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First Hawaiian Bank

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First Hawaiian, Inc. Reports Third Quarter 2018 Financial Results and Declares Dividend
  • Net income of $67.4 million, or $0.50 per diluted share, and core net income1 of $70.8 million, or $0.52 per diluted share
     
  • 1.31% return on average total assets and 1.45% core return on average tangible assets1
     
  • 11.01% return on average total stockholders’ equity and 19.61% core return on average tangible stockholders’ equity1
     
  • BNP Paribas (“BNPP”) completed two offerings of our common stock, and First Hawaiian repurchased 1.8 million shares at a total cost of $50 million, reducing BNPP’s ownership from 48.8% to 18.4%
     
  • The number of BNPP-nominated directors decreased from five to two, resulting in a majority of independent directors on the Board
     
  • The Board of Directors declared a dividend of $0.24 per share

HONOLULU, Oct. 25, 2018 (GLOBE NEWSWIRE) -- First Hawaiian, Inc. (NASDAQ:FHB), (“First Hawaiian” or the “Company”) today reported financial results for its third quarter ended September 30, 2018.

”I’m pleased with our strong financial performance in the third quarter,” said Bob Harrison, Chairman and Chief Executive Officer. “We had solid core earnings and good expense management, and asset quality remained excellent. Additionally, during the quarter, BNPP made significant progress in exiting its position in First Hawaiian by completing two secondary offerings, which, in conjunction with First Hawaiian’s repurchase of approximately 1.8 million shares, reduced BNPP’s ownership position from 48.8% to 18.4%. Also significant was the change in board composition, as the number of BNPP-nominated directors was decreased from five to two and three prominent members of the local business community, Faye Kurren, Jenai Wall, and C. Scott Wo, joined the board, resulting in a majority of independent directors.”

On October 24, 2018, the Company’s Board of Directors declared a quarterly cash dividend of $0.24 per share. The dividend will be payable on December 7, 2018 to stockholders of record at the close of business on November 26, 2018.

Earnings Highlights

Net income for the quarter ended September 30, 2018 was $67.4 million, or $0.50 per diluted share, compared to $69.1 million, or $0.50 per diluted share, for the quarter ended June 30, 2018, and $58.4 million, or $0.42 per diluted share, for the quarter ended September 30, 2017. Core net income1 for the quarter ended September 30, 2018 was $70.8 million, or $0.52 per diluted share, compared to $69.7 million, or $0.50 per diluted share, for the quarter ended June 20, 2018, and $57.0 million, or $0.41 per diluted share, for the quarter ended September 30, 2017.

Net interest income for the quarter ended September 30, 2018 was $141.3 million compared to $141.4 million for the quarter ended June 30, 2018, and an increase of $7.9 million compared to $133.3 million for the quarter ended September 30, 2017. Net interest income compared to the second quarter of 2018 was essentially flat, primarily due to higher interest expenses on deposits and borrowings and lower interest income on investments, mostly offset by higher interest income on loans and cash. The second quarter of 2018 included a $1.1 million positive premium amortization adjustment that did not recur in the third quarter. Excluding the premium amortization in the second quarter, third quarter net interest income would have been approximately $1 million higher than second quarter net interest income. The increase in net interest income compared to the third quarter of 2017 was due to higher interest income on earnings assets from higher rates and balances, partially offset by higher interest expenses due to higher rates on deposits and higher balances of term borrowings.

Net interest margin (“NIM”) was 3.11%, 3.18% and 2.96%, for the quarters ended September 30, 2018, June 30, 2018, and September 30, 2017, respectively. The 7 basis point decrease in NIM versus the prior quarter was primarily due to higher funding costs, a lower premium amortization adjustment, higher cash balances, and an additional day in the quarter. 

Results for the quarter ended September 30, 2018 included a provision for loan and lease losses of $4.5 million compared to $6.0 million in the quarter ended June 30, 2018 and $4.5 million in the quarter ended September 30, 2017.

Noninterest income was $47.4 million in the quarter ended September 30, 2018, a decrease of $2.4 million compared to noninterest income of $49.8 million in the quarter ended June 30, 2018 and a decrease of $2.3 million compared to noninterest income of $49.7 million in the quarter ended September 30, 2017. The decrease in noninterest income compared to the second quarter of 2018 was primarily due to a $3.2 million decrease in other income, $0.4 million lower credit and debit card fees and $0.2 million lower trust and investment services income, partially offset by $1.3 million higher income from bank-owned life insurance (“BOLI”). The $3.2 million decrease in other income was primarily due to a $1.5 million decrease in swap fee income, and a $1.0 million decrease in recoveries, as we recognized a gain on sale of leased equipment in the second quarter of 2018. 

The decrease in noninterest income compared to the third quarter of 2017 was primarily due to $3.1 million lower other income and $1.0 million lower service charges on deposit accounts, partially offset by $1.1 million higher other service charges and fees, $0.6 million higher income from BOLI, and $0.4 million higher credit and debit card fees. Other income in the third quarter of 2017 included a $2.7 million gain from the sale of a bank property.

Noninterest expense was $93.1 million for the quarter ended September 30, 2018, an increase of $1.3 million from $91.9 million in the quarter ended June 30, 2018, and an increase of $8.3 million from $84.8 million in the quarter ended September 30, 2017. The increase in noninterest expense compared to the second quarter of 2018 was primarily due to $3.7 million higher other expense, partially offset by $1.5 million lower contracted services and professional fees, and $0.6 million lower cards rewards program expenses. Other expense in the third quarter of 2018 included an expense of $4.1 million in connection with an agreement in principle to resolve a class action lawsuit regarding overdraft fees. 

The increase in noninterest expense compared to the third quarter of 2017 was primarily due to $4.2 million higher other expense, $3.3 million higher salaries and employee benefits, $0.6 million higher contracted services and professional fees, and $0.5 million higher occupancy expenses, partially offset by $0.9 million lower advertising and marketing expenses. Other expense in the third quarter of 2018 included the aforementioned $4.1 million litigation-related expense.

The efficiency ratio was 49.4%, 48.0% and 46.3% for the quarters ended September 30, 2018, June 30, 2018 and September 30, 2017, respectively. Core efficiency ratio1 was 46.9%, 47.6% and 46.7% for the quarters ended September 30, 2018, June 30, 2018 and September 30, 2017, respectively.

The effective tax rate was 26.0% for the second and third quarters of 2018 and 37.7% in the third quarter of 2017. The lower effective tax rate in the third quarter of 2018 compared to the same quarter last year was due to the lower corporate tax rate resulting from the Tax Cuts and Jobs Act. 

Balance Sheet Highlights

Total assets were $20.0 billion at September 30, 2018, compared to $20.5 billion at June 30, 2018 and $20.6 billion at September 30, 2017.

The investment securities portfolio was $4.6 billion at September 30, 2018, compared to $4.8 billion at June 30, 2018 and $5.3 billion at September 30, 2017. 

Total loans and leases were $12.6 billion at September 30, 2018, unchanged from $12.6 billion at June 30, 2018 and up $0.5 billion, or 3.7%, from $12.1 billion at September 30, 2017. During the quarter ended September 30, 2018, increases in residential, commercial real estate (“CRE”) and consumer loan balances were offset by decreases in commercial and industrial (“C&I”) and construction loan balances. The decreases in C&I and construction loan balances were due to large, unexpected prepayments. The increase in loans and leases compared to the quarter ended September 30, 2017 was primarily due to increases in residential loans, CRE loans, consumer loans and construction loans, partially offset by a decline in C&I loans and lease financing.

Total deposits were $16.7 billion at September 30, 2018, a decrease of $0.7 billion from $17.4 billion at June 30, 2018, and a decrease of $0.9 billion, compared to $17.6 billion at September 30, 2017. The decrease in deposit balances compared to the quarter ended June 30, 2018 was primarily due to a $0.6 billion reduction in public time deposits. The decrease in deposit balances compared to the quarter ended September 30, 2017 was primarily due to a $1.3 billion reduction in public time deposits, partially offset by growth in consumer and commercial deposits.

Asset Quality

The Company's asset quality remained excellent during the third quarter of 2018. Net charge offs for the quarter ended September 30, 2018 were $3.8 million, or 0.12% of average loans and leases on an annualized basis, compared to $4.0 million, or 0.13% of average loans and leases on an annualized basis, for the quarter ended June 30, 2018 and $4.1 million, or 0.13% of average loans and leases on an annualized basis for the quarter ended September 30, 2017.

Total non-performing assets were $11.3 million, or 0.09% of total loans and leases and other real estate owned, at September 30, 2018, compared to non-performing assets of $13.8 million, or 0.11% of total loans and leases and other real estate owned, at June 30, 2018 and non­-performing assets of $8.4 million, or 0.07% of total loans and leases and other real estate owned, at September 30, 2017.

The ratio of the allowance for loan and lease losses to total loans and leases was 1.12% at September 30, 2018, 1.11% at June 30, 2018 and 1.13% at September 30, 2017. 

Capital

During the third quarter of 2018, the Company repurchased approximately 1.8 million shares of FHI common stock from a wholly owned subsidiary of BNPP at a total cost of approximately $50 million.

Total stockholders' equity was $2.4 billion at September 30, 2018, compared to $2.5 billion at June 30, 2018 and $2.6 billion at September 30, 2017.

The tier 1 leverage, common equity tier 1, and total capital ratios were 8.42%, 12.09% and 13.14%, respectively, at September 30, 2018, compared with 8.61%, 12.19% and 13.23% at June 30, 2018 and 8.66%, 12.71% and 13.77% at September 30, 2017. 

First Hawaiian, Inc. 

First Hawaiian, Inc. (NASDAQ:FHB) is a bank holding company headquartered in Honolulu, Hawaii. Its principal subsidiary, First Hawaiian Bank, founded in 1858 under the name Bishop & Company, is Hawaii’s oldest and largest financial institution with branch locations throughout Hawaii, Guam and Saipan. The company offers a comprehensive suite of banking services to consumer and commercial customers including deposit products, loans, wealth management, insurance, trust, retirement planning, credit card and merchant processing services. Customers may also access their accounts through ATMs, online and mobile banking channels. For more information about First Hawaiian, Inc., visit the Company’s website, www.fhb.com.

Conference Call Information

First Hawaiian will host a conference call to discuss the Company’s results today at 5:00 p.m. Eastern Time, 11:00 a.m. Hawaii Time. To access the call, participants should dial (844) 452-2942 (US/Canada), or (574) 990-9846 (International) ten minutes prior to the start of the call and enter the conference ID: 5377116. A live webcast of the conference call, including a slide presentation, will be available at the following link: www.fhb.com/earnings. The archive of the webcast will be available at the same location. A telephonic replay of the conference call will be available two hours after the conclusion of the call until 7:30 p.m. (Eastern Time) on November 4, 2018. Access the replay by dialing (855) 859-2056 or (404) 537-3406 and entering the conference ID: 5377116.

Forward-Looking Statements

This press release 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”, “expect”, “continue”, “will”, “anticipate”, “seek”, “estimate”, “intend”, “plan”, “projection”, “would”, “annualized” and “outlook”, or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. For a discussion of some of the risks and important factors that could affect our future results and financial condition, see our U.S. Securities and Exchange Commission (“SEC”) filings, including, but not limited to, our annual report on Form 10-K for the year ended December 31, 2017.

Use of Non-GAAP Financial Measures

We present net interest income, noninterest income, noninterest expense, net income, earnings per share and the related ratios described below, on an adjusted, or ‘‘core,’’ basis, each a non-GAAP financial measure. These core measures exclude from the corresponding GAAP measure the impact of certain items that we do not believe are representative of our financial results. We believe that the presentation of these non-GAAP financial measures helps identify underlying trends in our business from period to period that could otherwise be distorted by the effect of certain expenses, gains and other items included in our operating results. We believe that these core measures provide useful information about our operating results and enhance the overall understanding of our past performance and future performance. Investors should consider our performance and financial condition as reported under GAAP and all other relevant information when assessing our performance or financial condition. 

Core net interest margin, core return on average total assets and core return on average total stockholders’ equity are non-GAAP financial measures. We compute our core net interest margin as the ratio of core net interest income to average earning assets. We compute our core return on average total assets as the ratio of core net income to average total assets. We compute our core return on average total stockholders’ equity as the ratio of core net income to average stockholders’ equity. 

Return on average tangible stockholders’ equity, core return on average tangible stockholders’ equity, return on average tangible assets, core return on average tangible assets and tangible stockholders’ equity to tangible assets are non-GAAP financial measures. We compute our return on average tangible stockholders’ equity as the ratio of net income to average tangible stockholders’ equity, which is calculated by subtracting (and thereby effectively excluding) amounts related to the effect of goodwill from our average total stockholders’ equity. We compute our core return on average tangible stockholders’ equity as the ratio of core net income to average tangible stockholders’ equity, which is calculated by subtracting (and thereby effectively excluding) amounts related to the effect of goodwill from our average total stockholders’ equity. We compute our return on average tangible assets as the ratio of net income to average tangible assets, which is calculated by subtracting (and thereby effectively excluding) amounts related to the effect of goodwill from our average total assets. We compute our core return on average tangible assets as the ratio of core net income to average tangible assets. We compute our tangible stockholders’ equity to tangible assets as the ratio of tangible stockholders’ equity to tangible assets, each of which we calculate by subtracting (and thereby effectively excluding) the value of our goodwill. We believe that these measurements are useful for investors, regulators, management and others to evaluate financial performance and capital adequacy relative to other financial institutions. Although these non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results or financial condition as reported under GAAP.

Tables 13 and 14 at the end of this document provide a reconciliation of these non-GAAP financial measures with their most closely related GAAP measures.

Investor Relations Contact:
Kevin Haseyama, CFA
(808) 525-6268
khaseyama@fhb.com
Media Contact:
Susan Kam
(808) 525-6254
skam@fhb.com

 

1 A non-GAAP measure. For more information on these measures, including reconciliation to the most directly comparable GAAP measure, see “Use of Non-GAAP Financial Measures” and Tables 13 and 14 at the end of this document.

 

 

Financial Highlights                         Table 1  
    For the Three Months Ended   For the Nine Months Ended  
    September 30,    June 30,    September 30,    September 30,   
(dollars in thousands, except per share data)   2018   2018   2017   2018   2017  
Operating Results:                                
Net interest income   $  141,258   $  141,403   $  133,319   $  422,333   $  393,918  
Provision for loan and lease losses      4,460      6,020      4,500      16,430      13,400  
Noninterest income(1)      47,405      49,797      49,664      145,902      151,281  
Noninterest expense(1)      93,147      91,865      84,784      275,599      257,704  
Net income      67,388      69,053      58,363      204,399      171,998  
Basic earnings per share      0.50      0.50      0.42      1.48      1.23  
Diluted earnings per share      0.50      0.50      0.42      1.48      1.23  
Dividends declared per share      0.24      0.24      0.22      0.72      0.66  
Dividend payout ratio      48.00 %    48.00 %    52.38 %    48.65 %    53.66 %
Supplemental Income Statement Data (non-GAAP):                                
Core net interest income   $  141,258   $  141,403   $  133,319   $  422,333   $  393,918  
Core noninterest income(1)      47,405      49,797      46,997      145,902      148,614  
Core noninterest expense(1)      88,511      90,951      84,241      269,642      256,320  
Core net income      70,818      69,720      57,040      208,797      171,203  
Core basic earnings per share      0.52      0.51      0.41      1.52      1.23  
Core diluted earnings per share      0.52      0.50      0.41      1.52      1.23  
Performance Ratio:                                
Net interest margin      3.11    3.18    2.96    3.14    2.99 %
Core net interest margin (non-GAAP)      3.11    3.18    2.96    3.14    2.99 %
Efficiency ratio(1)      49.36    48.04    46.33    48.49    47.26 %
Core efficiency ratio (non-GAAP)(1)      46.90    47.56    46.72    47.44    47.24 %
Return on average total assets      1.31    1.38    1.15    1.35    1.16 %
Core return on average total assets (non-GAAP)      1.38    1.39    1.13    1.37    1.15 %
Return on average tangible assets      1.38    1.45    1.21    1.42    1.22 %
Core return on average tangible assets (non-GAAP)(2)      1.45    1.46    1.18    1.45    1.21 %
Return on average total stockholders' equity      11.01    11.23    9.03    11.09    9.10 %
Core return on average total stockholders' equity (non-GAAP)      11.57    11.34    8.82    11.33    9.06 %
Return on average tangible stockholders' equity (non-GAAP)      18.66    18.83    14.76    18.60    15.01 %
Core return on average tangible stockholders’ equity (non-GAAP)(3)      19.61    19.01    14.42    19.00    14.94 %
Average Balances:                                
Average loans and leases   $  12,595,668   $  12,552,610   $  12,115,001   $  12,482,747   $  11,868,917  
Average earning assets      18,041,483      17,817,943      17,867,021      17,982,396      17,605,376  
Average assets      20,391,456      20,121,504      20,109,090      20,306,833      19,858,184  
Average deposits      17,158,849      17,199,368      17,165,355      17,286,159      16,950,503  
Average shareholders' equity      2,427,907      2,466,392      2,564,563      2,464,601      2,527,435  
Market Value Per Share:                                
   Closing      27.16      29.02      30.29      27.16      30.29  
   High      30.02      31.28      31.48      32.36      35.32  
   Low      27.02      27.09      26.30      26.92      26.30  

 

 

    As of   As of   As of   As of  
    September 30,    June 30,    December 31,    September 30,   
    2018   2018   2017   2017  
Balance Sheet Data:                          
Loans and leases   $  12,600,464   $  12,637,686   $  12,277,369   $  12,149,711  
Total assets      19,983,838      20,479,719      20,549,461      20,565,627  
Total deposits      16,689,273      17,395,538      17,612,122      17,595,483  
Short-term borrowings      30,000      —      —      —  
Long-term borrowings      400,026      200,034      34      34  
Total stockholders' equity      2,423,462      2,459,175      2,532,551      2,581,858  
                           
Per Share of Common Stock:                          
Book value   $  17.97   $  18.00   $  18.14   $  18.50  
Tangible book value (non-GAAP)      10.59      10.71      11.01      11.36  
                           
Asset Quality Ratios:                          
Non-accrual loans and leases / total loans and leases      0.09    0.11 %    0.08 %    0.06
Allowance for loan and lease losses / total loans and leases      1.12    1.11 %    1.12 %    1.13
                           
Capital Ratios:                          
Common Equity Tier 1 Capital Ratio      12.09    12.19 %    12.45 %    12.71
Tier 1 Capital Ratio      12.09    12.19 %    12.45 %    12.71
Total Capital Ratio      13.14    13.23 %    13.50 %    13.77
Tier 1 Leverage Ratio      8.42    8.61 %    8.52 %    8.66
Total stockholders' equity to total assets      12.13    12.01 %    12.32 %    12.55
Tangible stockholders' equity to tangible assets (non-GAAP)      7.52    7.51 %    7.86 %    8.11
                           
Non-Financial Data:                          
Number of branches      60      61      62      62  
Number of ATMs      296      303      310      312  
Number of Full-Time Equivalent Employees      2,166      2,189      2,220      2,184  
(1)  Subsequent to the issuance of the Company’s interim condensed consolidated financial statements as of September 30, 2017, the Company’s management determined that certain expenses related to the card rewards program were incorrectly offset against credit and debit card fee income and credit card interchange assessment fees were incorrectly classified in card rewards program expenses versus credit and debit card fee income in the interim condensed consolidated statements of income for the three and nine months ended September 30, 2017. As a result, certain noninterest income and noninterest expense amounts have been revised from the amounts previously reported to correct the classification errors. There was no change to net income or earnings per share as previously reported as a result of these errors. Management has evaluated the materiality of these errors on its prior period financial statements from a quantitative and qualitative perspective, and has concluded that these errors were not material to any prior annual or interim period.
 
(2)  Core return on average tangible assets is a non-GAAP financial measure. We compute our core return on average tangible assets as the ratio of core net income to average tangible assets, which is calculated by subtracting (and thereby effectively excluding) amounts related to the effect of goodwill from our average total assets. For a reconciliation to the most directly comparable GAAP financial measure for core net income, see Table 13, GAAP to Non-GAAP Reconciliation.
 
(3)  Core return on average tangible stockholders’ equity is a non-GAAP financial measure. We compute our core return on average tangible stockholders’ equity as the ratio of core net income to average tangible stockholders’ equity, which is calculated by subtracting (and thereby effectively excluding) amounts related to the effect of goodwill from our average total stockholders’ equity. For a reconciliation to the most directly comparable GAAP financial measure for core net income, see Table 13, GAAP to Non-GAAP Reconciliation.
 

 

Consolidated Statements of Income   Table 2
    Three Months Ended   For the Nine Months Ended
    September 30,    June 30,    September 30,    September 30, 
(dollars in thousands, except per share amounts)   2018   2018   2017   2018   2017
Interest income                              
Loans and lease financing   $  135,394   $  130,283   $  118,986   $  389,228   $  342,431
Available-for-sale securities      25,196      27,397      24,195      81,586      75,683
Other      3,462      1,339      2,089      7,193      4,096
Total interest income      164,052      159,019      145,270      478,007      422,210
Interest expense                              
Deposits      20,205      17,355      11,949      52,824      28,279
Short-term and long-term borrowings      2,589      261      2      2,850      13
Total interest expense      22,794      17,616      11,951      55,674      28,292
Net interest income      141,258      141,403      133,319      422,333      393,918
Provision for loan and lease losses      4,460      6,020      4,500      16,430      13,400
Net interest income after provision for loan and lease losses      136,798      135,383      128,819      405,903      380,518
Noninterest income                              
Service charges on deposit accounts      7,933      7,721      8,929      23,609      27,548
Credit and debit card fees      16,535      16,929      16,126      48,961      48,450
Other service charges and fees      9,578      9,633      8,510      28,553      25,717
Trust and investment services income      7,487      7,711      7,672      23,429      22,536
Bank-owned life insurance      3,692      2,395      3,119      8,131      10,624
Other      2,180      5,408      5,308      13,219      16,406
Total noninterest income      47,405      49,797      49,664      145,902      151,281
Noninterest expense                              
Salaries and employee benefits      41,959      41,636      38,687      125,755      119,459
Contracted services and professional fees      11,478      13,005      10,834      36,770      33,530
Occupancy      6,757      6,908      6,238      20,149      17,382
Equipment      4,181      4,335      4,174      13,104      12,898
Regulatory assessment and fees      3,966      4,225      3,668      12,164      11,192
Advertising and marketing      1,060      1,115      2,005      3,126      5,255
Card rewards program      5,805      6,359      5,438      17,882      17,107
Other      17,941      14,282      13,740      46,649      40,881
Total noninterest expense      93,147      91,865      84,784      275,599      257,704
Income before provision for income taxes      91,056      93,315      93,699      276,206      274,095
Provision for income taxes      23,668      24,262      35,336      71,807      102,097
Net income   $  67,388   $  69,053   $  58,363   $  204,399   $  171,998
Basic earnings per share   $  0.50   $  0.50   $  0.42   $  1.48   $  1.23
Diluted earnings per share   $  0.50   $  0.50   $  0.42   $  1.48   $  1.23
Dividends declared per share   $  0.24   $  0.24   $  0.22   $  0.72   $  0.66
Basic weighted-average outstanding shares      135,466,669      137,907,063      139,556,532      137,643,005      139,549,665
Diluted weighted-average outstanding shares      135,675,498      138,065,879      139,696,330      137,809,573      139,670,487

 

 

Consolidated Balance Sheets   Table 3
    September 30,    June 30,    December 31,    September 30, 
(dollars in thousands)   2018     2018     2017     2017  
Assets                        
Cash and due from banks   $  350,967     $  332,102     $  367,084     $  321,319  
Interest-bearing deposits in other banks      348,526        611,698        667,560        793,046  
Investment securities      4,595,301        4,842,551        5,234,658        5,314,973  
Loans held for sale      —        2,037        556        —  
Loans and leases      12,600,464        12,637,686        12,277,369        12,149,711  
Less: allowance for loan and lease losses      141,250        140,601        137,253        137,327  
Net loans and leases      12,459,214        12,497,085        12,140,116        12,012,384  
                         
Premises and equipment, net      286,374        287,746        289,215        289,689  
Other real estate owned and repossessed personal property      362        325        329        564  
Accrued interest receivable      49,407        48,528        47,987        44,728  
Bank-owned life insurance      444,987        442,449        438,010        435,607  
Goodwill      995,492        995,492        995,492        995,492  
Mortgage servicing rights      16,937        17,660        13,196        13,980  
Other assets      436,271        402,046        355,258        343,845  
Total assets   $  19,983,838     $  20,479,719     $  20,549,461     $  20,565,627  
Liabilities and Stockholders' Equity                        
Deposits:                        
Interest-bearing   $  10,881,918     $  11,430,455     $  11,485,269     $  11,687,849  
Noninterest-bearing      5,807,355        5,965,083        6,126,853        5,907,634  
Total deposits      16,689,273        17,395,538        17,612,122        17,595,483  
Short-term borrowings      30,000        —        —        —  
Long-term borrowings      400,026        200,034        34        34  
Retirement benefits payable      135,523        135,139        134,218        135,092  
Other liabilities      305,554        289,833        270,536        253,160  
Total liabilities      17,560,376        18,020,544        18,016,910        17,983,769  
                         
Stockholders' equity                        
Common stock ($0.01 par value; authorized 300,000,000 shares; issued/outstanding: 139,655,841 / 134,873,728 shares as of September 30, 2018, issued/outstanding: 139,620,801 / 136,642,060 shares as of June 30,  2018, issued/outstanding: 139,599,454 / 139,588,782 shares as of December 31, 2017 and issued and outstanding: 139,586,282 shares as of September 30, 2017)      1,397        1,396        1,396        1,396  
Additional paid-in capital      2,494,436        2,492,656        2,488,643        2,489,273  
Retained earnings      264,463        229,615        139,177        158,303  
Accumulated other comprehensive loss, net      (204,699 )      (182,410 )      (96,383 )      (67,114 )
Treasury stock (4,782,113 shares as of September 30, 2018, 2,978,741 as of June 30, 2018, 10,672 as of December 31, 2017 and nil as of September 30, 2017)      (132,135 )      (82,082 )      (282 )      —  
Total stockholders' equity      2,423,462        2,459,175        2,532,551        2,581,858  
Total liabilities and stockholders' equity   $  19,983,838     $  20,479,719     $  20,549,461     $  20,565,627  

 

 

Average Balances and Interest Rates                                             Table 4  
    Three Months Ended   Three Months Ended   Three Months Ended  
    September 30, 2018   June 30, 2018   September 30, 2017  
    Average   Income/   Yield/   Average   Income/   Yield/   Average   Income/   Yield/  
(dollars in millions)   Balance   Expense   Rate   Balance   Expense   Rate   Balance   Expense   Rate  
Earning Assets                                                  
Interest-Bearing Deposits in Other Banks   $  656.7   $  3.3    1.99 $  281.2   $  1.2    1.74 $  597.5   $  2.0    1.30 %
Available-for-Sale Investment Securities      4,737.3      25.2    2.11      4,961.2      27.4    2.21      5,124.9      24.2    1.88  
Loans Held for Sale      1.8      —    3.83      1.9      —    3.44      0.1      —    3.62  
Loans and Leases (1)                                                  
Commercial and industrial      3,019.9      31.0    4.08      3,177.4      30.5    3.84      3,276.4      27.3    3.31  
Real estate - commercial      2,975.3      31.0    4.13      2,883.0      28.9    4.02      2,696.4      25.1    3.69  
Real estate - construction      629.5      6.7    4.20      620.7      6.2    4.03      570.6      5.1    3.54  
Real estate - residential      4,159.0      43.1    4.11      4,087.2      41.9    4.11      3,846.8      39.2    4.04  
Consumer      1,649.7      22.4    5.39      1,624.6      21.7    5.35      1,546.9      21.0    5.39  
Lease financing      162.3      1.2    3.00      159.7      1.1    2.83      177.9      1.3    2.91  
Total Loans and Leases      12,595.7      135.4    4.26      12,552.6      130.3    4.16      12,115.0      119.0    3.90  
Other Earning Assets      50.0      0.2    1.29      21.0      0.1    2.21      29.5      0.1    1.22  
Total Earning Assets (2)      18,041.5      164.1    3.61      17,817.9      159.0    3.58      17,867.0      145.3    3.23  
Cash and Due from Banks      336.5                317.7                324.0            
Other Assets      2,013.5                1,985.9                1,918.1            
Total Assets   $  20,391.5             $  20,121.5             $  20,109.1            
                                                   
Interest-Bearing Liabilities                                                  
Interest-Bearing Deposits                                                  
Savings   $  4,727.2   $  3.3    0.28 $  4,573.0   $  2.4    0.21 $  4,505.1   $  1.1    0.10 %
Money Market      2,871.0      4.6    0.63      2,725.9      2.7    0.40      2,607.7      0.9    0.13  
Time      3,705.7      12.3    1.32      4,003.5      12.2    1.22      4,208.0      10.0    0.94  
Total Interest-Bearing Deposits      11,303.9      20.2    0.71      11,302.4      17.3    0.62      11,320.8      12.0    0.42  
Short-Term Borrowings      3.3      —    1.30      42.7      0.2    1.85      0.8      —    0.91  
Long-Term Borrowings      358.7      2.6    2.85      6.6      0.1    3.79      —      —    —  
Total Interest-Bearing Liabilities      11,665.9      22.8    0.78      11,351.7      17.6    0.62      11,321.6      12.0    0.42  
Net Interest Income         $  141.3             $  141.4             $  133.3      
Interest Rate Spread                2.83              2.96              2.81 %
Net Interest Margin                3.11              3.18              2.96 %
Noninterest-Bearing Demand Deposits      5,854.9                5,897.0                5,844.6            
Other Liabilities      442.8                406.4                378.3            
Stockholders' Equity      2,427.9                2,466.4                2,564.6            
Total Liabilities and Stockholders' Equity   $  20,391.5             $  20,121.5             $  20,109.1            
(1)  Non-performing loans and leases are included in the respective average loan and lease balances. Income, if any, on such loans and leases is recognized on a cash basis.
(2) For the periods disclosed above, the taxable-equivalent basis adjustments made to the table above were not material.

 

 

Average Balances and Interest Rates                               Table 5  
    Nine Months Ended   Nine Months Ended  
    September 30, 2018   September 30, 2017  
    Average   Income/   Yield/   Average   Income/   Yield/  
(dollars in millions)   Balance   Expense   Rate   Balance   Expense   Rate  
Earning Assets                                  
Interest-Bearing Deposits in Other Banks   $  518.4   $  6.9    1.77 $  516.8   $  4.0    1.02 %
Available-for-Sale Investment Securities      4,951.4      81.6    2.20      5,189.7      75.7    1.95  
Loans Held for Sale      1.3      —    3.60      —      —    —  
Loans and Leases (1)                                  
Commercial and industrial      3,100.1      89.2    3.85      3,263.3      77.3    3.17  
Real estate - commercial      2,886.7      86.3    4.00      2,606.1      71.1    3.65  
Real estate - construction      623.9      18.6    4.00      514.1      13.1    3.41  
Real estate - residential      4,085.7      126.0    4.12      3,784.5      115.5    4.08  
Consumer      1,625.0      65.5    5.38      1,528.8      61.8    5.41  
Lease financing      161.3      3.6    2.98      172.1      3.6    2.84  
Total Loans and Leases      12,482.7      389.2    4.17      11,868.9      342.4    3.86  
Other Earning Assets      28.6      0.3    1.58      30.0      0.1    0.62  
Total Earning Assets (2)      17,982.4      478.0    3.55      17,605.4      422.2    3.21  
Cash and Due from Banks      324.4                322.7            
Other Assets      2,000.0                1,930.1            
Total Assets   $  20,306.8             $  19,858.2            
                                   
Interest-Bearing Liabilities                                  
Interest-Bearing Deposits                                  
Savings   $  4,615.1   $  7.4    0.21 $  4,500.1   $  2.5    0.08 %
Money Market      2,769.9      9.1    0.44      2,574.0      2.2    0.11  
Time      3,985.2      36.3    1.22      4,027.9      23.6    0.78  
Total Interest-Bearing Deposits      11,370.2      52.8    0.62      11,102.0      28.3    0.34  
Short-Term Borrowings      15.3      0.2    1.81      2.1      —    0.68  
Long-Term Borrowings      123.1      2.7    2.87      —      —    —  
Total Interest-Bearing Liabilities      11,508.6      55.7    0.65      11,104.1      28.3    0.34  
Net Interest Income         $  422.3             $  393.9      
Interest Rate Spread                2.90              2.87 %
Net Interest Margin                3.14              2.99 %
Noninterest-Bearing Demand Deposits      5,916.0                5,848.5            
Other Liabilities      417.6                378.2            
Stockholders' Equity      2,464.6                2,527.4            
Total Liabilities and Stockholders' Equity   $  20,306.8             $  19,858.2            

 

(1)  Non-performing loans and leases are included in the respective average loan and lease balances. Income, if any, on such loans and leases is recognized on a cash basis.
(2) For the periods disclosed above, the taxable-equivalent basis adjustments made to the table above were not material.

 

 

Analysis of Change in Net Interest Income                 Table 6
    Three Months Ended September 30, 2018
    Compared to June 30, 2018
(dollars in millions)   Volume   Rate   Total
Change in Interest Income:                  
Interest-Bearing Deposits in Other Banks   $  1.9     $  0.2     $  2.1  
Available-for-Sale Investment Securities      (1.2 )      (1.0 )      (2.2 )
Loans and Leases                  
Commercial and industrial      (1.5 )      2.1        0.6  
Real estate - commercial      0.9        1.2        2.1  
Real estate - construction      0.1        0.4        0.5  
Real estate - residential      0.7        0.4        1.1  
Consumer      0.3        0.4        0.7  
Lease financing      —        0.1        0.1  
Total Loans and Leases      0.5        4.6        5.1  
Other Earning Assets      0.1        (0.1 )      —  
Total Change in Interest Income      1.3        3.7        5.0  
                   
Change in Interest Expense:                  
Interest-Bearing Deposits                  
Savings      0.1        0.8        0.9  
Money Market      0.2        1.7        1.9  
Time      (1.0 )      1.1        0.1  
Total Interest-Bearing Deposits      (0.7 )      3.6        2.9  
Short-Term Borrowings      (0.1 )      (0.1 )      (0.2 )
Long-Term Borrowings      2.5        —        2.5  
Total Change in Interest Expense      1.7        3.5        5.2  
Change in Net Interest Income   $  (0.4 )   $  0.2     $  (0.2 )

 

 

Analysis of Change in Net Interest Income                 Table 7
    Three Months Ended September 30, 2018
    Compared to September 30, 2017
(dollars in millions)   Volume   Rate   Total
Change in Interest Income:                  
Interest-Bearing Deposits in Other Banks   $  0.2     $  1.1   $  1.3  
Available-for-Sale Investment Securities      (1.9 )      2.9      1.0  
Loans and Leases                  
Commercial and industrial      (2.3 )      6.0      3.7  
Real estate - commercial      2.7        3.2      5.9  
Real estate - construction      0.6        1.0      1.6  
Real estate - residential      3.3        0.6      3.9  
Consumer      1.4        —      1.4  
Lease financing      (0.1 )      —      (0.1 )
Total Loans and Leases      5.6        10.8      16.4  
Other Earning Assets      0.1        —      0.1  
Total Change in Interest Income      4.0        14.8      18.8  
                   
Change in Interest Expense:                  
Interest-Bearing Deposits                  
Savings      0.1        2.1      2.2  
Money Market      0.1        3.6      3.7  
Time      (1.3 )      3.6      2.3  
Total Interest-Bearing Deposits      (1.1 )      9.3      8.2  
Long-Term Borrowings      2.6        —      2.6  
Total Change in Interest Expense      1.5        9.3      10.8  
Change in Net Interest Income   $  2.5     $  5.5   $  8.0  

 

 

Analysis of Change in Net Interest Income                 Table 8
    Nine Months Ended September 30, 2018
    Compared to September 30, 2017
(dollars in millions)   Volume   Rate   Total
Change in Interest Income:                  
Interest-Bearing Deposits in Other Banks   $  —     $  2.9     $  2.9
Available-for-Sale Investment Securities      (3.6 )      9.5        5.9
Loans and Leases                  
Commercial and industrial      (4.0 )      15.9        11.9
Real estate - commercial      8.0        7.2        15.2
Real estate - construction      3.0        2.5        5.5
Real estate - residential      9.3        1.2        10.5
Consumer      3.9        (0.2 )      3.7
Lease financing      (0.2 )      0.2        —
Total Loans and Leases      20.0        26.8        46.8
Other Earning Assets      —        0.2        0.2
Total Change in Interest Income      16.4        39.4        55.8
                   
Change in Interest Expense:                  
Interest-Bearing Deposits                  
Savings      0.1        4.8        4.9
Money Market      0.2        6.7        6.9
Time      (0.3 )      13.0        12.7
Total Interest-Bearing Deposits      —        24.5        24.5
Short-Term Borrowings      0.2        —        0.2
Long-Term Borrowings      2.7        —        2.7
Total Change in Interest Expense      2.9        24.5        27.4
Change in Net Interest Income   $  13.5     $  14.9     $  28.4

 

 

Loans and Leases                       Table 9
    September 30,    June 30,    December 31,    September 30, 
(dollars in thousands)   2018   2018   2017   2017
Commercial and industrial   $  2,969,237   $  3,116,145   $  3,135,266   $  3,190,237
Real estate:                        
Commercial      2,891,753      2,837,520      2,667,597      2,625,688
Construction      612,794      654,084      632,911      598,763
Residential      4,313,489      4,236,083      4,090,053      4,001,478
Total real estate      7,818,036      7,727,687      7,390,561      7,225,929
Consumer      1,651,877      1,632,088      1,586,476      1,562,172
Lease financing      161,314      161,766      165,066      171,373
Total loans and leases   $  12,600,464   $  12,637,686   $  12,277,369   $  12,149,711

 

 

                         
Deposits                       Table 10
    September 30,    June 30,    December 31,    September 30, 
(dollars in thousands)   2018   2018   2017   2017
Demand   $  5,807,355   $  5,965,083   $  6,126,853   $  5,907,634
Savings      4,685,460      4,772,922      4,509,419      4,411,411
Money Market      2,905,959      2,768,190      2,801,968      2,631,311
Time      3,290,499      3,889,343      4,173,882      4,645,127
  Total Deposits   $  16,689,273   $  17,395,538   $  17,612,122   $  17,595,483

 

 

Non-Performing Assets and Accruing Loans and Leases Past Due 90 Days or More                       Table 11
    September 30,    June 30,    December 31,    September 30, 
(dollars in thousands)   2018   2018   2017   2017
Non-Performing Assets                        
Non-Accrual Loans and Leases                        
Commercial Loans:                        
Commercial and industrial   $  481   $  1,821   $  2,932   $  2,312
Real estate - commercial      2,786      2,844      1,786      —
Real estate - construction      2,001      2,238      —      —
Total Commercial Loans      5,268      6,903      4,718      2,312
Residential      5,678      6,541      5,107      5,562
Total Non-Accrual Loans and Leases      10,946      13,444      9,825      7,874
Other Real Estate Owned      362      325      329      564
Total Non-Performing Assets   $  11,308   $  13,769   $  10,154   $  8,438
                         
Accruing Loans and Leases Past Due 90 Days or More                        
Commercial Loans:                        
Commercial and industrial   $  141   $  163   $  220   $  1,751
Real estate - commercial      172      —      1,400      3,247
Total Commercial Loans      313      163      1,620      4,998
Residential      2,788      1,581      1,360      1,055
Consumer      2,813      1,451      1,394      1,894
Total Accruing Loans and Leases Past Due 90 Days or More   $  5,914   $  3,195   $  4,374   $  7,947
                         
Restructured Loans on Accrual Status and Not Past Due 90 Days or More      28,608      32,277      34,130      36,728
Total Loans and Leases   $  12,600,464   $  12,637,686   $  12,277,369   $  12,149,711

 

 

Allowance for Loan and Lease Losses                             Table 12  
    For the Three Months Ended   For the Nine Months Ended  
    September 30,    June 30,    September 30,    September 30,    September 30,   
(dollars in thousands)   2018   2018   2017   2018   2017  
Balance at Beginning of Period   $  140,601     $  138,574     $  136,883     $  137,253     $  135,494    
Loans and Leases Charged-Off                                
Commercial Loans:                                
Commercial and industrial      (303 )      —        (408 )      (778 )      (1,338 )  
Lease financing      —        —        (1 )      —        (147 )  
Total Commercial Loans      (303 )      —        (409 )      (778 )      (1,485 )  
Residential      (125 )      (34 )      (293 )      (159 )      (315 )  
Consumer      (5,700 )      (6,290 )      (6,263 )      (18,615 )      (17,086 )  
Total Loans and Leases Charged-Off      (6,128 )      (6,324 )      (6,965 )      (19,552 )      (18,886 )  
Recoveries on Loans and Leases Previously Charged-Off                                
Commercial Loans:                                
Commercial and industrial      51        39        582        154        825    
Real estate - commercial      21        32        336        175        468    
Total Commercial Loans      72        71        918        329        1,293    
Residential      442        60        139        684        610    
Consumer      1,803        2,200        1,852        6,106        5,416    
Total Recoveries on Loans and Leases Previously Charged-Off      2,317        2,331        2,909        7,119        7,319    
Net Loans and Leases Charged-Off      (3,811 )      (3,993 )      (4,056 )      (12,433 )      (11,567 )  
Provision for Loan and Lease Losses      4,460        6,020        4,500        16,430        13,400    
Balance at End of Period   $  141,250     $  140,601     $  137,327     $  141,250     $  137,327    
Average Loans and Leases Outstanding   $  12,595,668     $  12,552,610     $  12,115,001     $  12,482,747     $  11,868,917    
Ratio of Net Loans and Leases Charged-Off to Average Loans and Leases Outstanding      0.12 %      0.13 %      0.13 %      0.13      0.13 %  
Ratio of Allowance for Loan and Lease Losses to Loans and Leases Outstanding      1.12 %      1.11 %      1.13 %      1.12      1.13 %  

 

 

GAAP to Non-GAAP Reconciliation                     Table 13  
    For the Three Months Ended   For the Nine Months Ended  
    September 30,    June 30,    September 30,    September 30,   
(dollars in thousands, except per share amounts)   2018   2018   2017   2018   2017  
Income Statement Data:                                
Net income   $  67,388   $  69,053   $  58,363   $  204,399   $  171,998  
                                 
Average total stockholders' equity   $  2,427,907   $  2,466,392   $  2,564,563   $  2,464,601   $  2,527,435  
Less: average goodwill      995,492      995,492      995,492      995,492      995,492  
Average tangible stockholders' equity   $  1,432,415   $  1,470,900   $  1,569,071   $  1,469,109   $  1,531,943  
                                 
Average total assets   $  20,391,456   $  20,121,504   $  20,109,090   $  20,306,833   $  19,858,184  
Less: average goodwill      995,492      995,492      995,492      995,492      995,492  
Average tangible assets   $  19,395,964   $  19,126,012   $  19,113,598   $  19,311,341   $  18,862,692  
                                 
Return on average total stockholders' equity(1)      11.01    11.23    9.03    11.09    9.10 %
Return on average tangible stockholders' equity (non-GAAP)(1)      18.66    18.83    14.76    18.60    15.01 %
                                 
Return on average total assets(1)      1.31    1.38    1.15    1.35    1.16
Return on average tangible assets (non-GAAP)(1)      1.38    1.45    1.21    1.42    1.22
                                 
Average stockholders' equity to average assets      11.91    12.26    12.75    12.14    12.73
Tangible average stockholders' equity to tangible average assets (non-GAAP)      7.39    7.69    8.21    7.61    8.12

 

 

    As of   As of   As of   As of  
    September 30,    June 30,    December 31,    September 30,   
    2018   2018   2017   2017  
Balance Sheet Data:                          
Total stockholders' equity   $  2,423,462   $  2,459,175   $  2,532,551   $  2,581,858  
Less: goodwill      995,492      995,492      995,492      995,492  
Tangible stockholders' equity   $  1,427,970   $  1,463,683   $  1,537,059   $  1,586,366  
                           
Total assets   $  19,983,838   $  20,479,719   $  20,549,461   $  20,565,627  
Less: goodwill      995,492      995,492      995,492      995,492  
Tangible assets   $  18,988,346   $  19,484,227   $  19,553,969   $  19,570,135  
                           
Shares outstanding      134,873,728      136,642,060      139,588,782      139,586,282  
                           
Total stockholders' equity to total assets      12.13    12.01    12.32    12.55 %
Tangible stockholders' equity to tangible assets (non-GAAP)      7.52    7.51    7.86    8.11 %
                           
Book value per share   $  17.97   $  18.00   $  18.14   $  18.50  
Tangible book value per share (non-GAAP)   $  10.59   $  10.71   $  11.01   $  11.36  

 

(1)  Annualized for the three and nine months ended September 30, 2018 and 2017 and the three months ended June 30, 2018.

 

 

GAAP to Non-GAAP Reconciliation                             Table 14  
    For the Three Months Ended   For the Nine Months Ended  
    September 30,    June 30,    September 30,    September 30,   
(dollars in thousands, except per share amounts)   2018   2018   2017   2018   2017  
Net interest income   $  141,258     $  141,403     $  133,319     $  422,333     $  393,918    
Core net interest income (non-GAAP)   $  141,258     $  141,403     $  133,319     $  422,333     $  393,918    
                                 
Noninterest income   $  47,405     $  49,797     $  49,664     $  145,902     $  151,281    
Gains on sale of real estate      —        —        (2,667 )      —        (2,667 )  
Core noninterest income (non-GAAP)   $  47,405     $  49,797     $  46,997     $  145,902     $  148,614    
                                 
Noninterest expense   $  93,147     $  91,865     $  84,784     $  275,599     $  257,704    
Loss on litigation settlement(1)      (4,125 )      —        —        (4,125 )      —    
One-time items(2)      (511 )      (914 )      (543 )      (1,832 )      (1,384 )  
Core noninterest expense (non-GAAP)   $  88,511     $  90,951     $  84,241     $  269,642     $  256,320    
                                 
Net income   $  67,388     $  69,053     $  58,363     $  204,399     $  171,998    
Gains on sale of real estate      —        —        (2,667 )      —        (2,667 )  
Loss on litigation settlement(1)      4,125        —        —        4,125        —    
One-time items(2)      511        914        543        1,832        1,384    
Tax adjustments(3)      (1,206 )      (247 )      801        (1,559 )      488    
Total core adjustments      3,430        667        (1,323 )      4,398        (795 )  
Core net income (non-GAAP)   $  70,818     $  69,720     $  57,040     $  208,797     $  171,203    
Core basic earnings per share (non-GAAP)   $  0.52     $  0.51     $  0.41     $  1.52     $  1.23    
Core diluted earnings per share (non-GAAP)   $  0.52     $  0.50     $  0.41     $  1.52     $  1.23    
                                 
Basic earnings per share   $  0.50     $  0.50     $  0.42     $  1.48     $  1.23    
Diluted earnings per share   $  0.50     $  0.50     $  0.42     $  1.48     $  1.23    

 

(1)  The Company reached an agreement in principle to resolve a putative class action lawsuit alleging that the Bank improperly charged certain overdraft fees. In connection with the anticipated settlement agreement, the Company recorded an expense of approximately $4.1 million during the three and nine months ended September 30, 2018.
(2)  One-time items include the loss on our funding swap as a result of a decrease in the conversion rate of our Visa Class B restricted shares sold in 2016 as well as public offering related costs.
(3)  Represents the adjustments to net income, tax effected at the Company’s effective tax rate for the respective period.

 

FH Inc Logo 2016 Horizontal RGB (2).jpg

 

Source: First Hawaiian, Inc.

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