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PART I
ITEM 1. BUSINESS
General
First Hawaiian, Inc. (“FHI” or the “Parent”), a bank holding company, owns 100% of the outstanding common stock of First Hawaiian Bank (“FHB” or the “Bank”). References to “we,” “our,” “us,” or the “Company” refer to the Parent and its wholly-owned subsidiary, FHB, for purposes of discussion in this Annual Report on Form 10-K.
We are a bank holding company incorporated in the state of Delaware and headquartered in Honolulu, Hawaii. Our wholly‑owned bank subsidiary, FHB, was founded in 1858 under the name Bishop & Company and was the first successful banking partnership in the Kingdom of Hawaii and the second oldest bank formed west of the Mississippi River. Today, FHB is the largest full service bank headquartered in Hawaii as measured by assets, loans, deposits and net income. As of December 31, 2016, we had $19.7 billion of assets, $11.5 billion of gross loans and leases, $16.8 billion of deposits and $2.5 billion of stockholders’ equity. We generated $230.2 million of net income or diluted earnings per share of $1.65 per share for the year ended December 31, 2016.
We have a highly diversified and balanced loan portfolio that has exhibited steady organic loan growth through various economic cycles. Gross loans have grown at a 6.1% compounded annual growth rate from December 31, 2005 to December 31, 2016, and loan balances have increased every year since 2005 despite the Great Recession (which we define as January 1, 2008 through December 31, 2009) and strong competition. We believe the strength and credit quality of our loan portfolio reflects our conservative credit‑driven underwriting approach. We also have the leading deposit market share position across our branch footprint. As of June 30, 2016, we had a 36.6% deposit market share in Hawaii, a 36.1% deposit market share in Guam and a 38.0% deposit market share in Saipan according to the Federal Deposit Insurance Corporation (the “FDIC”).
Hawaii has been, and will continue to be, our primary market. As of December 31, 2016, 83% of our deposits and 70% of our loans were based in Hawaii. Hawaii is an attractive market that we believe will continue to provide steady organic growth opportunities. We pride ourselves on our deep rooted and extensive relationships within the Hawaii community. We believe these community ties coupled with the strength of our brand and market share provide an excellent long‑term opportunity to continue to deliver steady growth, stable operating efficiency and consistently strong performance.
Through the Bank, we operate a network of 62 branches in Hawaii (57 branches), Guam (3 branches) and Saipan (2 branches). We provide a diversified range of banking services to consumer and commercial customers, including deposit products, lending services and wealth management and trust services. Through our distribution channels, we offer a variety of deposit products to our customers, including checking and savings accounts and other types of deposit accounts. We offer comprehensive commercial banking services to middle market and large Hawaii‑based businesses with over $10 million of revenue, strong balance sheets and high quality collateral. We provide commercial and industrial lending, including auto dealer flooring, commercial real estate and construction lending. We also offer comprehensive consumer lending services focused on residential real estate lending, indirect auto financing and other consumer loans to individuals and small businesses through our branch, online and mobile distribution channels. Our wealth management business provides an array of trust services, private banking and investment management services. We also offer consumer and commercial credit cards and merchant processing.
We seek to develop comprehensive, long‑term banking relationships by offering a diverse array of products and services, cross‑selling those products and services and delivering high quality customer service. Our service culture and emphasis on repeat positive customer experiences are integral to our banking strategy and exemplified by our longstanding customer relationships.
We operate our business through three operating segments: Retail Banking, Commercial Banking and Treasury and Other. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) – Analysis of Business Segments” and “Note 22. Reportable Operating Segments” in our consolidated financial statements for more information.
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As of December 31, 2016, we had approximately 2,200 employees, which included full time employees, part time employees and temporary employees. None of our employees are parties to a collective bargaining agreement and we do not expect a significant change in the number of our employees in the near future.
Securities Exchange Act Reports and Additional Information
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports can be found free of charge on our website at www.fhb.com, under Investor Relations, as soon as reasonably practicable after such material is electronically filed with or furnished to the U.S. Securities and Exchange Commission (“SEC”). These reports are also available free of charge on the SEC’s website at www.sec.gov.
Information on our Investor Relations website, our main website and other websites referred to in this report is not incorporated by reference into this report or any other report filed with or furnished to the SEC. We have included such website addresses only as inactive textual references and do not intend them to be active links.
Our Products and Services
The Bank is a full service community bank focused on building relationships with our customers. We provide a variety of deposit accounts and lending services to commercial and consumer customers, as well as credit card products, wealth management services and merchant processing services. For over ten years, the Bank has maintained the largest deposit market share in Hawaii and currently has the leading market position in deposits in Hawaii, Guam and Saipan. We offer a comprehensive range of commercial lending services including commercial and industrial lending, auto dealer flooring, commercial real estate lending and construction lending. Our primary consumer lending services are mortgage lending, auto finance, small business loans, personal installment and credit cards. Our wealth management business offers individuals investment and financial planning services, insurance protection, trust and estate services and private banking.
Reorganization Transactions
On April 1, 2016, BNPP effected a series of transactions (“Reorganization Transactions”) pursuant to which FHI, which was then known as BancWest Corporation (“BancWest”), contributed Bank of the West (“BOW”), its subsidiary at the time, to BancWest Holding Inc. (“BWHI”), a newly formed bank holding company and a wholly‑owned subsidiary of BancWest. Following the contribution of BOW to BWHI, BancWest distributed its interest in BWHI to BNPP, and BWHI became a wholly‑owned subsidiary of BNPP. As part of these transactions, we amended our certificate of incorporation to change our name to First Hawaiian, Inc., with First Hawaiian Bank remaining our only direct wholly‑owned subsidiary.
On July 1, 2016, in order to comply with the Board of Governors of the Federal Reserve System’s requirement (under Regulation YY) applicable to BNPP that a foreign banking organization with $50 billion or more in U.S. non‑branch assets as of June 30, 2015 establish a U.S. intermediate holding company and hold its interest in the substantial majority of its U.S. subsidiaries through the intermediate holding company by July 1, 2016, we became an indirect wholly‑owned subsidiary of BNP Paribas USA, Inc. (“BNP Paribas USA”), BNPP’s U.S. intermediate holding company. As part of that reorganization, we became a direct wholly‑owned subsidiary of BancWest Corporation (“BWC”), a direct wholly‑owned subsidiary of BNP Paribas USA.
Initial Public Offering and Separation from BNPP
On July 8, 2016, we filed a registration statement with the SEC on Form S-1. On August 4, 2016, FHI’s common stock began trading on the NASDAQ Global Select Market (“NASDAQ”) under the ticker symbol “FHB”. On August 9, 2016, FHI completed its initial public offering (“IPO”) of 24,250,000 shares of common stock, which included the full exercise of the underwriters’ option to purchase an additional 3,163,043 shares at $23.00 per share. As of December 31, 2017, BNPP beneficially owned approximately 83% of FHI’s common stock. On February 6, 2017, FHI completed its first secondary offering of 25,000,000 shares of common stock at $32.00 per share, and on February 17, 2017 the underwriters’ exercised their option to purchase an additional 3,750,000 shares of our common stock at $32.00 per share. FHI did not receive any of the proceeds from the two sales of shares of its common stock by BWC. Upon closing of the exercise of the underwriters’ option on February 17, 2017, BNPP beneficially owned approximately 62% of FHI’s common stock.