First Hawaiian shows how deposit costs still squeeze regionals

First Hawaiian’s April 24 report showed that regional lenders are still paying up for deposits even with credit holding steady. First Hawaiian posted net income of $67.784 million, or $0.55 a share, while net interest margin slipped 2 basis points from the prior quarter to 3.19 per cent.

Those figures made the quarter more revealing than another money-center-bank recap. Deposits rose to $20.777 billion and loans and leases reached $14.441 billion, yet the margin still narrowed. Funding costs remain the harder problem to solve.

Investors usually read regional-bank quarters through two lenses: funding strain or credit strain. First Hawaiian still lands in the first. In IndexBox’s overview of large-bank earnings, the broader sector backdrop was solid first-quarter profit paired with worries that credit conditions could worsen later in 2026. First Hawaiian’s own quarter looked cleaner than that warning, which is why the muted share reaction noted in StockStory’s post-results note looked more like a wait-for-margin-repair verdict than a stress signal.

Management framed it much the same way. Chief executive Bob Harrison said in the filing:

I’m pleased to report that First Hawaiian started 2026 with a strong first quarter.
— Bob Harrison, chairman, president and chief executive

The confidence was understandable. Profit rose from a year earlier, provision expense fell to $5.0 million, and non-performing assets were just 0.27 per cent of total loans and leases. Still, the quarter turned on what it cost to hold on to deposits, not on what it cost to absorb losses.

Management is not trying to repair a broken franchise. The task is to rebuild margin without paying too much for deposits, chasing weak loan demand or taking unwanted credit risk. That is a narrower question than crisis rhetoric allows and a more useful one for reading regional banks in mid-2026.

Why margin still matters more

On the earnings call transcript, chief financial officer Jamie Moses said total deposit costs fell 7 basis points to 1.22 per cent in the quarter. That sounds like progress. It also shows why the squeeze has not ended: even with lower deposit pricing, asset yields are still adjusting more slowly than many investors expected when the rate cycle turned.

Moses put the remaining repricing runway in blunt terms:

we have about $400 million of fixed-rate cash flows that come off every quarter and get repriced at about a 155 basis point spread higher
— Jamie C. Moses, vice chairman and chief financial officer

That points to repricing, not a heroic growth plan. If the bank can keep rolling maturing assets into higher spreads while deposit costs keep drifting lower, second-half margin relief does not require a big macro tailwind or a sudden loan boom.

Competition was the other useful signal. Moses said certificate-of-deposit pricing had eased materially from a year ago, a sign that the market for retail funding is normalising even if it is not back to pre-tightening conditions.

We have seen a significant decline in the competitive environment around those from, say, a year or so ago
— Jamie C. Moses, vice chairman and chief financial officer

Banks like First Hawaiian do not need deposit rates to collapse to improve net interest income. They need competition to stop resetting the floor higher every quarter. This quarter suggested that floor is no longer rising at the same pace.

Loan growth showed where the good news stopped. Loans and leases were up only $128.3 million from the prior quarter. For a bank this size, that is not weak enough to alarm investors, but it is not strong enough to lift earnings on its own. Margin repair still has to do most of the work.

That simplicity is what makes First Hawaiian useful. Larger peers can hide a thin spread-income quarter with trading, investment banking or other fee businesses. First Hawaiian cannot. Its results strip the story back to the core equation: what it pays depositors, what it earns on loans and securities, and how much volume sits between the two.

Clean credit, cautious demand

Analysts and skeptics part ways here. Analysts see a bank with clean credit and enough repricing runway to defend earnings. Skeptics see a franchise whose local concentration means demand can soften before losses show up in reported charge-offs.

At this stage, the reported numbers favour the analysts. Net charge-offs were 0.14 per cent of average loans and leases in the first quarter, and the allowance picture did not suggest a balance sheet under sudden strain. In a season when IndexBox’s sector survey warned that second-half credit conditions could still worsen, First Hawaiian looked more like a bank managing through margin compression than one building reserves for a new wave of losses.

The skeptic’s case is about timing, not immediate damage. A bank rooted in Hawaii is also tied more closely to the shape of the local economy than a more geographically diffuse regional lender. As GOBankingRates noted in a profile of First Hawaiian’s franchise, the bank still leans on deep community roots and a broad branch presence. That local density is a strength when public deposits, tourism-linked cash flows and real estate activity hold up. It can also make the bank a sharper read on island demand, because slower business formation or softer property turnover would show up first in loan appetite and deposit mix, not necessarily in next quarter’s loss numbers.

Credit can remain clean even while growth drags for longer than investors expect. A bank can look healthy on provisioning and still struggle to expand earnings if commercial borrowers stay selective and depositors keep demanding better pricing.

Nothing in the quarter pointed to a credit event. The more relevant warning was subtler: regional lenders can stay optically healthy for several quarters while still finding that the path back to better margins is slow, local and uneven.

What investors are really buying

Investors are therefore not underwriting a dramatic turnaround. They are being asked to believe that a stable franchise can squeeze better economics out of roughly the same balance sheet. First Hawaiian kept its quarterly dividend at $0.26 and repurchased about 1.3 million shares for $32.0 million in the quarter, choices that place it in the income-compounder category rather than the rapid-growth bucket.

The flat share response fit that profile. Investors were not paying for upside surprise so much as for confirmation that no new hole had opened. In regional banks, a “nothing worse” quarter can still matter when the sector is waiting for margins to trough.

Policy watchers can read the same lesson in the capital return story. When a bank can keep returning capital while its main debate is margin trajectory, the market is still treating it as an earnings-efficiency story, not a supervisory problem. If funding costs fall more slowly than management expects, buybacks can absorb some disappointment. They cannot replace the need for better core spread income.

In that sense, First Hawaiian is more than a Hawaii story. It is a regional-bank template in miniature: credit metrics that still look fine, deposit pricing that has improved but not normalised, and loan growth that is positive without being convincing. The banks that outperform from here are likely to be the ones that can widen margins without having to buy growth.

Guidance mattered more than the headline profit beat. On the earnings call, executives pointed to a modest lift in full-year net interest margin expectations to 3.22 per cent to 3.23 per cent. None of that is explosive. All of it is the sort of steady arithmetic regional-bank investors have been waiting to see.

Put simply, First Hawaiian showed that the regional-bank problem in 2026 is still deposit pricing and uneven loan demand, not an immediate blowout in credit. If deposit competition keeps cooling and maturing assets continue to reprice higher, the back half of the year can look better even without rate cuts. If local demand softens first, the bank will feel it through weaker growth before it shows up as stress. Either way, the quarter offered a clearer window into regional-bank operating pressure than another recap of the biggest banks’ headline beats.