, with no broad signs of weakness. The allowance for credit losses increased to $168.5 million, with coverage at 118 basis points of total loans, which management considers "conservative."
Looking at loan growth, Harrison described a "broad-based" Q4 but suggested a potential slowdown in the first half of 2026 before a second-half pickup. He also addressed mergers and acquisitions, stating the bank remains open to deals west of the Rockies for institutions between $2 billion and $15 billion in assets, provided they meet strict cultural and financial criteria.
Analyst & Investor Perspectives
Market voices reacted to the bank's steady performance and cautious forward guidance:
"First Hawaiian continues to execute well in its unique island ecosystem," said David Chen, a portfolio manager at Pacific Horizon Investments. "The credit metrics are impeccable, and the new buyback program signals confidence in their capital generation. The 2026 NIM guide is prudent given the rate environment."
"It's a classic 'good quarter, but look out below' narrative," remarked Sarah Jenkins, an independent banking analyst known for her blunt commentary. "They're telegraphing margin compression and slower loan growth. The massive new buyback feels like an attempt to placate shareholders when the core earnings engine is facing headwinds. What's the plan for actual growth beyond financial engineering?"
"As a long-time customer and shareholder, I appreciate the conservatism," shared Michael Kaimana, a small business owner in Honolulu. "In a tourism-dependent economy, staying well-capitalized and reserved for losses isn't boring—it's smart. They're playing the long game, which is what you want from your community bank."
Founded in 1858, First Hawaiian Bank is the state's oldest and largest financial institution, offering a full range of services across Hawaii, Guam, Saipan, and American Samoa.
This analysis is based on the company's Q4 2025 earnings call and financial reports.