First Hawaiian (FHB) Q3 2026 earnings review
First Hawaiian's lending margin rises, but loan losses cut profit
First Hawaiian widened its lending spreads again, but a commercial property loan loss and a shrinking loan book hurt results. Net interest income rose to $174 million as the lending margin reached 3.30%, above what the bank's own plan pointed to. However, a $20 million loan-loss provision and a $115 million drop in total loans weighed on profit, which chief executive Bob Harrison still called solid after a 2016 tax settlement added a net gain.
| Net interest margin | 3.30% above ~3.27% outlook; +0.05 pts from Q2 |
|---|---|
| Provision for credit losses | $20.3M $5.6M last quarter |
| Total loans and leases | $14.46B -$115.1M from last quarter |
| Profit per share | $0.52 -12% from a year ago; includes tax settlement |
⚖️ Verdict: 🔴 Bearish
The story got worse because commercial real estate credit broke and three quarters of loan growth reversed just before the bank absorbs a mainland lender heavy in property loans. The good news: deposit outflows stopped and funding costs edged down, showing that the lending margin can still expand without rate hikes.
The question now is whether the commercial real estate write-off and loan contraction are isolated events or the start of a broader credit and lending slowdown. If the trouble is a single bad loan and a timing dip, wider lending spreads will carry profit; if downgrades spread across the property book, credit costs will eat up the margin gains. The fourth-quarter credit table and the updated full-year outlook on the call will tell.
🐂 Bull Case
Loan Spreads Widened for a Sixth Quarter
First Hawaiian makes most of its money on the spread between what it earns on loans and what it pays on deposits. That spread, called the net interest margin (NIM), rose 0.05 percentage points from last quarter to 3.30%, beating the company's 3.27% plan.
The Honolulu lender earned 3.14% on taxable available-for-sale securities, up from 3.05% in the second quarter, while average commercial real estate loan balances grew. Those higher returns lifted net interest income by $3.1 million from last quarter to $174.1 million, beating the bank's own margin target for a sixth straight quarter.
What to watch: the fourth-quarter net interest margin on the conference call. A reading above 3.30% would show that older loans repricing at current rates can still lift lending spreads without help from Federal Reserve rate hikes.
Deposits Stabilized and Funding Costs Fell
After losing $623 million of deposits in the second quarter, the bank needed to show that customer balances and funding costs had steadied. "Our deposit growth in a competitive market reflects the strength of those relationships, and our balance sheet is well positioned to benefit from rising interest rates." Chief executive Bob Harrison said that in the release.
Period-end deposits edged up $50.4 million from June to $20.2 billion. More important, the average rate paid on interest-bearing accounts fell 0.03 percentage points from last quarter to 1.72%, and total deposit interest expense dropped $1.0 million. Still, noninterest-bearing accounts slipped another $46.9 million to 31.7% of deposits by our math, so the mix concern is not yet gone.
What to watch: noninterest-bearing demand deposits at year-end. Stabilization near $6.4 billion would show that customers have finished moving free checking money into higher-paying accounts.
🐻 Bear Case
Commercial Real Estate Charge-Off Hit Profit
"I’m pleased with the solid earnings we delivered this quarter and the continued trust our customers place in us," Harrison said. Yet beneath that calm headline, credit losses jumped and cut into the bank's profit.
First Hawaiian set aside $20.3 million for credit losses, nearly four times the $5.6 million it booked last quarter. The bank blamed a $12.5 million "partial charge-off related to a single CRE loan and other CRE loan downgrades", where CRE means commercial real estate.
- Annualized net charge-offs: 0.60% of average loans, up from 0.11% last quarter
- Non-performing assets: $46.0 million, or 0.32% of loans, up from $39.5 million
- Profit before taxes, excluding one-offs: $80.8 million by our math, down 16% from a year ago
This matters because the Hawaii lender is preparing to buy California-based TriCo Bancshares, where commercial real estate and multifamily properties make up 69% of the loan book, compared with 33% at First Hawaiian.
What to watch: commercial real estate non-accrual loans and criticized balances in the quarterly filing. A wider rise across property types would show the trouble goes beyond one borrower just as the merger adds $7.1 billion of mainland loans.
The Loan Book Shrank Before the Merger
After three straight quarters of adding between $128 million and $183 million in loans, First Hawaiian's lending momentum stalled. Total loans and leases fell $115.1 million from June to $14.46 billion, as average construction balances dropped $64.4 million and residential mortgages edged down.
That drop leaves the loan book up just 1.0% since December by our math. Reaching the bank's earlier full-year target of 3% to 4% loan growth would now require adding more than $350 million in the fourth quarter alone, which makes a miss likely after two guidance cuts last year.
What to watch: management's full-year loan growth plan on the conference call. A cut to the 3% to 4% target would confirm that payoffs and slower construction lending are outweighing new commercial borrowing.
Risks this quarter didn't answer
Three standing risks from earlier quarters received no new numbers in the earnings release and depend on the conference call or quarterly filing.
- Consumer and residential credit: the release did not split non-performing loans by category, leaving the quarterly filing to show whether home-equity and consumer defaults kept rising.
- Interest-rate cut exposure: the balance sheet remains built for higher rates, so any Federal Reserve rate cut would squeeze the lending margin in the quarter it occurs.
- Hawaii economy and tourism: the release gave no update on international visitor arrivals or local economic activity, which the call commentary usually covers.
👓 Other Themes
Tax Settlement and Merger Costs Clouded Results
Two one-time items distorted the income statement. First Hawaiian recorded a $24.3 million operating expense and a $31.0 million tax benefit from "an agreement to settle tax liabilities resulting from the 2016 corporate reorganization", plus $6.7 million in TriCo merger costs. Those items pushed other operating costs up 11.2 percentage points of revenue and merger costs up 2.9 points from a year ago, while underlying expenses rose 2.6% to $129.1 million by our math.
💲 Other KPIs
First Hawaiian's main regulatory capital buffer rose 0.23 percentage points from June and 0.26 points from a year ago. Because the bank paused share buybacks for a second straight quarter ahead of the all-stock TriCo acquisition, retained profit and a smaller loan book lifted capital above the 12.4% level expected at deal close.
Fee income fell $4.2 million from the second quarter and 1.6% from a year ago. Bank-owned life insurance income dropped $2.3 million and other fee income fell $3.6 million after one-time gains last quarter. Even so, the $56.1 million total beat the $53.5 million quarterly pace implied by the full-year outlook.
Average diluted shares stayed flat from last quarter at 122.5 million and sat 2.0% below a year ago. Management bought back $32.0 million of stock in the first quarter, then halted repurchases in the second and third quarters while waiting to issue shares for the TriCo purchase.
🔮 Guidance
Unchanged. The board declared a $0.26 quarterly dividend payable in November, keeping the payout at the same level it has held every quarter for more than two years. At $0.52 of diluted profit per share this quarter, the dividend took up 50.0% of earnings, up from 43.3% in the second quarter.
❓ Key Questions
What is the updated full-year outlook for loans and margins?
The earnings release gave no forward numbers. With net interest margin already at 3.30% against a 3.24%–3.25% full-year plan, and loans up only 1.0% year-to-date against a 3%–4% target, management needs to update both ranges on the call.
How wide is the commercial real estate credit trouble?
A single commercial real estate loan caused a $12.5 million write-off, and other property loans were downgraded. Investors need to know the property types, whether the troubled loans are in Hawaii or on the mainland, and how much reserve coverage sits against them.
Did consumer and residential loan defaults keep rising?
Total non-performing assets rose $6.5 million to $46.0 million, and net charge-offs hit $21.9 million. Because the release did not split credit losses by loan category, the call needs to clarify how much came from consumer and home-equity borrowers.
When will the TriCo acquisition receive regulatory approval?
First Hawaiian spent another $6.7 million on merger costs this quarter and aims to close the $2.0 billion TriCo purchase near year-end. Any delay into next year would push back the planned $61 million in annual cost savings.