First Hawaiian’s Q1 Results: Profitability Gains Amid Balance Sheet Contractions

First Hawaiian, Inc. (NASDAQ:FHB) delivered a mixed performance in its first quarter of 2025, balancing improved profitability with strategic balance sheet contractions and heightened credit caution. The bank’s net income rose to $59.2 million, or $0.47 per diluted share, marking a 12.9% increase from the prior quarter and a 9.3% year-over-year gain. While margin expansion and cost discipline shone, declining loan and deposit volumes—and a significant jump in credit provisions—highlighted a cautious approach to an uncertain economic environment.

Profitability on the Rise, but Balance Sheet Dynamics Worry

The bank’s net interest margin expanded to 3.08%, a 5-basis-point increase from Q4 2024, driven by lower deposit costs and improved lending profitability. This margin growth, paired with cost controls that reduced noninterest expenses by $0.6 million to $123.6 million, led to an efficiency ratio of 58.2%—a marked improvement from 65.5% in the prior quarter.

However, the bank’s balance sheet trends were less encouraging. Total loans fell by $115.2 million (0.8%) to $14.3 billion, with declines in commercial real estate (-$97 million), residential mortgages (-$39 million), and consumer loans (-$26 million). Deposits also contracted by $106.4 million (0.5%) to $20.2 billion, though retail deposits grew by $105 million. Management attributed this contraction to “economic uncertainty,” emphasizing a strategic pivot toward profitability over growth.

Investors appeared unimpressed with the contraction: FHB’s shares fell 5.5% premarket to $22.01, reflecting concerns over the bank’s ability to sustain asset growth in its key markets.

Credit Prudence Rises, but Asset Quality Holds

While loans declined, the bank’s credit metrics remained稳健, with non-performing assets at 0.14% of total loans and leases—a historically low level. The provision for credit losses, however, surged to $10.5 million, a stark contrast to the $0.8 million negative provision in Q4 2024. This reflects heightened caution, particularly in commercial real estate, where 11.7% of multi-family loans were classified as criticized (though this segment represents just 19.4% of CRE exposure).

CEO Bob Harrison noted, “We remain focused on maintaining capital strength and operational discipline,” a sentiment underscored by the bank’s CET1 ratio of 12.93%, well above regulatory requirements. The dividend stayed at $0.26 per share, and the bank repurchased $25 million in shares, signaling confidence in its $2.6 billion equity position.

The Dividend and Buyback Debate

First Hawaiian’s dividend policy has been a cornerstone of its investor appeal, with the $0.26 quarterly payout unchanged since at least Q3 2024. Combined with share repurchases—$25 million in Q1—the bank returned $50.5 million to shareholders year-to-date. While this underscores capital strength, some investors may question whether such returns are sustainable if loan contraction persists.

The Bottom Line: Caution vs. Resilience

First Hawaiian’s Q1 results reveal a bank prioritizing resilience over growth. Margin expansion and cost discipline are clear wins, but the balance sheet contraction and elevated credit provisions suggest management is preparing for potential economic headwinds.

The stock’s dip reflects investor skepticism about the bank’s ability to reverse loan and deposit declines in coming quarters. Yet, with a solid efficiency ratio (58.2%), strong capital ratios, and a dividend yield of 1.2% (versus the S&P 500’s average of 1.3%), FHB remains a conservative play in a volatile market.

For now, the bank’s strategy of trading growth for profitability appears sustainable. But as Harrison acknowledged, the “economic uncertainty” shaping this approach remains unresolved. Investors will need to weigh whether FHB’s defensive stance offers enough protection—or if its cautious positioning could limit upside in a recovering economy.

In conclusion, First Hawaiian’s Q1 results are a reminder that in banking, prudence can coexist with profitability. While loan contraction and market skepticism pose near-term risks, the bank’s robust capital, disciplined cost management, and consistent dividend policy position it as a steady hand in a turbulent sector. The question for shareholders is whether the bank can reignite growth without sacrificing the margins and credit discipline that made this quarter a success.