First Hawaiian
Annual Report 2017

Plain-text annual report

2017 ANNUA L R EPOR T TA BLE O F CONT ENT S 1 FHI by the Numbers 2 CEO’s Report to Shareholders 5 Financial Highlights 6 Business Banking 8 Corporate Banking 10 Small Business Banking 12 Personal Banking 14 Wealth Management & Private Banking 16 Employee Volunteerism 18 Consolidated Statements of Income 19 Consolidated Balance Sheets 20 GAAP/Non-GAAP Reconciliation 21 Philanthropy 22 Senior Management Committee 24 Senior Officers Boards of Directors (Inside Back Cover) Shareholder Information (Back Cover) 1858 Bishop & Co., forerunner of First Hawaiian Bank, is founded by businessman Charles Reed Bishop. His wife, Princess Bernice Pauahi Bishop, founded Kamehameha Schools through her estate in 1887. First Hawaiian, Inc. (NASDAQ: FHB) is a bank holding company headquartered in Honolulu, Hawai‘i. Its principal subsidiary, First Hawaiian Bank, was founded in 1858 as Bishop & Co., and today is Hawai‘i’s oldest and largest financial institution with assets of $20.5 billion at December 31, 2017. The bank has 57 branches throughout Hawai‘i, three in Guam and two in 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 www.fhb.com. First Hawaiian’s Vision: To be the best relationship bank in the markets we serve. Our Mission: To grow an innovative and successful bank that delivers excellent service and value to our customers, cares for our employees like family and is committed to the communities we serve. Our Core Values: CARING — Our employees have a caring spirit, a sincere compassion, combined with the professional capability to help customers, each other and our communities. CHA RA CTER — Our employees understand that our bank was built upon and depends on the trust of our customers, as well as trust among each other. CO LLABORATION — We work together and support each other in serving our customers and communities while making the bank successful. 6 1 0 2 M O R F % 1 6 P U . N O I L L I M 4 . 0 3 2 $ E M O C N I T E N E R O C 7 1 0 2 * 4.5% increase of Total Assets from 2016 ($20.5 BILLION AT 12/31/2017) No. 1 Largest among all Hawai‘i banking companies in loans, deposits, assets AT 12/31/17 1878 Bishop & Co. builds this building on Merchant Street as its new headquarters. The building is occupied today by law offices. s d n e d i v i D 8 8 0 $ . e r a h s n o m m o c r e p d e r a l c e d 2,271 e m p l o y e e s $17.6 billion Deposits at 12/31/2017, up 4.9% from 2016 6 2 B R A N C H E S o f F I R S T H A W A I I A N B A N K By th e Numbers *47.0% 2017 Core Efficiency Ratio *Core net income excludes certain gains, expenses and one-time items. Core efficiency ratio is the ratio of core noninterest expense to the sum of core net interest income and core noninterest income. See GAAP/Non-GAAP Reconciliation on Page 20 of this Annual Report for a reconciliation of our core net income and the components of our core efficiency ratio to comparable GAAP measures. $2.5 billion Stockholders’ equity 7 1 0 2 / 1 3 / 2 1 T A 1 $12.3 billionLoans at 12/31/2017, up 6.6% from 2016310 ATMs C E O ’ S R E P O R T T O S H A R E H O L D E R S As we approach our 160th anniversary, Hawai‘i’s oldest banking company is stronger than at any time in our history. At the end of 2017, our first full year as a newly public company, First Hawaiian, Inc. set records for assets, loans and deposits: below the rate in every other state. State and University of Hawai‘i economists forecast continued positive expansion through at least 2020—albeit at a slower rate—in visitor arrivals, visitor spending, real GDP and real personal income. } Assets, $20.5 billion, up 4.5% from 2016; } Loans, $12.3 billion, up 6.6%; } Deposits, $17.6 billion, up 4.9%. Core net income was $230.4 million, up 6.1% over 2016 core net income.(1) The Board of Directors declared a quarterly cash dividend of $0.24 per share payable March 9, 2018, an increase of 9.1% from the dividend paid in December 2017. We are the largest Hawai‘i-based bank in assets, loans, deposits and core net income. A best-in-class community institution, First Hawaiian has a track record of strong organic growth in loans and deposits and excellent expense management (best efficiency ratio of any bank in the state) and credit quality. Year-end nonperforming assets stood at 0.08% of total loans, well below peer U.S. banks, a tribute to underwriting based on our longstanding customer relationships and market knowledge. Underlying our financial performance are two key drivers: the continuing strength in the Hawai‘i economy and our continued successful execution of our relationship banking strategy. The mainstay of the economy is, as always, tourism. The perception of Hawai‘i as a safe place to visit and a great travel experience led to a sixth consecutive record year in the tourism sector. Visitor arrivals were up 5% to 9.38 million and visitor expenditures rose 6% to $16.78 billion. Planned increases in airlift by both existing and new carriers help buoy economists’ optimism for 2018. On O‘ahu, residential real estate sales are strong, with median prices increasing to record levels in 2017. Relationship Strategy Since 1995, our bank has consistently emphasized building long-term, person-to-person customer relationships. Bankers reach out proactively to understand each client’s needs and offer tailored, holistic financial solutions. Customers know their First Hawaiian bankers stand by them through thick and thin, as exemplified by the customer stories in this report. The relationship building strategy and the talented bankers who execute it have produced consistent corporate growth in good economic times and bad, helping First Hawaiian become and remain Hawai‘i’s largest bank. Hawai‘i Economy Our home state’s economy enjoyed its eighth consecutive year of growth. At the end of 2017, the Hawai‘i unemployment rate hit an all-time low of 2.0%, well (1)Core net income excludes certain gains, expenses and one-time items. See GAAP/Non-GAAP Reconciliation on Page 20 of this Annual Report. 2 During 2017: } Recognizing our strong record in small business and economic development loans, the U.S. Small Business Administration (SBA) awarded First Hawaiian both the Hawai‘i SBA Lender of the Year—Category 1 and the SBA 504 Lender of the Year awards. This is the first time a local bank has received both awards outright in a single year. } We invested in a new mortgage lending model, going from a branch-based business to a mortgage loan officer model. } We opened our first branch on O‘ahu with a modern, customer-centric open-floor concept. In the new Liliha branch, the traditional teller counter has been replaced by three “service pods,” creating a more personalized experience for customers working with bank staff and strengthening relationships with our customers. } While brick-and-mortar branches continue to be a major part of our relationship strategy, customers’ preferences are changing the way they interact with the bank. Supporting that trend, First Hawaiian Bank launched enhanced mobile and online banking applications for consumers and small businesses, providing a better customer experience for their digital banking needs. We appreciate the strong support of BNP Paribas, which owned this company from 2001 until 2016, when it announced its intent to sell 100% of its interest over time. Following our Initial Public Offering of common stock in August 2016 and a second offering in February 2017, BNP Paribas owns 62% of First Hawaiian, Inc. Employee Engagement Our goal is to continue making First Hawaiian a desirable place to work—a centerpiece of our success. One of the ways we did this was raising our minimum employee wage to $15. We also gave out $1,500 cash bonuses to most employees. At First Hawaiian, we want to do more than pay a competitive wage; we want to foster innovation and collaboration by employees, allowing individuals to make a meaningful difference within our organization and our community. 3 Robert S. Harrison Employee engagement encompasses the spirit of our workforce—how they go about their everyday roles as well as how they feel about coming to work. Employee engagement steps we have taken: } Launched year-long Emerging Leaders and Advanced Leaders Programs and graduated our first class. } Expanded our “Strive” Online Learning Center, offering both live and online classes. } Employees collaborated with the University of Hawai‘i and Hawai‘i Bankers Association to develop a universal banker curriculum. } Offered generous tuition reimbursement for career education. Such programs help employees become engaged with our company, our customers, our community. A satisfied, engaged workforce translates to less turnover than the Hawai‘i industry average, which leads to better, long- lasting customer relationships . . . and better profitability for stockholders. Getting Wet and Dirty for a Good Cause. Employee Community Care volunteers form an assembly line to move pōhaku (stones) to restore the 600-year-old He‘eia fishpond in Windward O‘ahu. Philanthropy We give back to our communities because we know that our company’s strength depends on the well-being of our neighbors. In 2017, our bank, our employees and the First Hawaiian Bank Foundation donated $4.2 million to more than 400 nonprofits in the fields of health, education, cultural support and social welfare. Our employees have the same spirit of giving. Community Care is a bank-sponsored program in which teams of employees volunteer to help nonprofit organizations or schools. Nearly 1,200 volunteers took part in one of 19 Community Care projects on seven islands. They carried tons of rock and coral to restore an ancient Hawaiian fishpond, spruced up housing for the homeless, built garden beds for a charter school and assembled Aloha Care packages for deployed U.S. Navy sailors. Our Community Care teams cleaned beaches, a park and a library, packed boxes for food banks and created a school Fun Fair. Six veteran members of our bank Board of Directors retired in 2017: Paul Mullin Ganley, Warren H. Haruki, John A. Hoag, Dr. Richard R. Kelley, Dee Jay A. Mailer and John K. Tsui. Combined, they had 151 years of board service. We shall miss their wise counsel, good humor and friendship. Joining the board was Albert M. Yamada, retired Vice Chairman with long tenure as a top bank executive. Longtime bank Vice Chairmen Gary L. Caulfield and Robert T. Fujioka, who together had 77 years in banking, retired from Senior Management. Succeeding Fujioka on Senior Management was Commercial Banking Group Executive Vice President Lance A. Mizumoto. Whether you are a stockholder of First Hawaiian, Inc. or a client of its subsidiary, First Hawaiian Bank, we appreciate your confidence in our management and in the 2,271 bankers who believe that, in building a customer relationship—It All Starts with Yes. Overall, bank employees put in nearly 13,000 hours of community service volunteer time, saying “Yes” to neighbors in need. Aloha and mahalo, Employees dug deep into their wallets, too. First Hawaiian’s in-house employee fundraising campaign, Kōkua Mai, raised a record $777,125 for dozens of charitable agencies in Hawai‘i, Guam and Saipan. An impressive 99% of our employees participated. They are ambassadors of our core value—caring. We care for our customers, for our community, for each other and for our bank. ROBERT S. HARR ISON Chairman & Chief Executive Officer 4 FINANCIAL HIGHLIGHTS F I R S T H A W A I I A N , I N C . (dollars in thousands, except per share data) (1) These amounts are Non-GAAP financial measuers. See GAAP/Non-GAAP Reconciliation on Page 20 of this Annual Report for reconciliations of core net income, core basic earnings per share and core diluted earnings per share to comparable GAAP measures. (2) These ratios are Non-GAAP financial measures. For an explanation of how these ratios are computed, as well as a reconciliation of the components of such ratios to comparable GAAP measures, see GAAP/Non-GAAP Reconciliation on page 20 of this Annual Report, including Notes (1) through (4) in that section. 5 C O R E N E T I N C O M E (IN MILLIONS) (1) 2017 Core Net Income (Non-GAAP): $230.4 million 5-Year Compound Annual Growth Rate: 3.2% $250 $200 $150 $100 $50 . 0 5 0 2 $ . 7 6 9 1 $ . 6 1 0 2 $ . 3 6 9 1 $ . 4 0 3 2 $ . 1 7 1 2 $ 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 7 1 0 2 A S S E T S (IN BILLIONS) ) Total Assets (12/31/17): $20.5 billion 5-Year Compound Annual Growth Rate: 4.3% $20 $18 $16 $14 $12 $10 $8 $6 $4 $2 . 5 3 9 1 $ . 6 6 9 1 $ . 5 5 0 2 $ . 3 1 8 1 $ . 5 6 6 1 $ . 2 1 7 1 $ 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 7 1 0 2 D E P O S I T S (IN BILLIONS) Total Deposits (12/31/17): $17.6 billion 5-Year Compound Annual Growth Rate: 6.4% $18 $16 $14 $12 $10 $8 $6 $4 $2 . 9 8 2 1 $ 2 1 0 2 . 9 7 6 1 $ . 1 6 7 1 $ . 6 0 6 1 $ . 3 7 4 1 $ . 8 5 3 1 $ 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 7 1 0 2 1895 Samuel M. Damon acquires all shares of Bishop’s bank. After Damon’s death, his estate remained the bank’s largest shareholder until its 2001 sale to BNP Paribas. Year Ended December 31,20172016INCOME STATEMENT DATAInterest income$ 570,768$  518,520Interest expense41,96426,848Net interest income528,804491,672Provision for loan and lease losses18,5008,600Net interest income after provision for loan and lease losses510,304483,072Noninterest income205,605226,037Noninterest expense347,554337,280Income before provision for income taxes368,355371,829Provision for income taxes184,673141,651Net income$   183,682$  230,178Core adjustments (Non-GAAP)(1)46,684(13,067Core net income (Non-GAAP)(1)$  230,366$  217,111Core basic earnings per share (Non-GAAP)(1)$ 1.65$ 1.56Core diluted earnings per share (Non-GAAP)(1)$ 1.65$ 1.56Basic weighted-average outstanding shares139,560,305139,487,762Diluted weighted-average outstanding shares139,656,993139,492,608OTHER FINANCIAL INFO / PERFORMANCE RATIOSCore net interest margin (Non-GAAP)(2)2.99%2.88%Core efficiency ratio (Non-GAAP)(2)47.02%47.94%Core return on average total assets (Non-GAAP)(2)1.16%1.12%Core return on average total stockholders’ equity (Non-GAAP)(2)9.08%8.45%BALANCE SHEET DATALoans and leases$  12,277,925$  11,520,378Allowance for loan and lease losses137,253135,494lnterest-bearing deposits in other banks667,560798,231Investment securities5,234,6585,077,514Goodwill995,492995,492Total assets20,549,46119,661,829Total deposits17,612,12216,794,532Total liabilities18,016,91017,185,344Total stockholders’ equity2,532,5512,476,485Book value per share18.1417.75ASSET QUALITY RATIOSNon-performing loans and leases / total loans and leases0.08%0.08%Allowance for loan and lease losses / total loans and leases1.12%1.18%Net charge-offs (recoveries) / average total loans and leases0.14%0.08%CAPITAL RATIOSCommon Equity Tier 1 capital ratio12.45%12.75%Tier 1 capital ratio12.45%12.75%Total capital ratio13.50%13.85%Tier 1 leverage ratio8.52%8.36%Total stockholders’ equity to total assets12.32%12.60%Tangible stockholders’ equity to tangible assets 7.86%7.93%B U S I N E S S B A N K I N G 6 77 BOWERS + KUBOTA CONSULTING Brian Bowers, P.E., CCM & Dexter Kubota, P.E. Waipahu, O‘ahu In 2006, Brian Bowers and Dexter Kubota were shocked when their application for a construction loan for their architectural firm met with resistance from their former bank. Dexter reached out to a classmate who worked at First Hawaiian Bank. “I reached out on a Friday; by Monday we had a meeting with Ray Ono and Joanne Arizumi. This was our first time meeting them. We didn’t have any accounts with First Hawaiian. After talking with us, within an hour, First Hawaiian gave us a $3.3 million loan commitment," recalls Kubota. “The speed in which they said ‘Yes’ to us was incredible. Without First Hawaiian, we would not have been able to build our new headquarters. Today, it’s home to about 200 employees.” “First Hawaiian Bank has been a great partner for us,” added Bowers. “We were never asked to move our business and personal loans over. We did that on our own because it was the right thing to do. First Hawaiian believed in our potential. We were treated as a valued customer, even though we weren’t even a customer yet. The bank is here to help us so we can focus on growing our business.” Today, Bowers + Kubota is the second largest architectural firm in the state with projects in Hawai‘i and throughout the Pacific. 1925 The Bank of Bishop & Co. Ltd. moves into this new structure it built at Bishop and King Streets. It was called the Damon Building in honor of Samuel M. Damon, who died the year before. 77 C O R P O R A T E B A N K I N G 8 99 KAMEHAMEHA SCHOOLS Livingston "Jack" Wong, Chief Executive Officer Honolulu, O‘ahu “Our pilina (relationship) with First Hawaiian Bank dates back to the 19th century, starting with the bank’s founder, Charles Reed Bishop, whose wife, Princess Bernice Pauahi Bishop, founded Kamehameha Schools in 1887. To this day, Mr. Bishop’s business log is still kept in the bank’s founder’s room—and his original desk still sits in our Heritage Center at Kapālama. That strong connection and our shared commitment to the community have been there, unbroken, since the 1800s. “At Kamehameha Schools, we have kuleana (responsibility) to manage our endowment in a globally connected way; the bank helps us do that. But just as important, our work is in every part of our community, just as First Hawaiian is. Together, we need to understand what drives each region and community, so that we can serve our customers. “First Hawaiian supports our ability to go from local, to national, to global and back in approaching our work—just as we teach our haumāna (students) to do. Our bank helps us navigate that chain with ease. “In Kaka‘ako, we’re dealing with residential units and affordable housing—issues that affect people. We have to think about how to help finance them, to understand the market and build relationships with developers and buyers. The bank helps us do all of that well. “Like First Hawaiian, we organize our work and our efforts around what's best for our community. That’s what makes us great partners.” 1941 Following Pearl Harbor attack, Bishop National Bank helps U.S. government burn $200 million in currency at Aiea sugar mill. Bills were replaced by wartime currency overprinted with “HAWAII” so money would not fall into enemy hands if Islands were invaded. 99 S M A L L B U S I N E S S B A N K I N G 10 1111 AINA HAINA PET HOSPITAL Dr. Allen Takayama & Cathy Takayama Kaimukī, O‘ahu “First Hawaiian has always been our family’s bank. We’ve been customers for over 40 years. My dad started Aina Haina Pet Hospital, Inc. in 1965 and we moved to our Kaimukī location in 2009. We are a locally owned, family-run veterinary clinic. My wife, Cathy, and her sister, Diane, take care of the front office while Dr. Nicole Tsutahara, our Vet Techs, and I focus on caring for our patients. “First Hawaiian is like family to us. Lois Tojio was our banker before she retired and we now enjoy working with May Nishijima, whom we have known for years. They understand our business and provide a level of service that can’t be beat. Through the years, they have helped us when we needed construction loans to expand our business and have helped us with our mortgage and personal loans too. Our Wealth Advisor, Chieh Fu Lu, is a trusted advisor for our entire family, including my parents. It’s nice to be able to pick up the phone and talk to May or Chieh whenever we have any questions. “It’s really a one-stop shop kind of bank. With First Hawaiian, I have everything I need for my business and my family.” — Dr. Allen Takayama, DVM 1962 The First National Bank of Hawaii builds state’s first “skyscraper” (18 stories) behind Damon Building. 1111 PERSONAL B A N K I N G 12 1313 CARISSA MOORE Pro Surfer 3-Time World Champion Honolulu, O‘ahu “My grandmother and my dad help me considerably with my finances. That way I can focus on surfing and doing my best in the water. It’s definitely a team effort to keep everything organized and safe and up to date. They both bank with First Hawaiian, so it was only natural that I did as well. “My grandmother introduced me to her banker, Paula Kaneshiro, who helped us set up my account in 2004 when I was in intermediate school. It’s been important for me to build my own banking relationship with Paula and now Greg Sitar. “I travel on tour 6 months out of the year. Paula has been super helpful when I need to do wire transfers and Greg always makes certain my credit card functions when I’m travelling internationally. It’s nice to have that level of service and trust in a bank. “I’ve been surfing since I was 4 or 5 years old and just completed my eighth year on the championship tour. I’m so grateful for the opportunity to do what I love. Win or lose, what matters the most in life is being with the one that you love, spending time with family and sharing laughs with good friends.” 1969 Name changed for last time to First Hawaiian Bank. New marketing slogan, “The Bank that Says Yes.” 1313 W E A L T H M A N A G E M E N T A N D P R I V A T E B A N K I N G 14 1515 HAUNANI LEMN & SCOTT NUNOKAWA Waikapū, Maui “When Scott and I left our demanding jobs to form our own real estate development and construction company, friends and family thought we were more than a little crazy. Our timing seemed ill- advised since we’d recently welcomed home twins to join our 5-year-old son. “For nearly 20 years, First Hawaiian Bank has been a part of our team as we steadily expanded our business while keeping our focus on family and community. The bank has provided us with an array of services—commercial banking, wealth management, life insurance, credit cards, residential mortgage loans. “Our Private Banking experts have always been at the hub of these services. In our business, they help us assist other families achieve their own dreams of home ownership. In our private lives, knowing their assistance is just a phone call away allows us greater freedom to be active in the family activities that make our life special—band trips, coaching sports, scouting mentorship, science fairs, speech tournaments, drama performances, campouts, and sendoffs to college. “Our Private Banking team, including Stephen Brock, Vicky Taylor, Scott Tanaka, Neill Char, and Kim Choy, make us feel a part of a much bigger family and help simplify our crazy, complicated, hectic lives. Mahalo FHB Private Banking!” — Haunani Lemn 1991 First Hawaiian acquires First Interstate Bank of Hawaii, followed by 1993 acquisition of Pioneer Federal Savings Bank. 1515 “The Aloha Care packages we made will go to the 100 youngest sailors aboard the USS Chafee. Aboard ship a lot of people don’t have much family support. They don’t get a lot of care packages. Packages like the ones we sent provide a reminder of home and an important break from routine.” Raoul Magana, FHB Bank Vice President (standing, above left), who organized the project for Chafee sailors, is also a lieutenant commander in the U.S. Navy Reserve. He was activated and deployed to Afghanistan shortly after the project. “Thanks, First Hawaiian Bank, from the bottom of our hearts. It’s awesome to see 100-plus bankers giving their time on a Saturday, wading through the water, lugging coral and lava rock to restore the wall and backbone of He‘eia Fishpond. This fishpond was built 800 years ago by community members. The heavy work by First Hawaiian volunteers will help make sure it lasts another 800.” Keli‘i Kotubetey Assistant Executive Director, Paepae o He‘eia “First Hawaiian’s paint-and-cleanup project at Mā‘ili Land Transitional Housing helps homeless families who had been living on the beach. Mā‘ili Land helps them get into permanent housing, earn a GED, find a job. It gives you goose bumps to see lives improve—especially the keiki. Without volunteers, Mā‘ili Land wouldn't be possible. First Hawaiian believes in the community; they get their hands dirty to help.” Terry Walsh CEO/President, Catholic Charities Hawai’i “The impact of their employees’ volunteerism is a testament to the corporate culture at First Hawaiian Bank, which engages its employees with the wider community. I was blown away by how many First Hawaiian people came out on a Saturday, giving their time and sweat to a small school like ours.” Kapono Ciotti CEO, Head of School, Wai‘alae Elementary Public Charter School 16 C A R I N G f o r C O M M U N I T Y "I was blown away by how many bank volunteers came out to help." Nearly 120 First Hawaiian bankers toted 15 tons of rock and coral—hand to hand, rock by rock and bucket by bucket—to help restore the walls of the ancient Hawaiian fishpond at He’eia. As Saturday dawn peeked over the Wai‘anae Range, 140 First Hawaiian volunteers were already working up a sweat painting and sprucing up Mā‘ili Land, a transitional housing program for homeless families. Thanks to First Hawaiian volunteers who dug, weeded, planted and poured concrete, Wai‘alae Elementary Public Charter School students have new garden beds for their “outdoor classroom,” where they learn how to live closer to the ‘aina (land). And 100 young sailors deployed aboard the destroyer USS Chafee had a mail-call surprise—Aloha Care packages of snacks, magazines and handwritten notes from bank volunteers. These were just four of the 19 projects completed by First Hawaiian’s Community Care employee volunteer program during 2017. Hundreds of bank volunteers put in nearly 13,000 hours on Community Care projects and helping community development organizations make neighborhoods better. Employees cleaned beaches and helped raise funds for nonprofits. Created warm blankets for the sick. Packed boxes for food banks. Collected school supplies for needy kids. And created a Fun Fair for youngsters. Along the way, they lived one of First Hawaiian’s Core Values: “Caring . . . a caring spirit, a sincere compassion, combined with the professional capability to help customers, each other and our communities.” 1994 Dynamite implosion levels bank’s headquarters. High-rise and neighboring Damon Building were razed to make way for 30-story First Hawaiian Center. 17 CONSOLIDATED STATEMENTS OF INCOME F I R S T H A W A I I A N , I N C . (dollars in thousands except per share amounts) I N T E R E S T I N C O M E Loans and lease financing Available-for-sale securities Other Total interest income I N T E R E S T E X P E N S E Deposits Short-term borrowings and long-term debt Total interest expense Net interest income Provision for loan and lease losses Net interest income after provision for loan and lease losses N O N I N T E R E S T I N C O M E Service charges on deposit accounts Credit and debit card fees Other service charges and fees Trust and investment services income Bank-owned life insurance Net gains on investment securities Other Total noninterest income N O N I N T E R E S T E X P E N S E Salaries and employee benefits Contracted services and professional fees Occupancy Equipment Regulatory assessment and fees Advertising and marketing Card rewards program Other Total noninterest expense Income before provision for income taxes Provision for income taxes Net income Core adjustments (Non-GAAP)(1) Core net income (Non-GAAP)(1) Core basic earnings per share (Non-GAAP)(1) Year Ended December 31, 2017 2016 $ 462,675 $  428,419 102,272 5,821 570,768 41,944 20 41,964 528,804 18,500 510,304 35,807 64,049 34,063 30,485 13,283 — 27,918 205,605 83,019 7,082 518,520 26,650 198 26,848 491,672 8,600 483,072 37,392 65,262 35,355 29,440 15,021 27,277 16,290 226,037 175,351 169,233 45,011 23,485 17,247 14,907 6,191 23,363 41,999 347,554 368,355 184,673 45,345 21,606 16,912 12,972 6,127 22,459 42,626 337,280 371,829 141,651 $ 183,682 $  230,178 46,684 (13,067 ) $  230,366 $  217,111 $  1.65 $ 1.56 Core diluted earnings per share (Non-GAAP)(1) $  1.65 $ 1.56 Basic weighted-average outstanding shares 139,560,305 139,487,762 Diluted weighted-average outstanding shares 139,656,993 139,492,608 Refer to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 for the Consolidated Financial Statements, including Report of Independent Registered Public Accounting Firm, thereon. (1) Core net income excludes certain gains, expenses and one-time items. See GAAP/Non-GAAP Reconciliation on page 20 of this Annual Report for reconciliations of core net income, core basic earnings per share and core diluted earnings per share to comparable GAAP measures. 18 CONSOLIDATED BALANCE SHEETS F I R S T H A W A I I A N , I N C . Cash and due from banks $ 367,084 $  253,827 Year Ended December 31, 2017 2016 L O A N S A N D L E A S E S (I N BI LLI ON S) Total Loans & Leases (12/31/17): $12.3 billion 5-Year Compound Annual Growth Rate: 6.4% (dollars in thousands) A S S E T S Interest-bearing deposits in other banks Investment securities Loans and leases Less: allowance for loan and lease losses Net loans and leases Premises and equipment, net Other real estate owned and repossessed personal property Accrued interest receivable Bank-owned life insurance Goodwill Other intangible assets Other assets Total assets L I A B I L I T I E S A N D S T O C K H O L D E R S ’ E Q U I T Y Deposits: Interest-bearing Noninterest-bearing Total deposits Short-term borrowings Long-term debt Retirement benefits payable Other liabilities Total liabilities Stockholders’ equity Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive loss, net Treasury stock 667,560 5,234,658 12,277,925 137,253 12,140,672 289,215 329 47,987 438,010 995,492 13,196 355,258 798,231 5,077,514 11,520,378 135,494 11,384,884 300,788 329 41,971 429,209 995,492 16,809 362,775 $  20,549,461 $ 19,661,829 $  11,485,269 $ 10,801,915 6,126,853 17,612,122 — 34 134,218 270,536 5,992,617 16,794,532 9,151 41 132,904 248,716 $12 $11 $10 $9 $8 $7 $6 $5 $4 $3 $2 $1 . 8 2 2 1 $ . 2 5 1 1 $ . 2 7 0 1 $ . 3 0 0 1 $ 3 5 9 $ . 2 0 9 $ . 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 7 1 0 2 D I V E R S I F I E D L O A N & L E A S E P O R T F O L I O 13% Consumer 33% Residential Real Estate 26% Commercial 27% Commercial Real Estate 18,016,910 17,185,344 1% Other 1,396 2,488,643 139,177 (96,383 ) (282 ) 1,395 2,484,251 78,850 ) (88,011 — Total stockholders’ equity 2,532,551 2,476,485 Total liabilities and stockholders’ equity $  20,549,461 $  19,661,829 Refer to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 for the Consolidated Financial Statements, including Report of Independent Registered Public Accounting Firm, thereon. 1996 First Hawaiian moves into new corporate headquarters—First Hawaiian Center, state’s tallest building at 428 feet, 11½ inches. It’s designed to sway lightly in heavy winds. 19 GAAP/NON-GAAP RECONCILIATION 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. Non-GAAP measures have limitations as analytical tools and investors should not consider them in isolation or as a substitute for analysis of our financial results or financial condition as reported under GAAP. The following table provides a reconciliation of net interest income, noninterest income, noninterest expense and net income to their “core” Non-GAAP financial measures: (dollars in thousands except per share data) Net interest income Core net interest income (Non-GAAP) Noninterest income Gains on sale of securities Gains on sale of Visa stock Gains on sale of real estate and other assets Core noninterest income (Non-GAAP) Noninterest expense One-time items(a) Core noninterest expense (Non-GAAP) Net income Gains on sale of securities Gains on sale of stock (Visa/MasterCard) Gains on sale of real estate and other assets One-time items(b) Tax reform bill Tax adjustments(c) Total core adjustments Core net income (Non-GAAP) Year Ended December 31, 2017 2016 $ 528,804 $  491,672 $ 528,804 $  491,672 $ 205,605 $  226,037 — — -6,922 -4,566 -22,678 — $ 198,683 $  198,793 $ 347,554 $  337,280 -5,457 342,097 -6,220 331,060 $ 183,682 $  230,178 — — -6,922 5,457 47,598 551 46,684 -4,566 -22,678 — 6,220 — 7,957 -13,067 $ 230,366 $  217,111 Core basic earnings per share (Non-GAAP) $  1.65 $   1.56 Core diluted earnings per share (Non-GAAP) $  1.65 $   1.56 (a) Adjustments that are not material to our financial results have not been presented for certain periods. (b) One-time items include salaries and benefits stemming from the Tax Cuts and Jobs Act and initial public offering related costs. (c) Represents the adjustments to net income, tax effected at the Company’s effective tax rate for the respective period, exclusive of one-time tax reform bill expense. Note (1): Core net interest margin is a Non-GAAP financial measure. We compute our core net interest margin as the ratio of core net interest income to average earning assets. For a reconciliation to the most directly comparable GAAP financial measure for core net interest income, see GAAP/Non-GAAP Reconciliation above. Note (2): Core efficiency ratio is a Non-GAAP financial measure. We compute our core efficiency ratio as the ratio of core noninterest expense to the sum of core net interest income and core noninterest income. For a reconciliation to the most directly comparable GAAP financial measure for core noninterest expense, core net interest income and core noninterest income, see GAAP/Non-GAAP Reconciliation above. Note (3): Core return on average total assets is a Non-GAAP financial measure. We compute our core return on average total assets as the ratio of core net income to average total assets. For a reconciliation to the most directly comparable GAAP financial measure for core net income, see GAAP/Non-GAAP Reconciliation above. Note (4): Core return on average total stockholders’ equity is a Non-GAAP financial measure. We compute our core return on average total stockholders’ equity as the ratio of core net income to average total stockholders’ equity. For a reconciliation to the most directly comparable GAAP financial measure for core net income, see GAAP/Non-GAAP Reconciliation above. 20 P H I L A N T H R O P Y "We know First Hawaiian is in our corner" “Rehabilitation Hospital of the Pacific (REHAB), the only inpatient medical rehabilitation facility in Hawai‘i, is in the business of helping people rebuild their lives and return home. We were able to complete our recent renovations with the support of First Hawaiian and its foundation. In addition to helping us with funding, First Hawaiian’s senior managers have devoted countless hours to leadership on the REHAB Board of Directors.” — REHAB President & CEO Dr. Timothy J. Roe, MD, MBA As Hawai‘i’s oldest bank, First Hawaiian has an especially strong sense of aloha for the communities we serve. REHAB Hospital is among more than 400 nonprofits which benefited from our generosity in 2017. All told, the bank, our employees and First Hawaiian Bank Foundation made philanthropic contributions totaling $4.2 million to schools, hospitals and other charitable organizations in Hawai‘i, Guam and Saipan to support education, health care, human services and the arts. Our employees donated a record $777,125 to our 11-year-old Kōkua Mai in-house drive which helps dozens of charities. From tellers to vice presidents to senior management, 99% of employees participated. Also, bank employees regularly donate time as board members of dozens of nonprofits. “First Hawaiian helps us to be our patients’ safety net. Our longstanding relationship helps serve as a foundation for REHAB. We know First Hawaiian is in our corner.” — Dr. Timothy J. Roe, MD, MBA 2001 First Hawaiian, through its parent, becomes a subsidiary of BNP Paribas, one of the world’s largest and strongest banks with operations in over 70 countries. 21 SENIOR MANAGEMENT Christopher L. Dods Executive Vice President, Consumer Banking & Marketing Group Mitchell E. Nishimoto Executive Vice President, Retail Banking Group Gina O.W. Anonuevo Executive Vice President & Alan H. Arizumi Vice Chairman, Wealth Robert S. Harrison Chairman & Chief Chief Compliance Officer Management Group Executive Officer 22 Eric K. Yeaman President & Chief Operating Officer Iris Y. Matsumoto Executive Vice President, Human Resources Division Ralph M. Mesick Executive Vice Lance A. Mizumoto Executive Vice Joel E. Rappoport Executive Vice President, President & Chief Risk President, Commercial General Counsel & Officer Banking Group Corporate Secretary 2016 First Hawaiian, Inc. made its Initial Public Offering (IPO) of shares at Nasdaq. BNP Paribas, which has announced plans to sell all its stock over time, currently owns 62% of First Hawaiian, Inc. shares. 23 Alyssa S.N. Hostelley Business Services Division Bryan I. Shigezawa Treasury & Investment Division SENIOR OFFICERS First Hawaiian Bank EXECUTIVE VICE PRESID ENTS Tony K.F. Au Residential Real Estate Division Derek A. Baughman Enterprise Technology Management Neill A. Char Private Banking Division and Wealth Advisory Division Michael A. Coates Enterprise Operations Services Division Dawn Hofmann Corporate Banking Division Keethe T. Koyanagi Chief Credit Officer James W. Mills Service Delivery Division Curt T. Otaguro Digital Banking Division SENIOR VICE PR ES IDEN TS Benjamin K. Akana Dealer Division Joanne H. Arizumi Main Banking Region Darlene N. Blakeney Corporate Banking Division Joyce W. Borthwick Residential Real Estate Division Sharon S. Brown Community Relations Division Martha L. Camacho Waipahu Area Paula C.H. Chang Dealer Division Darrick J.M. Ching Consumer Branch Banking Division Song H. Choi Marketing Communications Division Shirley M. Durham Enterprise Operations Services Division Jerome K. Fukuhara Management Reporting & Analysis Division Glenn T. Goya Makiki Area Calvin K. Hangai Controller Bradford L. Harrison Wealth Advisory Division Kevin S. Haseyama President’s Office Gregory S. Hester IT Division Jeffrey N.M. Higashi Pearlridge Area Gregg M. Hirano Card Services Division Theresa A. Hirata Wealth Management Service Center Shigeo Hone Japan Business Development David A. Honma Hawai‘i Region Office Stephen E.K. Kaaa Waikīkī Area Leland K. Kahawai Kahului Branch Brian M. Kakihara Maui Region Office James S. Kaneshiro Enterprise Operations Services Division Kent R. Lau Main Banking Region Tricia K.F. Lee Corporate Compliance Division George C.K. Leong, Jr. Commercial Real Estate Division Kenneth L. Miller Institutional Advisory Services Jody J. Mukaigawa Kapi‘olani Banking Region Candice Y. Naito O‘ahu Region Conrado Figueroa Western Region Dealer Center Lea M. Nakamura Risk Management Group Paulette L. Franklin Credit Administration Division Vernon Y. Nakamura Credit Administration Division John S. Fujimoto Controller’s Division Cameron W. Nekota Bank Properties Division 24 Michael T. Nishida Enterprise Information Security Jeffrey S. Ventura Windward Area Daniel A. Nishikawa Commercial Real Estate Division Glenn N. Wachi Kapi‘olani Banking Region Todd T. Nitta Corporate Banking Division Wesley M. Wakamura Kapi‘olani Banking Region Todd D. Noia Credit Administration Division Derek M.S. Wong Credit Products Department Glen R. Okazaki Service Delivery Division Kendall J.H. Wong Kalihi Area Anna Ono Audit Division Vernon Y.C. Wong Wealth Advisory Division Carol M. Ono Human Resources Division Brian K. Yamase Kaua‘i Region Office Mark F. Oyadomori Wealth Advisory Division Eric B. Yee Private Banking Division David K. Rair Legal & Corporate Services Division Sherri Y. Yim Management Reporting & Analysis Division Joyce Y. Sakai Commercial Real Estate Division Eliza E. Young Credit Department Alethea A. Seto Sales, Service & Retail Training Division Guy J. Shindo Commercial Real Estate Division Gregory J. Sitar Kāhala Area Susan A. Strong Omni Channel Center Wayne K. Suehiro University Area Lynn M. Takahashi Private Banking Division Mark S. Taylor Risk Analysis Division Michael G. Taylor Wealth Advisory Division Robert N. Taylor Risk Management Group Elizabeth L. Tom Private Banking Division Lisa A. Tomihama Main Banking Region Michael A. Tottori Wealth Advisory Division Jaylene S.L. Tsukayama Digital Banking Division Edward G. Untalan Guam & CNMI Region Office First Hawaiian Leasing, Inc. Robert S. Harrison Chairman Lance A. Mizumoto Chief Executive Officer Darlene N. Blakeney President Brian Y.C. Lau Senior Vice President Bishop Street Capital Management Kenneth L. Miller Chairman, Chief Executive Officer, Chief Investment Officer & Director of Equity Jennifer C.M. Carias President Ryan S. Ushijima Senior Vice President & Chief Compliance Officer First Hawaiian Bank Foundation Robert S. Harrison Chairman Walter A. Dods, Jr. Chairman Emeritus Sharon S. Brown President K A U A ‘ I ( 7 ) K A U A ‘ I ( 7 ) Lihu‘e Lihu‘e O ‘ A H U ( 3 4 ) O ‘ A H U ( 3 4 ) Kailua Kailua Honolulu Honolulu W W N N S S E E M A U I ( 7 ) M A U I ( 7 ) Lāna‘i City Lāna‘i City Wailuku Wailuku L Ā N A ‘ I ( 1 ) L Ā N A ‘ I ( 1 ) G U A M ( 3 ) G U A M ( 3 ) Hagatna Hagatna T H E 6 2 B R A N C H E S o f T H E 6 2 B R A N C H E S o f H A W A I ‘ I ( 8 ) H A W A I ‘ I ( 8 ) S A I P A N ( 2 ) S A I P A N ( 2 ) F I R S T H A W A I I A N B A N K F I R S T H A W A I I A N B A N K Hilo Hilo BOARDS O F DIRECTORS Kailua-Kona Kailua-Kona Robert S. Harrison   Chairman and Chief Executive Officer, First Hawaiian Bank Allen B. Uyeda   Chief Executive Officer (Retired), First Insurance Company of Hawaii, Ltd. First Hawaiian, Inc. Board of Directors First Hawaiian Bank Board of Directors Robin K. Campaniano President and Chief Executive Officer (Retired), AIG Hawaii Insurance Company Matthew J. Cox   Chairman and Chief Executive Officer, Matson, Inc. Robert P. Hiam President and Chief Executive Officer (Retired), Hawaii Medical Service Association W. Allen Doane   Chairman and Chief Executive Officer (Retired), Alexander & Baldwin, Inc. Donald G. Horner Partner, Malu Investments Walter A. Dods, Jr. Chairman and Chief Executive Officer (Retired), First Hawaiian Bank David C. Hulihee Chairman and President, Royal Contracting Company, Ltd. Bert T. Kobayashi, Jr. Senior Partner, Kobayashi, Sugita & Goda Faye W. Kurren President and Chief Executive Officer (Retired), Hawaii Dental Service Leighton S. L. Mau President and Chief Operating Officer, Waikiki Business Plaza, Inc. Michael Shepherd   Chairman, BNP Paribas USA, Inc., BancWest Corporation, and Bank of the West Eric K. Shinseki General, U.S. Army (Retired) Michael K. Fujimoto Chairman and Chief Executive Officer, HPM Building Supply Thibault Fulconis   Vice Chairman, BancWest Corporation Chief Operating Officer and Vice Chairman, Bank of the West Gérard Gil   President, GSG Consulting Senior Advisor (Retired), BNP Paribas Jean-Milan Givadinovitch   Head of Op.RISK Framework Design and Strategy, BNP Paribas FSC MEMBER FDIC Michel Vial   Head of Group Strategy and Development, BNP Paribas Jenai S. Wall Chairman and Chief Executive Officer, Foodland Super Market, Ltd. Craig Scott Wo Owner/Executive Team, C. S. Wo & Sons, Ltd. Albert M. Yamada Vice Chairman, Chief Administrative Officer and Secretary (Retired), First Hawaiian Bank Eric K. Yeaman President and Chief Operating Officer, First Hawaiian Bank Directors who retired during 2017: Paul Mullin Ganley Warren H. Haruki John A. Hoag Dr. Richard R. Kelley Dee Jay A. Mailer John K. Tsui S H A R E H O L D E R I N F O R M A T I O N CORPORATE HEADQUARTERS First Hawaiian, Inc. 999 Bishop Street, Honolulu, Hawai‘i 96813 TRANSFER AGENT AND REGISTRAR American Stock Transfer & Trust Company LLC, 6201 15th Avenue, Brooklyn, NY 11219 help@astfinancial.com COMMON STOCK LISTING: FHB The common stock of First Hawaiian, Inc. is traded on the Nasdaq Global Select Market under the ticker symbol FHB. INQUIRIES Shareholders with questions about stock transfer services or share holdings may contact American Stock Transfer & Trust Company LLC, by calling (800) 937-5449, visiting www.astfinancial. com, or via email at help@astfinancial.com. Beneficial stockholders with shares held by a broker in the name of a brokerage house should contact their broker. Investor Relations Contact: Kevin Haseyama (808) 525-6268 | ir@fhb.com Media Contact: Susan Kam (808) 525-6254 | skam@fhb.com CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report 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 Annual Report on Form 10-K for the Year Ended December 31, 2017 filed with the Securities and Exchange Commission. 

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