Good day, ladies and gentlemen and welcome to the First Hawaiian Inc. Q3 2017 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to Kevin Haseyama. Sir you may begin.

Thank you, Ashley. And thank you everyone for joining us as we review our financial results for the third quarter of 2017. With me today are Bob Harrison, Chairman and CEO, who is calling in from Japan, Eric Yeaman, President and COO; Mike Ching, CFO and Treasurer; and Ralph Mesick, Chief Risk Officer. We have prepared a slide presentation that we will refer to in our remarks today. The presentation is available for downloading and viewing on our website at fhb.com in the Investor Relations section. Before I turn things over to Bob, I'd like to direct you to Slide 2 and remind you that we may make forward-looking statements during today's call that are subject to risks, uncertainties and assumptions. For a more complete discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements, see our SEC filings, including our Form 10-K for the year ended December 31, 2016 which is available on our website and the SEC's website. We will also discuss certain non-GAAP financial measures. The appendix to this presentation contains reconciliations of these non-GAAP financial measures to comparable GAAP measures. And now I'll turn the call over to Bob, who'll provide you with third quarter highlights, starting on Slide 3.

Thank you, Kevin. Aloha everyone and thanks for joining us today. I’m pleased to report that we had a solid third quarter as loans, deposits and assets continued to grow at a record levels. Our performance measures remained strong and our credit quality remained excellent. Mike will go through the details of our financial results, so I’ll just touch on few highlights. Net income for the quarter was $58.4 million or $0.42 per diluted share, core net income was $57 million or $0.41 per diluted share and our Board of Directors declared a quarterly cash dividend of $0.22 per share payable on December 8, to shareholders record at the close of business on November 27, 2017. Loans and leases grew $87 million or 0.7% to $12.1 billion, while deposits increased to $143 million or 0.8% to $17.6 billion. Eric will go over the details of the changes when he discusses the balance sheet. Asset quality remains excellent with the net charge-off ratio of 13 basis points and we remain well capitalized. Our efficiency ratio was 46% in the quarter and our profitability measures remained solid. The return on average tangible assets…

I think we may have lost Bob.

Yes, I’ll continue where Bob left off. So our return on average tangible assets was 1.21% and core return on average tangible assets was 1.18%. Return on average tangible common equity was 14.76% and our core return on average tangible common equity was 14.42%. So turning to Slide 4, net income for the quarter was $58.4 million or $0.42 per diluted share. Core net income was $57.0 million or $0.41 per diluted share. EPS was $0.01 higher versus the prior quarter and $0.04 higher than the third quarter of 2016. Turning to Slide 5, net interest income in the third quarter was $133.3 million, an increase of $2 million compared to the prior quarter. The increase in net interest income was due to increases in average balances in the yields on our loans and interest bearing deposits in other banks partially offset by higher average balances and rates on public deposits as well as lower average balances and yields on our investments. Net interest margin for the quarter was 2.96% a decrease of 6 basis points from the prior quarter, due primarily to higher public deposit costs and lower yields in our investments from higher premium amortization and partially offset by higher loan yields. Due to our strong relationship with the State of Hawaii as their primary depository, our public deposits increased by approximately $500 million as we continue to assist them with their banking and investment needs. While the impact of this was accretive to net interest income as we invested the excess liquidity into our investment book that also reduced our NIM by approximately 6 basis points. Turning to Slide 6, noninterest income was $48.5 million a decrease of $400,000 compared to the second quarter. We saw increases in most noninterest income areas with the exceptions being service…

Thanks Mike. Total assets at the end of the third quarter were $20.6 billion an increase of a $192 million or 0.9% compared to the end of the prior quarter. During the quarter investment securities increased by $188 million or 3.7% to $5.3 billion. Runoff during the quarter was approximately $225 million and we purchased approximately $422 million of new securities which had a positive spread differential of 20 basis points. At the end of the third quarter, the duration of the investment portfolio was about 3.4 years compared to 3.5 years at the end of the second quarter. Turning to Slide 9, total loans and leases grew by $87 million or 0.7% to $12.15 billion in the third quarter. During the quarter we experienced growth in all segments of the loan portfolio with the exception of C&I loans. Commercial real estate and residential real estate loans each grew by $80 million or 3.2% and 2% respectively. Construction loans increased $43 million or 7.7% and consumer loans grew by $35 million or 2.3%. C&I loan balances decreased by about a $141 million primarily driven by paydowns in dealer flooring balances due to strong auto sales in the quarter and several large prepayments in our mainland SNC portfolio. On a year-to-date basis total loans and leases are up $629 million or 5.5%. Looking forward we have a healthy pipeline, so we expect to meet our guidance from mid-to-high single digit loan growth for the full year. Turning to Slide 10, you can see that total deposits increased by $143 million or 0.8% to $17.6 billion. We saw an increase in the public deposits of $523 million which was offset by a decline in non-public deposits of approximately $380 million. The decline in non-public deposit balances were primarily due to one large captive insurance customers withdrawal of about $250 million and withdrawals related to several large project payments totaling approximately $115 million. In addition, as rates on our sweep account products have become more attractive. We have seen commercial customers choosing to shift more deposit balances into the sweep accounts which reside off balance sheet. As Mike previously mentioned, public deposits increased as we continue to work with the State and other local municipalities to meet their banking and investing needs. On a year-to-date basis deposit balances are up $101 million or 4.8%. Now I’ll turn the call over to Ralph to cover the asset quality.

Thank you, Eric. On Slide 11, we provide an overview of our asset quality to remain strong at quarter end. Credit cost continue to be low net charge-offs were $4.1 million for the quarter on an annualized basis this amounts to 13 basis points on average loans and leases. This is 2 basis points higher than the prior quarter and one basis point higher than the third quarter of 2016. Total non-performing assets were $8.4 million or 7 basis points on total loans and leases and other real estate owned, which is unchanged from the prior quarter and down 2 basis points year-over-year. In the third quarter, the provision expense was $4.5 million; the allowance for loans and lease losses was a $137.3 million at September. The ratio of this reserve relative to total loans and leases was 113 basis points and the current amount of the reserve covers our annualized net charge-offs more than 8 times. And now I’ll turn the call back over to Bob.

Okay sorry about that everyone, I got off the call with an update to my phone, but I am back. Turning to Slide 12, you can see Hawaii’s economy continues to perform well. The State unemployment rate was 2.5% in September compared to 4.2% nationally. And the visitor industry remained robust through the first 8 months of the year with year-to-date through August visitor arrivals were $6.3 million up 4.7% versus the same period last year and visitor spending was $11.3 billion an increase of 8.5% versus the same period last year. And then on another positive sign for the tourism industry, the airline seat capacity to Hawaii as we see the boost from several airlines. On September Japan Airlines resumed its daily direct flights from Tokyo to the Big Island and then United announced that starting on December 20, it will increase the frequencies on 11 Hawaii routes from four mainland cities increasing their capacity by just over 18%. And then earlier this month Southwest Airlines announced plans to begin offering service to Hawaii sometime in 2018. And the real estate market remains sound and in fact the visitors from Japan are still very strong which is why we are here in Japan, I come at least once a year to visit our customers and we’re seeing very good support from our Japanese market. So with that, we’re happy to take any questions.

[Operator Instructions] Our first question comes from Steven Alexopoulos of JPMorgan. Your line is open.

Hi everybody. I want to start on Slide 7, the lower salaries and benefits you call out tied to the equity compensation forfeitures and the change in the incentive comp, could you quantify that, I’m trying to get a sense of what expenses were exposed items. And is there any reduction to the run rate from this change you’re talking about or will that go back to where it was previously?

Yes, hey Steve this is Mike. So, the forfeitures are about 300,000 and the change in estimate was just about 650,000. The change in estimate did slightly affect the go forward run rate but not significantly.

Okay, but we’re still expecting the efficiency ratio in that 47% to 48% for next year even though it’s at the lower one right now.

That’s right.

Okay and then on the margin pressure, can you guys size the public deposit balances how large are those?

Yes public, Steve this is Eric it’s about $2.9 billion at the end of quarter up from $2.4 billion at the end of the third quarter, I mean the second quarter.

Okay and how did the rate change on those that you pay?

Yes, so the rate increased probably from about let me see here, the timing positives which are more oriented went out from 73 bps during the second quarter to 1/10th in the third quarter.

Okay.

And Steve this is Bob. On that, what we’ve seen is that, it’s gotten much more competitive in the Hawaii market as we talked about I believe on the second quarter call. And I think we’re at now as we’re reaching new equilibrium the new players in the market with ourselves its basically we’re paying the same rates that you are seeing in the mainland markets for our public deposits.

Okay. Bob can you talk about outside of the public deposits what the competitive environments looking like in Hawaii for deposits?

Sure and we talked about this a little bit in the recent conference that while we are certainly exploring different deposit alternative, deposit pricing alternatives with special rates from CDs we haven’t seen a lot of market share move to-date with special rates on CDs. So we are not seeing generally in the consumer side much movement in the interest rate.

Got you. Okay and then finally putting this together how are you guys thinking about the margin for the fourth quarter? Thanks.

Hey Steve this is Mike. So, we basically, we think it’s going to pretty flat from here on out for the rest of the year. I think we have the reason to think our investment portfolio yield, I think you saw it come back a little bit in Q3, you see that increasing in Q4. And then I think Bob mentioned this on our public deposits, I think we’ve, we feel like we’ve kind of stabilized at this point and I do want to clarify the rates I gave you for the time deposits for overall public deposits, it was about 99 bps in Q3 from 68 in Q2. We do have their as I mentioned their operating check-in account with us as well.

Great, thanks for taking my questions.

Our next question comes from Ebrahim Poonawala of Bank of America Merrill Lynch. Your line is open.

Thank you. Just want to follow-up on the margin Mike if we can, so we expect margin to remain flat into the fourth quarter, but assuming we get a rate hike from the fed in December do you expect any positive lift to the margin in going into 1Q or not?

No we didn’t, if we get that left December as our history as shown us it’s been about 5 to 6 basis points increase in the prior quarters where we had the lift, to decide from that, we were expecting to be stable and let’s wait for the rate hikes.

Got it, so you do expect 5 to 6 bps if you get a December rate hike into one account.

That’s what we did in prior quarters.

Got it and you still believe that’s a good sort of…

Ebrahim this is Bob. We really haven’t seen the change in our asset mix, so we’re about 30% on LIBOR base and most of that for our loans and most of that is one month LIBOR. So, we do see kind of the immediate impact of any rate change in previous quarters that’s been in that 5 to 6 basis points range. And certainly we can’t predict the future, but our asset mix hasn’t changed marketedly since that’s happened. So we’re comfortable on that range.

Understood, and just try to Mike mentioned, AFS book should see the yields go back up. Can you tell us like at what yield and duration you’ve been buying security recently?

So our, during Q3 our new production was at 237, the runoff was at 217. So we had, we do expect that spread to widen a little bit in Q4 as we look through some different asset classes. We did put on some municipal bonds earlier or in October nothing widely meaningful, but slightly higher yields.

And this, Ebrahim this is Bob, and really that was kind of a follow-on to our early discussions on looking to optimize our tax rate by looking to build out a portfolio municipal bonds over time. So that process is started.

Understood, and just separately can you quantify the payoff that you received on the SNC book which hurt loan growth this quarter?

It was probably, first of all what I would say Ebrahim this is Eric that we actually did see some nice production as well, production was up about $80 million. So, we had pretty significant paydowns, prepayments I don’t have the number of the top of my head, but you can get a sense as to what that was like just from those numbers I just shared.

This is Bob again Ebrahim. What we look to for that and the same thing with the paydowns in the dealer portfolio, it really is to the strong credit that we are seeing in the companies have access to the capital markets or other alternatives for the SNC market and for the dealers just the strong sales brought down the inventory levels that we think will build again through the fourth quarter as they normally do.

Understood, and one last question if I may, if the banks comes and we see another offering from PNB, could you talk about your appetite or ability to buy back stock as part of that offering?

That’s something we can’t really comment on, because that’s part of a regulatory process, but as you recall and I think we’ve mentioned this on one-on-ones, but maybe not on a earnings call as it while we do have in our capital plan, various capital action for First Hawaiian, the capital plan loss for Bank West Corp and that’s any separate actions for First Hawaiian could require separate just confirmation from the fed and as such we will comment on it until it actually happens.

Understood, thanks for taking my questions.

Our next question comes from the Dave Rochester of Deutsche Bank. Your line is open

Hey guys how are you?

Hello Dave, good.

On the loans real quick, it was good to hear about the pipeline for next quarter, I was just wondering if you look ahead into next year if you think in this mid-to-high single digit phase that you’ve talked about for this year can actually be good for next year as well.

Hi Dave, this is Eric. We’re actually looking at more on low-mid single digit range for next year at this point. We see things were skilled relatively strong on the residential real estate and consumer side. We see some slowing on the commercial side, we think that C&I and including the dealer will be about stable CRE will be up slightly, construction will be relatively lumpy. So, if we sort of put all that together we’re really looking at a mid-single digit range for next year.

Okay that’s great color. Thanks. And then on the deposit side, how are you thinking about the deposit growth going forward for the next year just given the headwind of the shift of the sweep accounts that you mentioned earlier, you think your deposit growth will be able to cover the loan growth or maybe kind of just, a little bit short of that?

No that’s our forecast right now as we are looking for deposit growth to fund loan growth.

Okay great. And just a bigger picture question on expenses, I was just wondering how the negotiations are going on the contracts you’re working through and if you have any updated timing on when some of that might hit the P&L?

Its going well Dave, so actually we - we did recently finalize our extension with FIS which I think we previously mentioned was the largest contract underlying the TSA. And the impact to our expenses will be in line with the range that we had previously forecasted. So, continuing work for the contracts in an efficient manner and our projections are so as we originally forecast. All of that is still included in that 47% to 48% efficiency for next year.

So the FIS contracts will that hit in 4Q or is that first half next year type of event?

This is next year, clearly next year.

Got it, okay. And I just one last one on the name real quick you mentioned the securities yield is going up in 4Q, was there any securities premium am pick up this quarter that might have impacted those yields and do we get that online, I guess in 4Q?

Yes there was, the premium am increased by about 300,000 from Q2, I’m hopeful we saw the prepays feeds slow during Q3 and I think you’re seeing sort of an up tick in the tenure recently so, that should have the impact of slowing some of the prepays as well.

All right, great, thanks guys.

Our next question comes from Jared Shaw of Wells Fargo Securities. Your line is open.

Hi thanks a lot. Just following up on the expense side, is most of the changes we go is any major niches planned beyond that you’ve spoken about before transition to any company that we should plan on the expenses or is most of that pick up just the recovery of the salaries this quarter and maybe some reallocating on the contract and services?

No that’s right, Jared I mean we continue to invest in the business, where we think it’s prudent. But most of that as you mentioned is the transition costs.

Okay, and then on the municipal deposit side, it seems like it’s much more and as you said much more competitive on the price side than the consumer market is that a business that’s worthy to stay in, are you getting other avenues of revenue from that business line other than the deposit base? And then as a follow-on to that, should we expect to see the pricing increase keep phase with future rate hikes as we go into 2018 if we see future rate hikes?

Yes Jared this is Bob. This is Bob, maybe I can start on it and then have Mike finish up. We do quite a bit with the state we always have not where the depository, we also have the purchasing card contract with them that is been with us for many years now. And so, we do have a relationship with them from the funding side, we also feel that, its current rates that still competitive relative to alternatives. So, we’re still comfortable with the way that the business is with the State overall. So Mike can talk to a little bit more of the actual pricing side of that.

Yes, and I think I previously mentioned, I think we somewhat stabilized from on the pricing side as we look out a bit. Even with I think if we do get another rate hike in December, Bob alluded to some of the other services we hope to stay, we do help them with just overall cash management as well based on their own liquidity needs and some of that’s making to go into Q4 as we expect some of our public deposits to taper-off based on their liquidity needs. But we’re also working with them on other service suite products some of our suite products to help them manage their cash as well.

Okay thanks. And then on the tax rate I know you, you continue to start to layer in some of the muni purchases, have your thoughts changed it all with some of the discussion coming out of Washington in terms of continuing to grow that versus waiting to see if we see any meaningful tax reform or should we still expect that, that you modestly add to the muni book?

Yes now we’re going to continue to try to help ourselves, just based on frankly the market communities, we’re not going to be piling on a lot in a short period anyway. So, we’re, I’d love to, I think we’ll be able to benefit if there is tax reform given that we are a full tax payer. But, we’re going to continue to execute on our strategy, looking at municipal bonds as well as looking at loan come housing opportunities.

And then borrowing…sorry go ahead.

Sorry this is Bob, just to add to that Jared is that, the pace at which we’re building the muni portfolio versus the speed it’s what the tax reform tax cutters going through congress. They will finish it, they are true to their word before the holidays much sooner than will have a meaningful municipal portfolio that will significant affect the tax rate.

Sure, sure thanks. And then if there, if we don’t see anything or borrowing any change in the actual tax code is 38% so a good level to use for 2018?

I think we’re going to be able to pull that down that’s the objective Jared.

Okay, thank you.

[Operator Instructions] And our next question comes from the line of Jackie Bohlen of KBW. Your line is open.

Hi. Good morning, everyone. Just trying to clarify comments from the prepared remarks about increased -- sorry, having hard time reading my writing, earnings credit that started on July 1 with outlets regards to?

So, this is the rate that we provide to mostly our commercial customers to offset some of their service charges. And so we increased the crediting rate that we provide to them. So, had the impact of reducing some of the non-interest income.

And then, how do you see that playing out in future quarters, so this establish a new run rate in this quarter or might there be more adjustments going forward?

While we service a new run rate this quarter, so no further adjustments, a lot of this is tied to market rates as well. So, depending on the movement of rates.

So, if you were at a pretty outside of the purchase or the gain on the sale of the building fees where at a pretty good rate this quarter run rate going forward?

Yes. That's right, Jackie.

Okay. Thank you. Everything else I had, was already asked.

And our next question comes from Laurie Hunsicker of Compass Point. Your line is now open,

Yes. Thanks. Good morning. Wondered, if we could go back to the public deposits, what is the split on the $2.9 billion between what's checking and what's time?

Little up $400 million to $500 million in checking and the rest is in time.

Okay. And then, how do we think about the seasonality in that. In other words, can you take us through sort of generally where the peak and the trough is and how we should think about that i.e., property taxes are doing so forth, how should we think about that?

I think that's hard for us to predict, lot of the space and obviously not only the state for us the other municipalities, the city [indiscernible] Honolulu as some larger parts out there draw the banks somewhat based on their liquidity needs, funding needs, sometimes they put up bond issuances, so it's hard for us to comment on that.

And Laurie, this is Bob. The other issue going on with that is, as we mentioned in the previous calls, really the last 12 months, our market has got much more competitive and while we had a larger market share than previous years now it's pretty well spread amongst many of the banks within our market. So, part of it is how competitive we are to gain those deposits on the -- the time deposits side versus in the past then correspond issues and tax receipts are all part of that mix as well. But, really is a harder market to predict on our side.

Okay, great. And then, just going back to the C&I, what was the actual period unbalance on your [indiscernible]?

Yes. So, total dealer flooring was 862 million which was down 75 million for the quarter that's between Hawaii, Mainland and Guam.

Okay. And to the dealer floor plant pieces in California, how much?

The mainland piece ended up 517 million.

517, okay. Great. And then, same thing with SNC where did you end there?

Total SNC ended up at about $1.5 billion, the Mainland piece was about $1.1 billion.

1.1, okay, great. And then, just going over to the real estate sale, what -- was that a branch or what was that?

It was a portion of our operations service center property and it was in connection with the real project that's ongoing in Hawaii.

I mean because you own -- you own your headquarters and you own the vast majority of your buildings, is that correct?

That’s right. That's correct. We own our headquarters and we own about just over 40% of our branches.

Okay. And any plans to potentially sell that before we potentially get a change in taxes or how are you thinking about that or you not?

No. We don't have any plans to do that.

Okay, great. Thanks.

I think we are done at this time. Doesn't sound like we have any more questions. So, this is Kevin just wanted to thank everybody for joining us on today's call. And we appreciate your interest in First Hawaii. Thank you.

Thank you everyone.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may now disconnect. Everyone have a great day.