Good day, ladies and gentlemen, and welcome to the First Hawaiian Inc. Q4 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call is being recorded. I will now turn the conference over to you host, Mr. Kevin Haseyama. Sir, you may begin.

Thank you, Valerie and thank you, everyone for joining us as we review our financial results for the fourth quarter of 2018. With me today are Bob Harrison, Chairman and CEO; Eric Yeaman, President and COO; Ravi Mallela, CFO; 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. During today's call, we will be making forward-looking statements. So please refer to slide 2 for our Safe Harbor statement. We'll also discuss certain non-GAAP financial measures. The appendix to this presentation discusses reconciliations of these non-GAAP financial measurements to the most directly comparable GAAP measurements. And now, I'll turn the call over to Bob, who will provide you with the fourth quarter highlights, starting on slide 3.

Thank you, Kevin. Aloha, everyone and thanks for joining us today as we share our fourth quarter results and bring our 160th anniversary year to a close. I’m pleased to report that we ended 2018 with a solid quarter as core earnings per share grew 11.5% from the prior quarter. Our financial performance was driven by strong loan and deposit growth, 12 basis points of margin expansion, disciplined expense management and excellent asset quality. We continued to optimize our balance sheet by further reducing our exposure to public time deposits and in early January, executed a restructuring of our investment portfolio. The restructuring, which impacted our fourth quarter results, enhances our future profitability, improves our interest rate risk profile and has a very attractive payback period. Ravi will discuss restructuring in more detail later in our presentation. Core profitability measures remained strong with core return on average tangible assets of 1.62% and core return on average tangible common equity of 21.44%. Yesterday, our Board of Directors increased the dividend $0.02 per share or 8.3% and declared a $0.26 per share dividend. Before I turn the call over to Eric, I want to say a few words on expenses and capital. With respect to expenses, we recently guided that the total incremental impact of the Transitional Services Agreement or TSA was going to be approximately $17 million per year, of which 14 million was part of the expense base at yearend 2018. This has reflected in our full year 2018 core efficiency ratio of 46.6%, which was better than our previous guidance of 48%. The agreement expired on December 31, 2018 and the actual incremental expenses came in at just slightly above our target and will add about $3 million to our 2019 expenses. Separately, with the expiration of the TSA and no longer being subject to CCAR, we have a much better idea of our core expenses going forward, including reimbursements from BNP Paribas. Ravi will provide more detail on that as well when he goes over outlook on expenses. Moving on to capital, we have been evaluating our capital needs and given our balance sheet structure and common equity tier 1 as a primary form of capital, the total capital ratio becomes our binding constraint. At the end of the fourth quarter, our total capital ratio was 12.99%. Given our risk profile and 2019 outlook for growth, we feel comfortable that we can bring down total capital ratio about 25 basis points by the end of 2019, providing room for additional capital distributions subject to all requisite approvals. Now, I'll turn it over to Eric to go over the balance sheet.

Thanks, Bob. Turning to slide 4, we saw strong loan production during the quarter with loan balances ending the year at $13.1 billion, up $476 million or 3.8% versus the prior quarter and up almost $800 million or 6.5% for the year, solidly in line with our 2018 full year guidance of mid single-digit growth. C&I loans increased by approximately $240 million or 8.1% during the quarter. We had very strong loan production during the quarter and the high levels of prepayments that we experienced in the third quarter slowed to more normal levels. Also contributing to the C&I growth during the quarter was a $65 million increase in dealer flooring balances. CRE and construction loans grew by $113 million or 3.2% as we closed a number of solid deals in Hawaii and Guam during the quarter. The residential loan portfolio grew by $104 million or 3% and home equity loans grew by $22 million or 2.5% during the quarter, driven by continued strong demand for housing in Hawaii. Beginning this quarter, we are showing home equity loans broken out separately from residential loans. We had previously combined these two categories. We believe this is more informative because as you know the repricing characteristics for the two categories are very different. From a repricing perspective, we feel that our loan portfolio has a good mix of fixed and variable rate loans, which positions us well for a variety of yield curve changes. Looking forward, we expect loan growth for 2019 to be in the mid-single digit range. Turning to slide 5, deposit balances ended the year at $17.2 billion, up $461 million or 2.8% versus the prior quarter and down 462 million or 2.6% for the full year. The growth in the fourth quarter was net of $174 million reduction in public time deposits. Excluding the reduction of public time deposits, deposits grew by about $635 million or 3.8% during the quarter. Included in the growth was about $400 million of surge deposit balances that came in late in the quarter that are not expected to remain on the balance sheet very long. While rates on certain types of deposit accounts continue to increase, deposit pricing in our market has remained fairly rational. During the fourth quarter, our cost of deposits increased 1 basis point as the impact of higher rates was mostly offset by the reduction in public time deposits. The full year decline in deposit balances of $462 million was primarily driven by our planned reduction in public time deposits of $962 million, which was partially offset by growth in consumer and commercial deposits. We continue to diversify our funding mix as we added another $200 million of fixed rate term borrowings late in the quarter. These term borrowings will help to protect against future rate increases and improve our deposit pricing flexibility. With that, I will turn the call over to Ravi to cover the income statement.

Thanks, Eric. Turning to slide 6, net interest income in the fourth quarter was $144 million, an increase of $2.7 million versus the third quarter and an increase of $9.1 million versus the fourth quarter of 2017. The increase in net interest income versus the prior quarter was due to higher loan balances and yields, partially offset by higher deposit rates, higher balances of borrowings and lower cash and investment balances. The net interest margin was 3.23%, a 12 basis point increase versus the third quarter NIM of 3.11%. 9 basis points of the increase was due to the reduction in excess liquidity, the shift in mix from investment securities to loans and balance sheet repricing. The premium amortization adjustment for the quarter added about three basis points to NIM. Looking forward to the first quarter, with the benefit of the December rate hike and the impact of the investment portfolio restructuring, we expect the margin will increase five to seven basis points from 3.2%, the NIM after backing out the impact of premium amortization adjustment. Turning to slide 7, non-interest income was $33.1 million, $14.3 million lower than the prior quarter, primarily due to the $21.4 million other than temporary impairment loss on investment securities related to the investment portfolio restructuring. Excluding the loss, noninterest income in the fourth quarter would have been $57.2 million, an increase of $9.8 million compared to the prior quarter. We saw modest quarter-over-quarter increases in all noninterest income categories with the exception of the loss on securities and BOLI. Fourth quarter noninterest income includes a non-recurring $7.6 million mark-to-market adjustment related to two cash flow hedges that matured in December and $1.5 million related to an inter-company receivable for taxes. The $1.5 million intercompany receivable for taxes is fully offset by an increase…

Thank you, Ravi. If I could turn your attention to slide 10, you see that our asset quality remains excellent. Net charge-offs were $5.3 million for the quarter. On an annualized basis, this amounts to 16 basis points on average loans and leases. This is 4 basis points higher than the prior quarter and 1 basis point lower than the same quarter last year. Total non-performing assets were $7.3 million or 6 basis points of total loans and leases and other real estate owned. This is down 3 basis points from the prior quarter and 2 basis points from the fourth quarter of last year. For the fourth quarter, the provision expense was $5.8 million and the allowance for loan and lease losses increased by $476,000 to $141.7 million, which is 108 basis points of total loans and leases. Looking ahead, we don't anticipate any shift in our overall asset quality. And now, I'll turn the call back over to Bob.

Thank you, Ralph. Turning to slide 11, Hawaii's economy continue to perform well in the fourth quarter, led by strong tourism and real estate sector, along with one of the lowest unemployment rates in the country. The state unemployment rate was 2.5% December compared to 3.9% nationally. The visitor industry remained robust through the first 11 months of the year with year-to-date through November, visitor arrivals were 9 million, up 6.1% over the same period last year and visitor spending was $16.2 billion, an increase of 8% versus last year. The real estate market remained sound. Sales volumes for single-family homes and condominiums were down slightly versus the prior year where prices in both segments continued to increase. Looking forward, the overall outlook for the economy remains positive. And with that, we'll be happy to take your questions.

[Operator Instructions] Our first question comes from Dave Rochester of Deutsche Bank.

Hey, on your expense guidance, I just wanted to be clear, are you guys using the 89.4 million as your base, not the 88.9 million on slide 16 that you say is core expense.

That's right. We're using the 89.4 million as our base.

Got it. And on your capital comments, Bob, how are you thinking about the timing of that reduction and deployment at this point? Are you willing to buyback outside of the BNP offering at this point? And if so, are you considering maybe frontloading that, just given the lower valuation of the stock right now, just any thoughts there would be great?

We haven't made that decision yet, Dave. That's still under consideration. We're looking to do that over the -- we're really setting the parameters for the year and throughout the year, we'll come to the decision on the right timing and how to affect that.

Okay. And on the margin guidance that's -- you're using the 3.20% as the base for that expansion, the 5 to 7 bps, right? Did I hear that correctly?

That's correct. We're backing out the premium amortization.

Okay. And so that would equate to maybe 2 to 3 bps of expansion from the December hike, is that right?

That's about right.

Now, just curious, were the Fed to just go on hold from here, how are you guys thinking about the NIM trend beyond the first quarter through the rest of the year? I know you get the 2 bps from the repositioning in the next quarter, but outside of that, are you looking for stability, how are you thinking about it?

I think it's probably stability for the year. We really only had one rate hike in the year and so stability after those -- after picking up 6 basis points.

You said you had one rate hike for the year. When is that timing wise?

In the middle of the year.

Thanks you. Our next question comes from Jackie Bohlen of KBW.

Given that BOLI income has been hopping around a little bit and that's outside of the insurance benefit from last quarter, how should we think about that going forward?

Yeah, I mean, really the part of the BOLI that's declined quarter-over-quarter was really just tied to our deferred comp plan. And so, it's really an offset to the liability that comes from that. It will move around as our comp plan moves around and so, it's going to fluctuate quarter-over-quarter.

Okay. Fair enough. And then in terms of cash flow hedges, are there any additional ones that you have that could provide an impact in the future?

No, we don't have any more.

Okay. And then just one last one and then I'll step back. On the premium amortization adjustment of 1.1 million that you spoke about, is that a 1.1 million variance from last quarter or was it something different than that?

It's for the quarter itself, yes. I don’t think there was any in the last quarter, sorry.

Yeah. We didn't have it in Q3, Jackie.

[Operator Instructions] Our next question comes from Laurie Hunsicker of Compass Point.

Just wanted to circle back on your non-interest expenses, your 89.4 million, the contracted services and professional fees were a bit outsized this quarter. Is there any adjustment we should be making to that or that's a good run rate going forward?

It's a pretty good run rate going forward.

Laurie, the only thing I would add is a chunk of the last portion of the transitional service agreement will flow through there. So you have to account for that as well.

Laurie, that's the 3 million we talked about coming on in Q1, 3 million plus a little bit. So it's probably going to be in there.

Okay. And then just going over to the intercompany taxes and I understand it's a non-interest income and it's obviously in the tax line too, but if we strip it out, your tax rate was closer to 25% for the quarter, how should we be thinking about tax rate for next year or for 2019?

For 2019, we think our tax rate is going to be 25.5%.

And then I just wanted to go back to the margin one more time, because I know that this quarter coming up to March quarter, you're 90 days. So just by default comparing your fourth quarter to your first quarter, you get about a 6 basis point pickup just from the day count change. So in terms of the margin guidance, if we're adjusting for that or are you adjusting for that, that's a reported margin guide that you're giving?

I don't think we're -- we're not adjusting for that.

We weren't adjusting for the day count, Laurie.

So theoretically, we could even see the margin being somewhere in the 3.31%, 3.32%, 3.33% range. Is that a good way to be thinking about that?

Yeah, that's a little harder to pin down I guess. It would be the issue. One of the things we're trying to do is we look at how we are calculating our NIM and get to more normalized industry type calculation to strip out the day count issue.

Thank you. I'm showing no further questions at this time -- one moment. I do have a question from Arren Cyganovich. Your line is open.

Thanks. Just on the mid-single digit loan growth for 2019, can you give a little color on where your potential growth from each of the buckets that you lay out, looks like C&I was the area where you had the most growth last year. Is that something that's going to continue into 2019?

Well, we see our mid-single digit growth kind of applying across the board. Last year, we saw a lot more variation, but we see it falling within a mid-single digit range and we're probably not going to give guidance on each of the asset classes.

And it's just hard to pin that down. We've seen -- as you've seen in previous quarters with us, some of the paydowns in C&I and we get really tough to predict the quarter end growth number. So we're very comfortable overall with the growth number.

Thank you. Our next question comes from Jackie Bohlen of KBW. Your line is open.

Hi, just a couple of follow-up questions. Looking to the strong C&I growth in the quarter, I know you had mentioned that some of that was auto floorplan increases. Was any of it due to higher line utilization?

No, that was just a lot less. We had slightly higher than normal production, but we had more normalized paydown. So that was really the driver. And then there was some line utilization, but it was -- it's hard to say that that was a big driver.

Oftentimes, Jackie, this is Bob, at the end of the quarter, you do see -- at the end of the year, you do see a little bit of a pickup, but doesn't happen every year, but it seemed to a little bit this year, so.

So as I think about the strength of the fourth quarter and then mid-single digit guidance for 2019, where you're looking at payoff to be when you think about where we are today versus where we'll be next year?

We don't really project the payoffs. So that's the part that we've struggled with honestly and especially in the shared national credit portfolio. We have seen in our construction area as we're doing the CRE construction that as those projects finish and they'll pay-off, like we have seen a little bit in the third quarter and fourth quarter, but other than that, that's the only real predictable piece that we can see for payoffs.

Okay. And was it primarily a slowdown in payoffs within that shared national credit portfolio that impacted the quarter or was it just overall commercial payoff load?

Yeah. No, it was primarily overall C&I. Not just investment.

[Operator Instructions] I'm showing no further questions at this time. I'd like to turn the conference back over to Kevin for any closing remarks.

Thanks, Val. We appreciate your interest in First Hawaiian and please feel free to contact me if you have any additional questions. Thanks again for joining us and enjoy the rest of your day.

Thank you. Ladies and gentlemen, this does conclude today's conference. You may now all disconnect. Have a great day.