First Hawaiian, Inc. (NASDAQ:FHB) Q4 2020 Earnings Conference Call January 22, 2021 1:00 PM ET Corporate Participants Kevin Haseyama - Investor Relations Bob Harrison - Chairman, President and Chief Executive Officer Ravi Mallela - Chief Financial Officer Ralph Mesick - Chief Risk Officer Conference Call Participants Steven Alexopoulos - JPMorgan Ebrahim Poonawala - Bank of America Securities Jared Shaw - Wells Fargo Securities Jackie Bohlen - KBW Andrew Liesch - Piper Sandler Laurie Hunsicker - Compass Poi ...

4 th QUARTER 2020 EARNINGS CALL 0 January 22, 2021 FORWARD-LOOKING STATEMENTS 1 This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as "may", "might", "should", "could", "predict", "potential", "believe" ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=Part%20I%20Financial%20Information) This section presents the unaudited interim consolidated financial statements, management's discussion and analysis of financial condition, and results of operations [ITEM 1. FINANCIAL STATEMENTS](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited interim consolidated financial statements, including income, comprehensive income, balance sheets, stockholders' equity, and cash flows, along with detailed notes on organization, accounting policies, and financial instruments [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) This table presents the consolidated statements of income, detailing interest income, interest expense, net interest income, provision for credit losses, net income, and earnings per share for specified periods | Metric (in thousands) | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Interest income | $141,927 | $170,181 | $441,078 | $516,560 | | Interest expense | $7,925 | $27,100 | $40,571 | $82,777 | | Net interest income | $134,002 | $143,081 | $400,507 | $433,783 | | Provision for credit losses | $5,072 | $— | $101,718 | $9,550 | | Net income | $65,101 | $74,199 | $124,015 | $216,556 | | Basic EPS | $0.50 | $0.56 | $0.95 | $1.62 | | Diluted EPS | $0.50 | $0.56 | $0.95 | $1.61 | [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) This table outlines the consolidated statements of comprehensive income, including net income and other comprehensive income components like changes in pensions and investment securities | Metric (in thousands) | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income | $65,101 | $74,199 | $124,015 | $216,556 | | Other comprehensive (loss) income, net of tax: | | Net change in pensions and other benefits | $— | $— | $(96) | $(594) | | Net change in investment securities | $(1,477) | $13,210 | $83,099 | $114,015 | | Total comprehensive income | $63,624 | $87,409 | $207,018 | $329,977 | [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) This table provides the consolidated balance sheets, detailing assets, liabilities, and stockholders' equity as of September 30, 2020, and December 31, 2019 | Metric (in thousands) | Sep 30, 2020 | Dec 31, 2019 | | :-------------------- | :----------- | :----------- | | **Assets:** | | | | Total assets | $22,310,701 | $20,166,734 | | Investment securities, at fair value | $5,692,883 | $4,075,644 | | Loans and leases | $13,499,969 | $13,211,650 | | Allowance for credit losses | $195,876 | $130,530 | | **Liabilities & Stockholders' Equity:** | | | | Total deposits | $18,897,762 | $16,444,994 | | Total liabilities | $19,576,767 | $17,526,476 | | Total stockholders' equity | $2,733,934 | $2,640,258 | [Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) This table presents the consolidated statements of stockholders' equity, showing changes in total equity, net income, dividends, and other comprehensive income for the nine months ended September 30, 2020 | Metric (in thousands) | Balance as of Dec 31, 2019 | Nine Months Ended Sep 30, 2020 | | :-------------------- | :------------------------- | :----------------------------- | | Total Stockholders' Equity | $2,640,258 | $2,733,934 | | Net income | | $124,015 | | Cash dividends declared | | $(101,322) | | Other comprehensive income, net of tax | | $83,003 | | Cumulative-effect adjustment of a change in accounting principle, net of tax | $(12,517) | | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This table details the consolidated statements of cash flows, outlining net cash provided by operating, investing, and financing activities, and the net increase in cash and cash equivalents | Metric (in thousands) | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $100,937 | $171,067 | | Net cash (used in) provided by investing activities | $(1,923,317) | $667,110 | | Net cash provided by (used in) financing activities | $1,944,692 | $(497,797) | | Net increase in cash and cash equivalents | $122,312 | $340,380 | | Cash and cash equivalents at end of period | $816,329 | $1,344,017 | [Notes to Consolidated Financial Statements (Unaudited)](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) This section provides detailed notes explaining the company's organization, accounting policies, and specific financial instrument details, including the impact of adopting new accounting standards [1. Organization and Basis of Presentation](index=11&type=section&id=1.%20Organization%20and%20Basis%20of%20Presentation) First Hawaiian, Inc. is a bank holding company whose interim financial statements are prepared under GAAP, detailing key accounting policies and the adoption of the CECL approach in 2020 - FHI is a bank holding company, with FHB as its sole direct, wholly-owned subsidiary, offering a full suite of banking services to consumer and commercial customers[26](index=26&type=chunk) - The company adopted ASU No. 2016-13 (CECL) on January 1, 2020, which changed the credit loss accounting from an 'incurred loss' to an 'expected loss' model, requiring significant operational changes and resulting in a cumulative effect adjustment to retained earnings[54](index=54&type=chunk)[55](index=55&type=chunk) Impact of Adopting ASC Topic 326 (CECL) as of January 1, 2020 (in thousands) | Metric | Prior to Adjustment | Adjustment to Adopt | After Adoption of | | :-------------------------------------------------------- | :------------------ | :------------------ | :---------------- | | Allowance for Credit Losses - Loans and Leases | $130,530 | $770 | $131,300 | | Reserve for Unfunded Commitments | $600 | $16,300 | $16,900 | | Pretax Cumulative Effect Adjustment of a Change in Accounting Principle | | $17,070 | | | Cumulative-Effect Adjustment of a Change in Accounting Principle, Net of Tax | | $12,517 | | [2. Investment Securities](index=19&type=section&id=2.%20Investment%20Securities) The company's investment securities, primarily available-for-sale debt, are reported at fair value, showing significant increases in total securities and unrealized gains as of September 30, 2020 Available-for-Sale Securities (in thousands) | Category | Amortized Cost (Sep 30, 2020) | Fair Value (Sep 30, 2020) | Amortized Cost (Dec 31, 2019) | Fair Value (Dec 31, 2019) | | :-------------------------------------- | :---------------------------- | :------------------------ | :---------------------------- | :------------------------ | | U.S. Treasury and government agency debt securities | $142,368 | $144,956 | $29,832 | $29,888 | | Mortgage-backed securities | $1,830,788 | $1,875,985 | $786,968 | $792,410 | | Collateralized mortgage obligations | $3,611,400 | $3,671,942 | $3,162,166 | $3,151,897 | | Total available-for-sale securities | $5,584,556 | $5,692,883 | $4,080,663 | $4,075,644 | - Gross unrealized gains on investment securities were **$111.7 million** as of September 30, 2020, compared to **$19.0 million** as of December 31, 2019, primarily due to lower market interest rates[66](index=66&type=chunk)[73](index=73&type=chunk)[412](index=412&type=chunk) - The company held approximately **120,000 Visa Class B restricted shares** at a **$0 cost basis** as of September 30, 2020, and December 31, 2019, due to transfer restrictions and litigation uncertainty[79](index=79&type=chunk) [3. Loans and Leases](index=23&type=section&id=3.%20Loans%20and%20Leases) Total loans and leases increased to $13.5 billion, driven by commercial and industrial loans, with a significant portion pledged as collateral for borrowing capacity Loans and Leases Composition (in thousands) | Category | Sep 30, 2020 | Dec 31, 2019 | | :------------------------ | :----------- | :----------- | | Commercial and industrial | $3,170,262 | $2,743,242 | | Commercial real estate | $3,461,085 | $3,463,953 | | Construction | $662,871 | $519,241 | | Residential | $4,533,840 | $4,662,175 | | Consumer | $1,425,934 | $1,620,556 | | Lease financing | $245,977 | $202,483 | | Total loans and leases | $13,499,969 | $13,211,650 | - The increase in commercial and industrial loans was primarily due to **$920.2 million in PPP loans**, partially offset by decreases in Shared National Credits and dealer flooring portfolios[418](index=418&type=chunk) - Residential real estate loans totaling **$3.0 billion** were pledged to FHLB, and consumer, commercial and industrial, commercial real estate, and residential mortgage loans totaling **$1.8 billion** were pledged to FRB as of September 30, 2020[82](index=82&type=chunk) [4. Allowance for Credit Losses](index=25&type=section&id=4.%20Allowance%20for%20Credit%20Losses) The Allowance for Credit Losses significantly increased to $195.9 million due to higher expected credit losses from the COVID-19 pandemic, with loan modifications generally not classified as Troubled Debt Restructurings - The ACL increased by **$65.3 million (50%)** to **$195.9 million** as of September 30, 2020, from **$130.5 million** at December 31, 2019, primarily due to higher expected credit losses resulting from the COVID-19 pandemic's impact on Hawaii's economy[334](index=334&type=chunk)[473](index=473&type=chunk) - The reserve for unfunded commitments increased to **$24.6 million** as of September 30, 2020, from **$0.6 million** as of December 31, 2019, reflecting increased expected credit losses[352](index=352&type=chunk)[90](index=90&type=chunk) - Short-term loan modifications (e.g., payment deferrals, fee waivers) made in good faith due to COVID-19 are not required to be reported as TDRs under GAAP, as per the CARES Act and Interagency Statements[86](index=86&type=chunk)[454](index=454&type=chunk) Allowance for Credit Losses Rollforward (Nine Months Ended Sep 30, 2020, in thousands) | Category | Balance at Beginning of Period | Adoption of ASU No. 2016-13 | Charge-offs | Recoveries | Increase in Provision | Balance at End of Period | | :------------------------ | :----------------------------- | :-------------------------- | :---------- | :--------- | :-------------------- | :----------------------- | | Commercial and Industrial | $28,975 | $(16,105) | $(14,773) | $2,019 | $21,155 | $21,271 | | Commercial Real Estate | $22,325 | $10,559 | $(2,723) | $— | $21,572 | $51,733 | | Construction | $4,844 | $(1,803) | $(379) | $170 | $2,102 | $4,934 | | Lease Financing | $424 | $207 | $— | $— | $3,420 | $4,051 | | Residential Mortgage | $29,303 | $(2,793) | $(14) | $179 | $15,542 | $42,217 | | Home Equity Line | $9,876 | $(4,731) | $(8) | $146 | $2,318 | $7,601 | | Consumer | $34,644 | $15,575 | $(21,742) | $7,687 | $27,905 | $64,069 | | Unallocated | $139 | $(139) | $— | $— | $— | $— | | **Total** | **$130,530** | **$770** | **$(39,639)** | **$10,201** | **$94,014** | **$195,876** | [5. Mortgage Servicing Rights](index=36&type=section&id=5.%20Mortgage%20Servicing%20Rights) Mortgage Servicing Rights are carried at the lower of cost or fair value, with net carrying value decreasing and amortization expense increasing for the periods ended September 30, 2020 Mortgage Servicing Rights (MSRs) (in thousands) | Metric | Sep 30, 2020 | Dec 31, 2019 | | :------------------------- | :----------- | :----------- | | Gross carrying amount | $66,415 | $63,480 | | Less: accumulated amortization | $55,493 | $50,812 | | Net carrying value | $10,922 | $12,668 | Changes in Amortized MSRs (in thousands) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Balance at beginning of period | $11,595 | $14,573 | $12,668 | $16,155 | | Originations | $729 | $35 | $2,935 | $59 | | Amortization | $(1,402) | $(978) | $(4,681) | $(2,584) | | Balance at end of period | $10,922 | $13,630 | $10,922 | $13,630 | [6. Transfers of Financial Assets](index=38&type=section&id=6.%20Transfers%20of%20Financial%20Assets) The company pledges financial assets as collateral for various obligations, with total pledged assets increasing to $7.1 billion as of September 30, 2020 Carrying Amounts of Pledged Assets (in thousands) | Category | Sep 30, 2020 | Dec 31, 2019 | | :----------------------- | :----------- | :----------- | | Public deposits | $2,186,759 | $1,543,492 | | Federal Home Loan Bank | $2,952,644 | $2,928,581 | | Federal Reserve Bank | $1,808,164 | $953,169 | | ACH transactions | $124,906 | $155,360 | | Interest rate swaps | $54,425 | $43,296 | | Total | $7,126,898 | $5,623,898 | - The company uses bilateral agreements to pledge investment securities for public deposits and repurchase agreements, and loans as collateral for FHLB and FRB borrowing capacity[135](index=135&type=chunk) [7. Deposits](index=39&type=section&id=7.%20Deposits) Total deposits increased by $2.5 billion (15%) to $18.9 billion, with growth across all deposit types, reflecting increased liquidity in anticipation of PPP funding needs Deposits Composition (in thousands) | Category | Sep 30, 2020 | Dec 31, 2019 | | :------------------ | :----------- | :----------- | | Interest-bearing | $11,989,492 | $10,564,922 | | Noninterest-bearing | $6,908,270 | $5,880,072 | | Total deposits | $18,897,762 | $16,444,994 | - The increase in total deposits was primarily due to a **$1.0 billion** increase in demand deposit balances, a **$1.0 billion** increase in savings deposit balances, a **$324.2 million** increase in money market deposit balances, and a **$104.7 million** increase in time deposit balances, driven by anticipation of PPP funding needs[336](index=336&type=chunk)[486](index=486&type=chunk) [8. Short-Term Borrowings](index=40&type=section&id=8.%20Short-Term%20Borrowings) The company had no short-term borrowings as of September 30, 2020, following the maturity of FHLB advances, while maintaining substantial available borrowing capacity Short-Term Borrowings (in thousands) | Category | Sep 30, 2020 | Dec 31, 2019 | | :---------------------------- | :----------- | :----------- | | Short-term FHLB fixed-rate advances | $— | $400,000 | | Total short-term borrowings | $— | $400,000 | - As of September 30, 2020, the company had available borrowing capacity of **$2.0 billion** from the FHLB and **$1.0 billion** from the FRB[143](index=143&type=chunk) [9. Long-Term Borrowings](index=42&type=section&id=9.%20Long-Term%20Borrowings) Long-term borrowings remained stable at $200.0 million, primarily consisting of FHLB fixed-rate advances maturing between 2023 and 2024 with a weighted average interest rate of 2.73% Long-Term Borrowings (in thousands) | Category | Sep 30, 2020 | Dec 31, 2019 | | :----------------------- | :----------- | :----------- | | Finance lease | $10 | $19 | | FHLB fixed-rate advances | $200,000 | $200,000 | | Total long-term borrowings | $200,010 | $200,019 | - The FHLB fixed-rate advances have a weighted average interest rate of **2.73%** and maturity dates ranging from 2023 to 2024[145](index=145&type=chunk) [10. Accumulated Other Comprehensive Income (Loss)](index=42&type=section&id=10.%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)) Accumulated other comprehensive income (loss) significantly increased to $51.3 million, primarily driven by a net unrealized gain on investment securities Changes in Accumulated Other Comprehensive Income (Loss), Net of Tax (in thousands) | Category | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :------------------------ | :----------------------------- | :----------------------------- | | Balance at beginning of period | $(31,749) | $(132,195) | | Other comprehensive (loss) income: | | | | Net change in pension and other benefits | $(96) | $(594) | | Net change in investment securities | $83,099 | $114,015 | | Balance at end of period | $51,254 | $(18,774) | - The significant increase in accumulated other comprehensive income was primarily due to a net unrealized gain in the fair value of investment securities of **$83.1 million** for the nine months ended September 30, 2020[153](index=153&type=chunk)[502](index=502&type=chunk) [11. Regulatory Capital Requirements](index=45&type=section&id=11.%20Regulatory%20Capital%20Requirements) The company and its bank subsidiary remained 'well-capitalized' as of September 30, 2020, meeting all federal regulatory capital requirements with strong capital ratios Regulatory Capital Ratios | Capital Ratio | Sep 30, 2020 | Dec 31, 2019 | Minimum Requirement | Well-Capitalized Ratio | | :----------------------------- | :----------- | :----------- | :------------------ | :--------------------- | | Common equity tier 1 capital to risk-weighted assets | 12.22% | 11.88% | 4.50% | 6.50% | | Tier 1 capital to risk-weighted assets | 12.22% | 11.88% | 6.00% | 8.00% | | Total capital to risk-weighted assets | 13.47% | 12.81% | 8.00% | 10.00% | | Tier 1 capital to average assets (leverage ratio) | 7.91% | 8.79% | 4.00% | 5.00% | - The company and Bank were both classified as **'well-capitalized'** as of September 30, 2020, under bank regulatory capital guidelines, including the **2.5% capital conservation buffer**[162](index=162&type=chunk) [12. Derivative Financial Instruments](index=47&type=section&id=12.%20Derivative%20Financial%20Instruments) The company uses derivative contracts, mainly interest rate swaps, for risk management and customer accommodation, with significant notional amounts and positive fair values for non-hedging instruments Notional Amounts and Fair Values of Derivatives (in thousands) | Category | Notional Amount (Sep 30, 2020) | Asset Fair Value (Sep 30, 2020) | Liability Fair Value (Sep 30, 2020) | Notional Amount (Dec 31, 2019) | Asset Fair Value (Dec 31, 2019) | Liability Fair Value (Dec 31, 2019) | | :-------------------------------------- | :----------------------------- | :------------------------------ | :---------------------------------- | :----------------------------- | :------------------------------ | :---------------------------------- | | Derivatives designated as hedging instruments: | | | | | | | | Interest rate swaps | $22,825 | $— | $(1,423) | $23,190 | $— | $(682) | | Derivatives not designated as hedging instruments: | | | | | | | | Interest rate swaps | $2,976,810 | $159,873 | $— | $2,818,803 | $63,527 | $— | | Funding swap | $91,410 | $— | $(920) | $82,900 | $— | $(4,233) | | Interest rate caps and floors | $148,800 | $11 | $(11) | $— | $— | $— | | Foreign exchange contracts | $113 | $— | $— | $1,428 | $12 | $— | - The company pledged **$30.9 million** in financial instruments and **$23.5 million** in cash as collateral for interest rate swaps as of September 30, 2020[168](index=168&type=chunk) - The Visa derivative liability, classified as Level 3, was **$0.9 million** as of September 30, 2020, down from **$4.2 million** at December 31, 2019, reflecting payments made due to reductions in Visa Class B conversion rates[176](index=176&type=chunk)[221](index=221&type=chunk) [13. Commitments and Contingent Liabilities](index=51&type=section&id=13.%20Commitments%20and%20Contingent%20Liabilities) The company is involved in legal proceedings and has significant off-balance sheet financial instruments, including commitments to extend credit and letters of credit, totaling $6.2 billion Financial Instruments with Off-Balance Sheet Risk (in thousands) | Category | Sep 30, 2020 | Dec 31, 2019 | | :----------------------------- | :----------- | :----------- | | Commitments to extend credit | $6,060,807 | $5,907,690 | | Standby letters of credit | $180,910 | $181,412 | | Commercial letters of credit | $4,113 | $7,334 | - The company sells residential mortgage loans in the secondary market with non-recourse provisions but may be obligated to repurchase loans or reimburse investors under certain conditions related to representations and warranties[188](index=188&type=chunk)[505](index=505&type=chunk) - The company does not anticipate material losses from legal proceedings or guarantees related to mortgage loan repurchases[181](index=181&type=chunk)[509](index=509&type=chunk) [14. Revenue from Contracts with Customers](index=53&type=section&id=14.%20Revenue%20from%20Contracts%20with%20Customers) Revenue is recognized from customer contracts, primarily service charges and card fees, with most revenues recognized at a point in time and contract liabilities decreasing due to amortization Total Revenue by Segment (Three Months Ended Sep 30, 2020, in thousands) | Segment | Net Interest Income | Noninterest Income | Total Revenue | | :--------------- | :------------------ | :----------------- | :------------ | | Retail Banking | $102,803 | $24,649 | $127,452 | | Commercial Banking | $32,757 | $16,679 | $49,436 | | Treasury and Other | $(1,558) | $7,570 | $6,012 | | Total | $134,002 | $48,898 | $182,900 | Total Revenue by Segment (Nine Months Ended Sep 30, 2020, in thousands) | Segment | Net Interest Income | Noninterest Income | Total Revenue | | :--------------- | :------------------ | :----------------- | :------------ | | Retail Banking | $288,832 | $73,197 | $362,029 | | Commercial Banking | $100,265 | $52,530 | $152,795 | | Treasury and Other | $11,410 | $18,055 | $29,465 | | Total | $400,507 | $143,782 | $544,289 | - Contract liabilities, primarily from vendor signing bonuses, decreased by approximately **$0.6 million** for the nine months ended September 30, 2020, due to the passage of time[204](index=204&type=chunk) [15. Earnings per Share](index=58&type=section&id=15.%20Earnings%20per%20Share) Basic and diluted earnings per share decreased for both the three and nine months ended September 30, 2020, compared to the prior year, reflecting lower net income Earnings per Share (in thousands, except per share amounts) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income | $65,101 | $74,199 | $124,015 | $216,556 | | Basic earnings per share | $0.50 | $0.56 | $0.95 | $1.62 | | Diluted earnings per share | $0.50 | $0.56 | $0.95 | $1.61 | | Basic weighted-average outstanding shares | 129,896,054 | 132,583,902 | 129,882,878 | 133,957,192 | | Diluted weighted-average outstanding shares | 130,085,534 | 132,877,769 | 130,129,690 | 134,231,762 | [16. Noninterest Income and Noninterest Expense](index=58&type=section&id=16.%20Noninterest%20Income%20and%20Noninterest%20Expense) This section details net periodic benefit cost for pension and postretirement plans, which decreased in 2020, and reports operating and variable lease income Net Periodic Benefit Cost (in thousands) | Component | Three Months Ended Sep 30, 2020 (Pension) | Three Months Ended Sep 30, 2019 (Pension) | Nine Months Ended Sep 30, 2020 (Pension) | Nine Months Ended Sep 30, 2019 (Pension) | | :------------------------- | :---------------------------------------- | :---------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Service cost | $— | $18 | $— | $52 | | Interest cost | $1,639 | $2,044 | $4,881 | $6,132 | | Expected return on plan assets | $(1,206) | $(1,195) | $(3,594) | $(3,585) | | Prior service credit | $— | $— | $— | $— | | Recognized net actuarial loss (gain) | $1,474 | $1,564 | $4,332 | $4,692 | | Total net periodic benefit cost | $1,907 | $2,431 | $5,619 | $7,291 | - The company recognized operating lease income of **$1.6 million** and variable lease income of **$1.4 million** for the three months ended September 30, 2020[211](index=211&type=chunk) [17. Fair Value](index=60&type=section&id=17.%20Fair%20Value) Financial instruments are measured at fair value using a three-level hierarchy, with most available-for-sale securities and derivatives classified as Level 2, and certain items as Level 3 due to unobservable inputs - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1 prices), and Level 3 (unobservable inputs requiring significant management judgment)[213](index=213&type=chunk) - All available-for-sale securities are classified as Level 2, and most derivatives are classified as Level 2, utilizing market observable inputs[219](index=219&type=chunk)[220](index=220&type=chunk) - The Visa derivative liability and collateral-dependent loans are classified as Level 3 due to the use of significant unobservable inputs such as potential future changes in conversion rate, expected term, and growth rate of Visa Class A common shares[222](index=222&type=chunk)[223](index=223&type=chunk)[235](index=235&type=chunk) Assets and Liabilities Recorded at Fair Value on a Recurring Basis (Sep 30, 2020, in thousands) | Category | Level 1 | Level 2 | Level 3 | Total | | :-------------------------------------- | :------ | :---------- | :------ | :---------- | | **Assets:** | | | | | | U.S. Treasury and government agency debt securities | $— | $144,956 | $— | $144,956 | | Mortgage-backed securities | $— | $1,875,985 | $— | $1,875,985 | | Collateralized mortgage obligations | $— | $3,671,942 | $— | $3,671,942 | | Other assets (derivative assets) | $— | $159,884 | $— | $159,884 | | **Liabilities:** | | | | | | Other liabilities (derivative liabilities) | $— | $(1,434) | $(920) | $(2,354) | | **Total** | **$—** | **$5,851,333** | **$(920)** | **$5,850,413** | [18. Reportable Operating Segments](index=69&type=section&id=18.%20Reportable%20Operating%20Segments) The company operates through Retail Banking, Commercial Banking, and Treasury and Other segments, with segment reporting restated in 2019 to align deposit balances and update cost allocation assumptions - The company's operating segments are Retail Banking, Commercial Banking, and Treasury and Other, with internal management processes for performance evaluation and resource allocation[242](index=242&type=chunk) - In 2019, segment operating profits were restated to align deposit balances within the business segment that directly manages them, affecting net interest income, provision for credit losses, noninterest income, and net income[247](index=247&type=chunk)[380](index=380&type=chunk) Business Segment Net Income (in thousands) | Segment | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :----------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Retail Banking | $50,962 | $53,552 | $105,026 | $159,040 | | Commercial Banking | $21,595 | $24,659 | $33,213 | $70,788 | | Treasury and Other | $(7,456) | $(4,012) | $(14,224) | $(13,272) | | Total | $65,101 | $74,199 | $124,015 | $216,556 | [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=74&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section analyzes the company's financial condition and results, highlighting the COVID-19 pandemic's impact on net income, credit losses, liquidity, capital, and critical accounting policies [Cautionary Note Regarding Forward-Looking Statements](index=74&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) The report contains forward-looking statements subject to inherent uncertainties and risks, including economic conditions and the COVID-19 pandemic, cautioning against undue reliance - The report contains forward-looking statements based on current expectations, estimates, and projections, which are subject to inherent uncertainties and risks, including the geographic concentration of business, economic conditions, and the impact of the COVID-19 pandemic[258](index=258&type=chunk)[259](index=259&type=chunk) - Readers are cautioned not to place undue reliance on forward-looking statements, as actual results may differ materially due to various factors, and the company does not undertake to update them except as required by law[258](index=258&type=chunk)[262](index=262&type=chunk) [Company Overview](index=76&type=section&id=Company%20Overview) First Hawaiian, Inc. is a bank holding company owning First Hawaiian Bank, founded in 1858, operating through Retail Banking, Commercial Banking, and Treasury and Other segments - First Hawaiian, Inc. (FHI) is a bank holding company that owns First Hawaiian Bank (FHB), which was founded in 1858 and operates through three segments: Retail Banking, Commercial Banking, and Treasury and Other[263](index=263&type=chunk) [Basis of Presentation](index=76&type=section&id=Basis%20of%20Presentation) The unaudited interim consolidated financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions, reflecting normal recurring adjustments - The unaudited interim consolidated financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions, reflecting normal recurring adjustments[266](index=266&type=chunk) [Recent Developments regarding COVID-19 and the Hawaii and Global Economy](index=76&type=section&id=Recent%20Developments%20regarding%20COVID-19%20and%20the%20Hawaii%20and%20Global%20Economy) The COVID-19 pandemic severely impacted global and Hawaii economies, leading to increased unemployment, government interventions, and adverse effects on the company's operations, credit risk, and net interest margin - The U.S. economy entered a pandemic-driven recession, with the national unemployment rate increasing to **14.7%** in April 2020 before decreasing to **7.9%** in September 2020[270](index=270&type=chunk) - Hawaii's economy, heavily dependent on tourism, experienced an unprecedented increase in unemployment, reaching **15.1%** in September 2020, compared to **2.7%** in September 2019, due to mandatory quarantines and stay-at-home orders[273](index=273&type=chunk) - The Federal Reserve cut the federal funds rate to **0.00%-0.25%** and implemented quantitative easing, while the U.S. government enacted fiscal stimulus measures like the CARES Act and PPP to counteract economic disruption[277](index=277&type=chunk)[278](index=278&type=chunk)[279](index=279&type=chunk) - The company strategically closed **26 branch locations** temporarily, with **four** becoming permanent, and expects continued adverse economic conditions, increased credit risk, and reduced net interest margin due to low interest rates and PPP participation[287](index=287&type=chunk)[291](index=291&type=chunk)[292](index=292&type=chunk) [Selected Financial Data](index=85&type=section&id=Selected%20Financial%20Data) This table presents selected financial highlights, including net interest income, provision for credit losses, net income, EPS, net interest margin, and key balance sheet figures for specified periods Financial Highlights (in thousands, except per share data) | Metric (in thousands) | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net interest income | $134,002 | $143,081 | $400,507 | $433,783 | | Provision for credit losses | $5,072 | $— | $101,718 | $9,550 | | Noninterest income | $48,898 | $49,980 | $143,782 | $145,825 | | Noninterest expense | $91,629 | $93,466 | $279,545 | $279,379 | | Net income | $65,101 | $74,199 | $124,015 | $216,556 | | Basic EPS | $0.50 | $0.56 | $0.95 | $1.62 | | Diluted EPS | $0.50 | $0.56 | $0.95 | $1.61 | | Net interest margin | 2.70% | 3.19% | 2.79% | 3.22% | | Efficiency ratio | 50.01% | 48.41% | 51.32% | 48.20% | | Return on average total assets | 1.16% | 1.45% | 0.76% | 1.42% | | Total assets (Sep 30, 2020 / Dec 31, 2019) | $22,310,701 | | $22,310,701 | $20,166,734 | | Total deposits (Sep 30, 2020 / Dec 31, 2019) | $18,897,762 | | $18,897,762 | $16,444,994 | | Total stockholders' equity (Sep 30, 2020 / Dec 31, 2019) | $2,733,934 | | $2,733,934 | $2,640,258 | [Financial Highlights](index=90&type=section&id=Financial%20Highlights) Net income decreased significantly due to increased provision for credit losses and lower net interest income, while total assets and deposits grew, and capital ratios remained strong - Net income decreased by **$9.1 million (12%)** to **$65.1 million** for the three months ended September 30, 2020, and by **$92.5 million (43%)** to **$124.0 million** for the nine months ended September 30, 2020, primarily due to a **$92.2 million** increase in the Provision for credit losses[317](index=317&type=chunk)[324](index=324&type=chunk) - Net interest income decreased by **$9.1 million (6%)** for the three months and **$33.3 million (8%)** for the nine months ended September 30, 2020, with net interest margin declining by **49 basis points** and **43 basis points**, respectively, due to lower yields[319](index=319&type=chunk)[326](index=326&type=chunk) - The Allowance for Credit Losses (ACL) increased by **$65.3 million (50%)** to **$195.9 million** as of September 30, 2020, representing **1.45%** of total loans and leases, up from **0.99%** at December 31, 2019, reflecting higher expected credit losses due to COVID-19[334](index=334&type=chunk) - Total loans and leases increased by **$288.3 million (2%)** to **$13.5 billion**, and total deposits increased by **$2.5 billion (15%)** to **$18.9 billion** as of September 30, 2020[333](index=333&type=chunk)[336](index=336&type=chunk) [Analysis of Results of Operations](index=95&type=section&id=Analysis%20of%20Results%20of%20Operations) The company's operations were impacted by lower interest rates and higher credit loss provisions, resulting in decreased net interest income and mixed changes in noninterest income and expense - Net interest income (fully taxable-equivalent basis) decreased by **$8.8 million (6%)** for the three months and **$32.9 million (8%)** for the nine months ended September 30, 2020, primarily due to lower yields on loans and investment securities, partially offset by lower deposit funding costs[342](index=342&type=chunk)[348](index=348&type=chunk) - The Provision for credit losses increased to **$5.1 million** for the three months and **$101.7 million** for the nine months ended September 30, 2020, from nil and **$9.55 million** respectively in 2019, driven by expected credit losses from COVID-19[352](index=352&type=chunk) - Noninterest income decreased by **$1.1 million (2%)** for the three months and **$2.0 million (1%)** for the nine months ended September 30, 2020. Key changes include decreases in credit and debit card fees and service charges, partially offset by increases in other noninterest income[356](index=356&type=chunk)[357](index=357&type=chunk)[358](index=358&type=chunk)[365](index=365&type=chunk) - Total noninterest expense decreased by **$1.8 million (2%)** for the three months and increased by **$0.2 million (less than 1%)** for the nine months ended September 30, 2020, with notable changes in card rewards program expense (decrease) and contracted services/equipment expense (increase)[367](index=367&type=chunk)[370](index=370&type=chunk)[372](index=372&type=chunk)[375](index=375&type=chunk) [Analysis of Business Segments](index=109&type=section&id=Analysis%20of%20Business%20Segments) Retail Banking and Commercial Banking segments experienced decreased net income due to higher credit loss provisions and lower net interest income, while Treasury and Other saw an increased net loss - Retail Banking net income decreased by **$2.6 million (5%)** for the three months and **$54.0 million (34%)** for the nine months ended September 30, 2020, mainly due to increased provision for credit losses and decreased net interest income[383](index=383&type=chunk)[386](index=386&type=chunk) - Commercial Banking net income decreased by **$3.1 million (12%)** for the three months and **$37.6 million (53%)** for the nine months ended September 30, 2020, primarily due to increased provision for credit losses and decreased net interest income[389](index=389&type=chunk)[390](index=390&type=chunk) - Treasury and Other segment's net loss increased by **$3.4 million (86%)** for the three months and **$1.0 million (7%)** for the nine months ended September 30, 2020, driven by higher net interest expense and provision for credit losses[395](index=395&type=chunk)[396](index=396&type=chunk) [Analysis of Financial Condition](index=113&type=section&id=Analysis%20of%20Financial%20Condition) The company maintained strong liquidity and capital, with increased loans (driven by PPP) and deposits, while the Allowance for Credit Losses significantly rose due to COVID-19 impacts - Cash and cash equivalents were **$0.8 billion**, and available-for-sale investment securities were **$5.7 billion** as of September 30, 2020, providing substantial liquidity[402](index=402&type=chunk) - Total loans and leases increased by **$288.3 million (2%)** to **$13.5 billion**, primarily due to **$920.2 million in PPP loans**[417](index=417&type=chunk) - The Allowance for Credit Losses (ACL) increased by **$65.3 million (50%)** to **$195.9 million**, representing **1.45%** of total loans and leases, reflecting the adverse economic impact of COVID-19[473](index=473&type=chunk) - Total deposits increased by **$2.5 billion (15%)** to **$18.9 billion**, and short-term borrowings were reduced to **zero** as of September 30, 2020[486](index=486&type=chunk)[487](index=487&type=chunk) - The company remained **'well capitalized'** with a Common Equity Tier 1 capital ratio of **12.22%** and total stockholders' equity increasing by **$93.7 million (4%)** to **$2.7 billion**[498](index=498&type=chunk)[502](index=502&type=chunk) [Off-Balance Sheet Arrangements and Guarantees](index=142&type=section&id=Off-Balance%20Sheet%20Arrangements%20and%20Guarantees) The company holds interests in unconsolidated VIEs and is exposed to guarantees from residential mortgage loan sales, but management believes the associated risks are not material - The company holds interests in several unconsolidated VIEs, primarily low-income housing tax credit investments, but is not deemed the primary beneficiary[504](index=504&type=chunk) - Guarantees arise from selling residential mortgage loans to Fannie Mae or Freddie Mac, which may require repurchase if underwriting or documentation standards are not met. The unpaid principal balance of loans sold was **$2.3 billion** as of September 30, 2020[505](index=505&type=chunk) - Management believes the exposure from repurchase requests related to representation and warranty provisions and servicing activities is not material due to historical levels and loss trends[509](index=509&type=chunk) [Contractual Obligations](index=144&type=section&id=Contractual%20Obligations) The company's contractual obligations have not materially changed since December 31, 2019 - The company's contractual obligations have not materially changed since December 31, 2019[510](index=510&type=chunk) [Future Application of Accounting Pronouncements](index=144&type=section&id=Future%20Application%20of%20Accounting%20Pronouncements) Information on the expected impact of recently issued but not yet adopted accounting pronouncements is available in Note 1 of the consolidated financial statements - Information on the expected impact of recently issued but not yet adopted accounting pronouncements is available in Note 1 of the consolidated financial statements[511](index=511&type=chunk) [Risk Governance and Quantitative and Qualitative Disclosures About Market Risk](index=144&type=section&id=Risk%20Governance%20and%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages credit, market, liquidity, capital, and operational risks, with market risk primarily assessed through net interest income simulation analysis for interest rate sensitivity - The company's most prominent risk exposures are credit risk, market risk, liquidity risk management, capital management, and operational risk[512](index=512&type=chunk) - Credit risk is managed through well-defined underwriting criteria, account administration standards, and active portfolio diversification across obligor, industry, product, and geographic locations[513](index=513&type=chunk) - Market risk, primarily interest rate risk, is measured using net interest income simulation analysis, which projects net interest income will benefit from higher interest rates and be less sensitive to lower interest rates[523](index=523&type=chunk)[528](index=528&type=chunk)[532](index=532&type=chunk) Estimated Changes in Net Interest Income from Interest Rate Shifts (12 months subsequent to Sep 30, 2020) | Change in Interest Rates (basis points) | Ramp Change in Net Interest Income | Immediate Change in Net Interest Income | | :-------------------------------------- | :--------------------------------- | :-------------------------------------- | | +100 | 5.9% | 11.2% | | +50 | 3.0% | 5.7% | | (50) | (1.7)% | (2.9)% | | (100) | (2.4)% | (3.8)% | [Critical Accounting Policies](index=152&type=section&id=Critical%20Accounting%20Policies) The Allowance for Credit Losses determination is a critical accounting estimate, relying on credit risk ratings, macroeconomic forecasts, and quantitative models under the CECL methodology - The ACL determination is a critical accounting estimate, relying on credit risk ratings, estimates of future cash flows, estimated loss rates, and quantitative/qualitative evaluations of macroeconomic factors and trends[545](index=545&type=chunk) - The CECL methodology utilizes a **one-year** reasonable and supportable forecast period, with an immediate reversion to the mean approach for contractual periods beyond this horizon[550](index=550&type=chunk) - Qualitative adjustments to the forecast period, based on factors like employment, visitor arrivals, and real estate prices, are highly subjective and involve significant management judgment[551](index=551&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=155&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section refers to the detailed quantitative and qualitative disclosures about market risk provided in the 'Risk Governance' section of Management's Discussion and Analysis - Quantitative and qualitative disclosures about market risk are discussed in detail within the 'Risk Governance and Quantitative and Qualitative Disclosures About Market Risk' section of the MD&A[555](index=555&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=155&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management evaluated the effectiveness of disclosure controls and procedures as of September 30, 2020, concluding they were effective with no material changes in internal control over financial reporting - The company's disclosure controls and procedures were deemed **effective** as of September 30, 2020, following an evaluation by the CEO and CFO[555](index=555&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2020[555](index=555&type=chunk) [PART II. OTHER INFORMATION](index=155&type=section&id=Part%20II.%20Other%20Information) This section contains other information, including legal proceedings, risk factors, exhibits, and signatures related to the company's financial reporting [ITEM 1. LEGAL PROCEEDINGS](index=155&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is involved in various legal proceedings incidental to its business but does not expect any to have a material adverse effect on its financial position or operations - The company is not currently party to any legal proceedings expected to have a **material adverse effect** on its business, financial condition, or results of operations[556](index=556&type=chunk) [ITEM 1A. RISK FACTORS](index=155&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section refers to previously disclosed risk factors, noting no material changes beyond additional factual information in the current report - There are no material changes to the company's risk factors from those disclosed in its 2019 Annual Report on Form 10-K and Q1 2020 Quarterly Report on Form 10-Q, except for additional factual information in this report[557](index=557&type=chunk) [ITEM 6. EXHIBITS](index=156&type=section&id=ITEM%206.%20EXHIBITS) This section lists exhibits filed with the Form 10-Q, including certifications from the Chief Executive Officer and Chief Financial Officer, and XBRL-related documents - The exhibit index includes certifications from the CEO and CFO (pursuant to Rules 13a-14(a) and 18 U.S.C. Section 1350) and various XBRL (eXtensible Business Reporting Language) documents[560](index=560&type=chunk) [Signatures](index=157&type=section&id=Signatures) The report is duly signed on behalf of First Hawaiian, Inc. by its Chairman, President, CEO, and CFO as of November 2, 2020 - The report was signed by Robert S. Harrison, Chairman of the Board, President and Chief Executive Officer, and Ravi Mallela, Chief Financial Officer, on November 2, 2020[563](index=563&type=chunk)[564](index=564&type=chunk)

First Hawaiian, Inc. (NASDAQ:FHB) Q3 2020 Results Conference Call October 23, 2020 1:00 PM ET Company Participants Kevin Haseyama - IR Bob Harrison - Chairman, President and CEO Ravi Mallela - CFO Ralph Mesick - Chief Risk Officer Conference Call Participants Steven Alexopoulos - JPMorgan Ebrahim Poonawala - Bank of America Securities Alex Matters - Goldman Sachs Jackie Bohlen - KBW Andrew Liesch - Piper Sandler Jared Shaw - Wells Fargo Securities Laurie Hunsicker - Compass Point Operator Ladies and gentlem ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-14585 FIRST HAWAIIAN, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 99-0156159 (State or Other Juri ...

Part I Financial Information [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents the unaudited consolidated financial statements, including statements of income, comprehensive income, balance sheets, stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, financial instrument specifics, and regulatory compliance [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) | Metric (in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net interest income | $138,683 | $145,089 | | Provision for credit losses | $41,200 | $5,680 | | Noninterest income | $49,228 | $47,072 | | Noninterest expense | $96,466 | $92,623 | | Net income | $38,865 | $69,924 | | Basic earnings per share | $0.30 | $0.52 | | Diluted earnings per share | $0.30 | $0.52 | - Net income decreased by **$31,059 thousand** (44%) for the three months ended March 31, 2020, compared to the same period in 2019, primarily due to a significant increase in the provision for credit losses[8](index=8&type=chunk) [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) | Metric (in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net income | $38,865 | $69,924 | | Other comprehensive income | $35,878 | $53,441 | | Total comprehensive income | $74,743 | $123,365 | - Total comprehensive income decreased by **$48,622 thousand** for the three months ended March 31, 2020, compared to the same period in 2019, mainly driven by the decrease in net income[10](index=10&type=chunk) [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) | Metric (in thousands) | March 31, 2020 | December 31, 2019 | | :-------------------- | :------------- | :---------------- | | Total assets | $20,755,891 | $20,166,734 | | Total deposits | $17,020,002 | $16,444,994 | | Total liabilities | $18,091,206 | $17,526,476 | | Total stockholders' equity | $2,664,685 | $2,640,258 | | Loans and leases | $13,380,270 | $13,211,650 | | Allowance for credit losses | $166,013 | $130,530 | - Total assets increased by **$589,157 thousand** (2.9%) from December 31, 2019, to March 31, 2020, primarily driven by an increase in interest-bearing deposits in other banks and loans and leases[14](index=14&type=chunk) - Total deposits increased by **$575,008 thousand** (3.5%) from December 31, 2019, to March 31, 2020[14](index=14&type=chunk) [Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) | Metric (in thousands) | March 31, 2020 | December 31, 2019 | | :-------------------- | :------------- | :---------------- | | Balance as of December 31, 2019 | $2,640,258 | $2,524,839 | | Cumulative-effect adjustment of a change in accounting principle, net of tax | $(12,517) | N/A | | Net income | $38,865 | $69,924 | | Cash dividends declared | $(33,782) | $(35,067) | | Other comprehensive income, net of tax | $35,878 | $53,441 | | Balance as of March 31, 2020 | $2,664,685 | $2,613,202 | - Stockholders' equity increased by **$24,427 thousand** from December 31, 2019, to March 31, 2020, driven by net income and other comprehensive income, partially offset by dividends and a cumulative-effect adjustment[18](index=18&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash (used in) provided by operating activities | $(51,849) | $63,404 | | Net cash used in investing activities | $(124,058) | $(57,754) | | Net cash provided by (used in) financing activities | $534,722 | $(391,420) | | Net increase (decrease) in cash and cash equivalents | $358,815 | $(385,770) | | Cash and cash equivalents at end of period | $1,052,832 | $617,867 | - Net cash provided by financing activities significantly increased to **$534,722 thousand** in Q1 2020 from a net use of **$391,420 thousand** in Q1 2019, primarily due to a net increase in deposits[21](index=21&type=chunk) - Cash and cash equivalents at the end of the period increased to **$1,052,832 thousand** as of March 31, 2020, from **$617,867 thousand** as of March 31, 2019[21](index=21&type=chunk) [Notes to Consolidated Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(unaudited)) [Note 1. Organization and Basis of Presentation](index=9&type=section&id=Note%201.%20Organization%20and%20Basis%20of%20Presentation) This note outlines the company's structure, services, and the basis for preparing interim financial statements in accordance with GAAP. It details the adoption of new accounting standards, including CECL, Goodwill Impairment, and Fair Value Measurement disclosures, and mentions the evaluation of the new Reference Rate Reform guidance - First Hawaiian, Inc. (FHI) is a bank holding company that owns **100%** of First Hawaiian Bank (FHB), offering comprehensive banking services to consumer and commercial customers[23](index=23&type=chunk) - The Company adopted ASU No. 2016-13 (CECL) on January 1, 2020, resulting in a cumulative effect adjustment to retained earnings and an increase in the Allowance for Credit Losses (ACL) by **$770 thousand** and the Reserve for Unfunded Commitments by **$16,300 thousand**[52](index=52&type=chunk)[55](index=55&type=chunk) - ASU No. 2017-04 (Goodwill Impairment) and ASU No. 2018-13 (Fair Value Measurement Disclosure) were adopted on January 1, 2020, with no material impact on consolidated financial statements[57](index=57&type=chunk)[58](index=58&type=chunk) - The Company is evaluating the impact of ASU No. 2020-04 (Reference Rate Reform), issued in March 2020, which provides optional expedients for contracts referencing LIBOR[60](index=60&type=chunk)[61](index=61&type=chunk)[63](index=63&type=chunk) [Note 2. Investment Securities](index=18&type=section&id=Note%202.%20Investment%20Securities) This note details the composition of the company's available-for-sale investment securities, primarily consisting of U.S. Treasury, government-sponsored enterprise debt, mortgage-backed, and collateralized mortgage obligations. It also provides information on unrealized gains and losses, and pledged securities | Investment Category (in thousands) | March 31, 2020 Fair Value | December 31, 2019 Fair Value | | :--------------------------------- | :------------------------ | :------------------------- | | U.S. Treasury securities | $30,927 | $29,888 | | Government-sponsored enterprises debt securities | $26,721 | $101,439 | | Mortgage-backed securities | $883,414 | $792,419 | | Collateralized mortgage obligations | $3,117,395 | $3,151,897 | | Total available-for-sale securities | $4,058,457 | $4,075,644 | - Gross unrealized gains on investment securities increased to **$54,483 thousand** as of March 31, 2020, from **$18,968 thousand** as of December 31, 2019[68](index=68&type=chunk) - Gross unrealized losses on investment securities decreased to **$10,423 thousand** as of March 31, 2020, from **$23,987 thousand** as of December 31, 2019[68](index=68&type=chunk) - Pledged securities totaled **$2.2 billion** as of March 31, 2020, up from **$1.8 billion** as of December 31, 2019[71](index=71&type=chunk) [Note 3. Loans and Leases](index=21&type=section&id=Note%203.%20Loans%20and%20Leases) This note provides a detailed breakdown of the loan and lease portfolio by category, including commercial and industrial, real estate, construction, residential, consumer, and lease financing. It also outlines collateral pledges and the geographic concentration of the portfolio | Loan Category (in thousands) | March 31, 2020 | December 31, 2019 | | :--------------------------- | :------------- | :---------------- | | Commercial and industrial | $3,025,345 | $2,743,242 | | Commercial real estate | $3,413,014 | $3,463,953 | | Construction | $572,062 | $519,241 | | Residential | $4,565,153 | $4,662,175 | | Consumer | $1,568,073 | $1,620,556 | | Lease financing | $236,623 | $202,483 | | Total loans and leases | $13,380,270 | $13,211,650 | - Commercial and industrial loans increased by **$282,103 thousand** (10.3%) from December 31, 2019, to March 31, 2020[80](index=80&type=chunk) - Residential real estate loans totaling **$3.0 billion** were pledged to collateralize borrowing capacity at the FHLB, and **$1.3 billion** were pledged to the FRB as of March 31, 2020[81](index=81&type=chunk)[82](index=82&type=chunk) [Note 4. Allowance for Credit Losses](index=23&type=section&id=Note%204.%20Allowance%20for%20Credit%20Losses) This note details the Allowance for Credit Losses (ACL) and the reserve for unfunded commitments, including the impact of adopting the CECL standard. It provides rollforwards of ACL activity, credit quality indicators (internal grades and FICO scores), past-due status, nonaccrual loans, collateral-dependent loans, and troubled debt restructurings (TDRs) | Metric (in thousands) | March 31, 2020 | December 31, 2019 | | :-------------------- | :------------- | :---------------- | | Allowance for credit losses (ACL) | $166,013 | $130,530 | | Reserve for unfunded commitments | $17,251 | $600 | | Net charge-offs (3 months ended) | $6,136 | $5,852 | | ACL to total loans and leases outstanding | 1.24% | 0.99% | - The ACL increased by **$35,483 thousand** (27.2%) from December 31, 2019, to March 31, 2020, primarily due to higher expected credit losses resulting from COVID-19's impact on Hawaii's economy[87](index=87&type=chunk)[88](index=88&type=chunk)[317](index=317&type=chunk) - The reserve for unfunded commitments increased significantly to **$17,251 thousand** as of March 31, 2020, from **$600 thousand** as of December 31, 2019, largely due to the adoption of ASU No. 2016-13 (CECL)[91](index=91&type=chunk)[115](index=115&type=chunk)[426](index=426&type=chunk) - Nonaccrual loans and leases increased to **$6,926 thousand** as of March 31, 2020, from **$5,468 thousand** as of January 1, 2020[115](index=115&type=chunk) [Note 5. Mortgage Servicing Rights](index=33&type=section&id=Note%205.%20Mortgage%20Servicing%20Rights) This note details the company's mortgage servicing activities, including income, amortization, and the net carrying value of Mortgage Servicing Rights (MSRs). It also provides quantitative assumptions used in determining the fair value of MSRs | Metric (in thousands) | March 31, 2020 | December 31, 2019 | | :-------------------- | :------------- | :---------------- | | Net carrying value of MSRs | $11,979 | $12,668 | | Amortization of MSRs (3 months ended) | $1,980 | $764 | | Servicing fees (3 months ended) | $1,500 | $1,600 | - No impairment of MSRs was recorded for the three months ended March 31, 2020, and 2019[131](index=131&type=chunk) [Note 6. Transfers of Financial Assets](index=35&type=section&id=Note%206.%20Transfers%20of%20Financial%20Assets) This note describes the company's transfers of financial assets, primarily pledges of collateral to secure public deposits, borrowing arrangements with FHLB and FRB, ACH transactions, and interest rate swaps | Pledged Asset Category (in thousands) | March 31, 2020 | December 31, 2019 | | :------------------------------------ | :------------- | :---------------- | | Public deposits | $1,997,472 | $1,543,492 | | Federal Home Loan Bank | $3,008,321 | $2,928,581 | | Federal Reserve Bank | $1,250,553 | $953,169 | | ACH transactions | $152,967 | $155,360 | | Interest rate swaps | $55,831 | $43,296 | | Total pledged assets | $6,465,144 | $5,623,898 | - Total pledged assets increased by **$841,246 thousand** (15%) from December 31, 2019, to March 31, 2020[136](index=136&type=chunk) [Note 7. Deposits](index=37&type=section&id=Note%207.%20Deposits) This note categorizes deposits into interest-bearing and noninterest-bearing, by U.S. and foreign sources, and presents the maturity distribution of time certificates of deposit | Deposit Category (in thousands) | March 31, 2020 | December 31, 2019 | | :------------------------------ | :------------- | :---------------- | | U.S. Interest-bearing | $10,539,824 | $9,782,957 | | U.S. Noninterest-bearing | $5,073,463 | $5,188,696 | | Foreign Interest-bearing | $734,639 | $781,965 | | Foreign Noninterest-bearing | $672,076 | $691,376 | | Total deposits | $17,020,002 | $16,444,994 | - Total deposits increased by **$575,008 thousand** (3.5%) from December 31, 2019, to March 31, 2020[137](index=137&type=chunk) Time Certificates of Deposit Maturity (in thousands) | Time Certificates of Deposit Maturity (in thousands) | Total March 31, 2020 | | :--------------------------------------------------- | :------------------- | | Three months or less | $738,736 | | Over three through six months | $721,323 | | Over six through twelve months | $936,590 | | One to two years | $196,352 | | Two to three years | $181,599 | | Three to four years | $89,893 | | Four to five years | $47,692 | | Thereafter | $113 | | Total | $2,912,298 | [Note 8. Short-Term Borrowings](index=39&type=section&id=Note%208.%20Short-Term%20Borrowings) This note details the company's short-term borrowings, which consist entirely of FHLB fixed-rate advances, including their weighted average interest rate and remaining borrowing capacity | Short-Term Borrowings (in thousands) | March 31, 2020 | December 31, 2019 | | :----------------------------------- | :------------- | :---------------- | | Short-term FHLB fixed-rate advances | $400,000 | $400,000 | | Total short-term borrowings | $400,000 | $400,000 | - Short-term FHLB fixed-rate advances had a weighted average interest rate of **2.84%** and maturity dates in 2020[140](index=140&type=chunk) - Available remaining borrowing capacity with the FHLB was **$1.8 billion** as of March 31, 2020[140](index=140&type=chunk) [Note 9. Long-Term Borrowings](index=39&type=section&id=Note%209.%20Long-Term%20Borrowings) This note outlines the company's long-term borrowings, comprising FHLB fixed-rate advances and a finance lease obligation, detailing their interest rates and future contractual principal payments | Long-Term Borrowings (in thousands) | March 31, 2020 | December 31, 2019 | | :---------------------------------- | :------------- | :---------------- | | Finance lease | $19 | $19 | | FHLB fixed-rate advances | $200,000 | $200,000 | | Total long-term borrowings | $200,019 | $200,019 | - FHLB fixed-rate advances of **$200.0 million** had a weighted average interest rate of **2.73%** and maturity dates ranging from 2023 to 2024[142](index=142&type=chunk) Principal Payments (in thousands) | Year | Principal Payments (in thousands) | | :--- | :-------------------------------- | | 2020 | $9 | | 2021 | $10 | | 2022 | $0 | | 2023 | $100,000 | | 2024 | $100,000 | | Total| $200,019 | [Note 10. Accumulated Other Comprehensive Income (Loss)](index=39&type=section&id=Note%2010.%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)) This note details the components of accumulated other comprehensive income (loss), including pension and other benefits, and net unrealized gains or losses on investment securities, and presents changes over the reporting periods | Metric (in thousands) | March 31, 2020 | December 31, 2019 | | :-------------------- | :------------- | :---------------- | | Accumulated other comprehensive income (loss), net of tax | $4,129 | $(31,749) | - Accumulated other comprehensive income (loss), net of tax, increased by **$35,878 thousand** from December 31, 2019, to March 31, 2020, primarily due to a net change in investment securities[149](index=149&type=chunk) - Net change in investment securities, net of tax, was a gain of **$35,974 thousand** for the three months ended March 31, 2020[149](index=149&type=chunk) [Note 11. Regulatory Capital Requirements](index=41&type=section&id=Note%2011.%20Regulatory%20Capital%20Requirements) This note outlines the company's and the bank's compliance with federal regulatory capital requirements, including Common Equity Tier 1 (CET1), Tier 1, Total Capital, and Leverage Ratios, confirming their 'well-capitalized' status | Capital Ratio | March 31, 2020 | December 31, 2019 | | :------------ | :------------- | :---------------- | | CET1 Capital Ratio | 11.65% | 11.88% | | Tier 1 Capital Ratio | 11.65% | 11.88% | | Total Capital Ratio | 12.90% | 12.81% | | Tier 1 Leverage Ratio | 8.63% | 8.79% | - Both the Company and the Bank were classified as **'well-capitalized'** as of March 31, 2020, meeting all minimum regulatory capital requirements, including the **2.5% capital conservation buffer**[155](index=155&type=chunk) [Note 12. Derivative Financial Instruments](index=43&type=section&id=Note%2012.%20Derivative%20Financial%20Instruments) This note details the company's use of derivative contracts, primarily interest rate swaps and foreign exchange contracts, for risk management (fair value hedges) and customer accommodation (free-standing instruments). It also addresses counterparty credit risk and credit-risk related contingent features | Derivative Type (in thousands) | March 31, 2020 Notional Amount | December 31, 2019 Notional Amount | | :----------------------------- | :----------------------------- | :-------------------------------- | | Interest rate swaps (hedging) | $23,190 | $23,190 | | Interest rate swaps (non-hedging) | $2,901,085 | $2,818,803 | | Funding swap | $85,645 | $82,900 | | Foreign exchange contracts | $1,834 | $1,428 | Derivative Fair Value (in thousands) | Derivative Fair Value (in thousands) | March 31, 2020 Asset | March 31, 2020 Liability | December 31, 2019 Asset | December 31, 2019 Liability | | :----------------------------------- | :------------------- | :----------------------- | :---------------------- | :-------------------------- | | Interest rate swaps (hedging) | $0 | $(1,635) | $0 | $(682) | | Interest rate swaps (non-hedging) | $158,711 | $0 | $63,527 | $0 | | Funding swap | $0 | $(3,199) | $0 | $(4,233) | | Foreign exchange contracts | $0 | $(52) | $12 | $0 | - The aggregate fair value of derivative instruments with credit-risk related contingent features in a net liability position was **$12.3 million** as of March 31, 2020, up from **$4.0 million** as of December 31, 2019[174](index=174&type=chunk) [Note 13. Commitments and Contingent Liabilities](index=49&type=section&id=Note%2013.%20Commitments%20and%20Contingent%20Liabilities) This note addresses various commitments and contingent liabilities, including legal proceedings, off-balance sheet risks like commitments to extend credit and letters of credit, guarantees related to residential mortgage loan sales, and foreign exchange contracts - Management does not expect legal proceedings to have a material effect on the company's financial position[175](index=175&type=chunk) Financial Instrument (in thousands) | Financial Instrument (in thousands) | March 31, 2020 | December 31, 2019 | | :---------------------------------- | :------------- | :---------------- | | Commitments to extend credit | $5,727,850 | $5,907,690 | | Standby letters of credit | $185,315 | $181,412 | | Commercial letters of credit | $8,850 | $7,334 | - The company sells residential mortgage loans with representations and warranties that may require repurchase under certain conditions, but management does not anticipate material losses[182](index=182&type=chunk) [Note 14. Revenue from Contracts with Customers](index=51&type=section&id=Note%2014.%20Revenue%20from%20Contracts%20with%20Customers) This note explains the company's revenue recognition policies under Topic 606 and disaggregates revenue by type of service and business segment. It covers service charges, card fees, trust and investment services income, and other fees | Revenue Type (in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Net interest income | $138,683 | $145,089 | | Service charges on deposit accounts | $8,950 | $8,060 | | Credit and debit card fees | $14,486 | $21,434 | | Other service charges and fees | $5,815 | $6,244 | | Trust and investment services income | $9,591 | $8,618 | | Other noninterest income | $1,479 | $1,932 | | Total revenue | $187,911 | $192,161 | - Total revenue decreased by **$4,250 thousand** (2.2%) for the three months ended March 31, 2020, compared to the same period in 2019[188](index=188&type=chunk) - Credit and debit card fees decreased by **$6,948 thousand** (32.4%) for the three months ended March 31, 2020, compared to the same period in 2019[188](index=188&type=chunk) [Note 15. Earnings per Share](index=55&type=section&id=Note%2015.%20Earnings%20per%20Share) This note provides the computation of basic and diluted earnings per share, confirming no adjustments to net income for calculation purposes and the absence of antidilutive securities | EPS Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--------- | :-------------------------------- | :-------------------------------- | | Basic earnings per share | $0.30 | $0.52 | | Diluted earnings per share | $0.30 | $0.52 | - Basic and diluted earnings per share decreased by **$0.22** (42.3%) for the three months ended March 31, 2020, compared to the same period in 2019[199](index=199&type=chunk) [Note 16. Noninterest Income and Noninterest Expense](index=57&type=section&id=Note%2016.%20Noninterest%20Income%20and%20Noninterest%20Expense) This note details the components of net periodic benefit cost for the company's pension and postretirement benefit plans, and reports operating lease income | Net Periodic Benefit Cost (in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--------------------------------------- | :-------------------------------- | :-------------------------------- | | Pension Benefits | $1,856 | $2,430 | | Other Benefits | $314 | $182 | - Operating lease income was **$1.5 million** for both the three months ended March 31, 2020, and 2019[202](index=202&type=chunk) [Note 17. Fair Value](index=57&type=section&id=Note%2017.%20Fair%20Value) This note explains the fair value hierarchy (Level 1, 2, and 3) and the valuation techniques used for assets and liabilities measured at fair value on both a recurring and nonrecurring basis. It highlights that most available-for-sale securities and derivatives are Level 2, while the Visa derivative, collateral-dependent loans, MSRs, and OREO are Level 3 - Available-for-sale debt securities are classified as **Level 2**, valued using quoted prices or proprietary models with market observable parameters[212](index=212&type=chunk) - Most derivatives are classified as **Level 2**, measured using proprietary valuation models with market observable inputs[213](index=213&type=chunk) - The Visa derivative liability is classified as **Level 3** due to significant unobservable inputs, including potential future changes in conversion rate, expected term, and growth rate of Visa Class A common shares[215](index=215&type=chunk)[216](index=216&type=chunk) - Mortgage servicing rights, collateral-dependent loans, and other real estate owned are measured at fair value on a nonrecurring basis and classified as **Level 3**, utilizing significant unobservable inputs like prepayment rates or appraisal values[228](index=228&type=chunk)[229](index=229&type=chunk)[230](index=230&type=chunk) [Note 18. Reportable Operating Segments](index=67&type=section&id=Note%2018.%20Reportable%20Operating%20Segments) This note describes the company's three reportable operating segments: Retail Banking, Commercial Banking, and Treasury and Other. It outlines the services offered by each segment and how financial performance is measured and allocated, noting changes in internal measurement and deposit cost allocation in 2019 - The company operates through three business segments: **Retail Banking**, **Commercial Banking**, and **Treasury and Other**[238](index=238&type=chunk) Net Income by Segment (in thousands) | Segment (in thousands) | Net Income (3 months ended March 31, 2020) | Net Income (3 months ended March 31, 2019) | | :--------------------- | :----------------------------------------- | :----------------------------------------- | | Retail Banking | $27,027 | $53,310 | | Commercial Banking | $7,276 | $22,530 | | Treasury and Other | $4,562 | $(5,916) | - Retail Banking net income decreased by **49%** and Commercial Banking net income decreased by **68%** year-over-year, primarily due to increased provision for credit losses related to COVID-19[355](index=355&type=chunk)[359](index=359&type=chunk) - Treasury and Other segment's net income increased by **$10.5 million** year-over-year, moving from a loss to a gain, driven by higher net interest income and lower noninterest expense[362](index=362&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=71&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides a comprehensive analysis of the company's financial performance and condition, including the significant impact of the COVID-19 pandemic on operations, economic outlook, and financial results. It details changes in net interest income, credit losses, noninterest income/expense, and segment performance, alongside an in-depth review of liquidity, capital, and risk management strategies [Company Overview](index=73&type=section&id=Company%20Overview) - First Hawaiian, Inc. (FHI) is a bank holding company that wholly owns First Hawaiian Bank (FHB), operating through Retail Banking, Commercial Banking, and Treasury and Other segments[259](index=259&type=chunk) [Recent Developments regarding COVID-19 and the Hawaii and Global Economy](index=73&type=section&id=Recent%20Developments%20regarding%20COVID-19%20and%20the%20Hawaii%20and%20Global%20Economy) - The COVID-19 pandemic has caused widespread volatility, uncertainty, and deterioration in global and U.S. economic conditions, leading to a national unemployment rate increase from **3.5%** in February 2020 to **4.4%** in March 2020[264](index=264&type=chunk)[265](index=265&type=chunk) - Hawaii's economy, heavily dependent on tourism, has been significantly impacted by mandatory 14-day self-quarantine and stay-at-home orders, effectively halting the tourism industry[268](index=268&type=chunk)[269](index=269&type=chunk) - The Federal Reserve cut the federal funds rate to a range of **0.00% to 0.25%** and implemented quantitative easing, while the U.S. government enacted the **$2 trillion CARES Act**, including the Paycheck Protection Program (PPP)[273](index=273&type=chunk)[276](index=276&type=chunk) - The company expects negative impacts on its financial position, results of operations, net interest margin, and credit risk profile due to the economic downturn and record low interest rates, and has implemented customer relief programs and participates in the PPP[278](index=278&type=chunk)[279](index=279&type=chunk)[280](index=280&type=chunk)[282](index=282&type=chunk)[283](index=283&type=chunk) [Selected Financial Data](index=80&type=section&id=Selected%20Financial%20Data) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Change (YoY) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :----------- | | Net income | $38,865 | $69,924 | $(31,059) (44%) | | Basic earnings per share | $0.30 | $0.52 | $(0.22) (42%) | | Provision for credit losses | $41,200 | $5,680 | $35,520 (625%) | | Net interest income | $138,683 | $145,089 | $(6,406) (4%) | | Net interest margin | 3.12% | 3.23% | -11 bps | | Efficiency ratio | 51.33% | 48.20% | +313 bps | Balance Sheet Data | Balance Sheet Data | March 31, 2020 | December 31, 2019 | Change (QoQ) | | :----------------- | :------------- | :---------------- | :----------- | | Total loans and leases | $13,380,270 | $13,211,650 | $168,620 (1%) | | Allowance for credit losses | $166,013 | $130,530 | $35,483 (27%) | | Total deposits | $17,020,002 | $16,444,994 | $575,008 (3%) | | Total stockholders' equity | $2,664,685 | $2,640,258 | $24,427 (1%) | [Analysis of Results of Operations](index=89&type=section&id=Analysis%20of%20Results%20of%20Operations) - Net interest income decreased by **$6.4 million** (4%) to **$138.7 million** for the three months ended March 31, 2020, with net interest margin decreasing by **11 basis points** to **3.12%**, primarily due to lower yields in most loan categories and lower average balances in investment securities, partially offset by lower deposit funding costs[328](index=328&type=chunk)[309](index=309&type=chunk) - The Provision for Credit Losses increased by **$35.5 million** to **$41.2 million**, primarily due to expected credit losses from COVID-19's impact on Hawaii's economy. The ACL to total loans and leases outstanding increased to **1.24%** from **0.99%**[332](index=332&type=chunk)[310](index=310&type=chunk) - Total noninterest income increased by **$2.2 million** (5%) to **$49.2 million**, driven by a **$2.7 million** net gain on investment securities (vs. a loss in prior year) and increases in trust and investment services income, partially offset by decreases in credit and debit card fees and bank-owned life insurance income[334](index=334&type=chunk)[311](index=311&type=chunk)[313](index=313&type=chunk)[335](index=335&type=chunk)[337](index=337&type=chunk)[338](index=338&type=chunk)[340](index=340&type=chunk) - Total noninterest expense increased by **$3.8 million** (4%) to **$96.5 million**, mainly due to a **$2.4 million** increase in contracted services and professional fees and a **$0.5 million** increase in regulatory assessment and fees[342](index=342&type=chunk)[314](index=314&type=chunk)[344](index=344&type=chunk)[346](index=346&type=chunk) - Net income for Retail Banking decreased by **49%** and Commercial Banking by **68%** year-over-year, largely due to the increased Provision. Treasury and Other segment's net income increased by **$10.5 million**, moving from a loss to a gain[355](index=355&type=chunk)[359](index=359&type=chunk)[362](index=362&type=chunk) [Analysis of Financial Condition](index=99&type=section&id=Analysis%20of%20Financial%20Condition) - Cash and cash equivalents increased to **$1.1 billion** as of March 31, 2020, from **$0.7 billion** as of December 31, 2019, with available-for-sale investment securities remaining stable at **$4.1 billion**[367](index=367&type=chunk) - Total loans and leases increased by **$168.6 million** (1%) to **$13.4 billion**, driven by a **10%** increase in commercial and industrial loans, partially offset by decreases in residential real estate and consumer portfolios[381](index=381&type=chunk)[382](index=382&type=chunk)[386](index=386&type=chunk)[388](index=388&type=chunk) - Non-performing assets (NPAs) increased by **24%** to **$7.2 million**, and impaired loans increased to **$25.4 million** as of March 31, 2020, reflecting early impacts of COVID-19[407](index=407&type=chunk)[415](index=415&type=chunk) - Total deposits increased by **$575.0 million** (3%) to **$17.0 billion**, primarily due to a **$424.9 million** increase in public time deposit balances, in anticipation of PPP funding needs[442](index=442&type=chunk) - Total stockholders' equity increased by **$24.4 million** (1%) to **$2.7 billion**, and the company maintained **'well-capitalized'** status with a CET1 Capital Ratio of **11.65%** as of March 31, 2020[457](index=457&type=chunk)[455](index=455&type=chunk) [Risk Governance and Quantitative and Qualitative Disclosures About Market Risk](index=124&type=section&id=Risk%20Governance%20and%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) - The company manages credit risk through well-defined underwriting criteria, account administration standards, and portfolio diversification across obligor, industry, product, and geographic locations[469](index=469&type=chunk) - Market risk, primarily interest rate risk, is measured using net interest income simulation analysis and market value of equity (MVE) sensitivity analysis, with results indicating net interest income benefits from higher interest rates and is less sensitive to lower rates[480](index=480&type=chunk)[484](index=484&type=chunk)[489](index=489&type=chunk)[492](index=492&type=chunk) Estimated Percentage Change in Net Interest Income Over 12 Months (March 31, 2020) | Interest Rate Change (basis points) | Estimated Percentage Change in Net Interest Income Over 12 Months (March 31, 2020) | | :---------------------------------- | :------------------------------------------------------------------------------- | | +100 (Ramp) | 4.5% | | -100 (Ramp) | (4.1%) | | +100 (Immediate Shock) | 10.3% | | -100 (Immediate Shock) | (8.9%) | - Operational risk is managed through a framework that includes reporting and assessment of operational risk events, and evaluation of mitigating strategies within key business lines[502](index=502&type=chunk) [Critical Accounting Policies](index=133&type=section&id=Critical%20Accounting%20Policies) - The Allowance for Credit Losses (ACL) is identified as the most critical accounting estimate, requiring significant judgment and reliance on credit risk ratings, expected future cash flows, estimated loss rates, and macroeconomic factors under the CECL standard[505](index=505&type=chunk)[506](index=506&type=chunk) - Key judgments for ACL estimation include the accuracy of internal credit risk ratings, sufficiency and applicability of historical data (8-12 years), the one-year reasonable and supportable forecast period, qualitative adjustments for economic outlook, and the identification and measurement of individually assessed loans, including TDRs[507](index=507&type=chunk)[508](index=508&type=chunk)[510](index=510&type=chunk)[511](index=511&type=chunk)[512](index=512&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=136&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section refers to the detailed discussion of market risk, including interest rate risk measurement and governance, provided within Item 2 of the Management's Discussion and Analysis of Financial Condition and Results of Operations - For quantitative and qualitative disclosures about market risk, refer to 'Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations — Risk Governance and Quantitative and Qualitative Disclosures About Market Risk'[515](index=515&type=chunk) [Item 4. Controls and Procedures](index=136&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2020. There were no material changes in internal control over financial reporting during the quarter - The Company's disclosure controls and procedures were effective as of March 31, 2020[515](index=515&type=chunk) - There were no changes in the Company's internal control over financial reporting that materially affected or are reasonably likely to materially affect internal control over financial reporting during the quarter ended March 31, 2020[516](index=516&type=chunk) Part II Other Information [Item 1. Legal Proceedings](index=136&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings incidental to its business but does not anticipate that the aggregate liability from these proceedings would have a material adverse effect on its financial condition or operations - The Company is not presently party to any legal proceedings the resolution of which is believed to have a material adverse effect on its business, prospects, financial condition, liquidity, results of operation, cash flows or capital levels[517](index=517&type=chunk) [Item 1A. Risk Factors](index=136&type=section&id=Item%201A.%20Risk%20Factors) This section supplements existing risk factors by detailing the significant adverse impacts of the COVID-19 pandemic on the company, its customers, and the broader economy. It highlights risks such as higher credit losses, reduced demand for services, operational disruptions, and specific risks associated with participation in the Paycheck Protection Program (PPP) - The COVID-19 pandemic and containment measures are adversely affecting the company, its customers, and the economy, with significant and difficult-to-predict impacts on business, financial position, results of operations, and prospects[519](index=519&type=chunk)[520](index=520&type=chunk) - Governmental actions, including travel bans, quarantines, and stay-at-home orders, have significantly impacted the travel and tourism industry, particularly in Hawaii, leading to increased unemployment and a general downturn in business activity[523](index=523&type=chunk)[524](index=524&type=chunk) - Federal Reserve interest rate reductions to **0.00%-0.25%** may adversely affect net interest income, margins, and profitability, especially if prolonged[525](index=525&type=chunk) - Participation in the PPP under the CARES Act exposes the company to increased risks related to borrower non-compliance and potential deficiencies in loan origination, funding, or servicing, which could lead to denial or reduction of SBA guarantees[528](index=528&type=chunk)[530](index=530&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=140&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports on the company's common stock repurchase activities during the quarter ended March 31, 2020, and notes the subsequent suspension of the stock repurchase program in April 2020 | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :----------------------------------- | :----------------------------- | :--------------------------- | | March 1, 2020 through March 31, 2020 | 274,120 | $21.64 | - The company had an authorized stock repurchase program for up to **$80 million** for 2020, with **$75.0 million** remaining as of March 31, 2020[531](index=531&type=chunk) - The company's Board of Directors voted to suspend the stock repurchase program in April 2020[531](index=531&type=chunk) [Item 6. Exhibits](index=141&type=section&id=Item%206.%20Exhibits) This section provides a list of exhibits filed as part of the Form 10-Q, including certifications from the Chief Executive Officer and Chief Financial Officer, and XBRL-related documents - The exhibits include certifications from the Chief Executive Officer and Chief Financial Officer, as well as various XBRL (eXtensible Business Reporting Language) documents[534](index=534&type=chunk) [Signatures](index=142&type=section&id=Signatures) This section contains the official signatures of the registrant's principal executive officer and principal financial and accounting officer, certifying the report - The report is signed by Robert S. Harrison, Chairman of the Board, President and Chief Executive Officer, and Ravi Mallela, Chief Financial Officer[537](index=537&type=chunk)

[FORM 10-Q Cover Page](index=1&type=section&id=FORM%2010-Q%20Cover%20Page) This section provides filing details for FIRST HAWAIIAN, INC.'s Quarterly Report on Form 10-Q for the period ended September 30, 2019 [Filing Information](index=1&type=section&id=Filing%20Information) This chapter details the report type, registrant, and filer status as a large accelerated filer - Report Type: Quarterly Report on Form 10-Q for the period ended September 30, 2019[1](index=1&type=chunk) - Registrant: FIRST HAWAIIAN, INC. (Commission File Number 001-14585)[1](index=1&type=chunk) - Filer Status: Large Accelerated Filer[1](index=1&type=chunk) [Shares Outstanding](index=2&type=section&id=Shares%20Outstanding) This chapter states the number of common stock shares outstanding as of October 17, 2019 - **130,977,395 shares** of Common Stock, par value $0.01 per share, were outstanding as of October 17, 2019[2](index=2&type=chunk) [TABLE OF CONTENTS](index=3&type=section&id=TABLE%20OF%20CONTENTS) This section indexes the unaudited consolidated financial statements and other information included in the report [Financial Statements Index](index=3&type=section&id=Financial%20Statements%20Index) This chapter lists the consolidated financial statements and Part II disclosures - Consolidated Statements of Income for the three and nine months ended September 30, 2019 and 2018[4](index=4&type=chunk) - Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018[4](index=4&type=chunk) - Notes to Consolidated Financial Statements (unaudited) and Management's Discussion and Analysis of Financial Condition and Results of Operations[4](index=4&type=chunk) [PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part contains the company's unaudited interim consolidated financial statements and related notes [ITEM 1. FINANCIAL STATEMENTS](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited interim consolidated financial statements for First Hawaiian, Inc. and its subsidiary, including the Statements of Income, Comprehensive Income, Balance Sheets, Stockholders' Equity, and Cash Flows for the specified periods [CONSOLIDATED STATEMENTS OF INCOME](index=4&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20INCOME) For the three months ended September 30, 2019, net income increased to **$74.2 million** from **$67.4 million** in 2018, driven by higher net interest income and lower provision for loan and lease losses, with diluted EPS rising to **$0.56** from **$0.50** | Metric (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | | :-------------------- | :------------------------------ | :------------------------------ | | Total interest income | $170,181 | $164,052 | | Total interest expense| $27,100 | $22,794 | | Net interest income | $143,081 | $141,258 | | Provision for loan and lease losses | $— | $4,460 | | Total noninterest income | $49,980 | $47,405 | | Total noninterest expense | $93,466 | $93,147 | | Net income | $74,199 | $67,388 | | Diluted earnings per share | $0.56 | $0.50 | | Metric (in thousands) | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :-------------------- | :----------------------------- | :----------------------------- | | Total interest income | $516,560 | $478,007 | | Total interest expense| $82,777 | $55,674 | | Net interest income | $433,783 | $422,333 | | Provision for loan and lease losses | $9,550 | $16,430 | | Total noninterest income | $145,825 | $145,902 | | Total noninterest expense | $279,379 | $275,599 | | Net income | $216,556 | $204,399 | | Diluted earnings per share | $1.61 | $1.48 | [CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME](index=5&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20COMPREHENSIVE%20INCOME) Total comprehensive income significantly increased for both the three and nine months ended September 30, 2019, primarily due to a substantial positive net change in investment securities, contrasting with losses in the prior year | Metric (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | | :-------------------- | :------------------------------ | :------------------------------ | | Net income | $74,199 | $67,388 | | Net change in investment securities | $13,210 | $(22,420) | | Total comprehensive income | $87,409 | $45,099 | | Metric (in thousands) | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :-------------------- | :----------------------------- | :----------------------------- |\ | Net income | $216,556 | $204,399 | | Net change in investment securities | $114,015 | $(89,236) | | Total comprehensive income | $329,977 | $116,151 | [CONSOLIDATED BALANCE SHEETS](index=6&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) As of September 30, 2019, total assets slightly decreased to **$20.6 billion** from **$20.7 billion** at December 31, 2018, mainly due to a reduction in investment securities and net loans and leases, partially offset by an increase in interest-bearing deposits in other banks | Asset (in thousands) | Sep 30, 2019 | Dec 31, 2018 | | :------------------- | :----------- | :----------- | | Cash and due from banks | $358,863 | $396,836 | | Interest-bearing deposits in other banks | $985,154 | $606,801 | | Investment securities | $4,157,082 | $4,498,342 | | Net loans and leases | $12,710,432 | $12,934,473 | | Total assets | $20,598,220 | $20,695,678 | | Liability & Equity (in thousands) | Sep 30, 2019 | Dec 31, 2018 | | :-------------------------------- | :----------- | :----------- | | Total deposits | $16,857,246 | $17,150,068 | | Short-term borrowings | $400,000 | $— | | Long-term borrowings | $200,018 | $600,026 | | Total liabilities | $17,943,662 | $18,170,839 | | Total stockholders' equity | $2,654,558 | $2,524,839 | [CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY](index=7&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20STOCKHOLDERS'%20EQUITY) Total stockholders' equity increased to **$2.65 billion** as of September 30, 2019, from **$2.52 billion** at December 31, 2018, primarily due to net income and other comprehensive income, partially offset by cash dividends and common stock repurchases | Metric (in thousands) | Balance as of Dec 31, 2018 | Net Income | Cash Dividends Declared | Equity-based Awards | Common Stock Repurchased | Other Comprehensive Income, net of tax | Balance as of Sep 30, 2019 | | :-------------------- | :------------------------- | :--------- | :---------------------- | :------------------ | :----------------------- | :------------------------------------- | :------------------------- | | Total Stockholders' Equity | $2,524,839 | $216,556 | $(104,392) | $2,943 | $(98,809) | $113,421 | $2,654,558 | - Cash dividends declared for the nine months ended September 30, 2019, were **$0.78 per share**, totaling **$104.392 million**[18](index=18&type=chunk) - Common stock repurchased for the nine months ended September 30, 2019, amounted to **$98.809 million**, representing **3,799,138 shares**[18](index=18&type=chunk) [CONSOLIDATED STATEMENTS OF CASH FLOWS](index=9&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) Net cash provided by operating activities decreased significantly to **$171.1 million** for the nine months ended September 30, 2019, from **$265.5 million** in 2018; net cash provided by investing activities substantially increased to **$667.1 million** from **$122.3 million**, while net cash used in financing activities decreased to **$497.8 million** from **$723.0 million** | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $171,067 | $265,511 | | Net cash provided by investing activities | $667,110 | $122,321 | | Net cash used in financing activities | $(497,797) | $(722,983) | | Net increase (decrease) in cash and cash equivalents | $340,380 | $(335,151) | | Cash and cash equivalents at end of period | $1,344,017 | $699,493 | - Investing activities saw significant proceeds from maturities, principal repayments, calls, and sales of available-for-sale securities, totaling **$1.48 billion** in 2019, compared to **$637.5 million** in 2018[23](index=23&type=chunk) - Financing activities included a net decrease in deposits of **$292.8 million** in 2019, compared to **$922.8 million** in 2018, and common stock repurchases of **$98.8 million** in 2019 versus **$131.8 million** in 2018[23](index=23&type=chunk) [NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)](index=10&type=section&id=NOTES%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS%20(Unaudited)) This section provides detailed notes to the unaudited interim consolidated financial statements, covering the company's organization, accounting policies, significant financial instruments, and other relevant disclosures [1. Organization and Basis of Presentation](index=10&type=section&id=1.%20Organization%20and%20Basis%20of%20Presentation) First Hawaiian, Inc. (FHI) is a bank holding company that wholly owns First Hawaiian Bank (FHB), offering comprehensive banking services; the interim financial statements are prepared in accordance with GAAP and SEC regulations, with management's estimates; BNPP fully exited its ownership interest in FHI common stock on February 1, 2019; several new accounting standards were adopted in 2019, including ASU No. 2016-02 (Leases) which resulted in recognizing a **$50.3 million** lease liability and a **$50.6 million** right-of-use asset, and ASU No. 2018-15 (Cloud Computing) which led to capitalizing **$6.3 million** in implementation costs - FHI is a bank holding company, owning **100%** of First Hawaiian Bank (FHB), which offers comprehensive banking services to consumer and commercial customers[25](index=25&type=chunk) - BNP Paribas (BNPP) fully exited its ownership interest in FHI common stock on February 1, 2019, following a series of secondary offerings[30](index=30&type=chunk) - Adopted ASU No. 2016-02 (Leases) on January 1, 2019, recognizing a **$50.3 million** lease liability and a **$50.6 million** right-of-use asset[32](index=32&type=chunk)[34](index=34&type=chunk) - Early adopted ASU No. 2018-15 (Cloud Computing) on January 1, 2019, capitalizing **$6.3 million** related to hosting arrangements that are service contracts for the nine months ended September 30, 2019[37](index=37&type=chunk) - The adoption of the CECL standard (ASU No. 2016-13) in 2020 is estimated to result in an increase in the Allowance for Credit Losses (ACL) of approximately **10% to 15%** based on September 30, 2019, portfolio balances and economic forecasts[41](index=41&type=chunk)[42](index=42&type=chunk) [2. Investment Securities](index=16&type=section&id=2.%20Investment%20Securities) The company's investment securities, primarily available-for-sale, decreased in fair value to **$4.16 billion** as of September 30, 2019, from **$4.50 billion** at December 31, 2018, largely due to the sale of 48 securities in January 2019; unrealized losses significantly decreased from **$142.2 million** to **$13.7 million**, reflecting lower market interest rates; the company also holds Visa Class B restricted shares, which are carried at **$0** cost basis, and recorded an estimated **$0.3 million** liability related to a reduction in the Visa Class B conversion rate | Investment Category (in thousands) | Amortized Cost (Sep 30, 2019) | Fair Value (Sep 30, 2019) | Amortized Cost (Dec 31, 2018) | Fair Value (Dec 31, 2018) | | :--------------------------------- | :---------------------------- | :------------------------ | :---------------------------- | :------------------------ | | U.S. Treasury securities | $29,653 | $29,738 | $389,470 | $389,470 | | Government-sponsored enterprises debt securities | $126,696 | $126,649 | $248,372 | $241,594 | | Government agency mortgage-backed securities | $342,326 | $343,905 | $426,710 | $411,536 | | Collateralized mortgage obligations | $3,253,716 | $3,260,369 | $3,399,957 | $3,285,041 | | Total available-for-sale securities | $4,143,124 | $4,157,082 | $4,640,419 | $4,498,342 | - Gross unrealized losses on available-for-sale securities decreased from **$142.2 million** at December 31, 2018, to **$13.7 million** at September 30, 2019, primarily due to lower market interest rates[59](index=59&type=chunk)[60](index=60&type=chunk)[386](index=386&type=chunk) - The company sold **48 investment securities** in January 2019, resulting in a net loss of **$2.6 million** for the nine months ended September 30, 2019, and a non-credit related OTTI write-down of **$24.1 million** in December 2018[51](index=51&type=chunk)[62](index=62&type=chunk)[348](index=348&type=chunk)[387](index=387&type=chunk) - An estimated **$0.3 million** liability was recorded as of September 30, 2019, to be paid to the buyer of Visa Class B restricted shares due to a reduction in the conversion rate[65](index=65&type=chunk) [3. Loans and Leases](index=21&type=section&id=3.%20Loans%20and%20Leases) Total loans and leases decreased by **2%** to **$12.84 billion** as of September 30, 2019, from **$13.08 billion** at December 31, 2018, primarily driven by a significant decrease in commercial and industrial loans due to a **$408.9 million** sale, partially offset by growth in commercial real estate and residential mortgage portfolios | Loan Category (in thousands) | Sep 30, 2019 | Dec 31, 2018 | | :--------------------------- | :----------- | :----------- | | Commercial and industrial | $2,654,077 | $3,208,760 | | Commercial real estate | $3,309,389 | $2,990,783 | | Construction | $486,977 | $626,757 | | Residential mortgage | $3,671,424 | $3,527,101 | | Home equity line | $916,106 | $912,517 | | Consumer | $1,637,549 | $1,662,504 | | Lease financing | $167,874 | $147,769 | | Total loans and leases | $12,843,396 | $13,076,191 | - Commercial and industrial loans decreased by **$554.7 million (17%)** to **$2.65 billion**, primarily due to the sale of **$408.9 million** in loans[67](index=67&type=chunk)[391](index=391&type=chunk) - Commercial real estate loans increased by **$318.6 million (11%)** to **$3.31 billion**, reflecting strong demand for new real estate assets[67](index=67&type=chunk)[396](index=396&type=chunk) - Residential real estate loans increased by **$147.9 million (3%)** to **$4.59 billion**, benefiting from continued demand for new housing in a low interest rate environment[67](index=67&type=chunk)[398](index=398&type=chunk) [4. Allowance for Loan and Lease Losses](index=23&type=section&id=4.%20Allowance%20for%20Loan%20and%20Lease%20Losses) The Allowance for Loan and Lease Losses (Allowance) decreased by **$8.8 million (6%)** to **$133.0 million** as of September 30, 2019, from **$141.7 million** at December 31, 2018, primarily due to the sale of commercial and industrial loans; the Allowance-to-total-loans-and-leases ratio was **1.04%**; the company segments its portfolio into commercial, residential, and consumer lending for loss estimation, using specific and pooled allocation methodologies, along with qualitative adjustments and an unallocated portion for inherent risks | Metric (in thousands) | Sep 30, 2019 | Dec 31, 2018 | | :-------------------- | :----------- | :----------- | | Allowance for loan and lease losses | $132,964 | $141,718 | | Ratio of Allowance to total loans and leases | 1.04% | 1.08% | - The decrease in the Allowance was partially due to the sale of **$408.9 million** commercial and industrial loans during the nine months ended September 30, 2019[318](index=318&type=chunk)[339](index=339&type=chunk) - Net charge-offs for the nine months ended September 30, 2019, were **$18.3 million (0.19% of average total loans and leases)**, up from **$12.4 million (0.13%)** in 2018, primarily due to a **$2.0 million** full charge-off of one commercial and industrial loan[339](index=339&type=chunk)[441](index=441&type=chunk) - Impaired loans decreased to **$26.6 million** as of September 30, 2019, from **$30.6 million** at December 31, 2018, with a related allowance of **$0.4 million** and **$0.5 million**, respectively[102](index=102&type=chunk)[425](index=425&type=chunk) - Loans modified in a troubled debt restructuring (TDR) decreased to **$23.0 million** as of September 30, 2019, from **$24.7 million** at December 31, 2018, with **97%** performing in accordance with modified terms[130](index=130&type=chunk)[427](index=427&type=chunk) [5. Mortgage Servicing Rights](index=36&type=section&id=5.%20Mortgage%20Servicing%20Rights) Mortgage Servicing Rights (MSRs) net carrying value decreased to **$13.6 million** as of September 30, 2019, from **$16.2 million** at December 31, 2018; the unpaid principal amount of residential real estate loans serviced for others also decreased to **$2.4 billion** from **$2.7 billion**; servicing fees and MSR amortization both saw slight decreases for the three and nine months ended September 30, 2019, compared to 2018 | Metric (in thousands) | Sep 30, 2019 | Dec 31, 2018 | | :-------------------- | :----------- | :----------- | | Gross carrying amount | $63,401 | $63,342 | | Less: accumulated amortization | $49,771 | $47,187 | | Net carrying value | $13,630 | $16,155 | - The unpaid principal amount of residential real estate loans serviced for others decreased to **$2.4 billion** as of September 30, 2019, from **$2.7 billion** as of December 31, 2018[117](index=117&type=chunk) | Metric (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Servicing fees | $1,600 | $1,700 | $4,800 | $5,300 | | Amortization of MSRs | $1,000 | $1,000 | $2,600 | $3,000 | [6. Transfers of Financial Assets](index=38&type=section&id=6.%20Transfers%20of%20Financial%20Assets) The company pledges assets as collateral for public deposits, borrowing capacity at FHLB and FRB, ACH transactions, and interest rate swaps; total pledged assets increased to **$5.51 billion** as of September 30, 2019, from **$5.38 billion** at December 31, 2018, with significant pledges to FHLB and FRB | Pledged Asset Category (in thousands) | Sep 30, 2019 | Dec 31, 2018 | | :------------------------------------ | :----------- | :----------- | | Public deposits | $1,775,871 | $1,749,726 | | Federal Home Loan Bank | $2,858,513 | $2,497,030 | | Federal Reserve Bank | $675,347 | $957,017 | | ACH transactions | $151,014 | $150,903 | | Interest rate swaps | $47,129 | $28,843 | | Total | $5,507,874 | $5,383,519 | - The company enters into bilateral agreements to pledge investment securities as collateral for public deposits and repurchase agreements, and loans as collateral for FHLB and FRB borrowing capacity[124](index=124&type=chunk) [7. Deposits](index=40&type=section&id=7.%20Deposits) Total deposits decreased by **2%** to **$16.86 billion** as of September 30, 2019, from **$17.15 billion** at December 31, 2018, primarily due to decreases in time and demand deposit balances, partially offset by an increase in money market deposit balances | Deposit Category (in thousands) | Sep 30, 2019 | Dec 31, 2018 | | :------------------------------ | :----------- | :----------- | | Interest-bearing (U.S.) | $10,352,703 | $10,393,449 | | Noninterest-bearing (U.S.) | $5,067,812 | $5,368,729 | | Interest-bearing (Foreign) | $783,721 | $748,678 | | Noninterest-bearing (Foreign) | $653,010 | $639,212 | | Total deposits | $16,857,246 | $17,150,068 | - The decrease in total deposits was driven by a **$384.6 million** decrease in time deposit balances and a **$287.1 million** decrease in demand deposit balances, partially offset by a **$332.7 million** increase in money market deposit balances[321](index=321&type=chunk)[449](index=449&type=chunk) - Time certificates of deposit in denominations of **$250,000 or more** aggregated **$1.5 billion** as of September 30, 2019, down from **$1.9 billion** at December 31, 2018[129](index=129&type=chunk) [8. Short-Term Borrowings](index=41&type=section&id=8.%20Short-Term%20Borrowings) Short-term borrowings increased significantly to **$400.0 million** as of September 30, 2019, from nil at December 31, 2018, due to the reclassification of **$400.0 million** in FHLB fixed-rate advances from long-term borrowings, as their maturity dates are now less than one year | Short-term Borrowings (in thousands) | Sep 30, 2019 | Dec 31, 2018 | | :----------------------------------- | :----------- | :----------- | | Short-term FHLB fixed-rate advances | $400,000 | $— | | Total short-term borrowings | $400,000 | $— | - The **$400.0 million** in short-term FHLB fixed-rate advances have a weighted average interest rate of **2.84%** and mature in 2020[131](index=131&type=chunk) [9. Long-Term Borrowings](index=41&type=section&id=9.%20Long-Term%20Borrowings) Long-term borrowings decreased to **$200.0 million** as of September 30, 2019, from **$600.0 million** at December 31, 2018, primarily due to the reclassification of **$400.0 million** in FHLB fixed-rate advances to short-term borrowings; the remaining FHLB advances have a weighted average interest rate of **2.73%** and mature between 2023 and 2024 | Long-term Borrowings (in thousands) | Sep 30, 2019 | Dec 31, 2018 | | :---------------------------------- | :----------- | :----------- | | Finance lease | $18 | $26 | | FHLB fixed-rate advances | $200,000 | $600,000 | | Total long-term borrowings | $200,018 | $600,026 | - The decrease in long-term borrowings is mainly due to the reclassification of **$400.0 million** in FHLB fixed-rate advances to short-term borrowings[133](index=133&type=chunk)[453](index=453&type=chunk) - Available remaining borrowing capacity with the FHLB was **$1.6 billion** as of September 30, 2019, up from **$1.3 billion** at December 31, 2018[133](index=133&type=chunk) [10. Accumulated Other Comprehensive Loss](index=43&type=section&id=10.%20Accumulated%20Other%20Comprehensive%20Loss) Accumulated other comprehensive loss significantly improved to **$(18.8) million** as of September 30, 2019, from **$(132.2) million** at December 31, 2018; this positive change was primarily driven by substantial unrealized net gains on investment securities during the period, partially offset by net actuarial losses on pension and other benefits | Component (in thousands) | Balance as of Dec 31, 2018 | Net Change (Nine Months Ended Sep 30, 2019) | Balance as of Sep 30, 2019 | | :----------------------- | :------------------------- | :------------------------------------------ | :------------------------- | | Pensions and Other Benefits | $(28,379) | $(594) | $(28,973) | | Investment Securities | $(103,816) | $114,015 | $10,199 | | Cash Flow Derivative Hedges | $— | $— | $— | | Total Accumulated Other Comprehensive Loss | $(132,195) | $113,421 | $(18,774) | - Unrealized net gains on investment securities arising during the nine months ended September 30, 2019, amounted to **$112.1 million** (net of tax)[139](index=139&type=chunk) - Net actuarial losses on pensions and other benefits for the nine months ended September 30, 2019, were **$(0.6) million** (net of tax)[139](index=139&type=chunk) [11. Regulatory Capital Requirements](index=44&type=section&id=11.%20Regulatory%20Capital%20Requirements) The company and its bank subsidiary are subject to federal regulatory capital requirements, including CET1, Tier 1, and Total Capital ratios, as well as a leverage ratio; as of September 30, 2019, both the company and the bank were classified as 'well-capitalized,' exceeding all minimum capital ratios, including the phased-in capital conservation buffer | Capital Ratio | Sep 30, 2019 (FHI) | Sep 30, 2019 (FHB) | Minimum Capital Ratio (1) | Well Capitalized Ratio (1) | | :-------------- | :----------------- | :----------------- | :------------------------ | :------------------------- | | CET1 Capital to Risk-Weighted Assets | 12.15% | 12.04% | 4.50% | 6.50% | | Tier 1 Capital to Risk-Weighted Assets | 12.15% | 12.04% | 6.00% | 8.00% | | Total Capital to Risk-Weighted Assets | 13.11% | 13.00% | 8.00% | 10.00% | | Tier 1 Capital to Average Assets (Leverage Ratio) | 8.68% | 8.61% | 4.00% | 5.00% | - The capital conservation buffer reached **2.5%** on January 1, 2019, effectively requiring minimum ratios of **7% CET1, 8.5% Tier 1, and 10.5% Total Capital** to risk-weighted assets[147](index=147&type=chunk) - Both First Hawaiian, Inc. and First Hawaiian Bank were classified as **well-capitalized** as of September 30, 2019[147](index=147&type=chunk) [12. Derivative Financial Instruments](index=46&type=section&id=12.%20Derivative%20Financial%20Instruments) The company uses derivative contracts, primarily interest rate swaps, to manage interest rate risk and for customer accommodation; as of September 30, 2019, the notional amount of derivatives designated as hedging instruments was **$23.5 million**, while non-designated derivatives, mainly customer swap programs, totaled **$2.75 billion**; the company also recorded a **$0.6 million** derivative liability related to Visa Class B restricted shares; counterparty credit risk is managed through collateral agreements, with **$29.7 million** in financial instruments and **$17.4 million** in cash pledged as collateral for interest rate swaps | Derivative Type (in thousands) | Notional Amount (Sep 30, 2019) | Asset Derivatives (Sep 30, 2019) | Liability Derivatives (Sep 30, 2019) | | :----------------------------- | :----------------------------- | :------------------------------- | :----------------------------------- | | Interest rate swaps (hedging) | $23,545 | $— | $(927) | | Interest rate swaps (non-hedging) | $2,749,924 | $85,883 | $— | | Funding swap | $69,378 | $— | $(584) | | Foreign exchange contracts | $2,514 | $— | $(31) | - The company's customer swap program, with **$2.7 billion** in notional amounts, generated **$1.9 million** in upfront fees for the three months ended September 30, 2019[169](index=169&type=chunk) - A derivative liability of **$0.6 million** was recorded for the Visa funding swap agreement as of September 30, 2019, due to a reduction in the Visa Class B conversion rate[170](index=170&type=chunk) - The company pledged **$29.7 million** in financial instruments and **$17.4 million** in cash as collateral for interest rate swaps as of September 30, 2019[153](index=153&type=chunk) [13. Commitments and Contingent Liabilities](index=54&type=section&id=13.%20Commitments%20and%20Contingent%20Liabilities) The company faces various legal proceedings, including a class action lawsuit settled for **$4.1 million** in August 2019; off-balance sheet risks include **$6.0 billion** in unfunded commitments to extend credit and letters of credit as of September 30, 2019; the company also has guarantees related to residential mortgage loans sold in the secondary market, but does not anticipate material losses from repurchase requests - A class action lawsuit regarding overdraft fees was settled in August 2019, with the company funding a **$4.1 million** settlement account[176](index=176&type=chunk) | Financial Instrument (in thousands) | Sep 30, 2019 | Dec 31, 2018 | | :---------------------------------- | :----------- | :----------- | | Commitments to extend credit | $5,814,078 | $5,549,591 | | Standby letters of credit | $183,992 | $204,324 | | Commercial letters of credit | $5,024 | $7,535 | - The unpaid principal balance of residential mortgage loans sold in the secondary market was **$2.4 billion** as of September 30, 2019, with potential repurchase obligations under certain conditions[140](index=140&type=chunk)[469](index=469&type=chunk) [14. Revenue from Contracts with Customers](index=56&type=section&id=14.%20Revenue%20from%20Contracts%20with%20Customers) The company recognizes revenue from contracts with customers by following a five-step model, primarily for performance obligations satisfied at a point in time; total noninterest income was **$50.0 million** for the three months and **$145.8 million** for the nine months ended September 30, 2019; key revenue sources include service charges on deposit accounts, credit and debit card fees, and trust and investment services income, which all saw increases; contract liabilities related to vendor signing bonuses decreased by approximately **$0.6 million** for the nine months ended September 30, 2019 | Noninterest Income (in thousands) | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2019 | | :-------------------------------- | :------------------------------ | :----------------------------- | | Service charges on deposit accounts | $8,554 | $24,737 | | Credit and debit card fees | $16,839 | $50,123 | | Other service charges and fees | $8,903 | $27,435 | | Trust and investment services income | $8,698 | $26,247 | | Bank-owned life insurance | $5,743 | $12,946 | | Total noninterest income | $49,980 | $145,825 | - Service charges on deposit accounts increased by **$0.6 million (8%)** for the three months and **$1.1 million (5%)** for the nine months ended September 30, 2019, primarily due to overdraft and checking account fees[343](index=343&type=chunk) - Trust and investment services income increased by **$1.2 million (16%)** for the three months and **$2.8 million (12%)** for the nine months ended September 30, 2019, driven by business cash management and investment management fees[346](index=346&type=chunk) - Contract liabilities decreased by approximately **$0.6 million** for the nine months ended September 30, 2019, due to the amortization of vendor signing bonuses[199](index=199&type=chunk) [15. Earnings per Share](index=61&type=section&id=15.%20Earnings%20per%20Share) Basic and diluted earnings per share increased for both the three and nine months ended September 30, 2019, compared to the same periods in 2018, with no adjustments made to net income for computation and no antidilutive securities | Metric | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income | $74,199 | $67,388 | $216,556 | $204,399 | | Basic earnings per share | $0.56 | $0.50 | $1.62 | $1.48 | | Diluted earnings per share | $0.56 | $0.50 | $1.61 | $1.48 | - Basic weighted-average outstanding shares decreased to **132,583,902** for the three months ended September 30, 2019, from **135,466,669** in 2018[203](index=203&type=chunk) [16. Leases](index=61&type=section&id=16.%20Leases) The company adopted ASU No. 2016-02 (Leases) on January 1, 2019, recognizing operating lease right-of-use assets of **$46.1 million** and corresponding liabilities of **$45.6 million**; net lease expense for the nine months ended September 30, 2019, was **$8.3 million**; the weighted average remaining lease term for operating leases is **15.6 years** with a weighted average discount rate of **3.34%** | Lease Expense Component (in thousands) | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2019 | | :------------------------------------- | :------------------------------ | :----------------------------- | | Operating lease expense | $2,284 | $6,887 | | Short-term lease expense | $111 | $365 | | Variable lease expense | $795 | $1,842 | | Total finance lease expense | $1 | $3 | | Less: Sublease income | $(268) | $(766) | | Net lease expense | $2,923 | $8,331 | - Operating lease right-of-use assets were **$46.1 million** and operating lease liabilities were **$45.6 million** as of September 30, 2019[208](index=208&type=chunk) - The weighted average remaining lease term for operating leases is **15.6 years**, with a weighted average discount rate of **3.34%**[208](index=208&type=chunk) | Future Minimum Operating Lease Payments (in thousands) | Net Operating Lease Payments | | :----------------------------------------------------- | :--------------------------- | | 2019 (remaining) | $1,635 | | 2020 | $8,799 | | 2021 | $8,107 | | 2022 | $5,477 | | 2023 | $2,964 | | Thereafter | $34,948 | | Total | $45,641 | [17. Benefit Plans](index=66&type=section&id=17.%20Benefit%20Plans) The company sponsors various benefit plans, including a frozen supplemental executive retirement plan (SERP); net periodic benefit costs for pension plans were **$2.4 million** for the three months and **$7.3 million** for the nine months ended September 30, 2019, while other benefits costs were **$0.18 million** and **$0.54 million**, respectively - The Supplemental Executive Retirement Plan (SERP) was frozen effective July 1, 2019, ceasing new accruals of benefits[218](index=218&type=chunk) | Component of Net Periodic Benefit Cost (in thousands) | Three Months Ended Sep 30, 2019 (Pension) | Three Months Ended Sep 30, 2019 (Other Benefits) | Nine Months Ended Sep 30, 2019 (Pension) | Nine Months Ended Sep 30, 2019 (Other Benefits) | | :---------------------------------------------------- | :---------------------------------------- | :----------------------------------------------- | :--------------------------------------- | :---------------------------------------------- | | Service cost | $18 | $160 | $52 | $478 | | Interest cost | $2,044 | $203 | $6,132 | $615 | | Expected return on plan assets | $(1,195) | $— | $(3,585) | $— | | Recognized net actuarial loss (gain) | $1,564 | $(76) | $4,692 | $(228) | | Total net periodic benefit cost | $2,431 | $180 | $7,291 | $544 | [18. Fair Value](index=66&type=section&id=18.%20Fair%20Value) The company measures financial instruments at fair value using a three-level hierarchy based on observable inputs; available-for-sale securities and most derivatives are classified as Level 2, while the Visa derivative and impaired loans are Level 3 due to significant unobservable inputs; total assets measured at fair value on a recurring basis were **$4.24 billion** as of September 30, 2019, with Level 3 liabilities totaling **$(0.58) million**, primarily from the Visa derivative - Fair value hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1 prices), and Level 3 (unobservable inputs requiring significant management judgment)[221](index=221&type=chunk)[223](index=223&type=chunk) - Available-for-sale securities are classified as Level 2, and most derivatives are classified as Level 2, using proprietary valuation models with market observable inputs[228](index=228&type=chunk)[230](index=230&type=chunk) - The Visa derivative, with a fair value of **$(0.58) million** as of September 30, 2019, is classified as Level 3 due to significant unobservable inputs like expected conversion rate, term, and growth rate of Visa Class A shares[231](index=231&type=chunk)[237](index=237&type=chunk)[250](index=250&type=chunk) | Asset/Liability (in thousands) | Level 1 (Sep 30, 2019) | Level 2 (Sep 30, 2019) | Level 3 (Sep 30, 2019) | Total (Sep 30, 2019) | | :----------------------------- | :--------------------- | :--------------------- | :--------------------- | :------------------- | | Total available-for-sale securities | $— | $4,157,082 | $— | $4,157,082 | | Other assets (derivative assets) | $— | $85,883 | $— | $85,883 | | Other liabilities (derivative liabilities) | $— | $(958) | $(584) | $(1,542) | - Impaired loans and other real estate owned are measured at fair value on a nonrecurring basis, primarily using collateral values (Level 3)[246](index=246&type=chunk)[247](index=247&type=chunk) [19. Reportable Operating Segments](index=77&type=section&id=19.%20Reportable%20Operating%20Segments) The company operates through three segments: Retail Banking, Commercial Banking, and Treasury and Other; Retail Banking's net income increased by **6%** for the three months and **5%** for the nine months ended September 30, 2019, driven by lower loan loss provision and higher noninterest income; Commercial Banking's net income increased by **6%** for the three months but remained flat for the nine months, benefiting from lower loan loss provision; Treasury and Other's net loss decreased by **37%** for the three months and **21%** for the nine months, primarily due to increased net interest income and BOLI income - Retail Banking offers financial products and services to consumers and small businesses, including residential and commercial mortgage loans, home equity lines, auto loans, deposit products, and wealth management[256](index=256&type=chunk) - Commercial Banking provides corporate banking, real estate loans, commercial lease financing, auto dealer financing, business deposits, and credit cards to middle-market and large companies[257](index=257&type=chunk) - Treasury and Other manages corporate asset and liability activities, including interest rate risk, investment securities, and borrowings, with primary noninterest income from bank-owned life insurance and foreign exchange[258](index=258&type=chunk) Net Income by Business Segment (in thousands) | Segment (in thousands) | Net Income (Three Months Ended Sep 30, 2019) | Net Income (Three Months Ended Sep 30, 2018) | Net Income (Nine Months Ended Sep 30, 2019) | Net Income (Nine Months Ended Sep 30, 2018) | | :--------------------- | :------------------------------------------- | :------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Retail Banking | $58,557 | $55,201 | $174,066 | $165,408 | | Commercial Banking | $19,651 | $18,574 | $55,762 | $55,734 | | Treasury and Other | $(4,009) | $(6,387) | $(13,272) | $(16,743) | | Total | $74,199 | $67,388 | $216,556 | $204,399 | [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=81&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on the company's financial condition and operating results [Cautionary Note Regarding Forward-Looking Statements](index=81&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section advises readers that the report contains forward-looking statements subject to various risks and uncertainties, including economic conditions, interest rate changes, credit losses, and regulatory impacts; actual results may differ materially from projections, and the company does not undertake to update these statements - Forward-looking statements are based on current expectations and are subject to risks such as geographic concentration, economic conditions, interest rate changes, and potential underestimation of credit losses[264](index=264&type=chunk)[265](index=265&type=chunk) - The estimated impact of the CECL approach on the allowance for credit losses is subject to refinement and changes in macroeconomic conditions[267](index=267&type=chunk) [Company Overview](index=83&type=section&id=Company%20Overview) First Hawaiian, Inc. (FHI) is a bank holding company that wholly owns First Hawaiian Bank (FHB), established in 1858 - FHI is the parent company of First Hawaiian Bank (FHB), which was founded in 1858 and operates through Retail Banking, Commercial Banking, and Treasury and Other segments[269](index=269&type=chunk) [Transition to an Independent Public Company](index=83&type=section&id=Transition%20to%20an%20Independent%20Public%20Company) BNP Paribas (BNPP) fully divested its ownership interest in First Hawaiian, Inc. (FHI) on February 1, 2019, following a series of secondary offerings; all BNPP-designated directors subsequently resigned from FHI's board - BNPP fully exited its ownership interest in FHI common stock on February 1, 2019, through a public offering[272](index=272&type=chunk) - Following the offering, all BNPP-designated directors resigned from the FHI board of directors[273](index=273&type=chunk) [Basis of Presentation](index=83&type=section&id=Basis%20of%20Presentation) The unaudited interim consolidated financial statements are prepared in accordance with GAAP for interim financial information and SEC regulations, reflecting normal recurring adjustments; they should be read in conjunction with the company's 2018 Annual Report on Form 10-K - Unaudited interim consolidated financial statements are prepared in accordance with GAAP for interim financial information and instructions to Form 10-Q and Rule 10-01 of Regulation S-X[275](index=275&type=chunk) - Statements reflect normal recurring adjustments and should be read with the 2018 Annual Report on Form 10-K[275](index=275&type=chunk)[277](index=277&type=chunk) [Hawaii Economy](index=85&type=section&id=Hawaii%20Economy) Hawaii's economy continued to grow in Q3 2019, driven by tourism, real estate, and tax revenues; visitor arrivals increased by **5.2%** for the first eight months of 2019, though spending decreased by **0.5%**; the statewide unemployment rate rose to **2.7%** in September 2019 from **2.2%** in 2018; the real estate market on Oahu saw a slight increase in single-family home sales volume (**0.8%**) but a decrease in condominium sales (**6.7%**), with median prices slightly declining; the company monitors national and global economic conditions, trade tensions, and local ordinances affecting tourism, which could impact future profitability - Hawaii's economy showed growth in Q3 2019, supported by tourism, real estate, and tax revenues[278](index=278&type=chunk) - Visitor arrivals increased by **5.2%** for the first eight months of 2019 (YoY), while visitor spending decreased by **0.5%**[278](index=278&type=chunk) - The statewide seasonally-adjusted unemployment rate was **2.7%** in September 2019, up from **2.2%** in September 2018[278](index=278&type=chunk) - The company monitors U.S. mainland and international economic conditions, interest rate policies, trade tensions, and local ordinances (e.g., vacation rentals on Oahu) for potential impacts on profitability[279](index=279&type=chunk) [Selected Financial Data](index=86&type=section&id=Selected%20Financial%20Data) This section provides a summary of key financial highlights and performance ratios for the three and nine months ended September 30, 2019 and 2018, including GAAP and non-GAAP (core) measures; net income, EPS, and various profitability ratios generally improved, while the efficiency ratio remained prudently managed; balance sheet data shows changes in assets, liabilities, and equity, with capital ratios remaining strong Income Statement Data (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net interest income | $143,081 | $141,258 | $433,783 | $422,333 | | Provision for loan and lease losses | $— | $4,460 | $9,550 | $16,430 | | Noninterest income | $49,980 | $47,405 | $145,825 | $145,902 | | Noninterest expense | $93,466 | $93,147 | $279,379 | $275,599 | | Net income | $74,199 | $67,388 | $216,556 | $204,399 | | Diluted earnings per share | $0.56 | $0.50 | $1.61 | $1.48 | | Dividends declared per share | $0.26 | $0.24 | $0.78 | $0.72 | Performance Ratios | Ratio | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net interest margin | 3.19% | 3.11% | 3.22% | 3.14% | | Efficiency ratio | 48.41% | 49.36% | 48.20% | 48.49% | | Return on average total assets | 1.45% | 1.31% | 1.42% | 1.35% | | Return on average tangible stockholders' equity | 17.81% | 18.66% | 18.04% | 18.60% | Balance Sheet Data (in thousands) | Metric | Sep 30, 2019 | Dec 31, 2018 | | :------------------------------------ | :----------- | :----------- | | Total assets | $20,598,220 | $20,695,678 | | Total deposits | $16,857,246 | $17,150,068 | | Total stockholders' equity | $2,654,558 | $2,524,839 | | Common Equity Tier 1 Capital Ratio | 12.15% | 11.97% | | Total stockholders' equity to total assets | 12.89% | 12.20% | - Net income for the three months ended September 30, 2019, increased by **$6.8 million (10%)** to **$74.2 million**, and for the nine months, it increased by **$12.2 million (6%)** to **$216.6 million**[301](index=301&type=chunk)[308](index=308&type=chunk) [Analysis of Results of Operations](index=98&type=section&id=Analysis%20of%20Results%20of%20Operations) This section provides a detailed analysis of the company's financial performance, including net interest income, provision for loan and lease losses, noninterest income, noninterest expense, and provision for income taxes, for the three and nine months ended September 30, 2019, compared to the same periods in 2018; it also includes an analysis of performance by business segment [Net Interest Income](index=98&type=section&id=Net%20Interest%20Income) Net interest income (NII) increased by **$1.8 million (1%)** to **$143.1 million** for the three months and by **$11.5 million (3%)** to **$433.8 million** for the nine months ended September 30, 2019; Net interest margin (NIM) also improved by **eight basis points** to **3.19%** and **3.22%** for the respective periods; this growth was primarily driven by higher average balances and yields in most loan categories, partially offset by lower investment securities balances and increased deposit funding costs - Net interest income increased by **$1.8 million (1%)** for the three months and **$11.5 million (3%)** for the nine months ended September 30, 2019[304](index=304&type=chunk)[312](index=312&type=chunk)[330](index=330&type=chunk)[337](index=337&type=chunk) - Net interest margin increased by **eight basis points** to **3.19%** for the three months and **3.22%** for the nine months ended September 30, 2019[304](index=304&type=chunk)[312](index=312&type=chunk)[330](index=330&type=chunk)[337](index=337&type=chunk) - Average loans and leases increased by **$436.6 million (3%)** to **$13.0 billion** for the three months and by **$622.4 million (5%)** to **$13.1 billion** for the nine months, with yields rising by **15** and **27 basis points**, respectively[330](index=330&type=chunk)[337](index=337&type=chunk) - Deposit funding costs increased by **$2.6 million** for the three months and **$16.9 million** for the nine months, with rates paid on interest-bearing deposits rising by **12** and **23 basis points**, respectively[330](index=330&type=chunk)[337](index=337&type=chunk) [Provision for Loan and Lease Losses](index=106&type=section&id=Provision%20for%20Loan%20and%20Lease%20Losses) The provision for loan and lease losses was nil for the three months ended September 30, 2019, a decrease of **$4.5 million** from 2018, and **$9.6 million** for the nine months, a decrease of **$6.9 million**; this reduction was partly due to the sale of **$408.9 million** in commercial and industrial loans; net charge-offs increased to **0.17%** and **0.19%** of average loans and leases for the three and nine months, respectively - Provision for loan and lease losses decreased by **$4.5 million** to nil for the three months and by **$6.9 million** to **$9.6 million** for the nine months ended September 30, 2019[305](index=305&type=chunk)[313](index=313&type=chunk)[339](index=339&type=chunk) - The decrease in provision was partially due to the sale of **$408.9 million** commercial and industrial loans[305](index=305&type=chunk)[313](index=313&type=chunk)[339](index=339&type=chunk) - Net charge-offs were **0.17%** and **0.19%** of average loans and leases (annualized) for the three and nine months ended September 30, 2019, respectively, up from **0.12%** and **0.13%** in 2018[339](index=339&type=chunk) [Noninterest Income](index=106&type=section&id=Noninterest%20Income) Total noninterest income increased by **$2.6 million (5%)** to **$50.0 million** for the three months ended September 30, 2019, but remained relatively flat at **$145.8 million** for the nine months; key drivers for the three-month increase were BOLI income and trust and investment services income; for the nine months, BOLI and trust income gains were offset by a **$6.3 million** decrease in other noninterest income and a **$2.6 million** net loss on investment securities sales Noninterest Income (in thousands) | Component | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Service charges on deposit accounts | $8,554 | $7,933 | $24,737 | $23,609 | | Credit and debit card fees | $16,839 | $16,535 | $50,123 | $48,961 | | Trust and investment services income | $8,698 | $7,487 | $26,247 | $23,429 | | Bank-owned life insurance | $5,743 | $3,692 | $12,946 | $8,131 | | Investment securities losses, net | $— | $— | $(2,592) | $— | | Other | $1,243 | $2,180 | $6,929 | $13,219 | | Total noninterest income | $49,980 | $47,405 | $145,825 | $145,902 | - BOLI income increased by **$2.1 million (56%)** for the three months and **$4.8 million (59%)** for the nine months, due to higher earnings and death benefit proceeds[306](index=306&type=chunk)[347](index=347&type=chunk) - Net losses on investment securities were **$2.6 million** for the nine months ended September 30, 2019, due to portfolio restructuring and sale of **48 securities**[314](index=314&type=chunk)[348](index=348&type=chunk) - Other noninterest income decreased by **$0.9 million (43%)** for the three months and **$6.3 million (48%)** for the nine months, impacted by losses on loan sales and decreased volume-based incentives[349](index=349&type=chunk) [Noninterest Expense](index=110&type=section&id=Noninterest%20Expense) Total noninterest expense slightly increased by **$0.3 million (less than 1%)** to **$93.5 million** for the three months and by **$3.8 million (1%)** to **$279.4 million** for the nine months ended September 30, 2019; key increases were in salaries and employee benefits, contracted services, and card rewards programs, largely offset by significant decreases in regulatory assessment and fees due to the termination of an FDIC surcharge, and lower other noninterest expenses due to a litigation settlement in 2018 Noninterest Expense (in thousands) | Component | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Salaries and employee benefits | $44,955 | $41,959 | $132,000 | $125,755 | | Contracted services and professional fees | $14,649 | $11,478 | $42,597 | $36,770 | | Occupancy | $7,250 | $6,757 | $21,522 | $20,149 | | Regulatory assessment and fees | $1,992 | $3,966 | $5,588 | $12,164 | | Advertising and marketing | $1,647 | $1,060 | $5,593 | $3,126 | | Card rewards program | $6,930 | $5,805 | $21,326 | $17,882 | | Other | $12,019 | $17,941 | $37,901 | $46,649 | | Total noninterest expense | $93,466 | $93,147 | $279,379 | $275,599 | - Salaries and employee benefits increased by **$3.0 million (7%)** for the three months and **$6.2 million (5%)** for the nine months, partly due to a nonrecurring payment to a former executive and higher incentive compensation[307](index=307&type=chunk)[352](index=352&type=chunk) - Regulatory assessment and fees decreased by **$2.0 million (50%)** for the three months and **$6.6 million (54%)** for the nine months, due to the end of an FDIC additional surcharge in Q3 2018[307](index=307&type=chunk)[357](index=357&type=chunk) - Other noninterest expense decreased by **$5.9 million (33%)** for the three months and **$8.7 million (19%)** for the nine months, primarily due to a **$4.1 million** litigation settlement recorded in 2018[307](index=307&type=chunk)[360](index=360&type=chunk) [Provision for Income Taxes](index=112&type=section&id=Provision%20for%20Income%20Taxes) The provision for income taxes increased to **$25.4 million** for the three months and **$74.1 million** for the nine months ended September 30, 2019, compared to **$23.7 million** and **$71.8 million** in 2018, respectively; the effective tax rate remained stable at approximately **25.50%** for both periods in 2019 | Metric (in thousands) | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Provision for income taxes | $25,396 | $23,668 | $74,123 | $71,807 | | Effective tax rate | 25.50% | 25.99% | 25.50% | 26.00% | [Analysis of Business Segments](index=113&type=section&id=Analysis%20of%20Business%20Segments) The company's three business segments—Retail Banking, Commercial Banking, and Treasury and Other—showed varied performance; Retail Banking's net income increased due to lower loan loss provision and higher noninterest income; Commercial Banking's net income saw a slight increase for the three months but was flat for nine months, also benefiting from reduced loan loss provision; Treasury and Other significantly reduced its net loss, driven by increased net interest income and BOLI income Net Income by Business Segment (in thousands) | Segment | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Retail Banking | $58,557 | $55,201 | $174,066 | $165,408 | | Commercial Banking | $19,651 | $18,574 | $55,762 | $55,734 | | Treasury and Other | $(4,009) | $(6,387) | $(13,272) | $(16,743) | | Total | $74,199 | $67,388 | $216,

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-14585 FIRST HAWAIIAN, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 99-0156159 (State or Other Juri ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited interim consolidated financial statements for Q1 2019 and 2018, including income, comprehensive income, balance sheets, equity, cash flows, and detailed notes on accounting policies and financial instruments [Consolidated Statements of Income](index=3&type=section&id=Consolidated%20Statements%20of%20Income) Consolidated Statements of Income (Q1 2019 vs Q1 2018) | Financial Metric | Three Months Ended March 31, 2019 (in millions) | Three Months Ended March 31, 2018 (in millions) | | :--- | :--- | :--- | | **Net Interest Income** | $145.1 | $139.7 | | **Total Noninterest Income** | $47.1 | $48.7 | | **Total Noninterest Expense** | $92.6 | $90.6 | | **Net Income** | $69.9 | $68.0 | | **Diluted Earnings Per Share** | $0.52 | $0.49 | [Consolidated Statements of Comprehensive Income](index=4&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Consolidated Statements of Comprehensive Income (Q1 2019 vs Q1 2018) | Metric | Three Months Ended March 31, 2019 (in millions) | Three Months Ended March 31, 2018 (in millions) | | :--- | :--- | :--- | | **Net Income** | $69.9 | $68.0 | | **Other Comprehensive Income (Loss)** | $53.4 | $(48.2) | | **Total Comprehensive Income** | $123.4 | $19.7 | - The significant swing in Other Comprehensive Income was driven by a **$53.4 million** positive net change in investment securities in Q1 2019, compared to a **$48.8 million** negative change in Q1 2018[9](index=9&type=chunk) [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Highlights | Account | March 31, 2019 (in billions) | December 31, 2018 (in billions) | | :--- | :--- | :--- | | **Total Assets** | $20.44 | $20.70 | | **Net Loans and Leases** | $13.06 | $12.93 | | **Total Deposits** | $16.80 | $17.15 | | **Total Liabilities** | $17.83 | $18.17 | | **Total Stockholders' Equity** | $2.61 | $2.52 | [Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) - Total stockholders' equity increased from **$2.52 billion** at the end of 2018 to **$2.61 billion** as of March 31, 2019. The increase was primarily driven by net income of **$69.9 million** and other comprehensive income of **$53.4 million**, partially offset by cash dividends of **$35.1 million**[19](index=19&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary (Q1 2019 vs Q1 2018) | Cash Flow Activity | Three Months Ended March 31, 2019 (in millions) | Three Months Ended March 31, 2018 (in millions) | | :--- | :--- | :--- | | **Net Cash from Operating Activities** | $63.4 | $53.2 | | **Net Cash used in Investing Activities** | $(57.8) | $(112.5) | | **Net Cash used in Financing Activities** | $(391.4) | $(282.9) | | **Net Decrease in Cash and Cash Equivalents** | $(385.8) | $(342.2) | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) - On February 1, 2019, BancWest Corporation (BWC), an indirect subsidiary of BNP Paribas (BNPP), completed the sale of its remaining shares of FHI common stock, resulting in BNPP fully exiting its ownership interest[28](index=28&type=chunk) - The company adopted several new accounting standards in 2019, including ASU No. 2016-02 for leases, which resulted in the recognition of a **$50.3 million** lease liability and a **$50.6 million** right-of-use asset on January 1, 2019[30](index=30&type=chunk)[32](index=32&type=chunk) - The company is preparing for the adoption of the Current Expected Credit Loss (CECL) standard (ASU No. 2016-13), which will be effective January 1, 2020. Management is currently unable to reasonably estimate the impact of adopting the new standard[40](index=40&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=64&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2019 financial condition and results, noting a **3% increase in net income to $69.9 million**, driven by net interest income growth, alongside a **1% rise in total loans to $13.2 billion** and a **2% decrease in deposits to $16.8 billion** [Financial Highlights](index=72&type=section&id=Financial%20Highlights) - Net income for Q1 2019 was **$69.9 million**, a **3% increase** from **$68.0 million** in Q1 2018. Diluted EPS increased **6% to $0.52** from **$0.49**[287](index=287&type=chunk) - The increase in net income was primarily driven by a **$5.4 million (4%) increase** in net interest income, partially offset by a **$2.0 million (2%) increase** in noninterest expense[287](index=287&type=chunk)[289](index=289&type=chunk)[293](index=293&type=chunk) - Total loans and leases grew to **$13.2 billion** as of March 31, 2019, a **1% increase** from year-end 2018, while total deposits decreased by **2% to $16.8 billion**[295](index=295&type=chunk)[298](index=298&type=chunk) - Return on average tangible assets was **1.45%** and return on average tangible stockholders' equity was **18.35%** for Q1 2019[288](index=288&type=chunk) [Analysis of Results of Operations](index=74&type=section&id=Analysis%20of%20Results%20of%20Operations) - **Net Interest Income:** Increased by **$5.4 million (4%)** YoY to **$145.1 million**. Net Interest Margin (NIM) expanded by **10 basis points to 3.23%**, driven by higher loan yields and balances, partially offset by increased deposit funding costs[304](index=304&type=chunk) - **Provision for Loan and Lease Losses:** Decreased slightly to **$5.7 million** from **$6.0 million** in Q1 2018, reflecting a stable credit risk profile[290](index=290&type=chunk)[305](index=305&type=chunk) - **Noninterest Income:** Decreased by **$1.6 million (3%)** YoY to **$47.1 million**, primarily due to a **$2.6 million** net loss on the sale of available-for-sale debt securities[291](index=291&type=chunk)[309](index=309&type=chunk) - **Noninterest Expense:** Increased by **$2.0 million (2%)** YoY to **$92.6 million**, mainly due to higher salaries and employee benefits (**$2.7 million increase**) and contracted services fees (**$1.4 million increase**). This was partially offset by a **$2.5 million decrease** in regulatory assessment fees[293](index=293&type=chunk)[317](index=317&type=chunk) [Analysis of Financial Condition](index=83&type=section&id=Analysis%20of%20Financial%20Condition) Loan and Lease Portfolio Composition (as of March 31, 2019) | Loan Category | Balance (in billions) | % of Total | | :--- | :--- | :--- | | Commercial and industrial | $3.20 | 24.3% | | Commercial real estate | $3.15 | 23.8% | | Residential | $4.45 | 33.7% | | Consumer | $1.65 | 12.5% | | Other (Construction, Lease) | $0.74 | 5.6% | | **Total Loans and Leases** | **$13.20** | **100.0%** | - Total loans increased by **$121.3 million (1%)** from year-end 2018, led by growth in commercial real estate loans[353](index=353&type=chunk) - The Allowance for Loan and Lease Losses was **$141.5 million**, or **1.07%** of total loans, as of March 31, 2019, slightly down from **1.08%** at year-end 2018[307](index=307&type=chunk)[395](index=395&type=chunk) - Total deposits decreased by **$354.8 million (2%)** from year-end 2018 to **$16.8 billion**, mainly due to declines in time deposits and demand deposits[404](index=404&type=chunk) - Total stockholders' equity increased by **$88.4 million (3%)** from year-end 2018 to **$2.6 billion**, driven by net income and a positive change in the fair value of investment securities, partially offset by dividends[299](index=299&type=chunk)[415](index=415&type=chunk) [Risk Governance and Quantitative and Qualitative Disclosures About Market Risk](index=104&type=section&id=Risk%20Governance%20and%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) - **Credit Risk:** The company manages credit risk through defined underwriting criteria, portfolio diversification, and an independent credit review process. The loan portfolio is concentrated in Hawaii, making it dependent on local economic conditions like tourism and real estate[426](index=426&type=chunk)[428](index=428&type=chunk)[431](index=431&type=chunk) - **Market Risk:** The primary market risk is interest rate risk. The company uses net interest income simulation analysis to measure this risk. As of March 31, 2019, a static forecast showed that an immediate **+100 basis point** parallel shift in rates would increase net interest income by **5.6%** over 12 months, while a **-100 basis point** shift would decrease it by **6.9%**[436](index=436&type=chunk)[440](index=440&type=chunk)[444](index=444&type=chunk) - **Operational Risk:** The company has a framework to manage operational risk, including reporting and assessment of events across seven categories defined by the Basel Committee, such as external fraud, system failures, and business disruption[455](index=455&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=113&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section directs readers to the detailed market risk disclosures within Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations - The report directs readers to the MD&A section for detailed disclosures regarding market risk[457](index=457&type=chunk) [Item 4. Controls and Procedures](index=113&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls were effective as of March 31, 2019, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2019[457](index=457&type=chunk) - No material changes to the internal control over financial reporting were identified during the quarter ended March 31, 2019[458](index=458&type=chunk) [Part II. Other Information](index=113&type=section&id=Part%20II.%20Other%20Information) [Item 1. Legal Proceedings](index=113&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, none expected to have a material adverse effect, and funded a **$4.1 million** settlement for an overdraft fee class action - The company states that it is not party to any legal proceedings expected to have a material adverse effect on its business or financial condition[459](index=459&type=chunk) - Reference is made to Note 12, which details a class action lawsuit concerning overdraft fees. The company funded a **$4.1 million** settlement account in Q1 2019 in connection with this matter[162](index=162&type=chunk) [Item 1A. Risk Factors](index=113&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2018 - There are no material changes from the risk factors disclosed in the company's 2018 Form 10-K[460](index=460&type=chunk) [Item 5. Other Information](index=113&type=section&id=Item%205.%20Other%20Information) This section discloses activities of former affiliate BNP Paribas related to Iran, as required by Section 13(r) of the Exchange Act, including legacy financing and clearing system participation - Disclosure is provided regarding activities of its affiliate (until February 2019), BNP Paribas (BNPP), related to Iran, as required by Section 13(r) of the Exchange Act[461](index=461&type=chunk)[463](index=463&type=chunk) - BNPP reported receiving approximately **€1.0 million** in gross revenues during Q1 2019 from legacy guarantees and financing arrangements related to projects in Iran[465](index=465&type=chunk) [Item 6. Exhibits](index=116&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including incentive plans, retirement plans, CEO/CFO certifications, and XBRL data files - A list of exhibits filed with the Form 10-Q is provided, including certifications by the CEO and CFO pursuant to the Sarbanes-Oxley Act of 2002[470](index=470&type=chunk)[471](index=471&type=chunk)