First Hawaiian (FHB) Q4 2025: $250M Buyback Authorization Signals Capital Flexibility Amid 4% Loan Growth Guide

2026-01-30 | By EarningsIQ Research

First Hawaiian’s $250 million buyback authorization and disciplined loan growth outlook underscore a focus on capital deployment and balance sheet resilience. Management is guiding for 3% to 4% loan growth, maintaining tight expense control, and expects NIM to compress modestly as deposit costs stabilize. The bank’s conservative credit stance and liquidity position set the tone for cautious but opportunistic capital return and selective expansion in 2026.

Summary

• Buyback Capacity Expansion: New $250 million repurchase program reflects surplus capital and strategic optionality.
• Loan Growth Transition: CRE and C&I pipelines support 3% to 4% annual growth, with momentum expected to accelerate in the back half.
• Margin Headwinds Managed: NIM guide anticipates modest compression, balancing fixed asset repricing with lower deposit beta.

Performance Analysis

First Hawaiian’s fourth quarter saw net interest income edge up and net interest margin (NIM) expand to 3.21%, as disciplined deposit cost management offset softer loan yields. Total loans increased $183 million (5.2% annualized), driven by C&I utilization and new auto dealer business, while CRE growth was muted due to earlier-than-expected payoffs and construction-to-CRE conversions. Deposit dynamics were a highlight: retail and commercial balances grew $233 million, offsetting a $447 million decline in more volatile public deposits, resulting in a net increase of $214 million. Non-interest-bearing deposits held at a robust 32% of total, and cost of deposits fell nine basis points to 1.29%.

Expense control remains a core strength, with non-interest expense at $125.1 million for the quarter and management reiterating normalized, but measured, growth into 2026. Credit quality continues to impress: net charge-offs were stable at 14 basis points of loans, non-performing assets remain low, and the allowance for credit losses (ACL) increased to $168.5 million, with coverage at 118 basis points. The bank’s return on average tangible equity stood at 15.8% for Q4, highlighting ongoing profitability despite a higher effective tax rate due to reversal of accrued benefits.

• Deposit Cost Leverage: Declining deposit costs and a high mix of non-interest-bearing balances underpin margin resilience.
• Credit Outperformance: Conservative reserving and low net charge-offs reflect above-average asset quality.
• Expense Normalization: Technology investments and vendor consolidation have kept expense growth muted, but 2026 will see a return to more typical increases.

First Hawaiian’s operating model is showing sustainability, with clear signals that management is prioritizing capital efficiency and prudent growth over aggressive expansion.

Executive Commentary

Strategic Positioning

1. Capital Deployment and Buyback Flexibility

The new $250 million buyback authorization, untethered to a specific timeline, demonstrates management’s confidence in capital adequacy (CET1 above the 12% target) and provides flexibility to balance share repurchases with organic growth and potential M&A. This approach signals a willingness to opportunistically return capital while maintaining dry powder for selective expansion.

2. Loan Growth and Portfolio Mix

Loan growth is guided at 3% to 4% for 2026, with CRE and C&I as primary drivers. Management expects a slower first half due to multifamily pipeline funding lags and lingering industry paydowns, but sees a pickup in the second half as legacy headwinds abate. The bank is leveraging both local and mainland opportunities, particularly in West Coast markets where it has established relationships.

3. Margin and Funding Strategy

Net interest margin is forecast to compress modestly (316 to 318 basis points), as deposit cost reductions slow and asset repricing continues. Management expects deposit beta (the sensitivity of deposit costs to Fed rate cuts) to decline, cushioning margin against rate headwinds. The bank’s high non-interest-bearing deposit ratio and low overall funding costs remain strategic advantages.

4. Expense Discipline and Operational Efficiency

Expense growth is returning to a normalized trajectory (about $520 million for 2026), after two years of flat or declining costs enabled by technology investments and vendor consolidation. While hiring remains challenging, management’s focus on operational efficiency and cost containment supports profitability even as expense growth resumes.

5. Credit Quality and Risk Management

Credit risk remains low and stable, with conservative reserving and no broad signs of portfolio weakness. The allowance for credit losses was increased, and management remains vigilant for potential macro or sector-specific stress, but sees the current profile as well within expectations.

Key Considerations

First Hawaiian’s Q4 results highlight a disciplined, risk-aware approach to growth and capital allocation, with careful attention to funding costs, asset quality, and operational leverage. Investors should weigh the following:

Key Considerations:

• Buyback Pace and Flexibility: The $250 million buyback authorization, unconstrained by time, allows for opportunistic capital return or redeployment based on market conditions and M&A opportunities.
• Loan Growth Timing: Management expects loan growth to be back-half weighted, as multifamily and CRE pipelines fund and industry paydown pressures ease.
• Deposit Cost Management: While deposit costs have been a tailwind, future reductions will be limited, and margin compression is expected as the rate environment softens.
• Expense Trajectory: After years of muted increases, expense growth will normalize, reflecting both the limits of prior cost savings and ongoing investment in talent and technology.
• Credit Vigilance: Conservative reserving and stable credit trends remain a foundation, but ongoing monitoring is warranted given macro uncertainty and competitive lending pressures.

Risks

Key risks include margin compression from further deposit repricing limits, competitive pressure on loan yields, and the possibility of accelerated paydowns or slower-than-expected loan growth, especially in CRE and multifamily segments. While credit quality is currently strong, any deterioration in local or West Coast economies could challenge asset quality. Expense normalization, while expected, could pressure operating leverage if revenue growth slows or if hiring constraints persist.

Forward Outlook

For Q1 2026, First Hawaiian expects:

• Modest NIM compression from Q4’s 3.21% exit rate
• Seasonal decline in total deposits, with low single-digit retail and commercial growth

For full-year 2026, management maintained guidance:

• Loan growth of 3% to 4%, back-half weighted
• NIM of 316 to 318 basis points
• Non-interest income stable at $220 million
• Expenses around $520 million

Management emphasized that capital return, organic growth, and selective M&A remain priorities, with flexibility to adjust based on market and competitive dynamics.

• Loan growth will accelerate as multifamily pipelines fund and paydown headwinds ease
• Deposit cost reductions will slow, limiting further margin upside

Takeaways

First Hawaiian’s Q4 results reinforce its position as a disciplined, capital-rich regional bank, balancing growth with risk management and operational efficiency.

• Capital Return Optionality: The $250 million buyback authorization signals management’s confidence in capital strength and willingness to return excess capital, while preserving flexibility for M&A or organic investments.
• Margin and Loan Growth Balance: NIM compression is expected as deposit cost levers are exhausted, but loan growth and asset repricing provide partial offsets, especially in the second half of 2026.
• Credit and Expense Discipline: Conservative credit management and cost control underpin profitability, but expense normalization and competitive lending pressures require continued vigilance.

Conclusion

First Hawaiian enters 2026 with a strong capital position, disciplined expense management, and a pragmatic outlook on growth and returns. The bank’s ability to balance capital return, operational efficiency, and credit quality will be central to navigating a shifting rate and competitive environment.

Industry Read-Through

FHB’s quarter highlights several broader regional banking themes: deposit cost leverage is nearing its limit, requiring new sources of margin support; loan growth is increasingly back-half weighted across the sector as industry paydowns subside and multifamily funding picks up; and buyback flexibility is emerging as a key capital allocation lever for well-capitalized banks. Expense normalization and the limits of technology-driven cost saves will be a recurring theme as banks move into 2026, while credit vigilance remains critical amid ongoing macro and competitive uncertainty. Other regional banks with strong capital bases and stable deposit franchises may look to emulate FHB’s approach to buybacks and disciplined loan growth guidance.

FHB Financials Banking Capital Allocation Buybacks Loan Growth Deposit Costs Expense Management