Long First Hawaiian Inc. (NASDAQ: $FHB) MemoName: Brian Murray Phone #: 757-373-1518 College/School: Arts & Sciences Year: 3rd

Company Description: First Hawaiian Inc. [FHB] is a holding company for First Hawaiian Bank. The bank provides a banking services to consumer and commercial customers. The company offers checking, savings, and time deposit accounts; CDs; and credit and debit cards. It provides commercial and real estate loans; and consumer loans, such as mortgages, auto finance, small business loans, and student loans. The firm offers wealth management services and private banking. Further, it provides long-term care and disability insurance, business insurance, investment products, trust and estate services; and online and mobile banking. First Hawaiian serves its clients through 62 branches and 311 ATMs in Hawaii, Guam, and Saipan. The bank changed its name from BancWest Corp to First Hawaiian, Inc. in April 2016. The bank was founded in 1858, is headquartered in Honolulu, Hawaii, and operates as a subsidiary of BNP Paribas SA.Thesis / Key Points

FHB is the Clear Leader in an Oligopoly, Niche Marketo 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 resilient economy is supposed by three firm pillars: its world-class tourism 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 5 th 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 First Hawaiian has been in the auto dealer flooring for 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., according to

a MetroMonitor report out of The Brookings Institution.o Hawaii’s Real GDP is expect to grow at least 2% through 2018.o Hawaiian tourism industry is expected to continue to increase with total visitors and visitor expenditures expected to grow

by 5.8% and 10.9% respectively, through 2018.

Long First Hawaiian Inc. (NASDAQ: $FHB) Memoo First Hawaii also has had strong credit performance through the business cycle and was able to grow its loan book from

$6.5B in 2007 to $8B in 2009.o During the height of the financial crisis, FHB’s ratio of its Net Charge Offs to Average Loans was just 0.73% compared to

1.15% for its publically-traded banking peers (U.S. Banks with $10B-50B in 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 she had this to say: “I like them [First Hawaiian]. The tellers 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 First Hawaiian 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 have historically maintained a meaningful deposit pricing advantage vs. 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 close eye 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 sensitive to 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 Business roundtable, Peter Ho, Bank of Hawaii’s CEO, seemed to describe a challenging future 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-cost of 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 as of 12/2/16)Ratios, financial statement data, projections, etc.

o Market Cap: $4.4Bo Enterprise Value: $3.23Bo EV/EBITDA: 11.93o Trailing P/E: 19.72o Price/Book: 1.74o Annual Dividend Yield: 2.67%o 52-Week Stock Price Range: $23.00- $31.90o ROA: 1.14%o Core Return on Average Tangible Equity: 14.53%o Net Interest Margin: 2.87%o The Efficiency Ratio: 48.3%

Long First Hawaiian Inc. (NASDAQ: $FHB) Memo

Structure of First Hawaii’s Ownership

Geographical Breakdown of FHB’s Loan portfolio

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

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

Long First Hawaiian Inc. (NASDAQ: $FHB) Memo