First Hawaiian, Inc.

FHB: NASDAQ

First Hawaiian, Inc. is a full service bank headquartered in Hawaii, ranked number #1 in deposit share with 37% market share in the state.[1] The bank was spun out of BNP Paribas in August 2016, with BNP Paribas retaining 82.6% ownership in the bank.[2]

Investment thesis

We believe First Hawaiian has industry leading metrics on credit compared to US banks $15 billion to $49 billion in assets.[3] We believe credit is pristine, with non-performing assets (NPA’s) totaling .07% of assets, compared to U.S banks peers in asset size mentioned above at .63% NPA’s.[4]
The company saw peak NPA’s in 2008, with First Hawaiian Bank at .63%.[5], which we believe is low. The pristine credit should provide downside protection. FHB is also seeing what we believe is strong loan growth at 6% annualized as of the September 6th quarter.[6]

Confirmation through research

First Hawaiian clearly has #1 market share in deposits, consumer loans, and commercial loans in Hawaii.[7] We believe Hawaii has favorable demographics, and that the customer base is very loyal.[8] We believe the tier 1 risk based capital ratio is conservative at 12.19% as of the last twelve months.[9] First Hawaiian has banking relationships with 77% of Hawaii’s top 250 companies.[10] Large banks like Wells Fargo Bank of America or Citi have either not entered or left Hawaii from a retail presence perspective, showing what we believe is the moat of the local banks on the island.[11]

Variant Perception

First Hawaiian sells at a discount on a price to book and price to earnings to Bank of Hawaii.[12] We believe this discount is due to the overhang of BNP Paribas’ ownership. BNP Paribas owned over 82% of the bank at IPO in 2016, and has been selling as it today owns 16.2%.[13] Once BNP Paribas sells its last 16.2% in First Hawaiian, we believe the selling pressure will abate, and the bank will sell for a similar price to book, and price to earnings, as Bank of Hawaii. We also believe First Hawaiian has an above average dividend yield at 3.5%, compared to peers with over $15 billion in assets, which we believe should add to the stock’s total return.[14]