Q3 2025 First Hawaiian Inc Earnings Call

After the speaker's presentation, there will be a question and answer session to ask a question. During this session you will need to press star one on your telephone. If your question has been answered and you'd like to remove yourself from the queue simply press Star One again as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program, Kevin Husky AMA.

Investor Relations manager. Please go ahead Sir.

Thank you Jonathan and thank you everyone for joining us as we review our financial results for the third quarter of 2025 with me today are Bob Harrison, Chairman, President and CEO, Jamie Moses CFO and Leanne Nakamura, Chief risk officer, we have prepared a slide presentation that we'll refer to in our remarks today.

The presentation is available for downloading and viewing on our website at H B Dot com in the Investor Relations section.

During today's call, we will be making forward looking statements. So please refer to our slide one 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.

Hello, everyone. Thank you thanks for joining us today, and I will start by giving a quick overview of the local economy.

The state unemployment rate continued to drift lower and was at two 7% in August compared to the national unemployment rate of four 3%.

Through August total visitor arrivals were up 7% compared to last year as strength in the U S mainland arrivals more than offset weaknesses in Japanese and Canadian arrivals.

Year to date visitor spending was $4 6 billion.

Up four 5% compared to the same period of last year.

The housing market remained stable.

Single family sales price on Oahu was $1 $2 million in September up three 8% from last year.

The median condo sales price on Oahu for September was $509000 down one 7%.

The prior year.

Before we move on I wanted to discuss the federal government shutdown.

And it's too early to measure the full impact on the Hawaii economy, but with a large civilian federal workforce, we expect that many families will begin to face financial hardship.

The Hawaii Bankers Association all the local banks have asked affected families to contact their local bank to discuss available relief measures.

Turning to slide two we had another strong quarter as net income increased compared to the second quarter.

The improvement relative to the prior quarter was driven by higher net interest and noninterest income, partially offset by a higher effective tax rate.

As you might recall, our second quarter results included the impact from a change in California tax law, which resulted in a net benefit of $5 $1 million last quarter.

Speaker #1: Anchors Association. All the local banks have asked affected families to contact their local bank to discuss available relief measures. Turning to slide two.

The effective tax rate in the third quarter returned to a more normalized 23, 2%.

Turning to slide three the balance sheet remains solid as we continue to be well capitalized with ample liquidity.

Speaker #1: We had another strong quarter as net income increased compared to the second quarter. The improvement relative to the prior quarter was driven by higher net interest and non-interest income, partially offset by a higher effective tax rate.

We held the investment portfolio relatively flat and loans declined by $223 million.

Average deposits were higher during the quarter and we saw a surge at the end of the quarter due to inflows in public operating accounts and then Jamie will cover this in more detail a little bit.

Speaker #1: As you might recall, our second quarter results included the impact from a change in California tax law, which resulted in a net benefit of $5.1 million last quarter.

We also repaid the $250 million <unk> advance that matured in September and.

Speaker #1: The effective tax rate in the third quarter returned to a more normalized 23.2%. Turning to slide three, the balance sheet remains solid as we continue to be well capitalized with ample liquidity.

And during the quarter, we repurchased about 965000 shares.

Total costs of $24 million.

We have $26 million of remaining authorization under the approved 2025 stock repurchase plan.

Speaker #1: We held the investment portfolio relatively flat, and loans declined by $223 million. Average deposits were higher during the quarter, and we saw a surge at the end of the quarter due to inflows in public.

Turning to slide four total loans declined by about $223 million in the quarter. The decline was primarily in C&I.

Speaker #1: Operating accounts . And Jamie will cover this in more detail in a little bit . We also repaid the $250 million Fhlb advance that matured in September , and during the quarter , we repurchased about 965,000 shares at a total cost of $24 million .

Dealer flooring balances fell by $146 million.

Pay down on lines of credit by several Hawaii corporate borrowers out of about $130 million to the decline in the C&I balances.

We're seeing strong originations so far in the fourth quarter and expect to end the year about flat to year end 2020 for.

Speaker #1: We have $26 million of remaining authorization under the approved 2025 stock repurchase plan. Turning to slide four, total loans declined by about $223 million in the quarter.

Now I'll turn it over to Jamie.

Thanks, Bob turning to slide five total deposits increased about $500 million in the third quarter.

Commercial deposits increased $135 million and were partially offset by a $43 million decline in retail deposits in the quarter the.

Speaker #1: The decline was primarily in CNI dealer flowing balances, which fell by $146 million. Paydowns on lines of credit by several Hawaii corporate borrowers added about $130 million to the decline in CNI balances.

The decline in retail deposits seems to be largely due to seasonality, where we have seen a pattern of declining balances in the third quarter, followed by growth in the fourth quarter.

Total public deposits increased by $406 million and all of that growth was in operating accounts. There was no change in the balance of public time deposits.

Speaker #1: We're seeing strong originations so far in the fourth quarter and expect to end the year about flat to year-end 2024. Now, I'll turn it over to Jamie.

In the fourth quarter, we expect seasonal increases in both retail and commercial deposits, while seeing outflows in public deposits.

Speaker #2: Thanks, Bob. Turning to slide five, total deposits increased by about $500 million in the third quarter. Commercial deposits increased by $135 million and were partially offset by a $43 million decline in retail deposits in the quarter.

The total cost of deposits fell by one basis point and the ratio of noninterest bearing deposits to total deposits was a strong 33%.

Speaker #2: The decline in retail deposits seems to be largely due to seasonality, where we have seen a pattern of declining balances in the third quarter, followed by growth in the fourth quarter.

On slide six net interest income was $169 3 million $5 $7 million higher than the prior quarter.

The NIM in the second third quarter with $3 19 up eight basis points compared to the prior quarter the.

Speaker #2: Total public deposits increased by $406 million, and all of that growth was in operating accounts. There was no change in the balance of public time deposits.

The increase in the margin was primarily driven by higher asset yields as well as some nonrecurring items such as loan fees.

Speaker #2: In the fourth quarter . We expect seasonal increases in both retail and commercial deposits while seeing outflows in public deposits . The total cost of deposits fell by one basis point , and the ratio of noninterest bearing deposits to total deposits was a strong 33% .

The run rate NIM for the month of September was three 6% and we continue to expect positive NIM momentum in the fourth quarter and our current thinking is that the margin will advance a few basis points from the September NIM.

This guidance reflects the impact of our fourth quarter loan and deposit outlook and an additional 25 basis point rate cuts in both October and December.

Speaker #2: On slide six . Net interest income was 169.3 million , $5.7 million higher than the prior quarter . The Nim in the third quarter was 319 , up eight basis points compared to the prior quarter .

Bob Harrison: Through the Hawaii Bankers Association, all the local banks have asked affected families to contact their local bank to discuss available relief measures. Turning to slide two, we had another strong quarter as net income increased compared to the second quarter. The improvement relative to the prior quarter was driven by a higher net interest and non-interest income, partially offset by a higher effective tax rate. As you might recall, our second quarter results included the impact from a change in California tax law, which resulted in a net benefit of $5.1 million last quarter. The effective tax rate in the third quarter returned to a more normalized 23.2%. Turning to slide three, the balance sheet remains solid as we continue to be well-capitalized with ample liquidity. We held the investment portfolio relatively flat, and loans declined by $223 million.

Turning to slide seven noninterest income was $57 1 million in the quarter.

Speaker #2: The increase in the margin was primarily driven by higher asset yields , as well as some non-recurring items such as loan fees . The run rate Nim for the month of September was 3.16% , and we continue to expect positive Nim momentum in the fourth quarter , and our current thinking is that the margin will advance a few basis points from the September Nim .

Noninterest income benefited from higher bowling income due to favorable market movements and swap income.

We continue to expect the normalized run rate of noninterest income will be about $54 million per quarter.

There were no unusual expense items in the third quarter.

And based on our year to date expenses, we now expect that full year expenses will come in below our most recent outlook of $506 million.

Speaker #2: This guidance reflects the impact of our fourth quarter loan and deposit outlook, and additional 25 basis point rate cuts in both October and December.

And now I'll turn it over to Lee. Thank you Jami moving to slide eight the bank continued to maintain its strong credit performance and healthy credit metrics in the third quarter credit risk remains low and stable and well within our expectation we are not observing any broad signs of weakness across either the consumer or commercial books classify.

Speaker #2: Turning to slide seven, non-interest income was $57.1 million in the quarter. Non-interest income benefited from higher BOLI income due to favorable market movements and swap income.

Speaker #2: We continue to expect the normalized run rate of non-interest income will be about $54 million per quarter . There were no unusual expense items in the third quarter , and based on our year to date expenses , we now expect that full year expenses will come in below our most recent outlook of 506 million .

<unk> increased to $30 1 million.

Bob Harrison: Average deposits were higher during the quarter, and we saw a surge at the end of the quarter due to inflows in public operating accounts. Jamie will cover this in more detail in a little bit. We also repaid the $250 million First Hawaiian advance that matured in September, and during the quarter, we repurchased about 965,000 shares at a total cost of $24 million. We have $26 million of remaining authorization under the approved 2025 stock buyback plan. Turning to slide four, total loans declined by about $223 million in the quarter. The decline was primarily in C&I. Dealer floor plan balances fell by $146 million, and paydown on lines of credit by several Hawaii corporate borrowers added about $130 million to the decline in the C&I balances. We're seeing strong originations so far in the fourth quarter and expect to end the year about flat to year-end 2024.

Primarily to a single borrower who is a longtime customer that we know well and are continuing to work closely with.

Quarter to date net charge offs were $4 2 million.

Or 12 basis points of total loans and leases year to date net charge offs were $11 3 million or annualized year to date net charge off rate was 11 basis points or one basis point higher than in the second quarter.

Speaker #2: And now I'll turn it over to Lee.

Speaker #3: Thank you, Jamie. Moving to slide eight, the bank continued to maintain its strong credit performance and healthy credit metrics in the third quarter.

Speaker #3: Credit risk remains low, stable, and well within our expectations. We are not observing any broad signs of weakness across either the consumer or commercial books.

NPA and 90 day past due loans were 26 basis points at the end of the third quarter up three basis points from the prior quarter, resulting from a slight increase in non accruals moving.

Speaker #3: Classified assets increased by $30.1 million, due primarily to a single borrower who is a longtime customer that we know well and are continuing to work closely with quarter to date.

Moving to slide nine we show our third quarter allowance for credit losses broken out by disclosure segment. The bank recorded a $4 5 million provision in the third quarter.

Speaker #3: Net charge offs were $4.2 million , or 12 basis points of total loans and leases . Year to date , net charge offs were $11.3 million .

Yes at ACL decreased by $2 6 million to $165 3 million.

This coverage remaining at 117 basis points of total loans and leases. We believe that we continue to be considerably conservatively reserved and prepared for a wide range of outcomes and now we would be very happy to take your questions.

Speaker #3: Our annualized year to date net charge off rate was 11 basis points , or one basis point higher than in the second quarter .

Speaker #3: NPAs and 90 day past due loans were 26 basis points . At the end of the third quarter , up three basis points from the prior quarter , resulting from a slight increase in Non-accruals .

Bob Harrison: Now, I'll turn it over to Jamie.

Jamie Moses: Thanks, Bob. Turning to slide five, total deposits increased about $500 million in the third quarter. Commercial deposits increased $135 million and were partially offset by a $43 million decline in retail deposits in the quarter. The decline in retail deposits seems to be largely due to seasonality, where we have seen a pattern of declining balances in the third quarter followed by growth in the fourth quarter. Total public deposits increased by $406 million, and all of that growth was in operating accounts. There was no change in the balance of public time deposits. In the fourth quarter, we expect seasonal increases in both retail and commercial deposits while seeing outflows in public deposits. The total cost of deposits fell by one basis point, and the ratio of non-interest-bearing deposits to total deposits was a strong 33%.

Certainly and as a reminder, ladies and gentlemen, if you do have a question at this time. Please press star one on your telephone. Our first question comes from the line of David Feaster from Raymond James Your question. Please.

Speaker #3: Moving to slide nine, we show our third quarter allowance for credit losses broken out by disclosure segment. The bank recorded a $4.5 million provision in the third quarter.

Hi, good morning, everybody.

Hey, Dan Good morning, Jake.

Speaker #3: The asset ACL decreased by $2.6 million to $165.3 million, with coverage remaining at 117 basis points of total loans and leases.

I wanted to talk on just kind of the the growth outlook I mean, obviously, we've had some some.

Dealer floor plan was a headwind.

Speaker #3: We believe that we continue to be conservatively , conservatively reserved and prepared for a wide range of outcomes . Now , we would be very happy to take your questions , certainly .

Some just natural declines in C&I I was hoping you could first maybe touch on.

Kind of how the pipeline is shaping up.

Demand that youre seeing and other opportunities that you'd be interested in helping accelerate organic growth. Whether it's are there is there any appetite for full purchases are.

Speaker #4: And as a reminder , ladies and gentlemen , if you do have a question at this time , please press star One on your telephone .

Speaker #4: Our first question comes from the line of David Feaster from Raymond James. Your question, please.

Snakes, just kind of curious kind of like your thoughts on again, what are you seeing now in the pipeline and demanded inorganic growth and other opportunities to accelerate that.

Speaker #5: Hey, good morning everybody.

Speaker #2: Good morning Dave .

Jamie Moses: On slide six, net interest income was $169.3 million, $5.7 million higher than the prior quarter. The NIM in the third quarter was 3.19%, up eight basis points compared to the prior quarter. The increase in the margin was primarily driven by higher asset yields as well as some non-recurring items such as loan fees. The run rate NIM for the month of September was 3.16%, and we continue to expect positive NIM momentum in the fourth quarter, and our current thinking is that the margin will advance a few basis points from the September NIM. This guidance reflects the impact of our fourth quarter loan and deposit outlook and additional 25 basis point rate cuts in both October and December. Turning to slide seven, non-interest income was $57.1 million in the quarter. Non-interest income benefited from higher wealth management income due to favorable market movements and swap income.

Speaker #5: I wanted to talk on , you know , just kind of the the growth outlook . I mean , obviously we've had some , some , you know , dealer floor plan was a headwind , some just natural declines in CNI .

Good morning, David It's Bob I'll, maybe start off hand, it off to Jamie So.

Third quarter was a little unusual in that we saw some pretty significant pay downs in dealer floor plan part of that was one of our customers sold several franchises so that impacted that negatively but overall, we're still very bullish on that business, we're seeing very strong production.

Speaker #5: I was hoping you could first maybe touch on kind of how the pipeline is shaping up . You know , demand that you're seeing and other opportunities that you'd be interested in helping , you know , accelerate organic growth , whether it's , you know , is there any appetite for food purchases or , you know , just kind of curious kind of your thoughts on , again , what are you seeing now in the pipeline in demand and organic growth and other opportunities to accelerate that morning ?

In the pipeline there is some of that's already closed for the fourth quarter. Some of that C&I a lot of that is CRE. So we think we're going to have a very strong fourth quarter.

Speaker #1: Dave, this is Bob. I'll maybe start off and hand it off to Jamie. So, yeah, the third quarter was a little unusual in that we saw some pretty significant paydowns in dealer floor plan.

As we look to the future we have considered pool purchases, but maybe ill ask Jamie is comment on that.

Yeah. Thanks, Bob.

I think we're looking at just in totality as Bob said I think we're looking at being able to get back to flat at the end of 'twenty five roughly to where we were at the end of 'twenty four which is <unk>.

Speaker #1: Part of that was one of our customers sold several franchises, which negatively impacted that. But overall, we're still very bullish on that business.

Jamie Moses: We continue to expect the normalized run rate of non-interest income will be about $54 million per quarter. There were no unusual expense items in the third quarter, and based on our year-to-date expenses, we now expect that full-year expenses will come in below our most recent outlook of $506 million. Now, I'll turn it over to Lea.

Speaker #1: We're seeing very strong production in the pipeline. There are some of that already closed for the fourth quarter. Some of that is CNI; a lot of that is CRE.

Thanks to the strength of the pipeline that we see today.

But to the broader question of pools and purchases I think we were.

Speaker #1: So we think we're going to have a very strong fourth quarter . And you know , as we look to the future , we have considered pool purchases , but maybe I'll ask Jamie to comment on that .

We always look at.

Things and to the extent that we feel like we have some level of expertise or knowledge in particular areas. We look maybe till the carve out.

Lea Nakamura: Thank you, Jamie. Moving to slide eight, the bank continued to maintain its strong credit performance and healthy credit metrics in the third quarter. Credit risk remains low, stable, and well within our expectations. We are not observing any broad signs of weakness across either the consumer or commercial books. Classified assets increased $30.1 million due primarily to a single borrower who is a long-time customer that we know well and are continuing to work closely with. Quarter-to-date net charge-offs were $4.2 million, or 12 bps of total loans and leases. Year-to-date net charge-offs were $11.3 million. Our annualized year-to-date net charge-off rate was 11 bps, or 1 bp higher than in the second quarter. NPAs and 90-day past-due loans were 26 bps at the end of the third quarter, up 3 bps from the prior quarter, resulting from a slight increase in non-accruals.

Speaker #2: Yeah . Thanks , Bob . You know , I think , you know , we're looking at just in totality , as Bob said , I think , you know , we're looking at being able to get back to flat at the end of 25 , roughly to where we were at the end of 24 , which speaks to the strength of the pipeline that we see today .

Things that we have expertise and so for example, maybe like a <unk>.

<unk> pool.

Of Hawaii loans, right might be something where we would think long and hard about purchasing.

Or if there are opportunities around properties in Hawaii.

Speaker #2: But , you know , to the broader question of pools and purchases , you know , I think we we always look at things and to the extent that we feel like we have some level of expertise or knowledge in particular areas , we look maybe to carve out , you know , things that that we have expertise in .

We might look at as well so.

For the most part.

We we see where that we want to grow loans, but we're really looking for areas, where we have some sort of expertise or niche knowledge around in order to be able to do that.

Speaker #2: So , you know , for example , maybe like a residential pool of Hawaii loans , right . Might be something where we would think long and hard about purchasing or if there are opportunities around properties in Hawaii that we might look at as well .

Okay.

That's helpful. And then maybe just I mean, the core deposit growth was tremendous I was hoping you could maybe touch on a bit.

Lea Nakamura: Moving to slide nine, we show our third quarter allowance for credit losses broken out by disclosure segment. The bank recorded a $4.5 million provision in the third quarter. The asset ACL decreased by $2.6 million to $165.3 million, with coverage remaining at 117 bps of total loans and leases. We believe that we continue to be conservatively reserved and prepared for a wide range of outcomes. Now, we would be very happy to take your question.

I talked on some continued growth in core deposits. Obviously, there is some seasonality that you alluded to but could you talk about where you are having success driving core deposit growth.

Speaker #2: So , you know , for the most part , you know , we we see where that we want to grow loans , but we're really looking for areas where we have some sort of expertise or niche knowledge around in order to be able to do that .

And then just again the good Nevada that as we built liquidity like how do you think about deploying some of that liquidity.

In the coming months.

Yes, yes, thanks, Thanks, Dave so.

You know I guess, we're going to we're going to expect that our deposit total balance is probably going to be roughly flat.

Speaker #6: Okay .

Speaker #5: That's helpful . And then maybe just I mean , the core deposit growth was tremendous . I was hoping you could maybe touch on a bit , you know , you talked on some continued growth in core deposits .

At the end of at the end of the year to where we are today.

Operator: Certainly. As a reminder, ladies and gentlemen, if you do have a question at this time, please press star 11 on your telephone. Our first question comes from the line of David Feaster from Raymond James. Your question, please.

That mix is going to shift a little bit from we expect to see some of our public deposits kind of run out here in the fourth quarter, but sort of replaced by retail and commercial deposit so where we're having success really is our retail teams and our commercial teams are really out there.

Speaker #5: Obviously there's some seasonality that you alluded to , but could you talk about where you're having success driving core deposit growth and and then just again , you know , the good and the bad of that is you .

[Analyst 1]: Hey, good morning, everybody.

Bob Harrison: Good morning, Jamie.

[Analyst 1]: I wanted to talk on, you know, just kind of the growth outlook. I mean, obviously, we've had some challenges. The deal with dealer floor plan loans was a headwind, some just natural declines in C&I. I was hoping you could first maybe touch on kind of how the pipeline is shaping up, you know, demand that you're seeing, and other opportunities that you'd be interested in helping, you know, accelerate organic growth, whether it's, you know, is there any appetite for pool purchases or, you know, SNCs? Just kind of curious, kind of like your thoughts on, again, what are you seeing now in the pipeline in demand and organic growth and other opportunities to accelerate that?

Speaker #5: We built liquidity. How do you think about deploying some of that liquidity in the coming months?

Really talking to our customers and doing a really good job.

Speaker #2: Yeah , yeah . Thanks . Thanks , Dave . So you know , I guess we're going to we're going to expect that our deposit total balance is probably going to be roughly flat at the end of , at the end of the year to where we are today .

Of of maintaining strengthening relationships.

In the community and.

I think we are really trying to focus on that relationship activity and so we've had a lot of success with that and thats due to the efforts of our retail and commercial teams primarily.

Speaker #2: And that mix is going to shift a little bit from, you know, we expect to see some of our public deposits kind of run out here in the fourth quarter, but sort of replaced by retail and commercial deposits.

Out here on the ground.

Jamie to answer.

Speaker #2: So , you know , we're we're having success really is our retail teams and our commercial teams are really out there and really talking to our customers and doing a really good job of of , you know , maintaining , strengthening relationships in the community .

As far as the liquidity that we have we have been we are no longer lead in the investment portfolio run down. So we're according to that plan. So we have kind of restarted some purchases. After a number of years of letting that run down. So we're keeping that relatively flat was similar duration and very similar categories.

Bob Harrison: Morning, David. This is Bob. I'll maybe start off, hand off to Jamie. Third quarter was a little unusual in that we saw some pretty significant paydowns in dealer floor plan. Part of that was one of our customers sold several franchises, so that impacted that, negatively. Overall, we're still very bullish in that business. We're seeing very strong production in the pipeline. There are some of those already closed for the fourth quarter. Some of that's C&I. A lot of that is CRE. We think we're going to have a very strong fourth quarter. As we look to the future, we have considered pool purchases, but maybe I'll ask Jamie to comment on that.

Speaker #2: And , you know , you know , I think we're really trying to to focus on that relationship activity . And so we've had a lot of success with that .

Securities that were looking at to purchase.

Okay.

Speaker #2: And that's that's due to the , you know , the efforts of our of our retail and commercial teams primarily , you know , out here on the ground .

That's helpful.

And then maybe just last one from me I appreciate the margin commentary.

Speaker #1: And dad , Jamie's answer , you know , as far as the liquidity that we have , we have been we are no longer letting the investment portfolio run down .

I mean look you're naturally rate sensitive just given the strength of your core deposit base.

The floating rate nature of some of your your loans just kind of curious I mean, theres a lot of moving parts in here right you've got liquidity deployment.

Speaker #1: So we're holding that flat . So we have we're kind of restarted some purchases after a number of years of letting it run down .

There's a lot of moving parts, but I'm just kind of curious.

Speaker #1: So we're keeping it relatively flat with similar duration and and very similar categories of , of securities that we're looking at to , to purchase .

Jamie Moses: Yeah, thanks, Bob. I think we're looking at just in totality, as Bob said, I think we're looking at being able to get back to flat at the end of 2025, roughly to where we were at the end of 2024, which speaks to the strength of the pipeline that we see today. To the broader question of pools and purchases, I think we always look at things, and to the extent that we feel like we have some level of expertise or knowledge in particular areas, we look maybe to carve out things that we have expertise in. For example, maybe like a residential pool of Hawaii loans might be something where we would think long and hard about purchasing, or if there are opportunities around properties in Hawaii that we might look at as well.

How do you think about managing deposit costs as the fed cuts and then just given the tailwind from back book repricing Remixing and some of the liquidity deployment that we're talking about do you think that we can see the margin continue to expand even with fed cuts next year.

Speaker #6: Okay . That's helpful .

Speaker #5: And then maybe just last one for me . I appreciate the margin commentary . You know , I mean , look , you're naturally rate sensitive .

I think Dave that depends kind of on the timing and the magnitude of those cuts.

Speaker #5: Just given the strength of your core deposit base and the , you know , the floating rate nature of some of your , your loans .

Speaker #5: Just kind of curious . I mean , there's a lot of moving parts in here , right ? You got liquidity deployment , you know , and all .

I think that would that is ultimately by the end of the year. It could be a challenge to see NIM expansion at the end of at the end of the year and but for now I think for now the Euro 2020, that's right yeah, yeah, but for now what we see is that we have sufficient loan growth.

Speaker #5: There's a lot of moving parts , but I'm just kind of curious , you know , first , how do you think about managing deposit costs as the fed cuts and then just given the tailwinds from back book repricing , remixing and some of the liquidity deployment that we're talking about , do you think that we can see the margin continue to expand , even with fed cuts next year ?

And sufficient loan growth to sort of cover cover this right. So we're still we're looking at we're looking at $1 billion of cash flows over the next 12 months.

Jamie Moses: For the most part, we see that we want to grow loans, but we're really looking for areas where we have some sort of expertise or niche knowledge around in order to be able to do that.

Speaker #2: I think that depends kind of on the timing and the magnitude of those cuts . I think that would that is , you know , ultimately by the end of the year , it could be a challenge to see Nim expansion at the end of at the end of the year .

At like a we'll call that like a 125 basis point spread right now too until loans that we're putting back on the books.

And we have a 200 to 250 basis point spread on the investment portfolio right now.

Speaker #2: But for now, you know, I think for now.

[Analyst 1]: Okay, that's helpful. Maybe just, I mean, the core deposit growth was tremendous. I was hoping you could maybe touch on it a bit. You know, you talked on some continued growth in core deposits. Obviously, there's some seasonality that you alluded to. Could you talk about where you're having success driving core deposit growth? Just, again, you know, the good and the bad of that is we built liquidity. How do you think about deploying some of that liquidity in the coming months?

That were sort of.

Speaker #1: The year 2026 .

We're keeping flat. So there are a lot of underlying dynamics and of course, those spreads will decrease right. The more of the fed decreases as well.

Speaker #2: That's right . Yeah , yeah . But for now , what we see is that we have sufficient loan growth and sufficient loan growth to sort of cover , cover this .

But I think I think the trajectory for now.

Speaker #2: Right . So we're still , you know , we look at we're looking at $1 billion of cash flows over the next 12 months at a we'll call that like a 125 basis point spread .

It looks like we can still support.

Increasing expansion of the margin.

There will be a natural spot and I think that's maybe.

Speaker #2: Right now to , to loans that we're putting back on the books . And we have a 200 to 250 basis point spread on the investment portfolio right now .

Maybe like a percent or so from now so four to five rate cut something like that there'll be a natural floor to our ability to drive to drive out further decreases in the deposit book So.

Jamie Moses: Yeah, thanks. Thanks, Dave. You know, I guess we're going to expect that our deposit total balance is probably going to be roughly flat at the end of the year to where we are today, and that mix is going to shift a little bit. We expect to see some of our public deposits kind of run out here in the fourth quarter, but sort of replaced by retail and commercial deposits. Where we're having success really is our retail teams and our commercial teams are really out there and really talking to our customers and doing a really good job of maintaining and strengthening relationships in the community. I think we're really trying to focus on that relationship activity. We've had a lot of success with that, and that's due to the efforts of our retail and commercial teams primarily out here on the ground.

Speaker #2: You know , that we're sort of , you know , that we're keeping flat . So there are a lot of underlying dynamics .

Speaker #2: And of course , those spreads will decrease , right ? The more the fed decreases as well . You know , but I think I think the trajectory for now looks like we can still support , you know , increasing expansion of the margin .

Good and bad news right, we've got a great deposit base, but it can only go so right. There is a floor on that.

So I think there is opportunity to continue to expand the NIM.

And again.

I think that is going to be largely dependent on our ability to generate loans.

Speaker #2: But of course there will be a natural spot. And I think that's maybe, you know, that's maybe like a percent or so from now.

Okay. That's helpful. Thanks, everybody.

Thank you and our next question comes from the line of Charlie Driscoll from K VW. Your question. Please.

Speaker #2: So four to five rate cuts , something like that . There'll be a natural floor to our ability to drive , to drive out further decreases in the deposit book .

Hi, This is Charlie on for Kelly model.

Speaker #2: So, you know, good and bad news, right? We've got a great deposit base, but it can only go so low, right?

Hey, Jonathan.

Thank you Karen.

<unk> capital priorities, how you view on the buyback and from an <unk> perspective, the environment is obviously heating up.

Speaker #2: There's a four on that. And so I think there is an opportunity to continue to expand the NIM. And again, you know, I think that is going to be largely dependent on our ability to generate loans.

Just remind us of your strategy on that front. Thank you.

Yes, thanks, Charlie So capital priorities continue to be the same.

Bob Harrison: To add to Jamie's answer, as far as the liquidity that we have, we are no longer letting the investment portfolio run down. We're holding that flat. We've kind of restarted some purchases after a number of years of letting it run down. We're keeping that relatively flat with similar duration and very similar categories of securities that we're looking at to purchase.

We'd love to we're doing we're doing all the loans that fit our credit box.

Speaker #6: Terrific. That's helpful. Thanks, everybody.

Speaker #4: Thank you. And our next question comes from the line of Charlie Driscoll from KBW. Your question, please.

And profile, we want to do all of those that we can.

And we have we have a share buyback authority of of a 100 million, you'll see that we've done $74 million. So far in the rest of that is going to depend on.

Speaker #7: Hi, this is Charlie on for Kelly Motta.

Speaker #2: Hey .

Speaker #7: Charlie . You could remind us of your capital priorities . How are you viewing the buyback ? And from a perspective , the environment is obviously heating up .

I'll call it market conditions.

[Analyst 1]: Okay. That's helpful. Maybe just last one from me. I appreciate the margin commentary. I mean, look, you're naturally rate-sensitive just given the strength of your core deposit base and the floating rate nature of some of your loans. Just kind of curious. I mean, there's a lot of moving parts in here, right? You got liquidity deployment, and there's a lot of moving parts. I'm just kind of curious. First, how do you think about managing deposit costs as the Fed cuts? Just given the tailwinds from backbook repricing, remixing, and some of this liquidity deployment that we're talking about, do you think that we can see the margin continue to expand even with Fed cuts next year?

For sure.

And I think the dividend is.

Speaker #7: Just remind us of your strategy on that front. Thank you.

Speaker #2: Yeah . Thanks , Charlie . So capital priorities continue to be the same . You know we'd love to you know we're doing we're doing all the loans that fit our credit box .

Pretty good yields kind of a place and also just in terms of a.

The ratio of <unk>.

Earnings that we pay out.

It's relatively high so probably not going to see an increase in the dividend or anything like that as part of that at the moment.

Speaker #2: And profile . We want to do all those that we can . And we have we have a share buyback authority of of 100 million .

That's helpful. Thank you and then I.

Speaker #2: You see that we've done 74 million so far . And you the rest of that is going to depend on , you know , I'll call it market conditions for sure .

Okay.

Circling back to the deposit rate conversation.

And Hawaii has been rational.

Anticipating some cuts like we've been hearing any changes in expectations from from bank, maybe just put some numbers around how you're thinking about betas on the way down. Thank you.

Speaker #2: And , you know , I think the dividend is , you know , pretty good yield , kind of a place . And also in just in terms of a , you know , the ratio of , of earnings that we pay out is relatively high .

Jamie Moses: I think, Dave, that depends on the timing and the magnitude of those cuts. I think that is, you know, ultimately, by the end of the year, it could be a challenge to see NIM expansion at the end of the year. For now, you know, I think for now.

So.

Charlie we tend to talk about it as beta on our rate sensitive portfolio. So we continue to have a roughly $4 5 billion dollar rate sensitive deposit portfolio, we've been very successful.

Speaker #2: So, probably not going to see an increase in the dividend or anything like that as part of that at the moment.

Speaker #7: That's helpful . Thank you . And then I guess circling back to the deposit rate conversation , the pricing in Hawaii has been rational and anticipating some cuts like we've been hearing some changes and expectations from from banks , maybe just put some numbers around how you're thinking about betas on the way down .

And with past rate cuts.

Bob Harrison: At the end of the year, you meant 2026.

Talking maybe 90%, 95% betas on that portfolio.

Jamie Moses: That's right.

Bob Harrison: Yeah.

Jamie Moses: Yeah. For now, what we see is that we have sufficient loan growth, and sufficient loan growth to sort of cover this, right? We're still, you know, we're looking at $1 billion of cash flows over the next 12 months, at like a, we'll call that like a 125 basis point spread right now to loans that we're putting back on the books. We have a 200 to 250 basis point spread on the investment portfolio right now, you know, that we're sort of, you know, that we're keeping flat. There are a lot of underlying dynamics. Of course, those spreads will decrease, right, the more the Fed decreases as well. I think the trajectory for now looks like we can still support, you know, increasing expansion of the margin. Of course, there will be a natural spot.

Relative to a fed rate cut.

We think that that drives a little bit lower.

And it gets successively lower for each rate cut that we have.

Speaker #7: Thank you .

Speaker #2: Yeah . So so so Charlie , we tend to talk about it as beta on our rate sensitive portfolio . So we continue to have a roughly $4.5 billion rate sensitive deposit portfolio .

But I think right now I think about maybe like maybe like a 90 beta on the next rate cut.

88 on the next one after that 85 something like that so.

We still think we have a.

Speaker #2: We've been very successful in with past rate cuts . We're , you know , talking maybe 90 , 95% betas on that portfolio relative to a fed rate cut .

A range there where we can.

Where we can drive deposit costs lower.

Of course, when that when the fed cuts rates as well so.

It's a it's a.

Speaker #2: We think that we're , you know , that drives a little bit lower . And it gets successively lower for each rate cut that we have , you know .

Decreasing ability to do that for sure, but still it's still relatively high at the moment.

Speaker #2: But I think , you know , right now I think about maybe like a maybe like a 90 beta on the next rate cut , you know , 88 on the next one after that , 85 , something like that .

Great. Thank you and then I guess, just like a little bit of detail with the margin expansion.

Jamie Moses: I think that's maybe, you know, that's maybe like a percent or so from now. Four to five rate cuts, something like that. There'll be a natural floor to our ability to drive out further decreases in the deposit book. You know, good and bad news, right? Got a great deposit base, but it can only go so low, right? There's a floor on that. I think there is opportunity to continue to expand the NIM. Again, you know, I think that is going to be largely dependent on our ability to generate loans.

And the 50 bps. Some additional cuts are you assuming any loan purchases.

Speaker #2: So we , we still think we have a , a range there where we can where we can drive , deposit costs lower .

No no loan purchases in that.

What we're looking at in terms of looking at our pipelines and in talking with the teams over the over the past month or so we just expect to have some really strong loan growth here in the fourth quarter.

Speaker #2: Of course , when the , when the fed cuts rates as well . So it's a it's a decreasing ability to do that for sure .

Speaker #2: But still relatively high at the moment.

Okay, great. Thank you for taking my questions I'll step back.

Okay John.

Speaker #7: Great. Thank you. And then I guess, just like a little bit of detail with the margin expansion and the 50 basis points of additional cuts, are you assuming any loan purchases in that, or?

Thank you and our next question comes from the line of Anthony <unk> from Jpmorgan. Your question. Please.

[Analyst 1]: Terrific. That's helpful. Thanks, everybody.

Hi, everyone, Jamie just to follow up on NIM.

Operator: Thank you. Our next question comes from the line of Charlie Driscoll from KBW. Your question, please.

To follow up on NIM.

Speaker #7: No .

Speaker #2: No , no loan purchases in that . That's just what we're looking at in terms of looking at our pipelines and and talking with the teams over the over the past month or so .

Slide six you saw a really nice tailwind from loan repricing and it looks like every one of your loan yields increased from the prior quarter I'm just wondering how much of a tailwind is left from loan repricing, maybe in <unk> and beyond just given the outlook for rate cuts and the foreign curve.

[Analyst 2]: Hi, this is Charlie on for Kelly Motta.

Bob Harrison: Hey, Charlie.

[Analyst 2]: Charlie.

Bob Harrison: Just if you could remind us of your capital priorities, how you're viewing the buyback. From an M&A perspective, the environment's obviously heating up. Just remind us of your strategy on that front. Thank you.

Speaker #2: We just expect to have really strong loan growth here in the fourth quarter.

Yes so.

Speaker #7: Okay. Great. Thank you for taking my questions. I'll step back.

I think I.

Theres still tailwind there I guess ill start with that.

Speaker #2: Okay , Charlie .

Jamie Moses: Yeah. Thanks, Charlie. Capital priorities continue to be the same. We'd love to, you know, we're doing all the loans that fit our credit box and profile. We want to do all those that we can. We have a share buyback authority of $100 million. You see that we've done $74 million so far. The rest of that is going to depend on, I'll call it, market conditions, for sure. I think the dividend is in pretty good yield kind of a place. Also, just in terms of the ratio of earnings that we pay out, it's relatively high. Probably not going to see an increase in the dividend or anything like that as part of that at the moment.

Speaker #4: Thank you. And our next question comes from the line of Anthony Allen from J.P. Morgan. Your question, please.

But then.

As we look out.

We have $1 billion of.

Fixed rate cash flows coming off of the portfolio over the next 12 months.

Speaker #8: Hi everyone . Jamie , just to follow up on Nim , just a follow up on Nim . You know , slide six , you saw a really nice tailwind from loan repricing .

And right now, we think that Thats repricing higher at like a 125 basis point spread at the moment. So there is still a pretty significant tailwind there now the 125 basis points, that's an average and.

Speaker #8: It looks like every one of your loan yields increased from the prior quarter. I'm just wondering how much of a tailwind is left from loan repricing.

Speaker #8: Maybe in for Q and beyond, just given the outlook for rate cuts in the forward curve?

The more of the more the fed cuts.

Speaker #2: Yeah . So you know , I think I think there's still tailwind there . I guess I'll start with that . But then you know , as as we look out , we you know , we have $1 billion of fixed rate cash flows coming off of the portfolio over the next 12 months .

Tighter that spread gets for sure, but there is still an ability to.

Reprice those cash flows higher.

On the investment portfolio, where we're seeing 5% to $600 million.

Run off over the next next 12 months, we're getting like a 225 to 250 basis point spread on.

Speaker #2: And you know, right now we think that that's repricing higher at like a 125 basis point spread at the moment. So there's still a pretty significant tailwind there.

Those purchases.

So there is still a really significant sort of balance sheet roll impact.

[Analyst 2]: That's helpful. Thank you. I guess, circling back to the deposit rate conversation, the pricing in Hawaii has been rational and anticipating some cuts. We've been hearing some changes in expectations from banks. Maybe just put some numbers around how you're thinking about betas on the way down. Thank you.

Speaker #2: Now the 125 basis points . You know that's an average . And you know the more the more the fed cuts the the tighter that spread gets for sure .

That we are seeing that should be a tailwind.

Not only in the fourth quarter, but into the first and second quarters as well now.

Speaker #2: But there is still an ability to to to reprice those those cash flows higher on the investment portfolio where we're seeing 5 to 600 million of run off over the next 12 months , we're getting like a 225 to 250 basis point spread on , on on those purchases .

All of this is dependent upon being able to replace those cash flows with with loan growth.

Jamie Moses: Yeah. Charlie, we tend to talk about it as beta on our rate-sensitive portfolio. We continue to have a roughly $4.5 billion rate-sensitive deposit portfolio. We've been very successful with past rate cuts. We're talking maybe 90%, 95% betas on that portfolio, relative to a Fed rate cut. We think that drives a little bit lower, and it gets successively lower for each rate cut that we have. I think right now, I think about maybe like a 90 beta on the next rate cut, 88 on the next one after that, 85, something like that. We still think we have a range there where we can drive deposit costs lower, of course, when the Fed cuts rates as well. It's a decreasing ability to do that for sure, but still relatively high at the moment.

We think we think we can do that but.

But it will be dependent.

Upon.

That sort of loan growth trajectory and to the extent that we don't get the loan growth.

Would consider other things we would consider may be increasing the size of the investment portfolio, it's not our preferred option.

Speaker #2: So there's still a really significant sort of balance sheet roll impact that that we're seeing . That should be a tailwind not only in the fourth quarter , but , you know , into the first and second quarters as well .

But those are there are things that we would do to manage the balance sheet and to try to manage that NIM.

Two two.

Continued expansion or at least sort of trying to keep it keep it flat as we get.

Speaker #2: Now , you know , again , all of this is dependent upon being able to replace those cash flows with with loan growth and , you know , we think , you know , we think we can do that .

Those third and fourth and fifth.

Anticipated rate cut.

Okay and then my follow up I think you pointed to $54 million of fee income in <unk>, just what are the areas or headwinds you expect to decline. This quarter is it just the two items you called out on slide seven thank you.

Speaker #2: But it will be dependent , you know , upon that , that sort of loan growth trajectory . And to the extent that we don't get the loan growth , you know , we would consider other things , we would consider maybe increasing the size of the investment portfolio .

I think that I think that's right Tony yes, it's not it's not really a headwind. It's just we kind of got some good good positive surprises here in the third quarter and Wouldnt.

Speaker #2: It's not our preferred option , but but those are there are things that we would do to manage the balance sheet and to to try to manage that .

Speaker #2: Nim to , you know , to continued expansion or at least sort of trying to keep it , keep it flat as we get , you know , those third and fourth and fifth anticipated rate cuts .

Sterilely expect that to continue into the fourth.

Of that we had been kind of a message even more in the 51% to 52 range.

Given the strength of the overall.

Fee business.

We're moving that up to 54 is kind of our expected run rate.

[Analyst 2]: Great, thank you. I guess just a little bit of detail with the margin expansion, and the 50 bps of additional cuts. Are you assuming any loan purchases in that or not?

Speaker #8: Okay . And then my follow up , I think you pointed to 54 million of fee income in four . Q just what are the areas or headwinds you expect to decline this quarter ?

Thank you.

Okay.

Thank you and our next question comes from the line of Matthew Clark from Piper Sandler Your question. Please.

Speaker #8: Is it just the two items you call out on slide seven? Thank you.

Jamie Moses: No, no loan purchases in that. That's just what we're looking at in terms of, you know, looking at our pipelines and talking with the teams over the past month or so. We just expect to have really strong loan growth here in the fourth quarter.

Speaker #2: Yeah , I think that I think that's right , Tony . Yeah . It's not it's not really headwinds . It's just we kind of got some good good positive surprises here in the third quarter .

Hey, good morning, everyone.

Good morning.

Just to close out the NIM discussion do you have the spot rate on deposits at the end of September.

Speaker #2: And we wouldn't necessarily expect that to continue into the fourth.

Speaker #1: Yeah . And to add to that , we have been kind of messaging more in the 51 to 52 range . And now just given the strength of the overall fee business , we we're moving that up to 54 as kind of our expected run rate .

That was 136 basis points.

[Analyst 2]: Okay. Great. Thank you for taking my questions. I'll step back.

And a stepped on it.

Bob Harrison: Okay, Charlie.

Okay. Thank you.

Operator: Thank you. Our next question comes from the line of Anthony Elion from JP Morgan. Your question, please.

And then the negative migration you saw in sub standard this quarter can you just speak to what drove that increase.

Speaker #8: Thank you .

[Analyst 3]: Hi everyone. Jamie, just to follow up on NIM. Just to follow up on NIM, you know, slide six, you saw a really nice tailwind from loan repricing, and it looks like every one of your loan yields increased from the prior quarter. I'm just wondering how much of a tailwind is left from loan repricing, maybe in Q4 and beyond, just given the outlook for rate cuts in the forward curve?

Speaker #4: Thank you. And our next question comes from the line of Matthew Clark from Piper Sandler. Your question, please.

So it's primarily that singles too.

Our long time customer.

Where we're not.

Speaker #9: Hey , good morning everyone . Good morning . Just to close out the Nim discussion , do you have the spot rate on deposits at the end of September ?

Really worried about loss or anything like that we work closely with the customer we.

We just feel it's prudent to continue to update the ratings as we see the financial.

Speaker #2: That was 136 basis points at the end of September.

Jamie Moses: Yeah. I think there's still tailwind there. I guess I'll start with that. As we look out, we have $1 billion of fixed rate cash flows coming off of the portfolio over the next 12 months. Right now, we think that that's repricing higher at like a 125 basis point spread at the moment. There's still a pretty significant tailwind there. The 125 basis points, that's an average. The more the Fed cuts, the tighter that spread gets for sure. There is still an ability to reprice those cash flows higher. On the investment portfolio, where we're seeing $500 million to $600 million of runoff over the next 12 months, we're getting like a 225 to 250 basis point spread on those purchases.

Okay, I may have missed it but the type of customer and the situation there.

Speaker #9: Okay, thank you. And then the negative migration you saw in substandard this quarter. Can you just speak to what drove that increase?

We didn't share that one.

We'd rather not it's a small town.

Understood.

And then just on the capital.

Speaker #3: So it was primarily that single loan to our long-time customer. And we're, you know, we're not really worried about loss or anything like that.

Question I don't think.

Finished up on the M&A piece, but and again I may have missed it but just any updated commentary on M&A discussions you might be having whether or not things have changed materially since last quarter.

Speaker #3: We worked closely with the customer. We just feel it's prudent to continue to update the ratings as we see the financials.

No unchanged, we're still open to talking to people and would certainly consider the right opportunity, but no change from previous guidance of discussion.

Speaker #9: Okay, I may have missed it, but the type of customer in this situation, they're.

Speaker #1: We didn't share that one . Matt . So , you know , we'd rather not . It's a small town .

Okay, great. Thank you.

Yes.

Thank you Anza reminded ladies and gentlemen, if you do have a question at this time. Please press star one on your telephone. Our next question comes from the line of Tim <unk> from Wells Fargo. Your question. Please.

Speaker #9: Understood . And then just on the capital question , I don't think you finished up on the M&A piece , but and again , I may have missed it , but just any updated commentary on M&A discussions you might be having , whether or not things have changed materially since last quarter .

Hi, good morning.

Jamie Moses: There's still a really significant sort of balance sheet roll impact that we're seeing that should be a tailwind, not only in the fourth quarter, but into the first and second quarters as well. All of this is dependent upon being able to replace those cash flows with loan growth. We think we can do that, but it will be dependent upon that sort of loan growth trajectory. To the extent that we don't get the loan growth, we would consider other things. We would consider maybe increasing the size of the investment portfolio if it's not our preferred option. Those are things that we would do to manage the balance sheet and to try to manage that NIM, to continued expansion or at least sort of trying to keep it flat as we get those third and fourth and fifth anticipated rate cuts.

Good morning.

Jamie your comment on total deposits I want to make sure I heard that right is it flat for <unk> are flat for the year.

Speaker #1: No, unchanged. We're still open to talking to people and would certainly consider the right opportunity. But no change from previous guidance and discussion.

Is it flat third quarter to fourth quarter. So we expect public to run out in the fourth quarter, a little bit while we increased retail and commercial.

Speaker #9: Okay , great . Thank you .

Speaker #4: Thank you . As a reminder , ladies and gentlemen , if you do have a question at this time , please press star one one on your telephone .

Okay, and then maybe back to Matts last question, just more specifically mainland M&A.

Speaker #4: Our next question comes from the line of Timur from Wells Fargo. Your question, please.

It sounds like Thats been something Thats at least on the table more recently just is that still the case and maybe just remind us if that is the case kind of what you'd be looking at as far as criteria goes.

Speaker #10: Hi . Good morning .

Speaker #1: Good .

Speaker #2: Hey, Jamie, your.

Speaker #10: Comment on total deposits. I want to make sure I heard that right. Is it flat for Q or flat for the year?

Well.

No change to what I said tumor I think the only thing would be it would only be made with M&A for us because with our <unk> market share here, there's nothing we'd be able to do in Hawaii, So, but no change we're certainly open to talking to people and would consider the right opportunity.

Speaker #2: It is. It's flat. Third quarter to fourth quarter. So we expect the public to run out in the fourth quarter a little bit while we increase retail and commercial.

[Analyst 3]: Okay. My follow-up, I think you pointed to $54 million of fee income in Q4. What are the areas or headwinds you expect to decline this quarter? Is it just the two items you call out on slide seven? Thank you.

Speaker #10: Okay . And then maybe back to Matt's last question . Just more specifically mainland M&A . It sounds like that's been something that's at least on the table , more recently , just is that still the case ?

Okay. That's a good point.

And then Bob you're starting comment on expecting many families.

Jamie Moses: Yeah, I think that's right, Tony. It's not really headwinds. We kind of got some good, positive surprises here in the third quarter and wouldn't necessarily expect that to continue into the fourth quarter.

Potentially some real hardships here from a prolonged government shutdown I.

Speaker #10: And maybe just remind us, if that is the case, kind of what you'd be looking at as far as criteria goes?

I guess that comment and then looking at the last few hero report, which is calling for a mild recession over the course of the next year. I mean is that any different really from kind of the operating trends on the island over these last couple of years does that change the way that you guys are thinking about the local economy and I guess more pointed just.

Speaker #1: Well , we you know , no change to what I said . I think the only thing would be it would only be mainland M&A for us because with our HHI and market share here , there's nothing we'd be able to do in Hawaii .

Bob Harrison: Yeah, to add to that, we had been kind of messaging more in the 51 to 52 range. Now, just given the strength of the overall fee business, we were moving that up to 54 as kind of our expected run rate.

Speaker #1: So, but no change. We're certainly open to talking to people and would consider the right opportunity.

How much of that is already factored in in the reserving that you have particularly on the consumer side.

[Analyst 2]: Thank you.

Speaker #10: Okay, that's a good point. And then, Bob, you're starting to comment on expecting many families will face potentially some real hardships here from a prolonged government shutdown.

Yes, maybe I'll start and ask if she has any.

Operator: Thank you. Our next question comes from the line of Matthew Clark from Piper Sandler. Your question, please.

Additional comments really no change, we think that the local economy is resilient I mean people are not the first time. This has happened it's been a little while since there's been a shutdown that's affected.

Speaker #10: I guess that comment and then looking at the last you hear a report which is calling for a mild recession over the course of the next year , I mean , is that any different really , from kind of the operating trends on the island over these last couple of years ?

[Analyst 3]: Hey, good morning everyone.

Bob Harrison: Morning.

[Analyst 3]: Just to close out the NIM discussion, do you have the spot rate on deposits at the end of September?

Salaries and all of that but we just wanted to make sure and Thats why we wanted to do it with all the banks here I want to make sure were open and people know they can approach us if theres a need but we've had.

Jamie Moses: That was 136 basis points at the end of September.

Speaker #10: Is that change the way that you guys are thinking about the local economy ? And and I guess more pointed , just how much of that is already factored in in the reserving that you have , particularly on the consumer side .

[Analyst 3]: Thank you. The negative migration you saw in substandard this quarter, can you just speak to what drove that increase?

There's very few inquiries.

Maybe do you have any.

Any additional comments.

No not really we haven't really seen.

Speaker #1: Yeah , maybe I'll start and ask if she has any , any additional comments . Really . No change . We think that the local economy is is resilient .

Lea Nakamura: It was primarily that single loan to our long-time customer. We're not really worried about loss or anything like that. We work closely with the customer, and we just feel it's prudent to continue to update the ratings as we see the financials.

Any effects in the credit metrics, yet and but we're always cautious and we always taken into consideration when we tried to figure out what the right valuation is for the ACO.

Speaker #1: I mean , people are not the first time this has happened . It's been a little while since there's been a shutdown . That's affected , you know , salaries and all that .

And on that I mean, just speak to consumer credit metrics.

Speaker #1: But we just want to make sure, and that's why we wanted to do it with all the banks here. We want to make sure we're open.

Leaving <unk> mentioned it earlier, but the two that tend to pop up soon as soon as credit cards, and indirect and they're doing quite well.

[Analyst 3]: Okay. I may have missed it, but the type of customer in the situation there?

Speaker #1: And people know they can approach us . If there's a need . But we've had just just very few inquiries . Lee , maybe you have any additional comments .

So really no nothing observable at this point in tumor.

Bob Harrison: We didn't share that one. You know, we'd rather not. It's a small town.

Great. Thank you I'll step back.

[Analyst 3]: Understood. On the capital question, I don't think we've finished up on the M&A piece, but I may have missed it. Just any updated commentary on M&A discussions you might be having, whether or not things have changed materially since last quarter?

Speaker #3: Not not really . You know , we haven't really seen any effects in the credit metrics yet . And but we're always cautious and we always take it into consideration when we try to figure out what the right valuation is for the ACL .

Yeah.

Thank you.

And our next question comes from the line of Jared Shaw from Barclays. Your question. Please.

Hi, everybody.

I guess following up on that when you look at the impact of federal spending.

Speaker #1: And on that , I mean , to speak to consumer credit metrics . Lee didn't mention it earlier , but the two that tend to pop up soonest is credit cards and indirect , and they're doing quite well .

Apart from military and Hawaii.

Bob Harrison: No, it's unchanged. We're still open to talking to people and would certainly consider the right opportunity, but no change from previous guidance and discussion.

Are you concerned at all that that it could be impacted by a re shifting of federal priorities or is it still pretty heavily defense focused so while we're dealing with the shutdown now you still feel that's not going to change the long term.

Speaker #1: So really, no, nothing observable at this point, Timur.

[Analyst 3]: Okay. Great. Thank you.

Operator: Thank you. As a reminder, ladies and gentlemen, if you do have a question at this time, please press star 11 on your telephone. Our next question comes from the line of Tim Wurapras-Iler from Wells Fargo. Your question, please.

Speaker #10: Great. Thank you. I'll step back.

Contribution of federal government spending into Hawaii.

Speaker #4: Thank you. And our next question comes from the line of Jared Shore from Barclays. Your question, please.

Yes, Joe this is Bob totally agree.

Long term trend is defense focus that's going to be very strong.

Speaker #11: Hey , everybody . I guess following up on on that when you when you look at the impact of federal spending , apart from military in Hawaii , do you are you concerned at all that that it could be impacted by a reshifting of federal priorities , or is it still pretty heavily defense focused ?

[Analyst 1]: Hi, good morning.

Bob Harrison: Morning.

Heading down the Guam for next week and the spend there is phenomenal and the projects on deck here very very strong so we're not expecting that our core.

Jamie Moses: Morning.

[Analyst 1]: Jamie, your comment on total deposits, I want to make sure I heard that right. Is it flat for Q4 or flat for the year?

Jamie Moses: It's flat third quarter to fourth quarter. We expect public to run out in the fourth quarter a little bit while we increase retail and commercial.

Federal employee workforce is pretty stable the largest employer being the Pearl Harbor Naval shipyard, which is.

Speaker #11: So , you know , while we're dealing with the shutdown now , you still feel that it's not going to change the long term contribution of federal government spending into Hawaii .

Has been identified as a key resource in the Navy so a really.

[Analyst 1]: Okay. Maybe back to Matt's last question, just more specifically, mainland M&A sounds like that's been something that's at least on the table more recently. Is that still the case? Maybe just remind us if that is the case, kind of what you'd be looking at as far as criteria goes.

Stable to improving I guess would be the long term view.

Speaker #1: Yeah , Jerry , this is Bob . Totally agree . This the long term trend is defense focused . And it's going to be very strong .

Okay, and then in conversations with your with your floor plan dealers, what's their expectation for sort of auto sale volume going into the next year or are they are they are thinking that theres going to be a slowdown.

Speaker #1: I'm heading down to Guam for next week, and to spend there is phenomenal. The projects on deck here are very, very strong.

Speaker #1: So we're not expecting that our core federal employee workforce is pretty stable . The largest employer being the the Pearl Harbor Naval Shipyard , which is has been identified as a key resource in the Navy .

And purchase.

Bob Harrison: There is no change to what I said. Timur, I think the only thing would be it would only be mainland M&A for us because with our HHI and market share here, there's nothing we'd be able to do in Hawaii. No change. We're certainly open to talking to people and would consider the right opportunity.

Activity in this incrementally better for you with with floor plans if inventory stay around longer.

Certainly.

We have really great customers.

Speaker #1: So really , you know , stable to improving , I guess would be the long term view .

Strong credit so we'd love to see higher balances with those same customers.

The discussions haven't been as much around next year, it's really been more topical about tariffs and the impacts of tariffs.

[Analyst 1]: Okay. Yeah, that's a good point. Bob, your starting comment on expecting many families will face potentially some real hardships here from a prolonged government shutdown. I guess that comment and then looking at the last New Hero report, which is calling for a mild recession over the course of the next year, I mean, is that any different really from kind of the operating trends on the island over these last couple of years? Does that change the way that you guys are thinking about the local economy? I guess more pointed, just how much of that is already factored in in the reserving that you have, particularly on the consumer side?

Speaker #11: Okay . And then in conversations with your with your floor plan , dealers , what's their expectation for sort of auto sale volume going into the next year .

Different manufacturers are picking up some of the impacts of those additional costs others. I think we will start based on conversations we're having we will start to soon start passing those through.

Speaker #11: Or are they are they thinking that there's going to be a slowdown in purchase activity ? And is that incrementally , I guess , better for you with with floor plans , if inventories stay around longer ?

Two customers and so there is a fair amount of uncertainty still on the and impact of the tariffs that started at the beginning of this year.

Speaker #1: Certainly we you know , we have really great customers with strong credit . So we'd love to see a higher balances with those same customers .

What.

Consumers will do with potentially a higher price points and how that will affect demand if it slows down demand, maybe not a mixture, but even into the fourth quarter for a second first.

Speaker #1: The discussions haven't been as much around next year; it's really been more topical about tariffs and the impacts of tariffs. Different manufacturers are picking up some of the impacts of those additional costs.

Bob Harrison: Yeah. Maybe I'll start and ask Lea if she has any additional comments. Really, no change. We think that the local economy is resilient. I mean, people are not the first time this has happened. It's been a little while since there's been a shutdown that's affected, you know, salaries and all that. We just want to make sure, and that's why we want to do it with all the banks here. I want to make sure we're open and people know they can approach us if there's a need. We've had just very few inquiries. Lea, maybe if you have any additional comments.

First and second quarters of 2026 that would definitely help us.

Okay, and then just finally for me.

Speaker #1: Others , I think , will start . Based on conversations we're having . We'll start to soon start passing those through to customers .

Have you seen any change in pricing behavior from.

Some of the change in ownership of other Hawaii competitors over the last year. It sounded like earlier in the year there wasn't really any any big change, but are you seeing any change.

Speaker #1: And so there's a fair amount of uncertainty still on the end impact of the tariffs that started at the beginning of this year.

Speaker #1: And what consumers will do with potentially higher price points and how that will affect demand, if it slows down demand, maybe not in next year, but even into the fourth quarter.

Change in how they're approaching pricing in the markets.

Yes, we haven't seen any change in the market as far as the competitive dynamics or pricing.

Lea Nakamura: Not really. You know, we haven't really seen any effects in the credit metrics yet. We are always cautious, and we always take it into consideration when we try to figure out what the right valuation is for the ACL.

Okay. Thank you.

Speaker #1: First, second, first and second quarters of 2026, that would definitely help us.

Thank you and our next question comes from the line of Janet Lee from TD Securities. Your question. Please.

Speaker #11: Okay . And then just finally , for me , have you seen any change in pricing behavior from some of the change in ownership of of other Hawaii competitors over the last year ?

Hello.

Bob Harrison: Yeah, to speak to consumer credit metrics, Lea didn't mention it earlier, but the two that tend to pop up soonest are credit cards and indirect, and they're doing quite well. Really, nothing observable at this point, Timur.

Hey, Jonathan.

Hi.

Yeah.

Going back to M&A, just quickly I know you guys.

Touch up on it just a few times on this call, but can you remind us what is yours.

Speaker #11: It sounded like earlier in the year there wasn't really any big change. But are you seeing any change in how they're approaching pricing in the markets?

And what is your current stance on that M&A potential M&A opportunity.

Speaker #1: Yeah, we haven't seen any change in the market as far as competitive dynamics or pricing.

[Analyst 1]: Great. Thank you. I'll step back.

Our lucky too.

Operator: Thank you. Our next question comes from the line of Jared Shaw from Barclays. Your question, please.

Speaker #11: Okay . Thank you .

We are considering opportunities like what would be what would make sense.

Speaker #4: Thank you. Our next question comes from the line of Janet Lee from TD Securities. Your question, please.

In the meantime.

[Analyst 1]: Hey, everybody. I guess following up on that, when you look at the impact of federal spending, apart from military in Hawaii, are you concerned at all that it could be impacted by a reshifting of federal priorities, or is it still pretty heavily defense-focused? While we're dealing with the shutdown now, you still feel that's not going to change the long-term contribution of federal government spending into Hawaii?

Really nothing to add to our earlier comments I guess, the only thing would be.

Speaker #12: Hello , Janet .

In the Western States is not that we're going to go.

Speaker #1: Janet .

Speaker #2: Janet .

Speaker #13: Hi .

Central.

But.

Speaker #14: Going back to M&A , just quickly , I know you guys touch up on it . Just a few times on this call , but can you remind us what is your stance ?

It's just we're open to talking to people and will consider the right opportunity.

Really nothing more to show than that at this time.

Okay got it fair.

Speaker #14: What is your current stance on M&A potential M&A opportunity ? If you are looking to , you know , you're considering opportunities like what would be what would make sense in the mainland ?

I think people are entertaining the idea of raising.

Resi mortgage coming back.

Bob Harrison: Yeah, Jared, this is Bob. Totally agree. The long-term trend is defense-focused, and it's going to be very strong. I'm heading down to Guam next week, and the spend there is phenomenal, and the projects on deck here are very, very strong. We're not expecting that. Our core federal employee workforce is pretty stable. The largest employer being the Pearl Harbor Naval Shipyard, which has been identified as a key resource in the Navy. Really, you know, stable to improving, I guess, would be the long-term view.

The rate comes out to the five handle.

Speaker #1: You know, really nothing to add to our earlier comments. I mean, I guess the only thing would be that it’d be in the western states.

That's something that would be helpful to your market.

Or perhaps not because it's more of a supply.

Speaker #1: It's not that we're going to go , you know , central or east , but , you know , there's just we're open to talking to people and would consider the right opportunity and really nothing more to share than that at this time .

Issue.

Should I think about the positive impact from from that point on your resi.

Yeah, John it's a good question.

Speaker #14: Okay . Got it . Fair . I think people are entertaining the idea of resi mortgage coming back . If if the rate comes down to the five .

Think that the lower the rates go just more activity you will see you are correct that there is some sort of supply constraints.

Around that for sure.

But I think it would be it would be helpful for it would be helpful for balances.

[Analyst 1]: Okay. In conversations with your floor plan dealers, what's their expectation for sort of auto sale volume going into the next year? Are they thinking that there's going to be a slowdown in purchase activity? Is that incrementally, I guess, better for you with floor plans if inventories stay around longer?

Speaker #14: Handle is... would that be something that would be helpful to your market, or perhaps not, because it's more of a supply issue? How should I think about the positive impact from that point on your resi?

I think that there is.

There should be some.

Some good opportunities there.

So, yes, I mean I think ultimately.

For the mortgage business in particular.

If the rates go a little bit lower we could see some increased activity in that area and that should be constructive.

Speaker #2: Yeah , yeah , Janet , it's a good question . I think that the the lower the rates go , just the more activity you will see .

Got it and.

Bob Harrison: Certainly. We have really great customers with strong credit. We'd love to see higher balances with those same customers. The discussions haven't been as much around next year. It's really been more topical about tariffs and the impacts of tariffs. Different manufacturers are picking up some of the impacts of those additional costs. Others, I think, based on conversations we're having, will start to soon start passing those through to customers. There's a fair amount of uncertainty still on the end impact of the tariffs that started at the beginning of this year and what consumers will do with potentially higher price points and how that will affect demand. If it slows down demand, maybe not in next year, but even into the fourth quarter, first and second quarters of 2026, that would definitely help us.

Apologize if this was already covered but that paid out on $130 million of Paydown on corporate lines is that was that just seasonality that is coming back or just one off.

Speaker #2: You are correct that there is some sort of supply constraints around that for sure . But I think it would be it would be helpful for it would be helpful for balances .

Or.

Really a big quarter for pay downs.

Speaker #2: You know , I think that there's , you know , that there should be some , some good opportunities there . So yeah , I mean , I think ultimately for the mortgage business in particular , if you , you know , if the rates go a little bit lower , we could see some increased activity in that area .

It wasn't necessarily seasonally these were earlier draws for specific things in.

<unk> done they're getting repaid.

It's it was odd in the several happen in the same quarter, but there is nothing unusual about the borrowing and repayment of just so it's all kind of the latter.

Speaker #2: And that should be constructive.

Speaker #14: Got it . And apologies if this was already covered . But the Paydown on 130 million of paydown on corporate loans is that was that just seasonality that is coming back or just one off , or is it is it seasonally a big quarter for pay downs ?

The draws weren't in the same quarter, but the paydowns of ours. So that's why we didn't call it out on the way up but we're calling it out on.

When it got repaid.

Okay got it thank you.

Okay.

Speaker #1: No , it wasn't necessarily seasonally . These were earlier draws for specific things . And now that that's done they're getting repaid . You know it's it was odd in that several happened in the same quarter .

Thank you and as a reminder, ladies and gentlemen, if you have a question at this time. Please press star one on your telephone.

[Analyst 1]: Okay. Finally, for me, have you seen any change in sort of pricing behavior from some of the change in ownership of other Hawaii competitors over the last year? It sounded like earlier in the year, there wasn't really any big change. Are you seeing any change in how they're approaching pricing in the markets?

Okay.

And this does conclude the question and answer session of today's program I'd like to hand, the program back to Kevin <unk> for any further remarks.

Speaker #1: But there is nothing unusual about the borrowing . And repayment . It just just all kind of landed at the draws weren't in the same quarter , but the pay downs were .

Thank you. We appreciate your interest in first line and please feel free to contact me. If you have any additional questions. Thanks again for joining us and have a good weekend.

Speaker #1: So that's why we didn't call it out on the way up . But we're calling it out on on . You know , when it got repaid .

Bob Harrison: Yeah, we haven't seen any change in the market as far as competitive dynamics or pricing.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

Speaker #14: Okay. Got it. Thank you.

[Analyst 1]: Okay, thank you.

Speaker #4: Thank you . And as a reminder , ladies and gentlemen , if you do have a question at this time , please press star one one on your telephone .

Operator: Thank you. Our next question comes from the line of Janet Lee from TD Securities. Your question, please.

Lea Nakamura: Hello.

Jamie Moses: Hey, Janet.

Bob Harrison: Hey, Janet.

Speaker #4: And 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.

Jamie Moses: Hey, Janet.

Lea Nakamura: Hi. Going back to M&A just quickly, I know you guys touched up on it just a few times on this call, but can you remind us what is your stance, what is your current stance on that potential M&A opportunity if you are looking to, you know, you're considering opportunities? Like, what would be what would make sense in the mainland?

Speaker #1: Thank you .

Speaker #3: We appreciate your interest .

Speaker #15: In First Hawaiian, please feel free to contact me if you have any additional questions. Thanks again for joining us, and have a good weekend.

Speaker #4: Thank you . Ladies and gentlemen . If your participation in today's conference , this does conclude the program , you may now disconnect .

Bob Harrison: Really, nothing to add to earlier comments. I mean, I guess the only thing would be it'd be in the western U.S. It's not that we're going to go, you know, central or east, but you know, we're open to talking to people and would consider the right opportunity. Really, nothing more to share than that at this time.

Lea Nakamura: Okay. Got it. Fair. I think people are entertaining the idea of raising mortgage, coming back if the rate comes down to the five-handle. Would that be something that would be helpful to your market or perhaps not because it's more of a supply issue? How should I think about the positive impact from that point on your resi?

Jamie Moses: Yeah, Janet. It's a good question. I think that the lower the rates go, just the more activity you will see. You are correct that there are some sort of supply constraints around that for sure. I think it would be helpful for balances. I think that there should be some good opportunities there. I mean, I think ultimately, for the mortgage business in particular, if the rates go a little bit lower, we could see some increased activity in that area. That should be constructive.

Lea Nakamura: Got it. Apologies if this was already covered, but that paydown on $130 million of paydown on corporate lines, was that just seasonality that is coming back or just one-off? Is it seasonally a big quarter for paydowns?

Bob Harrison: No, it wasn't necessarily seasonal. These were earlier draws for specific things, and now that that's done, they're getting repaid. It was odd in that several happened in the same quarter, but there's nothing unusual about the borrowing and repayment. It just all kind of landed in, the draws weren't in the same quarter, but the paydowns were. That's why we didn't call it out on the way up, but we're calling it out when it got repaid.

Lea Nakamura: Okay, got it. Thank you.

Operator: Thank you. As a reminder, ladies and gentlemen, if you do have a question at this time, please press star 11 on your telephone. 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.

Jamie Moses: Thank you. 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.