First Hawaiian, Inc. Reports Fourth Quarter and Full Year 2018 Financial Results and Increases Dividend by 8.3%

HONOLULU, Jan. 24, 2019 (GLOBE NEWSWIRE) -- First Hawaiian, Inc. FHB, ("First Hawaiian" or the "Company") today reported financial results for its fourth quarter and full year ended December 31, 2018.

Fourth Quarter Highlights

• Net income for the quarter ended December 31, 2018 was $60.0 million, or $0.44 per diluted share
• Core net income¹ for the quarter ended December 31, 2018 was $77.9 million, or $0.58 per diluted share
• 1.19% return on average total assets and 1.62% core return on average tangible assets ("ROATA")^1,2
• 9.77% return on average total stockholders' equity and 21.44% core return on average tangible stockholders' equity ("ROATCE")^1,2
• 3.8% quarterly loan growth, 12 basis point net interest margin ("NIM") expansion
• The Board of Directors increased the dividend by $0.02 per share, or 8.3%, and declared a quarterly dividend of $0.26 per share

"2018 was another milestone year for First Hawaiian as we celebrated our 160^th anniversary, and we capped it off with a great fourth quarter," said Bob Harrison, Chairman and Chief Executive Officer.  "We had solid core earnings, driven by strong growth in loans and deposits, expansion in the net interest margin and excellent asset quality.  We also continued to optimize our balance sheet by restructuring the investment portfolio in early January, which will be immediately accretive to income.  This action, along with the strong loan and deposit growth in the quarter, positions us well for 2019."

On January 23, 2019, the Company's Board of Directors declared a quarterly cash dividend of $0.26 per share, an increase of $0.02 per share from the dividend paid in December 2018.  The dividend will be payable on March 8, 2019 to shareholders of record at the close of business on February 25, 2019.

Earnings Highlights

Net income for the quarter ended December 31, 2018 was $60.0 million, or $0.44 per diluted share, compared to $67.4 million, or $0.50 per diluted share, for the quarter ended September 30, 2018, and $11.7 million, or $0.08 per diluted share, for the quarter ended December 31, 2017.  Core net income¹ for the quarter ended December 31, 2018 was $77.9 million, or $0.58 per diluted share, compared to $70.8 million, or $0.52 per diluted share, for the quarter ended September 30, 2018, and $59.2 million, or $0.42 per diluted share, for the quarter ended December 31, 2017. Net income for the full year 2018 was $264.4 million, or $1.93 per diluted share, compared to $183.7 million, or $1.32 per diluted share, for the full year 2017.  Core net income¹ for the full year 2018 was $286.7 million, or $2.09 per diluted share, compared to $230.4 million, or $1.65 per diluted share for the full year 2017.

Net interest income for the quarter ended December 31, 2018 was $144.0 million, an increase of $2.7 million compared to $141.3 million for the quarter ended September 30, 2018, and an increase of $9.1 million compared to $134.9 million for the quarter ended December 31, 2017.  The increase in net interest income compared to the third quarter of 2018 and fourth quarter of 2017 was due to higher average balances and yields on loans, higher yields on investment securities and lower average balances of time deposits, partially offset by higher rates on deposits, lower average balances of interest-bearing deposits in other banks and investment securities, and higher average balances of borrowings.  Net interest income in the quarter ended December 31, 2018 included the benefit from a $1.1 million premium amortization adjustment related to the investment securities.  Net interest income for the full year 2018 was $566.3 million compared to $528.8 million for 2017.  The increase in net interest income was primarily attributable to higher average balances and yields on loans, higher yields on investment securities and interest bearing deposits in other banks, and lower average balances of time deposits, partially offset by higher rates on deposits, lower average balances of interest-bearing deposits in other banks and investment securities, and higher average balances of borrowings.

NIM was 3.23%, 3.11% and 2.99%, for the quarters ended December 31, 2018, September 30, 2018 and December 31, 2017, respectively.

Results for the quarter ended December 31, 2018 included a provision for credit losses of $5.8 million compared to $4.5 million in the quarter ended September 30, 2018 and $5.1 million in the quarter ended December 31, 2017.  The provision for credit losses for the full year of 2018 was $22.2 million, compared to $18.5 million in 2017. 

Noninterest income was $33.1 million in the quarter ended December 31, 2018, a decrease of $14.3 million compared to noninterest income of $47.4 million in the quarter ended September 30, 2018 and a decrease of $21.2 million compared to noninterest income of $54.3 million in the quarter ended December 31, 2017.  The decrease in noninterest income compared to the prior quarter was due to the $24.1 million other than temporary impairment ("OTTI") losses on available-for-sale securities recognized as part of the investment portfolio restructuring and $2.6 million lower income from bank-owned life insurance ("BOLI"), partially offset by $11.1 million higher other noninterest income.  The increase in other noninterest income versus the prior quarter was primarily due to a $7.6 million mark-to-market adjustment associated with maturing cash flow hedges, $1.7 million higher swap fee income and $1.5 million related to intercompany taxes.   The decrease in noninterest income compared to the fourth quarter of 2017 was primarily due to the $24.1 million OTTI losses on available-for-sale securities and $1.6 million lower BOLI income, partially offset by $1.7 million higher other income, $1.4 million higher other service charges and fees and $1.2 million higher credit and debit card fees.  Other noninterest income in the fourth quarter of 2017 included a $4.3 million gain on sale of a bank property and $3.7 million related to intercompany taxes.  Noninterest income for full year 2018 was $179.0 million compared to $205.6 million for 2017.  The $26.6 million lower noninterest income in 2018 compared to 2017 was primarily due to the $24.1 million OTTI losses on available-for-sale securities, $4.1 million lower BOLI income, and $3.8 million lower service charges on deposit accounts and $1.4 million lower other noninterest income, partially offset by $4.3 million higher other service charges and fees and $1.7 million higher credit and debit card fees.   

Noninterest expense was $89.4 million for the quarter ended December 31, 2018, a decrease of $3.8 million from $93.1 million in the quarter ended September 30, 2018, and essentially unchanged from $89.9 million in the quarter ended December 31, 2017.  The third quarter of 2018 included an expense of $4.1 million in connection with an agreement in principle to resolve a class action suit regarding overdraft fees.  Excluding the legal expense in the third quarter, noninterest expenses in the fourth quarter of 2018 were essentially flat compared to the prior quarter.  Noninterest expense for full year 2018 was $365.0 million compared to $347.6 million in 2017, an increase of $17.4 million, primarily due to $4.8 million higher other expense, which includes the $4.1 million legal expense in the third quarter of 2018, $4.8 million higher contracted services and professional fees, $4.1 million higher salaries and employee benefits and $3.8 million higher occupancy expenses. 

The efficiency ratio was 50.5%, 49.4% and 47.5% for the quarters ended December 31, 2018, September 30, 2018 and December 31, 2017, respectively.  Core efficiency ratio¹ was 44.2%, 46.9% and 46.4% for the quarters ended December 31, 2018, September 30, 2018 and December 31, 2017, respectively.  The efficiency ratio for full year 2018 was 49.0% compared to 47.3% in 2017.  Core efficiency ratio¹ for full year 2018 was 46.6% compared to 47.0% in 2017.

The effective tax rate for the fourth quarter of 2018 was 26.8% compared with 26.0% in the previous quarter and 87.6% percent in the same quarter last year.  The provision for taxes in the fourth quarter of 2018 includes $1.5 million expense for intercompany taxes.  The provision for taxes in the fourth quarter of 2017 included a $47.6 million charge due to the revaluation of certain tax-related assets at the projected lower corporate tax rate resulting from the Tax Cuts and Jobs Act.  The effective tax rate for the full year 2018 was 26.2% compared with 50.1% in 2017.

Balance Sheet Highlights

Total assets were $20.7 billion at December 31, 2018, compared to $20.0 billion at September 30, 2018 and $20.5 billion at December 31, 2017.

The investment securities portfolio was $4.5 billion at December 31, 2018, compared to $4.6 billion at September 30, 2018 and $5.2 billion at December 31, 2017. 

Total loans and leases were $13.1 billion at December 31, 2018, up $475.7 million, or 3.8%, from $12.6 billion at September 30, 2018 and up $798.8 million, or 6.5%, from $12.3 billion at December 31, 2017.

The growth in loans and leases in the most recent quarter was due to increases in commercial and industrial ("C&I") loans of $239.5 million, residential real estate loans of $104.0 million, commercial real estate loans of $99.0 million, home equity loans of $22.1 million, construction loans of $14.0 million and consumer loans of $10.6 million, slightly offset by a $13.5 million decline in lease financing.  Compared to December 31, 2017, the growth in loans and leases was due to increases in commercial real estate loans of $323.2 million, residential real estate loans of $300.5 million, consumer loans of $76.0 million, C&I loans of $73.5 million and home equity loans of $49.1 million, partially offset by a $17.3 million decrease in lease financing and $6.2 million decrease in construction loans.

Total deposits were $17.2 billion at December 31, 2018, an increase of $460.8 million, or 2.8%, from $16.7 billion at September 30, 2018, and a decrease of $462.1 million, or 2.6%, compared to $17.6 billion at December 31, 2017.  The increase in deposits in the fourth quarter of 2018 included about $400.0 million of temporary, surge deposits that came in late in the quarter and is net of the $174.0 million reduction in public time deposits.  The decrease in deposit balances compared to December 31, 2017 was due to the reduction of public time deposit balances by approximately $960 million in 2018. 

Asset Quality

The Company's asset quality remained excellent during the fourth quarter of 2018. Total non-performing assets were $7.3 million, or 0.06% of total loans and leases and other real estate owned, at December 31, 2018, compared to non-performing assets of $11.3 million, or 0.09% of total loans and leases and other real estate owned, at September 30, 2018 and non­-performing assets of $10.2 million, or 0.08% of total loans and leases and other real estate owned, at December 31, 2017.

Net charge offs for the quarter ended December 31, 2018 were $5.3 million, or 0.16% of average loans and leases on an annualized basis, compared to $3.8 million, or 0.12% of average loans and leases on an annualized basis for the quarter ended September 30, 2018 and $5.2 million, or 0.17% of average loans and leases on an annualized basis for the quarter ended December 31, 2017.  Net charge-offs for the full year 2018 were $17.7 million, or 0.14% of average loans and leases, compared to net charge-offs of $16.7 million, or 0.14% of average loans and leases, in 2017.

The ratio of the allowance for loan and lease losses to total loans and leases was 1.08% at December 31, 2018 compared to 1.12% at September 30, 2018 and 1.12% at December 31, 2017. 

Capital

Total stockholders' equity was $2.5 billion at December 31, 2018, compared to $2.4 billion at September 30, 2018 and $2.5 billion at December 31, 2017.   

The tier 1 leverage, common equity tier 1 and total capital ratios were 8.72%, 11.97% and 12.99%, respectively, at December 31, 2018, compared with 8.42%, 12.09% and 13.14% at September 30, 2018 and 8.52%, 12.45% and 13.50% at December 31, 2017.

Balance Sheet Restructuring

In January of 2019, we sold approximately $898 million of lower yielding available-for-sale securities, resulting in an after-tax loss of approximately $17.6 million or 13 cents per diluted share to be recognized in the fourth quarter of 2018 and $2.1 million to be recognized in the first quarter of 2019. The weighted average yield on the securities sold was 1.72% with an estimated duration of 2.8 years. Proceeds from the sales were reinvested in debt securities issued by U.S. government agencies at a weighted average yield of 3.03% with an estimated duration of 2.2 years. The Company estimates the restructuring will result in approximately $6.1 million of after-tax earnings accretion in 2019 and that the payback period of the loss will be approximately two and a half years.

First Hawaiian, Inc. 

First Hawaiian, Inc. 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, 12:00 p.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:  7513429.  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 8:30 p.m. (Eastern Time) on February 4, 2019.  Access the replay by dialing (855) 859-2056 or (404) 537-3406 and entering the conference ID:  7513429.

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 include, but are not limited to, statements relating to the estimated 2019 earnings accretion and payback period of the loss in connection with the restructuring transactions described above, 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 (basic and diluted) 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 efficiency ratio, 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 efficiency ratio as the ratio of core noninterest expense to the sum of core net interest income and core noninterest income.  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 total 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 directly comparable GAAP measures.

¹ Core measurements are non-GAAP financial measures.  Core excludes certain gains, expenses and one-time items.  See Tables 13 and 14 at the end of this document for reconciliations of core measurements, including core net income, core efficiency ratio and core earnings per diluted share to the comparable GAAP measurements.
² ROATA and ROATCE are non-GAAP financial measurements.  See Tables 13 and 14 at the end of this document for reconciliations of average tangible assets and average tangible stockholders' equity to the most directly comparable GAAP measurements.