FHB Q3 Deep Dive: Deposit Growth, Margin Expansion, and Conservative Credit Set the Tone

Hawaiian banking company First Hawaiian (NASDAQ:FHB) announced better-than-expected revenue in Q3 CY2025, with sales up 7.8% year on year to $226.4 million. Its GAAP profit of $0.59 per share was 14% above analysts’ consensus estimates.

Is now the time to buy FHB? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

First Hawaiian Bank’s third quarter was marked by a positive market response, as the company surpassed analysts’ revenue and profit expectations. Management attributed the improvement to higher net interest and noninterest income, as well as disciplined cost control. CEO Robert Harrison pointed out that “the balance sheet remains solid as we continue to be well capitalized with ample liquidity,” while strong deposit growth and active customer engagement contributed meaningfully to results. The quarter also saw a normalization of the tax rate and the impact of previously announced share repurchases.

Looking ahead, First Hawaiian Bank’s outlook is shaped by expectations of stable loan and deposit balances, modest margin expansion, and continued strength in its core Hawaii market. CFO James Moses emphasized that net interest margin (NIM) is expected to show incremental improvement in the coming quarters, stating, “the trajectory for now looks like we can still support increasing expansion of the margin.” Management remains focused on managing deposit costs as interest rates decline and believes that loan growth and prudent liquidity deployment will be essential for sustaining profitability.

Key Insights from Management’s Remarks

Management highlighted several business trends that influenced both the quarter’s financial performance and its guidance for the remainder of the year.

• Deposit growth momentum: Strong commercial and public deposit inflows, especially in operating accounts, contributed to ample liquidity. Management credited the retail and commercial teams for their proactive customer outreach and relationship-building, which helped offset seasonal declines in retail deposits.

• Loan portfolio contraction: Total loans declined due to paydowns in commercial and industrial (C&I) lines, particularly from dealer floor plans and select corporate borrowers. However, management signaled robust loan origination activity in the pipeline and anticipates balances ending the year roughly flat to the prior year.

• Margin improvement drivers: Net interest margin expanded, benefiting from higher asset yields and nonrecurring items such as loan fees. The investment portfolio was maintained at a flat level, and management restarted some purchases after prior reductions, aiming to enhance returns on available liquidity.

• Noninterest income variability: Noninterest income received a temporary boost from higher bank-owned life insurance (BOLI) income and swap activity. Management expects the normalized run rate for this income stream to be slightly higher than previously guided, citing ongoing strength in the fee business.

• Credit quality stability: Credit risk remained low, with a slight rise in classified assets attributed to a single, well-known borrower. Management continues to hold conservative reserves, and no broad signs of weakness were noted in either consumer or commercial portfolios.

Drivers of Future Performance

Management expects incremental margin gains, stable credit, and disciplined balance sheet management to guide performance in the next quarter and into 2026.

• Loan growth as a lever: Management is banking on strong loan origination, especially in commercial real estate (CRE) and C&I, to support asset yields and offset potential headwinds from rate cuts. The team remains open to selective loan pool purchases where it has niche expertise, particularly in Hawaii residential loans.

• Deposit cost management: As the Federal Reserve is anticipated to lower rates, management expects to reduce deposit costs, though the ability to do so will diminish with each subsequent rate cut. Betas (the share of rate cuts passed through to depositors) are projected to decline incrementally, preserving margin but with a natural floor.

• Credit and macroeconomic vigilance: While credit metrics remain healthy, management is closely monitoring the impact of a potential prolonged federal government shutdown and external economic forecasts, including the possibility of a mild recession. Conservative reserving and ongoing engagement with at-risk customers are central to its approach.

Catalysts in Upcoming Quarters

Looking forward, the StockStory team will be monitoring (1) the pace of loan origination and whether new production can offset C&I paydowns, (2) management’s ability to maintain or expand net interest margin despite expected rate cuts, and (3) stability in credit quality, especially in light of potential macroeconomic disruptions such as a prolonged federal government shutdown. Execution on prudent liquidity deployment and fee income sustainability will also be key areas of focus.

First Hawaiian Bank currently trades at $24.78, up from $23.69 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free for active Edge members).

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