FHB is the largest bank in Hawaii with a 36.9% deposit market share. It benefits from operating in Hawaii's economically resilient market, driven by tourism, real estate, and military spending. FHB has a low-cost deposit base and efficient 48.3% efficiency ratio. It is well-positioned for rising interest rates due to asset sensitivity and plans to reposition securities into higher-yielding assets. Some risks include economic downturns and BNP Paribas continuing to divest its majority stake, though the latter could allow higher capital returns.

1. Long First Hawaiian Inc. (NASDAQ: $FHB) Memo
Company Description:FirstHawaiian Inc. [FHB] is a holdingcompany for First Hawaiian Bank. The bank provides a bankingservices to
consumer and commercial customers. The company offers checking, savings,and time depositaccounts; CDs; and creditand debit cards.
It provides commercial and real estate loans;and consumer loans,such as mortgages,auto finance,small businessloans,and student
loans.The firm offers wealth management services and privatebanking. Further, itprovides long-term careand disability insurance,
business insurance, investment products, trust and estate services;and onlineand mobile banking. FirstHawaiian serves its clients
through 62 branches and 311 ATMs in Hawaii,Guam, and Saipan.The bank changed its name from BancWest Corp to FirstHawaiian,Inc.
in April 2016.The bank was founded in 1858, is headquartered in Honolulu,Hawaii,and operates as a subsidiary of BNP ParibasSA.
Thesis / Key Points
 FHB is the Clear Leader in an Oligopoly, Niche Market
o America’s megabanks (Chase, Wells Fargo, BOA, Citigroup) have no presence in Hawaii because of Hawaii's distance from
the mainland, its relatively small population (1.4M), high real estate costs, and stiff local competition.
o Four local Hawaiian banks control about 90% of all deposits in the Aloha state. Hawaiian consumers also display a high
degree of loyalty to their financial institution, which makes it very difficult for out-of-state banks to enter the market.
o Furthermore, the Hawaiian banking market is dominated by First Hawaiian (36.9% market share of deposits) and the Bank
of Hawaii (32.4% market share of deposits).
o First Hawaiian has had the #1 deposit market share in Hawaii since 2004 and has been further solidifying its lead over the
Bank of Hawaii as FHB’s deposits market share increased from 36% in 2014 to 36.9% in 2015 while BOH’s deposit market
share decreased from 33.2% in 2014 to 32.4% in 2015.
 FHB Operates in an Economically-Dynamic, Recession-Resistant Geographical Area.
o Hawaii’s resilienteconomy is supposed by three firm pillars:its world-classtourism industry, robust real estate market, and
recurring military and governmental spending on the islands.
o Hawaii’s main unemployment indicators — both the standard rate and the broader U6 measure — are consistently lower
than their national counterparts. As of Sept. 2016, Hawaii had the 5th lowest unemployment rate of any U.S. state (3.2%).
o FHB has plenty of runway to increase its top-line through productive loan growth (10-year CAGR of 8%). FHB has banking
relationships with 77% of Hawaii's top 250 companies and the bank has a solid team of experienced full -service bankers.
 FHB is a Low-Cost Provider with Excellent Control of its Costs
o FHB efficiency ratio (expenses/revenue) is a super-low 48.3% compared to its banking peers’ average efficiency ratio of
62.4%. FHB’s efficient cost structure and low-cost deposit base helps the bank achieve above-average profitability.
o FHB has fewer branches than its key competitor, Bank of Hawaii, manages its branches more efficiently and also owns the
real estate for all its branches which helps the bank avoid paying steep rents.
o FHB has less need for spending on advertising, thanks to the strength of its core banking franchise and customer loyalty.
 FHB’s Net Interest Margin will Benefit from the Bank’s Above-Average Asset Sensitivity and Inexpensive Deposit Funding
o Out of its $18.89B in tangible assets, FHB has over $14B in deposits and 34% of these deposits ($5.80B) are non-interest
bearing. FHB also has plenty of excess liquidity to invest due to its low loan-to-deposit ratio of just 67%, compared to the
national average of 79% for all U.S. banks.
o FHB, as opposed to its rival BOH, prefers to reinvest its deposits in commercial and consumer loans with high yields rather
than buy low-yielding government securities. FHB's balance sheet also has an above-average sensitivity to rises in interest
rates because of a high share of variable-rate Commercial and Industrial loans.
o Management plans to increase the yield of the bank's securities portfolio, looking to reposition around $3B before 2017
into longer-duration, higher-yielding securities which is bullish for the bank's Net Interest Margin.
Misperception
 First Hawaiian is geographically constrained to Hawaii and Pacific Islands
o 20% of FHB’s loan portfolio comes from the mainland.
o FHB has a $1.1B mainland U.S. shared national credit portfolio and 58% of FHB’s auto dealer flooring loans were to
dealers in California in Q1 2016.
o FHB’s credit exposure to the mainland is much higher than its rival Bank of Hawaii.
o The shared national credit portfolio allows FHB to geographically diversity to mitigate risk.
o FirstHawaiian hasbeen in the auto dealer flooringfor over 35 years and the company expanded its auto dealer flooring
business to the mainland in 1986.
 The Hawaiian Economy is Highly Vulnerable to Economic Downturns which Puts FHB in a Precarious Position
o The Hawaiian economy has remained steady through economic cycles.
o Honolulu,where FHB is headquartered, was named among the top ten most ‘recession-proof’cities in the U.S., accordingto
a MetroMonitor report out of The Brookings Institution.
o Hawaii’s Real GDP is expect to grow at least2% through 2018.
o Hawaiian tourismindustry isexpected to continue to increasewith total visitorsand visitor expenditures expected to grow
by 5.8% and 10.9% respectively, through 2018.
Name: Brian Murray Phone #: 757-373-1518 College/School:Arts& Sciences Year: 3rd

2. Long First Hawaiian Inc. (NASDAQ: $FHB) Memo
o FirstHawaii also has had strongcreditperformance through the business cycleand was ableto grow its loan book from
$6.5B in 2007 to $8Bin 2009.
o Duringthe height of the financial crisis,FHB’s ratio of its Net Charge Offs to Average Loans was just0.73% compared to
1.15% for its publically-traded bankingpeers (U.S. Banks with $10B-50Bin total assets).
VAR
 Many of my family members on my maternal side live in Oahu. I called my Grandmother who lives in Oahu and is a customer
about FHB and asked her about how the bank treated her as a customer. Admittedly she doesn’t know too much about finance
but shehad this to say:“I likethem [FirstHawaiian].Thetellers are very polite. I am very satisfied as a customer. No complaints.
They have been good to us.”
 My Grandmother and Grandfather have been depositors of FirstHawaiian since they moved back to Hawaii from Texas in 1999.
My Grandmother is just a checking account customer (no interest bearing deposits). I also know my great-uncle has a First
Hawaiian credit card but is a depositor at the Bank of Hawaii.
 Hawaii-based banks havehistorically maintained a meaningful depositpricingadvantagevs. broader U.S. banks because of their
strong brands which generate consumer loyalty.
How It Plays Out
 Expect FHB’s Net Interest Margin to benefit if rates continue to rise and the yield curve keeps steepening.
 FHB’s Net Interest Margins should also expand regardless of what rates do as it repositions its excess capital into higher-
yielding, longer duration securities.
 Watch for BNP Paribas continued divestment of its large, majority stake in FHB to public shareholders. The release of the FHB
from the Comprehensive Capital Analysis & Review will allow the bank to either invest or return its excess capital to
shareholders.
 Keep a closeeye on the political arena,particularly related defense spending and financial regulation reform. Total government
expenditures represents more than 20% of the Hawaii’s GDP so the region is more sensitiveto changes in government spending.
 Hawaii’s economy should continue to prosper and would accelerate if the corporate tax rate is cut, defense spending increases,
or discretionary income rises (more tourism on the Islands).
Risks / What Signs Would Indicate We Are Wrong?
 Leading Economic Indicators Pointing to an Economic Downturn
o Although FHB has historically managed credit risk better than its peers and outperformed during downturns, an economic
recession would adversely FHB’s banking business.
 Hawaii may Have Trouble Diversifying Away the Three Pillars of its Economy (Defense, Tourism, Construction)
o At a recent Hawaii Businessroundtable, Peter Ho, Bank of Hawaii’s CEO, seemed to describea challengingfuture for Hawaii
as military spending wanes and the visitor industry seems to reaching a plateau.
o Mr. Ho explained, “Growth will have to come from another engine, and we’re looking for that engine now.” Mr. Ho later
suggested that Hawaii,with its high-costof energy, could particularly benefit from investment in renewable energy sources.
 BNP Paribas is Likely to Continue Divesting its Nearly 85% Ownership Stake in FHB
o Investors could anticipate BNP Paribas’ divestment which would create a temporary headwind for FHB’s stock price,
especially if the French bank decides to sell its stake all at once.
o However, BNP Paribas’ divestment of its FHB stake is actually bullish for First Hawaiian because that means it won’t be
subject to the heightened regulatory and capital requirements of the annual Comprehensive Capital Analysis and Review
(CCAR), a regulatory scheme that only applies to the largest financial institutions in the U.S. (in this case, BNP Paribas).
o Analysts believe that once FHB is no longer subject to the CCAR, its superior earnings profile and stability would allow FHB
to target capital return closer to 100 % of earnings, nearly double its current payout ratio of about 50%.
 Returning more than 100% of Net Income is not a first for FHB: In fact, in 2012, First Hawaiian returned all its
profits, and then some, as dividends to its then single shareholder, BNP Paribas.
Signposts/ Follow-Up
 Scrutinize the duration and YTM of the securities that FHB
is investing its excess capital in to improve its NIM.
 Keep track of the credit quality of FHB’s loan portfolio by
monitoring FHB’s non-performing assets to total loans
ratio (0.09% in Q3 ’16) and net charge-offs to average
loans ratio (0.12% in Q3).
 Monitor further improvements in Hawaii’s unemployment
rate and GDP growth rate.
 Check up on whether Hawaii’s economy can substantially
diversify away from its three pillars.
 Monitor whether First Hawaiian maintains and grows its
#1 deposit market share position in Hawaii.
Important Company Financial Data (Accurate asof 12/2/16)
Ratios,financial statement data, projections,etc.
o Market Cap: $4.4B
o Enterprise Value: $3.23B
o EV/EBITDA: 11.93
o TrailingP/E:19.72
o Price/Book: 1.74
o Annual Dividend Yield: 2.67%
o 52-Week Stock PriceRange: $23.00- $31.90
o ROA: 1.14%
o Core Return on Average TangibleEquity: 14.53%
o Net Interest Margin: 2.87%
o The Efficiency Ratio: 48.3%

3. Long First Hawaiian Inc. (NASDAQ: $FHB) Memo
Structure of First Hawaii’s Ownership
Geographical Breakdown of FHB’s Loan portfolio

4. Long First Hawaiian Inc. (NASDAQ: $FHB) Memo
List of Hawaiian Banks with the Largest Deposit Market Share
First Hawaiian Bank’s Loan Portfolio Breakdown by Loan Type

5. Long First Hawaiian Inc. (NASDAQ: $FHB) Memo
FHB’s Cost of its Deposit Base (0.16%)
Breakdown of FHB’s Deposits
FHB’s Historical Efficiency Ratio