First Hawaiian Inc: Strong Loan and Deposit Growth Amid Economic Headwinds

First Hawaiian Inc (FHB) reported robust financial performance in the fourth quarter of 2024, driven by significant loan and deposit growth despite facing economic headwinds. The bank's strong credit quality and effective risk management strategies have contributed to its success, while potential risks and challenges lie ahead. This article will delve into the key highlights of FHB's Q4 2024 earnings call and analyze the factors contributing to its performance.

Loan and Deposit Growth

First Hawaiian reported loan growth of $167 million, or 1.2%, in Q4 2024, driven by increases in Commercial Real Estate (CRE) and Commercial & Industrial (C&I) loans, particularly from Hawaiian companies. The deposit performance was strong, with a $324 million increase in total retail and commercial deposits, including $175 million in demand deposits. This growth was attributed to proactive pricing actions and successful deposit gathering, especially in demand deposits.

Net Interest Margin (NIM) Expansion

First Hawaiian's net interest margin (NIM) expanded by 8 basis points (bps) in Q4 2024, driven by favorable deposit mix changes, rate outperformance, and securities restructuring. The bank's proactive pricing actions and successful deposit gathering contributed to the favorable deposit mix changes, while rate outperformance was driven by the growth in higher-yielding loan portfolios, such as CRE and C&I loans. The securities restructuring improved the portfolio yield by 309 basis points, providing a significant boost to the bank's interest margin.



Credit Quality and Risk Management

First Hawaiian maintained excellent credit quality, with net charge-offs year-to-date at $13.6 million and a net charge-off rate of 10 bps. The bank's credit risk remains low, with no broad signs of weakness across consumer or commercial books, and stable classified assets. First Hawaiian closely monitors its CRE exposure, and credit performance remains strong. The bank's proactive approach to risk management, including successful deposit gathering and proactive pricing actions, has contributed to its strong financial performance.

Potential Risks and Challenges

While First Hawaiian's performance has been robust, the bank faces potential risks and challenges in the future. Expected payoffs in the CRE and construction portfolios may act as a headwind for loan growth in 2025. Additionally, economic headwinds, such as a slow pace of economic expansion in Hawaii and a slight decrease in visitor arrivals and spending, could impact the bank's performance. Interest rate fluctuations may also pose challenges to the bank's net interest income and margin.

In conclusion, First Hawaiian Inc (FHB) reported strong loan and deposit growth in the fourth quarter of 2024, driven by proactive pricing actions, successful deposit gathering, and effective risk management strategies. The bank's net interest margin (NIM) expansion was driven by favorable deposit mix changes, rate outperformance, and securities restructuring. While potential risks and challenges lie ahead, First Hawaiian's robust financial performance is a testament to its strong credit quality and effective risk management strategies. Investors should closely monitor the bank's performance and the factors contributing to its success as it navigates the future.