First Hawaiian Inc. (NASDAQ:FHB) is a bank holding company that has been a prominent fixture in the Hawaiian banking industry for over 160 years. Tracing its roots back to 1858, the company has evolved from its humble beginnings as the Bishop Company to become one of the largest and most respected financial institutions in the state.
Founded in the Kingdom of Hawaii, First Hawaiian has weathered significant economic and political changes, emerging as a resilient and adaptable player in the ever-evolving financial landscape. The company's rich history is a testament to its unwavering commitment to serving the needs of its local community, while also expanding its reach to include mainland and international customers.
Today, First Hawaiian operates as the parent company of First Hawaiian Bank, its sole direct, wholly-owned subsidiary. The bank offers a comprehensive suite of banking services, including loans, deposit products, wealth management, insurance, trust, retirement planning, credit card and merchant processing services, to both consumer and commercial customers. With a strong presence across the state of Hawaii, Guam, and Saipan, the company has established itself as a market leader, catering to the diverse financial needs of its clients.
Historical Milestones
First Hawaiian Bank's history is marked by several significant milestones and transformations. In 1862, the bank's name was changed to Bishop & Company, and in 1895 it was rechartered as Bishop Trust Company. The bank continued to grow throughout the late 1800s and early 1900s, expanding its operations across the Hawaiian Islands. In 1947, the institution officially adopted the name First Hawaiian Bank, solidifying its identity as a prominent financial institution in the region.
A major turning point in the company's history came in 2001 when First Hawaiian Bank was acquired by BNP Paribas, a large global banking group based in France. This acquisition led to the formation of First Hawaiian Inc. as the bank holding company for First Hawaiian Bank. In 2016, First Hawaiian Inc. took another significant step by becoming a publicly traded company through an initial public offering, with BNP Paribas retaining a majority ownership stake.
Throughout its long history, First Hawaiian has demonstrated remarkable resilience, successfully navigating through various economic challenges, including the Great Depression, World War II, and the 2008 financial crisis. This ability to adapt and thrive in challenging times has been a hallmark of the company's operations and a key factor in its longevity.
Risk Management and Financial Strength
One of the key factors contributing to First Hawaiian's success is its prudent risk management practices. The company's management team has consistently demonstrated a disciplined approach to credit risk, with a focus on maintaining a well-diversified loan portfolio and stringent underwriting standards. This strategy has enabled the bank to navigate various economic cycles, including the recent challenges posed by the COVID-19 pandemic, while maintaining a strong financial position.
Financials
As of September 30, 2024, First Hawaiian reported total assets of $23.78 billion, a testament to the scale and breadth of its operations. The company's loan and lease portfolio stood at $14.24 billion, with a diverse mix of commercial, real estate, and consumer lending activities. The bank's deposit base, a crucial source of funding, amounted to $20.23 billion, further strengthening its liquidity position.
The company's commitment to financial discipline is also reflected in its robust capital ratios. As of September 30, 2024, First Hawaiian's Common Equity Tier 1 (CET1) capital ratio stood at 13.03%, well above the regulatory minimum, underscoring its ability to withstand potential economic headwinds and maintain a strong cushion to support future growth.
One of the standout aspects of First Hawaiian's performance is its consistent profitability. For the nine months ended September 30, 2024, the company reported net income of $177.63 million, demonstrating its ability to generate stable and sustainable earnings. This financial performance is further supported by a healthy net interest margin of 2.93% for the same period, highlighting the company's effective management of its interest-earning assets and liabilities.
For the most recent fiscal year (2023), First Hawaiian reported revenue of $805.32 million, net income of $234.98 million, operating cash flow of $255.03 million, and free cash flow of $239.04 million. In the most recent quarter (Q3 2024), the company achieved revenue of $201.317 million, net income of $61.492 million, operating cash flow of $59.042 million, and free cash flow of $69.890 million.
Notably, the company's net interest income increased by $3.9 million or 2.5% compared to the prior quarter, primarily due to higher earning asset yields which offset higher deposit costs. Noninterest income increased by $1.5 million or 2.9% due to higher credit and debit card fees and BOLI income, partially offset by lower other income.
Liquidity
First Hawaiian's strong liquidity position is evident from its robust deposit base of $20.23 billion as of September 30, 2024. This substantial deposit base provides the bank with a stable and cost-effective source of funding for its lending and investment activities. The company's liquidity management strategy ensures that it maintains sufficient liquid assets to meet its obligations and support its growth initiatives, even in challenging market conditions.
As of December 31, 2023, First Hawaiian held $1.74 billion in cash. The company's debt-to-equity ratio stood at 0.01051291016907493, while its current ratio and quick ratio were both 0.9533054832671324. First Hawaiian had $2.9 billion in remaining borrowing capacity from the Federal Home Loan Bank (FHLB) and $3.1 billion in undrawn line of credit available from the Federal Reserve Bank of San Francisco as of September 30, 2024, further bolstering its liquidity position.
Business Segments and Geographic Markets
First Hawaiian operates through three main business segments: Retail Banking, Commercial Banking, and Treasury and Other.
The Retail Banking segment offers a wide range of financial products and services to consumers and small businesses. These include various loan and lease products such as residential and commercial mortgage loans, home equity lines of credit and loans, automobile loans and leases, secured and unsecured lines of credit, installment loans, and small business loans and leases. The segment also provides deposit products like checking, savings, and time deposit accounts, as well as wealth management services. Retail Banking products and services are delivered through 48 banking locations throughout Hawaii, Guam, and Saipan.
The Commercial Banking segment focuses on offering commercial banking related products, including commercial real estate loans, commercial lease financing, secured and unsecured lines of credit, automobile loans and auto dealer financing, business deposit products, and credit cards. These products are primarily targeted at middle-market and large companies locally, nationally, and internationally.
The Treasury and Other segment encompasses the company's treasury business, which consists of corporate asset and liability management activities, including interest rate risk management. This segment includes the assets and liabilities and related interest income and expense of the treasury business, such as interest-bearing deposits, investment securities, federal funds sold and purchased, government deposits, short- and long-term borrowings, and bank-owned properties. The primary sources of noninterest income for this segment are bank-owned life insurance, net gains from the sale of investment securities, foreign exchange income, and management of bank-owned properties.
Geographically, First Hawaiian primarily operates in Hawaii, with some lending activities on the U.S. mainland, Guam, and Saipan. As of September 30, 2024, 68% of total loans and leases were in Hawaii, 24% in the U.S. mainland, 7% in Guam/Saipan, and 1% in other foreign locations.
Forward Guidance and Outlook
Looking ahead to the fourth quarter of 2024, First Hawaiian expects the net interest margin (NIM) to decline modestly and be around 2.9%. The company anticipates full-year 2024 expenses to be in the $500 million range. While specific guidance on loan growth for the full year 2024 was not provided, the company noted that due to unexpected payoffs in the third quarter, full-year loan growth is expected to be relatively flat.
First Hawaiian intends to resume share repurchases in the fourth quarter of 2024, with a $40 million authorization for 2024. The company maintains a minimum CET1 ratio target of 12%, and its current capital levels continue to grow due to strong earnings and a favorable AOCI change.
Technological Innovation and Future Outlook
In addition to its core banking operations, First Hawaiian has also made strategic investments in technology and digital capabilities to enhance its customer experience and operational efficiency. The company's commitment to innovation is evidenced by its ongoing initiatives to streamline internal processes, improve data analytics, and leverage emerging technologies to stay ahead of the curve in an increasingly digitized banking landscape.
Despite the challenges posed by the global pandemic, First Hawaiian has remained resilient, adapting its operations and strategies to navigate the evolving market conditions. The company's proactive measures, including prudent cost management and a focus on asset quality, have enabled it to maintain its strong financial footing and continue delivering value to its shareholders.
Looking ahead, First Hawaiian remains well-positioned to capitalize on the economic recovery and growth opportunities in its core markets. With a diversified business model, a strong balance sheet, and a seasoned management team, the company is poised to continue its legacy of excellence in the Hawaiian banking industry.