Operator : Thank you for standing by, and welcome to the First Hawaiian, Inc. Second Quarter 2026 Earnings Conference Call. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Kevin Haseyama, Senior Vice President, Strategic Planning and Investor Relations. Please go ahead, sir.
Kevin Haseyama : Thank you, Jonathan, and thank you, everyone, for joining us as we review our financial results for the second quarter of 2026. With me today are Bob Harrison, Chairman, President and CEO; Jamie Moses, Chief Financial Officer; and Lea Nakamura, Chief Risk Officer. We have prepared a slide presentation that we will refer to in our remarks today. The presentation is available for downloading and viewing on our website at fhb.com in the Investor Relations section. During today's call, we will be making forward-looking statements. So please refer to Slide 1 for our safe harbor statement. We may also discuss certain non-GAAP financial measures. The appendix to this presentation contains reconciliations of these non-GAAP financial measurements to the most directly comparable GAAP measurements. And now I'll turn the call over to Bob.
Robert Harrison : Thank you, everyone, for joining us today. I'd like to focus on our strong second quarter results on today's call. But first, I'd like to start with my excitement about our recently announced deal with TriCo Bancshares and I'm looking forward to working with the TriCo team to build a leading Pacific banking franchise. Starting with the local economy. Statewide employment rate remained relatively stable at 2.5% in May compared to the national unemployment rate of 4.3%. Through May, total visitor arrivals were up 2.9% compared to last year, primarily due to more visitors from U.S. Mainland and Japan. Year-to-date spending through May was $9.7 billion, up 7.5% compared to 2025 levels. The housing market remains stable. Medium single-family home sales price on Oahu in June was $1.2 million, up 10.4% from the prior year. And the median condo sales price on Oahu in June was $528,000, up 3.5% from the prior year. Turning to Slide 2. We had a strong start to the year. Loans grew, retail and commercial deposits were down slightly as expected. Credit quality remains solid, and we remain well capitalized. Our profitability measures remained strong with a return on average tangible assets of 1.28% and a return on average tangible equity of 16.34% for the quarter. The effective tax rate in the second quarter was 22.9%. Turning to Slide 3. The balance sheet remains solid. We continue to be well capitalized with ample liquidity. Cash balances were lower in Q2, primarily due to the decline in public deposit balances. Based on our current outlook, we expect to maintain cash balances around this level for the rest of the year. The balance sheet remains asset sensitive and well positioned to benefit from a higher for longer rate scenario. During the quarter, we did not purchase any shares. Turning to Slide 4. Total loans grew $137 million in the quarter or about 3.6% on an annualized basis. Growth was led by C&I and CRE loans, partially offset by payoffs in the construction portfolio and lower residential loans as payoffs exceeded production. The $98 million increase in C&I balances was primarily driven by growth in dealer flooring as well as our Hawaii corporate portfolio. Completed construction projects led to the conversion of $95 million of construction loan balances to CRE loans. Now I'll turn it over to Jamie.
James Moses : Thanks, Bob. Turning to Slide 5. Our total cost of deposits fell by 2 basis points in the second quarter. Total deposits were down $623 million, with most of that decline due to outflows of public deposits. Retail deposits were essentially flat in the second quarter, while commercial deposits were down about $156 million. This decline was consistent with our expectations of seasonal volatility in that segment. . Public deposits were down $467 million. The majority of this decline was in the operating accounts, while public time deposits were down by $115 million. That was also expected as we had elevated balances at the end of Q1. The remaining balance of public time deposits is only $9 million. Finally, our noninterest-bearing deposit ratio was 32%. On Slide 6, net interest income was $171 million, $3.5 million more than the prior quarter. The NIM in the second quarter was 3.25%, up 6 basis points from the primary -- excuse me, from the prior quarter. That was primarily due to deposit mix changes and repricing, higher loan and security yields and lower cash balances. Turning to Slide 7. Noninterest income was $60.3 million, primarily due to higher BOLI income, an excise tax refund and higher swap fees. Noninterest expense in the second quarter was $130.4 million. The quarter included $4.2 million of expenses related to the TriCo transaction. Now we expect to incur more of those expenses in the back half of the year as we move to close and integration. And now I'll turn that over to Lea.
Lea Nakamura : Thank you, Jamie. Moving to Slide 8. The bank continued to maintain its strong credit performance and healthy credit metrics in the second quarter. The reduction in the allowance for credit losses, both on a nominal and coverage basis was driven primarily by a material decrease in classified assets. And with that, I'll turn it back over to Bob.
Robert Harrison : Thank you, Lea. Going to Slide 9, we have updated outlook for our key performance drivers. We continue to expect full year loan growth to be in the 3% to 4% range, with the markets now expecting 1 rate increase later this year. We have revised our full year NIM outlook to be in the 3.24% to 3.25% range. We also expect the third quarter NIM to be about 3.27%. Our outlook for noninterest income remains unchanged at about $220 million for the year. And finally, we expect reported expenses to be between $515 million and $520 million. excluding the expenses related to the TriCo transaction. In closing, we had another good quarter. The bank continues to perform well, and credit quality is still strong. We're very excited about our partnership with TriCo Bancshares, which is expected to close near the end of the year. Given that we recently announced a transaction, we don't have any new information at this time besides what we presented on our July 23 investor call. We are focused on the work needed to be done to complete it, and we'll continue to keep investors informed through our public filings and communications. Now we are happy to take your questions.
Operator : And our first question for today comes from the line of Kelly Motta from KBW.
Kelly Motta : Maybe to kick it off on what you're seeing on the deposit side. The kind of deposits as you noted was mostly on the government deposits. I know some of them are CDs and some might be more operating accounts. Can you discuss kind of what you saw there? And then otherwise, the core trends of retail and commercial, what those trends were and kind of how you're seeing activity shape up here as we look to the back half of the year? .
James Moses : Yes, Kelly, thanks. It's Jamie. The government deposits were elevated, I'll call it, at the end of Q1 in our operating accounts. And so we kind of expected that decline to happen there. This is not about a loss of relationships or anything. And the time deposits related to those were kind of just -- they left, they rolled off our balance sheet. And I think our partners on the municipal side found better ways to invest that money off of our balance sheet, which is fine with us as well. When we go towards the retail and commercial side of things, we have this seasonality, I'll call it, where we kind of decline deposits in the first half of the year and then we'll expect to have those deposits increase in the back half of the year just from a seasonality perspective. For some reason, we see that a lot on the commercial side where balances kind of build through the third and fourth quarter. So yes, I think from a deposit perspective, we're happy with where we're at. The teams are doing a great job out there, getting involved with their customers and retaining them. And this is not -- none of these declines were like losses of customers or anything like that. I think it was just more flows that we saw than anything else.
Kelly Motta : Got it. That's helpful. And maybe you could speak to pricing competition on both sides of the balance sheet. Hawaii has historically been structurally just more rational market. So wondering if you could offer any color, both on loan pricing and deposit pricing as to how those are coming in and what you expect here if -- with the Fed on hold or potentially get a hike here?
James Moses : Yes. We are seeing the same type of competition that we've always seen. And so as -- you described it as rational that works for me. I think that there hasn't really been any change in that. But with the Fed on hold and maybe looking higher, there's a decent chance that we're kind of at the bottom in terms of deposit cost in totality on our side of things. I think peers on the Mainland, you've seen a little bit of a different reaction. I think it's a lot more competitive there. And so maybe you see some deposit costs rising there. For us, maybe we're going to keep it flat, maybe up a little bit as we go forward. But the competition is basically staying the same here, I would say, on the deposit side.
Kelly Motta : Got it. That's helpful. Maybe last question for me. It was -- you had some loan growth, reiterated the outlook. As you look ahead, how are pipelines and what areas do you see informing the back half of the year growth?
Robert Harrison : Kelly, this is Bob. We still see a very robust pipeline in both the C&I and CRE. The CRE is, again, mostly construction and some of that turns into permanent. For the C&I, we're really seeing strength in the dealer side. So not only our existing customers growing their balances incrementally, but also working on a couple of new customer relationships. So that's where we've really seen it. The residential side continued slow given the rate environment. So we probably won't see much in residential.
Operator : And our next question comes from the line of Anthony Elian from JPMorgan.
Anthony Elian : On the NIM outlook, Jamie, you lifted the range by a few basis points. I think you said you're now including a height and 2Q NIM came in better than you guided to. Anything else you point us to for the higher range for the full year?
James Moses : No, I think that really describes it, Tony, the balance sheet repricing dynamics continue to exist here. So as we've described a number of times, roughly $400 million a quarter, we think that, that spread in Q2 was about 140 basis points on the roll-on, roll-off and we think somewhere in the neighborhood of $140 million to $150 million is depending on the mix of those cash flows that come off the balance sheet. We think that will continue to play out for that -- from that perspective. So I think it really is just a change in outlook on the macro side of things that's driving an update to our NIM.
Anthony Elian : Okay. And then on capital, you didn't buy back any shares in 2Q, but your CET1 is still above 13%. How should we think about buybacks as you work through the TriCo deal close?
Robert Harrison : Tony, this is Bob. We're probably not going to do buybacks throughout the rest of the year. Of course, that could change. We have the authorization. But as we go into the transaction, go through the regulatory process, it's unlikely.
Operator : And our next question comes from the line of Andrew Terrell from Stephens.
Andrew Terrell : Just 1 quick 1 for me. You guys have done a great job on expenses so far this year. If I look at just the midpoint of the full year guide, it kind of implies you step up to like a 130-ish, maybe a little more expense run rate in the back half of the year. I just wanted to run that kind of run rate by you. And if that is the case, what kind of dried the expense pickup in the back half of the year? .
James Moses : Yes. A couple of things, Andrew. We're going to continue to hire people. We want to make sure we're continue to keep our loan pipelines robust. We want to make sure we have folks out there to investments that we're making in people to grow the balance sheet on the one hand. And then we also have some projects and things like that, that, that were -- that won't finalize until the back half of the year. And so then these expenses capitalize and go and then start to show up when they finish up. So you're going to see it -- you'll see it in the -- on the salary side, but then also like on the professional services and IT side of things as well.
Andrew Terrell : Okay. Great. And actually, while I've got you on the margin, can you just remind us the -- which meeting do you have the hike in the guidance? And are you able to quantify just the sensitivity of the balance sheet in terms of like what a 25 basis point rate hike does to the margin versus without [ square models ] with the guide. .
James Moses : Yes. So I think the right way to think about your last question there is that we have $6 billion or so of assets that will reprice immediately upon an increase based on SOFR roughly. And then we have $3.5 billion to $4 billion of liabilities that we would expect that would reprice somewhat immediately around that. So from an NII perspective, I think that's probably the right way to think about it for an increase in 25 basis points. And then -- I'm sorry, Andrew, I can't remember the other part of your question.
Andrew Terrell : Yes, I think that covers. I was just trying to -- which part of the -- which Fed meeting did you have in the guide?
James Moses : No, I think it was -- I think it's in the fourth quarter. I think early in the fourth quarter is when we had it.
Operator : And our next question comes from the line of Jared Shaw from Barclays.
Jared David Shaw : I guess, actually, just 1 comment, Bob, at the beginning, you said you saw an increase in tourism from Japan. I guess with the currency rate here, being so low, I guess that's encouraging. I mean is that -- what's sort of driving do you think the increased traffic from there?
Robert Harrison : Yes. I don't have a precise answer, but just talking to people in the industry, you're just seeing the more enthusiasm, I guess, for the economy over there and there's still people that have means to travel. And I guess they've just decided to stop waiting and start traveling. But it's incremental off of a lower base. So we're not anywhere near the pre-COVID number. But we're up from the bottom that we had hit and that's -- every additional traveler from Japan is welcome because they're just very good travelers and guests, and they really enjoy Hawaii. So it's difficult. 160-plus exchange rate is not easy for them. .
Jared David Shaw : Yes. okay. And then on BOLI, you called out the BOLI increase. Is that a [ debt ] benefit? Or is that just a result of sort of your higher deployed capital in the BOLI?
James Moses : Yes. Thanks, Jared. So what that is, is we still have a component of our BOLI product that is sensitive to actual markets. And so we write it up and we write it down depending on how markets are going. And so that was a market impact on our BOLI this quarter. .
Jared David Shaw : Okay. And then finally, I guess, just as you're doing more work on the deal, have you given any thought to how your management structure may change to reflect the bigger presence in the Mainland? And going forward, I guess, how long -- how much time do you think, Bob, you're going to be spending sort of off-island versus Q4?
Robert Harrison : People accuse me not being here enough already. We have 3 members of their team joining our senior management team, Rick Smith, Dan Bailey and [indiscernible] And as far as my time, I've been on the Federal Advisory Council now for 3 years, I'll be rolling off. So that's 4 to 6 trips a year to the West Coast or the East Coast. So those trips will probably be redirected to California, but it will be pretty much the same as it is now, I would think.
Operator : And our next question comes from the line of Tim Mitchell from Raymond James.
Unknown Analyst : This is Tim on for David. One question on the deal. So how has reception been from the TriCo bankers and clients since you guys announced the deal? And kind of what is your messaging been to them? And similar to Jared's question, like was your plan as it relates to letting that team operate more -- maybe more independently than we see in most bank mergers, just kind of given the unique nature of the transaction?
Robert Harrison : Yes. Thanks for the question. And some of this -- a good amount of this will be in the proxy, but just to maybe cover what we talked about last week. One of the reasons we like TriCo so much is they have a strong management team, and we're planning on keeping most of them there. So we're there to support them. We're here learn from each other, but they have a great bank, and they run it well. So that's where we're leveraging. .
Unknown Analyst : Okay. Great. And then just kind of on the earlier point of that question, reception from conversations with bankers and clients since deal's announced. Do you have any update to that?
Robert Harrison : Yes. We're still doing outreach, and we can talk about that, I think, better at a later date, but I'll be up there in a few more weeks, a couple of weeks from now to meet many of their employees I haven't already met, and I'm looking forward to doing that.
Operator : And our next question comes from the line of Andrew Liesch from StoneX Group.
Andrew Liesch : Just to put a fine point on the fee income guide. Is this some plan like a step down towards like $54 million or $53 million for the next 2 quarters?
James Moses : I think that's -- we always struggle with this one, Andrew, right? So because we have these things that show up every now and then. So hard to forecast the timing of those things. I think when you look at you look at what we had in the first quarter and what we had here in the second quarter, you come like pretty close to about what we've been expecting for the full year guide of $220 million. And so I wouldn't categorize it as a step down or anything like that. I would just categorize it as it's hard to forecast some of these one-off onetime things that seem to happen at different points of the year. So I think we generally think our number is about $55 million a quarter, and there will be sometimes when things show up and you kick that up a little bit and sometimes things don't appear and kick that down a little bit.
Andrew Liesch : Got it. All right. That makes sense. Just on the size of the -- of average earning assets here going forward, you started the quarter with less cash on hand or interest-bearing cash as you did the prior quarter. I guess, does that start to rebuild with deposits coming back again? Just trying to get a sense on what average earning assets should shake out for the third quarter.
James Moses : Yes. No, I think we're probably going to run the cash at about where we're at where you saw it at the end of the second quarter. So I think in general, what you're going to see is just a slightly smaller asset size, but that's cash, right? We still expect to see some pretty good loan growth in the back half of the year. So probably run the cash balances at about this $1 billion level. .
Operator : And our next question comes from the line of Matthew Clark from Piper Sandler.
Matthew Clark : I heard your commentary on deposit costs. But just wondered what the spot rate was at the end of June?
James Moses : It was 1.21.
Matthew Clark : Okay. Got it. Got it. Okay. And then just maybe since everything else has been asked, I think, just back to the merger, any update on the 25% cost savings target. I assume you're still working through that, but would love to hear where you expect a bulk of that to come from? .
James Moses : Yes. I mean I think we kind of covered that on the deal announcement call. No real update on that, 25% remains the target, and we feel comfortable that we'll be able to get there through a variety of ways. So we're just very excited to get working with our partners over there at TriCo. .
Operator : 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.
Kevin Haseyama : 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. .
Operator : Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
